Global Hyper Shift: Trends, Probabilities and Opportunities
As a financier, I am extremely skeptical of long-term forecasting, no matter what it involves. There is no difference between long-term “expert” forecasts and fortune-telling on cards or by stars: both do not give exactly any knowledge of the future, but merely bind the mind to the nearest pole. To be fair, adequate analysts, let alone serious scientists, never allow themselves such shamanism, for the obvious reason: input variables change under the influence of factors whose composition, configurations, and probabilities are virtually impossible to account for on a long horizon. This means that long-term forecasts are meaningless.
As the forecasting horizon is compressed, the set and probabilities of the factors become more definite, which makes the forecasting more meaningful and grounded if the input variables are adequate. Of course, when uncertainty is high, both inputs and factors are more variable, and forecasts become more differentiated and thus less certain.
However, without trying to fire a cannon at specific sparrows, it is quite possible to determine trends, or rather the probabilities of trends in an ensemble of alternatives. The evolutionary causal approach, coupled with a well-developed body of knowledge about the subject, allows one to make more or less informed judgments about possible future scenarios. I note that identifying trends and weighing their probabilities has nothing to do with the unambiguous prognostic statements that philistines love so much and demand from specialists. Obviously, this cognitive simplification is aimed at achieving the sense of certainty so necessary for individuals to maximize the utility of their decisions and reduce their costs.
Speaking of the situation in the world economy and the global social order, I have described some trends, analyzed their foundations, and talked about perspectives in articles about the hypershift of the global order. In this text I will also try to briefly list the narrower factors and variables that justify my view of the emerging global macrosocial and economic trends, and talk about the prospects that I see as likely.
My view is based on the assumption of a likely rightward lurch after a long leftward cycle in global economic and social policy. In short, such an assessment is constituted by the inevitable deglobalization processes caused by the evolutionary – economic and socio-political – “ceilings” to which all three conventional categories of contemporary economically active states are confined: consumers, producers and extractors. Deglobalization dynamics, which has a high probability of acceleration, will mean a tightening in the clash of interests of these countries, as well as reconfiguration of alliances and internal political turbulence.
It can be argued as an introductory variable that deglobalization itself, as well as the consequences and processes that determine it, will trigger a new global pro-inflationary cycle. This leads to an interesting cause-and-effect cascade of phenomena, if not new, then thoroughly forgotten. Let’s try to consider them briefly.
Let’s start with relocation, or production replay from producer countries back to developed consumer countries. The era of global production outsourcing and low labor costs is coming to an end for three main reasons, among others. First, the leading producing countries have achieved high domestic demand and rising prosperity, which means rising production costs, primarily labor costs. Second, the relocation or re-building of production capacity within consumer countries will inevitably mean higher production costs due to a shortage of appropriate labor and the general processes involved in reorienting the structure of the economy. Third, such shifts in production will create short-term shortages, including because some of the leading producing countries are already shifting some production to less developed countries. But the capacity of such countries – the new production sites – is not yet sufficient to support the production volumes and diversification that have ensured the growth of global prosperity over the past at least 20 years. The resource curse of consumer countries in the form of unlimited cheap outsourcing and commodity supply is beginning to come true, causing inflationary pressure and founding a new global inflationary cycle down the chain.
As one of the visible results we can assume a certain general increase in the price of so-called hard versus so-called software. By hard and software, I mean here some general notions of the conventionally old and conventionally new economy. In other words, this means that anything related to the permanent improvement of life up to the impression economy will be less in demand than anything related to the provision of life at least at the current level. The production of the washing machine itself in the configuration it is produced in now will be more relevant than the production of new software that allows the washing machine to be more technological, more beautiful, or provides the machine with redundant functions. It is obvious why: deficits and monetary tightening to alleviate inflationary pressures will reduce welfare, and the hard niche itself may become more attractive and competitive than the software niche. In tough times, people reduce their consumer appetites and simplify consumer preferences, and entrepreneurs occupy attractive niches accordingly.
Increasing the attractiveness of the real sector will increase its value, and the rotation from assets focused on new technology and profit growth in the distant future to productive assets with goods in demand today and stable cash flow will intensify.
Inflationary pressures always mean tighter credit conditions, and this, against a backdrop of increasing competition in the real sector, increases the efforts for the survival of economic agents. Governments will be forced to ease regulatory burdens and liberalize the business environment in order to encourage growth in production and business activity amid a shortage of productive capacity, as monetary stimulus will no longer be possible. It seems that “supply-side economics” may once again become in demand, and the state will be forced to loosen its grip and return redistribution to a more horizontal state.
Reduced government spending, inevitable if the economic environment is liberalized and regulatory and tax burdens are reduced, accompanied by reduced consumer incentives and bloated social and other government spending. Such a situation with more difficult access to resources, in particular to cheap money, would increase the participation in the labor force of more people who choose to leave it, and make the labor market less strained, which, in turn, would enable producers to control production costs and keep them at an acceptable level for their marginal purposes.
On the other hand, tightening access to resources creates a significant intensification of intra-social conflicts between economic agents, between different social strata, between power and society. It creates an intensification of competition within all categories and groups of society, which brings obvious negative, but inevitable externalities in the short term. In the medium and long term, however, the result can be an increase in economic efficiency due to the reduction of the state, a more equal distribution of goods thanks to their horizontal, “more market-like” exchange, and a general equilibrium in which consumer desires are to be supplied by productive possibilities, and the growth of desires will lead to increased production, not to increased credit.
For the enterprising and the most able, the rightward lurch will mean a time of great opportunity, where intensive entrepreneurship and labor produce real results and wealth is built without hard work in between amusements. Those born in the ’80s and ’90s and who have made careers in the new economy industries, making venture rounds into tens of thousands of hopeless and disappearing startups, creating products of the impression economy, getting rich by exchanging nothing for something and generally being used to the cheapness of money – they will probably have to readjust a bit. And they’ll have younger competitors who start their careers in a new paradigm of tightening access to resources and increasing hardcore value – their skills will be focused on something more pragmatic than creating a meta-universe or smartphone emoticons.
The big problem could be the behavior of the various productive and resource autocracies, which by virtue of deglobalization and collision with the ceiling of their former capabilities will inevitably begin to adapt. Such changes can have only two vectors. This is a strengthening of the autocratic regime by the ruling elites in order to preserve their own social status, albeit in a degrading economy. Or institutional liberalization and subsequent democratization, as a result of which the economy will develop and grow simply for dialectical reasons and foundations, such as free competition, individual initiative, universal right and its equal application, freedom of choice and self-expression, the primacy of natural rights, trust, etc.
Two major economically active and significant authoritarian countries, one a resource producer and the other a major commodity producer, show clear signs of tightening institutional regimes. The natural actions of tightening autocracies in the negative conditions of global change and elusive competitiveness are policies of social restraint and foreign expansion. This leads to obvious geopolitical turbulence, which can take the most extreme negative forms.
One of the main risks for advanced consumer Keynesian economies is that if adaptation to the new conditions of the emerging global environment is delayed, and if active opposition to the tightening regimes of producing countries and resource donors, along with deregulation, deleveraging and stimulation of production within their economies, is outside the main political agenda, then the strengthening of production and extractive autocracies looks an inevitable scenario. Increasing social, geopolitical, and economic risks, a pro-inflation cycle, and slowing global exchanges could trigger deficits. Therefore, the relocation of production to their territories to ensure their own security is the most important task for advanced economies today. Otherwise, the ball may be in the hands of the hard guys, who will undoubtedly join forces in all aspects of social, economic and international politics. In fact, we are witnessing some of these processes today.
As for strengthening cooperation and building alliances among developed consumer countries to maximize their adaptability and security, the need for such measures is dictated simply by the question of survival in the face of global hypershift. However, this is a topic for a separate essay.
In conclusion, the trend described above and its drivers will undoubtedly affect the ethical narratives of Western societies. Hyperhumanization, concentrated tolerance and other externalities of the “carefree times” may be somewhat discounted and transformed into more pragmatic ethical values and rules, allowing society, the economy and the state as a whole to adapt more effectively and enhance competitiveness in the new environment. The world of the Wild West era is certainly not an easy and humane time. Nevertheless, democracy in social decisions, individual rights, property rights, and natural rights in general were the basis of economic and other social relations, leading to economic prosperity and humanization. The world of Ivan the Terrible is a far worse alternative, where only those higher up in the vertical social hierarchy have rights and opportunities, the economy is static or degenerating, and its expansion is only possible through increasing natural rents, social repression, and external aggressive expansion.
How quickly developed countries can adapt and take a “right turn” will determine which of these two worlds we will live in.
These are not predictions; they are traceable trends. The probabilities are up to you to choose.