A more mercantile world
A more mercantile world

What will be the overriding international framework of the “new normal”? The new normal being the state of the world after the current debt and global imbalances are but a distant memory. Replaced by other new and more pressing concerns. There are grounds for believing it will probably be more mercantile.

When thinking about the future it is worth remembering that there are infinite potential futures. Although in retrospect from our perspective only one will ever have eventuated. At any moment in time it is impossible to know all possible futures, let alone describe them. Any attempt to do so will be wrong. Anyone who claims to know the future is wrong, although they may be right in some instances about specific aspects of it.  David Deutsch’s many worlds interpretation of reality may or may not be right. But it does highlight the number of branches. A simple reflection on the universality of unexpected consequences reveals how unknowable the future is.

With those caveats in mind it is likely people will remain people. Our wetware (brains) will suffer the same cognitive failings in the future as they do now. We will be driven by the same fundamental desires and emotions. An understanding of people going about the ordinary business of life will remain relevant. Those components of economics that soundly reflect the individual human condition and our collective behavior will remain applicable. Economic “laws” which reflect deeper truths rather than transient circumstances will hold. They will continue to aid our understanding of human economic reality, even in the new normal.

What is less certain is if the primary economic actors will remain human in any sense generally accepted today. I am not just talking about algorithmic trading or robots,  but us. Ray Kurzweil has a great predictive track record. Even if he is overly optimistic in his predictions for the singularity, the implications of exponential rates of improvement for only a short while longer are profound. Trends continue until they don’t.

Ray Kurzweil’s Transcendent man which can be rented here for US$4.99 provides an overview of the singularity. Technology is important. Technological improvements may provide the productivity increases necessary for Westerns to maintain their standard of living. Technology provides the grounds for hope, as long as we keep the Neo-luddites at bay. But this post will concentrate on that which is more knowable. The consequences of humans individually and collectively interacting with each other.

There is no point re-inventing the wheel. People far cleverer than I have put pen to paper on the nature of the new normal. Mckinsey’s for instance had this to say:

The new normal (requires free registration)

These two forces—less leverage and more government—arise directly from the financial crisis, but there are others that were already at work and that have been strengthened by recent events. For example, it was clear before the crisis began that US consumption could not continue to be the engine for global growth. Consumption depends on income growth, and US income growth since 1985 had been boosted by a series of one-time factors—such as the entry of women into the workforce, an increase in the number of college graduates—that have now played themselves out. Moreover, although the peak spending years of the baby boom generation helped boost consumption in the ’80s and ’90s, as boomers age and begin to live off of retirement savings that were too small even before housing and stock market wealth evaporated, consumption levels will fall.

and

The big unknown is whether the temptation to blame Western-style capitalism for current troubles will lead to backlash and self-destructive policies. If this can be avoided, the world’s economic center of gravity will continue to shift eastward.

Through it all, technological innovation will continue, and the value of increasing human knowledge will remain undiminished…. This much is certain: when we finally enter into the post-crisis period, the business and economic context will not have returned to its pre-crisis state. Executives preparing their organizations to succeed in the new normal must focus on what has changed and what remains basically the same for their customers, companies, and industries.

The McKinsey analysis seems reasonable. But what will be the global contextual framework in which organizations operate? People will remain people. As such some aspects of reality will remain constant:

Understanding Reality

A collapse of the system will not and cannot be pleasant. The current crop of Western empowered vested interests will be every bit as determined to hold onto power as those in China. People are people. Power hungry narcissists  are power hungry narcissists the word over. There will always be some of them in positions of power. This should to be part of our understanding of reality. We can not change it.

Power hungry people are likely to be interested in increasing their power. If they control a state then they are likely to try and increase its power. Just as Tito supposedly kept a lid on ethnic tensions in Yugoslavia, so the USA currently keeps a lid on the ambitions of state leaders. The US effectively sets and enforces the global rules.  A relative decline in the US will weaken this control. States are likely to start vying for more power in ways they currently cannot.

At least that’s my current explanation for the conclusions reached by Adam Posen, a Bank of England official in What the return of 19th century economics means for 21st century geopolitics. The speech mentions that the multi-polar world of the 19th Century was more mercantile than ours. If our future multi-polar world rhymes with this past then we are entering a more mercantile period.

This report of the creation of a German commodity alliance suggests a more mercantile world may be upon us sooner rather than later:

12 companies join German commodity alliance

Twelve German companies have joined the new German alliance aimed at securing raw materials supplies in the face of growing competition for key commodities, the Federation of German industry BDI said on Monday.

In October 2010, Germany’s government approved a new commodities strategy aimed at helping German industry secure supplies in the face of intense competition from China and other newly-industrialized countries

Posen’s article also mentions that intellectual property (IP) was not very well protected in the 19th Century. It also suggests global supply chains will be further split up, in part to make it harder for suppliers to steal valuable IP.

Another factor worth considering is the longer term effect of all the money printing going on at the moment. Paper currencies will deteriorate and lose their purchasing power (possibly after a period of deflation). Eventually this is likely to result in people refusing to accept them in payment for transactions, particularly international ones. If so, something will take its place. The world could shift to gold or some bimetallic standard or perhaps to a re-weighted IMF special drawing rights type currency. Whatever replaces fiat currency is likely to gave a profound psychological effect.

I suspect the mercantile mindset of there being only a set amount of wealth in the world reflected the widespread use of the gold standard. For all intents and purposes there was only a limited amount of “gold wealth” in the world. Gold wealth was a zero sum game, there is only so much gold that can be split amongst the countries of the world. What changes is the amount the gold can buy. A world without paper money could be a much more mercantile one, simply because of the set amount of money in the world. Manipulation of the price of money then enters a whole new ball game. But that is the subject of another post. It was also the subject of much debate in former times.

There are multiple reasons for suspecting the world will become more mercantile. There are historical precedents and sound theoretical grounds to expect it. A mercantile world will be quite different, for both countries and corporations. But that’s the subject for another post.