Newsnotes 2010 04

Notes On The News

by Gwydion M Williams

Bubble Barons [Parasitic Finance]

Accountants Without Frontiers [Legal Frauds]

The Fate of Those Who Hate the State

China and Japan

Chinese Equality

Maoist Populism

Footnotes [Michael Foot]

And So Say All of Me [Human Brains]

 

Bubble Barons [Parasitic Finance]

“A century ago, the robber barons at the helm of the U.S. economy were easily identifiable titans of industry: Andrew Carnegie of Carnegie Steel, John D. Rockefeller of Standard Oil, financier and steel magnate J.P. Morgan. It was easy to draw the link between the robber barons’ brutal business practices and their immense wealth; it was clear that these businessmen were quite literally, robbing the American people in the course of amassing their fortunes.

“The influence of today’s super-rich is significantly harder to trace. Much of their wealth is managed in opaque Wall Street investment vehicles and byzantine corporate structures. They are less likely to slap their names on their ventures, and their profitable relationships with the most destructive segments of our economy are hidden behind layers of corporate control. In our post-industrial economy, they amass wealth not by producing things with actual value, but rather by riding waves of speculation, such as the housing bubble, to dizzying heights of wealth.

“Today’s super-rich are not robber barons, but bubble barons: they extract their fortunes from intensifying cycles of imaginary wealth creation and destruction, live at a far remove from their businesses, and evade accountability in the public spotlight. The robber barons stood behind their economic crimes; the bubble barons, for the most part, do not.

“Beginning today, AlterNet and LittleSis.org are partnering in an investigation of these bubble barons — a select group of American multi-billionaires who saw astronomic gains in wealth during the housing bubble, and who so far have evaded all accountability in the midst of the worst economic crisis since the Great Depression.” [F]

That comes from ‘Information Clearing House’, a site with lots of interesting material. And some basic misunderstanding. The ‘Bubble Barons’ thrive on the new economy, but they did not create it, any more than surfers create the giant waves that they ride with varying degrees of skill. There was and still is a tolerance of financial chicanery by millions of people who think that they can be the lucky winners rather than the sad victims. Very few make it, naturally. But in the USA, fully a quarter of the population believe themselves to be part of the richest one per cent

In Britain and even more in the USA, there is a continuing illusion that those people succeed by some sort of mysterious cheating, instead of by the normal operation of what they call a ‘Free Economy’. There is cheating, obviously, but maybe more among small business than in large business, where there is much more to lose and a greater number of ‘outsiders’ who are to some degree involved.

 

Accountants Without Frontiers [Legal Frauds]

The 1960s saw a general assertion of individual rights. A lot of it was about sex, a lot of it was about women becoming equal, and some of it was about breaking down stuffy habits of ‘respectability’. This could have meant an advance towards socialism, a lot of it was ideas that had once been mostly found on the Left. But most of the Left in the 1970s refused to adapt to the new world, fought bitterly against attempts at reforms that would have made trade unions equal to employers. They were happy to deadlock the society and fantasise that this would lead to revolution. Very surprised when Thatcher and Reagan broke the deadlock in favour of the employers and the rights of capital.

But it capitalism viable without respectability? Can it work without a set of unwritten rules that are stuck to regardless of immediate advantage? It rather looks as if it cannot.

Without the idea of respectability to guide business people, the obvious temptation is to allow almost anything in order to give the appearance of a profit. The notorious Enron was an extreme example, but it seems much more widespread. And some amazing stuff is coming out about Lehman Brothers, the giant global financial services firm whose September 2008 bankruptcy almost brought down the global financial system. According to Private Eye (which is the place journalists send stories that the regular press will not publish):

“The trick was to get billions of pounds of loans off the balance sheet using a transaction called ‘repo 105’. American regulators were having none of it, so what did Lehmans do? It simply transferred its security inventory across the pond and got its operation in regulation-lite London to conduct the transaction.” [G]

Accountants are hired by the people they audit, so it’s not amazing that they will pass any old rubbish. I once saw this sort of trickery compared to a man arranging that his left-hand pocket sells the right-hand pocket a hanky for a million pounds, thus giving it a fantastic balance-sheet. The right-hand pocket then sells it back before its own audit and so it seems to be doing well as well. Broadly, a company’s debt vanishes with a meaningless transaction, one that yields no real money. Yet it’s not clear that it’s illegal, and the punishment goes mostly to those in senior management who refuse to be part of it:

“The dissident Lehman Brothers vice-president Matthew Lee, who was fired after blowing the whistle on dubious accounting, has been unable to find work since being leaving the Wall Street bank, partly because of the stigma attached to being a former Lehman audit executive.

“Speaking to the Guardian, Lee’s attorney, Erwin Shustak, today shed more light on his client’s attempt to raise red flags over Lehman’s questionable financial management, which was revealed last week in a 2,200-page bankruptcy court report into the bank’s demise…

“Lee wrote a six-point memo outlining his concerns and sent it to senior management. His note listed, among other things, a balance sheet that listed assets $5bn above reality, a lack of expertise and adequate systems in accounting, unrealistic valuations of inventories and billions of dollars in potentially toxic liabilities.

“‘Approximately two weeks later, he was called into an office and summarily told he was part of a mass layoff,’ says Shustak. ‘There was no other reason given.'” [H]

 

The Fate of Those Who Hate the State

No man is an island, though some of us are peninsulas. Humans can live tribally, or they can live in a state. A pre-industrial society where most people live in self-sufficient villages can have a fairly small state, though this generally means leaving power in the hands of the local gentry. An industrial society is much more interconnected, so the state has to expand. Britain’s Industrial Revolution is generally dated from 1760 to 1830, and this was a period when the British state grew rather faster than the economy as a whole. This process continued right through to the present day, and to protest about it is futile.

The USA under Franklin D. Roosevelt was able to end its Great Depression and became a superpower because it accepted tax-and-spend as the right policy, along with a considerable growth in state power. Anti-state attitudes from Reagan onwards seem to be ending with its decline from superpower status and another Great Depression. Yet critics like ‘Information Clearing House’ ignore the methods that actually worked and instead look back to Woodrow Wilson saying:

“Liberty has never come from the government. Liberty has always come from the subjects of government. The history of liberty is the history of resistance. The history of liberty is a history of the limitation of governmental power, not the increase of it.” [K]

This is just not true. The growth of governmental power requires some limits on what can be done with it, that is necessary and proper. Those who want to define their own sort of freedom should be thinking about somehow bending the state machine to their wishes, or possibly overthrowing it and starting again, though this only works when most people are profoundly alienated from what exists. Thinking that you should avoid the state and rely on individual struggles is an excellent formula for achieving nothing.

Since the 1960s, women have mostly got the state working for them, as have gays in the West and so has the Green movement, those have been the big successes. The Trade Union movement in Britain backed away from taking a large role in the state in the 1970s, and is still paying the price.

 

China and Japan

When the Soviet Union collapsed, the USA showed that it hadn’t believed a lot of what it said during the Cold War. The US kept together a coalition of states with different values, whereas the Soviet Union lost its biggest ally, China, and alienated Middle-Europe with the invasions of Hungary in 1956 and Czechoslovakia in 1968. The USA was shrewder, stringing along rulers like Suharto in Indonesian, Mobutu in what was then Zaire, Saddam Hussein in Iraq, as well as states like Former Yugoslavia and parties like the Italian Christian Democrats and Socialists. When the Cold War ended, they became targets. The German Christian Democrats got something of the same treatment but survived it.

Japan with its massive fast-growing economy was being losely spoken of as the ‘next foe’ in the early 1990s. Miraculously its well-managed economy stopped growing at about that time, with the 1990s being a ‘Lost Decade’. There was a plausible explanation, an asset bubble that caused a crisis, but the failure to recover from this fairly minor crisis was puzzling.

Or not puzzling at all, if you suppose that Japan saw that it was isolated and at risk. In the 1990s, it looked possible that China would become much more pro-Western or else fall into chaos, maybe both. It’s not much mentioned now, but there were serious doubts as to whether it would stay stable after the death of Deng Xiaoping, the last leader with massive personal authority. In this same era, Russia was keen to copy the West. The ‘Little Tigers’ of East Asia saw the USA as their friend and Japan as maybe a rival.

Things changed after 1997. The ‘Little Tigers’ were hit by a massive crisis caused mostly by liberalised economics that allowed in speculative money. Russia got disgusted with Western liberalism, which had brought them mostly poverty and suffering. The USA had great difficulties with Former Yugoslavia, whose violent disintegration was a bad advert for their system. China proved entirely stable without a single charismatic leader. Saddam in Iraq resisted the best efforts of the West to get rid of him by sanctions and threats. The USA seemed in a mood for something drastic, though Japan was now being ignored as no longer the rival it had once seemed.

The al-Qaeda attack on the Two Towers focuses US wrath onto Afghanistan, even though the Taliban offered to stop sheltering them if it was proved in the Taliban’s own courts that al-Qaeda were guilty. The USA by then was keen to demonstrate its strength, and did just that, but also demonstrated weaknesses that the US governing class had not faced up to. The USA could get into Afghanistan, as early invaders had done, but it was not so easy to get out again on terms the invader wanted. The same was true of Iraq: they could knock down the semi-Western system that Saddam and the Baath had built, but something much more alien replaced it.

Meantime China was rising, and China was wisely building alliances. China chose to help Russia as Russia began to turn against the West. An aggressive policy might have won them back large territories that the Tsarist Empire took from the Chinese Empire in the 19th century – but it would have cost them far more in the long run.

China has maintained its alliance with Russia, sometimes expanded as ‘BRIC’ with Brazil and India, or as BASIC with Brazil, South Africa and India but not Russia at the Copenhagen climate summit. China is now taking over from Japan as the second richest state in the world, but doing it as part of a wider system of alliances.

China is also ignoring Western ‘good advice’ over its economy, of the sort Japan took with disastrous results, and that was also taken by the Asian Tigers up to their 1997 crash. They were going their own way even before the star of the West’s current round of economic chaos.

The rise of Asia seems to be happening regardless, and with increasing independence of European values. It was foreseeable and in fact foreseen by a few wise commentators. One man said in 1947:

“Asia for the Asiatics? Power will come to the east, but I think it will be peaceful power – they have suffered too much to play with war again. To imagine that America and Russia are the great colossi is like thinking one move ahead in chess; the greatest colossus of all is the babe with the bloody eyes”. [J]

 

Chinese Equality

If Google do quit China in April, as now looks likely, they will not be much missed. Local entrepreneurs produced a better version of their own, as I detailed in an earlier Newsnotes. And China is in no mood to be told what to do on its own territory. They have recently cut ties with Oxfam’s Hong Kong branch:

“China’s education ministry has ordered colleges to cut ties with Oxfam and prevent it from recruiting on campuses, accusing its Hong Kong branch of a hidden political agenda…

“A notice attributed to the education ministry said the Hong Kong branch of Oxfam, which oversees operations on the mainland, was a ‘non-governmental organisation seeking to infiltrate’ the mainland.” [A]

I know nothing about this specific matter, but charities do often get political, despite being supposed not to. I also heard from some Serbs in Former Yugoslavia who reckoned that they had been quietly undermined by organisations posing as non-political.

China sticks to its own system, which was recently described as follows:

“Labels do not help satisfactorily describe the model, which the Chinese say is based on socialism with Chinese characteristics. It can be described as a mixed economy with socialist and capitalist features or, less flatteringly, autocratic capitalism.

“The model has a number of key characteristics. The State controls the strategic direction of the economy and therefore its strategic sectors. The State-owned enterprises still dominate industry. The government can thus set and direct its economic priorities…

“Historically a model marked by clear goals and ruthless pragmatism usually succeeds because of the determination of political leadership.

“Examples are Charles de Gaulle in France after 1958, the Ministry of International Trade and Industry in post-war Japan and, of course, Deng Xiaoping 30 years ago.

“Success generates domestic legitimacy and external challenge, but at the potential cost of both corruption and excessive reliance on exports.” [B]

China may be losing interest in being the world’s cheap export centre, it has lots of other possibilities. Thus:

“Guangdong, the province that produces about a third of China’s exports, on Thursday announced plans to raise its minimum wage more than 20 per cent, fuelling inflation fears and dealing a blow to manufacturers emerging from the global credit crisis.

“The province, which borders Hong Kong and forms part of the manufacturing powerhouse known as the Pearl River Delta in southern China, was not the first to introduce a mandatory wage rise this year, but the increase was sharply higher than the 13 per cent introduced by Jiangsu province last month.

“The local government said the move was necessary to attract labour to work in local factories and improve the lives of low-income earners. The minimum wage increase of 21.1 per cent will take effect on May 1.

“It added that wages were set to reflect rising inflation and the region’s acute labour shortage – a problem that is paralysing plants rushing to complete an unexpected surge in orders after Chinese new year in February.

“One factory owner on Thursday said the move would bring limited benefits to business.

“‘A lot of our workforce traditionally come from the poorer regions in western China, but factories are moving out there to take advantage of cheaper wages and lower taxes. Those workers who used to come here can now find work close to home. I don’t think we will see many of them moving back here,’ said Au Yiu-chee, a Hong Kong owner of a textile factory in Dongguan.” [E]

It seems that the priority is curing existing inequalities, and that the chosen mechanism is state regulation, with no assumption that market forces will do the trick. Standard assumptions before the 1980s, and now returning as the long-run results of deregulation are seen.

 

Maoist Populism

Most studies of China’s economy do not mention that Deng built on top of Mao’s success, while Mao largely had to start from scratch. China had been stagnant for centuries. China’s ‘Blue Republic’ that lasted from 1912 to 1949 produced no net economic growth, with rural decay balancing industrial growth in the coastal cities.

Under Mao the economy tripled, a success matched only by Japan, the Asian Tigers and Western Europe after World War Two. But Mao faced the triple problem of little outside aid, a population with little experience of industry and the constant threat of invasion. West Germany had just one of these, the other ‘miracles’ none. Mao was resented by most of those who were privileged in the Blue Republic and failed to get out in 1949. Those people tend to know English and be able to express themselves to a Western audience, but they remain untypical. In the population at large, Mao retains immense prestige. There have been cases of politicians managing to tap into this:

“At the National People’s Congress during the past few days, one man has dominated the talk among the gathered elite. When he arrived 40 minutes late for a weekend meeting at the Great Hall of the People, onlookers were trampled by the scrum of television crews following in the wake of the tall photogenic figure. Generating all this attention, of the kind usually reserved for film stars, is Bo Xilai, the Communist party boss of Chongqing city in central China.

“For the past six months, Mr Bo has been on a crusade that has won him countless headlines and stirred up a political hornets’ nest in Beijing. The Chongqing government has been conducting an all-out campaign against organised crime that has led to more than 3,000 arrests – including that of the leading judicial official – and prompted calls for similar action across the country. Mr Bo has also encouraged a wave of nostalgia for the Mao era, which many perceive as less corrupt. The city’s mobile phone users often receive ‘red text messages’ of the Great Leader’s famous phrases.

“Mr Bo’s campaign is lifting the lid on the ties between local party officials and the growing gangster culture. But its impact is being felt well beyond the provinces…

“Now 60, Mr Bo has long been a rising political star. The son of revolutionary hero Bo Yibo, he grew up in Beijing and has been in party or government jobs all his life. He become well known in the 1990s as mayor of Dalian city, then governor of Liaoning province, both in the north-east, before moving to Beijing as commerce minister in 2004, when he had a number of tense negotiations with Peter Mandelson, then European Union trade commissioner. By aggressively promoting urban modernisation projects in the north-east he has appealed to those who favour economic reform, but his anti-corruption campaigns have also won support among more conservative groups.

“However, at a 2007 party congress, he saw two members of his own generation promoted to the nine-man Standing Committee at the top of the party: Xi Jinping, expected to take over from Mr Hu in 2012-13; and Li Keqiang, expected to become premier. Mr Bo was appointed party secretary of the fast-growing municipality Chongqing – technically a promotion but a sideways step in some eyes.

“He has made sure the city is anything but a political backwater. Last summer, the first arrests were made in a crackdown called an ‘anti-Triad tornado’. The public has lapped up details about the city’s gangsters. One of the most high-profile arrests was of Xie Caiping, known as the ‘godmother of the Chongqing underworld’ because of her network of casinos, one of which was based across the road from the supreme court.

“The arrests quickly began to expose the extent of organised crime. Wang Li, a law lecturer at Southwestern University in Chongqing who has written a book about gangsters, says it really expanded after 2000 when its economy began to explode. ‘They started entering legitimate businesses like real estate, threatening other bidders at land auctions not to raise their prices,’ he says…

“The campaign has been accompanied by a revival of symbols of the Mao era. It is not just the mass texts of Mao quotations. At party meetings in front of television cameras, he likes to lead officials in renditions of revolutionary songs. At the city’s new university campus, a 20-metre statue of the Great Helmsman towers over the classrooms and dormitories that surround it…” [C]

“Today Bo is in charge of running Chongqing, a region of more than more than 31,000 square miles and 32 million people along the Yangtze River that is the largest of China’s four provincial-level municipalities. In the fall of 2008, Bo gained national praise for the way he managed strikes by teachers, police and taxi drivers in the city as China’s economy began to contract. While other regional leaders around the country faced with similar problems treated striking workers as criminals, arresting leaders and sending in police, Bo made what was considered a radical move in China: He invited taxi driver representatives to meet with him in a forum broadcast on state television and negotiated terms for ending the strike.

“And in 2009, Bo took another political gamble. He launched what he called a ‘Red Culture Campaign’ to get people to get together and read, study and even sing about Mao Zedong’s work again. While a few scholars ridiculed the efforts, it was a hit with the masses, with hundreds of thousands showing up at the events.” [D]

[Sadly, it turned out that Bo Xilai was insincere.]

 

Footnotes [Michael Foot]

The universal praise for the late Michael Foot is a measure of how little he achieved. We can expect a lot of wrath and scorn as well as praise when Lady Thatcher finally goes. But Foot? As far as I recall, he evaded all of the hard choices. Tony Benn was on the right lines pushing for Workers Control. I don’t recall Foot ever doing anything about it.

He came from an old Liberal family, and that was the problem. It was ‘Foots, Foots, Foots, Foots, Marching Over Empire’. There was a large element of snobbery in him calling Norman Tebbit ‘a semi-house-trained polecat’: there are a lot of people like that and the Tories brought them into government, while Labour narrowed its social base and ceased to be connected much with ordinary people.

Characters like Tebbit are better ridiculed for not really helping or defending people of the sort they came from. The discontent that Thatcher tapped into got taken over by the wide-boy financiers who’ve enriches themselves and left behind a lot of debt.

The legacy of Thatcherism is that many people in Britain’s Working Mainstream see people like themselves as something alien, horrible parasites after their hard-earned money. They aspire to be part of the small elite who end up with millions. This undermined the basis of British society, which was indeed somewhat like a family, George Orwell was quite right on that point. Now it’s much more like a broken home.

It was there before Thatcher, the commercial culture we imported from the USA. I suspect that huge long-term damage has been done by advertising, which thrives by an abuse of sympathy and does a lot to degrade a culture. Everyone gets more suspicious after a series of false promises: advertising does that continuously.

Foot had a chance to do something different and failed. I’ll not miss him.

 

And So Say All of Me [Human Brains]

Our brains are very peculiar systems. Unlike a computer, specific tasks happen in particular locations. Computers usually have a Central Processor Chip and a few extra microprocessors for special tasks like graphics. The brain has dozens of specialist areas and no obvious centre. Brain damage may knock out one particular function and leave the rest of the brain working fine.

Most politics and philosophy assume that each human is a unitary individual. But we actually seem to function as an ensemble, a mix of differing functions.

“Typically neuroscientists who run imaging experiments are trying to pinpoint the brain region that gives rise to a given perception or behaviour…

“Neuroscientists had never thought of these regions as a system in the way we think of a visual or motor system – as a set of discrete areas that communicate with one another to get the job done…

“The symphony orchestra provides an apt metaphor, with its integrated tapestry of sounds arising from multiple instruments playing to the same rhythm…

“But the brain is more complex than a symphony orchestra. Each specialized brain system … exhibits its own pattern of SCP [slow cortical potentials]. Chaos is averted because all systems are not created equal. Electrical signalling from some brain areas takes precedence over others. At the top of this hierarchy resides the DMN [default mode network]… the brain is not a free-for-all among independent systems but a federation of interdependent components…

“The brain continuously wrestles with the need to balance planned responses and the immediate needs of the moment.” [L]

 

References

[A] [http://www.guardian.co.uk/world/2010/feb/23/china-tells-schools-ban-oxfam]

[B] [http://opinion.globaltimes.cn/commentary/2010-03/514175.html]

[C] [http://www.ft.com/cms/s/0/991c82a8-2bb3-11df-a5c7-00144feabdc0.html]

[D] [http://www.washingtonpost.com/wp-dyn/content/article/2010/03/07/AR2010030703070.html]

[E] [http://www.ft.com/cms/s/0/46551990-325c-11df-bf20-00144feabdc0.html]

[F] [http://www.informationclearinghouse.info/article24877.htm]

[G] [Private Eye, 19th March 2010, page 5]

[H] [http://www.guardian.co.uk/business/andrew-clark-on-america/2010/mar/17/lehmanbrothers-useconomy]

[J] Payne, Robert  China Awake, page 89.

[K] [http://quotations.about.com/od/warquotes/a/liberty.htm]

[L] The Brain’s Dark Energy, Scientific America, March 2010

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