PAUL JUDGE: Does Brexit signal an end to the integration of markets and the move towards open markets that's powered sales for so many businesses over the past few decades? Or is it too early to tell?
KAREN HARRIS: That's a great question. And I think it is a signpost on the road that we at Bain and the Macro Trends Group are calling the Great Transformation—that is, the shifting economic climate we're seeing over the next decade to decade and a half, which will unleash a new wave of growth, but with very different winners and losers.
In our view, we've seen the apex of globalization. Brexit is a great example of that increasing focus on, rather than trusting global institutions to look after the interests of countries, more and more regional focus.
The rise of risk premium. Another example of that is the rising military risk in Asia. The arming of China, the renormalization in Japan, are all signs of increasing global military and political risk, which increases business risk premium, which puts an incremental pressure on moving manufacturing, moving trade to a more regional and localized level.
That in turn is boosted by new technologies like 3-D printing, capital labor substitution, robotics, which enables smaller scale, lower labor-cost execution, manufacturing of goods. So there's a whole confluence of trends that is pushing against globalization that combined with the politics create a very different global environment. It isn't to say that there won't, of course, be trade, and certainly commodities still trade at a global level. But the winners and losers are changing dramatically.
PAUL JUDGE: Do we have any view at this point of who some of those emerging winners might be?
KAREN HARRIS: Well, what have we seen happen over the last year? There are three prices—or year and a half—three prices that really matter in the global economy: the price of energy, the price of the US dollar and the price of time.
The price of time is interest rates. And over the last 30 years, those have collapsed by 450 basis points due to capital superabundance, the growth of global capital. And all of this uncertainty places increasing and continued pressure on keeping interest rates low. So that's a long-term trend that has stayed stable.
But the price of energy vs. the price of the US dollar [has] inverted. The winners 10 years ago were ... those who could extract energy, store it, and send it to other parts of the world. A huge part of global output. Now the price of oil has collapsed.
The price of the US dollar has, in turn, risen. So economies that depended on extraction--and we've seen this as the end of the commodity supercycle, energy stands in for that in some ways—have become the losers. A lot of the countries like Brazil, Russia, South Africa that had depended on that upswing are now feeling the headwinds on the downswing.
Whereas the United States is really emerging again as a stronger economy. Mexico, linked to the US, benefiting from that. So it's a period of intense reshuffling.
Brexit—What It Means for the Global Economy
Read the Bain Brief:
The Potential Impacts of Brexit on the Global Economy