1998-2018: A Brief Overview.
Things never go so well that one should have no fear and never so ill that one should have no hope.
Appendix One Highlights
From the perspective of the progression of globalization, the two decades which followed the one featured in this book were relatively calm in comparison, with one notable exception: the financial crisis commencing late 2007. And, of course, the ‘small’ matter of Brexit amidst the craziness of a unique episode in British politics.
From the early 2000s, India began to open its economy, the liberalisation of its market being matched with the overseas ambitions of its domestic companies, for example, the huge conglomerate Tata Group.
More generally, frontier and emerging markets did what most emerging markets do: they continued to emerge, albeit with a predictable degree of volatility. In a general period of steady development, there were three significant discontinuities beyond the scope and timeframe of the current book and the decade it covers, but which are identified and briefly discussed in the following sections. Direction is given to curated further resources for readers keen to explore the events and the contexts within which they unfolded.
First: The Dot.Com Boom and Bust: 1999-2003 (approx.)
Financial economists distinguish between systemic risk and specific risk, and I will adapt and borrow their classification here. For our purposes, a systemic event has a global impact; a specific event affects one country (or region) or one sector.
The dot.com boom and bust is an example of a specific, ‘periodic event’. It primarily impacted the ‘tech sector’, and many of the business failures were pretty predictable using tried-and-tested innovation screening techniques. The ‘bust’ in the ‘boom and bust’ refers to the funds lost by investors and is par for the course when capital is speculative- rather than investment-focused (think of Bitcoin, Etherium and any number of cryptocurrencies for contemporary examples).
‘Old economy’ companies did see some depression in their equity performance during this period but recovered robustly when investors’ appetite for hard cash rather than false promise returned. For those seeking additional reading materials on this dot.com drama, I recommend :
- Michael Lewis, 2000: The New New Thing: A Silicon Valley Story.
- John Cassidy, 2002: Dot.Con: The Greatest Story Ever Sold.
- Roger Lowenstein, 2004: Origins of the Crash: The Great Bubble and its Undoing.
- Don Tapscott, 2014: The Digital Economy: Rethinking Promise and Peril in the Age of Networked Intelligence.
Capital is greedy. It gravitates towards high (and often ephemeral) returns, and many of the dot.com business failures were readily predictable with even scant perusal of key economic indicators.
For example, IBM tracked a single data point, household penetration of broadband internet connection, to assess the uptake of ‘e-commerce’ in mass consumer markets. This percentage figure remained stubbornly low for many years, suggesting that e-commerce, including ‘e-tail’, was primarily a business-to-business opportunity, not a mass-market consumer pot of gold that many dot.com startups were chasing.
Despite the failure of many companies lured into the dot.com financial black hole, the IT and telecommunications infrastructure investments during this boom and bust period provided the foundations for the technological ‘platforms’ (e.g. fintech, martech) that came to prominence a decade later.
Second: Global Financial Markets Meltdown: 2007/08. Onwards and Ongoing
This discontinuity provides a textbook example of a series of parallel systemic events converging, creating by any measure the most extensive economic shock in the history of capitalism and presenting a considerable milestone in the long march of globalization.
The immediate beneficiary from a publishing perspective was the estate of J.K. Galbraith, whose 1954 book, The Great Crash 1929: The Classic Account of Financial Disaster, soared to the top of all the bestseller charts as people ran to the economic history literature to work out what the hell was going on!
It is well worth reading and highly relevant, even now. I also recommend:
- Andrew Ross Sorokin, 2009: Too Big to Fail: Inside the Battle to Save Wall Street (and/or watch the movie).
- Michael Lewis, 2010: The Big Short: Inside the Doomsday Machine (and/or watch the movie, an award-winning cinematic ‘docudrama’).
- Hank Paulson, 74th United States Secretary of the Treasury, 2010: On the Brink: Inside the Race to Stop the Collapse of the Global Finance System.
- Timothy Geithner, 75th United States Secretary of the Treasury, 2015: Stress Test: Reflections on Financial Crises.
- Ben Bernanke, former Chairman of the Federal Reserve and distinguished scholar of The Great Depression, 2017: The Courage to Act: A Memoir of a Crisis and its Aftermath.
And from the UK perspective:
- Gordon Brown, British Prime Minister at the time of the crisis and self-proclaimed saviour of the world, 2010: Beyond the Crash: Overcoming the First [sic] Crisis of Globalisation.
- Alistair Darling, British Chancellor of the Exchequer at the time of the crisis, 2012: Back from the Brink: 1000 Days at Number 11.
The forces that precipitated this calamity were a combination of greed, financial product mis-selling (e.g. mortgages, car leases) to vulnerable consumers by commission-only salespeople, financial product development by mathematical whizz-kids who bamboozled ignorant bank executives and, the worst crime, a palpable failure by governments and their regulators to understand or acknowledge what was happening on their watch.
Third: Brexit: 2016 Onwards. And Upwards?
Jean-Claude Junker, President of the European Commission between 2014-2019, is allegedly fond of a tipple or three, especially to numb the tedium of the endless round of summits and such-like that went with the job. At one such dull event, he was overheard slurring:
I have met two big destroyers. Gorbachev who destroyed the Soviet Union, and Cameron who destroyed the United Kingdom.
Harsh words indeed. I have dealt with Gorbachev already, so let us briefly look at how the United Kingdom ended up in its state of Brexit stasis following the referendum of June 23rd 2016.
First things first, British Prime Minister David Cameron did not have to call the Brexit referendum. He may have felt honour-bound to do so because it was in the Conservative Party manifesto which brought him to power. But this is British politics; honour?
And Cameron had form in breaking political promises: in September 2007, he had given a ‘cast-iron guarantee’ that he would hold a referendum on the Treaty of Lisbon if elected.
This treaty updated the Maastricht Treaty of 1992 and the Treaty of Rome of 1957. It created a more powerful European Parliament, established a long-term role of President of the European Council, made the Charter of Fundamental Rights legally binding on member states and was widely seen by Eurosceptics across the political spectrum as a powershift away from national electorates.
Also, reflecting a greater fear, the Lisbon treaty was perceived as diluting UK sovereignty while advancing EU integration. Regardless of this, Cameron changed his mind on the referendum pledge he had made.
The Brexit referendum was binary, i.e. ‘should we stay or should we go?’ The winning margin for go was low (4%). Still, the turnout was extraordinarily high for a British plebiscite (72%), a fact under-reported in the general Brexit debate and indicative of the passions the issue raised at the time and which continue to fester. A visibly shocked, pink-cheeked Cameron resigned to write his truncated political memoir and, following some textbook Tory shenanigans, was replaced by Theresa May.
Second things second, British Prime Minister Theresa May did not have to call a General Election. She had steadfastly said on numerous public occasions that she had no intention of doing so. But this is British politics and she did so anyway, throwing away the relatively comfortable majority the Conservative Party would have had for a few more years and leaving it at the mercy of two handfuls of Northern Irish politicians: ten Westminster MPs.
As an economist, I have no more to offer on these political contrivances. For spectacular insights into the trials and travails of both Cameron and May and the whole Brexit farrago, I strongly recommend two companion books by Tim Shipman, the Sunday Times Chief Political Commentator, ideally to be read in sequence and preferably in one sitting:
- All Out War: The Full Story of How Brexit Sank Britain’s Political Class (2017).
- Fallout: A Year of Political Mayhem (2018).
Volume Three of Shipman’s Brexit trilogy is scheduled for publication in February 2022. The deal should finally be done by this time — almost six years after the drama began with the Brexit referendum.
In 2021 two ‘insider’ perspectives on Brexit machinations and melodramas were published. One is by Michel Barnier, the Frenchman who had the snappy job title ‘European Commission’s Head of Task Force for Relations with the United Kingdom’, i.e. he was the EU’s chief negotiator: My Secret Brexit Diary: A Glorious Illusion.
The second Brexit insider book was by British politician Gavin Barwell, Downing Street Chief of Staff to Prime Minister Teresa May during the Brexit negotiations from 2017 until July 2019: Chief of Staff: Notes from Downing Street. Barwell describes his mixed feelings about writing the book, especially with Brexit negotiations still ongoing, but justified it to himself by noting excessive misreporting:
The last two years of the May government were among the most turbulent and important in modern British political history. The existing accounts are second-hand, at best partial and at worst get important details wrong.
It all began with Greece, this ‘EU exit’ lexicon, the key difference between that country and the UK being that Greece was threatened with expulsion while Britain chose to leave. ‘Grexit’ was a verb-cum-noun coined by Ebrahim Rahbari, Citigroup economist, at a point in time – May 2012 – when it looked highly likely that Greece would be forced into sovereign debt default.
While the Greeks somehow managed to stay within the fold, the United Kingdom embarked upon a highly complex divorce, well-covered elsewhere and drearily documented day-by-day in hourly news coverage, ad infinitum, ad nauseam, ad absurdum.
Along with Grexit came the potential threat of Italexit, Frexit, dePartugal and CzecOut, as one amused blogger blogged. Then came the very tangible Brexit referendum of June 23rd 2016, signalling the departure of the United Kingdom of England, Wales, Scotland and Northern Ireland from the European Union.
Calls for a second referendum by the ‘Remoaners’ (the lexicon grew) were always unlikely to be heeded, especially following the landslide Conservative Party victory in December 2019; a complex campaign with a simple message: ‘Get Brexit Done’.
As a final remark, my favourite witticism relating to the UK’s negotiation stance during the Brexit negotiations came from a tweet by Xavier Bettel, the Prime Minister of Luxembourg:
They were in with a load of opt-outs. Now they are out and want a load of opt-ins.
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