Fortune telling III

Continuing… a short stop at Stephen Roach’s two articles.

The dark clouds in the horizon, according to Stephen:

I am not heralding the demise of globalization.  What I suspect is that
a partial backtracking is probably now at hand, as a leftward tilt of
the body politic in the industrial world voices a strong protest over
the extraordinary disparity that has opened up between the returns to
capital and the rewards of labor.  The extent of any backtracking is a
verdict that lies in the hands of the politicians — specifically, how
far they are willing to go in legislating an effort to narrow this
disparity.

Roach

Stephen Roach
Managing Director, Morgan Stanley

In his Looking to 2007, Stephen sees a soft landing for 2007, with global GDP growth slowing to 4.3%, and a reacceleration to 4.5% for 2008.

In his second post, From Globalization to Localization,
he expects a further leaning to the left of US labor; as a reaction to the
obvious benefits that capital owners have experienced in the
globalization (record high profits: 15.6%), at the expense of labor providers (record low labor participation in national income:53.7%). Hence, he sees the
dominance of both Houses by Democrats as the canary in the mine, of a
continuing political labor reaction to the widening gap created
by the global labor arbitrage, which would negatively and unavoidably
impact the economy through protections and such.

In his own words, the risks are:

Moreover, localization taken to its extreme could also spell heightened
risks of protectionism — especially if the global economy slows and
unemployment starts to rise in 2007, as we anticipate.  Under those
circumstances, inflation could accelerate, leading to higher interest
rates, greater volatility in financial markets, and a potentially
vicious unwinding of an over-extended credit cycle.  And, of course,
the protectionist ramifications of localization could prove equally
challenging for the beneficiaries of globalization’s first win —
dynamic new companies in the developing world and the employment growth
they generate.