Sunday, 4 January 2009

Macro-Level Trends - Economic Outlook – Seeking Solace in Gloomy Times: The Tipping Point for Capitalism's Re-Formation

The start of the year is always accompanied by commentary of the economic outlook from well regarded government, banking, institutional and trade body economists.

Given the events of the past 18 months, it is no surprise that this year sees perhaps the worst of expectations, many believing the US, UK, Europe and RoW are just about entering the bottom of the trough for regional and global economic cycles – the length of that 'bottom dredging' disputed, from anywhere between a 6-month lull with quick 'U-shaped' pull-back to worries over a multi-year 'L-shaped' drag: a mini version of Japan's stationary experience.

Of perhaps greatest concern has been the tendency for governments to either underestimate or over-pep the reality of the situation, typically exemplified by the UK Treasury's presumption that mid 2009 would see the beginning of a 'climb out the bath-tub'. That expectation now looks overtly optimistic given that it was undoubtedly based on best-outcome scenarios for the US 'bounce-back' and Asia's slowed but strong demand growth propelling the West. Both those catalysts now look to be respectively absent and scarce.

The on-going economic stumbling of the US has been unfortunately maintained by an effective hiatus created by financial markets 'fire-fighting' (blazes rearing unexpectedly hither and tither), a Presidential change that has allowed a vacuum of leadership and the details of TARP definition & funding allocation being seemingly eternally negotiated – as we saw with the Autos Bail-Out action. Thus the effects of the ever-spreading, viral-like fiscal break-down that affects the full spectrum of the economy (B2B, B2C & C2C in the case of housing) has been exacerbated by a testing of, and partial failure of, sound economic knowledge knowledge and its direct practical application.

[The various micro and macro-economic theories of Smith, Malthus, Ricardo, Keynes and various 'Schools' have all been debated in the effort to find an all encompassing solution. But of course, as any academic economist will state, it is the very unfolding of ongoing commercial history that evolves capital markets' shape, two crisis never exactly replicable thanks to such evolution, and so giving rise to a never-ending compilation of economic learning, intelligence and modeling. Academic absorption is presently cold comfort to politicians and their public].

As for Asia's previously considered 'decoupling' coming to the aid of the West, Chinese and Indian recent experience highlights the critical importance of inter-dependent globalised capital markets as the life-blood of global trade and the propensity of aware and reactive Eastern consumers to retract their own previously optimistic economic behavior to protect themselves. The workings behind the theory of marginal utility has never been so apparent.

The rapid shrinkage of export demand has set BRIC national governments into action with economic stimulus packages to help off-set growth deflation, but equally and importantly, the relatively new consumer markets within China and India are built upon very very rational social cultures which less than 2 generations ago were largely subsistence-based and family-support-centric. This means that the majority of new consumers that have helped create the economic miracles psychologically are ultimately 'defensive' economic players. Hence the effective exodus from House, Stocks and Vehicle purchases. The boom-bust of housing and stocks burnt many late-comer fingers, now weary to quickly return, and the previous good deals available in the auto-sector thanks to market saturation have dissipated and those that are available can be viewed but ignored when as the employment concerns of industrial re-structuring becomes an increasing concern to the populous.

The outcome for both West and East has been a level of government intervention beyond historic precedence - the US' $700+bn & China's $586bn to respectively re-inflate and maintain buoyancy of the world's largest economies. Both infrastructure and industry-progressive based initiatives inspired by the Keynesian-esque turnarounds of the past. This notionally agreed mutually supportive, dualistic, 'pincer' approach of the US and China reflects the newly emerged term 'Global Deal'; as coined by the likes of Lord Stern and Sir Howard Davies of the LSE. This very phrase broadens the very realm and definitions of nationally 'paralleled' global economic activity, far beyond historic norms; and is evidently witnessed by the need for the world's central banks to react to the financial crisis in the co-operative, mutually assured, almost unified manner. Hence the words 'Global Deal', whether used euphemistically or as the ideology behind new structural economic thinking, reflects the global economic reality of today.

So, given the massive scale of the global financial melt-down and the need to re-construct an improved framework for global capital markets to serve the global good of international free-trade, the task for economists, politicians and industrialists alike in 2009 is to consider and re-consider the very tenants that make-up a revived and improved capitalist model. Moving beyond to take the best of 'old-world' Anglo-American capitalism and adding new PESTEL dimensions that reflect the needs of today's and tomorrow's individuals, societies and commercial constructs.

To evolve a form of philosophically sound and socially accepted global capitalism which can critically delivers a sustainable prosperity for the remaining majority of the 21st century and beyond.