Newsnotes 2008 07

Notes On The News

By Gwydion M Williams

Markets are liars

Back To The Soil?

China Still Rising

The Twilight of the Anglos

Democracy and War

 

Markets are liars

Back in the 1970s, the European Community was condemned for ‘food mountains’, more food than there was any immediate need for. There were also plenty of people in the world who would have been glad of that food, but the two were never matched. Instead there were several decades of ‘reform’ aimed at getting rid of the surplus.

The 1970s also saw the first ‘oil shocks’ with the price of oil shooting up. It was quite obvious that oil was going to get more expensive in the long run. And that once cheap oil had run out, it would become much more costly to produce food using high-tech inputs.

The 1980s solution was ‘free markets’, let the state withdraw and assume all would be well. All was not well, but for the 1980s and 1990s, both food and oil were relatively cheap. By the start of the 21st century, the system was visibly in trouble. Efforts to fix it made things worse.

The invasion of Iraq in 2003 was justified with a lot of different arguments, and a promise of cheaper oil was one of them. This backfired massively, and the oil price has gone up and up ever since.

I don’t doubt speculators have played a role. But not all that big a role. The bottom line is that people with cars have to pay whatever price they are charged for petrol.   A high oil price may encourage more production, but only from high-cost producers.

Psychology plays a part. During 2007, the price of oil rose steadily rose for several months, hovered just below $100 for several months between the end of 2007 and the start of 2008. Then rose again once it became clear that $100 oil was not an oddity. [A]. At the time of writing it has stormed up to $140 and refuses to fall below $130. A price this year of $150 or more would surprise no one.

Biofuels are also not really to blame. A global market without social controls means that people who drive cars can outbid those who just eat. The rich can pay more for their enjoyments, the poor often have nothing more. But that’s just part of a much wider problem.

High prices for food has not been encouraging more food production, because farmers are finding that their own inputs are more expensive. Since the 1970s there has been a long push to root out local production, because cheaper food could be imported. Now that conditions have changed, the shortage is hard to fix.

There has also been a pattern of profit-driven investment that has left agriculture weak:

“The crisis hasn’t come out of the blue. Agricultural experts have been for warning for years that the rich governments, who fund most of the world’s agricultural research and development, have not been investing enough. Now we are suffering the consequences. And the problems show no sign of going away. New Scientist can reveal that the world’s biggest computer model of agriculture and climate, at the International Food Policy Research Institute (IFPRI) in Washington DC, predicts that market forces stemming from the growing gap between demand and supply will keep food prices high for several years. Worse, when crop stresses due to predicted changes in climate are factored in, prices stay up for longer, and even increase….

“Another change was that research was increasingly privatised. Companies prioritised research that would boost profits, whether or not it improved yields. For example, they developed hybrid maize, but not wheat, because the flowering mechanism of maize makes it easier for companies to exert patent control over its seeds…

“The US and European Union have deliberately run down the grain stockpiles they built up in past decades, so there is no easy way to release surplus stocks to temporarily push down grain prices.” [C]

It’s not helped that more people are eating more meat, especially beef:

“For the past eight years, global demand for grain has been increasing faster than supply.

“While grain yields are increasing at 1.1 per cent per year, the world’s population is growing slightly faster at 1.2 per cent per year – but that’s just the start. Growing prosperity and increasing urbanisation, especially in India and China, are driving up demand for animal-based food, putting further pressure on grain supplies. It takes 2 to 6 kilograms of grain fed to a cow, pig or chicken to make 1 kilogram of meat, milk or eggs. Together with increasing population, increasing prosperity is pushing the annual growth in demand to 1.6 per cent.” [C]

Markets are liars, giving a promise that can’t be met. Like other liars they tell some truths, but cannot be trusted. Nothing else should have been expected. The New Right have been glorifying the blind clash of greedy sentiments for decades. But each major economic crisis results in state action to bail out the economy and often to stop individual financial institutions going under.

It’s not a question of individual dishonesty. There is a lot of that , but the problem would exist anyway, even if everyone were honest. Real life is often like that – consider a traffic jam, in which individual humans making free choices collectively produce an outcome that none of them want.

 

Back To The Soil?

With expensive oil and a need for more food, we may need to reverse some of the things that happened in the Industrial Revolution. Big farms generate the biggest cash returns, which was what land-owners were after. But if you think about it in terms of food and human life, you get a different answer. George Monbiot put the case recently:

“Though the rich world’s governments won’t hear it, the issue of whether or not the world will be fed is partly a function of ownership. This reflects an unexpected discovery. It was first made in 1962 by the Nobel economist Amartya Sen, and has since been confirmed by dozens of studies. There is an inverse relationship between the size of farms and the amount of crops they produce per hectare. The smaller they are, the greater the yield.

“In some cases, the difference is enormous. A recent study of farming in Turkey, for example, found that farms of less than one hectare are 20 times as productive as farms of more than 10 hectares. Sen’s observation has been tested in India, Pakistan, Nepal, Malaysia, Thailand, Java, the Philippines, Brazil, Colombia and Paraguay. It appears to hold almost everywhere…

“Small farmers use more labour per hectare than big farmers. Their workforce largely consists of members of their own families, which means that labour costs are lower than on large farms (they don’t have to spend money recruiting or supervising workers), while the quality of the work is higher. With more labour, farmers can cultivate their land more intensively: they spend more time terracing and building irrigation systems; they sow again immediately after the harvest; and they might grow several crops in the same field.

“In the early days of the green revolution, this relationship seemed to go into reverse: the bigger farms, with access to credit, were able to invest in new varieties and boost their yields. But as the new varieties have spread to smaller farmers, the inverse relationship has reasserted itself. If governments are serious about feeding the world, they should be breaking up large landholdings, redistributing them to the poor and concentrating their research and their funding on supporting small farms.” [B].

It also solves the problem of mass unemployment. Large farmers and a landless workforce allowed economic development when Britain was starting out and had no modern-minded competition. Now everyone has to face efficient global competitors and some countries just can’t get going. But with peasant agriculture, what’s the problem?

 

China Still Rising

No food shortages are expected in China. China has ignored both the Leninist tradition and the New Right alternative, letting individual families farm their own way but retaining ownership of the land, meaning that it cannot be sold for a quick profit or to clear debts. So their agriculture flourishes, feeding 20% of the world’s population on 7% of the decent agricultural land. And Chinese industry has kept its high-technology aspects, not getting dependent on foreigners. The country built H-bombs and launched satellites during Mao’s rule: his successors have built on this legacy.

“China has emerged as a manufacturing superpower only very recently. According to Global Insight, a US economic consultancy, it accounted for 5 per cent of global manufacturing value-added output in 1995; by last year, this share had risen to 14 per cent, putting the country in joint-second place – with Japan – in the world league table of manufacturers ranked by production. Both countries are well behind the US, which in 2007 accounted for a quarter of global manufacturing output, but a long way ahead of Germany and Britain, whose shares have dwindled to 7 per cent and 3 per cent respectively.

“Much of China’s manufacturing expansion has been built on low costs. Even after a period of strong wage growth, labour costs in the country remain up to 95 per cent lower than in high-wage nations such as Germany and the US. Many kinds of manufactured goods can be made 10-30 per cent more cheaply in China than in high-wage nations, giving China-based manufacturers a big competitive advantage…

“The greater sophistication of [General Electric’s] Chinese suppliers is one reason why it hopes that within five years, China-based manufacturers will be capable of supplying about 16 per cent of the company’s worldwide requirement for manufactured parts, up from half this figure now. GE will gain the most use from these low-cost components, says Mr Bertamini, if the company can make the best connections between the suppliers of the parts and its product development staff in China and elsewhere. Then, he says, GE’s competitiveness in a number of the products that it makes and sells around the world – from switchgear to hospital scanners – is likely to be considerably enhanced.

“‘Everyone thinks that low-cost products, which are perhaps less technically sophisticated than the top-of-the-range products made in the US or western Europe, are primarily of interest to consumers and industrial users in emerging economies,’ says Mr Bertamini. ‘But in reality there are a lot of potential customers for products made in this way in high-cost countries too.’

“Another company trying to yoke together product development and low-cost manufacturing at a number of centres around the world is Lenovo, the Chinese computer maker. While its manufacturing is predominantly in low-cost countries – it has five plants in China, two in India and one each in Poland and the US – the company employs 2,000 staff in design and development in three widely spread centres, in Beijing, Tokyo and Raleigh, North Carolina. Its effort in this field was helped by the company’s acquisition four years ago of the personal computer division of IBM, the US technology company, which brought with it a cadre of mainly US-based development engineers.” [D]

 

The Twilight of the Anglos

Britain and the USA managed in the 1980s to convince the world that they had some wonderful secret, what Ronald Reagan called ‘the Miracle of the Market’. Actually it was nothing miraculous, just a legacy of past power build by very different methods. Britain had the legacy of the wealth of the British Empire, plus the social networks that stayed in place when the Empire broke up. The USA had the largest area of unoccupied land suitable for European colonisation – the Native Americans occupied it, but nobody bothered about them till much later. The USA had also been boosted in its early decades by slave-based crops, which had also played a role in Britain’s prosperity.

Both Britain and the USA also had their best decades under Keynesianism, the ‘golden quarter century’ from 1950 to 1975. The system was in trouble in the 1970s, but could have been fixed on the assumption it was basically sound and needed some re-balancing to allow for greater working-class power. Workers Control was a very serious idea at the time, and failed largely because the Hard Left sabotaged it on the assumption that revolution would follow. (Most such characters have ended up in New Labour, convinced that socialism was always an illusion – much more flattering than to admit that they screwed up an historic opportunity.)

Thatcherism produced a superficial prosperity but also did long-term damage to British society and its capacity to be a manufacturing economy. Three decades of sneering at honest work have had a predictable result:

“British workers lack the skills and motivation to fill the job vacancies that have been taken over the past four years by the largest ever influx of migrants, mainly from eastern Europe, an official study says.

“The Department of Work and Pensions report published yesterday says that the generally poor position of low-skilled British workers doesn’t reflect a lack of available jobs or formal qualifications ‘but rather issues around basic employability skills, incentives and motivation’…

“The study was commissioned in the face of rising unemployment and considerable public concern that migrant workers were displacing native workers. Its findings confirm recent anecdotal evidence from employers that they regard migrant workers as more reliable, harder working and more productive.” [E]

There are still skilled workers and good workers, but a diminishing number, while the money and glamour goes to people who are good just at tapping into pre-existing wealth. Finance has been a growth industry – but based on what? None of the City of London’s sophisticated financial services are really necessary and it’s quite possible a huge chunk of wealth could disappear amidst all the financial scandals.

Meantime Germany has backed away from the idea of following the Anglo examples, as it becomes clear that these methods are not as good as the methods Germany used in its ‘economic miracle’ years:

“For most of the past decade, Germany was the sick man of Europe. No longer. In the past two years, thanks to robust growth, it has created 1.6m jobs and is approaching full employment. No other country in the world, not even China, earns more from exports.

“Germany’s economic performance contrasts with that of the US and the UK, both victims of a credit squeeze that has exposed flaws in the Anglo-Saxon model of laisser faire capitalism and deregulation. Once derided as outdated and inefficient, the German social market alternative is proving resilient.

“Angela Merkel, the 53-year-old German chancellor, could therefore be forgiven a moment of schadenfreude as she welcomes the Financial Times for an hour-long interview in her Berlin office. Now one of the most experienced European leaders, she has acquired a gravitas that sets her apart from the mercurial President Nicolas Sarkozy in Paris and the introspective Prime Minister Gordon Brown in London.

“‘I see myself at any rate as someone who, together with her cabinet, has achieved a great deal,’ she says with a self-confident smile.

“Barely three years ago, in the run-up to her election as chancellor, Ms Merkel openly admired British and American economic recipes. She has since become more assertive in defending the German way – a free market tempered by consensus-building politics and a generous welfare state.” [F]

This isn’t occurring in a vacuum. Germany also has a serious challenger to New Right values.

“Since the merger last year of the former east German Communist party with dissident Social Democrats from the west to create the Left party, the radical grouping has scored a string of regional election successes and seen its opinion rating climb to 12 per cent.

“In response, Chancellor Angela Merkel’s Christian Democratic Union and its coalition allies the Social Democrats have shifted leftwards by adopting measures advocated by the Left party, including higher social and jobless benefits.

“”Our goal is to change politics in this country. This is our top priority,” says Mr Lafontaine, pointing to the shift in mainstream politics towards his party’s Robin Hood agenda of taking from the rich to help the poor.

“He names a simple reason for his party’s popularity. Stagnating real disposable income over the past decade and the emergence of a vast low-wage sector have destroyed the old relationship between economic growth and public prosperity: ‘The old mechanism whereby a government’s popularity increases when the economy is doing well is broken. For the first time, we see a growing economy and falling real wages.'” [G]

 

Democracy and War

European countries had strong states and relatively peaceful societies, for some centuries before they tried anything like modern democracy. In 1914, Germany had extended the vote to all adult males, whereas in Britain it was only 60% and had been a minority of adult males until 1884. If the Great War had not happened, or if it had ended as a draw in 1915, then Germany would almost certainly have achieved a stable multi-party democracy much earlier. And the same would have applied Austria-Hungary, where a lot of misery and ethnic conflict might have been avoided if its internal evolution had been allowed to procede peacefully.

Far from establishing democracy in Continental Europe, Britain and the USA delayed it by pitching into wars that were none of their business. Woodrow Wilson tapped into a lot of decent feelings with his ‘Fourteen Points’, but it’s moot how seriously he ever took them. War had been declared on April 1917, the ‘Fourteen Points’ were set out in January 1918. Germany in November 1918 thought it was surrendering on the basis of the ‘Fourteen Points’, but the actual peace was totally different, wildly unfair to Germany, Austria and Hungary. Woodrow Wilson went along with it, suggesting his main aim all along had been to build US power without much regard for who got hurt in the process.

During the Cold War, the US was lukewarm on democracy. They let allies like South Korea and Taiwan run dictatorships for many years. They accepted and probaly organised the right-wing coup in Greece in 1967. Coups in Italy came close to happening and the Christian Democrats were intimidated out of an alliance with the Italian Communists. Lots of democratic regimes got overthrown in Latin America, most notably Chile on September 11th 1973.

US enthusiasm for democracy overseas in the 1980s and 1990s was based mostly on a calculation that they’d win from it. In places they did win, Eastern Europe has been cooperative so far. But that was tapping into the traditions of countries that had a lot of experience of mutli-party elections before 1914, as well as experience of failing to make them work between the two World Wars. (Almost every country east of Vienna was some sort of dictatorship in the 1930s.)

US policy in Iraq and Afghanistan was based on a false reading of what had happened in Europe. It’s not surprising it failed. Iraq in 2005 opted for religious parties among both Sunni and Shia Arabs, only the Kurds remain largely secular. The scheduled legislative election in 2009 is likely to strenghten this.

As for Afghanistan, they had a Presidential election in 2004 and another is due in 2009. The first parliamentary elections in 2005 and another set are due in 2010. Assuming the current pro-Western state lasts that long, which is moot. The Wikipedia mentions that “Former warlords and their followers gained the majority of seats in both the lower house and the provincial council.” [H] All candidates stood theoretically as individuals, not for a political party. And no real state has emerged from the chaos. The Taliban are now making a strong comeback.

“Three days ago, like in last year’s spring offensive, the Taliban occupied the Arghandab district. However, this year the plan had changed.

“First they rattled the Afghan administration’s nerve by carrying out the sophisticated raid on the jail in Kandahar, setting free hundreds of Taliban captives who were then taken to the Arghandab district.

“Significantly, Taliban loyalists within the Afghan security forces either assisted in or turned a blind eye to this operation, which came as a shock to coalition forces as they are increasingly relying on Afghan forces.” [J]

After the fall in 1992 of the pro-Soviet government, the Taliban were the only Afghans who had a cause they were willing to die for. The USA missed the chance to form an alliance with the only strong Afghan faction that was neither corrupt nor hard-line religious. In Eastern Europe it is often ex-Communists who dominate politics and carry through the adjustment to the USA’s New World Order – but that is a result of elections, the USA has to accept whoever wins the votes. In Afghanistan they had a choice and chose badly. The Taliban rose because the secular warlords were incoherent and brutal, and they remain just that.

Elections are no magic cure. In Britain, parliament was originally a way to define who in the ruling class had a right to be part of the government. The House of Lords had big nobles and senior clerics. The ‘House of Commons’ was in no way representative of the people as a whole, the electorate was usually a minority. It was mostly knights and minor gentry who got elected.

More important than elections are the impression an invading army makes. In World War Two, the hehaviour of US troops in Europe mostly good. It was the Russians who behaved badly – though they had fought across hundreds of miles of their own territory laid waste by Nazi attrocities. Still, the different standards of behaviour made a difference, one of the key elements in the Cold War.

Later ideas were worse ideas. The technocrats took a view of troops as raw material and wars as settled by ‘firepower’. In modern times there has also been empty rhetoric about ‘terrorism’, an entity given an unreal distance and distinction from normal warfare. The USA and Britain in the 20th century had a consistent policy of striking at the enemy society rather than its army, on the grounds it was a softer target. The US is refusing to give up Cluster Bombs. They win some of their wars, but have a way of losing the peace. They only really got the result they wanted in World War Two, where Nazi behaviour was so bad that almost anything seemed justified.

Calling Muslim resistance to invasion ‘Islamofascist’ isn’t going to make US and British behavour seem justified. NATO had a role in the Cold War and should have been wound up in 1991. Its efforts to lay down the law to rthe rest of the world are a bad idea and a failed idea.

 

References

[A] [http://newsvote.bbc.co.uk/2/shared/fds/hi/business/market_data/commodities/28696/twelve_month.stm]

[B] [http://www.guardian.co.uk/commentisfree/2008/jun/10/food.globaleconomy]

[C] Issue 2660 of New Scientist magazine, 11 June 2008, page 28-33

[D] [http://www.ft.com/cms/s/0/79a2acb8-2cd7-11dd-88c6-000077b07658,dwp_uuid=9c33700c-4c86-11da-89df-0000779e2340.html]

[E] [http://www.guardian.co.uk/uk/2008/jun/12/immigration.immigrationpolicy1]

[F] [http://www.ft.com/cms/s/0/bb9ca588-374f-11dd-bc1c-0000779fd2ac.html]

[G] [http://www.ft.com/cms/s/0/a5bc72e2-3c05-11dd-9cb2-0000779fd2ac.html]

[H] [http://en.wikipedia.org/wiki/Afghan_parliamentary_election%2C_2005].

[J] [http://www.atimes.com/atimes/South_Asia/JF20Df01.html]

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