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|How different is the world, really?|
Voice - 2009
It is tempting, and very common, at times of great shocks and crises, to proclaim that the world has utterly changed, that it will never be the same again. That is what many people—including, I must admit, the magazine of which I was editor-in-chief, The Economist—said for example after the terrorist atrocity on September 11th 2001. It is also what many people have said ever since the global financial crisis began really to feel shocking in the second half of 2008.
To see the events that we happen to live through as being of huge, historic importance is a natural human instinct. Such a claim is not, however, often born out by events. Typically, when shocking events occur, we overstate their importance, by comparison with longer-term forces and trends. Generally, in fact, such shocking events are really just reflections of longer-term trends. Historians in later decades will show that the events that have surprised contemporary observers were in reality the consequence of forces that had long been developing. It is those long-term forces that we should be seeking to identify, not chasing the impact of immediate shocks.
In the case of September 11th, some things did of course change immediately: the USA invaded Afghanistan and Iraq; many countries greatly improved their security controls at airports (at great inconvenience to travellers) and expanded their intelligence services; and the reputations of America and of its closest ally, Britain, for military and spying competence were badly damaged. By contrast, the image of Osama bin Laden and his Al-Qaeda terrorist network was greatly enhanced.
But was the world truly transformed by these events? Not really: 2003 was, after all, already the second time America had invaded Iraq, America´s image in the Islamic world was already bad, Al-Qaeda had already carried out several terrorist atrocities, and both Afghanistan and its neighbour Pakistan were already highly unstable places. Global terrorism, especially in the hands of Islamic militants, was already seen as a big danger.
The atrocity was a huge shock, which we will all certainly remember. Yet we now know that the list of big trends and issues facing the world was not fundamentally altered by September 11th.
I was in New York on that fateful day in 2001, in fact, and will certainly always remember it, the shock of seeing the twin towers on fire, and the chaos I found at New York´s La Guardia airport when (mistakenly, with hindsight) I went there to try to catch a plane. By coincidence, when I heard the news of the attack, I was having breakfast at the Carlyle Hotel in midtown
The economic crisis has not changed the world, either
How about the global economic crisis? Has that changed the world, and the way in which it works? In answering that question, it is important, I admit, to avoid sounding too certain. Trouble in
There may, it is true, be new surprises just around the corner. Japan offers a helpful reminder: two or even three years after Japan´s financial bubble burst in 1990, few people would have forecast a full "lost decade", nor that even today the country would be suffering from falling wages and household incomes, quite high unemployment rates, and public debts that are equivalent to more than 180% of GDP.
More could change; the long-term damage done by the economic shocks of 2007-09 could prove to be more profound than it now appears. Nonetheless, right now at the start of 2010, what feels surprising is that the economic crisis has produced so little change, not so much. Yes, there will be big changes in how financial markets are regulated, especially in America and Europe; yes, public finances in America, Britain and several other European countries have gone much further into debt, which will require taxes to rise in future or public spending to be cut, or both. But such changes are not really fundamental ones.
Globalisation is intact. There are protectionist threats, but none yet that is strong enough to reverse the process. In the emerging or developing countries, including
In geopolitics, the only obvious consequence of the crisis has been the creation—or, strictly since it existed before, the upgrading—of the broad, G20 ("Group of 20") summit including poor and emerging countries as well as the rich ones. But that would soon have happened anyway, given the rise in importance of
No, right now in 2010, this global economic crisis does not feel as if it is going to produce a fundamental change in the direction of the world, or of capitalism. The argument of this book is that, in fact, that we must look at the longer-term trends and forces if we are to see how the world is changing, and not be distracted by short-term shocks and excitements. In some respects, the current crisis will alter the speed with which those forces have their effect, and sometimes the specific impacts. But it will not change the basic issues and the basic direction.
The basic, long-term issue that I proposed in chapter two that we should pay attention to was the Chinese currency, the Renminbi. I argued that it is a mistake to focus on the US dollar, and to assume that as a result of the global economic crisis the US dollar is going to decline in importance or that American policies towards the dollar will need to change. The real change in the world currency system is going to have to concern the Renminbi, which is going to have to join the floating exchange rate system set up in 1971. This also means that the biggest economic adjustment is going to have to be made by
From the Chinese currency to climate change
That conclusion is in line with the long-term forces that have been at work in the world economy over the past 20 years. Since 1978
One consequence of that economic model for
At some point during this decade, these trends were bound to produce a substantial change in
Under the Kyoto Protocol, developing countries were not required to make any binding commitments about their future emissions. It was dissatisfaction with this provision, and especially its exclusion of
The Kyoto Protocol, which was thus ratified only by European countries,
Will it be enough? The agreement that closed the
This is a deal that consists mainly of a promise to make another deal during 2010, at a conference due to be hosted by Mexico, but then also to introduce, in the course of the next 5-10 years, much stricter controls on greenhouse-gas emissions than most countries have so far promised. For although the agreement contained a pledge to meet the target of a 2 degree celsius temperature rise, most scientists believe the emissions cuts so far promised are too meagre to achieve that. For scientists and environmentalists who have been lobbying about this issue for at least 20 years, it is dispiriting to get so little after so long a campaign. But for governments, most of whom have only begun to take climate change seriously during the past five years—if that—this deal is, as President Barack Obama described it, an important first step.
The question now is whether there will really be a second and a third step, and when. How can we tell? There are, most probably, some clues in the way in which the
The first and most important clue about that group of countries is that it was headed by the
President Obama´s offer to the conference of a 17% cut in American emissions by 2020, from 2005 levels, was modest by European standards but even that is far from certain to be accepted by Congress when legislation to implement it is debated next spring. That uncertainty gave America some leverage in Copenhagen—for President Obama could say, with total credibility, that unless a new treaty goes beyond Kyoto by including binding commitments by the big developing countries—ie, China and India—to cut emissions, Congress will reject it, along with the 17% emissions cut.
Like it or not, that evident truth destroyed as impractical any argument—by Venezuela´s Hugo Chavez and others—that the rich world is obliged to bear all the burdens of dealing with climate change, since the industrialised countries have caused most of it. That is a nice argument for philosophy salons, but has no political relevance in the real world.
The second clue, however, lies in the names of the other countries involved in the deal. They were
Without the participation of
Everything, however, depends on the next steps. America´s desire to get its legislation through Congress, plus the interest of China, India, Brazil and South Africa to bank this limited deal now for fear of worse later, surely make it likely that a proper legal treaty can and will be negotiated next year. Smaller, poorer countries no doubt will protest and hope for more. But in today´s world, the big and powerful call the shots. It is just that the list of big and powerful has changed, to now include
The real long-term change in capitalism
Today´s Chinese centrality is surprising only when compared with the period when China was isolated under Chairman Mao in the 1950s and 1960s, or with the many decades of civil war and imperial collapse in China during the first half of the twentieth century.
The environment, too, is central to the question of how capitalism will need to change in the coming years. The global economic crisis will, for sure, change the role of banks and capital markets in the financing of capitalism. But my bet is that historians, looking back at this change with the benefit of a decade or two of hindsight, will not consider it to have been truly fundamental in terms of capitalism´s long-term evolution. The really fundamental change will occur for environmental reasons.
Man´s principal source of energy has been the so-called fossil fuels of coal, oil and natural gas for the past two centuries, supplemented by the unfossilised source of the same carbon-based storage of energy, namely wood. That long fossil-fuel era is, however, coming to an end. It is coming to an end because of the steadily accumulating evidence that the burning of fossil fuels is the principal man-made cause of global warming, but also because of a painful rise in the price of those fuels. Having been driven, illuminated or carried by the steam engine and the internal combustion engine for two centuries, economic life and indeed all human life is in future going to have to find a new source of energy. As it does so, that change will surely represent as important a new course for capitalist life as has the emergence of information technology and satellite communications, for example, or indeed the spread of economic development to populous emerging economies such as
The strange story of the oil price
How quickly will this change our economic lives? Five years ago, I would have said that the change was going to be very slow. Now, however, I am tending to think that it might happen quite rapidly: probably we will feel a big change within the next 10-15 years, with continued changes during the 20 years after that. The reason for my new view lies in the current global economic crisis. But it lies there in an indirect way.
The reason why, five years or so ago, I thought that this change would occur very slowly is that I am confident that the world is not running out of fossil fuels, or of other natural resources. Many environmentalists claim that we are running out of resources, but this simply is not true—except for the very important resource of the planet´s atmosphere, which is being filled up with greenhouse gas emissions (of which we therefore have too much, not too little). Global reserves of all except the rarest and most sophisticated metals remain abundant.
According to the annual and well respected BP Statistical Review of World Energy, published by the London-based oil giant, the currently known, recoverable reserves of coal amount to nearly 150 years of consumption at current rates. On the same basis, natural gas will last more than 60 years and oil more than 40. The US Geological Survey is the most comprehensive study of the world´s reserves of other commodities, and its 2009 data shows that the world´s reserves of copper, a metal whose price soared in 2003-08 as Chinese imports boomed, are sufficient to last for more than 35 years at the current rate of mining. That may not sound very long, just as 40 years of oil reserves may sound short to some people.
But the vital point to note is that when I last looked at the US Geological Survey data, for Asia Sangokushi, the data showed reserves of copper of 490 million metric tonnes (in 2006) rather than today´s 550 million tonnes, and projected that they would last 30 years, rather than today´s 35 years. Similarly, BP´s statistics on oil, coal and gas reserves all show increases compared with five or ten years ago. Of course, the planet is not creating more of these resources. What is happening, as it always does, is that man is finding more of the existing reserves and getting cleverer at mining or drilling for them in an efficient way.
If this is the case, then we have a mystery to explain. The mystery is that even while reserves of all these resources have been expanding, the prices paid for most of the resources have been rising, rapidly. Between 2002 and mid-2008 the price of copper quadrupled and the price of oil more than quintupled. It was as if we really were running out of these resources, even though in truth we were not.
The explanation has three parts. First, booming global economic growth did increase the demand for these resources, especially in
We had a shortage of oil and other resources in the short or medium term, but not in the very long term. As a result, oil and other commodities peaked in price in June or July 2008, well after the global financial crisis had begun. Oil reached the extraordinary level of $147 per barrel, more than 14 times higher than the price ten years earlier, in 1998. But then, when
Economically helpful, environmentally damaging
This collapse in oil and other commodity prices was very good news for all the rich, commodity consuming economies of Europe,
It was, however, bad news for the environment. Many people seem to think that companies and households will decide to adopt cleaner, greener production methods and lifestyles for moral or political reasons, because they would like to save the world from global warming or just to make it a better place. But this is naïve. For most of us, a moral or political instinct to be greener lasts in our minds for a few hours, or perhaps a few days at best. Then we get on with our lives, making the best use of our limited incomes and wealth or trying to be competitive as best we can, depending on the prices and technologies that are available to us. In the longer term, only two things really persuade us to change what we do, how we behave. These are cost and compulsion: the impact of higher prices or of new laws that force us to behave differently.
The rise in the oil price from less than $30 a barrel before the invasion of
The collapse in the oil price since June 2008, and the associated drops in price of natural gas and coal, brought a sudden end to this process of looking for substitutes for fossil-fuels, of seeking greater efficiency, and of research into new technologies. As oil fell to $35 a barrel in March 2009, it felt as if the price might even drop further. After all, the world economy was heading downhill very fast. The World Trade Organisation forecast a drop in world trade of 9% in 2009. Big oil-consuming economies, including