Thursday, 22 January 2015

Europe Gets Even More QuEasy

Today the European Central Bank did what financial markets had expected, after lots of leaking of the policy moves. They announced they would buy securities in the asset markets, at a rate a little higher than had been expected of €60 billion per month, from March 2015. The policy will continue until inflation looks like getting closer to 2%, which, with the slump in energy prices, will be a while yet. In all likelihood, this extra asset buying (there has been some before) will amount to a bit over €1 trillion and last until September 2016, maybe longer. For comparison's sake, the new policy is around 10% of euro area GDP, compared to the US and UK policies of 'quantitative easing' that have amounted to more than 20% of GDP.
This policy move is the latest in a series that indicate there is no way out of the crisis. How can anyone believe that this policy, essentially making government bonds have even lower yields, can do anything for the economy when 10-year government borrowing costs were already less than 1% in Germany and France and less than 2% in Italy and Spain, the euro area's biggest economies?
The central bank's notion is that this will feed into private sector borrowing costs being lower, but there are some difficulties here. One is that there is very little demand to borrow to invest, given the dire economic outlook; the other is that banks would not to lend at anything like the sub-1% or 2% numbers to private investors, and the level of interest rates is not the problem. The problem is that there is no profitable avenue for large-scale capital investment, or any investment that does not depend upon government subsidy, tax dodging or some form of financial trickery. Even the countries that claim they have done better than the euro average - especially the US, but also the UK and Switzerland - are now faced with higher currency values against the ones that are under the market's cosh. Last week, the Swiss National Bank's made a dramatic move to abandon its 3-year attempt to stabilise its currency against the euro. This was done largely in anticipation of this week's action by the ECB and so far the euro's value has fallen 18% against the Swiss franc. Unsurprisingly, the euro fell another 1-2% today.
The ECB made a concession to German worries about the new policy. They said that 80% of the risk of the new purchases would be borne by national central banks, because central banks in the euro area might buy rubbish and face a loss. In its press releases today, they did not explain who would buy what, or how much. Because the scale of the buying, if it is not directed, would evidently be concentrated on the better risks - Germany, especially - a proviso was included: only up to one-third of a country's outstanding debt could be bought in this way, and the debt had to have a maturity of 2-30 years. Germany has around €1.1 trillion of debt outstanding, with less than this in the 2-30 maturity range. So these, the 'safest assets', will not be able to use up more than about a third of the new programme. German government securities out to a maturity of 5 years also have a yield that is zero or negative. So, presumably, this is good news for the government securities of France, Italy and Spain, the other countries with large bond markets.
The ECB's hope is that the lower yields will force investors to take on more economy-boosting risks. Instead, the likelihood is that there will be a continued reliance by capitalists on 'making money' through financial investment, something that further stretches the gap between value creation and financial accounting. On occasion, that gap is narrowed by a slump of financial market prices for bonds and/or equities, but the ECB has signalled that it will gamble for a while longer on trying to push the gap still wider.

Tony Norfield, 22 January 2015

Saturday, 20 December 2014

How Much Do Santa's Helpers Get Paid?

A large proportion of the world's industrial employment is in poorer countries. In 2012, the International Labour Organisation estimates that total world employment was some 715 million, but only 106 million jobs were in developed economies and the European Union. The biggest number of industrial jobs among the richer countries was in the US, with 26 million, but this figure fell from 31 million in 1991. The striking contrast is with the poorer countries. China employed 234 million in 2012, up from around 135 million in 1991. India's industrial employment more than doubled over the same period to 113 million, and similar developments have occurred elsewhere. Indonesia now employs 24 million and Brazil 21 million industrial workers. As many people are aware, the growth of the industrial labour force in poor countries and the shrinkage in rich countries has been a factor in so-called globalisation. The economics behind this shift of employment, and production, is the relative cost of hiring workers. While there may be other factors impacting business decisions, from tax breaks to sources of cheap energy, labour costs are the main influence over the location of production.

The next chart gives the latest picture for the hourly 'labour compensation' in different countries for the year 2013. Compensation refers to the sum of both wages paid and various benefits available to the worker. In general, the amount of non-wage compensation is very low in poor countries. These data are taken from the US Conference Board's publication a few days ago.

I have included both China and India in the chart, although the Conference Board lists their data separately because their labour cost numbers are not seen as being comparable with the data for other countries. In addition, the Conference Board data is for 2011 (India) and 2012 (China), so I have made adjustments to produce a figure for 2013 based on reported wage increases and on the moves of India's and China's currency exchange rates against the US dollar.

Each country in the chart is indicated by its two-letter ISO code (CH is Switzerland, CN is China, BR is Brazil, IN is India, PH is the Philippines, etc). The chart also mainly shows richer countries. Partly I have to do this because there is no comparable data available for some of the poorest countries, eg none for Bangladesh or Indonesia. Also, I do this to make a point: in the current 'festive season' for the richer countries, many of the presents Santa Claus will bring have been produced by workers enduring oppressive conditions and earning a wage (and not much else adding to 'compensation') that is a small fraction of the wages available to workers in countries receiving the presents.

Hourly Compensation Costs in Manufacturing, 2013
(Index based on US = 100, for a cost of US$ 36.34)

Notably, although the US is the base country for the compensation index shown, the US figure is well below that seen for several European countries and also Australia. Switzerland, Belgium and Sweden stand out here, with numbers more than 40% higher than in the US. South Korea (SK) is at 61% of the US figure, then there is a big drop down to the compensation number for Brazil (BR) at 29%, then Taiwan, Poland and Mexico. China, the Philippines and India come last, with the Conference Board data (and my estimates) putting China's workers at an average of just below 10% of the US number, and India at just below 5%.

A final comment on the statistics: how far do the wonders of the global market work to lessen wage inequalities over time? Surely, if workers are expensive in the richer countries, there will be a shift of production to countries where workers are cheaper, and eventually this will reduce the wage gaps. The Conference Board's data show something like this in the case of China. But the hourly compensation costs in China rose from a minuscule 2.2% of the US number in 2002 to just 8.6% in 2012. These data are for a 10-year period long after the influx of foreign capital and the expansion of Chinese production began and the result remains that Chinese workers are on less than 10% of US worker compensation. The most significant example of catching up is seen in South Korea, where the ratio rose from 40% to 60% between 1997 and 2013. Other Conference Board data comparing 1997 with 2013 show far less catching up with the US: the Philippines ratio rose from just 5% to 6%. In Brazil, the ratio fell from 31% to 29%; in Taiwan from 31% to 26%. This is a neat indication of the way in which the stratification of the imperialist world economy is not overcome by market forces.

Tony Norfield, 20 December 2014

Sunday, 14 December 2014

Bush and the Brazilians

This being December, I have been reading more about mathematics. However, this was in the context of the excellent Simpsons cartoon, on which the science writer Simon Singh has produced an illuminating book: The Simpsons and their Mathematical Secrets (Bloomsbury, London, 2013).

The book is too good to summarise in a brief note, but I just wanted to share one of the jokes he presents as an aside from the interesting analysis:

'During a security briefing at the White House, Defense Secretary Donald Rumsfeld breaks some tragic news: "Mr President, three Brazilian soldiers were killed yesterday while supporting US

'My God!' shrieks President George W Bush, and he buries his head in his hands. He remains stunned and silent for a full minute. Eventually, he looks up, takes a deep breath, and asks Rumsfeld: 'How many is a brazillion?'

Tony Norfield, 14 December 2014

Sunday, 7 December 2014

Labour's Colonial Policy

This article is based on notes prompted by reading an interesting book, Imperialism and the British Labour Movement, 1914-1964, by Partha Sarathi Gupta, published in 1975. I find it particularly of interest because it presents some original material from a time when the Labour Party will claim to have been 'socialist' in some sense. So, this article can be seen as an anti-nostalgia exercise! Things never were any good with this pro-imperialist party.
Gupta has extensive documentation of debates in the House of Commons, Labour Party conference speeches and policy recommendations from such bodies as the Fabian Colonial Bureau and the Movement for Colonial Freedom. He also gives examples of the racism of many leaders of the 'labour movement', especially regarding Africa. More important for my current purpose is that he highlights how Britain's plans for colonial development were always presented as being mutually beneficial, but were always based upon Britain's needs and in directions determined by the colonial rulers, not by the local populations.
The book is a dry read, and with a number of questionable views, for example that by the early 1960s 'social imperialist sentiment had been eliminated' in the UK (p. 393). However, it offers some striking comments and statements that illustrate the 'socialism in words' and 'imperialism in deeds' perspective of the Labour Party in the 1940s and 1950s that I will set out below. A good summary of Labour politics is given in Gupta's conclusion to a chapter on 'Colonial reforms':
"A large body of opinion inside the [labour] movement was representative of 'little Englanders', who were preoccupied with social transformation at home and anxious to avoid military and political engagements abroad. In moments of crisis a social imperial syndrome became active. Though it was originally noticed mainly among those trade unionists who were least affected by socialist ideas, the imperialist bias displayed by Bevin in general [Ernest Bevin, Labour's staunch anti-communist Foreign Secretary, 1945-1951] and by John Strachey over the groundnuts affair [see below] showed that persons with a Marxist background could slide easily into a social-imperialist position once they became pre-occupied with building socialism in their own country only." (pp. 346-347)
Despite the little Englanders being 'anxious to avoid military and political engagements abroad', Gupta does not mention that there was no labour movement opposition to Britain's military efforts to re-establish its own and other European colonies after 1945, possibly because these used Indian and recently defeated Japanese troops against local nationalists in Asia, and hardly any British troops. But, I will turn attention to the more direct British dimension of colonial economic exploitation.
The first example is John Strachey. Named in House of Commons records as Evelyn Strachey, MP for Dundee, and with the more elaborate nomenclature on his birth certificate of Evelyn John St Leo Strachey, he was an outcome of Eton and Oxford and an itinerant politician (see his Wikipedia entry) with successive socialist, Mosley, Communist, anti- and pro-Keynesian views. He was also a Minister of Food and a Secretary of State for War. Despite these dizzying turns, throughout his life he remained a consistent British nationalist. In a January 1948 House of Commons debate on the Colonial Development Corporation bill, he concluded:
"I should like to end this discussion by striking this note, that by one means or another, by hook or by crook, the development of primary production of all sorts, in the Colonial areas, Colonial territories and dependent areas in the Commonwealth, as well as generally throughout the world, in far more abundant quantities than exist today is, it is hardly too much to say, a life and death matter for the economy of this country."
This perspective was behind his support for the infamous groundnut scheme in Tanzania, then called Tanganyika. Britain's plan to plant groundnuts in an unsuitable region with idiotic technology turned into a loss-making fiasco and was abandoned. However, while this is often seen as a dumb development project, the basic notion behind it receives less attention: it was to use cheap labour in the colonies to grow products that would feed the British back home, and so reduce the need to import from outside the Empire. This would avoid paying in US dollars for some food supplies when there was already a shortage of dollars in Britain's reserves. Instead, the producers of Tanzania would receive payment in terms of a devaluing sterling.
The groundnuts scheme was only one case of colonial exploitation, realised or planned. More importantly, Britain had a number of marketing boards that were monopoly buyers of the commodity output of its colonies, and limited the development of any processing operations so that they received at best, and usually below, the world market price for the raw commodity. House of Commons Parliamentary debates always argued that a 'fair price' was being set, and that the buying operation carried risks to Britain's finances. But the buying prices were always set at below what the market price turned out to be. Furthermore, the surpluses from selling these products on the market always ended up in sterling balances based in London banks! This was how the system worked.
In a May 1951 debate on the West African Marketing Boards, one Labour MP, the Rugby and Oxford educated barrister, Richard Acland, made the following comment as part of a longer apologia:
"Firstly, the prices in the long-term contracts made by our Government were perfectly fair prices, there being genuine arguments at the time of the contracts to suggest that world prices for the crops might have fallen. But in fact that has never happened and the opposite has always taken place. To give an example: We are purchasing West African palm oil at £94 a ton, when the same oil on the free market has been fluctuating from £134 to £210 per ton."
What a stroke of luck that no West Africans were listening! Just in case they were, he denied that the amounts concerned were of any significance.
This is not to say that Labour MPs were being too truthful, and not forward-looking enough. How forward-looking, to see the way in which British imperialism's economic stresses could be solved so that we could have a 'Jerusalem builded here', on the backs of the colonies, is shown in the next quotation. Harold Wilson, a future Labour Prime Minister, had this to say in the House of Commons when Labour was in opposition in February 1953:
"There are very many schemes that can earn and save dollars and we want to know about them. There is copper in Rhodesia and Uganda; zinc and lead in Nigeria and tin in Uganda and British Honduras. We have to face the working out of the tin reserves in Malaya, before many years are over. There is, too, bauxite in Jamaica, manganese in India and South Africa, tungsten in Uganda, beryllium in India and columbium in Uganda. I am sure that these things are being considered by the Foreign Secretary, and what we should like to know at some convenient time—I would not press him to answer in detail tonight—is what is being done to press on with these schemes.
"Perhaps the most important step in the Commonwealth development [sic!] would be for the Government to work out now a wide-ranging geological survey of Colonial Territories ... I do not think that anyone in the House would deny that the answer to all our dollar problems may well be found 200 or 1,000 feet below the soil in the Colonial areas, and a really imaginative geological survey might possibly solve a lot of our problems over rather a long time."
The economic policy in the colonies, now given the honeyed description of 'Commonwealth' rather than Empire, was to meet British imperialism's requirements. That is not a surprise for critics of imperialism, but let me leave you with a sickening Labour socialist conclusion. Recognising that the Empire, sorry, Commonwealth, may not persist on the same footing, noting the colonies' contribution to the Sterling Area balances and expressing a desire that colonial peoples have a better future, Jennie Lee, wife of Aneurin Bevan, the Labour left saint, had this to say at Labour's Annual Conference in October 1956:
"We have to work for the day when there will be a higher standard of living here, a higher standard of living in the colonies, and when as free and friendly nations they will want us to be their bankers." (p. 376)
She was ahead of her time. The City of London today is the biggest centre of global banking, despite Britain having a much worse current account deficit than when she was speaking. British imperialism found other ways of appropriating the value of what others produce.

Tony Norfield, 7 December 2014

Wednesday, 12 November 2014

Rosetta and Ebola

The technical achievements of the Rosetta space programme fill the news headlines, at least in Europe. The near-$2 billion price of the expedition is considered trifling. Here is a celebration of human ingenuity! But here on earth, somewhat less than the distance of the comet that is 500 million kilometres away from the centres of power, many thousands of people are dying from ebola, a disease that has devastated the economies and societies of several west African countries, largely due to the collapse (or non-existence) of local health services. More food for thought in considering the human cost of the imperialist world economy.

Tony Norfield, 12 November 2014

Tuesday, 28 October 2014

Hard Road

An old song just came to mind, sung by Georgia Brown as the introduction theme to a 1970s UK TV series 'Roads to Freedom', based on work by Sartre.

Here are the (French) words of the song, at least all that were sung and stayed in my memory:

"La route est dure, mais je suis fort,
Mon âme est sûr, la peur est mort,
Je sais quoi faire avec la vie,
Quand toute la terre est endurcie."

It was sung with passion, and with the French (singing) emphasis on the 'e' in 'dure', 'faire' and 'terre', and also an 'e' inflected on the end of 'sûr', to complete the rhymes. Unfortunately, not available on YouTube, or anywhere else, as far as I can see.

I hope I remember my unused French correctly, for it was a rousing, defiant song, one that is fondly remembered, despite my antipathy to existentialism.

One lesson to draw from it is that you do not have to buckle to reactionary politics, as so many do. Witness the way that the chronic capitalist crisis has fuelled anti-Moslem and anti-immigration politics. This reflects the entrenched, pro-imperialist views of the mass of people in richer countries. Pro-welfare 'socialists' and liberals, ever so progressive when times are good, bend so easily in this wind.

Tony Norfield, 28 October 2014

Sunday, 26 October 2014

Moribund Capitalism

The credit market works like this: one person's debt to another is the other person's asset. As long as the debtor can pay, then the creditor feels fine, if a little anxious when the weather changes. Now consider what happens in the wake of a credit-fuelled economic boom and its subsequent collapse. What if the mountain of debt is also a deep well of crap? That is the situation today.

This is the basic reason behind the never-ending policy from the world economy's major central banks to keep interest rates at close to zero. Every time there is a suggestion of raising interest rates (some time in the current century ...) from zero point nothing percent to zero point something, financial markets threaten to implode. Despite data in some countries recording improved profitability of capitalist companies, this is the more tangible reality of capitalist prospects.

News has not been good, in any case: from falling equity markets, to ever more desperate measures from governments and central banks, especially in Europe and the US. Below is a striking picture given for the US, by the Federal Reserve Bank of St Louis.

The chart shows the asset holdings of the US central bank, the Federal Reserve, since 2007 (the annotations are mine). In the initial phase of the crisis, the Fed boosted its lending to financial companies dramatically and did a series of rescue operations. These have now diminished to negligible proportions, as what remained of the US financial system was put back on its feet by zero interest rates and financial bail outs. However, there are two measures that have not been reversed. In fact, they have increased, even though the crisis was meant to be over: an increase in Fed holdings of US Treasury (government) securities, now totalling $2,457bn (data up to 22 October 2014), and mortgage backed securities of $1,417bn. Consider these figures against the US GDP in 2013 of $16,800bn, and also remember that the latter is just private debt to the state, not private debt to others, which is even bigger.

Many American citizens paying their mortgage interest will no doubt be somewhat surprised to learn that the recipient is actually the US government. Still, you can't keep an innovative, private capitalist system down, can you. As for the US Treasury paying interest on its bonds and notes to the US Fed, well they manage to find a way to get the money back again. The wonders of finance!

These numbers show more fully than monthly changes in business activity what is really going on, and the intractable nature of the crisis that imperialist countries face. Unfortunately, I have no such telling pictures of the European Central Bank's dodgy assets which, in any case, will soon be boosted by its new purchases of 'covered bonds'; nor of the Bank of England's activities. The Bank of England has up to now had a more conservative approach of hardly buying anything other than UK government securities in the secondary markets in its 'quantitative easing' (it has £375bn of gilts on this book and nothing else). However, the Bank of England has extended what it will accept as collateral, with the relevant 'haircuts', and also increased the ways in which it will offer 'liquidity' to the financial system in a crisis.

In summary, Lenin's description of imperialism as 'moribund capitalism' comes to mind. The astonishing application of extraordinary measures can only produce such mediocre results, ones that leave many millions in crisis.

Tony Norfield, 26 October 2014