Having looked at those issues which I believe will be the precursors of the conflict which will increasingly be predicated by social and demographic change, the final aspect of this chapter is to examine those financial environments which will increasingly underpin and welcome the ambitions of the increasing number of financial refugees who will seek to escape from the crumbling edifice of the declining social structures of the old post-industrial economies of the North-Western hemisphere.
For the foreseeable future, one of the inspirations for the global movement of capital will continue to be the gaping US budget deficit. For many years the Americans have been able to sit back and ignore the fact that their profligate lifestyle was underpinned by the unique feature that the US dollar was the leading hedge currency in the world. There are more dollars held outside the USA than circulate within it, and whenever the US needed to increase its inward investment of foreign-held dollars, all it needed to do was create another issue of US investment-grade paper, and watch the money roll in as foreign holders of dollars invested in a very secure method of holding their money (whether lawfully or unlawfully acquired).
This money has for many years provided the US with an almost limitless conduit of cheap, anonymous dollars which has underpinned their ability to lend money to their own house purchasers, job seekers and otherwise maintain an affluent lifestyle at a relatively low interest rate. This money has represented a vast tidal wave of foreign capital flight which has traditionally sought a refuge in the US, and it has been traditionally jealously guarded by US investment advisers.
A letter of 3rd December 2002 sent to the US Secretary of the Treasury and signed by 17 US Congressmen said;
“…We want to express our concerns about the IRS proposed bank deposit reporting regulation…this regulation would force banks to tell the IRS the amount of interest paid to non-resident aliens, even though the information is not needed to enforce US tax law…from a policy perspective, we are concerned that the regulation will undermine the competitiveness of US financial institutions and drive capital out of the US economy. This might be a worthwhile price to pay in pursuit of good policy, but this regulation undermines the long-run tax reform goals that we all share…good tax policy must encourage investment in capital markets – particularly American capital markets…This regulation, by contrast…is discouraging foreign investors from investing in the US market…the proposed rule will drive capital to other jurisdictions. American financial institutions have attracted about $1 trillion from overseas and a substantial share of that job-creating capital will leave our economy if the service compels US banks to compromise the interests of their depositors…this means less money available for car loans, home mortgages, and small business expansion…it is particularly foolish to impose this kind of regulation when the economy is sluggish and financial markets are weak. A regulation of this type is particularly damaging to a financial system recovering from an economic downturn…’
The Americans are still engaged in a consumer spending spree, making them the main engine of growth of the world economy. Largely fuelled by easy-to-get credit, their trade deficit with the rest of the world is unsustainable in the long term, and at some stage, their almost insatiable taste for foreign-made goods will have to slow down as the realisation sinks in that they simply cannot afford to maintain this level of unserviceable debt, all the while watching their own dollars continuing to flood out.
The direct beneficiary of this financial relocation will be Asia. An article in The Times of 8th January 2004 written by Anatole Kaletsky sets out a seminal analysis of the region and the way in which it is becoming an increasingly consumer society. He states;
“…An upsurge of economic confidence is now palpable across Asia, driven by a much more powerful force – a tectonic shift in the global economy, whose centre of gravity has moved irrevocably from the Atlantic to the Pacific in the past ten years…In the past few years, Asia’s teeming but impoverished billions have started to turn into potential consumers with increasing aspirations to Western-style standards of living…”
His point is that what was once a very poor region has, through its focus on being the world’s leading supplier of consumer goods in the form of electronics, computer hardware, as well as designer branded sports clothing, transformed its economy. Indeed, there has begun to emerge a new bourgeois class, which realises it too can now enjoy all the benefits of a Western life-style. Kaletsky again;
“…Until recently there was limited appeal for goal-orientated materialistic politics in countries such as India or Pakistan, since most people, even in the educated middle classes, believed that Western-style economic prosperity was unattainable. This fatalism has now largely vanished…”
Kaletsky identifies the importance of the US trade deficit which as he points out is pumping $500 billion each year into the world economy. Interestingly, this is the same figure as that which the US authorities declare is the amount the illicit drug industry generates each year, but I am certain they have no direct connection! He states;
“…Asian governments and the economies they manage are flush with money because of the vast US trade deficit…almost all of it ending up in the coffers of Asian businesses, workers and central banks. Asian central banks now own foreign exchange reserves worth over $1.5 trillion. The tiny monetary authorities of Hong Kong and Singapore, representing 12 million people between them, now have reserves of £220 billion…”
Kaletsky identifies Asia as being the region where growth is now seen as being a reality as opposed to a pipe-dream, and this is leading to a greater rejection of religion as a political principle in both Pakistan’s and India’s growing middle class. While there may still be fundamentalists on both sides of the political divide, the drift generally is away from religious extremism.
“…This was apparent in last year’s Indian state elections, where the successful candidates generally steered away from religion, caste and ethnicity, and ran on their record of delivering results…” Kaletsky
It is of interest to remember that India and many of the other countries in this region are not part of that group of nations whose child-birth rates are falling. They are defined as ‘young’ populations’ and they are not suffering from the same problems as the north-western old post-industrial democracies. They generally do not have advanced welfare states, and the extended family model is the norm. They have a widely-educated class of young, entrepreneurial people, who are computer-literate, and who are willing to work for wage structures which are significantly lower than those paid in the West. World businesses are queuing up to outsource their call-centre operations in Delhi and Mumbai. Bangalore is the second most advanced city in the world, after Seattle, for computer software development.
Kaletsky paints a very positive image of the future of the Asian region, and the emergence of a new, powerful middle-class, led by economic growth, and the emergence of China as a regional leader.
“…The near miraculous success of export-oriented development in China has created an infinitely more attractive economic model than state-controlled central planning, based on markets, entrepreneurship and private ownership, albeit with ‘Asian characteristics’. When they look at China, the people of India and Pakistan, and especially the middle classes, can see that prosperity for their families within a generation is not an impossible dream…”
These are the countries and this is the region where the world’s wealth will migrate and continue to migrate in the foreseeable future. This is where the new economy of the information age will be most understood, and this is where the technology and the means to drive the new thinking behind the new ways of doing business will be developed. The old wealthy from the former post-industrial economies who choose to hide their money in these emerging wealth-generating democracies will find themselves increasingly under threat from their country of origin. They will seek to do everything in their power to prevent this money from escaping to these safe havens, and they will use all the powers at their disposal.
This is why governments in the old post-industrial democracies are busily passing more and more laws and regulations dealing with the flows of money around the world. This is why they are seeking to introduce even more legislation dealing with charities and other not-for-profit organisations, and why they are seeking to engage ever wider groups of players within the regulatory net. They need the information of where the money is going and where it is being held and who is holding it.
This is the area which I predict, will become the leading area of conflict for governments and its citizens in the future as more and more citizens will retreat from their continued willingness to have their own assets confiscated by government, to support a growing number of otherwise unfunded citizens.
This is where the battle lines for control of the remaining wealth possessed by a shrinking number of citizens will be drawn, and where the myriad laws and regulations regarding money laundering and criminal confiscation will come into their own.
How this will happen and how we have arrived at this state of affairs will become the subject of the next chapter.