The Opportunity Hiding in the Multiplicity of Crises

There will be plenty of people like me sitting at their computers this Saturday, wondering which crisis is going to get them on Monday morning. Let's list them:

• Japan - not just earthquake and tsunami, but now also Chernobyl II.
• Arabia - what happens if the sovereigns fall? Can neo-tribal societies sustain the oil production we need?
• Eurozone - the sovereign debt crises are only getting worse, even though the immediacy of the first two crises knocked yesterday's (predictably inconclusive) EU meeting out of the press pages.
• China - if it's slowing faster than we previously thought, what tools are available to keep it growing?

Over the weekend, I'll be trying to sketch out some short and medium term futures in numbers, in the probably mistaken hope they'll provide a sort of blind-man's stick to tap our way around the obstacles and mantraps during the next few weeks.

But today I want to suggest something more radical: that taken together the first three crises share common roots, and that they will conspire to hasten the birth of a radically different shape of state and society in the West, which is nothing short of revolutionary, and which will overturn all the current expectations about patterns of growth and activity during the next 50 years.

The roots of all three crises are the same: the interplay between provision of power, and the power of the state, and what happens when costs rise sufficiently to disrupt that interplay. I recommend Daniel Yergin's book 'The Prize' as an essential primer for anyone who doubts the role that the secure provision of energy has played in the construction of the modern (ie, Western) state. Securing the flow of oil is a major fixation of all major states, be it the US, China or Britain. This task justifies now, just as it did with the first British claims on Mesopotamian oil, the recruitment and deployment of national armies and defence industries. The love between governments and oil is mutual - oil provides one of the most lucrative opportunities to raise taxes both directly and indirectly, and doubtless the industry can be persuaded also to fund political parties and politicians directly too, where possible.

If anything, the nuclear industry is even more intimately linked to government - let's face it, almost everywhere it's a not-so-covert part of the local defence industry. When Chernobyl went up in 1986, it was a disaster of incompetence which tolled an early bell for the Soviet Union. More recently, since 9/11 we've all been aware that a nuclear power plant is potentially a strategic weapon for Osama bin Laden sitting in our own backyard, thus once again justifying the most lavish deployment of central state power both here and abroad.

Since the stable provision of electric power is a precondition of a modern society, it is also the main de facto justification for the big modern states for which we pay our taxes and raise our 'national' debts.

Ah yes, the debts. For this is where oil and ChernobylII intersect with the Eurozone's sovereign debt problem. Actually the Eurozone's sovereign debt problem is interestingly mainly because the crass economic mistakes of Europe's political elites, energetically pursued, has brought several European countries face to face with the unsustainable cost of running their state structures.

The combination of Arabia and ChernobylII will, at the very least, raise the cost to nation states of that central task of securing energy supplies. Yesterday, Britain pensioned off its aircraft carrier Ark Royal: the very same day, David Cameron was arguing that someone (who?) should institute a 'no-fly zone' in Libya. You and who's navy, David? My guess is that by Monday, the nuclear industry which is being asked to build new reactors in the UK without government funding of guarantees will have done the new sums and be presenting their new and more lavish estimates to Number 10. The costs rise. . . .

At which point, I need to direct you to two more books. The first is 'The Collapse of Complex Societies' by Joseph Tainter. This is a study, by an archeologist, which argues from massive evidence, that complex societies expand (and become more complex) up to the point at which the marginal cost of extra complexity outweighs the advantages won by that complexity. To an economist, that sounds extremely reasonable and likely. My point is this: if we were nearing that point a few years ago, the rising cost of securing and defending the current sources of energy bring us a lot nearer today, when Arabia is burning and Japan is melting down.

The second is 'Cognitive Surplus' by Clay Shirky. In contrast to Tainter, Shirky is a sublime optimist, who believes that much human and social behaviour we take for granted is merely adaptation to restrictions which need not be immutable. Remove the restrictions and behaviour changes. He uses this model to suggest how society may be changed (much for the better) by the liberation of the 'cognitive surplus' we currently squander on TV by the tools of social networking.

He thinks - and he's surely right - that this will change what we need and demand from the State. Take one obvious and current example: given the tools we now have, no-one in their right minds would propose that the best way to ensure maximum access to a maximum range of books would be for the local authority to build a building in the centre of a town, buy a limited range of books, employ someone to keep the shelves tidy and track of who's got which book at any particular time, and patrol the system by issuing minor fines. No - you'd just set up a book lending/borrowing app and let it organize itself. Obvious, innit?

In other words, Clay Shirky suggests that many of our goals would be better achieved outside the structures of the state, which are too often:

• based on ideas first thrashed out in the late 19th or early 20th century,
• implemented in the 1950s, and
• are bankrupting us and our children in the 21st century.

The opportunity hiding in the multiplicity of crises, then, is this: as the cost of oil and nuclear rise not just for consumers, but also in terms of the externalities they impose on states, the attractions of renewable energies emerge ever stronger. The economics improve not merely directly on price to price comparisons (of which more later), but also of the markedly lower externalities they impose on the states. If your energy comes from fields of solar PVs or (even) windfarms, then we can stop worrying about the Arabs, we can stop worrying about the safety of nukes, and Dave can stop wishing he hadn't decommissioned the Ark Royal.

And how are the direct price-to-price comparisons looking for solar? I follow the monthly data on module and electricity pricing from Solarbuzz, and from the US Energy Information Administration. To cut a long story short, commercial electricity prices were roughly stable last year for conventional energy, and were down 8% for solar. Solar fell 8% in 2010, 4.3% in 2009, 0.3% in 2008, o.7% in 2007. They'll be down more this year, because in the first quarter of this year, retail prices of PV modules were down 15% YoY.

A few years ago, I sketched the long-term trends, which demonstrated a smooth glide path to grid-price parity pricing by 2020. Right now, that's looking pessimistic: the model suggested commercial solar electricity would cost around 2.25x conventional electricity around now, actually it's running around 2.06x. In scheduling terms, we're about 18 months ahead of that 2020 deadline for parity-pricing.

The point is this: we've seven years and counting away from a time when not merely the cost of energy, but also the cost of the state, can fall. Today we have a multiplicity of crises: what they're signalling is nothing less than the re-invention of the West.