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In Search of a More Rational World

The year 2017 is likely to be the most turbulent since 2009, when the GFC was in full swing; except this time it includes political, racial, religious and terrorist issues more than financial and economic ones. The latter issues have not gone away, either; rather, they have been sublimated by the other issues for the time being.

But financial and economic issues are fellow travellers with sociopolitical issues. Economic and financial hegemony from the Western world certainly played a part in the religious, terrorist and political upheavals of the late 20th and early 21st centuries. Greed and corruption in corporations and governments has become rampant since the turn of this new century, in both developed and emerging countries.

Religion – especially Islam – began to be used as a weapon in Middle Eastern, Central Asian and North African countries against Western nations, and sometimes on an internecine basis within Islamic cultures. Visionless, gormless and often timorous governments added to the cocktail, exacerbating the growing crises. So, it is worthwhile looking at the issues that are part of the current dysfunctionality: globalisation and regionalisation, changing economic power structures, religious terrorism, the United States’ dilemma and changing political ideologies.

Globalisation and regionalisation

The world has been regionalising more than globalising in the new age since 1965; with the world’s 230 nations and protectorates gradually forming eight trading, if not sovereign, regions.

1-the-worlds-economic-regions-feb-2017This is more pronounced than globalisation in economic significance, although capital flows have certainly assumed a free-wheeling global pattern. Multinational corporations have also been significant and are often seen as colonising cultures across the globe. But full political and economic globalisation awaits the tail end of this 21st century. These forces have alarmed societies with their speed as well as their penetration.

Changing economic power

 In the previous exhibit, the dominance of Asia – being a combination of the Asia Pacific and the Indian subcontinent – is obvious, with 42% of world GDP. It already exceeds the size of Western and Central Europe and North America combined (36%). Indeed, in 2016, the East overtook the West in GDP terms for the first time, so the new world order is being changed early in this 21st century.

A second chart overleaf reinforces this power shift. China’s GDP is now over a third larger than that of the United States; and India is now almost double the size of Japan, and more than double the size of Germany. Brazil and Indonesia have well and truly overtaken the United Kingdom, which is nowadays only just over double the GDP of Australia.

2-the-worlds-30-largest-economies-feb-2017So, a seismic shift in global power is again underway, which is unsettling to those who had the power – and prestige – and do not want to relinquish it. Those who now hold the power are not yet experienced in using it; and the peoples of all nations are unsettled in the process.

Our two historical allies are losing power

Australia, not quite 230 years old as a modern and now developed economy, has depended heavily on the United Kingdom and the United States: the United Kingdom for some 140 years of that time, and the United States for the rest.

But both are now under pressure from outside and inside their own nations, as suggested in the following summary:

3-a-tale-of-two-long-standing-allies-feb-2017Religious terrorism

Religions are man-made, albeit with altruistic intentions and, arguably, some divine guidance by the vast majority of their founders. But as the famed author Karen Armstrong has posed in her landmark book, The Battle for God, which one is the true God? Clearly this question has been the stuff of feuds, fights, terrible wars and terrorism. All of these are also man-made, and are an abomination of the original founders’ teachings.

4-world-religious-affiliations-feb-2017It just happens to be the fringe dwellers of Islam’s turn to do terrible things – another frightening element of the second decade we are in, and a major reason for the tizz we are in.

 The United States and the post-GFC

The most unsettling element in the developed world, and the West in particular, is undoubtedly the US situation as 2017 unfolds. The chart below shows the history of the US GDP growth over the past nine decades.

5-us-economic-growth-feb-2017When the GFC struck, the US government, led by President Obama and other heads of state around the world, faced two choices. The first was to have a classical depression for 3-4 years with massive unemployment (15%+), a purging of the financial criminals, a wake-up call to society at large, then a return to normal growth. The second option was to fill the potential hole in with unprecedented pump-priming (‘quantitative easing’) and spread the pain out over 10 years or more, with half the normal 3.5% p.a. GDP growth during that ‘recovery ward’ period.

But halving the GDP growth in the United States and Europe would mean no increase in standard of living for a decade – the trade-off for avoiding a depression and its massive unemployment.

World leaders chose the latter: less pain, but with no criminals charged or convicted in the United States, and no wake-up call to society (especially the greedy rich). Governments didn’t explain this choice to the electorate, and they let greed and polarisation of incomes continue, all of which led to a loss of faith in the governments in power.

The flatlining of standard of living (SOL), the rich getting richer (as seen in the chart overleaf) and no GFC criminals brought to justice were the last straws for US voters going to the polls to elect a new president in November 2016.

To a greater or lesser extent, the GFC and other economic and social problems have been problematic around the globe, leading to disenchantment with governments of the day. Voters have responded to strongmen regardless of their qualifications, rationality or truthfulness.

As mentioned earlier, the greed of the entrenched rich has been particularly galling, more so with flatlined incomes among the masses. The chart below shows the difference between the wealth distribution in the United States versus Australia. Surprisingly, Australia’s distribution is not as polarised as most developed economies; but the US situation has been labelled immoral by most observers.

6-household-wealth-distribution-feb-2017Of some comfort is the distribution of incomes as distinct from wealth, as seen below. The closeness of the two countries will surprise most readers; it did the author of this Newsletter too.

7-household-income-distribution-feb-2017Changing political ideologies

One of the least known developments in politics in the new age, now over 50 years old, is the demise of the old left-right, socialism-capitalism ideological fight of the Industrial Age that finished in the developed world in the mid-1960s. The chart below shows two paradigms as they apply to the United States, and a later one shows the Australian situation. Clearly the United States never created a socialist party as such that rose to power, although the term “left” has sometimes been applied to the Democrats.

8-changing-political-dialectics-in-the-us-feb-2017The fight between socialism and capitalism in the Western world virtually ended as the new Infotronics Age of emerging service industry domination and IT gained traction in the mid-1960s. Capitalism had won the fight; and socialists conceded that the means of production would not be owned by the people via government business enterprises (GBEs) and general government, but by private enterprise, because it achieved better outcomes.

However, the business world conceded that higher business taxes would be paid to help the underprivileged, and workers had to be given safer working conditions, greater care and respect. It is ironic that the “people” are increasingly owning the means of production anyway, via the growing superannuation pools in many developed economies – especially in Australia.

Politics today is driven by either rational (fact-based) or irrational (emotion-based) thinking. Rationality will win in this new age, as did capitalism in the previous Industrial Age, otherwise tertiary education, the information explosion and AI software will all have failed; and it won’t. But not yet, and not for some years to come.

9-changing-political-dialectics-in-australia-feb-2017The irrational strongmen are currently in charge across many nations; by default, as already suggested. Weak and irrational previous heads of state are being swept aside.

In the case of the United States, the circumstances are somewhat different. Hillary Clinton reportedly outvoted Donald Trump by almost 2.9 million votes in the November 2016 Election, and so clearly is the legitimate President. But residents in the United States are not elected by the people, but by the Electoral College; so Donald Trump is the legal, if illegitimate, President. And Obama as the previous President is already being assessed by many analysts as one of the 10 best Presidents of the 44 so far until Donald Trump – but not without some criticisms, albeit mitigated by a hostile Congress during his period in office.

So what does the future hold?

The world is in uncharted waters as we progress into the 2020s. There can be no quick return to rationality until alternative paths have been proven to have failed; and if history is any guide, current paths are doomed to fail. Building walls between nations is Hunting and Trapping Age thinking; not sensible in our Infotronic Age. Protectionism has historically left a bleak trail. Racial discrimination inside or between nations is inhuman, breaches basic human rights and leads to wars and more terrorism. Lowering taxes when a nation is deep in debt is daft; and doubly so if the benefits accrue further to the rich. Leaving strategic alliances to go solo in this day and age is emotional bravado, not bravura.

We will need to repeat the mistakes of history, for a society that hasn’t experienced it or read enough about it, before sanity and rationality is restored – which will happen.

In the interim, the final exhibit takes a stab at the next five years.

10-the-next-five-years-feb-2017In short, we should be thankful we live, invest and work in Australia, despite its faults!


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