We all know the old sayings:

“A rolling stone gathers no moss”

“A bird in the hand is worth two in the bush”

“Be the difference you want to see in the world”

These ‘truths’ are often dismissed but they survive because they are truths, they speak to our basic behaviour and values.

In a world that changes ever faster through scientific innovation it is tempting to believe that the future is new and unknown. It may be true for science but this belief discounts human behaviour which remains a constant. This is to say that we are evolving intellectually but we are not evolving emotionally. In fact it can be argued that our emotional path is degrading, as more of the world develops and the need to act interdependently (because our prosperity depends less upon the group effort as opposed to our individual achievements) the fabric of society becomes more fragmented and less collective.

History rhymes

Another of the “old” sayings which holds true today is:

“History does not repeat but it does rhyme”

As Winston Churchill said:

“If you wish to know the future just look to the past”

Put simply, humans act the same even if the background is different.

Europe and the US

To look at the history of the world economically over the last 20 centuries is to find that China and India have been dominant economic powers in 18 of them. This is to say that over the last 2000 years they have been powerhouses 90% of the time.

Viewed from the perspective of the last 200 years the West has been the dominant force but over 2000 years this can be viewed as the anomaly and not the norm.

One of the immutable laws of nature is that of balance.

“For every action there is an equal and positive reaction.”


In economics this is known as “mean reversion or reflexivity”

In the same way that Global warming is the reaction to our actions (pumping unnatural amounts of CO2 into the atmosphere) so the current rebalancing of economies and the Global economic order is a reversion to mean. It is instructive therefore to identify what caused the initial changes and why these are no longer in effect.

Europe / America Post Second World War

By the 1970’s on average the population of Europe and the US had earning power and wealth 16 – 18 times greater than those of India and China.

From that high water mark the comparative wealth is now 5 – 7 times greater and is falling rapidly.

What changed then and what’s changing now

In very broad brush terms the difference in the West and the East in the 17th and 18th Centuries is that the West encouraged the following, at the same time they were repressed in the East.

  1. Democratic governance
  2. Scientific freedom
  3. The protection in law of individual property ownership
  4. Free market capitalism

In the case of India, they have now embraced all of the above and China has embraced 3 of the 4, it is perhaps one of the greatest social experiments undertaken for China to seek to create a centrally managed one party capitalist economy, time will tell if it works and from a purely theoretical standpoint it has been argued that benign (ish) dictatorship is the most effective form of Governance. (One suspects however that benign will be beyond the realities of the human desire for personal freedoms and the willingness to fight for them).


The key to the current European dilemma is to look back to the decisions taken after the Second World War.

Europe had fought the second of two hugely damaging wars in the space of 35 years; a man of 20 in 1914 would have only been 45 in 1939.

The creation of the nuclear bomb in 1944 changed everything militarily and it is told as a truth that prior to Pearl Harbour the US knew the Japanese fleet had left port but didn’t know where they were, it was a different world to the satellites and spy planes of only a decade later.

Europe therefore reasoned that to avoid further conflict it needed a social charter with its populations.

In the main countries free healthcare provision, unemployment benefits and state pensions were initiated because in part it was believed that “social welfare” was central to preventing future dissatisfaction.

In the UK in 1945/46 healthcare was made free at the point of delivery and state pensions were initiated.

Now all of the above is both understandable and admirable. Massive inequalities in wealth and living standards cause dangerous tensions and all citizens should enjoy a safety net; this is unarguably what a caring compassionate society should provide.

However the unintended consequence of these promises was ultimately to burden Europe and the US with promises they can’t now afford to keep.

There are a myriad of statistics to illustrate this. Perhaps the clearest single example is.

The average life expectancy of a male in the UK in 1945 was 65. So the state pension age was the same as the average age of death when state pensions commenced.

Fast forward to 2011

The average life expectancy of a male in the UK is over 80 years of age and it is projected to increase by over 2 years per decade from here.

If you add in the baby boom of the 1950’s and 1960’s (most of whom are coming up to retirement) and the fact that there is a FREE HEALTHCARE SYSTEM with ever more ways to (expensively) keep people alive to carry on drawing pensions ….. well you get the point.

In essence this is the European issue; it can’t pay to keep its social contracts. So from here it’s a painful and probably violent period of social adjustment to the new realities. It has been put off as long as possible but ultimately imbalances must be corrected.

The next question is what may happen next in relation to:




i.e. what will the future look like.

It Is undoubtedly a story of changing economic power, of the rise of the East and the acceptance by Europe and the US that the world has and is changing and they no longer have the “whip” hand.

Whilst change is often feared it is inevitable and those that adapt survive.

What is required is pragmatism, humility and ultimately an understanding that whatever tribe we belong to the world, and our mutual success depends on our embracing inter dependence. Unfortunately Europe has many past sins related to its exploitation and subjugation of those very nations it now needs to show understanding and a community of spirit, the hope is that they will decide that to sin is mortal, but to forgive divine.


NOTE: This is written in a personal capacity and reflects the view of the author. It does not necessarily reflect the view of LWM Consultants. The post has been checked and approved to ensure that it is both accurate and not misleading. However, this is a blog and the reader should accept that by its very nature many of the points are subjective and opinions of the author. This is not a recommendation to buy any product or service including any share or fund mentioned. Individuals wishing to buy any product or service as a result of this blog must seek advice or carry out their own research before making any decision, the author will not be held liable for decisions made as a result of this blog (particularly where no advice has been sought). Investors should also note that past performance is not a guide to future performance and investments can fall as well as rise.