"Rethinking Capitalism" by M. Jacobs and M. Mazzucato (Eds.)

"Rethinking Capitalism" by M. Jacobs & M. Mazzucato (Eds)

The Political Quarterly Publishing 2016

ISBN 978-1-1191-2095-7

If there were to be a prize for the most important futures work for 2016, this book would be a contender to win it. It is a very important book on a very pressing matter. Perhaps a little context would help to establish why this is so?

The financial crash of 2007-08 rather caught the economics profession by surprise. Admittedly, some economists saw it coming, but, in the main, most didn't. Why was that so? Economists largely failed to spot the crisis on the horizon because their models incorrectly described the way in which the economy works. Even after the crisis, the policy response of monetary expansion was condemned for it's inflationary potential. Consumer price inflation failed to take off because the monetary expansion was coupled with a fiscal contraction and there simply wasn't sufficient aggregate demand in the economy to set off inflationary forces. Orthodox economics got it wrong again!

At the time of the financial crash, a number of academic economists correctly saw that the base theory behind many economics models needed to be re-written. If economics, as a discipline, were to be more useful than an intellectual curiosity, then it needs to contain a more accurate description of the way in which the economy works. This book represents a significant down payment on the re-writing of economics. Some of the argument - such as the endogeneity of the money supply - can be a bit technical at times, but it is important nonetheless.

The book contains a sequential set of essays. The most important one, in our opinion, is the last, but the reader will be very handicapped if they skip ahead to the last essay. The argument is developed over the eleven essays in the book. The first essay sets the scene by outlining why the authors believe the economics profession managed to fail to understand the imminent crisis in 2007.

This is followed by the theme of macroeconomic policy. The second essay establishes that fiscal austerity at this point in time is a bit muddle headed, and that current conditions warrant a fiscal expansion; whilst the third essay establishes the endogeneity of the money supply where orthodox economics considers it to be exogenous. What this means in plain English is that we are currently stuck in a loop of secular stagnation, and we are unlikely to find our way out of the maze until aggregate demand recovers. The easiest way to stimulate aggregate demand is through a fiscal expansion. If we remain reliant upon an unconventional monetary expansion (i.e. Quantitative Easing), then all we will see is the further pumping up of asset prices.

The next three essays move away from macroeconomics and start to focus on the microeconomic theory of the firm. The fourth essay looks at short-termism as a feature of Anglo-Saxon Capitalism, and how the need to maintain the quarterly dividend and share buy-back has led to companies failing to re-invest in future productive capacity. This is followed by an essay on the innovative enterprise, in which the author establishes that if a firm wishes to compete in the long term, then it has to innovate, which means that it needs to invest in future productive capacity. This section is then rounded out with an essay - the sixth in the book - on the role of Patient Capital (i.e. investors who are willing to wait for the return on capital to materialise) and the role of the state as a provider of Patient Capital.

It is at this point that the contours of the book start to emerge. The economics profession has largely failed the public because the models on which policy of based are too divergent from the real world. We are currently stuck in a position of secular stagnation which is reinforced by the current policy of fiscal austerity combined with monetary expansion. In order to move forward, aggregate demand needs to grow, and the easiest way of achieving this is by reversing the policy of fiscal austerity. If austerity is to be relaxed, then public sector investment in productive capacity is likely to stimulate aggregate demand without the additional productive capital being diverted into unproductive dividends and share buy-backs. The book then continues to examine four specific aspects of this argument.

The seventh essay, using the insights of the first six essays, makes a good case for investment-led growth as a solution to the European Crisis. The European economy finds itself in a very parlous state at the moment, one that needs growth as a solution. The private sector hasn't delivered growth, so perhaps the public sector could? The eighth essay examines the link between inequality and economic growth. I found the argument to be a bit circular in that the best way to reduce poverty is growth, but also that a good way to stimulate growth would be to tackle inequality. The fact that an argument is circular doesn't invalidate it. The ninth essay examines the paradoxes of privatisation and public service outsourcing. The old distinction of private and public sectors has dissolved a great deal in the past thirty years, but our thinking in this regard hasn't. The last essay of this section - the tenth in the book - considers the relationship between innovation, de-carbonisation, economic growth, and climate change.

If the first six chapters laid out the contours of what a new economics might look like, the following four chapters lay out the contours of what economic policy might look like. Starting with a recognition that a fiscal expansion is needed to stimulate aggregate demand at the macroeconomic level, the microeconomics of such an expansion would be to focus on investment in 'green-tech', delivered by private sector agents of public sector commissioners; in tandem with policies to reduce inequality. This sounds like a winning formula!

With this thinking in hand, one is then ready to tackle the final chapter of the book, one that happily has more questions than answers. In the final essay, Carlota Perez takes a far longer perspective on the question of green-tech and helps to map out the contours of our collective future. Here, the focus moves away from the immediate and towards the more distant future. There is enough evidence presented to convince us that the next technological wave will be one based around green-tech. What isn't clear is whether this represents the deployment phase of the Fifth Wave, or the installation phase of the Sixth Wave. I am inclined to the latter view, but the chapter makes a sufficiently good case for the former view to sow the seeds of doubt in my mind. This aspect of the essay needs more thought on my part.

This is a really important book. However, it has to be remembered that it is an economics text book, which means that the style is dry and academic. The prose is turgid and, in places, downright boring. This is not bedtime reading. The book does lack the mass of higher mathematics normally associated with economics texts and, in this regard, is quite accessible. It is the content that underscores the importance of the book. This is a very significant step away from the barren territory of the neo-liberal economics that failed us all in 2007. This is why we recommend it.

Stephen Aguilar-Millan

© The European Futures Observatory 2017

Banking: The Story Continues

Our recent post on the next ten years in banking drew a couple of interesting comments. On Twitter, Esmee Wilcox asked:

"Thinking about notions of trust, re rural communities where this is more expected. What new models will emerge if metro bank not viable?"

Whilst in the comments section, Michael Spink commented:

"The successful will lead with purpose, not product. Engagement with the consumer base needs to extend into communities, demonstrating the value of an FI and its role in community...it will need to be about people, not profit. Think credit union on a grander scale."

Both of these are good points, and we rather feel that they tend to reinforce what we were saying. They certainly point towards what we see as the successful commercial banking business model in the years to come.

Before we continue, it is worth just outlining a bit of context. In the UK, and, I suspect to some extent in the US, the structure of rural communities has changed profoundly. The response to the financial crisis by the monetary authorities has been one of unconventional monetary policy - quantitative easing - which has served to pump liquidity into the financial system. Conventional economics would suggest that such an increase in liquidity would serve to be inflationary. This has not occurred with consumer prices, but is quite evident in the case of asset prices.

It is almost a truism that those who hold the most assets have seen the greatest increase in wealth. Residential property has enjoyed the best risk weighted return on capital for a number of years, and there is no reason to suggest that it will not continue to do so in the near future. The resultant rise in inequality has a bearing upon rural communities. Most of the increase in wealth has occurred in metropolitan areas, such as London and South East England. It has allowed the residents of these metropolitan areas to move out to the rural hinterland, to places such as East Anglia or South West England, either permanently or through the purchase of a second home.

The movement of people out of the metropolitan areas has bid up the property prices in the rural hinterland. However, prosperity has not spread that far. Those born in the rural hinterland are unable to purchase property in those areas because they lack sufficient income to buy a house. This has led to the withering of rural life. Within a village, the local school is usually the first to go, as local people start to have fewer children. Then the village shop, post office, and pub would close as the volume of trade becomes insufficient to support those businesses. This process has been occurring for decades, well before the financial crisis, but the financial crisis has given it a certain impetus. It is in this context that bank closures need to be viewed.

The strain placed upon the commercial banking business model has meant that the minimum size of the community which a branch bank can serve has increased. Looking at it the other way around, the pressure on the commercial banking business model has led to the commercial banks withdrawing from communities of an increasing size. Esmee was correct to point out that Metro Bank, the example of the new insurgent banks, is predominantly located in London and South East England. It is unlikely to locate in much smaller communities because it is not commercially viable to do so.

In some respects, this is a case of the people left behind, which will be the subject of a future post. In other respects this is a case of a tremendous commercial opportunity in the banking sector. The incumbent banks are delivering a service that is a poor fit with the desires of their customers. There is an opportunity for an insurgent bank that builds trust at a local level. That offers services at a human scale. Michael is right in directing us towards Credit Unions because they are community based, value driven, and people centred. At the moment, few banks offer this. And yet, it seems to me that this will be the key to success as we move forward.

We see the market wide open at present, it just needs a community focussed insurgent to fill the void!

Stephen Aguilar-Millan

© The European Futures Observatory 2017

"Progress" by Johan Norberg

"Progress" by Johan Norberg

Oneworld Publishing 2016

ISBN 978-1-78074-950-1

Why is it that all of the news seems to be bad? Why is it that it is far easier to sell dystopian scenarios than utopian ones? Why is it that many people believe that the future will be worse than the past? This book goes a long way to address the issues these questions raise.

The author laments our apparent loss of belief in progress as a feature of human advancement. The bulk of the book is used to show us that we are living at a time in history when hunger is at its least, sanitation and health are at their greatest, where life expectancy is at its longest, where poverty and violence are at their lowest. We are the most literate, free, and equal humans in history. There is nothing to suggest that this trajectory of improvement in the progress of humanity is either slowing or reversing, and yet we simply refuse to acknowledge these facts.

Why is that? The last two chapters consider this question head on. The penultimate chapter considers the prospects for the generation to come. It looks at the question from a longitudinal view rather than an inter-generational one. It is easier for us to review our own experiences rather than to imagine those of others. If we think about how our own lives have improved as we have become older, then we see the point that is being made.

For example, when I was a boy, we didn't have a TV. I remember the arrival our first TV (black & white) to displace the radio we had before. That was later replaced by a colour TV with three channels, and has now been supplanted by a mobile device through which I can watch literally thousands of channels showing hundreds of thousands of programmes, streamed to me the instant I demand them. This gives an account of the scale of progress over the last 50 years in a relatively inconsequential area. There have been even greater improvements in areas that matter, such as medicine, public health, or the eradication of poverty. There is nothing to suggest that this pace of improvement will slow. If anything, the evidence suggests that the trajectory of improvement will continue, but possibly at an accelerating pace.

If this is our experience, which is uncovered by the simplest of reflection, then why do we see an half empty glass rather than one that is half full? The final chapter in the book - the epilogue - deals with this question head on. The clues to the answer lie in human psychology, which provides us with three biases. The first is that we find that 'bad is stronger than good'. We remember our losses more than we remember our gains. We fear a prospective loss more than a prospective gain. We fear that the present we have will be better than a future that has yet to happen. The second bias is what the author outlines as 'the psychology of moralization'. We use our complaints about problems as a signal to others that we care about our listeners. It is a way of empathising with the problems of others. The final bias is a nostalgia about a golden past that never existed. When we hear about 'the good old days', we tend to forget that they were the bad old days also. These biases are an important part of our make up as humans. They have helped us to evolve as the dominant species on the planet, but they also constrain us as well.

We now live in a world in which, through the use of modern technology, we can witness the drama of events as they unfold. We have access to news events, on a rolling 24 hour basis, right across the world. No wonder the news always seems bleak. It comes to us in planetary volumes. However, if we stop to think about how many of those events have touched us directly, or in which we have even remotely participated, then the news we receive tends to become someone else's news.

In most of our lives, our own news is that not a lot new has happened. Things today are more or less the same as yesterday. This is not enough to capture attention. It lacks drama. It lacks entertainment. It doesn't inform us. This is why we very rarely feature in the news, even in an extremely minor role. The fact is that most of our lives are uneventful. That makes us sad because we want our lives to have had a meaning - a purpose - which causes us to look back to a past that seems so much better than today. Even if the facts say otherwise.

This is a book that is based upon fact. There are nine chapters that consider the facts relating to such issues as food, sanitation, poverty, violence, the environment, literacy and freedom. In each of them, the author presents a factual base to demonstrate a history of improvement. At times, this reads like a list of numbers, which is not the most engaging of prose. The book could do with the simple editing device of tabulation, but that would make it a much shorter book. It is not a difficult read, but there are times when the statistics make it bit of a dull read.

This is, however, an important book because it does provide the basis to address some of the questions which occupy the minds of futurists. For example, it is easier to sell dystopian scenarios than utopian ones because dystopia has the drama necessary to engage an audience. This drama can be used to engage an audience to provide a vehicle through which a message can be delivered, especially if that message is one of change.

It is why we would recommend the book to the more thoughtful of futurists.

Stephen Aguilar-Millan

© The European Futures Observatory 2017

Banking: The Next Ten Years

A short while ago I was asked, in a private discussion group, what I thought that the main influences on consumer banking might be over the next ten years. This is a question that fits my skill set, but rather than answer the question in a private discussion group, I thought that a more broadcast answer might be appropriate.

As with many futures, it is worth spending a few moments just considering past events. Banking prior to 2007 was described to me, by a chief accountant for a global bank, as a licence to print money. In many ways it was. The sector enjoyed monetary easing, a light touch regulatory regime, and an economy that was more than benign. That all changed with the credit crunch. Banks were unable to ascertain the quality of assets pledged by counter-parties and credit simply dried up. It was then that the party started to go sour.

We now find ourselves in a situation where, although monetary conditions remain eased - possibly more so now than in 2007, the regulatory regime is much different and the economic conditions are far from benign. It is these that will shape consumer banking over the next ten years.

Whilst we can point to a very large number of longer trends that will impact consumer banking, it is helpful to reduce the analysis to a smaller range of very important trends. We have decided to limit ourselves to three key trends that we feel will be pivotal.

1. Trust.

It is wrong to consider money as the stock in trade of banking. The key stock in trade is trust. If I give you my money to look after, I am trusting you to let me have it back when I want it. Events over the last ten years have led to the serious erosion of this trust in the banking system. Bankers are easily characterised as greedy and self seeking people who act only for themselves. This might be an unfair caricature, but there is a grain of truth in it.

It would seem to us that an important objective for banks over the next ten years would be to regain public trust in banks as institutions. Unfortunately, this costs money. Banks are currently moving in the opposite direction. In a scramble to cut costs, they are putting more and more distance between themselves and their customers. They are relying more and more on technology to do the work of bank staff. This is fine when things work well, but when things go wrong, as they do too often in automated systems, customer trust in the bank as an institution is seriously undermined.

Fintech is often proposed as a solution to future banking systems, but an ever greater reliance upon more and more complicated technology places ever greater distance between the bank and it's customers. This does not help to create greater trust in the banking system. It erodes it. As the trend is for a greater reliance upon technology in banking, we could reasonably expect trust to diminish even further over the next ten years. This manifests itself in the public reputation of banking and the willingness of the public to see banks more closely regulated.

2. Regulation.

There are two aspects of regulation that are having an impact on banks - capital adequacy and the licence to operate.

In response to the recent financial crisis, banks are required to hold an increased back stop of capital. This naturally restricts lending. It is often presented as prudential lending - and there is a case for the belief that prior to the financial crisis banks lent to people who were not quite creditworthy - but, nonetheless, it is a form of credit rationing. Anyone currently involved in the property market will attest at the difficulties now experienced in raising a mortgage. There is also likely to be a greater emphasis on the separation of ordinary branch banking and what some have described as the 'casino banking' aspects of investment banking.

The licence to operate acts as a more subtle form of regulation. It limits what banks can and can't do. In recent years, the banking and financial services sector have become the front line in combatting money laundering, anti-terrorist financing, tax evasion, and the movement of the proceeds of crime. This has added a deadweight cost to financial institutions. This is unlikely to change in the next ten years as the emphasis on financial crime continues to grow, and banks become the unpaid agencies of the state.

3. Business Model.

It unfortunately the case that, in an era of ultra-low interest rates, banks are finding it hard to maintain profitability. The spreads between the rates paid to depositors and those charged to lenders are now at the lowest for a very long time, and there is no real prospect of this changing dramatically in the next ten years or so. The spreads on lending are mainly determined by the underlying strength of the economy. Growth is likely to remain elusive over the next ten years, in response to which ultra-low interest rates will continue, thus continuing to exert pressure on bank profitability.

Banks and financial institutions have reacted to this in three ways. First, they have embarked on cost cutting exercises by reducing face-to-face interaction and relying upon technology as an alternative. This is eroding the trust between banks and their customers. Second, they are reducing their coverage through a process of branch closures and by withdrawing from selected areas of operation. Their scope is reducing. Third, banks have been engaged in a process of consolidation. One could argue with certain justification that this is just the rationalisation of a market in which there is over-capacity. This process of rationalisation is likely to continue for some years to come.

If we draw these strands together, what do the next ten years look like? In some respects, the world isn't likely to be too much different from today. We may have a few new technological whizz-bangs rolled out, such as iris recognition or finger-print accessing, but the main customer experience of banking is unlikely to be radically different from today.

It is not hard to see the continued erosion of trust in banks as institutions. They are likely to become more remote from their customer base, who are also likely to be a little bit less brand loyal than they are today. Capital adequacy concerns are likely to restrict the arena of lending, just as further enforcement requirements push up the cost base of banking. The macro-economic environment is unlikely to improve dramatically from where we are today, which means that we can expect the period of ultra-low interest rates to continue. This will squeeze profits further. We could even see another global banking crisis if a moderately large, probably European, bank were to get into difficulties. This future is not exactly rosy.

It is possible, however, to buck the trend. A more interesting question would be one of how, despite all of this, a bank could thrive in this environment? To us, the key to bucking the trend is to reconnect with the customer base. News of a trustworthy bank, that delivers human scale customer service, with a range of affordable products, is likely to do quite well in this environment. We can see some of this in action already today. The mutualised Building Societies, offering a Captain Mainwaring style customer service, are performing quite well. They offer a straightforward range of services, which they deliver at a human scale, and they are rewarded accordingly. In the UK, new and insurgent banks, such as Metro Bank, are following the same path with similar results.

Whilst the overall outlook for consumer banking is not favourable for the next ten years, it is certainly possible that some banks will thrive. The key is to reconnect with their customers, as this is where the trends will resolve themselves.

Stephen Aguilar-Millan

© The European Futures Observatory 2016

Trump's Chinese Puzzle

What is Donald Trump's policy towards East Asia? We can view this thorny question through the twin lenses of trade and security. On the campaign trail, Mr Trump espoused his views on East Asia mainly in terms of trade. He expressed the view that China had gained an unfair advantage over the US through currency manipulation, and that China had stolen jobs from the manufacturing heart of America.

There are grounds to suggest that both of these statements have a grain of truth in them. The Chinese Yuan has been pegged to the US Dollar for many years. It currently enjoys a managed float against the US Dollar, and has helped to maintain a large trade imbalance between the US and China. The Chinese trade surpluses with the US have been largely used to amass holdings in US Federal debt. Mr Trump says that he wishes to take action against this.

In his statements, Mr Trump appears to be a mercantilist at heart. He speaks against trade arrangements with China that he sees as 'unfair', and he feels that American trade partners - mainly located in East Asia - enjoy a situation that is too much to the detriment of the US. This has led him to state that, on his first day of office, he will cancel the participation of the US in the Trans-Pacific Partnership (TPP).

The TPP was an attempt by the US to create a free trade area in the Pacific Rim in it's own image. It would allow America to dominate the conversation on trade well into the twenty-first century. By being such a large part of the TPP, and by making, perhaps, the most concessions on trade, Washington would have created a Pacific economic zone in it's own image, much to it's long term benefit. President Elect Trump is unwilling to pay that price. He, along with the American people, have opted for the short term gain from protectionism.

Cancelling US involvement in TPP, however, also has a number of spin-off effects because TPP is not only about trade. Whilst much can be said against President Obama, his administration does have a firm grasp that trade provides the mortar that binds the building blocks of security. Not only would TPP have established a free trade zone in the Pacific Rim, it would form the modern basis of a security counter-weight against more aggressive Chinese expansionism in the area. Those East Asian countries who are parties or interested parties to TPP must now be wondering exactly how much their security guarantee from the US is worth.

There are two ways of looking at this. From the perspective of China, ought this withdrawal of the US from it's 'Asian Pivot' embolden China in expanding it's influence in the region? From the perspective of the East Asian nations, ought they become more accommodating to an expansionist China and less accommodating to a withdrawing America? There is a good case for both to occur, for China to be encouraged and for the other East Asian nations to be less accommodating to a protectionist US.

This creates Trump's Chinese Puzzle. How can President Trump, when inaugurated, maintain both a protectionist trade stance whilst maintaining the East Asian security guarantee?

Stephen Aguilar-Millan

© The European Futures Observatory 2016

Has Europe Been Trumped?

To say that the election of Donald Trump as President of the USA was unexpected would be something of an understatement. Throughout the long election process - a good 18 months - he was dismissed as a joke candidate with no real hope of winning. And yet, he won. As the President Elect, he is now being taken seriously - perhaps for the first time - as the world tries to work out what President Trump might mean for them. We intend a series of pieces looking at this issue. We start with Europe because Europe has the potential for being the more immediate problem President Trump will face on inauguration in January.

One of the slogans from the Trump campaign in the election was to 'Make America Great Again'. We have to take this as a serious intention of policy, to the degree that a US President can influence the matter, in order to tease out what that might mean in policy terms. If we could assume, for the moment, that making America great again consists of restoring American power and authority in the world, then we are on a firmer footing.

Leaving aside the contentious question as to whether or not there has been a diminution in American power in recent years, we can draw upon models of international power to guide us along the road ahead. Traditionally, a nation is seen to draw power from three pools - military power, economic power, and cultural power. These act together to provide a nation with enough authority to shape events to it's will.

We can set aside the question of cultural power because this takes decades to manifest itself and we are concerned solely with the impact of President Trump for at least one, or possibly two, terms. There is little that a President Trump can do today to have an impact on the cultural power of the USA over his term that is not already under way. President Trump, when inaugurated, will be able to influence American military power and American economic power almost immediately. It is with these two pools of power that we will be primarily concerned. It is over the use of this power that Europe is currently concerned.

As the Trump Presidency commences, Europe is not in a particularly good shape. A number of fissures are starting to emerge in the fabric of Europe. The most obvious one is the decision of the United Kingdom to leave the European Union. At present, nobody quite knows what this means or how it is likely to play out. Or even when it will occur. There are a number of Eurosceptic tests that the EU will face in coming months, starting with the Italian constitutional referendum in December 2016, but also including popular votes in Holland, France, Germany, and Italy in 2017. If the Eurosceptic parties do well in any one of these election, it has the potential to seriously de-rail the European project.

Whilst Euroscepticism may be one fissure, there are two others that need to be accounted for - the economic and the military. The two are linked, but it is more convenient to consider them separately at first. The economic fissure between northern Europe and southern Europe is well documented. Southern Europe is mired in policies of fiscal austerity at a time when fiscal expansion is needed. What draws our attention less is that northern Europe is mired in policies of monetary expansion when policies of monetary contraction are needed. The vulnerability of northern European banking systems - especially those of Germany - at a time of ultra low interest rates is an issue that has the potential to widen the economic fissure even further and has yet to fully run it's course.

In the arena of diplomacy, defence and security, a fissure has started to emerge between the United Kingdom and France on the one hand, and Germany and Brussels on the other. The latter seek to establish a common European framework in this area, whilst the former are adamant that this should be retained at the national level. In some respects, this feeds into the Eurosceptic agenda of resisting the efforts of Brussels to ever extend it's brief, but, more importantly, it extends into the American criticism of Europe over defence in general and NATO in particular.

The goal in NATO is for the member states to spend a minimum of 2% of GDP on defence. In recent years, only four European members of NATO have achieved this goal - the United Kingdom, Estonia, Poland and Greece. The rest of Europe has slacked on their commitments. During his election campaign, Mr Trump called attention to this fact and asked why US taxpayers should pay for the defence of European nations who were not prepared to defend themselves. He suggested a weakening of US resolve to defend Europe.

This potential weakening of the NATO commitment has set off alarms across the continent. Many Europeans consider the possibility of an expansionist Russia as a real prospect. The nations considered to be particularly vulnerable are the Baltic States. Latvia and Lithuania have responded by proposing to raise their defence spending to 2% and 1.5% of GDP respectively. Of the three largest shortfalls in defence spending, Spain (shortfall $US 15.98 billion) and Italy (shortfall $US 18.35 billion) are hemmed in by fiscal austerity. Germany (shortfall $US 30.28 billion) has the fiscal capacity to meet the 2% target, but lacks the political will to do so. If President Trump keeps to his word, then we can expect the US commitment to NATO in Europe to be compromised in the years ahead.

This is a policy bind - to improve the US security commitment to Europe will involve greater defence expenditure on the part of the European nations. Greater defence expenditure will either mean reduced social welfare programmes or a weakening of fiscal austerity. Either case has an unattractive consequence. One way of squaring the circle would be for Europe to find growth again. Since 2010, economic growth in Europe has been quite sluggish. Could this prove an opportunity for President Trump to exercise US economic power?

It is customary to exercise economic power through trade and investment policies. The European Commission and America are currently negotiating such a deal - the Transatlantic Trade and Investment Partnership (TTIP). Even before the election of Donald Trump, TTIP was in trouble on the European side. There are serious reservations about the agreement at the national and regional levels in Europe that question whether European ratification could be achieved. After his inauguration, it is likely that President Trump will not advance TTIP from the American side. The long and the short of it is that Europe can expect little help from American economic power in the immediate future.

So where does that leave us? We can reasonably expect a weakening of European influence on the world stage at a time when the US becomes less engaged in the world, partly as a result of the internal fissures within Europe and partly as the result of a desire in America to become less engaged . It may be that President Trump may not go through with the policies exposed by candidate Trump. It may be demonstrated to him, once in office, that the NATO security blanket may be worth keeping, even if the European partners don't pull their weight, that America's security depends upon the security of the European nations. It may be that President Trump rows back a bit on the rhetoric of candidate Trump over trade with Europe. After all the US and the EU are each others largest trading partners. Prosperity in the US is intrinsically linked to prosperity in Europe. However, in all of this Europe will be on the back foot.

Candidate Trump promised to 'Make America Great Again'. If this lessening of American influence is the result of other nations developing (the 'Rise of the Rest' argument), then one way to achieve this would be to do down other nations. It seems that President Trump will have to do very little to weaken Europe. It is perfectly well doing that of its own accord. All he would have to do is to nudge Europe further along the path it is already upon.

In that sense, Europe has been Trumped.

Stephen Aguilar-Millan

© The European Futures Observatory 2016

How Did We Get To Where We Are?

This has been a shocking year for the Establishment. First, there was the Brexit vote in June. Neither the Establishment in the UK, nor in Europe, could conceive of the impossible - the British public voted to leave the European Union. Now we have the election of President Trump, who had to overcome two sets of established figures - the Patrician Republicans to secure the nomination, and then an established Democratic Washington insider to secure the office. To the urbane liberal elites, their world appears to be ending. But is it?

In many respects, both of these events were relatively predictable, as they represent the convergence of a series of long term trends. Over the past 20 to 30 years, we have seen a huge transfer of wealth in the global economy. The rise of the middle class in Asia - predominantly in India and China - has been at the expense of the stagnation of living standards of the middle class in Europe and North America. For a long while, the middle class in Europe and North America could disguise this stagnation by incurring ever greater levels of household debt to maintain their living standards, but that bubble burst rather abruptly in 2007.

This has had a number of unfortunate consequences. The course of this decade has been to expose the precarious nature of middle class prosperity in Europe and North America. It has been blamed, with a good deal of cause, upon globalisation. It has been exacerbated by the apparent indifference of those who have done well from globalisation in Europe and North America - those characterised and demonised as 'the 1%' - and it has now reached a point where people are angry enough to want to do something about it.

In many respects this was quite foreseeable. Since 2009, policy has been to return the economy back to 'business as usual'. To a very limited degree, this has been successful. However, 'business as usual' cannot deliver the levels of prosperity to placate an angry middle class - a point that is important when we think about going forward. In many communities, the standards of living are still worse than they were in 2006 - a lost decade of reduced living standards. In the face of this, the established political structures seem unable to do anything about it, and electorates are now turning to those who they believe can - the disestablished political fringes.

We are concerned about the future rather than the past, so what does this mean going forward? There are two key uncertainties that we currently face. Will Brexit occur? And will President Trump deliver his campaign promises? We can look at the worlds in which one occurs and the other doesn't, but that isn't entirely interesting. We can look at a world in which neither occurs, but that would imply a continuation of current trends. That might be an exercise worth pursuing as an alternative future.

Or we could look at a world in which Brexit does occur, and where President Trump delivers his campaign speeches. This is the world where we ought to focus our attention at the moment because this is the world in which our expected future appears. We are planning a series of pieces on how this future might unfold in coming weeks.

As always, people want to know immediately how the future might unfold. It is, however, worth taking our time over this. After all, it is not easy to divert a long term trend, which is what Brexit and a Trump Presidency both promise to do.

Stephen Aguilar-Millan

© The European Futures Observatory 2016