Saturday 20 December 2014

How Much Do Santa's Helpers Get Paid?

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

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

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

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

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

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

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

Tony Norfield, 20 December 2014

Sunday 14 December 2014

Bush and the Brazilians

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

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

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

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

Tony Norfield, 14 December 2014

Sunday 7 December 2014

Labour's Colonial Policy

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

Tony Norfield, 7 December 2014

Wednesday 12 November 2014

Rosetta and Ebola

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

Tony Norfield, 12 November 2014

Tuesday 28 October 2014

Hard Road

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

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

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

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

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

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

Tony Norfield, 28 October 2014

Sunday 26 October 2014

Moribund Capitalism

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

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

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

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

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

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

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

Tony Norfield, 26 October 2014

Friday 17 October 2014

Conference on 'How Capitalism Survives'

The journal Historical Materialism is holding its eleventh annual conference, 'How Capitalism Survives', in central London on Thursday 6 to Sunday 9 November 2014.

The venue is the School of Oriental and African Studies, the Vernon Square Campus, Penton Rise, London, WC1X 9EW. Further details regarding the conference, accommodation, etc, are found here.

It is a big conference, covering a wide range of topics! There are 13 sessions over the 4 days, each with up to 12 different discussions, usually including 3 or more speakers.

For those interested, I will be presenting in a session on 'Finance Capital, Corporations and Class'. My presentation is based on part of the research I did for my recently completed PhD and it is on 'Capitalist Power: Fictitious Capital, Corporations and Finance'. Other speakers at this particular session are Francois Chesnais, Dick Bryan, Michael Rafferty and Sune Sandbeck.

The session  on 'Finance Capital, Corporations and Class' is scheduled for Friday 7 November, from 14.15 - 16.00. *** The Room for this session has been changed, and it is now Room 221.

Tony Norfield, 17 October 2014

Tuesday 14 October 2014

Absolute Airheads

I'm the first to admit that there are better things to rage about in the world today. But I find it difficult not to get agitated when people are asked by the British media to respond to an interviewer's point, or to say what they think about what has just been said, and they reply: 'Absolutely!'

What can this exclamation possibly mean? Do they completely agree with everything that has been said, with no reservations? Do they think that anything further could only shine a light upon the pinnacle of knowledge already revealed? Or is the word just usefully long, with all of four syllables, enabling a slow-witted respondent time to gather his or her thoughts? Probably they do not think we should disregard whether something is positive or negative, and simply pay attention to its absolute value.

In the good old days, the best stock answer to a media question was: 'There may be something in what you say'. That was of inestimable value. It allowed the respondent to (perhaps) sort of agree and please the interviewer. But it also gave the impression that other things were going on that had not been considered. After all, the world is a complicated place.

Such is the dissolution of critical culture today that this absolutely fad has absolutely taken flight, absolutely. Idiots ask idiots questions and get idiotic answers. That has been true for a long time, but the shameless revelation of this truth is now becoming an embarrassment.

What can a responsible citizen do?

I would recommend that you pay no attention to anything anyone says in a media interview after they have uttered the word 'absolutely'. More than this, disregard anything they have ever said or written. They need to be taught a lesson, and I fear that this may not be confined to the UK media.

Tony Norfield, 14 October 2014

Saturday 11 October 2014

Financial Trouble

The economic impact of the 2007-08 financial collapse was mitigated in some countries by state policies, especially from central banks. In the US, the UK and a few other major countries, there was thereafter a recovery of sorts, but even this appears now to be fading. A recovery did not even really start in some other countries. In this note, I want to draw attention to some background financial data that do not get as much attention as the data for economic activity, although they are often more important indicators of what is going on.

Firstly, consider the information contained in a recent IMF report on the scale of direct government support for the financial system after 2007 in Europe and the US. The data shown next include the cost of direct bailouts, including nationalisation. But they do not show central bank purchases of private (bank) assets, such as mortgage-backed securities (MBS) which, they hope, will end up being worth more than they paid for them. For example, the US Federal Reserve owns around $1,700bn of MBS, equivalent to about 10% of US GDP. Nor do these figures include the huge amounts of government securities bought by the US Fed, the Bank of England and the European Central Bank and others in their 'quantitative easing' programmes.

Table: Financial Sector Support (% of 2013 GDP)

The previous table shows that most states have managed to claw back some 'recovery' of their initial support money (these data are for the period to June-2014), for example by selling back shares in previously nationalised banks. So far, the US can even claim to have made a modest profit on its support operations, but that ignores the Fed's MBS purchases and other implicit guarantees. At the other end of the spectrum, Cyprus, Greece and Ireland have borne a sharp rise in their gross public debt, one little reduced by the recovery of funds. For all countries, except the US (though with the previous caveats), the situation in 2014, some six years after the crisis hit, is a worse public debt position.

Public debt is, of course, the fount of all evil from the perspective of the IMF, despite the recent rise being a function of the collapse of private sector capitalism. So, it is worth noting two charts of what is presumably 'good' debt: leveraged loans and margin borrowing to purchase equities on the New York Stock Exchange. These charts are taken from a Canadian financial research foundation, IOSCO, in a report released earlier in October.

Here is the picture for leveraged loans, broken down by region:

The blue bars in the chart are the total of leveraged loans, measured in billions of US dollars. In 2014, the outstanding volume of such loans was just below $2,000bn, higher than in 2007 (the peak bubble year for all such data), and it is expected to fall only modestly in 2014. The main source of the rise has been in the US. With central bank interest rates at zero, such loans do not incur much interest cost. This encourages enterprising parasites to 'invest', commonly advancing only a tiny proportion of their own capital compared to what they have borrowed from banks. They make use of tax laws on debt and 'special purpose vehicles' to avoid inconvenient personal liability, either to tax or to troublesome losses.

By comparison, the rise in leveraged loans in Europe has been more limited, and remains below previous peaks. In the Asia-Pacific region, such loans have risen to new peaks, but the scale of the number - around $250bn - may cause less potential trouble.

One clear source of likely financial trouble, however, is the rise in a different kind of US financial leverage. The US equity market is the biggest in the world, and moves in these prices play a key role in driving all other equity markets. So have a look at how much money speculators on the New York Stock Exchange have borrowed to invest in equities:

Data up to end-August 2014 show that 'margin debt' (borrowed funds to invest in stocks) had risen to $463bn on the NYSE, a little higher than indicated by final data in the previous chart. Each of the strong accelerations in borrowing, shown by the deviation from the trend line, were followed a short time afterwards by a stockmarket slide. This was true for the dotcom bubble in 2000-2001 and the slump in 2008-09. Downward momentum is driven by the fact that the borrowed funds have still to be paid back, even if the equities those funds bought have dropped in value. And the S&P500 index has dropped more than 5% in the past four weeks.

Our politicians are already in a quandary over Syria, Iraq, Ukraine, ebola and a range of other issues. These items of financial data, let alone the weaker economic statistics for almost all countries, indicate that the dynamic of capitalist markets could become a further source of anguish.

Tony Norfield, 11 October 2014

Thursday 9 October 2014

The Wages of Sinn and the Euro Crisis

Today I went to the launch meeting in the City of London for the latest book from Hans-Werner Sinn, entitled Euro Trap: On Bursting Bubbles, Budgets and Beliefs. Sinn is probably best known as the President of Germany's Ifo Institute, as a well-informed, critical commentator on the European Central Bank and as someone who delivers withering critiques of economic and financial policies in the euro area. I have read some of his papers on the ECB's TARGET payments system - ones that explain the economic disaster of the euro project more clearly than one might expect - and have seen a video of an earlier speech on the euro crisis. So, I was intrigued to attend this meeting. The comments here are from my notes of his presentation. They will lack some detail, although they should nevertheless give the gist of what was said. I have ordered his new book, and will correct any misrepresentations once I have read it.
Professor Sinn's skill is in expressing his views very clearly, and with an abundance of supporting empirical evidence. Those who disagree with him may claim that he has got it wrong, but often they will be addressing a different question and not confronting the essence of what he is saying. This is certainly the impression I have had reading 'expert' spokesmen for the euro elite who criticise Sinn. Radicals, who consider him part of the reactionary establishment arguing for austerity, do not usually attempt to address his views at all.
Sinn's view of the (euro economic) world is straightforward. He admitted that he was initially a supporter of the euro project, with some reservations, and that he did not anticipate how badly it would turn out. He then focused on the facts that cannot be denied: most, if not all, of the crisis-hit euro countries went through a decade or more of falling competitiveness before the global turmoil (for the richer countries) began in 2007-08.
This falling competitiveness was based upon a growth of real incomes, consumer demand and public spending that outran the productive capacity of the individual countries. It was fed by falling interest rates that encouraged borrowing and, for the weaker countries, by a euro system that appeared to make lending to borrowers (Greece, Spain, etc) with much weaker economies have more or less the same risk as lending to those in the richer, stronger euro countries. The 'irrevocable exchange rate' of the euro, and the denial that any individual state would ever exit the system, covered up the gap in the euro project's construction: there was no agreed mechanism for rescuing insolvent states, in particular there was no unified fiscal policy, something that would have to have depended upon a political union of member countries, not simply a monetary union.
So, the euro system had no mechanism for dealing with the economic effects of divergent competitiveness reflected in the mounting levels of external debt (via current account deficits) for weaker countries. What happened instead was that the TARGET payments system for interbank transfers within the system simply led to ever-increasing liabilities of the uncompetitive and ever-increasing assets of the competitive, with the ultimate risk being put on the relevant national central banks. In practice, Germany's central bank has taken on the asset risk that German companies have in Spain, Greece, etc. The German companies get paid, but via a credit issued by the German central bank to its central bank counterparts in Spain, Greece, etc. This means that the German central bank, the Bundesbank, has questionable assets in its lending to the central banks of Spain, Greece, etc, while the Spanish and Greek central banks have liabilities to the Bundesbank offset by questionable assets from securities (and promises) delivered to them by their own domestic banks and companies.
That is bad enough, but things got worse. In recent years, the credit quality of collateral accepted by central banks from private banks in the euro system was reduced, the ECB embarked upon a series of measures to buy government and private sector securities and, in the latest measures, the ECB will also buy junk assets to 'rescue' private banks from their ownership of rubbish. Six crisis countries, claimed Sinn, have received more than €1,300bn of credit in this way, of which more than 80% has come from the ECB.
These points should make one ponder a while.
For all the protests about austerity, the euro system has invented new funds for crisis-struck countries in a way that has clearly transgressed the supposed neoliberal policy regime. Sinn noted that the US Fed, for example, would never have bought Californian state bonds. Instead, he complains, the risks of the economic disaster have been transferred to euro states and, hence, to the (German?) taxpayer.
Radicals will complain that the banks have been bailed out and rescued, while austerity continues. However, the real point is that Europe is an economic disaster area and there has been, so far, great reluctance by governments to force a market reckoning upon the mass of the population. Sinn is more conciliatory on this issue than one might think. He fears that mass unemployment, especially youth unemployment above 25% in several countries, will lead to political turmoil and extremism. He worries that 'productivity' is only rising in some countries because jobs are being shed, not because there is any productive investment. If one were to argue that yes, there has already been enough austerity, he will present statistics to show that there is another 10% to go in Italy, 20% in France and 30-35% in Spain and Greece before competitiveness is restored.
I do not necessarily agree with Sinn's numbers, but his case is clear and a few percentage points here or there make little difference to his main argument: the economics of (euro) capitalism demands austerity. All this, of course, raises bigger questions.
Sinn, despite appearances to the contrary, hopes that the euro system will survive, but he argues that it can only do so if it recognises its fundamental flaws. He proposes a 'temporary' exit of crisis-hit countries, who will then devalue their currencies and later re-enter the euro system, as of right. His solution is quaintly optimistic, but one should recognise that he favours European integration and political stability. The only problem here is that he insists that this must be on sustainable terms if it is to work. Critics of his position often focus upon Germany's benefits from the system, but he correctly notes that Germany itself had a long phase of labour market austerity in the 2000s, which is why the country has become very competitive. Above all, he wants a viable capitalist system, although with European capitalist stability high on his list of priorities.
Questions confronting those who are less concerned with saving the capitalist system, in the euro area, or elsewhere, are as follows. Firstly, it does not make sense to argue against austerity by making this an anti-German argument, as if German workers did not also have their own phase of austerity before. Secondly, an attack on 'austerity' must recognise the privileges of those in the EU/euro area who have benefited from their own countries' domination of international markets, through the control of trade links, patents or owning many of the key monopolistic companies. Fighting austerity at home is hypocritical if it does not recognise the way that the economic system subordinates others.
Thirdly, recognise that Sinn's arguments are the logical consequence of a clear-sighted capitalist perspective, and one that is also ameliorated by a concern for social stability. He has much better arguments about what is needed by capitalism today in Europe than the nonsense of 'alternative policies'. The proponents of the latter know they are dead in the water, but they might still attract some external funding, whether in advocating wind farms or whatever else. Sinn's position is to advance a policy that he recognises is a 'dismal option' - and one that he does not really expect to succeed, still less to make people happy - but he hopes it would be better than the current euro political decision to do nothing and instead to hope something will turn up.

It is unlikely that his policy recommendations will be followed, partly because euro politicians correctly see the barriers to any proposal that highlights what is really going on. Confronting an intractable capitalist crisis is something that the current generation of politicians cannot manage. The crisis has blown their legs off, yet they still dream of strolling down the road as in the good old days. Even if Professor Hans-Werner Sinn were to become the new arbiter of euro policy, that would still leave the system he seeks to sustain in question.

Tony Norfield, 9 October 2014

Thursday 25 September 2014

Obama at the UN

Here is an edited transcript of the speech given by Barack Obama, aka POTUS, at the United Nations in New York on 24 September 2014. He is revered throughout the world for his shameless appeal to humanitarian, democratic values, and we were so impressed by the manner in which his speech obscured what was really going on that, at great expense, we have commissioned a translation into plain English:
"Fellow citizens of the world, one that we had previously controlled with little problem, I am greatly concerned that recent events have exposed the shortcomings of our former strategy. I would now ask for your cooperation so that this becomes less embarrassing.
"It is your decision, but you can either join what I will call, after my illustrious predecessor, a 'coalition of the willing' to intervene against ISIL, or I will consider you to be a traitor to the cause. If such a gambit is beyond your abilities, and is only supported by our friends in the Gulf, so be it. But, even so, you will be called upon next year, maybe, to explain what you are doing to help us out. The least you can do is to arrest a couple of jihadi crazies when they come back home and explain to them that their madness has nothing to do with us. Whatever, Guantanamo is full up, so you must sort it out yourselves.
"On another pressing topic, I know for some of you that it will be difficult to accept that president al-Assad is now not such a bad guy. The news media has understood this, but let me explain further in case there is any misunderstanding. We still do not like him all that much, and it pains me deeply to think that we are now bombing the opposition to his regime that only a few weeks ago we were arming and training. But my latest perspective is based upon fundamental principles: facts change, people are gullible and hardly anyone that counts will be bothered by this new position.
"As an example, I have arranged that more extensive discussions will now take place between Iran, with whom we will have no dealings whatever, and our closest ally, the UK. In this respect, I would like to thank Donald Trump for his efforts in securing the continued unity of this sceptred isle. You never know when you need your friends, although, personally, I have not been so confident about the value of the Brits.
"I will not mention, and neither will you, that financial support for ISIL came not only from us, but also from our Gulf allies who are joining this intervention. Let there at least be a consensus on that issue. We can build on this for the good of all. The funding of ISIL must stop, so we ask our friends in the Gulf not to do it any more. Regime change in Syria looked like a good idea at the time. But can we really risk undermining the wider range of imperial borders when this can only start a war over resources and influence - not only between different Middle East groups, Kurds, Sunnis, Shia, etc, but also between the major powers that have run the system in their own interests?
"I am pleased that Russia has been polite enough not to laugh in our faces about the shit we have caused in the Middle East. This is especially polite, because today I will continue to insult them further about Ukraine. I count on your press corps not to mention too often that we provoked the turmoil in that country, with some help from the Europeans who also do not understand politics.
"The assembly before me will support my affirmation of human rights and dignity today. And I ask you not to complicate matters by comparing my support of Israel's slaughter in Gaza with my opposition to the beheading and murder of innocents. The world surely knows that our provision of Israeli missiles and weapons to destroy residential apartments and our support of the Israeli military sniping at civilians in Gaza cannot be compared with Youtube videos of Americans being killed anywhere."

Translation by G Orwell, 25 September 2014

Wednesday 24 September 2014

T-Shirt Economics Update

In June 2011, I published an article on this blog: "What the 'China Price' Really Means". The article discussed international wage differentials, productivity and how low wages in poor countries translated into economic gains for rich countries. Using the data I had found, together with an investigative report from Die Zeit, I made a guess that the unit labour cost of a T-shirt produced in Bangladesh was some 10-15 euro cents (it sold for 4.95 euros in a German shop). That seemed reasonable, but a reader contacted me recently to point out some problems.
If the 10-15 cents labour cost estimate were true, he noted that it contradicted the other data I cited from Die Zeit, namely the 1.36 euro daily wage of one of the machine workers in the Bangladesh factory. Or else it implied that an implausibly large number of workers were employed, perhaps around 200 per machine. So, I examined the issue again, revised my guess and have reached a more damning conclusion about the rate of exploitation of workers in Bangladesh!
The usual caveats with data apply: do the figures really measure what they claim to measure? Furthermore, there are gaps in the data available, and I had to make some estimates. However, the main reason behind the much lower guess I would make now for the unit labour cost of a T-shirt produced in Bangladesh is the rise in productivity. These data come from the Bangladesh Statistics Office, and I had not seen these, and am not sure they were even published, when I wrote my blog article. They show a much larger rise than I had previously allowed for.
Another point is that I had used the results of a study by S C Zohir, published in 2000, that the unit labour cost in 1994 of a 'shirt' in Bangladesh was 11 cents (in US dollars). I did not then take into account that if the labour cost of a (full) shirt was 11 cents, then presumably a T-shirt would cost less. Assume 8 cents for a T-shirt (excluding working on the sleeves, buttons, etc, on a full shirt).
Starting from 8 US cents unit labour cost for a T-shirt in 1994, this can be translated into Bangladeshi currency (the taka) at that point. Then, the number can be inflated by the rise in wages for Bangladeshi cotton workers, but also deflated by the increase in productivity of cotton production workers. I have done this to estimate the unit labour cost in taka for the T-shirt (in 2011). In addition, the depreciation of the taka versus the euro and the dollar since 1994 also needs to be taken into account to work out what the T-shirt costs are for the buyers in rich countries.
The end result is that instead of the unit labour cost for producing a T-shirt being 10-15 euro cents, it is very likely to have been more like 2-3 cents. Even if that estimate were 20-30% too low, it would not really make any appreciable difference, given the minuscule starting point.
Going back to the original article, on the basis of 10-15 euro cents per T-shirt, I estimated that H&M's net profit per T-shirt in 2011 was 4-6 times higher than what was paid to the Bangladeshi producer. My apologies for underestimating the fruits of exploitation: the ratio is closer to 20-30 times higher.
The lesson to draw from this is that the closer you examine the economics of imperialism, the worse it gets!

Tony Norfield, 24 September 2014

Wednesday 20 August 2014

Palestine, 'Israel' and Justice

Israeli racism and violence should obviously be condemned, but land theft is the key question. Consider this: on what basis should the slaughter by Europeans of Jews before 1945 result in the allocation of Palestinian land to Zionist settlers by imperialist powers in 1948? It is not only the post-1967 land grab by Israel that is a crime. The Israeli state is illegitimate and a result of imperialism in the region.

The term 'apartheid' to describe the Israeli system is also incorrect. Israel far prefers to kill Palestinians and steal their land, which is not the same process as formerly in South Africa. For example, Gaza is not Israel's Bantustan for the disenfranchised and exploited; it is a prison in which the inmates are expected to die. That much should be evident from Israel's actions over many years.

Fundamental injustice leads to resistance by Palestinians, a resistance that should hearten, and be supported by, anyone with a conscience. Calling for a 'Two-state solution', or 'peace', or 'negotiation' between the thieves and their victims only legitimises the prevailing injustice.

Tony Norfield, 20 August 2014

Saturday 16 August 2014

The Scotland Debate

The irony of the British establishment's attempt to keep Scotland within the UK from an economic perspective is that it is also an argument why the 'rest of the UK' should get rid of Scotland as an economic burden on the rest of the UK! Whether they note how population trends in Scotland make pensions less affordable, or the risk of North Sea oil revenues running low, or being volatile, or the fact that public spending per head is 10% higher in Scotland than in the rest of the UK. This might backfire, except that the rest of the UK does not have a vote on getting rid of Scotland.
My guess is that Scotland will vote for keeping the union with the UK they have benefited from. This is not such a brave gambit, given that polls in Scotland still suggest a majority in favour of maintaining the status quo, although there are plenty of 'undecideds'. The brief period when the British establishment went for intimidation and threats to the Scottish nationalists is over. Instead there are promises of more goodies to win over those who are recalcitrant. They will benefit more from extra policy autonomy from the London-based regime and do not have to answer for the local, professional prejudice against outsiders if they stay inside the club. A wild card is the vote of those aged 16-18, whose opinions appear to be less carefully tracked by the regular pollsters, and who may know what they don't like (London rule), but are unsure what might happen at the start of their real lives under a fishy Salmond regime.
When all is said and done, for 'auld lang syne', it comes down to the status of the UK as a world power. Losing 8% of the UK population in Scotland might be a misfortune, as Oscar Wilde might have said, but losing part of an internal market, territory that includes mineral rights, a nuclear base and a ready supply of aggressives for external combat (the internal requirement having long been redundant) will look like carelessness in the eyes of other major powers. This is the basis of the countervailing offer by London.
A Scottish 'Yes' vote (in favour of separation from the UK) can hardly be characterised as a vote against British imperialism, even if it would cause the British ruling class some problems of management. The Scots are part of the privileged imperialist elite, and the demand for 'independence' is essentially a demand for privileges to be improved, not really independence. That is why the 'Yes' campaign wants to keep the Queen, the pound sterling, etc, etc. The 'Better Together' campaign argues that the structure of privileges will be more secure with a 'No' (continued union) vote, because they are backed up by a united, British power. That is the referendum debate, and it is a mistake to try and give the 'Yes' side a progressive veneer, as do some misguided radicals, both in Scotland and without.

Tony Norfield, 16 August 2014

(resubmitted after some amendments)

Friday 8 August 2014

The Moon Dog Cannot Bark

Nobody with any critical acumen would expect the Secretary General of the United Nations to take any action that is against the interests of the major powers, in particular those of the US. Still less would anyone expect this of the career diplomat nondescript, Ban Ki-Moon. However, it is unusual for evidence of craven grovelling before imperial definitions of what is a crime, and what is not, to become public.

Here is evidence of how an earlier attack by Israel on Gaza, in 2008-09, was fixed by Mr Ban to eliminate the possibility of the UN taking any action against Israel, after the ineffable diplomat did a deal with the Israelis. Thank you, Wikileaks.

Meanwhile, there is rising turmoil in the imperial system. Obama does not want to finger the Saudis for fuelling the crisis in Iraq, and he has another problem if anyone points out that he is willing to defend some non-Muslim Yazidis with airstrikes but he will do nothing (not even delaying some payments to Israel, as done by the US in previous decades) to stop Israel's slaughter in Gaza.

It is a function of readily available, obviously outrageous news, more than any rise in political consciousness in the population, that has led to a UK Conservative minister resigning over Gaza and others being dismayed (at least in private). After all, how can one pretend to be a decent human being if televised slaughter is OK? Similarly, the BBC has now finally allowed a Gaza aid appeal (after the previous one was denied). But any potential benefit from aid is immediately countered by the Israelis continuing to bomb Gaza and maintaining their siege.

Tony Norfield, 8 August 2014

Sunday 20 July 2014

Ukraine, Gaza, Imperial Hypocrisy

Widely reported evidence suggests that pro-Russian rebels in Eastern Ukraine shot down Malaysian flight MH17 with a missile, resulting in the loss of nearly 300 lives. Even if that turns out to be true, nobody would claim that this was done on purpose. It was a stupid, incompetent by-product of a civil war. It was not a plan to kill tourists. This event results in western powers rounding on Russia, with resolutions tabled at the UN and all the major country media unified in condemnation.

Contrast this reaction with the past week's attack on Gaza by Israel's forces. Blasting children off the beach, widespread destruction of homes and hospitals, absurd orders from the Israeli military to 'evacuate' when there is nowhere to go - these events, resulting in the loss of far more than 300 lives, lead western governments to affirm Israel's right to 'defend itself'! No US, EU or UN sanctions counter Israel's genocide against the Palestinians, but nobody could claim that these murders are an accident.

The scales are set like this: one life lost that can be used in support of imperial policy weighs much more than hundreds whose recognition would be politically inconvenient.

Tony Norfield, 20 July 2014

Tuesday 15 July 2014

BRICS Building

Nobody wants to be one of the PIIGS, but membership of the BRICS is highly valued. Both acronyms were devised in the City of London, the former by analysts describing a group of crisis-hit euro countries, the latter by Goldman Sachs in a 2001 paper that identified several countries that had come to prominence in the global economy. The Goldmans formulation came at an opportune time: slower growth in the major capitalist powers was being outpaced by developing countries that also appeared to have brighter economic prospects. Its author called for including Brazil, Russia, India and China more formally in global economic decision making (South Africa was added later), and this was an adept investment bank marketing tool to attract business both from and into the relevant emerging powers, ones that craved recognition.

The BRICS are evidently diverse countries, geographically, socially, economically, politically and in terms of their potential power in the world economy. However, they share some common interests that the original Goldmans formulation did not anticipate. Rather than them all simply wanting to be included in the current hegemonic structure of global decision making - being included in forums like the G7, for example - what has happened over the past decade is that they have recognised that the game is rigged against them. So, instead, they have made halting attempts to set up another game.

The latest move is the new BRICS development bank, finally agreed in Brazil on 15 July. After much negotiation, and the usual scepticism from the western press that a deal could be agreed, the new bank will have its headquarters in Shanghai and the first president for the bank will come from India. This reflects the relevant economic power distribution, with China and India having both the largest GDPs and populations among the BRICS, but with China in first position. The first president will have the position for five years, followed by a Brazilian. However, the real money will be advanced by China, some 40%.

Initial reports suggest that the new bank will have $100bn of starting capital, plus a 'contingency reserves arrangement' of the same size. The latter will help developing nations avoid 'short-term liquidity pressures, promote further BRICS cooperation, strengthen the global financial safety net and complement existing international arrangements'. This is a major challenge to the IMF- and World Bank-dominated system of country support and reflects a desire among these up-and-coming countries to assert their position versus the established imperialist powers.

This is one of the most important economic challenges to the position of the major powers since 1945, in particular to the US and its domination of IMF and World Bank policy. As outlined in an earlier article, the US has already faced important competition from China. This new institution will likely offer many trade and investment deals that are outside the orbit of the Anglo-American system, ones that do not depend upon using the US currency. In May, Russia and China did a bilateral deal whereby Russia will supply China with oil and gas over many years for hundreds of billions of dollars, but it is reported that the transaction will not be settled in the US dollar. Over the past 18 months, the Chinese government has also set up swap deals with central banks in all the major financial centres that will make the Chinese renminbi a far more important currency for international transactions and trade finance.

The end result is that the BRICS will likely end up being a mechanism for the evolution of China as a major world power, not necessarily a single group of alternative powers jointly challenging the existing structure. Just note the levels of 2013 nominal GDP and population, in particular with China well ahead of India's GDP, despite having a similarly large population (the BRICS are in bold):

                        GDP (US$, trillion)             Population (millions)

US                   16.8                                            318
China                9.2                                          1367
Japan                 4.9                                            127
Germany            3.6                                              81
France               2.7                                              66
UK                     2.5                                              64
Brazil                2.2                                            203
Russia               2.1                                            146
Italy                   2.1                                              61
India                 1.9                                          1247
Canada              1.8                                              35
South Africa      0.4                                             53

These developments put the position of China in quite a different perspective from that offered by Panitch and Gindin in their recent book, The Making of Global Capitalism. Their view is that China is so ingrained in the post-war US hegemony as to be more a supplicant than a challenger. They dismiss China as a potential rival to the US by arguing that it is embedded in the US-designed system, for example by owning a huge volume of US dollar-denominated debt in its foreign exchange reserves that effectively cannot be sold. They question whether China has 'the capacity to take on extensive responsibilities for managing global capitalism' (p. 336), as if that were the issue at stake! The real issue, as Lenin noted a century ago, is one of the changing balance of strength among the key powers. As the new BRICS bank indicates, there are changes under way.

Tony Norfield, 15 July 2014

Friday 6 June 2014

Bitcoin: a Digital Alternative?

I first paid little attention to Bitcoin, thinking that there are probably more Elvis Presley impersonators than there are people in the world who have traded or owned it. But seeing that central banks have issued policy statements on Bitcoin, that the FBI has 'seized' Bitcoin assets used by drug dealers and that tax authorities have given guidance on capital gains liabilities, while financiers are planning to offer exchange traded funds denominated in Bitcoin, I decided to take a second look. This article gives my assessment of this digital, alternative 'currency'.*
Bitcoin emerged from the rubble of the international monetary system in 2008, when numerous banks had a near-death experience and some were actually buried. It was devised by a team of software specialists, led by one Satoshi Nakamoto. In March, Newsweek claimed to have unmasked this international man of mystery as an unassuming, Japanese-American retired engineer, but the latter denies this and lawsuits are pending. However, it is possible to analyse Bitcoin without going into the personalities involved.

There are two key aspects of Bitcoin: an Internet-based payments system and a special currency unit for payment between different Internet accounts. The first is reasonably innovative; the second is bizarre. Although they are closely linked, it is useful to consider them separately.

The system
With Bitcoin you can make payments between individual accounts on the Internet in a way that does not use the banking system. This raises a number of questions about account access, identity and security that the software developers have tried to, and mostly have, solved (see Wikipedia's 'Bitcoin' article for an extended discussion of the technicalities, pitfalls and scams). Bitcoin claims a number of advantages over the normal bank payments systems. First, there is no charge for the transaction, unless you decide to leave a 'tip' in order to speed up the process. Second, 'tip' or not, it will probably be more rapid than many bank payments systems, especially across national borders. Third, making a payment between countries in terms of Bitcoins does not involve other bank charges. Fourth, the payments made to other system users can remain anonymous. All of these factors can appeal to those with less than a happy experience of dealing with their bank, especially those who wish to transact in secret. The belief that Bitcoin is a challenge to the banking system, even to the Fed and other central banks, has some popular appeal.
Ben Lawsky, New York's Superintendent of Financial Services, has praised the technology behind the payments system (interview on Fox Business News, 3 February 2014). He thought that some version of it might in future be used as a cheaper, more efficient method of transferring money. In this sense, Bitcoin, or a similar technology, could eventually offer a challenge to some banking services and would be a threat to this particular source of bank revenue.
However, although finding an alternative to the banking system might seem like a good idea, the problem is that the Bitcoin payments system can only transfer Bitcoins from one account to another. This raises the next question: what is a Bitcoin and what is its relationship to the normal money we use? This is where the bizarre aspects of Bitcoin come in, ones that are interesting for also highlighting some equally odd aspects of the monetary system that we take for granted.

The money
Bitcoins are created by a computer algorithm that allocates 'coins' to those who have the computing power (and energy resources) to do the relevant 'mining'. Coins only exist as entries on a ledger in the computer system, not as physical articles. The algorithm determines the pace at which coins can be created. This pace diminishes over time so that, ultimately, the total number of coins available will be limited to 21 million. So far, there are a little over 12 million coins.
If the genesis of Bitcoins seems weird, consider by comparison what happens with 'real money'. The Federal Reserve is the monopoly issuer of dollar currency, as are central banks in other countries, and a $20 bill, for example, costs only 10 cents to produce. However, the vast bulk of what we call money is created via the banking system. This happens through banks making loans to consumers and companies. For example, a bank creates money by making a $100,000 mortgage loan to a household, crediting its account with the funds. After the purchase, those credited funds end up in the seller's bank account, and are balanced against money transactions that the second bank has with the first. The first bank doesn't need $100,000 in cash to make the loan. If it did need extra money, it can rely on the central bank (here, the Federal Reserve) providing funds to the banking system. You might suspect that a few things could go wrong here! So, do you prefer to trust the workings of an algorithm or the workings of the monetary system? In the wake of the 2008 crisis, with bad debts, successive financial scandals, 'quantitative easing' and the bailing out of banks at taxpayer expense, Satoshi Nakamoto's algorithm has, not surprisingly, gained some ground.
However, Bitcoin enthusiasm overlooks what determines the value of money. Such an omission is easy, because a dollar token of money or its representation in a bank account might seem to have as much value as the digital signals from a computer. If anything, the limit on the supply of Bitcoins (but don't believe all you read) might promise a more solid future value than the potentially unlimited supply of dollars. The rise in the price of Bitcoins from less than a dollar at inception, to more than $1,000 in 2013, then at $440 in early May this year, has been a roller coaster. But this can still leave enthusiasts feeling that, as with gold, there is some kind of 'intrinsic value' determined outside the influence of the government or the banks.
There are nevertheless key differences between the determination of the price of Bitcoins and the purchasing power of the dollar. These highlight the dollar's role as money and Bitcoin's role as essentially a speculator's plaything, even if we leave aside the huge volatility in Bitcoin's price.
Pricing and payment in dollars, or other currencies, is the means by which transactions are done and accounts are settled within the borders of a monetary system. In principle, anything else could be agreed by parties to the deal, from bottles of whisky, to tickets for a football game, to organic vegetables, to Bitcoins. But the universal means of pricing and payment is in currency, and the currency chosen is determined by the national state. The state gives the social stamp of approval and makes a currency legal tender, acceptable for pricing, payments and calculations of wealth according to a set of commercial laws.
But what determines the value, or purchasing power, of currencies? The answer has many dimensions, although two are critical: the productive power of the national economy issuing the currency (more than one in the case of the euro), and the position of that economy in the world system. Productive power will influence the prices of goods and services, rates of inflation and competitiveness in international trade, in turn influencing the exchange rate of a currency in the market. Global status has an important impact too. Foreign investors buy US dollar-denominated securities because the US is top dog in world finance, and this usually keeps the dollar's exchange rate higher than it would otherwise be. The US gains revenues from the world economy via the role of the dollar, and the US government's political power is also boosted by its financial power, as when it imposes sanctions against Iran, Syria, Russia or other countries that act against its wishes. However, that global status would not long survive if the productive power of US capitalism declined significantly compared to its rivals. So, while the value of a national currency might seem to be arbitrarily determined, there is a close link to a country's productivity.
For Bitcoin, however, there is no such link. The most one could argue is that there is some relationship to the amount of effort to create another unit of Bitcoin, since the price might settle at levels higher than the cost of 'mining'. But even then, the mining work is not organised as part of social production: resources are not applied according to competition in the capitalist market, with the price tending to reflect that. Bitcoin miners can decide to spend a lot of time on their hobby and pay little attention to the electricity and computing bills: this is essentially private production, not social production of commodities by capitalist companies.

The cigarette card
Probably the best analogy to pinpoint the economics of Bitcoins is that they are like Babe Ruth cigarette cards, or special edition stamps, that attract collectors. A limited supply is weighed against a hyped up (or deflated) demand to determine the price. The result is that Bitcoin's price is basically determined by speculative demand: it might jump or slump. A limit on supply is supposed to create a scarcity value, but the demand for Bitcoins could easily get much scarcer. While Bitcoin is the leading 'digital currency' at present, there are also more than 170 others being traded, so in future it could be eclipsed and the price could drop back to less than a dollar.
Don't get misled either by reports of Bitcoin ATMs appearing all over the world to think that its growth could dislodge the banking system. The machines are real enough, with something over 100 already set up in a dozen countries. But that is hardly one on every street corner. Also consider that the transaction costs on the machines are reported to be around 8%, which is worse than you would get from a foreign exchange bureau (and at least they give you a form of money). Nevertheless, it is good business for the machine installers. Always remember: you can be cool and alternative, but also a sucker.
Bitcoins are likely to remain digital Babe Ruth cigarette cards, at best. Even if one imagined that at some point the government would accept tax payments in terms of Bitcoins, or a wide range of businesses would accept it for payments for goods and services, the amount of the Bitcoin payment would be set on the basis of the relevant dollar, euro, sterling, etc, price that you need to pay. It would not be set purely in terms of Bitcoins simply because they are not money, backed by the state.
Bitcoin is intriguing as a use of modern technology. However, an alternative economic system is not built by a different technology. It is built by people who recognise that the power of capitalism rests upon the state's maintenance of the capitalist economic system and who want an alternative to that. Many millions of people around the world are finding that the economic system does not work for them, and that it is increasingly perverse to argue that capitalism is the best way of organising social production. Yet Bitcoin is no answer to that problem.

Tony Norfield

Note: This article first appeared on 5 June 2014 in the 'Field Notes' section of BrooklynRail.

Tuesday 3 June 2014

Robots and the Organic Composition of Capital

This week, London's Financial Times has decided to get back to what it is good at and report on some interesting economic developments: robots. The articles in this series promise to have much more value for those analysing the world than the FT's editorial line on Ukraine, Russia, Syria, Iran and other issues; opinions that simply reflect the discomfiture of the Anglo-American elite about things that are moving outside their control.
Robotisation of manufacturing processes has been under way for many years, but it seems to have accelerated recently. In the case of Foxconn, already reported on this blog, one pressure for robot innovation was the rise in wages among assembly line workers. However, in an effort to cut costs a number of production processes require not only a speed and accuracy that manual labour cannot achieve, but also a physical scale of operations that only robots can manage. Try carrying a 2.5 metre glass panel used for producing LCD displays that is only 0.5mm thick without breaking it. Or try to measure to an accuracy of 0.05mm. There is also a development in lightweight 'collaborative' robots that are used more directly by workers, and that are less likely to crush their human counterparts.
Here are some key points:
  • South Korea had the largest number of robots per manufacturing employee in 2012: 396 per 10,000. Japan's figure was 332, Germany's 273 and China's only 23.
  • Japan has the most industrial robots in total with more than 310,000 in 2012. The US had 168,000; Germany, 162,000; South Korea, 139,000; China, 96,000; Canada, 18,000; UK 15,000; India, 7,800; Brazil, 7,600.
  • China is growing fastest, however, with robot sales increasing at an average annual rate of 36% from 2008 to 2013.
  • The automotive industry accounted for some 70,000 of the overall 179,000 robot sales in 2013, followed by the electronics industry (35,000) and food (6,200).
  • Lightweight robots cost around $35,000 each; the big guys cost more like $100,000 or above.
  • Robotics companies from Japan, Switzerland and Germany dominate the market, with some important companies also based in the US, UK and Denmark.
One implication of these developments is an increase in manufacturing productivity. Another is the increase in what Marx called the 'organic composition of capital': where there is not only a rise in the mass of machinery and raw materials compared to labour power employed, but also a rise in the value of such machinery and raw materials compared to the value of that labour power. The result in recent years has been evident for South Korea, as shown in the following chart, taken from a McKinsey Global Institute report.

From 1995-2010, Korean output grew dramatically, at more than 7% per annum, but productivity grew still faster, at more than 9%, so that employment actually fell. Korean companies, like others, also shifted their operations overseas to take advantage of lower wages elsewhere.

Tony Norfield, 3 June 2014

Saturday 10 May 2014

Pfizer's Bid for AstraZeneca

A huge US pharmaceuticals company, Pfizer, wants to buy a huge UK pharmaceuticals company, AstraZeneca, for £63bn, possibly more. Is there a side to take in the battle? Or is it more revealing to consider what each company represents?
Consider these points:
- Both companies operate in markets heavily protected by patents that keep the prices of proprietary drugs high.
- Both companies have lucrative deals with public sector purchasers of their drugs, financed by taxation.
- Both market many branded drugs whose effect is little different from generic and much cheaper products (eg Pfizer's Anadin is basically a combination of aspirin and caffeine, but at a price that roughly equals a regular aspirin plus a cup of coffee at Starbucks).
- Both operate in a sector that is infamous for producing research on the efficacy of medicines that is biased by deliberately distorted evidence (see the valuable work by Dr Ben Goldacre, in Bad Pharma and elsewhere).
In the UK, opponents of the Pfizer takeover argue that it buys up other companies rather than investing in new pharmaceuticals research itself, and that it cuts back research operations. In Sweden, home of the Astra part of AstraZeneca, there are opponents of the Pfizer bid too. But they need to take account of AstraZeneca's actions before they press their case.
Zeneca is an offshoot of the former British monopolist, Imperial Chemical Industries, and its takeover of Astra in 1999 also led to a shift of corporate power and decision making to the UK from Sweden. Like Pfizer, AstraZeneca has also been involved in many takeovers of other companies to boost its ownership of pharmaceutical products. It has not been immune from the high cost of research, which, for example, led it to close research facilities, most recently in Loughborough in December 2011 with the loss of 1,200 jobs.
For every jobs-related worry on the European side about the deal, there is an equal concern in the US. However, while understandable, to get a more grounded view as to what is happening one needs to see the bigger picture of the economics of imperialism today.
Take tax. Pfizer admits that a key factor in its bid for AstraZeneca is the tax regime in the UK that it can use to boost its corporate profitability. On the bid being accepted, the formal corporate location will probably be changed to the UK, something that has led British Prime Minster Cameron to be favourable, despite other UK opposition. It is probably only this tax deal that stops Pfizer, like many other corporations, from otherwise using the alternative infamous 'Double Irish' or 'Dutch sandwich' tax tricks to achieve the same result by locating elsewhere.
Corporations, and their owners, always want to avoid tax. But the more significant point is that scientific ingenuity is used under capitalism as a means for private appropriation not social gain, something exacerbated by the power of monopolistic corporations. This would be true even if the corporate executives were not, on the whole, a bunch of useless bastards.

Tony Norfield, 10 May 2014