Sunday 28 June 2015

Greek Lessons

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

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

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

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

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

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

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

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

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

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

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

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

Tony Norfield, 28 June 2015

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

Friday 12 June 2015

Making Things Does Not Make You Smile

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

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

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

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

Tony Norfield, 12 June 2015

Wednesday 10 June 2015

History and Change

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

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

Wednesday 3 June 2015

FIFA and World Power

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

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

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

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

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

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

Tony Norfield, 3 June 2015