When this is all over, there is likely to be a new social contract. Which way will we go? asks JANAN GANESH in The FT
This year is the 70th anniversary of George Orwell’s death and the 150th of Charles Dickens’s. Never spellbound by either (“The man can’t write worth a damn,” said the young Martin Amis, after one page of 1984), I was inclined to sit out all the commemorative rereading. And I did. But then the crisis of the day took me back to what one man wrote about the other.
More on that in a minute. First, you will notice the pandemic is putting large corporations through a sort of moral invigilation. Ones that rejig their factories to make hand sanitiser (LVMH) or donate their knowhow (IBM) are hailed. Ones that behave like skinflints (JD Wetherspoon, Britannia Hotels) are tarred and feathered.
Companies have to weigh how much discretionary help to give without flunking their narrow duty to survive and profit.
This is the stuff of Stakeholder Capitalism or Corporate Social Responsibility.The topic has been in the air all of my career. It has been given new urgency by events. It is the subject of much FT treatment.
And Orwell, I suspect, would see through it like glass.
In a 1940 essay (how spoilt we are for round-number anniversaries) he politely explodes the idea of Dickens as a radical, or even as a social reformer. His case is that, for Dickens, nothing is wrong with the world that cannot be fixed through individual conscience.
If only Murdstone were kinder to David Copperfield. If only all bosses were as nice as Fezziwig. That no one should have such awesome power over others in the first place goes unsaid by Dickens, and presumably unthought. And so his worldview, says Orwell, is “almost exclusively moral”.
Dickens wants a “change of spirit rather than a change of structure”. He has no sense that a free market is “wrong as a system”. The French Revolution could have been averted had the Second Estate just “turned over a new leaf, like Scrooge”.
And so we have “that recurrent Dickens figure, the Good Rich Man”, whose arbitrary might is used to help out the odd grateful urchin or debtor. What we do not have is the Good Trade Unionist pushing for structural change. What we do not have is the Good Finance Minister redistributing wealth. There is something feudal about Dickens. The rich man in his castle should be nicer to the poor man at his gate, but each is in his rightful station.
You need not share Orwell’s ascetic socialism (I write this next to a 2010 Meursault) to see his point. And to see that it applies just as much to today’s economy.
Some companies are open to any and all options to serve the general good — except higher taxes and regulation. “I feel like I’m at a firefighters’ conference,” said the writer Rutger Bregman, at a Davos event about inequality that did not mention tax. “And no one is allowed to speak about water.”
What Orwell would hate about Stakeholder Capitalism is not just that it might achieve patchier results than the universal state. It is not even that it accords the powerful yet more power — at times, as we are seeing, over life and death. Under-resourced governments counting on private whim for basic things: it is a spectacle that should both warm the heart and utterly chill it.
No, what Orwell would resent, I think, is the unearned smugness. The halo of “conscience”, when more systemic answers are available via government. The halo that Dickens still wears. You can see it in the world of philanthropy summits and impact investment funds.
The double-anniversary of England’s most famous writers since Shakespeare meant little to me until the virus broke. All of a sudden, they serve as a neat contrast of worldviews. Dickens would look at the crisis and shame the corporates who fail to tap into their inner Fezziwig. Orwell would wonder how on earth it is left to their caprice in the first place.
The difference matters because, when all this is over, there is likely to be a new social contract. The mystery is whether it will be more Dickensian (in the best sense) or Orwellian (also in the best sense). That is, will it pressure the rich to give more to the commons or will it absolutely oblige them?
Showing posts with label Capital. Show all posts
Showing posts with label Capital. Show all posts
Saturday 28 March 2020
Wednesday 19 February 2020
Sunday 1 December 2019
Wednesday 9 October 2019
Brexit is a necessary crisis – it reveals Britain’s true place in the world
A determined ignorance of the dynamics of global capitalism is bringing about a long-overdue audit of British realities writes David Edgerton in The Guardian
Why not? One answer is that the Tories now represent the interests of a small section of capitalists who actually fund the party. An extreme version of this argument was floated by the prime minister’s sister, Rachel, and the former chancellor Philip Hammond – both of whom suggested that hard Brexit is being driven by a corrupt relationship between the prime minister and his hedge-fund donors, who have shorted the pound and the whole economy. This is very unlikely to be correct, but it may point to a more disconcerting truth.
The fact is that the capitalists who do support Brexit tend to be very loosely tied to the British economy. This is true of hedge funds, of course – but also true for manufacturers such as Sir James Dyson, who no longer produces in the UK. The owners of several Brexiter newspapers are foreign, or tax resident abroad – as is the pro-Brexit billionaire Sir James Ratcliffe of Ineos.
But the real story is something much bigger. What is interesting is not so much the connections between capital and the Tory party but their increasing disconnection. Today much of the capital in Britain is not British and not linked to the Conservative party – where for most of the 20th century things looked very different. Once, great capitalists with national, imperial and global interests sat in the Commons and the Lords as Liberals or Conservatives. Between the wars, the Conservatives emerged as the one party of capital, led by great British manufacturers such as Stanley Baldwin and Neville Chamberlain. The Commons and the Lords were soon fuller than ever of Tory businessmen, from the owner of Meccano toys to that of Lyons Corner Houses.
After the second world war, such captains of industry avoided the Commons, but the Conservative party was without question the party of capital and property, one which stood against the party of organised labour. Furthermore, the Tories represented an increasingly national capitalism, protected by import controls, and closely tied to an interventionist and technocratic state that wanted to increase exports of British designed and made goods. A company like Imperial Chemical Industries (ICI) saw itself, and indeed was, a national champion. British industry, public and private, was a national enterprise.
Since the 1970s things have changed radically. Today there is no such thing as British national capitalism. London is a place where world capitalism does business – no longer one where British capitalism does the world’s business. Everywhere in the UK there are foreign-owned enterprises, many of them nationalised industries, building nuclear reactors and running train services from overseas. When the car industry speaks, it is not as British industry but as foreign enterprise in the UK. The same is true of many of the major manufacturing sectors – from civil aircraft to electrical engineering – and of infrastructure. Whatever the interests of foreign capital, they are not expressed through a national political party. Most of these foreign-owned businesses, not surprisingly, are hostile to Brexit.
Brexit is the political project of the hard right within the Conservative party, and not its capitalist backers. In fact, these forces were able to take over the party in part because it was no longer stabilised by a powerful organic connection to capital, either nationally or locally.
Brexit also speaks to the weakness of the state, which was itself once tied to the governing party – and particularly the Conservatives. The British state once had the capacity to change the United Kingdom and its relations to the rest of the world radically and quickly, as happened in the second world war, and indeed on accession to the common market.
Today the process from referendum to implementation will take, if it happens, nearly as long as the whole second world war. The modern British state has distanced itself from the productive economy and is barely able to take an expert view of the complexities of modern capitalism. This was painfully clear in the Brexit impact sectoral reports the government was forced to publish – they were internet cut-and-paste jobs.
The state can no longer undertake the radical planning and intervention that might make Brexit work. That would require not only an expert state, but one closely aligned with business. The preparations would by now be very visible at both technical and political levels. But we have none of that. Instead we have the suggestion that nothing much will happen on no deal, that mini-deals will appear. The real hope of the Brexiters is surely that the EU will cave and carry on trading with the UK as if nothing had changed. Brexit is a promise without a plan. But in the real world Brexit does mean Brexit, and no deal means no deal.
Brexit is a necessary crisis, and has provided a long overdue audit of British realities. It exposes the nature of the economy, the new relations of capitalism to politics and the weakness of the state. It brings to light, in stunning clarity, Brexiters’ deluded political understanding of the UK’s place in the world. From a new understanding, a new politics of national improvement might come; without it we will remain stuck in the delusional, revivalist politics of a banana monarchy.
The Commons in 1966: ‘The Conservative party was the party of national capitalism.’ Photograph: Bentley Archive/Popperfoto via Getty Images/Getty Images
Who backs Brexit? Agriculture is against it; industry is against it; services are against it. None of them, needless to say, support a no-deal Brexit. Yet the Conservative party, which favoured European union for economic reasons over many decades, has become not only Eurosceptic – it is set on a course regarded by every reputable capitalist state and the great majority of capitalist enterprises as deeply foolish.
If any prime minister in the past had shown such a determined ignorance of the dynamics of global capitalism, the massed ranks of British capital would have stepped in to force a change of direction. Yet today, while the CBI and the Financial Times call for the softest possible Brexit, the Tory party is no longer listening.
Who backs Brexit? Agriculture is against it; industry is against it; services are against it. None of them, needless to say, support a no-deal Brexit. Yet the Conservative party, which favoured European union for economic reasons over many decades, has become not only Eurosceptic – it is set on a course regarded by every reputable capitalist state and the great majority of capitalist enterprises as deeply foolish.
If any prime minister in the past had shown such a determined ignorance of the dynamics of global capitalism, the massed ranks of British capital would have stepped in to force a change of direction. Yet today, while the CBI and the Financial Times call for the softest possible Brexit, the Tory party is no longer listening.
Why not? One answer is that the Tories now represent the interests of a small section of capitalists who actually fund the party. An extreme version of this argument was floated by the prime minister’s sister, Rachel, and the former chancellor Philip Hammond – both of whom suggested that hard Brexit is being driven by a corrupt relationship between the prime minister and his hedge-fund donors, who have shorted the pound and the whole economy. This is very unlikely to be correct, but it may point to a more disconcerting truth.
The fact is that the capitalists who do support Brexit tend to be very loosely tied to the British economy. This is true of hedge funds, of course – but also true for manufacturers such as Sir James Dyson, who no longer produces in the UK. The owners of several Brexiter newspapers are foreign, or tax resident abroad – as is the pro-Brexit billionaire Sir James Ratcliffe of Ineos.
But the real story is something much bigger. What is interesting is not so much the connections between capital and the Tory party but their increasing disconnection. Today much of the capital in Britain is not British and not linked to the Conservative party – where for most of the 20th century things looked very different. Once, great capitalists with national, imperial and global interests sat in the Commons and the Lords as Liberals or Conservatives. Between the wars, the Conservatives emerged as the one party of capital, led by great British manufacturers such as Stanley Baldwin and Neville Chamberlain. The Commons and the Lords were soon fuller than ever of Tory businessmen, from the owner of Meccano toys to that of Lyons Corner Houses.
After the second world war, such captains of industry avoided the Commons, but the Conservative party was without question the party of capital and property, one which stood against the party of organised labour. Furthermore, the Tories represented an increasingly national capitalism, protected by import controls, and closely tied to an interventionist and technocratic state that wanted to increase exports of British designed and made goods. A company like Imperial Chemical Industries (ICI) saw itself, and indeed was, a national champion. British industry, public and private, was a national enterprise.
Since the 1970s things have changed radically. Today there is no such thing as British national capitalism. London is a place where world capitalism does business – no longer one where British capitalism does the world’s business. Everywhere in the UK there are foreign-owned enterprises, many of them nationalised industries, building nuclear reactors and running train services from overseas. When the car industry speaks, it is not as British industry but as foreign enterprise in the UK. The same is true of many of the major manufacturing sectors – from civil aircraft to electrical engineering – and of infrastructure. Whatever the interests of foreign capital, they are not expressed through a national political party. Most of these foreign-owned businesses, not surprisingly, are hostile to Brexit.
Brexit is the political project of the hard right within the Conservative party, and not its capitalist backers. In fact, these forces were able to take over the party in part because it was no longer stabilised by a powerful organic connection to capital, either nationally or locally.
Brexit also speaks to the weakness of the state, which was itself once tied to the governing party – and particularly the Conservatives. The British state once had the capacity to change the United Kingdom and its relations to the rest of the world radically and quickly, as happened in the second world war, and indeed on accession to the common market.
Today the process from referendum to implementation will take, if it happens, nearly as long as the whole second world war. The modern British state has distanced itself from the productive economy and is barely able to take an expert view of the complexities of modern capitalism. This was painfully clear in the Brexit impact sectoral reports the government was forced to publish – they were internet cut-and-paste jobs.
The state can no longer undertake the radical planning and intervention that might make Brexit work. That would require not only an expert state, but one closely aligned with business. The preparations would by now be very visible at both technical and political levels. But we have none of that. Instead we have the suggestion that nothing much will happen on no deal, that mini-deals will appear. The real hope of the Brexiters is surely that the EU will cave and carry on trading with the UK as if nothing had changed. Brexit is a promise without a plan. But in the real world Brexit does mean Brexit, and no deal means no deal.
Brexit is a necessary crisis, and has provided a long overdue audit of British realities. It exposes the nature of the economy, the new relations of capitalism to politics and the weakness of the state. It brings to light, in stunning clarity, Brexiters’ deluded political understanding of the UK’s place in the world. From a new understanding, a new politics of national improvement might come; without it we will remain stuck in the delusional, revivalist politics of a banana monarchy.
Thursday 12 September 2019
Central banks were always political – so their ‘independence’ doesn’t mean much
The separation of monetary and fiscal policy serves the neoliberal status quo. It won’t survive the next crash writes Larry Elliott in The Guardian
‘The Federal Reserve is coming under enormous pressure from Donald Trump to cut interest rates.’ Donald Trump with Jerome Powell, then his nominee for chairman of the Federal Reserve, Washington DC, November 2017. Photograph: Carlos Barría/Reuters
Independent central banks were once all the rage. Taking decisions over interest rates and handing them to technocrats was seen as a sensible way of preventing politicians from trying to buy votes with cheap money. They couldn’t be trusted to keep inflation under control, but central banks could.
And when the global economy came crashing down in the autumn of 2008, it was central banks that prevented another Great Depression. Interest rates were slashed and the electronic money taps were turned on with quantitative easing (QE). That, at least, is the way central banks tell the story.
An alternative narrative goes like this. Collectively, central banks failed to stop the biggest asset-price bubble in history from developing during the early 2000s. Instead of taking action to prevent a ruinous buildup of debt, they congratulated themselves on keeping inflation low.
Even when the storm broke, some institutions – most notably the European Central Bank (ECB) – were slow to act. And while the monetary stimulus provided by record-low interest rates and QE did arrest the slide into depression, the recovery was slow and patchy. The price of houses and shares soared, but wages flatlined.
A decade on from the 2008 crash, another financial crisis is brewing. The US central bank – the Federal Reserve – is coming under huge pressure from Donald Trump to cut interest rates and restart QE. The poor state of the German economy and the threat of deflation means that on Thursday the ECB will cut the already negative interest rate for bank deposits and announce the resumption of its QE programme.
But central banks are almost out of ammo. If cutting interest rates to zero or just above was insufficient to bring about the sort of sustained recovery seen after previous recessions, then it is not obvious why a couple of quarter-point cuts will make much difference now. Likewise, expecting a bit more QE to do anything other than give a fillip to shares on Wall Street and the City is the triumph of hope over experience.
There were alternatives to the response to the 2008 crisis. Governments could have changed the mix, placing more emphasis on fiscal measures – tax cuts and spending increases – than on monetary stimulus, and then seeking to make the two arms of policy work together. They could have taken advantage of low interest rates to borrow more for the public spending programmes that would have created jobs and demand in their economies. Finance ministries could have ensured that QE contributed to the long-term good of the economy – the environment, for example – if they had issued bonds and instructed central banks to buy them.
This sort of approach does, though, involve breaking one of the big taboos of the modern age: the belief that monetary and fiscal policy should be kept separate and that central banks should be allowed to operate free from political interference.
The consensus blossomed during the good times of the late 1990s and early 2000s, and survived the financial crisis of 2008 . But challenges from both the left and right, especially in the US, suggest that it won’t survive the next one. Trump says the Fed has damaged the economy by pushing up interest rates too quickly. Bernie Sanders says the US central bank has been captured by Wall Street. Both arguments are correct. It is a good thing that central bank independence is finally coming under scrutiny.
For a start, it has become clear that the notion of depoliticised central bankers is a myth. When he was governor of the Bank of England, Mervyn King lectured the government about the need for austerity while jealously guarding the right to set interest rates free from any political interference. Likewise, rarely does Mario Draghi, the outgoing president of the ECB, hold a press conference without urging eurozone countries to reduce budget deficits and embrace structural reform.
Central bankers have views and – perhaps unsurprisingly – they tend to be quite conservative ones. As the US economist Thomas Palley notes in a recent paper, central bank independence is a product of the neoliberal Chicago school of economics and aims to advance neoliberal interests. More specifically, workers like high employment because in those circumstances it is easier to bid up pay. Employers prefer higher unemployment because it keeps wages down and profits up. Central banks side with capital over labour because they accept the neoliberal idea that there is a point – the natural rate of unemployment – beyond which stimulating the economy merely leads to higher inflation. They are, Palley says, institutions “favoured by capital to guard against the danger that a democracy may choose economic policies capital dislikes”.
Until now, monetary policy has been deemed too important to be left to politicians. When the next crisis arrives it will become too political an issue to be left to unelected technocrats. If that crisis is to be tackled effectively, the age of independent central banks will have to come to an end.
Independent central banks were once all the rage. Taking decisions over interest rates and handing them to technocrats was seen as a sensible way of preventing politicians from trying to buy votes with cheap money. They couldn’t be trusted to keep inflation under control, but central banks could.
And when the global economy came crashing down in the autumn of 2008, it was central banks that prevented another Great Depression. Interest rates were slashed and the electronic money taps were turned on with quantitative easing (QE). That, at least, is the way central banks tell the story.
An alternative narrative goes like this. Collectively, central banks failed to stop the biggest asset-price bubble in history from developing during the early 2000s. Instead of taking action to prevent a ruinous buildup of debt, they congratulated themselves on keeping inflation low.
Even when the storm broke, some institutions – most notably the European Central Bank (ECB) – were slow to act. And while the monetary stimulus provided by record-low interest rates and QE did arrest the slide into depression, the recovery was slow and patchy. The price of houses and shares soared, but wages flatlined.
A decade on from the 2008 crash, another financial crisis is brewing. The US central bank – the Federal Reserve – is coming under huge pressure from Donald Trump to cut interest rates and restart QE. The poor state of the German economy and the threat of deflation means that on Thursday the ECB will cut the already negative interest rate for bank deposits and announce the resumption of its QE programme.
But central banks are almost out of ammo. If cutting interest rates to zero or just above was insufficient to bring about the sort of sustained recovery seen after previous recessions, then it is not obvious why a couple of quarter-point cuts will make much difference now. Likewise, expecting a bit more QE to do anything other than give a fillip to shares on Wall Street and the City is the triumph of hope over experience.
There were alternatives to the response to the 2008 crisis. Governments could have changed the mix, placing more emphasis on fiscal measures – tax cuts and spending increases – than on monetary stimulus, and then seeking to make the two arms of policy work together. They could have taken advantage of low interest rates to borrow more for the public spending programmes that would have created jobs and demand in their economies. Finance ministries could have ensured that QE contributed to the long-term good of the economy – the environment, for example – if they had issued bonds and instructed central banks to buy them.
This sort of approach does, though, involve breaking one of the big taboos of the modern age: the belief that monetary and fiscal policy should be kept separate and that central banks should be allowed to operate free from political interference.
The consensus blossomed during the good times of the late 1990s and early 2000s, and survived the financial crisis of 2008 . But challenges from both the left and right, especially in the US, suggest that it won’t survive the next one. Trump says the Fed has damaged the economy by pushing up interest rates too quickly. Bernie Sanders says the US central bank has been captured by Wall Street. Both arguments are correct. It is a good thing that central bank independence is finally coming under scrutiny.
For a start, it has become clear that the notion of depoliticised central bankers is a myth. When he was governor of the Bank of England, Mervyn King lectured the government about the need for austerity while jealously guarding the right to set interest rates free from any political interference. Likewise, rarely does Mario Draghi, the outgoing president of the ECB, hold a press conference without urging eurozone countries to reduce budget deficits and embrace structural reform.
Central bankers have views and – perhaps unsurprisingly – they tend to be quite conservative ones. As the US economist Thomas Palley notes in a recent paper, central bank independence is a product of the neoliberal Chicago school of economics and aims to advance neoliberal interests. More specifically, workers like high employment because in those circumstances it is easier to bid up pay. Employers prefer higher unemployment because it keeps wages down and profits up. Central banks side with capital over labour because they accept the neoliberal idea that there is a point – the natural rate of unemployment – beyond which stimulating the economy merely leads to higher inflation. They are, Palley says, institutions “favoured by capital to guard against the danger that a democracy may choose economic policies capital dislikes”.
Until now, monetary policy has been deemed too important to be left to politicians. When the next crisis arrives it will become too political an issue to be left to unelected technocrats. If that crisis is to be tackled effectively, the age of independent central banks will have to come to an end.
Saturday 7 July 2018
China’s tech funding boom: is Europe asleep on the job?
Evgeny Morozov in The Guardian
In matters of industrial strategy and international competition, there’s no contrast starker than that between the hapless resignation of Europe and the steely determination of China. Unsurprisingly, it has been China – not Europe – that has proposed, with little success, forming a common front against Donald Trump’s trade tantrums. Even Washington’s bullying cannot awaken European policymakers from their slumber – or, as seems more likely, their moderately lubricated afternoon nap.
Hardly a week passes without a new alarming announcement that Beijing has managed to outmanoeuvre Brussels in yet another domain. Last week brought three such developments.
First, China Merchants Group, a state-owned company, joined forces with SPF Group and Centricus – asset managers based in Beijing and London respectively – to form a $15bn fund to compete with SoftBank’s $100bn Vision Fund, launched to invest in the most promising technology firms worldwide. This comes weeks after Sequoia Capital, America’s finest venture capital firm, closed the first round of fundraising on its $8bn Vision Fund alternative.
Second, Contemporary Amperex Technology, one of the largest manufacturers of lithium-ion batteries in China and a major beneficiary of its government’s efforts to steer this industry towards world leadership, signed a €1bn deal with BMW, with the intention of building its own factory in Europe to satisfy soaring demand for its batteries.
Daimler, another crown jewel of the German car industry, is now reportedly considering placing a similar order.
Third, Bolloré Group, one of France’s most important conglomerates, with activities spanning paper, energy and logistics businesses, entered a deal with Chinese technology giant Alibaba. Bolloré is hoping to use Alibaba’s sprawling cloud-computing empire across its operations, including in its battery-making division.
There is a neutral, even positive, interpretation of these developments. European capital – British in the first case, German in the second, French in the third – is taking advantage of lucrative opportunities. China just happens to offer more of them at the moment.
And yet, each of the three developments reveals major gaps in Europe’s industrial strategy. It’s one thing for European capital to be passively invested into most promising robotics or AI projects worldwide: Daimler, for example, is one of the few European backers of the Vision Fund. It’s quite another thing to be doing it with the goal of creating Europe’s own champions in these fields.
The European Commission’s strategy on artificial intelligence, published in April 2018, rests on the untested assumption that Brussels will succeed in mobilising nearly €18bn of private capital to complement a couple of billions that will be found in existing European programs. This, however, will require convincing the likes of Daimler – whose biggest shareholder today is China’s Geely – that their investments should go to some European tech fund, rather than to SoftBank or China Merchants Group.
It’s a challenge similar to Europe’s efforts, unsuccessful so far, to push European industry towards creating a European manufacturer of batteries for electric cars, if only to minimise its reliance on China and South Korea (the European Battery Alliance, an industry-wide initiative championed by the European commission, was launched last year, but has not borne much fruit yet).
European leaders seem to recognise the battery challenge – and so do Germany’s powerful trade unions – but it’s hard to see how it will be solved when the likes of BMW and Daimler keep placing billion dollar-orders with Chinese battery manufacturers.
The story on cloud computing, increasingly bundled with artificial intelligence services, is not much different: even if the European industry wanted to turn away from Amazon or Microsoft and use a European provider, it just does not have much choice. It is essentially hemmed in by American and Chinese giants.
This dependence was easier to justify when global trade was running smoothly and all industries looked alike (looked equally unimportant from the perspective of national or regional interests). Now that the European car industry finds itself under heavy fire from Trump, Brussels is severely constrained in its response.
Artificial intelligence: €20bn investment call from EU commission
When Trump threatens Europe’s most important industry, the logical thing to do would be to threaten retaliation against America’s own most important industry, which, whatever Trump himself believes, is actually based in Silicon Valley and Seattle, not Detroit.
This, however, is not an option: no one is going to believe that Europe, which has inserted services from Alphabet, IBM, Microsoft and Amazon deep into the infrastructure of its hospitals, energy grids, transportation systems, and universities is going to shut them off.
The best it can hope for, at this point, is to diversify its reliance on the US giants by doing some business with the Chinese ones.
None of this bodes well for Europe’s ability to remain at the centre of the global economy. Its industrial giants will not fade away but they will be increasingly dominated by foreign owners and foreign technology. While, in the rosier days of globalisation, this might even have been hailed as laudable, under today’s new normal this strategy borders on the suicidal. Those afternoon naps of European policymakers increasingly look like a coma.
In matters of industrial strategy and international competition, there’s no contrast starker than that between the hapless resignation of Europe and the steely determination of China. Unsurprisingly, it has been China – not Europe – that has proposed, with little success, forming a common front against Donald Trump’s trade tantrums. Even Washington’s bullying cannot awaken European policymakers from their slumber – or, as seems more likely, their moderately lubricated afternoon nap.
Hardly a week passes without a new alarming announcement that Beijing has managed to outmanoeuvre Brussels in yet another domain. Last week brought three such developments.
First, China Merchants Group, a state-owned company, joined forces with SPF Group and Centricus – asset managers based in Beijing and London respectively – to form a $15bn fund to compete with SoftBank’s $100bn Vision Fund, launched to invest in the most promising technology firms worldwide. This comes weeks after Sequoia Capital, America’s finest venture capital firm, closed the first round of fundraising on its $8bn Vision Fund alternative.
Second, Contemporary Amperex Technology, one of the largest manufacturers of lithium-ion batteries in China and a major beneficiary of its government’s efforts to steer this industry towards world leadership, signed a €1bn deal with BMW, with the intention of building its own factory in Europe to satisfy soaring demand for its batteries.
Daimler, another crown jewel of the German car industry, is now reportedly considering placing a similar order.
Third, Bolloré Group, one of France’s most important conglomerates, with activities spanning paper, energy and logistics businesses, entered a deal with Chinese technology giant Alibaba. Bolloré is hoping to use Alibaba’s sprawling cloud-computing empire across its operations, including in its battery-making division.
There is a neutral, even positive, interpretation of these developments. European capital – British in the first case, German in the second, French in the third – is taking advantage of lucrative opportunities. China just happens to offer more of them at the moment.
And yet, each of the three developments reveals major gaps in Europe’s industrial strategy. It’s one thing for European capital to be passively invested into most promising robotics or AI projects worldwide: Daimler, for example, is one of the few European backers of the Vision Fund. It’s quite another thing to be doing it with the goal of creating Europe’s own champions in these fields.
The European Commission’s strategy on artificial intelligence, published in April 2018, rests on the untested assumption that Brussels will succeed in mobilising nearly €18bn of private capital to complement a couple of billions that will be found in existing European programs. This, however, will require convincing the likes of Daimler – whose biggest shareholder today is China’s Geely – that their investments should go to some European tech fund, rather than to SoftBank or China Merchants Group.
It’s a challenge similar to Europe’s efforts, unsuccessful so far, to push European industry towards creating a European manufacturer of batteries for electric cars, if only to minimise its reliance on China and South Korea (the European Battery Alliance, an industry-wide initiative championed by the European commission, was launched last year, but has not borne much fruit yet).
European leaders seem to recognise the battery challenge – and so do Germany’s powerful trade unions – but it’s hard to see how it will be solved when the likes of BMW and Daimler keep placing billion dollar-orders with Chinese battery manufacturers.
The story on cloud computing, increasingly bundled with artificial intelligence services, is not much different: even if the European industry wanted to turn away from Amazon or Microsoft and use a European provider, it just does not have much choice. It is essentially hemmed in by American and Chinese giants.
This dependence was easier to justify when global trade was running smoothly and all industries looked alike (looked equally unimportant from the perspective of national or regional interests). Now that the European car industry finds itself under heavy fire from Trump, Brussels is severely constrained in its response.
Artificial intelligence: €20bn investment call from EU commission
When Trump threatens Europe’s most important industry, the logical thing to do would be to threaten retaliation against America’s own most important industry, which, whatever Trump himself believes, is actually based in Silicon Valley and Seattle, not Detroit.
This, however, is not an option: no one is going to believe that Europe, which has inserted services from Alphabet, IBM, Microsoft and Amazon deep into the infrastructure of its hospitals, energy grids, transportation systems, and universities is going to shut them off.
The best it can hope for, at this point, is to diversify its reliance on the US giants by doing some business with the Chinese ones.
None of this bodes well for Europe’s ability to remain at the centre of the global economy. Its industrial giants will not fade away but they will be increasingly dominated by foreign owners and foreign technology. While, in the rosier days of globalisation, this might even have been hailed as laudable, under today’s new normal this strategy borders on the suicidal. Those afternoon naps of European policymakers increasingly look like a coma.
Wednesday 14 March 2018
The workers who bought out their bosses – and secured their futures
By Aditya Chakrabortty in The Guardian
It had all been going so well. In this smoothest of seductions, John Clark and Alistair Miller hadn’t had to do a thing. There they were, itching to sell their business and get on with retirement. Then one day in the middle of 2015, this American firm – big-time, way out of their league – swung by the factory outside Glasgow and asked: what price do you have in mind? This was followed by an invitation back to the multinational’s European headquarters in the home counties.
So off popped Miller. The two sides were inching towards the dotted line when he casually inquired what the Americans would do with their new Scottish premises. This one question sent the needle screeching across the record.
As soon as the managing director across the desk started talking about “exploring possibilities” and “transferable technologies”, Miller knew what she meant. Their Scottish operation would run for another six months, a year tops. Then it would be shut – and the order book and the technology shifted down south. And when the factory disappeared, so too would the jobs and the livelihoods of 60-odd workers and their families. Selling up would hand the owners a huge cheque, and leave their staff on a tiny giro.
“You’d be sitting back with your piles of cash,” says Clark, “but at some point you’re going to bump into those guys. Some of them have been there longer than me. I know their families.”
“Those guys” helped to build this place. Since its launch in 1986, Novograf has gone from printing signs for vans to working with some of the biggest chains in Britain. It has become expert in the branding that envelops you while shopping, eating or holidaying, but which you never take in. Walk around a Co-op supermarket, and the signs guiding you to the wine and beer or fruit and veg aisles will be Novograf’s. Pop into a Pizza Hut and the wood-look flooring will have been made and laid by Novograf employees. Stay at an Ibis Styles hotel and the big fat number on your room door probably comes from their East Kilbride factory. Then there’s Greggs, Iceland, Tesco, Waitrose …
Miller and Clark hadn’t poured six decades of their combined lives into this venture only to leave a plump carcass for others to feed on. But the two sixtysomethings had run smack into one of the central problems of British capitalism: how to ensure a company’s owners look after it. Pretty much any spiv with a chequebook can buy a business in the UK and ruin it as they want. Westminster will ask few questions, expect even less accountability, and never learn any lessons. That fanatical British adherence to open markets and property rights leaves the staff, the suppliers and the public counting for little.
The publisher of Horny Housewives, Richard Desmond, bought the Express stable in 2000 without New Labour ministers raising an eyebrow. A once-great paper was wrecked and hundreds of journalists lost their jobs, but Desmond pocketed nearly £350m before he sold it to Trinity Mirror this year.
In 2005, Manchester United football club was snapped up by the Glazer family, who paid for it by borrowing hundreds of millions that they loaded on to the club’s balance sheet – before shifting its headquarters to the tax haven of the Cayman Islands, a 10,000-mile round trip from the club’s Old Trafford stadium.
Philip Green may strip BHS bare; Cadbury can be ravaged by Kraft; Australian investment bank Macquarie can run Thames Water into the ground then, as a reward, get the public’s Green Investment Bank. Each time owners damage a business, employees and often customers get shafted, and local economies suffer – while a handful right at the top cash in.
But Miller and Clark can tell you how much depends on the simple fact of ownership. It helps shape the business model, the ethos and culture of a company. However, even as they tried to secure a careful owner for their business, all the plausible options were a no-go.
Sell to a rival? Their staff and values would be discarded like used wrapping paper. Cash out to private equity? A green light for a corporate ransacking. Neither man’s children wanted to trudge in their dad’s footsteps, and senior management were not in a position to buy them out.
‘I could be sitting back on piles of cash. But at some point you’re going to bump into those guys. I know their families.’ John Clark, chairman and former owner of Navograf. Photograph: Murdo Macleod for the Guardian
Just then, a postcard flopped on to the doormat. “Thinking of exiting your business?” it asked. When the man from Scottish Enterprise, an agency of the Holyrood government, told them about worker ownership, he got blank faces. The biggest employee-owned firm in the UK, John Lewis, was a Novograf customer, yet all Clark knew about its structure was that once a year the company would be on the news for paying “partners” a tax-free bonus. Which was lovely, Clark and Miller thought, but what did that have to do with them?
Employee ownership is as simple as selling a company to its staff. Over 300 British firms have done it, from Arup architects to Waitrose. But it is as radical as giving the people who create a business’s wealth the right to share in it. That wealth is no longer handed over to remote shareholders in the form of share buybacks and dividends.
When Clark and Miller “got off our butts” and visited a few of the 95 Scottish firms now owned by their employees, “we learned that their productivity was higher, that they were more resilient in bad times, that they were more inclusive of all their staff”.
Giving workers control over their companies doesn’t just make the firms more successful, it also makes the workers a lot better off. Last year, the California-based National Center for Employee Ownership analysed US jobs figures and found that younger workers who are worker-owners enjoy 33% higher wages and 92% higher median household wealththan those who aren’t owners.
The British government knows much of this, because it commissioned a report that told it so. The very first line of Graeme Nuttall’s 2012 review reads: “Employee ownership is a great idea.” After lobbying by Liberal Democrat ministers, two years later chancellor George Osborne scrapped capital gains tax for employers who transferred a majority share of their business to workers. This was back when Osborne and David Cameron would hymn “the John Lewis model”.
Just like “the march of the makers” and the “big society”, the fad has left little trace. Of the 2,617 full-time equivalent civil servants at the Department for Business, not one is dedicated to promoting worker ownership, as advised by the Nuttall review. The same report also recommends “the appointment of a minister responsible for promoting employee ownership across government”. Yet this department confirmed to me that not even its most junior minister holds any such brief.
That silence partly explains why employee ownership remains so exotic. When Clark and Miller announced their idea for selling the company to their staff, they hired a local hotel, put on fancy nibbles and gave a great presentation. “The very first question we got was, ‘Have we still got a job?’” remembers Clark. “Nobody had a clue what it meant,” recalls factory technician David Anderson. “People assumed that everyone was going to have to get a mortgage to buy the company.”
Four hundred miles north of Whitehall, the far smaller Scottish Enterprise employs eight full-time staffers to promote and advise on worker ownership and other “inclusive models” of organising companies. The SNP government is full-square behind it, and the Herald, the Record and the Scotsman newspapers trumpet this Inverness holiday resort or that Hebridean jewellers being taken over by its employees.
Just two decades ago, newly devolved Holyrood paid through the nose for inward investment and prayed that the multinationals would repay their lavish subsidies with lasting jobs. They rarely did. Hewlett Packard, Chunghwa Picture Tubes and many others pulled the corporate equivalent of a one-night stand.
It had all been going so well. In this smoothest of seductions, John Clark and Alistair Miller hadn’t had to do a thing. There they were, itching to sell their business and get on with retirement. Then one day in the middle of 2015, this American firm – big-time, way out of their league – swung by the factory outside Glasgow and asked: what price do you have in mind? This was followed by an invitation back to the multinational’s European headquarters in the home counties.
So off popped Miller. The two sides were inching towards the dotted line when he casually inquired what the Americans would do with their new Scottish premises. This one question sent the needle screeching across the record.
As soon as the managing director across the desk started talking about “exploring possibilities” and “transferable technologies”, Miller knew what she meant. Their Scottish operation would run for another six months, a year tops. Then it would be shut – and the order book and the technology shifted down south. And when the factory disappeared, so too would the jobs and the livelihoods of 60-odd workers and their families. Selling up would hand the owners a huge cheque, and leave their staff on a tiny giro.
“You’d be sitting back with your piles of cash,” says Clark, “but at some point you’re going to bump into those guys. Some of them have been there longer than me. I know their families.”
“Those guys” helped to build this place. Since its launch in 1986, Novograf has gone from printing signs for vans to working with some of the biggest chains in Britain. It has become expert in the branding that envelops you while shopping, eating or holidaying, but which you never take in. Walk around a Co-op supermarket, and the signs guiding you to the wine and beer or fruit and veg aisles will be Novograf’s. Pop into a Pizza Hut and the wood-look flooring will have been made and laid by Novograf employees. Stay at an Ibis Styles hotel and the big fat number on your room door probably comes from their East Kilbride factory. Then there’s Greggs, Iceland, Tesco, Waitrose …
Miller and Clark hadn’t poured six decades of their combined lives into this venture only to leave a plump carcass for others to feed on. But the two sixtysomethings had run smack into one of the central problems of British capitalism: how to ensure a company’s owners look after it. Pretty much any spiv with a chequebook can buy a business in the UK and ruin it as they want. Westminster will ask few questions, expect even less accountability, and never learn any lessons. That fanatical British adherence to open markets and property rights leaves the staff, the suppliers and the public counting for little.
The publisher of Horny Housewives, Richard Desmond, bought the Express stable in 2000 without New Labour ministers raising an eyebrow. A once-great paper was wrecked and hundreds of journalists lost their jobs, but Desmond pocketed nearly £350m before he sold it to Trinity Mirror this year.
In 2005, Manchester United football club was snapped up by the Glazer family, who paid for it by borrowing hundreds of millions that they loaded on to the club’s balance sheet – before shifting its headquarters to the tax haven of the Cayman Islands, a 10,000-mile round trip from the club’s Old Trafford stadium.
Philip Green may strip BHS bare; Cadbury can be ravaged by Kraft; Australian investment bank Macquarie can run Thames Water into the ground then, as a reward, get the public’s Green Investment Bank. Each time owners damage a business, employees and often customers get shafted, and local economies suffer – while a handful right at the top cash in.
But Miller and Clark can tell you how much depends on the simple fact of ownership. It helps shape the business model, the ethos and culture of a company. However, even as they tried to secure a careful owner for their business, all the plausible options were a no-go.
Sell to a rival? Their staff and values would be discarded like used wrapping paper. Cash out to private equity? A green light for a corporate ransacking. Neither man’s children wanted to trudge in their dad’s footsteps, and senior management were not in a position to buy them out.
‘I could be sitting back on piles of cash. But at some point you’re going to bump into those guys. I know their families.’ John Clark, chairman and former owner of Navograf. Photograph: Murdo Macleod for the Guardian
Just then, a postcard flopped on to the doormat. “Thinking of exiting your business?” it asked. When the man from Scottish Enterprise, an agency of the Holyrood government, told them about worker ownership, he got blank faces. The biggest employee-owned firm in the UK, John Lewis, was a Novograf customer, yet all Clark knew about its structure was that once a year the company would be on the news for paying “partners” a tax-free bonus. Which was lovely, Clark and Miller thought, but what did that have to do with them?
Employee ownership is as simple as selling a company to its staff. Over 300 British firms have done it, from Arup architects to Waitrose. But it is as radical as giving the people who create a business’s wealth the right to share in it. That wealth is no longer handed over to remote shareholders in the form of share buybacks and dividends.
When Clark and Miller “got off our butts” and visited a few of the 95 Scottish firms now owned by their employees, “we learned that their productivity was higher, that they were more resilient in bad times, that they were more inclusive of all their staff”.
Giving workers control over their companies doesn’t just make the firms more successful, it also makes the workers a lot better off. Last year, the California-based National Center for Employee Ownership analysed US jobs figures and found that younger workers who are worker-owners enjoy 33% higher wages and 92% higher median household wealththan those who aren’t owners.
The British government knows much of this, because it commissioned a report that told it so. The very first line of Graeme Nuttall’s 2012 review reads: “Employee ownership is a great idea.” After lobbying by Liberal Democrat ministers, two years later chancellor George Osborne scrapped capital gains tax for employers who transferred a majority share of their business to workers. This was back when Osborne and David Cameron would hymn “the John Lewis model”.
Just like “the march of the makers” and the “big society”, the fad has left little trace. Of the 2,617 full-time equivalent civil servants at the Department for Business, not one is dedicated to promoting worker ownership, as advised by the Nuttall review. The same report also recommends “the appointment of a minister responsible for promoting employee ownership across government”. Yet this department confirmed to me that not even its most junior minister holds any such brief.
That silence partly explains why employee ownership remains so exotic. When Clark and Miller announced their idea for selling the company to their staff, they hired a local hotel, put on fancy nibbles and gave a great presentation. “The very first question we got was, ‘Have we still got a job?’” remembers Clark. “Nobody had a clue what it meant,” recalls factory technician David Anderson. “People assumed that everyone was going to have to get a mortgage to buy the company.”
Four hundred miles north of Whitehall, the far smaller Scottish Enterprise employs eight full-time staffers to promote and advise on worker ownership and other “inclusive models” of organising companies. The SNP government is full-square behind it, and the Herald, the Record and the Scotsman newspapers trumpet this Inverness holiday resort or that Hebridean jewellers being taken over by its employees.
Just two decades ago, newly devolved Holyrood paid through the nose for inward investment and prayed that the multinationals would repay their lavish subsidies with lasting jobs. They rarely did. Hewlett Packard, Chunghwa Picture Tubes and many others pulled the corporate equivalent of a one-night stand.
‘Everyone received a decent tax-free bonus last year, and also took part in the first-ever staff survey, which led to sick-pay and leave entitlement becoming more generous.’ Photograph: Murdo Macleod for the Guardian
Holyrood can still relapse – such as when it gifted Amazon £2.5m of taxpayers’ money and got back a distribution warehouse in Dunfermline. But Scottish Enterprise’s Sarah Deas talks of fostering a Mittelstand – a German-style dense network of medium-sized businesses that think long term and honour their social obligations.
Which is a reminder that British business is not some political monolith – that it can break left as well as right. White-haired Clark is appalled at “the FTSE guys”, the chief executives paid 100 times the average wage of their workers. “What are they doing to deserve that?”
Clark is not, he says, “some paternalistic capitalist” or a “crusader”. He’s “hardnosed”, and with Miller got a fair price for Novograf. But they’ve also taken big risks to ensure their workers could afford it. It proved impossible to raise cash upfront for the purchase price. “Not one of the major banks was interested. Not even our own.” So Clark and Miller turned themselves into a bank – handing over the company shares while allowing employees to pay them back over a few years, with interest. And with conditions: as long as the pair retain an interest in the firm it cannot relocate more than 200 miles away, “because that would defeat the entire purpose of the deal”.
At the end of 2016, all the shares in the company were transferred from the two original owners into a trust held on behalf of all staff. Just over a year later, the all-new, same-old Novograf still feels eggshelly, as if everyone is trying to gauge what’s changed. Its new managing director, Jennifer Riddell-Dillet, has to tell employees: “Remember you’re an owner.” She both manages and works for her staff, one of whom sat on the panel that interviewed her for the job.
Novografers like to tell you that this isn’t “some socialist paradise”, that there are still bosses and workers; but the priorities have changed. Formerly a senior manager for two PLCs, Riddell-Dillet says: “Public companies are only about external shareholders. There, employees are the asset of the business – but they’re a sweatable asset. Here, you think, ‘If I just drive them into the ground it will be less fulfilling, less rewarding and it will be more ruthless.’”
Everyone received a decent tax-free bonus last year, and also took part in the first-ever staff survey, which led to sick pay and leave entitlement becoming more generous. Anderson, a Novograf lifer, says: “The people on the factory floor definitely feel more in control than before. Anybody can now say, ‘I don’t see why things have to be done that way’ – and someone’s got to answer.”
That power requires some growing into. Production manager Michael Carr has become a director of Novograf, and has struggled to get his head around the accounts. And with no previous experience, Anderson and business development manager Margaret Nelson now make up half the trustee board. The other two trustees will be Miller and Clark, until they’re finally paid off. “It’s obvious that they know what they’re talking about and we don’t,” says Nelson. “Challenging your old boss is an intimidating thing.”
But employees will challenge on their expert subject: their daily work. Just last week, an employee showed Carr a cheaper and quicker way of assembling signs. They would never have spoken up before, he says, yet that one simple thing could save “a few thousand pounds in man-hours and material”.
In its first full year of employee ownership, Novograf’s sales shot up 20% and the company took on an extra 22 people. That success followed on from a strong performance in 2016, but Riddell-Dillet reckons their direct stake in the outcome did drive employees to put in “the blood, sweat and tears”.
Not all the savings are strictly necessary. Not so long ago, now-chairman John Clark, while washing his hands in the gents, reached over to the soap dispenser. He remembers a thin jet of lotion flying out – “Whoosh ... it hit me amidships” – all over his stomach. He charged over to the man responsible for ordering in supplies and told him the new soap was far too thin. While Clark stood dripping, the man nodded. “Aye, that was me,” he said. “I’ve watered down the soap by half to save money.”
Holyrood can still relapse – such as when it gifted Amazon £2.5m of taxpayers’ money and got back a distribution warehouse in Dunfermline. But Scottish Enterprise’s Sarah Deas talks of fostering a Mittelstand – a German-style dense network of medium-sized businesses that think long term and honour their social obligations.
Which is a reminder that British business is not some political monolith – that it can break left as well as right. White-haired Clark is appalled at “the FTSE guys”, the chief executives paid 100 times the average wage of their workers. “What are they doing to deserve that?”
Clark is not, he says, “some paternalistic capitalist” or a “crusader”. He’s “hardnosed”, and with Miller got a fair price for Novograf. But they’ve also taken big risks to ensure their workers could afford it. It proved impossible to raise cash upfront for the purchase price. “Not one of the major banks was interested. Not even our own.” So Clark and Miller turned themselves into a bank – handing over the company shares while allowing employees to pay them back over a few years, with interest. And with conditions: as long as the pair retain an interest in the firm it cannot relocate more than 200 miles away, “because that would defeat the entire purpose of the deal”.
At the end of 2016, all the shares in the company were transferred from the two original owners into a trust held on behalf of all staff. Just over a year later, the all-new, same-old Novograf still feels eggshelly, as if everyone is trying to gauge what’s changed. Its new managing director, Jennifer Riddell-Dillet, has to tell employees: “Remember you’re an owner.” She both manages and works for her staff, one of whom sat on the panel that interviewed her for the job.
Novografers like to tell you that this isn’t “some socialist paradise”, that there are still bosses and workers; but the priorities have changed. Formerly a senior manager for two PLCs, Riddell-Dillet says: “Public companies are only about external shareholders. There, employees are the asset of the business – but they’re a sweatable asset. Here, you think, ‘If I just drive them into the ground it will be less fulfilling, less rewarding and it will be more ruthless.’”
Everyone received a decent tax-free bonus last year, and also took part in the first-ever staff survey, which led to sick pay and leave entitlement becoming more generous. Anderson, a Novograf lifer, says: “The people on the factory floor definitely feel more in control than before. Anybody can now say, ‘I don’t see why things have to be done that way’ – and someone’s got to answer.”
That power requires some growing into. Production manager Michael Carr has become a director of Novograf, and has struggled to get his head around the accounts. And with no previous experience, Anderson and business development manager Margaret Nelson now make up half the trustee board. The other two trustees will be Miller and Clark, until they’re finally paid off. “It’s obvious that they know what they’re talking about and we don’t,” says Nelson. “Challenging your old boss is an intimidating thing.”
But employees will challenge on their expert subject: their daily work. Just last week, an employee showed Carr a cheaper and quicker way of assembling signs. They would never have spoken up before, he says, yet that one simple thing could save “a few thousand pounds in man-hours and material”.
In its first full year of employee ownership, Novograf’s sales shot up 20% and the company took on an extra 22 people. That success followed on from a strong performance in 2016, but Riddell-Dillet reckons their direct stake in the outcome did drive employees to put in “the blood, sweat and tears”.
Not all the savings are strictly necessary. Not so long ago, now-chairman John Clark, while washing his hands in the gents, reached over to the soap dispenser. He remembers a thin jet of lotion flying out – “Whoosh ... it hit me amidships” – all over his stomach. He charged over to the man responsible for ordering in supplies and told him the new soap was far too thin. While Clark stood dripping, the man nodded. “Aye, that was me,” he said. “I’ve watered down the soap by half to save money.”
Sunday 18 February 2018
Robots + Capital - The redundancy of human beings
Tabish Khair in The Hindu
Human beings are being made redundant by something they created. This is not a humanoid, robot, or computer but money as capital
We have all read stories, or seen films, about robots taking over. How, some time in the future, human beings will be marginalised, effectively replaced by machines, real or virtual. Common to these stories is the trope of the world taken over by something constructed of inert material, something mechanical and ‘heartless’. Also common to these stories is the idea that this will happen in the future.
What if I tell you that it has already happened? The future is here!
The culprit that humans created
In fact, the future has been building up for some decades. Roughly from the 1970s onwards, human beings have been increasingly made redundant by something they created, and that was once of use to them. Except that this ‘something’ is not a humanoid, robot, or even a computer; it is money. Or, more precisely, it is money as capital.
It was precipitated in 1973, when floating exchange rates were introduced. As economist Samir Amin notes, this was the logical result of the “concomitance of the U.S. deficit (leading to an excess of dollars available on the market) and the crisis of productive investment” which had produced “a mass of floating capital with no place to go.” With floating exchange rates, this excess of dollars could be plunged into sheer financial speculation across national borders. Financial speculation had always been a part of capitalism, but floating exchange rates dissolved the ties between capital, goods (trade and production) and labour. Financial speculation gradually floated free of human labour and even of money, as a medium of exchange. If I were a theorist of capitalism of the Adam Smith variety, I would say that capitalism, as we knew it (and still, erroneously, imagine it), started dying in 1973.
Amin goes on to stress the consequences of this: The ratio between hedging operations on the one side and production and international trading on the other rose to 28:1 by 2002 — “a disproportion that has been constantly growing for about the last twenty years and which has never been witnessed in the entire history of capitalism.” In other words, while world trade was valued at $2 billion around 2005, international capital movements were estimated at $50 billion.
How can there be capital movements in such excess of trade? Adam Smith would have failed to understand it. Karl Marx, who feared something like this, would have failed to imagine its scale.
This is what has happened: capital, which was always the abstract logic of money, has riven free of money as a medium of exchange. It no longer needs anything to exchange — and, hence, anyone to produce — in order to grow. (I am exaggerating, but only a bit.)
Theorists have argued that money is a social relation and a medium of exchange. That is not true of most capital today, which need not be ploughed back into any kind of production, trade, labour or even services. It can just be moved around as numbers. This is what day traders do. They do not look at company balance sheets or supply-demand statistics; they simply look at numbers on the computer screen.
This is what explains the dichotomy — most obvious in Donald Trump’s U.S., but not absent in places like the U.K., France or India — between the rhetoric of politicians and their actual actions. Politicians might come to power by promising to ‘drain the swamp’, but what they do, once assured of political power, is to partake in the monopoly of finance capital. This abstract capital is the ‘robot’ — call it Robital — that has marginalised human beings.
I am not making a Marxist point about capital under classical capitalism: despite its tendency towards exploitation, this was still largely invested in human labour. This is not the case any longer. Finance capital does not really need humans — apart from the 1% that own most of it, and another 30% or so of necessary service providers, including IT ones, whose numbers should be expected to steadily shrink.
Robotisation has already taken place: it is only its physical enactment (actual robots) that is still building up. Robots, as replacements for human beings, are the consequence of the abstract nature of finance capital. Robotised agriculture and office robots are a consequence of this. If most humans are redundant and most capital is in the hands of a 1% superclass, it is inevitable that this capital will be invested in creating machines that can make the elite even less dependent on other human beings.
The underlying cause
My American friends wonder about the blindness of Republican politicians who refuse to provide medical support to ordinary Americans and even dismantle the few supports that exist. My British friends talk of the slow spread of homelessness in the U.K. My Indian friends worry about matters such as thousands of farmer suicides. The working middle class crumbles in most countries.
Here is the underlying cause of all of this: the redundancy of human beings, because capital can now replicate itself, endlessly, without being forced back into human labour and trade. We are entering an age where visible genocides — as in Syria or Yemen — might be matched by invisible ones, such as the unremarked deaths of the homeless, the deprived and the marginal.
Robital is here.
Human beings are being made redundant by something they created. This is not a humanoid, robot, or computer but money as capital
We have all read stories, or seen films, about robots taking over. How, some time in the future, human beings will be marginalised, effectively replaced by machines, real or virtual. Common to these stories is the trope of the world taken over by something constructed of inert material, something mechanical and ‘heartless’. Also common to these stories is the idea that this will happen in the future.
What if I tell you that it has already happened? The future is here!
The culprit that humans created
In fact, the future has been building up for some decades. Roughly from the 1970s onwards, human beings have been increasingly made redundant by something they created, and that was once of use to them. Except that this ‘something’ is not a humanoid, robot, or even a computer; it is money. Or, more precisely, it is money as capital.
It was precipitated in 1973, when floating exchange rates were introduced. As economist Samir Amin notes, this was the logical result of the “concomitance of the U.S. deficit (leading to an excess of dollars available on the market) and the crisis of productive investment” which had produced “a mass of floating capital with no place to go.” With floating exchange rates, this excess of dollars could be plunged into sheer financial speculation across national borders. Financial speculation had always been a part of capitalism, but floating exchange rates dissolved the ties between capital, goods (trade and production) and labour. Financial speculation gradually floated free of human labour and even of money, as a medium of exchange. If I were a theorist of capitalism of the Adam Smith variety, I would say that capitalism, as we knew it (and still, erroneously, imagine it), started dying in 1973.
Amin goes on to stress the consequences of this: The ratio between hedging operations on the one side and production and international trading on the other rose to 28:1 by 2002 — “a disproportion that has been constantly growing for about the last twenty years and which has never been witnessed in the entire history of capitalism.” In other words, while world trade was valued at $2 billion around 2005, international capital movements were estimated at $50 billion.
How can there be capital movements in such excess of trade? Adam Smith would have failed to understand it. Karl Marx, who feared something like this, would have failed to imagine its scale.
This is what has happened: capital, which was always the abstract logic of money, has riven free of money as a medium of exchange. It no longer needs anything to exchange — and, hence, anyone to produce — in order to grow. (I am exaggerating, but only a bit.)
Theorists have argued that money is a social relation and a medium of exchange. That is not true of most capital today, which need not be ploughed back into any kind of production, trade, labour or even services. It can just be moved around as numbers. This is what day traders do. They do not look at company balance sheets or supply-demand statistics; they simply look at numbers on the computer screen.
This is what explains the dichotomy — most obvious in Donald Trump’s U.S., but not absent in places like the U.K., France or India — between the rhetoric of politicians and their actual actions. Politicians might come to power by promising to ‘drain the swamp’, but what they do, once assured of political power, is to partake in the monopoly of finance capital. This abstract capital is the ‘robot’ — call it Robital — that has marginalised human beings.
I am not making a Marxist point about capital under classical capitalism: despite its tendency towards exploitation, this was still largely invested in human labour. This is not the case any longer. Finance capital does not really need humans — apart from the 1% that own most of it, and another 30% or so of necessary service providers, including IT ones, whose numbers should be expected to steadily shrink.
Robotisation has already taken place: it is only its physical enactment (actual robots) that is still building up. Robots, as replacements for human beings, are the consequence of the abstract nature of finance capital. Robotised agriculture and office robots are a consequence of this. If most humans are redundant and most capital is in the hands of a 1% superclass, it is inevitable that this capital will be invested in creating machines that can make the elite even less dependent on other human beings.
The underlying cause
My American friends wonder about the blindness of Republican politicians who refuse to provide medical support to ordinary Americans and even dismantle the few supports that exist. My British friends talk of the slow spread of homelessness in the U.K. My Indian friends worry about matters such as thousands of farmer suicides. The working middle class crumbles in most countries.
Here is the underlying cause of all of this: the redundancy of human beings, because capital can now replicate itself, endlessly, without being forced back into human labour and trade. We are entering an age where visible genocides — as in Syria or Yemen — might be matched by invisible ones, such as the unremarked deaths of the homeless, the deprived and the marginal.
Robital is here.
Sunday 28 May 2017
British voters support every point on it, but the public square echoes with summary dismissal - The mystery of Jeremy Corbyn
Tabish Khair in The Hindu
How does one account for the fact that most U.K. voters support every point of the Labour manifesto, but the Tories, despite fumbles, are still leading in opinion polls by about 10 percentage points?
It is two weeks since the Labour manifesto was ‘leaked’. Immediately all the tabloids and most of the broadsheets went to town decrying the manifesto. It is the “second-longest suicide note in history”, they scoffed.
The hara-kiri reference was to the disastrous and divisive Labour manifesto of 1983, dubbed the “longest suicide note in history”. It is not an accurate reference. This 2017 manifesto is not protectionist like the 1983 one, and it promotes very restrained nationalisation. Moreover, the 1983 Labour manifesto was anti-Europe, anti-NATO (North Atlantic Treaty Organisation), and uncompromisingly pacifist.
Not quite a ‘suicide note’
The 2017 manifesto is not anti-NATO; it even endorses NATO’s defence requirements. Jeremy Corbyn, the Labour leader, has repeatedly explained that sometimes collective military interventions can be justified, though he has also criticised the hasty wars of recent years.
Similarly, his plan to nationalise the railway services is not necessarily an ‘old-fashioned leftist idea’. It is a bid to bring government-controlled railways back onto a level playing field, thus undercutting the monopolies of private companies and providing commuters with more options. Most voters support this, as they do his plans to abolish education fees, provide more and cheaper housing, and improve the National Health Service. And yet Corbyn is expected to lose — narrowly by some sympathisers, hugely by his opponents. Why is that so?
Some of it has to do with Corbyn. He comes across as a severely honest but uncharismatic leader from the past, someone who engages with ideas (whether you agree or disagree with them) and not sound bites. The media does not like such politicians, as we know in India too. They provide boring copy.
The problem facing Labour is that of credibility: voters agree with their manifesto, but they do not believe it can be implemented. This is especially true of the ‘middle’ voters, who usually sway elections: many of them feel that Mr. Corbyn is idealistically leftist.
Deviating from core principles
It has to be said in Mr. Corbyn’s defence that for decades Labour has been diluting its pro-worker platform and the Tories increasing or sustaining their free-market platform. This has not been held against the Tories by many in the ‘middle’, while Labour, because of its compromises, has lost ground to the far right, even when it has won elections.
It is also a morbid world in which many ‘middle’ voters feel that something absolutely necessary for citizens cannot be done for fear of offending capital! Surely, a nation is not a corporation or an individual, both of which can go bankrupt, and a politician’s first responsibility is to citizens?
In that sense, Mr. Corbyn’s manifesto is a gamble — to attract more ordinary voters back into the folds of Labour, on the assumption that concrete policies will count for more than xenophobic rhetoric for many of them.
But are the policies outlined by Mr. Corbyn ‘sustainable’? Many papers and all tabloids seem to claim that they are not.
One way to answer this is to look at the general outline of what Mr. Corbyn is promising: he is promising to “transform” the lives of ordinary Britons. This, in effect, was also what Donald Trump had promised the Americans, and both Marine Le Pen and Emmanuel Macron had promised the French.
Interestingly, at least some of the tabloids that have dismissed Mr. Corbyn’s promise were far less critical of similar claims to shake the cart by Mr. Trump. As interestingly, Mr. Trump, Mr. Macron (at least until he got elected) and Ms. Le Pen, in very different ways, had offered less concrete policies to induce us to believe that they could make any significant dent in the status quo.
Mr. Corbyn’s 2017 manifesto has clearer ideas: a pledge not to increase middle class taxes but to tax the top 5% more heavily, action to shrink the growing wage gap between employees and top management, a better housing policy than the Tories, etc. Even his position on the European Union seems to be more concrete than Tory leader Theresa May’s vacuous statement, redolent of colonial hubris, that she will be a “bloody difficult woman” during Brexit negotiations!
The media’s role
It remains perfectly valid to ask whether these Labour measures are enough or fully ‘sustainable’, but that is not what is being done by much of the U.K. media. Instead, the very effort is being dismissed.
Is it the case that, being paid huge salaries by the neo-liberal dream, which is becoming a nightmare for many, British media leaders (who are not necessarily editors) do not wish to question its myths. Especially the cardinal myth that ‘national bankruptcy’ can be avoided only by passing on public debts to individuals, as private debts, while nationally subsidising banks and corporations.
How does one account for the fact that most U.K. voters support every point of the Labour manifesto, but the Tories, despite fumbles, are still leading in opinion polls by about 10 percentage points?
It is two weeks since the Labour manifesto was ‘leaked’. Immediately all the tabloids and most of the broadsheets went to town decrying the manifesto. It is the “second-longest suicide note in history”, they scoffed.
The hara-kiri reference was to the disastrous and divisive Labour manifesto of 1983, dubbed the “longest suicide note in history”. It is not an accurate reference. This 2017 manifesto is not protectionist like the 1983 one, and it promotes very restrained nationalisation. Moreover, the 1983 Labour manifesto was anti-Europe, anti-NATO (North Atlantic Treaty Organisation), and uncompromisingly pacifist.
Not quite a ‘suicide note’
The 2017 manifesto is not anti-NATO; it even endorses NATO’s defence requirements. Jeremy Corbyn, the Labour leader, has repeatedly explained that sometimes collective military interventions can be justified, though he has also criticised the hasty wars of recent years.
Similarly, his plan to nationalise the railway services is not necessarily an ‘old-fashioned leftist idea’. It is a bid to bring government-controlled railways back onto a level playing field, thus undercutting the monopolies of private companies and providing commuters with more options. Most voters support this, as they do his plans to abolish education fees, provide more and cheaper housing, and improve the National Health Service. And yet Corbyn is expected to lose — narrowly by some sympathisers, hugely by his opponents. Why is that so?
Some of it has to do with Corbyn. He comes across as a severely honest but uncharismatic leader from the past, someone who engages with ideas (whether you agree or disagree with them) and not sound bites. The media does not like such politicians, as we know in India too. They provide boring copy.
The problem facing Labour is that of credibility: voters agree with their manifesto, but they do not believe it can be implemented. This is especially true of the ‘middle’ voters, who usually sway elections: many of them feel that Mr. Corbyn is idealistically leftist.
Deviating from core principles
It has to be said in Mr. Corbyn’s defence that for decades Labour has been diluting its pro-worker platform and the Tories increasing or sustaining their free-market platform. This has not been held against the Tories by many in the ‘middle’, while Labour, because of its compromises, has lost ground to the far right, even when it has won elections.
It is also a morbid world in which many ‘middle’ voters feel that something absolutely necessary for citizens cannot be done for fear of offending capital! Surely, a nation is not a corporation or an individual, both of which can go bankrupt, and a politician’s first responsibility is to citizens?
In that sense, Mr. Corbyn’s manifesto is a gamble — to attract more ordinary voters back into the folds of Labour, on the assumption that concrete policies will count for more than xenophobic rhetoric for many of them.
But are the policies outlined by Mr. Corbyn ‘sustainable’? Many papers and all tabloids seem to claim that they are not.
One way to answer this is to look at the general outline of what Mr. Corbyn is promising: he is promising to “transform” the lives of ordinary Britons. This, in effect, was also what Donald Trump had promised the Americans, and both Marine Le Pen and Emmanuel Macron had promised the French.
Interestingly, at least some of the tabloids that have dismissed Mr. Corbyn’s promise were far less critical of similar claims to shake the cart by Mr. Trump. As interestingly, Mr. Trump, Mr. Macron (at least until he got elected) and Ms. Le Pen, in very different ways, had offered less concrete policies to induce us to believe that they could make any significant dent in the status quo.
Mr. Corbyn’s 2017 manifesto has clearer ideas: a pledge not to increase middle class taxes but to tax the top 5% more heavily, action to shrink the growing wage gap between employees and top management, a better housing policy than the Tories, etc. Even his position on the European Union seems to be more concrete than Tory leader Theresa May’s vacuous statement, redolent of colonial hubris, that she will be a “bloody difficult woman” during Brexit negotiations!
The media’s role
It remains perfectly valid to ask whether these Labour measures are enough or fully ‘sustainable’, but that is not what is being done by much of the U.K. media. Instead, the very effort is being dismissed.
Is it the case that, being paid huge salaries by the neo-liberal dream, which is becoming a nightmare for many, British media leaders (who are not necessarily editors) do not wish to question its myths. Especially the cardinal myth that ‘national bankruptcy’ can be avoided only by passing on public debts to individuals, as private debts, while nationally subsidising banks and corporations.
Tuesday 14 February 2017
Finance and facade
Tabish Khair in The Hindu
Imagine a mythical planet not visited by the Little Prince. This is a planet divided up into a thousand and one sections with walls between them. There are doors in the walls, and windows of course. But there is no roof to the planet. Everyone on the planet is affected by storms that cross the skies, sometimes devastating this section, sometimes that. Sometimes the storms afflict all the sections, but in different ways: flood in one place and hail in another; cyclone on one, landslide in another.
A man-made storm
The denizens of this planet are peculiar: they are mostly unable to look up. As such, many of them cannot see signs of a gathering storm. The few who can are helpless. What can they do about storms? This is also true of the various presidents, prime ministers, monarchs and dictators who govern the different sections of this planet. Many of these leaders even believe that the storms are necessary: some good will trickle down. So all they can do is regulate the doors and windows of their sections, and the citizens inside them.
We are living on this planet today. With one difference: most of the storm clouds circling us are man-made.
Finance capital is the storm, and our governments can and will do nothing about it. If you are running a national government but cannot really regulate financial speculation and finance capital as the main source of power, what is it that you can do? Regulate people — as citizens and as foreigners. That is the condition, in slightly different ways, of almost every country in the world today.
When liberal capitalism died
Sometime in the 1980s, a strange thing happened to classical liberal capitalism. It was murdered. No one noticed the crime. Today, we are living with the dead body of liberal capitalism, which is why leftist critiques of it also fail. What we have today is said to be neo-liberalism, but neo-liberalism is almost as different from classical capitalism as night is from day. Actually, neo-liberalism is partly a misnomer: it has little to do with liberalism.
Liberalism insisted on the separation of the state and the market, and decried government interference in markets. Neo-liberalism believes that governments should intervene in markets — but only on the side of banks, finance capitalists and lending agencies. Every time financial speculation creates a crisis, governments are expected to tax their citizens and use that money to save banks and financial institutions. Even if one argues, as some do, that liberal capitalism was always to some extent state capitalism, this signifies a major shift.
We have known since the 19th century that money makes better sense than production or services in capitalist societies. Goods and services fluctuate in demand, but money has to be employed no matter what good or service is on offer. Hence, it makes sense, finally, to traffic only in money. Financial speculation is built into capitalism.
But when financial speculation takes over, as it started doing from the 1980s, an entirely different situation comes into being. Today, financial speculation far outstrips global trade. Finance capital tyrannises not just social capital but even industrial capital. Most of the capital used for such financial speculation does not need to be invested in production or services; it can just be moved around in, as U.S. President Donald Trump said about his taxes, ‘smart’ ways. Most of this capital is not even in the shape of cash, which is cumbersome to move. It is sheer numbers, including digital money, and many types of debt and credit.
Mr. Trump’s victory is the assault of finance capital on not just social capital (welfare, public facilities, etc.), which has long been battered, but this time also on industrial capital. Mr. Trump might actually try to ‘bring jobs home,’ but what this will lead to is greater curbs on industrial capital — not only leaving finance capital free, as his Wall Street appointments have indicated, but probably forcing more industrialists to convert industrial capital into financial speculation. Demonetisation in India might be a sincere attempt to fight corruption, but it will also reinforce the ascendency of finance capital, regardless of what the government wants.
Maurizio Lazzarato points out in Governing by Debt that all national governments are basically employed in collecting taxes from their citizens and cutting on social services, in order to keep paying national and other debts to financial organisations. National leaders have come to believe that ‘economics’ is an independent field, far from politics, when actually economics is the new politics of neo-liberalism. That is why governments are employed to tax citizens in order to repay financiers and banks, and governments are also employed to smoothen the paths of financial speculation.
A necessary façade
In this context, the nationalist policing of ‘undesirable foreigners’ is a necessary façade — to obscure the lack of governance of global finance. Xenophobia is inevitable in such a situation, because national leaders cannot even talk of the real storm — invisible finance capital; they can only regulate the bodies on the ground. The general scepticism of politicians — on which Mr. Trump, Turkish President Recep Tayyip Erdogan and so many others have ridden to power — arises from the fact that politicians only govern people today. They cannot govern global finance capital. Instead, finance capital governs politicians.
Politicians have abandoned much of actual politics to the economic ideologues of neo-liberalism, and they cannot even confess it to ordinary people.
REGULATION NEEDED: “Finance capital is the storm, and our governments can and will do nothing about it."
Imagine a mythical planet not visited by the Little Prince. This is a planet divided up into a thousand and one sections with walls between them. There are doors in the walls, and windows of course. But there is no roof to the planet. Everyone on the planet is affected by storms that cross the skies, sometimes devastating this section, sometimes that. Sometimes the storms afflict all the sections, but in different ways: flood in one place and hail in another; cyclone on one, landslide in another.
A man-made storm
The denizens of this planet are peculiar: they are mostly unable to look up. As such, many of them cannot see signs of a gathering storm. The few who can are helpless. What can they do about storms? This is also true of the various presidents, prime ministers, monarchs and dictators who govern the different sections of this planet. Many of these leaders even believe that the storms are necessary: some good will trickle down. So all they can do is regulate the doors and windows of their sections, and the citizens inside them.
We are living on this planet today. With one difference: most of the storm clouds circling us are man-made.
Finance capital is the storm, and our governments can and will do nothing about it. If you are running a national government but cannot really regulate financial speculation and finance capital as the main source of power, what is it that you can do? Regulate people — as citizens and as foreigners. That is the condition, in slightly different ways, of almost every country in the world today.
When liberal capitalism died
Sometime in the 1980s, a strange thing happened to classical liberal capitalism. It was murdered. No one noticed the crime. Today, we are living with the dead body of liberal capitalism, which is why leftist critiques of it also fail. What we have today is said to be neo-liberalism, but neo-liberalism is almost as different from classical capitalism as night is from day. Actually, neo-liberalism is partly a misnomer: it has little to do with liberalism.
Liberalism insisted on the separation of the state and the market, and decried government interference in markets. Neo-liberalism believes that governments should intervene in markets — but only on the side of banks, finance capitalists and lending agencies. Every time financial speculation creates a crisis, governments are expected to tax their citizens and use that money to save banks and financial institutions. Even if one argues, as some do, that liberal capitalism was always to some extent state capitalism, this signifies a major shift.
We have known since the 19th century that money makes better sense than production or services in capitalist societies. Goods and services fluctuate in demand, but money has to be employed no matter what good or service is on offer. Hence, it makes sense, finally, to traffic only in money. Financial speculation is built into capitalism.
But when financial speculation takes over, as it started doing from the 1980s, an entirely different situation comes into being. Today, financial speculation far outstrips global trade. Finance capital tyrannises not just social capital but even industrial capital. Most of the capital used for such financial speculation does not need to be invested in production or services; it can just be moved around in, as U.S. President Donald Trump said about his taxes, ‘smart’ ways. Most of this capital is not even in the shape of cash, which is cumbersome to move. It is sheer numbers, including digital money, and many types of debt and credit.
Mr. Trump’s victory is the assault of finance capital on not just social capital (welfare, public facilities, etc.), which has long been battered, but this time also on industrial capital. Mr. Trump might actually try to ‘bring jobs home,’ but what this will lead to is greater curbs on industrial capital — not only leaving finance capital free, as his Wall Street appointments have indicated, but probably forcing more industrialists to convert industrial capital into financial speculation. Demonetisation in India might be a sincere attempt to fight corruption, but it will also reinforce the ascendency of finance capital, regardless of what the government wants.
Maurizio Lazzarato points out in Governing by Debt that all national governments are basically employed in collecting taxes from their citizens and cutting on social services, in order to keep paying national and other debts to financial organisations. National leaders have come to believe that ‘economics’ is an independent field, far from politics, when actually economics is the new politics of neo-liberalism. That is why governments are employed to tax citizens in order to repay financiers and banks, and governments are also employed to smoothen the paths of financial speculation.
A necessary façade
In this context, the nationalist policing of ‘undesirable foreigners’ is a necessary façade — to obscure the lack of governance of global finance. Xenophobia is inevitable in such a situation, because national leaders cannot even talk of the real storm — invisible finance capital; they can only regulate the bodies on the ground. The general scepticism of politicians — on which Mr. Trump, Turkish President Recep Tayyip Erdogan and so many others have ridden to power — arises from the fact that politicians only govern people today. They cannot govern global finance capital. Instead, finance capital governs politicians.
Politicians have abandoned much of actual politics to the economic ideologues of neo-liberalism, and they cannot even confess it to ordinary people.
Friday 23 December 2016
Sunday 21 August 2016
The death of neoliberalism and the crisis in western politics
Martin Jacques in The Guardian
The western financial crisis of 2007-8 was the worst since 1931, yet its immediate repercussions were surprisingly modest. The crisis challenged the foundation stones of the long-dominant neoliberal ideology but it seemed to emerge largely unscathed. The banks were bailed out; hardly any bankers on either side of the Atlantic were prosecuted for their crimes; and the price of their behaviour was duly paid by the taxpayer. Subsequent economic policy, especially in the Anglo-Saxon world, has relied overwhelmingly on monetary policy, especially quantitative easing. It has failed. The western economy has stagnated and is now approaching its lost decade, with no end in sight.
After almost nine years, we are finally beginning to reap the political whirlwind of the financial crisis. But how did neoliberalism manage to survive virtually unscathed for so long? Although it failed the test of the real world, bequeathing the worst economic disaster for seven decades, politically and intellectually it remained the only show in town. Parties of the right, centre and left had all bought into its philosophy, New Labour a classic in point. They knew no other way of thinking or doing: it had become the common sense. It was, as Antonio Gramsci put it, hegemonic. But that hegemony cannot and will not survive the test of the real world.
The first inkling of the wider political consequences was evident in the turn in public opinion against the banks, bankers and business leaders. For decades, they could do no wrong: they were feted as the role models of our age, the default troubleshooters of choice in education, health and seemingly everything else. Now, though, their star was in steep descent, along with that of the political class. The effect of the financial crisis was to undermine faith and trust in the competence of the governing elites. It marked the beginnings of a wider political crisis.
But the causes of this political crisis, glaringly evident on both sides of the Atlantic, are much deeper than simply the financial crisis and the virtually stillborn recovery of the last decade. They go to the heart of the neoliberal project that dates from the late 70s and the political rise of Reagan and Thatcher, and embraced at its core the idea of a global free market in goods, services and capital. The depression-era system of bank regulation was dismantled, in the US in the 1990s and in Britain in 1986, thereby creating the conditions for the 2008 crisis. Equality was scorned, the idea of trickle-down economics lauded, government condemned as a fetter on the market and duly downsized, immigration encouraged, regulation cut to a minimum, taxes reduced and a blind eye turned to corporate evasion.
It should be noted that, by historical standards, the neoliberal era has not had a particularly good track record. The most dynamic period of postwar western growth was that between the end of the war and the early 70s, the era of welfare capitalism and Keynesianism, when the growth rate was double that of the neoliberal period from 1980 to the present.
Ronald Reagan and Margaret Thatcher, pictured in 1984, ushered in the era of neoliberalism. Photograph: Bettmann Archive
But by far the most disastrous feature of the neoliberal period has been the huge growth in inequality. Until very recently, this had been virtually ignored. With extraordinary speed, however, it has emerged as one of, if not the most important political issue on both sides of the Atlantic, most dramatically in the US. It is, bar none, the issue that is driving the political discontent that is now engulfing the west. Given the statistical evidence, it is puzzling, shocking even, that it has been disregarded for so long; the explanation can only lie in the sheer extent of the hegemony of neoliberalism and its values.
But now reality has upset the doctrinal apple cart. In the period 1948-1972, every section of the American population experienced very similar and sizable increases in their standard of living; between 1972-2013, the bottom 10% experienced falling real income while the top 10% did far better than everyone else. In the US, the median real income for full-time male workers is now lower than it was four decades ago: the income of the bottom 90% of the population hasstagnated for over 30 years.
A not so dissimilar picture is true of the UK. And the problem has grown more serious since the financial crisis. On average, between 65-70% of households in 25 high-income economies experienced stagnant or falling real incomes between 2005 and 2014.
The reasons are not difficult to explain. The hyper-globalisation era has been systematically stacked in favour of capital against labour: international trading agreements, drawn up in great secrecy, with business on the inside and the unions and citizens excluded, the Trans-Pacific Partnership (TPP) and theTransatlantic Trade and Investment Partnership (TTIP) being but the latest examples; the politico-legal attack on the unions; the encouragement of large-scale immigration in both the US and Europe that helped to undermine the bargaining power of the domestic workforce; and the failure to retrain displaced workers in any meaningful way.
As Thomas Piketty has shown, in the absence of countervailing pressures, capitalism naturally gravitates towards increasing inequality. In the period between 1945 and the late 70s, Cold War competition was arguably the biggest such constraint. Since the collapse of the Soviet Union, there have been none. As the popular backlash grows increasingly irresistible, however, such a winner-takes-all regime becomes politically unsustainable.
Large sections of the population in both the US and the UK are now in revolt against their lot, as graphically illustrated by the support for Trump and Sanders in the US and the Brexit vote in the UK. This popular revolt is often described, in a somewhat denigratory and dismissive fashion, as populism. Or, as Francis Fukuyama writes in a recent excellent essay in Foreign Affairs: “‘Populism’ is the label that political elites attach to policies supported by ordinary citizens that they don’t like.” Populism is a movement against the status quo. It represents the beginnings of something new, though it is generally much clearer about what it is against than what it is for. It can be progressive or reactionary, but more usually both.
Brexit is a classic example of such populism. It has overturned a fundamental cornerstone of UK policy since the early 1970s. Though ostensibly about Europe, it was in fact about much more: a cri de coeur from those who feel they have lost out and been left behind, whose living standards have stagnated or worse since the 1980s, who feel dislocated by large-scale immigration over which they have no control and who face an increasingly insecure and casualised labour market. Their revolt has paralysed the governing elite, already claimed one prime minister, and left the latest one fumbling around in the dark looking for divine inspiration.
Brexit was the marker of a working-class revolt. Photograph: Alamy
The wave of populism marks the return of class as a central agency in politics, both in the UK and the US. This is particularly remarkable in the US. For many decades, the idea of the “working class” was marginal to American political discourse. Most Americans described themselves as middle class, a reflection of the aspirational pulse at the heart of American society. According to a Gallup poll, in 2000 only 33% of Americans called themselves working class; by 2015 the figure was 48%, almost half the population.
Brexit, too, was primarily a working-class revolt. Hitherto, on both sides of the Atlantic, the agency of class has been in retreat in the face of the emergence of a new range of identities and issues from gender and race to sexual orientation and the environment. The return of class, because of its sheer reach, has the potential, like no other issue, to redefine the political landscape.
The working class belongs to no one: its orientation, far from predetermined, is a function of politics
The re-emergence of class should not be confused with the labour movement. They are not synonymous: this is obvious in the US and increasingly the case in the UK. Indeed, over the last half-century, there has been a growing separation between the two in Britain. The re-emergence of the working class as a political voice in Britain, most notably in the Brexit vote, can best be described as an inchoate expression of resentment and protest, with only a very weak sense of belonging to the labour movement.
Indeed, Ukip has been as important – in the form of immigration and Europe – in shaping its current attitudes as the Labour party. In the United States, both Trump and Sanders have given expression to the working-class revolt, the latter almost as much as the former. The working class belongs to no one: its orientation, far from predetermined, as the left liked to think, is a function of politics.
The neoliberal era is being undermined from two directions. First, if its record of economic growth has never been particularly strong, it is now dismal. Europe is barely larger than it was on the eve of the financial crisis in 2007; the United States has done better but even its growth has been anaemic. Economists such as Larry Summers believe that the prospect for the future is most likely one ofsecular stagnation.
Worse, because the recovery has been so weak and fragile, there is a widespread belief that another financial crisis may well beckon. In other words, the neoliberal era has delivered the west back into the kind of crisis-ridden world that we last experienced in the 1930s. With this background, it is hardly surprising that a majority in the west now believe their children will be worse off than they were. Second, those who have lost out in the neoliberal era are no longer prepared to acquiesce in their fate – they are increasingly in open revolt. We are witnessing the end of the neoliberal era. It is not dead, but it is in its early death throes, just as the social-democratic era was during the 1970s.
A sure sign of the declining influence of neoliberalism is the rising chorus of intellectual voices raised against it. From the mid-70s through the 80s, the economic debate was increasingly dominated by monetarists and free marketeers. But since the western financial crisis, the centre of gravity of the intellectual debate has shifted profoundly. This is most obvious in the United States, with economists such as Joseph Stiglitz, Paul Krugman, Dani Rodrik and Jeffrey Sachs becoming increasingly influential. Thomas Piketty’s Capital in the Twenty-First Century has been a massive seller. His work and that of Tony Atkinson and Angus Deaton have pushed the question of the inequality to the top of the political agenda. In the UK, Ha-Joon Chang, for long isolated within the economics profession, has gained a following far greater than those who think economics is a branch of mathematics.
‘Virtually no one foresaw the triumph of Jeremy Corbyn’, pictured at rally in north London last week. Photograph: Daniel Leal-Olivas/AFP/Getty Images
Meanwhile, some of those who were previously strong advocates of a neoliberal approach, such as Larry Summers and the Financial Times’s Martin Wolf, have become extremely critical. The wind is in the sails of the critics of neoliberalism; the neoliberals and monetarists are in retreat. In the UK, the media and political worlds are well behind the curve. Few recognise that we are at the end of an era. Old attitudes and assumptions still predominate, whether on the BBC’s Todayprogramme, in the rightwing press or the parliamentary Labour party.
Following Ed Miliband’s resignation as Labour leader, virtually no one foresaw the triumph of Jeremy Corbyn in the subsequent leadership election. The assumption had been more of the same, a Blairite or a halfway house like Miliband, certainly not anyone like Corbyn. But the zeitgeist had changed. The membership, especially the young who had joined the party on an unprecedented scale, wanted a complete break with New Labour. One of the reasons why the left has failed to emerge as the leader of the new mood of working-class disillusionment is that most social democratic parties became, in varying degrees, disciples of neoliberalism and uber-globalisation. The most extreme forms of this phenomenon were New Labour and the Democrats, who in the late 90s and 00s became its advance guard, personified by Tony Blair and Bill Clinton, triangulation and the third way.
But as David Marquand observed in a review for the New Statesman, what is the point of a social democratic party if it doesn’t represent the less fortunate, the underprivileged and the losers? New Labour deserted those who needed them, who historically they were supposed to represent. Is it surprising that large sections have now deserted the party who deserted them? Blair, in his reincarnation as a money-obsessed consultant to a shady bunch of presidents and dictators, is a fitting testament to the demise of New Labour.
The rival contenders – Burnham, Cooper and Kendall – represented continuity. They were swept away by Corbyn, who won nearly 60% of the votes. New Labour was over, as dead as Monty Python’s parrot. Few grasped the meaning of what had happened. A Guardian leader welcomed the surge in membership and then, lo and behold, urged support for Yvette Cooper, the very antithesis of the reason for the enthusiasm. The PLP refused to accept the result and ever since has tried might and main to remove Corbyn.
Just as the Labour party took far too long to come to terms with the rise of Thatcherism and the birth of a new era at the end of the 70s, now it could not grasp that the Thatcherite paradigm, which they eventually came to embrace in the form of New Labour, had finally run its course. Labour, like everyone else, is obliged to think anew. The membership in their antipathy to New Labour turned to someone who had never accepted the latter, who was the polar opposite in almost every respect of Blair, and embodying an authenticity and decency which Blair patently did not.
Corbyn is not a product of the new times, he is a throwback to the late 70s and early 80s. That is both his strength and also his weakness. He is uncontaminated by the New Labour legacy because he has never accepted it. But nor, it would seem, does he understand the nature of the new era. The danger is that he is possessed of feet of clay in what is a highly fluid and unpredictable political environment, devoid of any certainties of almost any kind, in which Labour finds itself dangerously divided and weakened.
Labour may be in intensive care, but the condition of the Conservatives is not a great deal better. David Cameron was guilty of a huge and irresponsible miscalculation over Brexit. He was forced to resign in the most ignominious of circumstances. The party is hopelessly divided. It has no idea in which direction to move after Brexit. The Brexiters painted an optimistic picture of turning away from the declining European market and embracing the expanding markets of the world, albeit barely mentioning by name which countries it had in mind. It looks as if the new prime minister may have an anachronistic hostility towards China and a willingness to undo the good work of George Osborne. If the government turns its back on China, by far the fastest growing market in the world, where are they going to turn?
Brexit has left the country fragmented and deeply divided, with the very real prospect that Scotland might choose independence. Meanwhile, the Conservatives seem to have little understanding that the neoliberal era is in its death throes.
‘Put America first’: Donald Trump in Cleveland last month. Photograph: Joe Raedle/Getty Images
Dramatic as events have been in the UK, they cannot compare with those in the United States. Almost from nowhere, Donald Trump rose to capture the Republican nomination and confound virtually all the pundits and not least his own party. His message was straightforwardly anti-globalisation. He believes that the interests of the working class have been sacrificed in favour of the big corporations that have been encouraged to invest around the world and thereby deprive American workers of their jobs. Further, he argues that large-scale immigration has weakened the bargaining power of American workers and served to lower their wages.
He proposes that US corporations should be required to invest their cash reserves in the US. He believes that the North American Free Trade Agreement (Nafta) has had the effect of exporting American jobs to Mexico. On similar grounds, he is opposed to the TPP and the TTIP. And he also accuses China of stealing American jobs, threatening to impose a 45% tariff on Chinese imports.
To globalisation Trump counterposes economic nationalism: “Put America first”. His appeal, above all, is to the white working class who, until Trump’s (and Bernie Sander’s) arrival on the political scene, had been ignored and largely unrepresented since the 1980s. Given that their wages have been falling for most of the last 40 years, it is extraordinary how their interests have been neglected by the political class. Increasingly, they have voted Republican, but the Republicans have long been captured by the super-rich and Wall Street, whose interests, as hyper-globalisers, have run directly counter to those of the white working class. With the arrival of Trump they finally found a representative: they won Trump the Republican nomination.
The economic nationalist argument has also been vigorously pursued by Bernie Sanders, who ran Hillary Clinton extremely close for the Democratic nomination and would probably have won but for more than 700 so-called super-delegates, who were effectively chosen by the Democratic machine and overwhelmingly supported Clinton. As in the case of the Republicans, the Democrats have long supported a neoliberal, pro-globalisation strategy, notwithstanding the concerns of its trade union base. Both the Republicans and the Democrats now find themselves deeply polarised between the pro- and anti-globalisers, an entirely new development not witnessed since the shift towards neoliberalism under Reagan almost 40 years ago.
Another plank of Trump’s nationalist appeal – “Make America great again” – is his position on foreign policy. He believes that America’s pursuit of great power status has squandered the nation’s resources. He argues that the country’s alliance system is unfair, with America bearing most of the cost and its allies contributing far too little. He points to Japan and South Korea, and Nato’s European members as prime examples.He seeks to rebalance these relationships and, failing that, to exit from them.
As a country in decline, he argues that America can no longer afford to carry this kind of financial burden. Rather than putting the world to rights, he believes the money should be invested at home, pointing to the dilapidated state of America’s infrastructure. Trump’s position represents a major critique of America as the world’s hegemon. His arguments mark a radical break with the neoliberal, hyper-globalisation ideology that has reigned since the early 1980s and with the foreign policy orthodoxy of most of the postwar period. These arguments must be taken seriously. They should not be lightly dismissed just because of their authorship. But Trump is no man of the left. He is a populist of the right. He has launched a racist and xenophobic attack on Muslims and on Mexicans. Trump’s appeal is to a white working class that feels it has been cheated by the big corporations, undermined by Hispanic immigration, and often resentful towards African-Americans who for long too many have viewed as their inferior.
A Trump America would mark a descent into authoritarianism characterised by abuse, scapegoating, discrimination, racism, arbitrariness and violence; America would become a deeply polarised and divided society. His threat to impose 45% tariffs on China, if implemented, would certainly provoke retaliation by the Chinese and herald the beginnings of a new era of protectionism.
Trump may well lose the presidential election just as Sanders failed in his bid for the Democrat nomination. But this does not mean that the forces opposed to hyper-globalisation – unrestricted immigration, TPP and TTIP, the free movement of capital and much else – will have lost the argument and are set to decline. In little more than 12 months, Trump and Sanders have transformed the nature and terms of the argument. Far from being on the wane, the arguments of the critics of hyper-globalisation are steadily gaining ground. Roughly two-thirds of Americans agree that “we should not think so much in international terms but concentrate more on our own national problems”. And, above all else, what will continue to drive opposition to the hyper-globalisers is inequality.
The western financial crisis of 2007-8 was the worst since 1931, yet its immediate repercussions were surprisingly modest. The crisis challenged the foundation stones of the long-dominant neoliberal ideology but it seemed to emerge largely unscathed. The banks were bailed out; hardly any bankers on either side of the Atlantic were prosecuted for their crimes; and the price of their behaviour was duly paid by the taxpayer. Subsequent economic policy, especially in the Anglo-Saxon world, has relied overwhelmingly on monetary policy, especially quantitative easing. It has failed. The western economy has stagnated and is now approaching its lost decade, with no end in sight.
After almost nine years, we are finally beginning to reap the political whirlwind of the financial crisis. But how did neoliberalism manage to survive virtually unscathed for so long? Although it failed the test of the real world, bequeathing the worst economic disaster for seven decades, politically and intellectually it remained the only show in town. Parties of the right, centre and left had all bought into its philosophy, New Labour a classic in point. They knew no other way of thinking or doing: it had become the common sense. It was, as Antonio Gramsci put it, hegemonic. But that hegemony cannot and will not survive the test of the real world.
The first inkling of the wider political consequences was evident in the turn in public opinion against the banks, bankers and business leaders. For decades, they could do no wrong: they were feted as the role models of our age, the default troubleshooters of choice in education, health and seemingly everything else. Now, though, their star was in steep descent, along with that of the political class. The effect of the financial crisis was to undermine faith and trust in the competence of the governing elites. It marked the beginnings of a wider political crisis.
But the causes of this political crisis, glaringly evident on both sides of the Atlantic, are much deeper than simply the financial crisis and the virtually stillborn recovery of the last decade. They go to the heart of the neoliberal project that dates from the late 70s and the political rise of Reagan and Thatcher, and embraced at its core the idea of a global free market in goods, services and capital. The depression-era system of bank regulation was dismantled, in the US in the 1990s and in Britain in 1986, thereby creating the conditions for the 2008 crisis. Equality was scorned, the idea of trickle-down economics lauded, government condemned as a fetter on the market and duly downsized, immigration encouraged, regulation cut to a minimum, taxes reduced and a blind eye turned to corporate evasion.
It should be noted that, by historical standards, the neoliberal era has not had a particularly good track record. The most dynamic period of postwar western growth was that between the end of the war and the early 70s, the era of welfare capitalism and Keynesianism, when the growth rate was double that of the neoliberal period from 1980 to the present.
Ronald Reagan and Margaret Thatcher, pictured in 1984, ushered in the era of neoliberalism. Photograph: Bettmann Archive
But by far the most disastrous feature of the neoliberal period has been the huge growth in inequality. Until very recently, this had been virtually ignored. With extraordinary speed, however, it has emerged as one of, if not the most important political issue on both sides of the Atlantic, most dramatically in the US. It is, bar none, the issue that is driving the political discontent that is now engulfing the west. Given the statistical evidence, it is puzzling, shocking even, that it has been disregarded for so long; the explanation can only lie in the sheer extent of the hegemony of neoliberalism and its values.
But now reality has upset the doctrinal apple cart. In the period 1948-1972, every section of the American population experienced very similar and sizable increases in their standard of living; between 1972-2013, the bottom 10% experienced falling real income while the top 10% did far better than everyone else. In the US, the median real income for full-time male workers is now lower than it was four decades ago: the income of the bottom 90% of the population hasstagnated for over 30 years.
A not so dissimilar picture is true of the UK. And the problem has grown more serious since the financial crisis. On average, between 65-70% of households in 25 high-income economies experienced stagnant or falling real incomes between 2005 and 2014.
The reasons are not difficult to explain. The hyper-globalisation era has been systematically stacked in favour of capital against labour: international trading agreements, drawn up in great secrecy, with business on the inside and the unions and citizens excluded, the Trans-Pacific Partnership (TPP) and theTransatlantic Trade and Investment Partnership (TTIP) being but the latest examples; the politico-legal attack on the unions; the encouragement of large-scale immigration in both the US and Europe that helped to undermine the bargaining power of the domestic workforce; and the failure to retrain displaced workers in any meaningful way.
As Thomas Piketty has shown, in the absence of countervailing pressures, capitalism naturally gravitates towards increasing inequality. In the period between 1945 and the late 70s, Cold War competition was arguably the biggest such constraint. Since the collapse of the Soviet Union, there have been none. As the popular backlash grows increasingly irresistible, however, such a winner-takes-all regime becomes politically unsustainable.
Large sections of the population in both the US and the UK are now in revolt against their lot, as graphically illustrated by the support for Trump and Sanders in the US and the Brexit vote in the UK. This popular revolt is often described, in a somewhat denigratory and dismissive fashion, as populism. Or, as Francis Fukuyama writes in a recent excellent essay in Foreign Affairs: “‘Populism’ is the label that political elites attach to policies supported by ordinary citizens that they don’t like.” Populism is a movement against the status quo. It represents the beginnings of something new, though it is generally much clearer about what it is against than what it is for. It can be progressive or reactionary, but more usually both.
Brexit is a classic example of such populism. It has overturned a fundamental cornerstone of UK policy since the early 1970s. Though ostensibly about Europe, it was in fact about much more: a cri de coeur from those who feel they have lost out and been left behind, whose living standards have stagnated or worse since the 1980s, who feel dislocated by large-scale immigration over which they have no control and who face an increasingly insecure and casualised labour market. Their revolt has paralysed the governing elite, already claimed one prime minister, and left the latest one fumbling around in the dark looking for divine inspiration.
Brexit was the marker of a working-class revolt. Photograph: Alamy
The wave of populism marks the return of class as a central agency in politics, both in the UK and the US. This is particularly remarkable in the US. For many decades, the idea of the “working class” was marginal to American political discourse. Most Americans described themselves as middle class, a reflection of the aspirational pulse at the heart of American society. According to a Gallup poll, in 2000 only 33% of Americans called themselves working class; by 2015 the figure was 48%, almost half the population.
Brexit, too, was primarily a working-class revolt. Hitherto, on both sides of the Atlantic, the agency of class has been in retreat in the face of the emergence of a new range of identities and issues from gender and race to sexual orientation and the environment. The return of class, because of its sheer reach, has the potential, like no other issue, to redefine the political landscape.
The working class belongs to no one: its orientation, far from predetermined, is a function of politics
The re-emergence of class should not be confused with the labour movement. They are not synonymous: this is obvious in the US and increasingly the case in the UK. Indeed, over the last half-century, there has been a growing separation between the two in Britain. The re-emergence of the working class as a political voice in Britain, most notably in the Brexit vote, can best be described as an inchoate expression of resentment and protest, with only a very weak sense of belonging to the labour movement.
Indeed, Ukip has been as important – in the form of immigration and Europe – in shaping its current attitudes as the Labour party. In the United States, both Trump and Sanders have given expression to the working-class revolt, the latter almost as much as the former. The working class belongs to no one: its orientation, far from predetermined, as the left liked to think, is a function of politics.
The neoliberal era is being undermined from two directions. First, if its record of economic growth has never been particularly strong, it is now dismal. Europe is barely larger than it was on the eve of the financial crisis in 2007; the United States has done better but even its growth has been anaemic. Economists such as Larry Summers believe that the prospect for the future is most likely one ofsecular stagnation.
Worse, because the recovery has been so weak and fragile, there is a widespread belief that another financial crisis may well beckon. In other words, the neoliberal era has delivered the west back into the kind of crisis-ridden world that we last experienced in the 1930s. With this background, it is hardly surprising that a majority in the west now believe their children will be worse off than they were. Second, those who have lost out in the neoliberal era are no longer prepared to acquiesce in their fate – they are increasingly in open revolt. We are witnessing the end of the neoliberal era. It is not dead, but it is in its early death throes, just as the social-democratic era was during the 1970s.
A sure sign of the declining influence of neoliberalism is the rising chorus of intellectual voices raised against it. From the mid-70s through the 80s, the economic debate was increasingly dominated by monetarists and free marketeers. But since the western financial crisis, the centre of gravity of the intellectual debate has shifted profoundly. This is most obvious in the United States, with economists such as Joseph Stiglitz, Paul Krugman, Dani Rodrik and Jeffrey Sachs becoming increasingly influential. Thomas Piketty’s Capital in the Twenty-First Century has been a massive seller. His work and that of Tony Atkinson and Angus Deaton have pushed the question of the inequality to the top of the political agenda. In the UK, Ha-Joon Chang, for long isolated within the economics profession, has gained a following far greater than those who think economics is a branch of mathematics.
‘Virtually no one foresaw the triumph of Jeremy Corbyn’, pictured at rally in north London last week. Photograph: Daniel Leal-Olivas/AFP/Getty Images
Meanwhile, some of those who were previously strong advocates of a neoliberal approach, such as Larry Summers and the Financial Times’s Martin Wolf, have become extremely critical. The wind is in the sails of the critics of neoliberalism; the neoliberals and monetarists are in retreat. In the UK, the media and political worlds are well behind the curve. Few recognise that we are at the end of an era. Old attitudes and assumptions still predominate, whether on the BBC’s Todayprogramme, in the rightwing press or the parliamentary Labour party.
Following Ed Miliband’s resignation as Labour leader, virtually no one foresaw the triumph of Jeremy Corbyn in the subsequent leadership election. The assumption had been more of the same, a Blairite or a halfway house like Miliband, certainly not anyone like Corbyn. But the zeitgeist had changed. The membership, especially the young who had joined the party on an unprecedented scale, wanted a complete break with New Labour. One of the reasons why the left has failed to emerge as the leader of the new mood of working-class disillusionment is that most social democratic parties became, in varying degrees, disciples of neoliberalism and uber-globalisation. The most extreme forms of this phenomenon were New Labour and the Democrats, who in the late 90s and 00s became its advance guard, personified by Tony Blair and Bill Clinton, triangulation and the third way.
But as David Marquand observed in a review for the New Statesman, what is the point of a social democratic party if it doesn’t represent the less fortunate, the underprivileged and the losers? New Labour deserted those who needed them, who historically they were supposed to represent. Is it surprising that large sections have now deserted the party who deserted them? Blair, in his reincarnation as a money-obsessed consultant to a shady bunch of presidents and dictators, is a fitting testament to the demise of New Labour.
The rival contenders – Burnham, Cooper and Kendall – represented continuity. They were swept away by Corbyn, who won nearly 60% of the votes. New Labour was over, as dead as Monty Python’s parrot. Few grasped the meaning of what had happened. A Guardian leader welcomed the surge in membership and then, lo and behold, urged support for Yvette Cooper, the very antithesis of the reason for the enthusiasm. The PLP refused to accept the result and ever since has tried might and main to remove Corbyn.
Just as the Labour party took far too long to come to terms with the rise of Thatcherism and the birth of a new era at the end of the 70s, now it could not grasp that the Thatcherite paradigm, which they eventually came to embrace in the form of New Labour, had finally run its course. Labour, like everyone else, is obliged to think anew. The membership in their antipathy to New Labour turned to someone who had never accepted the latter, who was the polar opposite in almost every respect of Blair, and embodying an authenticity and decency which Blair patently did not.
Corbyn is not a product of the new times, he is a throwback to the late 70s and early 80s. That is both his strength and also his weakness. He is uncontaminated by the New Labour legacy because he has never accepted it. But nor, it would seem, does he understand the nature of the new era. The danger is that he is possessed of feet of clay in what is a highly fluid and unpredictable political environment, devoid of any certainties of almost any kind, in which Labour finds itself dangerously divided and weakened.
Labour may be in intensive care, but the condition of the Conservatives is not a great deal better. David Cameron was guilty of a huge and irresponsible miscalculation over Brexit. He was forced to resign in the most ignominious of circumstances. The party is hopelessly divided. It has no idea in which direction to move after Brexit. The Brexiters painted an optimistic picture of turning away from the declining European market and embracing the expanding markets of the world, albeit barely mentioning by name which countries it had in mind. It looks as if the new prime minister may have an anachronistic hostility towards China and a willingness to undo the good work of George Osborne. If the government turns its back on China, by far the fastest growing market in the world, where are they going to turn?
Brexit has left the country fragmented and deeply divided, with the very real prospect that Scotland might choose independence. Meanwhile, the Conservatives seem to have little understanding that the neoliberal era is in its death throes.
‘Put America first’: Donald Trump in Cleveland last month. Photograph: Joe Raedle/Getty Images
Dramatic as events have been in the UK, they cannot compare with those in the United States. Almost from nowhere, Donald Trump rose to capture the Republican nomination and confound virtually all the pundits and not least his own party. His message was straightforwardly anti-globalisation. He believes that the interests of the working class have been sacrificed in favour of the big corporations that have been encouraged to invest around the world and thereby deprive American workers of their jobs. Further, he argues that large-scale immigration has weakened the bargaining power of American workers and served to lower their wages.
He proposes that US corporations should be required to invest their cash reserves in the US. He believes that the North American Free Trade Agreement (Nafta) has had the effect of exporting American jobs to Mexico. On similar grounds, he is opposed to the TPP and the TTIP. And he also accuses China of stealing American jobs, threatening to impose a 45% tariff on Chinese imports.
To globalisation Trump counterposes economic nationalism: “Put America first”. His appeal, above all, is to the white working class who, until Trump’s (and Bernie Sander’s) arrival on the political scene, had been ignored and largely unrepresented since the 1980s. Given that their wages have been falling for most of the last 40 years, it is extraordinary how their interests have been neglected by the political class. Increasingly, they have voted Republican, but the Republicans have long been captured by the super-rich and Wall Street, whose interests, as hyper-globalisers, have run directly counter to those of the white working class. With the arrival of Trump they finally found a representative: they won Trump the Republican nomination.
The economic nationalist argument has also been vigorously pursued by Bernie Sanders, who ran Hillary Clinton extremely close for the Democratic nomination and would probably have won but for more than 700 so-called super-delegates, who were effectively chosen by the Democratic machine and overwhelmingly supported Clinton. As in the case of the Republicans, the Democrats have long supported a neoliberal, pro-globalisation strategy, notwithstanding the concerns of its trade union base. Both the Republicans and the Democrats now find themselves deeply polarised between the pro- and anti-globalisers, an entirely new development not witnessed since the shift towards neoliberalism under Reagan almost 40 years ago.
Another plank of Trump’s nationalist appeal – “Make America great again” – is his position on foreign policy. He believes that America’s pursuit of great power status has squandered the nation’s resources. He argues that the country’s alliance system is unfair, with America bearing most of the cost and its allies contributing far too little. He points to Japan and South Korea, and Nato’s European members as prime examples.He seeks to rebalance these relationships and, failing that, to exit from them.
As a country in decline, he argues that America can no longer afford to carry this kind of financial burden. Rather than putting the world to rights, he believes the money should be invested at home, pointing to the dilapidated state of America’s infrastructure. Trump’s position represents a major critique of America as the world’s hegemon. His arguments mark a radical break with the neoliberal, hyper-globalisation ideology that has reigned since the early 1980s and with the foreign policy orthodoxy of most of the postwar period. These arguments must be taken seriously. They should not be lightly dismissed just because of their authorship. But Trump is no man of the left. He is a populist of the right. He has launched a racist and xenophobic attack on Muslims and on Mexicans. Trump’s appeal is to a white working class that feels it has been cheated by the big corporations, undermined by Hispanic immigration, and often resentful towards African-Americans who for long too many have viewed as their inferior.
A Trump America would mark a descent into authoritarianism characterised by abuse, scapegoating, discrimination, racism, arbitrariness and violence; America would become a deeply polarised and divided society. His threat to impose 45% tariffs on China, if implemented, would certainly provoke retaliation by the Chinese and herald the beginnings of a new era of protectionism.
Trump may well lose the presidential election just as Sanders failed in his bid for the Democrat nomination. But this does not mean that the forces opposed to hyper-globalisation – unrestricted immigration, TPP and TTIP, the free movement of capital and much else – will have lost the argument and are set to decline. In little more than 12 months, Trump and Sanders have transformed the nature and terms of the argument. Far from being on the wane, the arguments of the critics of hyper-globalisation are steadily gaining ground. Roughly two-thirds of Americans agree that “we should not think so much in international terms but concentrate more on our own national problems”. And, above all else, what will continue to drive opposition to the hyper-globalisers is inequality.
Wednesday 13 April 2016
I'm the real-life Gordon Gekko and I support Bernie Sanders
Asher Edelman in The Guardian
The potential for a depression looms on the horizon. The Vermont senator is the only candidate who can stop banks from spiraling out of control again
The potential for a depression looms on the horizon. The Vermont senator is the only candidate who can stop banks from spiraling out of control again
‘Bernie Sanders is the only independent candidate who escapes the malaise of being bought.’ Photograph: Allstar Picture Library
Banking is the least understood, and possibly most lethal, of all the myriad issues at stake in this election. No candidate other than Bernie Sanders is capable of taking the steps necessary to protect the American people from a repeat of the recent debacle that plunged the nation into a recession from which we have not recovered.
The potential for a depression looms heavily on the horizon. As a trained economist who has spent more than 20 years on Wall Street – and one of the models for Gordon Gekko’s character – I know the financial system is in urgent need of regulation and responsibility. Yet Hillary Clinton is beholden to the banks for their largesse in funding her campaign and lining her pockets. The likelihood of any Republican candidate taking on this key issue is not even worthy of discussion.
The recession of 2007-2016, and the persistent transfer of wealth from the 80% to the 1% is, mostly the result of banking irresponsibility precipitated by the repeal of the Glass-Steagall Act in 1999. The law separated commercial banking (responsible for gathering and conservatively lending out funds) from investment banking (more speculative activities).
A new culture emerged that rewarded bankers for return on equity rather than sound lending practices. The wild west of risk-taking, staked on depositors’ money, became the best sport in town. Why not? If management won, they got rich. When they lost, the taxpayer took on the responsibility. If that sounds like a good wager, it was (and is).
The only problem is what happens when the music ends. Debt-to-capital ratios for investment banking functions rose from 12:1 to 30:1. Options on derivatives on other derivatives increased that leverage many fold. Self-regulation became the rule and, lo and behold, in 2008: crash. America and the world were nailed by a fastball from which the bottom 80% of the American population has yet to recover.
Remarkably, today the derivatives positions held by the large banks approach 10 times those of 2007-2008. In four banks alone, they exceed the GDP of the entire world. This is the interesting consequence when unchecked risk management rests in bankers’ hands.
When Clinton repealed Glass-Steagall, it was the culmination of the largest ever lobbying effort by the banking community to that date, $300m spent to convince Congress that Clinton, aided by Robert Rubin (US treasurer, previously with Goldman Sachs) and Alan Greenspan, a Milton Friedman-style supply-side economist, that the restraints on speculation should be removed. The banking community’s gratitude was and is unending. Who can blame them?
Wait, there’s more. After the collapse of 2008, the Federal Reserve invested more than $15tn to save the banks under the guise of monetary stimulation. At the same time, little or no funds were channeled to the needs of the American people. Yet today we face another crisis of liquidity. This time Europe will break first, followed by their highly leveraged US colleagues. Meanwhile, the bottom 80% of Americans remain mired in a recession, having seen no increase in their incomes during the last 20 years.
Poverty is at its highest level since the 1930s (in some areas of the country, higher). More than 30% of all children live with families subsisting below the poverty level. Employment is at a new all-time low (the percentage of employed persons is at about 49%, having been at more than 52% prior to 2008).
The average American is entitled to more. Only Bernie Sanders is committed to honest solutions to these problems. The way to avert the next banking crisis is the most clear. Assuming a Republican Congress, which would prevent the reinstatement of Glass-Steagall, Bernie has only to turn to regulation and responsibility.
Dodd-Frank provides the necessary structure with which to begin. Enforce it. Put teeth into bank regulation. Determine the acceptable level of risk at which banks can operate. Make management, not underlings or stockholders, responsible for violating the law. Encourage the Justice Department to be clear in seeking appropriate penalties for financial crimes in large institutions, not by fines alone but by the prosecution of those executives responsible.
Split up the banks that are speculating with depositor and government funds. Investment banks are supposed to risk investors’ money but commercial banks should return to lending fairly and carefully to help create a foundation for future growth. Bernie Sanders is the only independent candidate who escapes the malaise of being bought. He is paid for by the people and represents their interests. And you can take that to the bank.
Banking is the least understood, and possibly most lethal, of all the myriad issues at stake in this election. No candidate other than Bernie Sanders is capable of taking the steps necessary to protect the American people from a repeat of the recent debacle that plunged the nation into a recession from which we have not recovered.
The potential for a depression looms heavily on the horizon. As a trained economist who has spent more than 20 years on Wall Street – and one of the models for Gordon Gekko’s character – I know the financial system is in urgent need of regulation and responsibility. Yet Hillary Clinton is beholden to the banks for their largesse in funding her campaign and lining her pockets. The likelihood of any Republican candidate taking on this key issue is not even worthy of discussion.
The recession of 2007-2016, and the persistent transfer of wealth from the 80% to the 1% is, mostly the result of banking irresponsibility precipitated by the repeal of the Glass-Steagall Act in 1999. The law separated commercial banking (responsible for gathering and conservatively lending out funds) from investment banking (more speculative activities).
A new culture emerged that rewarded bankers for return on equity rather than sound lending practices. The wild west of risk-taking, staked on depositors’ money, became the best sport in town. Why not? If management won, they got rich. When they lost, the taxpayer took on the responsibility. If that sounds like a good wager, it was (and is).
The only problem is what happens when the music ends. Debt-to-capital ratios for investment banking functions rose from 12:1 to 30:1. Options on derivatives on other derivatives increased that leverage many fold. Self-regulation became the rule and, lo and behold, in 2008: crash. America and the world were nailed by a fastball from which the bottom 80% of the American population has yet to recover.
Remarkably, today the derivatives positions held by the large banks approach 10 times those of 2007-2008. In four banks alone, they exceed the GDP of the entire world. This is the interesting consequence when unchecked risk management rests in bankers’ hands.
When Clinton repealed Glass-Steagall, it was the culmination of the largest ever lobbying effort by the banking community to that date, $300m spent to convince Congress that Clinton, aided by Robert Rubin (US treasurer, previously with Goldman Sachs) and Alan Greenspan, a Milton Friedman-style supply-side economist, that the restraints on speculation should be removed. The banking community’s gratitude was and is unending. Who can blame them?
Wait, there’s more. After the collapse of 2008, the Federal Reserve invested more than $15tn to save the banks under the guise of monetary stimulation. At the same time, little or no funds were channeled to the needs of the American people. Yet today we face another crisis of liquidity. This time Europe will break first, followed by their highly leveraged US colleagues. Meanwhile, the bottom 80% of Americans remain mired in a recession, having seen no increase in their incomes during the last 20 years.
Poverty is at its highest level since the 1930s (in some areas of the country, higher). More than 30% of all children live with families subsisting below the poverty level. Employment is at a new all-time low (the percentage of employed persons is at about 49%, having been at more than 52% prior to 2008).
The average American is entitled to more. Only Bernie Sanders is committed to honest solutions to these problems. The way to avert the next banking crisis is the most clear. Assuming a Republican Congress, which would prevent the reinstatement of Glass-Steagall, Bernie has only to turn to regulation and responsibility.
Dodd-Frank provides the necessary structure with which to begin. Enforce it. Put teeth into bank regulation. Determine the acceptable level of risk at which banks can operate. Make management, not underlings or stockholders, responsible for violating the law. Encourage the Justice Department to be clear in seeking appropriate penalties for financial crimes in large institutions, not by fines alone but by the prosecution of those executives responsible.
Split up the banks that are speculating with depositor and government funds. Investment banks are supposed to risk investors’ money but commercial banks should return to lending fairly and carefully to help create a foundation for future growth. Bernie Sanders is the only independent candidate who escapes the malaise of being bought. He is paid for by the people and represents their interests. And you can take that to the bank.
Thursday 8 October 2015
Money isn’t restricted by borders, so why are people?
Giles Fraser in The Guardian
Theresa May won’t be around in the early 22nd century when, according to Star Trek at least, Dr Emory Erickson will have invented the transporter – a device that will be able to dematerialise a person into an energy pattern, beam them to another place or planet, and then rematerialise them back again. In such a world people will be able to move as quickly and freely as an email.
The philosopher Derek Parfit has rightly questioned whether such a thing is even philosophically possible: will the rematerialised person be the same person as the dematerialised one, or just a perfect copy. (What would happen if two copies of me were rematerialised? Would they both be me?) Parfit thus raises a fascinating philosophical question about what we mean by personal identity – or what makes me me.
But, just for the sake of argument, imagine what such a device would do to Mrs May’s keep-them-all-out immigration policy. With the transporter, there could be no border controls and no restrictions on the free movement of individuals. Economic migrants would love it. People will be able to live and work where they like, beaming instantly from Syria to Sussex or indeed to Saturn. And because of this, the whole concept of the nation state will eventually wither away. People will have become more powerful than the state.
Fanciful? Of course. Forget about the technical problems. The fundamental problem is that human beings are not fungible. A copy is not the same as its original. A person cannot be dematerialised into a series of digital zeros and ones, get beamed over space and be rematerialised as the same person.
But – and here is the really big thing – money can be. For the whole point about money is that it is fungible. It can be converted into zeros and ones and it can be digitally shot across space. And since the late 1970s, when capital controls were relaxed all around the world, and then even more so since the digital revolution, money has been able to go where it pleases, unimpeded, without any need for a passport or reference to border control. Every day, trillions of dollars are economic migrants, crossing boundaries as if they didn’t exist, pouring in and out of countries looking for the most economically advantageous place to be. And, just as with the fanciful people-transporter example, this free movement of capital is how the nation state is dissolving.
This week the OECD published a report on international companies and tax avoidance. Big companies like AstraZeneca are able to pay next to no tax in the UK because they just transport their profits to a low-tax regime in another country. Indeed, some countries, pathetically prostrating themselves before the gods of finance, exist for little other than this purpose. And so the situation we find ourselves in is that money is free to travel as it pleases but people are not. We have got used to this as the new normal, and it largely goes unremarked. Yes, there are a few on the libertarian fringe who recognise this as a contradiction and argue that people should be as free as capital. But the majority on the right do everything they can to protect the free movement of capital and restrict the free movement of people.
Which is why the neoliberal right in Britain has utterly contradictory instincts over Europe – they want the free trade bit but they don’t want the free people bit. And they scare us with how the free movement of people threatens our national identity but refuse to face the fact that the free movement of capital can be seen as doing exactly the same. They talk a good game about the importance of freedom: but it’s one rule for capital and another for people.
Of course the transporter won’t happen. But with the internet, the imagination can travel where it will. And that means poor people will always see and want what rich people have. And not even Mrs May will be able to stop them crossing dangerous seas and borders to find it.
Theresa May won’t be around in the early 22nd century when, according to Star Trek at least, Dr Emory Erickson will have invented the transporter – a device that will be able to dematerialise a person into an energy pattern, beam them to another place or planet, and then rematerialise them back again. In such a world people will be able to move as quickly and freely as an email.
The philosopher Derek Parfit has rightly questioned whether such a thing is even philosophically possible: will the rematerialised person be the same person as the dematerialised one, or just a perfect copy. (What would happen if two copies of me were rematerialised? Would they both be me?) Parfit thus raises a fascinating philosophical question about what we mean by personal identity – or what makes me me.
But, just for the sake of argument, imagine what such a device would do to Mrs May’s keep-them-all-out immigration policy. With the transporter, there could be no border controls and no restrictions on the free movement of individuals. Economic migrants would love it. People will be able to live and work where they like, beaming instantly from Syria to Sussex or indeed to Saturn. And because of this, the whole concept of the nation state will eventually wither away. People will have become more powerful than the state.
Fanciful? Of course. Forget about the technical problems. The fundamental problem is that human beings are not fungible. A copy is not the same as its original. A person cannot be dematerialised into a series of digital zeros and ones, get beamed over space and be rematerialised as the same person.
But – and here is the really big thing – money can be. For the whole point about money is that it is fungible. It can be converted into zeros and ones and it can be digitally shot across space. And since the late 1970s, when capital controls were relaxed all around the world, and then even more so since the digital revolution, money has been able to go where it pleases, unimpeded, without any need for a passport or reference to border control. Every day, trillions of dollars are economic migrants, crossing boundaries as if they didn’t exist, pouring in and out of countries looking for the most economically advantageous place to be. And, just as with the fanciful people-transporter example, this free movement of capital is how the nation state is dissolving.
This week the OECD published a report on international companies and tax avoidance. Big companies like AstraZeneca are able to pay next to no tax in the UK because they just transport their profits to a low-tax regime in another country. Indeed, some countries, pathetically prostrating themselves before the gods of finance, exist for little other than this purpose. And so the situation we find ourselves in is that money is free to travel as it pleases but people are not. We have got used to this as the new normal, and it largely goes unremarked. Yes, there are a few on the libertarian fringe who recognise this as a contradiction and argue that people should be as free as capital. But the majority on the right do everything they can to protect the free movement of capital and restrict the free movement of people.
Which is why the neoliberal right in Britain has utterly contradictory instincts over Europe – they want the free trade bit but they don’t want the free people bit. And they scare us with how the free movement of people threatens our national identity but refuse to face the fact that the free movement of capital can be seen as doing exactly the same. They talk a good game about the importance of freedom: but it’s one rule for capital and another for people.
Of course the transporter won’t happen. But with the internet, the imagination can travel where it will. And that means poor people will always see and want what rich people have. And not even Mrs May will be able to stop them crossing dangerous seas and borders to find it.
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