Thursday 31 March 2011

Stressed Out in Dublin

I'm Irish by birth, and my mother's family played a significant part in Irish political history; so the rise and fall of the Celtic Tiger has been of more than academic interest to me. On frequent visits to Cork and occasional ones to Dublin, I remained slightly sceptical about the fabulous expansion of that pneumatic phantasm, and felt sad when it imploded, shrivelling to a distorted caricature of itself.

But far worse has been the aftermath, as voluntary austerity moved to compulsory impoverishment. The latest turn of the screw, announced on Thursday, was the result of the new 'stress tests' on the Irish banks, which factored in the collapse of house prices, and the losses due to the speculative construction bubble. This implies a new round of bank nationalisation, of taxpayer liability for financial sector debts, and expensive borrowing from the European Central Bank, the IMF, Germany and the UK, who will charge 6 per cent for funds they themselves can borrow at 3 per cent.

This condemns Irish citizens to many years of falling incomes, rising taxes and reduced public services, all because of the grandiose delusions of bankers, politicians and speculative builders, tightly bonded in the close circle of cronies who ran the country. And it raises huge questions about which path Ireland should try to take in future.

The accepted wisdom that prevailed among the Irish elite was that the road to prosperity lay in capturing some of the fruits of global trade - in money and in manufactures. The government encouraged inward investment, especially from the USA, and offered low business taxes to attract the headquarters of international companies to Dublin. The success of these strategies in the 1990s emboldened a new generation of chancers,who then joined the global banking casino to finance the building bubble.

Now Ireland is one of several small European countries that must think about a radically different alternative, looking to its indigenous resources, physical, cultural and human. The clues to how this might be achieved may be found in other regions which sank into poverty after sudden economic catastrophes, but
enjoyed gradual recoveries, pulling themselves up by their bootstraps to achieve sustainable growth.

One example is the Basque country in Spain. As reported in Wednesday's Guardian, that region was devastated by the 1930s civil war (remember Picasso's Guernica), and then suffered the collapse of its traditional industries, shipbuilding and steelmaking, twenty years ago. But - despite a troubled political history with Irish resonances - it is now resurgent, thanks mainly to co-operatives and social enterprises with strong local roots, not to global capital.

The regional government gave tax breaks to these co-ops, not to international companies, but required them to invest 10 per cent of their profits in community cultural resources in return. This sector has thrived, and its success helps to explain the youth unemployment rate half that of Spain as a whole. But the Basque region is not isolated from global markets. Its biggest co-operative, Mondragon, has a turnover of 14 billion euros and 85,000 employees wordwide, with more than 250 constituent companies.

The organisation is a flat pyramid, with top managers earning no more than 5 times the salaries of workers, and around half the profits invested in the healthcare plans and pensions of staff. Its enterprises include manufacturing companies, a supermarket chain and a university.

In other words, the Basque strategy is to scale up indigenous co-operatives and social enterprises, building on local and regional success, rather than trying to attract foreign investment. After all, this was how Ireland's economic expansion started - with firms like Kerrygold, and with the spread across Europe of Irish pubs.

And it is not only the small peripheral countries of Europe that might take a leaf out of the Basque book. That region might provide a model for Scotland, Wales and the North of England, as austerity creeps across thes islands like a new ice age.

Tuesday 29 March 2011

Suddenly Going Green

This spring, politics has become unpredictable worldwide. The German state of Baden-Wurttemberg, home to Daimler and Mercedes, prosperous and Christian Democratic for six decades, has elected a Green government. There is no British equivalent, of course, but it is as surprising as Hertfordshire going Socialist, or Glasgow Conservative.

The pundits seem divided over whether the key to this turn-around was the Fukushima factor (Angela Merkel had not gone far enough by suspending Germany's nuclear power programme) or the Portugal problem (she makes fierce noises about refusing to bail out Eurozone debt defaulters, but ends up subscribing to rescue funds). Merkel stands accused of being environmentally unsound by sufferers from eco-angst, and financially unsound by the patriotic Deutschemark tendency.

One way or another, it is not a great time for governments. It may be worst for the dictators of Arab states, trying to weigh up the advantages of all-out repression of dissidents (Gaddafi-style), last-minute placation (which failed in Tunisia and Egypt), or some combination of the two(as in Assad's Syria). But it is not straightforward for the NATO allies either, all with their domestic wiseacres warning of a Libyan stalemate, or for the Russians, Chinese and Turks, who sat on their hands during the UN vote for intervention, but are now trying to distance themslves from its consequences.

Financial, political and environmental instability make a very tricky combination, yet this is exactly the sort of triple whammy that governments should expect in an interdependent world. If the flapping of a butterfly's wings in Brazil can shift the Gulf Stream, and hence the weather in the northern hemisphere, how much more can a tsunami in Japan influence the budget deficit in the USA, the stock market in London, or the political landscape in Germany?

What suddenly seems blindingly obvious is that both the mathematical certainties of the World Bank's global economic model, and the political calculations by which the White House and the Pentagon tried to maintain a precarious balance of power in the Middle East, are well past their sell-by dates. Both economic and political science are revealed as little better at prediction than astrology or soothsaying.

Revisionists seem to be recognising that it might be better to focus on large-scale movements, sudden shifts and trigger points, rather than precise formulae, in trying to read the direction of global developments. In this respect, the environmentalists may have the most plausible basis for such predictions in weather forecasting, and in mapping sudden rises or falls in animal and plant populations and extinctions. Rather than trying to construct models, frame laws or detect regular patterns, ecological science might look at the lumpy clustering of 'exceptional' events for clues about the future, and become foresightful planners using the equivalents of butterfly wings and seaweed.

When the most successful manufacturing economy among the developed nations turns to the Greens to run a state in its industrial heartland, something new is stirring, and it isn't just spring fever.

Friday 25 March 2011

Globalisation versus Solidarity


So the Eurozone crisis isn't over after all. By rejecting Prime Minister Jose Socrates' austerity package, the Portuguese parliament brought down his government. Now the Eurozone summit in Brussels is trying to re-inforce the European Central Bank's bail-out fund, against a background of rising interest rates on Portuguese debt, and the downgrading of that country's credit rating in global money markets.

All this highlights the dilemmas facing all European governments, and indeed governments worldwide. On the one hand, apart from Cuba, North Korea and Zimbabwe, they have all embraced globalisation and financial interdependence. For some, like China, oil-rich Middle Eastern states and Norway, this enables them to deploy sovereign wealth funds in a worldwide strategy for investments and loans. But for Iceland, Ireland, Greece, and now Portugal and possibly Spain, it means that they must reduce their welfare benefits and public services, raise taxes and cut wages and pensions.

In the EU, only Germany is for the moment immune from these pressures, but it is increasingly forced to bear the burden of propping up the euro. Commentators argue that only full political union, effectively turning the EU into the United States of Europe, can finally stabilise the currency's future (not that the United States of America has fared so wonderfully well in the global debt stakes).

Politically this situation plays into the hands of the far right, with the rise of anti-immigration parties all over the Continent. For a long time only in Austria did such a grouping get enough support to demand a place in government. Now people like Geert Wilders in the Netherlands have won similar proportions of the vote in national elections, and other such nationalist parties have made big gains in Sweden and Denmark. In France, Marine Le Pen, daughter of the Front National's founder, is a serious presidential candidate, and may undermine the left's hopes of unseating Sarkozy.

But the underlying challenge is more complex than this, and it is the long-term strategic question facing Ed Miliband's Labour Party in the UK. Blair and Brown insisted that the country could prosper as a financial hub in the global economy, open for business and acting as banker to the world. At the 2010 election, voters gave their verdict on the Third Way economic strategy, not just because of the financial collapse, but also as a protest against stagnating wage rates and growing inequality.

New Labour had imposed a regime in which individual self-responsibility in a market environment was the new form of citizenship, and people were nudged towards the banks not the state or each other to meet their needs. There were some who gained from the additional freedom this gave them, but many were losers. For the first time in 2010, the Labour ballot contained more middle class than working class votes. Can Labour win back its working class support, now fragmented between the coalition parties, UKIP and the BNP, but mainly angry or apathetic?

Some believe it must, and can only do so by showing more respect for the solidarities, loyalties and commitments of working-class communities. 'Blue Labour' voices, like those of Maurice (now Lord) Glasman, and Oxford political theorist Marc Stears, have Ed Miliband's ear. They argue that the party must go back to its roots in co-operatives, friendly societies trade unions and Guild Socialism (workers' control of industries), at the expense of liberal individualism.

They see New Labour's 'modernisation' of the welfare state as having taken Beveridge's project to an extreme of centralised, elite-dominated, remote, bossy managerialism. The party neds to get back to a politics of belonging, of relationships and local participation, and away from rationalist administration and abstract, universal principles. There are obvious risks in such a move, given the demographic shift towards a university-educated, aspirational electorate, and the temptations of a backward-looking (and potentially racist) form of nationalism.

But the dangers of a depoliticised, rootless, alienated generation, disillusioned with democracy, are equally alarming. Cameron's interest in the 'Red Tory' vision of a revitalised, active community involvement is bidding for the same political territory - and looking for new ways of rebuilding solidarities in the face of globalisation's destructive forces.

Tuesday 22 March 2011

Safety Checks on Power

For two weeks the tsunami in Japan and the war in Libya have taken turns to dominate our TV screens and front pages. For a while Gaddafi's eastward advance against the rebels was displaced by reports about the threatened meltdown at the nuclear power station at Fukushima. Now enforcement of the UN's resolution to protect civilians under attack by Libyan government forces fills the news bulletins.

So only those of us listening to the 4 a.m. broadcast on the BBC World Service this morning caught the revelation that the company running the Fukushima plant, Tepco, has been failing to carry out proper safety checks for many years. As workers risk their lives in a continuing struggle to limit radiation emissions, Tepco has admitted cutting corners as part of the cost-saving regime driving its business model.

Interviewed about this story, Tim Phillips, author of Fit to Bust:How Great Companies Fail, explained the history of such collapses and scandals. Business leaders cultivate an image of success, based on dynamism and vision, to beguile investors and government officials. This view prevails in markets and the corridors of power; no-one wants to look behind the self-promotion of a profitable management team, or investigate the practices it conceals.

In cases like this, Phillips argues, a business culture can put such practices beyond inspection and public scrutiny, and make it virtually impossible for staff to question what they are being made to do. Eventually by-passing safety standards and neglecting checks becomes routine, and no-one has an interest in changing things.

Of course this is not unique to business settings. Nearly all abuse of power, in every type of organisation, is a taken-for-granted feature of the everyday. It comes as a shock to those who perpetrate abuses that they should be regarded as questionable, or that outsiders should try to hold them to account.

This is a common feature of the Fukushima story and the Libyan situation. Gaddafi is outraged that any citizens should claim the right to challenge him, or make him answerable for his actions. Over time he has come to believe himself to be the embodiment of the people's will, with a God-given right to define who are true Libyans, and who are traitors, scum and vermin.

Dictators discredit politics, which is why the Arab uprising, in pursuit of democratic freedoms, has been so refreshing. In our jaded political culture, where Parliament itself has been tarnished by the expenses scandal, and state services (including the NHS) tainted by examples of inhumanity, the prevailing wisdom is that markets and firms are efficient, and competition keeps organisations honest.

So the Tepco revelation is a timely reminder. It is public accountability that protects us from exploitation, exposes corruption and keeps us safe. Leaders of all kinds, business and political, are tempted to try to cover things up, and to shield themselves from scrutiny within a culture of routine abuse of power.

Friday 18 March 2011

Speculations in the Wake of a Disaster

Even as the catastrophe at the Fukushima nuclear power plant was unfolding, and the Japanese emergency services were uncovering the true scale of the country's human tragedy, commentators were waking up to the implications of the disaster for the world economy. It has already started reverberating through financial and commodity markets everywhere, with often perverse, counterproductive outcomes, illustrating the unstable and irrational global system we now inhabit.

Japanese savers have for some time funded a large part of the West's government debt, especially that of the USA. Now the need for Japan to rebuld its stricken north-eastern coastal towns will mean that much of this money is likely to be repatriated. Even if that does not happen on the scale anticipated by Peter Hadfield in his article on Wednesday's Guardian, the prospect of the Japanese treasury needing more of its citizens' savings (they already supply most of the funding for its massive overdraft), both to deal with the nuclear clean-up and for reconstruction, has already beenenough to spook the markets.

First, fears that Japanese insurance companies would repatriate funds to settle post-tsunami claims, and that construction companies too would disinvest globally to begin recovery projects, led currency traders (i.e. speculators) to buy the Japanese yen, driving up its value. This led to the co-ordinated intervention of the G7 central banks, to sell that currency, pegging it back - they claimed - so as not to disadvantage Japan's trade in manufaactured goods, already badly hit by the tsunami's effects.

Then commodity 'investors' (i.e. speculators) started to sell their futures in wheat, on fears that Japanese consumers would not be able to afford bread and other import-based products. This drove down the world price of the grain by £30 a ton, directly affecting the prospects of UK farmers' returns on this summer's harvests.

In other words, the effects of the Japanese tragedy on the rest of the world are mediated by the activities ( i.e. speculation) of global traders, using vast sums to make money out of money. Governments in turn are forced to react to these shifts in markets, before they can find space to contribute to the real-world issues of Japanese people's suffering, or the predations of the Gaddafi regime in Libya.

According to Hadfield, the longer-term effect will be a boom in the Japanese economy, as the reconstruction effort injects funds and citizens replace lost possessions, reversing the deflationary forces which have caused 20 years of stagnation. But the rest of the world will take the hit, because trillions of yen which had been loaned to governments (especially the USA's) or invested in global companies, will be substantially withdrawn. Borrowing will become more expensive for states - the real fear behind the G7 intervention - and companies will have to scale down their expansion plans.

So the credit extended to governments and consumers in the USA and UK courtesy of thrifty Japanese (and Chinese) savers will no longer be available, and we will have to tighten our belts by two notches instead of one.

Tuesday 15 March 2011

All in it together

The aftermath of the Japanese earthquake and tsunami has demonstrated the high level of organisation in that country's emergency services, and the collective solidarity of its people. In response to the tragedy, the whole population mobilised to help the stricken north-eastern districts, and all adopted the stoical but purposeful approach that characterises the Japanese cultural attitude to natural disasters.

All this has been in marked contrast with the response to the flooding of New Orleans during George W. Bush's presidency of the USA, when the city's authorities were virtually left to their own devices, and its inhabitants were unprepared and disorganised, lacking the collective basis for saving the most vulnerable. The two catastrophic events revealed how important both public infrastructures and civic spirit are in such circumstances. Disasters like these call forth a society's underlying solidarities, or display a Hobbesian 'state of nature', with everyone acting for themselves.

None of this will have surprised readers of Richard Wilkinson and Kate Pickett's book The Spirit Level, in which Japan scored high for equality of incomes among citizens, and hence (on their account) for general well-being, longevity, quality of health, trust between citizens and educational performance. Less equal societies like the USA and UK fared much worse on these measures. Japan's political and social institutions reflect a far more collective culture, in which economic competition is balanced by traditions and practices which value commitment to the common good.

In some ways this is all the more impressive because the Japanese economy has been stagnating since the early 1990s. In response to these problems in the 1970s, the USA and UK elected neo-liberal governments which strengthened markets and rewarded individual self-interest, at the expense of public services and civil society. Japan has government debt of 200 per cent of Gross Domestic Product, yet we are unlikely to see its authorities complaining about the costs of reconstruction, partly because most of this debt is owned by Japanese savers, not foreigners.

Even so, the economic perspective on the tragedy is predictably distorted. Listening to the economic commentary in the BBC Radio 4 Today programme on Monday morning, I heard experts express relief that nature's destructive forces had not hit Tokyo, the financial and commercial centre, and the source of 40 per cent of GDP. Their main concern about the threatened melt-down of the nuclear power stations at Fukushima was that they supplied over a quarter of the capital's electricity, needed for investment and trading decisions. Quite unconsciously, their comments wrote off the populations of the north-eastern coast, and the port city of Sendai, as expendable - as indeed they were from the standpoint of city analysts.

Of course, to some extent the economic geography of Japan reflects the different value that the new global capitalism puts on finance and commerce on the one hand, and more traditional economic activities on the other. Because it struck the north-eastern coast, the tsunami killed a disproportionate number of old people, farmers and fishermen, in a relatively backward area from this perspective.

But the other striking feature of the tragedy is that it illustrates the global impact of such events. In many ways, stock market plunges are the least important of these, in terms of human value. My nephew Luke's girlfriend, teaching English in Japan, is safe; but my friend Toru in Tokyo has an uncle who is still not accounted for, my friends Ikumi and Kevin in our village have not been able to contact their friends living in Sendai, and my ex-wife Jane was about to visit Japan. These days there is a global network of social ties to support the international response to the disaster.

Friday 11 March 2011

RBS Share-Out? Why Not?

Did I hear the early-morning BBC News right on Tuesday? I thought they said that the Liberal Democrats were proposing the redistribution of state-owned RBS shares among the whole adult citizen population. If so, it was the first evidence of the Lib Dem body still having a live brain since the coalition was formed. But the item was dropped from the news soon afterwards, so perhaps the BBC realised that they had been deceived by a few twitches in that some-time-dead corpse.

The proposal (if anyone actually made it) would have been consistent with the ideas about the Big Society circulating before the election last May. The redistribution of property, in the form of shares like this, bonds and all other kinds of assets, to individuals and communities, was the 'Red' part of Phillip Blond's Red Tory message, which David Cameron claimed to admire, and which might have supplied some kind of ethical justification for the devolution of collective services to the local level.

Instead, of course, the cuts - made in the name of balancing the budget - have facilitated the incursion of private firms, empowering these commercial forces, and enriching their already wealthy owners, not the general population. As Blond acknowledges in his analysis of Thatcher's privatisations, these weakened civil society and made individuals more insecure and vulnerable, in the name of the 'property-owning democracy'. The same trick is being played again.

It is much the same story in the case of Iain Duncan Smith's welfare reforms. Back in September, 2009, his Centre for Social Justice published a Report, Towards Welfare that Works, that recommended the partial integration of the tax and benefits systems to create 'universal credits' for all adults of working age.

In his Preface to that report, Duncan Smith argued that the enforcement of work conditions in benefits was impossible to justify unless incentives for available work improved. He promised that his scheme would achieve this aim, withdrawing benefits at a steady rate as claimants took paid work, making even a few hours of employment advantageous for them.
Instead, since he became Secretary of State for Work and Pensions the whole thrust of his reforms has been to cut benefit rates, remove eligibility from disabled people, and impose new sanctions on those refusing job offers, however disadvantageous. The incentives which are supposed to stem from his modified version of the CSJ's scheme will not arrive until some time after this punitive regime has been imposed.

A universal distribution of the shares acquired through the state bail-out of Northern Rock, RBS and Lloyds would signal that there remains a long-term prospect of the radical part of the Big Society programme becoming a reality. It would create a sort of 'Social Dividend' for all citizens, a bit like the annual payments made to all the permanent inhabitants of Alaska (in their case redistributing a small part of that state's oil wealth, in compensation for the hardships of living in that frozen wasteland).

This proposal has recently been canvassed as a part of the solution to the structural problems of employment and income identified in my last blog. If there really is going to be little chance for the new generation to develop careers, with prospects of incremental salaries, promotions and pensions, them they will need assets which yield reliable subsistence during periods of retraining or setting up a business of their own.

But this kind of redistribution would also make unpaid collective action to improve the quality of life in communities (a.k.a. the Big Society) feasible. Without it, such tasks would rely on the labour of officially-coerced unemployed claimants, forced to clean streets or plant trees, as part of a system of state serfdom - the 'Servile State' foreseen by Hilaire Belloc, from whom Blond claims to get his inspiration.

So, any chance of the share-out happening? Not to judge by the latest developments. On Wednesday The Guardian reported that RBS executives had awarded themselves shares worth £28 million as part of this year's bonus package. This indicates that the UK plutocracy has little intention of allowing its assets to be redistributed. Only concerted political pressure, by an organised movement of the young generation, will persuade them to share their vast wealth, and the government to reclaim for citizens their bail-out billions.

Tuesday 8 March 2011

RBS, LSE and UKplc

Lots of chickens came home to roost on March 4th, 2011. On the day of Sir Howard Davies’ resignation from the Directorship of the London School of Economics, and the revelations about Prince Andrew’s frolics with the entourage of ex-president Ben Ali of Tunisia and an American billionaire paedophile, the Governor of the Bank of England denounced the greedy exploitation of gullible customers by the banks, and claimed that the bonus culture still encouraged unjustifiable risks, based on confidence that future governments would repeat the bail-outs of 2008-9.

What these disparate embarrassments had in common was that they derived from the inappropriate application of a business model to activities demanding some form of ethical regulation. Not that bankers, royal trade envoys and academic administrators are supposed to be moral philosophers; but some aspects of their interactions with the public, with governments and with each other are simply different in quality from pushing insurance, boosting sales or promoting a brand. The Blair years made it compulsory for every organisation to think and act as a business, as part of the modernisation of ‘UKplc’, so it was hardly surprising that these undignified falls from grace involved the exposure of grubby wheeling and dealing where other standards of behaviour were required.

Defining the proper limits of market relations is a difficult task, but New Labour insisted that it was a redundant one, because they had (courtesy of the theory of information, incentives and contracts peddled by the World Bank) discovered how to create an environment in which ethics (and politics) were dispensable. The financial sector was key to this model. Blair’s strategy was to get citizens to turn to the banks for most of the things they previously looked to the state to supply. His reforms allowed the explosion of personal credit which saw UK holding most of Europe’s credit card debt.

This financialisation of citizenship was also its depoliticisation. Simultaneously the New Labour regime made every institution funded by the government adopt commercial practices – competition, under the surveillance of inspectors and managers who enforced standards and targets, and provided the public with the information for the league tables on which they based their choices of facilities. Decisions in the public sphere were explicitly analogous to shopping or investment ones; government was there to create the conditions for this marketplace, and to protect them from the distorting effects of political factors.

In the General Election of May, 2010, the Conservatives attacked many of these features of the collective landscape. Not only was the system of central regulation, which prescribed the methods of micromanagement in the public services, seen as fatal for active engagement and local community and democracy; it was also damaging for professional practice in education, health care and child protection. The Big Society would allow citizens to shape their own services, and staff to use their expertise and judgement, but be accountable to these groups and associations. The public would be encouraged to mobilise for collective action, with the help of new community organisers. Implicitly this required the repoliticisation of the public sphere, allowing non-commercial standards to return to matters in which the social and moral principles of faith groups and mutual organisations could become the dominant influences.

But the coalition government soon encountered the problems of this new approach. It proved difficult to dismantle parts of the Third Way edifice without destabilising other aspects of the system. Abolishing some quangos and devolving some funding to the professional level had unanticipated consequences. Above all, doing these things at the same time as imposing huge spending cuts to appease bond markets led to effective resistance in the courts and on the streets. Ironically the only visible collective actions stemming from the Big Society programme were the protests by students and public sector workers.

David Cameron had always argued that the transformation he sought was a long-term one that required a culture shift. But because commercial organisations were often the only ones in a position to take advantage of the new opportunities provided by deep and rapid cuts, the reforms looked like a new phase of Thatcherite privatisation. The coalition cannot afford to disown this legacy, so it is difficult for ministers to distance themselves from the excesses of firms and public bodies found guilty of overenthusiastic business practices, whether these are the unreconstructed casino strategies of state-owned banks, the opportunism of universities in search of Libyan money, or the leisure time associations of errant royal trade emissaries.

All this tends to discredit the project for remoralising the public sphere espoused with equal commitment by Red Tories like Phillip Blond and Blue Socialists like Maurice Glasman. These radicals want to displace the commercial ethic from public life, and substitute a new culture of co-operation for the common good, based on local associations, faith groups and families. The scandals of March 4th reveal just how large a task this will be.

There is another irony in the timing of these revelations. The Arab uprisings are acknowledged to stem from the fury of a new class of young, well-educated people, with no prospects of a secure career – what Guy Standing calls the Precariat. Yet it is becoming horribly clear that this class now exists all over the world, not least in Europe, and especially the UK, and that no set of policy proposals currently on offer really addresses their situation. Our current rate of graduate unemployment reveals the failure of New Labour’s attempt to absorb them into a sustainable ‘knowledge economy’. It is this deeper crisis that poses the greatest challenge to the coalition government’s strategy.

Perhaps the real message of March 4th was that the global plutocratic elite who operate the business model of government – the leading bankers, dictators such as Gaddafi and Ben Ali, and public figures like Davies and Prince Andrew – have much to fear from uprisings of the Precariat such as those in Egypt, Tunisia and Libya. A new model is needed for the sake of democracy and the health of public life.