Notes On The News
By Gwydion M Williams
New Right rhetoric demands economic freedom. Regulations are bad, remove them and let the market find its own level.
When markets are going up, this is due to the genius of the financiers, whose wealth-making skills should be respected and not taxed or queried.
When markets are going down, it is suddenly a different matter. No one suggests that the people who made huge fortunes in a rising market should be allowed to lose those same fortunes as the markets fall. Suddenly it is everyone’s problem.
But if it’s everyone’s problem now, isn’t the sensible answer to ban the various forms of financial gambling that led to the problem? Or at least confine them financial institutions that could be allowed to vanish without damage to anyone except themselves?
We’ve seen the New Right future, and it doesn’t work. They have flourished mostly as squatters on Keynesian success. I’d not even credit they as hijackers, because in the West they substantially left the system alone, just channelled a lot more wealth to the rich and to financial gambling.
In Russia, New Right advice caused the economy to shrink and the death-rate to rise. Western liberalism was quite popular in the early 1990s: by the late 1990s it was utterly despised. Other Western habits have spread – slick advertising has persuaded twice as many women to smoke as smoked in Soviet times. [F] But smoking, though unhealthy and addictive, does at least calm its victims. The New Right damage all those who take their advice, and then denounces them as too stupid to follow New Right wisdom.
Keynesianism pumped money into the defeated countries, West Germany and Japan and Italy. Those countries were secured as part of the West. When it came to reshaping Russia, the New Right viewed Keynesian success as a horrible error that must be avoided. That was indeed avoided, ‘free market’ mechanisms happened to suck out billions. And the Russians are now mysteriously ungrateful.
To have secured the world for US values in the 1990s would also have needed nothing extraordinary. Just modesty, patience and generosity – qualities that the New Right notably lacked.
Many of the new breed of 1980s millionaire funded the New Right, but they turn out to be ineffective outside of their own areas of expertise. Making millions in a fast-expanding industry needed a mix of good luck and business competence – nothing extraordinary. This was true of both finance and the personal computer & internet revolutions.
George Soros was kicked out of China in 1988, after the Chinese government realised he was there to undermine them. Soros predicted dire consequences for China, none of which materialised. Instead there was a massive decline in the real economy in the ‘Soros-positive’ countries, the places that listened to him. China meantime has continued its extraordinary run of success, and has not remained trapped in low-skill work.
“A new study of worldwide technological competitiveness suggests China may soon rival the United States as the principal driver of the world’s economy – a position the U.S. has held since the end of World War II. If that happens, it will mark the first time in nearly a century that two nations have competed for leadership as equals.
“The study’s indicators predict that China will soon pass the United States in the critical ability to develop basic science and technology, turn those developments into products and services — and then market them to the world. Though China is often seen as just a low-cost producer of manufactured goods, the new “High Tech Indicators” study done by researchers at the Georgia Institute of Technology clearly shows that the Asian powerhouse has much bigger aspirations.” [A]
Britain is developing wind power, especially wind turbines places out at sea. But who’s building the gigantic machines needed to put them there? Who makes the stuff that was once Britain’s pride and source of strength?
“Rising from stormy seas, the giant turbine towers of an offshore wind farm seem almost miraculous to the untrained eye. But how do you put them there?
“Most boats do not have legs. But a jack-up barge has six, protruding high into the air when the ship is in transit.
“Extending to a length of 48m from the bottom of the ship, and penetrating up to 5m into the sea bed, the “legs” of these ships provide a stable “ground” in a place where there is only roiling water.
“As the legs push down, the ship is lifted above the waves. Purpose-built at a Chinese shipyard, the £60m jack-up barge MPIO Resolution is an extraordinary piece of engineering in itself.” [B]
It seems they used to build them at the Clyde shipyards, long gone. ‘Financial Services’ are supposed to be Britain’s new source of wealth – but for how long? The current financial crisis also means that state-controlled investment funds are welcome, despite the long-term implications:
“The deal highlights China’s growing importance as an exporter of capital. The Chinese government has emphasised a policy of investing abroad to keep the ample liquidity in China from feeding a bubble in shares and property.
“‘They want to recycle money as there is too much in China,’ says Fred Hu, a China-based managing director at Goldman Sachs. ‘Because of capital controls, only the government can take the money and put it offshore.'” [C]
China can’t be damaged and humiliated in the way the Asian Tigers were ten years ago. They’ve not been taken in by free-market rhetoric. It is anyway not a free market, it is a market designed to suit a rich minority in the USA.
What happened in the 1970s and 1980s was the absorption of 1960s radicalism into the existing political and financial structures, producing a ‘Cultural Metamorphosis’. The hippy-to-yuppie transition proved quite smooth, with former radicals turning global finance into a gigantic gambling den – it always had elements of gambling, but they made it worse. That was the most negative legacy of the 1960s. What was useful and what has kept the West afloat so far was the big shift in computers, especially the rise of cheap computers and the internet.
Not, indeed, that this need have been capitalist. A lot of key steps in the internet were made by people with no interest in commerce. Bill Gates invented nothing of importance: his skill was in putting together user-friendly packages that suited people outside of the enclosed world of computer enthusiasts. The same was true of Steve Jobs: Apple Computers have more appeal for enthusiasts but succeeded because they were useful tools. Jobs invented nothing but cleverly packed existing ideas as useful consumer products.
That, too, is getting taken over by the Far East. Japan on its own proved too rigid – the failure of the “MSX” system of standardized home computer architecture in the 1980s was the first indicator of Japan’s more general loss of focus. But now a lot of Far East computer firms are rising and that balance too is tipping.
A new world is emerging, maybe one that will see ‘financial services’ as parasitism and close down a lot of it. Fortunately, Britain still does have quite a lot of manufacturing left, not dominant as it once was, but enough to get by as a middle-sized European nation. Once we shake off the delusions Thatcher revived and Blair encouraged, we can do quite well.
Finance used to be a boring business, lending money to people who could afford to borrow and who frequently had some non-financial use for it. Along came the Yuppies, inheritors of 1960s contempt for the system but who also found they could do nicely out of it. Ignored safety rules, several times producing a massive crisis, but always the state would step in and bail them out. The Stock Market Crash of October 1987 nearly killed the western system, but governments pumped money in and it was all forgotten in a couple of years as the Soviet Union started collapsing.
All sorts of swindles continue. Let’s imagine a scenario. ‘Old Deuteronomy Investment Trust’ loses an immense amount of money following inaccurate financial advice by Mungojerrie and Rumpleteazer on the sale of assets to the Macavity Hedge Fund. It turns out the assets were sold at well below cost – but it is all legal. Then Mungojerrie and Rumpleteazer are discovered to have done some very profitable private business with the Macavity Hedge Fund, so people wonder if there really was a mistake.
This imaginary scenario is not unlike what the “NatWest Three” have recently confessed to. On the face of it, they seem completely guilty but got off very lightly. But I’ve also seen it argued that they were innocent but found it wiser to ‘plea bargain’, the US judicial system is pretty bad. So forget about real people and imagine it with characters from the Andrew Lloyd Webber musical, itself based on some light-hearted poems by T. S. Eliot. Eliot himself was a bank employee, though no doubt a very honest one, in those days they had standards as well as bigotry.
If the alleged scam was real, it was surprisingly crude. Why not a more indirect pay-off? If Mungojerrie and Rumpleteazer get their pay-off from Griddlebane, who did not overtly profit from the ‘Old Deuteronomy’ deal, it would be almost impossible to prove wrong-doing. Even if an ‘insider’ tells all, it is only their word on it. Of course such cases would never come to public attention – Britain’s libel laws seem designed to protect the guilty, since any printed accusation can’t be justified just by being probable, it has to be proved to the same degree as a criminal conviction. Al Capone could probably have collected British libel damages from someone blaming him for the Valentine’s Day Massacre, since he was never actually nailed for anything except tax evasion.
Meantime the scandal of the SocGen disaster rumbles on. It does seem really absurd that a junior trader could have bet more than the value of the entire bank in an unpredictable market. Nick Leeson, destroyer of Barings Bank in a similar but smaller scam, said ” he first thing that shocked me was not necessarily that it had happened again – I think rogue trading is probably a daily occurrence amongst the financial markets. The thing that really shocked me was the size of it. There are occasions when these sort of scandals will occur in different banks … but I never for one minute thought that it would get to this degree of magnitude and this degree of loss.” [D]
I’ve not seen anyone comment on the odd fact that the scandal was supposedly discovered on a Saturday, requiring emergency ‘unwinding’ beginning on Monday, but that Monday was Martin Luther King Day, observed on the third Monday of January each year, meaning that the US markets are closed while those in Europe are open. Stocks fall and then bounce back when interest rates are cut. Someone with ‘insider’ knowledge could have made a fortune.
This sort of thing also explains why banks are not trusting each other. How many more cases?
“Since banks abandoned the ancient practice of holding an ounce of gold (or another tangible asset) to back each bank note, finance has relied on faith. Because modern banks never have enough cash to repay depositors if these all demand their funds back, they rely on the fact that depositors will not ask for their money back – as long as they believe it is there.
“However, when faith crumbles, the consequences are brutal. The last time the world witnessed this on a significant scale was in Japan, when three local institutions suddenly collapsed in the autumn of 1997. Until then it had been assumed that Japanese banks would never collapse, due to the use of the so-called convoy system, a practice where strong banks supported the weak, under government pressure. But in 1997 this faith in the convoy system collapsed, causing the money markets to freeze up as investors and depositors fled.”
That was the Asian Financial Crisis, which probably convinced China to keep its own currency non-convertible. Productive East Asian industry was damaged by Western finance, perhaps because the West decided they were a threat rather than an asset with the Cold War over. They may have been expecting China to crumble and submit to their values, but China did the opposite and Russia got tired of Western cheating and began asserting itself again.
Now the crisis is much more general:
“21st-century investors continued to buy complex structured products despite their misgivings. A key reason was that investors placed huge faith on judgments from credit rating agencies. If a product was labelled AAA, for example, it was considered extremely safe.
“Further, the message from many regulators and policy officials in recent years was that structured finance had made the system more resilient to shocks because credit risk was less concentrated at individual banks. ‘It has been like an article of faith that innovation and risk dispersal was a good thing,’ says one senior European central banker. ‘Almost everyone believed it.’
“This faith in 21st century financial innovation has since evaporated. The events of last year showed with brutal clarity that risk dispersal does not always prevent financial shocks, but may fuel contagion instead. Innovation has not shielded the banks from losses, as regulators had hoped: instead, as entities such as SIVs have collapsed, banks have been forced to take more than $60bn of assets back onto their balance sheets, undermining their capital resources.
“Meanwhile, confidence in the rating agencies has also crumbled. Having failed to foresee subprime losses, the agencies have been forced to downgrade thousands of securities – including triple-A rated instruments. ‘Not since the high-quality batch of railroad and utility bonds of the late 1920s faltered during the Great Depression have so many high-quality ratings been unable to stand the test of time'”.[E]
How many Mungojerries and Rumpleteazers at the rating agencies? I’m sure a lot of it has been honest, based on hype and a shared culture of enthusiasm. But also there must have been some intent to deceive.
[Evidence of market fixing by altering daily financial figures later emerged several years later, e.g. the LIBOR scandal. It had been done crudely and almost openly, so it was probably not the worst.
[And almost always, it has ended with fines that sound huge, but are much smaller than the profits that these parasites routinely made. So obviously it won’t stop.]
As the US falters, Russia recover and China’s remarkable rise continues, we keep getting told that ‘human rights’ are being neglected by the West’s main rivals.
Just which rights? Look at a few from the original Universal Declaration of Human Rights, dating back to 1948. A lot of it just reaffirms the Enlightenment ideas that were common ground between the West and the Soviet Union. Rather, it emphasised that the West was choosing that common ground rather than the common ground it had shared with Fascism. Human equality was affirmed, something the Japanese had asked for at Versailles and been refused in a world where racism was seen as normal. President Woodrow Wilson was an enthusiastic racist who greatly admired Birth Of A Nation, a film that glorified the Ku Klux Klan. Many in the West had admired Mussolini and Hitler in the 1920s and 1930s: Churchill was an early foe of Hitler but had been an enthusiast for Mussolini as a Tory minister back in the 1920s.
The Universal Declaration of Human Rights doesn’t just deal with the rights of journalists and political dissidents, it also says:
“Article 23 (1) Everyone has the right to work, to free choice of employment, to just and favourable conditions of work and to protection against unemployment…
“Article 25 (1) Everyone has the right to a standard of living adequate for the health and well-being of himself and of his family, including food, clothing, housing and medical care and necessary social services, and the right to security in the event of unemployment, sickness, disability, widowhood, old age or other lack of livelihood in circumstances beyond his control…
“Article 26 (1) Everyone has the right to education. Education shall be free, at least in the elementary and fundamental stages. Elementary education shall be compulsory. Technical and professional education shall be made generally available and higher education shall be equally accessible to all on the basis of merit…”
Rights of education, employment and health care were indeed extended quite a lot in the 1950s through 1970s. From the 1980s, it was suddenly decided that these particular rights were burdensomely expensive, even though they had been affordable when society was much poorer.
Society was richer but society was also weaker. Sexual liberation was necessary but also divisive. More affluent workers also proved gullible, forgot their real position once the externals of class privilege were dropped. They listened to the New Right arguments and let some important human rights slip.
Time now to recover them. Health, education and full employment are not impossibly expensive. We had them once and can have them again.
The end of the British Empire was not the end of the world. In fact it has been a rather better world for most people, including most Britons. Only those left behind by history carry on complaining.
George MacDonald Fraser wasn’t exactly born into the old Imperial elite, but this former officer in the Gordon Highlanders chose to associate himself with it. Though the Flashman novels make joked about some of the Empire’s servants, it is not really critical of imperialism. Flashman and the Dragon whitewashes Britain’s cruel and foolish policies in 19th century China: forcing opium imports and burning the Summer Palace, and also helping put down China’s first attempt to adjust to the modern world via the unorthodox-Christian Taiping. Likewise the various narratives set in British India fail to properly recognise that a stratum of white racists was stupidly blocking any attempt to include the non-white elite among the rulers. They prattled about Rome but missed the one useful lesson they could have learned from Rome, which was very good at making the local elite part of the system
The books are about as close to glorification on British Imperialism as you could now write and get widely read. The politicians nowadays like to hype the empire, but this is really not reflected in popular fiction. To be popular it has to be a parody like Flashman, or else cynical like Sharp. (But the books are much better than the television versions – the one on Waterloo downplays the degree to which Wellington was saved by the Prussians, something the book is quite clear about.)
To go from Biggles to Flashman is not an improvement, it is a degeneration of an ideal that should have been decently laid to rest.
[B] [http://news.bbc.co.uk/2/hi/uk_news/magazine/7206780.stm] Ships on legs