Economania

Whither goest the global economy?

On Saturday 5th March, The Daily Telegraph reports Mervyn King, Governor of the Bank of England, saying that there is a risk of a new banking crisis, that the finance industry is in need of urgent reform and that bankers routinely exploit millions of customers. Nothing new here, one might say, and if these comments had appeared in The Guardian, one would not be surprised. But when an organ of the political disposition of The Daily Telegraph reports such comment, then it is time to take notice: the Telegraph is, after all, the mouthpiece of the political right and the Establishment.

One wonders where we might be heading, so I'll stick my neck out and try to divine the future. Let me begin by quoting an article from New Scientist (Issue 2802, "I predict a riot: where the next dictator will fall.", Debora MacKenzie, 3/3/11):- "NO ONE saw it coming. Three months ago the rulers of Tunisia and Egypt, Libya and Bahrain seemed firmly in control. Dissent of any kind, let alone revolutionary change, was nowhere on the horizon. Now it's anybody's guess which country will be next. This is not unusual. The US military tries to predict political instability, and the results, while secret, have apparently been poor. "We have never once gotten it right," Robert Gates, US Secretary of Defense, said last week."

I quote this for two reasons: one is for the content, but the second is that if my predictions are way off the mark, I can at least claim to be no worse than the CIA when it comes to futurology.

The financial crisis broke over our heads some two and a half years ago now, and after the initial fall-out it seemed that all was, as a doctor might say, in a stable condition. Then suddenly, Tunisia, otherwise a political backwater, made the headlines as its people overthrew President Ben Ali and his government in a matter of days. Barely had the dust settled than Egypt went up in flames, while riots and protests were reported also in Bahrain and Jordan. After three weeks of protest, Egypt's President Mubarak realised the game was up and left office. Barely had he had chance to put his feet up when it all hit the fan in Libya.

What triggered all this? Was it the result of some new political philosophy sweeping across the world, like Marxism once did? No, it was the harassment of a street-trader in Tunisia and his resultant suicide by burning himself to death in public. This is the political equivalent of the Butterfly Effect: an infinitesimally small stimulus resulting in a hurricane. It's interesting here to consider Marx's own prediction: he said that Britain would, by dint of its being the first country to industrialise, also be the first to undergo a proletarian revolution. In the event, no such thing happened: instead there was slow reform. Whether one can attribute this to the phlegmatic disposition of the British people or the clever machinations of its political class, one cannot say.

I cannot remember a time when the world was in so politically turbulent a state, and my political consciousness extends back some forty-five years. The economic centre of gravity of the world is shifting as China, India, Russia and Brazil expand, while America, though still the world's biggest economy, flounders and Europe struggles with the consequences of the recklessness of both its governments and its financial institutions. The euro has bound Europe together into an economic monolith at a time when economic fleetness of foot is needed. It might be thought that Britain's independence from the euro would pay a dividend but since it is the market for almost 60 percent of our exports, we have a vested interest, whether we like it or not.

The principal consideration in all of this is energy. Energy is the heartbeat of the modern world and if the supply dries up, we are back in the caves. Ironically, the world's major sources of energy are to be found largely in the hands of authoritarian regimes, or in politically unstable parts of the world; one might conjecture as to which is cause and which is effect. The top five producers of energy, in MTE (Millions of tonnes oil equivalent) are: China (1,814), United States (1,665), Russia (1,231), Saudi Arabia (551) and the Euro Area (460). The top five consumers, on the same basis are: United States (2,340), China (1,956), the Euro Area (1,229), Russia (672) and India (595).
(Figures taken from The Economist's 'Pocket World in Figures 2011', and refer to the year-ending December 31st 2008.)

These figures should give us pause for thought: the Euro Area imports 63 percent of its energy, and Britain, a net exporter of energy in 2003 (11 percent), now imports 17 percent of its energy. The USA imports 29 percent of its energy, while Hong Kong and Singapore are 100 percent reliant on external energy supplies. The price of oil is already starting to rise as the turmoil in the Middle East is factored into the international energy equation and the 8 gallon of petrol is predicted is Libya does not reach a settlement soon.

China might think itself somewhat better insulated against the chill winds of the global oil market given that it produces 80 percent of its electricity from coal, of which it has an abundance, but it also imports half of its oil requirements. China has been castigated as a major contributor to global warming: John Ashton of the Foreign Office, quoted by the BBC (19th June 2007), reported that China was commissioning two coal-fired power stations per week.

Many of its older power stations may well be smoke-stacks but the New York Times (10th May 2009) reports:-
"But largely missing in the hand-wringing is this: China has emerged in the past two years as the world's leading builder of more efficient, less polluting coal power plants, mastering the technology and driving down the cost. While the United States is still debating whether to build a more efficient kind of coal-fired power plant that uses extremely hot steam, China has begun building such plants at a rate of one a month."

Nevertheless, if China is to continue its economic development, it needs markets for its goods, but these will shrink if the global price of energy rises. At first blush this might seem only an economic consideration but already in China there is growing dissatisfaction among those who are not seeing the benefits of economic growth. Only last night on the BBC's 'Newsnight' programme, there was footage of a BBC correspondent being manhandled and beaten up by police in China for attempting to report unrest. The Chinese government might think itself immune from the current epidemic of popular unrest, but Louis XVI probably thought the same thing.

The UN and NATO have been wringing their hands in recent days as they try to decide how to react. Given the history of the involvement of the Western powers in the Middle East and North Africa during the 19th and early 20th centuries, one can understand their reticence. Even if NATO were to act against Gadaffi, its motives could well be misconstrued. Also, acting against Gadaffi might incline other Middle Eastern regimes to wonder if they might be next. The people of Libya, speaking on 'Newsnight' last night (4/3/11) were asking for outside intervention, but any such intervention would have to be very judicious ensuring that the initiative remained in the hands of the Libyan people and was not seen as unwarranted outside interference. Damned if we do, damned if we don't. China is increasingly involved in the economics of Africa, seeking supplies not only of oil but, more importantly minerals, and among those, the metals essential to modern technology, particularly the rare earth metals. Once again, while China might secure its supply of energy and minerals in Africa, it still needs a market for its output, which implies a need for global economic growth: China has to export. In the absence of an export market, China does not yet have enough domestic consumption to keep its economic juggernaut rolling.

As China increases its economic involvement in - some might say its economic grip on - Africa, it would do well to reflect on the ultimate consequences of the encroachment of the European powers on that dark continent. Belgium's imperial rule in the Congo was a disaster for that latter, the effects still with us today. Britain once, and very briefly, held a swathe of territories, such that once could travel from Alexandria to Cape Town on land controlled nominally from Whitehall, but the 'wind of change' started blowing soon afterwards and it blew very cold indeed. China, in much the same way as the US once did, is becoming an imperial power, de facto if not de jure, and the trajectory of empire is well documented, beginning with Gibbon's treatise of the Roman Empire. Already in parts of Africa, there is popular dissent against the Chinese economic incursion as local markets are disrupted, and where legal protection, for those without wealth and influence, is scant. China will come to discover, as Britain did, that an empire is a poisoned chalice.

Parallels have been drawn between the current economic turmoil and that of the 1930s, but the upheavals of that decade were consequent upon the First World War: Germany was already suffering the effects of the war reparations demanded by the Treaty of Versailles when a further blow was dealt by the Depression, originating in the USA. In Russia, the tsar had been overthrown, only to be replaced by an even greater tyrant; Germany slipped from democracy to fascism as people lost faith in government. In the thirties, the world economy was on the downward phase of a Kondratieff cycle: the global economy was in decline. These current political tremors are occurring during the upward phase of a Kondratieff cycle which began some 8-10 years ago.

The American philosopher, Eric Hoffer, said: "It is not actual suffering but a taste of better things which excites people to revolt." The demography of the Middle East is the principal element in the current political turmoil: the young people of the region are better educated, and more importantly, in better communication with the rest of the world; this is as much as anything a generational conflict; it has been called the Twitter Revolution. What Britain and much of Europe experienced in the nineteen-sixties is now coursing through the Middle East, though in much more violent form. It was as Europe emerged from the privations of war and rationing that its young people became radicalised. However, the soixante-huitards of Paris may have thrown bricks and even burnt cars, but it didn't degenerate into open gunfights as it has in Libya. When, Gadaffi falls, as he must, all bets are off - the region can expect even further disruption, and it will not merely ripple across the world, it will be a tsunami.

Chris Waller - Permission granted to freely distribute this article for non-commercial purposes if attributed to Chris Waller, unedited and copied in full, including this notice.

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