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6 January 2015

Dominant China, India back on track, and creative artificial intelligence: 10 predictions for 2015

Ten different writers give their predictions for this year.


1. Europe: 2015

Philippe Legrain is a writer on global and European political economy issues, and the author of European Spring: Why Our Economies and Politics Are in a Mess – and How to Put Them Right (CB Creative Books, 2014)

Resolving the crisis decisively and fairly will require bank restructuring and debt write-downs, together with increased investment and reforms to open up future growth. Germany and other surplus countries will have to play their part in this. However, the obstacles to the required changes are huge. Because of the EU bailouts of the foreign – mostly German, French and Dutch – creditors of the Greek government, as well as those of Irish, Portuguese and Spanish banks, northern European taxpayers have a vested interest in resisting the debt relief that southern Europe needs if it is to recover. That debt overhang is leading to deflation, the tackling of which may require exceptional policies that offend Germans’ monetary taboos. The new EU fiscal straightjacket prevents governments from boosting demand. The antagonism between north and south, broader resentment of quasi-hegemonic Germany, institutional fatigue and the corrosion of support for the EU precludes desirable further integration. Because today’s chronic misery seems less pressing than the acute financial panic that has, for now, abated – and because Germany isn’t suffering enough to feel that it needs to change course – there is a complacency among policymakers, who are often detached from and unaccountable to those who suffer the consequences of their bad decisions.

So 2015 is likely to see a continuation of the current stalemate. Germany insists on fiscal consolidation and structural reforms; France and Italy want to borrow a little more in exchange for a little more reform. The new president of the European Commission, Jean-Claude Juncker, has promised a €300bn EU investment programme, but so far no new money has been made available. Markets pin their hopes on quantitative easing involving large-scale purchases of government bonds by the European Central Bank (ECB), which is very unlikely given German hostility to it, and is in any case unlikely to be a game-changer. And the ECB continues to pump liquidity into eurozone banks, when their real problem is not a lack of cash but bad debts on their balance sheets.

Markets might unsettle this miserable deadlock, but for now the promise of cheap ECB money keeps them quiescent. So the trigger of any change is more likely to be political. Since the ruling coalition in Greece is unlikely to be able to muster a majority to elect a new president, general elections are likely in March – and Syriza, a far-left coalition, is well-placed to win. Alex Tsipras, the prospective prime minister, might threaten to default in order to obtain debt relief for Greece. Spanish general elections are also due by the end of 2015, with Podemos, a new far-left anti-austerity party, currently leading in some polls. In Italy, Beppe Grillo’s Five Star Movement, which favours leaving the eurozone, waits in the wings for Matteo Renzi to fail. And in France, both the Socialists and the centre right are in disarray, while Marine Le Pen’s far-right Front National tops the polls.

A bold and forward-thinking leader would seek to resolve the crisis before their hand is forced. But Angela Merkel shows no signs of being such a leader.

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2. UK economy: 2015

Ann Pettifor is director of Policy Research in Macroeconomics (Prime), and a fellow of the New Economics Foundation

Europeans have no experience or memory of deflation. This is a worry. Britain and the EU will likely experience deflation in 2015. Disinflation – a slowing in the rise of price inflation – is already a feature of our economies. To understand disinflation and deflation, it helps to view both through the lens of debt.

Lending to the finance, insurance and real estate (FIRE) sectors far outweighs lending to the real, productive economy. Some estimates have put lending to the FIRE sector at 80 per cent of the total. Borrowing to finance the purchase of pre-existing assets rather than new, productive activity invariably inflates the prices of assets. Before the crisis, central bankers ignored inflated asset prices, but applied downward pressure on wages and prices.

Rises in asset prices oblige new commercial and household borrowers to borrow higher sums. But the larger the share of total income aimed at debt payments (even with low rates), the smaller the share of income that is aimed at investment and the purchase of goods and services. This places further downward pressure on both consumer prices and wages.

This disturbing phenomenon was a feature of the UK economy before the crisis. All three are linked, and conspire to contract activity in the real, productive sectors of the economy. UK bank lending to the real estate sector has started to decline, and house price rises have slowed. Falling asset prices will likely only exacerbate both the debt overhang and falls in consumer prices and wages.

It is doubtful whether central banks and finance ministries have sufficient policy tools to arrest a generalised, downward spiral of prices, which will lead to declines in profits, further falls in real wages, rising unemployment and ever-sharper falls in prices. Which is why deflation is such a terrifying prospect.


3. Wages: 2015

Laura Gardiner is a senior research and policy analyst at the Resolution Foundation

Speculating on the future path of UK wages is a risky business. 2014 was another year in which forecasts for rising earnings were proved wrong. The most robust official annual pay data showed that wages have continued to be squeezed across the distribution. Weekly pay for full-time workers is now, in real terms, 8.6 per cent below 2009 levels.

Nonetheless, in its latest quarterly inflation report the Bank of England once again promised sunshine tomorrow, expecting a reversal from the current bleak position to healthy growth of 1.8 per cent by the end of 2015. To be fair, the Bank’s chief economist has been admirably forthright in highlighting his organisation’s over-optimism in previous forecasts – so how sceptical should we be this time around?

Every passing month of rising GDP and falling unemployment makes a degree of optimism more plausible, and there are other tentative indicators that a wage pick-up may finally be just around the corner. One is that 2014 saw the first real-terms increase in the national minimum wage in six years. As well as directly affecting the pay of more than a million workers, minimum wage rises are a benchmark for earnings settlements within many firms, so may feed through to increases higher up the distribution. We’ve also seen improvements recently in the rate of people moving from job to job, which is thought to reflect confidence about labour market prospects and therefore provides a leading indicator of wage pressure.

Finally, it is increasingly clear that part of the reason wages performed so poorly in 2014 was a downward shift in the make-up of the workforce, a shift towards lower-paid groups and sectors. A key factor in this was the entry and re-entry of younger and less-experienced workers, reflecting rapid employment growth and falling youth unemployment. This is likely to be a temporary phenomenon that will fall out of the year-on-year comparison in 2015 – another pointer that the wage turnaround might be coming.

While the case for optimism seems to be building, there remain notes of caution. The Bank of England’s rosy forecast rests on difficult and fine-grained judgments, over which even members of the Monetary Policy Committee differ – particularly the notion that the notoriously difficult-to-measure concept of labour market “slack” has started to shrink. And returning to the changing workforce mix mentioned above, it’s important to note that the biggest wage drag in 2014 came from the growth of lower-skilled, lower-paying occupations. Whether this is a temporary trend or a permanent shift is far from clear.

Overall then, there are signs that 2015 may finally provide better news on wages. But plenty of uncertainty remains over the scale of any improvement, if not the direction of travel. And even if the Bank’s rosy forecasts for 2015 come good, it is worth remembering that it will take many more sunny years to recover the ground lost during the historically long and deep wage squeeze we have experienced in recent years.


4. Scotland: 2015

David Torrance is a political journalist and author working in London and Edinburgh

On announcing his resignation as first minister and SNP leader, Alex Salmond predicted that the political landscape would be “redolent with opportunity” for his heir apparent, Nicola Sturgeon. And so it has proved: the SNP has thousands of new members, a new lease of life following Sturgeon’s coronation and, perhaps most importantly, continued control of the Scottish political narrative.

The new leader, however, will bring more a change of style than of substance. Salmond could be a divisive figure, and so Sturgeon has made efforts to be more ecumenical, with less grandstanding and strident rhetoric. In policy terms she will continue the pragmatic approach of her successor, talking in terms of ‘social democracy’ but doing her best not to upset middle Scotland. That said, it is likely that Sturgeon will distance herself from aspects of Salmondite economics, such as cutting corporation tax.

Sturgeon’s first electoral test is but a few months away, and judging by opinion polls the SNP could be set for a historic high in terms of Westminster MPs (its high-water mark being 11 in October 1974). Salmond looks certain to be one of perhaps as many as twice that number. Sturgeon is treading carefully on the question of another referendum, having echoed her predecessor’s “once-in-a-generation” line during the campaign, but the general election in Scotland will end up being 59 mini referendums on the Scottish question.

Assuming a hung parliament, the SNP will hope to exert maximum influence on the much-maligned Conservative and Labour holdovers, although formal coalition seems unlikely, as does genuine influence: scrapping both Trident and austerity is Sturgeon’s quixotic condition of any deal with Ed Miliband. Sturgeon has also pledged to forge alliances with other “progressive” forces across the UK, most notably the Greens and Plaid Cymru, while Salmond has even presented himself as a better potential “champion” of northern England than Nigel Farage. Stranger things have happened.


5. China: 2015

Martin Jacques is the author of When China Rules the World: the End of the Western World and the Birth of a New Global Order (Penguin, 2012), and a senior fellow at the Department of Politics and International Studies at Cambridge University

To all intents and purposes, Europe – including the UK – is more or less frozen. It is still living in the dark shadow cast by the financial crisis. This is the era of stagnation, and it may last for another decade or more. So we can expect that not too much will happen in 2015 – except, of course, in terms of the political fallout from such a condition. While the US is clearly more dynamic, this is overshadowed by its tumultuous decline as a global power. Which brings us to China.

The preoccupation of the western media and financial analysts with China’s reduced economic growth rate has served, once more, to divert attention from the continuing enormity of the changes taking place in China: from the anti-corruption drive and judicial reforms, to the Shanghai free-trade zone and the rise of consumption. However, as 2014 drew to a close, what began to capture global attention was China’s growing dominance in east Asia.

We have heard much of the US “pivot” towards Asia, but its objective of containing and constraining China’s rise in east Asia was always destined to fail. In typical American fashion, the strategy was heavily weighted towards the country’s military alliances and the military containment of China. Yet the reasons for China’s rise are overwhelmingly economic, and few of them military. Similarly, what is undercutting America’s position in east Asia is its rapidly diminishing economic position in the region. In short, the pivot was, and is, profoundly misconceived.

In 2015 we should expect the eclipse of America’s ambitions in the world’s most important region to accelerate. The recent launch, on China’s initiative, of the Asia Infrastructure Investment Bank (AIIB) – the founding members of which include all the Asean countries bar Indonesia, and a majority of south Asian countries including India – went ahead despite intense efforts by the US to persuade countries to desist from joining; it is surely only a matter of time before South Korea and Indonesia also sign up. It will also be worth bearing in mind China’s deepening economic relationships with the nations of central Asia, as it continues its efforts to open up western China to trade and develop the Silk Road. The AIIB and the new Brics Development Bank are set to dominate lending to the developing world, further marginalising both the World Bank and the Asian Development Bank backed by the US and Japan. Meanwhile, it looks as though China’s trade initiative with Asean – the Regional Comprehensive Economic Partnership – will achieve lift-off before the American-inspired Trans-Pacific Partnership reaches fruition.

China’s growing dominance in east Asia, and the US’s increasingly subordinate position, will have huge global ramifications in 2015 and beyond.


6. India: 2015

James Crabtree is Mumbai bureau chief for the Financial Times

2015 will be the year India gets back on track. After years of falling growth, its economy will rebound, potentially catching up with China, or even overtaking it. Inflation will fall. A long-awaited industrial recovery will gradually take hold, as prime minister Narendra Modi bashes heads together in Delhi. India’s new leader will raise the country’s profile abroad too, pushing a more muscular foreign policy more closely allied with the US, and making India heard in the new era of competition within Asia that is reshaping the region’s balance of power. By the end of 2015, rising Indian dynamism will see a gradual return to comparisons with China’s faltering performance, in turn rekindling debates about the long-term prospects for the two rising Asian giants, and their respective systems of government.

For all that, 2015 will be also be year in which India faces some more profound questions that lurk beneath the surface. Much of its economic recovery is cyclical. Modi has moved slowly to introduce major economic reforms to the country’s taxation, labour market and banking systems. Its energy system is in crisis: in the short term because it can’t dig up enough coal, and in the long term because it will dig up too much of it, with disastrous implications for air quality and global climate change. A centre-right nationalist with a deep background in Hindu religious groups, Modi has so far governed without slipping into the politics of social division – a trend worried liberals hope but cannot be sure will continue. More generally, India faces awkward problems of crony capitalism and political corruption. In these areas it remains unclear if the prime minister is capable of a radical break with the country’s darker past, or instead sees himself as a leader returning his nation to its status quo ante: cleaning up the worst larceny of the previous Congress party-led government, but doing little fundamentally to rebalance the cozy, scam-ridden relationships between India’s business and political elites that have done so much to damage India’s international standing.


7. Paris: 2015

Michael Jacobs is visiting professor at the Grantham Institute on Climate Change and the Environment at the London School of Economics, and senior adviser to the New Climate Economy project

In 2015 we are likely to see the first legally-binding international climate-change agreement since the Kyoto Protocol of 1997. Since the failure at Copenhagen in 2009 many commentators have claimed that such an agreement is impossible, but the UN climate conference in Paris in December 2015 could yet conclude in just such a deal.

The definition of “legally binding” is important. The negotiations in Paris will focus on the multilateral “climate regime” – that is, the rules under which all countries will reduce (or slow the rise in) their greenhouse-gas emissions and adapt to current warming. These rules will have legal force: they are likely to require all countries to strengthen their targets every five years and report transparently on them, and require richer countries to assist poorer ones. However, the actual emissions targets and policies that countries adopt are likely to be binding only in domestic law. The Paris agreement will do what Kyoto did not: it will require commitments from both the US and China, along with other emerging powers. But to secure their participation it will have to eschew the idea – which in reality has only ever been theoretical – that if they don’t achieve their targets they will somehow be sanctioned under international law.

This trade-off is worth making. The real goal of an international agreement is to send businesses and investors clear signals about the future, low-carbon direction of the global economy. It is domestic legislation, not international law, that provides the policy certainty they need.

The bigger problem is that when all countries’ commitments are added up, they will fall well short of the emissions reductions that are even minimally required to hold global warming to the 2°C limit that countries have declared as their goal. These commitments will be published in the spring. Between then and December a huge NGO and media campaign will be needed to get them strengthened. In the end, it will be public pressure that determines how good the agreement really is.


8. Artificial intelligence: 2015

Kathryn Nave is a freelance journalist who writes about science, technology and culture

In 2011, Watson – IBM’s artificial intelligence – destroyed its human opponents on the game show Jeopardy in a groundbreaking demonstration of the cognitive technology’s ability to rapidly interpret complex natural language questions. Three years later Watson turned to medical research, analysing 23 million medical articles to identify potential cancer-fighting proteins. The typical rate of discovery by the entire industry is one a year; in a single month, Watson identified six. Then, in March 2014, IBM hooked their computational powerhouse up to a food truck, and things really began to get interesting.

The Cognitive Cooking project saw Watson analyse 35,000 recipes to identify popular flavour combinations. The challenge: to go beyond merely uncovering information already present in the data, and produce something new – completely original recipe ideas. So far its output includes chocolate burritos and an unusual but well-reviewed barbeque sauce. With Cognitive Cooking, IBM turned their attention to the next frontier of computing – not mere intelligence, but creativity.

IBM is far from the only player. At Future University Hakodate in Japan, Dr Hitoshi Matsubara is leading a team that is attempting to develop an artificial intelligence capable of writing short sci-fi stories. Angelina, developed by Goldsmiths University researcher Michael Cook, can not only independently create whole games from scratch but can even attempt to explain its choices.

These are only a few examples, and all are in their infancy. Matsubara estimates that it will be at least three years before their program produces a decent story; Angelina’s games are bizarrely incoherent; and Watson still requires human assistance to produce its dishes. 2015 will not be remembered as the year when computers replaced artists, writers or Michelin-star chefs, but it may be the year in which they begin to collaborate with them. Procedural generation – essentially a limited application of the processes at play in Angelina – is already popular in the games industry, being used to amplify the work of human artists by automatically recombining and reconfiguring it in potentially infinite variations. And, as computers take on more traditionally creative tasks, people who are uncomfortable with ascribing such a fundamentally human trait to a bundle of wires and silicon will find themselves in an increasingly difficult position. To argue that these systems have no creativity of their own – that they merely follow rules provided by an external human creator – begs the question of exactly how we, as humans, are different. If our creative choices are not the project of our biological makeup and external social influences, then where do they come from? In 2015 artificially intelligent programmes will not only stretch our ability to deny their creativity – they will force us to seriously question exactly what is so special about our own.


9. Organisational culture: 2015

Matthew Taylor is chief executive of the RSA

There is one thing of which I am certain in 2015, and another for which I can only hope. The former is that organisations – especially large organisations – will continue to falter and fail at an ever-faster rate. More big companies will face commercial or reputational crises; more political and governmental institutions will face evidence of unsuccessful policy and declining public trust.

This is because in most parts of the world – particularly the developed world – the trends undermining traditionally structured hierarchical organisations are accelerating. These trends, such as increasing complexity, the pace of change and the changing aspirations and expectations of citizens, are all reinforced and accelerated by technology.

My hope, then, is that organisational leaders start to understand the nature of this crisis and to appreciate that the response must be deep, authentic and inquiring, not superficial and simplistic.

The starting point is for organisations to recognise and openly grapple with the challenge of aligning their organisational interests with their social responsibilities and with public expectations. In a world of transparency and increasingly sophisticated citizens, organisations need to understand that if they are having internal conversations or tolerating behaviours which the public would disapprove of, then sooner or later they will be in trouble.

Change often takes place more quickly outside large organisations than it does inside them. Innovation is less likely to happen deep inside R&D departments than at the fuzzy boundary between organisations and their contexts. So a second crucial insight is that organisations must maximise the scope for autonomy, creativity and reciprocity among their staff and in their relationships with customers, clients and citizens.

Above all in 2015 we need increasingly to understand the organisational dimension of our problems. This is nowhere more true than in relation to the decline in the effectiveness and reputation of our political and policymaking institutions.

10. Ideology: 2015

Eliane Glaser is a BBC producer and the author of Get Real: How to See Through the Hype, Spin and Lies of Modern Life (Fourth Estate, 2013)

In 2015, the populism that is emerging across Europe will unsettle the post-ideological consensus that has dominated since the appearance of Francis Fukuyama’s seminal article “The End of History?” in 1989. Fukuyama claimed that the great ideological battles were over, and western liberal democracy had triumphed. Although his thesis has been widely ridiculed, it still accurately reflects the way in which “ideology” has become an insult in an era dominated by technocracy, pragmatism and single-issue campaigns.

Since the death of ideology has since become a cliché, it is difficult to appreciate how peculiar it is that espousing a set of political ideals is now dismissed as either sinister or naïve. But we now live in an age in which political “futures” are “tracked” by data-crunchers, as if policy trends are to be divined rather than shaped by politicians advocating for the society they want to create. Of course, in reality, ideology is not dead – it is merely buried, and busily operating as a set of disguised motivations, most often in the service of neoliberal hegemony.

Contemporary populism supports the claim that we now inhabit a post-ideological world, but it overturns it, too. On the one hand, it wants to give traditional mainstream politics a good kicking. In the UK, both Ukip and the Scottish Yes campaign have galvanised hostility to Westminster from opposite ends of the political spectrum. Yet, on the other, the rise of populism signals the re-emergence of a desire for the “properly political” – for politics to engage with and articulate ordinary people’s predicaments and frustrations.

While populism is acknowledged as a force to be reckoned with, its meaning is not yet clear. What is actually new about its present incarnation, and how do its right-wing anti-immigration manifestations differ from left-populist ones such as Podemos and Syriza? In the wake of the financial crash of 2008/2009, right-wing populism has exploited blue-collar grievance as a fig leaf for business-friendly authoritarianism, and diverted anger away from global capital and towards EU human rights law, immigrants on less than the minimum wage, and benefits claimants. Is left-wing populism, by contrast, simply anger directed at the correct targets, or does it too carry a whiff of charismatic illiberalism? Does the populist left have the language, resources, and stamina to mount a coordinated challenge to the post-Fukuyama strain of neoliberalism that disavows its own ideological inflection? Most fundamentally, is populism necessarily anti-political, or will it resuscitate – or reinvent – politics? In the coming year, answers to these urgent questions will begin to appear.

A version of this article appeared in edition 21.3 of Juncture, IPPR’s quarterly journal of politics and ideas

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