Inflationary Expectations

Just over a year ago we wrote about the possibility of a long term social backlash away from fame and celebrity (see article). A couple of events this week have caused us to revisit and update our thinking. The week started with a strike amongst drivers of fuel tankers, who take petrol from wholesale storage to the retail outlets. All in all, about 10% of the UK petrol retail outlets were affected, with a disproportionately high number of Shell service stations being affected. Just as the first wave of the strike had come to an end, the dispute was ended with a 14% settlement (see article).

At the same time, it was Royal Ascot this week. For our overseas readers, this is a bit more than a Racing Meeting – it is one of the key social events in the UK of the year. If you ever have the chance to attend the Royal Enclosure, then you will have to adhere to the strict dress code of the event (see article). In modern times, Royal Ascot has become synonymous with an excessive and ostentatious display of wealth. Indeed, some commentators see it as a parade of the “rich and pointless”. For those who would like to see what I mean, a set of photos can be followed from here.

It is interesting to put these two stories together in a future context. The justification of the fuel tanker drivers for a settlement that is four to five times the rate of inflation was that, as the price of oil has been rising, oil company profits has been rising too, along with managerial salaries and directors bonuses. They felt that they were justified in sharing that bonanza because it was ‘fair’. Equally, despite being told that the economy faces great difficulties at the moment, we also see a display of wealth at Ascot that indicates that some people aren’t short of money.

It then becomes particularly difficult to urge wage restraint when not everyone is seen to be accepting their fair share (see story). In many ways, the current situation is similar to the position we were in just before the great inflation of the 1970s. During the 1960s, middle class disposable incomes had risen sharply in England. This rising prosperity had not been shared widely, creating a view amongst the working class that they had not received their fair share of the increasing prosperity. A fairer share could be gained through collective action to secure higher wage demands.

Of course, employers, when meeting those demands, simply passed on the increased costs to their customers, who then used these rising prices as a justification for their higher wage demands, and so the wage-price inflation spiral gained momentum. This expectation of ever higher wage settlements is what we now know as inflationary expectations. The inflationary expectations of the 1970s were halted in the 1980s through the intervention of the Thatcher Government at great social and economic cost to the UK.

One might fear that if we are right that inflationary expectations are starting to rise again, a future period of social dislocation will come about. There is time to forestall this by defusing those expectations, but not by exhortation from the Governor of the Bank of England or the Chancellor of the Exchequer. What is needed is a period of leadership, particularly from the private sector. There needs to be examples of restraint on pay provided by company bosses. So far, these have not been too forthcoming.

If our leaders don’t take their own advice, then why should the ordinary people? If ordinary people don’t take this advice, how can we avoid another bout of inflation?

© The European Futures Observatory 2008

We are presenting a paper on how a futurist can add value to the work of econometricians at the Professional Members Forum of the World Future Society in Washington in July this year. Click here for more details of the event.

GM in the EU

Some time ago, we wrote about the resistance in the EU to GM food (see article). We took the view that, if Europe was to avoid permanently high food prices, this policy may need to be reviewed.

We also wrote subsequently about how 2008 was turning out to be the Year of Hunger (see article). In this piece, we took the view that the key to rapid increases in crop yields at a global level would be the development of GM technology.

In an article this week, The Independent reports that the EU is now being urged by some member states (see article) to adopt some GM foods as a way of icreasing the global food supply. This is all to the good.

What is not acknowledged is that there is generally a 15 year lag between starting a project and the impact on crop yields being felt. It would be interesting to consider how that lag will be filled while we await the technologies.

Dude, Where's My Internet?

Is it just me, or is the Internet slowing down? For some time, I have found my connection to be clunky and slow. Files wouldn't zip across as fast as they have in the recent past, it would take ages to load pictures, and so on. Mind you, our broadband access is still so much faster than the old dial-up system.

I put this down to the natural slowdown that occcurs when you have had a laptop for a while - it is now becoming stuffed full of files. However, this might not be the only reason. A recent article by the BBC does suggest that the Internet is slowing down (see article). The main cause of this is the BBC i-Player. This web based device allows us all to watch BBC programmes that we have missed up to a week after their showing. Apparently, people are arriving at work and then dowloading last nights viewing, which is slowing Internet speeds considerably. The ISPs blame the BBC (and want it to invest in network upgrades). The BBC reminds the ISPs that this is their commercial activity.

This raises the issue of who owns the Internet. At present, the cosy relationship that has existed since the 1960s has not been called into question. The matter is likely to come to a head soon if another BBC report is correct and that the Internet will run short of bandwidth in 2010 (see article). It would not be unreasonable to expect those who own the infrastructure of the Internet to pay for investing in new bandwidth. Equally, those who do pay for the investments may want more say than they currently have.

Let us hope that the question of who owns the Internet and who has to pay for the investment upgrades is resolved with as little disruption to the end user as possible. If not, the ICT backbone of globalisation may grind to a halt.

How about that as a Wild Card Scenario?

Bucking The Trend

There is an interesting article in the current issue of Foreign Policy about what the author calls the ‘Euroinvasion’ (see article). It would appear that European companies are taking advantage of the current strength of the Euro against the US Dollar and are buying US companies. The example cited is that a US company priced at $500mn would have cost €430mn in 2003. In 2008, the price tag would have fallen to €316mn for that $500mn company. Cross border mergers and acquisitions are not new, and are the inevitable consequence of the process of globalisation. However, what is significant is the strength of the trend. It might indicate something more substantial than the ebbs and flows of currency movements.

Our attention was recently drawn to the Global Financial Centres Index (see report). In this, London rated higher than New York as the leading financial centre in the world. The report does come with a health warning – it was produced by the City of London, which is bound to highlight its strengths in the weights within the index, and part of the result can be explained by the strength of Sterling against the US Dollar. However, despite this, there is also something there. London has become a centre for the recycling of Middle Eastern and Russian petro-surpluses. It is seen as having a lower political risk than New York, and the city has developed as a residential centre for super-wealthy individuals.

These two conclusions fly in the face of the current conventional wisdom that the centre of gravity in the global economy is shifting towards Asia. Whilst it cannot be argued that Asia has come to dominate manufacturing on the global stage, it is more instructive to consider how that wealth has been stored. The key Asian economies – Japan, South Korea, and China – have tended to store their surpluses in the form of US Government debt. This provides us with an important part of the jigsaw puzzle.

How do Empires decline? In the case of the British Empire, the long term depreciation of Sterling allowed other nations – principally the US – to buy the assets of the Empire. If this model is valid (long term currency depreciation allowing the purchase of domestic assets by overseas entities), then we can see it in practice today with regards to the US. If it is true that European companies are purchasing the US corporate sector, that Asian Governments are funding the US public sector, and if European centres have displaced US financial centres as financial powerhouses, then we have a clear view of how the long term decline of the US might occur.

Of course, the future is not certain and the US could reverse this trend. However, experience to date suggests that it may not do so. A key element in reversing the trend would be to embrace open market capitalism. Sadly, the parochial pork belly politics of the US is taking it in the direction of the protectionist agenda of the neo-nationalists. It is ironic that the champion of market capitalism is unable to follow that particular ideology. In our model, this will be the eventual undoing of the US.

In our thinking, as Europe is now engaging in the sort of market capitalism advocated by the US, it is faring well compared to the US. This could be the basis for a renewal of the European economy. If it is, then we are bucking the trend of conventional wisdom by suggesting that the future may not be Asian. It may be European.

© The European Futures Observatory 2008

We are presenting a paper on how a futurist can add value to the work of econometricians at the Professional Members Forum of the World Future Society in Washington in July this year. Click here for more details of the event.

When The Lights Went Out

Last week the Internet stopped working for us. My thoughts were that I must have pressed a wrong button or that my laptop was malfunctioning. I don't know why, but whenever something technical goes wrong I just assume responsibility. How wrong I was!

The cause of the Internet not working - for us, it was working for everyone else - was a major power cut in the UK National Grid. The BBC reported the story (see story), but there is so much in there that talks to the future. Apparently, a computer malfunction in the Sizewell B nuclear reactor led to an immediate shut down of power on safety grounds. This deprived the National Grid of 3% of its power needs.

The Sizewell shutdown happened to coincide with the Longannet power station going offline and seven other power stations being closed for routine maintenance. All of this combined to result in supply falling short of demand and power cuts - unplanned and unscheduled power cuts - across London, East Anglia, Cheshire and Merseyside.

The server for our ISP happens to be located in this area. One minute the Internet (web and e-mail) was functioning normally. The next minute someone turned the switch off. There is a future lesson to be learned here. As the economy becomes more interdependent, both locally and globally, our dependence upon these communications is likely to grow. However, this chain of complexity is only as good as the weakest link - in this case the power supply.

If these forecasts are right,

we shall have to become more used to the interrupted supply of electricity, with all of the consequences for IT and our use of global networks. Our growing complexity is leading us towards a world of greater vulnerabilities.

The US Taxpayer & Afghanistan

An interesting thought occurred to me recently. The US taxpayer is funding both sides in the conflict in Afghanistan.

On the one hand, the US is providing about half of the NATO intervention force in Afghanistan, as well as underwriting the cost of the reconstruction. This involves the direct use of US Tax Dollars.

On the other hand, following on from the post on Oil (Again!) - see post - it would appear that a good percentage of the tax rebate given to the US taxpayers (US Tax Dollars, again) will be used to cover the increased cost of petrol at the pumps in the US. This revenue flows to the oil companies, who buy oil from, say, Middle Eastern sources. Part of the Middle Eastern oil revenues are used to fund Islamic education, some of which are Madrassas in Pakistan. In some of the Madrassas in Pakistan the youths are radicalised and recruited for the Taliban, who then travel to Afghanistan to fight the US troops, courtesy of the US taxpayer.

From a futures perspective, this does not seem sustainable for the long term. From a political perspective, it just seems like madness.

Oil (Again!)

As a follow up to our recent post on oil (see post), we were attracted by a leader in The Economist this week (see leader) that contained a couple of interesting facts.

1. It would appear that the commodity futures market now has $260 billion invested in it, and is 20 times the size it was in 2003. This rather supports the view that oil - and other commodities - have started to replace financial instruments and property as the places in which to store one's wealth. The article correctly states that the futures market does not deal in real commodities, but in notional commodities. However, we feel that the belief that the spot market (for real commodities) and the futures market (for nominal commodities) are decoupled is a bit naive. Investors need to resort to the spot markets in order to fulfil their notional contracts when they expire. Our information, from our oil radar contacts, is that this sentiment has been adding to the price of oil.

2. The leader alludes to how the Bush tax rebate to stimulate the economy is being spent on food and fuel. A further article (see article) suggests that as these prices have risen over the past year, more and more Americans are likely to be using the rebate to accommodate the rising cost of necessities and to use it to pay down some of the debt that they have accumulated. There is a very interesting blog that charts how the tax rebates are being spent at http://www.howispentmystimulus.com/. As a window into the lives of ordinary Americans, this is developing into a useful social comment on the times.

We are still of the view that the price of oil has further to rise. From a futures perspective, one might wonder if this is a temporary blip (as The Economist leader suggests), or if it is a harbinger of something more substantial. Are we seeing a weak signal from an emergent future?

The Year Of Hunger

How will 2008 be remembered in the future? As we head towards the point half way through the year, events are already starting to take shape. 2007 saw the increase in world food prices of 37%, which have continued to rise during 2008 (up to another 20% so far this year). It would appear that the rising cost of basic foodstuffs is likely to be a key issue this year.

The rise in food prices has been the result of a combination of three factors. First, on the demand side, rising incomes in Asia – and in India and China in particular – have increased demand for foodstuffs. More grain, especially rice, is demanded for human consumption. Additionally, as incomes increase, so does the demand for meat, which in turn increases further the demand for grain to be used as animal feed. One of the consequences of globalisation has been the rising incomes that are now being constrained by rising prices. The situation is exacerbated by the drive towards bio-fuels – particularly in the US. The US policy on bio-diesel is now starting to distort the global market for maize (corn in the US) and add to the volumes of grains demanded.

Second, on the supply side, as a reaction to rising food prices, a number of producer nations have imposed restrictions on their grain exports. Argentina and Ukraine are restricting the export of wheat, whilst India, Vietnam, and Thailand are restricting exports of rice. These restrictions on the supply of foodstuffs are acting to tighten further a market that is already tight. On top of this, a number of natural disasters have served to ensure that world food prices remain tight later in the year. For example, Cyclone Nargis is responsible for the salination of the rice paddy fields of the Irrawaddy Delta, which will transform Burma from being a net exporter of rice to being a net importer of rice in 2008.

The third factor has been the market distortion caused by speculation in the futures markets for soft commodities. The Washington Post describes food as “the new gold”. It states that “Investors fleeing Wall Street's mortgage-related strife plowed hundreds of millions of dollars into grain futures, driving prices up even more.” (See article). This has served to push world food prices even higher.

The impact of high and rising food prices are now being felt around the world. In the developed world, rising food prices – combined with rising energy prices - have led to the return of inflation as a policy issue. This has given the monetary authorities something of a dilemma. On the one hand, the credit crunch would call for a loosening of monetary policy, whereas, on the other hand, the return of inflation would call for a tightening of monetary policy. If the monetary authorities get the policy response wrong, there is the clear prospect of the return of stagflation in the G7 economies. Potentially, if inflationary expectations are rekindled, it could take half a generation to resolve that issue.

In the developing world, we can now see the effects in terms of popular discontent. Food riots have already removed the government of Haiti. As the food crisis progresses, we can reasonably expect further popular discontent – particularly in those nations where rising food prices are likely to lead to mass hunger. The Economist estimates that a billion poor urban consumers – one sixth of humanity - will go hungry this year (see article). The prospect of a series of destabilising political events across the globe is a factor that is likely to make 2008 a much riskier time in which to do business.

This is why we are starting to think of 2008 as the year of hunger.

The New Nationalism Revisited

We recently posted about the New Nationalism that is developing as a counterpoise to the process of Globalisation (see post). Since then, Cyclone Nargis has devastated much of the Irrawaddy Delta in Burma (Myanmar) and has given us a glimpse of the New Nationalism in action. Despite an overwhelming need for external aid, the Burmese authorities have been very reluctant to allow into the country much of the international aid that is on offer. The rest of the world cannot understand this. In our Globalised world, in which countries are interconnected with each other, people are finding it hard to understand why this aid is being refused.

Things look differently if we view the situation from the perspective of the Burmese government. Foreign aid is rarely just that - a gift. It is very common for aid to be accompanied with conditions, which can often be quite impossible for the recipient. For example, if aid were tied to democratic reforms, then we can see why the Burmese government might not want that aid. The delivery mechanism for the aid is often through the military infrastructure of the donor countries. We can see why, after being lambasted by the US for years, the Burmese authorities are reluctant to give the US military access to the country. There is also the suspicion of foreign NGOs, who, in the past, have been associated with a political agenda tied to regime change. Again, we can see why the Burmese authorities are reluctant to give foreign NGOs access to the country.

We are left with the position that the Burmese authorities are grateful for the aid delivered, as long as there are no strings attached to the aid, but they will undertake the distribution of the aid. This calculus baffles the west. Western governments cannot understand how the Burmese authorities are prepared to allow tens of thousands of their citizens to die from thirst, hunger, and disease rather than to open up the country to foreign aid. However, in the context of the New Nationalism - of which this is an extreme case - it makes perfect sense.

It is a price worth paying to remain disconnected, or so the Burmese authorities appear to calculate, from the rest of the world.

The Cost Of the Black Stuff

With the price of oil pushing through the $120 per barrel level, many are now asking how high the price of oil can go. Whilst oil at $120 per barrel is high in nominal terms, it is by no means clear that the price of oil is that expensive in real terms. The cost of $120 per barrel is in 2008 dollars. If we were to translate cost of oil in the early 1980s (the previous record price of oil) into 2008 dollars, then the cost of 1980s of a barrel of oil in 2008 dollars would be $94 using the producer price index and $118 using the consumer price index.

However, these price indices do not account for the growth in purchasing power since the early 1980s. In 1981, the annual average income in the G7 nations would have bought 318 barrels of oil. Given the annual average income in the G7 nations today, in order to limit the purchase to 318 barrels of oil, the price would have to rise to $134.

Alternatively, in 1980, in the US, 8% of disposable income went on energy. Today it is 6.6%. For the relative cost of energy to increase to 8% of US disposable income today, the price of oil would have to rise to $145 per barrel. Again, in 1980, spending on oil as a percentage of global output was 5.9%. Today it is 3.5%. For the spending on oil as a percentage of global output to reach the level of 1980, the price of oil would have to rise to $150 a barrel.

In nominal terms, the current price of oil looks expensive. In real terms, it is looking about right. And in terms of purchasing power, the current price of oil looks relatively inexpensive. For the future prospect of the price of oil, there are two critical uncertainties – one on the demand side, and one on the supply side.

On the demand side, much depends upon how extensive the downturn in the US economy will be and the extent to which the world economy has decoupled itself from the US economy. If the downturn is hard, and if the global economy is still coupled to the US economy, then the demand for oil is likely to weaken sufficiently to soften the price of oil. If the US downturn is not that severe, or if the world economy is less dependent upon the US, then we can expect demand for oil to remain robust, and to further harden the price of oil.

On the supply side, we need to look at the petro-economies – particularly the ‘low absorbers’ (those economies that do not absorb the oil revenues, but channel them into foreign investment). From the perspective of the low absorbers, the traditional investment routes (bonds, equities, and property) currently appear to have high risk and relatively low returns. A far better investment, given the price elasticity of demand for oil, is to simply leave the oil in the ground. It has a relatively low risk, and is currently yielding far better returns than any other investment.

If this takes hold as a production strategy for oil suppliers, then a restricted supply of oil will add to the pressure for its price to harden. However, there is also an incentive for the high absorbers to increase their oil production because, by definition, they would like to spend their oil revenues rather than invest them. This would act to soften the price of oil as stocks are released into the market. The critical uncertainty on the supply side is whether or not the low absorbers or the high absorbers will gain the upper hand.

In 2006, we came across a US analyst, Stephen Leeb, who was writing about oil at $200, and the economic implications of this. It would appear that Goldman Sachs has recently taken up this thinking, and are now talking of oil between $150 and $200 per barrel by the end of 2008. For this to happen, on the demand side, either the US downturn would turn out to be not too severe, and/or the global economy would have decoupled from the US economy; and on the supply side, the oil producers would have concluded that oil has more value to them in the ground rather than out of it. As we have seen, oil at $150 per barrel is not necessarily expensive in terms of purchasing power. If we take this view, then the price of oil has quite some way to go.

From a longer perspective, do your scenarios consider how your world view might change if oil were to increase in price to, say, $200 per barrel or beyond?

Putting the 'B' back into 'BRIC'

In a recent post (see post), we highlighted how Brazil has become the 'forgotten BRIC nation'. It would seem that we are not the only ones who have noticed the quiet rise of Brazil. In a recent article from McKinsey (see article), the case for Brazil is restated. The article is on the optimistic side, and a more balanced presentation would include more of the case against Brazil. However, it does act as a corrective against our oversight in this area.

The London Futures Symposium

A Meeting Organised By The European Futures Observatory

The Keyworth Centre, London South Bank University

Speakers:

DAVID BIRCH, Consult Hyperion
MARTIN RHISIART, Cardiff University
ZARMINA PENNER, Future Management Group, AG
JO CAUSON, Chartered Institute Of Management

On Friday 18th April 2008, twenty futurists and non-futurists from across Europe met at The Keyworth Centre at the London South Bank University for a series of presentations on aspects of the future.

David Birch of Consult Hyperion presented a session on the move to a cashless society, which is particularly important in the case of African and Asian development; Martin Rhisiart of Cardiff University Business School presented on the disappearance of the nation state; and Zarmina Penner of Future Management Group and Jo Causon of the Chartered Management Institute presented on the Future of Work and Management.

The day proved to be quite enjoyable. There was a good range of information to be absorbed, coupled with the opportunity to renew old acquaintances and to make new friends.

READ the full report and access the presentations.

The New Nationalism

What is the opposite of Globalisation? In order to answer this question, we need to have an idea of what globalisation is in order to consider its opposite. If we had to stylise globalisation as anything, then we would stylise it as inter-connectedness. It is a process whereby the world – enabled by communications technology and falling transport costs – has been able to get closer together. It is about shrinking the planet.

If so, then the opposite of globalisation would be characterised by dis-connectedness. It would be a force that would drive people apart, reduce their linkages with each other, and highlight the differences between peoples throughout the world. We just have to add in to this mix a pinch of resource scarcity, a hint of geopolitical competition, and a grain of moral superiority to obtain the New Nationalism.

Whilst Globalisation acts as a force of integration, the New Nationalism acts as a force of dispersion. We take the view that one of the perspectives of history is that it can be characterised by the relationship between the integrative and the dispersive. One force may become prevalent, but it cannot completely eradicate the other, which, at some stage, will make a come back. This is important when we consider the future of Globalisation.

A number of factors have emerged recently to hint at what shape the New Nationalism might take. It is likely to lean towards protectionism rather than free trade. So, when we hear US Presidential Candidates talking of protecting US business from unfair foreign competition, or when we hear of the US Congress blocking commercial transactions to protect strategic US national interests, they are playing to the New Nationalist agenda. Equally, the New Nationalism is likely to be unilateral rather than multilateral. Again, when we hear of India and China imposing restrictions on the export of rice, the New Nationalism is starting to assert itself. And finally, the New Nationalism is likely to be chauvinistic. When we see ethnic Chinese people counter-demonstrating against Olympic protesters, we are seeing an assertion of the New Nationalism.

All of this raises an interesting question: is there a state in the world, largely untouched by Globalisation, which demonstrates the New Nationalism? Obvious candidates might be Myanmar, Cuba, or one of ‘The Stans’, but there is an interesting example much closer to home – Jersey. Jersey is something of a constitutional anomaly. It is ruled by the Duchess of Normandy, who also happens to be the British Monarch. It gives Jersey close ties to the UK, without actually being part of it. More importantly, Jersey is not part of the EU.

Since 1949, Jersey has operated a system of immigration controls that have prevented the settlement of anyone other than ‘High Value Residents’ (the rich are welcome, and the poor are not). This has distorted the local labour market (too many chiefs and too few Indians), and has distorted the economic development of the island. Jersey today is expensive, delivers poor quality services, and offers poor value for money. It has the general air of decline. This is all resulting from a lack of competition on the island lasting for nearly three generations.

Much worse, Patrick Muirhead – a BBC news reporter – alleges that this lack of competition has encroached into public life. In The Times he alleges (see article) that the island is corrupt and self-seeking. This is allowed, it is alleged, because a web of nepotism and favouritism has given the political class on the island control over the media. This issue has come to a head as it now appears that, for decades, children in care on the island have been abused and murdered and the authorities have done absolutely nothing about it.

In Jersey, we are given a glimpse of what the future might hold if the New Nationalism were to gain the ascendant. Personally, I find it quite an unattractive prospect. Globalisation has brought many benefits to me, and I would be reluctant to give up those benefits. However, I do see that Globalisation has not delivered an effective response to resource scarcity and the competition for resources. Perhaps this is the challenge for its next phase?

Globalisation has not been universally welcomed by all. What I would say to its detractors is that if they want to see what a world without it might look like, they should take a holiday on Jersey.

Christmas Comes But Twice A Year

The weather has been really funny in the UK over the past few weeks. Towards the end of March, winter finally arrived with our first snow falls of the year. The snow only lay on the ground for about 36 hours before spring arrived. We had quite a warm spell for a couple of weeks, and then it turned cold again. Needless to say, snow made another return, didn’t stay for long (less that 12 hours where we live), and left us in our current position that is colder than we would like it to be.

This has had all sorts of interesting implications. To start with, we haven’t felt able to turn off the central heating. Normally, I would have expected the central heating to be unnecessary from about the end of March or the beginning of April. I wonder if this will have an impact on the economy later in the year if we are typical in our behaviour, and the public in general are finding that the soaring cost of energy is constraining their discretionary household expenditure. It is certainly helping to postpone the seasonal reduction in energy prices that we would expect at this time of year.

There are also far more subtle effects of the changing weather patterns that we need to account for. An interesting article in The Independent (see article) speculates about whether the dissolution of spring as a distinct season is the harbinger of a climate catastrophe. The article is a bit sensational – after all, that sells newspapers – but it does make an interesting point: is climate change affecting the pattern of the seasons? If so, then, as futurists, we might want to examine what the implications might be, and who stands to gain and lose from these changes.

A further article in The Independent (see article) starts to piece together a chain of causality in the natural world. If we accept the model that climate change will cause flora change, and that flora change will cause fauna change, then we ought to start amassing evidence of those changes. An interesting link between the flora and the fauna is the role of birds and insects in the environment, and it is here that we might find the weak signals of an emergent future to be more leveraged. This is an important area because birds and insects play an important role in the countryside. In a world that needs improved agricultural yields; dramatic changes in the biosphere need to be monitored carefully in terms of incidence and impact.

Can we now see how the issue of climate change will evolve to affect our lives? It is possibly too early to tell for certain, but the evidence is starting to accumulate in that direction. Of course, climate change is not of itself a bad thing. In our house, taking inspiration from C S Lewis’ Narnia stories, we felt that if winter were to come twice a year, then Christmas ought to come twice a year. Our first Christmas – a mush of gross consumerism – was at the end of December, and our second Christmas – a far simpler affair with just the family, no presents, and no commercialism – was at the beginning of April.

Strangely enough, I enjoyed my second Christmas better than my first. If that is a consequence of climate change, then climate change is not entirely a bad thing.

Putting the 'B' back into 'BRIC'

A conversation with a colleague from Brazil this week led us to wonder where the ‘B’ has gone in ‘BRIC’. Most of us are aware of the Goldman Sachs designation of the newly emerging economies – the ‘BRIC’ economies (Brazil, Russia, India, and China). The main thesis of our discussion was that, whilst China, India, and Russia receive a lot of attention in the western press, Brazil is almost ignored in a comparative sense.

I was left wondering if this is the case, so I conducted my own crude and extremely rough and ready survey of the press. In The Economist, since 1997, there have been 2,282 pieces on Brazil. This compares with 3,762 on India, 4,640 on Russia, and 6,845 on China. In order to adjust for a possible continental bias, we conducted the same survey for the same period on the US magazine Foreign Affairs. The results were similar to The Economist. Brazil featured in 355 articles in Foreign Affairs. This compares with 603 on India, 868 on Russia, and 1,076 on China. On the face of it, there is a case to say that Brazil is being ignored in the western press.

Is this justified? At one level it is. We did not include Brazil as a potential global player in our America 2025 project because, within this time frame, there is little to suggest that Brazil is likely to become a major geopolitical force. Brazil does have vast potential in terms of resources, but it lacks the population mass of, say, China and India; and it lacks the military tradition of, say, Russia. However, Brazil is part of MERCOSUR, which some see as a precursor of a South American version of the EU, and which would allow Brazil to develop some mass geopolitically.

Geopolitics is not the whole picture. If we were to discount Brazil, we would do so at our peril. Goldman Sachs put the ‘B’ into BRIC for a reason – the enormous potential of the Brazilian economy. An article in The Economist last week extolled the virtues of the prudent economic policies of the Brazilian government (see article). The evidence in favour of the Brazilian economy is starting to mount. It has started to develop global corporations (see article), it is becoming an energy superpower through ethanol based biofuels derived from sugar cane (see article), and there are also offshore oil deposits too! (see article) It is these factors that have led some to speculate that Brazil is in a good position to withstand a major downturn in the world economy. (see article).

An optimistic view of Brazil in the future would point to the further development of the Brazilian economy, principally based upon the wealth of resources that it contains, but also husbanded through prudent policies at the governmental level. Brazil is unlikely to develop as a global superpower, but is likely to assert its interests through collective bodies such as MERCOSUR and by developing special relationships with Europe and the US.

Perhaps we ought to start putting the ‘B’ back into ‘BRIC’?

From Place To Place

Change can be a funny thing. There are times when our world can change quite dramatically over a very short period of time. We think of events such as Pearl Harbor or 9-11 as the dramatic changes that define an epoch. However, when we look further into the matter, such dramatic events tend to be the culmination of processes that had been occurring for some time before. Many of the changes within our world do occur gradually, over a period of time, as the result of deeper processes that take a while to work their way through.

This is very much the case with tourism. The recent death of Arthur C Clarke served to connect a number of possibilities in my mind. In Stanley Kubrick’s film of 2001, an executive catches a Pan-Am shuttle from the Earth to the Moon. The shuttle reminded me greatly of the proposed Virgin Galactic space tourism ship (see article from The Economist). This is the type of thing that I dreamt of as a boy. Within 30 years, the cost of transportation has fallen such that commercial space flights can be seen as possible.

This reduction in the cost of travel has boosted tourism right across the world and has contributed to the shrinking of the planet as a consequence of globalisation. The impact of globalisation has been to make accessible markets that would otherwise not have been so. One of the features of the modern world has been the rise of medical tourism. The cost of travel is now so cheap, and the standard of care in the ‘developing’ world so high, that patients in the richer parts of North America and Western Europe can, quite literally, shop for their treatment on a global scale. A recent briefing from the Harvard Business School looks at the development of medical tourism between the US and India (see update).

So far, the story has considered the benefits of this process. There is also a more sinister side to the story that we need to be aware of. A growing proportion of medical tourism is dedicated to transplantation surgery. There is the question of the provenance of the body parts that are transplanted. In ‘Illicit’ by Moises Naim, three possible sources are described. Mr Naim alleges that body parts taken from executed Chinese criminals end up with western patients, as do organs purchased from ‘Untouchables’ in India. There are also allegations that children in Africa are raised with the explicit purpose of having their organs harvested. This is one aspect of globalisation that has an unfortunate consequence.

As medical science continues to develop, so will the sharp ethical practices associated with the conduct of medical trials. For example, it is more cost-effective to conduct live trials in, say, Africa, than it is to hold those trials in, say, Europe. The cost of mistakes is far lower in Africa than Europe. Interestingly enough, the BBC has just concluded a drama (The Last Enemy – see link) where a key theme has been the trials of a bio-weapon - that only attacks those who have ‘Arabic DNA’ – in Afghanistan. It would seem that, in a globalised world of cheap mass travel, even our bodies are to be treated as weapons.

And yet, do we have more to fear from pandemic contagion resulting from mass tourism than that we do from terrorists branding bio-weapons?

Strange Events In Distant Places

Time is central to the concept of risk. Risk relates to the uncertainty associated with possible future outcomes. Risk-taking is at the heart of business and investing. Successful entrepreneurs are good at assessing and managing risk. They see opportunity where others see threat. The fundamental job of executives is to anticipate change and manage it on the basis of an opinion about the future.

In recent years, one of the consequences of globalisation has been that global risks (i.e. risks that are global in their nature) are becoming more important. Globalisation has placed us in a situation where a small perturbation in one area can have a disproportionate effect in another area. In the flattening and shrinking world, we are more susceptible to exogenous shocks than previously.

As the global system becomes more interconnected and interdependent, it has resulted in greater asymmetry (small events can have disproportionately large impacts), greater volatility, and greater time compression (product and industry life-cycles are shortening). It is now quite important to be aware of the points at which the trends have turned, or at which discontinuities arise. The study of weak signals of newly emergent futures is becoming more important in the work of the futurist.

In an interesting review in McKinsey Quarterly, Richard Haass (head of the Council on Foreign Relations in the US) recently said:

“Risk control requires a richer analysis. In a way, this is another consequence of globalization. Companies operate in a global environment, but so does each particular place or actor they evaluate. Trying to put individual countries or situations in an isolated petri dish not only has become much more difficult but, in many instances, distorting.” (Article in full).

Futurists are in a position to supply that richer analysis.

An interesting tool provided by PriceWaterhouse Coopers is a case in point (see tool). They publish a political hotspots map that is based upon Country Stability Rankings (this seems to be an attempt to provide an objective calculation for a subjective evaluation). They also say that “performing political risk scenario analysis can better prepare a company for the unexpected and unpredictable”. We quite agree. Sadly, the analysis is a bit thin because the time horizon is twelve to eighteen months and does not seem to consider emergent political hotspots. For example, we are surprised not to see the Arctic as an emergent hotspot.

If the process of globalisation continues as fast as it has to date, then the question of geopolitical risk is likely to become even more important than it has been so far. Because of the nature of globalisation, these are risks that organisations of all sizes, in all locations, in all industry sectors, will have to be aware of. Scenarios are a useful device in exploring some of these risks.

And yet, how often do we monitor weak signals of an emergent future that come from an obscure source on the other side of the world?

The Return Of Franken-Food

This interesting map was in a recent issue of The Economist. The article was examining European resistance to genetically modified food. It would appear that, despite a contrary ruling by the WTO and assurances of the safety of GM food, the EU continues to obstruct the sale of GM foods in Europe. Although some countries in Europe have adopted GM technology, the amount under production is not significant.

The basis for European resistance to GM food is the ‘precautionary principle’. This is a view that the developers of new technologies must demonstrate that they are safe before they can be widely adopted. Whilst this is a prudent view, it is, at times, not very practicable. A core part of the scientific method is the falsification of hypotheses, which rubs against the precautionary principle. In the case of GM foods, from a scientific standpoint, we cannot say that they are safe. We can only say that there is no evidence that they are unsafe.

Within this lies a certain amount of muddled thinking. GM foods can be found in Europe in two areas. First, processed livestock feeds from outside of the EU, which are imported into the EU, enter the European food chain via the livestock that they feed. Second, processed foods imported into the EU, which are processed outside of the EU and sold directly to the consumer in Europe cannot be verified as ‘GM Free’ unless GM foods are isolated in the market, which they are generally not. Additionally, when Europeans travel abroad, they eat locally produced food which may well have GM content.

This issue is coming to a head as the prices of all foods are rising. Interestingly enough, the local BBC station carried an item (play item) on how pig farmers are losing £25 per pig at present, as consumer prices are rising a lot slower than the cost of livestock feeds are rising. Of course, this is not sustainable into the longer term. A number of pig farmers will go out of business, and eventually, the price of pig related products will increase to restore stability in the market.

This, however, is an interesting point for those of us with a future focus. Globalisation and the development of the BRIC economies are forcing up food prices across the globe. This applies not only to base foods, such as grains, but derived foods, such as meat, as well. A rise in base food prices, according to traditional economics, will encourage the development of technologies that increase the resource efficiency in producing those foods. From any given unit of land, from any given unit of water, we will expect a higher yield in terms of crops produced. This is what GM technology is delivering and is what the EU is trying to hold back.

In the longer term, Europe faces a choice. It can retain the precautionary principle, with the resultant higher price levels of foods. Or it can accept the GM technology, to the benefit of the consumer in Europe who will pay lower prices for their food. The article in The Economist suggests that the precautionary principle may be compromised simply because it is so difficult to police. If so, this provides a good example of the inability of regulators to hold back technological advances when there are significant consumer benefits from adopting them.

Perhaps it is significant that King Canute – the man who tried to hold back the tide – was a European.

Going Global

Key Questions For The 21st Century

Michael Moynagh and Richard Worsley

ISBN 978-0-7136-8866-5

There are very few of us – if any – who have not been touched by globalisation. In common with most phenomena, globalisation has its advocates and its detractors. For example, on the plus side, it is seen as the root cause of the rise of nations such as India and China, which, jointly, account for 100 million fewer people living in poverty each year. On the other hand, it has been responsible for the migration of jobs to the newly industrialising nations, causing great economic and social dislocation in Europe and North America. Globalisation is one of the key issues of our times. Michael Moynagh and Richard Worsley jointly run the Tomorrow Project. This is an organisation based in the UK that collates thinking about the future. The prospect of a futures perspective on the issue of globalisation is something that commended itself to me.

This is a great book. As a futures text, it is a bit narrow in scope and a bit too close to the present. But is it a futures text? If we turn the question around, the book does have a number of uses to which it could be well put. I see this as a good introductory text for ‘A’ Level and first year undergraduate students of economics and geopolitics. It would give them the language and basic concepts of globalisation. It could also provide a contemporary briefing for those engaged in the foundation level of their professional exams and for those is business who have a responsibility for strategy but who are not futurists. It could help them to understand some of the complexities of the world in which we live. As a text, the book is well written, the arguments flow naturally in a logical order and the book moves along at a good pace. This commends it as a good read. So, if you are looking for a good introduction to globalisation, then look no further than this book.

READ the full review.

Perfectly Unpredictable

A Meeting Organised By Gresham College

Gresham College, London, UK

28th January 2008

Speaker:

MICHAEL MAINELLI, Mercers’ Professor of Commerce, Gresham College

One of the hazards of being a Futurist is that we can too easily fall into the trap of prediction. We are frequently called upon to provide a view on how the future may take shape. In doing so, we ought to stress that the future is inherently unknowable. Claims to have a special knowledge of the future run the risk of being proved wrong. It is usually better for the Futurist to alert others of possible futures - the various directions which the future might take - or even probable futures that guess at the potential likelihood of different possible futures. This is very different to forecasting a single unique future that will occur. Most often, forecasts are just plain wrong. However, the process of forecasting is such that the conversation, if not the result, can be quite instructive. It was in this light that I was attracted to the lecture.

I quite liked the lecture. It was both stimulating and provocative. The argument was well constructed and the delivery kept things moving at a decent pace. Professor Mainelli appeared to have mastered his brief and presented it with great confidence. As entertainment it was extremely enjoyable. I would recommend the lecture series as both informative and enjoyable.

READ the full report.

Serious Games

My NLP contacts tell me that modelling desirable behaviours is an important part of our learning process. What does that mean in practice? When we have a target that we wish to achieve, we can look at those who have achieved the target in the past, determine the critical aspects of their winning performance, hone our performance to replicate those critical aspects, and then practice to replicate the technique. We may not be successful in achieving our quest, but we will certainly manage to raise our game. This is, after all, the basic business model of the tennis coach (football coach, cricket coach, etc., etc.).

We can also apply this technique to our work in the future. The basic aim of the scenario is to examine how, under a differing set of circumstances, various futures may evolve for us. If the scenarios are deductive (i.e. we focus on the end point), we have little opportunity to influence the final result. If, on the contrary, our scenarios are inductive (i.e. the focus on the pathways into the future), then we have the opportunity to explore the consequences of different decision sets upon a variety of future outcomes. This is the key to the serious game (also known as ‘corporate wargames’).

I had the pleasure of playing the Warm Game last year. This is a serious game produced by Z-Yen for the London Accord on Climate Change (more details). The game takes a simple model of climate change over the 21st Century and considers the implications of a number of possible policy stances of each of the six players. The base model examines the ‘free rider’ problem - if I reduce my Carbon emissions, you will benefit as much as me, but without any of the attendant cost - as it applies to the subject of climate change. As a simulation, the game does induce the same range of responses that we have seen so far on the subject of climate change, which implies that, although only a representation of reality, the game does produce some valid futures.

The issue of strategic foresight is currently towards to the top of the business news agenda. The impact of the ‘credit crunch’ can be interpreted as a monumental failure of strategic foresight by the monetary authorities in the UK. The first run on a bank in 150 years, the resultant nationalisation of that bank (dubbed as ‘the biggest bank robbery in history’ by its shareholders) and the loss of reputation that is being suffered by the City of London are the direct result of a corporate failure to join the dots to form a coherent strategy.

A key role within top management of an organisation is to assess the risks faced by that organisation. Future studies have a tool that can help to identify and weigh those risks – the process of scenario building. By using inductive scenarios, executives can use a behavioural model to explore how to react to a future state as it emerges. Not only can possible future states be identified, but how individuals (or teams) may react to those situations can be modelled.

In this way, teams of managers can learn how to deal with anticipatory crises. One wonders why so few managers do.

Obama Taps The Long Tail

Why is the fundraising effort of Senator Obama going so well, when that of Senator Clinton isn’t? There are a number of reasons why this might be the case, but one that caught my attention was reported in the New York Times (see article). It would appear that Senator Clinton has adopted a strategy of wooing a small number of large donors, whilst Senator Obama has adopted a strategy of wooing a huge number of tiny donors. It is a testament to the success of the Obama campaign that the Clinton campaign is, belatedly, adopting the technology of the internet in fundraising.

As I was reading the article, I couldn’t help but think about Chris Anderson’s book ‘The Long Tail’. The main thesis of the book – long known to economists – is that there is a huge consumer surplus waiting to be tapped from those priced out of the market. What has changed in the economics of business is that the traditional bricks and mortar method of delivery is more exclusive than the new clicks and mouse distribution model.

If we had to point to an exemplar in this field, then Amazon gives a fine example. If we limit ourselves to just the distribution of books, Amazon has a huge inventory when compared to traditional book stores. It has overcome the teething difficulties of distribution that plagued its early days – although Christmas can remain a problem – and now offers a service offering far better than our local book store.

Senator Obama has now moved that paradigm to campaign fundraising. Instead of wooing the great and the good (small numbers of very rich individuals – the Clintonistas), he has developed an internet based following that allows a huge number of individuals who make very modest campaign donations. The article mentions millions of contributors, 90% of whom contribute less than $100 and 40% of whom contribute $25 or less. In total, according to the New York Times, Senator Obama has collected $28 million in total in January.

This has had two important side effects. First, there is a bond with a far greater support base than the Clintionistas can deliver. Second, the automation of the fundraising has allowed Senator Obama greater amounts of time for campaigning, as opposed to fundraising. It is no wonder that he leads the race for the Democratic Nomination.

A more interesting question will be whether, if he does secure the nomination, he can then bring this performance to a Presidential race. If he does become President, then Senator Obama, by using the internet as a key communications tool, will have changed the face of American politics.

The Writing On The Wall

China And the West In The 21st Century

Will Hutton

ISBN 978-0-316-73018-1

It is a widely held view that the rise of China will dominate the economic and political landscape during the first half of the twenty-first century. Already we have felt the influence of the Chinese economy in holding down inflation rates (and interest rates) in the OECD nations and we are on the verge of witnessing the impact of Chinese diplomacy in Africa. Whichever way you look at it, the development of China is having an impact on our world. Will Hutton has a long pedigree of writing incisive commentaries on the major issues of the day that will have an impact on the near future. The combination of an important topic such as the rise of China and the lucidity of Will Hutton means that this is a work that ought not to be ignored.

I feel that the book can be well recommended. It is well researched, well written, and well argued. More importantly, it is an easy book to follow and has an appeal to a more general readership. If your life has been touched by the rise of China – and whose hasn’t? – then this book will help you to look at some of the possible futures that you might face.

READ the full review.

The Olderpreneurs

Is an ageing society a problem? When we see this issue discussed, it is normally in terms of dependency ratios (the number of people of working age supporting the number of people not of working age), potential burdens on healthcare systems, and, of course, the looming pensions crisis. It would seem that the future for us all could be quite bleak.

We cannot deny that possibility of this scenario as a future, but the case against it is starting to mount up. The BBC Money Programme carried a feature last week on ‘Olderpreneurs’ (see feature). This was a very interesting programme for a number of reasons. In the UK, if we can believe the official statistics, there are now more people aged over 60 than there are aged under 16. The section of society with the fastest growing amount of business formation is the over 50s. It is unclear why the statistics cut off at 50. There is potentially a lot of interesting facts that are buried in this aggregation.

This rather struck a chord personally. I turned 50 this year, which meant that I went from the relatively unemployable to the completely unemployable. I know a number of very competent people who are practising well into their 60s and beyond. This signifies an important change in society that we ought to note. As more and more Boomers enter into their 60s, the definition of what it means to age is likely to change quite significantly.

To start with, people in their advancing years are unlikely to want to give up work. They need it for the income. From the perspective of the economist, people are likely to draw down their human capital for a monetary income. The tale of the looming pensions crisis relies entirely on the accumulation of monetary capital as its basis. The use of human capital as a pension fund rather cuts through the argument. It also rather undermines the argument about dependency ratios. If the nature of work is changing so that people are working for longer in their lives, then, by definition, the dependency ratio is not likely to change in quite an adverse way as previously feared.

People also like to continue to work for the social contact that it brings. Once again, economists are now starting to highlight the monetary value of social networks. The argument of those who fear a looming pensions crisis completely discount the value of social capital as a generator of monetary income. The Olderpreneurs are likely to become an important B2B segment as well as being a B2C segment of increasing importance. The Olderpreneurs are more likely to respect experience over youth, creating a ‘Grey Economy’ of friends doing business with friends. It may be that the looming pensions crisis is not as bad as it has been made out to be.

If so, then one might wonder about the prospect of the burdens upon healthcare systems. What does this mean in practice? It means that we – as a society – do not have sufficient monetary resources to pay for the eldercare demanded within the system. However, over the past twenty years, there has been a trend towards shifting the financial cost of aftercare from the Health Service to the patient. In fact, UK hospitals contain so much latent infection that it is safer not to have aftercare in hospital but to have it at home. The social networks of patients – family and friends – have been picking up the cost of this healthcare, and there is no reason to suggest that they will not continue to do so in the future.

When we look at it like this, perhaps an ageing population will not be so problematical?

The Future of Work and Management is a topic that is being covered at the London Futures Symposium on April 18th 2008. Click here for more details of the event.

The Age Of Empires

I was filing away some of my notes the other day when I came across this graphic. It is a chart presented by Niall Ferguson at the Global Leadership Summit, held at the London Business School in July 2007 (see link for details). It struck me as relevant to a recent discussion that has occurred about whether or not America has an Empire and in the context of a new piece that is emerging (‘The World Without US’, once again, courtesy of Niall Ferguson) on what the world would be like if the US were to choose an isolationist path again.

It is interesting to see that Professor Ferguson sees two global empires in play at the moment – the Chinese and the American. Much debate has raged over the American Empire, but the pundits have been relatively quiet about Chinese expansionism. Perhaps this is because the Chinese Government are projecting their influence by using the techniques of ‘soft power’ (trade, diplomatic persuasion, and aid), whilst the world has as its focus the big bangs of American ‘hard power’ (military intervention and diplomatic coercion). Whilst we look at US interventions in the Middle East and Central Asia, we also need to be mindful of China securing key resources in South America and Africa. One of the great uncertainties of the next two decades is whether or not China will assert itself through the use of hard power in addition to the soft power already deployed.

This is a theme developed in The World Without US (see link). This work considers what the world would be like if the US were to adopt an isolationist stance again. It originates in a 2004 article in Foreign Policy entitled ‘A World Without Power’ by Niall Ferguson (see article). Whilst there are some who would say that this would be a positive development, we might seriously question the degree to which the world would become safer and more peaceful. For example, at the moment, the US is attempting to broaden the war fighting capability in Afghanistan through NATO. This initiative is not meeting with a great deal of success, despite it being in the interest of all of the international community to ensure that 90% of the world opium capacity does not revert back to the Taliban. If the US were to withdraw from Afghanistan, it is feared that the streets of North America, Europe, Russia, China, and elsewhere would be flooded with cheap heroin and other opiate derivatives. A central uncertainty around US foreign policy over the next two decades is exactly whether or not it will adopt a more isolationist stance.

However, given the advance of globalisation, a more interesting question, perhaps, is whether or not the US has the ability to disengage from the rest of the world.