Ditch your expectations now – if and when the recession fades, the new dawn will bring a changed reality, writes TONY KINSELLA
CRISES ARE, by their very nature, temporary and reality-changing. They force us to react to a sudden shift, and resolving them also involves adapting to a different reality.
Most of our best brains are, understandably enough, focused on trying to first slow, and then stop, the economic recession. It is already clear that 2009 will be a bleak year, with the latest figures indicating that the UK economy will shrink by some 4.1 per cent, while upwards of 10,000 people are losing their homes in the US through mortgage foreclosures every day.
The best we can realistically hope for in 2010 is that the decline will slow and then possibly stop. Achieving that goal is where all our crisis management expertise has to currently focus. The essence of that crisis management effort is political, as governments, central banks and international organisations struggle to find appropriate formulas and measures.
Yet it is also clear that any recovery post-2010 or even 2011 cannot involve a simple return to the level and form of economic activity we experienced in, say, late 2006 or early 2007. Since that system patently failed, we shouldn’t want to return there anyway, even if we could.
Our future economy will not only be different, it will have to be different. Some of that shift may be incremental, almost organic, as people change their consumption habits. Much of it will involve political choices. On both the personal and the collective level, we find ourselves returning to the original Greek meaning of the word “krisis” – decision.
In making those personal and collective decisions, we will have to slough off our human tendency to reach for absolute solutions. Although we have already rejected the more traumatic absolutes, such as burning heretics at the stake, much of our intellectual argument still runs in outmoded mutually exclusive either/or grooves.
There is general recognition that the workers’ paradise which Lenin argued he was founding in 1917 evolved into something so cruel and unsustainable that it imploded in 1991. There is, for the moment, less acceptance that the neo-liberal free market extremism associated with Reagan and Thatcher also led to something so cruel and unsustainable that it too imploded in 2008.
September 2008 probably marks the Berlin Wall moment for that form of capitalism. When Lehman Brothers collapsed, the global value of financial assets (debt) is estimated to have been over €120 trillion, or around 3½ times the value of the planet’s gross domestic product.
Much of that debt was built on sand, while the less savoury elements were conjured out of thin air. When they fell due, there was no money to meet them and the system that depended on them collapsed. The most surprising thing is that we were surprised.
Adam Smith, often cited as the father of capitalism, called promoters of excessive risk in search of profits "prodigals and projectors". He warned that if they were given free rein: "A great part of the capital of the country would thus be kept out of the hands which were most likely to make a profitable and advantageous use of it, and thrown into those which were most likely to waste and destroy it." Smith therefore argued for government regulation of financial markets in his book The Wealth of Nations– first published in 1776!
We are going to have to considerably “definancialise” our economies. At the global level, this may involve radical currency reform or some system of structured partial bankruptcy. The question has become one as to whether this will be done in a structured and at least semi-controlled way, or whether extraordinary levels of public borrowing are allowed to continue for long enough to trigger massive inflation.
Individual choices have already begun to alter the nature of our economies and nowhere is that clearer than in the automobile industry. Manufacturers calculate that modern vehicles with regular maintenance can be expected to work for around 250,000km, while the average annual use of a car in France is estimated to be some 13,000km with most people using their vehicles for less than an hour every day.
The vast majority of individual purchasers of new cars are people in their 50s, and they tended to change their car every four years or so. Young families then purchased the resulting second-hand vehicles and held them for four to five years before selling them on.
This consumption pattern is now collapsing, eaten away at both ends. Those with three-year-old vehicles have realised that there is no compelling reason to change them. Meanwhile, state scrapping incentives are removing thousands of 15-year-old vehicles from the lower end of the consumption chain in Austria, France and Germany.
Manufacturers find themselves with enormous stocks of unsold cars, despite having slashed production by closing factories or cutting working hours. General Motors has 113 days of supply stocked up in the US. Chrysler is renting disused army bases to park its unsold vehicles, while Toyota is leasing ships for a similar purpose.
The post-recession automobile industry will be radically different from the one we had become familiar with. Electric and hybrid vehicles will only have a marginal initial impact. The most optimistic scenarios forecast an annual global output of around 500,000 such cars by 2012 at the earliest. Although encouraging, that figure has to be seen in the context of the 800 million vehicles estimated to be in circulation on our planet today.
If the automobile industry is a barometer of our societies, our future will be certainly be different and probably scrappier.Whether it’s better will depend on the decisions we make.
Our challenge is to work out what those decisions need to be.