Saturday, 25 July 2015

Labour ‘Leadership’ and British Politics

The British media is focused on Jeremy Corbyn, the radical outsider who, according to opinion polls, might win the Labour Party’s leadership vote. That vote is in about seven weeks’ time, so don’t hold your breath. But it is worth making some comments on what this reveals about British politics.
Most of the Labour leadership contenders make Ed Miliband look like a charismatic guru who could inspire followers to walk over burning coals and not feel a thing. By comparison, Corbyn is an exception, at least in having a personality and some political beliefs. I would only point out that his political beliefs have not prevented him from remaining a Labour Party Member of Parliament for more than thirty years. Just consider what that means. So many years and so many crimes, either committed by, or supported by, the party to which you belong. Was the Labour Government’s interventions in Afghanistan and Iraq weird anomalies – against which a critical voice could build an effective opposition? Or would history judge instead that Labour has always supported British imperialism’s interests and that dissident voices reflected naivety at best?
However, Corbyn’s dissident beliefs on Iraq and Palestine, among other things, are not the basis of his support, either in his London constituency or among ordinary Labour party members in this leadership contest. Instead, that support comes from his anti-austerity stance. Yet while his inner-City constituency might support Corbyn’s position on opposing cuts in welfare payments, the rest of the UK does not. Against his stance, one has to consider why the other Labour leadership contenders basically support the Conservative government on the need to slash welfare payments, something summed up by the recommendation of Harriet Harman, acting Labour leader, to abstain in the recent Parliamentary vote on welfare cuts. The Conservative government’s proposals reflected not just a Conservative prejudice, but also a view that they would go down well with their supporters and others. Recall that, in the May 2015 UK general election, close to 50% of the British electorate voted either for the Conservatives (36.9%) or for UKIP (12.6%).
This is the substance of the horror expressed in the news media, by Tony Blair and others who are shocked by Corbyn’s rise to prominence in the polls. A vote for Corbyn as Labour leader will make Labour even more unelectable! It is not a question of his anti-New Labour beard, or even his opinion that the government should discuss with Hamas and Hezbollah. The key point is that he has failed to reflect in his political stance the fundamental conservatism of the British electorate.
It will take an eruption some years in the making even to begin to alter the scene. Perhaps that will come when this Conservative government eventually encounters its own ‘Poll Tax’ moment, a wall that Thatcher hit after believing that British politics was at her command. But, at close to the peak of her power, even she could not make her favourite adviser, Alan Walters, like Caligula’s horse, a consul and instead lost Nigel Lawson, her once-feted Chancellor. This miscreant group of slimeballs has less ability. It is full of low-grade chancers, not least Boris ‘water cannon’ Johnson, so it could unwittingly contrive to generate protest from the UK populace. However, personally, I do not bet on that eventuality making any real difference.

Tony Norfield, 25 July 2015
(some small amendments to the text on 31 July)

Tuesday, 7 July 2015

Imperial Hypocrisy and Greek Debt Data

The recent Greek referendum 'No' to its creditors' plans was welcome, even unique in recent history, as a sign of some serious resistance to being crushed by the exigencies of capitalism. Yet, the referendum has changed nothing because the Greek economy remains at the mercy of the creditors, especially its euro-based creditors. It is worth looking back at some points on the history on this, which will shift attention from the intransigence of German politicians like Merkel and Schauble to the double dealing of the French.

The question of writing off some of the obviously unsustainable debts was first raised back in 2010, when Greece's problems first exploded into view as the debt was over 130% of its GDP. Then, a certain Dominique Strauss-Kahn, the hereditary European who was chosen as the head of the IMF, and also a key French politico, was against a debt 'restructuring' (ie write off). No doubt citing fundamental IMF principles and the laws of God, or Mammon, Monsieur DSK was no doubt also mindful of the fact that a large proportion of Greek debt was held by French banks. In March 2010, French banks were holding the biggest pile of dung. Out of €134 billion worth of European bank claims on Greece, French banks had €52 billion, one and a half times as much as Germany.

In 2010, Greece was given further IMF and other loans, amounting to €110 billion. This was not because Greece did not have enough debt already, but because this was a way of paying off liabilities to the European banks, among other things, and making the new debt a liability of the Greek state to official creditors, who would have more power in forcing eventual repayments. One study estimates that:

"Whereas in March 2010 about 40% of total European lending to Greece was via French banks, today only 0.6% is. Governments have filled the breach, but not in proportion to their banks’ exposure in 2010. Rather, it is in proportion to their paid-up capital at the ECB – which in France’s case is only 20%.

"In consequence, France has actually managed to reduce its total Greek exposure – sovereign and bank – by €8 billion, as seen in the main figure above.  In contrast, Italy, which had virtually no exposure to Greece in 2010 now has a massive one: €39 billion.  Total German exposure is up by a similar amount – €35 billion.  Spain has also seen its exposure rocket from nearly nothing in 2009 to €25 billion today.

"In short, France has managed to use the Greek bailout to offload €8 billion in junk debt onto its neighbors and burden them with tens of billions more in debt they could have avoided had Greece simply been allowed to default in 2010.  The upshot is that Italy and Spain are much closer to financial crisis today than they should be."

This was not a full escape for private creditors, since they (including non-Europeans) were also pressured to write off roughly half of their liabilities - around €100 billion - in a 2012 restructuring of Greek sovereign debts. But in 2012 this had become more manageable, since there had been some economic recovery and also much more intervention by central banks to prop up the financial system.

The sticking point for Greece's creditors remains writing off official debt. Now the IMF, led by Christine Lagarde, another French politico - who once smiled sweetly at Yanis Varoufakis, perhaps expecting the compliance that her position demands - is able to negotiate with a lower exposure of the French banks and the French state. Her aim now is essentially to put the burden of the creditors' setbacks onto eurozone members in general, especially Germany. Previously, the (French) banks, as the main original creditors, would have been in the front line for write offs.

In this context, there is another neat, hypocritical manoeuvre by French president Fran├žois Hollande, who now wants to act as the supporter of a deal for Greece. France has long positioned itself as the saviour of southern Europe, hoping politically to build up a counterweight to Germany's supporters in any euro-based vote. As long as France can manage to put the economic burden of its political decisions onto some other country, then it will continue to do so.

Tony Norfield, 7 July 2015

PS: The authors of the debt analysis cited above also note that Greece has an unusually large amount of defence spending compared to other NATO countries of more than 2% of GDP. Why Greece needs this, apart from idiotic nationalism believing that Turkey will invade at any moment, is a mystery, but is another dysfunctional feature of the economically unviable Greek state.

Sunday, 28 June 2015

Greek Lessons

Here are some points to consider when sorting through the news stories about Greece.

The media coverage is naturally focused on day-to-day events. However, the key point to understand is that, long before the crisis broke in 2010-11, the Greek economy was unviable. It had for many years been dependent on grants from the EU, extensive credits and low interest rates. Before the 2008 worldwide financial implosion, these boosted Greek living standards. Post-2008, there was the reckoning, starting with much higher borrowing costs.

What had characterised Greece both before and after 2008 was a low level of tax revenues compared to state spending, but this was only another way in which its fundamental economic weakness was expressed. Greece had little to offer apart from shipping and tourism. But tourism had become more uncompetitive, while shipping was 'offshore', paying little tax. Along with other weak, usually southern European states, such as Portugal and Spain, but also Italy, Greece had found its competitive position undermined with the rise of cheap labour countries in Asia.

In 2010-11, the EU 'solution' was to lumber the Greek state with more debt so that it could pay off private bank creditors, mainly German and French banks. This was to avoid a reckoning in terms of writing off debts that could not be paid by adding to the debt pile which was now held to be held mainly by the Greek government. The political logic at that point was that the European banking system could not withstand taking more write offs when it was so weak, and the legions of policy-making geniuses had not yet managed to work out anything else.

A debt write off -  effectively 100bn euros or so - was then organised in 2012. Private creditors took a hit in a 'debt swap', being forced to restructure their 'assets' into loans at greatly subsidised interest rates. However, by that time, the Greek economy had collapsed under austerity measures imposed by creditors, so nothing improved and the ratio of debt to GDP continued to soar.

There followed a never-ending story of Greek-EU negotiations and subterfuge. By 2013, Syriza managed to convince itself, or at least had the political platform, that a much better deal was possible, both staying in the euro system and getting an end to austerity policies. After forming a government in January 2015, it did next to nothing to challenge the Greek oligarchs or deliver a reality check to the Greek middle class, its social base, and instead postured against Germany, the main creditor country, and annoyed all of its creditors. But, with their Ukraine policy falling apart, and with their policies in the Middle East and North Africa in a shambles, leading to many thousands of refugees trying to escape to Europe, the creditors had other things on their minds apart from endless meetings with recalcitrant Greek debtors.

So far, the Greek government has not yet defaulted on other official (government/IMF) creditors. But the European Central Bank (ECB) has extended many tens of billions of loans to the Greek government and given Greek banks another almost 100bn in emergency liquidity via the Greek central bank. On Tuesday there is also a Greek government payment due to the IMF, a default on which does not happen for a country that is meant to be one of the insider's club, yet there appear to be no funds to pay it.

The ECB may have today (Sunday) issued the coup de grace that the euro system is not otherwise able to deliver by refusing to increase its liquidity provision to Greek banks. So there will be a banking system closure in Greece on Monday, with no sign of when banks will be able to open again.

There is no legal mechanism for being kicked out of the euro, nor for a member leaving it, as far as I am aware. If anything, a euro member leaving might well threaten its membership of the wider EU. Yet, the ECB can stop doing business with one of its constituent parts, namely the Greek central bank. By stopping further funding of Greek's imploding banking system, the ECB, if it continues, will preside over the collapse of Greece's economy, forcing an exit from the euro system.

There are many economic details in dispute regarding the EU/IMF/ECB conditions to be agreed with Greece, but the creditor position at present is that the debtors have walked away from negotiations, so there is no more to discuss. One interesting angle is the question of taxes. Syriza's offer was to push the burden of adjustment onto corporate taxes rather than spending cuts, given that the latter would be focused on pensions, etc. Apart from any normal, reactionary bias in creditor demands, the inability of the Greek government to collect taxes must have been a factor in rejecting this alternative programme.

What happens in the next few days will signal again how far the 'independent' ECB is independent of the need to abide by its formerly sacrosanct rules in order to keep the euro political-economic system intact. A Greek exit from the euro is believed by many politicians to be less of a problem than it would have been in 2010-11. That is probably true, but it will nevertheless be a serious blow. One aim of Europe's bumbling ruling classes may have been to crush Syriza in order to undermine oppositional movements, such as Podemos in Spain. However, by showing that there is an exit door for euro members, even if it leads a lift shaft, this also shows that other countries may be pushed into it.

More broadly, the destruction of the Greek economy is a sign of what awaits other, previously privileged, countries that cannot make the grade in today's rapacious and imperialist world economy. If there is a lesson in the Syriza episode it is that a middle class-led movement that tries to restore the status quo ante inevitably fails.

Tony Norfield, 28 June 2015

Note: One of the first articles on this blog, 'Origins of the Greek Crisis', 24 June 2011, covered the background to recent events.

Friday, 12 June 2015

Making Things Does Not Make You Smile

A pervasive economic euphemism is the 'value chain'. This neatly glides over what is meant by 'value' and simply notes, as far as statistics allow, how much each part of the initial development, production and marketing of the overall cycle takes of the final selling price of the good that is sold. The overwhelming lesson is this: to use use fashionable parlance, absolutely worst thing you could do, OMG, is to produce anything! How could you be so dumb?!

What you need to do instead is to get poorly paid underlings to produce the goods. Then, assuming that you have any business sense, you take your cut from the branding, design or marketing of what the underlings have sweated over. If this simple lesson of modern international capitalist economics has escaped you, then let me present the 'Smiling Curve of Sam Shih', the founder of Acer, Taiwan's main IT company, as reproduced in an 8 June UNCTAD report:

As Mr Shih illustrates, if you want to add 'value', forget about manufacturing, ie actually making the product. I have not read the original document, but it probably does no more than note a material fact of his experience, rather than explain that the world economy is dominated by major monopolies and other companies that can use their market power to decide who benefits from the labour of humanity, and who works on behalf of whom.

The curve may be smiling, but billions of workers are not. Just consider: an idea, concept and brand design that cannot be marketed because nobody made it. This does not seem to cross the mind of those who draw the curves, even if their lines reflect imperial reality

Tony Norfield, 12 June 2015

Wednesday, 10 June 2015

History and Change

Modern humans originated some 200,000 years ago. Agricultural society began a little over 10,000 years ago, and brought the first forms of civilisation. Capitalism as a form of organising social production began some 300 years ago, but many people see capitalism as the ultimate, unchangeable form of society, even though it has been such a small portion of human existence. If today we consider that, because we have lived our whole lives under capitalism, this would continue forever, that would be equivalent to believing, from humanity’s social standpoint, that the last eleven days in the past year would also continue forever. By contrast, history shows that things change. Not necessarily as quickly, although John Reed’s book, Ten Days that Shook the World, on the Russian revolution, indicates that it could even be less.[1]
Tony Norfield, 10 June 2015

[1] The calculation has been changed from when this text was originally posted in order to make the point more clearly. Note that 300 years of capitalism divided by 10,000+ years of all forms of human civilisation is 3% at most.

Wednesday, 3 June 2015

FIFA and World Power

It is amusing to see the powerful fall down, but more interesting to see who pushed them over, especially when the ramifications highlight how the world works. Football (soccer, to some) is a big global business, but has developed with some odd features that are now being ironed out in a complex political game.

Sepp Blatter, head of FIFA, has sort of resigned, but not quite yet. The immediate cause of his almost-exit was the probe by the US Department of Justice into fraud and money transfers using the US payments system, with many FIFA officials in the frame, and with more revelations to come. FIFA officials should have been more aware of the risk of such a reaction because US agencies have a strong record of tracking down dollar-based fraud when it does not involve their own top financiers. They might have done better to transfer funds in euros, not US dollars.

Blatter's problem was his success in getting support for his shenanigans from countries outside the usual realm of power, since in the FIFA form of democracy there was one vote per FIFA member-country irrespective of economic size or population, which included a large number of often small states outside Europe and North America. You do not need to imagine how much this annoyed the established powers, since they have made their complaints clear. For example, the UK has been anti-FIFA since losing its bid to host the 2018 World Cup tournament, when its own attempts to influence the vote were outmanoeuvred.

The main mistake of the Blatter-FIFA set up looks like it was to award Qatar with the 2022 World Cup, given the absurdly high summer temperatures in the country and the unwillingness of the Europeans to reschedule the tournament because it would then clash with their league season. That decision put the voting mechanism under  more scrutiny. However, the real problem for FIFA in the current political climate was that the 2018 tournament was given to Russia. Can you imagine? A pariah country facing the barbs of all media news outlets in Europe and the US, and one that has had the cheek to argue that western policy in the Middle East has led to disaster, is soon to hold a major world sports tournament! The western powers did not care that much about Russia's 2014 Sochi Winter Olympics, but football is serious business watched by billions of people and attracting many billions of advertising and subscription revenues.

This anti-FIFA move could yet become embarrassing for the main imperialist powers. One point is that FIFA's inability to deal with corruption is partly related to the fact that national and regional football organisations, such as UEFA in Europe, have refused to be monitored by FIFA. Furthermore,  the investigations have uncovered corruption not only in South Africa's World Cup award in 2010. Today sees evidence from Charles Blazer, American former soccer administrator, that there was a similar game for the 1998 World Cup, which was hosted by France!

Football is not yet a big business in the US, and it probably has more room to investigate in this field where others fear to tread. The forthcoming news is liable to deliver more revelations, but the British and the other Europeans will use the turmoil to try and exert more influence over the international business of football.

Tony Norfield, 3 June 2015

Sunday, 10 May 2015

A Deeply Conservative Country

I had not expected any good news from the UK general election. So I was pleasantly surprised to find that the Labour apparatchik and Shadow Chancellor, Ed Balls, had lost his seat as an MP, that Nigel Farage, leader of UKIP, had failed to get his, and that I would probably in future be hearing much less from the weird Ed Miliband, now that he has resigned the Labour Party leadership. Small mercies in a result that only confirms that the UK is a deeply conservative country.
The election result unexpectedly gave the Conservative Party an outright, although small, overall majority, when previous opinion polls had only suggested it would have the largest number of seats in Parliament. The best summary of results for the UK, including breakdowns by region and constituency, the number of votes, changes in voting share, etc, can be found on the BBC website here.
In the wake of the biggest capitalist crisis for a generation or more, the share of votes for the two major political parties hardly changed. Compared to the previous general election in 2010, the share of the vote for the Conservative party went up a tiny bit; the Labour party’s vote went up by a tiny bit more. The big changes were elsewhere. The Liberal Democrat share of the total vote collapsed by 15.2 percentage points, offset by a rise in the UKIP share (up 9.5%), while the Scottish National Party got an extra 3.1% and the Green Party an extra 2.8% of the total vote.
The share of votes only counts as a measure of opinion. It does not lead to a seat in the House of Commons, which is determined by a first-past-the-post ballot in each constituency. So, for example, a winner with 20,000 votes gets the seat. If the runner up has 19,999 votes, then these votes go nowhere. A strictly proportional representation of votes in the 650 seats in the UK Parliament would mirror public opinion (assuming that voters fully agree with a party’s political programme). Comparing the seats implied by a PR ‘opinion’ with the actual seats gained, these are the results:

Share of vote
PR-implied seats
Actual seats
Liberal Democrat
One can assign different scores on a spectrum of progressive to reactionary for each of these parties. But the overall picture remains depressing, although it is not surprising. In political terms, I consider half the UK electorate to be on a different planet, and the other half to be in a different solar system.

Tony Norfield, 10 May 2015