Is Change Coming, Again?
It has been some time since I sat down and mused on the macroeconomics of our planet. The reasons for this are many and I will go through some of them at the end of this letter but as we are seeing some major changes around the world that are and will have dramatic effect on our lives, so too have we seen great changes at IR. Perhaps not so dramatic as Xi’s consolidation of power in China or Donald Trumps suspected affair with a porn star, but we hope they will make an impact on the experiences you have at IR and in a good way.
It seems to me that about every 20 years or so we see some kind of fundamental technological creation that follows some socioeconomic shift that affects the way we live our lives. As I was growing up computers were starting to make their way into our lives. This lead to the internet of things, and now we are staring at an energy shift. There are many geopolitical events that have affected our lives, the fall of the Soviet Union and the end of the Cold War, before that the two world wars and currently a nationalism movement and a push away from free trade. I believe we are in the middle of a brand new geopolitical event and probably some new technology as well, but before I start let’s be clear on one thing.
USA: the Only Superpower
The USA is the only superpower on this planet and no individual nation can come close to dislodging them. This is fact. They have a superior military by far and control all of the oceans and seas. They control 25% of the planet’s GDP and they hold the reserve currency, as 60% of all transactions are done in USD. The USA is self-sufficient in energy, in fact, if not the largest producer of oil and gas in the world it is neck and neck with Russia. And none of these conditions are about to change anytime soon.
This is terrifying to many other countries and disconcerting to others. It is the reason that the US is seen as an aggressor and opportunistic, bullying others into situations they don’t want to be in. Trump has leaped to the top of the hill, king of the bully’s and is playing the role to a T. The world is appalled at his blatant lack of social skills and overbearing rhetoric but not at all surprised at his focus: the United States of America. Americans are bullies and that’s just a well-known fact. But is it true? Is bullying just built into America’s DNA or is there something else that forces this to happen. It is true, America has pushed its might around! But what would happen if the US was to become passive, lay back and bask in the sun? Take an extended vacation? Perhaps not show up for the next few NATO meetings? Take a few months off work to reflect on their position? Have a midlife crisis? Do a 180?
Hmmm, I have an idea but it would be fun to speculate over a few beers. It might make a great board game: America takes a vacation. Within a few years, definitely less than a decade, I think someone or several someones would fill the gap. Russia and China would not just take a nap or crawl back into their own sandboxes and become content playing with their own toys. History is full of wars caused by ambitious dictators and geopolitical imperatives long before the United States of America was even dreamt of.
The US has trading partners in every corner of the world, and because they have been so successful at trade they have developed a navy and military to protect this trade. As we look at the history of the conflicts of the world we see that most if not all major wars are due to nations trying to protect or project their economies. As their economies grow their power expands, the need to protect that expansion builds military power and military power allows nations to have influence over others. Sometimes it is direct conflict but often it is protection from rivals or economic aid in trade for setting up a strategic military alliance. Powers ebb and flow. The superpower of the day uses its influences to grow its economic power that can be used to build military might. Mighty powers like the Romans and the Ottoman Empire grew strong, eventually went too far and were beaten back for numerous reasons. Sooner or later all superpowers mature and fall victim to their own bureaucracy. The US is nowhere close to this stage in its evolution. It has many years yet of being the boisterous immature brat that it ostensibly is. But again, if not the US then it must be someone else.
Power corrupts and Absolute Power Corrupts Absolutely
If I have learned anything, it is that people everywhere are the same. Power corrupts and absolute power corrupts absolutely, as the saying goes. I don’t care if you’re Chinese, Japanese, Russian, American, Canadian, Pakistani, Indian, Native American or Jewish. Also if you stake out a territory you will defend the territory almost to oblivion, especially if you can send others to do the fighting like we see in the proxy wars of the Middle East. And you will defend the interests that are profitable to your existence the same way. This is the human way and it is what we have seen in almost every culture and society in recorded history. I don’t like it but it is reality.
The study of geopolitics tell us that geography is the defining factor in how a country must protect its interests and how its’ political system will likely develop to make the most of its advantages and safeguard its disadvantages.
Russia and China Revealed
Russia is a great example of this. A land locked nation with very little year round access to the trade routes of the oceans, it must rely on its ingenuity and might to see to its well-being. The reason for holding dearly onto the Crimea of the Ukraine–once the Crimea of the USSR–is to illustrate power and keep some access to the Black Sea. In days gone by when its power was at its peak it conquered surrounding territories as buffers to its central core–mother Russia–most recently creating one of the most powerful nations on earth, the Union of Soviet Socialist Republics, USSR, or Soviet Union. Today the Russian economy is in tatters and their power to influence through might and prosperity is merely a shadow of those glorious days since the First World War. Russians are a proud people, strong of will. They have had to be to survive in a northern territory surrounded by hostiles both in the form of other nations and the environment. They need a strong central government with a stronger leader and Vladimir Putin has emerged as that leader. Putin knows that he has to keep the Russian image alive so he is projecting as much outward strength as he can: backing the Syrians, confronting the USA, holding steady in central Asia and trying to project superiority by election meddling and other seemingly technological accomplishments. Other appearances of power have come from the recent pronouncement by Putin that Russia has supersonic missiles that are so fast and accurate that they are unstoppable using conventional anti-missile defensive systems. Supersonic and the next evolution hypersonic missiles, are the future and are likely here already in some forms, but whether Russia is leading in this technology would be unlikely. Even if they were they are not the ultimate weapon Putin would like you to think they are.
China is appearing as the next great super power on the horizon and its development has been nothing but spectacular. The US is threatened only by China’s ambitions. China is the second largest economy in the world commanding about 15% of the world’s economy according to IMF numbers. It would be third if we counted the EU as one country but we don’t, it is merely a brief experiment in history.
China has big ambitions but it has huge geographical limitations with the Himalayas on one side, the jungles to the south, and vast Mongolia and Russia to the north. Japan, Taiwan and the Philippines, who are all more or less American allies, sit right in the middle of its ocean trade routes. China is trying to project its economic influence through its one-road-one-belt initiative, building infrastructure, and throwing dollars around in countries it needs to fulfill its ambitious trade plan. China knows that the US can cut off its trade routes with its naval might so it is building its own fleet in response, but it is decades away from being able to influence the US at sea. An overland route is an ambitious but intelligent alternative in the meantime. Taiwan is a major concern as it is very strategic and has always been a negotiating point for China and the US but this is changing as the US has decided to move from the Nixon-era position of not recognizing Taiwan as a separate nation. This will get interesting.
China is however at a turning point in their economic growth, riddled with economic rot from its artificially induced forced growth spurt. This rot is systemic and has been spread through corruption and debt-fueled bubbles and overbuilding of industries and infrastructure. China seems to be nearing a crisis point and the recent political developments have only added fuel to this assumption. At the recent National People’s Congress, Xi Jinping received the honor of having his leadership granted indefinitely. Since he became leader, Xi has been purging his enemy’s and inserting his allies. He has now solidified his position for as long as he is needed. Also during the congress many institutions and high level departments were purged of power, amalgamated and or eliminated. This was done to maintain Xi’s control, centralize power, reduce the chance of dissension and streamline policy effectiveness.
China the country, is made up of many smaller societies and cultures. There is something like 290 languages in China. It is diverse and this has been a problem throughout history as China has seen many unions formed only to fall apart over time. Like we are seeing in the European Union, differences are always there and are built into cultural heritages and not easily forgotten or put aside.
The coastal areas of China are where the wealth is and it is has been the bane of many emperors throughout history to distribute this wealth amongst the many poor in the interior parts of China. This will likely be Xi’s biggest test as he must keep the poorer parts of China, and that is most of it, from rising against the rich. Wealth distribution is his only choice and this will likely cause some of the rich to lash out also, especially as we see growth slow. It is a fine line Xi walks, changing the economy to a sustainable one, feeding the poor and keeping the rich, well rich, or at least rich enough.
Xi’s grab for power, just like Putin’s display of power, is not because these men are power hungry monsters, though they may be. It is simply that the times dictate the hierarchy that runs their respective political systems needs men like them to defend the country’s continuity from its own internal circumstances. Russia’s is one of weakness and an economic morass, and China’s is from its record-breaking growth experiment, ethnic diversity and uneven wealth distribution. If not Putin and Xi, then someone else would have been chosen and it would be men just like them.
US and China Trade War
In the mix we now we have Trump the immature president of an immature superpower who is locked in chains because his support is the small minority that can tolerate his blunt bullying. Others who he needs to enact his reforms and ambitions on are either too afraid to back his policies because of his brashness, or are truly dead set against them. I stand by my words that this man, The Donald, if remembered for nothing else, will be known as the President that defined the lines that separate all of the tensions in American society. Hopefully they will take a long look at those divisions once he is gone and work to repair them. They likely will have no choice.
Currently the US is threatening China with $50 to 60 billion in trade sanctions and of course China is threatening back. I have said in earlier letters that one day the world would start to hold China accountable for its trade and incentive practices and this adds more urgency to the reforms they are initiating along with the necessity of a powerful leader to enforce them. US sends about $115 billion worth of exports to China and China sends about $480 billion to the US. Trump is right when he says a trade war is easy to win, but it would not be without its consequences. My best guess about this is: look for US sanctions to become more of a way to force China in line with the rest of the world than a trade war. (I hope.)
Canada Asleep at the Wheel
In our own back yard we see our socialist governments more worried about environmental issues than economic, mostly because we have missed and are oblivious to the warnings of the 2008 financial crisis. The IMF recently identified Canada as one of three countries that are most likely to have a banking crisis. At the moment votes are all that matters as our economy hums along, even as oil hovers around lows not seen for 20 years. The elite class is focused on how we can further reduce our energy consumption–less than 2% of the world’s—and thus save the planet. A pipe dream of the wrong kind.
Crisis Brewing
China is going to have some kind of crisis, in what form who can say but the Chinese are preparing for this, there is no doubt. The US in initiating a trade war and are due for a recession. And Russia will continue to make headlines meddling in everyone’s affairs, even if they can’t do much else. These are all items that will impact our economies, if and when they happen, while our Canadian governments have their collective heads in the clouds dreaming of pot, tax increases and solar power in a country that has no light for 6 months of the year. I think all of this is going to bring about some kind of change. It may not be anything we see in a specific event but as these things play out we will need to adapt in some way.
Opportunities in Change
The earth is an enclosed system there is no doubt we are having an effect. Whether you believe in carbon as the cause of climate change or not, the trend is towards a healthier planet and that’s a good approach. Look for NDT opportunities in change. Outside of our petrochemical industry, in alternate energies and environmental initiatives, there will be a growing need for specialized NDT…because we do need to clean up our act.
IR Adds People, Products and Training
That last sentence is a nice segue back to IR and all of the new events we have been undertaking over the last several months. Right off the top is the addition of Heather Addley to our business development team. As most of you will know, Heather has been in the NDT business for as long as many of us can remember. She has run her own successful businesses and managed successful business for others. Her addition to IR will provide us more strength in our UT department and in mag and die. Her management experience and mentoring skills will add immensely to the growth of our younger staff members. We are very pleased that Heather chose to come to IR as we knew she had many other options.
Also new to IR is Barb Daley. She comes to us as our Marketing Manager, a new position for IR and one that we have desperately needed. Barb has many years of marketing behind her. It will be a lot of fun seeing how she works with what has been achieved so far through a tremendous effort by our staff, despite two old pipe-liners who started this company. From the looks of what she has done in very short order, I feel we have found the right person indeed.
Also added this year is Jacob in calibrations, whose background is theoretical physics and electronics, and Sharel who adds her constant smile and valuable experience to our accounts department.
IR has also been quietly developing our technical side with our Warranty, Installation and Repair Center, (the WIRC shop). Our technicians have been relentlessly pursuing manufacturers training and our list of products that we are authorised by the manufacturers to repair and/or calibrate is growing by leaps and bounds. Our goals have always been to repair, service and install in-house all of the products we offer to our clients, and we still continue to strive for this goal.
One of the problems attaining our goal of service and repair of products we sell is that we keep on bringing in more products. This year we have added flawed specimens from Sonaspection and reference tools from PH Tool, both very high quality manufacturers. We have also added thickness gauges, as well as handheld LIBS carbon analyzer and XRF analyzer, both by SciAps. The latter two you have to see to believe.
And that’s not all, we are working on more, more products from outside vendors but also we have new Exposure Products. IR has commissioned Armorlite to build an Exposure exclusive NDT lab we call the Freedom Series. They will be totally self-contained with no hookups, no truck installations, and no through the box bolt downs. They will sport many other benefits as well and will include Exposure’s brand new processing tank design that has been several years in development. Our tank trials are over and they are now being offered for sale and are as leak proof as is possible in the environments we work in, garnering impressive reviews from those who are using them now.
Well this is all I have for now, perhaps it is a little long but it’s been awhile and I think we can see clearly now the great, the wannabe, and the waning powers of the earth and their imperatives. China to keep on increasing its influence while maintaining social stability in a growing and maturing economy. Russia needs to look like it is still a mighty force to keep its proud people from questioning its economic disparity as it fades far from its former self, and the US, a still growing, bullying, adolescent superpower that’s far-reaching tentacles will continue to meddle wherever its interests lie. All of them have potential crises on their horizons that could disturb our quite slumber here in Canada. I’ll be keeping an eye on how things develop and be in touch in a few months.
Cheers!
Brian Sargent
