Transcription
[gasps] Martin. Um, pleasure to speak to you for the first time. I appreciate you giving us your time. Um, where to start? Because there's just so many questions I've got for you. Um, maybe let's start with the current state of things. Obviously, we're all looking on whether the war has even ended yet and when the blockade will be lifted. But if we look at where we are today, um it's really hard to understand how bad it really is because on one side you see the headlines talking about um fuel shortages across the world and and the fertilizer shortages that would lead to famine and the warning by the UN and then on the other side you see Trump bolsting about the stock market which I know is kind of led by just a handful of stocks. What's your analysis of the state of the economy now and especially comparing to to what we saw in the 70s and then from there I'd love to get your thoughts on if this gets worse if if the New York Times is right and we see a continuation of the war next week then what?
>> Well, that's a very good question and there are some areas in which I'm more expert than others and I always am very clear what where I don't know uh where things that are known and even more important the things that aren't known at all and which you've already discussed particularly what's going to happen next in the war but I think we can start with what we do know um which is probably uh the best place we've the war is now well into its third month and from the world's point of view the most significant uh fact is that the straits remain closed. And that's not the most significant thing for Iran because there is a sort of ceasefire now but for the world it's the crucial thing is the threats remain closed and some of the things that I've been reading recently uh particularly by a friend of mine Nick Butler. He he he writes uh a substack and he worked for many years at BP. So he follows this very closely. Basically making the point that because the straits have now been closed this long that means a great many tankers and uh of various kinds taking various commodities that should have arrived somewhere haven't. And because the journeys are months because tankers aren't very quick. And in the meantime, of course, well, tankers that had gone before the war started were still arriving. So, uh, the shortages aren't now. It takes a very long to time for the shortage to become apparent. It's it's when the tankers that people expected haven't arrived yet, which is sort of about now. So the likelihood is shortages will become more obvious across a range of commodities. Now, the good news is that we had pretty large inventories of many things, not all things, and they are and they are used and usable, but they won't go on forever. And in some commodities, they're clearly going to run out sooner than others. Um, because it depends what we were storing. And we were what we were mostly storing was oil. uh and there are other things jet fuel you mentioned fertilizers ura to make fertilizers in which they weren't such gigantic stocks. So the likelihood is we are going to get shortages and they are now began become evident and so the things that people were frightened on will happen. Now what will be the consequences of that? Um well it depends obviously on how long the closure remains. We'll come to that in a moment. But the main point is we can prices will rise that will clear the market where there aren't inventories that can continue to be drawn down and there are very big inventories in China for example which is why it's I think relatively comfortable but elsewhere Europe for example not so much. And so the um these shortages become obvious and the answer the result will be prices will rise and how high might they rise? Very very good question. Uh but over months the prices could get very high. I wrote a column well, it's now a month or two ago and suggested well it wasn't impossible to imagine if we don't get supplies this year that oil prices will go to $200 a barrel or even more. That's not but that's if it's really closed down and in some parts of the world they're going to have to pay whatever is needed to get it. This will suppress demand um and and it will create inflationary pressure. How much? We don't know because people might look through it and see well that's not it's not going to last forever. We shouldn't start asking for much more in the way of wages. But it's important to remember inflation never really got back down to target. Notably so in the US. So uh that gives Mr. divorce just coming into the Fed. Quite a headache. Um, uh, Trump put him there, Mr. Trump, to lower rates and he's going to have a big question about whether he should actually be raising them. And that links to the other part of the uh, point. Um, so this is what's going on with the Gulf and the uncertainties about it. My own guess by the way is the straits will not be open soon. But I'm not a geopolitical specialist. But I suspect reaching a deal between the Iran Iran and the US and Israel which will persuade the Iranians to open the straits freely is going to be very very hard. So it is likely to last. So we are likely to be in this situation for quite a long time. That puts as I said pressure on inflation. Central banks will have to decide what to do about it. Governments will have to decide how far to cushion their publics against falling you know affordability an affordability crisis again and they don't have much money to do this with but at the same time that's the bad news at the same time very very crucially uh markets are resilient there's tremendous confidence in the future of AI which is driving the US economy with a huge investment boom stock markets are great because they're mostly driven in fact by uh AI related stocks. That doesn't really mean much to um to most people because they don't own stocks. Stocks are owned by a relatively small proportion of the population. But it will keep optimism going and investment going. So the economy will be supported by that. But this shock looks to me likely to become really a big one. And on the question that you asked at the beginning, how does it compare with the 70s? Well, I think this the closure of the straits of Hmus with its immense importance uh in terms of the commodities that come from there, such a significant part of world output and world exports. This is in and of itself, if it lasts for many months, it looks to me like the biggest oil shock we've had. And that's what the head of the International Energy Agency has said. So that's my summary of where that's on that last point, the biggest oil shop we've ever had. That's if the that's if everything if it ends soon if we don't see a continuating blockade continuation of the blockade or continuation of worst case scenario.
>> It's not the case yet it could become so well he actually suggested it was already but but the but of course the longer it goes on for if it if the straits were to remain closed into next year well it's clearly going to be a massive disruption like unimaginable disruption back unprecedented until next year.
>> Well, the point here is I'm not saying that will happen, but the point here is somebody is going to have to give way. The uh uh and the the people who actually have the chokeold now are the Iranians. I mean clearly uh the it doesn't seem at all likely that the US is going to contemplate a land invasion to con to conquer Iran. So they have to persuade the Iran Iran Iran the Iranians who are obviously terrified and fighting for their lives domestically and internationally to to give way. And the I think the Iranians have probably been quite surprised at how effective they've been in holding the world hostage. Uh and so they're they're not prepared so far at least to give in on Trump's major demands. First of all, he he talked about actually regime overthrow. Well, that's not going to give give in that. But are they going to give up all hope of having a nuclear bomb after this? Well, I would suggest that might not make much sense to them because that might be exactly what they feel they need. And they have another question which is really important and seems to me fundamental. If Donald Trump makes a deal with them and the Israelis make a deal with him with them, will he stick to it? My own view having followed I admit much more closely the trade side than this. Well, he doesn't he doesn't stick to his deals. They change all the time. Um, and one of the deals that America didn't stick to was the deal Obama reached, President Obama reached with Iran back before Donald Trump became president the first time. So, the one of the really big questions for the Iranians, should we trust them? Who will guarantee this deal? Um, and so I sort of I will say this, I'm not an expert on the geopolitics. I insist that I'm not, but I wouldn't be terribly surprised if given what's happened and the lack of confidence each side has in the other and particularly quite reasonably the Iranian side won't have with their with their their opponents that a deal won't be reached and the straits will remain closed and there might be more fighting uh which might mean even more damage to oil and other facilities in the whole region in in uh in uh UAE or Qatar or Saudi Arabia. I mean there's fighting going on. So there could be more permanent damage and if there's permanent damage there's permanent economic damage. We shouldn't I think be optimistic that just because we want it desperately to be over, of course we do, that it will be.
>> I wanted it desperately not to even start yet it started. So, I think what I want doesn't really matter anymore. Also, you keep saying you're not a geopolitical expert. I think I think you are. You just pretend not to be to be honest. Martin, um I have a a question on um if it does continue. Okay. There's there's a theory I've been thinking about if Trump decides to continue the war, which I know is an option. I view this as sacrificing the Gulf. from an economic perspective is there because there's some people making the argument that the US the global economy would take a massive hit if the Gulf is disrupted the energy infrastructure because if if the US strikes Iranian energy infrastructure which seems likely or possible according to multiple reports then Iran we know will strike energy infrastructure in the Gulf and would likely do it successfully as they have previously in the war. If that happens, is there a scenario where the US economy from a strategic perspective, not a holistic perspective, could benefit because the US is energy independent to an extent and an exporter of of uh LG?
>> Well, I suppose the way you could put it from a strategic point of view is it seems plausible though there are some controversies about it that but it seems plausible that among the great powers America will be damaged least everybody will be damaged there's no question about that in different ways directly and indirectly inflation loss of markets hyper heightened uncertainty and so forth but it seemed pretty clear that the US will be damaged least um uh the major powers China probably after that though that's debatable and Europe will also clearly be damaged more so if the aim is to ensure that though everybody suffers the rest of the world suffers more the rest of the world matters strategically then it might make sense there is however of course a little problem for for um Mr. Trump here, which is that within the United States, the number of people and businesses that will gain is much much smaller than than the number that will lose. The oil industry uh the people who make money out of higher oil prices, for example, uh uh and related higher prices are far far fewer the number that will lose. So the uh and they've got the midterms coming up. Now assuming that the midterms are still going to happen. I always question these things. Now and assume they're going to be reasonably fair elections. Well, I certainly don't assume. But if you assume those things, that won't be very good for Mr. Trump or his supporters that far. I don't know. But
>> he cares about them as well. Sorry to interrupt. Assuming he cares about it as well. Some people are saying that's a interesting possibility. the the loss of the house would certainly cause problems for him in some areas. Uh particularly couldn't really get another budget through. Uh but he might feel he's got enough and he doesn't care anyway because he might feel well I'm actually not going to be president in in a reasonably short period of time. I'm just going to have fun. It all depends on what Trump's longer term ambitions and loyalties are. And I've found him in this respect completely inscrutable from the beginning. Um, but yes, so you could imagine circumstances in which this administration, i.e. Donald Trump, will feel the the closure of the Gulf indefinitely and the ruination of the oil states with it is okay. I'm not saying that's what he thinks, but he might. I'm just I'm just trying to imagine how that scenario would look like. That would be pretty extraordinary for any leader especially a leader of the western world especially leader of the US to take all are so important for US hedgeimonyy.
>> Well, the most important consequence of that, if it's clear that's the strategy, >> is uh he will create I think a weird alliance against him. um in particular for the first time though there's the complexity with Russia but basically that puts Europe and China and India less important of course unambiguously on the same side on an absolutely crucial issue against the US and if that continues for a long time substantial time that could lead to a fundamental strategic shift because the Europeans will clearly feel not Not only is Trump a very unreliable ally, I think they've already decided that and potentially really damaging, but they will then feel, well, this man actually wants to damage us really seriously and then this relationship collapses. And if the Chinese who seem to me to be playing all this very very cleverly sort of sit there, they can expect there to be significant shifts. Another shift is in fact between India and China. I suspect that in fact I'm pretty sure already that the Indians are thinking very carefully about how close they should get to the US visa v China. In fact I think they've been thinking that already. So it could trigger large long-term shifts. Will Mr. Trump and his supporters care about that? You know the America first sort of perspective? Well many of them I think wouldn't care at all. others. Remember, a large part of his political movement is intensely hostile to these foreign wars and adventures. Um, some really important figures in it too. So, he will split MAGA somewhat. Um, may even make it a truly dysfunctional movement. I think that does matter to him because his security in the longer term depends on maintaining power in America. uh not himself personally but the movement has to continue otherwise all sorts of trouble could ensue for him. So I'm assuming that he will want to keep MAGA together. Whoever succeeds him, if there is a successor, we discussed that will need that. And so will he get away with very obviously being very content with it never being resolved? I don't know.
>> Um I want to ask you about the Chinese economy because I get different conflicting messages depending who I speak to. What's your analysis? Because there's on one side the Chinese economy is killing it. You look at certain metrics especially when you look at the capacity perspective, the amount of highspeed railway 50,000 km versus zero in the US. Um ship building capacity, renewable energy, the list goes on. All these different indicators that show China is just dominating in a pretty terrifying way. And then you speak to others and say Mario, there's underlying issues in China when it comes to commercial debt, when it comes to the real estate market, when it comes to over capacity. Now, I'm not an economist and and and it's really hard for me to kind of come to a conclusion, but what's your analysis of the Chinese situation? Are they really doing as well as the media headlines uh say they are?
>> Well, that's another big question, even more complicated than the one we started with and that uh the position I've taken and I think it's correct. I would, wouldn't I? But it is complicated goes something uh like this. China has very considerable strengths. It has very considerable potential. That's crucial. But it has also very significant weaknesses. And uh so the future depends on which side of that complicated equation wins out. And I think that's what we're watching at the moment. And it's not clear. Uh let me lay out those sides and why I think they have difficulty working out what they want to do. First of all, um China indeed has tremendous strengths. It's the dominant um manufacturing economy in the world. It has caught up with advanced technology to a degree that I think everybody who followed this closely 15 20 years ago, people I talked to about this at that time. I've been visiting China since 1993 and I've have quite a lot of friends um both foreigners and and Chinese and the simple truth is that they have done much much better in these respects than most people expected. So that's a big plus. I'm not hugely surprised. I mean, a little surprise on the upside because I've always taken the view that anybody who knows about Chinese history and civilization knows they are spectacularly able people. Anybody who knows about Chinese business people knows the same thing. They have a devotion to to learning to they they place an enormous priority on learning. they and they do very very quickly and they're essentially practical. So if you add these things together with the fact that though the population is declining, it's one and a half 1.4 billion people which is four times the size of America. Well, three or four uh uh the the um I think it's about three and a half in fact. But that the result is uh a tremendous potential. Absolutely tremendous potential which they have realized and it shows in this domination of manufacturing in particular. So that's their big strength. The second big strength the potential is China is still a relatively poor country. There's a sort of standard economist way of assessing relative incomes which is done at so-called purchasing power par which is when you compute count's indices of production at common prices. So you get rid of the fact that poor countries always have very cheap services because wages uh don't equalize. That makes services very cheap because they're labor intensive. Then the result is at market prices normal exchange rates countries look much poorer than they really are. But even at purchasing power par Chinese GDP per head is about a third of US levels. That makes it a half or less of all the other developed countries. It's a relatively poor country. And finally, it still has a huge agricultural population which can bring into production. So that gives them the potential just say that it did as well as Japan. Well, if it does as well as Japan, and there's no obvious reason why it shouldn't, its GDP per head relative to the US should double at least. Well, if GDP per head relative to to US doubles, its economy will be roughly as big as those of US and Europe together. And that's simply a result of being relatively efficient, improving its productivity and the fact that has a very large population. In the long run, population will shrink. This will reverse somewhat, but we're talking about the next 30, 40 years. That's the good news for China. And it's not to be sneezed at in any way because the potential is so great. But there they have some pretty big macroeconomic problems and the most important in my view is that they've never been able to get consumption high enough to generate enough demand in China to drive the economy. So roughly speaking uh aggregate consumption private and public together is about uh 60% of GDP which means 40% is savings which is colossal. It's more than twice any other major economy or roughly twice and and household consumption is only 40% of GDP. So unlike in most countries household consumption in China simply can't drive the economy. too.
>> That's a big problem.
>> And and that's a huge permanent problem. I've been writing about this for about 25 years and I think this had a lot to do with the global financial crisis where
>> and they've tried to and and they've tried to fix it multiple times but all attempts have failed and they can't because it's a huge distributional problem. So so and the distribution interestingly I like to joke China is actually the most capitalist society in the world because the share of profits in GDP is higher than anywhere else. And that's capitalism. And the and the government has never been able or willing whatever to do anything about this. So they have two that there's two very important final points. So they have to absorb domestic savings of 40% of GDP and that is more than they can invest productively at home. And in the last 20 years really started just after the financial crisis. just under 20 years there have been two solutions to this problem. One, the huge real estate bubble which is over. That's why they have all the debt and that was as I've argued recently the Japanese strategy in the 80s. You know where that ended. Now they're in the after that period and the surplus is tending to reemerge again and now they're doing it through manufacturing investment. But I think they're investing more in manufacturing than they will be able to produce and sell profitably because the rest of the world is going to close down the markets. And they are going to hit a dead end at some point in the next five or six years, possibly soon. And growth already down to, if you're optimistic, three or 4% from what used to be 10 before the financial crisis could fall close to zero. And at that point, the question is, what do they do about it? So you've got very good news for them and very bad news for them and choices have to be made and I'm not clear that Mr. Xiinping is the man who will make the right choices for them. But also I think one of the most important choices because people are trying to figure out considering China's economic situation. What would China want to see in the Gulf? And I think some people are saying the Gulf offers China a great opportunity to weaken the US which is true if the US gets bogged down in Iran and but the on on the other side though China needs stability does just cannot afford a crisis an energy crisis coming out of the Gulf if this prolongs for another few months because they've got enough domestic issues to deal with.
>> Um I have another quick question for you on because I want to you know kind of put China into the bigger picture as well along with the US and the rest of the world. So going into the the scenario where this does continue again when the Iran war um when the military buildup was happening a lot of us thought well even before that thought a direct war between the US and Iran just wouldn't happen it's just too catastrophic for the global economy we know Iran will close the straight of home was and strike energy infrastructure in the Gulf so that's why it's something that no one really no president no American president would pull the trigger yet here we are now it's the same thing here we're talking about how closing the straight of homos having a crisis that lasts for the rest of the year it's highly unlikely very improbable but you know the improbable has been happening for the last couple of last four years so on that basis if we do see a continuation of the war a closure of the shredders and the and potentially be mend strait and uh the energy infrastructure in the region uh the US strikes the Iranian energy infrastructure Iran strikes Gulf energy infrastructure gloves off how would that scenario look like kind of a worst case scenario.
>> I think uh the worst case scenario like that in uh well we can look at the already the IMF has discussed such a scenario and they're relatively professional in this area and basically growth in in the world economy halves from what they expected earlier um this year and next and it will be sort of global level one one and a half% and uh that would mean a lot of economies would fall into recession a lot of economies would fall into recession and very few economies wouldn't uh I negative growth for some periods and the world economy would be still growing positively but uh in even in the economies that are growing positively unemployment will be rising uh uh investment will start falling there will be a it will feel bad it won't feel bad as it did after the global financial crisis or in COVID but it will feel very That's what what it would look like and it would force uh put the central banks in a great dilemma because they would need to they would want to lower interest rates um in response to this. At the same time in this scenario, there is a real risk that inflation will uh will be very very sticky because real incomes uh uh uh that wages won't fall clearly and uh and uh because they people will want even higher wages to pay for all the energy that they now have to buy. So a supply shock is the worst thing for a central bank to deal with. So that's what it might look globally and I think the effects would be long-term because we've seen this after COVID after the global financial crisis. These things don't go away very quickly particularly in the scenario you describe where there's permanent uh uh permanent damage. So it'll be another big negative shock to the world economy which there have been of course very many.
>> Are you taking are you taking into consideration the helium shortage as well and the impact that will have on AI and chip production?
>> Of course, also fertilizer which you mentioned uh I I understand there's sort of big questions about how bad that will be but clearly it's going and apparently people seem to feel there's enough for the next harvest in most places. I'm not I'm not an expert enough to know whether that's correct, but of course in the long run if the ura doesn't come out that's going to affect that and uh some economies are going to be pretty badly uh going to be pretty badly hit and as you say helium is very important for chip manufacturer.
>> Does China benefit more from chaos in the region and and stretching the US into the Middle East for further or does it benefit from stability even if it means you know obviously the US benefits from stability as well. So what's what's better for China if they look at their own interests?
>> I think what what I get what I'm getting of what the Chinese have said in Beijing now >> Bloomberg just to give you what Bloomberg just reported now by the way while I was speaking Trump Trump failed to make progress on unblocking the trade of homes during his China visit citing statements from Iranian and Chinese officials in Bloomberg as well as analytics analysts tracking shipping traffic in the straight the outlets or Bloomberg believes Iran has little interest in loosening its grip on the straight even in the event the war ends Iranian President stated the country will introduce effective and professional control mechanisms. Chinese Chinese foreign minister Wangi meanwhile said the strait should open as soon as possible. Bloomberg notes that China Chinese statements came out as the two world's largest economies sought to emphasize common ground on the Middle East conflict during Trump's meeting blah blah blah. Despite the surface level agreement between China and the US on opening the straight, the straight remains closed. So essentially saying that nothing came out of the meeting according to Bloomberg.
>> Well, that is what I suggested earlier. So that doesn't change what I said and it's exactly what I think. I don't think it's right to assume that the position of Iran and the position of China is is these positions are the same. But what the Chinese feel is they can't force Iran to change and they would lose uh their relations with Iran which are very important to them. So the best thing to do is shut up and and uh and not shut make pleas for something which it will be humiliating for them uh to find that the Iranians ignore. So that's how I would read this. And for the Iranians, what they're doing is clearly for reasons I outlined earlier overwhelmingly in their interest. Now you ask what what do the Chinese privately want out of this? Yeah,
>> I think uh that they are not desperately concerned about how the US looks visav China in the short run. I think the chi my view is that the Chinese believe the US is in relative decline. Um, and that Trump is a symptom of that, which I think is correct, alas. And they think that as long as they keep their economy and society stable, they look the more reasonable superpower, uh, they have the better relations with others than the US does, which I think is pretty certain now, then um, time is on their side. So they would like this to be resolved because they want stability and they want stability uh also in the relations with the US. They don't want conflict. I think that's what they want because they think that basically they gain from it even if relative their relative position improves a little if the US is in a terrible quagmire. Their absolute position is better off if the world continues to be stable. They can trade freely. uh the their partners and markets are prosperous. So I don't think they see any benefit in this. They didn't plan this. But obviously if the US is doing this and they cannot get the Iranians to change their position for pretty obvious reasons because as you rightly said what has happened is what everybody expected who knew anything about it which of course raises the question what on earth were the Americans thinking? I don't get it. Uh I really don't get it. uh uh um but I think that Trump in this situation the Chinese instinct will be don't get involved, don't commit uh your prestige to an outcome because you probably won't succeed and your enemy is making pretty serious mistakes which you can survive. Um as long as that's the case, well, just let them get on with it. And that's I think the position they took, I'm sure they took in this summit. They want to stand aside and see what happens. But at the moment they I don't think they like this. If they've been asked, "Do we want a war in the in the Gulf?" they would have said, "No, we don't want a war in the Gulf." We're doing fine without it. But now that this has happened and they outcome, they'll just do it.
>> But if a war is leading to Iran, their ally controlling the shadow of Hamuz because there's an argument a theory and I don't know your thoughts on that. probably should have started with that is that the this war's a big a big reason for this war's the strategic advantage of the US controlling the straight of hummus because that gives them a lot of leverage over China that has the leverage of rare earth >> of course do you do you agree with that theory that's that's one of the reasons.
>> I mean I agree well all I can say is if that's what the American aim was then I don't understand the means they chose to pursue it uh unless Unless they really thought, which is to me right about this right in the first day, inconceivable, that the bombing and assassination campaign that they launched on would lead to the fall of the regime and the emergence of a friendly regime, which strike struck me as more or less inconceivable for reasons we can discuss on the history of what bombing campaigns can achieve. Exactly.
>> And the situ Iran. If they thought that, it would be sort of rational. It's just that it would have been irrational to think that because the only alternative ways of controlling the straits of if the regime lasts, is to destroy their military totally, which seems incredibly likely. Just look at what's going on in Ukraine. And and or you actually conquer the country. to conquer Iran which is a pretty big country would require as far as I can see from my limited reading the entire US army and even then it might not work. So if that was indeed the objective, we will get the control of the straits of form moose by this war, then I cannot begin to imagine how they thought they were going to achieve it. But then if you look at the objectives they put forward at the beginning of the war, I wrote about this, they constantly changed. They were completely incoherent. So I've come to the view which is not you know in my lifetime been around a long time the US has made lots of big mistakes in starting wars very long list started with Vietnam I was I was grown up when Vietnam started believe it or not and the of course they have but the mistakes here just strike me as I mean amateur hour isn't it I mean it's just it's just unbelievable I don't see a coherent strategy but there might have been a coherent wish.
>> Um the last thing I want to ask you about is um the European economy. Everyone just laughs at it and it's sad to see and I'm a big fan of Europe. What's going on there? It's just I've I've spoken to MEPs. I've spoken to European leaders and the leaders have they give me the the no no answers with substance. But when I speak to the MEPs, the same Mario, it's just the just the bureaucracy involved in in the European Union structure. um they just seem to have committed suicide especially on their energy dependence. How bad is it in Europe and could it really you know could we see the Europe that was there 20 30 years ago again?
>> Well, very good questions. Uh I don't think it's really that surprising and of course as you can see basically Britain is in the same situation possibly even worse. So it's not unique to Europe, the EU. It's a European phenomenon. And by the way, it's not very different in Japan. Uh so most of the old high income countries um are in a pretty poor state in terms of underlying growth dynamics. It's so it's not it's sort of uniquely European thing. So the question is why has the US been doing better at least in terms of aggra growth not why has Europe been doing worse the why are these old industrial countries doing relatively poorly I think the answers are uh two or three-fold they are relatively highly regulated and I think the most important regulations relate to the financial system and the labor market but there are lots of others that's clearly crew. And they find very difficult to get rid of this because the uh the people are relatively uh hostile to free completely free markets and these um u these regulations that were built up over a long time in response to people's demands and getting rid of them as I see now in Britain um is just fantastically too difficult to do. Second, the countries suffer very seriously from aging and that affects the size of the labor force relative to the population. It and it affects the fiscal position which is made much worse by the the relatively generous welfare states these countries have. And finally, and I think it's crucial, it's a bit surprising to me in Japan is that this goes back to to the Second World War, the period what was left by the Second World War. Um, Europe has really played very little role in the emergence of the digital economy. that didn't matter so much when other parts of the old European economy most of it goes most of the major companies in Europe were created before the second world war many of them before the first world war they're old but that didn't matter when those industries still gave them immensely strong positions the world in mechanical engineering engine uh electrical engineering chemicals uh and so forth but unfortunately those sectors are no longer particularly dynamic China has become dominant in many of them and uh in the digital economy the US is dominant really dominant and countries that are very tied into one or other aspect of it like Taiwan uh it's not that the Europeans have nothing in these sectors there's ASML in the Netherlands which makes the the machinery with which you make the chips but that's the situation so the these are the problems and to change this first you some fairly big revolutions in policy, the type that Mario Drug even recommended. And everything in European politics resist accepting these changes and to make the changes, everybody has to do them or most people have to commit themselves to it. And the dominant position of the body politic is conservative if to if not reaction. You can see the the far right is the dominant movement now and it's not favoring radical free markets. Not at all. It's conservative. truly conservative. So that's not going to help. And the um and the problems then as you finally said it's an energy importing dependent country uh economy. It's it's never going to be strong in fossil fuels and it hasn't moved f as fast as the Chinese are moving now towards renewables. So it's stuck in the middle on that. The point I'm making essentially we it took a very long time to get here. I've been concerned about it for quite a long time. Some people disagree with this analysis, but I think it's right. And because it's took a long time to get here. It's going to take quite a long time to get out of it. It won't be something that can be reversed suddenly. It will continue to grow, maybe 1% a year or so, but many of Europe's strengths have now become weaknesses.
>> That is so sad. Um, and I'll add one last question if you don't mind, Martin, and that's um, any economies that we should be on the lookout for for the next 10 years that could surprise us the same way China surprised us in the last few decades. Everyone's been bricks was like the sexy thing, I think, for the last couple two decades, but it has underperformed. Um, is there any countries that could become power players in this new multipolar world that we could be heading into? India, Brazil, um Iran, lot of people talking about a postwar Iran could be very different if especially if they reach a deal with the US.
>> Well, um okay, I never believed in the bricks because I always thought it was really the icks, India and China. Uh putting Brazil and Russia later South Africa was joined in was never a very credible they're not big enough and they were never going to be dynamic. So I used to have a joke that they didn't uh ever they my friend Jim O'Neal invented he didn't want to call it the icks because first of all was all Asia and secondly sounds icky so they didn't uh uh you will get that so they didn't want to do that there was never a bricks it was clear uh that neither Russia or Brazil were going to be that dynamic uh they have fundamental structural weaknesses which I don't have time to go through now you've heard enough of me uh now what are the new countries I think that of the major economy, the big economies of the world, the one that ought in normal circumstances, but there are big questions in some of this do best is India. The I am worried about the implications of AI for India because some of its strongest sectors are basically digital services.
>> Yeah. and uh and they have cheap people and they're superb and but AI is going to do a lot of that. That's clear. So I am a bit concerned about what AI will mean for India. It is getting into manufacturing now but it's decays behind China in that
>> um Apple is now going to produce in India. That's quite comforting. there is a potential but I started working at the World Bank on India in the 70s and they've always been very disappointing in manufacturing but they should do best other economies I'm the larger ones I'm moderately optimistic about Indonesia uh it's a big economy doing better uh and has the opportunity to link up with China um which is going to generate a lot of opportunities the region generally I can't really go against Southeast Asia IA uh uh potential there remains pretty good. I don't see any country in South America shooting head to 5% plus growth rates. I would love to be wrong but I don't see it. And the same applies to all the larger economies in Africa which I would also love to see. So I'm afraid I sort of remain perhaps I'm just sort of stuck with what I've seen in my lifetime with Asian economies. And we have to remember Asia is enormous. It's about half the world's population. So that's still quite a big uh quite a big deal. Um, but now smaller ones which could absolutely shock us. There's always possible that there's something something small which is going to find something that will really transform it. But usually a relatively small country unless it's spectacularly successful and s like South Korea doesn't make that much difference to the global picture.
>> Martin, I've really enjoyed our conversation. I'd love to do this again uh sometime and um have you back on the show.
>> Well, it was very interesting. I know the answers got lengthy, but the
>> No, the world is complicated at the moment, isn't it? It it is and I've asked you some pretty difficult ones like for example talk about China's economy which is one of the most complex questions in today's age and one one of the most debated ones. So I appreciate you trying to break it down for us.
>> Oh it's a pleasure. I'm certainly happy to do it again sometime in the future. Bye.
>> Thank you so much Martin. Bye-bye. All right guys let me know um in the comments if you'd like more economic discussions like this. I enjoy them. I learn a lot from these conversations. I know it can get technical at times um but having people like Martin with the experience that he's had and the position that he has in the financial times um you know it's not often to get people like this doing interviews and answering convers questions like this. So I hope you enjoyed it. Let me know what you think and um we'll um uh my next interview is in 5 minutes. I'm not sure if it's going to be live or recorded though and then we'll be back recorded 100% in an hour. We'll be sorry we'll be back live in an hour but in the five minutes we'll see. I'll check with the team if it's recorded or it will be live. Thanks guys.