Monday, 28 May 2012
Just as politics and economics are often deeply entwined so, too, politics can impact logistics for better or worse. That scenario could soon be tested after America's presidential elections later this year if the republican candidate, Mitt Romney, wins the presidency. Such a victory could have unfavourable, seismic implications for global logistics, not because Romney is inexperienced in smart business that makes use of morally questionable tax havens like the Cayman Islands, (his personal wealth has been put at between US$190 million- $250 million) but because his foreign policy nostrums have an almost xenophobic, pugilistic air.
Among his reportedly pugilistic posturings is a promise to launch a US-Israeli war with Iran if the latter continues to develop its allegedly nuclear weapons capabilities. He has also described Russia as the number one geopolitical foe and in the primaries he vowed to start a trade war with China. As if that were not enough he wants to extend the war in Afghanistan until the Taliban are defeated.
Such rhetoric is akin to the virulence of America's hard right evangelicals on the make, to whom he looks for support, and as a Mormon Romney's theological naivety has much in common with the evangelicals. Both are rooted in the belief that America can do no wrong owing to their exceptionalism. Both have parallels with Israel's 'chosen race' belief and, indeed, Romney has a long-standing, close relationship with Israel's Benyamin Netanyahu. But playing the Israel card may just be Romney's way of soothing any suspicions his evangelical base may have.
Romney has surrounded himself with advisers like Eliot Cohen, the man who wrote the forward to Romney's foreign policy manifesto and who wrote that Saddam Hussein not only helped Al Qaeda but developed weapons of mass destruction. Such a monstrous lie, however, does not seem to have tarnished his image in the Romney camp.
No austerity for the military
Romney is campaigning on an austerity ticket but with one big difference. Reportedly, he wants to grow the Pentagon budget so fast that it will reach 4% of GDP, a huge hike over the increase under George Bush's tenancy. By 2016 his military spending would be close to 40% more than budgeted under Obama, a level not seen since the cold war.
Such a huge increase can only be financed in two ways: higher taxes and spending cuts, particularly in the welfare budget. But Romney has already promised tax cuts so the burden will fall heavily on those least able to defend themselves: the old, the poor and the ill, through welfare cuts. This seems curiously at odds with the Christian ethos of righteous living, which must include feeding His sheep, but more of that later.
Some believe that once in office Romney would mellow his pugilistic posturings and be a far more traditional republican than George Bush but what if they are wrong? How could that affect logistics costs and does he have any justification for his dubious foreign policy stance that almost demonizes certain countries?
Trade is the handmaiden of prosperity and prosperity the lasting foundation of peace. Any talk of a trade war with China, therefore, can only be irresponsible and unstatesman like. China is certainly no angel in foreign trade, its record on intellectual property theft, in particular, is a running sore that must be excised. But the American electorate should not lose site of the facts that not only has China kept world inflation down it has helped save America from serious economic upheaval by purchasing American IOUs.
War and the American debt problem
America's total public debt, including intra-Government debt, is put at $15.7 trillion, or a disturbing 102% of GDP. Of the $10.95 trillion of debt held by the public, nearly half, or $5.1 trillion, is owned by foreign investors, the largest of which are Japan and China, with just over $1 trillion each. Without Chinese bank rolling of the American government debt it would be difficult to see how America could keep its interest rates low. There appears to be a correlation between America's soaring debt problem, $500 billion a year since 2003, and the prosecution of costly overseas wars in the Middle East. The Iraq war has certainly cost America over $1.5 trillion and the Afghanistan intervention is estimated at $2 billion a week, and that does not include the aftermath costs of dealing with the permanently maimed, the widows and orphans.
If Mitt Romney had any idea of how geo-logistics* can make or break combatants in a land ideally suited to guerrilla warfare he might think twice about ramping up military effort there at a time when America's finances are shaky along with most of Europe's. As for demonizing Russia he may care to reflect that Russia has agreed to let the coalition forces in Afghanistan send their military baggage home by rail through Russia. Such an act will save Britain alone £4 billion in military hardware write offs because the cost of airlifting the lot to western Europe would exceed the value of the hardware. By recalling a far greater debt the free world owes Russia, the appalling sacrifices the Russian peoples made in ridding the world of Nazi tyranny, Romney might moderate his political nostrums, but that would require a comprehensive grasp of modern history.
China and Russian bashing, therefore, is both unwarranted and unstatesman like.
Dangerous attitudes over Iran
What of Romney's attitude to a Judeo-Christian attack on Iran's nuclear capabilities and the implications for global logistics? If carried out, a worst case scenario would be to plunge the world into a depression, hardly the best time given the West's current flirtation with recession. The closing of the Hormuz Strait, for example, as an Iranian retaliatory measure, could send already painfully high oil prices soaring and that alone would cripple global logistics. And if attacked it would be a blatant act of war and any riposte against Israel's nuclear capabilities would be justifiable by the standards of warfare. Not surprisingly, perhaps, there was never any talk of chastising Israel when it embarked on a nuclear armament programme. Is it surprising, therefore, that Iran feels threatened by Israel's nuclear arsenal and might want to have its own nuclear weapons as a safeguard. After all, Israel has bombed Iran's nuclear facilities before. Israel, however, is more politically stable than Iran, if somewhat too bellicose at times, and the latter would be wise to eschew nuclear weapons if, indeed, it is pursuing that path.
Politics has always been a low profession but it becomes more dangerously so when leaders espouse theocratic elements, a good reason why America's founding fathers ensured that state politics should be purely secular and unfettered by theological clutter. The problem is, however, that political mountebanks could woo and win over the theologically naive. The American people are basically good at heart and the world owes an indelible debt to their sacrifices for democracy. But many Americans, especially in the Bible Belt, are insular and gullible and it is these traits which in the hands of a manipulative president could become a dangerous weapon.
The price of freedom may be eternal vigilance but that vigilance must be righteously minded. Can one say that of Mormons and the more virulent scions of hard right evangelicals? Quite apart from the touchingly naive origins of Mormonism, their pioneering days were not without blemish. In the relatively peaceful 1857-58 Utah Mormon war, leaders of the local Mormon militia ordered the Mountain View Meadows massacre of civilian emigrants merely passing through Utah, hardly a saintly act, latterly or otherwise. As for the hard right evangelicals, could it not be said that their TV evangelist leaders' true God is mammon? They have exploited generous American tax law which grants tax exemptions to religious movements. In other respects, however, they run their operations like well-oiled businesses and have amassed huge property fortunes. Can man serve both God and mammon? By their fruits ye shall know them and to the hyprocrites and false prophets the Nazarene had this to say: "I never knew you: depart from me ye that work iniquity." Perhaps the next time that the plate comes around with behests to give generously because the cost of maintaining the fleet of corporate jets is soaring the gullible might question if they are backing the right horse.
*How geographical issues can impact logistics.
Tuesday, 22 May 2012
In the global corruption stakes Ireland is not a front runner but arguably it leads the field for allowing corruption and cronyism to bring a country so low so quickly with near disastrous, environmental consequences. The economic consequences of reckless bank lending to beguiled, naive mortgagees are bad enough as Ireland once more sees its brightest and best young generation forced to emigrate for lack of work, leaving behind broken-hearted parents but, according to Prof. John Sweeney, president of An Taisce, (Ireland's National Trust) the rape of the environment brought on by the economic crisis could dwarf that crisis through an international energy shortage, ecological collapse or runaway climate change.
Ireland is still a land of stunning, melancholic beauty, where lakes, rivers and the seas attract anglers and tourists from around the world, so is the environmental risk fuelled by corruption at all levels in the planning process and national government as serious as An Taisce claims and can the economy be turned round quickly enough to avoid decades of stagnation?
Economics will not be mocked
On the second point the jury is still out but the lesson is clear enough. When greed bestrides the saddle the devil will finally exact its merciless due. Venal politicians often trump economics but ultimately economics will always trounce politics, leaving in its wake shattered, bewildered, ordinary folk least able to defend themselves from the worst excesses of intractable, casino-style mercantilism, whilst the catastrophe's architects enrich themselves.
The EU and the IMF have done about as much as they can to ease the burden on Irish taxpayers by cutting the interest rate and repayment terms on the Euro85 billion bailout from 5.8% to 3.5-4% and extending the repayment period from 7.5 years to 15 years, which according to Irish officials will save the Irish taxpayer Euro600 million to Euro700 million a year. As part of the agreement to this revised deal the Irish government drew up an austerity programme detailing four years of tax rises and spending cuts.
The potential problem with austerity programmes is that it could reduce rather than raise economic growth and so leave a country less able to repay its international debts. Reneging on those debts, however, is not a sensible option. If nations are not chastised for their fiscal delinquency then they will never learn from economic history and, like Greece, are likely to become recidivist sovereign debt welchers, par exellance. Greece is a classic example of allowing political aims and endemic corruption to override economic good sense, and like Ireland, when adopting the Euro currency, it was like catching a falling knife. Both countries could not adjust their own interest rates to cope with changing national fortunes while at the same time they were allowed to borrow at ludicrously low interest rates which fuelled the Irish and Greek property booms.
Nemesis was not unpredictable
As in America, the unsustainable Irish property boom, fuelled by cheap credit and corporate greed, was the country's economic nemesis but it could not have been realised without a scandalous disregard of financial good governance, which was certainly not confined to Ireland. German banks, in particular, were only to eager to lend to Irish banks to stoke the housing and commercial property boom. But there is something in the Irish Psyche which loves a gamble but when the gamble involves borrowed money on a national scale then it becomes a potentially disastrous, destabilising force. That, however, does not mean that Joe public should be treated contemptuously simply because Joe public is, by and large, untutored in economics. They look to those they voted into power for good governance but the elected have betrayed them for their own venal ends.
There was nothing opaque and unpredictable about the growing banking storm in 2007. As I warned in print* five years ago: "The Bank of England's rate policy since being spooked by the dot com bust six years ago, aided by overly eager banks to lend irresponsibly, is a major cause of dangerously high national indebtedness. The banks and credit card companies may well pay a high price for their rapacious stupidity through record numbers of strapped consumers seeking voluntary insolvency deals." If a mere, hack journalist can foresee these events then readers can be assured that Governments, their advisers and irrepressibly greedy financial institutions also saw it but to their indelible shame did nothing to avert it. But in Ireland's case it took in far more than self-serving financial institutions on the make. It also involved corruption on an unimaginable, unprecedented scale in the property planning process.
In the State of the Nation, a Review of Ireland's Planning System, 2000-2012, the National Trust for Ireland said: "It is now clear from the recent publication of the final report of the Mahon Tribunal that together with a failure of the regulation of the financial sector during the 'Celtic Tiger' property bubble there was a catastrophic and systemic failure of the planning system which was characterised by endemic corruption, lack of transparency and marginalisation of voices that tried to draw attention to inherent weaknesses."
Environmental issues could dwarf economic crisis
Prof. John Sweeney, president of An Taisce, said on April 12, 2012: "In carrying out our work in the planning system An Taisce's purpose is not blinkered opposition to development but opposition to blinkered development. The lesson that must be learnt from the 'Celtic Tiger' era is that the persistent marginalisation of questioning voices weakens our democracy, economy and our society. Without greater perspective and even handedness to ensure we tread more lightly on the Earth we become more and more vulnerable to systems failures -- any of which could dwarf the current economic crisis such as international energy shortage, ecological collapse or runaway climate change."
A report by Mr Justice Mahon exposed endemic and systemic corruption and cronyism at the heart of the Irish planning system and which reached the highest levels of government. "There is no doubt that the systemic failure of planning in Ireland helped inflate the property bubble, leaving in its wake a great deal of poor quality development , reckless over zoning, chaotic sprawl, a legacy of 'ghost' developments and widespread environmental degradation," he said. Of particular long-term concern is 'locked-in' long-term costs of high dependency on greenhouse gas emissions. "The reality is that Ireland is now reaping the devastating consequences of those who promoted development-at-all-costs and seismic miscalculations," he added.
The legacy of profligacy
The profligacy of the 'Celtic Tiger' era has bequeathed an insidious legacy of very high per capita greenhouse gas emissions, significant water quality deterioration, a crisis in biodiversity and nature conservation, consistent breaches of EU law and a chronic over dependence on imported fossil fuels, mainly oil, storing up major costs for the future.
Perhaps purblind, An Taisce was arguably too critical of out-of-town mega stores which research shows that 1.4 jobs are lost in town centres for every new job created out of town. According to one US study a general failure on the part of mega stores to trade with local suppliers and recirculate money back into the local economy sees a net loss of at least 150 jobs for each new out-of-town mega store constructed. But this seems to ignore that it is not just all about jobs. Large, out-of-town shopping centres are logistically more efficient than deliveries to many, small in-town shops, and by extension more benign to the environment. They are also cheaper and so allow shoppers to save money that could be spent elsewhere in the economy and so accelerate money's circulation.As regards failure to trade with local suppliers that is something that could always be remedied, at least in part, by the willingness of local suppliers to use the law of comparative costs in their favour.
No good governance --- No solution
Dire though the banking crash in Ireland is, the country will recover. Its well-educated, industrious, youthful workforce suits the country well for attracting high, value-added industries like consumer electronics, pharmaceuticals and even forklifts, albeit encouraged by a benign corporate tax rate which other EU member countries would like to see changed. But emigration of the country's brightest and most entrepreneurial is a worry, for Ireland can least afford such losses if it is to prosper and repay its loans.
Banking establishments, as Thomas Jefferson warned, are more dangerous than standing armies but if that is so then venal politicians and corrupt officials everywhere are their willing harlots and recruiting sergeants. Gelding both parties would go far to preventing a recurrence of the worst economic crisis to befall Ireland since the 1930s depression. The problem is how to do it, for politics, business and honesty are never easy bedfellows.
A good start would be a yes vote in Ireland's referendum on the EU fiscal pact on May 31. To give it its full title, The Treaty on Stability, Coordination and Governance in the Economic and Monetary Union, a yes vote would allow Ireland access to the Eurozone's future permanent bailout fund, the ESM. The pact's key word must surely be "Governance". Two thousand years ago a great publicist opined: "Without charity I am nothing." Could it not be said today that "without good governance we are undone"?
*Warehouse & Logistics News, London, February 1st, 2007
Wednesday, 9 May 2012
Politicians and the military castes rarely have a firm grasp of economics and the impact that warfare can have on national finances. But a firm understanding of economics without a similar grasp of logistics is dangerously incomplete when the war trumpets beckon. Nowhere is this more obvious than in Afghanistan, where an 11-year war has humbled the coalition forces, including Britain, despite their overwhelming fire power against the Taliban. The reason is that the geo-logistics* have worked tremendously in the Taliban's favour. It is a war that will probably enter the annals of British military history as not only an unpopular war but one that cost so much and achieved so little.
Politics often trumps economics when calling on national finances but it is economics that will ultimately smite politics with a rod of iron and leave the people's aspirations dangerously unfulfilled. This scenario is now unfolding throughout Europe and America as years of debt-fuelled growth, often helped by war, and irresponsible fiscal governance come home to roost.
It could be reasonably argued that since losing an empire Britain has continued posturing on the world stage as though it were a world super power. But punching above its weight has dire economic consequences. Just as Government debt allowed Britain to finance foreign wars since the establishment of the Bank of England in 1694, and along the way helped create the world's greatest empire, war-created debt finally became the empire's nemesis, forcing the sale of many overseas assets, years of austerity and taking on of American loans that took decades to repay. Debt is a great instrument for expanding economic growth but it is not to be treated insouciantly. Such disdain, at all levels, ever since World War 2, now drives nations finally to realize the consequences of ignoring soaring debt and good economic governance.
So how come that a far off, arid land that most people might have difficulty locating on a world globe could humble not just Britain but the NATO coalition forces and the world's leading super power, America? Military logistics is not just about controlling the supply chain effectively to deliver all that is required to the war theatre at the right time. Britain's own army logistics corp, supported by centuries of experience, does a fine job delivering the goods, despite the lamentable record of an incompetent Ministry of Defence that has cost taxpayers billions of pounds. Logistics is also about how the chosen battlefield can be used to degrade an enemy's military ambitions.
Logistics favour the TalibanAs previously pointed out in my blog: "Logistics will be Britain's Afghanistan calvary," Afghanistan is a harsh, arid, unforgiving land, prone to temperature extremes, two thirds mountainous and honeycombed with caves -- ideal guerilla warfare terrain. It is this geography, admittedly helped by surrounding countries' suspicions of the occupying forces, which is the Taliban's greatest weapon, a weapon that in per capita terms costs the coalition forces on the ground at least 10 times as much as the Taliban.
The financial costs of the Afghan war beggar belief, and even more tragic is that the hoped for return for the outlay has not and will never be realized. As the former British ambassador to Afghanistan, Sir Sherard Cooper-Coles, explained to the House of Commons, the only solution to the Afghan problem can be political one. He believes that the Afghan war is costing Britain £6 billion a year but the British Government claims that between 2001 and 2010 the cost was only £11.1 billion, even though it now admits that the Afghan war is absorbing 30% of the MoD's £35 billion annual budget. The real figure will be much more and, of course, will continue to rise for many years after the last of the coalition troops have left to pay for the maimed, the war widows and their children.
Just how Afghanistan's terrain can send the cost of logistics soaring can be gauged by the coalition's exit plans for the 2014 pull-out, which would have been very much more if Russia had not decided to allow NATO to fly all its 140,000 troops and supplies to Russia for onward journey by rail to western Europe. Until now, much of the coalition's supplies have been flown into Afghanistan at a cost of about US$14,000 per tonne. A railway solution through Russia would have cost only US$500 a tonne. Using a land route for bringing all the military supplies through the passes to Karachi would have been too risky so the daunting prospect of a new Dunkirk lay ahead. Airlifting all the supplies to western Europe would have cost so much that much material would have had to be abandoned. In Britain's case that would have meant leaving £4 billion worth of military kit behind. If that had been lost, one British officer opined, "Without it we will not recover for a generation." NATO and Britain, in particular, has much to thank Russia and President Putin for their accommodation, but even so the exit cost will be staggering and the withdrawal has been described as the biggest logistical challenge for the military since the second World War.It will involve moving 11,000 cargo containers and 3,000 vehicles.
Armaments and wars currently cost the world an estimated US$1.479 trillion annually, but the true costs of anything are the alternatives foregone. Such a staggering sum could have provided much hope rather than despair for the impoverished, sick and oppressed. Mistrust of one's neighbours is, perhaps, mankind's greatest tragedy. It is also humanity's most damning indictment.
*How geography impacts logistical operations