Daily Archives: January 2, 2012

The big issue of the coming year will be more of the same: rolling protests across multiple countries that will morph into revolutions in many. They are the result of “disruptive technology”, and we are only just beginning to grasp exactly what this means. It means that disruptions in the lives of individuals – through arrest, beatings, torture, rape, detention, kidnapping, and murder – have a much higher probability of disrupting entire societies.

The difference from traditional technology is speed, scale and resilience. The immediacy, apparent veracity and emotional power of words and images that are instantly transmitted to thousands and then millions of people can transform existing currents of dissent into a raging flood. Equally important, when the state takes action to crush the first waves of protest, the resulting images create instant martyrs and a steadily growing determination that the lives lost shall not be in vain. Finally, success in one country fuels a sense both of possibility and of competition across a region. The Egyptians marching to Tahrir Square were inspired by both hope and a friendly but real rivalry: “If the Tunisians can do it…”

In 2012 we should see many more protests in sub-Saharan Africa. Zimbabwe is one obvious candidate; Sudan is another. Nigeria could rise up en masse against enormously pervasive corruption; uprisings are also possible in Ethiopia, Uganda, and a number of smaller countries. In Russia, shame among educated classes that Vladimir Putin is just the latest czar, combined with growing economic desperation and corruption in rural areas, makes another Russian revolution plausible if not probable. And I would not be surprised to see mass protests in several central Asian countries, in Pakistan, again in Iran, in Algeria, Mexico, Venezuela or Cuba.

In the US, the Occupy movement will operate through rolling flashmob-type disruptions, but we should also see much more concrete actions such as defending against foreclosures – a tactic pioneered in Spain. In European countries that are choking on eurozone-imposed austerity, protests are also likely to turn into coordinated civil disobedience, centred on a refusal to pay new or higher taxes. And the Middle East will continue to burn.

Revolution is the ultimate disruption; it is an overturning rather than a reshaping through reform. Rolling disruption is somewhere in between. Wise governments will preempt revolution and respond to protests with rapid and meaningful reform. But wise governments are few and far between; and wise governments able to act quickly are far fewer. Expect a very turbulent year.

The writer is a professor at Princeton University and a former director of policy planning at the US State department

Inequality will be the central theme of 2012. It has always existed and is not going away, but this year it will top the global agenda of voters, protesters and politicians running for office in the many important elections scheduled.

There is nothing new in the fact that a few people have too much and too many have too little. In some places (the Soviet Union and most countries with authoritarian regimes) inequality was once largely hidden from the population, in others (Latin America) it was known but tolerated and in some (the US) it was celebrated. In 2011, the economic crisis made the world more aware of the extent and scope of economic inequality. In 2012, peaceful coexistence with inequality will end and demands and promises to fight it will become fiercer and more widespread than they have been since the end of the Cold War.

Headlines such as this recent one in the Los Angeles Times – “Six Walmart heirs are wealthier than US’ entire bottom 30 per cent” – epitomise the new mood. Such scrutiny of the lives and deeds of the “one per cent” will become obsessive. Alongside the newfound intolerance for inequality, we will also see the occasional attempt to explain that not all inequality is bad. Jamie Dimon, chief executive of JPMorgan Chase, said recently: “Acting like everyone who’s been successful is bad and that everyone who is rich is bad – I just don’t get it.” Behind his perplexity is the assumption that great wealth often results from innovation, talent and hard work that are justly rewarded by society.

But as we know, great wealth and inequality can also originate in corruption, discrimination, monopolies, abusive corporate behavior or Madoff-like malfeasance. Students of inequality like to equate it to cholesterol: there is bad and good inequality, and the trick is to boost the good one while keeping the bad one at its lowest possible level.

Therein lies the problem: lowering inequality without harming other goals (investment, innovation, risk-taking, hard work) is not easy. The fight for a more equal society was the goal of countless experiments that resulted in even more inequality, widespread poverty and loss of freedoms.

Yet there is compelling evidence that high inequality is also bad for a nation’s health: it leads to higher political instability, more violence and it also hurts competitiveness and long term growth.

Elections will take place in the US, France, Russia, Taiwan, Mexico, Egypt, and Korea in the coming twelve months. Spain and China will also change leadership. Inequality will become part of electoral debates that will influence the conversation even in countries where it has long been taken for granted. Inequality will be the protagonist of 2012.

The writer is a senior associate in international economics at the Carnegie Endowment

The big debate of 2012 will be over the role of government in the economy. Although this sounds like an economic issue, it is really about politics. There is no economically optimal size of government. Voters must choose whether they prefer high public sector spending and generous entitlements coupled with higher taxes to pay for them, or modest public provision and basic entitlements along with lower taxes and therefore more take-home pay. The ongoing financial crisis provides stark evidence that the current model of high public sector spending financed by growing public sector debt has hit the buffers.

The US election campaign is already taking shape around this issue. The Republican candidates seem determined to outdo each other in their opposition to government spending, whether for healthcare or road repairs. Their arguments vary with their political stripes. The more moderate point to the inefficiency and low quality of public sector services. The more extreme think it is immoral for government to confiscate people’s income through taxation for anything other than “pure” public goods such as defence. They believe individuals should have the right to keep their income and spend as they choose, rather than having choices made by bureaucrats.

On the Democratic side, Barack Obama is fighting to maintain his healthcare reform and extensions to unemployment compensation. But he continues to claim that such entitlements can be financed by higher taxes only on “millionaires and billionaires”. Few economists support that view. More importantly, the polls show that the public is very concerned about rising government debt and sceptical that higher deficits will stimulate growth.

Despite this heated pre-election debate, the US may be able to fudge the issue for a little longer. There are still willing buyers of US debt in Asia and, if 2012 brings more financial shocks, the dollar will benefit from safe haven flows. But Europe is running out of time and it starts from a worse position. Taxes are already so high that they depress growth, both by making Europe an uncompetitive location for many businesses and through what economists call the “deadweight loss” they impose on the economy. This problem is compounded for eurozone members, which cannot adjust by depreciation. Meanwhile welfare spending and public sector employment now benefit so many voters that it is hard for politicians to win backing to cut them. The social contract that underpins democracy requires compromise. But the political debate will grow more confrontational in 2012. This will be the year that the financial crisis turns into a number of political crises.

The writer is chairman of Chatham House and a former member of the Monetary Policy Committee of the Bank of England

Technology is profoundly changing the world’s energy equation, and all its geopolitical implications. Energy efficiency in the advanced countries has risen sharply, implying that their demand has peaked, and vast, commercially exploitable discoveries of oil and gas – especially gas – have been made in politically stable areas, including in the US. This suggests that in future, gas will account for a much larger proportion of the world’s energy supply. While these developments are positive for geopolitical stability, they may pose difficulties for the climate.

Since the embargo of 1973, there has been a global preoccupation with the centrality of oil, its supply, its cost and the international politics of it. As economies grew and global demand for energy increased, oil and gas exploration and production increasingly moved to distant and politically unstable countries, such as Russia, Iraq, Libya, Iran and Venezuela. At the same time, Opec rose to power; the US military assumed protection of the Persian Gulf; and concerns grew that the world might run out of oil.

This difficult era is now approaching an end, and technology is the main reason. New techniques of exploring and drilling in very deep water and tar sands have been developed. New approaches to hydraulic fracturing and horizontal drilling have made it possible to extract deposits of oil and especially gas profitably from shale. The implications are huge. Vast reserves of natural gas are now accessible, and the role of gas in world energy supply is growing fast. Within 25 years, gas should outstrip coal to become the second biggest source of global supply, behind oil. This is positive because gas is much cleaner than coal.

America is experiencing both higher efficiency and an energy boom, in both offshore and onshore production. This means that it will reclaim its role as the world’s biggest energy producer and, incredibly, become a net energy exporter. Brazil, Canada and Australia, all stable countries, are experiencing similar energy booms.

Huge changes like these always have a downside. The environmental implications of these new technologies are not clear. The movement towards renewable energy sources, nuclear power and climate stability may be slowed by the new abundance of oil and natural gas, and the relatively low price of gas. Even in 2040, respected forecasts now envision that fossil fuels will still supply 80 per cent of the world’s energy needs.

However, energy security and national security for much of the world will be improved, as the influence of rogue oil states diminishes. That is quite a plus.

The writer is the founder and chairman of Evercore Partners and was US deputy Treasury secretary in 1993-94

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