In sight of the White House, just across from Lafayette Square, lies the US Chamber of Commerce (AmCham) Foundation, which works to educate the public on the positive impacts of business. Such proximity signifies the intimacy of Congressional agenda-setting and its policy priorities with the lobbyists supporting unregulated, Big Business. Since the early 2000s, corporate lobbying has exceeded the Congressional budget, where $2.6 billion per year is spent in such a manner [1]. This increasing corporate influence in US politics culminates in the ‘Citizens United vs. Federal Election Commission’ Supreme Court Case, which determined that campaign spending by organization should remain without a ceiling [2].

This is in stark contrast to the 1960s, when public interest groups and labor unions were highly significant actors and corporate lobbies remained limited and inefficient. The government had gone on a ‘regulatory binge’, but growing compliance costs, rising wages and slowing economic growth spurred the formation of the Business Roundtable. This lobbying group was formed by the most senior executives of American Big Business, with objectives to decrease labor costs and union power and increase the ‘international competitiveness of American industry’. By the early 1980s, lobbyists triumph with successful labor reform, loss of regulation and lower taxes, as exemplified by the Labor Reform Law of 1977 and Economic Recovery Tax Act of 1981 [1].

Lobbyists assumed a ‘leave us alone’ relationship with the government in Washington. This attitude shifted to ‘let’s work together’ in the late 1980s with the advent of ‘advocacy advertising’. These programs are aimed to shape the political landscape by creating commercials and media to “[procure] a political climate conducive to business as a whole” [3]. And this chumminess between politics and business was not privy to the US alone.

The global influence of AmCham grew with the Europeanization of American business interests, as American firms adopted policies to hire specific European nationals to lead on specific business issues. However, the early 1990s saw the growing influence of the European Round Table of Industrialists, and so grows the divide between the influence of European and American lobbyists [4].

The informality and flexibility of the European Commission allows for its lobbyists to conduct long-run business-government relationships. The intimate relationship between administration bureaucracies and the business environment is exemplified by a common interventionist policy that a European government and business has with the EU, where such a relationship is symbiotic in the sense that both parties would prosper by stepping up their regulatory initiatives in the EU Single Market [4]. Conversely, the US Market is at odds with consistent quarrels between Big Business and the government over business-inhibiting regulations and transparency measures.

European and American differences aside, lobbying influence is a growing trend that is easily perceived when considering particular lobbying strategies of firms. Note that, naturally, some interest groups may have divergent interests. If the policy goals of different groups are not consistent, let’s say between a Business group and a Labor group, the amount of lobbying on the issue increases due to various viewpoints. More significant is the ‘free-riding problem’, which occurs when some firms benefit from the work of an interest group in their lobbying attempts without being part of the lobbying. A common solution is that the benefits from lobbying can be allocated solely to participants of the collective action, though consequently lobbying participation and amount of lobbying funding will increase [5].

As firms are incentivized to lobby, the socio-economic effects are consequently more prevalent. With solutions to the ‘free-riding’ and divergent interest problems being provided by the theory of collective action, the result is rising aggregate profits. This corresponds to a decreasing wage share and stagnant wages for lower-income workers, compared to higher-income ones in the same corporation, resulting in greater wage inequality [7].

Top Graph: Employee Compensation and Corporate Profits // Bottom Graph: Wages to Profit Ratio [6]

This rise in profits could be a result of a decline in competition, especially with sustained long-term aggregate profits, and firms are able to increase their prices and lobby for favorable regulations rather than using the wholesome tool of innovation to compete with other firms [7].

The social critique aside, with the increasingly present politic-skewing effects of lobbying, Western leaders like Trudeau and Trump have taken steps to ostensibly consolidate their power. Canada’s Trudeau legislates a ban to cash-for-access lobbying [8], requiring transparent lobbying being the only means to do so, and America’s Trump ordering a Five-Year Ban on lobbying and a permanent ban to foreign lobbying [9]. This allows these leaders to keep the Parliamentary and Congressional agendas their own and undermine efforts of political opponents, but can also lead to trends back to more moderate political-business relationships that were witnessed in the 1970s.

With a highly centralized government comes the reliance of cities on international lending and corporate borrowing with tight regulation, and a susceptibility to a long-term market slowdown, as seen during the 1960s in the US. A highly decentralized government results in deregulation and increased reliance of cities on corporate borrowing, with the effects of lobbying becoming more discernible. Both these national strategies seem to ‘give the man fish, without teaching him how to fish’. The prioritization of business entrepreneurship as the primary growth strategy has resulted in declining industrial productivity, as exemplified by the US Rustbelt states, especially with government opposition to the strategy. Today, it seems as though governance would rather be ‘the hand that feeds us’ rather than ‘teaching us how to fish’.

And so a tenacious tone rings through and is epitomized by the words of Napoleon Bonaparte at the dawn of the industrial revolution, when he says, “When a government is dependent upon bankers for money, they and not the leaders of the government control the situation, since the hand that gives is above the hand that takes” [10].

In 2016, the world witnessed as Venezuela fell into a large-scale economic collapse. For some, this implosion seemingly materialized from nowhere. In revision, its causes could be traced and explained by numerous factors, including economic mismanagement from its government, rigid socialist economic policies, and a fall in oil prices. A combination of the listed factors provoked a phenomenon known as Dutch disease, which plagues the Venezuelan economy in a predicament which continues to strain the country and its citizens.

So what is Dutch disease? First coined by The Economist in 1977, the term was used to describe the effects on the Dutch economy after large deposits of natural gas were discovered in the province of Groningen in 1959. The term is most commonly applied to the discovery of natural resources such as oil and gas, but generally can refer to any situation where a large flow or investment of foreign currency into a country’s economy leads to the rapid appreciation of its currency due to its rising demand. Referring back to Groningen, the discovery increased exports in natural gas, which led to a substantial inflow of foreign currency in exchange for the guilder (the Netherlands’ currency at the time).

At first glance, this phenomenon is seemingly harmless, perhaps even beneficial, to the Dutch economy. In fact, some economists argue that Dutch disease is no disease at all, as it could be said that economies should focus on exporting commodities in which it is most efficient at producing. Furthermore, a stronger guilder makes it cheaper for the Dutch to purchase foreign goods.

However, in lagging sectors such as agriculture or manufacturing (lagging describes a sector with little and/or slow growth), appreciation of a currency makes it more expensive for foreign countries to import goods from these industries, leading in a decrease in global competitiveness. Equivalently, the large inflow of currency from exports increases the money supply domestically (assuming no intervention in monetary policy), which allows for citizens to afford more domestic goods, which inevitably leads to a rise in prices. In other words, the real exchange rate rises, once again making it harder for foreign countries to afford goods from these less dominant industries.

where stands for exchange rate, is domestic prices, and is foreign prices

So what does this mean for an economy overall? A boom in one industry damages competitiveness for non-related industries globally due to the appreciation in currency, making a country increasingly reliant on a single dominant export. For countries that export an abundant resource (examples include Nigeria and Kuwait, to name a few), issues may arise when reserves dry up, it becomes economically infeasible to export, leading to a decline in revenue. The loss in revenue is difficult to recover alternatively through exports in lagging industries that have been weakened due to a resource boom.

Venezuela’s economy came crashing down when its decade-long reliance on oil exports reared its head after OPEC decided to increase supply and production, which caused global prices to drop significantly. Its citizens, who have lived prosperously through social and welfare programs funded by revenues from their state-owned oil enterprise (the PDVSA), were greatly affected by the decision. As oil made up over 90% of Venezuela’s total exports [1], the drastic drop to approximately USD 30 per barrel at the start of 2016 from around USD 50 a year before (an even more drastic decrease when compared to appx. USD 100 per barrel from the start of 2014) [2] put a strain on revenues and production, cutting welfare for its people, as well as hindering its purchasing power of imports for  essential goods such as food.

Many lessons can be derived from these studies (which vary from case to case). But, the overarching message is the importance of diversifying an economy, and allowing for a fallback should consumers and producers tinker with the stability of markets. Definitely easier said than done.

Last Monday, the IMF improved the outlook for the Canadian Economy [1] – which will be welcome news after a sluggish period since late 2014. The IMF projects that Canada’s economy will grow by 1.9% and 2.0% respectively in 2017 and 2018.

Canada is also expected to outperform every G7 country except for the United States. Most of the adjustments are a result of the 2016 US election – and the IMF believes Canada will come out of a Trump presidency relatively fine, though it is still early to tell.

President Trump’s presence dominates most of the report, as shown by Mexico’s growth projection – it’s economy is expected to slow to a 1.7% increase.

For advanced economies, in general, the IMF suggested policies that fight the low inflation that plagues negative output countries, and to enact policies that will help long-term potential output. For example, tax reform and the strengthening of safety nets.

A lot of the positivity for the Canadian Economy comes from the stabilization of commodity pricing, and general positivity for all advanced economies.

However, it is far from all good news for the Canadian economy. The loonie looks to be in for a rough year [2]. As the US appears ready to ready to hike interest rates, the loonie will likely fall – as you will have learned from your introductory Macroeconomics courses.

Then, there is the issue of President Trump’s unpredictable policies. These concerns are further enforced in the IMF report, saying “[…]there is a wide dispersion of possible outcomes around the projections, given uncertainty surrounding the policy stance of the incoming U.S. administration and its global ramifications.” If President Trump decides to govern with a protectionist agenda, it will undoubtedly be bad news for Canada.

Overall, there is enough evidence to be cautiously optimistic for the Canadian economy.

Bank of Japan in Chūō, Tokyo

Central Banks around the world have wrestled with low-interest rates, but nowhere have they grappled with them for longer than in Japan [5]. Investment in Japan as a percentage of GDP has been on a downward trend for more than two decades. To combat these persistent bouts of deflation, the Bank of Japan (BoJ) pioneered a monetary strategy known as “quantitative easing” (QE). The main function of QE is to depress long-term interest rates by buying vast amounts of government bonds through printed currency [1].

Employing this technique led the BoJ to introduce negative interest rates in January 2016. Although this was 20 months after negative rates were first issued by the European Central Bank (ECB), Japan had already faced stagnated interest rates, reaching as low as 0%, since 1999 [5]. Prior to entering 2017, Japan once again reviewed their monetary policy in hopes to kick-start growth, as intended for the past two decades. After the two-day policy meeting in December 2016, the BoJ left that policy unchanged, planning to: maintain the negative 0.1% interest rate on excess bank reserves, leave the 10-year Japanese Government Bond (JGB) at a yield target of 0 bps, and keep annual rises in JGB holdings to 80 trillion yen (676.9 billion USD) [4].

The implications of negative interest rates mean depositors must pay money to set aside reserves, which is a reversal of the common understanding of economics [1]. Depositors are commonly known as banks, and their relationship with the Central Banks are similar to regular people who keep accounts at a local bank. This relationship normally allows depositors to receive a small amount of interest in return for leaving their money with the Central Bank. However, with the introduction of negative rates, Central Banks charge depositors a negative rate on principal kept in excess reserves. This strategy is meant to encourage the productive utility of money for depositors by lending more frequently to consumers and businesses. Negative rates are then supposed to send a ripple effect through the economy by lowering the cost of borrowing for everyone – which should in turn stimulate economic growth [1].

Japan’s core inflation rate since 1971.

Japan has been dealing with low-interest rates since 1995, never moving higher than the 0.5% rate which was slashed to zero in 1999. Despite the lower borrowing costs, consumer demand has weakened, which created deflationary pressure on the country [2]. “There should be some threshold where corporations will start to take cash out of their vaults and put it to work,” said Masaaki Kanno, Japan chief economist at J.P. Morgan. The solution the BoJ seeks is to drop its benchmark rate further, in an attempt to trigger inflation. It is conceivable that rates may drop to as low as -0.7% [2].

The greatest difficulty the BoJ now faces is timing. As the U.S. Federal Reserve announced their first of several rate hikes in 2017, the consequences are still unknown for Japan. Additionally, the yen has tumbled 10% percent post-U.S. election. A weaker yen generates inflationary pressures through higher import costs and greater corporate profits: in turn this diminishes the effectiveness of Japan’s monetary policy [3]. A premature rate hike might risk increasing the strength of the yen, making it much more difficult to reach the inflation target. As Heizo Takenaka, a professor at Toyo University and Japan’s former Minister of State for Economic and Fiscal policy puts it best, “Despite the criticisms of negative interest rates, Japan lacks alternatives” [2].

The ‘poor, angry, white man’ [1], as some of Trump’s critics would proclaim, was the reason his popularity parades him to electoral victory. If so, what made him poor, what made him angry? As economic uncertainty and political distrust become more prevalent subjects in common dinner table discussion, Right-Wing movements and populist approaches to politics continue to hit new heights in Europe.

In order to compete on the global level, notably with American and Japanese markets, European member states need stable collaboration towards a Common Market. Since its conception in 1957, the European Economic Community has established measures to regulate trade and promote stable growth and integration amongst its members. However, as protectionism becomes more prevalent [2], a trend the European Commission reports is now present more than ever, EU member states will find collaborative exporting more difficult with limits to free trade. Since the Financial Crisis of 2008, there has been a rising number of policies enacting product import restrictions, requiring import licenses for various products, an increase in tariffs, and general regulation and oversight capability of importing parties. Between July 2014 to December 2015, 31 EU trade partners introduced 201 of these aforementioned measures, whilst only 16 of them were withdrawn. This added market inefficiency [4] only encourages Euroscepticism [5], a doubt in the ability of EU, and is further fueled by the consequences of a Brexit, the process for which is likely to begin this Tuesday the 17th of January when British Prime Minister Theresa May triggers Article 50 of the Treaty of Lisbon.

In recent years the Right-Wing has found momentum in Europe [6], with the European Parliament elections of 2014 allocating 25% of the seats to Eurosceptic parties. Its dogma against the liberal economic mainstream bodes well with the middle and lower classes, whose employment potential has been most hampered by globalization, outsourcing and automation. Such Right-Wing parties have sprung up across Europe, some of the most popular of which include: France’s Front National (polling at 22%), Germany’s Alternative fur Deutschland (12%), UK’s Independence Party (12%), and Austria’s Freedom Party (46% of 2016 election). A common ideological feature of these parties is one which insinuates that the mainstream body politic of today is disillusioned in its support for the EU. Populist figures claim that an unregulated, free market has shown to be untrustworthy, whereas this assertion is allegedly epitomized by the Financial Crisis of 2008 [7] and the gross gains made by the private lenders and subprime underwriters, respectively. And thus, following the same Rightist line of logic, the resultant increase in protectionist measures is desirable if the national market and its associated labor force is to be preserved.

It comes as no surprise that some governments may choose to fully shelter themselves from an increasingly protectionist EU market by exiting the EU. If British Prime Minister Theresa May is successful in negotiating a favorable Brexit [8] for her nation, the fracture will still detrimentally affect EU members who will now turn to Germany [9] for chief financial support and guidance. Not only is the direct effect of Brexit significant, but it has also caused the formalization of the constitutional procedure to do so through an amendment of the Treaty of Lisbon [10]. Thus, the anti-EU, pro-exit doctrine of Right-Wing parties is given legitimacy, and with this legitimacy comes political weight.

To answer the original questions, with increasing economic uncertainty after the Financial Crisis of 2008 and a growing distrust of the mainstream body politic, man became frustrated and put up barriers around its borders. As a result, this same man saw the effects of a disjointed EU and became poorer in a more disjointed market. Upon seeing such errs, the man, now angry, turns to the Right-Wing and looks up at figures like Trump, Le Pen or Petry with a resolute hope.