Seismic Shift

Created on 20/8/2008

Every so often, randomly arriving at our door through fate, not design comes a seismic shift in our collective destiny. We are, in my view, living through the beginning of such a shift.

Not since the general collapse of the Communist world and ethos have such large cracks appeared in the global fault lines. This can, as in the case of Communisms demise, lead to a positive conclusion, but getting there can be fraught with danger.

The signals of the impending changes are gathering pace. These involve varying numbers of us presently, in certain locations, but the repercussions are bound to ripple out across the world. Such are the benefits and curses of living in a global economy. We get to share the pain as well as the pleasure.

For nearly one hundred years we have been used to a world where America has always been able to dominate economically and, to some extent, militarily. The end of the Soviet Union marked the high water mark. The American economy looked monolithic and invincible, as did its military and its culture. After a decade and a half fighting asymmetrically against terrorism in all its forms the military looks like its incorrectly configured. The economy is finding it hard to adjust to a world where its hegemony over finance is challenged from London and domination over manufacturing by the Chinese. Self sufficiency of raw materials, especially oil and gas is becoming an ever more distant memory and now Canada is the big winner in the supply of fuel to the USA.

Add to these negatives for America the near collapse of its mortgage business and banks, and the signs become yet more ominous. Yesterday it was predicted that a major American bank will shortly collapse, and should they survive a major Investment bank will fold. These things are beginning to happen and are not me being a doomsayer. Perhaps, the truth is, there are simply too many banks chasing too few deals and too little money and there needed to be slimming down of the banking fraternity. This may have all been triggered by the sub prime market collapse but has now grown far wider and deeper.

But this is a global crisis, not an American one. In China there are a record number of business bankruptcies reported. The central authorities have decreed their own, internal credit crunch and it has driven the non -governmental supported businesses to the financial wall. This has resulted in many thousands of these small to medium sized businesses seeking unofficial loans from financial sharks circling in search of easy prey. The Chinese official figures reckon the size of these types of loans already exceeds $14 billion. Many of these loans are already defaulting and this is leading to business and commercial tragedy on an increasingly gargantuan scale. The authorities, not normally known for their swift market reactions has seen the big dangers lurking ahead and did release more funding quite quickly, but it remains to be seen whether this will save their situation.

This problem is exacerbated by China’s recent incredible expansion being almost totally fuelled by Western consumerism. With our moving toward recession this demand has almost evaporated. The Chinese manufacturers servicing their burgeoning internal market can temporarily disguise this, but this has clear limitations. The world’s woes are about to be shared by China.

Add to this set of problems the very real issues regarding Russia’s new imperialism, the ongoing issues in Iraq, Iran, Afghanistan and the Middle East and there are very rocky roads ahead.
These are the times when we need political giants to lead us and we only have Obama or McCain plus Brown, Sarkozy and Merkel. The line up facing them is led, in real terms by Vladimir Putin, and he is sharper, more focused and clearly has a plan in mind. He’s playing chess while we’re getting out our checkers board.

The methods Putin used to gain control over all aspects of the gas and oil industries demonstrated his total ruthless efficiency and a complete lack of morals and business ethics. The risk to our investments in Russia became clear when Putin’s minions behaved appallingly in their seeking to bully BP to give control to Russia of their half of their jointly owned and controlled company. When foreign capital was pouring into Russia they were happy to accept it, now that these enterprises have become profitable they want to take them. I am not an apologist for our big businesses, but if clear agreements are going to be breached the world economy falls under real threat.

However, we should seek a common denominator because we’re going to have to find a way to adjust and live together. Putin is as concerned as we are about Islamic fundamentalism and this is the area we should be working on, together. We should find ways to make Putin and Russia work with us on a common agenda that is centered on this common, major problem.

While we search for common methods to combat these common problems we also need to tighten up our EU ownership laws to disallow Russian ownership of our strategic assets. It is commercial insanity for us to entertain the idea of Russia owning sections of our power industry. Such negotiations took place over the last month and must be stopped.

Similar, financial self-defense measures need to be implemented against any ownership by any country that is at any risk of becoming our future enemy.