by Damon de Laszlo, ERC Chairman
There have been dramatic happenings since July. The US and Europe have further distanced themselves from China and the ASEAN political stage. The US’s abrupt withdrawal from Afghanistan is really quite extraordinary, but not entirely exceptional. It confirms, particularly in the ASEAN mind, the unreliability of the USA as an ally and follows a pattern started with the pull-out from Vietnam through to the withdrawal from active operations in Iraq, Syria and, in the particular case of Britain and France, Libya. It also highlights the fantasy of Britain’s ‘special relationship with the US’. On this front, the post-Brexit UK government position as an independent influence on the global stage is demonstrably nonsense. The biggest issue, however, is Western governments’ and, in particular, the US government’s inability to understand that the world is a multicultural place and that trying to enforce your own particular believe on other countries is not a laudable ambition, and likely to end in tears.
Biden’s decision to withdraw abruptly and abandon the Afghan military is a worrying indication that Washington no longer has the ability to analyse the real world, it just lives on a diet of wishful thinking, showing that the internal advisory systems have been stripped of their ability to serve up advice and intelligence that disagrees with their political masters. This was a problem clearly demonstrated by the UK Blair government actively selecting intelligence material to justify the participation in the Iraq invasion. You don’t get promoted in the civil service for speaking truth to power.
Apart from the political chaos and long-term damage to global stability in the aftermath of the Afghan debacle, other issues face western economies. Political unrest expressed in the form of demonstrations, disbelief and disenchantment with government pronouncements is likely to continue to grow, as incomes in the middle and lower end of the scale fail to rise in line with inflation. This trend has been happening for some time but has become starker in the aftermath of the COVID pandemic, with the recent rise in consumer prices, particularly in food, energy, and housing, unlikely to abate in the near future.
Central Banks, understandably, are talking down the problem but statistics which predict a return to the mean do not take into account the enormous disruption to supply chains and the loss of production capacity that will take a long time to replace. Food production across the world is also being heavily disrupted by climate change. Droughts, floods and fires are reported but the damage to food production is less well covered. On the manufacturing front, the super-efficient model driven by the financial sector’s requirement to maximise “short term shareholder value” has encouraged fragile just-in-time supply chains. It has also enormously discouraged long-term capital investment. This lack of investment is also being compounded by Green movements. Here the understandable political frustration with governments’ inaction is growing, but having the unfortunate consequence of inhibiting the investment needed to reduce carbon footprints, while maintaining the standard of living that we have come to expect. It is going to take a number of years for supply chains that are more resilient to be built, and this is likely to mean that inflation is with us for some time.
Western government seems to be losing the will to govern. To wit: the abrupt withdrawal from Afghanistan, but more worrying is the inability to think strategically and make long term plans. Announcing that Britain will only manufacture electrically driven cars after 2030 is simple, planning to put in the electrical transmission systems and infrastructure to go with this edict is non-existent. Just one example of many.
The other headwind is the bureaucratic glue that is pervasive across the UK, Europe and, to a lesser extent, the US. As an example, Royal Dutch Shell is trialling the idea of initiating the installation of 50,000 on-street electric vehicle (EV) charging devices – desperately needed. However, the UK Competition and Markets Authority has expressed concern that this could cause local monopolies for on-street EV charging. Hardly encouraging for business contemplating investment in this area!
On the good news front, computer technology is gaining ground in new industries as well as companies trying to resolve the current problems, a step change in attitude which augurs well for the future. New technology is bringing with it increased profitability and increased wages for those who can cope with the technology. The supply chain disruption is also encouraging companies to onshore or bring closer to home their requirements. The West’s hardening attitude to China is also pushing China in that direction, encouraging it to be more self-contained and less reliant on Western technology. Whether this trend is beneficial in the long term is by no means clear.
Damon de Laszlo
1st September 2021