"Conventional politics is dead. Brexit, Donald Trump, ‘Feel the Bern’ Sanders, Italy’s Five Star Movement (founded by a stand-up comedian), Alternative für Deutschland, Austria’s Freedom Party – all are examples of the growing desire among voters to try something radically different. Their actions are thought to express economic and political disadvantage arising from under-representation in national governments and the delegation of sovereignty to supranational organisations. How deep does this undercurrent run, and how concerned should investors be?
As one such supranational organisation, the European Union (EU) is commonly agreed to lack democratic legitimacy. Upon joining the EU, many legislative powers are transferred from national governments to the European Parliament and the Council of Ministers. Meanwhile, voter turnout for European Parliament elections is low and falling. European institutions lack the ability to engage the people on whose behalf they function.
But it’s not just the EU that suffers a democratic deficit. In our own general election, UKIP received 3.9mn votes and won one seat in Parliament. The Scottish National Party, by comparison, received 1.5mn votes, yet won 56 seats. Despite living in a democracy, in spite of our ‘one-man, one-vote’ system, a party that won less than half the votes of its rival was able to win 56 times as much representation.
This anomaly was corrected, with a vengeance, in the subsequent EU referendum. That there is a gulf between the outcomes of ‘direct’ democracy and ‘representative’ democracy should not surprise us. Most developed societies consciously avoid the former in favour of the latter. The significance of the EU referendum is in its indication of the direction of travel. Not surprisingly, voters are keen to preserve their own culture and restrict immigration - if you had offered the British electorate the chance to curtail immigration any time over the last 50 years, they would probably have taken it. More worrying for investors is the implied protest against globalisation."
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Chris Darbyshire, 7IM Chief Investment Officer