By Charles Sullivan
26 October, 2007
Countercurrents.org
I have been writing political essays for a few years now. I do so as a reluctant enthusiast, not because I wanted to write on these themes; but because, it seemed to me, that professional journalists were not telling the whole story; that significant parts that would allow people to connect the dots and understand what is happening from a historical perspective, was being deliberately omitted from the official version of current events, and from history.
As propaganda, the elements that are deliberately left out of media are as important as those that are retained. It is propaganda by omission, as much as by content. What people are not told shapes their world view and influences their behavior, as surely as what they are told. Imposed ignorance and selective knowledge go hand in hand to forge public opinion and to shape cultural identity. These conditions set the stage for belligerent government and aggressive nationalism.
It is not coincidental that professional journalists, those who write
for profit in the mainstream media, are the least likely to tell us the
truth, the whole truth; whereas, free-lance writers, who operate under a different set of rules and out of the mainstream, are more likely to serve the public interest, and tell us what we need to know in order to be a free people, and good world citizens.
Professional journalists are beholden to a code of ethics and personal conduct that free-lance writers are not. Namely, they are part of a fraternity, a part of the cultural orthodoxy, with an incentive in maintaining the established order. The incentive is always financial and professional, and involves creating the acceptance and trust of those in power, which may, when properly executed, even result in the celebrity status of the journalist.
Journalists who have a vested interest in maintaining the status quo or advancing their careers do not operate in the public interest. Their purpose is not to inform but to deceive.
When a major news anchor reports upon the invasion and occupation of sovereign nations, uncritically putting forth pentagon propaganda as justification for the attack, he or she is in essence acting in the manner of a celebrity athlete endorsing a product. The basketball star may endorse Nike sneakers, manufactured by indentured servants in foreign sweatshops; while the news anchor is endorsing war and disaster capitalism projected around the world by Lockheed Martin and the Carlyle Group. Both are prostitutes.
Mainstream corporate journalism is not about speaking truth to power, it is about selling products and perceptions. It is about creating a culture of ignorant consumers incapable of distinguishing between propaganda and news, fact and fiction.
This is marketing and perception management masquerading as unbiased, objecting reporting. I call it the big lie.
If the mainstream journalist wants to prosper, if they want to have
access to the inner circles of power, they must play the game according to the established rules. They must toe the corporate line, and provide cover for the corporate assault on human freedoms, and the conquest of nature, while keeping hidden agendas concealed from public view. Journalists must be able to sell widely objectionable concepts to the people, packaged in the garments of seductive—often patriotic language, in order to make them palatable.
How many soldiers, outside of those under the private contracts of firms like Blackwater, would voluntarily stake their lives for corporate profits, and the subjugation of a sovereign people, if they knew that is what they are really fighting for, rather than the more popular and desirable goal of freedom or democracy?
Freedom, liberation, and democracy have never been corporate objectives; nor can they ever be the objective of corporate governance. They are only selling points that conceal hidden corporate agendas; the attractive packaging for war, occupation, and privatization, obtained at pubic expense.
If news stories are not believable to the multitudes, if they fail to
garner popular support by masking corporate agendas behind deceptive language, the majority of governmental polices and private agendas could not be enacted. If the people knew what was being done in their name, and who is profiting from those policies, there might be widespread opposition and even social upheaval. It would be difficult to field a voluntary military that knows it is fighting for the bottom line of Halliburton, Bechtel, and Lockheed Martin, rather than for freedom and democracy, as they are told.
Thus those who would serve in the military as self-ordained patriots are sold a bill of goods. By invading and occupying Iraq, they are, in effect, undermining the very principles they claim to hold sacred, including those set forth in the Constitution and the preamble to the Declaration of Independence. Likewise, the average US citizen is sold a similar bill of goods in order to garner support for policies they would, presumably, never voluntarily sustain, if they understood them better.
That is the genius of modern capitalism and its impressive marketing apparatus. The results have been breathtaking.
Skillful perception management always precedes empire. Well presented propaganda allows history to be presented as a kind of fairy tale that ignores the horrible things the government has always done in our name, at the behest of corporate America and our wealthiest citizens, which should be too well known to bear reiteration here.
In our capitalist culture, journalism must not be thought of as a
reporting of facts, but as marketing propaganda—the selling of ideas that might not otherwise be embraced by those who must carry out hidden agendas, or the people on the receiving end of them. Seen in this way, the US soldier and the Iraqi citizen are both pawns in a rich man’s game: the former as the implementer of unjust war and occupation, the other as the unwilling recipient of them.
The end result for both soldier and Iraqi citizen is tragic: the soldier is told that he or she is protecting their country from foreign threats, something that is patently false; while the innocent Iraqi citizen, defending his or her home from foreign occupation, knows that she or he is not a terrorist, but is treated like one, nevertheless.
Both occupier and the occupied share a common foe, but it is not each other; it is the criminals, aided and abetted by the corporate media, who put them in formal opposition to one another for financial gain.
Our recent history would have been impossible without the consolidation of the media that occurred during the Clinton presidency, and has continued ever since. The entire spectra of mainstream media are now under the control of only four or five corporations. We no longer have reporting on local issues stemming from diverse perspectives rooted in local communities, but a monoculture of state and corporate propaganda that betrays the public trust in its pursuit of corporate profits.
Aided by the president and congress, the public owned airwaves were hijacked and are being used against the people by giant multinational corporations.
The result of this media monoculture, as purveyed by the likes of Judith Miller and Tom Brokaw, and countless others, is tragic. And they represent only the tip of the mainstream iceberg. Think of the horrible and shameless lies, the baseless fear and hate that are continuously voiced by the likes of Rush Limbaugh, and the hateful broadcasts that emanate from Bob Jones University, masquerading as Christian theology.
Corporate media is the vanguard of empire and environmental destruction on a global scale.
Unlike its corporate counterpart, reporting truth requires people of
unassailable integrity. It requires a thirst for justice with the strength of character to oppose the powerful undertow of manufactured perception and conformity, and the seductive language created to execute the hidden agendas of corrupt governments. Uncovering truth requires commitment to the people, rather than to profit driven corporate agendas.
Only a handful of professional journalists have attained the kind of
stature that makes such reportage possible in the United States. Their names are not at all well known, with the possible exception of Seymour Hersch, Robert Fisk, Bill Moyers and Greg Palast.
More often than not, that responsibility falls on the shoulders of
independent journalists and unpaid free-lancers. The professional
journalist must answer to his/her boss, and portray the corporation that employs them in a favorable light, even if they are profiting from unprovoked war and occupation. In contrast, the free-lancer is bound only by the constraints of conscience, imagination, and ability.
Occasionally, an astonished responder to one of my more poignant essays will tell me that I should forward the piece to the New York Times: to NBC, ABC, CBS, CNN, Fox News, or even the BBC. I never have.
It would be hard for me to imagine any corporation undermining its own profitability by exposing its hidden agendas, and denouncing itself as a commissioner of murder and mayhem, motivated by insatiable greed and a lust for wealth and power that would astonish even the staunchest mafia don. Don’t hold your breath waiting for it to happen! Snowballs in hell have a better chance.
Its not that free-lancers like me wouldn’t like to get paid for what we do; it’s that our views do not enhance the bottom line of corporate giants and, in many cases, actually undermine them. Thus it behooves the professional journalist and the corporate media to ignore or discredit us as purveyors of truth and seekers of justice.
Soon it will be an act of sedition to speak truth in this country. Yet,
truth will continue to exist, despite all attempts to destroy it.
Whether they admit it or not, virtually all of the best known
journalists in the US subscribe to the racist and sexist ideologies of American exceptionalism and manifest destiny, and they go to great lengths to advance these ideas, by presenting them as something other than what they really are. Slight of hand is the rule of mainstream journalism, not the exception.
Conversely, by serving the people, free-lance journalists are, of
necessity, undermining the corporate agenda. Thus they are treated as enemies of the state, which has become indistinguishable from the corporation itself. We live in a culture where one cannot value truth and carry forth corporate agendas. Truth is the enemy of empire.
This might also explain why so many unembedded journalists have been deliberately killed in Iraq and the Gaza strip by US and Israeli snipers. The world must not know what the occupiers do, or the propaganda veneer may no longer have its intended effect on the consumers of media.
Speaking truth to power, especially corrupt power, is dangerous
business— particularly in war zones and fascist states, like the one evolving in the US.
Corporate media is the vanguard of colonialism and imperialist policy. It plays a key role in preparing the public mind for imperialist wars and occupations and their subsequent puppet governments; it also serves the emerging police state at home that erodes our freedoms, until there is nothing left of them.
Yet, occasionally, even in this artificially constructed myth loving
culture, truth wins out simply because someone cares enough to tell it like it is, without sugar coating. Truth matters; and that is—and always will be—of primal importance to some people. Let future historical records show that there was opposition to what was being done in our name, that there were people willing to speak truth to power, to stem the evil tide by standing up for justice, cost what it may.
Future historians of the dominant culture are likely to cast these
accounts into the memory hole and pretend that they never existed, carrying forth the myth that the people were always united behind the injustice and tyranny of our time. We saw this in Nazi Germany in the buildup to World War Two, and we are seeing it now in the US.
But a culture that does not value truth and justice is not worth
preserving. Such cultures will self destruct and implode upon
themselves; the world will eventually unite against them and bring them down. All of the military might in the world, all the subterfuge, is not powerful enough to overcome simple truth.
Any individual who values truth more than lies, who keeps truth alive in his or her heart, despite all efforts to dislodge it from its ethical moorings, is more powerful than even the most advanced weapons systems. Truth emerges unscathed from the rubble of fallen empire as immutable as an inviolable law of nature. Nothing can bring it down because it is real.
If we are to evolve into a justice loving people, truth must become our moral foundation, the basis of our existence as a people. Truth and justice are inseparable partners on the road to liberation from tyranny and fascism.
Concord’s greatest citizen, the poet-philosopher, Henry D. Thoreau, summed it up well: “The one great rule of composition…is to speak the truth. This first, this second, this third; pebbles in your mouth or not.” Perhaps more than anything, that simplistic ability to speak plain truth, and in all languages, is what I most admire about Thoreau. There is much to admire and respect in a man who spoke in those terms, and lived by that simple credo.
Truth is simple and uncomplicated, whereas lies and distortions are complex. Truth stands strong and unwavering without artificial support; lies and propaganda require elaborate schemes and constant propping up, the mask of deception.
More of us must learn the language of truth; we must be its faithful
guardians, if we are to be valuable citizens in this world, rather than the useful idiots of empire. By holding truth and justice in the highest regard, we demonstrate that another world is not only possible, but highly probable.
As voracious consumers of media, we must be as careful about what we admit into our minds, as the food we put into our bodies. Food can nourish and sustain us, or it can produce disease and decay. And so it is with media.
To date, we have not been very discriminate, and the result is that we have become a culture of the mentally obese, fed on junk media. Our minds, our souls, have been deliberately poisoned; our perceptions twisted and distorted, our humanity abandoned to the quest for profits and power.
We must purge our minds of junk media and replace it with something more nutritious, if we favor health over disease. Peace is not possible without two essential ingredients: truth and justice. Neither is possible in the absence of the other. We must live as if truth still matters.
Charles Sullivan is a nature photographer, free-lance writer, and
community activist residing in the Ridge and Valley Province of
geopolitical West Virginia. He welcomes your comments at
csullivan@phreego.com.
'People will forgive you for being wrong, but they will never forgive you for being right - especially if events prove you right while proving them wrong.' Thomas Sowell
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Saturday, 27 October 2007
The politics of hypocrisy
The politics of hypocrisy
UK business interests in Burma are more important to this government than justice
John Pilger
Saturday October 27, 2007
The Guardian
The news is no more from Burma. The young monks are quiet in their cells, or they are dead. But words have escaped: the defiant, beautiful poetry of Aung Than and Zeya Aung; and we know of the unbroken will of the journalist U Win Tin, who makes ink out of brick powder on the walls of his prison cell and writes with a pen made from a bamboo mat - at the age of 77. These are the bravest of the brave. What shame they bring to those in the west whose hypocrisy and silence helps to feed the monster that rules Burma.
Condoleezza Rice comes to mind. "The United States," she said, "is determined to keep an international focus on the travesty that is taking place in Burma." What she is less keen to keep a focus on is that the huge American company, Chevron, on whose board of directors she sat, is part of a consortium with the junta and the French company, Total, that operates in Burma's offshore oilfields. The gas from these fields is exported through a pipeline that was built with forced labour and whose construction involved Halliburton, of which Vice-President Cheney was chief executive.
For many years, the Foreign Office in London promoted business as usual in Burma. When I interviewed Aung San Suu Kyi a decade ago I read her a Foreign Office press release that said, "Through commercial contacts with democratic nations such as Britain, the Burmese people will gain experience of democratic principles." She smiled sardonically and said, "Not a bit of it."
In Britain, the official PR line has changed; Burma is a favourite New Labour "cause"; Gordon Brown has written a platitudinous chapter in a book about his admiration of Suu Kyi. On Thursday, he wrote a letter to Pen, waffling about prisoners of conscience, no doubt part of his current empty theme of "returning liberty" when none can be returned without a fight. As for Burma, the essence of Britain's compliance and collusion has not changed. British tour firms - such as Orient Express and Asean Explorer - are able to make a handsome profit on the suffering of the Burmese people. Aquatic, a sort of mini-Halliburton, has its snout in the same trough, together with Rolls-Royce and others that use Burmese teak.
When did Brown or Blair ever use their platforms at the CBI and in the City of London to name and shame those British companies that make money on the back of the Burmese people? When did a British prime minister call for the EU to plug the loopholes of arms supply to Burma. The reason ought to be obvious. The British government is itself one of the world's leading arms suppliers. Next week, the dictator of Saudi Arabia, King Abdullah, whose tyranny gorges itself on British arms, will receive a state visit. On Thursday the Brown government approved Washington's latest fabricated prelude to a criminal attack on Iran - as if the horrors of Iraq and Afghanistan were not enough for the "liberal" lionhearts in Downing Street and Whitehall.
And when did a British prime minister call on its ally and client, Israel, to end its long and sinister relationship with the Burmese junta? Or does Israel's immunity and impunity also cover its supply of weapons technology to Burma and its reported training of the junta's most feared internal security thugs? Of course, that is not unusual. The Australian government - so vocal lately in its condemnation of the junta - has not stopped the Australian Federal Police training Burma's internal security forces.
Those who care for freedom in Burma and Iraq and Iran and Saudi Arabia and beyond must not be distracted by the posturing and weasel pronouncements of our leaders, who themselves should be called to account as accomplices. We owe nothing less to Burma's bravest of the brave.
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Public spending run mad or right-wing propaganda?
Public spending run mad or right-wing propaganda?
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Published: 27 October 2007
The West Lothian Question is like something out of 1066 And All That. It is a very, very difficult question that was first asked by Tam Dalyell, before he began to ask difficult questions about the sinking of the Belgrano. It was such a clever question that it scuppered the Callaghan government's attempt to give Scotland its own devolved government. Even after Labour succeeded in setting up a Scottish parliament in 1999, the Conservatives continued to think it was such a clever question that it would, if they went on asking it, eventually unravel the policy.
The trouble is, no one can remember what the West Lothian Question is. You have to look it up on Wikipedia and then five minutes later, you have forgotten it again. Nobody genuinely thinks it matters very much if some MPs can or cannot vote on measures that affect different parts of the country. Recently, however, some clever people have changed the question. Some journalists on the Daily Mail and some Conservative MPs have started to ask about money.
So it is not called the West Lothian Question any more. It is called the Altrincham and Sale, West, Question. It was asked by Graham Brady, the Tory MP for that constituency, in the House of Commons on Wednesday. It went like this: "Why should my constituents pay more tax so that the Prime Minister's constituents pay no prescription charges?"
It is a stupid question, really, although it turns out to be quite clever in a different way. It is a question that English voters think they understand and do not like. It is a question that has been asked repeatedly by the Daily Mail in recent months, not least because some of its staff think it is a way of embarrassing Gordon Brown. This is odd, because Paul Dacre, the editor, and the Prime Minister are such good friends that Dacre has just been appointed by Mr Brown to review the official secrets rules.
What is so clever about the new question is that it implies that every time Scottish voters appear to gain something, the English taxpayer loses. So when the Scottish National Party abolishes prescription charges in Scotland, Tories and the Tory press conspire to pretend that this is an extra charge on the English.
The truth is, as Brown tried to tell the House of Commons this week, the Welsh Assembly and the Scottish Parliament make decisions within their own budgets. "No more money goes to Scotland or Wales as a result of their decisions on prescriptions," he said. Or tuition fees, or "free" personal care, or bus passes. If the Scottish parliament abolishes charges, it has to find the money from somewhere else in its budget.
True, public spending is higher in Scotland than in England, but this is not a decision taken by the SNP or the Labour-Lib-Dem coalition that governed Edinburgh before. It was a decision taken by Joel Barnett, Labour chief secretary to the Treasury in the 1970s and maintained by the Tories throughout their 13 years in power.
John Rentoul is chief political commentator for the Independent on Sunday
The trouble is, no one can remember what the West Lothian Question is. You have to look it up on Wikipedia and then five minutes later, you have forgotten it again. Nobody genuinely thinks it matters very much if some MPs can or cannot vote on measures that affect different parts of the country. Recently, however, some clever people have changed the question. Some journalists on the Daily Mail and some Conservative MPs have started to ask about money.
So it is not called the West Lothian Question any more. It is called the Altrincham and Sale, West, Question. It was asked by Graham Brady, the Tory MP for that constituency, in the House of Commons on Wednesday. It went like this: "Why should my constituents pay more tax so that the Prime Minister's constituents pay no prescription charges?"
It is a stupid question, really, although it turns out to be quite clever in a different way. It is a question that English voters think they understand and do not like. It is a question that has been asked repeatedly by the Daily Mail in recent months, not least because some of its staff think it is a way of embarrassing Gordon Brown. This is odd, because Paul Dacre, the editor, and the Prime Minister are such good friends that Dacre has just been appointed by Mr Brown to review the official secrets rules.
What is so clever about the new question is that it implies that every time Scottish voters appear to gain something, the English taxpayer loses. So when the Scottish National Party abolishes prescription charges in Scotland, Tories and the Tory press conspire to pretend that this is an extra charge on the English.
The truth is, as Brown tried to tell the House of Commons this week, the Welsh Assembly and the Scottish Parliament make decisions within their own budgets. "No more money goes to Scotland or Wales as a result of their decisions on prescriptions," he said. Or tuition fees, or "free" personal care, or bus passes. If the Scottish parliament abolishes charges, it has to find the money from somewhere else in its budget.
True, public spending is higher in Scotland than in England, but this is not a decision taken by the SNP or the Labour-Lib-Dem coalition that governed Edinburgh before. It was a decision taken by Joel Barnett, Labour chief secretary to the Treasury in the 1970s and maintained by the Tories throughout their 13 years in power.
John Rentoul is chief political commentator for the Independent on Sunday
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Friday, 26 October 2007
The Nuke Deal Is Dead
By Vijay Prashad
24 October, 2007
Counterpunch
On October 12, 2007, the Congress Party threw in the towel. India's Prime Minister Manmohan Singh and the leader of the United Progressive Alliance Sonia Gandhi told the press that they would step back from the US-India nuclear deal. "If the deal does not come through," Singh said plaintively, "that is not the end of life. In politics, we must survive short-term battles to address long-term concerns."
The short-term battle was won by the Communists, who led the opposition to the deal and winnowed regional parties away from the Congress and toward their position. The Communists' stance is that the nuclear deal (set in motion in 2005) is only one part of a wider embrace between the Indian and US governments, and between Indian and US-based corporations. Apart from nuclear cooperation, the alliance is geared toward partnership between India and the US in democracy promotion, the opening up of the Indian economy to unleashed turbo-capitalism, and a strategic military alliance. The US architects of this linkage saw the last point as the lever: US State Department official Christina Rocca said (in 2002), "Military-to-military cooperation is now producing tangible progress towards [the] objective [of] strategic, diplomatic and political cooperation as well as sound economic ties." Wal-Mart would follow the USS Nimitz into Chennai harbor. Seen in this way, the Communist challenge is not restricted to the nuclear deal, although its defeat gives momentum to wider struggles against the drawing in of India to the platform of US-led imperialism.
From 2005 onward, the Communists led a nation-wide fight to reveal the class basis of these deals. They are not without their benefit to a certain kind of India. Entrepreneurs would get quid pro quo tie-ins with US firms, and Indian arms dealers and nuclear businesses would benefit from the commerce. The fact of an alliance would give a cultural fillip to the growing Indian middle class, for whom its "arrival" on the world stage could be signaled by this deal. Faced with its defeat, the Indian Ambassador to the US Ronen Sen spoke for the class that hoped it would come through, "I can understand [such a debate over the deal] immediately after [India's] independence. But sixty years after independence! I am really bothered that sixty years after independence they are so insecure that we have not grown up, this lack of confidence and lack of self-respect."
As the debate over the deal heated up in India, the navies of the Quad (Australia, India, Japan, and the US) held a war game off the western coast of India. The Communists used this act to highlight the implications of the deal. One jatha (column) left Kolkata and the other left Chennai to converge on the port city of Vishakapatnam on September 8 for a massive rally. This was a contemporary version of Gandhi's Salt March. Back in Delhi a few days later, the Communist Party of India (Marxist)'s General Secretary, Prakash Karat, led a march to parliament and said, "we demand that the government not proceed with the deal unless it satisfies the people's objections." A month later, this is just what the Congress Party had to do.
Satrapies.
If you land in Tbilisi, Georgia, the road that takes you into town from the airport is named the George W. Bush Avenue. It is not the only one. In Baghdad, the benighted throughway parallel to Haifa Street has the same name (a suicide bomber destroyed the MacDonald's on it in 2004). One of these roads, the latter, is a consequence of an imperial occupation. The US viceroy could as easily have named the street for George Bush's cat (named India, by the way). The other road, the one in Georgia, comes from the condition of satrapy: Georgia has troops in Iraq (guarding the Green Zone), and its current President Mikheil Saakashvili is eager to join NATO, the European Union, and to be in any way helpful to the US as possible.
India's elite desperately sought this kind of Georgian servility. From 1947 to 1991, the Indian elite and nascent middle class were constrained by a compact to fashion a national economy and strategic autonomy. In the 1980s, for a variety of reasons, the Indian elite and now a fairly confident middle class broke away from the shackles of the national compact and sought to assert itself both on the domestic and international stage. The patriotism of the bottom line predominated over that of the national imaginary. A crippled exchequer took the Indian government to the International Monetary Fund, which demanded a turn to the market and the cannibalization of a state structure geared (in some small measure) to provide some benefits across class.
The elite and middle class had, largely, relieved themselves from the past even if the institutions still held them back. This class was both born of and raised by the import-substitution industrialization policies of the earlier national compact. A highly educated group of people, they burned for upward mobility. The attachment of this class to the graded inequality of the global capitalist system is driven by its own aspirations to rise up the ladder. These interests coalesced with much more powerful forces: the ruling classes in places such as India, Brazil, and South Africa, the organized might of the Group of Seven, the various international financial conglomerates. This class has its annual meeting at Davos, Switzerland. Its mouthpiece is Thomas Friedman.
As the Indian psychologist Sudhir Kakar put it, "This class somehow has the ability to transmute a flame into a blaze." The biographer of this class, Pavan K. Varma, writes that although it "thinks out of the box," and is "a hugely entrepreneurial class," it "may be bent on cloning itself on the West." At the same time, in India there are now more people in extreme poverty than before 1991. In 1995, the World Health Organization reported that a single ailment "conspires with the most deadly and painful diseases to bring a wretched existence to all who suffer from it": this silent ailment is Z59.5, the WHO's code for "extreme poverty."
In a parliament of 545, the Communist bloc is only sixty. These parliamentarians come in the main from West Bengal, Kerala and Tripura, the three areas where the Left has a very strong presence. Elsewhere in the country, the Left has pockets of influence (Andhra Pradesh, Tamil Nadu, Rajasthan, Maharashtra), but is unable to translate this in electoral terms (drawing in about 2% of the votes at most). The bulk of the parliament is divided between two blocs, the soft right Congress and its allies (217 seats) and the hard right BJP and its allies (185 seats). Regional parties that do not line up with these three major blocs hold the remaining 78 seats (among them, the largest is a party close to the Left, the Samajwadi or Socialist Party, with 36 seats; although it has long since jettisoned its socialism for a corrupt populism). The elite and middle class are split between the hard and soft right on such issues as their attitude toward what in India is called communalism (fundamentalism: the ideology of Hindutva). On issues of social and economic welfare, the two blocs are virtually indistinguishable, except that the Congress has within it an old Gandhian section that is yet to be extinguished and that enabled the otherwise party of free markets to be held to a Common Minimum Program with the Left on issues such as agrarian policy, this so that the Left would support the Congress government from the outside. The Left, therefore, was the only brake against the enthusiasm of the elite and middle class, both of whom wanted to drown themselves in Bush's spittle.
Dollars from Rupees.
In the early 1990s, the U. S. administration read the shift in India quite correctly. Treasury Secretary Lloyd Bentsen observed the middle-class of 60 million, the size of France, and salivated. For Bentsen, and for the Clinton administration, the existence of this class and its hitherto suffocated desires meant that there existed a market to help contain the crisis of over-accumulation to which "globalization" was to be the answer. A decline in the annual rate of growth of the global Gross Domestic Product from the 1960s (5.4%) to the 1980s (3%) offered evidence of the crisis, but nothing was as stark as the falling profit rate of the 500 U. S. transnational corporations (4.7% in the late 1950s to -5.3% in the 1980s). Walden Bello recites these figures and concludes, "Oversupply of commodities and inadequate demand are the principle corporate anomalies inhibiting performance in the global economy."
Bentsen's comments had a concrete purpose: the US administration hoped, in essence, that India's middle-class might absorb this oversupply. The Indian government began a long process to dismantle various kinds of social protections for both the national economy and for the dispossessed and exploited classes. This process did not come easily, since the newly confident dominant classes had yet to settle accounts with powerful institutions of the working class and peasantry (trade unions, political parties, socio-political organizations, peasant groups, and on). Nevertheless, by 1994, large sections of industrial production, the extraction sector, utilities, transportation, telecommunications and finance found themselves prey to private investors.
In Washington, DC, the US-India Business Council (USIBC) emerged from hibernation (it was formed in 1975) in the 1990s to lobby for US business interests in India. The USIBC is housed, conveniently, in the US Chamber of Commerce in Washington, from where it pushes against the walls erected in India to protect the national economy from those who want to make dollars out of rupees. For the nuclear deal, the USIBC and the US Chamber of Commerce's Coalition for Partnership with India drew upon the lobbying expertise of Patton Boggs and Stonebridge International. They had a vested interest in the deal, because it would have allowed U.S. firms to gain contracts in the Indian nuclear sector. In March 2007, the USIBC hosted a 230-member business delegation to India, the Commercial Nuclear Executive Mission. Tim Richards of General Electric (GE) gingerly said of the trip, "We know India's need for nuclear power" (there is, in fact, no such need; nuclear power would only cover a maximum of seven percent of India's energy needs). Ron Somers, president of USIBC, said of the purported $60 billion boondoggle that would have come as a result of the deal, "The bounty is enormous."
As the deal fizzled out, the nuclear moneymen grieved. Russia and France had also already lined up to supply India, and both had begun to lobby the Nuclear Suppliers Group to give the deal a free pass. A few days after Singh told Bush their deal was in cold storage, seventy French delegates from twenty-nine nuclear firms met with three hundred Indian delegates in Mumbai for a discussion on a potential France-India nuclear deal. French Ambassador to India Jerome Bonnafont eagerly anticipated the restarting of nuclear cooperation between the two states, which would provide substantial contracts for the French nuclear industry. They want to make Francs out of Rupees.
Chicken-Head.
India's ambassador to Washington, Ronen Sen, fretted about the US-India deal's failure. The Bush team has approved the deal, and so has the Indian cabinet, he carped (he seems to have forgotten his elementary civics: it is parliament that has authority over such deals, not the cabinet a distinction that does not operate so effectively in the US, for all its constitutional checks and balances). "So why do you have all this running around like headless chickens, looking for a comment here or a comment there, and these little storms in a tea-cup." The parliament has now demanded that Mr. Sen be recalled to India and face questions for his disrespect to the elected officials who opposed the deal.
On the same flight as him will be a delegation from the USINPAC, the face of the new "Indian Lobby" in Washington, who is eager to take lessons from and mimic the Israel Lobby. Robinder Sachdev, who founded the group, told the Press Trust of India, that the emerging opposition to the deal within the US Congress startles him. "It is like being penny wise and pound foolish," he said. "The US industry will benefit from the nuclear deal." This is an honesty descried by his friends in the nuclear commerce world. As GE India's chief executive officer T.P. Chopra told a Wharton periodical, "The last thing we want is to give ammunition to the Left-wing parties. They would love to project the U.S. as greedy capitalists selling the country for a few dollars more. Business will keep silent until it's signed, sealed and delivered."
In Mumbai, as the French-Indian delegations met, the Communists held a public rally where they condemned all talk of a nuclear deal. In terms of the US-India deal specifically, Karat of the CPI(M) said, "it is part of the strategic and military relations that the US wants to have with India." It would never be allowed. In Delhi, meanwhile, Prime Minister Singh said, "I have not given up hope yet." Hope is all that remains for the convenience seeking bourgeoisie: the spectacle of advanced capitalism beckons, even if the price is to be paid by the millions of people who suffer the trials of Z59.5.
Vijay Prashad is the George and Martha Kellner Chair of South Asian History and Director of International Studies at Trinity College, Hartford, CT His new book is The Darker Nations: A People's History of the Third World, New York: The New Press, 2007. He can be reached at: vijay.prashad@trincoll.edu
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Thursday, 25 October 2007
America's lifestyle is paid for by savers in poorer nations – but for how long?
Hamish McRae:
Published: 25 October 2007
Bahrain: Even brief visits give you a feeling for changes of mood. And the mood yesterday at a conference for investment advisers, not just from Bahrain but from all over the Gulf, was that they should be looking at as diversified a portfolio as possible, and particularly should be thinking about investment in Asia.
This is important because, of course, the United States has been relying on savings from the oil producers in the Middle East, along with Asian savings, to offset its current account deficit. One of the reasons why the dollar has been so weak in recent days has been the sense that the commitment of the international community to the US and to dollar assets has weakened. The US current account deficit has actually begun to narrow through the earlier part of this year, yet the dollar has become progressively weaker. Meanwhile, continuing rapid growth in China and the rest of the newly developing world has sustained demand for oil, pushing the price up and further boosting the balances of the oil exporters.
To put this into context have a look at the two graphs, which come from the latest World Economic Outlook, produced by the International Monetary Fund. As you can see in the first graph, the US current account deficit is more than 1.5 per cent of world GDP; yes, that is world GDP, not US GDP. On the other side of the balance sheet, the surplus of the oil producers is more than 1 per cent of world GDP. Thanks to the high oil price that surplus is at a sweet spot. It has shot up suddenly and the IMF thinks it will come down, at least as a share of world GDP. Elsewhere in the report the IMF predicts that the oil price will come slowly down, so it follows that if the present price levels are maintained it may be understating the size of the oil exporters' surpluses.
In the other graph you can see what these flows are doing to the stock of foreign assets. The net asset position of the US gets worse and worse not just in absolute numbers but as a percentage of world GDP, while the surpluses of the oil producers and to an even greater extent, the emerging Asian economies (actually, mostly China) keep on growing.
Now whenever you see a graph like that you have to ask whether it is credible. Is it really likely that the rest of the world will allow the US to accumulate net debts equivalent to 12 per cent of world GDP? Would the US itself be prepared to see itself become so indebted, particularly since so much of the debts will be to China and the Middle East? Surely not.
But if you don't believe this will happen you have to ask what sequence of evens might stop it. I happen to think that the US current account may correct rather more swiftly than the IMF expects. I also suspect that the investment community in China and the Middle East may seek to diversify their portfolios more swiftly, too. If the second happens faster than the first, the dollar becomes vulnerable. It does not need foreign investors to stop investing in dollar assets for the dollar to fall; it just needs them to build up dollar assets rather more slowly.
Pause for a moment. The US will remain a relatively attractive place for international investment funds for the foreseeable future. It is a huge and transparent market and at some level, dollar assets will always be attractive. So that is not going to change.
What is interesting, though, is the extent to which Middle Eastern investors are now interested in alternative assets classes. These include property, residential as well as commercial, various forms of infrastructure, and resources. The drying up of liquidity for venture capital and private equity investments, which seen from London or New York is a problem, from the perspective of the Gulf is an opportunity. The tighter the money markets, the more expensive it is to borrow, the greater the opportunities for Middle Eastern investors who are generating huge amounts of cash. That 1 per cent plus of world GDP has to find a home somewhere. India appears a particular beneficiary, more indeed than the rest of Asia. The point was made to me by a Qatari banker that India had many attractions for Gulf investors. It was close. There were strong cultural and personal links. And India needed investment in infrastructure as it had lagged behind China in that regard. It was a natural fit.
That must be right. We are also going to see much more Gulf money in Britain and Europe. You can see what has been happening to the euro as a result of this rebalancing of the flow of investment between dollar and euro assets, but Britain will also remain attractive because it remains extremely open to international investment.
That leads to what seems to me to be the biggest issue of all: how open will the US remain to foreign investors?
There is one particular area of current concern, which is the extent to which the so-called sovereign investment funds – funds accumulated by countries rather than private investors – are allowed to invest freely. The US in particular is concerned about such investment, particularly since some of the countries concerned are regarded as hostile to American interests.
There are quite legitimate reasons for concern. Foreign governments not only can mobilise funds on a huge scale; they can also have different objectives from private sector investors. But restrictions on sovereign funds can scare off private investors, too, particularly if they appear to be applied in a capricious manner. I don't think people in the US have any idea of the long-term damage done by the blocking last year by Congress of the bid for P&O by Dubai Ports, on the grounds that the former controlled a number of ports on the US East Coast.
From Dubai's perspective, these were not particularly important assets and they were duly excluded from the sale. But learning that you were not welcome by people you had assumed were your friends was a salutary experience for investors throughout the region.
The result will not be that Middle East investors shun the US. Rather it will be that investment in the US will carry a handicap. The US has the advantage of the size of its market and the general predictability of its legal system. These have enabled it to offer lower returns to international investors than would otherwise be the case. Now it is fairly clear that some of that advantage will be offset by this sense that foreign investment may be unwelcome. So the US will have to offer higher returns to attract international savings. A lot of the dollar's decline this year, in the face of an improving trade position, may be the result of this handicap. That will force a faster adjustment on the US than would otherwise be the case.
This may be no bad thing. It is not reasonable that the world's richest country should rely on the savings of other poorer countries to maintain its lifestyle. The decline in the dollar may force countries that have linked their currency to it to cut loose. That is gradually happening in China and it is a big issue, by the way, in the Gulf. But you don't want adjustment to be too sudden. It is in no one's interest that the dollar should fall in an uncontrolled way – and that danger will remain until the US becomes less reliant on savers in the rest of the world, including the Middle East.
This is important because, of course, the United States has been relying on savings from the oil producers in the Middle East, along with Asian savings, to offset its current account deficit. One of the reasons why the dollar has been so weak in recent days has been the sense that the commitment of the international community to the US and to dollar assets has weakened. The US current account deficit has actually begun to narrow through the earlier part of this year, yet the dollar has become progressively weaker. Meanwhile, continuing rapid growth in China and the rest of the newly developing world has sustained demand for oil, pushing the price up and further boosting the balances of the oil exporters.
To put this into context have a look at the two graphs, which come from the latest World Economic Outlook, produced by the International Monetary Fund. As you can see in the first graph, the US current account deficit is more than 1.5 per cent of world GDP; yes, that is world GDP, not US GDP. On the other side of the balance sheet, the surplus of the oil producers is more than 1 per cent of world GDP. Thanks to the high oil price that surplus is at a sweet spot. It has shot up suddenly and the IMF thinks it will come down, at least as a share of world GDP. Elsewhere in the report the IMF predicts that the oil price will come slowly down, so it follows that if the present price levels are maintained it may be understating the size of the oil exporters' surpluses.
In the other graph you can see what these flows are doing to the stock of foreign assets. The net asset position of the US gets worse and worse not just in absolute numbers but as a percentage of world GDP, while the surpluses of the oil producers and to an even greater extent, the emerging Asian economies (actually, mostly China) keep on growing.
Now whenever you see a graph like that you have to ask whether it is credible. Is it really likely that the rest of the world will allow the US to accumulate net debts equivalent to 12 per cent of world GDP? Would the US itself be prepared to see itself become so indebted, particularly since so much of the debts will be to China and the Middle East? Surely not.
But if you don't believe this will happen you have to ask what sequence of evens might stop it. I happen to think that the US current account may correct rather more swiftly than the IMF expects. I also suspect that the investment community in China and the Middle East may seek to diversify their portfolios more swiftly, too. If the second happens faster than the first, the dollar becomes vulnerable. It does not need foreign investors to stop investing in dollar assets for the dollar to fall; it just needs them to build up dollar assets rather more slowly.
Pause for a moment. The US will remain a relatively attractive place for international investment funds for the foreseeable future. It is a huge and transparent market and at some level, dollar assets will always be attractive. So that is not going to change.
What is interesting, though, is the extent to which Middle Eastern investors are now interested in alternative assets classes. These include property, residential as well as commercial, various forms of infrastructure, and resources. The drying up of liquidity for venture capital and private equity investments, which seen from London or New York is a problem, from the perspective of the Gulf is an opportunity. The tighter the money markets, the more expensive it is to borrow, the greater the opportunities for Middle Eastern investors who are generating huge amounts of cash. That 1 per cent plus of world GDP has to find a home somewhere. India appears a particular beneficiary, more indeed than the rest of Asia. The point was made to me by a Qatari banker that India had many attractions for Gulf investors. It was close. There were strong cultural and personal links. And India needed investment in infrastructure as it had lagged behind China in that regard. It was a natural fit.
That must be right. We are also going to see much more Gulf money in Britain and Europe. You can see what has been happening to the euro as a result of this rebalancing of the flow of investment between dollar and euro assets, but Britain will also remain attractive because it remains extremely open to international investment.
That leads to what seems to me to be the biggest issue of all: how open will the US remain to foreign investors?
There is one particular area of current concern, which is the extent to which the so-called sovereign investment funds – funds accumulated by countries rather than private investors – are allowed to invest freely. The US in particular is concerned about such investment, particularly since some of the countries concerned are regarded as hostile to American interests.
There are quite legitimate reasons for concern. Foreign governments not only can mobilise funds on a huge scale; they can also have different objectives from private sector investors. But restrictions on sovereign funds can scare off private investors, too, particularly if they appear to be applied in a capricious manner. I don't think people in the US have any idea of the long-term damage done by the blocking last year by Congress of the bid for P&O by Dubai Ports, on the grounds that the former controlled a number of ports on the US East Coast.
From Dubai's perspective, these were not particularly important assets and they were duly excluded from the sale. But learning that you were not welcome by people you had assumed were your friends was a salutary experience for investors throughout the region.
The result will not be that Middle East investors shun the US. Rather it will be that investment in the US will carry a handicap. The US has the advantage of the size of its market and the general predictability of its legal system. These have enabled it to offer lower returns to international investors than would otherwise be the case. Now it is fairly clear that some of that advantage will be offset by this sense that foreign investment may be unwelcome. So the US will have to offer higher returns to attract international savings. A lot of the dollar's decline this year, in the face of an improving trade position, may be the result of this handicap. That will force a faster adjustment on the US than would otherwise be the case.
This may be no bad thing. It is not reasonable that the world's richest country should rely on the savings of other poorer countries to maintain its lifestyle. The decline in the dollar may force countries that have linked their currency to it to cut loose. That is gradually happening in China and it is a big issue, by the way, in the Gulf. But you don't want adjustment to be too sudden. It is in no one's interest that the dollar should fall in an uncontrolled way – and that danger will remain until the US becomes less reliant on savers in the rest of the world, including the Middle East.
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Poor but defiant, thousands march on Delhi in fight for land rights
The rush to industrialise has left tribal people and 'untouchables' far behind
Randeep Ramesh in Palwal
Thursday October 25, 2007
Guardian
On a hot, dusty highway some 40 miles (70km) from Delhi, a human column snakes its way towards the Indian capital carrying a unique message of defiance to the country's leaders: "Give us back our land." Some 25,000 of India's poorest people - tribal peoples, "untouchables" and landless labourers - have stopped traffic for nearly three weeks on the road that links Delhi and Agra, home to the Taj Mahal. Headed by a group of chanting Buddhist monks, the marchers say they aim to shame the government into keeping its promise to redistribute land.
The human train has been eating, living and washing by the road since early October and by the end of the week will arrive at the Indian parliament, vowing to remain a public embarrassment until the government relents. Last week three marchers were killed by a speeding lorry.
With fists and voices raised, the scene is a world away from Indian newspaper headlines about the country's new luxury goods market or its soaring stock markets. Nowhere is this process of concentrating wealth in a tiny segment of the population more visible than in the ground beneath Indians' feet.
India has one of most iniquitous systems of land ownership in the world - much worse than China. Last week India's biggest real estate baron made a paper fortune of £500m in a day. Government figures show that the average expenditure of countryside household India to be just 500 rupees a month or about 20p a day.
Most of the marchers say their dire condition is because they have no patta (deeds) to their land. Unable to grow produce on their ancestral land and with no patta to access state welfare services, the villagers are now fighting a losing war against poverty.
"I haven't got any rights on my land," said Prem Bai from the central Indian state of Madhya Pradesh. "I have got four boys and can hardly manage the family with few days' work labouring on other's fields. If we go to forests then the forest department arrests us. Our life is very difficult."
Others say their land is being grabbed by local mafias and corrupt officials. Shikari Baiga, 25, says land his family was cultivating was grabbed by local officials to grow biofuels on. Hailing from the Baiga tribe, a people with a distinctive language and culture in India's Chhattisgarh state, progress - and land rights - have eluded his community for hundreds of years. "I was put in jail for one year for demanding our land back. Fourteen families lost 75 acres [30 hectares]. But they tell us: where are your [patta]?. We can do nothing. That is why we are going to Delhi to get justice."
The march is the brainchild of a veteran Gandhian, PV Rajagopal, who made his name by persuading bandits in central India to lay down their arms in the 1970s. He says the human caravan is a warning shot to the "establishment".
Mr Rajagopal says there is a rising tide of violence in the country as the poor "are being driven out of villages and slums in cities". In the country's rush to industrialise, he adds, "we've seen alarming examples of outsiders seizing land on vast scales while the local rural poor are denied land. The result will be bloodshed and violence on a massive scale unless the government acts".
The issue is increasingly an explosive one in India, where incomplete reforms have left much of the country in the hands of a few. Extreme leftwing groups have tapped the rising anger in rural areas to wage low-intensity guerrilla wars in 172 of India's 600 districts.
Riots and armed insurrection are now prominent features of attempts to industrialise much of India. Earlier this month four directors of a South Korean company - which was handed 1,600 hectares to build a £6bn steel plant in mineral-rich eastern India - were kidnapped by tribal people protesting over the loss of their historic homelands.
In March an attempt to hand over 9,000 hectares of farmland to big business ended in pitched battles and half a dozen villagers dead in Bengal.
Even India's most important development agency, the planning commission, is blunt about how little has been done to tackle the issue of land redistribution.
"Land reforms seem to have been relegated to the background in the mid-1990s. More recently, initiatives of state governments have related to liberalising of land laws in order to promote large-scale corporate farming," it stated in its 10th plan.
Mr Rajagopal met Sonia Gandhi, India's most powerful politician and president of the ruling Congress party, earlier this month to press his case for immediate land reform for the poor.
He says the manifesto that saw Ms Gandhi elected pledged new land-ceiling laws, limiting the size of landlords' holdings, and tenancy rights, but none has arrived.
Some say that the problem lies in the Indian state's indifference to its poorest people - "tribals" and "untouchables".
"There are 120 million people who have no rights in this country," says Balkrishna Renake, chairman of India's national commission for denotified, nomadic and semi-nomadic tribes. "They are still waiting in independent India for the right to vote, to have schools and teachers, and for their land."
He estimates that redistributing just 2.5% of India's total area would be enough to allow the country's poor to exist "with dignity".
"The question is not whether we have the land but whether the government has the moral courage."
Global gathering
Land is an important and sensitive issue in most developing countries and growing numbers of poor people are demanding reform of its ownership and use after centuries of inequitable distribution.
The Movimento dos Trabalhadores Rurais Sem Terra (MST) in Brazil has an estimated 1 .5 million members who have occupied and farmed many millions of acres of unproductive land in the past 20 years.
The MST is now mirrored across Latin America with growing peasant and indigenous groups in Ecuador and Bolivia, Uruguay, Paraguay and Chile taking back land. They are supported by powerful international peasant groups such as Via Campesina which now works in 87 countries where land reform is recognised as a major problem.
Land reform in Africa is led by the Landless People's Movement in South Africa which argues that the official redistribution process is not fast enough for landless rural people. As in Brazil, land reform in Africa is seen as critical in redressing centuries of dispossession.
Many land reform groups are now linked and an international political movement is emerging. Almost all landless movements lobby for the right to grow food for themselves and not for export, ecological agriculture and an end to GM farming.
John Vidal
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Monday, 22 October 2007
Black clouds loom on horizon after years of plenty
From The Times
October 22, 2007
Anatole Kaletsky: Economic view
For the first time in 15 years, I am seriously worried about the outlook for the British economy, the housing market and sterling. For almost the whole of the period since 1992, when British economic policy was liberated on Black Wednesday, I have been at the optimistic extreme of economic opinion in Britain. Today, however, I find myself at the opposite end. Most economists are predicting nothing worse than a modest slowdown for the British economy next year and are laughing off the IMF’s suggestion that house prices here could fall more steeply than they have in America. But to me it appears that all the risks in the year ahead - to economic activity, employment, house prices and sterling – are now clearly on the downside. To explain why I have turned so bearish, let me borrow the technique of Donald Rumsfeld: I will start with the obvious risks, move on to the “known unknowns” and finally to the “unknown unknowns”.
Starting with the known problems, there are essentially three, corresponding with the three main driving forces of British economic growth in the past decade. These have been financial activity, public sector spending and housing. The first two forces clearly will be much weaker in the year ahead than they have been for most of the past decade. Public sector employment has already stopped growing and will be squeezed much more tightly in the next few years. Wholesale finance and business services, which are more important to Britain than to any other major economy, are bound to experience a serious setback after the recent credit crisis.
With public sector employment and financial incomes stagnating and the wholesale mortgage markets semi-paralysed, the property boom of the past two years must – surely – be over. The only question is whether the next phase of the housing cycle will be a long period of stable prices, which is what most British economists are still predicting, or whether the boom will be followed by a bust, like the one in America, as suggested in an IMF report published in Washington last week. The IMF report did not predict a crash in British housing, but merely pointed out a simple statistical fact often mentioned on this page: house prices in Britain, along with many other European countries, have risen much faster in the past decade than US house prices and the difference in house price inflation cannot be explained by relative movements in incomes, population or interest rates.
The fact that house prices in Britain and in several other European countries (see chart) have risen 40 per cent more than the IMF can explain on the basis of such fundamental factors does not mean that they are likely to fall by this amount. But the IMF figures do show that Britain (along with Ireland, Spain, France, Denmark and many other European countries) is potentially even more vulnerable than America to a property shakeout if the forces stimulating housing demand ever run out of steam. And that is what is happening now, as the simultaneous slowdown in financial and public sector employment combines with the sudden loss of liquidity in the mortgage markets and the vertiginous levels already reached by house prices and mortgage borrowing.
Until recently I would, nevertheless, have joined the moderate majority of commentators in suggesting that the British housing market could enjoy a relatively soft landing, because of the strong underlying demand for housing, especially in London. That demand was, in turn, due mainly to London’s position as the world’s financial capital. In the past few months, however, this calculation has abruptly changed and this is where we come to Rumsfeld’s “known unknowns”.
Nobody knows how much the process of global financial liberalisation will suffer as a result of the summer credit crunch, but there is certain to be less growth in wholesale financial services than there was in the past two years. It is even harder to say whether the mismanagement of the Northern Rock crisis will damage London’s standing relative to other financial centres, but it is not going to help. Most unpredictable of all is the impact of Gordon Brown’s unexpected tax changes on London’s position as the unchallenged centre of global finance.
The post-Budget controversy over inheritance tax and capital gains tax reform, has overlooked the even more radical changes in the tax treatment of foreigners living in Britain. Anecdotally, there is already evidence of hedge funds, banks and international businesses moving some of their highly paid international staff out of London to Geneva, Monte Carlo and the Channel Islands. Of course, these tax havens will never replace London as the financial centre of Europe, but at the margin they are now likely to divert more of the international incomes and employment that would otherwise have come to Britain.
As a result, the London economy is likely to suffer much more than the rest of the British economy in the impending slowdown – and this will be particularly true of the top end of the London housing market, whereI foreigners have accounted for more than 50 per cent of the buyers in the past few years.
Indeed, the evidence of a sharp turnaround in the London property market has already started to appear in unofficial figures, such as the monthly surveys published by Primelocation.com, the high-end property website, which has reported two consecutive months of falling prices in London and an increase of 32 per cent in the number of properties for sale. To make matters worse, the preBudget change in capital gains tax could well encourage buy-to-let landlords to put their properties on the market from next April onwards to take advantage of the big tax reductions that many expect to be reversed in future budgets. This will put further downward pressure on property prices next year – another “known unknown”, suddenly introduced by an abrupt change in economic policy that nobody could have predicted even a few weeks ago.
Which brings me finally to the “unknown unknowns”, which have suddenly made the economic outlook for Britain even more uncertain, but also more alarming. All of the policy U-turns of the past few weeks, the random and uncoordinated tax reforms, the loss of confidence in the Bank of England resulting from the Northern Rock crisis and the signs of panic in the Government in response to Tory gains in the opinion polls raise serious questions about the sustainability of the economic framework that has kept Britain so prosperous and stable since 1997.
Suppose a panic-stricken Prime Minister appoints a political crony as governor of the Bank of England. Suppose that public sector unions, sensing the Government’s weakness, refuse to accept the cutbacks in public spending that the Treasury has planned. Suppose the recent tax reforms blow up in the Government’s face and end up yielding less revenue than expected.
After the events of the past few weeks, it is easy to imagine such “unknown unknowns” – and all of them spell bad news.
October 22, 2007
Anatole Kaletsky: Economic view
For the first time in 15 years, I am seriously worried about the outlook for the British economy, the housing market and sterling. For almost the whole of the period since 1992, when British economic policy was liberated on Black Wednesday, I have been at the optimistic extreme of economic opinion in Britain. Today, however, I find myself at the opposite end. Most economists are predicting nothing worse than a modest slowdown for the British economy next year and are laughing off the IMF’s suggestion that house prices here could fall more steeply than they have in America. But to me it appears that all the risks in the year ahead - to economic activity, employment, house prices and sterling – are now clearly on the downside. To explain why I have turned so bearish, let me borrow the technique of Donald Rumsfeld: I will start with the obvious risks, move on to the “known unknowns” and finally to the “unknown unknowns”.
Starting with the known problems, there are essentially three, corresponding with the three main driving forces of British economic growth in the past decade. These have been financial activity, public sector spending and housing. The first two forces clearly will be much weaker in the year ahead than they have been for most of the past decade. Public sector employment has already stopped growing and will be squeezed much more tightly in the next few years. Wholesale finance and business services, which are more important to Britain than to any other major economy, are bound to experience a serious setback after the recent credit crisis.
With public sector employment and financial incomes stagnating and the wholesale mortgage markets semi-paralysed, the property boom of the past two years must – surely – be over. The only question is whether the next phase of the housing cycle will be a long period of stable prices, which is what most British economists are still predicting, or whether the boom will be followed by a bust, like the one in America, as suggested in an IMF report published in Washington last week. The IMF report did not predict a crash in British housing, but merely pointed out a simple statistical fact often mentioned on this page: house prices in Britain, along with many other European countries, have risen much faster in the past decade than US house prices and the difference in house price inflation cannot be explained by relative movements in incomes, population or interest rates.
The fact that house prices in Britain and in several other European countries (see chart) have risen 40 per cent more than the IMF can explain on the basis of such fundamental factors does not mean that they are likely to fall by this amount. But the IMF figures do show that Britain (along with Ireland, Spain, France, Denmark and many other European countries) is potentially even more vulnerable than America to a property shakeout if the forces stimulating housing demand ever run out of steam. And that is what is happening now, as the simultaneous slowdown in financial and public sector employment combines with the sudden loss of liquidity in the mortgage markets and the vertiginous levels already reached by house prices and mortgage borrowing.
Until recently I would, nevertheless, have joined the moderate majority of commentators in suggesting that the British housing market could enjoy a relatively soft landing, because of the strong underlying demand for housing, especially in London. That demand was, in turn, due mainly to London’s position as the world’s financial capital. In the past few months, however, this calculation has abruptly changed and this is where we come to Rumsfeld’s “known unknowns”.
Nobody knows how much the process of global financial liberalisation will suffer as a result of the summer credit crunch, but there is certain to be less growth in wholesale financial services than there was in the past two years. It is even harder to say whether the mismanagement of the Northern Rock crisis will damage London’s standing relative to other financial centres, but it is not going to help. Most unpredictable of all is the impact of Gordon Brown’s unexpected tax changes on London’s position as the unchallenged centre of global finance.
The post-Budget controversy over inheritance tax and capital gains tax reform, has overlooked the even more radical changes in the tax treatment of foreigners living in Britain. Anecdotally, there is already evidence of hedge funds, banks and international businesses moving some of their highly paid international staff out of London to Geneva, Monte Carlo and the Channel Islands. Of course, these tax havens will never replace London as the financial centre of Europe, but at the margin they are now likely to divert more of the international incomes and employment that would otherwise have come to Britain.
As a result, the London economy is likely to suffer much more than the rest of the British economy in the impending slowdown – and this will be particularly true of the top end of the London housing market, whereI foreigners have accounted for more than 50 per cent of the buyers in the past few years.
Indeed, the evidence of a sharp turnaround in the London property market has already started to appear in unofficial figures, such as the monthly surveys published by Primelocation.com, the high-end property website, which has reported two consecutive months of falling prices in London and an increase of 32 per cent in the number of properties for sale. To make matters worse, the preBudget change in capital gains tax could well encourage buy-to-let landlords to put their properties on the market from next April onwards to take advantage of the big tax reductions that many expect to be reversed in future budgets. This will put further downward pressure on property prices next year – another “known unknown”, suddenly introduced by an abrupt change in economic policy that nobody could have predicted even a few weeks ago.
Which brings me finally to the “unknown unknowns”, which have suddenly made the economic outlook for Britain even more uncertain, but also more alarming. All of the policy U-turns of the past few weeks, the random and uncoordinated tax reforms, the loss of confidence in the Bank of England resulting from the Northern Rock crisis and the signs of panic in the Government in response to Tory gains in the opinion polls raise serious questions about the sustainability of the economic framework that has kept Britain so prosperous and stable since 1997.
Suppose a panic-stricken Prime Minister appoints a political crony as governor of the Bank of England. Suppose that public sector unions, sensing the Government’s weakness, refuse to accept the cutbacks in public spending that the Treasury has planned. Suppose the recent tax reforms blow up in the Government’s face and end up yielding less revenue than expected.
After the events of the past few weeks, it is easy to imagine such “unknown unknowns” – and all of them spell bad news.
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