Are we all really expected to work until we drop?

Catherine Bennett in The Guardian


As Tony Blair repeatedly confirms, and John Cridland notes in his interim report on the state pension age, a “significant” number of workers who left the labour market before the age of 63 “wish they had postponed their retirement”.

In many ways, the response to Blair’s longing for a second act, in full knowledge of his power irredeemably to contaminate any political project, is a timely reminder to younger workers, as the retirement age rises, of the need to plan ahead. Leave early – whether for reasons of ill health, burn-out or for being universally denounced as an avaricious, world-blighting menace – and it may prove almost impossible, as the TUC recently noted, for the older worker to find another job. 

But with his determination to defy the above obstacles, Blair is also a terrific example of the model, can-do, older worker. One whose undimmed desire to serve – or do incalculable harm to his own side – so compellingly supports the proposition, one especially dear to British politicians, that increased longevity should naturally be accompanied by an ever-extended working life. Cridland, the former Confederation of British Industry chief, is the latest to reassess the retirement age and is still consulting for a report due next year.

As it stands, the state’s reward for scientific advances that should usher millions more people into their 90s is the raised retirement age of 68 (rescheduled for 2041), the highest in the OECD. Behind Cridland’s interim report is the expectation, supposing longevity keeps increasing, that it should be raised again.

Quite why the British older worker should, if only in this respect, have become synonymous with drudgery, has never, so far as I can discover, been explained. Maybe decades of strong tea are what helps our oldest people to become, with their furious, late-onset capacity for record-breaking productivity, the envy of the world. Or maybe younger workers, or the politicians who should represent their interests, are lamentably passive. As it is, with their proved success in delivering, by adjusting the retirement age, what are, in effect, huge fines on generations too youthful and busy to notice, there is every reason for British politicians to continue to impose penalties for age-defying insouciance.

And with so much to divert public attention, now is the perfect time for the pensions minister, Richard Harrington, to mention that he has asked the Government Actuary’s Department to recalculate life expectancy and project what might be a nifty way of relieving younger generations of a few more hundred billion pounds – if the percentage of adult life (from the age of 20) considered eligible for state-pensioned retirement were lowered from the current 33.3% to 32%. “People are living and working longer than ever before,” Harrington said. “That is why it is important we get this right to ensure the system stays fair and sustainable for generations to come.” Or, alternatively, until modern medicine buys the government another year or two’s pension deferral.

Supposing the lower figure were adopted, a pension consultant told the Telegraph, the government “would struggle to find a more politically painless way to take £8,000 off tens of millions of people”. Moreover, if and when affected workers began to make a fuss, many of those responsible would, themselves, be safely retired on final salary pensions, and protected, as Women Against State Pension Inequality protests – by 50s-born women obliged to work beyond 60 – has shown, by intergenerational indifference.

Described by the New Statesman, in its article “Tony Blair’s Unfinished Business”, as looking “anything but broken” – and allegedly reminiscent of the figure whose cojones were so esteemed by George Bush – the tanned Blair, no less than orangeTrump, is, in contrast, a poster boy for the five decades of toil that will, if some pension lobbyists have their way, become the norm in the UK and the US. Trump’s example was somewhat compromised, in this respect, by his age-related insulting of Hillary Clinton. “Importantly,” he said, “she [also] lacks the mental and physical stamina to take on Isis and all the many adversaries we face.”

As many future, almost 70-year-old workers may eventually discover, strategies for reducing age prejudice and intergenerational resentment have failed – largely through not existing – to keep pace with deferments of state pensionable age and the end of obligatory retirement. Outside politics and the BBC, and anywhere else Farage’s “big silverback gorillas” are not delightedly deferred to, the lingering presence of pension-defying, grandparent-age colleagues can, one gathers, be distinctly unwelcome to co-workers – and not only those hoping for promotion within the next century or so.

The recent proposal, by the Financial Times columnist Lucy Kellaway, that older graduates consider, like her, a pre-retirement switch to teaching elicited some wry responses from members of a profession where the average retirement age is 59. For instance: “Teaching is a young person’s game.”
The word “ageism” does not appear in Cridland’s 100-page report, a document that may not only cheer politicians praying for the go-ahead on 70, but reassure anyone who fears – whether from experience, or from listening too closely to health officials, or from reading too much literature – that advancing age and physical decline are in any way connected.

“Old age isn’t a battle,” thinks one of Philip Roth’s ageing protagonists. “Old age is a massacre.” Not any more, to judge by the cheerful Cridland. “Longevity is changing the pensions landscape.”

A decade after Roth’s Everyman, Cridland depicts many of us as promisingly situated for the payment or, rather, non-payment, of pensions, since, with “quite substantial” geographical variations, “healthy life expectancy (the proportion of life someone can expect to spend in ‘good’ or ‘very good’ health) appears to be keeping track with overall life expectancy”. If a man aged 65 can expect around nine years of good health, some will ask: why not use up over half of those at work?

It is for academics and actuaries to judge how Cridland’s analysis squares with the gloomier conclusions of a 2015 government report: Trends in Life Expectancy and Healthy Life Expectancy. Its key finding: “Increases in health expectancies in the UK are not keeping pace with gains in life expectancy, particularly at older ages.”

Still, if Cridland is willing to factor into his pension recommendations the assumption of protracted liveliness in Britain’s long living over 65s, Generations X and Y may want to consider how this sunny outlook might feature in their own career plans. With flexibility on the government’s part they could offer to work, say, between 70 and 80, later if the actuaries agree, in exchange for a state pension in their 20s or 30s. Just in case, through sheer over-optimism, a Cridland-influenced proposal keeps them indentured until the last five years, or less, of healthy life.

Any interested generations have until 31 December to tell Mr Cridland how they feel about becoming the oldest non-pensioners in the developed world.

Denise worked all her life. Then she got ill – and the state pulled away the safety net

Frances Ryan in The Guardian

The Conservatives like to sell the public a promise: do “the right thing” – work hard, look after your family, pay your taxes – and in tough times, the welfare state will be there for you. But here’s a snapshot of what could happen to any one of us if bad luck hit. Denise, has been a nurse for the best part of 30 years, but since she became too ill to work, she’s been left to live without sickness benefits for five months and counting.

Denise, now 48, trained as a mental health nurse straight out of school and tells me she has worked all her life. It wasn’t easy. In her mid twenties she was diagnosed with bipolar disorder, and by her thirties, as she raised a young son in Leicester, she developed fibromyalgia. With it came pain and exhaustion: each joint hurt to move, and for months she needed a wheelchair and hospital car to see a specialist. “At times, I actually crawled on my hands and knees to attempt to make us a meal,” she says.

Over the next 15 years, Denise did what many with long-term illnesses will be all too familiar with: she pushed herself to keep working – going part-time to try to manage her bipolar, pain and fatigue. When things were at their worst (in 2011, she had major surgery on her spine), she lived off the out-of-work sickness benefit, employment and support allowance.

Last winter, again, Denise tried to work. After being on ESA for almost three years, she felt well enough to move to Bristol to be near her partner and take a job nursing in a women’s secure hospital. But after eight weeks, the impact of the work on her mental health was too much (“helping pregnant women with psychiatric problems … it was very emotional,” she says) and she had to give it up. She got by on company sick pay – half her wage – for three months, but by April she was earning nothing at all.

Ask most politicians and this is exactly when they’d say the safety net would kick in. But when Denise contacted the Department for Work and Pensions to say she’d had to leave her job, she was told she was no longer eligible for out-of-sickness benefits – despite receiving them only four months earlier. Because she’d been off the benefit for more than 12 weeks, in the mire of DWP rules, technically Denise was making a “new claim”, judged on a different tax year – meaning the DWP could now rule her as not having enough national insurance points to get the benefit.

Worse, Denise was told she wasn’t eligible for the alternative either – the type of ESA based on income, rather than NI contributions. Why? Because she was now living with her boyfriend.

In another rarely publicised DWP rule, if a sick or disabled person shares a home with a partner, the fact that their partner earns a wage can be used to rule them out of sickness benefits (the income threshold varies). When I contacted the DWP, it confirmed: “Claims for ESA are assessed against a number of circumstances including living arrangements, income and national insurance contributions.”

That means that people like Denise – who the government are fully aware are too unwell to work – are effectively shut out from social security.

“I put my trust in the DWP,” Denise says. “I wouldn’t have taken a job if I’d known there wasn’t a safety net if I became ill again.”

Since April, with no sickness benefit, Denise’s only income has been her disability living allowance – which she needs to pay for the extra costs that come with bad health. As she puts it: “It’s meant to pay for taxis [to hospital], not bills and food.” But even that’s been cut now: when the government abolished DLA and transferred her to personal independence payments in May, she lost part of her benefit. Now she’s living off just £82.30 a week. “It’s horrific,” she says, and she’s becoming withdrawn and isolated.


When an employer won’t hire you and the state won’t help you, to be sick or disabled simply means having no income

Her partner has a decent wage as a transport contractor – fine for one but not easy to stretch for two – and besides, she says, it’s “awful” when he’s forced to pay for everything. “It’s not like we’re married. We don’t have a joint bank account,” she says. “I don’t like having to say, ‘can I have a money for a haircut, or for tampons?’”

As an insight into just what sick and disabled people are up against, Denise has been trying to find a nursing job this summer – one with less stress – but when she told an employer about her bipolar disorder, a medical report judged her as unfit for work and the job offer was withdrawn. She’s been “scrabbling together” information from the mental health charity Mind to know her rights, and has put in a request to see if the employer will accept changes such as shorter shifts – but if it refuses, she has no way of paying the legal fees to take it to court.

When an employer won’t hire you and the state won’t help you, to be sick or disabled in Britain simply means having no income. Denise has adapted over the years to living on very little – “because I’ve had to”, she explains – but things have never been this bad.

“For anyone to go through this when they’re already ill … just to live, you really think at times like this you’re going to be protected by the government. But you’re not.”

Follow the money: how left-behind cities can hold their corporate bullies to account

Paul Mason in The Guardian

If you walk along Britain’s poorest streets, the phrase “left behind” – in vogue again after many such places voted to leave the EU – takes on a complex meaning. It’s not just that they are lagging behind the richer, better-connected places. It can seem, as you survey the pound stores and shuttered pubs, that these towns have been discarded: left behind, as in “unwanted on the journey”. Wealth has flowed out of them to somewhere else.

The logical question should be: who did this? Sometimes it’s obvious: in Ebbw Vale, for example, the answer is the Anglo-Dutch steel company Corus, which closed the plant in 2002. In many places it’s not obvious. Jobs seep away; council services are privatised; bus timetables dwindle; the local school gets taken over by a “superhead” from somewhere else, outsourcing the dinner ladies on day one. You can get angry about it, but there is nobody specific to be angry at.

Faced with the same problem, union and community organisers in the US have, in the past 12 months, adopted a novel way of fighting back. Through a campaign group called Hedge Clippers, they have begun tracing the lineages of financial power behind the decisions that affect specific places, and targeting those financiers – pension funds – with a new kind of pressure.

Steve Lerner, one of the instigators of the 1980s Justice for Janitors campaign, which, for the first time, organised migrant cleaning workers in the US, explains how the tactic evolved. “We were organising janitors working for contract cleaning companies: but they’re just middlemen,” he said. “So we targeted the building owners. It turned out they, too, were dependent on banks and pension companies, so we got a trillion dollars worth of pension money to say it won’t invest unless there is decent pay. Then we asked ourselves: OK, what else do they own?”

It turns out, quite a lot. In Baltimore, the city’s privatised water industry hiked its bills. Then, when people started to fall behind in payments, the city agreed to bundle up their unpaid bills into a financial vehicle called a “tax lien” and sell it to investors. The investors can, after two years, evict people from their homes for non-payment.

When campaigners looked at who was buying up the debt, they included an anonymous company linked to one of the biggest hedge funds in America: Fortress Investments, with $23bn worth of assets invested in “the largest pension funds, university endowments and foundations”.

Since the 2008 crisis, with returns on government bonds negative, and stock market dividends depressed, pension funds have been pouring money into the hedge fund sector. “It’s a form of assisted suicide,” Lerner argues: “Workers are investing their pension money into firms whose mission is to destroy us.”

He set up Hedge Clippers, which aims to force pension funds to divest from companies whose investment strategies fuel the cycle of impoverishment.

If you apply the same approach to Britain, you’re dealing with a different ecosystem. No city has yet securitised the unpaid debts of the poor, as Baltimore did. While there is no shortage of predatory lenders to the poor, there are – after a campaign led by Labour MP Stella Creasy – at least elementary controls on them.

However, pension funds are now the biggest source of money for UK hedge funds, according to a Financial Conduct Authority survey last year, with 43% of their money coming from institutional investors. The most obvious act of financial predation is the private finance initiative (PFI), where schools and hospitals were built with vastly lucrative private loans. As a result, the taxpayer is committed to paying back £232bn on assets worth £57bn.

Many pension funds, either directly or indirectly, are investing in the so-called “infrastructure funds” who buy up PFI debt. The investment analyst Preqin found 588 institutional investors worldwide with “a preference for funds targeting PFI”, 40% of which were based in Europe.

Tracing the more complex ways institutional finance is funding the cycle of impoverishment is not easy. What you would want to know, in places such as Stoke-on-Trent or Newport, is not just who took the decisions to close high-value workplaces but, more importantly, who makes the decisions that lead to chronic under-investment now. Governments, including the devolved ones of the UK, spend a lot of time and money effectively bribing global companies to create jobs and keep them in Britain’s depressed areas. Communities themselves have little or no input into the process, which is in any case all carrot and no stick.

Lerner’s initiative in the US grew out of trade union activism, because the unions there learned to follow the money instead of wasting time trying to negotiate with the powerless underlings of global finance. They worked out that, in an age where the workplace and the community can seem like two different spheres of activism, it is the finance system that links the two.

Older ‘left-behind’ voters turned against a political class with values opposed to theirs



Union organising of the unorganised, and community activism in Britain have both traditionally been weak because top-down Labourism has been strong. Faced with PFI, predatory loans, rip-off landlords and privatisation, the British way is to demand legislation, not chain yourself to the door of a Mayfair hedge fund.

With or without Jeremy Corbyn, the near-impossibility of Labour gaining a Commons majority in 2020 – whether because of Scotland, boundary changes, a hostile media or self-destruction – has to refocus the left on to what is possible to achieve from below. We have to start, as the Americans did, by mapping the invisible forces that strip jobs, value and hope out of communities; make them visible; trace their dependencies and then use direct action to kick them in the corporate goolies until they desist.

From Siachen’s heights, NaMo made a cracker of a point on Diwali

Shoba De in the Times of India

As of now, the man can do no wrong. He is here, he is there, he is everywhere! After 10 years of putting up with a prime minister who was in permanent mute mode, and hardly moved out of the confines of his daftar, perhaps it is a good thing that we now have a guy who is garrulous and voluble, hyperactive and on the go. Critics are saying Narendra Modi is blindly aping American presidents who always made it a point to spend time with their troops over Thanksgiving and X’mas breaks. If that is the case, and our NaMo is indeed doing a `me too’, so be it.

There he was pumping hands with our soldiers stationed at Siachen, sharing homilies, bonhomie and mithai with lonely men stuck in an icy , hostile post, miles away from their loved ones. It was a gracious gesture, even if the idea was to create extra goodwill, milk the photo ops and generate more votes. That’s what smart politicians do! It is an inseparable part of their job description. As strategies go, this one was superbly timed, as was his visit (and a hefty Rs 750-crore relief package) to Srinagar. Leaders are picked for these very qualities. And even at the risk of sounding cynical, it must be said, a Modi-on-the-move is better than a Modi-sitting-tight. A while ago, I happened to be sitting next to a fauji wife on a plane. Here was a young, modern woman, bright as a button, well-informed, articulate, outspoken and feisty. She spoke about her life as an Army wife with incredible fervour and pride. The mehendi on her hands told me she had observed Karva Chauth. So had her dashing husband, she informed me! It was that kind of a marriage, she said with a twinkle in her eye. They did everything together — they always had. From the time they’d married 20-odd years ago, after a whirlwind romance. I asked about long separations, anxieties and uncertainties. How did she cope when he was away?

As it turns out, he had served in Siachen. And in J&K during the worst skirmishes. Being a Military Intelligence man, she never knew where he had been sent or for how long. By then, they had a young child, and any form of direct communication was out of the question when her husband was on a special mission. She had trained herself to wait… to pray… to never give up hope. Like thousands of young fauji wives who believe the Army is their extended family, no matter what happens.

Late one night, her husband came back from a secret assignment and knocked lightly on the bedroom window so as not to wake up the sleeping infant. He was wounded on his right arm and face.

He had taken a bad hit and could barely move or speak. For the next few weeks, he stayed home to recuperate — even though he was injured, she was just glad for their time together as she nursed him back to health. She talked about another incident when militants in the Valley attacked the home of another Army officer, who returned the fire but was grievously injured. As the militants closed in, two young daughters pleaded with their mother to kill them first, before the militants could get them.

Listening to her deeply stirring stories of valour and faith, I thought about our safe, protected city lives. This gutsy, proud woman’s narrative is just one of many. Today, she said emphatically, she has confidence in the new Prime Minister’s ability to motivate a tired and demoralized Army. For far too long, she insisted, our soldiers were made to heedlessly sacrifice their lives, because of political interference and an appalling level of corruption that had left the country vulnerable and weakened. She was glad Modi was taking a tough, aggressive stand.

She felt reassured and confident that a zero-tolerance position was being established against those using force against India. And then she told me something pretty chilling. “They were told to DUCK bullets and not fire back! Can you imagine any trained, self-respecting soldier ducking enemy bullets?” she said, her eyes were burning with outrage.

Was that the reason her own husband had finally quit the Army…in disgust? She denied it. But it left me wondering…. We treat our armed forces with scant respect. We have consistently ignored the demand for introducing the overdue OROP scheme (One Rank, One Pension). Fauji veterans have waited in vain for its implementation by the newly minted BJP-led government at the Centre, after previous administrations consistently ignored their appeals. It was a black Diwali for them this year. Hapless, frustrated veterans went so far as to return gallantry awards and medals to register their protest.Despite these setbacks, our men in uniform are stoically carrying on. Narendra Modi thanked our brave jawans on behalf of 125 crore Indian citizens, telling them we could sleep well at night only because it was they who were keeping us safe. It is true. It needed to be said.

Strange and sad nobody thought of saying it earlier.

Twitter IPO: why the wrong people ended up with the money

If you think the social media company's stockmarket flotation is an advert for starting your own hi-tech company, just look at what happened to the founders

• 
• • Aditya Chakrabortty
  • The Guardian, Monday 11 November 2013 20.00 GMT

Twitter founder Jack Dorsey. Photograph: Rex Features

Every time a Silicon Valley name goes to Wall Street and raises billions, you hear a creation myth. You heard it again last Thursday, as Twitter floated on the stock exchange.

It comes in many flavours, but the ur-myth runs thus: a young man with more ideas than dollars hides in his parents' garage, has a eureka moment and devises some new gadget or program that changes the world – or at least distracts swaths of its population. Then comes the glorious denouement, where our startup hero goes to the stock market and cashes in big. And that, dear reader, is why we have Bill Microsoft, Mark Facebook, and Larry and Sergey Google. The end.

This is capitalism's version of The X Factor.

In the X-Factor economies of Britain and America, you may no longer be able to count on a decent job, affordable home or moderate pension, but still you are offered visions of outlandish success – whether in singing (for the glamorous) or business (for the rest of us). Doctoral theses will some day be written on how, as the arteries of social mobility hardened, the BBC served up ever more versions of the minted entrepreneur: Dragons' Den, Gerry Robinson, The Apprentice. The assumptions are easy to tease out: collective bargaining may be dead, but heroic labour can still earn the individual a string of zeroes.

The story of Twitter, as told over the past few days, snaps perfectly into this bigger jigsaw. A band of T-shirted young men (tick), coding in a flat (tick), come up with a crazy new software application (tick), which soon becomes a global phenomenon. Within seven years is floated on the stock market at a value of $34.7bn – more than most of the companies in the S&P 500. Cue details about how the founders are now paper billionaires, the employees are sitting on options that will make some of them millionaires, and the entire San Francisco HQ celebrated with an "overflowing tower of doughnuts" (tick, tick, tick).

Except the more you look at what has actually happened with Twitter, the more it comes to look like the opposite of the heroic earnings of a few hard-workers. Many of the billions will go to a select group, many of whom have put hardly any work into the company or taken comparatively little risk. That is true of the stock market flotation, of Twitter itself and of its entire business model.

Let's start with what happened last Thursday, when Twitter went to the stock market. On the first day of trading, the company's shares soared 73% – implying that they had been sold for over a billion dollars below what they could have got. By way of comparison, shares in Royal Mail jumped over 40% on opening, forcing Vince Cable to do some explaining.

Yawning gaps between offer price and true value are hardly unusual in flotations: they're often referred to as "leaving cash on the table" – the cash being for the investment banks managing the sale and their mates at other banks and funds who buy some of the shares. If an estate agent asked you to sell your house for £100,000 less than it was really worth, so that they could offer it around their mates in the building trade, you'd probably be straight on the phone to Watchdog. Yet when it comes to flotations, I am still waiting for the BBC report that notes how much the bankers scooped alongside the founders.

Let's also look at the company's story. I spent my weekend reading Hatching Twitter, by Nick Bilton, a biography of the business based on hundreds of hours of interviews with key participants. One of Bilton's achievements is to show how the credit for the idea can be split several ways. First, Jack Dorsey floated the notion of updating friends on one's whereabouts, while Noah Glass championed it and gave the application its name, then Biz Stone was asked to help with building the program by a still-reluctant Evan Williams. Yahoo! tells the minnow team that it's "simply just a messaging service" and a "few engineers could do the same thing in a week".

Look at which of the Twitter team did best from the flotation and the answer is: Evan Williams, who, in Bilton's telling, initially had least to do with the program, and Jack Dorsey. Those two are now worth over a billion dollars apiece. But the other members of the fab four are not even listed as major recipients of company stock. Who is? Typically, finance guys who took big stakes in the business when they could see how it might pay off.

And none of the founders are now anywhere near managing the company: within a few years of it getting off the ground, they'd all been cleared out for managers from big business. I'm not playing a violin for the four founders; but Twitter is hardly an advertisement for the rewards of starting up your own company.

Finally, look at Twitter's business. Or rather, look at its own assessment of its business, as stated in its S-1 stockmarket filing. Early on comes the delicious admission: "Our success depends on our ability to provide users of our products and services with valuable content, which in turn depends on the content contributed by our users." Read that again: Twitter is in the business of selling us to us – our news and views and idle banter. Without those, without us, it is nothing. As with Facebook and Tumblr and all the other social media, we're also part of Twitter's workforce. But I bet you haven't seen any stock options, either.

Schumpeter's long revenge

By Chan Akya in Asia Times Online

News about major retail chains such as HMV and Blockbuster closing shop inevitably attract greater than usual attention because they sell media content and therefore operate on the edge of the world of entertainment. That said, the demise was fairly obvious to anyone who had read their balance sheets, which have been decimated by technological changes led essentially by Apple but more generically by the broader applications of the Internet and improved hardware. 

Selling and renting films respectively, HMV and Blockbuster were a key part of all retail malls and "high" streets in the UK with similar brands in other countries including in Hong Kong and Singapore. The advent of amazon.com was the first shot across their bows; one that both chains failed to heed. As the business of selling books through bookstores evaporated in the late '90s, the retail chains selling and renting movies and music failed to make the connection between the physical world and the augmented reality shopping of the Internet. 

The process was to accelerate with improved software - Apple's iTunes comes to mind - even as hardware continued to provide an underwhelming experience. The inability to bridge the quality gaps in films and music (or else apply them to an environment where more people were using crummy mobile devices for enjoying the same) simply meant that all competition ended up being about price. This was the wrong battleground and, much like Napoleon's forces marooned in the harsh Russian winter 200 years ago, the retail chains were destroyed. 

Oddly enough, HMV also played a small part in the global financial crisis; one of the largest lawsuits from that era pertained to Guy Hands' private equity firm Terra Firm filing suit for misrepresentations against its banker, Citibank, over its purchase of EMI from which HMV had been spun off to a separate listing in 1998. 

Although the suit was pretty quickly dismissed, opportunities for mirth abounded from the materials provided as part of the proceedings. Such large leveraged buyouts generated billions in loans that were purchased by collateralized loan obligation vehicles, which in turn were partly funded by the shadow banking system that helped to fell the global economy in 2007-08. 

In any event, the various reorganization plans filed by HMV management provided fodder for private equity firms on its own; in parallel, Blockbuster went through its own interaction with the forces of competition. While the global business of Blockbuster went into administration in 2010, the company continued to operate in many parts of the world. Last week's closure of the UK business is a continuation of the global process. 

The circle of stupidity

On the other end of the scale from market forces is the circle of stupidity that underpins global monetary policy today. 

An industrial version of the HMV/ Blockbuster process of creative destruction is Japan, an article about which I wrote late last year, touching upon the effects of competitive landscape changes ushered in by the pincer grip of South Korea and China at the branded and generic ends of manufacturing respectively; even as sclerotic politics and inane monetary policies end up accelerating the decline. (See The end of Japan as we know it, Asia Times Online, November 27, 2012). 

Following the elections, Japan's monetary policy impetus has moved into aggressive easing as the government and the Bank of Japan attempt to push the yen sharply lower by easing quantitative policy and accelerating the purchase of bonds issued by the US and European governments (the Italians and the Spanish sent a couple of "thank you" notes to the new government, presumably). 

Meanwhile, other Asian countries - primarily Korea and China - are increasing their own purchase of Japanese government bonds to offset the effect of a falling yen on their own currencies. And all along, Federal Reserve chairman Ben Bernanke and European Central Bank president Mario Draghi are cheerfully printing money by the trillions to support yawning fiscal deficits and to keep their currencies from rising. 

Think of the average pensioner anywhere in the Group of Eight leading industrialized nations and the picture is downright depressing. With regular income from bonds and bank accounts whittled down to barely nothing, they are being forced to take on financial risks by purchasing "high dividend" stocks or worse, corporate bonds. These are not folks who are equipped to analyze such risks, let alone manage them. 

Businesses go bust when they run out of liquidity, not when they run out of "capital" or any such esoteric concept. Granted that HMV and Blockbuster were so bad that not even all the money sloshing around the global financial system could save them, but that also raises the question of how many companies and governments survive today because of the excess money sloshing around. 

At the very least, we know that interest rates and risk premia are severely depressed in G-8 countries and, as a result, across much of the financial world. There are countries that would be considered borderline default where government bond spreads are trading well under 5%, an anomaly that makes no sense irrespective of the "base" funding rate. Similarly, equity markets are getting record inflows at a time when valuations aren't exactly cheap anywhere in the world. 

Such conditions are usually spelt b-u-b-b-l-e; and I entirely hold Bernanke, Draghi and their kin responsible for this state of affairs. There will be time of reckoning later, but for now we will have to live with all the Keynesian rationalization. 

Why is Schumpeter important

One of the key defenses used by those seeking to broaden the ambit of monetary policy whilst emptying government coffers is that corporate closures are bad form and cause disruptions for employees and other stakeholders alike. This is indeed true over the short term, but over the longer term the truth is perhaps in the opposite direction and in line with the views of Austrian economist Joseph Schumpeter on "creative destruction". 

Systems that weed out inefficient capital users end up deploying funds to more deserving users thereby reducing the overall risk of the system and increasing the gap between risky and less risky ventures; this extra compensation therefore ends up attracting more robust capital - and perhaps more appropriate capital for risky ventures. 

In contrast to this, folk who lend money to French companies - typically only other French folk - see their risk analysis dulled by constant government intervention and corporate subsidies (internally) to their worst divisions. When the car firm Peugeot decided to shutter some plants and fire workers recently, the howls of protest were loudest from the country's socialist government, which may however not have quite realized that by denying the company such internal efficiencies they inevitably put the firm at a longer-term disadvantage that increases the chances of a comprehensive collapse at a later date. 

Investors in such countries will also be confused as to the correct risk premium for a loss-making company compared to that for a profitable company; because debt is about getting one's funds back, the question becomes academic if loss-makers are routinely bailed out. This dulls the calculation of risk, inevitably driving inappropriate funds - pension funds and the like - towards risky assets. 

That is the reason why the HMV and Blockbuster stories are important. By providing a timely reminder that bad businesses will not survive even the easiest of monetary conditions, they have served to remind all of us of events likely to unfold when the price of money starts adjusting towards more appropriate levels.

A Father's email to his adult children

'I am bitterly, bitterly disappointed': retired naval officer's email to children in full

This is the full email that retired Royal Navy officer Nick Crews sent to his son and two daughters in February expressing his and his wife's disappointment in them.

Retired Royal Navy officer Nick Crews Photo: SWNS

2:31PM GMT 18 Nov 2012

Dear All Three

With last evening's crop of whinges and tidings of more rotten news for which you seem to treat your mother like a cess-pit, I feel it is time to come off my perch.

It is obvious that none of you has the faintest notion of the bitter disappointment each of you has in your own way dished out to us. We are seeing the miserable death throes of the fourth of your collective marriages at the same time we see the advent of a fifth.

We are constantly regaled with chapter and verse of the happy, successful lives of the families of our friends and relatives and being asked of news of our own children and grandchildren. I wonder if you realise how we feel — we have nothing to say which reflects any credit on you or us. We don't ask for your sympathy or understanding — Mum and I have been used to taking our own misfortunes on the chin, and making our own effort to bash our little paths through life without being a burden to others. Having done our best — probably misguidedly — to provide for our children, we naturally hoped to see them in turn take up their own banners and provide happy and stable homes for their own children.

Fulfilling careers based on your educations would have helped — but as yet none of you is what I would confidently term properly self-supporting. Which of you, with or without a spouse, can support your families, finance your home and provide a pension for your old age? Each of you is well able to earn a comfortable living and provide for your children, yet each of you has contrived to avoid even moderate achievement. Far from your children being able to rely on your provision, they are faced with needing to survive their introduction to life with you as parents. 

So we witness the introduction to this life of six beautiful children — soon to be seven — none of whose parents have had the maturity and sound judgment to make a reasonable fist at making essential threshold decisions. None of these decisions were made with any pretence to ask for our advice.

In each case we have been expected to acquiesce with mostly hasty, but always in our view, badly judged decisions. None of you has done yourself, or given to us, the basic courtesy to ask us what we think while there was still time finally to think things through. The predictable result has been a decade of deep unhappiness over the fates of our grandchildren. If it wasn't for them, Mum and I would not be too concerned, as each of you consciously, and with eyes wide open, crashes from one cock-up to the next. It makes us weak that so many of these events are copulation-driven, and then helplessly to see these lovely little people being so woefully let down by you, their parents.

I can now tell you that I for one, and I sense Mum feels the same, have had enough of being forced to live through the never-ending bad dream of our children's underachievement and domestic ineptitudes. I want to hear no more from any of you until, if you feel inclined, you have a success or an achievement or a REALISTIC plan for the support and happiness of your children to tell me about. I don't want to see your mother burdened any more with your miserable woes — it's not as if any of the advice she strives to give you has ever been listened to with good grace — far less acted upon. So I ask you to spare her further unhappiness. If you think I have been unfair in what I have said, by all means try to persuade me to change my mind. But you won't do it by simply whingeing and saying you don't like it. You'll have to come up with meaty reasons to demolish my points and build a case for yourself. If that isn't possible, or you simply can't be bothered, then I rest my case.

I am bitterly, bitterly disappointed.

Dad

Also read: The Edifice of Marriage is worth Maintaining.

The short, sharp life of 'Chinese century'

By Nick Ottens

If there is to be an Asian century, it won't be China's alone. While it still has hundreds of millions of people living in poverty, the country is losing its cheap labor advantage to East Asian competitors while more industrialized nations in the region are far more receptive to international trade.

The Chinese economy is expected to overtake the United States as the world's largest in sheer size by the middle of this decade but the ruling Communist Party has ample reason to be worried about perpetuating China's impressive growth rates for another generation.

As China's middle class expands in the urban east, it is expecting more than just growth but in the western hinterland, a lack of development and, perhaps even more frustrating to the people there, a lack of political accountability fuels unrest and discontent. The party will be increasingly hard pressed to meet the aspirations of both these peoples. Economic and political openness, as desired in the coastal provinces, would weaken the state's grip on industrial development, which could exacerbate the existing imbalance between cities and countryside.

Chinese labor is already becoming too expensive for some manufacturers who are taking their business to countries as Indonesia and Vietnam while Malaysia, Thailand and Taiwan are more attractive for technology companies that require an educated workforce and a business climate that isn't too burdened by regulatory restrictions and corruption.

Labor laws and tax regimes in the rest of South and Southeast Asia are generally more flexible. These countries welcome international trade and investment whereas China seeks to protect its "infant industries" from free and fair competition on the global market. This policy enables the ruling class in Beijing to build high-speed railways across China but the cost, which is less clear, could be hugely detrimental to its economy in the future.

Foreign investors in China have to cope with laws and regulations that are inconsistently enforced - sometimes arbitrary. The Chinese legal system cannot guarantee the sanctity of contracts, which is vital to a market economy. Capital account transactions are tightly regulated.

This is a system that thrives on cronyism where businesses that are connected with local and state officials prosper and companies that aren't could see their investment go up in smoke when a magistrate determines that factory wages should increase by a third, overnight.

China does attract huge amounts of foreign direct investment. In fact, it takes in every month what India assumes in a year. Yet China grows at a rate just two percentage points faster than India. And even there, corruption is endemic.

At its most recent congress in March of this year, the Communist Party affirmed the need to improve "balanced growth", which should translate into increased welfare spending, including subsidies for farmers and the urban underclass. Western stereotypes notwithstanding, the Chinese state is not sitting on an infinite amount of cash however. It cannot simultaneously build a proper welfare state and allow the subsidizing of companies, especially in real estate, to continue unabated. If it wants to expand social programs and thus prevent civil unrest, it has to challenge vested interest with allies in the party.

With major changes in political leadership expected next year, it may not be until 2013 before a comprehensive social agenda is implemented. That could be two years wasted while necessary economic reforms to further open up China to world markets are delayed.

There is another, less immediate concern that could put a stop to this Chinese century before the world has a chance to recognize that it's living in one.

By the middle of the 21st century, 400 million Chinese will have retired. That's more than America's total projected population by that time. India, which is set to overtake China as the world's most populous nation by 2030, is expected to have nearly 400 million people more in 2050 than China.

How is China going to pay for all these old people? China doesn't have an expansive public pension system, which means that many Chinese in their prime, often without siblings because of their government's "one child" policy, will have to provide not only for their parents but, as life expectancy rises, their grandparents as well. Naturally, wages will have to rise to accommodate this unprecedented level of dependency which can only happen if Chinese labor becomes much more productive and skilled - fast.

The party has to manage this while not only dealing with internal pressure to democratize; it is also expected to finance American and European deficit spending when these continents blame China for its "colonialist" scramble for resources, including water, in Africa and Central Asia - resources it desperately needs to continue to grow; to invest in its future industrial base and to alleviate hundreds of millions of people out of poverty.

If despite this all, China somehow ends as tomorrow's superpower, "owning" the 21st century, that will be quite a feat.

Nick Ottens is an historian from the Netherlands and editor of the transatlantic news and commentary website Atlantic Sentinel. He is also a contributing analyst with the geopolitical and strategic consultancy firm Wikistrat.

The trader who lifted the lid on what the City really thinks

One man reveals how economic disaster would let him and his colleagues profit 

By Tom Peck
Tuesday, 27 September 2011

The world may be teetering again on the precipice of economic disaster but those with any investment in the popularity of Alessio Rastani, a hitherto unknown "independent trader", had a worse day than most after his memorable appearance on television yesterday morning.

"I have a confession, I go to bed every night and I dream of another recession, I dream of another moment like this," he told dumbstruck BBC News presenter Martine Croxall, when asked if the proposed eurozone bailout would work.

The interviewer thanked the trader for his candour but told him that "jaws had dropped" around the BBC newsroom while they listened to his answers shortly after 11am.

"I'm a trader," he said. "We don't really care whether they're going to fix the economy, our job is to make money from it.

"The 1930s depression wasn't just about a market crash," he added. "There were some people who were prepared to make money from that crash. I think anyone can do that. It's an opportunity."

The three-minute clip quickly spread online, provoking outrage. In the interview, Mr Rastani went on to advise "everyone watching this" that, "This economic crisis is like a cancer, if you just wait and wait hoping it is going to go away, just like a cancer it is going to grow and it will be too late."

He said it was "wishful thinking" to believe that governments could prevent another recession.

On his Twitter profile Mr Rastani describes himself as an "experienced Stock Market and Forex trader" who is "dedicated to helping others succeed".

Some were as quick to praise him as others were to damn him. Comments on his Facebook page included: "Great interview" and "talk about the truth," while others described Mr Rastani as a hero.

The current crisis bears considerable similarity to that which engulfed the world in 2008, though thus far it lacks the talismanic hate figure generously provided in the form of the former RBS chief Sir Fred Goodwin. The slick-haired, pink-tied and American-accented Mr Rastani may yet fill the void.

Quite how much he personally stands to gain should the financial world collapse again is unclear. The profile on his website, Leadingtrader. com, would suggest he is more reliant on "professional speaking" than his wizardry in the money markets to keep in him in hair gel. But after his performance yesterday it may just be that, like the eurozone, that particular sideline is beyond salvation.

"My belief is that anyone who wants to improve their income and achieve success in life, cannot afford to ignore learning how to trade," he says.

"Based on Alessio's sound advice, I pulled my money out of the markets just before the 2008 stock market crash. He saved me a fortune, not to mention my pension!" claims a client named as Maurice E.

Though Twitter users were quick to pick up on Mr Rastani's outburst, his dire forecast went mysteriously unnoticed by the wider financial markets. Shares in French and German banks rose by as much as 10 per cent, as traders analysed a proposed three trillion euro (£2.6 trillion) rescue package for the single currency.