Cameron's Sharia Bond and British Parasitism

To be the political leader of an imperialist power that has attacked a number of Muslim countries in the past decade, it takes a certain, how can one put it, chutzpah, to say:

"I don't just want London to be a great capital of Islamic finance in the Western world, I want London to stand alongside Dubai as one of the great capitals of Islamic finance anywhere in the world."

Yet that was British Prime Minister Cameron, talking to the World Islamic Economic Forum in London on Tuesday. Part of the plan is for the UK Treasury to launch an 'Islamic bond' worth £200m next year, presented as the first Islamic bond issued outside the Muslim world.

One UK financial lobby group report suggests that 'global Islamic finance assets' - namely those which are 'Sharia compliant' - already amount to some $1.5 trillion and are growing fast. Hence the UK wants some of the action. There are 22 Islamic banks in the UK, more than in all other western countries combined. The UK government has even established an Islamic Finance Task Force, but this one is not weaponised.

The contradiction between Britain's foreign policy and its financial policy is only apparent. Despite the invasions of Afghanistan and Iraq, and the bombing of Libya, not to mention other covert interventions, Britain is not anti-Islam or anti-Muslim. It just wants to see its interests protected. It has no problem backing jihadist rebels if they will serve that policy, as in Syria, just as it supported the Moslem Brotherhood against the nationalist threat from Nasser in Egypt from the late 1950s. Today British imperialism steadfastly supports Sunni elites throughout the Middle East, and most of the families were put in place by British policy. Further afield, in Brunei, 1000 British army Gurkhas are also paid for by the Sultan to back his 'security' - and the interests of Royal Dutch Shell plc. Brunei is not a big place, so if you had some doubts about the wisdom of the autocracy you would think twice about expressing it with these guys coming at you.

However, to return to the financial issues. Cameron's Sharia bond is planned as a sign that the City is 'open for business', to use Bank of England governor Carney's phrase (see below). The size of the planned bond issue is minuscule in terms of state finance, but it will show that the City is willing to do whatever is necessary to attract business from this previously untapped area. It will encourage other financial activity and it will give enterprising specialists in Islam a profitable role as arbiters of what is Sharia-compliant. From the City's perspective, dealing spreads can be important, not just interest rate returns. In any case, it will not be difficult to transform interest remuneration into something that does not look like interest and so be Sharia-compliant. Best of all, Britain's lack of capital controls will make it easy for rich foreign investors to put money in, and take it out, while there will be little fear of political moves against them. Well, perhaps less confidence these days, since Assad's wife no longer shops at Harrods and the Gaddafi family no longer have a residence in Hampstead.

Details of Cameron's bond are to be finalised, but early reports suggest that coupon payments will be based on rentals from government property. Will the rentals come from chemical weapons plants, MoD buildings, GCHQ, MI5/6, US bases in Britain or the leased bases around the world? That can be sorted out later, and the result will no doubt be deemed 'ethical' and compliant.

Two other issues are worthy of note related to imperial finance, but not to Islamic finance. The connection is that these two and the previous discussion all relate to a desperate attempt by the British state to boost the scale of financial dealing, with all the opportunities this offers for skimming off more surplus value from the rest of the world. My previous note (see this blog, 22 October 2013), showed that the balance of payments flows are worsening for the UK so, as one might expect, the focus of British policy now is on how to leverage what the Brits are best at in order to get more revenues in the future. No, not by marketing self-deprecating humour in BBC video exports, but by increasing financial deals to make money from other people's money.

The first is Britain's attempt to build on its already prominent role in the offshore trading of China's currency, the renminbi. It took a while before the People's Bank of China gave the Bank of England the currency swap line it wanted. It was delayed until June this year and was CNY 200bn, embarrassingly less than the CNY 350bn agreed with the European Central Bank in October. This may have been aimed to cast a deliberate shadow over the status of the City of London, although the swap is for sterling versus CNY not for the much larger euro currency. As if to ward off any further problems, the UK Treasury went out of its way to make it easier for Chinese banks to set up in London in October, lifting regulatory hurdles and risking annoyance from the Americans, together with embracing a pan-European visa deal - for Chinese tourists only.

Outside China and Hong Kong, the City already manages some 60% of offshore trading in China's currency, with the US at just 15% and France at 10%. In October, the UK Treasury announced the opening up of direct trading of China's currency with sterling and that it had gained a (small) quota for accessing Chinese equities and bonds. These factors will increase the potential for City dealing, at least until China changes its mind.

The second is the latest policy change from the new Bank of England governor, Mark Carney. The theme of a keynote speech to a Financial Times anniversary event last Friday was that London was 'open for business'. So he introduced policies to boost the volume of financial dealing. He envisaged bank assets in the UK growing from some 4 times GDP at present to more like 9 (!) times by 2050. Then, in a squaring of the circle that was a wonder to behold, he argued this could be done with lower costs for private banks getting central bank aid while at the same time making the overall system more secure.

I am not one to make ad hominem comments, for example noting that he, like Mario Draghi of the European Central Bank, is an alumnus of Goldman Sachs. This is because, despite him being Canadian, and despite him being in the job only since July, last week he showed that he had the best interests of British imperialism at heart. This, together with the Sharia bond and China policies already discussed, is the clearest sign that the British ruling class knows how to adopt and to bring on board whomever and whatever policies look like having some upside in these difficult times.

Tony Norfield, 30 October 2013

Bad News for British Finance

The UK government lauds the fact that recent measures of changes in economic output have a plus sign in front of them, rather than a minus. Yes, UK GDP is +1.3% y/y in the second quarter of 2013, though do not mention the fact that the level of GDP is still lower than it was five years earlier in 2008. However, something else is going on that is far more significant.

No, not the fact that to keep the lights on the government has given a huge subsidy to a French-Chinese nuclear power plant that the Brits could neither construct nor finance. It is a development clear only to those who delve deep into the pages of international finance statistics, thus evident to almost nobody. For the first time in more than a decade, Britain is making less on its international assets than foreign capitalists earn on assets in Britain - and the deficit is getting worse.

Personally, I find this annoying because it complicates a point I could otherwise easily make before. My previous point was that one of British imperialism's privileges was shown by the fact that, despite having a net deficit in its international investment position, it managed to earn more from its foreign assets than it paid on its foreign liabilities. The difference in returns is still true, but it does not generate the same results. Previously, high earnings on foreign direct investment, especially investments in low wage countries and in rent-rich investments in oil, gas and minerals overseas managed to offset the other net payments on the portfolio accounts (bonds and equities) and on bank borrowing. No longer. Although I thought that at some point this privilege would be undermined by the trend of a growing net deficit, on the data for 2012-13 it seems that this has happened already.

The latest annual data show that in 2012 the UK had a net deficit on its income payments on foreign investment of £2bn. Not much in the context of a big GDP, but much less than the +£22.7bn in 2011 and the first deficit since 1999. Data so far for the first half of 2013 show a worsening trend: an income deficit of £9.4bn in six months! The significance of this goes beyond me losing an easy sound bite. The main reason behind the drop is a decline in net earnings on foreign direct investment, but there is also a bigger net deficit on portfolio investment income. At the same time, the net surplus earnings of the financial services sector are flattening out and the UK current account deficit has widened to over 4% of GDP at present - the highest since 1989 - from just 1.5% in 2011. To cap a list of alarm signals, the visible trade deficit reached an all-time record of 7.0% of GDP in 2012.

British imperialism cannot pay its way in the world and the former means of relying on revenues from foreign investment and financial services, very effective in the 2000s boom period, is no longer working. A huge volume of short-term borrowing in 2012 funded these record deficits - and other outflows on the direct investment and portfolio accounts. This is all fine … until you have to pay the money back. Do not expect an end to austerity, despite any pick up in the UK GDP figures.

Tony Norfield, 22 October 2013

Historical Materialism Conference in London

The journal Historical Materialism is holding its tenth annual conference, entitled 'Making the World Working Class', in central London on Thursday 7 to Sunday 10 November 2013.

The venue is SOAS, near Russell Square, London WC1. Further details regarding the conference, accommodation, etc, are to be found here.

It is a big conference, covering a wide range of topics! There are 14 sessions over the 4 days, each with up to 11 different panel discussions including 3 or 4 speakers.

For those interested, I will be presenting a paper: 'Is British imperialism’s financial strategy turning toxic?'. It will discuss how the crisis has changed the balance of forces between the world's major powers and developments in British policy.

The schedule for this will no doubt change, but is set at present for Thursday 7 November, from 15.45 - 17.30.

Tony Norfield, 17 October 2013

Information Flows

Fibre optic submarine cables carry the vast bulk of Internet and other communications traffic between continents. If you - by which I mean your government - wanted to access the information flowing through these, then the location of the cables is important - relative to where your government has (military) bases or national jurisdiction.

It is striking that the bulk of the transatlantic cables go through the UK. As for the other continent-connecting ones that do not, these tend to go through places like Cyprus, the home of a British military base. Isn't it nice to know we are all 'connected' - probably at most just one or two junctions away, at least from GCHQ?

Take a look at the submarine cable map, of which a portion is shown below. The full world map is available from here - scroll in/out from this site (not from the image below) to get a smaller/bigger geographical picture, or from a different central location.

This is the physical infrastructure for Edward Snowden's story.

Tony Norfield, 19 September 2013

Saudi vs Syria: Imperial Policy Crisis

US president Obama has today assured the word of his intention to launch missiles at Syria for its alleged use of chemical weapons, but he has also decided to make the action dependent on the decision of the US Congress to vote for blood. Such is the nature of imperialist democracy. This could delay the attack for a week or so, something that the warmongering news media are mightily frustrated with. It may also not be a foregone conclusion that Congress votes for its additional war, even though Obama, like UK prime minister Cameron, promised to constrain its scope to a 'one off' punishment. Cameron's defeat by a parliament sceptical of what value lay in another war (ie an overt military action, rather than just supporting the so-called rebels) and worried about potential blowback could find an echo in the US.

That is problematic enough for Obama and for US policy. However, what if no evidence emerges that the Syrian regime was responsible? The danger of a debate (even in Congress) is that you have to present some evidence. Even worse, what if there is some evidence that the Saudi-supported opposition to Assad were responsible?!

One report explicitly claimed this yesterday, but has (so far) received no widespread coverage - partly because it embarrasses the stance of the western media, partly because it will cause a major crisis in imperialist policy. However, the report is co-authored by an AP journalist with good credentials, rather than being the ramblings of a dissident blogger. The story is entitled: 'Syrians in Ghouta Claim Saudi-Supplied Rebels behind Chemical Attack'. This is the link to it.

Let's see how this plays out.

Tony Norfield, 31 August 2013

The Australia-Hong Kong War of 1994

Life imitates art, as shown by the following link to an excellent satire on TV news, The Day Today, first shown on British TV in 1994.

The scene is all too appropriate for the Anglo-American news media's warmongering today.

The link to the YouTube video, roughly 4 minutes, is here.

Understanding the Syrian Situation

(Here is a guest article on a key issue for imperialism today)

Most radical thinking on Syrian is convinced that the West, and particularly the US, Britain and France, are keen to create a situation in Syria that will justify Western intervention so that the major powers can take over the country - as in Iraq and Afghanistan - isolate Iran, and help Israel’s ailing position in the Middle East.

This is a serious misreading of the situation. The dominant Western powers are forced to adopt a policy position on anything that happens in the world because they must constantly remind the international community who is in charge. That does not mean, drawing out the purely logical conclusion of these public policy positions, that they necessarily have any real intention of getting involved or of intervening in any particular conflict. It is important, when judging world events, to avoid the simplistic radical counter-propaganda model and to examine what is really going on.

The conflict in Syria is being driven by Saudi Arabia and the Gulf States. These countries all have either large Shia communities or majority Shia populations. In addition, the ruling elites in these countries are a tiny minority within the minority Sunni population. It is only a matter of time before democratic and demographic realities impose themselves. Iran has made it clear that it does not want to use its Shia influence in the region to destabilise these regimes. Indeed, Iran has made it clear that what it wants is a strategic but respectful relationship with these Sunni states - particularly as Western sanctions bite more and more. Iranian commercial elites need these Sunni states to prosper.

Nevertheless, these Sunni states, and particularly Saudi Arabia, are not comforted by such Iranian assurances. In a way, they are right. What they fear is not Iranian backed subversion, of which there is very little evidence, but that the struggles of their own Shia communities will inevitably drag Iran in, whether it wants to or not. This is sound reasoning. Iran cannot ultimately remain aloof from Shia struggles that flare up despite its conservative foreign policy.

So, the Saudis and the Gulf States are extremely anxious to deal Iran a knock out blow. Fostering regime change in Iran has shown itself to be a total failure. Iran is a relatively compact and orderly society and any attempts to undermine its internal cohesion do not prosper. A large part of the population hates the rule of the mullahs, but, if the country is attacked, all Iranians close ranks.

In any case, the policy of the Saudis and the Gulf States is too primitive to run the kind of sophisticated strategy needed to undermine Iran internally. The only international politics they know is to offer huge bribes, which is not enough in this case. That’s what happens when you have too much money and you do not have to work or think for a living. Your brain goes to mush. When the Saudis or the Gulf States need to play a more intelligent game, they always get the Israelis to do it for them.

The eruption of the Syrian civil war has created the illusion in the minds of the Saudi and Sunni elites that by financing regime change they can deal Iran a severe blow by isolating it in the region. This is more wishful thinking born of desperation than geopolitical understanding. It is what really fuels the fighting in Syria and why the West does not want to get involved. The Saudis and Qataris are pouring in billions of dollars – but all their money is able to buy is an undisciplined rabble of jihadist head-bangers who could never form an alternative political leadership and which the West does not want to touch with a barge pole.

So, why is the West making ominous war-like noises that sometimes sound very much like the run up to the Iraq war? Actually, carefully analysis shows that, despite surface similarities, there is a marked difference between Iraq and Syria. Every statement that the US, the UK and France has made in the last two years has indeed been full of hype and hot air – but has also been self-limiting and vague on detail and timetable. There is no build up, no momentum, no traction to this phoney war effort. Now, General Martin Dempsey, chairman of the US Joint Chiefs of Staff and Barack Obama's chief military adviser, has made it clear the US is not going to get involved.[1]

If the West continues with this phoney war it is only because its close allies, the Saudis and the Gulf States, have got themselves into a huge jam and need to be shored up diplomatically. If the Syrian regime manages to hang on, and all indications are that it will, it will be a strategic disaster for the Saudis and their allies and, for them, a disastrous victory for the Iranians who will tell the world: 'You see, these dumb Saudis, they have all the money, they can buy anything they want, they have all the power of the United States and the West behind them, and yet they are useless. They are not fit to be leaders of the Islamic world.'

Western politicians must be hugely relieved to have the excuse of Putin ostensibly stopping them from intervening!

David Isbert, 22 August 2013

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[1] 'US "will not intervene in Syria as rebels don't support interests", says top general', Daily Telegraph, 21 August 2013.