PESTLE

Pestle summary: Brazil

It could be that fifty years from now people will be saying how blessed it was to be Brazilian in 2014. I don't think they'll be saying that in 2014, however. This is the starting point for a Pestle summary of Brazil. It is drawn on information from Wikipedia, the CIA World Factbook and Nationmaster, and will be developed in detail later.

Brazil is roughly the same size as the United States, and has 62% the population of the U.S.--191 million, 5th largest in the world, and growing at 1.1% per year. Its GDP is $1.66 trillion, 10th in the world. It is blessed in that it does not need to be in the top 10 in military spending, spending a very European 2.6% of GDP on the military. It is energy independent, has a very respectable inflation rate of 6%, and its public debt is an equally respectable 40% of GDP. Rich in natural resources, Brazil is placed to be the major competitor to the United States for owner of the 21st Century. Its people are young, with a median age of 28, with average education of 14 years, and a literacy rate of 88%. So, look out world?

There are a few bumps in the road ahead for Brazil. They are cursed with oil, doubly cursed in that they have had to deal with corruption for quite a while (67% of managers say corruption in Brazil is a major business constraint). Lula da Silva has done a magnificent job since 2003, but he has not been able to clean out the stables completely, and having a history of corruption and a windfall discovery of oil has been a curse for countries ranging from Russia to Nigeria. They are also stuck with the Amazon, in the sense that the rest of the world will demand they take good care of it, but probably won't pay Brazil to do so. Perhaps most importantly, Brazil is in a part of the world that is almost guaranteed to be troubled, fractious and even combative over the next few decades, and this will bother Brazil more than it would after a few more decades of development.

With Embraer and a few others, Brazil is beginning to develop indigenous technology suppliers, though they need a lot more. They need to work on their higher education, but are coping for the moment by sending the children of the elite abroad for education. They have class and racial issues, but seem to be coping with them far better than many other countries.

The oft-repeated joke about Brazil is that it is the country of the future--and always will be. I think this is the last period that that joke will be relevant.

Pestle Summary United Kingdom

Again, this is a first sort--just an overview that will back up further analysis. The United Kingdom is 23rd in world population, with about 61 million people. It is 6th in GDP, with about $2.9 trillion. And it is 4th in military expenditure, with about $61 billion per year. (Statistics as usual compiled from Wikipedia, CIA World Factbook and Nationmaster).

Politically, it seems as if the string has run out on Labour, and the Conservatives will in all probability take over in late spring of 2010. David Cameron, a pleasant man who sadly just lost a son, will inherit a mess. In the same way that current Prime Minister Gordon Brown has tried to micro-manage his government, his government has been trying to micro-manage the United Kingdom. There are local councils in England that put microchips on people's garbage bins to check if they are throwing out the right stuff. Scotland's National Party's long term plans to split off from the UK are on indefinite hold due to the economic downturn.

Economically, the UK had too many eggs in one basket--too much of their economy is based on complex financial services--read U.S. sub-prime mortgages... and they are taking a worse hit to their economy than most developed countries. The recession will bit deeper and last longer here than in most countries.

Socially, this class-conscious society will carry on, with too big of an underclass being supported by too small of a middle class. One tends to think it will boil over at some point, but the stolidiy and placidity of England seems never ending. Immigration has subsided as the issue, replaced by the recession and its effects on home prices. The NHS, the state-supported healthcare system, has improved dramatically, although it could still get a lot better, and people know it.

Technologically, the UK is still a hotbed of innovation and still resolutely unable to exploit it. Oxbridge (Oxford and Cambridge) still are 2 of the top 10 universities in the world, and the Russell Group of universities rival the Ivy League in America. The UK government makes a real effort to encourage entrepreneurs, up until the time they actually invent something, at which point they almost all sell out to foreign companies with capital. In that, they are only following the example of too many larger UK companies.

Legally, the UK has more problems than they care to admit. There is corruption in high places--witness BAE's dodgy deal with the Saudis some years back, a deal that still goes uninvestigated. There are also worrying signs of the UK backing away from important freedoms, such as jury trials. Terrorism is being used as an excuse for taking away too many liberties.

Environmentally, the UK is clean and green and worried about CO2. They have made some of the most ambitious pledges about going even greener, and nobody knows how they are going to pay for them.

It is easy--maybe too easy--to predict a return to the era of moth-eaten sweaters and shabby bedsits for the UK. They're actually too smart and too hard working for that to be a guarantee. But the middle classes need to develop a mechanism for expressing political will--right now, the only voices heard are the protestors. There is no real voice for most of England. Until that develops, they will flounder.

Pestle summary Russia

For each of the 8 countries we're covering, we'll start off with topline statistics as sort of a summary, or more of a launching pad for further exploration. We'll start with Russia, partly because this may be the last 5-year period that it is included in the top 10 international powers. Out of all the 8 countries I will look at individually, Russia faces the most daunting challenges. They have faced worse--I would hate to be a centenarian from Russia--but I doubt if they have the resources or leadership to avoid a sharp general decline over the next five years.

Most numbers here are from Wikipedia or the CIA World Factbook, with a little Nationmaster thrown in.

GDP: 8th in the world 2009, 1.75 trillion

Population: 9th in the world, 142 million

Military expenditures: 5th in the world, $50 billion

The Russian Federation just finished a spectacular decade, averaging 7% annual growth since 1998. But at the end of that spectacular decade, their average income is $640 per head, their life expectancy is 66, and they only average 14 years of schooling. They really needed to make better use of the Golden Decade.

Russia is extremely dependent on exporting natural resources, especially natural gas and oil. The price of those are falling. So is their population--it's declined 5% since 1993 and although it is slowing it shows no sign of reversing. Alcoholism, drug addiction and AIDS are taking a heavy toll on Russia. Inflation is high, at 12%, and unemployment looks to increase from its current 6%. They've already blown through a good chunk of the petro-dollars they had put aside, and the current economic crisis is not going to be kind to Russia.

Seems pretty clear that Vladimir Putin is very much running the show, with President Medvedev along for the ride. This suits the Russians just fine--but it shouldn't. A decade of rising oil prices made Putin look a lot better than he really is.

Their levers of power are the energy they supply to much of the EU and their stockpile of nuclear weapons (They are 5th in military spending, with $50bn annually, less than 10% of the U.S.). On the perceived corruption index, they rank #129, between Niger and Sierra Leone. On business efficiency, they are ranked 45th out of a total of 51 countries, and sit between Italy and Romania.

Their environment's a bit of a mess, with a lot of leftover waste from the Cold War, the oligarchic exploitation of resources, and some stuff left over from WW2. As Nationmaster lists them, "air pollution from heavy industry, emissions of coal-fired electric plants, and transportation in major cities; industrial, municipal, and agricultural pollution of inland waterways and seacoasts; deforestation; soil erosion; soil contamination from improper application of agricultural chemicals; scattered areas of sometimes intense radioactive contamination; groundwater contamination from toxic waste; urban solid waste management; abandoned stocks of obsolete pesticides". They can survive this because the country's so big.

As for technology, they can't run their oil companies without Western help--but they're trying. They export nuclear technology and have good competence there. But Russia only has one university in the top 100, so long term prospects for entreprenurial excellence are dim.

I hate to be so bleak--maybe when we look in greater depth we'll see reason for hope for this country--they certainly have shown themselves to be resilient, if nothing else. 

Defining the universe

When looking at international trends, it doesn't make sense to look at 295 different countries. If you want to look at economics, the top 10 countries make up about 75% of world GDP at nominal rates. Similarly, the top 10 countries hold about 59% of the world's population (note that it's not the same 10 countries). And for military spending, the top 10 account for 75% of the total. If you capture strong trends in these, it will have a marked influence on the total--especially as the big spenders for military are also the big exporters, and the top GDP producers also account for a good chunk of FDI.

Five countries are in the top 10 in all three categories: The United States, China, India, Russia and Japan. (Hmm. Three from Asia... fits right in with current thinking about the Asian century...). Those five should occupy most of our time, then. We should also look at Brazil because of its potential, and France because of its achievement--and I like to throw in the UK, because of its history and the Commonwealth. Which gives us eight countries to explore in depth. Adding those extra three also increases the total percentage of world activity covered on this weblog. I will try to look at each of these under each of the PESTLE categories, and then I'll tend to look at regions to try and give a bit of decent coverage overall.

But! I do take special requests. A lot of people visiting this blog are using country specific search terms and PESTLE. Toss a request my way and we'll see what happens.

5 year prediction for American economy

There is obviously some uncertainty about the near term future, but it seems clear that a series of major stimuli will eventually overcome the series of major shocks to the economy and America will begin to recover. So what will the American economy look like in 5 years time?

Assuming that major legislation is passed and a new healthcare regime is installed, and assuming that major legislation is passed and a new energy regime is installed, and assuming that no major changes are made to Social Security,

1. Employment will recover quickly--the number of Baby Boomers heading into the sunset will create large numbers of vacant positions. The unemployment rate will return to 5%. However, the underemployment rate will be surprisingly high, depending on how it is counted.

2. The American economy will get even more lopsided--Obama's plan for healthcare and energy will create opportunities for some very succesful high tech companies. I will tell you who I think the real winners will be after I rebalance my investment portfolio next week.

3. Many elderly would-be retirees will take low-level jobs to supplement their incomes. This will create competition with certain immigrant classes. The American elderly will win this competition.

4. The re-elected President Obama will be struggling as mightily to control inflation as he currently is struggling against recession. It will be close to 10%. (I've explained why in previous posts).

5. The U.S. GDP in 2014 will be roughly $15.5 trillion, and finally gathering steam.

6. The U.S. government deficit will show no signs of being tamed. Total U.S. government debt will be about 88% of GDP.

That's what the crystal ball shows on a Saturday morning. 

The End of Caudillo Capitalism

The most probable outcome of the current economic crisis will be the devaluation of the pools of money that the middle classes have set aside for their retirement. The first blow has already been felt in the sharp decline in stock valuations and interest paid on conventional savings. The second will come in about two years as inflation begins to further erode the value of savings of any type, as inflation will certainly exceed interest rates. As this will be the solution to what government sees as a greater problem than your retirement, complaints will go unanswered. Government's great challenge will be to keep the spread between inflation and interest rates acceptable to foreign holders of US Treasuries, and consumer concerns just won't be on the radar, except at election times. Government will have to use inflation to make its own debt manageable, as other countries will be less able to finance our spending. I consider this to be more or less inevitable.

The effect of this will be to rebalance the working life of the non-rich to resemble the profile of earlier times, that is, retirement will last only about 10% of the average life span, or the final 8 years of an 80-year span. As work has become much less onerous than in times past, it could be worse. However, we will look at the 30-year retirements of the Greatest Generation with more than a bit of envy. There will be an awful lot of us doing wind-down work to supplement our Social Security--and would you like fries with your blog today?

When the dust settles and people once again wish to put money away for this much-reduced retirement, it will become fairly clear that the logical instruments to use already exist--tracker funds and inflation-indexed government bonds. The key feature of both is the elimination of the Wall Street caudillo, the men (and occasional women, but it's mostly men) who are sublimely convinced that they can beat the market and should be guaranteed great riches as a result. People may hold out the occasional exception, such as Warren Buffet's Berkshire Hathaway, but in fact it is a tracker fund to all intents and purposes, with sectors chosen by BH management for intensive cultivation by the insertion of interim management in individual companies. People will certainly note that inflation linked bonds don't exist in anything like the quantity that would serve the needs of the middle class--but that may well change as government financial needs become more pressing. It is certainly something that the middle class could demand of its political leadership to compensate for their loss of wealth over the past 18 and upcoming 10 months.

The goal has to be to take financial decisions about other people's money out of the hands of the individuals who have destroyed so much wealth. The appropriate management structure is the trust, as evidenced by entities such as CalPers and other pension trusts. (And yes, they are taking a savage hit during all this as well.)

We're in a bit of a pickle, actually. Those who invested in stocks have lost all of their gains and some of their original capital. Those who felt safer in bricks and mortar have seen the value of their homes return to historical trends--but there is every chance prices will continue to fall. Those who stayed liquid feel pretty good about themselves, but should be aware that inflation is coming soon. The current fears of deflation are perfectly valid--but they are like the tide rushing out in advance of a tsunami. There isn't a refuge in sight.

I am not an investment advisor, as a look at my personal portfolio will assure you. But:

The sensible strategy is to be brilliant now--to take personal responsibility for your wealth and to be willing to make the major transitions needed. We all should be as liquid as possible now. We should be willing to move at the first sign of inflation into instruments that will stay ahead of inflation. This will be extraordinarily difficult. But the best advice I can give you is not to trust someone who says they can do it for you. That's what got us here in the first place.

Green Technology and Pres. Obama's Energy Policy

As Kevin Drum has so succinctly pointed out, President Obama's recently announced Cap and Trade policy, properly executed, will reduce overall emissions without overly tight management of how it is achieved. Further targeting through a modest carbon tax can supplement this. An increase in the gas tax can push consumption down. Investment in alternative generating technologies and in a smart grid for transmission is long overdue and badly needed.

In short, President Obama's energy policy is really, really good. I voted for him and I am still surprised at how good he has been in the past six weeks.

How can technology support his policy? Perhaps I should rephrase the question--how can society use technology to steer towards his policy ends?

Given what he is preparing to spend money on (weatherizing residences and pushing broadband infrastructure, and a more intelligent power grid), it appears that the easy win is broad encouragement of more working (and schooling) from home. This may be a bit easier than it would have been just a year ago, as recessions usually generate a higher start-up rate of small, home-based businesses. Distance learning and distance training are getting easier and more widely accepted, and can reduce education costs for students as well as institutions. Employers can retain more staff by spending less on infrastructure.

What am I missing?

Green Technology--part 1 of about a hundred and thirty two posts, I imagine

One symptom of the complicated nature of green technology can be seen in the fact that I assign four categories to this post--economic, environment, politics, and, only lastly technology.

Green technologies can be separated into the following categories:

Generative: Nuclear, biomass, biofuels, solar, wind, tide, and maybe more

Recuperative: Recycling, re-using, retrofitting for insulation, etc.

Distributive: Smart power grids, micro-generation, land-use policy, etc.

The stated goal of green technology is to displace fossil fuels. The politics is fraught. The economics is dubious. The technology needs work. And the environment is waiting.

Just some brief notes from the generative side of things:

This year, the US passed Germany and became the largest producer of wind power. Are people celebrating? Do people even know? Germany, meanwhile, is the largest subsidizer of solar power--in a land that is not famous for being sun-drenched. Do people know or care?

In 2005, the US used about 21% of all energy consumed, about 100 quadrillion BTUs. In 2007, about 7% of US energy production was renewable (mostly nuclear and hydroelectric). President Obama wants to double that in the next three years. This would involve either doubling the number of nuclear power plants, tripling the number of dams, increasing 100 fold the number of windmills and solar panels, or some combination thereof. It's a challenge.

The challenge got bigger when oil prices collapsed (and those who think they will bounce right back should be talking to Brazil's Petrobras about their production plans). And, as nuclear power plants and dams are both contentious and long-term in the planning, we are left contemplating the wind, the sun, biomass and, presumably, our navels.

It seems to me that it would take about the same effort as did gearing up military production for World War II. (This may not be a coincidence--many are writing about how WWII 'cured' the Great Depression).

Windmills cost several million dollars ($4.2 million in 2001, although prices may have declined. They may also have increased, as they are incorporating more technology.) Solar panels are cheaper. America has lots of sun. But any way you slice it, renewable energy doesn't double for $50 billion, the price I heard Obama give. Perhaps he wasn't including nuclear and hydroelectric in his initial calculations? I'll check for the next post.

More later.

Update: Well, the President didn't answer my questions in his speech, but here are the bullet points from the Obama-Biden Comprehensive New Energy Plan for America, published in August of 2008:

Provide short‐term relief to American families facing pain at the pump • Help create five million new jobs by strategically investing $150 billion over the next ten years to catalyze private efforts to build a clean energy future. • Within 10 years save more oil than we currently import from the Middle East and Venezuela combined • Put 1 million Plug‐In Hybrid cars – cars that can get up to 150 miles per gallon – on the road by 2015, cars that we will work to make sure are built here in America  • Ensure 10 percent of our electricity comes from renewable sources by 2012, and 25 percent by 2025 • Implement an economy‐wide cap‐and‐trade program to reduce greenhouse gas emissions 80 percent by 2050

I need to do some more digging, apparently.

Economic--prepare for high inflation

It is my opinion that, starting in about two years, inflation will rise dramatically. As more countries count on deficit spending to stimulate their economies, and countries that previously bought large amounts of government bonds rein in their purchases, the only alternative will be the 'debauching of the currency' in many countries. Specifically, I believe this will happen in the U.S., U.K., and Japan, at a bare minimum.

I believe the stimulus is more important and that the potential depression it is designed to prevent would cause greater damage than dealing with inflation--if inflation is dealt with promptly and intelligently. But nonetheless, I think the coming period of inflation will be painful.

The mechanism is probably easiest to demonstrate with China. They export a lot to the U.S. We pay them with dollars. They buy U.S. government debt with many of those dollars. But Americans will buy less--and the Chinese economy will not replace American purchases with domestic demand. With fewer American dollars, the Chinese will buy less American government debt. Chinese exports have fallen 17.5% in the past year. Now, it's a bit more complicated. Their imports have fallen even faster, and their trade surplus has grown--they have a lot of dollars. But not to save. Their economy has stalled, and they are spending money on the same things President Obama's stimulus package is targeting. So they won't be spending spare cash on Treasuries.

Stimulus:                                                 % of annual GDP

USA: £800 bn                                                  6%

China: 4 trillion yuan                                      14%

Japan: 10 trillion yen                                       2%

Australia: A$ 42 bn                                          1.3%

Germany: €40-50 bn                                        1.3%

UK: £20 bn:                                                     1.1%

France: €26 bn:       1.4%

Purchasers of U.S. government debt (2008 in billions of US dollars)

China 682

Japan 577

UK 360

Carib banks 220

Oil exporters 198

5-year prediction: Inflation varies between 7% and 12% in most developed countries.