Deutsche Bank Warns Globalization Is Under Threat from Inequality
Deutsche Bank AG (NYSE:DB) issued a note explaining that globalization is “under siege” and in danger. To protect it, the German bank believes that its benefits must be “better explained to the public.” (Source: “DEUTSCHE BANK: ‘Globalization is under siege’,” Business Insider, December 28, 2016.)
The anti-globalization sentiment has triggered a political reaction, an anti-establishment revolt, and a policy of rage, said Josh Feinman, senior economist of Deutsche Bank’s asset management arm. (Source: Ibid.) In a message to clients, Feinman blamed it for “Brexit” (the British vote to leave the EU), the election of Donald Trump in the United States, and the rise of populist and nationalist parties across Europe and even Asia (see the Philippines, for example).
Advertisement
But, all this globalization talk might be a way to distract investors from a rather more unpleasant “threat” to the German bank. Deutsche Bank has to pay a $7.2-billion fine to the U.S. Department of Justice (DOJ) for its role in the sub-prime crisis. (Source: “Deutsche Bank agrees $7.2bn penalty with US regulators,” BBC, December 22, 2016.) Other banks like Credit Suisse have also been fined similar amounts, and others like Barclays are under investigation.
Investors were expecting worse. The amount Deutsche Bank has agreed to pay is much less than the $14.0 billion the DOJ had demanded last September. It’s ironic that Deutsche Bank would choose to start finding flaws in the way globalization has spread now. Feinman concedes, however, that rising inequality has not helped globalization’s case.
Is Inequality to Blame for Rising Anti-Globalization Sentiment?
Inequalities have risen sharply over the past three or four decades, especially in advanced economies where high-income earners have gained disproportionately. Moreover, in some places inequalities have reached levels not seen since the beginning of the twentieth century.
Still, Feinman doesn’t throw globalization completely under the proverbial bus. He says opposition to globalization played a key role in the rise of populism. He stressed that “Globalization is under siege.” Indeed, the problem is not globalization—says Deutsche Bank. Rather, it’s the people, who have “misunderstood” the concept. (Source: Ibid.)
The benefits of globalization, although substantial in general, are often ephemeral and difficult to witness. The disadvantages, though less numerous, are much easier to identify and generally not balanced.
Feinman urges global banks to make an effort to better explain the benefits of globalization. Banks should also point the risks of letting it go more clearly stated. The banker concludes, as a warning to his caste, that globalization “should never be taken for granted.” The message and tone have a familiar ring. Both echo the arguments that the “Bremain”—those who argued in favor of Britain remaining in the EU—proponents put forth. We all know what happened with that…
