Friday, 1 January 2010

Macro Level Trends – Economic Structures – the Need for 2010 New Belief thru' Eco-Capitalism

The beginning of a new decade begs the question of how we are to build and progress the very core of the global, and specifically western, economic construct.

The failure of the Copenhagen Summit to deliver a political solution to “the greatest challenge to face humankind in its history” (to re-quote the engrained mantra) has left industry and commerce in the mire of enormous doubt.

That reality, married to ongoing pressure regards the availability and cost of capital together with shell-shocked B2B & B2C relations, in turn generates a climate of conservatism, angst and possibly fear at BoD level and in the strategic planning, marketing and production departments of companies – large caps and SMEs.

The economic system of the West beyond the severe trauma of the recent past years, the news from US, UK, now France and CEE nations highlight the possibility that the multiple challenges posed by cross-arena 'seizure' (available government policy instruments, 'baton the hatches' business mentalities and sensitive consumers) could theoretically set the scene for a version of multi-cause systemic 'anaphylactic shock' – something akin to Japan's 'lost era'.

This last decade of ever-increasing CO2 appreciation ['awakening' vs 'mania'] created the a new political ideology and stage, with grand plans to combat the threat assisted by ever more diverse and eclectic eco-solutions, most notable in new energy generation. But across the board in each sector (energy, industry, housing, transport etc) similar supposed panaceas were seized upon and over-hyped by journalists seeking to create content for the eco-interested audience across a wide spectrum from New Scientist magazine to the Sunday Telegraph.

The CO2 challenge is still very much apparent, even if the topic has been 'sensationalised' as far as realistically available solutions are concerned. However, without that all important political global agreement put into place the expectation of what was an actionable 'trickle-down' from global standards down to directly-linked nation-based policy-making has been lost. The task is muddied by present economic waters given the disparity between 'old-world' and 'EM' regards present economic strength and near, medium & far term growth expectations.

Instead it is down to individual nations and at best regions (ie EU, NAFTA, MERCOSUR, ASEAN)
to set eco-policy. Given that the west is further along the notional development curve regards income levels and standards of living, yet arguably – depending upon technology type - to an extent lower-down on the eco-tech curve compared to Japanese, S. Korean & Chinese peers, this puts the west in a somewhat precarious position. Very basic analysis, interpretation and conjecture highlights the strain on western economies created by the gap between economic muscle and the 'heaving lifting' ambitions regards the carbon-challenge.

Public funds – largely borrowed – have been set aside to assist in the task, portions of which have been allocated and spent, but the as the severity of the dismal economic picture is slowly but increasingly appreciated, so the necessary reaction to avoid future national economic meltdown has been more speedily understood as the question of actual sovereign wealth – the innate financial standing of nations – poses new unnerving realities; a scene not seen in the west for 250 years. Hence the actions Iceland, Ireland, Spain and Greece, with now the UK (and sterling) under increasing scrutiny.

The capital markets will undoubtedly both dampen and exacerbate the national credit-worthiness issue on a case by case nature. By quickly viewing the west, it can be seen that Europe will come under greater strain given its increasing internal strains acutely testing the integration model (thereby putting pact leaders Germany & France under greater pressure to finance and devalue the Euro), whilst the UK faces the compromise of possible further devaluation of sterling to maintain a competitiveness gap whilst also having to content with the possibility of latter-day inflation as a result of massive previous (and possibly slimmer ongoing) QE measures.

But what will drive the western economies looking forward relative to the eco-challenge?

In short, mass application of conventional evolutionary solutions supplied at a lower cost base. Japan and been, and presently is, the examplar; especially so now with Toyota's call that it reduce its input costs (Tier1/2 parts, overhead inc energy) by 30%.

Instead, the Japanese / Toyota model will set the standard for the west.

The idea of those supposed 'savior' new technologies and sectors such as neural-IT, bio-tech and nano-tech - which demand presently unavailable major financing and 'armies' of suitably educated management and staff – will be inevitably surpassed by the realistic answer to resurrecting economies. Incremental conventionality with reduced cost-base, the importation of foreign solutions and the creative application of inter-sector technology transfer.

[NB. For the UK and elsewhere, the case study of Dyson (though perhaps over-used) is still applicable for the engineering and manufacturing sectors. Dyson transferred industrial air-filtration solutions into the domestic home, and latterly has re-branded Mitsubishi owned technology for its 21st century public-use hand-dryers).

This then sets-out the outline of viable, progressive road forward, but what of the issue of capitalisation?

The west is, for the first time in 60 years, undergoing a period of mass fiscal saving given the fears that people now have regards their own financial fragility. Whilst it may be argued that saving is thus not spending and so not growing the western economies, a less populist but more coherent argument is that this period of personal saving, whilst temporarily undermining M4 itself, has the effect of building a solid, and importantly liquid, capital base.

Advantageous to both nations themselves given the debt & credit-worthiness issue, and as the innate fertiliser for new-age attuned industry and services. However, in time as individual savers and the masses feel greater comfort from their cushion savings, the issue of pitiful returns will raise its head (eg UKs 0.5% MPC base-rate). Whilst other savings tools are available (eg ISAs), they too have innate disadvantages, increasingly so as government retracts the previously generous terms that attracted so many entrants as it seek to reduce the budget deficit & PSBR/PBR.

Thus in time savers with partially morph into value hunters, seeking new higher-return prospects for their hard-earned cash, especially in the face of possible wage-deflation (or indeed its opposite under the scenario of overt-played QE and endemic wage-push inflation that proves effectively worthless).

New avenues for capital allocation will be sought and such drivers raise the banner for 'Eco-Capitalism' – a new evolutional, developmental and robust phase in the history of capitalism itself.

Today, our economic system must be attuned to the needs, wants and desires of all stake-holders.

From the popularist mentality of society en mass, to individual consumers themselves. From the companies that act as primary economic agents, to bond / stock & hybrid investors that set the course of action. From the banking sector itself that acts as the central economic intermediary, to the increased role and expectations of partially integrated government.

In the face of our new decade in this still relatively new century, this suggests a re-orientation of the perception and focus of capitalism. Importantly not a major re-organization of the economic model 'in toto' a so many would have us believe, but perhaps a re-consideration of the ideals and worth of capitalism as a global force for good and its positive outcomes.

The key is an evolutional development which allows for greater control (though not necessarily via heavy handed regulation), and the task of attracting people to appreciate the benefits of merging a stakeholder society with that of a stock-holder society. By historical example (inc present day China) the radical about-face structural revolution some far left-leaning commentators seek only ultimately leads to a deeply floored economic model and accordant social dismay.

Instead the future should be moulded through good-minded eco-activism being directed through a periodically imperfect but proven and progressively attuned model of new era 'eco-capitalism'.

As the needs, wants and desires of various economic and social actors are being voiced, so the task of nations, finance and industry is to tune relative policy-making and action past the 'crackle' of well-intended but mis-appropriated 'interference', and onto the right frequency for economic and social improvement.