The elephant in the corner of the room
Periodic crises should be understood for what they are. They provide opportunities to introduce unpalatable, measures that have major detrimental impact on citizens. The 2007/08 crisis is a case in point. It should not be viewed as a discreet event that will in time pass to allow Western economies to continue as before. In fact, for several decades there has not been a moment when the future was as good as the past.
Evidence is accumulating that the ‘West’ is in the grip of a chronic, long-term, crisis that is draining the vast reservoir of wealth and influence it built over the centuries. This is not the same as the acute crises that come and go; as in the case of the latest so-called credit crunch. Before presenting the evidence for the notion of a chronic crisis, it is perhaps useful to give everyday examples to demonstrate that the process of radical transformation is already here and has been with us for some time. This is at great odds with efforts made by movers and shakers to convince citizens in the leading countries that life continues as usual.
Education provides one illustration that is easy to grasp. The lead that ‘Western’ higher education enjoyed in the past is dwindling fast. As Mark Williams succinctly put it, “now something like two-thirds of those gaining science and engineering PhDs here aren’t U.S. citizens. For many years America led globally in the percentage of 25-year olds with college degrees. Now the U.S. is 31 in the world–right behind Bulgaria and right above Cost Rica. The problem for countries with skill levels between Bulgaria and Cost Rica is that 20 years from now they’ll also have income levels between those countries.” (see technologyreview.com published by MIT) Basically, education, and higher education in particular, has become less affordable not just in the USA but in Europe and Japan as well. Universities in the United Kingdom have had their funding levels altered to recognise new realities. Students have to shoulder a greater burden of the cost of their education, which seems on the face of it not unreasonable, but a visit to most universities also show institutions suffering substantial financial burden. This is revealed not just in the state of buildings and equipment but is now evident even in the standards of cleanliness. University of Liverpool, as one instance, is in the process of closing its politics, philosophy, and statistics departments.
Health services are just as stretched. The National Health Service in England has had to endure over twenty major reorganisations in some twenty-five years. The turmoil continues unabated and with good reason: demands are increasing and finances are unable to cope. The reorganisations are advanced as improvements but there are serious issues of sustainability and affordability that lurk behind most actions taken. Standards of cleanliness present serious difficulties at a time of increasing patient numbers and over-extended budgets. Deaths from hospital acquired infections are a constant concern. Social services operated by local authorities are in an equally dire state. Fatal errors are made, staff are blamed, but the underlying causes continue to exert their negative influences. Every time there is a major scandal; often the death of a tortured or neglected child’, an investigation is held and then the mantra of “so that this could never happen again” is repeated by politicians and managers. But of course this does, and will, happen again.
The most obvious impact felt by ordinary people, as opposed to the fortunate few, is welfare provision in general, such as sickness, unemployment, and disability benefits, and pensions in particular. These safety nets; so necessary in a liberal economic system, are becoming steadily threadbare. With increasing numbers of pensioners and people unable to find work the situation could only get worse. Final salary pensions are a thing of the past for most people. They are pushed into putting their pension funds into the stock market but the lessons of the recession turned depression of 2008/ 09 did not go unnoticed. Others put their faith into acquiring properties but the housing crash closed that door as well. All avenues to make provision for retirement seem to turn into cul-de-sacs. Where will this leave the many millions of citizens who are now confidentially expected to live well into their eighties and nineties?
On an international level, perhaps the most noticeable impact has been in the inability of the leading powers to impose their will on an increasingly fractious world. America’s wars in Iraq and Afghanistan have exposed a state of powerlessness that is unmistakeable. The war in Iraq has been lost for all intents and purposes. The British got the message months before when their forces left Basra to its own devices. President Obama has now accepted the same fate with a lengthy withdrawal plan that would save face and enable those who cooperated with the invading forces to make arrangements for their own future. Withdrawal from Afghanistan; ‘the graveyard of empires’, will take a little longer but in the meantime the conflict has destabilised Pakistan and Western powers have no idea, or resources, on how to end the contagion. In the case of Britain there were scandals of ill-equipped troops and planes that have not been modified although faults were reported years previously. At base, the funds for keeping well-equipped armies, navies, and air forces are simply unavailable and becoming steadily more scare. The recession of 2008/ 09 will be blamed but the matter goes much further back.
Obviously, the nations concerned have a huge lead over less well off nations, but this lead itself makes measures to deal with the negative influences very difficult to implement by governments in a way that would be tolerated by the citizens. The dilemma facing the ‘West’ is that there is simply no way out. The steady process of reduced wealth and power is unstoppable barring drastic actions, such as the use of brute force including atomic weapons, which are at the moment difficult to contemplate.
The ubiquitous second law of thermodynamics
The West is not any different from past ‘empires’ that came and went. The Roman, Byzantine, and Ottoman empires are examples that spring readily to mind. They seemed to fall more often than not without much external inducement. Somehow, there seems to be something inherently unsustainable about that form of global structure. That something is easy to recognise. Not unlike most aspects of life, the political economy obeys the second law of thermodynamics which, put simply, means there is no free lunch. Systems drift towards disorder; total entropy; a measure of disorder, always increases. With input of much energy parts of the system might be able to increase their order (make more money, become wealthy, enjoy better amenities, or whatever) but that only happens by the export of disorder to other parts of the system. To retain that state of order (relative to the disorder that characterises the surrounding systems) energy must continue to be pumped into the orderly system.
In scientific terms, the skewed pattern of less than one billion people living in absolute luxury while almost six billion have to mange on a great deal less is not a probable outcome. This unlikely situation is not an accident. To some extent the pattern came about through unrepeatable gateway events such as the Industrial Revolution, discovery of new lands (Americas and Australia especially), and the colonisation of vast areas of earth (Africa and India especially). But the rich and powerful countries had, and have, to strive hard to retain that advantage and to maintain the status quo. Inevitably, at some point sufficient energy might not be available to maintain the unlikely pattern: the process of ‘decline’ gathers momentum and in time the setup changes. The nonsense peddled by some fundamentalist believers in economic liberalism that trickle down will mean everyone is ultimately a winner is moonshine.
[Readers interested in exploring the entropy theme might wish to read Eric Beinhocker’s The Origin of Wealth. The original idea that the economy, like other systems, is subject to the second law was advanced by Georgescu-Roegen in The Entropy Law and the Economic Process, published in 1971.]
Strenuous efforts are made by US commentators and politicians to ignore the inevitable. In practice, the USA has followed an identical path to the UK on its way down from the top slot. Decline is characterised by belligerence and aggressive ventures at home and abroad and again the parallel between the UK and USA is unmistakeable. At heart, it is difficult to accept that an inevitable process of attrition is underway. The financial turmoil in the American market, just like the ‘war on terror’ and the invasion of Iraq and Afghanistan, are little more than symptoms of an ongoing process of global adjustment prompted by a waning power (See America’s Suez and America’s Turbulent Decline). But it is wrong to see UK or US decline as a discreet incident. ‘Western’ powers are riding the same wave.
Evidence of chronic decline is readily available
The world has been in the grip of a neoliberal economic model which has been promoted, and in many cases imposed, in all four corners of earth (see Neoliberalism and also Popes and Liberalism). This itself was part of efforts by leading ‘Western’ political economic powers to resist or at least delay the process of chronic decline. Actions by the neo-conservatives in the USA, using the hapless Bush as a figurehead, are also part of this rearguard action. And things are likely to take a more extreme format in future: the heavily skewed pattern of the global distribution of power and wealth is shifting and those at the top could not, and would not, surrender their privileged position tamely.
The evidence for this chronic crisis (as opposed to the occasional acute crises) is plentiful and one does not have to work hard to reveal the facts behind the comforting words in which think tanks and international organisations wrap their unpalatable messages; with use of words such as ‘rebalancing’ and discontinuities’. It is perhaps appropriate to start with Global Trends 2025: A Transformed World published in November 2008 by the US National Intelligence Council. The report pulls no punches. Right at the beginning it states that “A global multipolar system is emerging with the rise of China, India, and others…The unprecedented shift in relative wealth and economic power roughly from West to East now under way will continue…Continued economic growth—coupled with 1.2 billion more people by 2025—will put pressure on energy, food, and water resources.”
The future situation is summed up well in the first few lines of the Executive Summary (vi): “The international system — as constructed following the Second World War — will be almost unrecognizable by 2025 owing to the rise of emerging powers, a globalizing economy, an historic transfer of relative wealth and economic power from West to East, and the growing influence of nonstate actors.” The report, coyly, describes the “discontinuities, shocks, and surprises” and perceptively predicts that “the surprise element is only a matter of timing…”; giving the energy transition from fossil fuels to some other type of energy as an example. Significantly, a ‘cautionary tale’ about the pitfalls of long-range forecasting is given on page 5 to suggest that “linear projections” miss out the rich layer of ‘discontinuities’ caused by factors such as determined leaders, economic volatility, and geopolitical rivalries. It is indeed a complex world!
It is not possible here to refer to all the points made in over 100 pages of Global Trends 2025. The few remarks quoted above reveal the broad outlines of the chronic crisis facing the ‘West’ over the next few decades but there are other pointers:
- Rise of the ‘BRICs’; Brazil, Russia, India, and China: By all accounts it seems that neoliberalism and globalisation have benefitted these emerging economies more than the ‘Western’ economies. Other researchers support this conclusion. Angus Maddision, (Emeritus Professor of Economic Growth and Development at the University of Groningen and a world renowned authority on long-range economic projections) estimated that the average rate of change in per capita GDP from 2003 to 2030 for the ‘rich’ countries could be about 1.73 while the rate for the ‘rest’ could be some 3.01 [see Maddison, A. (2007:337), Contours of the World Economy 1-2030Ad].
- The emerging economies; with greater populations, will compete for scarce resources such as energy. The rate of consumption of these resources in the ‘West’ is unsustainable unless new sources are found and fast. Apart from uncertainty in finding additional capacity, the cost and upheaval in investing into and accommodating the transfer are likely to be substantial in already highly developed societies.
- Demographic changes already clear in Europe and Japan present serious problems to the communities concerned. The ratio of retirees to those in work is causing major headaches currently. The situation will get worse. The percentage of population younger than 30 years old was about 30 to 44 in Europe and Japan in 2005. By 2025 the percentage could be less than 30 in many parts of Europe (e.g. Spain, Italy, etc.) and Japan (see page 20 in Global Trends 2025). The financial burden of caring for this “pensioner boom” is considerable and will require radical compromises in budget priorities.
- To partly remedy the demographic imbalance, Western Europe in particular is encouraging immigration; usually by persons from Muslim countries. There are already between 15 and 18 million Muslims in this part of the world and the figure is rising (see page 25). The report cautions that “The annual net immigration would have to double or triple to keep working-age populations from shrinking in Western Europe.” (page 21) Naturally enough, those making the transfer to Europe do not leave their traditions and cultural mores behind. Hence, whilst new workers are welcome, the social and political consequences are obvious even at the present time. Immigration is developing into a problem rather than a solution. It should be pointed out here that the US Bureau of the Census expects immigration to both USA and Western Europe to decline between now and 2030 [see Maddison, A. (2007:337), Contours of the World Economy 1-2030Ad].
- Mounting demands for pensions and health services, coupled with new pressures on already stretched education and social services created by the influx of immigrants, will affect budget priorities as mentioned above. The most likely loser will be defence spending which will have inevitable impact on the ability of the countries concerned to exercise influence through military force.
- Finally, the report concedes that the above factors, and others, might force the ‘West’ to adopt protectionist (mercantilist) measures, similar to those seen in the 17th and 18th centuries, and more recently in the 1930s (see page 37). Such a trend will move the international trading system away from the global free market and into unchartered waters of trading closure.
The World Bank and others are just as pessimistic
The US National Intelligence Council is not alone in voicing the above concerns. The World Bank, for instance, publishes an annual report on Global Economic Prospects (GEP) which provides a glimpse of the gathering clouds. Again, it must be said that successive GEPs are written carefully to avoid causing alarm. Careful reading suggests that concern is well justified. For instance, Global Economic Prospects 2007 gives an illuminating view of the serious problems facing the leading economies both through internal problems (such as an intractable dependency ratio of retirees in relation to those in work) and through external pressures posed by emerging economies (China, India,…) who now find globalisation to their liking ( www.worldbank.org/gep2007).
The 2007 GEP provides information on the bases of which the following conclusions, which support what was said in the US National Intelligence Council document, could be made:
- “The pace of the [global] expansion is already slowing…” Developing countries will grow faster.
- Economic weight of “power houses” such as China, India, and Brazil is growing fast posing a serious challenge to industrial activity in the ‘West’. Britain’s reliance on financial services, etc. in preference to industry was exposed as a short-sighted, but possibly unavoidable, policy during the 2008/09 crisis.
- There is evident increase in productivity for global productive chains; especially services; taking jobs away from the leading economies. Globalisation is now seen as being of greater benefit to the emerging “power houses” than to the advanced economies.
- Developing economies are enjoying the benefits of accelerated diffusion of technology; cheaper communications, innovative organisation, …This has now gone beyond intermediate industry to include cutting-edge research and development.
- Threats to “global commons”, especially energy and raw materials. High consumption of these resources, energy in particular, in the leading economies is not sustainable in future. New sources might be found but one way or the other upheavals are only to be expected.
Another informative report, based on the Economic Mobility Project, was published in November 2007. The report was interesting because it brought together think tanks from the left and right of the political economic spectrum. Shortcomings of economic liberalism were presented in painful detail. The EMP report was not against economic liberalism it must be said. It simply demonstrated that ideology and reality are not the same. Figure 4 of EMP points out that “today, men in their thirties have less income than men in their fathers’ generation.” (Based on Brookings Institution analysis.) Figures 7, 8, and 9 of EMP show that the US is growing at a much slower rate: from 1820 onwards per capita GDP grew by an average of 52 percent for each generation. Since 1974 the rate has been reduced to 17 percent for each generation.
Should the ‘Rest’ worry?
Of course they should. The world in not getting more peaceful. Armed conflicts are much in evidence and with mounting economic and social problems within the rich ‘Western’ core and competition over resources, mainly energy, the situation could become even more unstable. SIPRI (Stockholm International Peace Research Institute) publishes annual yearbooks that monitor the state of conflict (including trade in arms, etc.) throughout the world. The 2001 Yearbook reported that there have been an average of 27 major armed conflicts per year since the end of the cold war. Of more interest, the 2006 and 2007 yearbooks pointed out that 14 major armed conflicts were all directly related to the US-led ‘war on terrorism’. Theories abound about the topic of terrorism but one aspect is beyond dispute regardless of the merits of the detailed issues involved: the prime motive is caused by economic and power imbalances between the haves and have-nots. On both sides the declared issues themselves are often cover for other undeclared objectives. If the ‘West’ feels threatened politically or economically then the perceived agencies behind the threat would, as happens today, be branded as terrorists and confronted on that basis. This is consistent with the possibility; mentioned in the US National Intelligence Council report that ;Western’ countries might adopt ‘mercantilist’ policies focused strictly on pursuing national interest in which (as described by Machiavelli many years ago) the ‘ends justify the means’.
Unless it is openly recognised that there actually is a long-term chronic crisis affecting the West, little will be done to anticipate and avoid the worst consequences.