Tuesday, 28 June 2011

Narasimha Rao - The Unsung hero of the India story

by S A Aiyar in Swaminomics

Twenty years ago, Narasimha Rao became Prime Minister and initiated economic reforms that transformed India. The Congress party doesn’t want to remember him: it is based entirely on loyalty to the Gandhi family, and Rao was not a family member. But the nation should remember Rao as the man who changed India, and the world too.

In June 1991, India was seen globally as a bottomless pit for foreign aid. It had exhausted an IMF loan taken six months earlier and so was desperate. Nobody imagined that, 20 years later, India would be called an emerging superpower, backed by the US to join the UN Security Council, and poised to overtake China as the world’s fastest growing economy.

For three decades after Independence, India followed inward looking socialist policies aiming at public sector dominance. The licence-permit raj mandated government clearance to produce, import or innovate. If you were productive enough to create something new or produce more from existing machinery, you faced imprisonment for the dreadful crime of exceeding licensed capacity.

Socialism reached its zenith in the garibi hatao phase of Indira Gandhi (1969-77), when several industries were nationalized and income tax went up to 97.75%. This produced neither fast growth nor social justice. GDP growth remained stuck at 3.5% per year, half the rate in Japan and the Asian tigers. India’s social indicators were dismal, often worse than in Africa. Poverty did not fall at all despite three decades of independence.

In the 1980s, creeping economic liberalization plus a government-spending spree saw GDP growth rise to 5.5%. But the spending spree was based on unsustainable foreign borrowing, and ended in tears in 1991.

When Rao assumed office, the once-admired Soviet model was collapsing. Meanwhile, Deng had transformed China through market-oriented reforms. Rao opted for market reforms too. He was no free market ideologue like Ronald Reagan or Margaret Thatcher: he talked of the middle path. His model was Willy Brandt of Germany.

His master stroke was to appoint Manmohan Singh as finance minister. Rao wanted a non-political reformer at the centre of decision-making, who could be backed or dumped as required. He presented Singh as the spearhead of reform while he himself advocated a middle path. Yet, ultimately, it was his vision that Singh executed.

In his first month in office, the rupee was devalued. There followed the virtual abolition of industrial licensing and MRTP clearance. At one stroke, the biggest hurdles to industrial expansion disappeared. Who was the industry minister who initiated these revolutionary reforms? Narasimha Rao himself! He held the industry portfolio too.

Yet he did not want draw attention to himself. So he ingeniously made the delicensing announcement on the morning of the day Manmohan Singh was presenting his first Budget. The media clubbed the Budget and delicensing stories together as one composite reform story. In the public mind, Manmohan Singh was seen as the liberalizer, while Rao stayed in the background.

Singh initiated the gradual reduction of import duties, income tax and corporate tax. Foreign investment was gradually liberalized. Imports of technology were freed. Yet the overall government approach was anything but radically reformist. When bank staff threatened to go on strike, Rao assured them that there would be no bank privatization or staff reforms. When farmers threatened to take to the streets, Rao assured them there would be no opening up of Indian agriculture.

The IMF and World Bank believed that when a country went bust, that was the best time for painful reforms like labour reforms. However, Rao took the very opposite line. He focused on reforms that would produce the least mass losers (such as industrial delicensing) and yet produced 7.5% growth in the mid-1990s. These gave reforms a good name, and ensured their continuance even when Opposition parties later came to power.

In the 2000s, the cumulative effect of gradual reform finally made India an 8.5% miracle growth economy. Rao got no glory for this. He had lost the 1996 election amidst charges of buying the support of JMM legislators. This led to his exit as Congress chief. Although he was eventually exonerated by the courts, he died a political nobody.

How unjust! He deserves a high place in economic history for challenging the Bank-IMF approach on painful austerity, and focusing instead on a few key changes that produced fast growth with minimum pain. The World Bank itself later changed its policy and started targeting “binding constraints” (like industrial licensing)

Manmohan Singh said repeatedly that he could have achieved nothing without Rao’s backing. Today, 20 years after the start of India’s economic miracle, let us toast India’s most underrated Prime Minister — Narasimha Rao.

Dravid and the art of defence

India's No. 3 is a living testament to the belief that you need application and will more than talent to succeed in sport
Sanjay Manjrekar
June 28, 2011

Rahul Dravid pulls on his way to 62, ACT XI v Indians, 1st day, Canberra, January 10, 2008
For a defensive batsman, Rahul Dravid is extraordinarily skilled at pulling the short ball © Getty Images
The pitch at Sabina Park was challenging and the Test match was in the balance, but Rahul Dravid would agree that a more experienced bowling attack would have tested him more. Dravid's 151 Tests against the 69 of the West Indian bowlers combined was always going to be a mismatch. But while this was not one of his best hundreds by any stretch of the imagination, it was an important one nevertheless, given the stage his career is at. And it allows us dwell a bit on the Dravid success story as he completes 15 years in international cricket.
To start with, success does not come as easily to Dravid as it seems to do to others: you get the feeling that he has had to work at it a little more.
I believe Dravid can be a more realistic batting role model for young Indian batsmen than a Tendulkar, Sehwag or VVS Laxman, for Dravid is the least gifted on that list. While Tendulkar is a prodigious, rare talent, Dravid's basic talent can be found in many, but what he has made of it is the rare, almost unbelievable, Dravid story. That you don't need to have great talent to become a sportsman is reinforced by Dravid's achievements over the last 15 years. And that he is now an all-time Indian batting great highlights his speciality: his ability to over-achieve. Indeed, he would have probably have performed beyond his talent in any profession of his choosing. Indian cricket is fortunate that he chose it.
For a batsman of his nature and skills, that he ended up playing 339 one-day internationals, and still contributes to his IPL team in Twenty20, shows his strength of mind. It is a mindset that sets almost unreasonably high goals for his talents to achieve and then wills the body on to achieve them.
Dravid is a defensive batsman who has made it in a cricket world that fashions and breeds attacking batsmen. If he had played in the '70s and '80s, life would have been easier for him. Those were times when a leave got nods of approval and admiration from the spectators.
Dravid has played the bulk of his cricket in an era when defensive batting is considered almost a handicap. This is why it is rare to see a defensive batsman come through the modern system. Young batsmen with a defensive batting mindset choose to turn themselves into attacking players, for becoming a defensive player in modern cricket is not considered a smart choice.
Not to say that Dravid has been all defensive, though. He has one shot that is uncommon in a defensive Indian batsman: the pull. It is a superb instinctive stroke against fast bowling, and it is a stroke Dravid has had from the outset; a shot that has bailed him out of many tight situations in Tests.
When I saw him at the start of his career, I must confess Dravid's attitude concerned me. As young cricketers, we were often reminded to not think too much - and also sometimes reprimanded by our coaches and senior team-mates for doing so. Being a thinker in cricket, it is argued, makes you complicate a game that is played best when it is kept simple. I thought Dravid was doing precisely that: thinking too much about his game, his flaws and so on. I once saw him shadow-playing a false shot that had got him out. No problem with that, everyone does it. Just that Dravid was rehearsing the shot at a dinner table in a restaurant! This trait in him made me wonder whether this man, who we all knew by then was going to be the next No. 3 for India, was going to over-think the game and throw it all away. He reminded me a bit of myself.

He has not committed the folly of being embarrassed about grinding when everyone around him is attacking and bringing the crowd to their feet. Once he is past 50, he resists the temptation to do anything different to quickly get to the next stage of the innings

Somewhere down the line, much to everyone's relief, I think Dravid managed to strike the right balance. He seemed to tone down the focus on his mistakes, and the obsession over his game and his technique, and started obsessing over success instead. Judging from all the success he has had over the years, I would like to think that Dravid, after his initial years, may have lightened up on his game. Perhaps he looks a lot more studious and intense on television to us than he actually is out there.
Dravid has to be the most well-read Indian cricketer I have come across, and it's not just books about cricket or sports he reads. I was surprised to discover that he had read Freedom at Midnight, about the partition of India, when he was 24. Trust me, this is very rare for a cricketer at that age. You won't find a more informed current cricketer than him - one who is well aware of how the world outside cricket operates.
Most of us cricketers develop some understanding of the world only well after we have quit the game. Until then, though experts of the game, we remain naïve about lots of things. I think this awareness of the outside world has helped Dravid put his pursuit of excellence in the game of his choice in perspective. At some point in his career he may have come to accept that cricket is just a sport and not a matter of life and death - even if he seemed prepared to work at it like it was.
Life isn't that easy, as I have said, for a defensive batsman in this age, when saving runs rather than taking wickets is the general approach of teams. A defensive batsman's forte is his ability to defend the good balls and hit the loose ones for four. But with bowlers these days often looking to curb batsmen with very defensive fields, batting becomes a bit of a struggle for players like Dravid.
It is a struggle he is content with, though. He has not committed the folly of being embarrassed about grinding when everyone around him is attacking and bringing the crowd to their feet. He is quite happy batting on 20 when his partner has raced to 60 in the same time. Once he is past 50, he seems to get into this "mental freeze" state, where it does not matter to him if he is stuck on 80 or 90 for an hour; he resists the temptation to do anything different to quickly get to the next stage of the innings. It is a temptation that many defensive batsmen succumb to after hours at the crease, when the patience starts to wear, and there is the temptation to hit over the infield, for example, to get a hundred. Dravid knows this is something that Sehwag can get away with, not him.
He has resisted that impulse and has developed the mind (the mind, again) to enjoy the simple task of meeting ball with bat, even if it does not result in runs, and he does this even when close to a Test hundred. The hundred does come eventually, and after it does, the same discipline continues - in that innings and the next one. A discipline that has now got him 12,215 runs in Test cricket.

Sunday, 26 June 2011

Talent. Graft. Bottle?

Musa Okwonga:  The annual Wimbledon conundrum

The Independent
It's nerve; it's grit; it's the key ingredient that makes a true champion. As Andy Murray aims to break his Grand Slam duck, our writer gets to the root of what every winner needs
Sunday, 26 June 2011
Bottle. It's an odd word to describe the spirit that all athletes need when faced with unprecedented pressure, but it somehow seems to have stuck. There are several conflicting and convoluted suggestions as to its origin: the most recurrent is that "bottle" is derived from Cockney rhyming slang, "bottle and glass". If you've got plenty of "bottle and glass", so the slang goes, then that means that you've got plenty of "arse" when you're confronted with a career-defining test.
Bottle isn't like muscle: it's not visible to the naked eye. At first glance, most of the world's leading sportsmen and sportswomen look routinely impressive: fit, focused, intimidatingly intense. It's only when they're stepping towards that penalty spot or standing at that free-throw line that we get to peer beneath the veneer – to glance at the self-doubt that threatens to engulf them. And engulf them it does, time and again. Just look at Jana Novotna in the 1993 Wimbledon singles final, when she had a game point to go up 5-1 in the final set against Steffi Graf. Until that moment, we didn't know that Novotna would fold; maybe she didn't know, either. But a few games later, she was sobbing on the shoulder of the Duchess of Kent as Graf took the title.
We don't have to look beyond our shores to find ample examples of those who've bottled it. In football, there's the familiar litany of losses to Germany; to name but one, the 1990 World Cup, where England's Stuart Pearce hit his spot-kick into the goalkeeper's midriff and Chris Waddle sliced his high over the crossbar. More recently, in golf, and the sight of Rory McIlroy's surrender at Augusta in the 2011 Masters was especially spectacular. Leading by four shots heading into the final round, holding a one-shot advantage as he moved into the back nine, he then dropped six shots in three holes, finishing 10 shots behind the leader Charl Schwartzel and recording an eight-over-par score of 80.
However, McIlroy's reaction to his meltdown said much about his character, and about the nature of bottle. "Well that wasn't the plan!" he tweeted. "But you have to lose before you can win. This day will make me stronger in the end." Once he had experienced terror, and rapidly understood that the only factor holding him back was his own trepidation; he had laid the foundation for his eventual success. It's no coincidence that in his next major tournament, the 2011 US Open, he triumphed by eight shots.
McIlroy's astonishing response to his collapse shows that we can be unnecessarily harsh when we dismiss an athlete as a "bottler", as someone who'll never hold it together when it counts. For his entire cricket career, the England batsman Graeme Hick was accused of being a "flat-track bully", someone who was proficient against domestic teams but who lacked courage at international level. Hick's batting average in all matches, including a highest score of 405 not out, was 52.23, as against a Test average of 31.32. The history books therefore record a verdict of frailty at the highest level. A more striking case still is Mark Ramprakash, regarded as one of the finest technicians ever to have played the game, but whose performances for England fell far short of those for his counties of Surrey and Middlesex. To date, Ramprakash has over 100 first-class centuries, one of only 25 men to achieve that feat: his batting average in first-class matches stands at 54.59, while his Test career ended with an average of 27.32.
The statistics suggest that, in the cases of Hick and Ramprakash, their bottle was irreparably broken. Both can rightly point to the promise that they showed at Test level, having excelled on foreign soil: Hick can refer to his innings of 178 against India's spinners in Bombay, and Ramprakash can hold up his 154 against West Indian quicks in Barbados. But ultimately, the words of Mike Atherton, written in 2008 in The Times about Ramprakash, ring true for both of them. "Sport is neither just nor unjust," he opined; "it simply reflects time and again an absolute truth. Ramprakash was tried and tested many times in international cricket and more often than not he was found wanting."
Sian Beilock, an associate professor of psychology at the University of Chicago, in Choke: The Secret to Performing under Pressure says: "The more people practise under pressure, the less likely they will be to react negatively when the stress is on. This certainly seems to be true for professional golfers like Tiger Woods. To help Woods learn to block out distractions during critical times on the course, his father, Earl Woods, would drop golf bags, roll balls across Tiger's line of sight, and jingle change in his pocket. Getting Woods used to performing under stress helped him learn to focus and excel on the green."
This excellent practice served Woods well on his way to 14 major championships. But, as Beilock notes, there is no amount of rehearsal that can prepare you for pressure of unforeseen magnitude, such as Woods experienced after multiple revelations about his troubled private life.
If we know that bottle is so hard to have, then why are we so hard on those who don't have it? It's not as if we teach bottle in UK schools. You won't find classes in self-confidence in our curriculum or, as pop star Cher Lloyd has more recently dubbed it, "Swagger Jagger". No, we're too busy teaching humility to our athletes. As a nation, we are superb silver medallists. We smile politely on the podium and shake the winner's hand, when we should be snarling and tearing it off. And while bottle is not the same as arrogance, the two are closely related, both relying on a dogged belief in one's own ability, often in the face of reason.
Most British athletes who are regarded as bottlers are nothing of the sort. Instead, they are people who have risen far above their sporting station, who have gone beyond all reasonable expectation of their talent. Take Tim Henman, who went to six Grand Slam semi-finals, and who was at times a firm test for the all-time greatness of Pete Sampras. Take Andy Murray, who has finished as the runner-up in three Grand Slam finals, and who has the misfortune to be playing in the same era as the all-time greatness of Roger Federer and Rafael Nadal. Neither of these men are failures. They're very, very, very good at tennis, and their only crime is to have fallen short of the milestone of sporting immortality.
If you're a world-class athlete, it's best not to care too much what the public thinks. If you're too dominant, the public can't relate to you and find you boring. If you come second too often, it despairs of you. Your victories must be conspicuously hard-won. There must be graft alongside the grace, bottle alongside the brilliance. We want you to sweat every bit as much as you Swagger Jagger.
If you can master all of that, then we'll truly take you to our hearts. And it can't look too pretty. Tiger Woods's most memorable major victory was not winning the 1997 Masters aged only 21, but the 2008 US Open, with only one good leg. Dame Kelly Holmes is loved not so much because she was a double Olympic gold medallist at 800m and 1500m, but because we saw her strive for years, and, in those final races, for every last inch of her success.
When athletes crumple to defeat in such public spheres, they may lose titles, but they win our affection. That's why, when Rory McIlroy stepped off the 18th green at Congressional, he was not just the 2011 US Open Champion. He was something vastly more: he was our champion.
Musa Okwonga is author of 'A Cultured Left Foot' and 'Will You Manage?'

Ideals go overboard when it comes to choosing a school

Janet Street-Porter
Sunday, 26 June 2011
Don't you love the way alleged socialists and the community-minded middle classes justify their biggest act of hypocrisy – claiming that they want better education for all, while paying through the nose to send their offspring to private schools? Marcus Brigstocke, a pleasant enough comedian, has been doing a bit of hand wringing, telling this paper last week, "I have ethical problems with it [my choice] but... I think this is the best environment for them". Rich people always use the feeblest excuses to justify paying to segregate their children from the rest.
George Osborne, the Chancellor, has decided to send his kids, Luke and Liberty, to swanky Norland Place in west London, and says "we made a decision we feel is best for them". Since when did "best" mean "fee- paying"? Even lefty musicians undergo a radical change of heart when they start to breed. New Statesman columnist Alex James, whose band Blur trashed public schools in their song "Charmless Man", is opting for private, protesting "you want your kids to have the best education". The MP Diane Abbott shunned local schools in Hackney and spent thousands sending her son James to a top school, claiming she did not want him to "get in with the wrong crowd". A great message to send to constituents who have no other choice. She claimed that other West Indian mums sympathised with her – shameless.
Private schools account for only 7 per cent of students, but 45 per cent of the Oxbridge intake – and that's the reason middle-class parents, even in a recession, will remortgage their homes, give up holidays, and beg grandparents for cash to meet the fees. As parents struggle to pay this self-imposed tithe, independent schools are getting into debt – they're owed £120,000 on average – and many are raising fees. Surely the time is right for parents to come to their senses, save their lolly and give state education a chance?
I never thought I'd feel sympathy for Michael Gove, the Secretary of State for Education, but I do. Tasked with trying to drag all state schools up to a decent level of achievement, he's besieged on all fronts. He's highly committed, but what about his fellow politicians? Not only does his own party prefer private education for their children, the Prime Minister says he's "terrified"of finding a good state secondary school for his family. The left is no better – many choose faith schools and selective secondaries in the belief that it will give their kids a better start in life. David Miliband is an atheist, yet sends his eldest son to a faith school over a mile away, when there is a secular primary close by. In short, few people in power or in the public eye are willing to endorse state schools.
It's as if Michael Gove is trying to sell us cars that no one in government, the professions or the City would be seen dead driving. He's got plenty of other problems on his plate – Ofqual, the body that monitors exam standards, recently failed to spot that 10 GCSE and A-level papers contained mistakes, affecting up to 250,000 students. They can hold an investigation and castigate exam boards, but surely the buck stops with them. Of course no one will get the sack or resign, and many young people will be denied the university of their choice.
This week, 300,000 teachers plan to strike over changes to their pension arrangements, and Gove has said schools have a "moral duty" to stay open. On top of all that, a review into testing primary school leavers wants to change the creative writing paper and replace it with "right" or "wrong" tick boxes. Doesn't sound very challenging to me. Teachers have moaned and moaned about these test, but the number of kids leaving primary school who are illiterate is shocking.
Gove needs more money for teachers to reduce class sizes – the only way that standards will improve. He needs to introduce quality vocational training for less academic kids at 14, so they will be ready to take up lucrative jobs as plumbers, engineers, and builders. Labour introduced worthless diplomas instead of A-levels, which have left hundreds of thousands of teenagers unemployed and unskilled. I am the product of a state education – and it couldn't have been better. Gove needs cash and moral support from his colleagues and prominent citizens. Sadly it looks as if neither will be forthcoming.

Friday, 24 June 2011

India: Growth in the 2000s—Key Facts

by Arvind Subramanian, Peterson Institute for International Economics

Op-ed in the Business Standard, New Delhi
June 22, 2011

© Business Standard

India's policy turnaround enters its third decade this month, but the remarkable Indian growth turnaround is now in its fourth decade. The first two decades of higher growth—the 1980s and 1990s—have been well explored. Only now, with data becoming available, can we begin studying Indian growth patterns in the third decade, the 2000s.

My ongoing research with Utsav Kumar of the Asian Development Bank throws up four key findings about growth within India in the 2000s compared to the 1990s.

1. The good news: Average growth has doubled. Figure 1 [pdf] illustrates this fact. It plots the per capita growth rate for the 21 largest states for two time periods: between 1993 and 2001 (horizontal axis) and between 2001 and 2009 (vertical axis). The figure shows that with the exception of Himachal Pradesh and Rajasthan, all states are above the 45 degree line, indicating that growth in the 2000s was substantially greater than in the 1990s. Indeed, average per capita growth across the 21 states increased from 2.8 percent in the 1990s to 5.8 percent in the 2000s. The largest improvements were posted by Uttarakhand (7.1 percentage points), Maharashtra (5.8) and Chhattisgarh (5) with Gujarat and Bihar not far behind. The figure provides a clue both to the long-standing success of the Communist party in West Bengal and its overthrow in the recent elections: West Bengal was one of the strongest performers in the 1990s but was one of the few states that stagnated in the 2000s while others surged.

2. Less good news: Divergence continues. The strong performance of the hitherto laggards—Bihar, Orissa and Chhattisgarh—has been one of the remarkable stories of the 2000s. But this should not obscure the more general pattern that across the Indian states, we still do not see a trend towards greater equality—that is, we do not see the phenomenon of convergence within India, whereby the poorer states, by virtue of growing faster than the richer states, start catching up with the latter's level of income. In fact, figure 2 [pdf] portrays a picture of divergence. It plots the growth rate of the states for the period 2001–09 against their starting level of per capita GDP (in 2001). If convergence holds, the relationship should be downward sloping because the poorer the initial standard of living, the faster the subsequent growth ought to be. But, as the figure shows, richer states on average grew faster so that inequality across states increased.

What is surprising is that the 2000s, far from reversing the unequalizing pattern of growth in the 1990s, continues it. In fact, if Bihar is excluded from the sample, the tendency towards divergence and inequality is even stronger in the 2000s.

3. Globalized but vulnerable states? India's rapid globalization is one of the clichés of our time. The crisis of 2008–10 highlighted the vulnerability that is the flip side of the dynamism that globalization has engendered: growth declined in, and capital fled from, India, as in most other countries, albeit to a lesser extent. But the question remained as to which states were more dependent on foreign markets and hence more susceptible to a downturn as conditions abroad faltered.

Our analysis shows, unsurprisingly, that Karnataka, with Bangalore as the globalized IT-hub of India, fared the worst with a dramatic growth drop of about 4.4 percentage points during the crisis. Andhra Pradesh and Maharashtra also saw a decline in growth of about two to three percentage points. Gujarat and Tamil Nadu experienced a smaller decline. On average, it seems those states that grew faster before the crisis experienced a greater decline in growth during the crisis. While the multiplicity of factors at work precludes drawing clear conclusions, the evidence is consistent with globalization conferring benefits and at the same time increasing downside risks.

4. Whither demographic dividend? Hope in India's future growth is founded on the demographic dividend: a rapidly expanding young population will save more and inject entrepreneurial vigor that will lift the country to a faster growth trajectory. And corroborative evidence was provided in an excellent recent paper by Shekhar Aiyar and Ashoka Mody of the International Monetary Fund. But the pattern of growth in the 2000s appears to muddy the waters. Our preliminary analysis, based on the 2001 Census projections rather than actual data from the 2011 Census, suggests that key demographic factors such as changes in the share of working-age population are not correlated—they may indeed be negatively correlated—with growth performance. This may not be surprising given that many of the demographically aging states such as Kerala, Tamil Nadu, and, to a lesser extent, Maharashtra and Gujarat have done remarkably well while demographically dynamic states such as Uttar Pradesh, Rajasthan and Madhya Pradesh have not fared as well. The preliminary nature of these results must be stressed, but succumbing to a demography-based complacency must be resisted.

A final intriguing factoid relates to Kerala. The conventional wisdom is of a state that is Scandinavian in its social achievements but sclerotic in its growth performance because of investment-chilling labor laws and militant trade unions, and reflected in a labor force that has voted with its feet by emigrating to West Asia. The abiding caricature is of the lazy, argumentative Malayali, discussing Foucault and Gramsci over endless cups of chai while living parasitically off the remittances sent by the relatives-in-exile. Well, the data suggest that the conventional wisdom and the caricature are dead wrong. Kerala posted amongst the highest rates of growth in the 1990s (4 percent per capita), continued its stellar performance in the go-go 2000s (7.5 percent), and exhibited great resilience during the crisis, experiencing virtually no decline in growth.

India, evidently, is capacious enough to allow both Bania, reforming Gujarat and Marxist, reform-resistant Kerala to flourish. Or, to put it more honestly, the Indian growth miracle continues to confound.

Wednesday, 22 June 2011

It isn't just the euro. Europe's democracy itself is at stake

Greece illustrates the danger of allowing rating agencies, despite their abysmal record, to lord it over the political terrain

Amartya Sen

Europe has led the world in the practice of democracy. It is therefore worrying that the dangers to democratic governance today, coming through the back door of financial priority, are not receiving the attention they should. There are profound issues to be faced about how Europe's democratic governance could be undermined by the hugely heightened role of financial institutions and rating agencies, which now lord it freely over parts of Europe's political terrain.

Two distinct issues need to be separated. The first concerns the place of democratic priorities, including what Walter Bagehot and John Stuart Mill saw as the need for "governance by discussion". Suppose we accept that the powerful financial bosses have a realistic understanding of what needs to be done. This would strengthen the case for paying attention to their voices in a democratic dialogue. But that is not the same thing as allowing the international financial institutions and rating agencies the unilateral power to command democratically elected governments.

Second, it is quite hard to see that the sacrifices that the financial commanders have been demanding from precarious countries would deliver the ultimate viability of these countries and guarantee the continuation of the euro within an unreformed pattern of financial amalgamation and an unchanged membership of the euro club. The diagnosis of economic problems by rating agencies is not the voice of verity that they pretend. It is worth remembering that the record of rating agencies in certifying financial and business institutions preceding the 2008 economic crisis was so abysmal that the US Congress seriously debated whether they should be prosecuted.

Since much of Europe is now engaged in achieving quick reduction of public deficits through drastic reduction of public expenditure, it is crucial to scrutinise realistically what the likely impact of the chosen policies may be, both on people and the generating of public revenue through economic growth. The high morals of "sacrifice" do, of course, have an intoxicating effect. This is the philosophy of the "right" corset: "If madam is at all comfortable in it, then madam certainly needs a smaller size." However, if the demands of financial appropriateness are linked too mechanically to immediate cuts, the result could be the killing of the goose that lays the golden egg of economic growth.

This concern applies to a number of countries, from Britain to Greece. The commonality of the "blood, sweat and tears" strategy of deficit reduction gives some apparent plausibility to what is being imposed on more precarious countries like Greece or Portugal. It also makes it harder to have a united political voice in Europe that can stand up to the panic generated in the financial markets.

In addition to a bigger political vision, there is a need for clearer economic thinking. The tendency to ignore the importance of economic growth in generating public revenue should be a major item for scrutiny. The strong connection between growth and public revenue has been observed in many countries, from China and India to the US and Brazil.

There are lessons from history here, too. The big public debts of many countries when the second world war ended caused huge anxieties, but the burden diminished rapidly thanks to fast economic growth. Similarly, the huge deficits that President Clinton faced when he came to office in 1992 melted away during his presidency, greatly aided by speedy economic growth.

The fear of a threat to democracy does not, of course, apply to Britain, since these policies have been chosen by a government empowered by democratic elections. Even though the unfolding of a strategy that was not revealed at the time of election can be a reason for some pause, this is the kind of freedom that a democratic system does allow the electorally victorious. But that does not eliminate the need for more public discussion, even in Britain. There is also a need to recognise how the self-chosen restrictive policies in Britain seem to give plausibility to the even more drastic policies being imposed on Greece.

How did some of the euro countries get into this mess? The oddity of going for a united currency without more political and economic integration has certainly played a part, even after taking note of financial transgressions that have undoubtedly been committed in the past by countries such as Greece or Portugal (and even after noting Mario Monti's important point that a culture of "excessive deference" in the EU has allowed these transgressions to go unchecked). It is to the huge credit of the Greek government – George Papandreou, the prime minister, in particular – that it is doing what it can despite political resistance, but the pained willingness of Athens to comply does not eliminate the European need to examine the wisdom of the requirements – and the timing – being imposed on Greece.

It is no consolation for me to recollect that I was firmly opposed to the euro, despite being very strongly in favour of European unity. My worry about the euro was partly connected with each country giving up the freedom of monetary policy and of exchange rate adjustments, which have greatly helped countries in difficulty in the past, and prevented the necessity of massive destabilisation of human lives in frantic efforts to stabilise the financial markets. That monetary freedom could be given up when there is also political and fiscal integration (as the states in the US have), but the halfway house of the eurozone has been a recipe for disaster. The wonderful political idea of a united democratic Europe has been made to incorporate a precarious programme of incoherent financial amalgamation.

Rearranging the eurozone now would have many problems, but difficult issues have to be intelligently discussed, rather than allowing Europe to drift in financial winds fed by narrow-minded thinking with a terrible track record. The process has to begin with some immediate restraining of the unopposed power of rating agencies to issue unilateral commands. These agencies are hard to discipline despite their abysmal record, but a well-reflected voice of legitimate governments can make a big difference to financial confidence while solutions are worked out, especially if the international financial institutions lend their support. Stopping the marginalisation of the democratic tradition of Europe has an urgency that is hard to exaggerate. European democracy is important for Europe – and for the world.

Interesting Stories of the Day

After the UK MPs were caught with their hands in the till, watch out for Euro MPs expenses scandal:

The UK Government has made it appear that all those who receive public sector pensions are the richest folks in the land:

After bombing Libya for so many days now the Arab League chief admits that the plan has not worked and may even be dysfunctional

George Osborne refuses to tell UK citizens how much the Libyan bombings will cost in an age of austerity.

The coalition hopes that the public sector strikes can be used to blame them for preventing the non existent economic recovery

Large yoga class takes place in Times Square, New York, USA.

Half of Britons have German blood

Tuesday, 21 June 2011

The Super Rich Sabotage The Arab Revolutions

By Shamus Cooke

20 June, 2011

With revolutions sweeping the Arab world and bubbling-up across Europe, aging tyrants or discredited governments are doing their best to cling to power. It's hard to over-exaggerate the importance of these events: the global political and economic status-quo is in deep crisis. If pro-democracy or anti-austerity movements emerge victorious, they'll have an immediate problem to solve -- how to pay for their vision of a better world. The experiences thus far in Egypt and Greece are proof enough that money matters. The wealthy nations holding the purse strings are still able to influence the unfolding of events from afar, subjecting humiliating conditions on those countries undergoing profound social change.

This strategy is being ruthlessly deployed in the Arab world. Take for example Egypt, where the U.S. and Europe are quietly supporting the military dictatorship that replaced the dictatorship of Hosni Mubarak. Now Mubarak's generals rule the country. The people of Egypt, however, still want real change, not a mere shuffling at the top; a strike wave and mass demonstrations are testing the power of the new military dictatorship.

A strike wave implies that Egyptians want better wages and working conditions; and economic opportunity was one of the central demands of the revolutionaries who toppled Mubarak. But revolutions tend to have a temporarily negative effect on a nation's economy. This is mainly because those who dominate the economy, the rich, do their best to sabotage any social change.

One defining feature of revolutions is the exodus of the rich, who correctly assume their wealth will be targeted for redistribution. This is often referred to as "capital flight.” Also, rich foreign investors stop investing money in the revolutionary country, not knowing if the company they're investing in will remain privately owned, or if the government they're investing in will strategically default and choose not to pay back foreign investors. Lastly, workers demand higher wages in revolutions, and many owners would rather shut down -- if they don't flee -- than operate for small profits. All of this hurts the economy overall.

The New York Times reports:

"The 18-day [Egyptian] revolt stopped new foreign investment and decimated the pivotal tourist industry... The revolution has inspired new demands for more jobs and higher wages that are fast colliding with the economy's diminished capacity...Strikes by workers demanding their share of the revolution's spoils continue to snarl industry... The main sources of capital in this country have either been arrested, escaped or are too afraid to engage in any business..." (June 10, 2011).

Understanding this dynamic, the rich G8 nations are doing their best to exploit it. Knowing that any governments that emerge from the Arab revolutions will be instantly cash-starved, the G8 is dangling $20 billion with strings attached. The strings in this case are demands that the Arab countries pursue only "open market" policies, i.e., business-friendly reforms, such as privatizations, elimination of food and gas subsidies, and allowing foreign banks and corporations better access to the economy. A separate New York Times article addressed the subject with the misleading title, Aid Pledge by Group of 8 Seeks to Bolster Arab Democracy:

"Democracy, the [G8] leaders said, could be rooted only in economic reforms that created open markets ...The [$20 billion] pledge, an aide to President Obama said, was “not a blank check” but “an envelope that could be achieved in the context of suitable [economic] reform efforts.” (May 28, 2011).

The G8 policy towards the Arab world is thus the same policy the International Monetary Fund (IMF) and World Bank have pursued against weaker nations that have run into economic problems. The cure is always worse than the disease, since "open market" reforms always lead to the national wealth being siphoned into the hands of fewer and fewer people as public entities are privatized, making the rich even richer, while social services are eliminated, making the poor even poorer. Also, the open door to foreign investors evolves into a speculative bubble that inevitably bursts; the investors flee an economically devastated country. It is no accident that many former IMF "beneficiary" countries have paid off their debts and denounced their benefactors, swearing never to return.

Nations that refuse the conditions imposed by the G8 or IMF are thus cut off from the capital that any country would need to maintain itself and expand amid a time of social change. The rich nations proclaim victory in both instances: either the poorer nation asks for help and becomes economically penetrated by western corporations, or the poor country is economically and politically isolated, punished and used as an example of what becomes of those countries that attempt a non-capitalist route to development.

Many Arab countries are especially appetizing to foreign corporations hungry for new investments, since large state-run industries remain in place to help the working-class populations, a tradition begun under the socialist-inspired Egyptian President, Gamal Abdel Nasser that spread across the Arab world. If Egypt falls victim to an Iraq-like privatization frenzy, Egypt's working people and poor will pay higher prices for food, gas, and other basic necessities. This is one reason, other than oil, that many U.S. corporations would also like to invade Iran.

The social turmoil in the Arab world and Europe have fully exposed the domination that wealthy investors and corporations have over the politics of nations. All over Europe "bailouts" are being discussed for poorer nations facing economic crises. The terms of these bailout loans are ruthless and are dictated by nothing more than the desire to maximize profits. In Greece, for example, the profit-motive of the lenders is obvious to everyone, helping to create a social movement that might reach Arab proportions. The New York Times reports:

"The new [Greece bailout] loans, however, will only be forthcoming if more austerity measures are introduced...Along with faster progress on privatization, Europe and the [IMF] fund have been demanding that Greece finally begin cutting public sector jobs and closing down unprofitable entities." (June 1, 2011).

This same phenomenon is happening all over Europe, from England to Spain, as working people are told that social programs must be slashed, public jobs eliminated, and state industries privatized. The U.S. is also deeply affected, with daily media threats about the "vigilante bond holders" [rich investors] who will stop buying U.S. debt if Social Security, Medicare, and other social services are not eliminated.

Never before has the global market economy been so damningly exposed as biased and dominated by the super-wealthy. These consciousness-raising experiences cannot be easily siphoned into politicians promising "democracy,” since democracy is precisely the problem: a tiny minority of super-rich individuals have dictatorial power due to their enormous wealth, which they use to threaten governments who don't cater to their every whim. Money is thus given to subservient governments and taken away from independent ones, while the western media never questions these often sudden shifts in policy, which can instantly transform a longtime U.S. ally into a "dictator" or vice-versa.

The toppling of dictators in the Arab world has immediately raised the question of, "What next"? The economic demands of working people cannot be satisfied while giant corporations dominate the economy, since higher wages mean lower corporate profits, while better social services require that the rich pay higher taxes. These fundamental conflicts lay just beneath the social upheavals all over the world, which came into maturity with the global recession and will continue to dominate social life for years to come. The outcome of this prolonged struggle will determine what type of society emerges from the political tumult, and will meet either the demands of working people or serve the needs of rich investors and giant corporations.

Shamus Cooke is a social service worker, trade unionist, and writer for Workers Action ( www.workerscompass.org ) He can be reached at shamuscooke@gmail.com

Monday, 20 June 2011

What's it costing British taxpayers to bomb Libya?

The UK government has shrouded the financial cost of bombing Gaddafi in secrecy and obfuscation

Ian Katz

guardian.co.uk, Sunday 19 June 2011 22.00 BST

This weekend provided sobering reminders of the human and financial cost of the three-month bombing campaign against Muammar Gaddafi's regime: in Tripoli several civilians appeared to have been killed by a Nato strike; while in London the Treasury chief secretary, Danny Alexander, admitted that the bill for Britain's contribution could run to "hundreds of millions of pounds".

Until now the UK government has shrouded the issue of how much taxpayers are spending on bombing Libya in the sort of secrecy and obfuscation you'd expect if you asked the current location of all its Trident submarines.

By contrast, here are a few things I can tell you about how much the US's contribution to the preposterously named Operation Unified Protector is costing: as of 3 June, Washington had spent $715.9m on its military operation and associated humanitarian assistance, $398.3m on bombs and missiles alone. The Pentagon sent 120,000 halal meals ready to eat (MREs) to Benghazi at a cost of $1.3m. And by 30 September it reckons its Libya bill will have risen to $1.1bn. I know all this because it was laid out in a document produced by the Obama administration for Congress last week.

On Friday I tried to find out some equivalent figures for Britain's involvement. I called the Ministry of Defence, where a spokeswoman told me the Treasury was "doing an assessment", but no "actual figures" were available yet. She mentioned a month-old estimate "sort of within the region of £100m", but conceded that since the deployment of Apache helicopters the figure was probably significantly higher.

She thought the Treasury might be able to provide more detail, which did not amuse the Treasury spokesman I reached: "It is currently not possible to pull together real-time figures. Apparently the MoD are working on a breakdown but that's not ready to be released."

Perhaps the Foreign Office could help? Not likely: "The foreign secretary has made clear that we will present accurate costings to parliament in due course. We will not be providing a running commentary."

This from the government that trumpets its commitment on the Downing Street website to being "the most open and transparent in the world".

Fortunately, we do know a little more about the likely bill for Britain's part in the conflict from other sources. This month Nick Harvey, the armed forces minister, said in answer to a parliamentary question that Britain was targeting Libya with £6m worth of munitions a week. A Guardian report in May quoted defence experts who suggested the total bill by autumn is likely to be £400m-£1bn.

Public spending comparisons can be glib, but in times of slashed budgets and brutal choices it is hard – perhaps even irresponsible – to avoid making them. So here are a few striking ones: taking the most conservative estimate, the cost to the UK taxpayer of bombing Gaddafi for six months is four times the cut to the arts budget; three times the sum saved by Ken Clark's controversial sentencing reforms; more than the proposed cuts to the legal aid budget; about the same as the savings from ending the education maintenance allowance (EMA); or three times the amount saved by scrapping the disability living allowance.

Are these reasons to conclude Britain should stop bombing Gaddafi? Of course not: any decision to go to war is a complex equation of morality, risk and national interest, in which financial cost is just one, frequently trumped, consideration. But are they relevant to forming an intelligent view on whether Britain should be involved? Surely.

Yet when it comes to military action there is a curious reluctance to apply the same scrutiny to the bottom line as we do to every other area of public spending. As the New Yorker's Amy Davidson puts it: "There is something almost pathological about the way we don't talk about budgets when we talk about war … as if brave men don't think about things like money."

Anyone who has the temerity to ask how much Britain's Libya campaign is costing is reassured that it is all being paid for from Treasury reserves, so we needn't worry our pretty little heads. But anyone who has lost their EMA or disability living allowance could quite justifiably wonder why cash can be found for bombs but not for them.

At the very least, a democracy ought to ventilate the choices it is making. Ed Miliband has been reluctant to rock the boat over Libya, perhaps because the Labour leader can see no better option. But it's time his party started asking difficult questions about our third war in a decade. And if David Cameron is serious about transparency, he needs to show he can be as open about inconvenient facts as he has been about inconsequential ones.

Decent housing is not just a wish, it is a human right

The former US president says we are morally obligated to act, and should do so more urgently and effectively

Jimmy Carter

Guardian Professional, Monday 20 June 2011 08.30 BST

In order to create true, sweeping changes in providing decent housing, we must begin to talk about this human necessity as a basic human right. This is not something that families around the world can only wish to have, not something that only the luckiest can hope to realise, but something that everyone should have an opportunity to achieve.

When we understand the magnitude of housing needs and their different forms in communities worldwide, we will recognise that as more fortunate people we are morally obligated to act. Once we view the issue of housing in these appropriately urgent terms, we will begin to act in concert more effectively.

A good first step is to make sure we are personally engaged in striving together to achieve specific goals. There are many unified and well-proven advocacy efforts that we can support. We need to raise awareness so that our fellow citizens will join us in providing solutions for those who are struggling to overcome the obstacles that prevent their families from having a decent home. We can take an active role, from participating in large-scale efforts such as the UN-designated World Habitat Day, to joining local organisations that meet housing needs and provide funding for projects in our own towns and neighbourhoods.

Creating safe and decent places to live can have incredibly positive effects on a family's health, on study habits of students, and on a neighbourhood's overall attractiveness and stability. With so much at stake, it is time for our definition of decent housing to expand to include a spectrum of solutions: new construction, repair and renovation, housing finance, infrastructure development, secure land tenure. It is time for us to plan and build together.

Through my international work with the Carter Centre and 28 years of volunteering to build homes with Habitat for Humanity, I have seen that the best, most sustainable results achieved when communities and families are deeply involved in orchestrating their own changes.

In locations around the world, from South Africa to South Korea, my wife Rosalynn and I have had the privilege of building simple Habitat homes alongside the parents, grandparents, and neighbours who will inhabit them. We have experienced the very real difference that a strong roof and sturdy walls can make to a family that has never known the security of either, and we have come away with a lasting impression of achievement and gratification.

Efforts that invite families into the process of improving their own lives and their own homes ensure that those individuals have the materials, assistance, and skills they need to lay all the right foundations. People sometimes just need a little help to transform their lives, and community-based efforts work best. So does creating an opportunity for people from all backgrounds to come together in a common cause to help each other; because that's exactly what happens.

When we work alongside families and play a part in helping them achieve what we consider to be a basic human right, we participate in a potentially world-changing result. Their lives aren't the only ones that change. So do ours.

Former US president Jimmy Carter is a volunteer for Habitat for Humanity International.

Eight million gallons of water drained from reservoir after man urinates in it

by Nick Allen in The Telegraph

The operation is costing the state's taxpayers $36,000 (£22,000) and was ordered after Joshua Seater, 21, was caught on a security camera relieving himself in the pristine lake.

Health experts said the incident would not have caused any harm to people in the city of Portland, who are supplied with drinking water from the reservoir.

They said the average human bladder holds only six to eight ounces, and the urine would have been vastly diluted.

But David Shaff, an administrator at the Portland Water Bureau, defended the decision to empty the lake.

"There are people who will say it's an over reaction. I don't think so. I think what you have to deal with here is the 'yuck' factor," he said.

"I can imagine how many people would be saying 'I made orange juice with that water this morning.' "Do you want to drink pee? Most people are going to be pretty damn squeamish about that."

Mr Seater had been out drinking with friends when he decided to relieve himself in the open air reservoir at 1.30am.

He has not been arrested or charged with a crime, but may ultimately face a fine.

He apologised publicly for his behaviour, adding: "It was a stupid thing to do. I didn't know it was a water supply, I thought it was a sewage plant.

"I wouldn't mind paying for it but I don't have a job right now. I'm willing to do community service to clean up the place because I feel bad and feel pretty stupid." Sergeant Pete Simpson, of Portland Police, said: "It's really an unfortunate incident that probably could have been avoided if he had just chosen a bush."

Don't worry Kate, there will never be a royal expenses row

Yasmin Alibhai-Brown:

The entourage to Canada and the US will be 'humble' with only seven adults accompanying the couple. The national self-delusion is now untreatable

Monday, 20 June 2011

Pictures of Kate Middleton appear daily on the front pages. Last week, she showcased clothes costing £12,000. Didn't she look lovely? She smiled and waved too – such an exhausting job, who would want it? All the aspirational young women lining up to apply to St Andrews where Katie bagged her prince. The university is about to team up with the elite American William and Mary College in Virginia (note the monarchist moniker) to charge £18,000 a year for a joint BA degree. Perhaps the next Mrs Simpson will also come from there – rich North Americans love aristocratic connections and all things royal. And this summer they are in for the biggest treat.

The Duke and Duchess of Cambridge (what do these titles mean? Is a duke higher than a prince? Who bloody cares?) are preparing to visit Canada and the US for their first official overseas tour starting 30 June. Expect a flood of images, nauseating sycophancy, endless smiles and airhead fashionista commentaries. The entourage will be "humble", say loyal watchers, with only seven adults accompanying the couple. So no lackey to put toothpaste on to a toothbrush, something Prince Charles must have. More modest still, no dresser or Lady in Waiting. And the people are lapping it all up, like hungry cats round a cream bowl. The downturn? Economic hard times? Cuts and public sector strikes? All the people need are the diverting accounts of the undeserving rich to get by. Only the really curmudgeonly or perfidious Commies would say otherwise. Those of us who can't stand the circus are made to feel treacherous outsiders – a cold place to be.

After the euphoria of the wedding, the phenomenal success of The King's Speech, the honeyed tributes to rude Prince Philip on his 90th birthday, I feel almost defeated. We republicans are losing the battle. There were moments when it seemed as if the nation was shaking, shuddering with righteous indignation at appalling royal behaviour. That fever went down, and we are back to the status quo.

In our flawed democracy, some are born to lord it over us, even if they are stupid, unattractive (in all senses), immoral, badly behaved, drunk, spoilt, adulterous, callous and irresponsible. Examples can be provided for all of these within the present lot of royals. Going back, the list would get more colourful still, with a long line of serious miscreants and corrupt blue-bloods. The point though is that even if they are perfect, they were handed status and wealth at birth and that is wrong. This Queen certainly deserves respect for her diplomacy and for embodying the transition from the British Empire to post-colonial nationhood. But she heads a morally indefensible institution and can't see the harm that does. This year, just after it was revealed that Prince Andrew, the wastrel "helicopter prince", was flying around doing deals with dodgy dictators, his mum stuck more medals on him and later on their irascible dad too, just a birthday present.

But, alas this country's not for turning. A cunningly managed restoration of popularity has ensured the future of the monarchy. Charles will be King; then William. Kate, the millionaires' daughter, will beget an heir and they will live happily ever after. And the people will happily pay for them. There is never going to be a royals expenses row. They are exempt from the Freedom of Information Act, though they cost us millions, including their tax-free allowances and gargantuan security costs. It still isn't enough. In 2010, the Queen tried to get money for palace repairs from a state fund set aside for energy-saving changes to homes and hospitals. "Relative poverty" took on a whole new meaning then, as does the "relative" frugality of the coming Canadian trip.

Defenders of the family say their palaces attract tourists. In India after independence, they got rid of their Maharajahs and Maharanis but retained the opulent residences. Tell me the country gets fewer tourists because they don't have real royals any more. And anyway, only a small part of our tourism industry (one fifth) comes from overseas visitors – the sector as a whole makes up about 9 per cent of GDP. Legoland in Windsor has more visitors by far than Windsor castle. Supporters also exaggerate the effectiveness of British royals. The Queen's remarkable visit to Ireland, her undoubted dignity and moving speech, are given as an example. Was the Irish President Mary McAleese any less dignified or impressive? If they believe that, the national self-delusion is now untreatable.

One Quebec legislator, Amir Khadir, denounced the visit of the "parasites" and the Canadian premier quickly intervened, affirming that his people hold the couple "in very great esteem". That esteem should come only when the couple show they understand what so many of their people are going through. Britain is barely recovering from economic depths it reached last year. More than 100,000 disabled children will no longer receive extra money to help them cope; many families are already living below the poverty line and more will join them as new rules are passed. Kate, meanwhile, wears a gown costing nearly £5,000 to raise money for charity. A fat donation without the costly extravaganza would have done more good and appeared less self-serving.

Why aren't people more angry? They were with expense-claiming MPs who do long hours and put themselves up for tortuous elections. Even in Swaziland, where the King and his many wives rule absolutely, the women of the nation came out in 2008 to demonstrate against the outrageous royal lifestyles. Think about that.

The furious brigade will send off missives about how I have no right to criticise "their" Queen. Let them remember she was my Queen when I was born under the imperial sun. Previously her ancestors declared themselves rulers in India and elsewhere, without popular consent. Here, though, most of the people consent to the most blatant symbol of inequality and celebrate it. Kate has given them more reason and the jubilee next year gives them another boost.

Republicanism may well come to Swaziland one day. But not here. Not ever. Game, set and match to the wasteful Windsors.

Europe's top industrial firms have a cache of 240m pollution permits

European Commission estimates energy-intensive sector will have accumulated allowances worth €7-12bn by the end of 2012

Damian Carrington
guardian.co.uk, Sunday 19 June 2011 15.38 BST
larger | smaller

ArcelorMittal steel worker
Steel producer ArcelorMittal tops the list of firms with surplus of emissions trading permits, according to thinktank Sandbag. Photograph AP

Some of Europe's largest industrial companies gained billions of euros from the carbon emission rules they lobbied fiercely against, new analysis reveals today.

Ten steel and cement companies have amassed 240m carbon pollution permits from generous allocations, according to a report by Sandbag, the carbon trading thinktank, seen by the Guardian.

The free permits, granted to companies with a market value of €4bn (£3.5bn), can be sold or kept for future use. The European commission estimates that the entire energy-intensive sector will have accumulated allowances worth €7bn-€12bn by the end of 2012.

"More and more businesses see that Europe's future lies in a highly efficient economy with low pollution," Baroness Worthington, Sandbag's founding director, said. "But a small group of carbon fat-cat companies are trying to stop this, in spite of making billions from a windfall of free pollution permits."

The steelmaker ArcelorMittal leads the list of companies in the report, with a current surplus valued at €1.7bn, followed by Lafarge, the cement group.

Tata Steel, in third place with a surplus valued at €393m, last month announced 1,500 job losses at its plants in Lincolnshire and Teesside, blaming emissions regulations as well as the economic downturn. Karl-Ulrich Köhler, chief executive of Tata Steel Europe, said at the time: "EU carbon legislation threatens to impose huge additional costs on the steel industry." Tata Steel declined to comment on the report.

The European Union emissions trading scheme (ETS) puts a cap on the carbon pollution emitted by energy and industrial companies. Those reducing their emissions can sell their spare permits to those who do not. But a combination of initial over-allocation by national governments and the economic decline has left the steel, cement, chemical, ceramic and paper sectors with many more permits than they need. The industries have lobbied hard against calls from governments including the UK for the tightening of the ETS and other emissions targets.

Eurofer, the lobby group representing all of Europe's steelmakers, said last month: "To remain competitive in the free, global steel markets, European steel needs … legislation that does not harm its competitiveness. But we are gravely concerned that EU climate change policy will do precisely that."

Cembureau, which lobbies for the cement industry, takes a similar line, stating: "It would be irresponsible to shift the [emissions] goalposts."

In the UK, the government has proposed incentivising low-carbon innovation by setting a British floor price for carbon from 2013. But this is opposed by the CBI. John Cridland, the director general of the employers' group, said: "It risks tipping energy-intensive industries over the edge."

The government has made some concessions, promising to produce plans later in 2011 to compensate businesses for any competitive disadvantage.

However, independent analysis by Bloomberg New Energy Finance found that the carbon permits held by the steel industry would cover its emissions for the next 12 years. "If the steel sector [on aggregate] did not sell any of its surplus, it would not have a need to purchase emissions until 2023," said Guy Turner at Bloomberg NEF.

The Sandbag report, based on public data, also found that nine of the 10 "carbon fat cats" bought between them 24.4m permits from the cheaper international market, mainly from companies in China and India. These can be used within the EU's trading scheme, enabling companies to retain the more valuable European ETS permits. Furthermore, despite the European companies claiming that tougher emissions rules would drive business overseas, some were paying overseas steel and cement companies for their international carbon permits.

"Purchasing carbon offsets from foreign competitors would not seem to be the actions of businesses genuinely concerned that the ETS will drive business abroad," said Worthington.

Not all companies are resisting the tightening of the European ETS. Five major energy groups, including Britain's Scottish and Southern Energy, last week called for spare permits to be withdrawn, a proposal supported by Sandbag.

"Failure to do so could severely hamper business incentives to invest in low-carbon technologies, as the price signal will be skewed in favour of fossil-based solutions," their statement said.

The Guardian contacted all the companies named by Sandbag. Those who responded argued that the surplus permits arose from decreased production and might be needed when the economy recovered. They said that without protection, steel and cement making would be driven to countries with less CO2-efficient manufacturing practices. Many called for global regulation of emissions

A spokesperson for ArcelorMittal said: "As part of our corporate responsibility strategy, we have decided that any sale of such surplus allowances will be reinvested into projects aimed at the improvement of our energy efficiency footprint, as this will help to reduce our overall CO2 emissions."

Erwin Schneider, at the steelmaker ThyssenKrupp, said: "Companies make decisions based on expected future developments. Any earnings from the past will either have been reinvested already or paid out to shareholders. Therefore it seems to be very misleading to use historic numbers to address our future position."

Sunday, 19 June 2011

Who Is Undermining Parliament? Civil Society or Government?

Who Is Undermining Parliament? Civil Society or Government?

By Tapas Ranjan Saha

19 June, 2011

A debate is raging on the role of civil society and popular movements, and their impact on democracy. In a recent statement, Home Minister P Chidambaram said “Elected members cannot yield to civil society” since this might undermine “parliamentary democracy.” A beleaguered UPA Government is increasingly trying to discredit mass movements against corruption by declaring that civil society cannot usurp the right to legislate – a right which, in a democracy, is the exclusive preserve of elected representatives. This argument needs to be examined closely, because on the face of it, it seems to be premised on well-accepted principles of democracy. Are civil society activists and mass movements really holding Parliamentary democracy to ransom? Or is there a deeper, more shadowy threat to democracy that is kept hidden, with a skilful sleight of hand, by Chidambaram and his colleagues?

In the first place, the accusation that civil society activists are seeking to replace Parliament does not hold water. Civil society activists are seeking to shape the draft of laws, and they also seek to mobilise opinion on the content of the laws and hold elected representatives accountable to such opinion. In the process, common people are more closely informed and involved about specific clauses of laws and specific debates surrounding them, than ever before. But the actual task of enacting the laws still rests with MPs in Parliament; though it is true as a result of the civil society efforts at public participation, the debates within Parliament are more likely to be scrutinised intelligently and alertly by citizens.

Chidambaram and the Congress party seem to be uncomfortable with this continuous process of public participation and scrutiny of the trajectory of laws before they reach Parliament. In an article, Congress spokesperson Manish Tiwari warned against street protests, which he equated with ‘street coercion' and fascism. Chidambaram criticised civil society members for challenging the Finance Minister to a televised debate, saying that after all, Parliamentary debates are televised and “voters exercise their franchise from time-to-time.” What the Government seems to be suggesting is that democracy is restricted to voters' right to elect representatives “from time-to-time.” Once people cast their vote, do they cede away their policy-shaping rights for the next five years to the representatives they elect? In other words, is the government suggesting that democracy be available to the citizens only once in five years? Do the people have no right to tell those representatives, through street protests when necessary, exactly what kind of laws they want enacted, especially when those laws often tend to have irrevocable consequences on their lives?

It is strange that the Govt which does not want civil society to dictate to Parliament, has no qualms about corporate CEOs and lobbyists as well as foreign powers dictating laws, policies and even Ministerial appointments. A glaring example was the Radia tapes revelation of how Mukesh Ambani and his lobbyist could even manage to dictate what stand the chief Opposition party will take in Parliament on a key question of energy policy. Wikileaks revealed the close scrutiny and immense influence exerted on India 's parliamentary processes, choice of Ministers (remember the Wikileaks revelation that Murli Deora's appointment as Petroleum Minister was influenced by the US ), foreign policy stances, economic policies and laws by the US . How come the Government does not consider such influence to be a threat to the sovereignty of India 's parliamentary democracy, but resents the scrutiny and influence by India 's own citizens?

Interestingly, the Government, which is raising its eyebrows about the role of civil society activists on the Lokpal panel, is itself appointing un-elected individuals – almost always corporate CEOs - in extremely strategic policy-making positions in ways that seriously undermine Parliament as well as people's right to know. A crucial instance is that of the National Intelligence Grid (NATGRID) – which has recently secured “in-principle” approval from the Cabinet Committee on Security. NATGRID's CEO is one Captain Raghu Raman, former CEO of Mahindra Special Services Group. Through what parliamentary or democratic process was he appointed? People are in the dark about why he was hand-picked by the Home Minister. Moreover his views and stances are not known to the public.

Civil society activists are public figures, whose ideas are ever open to public scrutiny and debate. We may not agree with everything that Anna Hazare proposes – but his ideas are out there in the open for us to criticize or assess on our own. But things are very different with the likes of Captain Raghu Raman. How many people are aware, for instance, of his views on national security and India 's democracy? When he was the Mahindra SSG boss, he penned an article titled ‘ A Nation of Numb People' in which he opined, “Enterprises would need to raise their own protection units…The idea is to … have private protection units that can work in close cooperation with law enforcement agencies. Think of it as a private territorial army . If the commercial czars don't begin protecting their empires now, they may find the lines of control cutting across those very empires.”

Can Chidambaram tell us why a man who thinks of corporations as ‘czars' with private ‘territories' with the right to command ‘private armies' to wage war on India's citizens is heading the most sensitive, all-compassing intelligence institution in our country? Are India 's Parliament and people aware that NATGRID is headed by a man whose worldview matches those of the worst banana republics?

Another instance Parliament being undermined is in the case of the UID Project. The UID Authority of India headed by Nandan Nilekani – another former CEO - UIDAI came into being without approval in Parliament, let alone wider debate in civil society. The National Identification Authority of India (NIAI) Bill, 2010 has been introduced in the Rajya Sabha, but is yet to be debated or passed, and it is yet to have been placed in the Lok Sabha. With a mere Cabinet approval as its basis, UIDAI headed by Nilekani has already signed MOUs in most states with a range of private agencies and government ministries, and UID cards are already being distributed. Does this not undermine Parliamentary democracy?

What are the credentials of individuals like Raghu Raman or Nilekani? They are not elected parliamentarians. They are not even politicians, who at any rate have to face elections periodically? Neither are they bureaucrats, bound to certain regulations and obligations. They are simply corporate CEOs, accountable only to protecting the interests of corporate profits! Yet we see they are being chosen through sheer discretion and positioned in strategic places to make far-reaching critical changes in our country's policy – that bode disastrous and irreparable implications for country's democracy and citizens' rights.

In a debate on a TV channel, responding to the issue of India signing on the UN Convention on Corruption, Congress spokesperson Manish Tiwari declared piously that even a municipal law would take precedence over international laws if the former was contradicted by the latter. Such respect for India 's democratic institutions and sovereignty is commendable – but one wonders where it evaporates when it comes to economic policies dictated by the WTO? In those cases, why does the Indian Government argue that its hands are tied and it has no choice but to amend India 's laws in keeping with WTO directives? It seems the Government invokes the principles of Parliamentary democracy and sovereignty only according to convenience.

The processes initiated by mass movements and civil society activists – whether we agree with all their views or not – strengthen democracy. Citizens do have a right to tell their elected representatives what kind of laws they want enacted and what laws they want changed or scrapped. The SEZ Act was passed by Parliament without a word of dissent. But when implemented, it became clear that those citizens it would affect most – farmers – would not accept it. Would it not have been far more democratic that farmers should have had a right to scrutinise such a law before it was passed in Parliament? Now, farmers' mass protests against land grab are forcing governments to consider their opinions on existing laws on land acquisition and rehabilitation. Opinion is building in the country against the sedition law; earlier, mass protests have forced a debate on laws like AFSPA. These are all processes that are essential to a healthy democracy – and the Government only exposes its authoritarian impulse by trying to discredit such participative processes.

One reader's comment on the web page of a leading English daily that carried the news story – ‘Elected members cannot yield to civil society – Chidambaram' ( http://www.indianexpress.com/news/elected-members-cannot-yield-to-civil-society-chidambaram/800964/ ) hit the nail on the head. This reader has commented caustically, “Yes, they should yield only to corporates and plunderers of the nation.” It seems the UPA Government's bluster is able to convince fewer people every day, as the corporate-dictated corruption under its aegis becomes more and more obvious.

(The author teaches Economics at Sri Aurobindo College (Eve.), Delhi University )

Engineers always do the business, Lord Sugar

Contrary to what the entrepreneur and Apprentice presenter says, we need more engineers in business

James Dyson
James Dyson
The Observer, Sunday 19 June 2011

Reality TV is anything but. If The Apprentice is to be believed, our economy will only recover if we all don pinstripe, spout jargon, shout over one another and deliver a "killer pitch". Fast, furious… and fired. Also, so it seems, there's no place for engineers. "I've never met an engineer who can turn his hand to business," pronounced Lord Sugar last week.

Safe to say I disagree with him – engineers can lead successful businesses. In fact, 15% of FTSE 100 companies have engineers on their board. They are analytical problem solvers – it's why the City loves engineers. I wish it didn't. I'm trying to lure another 400 bright minds to our Wiltshire laboratories.

But Britain has a very misplaced view of engineers. They're either seen as eccentric boffins who speak in algebraic formula, or fixers, sorting faulty cookers, broken-down cars. All important but, at base, engineering is about problem-solving and inventing, making lives better through developing new technology.

British companies such as Rolls-Royce, ARM and JCB are world leaders and they create jobs, technology and cash. And yet those who trade for a living still hold more respect than those who make things. But unless we invent and make more, Britain will have nothing left to export and our deficit will continue to grow. I understand the value of a good deal, but it's a shame our trains now need to be made in Germany rather than Derby.

India, China, France and Germany value their engineers and Barack Obama has announced plans to train an additional 10,000 US engineers every year (though I am sure he'll need more). In these countries, engineers lead businesses and often have a seat at the government table. Sony founder Akio Morita was astounded at how few engineers there were leading British businesses.

China, having already overtaken Japan as the world's second-biggest economy, is growing at around 9% a year and could overtake the US by 2030. No longer content with "Made in China", it has to be "Engineered in China". Its government knows the importance of creating intellectual property, which is one reason behind its staggering output of fresh engineering graduates every year – 300,000 against our own 20,000.

Engineers are behind the cars we drive, the pills we pop and the way we power our homes. They create new technology and appealing products to export. But it's a long-term endeavour. And Britain, if it's to stay in the game, needs to invest now.

My charity conducts workshops in schools and universities across the UK. We encourage young people to find out how things work, brains and hands in tandem. I think Lord Sugar would be impressed by some these bright sparks. They want to make things but they are commercially savvy too. They've conceived the idea, developed a prototype and understand why it works better than anything else: who better to sell the concept?

Not every idea can be a winner, but some are. Yusuf Muhammed, a winner of our student design award, now sells his invention, Automist, a tap that detects a fire and emits a fine mist to put it out. The idea is on its way to commercial success.

And let's not forget that Lord Sugar has a lot to thank British engineers for, not least because John Logie Baird pioneered television.

Testosterone and high finance do not mix: so bring on the women

Gender inequality has been an issue in the City for years, but now the new science of 'neuroeconomics' is proving the point beyond doubt: hormonally-driven young men should not be left alone in charge of our finances…

Tim Adams
Tim Adams
The Observer, Sunday 19 June 2011

Brokers Continue To Trade During Financial Turmoil
Panic hits the trading floor in October 2008. Photograph: Peter Macdiarmid/Getty Images

For the past few weeks I've had two books by my bed, both of which offer a first draft of what history may well judge the most significant event of our times: the 2008 financial crash. Read together, they are about as close as we might come to a closing chapter of The Rise and Fall of the American Empire. As literature, one of them – the final report of the Financial Crisis Inquiry Commission of the US Treasury – doesn't always make for easy reading: there are far too many nameless villains for a start. And, quite pointedly, there is not a heroine in sight. Reading the report I became preoccupied by, among other things – the fairy steps from millions to billions to trillions, say – the overwhelming maleness of the world described. The words "she", "woman" or "her" do not appear once in its 662 pages. It is a book, like most historical tragedies, written about the follies and hubris of men.

The other book, an entirely compulsive companion volume, is Michael Lewis's best-selling The Big Short, which Google Earths you into the crisis. Rather than looking at a global picture, it lets you into the bedrooms and boardrooms of the individual corporate men who catastrophically lost billions of dollars and, on the other side of those bets, the extraordinary ragtag of obsessive individuals who saw what was coming and made eye-watering fortunes. It gives the crash a human face, and once again that face is universally male.

The books are linked by more than subject matter, though. Lewis, a one-time bond trader himself – he left, 20-odd years ago, in incredulity and disgust to write his insider's account, Liar's Poker – gave evidence to the Crisis Inquiry Commission over the course of its 18-month sitting. In the end, however, he refused to sign off the report; and not only did he refuse to sign it, he also refused to put his name to the dissenters' addenda to the report, which three of the committee insisted upon. And not only that, he did not add his name to that of the single individual who insisted on a further addendum stating that he dissented from the dissenters' view. Lewis was not a fan of the report.

The reason for this was simple, he suggested. He felt that the committee, for all its considered judgment, had not understood, from the outset, a single, pivotal word. That word was "unprecedented". Though the inquiry had set out in the belief that the crash was an event different in kind to anything that had gone before, it nevertheless proceeded to judge it in the terms of previous crashes. What it failed to do, in Lewis's eyes, was this: it neglected to look for the things that might have changed in Wall Street or the City, the things that might have made individuals on the trading floors act in ways that were seen to be entirely, unprecedentedly, reckless. When he came to consider these things himself, Lewis felt that perhaps chief among the unprecedented novelties was this one: women.

"Of course," he observed, with tongue firmly in cheek, "the women who flooded into Wall Street firms before the crisis weren't typically permitted to take big financial risks. As a rule they remained in the background, as 'helpmates'. But their presence clearly distorted the judgment of male bond traders – though the mechanics of their influence remains unexplored by the commission. They may have compelled the male risk-takers to 'show off for the ladies', for instance, or perhaps they merely asked annoying questions and undermined the risk-takers' confidence. At any rate, one sure sign of the importance of women in the crisis is the market's subsequent response: to purge women from senior Wall Street roles…"

When I first read those remarks it was not clear how much in earnest Lewis had been when he made them. Subsequently, though, I heard him speak at the London School of Economics, and he took this idea in a slightly different direction. When asked what single thing he would do to reform the markets and prevent such a catastrophe happening again, he said: "I would take steps to have 50% of women in risk positions in banks." Pressed on this, he went on to suggest how science reveals that women in general make smarter decisions regarding investment than men, that when it comes to money, women in couples are demonstrably better at evaluating risk than their partners, and single women much better still.

Though those of us males who have an uncanny sense of money always slipping through our fingers might anecdotally believe this to be true, I was surprised to hear it stated as a fact. It seemed to beg a number of questions. First, if women really are better at making these judgments, why is it always men, still, without exception, who troop out before select committees to explain where it all went wrong, and how they weren't really to blame. And second, would it really be different if women were in charge?

You don't have to look too far into the science to realise that Lewis's claim, in broad terms, stands up. The first definitive study in this area appeared in 2001 in a celebrated paper that broke down the investment decisions made with a brokerage firm by 35,000 households in America. The study, called, inevitably, "Boys will be Boys" found that while men were confident in making multiple changes to investments, their annual returns were, on average, a full percentage point below those of women who invested the family finances, and nearly half as much again inferior to single women.

A more recent study of 2.7 million personal investors found that during the financial crisis of 2008 and 2009, men were much more likely than women to sell any shares they owned at stock market lows. Male investors, as a group, appeared to be overconfident, the author of this study suggested. "There's been a lot of academic research suggesting that men think they know what they're doing, even when they really don't know what they're doing." A fact that will come as a surprise to few of us. Men, it seemed, typically believed they could make sense of every piece of short-term financial news. Women, never embarrassed to ask directions, were on the whole far more likely to acknowledge when they didn't know something. As a consequence, women shifted their positions far less frequently, and made significantly more money as a result.

Naturally, if these findings were widely applicable, then it would be hard not to agree with Lewis's suggestion for reforming the sharpest end of capitalism. Rather than ring-fencing casino investment banks or demanding that high street banks hold vastly greater capital, as we heard at the Mansion House last week, wouldn't a safer model just be to hire more women?

To argue this case, you would probably need more than just behavioural evidence; you might need to understand some of the mechanisms which produced the trillion-dollar bad decision-making that led to what happened in 2008. In recent years, and particularly since the crash, a new science of such decision-making – neuroeconomics – has become fashionable in universities and beyond. It proposes the idea that you will create a better understanding of how people make economic choices if you bring to bear advances in neurobiology and brain chemistry and behavioural psychology alongside traditional economic maths models. Not surprisingly, neuroeconomics has plenty to say about the question of whether decision-making, in high-pressure situations, divides on gender lines.

The problem is that most of the scenarios used to investigate this divide are artificial. It is one thing attaching someone to an MRI scanner and telling him or her that a million pounds rests on their decision in a game; it is another when that person actually stands to lose a million pounds. Only one study, as far as I could discover, has had access to the brain chemistry, the neural biology, of young men actually working on trading floors. But the results it produced were nonetheless startling.

The study was led by a pair of Cambridge researchers. One, Joe Herbert, is a professor of endocrinology, and the other, John Coates, a research fellow in neuroscience and finance. Herbert, a specialist in the effect of hormones on depression, was fascinated to put some of his theories about the role of chemicals on decision making into practice. The curious thing about banks, he told me, "was that they know all about computers and systems and markets but they know next to nothing about the human machine sitting in the chair in front of screens making decisions. Nothing. We aimed to correct that just slightly."

It was Coates, though, who made the experiment possible. Having met Herbert at his lab in Cambridge, I met Coates in a pub in west London. He had a special advantage in gaining access to bond traders' brains, he explained: he used to possess one himself. Sharp-eyed and fit-looking, Coates retains the intensity of a man who used to run a trading desk on Wall Street during the dotcom bubble. He started off at Goldman Sachs and went on to Deutsche Bank. After some years trading, and making a lot of money out of a lot of money, he became increasingly fascinated by the way, during the dotcom years, the traders he worked alongside radically changed behaviour. They became, he says, "euphoric and delusional. They were taking far more risks, and were putting up trades with terrible risk-reward profiles". The dotcom was fun, in a way, he suggests; it was like the roaring 20s. "But I don't think anyone looks back on the housing bubble and laughs."

Coates was a relatively cautious trader himself, but there had been times when he too felt this surge, this euphoria: "When I had been making a lot of money myself, I felt unbelievably powerful," he recalls. "You carry yourself like a strutting rooster, and you can't help it. Michael Lewis talked about 'Big Swinging Dicks', Tom Wolfe talked about 'Masters of the Universe' – they were right. A trader on a winning streak acts exactly that way."

The second thing that Coates noticed was even more revelatory to him. "I noticed that women did not buy into the dotcom bubble at all," he says. "You couldn't find one who did, hardly. And that seemed like a pretty cool fact to me."

With this cool fact in mind, Coates began splitting his time between his trading desk and the Rockefeller University in Manhattan, which is perhaps the world's leading institute for the study of brain chemicals. There he started to become interested in steroids, and in particular something called "the winner effect". This occurs when two males enter a competition and their testosterone levels rise, increasing their muscle mass and the ability of the blood to carry oxygen. It also enhances their appetite for risk. Much of this testosterone stays in the system of the winner of a competition, while the loser's testosterone melts away fast; in evolutionary terms, the loser retires to the woods to lick his wounds. In the next round of competition, though, the winner already has high levels of testosterone, so he starts with an advantage, and this continues to reinforce itself.

"Steroids," Coates explains, "like most chemicals in your body, display what is called an inverted U-shaped response curve." That is to say, when you have low levels of them you lack vitality, and do very poorly at mental and physical tasks. But as the levels rise you get sharper and more focused until you reach an optimum. The key thing is this, however: "If you keep winning, your testosterone level goes past that peak and sliding down the other side. You start doing stupid things. When that happens to animals, they go out in the open too much. They pick too many fights. They neglect parenting duties. And they patrol areas that are too large." In short, they behave like traders on a roll; they get cocky.

Coates became convinced that this winner effect was what he observed in bullish trading markets, and what ended up dramatically distorting them. It also explained why women were mostly immune to the euphoria, because they had only 10% of the testosterone of men. What struck him most, though, was that, for all the literature about financial instability, economics, psychology, game theory, no one had ever clinically looked at a trader who was caught up in a bubble.

Coates wrote a research proposal. He came back to Cambridge where he had done his first degree, and because of his background eventually gained access, with Herbert, to a major City bond-dealing floor in London. They tested the traders for two hormones in particular, testosterone and cortisol (the anxiety induced, depressive "stress hormone"), and mapped their levels over a period of weeks against the success or failure of trades, individual profit and loss. Coates had imagined the experiment to be a preliminary study but the correlations he found – for evidence of irrationality produced by the winner effect and its converse – was "an absolute dream". They not only discovered that a trader's morning testosterone level could be used to predict his day's profitability. They also found that a trader's cortisol rose with both the variance of his trading results and the volatility of the market. The results pointed to a further possibility: as volatility increased, the hormones seemed to shift risk preferences and even affect a trader's ability to engage in rational choice.

Though the sample was limited, and suitable caution was needed in claiming too much, the correlations suggested that over a certain peak, testosterone impaired the risk assessment of traders. "And cortisol," he suggests, "was in some ways even more interesting than testosterone. We thought cortisol would rise when traders lost money," Coates says, making individuals more than usually cautious, "but actually it was going up incredibly when they were faced with just uncertainty. The stress hormones were switching over to emergency states all the time. There was an optimal level but these stress hormones can linger for months. Then you get all sorts of really pathological behaviours. If you are constantly prepared for high tension it affects your brain, and it causes you to recall stressful memories and become exaggeratedly risk-averse and kind of helpless."

Unfortunately this particular study ended in June 2007, before the full effect of the crisis, but its implications account, Coates believes, for some of what he subsequently heard from the trading floor. "If cortisol goes beyond a certain point, then it may become very difficult for traders to assess any risk at all. These guys are not built to handle adversity that well. There is an observable condition called 'learned helplessness', which if you are submitting to great stress over a long period of time makes you give up suddenly. Lab animals develop it: you open the cage and they won't escape. Traders have it too. They just slump in their chairs. In the crisis there were classic arbitrage opportunities as the markets were falling. Free money. But traders would sit there staring at the numbers and not touching it."

Since then, Coates has partly been working on the other strand of his original hypothesis, looking at the brain chemistry of women working in the markets. Because of the small sample sizes he has to work with – there were only three women out of 250 traders on the floor he first tested – the detail of that is far from complete, and he is properly reluctant to draw conclusions. What he will go so far as to say, though, is this. "Central bankers, often brilliant people, spend their life trying to stop a bubble or prevent a crash, and they are spectacularly unsuccessful at it. And I think it is because, at the centre of the market, you have these guys either ripped on testosterone or overwhelmed by cortisol so that they become completely price insensitive." Coates wrote a couple of articles after that research was published, suggesting that, if the winner effect was right, it was possible that bubbles were an entirely young male phenomenon. And if that were the case, then the best way of preventing boom and bust was to have more women and more older men – less in thrall to hormones – in the markets. "We know that opinion diversity is crucial to stable markets. What no one talks about is endocrine diversity, a diversity of hormones. The billion-dollar question is how to achieve it."

To most experienced, male, investment bankers, of course, this sounds like fighting talk. An old friend of mine, who traded his Cambridge English degree for an extremely lucrative life as a bond dealer, offered this, when I presented Coates's evidence to him. "It would be nice to think that having more female traders on the floor would make for less volatility," he said, "but that's wishful thinking. Financial markets are now global, so while we in the west might decide not to chase trends or react instinctively to breaking news because there are mature mothering types in boardrooms and sitting on risk committees, the rest of the world will, and our banks would lose out." And that's not all. "Many of the women I know who have managed money or have put capital at risk for banks have tended to be even more aggressive with risk than their male counterparts, as if perhaps to compensate for their supposed diffidence. Fighting their way through a male-dominated environment to a position in which they can invest/punt/ risk-manage, many women develop an ultra-masculine persona so as to be thought of as ballsy…"

Just a cursory glance through some of the recent spate of books and blogs written by young women who have worked in the City and lived to tell the tale would certainly seem to support this observation. Melanie Berliet, who worked as one of the only female traders in Wall Street, set the tone in her confessional blog: "If anything," she observed, "my token status gave me an extra thrill. I enjoyed being called a 'fucking dullard' or being instructed, patronisingly, to 'remove head from ass', because my reaction – to grin rather than cry – impressed the guys. I loved their attention and the daily opportunities to prove that I fitted in. What separated me from my colleagues was physical: my 5ft 9in, 120lb frame, my long, blondish hair – and my vagina. I had two options with my boss: trade sexual banter or resist. Typically, I chose the former. Like most traders, my base salary wasn't terribly high—$75,000 at the start of my third year. The bonus was all, and getting the right number rested on one thing, as I saw it: my willingness to promote my boss's fantasy of fucking me…"

John Coates doesn't believe the caricature, or at least he believes that in the upper reaches of banks, things have moved on. "A lot of my former colleagues are running divisions, or whole banks," he says. "I don't buy the sexist macho argument. The big investment banks desperately want women traders. But when they interview women who are qualified, the women don't want to do it…"

Neuroeconomics also starts to provide the answers to some of the reasons for that. Muriel Niederle is a professor at Stanford University, looking at gender differences in risk decisions. Over a period of years Niederle has developed clear evidence for the theory that though in non-competitive situations women demonstrate an advantage over men in making investment decisions, they either shy away completely from making those decisions in intensely competitive environments, or they respond less well than men to competition with very short-term high intensity and results-driven focus. This pattern is set, Niederle proves, from a very young age (and no doubt has a good deal to do with the differential presence of troublesome testosterone). Joe Herbert told me at his lab in Cambridge: "What is clear is that there are neurological differences between the sexes. Women, in very general terms, are less competitive, and less concerned with the status of being successful. If you want to make women more present, you have to remember two things: the world they are coming into is a man-made world. The financial world. So, either they become surrogate men… or you change the world."

Ah, changing the world. In the wake of 2008, there was a good deal of talk about that heady idea. Much of this talk concerned the creation of more gender balance in the city. The Economist coined the phrase "Womenomics" and argued that excluding nearly 50% of talent from crucial positions in business and finance was not only discriminatory but caused serious harm to stability and growth. Iceland's banks brought in women to clear up the mess that men had left. A good deal was made of the fact that the extraordinary success of microfinance in the developing world was because 97% of the loans were granted to women (men were – biologically? culturally? – not to be trusted). Science, neuroeconomics, was harnessed to develop some of those themes. And then, well, nothing. The commissions and the select committees decided that a return to something like the status quo, with all its implicit risks and inequalities, was the only option.

Womenomics still persists in a few places, however. The 30% Club was an initiative set up last November by executive women, and some senior men in FTSE 100 companies and accountancy and legal practices, to increase the number of women in decision-making and boardroom positions to that figure. It goes a little further than Lord Davies's recent report on the subject. But 30% is not an arbitrary number; it is thought – by neuroeconomists again, and through observation – to be the minimum proportion of women at the top of an organisation required to begin to change the culture; below that number, women tend to behave "like surrogate men"; above it, the subtle differences produced by gender might begin to influence the way decisions are made. In Britain there is still a good way to go: only 5.5% of executive directors in FTSE 100 companies are women (yet evidence shows that companies with women leaders have a 35% higher return on equity, and companies with more than three women on their corporate board have an 80% higher return on equity). On city trading floors, the percentage remains, for some of the reasons outlined above, at around 3% or 4%. Testosterone rules.

The country that has attempted most radically to change this balance is Norway, where a Conservative minister imposed a quota of 40% female directors in every boardroom. Most of the data suggests the initiative has been a great success, both culturally and commercially (though some, male, commentators argue that the turnaround is better explained by the spike in oil prices).

It would be hard to find many people in the city, even among women, who would favour quotas, though that argument can be made. John Coates, wearing his dealmaker's hat, suggests a practical solution. "The question is not whether men are risk takers and women are risk-averse. It is more what kind of risk do they want to take? My hunch is that women don't like high-frequency trading, so what you have to do is change the accounting period over which they are judged."

He then gives me a potted description of how things remain: "Say you have two traders. One trader makes $20m a year for five years, of which she might typically pocket a couple of million a year herself. At the end of five years she has made the bank the best part of $90m. Another trader makes $100m a year for four years. They don't want that guy to go off to a hedge fund so they let him take home $20m a year. But then in the fifth year – because of the winner effect – he loses $500m. That is essentially what happened in the financial crash. The bank has lost $100m and the trader has gained $80m. If you were judging these things over a five-year period, then you can see which person you would hire."

But, of course, that would require a very different idea of markets, and of money, to the one that is currently desperately being defended and remade. It would certainly require a greater degree of "endocrinal diversity". Still, the next time you hear someone suggest that things are getting back to "normal" in the city, and that we should at all costs start believing in exponential growth again, at least you can look him in the eye and state that you think his hormones might be playing up.
Neuroeconomics: Six things that the science of decision-making reveals

■ If groups of young men are shown pornographic pictures of women and then asked to choose between safe and risky investments, compared with men shown non-pornographic pictures they choose far riskier portfolios.

■ Our brains are designed to seek out novelty, but too much information can overwhelm them; we are generally better at assessing risk when listening to Bach than with the chatter of TV news.

■ Men's brains tend to shut down after they have proposed a deal, waiting for the response. Scans show that women brains continue to be active, analysing whether they have done the right thing.

■ Humans are the only animals that can delay gratification, a function of the prefrontal cortex. However, the prefrontal cortex only matures after the age of 30, and later in men than women. Before that, we are more likely to seek immediate gratification.

■ Our brains reward social interaction with the release of a chemical called oxytocin. It makes us feel good when we follow the herd. Stock market bubbles are one likely result of this.

■ Our brains are wired for human oxytocin-mediated empathy (or HOME). We are biologically stimulated to love (or hate) what is most familiar to us. We are built to form attachments, to value what we own more than what we do not own. This fact skews the rationality of all our investment decisions