Newsnotes 2009 04

Notes On The News

by Gwydion M Williams

A Labour Renewal?

Mad Max: The Pension Prospects

Bronzeheart [Loot From China]

Opium Heirs [HSBC]

Asian Values

A for Alienation, B for Bourgeoisie…

Latin America Grows Up

Stone-age ape

 

A Labour Renewal?

For years we’ve argued that Labour needed to assert the merits of the 1945 Labour government – which actually ushered in the most successful period of fast growth and low unemployment that Britain has ever seen. This got obscured by the fact that Britain also had to give away its Empire, and also that France and West Germany and Italy were doing even better, so that Britons knew that their relative status had fallen a lot.

Thatcherism was based on presenting the 1945 government and the Mixed Economy as an era of disasters. A return to Classical Capitalism was advertised as the cure – never mind that the British economy had always grown much more slowly under Classical Capitalism, gaining world power only because most of the rest of the world was pre-Industrial and static.

New Labour was nothing much, a reversion to the shallow politics of the British Liberal Party that Old Labour had replaced in the 1920s. Radical on social issues but fond of overseas military adventures and with an irrational belief in market forces. It shows every sign of sticking to such ideas despite a strong probability of losing the next election. So far, just one dedicated New Labourite has broken ranks: Charles Clarke, the former Home Secretary who left the cabinet after reportedly refusing to take some lesser position in the 2006 reshuffle. Now he says:

“In 1979 and 1980 the election of Margaret Thatcher and then Ronald Reagan represented a political rejection of the centre-left. It brought a reduced role for the state, lower taxes, feeble market regulation and shrunken trade unions, a weaker public sector, a nihilistically punitive approach to penal policy, and an aggressive, militaristic internationalism.

“The New Democrat and New Labour responses that followed were electorally successful. They reversed the most intolerable aspects of their predecessors’ policies but still accepted many of their dominant ideas. It was widely believed, and rightly, that the electorate would not support a party (or a leader) who appeared to look backwards or explicitly sought to overturn the basic tenets of Thatcher/Reagan. The defeats of Labour in 1992 and Al Gore in 2000 confirmed the wisdom of this political judgment.

“The year 2008, however, brought two events that ended this 30-year rightwing hegemony. The first was the financial crisis. Awesome in its scope, it has destroyed three decades of economic assumptions. It shows that effective regulation is critical, that banks must serve communities and that the role of the state needs to be rebuilt, as Keynes argued in the 1930s. It has also shown that politics and politicians matter. We have to regain our self-confidence as governments take on greater responsibility, including for the operation of markets.

“The second event of 2008 was Barack Obama’s election. This represented the overwhelming rejection of any idea that the world could be run unilaterally by the United States after the collapse of the Soviet Union and the 9/11 attacks.” [A]

What surprises me is that he can say all this and yet stop short of pointing back to the 1945 Labour Government as the best example of real Labour success. But it’s an odd fact that hardly anyone defends the Mixed Economy or Keynesian era as a period of massive improvement. Those who did so in the 1970s mostly defended a status quo that had become unsustainable: Trade Union militancy had become too strong for the system as it then was. The Left took a view that had a lot in common with Thatcherism – the ideological influences were a mix of Trotskyism and pro-Moscow Communism, both of which preferred to emphasise the limits and failings of the Mixed Economy rather than its major successes.

We can talk briefly about Trotskyist achievements. We can talk very briefly, since in real terms the global Trotskyist movement has achieved exactly nothing since it separated from mainstream Leninism in the 1920s. Some individual Trotskyists have been high achievers, but might have achieved as much or more without a Trotskyist movement to join. Meantime pro-Moscow Communism totally failed to hold the strong position it had in the 1970s: its last positive acts were helping to wind up the Portuguese colonial empire and end apartheid in South Africa.

Clarke’s background is the Broad Left of the National Union of Students in the 1970s, which means taking your ideas from pro-Moscow Communists without mostly being party members. Whether he can go beyond that background remains to be seen

 

Mad Max: The Pension Prospects

“One of the illusions of the Thatcher era, now laid bare by the economic crisis, was that of ‘financial self-empowerment’. Margaret Thatcher aspired to give individuals discretion over their finances, above all pensions. Even back in the 1980s, this notion rang alarm bells with some of us. I suggested to a financial journalist friend that most people were neither eager to accept responsibility for their own money, nor fit to do so. He, a good Thatcherite, shrugged and said that we would just have to grow up, wouldn’t we?.” [B] Thus writes Sir Max Hastings, noted journalist and popular-historian and former editor of the Daily Telegraph.

“My own experience through the ensuing decades merits no sympathy, because I am better placed than most to protect my interests. Even now, approaching pensionable age, I remain capable of earning a living amid the wreckage of my investments, as some contemporaries are not. But the story helps to explain why many of us feel such rancour towards the financial services industry, and accelerate when a banker walks in front of our wheels…

“I told my accountant, a character fashionable among authors, that I wanted to start saving for a pension. Easy, he said. Just send us a cheque for as much as you can afford.

“Knowing less about fund management than about koala bears, I sent the money, and several subsequent amounts, and was told thereafter that I should think myself ‘well pensioned’. In my innocence, it was years before I understood that the accountants took a commission on the deal, and longer still before I discovered that Target Life, the fund they chose, was one of the worst performers in the market…

“When the dotcom boom came, I said that I did not want a penny invested anywhere near it. I sighed with relief when the crash followed, knowing that I was safe. Or not. When the dust cleared in 2002, my fund had fallen by 45%. Even my adviser was a trifle embarrassed, and said that it seemed sensible to switch fund managers. Indeed, he said that some of the shares which the previous regime had put me into seemed so weird that he was inquiring about whether there was a case against them for malpractice. There was not, of course…

“About the same time, I used a windfall to pay off my mortgage. I was nonetheless urged to keep the endowment contributions going, so that I could collect a cash sum when the policies mature in 2012. As of today’s date, Barclays and Norwich Union tell me to expect to receive about 40% of the amount allegedly assured with them…

“Two years on, I asked a numerate friend to look at my portfolio. Having done so, he asked a string of questions. Did I realise that I was paying two sets of management fees – one to the bank, and another to the various funds in which most of my money was invested? How could they justify an ‘active management’ charge for National Savings holdings? Did I know that the portfolio was underperforming the markets? Yes, I said, but at least the money was cautiously invested. Up to a point. Today, my fund is worth 30% less than in 2001, and significantly less than the face value of cash that I have paid into it since 1980…

“At every stage since 1980, I have put my old age in the hands of allegedly respected partnerships and institutions. I have never allowed, far less encouraged, them to gamble high with my fund. At the end of the story, how can my kind fail to feel rage towards those who have enriched themselves while achieving less for many of their clients than if we had stuffed cash into the mattress?

“What thousands of bankers have done – for the case of Sir Fred Goodwin is only the most conspicuous – is fraudulent in the eyes of most laymen, whether or not legally indictable. They have looted huge booty based on financial achievements that have proved fictitious, leaving the nation to pick up the bill.” [B]

So why doesn’t he say that he and others should have been allowed to buy into SERPS, the State Earnings-Related Pension Scheme? You can’t lose that short of the British state collapsing, something that would take most of the private schemes with it. But private schemes may at any time turn out to be less profitable than expected, or sometimes fraudulent or bankrupt. Despite which, people were encouraged to ‘Contract Out’, entrust themselves to commercial schemes that could promise ridiculous returns and somehow not be legally responsible when the outcome was vastly worse than the state scheme? (SERPS was replaced in 2002 by something called the ‘State Second Pension’, but with ‘Contracting Out’ still encouraged.)

Surely the logic consequences of the discontent of Sir Max Hastings and many other would be to call for a general return to SERPS or something like it. Even before the present crisis, there were a lot of scandals associated with ‘Contracting Out’. My view is that most of it is there just to provide the ‘Silly Money’ that the ‘Smart Money’ can make a profit from.

 

Bronzeheart [Loot From China]

“Mention the Earls of Elgin and one notorious holder of the title springs to mind – the one-time British ambassador to the Ottoman Empire (and 7th earl) who, in 1801, removed the marble sculptures from the Parthenon that are now housed in the British Museum.

“His son is less well-known, but he was also responsible for what many view as an infamous act of cultural vandalism. In the aftermath of the second opium war in 1860, it was the 8th Earl of Elgin who ordered French, British and Punjabi soldiers to destroy the Old Summer Palace in Beijing.

“The culture wars started by the Lords Elgin are still raging. Greece continues to lobby for the marbles to be restored to Athens. And in China, many people are fuming at the sale of two bronzes apparently looted from the palace before it was burnt to the ground. Auctioned in Paris last month as part of the collection of the late Yves Saint Laurent, the bronzes have become China’s Elgin Marbles.” [C]

This is from the Financial Times, but goes on to speak foolishly, saying:

“Plenty of Chinese are sceptical about the use and misuse of their history, pointing out that it was only a couple of decades ago, in the aftermath of the Tiananmen Square massacre, that Beijing really started to promote the narrative of colonial humiliation. China’s recent record of historical preservation is, to put it mildly, poor. Would the Old Summer Palace have survived the cultural revolution? ‘We are the ones who have caused the most serious damage to our heritage,’ the architect Ai Weiwei said this week.” [C]

This is to miss the point completely. First, how many Chinese still take the pro-Western line that was common among intellectuals back in 1989? Western bungling since then has greatly reduced their number and it is nationalism that has dominated from the open-ended communication provided by the Internet.

Second, the replacement Summer Palace is still there, though it suffered some Red-Guard damage. Likewise the Forbidden City. Red Guard attacks were mostly on religious objects, evidence of superstition – and the iconoclastic Red Guards included many young Tibetans in the Tibetan Autonomous Region. Maybe they took an attitude of showing the images to be powerless by breaking them, exactly as Christians did it when they were rooting out paganism in Europe. Exactly as Cromwell’s New Model Army did in Britain when they were trying to impose its own austere Puritanism on the moderate-Protestant majority. (And the Cromwellians were the foundations of the Whigs and their heirs in the British Liberal Party, though modern British liberals try to evade this awkward little detail.)

There’s also a big difference between the inhabitants of a nation neglecting their heritage and some outside power attacking it. How would the USA feel if they defaulted on their debts to China and a Chinese expeditionary force burnt down the While House and demolished the United States Capitol and the Washington Monument by way of retaliation?

Adam Smith is supposedly the foundation of the New Right world-view. Adam Smith said a lot of things that are not compatible with the New Right view, including recognising 18th century China as richer than Europe. The logic of this is that the Opium Wars and the forcible opening-up of China were acts of vandalism, done at a time when Chinese had no reason to think the European model better than theirs. You could make an excellent case that China would have adjusted to Western ways better if they’d been given time to observe and change, especially since the Manchu Dynasty was moribund and would probably have fallen in the 20th century even if the West had kept its distance. The philosopher Kant saw China and Japan as doing fine as they were, while Napoleon famously saw China as a ‘sleeping giant’, best left alone.

It would take no huge ingenuity to give such an approach a pro-capitalist ‘spin’, saying that the interests of the semi-state and monopolistic opium-producing East India Company had been foolishly put ahead of a healthy growth of home-grown capitalism in China. But the New Right are very much rooted in the Anglo history, and are very reluctant to accept that Anglos were ever less than perfect. Shrewder people might have seen the advantage of admitting some faults in order to win over people from different cultural backgrounds – yet the New Right also have to keep up their alliance with the Old Right, people who in Britain are often ex-Colonial and who are quite certain that they were always virtuous and clever. Vanity stops them from creating a right-wing version that might appeal to Chinese proud of their culture but hostile to Mao. In real terms the Chinese are expected to be ashamed of their culture and keen to be yellow carbon-copies of Western values. No doubt there are some like that, just not enough to make a difference.

(The New Right are also narrow in their outlook and limited in their general knowledge, missing points it would cost them nothing to make. There’s no reason not to publicise Smith’s close friendship with pioneering geologist James Hutton and pioneering chemist and physicist Joseph Black. No reason except that Adam Smith’s praise-singers somehow fail to recognise the significance of those names when they come across them.)

Rather than admit ‘off-message facts’ to the hallowed sanctum of ‘recent research by reliable sources’, the New Right prefer to ignore or deny anything than might offend Anglo prejudices. They favor a ‘Post-Truthful’ approach, a doctrine they probably picked up from some ineffective Western Marxists in the 1970s. This philosophical mishmash, which is the direct opposite of Marx’s own Historic Materialism, tends towards a view that things you don’t observe don’t actually exist. This might seem puzzling to anyone who’d ever stubbed their foot on a stone they hadn’t thought was there, or eaten or drunk something they thought was fit for human consumption and turned out to be otherwise.

What I call ‘Post-Truthfulism’ tends to be put more subtly by its practitioners. And within the complexities of a richly interconnected human culture that is shared by hundreds of millions of distinct individuals, it’s quite true that what people believe to be true can be at least as important as what is actually true. Fashions sprout and go to absurd lengths, once enough people decide that this is the ‘next big thing’. And in the world of finance, ‘Post-Truthfulism’ was a great success for many years, yielding millions to its practitioners. Reality stuck back in 2008, based on the minor detail that the actual material wealth of the world was considerably less than what people thought they owned.

 

Opium Heirs [HSBC]

A major survivor from the current economic chaos is likely to be the Hongkong and Shanghai Banking Corporation. It was founded in the wake of the First Opium War and a lot of opium money must have gone into it.[D] Not that this was ‘laundering’ in the modern sense: opium was openly grown in British India and there was an official Opium Department. George Orwell’s father worked for it, an inconvenient truth that he always covered up. Attitudes hardened during the 20th century against drug addiction and the supply of narcotics, even to non-whites. So Orwell said just that his father was “an official in the English administration there, and my family was one of those ordinary middle-class families of soldiers, clergymen, government officials, teachers, lawyers, doctors, etc.” [G]

Remarkably enough, Orwell’s birthplace of Motihari was also the place where Mahatma Gandhi started his ‘Satyagrah’ (Quest for Truth). The farmers of Champaran were forced to sow an Opium and/or Indigo on a certain portion of their farm plots.[Q] Gandhi supported the existing protests, and also used them to test the suitability of the non-violent protests he had successfully applied in South Africa. That was in 1917, and Orwell’s father had returned to Britain by 1912, so they can never have met. [H] Still, you could do a nice drama about the near-coincidence of lives.

To get back to the bank, it was exiled from Shanghai after China was restored as a genuinely independent nation by Mao’s communists, it remained vigorous in Hong Kong, and managed to go global. They swallowed Britain’s Midland Bank in 1992 and replaced the name. As of 2008, they were the world’s largest banking group and the world’s largest company. They did get their fingers burnt in the Subprime crisis, having in 2003 purchased the Household Finance Corporation (HFC), a US credit card issuer and subprime lender. This body had a creditable history, claiming that in 1895 it was the first financial company to offer the instalment plan, under which a consumer loan could be repaid through a regular monthly amount rather than a lump sum on the due date. [F] But it seems big enough to shake off even such a large loss. We might even see it follow the example of Spain’s Grupo Santander and buy up a lot of what’s still left in British ownership. The Chinese government seems to find them useful and has even allowed them back into Shanghai in a small way, though China has its own strong banking system.

 

Asian Values

Of course it’s not only the West that has a false sense of history. Consider this assessment from Kishore Mahbubani, the dean of the Lee Kuan Yew School of Public Policy in Singapore:

“Asian elites have always looked at the world differently from western elites. And after this crisis is over, the gap in perspectives will widen. Asians will naturally view with caution any western advice on economics, particularly because most Asians believe that the crisis has only vindicated the Asian approach to capitalism.

“To be accurate, there is more than one Asian approach. China’s economy is managed differently from India’s. Yet neither China nor India has lost faith in capitalism, because both have elites who well remember living with the alternatives. The Chinese well remember the disasters that followed from the Maoist centrally planned economy. The Indians well remember the slow ‘Hindu rate of growth’ under Nehruvian socialism.

“The benefits of the free market to Asia have been enormous: increased labour productivity, efficient use and deployment of national resources, a tremendous increase in economic wealth and, most importantly, hundreds of millions have been lifted out of absolute poverty. Just look at Chinese history through Chinese eyes. From 1842 to 1979, the Chinese experienced foreign occupation, civil wars, a Japanese invasion, a cultural revolution. But after Deng Xiaoping gradually instituted free market reforms, the Chinese people experienced the fastest increase so far in their standard of living.

“The desire for an orderly society is deeply ingrained in the psyche of all Asians, which helps explain why virtually all Asian states hesitated to copy America in deregulating their financial markets. Instinctively, they felt government supervision remained critical. This was equally true in India’s democratic system and in China’s Communist party system. It is telling that, while Y.V. Reddy, India’s former central bank governor, was occasionally vilified by his country’s media for holding back on deregulation, he has now become a national hero. His stance saved India from the worst effects of this crisis. China was equally wary of deregulation. Indeed the Chinese leaders may have understood earlier than most that America was building a house of cards with its reckless creation of derivatives. Gao Xiqing, an adviser to Zhu Rongji, then Chinese premier, said in 2000 that ‘if you look at every one of these [derivative] products, they make sense. But in aggregate, they are bullshit. They are crap. They serve to cheat people.’ Mr Gao said all this while Alan Greenspan, as chairman of the US Federal Reserve, was waxing eloquent about the economic value of derivatives.” [J]

The man still has something to learn from Westerners – you don’t talk about running the economy for the benefit of ‘the elites’, though this is how everything has been biased from the 1980s. He conveniently ignores that ‘the Maoist centrally planned economy’ tripled the economy between 1950 and 1976, with 45% growth in the eleven ‘Cultural Revolution’ years of 1966-76. [K] Nor does he mention the dismal failure of the pro-Western Chinese Kuomintang, who left China as poor as they found it in the 1920s. India under Nehru started from a sounder British-created base and grew more slowly, but also kept a multi-party system and considerable rights of dissent. He doesn’t ask whether both countries needed a period of protectionism to build up their industries, which 19th century economist Friedrich List saw as the historic reality. He fails to mention the Listian model, even though the Chinese often cite it to justify their policies, He refers to Adam Smith, but does not cite Smith’s pro-Asia remarks, suggesting he is as ignorant of them as any Westerner. (You could find them just by using the index of the 1976 Glasgow edition.)

Pretty well everyone has accepted that global economics has to change. The question is, how much?

 

A for Alienation, B for Bourgeoisie…

“A Chinese director is planning to stage a musical based on the founding text of communism, Karl Marx’s Das Kapital.

“The plot will revolve around a group of office employees who find out they are being exploited by their boss.

“China’s communist leaders still praise Karl Marx, although they now shy away from his economic theories.

“But those involved in the production say that Marx is still relevant today, particularly in a world gripped by an economic crisis.” [L]

As I’ve said before, the West screwed up by giving bad advice to the Former Soviet Union and the states of Middle-Europe and Eastern Europe, when they were looking to the West to help them. All of them were badly let down, seeing major shrinkage in the economies, with Russia falling well below the comfortably stagnation of the final Soviet years. This was follwd by some recovery, but they were in trouble even before the present global crisis, which is exposing weak links everywhere. Just one instance – Latvia’s sovereign debt has been cut to junk status as its economy struggles with the financial crisis.[M]

Of course Latvia can count the long-term gains, the fact that they are finally an independent country. In China, Mao established this against the West in 1949, and then against the Soviet Union in 1959-61 when he continued to challenge Soviet hegemony despite great economic hardship. Hardship caused in part by errors made by Mao, but if Khrushchev had been smart he would have acted kindly and generous and built up a circle of sympathisers who might have brought down Mao later on. Instead he tried ‘acting tough’, abruptly withdrawing Soviet technical aid. This simply antagonised everyone and united them behind Mao.

The post-Mao leadership were keen to heal the rift with the Soviets. They had pretty well mended fences by 1989, when they came very close to falling with the Tiananmen protests and a lot of other Leninist regimes did fall. The way those countried then got treated suggested that Mao was mistaken than they had thought.

From the mid-1990s it was realised that China was not going to follow the Soviet example and was in fact ignoring New Right rules. China was warned to change before something disastrous happened. Something disastrous did indeed happen, just not in China. Who now is fool enough to listen to such advice?

 

Latin America Grows Up

Cuba was expected to collapse when the Soviet Union vanished. Instead it hung on and found that Latin America was finally following its lead. Not in attempting armed insurrection, which failed once the USA became aware of what could happen. But failed New Right policies paved the way for left-wing electoral success, governments that have stayed in power because the USA is now more squeemish about supporting military coups.

The latest advance is in El Salvador:

“Leftist Mauricio Funes of El Salvador’s former Marxist rebel FMLN party has won the country’s presidential election.

“He defeated his conservative rival, the Arena party’s Rodrigo Avila, who has admitted defeat.

“Arena had won every presidential election since the end of El Salvador’s civil war 18 years ago.

“Addressing jubilant supporters, Mr Funes said it was the happiest day of his life and the beginning of a new chapter of peace for the country….

“Mr Funes will take over a country plagued with problems, our correspondent notes.

“El Salvador has one of the world’s highest murder rates.

“It has also been badly hit by the world economic downturn, with remittances from Salvadorians living abroad falling dramatically.”[N]

 

Stone-age ape

“A male chimpanzee in a Swedish zoo planned hundreds of stone-throwing attacks on zoo visitors, according to researchers.

“Keepers at Furuvik Zoo found that the chimp collected and stored stones that he would later use as missiles.

“Further, the chimp learned to recognise how and when parts of his concrete enclosure could be pulled apart to fashion further projectiles…

“Since the initial discovery in 1997, hundreds of the caches have been removed to protect visitors, to whom the caching and the aggressive displays seem strictly related; in the off season, Santino neither hoards the projectiles nor hurls them.

“Most interestingly, Santino seems to have learned how to spot weak parts of the concrete ‘boulders’ in the centre of the enclosure.

“When water seeps into cracks in the concrete and freezes, portions become detached that make a hollow sound when tapped.

“Santino was observed gently knocking on the ‘boulders’, hitting harder to detach bits that were loosened and adding those to his stashes of ammunition.

Like I said last month, chimps are smart but not that smart. Childish and violent, the sort of thing that humans have developed away from. Not quite as far as we should, unfortunately. Still, I’m sure our biology allows for civilised life, so long as the social pressures are directed towards the things that make us different from the other apes.

 

References

[A] [http://www.guardian.co.uk/commentisfree/2009/mar/20/charles-clarke-labour-commitment-change]

[B] [http://www.guardian.co.uk/commentisfree/2009/mar/02/max-hastings-investing]

[C] [http://www.ft.com/cms/s/0/85022a92-0a81-11de-95ed-0000779fd2ac.html]

[D] [http://en.wikipedia.org/wiki/Hongkong_and_Shanghai_Banking_Corporation] as at 23/3/2009. Note that Hongkong is the original English form, officially changed to Hong Kong for the colony in 1926 but retained by the bank.

[E] [http://en.wikipedia.org/wiki/HSBC]as at 23/3/2009

[F] [http://en.wikipedia.org/wiki/HSBC_Finance]

[G] [Preface to the Ukrainian Edition of Animal Farm, March 1947]

[H] [http://members.cox.net/ggthomp/richardblair1857.html]

[J] [http://www.ft.com/cms/s/0/a9c335e4-13f8-11de-9e32-0000779fd2ac.html]

[K] My estimate based on figures given in Angus Maddison’s The World Economy: Historical Statistics, This is the standard work on the subject

[L] [http://news.bbc.co.uk/2/hi/asia-pacific/7958913.stm]

[M] [http://news.bbc.co.uk/2/hi/business/7908810.stm]

[N] [http://news.bbc.co.uk/2/hi/americas/7944899.stm]

[P] [http://news.bbc.co.uk/2/hi/science/nature/7928996.stm]

[Q] [http://en.wikipedia.org/wiki/Motihari]

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