Chemical Technology February 2016

COMMENT

How we feel about the cycle of the world economy

by Carl Schonborn, PrEng

T oanswer theabovequestion, we could say any of the following: Optimistic, Cautious- ly Optimistic, Pessimistic or Negative. A wonderful tool used by Control Systems in their design work, is the Cause-and-Effect Dia- gram. It is a graphic matrix that helps identify, sort, and display possible causes of a problem or quality characteristic. It is widely used to structure the inherent safety considerations during the start-up or shut-down of a plant and, in graphic form, allows the designer to build into the instrumentation, all those requirements to safely start up the unit or, conversely, to shut it down. Can we as engineers, or more specifically, chemical engineers, not use some of these tools to try to understand quite what is happening in the world of macro-economics raging around us? We should be trying to do so because the current state of affairs results in a shortage of work opportunities and contracts for engineers, which consequently stifles the industry, a cause of grave concern. More specifically, is the current downturn just amanifestation of the knock-on effect of an economy in a downturn like China? Or are we on the downwards slope of a Kondratieff wave, a concept which Russian economist, Nikolai Kondratieff, developed in the 1920s, stating there was a definite cyclic wave of economic indicators always either in ascent or decline. He postulated that these waves fluctuated in phases of about 50 years; he also chosemany of the indicators used by economists today such as trade balances, resource and commodity prices, interest rates, iron and steel production rates and unemployment rates. Fortunately there are other theories that indicate dips in these longterm trends that could explain the current worldwide economic downturn. The Cause-and-Effect Diagram could be put to use in interpreting the causes of the current

downturn. Engineers could make a study of the available information regarding trends in the production rates and consumption rates of many of the natural resources and beneficiated materials that make up the major components of world trade. By studying, for example, the units of sup- ply and demand and current capacity, we can make our own predictions regarding whether the upturn in the Kondratieff wave may be a reality. As David Stockman, former business- man and Former Director of the US Office of Management and Budget said, in one of his online newsletters: “What really happened is that the central bank instigated global macro- economic bubble-ripped commodity pricing cycles out of their historical moorings, resulting in a one-time eruption of price levels that had no relationship to sustainable supply and demand factors in themines and petroleumpatch. What materialised, instead, was an unprecedented one-time mismatch of commodity production and use that caused pricing abnormalities of gargantuan proportions.” An interesting perspective is afforded by Warren Ingram, an executive at SmartRand, that “In times like these, it is important to remember that the markets always look forward and some investors will be in a perpetual state of gloom, as they believe things are going to get much worse. …... If you were to graph the rand versus the dollar since 2011, you would see that it has moved in a nearly straight line upwards. This means the potential for a reversal of this trend is increasing. That is not to say that the rand will recover to R5/$, but a significant recovery from its current level is likely.” Let us continue plotting the curves and any change in the trends, from whichever Cause, could then be converted to an Effect, and allow for some considered and informed opinion.

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Chemical Technology • January 2016