WHAT NEXT?

At the risk of repeating myself, the current situation as I understand it is as follows:

Over the past 40 years, western economies, between economic boom and bust cycles, have generally speaking prospered and experienced exponential growth with the introduction of Fiat Currencies and Fractional Reserve Banking that have provided readily available credit to an extent that debt sponsored growth has become regarded as the normal course of events and is taken for granted.  However, if we take a look at the history of economic growth it becomes clear that exponential growth is in fact a phenomena enabled by the discovery of legacy fossil fuels that were cheap to exploit over the past 250 years in order to generate energy to drive machines and the economy.  Before this discovery, economic growth was relatively flat or sporadic being constrained by the availability of the only other forms of energy then known being human energy or manpower provided by slaves or an unorganised paid peasant workforce, unreliable water mills or wind mills and ox or horse power.  Exponential growth could take place only when we were able to reliably generate a surplus of energy that could be allocated for growth enterprises beyond that required for essentially subsistence economies and sustainable lifestyles that previously existed.  This first occurred with the invention of steam power fueled by wood and then coal which enabled the industrial revolution when timber became scarce.

Debt sponsored economic growth took off with de-regulation of the financial markets in 1986 and climaxed with the 2007/2008 Financial Crisis when the banking systems would almost certainly have collapsed were it not for timely government intervention and the injection of public funds to bail out the banks.  Banks became too big to fail, knew it, and took advantage of the implicit guarantee that governments would underwrite their misfortunes.  Consequently, banks became reckless with other people’s money on the basis that profits could be privatised while any excessive losses would be socialised via public funded bailouts.  Urgent reform of the financial markets is now essential to prevent a recurrence of this and for the future prosperity and wellbeing of our nation in the wake of government imposed austerity and ongoing global economic uncertainty.

The wealth gap between the rich and poor is as great as it has ever been with the result that 1% of the population now control somewhere between 80-90% of global wealth.  This is unacceptable as well as unsustainable while too few people can afford to participate in the economy because of a lack of disposable income to do so.  According to Karl Marx, this will lead to the inevitable collapse of our economies unless we can radically address these inequalities and redistribute wealth to stimulate demand for goods and services and thus growth in the economy.  Moreover, corporations throughout the world are sitting on large amounts of cash which they are afraid to invest because of prevailing economic uncertainties largely brought about by the 2007/2008 financial crisis and impending collapse of the Euro.

Our financial systems are now essentially bankrupt and it will take a very long time to unravel the full extent of existing and potential global banking toxic loans within shrinking economies, in order to de-leverage debt.

Coinciding with the financial crisis we are also confronted with a confluence of other inter-related fundamental uncertainties created by accelerating depletion of already diluted non-renewable resources and the rapid economic development of emerging markets (BRICS nations) coupled to exponential population growth in these regions, accelerating climate change due to growing global CO₂ emissions and rising political uncertainty as food and energy poverty become pervasive.

The situation embraces an explosive cocktail of uncertainties never before experienced at any one time by humanity!  So, in these circumstances, what can we do to both reform financial markets and adopt a more positive and ecologically sustainable approach to economics for the long term?  The question also arises, can we even get out of this mess or is it going to get a whole lot worse before we can begin to make things better?

After 30 years or more of accelerating globalisation and rapid economic development of the BRICS emerging nations, we have reached a turning point in history where consumers in western economies have essentially squandered their wealth and that of future generations as a direct result of conspicuous consumption and financial mal-investment in the private sector as well as economic and financial mismanagement in the public sector made possible by leveraging debt to unsustainable levels over this period.  Now it is payback time and consequently, wealth, influence and power has quickly shifted to the east and BRICS nations as it will take many years for western economies to de-leverage their debt burdens and favorably re-adjust their balance of payments.

The potential for economic growth in western economies is weak while economic prospects in the BRICS nations remain buoyant as their burgeoning populations seek to enjoy the same standards of living and quality of life enjoyed by the west.  This will require BRICS economies to increase wages so that their consumers may have sufficient disposable incomes that allow them to buy more and more goods and services in their own economies, thereby stimulating or maintaining domestic economic growth in the face of dwindling demand from bankrupt overseas western economies.

Eventually, in a few decades, wages in the BRICS economies may generally reach parity or even surpass those in the west at which time the west, resources permitting, may even have an economic advantage, provided current unsustainable debt levels have been eliminated or substantially reduced which seems unlikely if Japan's debt elimination track record over the past two decades or so is anything to go by.

Meanwhile, international corporations in the west who have been the main promoters and beneficiaries of international trade are wondering what to do with the vast amounts of cash they have accumulated during the last ten bonanza years of globalisation.  These companies include international investment companies, oil and gas energy companies, mining companies, logistics and freight transport companies, defence, aviation and aerospace companies, auto manufacturing, shipping and ship building companies, software, electronics and media companies that have enabled and promoted globalisation to an extent that our economies have become entirely integrated and dependent on one another as well as these companies.

Herein lies our greatest vulnerability as by accelerating economic development in emerging nations we exacerbate climate change and primary resource depletion, including fossil fuels and financial capital in western economies because capital resources always fly to where there is the greatest return on investment.  We will eventually reach a point when catastrophic failure in the supply chain of one resource area or another leads to the collapse of entire economies and we will become less and less capable of feeding ourselves.  The Euro-zone is fast approaching this point of no return as illustrated by recent events in Greece, Ireland, Spain, Portugal and Cyprus.  The mantra of unlimited growth at all costs may just cost us the earth.

Growth dependent "business as usual", i.e. Plan A, simply has no long term future!  In a world with finite resources, this is an in-escapable fact so why don't our policy makers and politicians wake up to this and instead look for sustainable economic growth in Plan B as called for by a growing number of ecological minded economists?

The more our politicians see our future becoming even more greatly integrated into the  global market place the more diluted our position and influence in the world becomes as BRICS nations, with huge populations by our standards, become dominant providers of resources and manufactured goods.  We will become even more dependent on imports and even more vulnerable to increasing competition for global resources as a result.  Better that we should do so from a position of resilience through self-sufficiency in terms of energy and food than from military strength which we can no longer afford.  All this bravado about "punching above our weight" in military or international political terms illustrates hubris and delusional thinking in the extreme by our ruling classes as our role on the world stage dwindles into insignificance.

Britons need to start making things again and the surplus exported.  After having sold off 50% of our companies to foreigners, including many manufacturing industries, it is high time that we re-generated our manufacturing capabilities for both low and high tech products that promote and enable sustainable living within our means.  This is the greatest area for growth in the short term.

We can kick-start this process by repatriating UK manufacturing in China or India.

Outsourcing abroad has not done us any favours by creating hordes of unemployed in the settled population while a few investors grow rich at their expense.  Outsourcing simply undermines the nation’s skills, knowledge and tax base', costs the nation dearly in terms of unemployment and welfare payments and consequently, should be discouraged.

Our politicians and policy makers should be looking after our strategic long term national interests, particularly where UK employment and re-skilling of the workforce is concerned by protecting our borders and preventing economic migrants from taking the jobs that the settled unemployed or growing under-employed should have in preference to anyone else.  Otherwise, there is little incentive for UK unemployed to re-skill if they perceive that jobs will go to migrants anyway and the burden of welfare will escalate out of control!

2012 Year end summary

In the following article, I have made observations and drawn conclusions from a variety of recent reports (that I have provided links to) produced mainly by independent leaders in their own fields.  These reports come from a mix of professions including renowned Global Investment analysts such as Jeremy Grantham of GMO, economists, educators and news reports mainly in UK, Europe or USA.  One thing is for sure – urgent and radical change is essential.

This has been a troubling year for the UK Government with the slow realisation that economic growth is unlikely while consumer confidence in the economy continues to fade in the wake of ongoing spending cuts and inflation and wage constraints that erode disposable incomes causing consumer demand for goods and services to further weaken.  Moreover, as Europe drifts into a double dip recession, the global economy remains weak and shows little sign of recovery from the 2007/8 financial crisis, dashing hopes for substantial growth in exports to emerging overseas markets. 

Debt reduction or elimination becomes the most sensible focus of attention on a personal and national level when credit becomes difficult to obtain in a weakening and shrinking economy already overburdened with debt. 

The consequences of austerity measures are beginning to be felt throughout the nation as welfare budgets are squeezed and the poor and handicapped take on the brunt of austerity.  But, this is just the beginning – there is far more austerity to come as tax revenues continue to steeply decline.  The costs of unemployment benefits are expected to rise with growing unemployment as more people in the public sector are made redundant with continuing cutbacks.  More and more people will find it harder to find permanent employment as the jobs in the private sector are just not there.  Consequently, there will be a growing trend towards under-employment by those managing to only find part-time employment, as well as self-employment and short-time job sharing in order that businesses can keep people in work with much needed skills and experience until the economy picks up.  In the meantime, this is unlikely to fill HM Treasury coffers with sufficient funds for some time to come.

As I have said before, in these circumstances there is no way that the Government can afford to allow cheap foreign labour into UK, whether they be seasonal workers or not, while there are already large numbers of unemployed on taxpayer sponsored Government benefits and the highest ever number of young unemployed in particular that are perfectly capable of doing the work that economic migrants come over here to do.

It is therefore essential that we re-gain control of our borders and prevent further migrations from anywhere in the world and from Eastern Europe in particular where new member nations are shortly due to join the EU, in order that the settled population of UK unemployed have the first opportunity for employment in preference to economic migrants.  To encourage this, benefits should only be available to the settled unemployed on the basis that they are prepared to study, train and re-skill for whatever Government identified work opportunities arise in their neighbourhood.

This calls for a much stronger partnership between local government, local businesses and educators that clearly identify demand led skills required to expand and diversify local sustainable economies for the long term.

This also means that our secondary school system must better prepare students and school leavers for the rapidly changing but practical world of work with much improved career advice and guidance relevant to the skills in demand in their local economy.  This should also include a more scientific approach to assessing student aptitudes and attributes (strengths and weaknesses) followed by a process to match aspirations with the individual’s education and skill capabilities that suit particular career path local opportunities in order to reduce time, effort and money wasted trying to fulfil unrealistic expectations.   Individual career choices must be realistic and achievable from the onset.  A much better understanding of the world of finance and how to manage their life finances must also be an essential part of school curricula.

None of this can succeed without clear national and local government economic strategic direction and support in partnership with local businesses, which should be constantly under review and able to adapt as circumstances change.  This presumably is the role of Local Enterprise Partnerships in recently announced Local Enterprise Zones.  However, it is not yet entirely clear how these organisations will work and what powers they will have to influence or stimulate growth in their localities.

Meanwhile on a global scale, non-renewable resource depletion continues unabated and growing evidence suggests that, based on current consumption rates, we will exhaust these resources well before the end of this century with dire consequences for humanity.

With ongoing drought conditions in North America, the devastation caused by Hurricane Sandy along the Eastern US Seaboard and storms causing widespread flooding throughout UK and Europe in November, Climate Change is very much in evidence.  Reliable scientific analysis suggests that the frequency of extreme weather events is likely to increase causing major economic and social problems as well as possibly insurmountable financial problems within the insurance industry as storm damage compensation claims become unmanageable and property insurance becomes unaffordable for many people living in flood prone regions.

The combined effects of a prolonged economic crisis, Climate Change and accelerating non-renewable resource depletion coupled to population growth, herald growing insecurity and the increasing probability of a catastrophic global food crisis.

With all this in mind, the political preoccupation with perpetual economic growth does not make any sense and looks increasingly short-sighted and foolish.  We will simply use up dwindling and already diluted finite non-renewable resources on this planet that much more quickly and deny future generations any resource heritage thereby ensuring the demise of the human race.

When will common sense prevail and a more ecologically sustainable approach to economics be recognised as the only acceptable way forward?

Strong leadership is required to prevent a tipping point towards catastrophic change and a major step in this direction came with the passing of the Localism Act in November 2011.  However, it will take a few years for authorities and the electorate to adjust to new roles and responsibilities before any results will be apparent. 

Capitalism as we know it in the West must adapt or perish.  This, in conjunction with population growth controls have become the most pressing issues for all governments including that of UK which is an already overcrowded and overpopulated small island nation that cannot feed its current population being entirely dependent on imports to do so. 

Food and energy security will dominate our future in the wake of the impending Euro collapse or downgrading of our own international credit rating.  The risks of this happening are too great to ignore and urgent contingency planning is essential to ameliorate the high probability of these events.

It is common sense that we should massively reduce our vulnerability to long and complex international food and energy supply chains by developing local resilience.  This can be done by ending a century of centralisation and expanding and diversifying local economies, as also recommended by Lord Heseltine in his recently published report into boosting UK growth that could help reduce our dependence on imports generally and so improve our balance of payments.

It is now time that UK manufacturing in China is repatriated back to UK, just as is beginning to happen in USA. 

These are the only areas of short term economic growth that our politicians should be concentrating on which must focus on small and medium size businesses that our economy depends on.  Not the large and often predatory international players that tend to avoid paying their fair share of taxes and thus have an unfair competitive advantage over smaller UK based firms.

New decentralised local energy, water harvesting, food production and distribution systems are essential to our survival when our older technology centralised utility systems come to the end of their design life cycles, begin to fail or cost too much to maintain or upgrade.  Communities with multiple and diversified distributed utility systems and local food production and distribution channels that substantially reduce food miles (now in excess of 30 billion kilometres per annum) are by nature less vulnerable to failure than single large high output centralised systems that impact large populations as and when they fail.

New advances in energy storage batteries may soon enable off grid storage of intermittent renewable energy that every household or community local grid can take advantage of, especially those households or industries that have installed rooftop solar panels.

Rigorous energy conservation and energy efficiency also present business opportunities that have great growth potential within the economy.  This includes effective home and work place insulation (including shops and factories), zero carbon new housing and LED lighting installations.

Commuting daily to and from work consumes about 50% of our energy needs and therefore massive savings can be made by allowing people to work on line from home now that fibre optic Internet and video conferencing services are becoming common place.  Most London commuters I am sure would welcome this, especially if the companies they work for allow local team hubs to form in remote locations from their central head offices.

New 3D printing technologies have the potential in the medium to long term to enable local cost effective manufacture and production of whatever is needed thereby hugely simplifying product distribution channels and reducing freight miles by replacing remote centralised mass production with custom local production where and when it is needed.

It is essential that every facet of business moves away from the traditional brittle centralising model dependent on vulnerable and complex long supply and commuter chains to a more resilient distributed local model for the 21^st century and beyond.  The sooner this is done the better it will be for everyone as this will at the same time ensure a fairer and better distribution of employment, wealth and power throughout the nation!