Newsnotes 2008 11

Notes On The News

by Gwydion M Williams

Society Used To Exist

Greenspan and the Decline of the West

Money and Gun-Power

China Seeks More Equality

 

Society Used To Exist

Why did many people in Britain feel an actual euphoria when the First World War started? Because society as it existed then was under huge stress. A long-established ruling class knew it was losing its position. The other classes in Britain had no clear idea what this meant. Desire for an improved social order was expressed in the Labour Party, which was still small in 1914. And most of the Labour Party had quite small ambitions.

Did the politicians who voted for war understand this? Maybe not. I’ve been reading a book-length interview with Fidel Castro, and one thing he says is:

“Actually, the people with the most political savvy were those who had been Marxists or pro-Marxists, because a lot of politicians didn’t even now what a society was”. [A]

He’s talking about Cuba in the 1940s, but it would have been equally true of Britain and the USA in the 1900s or 1980s. Thatcher and Reagan were shrewd political operators, well able to work the system as they found it. What they didn’t know was the proper method to keep it much as they found it. They listened to arguments that it was welfare than had undermined the ‘norms’ of family life. That business was unreasonably burdened with tax and regulation.

Bits and pieces of Marxism have filtered right across the political spectrum. Mostly not the key insight, that European capitalism by its normal operation was undermining the values of the European Bourgeoisie. There’s no reason why a conservative politician should not accept this as an accurate statement of fact, and decide therefore to keep capitalism curbed, under ‘corporatist’ control. This is exactly what ex-leftist Mussolini did, with great success for as long as he stuck to managing Italy and kept his enthusiasm for war under control.

As it happened, World War Two ended as an alliance of the Soviet Union against the non-Fascist West, in which the Soviet Union did most of the fighting. The post-war west accepted a lot of ideas that had begun as fascist or Soviet, and the regulated capitalism of that era was much faster-growing than the ‘free’ capitalism of earlier times.

The crisis of the 1970s was wide open to the Left, but the Left had meantime convinced itself that Stalin had messed up the heritage of Lenin and Marx, instead of seeing that Stalin’s ruthless efficiency had made something coherent of them at a time when fascism could easily have won the global conflict. Lenin had chosen to set up a one-party dictatorship. Marx’s analysis related to a very different world.

Marx’s biggest error was to assume that capitalism couldn’t continue without the European Bourgeoisie. He says in the Communist Manifesto that the working class is an even purer produce of capitalism than the bourgeois, but does not follow up the thought. Did not wonder whether you could have a system whereby it was possible for workers to rise into the ranks of the capitalists. That was the norm from the 1980s, and without traditional ruling-class restraints the system has blown up dramatically. So what next?

 

Greenspan and the Decline of the West

When you deal with foolish overconfident people, you learn that they don’t see themselves like that. Everything was going very nicely, until they were struck by an astonishing bit of bad luck.

“‘We are in the midst of a once-in-a century credit tsunami,’ Greenspan told the House Oversight and Reform Committee.

“‘But he said that less-risky decisions by investors will help pull the markets out of their slump. ‘Investors, chastened, will be exceptionally cautious,’ he said.” [B]

I prefer to think it was a bubble that was quite certain to burst, but even the excuse he gives is very weak. Supposing the risk really was a ‘once-in-a century’ event, would it be OK to say ‘we’re fine, still decades before we need worry? That shows an astonishingly weak grasp of statistics. Crudely, you might expect a one-in-five chance over a 20-year period, one in four for 25 years. The actual statistics are a bit subtler – random events don’t need to space themselves evenly, and the actual odds are 0.99 multiplied by itself 20 or 25 times, about 82% for 20 years, 78% for 25 years and still 61% for 50 years. Still, the chance of a drastic failure is high enough, how could you not care about it?

Somehow I just don’t think they care. Not if they’ve got their own cash-pile to safely retire on.

Greenspan is Ayn Rand’s pupil. Ayn Rand was another overconfident fool and exactly matched the mood of the 1980s. She could get away with saying that Germany and Russia made a successful peace in 1815 because they were capitalist, and went to war in 1914 because they were not capitalist.[C] She had one useful insight, the importance of skilled managers in running a complex economy. If she’d built on that, she’d have been just another a supporter of Keynesianism. Instead she was a dedicated believer in freeing the market from state control – I suppose she picked up the general complaint to business people who took the overall strength of the economy to be an Act of God and objected to rules that stopped them doing what they wanted.

Ayn Rand’s best-known work was a novel called Atlas Shrugged. She’d picked up a real trend – the decline of the US railway system. She missed the cause of this decline, the rise of trucks, aircraft and private cars. Instead she was convinced that private industry was being stifled by the state. This was in the 1950s, when the USA was at its optimum and when the Soviet Union was also formidable, before Khrushchev’s reforms damaged it. Her vision was 1920s, with trains the main form of transport and aircraft a toy for the rich. Like the stopped clock that’s right twice a day, the world-view she’d formed in the 1920s matched the mood of the 1980s. People were a bit disenchanted with 1960s liberation, though not to the extent that they wanted the old restrictions applied to themselves. But they liked the message of the ‘libertarians’ who said that free markets would solve it all.

Greenspan pushed this agenda through each successive crisis. As one commentator said:

“In each case, be it the October 1987 stock crash, the 1997 Asia Crisis, the 1998 Russian state default and ensuing collapse of LTCM, to the refusal to make technical changes in Fed-controlled stock margin requirements to cool the dot.com stock bubble, to his encouragement of ARM variable rate mortgages (when he knew rates were at the bottom), Greenspan used the successive crises, most of which his widely-read commentaries and rate policies had spawned in the first place, to advance an agenda of globalization of risk and liberalization of market regulations to allow unhindered operation of the major financial institutions.” [D]

This made perfect sense in terms of his belief. If a partly deregulated system had a crisis, that was because the beautiful perfections of capitalism were still shackled. That was his understanding of economics: social forces he barely understood at all:

“‘I made a mistake in presuming that the self-interests of organisations, specifically banks and others, were such that they were best capable of protecting their own shareholders and their equity in the firms,’ said Greenspan.” [E]

To adapt what Thatcher once said about society: banks do not exist, there are only individual customers and employees. A big corporation can only work well if most of its employees identify with it. Mass sackings of loyal staff are a great way to cure them of that notion: there have been many mass sackings in all the recent mergers. Despite which, only a very cold and nasty person would actively betray their co-workers. High-stress high-reward systems of the sort that have been encouraged over the last 20 years are an ideal breeding-ground and collection point for very cold and nasty people.

People have walked away from the banking disasters with tens of millions, mostly earned quite legally. Even in the case of fraud-ridden Enron, those who bailed out or were thrown out early have taken away millions in personal wealth from an enterprise that was never more than a bundle of debts hidden by fantasy-accounting. It’s happened a lot with the banks that are going under, the ‘ self-interests of organisations’ was sacrificed to the self-interests of the individuals working within those organisations.

You’d have thought a Libertarian would have understood that. Until you realise that Libertarians don’t really accept that other people have minds of their own, are astonished at what real people will actually do, given the absence of social forces.

Someone should do a comic song, to the tune of the English classic Greensleeves. Something like:

Greenspan was our hearts delight

And we all believed in free markets

The way the economy is contracting, there will be more and more need for comedy.

 

Money and Gun-Power

It’s suddenly almost fashionable to say that ‘Free Market Capitalism’ is dead and we need Keynesianism again. As BICO or the Bevin Society, we had been saying that since the 1970s – that Keynesianism was the thing to build on, but also that it could not stand still. It could have developed with more social responsibility for the working class, with Workers Control that would have made the Trade Unions partners in the Keynesian or Corporatist system

Money is a measure of wealth, not its source. A bank squeezes money from borrowers and gives it to depositors. Some borrowers may be doing something productive. The British Industrial Revolution had little to do with the banks, and was commercial rather than strictly capitalist.

Money is the creation of the state. Banks exist within a state jurisdiction and look to the state for protection. British creditors cannot repossess Iceland, though the Icelanders may well have been acting illegally.

Shaw in his play Major Barbara has a character who expresses his belief in Money and Gunpowder as the basics of life. Updated as Money and Gun-Power, it is significant power still. But not power for creating anything. Used sensibly, they can create a suitable environment for real wealth to be generated

Business people don’t see it that way, naturally not. A world-view that is fine for running a business may be hopelessly bad for running a society.

Science is by far the largest generator of material wealth. Almost every modern industry either grew out of pure science work or has been changed by it. Electricity began as a laboratory toy, but Faraday was far-sighted enough to foresee politicians would soon be taxing it and that it would grow without limit.

Adam Smith’s description of modern commerce was made after the reality had begun, and he missed the role of science. Two of his closest friends were Joseph Black and James Hutton, two of the leading scientists of the day. He was also in a position to observe the early work of James Watt, but seems not to have noticed him at all. Instead he had a plausible but false account. Business people had no idea of the complexity of the society that made their lives and wealth possible: they notices just that there are rules that get in their way.

The last quarter century has seen a lot of rules removed, and now the system has blown up. I was expecting it much sooner.

What next? It looks likely now that the depth of the economic crisis will mean Obama wins the US election. I’m also sure he will get less votes than the polls suggest, racism is still a factor. He’ll then have to wait till January, since the US hangs on to the oddities of its 18th century origins. And then – who knows?

 

China Seeks More Equality

“Cities in the US are now among the most unequal in the world, rivalling developing-country cities such as Nairobi and Santiago in their disparities between rich and poor, the United Nations said on Wednesday…

“The world’s most equal cities were Beijing, Jakarta and Phnom Penh. European cities were also among the world’s most equal…

“The cities were ranked using the ‘Gini coefficient’, a statistical measure used to show income distribution.”[F]

This ‘Gini coefficient’ has previously been invoked to suggest that China is very unequal. My view was that it was biased by the big difference between the well-connected coastal provinces and a dry interior with poor links to anywhere except the coastal provinces. I also wondered what picture you’d get if you tried finding a ‘Gini coefficient’ for the whole of the European Community. There is a very visible gap between Europe east and west.

The worst Chinese gap is urban-rural:

“China has attained some of the deepest disparities in the world with urban incomes three times those in rural areas. Inequalities are growing, with disproportionate rewards for the most skilled workers … and serious problems for the unemployed and informal workers.” [G]

It’s not all negative. Since land is own by villages rather than individuals, the rural poor still have access to it, not becoming landless as happens elsewhere. “All land in China has been, in effect, owned by the state since the 1949 communist victory and direct private ownership is very unlikely to be introduced soon under the party’s gradualist approach to reform…

“Many government advisers argue the current system has allowed China to avoid the problems of other large developing nations – such as India, Brazil and Indonesia – which struggle with huge populations of landless farmers.

“In China, migrant workers who lose their jobs in the cities are usually able to return to a plot of land in their village and the country’s largest cities are noticeably free of slums.”[H]

There are also moves to restore universal healthcare, created by Mao and allowed to decline by the post-Mao leadership.

“The rural healthcare system was once a core element of Chinese socialism. After the founding of the People’s Republic of China in1949, rural people had access to subsidized health clinics run by “barefoot doctors,” who were basically middle-school students trained in first aid.

“The primitive service, essentially free, played a role in doubling the country’s average life expectancy from 35 years in 1949 to 68 years in 1978.

“When China began its economic reform in the early 1980s, the system was dismantled as the country attempted to switch to a market-oriented healthcare system. But the government failed to establish a viable substitute, leaving its large rural population without health insurance.

“A national health survey in 2003 revealed about 73 percent of people in rural areas who should have sought medical treatment chose not to do so because of the fear of high costs.” [J]

There is nothing about education, so far. Which is probably more important, and also likely to be more expensive to restore to Maoist universalism. And resented by an urban population that has high ambitions for its own children. Still, the time is long past when China was likely to follow US models or US advice.

 

References

[A] Fidel Castro: My Life, with Ignacio Ramonet. Penguin Books 2008.

[B] [[http://money.cnn.com/2008/10/23/news/economy/committee_regulatory/?postversion=2008102311]

[C] You find this within a couple of pages of Capitalism, the Unknown Ideal.

[D] [http://www.globalresearch.ca/index.php?context=va&aid=7876]

[E] [http://www.guardian.co.uk/business/2008/oct/24/economics-creditcrunch-federal-reserve-greenspan]

[F] US cities among most divided on rich-poor lines, [http://www.ft.com/cms/s/0/10418c4a-a099-11dd-80a0-000077b07658.html]

[G] [http://www.guardian.co.uk/world/2008/oct/23/population-egalitarian-cities-urban-growth]

[H] [http://www.ft.com/cms/s/0/5f396358-9550-11dd-aedd-000077b07658,dwp_uuid=9c33700c-4c86-11da-89df-0000779e2340.html]

[J] [http://english.peopledaily.com.cn/90001/90776/90882/6513497.html]

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