Monday 18 October 2021

Winston Churchill & British Imperialism



Even patriotic Brits know that their hero Winston Churchill did not win World War 2 or fly a Spitfire. What they, and others, may not know is how his statements often shed a clear light on British imperialism. From Britain’s reliance on colonies, to the political rationale for giving the working class some welfare services, Churchill’s rhetorical flourishes in speeches, newspaper articles, and deliberations with his peers, illuminate things all too often absent from contemporary political consciousness.

The text cited below is in chronological order. Information is taken from many sources,[1] including articles previously on this blog and from other material I have put onto Twitter and Facebook. But it should not overtax the modern attention span. I do not claim or aim to cover everything, and will give a few lines of context where these might be helpful.

When all of these statements were made, except one, Churchill had a senior position in the British government of the day, or had even been Prime Minister. They are not just the musings of a random reactionary and empire enthusiast.


Social welfare and a stake in the country, 1909

Social welfare measures have often been introduced by the ruling class to boost loyalty to the state, apart from the need to have a reasonably healthy and educated workforce. It has worked in rich countries. Here is Winston Churchill backing unemployment benefits in a Daily Mail article from August 1909:

“The idea is to increase the stability of our institutions by giving the mass of industrial workers a direct interest in maintaining them.

With a ‘stake in the country’ in the form of insurances against evil days these workers will pay no attention to the vague promises of revolutionary socialism.”


Splendid colonial possessions, 1914

In a comment to his British Cabinet colleagues in January 1914, Churchill noted:

“We are not a young people with an innocent record and a scanty inheritance... We have engrossed to ourselves an altogether disproportionate share of the wealth and traffic of the world. We have got all we want in territory, and our claim to be left in the unmolested enjoyment of vast and splendid possessions, mainly acquired by violence, largely maintained by force, often seems less reasonable to others than to us.”


Colonial terror, 1919-1921

This is his support for the RAF's request to use mustard gas in Mesopotamia (today’s Iraq):

“I do not understand this squeamishness about the use of gas ... I am strongly in favour of using poisoned gases against uncivilised tribes. … Gases can be used which … would leave a lively terror and yet would leave no serious permanent effect [!] on most of those affected.”

Unfortunately for the RAF, no gas bombs were available at that time (April 1919). Churchill had already used most of them against the Bolsheviks! But he did find some later for use in Mesopotamia, in 1920 to help put down a rebellion. I would add that the RAF was also seen as a good, inexpensive means of putting down colonial revolts and encouraging tax payments with machine guns and regular bombs, not just gas.

And here is his opinion on using gas to subdue Afghanistan, in May 1919:

“The objections of the India Office to the use of gas against natives are unreasonable. Gas is a more merciful weapon than [a] high explosive shell … The moral effect is also very great. There can be no conceivable reason why it should not be resorted to.”

In line with his general view of the world, he only thought such gas was ‘hellish poison’ when used on white people, eg British soldiers in the First World War.


Gold Standard, Imperial status, 1925

Britain returned to the gold standard in 1925, in a move roundly condemned by JM Keynes. But Keynes, always wanting to be a helping hand for British imperialism, gave no indication that he understood the logic of the move. Churchill, by contrast, was very clear in his comments at the time:

“If we had not taken this action, the whole of the rest of the British Empire would have taken it without us, and it would have come to a gold standard, not on the basis of the pound sterling, but a gold standard of the dollar.”


“I have only one observation to make on the merits. In our policy of returning to the gold standard we do not move alone. Indeed, I think we could not have afforded to remain stationary while so many others moved. The two greatest manufacturing countries in the world on either side of us, the United States and Germany, are in different ways either on or related to an international gold exchange. Sweden is on the gold exchange. Austria and Hungary are already based on gold, or on sterling, which is now the equivalent of gold. I have reason to know that Holland and the Dutch East Indies – very important factors in world finance – will act simultaneously with us today. As far as the British Empire is concerned – the self-governing Dominions – there will be complete unity of action. The Dominion of Canada is already on the gold standard. The Dominion of South Africa has given notice of her intention to revert to the old standard as from 1st July. I am authorised to inform the Committee that the Commonwealth of Australia, synchronising its action with ours, proposes from today to abolish the existing restrictions on the free export of gold, and that the Dominion of New Zealand will from today adopt the same course as ourselves in freely licensing the export of gold.”


Pro-Italian fascism, against ‘beastly’ Leninism, 1927

Here is a page from Ponting’s book on Churchill's trip to Italy in 1927:

So much for Churchill being the steadfast anti-fascist!  


Britain’s imperial parasitism & the welfare payoff, 1929

On 15 April 1929, Churchill spoke in Parliament about the City’s revenues, and its role as a global broker, as well as the big returns on British foreign investments:

“The income which we derive each year from commissions and services rendered to foreign countries is over £65,000,000, and, in addition, we have a steady revenue from foreign investments of close on £300,000,000 a year, 90 per cent of which is expressed in sterling. Upon this great influx there is levied, as a rule, the highest rates of taxation. In this way we are helped to maintain our social services at a level incomparably higher than that of any European country, or indeed of any country.” (Hansard)

(Other related information here)

Note that both kinds of revenue noted in the quotation above do not all come from the colonies, at least not directly, and most will have derived from transactions with and investments in other major countries. Nevertheless, such revenues were important for social services even before the post-1945 ‘welfare state’. I give an updated, contemporary assessment of these in my book, The City.


Britain’s colonies and its status in the world, 1939

This is from Churchill’s address to West Indies sugar plantation owners! It is cited in Peter Fryer's book, Black People in the British Empire, 1988, Pluto Press:

The ‘cradle to the grave’ welfare state, state ownership, NHS, etc, 1943

These are excerpts from a 1943 speech from Churchill as Prime Minister during World War 2. The measures introduced by the Labour Government from 1945 were largely prefigured in this address.


Thanks for the bomb, 1952

To finish with a bang, here is Churchill as Prime Minister again, thanking the Labour Party for its efforts in making the UK a nuclear weapons power:

“All those concerned in the production of the first British atomic bomb are to be warmly congratulated on the successful outcome of an historic episode and I should no doubt pay my compliments to the Leader of the [Labour] Opposition and the party opposite for initiating it.” Hansard, 24 October 1952



Tony Norfield, 18 October 2021

[1] Where not otherwise indicated, the quotations are taken from Clive Ponting’s excellent book, Churchill, 1994.

Tuesday 14 September 2021

World Power

Few countries can exert much power in the rest of the world. There are just five permanent members of the United Nations Security Council, the ones who can cast vetoes on important UN decisions. Or take the G7, a US-led political forum of rich countries that has, well, seven members. The concentration of global power is extreme, and it rests upon the different ways a country can have influence over how the world works.

Some of these ways are obvious, for example, using military power to force another country to submit. Many are not, especially those that are linked into the system that envelops the world economy. Five dimensions of international power can be used to gauge the status of countries.[1] These show not only how the US is far more prominent in the hierarchy than suggested by a simple measure of economic size, such as GDP. They also map the relative importance of other countries and throw new light on a major geopolitical issue today: the rise of China.

China rising

China was once seen mainly as an important supplier of cheap goods and a valuable dynamo for the world economy. Now the US looks upon China as the biggest threat to its global interests. Every year, many hundreds of pages on this topic are published for the US Congress, adding to a steady stream of material directed at US policymakers from think tanks and lobby groups.[2]

In 1990, China accounted for just 2% of the world's GDP. Since then, that share has doubled every decade and China will likely account for 18% in 2021.[3] This has worried the small group of countries that dominates the world’s key institutions, because quantitative changes can also bring about qualitative shifts. Will they be able to stay in charge as they had done, now that a country from outside the rich club has risen to the fore? That question is posed especially for the US. All those institutions – the United Nations, the IMF, the World Bank, the World Trade Organisation and others – have been shaped by it.[4] The first three also have headquarters in Washington DC or in New York.

Russia – formerly, the Soviet Union – is the traditional US political enemy. Yet, it is principally a military obstacle, notwithstanding the more recent US belief that it can influence Presidential elections through buying Facebook advertisements. China, by contrast, presents a much wider challenge to how the US sets the rules for the world, as seen when it ignores US-inspired sanctions against countries such as Iran. US political rhetoric and economic measures against China picked up with President Trump, and they have continued unabated with the new Biden administration. All the international meetings held by Biden and his officials since the start of the 2021 – at the G7, at NATO, in Europe and in Asia – have had a strong anti-China theme.

Measuring power

Power has many dimensions. Here are five aspects of economic and political power that are relevant for a country’s international influence.

Economic size is one measure of a country’s weight in the world, usually measured by its GDP. That GDP number is broadly related to the size of its domestic market, how many big corporations it has, and how important it is in international trade. The US is the world’s biggest economy, accounting for roughly 24% of world GDP. G7 countries – the US, Japan, Germany, the UK, France, Italy and Canada – together account for 45% of world GDP, despite having only 10% of the world’s population. GDP counts for more than people when it comes to power and influence.[5]


By 2020, China’s GDP was just under three-quarters of that for the US. Japan’s GDP was roughly a quarter the size of the US, Germany was at nearly a fifth, and the UK and France were each at roughly one-eighth. All countries have been affected by the Covid-19 pandemic, and it has had little effect on their relative positions. However, US sanctions will have curbed China’s growth to some extent in recent years.

A country’s foreign assets are another important measure of power. Such assets include the ownership of companies operating in other countries, together with holdings of financial securities, such as equities and bonds, and ownership of real estate.[6] These indicate how much control it has over resources in other countries, and the size of the assets is related to the potential revenues it can gain from them.[7]

At the end of 2020, the US had by far the highest stock of foreign assets, at roughly $22.7 trillion. Germany was next in line, but well below that with ‘only’ $6.3 trillion, and the Netherlands, the UK and France followed. China and Hong Kong’s foreign assets amounted to just under $5 trillion.

These asset ownership numbers, as much other published information, do not allow for the flows of finance between major countries and tax havens. Tax havens are registered as the owners of significant foreign assets in official data, yet most of their funds originally come from major country investors.[8] This should not have much effect on the top level calculations used here.[9]

International lending and borrowing by banks is a third measure. These data show how much a country is involved in channelling funds around the world, and are also linked to how far that country is a finance hub that can profit from international dealing. London is the largest centre for international banks. While it may be a surprise that London is bigger than Wall Street on this measure, that is because much US banking business is oriented towards the domestic US economy, not so much internationally.

Nevertheless, Brexit has had some impact on UK international banking. With the UK outside the single market for financial services in the EU, some banks have shifted their operations from the UK and into EU centres. France has gained most ground because of this, and jumped into second place just behind the UK by the end of 2020, moving ahead of the US, which was in third place (see the next chart).

How much a country’s currency is used in foreign exchange (FX) deals for trade and investment is another aspect of its economic status in the world. Directly or indirectly, this also adds to its global power. This is most evident for the US with the dollar, which is involved in 88% of all currency deals.

Most commodities and important industrial goods, including oil, metals, grains, technology, pharmaceutical and aerospace products, are priced for trade in terms of US dollars. The same is true for many investment and financial deals, helped by the US having the world’s largest stock and bond markets, with international private and official funds buying those securities. Even the China-led Asian Infrastructure Investment Bank conducts its business mainly in US dollars.

US power in this FX dimension relies on the fact that nearly all deals involving US dollars must be settled through the domestic US banking system. Images of drug dealers and criminals crossing borders with bags of cash may be good for the cinema, but they do not represent what really happens to international transfers of funds.

This means that if the US government doesn’t like you – whether you are an individual, a company or a country – then it can try to prevent you from doing currency deals, even if you are not based in the US. If a bank nevertheless does deal with you in dollars, or even in another currency, then the US can fine that bank and threaten to shut it out of the huge US market. The US government’s Treasury Department has a special agency for this purpose, appropriately named the Office of Foreign Assets Control.

Other countries with important currencies could try to exert power in the same way, but their currencies have far less international significance. For example, the euro’s share of world FX markets is just 32%,[10] with the Japanese yen half of that in third place and the UK’s pound sterling in fourth.[11] So far, China’s renminbi currency has remained very minor in terms of global trading, at around 4%.[12] This is based upon the relatively late inclusion of China in financial markets, together with many more government controls on the flow of capital than is the case for other major countries.

The amount of military spending is a simple gauge of how far a country can use force against another, or threaten to use it, and is the fifth measure of power used. The US is once again in the top rank here, and it also has military bases in over 50 countries. By contrast, China has bases in just three other countries (Djibouti, Myanmar and Tajikistan).

Even if much US military spending is, in reality, more of an indirect subsidy to the domestic US economy and corporations, or is on equipment with inflated prices, its total spending of a huge $778bn in 2020 still gave the US plenty of scope to project power. This sum was more than three times bigger than China’s and twelve times bigger than Russia’s. The US lead over other major countries in military spending has increased in the past two years.

Power outcomes

Each of the five factors has some limitations regarding its accuracy or coverage. But together they give a good summary of power and are available for a large number of countries. This measurement of global power is endorsed by how the results for the top 20 countries include the five permanent members of the UN Security Council, all of the G7, and most of the G20 countries.

A country may have a high score on one component and very little on another, but all except a few countries in the world have a negligible score on all of them. The US has an index score of 93.2, with China well below in second position at 37.7. Only six other countries have an index score above 10.0. More than 150 countries score less than 1.0. This picture of the extreme hierarchy of power is a challenge to anyone who uses the term ‘international community’!


Sources & notes: See the first chart for details.

This calculation of power depends upon individual country values and does not consider the effect of alliances between countries, or factors that are not as easy to quantify, such as cultural influence. If included, these would only add to the power of the US and generate a more towering image. Consider NATO, for example, which accepted that the ‘North Atlantic’ security region extended into Afghanistan, the first US target after September 2001. Or consider how US social media companies dominate the Internet, how the world’s youth wear baseball caps, like, backwards, and how even India’s massive film industry calls itself ‘Bollywood’.

What next?

The US is worried about the rise of China’s economy, although US power extends much further than a simple economic measure would suggest. A look at the power index for the major countries over the past two decades shows how China has also built some non-GDP dimensions of power, notably in military spending, international banking and the ownership of foreign investment assets.


Sources & notes: See the first chart for details.

In recent years, China dislodged the UK in number two spot on this ranking of world power. The UK is the world’s fifth largest economy, but has its status boosted by its role in international banking. That reflects its position in world finance, although the form that this takes is also changing with the rise of China and other Asian countries, and the relative decline of European economies.[13] The more that international business grows outside of the traditionally dominant group of countries, the less important are the rules that they impose for how the world economy must work.

The US sees the rise of China not just as unwelcome competition, especially in the technology sphere, but also as a serious future threat to its hegemonic status, one that must be dealt with today. Other countries closely linked to the US, and especially other Anglo members of the ‘5 Eyes’ spying network (UK, Australia, Canada, New Zealand) are in a similar position, because they have been an integral part of a system that has dominated the world since 1945. That is why the rise of China inevitably becomes a geopolitical issue.

Some countries in Europe, particularly Germany, have a different perspective. Politically they are pro-US, and they are also economically cautious about China. But they would also like to have an alternative to relying solely upon the US, or US permission, whether that is for technology, for energy, or for other vital supplies. They are right to be concerned that the US is inclined to unilateral policy moves that can go against European interests. That remains true under Biden, although his administration stepped back from its former hard stance against the completion of the Nord Stream 2 gas pipeline from Russia.

Not surprisingly, China has responded to the US policies over the past decade, and the risk that as a result of these policies it could be pushed to the edges of a world economy controlled by hostile countries.[14] A key part of its response has been to press ahead with the massive trade and investment programme begun in 2013: the ‘Belt and Road Initiative’. This involves more than 130 countries, mainly in Asia, Europe and Africa, but also extending into Latin America. Faced with US sanctions and political manoeuvres, China is building up a network over which the US and its allied powers have far less control.

These developments will foment divisions in the world that every country will have to deal with. In the next few years, we will live in interesting times as the established powers led by the US fight to maintain their domination.


Tony Norfield, 14 September 2021




[1] This article updates my analysis of September 2019, where I showed that the Index of Power had put China in #2 position. See here.  The Index calculation here adds a country’s foreign portfolio assets to its direct investment assets, to get a better measure of its total foreign assets. (Previously, I only counted FDI, but I have since found good data on portfolio assets.) It also makes some adjustments to eliminate possible double counting of intra-China relations between China and Hong Kong, which are treated as separate countries in all official data. See the Appendix to the article for more details.

[2] For example, the US-China Economic and Security Review Commission has issued annual reports since 2000. Its December 2020 report was nearly 600 pages:

[3] Sources for GDP and other data used are given in the Appendix to this article. The US share of the world economy has fallen from 30% in 1990 to 24% in 2021.

[4] The former institutions, or its predecessor, the GATT for the WTO, emerged from the post-1945 political realignment led by the US. The President of the World Bank is almost always a US citizen, while the Managing Director of the IMF is always a European. The WTO has had a more diverse list of Directors General. Decisions by each institution are rarely passed if the US disagrees, a result helped in the case of the IMF by a voting allocation that always enables the US to block any IMF action.

[5] GDP numbers can be calculated in various ways. Here, the nominal value of GDP in a single currency is used to compare countries.

[6] In standard official statistics, ownership of 10% or more of a company in another country is considered foreign direct investment. Ownership of less than 10% of the company’s equity is considered a foreign portfolio investment, as are holdings of foreign debt securities. These are all added together here to give the measure of a country’s total foreign assets.

[7] Large corporations, usually from rich countries, can also profit from their commercial domination of producers in other countries via so-called supply chains, for example, Apple’s relationship with its suppliers, or western fashion companies getting their products made in Asian countries. However, these relationships are difficult, if not impossible, to measure.

[8] One study shows, for example, how a nationality-based measure could greatly increase the registered US and other major country holdings of bonds and equities in particular countries. These holdings are under-estimated by the usual residency-based measures in official data, as the residency can also be a tax haven. See pages 44 and 48, especially, of:

[9] This is because the data I use measure total outflows from a country, which should include the funds first sent to tax havens before being resent elsewhere. However, the ‘round tripping’ of funds to escape tax would not be counted properly. For example, if US investors sent funds to a company registered in the Cayman Islands for the purpose of investing back in US assets, that first flow would appear as a foreign asset of the US when it is not.

[10] The euro’s share of global FX markets is divided up among the 19 euro country members according to their relative GDPs. Germany has the biggest share of that, followed by France, Italy and Spain.

[11] Note that the total shares of all currencies add to 200% because there are two currencies in each foreign exchange deal.

[12] Less surprisingly, the separate Chinese currency of Hong Kong also has only a small role in world FX trading. Its currency value is tied very tightly to the US dollar’s.

[13] See Tony Norfield, The City: London and the Global Power of Finance, Chapter 9 and the Afterword to the paperback edition, Verso, 2017.

[14] For a discussion of these topics, see my articles ‘Racism & Imperial Anxiety: US vs Huawei’, 16 April 2019, here, and ‘China and US Power’, 14 July 2020, here, each one on

Sunday 12 September 2021

Imperialism & the Working Class



Discovering Imperialism: Social Democracy to World War I is an anthology put together by Richard Day and Daniel Gaido, in which they translate many articles not previously available in English.[1] They also give valuable introductions to the authors and the political times in which they lived. Their book raises many issues arising from contemporary imperialism, and shows the political consequences of the different ways in which imperialism was understood. Lenin’s Imperialism: the Highest Stage of Capitalism, written in 1916, is not included in the book, but it is clear that this work, although the best, was just one of a large number of publications on the question.

Many articles and debates the book covers, from the 1890s up to around 1916, remain relevant today. This is especially true for those relating to nationalism and imperialism, even though the forms taken by imperialism have changed a lot in the past century. However, the book’s articles, and its editors, do not explore a critical feature.

How was it that the anti-imperialists often had the better arguments – and sometimes even won – but they were nevertheless beaten by social forces, both inside and outside the debating forums of social democracy? A devastating, murderous war was the result, in which the working classes of the major powers fought alongside their rulers. Only in Russia was there a practical, political and successful response to the outbreak of war – led by the Bolsheviks in the 1917 Russian Revolution.

Here I want to focus on one issue that arises from a quotation the book provides from Friedrich Engels in 1885:[2]

“The truth is this: during the period of England’s industrial monopoly the English working-class have, to a certain extent, shared in the benefits of the monopoly. These benefits were very unequally parcelled out amongst them; the privileged minority pocketed most, but now and then even the great mass had at least a temporary share. And that is the reason why, since the dying-out of Owenism, there has been no socialism in England. With the breakdown of that monopoly, the English working-class will lose that privileged position; it will find itself generally – the privileged and leading minority not excepted – on a level with its fellow-workers abroad. And that is the reason why there will again be socialism in England.”

Here, Engels notes the absence of any socialist movement in England, sensibly disregarding the largely irrelevant, small socialist groupings that were around at the time. Both Marx and Engels recognised that this absence needed to be explained, since England was the most capitalistically developed country in the world and had a large proletariat. Why was this proletariat not drawn to socialism by their experience of capitalism? Comments from Marx and Engels elsewhere did note the bourgeois politics of the English ‘labour movement’, but here Engels here pins down the cause.

The monopoly of England in the world economy went well beyond industry. It was also heavily backed up by domination in the areas of international commerce and finance – shipping, warehousing, trade finance, insurance, loans, etc. For example, from 1874-193, Britain actually had a deficit on its balance of trade amounting to around 5-6% of GDP per year: exports of goods were well below imports, though the latter were principally raw materials and foodstuffs. Massive revenues from services, particularly financial ones, and from foreign investments, offset this big deficit, and gave Britain a current account surplus of around 5% per annum.[3]

All these revenues, not industry alone, gave England its economic fortune and allowed relatively favourable conditions for the working class. While Engels notes that it was the more privileged sections of workers who benefited most from this, the benefits also extended to the mass of people. This is not to say that they were always having a great time. The point was that these – even potential – benefits acted as a dampener on anti-capitalism.

This is the critical issue. The usual argument from the left is that it is the trade union or labour movement/party leaders who corrupt the masses, compromise with the bosses and back capitalism. While the practice and political outlook of these leaders support such an assessment, it also ignores how the masses themselves can be open to being politically ‘corrupted’. Workers were not ignorant of wider developments in the country or where their immediate economic interests lay. In Britain, especially, the popular press was full of stories about the colonies, foreign markets and Britain’s status in the world.

The political problem is not this so-called labour aristocracy (though this mistaken argument was also used by Lenin); the problem instead is far more fundamental. It is one where the political and economic experience of the mass of people makes them see benefits in being loyal to the rich capitalist state to which they ‘belong’.

Popular loyalty to the state is expressed very directly whenever that state is under threat or challenged by others. That is because those threats or challenges are also threats and challenges to ‘our way of life’. People may not go on a march to call for war, but they will almost always agree with potential military action, overwhelmingly support military spending and extol ‘our boys’ when they go to fight.

Getting a popular endorsement for military aggression is fairly easy when there seems to be little risk involved. In the 2001 invasion of Afghanistan, that country was not in a position to fight back. The 2003 invasion of Iraq was a little trickier for popular opinion, given stories that the evil dictator might have had ‘weapons of mass destruction’. If the opponent is a major country, then the build up of popular opinion in favour of action takes a bit longer. Still, as shown by the example of the British-German naval arms race in the early 1900s, there was enough support on both sides of the conflict-to-come to continue an escalation into war.

I would excuse Engels for his attempt in 1885 at revolutionary optimism, thinking that a future breakdown of England’s monopoly would once again lead to socialism in Britain. At least he took proper account of the current situation. If we did the same, we would be able to recognise what has happened to the mass of people in many richer countries – especially in the US, the UK and in the rest of north west Europe. It has not been a move towards socialism as their privileges in the world economy are challenged. Instead, a nationalist and pro-imperialist mentality has become more aggressive in defence of those privileges.


Tony Norfield, 13 September 2021

[1] Published by Brill in 2012. The book is over 950 pages; while the hardback is on sale for a ridiculously high price, the paperback edition is much cheaper.

[2] This text is taken from an article by Engels in the German Social Democratic Party’s Die Neue Zeit in June 1885, ‘England in 1845 and in 1885’. That article was originally published some months earlier in the English paper, Commonweal. The article is available in Marx & Engels’ Collected Works, Volume 26, p301.

[3] See P J Cain and A G Hopkins, British Imperialism: 1688-2000, Pearson 2002, p165.

Tuesday 6 April 2021



These points are about private ‘digital currencies’ like Bitcoin, not about central bank e-currencies, on which I will write another time. In what follows, the term ‘Bitcoin’ is used to refer also to other types of cryptocurrency.

Bitcoin’s growth from just being a tech curiosity was driven by popular discontent with banks and banking systems, mainly in the US after 2008.[1]



Supply & Demand

One aspect is a digital ‘coin’, whose supply is generated by a computer algorithm that is progressively more difficult to solve and which supposedly reaches an absolute limit. (Supporters hope computing technology does not catch up too quickly!)

Demand for this coin could drop to zero, but instead has been boosted by a prolonged period of extremely low, even zero-negative, interest rates and erratic stock markets and commodity prices. These made other outlets for surplus investor funds look less attractive, and have led to a big jump in speculative interest.

The market for Bitcoin and published prices are now run through relatively new exchanges, some of which have been hacked with the loss of coin accounts of users. Financial companies have also moved into offering Bitcoin-related funds to their clients, as another way to collect management fees.


Another important aspect of Bitcoin is the ‘blockchain’ transfer mechanism for shifting ownership of the coins. This is a form of Internet-based system, running outside of the private banking system of any country. This has also been an attraction, especially for those annoyed with bank charges. But central banks, and others, are now copying blockchain systems for the secure transfer of information and titles of ownership. Official e-currencies will also be a challenge to Bitcoin.

Even students of idiotic populism are bemused that some people have placed trust both in an algorithm and in a transfer mechanism they do not understand, and over which they have no means of redress or protection (like deposit insurance) if anything goes wrong.

A small number of sellers of goods and services have begun to accept payment in Bitcoin, largely as a marketing and PR exercise. But the Bitcoin amount to pay still depends upon its price versus the currency in which the goods and services are priced. No wages or salaries are paid in Bitcoin; neither can any taxes be paid in Bitcoin.

Price risk

The sharp trend higher in Bitcoin prices since October 2020 has continued to fuel demand, despite the dramatic volatility. ‘Buy on dips!’ is the speculative mantra for now. But a strongly rising trend means that nobody would be foolish enough to borrow Bitcoin and make it a long-term liability. This will certainly limit any wider use of Bitcoin in the economy, though it would add to its attraction as a speculative asset. If Bitcoin prices fall, that could easily prompt an extreme depreciation, given the nature of the demand for it so far. Even a flattening out of Bitcoin prices would risk an abrupt reversal; especially if/when global interest rates begin to rise.


Tony Norfield, 6 April 2021

[1] In my previous article about Bitcoin here, I underestimated how far low interest rates and speculative mania would boost its price, but the key points I made there remain valid.

Wednesday 20 January 2021

The UK’s Singapore-on-Thames Delusion

I will not spend much time on this topic because it is so ridiculous. But the notion that the UK can become a ‘Singapore-on-Thames’ seems to underlie some Brexit fantasies. Do these have any foundation?

First, here are some basic facts. The UK’s GDP is roughly 8 times bigger than Singapore’s; its population is more than 10 times bigger. Singapore used to be a British colony, and developed from being a key Asian trading hub for the East India Company. The UK is a declining imperialist power. It once had a go-between role for the US in Europe, and still remains a major backer of imperial oppression around the world, but now has its pretensions at diplomatic expertise seen as very irritating.

Singapore sling

In the field of finance, the UK was already a multiple of Singapore’s weight in the world economy before it finally left the European Union: 6 times bigger in international banking, 5 times bigger in FX trading and 30 times bigger in financial derivatives turnover. Whereas Singapore has a regional niche in global finance, the UK has been a leading global player.

It will be difficult, not to say impossible, to further extend the UK’s financial position outside the EU. Any belief that messing up links with the major trading bloc in Europe is a good economic decision – while remaining outside USMCA, RCEP and other trading blocs – would also need to undergo a sanity check.

Some reports have suggested that City of London financial companies contributed a great deal to the Vote Leave campaign in the 2016 UK Brexit referendum. Quite likely some did, though these seem mainly to have been hedge funds and so-called venture capitalists. By contrast, the overwhelming majority of City business, from banks, to life insurance companies, to pension funds and other asset managers, to legal and accounting firms, were clearly pro-Remain.

All City business has benefited from the existing UK tax laws developed over decades. But the hedge funds and so on would have been far less dependent upon EU-related business relationships, or will have dealt more directly with ‘offshore’ centres and Switzerland. That will account for the divided opinion. In the broader corporate arena, with one or two exceptions, businesses were pro-Remain, with only a section of small businesses being pro-Leave. Nevertheless, big companies did little to voice that opinion before the 2016 vote because they did not want to annoy half of their customers.

The end result was that, for reasons explained elsewhere on this blog (see here and here), despite capitalist opinion being greatly against it, the British working class helped enable Brexit, by 52% versus 48% in 2016. A more up-to-date measure of that political outlook can be seen in maps showing the large December 2019 Conservative election majority vote in England.

Where does this leave Singapore-on-Thames?

Singapore has exports that are some 90% bigger than its GDP, whereas UK exports are ‘only’ around 30% of GDP. So, onwards and upwards to Singapore-on-Thames? As you might expect, there are a few problems with this perspective.

Singapore is a small country and an entrepôt centre, with lots of re-exports. This produces a total exports number that is much higher than GDP because it is not based on the value-added measure that goes into a GDP calculation. In theory, the UK could also become an entrepôt centre, but the economic benefits of such a move are very limited.

More than that, any such move implies enforcing a low labour cost economic strategy. Evidently, that implies cutting labour costs. This is at the heart of capitalist economics, and has been explicitly embraced by Conservative pundits.

To use the UK political cliché, the EU would also be very clear in protesting against this kind of policy for being in breach of the ‘level playing field’ of fair competition between the UK and the EU post-Brexit. The EU was once grateful to the UK for proposing policies to cut labour costs, but now that is seen both as destabilising an already shaky EU economic system and as an unwelcome, aggressive trade policy from an ex-member of the club.

One could imagine some benefits of a Singapore-on-Thames – for example, free wifi and a good transport system, like in the real Singapore. But stupidity is its own reward, and the reality is going to be much harsher.

Tony Norfield, 20 January 2021