Tag Archives: fiscal crisis

The Red (team) Analysis Weekly No48, 17 May 2012

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Unfortunately, after Paper.Li’s latest upgrade, No 48 17 May was replaced by an unedited 18 May edition. Only the editorial and photo of the first page below survived… On the bright side, we get back archives, but not for the past numbers.

No48 – 17 May 2012 – Click on the image below to read on Paper.Li (best with mobiles & tablets)

Besides the usual now strong signals on Iran, the fiscal crisis, Europe, water security, energy, etc. we can note this week that tension has risen at least one notch towards internal strife and turmoil and that an unusual number of signals are about India (which could also be linked to technical reasons, e.g. a larger use of twitter in India).

The Red (team) Analysis Weekly No41, 29 March 2012

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No41 – 29 March 2012 Click on the image below to read on Paper.Li (best with mobiles & tablets)

China, China, and China again, the BRICS’ power… are we back to the usual – relatively – safe (read “known”) order? But, wait a minute: the “US debt ceiling D-Day” could be in September, the Eurozone crisis could be worse, India also faces a fiscal crisis (among other challenges such as water), Spain strikes, the Earth nears multiple irreversible dangerous tipping points, tension is very high in Israel and oil prices do not abate. Maybe, after all, we are not back in the 1990s?

The Red (team) Analysis Weekly No41 - Horizon Scanning for National Security, 29 March 2012


2013 – 2018 EVT – A Current Account Surplus? Think again! (Mamominarch)

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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. They have thus started implementing the programme of drastic reduction of public expenses through privatization and outsourcing, transfer of responsibilities to local administrations and increased reliance on The Regional Union, accompanied by a temporary increase in income and consumption taxes. The first months of reforms have been successful and the situation appears to improve.

(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 – research note at the bottom of the post).

trade exports s3

Everstate’s capacity to reimburse its debt should also come from a positive current account, fed, in part, by a positive trade balance, aggregating results in trade of services and trade of goods.

Trade balance (1)

Initially, the well-educated population and the disappearance of many positions of civil servants leads to an abundance of expert personnel. Through Novstate and its friends companies, benefiting from the positive perception the reforms undertaken in Everstate generate, the export of services skyrockets.

However, with time, it is becoming increasingly difficult to send children to school. The provinces have now to manage the education system alone or with the private sector, and the latter sees no immediate interest in funding primary or high schools.  Private schooling becomes the norm, and  weights heavily on the budget of the less well-off.

If the best-known universities find some funding with the new inflow of capital, this is restricted to specific branches, namely finance, economics, some areas of politics, war strategy and tactics thanks to Novstate, IT and some technologies of direct interest to the companies having invested in Everstate. As a result, research greatly suffers. To compensate the absence of public funding, universities triple their fees and only the most fortunate families can now send their children to universities. Scholarships almost disappear. The banks are not interested anymore in lending to students as the benefits are too small and as students, most often, have no guarantor. Local administrations send reports on this dreadful evolution to Everstate’s national representatives and to the central government, but the latter can only try to compensate through its yearly orientation paper, which has close to no effect as it is not assorted of any possibility of action. Hence, the number of well-educated and internationally competitive Everstatans rapidly dwindles.  Furthermore, those who could receive graduate and post-graduate education are trained exclusively in those approaches at one with the Mamominarch system. Hence, as time goes by, if ever the Mamominarch system is not proving to be the ideal solution expected, will they still be considered as adequate?

After the first months of euphoria and hope following the implementation of the Mamominarch policies, the educated youth finds itself in the same conundrum as previously, but with even less prospects. If new qualified jobs are created by the foreign and domestic companies investing in Everstate and by the new outsourcing contracts, those are given in priority to ex civil servants and to foreigners. As a result, already by the second half of 2013 EVT, except in the IT sector focused on online shopping and electronic payments, most young graduates and post graduates find themselves still unemployed or under-employed, taking whatever jobs they find in tourism or industry. At the beginning of the period, those with the best academic records, and who can afford it, try to migrate, but, considering the still uncertain global situation, few succeed. By 2018 EVT, the relative position of the Everstatan educative system is such that, added to the failure of their elders to escape, hardly any smart young Everstatan still tries migrating.

Overall, the export of services cannot grow anymore.

As far as the export (and import) of goods is concerned, those depends not only on human skills and workforce but also on available resources. Now, as seen, with the exception of the tourism industry, Everstate has to face domestic shortage or sharp increase in prices  (stemming among other causes of a relative decline in supply) for the resources it used to transform and to include in the goods it exports.

Furthermore, many of those resources – classical and new – needed by Everstatan producers  are not located on Everstatan territory. For example, for many high-tech companies, rare earth elements are a crucial industrial component.* However, those rare earth deposits are not present everywhere and in the same quantity, China being, currently, the lead producer.

This new condition regarding resources, as explained previously, should imply increasing tasks in governing, which, themselves, demand new resources and income for the ruler and its staff (including the need for new staff).   This, in turn, would mean further and new state spending, at least until the system is stabilised. However, as supplementary state expenditures are ruled out by the Mamominarch system, then the search for new resources and income cannot even be thought and thus novel strategies of extraction of resources can even less be identified. Thus, the increasing tasks of governing can be neither planned nor carried out. Worse still, the dismantling of so many services of the state makes it impossible to monitor, record and analyse what is happening.

As, worldwide, so many industries are competing for the same resources, national policies and negotiations are more than helpful, they are necessary. However, in Everstate, businesses cannot anymore benefit from such support and each company with supply problems must fend for itself. Each is now alone to find solutions, or it must turn to the Regional Union or to International institutions or try to find other private allies, which, in a world of hardened competition, may be hazardous. Meanwhile, other companies from other countries do benefit from their government’s support. Everstatans businesses thus find themselves at a competitive disadvantage. Indeed, relatively quickly, the young Everstatan industries dealing with those materials involving rare earth elements, for example, lose to competition. Either they go bankrupt or, when their technology is interesting, they are bought by foreign companies, which then re-localise according to their own priorities. By 2018 EVT, no Everstatan industry involving rare earth elements remain.

The situation regarding energy is similar, however with even worse consequences… to be continued.

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* Among others, for interesting estimates on the whole rare earth element market, see the analyses made by the South African company frontier Rare Earth, as well as their sources. For an example of use,  see articles on the electric car and corresponding batteries (although the importance and scarcity of Lithium for Lithium-ion batteries is disputed) e.g. David Biello, “New Energy-Dense Battery Could Enable Long-Distance Electric Cars: Material changes enable a new battery to store more electricity–and could boost the driving range of electric vehicles,” Scientific American, February 27, 2012; Shane McGlaun, “Science Researchers Create Fluoride Battery, Look to Replace Lithium-ion Technology,” Daily Tech (Blog), October 24, 2011.

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Further research

As underlined in the previous post, ideally, with more resources, notably a team of researchers and adequate computing facilities, the values attributed to variables should be quantified, when the variables are about quantities.  Notably, it would be very interesting, assuming we were able to enter specific times for each link, to test the variation of those time periods according to changes in quantities, and vice versa. It is indeed possible – or even likely – that thresholds and tipping points may occur according to such variations. More broadly, such hypotheses could also be tested on qualitative variables, methodology to be defined.

2012-2013 EVT – Implementing the Mamominarch conclusions

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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, Everstate’s governing authorities decide to follow the conclusions of the Mamominarch Commission that recommend to drastically reduce state expenditures.

(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 – methodological or research note at the bottom of the post).

The Mamominarch conclusions become policy

All governing bodies thus adopt the conclusions of the Mamominarch Commission. New laws are enacted when needed, which is easily done as the major parties seating in Parliament were part of the Commission. The constitution is even changed to incorporate the new ideals and objectives. As top-level civil servants were also either part of the Commission or represented, legislation can be executed without any major impediment. Indeed, a mix of career and organisation related incentives*, as well as normative material and ideological stakes greatly facilitate execution at all levels.

As the major elite groups, including the lenders, were also present, no elite-prompted hidden opposition exists; liquidity and the various resources mastered by the elite, including the traditional mass media, are largely made available. International and Regional support by those organisations that were included in the Commission is strongly emphasised through various diplomatic gains and prestige attention. A few more  Everstatan officials and political figures obtain high level positions in various international fora.

Papers, articles, interviews and books from the various experts, famous people, and academics having been part of the Mamominarch Commission soon reinforce mass media support. “The Mamominarch break-through: reinventing true happiness” written by Novstate’s CEO and founder becomes an international best-seller, while Hollywood starts the production of the next blockbuster on the life-story of the successful businessman.**

As the new measures are heralded as the new type of governance adapted to the reality of Everstate and allowing for a happy future, in line with the worldview and its beliefs, citizens find back meaning and hope and accept the new laws and policies, although with some worries regarding the efforts they will have to consent. A few remain skeptics but their voices are muted by the majority and by the normative deluge of support to the new system. The unions hope that renewed growth will stop unemployment.

As a result, the Occupy Everstate movement loses many of its sympathisers. Furthermore, as the Mamominarch system means less state, the part of the movement that tends to embrace anarchism is satisfied. The presence of Evernet’s CEO within the Commission quells some of the fears regarding over-regulation of the Internet and online networking. Occupy Everstate tends thus to lose even more active supporters and apparently recedes. Its most active members can do nothing else than going back home. Yet, the links between them, notably through social networking are not severed.

Remains now to engineer the reforms and notably the delicate short-term transition.

Implementing the Mamominarch policies 

state and ruler expenditures s3

The variable upon which the Mamominarch Commission plays is “ruler and state spending” (see below methodological and research note).

The drastic reduction of expenses will reduce the deficit, stop borrowing and thus stabilise the interests, notably those paid abroad as a large amount of the debt is held overseas. However, the existing debt must also be reimbursed. This should be made possible overtime and as quickly as possible, notably with a positive current account.

First, Everstate must organise a temporary increase of resources extracted to meet the existing expenses, waiting for those to disappear or be significantly reduced. It must do so without impacting either the lenders’ nexus or the elite groups. However, as the overall situation has not yet changed (see 2012 EVT: Budget Deficit and Liquidity), the only way, as recommended by the Commission, is to sensibly increase taxes on personal income and on consumption, the latter being favoured as it is said to be less felt by citizens. To underline the temporary character of the effort a special contribution is created, “the salvation tax,” which will affect all tax payers incrementally and progressively and is perceived on all incomes (rate between 8% and 12%), will be paid as soon as 2013 EVT. Meanwhile a new tax on consumption of 3% on top of the existing ones, “the anti-debt tax” is applied immediately. Those taxes will be suppressed in five years.

The drastic reduction of public expenses is planned over a five-year period. All public services related to infrastructure will be decentralised and sold to the private sector within the next six to twelve months. All heath care related activities, and the whole pensions and retirement sector will similarly be privatized over the next two years. By 2017, aiming at  reducing the central civil service by 50%, whole sections of ministries will be priced and then sold, if the mission of the unit is seen as economically viable and better externalised, or transferred to a local administration. Services will then be paid either by the state or local administration through contracts following the outsourcing method, or directly by people, according to cases. Within the central state administration, the management of outsourcing is reinforced on an interagency or interministerial basis, while exchanges with The Regional Union for analysis and direction are increased. The education and university systems are considerably privatised and localised; Everstate, working hand in hand with the Regional Union, will keep only a mission of orientation and accreditation.***

With cuts equally divided in 5 steps, one per year, the foreign and diplomatic services, defense, intelligence and police budget are further reduced. Most operations of cooperation and aid will be the responsibilities of volunteer organisations and private firms within the year. Only the bare minimum of diplomatic presence will be kept, while analysis increasingly will rely on both private contractors and The Regional Union. The army will be further reduced across all functions, with a staggering increase in the use of private contractors, mainly operated by Novstate. The new cyber-division that was about to be created is contracted to a Novstate’s friend company. Police forces become localised and use of outsourcing through private security companies must become the norm. Novstate offers a centralised access to information and communication, besides operating many local police posts.

Within a year, state expenditures are already strongly reduced, but not sufficiently. As hoped, Everstate is upheld as model for having so efficiently and swiftly solved the problems that plague so many countries. The debt has been reduced through the flow of money generated by the privatizations. Income, notably taxes, is still insufficient to pay for  expenses, but the deficit is on its way to be reduced.

The success and the favourable environment attracts foreign capital, notably new banks, insurances and financial institutions developing new products, as well as foreign companies taking over some of the state services of Everstate, when those are not provided by Novstate and its friends companies. They mainly settle in Everstate’s capital. Foreign capital is also very active in allowing for the privatization of Everstate’s state infrastructure. CEOs, who think it would be more interesting for them to produce part of their goods in the Western provinces of Everstate, start building factories and hire local people. Meanwhile, medium to high-end tourism, notably in the snowy and mountainous North and on the coastal areas, is flourishing. Interestingly, the seaside area also attracts internet companies specialised in online shopping and electronic payments.

Unemployment, by mid-2013 EVT seems to be stabilised, even if it is not reduced. However, the brutal change of system has introduced a rampant fear, yet compounded by hope, in Everstatans as they see their income reduced and have to adapt to the new healthcare, pension system and to the whole new now privatized services. The answer to fear is a new harshness and selfishness in social relationships as each compete to try to earn more.

After those years of worry and stagnation, a real boom is starting to appear possible for Everstate, and its growth rate, although still low, is above those of its neighbours.

To be continued…

* See for an example of the way those incentives can interact, Nolan, Janne E., and MacEachin, Douglas, with Kristine Tockman, Discourse, Dissent and Strategic Surprise Formulating U.S. Security Policy in an Age of Uncertainty. Washington, D.C.: Georgetown University, Institute for the Study of Diplomacy, 2007; Chester A. Crocker, “Thirteen Reflections on Strategic Surprise,” Georgetown University, 2007.

** For dynamics between national security issues and apparatus and the movie industry, see Jean-Michel Valantin, Hollywood, the Pentagon and Washington. Anthem Press, 2005.

*** Some countries within the OECD are currently downsizing their civil service sector and  using privatization, with noticeable variations according to countries, see, for a study on the EU members, Forward Planning and International Affairs Bureau (B2), General, Directorate for Public Administration and the Civil Service, “Administration and the Civil Service in the EU 27 Member States: 27 country profiles” Republique Francaise, MINISTÈRE DU BUDGET, DES COMPTES PUBLICS ET DE LA FONCTION PUBLIQUE, 2008. With the 2010-2011 renewal of the crisis, downsizing in the public sector has increased, as for example, in the UK; government statistics on civil service employment since 1902. However, compared with the scenario used here, those changes have been or are  implanted over longer periods of time. For example, in Austria “The number of federal administration employees has fallen from 300,000 in 1985 to 133,000 at present” (2008). Further research on variations in the speed of the reforms and their impact would need to be undertaken.

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Methodological and research note

Working backward with ego networks

The method remains to use ego networks as previously. However, the model has been created in a forward manner, using existing work on state-building that takes as assumption an increase in needs and resources. Here the decisions taken in the scenario answer to a slightly different logic, as underlined in the previous post: they do not consider needs or state-building, but only a reduction of expenses.
We shall thus, in terms of ego network, sometimes have to work backwards, following the arrows from target to source to identify the value the source node could have, given the value attributed to the target node (this may also be seen as a variation on the method known as backcasting.)

Further research

Ideally, with more resources, notably a team of researchers, the values attributed to variables should be quantified, when the variables are about quantities. This will become even more obvious with the next posts.  Notably, it would be very interesting, assuming we were able to enter specific times for each link, to test the variation of those time periods according to changes in quantities, and vice versa. It is indeed possible – or even likely – that thresholds and tipping points may occur according to such variations. More broadly, such hypothesis could also be tested on qualitative variables, methodology to be defined.

2012 EVT – Scenario 1 – Mamominarch: Off with the State

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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. Plagued with a deepening budget deficit and an increasing need for liquidity, a related creeping appropriation of resources while the strength of central public power weakens to the profit of various elite groups and with an outdated worldview that promotes misunderstanding, disconnect and thus inadequate actions, the political authorities are increasingly unable to deliver the security citizens seek and risks to the legitimacy of the whole system increases. Alarmed by the rising difficulties and widespread discontent, the governing authorities decide to do something. Three potential scenarios or stories will be told: “Mamominarch: Off with the State,” “Panglossy: Same Old, Same Old,” and “Genuisy: the Making of History.”

(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).

The Mamominarch Commission

Considering the difficulty of the problems at hand, and the need for a consensus among powerful elite groups, as well as regional and international actors, to see the array of measures applied, once they would be identified, Everstate’s government convenes a high level commission that must find out what has to be done.

The highest level of the government thus hand-picks to participate in the work: high level government and state officials, the latter representing civil servants, parliamentary representatives of the major parties, who had been in power alternatively for the last seven decades, famous economists Everstatan and foreign, the director of the Everstatan School of Liberal Politics, management experts, business leaders, notably the CEOs of Novstate and its friends companies, the CEOs of the largest banks and largest financial funds, business consultants, experts in new technologies, high level officials of the IMF and WTO and of the Regional Union. All powerfully stand for the normative order to which Everstate belongs and for the major entrenched elite groups. As an exception to this rule, the CEO of a very performing high-tech Everstatan company, Evernet, is also invited to represent the emerging elite group related to computing and networking.

After two months of intense debates and work, most often done by the staff of those personalities that participate in the high level working group, the Mamominarch Commission, as it is now known, reaches the conclusion that the root cause of the problems is an impossibility to match public expenses with public income, even in times of economic growth, and thus that the obvious solution is to drastically lower public expenses.

Structure of general government expenditures 2008 (OECD 2010)

Of course, this solution is designed in terms of expenses and not of needs, but is it really a problem? The normative model of the time, which has been just so successful into bringing wealth and growth, upholds free entrepreneurship, free trade and free market as ideal. Meanwhile, the state and especially its bureaucracy tend to be seen as expensive and inefficient, obviously unable to adapt to the new conditions as the deteriorating situation proves, and furthermore unable to contribute to ensure its primary mission, the security of its population as, again, the protests and the increasing tension shows. It thus makes complete sense to push the normative order one step further and to finally apply it fully: to rely on free entrepreneurial forces and on the market to provide for goods and services as much as possible, to always work in this direction, while the state must wither away. After a short period of adaptation everyone will be happy and definitely better off as balance will have been restored and this time permanently.

What will be more delicate to engineer is the short-term future, when further efforts in terms of income will be asked from the population, as existing debts must be reimbursed and interests paid. But, the difficulties will only exist for a very short period of time, as the renewed growth will rapidly make the effort painless.

Some civil servants will have to be laid off but as services will be taken over by the private sector, they will certainly find work again very rapidly, on the model of Novstate. Such a move may even enhance their career, as the economy will certainly be greatly boosted by this new system.

The Shadow Banking System, Conceptualized, designed and created by Zoltan Pozsar, The Federal Reserve Bank of New York, November, 2009

Furthermore, selling whole parts of the state, as has already been started, will bring in more money that will be used to reimburse debts, thus helping stabilise taxes. There will be no need to find really new taxes, except, maybe, for a short period of time, and especially no need to truly start thinking about ways to make the lenders’ nexus pay more tax – which is, anyway, something really difficult to craft as the whole financial system has become so complex, and would ask for international treaties, which would demand too long to obtain, assuming it were possible.*

Finally, as many members of the Commission underline, this will be good for business, attract investment, and put Everstate in rank to compete with the top financial and businesses orientated places in the world.

Only a minimum army and police will remain at state level. Most of the police force will now be under the responsibility of local towns, as, anyway, criminality has to be solved by proximity actions, on the ground, and through a better understanding of criminals. Operations against existing national threats will be shared between what remains of the defence forces, with a rising use of private contractors. Novstate’s CEO has pledged during the debates that his company and its friends businesses would do their utmost to fulfill any need Everstate would have in this matter.

PR, communication and advertisement specialists, as well as lobbyists, are now brought in to make sure that the conclusions and message of the Mamominarch Commission are delivered at best so that they become policy decisions adopted by Everstate’s governing bodies.

Everything goes indeed very smoothly and all Mamominarch’s conclusions are adopted.

To be continued…

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References

* Zoltan Pozsar, Tobias Adrian, Adam Ashcraft, and Hayley Boesky, Shadow Banking, Federal Reserve Bank of New York Staff Reports, no. 458, July 2010; “According to one measure of the size of the shadow banking system, it grew rapidly before the crisis, from an estimated $27 trillion in 2002 to $60 trillion in 2007, and remained at around the same level in 2010.” Financial Stability Board (FSB), Shadow Banking: Strengthening Oversight and Regulation, October 2011, p.1;  Brook Masters (2011-10-27). “Shadow banking surpasses pre-crisis level”. The Financial Times. accessed 2012-02-10.

 

The Red (Team) Analysis Weekly No 36, 23rd February 2012

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No 36, 23rd February 2012

A feeling of surreality? Faced with so many possibilities to choose a featured article, from the ever rising tension with Iran, to China‘s ever flexing muscles despite signs of potential malaise, Turkey‘s efforts to carve for itself a new global place whatever the impact, Russia‘s renewed roaring assertion, the continuing possibility of states’ defaults and the useless scandalous destruction of Greece, to say nothing of the uncared for ongoing ecosystem disaster and the still unresolved severe energy challenges, when, on the other hand, markets rise and business continues as usual, Charles Hugh Smith’s post was a perfect fit to describe what is unfortunately happening.

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The Red (Team) Analysis Weekly No36 - Horizon Scanning for National Security

The Red (team) Analysis Weekly No28, 29th December 2011

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No28, 29th December 2011

The tension with Iran did not abate, while signs of spreading economic recession multiply. However, this end of year saw a boost in optimism in those focusing on high-tech and future technologies, however without questioning in which way resource depletion, economic and financial turmoil and related domestic impact as well as international rising tension – furthermore all interlinked – could affect technological development. Would we tend to be prey to technological determinism?

From Iran to global economic recession through technological determinism