Energy pricing: the market is manipulation

As an oil industry whistleblower, I know the energy sector is even more flawed than this week's exposé of gas prices reveals

• Chris Cook
• The Guardian, Tuesday 13 November 2012 20.40 GMT

'The real problem lies not with gas, but crude oil – which is suffering perhaps the greatest market manipulation the world has seen.' Photograph: Getty Images

The Guardian's investigation into the alleged "Libor-like" fixing of UK gas prices was doubly ironic for me. The first irony is that, as director of compliance and market supervision of the International Petroleum Exchange (now ICE Futures Europe) in the 1990s, I was heavily involved in the development and legal architecture of the gas-market contract that has now allegedly been manipulated.

The second painful irony is that in 2000 the Guardian published detailed allegations made by me on very similar micro-manipulation of the International Petroleum Exchange's Brent futures contract-settlement prices. This systemic manipulation was so pervasive that traders referred to the on-exchange profits they made at the expense of the manipulators – who profited "off-exchange" – as "grab a grand".

Unfortunately, I described the manipulation as "systematic" – taken to mean that some of the players were routinely manipulating the price most of the time – rather than "systemic", where most of the players manipulate the market some of the time. On this basis the commissioner appointed to investigate my allegations rejected them, and in finest whistleblower tradition my reputation was destroyed: I lost my livelihood, home and marriage. Had the crude oil market been properly investigated at that time, subsequent oil market history would probably have been very different.

One thing I have come to realise since my failed attempt at whistleblowing is that the short-term trading exposed this week is only part of the problem. The malaise runs much deeper. If you want to find out who really has an interest in rigging the market, ask who benefits from medium- and long-term high commodity prices: it's the producers, stupid. From De Beers' diamond hoarding to coffee-grower cartels, if the history of commodity markets tells us anything it's that if producers can find leverage to support commodity prices, they will.

The real problem in the energy market lies not with gas, but crude oil – which is suffering perhaps the greatest market manipulation the world has seen. This is due to financialisation of markets which began in crude oil about 12 years ago, but only became significant from around 2005 onwards. From the mid-90s, a new type of investor entered the markets as investment banks created new vehicles – index funds, exchange traded funds and so on – which enabled investors to invest directly in equities, precious metals; commodities generally and above all, in energy, with a view to "hedging inflation". Rather than speculatively taking a risk in search of a profit, they sought only the return of their capital, and the preservation of the value of their investment relative to dollars, sterling and so on.

To understand what happened to oil, we just need to look at the Enron scandal. The fundamental scam perpetrated here was based on an ancient financing method known as "prepay". Quite simply, this occurs when producers sell their product at a discount for cash now, with delivery later. So via intermediary banks such as JP Morgan and Citigroup, Enron were able to opaquely obtain "off-balance sheet" financing disguised as commodity trades of which Enron's investors and creditors were blithely unaware.Essentially, Enron was borrowing dollars and lending commodities.

A similarly opaque prepay technique has been responsible since 2005 for the inflation of two oil market bubbles. The first – a private sector bubble – culminated in July 2008 in a spike to $147 a barrel, and then a collapse to $35, causing great pain to producers used to high prices. At this point key producers – facilitated by friendly investment banks – resorted to prepay to finance themselves, and a public sector bubble was rapidly inflated during 2009.

In my analysis, the US and Saudis then hit upon a strategy that loosely "pegged" the oil price against the dollar within an agreed trading range, keeping prices relatively stable. But this trick only worked until early 2011, after which Fukushima and supply shocks in Libya and Iran have caused more turmoil.

I believe that there is now virtually nothing holding the oil market up, and that when (not if) Iran reaches an accommodation with the US on terms similar to those spurned by Dick Cheney in 2003, we will see the oil market price fall, possibly dramatically.

I have been warning for some time that risk-averse investors – whose very presence in the market causes the inflation they wish to avoid – are taking a much higher level of market risk than they appreciate. If I am correct, this will – sooner rather than later – give rise to the next Great Regulatory Disaster.

Perhaps worse than this, and particularly relevant to my work on financial market resilience, there is a significant risk of the sort of discontinuity in market price that took place in the tin market in 1985 when the market price collapsed overnight, from the price level supported by producer cartel stockpiling of $8,000 a tonne to the much lower price of $4000 a tonne, which reflected the influx of new low-cost tin supply.

The presence in the market of middlemen who have an interest in volatility and opacity means that we have now reached a stage where market manipulation is no longer an aberration: the market is the manipulation.

So what can be done? In the long term, crude oil prices can only go up, and many would argue that for the sake of the environment it is essential that carbon fuel prices are set at levels at which demand is low. The problem then is how best to distribute interationally and domestically the surplus value thereby created, in particular in investment in renewable energy, and above all in the cheapest energy of all – energy savings.

This will require a new (in fact very old) – and non-toxic – type of market architecture, and the good news is that this are already emerging as the current market paradigm approaches its end.

India on stage and in-yer-face

Yasmin Alibhai Brown in The Independent

In 2007, I went to the Royal Court to see Free Outgoing, a play by Anupama Chandrasekhar, from Chennai. It was directed by the then rising star, Indhu Rubasingham, who has recently replaced Nicolas Kent as artistic director of London's Tricycle theatre.

The central role of a distraught mother was played flawlessly by Lolita Chakrabarti, whose own first play, Red Velvet, is getting rave reviews at the Tricycle. Chandrasekhar sparkled in the constellation of Royal Court emerging playwrights and hers was the first contemporary Indian drama to be staged at a non-fringe venue in Britain. Five years earlier, she had been on the Court's International Residency programme and there she learnt to hone her work, raise her game. And how.

The play's subject was taboo – sex between unmarried, Indian teenagers and the revenge of society, its hypocrisies and repressive customs that push against modernity even in hubs of new technology. Deepa, a "good" girl and bright pupil, has sex with a schoolboy. He records the juicy moments on his mobile and the clips circulate. She, her widowed mum and brother are horribly ostracised. The audience, mostly white that day, seemed discombobulated, I thought. A comprehensive school teacher asked me if the sex was "realistic or believable". She sounded almost as disapproving as the cruel keepers of virtue on stage and miffed that India was not conserving its old self for the Occident to romanticise and to vacation in. In contrast, I and my Asian friends felt the opposite: Indian drama was finally getting away from Bollywood clichés and religious masques, speaking truths, repudiating conformity. Chandrasekhar's works are not generally staged in India, though some do sneak into small, rebellious venues. Other young talent is similarly thwarted by censoriousness, the lack of resources and spaces for inventive and daring work.

This week at the Royal Court five more such writers will have their plays performed as rehearsed readings. I saw them all as full productions in Mumbai in January at the Writers' Bloc Festival of new writing from all over the country. Some were edgy and tragic, others sharp and funny, all profoundly affecting. 

Artistically brilliant, urgent, energetic, authentic and eloquent, they touched nerves in the body of their nation, made it twitch. They were among the most powerful examples of modern theatre I have ever seen.

The Royal Court collaborated with Rage, a Mumbai theatre company, to create this festival. Rage was set up in 1993, by Shernaz Patel, Rajit Kapur who are both esteemed actors, and writer Rahul da Cunha. The multitalented ensemble commissions, directs, produces and constantly stretches the parameters of the possible.

Da Cunha explained why and how it all started. Being in Mumbai, a city that "progresses and regresses at the same time" and in a nation "going forwards and backwards and still holding together and to its democracy" is what kicked the Rage trio into action:

"We were driven, restless, felt it was time for modern India to find its voice, its own stories and put them on stage. We didn't have our own English-language theatre except, of course, for Shakespeare, Pinter, Osborne and so on. We started Indianizing the great Western plays, but what we really wanted, and young urban audiences were hungry for, were Indian dramas in English. In a crazy, haphazard way we thought, we knew, the time had come for that to happen. Some people thought drama in English would be elitist. We didn't – what we wrote and directed would have to be in the English Indians actually speak, their intonation, expressions and articulations."

Just as their ideas were shaping up, the Royal Court's artistic director Dominic Cooke and associate director Elyse Dodgson, turned up in Mumbai for a night after conducting a workshop in Bangalore. Call it karma. Da Cuhna, grabbed them, introduced himself and Rage and using his immense persuasive powers got them to promise workshops in Mumbai. They did, and a partnership was forged, with valued help from the British Council. Dodgson, other Royal court nurturers and Phyllida Lloyd went over and released more pent-up creativity than they could ever have imagined. The incipient dramatists were given tools, taught essential skills. At the first Writers' Bloc festival in 2004, in Da Cunha's view, "The level was pretty stunning. Young people saw the results and were totally engaged." Chandrasekhar's disturbing festival play about an Indian talk-show hostess who has acid thrown at her proved that she was both brave and singularly gifted.

Rage's founders carried on making their own remarkable work too. One gripping play I saw in 2010 was Pune Highway, written by Da Cunha and with Kapur in the lead. It was a pacy buddy thriller exposing India's furious and thoughtless globalisation and its ethically vacant middle class, again cutting edge and unsettling for Indians who prefer PR or patriotic art.

India's theatre tradition began in classical times when religious stories were enacted in Sanskrit or as mimes in villages and communities. Gods, improbable heroes and myths were loved by high and low and kept them god-fearing. They are still performed during festivals and at auspicious times. A parallel tradition was drama in local and regional Indian languages. The works, whether classic, extraordinary, worthy or barren, were and still are loved by millions. Parsi theatre was another popular strand. Parsis are descended from original Zoroastrians who fled Persia when Muslims took over that land. They settled in India and under the Raj, this small, urban and successful community became famous for its well-produced and popular comedies and farces in Gujarati.

From the 19th century onwards, playwrights wrote questioning and more complex works – the greatest of them Bengal's polymath Rabindranath Tagore, the first non-European to win the Nobel Prize for literature in 1913. By that time, Shakespeare and other European masters were being read and performed by Westernised urban Indians. After independence, those cultural bonds remained intact. Felicity Kendal's family were nomadic players who took the Bard to rural areas; the Sixties film Shakespeare Wallah told the story.

Since then prestigious drama and music schools have been established and become centres of excellence. I have seen some of their fine productions too, though these seemed to me to keep assiduously within the boundaries of "acceptable" art – unlike the breakout works produced at the Writers' Bloc festival.

In the week I spent at the festival, I saw how Dodgson and her team and the transformative Rage company interacted with writers and directors, never letting standards slip, never slipping into patronising allowances. Their intensity, honesty and sense of purpose stimulated astonishing creative heat and resolve in the artistes and writers. Dodgson is a force of nature and was described to me as the "godmother" of the creative cohort. One of the youthful actors said to be it was "like being in the fastest car, feeling the breeze and excitement, but never losing control because you are trying to reach somewhere where nobody has gone before. It's about control and real freedom, giving expression to things kept locked up. Escape from the usual. You don't know how the young of India need that."

The five readings selected for London include Mahua by Akash Mohimen, which was originally written in Hindi and has been translated. Incredibly young and gifted, he chose as his theme extreme rural poverty and addiction to hooch. It made audiences weep silently. Ok Tata Bye Bye by Purva Naresh, also a translation from Hindi, is about feisty, smart sex workers selling their bodies to truck drivers. The other three deal with property developers and broken communities, the conflict in Kashmir and ruthless modernisation. None of these plays is maudlin or sanctimonious. They are real and engaging, reveal aspects of a country still barely known by Brits. And best of all, not one of them features a noisy wedding or call-centre story.

Texas secession petition reaches 25,000 signatures.

 Even Obama doesn't warrant this conservative pessimism

By Tim Stanley US politics Last updated: November 13th, 2012

68 Comments Comment on this article

Texans have provided enough signatures to demand an official White House response

If at first you don’t succeed … secede! That seems to be the attitude of the folks in 20 states who have reacted to the re-election of Barack Obama by petitioning for independence from the United States. Anyone over thirteen can sign up on the White House website and it requires only a first name and last initial to do so. The petitioners in Texas have reached the threshold of 25,000 signatures necessary to trigger an official response from the administration. The answer will doubtless be a big fat "no" – and Governor Rick Perry has affirmed that Texas should stay in the Union. But it’s interesting to note just how many in the Lone Star state would rather go it alone than suffer "four more years".

The mood on much of the Right is pure Götterdämmerung – as if America had just elected Lenin himself. [Mark Steyn: “Americans as a whole have joined the rest of the Western world in voting themselves a lifestyle they are not willing to earn.” Charles Cooke: “If we are to lose America as it has been, could we not ask that it be lost to something better than this?”] A common theme is that the only way a candidate as radical as Barack Obama could have won is because the tipping point has been reached and America has tipped beyond redemption. The old values of self-reliance and moral liberty are out; the welfare state and youthful permissiveness are in. Given such fatalism, who can blame the conservatives of Texas for wanting to break away and start all over again? Who hasn’t felt the desire to secede from everybody else – to ride off in to the sunset with nothing but a gun for company? Ah, to live in a righteous republic of one…

Some of those signing the petition will be libertarians, others will be Confederate chauvinists. But I also detect the lingering influence of Calvinist pessimism. When John Winthrop told the Puritans of the 17th century that they had come to the New World to build a city upon a hill, he warned that it was possible that they would fail. It didn’t take long for the Puritans to decide that they had. Two generations later and they were writing Jeremiads complaining that the spirit of the early colony was lost; church attendance was declining, the children were rebelling and society was just hurtling towards destruction. The American experiment was over barely before it had begun.

So was born a common theme in American history: the declension from an honourable beginning to a dishonourable end. In the 1790s, partisan politics threatened to splinter the republic. In the early 19th century, industry destroyed the agrarian ideal. Catholic immigration undermined the Protestant hegemony. Alcohol promised apocalypse. Cults rose and fell that pledged to hold back the tide of progress and maybe even reverse it a little. Such was the static purity of the Shaker church that they eschewed breeding altogether and took children only through adoption. It was not a smart way to do business; today there are only three Shakers left.

The sheer number of Jeremiads testifies to the number of times that America has been predicted to die … and hasn’t. The Jeremiad is actually best understood as a challenge rather than a prediction of doom, but it is invariably defied by history. Of course, there is a temptation to add, “Until now.” After all, a country with so burdensome a debt and as large a government is more destined to fail than the patchwork of farms that made up the old colony (and to bring the rest of the world down with it).

But the reality is that 2012 is not the end of America. Obama's Hispanics will not always vote Democrat (the idea that they will borders on racist), gay people will form their own little nuclear units and become dully conservative, the young will mature into frugal taxpayers, and Texas will not secede. It's far more likely that liberalism shall dig its own grave. Recall that in 1964, the liberal pundits declared the death of conservatism because Goldwater lost the election so decisively. Four years later, and riots and war – fuelled by the over-extension of the welfare/warfare state – caused the election of Richard Nixon and the birth of the Silent Majority. Obamanomics will go the same way. It’s only a matter of time before the Silent Majority has cause to be heard again.

What conservatives must do in the meanwhile is convert their Calvinist pessimism into evangelical optimism. Ronald Reagan loved to quote John Winthrop and his idea that America could be a city upon a hill. But he put a Gipper spin on it: it was a shining city upon a hill that had both a figurative and a literal meaning: “a tall proud city built on rocks stronger than oceans, wind-swept, God-blessed, and teeming with people of all kinds living in harmony and peace, a city with free ports that hummed with commerce and creativity, and if there had to be city walls, the walls had doors and the doors were open to anyone with the will and the heart to get here.” There’s a reason why Reagan won the presidency by two landslides. People vote for hymns of hope, not Jeremiads.

As for the conservatives of Texas, they should stop all this foolishness about quitting the Union. Don't secede, guys. Get even.

Management theory was hijacked in the 80s. We're still suffering the fallout.

Good governance went out of the window when the Chicago school's reductive view of human nature took hold

• 
• • Simon Caulkin
  • guardian.co.uk, Monday 12 November 2012 08.30 GMT

'Managers abandoned their previous policy of retaining and reinvesting profits in favour of large dividend and share buyback payouts to shareholders.' Photograph: David Karp/AP

This week the City has been congratulating itself on 20 years of UK corporate governance codes. Since the original Cadbury document in 1992, the UK has basked in its role as governance leader, with 70 other countries having followed its example and adopted similar guidelines.

There's just one problem: is it the right kind of governance? The day the FT carried the story, Incomes Data Services reported that FTSE 100 boardroom pay went up by a median 10% last year, a soaraway trend that the best code in the world has complacently overseen. Nor could it prevent the RBS meltdown, Libor or PPI mis-selling to the tune of £12bn, the biggest rip-off in financial history. It didn't stop phone-hacking or BP taking short cuts. It has sanctioned wholesale offloading of risk, whether individual (pensions, careers) or collective (global and financial warming) on to society, while rejecting any responsibility of its own except to shareholders.

So jerry-built is the corporate economy erected on the scaffolding of the City codes that it can no longer deliver even the material progress by which it justifies its privileges: even with a return to growth, living standards for lower and middle earners may be no higher in 2020 than in 2000, according to the Resolution Foundation. The truth is that UK corporate governance has neither headed off major scandal nor nurtured effective long-term management. In fact the opposite is true.

The irony is that we know what makes companies prosper in the long term. They manage themselves as whole systems, look after their people, use targets and incentives with extreme caution, keep pay differentials narrow (we really are in this together) and treat profits as the score rather than the game. And it's a given that in the long term companies can't thrive unless they have society's interests at heart along with their own.

So why do so many boards and managers, supported by politicians, systematically do the opposite – run companies as top-down dictatorships, pursue growth by merger, destroy teamwork with runaway incentives, attack employment rights and conditions, outsource customer service, treat their stakeholders as resources to be exploited, and refuse wider responsibilities to society?

The answer is that management in the 1980s was subject to an ideological hijack by Chicago economics that put at the heart of governance a reductive "economic man" view of human nature needing to be bribed or whipped to do their exclusive job of maximising shareholder returns. Embedded in the codes, these assumptions now have the status of unchallenged truths.

The consequences of the hijack have been momentous. The first was to align managers' interests not with their own organisations but with financial outsiders – shareholders. That triggered a senior management pay explosion that continues to this day. The second was that managers abandoned their previous policy of retaining and reinvesting profits in favour of large dividend and share buyback payouts to shareholders.

Ironically, the effect of this stealth revolution was to undercut the foundations of the very shareholder value under whose flag the activists had ridden into battle. Along with corporate welfare and customer service, among the functions squeezed in the shareholder bonanza was research and development. Innovation has stalled since the 1980s, prompting some economists to query whether the era of growth itself is over.

But it's not economics, it's management, stupid. Unsurprisingly, downtrodden and outsourced workers, mis-sold-to customers, exploited suppliers and underpowered innovation cancelled out any gains from ever more ingenious financial engineering – leaving shareholders less well off in the shareholder-value-era since 1980 than in previous decades. The great crash of 2008 stripped away any remaining doubt: the economic progress of the last 30 years was a mirage. As Nassim Nicholas Taleb put it in The Black Swan, the profits were illusory, "simply borrowed against destiny with some random payment time."

Over the last decades, misconceived ideologically based governance has recreated management as a new imperium in which shareholders and managers rule and the real world dances to finance's tune. A worthier anniversary to celebrate is the death seven years ago this month, on 11 November, of Peter Drucker, one of the architects of pre-code management, which he insisted was a "liberal art". Austrian by birth, Drucker was a cultured humanist one of whose distinctions was having his books burned by the Nazis. In The Practice of Management in 1954 he wrote: "Free enterprise cannot be justified as being good for business. It can be justified only as being good for society".

Italian government sues S&P anf Fitch

S&P and Fitch accused of market manipulation in Italy

Italian prosecutors have filed charges against Deven Sharma, the former president of Standard & Poor’s, and six other credit rating officials for issuing downgrades that destablised the country and fuelled the debt crisis.

Italian prosecutors claim downgrades from S&P and Fitch destablised Italy and exacerbated the eurozone debt crisis Photo: AFP

By Louise Armitstead, Chief Business Correspondent

5:18PM GMT 12 Nov 2012

Comment

Prosecutor Michele Ruggiero has asked a court in Trani, Italy to indict five S&P employees and two from Fitch Ratings for market manipulation, in a move that could trigger a raft of similar claims against rating setters around the world.

Mr Ruggiero, who has pursued the agencies since they placed Italy on negative watch last summer, accused them of “aggravated and continuous…market abuse”. He claimed they leaked “biased and distorted information” about Italy’s financial stability to traders.

In a statement, he said the rating agencies had tried to “destabilise Italy’s image, prestige and credit confidence on the financial markets, alter the value of Italian bonds by depreciating them [and] weaken the euro”.

As well as Mr Sharma, president of S&P from 2007 and 2011, the operational director for Fitch, David Riley, was also named in the legal filings.

Claims against Moody’s Investor Services were dropped. Fitch failed to return calls for comment. 

In a statement, S&P said: “These claims are entirely baseless and without any merit as our role is to publish independent opinions about creditworthiness according to our public and transparent methodologies, which we apply consistently around the world.

The agency added: “We will continue to perform our role without fear or favour of any investor, debt issuer or other external party and to defend our actions, our reputation and that of our people”.

Italy’s sovereign debt, which stands at 120pc of GDP and is the second highest in the eurozone after Greece, has been a focus for traders and investors for months. After warning about its concerns in May 2011, S&P downgraded Italy’s sovereign debt in September 2011 by one notch to a single-A rating. Another downgrade followed in January of this year, by two notches to BBB-. Fitch followed in February by downgrading Italy from A+ to A-.

Mr Ruggiero’s case was triggered after two consumer rights groups claimed the downgrades had been leaked to traders before being announced and had triggered big losses on the stockmarket in Milan.

If the Trani judge gives the go-ahead, it could be a test-case for dozens of other efforts to sue the credit rating agencies. Despite widespread criticism for failing to realise the debt they were rating as AAA was highly toxic, the agencies have so far managed to protect themselves from prosecution by claiming that their ratings are only opinions. In America, they have claimed protection under free speech rules.

More than 60 cases against the agencies are thought to have been filed around the world following the financial crisis but none with much success.

A breakthrough came three weeks ago when an Australian court ruled that S&P misled 12 councils in Australia by awarded a AAA rating to derivatives products created by ABN Amro which imploded less than two years after they were sold.

In July, McGraw-Hill, the American owners of S&P, admitted in a filing that US regulators, including the Securities & Exchange Commission and the Department of Justice, are investigating S&P’s ratings of structured products.

When Brian Eno met Ha-Joon Chang

Brian Eno has a new album out. How best to explain it? By hooking up with radical economist Ha-Joon Chang to debate everything from finance to free jazz and dogs in parks. Caspar Llewellyn Smith joins in

• Caspar Llewellyn Smith
• The Guardian, Sunday 11 November 2012 19.00 GMT

‘Let’s find a place in between’ … Eno and Chang in conversation. Photograph: Martin Godwin for the Guardian

It's a very Brian Eno notion: rather than submit to a normal interview, the 64-year-old polymath wants to talk about his new album through a conversation with the economistHa-Joon Chang. Inevitably, the discussion, which takes place in Eno's office in Notting Hill, London, barely touches on the record, Lux; instead, it ranges over another of his new creations (an app called Scape), the value of art, and why numbers are like sausages. We also cover the real reason why rightwing Americans won't admit that the war in Iraq was a mistake.

Buy it from 

1. Buy the CD
2. Download as MP3
3. 
4. Brian Eno
5. Lux
6. Warp Records
7. 2012

Eno met Chang through an editor at the latter's publisher. The 49-year old economist is something of a star in that increasingly starry calling, ever since the publication of his 23 Things They Don't Tell You About Capitalism – a book described by the Guardian as "a masterful debunking of some of the myths of capitalism". Born in South Korea and now teaching at Cambridge University, Chang admits to being a fan of early Roxy Music – but, as soon becomes apparent, he and Eno have more in common than that.

Brian Eno: There's an issue we're both interested in – this middle ground between control and chaos. Some economists say you can only have a control model or a chaos model, that you're either a socialist or it's all about the free market. Whereas you say: "Let's find a place in between."

This happens to be an issue with the music I make. It's made for a place somewhere between architecture and gardening. It's not a situation where I'm finessing every tiny detail. I basically set a process in motion and then watch it happen. A lot of the design work is prior to the thing starting, rather than trying to keep control of it once it has started. You try to design the process carefully enough so you get the results you want and don't have to intervene.

Ha-Joon Chang: That's the approach I use in my economics. Central planners thought they could control everything, but there are always elements of uncertainty and surprise. But they then try to control even those. At the other extreme, we have those free-market economists who think there need to be no rules – even that it's OK to kill your competitor. Then you have a system that runs amok because everyone is cheating everyone in trying to beat them. The illusion that this rule-less system can organise itself has been proven completely mistaken – but we still have people wanting to believe in these extremes.

BE: And people saying, well, if you don't believe in that one, you must believe in this one.

HJC: I've read quite a few readers' reviews of my book on Amazon, saying, "Ah, he criticises the free market, he advocates central planning." I don't do that for a minute! But this is our black and white, dichotomous way of thinking – which has really been harmful.

BE: One of the things you're doing when you make art, apart from entertaining yourself and other people, is trying to see what ways of working feel good, what feels right. What gets the results you want? And for me, it isn't top-down architecture that does that – but it's not chaos, either. I don't want to do free jazz! Because free jazz – which is the musical equivalent of free marketeering – isn't actually free at all. It's just constrained by what your muscles can do. It turns out that anything that is called free anything isn't really. It's just constraints that you don't recognise.

HJC: It's a point I make in my book, when I say there's no such thing as a free market. The argument being that in all markets, there are some rules about what you can trade, how you can trade. We think some markets are free only because we totally accept those underlying rules. We just don't see them any more.

BE: You talk about child labour, don't you?

HJC: That's right. In the 19th century, a lot of people were against outlawing child labour, because to do so would be against the very foundations of a free market economy: "These children want to work, these people want to employ them ... what is your problem? It's not as if anyone has kidnapped them ... " But today even the most rightwing economists don't advocate bringing child labour back, because they've got to accept the idea that children have the right to enjoy their childhood and a proper education.

BE: This turns out to be something that happens a lot. Once you've grown to accept something and it becomes part of the system you've inherited, you don't even notice it any longer. We don't even think that not employing children is anti-free market.

So whenever you talk about the free market – or free jazz! – what you really mean is "constrained by rules that we've stopped thinking about". This seems a long way off music, but when you set out to make something, you might just inherit all the ways of making it. If you're a Tin Pan Alley songwriter, you don't question the fact that there are 84 notes on the piano. You're not bothered by the fact that you can't get in between two of them – these are just the ground rules of the working situation. But I did want to question something about composition, and not just because I am a disagreeable sort of person, but because I noticed I liked music that wasn't made by either of these sets of rules. It wasn't command-economy music and it wasn't free-market music. It wasn't top-down architecture, and it wasn't free jazz. I'm referring in particular to things in the mid to late 60s like Terry Riley's piece In C. Have you heard of this piece?

HJC: No.

BE: It's a very interesting example of some very simple rules that produce something very rich. There's a score, and there are 52 bars, and each bar is a slightly different phrase in the key of C. It can be played by any number of musicians, and the rule is that they all start together, all playing to the same tempo, and they keep playing the first bar as many times as they want – each one. But then when you want – say you're playing clarinet – you can move on to bar two, and then you keep playing bar two. And then when you want to move on to the third bar ... well, the piece starts to separate out, and if there are 20 musicians, they might all be playing a different bar, but on top of one another, and it's all in C, so everything works together. So the piece has this beautiful characteristic: it starts out in unison, and gradually it becomes richer and richer and richer. And then they all have to end together, so they gradually converge back.

To make that piece by top-down writing would be impossible … but it's very beautiful.

HJC: And it's different every time?

BE: Yes. That's important. So this is one of the things that the composer has to accept: he or she can't precisely predict the outcome. This is what command economy people have trouble with.

HJC: Exactly.

BE: They're not happy with uncertainty.

Caspar Llewellyn Smith: You talk about a top-down process, and I can imagine what you mean with a composer – someone like Mozart, or even Riley … but where does something like folk music fit into this?

BE: Closer to Riley, I would say. There you have certain musical memes that get passed around, and never faithfully copied. That's the interesting thing. He hears a tune of mine, and thinks, "Oh, that's good, I'll play that." But his version is going to be different from mine. It's very genetic, actually. Whereas classical music was supposed to be perfectly replicable: the score was the ultimate authority.

CLS: Ha-Joon, presumably every economist has their own idea of how the world should be organised. So isn't it a very real problem when politicians come along, with their own agendas, and screw everything up?

HJC: Oh yeah, but my view is that we don't live by bread alone. We have to accept political considerations, and cultural and social considerations …

These days, economics has become such an all-encompassing way of thinking that everything is supposed to justify its existence by how much money it makes. Are you making enough money as a university? Are you making enough money as a classical orchestra? I think it's a fundamentally wrong approach to life. Because economics might be the foundation, if you like … but if you try to create a world in which everything is driven by money and the market, the world will be a much poorer place.

Imagine if all those kings and dukes hadn't commissioned those crazy cathedrals, paintings and music … we'd still be living in sticks and mud. Because none of those things made any economic sense. Human beings' capacity to "waste time" is a miracle – but that's exactly what art is for.

BE: Ha-Joon came up with a good title for a book that I might write: "A Total Waste of Time"!

CLS: Are these questions increasingly urgent, because over the course of the last couple of decades, that rightwing mindset has won out – we have rightwing figures now who, 20 years ago, would have been beyond the pale?

HJC: Absolutely. These ideas have penetrated so deeply into our society, it's poisonous.

BE: It's not only money, it's also other forms of accountability. Look at education in this country. I've just had two daughters go through the system here, and nothing mattered at all, as long as they could get through their A-levels. It doesn't matter if you don't actually understand a word. I could see some of their friends who were good at remembering things, but had no clue at all about what they were talking about, who got A stars.

HJC: In that system, curiosity is actually a great disadvantage. Which means that any creativity gets lost.

BE: It's to do with the act of quantification. It's part of the money thing: something that you can put a figure to immediately assumes a sort of authority, even if it doesn't deserve it.

What is the value of a park? You can't quantify it. We keep them because we've inherited them. But I'm sure there'll be a rightwing movement in the future that says, "Parks? What are they for? People just wander about in them – and there's dog shit all over the place. What's the point of that? A great big piece of real estate in the middle of London that could be generating income – we can quantify that." Quantification is a big temptation for society because it looks like control.

HJC: People tend to think that numbers are quite objective, but numbers in economics are not like this. Some economists say they're like sausages: you don't know what they really are until you cut into them. Once you know, you become very sceptical ...

I'm not against numbers. You need some numbers, to work with. Life would be impossible otherwise. But we've made these numbers into fetishes.

Of course, the more obscure a number is, the more people tend to think it is objective. If you say that the average American goes through three tubes of toothpaste a year, they kind of believe you. But if you say it's 3.72 tubes, they think: "Wow – that must be correct."

Art is not the only area affected by this quantification – education has been affected, family relationships, too – but I think art is the most endangered area of life. It's not obvious how something makes money. Sometimes, you have an artwork that you think is terrible, but then some billionaire is prepared to pay a huge amount for it, and suddenly it becomes valuable. And you are supposed to like it because it's expensive, and it must be expensive because it's worth it. So even the values within the art world are distorted.

BE: When I went to art school, the choice was to enter the art world or the pop world, and a lot of my teachers were disappointed I took the pop route because they thought I was a promising fine artist. But one of the reasons I did is because I thought it was inherently healthier. It had a quasi-democratic basis that the art world doesn't have at all. Tom Wolfe says something in his book The Painted Word about how four curators, 12 collectors and six critics determine an artist's career. Something like that.

This is why the art world has such incredible inertia, because once those people have invested their highly important opinion in something, they're very unwilling to change it. Whereas if you've bought an album by a band but then you don't like their second one, you just say, fuck it, the second one isn't any good.

CLS: And of course, today, you wouldn't even buy that record, you might just stream it.

HJC: Once again, you have to strike a balance between control and the market. Without some very rich guys a lot of great art would never have existed – so control isn't necessarily bad. But if you have only that, then art stagnates; it rots, if only a few powerful people are in charge. So you need a combination.

Your way of encouraging people to make their own music with your new app, Scape, is a good example of a different sort of approach to working.

BE: You drag shapes on to a screen to create a picture, and each shape has its own sound, with its own set of hidden rules. For instance, "when a lot of things are happening at once, I'm going to default into another mode of playing"; or "I only play in the evenings" – that sort of thing. Each piece of music becomes a little musical ecology.

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HJC: I've been a big fan of your music over the years. When I was growing up in South Korea in the 70s and early 80s, the country was too poor to buy original records. Everything was bootlegged. The sound would be terrible: we used to call them tempura shop records – it sounded as if someone was deep-frying them.

This new album, Lux, was originally created for a specific space in Turin [the Great Gallery of the Palace of Venaria]. It's very interesting to think of a building as something more than just a physical structure: it's also about its surroundings, its light, and its sound. People don't tend to think of this, but our sense of a building can really be affected by its sound.

BE: Especially with this building, because it has the longest reverberation you can imagine. You snap your fingers, and the sound goes on for 11 seconds. It's a gallery connecting two palaces, actually. It's about 100 metres long, 15 wide and 10 high and any sound you make in there just spreads ... Treating sound as a physical material was only really possible from the time of recording onwards. As soon as people started making recordings, they took sound out of time and put it into space. It goes from being transitory and ephemeral to being something you can almost handle. I call that the materialisation of music. So everything I've been doing, really, has been to do with realising sound can be a material: if you're now thinking about a building, this can be one of the materials you can consider.

CLS: Ha-Joon, what do you make of the success in the west now of Korean pop: K-pop?

HJC: Gangnam Style! Initially a lot of it was really bad imitation of what was going on in Britain and America, but now they've found their own voice. Watch this space, because I think there'll be more interesting stuff coming out of it.

BE: Nearly everything good starts from imitation.

HJC: It's actually a good illustration of how art can be done in a very non-hierarchical way. The success of this guy, Psy, is because he didn't try to protect his work too much: he let everyone copy and create their own versions. So you have versions with Voldemortfrom Harry Potter ... my children are hooked on finding Matrix versions. Some are actually brilliant!

BE: It's a brilliant idea to make something that, like a module, can be plugged into any part of the culture.

CLS: Ha-Joon, in your book you write about different varieties of capitalism.

HJC: One of the general themes is that there are many different ways of organising the system. Different countries do things in different ways. Types of capitalism have different strengths and weaknesses. The problem is that in the last 30 years, we've been told there's only one way of organising capitalism, and it's the American-style free-market way. Countries are put under pressure and they have to rely on, especially if they're poor, foreign aid from rich countries, or they have to borrow money from the IMF. It's one of the reasons this crisis has happened.

There have been a lot of discussions about what needs to change, but there's been a lot of resistance, and popular sentiment hasn't been as coherent as it would have been in an age with strong trade unions and so on.

I'm not too hopeful. But if not now, when? If you can't learn the lessons from the biggest financial crisis in three generations, then we have a problem.

CLS: Ought culture try and shape the debate, or is that not its role? Brian, you've taken a stand on a number of political issues.

BE: I think the way culture changes things is slightly different from that. I've always disliked propaganda and shied away from artists' using their ability to manipulate emotional triggers – which is what artists do - in support of a political message, because I think it's a trick. I would like people to agree with me because they agree with my arguments, not because I'm good at music. So if I take a position publically, of course I get attention because I'm known through my music, but I don't try to support the position in that way.

Culture does change the way we think, just not in the propagandistic way. Art can be a model of how otherwise something could be done. How else it could be? When you see a piece of art, and you think, "Wow, that's wonderful", part of you wants to know, "And how did it get to be that way? Ah, it got to be that way by that mechanism. This is how it's done."

To give you an example of something I don't particularly respond to myself: Jackson Pollock was the expression of a philosophy, and that philosophy said, "If I just let it all come out of here and I'm not going to try to control it all, that's going to work." I don't particularly agree with it. But that picture is a way of thinking about that idea. And very often a work of art is a way of looking at the outcomes of an idea. It's very clear in novels – in fact, the most clear example is in science fiction: you describe a world, and you try to describe how if things were like that, they would turn out. That "what if?" question is a central question that makes human beings successful creatures. We are capable of saying what if this, and what if that, and comparing those outcomes. We love that question, and art is one of the ways we keep rehearsing our ability to answer it.

HJC: It's a great point. The problem is more with the way people think and not the content of it. Human beings are very prone to this black-and-white dichotomous thinking, so if you're a socialist country you allow no market and squash any dissent, if you're a capitalist country you're supposed to – although in fact, many countries don't – you're supposed to put profit and economic growth before any human values. But paradoxically, these two ways of thinking are the same, in the sense that they have this one grand principle to which they are willing to sacrifice everything. This is why when many communists give up communism, they become ardent free-market supporters.

BE: It's a cliche: the ex-Trot.

HJC: I know quite a few ex-Trots who work in the IMF. So if you understand art in the same way Brian does, it gives you the ability to think about alternatives, think about possibilities.

BE: It allows you to think about uncertainty. One of the characteristics of people, whether on the left or the right, is that they can't tolerate uncertainty. They don't want a system with any leaks in it. They want to think they're capable of battening everything down – and if only people would fucking stick to the rules, it would work. When those systems don't work, it's always because, in their opinion, somebody didn't play the game correctly.

HJC: Yes, it's never their principles that are wrong, it's the people who are the problem.

BE: This is why so many rightwing Americans still say Iraq would have been a good war, if only we had sent in more troops in the beginning, if only we'd done this or we'd done that … They will not admit that Iraq wasn't a good war.

CLS: There is explicitly political art – look at the case of Pussy Riot at the moment, for example. So there's a range of ways of going about things.

BE: Well, of course there's a complete spectrum. Although I do often wonder how much of the politics of Pussy Riot the people who support them understand.

HJC: As a consumer, I don't create art, but I think whatever the message is, art has to touch you. I like all kinds of music – classical, pop, rock, electronic. Somehow, as a consumer, you know when something is good and when something is bad.

CLS: It's interesting that you use the word "consumer" – that we live in a world now in which art is something you consume, not something you practise. Art becomes a ready-made lifestyle.

HJC: Yes, but I took two years of piano lessons when I was seven and eight, and that was it.

BE: That's more than I took.

All Indians must have the courage to face up to our past and present

By Anil Dharker

Was V S Naipaul right or was Girish Karnad right? The sound and fury generated by the controversy at Literature Live!, Mumbai’s literary festival, has obscured one important aspect of our national life: we are afraid of our own history.




Let’s recap for a moment how the controversy began. Naipaul was given the Landmark Lifetime Achievement Award at the festival. This aroused Karnad’s ire: the award should not have been given, he said, because Naipaul was anti-Muslim . In his non-fiction books, Naipaul’s stance, according to Karnad, is to depict Indian Muslims as “raiders and marauders” and so, in effect, Naipaul has “criminalised a whole section of the Indian population as rapists and murderers.” “I have Muslim friends and I feel strongly about this,” Karnad added.



I have Muslim friends too, and i feel strongly as well, not about our shared history but about the state of the community in our country today. That feeling has been strong enough for me to be a trustee of Citizens for Justice and Peace, an NGO which (among other things) has taken up multiple cases on behalf of the Muslim victims of the 2002 Gujarat massacre. As a direct result, many people including Maya Kodnani , a former minister in the Modi government and Babu Bajrangi, the Bajrang Dal leader, have been sentenced to long prison terms. My strong feelings, therefore , are not just emotional but take the practical shape of righting today’s wrongs.



But should that blind me to our history? Right from the 12th to the 15th century, Afghan and Central Asian invaders like Mohammad Ghori and Mahmud Ghaznavi came as marauders and plunderers: they came to loot (places like the Somnath temple were immensely rich and obvious targets ), and even to destroy local religions like Hinduism and Buddhism. The sacking and burning in 1193 by the Turk, Bhaktiyar Khilji of the Nalanda library, one of the greatest places of learning, and whose collection of books was so extensive that it took three months to be gutted, is a case in point. Hampi, which is now a Unesco Heritage site, was burned down by the Bahamanis , an act of vandalism which took days. Later, the Mughals led by Babar may have come, not as raiders but as settlers, but they did proselytize. Emperor Aurangzeb’s depredations were extensive and go far beyond the Shivnath temple: when you think that Ahilyabai Holkar rebuilt as many as 350 temples in and near Varanasi, you realize how far-reaching the damage was.

This is a rather jumbled, and hurried look at our history, but it makes the point that in spite of the enlightened rule of emperors like Akbar (notably), Jehangir and Shahjahan, a great deal of the nation’s heritage was wilfully destroyed by Afghan, Turk, Central Asian and Mughal invaders and rulers. You can overstate the case, as Naipaul does, by seeing in the Taj Mahal only the ‘blood and sweat of slave labour’ (you can say that of the pyramids too), but that’s only overstating the case, not making one up. By stating it, you do not become anti-Muslim.



That’s the important point. Girish Karnad , like a lot of secularists who want to see present-day India live in a harmonious blend of communities, bends over backwards to gloss over the negative aspects of Islam in our history, because of the harm this reiteration can cause to present-day Muslims. (In his attack on Naipaul, for example , Karnad said off-handedly , “Oh, I do admit some temples and monuments may have been destroyed by the Mughal".

I belong to that group of secularists too, and i would not be writing this article if it weren’t for the recent controversy. But we need to remind ourselves about something that should be obvious: Yes, it’s true there was a Ram temple where the Babri Masjid stands; yes, it’s true that the temple was demolished and a mosque built on the site-… But it’s also true that over the many years after this happened, not too many people were bothered either about the now-decrepit mosque, nor the once existing temple until L K Advani and the BJP made it an issue to revive its electoral chances. The Babri Masjid demolition and the subsequent riots did not happen because people like Naipaul wrote their versionsof history.



Sadly, the laudable wish to ensure that today’s Muslims are not victimized any more than they are, also prevents secularists from lashing out at the pronouncements and actions of the ultra-orthodox in the community, for example the recent edict banning women from entering the sanctum of Mumbai’s Haji Ali dargah. Our silence only helps those in the minority community who stop it from moving into modernity. It’s something we need to face squarely, as squarely as we need to face our history.