Through a revolution by train – part 2.

“Anyone who believes exponential growth can go on forever in a finite world is either a madman or an economist” – Kenneth Boulding

As this is posted, I’ll be on the train to London – where, hopefully, my application for a Russian visa will go smoothly. All being well, I’ll get home late on Christmas Eve, and will finally be able to plan my journey to St. Petersburg. I’ve been told in no uncertain terms that I shouldn’t actually buy any tickets until the visa has been issued, so everything will have to be done pretty much last minute!

Rather than fly, I’ve decided to go by train, and make something of an event of the journey. There are a few ways of doing this, so I’ll take the slow route, which happily takes me back across much of the same territory as I covered way back in 1989 – overnight across Germany and into Poland. From Warsaw, where I spend a day, I’ll go up into the Baltic states, and get to St. Petersburg overnight from Vilnius, where I have another day.

In 1989, I was crossing the Iron Curtain from one armed camp to another; now it’s the EU all the way to the Pskov Oblast.

Twenty-five years ago, I took a journey by train through a world that was shuddering to its close, as the Cold War ended and the global economy emerged. It took a few years for the shape of that new world to really become clear – the widespread adoption of the internet took until 1995-6; globalisation only really impacted when China finally entered the WTO in 2001. So,  these things don’t always happen overnight – but in 1989, the necessary conditions were all there, and the revolution was in motion.

In 2014, I’ll be crossing Europe once more as this world in turn shudders, and begins to wind down. Why do I say that? As I noted last week, those necessary conditions were: cheap oil; cheap money; cheap Asian labour; and the internet. To those, I should have added another requirement: cheap resources.

All of those were available when the Cold War ended, and we’ve become so accustomed to them that we forget they haven’t always been there; as I take the train to St. Petersburg, a world is emerging in which they are no longer available – and the entire social and economic superstructure that has been built upon them is visibly crumbling.

Cheap oil is gone forever. Global production peaked a few years ago, and there were worries in the Peak Oil community that 2014 might see the beginning of immense price increases. That seems to have been put off for the immediate future by the increased use of fracking – but fracking is resource- and capital-intensive. Thus, for this resource to be available, energy must, and will, be expensive. A global economy built on an oil-price of $10-$15 per barrel is struggling to cope with a new normal price of over $100 per barrel – and that’s with global demand reduced because of the slowdown of the Western economies post-2007. If these economies ever do begin to grow significantly again, the price of energy will rocket to unsupportable levels, and bring another crash.

Money has been kept artificially cheap through Quantitative Easing and historically low interest rates – but that can’t last much longer. Already, the end is in sight – and the consequence will be higher interest rates. That will force households to pay more on their debt, and so bring down consumer spending. Unfortunately, the Western economies largely depend on consumer spending so…

Cheap Asian labour is disappearing. Demographic change has dried up the supply of peasants willing to move to work in factories for a better life than the village provides. The shrinking cohort of young workers now want higher wages. In any case, Asian (and in particular, the Chinese) governments need to rebalance their economies, to produce higher-value goods and services for domestic consumption, rather than cheap goods for export to the West.

As for the internet, it’s too soon to say – but a combination of the Snowden surveillance revelations, the desire of governments to tax online sales, and the huge energy costs of the server farms needed to run e-commerce all suggest that big changes, and a balkanised, more expensive internet are likely.

That makes pretty depressing reading, I suppose. Let’s remember, though, what I wrote about a few weeks ago. It’s always important that we regard things as they are, and respond in as measured a way as we can to the actual facts, rather than reacting unthinkingly to an emotional label which we have attached to them.

In my Strategic Management classes, one of the first things we try to teach the students is the importance of monitoring the external environment, and to identify trends and events that will have an impact on an organisation’s activities. There’s rarely anything we can do to shape these; we can only adapt to them. Exactly the same is true of you, and of me, as individuals. The tool we use for this is PESTLE analysis: a survey of what’s happening in terms of politics, the economy, social trends, technology, legal developments, and the natural environment.

A key point that I try to emphasise in tutorials is that there is no definitive answer to a PESTLE analysis; since each organisation has its own interests and activities, the elements of an macro-environmental survey will vary depending on what’s going to impact that specific organisation. No two answers will be the same – so, I shan’t share my own PESTLE analysis here!

However, I will note that it includes:

…and I could go on. Some of these problems may be soluble; others are not. Taken together, they don’t mean the end of the world – but I am convinced by the evidence that they do mean the end of our current social and economic structures, within the next couple of decades at most, and probably sooner.

In 1989, it wasn’t yet clear what was going to replace the Cold War (predictions such as Fukuyama’s End of History now look laughably simplistic), and it’s no easier now to tell what’s coming. However, there is no doubt about the fact that each of those threats is real, and growing worse. For almost all of us the decades to come will, beyond question, be poorer, more uncertain, and more locally constrained.

This will be very, very difficult for many people to accept. However, the signs are all around us that living standards are already declining; this will only get worse, in my view, as industries which depend on permanent economic growth, cheap energy, or free access to global markets contract, and in some cases disappear.

Therefore, it’s incumbent on each of us to develop a personal strategic plan that acknowledges that the future will not be like the last twenty-five years; it will be a harder, poorer time.

Once a PESTLE analysis has been carried out, I teach my students to evaluate the organisation’s internal strengths and weaknesses: what it does well, and what it does not do well. I won’t go into the methods used for that here, but any one of us can – so long as we remain objective – review our personal skills, assets, and areas of weakness. Knowing these, we can contrast these with what must be done to successfully respond to the changing environment in which we are living. This should identify opportunities, and/or threats.

Having conducted a personal PESTLE analysis, and a personal SWOT analysis, we can begin to make plans for the future!

Again, the results of my own personal analysis won’t be relevant to you, so I won’t share it; if you’re interested, I’ve written something about it on one of my other blogs. However, my move to St. Petersburg is one outcome of this process.

As the song has it, The times, they are a’changing. Change is rarely comfortable, but planned change is preferable to burying our heads in the sand and then being overtaken by events. The tools for strategic planning and change management are available, and every one of us should be applying them at this time.

Let me know if you need some help 😀

Image Credits: 2012-0580 by VGB.Studios on Flickr. Used under a Creative Commons license.

3 Comments

  1. Here’s a Boxing Day article from the Daily Telegraph (posted just a few days after this blog post!) which supports my argument that oil prices are only going to keep rising – ie that cheap energy is finished. It’s significant that I’m seeing more and more articles like this in the business sections of conservative-leaning newspapers, something that has begun only over the last year or so.

    Like

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