Wednesday, 24 April 2013
Wednesday, 31 October 2012
Food is likely to be a key issue out to 2030. Already long term food prices are rising as demand starts to outstrip supply. This could be a mixed blessing for Suffolk. As an agricultural county, Suffolk is well placed to benefit from the rising prices of agricultural produce. However, this benefit may not be shared generally as rising food prices squeeze the living standards of everyone and act as a tax upon consumption in general. This reduction in disposable income has the potential to keep the economy in Suffolk subdued for some time to come.
It is expected that disruptive climate change could start to become evident within the next twenty years. Rainfall could become more extreme, whilst long periods where no rain falls also become manifest. There are those who argue that we are already seeing this changing weather pattern, and warn that it could become even more extreme in the years to come. This may change our ability to produce food within the county. In turn, it could have major implications for the water infrastructure that is needed to irrigate the crops grown.
It is also expected that the impacts of peak oil could start to become evident within the next twenty years. The disruptions caused to the food distribution system caused by peak oil could mean that food is not necessarily delivered to market in a timely manner, and the possible cost of food storage could become an issue by 2030. As much of agriculture is now dependent upon products derived from oil, the possibility of the increased cost of oil is likely to have the effect of increasing the cost base of farming.
How the balance of increased crop prices and increased input costs will play upon the farming community is largely uncertain at the moment. What is more evident is that the price of food paid by consumers is set to increase. This could have all sorts of consequences, but is likely to impact upon patterns of rural crime within the county. Just as the proceeds of crime increase in value, the ability of rural policing efforts to deal with those crime patterns is set to diminish.
This is not a given future though. It is possible to act now to mitigate the more dystopian effects of this future. For example, we could encourage less waste in our consumption of food. Households could be encouraged to grow more of their own food. Communities could develop strategies of resilience to counter food poverty. There is a great deal of scope for social enterprises to act as an alternative distribution method for those in food poverty. The basic infrastructure is currently in place. All we have to do is use it to secure a better future.
© The European Futures Observatory 2012
Monday, 29 October 2012
Monday, 16 July 2012
Sunday, 29 April 2012
There are a number of ideas that are worth exploring within the book, but the core message is that technology has driven economic growth since the late Eighteenth Century, and that the pace of innovation has fallen to the point where the pace of growth is slowing as well. What does that mean? Well, first and foremost, it means that the singularity is not near. This is a position that I have agreed with for a few years now.
In part, the author ascribes this to knowledge passing from being a public good to becoming a private good. This is fortunate for the few lucky owners who possess that knowledge - they do well in the 'winner takes all' economy that it creates. However, for the rest of us - for whom we call the 99% nowadays - it is not so fortunate. Our ability to consume at the levels to which we are accustomed has been maintained not by growth, but by debt in recent decades. However, the lack of productivity growth has undermined our ability to repay the debt we have taken out.
This is an important message for governments. Debt reduction and austerity plans presume that we shall be able to return to previously attained growth levels. What happens if we can't? I guess that means we are due for a very long period of stagnation. And this is the important message coming from the book. We are heading towards a new normal, and a return to business as usual is no longer an option. This is what policy makers are not yet getting.
I would strongly recommend this book. It is an antidote to the blind optimism we find in technology nowadays. It explains why a policy of austerity will only make things worse. And it serves as a warning that we are unable to continue as if the financial crisis did not happen. We have reached the point where the bills have to be paid.
Thursday, 5 April 2012
One aspect of sustainability that is often overlooked is the need to operate a fair and just society. The definition of what is fair varies between communities and changes over time. However, it is usually the case that an equitable solution should be reached as a pre-requisite for a well balanced society.
A key measure of equity in society is how its vulnerable members are treated. Traditionally, the focus has been upon the education of the young, the social care of the old, and the healthcare of society as a whole. We are living at a time when these definitions are blurring and the traditional compartments for social care no longer work as well.
For example, to serve the needs of a knowledge economy, there has to be provision for life-long learning well beyond the traditional school leaving age. Alternatively, as our society ages, the link between chronological age and dependency age is weakening. In the field of healthcare, we are all becoming more demanding of services as our expectations rise. As we move into the next two decades, technology has the promise of upsetting the traditional relationships even further.
The direction of technology is to allow our devices to become smaller, faster, more connected, and cheaper to run. This has the potential to revolutionise the way in which care is delivered in a very short timeframe. So far, it has given rise to more distributed forms of care delivery, a trend that has a great deal of momentum as we move out to 2030. By this time, it is entirely possible that a good part of education, eldercare, and healthcare are delivered in the home. If this comes to pass, then it raises questions about our current investment in centralised delivery services.
Another area in which technology could impact upon the caring community in the next two decades is through the advances in bio-technology and pharmaceuticals. The current direction of bio-tech is to retard the ageing process and to augment our natural abilities, both through the mechanical augmentation of our body organs and through the pharmaceutical enhancement of our mental capabilities. Both of these developments have the potential to significantly alter the care paradigm.
We are at a point where the boundaries of public and private provision are changing, where the private sector has a greater role to play in activities formerly undertaken by the public sector. It is uncertain as to how far will the pendulum move in that direction. It really depends upon what the future needs base looks like. Technology could assist or impede this process. What we can say with some certainty is that there is a very real chance that the caring community in 2030 will be radically different from how it is today.
© The European Futures Observatory 2012
Wednesday, 4 April 2012
Monday, 26 March 2012
The Price Of Fish by Michael Mainelli and Ian Harris (Nicholas Brealey 2011 – ISBN 978-1-85788-571-2)
“What does that have to do with the price of fish?” That is a question often asked in the UK when we encounter seemingly random and unconnected events. It is an unusual title for a book. However, the subtitle gives the game away. The full title of the book by Michael Mainelli and Ian Harris is: ‘The Price Of Fish: A New Approach To Wicked Economics And Better Decisions’. As is true in many economics texts, the seemingly unconnected are, actually, well connected.
Wicked problems are those which are messy, circular, inconsistent, and aggressive. The sort of problems we encounter in real life. Wicked economics is the use of a set of economic principles to attempt to solve wicked problems. Almost by definition, such solutions are generally complex, inconsistent, and circular. This is quite a step forward because it contains an implicit rejection of the Enlightenment view that for every problem, there is a single, unique, and optimal solution. The world of wicked problems is one in which there is no right solution, ‘better’ or ‘worse’ solutions are difficult to define, where we live with profound unintended consequences, and where we struggle to find a compass that will suggest the right thing to do.
The right thing to do is an important aspect of the book. It takes the view that the point of economics is not to produce an elegant solution but to have a tangible impact upon the real world. To allow us to make better decisions in the real world. For example, in explaining the ‘winners curse’, we can see why it is that competitive tendering for contracts will almost always result in a sub-optimal result, both for the contractor and for the client. But what can we do about it? One response is to refuse to engage in ‘beauty parades’. Your competitor will always win the contract, but not at a decent profit margin, leaving you a clearer field in the longer term.
There are a large number of really interesting ideas in the book. However, one that struck me as very useful, from the perspective of an economist, was the idea of viewing money as a means of communication in a relationship of trust. Money says something about us as people. It defines how we value ourselves, others, and the material things around us. A core issue in economics, one that has rarely been explained, is the concept of value. Perhaps economists have been looking in the wrong place? Perhaps we should have been looking into studies in inter-personal relationships for answers to the question of value? It could be the case that the study of communication theory would be more useful to us than monetary theory. I find these to be very interesting thoughts.
This is not a simple book. Some of the concepts it contains are quite complex. However, they are explained in a way that will allow a non-technical reader to get to grips with them quite easily. It provides a framework and structure whereby we can view wicked problems and attempt their solution. That alone commends this book.
© The European Futures Observatory 2012
Wednesday, 29 February 2012
Tuesday, 31 January 2012
2012 has started with some of the gloomiest economic forecasts for years. Let us not diminish the seriousness of the situation. There is a reasonable chance of a severe deterioration in the world economy this year. However, as a futurist I starting to wonder what it might mean if our fears were to be unfounded. Whilst currently we can only see problems ahead, might we also be looking at grounds for optimism at the same time?
There are three key assumptions to our thinking. First, the Eurozone continues to find a way of muddling through the crisis that it faces. There is a danger that, in wanting a quick and effective solution, we might also lay down a structure that we later come to regret. But just suppose that there are no major problems with the debt retirement programme, there are no major increases in sovereign borrowing costs, no countries are forced to leave the Euro, and that the Euro continues to soften against the US Dollar, then we can hope that the signs of growth will return to the Eurozone by the end of 2013.
Our second major assumption is that the fear of a fiscal implosion in the US does not materialise. What this means is that the prospect of the Presidential Election in November acts as a restraint upon the lunatic fringe in US politics (e.g. America does not return to the Gold Standard, that the US remains plugged into the global economy, and so on), that America initiates only a mild fiscal contraction, and that the Fed. is prepared to undertake monetary expansion to more than compensate for the fiscal contraction. In this case, there are grounds to believe that the US economy will continue to motor along as one of the higher performers in the OECD.
Our third assumption is that China manages to achieve a soft landing. This would imply that growth in GDP just comes off the boil rather than there being a dramatic decline in GDP, that the change of leadership in China can be managed without resulting in a high degree of social unrest, and that the housing market – and the financial system that underpins it – softens rather than crashes. If this happens, then the process of re-balancing the Chinese economy away from exports and towards consumption can continue during 2012.
If these three conditions occur, then we can be cautiously optimistic about where we shall be at the end of the year. The key is the weakening of the Euro against the US Dollar. This will assist the Eurozone in exporting to America, and those economies whose currencies are tied to the US Dollar – mainly the Middle East, Latin America, and the Far East. The recessionary pressure experienced at the start of 2012 is likely to soften commodity prices even further. This could result in the happy coincidence of rising incomes (from export led growth) in conjunction with softening prices leading to rising disposable incomes at the end of the year. If this happens, it will ease the fiscal pressure within the Eurozone by restoring part of the tax base and reducing the welfare bill.
If Europe heads into recovery, then the rest of the world will benefit from this. It has the potential to kick start the global economy, not in a dramatic way, but sufficient enough to cause a change of direction in where the economy is heading. What would help even further is if, as the fiscal position improves, the benefits were to be spent more upon fiscal stimuli, such as infrastructure projects, than upon debt repayment. It is unlikely that 2012 will see the point at which debt repayment makes more sense than a fiscal expansion. This is, of course, a question of balance, and some fiscal expansion will occur naturally, whilst debt is continually being repaid.
If these three assumptions hold, and if there are no major shocks to the system that would blow things off course, then we may well see some light at the end of the tunnel by the end of the year. Although economics is the ‘dismal science’, the economic outlook is never wholly good or bad, and it is up to us to find the upside when everything seems down.
© The European Futures Observatory 2012
Tuesday, 3 January 2012
Tuesday, 20 December 2011
Thursday, 15 December 2011
This is the time of year when pundits pull out their reviews of the year past and their appraisals of the year to come. Normally I find that sort of exercise uninteresting. 2012, however is something of an exception. Many of us are aware that an old Mayan Calendar seemed to indicate the end of the world in 2012. We have very little truck with this, but we are aware of a number of fundamental changes that are likely to come to a head in 2012. As always, the story about the future has its roots in the recent past.
Many observers have failed to notice that a new Credit Crunch - CC2.0, if you like – has started. It originated in Europe in July 2011, and has been progressively worsening over the course of the autumn. The cost of inter-bank lending has quintupled between July and December 2011, and has reached a point where European banks are starting to cease lending to each other. The main impact, so far, has been felt at the more peripheral edges of the EU. Whereas, for example, five years ago it was common for Hungarian households to take out a Euro denominated mortgage from an Austrian bank, nowadays that avenue of finance has dried up. Whilst this creates a precarious position, given a high degree of skill on the part of the monetary authorities, it ought not to have tragic consequences.
What would really start things moving would be a run on a bank. Looking at the fragility of the global banking system, a number of weak spots do stand out. For example, the Cypriot banking system is in an exceptionally precarious position. Between 2008 and 2011, Cypriot banks took deposits from the Black Sea Basin that are over five times the Cypriot GDP. This money was then, by and large, invested in Greek Sovereign Debt (Cyprus has an exposure to Greek Sovereign Debt amounting to 160% of GDP). If we take a probabilistic view of the CDS market, then we can arrive at the conclusion that the markets are factoring in a 100% chance of a Greek default within the next five years. Should those depositors from the Black Sea Basin take fright at that prospect and withdraw their funds from Cyprus, it is hard to see how the Cypriot financial system would survive. This, or a number of similar situations, would then provide a test of credibility for the European Central Bank.
To date, the ECB has struggled in its role. We are of the opinion that tightening monetary policy early in 2011, and then having to loosen it again later in the year, was ill considered. The problem is that the political constraints placed upon the ECB prevent it from acting as a central bank. It isn’t able to act as a lender of the last resort and it doesn’t have the capacity to raise adequate funds in the currency that it is supposed to govern. In all fairness, this is partly a consequence of a lack of fiscal cohesion within the Eurozone rather than an inherent fault with the ECB. Nonetheless, it means that, should pressure be placed upon liquidity within the Eurozone, it does not have the capacity to adequately deal with the problem. If the ECB were to seek to deal with a liquidity crisis through a bout of Quantitative Easing (which, constitutionally it has ruled out), we calculate that it would now need access to about €1.5 trillion to €2.0 trillion. The funds that it currently has (about €0.5 trillion) are not sufficient to do the job.
It is easy in the UK to adopt a certain Schadenfreude about the situation in Europe, but a few moments contemplation of the second and third order effects of a European liquidity crisis soon takes the smile off our face. The UK banks have collectively lent German and French banks €1 trillion, who have then lent that money forward to the peripheral sovereigns – mainly Italy and Greece. A similar situation applies to the US banking sector (although American banks have been pulling back from Europe late in 2011), who in turn have received much of their liquidity from the Far East. The world is still as interconnected as it was in 2008 and the transmission of pain will be equally as quick.
Our opening position for 2012 is not a good one at all. It is entirely possible that a miracle will occur – that governments which have recently been acting in a self-centred and narrow minded way will suddenly see the case for co-operation and generosity as a way out of the current mess – but we will assume that the national interests will still prevail and that co-operation will remain limited. That acts to draw up a bleak picture for 2012. We have an extremely fragile monetary system, most fiscal systems are over-stretched, and growth is virtually absent within the world economy. Some may point to the Far East – particularly China – as a source of vitality, but we are of a different opinion. The prospect for growth in China is likely to fall below the threshold needed to maintain internal order, and, with a change in government scheduled for 2012, this may top the Chinese agenda for much of the year. To make matters worse, there are early signs that the Chinese property bubble is bursting. If that were to be the case in any significant way, then Europe would not be the only source of monetary contagion in the global monetary system in 2012.
It would be foolhardy for us to suggest exactly how things are likely to turn out in 2012 because there are so many variable factors that could have a large impact on the year. We could almost characterise 2012 as the year of the ‘Wild Cards’ (low probability, high impact events which result in systemic chaos). However, we can point to some of the issues that may dominate. One such issue is the number of elections that are due for the year. Elections are scheduled in Germany, France, and the US, which does not auger well for economic growth. We ought not to expect bold and courageous policy initiatives this year, even in the face of an acute need for them. If we are very lucky, then we will see the continued burning down of the long fuse that is the debt overhang in the developed world. This provides something of a boundary for what we can expect in 2012. If we are really lucky, and barring any truly silly policy mistakes, then a good result for 2012 will be to continue to bump along the bottom.
There is also a reasonable chance of the anticipated recession developing into a full blown recession. One of the great policy achievements in 2008-09 was the co-ordinated and timely intervention of the G20 nations to prevent recession turning into depression. These factors are absent in 2012. The ability of governments to use the lever of fiscal expansion is far more constrained now than it was then, both politically and financially. The G20 has been captured by the austerity agenda, and it would be a very brave politician to run against this conventional wisdom at the moment. Of course, courage in the face of impending elections is rarely seen. However, the longer term consequences of the austerity agenda have yet to be played out, and may start to become evident in 2012. We have already seen disruption on the streets of European and North American cities. This may well become more violent as time goes on.
We have already seen the suspension of democratic institutions in Europe. How this works out in terms of legitimacy and sovereignty have yet to be seen, but we may well see the start of this process in 2012. For example, the Greek austerity plan is not the product of the Greek democratic process, it is an agenda forced upon the Greek people by their German and French banking creditors. When the Greek Prime Minister suggested that the people be given a voice in the austerity plans, he was forced out of office and replaced by a technocrat with no democratic mandate at all. This has weakened the legitimacy of the Greek government. Our correspondents in Greece suggest that the country is starting to become ungovernable. For example, the absence of a democratic legitimacy means that it is now viewed as acceptable in Greece if citizens don’t pay their taxes. After all, these are taxes imposed by German banks. 2012 has the potential for being a year where civil defiance tops the political agenda.
And this is if things go well! At the other end of our expectations, there is a reasonable possibility of a financial implosion, the consequences of which could be catastrophic. Of the four weak spots in the global financial system (the Eurozone, the US Federal deficit, the US States deficits, and the Chinese banking system), two are showing signs of rapid movement to a critical position. If the Chinese banking system were to suffer acute stress, then it is reasonable to expect the repatriation of part of the Chinese trade surpluses that are currently parked in US Treasury Bonds. This is definitely dark scenario territory. In some of the darker scenarios that we have been working on this year – particularly those based upon the break up of the Eurozone – the immediate loss of output is somewhere between 8% to 10% of global GDP. This quite rapidly becomes a world of deflation and social disorder. As we have mentioned before, in November 2008 as it happens, NICEY (Non-Inflationary Continuously Expanding Years) has become NASTY (Non-Accelerating Socially Turbulent Years), and the prospect of a financial implosion is very nasty indeed.
2012 is likely to be a very dangerous year. But what of beyond that? Assuming that the Mayans were wrong, and that 2013 follows on from 2012, what hope can we have for the future? We are quite pessimistic about this decade. The debt overhang, sluggish growth, and institutional reform are all going to take a number of years to unwind. In 2009, we thought that the UK debt overhang could be resolved by 2018. We are a bit more bearish now – owing to the fiscal policy mistakes that are currently being made – and we can argue quite well that the debt overhang may be with us some time longer. We are of the view that we are currently in a phase of what Schumpeter called ‘creative destruction’ and what the followers of Kondratiev would refer to as the ‘long winter’. As sure as night follow day, so does spring follow winter.
We are starting to see the commencement of the Sixth Wave of technological advance. This doesn’t have shape or form at the moment, but we take the view that it is likely to coalesce around the technologies of scarcity. At some point further down the line in this decade, the results of the monetary loosening that we are currently experiencing will transform itself into rising prices. Prices of what? We are of the view that the prices of base resources – Food, Energy, and Water - are likely to rise. We have already seen some evidence of this during the period 2006-2009. This is the stimulus that is needed to trigger the Sixth Wave. We are of the view that, just as the great wage inflation of the 1970s provided the trigger for the labour saving technologies of the Fifth Wave (the ICT revolution), so a great resource inflation around 2020 will stimulate investment in resource conservation technologies during the next decade. This investment boom is likely to be the source of the economic growth that is needed to fully address the debt overhang and to provide the new jobs that will soak up the unemployed pool of labour.
Good policy can bring forward this vision just as much as poor policy can defer it. We are of the view that authorities can now, even in an era of austerity, start to prepare for this future by building the infrastructure for it. This need not be physical infrastructure and it need not cost a great deal of money. It could be fostering connections within a community, it could be inspiring the aspirations within a community, or it could be raising the intellectual base of a community through educational and social initiatives. The physical infrastructure is likely to be built in response to the creation of a social infrastructure, using whatever resources that are to hand. After all, it only takes an internet connection to organise a Tweetup. It is our hope for 2012 that we shall see many more of these low cost, high impact initiatives.
2012 is unlikely to be a prosperous year. However, the Law of Undulation has not been abolished, and from our present lows we should aspire for future highs. It is in our hands to sow the seeds of our future prosperity in 2012, and we invite everyone reading this to join us in doing so.
© The European Futures Observatory 2011