Wednesday, March 03, 2010

Transformative Thinking

by Michael Akerib

The future will forever remain unknown to us. As time passes and we approach it, just like the horizon, it moves ever further away. Knowledge and analysis gives us occasional glimpses; our feelings and fears lead us forward or hold us back; our intuition leads us into choices we are either able to contribute to or simply imagine and perhaps through our participation in the collective unconscious help forge.

This column plans to explore some of the issues that are shaping the future in an unorthodox manner - blending facts, visions and dreams, in other words both hemispheres of our brain.
We will be looking at some major innovations, but above all we will reflect on the stream of life in attempting to guess its direction and perhaps throw a stone or two in it or build a small dam. We will attempt to be less tied to the present than we naturally tend to be so as to allow our eyes to look into the distance in an attempt to apprehend the coming changes.

Our explorations will not limit themselves to technology, innovation or business models but will also cover changes in the way we perceive ourselves and the society we are constructing.
Perhaps the uncertainty of our future, the radical changes it will bring about, will appear to be less dramatic and less frightening, but stem out of our imagination and our will.

Let us transform the way we think, let us move into the future.

No doubt the most crucial question about our future is the involvement of the state into our lives both directly and indirectly.

The indirect impact has been felt particularly in the banking and insurance sector over the last year or two with governments, and in some cases foreign sovereign funds, stepping in to selectively save some of the institutions through guarantees, massive injections of cash and transfer of 'junk' paper. These actions have created such a large sovereign debt that the financial stability of several states has been severely shaken and government default has become a credible threat.

Debt management has become such a central issue that it severely constrains the power of governments to implement their policies, whatever the platform and promises on which they were elected.

Social spending and reforms will inevitably be curtailed in situations where demographic changes require, on the contrary, substantial increases in budgetary allocations in selective areas such as health care for the aged. The extremely fast pace of technology requires constant updates to research and teaching facilities lest the race of technological dominance is lost. That too, requires an abundance of capital. Creating a knowledge society does not come cheap either. Funds will also be needed for security reasons both in the developed countries and in foreign military undertakings.

Foreign aid will be reduced to a trickle leaving millions undernourished, undereducated and converting some of them into illegal migrants and the vast majority into a cheap labor pool producing cheap, and probably shoddy, goods that will help counter inflation.

The modern state is a complex system in which policy is born out of conflicts of interest of a multitude of parties - industry, financial services, commerce, trade unions, civil society, etc. As the relative strength of each party varies, policies change leading to an unpredictability of the state's actions. As government interference increases, so will uncertainty, and apparent irrationality, and therefore investors will stay on the side lines as they abhor uncertainty.

As the preference of government will vary, so will the fortunes of specific groups. Inevitably the clear winners will be those with the strongest voice, overruling majority consent. The others will have to accept increased pressure of taxation, inflation, exploitation, unemployment and pauperization.

To avoid social upheaval, the state will have to increase controls and we may well move gradually into an ever more invasive society on the scale of the individual. The social alternative of providing bread and games will not be affordable to already highly indebted governments.

Is the era of democracy drawing to an end or are there options available to governments to avoid the unfolding of such a dire scenario.

In countries where the tax level has not already reached the point where the owners of capital feel unjustly burdened and are prepared to leave the country - or at least transfer their holdings to countries with more favorable tax systems - governments can increase tax receipts. This is particularly true of the United States.

Encouraging risk-taking intrepid entrepreneurial individuals to lead their countries down new paths of prosperity and freedom without making financial demands on government budgets will not prove easy. Cohabitation of public and private enterprise is a difficult undertaking as the very notion of ownership and control is put into question - it must remain with private capitalists rather than be a tool for civil servants to exercise their discretionary power. Mentalities must change - economic growth and development must be the name of the game, not political power and deficit management.

Governments face a moment of truth - following a restrictive policy or establishing a coherent growth strategy to reduce debt by allowing their countries to generate growth and wealth. There should be no hesitation on their part.


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