Are we entering an Age of Scarcity? For a number of years, our stock answer to this question is that we are. This answer was formed, in part, by the view that Peak Oil - the point at which 50% of the oil resources of the planet were out of the ground - had been passed. A recent report by the International Energy Association suggests that this assumption could be mistaken. According to the IEA, the production of oil in the United States is growing at a pace that will make it the worlds largest oil producer by 2020, and which will leave the US self-sufficient in energy by 2035. The IEA report also suggests that American production of oil will outstrip that of the current oil producers, such as Saudi Arabia, by 2020. This forecast is shown in the graph, which originates from The Economist, using IEA data.

There is a bit more to the story than just the changing patterns of energy production. There is also an appreciation of the impact of water resources upon energy production. This is a point made in a piece in the Daily Telegraph, that modern energy production tends to be rather water intensive. It highlights that our future potential energy abundance could be curtailed by water shortages. A different approach was taken in the New York Times, which highlighted some of the assumptions made by the IEA about energy usage in the US. It would appear that the forecast relies heavily on the introduction and widespread use of energy saving technologies in the US, to place something of a cap upon the consumption of oil derived products.

Where does that leave the scarcity agenda? In one respect, we could take the view that the whole issue of Peak Oil has been something of an alarmist position, and that the worst aspects of Peak Oil were never going to happen. There is an element of truth in this view. The concept of Peak Oil, as used by futurists, served as something of a warning of an unpleasant future for which there was time to avoid. We could take the view that this is happening.

In many respects, this reinforces the scarcity agenda. One could argue that, in the face of an impending shortage of oil, the price mechanism has worked to ensure that technologies have been developed to secure a new supply of oil, and are currently working to improve a more efficient use of the oil which we do have. This was always going to be the path out of scarcity, in which case, we could say, the whole scarcity agenda has had an effect.

We are caught between the two positions. The development of new production methods for extracting oil are not cost free. They tend to have a large environmental footprint, the externalities of which are nowhere near being covered in the current market price of oil. It is almost a position where we can continue to drive our cars, but at the costs of the environment. There is also a case to say that we are moving a key scarcity from one area (oil) to another (water). In doing so, we are fudging the problem rather than solving it.

There is a case to say that we have seen the end of Peak Oil - for the moment - but that does not mean that we have grounds to rejoice. We have yet to see the full bill for this development.

Stephen Aguilar-Millan
© The European Futures Observatory 2012

How should we view Big Brother? As a response to a previous post, one of our correspondents asked: 'Stephen would you see the Big Brother as more benevolent or more one that watches us intently?' This is both an interesting and an important question. If we are to see greater state intervention in the economy and in social affairs, is that necessarily a good thing?

Let us lay on one side the dogmatic language of the extremists. There are those for whom all state intervention is bad. To these people, no amount of discussion will persuade them differently. They are fixed in their views. Equally, there are those who take a dogmatic view that there should be greater state intervention. Once again, there is no talking to these people, so fixed are they in their views. Our comments below are directed to the vast majority who take a more nuanced view of how things should be - at some times, state intervention is the best course of action; at others, the state should draw back.

In our model, we have two poles for the delivery of public services - the state as commissioner and deliverer, and the state as commissioner but with the private sector as deliverer. In our current iteration of the model, we have the state as commissioner (i.e. government decides which services are to be provided, how much money will go into these services, and the parameters for their delivery). The private sector acts as the deliverer of public services (i.e. private companies take responsibility for delivering the services, within a given set of parameters). This model has worked well for some time and has been the main device by which public sector spending has been controlled in recent decades.

It is our contention that this equilibrium is changing. The commissioning model has its uses, but it also has its limitations. The way in which services are outsourced is through a process of competitive tendering where, normally, the lowest bid wins the contract. We have now reached a position where companies are placing competitive bids that are costed too low to do the job effectively. They have what is known as the 'winners curse'. In the face of the winners curse the whole system lacks resilience and is very insecure.

The 2012 Olympics gave a really good example of this. The security of the event was outsourced to G4S, the largest private sector security firm in the world. The contract was awarded under the competitive tendering regime. However, G4S suffered from the winners curse - they had not sufficiently allowed for the complexity of securing the games in their original tender, which may have been low-balled to gain the contract. The result was that, just before the games, G4S had to admit that their security was beyond the company. The government responded by cancelling leave for the armed services and using service personnel in the roles that the civilian contractors should have fulfilled (see story). This had an immediate impact upon G4S, whose shares were downgraded (see story), and a longer term impact in that there is now a question mark over its ability to handle large scale public sector contracts (see story).

What is now called into question is not the ability of one company to deliver a complex public contract, but the ability of the system to avoid a market failure. It should be noted that the contract to run Wolds Prison not only has been taken away from G4S, but also is to return into the public sector. This is how the worm turns, and provides a data point to suggest that the worm has turned.

The delivery of public services by the private sector only has resonance if there is no extensive market failure. If market failure does occur, then the lack of accountability in private sector delivery leads to calls for those services to return to the public sector. And that is one half of the answer to the question posed about how we should view Big Brother. In the face of a delivery failure - caused by a market failure - and an inherent lack of public accountability for that failure, the return of Big Brother is to be welcomed.

Of course, the worm will turn again. As service delivery returns to the public sector, so will the inefficiencies and feather bedding for which the public sector is well known. We are likely to return to the land of Sir Humphrey, where the man from the Ministry knows best, and is best served by an army of civil servants. However, that is an argument for another day. Our model suggests that we may have to wait another generation or two for another Thatcher Revolution.

At this point in the cycle, Big Brother is something of a benevolent force. It is correcting a failure in modern life - the failure of private corporations to act for the public good. That will change over time, but, for now, many people will welcome the re-nationalisation of parts of our life.

Stephen Aguilar-Millan
© The European Futures Observatory 2012

At the beginning of this decade, we were concerned with the trends that would dominate the decade - the decade in which we are currently living. At the time, it seemed to us that, given the high levels of state intervention in the economy, one trend that would dominate would be a more interventionist public sector. We wrote about this in both 2008 (see article) and 2009 (see article), before including the trend in our 2010-11 project 'A History Of The Next Ten Years' (click here for more details).

We are now 20% into the decade, and we are now collecting evidence that supports our view of the trend. In progressing from the identification of the trend to determining an underlying model that gave resonance to the trend, we took the view that politics, certainly from a European perspective, contained a tension between the mode of delivery (corporate -vs- atomistic) and the intended beneficiaries of the collective action (the individual -vs- the community). The model suggested that we were turning away from a period in which the individual would be the intended beneficiary of an atomistic (i.e. market based) collective action, and towards one in which the community would be the intended beneficiary of an atomistic (i.e. market based) collective action.

What does this mean in simple terms? The bottom line is that it implies a return to state owned corporations. Ones that are not within the public sector, but ones that do come under state control. In the UK, we have calls for a more interventionist industrial policy (see article), which Germany and France are leading the drive to greater state control of key industrial companies (see article). To a certain extent, this development was entirely foreseen.

If our model is correct, then in the decade after this one, we can expect to see a move from one in which the community would be the intended beneficiary of an atomistic (i.e. market based) collective action to one in which the community would be the intended beneficiary of an corporate (i.e. state directed) collective action. If we are right, then we may see the drive towards Big Brother increasing in the years to come. These are the data points for which we are now looking.

Stephen Aguilar-Millan

© The European Futures Observatory 2012

President Obama re-elected! We have all seen the headline, but what does it mean for the longer future of the US? We feel it appropriate that the first post of our new blog should contain an appraisal of the achievements of the Obama presidency, along with a review of the prospects for the second term.We published a prospective of the first term in November 2008, which can be found here. At the time, it seemed to us that President Obama faced four key challenges. First, he had inherited two costly wars in the Middle East, neither of which he could afford, and neither of which he was likely to win. Second, the US was dependent upon Middle Eastern oil as a source of energy. Third, America was dependent upon overseas funds to sustain its economy. And fourth, the US had made a number of welfare commitments to the Boomer generation that it would find difficult to pay for. This had created a prospective vicious circle where a dependence upon Middle Eastern oil increased the chances of military intervention in the Middle East, which was paid for by overseas - particularly Chinese - funding, which diverted funds away from American welfare to Middle Eastern nation building. To make matters worse, we had the overlay of a financial meltdown and economic depression. Not exactly an easy job!

In many respects, the first term hasn't fared as badly as it could have done. President Obama has managed to move the US away from its dependency upon Middle Eastern oil by developing new technologies that produce energy sources domestically. These methods, however, are likely to cause long term environmental damage, but they do provide a short term energy fix. The result of this is to make the Middle East less important to America today than it was four years ago. The depth of the on-going recession, which has placed the economy as the dominant issue in the US, combined with the lessening of the dependency upon Middle Eastern oil, allowed US troops in Iraq to be withdrawn in 2011, and will allow a draw down in Afghanistan in 2014.

The prospect of a peace dividend has allowed the potential re-balancing of federal spending away from the military and towards welfare - what we now know as Obamacare. This ought to make the care promises to the Boomer generation that more affordable towards the end of this decade. Another factor serves to strengthen this trend. Under the first term, the US use of high technology in military action - particulalrly in the use of drones - has rebalanced military operations away from direct intervention (which is very costly) and towards more modestly costing operations. The burden upon the federal purse is much lessened because of this. The final windfall from which President Obama has reaped benefits is, funnily enough, the recession itself. As the recession gripped the world economy, so funds moved away from high risk emerging economies and into relatively safe economies, such as the US. By a strange quirk of fate, this has lessened to importance of nations such as China in the purchase of US Federal bonds.

As we can see, although many may disagree, the long term health of the US is much better today than it was four years ago. Part of this is down to President Obama. Part of it is down to luck. And a good part of it is down to the hard work of countless American citizens. This does not necessarily mean that the immediate future will be quite so bright. There are a number of strategic long-term challenges that the second Obama administration will face.

We saw a foretaste of one of them in the final week of campaigning. Our weather patterns, right across the globe, are becoming more and more disrupted. The frequency of extreme weather events is increasing and the collateral damage they cause is increasing. America has not built up its resilience assets in the past few years, and this neglect may cause problems in the near future. In many respects, this results from the switch to the newer fossil fuel technologies and the relative neglect of the green fuel technologies. This is a long term problem that could be felt in the next few years.

The problem of the US Federal debt is one that has not gone away, and, if pundits are to be believed, will increase over the second Obama term. At present, it would appear that the policy towards the debt (note - the stock of debt, not the deficit, which is the rate at which the debt is increasing) is to rely upon a combination of growth and inflation. What happens if neither of these materialises? At some point, sooner or later, the US will have to address its debt situation, much as Europe has in recent years. One approach would be to refocus upon taxation, but this would be deeply unpopular, which another would be to restrict entitlements, again a deeply unpopular approach. It is not unreasonable to consider another financial crisis in the next Obama term if the bond markets become unconvinced by Obama's fiscal policy.

Much of the debt owed by the Federal government is held by non-US actors. This provides an interface with US foreign policy. In particular, one major creditor - China - is portrayed as a peer-to-peer competitor in foreign policy. This is a mistake. China wants nothing more than stability. A foreign policy that has a focus on the containment of China doesn't seem quite right. There is ample scope to make China more of a partner in Asia than a rival. If that is true of China, it is more so of Iran. A confrontational approach to Iran might not prove to be the best path for American foreign policy. If we look at the Iranian national ambition, it rarely boils down to more than an international acceptance of Iran as a regional power. Given the instability of the region, surely there is more scope to use Iran as a partner than a rival? Both of these foreign policy questions have not been adequately dealt with in the first Obama administration. He may not have this luxury in his second.

It is our view that the first Obama administration has more positive than negative for the long term prospects of the United States. Of course, we would never be able to convince the dogmatic extremists who oppose him of this, so perhaps our appeal may be better received outside of America. His second administration will face a number of long term challenges - climate change, a fiscal imbalance, and a challenge from Asia. It will be interesting to see how he deals with them as they arise because their resolution needs a different skill set to the one he has used to date. Does he have it in him? That is the key question for the next four years.

Stephen Aguilar-Millan

© The European Futures Observatory 2012

Welcome to our new blog. We are planning that the blog will have a greater integration with our web site. It ought to allow us to include the contributions from a greater number of authors and provide us with a more seamless approach to our writing.

We have now moved away from our old blog, which can be accessed at http://eufo.blogspot.co.uk/. As time goes by, we shall start to build volume into this blog. If you have any suggestions about how we can improve this feature, do let us know.

Stephen Aguilar-Millan