The end of the London Metals Exchange (LME) Week during which the great and good of the mining and metals industries, as well as related financial institutions, met up to discuss the issues that affect this global sector marked an important turning point in the global economy. The revival of what called be called ‘the commodity economy’ may be ironic for many of the participants who having devoted most of their professional lives to primary and secondary industries. Moreover, given the recent rise and fall of metals prices, it could be argued that this sector is the leading global economic indicator in upturns and the lagging one in downturns.
The participants in these crucial industries, along with the rest of the populace, have been told that, since the turn of the millennium, weightlessness lights the way to the future based on the new knowledge economy. Well you need a lot of knowledge, resources and technology to mine, say, nickel, smelt it and turn it into an input into stainless steel, the leitmotif of the contemporary built environment.
Moreover, many apparently and previously unknown metals, for example Titanium, are becoming the mainstay of advanced global industries. These include aerospace, human joint replacements, the premium marque for a well-known motor manufacturer, as well an insulating material for wetsuits!
The development of the so-called “super-cycle” in metals in the first decade of the millennium is evidence of the rise of the emerging economies, particularly China, who have sucked in raw materials to feed its rapidly growing and export-orientated manufacturing.
The other driver is that the conditions that led to the financial crisis created incentives for financial institutions to seek new assets.
These conditions included;
- Global imbalances between creditor and debtor nations reinforced that the role of the US as the consumer of last resort in fuelling global demand.
- The imbalances in the world economy created commodity and other asset booms, as financial institutions sought to exploit the rising demand for natural resources in the emerging markets.
- Finally, a global deflationary environment brought about the expansion in the supply of goods produced in the emerging economies which lowered the cost of capital and encouraged financial institutions to seek higher investment returns from riskier assets.
Using financial innovation, a number of commodity-backed funds and other financial instruments further boosted the ‘super-cycle’ in metals prices. Some of this cycle can be seen in the graph of the index of base metals below. At the peak, it was estimated that financial fund activity boosted metals prices by an average of 40%.
Despite the credit crunch and post-financial crisis, the growth in demand from the emerging markets helped sustain this super-cycle. The heaviness of the commodity economy has also supported the global shipping industry which has seen global seaborne trade increase from 10 trillion tonne-miles in 1979 to 35 trillion in 2010, recovering from the cyclical trough of 13 trillion in 1982.
Although shipping traffic and freight rates have declined in the aftermath of the crisis, these figures do not include traffic between different operations of international companies. For example, the mined output of metal ore in one country may be trans-shipped to another country to be smelted, and then again trans-shipped for final production across another national boundary.
Given these weighty facts, why do we persist in imagining that we live in an second life economy in which avatars transact virtually? Literature and science may provide the answer. In the book The Unbearable Lightness of Being by Milan Kundera, the Czech novelist, he ruminates on the nature of human existence. He combats and contrasts the view of the heaviness of the eternal recurrence of being (we come back as different people in future existences) with his own view that we only have one life, hence its lightness. Ironically, 27 years after we were told in the UK that “King Coal” was dead as a future energy source, the Australian and other commodity economies are booming as a result of their commodity exports, and in particular this form of energy whose market is dominated by a global triumvirate which spans three continents.
From this rumination we could generalise that always looking for the shock of the new is central to the human condition, whether it is human pleasures or the embrace of a digital technologies and processes. Like L.P. Hartley, we often view the past as a foreign country. Yet in matters of the economy rather than the heart, the past returns to haunt us and remind of us that so much of our existence relies on old and heavy technologies. The internal combustion engine and the railway block working system are centuries old inventions that are the still of the basis of contemporary mobility.
In the opening of The Shock of the Old the historian of technology David Edgerton asks the question of whether the condom is more significant in the history than the aeroplane . He could have similarly made the comparison of the condom with the computer or the Internet as the question is impossible to answer. The heaviness of the weighty economy demands advanced scientific discoveries in order to refine the bounty of the earth. The lightness of the digital economy is also part of the bounty that nature grants us. But, as the rock turned heavy metal band Led Zeppelin show us in their most famous song, Stairway to Heaven:
There’s a lady who’s sure all that glitters is gold
And she’s buying the stairway to heaven.
When she gets there she knows, if the stores are all closed
With a word she can get what she came for.
Ooh, ooh, and she’s buying the stairway to heaven
We all may want to buy the stairway to economic heaven but by only embracing the lightness of the weightless economy its golden glitter may blind us to the heavy escalator of the weighty economy’s ascent.
