Findings & Forecasts 02/29/2012

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by Patrick Wood


The highest levels of acad­emia are fishing for a new eco­nomic system that could replace capitalism.

The Har­vard Busi­ness Review/McKinsey M-Prize for Man­age­ment Inno­va­tion seeks to find new solu­tions to their stated topic: The Long-Term Cap­i­talism Chal­lenge which “seeks to accel­erate the shift toward a more prin­ci­pled, patient, and socially account­able cap­i­talism — one that’s truly fit for the long term.” The chal­lenge is issued via the Man­age­ment Inno­va­tion eXchange that was founded by Pro­fessor Gary Hamel, a fre­quent con­trib­utor to Har­vard Busi­ness Review and Vis­iting Pro­fessor at the London Busi­ness School.

“It’s time to rad­i­cally revise the deeply-etched beliefs about what busi­ness is for, whose inter­ests it serves, and how it cre­ates value. We need a new form of cap­i­talism for the 21st cen­tury — one ded­i­cated to the pro­mo­tion of greater well-being rather than the single-minded pur­suit of growth and profits; one that doesn’t sac­ri­fice the future for the near term; one with an appro­priate regard for every stake­holder; and one that holds leaders account­able for all of the con­se­quences of their actions. In other words, we need a cap­i­talism that is pro­foundly prin­ci­pled, fun­da­men­tally patient, and socially accountable.”

This is a very sophis­ti­cated effort to build con­sensus for a system that is viewed as “sus­tain­able” and “socially accountable.”

A solu­tion is not offered, but readers are encour­aged to submit their ideas for “rad­ical” solu­tions. Dis­cus­sions will follow.

In the end, this will be where Sus­tain­able Devel­op­ment meets “Sus­tain­able Man­age­ment” which, of course, will be nec­es­sary to manage all things sustainable.

According to the United Nations Gov­erning Council of the UN Envi­ron­mental Pro­gramme (UNEP),  “our dom­i­nant eco­nomic model may thus be termed a ‘brown economy.” UNEP’s clearly stated goal is to over­turn the “brown economy” and replace it with a “green economy”:

“A green economy implies the decou­pling of resource use and envi­ron­mental impacts from eco­nomic growth… These invest­ments, both public and pri­vate, pro­vide the mech­a­nism for the recon­fig­u­ra­tion of busi­nesses, infra­struc­ture and insti­tu­tions, and for the adop­tion of sus­tain­able con­sump­tion and pro­duc­tion processes.” [p. 2]

Sus­tain­able con­sump­tion? Recon­fig­uring busi­nesses, infra­struc­ture and insti­tu­tions? What do these words mean? They do not mean merely reshuf­fling the existing order, but rather replacing it with a com­pletely new eco­nomic system, one that has never before been seen or used in the his­tory of the world.

Unfor­tu­nately, Tech­noc­racy is the only pos­sible economic/political system that fit this challenge.

If somehow society could regain its ethics, morality and Bib­lical values, cap­i­talism could easily digress back to free enter­prise. How­ever, society is headed in the oppo­site direction.

Tech­noc­racy will be con­structed upon the engi­neered dis­tri­b­u­tion of scarce life-supporting resources such as energy, water and food.

The famous novel by John Stein­beck, The Grapes of Wrath, chron­i­cled the exodus of farmers and cit­i­zens from Okla­homa as a result of severe drought con­di­tions that turned the entire region into a dust bowl. Without water, plants and ani­mals cannot sur­vive. Hot winds picked up top­soil and stripped fer­tile ground of essen­tial growing nutrients.

Of course, Okla­homa recov­ered and has enjoyed agri­cul­tural and eco­nomic pros­perity for sev­eral decades since.

How­ever, the dust bowl is slated to return soon and will engulf a much larger region: Texas, Kansas, New Mexico, Wyoming and South Dakota. Under­neath these states resides the world’s largest aquifer, cov­ering 100,000 square miles. Water is pumped from the Ogal­lala to irri­gate 15 mil­lion acres of crops each year.

As water is pumped faster than it can be replen­ished, the aquifer is shrinking. Water tables are drop­ping. The lack of rain­fall means replen­ish­ment isn’t happening.

The impli­ca­tions for the next 20 years is that water and the food it grows will become more costly.

Tech­nocrats cannot take any credit for this scarcity, but it is tailor-made for them to manage. With dis­tressed life-support sys­tems, people will beg for allo­ca­tion and rationing on the basis that it’s better have a little than nothing at all.

According the the latest Case-Shiller Home Price Index, we can say that housing has entered a “triple-dip” and appears to be headed lower. With banks rushing to restart the fore­clo­sure engine (mostly dor­mant during 2011), new bank-owned prop­er­ties will appear on the market in 2012 in bulk. This will keep the pres­sure on for even lower prices.


Just when people thought it was safe to jump back into gold and silver, wham! After set­ting a 1,791 high in early trading, the yellow metal fell like a rock to close at $1,696 (it was down $100+ at one point). Silver suf­fered an even worse drop, falling over 10 per­cent at one point from its high of $37.53.

In any case, both metals seem to have snapped from their counter-trend rallies.

In con­cert, the dollar closed sharply higher, indi­cating that it is resuming it upward march.

Stocks closed down mod­estly, not showing near the vigor that metals and the dollar did. My guess is that this will be short-lived. For sev­eral weeks stocks have crept upward while internal breadth dete­ri­o­rated. Today’s action all but con­firms that stocks have found their upward limits and can rise no more.

It is worth remem­bering that Robert Prechter (Elliot Wave Inter­na­tional) has care­fully doc­u­mented the rela­tion­ship between eco­nomic activity and rising/falling stock mar­kets. This week’s peak ends a 20 month period of advances and the economy has fol­lowed along in trend but not in inten­sity. What most ana­lysts are calling “green shoots” should soon turn brown as the market rolls over.

Look for more sur­prises to the down­side in both metals and stocks.



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