Monday, 18 January 2010

The Shape of Things To Come

Two things I read over the weekend caught my eye about the future. The first was the Ernst & Young Item Club report about the economic outlook.

The second was about spending reviews for the Armed Forces which will now take place after the election - of course, low priority matters like soldiers being blown to pieces can wait for preening politicians to have their jamboree.

The Item Club, stuffed full of clever economists who could not predict the Credit Crunch and the depth of the recession, are now calling how it will be on the 'upside'. Their predictions are not encouraging as they forecast a mere 1% growth for the economy this year. For once their predictions are based on some sound observations as they focus on Britain decreasing its dependency on consumer and debt to fuel growth, and to focus more on exports. As we don't have much of a manufacturing base left, this will be a long hard slog but I cannot agree more about the assertions on debt.

However, I think the Government have other ideas. The vast growth we enjoyed in the last 12 years came directly from leveraged consumers who took plentiful and cheap credit and spent like no other generation. Unsecured debt is at perilously high levels and is only slowly creeping down. In the next few years, it should be the aim of the Government and consumers alike to manage this debt down as it will be crucial in the ability of the Government to force new taxes upon the nation and get them collected - the real threat of increasing bankruptcies and hardship could hamper the ability of HMRC to collect taxes.

It will be a year when the eyes of the financial world will be watching us very carefully for signs of weakness and inability to service or repay our debts and as each day passes with no action on cuts or tax then the uncertainty grows.

The second thing was about the Armed Forces. General Sir David Richards believes that the 'Rules of war have been re-written' and so advocates greater emphasis and money on sophisticated equipment such as spy planes and cyber-defences as the name of the game is fighting insurgency who work by different rules. To be honest, such insurgent armies work on infinitely weaker budgets than the might of the US and UK and still work very effectively. It has been a feature of modern warfare that in the absence of massive engagements on mapped out battlefields that war is becoming a game of cat and mouse and the mouse is superbly equipped to inflict severe damage on a waringly small but regular scale. While the numbers in each incident are low, the toll of kills or injured mount over the course of a year and now we have lost more British forces in the Afghan conflict than we did in the Falklands.

This is not rocket science. We have seen it in Northern Ireland - a relatively small, hidden and resourceful army with deep convictions and little fear can inflict terrible wounds which are difficult to stem over time that saps morale and instills fear. The wiser way to handle such conflicts would be simply to not engage and make no theatre of war for them to play in. Such armies are not mobile, they cannot travel far and they have limited ways of communicating, but concentrate them in small areas where they can focus their attention and they become lethal.

The pressure on us as a country as we attempt to pay the price of awesome economic failure is to fight a war we cannot win and we cannot afford. Our aspirations of being some kind of world superpower are dwindling as fast as our bank balance and the two things are incongruous.

Britain faces an austere year and a year where our ambitions should be reviewed on all fronts.

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