Global Finance And The Risk Of A New World War

In a gloomy new book, two French economists argue that the current state of global finance make conditions ripe not just for regional conflicts, but for a new world war.

Unpleasant questions
Unpleasant questions
Eric Le Boucher

PARIS — When our political elite is done dealing with insignificant affairs and finally decides to see beyond the next elections, they will realize the sobering threat of new world wars. At least, that’s how French economists Jean-Hervé Lorenzi and Mickaël Berrebi see it, laying out their arguments in a chilling new book titled Un Monde de Violences (A World of Violence).

There are numerous sources of conflicts worldwide, and if “we hesitate to mention the possibility of war … our incapacity to overcome them will without a doubt drive us there,” they write.

Lorenzi, who describes himself as a former optimist, now appears to have become frighteningly alarmist.

Unfortunately, the book is quite convincing. It is useful to those who want to better understand the sources of conflicts, which the economists characterize as “constraints.”

There are six such constraints: lack of growth, aging of the population, income inequalities, de-industrialization, finance and savings.

First considering finance, the book presents a very clear theory: The financial world has become autonomous, and there is no turning back. Attempts to regulate it are a joke, “an utopia.” This was demonstrated by the “weakness of the U.S. government, unable to regain any independence from Wall Street.”

More importantly, the legislation that was supposed to rein in the banks is instead causing money to be pushed towards unregulated finance. “Shadow banking was in no way hindered,” the authors write. “On the contrary, it reached $13,000 billion in assets in 2013, half of the total managed by traditional banks.”

This unstoppable speculative finance only works for itself. “Finance is now the world’s biggest industry, so be it,” they write. The authors believe it is an unfortunate state of affairs, but it is not too bad as long as it is possible to find the appropriate funding for future investments. This, they argue, is what really matters.

Investing is the answer

The heart of the book deals with the huge need for investments in innovation, infrastructure and in what economies need long-term to regain growth potential. The authors complain that in developed countries, these investments have evaporated. Rich countries allocated just 20% of GDP in 2013 to investments, compared with 23% in 1990. The difference might seem minimal to most people, but the economists regard it as gigantic.

During the same period of time, developing countries did the opposite. Their share of GDP dedicated to investments grew from 23% to 33%. Therefore, the two writers argue that rich countries will have to “choose the future” — that is to say, invest — if they are serious about resuming economic growth. The problem is that money will be scarce.

The planet will lack savings in part because China, South Africa and Brazil set up social welfare programs. The figures are striking. “China accomplished the feat of increasing the proportion of population covered by health insurance from 24% to 94% in five years, between 2005 and 2010,” the book says.

While Obama struggles with “Obamacare,” China is going one step further. Beijing created a five-branch system covering health care, elderly care, unemployment, maternity and work accidents. Welfare spending rose in China, India and South Africa, between 5% and 8% of GDP. The number is Brazil has already reached 16%, compared with an average of 19% in OECD countries.

This shift from a savings economy towards a welfare economy will translate, according to the authors, into the loss of 2.3% of savings globally, even as the need for investments will rise by 2.6%. This means a 5% “squeeze” of the world’s GDP. And according to Lorenzi and Berrebi’s theory, this is why the world will enter a war over money, which could eventually become an actual war.

Because of this squeeze, interest rates will rise, leading to a “currency war” as each continent will try to recover savings, a “rare resource,” or a war between generations. The elderly who own these savings will naturally not be very much inclined to investing it in a future they will not live to see. Not to mention the fact that other sources of conflicts, such as terrorism or climate change, will encourage them to make safer investments.

The authors thus conclude that the main task of modern states will be to defeat risk aversion. They will need to create investors with “investment-friendly” tax systems by putting large sums of money into fundamental research and infrastructure where private capital cannot go.

The book also points to other paths to recovery. Among them is that of “perpetual debt,” in which governments will need to indefinitely push back the deadlines to repay public debt, since those monopolize savings. Other hypotheses include the unavoidable opening of borders to immigration and revision of education policies.

“No conflict is insurmountable, and none is easy to circumvent,” Lorenzi and Berrebi warn. On the contrary, these challenges offer a call to political action to rise to the occasion. Which brings us back to our political elite. The cause for concern is there, and there only.

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7 Ways The Pandemic May Change The Airline Industry For Good

Will flying be greener? More comfortable? Less frequent? As the world eyes a post-COVID reality, we look at ways the airline industry has been changing through a pandemic that has devastated air travel.

Ready for (a different kind of) takeoff?

Carl-Johan Karlsson

It's hard to overstate the damage the pandemic has had on the airline industry, with global revenues dropping by 40% in 2020 and dozens of airlines around the world filing for bankruptcy. One moment last year when the gravity became particularly apparent was when Asian carriers (in countries with low COVID-19 rates) began offering "flights to nowhere" — starting and ending at the same airport as a way to earn some cash from would-be travelers who missed the in-flight experience.

More than a year later today, experts believe that air traffic won't return to normal levels until 2024.

But beyond the financial woes, the unprecedented slowdown in air travel may bring some silver linings as key aspects of the industry are bound to change once back in full spin, with some longer-term effects on aviation already emerging. Here are some major transformations to expect in the coming years:

Cleaner aviation fuel

The U.S. administration of President Joe Biden and the airline industry recently agreed to the ambitious goal of replacing all jet fuel with sustainable alternatives by 2050. Already in a decade, the U.S. aims to produce three billion gallons of sustainable fuel — about one-tenth of current total use — from waste, plants and other organic matter.

While greening the world's road transport has long been at the top of the climate agenda, aviation is not even included under the Paris Agreement. But with air travel responsible for roughly 12% of all CO2 emissions from transport, and stricter international regulation on the horizon, the industry is increasingly seeking sustainable alternatives to petroleum-based fuel.

Fees imposed on the airline industry should be funneled into a climate fund.

In Germany, state broadcaster Deutsche Welle reports that the world's first factory producing CO2-neutral kerosene recently started operations in the town of Wertle, in Lower Saxony. The plant, for which Lufthansa is set to become the pilot customer, will produce CO2-neutral kerosene through a circular production cycle incorporating sustainable and green energy sources and raw materials. Energy is supplied through wind turbines from the surrounding area, while the fuel's main ingredients are water and waste-generated CO2 coming from a nearby biogas plant.

Farther north, Norwegian Air Shuttle has recently submitted a recommendation to the government that fees imposed on the airline industry should be funneled into a climate fund aimed at developing cleaner aviation fuel, according to Norwegian news site E24. The airline also suggested that the government significantly reduce the tax burden on the industry over a longer period to allow airlines to recover from the pandemic.

Black-and-white photo of an ariplane shot from below flying across the sky and leaving condensation trails

High-flying ambitions for the sector

Joel & Jasmin Førestbird

Hydrogen and electrification

Some airline manufacturers are betting on hydrogen, with research suggesting that the abundant resource has the potential to match the flight distances and payload of a current fossil-fuel aircraft. If derived from renewable resources like sun and wind power, hydrogen — with an energy-density almost three times that of gasoline or diesel — could work as a fully sustainable aviation fuel that emits only water.

One example comes out of California, where fuel-cell specialist HyPoint has entered a partnership with Pennsylvania-based Piasecki Aircraft Corporation to manufacture 650-kilowatt hydrogen fuel cell systems for aircrafts. According to HyPoint, the system — scheduled for commercial availability product by 2025 — will have four times the energy density of existing lithium-ion batteries and double the specific power of existing hydrogen fuel-cell systems.

Meanwhile, Rolls-Royce is looking to smash the speed record of electrical flights with a newly designed 23-foot-long model. Christened the Spirit of Innovation, the small plane took off for the first time earlier this month and successfully managed a 15-minute long test flight. However, the company has announced plans to fly the machine faster than 300 mph (480 km/h) before the year is out, and also to sell similar propulsion systems to companies developing electrical air taxis or small commuter planes.

New aircraft designs

Airlines are also upgrading aircraft design to become more eco-friendly. Air France just received its first upgrade of a single-aisle, medium-haul aircraft in 33 years. Fleet director Nicolas Bertrand told French daily Les Echos that the new A220 — that will replace the old A320 model — will reduce operating costs by 10%, fuel consumption and CO2 emissions by 20% and noise footprint by 34%.

International first class will be very nearly a thing of the past.

The pandemic has also ushered in a new era of consumer demand where privacy and personal space is put above luxury. The retirement of older aircraft caused by COVID-19 means that international first class — already in steady decline over the last decades — will be very nearly a thing of the past. Instead, airplane manufacturers around the world (including Delta, China Eastern, JetBlue, British Airways and Shanghai Airlines) are betting on a new generation of super-business minisuites where passengers have a privacy door. The idea, which was introduced by Qatar Airways in 2017, is to offer more personal space than in regular business class but without the lavishness of first class.

Aerial view of Rome's Fiumicino airport

Aerial view of Rome's Fiumicino airport

Hygiene rankings  

Rome's Fiumicino Airport has become the first in the world to earn "the COVID-19 5-Star Airport Rating" from Skytrax, an international airline and airport review and ranking site, Italian daily La Repubblica reports. Skytrax, which publishes a yearly annual ranking of the world's best airports and issues the World Airport Awards, this year created a second list to specifically call out airports with the best health and hygiene standards.

Smoother check-in

​The pandemic has also accelerated the shift towards contactless traveling, with more airports harnessing the power of biometrics — such as facial recognition or fever screening — to reduce touchpoints and human contact. Similar technology can also be used to more efficiently scan physical objects, such as explosive detection. Ultimately, passengers will be able to "check-in" and go through a security screening anywhere at the airports, removing queues and bottlenecks.

Data privacy issues

​However, as pointed out in Canadian publication The Lawyer's Daily, increased use of AI and biometrics also means increased privacy concerns. For example, health and hygiene measures like digital vaccine passports also mean that airports can collect data on who has been vaccinated and the type of vaccine used.

Photo of planes at Auckland airport, New Zealand

Auckland Airport, New Zealand

Douglas Bagg

The billion-dollar question: Will we fly less?

At the end of the day, even with all these (mostly positive) changes that we've seen take shape over the past 18 months, the industry faces major uncertainty about whether air travel will ever return to the pre-COVID levels. Not only are people wary about being in crowded and closed airplanes, but the worth of long-distance business travel in particular is being questioned as many have seen that meetings can function remotely, via Zoom and other online apps.

Trying to forecast the future, experts point to the years following the 9/11 terrorist attacks as at least a partial blueprint for what a recovery might look like in the years ahead. Twenty years ago, as passenger enthusiasm for flying waned amid security fears following the attacks, airlines were forced to cancel flights and put planes into storage.

40% of Swedes intend to travel less

According to McKinsey, leisure trips and visits to family and friends rebounded faster than business flights, which took four years to return to pre-crisis levels in the UK. This time too, business travel is expected to lag, with the consulting firm estimating only 80% recovery of pre-pandemic levels by 2024.

But the COVID-19 crisis also came at a time when passengers were already rethinking their travel habits due to climate concerns, while worldwide lockdowns have ushered in a new era of remote working. In Sweden, a survey by the country's largest research company shows that 40% of the population intend to travel less even after the pandemic ends. Similarly in the UK, nearly 60% of adults said during the spring they intended to fly less after being vaccinated against COVID-19 — with climate change cited as a top reason for people wanting to reduce their number of flights, according to research by the University of Bristol.

At the same time, major companies are increasingly forced to face the music of the environmental movement, with several corporations rolling out climate targets over the last few years. Today, five of the 10 biggest buyers of corporate air travel in the US are technology companies: Amazon, IBM, Google, Apple and Microsoft, according to Taipei Times, all of which have set individual targets for environmental stewardship. As such, the era of flying across the Atlantic for a two-hour executive meeting is likely in its dying days.

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