Many forms of Government have been tried and will be tried in this world of sin and woe. No one pretends that democracy is perfect or all-wise. Indeed, it has been said that democracy is the worst form of government except all those other forms that have been tried from time to time.” - Winston Churchill

Not much links this week, we’ve been working hard on a long article about Australia’s iron ore industry. Finding information and the right database, crunching them and producing interesting graphs has been taking a lot of our time. Writing and researching is infinitely more insightful than just reading. Today, we would like to write a quick introduction about the future of democracy to make up for the lack of links.

We believe that democracies fare worse than authoritarian regimes during times of crisis. Following the Great Financial Crisis, not much has been done by politicians around the planet (and especially in the Western world) but throwing loads of public money to banks in the hope that the boom will continue. 8 years on, this wishful thinking is about to die and we can almost say that nothing happened.

When government leaders met to save the world in 2008-2009, they manage to avoid a massive catastrophe. But they didn’t continue (or even started?) to reform an out of control international finance. Besides applying band-aid on an open fracture, not much has been done. The regular finance related scandals (LIBOR, London whale, Wells Fargo, Panama Papers to name only the most famous) are the tip of the iceberg of an industry that went rogue a long time ago.

Developed countries democracies made a fatal mistake by mixing political freedom and market freedom. The result has been increased domestic inequalities and political capture by corporate interest. It is our belief that cheaper goods made by factory equivalent of slaves half way around the world didn’t compensate for the loss of jobs, industry know how and environmental degradation. But it sure did made a tiny portion of our societies immensely rich.

Because democracies have more freedom of speech, its citizens are aware (even faintly) of the size of the problems plaguing their own countries. The anti-elite sentiment has become a feature for those that didn’t benefit from globalization. Countries with authoritative governments are better able to control information and public dissent, thus masking their own failures through the use of force. They will have the ability of manipulating their public opinion, an enormous advantage on the short term (5 to 10 years).

Facing them are countries where internal confrontations between rich and poor, young and old, citizens and migrants, will increasingly fight to share the benefits of slower economic growth. Since authoritarian governments decide how the allocation is made in their own countries and they repress dissent, they appear stronger than they really are. But yet again, this is an advantage that may only last for so long.

In other words, strong countries are undermined from the inside while weak countries appear strong from the outside. Developed democracies probably need to reform their political economy to unite once again their citizens. In the mean time, authoritarian governments will continue to receive praises while populism grows as a reaction to inequalities.

Science, General Knowledge & Environment

North Pole temperature rise increases climate fears – “That is scary because it is showing us how rapidly the climate system is changing … We expected for a long time to see the ice disappear and the Arctic warm up and perhaps the jet stream doing bizarre things, but it’s happening much faster than I think anyone expected.

Oil Industry Worries About Peak Oil, as in Peak Demand – “Last month Shell finance chief Simon Henry caused a stir when he said the company sees oil demand peaking in five to 15 years. Shell’s latest published forecasts have consumption flattening toward the end of that period.

Why OPEC is snookered – “Rising US oil production is a sign of things to come. The recent increase in reported United States crude oil production of 190 kb/ d refocuses our attention on the eventual pace of production growth being embedded by this year’s rise in drilling activity.”

‘Hackathon’ attempts to stem proliferation of fake news – “Tools and algorithms only take us so far, news judgement and human judgement are needed to understand the context.

History & Geopolitics

The elite’s Marie Antoinette moment – “A Bourbon regent, in an uncharacteristic moment of reflection, would have backed off. Our liberal capitalist order, with its competing institutions, is constitutionally incapable of doing that. Doubling down is what it is programmed to do.

The president, the shaman and the scandal engulfing South Korea – “South Korea is facing what experts call a “compounded crisis”. At a time of faltering economic growth, heightened geopolitical tensions and a series of high-profile corporate problems, the country has found itself leaderless and in disarray.

China Cites ‘The Art of War’ as Trump Signals Trade Battle – “A U.S. disengagement from trade with Asia would help, rather than harm, China, while a more aggressive approach to the bilateral relationship with China would risk undermining U.S. interests. […] The production and trade structures of China and Southeast Asian nations are increasingly complementary.

Trump and the Iranian Nuclear Deal – [Video] “Stratfor Middle East Analyst Emily Hawthorne and Energy Analyst Matthew Bey discuss the constraints facing U.S. President-elect Trump in renegotiating the nuclear deal with Iran.

La droite française retrouve le sillon gaulliste – (Hat tip Lao Ho) – Important. “Imposer le libéralisme est par nature une tâche difficile, puisqu’il est foncièrement hostile au volontarisme. Prendre le risque d’affaiblir l’Etat quand on compte sur son autorité n’est pas chose simple.

Finance & Economics

China to clamp down on outbound M&A in war on capital flight – “Excluding FDI, China suffered a capital and financial account deficit of $176bn in the third quarter — much higher than the $31bn of FDI outflows. These so-called “hot money” outflows include investment in stocks and bonds, as well as trade credit and other bank loans.

Picture of the day: Art for the public


About Carlito Riego

"Great perfection may appear imperfect, but its usefulness is inexhaustible. Great abundance may appear empty, but its usefulness cannot be exhausted. Great correctness may appear twisted, great skills appear crude, great eloquence appear awkward. Activity conquers cold; inactivity conquers heat. Clear serenity governs the world." - Lao Zi