Sunday, 31 July 2016

Cees Bruggemans: Where are we heading?

INCE Connect: Economic Insights

The world this past decade appears increasingly crisis-prone, restless, if not rudderless. There have been major policy interventions keeping things afloat, but not restoring a greater sense of purpose. Instead, we are anarchic adrift. And in some ways recuperating but in other ways getting ever deeper into trouble. Or so at least it seems.

Deep chasms seem to have opened up, inside countries and between regions. Do these matter, can they be overcome, or will they get a lot worse, as well as the restlessness and drifting?

It wasn't always thus. Just limiting ourselves to the modern period within living memories (of some), there have been long stretches when things developed much more purposeful. Was that just exceptional? Is our present condition more like the real long reality (life being a struggle)?

An old Soviet quote has it that "there are decades where nothing happens, and weeks were decades happen". So recent weeks haven't been that unique. It has happened before, as experienced by people at the time, and as experienced again now by some.

As to positive stretches, the post-WW2 world had a strong coherent theme (recovery, in the West and Japan, 1948-1968). It lasted 20 years plus. On a slightly longer view, parts of South East Asia and East Asia undertook massive economic transformations (1960-2000). China attempted its globalisation (1980-2010). Reagan in the US, and Thatcher in the UK, attempted their major reforms, ultimately competing Russian communism out of existence (the 1980s). Throughout there was the European Project (1950-2010). The 1970s belonged to the energy producers at the expense of slowing down much of the world. In the 2000s decade, large parts of Africa blossomed, as did India and some Latin American EMs.

Though that 70 year stretch saw a lot of coherent achievements, it also witnessed a few breakdowns - Korean War, Vietnam, Afghanistan (twice), Middle East strife, the lost energy decade of the 1970s, the Russian and East European lost decade of the 1990s, lost Latin American generations (in Argentina, Venezuela, Brazil and elsewhere). The European loss of momentum since the 1970s. The Japanese stagnation since 1990. And more such.

During the past decade, the world at large has blundered into a stagnation trap of an apparently universal nature, with only a few exceptions (India being one). And there has been growing unease within many regions.

The West (America and Europe) apparently lost much of its growth dynamic following the Great Financial Crisis starting in 2007. As a consequence, also for internal reasons, China had to change its development model more inwards. Many EM and others as dependencies of these leading regions lost their way, too. And geopolitically, major strains could be observed in western and eastern Asia, and regarding Russia, and resulting in western terror attacks.

Inside countries/regions, rising modern expectations became frustrated when colliding with growing hardship, societal underperformance and individual marginalization. Either that or wholesale rejection of Western influences and a flight back to traditional values. Democracy became the weapon of choice with which to hold elites and their favourite ideology (market capitalism) to account. Anger grew, and regime change has been widespread. Though large parts of Latin America in recent times have reformed away from populism, it is Europe, America and the Middle East where most change has occurred (and is occurring) (though don't lose track of China and India with billion-plus populations).

Where is this leading?

Crisis conditions and panic withdrawals were answered with aggressive fiscal responses (in some countries) and massive central bank support actions (nearly everywhere).  While these macro supports prevented depression of taking hold, and allowed recovery, an universal change seems to have occurred. Much greater anxiety and as a consequence less risk-taking and falling growth potential nearly everywhere, with slower growth recovery. And this despite new generations of technological change revolutionizing many parts of society and economies.

It cannot be claimed that the entire world has come to a standstill. Only parts have. Some parts are barely advancing, others are moving only very slowly and yet others are still quite lively if more subdued than before. Very much a multi-speed world.

If patience ruled, this wouldn't matter. Give it time, and the world will regroup, consolidate, and relaunch. Nothing new about that. Mankind has always come back, given enough time to respond creatively.
What is perhaps new is the universal anger. Sourced from deep expectations now frustrated. From having become a victim of some crisis, and as such marginalised and made an outsider, with little chance of being readmitted as an insider, with all its privileges. And beyond that loom ideological, religious and nationalist passions (hates) with in (too) many places a white-heat intensity.

So what we got here worldwide are shortfalls or gaps. In achievement (actual growth and wished growth), reabsorption (or remaining marginalised), in tolerance (religious, ideological, national, social, cultural).
Our existing tool boxes are deficient in ways and means to address all these things quickly. Noticed how slow-acting global politicians are? That's not because they are witless. There is just no known way to reconcile these many competing strains quickly with our current state-of-the-art governance and organisation structures.

We resort to fallback positions called central banks, experimenting with trillions in liquidity. But not experimenting on live populations could be worse if all fall down for a generation (worse even than a generation ago).

Friday, 29 July 2016

MoneyWeb: Is the JSE too small or is the investment industry too big?

South Africa has a unique investment industry. There are more than 1 000 collective investment schemes whose equity allocations are predominantly invested in a limited number of JSE-listed shares.