Australia’s Deteriorating Fiscal Position

From the Australian Financial Review, on Australia’s deteriorating fiscal position:

The Parliamentary Budget Office has issued a fresh reminder of how Australia’s political system is struggling to grapple with one of its most basic tasks – keeping the budget in balance.

In a series of graphs, the independent body shows that failure to curb spending and manage faltering tax revenues has left the budget in an ever-deteriorating mess, despite years of positive economic growth.

… Most damning – and the primary reason Australia’s AAA credit rating is facing the very real prospect of being cut for the first time in three decades – is the never-ending rise in national debt, which is growing faster than almost every other highly-rated nation.

The budget office estimates that net debt will surge to $428.5 billion – or 22.6 per cent of gross domestic product – by 2018-19. That’s $30.9 billion more than was forecast at the mid-year budget update in late 2015.

When Green Fantasies Come True

The fact that French electricity multinational Engie would rather close its doors than continue to operate in Victoria tells you all you need to know about the impact of Green renewable energy policies.

Engie today confirmed that it would close Victoria’s Hazelwood power station in March 2017 and in a surprise move said it would also try to sell its Loy Yang B power station, also in the State’s Gippsland region. Together these power stations are responsible for around 35% of Victoria’s electricity.

Hazelwood alone is equal to over 2,000 wind turbines in terms of reliable electricity output. It is nonsense that it can be replaced by renewables any time soon, if at all, and the move will have serious consequences for Australian electricity prices and security.

Victoria is the low price anchor of the National Electricity Market, with its surplus electricity also patching the holes in renewables-rich South Australia and Tasmania. These three states will now be competing for the same, reduced power output. In any market, if you reduce suppliers, prices will rise, and electricity is no different. After South Australia’s last brown coal power station closed in May, two major electricity companies almost immediately announced retail price rises of up to seven times the rate of inflation.

Unfortunately this is the inevitable outcome of federal and state government policies that are destroying the investment environment for fossil fuel companies. In the case of Victoria, in just the last 6 months the Andrews government has tripled the tax on brown coal, announced a new 40% renewable energy target, and extended the current ban on exploration for new gas supplies. What company in their right mind would want to invest?

While predictably, the Federal and State Governments have announced assistance packages, in reality no temporary state or federal government employment schemes or taskforces can possibly replace viable private sector jobs delivering an important commercial product. Nor should they.

Sympathetic comments by environmentalists about the impact on local workers and communities are just crocodile tears, given that renewable energy policies are specifically designed to push coal and gas producers out of the market. They did the same thing in Port Augusta last year.

Meanwhile the CFMEU is pursuing industrial action at a third Victorian brown coal power plant, proving that the union movement has learned nothing after taking Toyota to court in 2013 to prevent it from restructuring to avoid going out of business.

In the last year, South Australia and Tasmania have shown the world what happens when you have an ideological obsession with renewable electricity. Germany also spent €1 billion in 2015 on electricity grid stabilisation alone because of too much wind power and a think tank recently estimating the total cost of its so-called Energy Transformation at 525 billion Euros by 2025.

Given that the Greens have made it clear that they want to close all Australian coal-fired power stations, starting with all four of Victoria’s, the question for the Green movement and its sympathisers in the major parties has to be “Where will our future electricity and gas supplies come from?”

Ministerial Confusion A Symptom Of Big Government

Today’s revelation by the ABC that 100 days after the federal election, Australia’s three defence ministers still don’t actually know what their responsibilities are, is a classic example of what happens when government is too big.

A fortnight after the July election, FreedomWatch highlighted the Turnbull Government’s 42 executive officeholders and 53 portfolios, and how this compared unfavourably with the first Barton ministry and the first post-war Menzies ministry.

According to the ABC, a ministerial turf war over who controls what, is responsible for this extraordinary delay. Taxpayers may well ask if they still don’t actually have a job description after three months can we please have a refund of their ministerial salaries!

In the real world the job comes before the person – i.e. something needs to be done so you find someone to do it, and if you can’t afford it, you either prioritise, work longer hours or just forget about it. But in the world of government they give as many people as many jobs and titles as they can, paid for by the long-suffering taxpayer, and worry about what they actually have to do later.

Labor is no better, and now has a whopping 48 shadow ministers. There are so many people on the gravy train that one of Labor’s few non-ex-union-official MPs, former economist Andrew Leigh, had to take a pay cut to stay on board.

With federal government spending forecast to pass $500 billion per year in 2019-20 and gross federal debt to pass $500 billion in the next twelve months, it is clear that the size of government and the red tape it creates and administers is out of control.

UK Nanny State Bullies Family Restaurants

The UK government’s nanny statist food ingredients and portion size policies are now being expanded to restaurants, cafés and pubs of all sizes.

The government plans to set sugar reduction targets, calorie caps for particular products such as chocolate bars and muffins, and push for smaller portion sizes.

If foot outlets, of any size, don’t follow the punitive guidelines they will be named and shamed – possibly on an offical government website. This comes on top of a plan announced in this year’s UK budget to introduce a “sugar tax” on soft drinks. (I have previously written for The Spectator Australia that such taxes are illiberal, ineffective and regressive.)

UK Health Secretary Jeremy Hunt is reported to have told a private meeting of over 100 food companies that he wanted to “shine a light” on non-complying companies, The Times reported in a front page story on Friday:

“We can’t ignore the changing habits of consumers. This means we expect the whole of the out-of-home sector — coffee shops, pubs and family restaurants, quick service restaurants, takeaways, cafés, contract caterers and mass catering suppliers — to step up and deliver on sugar reduction.”

Tim Wilson first wrote on FreedomWatch about Britain’s the impending portion size regulation back in 2013. At the time these were particularly targeted at larger food manufactures. The IPA’s Chris Berg has also warned in 2012 that draconian portion size regulation was recommended by the Rudd/Gillard government’s now-abolished Preventative Health Taskforce.

The basic idea that individuals should be able to choose what they consume, and restaurants allowed to decide their own ingredients and portion sizes, appears to have been lost. Instead the UK government intends to go after family restaurants that don’t comply with their arbitrary standards.

It is apparently now the role of government to decide what we are allowed to eat, and circumstances in which we can eat it.

Degas – The Impressionist Who Rejected Impressionism

The National Gallery of Victoria’s exhibition Degas: A New Vision, is the most comprehensive collection of the works by the French painter and sculptor, Edgar Degas(1834-1917) since 1988.

There are some wonderful individual pieces to inspect in this brilliantly curated exhibition and I urge you to see before it ends on September 18th. And as you learn more about Degas, you will see a case study in how to resist the pressures of a peer group to adopt fashionable left-wing attitudes, and indeed how to pursue an individual vision which rejects easy labels. While as a youth he rebelled against ‘the Establishment’, he did not simply become a dutiful member of the alternative movement which was in turn to establish its own period of dominance.

While commonly labelled as one of the founders of French impressionist, Degas actually took great exception to being called a ‘French Impressionist’.

The French impressionists were at their peak in the 1870s and 80s and were radical artists who set out to flaunt the rigid rules of artistic convention strictly enforced by the Academy of Fine Arts.

According to the Academy, historical subjects, religious themes and portraits were in but landscapes and still life were out. Being quite partial to painting latter, the impressionists started their own society so that they could actually exhibit their works.

Despite his almost fanatical aversion to landscape painting, Degas joined the impressionist society anyway. But once a member, he mocked his fellow artists on account of their predilection for ‘painting outdoors.’  This did not endear him to the likes of Manet and Renoir.

Degas believed that the medium of drawing was far superior to splashing colour about on canvas. As an old man, he lamented that were he to begin his career again, he would have ignored colour altogether and stuck to black and white.

The second fascinating fact about Degas is that unlike many of his fellow artists, he was socially and politically conservative. He was hostile to the left-wing ideology of collective work and ‘real action’ and chose to reject the bohemian absinthe -fuelled existence of his fellow artists in favour of a respectable existence.

Moreover, Degas came from an upper middle class family which had accumulated its wealth from a variety of unashamedly capitalist ventures such as stockbroking and banking. His mother’s Creole family had established themselves in the cotton industry in New Orleans.

In 1872 and he travelled to New Orleans to stay with his cousins, and found the “colonial” society very attractive.  It was there that he painted A Cotton Office in New Orleans.

However, after returning to Paris in 1873, Degas found out that his brother had amassed substantial debts, so he sold his house and an art collection he had inherited, and used the money to pay off his brother’s debts.

For the first time in his life, Degas was required to earn an income as his survival became dependent upon sales of his artwork. Degas then went ahead to produce much of his greatest work and still made an excellent living, thus demonstrating that necessity is indeed the mother of invention.

So Now You Have Bought An Emissions Trading Scheme

What is it?

The emissions trading scheme, or ‘Carbon Pollution Reduction Scheme’, is a ‘cap and trade’ system. This requires firms to obtain a government ‘permit’ if they emit greenhouse gases.

The government caps the level of emissions by restricting the number of permits available. The government plans to progressively reduce the pool of permits made available each year-intensifying the competition for permits and making them accordingly more expensive. So how does a cap and trade system work?

Each year, firms acquire permits directly from the government through an auction process or some other allocation mechanism. The firms can decide whether to use those permits themselves, hold them for some future period, or sell them to other firms.

Over the course of the year, firms can emit only the quantity that they have permits for. Government audits emissions levels to ensure compliance

Used permits are surrendered to the government.

This process is intended to provide incentives to reduce carbon emissions, by favouring low (or zero) greenhouse gas emitting forms of production and consumption. And, to the extent that prices of goods and services are affected by price rises, the ETS is supposed to restrain demand. The reduction in emissions may be brought about by firms utilising lower emission technology or implementing carbon capture and storage systems. Firms that lower their emissions will need to buy fewer permits, and to sell unused ones to other firms.

Does the ETS apply to all emissions?

The ETS applies to a broad range of greenhouse gases. Firms will require permits to emit, carbon dioxide, methane, nitrous oxide, sulphur hexafluoride, hydrofluorocarbons and perfluorocarbons-the gasses nominated by the Kyoto Protocol. Nevertheless, carbon dioxide accounts for 74 per cent of the total.

But not all Australian greenhouse gas emitters require permits to emit. The ETS covers only the largest emitters-roughly 1000 firms. This leaves 25 per cent of Australia’s total emissions uncovered by the scheme. The announcement that petrol will effectively be excluded for up to three years from the ETS reduces the coverage by another 14 per cent.

The burden of acquiring permits varies from industry to industry. In most cases, it is the actual emitter who is responsible-for example, electricity generators or aluminium smelters. But in the case of the transport sector, there are millions of cars that individually emit only small quantities of greenhouse gas each year, but which add up to around 14 per cent of Australia’s total emissions. Because of the high burden that acquiring permits and monitoring emissions would place on individual motorists, the ETS will place the obligation of acquiring permits on petrol and diesel suppliers.

A critical problem with the government’s ETS proposal is the inconsistent burdens it places on emission sources. For example, agriculture will likely be excluded from the initial implementation of the ETS. But many agricultural practices such as wheat cropping will still be affected by price rises applying to vital inputs like nitrogen based fertiliser. Agricultural interests argue that they already offset their carbon usage (or could do so at low cost) by sequestering carbon within the soil but there is no provision to compensate and encourage such practices. These mismatched burdens on agriculture will reduce the industry’s international competitiveness.

Why not just a simple carbon tax?

The ETS effectively acts as a tax. It requires firms to buy-or be awarded-permits from the government in order to emit greenhouse gases. Certainly, the permit awarded by the government can be bought and sold in the market. But the ETS is, at its core, just a tax. And as a tax, it will raise the cost of production. This extra cost will, either directly or indirectly, be passed onto consumers, dramatically raising the price of goods and services across the economy.

What’s going to happen to all that money?

The ETS is going to bring the government a huge amount of additional money as it auctions permits each year. Conservatively, that amount will be at least $5 billion extra in the first year, not including the extra GST applied to permits traded in the marketplace. Reducing emissions by 60 per cent of their 2000 levels by 2050-as the government has committed to do-will require making fewer and fewer permits available, and the amount of money the ETS brings the government will increase massively.

The government has described the ETS as ‘revenue neutral’, however, the government only means that it plans to spend all the extra money it receives. This is no different from money raised from other taxes. The government has explicitly committed to use much of the proceeds of the tax (the figure of 50 per cent has been mentioned) to compensate low and middle income households, pensioners and other welfare recipients.
Other money will be directed towards subsidising energy efficiency technologies at the household level. In short, the government plans to return much of the money it taxed-a highly inefficient government practice that has been widely criticised in the context of welfare and family policy.

But instead of this elaborate tax churning, the introduction of the ETS should be an opportunity to cut taxes in other areas of the economy. With just the first year ETS windfall of $5 billion, the government could increase the tax-free threshold from $6,000 to $9,000, or entirely eliminate the top 45 per cent income tax bracket.

How will the ETS be implemented?

In order to deal with the political issues created by the ETS, the program will not be implemented consistently. For example, there will be the already announced temporary cut in petrol excise, which will partially offset the increase in the petrol price caused by the ETS. But cutting the petrol excise is inconsistent with the aim of reducing carbon emissions-though petrol usage appears to be relatively inflexible, an excise cut will ensure that there is no significant change in petrol consumption.

Perhaps more critical distortions in the ETS implementation are the treatment that ‘emissions-intensive trade-exposed’ industries will receive. These are industries which, because of their integration into world markets, will be less competitive in Australia due to the need to comply with the ETS. While not finalised, such industries could include aluminium smelting and chemicals manufacturing, some pulp and paper manufacturing, and ceramic products. These industries will receive some free permits-that is, unlike other industries, they would not have to bid and pay for all of their permits each year. This situation will persist until ‘broadly comparable’ ETSs are in place internationally-the opportunity for lobbyists and rent-seekers to manipulate this process is immense.

Further assistance will be given to the coal-fired electricity generation sector, subject to a range of inquiries. The nature of this assistance has not yet been determined, but it has, like the ETS itself, the potential to dramatically upset the investment attractiveness and economic structure of the electricity industry.

But most importantly: Will the ‘Carbon Pollution Reduction Scheme’ reduce carbon pollution?

Australia contributes 1.1 per cent of total global greenhouse gas emissions. Our contribution is dwarfed by big emitters like the United States which contributes nearly 21 per cent, China which contributes 17 per cent, and Russia which contributes just over 5 per cent.

Even if we entirely eliminated our carbon footprint, the impact on the global total would be statistically insignificant. Reducing emissions would do nothing for the Murray-Darling Basin, or the Great Barrier Reef, or Australia’s rainfall patterns, even if human-induced climate change was the culprit. What matters for the environment is global emissions, not Australia’s emissions.

For this reason, the federal government is hoping that implementing a domestic ETS will apply pressure to the big emitters, and set the stage for a new international carbon trading scheme.

The ETS turns the Australian economy into a diplomatic bargaining chip, endangering Australian prosperity as it does so.

200 Years Since Waterloo

2015 will be a year of important historical anniversaries. First, Anzac Day next year will mark exactly 100 years since the landing at Gallipoli. The First World War featured in theNovember edition of Horizons last year, and here is a piece that IPA executive director John Roskam wrote about the significance of Anzac Day and Gallipoli from 2007.

Second, according to tradition, 15 June next year will mark exactly 800 years since King John of England set his seal to Magna Carta – a document that later became foundational to the rule of law and parliamentary democracy. This was the feature of the August edition of Horizons.

And third, 18 June next year will mark exactly 200 years since the Waterloo – the decisive and bloody battle which ended the Napoleonic Wars and opened up Europe to almost a century of relative peace.

In the November edition of Standpoint Magazine, historian Andrew Roberts speculated that Waterloo is probably ‘the world’s most famous battle’ and revises two of the best books that have been recently published to commemorate the anniversary.

Andrew Roberts was the keynote speaker at the IPA’s 2011 Foundations of Western Civilisation Symposium. You can view the keynote address here.

The first book in his review is Waterloo: Myth and Reality by historian of the Napoleonic Wars Gareth Glover, which is available on Amazon here. It reassesses various myths that have evolved about the battle over the last two centuries.

The second is The Longest Afternoon: The 400 Men Who Decided the Battle of Waterloo by Cambridge historian Brendan Simms, who specialises in international relations. This book, which is available here, is about La Haye Saint – a farmhouse that was at the centre of the battle.

For more on Waterloo, here is a timeline of the events that led up to Waterloo, and here is a page that lists some of the preparations that are being made to celebrate the bicentenary in Europe.

 

This article was originally published by The Foundations of Western Civilisation Program, an IPA initiative.

The Six Waves of European History

Complex life has existed on earth for about 550 million years.

Complex human life, defined as substantial city dwelling peoples has a history of only 10,000 years or about .0002 per cent of the larger number.

The period of history for which there are reliable records of human achievement is closer to 2,500 years.

Human achievement in this 2,500 period, insofar as the Middle East and Europe are concerned, has been like a game of snakes and ladders. So far, the ladders have been more impressive than the snakes and include great advances in the fields of communication, utilization of new energy resources and political development particularly in the difficult field of quis custodiet ipsos custodes.

The snakes have been pestilence, corruption, tyranny, and fanaticism.

This paper explores the great advances and the setbacks as they occur within a number of great waves. The great waves swell up reach a peak, crash and swirl up the beach before either receding or being replaced by another great wave. The waves may start with an important intellectual development or discovery, which may be followed by a combative period and then swell into a higher level of human achievement.

It is suggested that these great waves have been:

  • the coming of the Greek alphabet enabling translation of speech into phonetic writing;
  • second wave; the Age of Faith as Christianity absorbed the decaying Roman Empire;
  • third wave; Arab (or Indian) numerals enabling complex calculation;
  • fourth wave; the printing press enabling the dissemination of ideas to an ever widening audience (the Renaissance);
  • fifth wave; the coming of serious political thought at about the same time as steam power was achieved and economic theory hypothesized (the Enlightenment);
  • sixth wave; globalisation, the computer, the Internet, and social media. This wave has perhaps reached its crest but the nature of the crash and the combative period is yet to be experienced.
abbott-babylon

Babylonian tile art, sixth century B.C.

In 539BC the Babylonian Empire fell to the Medes and Persians, and a long period of competing city states and eventually empires growing up in Mesopotamia and its neighbours ended. 539 itself as a date had nothing to do with the Greek alphabet or the civilisation which followed. However 539 was the time that the Persian Empire established hegemony over the highlands of Persia, Anatolia (Turkey), and the valleys of Mesopotamia. It represented a major threat to the embryonic Greek city states where the alphabet and arts of writing and rhetoric were developing.

The origin of the Greek language may have been Phoenician or maybe related to Linear B from Mycenae, but at some stage it involved the development of the alphabet and the start of phonetic writing. This had such an important effect on the capacity of humans to communicate and maintain records, and led to the development of syntax and grammar enabling literature drama and law to be written and learned in a civilisation surely superior to its predecessors. It was the first wave.

The crest of the wave may have been Periclean or Socratic Athens, the combative period of the Persian Greek wars and the Spartan Athenian wars, and then great achievements as the wave spread Greek culture, with the help of Alexander, through the failing Persian Empire to Egypt and on to Rome, and the stability of Roman law.

The first wave lasted from some time before 539BC and finally spent its force in the period from Marcus Aurelius to Diocletian (180 to 308 AD). It would then be bedeviled by its “snakes”; that of corruption, tyranny and pestilence.

Gibbon said that “if a man were called to fix the period in the history of the world during which the condition of the human race was most happy and prosperous, he would, without hesitation, name that which elapsed from the death of Domitian to the accession of Commodus.” It is quite likely that the death of Marcus Aurelius coincided with a serious plague and perhaps a cooling of the planet. In any case the accession of Commodus started the downtrend and the three snakes were enough to reduce the fighting capacity of Rome’s armies leading to the final death throes of the Empire in the 5th century.

The second wave, that of Christianity, was not a major force until after the conversion of Constantine, when it took over the Roman Empire as a dominant political phenomenon. Whether it played a significant role in the decline of Rome is questionable but probably the answer is affirmative. Christianity introduced the concept that faith is to be preferred over reason, and it is unsurprising that this coincided with a decline in productivity and living standards. Britain is thought not to have achieved Roman living standards until the early nineteenth century, 1500 years later.

The Age of Faith (so far as Europe is concerned) reached its peak about 1100 AD, just as the new third wave was swelling. The snakes which beset Christianity, and which were well evident at the peak of the age of faith, were pestilence, corruption, fanaticism, and tyranny (the regulars). They were all much in evidence during this period.

The third wave, the understanding of Arab numerals and the concept of zero, came to Europe from Spain (then Arabic) in the 11th century. It coincided with an Age of Faith as it enabled the mathematics for the architects and masons to build the great cathedrals that populated most of Europe from Kiev to Canterbury and whose wonders are still available for us to enjoy in the 21st century, 1000 years later. In 1095 the Age of Faith displayed its maximum influence on society by prompting the Crusades, a series of expeditions which cost lives and money over two centuries with no benefit to Europe but a lasting scar on its relationships with Arabic countries. A cooling change of climate around 1350 and the great plague put an end to most of the achievements by the simple process of halving the population.

abbott-incunable

Detail from an early printed book, 1471

The fourth wave, the invention of the printing press, first by Gutenberg in 1450, coincided with the fall of Constantinople to the Turks in 1453 and the Renaissance in Florence, Venice and other Italian cities. It enabled books to be made available to the middle and upper classes and the spread of knowledge which in turn stimulated original thought, both political and religious. Copernicus and his theory of planetary orbits followed by Galileo reduced the credibility of biblical ‘truths’. This was followed by Martin Luther and other reformists who concentrated on the corruption of the clergy and (in turn) incited a counter-reformation with 100 years of destructive fanaticism. War stimulated by new ideas included the Thirty Years War, the Spanish Armada, and persistent civil war in France lasting to the accession of Henry IV in 1592. Meanwhile in 1492, the Spanish had evicted the remaining Arab state in Spain and a Spanish-financed expedition discovered the American continent with enormous consequences for its local population and for the future of Europe. The wave continued with literacy and numeracy bringing exciting discoveries in mathematics, astronomy and optics. Increased wealth enabled leisure to become an ‘activity’; allowing time for philosophy, literature drama and the admiration of the achievements of Greece and Rome.

The fifth wave was built on the shoulders of recent (17th century) achievements – first in the political and then in the economic and energy fields. In 1776 Gibbon published The History of the Decline and Fall of the Roman Empire, a work of criticism in contrast to the admiration for the ancient world shown by prior generations. In the same year Adam Smith published The Wealth of Nations, a work which was the economic chartroom for the next hundred years. Also in 1776, Jefferson was the main architect of the American Declaration of Independence, which stated that the pursuit of happiness was a recognised human goal, and that self-determination was a justifiable political right. 1776 becomes even more the crest of the fifth wave recording the partnership between Matthew Boulton and James Watt for the production of the steam engine.

Wind power and water power had been harnessed earlier but the fifth wave witnessed the employment of hydrocarbons to produce power; and hydrocarbons had two advantages, that the power was concentrated and that it was transportable. The use of hydrocarbons was one of the defining characteristics of the fifth wave, and it was only as the wave spent its force that humanity began to recognise the weakness of relying on hydrocarbons; that they were exhaustible.

Political development following work by Hobbes, Locke, Adam Smith, Voltaire, Montesquieu was embryonic at the start of the fifth wave but became a defining statement of the period as during the 19th and 20th centuries privileged parts of the world enjoyed the advantages of law legislated by democratically elected parliaments, and the rule of law with fairly independent judiciaries, respect for property, and well developed commercial and contract law.

Work in hygiene, medicine, improved diets, and clean water enabled populations to increase hugely from about 1 billion people in the world in 1800 to 7 billion by 2000. European and European-derived populations were at the fore of this population surge until 1945, when Asian, African, Middle Eastern, and South American communities exceeded the European growth rate in a major way.

Developments in the field of communications (telephones, radio, resulting from the discovery of electricity), in the field of transport (rail, motor cars, planes, enabled by the use of hydrocarbons), and in the field of home lighting and appliances, revolutionised life in a manner which no previous generation could have conceived.

In this way, the fifth wave enabled humanity to climb the ladders of improved political institutions, better energy capture, better health, and of course greater wealth. But the snakes were not to be forgotten with Napoleonic wars and two world wars, inspired by fanaticism, exhausting Europe to a point at which its leadership in world affairs was abdicated, almost completely; a feature which contributed to the start of the sixth wave.

Margaret Thatcher celebrates her victory at the 1983 British general election

Margaret Thatcher celebrates her victory at the 1983 British general election

The sixth wave in which we are now living (globalisation, the Internet, computers and social media) may be first detected after post-war socialist policies were failing. In 1979, when Deng Xiao Ping took over leadership of the Communist Party in China, he inaugurated a policy that was effectively capitalist, first by promoting special economic zones, and then seeing their success, opening up China as a whole (subject to some political restraint) to individual capitalism. China has not only stood up, but may shortly stand taller than the USA.

In the same year, 1979, Margaret Thatcher achieved leadership in Britain and encouraged there individual capitalism which had been frustrated since 1945 by high (80 per cent) personal tax rates, extraordinary trade union influence and substantial socialist ownership of many enterprises. Other European states copied Mrs Thatcher and the capital markets of the “free world” were kept busy with the public flotations of a great number of government owned businesses, resulting in significant efficiency gains and wealth creation.

The great economic advances of the free world put pressure on the USSR to the point that it self-immolated in 1989, and America enjoyed for 12 years at least unimpaired political and economic leadership. American business made good use of this holiday by developing computer software systems and computer hardware that have revolutionised communications well beyond fifth wave achievements. In the USA in 2013, the rate of non-residential capital expenditure is running at $1.5 trillion per annum, of which ‘information processing and software’ is $630 billion or 42 per cent. The ubiquity of computers, the Internet and social media characterise the sixth wave in the way that the printing press inspired the fourth wave and Arabic numerals the third.

Productivity improvements in the US (where figures are available) have not been shared equally between corporations and their staff. Corporate profits after tax have grown from a post-war average of 5.5 per cent of GNP to 11 per cent of GNP while ‘real compensation per hour’ for the American workforce is up over ten years by only three per cent. This and the ‘entitlement problem’ presage a political precipice for the US which is likely to surface within a few years. The snakes, tyranny, corruption, pestilence and fanaticism may not be the main threat to the US but inequality and un-financeable promises probably are.

Outside the US, Europe has stagnated economically and is politically in limbo. Despite this its political freedom and high standard of living are very attractive to people outside Europe where populations are still surging. A (perhaps the) challenge for Europe is to retain its personality when immigration pressure is so high. The Roman armies were seldom defeated in the field, but the gradual infiltration of “barbarians” changed the nature of the Empire quite quickly during the Christian period (325AD et seq).

The snakes in Europe are not very different to America, but corruption fanaticism and inequality may undermine the self confidence of the continent when threatened by 1.5 billion Muslim people who are living with all the snakes but seek to avoid them by immigration. Such people are more dangerous as single spies than they are in battalions.

The sixth wave may have peaked but the period of combat has yet to break. The tinder waiting for the spark is both the “Entitlement problem” (domestic) and the phenomenon of birth-rate disparity between Muslim and European worlds. These problems are solvable but not easy. No doubt there are others (terrorism?) which lie in more obvious mode.

At the beginning of the fifth wave we rode on horseback but now in BMWs; we wrote with quill pens, and now with voice recognition computers; then we fought with muskets and now with atomic warheads. The game and the consequences have changed.

If the sixth wave can spend itself without disaster the seventh wave may give us Fusion based power and batteries with energy per gram the equivalent of the same weight of petrol. Solutions to the political problems need more skill and more patience.

– June 6 2013

 

Addendum: The Sixth Wave
June 30 2013

You have read my recent paper called ‘The Six Waves of European History’.

It purported that we (the world, or at least the European world, comprising North America, Australia and Europe ex Russia) entered the sixth wave in about 1979.

The previous waves had followed conceptual or philosophical initiatives. The first was the Greek Alphabet; the second Christianity; the third Arabic numerals; the fourth the printing press; the fifth the Enlightenment encompassing new political and economic theories as well as the invention of power being available from sources other than muscle.

The fifth wave encompassed the move to democracy and the rule of law (in many countries), as well as the industrial revolutions of the 18th 19th and 20th centuries.

The sixth wave is thirty odd years old. 1979 is chosen as the date of ‘takeoff’ because it was the year that Deng Xiao Peng opened China to capitalist business methods, and Mrs Thatcher became PM in the UK, and her policies had flow-on effects in particular in the privatisation of previously public enterprises in many OECD countries and even Russia.

Globalisation was talked about in 1979, but 1982 is a more obvious date for recording its birth as it is from then that capital was (generally) given freedom to move between OECD countries, and many important currencies were permitted to float. Also the General Agreement on Tariffs and Trade gained better political support and trade barriers came down (not absolutely of course).

World GNP growth has, since 1950, exceeded 4.0 per cent per annum for the 50 years to 2000 and from 1980 to 2012 the growth rate appears to be about 4.3 per cent. GNP in 2013 is reputed to be $US 72 trillion equivalent. In 1985 it was $22.5 trillion; 1950 $4.1 trillion.

World population in 1950 was about 2.5 billion and reached 7.0 billion in 2010. The average annual growth rate was 1.73 per cent. There were 23 consecutive years (1980-2013) in which population grew by an annual number greater than 77 million, but projections are for that number now to reduce slowly.

The Wikipedia article about world GNP does illustrate how ‘our times’ are very different. The article hypothesises that world GNP in the year 0 was $US18 billion equivalent, and that by 1000AD it was $35 billion (the gain presumably being China and not Europe which was in decline). 1500AD is given as $58 billion and 1900 as $1.1 trillion. Annual growth rates have been: 1000 to 2000, 0.7 per cent; 1700 to 2000, 2.0 per cent; 1950 to 2000, 4.7 percent.

If GNP growth from 2013 to 2050 remains at 4.0% pa; world GNP will be over $300 trillion and if the population is about 9 billion, the the GNP per person will be over $33,000.

Possible? Or will something go wrong?

 

This post was originally posted in the IPA’s Foundations of Western Civilisation Program.