O’Sullivan, The Levelling

To understand the title of Michael O’Sullivan’s book, you must go back to 1647 England and the Putney Debates. A year after King Charles I lost the English Civil War to forces led by Oliver Cromwell, people met to debate the future constitution of England. The Levellers—ordinary people, including some women—were the largest group involved in those debates, crafting arguments for equality and constitutional democracy. “Their achievement was to set out a contract between the people and those who represented and governed them. Today there is little sense that such a contract is in place.”

O’Sullivan, who taught economics at Princeton University and is now the chief investment officer at Credit Suisse, recognizes four challenges facing us today: political discontent, economic growth, world financial risk and debt levels, and geopolitical change. In The Levelling: What’s Next After Globalization (PublicAffairs/Hachette, 2019) he analyzes these challenges and looks for a way forward, calling on the Levellers for inspiration.

Globalization, O’Sullivan believes, is giving way to “a more fractured, multipolar world,” dominated by three Orwellian regions: Oceania (the United States and possibly the United Kingdom), Eurasia (the European Union plus Turkey, eastern Europe, and Israel), and Eastasia (China-centric Asia). As a consequence, many of the institutions set up in the twentieth century, such as the World Bank, IMF, WTO, and NATO, may become defunct. This process of geopolitical change “will involve a decades-long process of … levelling out of power and wealth between countries.” And “it will provoke a swell of nationalism, regionalism, and friction and in turn a great swirling competition of ideas.” It will see the rise of new political parties as well as new rules for the way finance functions.

One indication that globalization is waning is trade. After rebounding from the relative lows of the global financial crisis to the level previously reached in 2008-2009, “from 2016 to today and in the context of an upturn in broad economic activity, the openness of the world economy (ratio of trade to GDP) has fallen sharply,” back down to its 2011 level. Moreover, trade liberalization has been declining since 2009, and protectionism is on the rise. The United States leads in trade-protectionist measures, followed by Russia and India.

The beneficiaries of globalization have largely been the lower to middle classes in emerging countries and the wealthier classes in the developed world. This disparity is reflected in a World Economic Forum survey finding that over 70% of respondents in the Philippines, Vietnam, India, and Thailand thought globalization was a force for good, as opposed to only 40% in the U.S. and France. Although inequality in the world’s larger economies has not risen significantly in recent years, “it has been persistently high. This persistence is perhaps the key link to sociopolitical tension in that continued inequality conditions people’s long-term expectations of the world around them. The political consequence is that people form a view that the system is against them and vote against the system.”

To my admittedly prejudiced mind, O’Sullivan is at his most interesting when discussing world economies and financial markets. He offers up a plethora of data to support his view that we are seeing the beginning of a paradigm shift in the world economy. And, unlike most authors, he proposes a possible road map so that our future doesn’t become “a grisly repeat of 1913, the last time globalization came to an end.”

The Levelling is a thoughtful, well-reasoned book that tackles seemingly intractable problems and offers concrete, if often politically difficult, solutions. It’s a must-read for macro investors and public policy makers. It’s also an important book for those who complain about, for instance, government, big banks, inequality, and the state of the world in general but have no meaningful framework in which to ground their complaints.