Yes, it has been quite a year. So much going on in the world and much of it prefaced in our trends for 2016 presentation back in January. However, the chart below was only brought to our attention in September. It shows the findings of research carried out by Branko Milanovic – an economist at City University of New York. His research was published in Harvard Business Review to surprisingly little fanfare. Milanovic’s analysis shows that in the twenty years leading up to the financial crisis of 2008, the lower middle classes of the US and Western Europe saw no or very little real income growth. This is in stark contrast to both the Asian Middle class and the global elite (wealthiest 1% of the global population) which saw real incomes rise by 60% to 70% in the same period.

This chart goes a long way towards explaining the tumultuous political events of 2016. The lower middle classes were exactly the ‘left behind’ and ‘just about managing’ constituencies that gave a big thumbs down to globalisation and swung both the EU referendum in the UK and the US Presidential election.

Of course, this data takes no account of what has happened since the financial crash. In the UK, we know that average earnings fell 9 per cent between 2008 and. Before the Brexit vote the Office of Budget Responsibility had been expecting slow earnings growth over the next few years, with average wages finally returning to their 2008 level by 2020. Ironically, the OBR’s forecasts suggest the outlook has darkened again since the Brexit vote. They predict that Brexit will reduce productivity and wage growth, while the drop in sterling that followed the vote will push up inflation. As a result, half the forecast real wage growth will not happen before 2020 and even by 2021 average earnings will be below their 2008 level.

As the FT headline on 24th November put it….

“British workers face worst decade for pay in 70 years”

Commenting in that article, Paul Johnson, Director of the Institute of Fiscal Studies said, “One cannot stress enough how dreadful that is — more than a decade without real earnings growth,”. Quite. The attraction of simplistic, populist, anti-globalisation messages seem obvious in this context. Populism is not winning everywhere, but even where it is not winning it is having an influence. For example, it would be reasonable to argue that the growing electoral success of UKIP in the last decade, was a significant factor in causing David Cameron to call the EU Referendum.

All of which, makes me think that the key question for our future is “How popular will populism prove to be?”. In 2017 we will start to find out. If the answer is ‘not very popular’, the coming years could see even more turmoil.

But this is the festive season, and I would like to leave you, as is Trajectory’s wont, with a positive Christmas thought. The growth in emerging market incomes is something about which the global economic system should be proud and even grateful. When I was at school (over 30 years ago), there was much talk of future conflicts between what we then called the developed and the developing (or third) world. The idea being that the developing world would forcibly seize its (rightful) share of global economic resources at some future date. I know it is a counterfactual argument, but it is possible that without the global rebalancing of economic power brought about by globalisation, we might be facing even more turmoil.

Sadly, the global elite, those who have been largely responsible for driving globalisation, have not yet felt the need to do any rebalancing of their own run away affluence. Maybe this will have to change in the coming years if the processes of globalisation are to survive.