NZ in 2014: more resilient and attractive than we think

Tomorrow is 2014, centenary year of the start of a devastating war that divided two eras. The lesson: history-bending events come seemingly out of the blue. The question for us now: do we have the capacity to ride out the next such event?

In July 1914 a Serbian terrorist (as we would call him now) shot dead an Austrian imperial archduke in backwater Sarajevo: a local event that went global through a rapid chain reaction to a pan-European “industrial” war of 51 months that did huge economic damage, killed 10 million soldiers and four empires and badly wounded a fifth, the British.

National boundaries were redrawn. Russia went communist. Germany went fascist 15 years later, in part in reaction to social strain from defeat, and started another devastating war in 1939. The United States emerged pre-eminent economically and militarily.

While some on December 31 1913 anticipated war, no one forecast its nature, extent and impact.

A one-off? Such disjunctive events are a fact of life.

Forty years ago today the world was just starting to register the wrenching effects of a fourfold oil price jump forced by the Organisation of Petroleum Exporting Countries, for the first time decisively acting in concert. That was in response to the United States’ unpegging the dollar from gold, which in effect dismantled the post-1945 global exchange-rate and trading systems.

The chain reaction: stagflation in rich economies, replacement of one economic orthodoxy with a radically different one and, with that, sharply wider income inequalities.

Again, some had mused on some of the possibilities but no one predicted the actual events.

Five years ago today the world had just squeezed through a severe liquidity crisis, in part the outcome of the post-1972 over-deregulation and in part due to a wrenching global economic unbalancing after China unexpectedly changed course and as a new generation of digital technologies remade economies from within. Developed economies are not back to “normal” despite radical money-printing, the true economic effect of which will not be properly understood for a decade or two.

Before that global financial crisis (GFC) some worried that the imbalances would unwind badly or worse. (I mused so in a column in January 2006 and later that year in a future-scan rated a deep global recession a 25 per cent possibility.) But no one predicted the post-2008 course of events and ramifications.

These disjunctive events cannot be predicted because human society and its economic subset are akin to a biological system.

Such systems, historian Niall Ferguson says, are “made up of a very large number of interacting components that are asymmetrically organised” and “operate somewhere between order and disorder — on the edge of chaos”. They seem to be in equilibrium until “there comes a moment when they ‘go critical’ .. a very small trigger can set off a ‘phase transition’ from a benign equilibrium to a crisis”.

The next such event is probably some time off. But there will be GFC aftershocks and other uncomfortable events, some consequential and some from new forces. Transformational new technologies encouraged a financial bubble in the United States in the 1920s. The global impact of that bubble’s collapse was severe.

What does this country have to get it through the next such event? Answer: quite a lot.

First, while we are dangerously indebted to rest of the world, which could jolt us to our core anytime, we have what the rising east Asian middle classes want or need: abundant water, natural and energy resources and high-quality food.

Second, as in 2008, government finances are relatively strong, giving more options than most other developed economies for collective action to offset the worst of any impact without resort to risky, radical innovations.

Third, we have the rule of law and, by world standards, fairly efficient and near corruption-free public services. The parliamentary system is strong and buttressed by semi-formal and informal mechanisms that underpin democracy.

Fourth, we are by world standards liberal-minded. We grumble a lot, which the media, badly in need of cash, amplify but on the whole we get on with each other. No other country has woven two very different cultures into its way of thinking and in its power structure — and we did that without violence. That imperfect biculturalism has made us stronger and, when we get round to talking seriously about “population” issues, potentially more able to accommodate the 200-odd other cultures.

Fifth, we are inventive. We tinker and think of new ways to do things and make little businesses from it. We don’t yet work that rich lode of human creativity as well as we could and usually sell or give it to foreigners. But it is a rich renewable resource.

That adds up to resilience to massive shocks and to high potential in the good times between shocks: a highly attractive place, if not to ourselves, then to the multitudes who will come here.