Newsnotes 2016 06

Notes On The News

by Gwydion M Williams

Don’t Forget the Mixed Economy.
China – a debt crisis?
Fifty Years On from the Cultural Revolution
Iraq – Denying Responsibility
Snippets

Don’t Forget the Mixed Economy.

The secret of the last 35 years is that the supposed capitalist counter-revolution never actually happened. The size of the state sector was not reduced – just rigged so that private profit could be made from things that the state had competently provided. Taxes were not reduced except for the very rich. The state continues to dominate the economy, but now it looks after the rich rather than ordinary people. Full employment, achieved from the 1940s to 1960s, came under strain in the 1970s. Thatcher managed to convince people it was not possible: this allowed her and her successors (including New Labour) to follow policies that made unemployment very much worse.

The supposed grand achievement – a property-owning democracy – has been undermined by the reality of the Free Market. It’s much harder than it used to be for young people to buy a house. Prices have risen to ludicrous levels, with a big expansion in private renting:

“A Daily Mirror investigation found a third of ex-council homes sold in the 1980s under Margaret Thatcher were now owned by private landlords.

“In one London borough almost half of ex-council properties are now sub-let to tenants.

“Tycoon Charles Gow and his wife own at least 40 ex-council flats on one South London estate.

“His father Ian Gow was one of Mrs Thatcher’s top aides and was Housing Minister during the peak years of right-to-buy.”[A]

Market forces favour those with an initial small advantage, which they can work on to make it vastly larger. Or can if they are selfish and ruthless: people neglect to mention these as factors in ‘success’, yet it is almost always the case. No one gets rich by being polite to their competitors, or by doing more for their customers than is needful to keep them as repeat customers.

Thatcher and her heirs (including Blair) did produce one profound change – they speeded the decline of British manufacturing. Fancy finance and cultural products were supposed to take its place – but these are optional. Goods and foods are necessities: we do now produce enough food to feed ourselves, having run short during two world wars thanks to the Victorian policy of neglecting agriculture and counting on the rest of the world to feed us. But the weakness of manufacturing could prove just as serious:

“Britain has never properly recovered from the 2008 financial crisis. At the end of 2015, inflation-adjusted income per capita in the UK was only 0.2% higher than its 2007 peak. This translates into an annual growth rate of 0.025% per year. How pathetic this performance is can be put into perspective by recalling that Japan’s per capita income during its so-called “lost two decades” between 1990 and 2010 grew at 1% a year,

“This is remarkable, given that the value of sterling has fallen by around 30% since the crisis. In any other country a currency devaluation of this magnitude would have generated an export boom in manufactured goods, leading to an expansion of the sector.

“Unfortunately manufacturing had been so weakened since the 1980s that it didn’t have a hope of staging any such revival. Even with a massive devaluation, the UK’s trade balance in manufacturing goods (that is, manufacturing exports minus imports) as a proportion of GDP has hardly budged. The weakness of manufacturing is the main reason for the UK’s ever-growing deficit, which stood at 5.2% of GDP in 2015.

“Some play down the concerns: the UK, we hear, is still the seventh or eighth largest manufacturing nation in the world – after the US, China, Japan, Germany, South Korea, France and Italy. But it only gets this ranking because it has a large population. In terms of per capita output, it ranks somewhere between 20th and 25th.”[B]

British industry always had good workers, clever inventors and substandard managers. This was known in the 1960s and 1970s, with much discussion of how to fix it. It was assumed that the state could and should fix it. Then Thatcher came along, saying ‘let business run itself’. But British businesses mostly gave up trying to deal with the hard and messy world of manufacturing goods, in favour of clever financial games. Supposed rescues for ailing manufacturers often turned out to be spoofs that extracted money and left behind something that either vanished or was taken over by foreigners.

Britain was the first country to have modern industry, and it wasn’t ever that modern in its outlook. The British economy in the 19^th century typically grew at 1% a year – astonishing in a world where most economies were static, but Britain as ‘workshop of the world’ was nothing like modern enough. Britain was being overtaken by the USA and Germany when they followed the same path without the same inhibitions about the use of state power.

The British version of capitalism was obsolete even before the 1914-18 war threw the whole world into chaos. Tory dreams of restoring British greatness by returning to those ‘good old values’ are ridiculous.

Why do people vote for such policies? They forgot that they were living in a Mixed Economy. In the 1950s and 1960s, there were mainstream thinkers who reckoned that the post-war Western system was no longer capitalist. It was definitely very different from the pre-1914 system, which British governments tried in vain to restore in the 1920s and 1930s. Left-wing militants managed to get it re-labelled as capitalist. Since words mean what a majority of speakers think they mean, let’s concede that it was indeed capitalist. But a blend of capitalism that freely borrows from socialism, and which took it for granted that state power was needed to make sure that the bulk of the population were looked after. It was very foolish to blur the distinction between this and pre-1914 Capitalism, or both with the Imaginary Capitalism of the economic textbooks.

Thatcher’s innovation was a Mixed Economy system that gives the poor and the working mainstream as little as possible, while looking after the rich. The ideological aim was to return to pre-1914 capitalism, even though this system never anywhere grew faster than 2% a year and mostly much more slowly. Beyond that, there was a dream of creating Imaginary Capitalism: the asocial world that right-wing theorists dream of. (But actual business people are intensely social, always seeking useful contacts, so the chances of it ever becoming real are remote.)

People were persuaded that an imperfect system should be smashed rather than improved. Or persuaded until they actually faced the consequences of trying to smash it. The near-collapse of the global capitalist system in 1987 is almost forgotten, eclipsed by the much more dramatic collapse of the Soviet system in 1989 to 1991. Yet it happened.

In 1987, money was pumped into the entire system to keep it afloat. This was before it was clear that Labour as New Labour would take such a timid view of New Right doctrines. In the crisis that began in 2008, the grip of New Right doctrines had got stronger. They managed to sell a stimulus package in which the lion’s share went to the rich. ‘Quantitative Easing’ is a fancy label for the government bailing out financial institutions that might otherwise have needed to be nationalised and would have lost a lot of money for the very rich. Once this had been swallowed, austerity was pushed as a necessary cure – since money used to shore up the bad debts of the rich has to come from somewhere if inflation is to be avoided.

The Tories are obsessed with restoring an obsolete version of capitalism. Failure only makes them more determined to be more of the same. And before Corbyn, Labour had also surrendered to the notion that this obsolete version of capitalism was the only possible capitalism. This despite the example of Germany and the Scandinavian countries flourishing with something quite different.

Labour under Corbyn has now become anti-austerity. But like most people, they seem to have forgotten about the Mixed Economy, even though ‘Mixed Economy Capitalism rather than Feed-the-Rich Capitalism’ would make an excellent sound-bite. Still, the idea is around, for instance an article in the influential US magazine Foreign Affairs,[C] though it carefully avoids mentioning how far it was a borrowing from socialism.

China – a debt crisis?

Suppose I were to keep separate accounts for food, books, entertainment, holidays and general bills. And supposing I found it necessary to borrow from my ‘books’ account to pay an unexpectedly large bill. Does that mean I am in immanent danger of ruin?

It’s the same thing with Chinese debts. If my ‘bills’ account owes money to my ‘books’ account, that would mean less books unless it can be repaid. But it’s all me. If I don’t owe money to anyone else, I have no problem: just fewer books than I’d like. Likewise, China has vast internal debts, but a single party is in total control of the society.

There are no important external debts. China holds gigantic amounts of US debt, enough that it could cause a crisis by selling it cheap. Enough that it could thwart a hostile Trump Presidency by threatening not to buy the bonds that the USA needs to fund its deficit. The main debts are internal, bad debts held by the banks from unprofitable industries. They matter only if they can be enforced. But banks, unlike the stock market, cannot act against the will of the government if the government is determined.

There is quiet and covert discussion among the Chinese leadership about how to handle the situation. One idea is to swap debt for equity; the bank becomes a major shareholder in the borrower. This is useful only if the borrower has a genuine net worth or can be reformed. If they go bankrupt then the shares are worthless, so it might amount to a covert method of writing off the debt at the expense of savers in those banks. Just what they should do, I don’t feel qualified to judge. But I’d be amazed if the leadership allowed the economy to self-destruct in order to meet the needs of creditors.

Not everyone see it so. The Economist magazine for 7^th May had a huge Special Report on Finance in China, plus an editorial saying that disaster was certain eventually,[D] though they did not say when. They’ve not been accurate before about China’s imminent ruin, and they frequently repeat the myth that there was only economic failure under Mao. The Chinese economy actually tripled under Mao, matching the average global growth rate despite a US boycott. There were a series of bold and radical policies, some of which went wrong, as bold and radical policies sometimes do in the real world. But overall there were huge gains.[E]

Fifty Years On from the Cultural Revolution

In a century or two, China’s Cultural Revolution may be seen like China’s Taiping. They were a 19^th century rebellion that tried to create a modern and collectivist China with equality for all, including women. They failed because they needed a political understanding that hadn’t yet been developed.

1960s radicalism showed that radicals both east and west were better at protesting than at running anything. Radical leftists who overreach and attack the moderate left may end up damaging leftism as a whole. May give victory to their enemies. Thatcher in Britain, Reagan in the USA, Deng Xiaoping in China. Maybe also Iran’s Islamic Republic and Solidarity in Poland.[F]

The idea everywhere was ‘Power to the People’. Sadly, the views of most actual people were different from those of young radicals. And it’s easier to get people enthusiastic for ‘something different’ than to actually produce a popular new system.

China, understandably, has been saying very little. A few cautious editorials, according to The Guardian, including one saying

“‘A significant reason is that the lessons the Cultural Revolution taught us has given the nation a certain immunity. Nobody fears turmoil and desires stability more than us.'”[G]

I’d take that to be a quiet reminder of why the 1989 Tiananmen crackdown was necessary, though the Guardian article does not see it so.

Iraq – Denying Responsibility

If you recommend a cure to a sick person, and the cure makes them worse, do you admit fault? Or do you blame them for having been sick in the first place?

“In the euphoria of the uprisings in 2011, when one awful Arab autocrat after another was toppled, it seemed as if the Arabs were at last turning towards democracy. Instead their condition is more benighted than ever… Egypt is even more wretched than under the ousted dictator… The state has broken down in Iraq, Syria, Libya and Yemen. Civil wars rage and sectarianism is rampant, fed by the contest between Iran and Saudi Arabia. The jihadist ‘caliphate’ of Islamic State (IS), the grotesque outgrowth of Sunni rage, is metastasising to other parts of the Arab world…

“First, many blame the mayhem on Western powers—from Sykes-Picot to the creation of Israel, the Franco-British takeover of the Suez Canal in 1956 and repeated American interventions. Foreigners have often made things worse; America’s invasion of Iraq in 2003 released its sectarian demons. But the idea that America should turn away from the region—which Barack Obama seems to embrace—can be as destabilising as intervention, as the catastrophe in Syria shows.”[H]

Syria is more hopeful than Iraq or Libya: it has a government that may restore peace. And the West should have been telling the Syrian opposition to be moderate when Assad offered open elections – try it and see if he means it. But the New Right inherited from New Left defectors the notion that ‘we want the world and we want it now‘. Compromise with awkward realities is seen as treason.

The problem also was that Assad might have won such elections. Or at least emerged as the largest coherent force as the opposition splintered into its naturally antagonistic parts.

In both Africa and the Arab world, colonial rule lasted long enough to discredit existing power structures, but not long enough to produce a new elite able to take over. Or not except in Egypt, long an informal British colony and still notably stable. That’s why I was one of those who felt from 1991 onwards that the brutal secular dictatorships of the Arab world were the best thing you were going to get there. Some once-hopeful socialist and communist movements are now marginal. Pro-Western elements are weak and ineffective: lacking large numbers of people willing to die for their cause.

19^th century Europe had plenty of martyrs and militants for liberal values, which is why Europe saw the triumph of liberal values in the long run. In the Arab world, remarkably few have been heroic. Most stay silent or flee.

Snippets

Austria: the Centre Cannot Hold

By a margin of 31,026 ballots, Austria elected a Green rather than a Far-Right candidate as President.[I]

Candidates forming the two normal governing parties got 11.3% and 11.1% in the first round, in which the Far Right candidate got 35.1%.[J] In the 2013 parliamentary elections, the Social Democrats got 29.2%, the centre-right 26% and the Far Right 17.4%.[K] The Far Right might be the strongest party in the next elections, scheduled for 2018.

‘Business as usual’ with all of the unsolved crises is just not working.

***

Dishonest But Not Illegal (Yet)

Tax evasion is when people lie about the money they’ve earned.

Tax avoidance is when people lie about what the money is or how it will be used. A business based almost completely in Europe or the USA can pretend it really belongs in some little tax-haven that it would never bother with apart from the tax trickery.

A tax avoider is a tax evader with good political connections. They can persuade legislators to create clever gaps in the tax net that only the rich can afford to use.

***

The Heat Is On

Britons must be surprised to learn that this April was yet another hot month: another record breaker.

April was indeed mild in Britain, slightly colder than average.[L] But abnormally warm for the world as a whole.[M] Britain was lucky, this time.

India is far from lucky:

“A city in northern India has shattered the national heat record, registering a searing 51C – the highest since records began – amid a nationwide heatwave.

“The new record was set in Phalodi, a city in the desert state of Rajasthan, and is the equivalent of 123.8F.

“It tops a previous record of 50.6C set in 1956.”[N]

May and June tend to be the hottest months there. The monsoon then usually arrives, cooling things a little.

***

Iraq – Sadr Reappears

Years ago, Moqtada al-Sadr was a major force as a Shia Religious hard-liner. He sounded as if he was going to challenge US rule. The authorities tried to frame him for the murder of a pro-Western cleric.[O] Then he unexpectedly withdrew and went quiet.

Now he’s back:

“A state of emergency has reportedly been declared in Baghdad after supporters of the Shia cleric Moqtada al-Sadr stormed the Green Zone and entered the parliament building.

“Hundreds of people gathered in protest at the failure of Iraqi MPs to convene for a vote to approve new ministers. The unrest comes after weeks of political turmoil in Baghdad over efforts by the prime minister… to replace party-affiliated ministers with technocrats. MPs failed to reach a quorum to approve the measures on Saturday.”[P]

The Shia majority can win elections, but not actually rule. I doubt if Sadr would be any better. But having not been in government, he sounds credible as ‘anti-corruption’. A policy that usually replaces corrupt rulers with new rulers who are just as corrupt and mostly less competent.

***

Websites

Previous Newsnotes can be found at the Labour Affairs website, http://labouraffairsmagazine.com/past-issues/. And at my own website, https://longrevolution.wordpress.com/newsnotes-historic/.

References

[A] http://www.mirror.co.uk/news/uk-news/right-to-buy-housing-shame-third-ex-council-1743338

[B] http://www.theguardian.com/commentisfree/2016/may/18/making-things-matter-britain-forgot-manufacturing-brexit

[C] https://www.foreignaffairs.com/articles/united-states/2016-03-21/making-america-great-again. You can register for one free article a month.

[D] http://www.economist.com/news/leaders/21698240-it-question-when-not-if-real-trouble-will-hit-china-coming-debt-bust. Subscribers only.

[E] https://gwydionwilliams.com/42-china/mao-and-china/

[F] See https://gwydionwilliams.com/46-globalisation/the-radical-rightists-of-1979/ for my review of a book that also links these five, though not entirely as I have done.

[G] http://www.theguardian.com/world/2016/may/17/cultural-revolution-reduced-to-footnote-as-communist-party-says-china-has-moved-on

[H] http://www.economist.com/news/leaders/21698652-europe-and-america-made-mistakes-misery-arab-world-caused-mainly-its-own. Subscribers only.