Post Financial Capitalism. Towards Industrial Capitalism and National Capitalism.

“Post Financial Capitalism.

Towards Industrial and National Capitalism”

Takeo HARADA

CEO and Representative,

Institute for International Strategy and Information Analysis, Inc. (IISIA)

(Key note speech delivered on the occasion of EBF 2015 in Almaty, Kazakhstan)

Ladies and gentlemen,

First of all, I’d like to express my warmest thanks for the invitation to this forum. I am a member of B20. B20 is a sister entity supporting G20, the whole process of G20. Last week, the B20 held a joint task force meetings, which I of course attended.

And today, I’m here in Almaty. What I’m about to explain to you, is extremely important. I will explain the reality of the global market and community. This is exactly what you should and have to know for the prosperous future of Kazakhstan and Eurasia as a whole.

Last year, I was invited as a speaker to this forum. At that time, I touched upon with the on-going total deflation and stagnation the world community is facing. And I said, it’s not the human activities, but the irregularity of solar activity and climate change that matter. To combat this phenomenon, USA, Euro-zone and Japan have being trying hard to accelerate QEs (=quantitative easing). Nevertheless, they obviously fail to stop the total deflation so far. It seems that there is only one option for them left to get rid of this situation: Making use of “war economy”. To stimulate the global economy as a whole, a total war is urgently needed as the decisive cause of massive military consumption. That’s exactly why leading countries intervene in the Middle East, which rather destabilizes the regional situation. Just remember the tragedy in Syria or massacres by the Islamic State.

In this context, the point is we shouldn’t mistake result for cause. The situation in ME is destabilized, because the war economy is needed. And the war economy is needed, because the global economy has to be urgently stimulated by all means to evade further deflation. Now, we’d better precisely focus on why the current trend towards total deflation can’t be stopped.

In this regard, I fully agree with BIS. Last year, “the Bank of central banks” publicly pointed out disinflationary policy in industrialized countries since the latter half of 1990s has been leading to collapse of real economy all over the world. After the double oil crisis in 1970s, leading countries once made effort to inflate the economy with a series of financial measures. This caused quasi hyperinflation in many countries such as Israel. And these countries introduced disinflationary policy to combat the hyperinflation. This was successfully done, however, their policy interest rates has to be kept at the lowest level since then, so that the inflation can be moderated.

This is the very beginning of the current financial capitalism. While policy interest rate is trapped as I described beforehand, smart investors borrow money where the interest rate is very low, and lend it where the rate is only a little bit higher. This type of money transfer is generally called “carried trade” and has been caused bubble economy one after another in the world.

Bubble and its collapse in the global economy accelerate volatilities, which harm sound development of the real economy, of course, including energy sector. And when the real economy is weakened, wealth can’t be distributed to the ordinary people in a satisfying manner. This is exactly what French economist, Thomas Piketty, explained in his famous book entitled “The Capital in the 21^st Century.”

Now, I hope you completely understand what’s going on in the global economy, and what’s the reason for that. Based on that, I just try to anticipate our common future. There are three trends we’re about to face:

The conventional financial capitalism will be ended very soon. Successive QEs, which I mentioned, raise risks of national default in many countries. Greece is a very good example. Once a single country will be forced to declare its default, it’ll cause a domino effect in the global economy. Every country holds other countries’ national bonds and bills to secure its own asset. This system of risk sharing will turn out to be the cause of the domino effect and lead to hyperinflation in each countries. Every currency will be devaluated to the bottom.

Such a dramatic change in the financial sector will make us get back to the origin of the modern economy. It’s not money but goods and their added values that will matter in the real economy. Gathering money itself won’t make sense any more. Instead, how to make added values effectively will be a tough question for all of us. The renaissance of industrial capitalism will begin. Because not money but only the human resource is capable of making added values, all the nations try hard to attract innovative and skilled persons. This is why McKinsey predicted “War for Talent” in 1997. While focusing on real values of commodities including oil and gas, getting back to gold standard can be discussed in the international community, such as inclusion of gold in currency basket of SDR (=special drawing right) in the IMF.

Last but not least, national capitalism will declare its come-back. To inflate the economy, globalization has been accelerated so far based of the financial capitalism. However, when the financial capitalism will collapse, the world economy will face hyperinflation foremost and then total deflation. And in the course of deflation, nobody needs to expand his own market and tries to secure its own national market instead. At this stage, globalization and liberalization will be understood just as illusions. The age of bloc economy would come back, where national capitalism would dominate the world. These developments would, of course, affect also the energy sector negatively.

Ladies and gentlemen, this is the reality of the global community we’re facing. To wrap up all the points I raised, I’d like to say this is only the beginning of the long, long common story ahead. We are at a crossroads now.

Please keep in mind the reality I explained to you today. We’re urged to find an alternative way for moving forward. All of us will face the worst, unless we won’t work together. The EXPO 2017 in Astana must be the tipping point for changing these trends. Whether this EXPO will be the symbolic event of prosperous and peaceful future not only for the Kazakhs, but also for all the humankind, totally depends on our own steps from now on.