Wednesday, February 18, 2009

The Ten Major Challenges that Faced Leaders on 11 August 2008

I chance upon the fact that, on the 11th of August 2008, I responded to a request from a colleague for my thoughts on the "ten challenges that face leaders today".

Because it may interest you, here is my response:

"In general, most people remember no more than 5 things

however, as you have asked for 10 major challenges that face leaders, here they are (below)

1. PRINT AS MUCH PAPER MONEY AS YOU LIKE AND TO HELL WITH THE CONSEQUENCES: The current credit crunch (also called the housing-related crisis) is fundamentally caused by the printing of too much paper money which was started by the US Federal Reserve after the crash, and expanded even further by them after 9/11, and expanded yet again after the onset of the current crisis. When there is "excess liquidity" in the system, it is clear that inflation will be the inevitable result. Even if "consumer price inflation" (the measure beloved of governments) is held in check, then there will be inflation in real estate prices and/or gold and/or oil and/or art and/ or.... The lead of the United States in simply printing as much money as you like, was followed vigorously by China, India, the UK and other countries, so that there is simply too much money in the global economy. The first major challenge is therefore how to squeeze out "unsound money" without causing a global collapse. The favoured view is that if we slow down the speed by which money is moving around the economy by increasing interest rates, then this will balance the existence of too much money. The speed at which money can move in the economy certainly has an effect on inflation - but it is only one of the two factors that have an effect. The other and more important factor is the sheer amount of money in the system.

2. MAKE AS MUCH WEALTH AS YOU WANT RIGHT NOW - AND DON'T WORRY ABOUT FUTURE RISKS: Most of the "wealth" that has been generated in the last quarter century has been generated by so-called "financial engineering" rather than by actual increase in the real value of goods and services produced. The real value of goods and services produced has of course also increased in these years, but nowhere near as much as appears to be the case. What has caused the illusion? First of course the simple printing of too much money (see Point 1) but also the effect of various forms of leveraged finance (many of which are simply sophisticated bets, though hedge funds also have an insurance function which is easy to separate notionally but has not been properly separated in fact). High Volatility in the Price of Oil, Gold, US Dollar & Euro could well be best countered through the use of alternative monetary systems which are designed to be counter-cyclical.

3. IS AMERICA HAVING PROBLEMS? SO MUCH THE BETTER FOR ALL OF US!: Not so. The USA is still fully 50% of the global economy, and is still the primary engine that drives the world economy. Some of us have political or emotional reasons for disliking the USA, but the brute fact is that if the US goes down, so do all of us. So pray that the consequences of America's misdeeds will be put off as long as possible and that the consequences will come in as slowly as possible.

4. GLOBALISATION IS GOOD FOR ALL OF US, ISN'T IT?: The current model of globalization is grossly out of balance, because it relies so heavily on the continuation of America’s overheated consumerism, on America’s virtual absence of personal savings, and on America’s ongoing massive trade deficits. These economic issues are ultimately moral failings and are of course unsustainable. Instead of a traditional income-driven economy which under ideal circumstances might just make all of this work somehow, America now has an economy driven basically by periodic asset bubbles fuelled by manufacturing and energy-related trade deficits and by cheap credit generated through financial engineering (see points 1 and 2). And it is this artificial prosperity which has until now made the U.S. economy and in turn globalization look much healthier than they really are. For example, in Germany, whose business and economic models most closely resemble America’s, the middle class has plummeted from 62% of German society just eight years ago to only around 50% today.

5. IRAN IS ONLY A PAPER TIGER, IT WON'T REALLY PRODUCE NUCLEAR WEAPONS - AND EVEN IF IT DOES, WHAT'S THE PROBLEM? The problem is that neither the USA nor Israel will accept a nuclear armed Iran, so as long as Iran pursues nuclear power, war will at least look inevitable - with all the political, social, economic and environmental effects of a war in the middle-east.

6. SOLVING THE IRAQ CRISIS IS A SIMPLE MATTER OF DIVIDING IT INTO THREE POLITICAL ENTITIES AND WITHDRAWING WESTERN FORCES. Well, these are two issues. The first (the division of Iraq into three) may or may not help stability. The remaining issue is one of rising Islamic Sectarian violence worldwide. Muslims used to be divided between quiescent minorities in non-Muslim states, and Muslim-majority states that operated in the world of realpolitik. Now we have those of course, but we also have various fundamentalist forces, some of which espouse violence not only against non-Muslims but also against fellow-Muslims.

7. GLOBAL WARMING IS A MYTH: Scientific opinion may be divided regarding whether or not global warming is occurring and, if so, whether human actions are responsible. However, there is no division of opinion about the increase in unseasonal weather worldwide, with an increasing number of hurricanes, typhoons, droughts and floods, and their impact on food and water shortages worldwide. Clearly, human actions may well have some effect on the weather, so it is no wonder that legislative solutions are being touted, and we certainly need to do all we can to bring in alternative energy solutions: Solar, Geothermal, Bio-Waste, Hydrogen-, Hydro-, Wind-, and Hybrid-Power - if for no other reason, then because they present new opportunities for economic growth worldwide. Consumer activism has clearly already helped, and Carbon Emissions Labelling of products may well help too. Sustainability-oriented accounting (rather than present systems of accounting that systematically ignore sustainability-related issues) are clearly ahead.

8. NEW TECHNOLOGIES ARE ALWAYS WELCOME: Beware! New technologies such as such as Quantum Computing will speed "existing technologies" which are behaviour modifying such as the convergence of Biotechnology with Genetics, Informatics and Nanotechnology - not to mention the threat that is posed by the promised release in 2012 of the next generation of humanoid robots which will be capable of doing almost everything that humans can do, but better/faster/cheaper. The only areas left out of foreseeable robotic capabilities are creativity, management, business and politics.

9. THE THREAT OF PANDEMICS IS OVERBLOWN: that is possible, though it is not entirely ignorant people who warn us of the possible spread of pandemics (including Avian Flu) and of Biosecurity hazards.

10. PHILANTHROPY: Though giving is declining (even in the West) as a percentage of income, the sheer amount being given each year continues to increase around the world at present. The rise of Social Entrepreneurship to counter complex global challenges, as well as the rise of concern regarding ethics and responsibility in the areas of business and investments must also be heartening - and these provide us a positive note on which to conclude this survey of the challenges facing the globe.

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