SSU Forum with Dr. Alexis Crow

Date: Wednesday, May 9, 2018, 11:30-13:00
Venue: Seminar Room, 3rd Floor, Ito International Research Center
Subject: "The Connection between Wage Growth and Geopolitical Uncertainty:
Underlying Causes, Potential Solutions, and Implications for Japan and its Asian Partners"
Lecture: Dr. Alexis Crow, Lead Investment Strategist at Price Waterhouse Coopers in New York
Language: English
Hosted by: Security Studies Unit, Policy Alternatives Research Institute, the University of Tokyo
Abstract: With the rise of populism in advanced economies - from the UK’s vote to leave the European Union, to the election of Donald Trump - political commentators point to inequality and stagnant standard of living for the middle classes as potential causes. In this lecture, we will explore the relationship between stagnant wage growth and policy which leads to geopolitical uncertainty - having a potentially deleterious impact on trading partners such as Japan. In other advanced economies - such as Germany and Japan - flat wage growth has implications for economic security and livelihood in a time of the crisis, as consumer spending remains a relatively small % of GDP. In the event to a shock of a primary source of GDP - such as net exports - the economy may have a negligible buffer to continue generating economic growth. The case will be made that strengthening ties with newer partners - and ensuring resilience against a ‘Trump trade’ offset - is a meaningful path forward for Japan. Amplifying geostrategic links - even with erstwhile enemies - and deploying Japan’s exemplary prowess investing in social infrastructure - and large scale capital management - can be a backbone for a sound and strong policy for the long-term. To come back full circle, such a policy induces resilience in the face of stubbornly flat wage growth - and geopolitical uncertainty - in the US and Europe.

The Security Studies Unit was delighted to host Dr. Alexis Crow, Lead Investment Strategist at Price Waterhouse Coopers in New York, who delivered a talk exploring the connection between wage growth and geopolitical uncertainty, focusing in particularly on the implications for Japan and its Asian partners.

Professor Kiichi Fujiwara, Director of PARI and of the SSU introduced the speaker as a distinguished professional who works in the field of estimating geopolitical risk for international investment, but is also senior fellow at the Richard Paul Richman Center for Business, Law, and Public Politics, Columbia Business School.

Dr. Crow started by thanking the host and by illustrating the structure and purpose of her talk, which was focused on the rapidly changing geopolitical landscape, also and perhaps especially in advanced economies, and further on what the opportunities for economic growth are at the moment.

Dr. Crow stated the importance of geopolitics to understand economic risk, a factor which, after Brexit and the election of Trump, is being watched by economic operators with increased attention. While it has been widely known that there is a feedback loop of geopolitical and economic instability in the developing world (for instance in the relation between the spike in food prices and the so-called Arab Spring of 2011), it is now possible to observe an increase in geopolitical risk in advanced economies as well. A large portion of this risk can be connected to the question of inequality and income distribution, which has been explored in recent years with complex arguments (such as those put forward by Thomas Piketty), but even a simple look at wage dynamics in developed countries can provide the stark image of an economic environment where, despite a great increase in productivity and GDP, salaries have been stagnating, in the US, most of Europe, and Japan, for almost forty years.

She then turned to an overview of vulnerabilities and opportunities in different regions of the world, starting from the US. The American economy finds itself in a very long growth cycle, but there are two main reasons of concern, namely the high budget deficit coupled with the political unwillingness to reduce it in the foreseeable future, and a level of investment which is still considerably low if compared to the pre-2008 period. Particularly on the deficit, if this trends will continue, the risk perception on the US government debt will be heightened. Another element of vulnerability of the US and global economy is the protectionist turn and the risk of trade wars. Trade has continued to grow in most recent years, albeit at a slower pace than in the 1990s at the beginning of the current globalisation wave. It is possible to image that world trade growth has reached a plateau, especially in terms of trade in material goods. What is often overseen however is the continuous expansion of the trade in services, where the US has a very large and fast growing surplus, particularly vis-à-vis China. A trade war may endanger this positive development for the US economy. More in general, the problem for advanced economies appears to be the containment of debt, at the level of government, companies and households, and the improvement of productivity through investment, which should target the improvement of human capital by means of education and vocational training, as in the German model.

In the case of Japan there are well-known risks for the country’s financial stability given the very large national debt. In the past decades, Japan as reduced household consumption as a share of GDP, while international trade has increased significantly, making the country more exposed to external shocks. Dr. Crow argued that Japan has a great potential to stimulate growth in the region, particularly in Southeast Asia, through infrastructural investment where the Japanese have a comparative advantage in their ability to manage large projects. These investments could then channel economic growth back to Japan through trade. Japan is already the first investor in Vietnam and growing in the whole region. Even the relation with China should be re-shaped by identifying economic convergences, which do exist and offer great potential for the Japanese economy.