Wednesday, January 7, 2009

We're happily floating along in our little bubble while somewhere else: kaboom! (for the moment at least)

It's a strange experience we're having here in The Lucky Country, as we ease our way into the New Year with a large proportion of us still on holidays. We traders in Foster have had a bumper Christmas season, the Main Street is crowded with carefree tourists and anyway it's hard to think about business when your body is in beach mode. Yet the news coming out of the USA and Europe is of The End Of The World As We Know It. It seems a jarring disjunction and perhaps it's understandable that many of us, including most of our leaders, simply cannot believe that It Can Happen Here.

What we are witnessing are the first stages of the collapse of our familiar, comfortable industrial civilisation, which most of us have been in since the cradle, and which we fondly expected to be in until our demise surrounded by sobbing, well-fed loved ones (if we haven't irritated them all too much in the meantime).

Dmitri Orlov, an individual who witnessed the fall of the Soviet Union and who has been predicting this current collapse for some years, has most clearly mapped its likely progression. He talks about the five stages of collapse. Stage one is financial collapse, which we can currently observe on television or in the newspapers. It seems abstract, hard to understand and distant from our day-to-day world. We idly wonder if financial types in dark suits will fling themselves from high places on city buildings, before we move on to the sports section and the weather.

This is what we have seen so far in Australia. Various high-fliers have come undone, while the distant and as yet invisible (to us) financial tsunami has sucked away the liquidity from our financial shores, disclosing various previously hidden bottom dwellers of unedifying appearance, as well as revealing the nakedness of those emperors of business who only a few months ago seemed to be clad in rainments of glory. Naturally not many of us feel too badly about all this and are experiencing, understandably although not particularly creditably, a certain schadenfreude.

Unfortunately Stage 1, Financial Collapse will be followed in due course by Stage 2, Commercial Collapse. Those born in Australia after 1975 are unlikely to remember going through anything like this, but us older folk have had a taste. As an adult, I experienced the recession of the early seventies, the late seventies, the early eighties and the late eighties/early nineties. To quote Dmitri Orlov, If Stage 1 collapse can be observed by watching television, observing Stage 2 might require a hike or a bicycle ride to the nearest population center. Suddenly one notices lots of empty shops, lots of cars with "For Sale" signs on them on the sides of major roads in the suburbs. Everyone upon whom the axe has not already fallen trembles with anxiety that they may be next. People become isolated by fear and insecurity. Just as the financial crisis can bring the mighty down, revealing unedifying ramifications within the ranks of the previously respectable, so among us regular folks crises bring to the surface our insecurities, relationship problems and the consequences of unwise or self-indulgent behaviours or investments.

There was a time when this downturn was visible on the distant horizon, and it was possible to prepare for it as far as one ever can. Very few of us did, which is regrettable but entirely understandable. For younger people, it was something outside their experience and us older folk often felt ourselves fenced in by prior investments, relationships and obligations. We have been through what can only be described as a kind of mass delusion, where even if we felt doubts about the direction everything was going in, our feeble voices were drowned out by those in the majority who believed the party would go on forever. This mass delusion has been at every level of our society, and even those who you would think should have known better have been sucked in.

The result of all this will undoubtedly be a radical loss of legitimacy for certain authorities and professions, particularly politicians, economists and business leaders. A dangerous tendency will be to see the hand of conspiracy where in fact there was mere incompetence. Perhaps one saving grace will be a sense of shared misfortune. It is the high fliers who've been hit hardest and earliest, and for the rest of us, we will be able to take comfort in the fact that much of what we are about to go through will not be possible to sheet home to mere personal failings. Our fate will be for better or worse a shared fate, and whatever we rebuild on the other side of the disaster will be a result of communal effort, and not a winner takes all game.

After Stage 2, Dmitri Orlov talks of Stage 3: Political collapse. Faith that "the government will take care of you" is lost. As official attempts to mitigate widespread loss of access to commercial sources of survival necessities fail to make a difference, the political establishment loses legitimacy and relevance. This is a very dangerous point to get to, and it's quite possible that the USA could get there quite quickly. It's difficult to imagine Australia going this far. But it's too early to say yet. Much depends on whether any of our political leaders can grasp what is really going on, because really poor leadership can bring it on. What could also bring us undone is really stupid expectations from the general public. A sense of entitlement coupled with an unrealistic world-view, an addiction to conspiracy theories and scapegoating and a violent and predatory outlook (the situation which has obtained in the USA under George W Bush) will guarantee poor leadership and a slide towards Stage 3.

The major problem is that we are not going to recover from this downturn in the same way we have in the past. Then the music slowed down but restarted some months or a year or so later with a similar tune. But this time, with the winding down of fossil fuel availability due to our rapid decline in local production and the extreme unlikelihood of us being able to run up even more foreign debt in order to import the oil we'd like, we are not going to re-emerge in the same world.

Stage 3 collapse is the situation we see in the Democratic Republic of Congo now, are likely to see in Zimbabwe soon and can look forward to for Pakistan. It may seem quite bizarre to imagine the USA going like this, but the fissures in society brought on by the destructive activities of the Bush administration, the level of political corruption at Federal and State levels, the absence in many parts of the country of effective and inclusive local communities, the racial divides and the fundamentalist and paranoid extremism of large sections of the population make an ominous mix. See John Robb's latest post for a view of how things may develop in the South-western USA.

Stage 4 and 5 of collapse are not yet relevant to our discussion and hopefully will never be. Our task is prevent collapse from moving beyond Stage 2 into Stage 3.

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