As the Greek financial system lurches from one brink of collapse to the next, it’s worth trying to identify what we know about the current state of the Atlantic financial crisis that broke in 2008. In summary, I think it is this: the present approaches to dealing with debt will fail until the banks take losses as well. And that needs financial and social innovation.
Here’s a thought. One way into several of the policy issues dominating British news headlines – from the future of the national health service, to the Southern Cross catastrophe, to the funding of higher education – is to look at them through the lens of Jane Jacobs’ distinction, in her book Systems of Survival, between systems based on territory (‘guardians’) and systems based on exchange (‘traders’). Most human societies need both. But when we get the distinctions between them blurred, breakdown and corruption follows.
Suddenly, with the turn of the decade and the latest World Economic Forum opening, we’re awash with projections of how the world economy might look in 2050, produced by economists, and each as implausible as the other. Two, from HSBC and PwC (both open in PDF) offer similar (and improbable) views of a hugely expanded global economy to 2050. But they also seem to assume that the future will be a lot like the past.
The recent transfer of the ownership of Liverpool Football Club from two unsuccessful American millionaires to another group of Americans tells us something about the state of English professional football, but led me to more interesting questions about how and why societies should impose limits on ownership. This goes far beyond football, and the answer seems to be when the value generated by the organisation is primarily social; this value should not be open to private appropriation. It seems increasingly clear that ownership is going to become one of the contested issues of the coming decade. In this post I am going to try to take some case studies to tease this out.
I’ve not been able to blog recently – a mix of work commitments and being away – but I’m delighted to say that during that time the article I wrote with Hardin Tibbs on the global financial crisis has been published in the Journal of Futures Studies. We argue that to understand the financial crisis, it’s necessary to look across multiple timescales, and at the same time. There’s a short-run story about the financial sector, going back thirty-forty years, which is also bound up with a technology story; there’s a longer-run story about energy, which goes back to the development of oil as a significant energy source in the early 1900s; and there’s another – more long-term – story about the end of modernity, a story which started being told around 350 years ago. Each of these suggest a system running up against its limits, and each of them on their own could have caused the crisis. The global scale of the crisis was because these different systemic stories started to interact. And looking at it in this way, it is clear that the crisis isn’t over yet.
One of the pleasures of blogging is that the dialogue which it sometimes provokes, and my recent post reflecting on the health care vote and the apparent breakdown of ‘normal’ political processes produced a couple of thoughtful responses which seemed to me to take the discussion on. My Futures Company colleague Walker Smith suggested to me from North Carolina that the Republican Party was being squeezed by four concurrent trends which were all disadvantageous to them, while closer to home my sometime collaborator Ian Christie puts US politics in the wider context of responses to globalisation. With their respective permissions, I’ve used large parts of their emails to me in the post that follows, paraphrasing lightly.
No sooner had I posted earlier this week about the iPad and Carlota Perez’ model of long-term patterns of technology innovation and investment than I opened Strategy + Business to discover that the venture capitalist and technology analyst Mark Stahlman was also using her model to predict that good times are, well, just around the corner. Very good times, to judge from his Bowie-esque title: ‘A New Golden Age’.
There are some good things about his piece in s+b. It’s a very clear description of Perez’ thinking, and the diagram of the Perez’ S-curve is far better designed than the one I used in my post – clean and clear.
And there are some not so good things, especially when he gets to the futures part of his article.
Eric Hobsbawm is Britain’s most distinguished living radical historian, and part of his life’s work has been a global history in four volumes, from 1789 to 1991. The last of these, The Age of Extremes, was published in 1994, in the aftermath of the end of the Cold War.
The latest edition of New Left Review, which marks the journal’s 50th anniversary, opens a long and reflective interview (subscription required) with Hobsbawm by asking what’s changed since 1991. Some of these points are obvious, some less so. Together, they add up to a picture of significant fragmentation, both at a global level and within states. (more…)
(‘Pretty Boy Floyd‘, by Woody Guthrie)
It’s hard to watch the whole bank bonus row unfold without thinking that it seems to be taking place in a social and economic void. To pump some air in, I thought I’d try the ‘Five Whys‘ approach to unpack it a bit.
Why can banks afford to pay huge bonuses? Because they make huge profits.
Why do banks make huge profits? Because the legal, regulatory, economic and political environment has increasingly been stacked in their favour over the last thirty years.
Why has the external environment been stacked in their favour? Well, I had a go at answering that question here, recently, but it’s worth spending some time on the first couple of questions. The answer, at least on one account, is that banks have systematically offloaded risk onto the state. Which, given that they’ve now been bailed out to the tune of billions without having to pay back their previous (or future) profits seems like a fantastically successful business operation; nice work if you can get it.
Don’t offer us legal protection
They use the law to commit crime
I dread to think what the future will bring
When we’re living in gangster time
(“Gangsters‘, by the Specials)
There was a throwaway line by John Kay in his remarks at the TUC’s ‘Beyond Crisis‘ event a couple of weeks ago that didn’t get the attention it deserved: ‘that the financial services industry is by far the most influential political force in modern countries‘. It’s not the sort of language you expect from someone like Kay, despite his fine work on the limits of markets. But further evidence that he might be right followed almost immediately, in the shape of both the pusillanimous Walker Report and the breathtaking Supreme Court decision on banks’ overdraft charges. (To quote an old Goons sketch: Open your wallet and say after me, ‘Help yourself’.) Fortunately John Kay had spelt out his argument in his recent Wincott lecture. Two quotes from the lecture summarise it: first, “prosperity and growth require that entrepreneurial energy should be focussed on the creation of wealth, rather than the appropriation of the wealth of other people,” and second, that, “political freedom is jeopardised by excessive concentrations of economic power”.