By John Richardson
- It failed to predict the US sub-prime and European sovereign debt crises, resulting in people losing their homes and/or their jobs.
- It has dragging us into a surreal world of negative interest rates. Years of ultra-low interest rates have already badly damaged people’s pension savings. So negative rates can only make things worse.
We are, as a result, at a crossroads where events could head in any number of frightening directions.
The root of the problem is that central bankers and politicians are using the wrong treatment because they have yet to identify the disease, which is the impact of ageing populations on the volume and composition of demand.
As John Kay wrote in Saturday’s FT:
There are obvious requirements for investment in the Eurozone – to provide power through cleaner energy plants, to improve roads and relieve overcrowding on trains, to build houses, to accommodate tens of thousands of recent refugees and above all to fund the new businesses that will promote innovation on the continent. But I have yet to hear a single person say: “If only I could borrow at -0.5% my company would be able to undertake some great projects.”
He contended that in a desperate search for yield, investors were looking for less risk in a world of extreme risk. So they would likely only lend to companies in well-established sectors where there was low financial risk – and even pay for this privilege by accepting negative returns on their lending.
But the companies that really need the money are the highly innovative companies in emerging sectors such as the internet of things, 3D printing and autonomous automobiles. By their very nature, these type of enterprises are highly exposed to risk.
Many millions of people have, as I said, become distrustful of the establishment because of its failure to deliver economic security.
A related problem is that people have stopped trusting the data and analysis produced by the establishment because in the past, mainstream policymakers have so glaringly failed to anticipate events.
This has led to scepticism over expert opinion in general. As British politician Michael Gove so memorably and successfully said during the Brexit campaign: “People in this country have had enough of experts”.
Hence, people have turned to an alternative group of populist politicians who are offering them a radically different way forward.
Looking for alternatives makes sense, provided these alternatives are based on the facts.
But what is incredibly worrying is that in this febrile atmosphere, it feels to me as if a proper discussion of the facts has become much harder.
What is adding to this difficultly is the rise of the social media, where an inaccurate statement can go viral and stay out there forever – even when an overwhelming weight of evidence proves it wrong.
Every chemicals company CEO must as a result prepare for what could be a period of exceptional political, social and economic upheaval. Risks include a breakdown in global free trade.
But the chemicals industry can this turn this knowledge crisis to its advantage because it is largely made up of engineers, economists and statisticians. These people have been brought-up on a diet of coming up with an original idea, and proving or disproving that idea through good data.
Our industry is thus in an ideal position to help shape future government economic policies by using its research skills to point out where tomorrow’s growth opportunities lie.
I argue that future growth – and thus the economic security being sought by millions of people – will come from tackling “basic needs”. These basic needs include providing people in both the developed and developing world with for example enough food, safe drinking water, sanitation and cheap and sustainable transportation.
The fantastic news for the chemicals industry is also this: It can quite rightly point out that its products and services are essential for meeting these basic needs.