Conferences

Impact of de-globalization, energy costs on world’s economy

Open discussions in association with Gulf Cultural Club

Impact of de-globalization, energy costs

on world’s economy

*Mohammed Iqbal Asaria, CBE  (Economist, Consultant)

**Professor Rodney Shakespeare (Economist, author)

***Hashim Mustafa (Chartered Accountant)

6.30 pm, Tuesday 22nd November 2022

(Views represent the speakers only)

The economic turbulence that has struck the world in the aftermath of the pandemic was compounded by several other factors; the Ukrainian war, China’s attempts to abandon global economic mechanisms, and the subsequent rise of energy costs. Some experts suggest that the future of the world’s economy will never be the same again and that there could be a seismic shift in the centres of political and economic powers. The present rates of inflation are not sustainable but are also uncontrollable. So where is the world heading in terms of political balance, strategic re-alignments, and economic fundamental adjustments?

 

Mohammed Iqbal Asaria: Sisters and brothers salaam aleikum. The subject which Saeed asked me to talk about is a good subject. The point is that over the last I would six years, I would say seven there has been talking about the US now being against China. This was given as one of the reasons for disengagement from Afghanistan and all other kinds of Middle Eastern places. They just didn’t have the resources.

But if you look at the last 30 years the US was trying to move towards China and against Russia. The main idea was to bring China into the global trading and economic system. The clear hope was that as China becomes wealthier it will become more like us in terms of political engagement, political organization, and so on.

That did not happen. But what did happen was that China became much more expert at manufacturing things which we need, than we expected.  In fact, China became quite critical to the supply chain of so many things. If you look at your phones anything from I phone to whatever you will see that practically all the parts are made in China.  So companies like Apple and so on get everything done in China for $200 and they charge $1000. Clearly, they will make tonnes of money and they will not be easily persuaded to give that up.

It was not just a matter of manufacturing. They started to learn a number of things – some quite serious things. So just to give you two examples and there are plenty more. With all of this anti-China talk, not many people hear about Hinkley Point C which is going to be our main nuclear power station.

In the spirit of  Thatcherism and neo-liberalism, the British government did not want to finance the UK sector for something like Hinkley Point C. They said we need to have private enterprise coming in. What they ended up with was two major companies doing Hinkley Point C. One was EDF which is a French-owned state company and the other one was a Chinese state company. So these champions of privatization ended up literally selling the global British security apparatus to two state companies. China is still the major partner in Hinkley Point C.

The next one which came very close to fruition before it was castrated was DY. DY developed the most efficient 5G system. They were going to get the contract but Trump came to power and got them out. But from  Hinkley Point C you can’t get them out. We are now talking about Sizewell C which is another nuclear power station.  Again it seems to be unfinanceable without China.

So it is not very easy to pretend that we have decoupled from China. China has deep roots into these things and obviously outside Europe and other places. You just have to go to Africa or Dubai. The phones are Chinese.

China in sum has proved to be much more capable of mastering technology than we thought and this has not influenced its political organization. It has stayed as a one-party state although with quite a number of wealthy people and it is building its space programme, and its military programme at a huge speed.

In the last years of the Obama administration and the Trump administration suddenly the Americans woke up to realise that this is a dangerous situation. China is near to controlling large parts of our security establishment.

The problem that we suffer from is that our university system is dependent on overseas students fees. Large numbers of these are Chinese. Now we might get to a point where we say Chinese students cannot study chemistry they cannot study physics, they cannot study because those are security risks. Our university system will collapse. Trade wise a lot of things we consume are actually made in China because they can produce them cheaply. One of the reasons inflation was held down in the 80s, 90s, and 2000 was because of the transfer of the processes to China.

With China what we could do and what we did was to have a supply chain all the way to China. We had inventories coming through. If you are a business person not concerned with anything else – you order and it should be here in three days or five days.

Now suddenly even before the Russian invasion of Ukraine, we have a realisation that we are actually funding, financing, and enabling a rival superpower, and panic has set in.  Nobody can tell you how to get out of this. Some of the things are very long-term and very deep, and some of the things could destroy us economically. There is no military question.

So there is the end result of what was called globalisation. Economists were full of praise that finally we had arrived at a system where we could maximise the gains of trade, long term economic theories have been propounded saying that we should produce everything in places where they can be produced most economically and efficiently. Not thinking about security.

So what I am saying is if you bring deglobalization into the picture you want to uproot the whole of the last 30 years of economic thinking on the global scale. You want to change the parameters. Can you imagine manufacturing everything in this country? We can hardly harvest our own crops. Can you imagine manufacturing high-end electronics here  or in America for that matter. The costs of all kinds of supply chains. It is going to be a  big.big challenge.

In the middle of this, the Germans and many parts of Europe started to normalise rapidly with Russia post the collapse of the Soviet Union. Before the invasion of Ukraine, the main gas supplies of Europe came from Russia. Two new pipelines North Stream One and North Stream Two if they had been running efficiently would be supplying 80 percent of gas for the European market.

Part of the problem now, the energy crisis is the stoppage of gas supplies and the increase in prices. So Russia was also being integrated into the system. Now we have the question of bringing the ex-communist countries Russia and China into the global system and we were hoping to play one against the other so we could still be happy and laughing. But as you have seen things have been upended since February and the Russian gas supplies have been frustrated and the whole thing needs to be seen in a fresh light.

Finally, there is a bigger challenge here which not many people realise. For a population to replicate itself you need 2.2 children per family. So on average just over two children, maybe three, for a population to be steady. At the moment the European average is 1.6. This means that our population, especially of young people is declining. Our life expectancy is increasing.

When I started my economic studies we were looking at the UK life expectancy of anything between 60 and 65 years. Today we are looking at 85 years. This means that on average we are living 15 years longer. So we have a larger number of old people and fewer young people to fund them or look after them or finance them. So how are you going to manage this? If you are going to do it by immigration Europe needs 40 million new people by 2030.

We are panicking when we have 100,000 immigrants in this country. Forty million – can you see that coming?

The problem for Europe is that every border of Europe is Muslim. So the only place these 40 million can come from are Muslim countries. If you now add Turkey to this 40 million and look at the EU before Brexit you will see that one in five people in Europe will be Muslim. So you have a double problem with immigration and of repairing your relationship with Muslim countries and as you will see from the World Cup we are not ready to do that.

At the moment our security in Europe depends on LNG from Qatar.  It is foolish to antagonize these people. The Qataris have been very clever.  They said to the Europeans we want a 25-year contact. We cannot trust you to do spot contracts.

So are we ready to play ball with Muslim countries and large-scale immigration, marginalising China? They think they have a solution which is to bring India a powerhouse and there is talk of getting all these factories in China to relocate to India. Let me tell you this. Anybody who has worked and outsourced production to India will tell you this is madness. The capability is not just there. That Chinese discipline is not there and we are going to be in deep trouble.

So when you want to deglobalize something which you have been encouraging to globalize for 30 years I think it will be another generation before there is some semblance of normality and we will have to give up a lot. I leave you with these few thoughts.

Hashim Mustafa: Salam. My name is Hashim and I have been working in the finance industry for 15 years. I have a deep passion for sports, politics, and finance. And no event encapsulates this more than the 2022 World Cup in Qatar. Now if we look back at what the last four hosts spent on hosting the World Cup, Russia spent $14bn, Brazil $19bn, South Africa $5bn and Germany $6.5bn. Would anyone like to guess how much Qatar has spent? Believe it or not, an astonishing  $220bn. That equates to around $3bn per match. How did we get to this stage where money sport and politics mixes to this extent? No doubt this World Cup is the most controversial World Cup due to money spent, allegations of bribery, treatment of migrant workers, and LGBT issues. In order to understand this, we need to look at the history of FIFA, the organisation who runs football.

FIFA was set up in 1904 by 7 European associations. There was no money involved.  The idealism was to help facilitate football matches between nations. The first World Cup was held in 1930 and football spread organically across the globe from the 30s until the early 70s despite how small FIFA were as an organisation. They were a small nonprofit organisation based in Zurich.

Now when was the first time politics mixed with football? FIFA was always run by the Europeans and the English had a large influence. Stanley Rous an English administrator was President since 1961 . He always said that football and politics shouldn’t mix,” He was challenged by his colleague Joao Havelange of Brazil (a former Olympic swimmer, and head of Brazil sports). Rous though, was very tolerant of Apartheid South Africa. And so the first real Politik began within FIFA as Havelange promised to kick out South Africa. The voting system was one nation one vote and so promises were made to the less wealthy nations.  Havelange knew he did not need the support of Europe to win. There were allegations of the first brown envelopes to delegates in Frankfurt days before the vote.  Havelange won the vote and that was the day FIFA became a business. The problem for him was  there was not enough money to fulfil his promises. And so what did he do? In October 74 Sepp Blatter joined FIFA with the aim of bringing money. The first thing he did was get Coca Cola on board who started sponsoring press conferences, and even youth tournaments. Adidas, KLM, Gillette, Philips and Canon all followed.

The 1978 World Cup in Argentina was the first commercialised World Cup. It was also Havelange and Blatter’s first World Cup. It also meant the mix of politics and sport.. In  1976 fascists took over in Argentina. The first football example wasportswashing.  Sportswashing is “the laundering of an image through association of sport”. The 1936 Hitler Olympics is the most famous example. No one boycotted the 78 World Cup. This is when the question of does politics and football mix, you’d argue yes because the leaders of any nation will attend the biggest sporting event and therefore are being legitimised.

Other famous examples are Russia 2018, Qatar 2022, Saudi Arabia LIV golf, Bahrain F1, Man City takeover. What does the future hold?: A possible European Super League run by a Gulf State

So how did Blatter rise to power and the culture of corruption become institutionalised?

Before the 1982 Spain World Cup, the marketing rights were up for grabs and the then Adidas CEO Horst Dassler paid a bribe to the FIFA President.  Havelange was interested on what his bung would be, rather than selling the rights at the most economical price.

Havelange was also seen with King Carlos.  This provided yet more legitimacy and power for FIFAs image. The culture became of fame, the high life, the life of barons, cars, hotels. Havelange thought himself as an emperor.

Blatter knew Havelange was corrupt and did nothing about it as ISL sent a payment to FIFA rather that Havelange by accident.  He used this against him in 1994 and told him to stand down by 1998 so he could leave respectfully as long as he supported Blatter’s reign for power.

UEFA was not happy with the way Havelange and Blatter ran FIFA and nominated the UEFA President Johansson. Once again we see the issue with the voting system. South America has 10 votes, CONCAF has 30. Jack Warner, head of CONCAF and Blazer joined forces and they knew how to play the system, taking kickbacks on every deal.  Hence the relationship began between Blatter and Warner. Blatter did a deal with Africa to give them the World Cup in exchange for their votes. Money was also given in brown envelopes and Blatter won.

World Cups give countries image building. The World Cup is also the number one way for FIFA to make money. FIFA have so much power over countries. The power is a trap for corruption.

Sepp Blatter then set up the Goal Project. Its aim was to build stadiums, artificial pitches, educational programs in countries over the world. Money was to be distributed to each association. Money went missing rather then being spent on the projects. FIFA just gave away the money, didn’t ask for receipts etc.

In 2008 Blatter confirms bidding for 2018 and 2022 will happen at the same time rather than just one world cup. A recipe for disaster.

Qatar’s bid was a state bid rather than a football association bid.

Qatar’s team had no idea how to compete and win, but once they got Mohammed Bin Hammam on board they knew what to do. Mohammed was a Qatari and was head of the Asian Football Confederation. He knew how FIFA worked.

Qatar sponsored the CAF congress in Angola Jan 2010. $1.5mn was offered to each 3 members for their vote. Qatar went on a world tour getting votes. When they were promised Platini’s vote and won, Qatar invested in PSG, bEIN bought French TV rights, and French fighter jets.

A summer World Cup in such a small nation made no sense on footballing grounds. Previous winners had some sense to it even though corruption was involved. However this smacked of pure corruption. This was nothing new for FIFA but the media would not relent from this point forwards. This was driven by the fact England and USA missed out. Nevertheless FIFA needed cleansing. Blatter was pro US bid and knew trouble would follow

A FIFA team who analyse the bids mentioned the heat, the fact that 7 stadiums need to be built, hotels for the teams, but not one voting member raised this with the analyst team.

2011-2015 the FIFA House of cards collapsed. In May 2015, Blatter up for re-election. The  FBI arrested 14 yet Blatter was still re-elected.

The Arab world definitely deserve to host the World Cup. However hosting it in  one country wasn’t ideal. It should have been shared with other nations.

A lot of the abuse towards Qatar was political, ideological and religious. They have taken good stances on beer, LGBH in accordance with their Islamic beliefs. However we cannot deny that the amount spent is abhorrent when you could use that money to help alleviate poverty in the region rather than using the World Cup as a tool for sportswashing. We also have the deeply troubling issue of how they treated migrant workers. Finally its worth pointing out that many other bidders (Morocco 98, Germany 06 (lifting arms embargo, VW Bayer investments in Thailand, South Africa in 2010) played the FIFA system by buying votes and doing deals.

I look forward to taking your questions.

Rodney Shakespeare: This is a massive subject with many hours. I can speak on debt. The debt levels today, private, government, national are higher than 2007 and 2008. When that happens you get what you call a Minski moment. The debt becomes unrepayable and the whole thing collapses.

I have decided to pick one subject and hopefully to influence things in a rather positive direction. The subject starts in 1997 with the making of a promise to Russia that NATO would not move towards the east. Russia said that this is a red line. You know what that means and the West said ha, ha you can’t do anything about that. And Russia was to weak then to do anything about it. Then there was the further movement that you get in 2014 where there was a democratically elected president in Ukraine who wanted to keep Ukraine within the Russian orbit. There was a coup that was organised with much less money that goes into the FIFA primary. It was a mere $5 billion. And it  put in a regime bent on killing. That regime killed at least 14,000 people and somewhere between 40 and 50,000 were badly injured.

Russia still did essentially nothing until you get to last January when President Zelensky said Ukraine is going into NATO and Ukraine is going to have on its soil hypersonic missiles with nuclear tips. At that point the invasion became certain.

So we have the situation today which as you know are the Russians aim to stop Ukraine going into NATO and to rescue Russian speaking people. I think about 40 percent of the population in Ukraine are Russian and to de Nazify which essentially means to over throw the regime in Ukraine.

Today you get the consequences, you get the sanctions and I say that what you have to do is you have to address the issue which his the eastward march of NATO. But wait. I tell you a fib. It didn’t start in 1997. And what I am now going to tell you is that it is bigger and stronger than what started in 1997.

And actually what I am going to tell you explains what Boris Johnson was up to last March or April when there was a chance of settlement between Ukraine and Russia and Boris Johnson was the one who went there to stop it but did not stop it.

I am going back 168 years. I am going back to a poem which was written 168 years ago and it concerned a war in Crimea when the British army was involved and it came up against the Russian artillery and the Russian artillery slaughtered the British cavalry. It is part of the GCSE English literature syllabus.

I am teaching this poem to a 16 year old girl – poor girl! She is getting Ukraine shoved into her head. I told her if she puts into her answer what I am telling her it will either be the best answer or the examiner will mark her completely down. I warned her about the chances.

The poem is called The Charge of the Light Brigade and it was written by Alfred Tennyson. When you  understand this poem you will understand the problem and the difficulty which underlines why the West is still onto this war with Russia.

The poem starts this way: half a league (a league is 3 miles and what that means is 5 kilometers). And you have got the galloping horses. Half a league, half a league, half a league onwards into the valley of death rode the 600. And notice the onward and the hundred and you are already getting the thumping of the hooves. Forward the light brigade, charge the guns. Into the valley of death rode the 600.

So what you have in  Crimea is the British army charging against the Russian guns. So I say to you what is new? What is new about the situation today? What is really going on? What is really going on is that the political structures are still fighting – they think they have a duty and a need to fight against Russia and it has gone on for 168 years. And until you understand that you will make no progress in inflation at this moment.

You have to stop the situation in Ukraine. You have to stop the eastward move of NATO and if you don’t do that you are going to have sanctions, you are going to have dislocation. And whereas at the moment you have only been hit with 10 percent – actually it is not 10 percent, it is 12 or 14 percent for some people and if you have mortgage and interest rates it is  going to be on 20 – 25 percent. This is not so much inflation. It is going to be an actual loss to your living standards.

Forward the light brigade, was there a man dismay? Not now the solider wondered. Someone had blundered. Now here come perhaps the most lines in English literature. Their’s not to make reply, their’s not to reason why. Their’s but to do and die. Into the valley of death rode the 600.

At this moment tens of thousands, probably hundreds of thousands men are being needlessly slaughtered. The population of the Ukraine is going to be horrible this winter all because of this eastward push that has gone on or 168 years.

The poems goes on and tells cannons to the right of them cannons to the left of them. The sound of the poetry gives us the boom, boom of the Russian guns. If you think the Russians are going to run out of ammunition I have another thing for you. The Russians have had years of developing their artillery and they all know about massive amounts of artillery and ammunition and if you don’t think they organised sufficiently for this one I think you have another thing coming.

The British cavalry succeed in getting to the Russian lines  and with their sabres they cut in among the Russian guns. But of course they were blocked all the time and as a result they had to retreat. Stormed at with shot and shell horse and hero fell. They that fought so well came to the jaws of death. Back from the mouth of hell all that was left of the 600.

I think that the actual figure was about 150 to 160. This is a very famous war not only because of the complete debacle and disaster but for the actions of Florence Nightingale who was essentially a governess working in conditions of filth and no water. And the other famous woman is Mary Seacombe. These two women are greatly honoured for the work they did in horrible circumstances.

The same circumstances are being repeated in Ukraine to this day basically because the British political establishment feels the need to go and fight the Russians in Crimea. But it is the last part of this extraordinary poem which really tells you what it is all about because it describes in graphic language this absolute debacle of a military situation.

The order was given for an impossible military charge. Light cavalry could never have  attacked the guns successfully. The distance was to long and it was the sheer  incompetence of the British generals which led to that debacle.

And you would think that a poem would end up in a scream of rage. But it didn’t. It finishes like this: When can their glory fade? O the world charge they made. All the world honours the charge they made, honours the light brigade.

Now here is the greatest crime of British desire to fight the Russians. Boris Johnson and the British political establishment are still at that. They feel they have a need to push against Russia. They feel it it in their interests to push against Russia.

When you understand that you may then be prepared to say I think that we ought to stop the movement of NATO to the east and if you are not prepared to say that you are going to pay the price in a very considerable loss in your standard of living. You are protected at the moment via the energy subsidies. But this can’t go forever and it is not going to go on forever and it is having consequences factorising into inflation. So you are all going to suffer. Look for the political consequences.

There are two political consequences which you probably don’t realise. When you get inflation you start to get consequences. We have had two of them. One of them was actually Boris Johnson. It was not the cost of the wall paper in Downing Street. People in politics talk about this when it is really that. It is the big factors that unite people. They think of the obvious and very often the trivial.

Inflation was starting. Liz Truss made a much bigger error.  The idea of trickle down. Talk about out of date mania. The inflation is pushing and it is going to push against the present government.  I tell you now that no party in this country is prepared to address the biggest factor of many other factors. The biggest factor  in the inflation situation at the moment is the sanctions on Russia and behind that is the unwillingness to stop the expansion of NATO to the east.

Italy is interesting. You have a very radical politican coming who to protect herself says she is  in favour of NATO. But look at what she is up to. On the one hand she is saying I am with the  West but on the other hand I suspect she is going to be the most radical of all.

What was the original justification for NATO? It was this. The purpose of NATO is to keep Russia out. America in and Germany down,.  And  now they are destroying the German economy and there are going to be big political consequences.

So its time to fact up to the situation. The only way out of this is to stop the eastward expansion of NATO.

 

*Mohammed Iqbal Asaria, CBE is a Visiting Professor at The London Institute of Banking & Finance, the Bangor University CBMBA Programme, and member of the visiting faculties of Bangor Business School and City Business School. An expert in Islamic Finance, Iqbal was a Member of the Working Group established by the Governor of the Bank of England to look into issues relating to the introduction of Islamic Finance in the UK. This Group, set up by the late Lord Eddie George in 2002, was instrumental in charting the pathway for legislative and other changes needed to create a level playing field for Islamic Financial instruments in the UK market. The Stamp Duty and SDLT changes that have followed as a result of the Group’s work have been key to enabling the growth of Islamic Finance in the UK and maintain London’s position as a premier Islamic Finance hub.

 

**Rodney Shakespeare taught in UK schools and colleges for thirteen years.  For ten years he was Visiting Professor of Binary Economics (holding the only academic post in the subject in the world) at Trisakti University, Jakarta (second university in prestige in Indonesia) where he taught on the International Postgraduate Islamic Economics and Finance program.  Binary Economics is a new paradigm economics which, among other things, addresses the technological shift now smashing out traditional well-paid jobs. Rodney is a Cambridge MA, a qualified UK Barrister, and a well-known paper presenter and lecturer. He is a co-founder of the Global Justice Movement. In 2000 he received the (Martin Luther) King-Kelso Award. He broadcasts with various TV and radio stations.

***Hashim Mustafa holds a BSc degree London in Geography and Economics from University College London. He is a qualified Chartered Accountant and has been working in the finance industry since 2007. Since 2011 Hashim has been working as a fund accountant with Cerno Capital. He is the treasurer of Aqiq Charitable Trust and has been interested in the duality of politics and sports since 2005 with particular interest in the economy underpinning the World Cup.

 

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