CFOs should not overreact but be fully aware of all the economic and political consequences that Brexit, President Trump and populist upheavals in Europe can bring about, recommends The Honourable Lindsay Tanner, Former Federal Minister for Finance & Deregulation of Australia (2007-2010). “Many issues challenging CFOs have just become more complicated,” he says.

The Honourable Lindsay Tanner is a keynote speaker at the marcus evans CFO Summit 2017, in the Gold Coast, Queensland, 22 - 24 March.

What are the economic and political consequences of Brexit, Donald Trump as President of the US and populist upheavals in Europe? 

To me they are all different versions of the same theme, although there are specific circumstances in each case. They come from the same source, massive structural and economic changes in Western societies primarily driven by technology. Technology has had many consequences, particularly for less skilled workers who perform routine jobs. Not just blue collar jobs but also white collar office and administrative type of roles. Computers and digital technologies are directly supplanting what people used to do while opening up possibilities for people from poorer countries to do the same job for a much lower price. The back office data processing and analysis of one Australian stockbroker is undertaken by people in India, who start work at 3am local time because that is 8am in Melbourne. In the past, these roles would have been done by locals.

The economic consequence is that a large number of people have seen a drop in their standard of living and opportunities that in the past were still reasonable at the lower end of the spectrum. The things that produce that outcome are falling apart, whether it is redistributive taxation, spend on government services or social payment labour market regulation, immigration restriction, and so on. Many people are on the wage level they were on 15 years ago, while others with higher skills and education has seen massive increases in their earnings. In Britain and parts of Europe this problem is concentrated in regions that used to rely on industries that have declined.

The problem politically is that we have major traditional political parties that reflected the industrial world, for example the Social Democrats and Christian Democrats in Germany, who now are hard to tell apart, and who since have signed up to a set of changes that are hard to reject, but in doing so they have increasingly alienated many people who feel they are going backwards. The end result is that when extremists or populists come along in these countries people listen because they feel the major parties no longer understand them nor reflect their needs.

The big concerns about President Trump are about global security and stability. It is difficult to predict the economic impact of his position, as many of the things he has committed to are contradictory or unlikely to eventuate. Will he increase investment in infrastructure? I do not know. The area of great concern is his position on a number of sensitive issues and international relationships that could create unintended consequences.

What do these changes mean for CFOs in Australia? Will these have a direct impact on the Australian economy?

As soon as Trump was elected, the IPO market in Australia pretty much froze. Markets, investors and large companies hate uncertainty and external risk factors they cannot influence or control, so clearly for people managing the finances of large companies it means a great level of uncertainty and risks.

It is important that CFOs do not overreact, but they do need to be very aware of possibilities that may occur. Many issues challenging CFOs have just become more complicated.

The economic conditions in Australia are reasonable but fragile. The investments and activities the mining boom generated have faded, and substantial parts of the country are now under considerable stress and risk. The risk of us going into much more troubling economic times is real and CFOs should be prepared.