Governance, the environment and platform pirates

July 3, 2019

The global economy finds itself at something of an impasse in 2019. The optimism that accompanied the apparent triumph of liberal economics and the end of history pre-2008, now looks pretty shaky as governments retreat, environmental risks increase and unfettered by regulation, technology runs rampant.

If that sounds like a dystopian future then think again. Professor Paul Romer wants us to realise that’s where we are now – and also what steps we need to take to change it.

Romer, who won the Nobel Memorial Prize in Economic Sciences in 2018, used his speech to last month’s Nor-Shipping conference as a warning with a side-order of optimism; or at least a prescription of some of what shipping needs to look out for in the near future.

Changes of governance are highly divergent – developed economies are slowing economically while adopting a policy of the ‘minimal state’ – encouraged Romer said by the theories some of his fellow academics – while emerging economies are growing but have maintained a commitment to assertive government.

“This has important implications for shipping because we have entered into a period of lower growth in merchandise trade and there is little that can be done to turn this around,” he said. At the same time, a new generation of ‘platform pirates’ threaten not just shipping but “every industry in the world. You should think carefully and quickly about how you want to protect yourselves from them because governments are not going to do it”.

At the same time there are mixed messages on the steps needed to protect the environment and Romer thinks that as countries grow richer we will see more action at a local level to protect the environment than on the global stage, in part due to the loss of ‘western-style’ leadership.

The success or otherwise of a market economy, he suggested, relies on our ability to balance our selfish natures with our ‘groupish’ ones, where we are willing to take collective action to protect the interests of the group.

“In the 1980s we successfully acted together to stop CFC emissions destroying the ozone layer. We’re now in a period where we cannot expect that kind of collective action despite the growing awareness of problems like carbon emissions and plastics in the ocean,” he added.

The trend towards the minimal state is appealing to many people in developed countries not least because this principles promised sustained economic growth at the same time as dismantling state support and market intervention. The problem, Romer contended was that world trade is now predicated on the idea that the operation of the market is paramount, with no subsidies, industrial policy or adjustment of foreign exchange rates and a heavy emphasis on intellectual property.

“There was never a consensus all countries would adopt this and the problem was papered over by granting temporary exemptions to developing countries, which clearly did not buy in to this [and still maintain state-owned, heavily subsidised industries]. Now we just can’t maintain the fiction.”

The rules of trade remain predicated on the US model and while it is possible to have rules between countries with different economic models, this not how the WTO operates – and it takes time to make new rules.

“It is important to have a clear voice on the value of global integration that is not ideological and the shipping industry could be one of those voices calling for that,” he added.

One of the defences of the decision of governments to step back from regulation was that competition would discipline bad behaviour, but as they have retreated there have been fewer efforts to defend competition in practice, he said.

Instead it has created an opening for a new generation of ‘platform pirates’ who can enter any industry, create a platform to connect buyers and sellers and offer the service for free until it is entrenched, after which they are free to exploit the power of monopoly and extract huge profits.

“This is not an abstract threat; one of them tried to hire me as chief economist; it was a short conversation,” he joked. “The way to defend against this is to create groups that can support standards for co-operation and inter-operability,” he added. “I don’t think IMO can take on this role, it has to be proactive, technology-sophisticated and not slowed down by constraints of a regulatory rule setting process. But make no mistake, the pirates are coming.”

Finally, on environmental challenges Romer contrasted the behaviour between the movement to ban CFCs to a situation where there was little real action on protecting the planet from climate change. Some 30 years ago some voices predicted that life would not be possible without CFCs but there was no disruption.

“In same way when we finally impose rules that decarbonise the energy system it won’t be as disruptive as people think. But it won’t happen by persuasion it’s going to take rules.”

Shipping could take the lead on carbon and on plastics he suggested, but for that to happen it needs to fight back against the strategy that all polluting industries have used for years to protect their ability to keep causing harm in order to make money.

The change process begins with idealism and is often slowed down by misinformation and noise and as a result it takes a long time for governments to act. “We need voices that say, ‘this must stop, it can’t go on’ but we also need to say, ‘here’s the next step’ because it’s on the next step that the entities that want to delay action create the noise,” he said.

Persuasion has its place of course. When the US embassy in Beijing started putting out its own air quality measurements, the availability of reliable information dramatically raised awareness and meant the local government had to accommodate a broader demand.

So however, daunting the problems, progress is possible, though not without trustworthy information – and more is needed on climate change and plastics – for more people to act on.
An example of absence of effective governance can be found many miles from shore. On Mount Everest the number of teams now seeking to climb the mountain has resulted not just in congestion but “a degraded experience and some very ugly human behaviour. People are dying and others walk by,” he said.

More rules may not always be the answer but, “at least let’s have governments and organisations that defend the interests of the group because it helps us be the people we really want to be.”