Last weeks’ summary: In 2012 EVT, Everstate (the ideal-type corresponding to our very real countries created to foresee the future of governance and of the modern nation-state) knows a rising dissatisfaction of its population. To face the various difficulties and widespread discontent, in a first scenario, Everstate’s governing bodies have transformed the conclusions of the Mamominarch Commission into policies: a programme of drastic reduction of public expenses will be implemented over five years. Despite hopes to quickly achieve a positive trade balance, after a few months of improvement, the situation worsens in terms of export of services, notably because of a decay of the education system, while youth unemployment soars. The exports of goods does not fare better because of the difficulty Everstatan industries meet to face, alone, the new resources’ condition.
(The reader can click on each picture to see a larger version in a new tab – a navigating map of posts is available to ease reading).
Trade balance (2)
In Everstate, the situation regarding energy becomes also very worrying, all the more so that energy is vital for most modern activities, including trade. As underlined by the International Energy Agency,
“Rising transport demand and upstream costs reconfirm the end of cheap oil. Short-term pressures on oil markets may be eased by slower economic growth and by the expected return of Libyan oil to the market, but trends on both the oil demand and supply sides maintain pressure on prices. We assume that the average IEA crude oil import price remains high, approaching $120/barrel (in year-2010 dollars) in 2035 (over $210/barrel in nominal terms) in the New Policies Scenario although, in practice, price volatility is likely to remain.” World Energy Outlook 2011, Executive Summary, November 2011, p.3.”
The high cost of the energy that can be used for trade, mainly oil, resulting from the failure of the world to be prepared for Peak Oil (point of maximum production) and to anticipate early enough the transition to other adequate types of energy, implies, among others, a slow down of global trade and a generalised increase in prices.* Once more, the shrinking of Everstate’s central governing authorities becomes soon a disadvantage as no national policy can be endeavoured.
True enough, the Regional Union carries weight and should not only compensate but also allow for better results in international negotiations and design of efficient energetic policies across impacts. However, first, the Regional Union, is also built according to the old organisational model and, more than once, fails to see connections between issues and second and third-order impacts. Second, the Regional Union model still relies on and involves the power of each member-state. The reduced administrative staff of Everstate’s state bureaucracy, practically, facilitates neither this reliance nor favours Everstate in negotiations internal to the Union. Witnessing this, Novstate, using its high level contacts, starts a strong lobbying that favour its interests and those of its friends companies. It is, however, only one company among many using the same tactics. Finally, once decisions have been taken, the shrunken Everstatan administration acts as a stovepipe and ends up blocking implementation. Slowly, the Regional Union administrative staff starts dealing directly with local Everstatan administrations.
As a result, all Everstatans, companies – save for Novstate and its friends – and individuals, are affected by the changing energetic order without much chance to be heard and even less to play a role.
As far as the trade balance is concerned, the impact is a deficit, with more costly imports, which are a necessity, and, in a world of lowered trade volume and heightened competition, less exports.
Net transfers and factor income
What happens with the other terms of the current account, that could maybe help towards the initial aim, reimbursing the public debt?
First, as aid and cooperation were transferred to NGOs and the private sector, transfer payments stopped and cannot burden anymore the current account. However, the cost for the nation in terms of influence, notably considering the overall scramble for resources as well as all pressures and threats, can be major, if difficult to measure.
Then, what is the situation regarding net factor income?
The inflow of capital (inward Foreign Direct Investment – FDI) that took place in 2012 – 2013 EVT, notably with the privatizations, leads, the following years, to a considerable increase in dividends paid abroad. Meanwhile, the arrival of highly paid foreign executives brought in by the investors implies an increase in the amount of remittances going out of the country, although relatively marginal compared with other factors. Added to the interests on public debt still paid overseas, income payments do not diminish, on the contrary.
Income receipts, for their part, do not increase much. Most of the dividends received from abroad originate from investments made by Novstate. However, the new “friends network” concept developed by Novstate also minimises direct investment. It implies that the benefits received by Novstate are not translated in flows captured by traditional aggregates.
Emigration does not considerably increase as seen previously. As it has never been very high, remittances coming in are negligible. As a result, income receipts show a deficit and contribute to a rising current account deficit over the years. Thus, the current account cannot contribute to reimburse the public debt.
Furthermore, the increasing current account deficit leads to a shrinking income of the nation-state, which only adds to the diminishing income resulting from the sale of the nation’s resources.
In a world of polities organised as nation-states and under pressures, it would seem that reducing drastically state expenditures also implies withering away the Nation’s income, with unexpected consequences.
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* The potential costly impacts of Peak Oil are now starting to be well documented, besides contrary opinion, most notably by Daniel Yergin, chairman of IHS-CERA (see, for example, Daniel Yergin, “There Will Be Oil,” The Wall Street Journal, September 17, 2011), yet, most of the time, without considering more recent developments (see below). Among others Campbell, Colin J. and Jean H. Laherrere, “The end of cheap oil,” Scientific American, March 1998; Dixon, Thomas Homer, The Upside of Down: Catastrophe, Creativity and the Renewal of civilization, (Knopf, 2006); Hirsch, Robert L., SAIC, Project Leader, Roger Bezdek, MISI, Robert Wendling, MISI Peaking of World Oil Production: Impacts, Mitigation & Risk Management, For the U.S. DOE, February 2005; International Energy Agency (IEA), World Energy Outlook 2010; Klare, Michael, Blood and Oil: The Dangers and Consequences of America’s Growing Dependency on Imported Petroleum, (New York: Metropolitan Books, 2004; paperback, Owl Books, 2005); Klare, Michael, Rising Powers, Shrinking Planet: The New Geopolitics of Energy (Henry Holt & Company, Incorporated, 2008); Rubin, Jeff, Why Your World is About to Get a Whole Lot Smaller: Oil and the End of Globalization, Random House, 2009; Staniford, Stuart, “IEA acknowledges peak oil,” Published Nov 10 2010, Energy Bulletin. See also the posts published in The Oil Drum.
Lately, a few specialised think-tanks and companies, notably Exxon and Shell, have started emphasising further changes in the energetic order, indicating that the renewed investment made by oil companies added to shale gas, shale oil, and tar sands exploitation would lead to newly available oil and gas supply, which leads to extrapolations on a potential sustainable decrease in prices, as explained by a Bloomberg recent article: Ayesha Daya, Brian Swint and Rakteem Katakey, “Iran Power Declining in Oil Market as Explorers Spend $90 Billion: Energy,” March 13, 2012. However, the high environmental cost of some of the techniques involved for shale gas and fracking (e.g. geology.com), and for tar sands as well as the high technological cost of unconventional oil and of some of the newly found deposits of conventional oil imply that more research would be needed for further synthetic detailed assessment. See also, for example, Roland Vially, Non-conventional hydrocarbons: evolution or revolution?, IFP, November 2011; ”Shale gas” – March 5 2012 by Energy Bulletin.