The global economy, in the eye of the millennium

Citation

Wyllie, J. (1999), "The global economy, in the eye of the millennium", European Business Review, Vol. 99 No. 1. https://doi.org/10.1108/ebr.1999.05499aab.005

The global economy, in the eye of the millennium

The global economy, in the eye of the millennium

Jan WyllieEditor of The Global Economy Monitor

Keywords Consumer attitudes, Economy, Recession, Regeneration

Introduction: chronicle of the fall

This article cites and comments on some passages from The Global Economy Monitor published in September 1998 which Trend Monitor compiled for Teddy Goldsmith over the summer. It outlines the early signs of a new survival economy which is beginning to replace the consumer economy as the collapse of the global economy and its financial underpinnings spreads from Japan, China, South East Asia to Russia, South America and now North America and Europe.

The findings are derived from Trend Monitor's content analysis based intelligence research and scenario planning techniques.

Japan: and now for something really different

From full employment and lifelong security. To fast increasing unemployment and lifelong insecurity ... waxing

Not counting or supporting the "invisible jobless" has, according to Business Week, enabled Japan to "muddle through" its long recession. The article says many workers "agree to stay silent about their dismissals to protect the image of the employer that fired them". These "demoralised" workers are said to "stay home and try to survive on their savings to escape the stigma of being unemployed", while a growing number are estimated to be taking their own lives. Elderly stock market traders are reported eking out an existence as floor cleaners.

A May 1998 article in Business Week, reports that "millions of families are struggling to pay off mortgages on houses that have lost 70 per cent of their value". In August 1998, Financial Times reports that the economic crisis is "taking a heavier toll on individual consumers than expected" putting "extra pressure" on the country's financial system. A Japanese Supreme Court report is cited indicating that "the number of personal bankruptcies in the first five months of this year jumped 38 per cent compared with the same period last year". In August 1998, Newsweek predicts that tax cuts will not "unleash a wave of consumer spending" because "they know that they are in an ageing society, with a pension system verging on bankruptcy"[1].

The Japanese people have changed their behaviour because their perception of the world around them changed. From being the perfect individual economic growth engines ­ both the world's leading consumers and savers ­ the Japanese people have radically changed both their values and behaviour. Over the past couple of years, they have been literally putting their money under the mattress because the banks are so unsafe. They are refraining from buying non-essential items because they can only see conditions becoming worse in the future. As a result, the manufacture and sale of personal safes and cut rate food retailing are among the most successful industries in contemporary Japan. In economist's terms, Japan faces a deflationary spiral in which people put off purchasing because they cannot afford to waste any money and they know the goods will be cheaper tomorrow. The lack of non-essential spending throws more and more people out of work, thereby decreasing purchasing power even further.

Conditions have changed so radically that the Japanese authorities are beginning to think that being the second most powerful engine behind the global economy (after the USA) may not be the right strategy. Indeed, Noriko Hama, the well-known Japanese economist, was being called back to Japan in October 1998 to help draft a new economic strategy aimed at regenerating local economies. At the same time as sending her regrets and best wishes to the recent LETSLINK Conference through John Coleman, the editor of the New European, she sent the message: "The strength of local communities is the only thing that will save the day". Can you believe it? This is Japan, the greatest global exporter in history!

Content analysis of our sources suggests that the name of the game in Japan is no longer about growth and consumption, but is about contraction and survival. This profound change in attitude took place over about three years. It is not likely to be significantly changed by the latest desperate government policy of giving every Japanese person the equivalent of £175 to spend and promoting Monday as a special shopping holiday instead of a working day. One of the problems when people go into the survival mode is that the investment in producing and selling higher margin non-essential goods and services is lost because it has become uneconomic for survival-oriented buyers ... which, of course, hits the banks again and gives even more impetus to the relentless deflationary spiral.

Russia: leading the way towards the survival knowledge economy

Of course, the Russian people never really had any chance to save anything before the value of the rouble collapsed as the country's wealth was stolen by bankers, buccaneers and bandits, changed into dollars and marks and deposited in Western banks ­ especially German ones. Meanwhile, most ordinary people have not been paid for months. When (or if) they are paid, it will be in roubles made worthless by hyperinflation. I reckon that never before in history have so few got away with so much from so many. The theft and loss of Russia's financial wealth by a tiny Mafia-infested economic oligarchy advised by the IMF and the West's smartest financial experts would be unbelievable, if it had not been so inevitable, in an environment in which the values and rules of Western capitalism did not hold sway.

Yet the Russian people survive. Unlike people in Western economies, they still know how. Remember they survived Hitler and Stalin and State Communism. The Russians are the masters of the Survival Economy, even without community currency tools. Imagine if they used community currencies!

Anyway, here is what our sources are reporting about how Russians really survive:

From an economy based on money. To an economy based on barter ... waxing fast

Financial Times reports at the end of August 1998 that "more than half" the transactions in the Russian economy are "in the form of barter". One of the reported consequences of the barter economy is that much of Russian industry is "shielded" from the consequences of the falling rouble. In another article, the importance of bank credit to the Russian economy is questioned. It says, "Most ordinary Russians are neither customers, nor clients of the banking system". Businesses are creating their own credit "spontaneously, by running arrears to suppliers or by transacting via barter". One of the consequences of the "increasing share" of barter trade in the Russian economy is seen as enabling companies to pay their suppliers "with barter goods 'priced' far higher than their true market value". Workers, though, are said not to accept "this pretence" which explains "the problem of wage arrears".

During the first week of October 1998, The Economist carried a piece on Russia, called "How they survive". The article estimated that 44 per cent of Russians say that food grown in their private gardens will enable them to survive the economic crisis. A further 12 per cent said they were relying on stock-piling food, while 10 per cent were counting on "informal self-employment". Only 5 per cent were expecting bank savings to be of any help.

North America and Europe: fasten your seat-belts

Of course, over the past year since the Asian crisis first became big news, the big question in our sources has been how the deflationary meltdown in Japan, South East Asia, Russia and now South America would affect us in North America and Europe.

For nearly nine months, the conventional wisdom was that what was called "strong economic fundamentals" would isolate Western economies from the worst effects of the dramatic changes taking place around the world. In terms of coverage, the sources did their best to forget such far away troubles. The silence began to be broken with the first stories of negative economic effects in May 1998. Over the past three months reported events, such as layoffs, factory closures, massive bank losses and falling prices have been coming in thick and fast changing complacency into worried articles about how the consequences of the global trade trouble are proving to be much worse than had been expected.

Here is a taste of what the leading sources have been saying about the state of the rest of the global economy, starting with the USA.

On January 28, 1998 Business Week was saying that the US economy was, in its words, "easily steaming past Asian shoals". The US economy was described as "watertight", "unsinkable" and "unstoppable" as falling interest rates and prices are expected to "add several knots to the economy's already rapid speed". [Sounds like what they said about the Titantic, doesn't it?] In March 1998, Business Week celebrated what it described as "living in a world of cheap oil" where "ultra-low prices are a boon for business ­ and just about everyone". By August 17, 1998, Business Week started to warn that "a downturn could really rock the boat" and pointed out that "paper wealth" was what had kept the economy "riding high". By October 5, in an article entitled, "It's going to get ugly", Business Week warns that the "global crisis isn't going away", and that "profits will suffer". In the same week, Financial Times said "US companies seem increasingly vulnerable to the deflation affecting much of the globe" as they are "squeezed" by decreasing prices and rising costs.

The key point here is that deflation is liable to hit the US economy much faster and more dramatically than it did in Japan with its culture of saving and debit cards, rather than spending and credit cards. The people in the USA are far more personally indebted than the Japanese people are. Americans are also vastly more dependent on increasingly inflated asset values for income to pay off that debt. When asset values start going down instead of up, they will be caught very short, very suddenly. First, they will have to rein in their spending, thereby starting their own deflationary spiral, combined with a credit crunch since frightened lenders will be much less likely to risk their money on loans. Then, as their income decreases, they will begin to default on payments. It is at that time that Americans, the inventors of the consumer economy, will, along with the rest of the world, begin to enter the realms of the Survival Economy.

There is no evidence to suggest that the current expectation that Europe will escape the consequences of the global meltdown is at all realistic. In an article entitled "Fortress Europe begins to succumb to global onslaught", Financial Times reported at the end of September 1998 that corporate profit expectations are already under pressure. Meanwhile, the high-tech inward investors which were supposed to create the jobs of the future are having to close factories. As for the Euro, economic hard times will make it virtually certain that European governments will miss the mandatory budgetary constraints set in stone at Maastricht. The risk is that when tax revenues are falling and welfare demands are increasing, the Euro will become the final target of every currency speculator on earth. With both the dollar and the Euro losing their value, there will be no flight-to-quality havens for global capital left. The only option then will be for capital to invest in the local survival economies that are likely to emerge in the wake of the global crisis.

That the pattern of global relationships can unravel so fast should not be a surprise when so much money and effort were put into making the global economy as interdependent as possible. Using our research techniques, we have been watching this global economic collapse unwind itself into reality for 18 months. Farsighted people, such as Teddy Goldsmith and Bernard Lietaer, have been predicting what is happening now for much longer than that. I suspect even they are rubbing their eyes in disbelief at the current speed of events. Still, it seems that for governments and their economists who, like military commanders, spend all their time fighting the last war, the wave of deflation, unemployment and severe recession comes as a complete surprise. Or else they have been lying to us. You can take your choice.

The Year 2000 software time-bomb: adding to compound risk

Here is what the Gartner Group ­ one of the world's most respected business strategy consultancies, concluded on October 7, 1998 in Expert Testimony before the US Senate:

The largest impact this problem will have on the world is related to the global economy. Countries already plagued with financial woes, sharp increases in inflation, limited monetary reserves, and high unemployment are some of the same countries farthest behind with Year 2000 compliance.

Our experience shows that ... companies are not providing accurate disclosures related to Year 2000 risks and contingencies. There are considerable differences between the status of Year 2000 compliance and critical risks that companies disclose to the Senate Economic Committee, and what the actual status and risks are within that company. This increases the risk of public investments being made without full understanding of Year 2000 risks.

The implication is that full disclosure would utterly devastate stock markets which as we know are teetering on the brink of collapse anyway. Now the planning of contingencies for the consequences of breakdown is, as we predicted more than two years ago, becoming an increasingly urgent option. Even Margaret Beckett, the UK Minister responsible for year 2000 risks (Y2K), said at the last Labour Conference: "The focus should be on priority systems and contingency planning in the event of system failures". She also admitted having come "late" and "reluctantly" to this opinion.

Trend Monitor has been collecting key e-mail conferences and Web reports on Y2K contingency and what is called "community resilience" in the USA for about nine months now, in addition to our usual technical published sources. The material contains vital intelligence about the mushrooming Y2K community sustainability movement in the USA. The need for a crash awareness and learning programme is even more necessary in the UK and especially continental Europe because they are considerably less prepared for and less aware of this issue than their US counterparts. Japan, the Far East and the Third World are much further behind.

Look again: hope is here

So let's look again. The evidence suggests strongly that the global consumer economy is under immediate threat of collapse. Globalisation has made us all dependent ­ not on one another ­ but on wages paid by corporate entities whose ultimate goal is not our welfare, but profit or power. The economics of globalisation is destroying the very ecological diversity which gives us a living environment within which to survive.

So I ask: Is it a time to mourn or is it time to celebrate?

As the global trading in goods collapses, the local economy will be the only game in town. Information, knowledge, experience and even wisdom will become the only type of good which can be traded profitably because delivery is virtually without cost across the increasingly universal Internet. International trade in food and manufactured goods will become too expensive to be practical, while trade in necessary raw materials will become relatively much more expensive. Computerisation makes smaller scale, more tailored, manufacturing much more economic, making global trading scales increasingly uncompetitive.

As the financial system collapses, the space will open up for complementary currencies, such as LETS and Time Dollars, to fill in as increasingly important media of exchange. One of the most important outcomes of the recent LETSLINK Conference, Complementary Currencies: The Need Is Now was that we began the process of implementing Bernard Lietaer's idea of an automated Internet clearing house for complementary currencies which will directly connect local (physical) and global (experience, myth and knowledge) trading, according to the "chaordic" principles of Dee Hock who set up the Visa consortium. Once a pilot scheme is set up and tested, within six months, we hope to have an interest free or negative interest (demurrage) complementary trading system ready to apply at any level of exchange ­ global, national, regional and local. According to Trend Monitor's findings by this time, not only will such a clearing house be sorely needed, but people will also finally perceive its need, too.

We can then expect exponential growth in the complementary economy as the global economy increasingly fails to deliver the goods, whether they be cars, exotic out of season food or trading profits.

Reference1 Global Economy Monitor: From Consuming to Surviving, Trend Monitor, Portsmouth, September 1998. Cost: e-mail version ­ £37. 50 or $65; Print version ­ £55 or $99. Order from: Trend Monitor, 3 Tower Steet, Portsmouth PO1 2JR. Tel: 44 (0)1705 864 714; E-mail: sales@trendmon.demon.co.uk