Monday, 29 September 2008

Thinking aloud - a glimpse of the future.

Every now and then something happens that brings the future clearly into focus. Perhaps it is because a variety of connections have been motoring around our sub-conscious or perhaps it is because we find that we have a bit of time and space to clear our minds from our immediate concerns. Whatever the causes, the effect is that we suddenly can see one path into the future with a great degree of clarity. This clarity of vision is what I like to call foresight.

My wife has been in Ireland this weekend and her trip has given me a number of reference points into the future. The journey started by catching a bus from Ipswich to Stansted Airport. Normally I would have driven my wife to the airport – and again to collect her on the way back – but a new bus service has called all of that into question. The new shuttle service (a bus every 2 hours, 24 hours a day, 7 days a week) is priced to dominate this service. At £23 return ($US44, €28), the journey costs less than the petrol cost of driving to the airport. For multiple passengers, four people would travel on the bus service for less than the cost of a taxi. This says something about the future to me. In a future where the cost of resources is appreciably higher than today, I see the price mechanism forcing people to abandon resource inefficient methods (the car) and adopting more efficient collective forms of transport (the bus or the train). That the bus in this case was a low-carbon bus is something of a bonus in terms of carbon footprint.

My wife flew by Ryanair to the west coast of Ireland. The flights cost £1.98 return ($US3.50, €2.30), but with £50 ($US95, €60) added to cover taxes and luggage. One wonders how long this will last. In a world where the price of aviation fuel keeps rising, the business model of the low cost operators must be coming under considerable pressure. The latest results update shows that, for the quarter to 30th June 2008, Ryanair profits had fallen by 85% compared to the same quarter of the previous year. The impact of high oil prices ($US130 a barrel for the quarter to 30th June 2008) is obviously having an effect. The second and third order effects upon the destination areas – such as the west coast of Ireland – would make a really good subject of a scenario exercise. If the low cost airline business model were to fail, what would be the impact on regional development in Europe?

My wife, joined at the airport by her sister, boarded the plane on time, but then spent two hours on the runway. The air traffic control computer for Southern England had failed and the whole air traffic system was seriously degraded. It seems to me that we are currently in a world characterised by high levels of complexity and interdependency. When large and complex systems are designed, I wonder how much tolerance for failure is built into the system. In many of the futuristic techno-fantasies, it is taken for read that there will be sufficient power to operate the system, that its supply will be uninterrupted, and that the system will actually work. Most of us know these assumptions to be heroic. The UK faces the prospect of brown-outs from 2012 onwards (electricity demand is likely outstrip electricity supply from that year onwards) and large scale IT projects are notorious for being delivered late, over-budget, and not fully functional. I wonder how long it will be before we take a step back from complex solutions to a more simple approach to problem solving.

If that were to happen, we may well find the world to be a bit more resilient to disturbances, but then, my wife and her sister wouldn’t be able to pop over to Ireland for a weekend family visit. I guess that we can’t have our cake and eat it!

© The European Futures Observatory 2008

Monday, 22 September 2008

Oops, there goes the planet!

September 23rd this year has the dubious distinction of being Earth Over-Shoot Day. The idea of Earth Over-Shoot is a bit complicated, but one worth getting to grips with. The basic idea is that there are finite resources on the planet. Our rate of consumption is then measured against our ability to replenish those resources, to come up with a figure of how many planets we are presently consuming. At present, we are consuming 1.4 planet Earths each year. At our present consumption rates, we are currently using 140% of the resources the Earth can generate in a year, which means that our lifestyles become unsustainable on September 24th this year. What might this mean in the longer term?

We need to recognise that Earth Over-Shoot Day is getting earlier each year and at a faster rate (see web site). In 1986, Earth Over-Shoot Day was December 31st. By 1995 it had moved to November 21st; and by 2005 it had moved to October 2nd. Over-Shoot is also unevenly distributed. According to the National Footprint Accounts, the US currently consumes 5.4 Earths, the UK 3.1 Earths, Germany 2.5 Earths, and India 0.4 Earths. The big uncertainty facing the world is the sustainability of the RIPE (Rapidly Industrialising Poor Economy) nations.

For example, if India were to want to enjoy a standard of living comparable with that of, say, Argentina – which is currently consuming 1.2 Earths – then the resource footprint of India would have to increase by a factor of three. One can question whether the finite resources on the planet contain this amount of reserves. Alternatively, suppose that the middle class in China grows in numbers more or less as forecast. We calculate that, if the Chinese middle class in 2020 wants to enjoy the living standards that are currently enjoyed in Europe and North America, then we need to find nine more planets to supply the resources to provide that lifestyle.

In conjuring up this fantasy we need to keep our feet on the ground. It is only a fantasy. Well before the fantasy could take hold, mechanisms within the system of the global economy will move into action to limit the degree of the scarcity faced. We have seen an example of the mechanism at work this year in the energy markets. In an excellent lecture on Sustainable Economics at Gresham College, Professor Michael Mainelli informed us that the price of petrol (gas) in the US had risen by 32% between 2007 and 2008, and that there has been a consequent reduction in miles driven of 4.7% (see lecture). Our own research has shown that, in the same period, usage of light rail transportation in the US increased by 10.3%, commuter rail by 5.7%, long distance rail by 4.4%, and bus usage by 2.2%. People have been getting out of the car and onto the train.

In many ways, this provides a glimpse of how we can see our economic future unfolding over the next two or three decades. Faced with acute shortages, global markets are likely to respond with relatively high price rises, which, in turn, has two effects. On the demand side, there is a substitution from individual consumption to collective consumption in order to enjoy increasing marginal returns of scale. And on the supply side, there is a financial incentive to invest in technologies that allow us to derive more from less. It is quite possible that resource efficiency may become the next hot technology wave.

As Willian Gibson is alleged to have said, ‘the future is here already, it’s just unevenly distributed’.

© The European Futures Observatory 2008

Wednesday, 17 September 2008

The War Is Over (Or Is It?)

Traditionally the summer is a good time to bury bad news. This summer has provided extremely good cover for bad news. In the US, the news has been dominated by the Presidential Election. In Europe, the news has been dominated by a resurgent Russia in the Caucasus. In the UK, the news has been dominated by the Prime Minister’s inability to get anything right. Under the cover of this smokescreen, the US Department of Defense has, very quietly, declared the ‘War on Terror’ to be over.

Buried in an obscure American Forces Press Release from the Department of Defense (see Press Release) is a reference to the new National Defense Strategy (which can be accessed through the Press Release). In this new strategy, we are told on Page 7 that the War on Terror has been replaced by ‘Winning the Long War against violent extremist movements’ as “the central objective of the US”. From a futures perspective, this raises a number of interesting points.

First and foremost, it indicates that the American unipolar moment is coming to an end, if it hasn’t ended already, especially when, on Page 8, we are told that the US must act “in concert with others”. Unilateralism is at the core of the Bush Doctrine. Furthermore, we are told that “we face a clash of arms, a war of ideas, and an assistance effort that will require patience and innovation”. It is interesting that the undue reliance purely upon force – again central to the Bush Doctrine – is to be supplemented with the use of soft power as a means to achieve the US national interests in the future.

Eventually, we can expect that war fighting will be left to soldiers and law enforcement will be left to the police. There are many in the world who would welcome this. It seems to us that the legal tangle that the US faces over Guantanamo Bay derives from an inappropriate mixing of these roles. The military are poorly equipped to supervise the effective running of law enforcement (running trials and operating prisons). Police operations rely upon the intelligence gathering and interdiction capabilities of the military. In an ideal world – which is one that we can create in the future – the two organs of government would complement each other.

In many ways, the National Defense Strategy represents a significant departure in US policy towards the rest of the world. If it does mean that the ‘War on Terror’ is over, then we are left wondering who might have won the war. It would be hard to argue that President Bush and the Neo-Cons have come even close to winning the war. Their policy in this area – at best a shambles, at worst criminality beyond comprehension – is in tatters and very unlikely to survive to February 2009. It is ironic that the Bush Doctrine has not outlasted the Presidency after which it was named.

Al Qaeda might claim to have won the War on Terror. They could point to regime change in Washington as their success. This, however, might stretch the point too far. It conveniently ignores the inability of Al Qaeda to operate effectively in the Post 9-11 environment. According to the FBI, the number of deaths in the US from terrorist incidents has fallen to zero. This reflects the success of the law enforcement agencies across the world in containing Al Qaeda and in diminishing its ability to operate.

In many respects, there is a lot to be said for the view that nobody has won the war on terror. We have all been losers in some way. In Europe and North America, the trade off between personal liberty and collective security has shifted decisively towards lesser personal liberty. This loss of liberty has become more intrusive in recent years, particularly when some law enforcement agencies are unable to resist the abuse of their additional powers. Surely this has to be one of the greatest losses because it affects us all.

The National Defense Strategy may prove to be an important realignment in US military policy. It represents a more realistic – even more pragmatic – approach to the security issues facing the US and the world in the future. We may yet see a return to the position where soldiers fight, police arrest, and judges imprison. If so, then we will be better equipped to deal with the issues of global criminality, of which global terror is part.

Perhaps that is a future worth building?

© The European Futures Observatory 2008

Friday, 12 September 2008

Freddie, Fanny, and the end of Capitalism (as we know it!)

It is often said that the 1980s was a decade that demonstrated that Soviet style Communism was unworkable. The decade culminated with the fall of the Berlin Wall and the collapse of the Soviet Union itself. This was followed in the 1990s by a decade that showed that Russian style Capitalism could not work also. The financial repercussions of the Russian Default in 1998 and the subsequent LTCM crisis placed great strains on the international financial system. The 1990s was followed by the current decade where large financial imbalances have developed within the world economy. These have now resulted in the nationalisation of Freddie Mac and Fannie Mae, who together underwrite 80% of US residential mortgages. What are the long term consequences of this?

Looking at the short term first, the action has been undertaken to restore confidence in the US financial system – particularly regarding domestic residential financing. The cost to the US taxpayer of this intervention is subject to much debate, depending upon the assumptions made about how badly the situation may develop. The estimates range from $300 billion to $1.6 trillion. To put this into perspective, it would equate to between 10% and 50% of the long term cost of the war in Iraq, but it is a bill which has a much shorter timescale for payment. It is not unreasonable to believe that, whoever wins the election in November, their ability to act as President will be seriously circumscribed by financial constraints handed to them by the outgoing Administration. The pessimists might say that the new Administration will almost be doomed to failure.

Although the intervention may cost the US taxpayer between $300 billion and $1.6 trillion, the Federal Government doesn’t actually have the money to pay this bill. The Federal deficit is currently heading towards $500 billion a year and the national debt is growing significantly. Who, we might ask, is going to finance the intervention? In recent years, we might have answered that the East Asian central banks - swelled by trade surpluses - and the Petro economies - swelled by rising energy prices – would provide the cash. However, the East Asian – particularly Chinese – trade surpluses are not as great as they once were. Additionally, energy prices have come off the boil somewhat this year. All of this will act to limit the ability of the Federal authorities to raise finance. It is not unreasonable to suspect that US interest rates, in the medium term, might be a lot higher than they otherwise would have been without the intervention.

If so, then more of America will be purchased by the rest of the world. This is a long term trend that may come to dominate domestic politics within the US. It is one of the mechanisms by which other international players – particularly those in East Asia, Europe, and Russia – will raise their international standing. From our perspective, we see this as a hint that the US unipolar moment is coming to an end. The ‘rise of the rest’, as Fareed Zakaria calls it, is becoming evident through the purchase of T-Bills. By making the Federal government susceptible to potential shifts in confidence, another constraint is placed upon the US President to act within the international arena. The US president currently does not need to seek the approval of Moscow or Beijing before acting, but events are moving in that direction.

The Federal authorities intervened in the markets in order to shore up the US (and global) financial system. They needed to do this in order to rectify what economists call ‘market failure’. Market failure arises when freely operating markets generate a sub-optimal and stable equilibrium. This happened in the 1920s, when the world returned to gold at pre-1914 exchange rates. That policy mistake led to a recession that lasted a generation. At the time, the whole future of Capitalism, as an institution, was called into question. We are in a parallel position today. In the 1930s, Keynes came to rescue Capitalism through the development of state intervention – Social Welfarism as we know it today. In recent decades, this Keynesian legacy has been attacked by those who we now call the Neo-Cons, who have developed an aggressive brand of American Capitalism.

American Capitalism has been offered as a solution around the world since the 1960s, but hasn’t gained much traction for one simple reason – it doesn’t work. It does not offer any solution for those market failures that arise on a regular basis. It certainly offers no hope for the largest market failure facing humanity today – that of Climate Change. We now see, through the nationalisation of Freddie Mac and Fannie Mae, an admission from the US Federal government that American Capitalism does not work. We ought not to celebrate too much just yet. The Keynesians came to the rescue in the 1930s and 1940s, but there is no parallel school of thought today. Perhaps necessity will generate it? Perhaps it is time for China, or India, to take the intellectual lead?

It seems ironic, almost comedic, that President Bush, the archetypal Neo-Con President, has come to cause the destruction of that which he cherishes most – American Capitalism. They say that the Gods first send mad those who they wish to destroy!

© The European Futures Observatory 2008
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Thursday, 4 September 2008

A tribute to Pausanias

Why is it that the ancient Greeks, despite a multitude of competing city-states, only had one truly destructive war? Many scholars have considered this question over the years and the conclusion usually points to a uniquely Greek non-martial way of expressing inter-state conflict – the Olympic Games. Sport, as a metaphor for inter-state conflict, has entered into the modern Olympic Games. Starting with the Berlin games of 1936, and continuing throughout the Cold War, the medal count, as an expression of international power, has been used by propagandists and apologists to show how great their nation or system of government is in relation to all other nations and systems of government. Just suppose that this is true. What does it tell us about the Beijing Games?

It is usual to order the medal table according to the number of Gold Medals a nation has won. On this basis, with 51G, China led the medal table (the US was second with 36G, Russia third with 23G, and Great Britain fourth with 19G). China, however, didn’t win the most medals. With 100 medals (51G, 21S, 28B), China came second to the US in the number of medals won. The US won 110 medals (36G, 38S, 36B). It has been interesting this week to watch how the various pundits have presented these facts.

Those who take a hostile stance towards the US highlight that America has been displaced at the top of the medal table by China. This has been interpreted as a corollary to the rise of China to displace the US as the leading economic force in the world. Equally, those favourable to the US have pointed out that the US won the most medals at Beijing – an indication that America is “still number 1”. Numerically, both camps are right. They are simply using the numbers to advocate their political perspective.

As an exercise, we added the medal awards of the 27 European Union member states to see what we come up with. In total, the EU nations won 275 medals (87G, 101S, 87B). Of course, this exercise is not strictly additive, but it does point to a theme that the Europhiles are keen to highlight. If the EU were to act in a coherent and co-ordinated manner, it would dominate the medal table (and, by extension, the world!). This point does have some merit, if not pressed too hard. The EU is something of an under-stated power that may well come into the light by the time that the Olympic Games reach London in 2012.

In reviewing the whole debate, I was much impressed by an excellent piece by John Mahaffie (see piece), who reminds us that a rock becomes a bear if we are looking for bear, and a bear becomes a rock if we don’t want to see a bear. We can all use the same set of numbers to demonstrate different points according to our subjective interpretation of those numbers. In futures work, one might ask how there can be consensus about the future if we can’t agree what has happened in the past. And that is the whole point of futuring. We are describing a world that has yet to happen. We can all be both right and wrong simultaneously.

A point that is almost Grecian in subtlety. Had the Ancient Greeks discovered futurism, they may well have made it a god. I wonder how Pausanias would have described it.

© The European Futures Observatory 2008
Have your say. You can now have your say on this issue through the EUFO Prediction Centre. Just click on the link to go to the Centre. You need to be a member of Predictify to take part, but joining is free and easy to set up.