George Monbiot
In the documentary series which finished on Friday evening, the heiress Tamara Ecclestone set out to prove that she isn't "a pointless, quite spoilt, really stupid, vacuous, empty human being". This endeavour was not wholly successful. Channel 5 showed her supervising the refurbishment of her £45m home in London, in which she commissioned a £1m bathtub carved from Mexican crystal, an underground swimming pool complex, her own nightclub, a lift for her Ferrari, a bowling alley with crystal-studded balls and a spa and massage parlour for her five dogs, to save her the trouble of taking them to Harrods to have their hair sprayed and their nails painted. But there was something the series didn't tell us: how much of this you helped to pay for.
In court a fortnight ago, her father, the Formula One boss Bernie Ecclestone, revealed that the fact his family's offshore trust, Bambino Holdings, was controlled by his ex-wife rather than himself could have saved him "in excess of £2bn" in tax. The name suggests that the trust could have something to do with supporting his daughter's attempt to follow the teachings of St Francis of Assisi.
Ecclestone has also been adept at making use of the corporate welfare state: the transfer by the government of wealth and power from the rest of us to the 1%. After the mogul made a donation to Labour's election fund, Tony Blair demanded that F1 be exempted from the European Union's ban on tobacco sponsorship. The government built a new dual carriageway to the F1 racetrack at Silverstone.
In other countries his business has received massive state subsidies. Russia, for example, has recently agreed to build a circuit for Ecclestone to race his cars, and then charge itself $280m for the privilege of letting him use it. Working in India in 2004, I came across the leaked minutes of a cabinet meeting in which the consultancy McKinsey insisted that the desperately poor state of Andhra Pradesh – where millions die of preventable diseases – cough up between £50m and £75m a year to support F1. The minutes also revealed that the state's chief minister had lobbied the prime minister of India to exempt Ecclestone's business from the national ban on tobacco advertising.
Socialism for the rich, capitalism for the poor: that is how our economies work. Those at the bottom are subject to the rigours of the free market. Those at the top are as pampered and protected as Tamara Ecclestone's dogs.
On Tuesday George Osborne decided at last to review the private finance initiative (PFI), under which the companies building public infrastructure made stupendous profits while the state retained the risks. But if you thought that the chancellor's decision represented a wider shift in policy, you'll be sorely disappointed. Two days later he agreed to sell the state-owned bank Northern Rock to Richard Branson. Under the deal, the state keeps the liabilities while Branson gets the assets – rather like PFI. The loss equates to £13 for every taxpayer.
Someone who will not suffer unduly from being touched for £13 is Matt Ridley. As chairman of Northern Rock, he was responsible, according to the Treasury select committee, for the "high-risk, reckless business strategy" which caused the first run on a UK bank since 1878. Before he became chairman, a position he appears to have inherited from his father, Ridley was one of this country's fiercest exponents of laissez-faire capitalism. He described government as "a self-seeking flea on the backs of the more productive people of this world … governments do not run countries, they parasitise them."
The self-seeking parasite bailed out his catastrophic attempt to put his ideas into practice, to the tune of £27bn. What did the talented Mr Ridley learn from this experience? The square root of nothing. He went on to publish a book in which he excoriated the regulation of business by the state's "parasitic bureaucracy" and claimed that the market system makes self-interest "thoroughly virtuous".
Having done his best to bankrupt the blood-sucking state, he returned to his family seat at Blagdon Hall, set in 15 square miles of farmland, where the Ridleys live – non-parastically of course – on rents from their tenants, handouts from the common agricultural policy and fees from the estate's opencast coal mines. No one has been uncouth enough to mention the idea that he might be surcharged for part of the £400m loss Northern Rock has inflicted on the parasitic taxpayer. It's not the 1% who have to carry the costs of their cockups.
Even in the midst of this crisis, when the poor are being hammered on all sides, the government still seeks to transfer their meagre resources to the rich. Last month the business department listed five employment rules that businesses might wish to challenge. Among them were the national minimum wage and statutory sick pay.
On Friday, David Cameron opened negotiations with Angela Merkel over the eurozone crisis. His two principal demands were that there should be no "Robin Hood tax" on financial transactions and that the working time directive, which prevents companies exploiting their staff, should be renegotiated.
Just as instructive was what he did not discuss. In fact, as far as I can tell, none of the European leaders have yet mentioned it in their summits, even though it accounts for almost half the EU's spending. It is of course the agricultural subsidy system, which now costs British taxpayers £3.6bn a year.
We like to imagine this money supports wizened shepherds who tie up their trousers with bailer twine, but the major beneficiaries are people like the Ridleys. The more land you own, the more support you receive from the state.
The common agricultural policy is a massive state subsidy to the richest people in Europe: the aristocrats and plutocrats who possess the big holdings. British politicians pretend that it is protected only by the French. This is bunkum: in February a House of Commons committee demanded not only that the existing subsidy system be sustained but also that we should reinstate headage payments, encouraging farmers to produce food nobody wants.
Last week the Guardian exposed a system which looks like state-enforced slavery. To qualify for the £53 a week they receive in jobseeker's allowance, young people are being forced to work without pay for up to eight weeks for companies such as Tesco, Poundland, Argos and Sainsbury. Some of the nation's poorest people, in other words, are being obliged by the state to subsidise some of its richest businesses, by giving them their labour.
For the corporate welfare queens installing their crystal baths, there is no benefit cap, no obligation to work, in some cases no taxation. Limited liability, offshore secrecy regimes, deregulation and government handouts ensure that they bear none of the costs their class has inflicted on the rest of us. They live at our expense, while disparaging the lesser mortals who support them.
A fully referenced version of this article can be found on wwwmonbiot.com
Tuesday 22 November 2011
The billionaire Virgin boss Richard Branson is no radical, he's no entrepreneur, he's just a plain old-fashioned carpetbagger
Last week, you, me and every other taxpayer in Britain each handed £13 to the billionaire Richard Branson. Not that we were told about this national whip-round. Instead, George Osborne claimed the heavily discounted sale of Northern Rock to the Virgin boss and a few of his chums represented "value for money". That's a funny way to describe a deal where taxpayers come out at least £400m poorer, but at least we now have an answer to that perennial pre-Christmas question of what to give the man who has everything.
And what do Team Branson plan to do with the Rock? Listen to Virgin Money chairman David Clementi's talk of creating "a significant banking competitor" and you'd have come away with wholesome impressions of commitment and investment. If you'd leafed through the FT this weekend, though, you'd have read about how the Virgin consortium will raid the business of its own cash to pay for the purchase – and then, as the chief investor, American financier Wilbur Ross, puts it: "We would hope to sell out a few years down the road." In other words, the business plan is to buy it cheap, strip it of assets – then flog it dear.
Hang on, you're probably thinking. Is this the same Branson who had those record shops? Who always pops up in the papers dressed as a woman or riding in a hot air balloon? Sir Richard of the Beard and the Overbite?
And the answer is: yes. Sure, Branson would like you to believe that he's the greatest iconoclast since John Calvin, leading a Reformation of established business. And if you won't buy that, he'll settle for being cast as a public-school Don Quixote for ever tilting at insiders and interest groups. Yes, the entrepreneur screws up – as with cars, cola, cosmetics and all those other discarded Virgins – but he takes risks.
The more prosaic truth is that the Virgin boss keeps himself in homes in Holland Park and Necker Island by taking taxpayer subsidies and operating heavily protected businesses. After all, you don't get much safer than a small mortgage lender that's had all its rubbish assets taken off it by the Treasury, in a market where the big banks are keeping their eyes down and their fingers crossed.
Think about the great Branson triumphs and you'll see what I mean. Virgin Rail? A monopoly on the West Coast main line, complete with initial subsidies worth hundreds of millions. Virgin Radio and Virgin Mobile? Both granted government licences to operate in a heavily restricted market. Virgin Airlines? The beneficiary of regulators' decision to strip British Airways of landing slots between London and New York and award them to the number two player. Again, a closed market where Branson has tried to keep the door shut tight against further competition.
Despite all the awards and the cosy relationships with whoever's in Downing Street, the Virgin boss neither makes anything, nor changes anything. He's no radical. The Northern Rock purchase is typical of his style: he fronts up a deal where the real money tends to come from someone else (in this case, an American and an Abu Dhabi investment firm), slaps the Virgin name everywhere and then cashes out as soon as possible. Branson isn't an entrepreneur; he's a carpetbagger.
Early in Tom Bower's splendid biography of Branson, there is a scene in which he is giving a Millennium Lecture at Oxford University in November 1999. The "lighthouse for enterprise" is asked what his great hope is for the new century, and a hush falls over the audience. What might he say? Were this Bill Gates, a picture would be painted of a software revolution. The head of Nissan might summon up a vision of Africans and Asians gaily pootling about in cheap new hatchbacks. What does the bearded visionary have in mind? "To run the national lottery."
Of course he does: a government-gifted licence to get his brand name plastered everywhere – the sort of thing Branson is always after.
But here's the thing: in his desire for sheltered money-makers, the Virgin boss differs from the rest of British business only in his desire for publicity. Look at our household names: take out retail, banks and commodities and the things you're left with bear names such as Wessex Water or Centrica or Arriva. In other words, they do things the public sector used to do – pump water or pipe gas or lay on public transport. Alternatively, they're outfits such as Serco, or Capita and they're bidding for contracts from the government; or they're engineers bidding for PFI projects. Now look at the big names in America or Germany: there are firms such as Google or Siemens.
Over here much of the private sector isn't adding anything or innovating – indeed, it's tricky to do that when you're running an administrative office or supplying water. They're simply taking contracts and cutting staffing costs.
This is a picture of lazy British business, either seeking business from the state or the protection of sheltered industries. And yet if you listen to the Conservatives, the problem with the economy is that the labour markets are too heavily regulated. No 10 lets it be known that it's taking seriously ideas to scrap laws around unfair dismissal, so that employees can be sacked without explanation.
The implication of all this is that Cameron and Osborne think the workers are to blame for the malaise of the British economy. Look at the Northern Rock deal, however, or flick through the business pages, and the opposite appears to be the case: it's business that needs to be prodded into working harder.
And what do Team Branson plan to do with the Rock? Listen to Virgin Money chairman David Clementi's talk of creating "a significant banking competitor" and you'd have come away with wholesome impressions of commitment and investment. If you'd leafed through the FT this weekend, though, you'd have read about how the Virgin consortium will raid the business of its own cash to pay for the purchase – and then, as the chief investor, American financier Wilbur Ross, puts it: "We would hope to sell out a few years down the road." In other words, the business plan is to buy it cheap, strip it of assets – then flog it dear.
Hang on, you're probably thinking. Is this the same Branson who had those record shops? Who always pops up in the papers dressed as a woman or riding in a hot air balloon? Sir Richard of the Beard and the Overbite?
And the answer is: yes. Sure, Branson would like you to believe that he's the greatest iconoclast since John Calvin, leading a Reformation of established business. And if you won't buy that, he'll settle for being cast as a public-school Don Quixote for ever tilting at insiders and interest groups. Yes, the entrepreneur screws up – as with cars, cola, cosmetics and all those other discarded Virgins – but he takes risks.
The more prosaic truth is that the Virgin boss keeps himself in homes in Holland Park and Necker Island by taking taxpayer subsidies and operating heavily protected businesses. After all, you don't get much safer than a small mortgage lender that's had all its rubbish assets taken off it by the Treasury, in a market where the big banks are keeping their eyes down and their fingers crossed.
Think about the great Branson triumphs and you'll see what I mean. Virgin Rail? A monopoly on the West Coast main line, complete with initial subsidies worth hundreds of millions. Virgin Radio and Virgin Mobile? Both granted government licences to operate in a heavily restricted market. Virgin Airlines? The beneficiary of regulators' decision to strip British Airways of landing slots between London and New York and award them to the number two player. Again, a closed market where Branson has tried to keep the door shut tight against further competition.
Despite all the awards and the cosy relationships with whoever's in Downing Street, the Virgin boss neither makes anything, nor changes anything. He's no radical. The Northern Rock purchase is typical of his style: he fronts up a deal where the real money tends to come from someone else (in this case, an American and an Abu Dhabi investment firm), slaps the Virgin name everywhere and then cashes out as soon as possible. Branson isn't an entrepreneur; he's a carpetbagger.
Early in Tom Bower's splendid biography of Branson, there is a scene in which he is giving a Millennium Lecture at Oxford University in November 1999. The "lighthouse for enterprise" is asked what his great hope is for the new century, and a hush falls over the audience. What might he say? Were this Bill Gates, a picture would be painted of a software revolution. The head of Nissan might summon up a vision of Africans and Asians gaily pootling about in cheap new hatchbacks. What does the bearded visionary have in mind? "To run the national lottery."
Of course he does: a government-gifted licence to get his brand name plastered everywhere – the sort of thing Branson is always after.
But here's the thing: in his desire for sheltered money-makers, the Virgin boss differs from the rest of British business only in his desire for publicity. Look at our household names: take out retail, banks and commodities and the things you're left with bear names such as Wessex Water or Centrica or Arriva. In other words, they do things the public sector used to do – pump water or pipe gas or lay on public transport. Alternatively, they're outfits such as Serco, or Capita and they're bidding for contracts from the government; or they're engineers bidding for PFI projects. Now look at the big names in America or Germany: there are firms such as Google or Siemens.
Over here much of the private sector isn't adding anything or innovating – indeed, it's tricky to do that when you're running an administrative office or supplying water. They're simply taking contracts and cutting staffing costs.
This is a picture of lazy British business, either seeking business from the state or the protection of sheltered industries. And yet if you listen to the Conservatives, the problem with the economy is that the labour markets are too heavily regulated. No 10 lets it be known that it's taking seriously ideas to scrap laws around unfair dismissal, so that employees can be sacked without explanation.
The implication of all this is that Cameron and Osborne think the workers are to blame for the malaise of the British economy. Look at the Northern Rock deal, however, or flick through the business pages, and the opposite appears to be the case: it's business that needs to be prodded into working harder.
Monday 21 November 2011
Love at 50: Never too old for a live-in!
Times of India - 21-11-2011
AHMEDABAD: The Mehndi Nawaz Jung Hall, one of the oldest auditoriums in Ahmedabad, could well become the ground zero of a social revolution in India.
Such was the success of the country's first live-in mela for 50-plus people here on Sunday that the organizers have now decided to hold it in Bhopal, Pune, Delhi, Kolkata and Mumbai in the next six months. At least seven couples from as far away as Assam, Karnataka and Gujarat found prospective live-in partners during the event. Many of them are planning to go on dates for a few days before they finally start living in.
"Some call our event radical, but we see it as the new thought," said Natubhai Patel, founder of Vina Mulya Amulya Seva, the NGO which organized the mela. Patel will take the live-in couples to Rajpipla on a picnic next month, where they can spend some private time.
Among the lucky ones on Sunday was Jeetendra Brahmbhatt, 62, a widower from Ahmedabad, who felt butterflies in his stomach when he met Ami Pandya, 52, a divorcee. "I have all the luxuries in life, but I wanted somebody to share my feelings with and find an emotional connect," said Brahmbhatt."I need someone whom I can enjoy life with, go shopping and watch movies," said Pandya, who had brought her 25-year-old daughter along. Brahmbhatt is a consultant to an MNC, and his son is a successful professional in Tokyo. The duo will date for a few days.
"At my age, sex is not a consideration. What I need is company, a person with whom I can live with for the rest of my life," said Natu Thakkar, 60, who owns a rice mill in Bavla, and found a livein partner in Jyotsna Dave, 53.
More than 350 people, including 70 women, turned up at event seeking to explore live-in relationship. People from Delhi, Assam, Punjab, Madhya Pradesh, Tamil Nadu, West Bengal, Karnataka, Maharashtra and even NRIs came in the hope of finding companionship. The maximum entries were from Gujarat, especially small towns where the elders have been left alone by their kin settled abroad. If this experiment is successful, live-in may not be a taboo word in the country.
The event drew enthusiastic participation, with women seen decked up with make-up and expensive saris and men attired in formals and suits.
Participants came from all walks of life: from journalists to businessmen, from singers to company directors, and from farmers to teachers. The process was simple - every participant came on to the stage wearing a numbered badge and information about him or her was provided by the announcer. The details announced included age, caste, education, employment profile and financial standing. Participants were asked to note the numbers of potential matches.
After introductions, the women were given the power to call the shots. They met prospective matches for five minutes each and exchanged pleasantries and information. Once this was done, participants stated their preference and pairs were announced. Organizers had laid two rules: participants had to be financially settled and had to have secured the consent of their children, if any, for the process.
"While some took the decision pretty quickly about probable partners, others weighed all available options," said an organizer of the event. "Interestingly, most participants stated that they had come to the event to find a friend and a companion in the evening of life and thus caste or age was no bar." Indeed, many participants ventured out of their comfort zone and explored matches from other castes and age groups.
Hindus, Muslims, Sikhs, Christians and Parsis attended the event. Mohammed Ismail Shaikh, 56, a resident of Jivraj Park, Vejalpur, told TOI: "After the demise of my wife, I was feeling lonely." He said his children were busy with their careers.
Prabhat Rawal, 78, had come from Veraval. "Some laughed at the idea and asked why this at such an age but I say, why not," Rawal said. "I am well-off financially and want to enjoy the remaining years of my life with someone."
It's not about sex
20 November 2011, 03:02 PM IST
The truth is: People today have illicit sex all the time, and many among us have it among our own gender. No one quite knows how this promiscuity came about. Some blame popular culture. Others say, our popular culture merely mirrors the way we actually are. It's stupid to expect that our politicians will be any different from us. If they were, it will only make them worse. If you ask me, it's their sexual pursuits that make them human. Take that out and all you are left with is just greed: An obsessive greed for money and power. Grabbed, not earned.
So what bothers me is not sex. Not even sleaze. For one man's sleaze is another's pleasure. What bothers me is where many of these sexual encounters eventually lead. They seldom remain just encounters between consenting adults, as all sex ought to be, licit or illicit. They spiral down into a dark hell of depravity, violence and crime. Crime so brutal that the sexual part of it seems like just a minor distraction.
The abduction and possible murder of Bhanwri Devi, a small town nurse who was having an affair with a minister, recently caused so much upheaval that the Rajasthan Chief Minister had to dump his entire cabinet. The Gehlot ministry was never much known for its rectitude and efficiency. But what dropped it wasn't its corruption or its ineptitude. What dropped it was a horrible story of deceit, extortion, abduction, and (in all likelihood) murder. For Bhanwri Devi, who was in the eye of the storm, is now missing and was last seen abducted by hired goons with a contract to kill.
It's not just Bhanwri Devi. Every day you read about many such cases. The starting point may be sex. Or sexual attraction. But where it leads to is unspeakable hell. Acid attacks. Slashing. Abductions. Brutal violence. Khap incited murders. It is one endless spiral of horror with each story worse than the other. At the heart of it all is just one obsession: Sexual dominance. Power.
What disturbs me is the fact that sex, one of the most wonderful things India taught the world to celebrate, is now just another instrument of power men keep using to harass, intimidate, dominate, and commit violence on women. So girls wearing jeans are attacked outside their colleges. So are girls drinking in bars. Or out on dates. When the men accompanying them try to resist, they are stabbed, murdered. Mumbai is still reeling under the impact of the ghastly killing of two young men, Keenan and Reuben, who tried to protect their girlfriends from being molested by a bunch of local hoods. There is that horrible case of a policeman who picked up a college girl on Marine Drive where she was sitting with one of her classmates and raped her in the police chowky right there, in broad daylight.
No, it has nothing to do with sex. This is about power. Sex is only a pretext. The obsession with power leads to such disgusting, violent crime. It shows how perverse our notion of manhood is, how emasculated we are as men that we seek to prove our manhood by attacking helpless women. Or try to disempower them by idiotic laws that seek to prevent them from working in bars beyond 9 pm. As the demand for greater representation in politics from women's groups grows, so does the violence. You see it even in the virtual world these days. Women are constantly harassed, intimidated, stalked on the net.
But don't discredit sex for this. Discredit the genes that make us men believe every woman is easy game. And when she says no, she must be taught a lesson. No, it's never about sex. It's only about power. And the abuse of power is what politics is all about.
Saturday 19 November 2011
To secure credit, Europe finds global financial markets no longer attuned to Western interests
Joergen Oerstroem Moeller
The eurozone crisis has not only raised questions about the viability of the common currency, but could also jeopardize an economic model that has so far reigned supreme. The course taken to resolve the crisis in Europe will have long-term impact on the most vibrant parts of the world – from Asia to Latin America.
In developed countries of the West, debtors have run up a high debt ratio to gross domestic product, even while economic growth was high – overspending when they should have saved. They borrowed to spend more, demonstrating a disastrous failure to grasp basic economic principles as well as flaws in moral behaviour and ethical judgment. Among these borrowers are established heavyweights – the United States, most European nations and Japan. The United States, one of the wealthiest countries, became an importer of capital instead of exporting capital, registering its last balance vis-à-vis the rest of the world in 1991.
After accumulating savings over several decades through prudent and cautious policies, the creditors sit on a large pile of reserves with low domestic debt and government deficits. These reserves are largely held by emerging countries with China at the forefront. As a paradox, the emerging economies have taken it upon themselves to lend to the richer countries – exporting capital almost as vendor’s credit. Indeed, this reversal of roles is one explanation for the global financial crisis. The global monetary system is not geared to function under such circumstances.
This development was framed by the so-called Washington Consensus of the 1980s – a neoliberal formula that spurred globalisation by promoting liberalization of trade, interest rates and foreign direct investment; privatisation and deregulation; as well as competitive exchange rates and fiscal discipline. Fundamental flaws were exposed, raising the question about which economic model might replace it.
There are two possibilities in this competition: One strategy is from the United States and a group of Democrats who suggest that more short-term borrowing and spending could lead to growth, tax revenues and exit from recession – even if the debt grows and deficits become permanent. A breakthrough by the US Congressional super-committee to make substantial cuts over the next 10 years won’t fundamentally change this stance, merely reducing rather than eliminating the deficit. The Europeans have taken the opposite view: They advocate starting the recovery by reducing deficits and debt even if that seems counterproductive for economic growth in the short run. The Europeans are also raising taxes across the board, regarded as indispensable for restoring balance in government budgets.
The results of either plan won’t be known for a few years. Chances are, however, that the European policy will carry the day for the simple reason that creditors call the tune. It’s highly unlikely that creditors favour continued reliance on deficits as the inevitable consequence will be inflation, eroding the purchasing power of their reserves. Indeed, the Chinese rating agency Dagong has announced that it may cut the US sovereign rating for the second time since August if the US conducts a third round of quantitative easing.
Early in the crisis, as Europe set up a stabilizing bailout fund, there were rumours in the market that China, Russia and Japan might rescue of the euro, either by buying European bonds or going through the International Monetary Fund. It’s unclear how China wants to proceed with such an undertaking, but Russia and Japan have allegedly acted to do that through the International Monetary Fund or by buying European bonds.
Countries with surpluses do not dream of rescuing the euro; they act in their own interest. Economically they prefer the European fiscal discipline, reasoning that American prodigality will shift much burden of adjustment onto them. They may dread being left with the US dollar as the only major international currency, forcing them to endure, at times, whimsical policy decisions by the Federal Reserve System, the US Treasury Department or US Congress. The euro and the European Union are seen, and indeed needed, as a counterweight. The EU may look weak, but it’s a respectable global partner, offering the euro as an alternative to the dollar and serving as a major player in trade negotiations and the debate about global warming, just to mention a few examples.
It can be expected that other nations will step forward to support the euro. But at what price? What conditions, if any, will be put on the table and will the Europeans consent? A case can be made that, as creditors undertake investments to help the euro, they actually help themselves, and there are no reasons why the eurozone should pay any price. We can expect a game of hardball, in which nerves matters, and who gives what to whom may not be clear at all.
Another question has arisen about who decides and who is in charge. The G20 meeting in Cannes revealed a growing consensus to stop the financial houses amassing and subsequently abusing power. If the global financial system is big enough to force Italy into a default-like situation, many countries are surely asking whether they’ll be next. The big financial houses are viewed by many as irresponsible stakeholders, if stakeholders at all. Consider, the US government is suing 18 banks for selling US$ 200 billion in toxic mortgage-backed securities to government-sponsored firms, the Federal National Mortgage Association and the Federal Home Mortgage Corporation, known as Fannie Mae and Freddie Mac. In April 2011 the European Commission initiated investigations into activities of 16 banks suspected of collusion or abuse of possible collective dominance in a segment of the market for financial derivatives.
The market has muscled its way in as judge about whether a country’s political system or economic policy are good enough. But the market is neither a single institution nor a broad, balanced mix of diverse players. It’s become a small group of large financial institutions, the power of which overwhelm what even big countries can muster: 147 institutions directly or indirectly control 40 percent of global revenue among private corporations. A sore point is that they pursue profits without concern over implications for countries and societies. Rather than let measures work, these financiers force the issue here and now, even as they speculate against efforts, many admittedly delayed and inadequate, to resolve debt crises. Financial institutions holding sovereign bonds that could default insure themselves by buying a credit default swaps. What seems like prudent corporate governance becomes a shell game as these obligations are traded among financial institutions, some of which don’t hold sovereign bonds in their portfolios – all of which heightens interest in forcing default.
The temptation to roll back economic globalisation inter alia by breaking up the eurozone or restricting capital movements has been resisted. Economic globalisation is holding firm.
Creditor countries can set the course on future economic policies – likely highlighting fiscal discipline. While the West had vested interest in the big financial houses, the incoming paymasters do not, and they can be expected to increase their control over investment patterns. This can be done either by setting up own financial houses or buying into Western financial institutions as was the case in the slipstream of the 2008 global debt crisis.
The global financial market is changing course, away from looking after Western interests and acting in accordance with corporate governance as defined by the West toward a more global outlook guided by the interests of new group of creditors.
Joergen Oerstroem Moeller is a visiting senior research fellow, Institute of Southeast Asian Studies, Singapore, and adjunct professor, Singapore Management University and Copenhagen Business School.
The eurozone crisis has not only raised questions about the viability of the common currency, but could also jeopardize an economic model that has so far reigned supreme. The course taken to resolve the crisis in Europe will have long-term impact on the most vibrant parts of the world – from Asia to Latin America.
In developed countries of the West, debtors have run up a high debt ratio to gross domestic product, even while economic growth was high – overspending when they should have saved. They borrowed to spend more, demonstrating a disastrous failure to grasp basic economic principles as well as flaws in moral behaviour and ethical judgment. Among these borrowers are established heavyweights – the United States, most European nations and Japan. The United States, one of the wealthiest countries, became an importer of capital instead of exporting capital, registering its last balance vis-à-vis the rest of the world in 1991.
After accumulating savings over several decades through prudent and cautious policies, the creditors sit on a large pile of reserves with low domestic debt and government deficits. These reserves are largely held by emerging countries with China at the forefront. As a paradox, the emerging economies have taken it upon themselves to lend to the richer countries – exporting capital almost as vendor’s credit. Indeed, this reversal of roles is one explanation for the global financial crisis. The global monetary system is not geared to function under such circumstances.
This development was framed by the so-called Washington Consensus of the 1980s – a neoliberal formula that spurred globalisation by promoting liberalization of trade, interest rates and foreign direct investment; privatisation and deregulation; as well as competitive exchange rates and fiscal discipline. Fundamental flaws were exposed, raising the question about which economic model might replace it.
There are two possibilities in this competition: One strategy is from the United States and a group of Democrats who suggest that more short-term borrowing and spending could lead to growth, tax revenues and exit from recession – even if the debt grows and deficits become permanent. A breakthrough by the US Congressional super-committee to make substantial cuts over the next 10 years won’t fundamentally change this stance, merely reducing rather than eliminating the deficit. The Europeans have taken the opposite view: They advocate starting the recovery by reducing deficits and debt even if that seems counterproductive for economic growth in the short run. The Europeans are also raising taxes across the board, regarded as indispensable for restoring balance in government budgets.
The results of either plan won’t be known for a few years. Chances are, however, that the European policy will carry the day for the simple reason that creditors call the tune. It’s highly unlikely that creditors favour continued reliance on deficits as the inevitable consequence will be inflation, eroding the purchasing power of their reserves. Indeed, the Chinese rating agency Dagong has announced that it may cut the US sovereign rating for the second time since August if the US conducts a third round of quantitative easing.
Early in the crisis, as Europe set up a stabilizing bailout fund, there were rumours in the market that China, Russia and Japan might rescue of the euro, either by buying European bonds or going through the International Monetary Fund. It’s unclear how China wants to proceed with such an undertaking, but Russia and Japan have allegedly acted to do that through the International Monetary Fund or by buying European bonds.
Countries with surpluses do not dream of rescuing the euro; they act in their own interest. Economically they prefer the European fiscal discipline, reasoning that American prodigality will shift much burden of adjustment onto them. They may dread being left with the US dollar as the only major international currency, forcing them to endure, at times, whimsical policy decisions by the Federal Reserve System, the US Treasury Department or US Congress. The euro and the European Union are seen, and indeed needed, as a counterweight. The EU may look weak, but it’s a respectable global partner, offering the euro as an alternative to the dollar and serving as a major player in trade negotiations and the debate about global warming, just to mention a few examples.
It can be expected that other nations will step forward to support the euro. But at what price? What conditions, if any, will be put on the table and will the Europeans consent? A case can be made that, as creditors undertake investments to help the euro, they actually help themselves, and there are no reasons why the eurozone should pay any price. We can expect a game of hardball, in which nerves matters, and who gives what to whom may not be clear at all.
Another question has arisen about who decides and who is in charge. The G20 meeting in Cannes revealed a growing consensus to stop the financial houses amassing and subsequently abusing power. If the global financial system is big enough to force Italy into a default-like situation, many countries are surely asking whether they’ll be next. The big financial houses are viewed by many as irresponsible stakeholders, if stakeholders at all. Consider, the US government is suing 18 banks for selling US$ 200 billion in toxic mortgage-backed securities to government-sponsored firms, the Federal National Mortgage Association and the Federal Home Mortgage Corporation, known as Fannie Mae and Freddie Mac. In April 2011 the European Commission initiated investigations into activities of 16 banks suspected of collusion or abuse of possible collective dominance in a segment of the market for financial derivatives.
The market has muscled its way in as judge about whether a country’s political system or economic policy are good enough. But the market is neither a single institution nor a broad, balanced mix of diverse players. It’s become a small group of large financial institutions, the power of which overwhelm what even big countries can muster: 147 institutions directly or indirectly control 40 percent of global revenue among private corporations. A sore point is that they pursue profits without concern over implications for countries and societies. Rather than let measures work, these financiers force the issue here and now, even as they speculate against efforts, many admittedly delayed and inadequate, to resolve debt crises. Financial institutions holding sovereign bonds that could default insure themselves by buying a credit default swaps. What seems like prudent corporate governance becomes a shell game as these obligations are traded among financial institutions, some of which don’t hold sovereign bonds in their portfolios – all of which heightens interest in forcing default.
The temptation to roll back economic globalisation inter alia by breaking up the eurozone or restricting capital movements has been resisted. Economic globalisation is holding firm.
Creditor countries can set the course on future economic policies – likely highlighting fiscal discipline. While the West had vested interest in the big financial houses, the incoming paymasters do not, and they can be expected to increase their control over investment patterns. This can be done either by setting up own financial houses or buying into Western financial institutions as was the case in the slipstream of the 2008 global debt crisis.
The global financial market is changing course, away from looking after Western interests and acting in accordance with corporate governance as defined by the West toward a more global outlook guided by the interests of new group of creditors.
Joergen Oerstroem Moeller is a visiting senior research fellow, Institute of Southeast Asian Studies, Singapore, and adjunct professor, Singapore Management University and Copenhagen Business School.
Wednesday 16 November 2011
Criticism of Schumacher - if you curtail growth, living standards drop
Schumacher was no radical – if you curtail growth, living standards drop
By suggesting it's
better to be economically poorer and spiritually richer, Schumacher
ignores links between growth and wellbeing
Consumer revolution … a customer inspects washing machines at a supermarket in Wuhan, China. Photograph: Darley Shen/Reuters
EF Schumacher's Small is Beautiful is widely viewed as a humanistic and radical tract. Nothing could be further from the truth. Viewed in its proper context it is both profoundly anti-human and deeply conservative.
The central idea in Schumacher's text is that there is a natural limit to economic growth. As he put it: "Economic growth, which viewed from the point of view of economics, physics, chemistry and technology, has no discernible limit, must necessarily run into decisive bottlenecks when viewed from the point of view of the environmental sciences."
Schumacher objected to organising the economy on a large scale precisely because he believed that more prosperity would damage the environment. He correctly understood that small-scale communities cannot produce nearly as much as those operating on a regional or global scale. A modern car, for example, typically relies on components, raw materials and know-how from around the globe. From the perspective of Schumacher's "Buddhist economics", it is better for people to be poorer in economic terms if they can be spiritually richer.
This argument flies against a huge weight of evidence showing that material advance is closely bound up with progress more generally. The past two centuries of modern economic growth have seen huge advances in human welfare along with technological innovation and social advance. Perhaps the most striking single indicator of this improvement is the increase in human life expectancy from about 30 in 1800 to nearly 70 today. Note that this is a global average, so it includes the billions of people who live in poor countries as well as the minority who live in rich ones.
Almost every other measure of wellbeing has increased hugely over the long term, including infant mortality, food consumption and level of education. Most of humanity, even in the developing world, has access to services our ancestors could only have dreamt of, including electricity, clean water, sanitation and mobile phones.
None of the arguments used by Schumacher's followers to counter this narrative of progress are convincing. Greens often side-step the broader case for growth by deriding the accumulation of consumer goods and services. Environmentalist arguments have more than a tinge of elitism, with comfortably middle-class greens scoffing at the masses for wanting flat-screen televisions and foreign holidays. It should also be remembered that some consumer goods, such as washing machines, have directly led to huge improvements in human welfare.
Anti-consumerism reveals more about the narrowness of the green vision than it does about economic growth. Viewing rising prosperity simply in terms of consumer goods is incredibly blinkered. Growth provides the resources for much else including airports, art galleries, hospitals, museums, power stations, railways, roads, schools and universities. Popular prosperity provides the bedrock for much that we value in contemporary society.
Another common green rebuttal to the benefits of growth is to point to the existence of inequality. Of course it is true that there are huge disparities both within countries as well as between the developed and developing world. The key question, however, is how best to tackle the problem. From Schumacher's perspective it is desirable to reduce the living standards of everyone except the poorest of the poor. His is a narrative of shared sacrifice and lower living standards for almost all. The alternative vision, the traditional position of the left, was to argue for plenty for everyone.
Finally, there is the argument about the environment itself. The most popular variant of the idea of a natural limit nowadays is that growth inevitably means runaway climate change. However, there is plenty of evidence to the contrary. There are many forms of energy, including nuclear, that do not emit greenhouse gases. There are also ways to adapt to global warming such as building higher sea walls. Since such measures are expensive it will take more resources to pay for them; which means more economic growth rather than less. If anything the green drive to curb prosperity is likely to undermine our capacity to tackle climate change.
Schumacher's fundamentally conservative argument chimes well with those who want to reconcile us to austerity. It suits those in power for the mass of the population to accept the need to make do with less. Under such circumstances it is no surprise that David Cameron, like his international peers, is keen for us to focus on individual contentment rather than material prosperity.
It is hard to imagine a more anti-human outlook than one advocating a sharp fall in living standards for the bulk of the world's population.
Pigeonholing protesters as anti capitalist will only allow those who are against reform to avoid the issue
In Singapore 'a staggering 22% of
national output is produced by state-owned enterprises'. Photograph:
Luis Enrique Ascui/Reuters
The Occupy London movement is marking its first month this week. It is routinely described as anti-capitalist, but this label is highly misleading. As I found out when I gave a lecture at its Tent City University last weekend, many of its participants are not against capitalism. They just want it better regulated so that it benefits the greatest possible majority.
But even accepting that the label accurately describes some participants in the movement, what does being anti-capitalist actually mean?
Many Americans, for example, consider countries like France and Sweden to be socialist or anti-capitalist – yet, were their 19th-century ancestors able to time-travel to today, they would almost certainly have called today's US socialist. They would have been shocked to find that their beloved country had decided to punish industry and enterprise with a progressive income tax. To their horror, they would also see that children had been deprived of the freedom to work and adults "the liberty of working as long as [they] wished", as the US supreme court put it in 1905 when ruling unconstitutional a New York state act limiting the working hours of bakers to 10 hours a day. What is capitalist, and thus anti-capitalist, it seems, depends on who you are.
Many institutions that most of us regard as the foundation stones of capitalism were not introduced until the mid-19th century, because they had been seen as undermining capitalism. Adam Smith opposed limited liability companies and Herbert Spencer objected to the central bank, both on the grounds that these institutions dulled market incentives by putting upper limits to investment risk. The same argument was made against the bankruptcy law.
Since the mid-19th century, many measures that were widely regarded as anti-capitalist when first introduced – such as the progressive income tax, the welfare state, child labour regulation and the eight-hour day – have become integral parts of capitalism today.
Capitalism has also evolved in very different ways across countries. They may all be capitalist in that they are predominantly run on the basis of private property and profit motives, but beyond that they are organised very differently.
In Japan interlocking share ownership among friendly enterprises, which once accounted for over 50% of all listed shares and still accounts for around 30%, makes hostile takeover very difficult. This has enabled Japanese companies to invest with a much longer time horizon than their British or American counterparts.
Japanese companies provide lifetime employment for their core workers (accounting for about a third of the workforce), thereby creating strong worker loyalty. They also give the workers a relatively large say in the management of the production process, thus tapping their creative powers. There are heavy regulations in the agricultural and retail sectors against large firms, which complement the weak welfare state by preserving small shops and farms.
German capitalism is as different from the American or British version as Japanese capitalism, but in other ways. Like Japan, Germany gives a relatively big input to workers in the running of a company, but in a collectivist way through the co-determination system, in which worker representation on the supervisory board allows them to have a say in key corporate matters (such as plant closure and takeovers), rather than giving a greater stake in the company to workers as individuals, as in the Japanese system.
Thus, while Japanese companies are protected from hostile takeovers by friendly companies (through interlocking shareholding), German companies are protected by their workers (through co-determination).
Even supposedly similar varieties of capitalism, for example Swedish and German, have important differences. German workers are represented through the co-determination system and through industry-level trade unions, while Swedish workers are represented by a centralised trade union (the Swedish Trade Union Confederation), which engages in centralised wage bargaining with the centralised employers' association (the Confederation of Swedish Enterprise).
Unlike in Germany, where concentrated corporate ownership has been deliberately destroyed, Sweden has arguably the most concentrated corporate ownership in the world. One family – the Wallenbergs – possesses controlling stakes (usually defined as over 20% of voting shares) in most of the key companies in the Swedish economy, including ABB, Ericsson, Electrolux, Saab, SEB and SKF. Some estimate that the Wallenberg companies produce a third of Swedish national output. Despite this, Sweden has built one of the most egalitarian societies in the world because of its large, and largely effective, welfare state.
And then there are hybrids that defy definition: China, with its large socialist legacy, is an obvious case, but Singapore is another, even more interesting, example. Singapore is usually touted as the model student of free-market capitalism, given its free-trade policy and welcoming attitude towards multinational companies. Yet in other ways it is a very socialist country. All land is owned by the government, 85% of housing is supplied by the government-owned housing corporation, and a staggering 22% of national output is produced by state-owned enterprises. (The international average is around 10%.) Would you say that Singapore is capitalist or socialist?
When it is so diverse, criticising capitalism is not very meaningful. What you have to change to improve the Swedish or the Japanese capitalist systems is very different from what you should do for the British one.
In Britain, as already physically identified by the Occupy movement, it is clear the key reforms should be made in the City of London. The fact that the Occupy movement does not have an agreed list of reforms should not be used as an excuse not to engage with it. I'm told there is an economics committee working on it and, more importantly, there are already many financial reform proposals floating around, often supported by very "establishment" figures like Adair Turner, the Financial Services Authority chairman, George Soros, the Open Society Foundations chairman, and Andy Haldane, the Bank of England's executive director for financial stability.
By labelling the Occupy movement "anti-capitalist", those who do not want reforms have been able to avoid the real debate. This has to stop. It is time we use the Occupy movement as the catalyst for a serious debate on alternative institutional arrangements that will make British (or for that matter, any other) capitalism better for the majority of people.
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