The French Thatcher

It has been an interesting fortnight in France. Whilst we have all been aware of the unrest in France, we also ought to sit back and think about the long term underlying causes of this unrest. Earlier this summer, Nicholas Sarkozy was elected as President of France with a clear mandate to revitalise the French economy. In France, the constitution is arranged so that political power in the country lies in the hands of the President. The need for reform is great. The French economy is stuck at a GDP growth rate of about 2% per annum, which is why France is falling behind in the global economy.

To lift the French economy from this malaise will take a series of profound reforms to the economy akin to those undertaken in the British economy in the 1980s. This is why The Economist has dubbed President Sarkozy as France’s Thatcher (see article). So far, the President has remained resolute and the discord in France has grown. The Economist reports that the protesters are becoming more resolute (see article), which has resulted in a spiral of increasing violence (see BBC report).

It is worth, at this point, just considering some of the longer term factors behind this position. If we compare the position of France and Germany in recent years, we can clearly see the impact of reform in the German economy, and the absence of it in the French economy. Whilst this chart only covers a short period, it is telling a story for the long term. If the French economy is not reformed, then it is likely that French GDP growth will remain behind that of Germany and that French unemployment will remain higher than that of Germany.

As a longer term issue, a polarisation of French society is occurring between those who have economic protection (safe jobs, regular salaries, generous pensions) and those who do not. Whilst travelling across France recently, at the Gare du Nord in Paris I was struck by the number of desperate people milling around (they had come from the banlieu of St Denis, which is close by) and the number of police and military at the station. This did not suggest a society at ease with itself.

The current situation could resolve itself in a number of ways. President Sarkozy could give in to the protesters, as his predecessors did. This suggests a France with a sluggish economy in the future. Exactly how this might play out in terms of social dislocation is not quite clear at the moment. However, history suggests that the more able French Citizens will simply move elsewhere in Europe (there is a large colony in London at present).

Equally, the two sides could fudge the issue, in which case we may revisit this situation again in the near future. It is the culmination of a long trend that will need to be resolved. Alternatively, President Sarkozy might gain the upper hand and reform the French economy. Whilst being possible, this is a task that is being made harder as time goes by because the other economies – especially the BRIC economies – are not waiting for the French to make up their minds over what they want to do. There will come a time when this window of action will close. Personally, I believe that, if the French economy is not reformed by the end of this decade, then France will start to lose its position as a major western economy.

What do you think?

You can now register your views through the Predictify web site.

Click here to vote on French GDP Growth.

Click here to vote on French unemployment.

Salute 2007

Salute 2007, originally uploaded by inrepose.

inrespose (Flickr id) writes:

"German gear. This chap was worried that I might capture his British army issue socks, which might spoil the authentic look. It all looked pretty authentic to me! On the one hand these chaps enjoyed showing off their nice German clothes and kit but they also did not like having their faces photographed."

It's interesting how some people find meaning in their lives by shifting into a different period of history. The whole re-enactment movement seems to tap into this trend. However, the mind boggles about those who find meaning by re-enacting the Holocaust. I also attended Salute 2007, and I found this display of very bad taste.

Bamboo Scaffolding

Bamboo Scaffolding, originally uploaded by EUFO Views.

In Hong Kong, surprisingly large structures are constructed using Bamboo scaffolding. Bamboo is a naturally produced, renewable, and sustainable product. I wonder if this is a glimpse of future building products?

Pay for a Prayer

Pay for a Prayer, originally uploaded by inrepose.

inrepose (Flickr id) writes:

"Insert 20p and select one of a range of prayers. An interactive sculpture which gives you back the money after providing an interesting message. Warning not to be used by the holy or holey. The prayers were about relationships with various chocolate bar brands."

An interesting combination of machine, spirituality, and commerce.

Innocent Promotion

Innocent Promotion, originally uploaded by EUFO Views.

A three-way marketing promotion, linking Sainsbury (the supermarket chain), Innocent (the smoothie manufacturer), and Age Concern (a charity for the relief of poverty in the elderly).

This can be a useful device to create brand loyalty amongst consumers. For example, smoothie buyers tend to be young and affluent - just the demographic that Sainsbury needs to attract as a company.

The young also tend to give more to charity, so a link to a widely known charity is a positive affiliation. 'Fuel poverty' (where fuel costs absorb more than 10% of houshold income) is an issue that is increasing in profile in the UK that disproportionately affects the elderly. The little wooly hat on top of the bottle is just that - a marketing device to act as the cherry on the cake that consolidates the loyalty to the project by reminding us of outr grandmothers.

However, what happens of things go wrong? For example, if there were to be a scandal about Trustees expenses at Age Concern. Or if the smoothie ingredients were found to be 'impure'. The carefully constructed affiliation would collapse and sales may well plummet.

Perhaps affiliative marketing is a high risk strategy? If things go well, sales can be well in excess of what they otherwise would have been. If things don't go well, then the investment in the brand and its affiliations may not be recouped.

Book Crossing

Book Crossing, originally uploaded by EUFO Views.

The US idea of Book Crossing, whilst having some resonance in Europe, hasn't really crossed cultures.

In the US, people read in coffee houses. In Europe, they converse. Equally, we might question the purpose of a book. If reading a book is an act of consumption (possibly more so in the US), then a book becomes disposable. If the book is an investment (possibly more so in Europe), then a book is bought to retain.

This indicates that a cultural nuance in one area (the US) may not be resdily replicated in another (Europe). Is it surprising that this book exchange in Starbucks Luzern is empty?

The Dollar Wobbles

Sometimes the future catches up with the present faster than we originally had anticipated. A couple of years ago we had suggested that a time would come when the US Federal Reserve would be in bit of a bind, as domestic pressures were for interest rates to move downwards, but external pressures would be for interest rates to move upwards. In our original thinking, we foresaw this happening in the time frame of about 2009 to 2011, and we viewed it as part of a much larger and much longer term realignment of the world economy.

An interesting article in the Wall Street Journal caught my attention this week (see article) as it suggested that the conundrum to be faced by the Fed had, actually, happened a couple of years earlier than we had anticipated. This position was supported by The Economist, which has a nice little graphic that captures the situation (see article).

We are starting to live in interesting times! It was more than coincidental that the sell-off last week was caused by a minor official in the Chinese Government thinking aloud about the diversification of the currency reserves away from a depreciating currency (i.e. the US Dollar). In this area, we have two key milestones. The first is the composition of the East Asian currency reserves. The second is the destination of the Petrocurrency surpluses. In recent months, both have been away from the US Dollar, which has created the bind that the US Fed faces.

It could be that other OECD members might act in concert to support the US Dollar, by why should they? Open market operations to support the US Dollar would effectively export inflation into the Euro and Sterling zones. It would help the US if the Sterling and Euro nominal interest rates were to fall faster than the fall in the Dollar interest rates, but monetary conditions in Europe do not warrant such a move.

From a longer perspective, we can now visibly see the wealth and influence of the US flowing out of the country and into China, Japan, South Korea, Russia, and the EU. Every time a US citizen fills their car with petrol, money and influence flows out of the US. And yet, such is the disconnect that the US voters have not seen this linkage. Mere rhetoric will not restore influence to the US. It will take actions such as the conservation of energy and the restoration of production over consumption to restore the US to its position of primacy.

As we look at the candidates to be the next US President, we cannot but help thinking that the mediocrity of the Clinton years and the disaster of the Bush years are not likely to be turned around by the next incumbent. For this reason we are still bearish about the US, and we wonder if the US Dollar might have a long way further to fall.

Would Suffolk Benefit From Snoasis?

A Meeting Organised By EUFO

The Ipswich Institute
7th November 2007

Speakers:

GODFREY SPANNER, Onslow Suffolk Limited

JOHN WILLIAMS, Snoasis Community Alliance

Plans are currently going through the public planning process to construct a large winter sports complex at Great Blakenham in Suffolk. The proposals have met with resistance from local residents, who feel that the development, if it goes ahead, could have a severe detrimental effect upon their lifestyles. Equally, the prospect of the development, with the thousands of jobs that it would create, is one that is welcomed by a number of groups within Suffolk.

The question of Snoasis is of interest at a broader level, as it provides a clear example of the difficulties in balancing the broad benefits to the community that are to be gained from development and progress, whilst acknowledging that the external costs of the development will weigh very heavily on the narrower section of society affected by that development. This process is further hampered by dealing with the prospect of events yet to happen in an uncertain future, which brings into question the way in which we, as a community, deal with risk in our public affairs. We do not have any simple answers to these questions, but I feel that we have made a start in understanding them.

We deliberately avoided taking a sample of opinions at the meeting because we felt that would detract from our aims. We wanted to provide an evening where the issues could be aired, both for and against Snoasis, with the intention of leaving it to the audience to make up their own minds after further reflection. On the whole, I think that we achieved this objective. For my part, it certainly helped me to clarify my thoughts on the issue.

The meeting captured the imagination of the general public, and was considerably over-subscribed. It attracted the attention of the local press both before the meeting (see article) and after the meeting (see article). we apologise to all of those who widshed to attend, but who we were unable to accommodate. I hope that our meeting report can help to provide a bit of illumination on the subject.

READ the full report.

The Family Of The Future

One of the news items that caught our attention this week was a BBC series on the family of the future (out to about 2050). The series consisted of a number of short pieces that are collected about a central web page (see page). The pieces are evidentially based upon an attitudinal survey conducted for the BBC by ICM (see survey), and the TV pieces highlight some of the more interesting findings in the survey. A more interesting summary page is on the BBC web site (see page).

Some of the points that have stayed with me are that there are just over 17 million families in the UK. 71% of these are headed by a married couple (is marriage failing as an institution?) and the average family has 1.8 children – below the demographic replacement rate, but not far below. It amused me to see that families without children under 10 sleep for 38% of their time, and those with children under 10 sleep for 36% of their time. I remember well the sleep deprivation associated with small children!

Another aspect of the survey that caught my interest was the comparison of a UK family with ones from Egypt, Sierra Leone, India and Indonesia. The video on family life in China (see video) is particularly timely in reminding us of how easy family life is in Europe when compared with other parts of the world.

Perhaps the most thought provoking piece is the speculative piece on the family of 2050 (see piece). It begs the question of what sort of architecture the family might have (More same sex families? More revolving parentage?), how the family – as an institution – will interact with technology (Virtual families? Teleconferencing family meals?), and how the family will interact with the state (More state intervention in family life? Less privacy within the family?).

All in all, this proved to be a fascinating glimpse into one of the core elements of society. It is unlikely that the family will cease to exist as an institution by 2050. However, as it reflects the world around it, family life in 2050 might be very different to how it is today.

Europe Revisited

In an earlier post (see post), we asked if the European experiment was irreversible. Ever since the French and Dutch public voted against their national ratification of the European Constitution in 2005, it has been taken for granted by the Eurosceptics (the Atlanticists in our previous post) that no further integration would occur. Even at the time, we thought this to be a rather simplistic view. This has proved to be the case.

The original document was ratified by sixteen member states, including Spain who tested the document by Referenda. After the rejection of the document by the Dutch and French publics, seven further member states, including the UK, decided not to continue with the ratification process. Upon joining the EU in 2007, Bulgaria and Romania signed up to the principles of the Constitution as a condition of their membership. This resulted in an unhappy situation where the majority of member states wished to reform the way in which the EU operates, but were unable to affect that reform at a national level.

The answer to this quandary was to use the device of a Reform Treaty. The Lisbon Treaty (as it will come to be known) seeks to reform the existing treaty arrangements between member states rather than to create new arrangements (see article). Although the Atlanticists cry ‘foul’, it is unlikely that any action can effectively be taken to derail this arrangement (see article), despite mounting pressure to halt the process (see article).

This is significant for a number of reasons. First, it demonstrates that there is a momentum behind European integration. This point needs to be remembered when considering the case for further enlargement of the EU (in particular in the case of Turkey). The momentum of the project will continue to drive it forward, which brings us to the second point. If the EU is evolving and changing, any forecasts about its development over the next twenty years need to be hedged with a great deal of uncertainty. The EU may well not have an ageing population – through enlargement. It may not turn out to have a sclerotic economy – through enlargement. These issues depend upon how the EU evolves in this time frame.

The EU is a supra-national response to the supra-national issues of climate change and globalisation. As these issues progress in the years to come, the justification for the EU will also grow stronger. The challenge to be faced by the EU will be to develop as a supra-national institution whilst allowing the character of local communities to remain. The evidence so far suggests that this challenge is being met more than adequately.

Indeed, the future challenge might be for national governments to demonstrate their continued relevance.

Second Life Again

In an earlier post (see note), we reported on the use of the virtual world in Second Life by paedophiles. A story on Sky News (yes, I know that it's Murdoch - see story) caught our attention as it shows Linden Labs co-operating with the authorities on both sides of the Atlantic and closing down the offending areas of Second Life.

The point that I find most interesting is that the US principle of the First Amendment (the right to freedom of speech to some, the pornographers charter to others) has been watered down by the impact of legal pressure from jurisdictions outside of the US.

We see this as an example of how Globalisation as a rule set is homogenising the way we all live our lives.