Will The Pandemic Accelerate The End Of Capitalism?

The response of many western governments to the pandemic has been to collapse their economies and maintain social support through a very large fiscal expansion. Some observers have questioned if this would herald the demise of capitalism as a means of organising our affairs? Does the pandemic herald the end of capitalism? 

The operation of capitalism as a social system relies upon the market for the distribution of goods and services. It is a monetary system, using price signals as an allocation mechanism, and the profit motive as a motivational driver. Key to the system is the exercise of personal choice in determining what to buy and when to buy it. Some goods need to be purchased collectively, which calls for governmental provision that is funded through the tax system. Another important role for government is to regulate the markets and to correct for market failure. In making the distributional decisions about taxes and subsidies, a collective decision framework is called for. In the western liberal democracies, this is in the form of representative government. All of this has ceased to operate during the pandemic.

The market is still used for the distribution of goods and services, but consumer choice can only be exercised during lockdown for 'essential goods'. The lack of a clear definition of what is essential and what is not has been something of a legal question during the pandemic so far. Absurd cases have arisen, such as the denial of the Welsh government that female sanitary products were essential. This interruption of the market has had two effects that may store problems for later on. First, it means that, owing to the high levels of income support, households are generating higher than usual levels of savings. Second, because people are not spending, and because government assistance is aimed at income support, profit levels are falling and the closure of firms is accelerating. Capitalism operates as a 'Money-Go-Round', and if one element seizes up, then the whole system becomes fragile.

There has been little public consultation over any of this. The organs of representative democracy have been suspended. The English local elections scheduled for May 2020 were postponed and it is currently uncertain whether or not the English local elections, the English mayoral elections, and the elections to the Scottish and Welsh Parliaments will go ahead as planned in May 2021. In place of a representative democracy, and autocratic technocracy has assumed control of the government, with key decisions being made by 'scientists and experts'. The scientists and experts who have assumed control display the British desire to centralise and the risk aversion of the British Civil Service. The population has been largely compliant so far, but rumblings of discontent and non-compliance with the regulations are starting to grow.

The key question is whether or not this represents the end of capitalism? Much depends upon how temporary these measures turn out to be. If a high level of vaccine delivery can be achieved, then the economy and civil society can start to thaw sooner than otherwise. This is the critical uncertainty. If a thaw can be achieved in the near term, then the process of normalisation can begin at the same time. If a thaw cannot be achieved, then the Conservative government of Boris Johnson will achieve what Jeremy Corbyn failed to achieve in two general elections - a Socialist Britain.

Two cases during the pandemic have given us a hint at what that might be like - the NHS Test and Trace App and the Oxford Vaccine. A test and trace facility is key to the management of the spread of the COVID virus. Despite there being commercial options available, the NHS decided to develop its own tracing App. The scientists and experts took control and the centralising tendency in NHS management took over. The result was far from the world beating App that was promised. The actual result - at a cost of just under £12 billion - was a non-functional App. In the end, a functional App was developed with the assistance of Apple and Google. The episode highlights how life could be if normality does not return.

By way of contrast, an effective vaccine was delivered in record time. This came about because sufficient government money was pledged to cover the cost of the initial research. This was handed on to the competitive oligopoly of the pharmaceutical companies to commercialise. It then received regulatory approval in record time and is now being delivered by private firms on contract to the NHS. If anything, this case demonstrates the best result of capitalism. A worthwhile social purpose - mass vaccination - that is underpinned by the government is being delivered by private sector companies. This represents the system working as it should.

This is an important point as we go forward. The emergency socialism of the pandemic has managed to ensure that public health is maintained and that households are not impoverished. This is a major achievement. But as we look beyond the crisis period, the public sector is unable to deliver goods and services effectively. There needs to be some return to the market and that needs to be underpinned by a return to representative democracy. It is quite likely that the pandemic will have rejuvenated capitalism rather than hastened its demise.

Stephen Aguilar-Millan

© The European Futures Observatory 2021

How fast will Europe recover from the pandemic?

It's always the case that one thing leads to another. The study of the future often consists of no more than simply joining all the dots to see where we arrive. The pandemic has provide a number of opportunities to engage in this type of thinking, both for the near future and for further ahead. The most striking aspect of the pandemic is that it has had a different impact in different countries. The virus is broadly the same, saving a few mutations, so much of the differing experiences of the pandemic are the result of policy decisions.

Some countries have risen to the challenge of the pandemic very well. Others not so well. However, as we progress through the second wave of infection, we find that those who did well in the first wave may not be doing so well through the second wave. The key difference between the first wave and the second wave is the vaccine. This is a question of policy approval, adoption, and roll out. The race is now on to vaccinate as many people as quickly as possible. In this, performance to date is rather patchy.

The question of Europe arises in this context. Generally speaking, Europe had a good first wave, especially when compared to America. Lockdowns were imposed sooner and with tighter conditions than the US. Infections rates were lower, as were death rates. The economic policy response was slower in the Eurozone - it still has to be deployed - and frugal to the point where some may question its usefulness. This suggests that the economic fallout from the pandemic will be harsher and longer lasting in the Eurozone compared to the US.

America went into the second wave with GDP more or less restored to where it had been a year earlier. Europe, on the other hand, was operating at about 10% lower GDP than a year previously. This is now where institutional factors start to have an impact. The roll out of the vaccine is derogated to national governments in Europe, whereas the approval and roll out is determined at the European level. This hasn't been as nimble as it could have been. The approval and deployment of the vaccine has been slower than the US. Joining the dots, it means that the return to 'normality' - whatever that may mean - will take longer, periods of lockdown and will be longer, and periods of economic inactivity will be longer. This suggests that the Eurozone economy will be hit harder than that of the US over the course of the pandemic.

It is hard to assess the consequential impact of this because we don't know the point to which the Eurozone will recover. We don't know the likely path to recovery. We can only assume that the fiscal response will be sluggish and that the ECB will continue to pump liquidity into the system. All of this suggests a rather stagnant recovery that will be delayed compared to other economies. 

As things stand, there is the potential for this to develop into something more serious over the longer term. A delayed and sluggish recovery could permanently scar the Eurozone economy, leading us to question if Europe could ever catch up? A stressed recovery could see the flaws in the architecture of the Euro become fissures. Of course, many have speculated on the demise of the Euro before. They have been wrong, but there is always that nagging sense that perhaps this time might be different?

Stephen Aguilar-Millan

© The European Futures Observatory 2021

How Will The Pandemic Affect Productivity?

By placing the global economy into deep freeze, governments across the world have triggered one of the deepest economic downturns in living memory. In England, the present downturn is said to be the worst one since 1707. It is hard to find much upside to this, but perhaps some solace might be found in the question of productivity?

It is normally the case that a deep recession will raise productivity within an economy. It is usually the case that lesser productive firms go to the wall, releasing the staff and capital that they used into the pool of available capital and labour. At that point, as a matter of sheer arithmetic, the average levels of productivity will rise. As we go forward in time, new firms will be formed, drawing upon the pool of available labour and capital, to raise the total level of productivity in the economy. This is how the process of Schumpeter's 'Creative Destruction' works. 

The process of creative destruction has not been evident following the global financial crisis of 2008. Within the advanced economies, a sustained slowdown in productivity set in that suggests a more muted recovery from the pandemic might be the order of the day. There are three broad explanations as to why this might be. First, it may be the case that the impacts of the newer technologies - AI, Cloud Computing, and Robotics - have been over-exaggerated. Second, it may be the case that investment in the newer technologies has been constrained by weakened demand. Third, it might be too soon to see the impacts of a new adoption curve. All three of these may be right, in varying degrees, but what does that tell us about the years ahead?

The pandemic has made us do things differently. One factor noted by many observers is that much more work is now being undertaken from home. It is uncertain whether or not this makes us more productive. In some cases it will, and in other cases it won't. Either way, a combination of the new technologies - AI and cloud computing in particular - have enabled this trend. For some, this will be the way of the future. For others it won't. We might reasonably expect to see more home working and fewer trips to a centralised office, so perhaps those who declare the end of the office might be a bit premature?

It is not only in the uptake of new technologies that might contribute to a productivity uptick. The need for social distancing is forcing businesses to organise their production differently. We are all familiar with the growth of home delivery becoming incorporated into business models. The internal organisation of work teams and the flow of work through complex business processes has also had to change. Some of these changes represent real improvements to productivity. Some enhance the quality of output - a disguised productivity gain. These changes are likely to be retained after the pandemic, raising the productivity of the surviving firms.

After a long period of stagnation, we can be optimistic about the prospects for productivity in the years ahead. The fiscal response of expansion - rather than austerity - will help to underpin corporate profits in the near future. Contrary to the Piketty model, the rates of corporate profits following the global financial crash had been falling. If they start to rise again, we can reasonably expect corporate investment to rise again, especially if coupled with public investment in digital infrastructure and education. It is possible that both supply and demand factors could act to spur productivity in the near future.

One further long term factor may act to enhance productivity - demographics. In the next few years, a natural process of labour shedding will gather pace as the Baby Boomers retire in ever increasing numbers. This will have an effect - in the absence of mass immigration - of leading to wage rates hardening. In some case, by a great deal. If labour becomes appreciably more expensive, then a cost advantage for mechanisation arises. This is the point where AI, cloud computing, and robotics are likely to dominate as trends. If this is the case, then productivity could be set to rise substantially.

It remains to be seen how much of this is the result of the pandemic and how much would have happened in any case. Prior to the pandemic, the government had announced an end to austerity and had signalled an intention to develop both the physical and digital infrastructure of the UK. The ageing of the Baby Boomers has only been marginally impacted by the pandemic and their departure from the workforce is relatively independent of government policy. In this respect, the pandemic will not have influenced productivity greatly. 

What the pandemic could be claimed to have done is to accelerate the trends already under way. In the public sector, in particular healthcare, the adoption of the new technologies has greatly accelerated over the pandemic. For example, family doctors are now far more productive owing to video consultations. Although austerity had ended, it was not envisaged to have ended with quite the fiscal expansion that we have actually seen. In this respect, existing policy is far more exaggerated than originally planned.

Perhaps that's how the pandemic has affected productivity? Perhaps the pandemic has forced us to do what we were doing in any case, only more so? To that extent, it could have a lasting impact.

Stephen Aguilar-Millan

© The European Futures Observatory 2021

UBI and the pandemic

One of the difficulties in the social sciences, when compared with the physical sciences, is that it is hard to experiment with the subjects under review. This means that social scientists have to take their data points wherever they arise, often using a set of surrogate readings to either confirm or refute their previous theoretical conjectures. The scientific method in the social sciences is essentially inductive. Data points are observed and theoretical underpinnings are conjectured.

In recent years, there has been a growing belief in a Universal Basic Income (UBI) as a means to resolve the issue of inequality. The proponents advocate this policy as a means to deliver a decent basic standard of living to everyone. This would be achieved by everyone receiving a regular payment without any strings attached. It would allow people to study without having to earn a living, it would allow people to have a financial firebreak to start a business, and it would allow people to focus on unremunerated care giving. The absence of being forced to earn a living would allow the innate creativity within people to flourish.

There have been a number of limited trials of UBI. The results of these are best described as mixed. None have been a resounding success. The supporters of UBI hold that the trials have been poorly implemented, the payments not entirely unconditional, and the levels of funding too low to hit critical mass. All of this is true, but it disguises the principal objection to UBI - the cost. For UBI to be at all effective, the recipients have to receive a significant sum of money. Across a population, that presents a taxation challenge.

Prior to the pandemic, UBI as a proposal was quietly falling out of fashion. It is expensive and is seen as an inferior policy device when compared with payments targeted on those who need them. The pandemic has changed that perspective. As an employment support measure - in the UK - the government entitled all staff to a payment of 80% of their salary. This is conditional. The conditions are that the staff do not work in their jobs. They can get a different job. They can stay at home and do nothing. They can engage in their hobbies or even start a business. They can do anything except return to their jobs during the furlough period.

This is almost a surrogate for UBI. The take up of the furlough scheme (somewhere between a quarter and a third of the UK workforce over 2020) was large enough to make this a statistically significant sample. On the issue of cost, it is difficult to fix this because a variety of schemes were under way at the same time and rates of fraud were exceptionally high. However, the cost of the furlough scheme between March and September was estimated by the National Audit Office as something n the region of £47 billion. Simply multiplying the numbers up suggests that the total cost of a UBI of £2,500 per month (the furlough ceiling) for the UK workforce (about three quarters of the population) would be in the region of £350 billion to £400 billion a year. These are the rocks of affordability upon which the ship of UBI flounders.

There then arises the question of the benefits of UBI. It is supposed to unleash a surge of creativity. Has that happened under the furlough scheme? Admittedly, it is a bit early to tell in definitive terms, but some early indications do highlight the direction of travel. We ought to discount what people reply to surveys and look at how they deploy their cash. This is a more revealing approach. During the furlough period, companies selling pizza deliveries are reporting record sales. Streaming TV services are reporting record subscriptions. Even adult web sites are reporting high subscription levels. There doesn't appear to have been an outpouring of literature, or fine art, or music. The expected wave of creativity has yet to materialise. What does that tell us? Perhaps people would rather watch TV eating pizza than locking themselves away to paint that masterpiece? As I said, it is too early to be definitive on this matter, but the evidence there is points in one specific direction.

No doubt the more resolute promoters of UBI will say that the evidence is tainted, or that we have drawn false conclusions from a limited data set. These are valid objections. However, most unbiased people will see that this is an experiment that has proven to be very costly and has yet to deliver the promised results. It has little to recommend it. Perhaps now, as an idea, UBI can die a quiet death?

Stephen Aguilar-Millan

© The European Futures Observatory 2021

The Emerging Fellows Programme

This week we completed the third of the Emerging Fellows programmes. We are now set to start on the fourth. The change over between programmes gives us an opportunity to reflect upon what we are doing and to consider what it is that we seek to achieve with the programme. 

Starting from the beginning, the current version of the programme - there was a previous version of the programme before we became involved - aims to provide an element of practice based work experience for early stage futurists. We do this through a sequence of curated writing that grows into a catalogue of work over the course of the year. The European Futures Observatory operates the programme in conjunction with the Association of Professional Futurists. The APF has the digital publication rights for the work produced - which is published on the APF web site - and EUFO has the print publication rights, which it exercises in an annual publication of the work in book form.

This arrangement has worked well over the past three years. However, as we enter the fourth year of operation, it is time to place the programme in a wider context. This wider context will help us with one of the problems arising from the programme. Each year, the Emerging Fellows who successfully complete the programme are left with the question of what to do next. Over the years, some of the cohorts have stayed in touch with each other and the issue of what comes next remains in abeyance. If we step back to take a wider view, perhaps that might help us answer this question?

In thinking about this, we have found the APF Foresight Competency Model to be quite useful. The development of competency in foresight speaks to what we are looking to achieve in the programme. The model establishes three foundational areas of competency - personal effectiveness, academic knowledge, and workplace experience - before considering the foresight technical competencies. In a roundabout way, we have also found that place.

Admission to the programme is now through a competitive entrance. This is simply because we don't have enough places available for all applicants. The entrance asks for a written submission to accompany a CV. In the written submission, we are looking for evidence of the three foundational competencies and make our decisions accordingly. We are not an academic institution, so we tend to downplay the academic competencies and highlight the workplace competencies. The scheme of curated writing within the programme aims at delivering a practical application of the foresight technical competencies. We aim to keep the technical workings concealed because our intended readership aren't interested in these nuts and bolts. They just want to receive the end product.

So far, so good. But what next? In the competency model there is a fifth stage - foresight sector competencies. This has three branches - the academic world, the organisational world, and the world of practice. It is this latter category that interests us. There is scope to develop the programme further in the world of consulting through a joint branding and a joint operations exercise. We have stumbled along this route already, but we need to give it a more defined shape and purpose.

The Emerging Fellows in the 2020 programme, along with some of the Emerging Fellows from the 2018 and 2019 programmes, have taken to gaming as a means to unlock the future. We have reported fully on two previous games - one examining the future of the Arctic and one examining the future of Central Asia - and this seems a rich vein to mine a bit further. We can do this in a number of ways - different subject areas, different gaming formats, and introducing different players. We plan to formalise a programme around this in the near future.

There is also a desire amongst some former Emerging Fellows to continue writing. Some want to continue their topics from their programme of study. Some want to examine the roads not taken during their programme of study. And some want to examine topics completely unrelated to their programme of study. All of them see further writing as a means to enhance their professional reputations. It is our intention to harness this desire by launching a new foresight magazine in 2021. The magazine will accept submissions from other than Emerging Fellows, but this ought to be seen as an expansion of the programme.

Now that we can see the direction of travel - deeper into the fifth competency - we can also see the destination ahead. In the fullness of time, there would be scope for the group to bid for and deliver joint projects together. We haven't reached that point just yet, but we can see the time when we will.

Stephen Aguilar-Millan

© The European Futures Observatory 2020

Is There A Gold Standard For Foresight?

One of the problems with foresight is time. Most foresight work takes years, sometimes decades, to be fully work through. Despite this, there is a need to know in the present if a particular project was a worthwhile venture. The desire to appreciate a particular piece of foresight leads us to ask if there is some form of Gold Standard for foresight? An ideal piece of work against which any given piece could be judged. And if there is, what would that ideal piece of foresight look like? More importantly, based on the Gold Standard, could we reverse engineer a piece of foresight to ensure that we can consistently produce good work?

We can appraise foresight from one of two perspectives. First, there is the internal value of a piece of foresight. In this case, the exercise provides value because it was a project that was worth doing in itself. Alternatively, we could view the piece of foresight from an external perspective. In this case, the foresight would be worth doing because we can appraise it as a thing of beauty. There are a number of points to touch upon here.

To begin with, foresight produces a work of art rather than a scientific calculation. The calculation of the future belongs more with forecasting, which has a place in foresight, but not as an end result. A key axiom of foresight is that there is more than one possible future and a good foresight project will capture this plurality of futures. Like most works of art, foresight can be appreciated as the result of a series of techniques, which leans more towards the internal appraisal of foresight. Equally, a piece of foresight could be appreciated as a resultant totality, in which case we would be taking more of an external appraisal of the piece of foresight. Sometimes, these approaches can generate a sharp contrast.

For example, there are those who maintain that - in order to be a good piece of foresight - reference has to be made to certain issues. One that commonly is encountered is climate change. Climate change is important, but should it be present in all pieces of foresight? Perhaps not. Alternatively, there are those who insist that the issue of civilisational collapse is included in all works of foresight. Once again, this is an important issue, but perhaps not an all-consuming issue? 

In my view, these positions are a little too prescriptive for my liking. To put this another way, I am reluctant to with-hold the validation of a foresight project simply because it does not adhere to a subjective frame of reference. Like most subjective frames of reference, these are often held quite violently by their adherents. In my view, this is an extremist position. I know that it's hard to think of futurists as Jihadists, but some can be over their respective beliefs.

My own view is that the validation of foresight should stem from the internal logic of a piece of foresight. To begin with, it needs to be well crafted technically - using the right tool - to the right level of maturity, and answering the question set rather than the question that ought to have been set. We may have to wait some time to be able to appraise the utility of the particular work, but we can discern early clues as to it's validity. Is it internally consistent? Does it answer the question asked? Was the right tool used? For an appropriate time horizon? Does it fit in with broadly similar - but independent - works of foresight? Has it provided a set of milestones into the future by which we can determine which outcome events are tending towards? If all of these elements are there, then the chances are that valid results have been produced.

I'm not sure that there is a Gold Standard for foresight. To me that suggests too prescriptive a framework that merely reinforces a conventional wisdom. There are a number of conviction futurists who would disagree with me on this point, but I would suggest that their convictions are blinding them to the possibility that they might be wrong. I am of the view that there are any number of possible futures that we might experience and that there is no single way to unlock those futures. For this reason, there can be no Gold Standard.

Stephen Aguilar-Millan

© The European Futures Observatory 2020

The Terrible Twins (Again)

The pandemic has caused some degree of disruption to most economies in the world, much as every crisis does. Equally, not every economy has been affected in an even and consistent way. Some countries have been affected worse than others. Some economies have bounced back better than others. The intensity and duration of the disruption is influenced heavily by differing social and political conditions, which reflect the underlying cultural norms of the different societies. As the pandemic progresses, we can already start to see the contours of an emerging future. It allows us to speculate about how that may develop as time goes on.

COVID originated in the Far East and these societies were the first to react. The initial reaction was one of literally shutting down society and economic activity as far as possible. By and large, this strategy proved to be successful, mainly because the societies involved normally contained a relatively high degree of central control. As the virus spread across Europe and North America, various governments reacted with varying degrees of competence. This meant that the virus was not quite as well contained as it had been in the Far East. The effect of this was to keep economic activity at lower levels than had been experienced previously.

The governments in Europe and North America responded to the economic deep freeze in the private sector with a very large fiscal stimulus. The method varied from nation to nation, but the intention was similar - to keep afloat households during a period of acute reductions in earnings. In Europe, the main intention was to fund employers so that they could continue to pay salaries. In the US, the main strategy was to pay the economic actors directly - funds paid to companies to support profits and to households to cover their expenses.

This is where things start to get interesting. A good percentage of the stimulus funds were saved, both by households and corporates. Both sectors have increased their holdings of precautionary balances - their 'rainy day money'. However, not all of the stimulus has been saved and consumption - especially the consumption of on-line sales - has held up. This has had an interesting impact on the foreign balance. On the one hand, reduced levels of economic activity in the US has held back exports, whilst, on the other hand, the fiscal stimulus has helped to pull in greater levels of imports. Especially imports from China. As a corollary, Chinese sales into the US has helped to increase economic activity in China to such a degree that China can actually expect economic growth this year.

We have now reached a point where the US has seen the return of the twin deficits - the external deficit and the fiscal deficit - and is now reliant upon a net inflow of finance to sustain these. This is of very great significance because it is marking a point at which the US moves from being a creditor nation to becoming a debtor nation. Potentially, this is not a happy place for America.

It could be possible that the US attempts to address these deficits, However, the consequences would be somewhat untoward. The fiscal deficit could be addressed through a large increase in taxation, but that would risk capital flight. Alternatively, spending could be pared back. But where? Defence? Social programmes? These choices presume a political system in broad agreement, whereas we see one that is largely gridlocked. The future prospects are even worse. As America ages, then, if the political promises for pensions and healthcare are to be maintained, then the fiscal deficit will grow even further than it is today.

All of this is dependent upon the willingness of overseas actors to finance the debt. That would suggest the continued support of the rules based economic infrastructure that supports such financing. In which case, the scope for addressing the external deficit becomes much more limited. The two are linked. For example, President Trump's trade war with China and the resultant imposition of tariffs on Chinese goods had two effects. First, China retaliated by imposing tit-for-tat tariffs on American goods entering China. Second, with more subtlety, Chinese surpluses with the US are no longer recycled into US Treasuries. They are channelled into emerging market sovereign debt. This is a potential problem for the US that could have a significant impact upon the future.

It would seem that the twin deficits are likely to be a feature for some time to come. At this point we might ask what that means? We take the view that this is a situation broadly analogous to that of Great Britain a century ago. From the British perspective, it marked the start of a half century of decline. Relative decline at first, and then absolute decline. If we are right, then we ought to start thinking about what might be the American equivalent of the Suez Crisis and look out for the formative elements in mid-century. A more interesting question revolves around how Washington would react in the face of a national humiliation? The pandemic has accelerated this process, which was under way at the start of the year, but it is an interesting consequence of COVID-19.

Stephen Aguilar-Millan

© The European Futures Observatory 2020