Globalisation surrenders to Localisation. - The Honest Truth By Ajit Dayal

Globalisation surrenders to Localisation.

24 JUNE 2016

In a truly historic vote, Britain has declared its Independence from the global financial centres and from a host of bureaucrats based in Brussels.

Brexit, as the referendum was dubbed, was won with a 51.9% of votes cast for "Leave" and 48.1% voting to "Remain": a difference of 1.3 million votes with a voter turnout of 72%.

There may be repercussions of Brexit, within the political map of United Kingdom, with Scotland and Northern Ireland voting overwhelmingly to stay on in the broad European Union. It is possible that Scotland and Northern Ireland - with their stated objective as reflected in the results of the referendum is to stay within the EU - will seek to break out of the UK and join the EU. Joined by the hip to the economy of the smaller Britain may not be as attractive for Scotland and Northern Ireland as joining the larger economic bloc of the EU.

As an aside, what was refreshing was the speech by the winners of the "Leave" campaign. They praised Prime Minister Cameron and called him a "good man" and said they were sorry that he had to resign as the Prime Minister but respected Cameron's decision: this after a heated and emotional debate. Imagine the BJP or the Congress using such civil words to each other! Ha - don't hold your breath!

A new world order?

Ever since President Ronald Reagan won the elections in the US in 1980, there has been a desire to make the world more integrated economically.

Till 1980, banks in USA could not open branches in any other state in USA. They were only mandated to function within one state. Moreover, the banks were only allowed to focus on one activity: banking. Under President Ronald Reagan, and under the watchful eyes of Secretary of Treasury Donald Regan - a former CEO of Merrill Lynch - ensured that the financial sector was let loose to do whatever it wished to do. Banks could move across the US at will. Banks could own insurance companies, investment banks, and brokerages.

If you are looking for a start date of when the field of modern finance became a money-spinning racquet, devoid of customer interest, the Reagan election is a great starting point. And if you wish to know the power of Treasury of Secretaries (the equivalent of Finance Ministers) do a search on YouTube for "Speed it up"...a famous clip where, while the President Reagan of the USA is delivering a speech, Treasury Secretary Regan tells President Reagan "speed it up". If you ever doubted the power of financial firms in running governments, let this end the debate!

But more than the control that global financial markets have on local economies, the EU had the extra layer of bureaucracy and political distance. Many rules are made in Brussels - the federal capital of the European Union. These are the zombies that Bill Bonner writes about so often. Paper pushers and politicians deciding what is good for a village or a town is ridiculous. Immigration and the Syrian refugee crisis, in my view, was the turning point and the flashpoint.

Free borders for money meant that what Mr. Tom Smith living in Small Village, UK, earned on his deposits - or paid for his mortgage - was decided in some trading desk (manipulated by the big financial firms, who have been sued for that!) in some unknown country.

Free borders for goods meant that jobs were lost in localities and jobs were exported to some other part of the world.

Free movement of people meant that - without any qualifications - people could move across borders and destabilize the lives and potentially pensions of many locals as costs emerge to look after refugees. Add to this the fears of terrorism....

The moral right to look after others clashed with the moral obligation to look after oneself!

Politicians and bureaucrats have made far-reaching decisions in a vacuum. Firms - financial and manufacturing - have worked on numbers and headcount and, in the process, alienated societies and individuals.

Market cap, salaries, and bonuses have overtaken the human element of decisions. Brexit, in my view, is about this: about people saying that we are not a robot economy, but a society with people with beating hearts. The only people who will be disappointed are those in the financial capitals and those in the multinational organisations - and those who rely on their revenue streams.

Localization is in; irrational globalization is out!

GDP is out and GHP = Gross Happiness Product is in.

Trump, the outsider, may beat Hillary, the zombie insider!

Brexit in the Indian context.

There will be some specific stocks that may be hit in the near term and the long term as flows (or lack of flows) from foreign investors may hit Indian stocks and the Indian Rupee. However, India's economy will remain relatively unscathed by Brexit.

It is better to view Brexit in the context of societies and countries taking more control of their own future (economic and social). If so, then India has been going through its own Brexit since Independence from the British in 1947 with reorganization of states on linguistic lines in 1956 and now with the existence of 29 states and 7 Union Territories. Telangana was a recent state created to please the local people.

In the Indian context, the creation of new states over the decades is really a form of CongExit....people were fed up with Indira Gandhi's Congress playing politics at the state level to attain her dictatorial ambitions. The Congress has probably done more to destroy the fabric of the independence of India's states than all terrorists combined. Reading about the fight between BJP and AAP and BJP and Shiv Sena, it may not be much better with the BJP in power today!

India has 660 districts. It is those districts that need to determine their future. And they need to be equipped with information and talent and independence to determine their future. New Delhi cannot determine what happens to hundreds of millions of people. Decisions must move to the state level and, finally, to the district and municipal level. The GST, with one unified tax, is a sort of EU where taxing decisions are being taken away from local authorities and being handed over to a central authority. Businesses will love that, consumers may not as there is no guarantee that the benefits, if any, will be passed on to consumers!

Why society matters - and always will.

Many of you have asked me: why do I write about Congress, BJP, Rajan...and everything else.

Why don't I just stick to writing about shares!

I hope the graphic below explains why.

Globalisation surrenders to Localisation

The world is going through a long-awaited shift.

Since the 1980's, the Reagan movement had correctly tried to correct a world that was far too leftist and controlled by labour unions. Today, the world is controlled by financiers and businessmen and is far too rightist! A course-correction is not only required but will reduce the chance of a social breakdown.

May those in power in every state, in every country be more humble and remember that they were elected to serve society at large, not to extract from society!

Brexit is a big move towards that forced humility.

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Disclaimer: The Honest Truth is authored by Ajit Dayal. Ajit is Founder of Quantum Advisors Pvt. Ltd and Quantum Asset Management Company Pvt. Ltd. The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and has not been authenticated by any statutory authority. The author, Equitymaster, Quantum AMC and Quantum Advisors do not claim it to be accurate nor accept any responsibility for the same. Please read the detailed Terms of Use of the web site.

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4 Responses to "Globalisation surrenders to Localisation."

Rajiv Kapur

Jun 26, 2016

A very well written assessment on the current situation.


Rajesh Alla

Jun 24, 2016

Hi Ajit,

This is the most truth-revealing article I have ever read in The Honest Truth. Not sure if the great policy makers has at all, in any corner of their minds, the humaneness shown in this article. Even if they have, the obligations are so entwined that no one would dare delve deeper than the surface of the animated financial world, serving the 1% of the world.

Citizens are meek in that we cannot afford the effort and time, over our hand to mouth living, to think, talk, break the vicious nexus the politicians and companies are entangled in.

Ajits are quite rare! In the world where we only unwillingly victimize ourselves to the systems, Equitymaster and associated companies are rare and brave heroes. I am proud to be associated with you, however small the nature of association may be.

Thank you for the great thoughts. May we be presented with the mental strength to be like you - spearheading to break the capitalist extremism in a practical way.

Like (3)

Praveen Godbole

Jun 24, 2016

An excellent assessment of causes and possible repercussions of Brexit. But one cannot help feel that author is justifying localization (looking inwards) over globalization. Uncontrolled migration from EU was one of the main reason why Britons, particularly Englishmen, were supporting Brexit. But it is a time tested truth that migrants actually help economy grow. Would Mumbai have been what it is today but for migration from all over India? Same goes for United States.

Whether Britain will gain or lose from Brexit, only time will tell. But there is an old saying. Those who forget history are condemned to repeat it.

Like (1)


Jun 24, 2016

Nice to see honest Ajit with honest humanity on the honest truth.
Just feel people are focusing on the basics getting right.

Like (2)
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