Saturday, 31 December 2016

From Alpha to Omega

A couple of days ago I was interviewed by Tom O'Brien for his From Alpha to Omega website. The hour long recording is available on his site. The discussion covers a wide range of topics, including the development of imperialism post-1945, the role of the City of London, government economic policy, why I do not use the terms 'neoliberal' and 'financialisation', Brexit and Syria.

The link to the episode (#076)  is here.

A YouTube version is here.

Tony Norfield, 31 December 2016

Thursday, 29 December 2016

Some Books

Based on my non-economic readings over the past year or so, here are some books to follow up if you want to find out about …

The British Labour Party
Edmund Dell, A Strange, Eventful History: Democratic Socialism in Britain, Harper Collins, 1999
Written by a Labour right-winger, this book contains a telling critique of the reformism and hypocrisy of the Labour left, plus rarely noted information on how the colonies (and the US) provided the funds with which to set up the welfare state in 1945. Its main message is that the British electorate will not warm to ‘socialism’, so Labour has always had to retreat from radical programmes, even ones that were far from socialistic and which at best could be called national welfarism.
The Partition of India
Narendra Singh Sarila, In the Shadow of the Great Game: the Untold Story of India’s Partition, Harper Collins 2005 and 2009
This is the only book I have found that explains what was in it for the British when India was partitioned. It shows how the British backed Muhammad Ali Jinnah in his opposition to the Indian National Congress, and how they encouraged the formation of Pakistan as a dependent state that they could better rely upon to be anti-Russian than an independent India. Historians usually avoid this and explain partition by claiming that there were deep-rooted ethnic/religious differences that demanded a Moslem Pakistan separate from a Hindu India.
Middle East historical background
James Barr, A Line in the Sand: Britain, France and the Struggle that Shaped the Middle East, Simon and Schuster, 2011
A very interesting account of the carve up of the region between the British and the French, from Iraq to Syria, Lebanon, Palestine and Israel, mainly covering the 1915-49 period. This brings out the hypocrisy and double dealing of the major powers very clearly. For example, it shows how France armed and supported the Zionist opposition to Britain in Palestine as a means of getting back at the Brits for edging them out of Syria.
David Fromkin, A Peace to End All Peace: the Fall of the Ottoman Empire and the Creation of the Modern Middle East, Phoenix Press, 2000
Fromkin has some very good coverage of the machinations of the big powers in the region, from the late 1800s to the 1920s. Although he is pro-Zionist, he provides a lot of useful material on who did what, when and why.
However, neither of these books (nor many others) asks the question of why the Palestinians had to pay the price for the European murder of millions of Jews – in terms of expulsions and seized land in the UN 1948 deal to set up Israel (quite apart from the new state’s later annexations).
Immigration/racism in Britain
Robert Winder, Bloody Foreigners: the Story of Immigration to Britain, Abacus Books, 2004 and 2005
This covers a long history from the 1200s (!), but very well, and with interesting insights into popular prejudice and political responses, giving many striking examples. The 20th century takes up most of the book, and is most relevant for contemporary politics.
Africa and nationalism
Basil Davidson, The Black Man’s Burden: Africa and the Curse of the Nation State, James Currey, 1992
This is the best thing I have read on the problem of nationalism, and why Africa is such a mess. Davidson shows how the efforts of post-colonial governments in Africa to adopt a national perspective, largely adopted from Europe, could not work. This perspective did not suit the realities on the ground, where there were all kinds of cross-border relationships and also divergences within supposedly unified nations. Davidson puts this in a materialist perspective, showing how the up and coming African bourgeoisie was still very weak, and in the 20th century could not replicate what the Europeans did in the 19th in terms of building nation states. This was a clear sign of the limits on development created by the imperialist world economy, both in colonial times and today.

Tony Norfield, 29 December 2016

Friday, 16 December 2016

Trump and the US-Russia-China Triangle

Although it is the world’s major power, the US has found it difficult to impose its will in the past decade or so. From President Bush’s ‘mission accomplished’ speech about Iraq in 2003, to the continuing disasters in Afghanistan, Libya and Syria, from US policy in Ukraine also being upset by Russian intervention in Crimea, to how the Saudis and other Gulf states have destabilised the Middle East, the US has not been getting its own way and has been unable to impose settlements that would otherwise be expected of a hegemonic power. This puts the incoming US administration under The Donald in an interesting position.
Early signs suggest that POTUS-elect Trump is taking a softer line on Russia, one different from the still Cold War-inspired position of the Obama regime. Trump has stated that he expects the Europeans to pay more for their own NATO-related defence, which might make them less willing to finance an increased build up of military operations close to Russia’s borders. Trump has also rejected Obama’s rhetoric on Putin’s supposed involvement in Russia’s alleged cyber attack on Clinton’s emails. Perhaps most striking of all, Trump plans to appoint Rex Tillerson as US Secretary of State, that is to be the main person in charge of foreign policy. Tillerson is Chief Executive Officer of ExxonMobil, and is well known to have friendly relationships with the Russian government.
ExxonMobil opposed sanctions on Russia from its own business perspective, but one would have to agree that the aggression shown to Russia by the current US administration makes little economic or political sense. Russia is far from being a threat to US interests. Instead, Russia may have prevented the unravelling of Syria that was the direction of previous US policy, and which would have had a deleterious impact on the stability of the Middle East, with knock on impacts into Europe. For this reason, Trump’s likely Russian rapprochement makes sense, even if it will embarrass the Europeans.
All this, and more, is still to be determined, since the billionaire has yet to establish himself in the White House. However, it seems that while there is very likely to be a US-Russia rapprochement, the US political antagonism to China will continue under the Trump administration.
Under Obama and previous US presidents, Taiwan had remained in the limbo of being diplomatically isolated (it has not been a member of the UN since 1971, under the ‘one China’ policy) although politically and militarily supported by the US. But Trump took a call from Taiwan’s president, much to China’s displeasure, which saw the incident as an implicit recognition of Taiwan. This also makes sense from a US perspective. China is both a political and an economic threat to US interests, one that has been recognised in numerous US Congressional reports. China’s economic power has seen it gain influence in Africa, Latin America and Asia, often giving governments in these regions an alternative to the US-dominated world financial and economic system.
More pointedly for the current political climate, it is China, rather than Russia or anywhere else, which is being singled out as the country that is being ‘unfair’ in trade and taking American jobs. An anti-Chinese political stance makes far more sense for the US on many more levels than the anti-EU stance does for the UK, since it not only appeals to the latest domestic populism but also coincides with longer-term US strategic interests.
Trump’s election is one more sign of a shift in the tectonic plates of the imperial world economy. It will impact not only US relationships with Russia and China, but also the position of Europe, and even the acceptability of Russia outside Europe. Interestingly, in the past day or so, Russian President Putin had a meeting in Japan with Japan’s Prime Minister Abe on the Northern Territories/Kurile Islands, an area of dispute between the two countries since the end of World War Two. No resolution was made, and no peace treaty agreed on this, but there were 80 documents signed, including 68 on planned commercial deals between the two countries.

Tony Norfield, 16 December 2016

Tuesday, 13 December 2016

Norwegian Blues: Pining for 4%

It being the Christmas season in many countries, and this being a blog on the economics of imperialism, please spare a thought for the problems of Norway’s Government Pension Fund Global (GPFG). I would ask you to fear not, and not to let mighty dread seize your troubled minds, since I am not asking you for any money. However, the GPFG is asking for a 4% return on its investments outside Norway, ie from approximately 99.93% of the world’s population. In these difficult days, I am prepared to make some allowances. After all, Norway’s capital city of Oslo supplies Trafalgar Square in London with a Christmas tree each year, and this country is also one of the homes of reindeer, the intrepid beasts of burden for Santa’s present-laden sleigh. Yet, surely 4% is a bit much?
In fact, Norway’s demand is for even more than 4%, since that number is its planned ‘real return’, ie a nominal return after inflation. While inflation has been close to 1-2% in many major countries, in Norway it has been more than 3%. So the average asset in which the Norwegian fund invests is meant to produce a return far above the 4% level. This is a problem for a Norway’s position as one of the world’s biggest rentier states now that financial returns are much lower.
The worst outcome is for GPFG’s bond investments, which make up 36% of its total holdings. In 2015, the return on fixed income investments was a mere 0.33%, measured in the fund’s currency basket. The recent months’ rise in yields will have hit the value of its bond holdings, although yield levels – and the related coupon income – still remain well below 3% in all major bond markets. For example, 10-year government bonds yield 2.4% in the US, 1.5% in the UK, 0.4% in Germany and 0.1% in Japan. The fund also holds corporate bonds, which generally have higher yields, but the yield premium there is not significant. This problem of falling yields in 2011 led the fund to cut its holdings of bonds and to allocate some cash to foreign property assets, but these still only account for 3% of the total. The GPFG owns a portfolio stake in real estate in around a dozen European countries – including in Regent Street, London, and in Paris – and also in New York, Washington and Boston in the US.
GPFG’s equity investments – 61% of its assets – have performed better in recent years, given the boost to stock markets from central bank monetary policy. These assets are invested mainly in European and North American stock markets, with the largest holdings in big corporations like Apple, Alphabet (formerly Google), Microsoft, Nestle, Novartis, Roche and Royal Dutch Shell. Dividends from these investments boost its returns, together with any rise in the prices of the equities held. The fund tries to avoid the political problems associated with being a major investor by limiting its holdings to 10% of the equity of any company.
An important component on all the investment returns (measured in Norwegian kroner) in 2014 and 2015 came from the depreciation of the krone versus the US dollar. In 2014, the NOK value of the fund rose by 24.2% and by 15.5% in 2015, given that 37% of Norway’s equity holdings are in the US and 43% of bond holdings are in US dollar securities. However, in 2016 the krone’s exchange rate has strengthened on FX markets and the NOK value of the total fund fell by nearly 4% in the year to end-September 2016.
What these percentage change numbers should not hide is that the GPFG is the largest ‘sovereign wealth fund’ in the world. As of mid-December 2016, its value was NOK 7395bn or, in US dollar terms, about $875 billion. This is serious money for a country of just five million people, ie roughly an investment fund of $175,000 for each man, woman and child, built up within the GPFG from the late 1990s. The oil and gas revenues accruing to the Norwegian government fund the investments of GPFG, and these have grown dramatically in the past twenty years, accentuated by the accumulated revenues from the investments themselves. In turn, the GPFG funds the government’s spending: in 2015 the budget took NOK 179.6bn from it.
Norway has the highest percentage of foreign investment income to GDP in the world. At 6% in 2015 it was even higher than Switzerland’s, and was some NOK 36,200 per person! This is the scale of Norway’s appropriation of surplus value from the rest of the world economy through its foreign investments. Norway’s net foreign investment income to GDP has been comparable to that seen at the height of British imperialism’s economic power in the late 19th century! This is the economic reality underlying Norway’s benign international image as a liberal, although somewhat insular and unexciting social democratic nation, home of the Nobel Peace Prize.
The following chart shows Norway's net foreign investment income from 1990 to 2015. The figures are for the country as a whole, not just the GPFG, but the latter accounts for the bulk of the income.

Norway got lucky with the discovery of energy resources in the Norwegian waters of the North Sea from the late 1960s, just ahead of the sharp rise of energy prices in the 1970s. With large energy supplies and a small population, Norway became the ‘Saudi Arabia of Scandinavia’. Despite being Christian, rather than Wahhabi, Norway’s governments have also frowned upon alcohol, keeping prices very high via taxation. To be a drunk in Norway, you need your own private distillery, or a large income, or a big credit limit, or a decent supply of return tickets to Denmark. Other sales and income taxes also remain high in Norway, despite the largesse received by the government from the oil and gas revenues. This is because the state’s spending policy funds very extensive welfare payments to consolidate the conservative (social democratic) national consensus, a policy that is now even more dependent upon the revenues derived from the country’s energy-revenue-funded financial investments.

Tony Norfield, 13 December 2016

Thursday, 8 December 2016

Syria: White Helmet Whitewash

The conflict in Syria is a tragedy with many dimensions. One of the most scurrilous has been the western media's promotion of the so-called 'white helmet aid workers' in East Aleppo, when these are reactionary forces who would otherwise be labelled as terrorists, were it not for their opposition to Syria's government. A convincing characterisation of their real role is given in the interview here by Vanessa Beeley, a British investigative journalist. She notes that they have received some $100 million in aid from western powers, which is better explained as a cover for military equipment and support rather than for medical and aid supplies.

Listen to the full interview. Although made at end-September, it gives an interesting angle on the degree to which western media have no shame in persistently lying when this suits imperial strategy. Developments in Syria have not gone as they hoped, so the rhetoric is now being wound down, if only to cover up the embarrassment for the major powers delivered by Russia's actions.

If the Beeley interview does not enlighten you, then just consider the desperation of the British government in trying to disown the latest statements from its own Foreign Secretary, one Boris Johnson. He happened to be clumsy and truthful in noting some aspects of the role of Saudi Arabia in the many Middle East conflicts, when the demands of his position mean that he should have kept his mouth shut. At least he didn't make the mistake of referring to the 'Saudi regime', or suggest that regime change might be a good idea.

Tony Norfield, 8 December 2016

Friday, 2 December 2016


On Tuesday 6 December, I will give a speech in Berlin, Germany, on ‘Brexit and other disasters’. This will examine the economic and political context for Brexit and also the broader question of political developments in the imperialist countries.

The public meeting starts at 7.30pm and the venue is: Wildenbruchstrasse 86, Neukölln, Berlin, 12045.

Tony Norfield, 2 December 2016

Thursday, 24 November 2016

Financial Claims on the World Economy

François Chesnais, Finance Capital Today: Corporations and Banks in the Lasting Global Slump, Brill, Leiden, 2016
This book is well worth reading. It is written in a clear and accessible style and discusses key points about the limitations of capitalism and the role of contemporary finance. Perhaps its most important point is how the financial system has accumulated vast claims on the current and future output of the world economy – in the form of interest payments on loans and bonds, dividend payments on equities, etc. These claims have outgrown the ability of the capitalist system to meet them, but government policy has so far managed to prevent a collapse of financial markets with zero interest rate policies, quantitative easing, huge deficits in government spending over taxation, and so forth. The result is an unresolved crisis, a ‘lasting global slump’, in which economic growth remains very weak and vast debts remain in place.
There are two related points in his approach to the world economy and finance that distinguish Chesnais from many other writers, and for which he deserves to be commended. Firstly, he states clearly that we are in a crisis of capitalism tout court (pp1-2), not a crisis of ‘financialised’ capitalism – the latter being one that could presumably be fixed if only the evil financiers were dealt with by a (capitalist) reforming government. Secondly, he takes ‘the world economy as the point of departure’ for his analysis, although that is ‘easier said than done’ (p11). While he shows the central role of the US, he avoids the wholly US-centred analysis common to radical critics of contemporary capitalism, and instead highlights how the other powers also play a key part in the imperial machine.
Finance Capital Today helps the reader’s understanding of the realities of contemporary global capitalism by providing a wealth of material evidence. It also helps one to clarify views about what is going on by discussing the theoretical context. In this review I will highlight the key points raised in the book and also discuss where I have a number of differences with Chesnais. These differences are sometimes merely of emphasis, or what may look like simply an alternative definition of a commonly used term. However, poor formulation of an argument can also lead to theoretical problems.
Chesnais begins by outlining the origins of the 2008 crisis, arguing that this had been postponed since 1998 by the growth of debt in the US and elsewhere, and by the surge of growth in China. In 2008, ‘the brutality of financial crisis was accounted for by the amount of fictitious capital accumulated and the degree of vulnerability of the credit system following securitisation’. The backdrop to the latest phase of crisis was also one that has made this crisis a global one to a degree unknown to previous crises (p25). It involved a far more integrated world economy, following the break up of the USSR and the incorporation of many more countries into the world trade and financial system. The crisis is one characterised by ‘over-accumulation of capital in the double form of productive capacity leading to overproduction and of a “plethora of capital” in the form of aspiring interest-bearing and fictitious capital’. But major governments tried to prevent the crisis from running its course in the way that occurred in the 1930s (p35).
Within the global set up, Chesnais has an interesting view of China, which he characterises as not suffering national domination by the major powers (p43). He notes its subordinate position in the world division of labour, having offered its cheap labour workforce up to the world market, but includes this as part of the development of the world market rather than being a sign of its oppression in the Leninist sense. This reflects the mixed dimensions of China’s economic and political status, and one that I would also characterise as being in transition to the premier league of major powers (China is actually number three in my ranking of countries by global power).[1]
Chapter 3 is titled ‘The Notion of Interest-Bearing Capital in the Setting of the Present Centralisation and Concentration of Capital’. This is an important topic, but one in which Chesnais’s commendable approach is let down by his exposition. He starts by arguing that ‘the channelling of surplus value in contemporary capitalism, through both the holding of government loans and the possession of stock, by a single small group of highly concentrated financial and non-financial corporations and private high-income-bracket asset holders, requires that several features of interest-bearing capital that were treated partly separately by Marx now be approached in toto’ (p67). I would certainly agree with this, especially since the relevant section in Capital, Volume 3, is a complete mess, one that Engels found extremely difficult to edit and to try and salvage. However, Chesnais does little to develop the argument at this point, and he tends to keep it focused on banks. Only later in the book does he explain better how interest-bearing capital is a more universal phenomenon for modern capitalism. Even then, I would argue that the forms it takes, especially in proprietary trading, are not fully or well explained by taking interest to be the source of revenue, or, as he notes from Hilferding, by taking one speculator’s gain as a loss to another speculator.[2]
This chapter also contains a discussion of two issues of Marxist theory on finance. One is the difference of opinion between myself (and others) and Costas Lapavitsas on the question of banks ‘exploiting’ workers through the charging of interest on loans, etc (pp76-77). He correctly notes that this interest is, in any event, only a small portion of bank profits, not the big event claimed by the ‘exploiting’ school. However, citing Rosa Luxemburg, he comes down on the side of the view that these deductions are a reduction of the value of labour-power. I disagree, and not only because Luxemburg’s judgements in matters of economic theory, let alone political strategy, leave very much to be desired. My argument, which Chesnais cites, is that the charging of interest does not by itself suggest a lowering of the value of labour-power. If this interest deduction became a significant part of workers’ incomes, then wages would tend to rise to offset this, making it effectively a deduction from corporate profits. This is not to exclude that the value of labour-power can be forced down, but it is in the febrile imagination of the anti-finance populists that this process results from banks charging workers interest on loans.
A second issue of theory raised in Chapter 3 is on the question of bank lending. In contrast to many other Marxists, Chesnais recognises that banks can themselves create new deposit assets. However, he confusingly calls these ‘fictitious capital’ (p84). This is a relatively common perspective, as seen also in David Harvey’s The Limits to Capital, but it is not consistent with Marx’s definition. A bank loan can be created out of thin air by a bank, and is not dependent upon a ‘real’ deposit of cash, so in that sense it is indeed fictitious. But it should then simply be called a ‘fictitious’ deposit or asset of the bank. Fictitious capital, by contrast, can most easily be described as a financial security that is traded in the market and which has a price that is a function of interest rates and future expectations of returns to the buyer of that security.[3] That is not true of bank deposit or loan assets, which remain on the bank’s books. Only if the loan assets later became securitised – that is, when the loans are the basis for payments made to owners of a tradeable security – would they become fictitious capital This was the gist of Marx’s definition of fictitious capital, although one that was not clearly spelled out in Capital (and neither was his view of bank loans/deposits). To call bank loans or deposits ‘fictitious capital’ can only lead to confusion when analysing developments in contemporary financial markets.
Chapter 4 is my favourite of the whole book. Titled ‘The Organisational Embodiments of Finance Capital and the Intra-Corporate Division of Surplus Value’, it does not bend to media demands for a snappy one-liner, but it does provide the reader with valuable information and analysis. Chesnais discusses the different forms of the evolution of capitalism in today’s major powers, focusing on Germany, the US, the UK and France. He examines the relations between the state, private corporations, banks and imperial power. While noting the importance of pension funds from the 1990s as major equity owners of big corporations, he argues that ‘rather than bankers, it is industrialists with financial connections that form the core of the European corporate community’ (p108). Despite some views that there is an ‘international’ capitalist class, his view, with which I agree, is that the main groups of ‘finance capitalists’ are domiciled within single countries.
One important point he makes, and one that he could have developed more, is how in contemporary capitalism, by contrast to the views of Marx and Hilferding, merchant capital (essentially commercial capital and finance) is not subordinate to industry, although it is dependent upon industrial profit, (p113). However, he does discuss the role of large commodity traders and retailers. In my view, this reflects the way in which the major powers have used the financial/commercial system to consolidate their economic privileges, something that was true for the UK even from the mid-late nineteenth century. Today, as most people should be aware, it is the poorer, subordinated countries that do most of the producing, at least in the non-monopolised fields of production.
In Chapters 5 and 6, Chesnais covers global oligopolies and the operations of international companies. He reviews theories of monopolisation and how the development of the European single market was favourable both for European and for US corporations. There is some overlap in this material with that covered by John Smith’s book, Imperialism in the Twenty-First Century (Monthly Review, 2016), with a predatory appropriation of value by the ‘buyer-driven global commodity chains’ of the major corporations (p161). However, Chesnais disagrees with Smith’s earlier work on a number of points, and argues that China, India and Brazil are not in the classical position of being oppressed countries, having a different, and higher, status in the world market. On a separate, important point regarding data on the global economy, Chesnais notes UNCTAD’s estimate that about 80% of global trade is linked to the international production networks of international companies, and that it would be wrong to focus on foreign direct investment data as giving a complete picture of international investment. This is due both to the blurring of lines between FDI and portfolio investment and to the importance of offshore centres as the apparent location of the headquarters of many companies.
Chapter 7 discusses the globalisation of financial markets and new forms of fictitious capital. This is a useful review of the growth of financial markets, although it relies very much on secondary sources, so the data is already several years out of date, and his coverage of financial derivatives misleadingly characterises them as being ‘claims on claims’, when derivatives are better described as difference contracts based on the price of the underlying security to which they refer. The fundamental point he makes is nevertheless that the apparent diversion of investment to financial markets has been prompted by the decline in profitable investment opportunities (p174). The chapter concludes with a review of financial and (foreign) debt developments in Ecuador, Brazil, Argentina and South Africa, including the role of ‘vulture funds’ dealing in Argentina’s defaulted debt.
Chapters 8 and 9 discuss contemporary developments in financial markets, focusing on banking and credit. This is well-covered ground, but is useful for those who are less familiar with recent history, and especially so in explaining the development of mortgage-backed securities, ‘universal banks’ in Europe, the monopolisation of banking, shadow banking, etc. There is also a discussion of how ‘leverage’ – ie borrowing to fund the growth of assets – rose to extreme levels due to the decline in profitability among financial companies (pp221-). I would note, however, the publisher’s poor proofreading: ‘over-the-counter’ (OTC) securities dealing is described as ‘off the counter’ in Chapter 7 and here has the designation ‘ODT’.[4]
Chapter 10 highlights ‘global endemic financial instability’ and points out that there is a ‘plethora of capital in the form of money capital centralised in mutual funds and hedge funds, bent on valorisation through the holding and trading of fictitious capital in the form of assets more and more distant from the processes of surplus value production. Financial profits are harder and harder to earn’ (p245). I would go further and also note how asset managers, pension funds and insurance companies – far more important investors in financial markets than hedge funds or mutual funds – are now finding their mountain of assets unable to generate the returns they have, implicitly or explicitly, promised, although Chesnais does mention this later in the chapter.
The ‘plethora of capital in the form of money capital’ is related to the declining profitability of capitalist investment. Chesnais notes how official reports, from the Bank for International Settlements, for example, allude to this problem, but also how they also mix in a description of low productivity growth and low economic growth in general. He correctly makes the point that the fall in interest rates long preceded the ‘quantitative easing’ policies that occurred after 2008.[5]
It is difficult to spell out these relationships empirically, given the available data, and Chesnais does not try to do this. It is also important to distinguish the rate of interest from the rate of profit on capital investment, which are two different things. However, I would suggest a measurement of how much global financial assets have accumulated – meaning principally equities, bonds and bank loans – against some measure of absolute global profitability over time. This would measure how far the financial claims on social resources have grown, in the form of interest and dividend payments, compared to the surplus revenues available to pay off these claims. My initial work on this suggests a decline in the rate of return from 2007 to 2014, whatever the more distorted profitability figures available for the US alone might say, data that are often used by people wanting a ready calculation of the ‘rate of profit’. The rate of return I suggest is not a ‘Marxist rate of profit’, as traditionally understood, but it would better reflect the malaise of the global capitalist system, especially from the perspective of the major claimants upon its resources, the ones based in the rich powers!
Chesnais finishes his book with two themes. One is a lament on the lack of Marxist study in universities and the lack of journals in which Marxist studies of capitalism can be published. This is true enough, and I am glad not to have been an undergraduate university student in the past few decades! Even apparently radical journals such as the UK’s Cambridge Journal of Economics are basically rather conservative in outlook, and are dominated by a facile Keynesian approach that dismisses a Marxist perspective out of hand if it upsets their advocacy of ‘progressive’ policies for the capitalist state to consider. Repeating radical consensus nonsense will get a pass; revealing the imperial mechanism of power has to jump a hundred hurdles to be an acceptable journal article. Such is the almost universal climate in academia today, despite the evidently destructive outcomes from the system they claim to be analysing.[6] Ironically, this is why the most trenchant and incisive critiques of capitalism today – at least from a descriptive point of view – often come from analysts working in the financial markets. They have to tell their clients what is really going on!
Friends have suggested to me that the situation for critical academics is even worse in the US, something I find easy to believe. I have some knowledge of, and better hope for, the development of a more critical intellectual climate coming from outside the Anglosphere. This should not be too difficult to achieve.
The second concluding remark by Chesnais is the question of how a new phase of capital accumulation might emerge. There is the plethora of (fictitious) capital with its claims on social revenue that cannot be met, but which, on the other hand, has not been devalued in a crisis collapse, because the major governments have done their best to prevent it, fearing the consequences. Chesnais discusses technical innovation to some extent, but sees this as being overshadowed by capital’s degradation of the environment. One is left with the ‘notion of barbarism, associated with the two World Wars and the Holocaust’ (p267). That is a downbeat but telling point about the progress of opposition to imperialism today. In the main imperial countries, the answer to the question of ‘Socialism or Barbarism’ is biased in favour of the latter.
Finishing on a more general comment, my own preference is to avoid the term ‘finance capital’ completely, whereas the book is titled Finance Capital Today. The term is associated with Hilferding and used by Lenin, but the definition is too bound up with Hilferding’s notion that banks control industry. This was not a good description of the situation in the early 20th century, and is far less true today. Chesnais would accept this and instead defines ‘finance capital’ as the ‘simultaneous and intertwined concentration and centralisation of money capital, industrial capital and merchant or commercial capital as an outcome of domestic and transnational concentration through mergers and acquisitions’ (p5). He explains how the different forms of finance capital evolved in different countries, making an important distinction between the privileges of the major powers and the subordinate position of others. I would go along with this definition, but I would argue for putting fictitious capital at the centre of attention, not ‘finance capital’. This would show more clearly that what Marx called the ‘law of value’ is today mainly expressed, or at least expressed more directly, via the markets for financial securities, rather than in the markets for commodities, although the latter are of course important. A company’s ability to access funds and at what cost, via the equity market or bond market, or a government’s ability to borrow and spend, is each signalled by the markets for their securities. These markets show what is good, bad and acceptable in the imperialist world economy today.

Tony Norfield, 24 November 2016

[1] See my book, The City: London and the Global Power of Finance, Verso, 2016, p111.
[2] The City, pp144-147.
[3] For an explanation, see The City, pp83-92.
[4] The book is expensively priced, so order it for your library! The book will be cheaper when later published in paperback, however.
[5] See the note on this blog from a Bank of England report here.
[6] It works like this. Academic journals are graded according to their supposed value, and getting an article published in a highly ranked journal is the objective of all academics. Think what you like about the journal’s real worth, these grades are important for the scores achieved by contributors in the assessment they get from their universities, and, most importantly, in the assessment of their universities for government funding purposes. Over recent decades, this has led to a small group of mainstream, conservative, uncritical journals becoming the favoured destination for research articles, which in turn means that academics orient their work to what these journals will accept. It is a machine for generating very little worth reading, and also a system for maintaining a conservative status quo. That system is further maintained by a journal editorial board and a group of ‘peer reviewers’ with the same general outlook. A similar mechanism also leads academics to have absurdly long bibliographies and excessive citations in their articles, since citing their friends will encourage the return favour, and citations are another means by which academic value is assessed.

Wednesday, 16 November 2016

Corbyn’s National Welfarism

In the days, even weeks, leading up to Remembrance Sunday on 13 November, all public figures in the UK must wear a poppy. This is not actually obligatory; it is just the way things are done. Some 45 million poppies were attached to clothing this year, a total that far outweighs the number of celebrities. If you are not seen wearing one, then perhaps you forgot, perhaps it is on a different jacket, perhaps your mum or dad did not buy you one and your pocket money was insufficient, perhaps you are a household pet, or, heaven forbid, you might have some questions about this totem for honouring/remembering the war dead in their sacrifices for ‘Britain’, otherwise known as British imperialism. Just to make sure he was not numbered among the latter persona non grata, Labour Party leader Jeremy Corbyn made sure that he was wearing a poppy when he appeared on the BBC’s Andrew Marr show that day.[1] To reinforce his patriotic credentials, Corbyn also made sure to note that he would be standing at the Cenotaph later on Remembrance Day with a 92-year old friend, a Labour party supporter and veteran of World War Two. Thus began his exposition of how Labour’s policies would meet the demands of the UK electorate.
The interview with Andrew Marr covered lots of questions. Corbyn came out clearly against racism, responding to recent political developments in the US and Europe. In the aftermath of the UK’s Brexit vote, he also stressed the importance of keeping its access to the EU single market and the provisions for workers’ rights existing in the EU. But my main focus here is on how Corbyn’s comments illustrated a common feature of leftwing views in many rich countries, national welfarism.

National welfarism

National welfarism is somewhat different from simple nationalism, which can be summed up as demanding that government policies should benefit the people of a particular country (usually meaning the corporations). Instead, national welfarism cloaks a nationalist policy in progressive phrases and proclaims the need to protect the common people from the depredations of the market. In all cases, national welfarism amounts to a call for the capitalist state to implement such policies, not for a struggle of people to protect themselves from such depredation. Furthermore, it avoids naming names. Rather than singling out capitalism as the problem, and the capitalist state as the enemy’s enforcer, it is a demand for different government policies. It is the stance taken by those who do not like capitalism’s impact on people’s lives, but who do not want to make a fuss about opposing capitalism. One might think this is just letting discretion be the better part of valour, but it is more than that. It is a facile belief that good bits of capitalism can be salvaged from the bad bits of capitalism.
Worse than this, national welfarism pays no attention to whether the state in question is one of the major powers in the world that spends its time oppressing others, either directly, or indirectly in making sure that the general system of oppression and privilege for the major powers remains in place. The reason is that this oppression by their own powerful state is something from which, implicitly at least, the national welfarists would like to benefit.

Answering the questions

Andrew Marr, a pillar of the BBC’s establishment opinion making elite, asked some pertinent questions. Corbyn answered clearly.
Why has there been a political shift to the right in many (rich) countries, and why has the left failed to channel popular anger? Corbyn thought that the previous New Labour agenda was mistaken and could not meet popular concerns, because it ignored the deindustrialisation of Britain and focused on globalisation. This was how he introduced his alternative Labour Party policy.
While Trump in the US and Marine Le Pen in France were in favour of trade protectionism, to stem the loss of domestic jobs, Corbyn countered with the view that there should be new investment in industry and ‘fair trade agreements’. He did not openly endorse tariffs and protectionism, but was very open to other forms of trade control – to make it ‘fair’, of course – which would go back to the Labour left and British Communist Party ‘alternative economic strategy’ programmes of the 1970s and 1980s. In this, he ends up posing foreign countries as the barrier to economic welfare for the Brits, not the market system, and still less capitalism. So the capitalist state should take measures against those who are not playing by the rules that the major powers, such as Britain, have introduced. Environmental concerns were also used to bolster his position. This is the common fashion among radicals these days – and is essentially a dig at China, in line with major power policy – despite the fact that the major powers have done by far the most to destroy the global environment.
Corbyn later criticised Donald Trump for demonising foreign workers, but, despite his anti-racism, he still managed to point to migrant labour as a problem for British workers. Even from his own perspective, he could have more simply said that migrant labour is not the problem, it is the capitalist labour market, and that he would demand the same conditions for all workers, whether migrant or not.

Immigration and UK politics

It was on the explosive popular issue of immigration that Corbyn was most evasive. He posed regional investment as a solution! The implicit logic was that if the state could encourage investment in those areas that were most anti-immigrant (basically, in England, and probably also in Wales), then such sentiment would fade away. This stepped aside from the post-Brexit issue of who is meant to benefit from the national investment policy, while his statement would, of course, be taken as meaning the ‘national’ working class. When asked about whether he agreed with the view of Keir Starmer, Corbyn’s Shadow Secretary of State for Exiting the European Union, who has argued that immigration should be lower, Corbyn said:
‘I think it [immigration] will be lower if we deal with the issues of wage undercutting, deal with exploitation, but we should also recognise that the migrants that have come to this country work and contribute, and pay taxes, and the NHS would simply not survive without the level of migrant labour, doctors, etc, because we have not invested enough in high skills in our own economy.’
So, migrants are justified on the basis of their economic contribution, but there is also the hope that training domestic workers, and enforcing higher wages, will cut immigrant job applications! This is the national welfarist’s solution to the anti-immigration outlook of his electorate. Just in case you thought that Corbyn was ignoring the demand from a sizeable chunk of that electorate for immigration to be checked, even reversed, he wants to stress that his policies will help do just that.
In a final, summary comment, Corbyn makes the broader points that his economic policy is for ‘left behind, broken Britain, poverty Britain’, one that will oppose the Conservative government’s policies on the National Health Service, etc, and appeal to the electorate that there really is an alternative that the Labour Party under Corbyn can implement. But there’s the rub. How to reconcile the predatory demands of capitalism and imperialism with the social welfare outlook of the reformer, while not giving too much ground to popular reactionary nationalism that the middle class, for now, still finds unacceptable?

Tony Norfield, 16 November 2016

[1] Corbyn’s interview with Andrew Marr starts around the 16-minute mark in this video.

Tuesday, 15 November 2016


I did not think that Trump could win the US election because an electoral base made up of the ‘disgruntled and angry white working classes’ is too narrow. But it is now obvious that Trump has wider popular support. Clinton did gain more of the popular votes by a slim margin, but there is no hiding the significance of Trump’s victory.
So, some thoughts.
A Trump presidency will not mean immediate significant changes on the world stage. The imperialist governance of the world is grounded on the Atlantic agreement, the order based on the US-UK-EU. But these are hard times. An unresolvable crisis, which makes each component of this triptych look more narrowly to its own domestic interests, and more watchful of the clamour of its own populations – particularly since none of the three is capable of providing a solution, or even the illusion of one. The British Brexit, and now the American ‘Brexit’ which Trump represents, will however provoke a slow disintegration of the dominant Anglosphere.

A not so special relationship

On the morning after Trump’s election victory I watched a chirpy TV journalist ask rhetorically ‘Will a Trump presidency lead to better relations with the Soviet Union?’ It was a slip of the tongue as revealing as it was understandable: the US is still milking the Cold War for all it can and that is the propaganda framework most Western journalists work inside. The idea that since both Trump and Putin are plain speaking, tough-talking ‘real men’ they are better placed than Clinton to ‘do business’ is a silly media fantasy. Relations are determined by three factors that still hold true and will do so for some time, whatever politicians may fancy. Firstly, the US is still the most powerful nation on earth and the whole of the privileged West benefits from its hegemonic role. Secondly, Russia is one of the weakest of the powers, economically and militarily. Thirdly, any serious move against Russia would unleash such turmoil between Western nations that it would significantly undermine the first point. So, lots of clacking and clucking, but no attempt to significantly alter the architecture of world politics. The rest is just games.
Trump’s victory is an immense blow for Britain’s Brexit, which looks increasingly unlikely to happen, though this will take some time to sink in. At the heart of the Brexit gamble is the popular illusion that the UK, on the basis of its world power, and other nations’ commercial self-interest, would be able to renegotiate its world trade and financial relationships. Trump is a businessman who thinks he can further American interests by negotiating like a businessman. That is also the militant understanding of his electoral support. Both have some learning to do. So, on the face of it, his presidency should provide a better practical and pragmatic framework for the UK to renegotiate its economic relationships outside the EU.
Yet, as in so many cases, the devil is in the detail. Trump’s negotiating policy, and that of the economic nationalism that has brought him to power, is to drive a very hard bargain that yields tangible benefits for the American people. This will make it very much harder for the UK to negotiate a favourable deal, and certainly makes an early trade settlement virtually impossible. But the UK needs something quick! This will be a significant blow to the UK because a settlement with the US would have been key to achieving trade settlements with other nations (the billboard effect).
The irony of the Brexit mentality is that, if every nation and trade block adopts a hard-line economic nationalist stance, it works for no one. Every nation declares that it wants to avoid the bad old protectionism of the 1930s, but the crisis is making them all inch in that direction. The idea that the UK can cut loose from the EU, sail for the open seas, towards the sunny uplands of a new world trade order, is dead.

Working class politics

Both the British Brexit and now Trump’s victory have put the revolt of the Western working class at the very centre of politics – though not in the way socialists would have liked. Next year will be the tenth year of the crisis. Across the advanced Western world the working class has experienced a significant decline in its prospects. Yet it has opted – everywhere – for economic nationalism and has shifted politically 10% to 20% to the right.
In each advanced imperialist Western country the only radical shift is within a small and embattled current of the middle class still committed to social liberalism and the Atlantic world order. Both the Corbyn and Sanders phenomena are examples of this. In not a single privileged country has there been even a smidgen of working class radicalism. Not even a warming up.  The revolutionary left, far from ‘making hay’ at a time when the truths of Marxism are pounding ever harder on the door, is in tatters.
This raises the question: why does the revolutionary Left in advanced imperialist countries persist in basing its strategic outlook on the future emergence of a revolutionary working class when all the evidence, and all the reasoning, is in the opposite direction? Partly, this is due to the fact that the Western left is ossified and has relegated itself to blindly repeating the mantra of ‘one day the workers will rise up and …’ It must be something human. Two thousands years of experience have demonstrated the inefficacy of Christian prayer, but people still pray to God.
There is also a personal motive. Blind and obstinate adherence to something that will never happen, and which every day becomes more obviously so, is the only way many socialists have of personally remaining true to their Socialist ideals and prevent themselves from being absorbed by bourgeois society, as so many have. In the face of never-ending defeat and disappointment, of a popular revolt that never materialises, the important thing is never to give in, never to succumb, and go to the grave in obdurate affirmation of what one has fought for all one’s life. Sadly, such people fail to realise that their stoicism, while morally laudable, only serves to blind them to the many things happening in non-imperialist countries. These show that things are indeed ‘going our way’. The non-imperialist world is not on the brink of revolution, but it is warming up nicely everywhere.
But the main reason why the Western radical left clings to the chimera of proletarian revolution in the West is that its politics and activities are exclusively direct towards the brittle and transient radicalism of the petit-bourgeoisie – the only milieu it can really operate in because there is no other available. Both the left and the radicalized petit-bourgeoisie know in their bones that, however worthy their campaigns, without working class support there is nothing real or lasting. So, the putrefied political corpse of the Western working class has to be kept alive – at least somewhere in the background or hoped for in the distant future – though never directly or honestly analysed. The moment one states the obvious – that the Western working class is thoroughly and irredeemably imperialist, colonialist, arrogant and capitalist, that a working class that continually and substantially benefits from the exploitation of ‘lesser peoples’ can never set itself free – one is dismissed as a hopeless or doctrinaire ‘Third Worldist’ or ‘Maoist’.  Never mind that ‘the Third World’ is today the ‘the First World’ in proletarian terms.


In contrast, in those countries with no popular imperialist tradition, politics has shifted significantly and quickly to the left. Last week, an in-depth poll of public opinion in Spain put Podemos at 21% in terms of ‘voting intention’, ahead of the Socialist Party with 17%. The Socialist Party has been the architect of modern capitalist Spain and has governed for most of the last 35 years. It is a seismic shift. Podemos has been in existence for barely two years. The poll showed that most Spanish people are ‘left-leaning’. The top four ‘voter issues’ were identified as unemployment, corruption, the lack of a government and the economic crisis. Even though Spain has a similar level of immigration as other EU countries (10-12%), and even though explicit and politically incorrect racism is widespread,[1] immigration, the key issue in British and American politics, came in at the 33rd position in order of popular concerns.
Trump’s victory also destroys the left’s self-serving explanation of its own continual marginalization as grounded in the capitalist media’s grip on the popular mind. Trump won against the hostility and opposition of practically the whole of the media – in addition to the establishment, and world opinion. Trump, although a billionaire, also had far less election funds than Clinton. The left needs to wake up to the reality that if Western workers for decades have voted for, and consciously supported, bourgeois nationalist and imperialist politics it is because they know on which side their bread is buttered – not because they have been duped by the media.
But the best thing about Trump is he doesn’t conceal what he means: Marxists should welcome how explicit he is. Since Teddy Roosevelt, can you think of a president who in words and in his persona better expresses the realities of American capitalism and imperialism than Trump? That has to be a damn good thing. Of course, the danger is that wiser counsels will eventually prevail and Trump will go all ‘social democratic’ and ‘caring’ on us. Trump is a narcissist and narcissists love to be loved. So, make the most of it while it lasts.

Susil Gupta, 15 November 2016

[1] Racist attitudes among even left-wingers in Spain are often quite shocking and would be unthinkable in the British left, for example.

Wednesday, 9 November 2016

Regime Change

A friend pointed out to me today that the main benefit of the Trump victory in the US presidential election is that the left will no longer be able to blame the ‘media’ for its lack of support in the main imperialist countries. Despite near universal ridicule and rejection by the established pundits, especially those outside the US, The Donald has won. More importantly, the result reflects broader developments.
Even before the election result, Trump was seen as having voiced the concerns of the (white working class) mass of the electorate in the US, and of taking votes from those who were understandably less than enthused by Madame Clinton. But for him to claim basically half the electoral vote on a programme that was fronted by building a wall on the Mexican border, protecting US jobs against the nefarious schemes of domestic capitalists and foreign countries, and to ‘Make America Great Again’, reveals more than a little about the political outlook of the voters. More than half of the voters, one would have to say, given that Clinton also felt the need to shadow some of Trump’s policies. It is an outlook that will support the revival of economic nationalism by the US as an imperialist power, and encourage others to do the same.
In that respect, the US election has similarities with the Brexit vote in the UK. It is not so much that the incumbent political class has ‘lost touch’ with the masses, and must move aside or reconnect, although this view is supported by the presence of dumb elites who have still not really figured out that their comfortable maxims no longer work as the capitalist crisis becomes entrenched. It is more that a political system only works if votes can be accumulated to support particular policies. But maintaining the previous policies has less and less political support. In north-west Europe and in the US, the masses are revolting – in both senses of the term, as far as the elites are concerned. The politicians must, and will, adapt. Yet, they will be adapting not to a burgeoning protest about the evils of capitalism, but to a demand that privileges must be protected in a stagnant world economy. In other words, they will respond to reactionary popular sentiment.
It should be little surprise that the Brexit vote is seen as a marker by many commentators. After all, Britain is a key part of the existing structure of world power – of trade, financial and security arrangements – despite weighing far below the US. Another interesting, more distant, UK-US analogy is the devaluation of sterling on 18 November 1967, an event that was a watershed in the later collapse of the Bretton Woods world financial system of fixed exchange rates. Ironically, the 14% or so devaluation then is similar to the devaluation of sterling after the 23 June 2016 Brexit vote! The analogy is apt in reflecting the current pressures on the system of world power and the trouble faced by the Anglosphere today.

Tony Norfield, 9 November 2016

Sunday, 6 November 2016

Limits, Barriers and Borders

On Thursday 10 to Sunday 13 November, you will be able to take a break from the aftermath of the US presidential election at the Historical Materialism Annual Conference, 'Limits, Barriers and Borders'. It is held at:

SOAS, University of London
10 Thornhaugh Street
Russell Square
London WC1H 0XG

The full programme is available here. It is likely subject to some later modifications, but this will give you a good idea of the schedule and contents.

It is best to pre-register for the conference on the HM website. This ends on Tuesday 8 November, but it should also be possible also just to turn up and register then.

I will be giving a presentation on Saturday, 12 November, 9.15-11am, Room G3, in a panel on 'Capitalist Crisis and Government Policy'. The papers presented in this panel are:

Maria Ivanova – The Limits of Unconventional Monetary Policy
Michael Roberts – Corporate cash, profitability and the Marxist Multiplier
Tony Norfield – Debt, Stagnation and Political Decisions

Tony Norfield, 6 November 2016

Tuesday, 1 November 2016

Trouble in the Money Machine

Since 2008, the world’s major central banks have adopted extraordinary measures to stop a slump in the economy and to try and rescue the financial system from collapse. But while ultra-low, even negative interest rates, and quantitative easing (buying securities from the financial system) have stabilised the system for now, such policies have done little to generate growth. The economy has managed to get up from the floor, but is still staggering around and cannot climb the stairs. Meanwhile, the monetary ‘medicine’ is generating its own problems for banks and causing dislocation in the money markets.
Consider what, in recent years, has been a little noticed feature of the financial system: the ‘velocity of money’. This concept was key for simple versions of monetarist economic theory, ones that tried to explain the growth in nominal output (the money value of GDP, for example) by the growth in the money supply. I will leave aside discussion of that theory here, and just note that the monetarists usually assumed that the velocity of money was stable, in other words a given percentage rise in the money supply would lead to the same rise in the value of nominal output.[1] The fundamental equation was:
M is the money supply, however defined
V is how fast the given money supply circulated in the economy (its velocity)
P is the average price level and
T is the volume of transactions.
So, if V is fixed, a rise or fall in M feeds directly into the nominal value of transactions PT. The T term is often also taken to be the volume of output or income.
Apart from other problems with the theory – there are many – the biggest and most evident problem is that the V term is not fixed. In fact, it has been declining steadily during the crisis in all major countries! This indicates that rather than there being a stable, functioning monetary system, instead it is one that has been seizing up.
The next chart shows the pattern of moves in the velocity of money for the US, the euro area, the UK and Japan over the past 16 years or so.[2] Velocity is measured as nominal GDP divided by the most common definition of money supply in each area. Different definitions give different ratios, so the numbers have been standardised to equal 100 for each in Q1 1999.
In each area, the money supply has risen over the period shown, but the nominal value of GDP has risen by much less, so that the velocity measure has fallen. Japan’s nominal GDP did not even rise at all between 1999 and 2016! Only in the UK has nominal GDP risen by more than the money supply (since the end of 2009), but the velocity of money is still 20% below its level in 1999.[3]

Velocity of Money (nominal GDP/M): US, euro area, UK & Japan (Index Q1 1999 = 100)

The velocity of money is a summary measure of many things that happen in the capitalist economy, since it compares the aggregate of GDP, a measure of total output, with the aggregate of diverse components of cash in circulation, bank deposits, etc. It is a useful index, nevertheless, and the general decline in the velocity of money is a clear sign that central bank monetary policy has less ability to have an impact on the nominal growth of the economy, despite their efforts to ward off the threat of deflation.

Tony Norfield, 1 November 2016

[1] The basic monetarist idea was that a rise in money supply only led to higher prices, with no lasting change in real output, and that nominal output rose only because of the higher prices.
[2] Data for the US are for M2, M3 for the euro area, M4 for the UK and M2 for Japan. Available numbers only go up to 2013 for Japan, mid-2015 for the UK and early 2016 for the US and the euro area.
[3] I’m not sure why the UK velocity number has risen since 2009, whereas others have fallen, and may look into it further.

Sunday, 2 October 2016

Pictures of Trouble

Two charts from the Bank of England sum up interesting aspects of capitalism's problems today.

First, the decline in long-term government bond yields. These have been on a steady downward trend since 1990 (actually, for even longer, since the mid-late 1980s), as shown in the following chart which gives GDP-weighted average 10-year yields for the top 20 countries. It is not only that nominal yields have fallen alongside lower inflation, but 'real yields' have also fallen and are now negative. The estimate of real yields is only approximate, but the picture is clear enough.

Chart 1: 10-year government bond yields, 1990-2016

The drop in yields has been accentuated by central bank asset purchases under 'quantitative easing' (QE) policies, but not fully explained by them. Outside Japan, QE only got going from 2008. Lower yields are a problem for pension funds and other bond investors, while making the huge debts accumulated by borrowers (see earlier articles on the blog) somewhat easier to service and pay back. This delicate, unstable balance results from the difficulties the capitalist economy has had producing enough profit, or growing enough to produce anything extra at all.

Chart 2: Central bank balance sheets, 2006-2018

The second chart shows the shows the rise in central bank balance sheets as a percentage of GDP. This has come about as a result of QE policies, and the Bank of Japan (note that only Japan is measured on the left hand axis), the Bank of England and the European Central will add to their accumulated assets in the next few years. Only in the US has the share of GDP not gone up recently, and is not projected to under current policies. Even for the US, the absolute holdings of Treasuries and mortgage-backed securities are not likely to fall by much.

Tony Norfield, 2 October 2016

Tuesday, 27 September 2016

Capitalism, Imperialism and Finance

Here is a link to the video of the launch of my book, The City: London and the Global Power of Finance, at SOAS in London on 19 May this year.

The presentation, together with a Q&A session, takes a little over one hour, and it is possible to scroll through the presentation file used. (The only amendment I would make is that early on in my talk I wrongly said that Carlsberg was a Netherlands company, when it is Danish, and I should also have noted that Anheuser-Busch InBev/SAB Miller also had a US connection. I had other things on my mind at the time and got a little confused.)

Tony Norfield, 27 September 2016

Monday, 19 September 2016

Le Monde Diplomatique

Next week, on Monday 26 September, I will be presenting a discussion on 'The International Financial Markets and the City of London' at one of the regular Cafe Diplo meetings held by Friends of Le Monde Diplomatique.

Event details are:

Monday 26 September
Time: start 6.45pm to finish around 8.30pm, with plenty of time for discussion
The Gallery, Alan Baxter & Associates LLP
75 Cowcross Street
London EC1M 6EL

Entrance fee: £3 (£2 concessions)

Wine and fruit juice are available.

The nearest tube/overground station is Farringdon. Walk into Cowcross Street, away from the station, and past The Castle Pub on the corner. Further along, on the right hand side you pass the Three Compasses Pub and about 50 metres later you will see some iron gates with a small Cafe Diplo sign. Inside the gate you will find the reception area on the lower ground floor.

Tony Norfield, 19 September 2016

Wednesday, 14 September 2016

'Humanitarian Intervention' in Libya

The UK parliamentary report on the 2011 intervention in Libya and its aftermath gives an interesting summary of events. The whole thing, in President Obama's words, became a 'shit show'. However, the real lesson that comes from reading the report is how calls for 'humanitarian intervention' are a cover for big power interests. In this case, it turns out that even these interests were not fully thought through by the key advocates for intervention, first France, then the UK and the US.

The Libya report is published today, now that a certain David Cameron is not in the embarrassing limelight. One note in the report, however, sums up the general stance taken by British politicians: the House of Commons voted by 557 to 13 in favour of British intervention. Of the 13 opposed, just 8 were from the Labour Party, two were from the Conservative Party, two were from the SDLP and one was a Green MP.

Such parliamentary reports aim to identify problems ... so that they may be avoided next time. This report has been relatively prompt in the making, but during the five and a half years since the Libyan intervention, the major powers have not been slow to get involved in plenty of other mischief and destruction.

A concluding note on France's rationale for intervening in Libya (the report spends little time on the UK's), taken from a US State Department report of a meeting in April 2011 with French intelligence agents. President Sarkozy's plans in Libya were reported to have been driven by:

a. A desire to gain a greater share of Libya oil production,
b. Increase French influence in North Africa,
c. Improve his internal political situation in France,
d. Provide the French military with an opportunity to reassert its position in
the world,
e. Address the concern of his advisors over Qaddafi’s long term plans to
supplant France as the dominant power in Francophone Africa.

So much for Bernard-Henri Levy and the humanitarian 'public intellectuals'.

Tony Norfield, 14 September 2014

PS: For those interested, the Parliamentary debate on intervention in Libya was on 21 March 2011. Details of who said what are available in the Hansard report here.

Friday, 9 September 2016

Shifting World Corporate Power

Those who like international comparisons that highlight the shift in global power will be interested in the following table. It is from research by Paul Kellogg, University of Toronto, published in 2015, and shows the geographical breakdown of the 2,000 largest public corporations, ie those whose shares are quoted on stockmarkets.

There is a striking decline of the US, Europe and Japan over this period, countered by a rise of the BRICS countries, but mainly China. To some extent, China's data will also have been boosted by the stockmarket bubble in 2014, which burst in 2015. But the underlying trend is nevertheless clear, and China's stockmarket in 2016 has since recovered to and beyond 2014 levels. As Kellogg puts it: 'In 2004 there were just 50 corporations from China on the full list of 2,000 (25 of which in Hong Kong). By 2010, the Hong Kong total had jumped to 49, the total in all of China to 162. In 2014 the Hong Kong total stood at 58, the total for all China at 207.'

My only quibble with the table is that he would have better shown only one decimal place in the numbers!

Tony Norfield, 9 September 2016

Thursday, 8 September 2016

Trends in World Debt

The reality of a global economy is shown by close connections in trade and investment, and is reflected in similar trends that affect many key countries. One of these trends is the rise in debt held by governments, households and corporations, as borrowing grew to provide the funds to maintain economic activity. After the acute phase of the economic setbacks in 2007-08, the world is now in the chronic phase of stagnant growth. Occasional blips higher look good, and the patient goes for a walk, but the economy is never far from stumbling back into a ditch.

There are individual deviations from the average picture, but each country's details express the evolution of a world economy. Even though one country may be impacted less, or more, that deviation usually reflects its position in the hierarchy of world economic power. Higher debt levels, or ratios of debt to GDP, are common among the richer countries, especially those that have a privileged position in world finance. After all, they can raise funds from the world market fairly easily since they are the guys in charge and, in the market's 'wisdom', are likely to remain so. Poorer countries have what is called a 'less developed' financial system and tend to hold less debt, at least in relation to the size of their economies. This general point is borne out by the data on debt/GDP for those the Bank for International Settlements considers the 'advanced' versus the 'emerging' countries, as shown in the next chart for the period 2000-2015:

Two features of the previous chart stand out: first, the much higher debt ratios for rich countries, but, second, the faster rate of growth of debt in the poorer countries in recent years. This reflects how much more the poorer countries attempted, from a lower base, to keep their economies ticking over in the wake of the acute phase of the crisis by accumulating more debt.

Country details bring out some other points. First, here is the chart of the total financial sector debt for some key emerging market countries, to add to that already given in a blog post a few days ago for the major advanced countries:

Clearly, China and South Korea have had the biggest growth of debt in the past 15 years, and have the highest ratios of the main 'emerging market' countries. China's rise in debt has been most dramatic after 2008, but, as a later chart will show, this has principally been on the back of the extra debt burden taken on by non-financial corporations (both private and state-owned).

This China development is similar to the results for many EM countries. It contrasts with the picture for advanced countries, where the extra debt has been mainly held by the government sector. This reflects the ability of the major states to borrow and alleviate the burden of the crisis in the corporate and household sectors via government liabilities (debt), while the emerging market countries and their governments, with less access to world markets, are far less able to do so. The breakdown of EM debt in BIS data only goes back a few years, compared to the longer time series for advanced countries, but the next two (different) charts below indicate what has happened:

While advanced countries have seen the debt burden (debt/GDP ratios) of the household and corporate sectors decline in recent years, emerging market country debt ratios have increased sharply, especially for the corporate sector. Government debt ratios have not changed much for emerging market countries.

Now to some country pictures for the breakdown of debt, starting with the major powers. Every picture tells a story, so my comments will be brief. Take care to note the y-axis scale in each chart. A taller bar in one chart compared to another chart does not necessarily mean that the debt ratio is higher.

The US: total debt has stabilised around 250% of GDP. Government debt has doubled to 100% of GDP, but household and corporate debt ratios have declined. As mentioned in an earlier blog post, these data ignore the US Federal Reserve's 'assets' in the form of mortgage securities that they have bought. Also, the data only cover 'non-financial' sector debt, so exclude many other liabilities of the financial sector, not least pension funds.

The UK: similarly, the UK has seen household and corporate debt shrink somewhat, while government debt ratios have also doubled to around 100%. Total non-financial sector debt in 2015 was a touch lower than in 2012, at 266% compared to 277% of GDP, but again, this ignores the many extra liabilities of the Bank of England apart from other obligations.

France: this country is in a worse debt position than the UK. The increase in government debt has been similar, but household debt, and especially corporate debt has risen further in recent years, rather than declining. The total debt ratio in 2014-15 was 290%. In the past five years, annual economic growth in France has been below 1% and often close to zero. This picture gives the backdrop for worries about French banks.

Italy: traditionally having a relatively high government debt ratio compared to other major countries, that debt grew still further after 2007. Total debt stabilised at close to 275% of GDP in 2014-15. Economic growth has been lower even than in France.

Spain: there has been a sharp rise in total debt since 2000, but some recent reduction. Corporate and household debt ratios have fallen in recent years, largely offset by a rise in government debt. In 2015, total debt was 283% of GDP.

Germany: this is the outlier country, with a steady reduction of the total debt ratio in recent years, hitting 184% of GDP in 2015, and with the ratio staying below 200% even in the acute phase of the crisis. German annual economic growth has been weak, at less than 1% in recent years, but Germany's government debt ratios increased by much less than in most other major countries. This may be related to the liability that Germany takes on for the eurosystem via the Bundesbank, and this is not counted in the data here.

Emerging Market Countries

Interesting emerging market countries from a debt perspective are China, South Korea and Brazil. The total debt picture for these was given in the second chart above.

China: historical details for China's debt data are patchy, so for 2000-2006 the following chart only gives the total and the government number (with the black bar indicating the difference). After being fairly stable from 2000 to 2008, China's total debt rose sharply, principally through the rapid debt accumulation of non-financial corporations, both state and private. Household debt has also risen, but not by much. In 2015, the total debt ratio was 255% of GDP, with corporate debt at 171%, up from 99% in 2008. This rapid debt accumulation has led to worries about bad loans, but against this one has to take into account some important mitigating factors. While corporate debt has risen rapidly, the average leverage of corporations is low. Furthermore, the government has an ability to allocate funds between different sectors in the case of emergency, apart from still holding more than $3 trillion in foreign exchange reserves.

South Korea: there has been a steady rise in debt ratios for all three non-financial sectors from 2000 to 2015. In 2015, total debt was 235% of GDP, which nevertheless remains well below the figure for most of the major countries shown above.

Brazil: the debt picture for Brazil would seem to belie the crisis the country faces. Total debt rose from close to 100% of GDP in the early 2000s to 149% in 2015, but not by much in the scheme of things, and to a level that remained below all the other countries shown, even below Germany's debt ratio. As in China, Brazil's debt ratio only started rising after 2008. This indicates that the debt ratio is far from giving a full summary of economic conditions. Brazil's economy has been in decline for several years, hit by weaker commodity prices and a slowing of world trade. Government debt started at a relatively high level, but has hardly changed. The increases in household and non-financial corporate debt has accounted for the rise in the total.

Debt and Interest Rates

If you were wondering why interest rates remain at very low levels, with central bank rates negative in Japan and in many European countries, the debt burden is the clearest answer. Huge debts have been accumulated in most key countries in response to the crisis. Now they stand as a mountain of liabilities, payments on which can only be serviced - and defaults avoided - if interest rates remain low. Higher levels of interest rates would threaten to collapse the edifice that has been erected to shore up the world economy.

Tony Norfield, 8 September 2016