The challenge of global reasoning

Phil Ruthven reflects on recent global trends and explains why mistakes will be repeated before rationality is restored.

Recent and impending elections among the big global nations suggest the world economy is likely to be turbulent well into the 2020s. In fact, significant challenges to business are already at play.

Economic and financial hegemony from the Western world certainly played a part in the religious, terrorist and political upheavals of the late 20th and early 21st centuries. Then greed and corruption in corporations and governments became more prevalent from the turn of this new century in developed countries, not just poor or emerging ones. Add religion – especially the tiny but destructive fringe-dwelling Islamic terrorists – to this heady mix, and it begins to resemble a “molotov cocktail”.

It is worthwhile looking at the issues that are part of current dysfunctionality because emotion has been overtaking rational thinking and rational leadership throughout the past 12 months. These issues include: globalisation and regionalisation, changing economic power structures, religious terrorism, the technological tsunami, the US dilemma, and changing political ideologies.

Globalisation and regionalisation

The world has been regionalising more than globalising in the new age since 1965. The world’s 230 nations and protectorates are gradually coalescing into eight trading, if not sovereign, regions: Asia-Pacific (33 per cent) of gross domestic product (GDP), the Indian subcontinent (9 per cent), North America (19 per cent), Central and South America (6 per cent), Western and Central Europe (17 per cent), Eastern Europe (4 per cent), the Middle East (7 per cent), and Africa (5 per cent).

This is more pronounced than globalisation in economic significance, although capital flows have certainly assumed a freewheeling global pattern. Multi-national corporations have also been significant and are often seen as colonising cultures across the globe, but full political and economic globalisation awaits the tail end of this 21st century. These forces have alarmed societies with their speed as well as their penetration of cultures and lifestyles.

Changing economic power

The dominance of Asia – being a combination of the Asia-Pacific and the Indian subcontinent – with 42 per cent of world GDP has enormous significance. It already exceeds the size of Western and Central Europe and North America combined (36 per cent). Indeed in 2016, the entire Eastern Hemisphere overtook the West in GDP terms for the first time, so the new world order is emerging early in this 21st century.

China’s GDP is now more than a third larger than that of the US; India is now almost double the size of Japan, and more than double the size of Germany. Brazil and Indonesia have well and truly overtaken the UK’s 2.3 per cent of world GDP, nowadays just over twice the GDP of Australia.

There is a seismic shift in global power underway and this is unsettling to those who had the power – and prestige – and do not want to relinquish it. Those now with power are not yet experienced in using it and people in all nations are unsettled in the process.

In voting to leave the EU and setting out to be isolationist under a new president, the UK and the US respectively are trying to fly solo; a very dangerous choice during this regionalisation trend of our current infotronics age, and one which can only hasten the power transfer to the East.

Religious terrorism

Religions are man-made of course, albeit with altruistic intentions and claimed divine guidance by the vast majority of their founders; but as the famed author Karen Armstrong questioned in her landmark book The Battle for God, which one is the true God? Clearly that has been the stuff of feuds, fights, terrible wars and terrorism. All of these are also man-made and are an abomination of the original founders’ teachings.

It just happens to be the turn of Islam’s unrepresentative murderers to do terrible things. Another frightening element of the second decade we are in, and a major reason for the situation we are in, where rationality has taken a back seat.

The technological tsunami

If the IT revolution of the mid-60s wasn’t enough of a technological shock, the stage two arrival of the digital disruption era serves as a technological tsunami to billions of people. Yes, smartphones and tablets have become de rigueur, but social media is a mixed blessing, retailing is being turned on its head, and robots – visible and invisible – are proliferating.

Artificial intelligence is gaining enormous traction in all areas of work and life, and the age of big data and analytics looms as a perceived threat to those that can’t see its fantastic benefits (and some risks of course) to society in the long term. Again, emotions are gaining popularity as a bulwark.

Legacy of the GFC

When the global financial crisis (GFC) struck, the US government led by President Obama and other heads of state around the world faced two choices. The first was to have the “classic” depression for three to four years with massive unemployment of 15 per cent or more, a purging of the financial criminals, a wake-up call to society at large, then an eventual return to normal growth.

The other option was to fill the potential hole in with unprecedented pump-priming “quantitative easing” and spread the pain out over ten years or more with half the normal 3.5 per cent per year GDP growth during that “recovery ward” period. But halving the GDP growth in the US and Europe would mean no increase in standard of living for a decade, the trade-off for a depression and its massive unemployment.

World leaders chose the latter: less pain, but with no criminals charged or convicted in the US, and no wake-up call to society (especially the greedy rich). Governments didn’t explain this choice to the electorate, and they let greed and polarisation of incomes continue.

To a greater or lesser extent, the GFC and other social problems have been problematic around the globe, leading to disenchantment with governments of the day. Voters have responded favourably to strongmen, regardless of their qualifications, rationality or truthfulness.

Changing political ideologies

Politics today is driven by either rational (fact-based), or irrational (emotion-based) thinking.

Regular readers of this column will be familiar with my argument that rationality will win in this new age, as capitalism did in the industrial age, otherwise all the tertiary education, information explosion and artificial intelligence software will have failed; and it won’t. But it hasn’t won yet, and will not win for some years to come. The irrational strongmen are currently in charge across many nations by default, as already suggested. Perceived as weak, rational heads of state are being swept aside.

What does the future hold?

We will need to repeat the mistakes of history for a society that hasn’t experienced it or read enough about it, before sanity and rationality is restored – which will happen.

In the interim, the breakout box on page 28 takes a stab at the next five years. In short, we should be thankful we live, invest and work in Australia; for all its faults.

The next five years: the search for global rationality

• Voters around the world have become fed up with greed, financial criminality (unpunished), corruption (government and corporate), stalled growth of living standards since the global financial crisis, polarisation of wealth, and visionless, gormless and tremulous governments.
• This has paved the way for the emergence of strongmen and emotionality, rather than leaders and rationality: evident in Russia, USA, Turkey, Philippines and China. It has its precedents, the last time being the 1930s with Russia, Germany, Italy and Japan.
• The lessons of history are once again either not known or are ignored by voters and the new “saviours”.
• Fortunately, Australia is more a bystander than participant in the above dilemma. We have minimal national debt, our income and wealth polarisation has not widened this century, we trade in Asia not the West, have negligible racial tensions by developed nation standards, and political irrationality is mainly confined to our undemocratically elected Senate.
• That said, we have not had good government for 10 years, and none is in sight.