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 thus 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 wind mills or water 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-renewableresources 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!