OPINION:Seismic change afoot as market pressures drive compromises, writes TONY KINSELLA
WE ARE living a global crisis so reasoning in terms of “them” and “us” no longer takes us anywhere. We have collective levels of debt that can never be fully repaid.
The markets therefore play a manic game of musical chairs. Last week buyers were so desperate that they fought to lend money to Japan, a stagnant economy struggling with the aftermath of natural disasters.
We are moving beyond debt and fiscal crises into a political “krisis” in the original meaning of that Greek word where calamities trigger new beginnings.
Our existing systems have failed. We need new ones. But we humans excel at adapting. Tomorrow’s world will be different. When a senior British Conservative, George Osborne, calls for greater EU integration, you know you are living through a seismic global change.
Western economies resemble those cartoon figures who run off the cliff and keep going until they realise they are no longer on terra firma. The main countries in the Organisation for Economic Co-operation and Development (Europe, North America, Australia, New Zealand and Japan) ran over that cliff edge in 1974 when oil prices quadrupled.
Less than four decades ago, anyone who wanted to buy a car, a power station, or who needed to raise capital had to deal with an OECD-world business. This dominance helped sustain three decades of dramatic post-war economic growth. They were decades when annual growth was between 5 and 7 per cent.
The maths are simple: the wealth of societies growing at such rates doubles in less than two decades. Germany today, at 3 per cent growth, is the star European economic performer. The emerging economies now account for 52 per cent of global GDP and they are the ones with 7 per cent growth rates.
Four factors helped cushion our post-1974 economic fall: increased employment of women, the information technology revolution, resurgent inequalities, and a credit explosion.
The progressive entry of women into the labour market created two-income families which fuelled growth through increased consumption. The IT revolution boosted productivity and created new businesses.
The post-war consensus on equitable societies began to unravel in the 1970s as Reagan and Thatcher argued that public provision had become an obstacle to wealth creation.
Consumption in economies marked by static or falling average incomes could only be sustained through a massive credit expansion, what the UK chancellor calls “a decade-long debt-fuelled boom”. It’s a boom that has now definitively bust.
The twin questions we now face are: what kind of society do we wish to inhabit and how do we go about creating it?
Market pressures will drive political compromises. Yesterday’s radical proposals will become tomorrow’s practical steps. More European economic integration and the issuing of European bonds must now be months rather than years away.
Since a reborn Deutschmark would appreciate by over 25 per cent against other currencies and ruin Germany’s export economy, Merkel will be quickly brushed aside if she stands in the way of Germany’s economic interests.
Lenin once noted that “sometimes decades pass and nothing happens; and then sometimes weeks pass and decades happen”. A sentiment echoed in last Saturday’s Wall Street Journal by Deven Sharma, the president of Standard Poor’s, who recognised that “we are moving into uncharted territory”. When Bolsheviks and capitalists agree, times are most definitely a-changing.
Tony Kinsella is a writer and commentator