by Damon de Laszlo, ERC Chairman

Damon de Laszlo

Damon de Laszlo

Since November it’s been difficult to “put pen to paper!” The year ended, from a general point of view, incredibly well. Stock markets at an all-time high, economies trundling along, and no major disasters to spoil the year end.

2020 is a date that causes reflection and contemplation as we change decades. The problem of making sense of the current situation and thinking about the future is always difficult, but more so as we are swamped with trivia and highly selective news reporting as the systems of gathering news have become mechanisms for transmitting opinions. Broadcasting organisations use visual effects for the purpose of sensation rather than information. Newspapers and printed news services seem to use news more to promote particular points of view rather than reporting facts, and the internet with its Facebooks and Twitter feeds is a doubtful medium for passing on information, rather than sensation. The noise that all this generates gives one an uneasy feeling that things are not going well – but when one looks at the underlying economic world, we have had a long run of low but steady growth.

Looking forward, certainly for a year or two, we could have a steady economic climate. The danger lies, as is so often the case, in a miscalculation by governments and here, when one looks for bad news, there are two minefields – one financial and the other political. On the financial front, the European Central Bank and the Bank of England seem to have got stuck in some kind of economic backwater. Economies are growing slowly yet the push to keep interest rates historically and excessively low continues. Our Central Bankers and the bankers and economists around them seem to think that fiddling around with interest rates, plus or minus quarter point movements, affect people’s behaviour. Individuals don’t make purchasing decisions because interest rates have moved tiny amounts, and the same goes for businesses. If an investment decision to buy new machinery is affected by a tiny movement in interest rates, you probably shouldn’t be in that business. This, however, does not apply to financial institutions expert in financial engineering and gearing. We see these institutions embarking on interest rate arbitrage and applying rating agency analyses to borrow and extract cash from business for non-commercial benefit. The inability to find a use for the huge amount of liquidity that has been pumped into the economic systems in the last decade, and the misallocation of resources that this is causing, is indeed a serious risk to the world’s economies.

On the political front, the danger inherent in the relationship between China and America is great. Luckily, China is led by exceptionally well-educated politicians who have a vision of the future that, not unsurprisingly, encompasses preserving their power base (what politician does not have this vision?), but most importantly is dedicated to improving the economic lot of its people. An objective that has been and will continue to be successfully implemented.
America, while being the greatest military power the world has ever seen, is losing its position as the world’s biggest economy. This is disconcerting for a nation but is more worrying as the political systems and its objectives are confused and appear to lack coherent strategy. As the West’s coherent effectiveness declines the less prosperous countries in the world will tend to gravitate towards China- a further worrying side effect that will tend to destabilise the current order.

On the positive side, the rising education standards of the last ten years or so is encouraging peoplepower as opposed to jingoism. Growing numbers of people are prepared to take to the streets and make demands on institutions. Demonstrations having in many areas succeeded in demanding democracy are also demanding transparency. A demonstration against corruption would have been unheard of even twenty years ago, but now it is not unusual and the latest demonstrations against global warming will certainly precipitate political action.

Perhaps 2020 will bring some reinvigoration of democracy in the United States and Europe. The first glimmers of this could possibly be the election results in the UK. The country that has been drifting for most of the last decade suddenly woke up and elected a Prime Minister who actually achieved a resounding victory by appealing across the political spectrum with a bold and powerful promise to get Brexit done, projecting an image of drive and conviction. The resolution of the Brexit debate in the UK means that Europe hopefully will address the issue seriously, resolve a deal, and then be able to move on, addressing the serious issues of how Europe should develop.

Damon de Laszlo
13th January 2020

 

Posted by Aimée Allam