31 January 2012

From Democracy to Plutocracy

Davos is over: the corporate power-brokers have returned to their notional national boundaries and their over-priced lives, leaving the rest of us to struggle through the disaster that their version of a global economy has bequeathed to us. More than anything else, this annual ritual of the wealthy on the piste makes clear where real power lies in the 21st century world.

It is in Greece, however, that we will see the battle for power, the battle between the ideas of democracy and capitalism, fought out in the coming days. The struggle for the future of Greece is too symbolic to be other than a cosmic joke: the origin of the word 'democracy' becoming the site of its demise. Although since Athenian democracy vested power in the hands of a tiny elite supported by slaves may mean that it is apt that it is also the backdrop for the global challenge to a system of rule by the people for the people.

The decision by Brussels that Papandreou should not be allowed to hold a referendum, followed rapidly by the replacement of democratically elected politicians with bankers, and the agreement reached by 26 EU members that they would allow unelected European officials to control their domestic economic policy have all made clear that the interests of finance are taking power away from the people who vote and the politicians they choose.

Over the weekend the German economy minister Philipp Roesler took the dangerous next step along this path by proposing that Greece should explicitly give control of its economic policy to European bureaucrats. This is just a natural extension of what happened in Marseilles and might be a threat that is coming the way of other countries soon. In spite of its historical resonance it is not the fact that this proposal was made by a German that matters, but the fact that democratic politicians are to be replaced by technocratic lackies of the financiers.

28 January 2012

Squandering the Wealth of Life

In the immediate aftermath of the 2008 financial crisis, Bank of England staff attempted to estimate the financial costs to the UK economy. In 2009 Andrew G. Haldane, Executive Director for Financial Stability at the Bank estimated that the permanent loss to the UK economy from the banking crisis was anywhere between £1.8trn. and £7.4trn.

The softer, less measurable, more human consequences are only just now becoming clear. A paper in the Lancet in July 2011 began to measure the impact of the 2009 crisis on health, and specifically on suicide rates. Economic crises unsettle people in various ways, but the most obvious, pressing and observable is the loss of employment, which quite literally kills. The authors of the paper considered the pre-2004 EU members and the more recent members separately.

The graphic from the paper reproduced here compares unemployment rates amongst adults with rates of suicide across the EU. Unemployment began rising rapidly in 2009, with a 35% increase over 2007 levels. Shockingly, however, the increase in suicide preceded this, suggesting that it results from fear of unemployment and general rise in anxiety as a result of the instability caused by financial shock. As the authors conclude:

‘the steady downward trend in suicide rates, seen in both groups of countries before 2007, reversed at once. The 2008 increase was less than 1% in the new Member States, but in the old ones it increased by almost 7%. In both, suicides increased further in 2009. Among the countries studied, only Austria had fewer suicides (down 5%) in 2009 than in 2007. In each of the other countries the increase was at least 5%.’

The fact that it is fear and uncertainty that causes suicide, as well as the reality of unemployment and poverty, indicates the irresponsibility of the Coalition strategy of creating an aura of austeria in order to make it easier to impose their draconian cuts. This undermining of social confidence can itself cause increased rates of suicide, which are only a marker of more general social dis-ease.

Greece gives us an indication of the future for the people of Europe if these desperate austerity measures are continued, a policy that Cameron recently argued for at Davos. Official statistics for that country indicate a 40% rise in those taking their own lives between January and May of 2011. Studies of rapid social change repeatedly indicate that the increase in uncertainty and the fraying of the social fabric are not only politically dangerous but also very destructive to human life and health.

21 January 2012

Institutional Racism

The indifference of the Metropolitan Police to the murder of Stephen Lawrence rightly led to private soul-searching and public examination of procedures, and we have to hope that our country and particularly our police service is better as a result. But there is a more insidious form of racism that goes unquestioned and causes the death of far more people. This is the racism of an economic system that values the lives of the poor differently from the lives of the rich.

According to a recent blog post, such an attitude was subscribed to back in 1991 by Larry Summers, tipped to become the boss of the World Bank, and therefore one of the most powerful people in the global economy. According to the totally undemocratic procedures by which the global financial institutions are run, the Europeans choose the head of the IMF while the head of the World Bank is a position virtually in the gift of the US President, and the rumour is that he is thinking of giving the job to Summers.

US blogger Doug Henwood cites a memo issuing from Summers's office back in 1991, when he was the Bank's Chief Economist. The memo explains why Africa is seriously under-polluted and argues for the Bank to encourage highly polluting industries to move to Africa because this would be so much more efficient. The efficiency arises from the fact that paying compensation for the deaths of Africans is so much less costly than paying for the deaths of US citizens.

The author of the memo writes that 'I think the economic logic behind dumping a load of toxic waste in the lowest wage country is impeccable and we should face up to that.' The argument is that should there be a claim for damages, the costs would be based on the economic value of the people who died, that is to say their potential lifetime earnings. Since Africans earn so little their deaths would cost polluting companies relatively little.

In spite of the morally outrageous nature of this reasoning, and the blatant racism that lies behind it, this sort of costing of human lives is fairly routine amongst neoclassical economists. A seminal paper in the field cites that value of human lives, based on earnings potential, as ranging between nearly $10m. if you are Canadian to a mere $0.8m. if you are South Korean. The African countries favoured for pollution dumping by Summers and his ilk do not have enough money to invest to be part of these studies.

The estimates vary widely, suggesting that the methods as well as the morality lying behind these sorts of studies is grossly unreliable. Yet it is on this sort of basis that decisions are made about the siting of factories and the disposal of the noxious effluent of Western lifestyles. Those debating the future of capitalism should take note: the challenge to values needs to run much deeper than merely questioning relative wage differentials in the wealthy economies of the West.

19 January 2012

Community Currencies Invade Dark Towers of Davos

The global elite, the men we have come to know as the 1%, will be assembling soon in Davos, Switzerland to discuss the global economy over which they have so much power. This year's conference is organising under the rubric 'The Great Transformation: Shaping New Models'. It the reference to Polayni intended or accidental? It certainly gives intellectual scope to those of us who who seek to unwind some of the worst consequences of the original transformation from an embedded to a capitalist economy.

One idea that they will encounter is certainly a challenge to the centralised finance that has been such an important driver of the economic crisis. John-Paul Flintoff has published an article about alternative currencies in the mainstream business magazine CNBC Business, which he assures me will be distributed in hard copy to all Davos delegates.

Is capitalism compatible with barter? I would suggest not, but if there is a way to extract an unfair share of value from others' work, the Davos delegates are certainly the people to find it.

17 January 2012

Clegg Stuck on the Capitalist Fence*

As we seek to find an alternative to the discredited corporate capitalist model of enterprise it is vital that we understand clearly the range of options on offer, which is why Nick Clegg's confusing statement about the John Lewis economy is particularly unhelpful.

John Lewis is a company without shareholders, whose value is vested in a Trust and can only be shared between the company's employees. This is quite distinct from a standard corporation which allows its employees to buy some of its shares while its management is free to inflate profits by risky endeavours or extract value in bonuses. While John Lewis employees receive a share of the profits they generate, employees of share ownership schemes might find, like the employees of Enron, that they lose not only the value they created but also their jobs and their pensions.

Understandably, those who currently profit from others' work via their share ownership are nervous about the suggestions that workers might keep all the value of their work themselves. The response to Nick Clegg's speech from the Financial Times includes the expression of these views from the side of capital, skilfully woven in with the completely distinct anxieties expressed by Charlie Mayfield, chair of the John Lewis partnership.

Unsurpsrisingly, most of the discussion entirely avoids considering the option of a full-scale co-operative business, where risks and rewards are shared between those who work in the business, who are also its owners. The suggestion that workers might own and control their workplaces is part of the real alternative that may not be articulated. Whether we look to the Basque Mondragon Group or our own Suma Wholefoods co-operative we see a model that is stable, sustainable and just: a model that could form the basis for a national economy we could all buy into.

*An edited version of this letter was published in today's Guardian.

16 January 2012

Currency Warts and All

As the struggle for dominance in the 21st century global marketplace intensifies the battle over which currency that economy will be denominated in is becoming more explicit. Can we see Osborne's appeals to China to use London as its banker to Europe and the world as the final betrayal of the dollar empire?

This blog has been following the currency wars and I have long been calling for a globally agreed trading currency. This is also the preference of the Chinese, who understand the risks that come with being the banker to the world and are apparently not seeking to take over from the US the role of global hegemon and global policeman that so often accompany the role of banker to the world.

More importantly, the renbinmi is not a convertible currency but is still controlled by the Chinese government. Although this value of external trade balances settled in the currency has increased rapidly in the past couple of years, this is a fraction of the global trade in dollars. Since the currency is tightly controlled it is also not held in reserves – the other key feature of any candidate for status of global currency.

China has long been calling on the IMF to extend the role of SDRs (special drawing rights) so that they can become a de facto global currency. In this context perhaps we should interpret today's intervention by Osborne as not only an attempt to tout for banking business but also an attempt to pressurise China to take on more of this role itself. Such a decision deeply affects the peace and stability of the world and should be taken, rather than via press release and bilateral discussions, in a full-scale global conference to remake the world economy and to focus on the need for stability, sustainability and equality.

13 January 2012

All Quiet on the Euro Front

Am I the only person who is so cynical as to think that 'no news' rather than being 'good news' is actually an indication that the news hasn't quite been prepared for public consumption yet? It was probably the 20 years I spent campaigning about climate change, which only became a news story once it had been turned into a profitable business opportunity, that first put me onto this. But can we assume that something similar is now happening with the euro story, of which we have heard precious little since Christmas? Post-festive queasiness aside, how can the most serious financial crisis in 70 years have disappeared like so many unnecessary mince pies?

A while back I floated the idea that the reason the finance markets were speculating against the euro was that, unlike its counterparts in the US and UK, the European Central Bank had not engaged in a policy of creating money to be hoovered up by the financial institutions and transformed into bonuses. The news now is that they are doing just that, making 'cheap' money available to financial institutions, who are then depositing it right back with them, but in their own accounts. This is the outcome of the silent coup - the transfer of power to unelected bankers in Italy and Greece, backed up by Mario Draghi at the ECB. The last vestige of politicians protecting the people of Europe was removed, with nothing now constraining the power of the financiers to extract obscene amounts of value from the European economy, destroying public services and undermining investment in the real economy.

How else are we to interpret the shift in policy towards the making available of cheap money? The ECB money has a limited life of three years, presumably to keep the inflation-averse Germans happy, but it is free money none the less. In similar vein, Merkel's insistence that the pain of the Greek default should be shared by the creditors as well as the debtors, the so-called 'hair cut', has been removed from phase two of Greek refinancing - another indication that financiers have beaten back even minimum political demands, and in response are reducing the pressure they are putting on European finance ministers.

This is, of course, a self-limiting and ultimately self-defeating response to financial pressure. Once the banks have hoovered up the latest round of newly minted money they must, like the debt addicts they are, find ways of exercising their power to extract more. Meanwhile the public and private sectors alike, which actually circulate money and thus energise rather than stifling economic activity, are starved of funds.

12 January 2012

Free Trade or Bioregional Security?

Word reached me yesterday that Colin Hines is writing again about the destructive nature of the global trade system and the need to protect our security of supply. In standard economic theory protectionism is a dirty word, the impulse to be resilient and self-reliant undermining the ability of merchants to achieve arbitrage profits. My own view is closer to that of Gandhi when he said ‘Any country that exposes itself to unlimited foreign competition can be reduced to starvation and therefore, subjection if the foreigners desire it.’

So much for theory, what about the practice of trade in the globalised economy? The governance of global trade is overseen by the World Trade Organisation (WTO) which replaced the General Agreement on Tariffs and Trade that the global body with authority in this area under the tripartite systems established at the end of the Second World War, signed by 23 governments in 1947. Its aims was to replace the chequered history of mercantilist policies based around the protection of national interests that had dominated the early years of capitalism and was considered to have been implicated in the unstable and conflict-ridden history, especially of Europe, up to that time.

The WTO ‘does not adopt a neutral stance on trade policy. It is passionately against protectionism and just as profoundly for trade liberalization', in the words of Richard Peet. In its mission to liberalize trade the WTO has proceeded well beyond the GATT’s aim of ensuring efficiency and stability and follows this imperative even when this ‘conflicts with the need for environmental protection in an age of burgeoning production, massive consumption and the use of powerful technologies’ and even when the restrictions on trade are intended to ‘protect the environment, ensure food quality and safeguard public health’. According to Peet’s critical account, the single-minded emphasis on free trade undermines national attempts to ensure environmental protection, as well as undermining the power of labour to ensure decent working conditions and acceptable levels of pay.

The failure of talks to extend the liberalization of global trade further, the so-called Doha Round, indicate that the nature of the WTO as a membership organisation has resulted in a political stalemate, with the rising nations of the South refusing to accept the terms of trade that favour the more powerful nations that have traditionally dominated trade talks. Global trade is now governed by a patchwork of bilateral and regional trade agreements, the regional agreements between the countries of Latin America (Mercosur) and South-east Asia (ASEAN) being examples of co-operation at different levels that contrast with the continued rhetorical emphasis on globalisation.

The last time we had an economic crisis on anything approaching the scale of the current one the response by the competitive world powers was to engage in trade wars that eventually led to real wars. This time around the wars seem to be being fought through currencies, while trade remains in the hands of corporations. While the objective of avoiding war must remain the priority, this does not preclude the introduction of policies to ensure national security in essential goods and services. On this basis I look forward to what Colin has to say.

4 January 2012

Who Will Guard Future Generations?

It is a story told in green circles that the Iroquois took seven generations into account when making their decisions. How many of the decisions taken by our 21st-century politicians would survive this sort of scrutiny? Of course the question is never asked because the scrutineers do not exist.

But why should future people be disenfranchised in this way, asks Rupert Read in a new report to be published by the Green House thinktank next week. To protect their interests he argues for a jury of twelve random people selected by lot and obliged to protect their rights to enjoy life and happiness. Such a body could hardly be expected to support untrammelled economic growth or a new generation of nuclear power-stations without any idea of how the highy radioactive waste they produce will be disposed of. In fact, the economistic process of 'discounting' ensures that the future effects of current actions are minimised.

While the idea may seem somewhat New Agey the same concern was raised by that crusty political theorist Edmund Burke as long ago as 1790 when he argued that: "[Society is] a partnership not only between those who are living, but between those who are living, those who are dead, and those who are to be born."

Damian Carrington has picked the idea of Guardians for future people up on his Guardian Enviroment blog. Let's hope this will bring plenty of attention to the report and its interesting proposal. The launch will take place at the House of Commons, cttee room 5, on 10th January (RSVP to Rupert Read: rupertread@fastmail.co.uk). It offers us a chance to give the future a voice and perhaps encounter the shade of Burke himself.

3 January 2012

Will the World End in 2012?

The millenarian prophecies of doom that have rumbled on since 2000 are coming to a head this year, with the Mayan prophecy of the end of the world receiving serious news coverage. Often these reports run alongside statistical analysis of the state of the global economy and appear to have much the same level of credibility. Both encapsulate the feeling of powerless of the modern citizen and the give the lie to the notion of ourselves as rational economic men.

Apparently it was the Slovenian social critic Slavoj Zizek who questioned why we find it easier to imagine the end of the world than to imagine the end of capitalism. If we want a better economic system then we must have the courage to do this and must spread the word to our friends that 2012 is the end of one corrupt and destructive economic system, not the end of the world itself. And we must propose our alternative with confidence and grace. We are not speaking about revolution but revulsion against an economy that is destroying our mother the earth and blighting the lives of humans and other species.

There are three central aspects of capitalism which I think we can all decide to end in this year. First we have the way the system creates money and uses it to concentrate power in the hands of the few. The creation of money as debt in the private sector ensures the engorgement of the 1% at the expense of the 99% while simultaneously creating a pressure for economic growth that is causing the ecological crisis. We can share this message as well as taking steps to use our own money differently: switching our bank accounts to the Co-operative Bank or the Nationwide, making sure our mortgages are with mutual providers (the old building societies) and if we have any accumulated money investing it in local eco-projects rather than depositing it to gain interest from the corrupt system we are seeking to change.

Secondly, we can reconsider how we work and how the dominant economic system shares the rewards of work unfairly and also removes our autonomy and our self-respect in work. This is where I began as an economist, challenging the Seven Myths About Work which persuade us to give our creativity to the system that is destroying our happiness. We need to counter the lie that says that all wealth is generated in the private sector with the public sector parasitic upon it and to encourage the growth of co-operative enterprise, where work and rewards are shared fairly and the business is democratically controlled. It is perhaps no coincidence that the UN has declared 2012 the Year of Co-operation.

Finally, we need to undermine capitalism at the level of culture and ideas. My book Market, Schmarket described how capitalism operates through a system of mantras that encourage us to behave like selfish individualists. Every time we do something for nothing, or buy something that is more expensive because we value its maker, or give away something we could sell, we are undermining the hold of the mean-spirited culture of capitalism on our lives and in the world.

So, 2012 offers tremendous hope to the world and all its peoples. If we believe that the world will end then it will, but if we believe that the world will change fundamentally and positively, then this also becomes possible. It is profoundly untrue that the alternative is not clearly articulated: a green vision of economic and social life has been developed over the past 30 years and is ready to be tried. 2012 is the year when we need to make this humane, balanced and joyful expression of human possibility the path to our future.