When thinking about recent attacks on the status quo, such as Brexit and Donald Trump’s election, it’s important to understand the continuum of globalization—how it has moved over the years, where we are now, and what it means going forward.

That’s because the rise in populism, which represents a substantial departure from nearly seven decades of globalization, is a key near- and medium-term risk to any outlook.

How Has Globalization Unfolded?

As supply chains have been liberalized, as goods have been able to move freely across borders, and as companies have rationalized their production centers, we have seen better returns on capital. Capital has become much more mobile as barriers to movement have been reduced progressively. More recently, even services have begun to participate in globalization.

The rationalization of the supply chain means that the cost of goods produced and procured has declined. That not only boosts operating margins for companies, but also generates higher and more sustained cash flows and yields, as the chart below shows. And companies across virtually all geographies have benefited from this trend for many decades. This is the part of globalization we believe is at risk of partial reversal.

Globalization has also affected the corporate sector through fewer restrictions on capital mobility and flows, effectively eroding national sovereignty over tax rates. In practical terms, Organisation for Economic Co-operation and Development (OECD) economies have been lowering corporate tax rates to compete for increasingly mobile capital. Similar to supply chain liberalization, the result of this trend has also been cash-flow enhancing.

The final frontier of globalization is the movement of labor—that is, immigration. To this, the social reaction has been the strongest so far.

The final frontier of globalization is the movement of labor—that is, immigration. To this, the social reaction has been the strongest so far. When U.K. Prime Minister Theresa May quipped that if you are a citizen of the world, you are a citizen of nowhere, she was attacking people that feel they have something in common with those living thousands of miles away in different countries, much more so than with their national compatriots. Our globalization infographic illustrates this point in another post.

Sometimes change can move too fast for societies to digest, and a pause is warranted. We collectively have celebrated creative disruption for so long that it is easy to forget its impact on those being disrupted. Some of the backlash we are seeing may be a response to this. We are optimists; we believe that this frontier will be crossed as well. But the near-term backlash is a real risk nonetheless.

In the near term, the political impact of this will be particularly aggressive. Significant elements will attack the status quo across multiple countries.

In the near term, the political impact of this populist backlash will be particularly aggressive. Significant elements will attack the status quo across multiple countries.

In the United Kingdom, what is most interesting in a post-Brexit world is the lack of planning from the current administration: to say that there is no plan is to actually overstate the level of planning. Prime Minister May will supposedly trigger Article 50 by March, but what that will mean is difficult to understand. There is significant uncertainty, and it will continue for some time.

In the United States, we believe corporate tax reform will be ongoing. There seems to be some coalition around individual tax rates coming down 300 to 500 basis points. As for other presidential campaign promises, some of the positions being filled by the new administration might give us an indication of prospective policies. But we are not sure how Congress will act.

In Europe, we will see a significant number of referendums and general elections in the next several months.

So, the potential for a further push against the status quo can occur. In other words, political uncertainty continues to cloud the outlook.

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Please carefully consider the Funds’ investment objective, risks, charges, and expenses before investing. This and other information is contained in the Funds’ prospectus, which you may obtain by calling +1 800 742 7272. Read it carefully before you invest or send money. Investing includes the risk of loss.

Any statements or opinions expressed are those of the author as of the date of publication, are subject to change without notice as economic and markets conditions dictate, and may not reflect the opinions of other investment teams within William Blair Investment Management, LLC or the Investment Management Division of William Blair & Company, L.L.C.

This content is for informational and educational purposes only and not intended as investment advice or a recommendation to buy or sell any security. Investment advice and recommendations can be provided only after careful consideration of an investor’s objectives, guidelines, and restrictions.

Factual information has been taken from sources we believe to be reliable, but its accuracy, completeness or interpretation cannot be guaranteed. Investments are subject to market risk. Forecasts, estimates, and certain information contained herein are based upon proprietary research and should not be interpreted as investment advice, as an offer or solicitation, nor as the purchase or sale of any financial instrument. Statements concerning financial market trends are based on current market conditions, which will fluctuate.

William Blair does not provide legal or tax advice. Please consult your tax and/or legal counsel for specific tax questions and concerns.

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Copyright © 2017 William Blair & Company, L.L.C. "William Blair” is a registered trademark of William Blair & Company, L.L.C. No part of this material may be reproduced in any form, or referred to in any other publication, without express written consent.

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Please carefully consider the Funds’ investment objective, risks, charges, and expenses before investing. This and other information is contained in the Funds’ prospectus, which you may obtain by calling +1 800 742 7272. Read it carefully before you invest or send money. Investing includes the risk of loss.

Any statements or opinions expressed are those of the author as of the date of publication, are subject to change without notice as economic and markets conditions dictate, and may not reflect the opinions of other investment teams within William Blair Investment Management, LLC or the Investment Management Division of William Blair & Company, L.L.C.

This content is for informational and educational purposes only and not intended as investment advice or a recommendation to buy or sell any security. Investment advice and recommendations can be provided only after careful consideration of an investor’s objectives, guidelines, and restrictions.

Factual information has been taken from sources we believe to be reliable, but its accuracy, completeness or interpretation cannot be guaranteed. Investments are subject to market risk. Forecasts, estimates, and certain information contained herein are based upon proprietary research and should not be interpreted as investment advice, as an offer or solicitation, nor as the purchase or sale of any financial instrument. Statements concerning financial market trends are based on current market conditions, which will fluctuate.

William Blair does not provide legal or tax advice. Please consult your tax and/or legal counsel for specific tax questions and concerns.

Distributed by William Blair & Company, L.L.C., member FINRA/SIPC.

Copyright © 2017 William Blair & Company, L.L.C. "William Blair” is a registered trademark of William Blair & Company, L.L.C. No part of this material may be reproduced in any form, or referred to in any other publication, without express written consent.

Statement of Financial Condition | NMS Rule 605 & 606 | Business Continuity Plan | UK Stewardship Code
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