Long term business planning

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Dr. George Atsalakis
Associate Professor – Economist, Laboratory of Data Analysis and Forecasting

The long economic cycle lasts 56 years as measured by deviations of energy consumption from the cumulative (sigmoid) energy consumption curve.

In 2024, economies reach the peak of a 28-year upward economic cycle shaped by changes during the stagnation and upheavals of 28 years between 1968-1996.

At the end of the cycle, a series of problems arise that will have to be taken into account by decision-makers for the future.

People’s anger, imperfect solutions to problems, energy prices, the dollar exchange rate, rising bond yields, the need for huge capital, the new digital order from tech companies that own digital platforms that connect billions of people, unfair international competition, trade deficits with which capital changes owners, environmental protection, intercultural conflict between states, internal conflicts, are some of the main problems.

During the stagnation or recession that will follow in the next 28 years 2024-2052, radical changes will take place across the economy and society and in every country. Humanity will discover and apply new technologies (artificial intelligence, 3D printing, new materials technologies, biotechnology, quantum computing, etc.) that will be widely disseminated, create new industries and new businesses.

Humanity, with cheap and abundant energy and technologies that exponentially increase productivity, will enter a new long-term economic cycle of prosperity as today’s high production costs corresponding to energy will be significantly reduced, resulting in products and services becoming even cheaper for consumers and many problems will be addressed, such as climate change.

Many causes of conflict due to fossil fuel control will be eliminated. The geostrategic importance of many fossil fuel countries will gradually diminish and instead the countries that possess these technologies will gain more and more power.

Only businesses, states and organizations that adapt to the coming changes will be able to survive. In 1989, 32 of the world’s top 50 companies by market capitalization were Japanese. Today Toyota is the only Japanese company that remains in 50th place and is in 42nd place. Such tectonic changes are coming!

At the end of the cycle, a series of problems arise that will have to be taken into account by decision-makers for the future. It is not a process that depends on the decisions of the powerful or something that can be easily prevented.

It stems from economic and political pressures within countries. These internal pressures turn into military pressures as the internal system tries to stabilize. Some countries experience these things as painful but ordinary events, while others are destabilized or attacked.

People’s anger: As problems pile up at the end of the economic cycle where many crises occur, these people blame their leaders.

The imperfect solutions of problems: The problem of the new period develops from the solution of the previous period. Problems that were not solved in the previous cycle appear more severe.

Oil: A significant rise in oil prices that had begun before the events in the Middle East, combined with the reduction of production by the OPEC plus Russia cartel and the possible escalation in the Middle East.

Dollar: The rise in the exchange rate of the dollar, which is increasingly strengthening. Dollar-denominated loans are set to default due to exchange rate differences and increased interest rates.

Bonds: The significant rise in U.S. 10-year bond yields that recently reached above 4.9%, the highest level since July 2007. All 3 of these factors add to uncertainty and the important thing is that when they happen simultaneously they usually follow effects in financial markets and significantly affect economies.

What is worse is that these 3 factors seem to be increasing, while the highest inflation in 40 years, especially food inflation, has not yet been tamed.

Bond investors in long-maturity bonds have lost more than 40% of their money since the start of 2020, a devastating loss for bond investors typically seen as risk-averse investors seeking stable returns and income.

Huge capital needs: Therefore, factors that increase bond issuance (sale of debt by the government) can increase bond yields, e.g.: increasing government borrowing to cover financing needs for investments in green energy, electricity distribution networks for electrification (capital will be needed at around 30% of GDP by 2050); dealing with natural disasters, additional military spending, incentives to resettle businesses, spending on the adoption of new technologies (artificial intelligence, etc.), paying extra interest (5%) to service the largest ever US debt of $33 trillion, etc.

Digital order: We can rule on the two world orders we are currently observing (US & China), but a third, arguably more important is on the horizon – the digital order. This digital order is not governed by nations but by tech companies that own digital platforms that connect billions of people such as: Facebook, YouTube, Instagram, Twitter, tick tock, Netflix, Airbnb etc.

Unfair competition: Unfair competition creates trade deficits, and a decrease in countries’ production volumes, although some countries can cover part of the deficit from the surplus financial sector. It also not only jeopardises the effectiveness of climate policies, but also inflates the costs associated with reducing exhaust emissions.

Trade deficits: EU trade deficit with China reaches €395 billion in 2022, (from 250 in 2021) and that of the US with China reached 382 billion dollars (up from 320 in 2021). Over the past decade, the US and EU have lost more than $5 trillion in wealth due to trade deficits with China alone.  Even if some of the money goes back to the US and EU in the form of investments, the money has changed owners.

Environmental protection: If one country bears the cost of protecting the environment and another country a few thousand kilometres further pollutes the environment by producing coal products, we have achieved no results as we all live in the same atmosphere.

Natural disasters do not discriminate between countries that adhere to or ignore low-carbon practices.

Intercultural conflict: All this is happening in an environment where the intercultural conflict between democratic systems of government and illiberal regimes is becoming increasingly apparent. States with illiberal regimes do not disseminate to the people whatever economic prosperity they achieve, but channel it into military equipment or are reaped by oligarchs.

Internal conflicts: Within many countries, the internal conflict between the two extremes from right and left is becoming increasingly apparent. The two extremes fight without moral barriers and inhibitions feeding each other, but both have the common goal of conquering the power of the state to attack the individual freedoms and institutions of democracy that societies have so painstakingly conquered.

During the stagnation or recession that will follow in the next 28 years 2024-2052, radical changes will take place across the economy and society and in every country. Humanity will discover and apply new technologies (artificial intelligence, 3D printing, new materials technologies, biotechnology, quantum computing, etc.) that will be widely disseminated, create new industries and new businesses (Open AI with ChatGPT, Nvidia, etc.) have already appeared, and will lead to the new cycle of economic growth from 2052, but perhaps even sooner due to the acceleration of changes.

Some of these new technologies, around 2040, will spur the widespread and integration into the global production infrastructure of cheap, “clean” and inexhaustible fuel from nuclear fusion, which will gradually become the dominant source of energy.  Nuclear fusion fuel, will displace the natural gas that was the dominant source at the beginning of this cycle. which in turn displaces the oil that provided cheap energy in the previous upward cycle (1940-1968).

Humanity, with cheap and abundant energy and technologies that exponentially increase productivity, will enter a new long-term economic cycle of prosperity as today’s high production costs corresponding to energy will be significantly reduced, resulting in products and services becoming even cheaper for consumers and many problems will be addressed, such as climate change to the extent that it is not due to the temperature cycles of the earth itself.

It will also eliminate many causes of conflict due to fossil fuel control. The geostrategic importance of many fossil fuel countries will gradually diminish and instead the countries that possess these technologies will gain more and more power. Only businesses, states and organizations that adapt to the coming changes will be able to survive. In 1989, 32 of the world’s top 50 companies by market capitalization were Japanese. Today Toyota is the only Japanese company that remains in 50th place and is in 42nd place. Such tectonic changes are coming!

What growth will happen: The crucial question is whether modern economic growth is increasing our prosperity or has begun to exert a detrimental influence. At its core, overall growth means that the volume of all goods and services is steadily increasing by a certain percentage. Redistribution, by contrast, suggests that while some sectors may grow, others may shrink. Resources from these shrinking industries are then channeled to developing ones.

It is important to stress that the feasibility and attractiveness of redistribution do not necessarily translate into overall growth.

The lack of growth risks trapping societies in a cycle of unemployment, stagflation and inability to find the funds to transition to a green economy.

The transition to renewable energy is an extremely complex effort, full of challenges covering material, geopolitical, economic and technological dimensions.

As the urgency of tackling climate change intensifies, it becomes critical to consider conflicts over scarce resources and environmental degradation.

The time-sensitive nature of these challenges only increases the need for international cooperation and meticulous planning to reduce the associated risks, which unfortunately is not in sight.

The rising cost of electricity, due to the transition to cleaner energy, could also fuel social unrest, thus creating a favorable environment for the emergence of populist leaders.