Markets must adjust to a world of permanent uncertainty, according to historian Adam Tooze, and prepare for the slow process of deglobalisation - as well as the rise of artificial intelligence - to impact different sectors in different ways.
Speaking to ANZ Head of Geopolitical Risk Cameron Mitchell at the bank’s 2023 Debt Conference in March, Tooze said it was clear the world was in the grip of a ‘polycrisis’ amid the “unknown unknowns” of war, geopolitical tension, and market volatility.
“We are in an expanding zone of uncertainty, an expanding zone of nuance, of complexity, of opacity,” he told the conference.
“We may need a term to describe this new epoch of opacity. And that is why I borrowed and put into circulation this term ‘polycrisis’.”
Rather than overlapping crises, Tooze described a polycrisis as a single, incohesive mess, comparing it to an “incredibly ill-assorted breakfast buffet” of issues.
“The thing about poly crisis is they don't make any sense as a set of components,” he said. “It's a combination of noodles, waffles and kimchi [for breakfast].”
It can’t be put down to a single major factor like climate change, Tooze said, and it’s unlike any period of sustained uncertainty that has been seen in the past.
“We had a 20 per cent implosion of the global gross domestic product in a matter of weeks in the spring of 2020,” he said. “And like goldfish, we've moved on. That is all in the past and that's fine.
“So is the polycrisis just about climate change? It’s not. Polycrisis is a thing that furloughed three and a half billion people.”
Tooze noted the end of the 40-year bull-market in bonds as another sign of the polycrisis, particularly amid the notable shift in the purpose of the majority public debt.
“The inflation shock of 2022 accelerates a conversation which previously was carried out under the label of ‘normalisation’,” he said.
“We're talking about two fundamental dynamics. One is… a normal restoration of a low-inflation environment. The other one is a, some might be tempted to say ‘artificial’, environment of massive central bank intervention.”
Historically, huge surges in public debt have coincided with war, Tooze noted, before modern times saw a “fundamental transformation of the functioning of bond markets”.
“The novelty of our situation since the 1970s is public debt is no longer driven principally by that mechanism,” he said.
“In the US’ case, this debt is being run up for civilian purposes. It's been run up to pay for welfare of different types, to finance tax cuts, to fund public investment at different times.
“This isn't to criticise it, but its function has changed.”
Public debt levels not seen since the World were hit in both 2008 and in 2020, Tooze said. Both were periods of “total destabilisation”.
“And what term are we going to use to describe this state of emergency scale of action in this crucial market?” he said.
No one rule
The deglobalisation element of the polycrisis is one that will play out differently across specific sectors, Tooze said.
The automotive industry is one where he can “imagine a segmentation of globalisation taking place”. Microelectronics - a strategically significant sector for major geopolitical players – is unlikely to see major unwinding, Tooze said.
“The information technology sector, which for both its underlying industrial structure because of its national security structure, is much more in the crosshairs of this transition,” he said. “Whereas textiles and consumer related stuff, I think we can imagine that pottering along.”
Of all emerging factors, it’s the rise of artificial intelligence Tooze sees as the most transformative – and bad news for labour. It’s incumbent upon those in charge to ensure it is used in a “progressive, dynamic way”, he said.
“I don’t think we’ve seriously begun to consider the implications of AI accelerating at the rate that is currently accelerating,” Tooze said.
“It will polarise inequality. It will extend it to a large group of people in the white-collar middle class who've already been struggling.”
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