What about the outdated, struggling economy problem?
BRADES, Montserrat, Dec 23, 2015 – Last time, we thought for a moment on how “ . . . we see the remains of various windmills, from the days when a sugar plantation was a big chance to make money. But circumstances changed . . . ”
Why is that an issue?
First, it is very important to be like the men of Issachar in David’s day. These men were able to “read” the signs of their times, and so understood what Israel needed to do.
Next, we live in a region of small, open economies that depend on imports and exports. So, we must always bear in mind that, as Austrian Economist Joseph Schumpeter noted, there are gales of creative destruction in an economy. That is, as new innovations come along and enhance productivity, they create new opportunities for growth and development but they also destroy the productivity of outdated technologies; which may well become ruins. As happened to the plantation windmills.
Third, Schumpeter put a spot-light on the work of a Russian Economist (and martyr – Stalin shot him for telling the unwelcome truth . . . ), Nikolai Kondratiev.
It is Kondratiev who clearly identified that in addition to the common 8 – 11 year business cycle, there was an underlying approximately 40 – 70 year, generational, long wave cycle — now sometimes called the K-Wave. Let us look at it in a form presented by Carlota Perez:
This sort of S-shaped wave is fairly common in science, and it always shows the cumulative effect of a bell-shaped pulse of action that rises to a peak then fades away. In this case, as a new breakthrough technology and resulting products emerge, they attract investment that may get over-enthusiastic; leading to a “bubble.” This tends to “pop” in a crisis, and then growth slows as the investment wave slowly fades off. (For, smart money is already beginning to look for the next big thing.)
Often, key resources may run short (pushing prices up) and economies may saturate, begging for shocks to throw them into a downturn. However, in an age of rapid sci-tech progress with a large pool of potential investors, another wave predictably comes along – typically after a period of stubborn stagnation or even outright depression.
This helps us “read” our times.
For, once the Silicon Chip Microprocessor was invented in the 1970’s it opened up a new wave of information and communication technologies. Even, in the face of the stagflation [= stagnation + inflation] triggered by oil price shocks and wars in the Middle East. We can now see how such technologies then helped drive an innovation wave across the 1980’s and 90’s that gradually transformed the world of work, changing industry after industry; also being helped out by how oil prices settled down. These trends, of course, affected our region’s economies as we moved on from sugar, bananas and similar exports to tourism-centred economies.
Then, there was the fast-swelling Internet bubble in the late 1990’s, which popped in 2000. The 9-11 attack in 2001 was a further shock, but the global economy settled back down. Until, in the context of another oil price surge from 2007 on, a real estate bubble popped rather messily in the USA in 2008 – 9. The contagion from that bubble spread to the whole world, and despite weak recoveries the global economy has been sputtering and struggling ever since. In our region the CLICO collapse, rising oil prices and a struggling tourism sector led to obvious slowdown.
We can also readily see that similar generation-length cycles appear in individual countries or even towns and districts. Indeed, such tend to interact with the global trends.
We can picture this S-curve pattern by looking at GDP for Antigua since the 1970’s:
An April 15, 2015 article[1] by Eric Pianin in The Fiscal Times, paints the current global picture:
“While the U.S. is enjoying a relatively robust recovery, the global economy is operating in fits and starts amid ominous signs of of a renewed recession . . . . Two new reports – from the International Monetary Fund and the Brookings Institution – describe weak economic growth in most corners of the globe, especially among emerging economies with stagnant low growth rates and risks of deflation . . . . “Financial stability risks have risen amid a moderate and uneven global economic recovery – with rates of inflation that are too low in many countries,” stated the IMF’s latest Global Financial Stability Report . . . ”
This trend has continued,[2] with Germany, France and Italy struggling, Japan too. Even China is growing at a slowed rate and is worried. In such a context the US Economy alone cannot power the world out of a sluggish economy. The net effect being, that we seem to be in a long wave trough similar to the 1970’s. (And the ghosts of the 1930’s threaten to say: Boo!)
In our region, former ECCB Governor Sir Dwight Venner recently called for restructuring EC economies to return to a 5 – 7% growth range. (In the 1980’s the OECS region grew at 6%, slipping to 3% in the 1990’s then 2% in the 2000’s, clearly showing economies gradually running out of steam.)
Here in Montserrat, it seems we need to take advantage of the current drop in oil prices. Thus, we need to revitalise tourism, using this as an investment magnet (and then as a very milk-able cash cow) to feed investments that diversify and strengthen our economy. That diversification should emphasise digital productivity, other Sci-Tech opportunities (including high tech agriculture) and shifting away from dependence on fossil fuels.
For sure, we do not wish to be caught on the wrong side of creative destruction.
– ENDS –
[1] http://www.thefiscaltimes.com/2015/04/15/Here-s-Why-Global-Economic-Recovery-Could-Stall-Out
[2] http://www.thefiscaltimes.com/2014/10/07/Global-Economy-Sputters-US-Growth-Jeopardized
