Jeff Rubinby Richard Davies
According to Jeff Rubin, one of North America’s leading economists, globalisation is coming to an end as the world faces up to a dwindling and increasingly expensive supply of oil. In his book, Why Your World Is About to Get a Whole Lot Smaller, Rubin explains how the modern world has been built on cheap oil and how it’s going to change radically under high priced oil.
It all works like this….we have a global economy where we can purchase cheap products manufactured on the other side of the world and visit restaurants and supermarkets that offer cheap food sourced from thousands of miles away. It’s a small world and it all runs on oil, which has been relatively cheap for many years.
Now, the world’s oil companies are running out of oil and it’s becoming increasingly expensive to find and produce oil. The result will be very high oil prices – it will no longer be financially viable to import cheap plastic goods from China because the high fuel costs for the container ships will wipe out the profits. Supermarkets in New York will no longer stock salad grown in Mexico because it will be too expensive to fly it across North America. Rubin, a Canadian, is predicting the rebirth of localised economies.
And when is all this going to happen?
"Probably about 12 months after the end of the current recession,” explained Rubin, who was chief economist at CIBC World Markets for more than 20 years. “Then we’re really going to see some high prices at the pumps. We’re going to see less imports and less exports – and that’s going to be true in Canada, the US, the UK, and China. It’s simply not going to be sustainable to ship goods halfway around the world to sell in Wal-Mart."
In Why Your World Is About to Get a Whole Lot Smaller, Rubin explains how reserves of oil have run low in the Middle East, the North Sea and continental North America. Oil companies are now attempting to plunder oil from difficult environments like frozen Alaska, the Alberta oil sands and America’s off-shore fields where hurricanes easily up-root oil platforms.
Rubin’s book is based upon the classic theory of supply (which is running low) and demand (which is continually increasing), but he makes a huge effort to explain just how fundamental oil is to the modern world. Food, cheap consumer goods, cars, and air travel all depend on oil. Even the sprawling suburbs of North America’s cities are dependent on cheap oil so those millions of commuters can drive 25 miles to work and then 25 miles back again each day.
"We’re going to see deglobalisation," said Rubin, "And that will lead to the re-emergence of local economies. Regional markets will come back into prominence - basically, we will be going back to the 1960s and early 1970s.
"Last year, China exported $6 billion worth of food to the USA. That’s going to stop. The emphasis will be back on our own farms to produce our food.”
North America is in for the biggest shock, according to Rubin, who readily admits Europeans have been paying high prices for petrol for decades and adjusted accordingly.
"North America is going to have to become far more European – they will have to drive less and drive different sorts of cars. Look at how European cars are small and economical – look how different European roads are to ones in the US and Canada. I estimate 20% of America’s vehicles will come off the road – that’s about 50 million cars."
The US government’s bailouts for its struggling car manufacturers have flummoxed Rubin. "Why invest in the past?" he asks. "What about investing in the future?"
And where will we be in 50 years time?
"There have been attempts to develop new forms of energy for many years but the key to the future will be reducing consumption of energy," he said. "We need to reorganise how we use energy."
Rubin admits the future could actually be worse than he predicts, particularly as the world’s rapid population growth isn’t sustainable in a de-globalised world. Many emerging nations are dependent upon exports (in the book, he uses Kenya’s flower exports to Europe as an example) and those businesses will collapse under high oil prices.
To some extent, the future is already here now. "I’ve reconnected with my local environment," said Rubin. "I’ve spent my career flying around the world to speak to people but now I’ve been reacquainting myself with my local neighbourhood in Toronto. I visit a local organic food market – I expect to be eating a lot more food that’s been grown locally in the future."