Protectionism is coming

Dear Colleagues

I read this yesterday and saw it as a bit of an early warning about what might happen as old economies that have been rich react to the increasing wealth and economic power of other parts of the world. Part of the reason why the 1930s was such a deep depression and for so long was that protectionism was a part of the economic equation ... and it could be again.

http://www.arabiansupplychain.com/article-4439-air-france-klm-chief-warns-emirates-over-expansion/

Air France KLM chief warns Emirates over expansion
by Shane McGinley on Jun 30, 2010

Emirates Airline’s global expansion plans will be increasingly challenged by governments' reluctance to agree more traffic rights, a senior executive at Air France KLM reportedly said in New York earlier this week.

The Dubai-based airline is likely to face "more and more reluctance [by governments] to grant traffic rights," Peter Hartman, chief executive of the KLM unit of Air-France-KLM, and a member of the airline's governing board, told the Dow Jones Newswires in New York.

At the Berlin Air Show earlier this month, Emirates announced it had signed a $11.5bn deal to buy 32 additional A380 ‘superjumbo’ aircraft from European manufacturer Airbus. This was in addition to the 48 Airbus 380s, 70 Airbus 350s, 18 Boeing 777-300s and seven Boeing air freighters on order, totaling 143 wide-body aircraft worth more than $48bn at list price.

However, the carrier’s ambitious expansion plans are encountering obstacles around the globe, as governments implement increasingly protectionist policies to safeguard their own national carriers.

Recently, an unsourced report in the French La Tribune newspaper said the French government had rejected requests to allow Emirates to obtain more landing slots in Paris and had only agreed to one new landing slot, between Dubai and the French city of Lyon. Emirates has also been refused permission to increase its capacity to Canada and South Korea and is also embroiled in a fare dispute with the German government, which last year forced it to raise its rates on some routes to Germany so that it did not undercut EU carriers.

The best way to head off a protectionist wave of decision making by the leadership elite is to change the way socio-economic performance is measured ... as long as the only measure is money, then the money rich areas of the world are going to get into an economic fight with no winners. If, on the other hand there are metrics that have value in play, then the decision making can have a very different profile.

I remember doing some simple economic analysis in the 1973/1974 time period and concluding that the oil shock ... with a barrel of crude oil increasing in price from $3.00 to $13.00 ... was the biggest economic upheaval in all of history, including the economic impact of the Second World War. It is not surprising that some of the "oil rich" countries now have substantial economic power ... in fact, what is surprising is that this economic power has taken so long to make itself felt. For this the money center banking institutions must be given some credit ... for almost 40 years they have served to recycle "petro-dollars" in a useful way ... but that era is drawing to a close, or is already closed!

What is next? What can be done to avoid protectionism on a massive scale and ... almost certainly, a huge slump in economic activity globally, with potentially messy consequences.

Maybe too little and too late ... but I argue for more value based metrics!

Peter Burgess