Category Archives: GIS Statements

A choice for economies: Freedom or socialism

GIS Statement by Prince Michael of Liechtenstein

Last week the OECD again cut its forecasts for the global economy in both 2019 and 2020. The organization cited Brexit and insecurity due to the United States-China trade dispute as the reasons behind its decision. Under the same pretext, the European Central Bank decided to postpone its first postcrisis interest rate hike. Officials at the ECB said they consider the two above-mentioned “threats” as damaging for the eurozone economy.

freedom or socialism
freedom or socialism

We can agree that Brexit is not helpful to the global economy and has caused quite a bit of collateral damage. Yet, it is not a major threat. The so-called U.S.-China “trade war” may soon be settled and, as we have seen before, is a dispute, not a war. True, it is louder than most trade squabbles, but we can expect a settlement eventually. In fact, an agreement could put some constraints on China that might even improve the efficiency of its economy in the long run.

In light of this more pragmatic, longer-term perspective, one can easily come to the cynical conclusion that Brexit and the U.S.-China trade conflict are godsends to the OECD and ECB: they have a ready-made excuse for the failure of their prognoses and their refusal to accept basic economic facts.

Dangerous doctrine

Officials at the bank say they are worried about deflation. Indeed, we are in a deflationary environment. However, deflation is only damaging if it is due to overcapacity. Today’s deflation is due to production having become more efficient: goods and services can be provided at lower cost at equal or better quality. This is actually advantageous.

A certain credo prevails with many economists that economies can be enhanced and kept stable by strong government intervention, tax harmonization at a high level, some inflation and excessive debt policies. This principalist, authoritarian, centralist, and also socialist doctrine leads to planned economies. Yet it is seemingly accepted and even promoted by the OECD. Little wonder its forecast was wrong.

Unfortunately, these practices and perspectives are symptoms of a more general global trend that has been embraced by a wide group of decision- and policymakers. Excessive regulation is blocking good regulations from being implemented.

It is an old tenet of authoritarian, and especially socialist, systems that people and economies should be planned and controlled by governments. We know from experience that we need the rule of law and legal frameworks, but these should limit rather than augment government influence and control. Here, the authoritarian regimes of the past failed. We also know that the essential ingredient for prosperity is a market economy, based on individual responsibility, competition and entrepreneurship.

The very successful German system, which helped the country rebuild and then develop quickly after its defeat in World War II, was based on the principles of a free market and personal property rights. A legal framework set parameters that were not excessive and allowed everyone, including the weaker members of society, to participate. Most importantly, it also limited government intervention. The principles were called Ordoliberalism but unfortunately it has since been watered down.

We should worry that the world’s democracies – and for this, the so-called populists or “illiberal democrats” cannot be blamed – are now approaching the same level of planning and control in which the autocrats of the past were trapped. This creeping socialism threatens free society.

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Freedom or socialism


*GIS is a global intelligence service providing independent, analytical, fact-based reports from a team of experts around the world. We also provide bespoke geopolitical consultancy services to businesses to support their international investment decisions. Our clients have access to expert insights in the fields of geopolitics, economics, defense, security and energy. Our experts provide scenarios on significant geopolitical events and trends. They use their knowledge to analyze the big picture and provide valuable recommendations of what is likely to happen next, in a way which informs long-term decision-making. Our experts play active roles in top universities, think-tanks, intelligence services, business and as government advisors. They have a unique blend of backgrounds and experience to deliver the narrative and understanding of global developments. They will help you develop a complete understanding of international affairs because they identify the key players, their motivations and what really matters in a changing world. Our experts examine the challenges and opportunities in economies old and new, identify emerging politicians and analyze and appraise new threats in a fast-changing world. They offer new ideas, fresh perspectives and rigorous study.

Planning the economy

GIS Statement by Prince Michael of Liechtenstein

An economy is a complex, interactive structure. On one side, it engages suppliers and providers of goods and services; intermediaries such as trading companies, the transport industry and the financial system; and, finally, on the other side, consumers. It is a matrix of collaboration involving millions of agents with differing interests and business models.

Dark clouds gathering global economy

Competition and freedom of choice allow these interactions to find a balance. The shorthand for this system is the market. Markets underpin the interaction between individuals and businesses, and also between countries. This mechanism can only work with free exchange and individual freedom of contracts. It requires some rules to function smoothly – helping markets develop and forming a legal framework and a judicial system to secure the enforcement of contracts. Also, failures must be accepted.

Taken together, these elements provide the foundation of probably the most efficient and sustainable economic system in human history. It was this system, called ordoliberalism, that made possible the German economy’s rapid recovery and modernization (the so-called Wirtschaftswunder) after World War II. The essence of ordoliberalism is to reduce the state’s role to a provider of the economy’s supporting framework. As much as possible, the public authorities abstain from any attempt to intervene in the economy or plan its development …

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Planning the economy


*GIS is a global intelligence service providing independent, analytical, fact-based reports from a team of experts around the world. We also provide bespoke geopolitical consultancy services to businesses to support their international investment decisions. Our clients have access to expert insights in the fields of geopolitics, economics, defense, security and energy. Our experts provide scenarios on significant geopolitical events and trends. They use their knowledge to analyze the big picture and provide valuable recommendations of what is likely to happen next, in a way which informs long-term decision-making. Our experts play active roles in top universities, think-tanks, intelligence services, business and as government advisors. They have a unique blend of backgrounds and experience to deliver the narrative and understanding of global developments. They will help you develop a complete understanding of international affairs because they identify the key players, their motivations and what really matters in a changing world. Our experts examine the challenges and opportunities in economies old and new, identify emerging politicians and analyze and appraise new threats in a fast-changing world. They offer new ideas, fresh perspectives and rigorous study.

Dark clouds gathering over the global economy

GIS Statement by Prince Michael of Liechtenstein

Typical economic cycles last about seven years. Since the 2008 financial crisis, we have seen continuous growth in the global economy, and more is expected. The International Monetary Fund forecasts global growth of 3.9 percent for this year and next. We would like to believe that these are realistic predictions and not wishful thinking.

Dark clouds gathering global economy
Dark clouds gathering over the global economy

The issue is whether the recovery and the expected growth have a robust, sustainable basis – or are substantial caveats appropriate?

The growth in recent years has been largely driven by consumption. Unfortunately, this was, to a non-negligible extent, due to abundant consumer and housing credit based on cheap money, provided by the central banks in nearly all major economies. At the same time, most governments did not take the opportunity to reduce their deficits, but continued high levels of spending and increasing their countries’ debt.

The cheap-money drug

All major central banks arrived at the limit of their ability to reduce interest rates (being already near zero or below) and have begun to talk of “tapering.” The United States Federal Reserve has already started, while the European Central Bank announced its more than 2.6 trillion-euro bond-buying program would end in September. Believing in the magic that some 2 percent inflation enhances growth, the officials at the ECB have concluded that this goal has finally been reached, so they can also slowly increase interest rates.

However, there are two problems: First, even if we believe in the 2 percent magic, this figure is mainly driven by an increase of 8 percent in energy prices and some 3 percent in food prices. Significantly, core inflation rose by just 1 percent.

But what really aggravates the situation is this: an economy that grows mainly due to abundant, cheap money is a bit like a drug addict. It cannot function without additional money supply – it always needs more, or else it collapses.

The world is arriving at the possible end of a growth cycle, while households and governments have not just empty pockets, but also a high debt burden. At the same time, the central banks have used up all their ammunition. The necessary and overdue increase in interest rates will be disastrous for budgets, both public and private.

Treating the symptoms

The history of the last quarter century’s fiscal and monetary policies mainly consists of treating symptoms, and less so the underlying causes of economic imbalances. If we look at the world’s financial mechanisms, we can see that they are built to avoid situations that can trigger a crisis, but lack the courage to implement real corrective measures. These could be painful, and would expose fundamental weaknesses that are less due to market conditions than significant political “manipulation” of the economy. Some of the main problems have been populist overspending, too much government involvement in the economy and excessive intervention in markets and business.

The recent increase in oil prices could be a real threat to growth. Cheap energy is a good economic driver. The rise might have initially been welcomed as boosting inflation, a sign expected by central bankers, but the increase in costs creates a braking effect. OPEC was aware of this phenomenon and decided to increase output to stabilize prices. The White House also strongly urged such action. It is concerned about the adverse impact of higher energy prices on a fragile world economy (and not only in the context of its new sanctions on Iran).

For a long time, a big problem has been protectionism. The public was not too aware of this issue until President Donald Trump, in his usual very direct way, started to retaliate against unfair practices by a number of U.S. trade partners, especially China. However, even Western blocs, including the U.S. and even more so the European Union, are not innocent. Protectionist policies have not only used tariffs as political tools, but also introduced quotas, regulatory barriers, product specifications, foreign-exchange policies, subsidies and investment restrictions. They put up layers of bureaucratic red tape and numerous other obstacles.

The U.S.’s current retaliation has certainly not created the problem, but it could trigger a crisis. It may be necessary to introduce a long overdue open debate, with the objective of freeing trade from these restrictions. Unfortunately, protectionism under the pretext of shielding consumers or securing jobs is popular, and therefore a valuable tool for populist politics. Such measures are applied – to the detriment of prosperity – in authoritarian countries and in democracies alike.

A combination of rising energy prices, trade restrictions and slowing growth in certain countries (especially China), are adverse indicators for the world economy. The staggering debt of both governments and households allow little margin for additional consumption. Due to quantitative easing and low interest rates, central banks will not have room to head off a strong recession. We have to recognize that already, central banks’ balance sheets are overextended.

And although we should also not overestimate them, political misjudgments and crises are adding to the problem. We need not panic, but it is time to make a cautious, critical assessment and not be misguided by false hope.

It is time that the real causes are treated, and not just the symptoms.

Read the full article here ->
Dark clouds gathering over the global economy


*GIS is a global intelligence service providing independent, analytical, fact-based reports from a team of experts around the world. We also provide bespoke geopolitical consultancy services to businesses to support their international investment decisions. Our clients have access to expert insights in the fields of geopolitics, economics, defense, security and energy. Our experts provide scenarios on significant geopolitical events and trends. They use their knowledge to analyze the big picture and provide valuable recommendations of what is likely to happen next, in a way which informs long-term decision-making. Our experts play active roles in top universities, think-tanks, intelligence services, business and as government advisors. They have a unique blend of backgrounds and experience to deliver the narrative and understanding of global developments. They will help you develop a complete understanding of international affairs because they identify the key players, their motivations and what really matters in a changing world. Our experts examine the challenges and opportunities in economies old and new, identify emerging politicians and analyze and appraise new threats in a fast-changing world. They offer new ideas, fresh perspectives and rigorous study.

Is the world safe from major war?

GIS Statement by Prince Michael of Liechtenstein

The Munich Security Conference (MSC) stands among the world’s oldest and most important fora for security discussion, with the attendance of top-level decision makers from key countries around the globe, nongovernment organizations, industry, academia and media. The latest edition of the MSC was gloomy, mirroring the current international situation.

gis world safe major war

The February 2018 conference, named “To the Brink and Back,” brought to the fore irreconcilable differences among the world powers. Every discussion pointed to further conflict. Leaders hurled accusations at each other in the most aggressive way. They all did it: Americans and Russians, Israelis and Iranians, to name just a few. In the past, the participants at least pretended that the world might become a safer place as a result of their efforts. In 2018, bad news prevailed.

Overwhelmed leaders

The MSC head, Ambassador Wolfgang Ischinger, observed in his concluding remarks that while some great ideas, good insights, and bold visions had been presented during the event’s two and a half days, not enough “concrete steps” to “implement good visions” and “prevent the bad perspectives” were being taken by world leaders. Coming from one of the world’s most experienced diplomats, this was an alarming observation.

Why is such darkness setting around us?

Surely, there are positive developments in today’s world. Great strides have been made in eradicating extreme poverty and hunger, especially in Asia and Latin America. Illiteracy, holding back half of the global population only 50 years ago, today stands at some 15 percent. This enormous progress has been achieved through entrepreneurship, technological innovation, higher productivity, market economies and global trade.

And yet, these benevolent mechanisms are increasingly under attack from politicians and special interest groups. Policies are evolving in ways that are detrimental to further development. The old populist canard of a “zero-sum game” is again gaining traction with claims that one person’s gain must be someone else’s loss. The possibility that everybody gains from technological progress, innovation and higher productivity is ignored. The purported solution – a remedy which failed repeatedly in the past – is to fight poverty and economic inequality with government-enforced redistribution.

Assault on trade

The rising wave of protectionism is curbing trade, but the even worse consequence hides in limiting competition, which leads to lower productivity and less incentive to innovate. Different excuses are used to justify such policies. Most commonly, foreign producers are vilified. In the United States, which has a long tradition of shielding its market, the justification is the protection of jobs. The European Union, always quick to criticize U.S. trade practices, is even more restrictive, using the pretense of consumer protection. The big emerging economies, such as China and India, are playing a two-faced game: they erect walls around their domestic markets while loudly presenting themselves as free-trade champions (and of course harping about the policies of U.S. President Donald Trump).

Research by Gowling WLG, an international law firm, shows that the world’s top 60 economies have adopted as many as 7,000 protectionist measures since the financial crisis of 2008. From 2009 to 2016, the EU introduced 5,657 restrictive trade policies, and only 4,594 that liberalized trade. The numbers show a thickening protectionist jungle handicapping global trade flows.

Realistically speaking, trade conflicts have always existed and even “free trade zones” are not completely void of protectionist elements. Even such banner trade-liberation initiatives as the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP) would have discriminated against third-party countries. Still, these projects would have lifted the markets and helped the participants. What we are seeing instead is a strong increase in protectionism.

Looming financial disaster

Staggering sovereign deficits are another alarming symptom of the crisis we are in. These deficits necessitate excessive borrowing by governments and, in consequence, lead to monetary policies that are bound to cast doubt on the inherent value of all major currencies. Such overspending, to the debit of the future, cannot continue indefinitely – the scheme works only as long as societies continue to trust their institutions. And this may end abruptly, stalling the wealth-producing engine.

The result would be a drastic increase in poverty, mainly in areas with low to negative demographic growth, and new pressure on the present governance structures, especially in developed, democratic nations. These structures’ basic soundness would be questioned. Breaches of legal and constitutional principles are already taking place, even in Western democracies, allegedly because governments have no other choice. If things do not change, such violations will only become more frequent. The consequences would be felt most dramatically in the countries with aging populations, as their retirement systems are largely underfunded. Even the best economists cannot come up with satisfying solutions to such formidable challenges.

This financial predicament, created by the governments themselves, puts a huge strain on politics. Leaders are too focused on managing the intertwined economic and financial crises at home to pay sufficient attention to issues of global security. Moreover, countries’ foreign and security policies are increasingly shaped by internal considerations.

Economy and war

History teaches us that unsolved economic problems often lead to wars. There are at least several prominent exceptions to the theory that democracies do not start wars in general, and especially not with each other. Unfortunately, leading political parties in the West have already resorted to subverting the basic principles of democracy to remain in power. Instead of the democratic “end of history,” predicted after the collapse of Soviet communism, democracies appear to be in decline. Sinking in self-made economic and political quicksands, they now resort to ever greater protectionism and nationalism.  All this is laying the groundwork for war. Wars tend to fix economic misalignments in a terrible way.

The danger is not fully appreciated because foreign policy strategists tend to ignore the importance of the economy, while the economists are not sufficiently versed in foreign and security policy issues. Good geopolitics brings together all these elements.

While governments are busy struggling with their self-inflicted problems, the geopolitical framework of security structures, shaped after World War II, is undergoing a tectonic change. The economic and social problems discussed above are only adding to these tensions.

In 1945, the U.S. found itself the predominant financial power with the dollar as a global currency. Politically, a bipolar system dominated by the U.S. and the Soviet Union emerged, with two worlds apart political, ideological and economic systems. After the Soviet system cratered in the late 1980s, the U.S. and a handful of other highly developed, democratic nations seemed destined to continue in the role of a benevolent Western hegemon bringing well-being to the rest of the world.

Fault lines

After the turn of the millennium, however, new powers, China in particular, began to challenge the Western system, especially the financial, geopolitical and military dominance of the U.S. The financial crisis of 2008 cast huge doubt on the West’s superiority in economic and monetary matters …

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Economic inequality bad thing


*GIS is a global intelligence service providing independent, analytical, fact-based reports from a team of experts around the world. We also provide bespoke geopolitical consultancy services to businesses to support their international investment decisions. Our clients have access to expert insights in the fields of geopolitics, economics, defense, security and energy. Our experts provide scenarios on significant geopolitical events and trends. They use their knowledge to analyze the big picture and provide valuable recommendations of what is likely to happen next, in a way which informs long-term decision-making. Our experts play active roles in top universities, think-tanks, intelligence services, business and as government advisors. They have a unique blend of backgrounds and experience to deliver the narrative and understanding of global developments. They will help you develop a complete understanding of international affairs because they identify the key players, their motivations and what really matters in a changing world. Our experts examine the challenges and opportunities in economies old and new, identify emerging politicians and analyze and appraise new threats in a fast-changing world. They offer new ideas, fresh perspectives and rigorous study.

Is economic inequality a bad thing?

GIS Statement by Prince Michael of Liechtenstein

Statistics is a wonderful tool to support hypotheses. Data can be selectively arranged, given “weights” or cleverly suppressed depending on a desirable outcome. Of late, the case of excessive and rising inequality has become a mantra in economics, media, academia and politics. It is backed up with statistics and presented as one of the major factors that threaten economic development, public welfare and social cohesion. The state is asked to curb inequality via money transfers with taxes.

Share of the population living in extreme poverty,  by world region

economic poverty bad thing

If one feels there is a danger, one should, before panicking, analyze the situation. First, try to find out if the supposed threat is real. In this case, we should look at the causes of inequality and determine whether the situation indeed leads to detrimental consequences.

We need to acknowledge that inequality is quite a normal condition in human society. As a matter of fact, equality exists only before God and law. A healthy society cherishes and preserves the freedom of choice in pursuit of opportunities by its citizens. This freedom inevitably leads to inequality. Economic evenness will never exist in a free society. Only authoritarian systems can bring about a drab form of uniformity, as was demonstrated in the Soviet Union or East Germany.

In a normal economic development process, we see periods of increasing and decreasing inequality. If we look for causes, we find different ones in different regions of the world. In the United States, it is the emergence of IT monopolies. A surge in inequity is quite normal at the start of super-technologies, as legitimate patent protections render enormous market and pricing power to new technology leaders – in this case Google, Microsoft, Apple, Amazon, and the likes. With time, their positions will get a healthy challenge from competitors. It must also not be ignored that the IT boom is extremely beneficial to the global economy and has allowed new sectors, such as biotechnology, to emerge.

Another factor causing inequality, which works as strongly in the U.S. as in Europe and Japan, is the oversupply of money by central banks and policies of artificially low interest rates. One bad result of these is an enormous overvaluation of assets such as real estate, company participations, art and various other valuables. Such bubbles will eventually burst. A more lasting and troubling consequence of low interest rates is the erosion of pensioners’ money. The disastrous policies of central banks are mainly geared to alleviate the problem of government debt, although the official pretext is to trigger consumption and investment.

The real problem

In Europe, a tight maze of government regulations stiffens competition, creating protectionist oligarchies and, as a result, concentrations of wealth. This regulatory density combined with a “nanny” welfare state limits the freedom of choice and gives improper economic incentives. Taxation is certainly the wrong remedy here. More freedom and competition would be the natural choice. This approach does not preclude protection for the weakest in society – to the contrary, it assures a sustainable economic basis for it.

Statistics on inequality are misleading. More and more wealth is controlled by governments; they decide to whom it is allocated. Valuation of assets, especially in times of bubbles, is also arbitrary. Look also at how the assets of pension funds and sovereign wealth funds are treated in this system. Are we not dealing with a fog of “fake news” in this area of public debate?

Our real problem in large parts of the world is not inequality as such, but the shortage of opportunities caused by corrupt systems. This is why the resulting inequality is so biting. The best answer to corruption is not big government, but as little regulation as possible, to deny government officials the power to grant favors. Competition, accountability and wide freedom of choice combined with an efficient judicial system are the remedies. The validity of this approach has been demonstrated time and again, all over the world. A recent example was reforms in Georgia by President Mikheil Saakashvili (2008-2013).

Yet it is globalization, neoliberalism and free markets that are blamed for the increases in inequality. Let us note, though, that just as such protagonists of equality as the economist Thomas Piketty or former U.S. Vice President Joe Biden are lamenting its decline, a large share of the world’s population is being relieved from extreme poverty by the same system and can lead dignified lives.

It is crucial to raise the quality of life and well-being of as many people as possible. But this requires entrepreneurial spirit, the driver of real progress. Natural cycles of development alternately give rise to increases and decreases in inequality, but it is not a key indicator.

Inequality can serve as a great tool in populist politics, though. Taxing a few rich and distributing wealth to as many voters as possible can be a great ploy for power-hungry cynics, but such policies are corrupting Western democracy. The result can only be misery.

Read the original article here ->
Economic inequality bad thing


*GIS is a global intelligence service providing independent, analytical, fact-based reports from a team of experts around the world. We also provide bespoke geopolitical consultancy services to businesses to support their international investment decisions. Our clients have access to expert insights in the fields of geopolitics, economics, defense, security and energy. Our experts provide scenarios on significant geopolitical events and trends. They use their knowledge to analyze the big picture and provide valuable recommendations of what is likely to happen next, in a way which informs long-term decision-making. Our experts play active roles in top universities, think-tanks, intelligence services, business and as government advisors. They have a unique blend of backgrounds and experience to deliver the narrative and understanding of global developments. They will help you develop a complete understanding of international affairs because they identify the key players, their motivations and what really matters in a changing world. Our experts examine the challenges and opportunities in economies old and new, identify emerging politicians and analyze and appraise new threats in a fast-changing world. They offer new ideas, fresh perspectives and rigorous study.