- Council on Foreign Relations President Richard Haass believes an impending "democracy recession" poses a direct risk to investors and proponents of individual liberties alike.
- The veteran U.S. diplomat outlined why he was concerned about the direction of many governments today, and what it could portend for those engaged in the markets.
- And investors should be worried, Haass warned — particularly if they are thinking of long-term investments.
There's a rising angst in foreign policy circles over the status of democracy around the world.
In an era of "big personalities" — or what many academics and historians prefer to call strongmen — Council on Foreign Relations President Richard Haass believes this trend poses a direct risk to investors and proponents of civil liberties alike.
"This is an authoritarian era, all things being equal. Democracy is in something of a recession," Haass told CNBC's Hadley Gamble in Paris on Friday. The veteran U.S. diplomat outlined why he was concerned about the direction of many governments today, and what it could portend for those engaged in the markets.
"I don't see the people in place who are aware potentially of the consequences of what they're doing," he said, referring to leaders like Russian President Vladimir Putin and Saudi Arabia's crown prince, Mohammed bin Salman, as "strongmen." And this, he warned, could be irreversibly destabilizing to the global order that's been established since the end of the Second World War.
"For 70, 75 years, we've had this rules-based international system, no great power wars, muted rivalries … and now when I look at the world and the people running the world, it gives me pause. I'm worried that when historians look back on this moment, they're going to see this is the beginning of the unraveling."
And investors should be worried, Haass warned — particularly if they are thinking of long-term investments.
"I think they have to assume that they can't assume things are going to be good, that all things being equal, going forward is going be less stable than going backwards."
Haass, a highly awarded diplomat who served as director of policy planning for the U.S. State Department, U.S. coordinator for the future of Afghanistan, and U.S. special envoy for Northern Ireland, has spent decades witnessing and analyzing international political and economic trends. His assessment matches that of many other experts in his field.
According to the Economist Intelligence Unit's Democracy Index report, out of the 167 countries ranked in 2018, 89 received lower scores than the previous year. The index ranks countries on a scale in the categories of electoral process and pluralism, civil liberties, government functionality, political participation, and political culture, with each category comprised of a range of concrete indicators.
In 2017, the research group demoted the U.S. from a full democracy to a "flawed democracy," citing dwindling trust in government, elected representatives and political parties. It also noted that this decline was well underway before the election of President Donald Trump.
The last several years in particular have also seen the consolidation of executive power — to varying degrees — in countries like Turkey, Russia, the Philippines, Hungary and even the United States. India, the world's largest democracy, fell in the EIU's rankings due to increasing religious and ethnic violence, while Myanmar, Cambodia and Vietnam were all judged to have dropped further into authoritarianism.
Crackdowns on the press and minorities are increasingly evident across the world — even in the EU, where Hungary, led by the right-wing firebrand Viktor Orban, has come under fire from the European Parliament for its record on human rights and the rule of law, and could even risk losing some of its EU voting rights.
Renowned political analyst Ian Bremmer, founder of risk consultancy firm Eurasia Group, told CNBC in an earlier interview that the world is entering a "geopolitical recession" that heralds the end of the U.S.-led global order.
He contended that "The Americans are less interested in exporting democracy. ... Today there is an argument to be made that the Americans are exporting populism." He also expressed concern over the next economic recession, stressing that when "there's not as much free money … we'll get into trouble."
Haass similarly highlighted the impact of rising interest rates on economic stability. Ten years on from the financial crisis, interest rates remain at historic lows, leading many to worry that if another downturn were to take place, the financial system wouldn't have the spare capacity to cushion markets with more liquidity as it did after 2008. And while Federal Reserve economists deem rate hikes as necessary amid thriving U.S. economic growth and record employment numbers, some market watchers fear that tightening at too fast a rate could trigger another recession.
"We're also coming out of the era of historically low rates, which was an anomaly," Haass said, adding higher rates, greater geopolitical uncertainty, new technologies like artificial intelligence, climate change and American debt to his basket of concerns.
"What I'm struck by is it's not so much one thing I can sit here and say, 'this is going to be the driver.' It's the sheer number of things. So if you're an investor you basically have to say, 'I have to act with greater caution, greater diversification, because the possibility of some things happening is great.' You'd have to be one hell of an optimist to sit here and say everything is going be fine going forward."