Category Archives: Globalisation

The Ukraine crisis – a measure of global bankruptcy

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The unfolding of the latest “revolution” in Ukraine since late 2013, and the reaction to it of leading foreign powers, is a particularly graphic indication of the impotence of the world’s rulers to confront the multiplying failures – political, economic, financial and social – that are now overwhelming the global community.

There seems little doubt that the overthrow of the Yanukovitch régime was primarily the result of chronic economic mismanagement and serial corruption and abuse of power. Such failings are of course only too familiar from the collapse of scores of governments of more or less underdeveloped states around the world over many decades. Also familiar is the complicity of Western governments in the misdeeds of the country’s leaders – even if there seem to be few precedents for the brazen flaunting of manifestly ill-gotten wealth demonstrated by Ukrainian billionaires in the UK, where one of them has recently paid over £130 mn for what is said to be the most expensive apartment in London.

But while both Western and Russian support for such kleptocracies comes as no surprise, what does seem different is the inability and / or unwillingness of the major powers, in either East or West, to take the necessary steps to restore some semblance of order and stability, such as would have been expected following the downfall of their client states in the past, particularly during the Cold War. In those days it was common to see failed rulers replaced with ones more acceptable to their own people or amenable to the dominant foreign power (whether the US, Soviet Union or former colonial master) with relatively little fuss. This was typically facilitated by easing deposed rulers into exile and providing successor régimes with financial sweeteners to help them consolidate their political support at home.

Such was broadly the practice followed for many years by the dominant Western powers towards their client states in much of Africa and Latin America – and also by the Soviet Union in respect of its satellites. Arguably it was for long largely successful in keeping the lid on geo-political disorder, albeit at the price of perpetuating the economic and social injustice afflicting the mass of the people in these regions. Where it came seriously unstuck – as in Cuba, Vietnam and, for the Soviets, in Afghanistan – this was only where internal opposition received substantial backing from the rival superpower.

How the world has changed since the 1980s

By the time the Cold War ended with the fall of the Berlin Wall in 1989 it was clear that the Soviet economic model had imploded, rendering it impossible for the Soviets to maintain their imperialist great power pretensions; hence the dissolution of the Soviet Union. Yet even as this development was being proclaimed in the West as the clear triumph of liberal capitalism it was starting to become apparent that the latter model also was coming under increasing pressure. The most obvious symptom of this was the series of financial crises, starting with the stock market “crash” of 1987, followed by successive market upheavals across the world through the 1990s – each one resolved by publicly financed bail-outs or guarantees of actually or potentially insolvent financial institutions – and culminating in the Global Financial Crisis (GFC) of 2008.

The main immediate cause of this chronic malaise was the rapid build-up of debt in both the public and private sectors which began in the 1980s, encouraged by moves to liberalise financial markets initiated in the United States and spread across the world thanks to “globalisation”. The rise in indebtedness was in fact a response to the underlying weakness of the global economy, which reflected a long-term tendency of the rate of economic growth to decline from the historically high levels recorded in the 1950–73 period. Failure to maintain relatively high growth – so vital to ensuring a healthy capitalist economy – thus posed a threat to the stability of the whole system. In this context the global build-up of debt, much of it used to finance speculative rather than productive investment, was merely masking a systemic decline that was already discernible before the Soviet collapse – albeit unanimously ignored by mainstream propaganda and media.

Emasculation of the state

The apparent hope of Western policy makers was that by extending yet more debt they could create the conditions for a self-sustaining revival of GDP growth and tax revenues, thus enabling the colossal indebtedness, particularly of the public sector, to be paid down over time. This delusion has even survived the onset of the GFC, although it is by now clear to a growing number of analysts that most of these huge debts can never be repaid and will sooner or later have to be written off. One thing not to be contemplated is that taxes should be raised, particularly on the mega-rich corporations and individuals best able to sustain the extra burden for whom, thanks to global liberalisation, taxation has by now become largely voluntary. Indeed such is the continued dominance of the Reagan-Thatcher “supply side” ideology that many political and business leaders still advocate even more cuts in already much reduced rates of direct taxation.

The net result of these ruinous tendencies over decades is that governments – even of the world’s richest countries – have been rendered progressively more unable to fulfil the basic functions of the state as their fiscal resources have shrunk. This has been reflected most obviously in the steady erosion of the welfare state over the last 30 years or more – although this trend has also owed much to the predominant ideological bias against social welfare, particularly in the US and UK. In contrast there has been no tendency to stint on spending on corporate welfare – particularly when it comes to bailing out the financial sector in a crisis. Likewise spending on defence and the “military-industrial complex”, so far from facing any cuts, has benefited from massive and often corruptly wasteful spending on the open-ended “war on terror” – including the disastrous and illegal conflicts in Afghanistan and Iraq.

Strikingly this spendthrift irresponsibility in the West, concentrating ever more wealth in fewer hands while the social fabric is allowed to decay, is largely mirrored in Russia and the rest of the ex-Soviet world, where economic and social conditions have in many cases been allowed to sink to Third World levels since the 1990s (most notably in the Central Asian republics). Both regions are likewise marked by increasing lawlessness, such that in both West and East wrongdoing by corrupt financiers and oligarchs goes largely unpunished and “whistle-blowers” and others seeking justice are marginalised or actively persecuted.

End of the road?

What the Ukraine crisis appears to show is that the limits of such fiscal profligacy, officially sponsored criminality and neglect of the public interest may now have been reached. While the US and the EC on one hand and Russia on the other are ostensibly competing to try and draw Ukraine into their respective spheres of economic and political influence, it is apparent that neither side has sufficient resources or political will to save the country from impending economic disaster. In fact there are grounds for believing that their rivalry is to some extent more apparent than real. For there is no doubt that the two sides have for the most part actively colluded with each other in the ruthless pursuit of their questionable foreign policy goals – so that, for example, Russia has been happy to have its brutal repression of Chechen and other separatists in the North Caucasus identified with the US-led “war on terror”.

On this reading the main cause of the dispute over Ukraine is that President Putin has suffered an important political setback – and loss of face – through the downfall of his client Yanukovitch, a reversal which could clearly have serious negative consequences for him at home in Russia, where he is evidently struggling to repress growing popular dissent. If this is so, and if the Western leadership does indeed covertly view Putin as more of an ally than deadly enemy in the wider geo-political game, they may well be anxious to help find him a face-saving way out of the confrontation in Ukraine. Their willingness to do so may be all the greater given their incapacity to contain Ukraine’s domestic crisis without at least tacit Russian cooperation.

In this context Russia’s obviously superior military capability on the ground may not count for much, given that a) it would face overwhelming popular opposition to any military intervention outside Crimea and b) it could not on its own mobilise the other material resources needed to make its intervention politically sustainable. Equally, however, the EU and US combined can evidently afford to offer only quite limited financial support, which would prove grossly inadequate if Russia were to withdraw its own aid to Ukraine.

It thus transpires that the leading powers involved (Russia, EU and US) are effectively incapable of acting individually to help Ukraine achieve the minimum level of financial stability to save it from economic and social collapse. Yet it may also be questioned whether, even if all three could agree on an acceptable political outcome in Ukraine, they could actually muster the resources needed to stabilise the country beyond the short term. This is not only because their own financial and economic fragility reduces their capacity to act – as shown by the inadvertently revealed British government memorandum indicating that it would contemplate no sanctions against Russia that might imperil City institutions – but because they lack the ideological or moral commitment to act in the public interest of the Ukrainian people as opposed to favouring their own dominant vested interests.

Arguably this same combination of financial and moral bankruptcy may explain the incapacity of the “international community” to address other signs of economic, social and political instability that have emerged recently in the world’s poorer, more marginalised countries and taken the world by surprise. In particular such an analysis might seem applicable to the series of upheavals since 2010 that have come to be known as the Arab Spring. The impotence of the major powers in face of these uprisings has been matched by their inability to offer a coherent explanation of their causes – although there seems little reason to doubt that a major catalyst for them has been the chronic negative impact of the GFC (particularly in Europe) on the whole Mediterranean region.

What all this surely tells us is not only that the Western liberal-capitalist economic model is now as terminally outmoded and discredited as the dead Soviet model of central planning, but that we can only expect to find a way back from the brink of global disaster if our structures of government – in both East and West – are made far more responsive to the needs and aspirations of the mass of ordinary people rather than those of corrupt and unaccountable oligarchies. Sadly, the lesson of the Ukraine crisis to date is that nothing can be expected to change this balance of forces without intensifying conflict both within and between states, with dangerously unpredictable consequences.

The Mirage of Intellectual Property

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Perhaps few incidents could better define the present phase of global capitalist decay than the lawsuit brought by Apple against Samsung Electronics over alleged infringements of its intellectual property (IP) in respect of its iPhone and iPad handsets and tablets. The case – which has evoked counter-claims by Samsung of comparable IP infringement by Apple – was initiated in April 2011 and has involved litigation in various jurisdictions around the world. By mid-2013 it has resulted in numerous, often contradictory, judgments from different courts but with no decisive victory for either party. Hence any damages or compensatory actions that may result to or from either side seem likely to be largely self-cancelling. Meanwhile the costs of the litigation to both parties, which have not been disclosed, may be conservatively estimated to run to tens of millions of dollars. Arguably growing market recognition of the futility of the whole exercise may have something to do with the 30 per cent decline in Apple’s share price since September 2012 – at a time when the broader stock market has risen by nearly 20 per cent. Thus the only evident gainers from this exercise are lawyers and consultants, while the supposed beneficiaries – shareholders, and ultimately consumers – are the losers.

The Apple vs. Samsung case may in fact prove to have served a wider public purpose if it makes people aware of the absurdity and wastefulness of trying to enforce patents granted in different countries to different companies for what may often appear to be broadly similar technologies, let alone claims (as also complained by Apple) that the shape of one firm’s handset screen may be a copy of another’s. Indeed it should force us to confront the whole question of the role of IP in the modern economy and whether any genuine public interest is served by seeking to enforce proprietary patent rights in an era of rapid technological change, particularly when the claim to such rights often seems questionable in the first place.

The question is all the more pertinent given that intellectual property rights seem only to have become a major issue in international economic relations (or even within national economies) within the last 20-30 years. It is true that the right of individuals to be granted patents on new inventions has been recognised for centuries by national governments in the West. However, it is striking that they never till now seem to have loomed large in the development and spread of technology either before or since the industrial revolution of the early 19th Century. This is probably because the value of patents has not been generally perceived as great enough to justify the cost and effort of obtaining them, given that they do not normally offer protection to inventors / patent holders for more than 20 years and may be hard to enforce.

This naturally begs the question of how and why attitudes have changed in recent years. The key to understanding this is evidently the agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) which was included in the rules of the World Trade Organisation (WTO) established in 1995 as the governing body regulating international trade. The WTO replaced the General Agreement on Tariffs and Trade (GATT) which had fulfilled the same function since 1948 and had not included any rules governing IP, although the United States in particular had been anxious to remedy this deficiency at least since the 1980s. As a consequence all countries joining the WTO are required to sign up to TRIPS, which commits them in principle to granting and enforcing IP rights to and for all legitimate claimants from whichever country. (It should be noted that this applies to copyright on content and recordings of creative / artistic works as well as technological innovations.)

The most obvious reason for the new-found determination of US and other Western countries to impose IP protection rules internationally is that they are the main source of both technological innovations and mass-market “cultural creations” such as films and musical recordings and that they wished to secure the maximum share of the value generated by these for their corporations and national economies – or even in some cases to limit access to them if that was seen as in their strategic interest. What is less obvious, but arguably a more compelling reason, is that business cycle and competitive pressures combined with market and technological change have been pushing global big business to seek new outlets for investment of their continuing flow of surplus profits. In particular, they have been forced to respond to a) the slower growth and increasing saturation of traditional markets for consumer goods (such as electrical appliances and motor cars) as well as greater competition from low-cost producers such as China, and b) the correspondingly greater importance of services in consumer markets, also associated with a relatively bigger need for investment in intangible assets (such as technological research) rather than plant and buildings. (Another vested interest probably behind this trend may be worthy of mention, namely the voraciously expanding legal services industry, which has rightly viewed IP litigation as a potential bonanza.)

A difficulty posed by this growing dependence on such “software”-intensive markets is that big corporations do not necessarily enjoy the protection from competition that goes with large size, economies of scale and corresponding barriers to new entrants – which have typically protected big players in traditional heavy industries such as engineering and petrochemicals. Hence other ways to protect profits by limiting competition have had to be sought. While Microsoft Corporation demonstrated in the 1990s how to do this by successfully operating a highly profitable monopoly with its Windows software – notwithstanding a US federal anti-trust prosecution – such tactics may well seem difficult for others to replicate, not least because competitors (notably Apple) were ultimately able to eat into Microsoft’s ruthlessly acquired market share. But even as such options for capturing economic rents from IP appear to be dwindling, major players in different technology sectors still seek to use patent law to limit competition.

The trouble with this approach is that the task of designing and enforcing an effective system of patents that meets general acceptance faces as many serious constraints as ever. Of these the central one is that IP restrictions on economic activity are widely perceived as either inherently unfair or unenforceable – even by most countries which have signed up to them under WTO / TRIPS, not least because (as developing countries have argued in WTO negotiations) the already industrialised countries have the competitive advantage of being able to subsidise research and development for their corporate interests. Moreover, to the extent that patent rights are enforceable it is also argued by many that, so far from being an incentive to investment in research and development that may lead to desirable technological progress, they permit and encourage those with control of existing dominant technologies to prevent any advances to them in order to maximise their returns to their past investments. Such a charge could indeed be convincingly levelled at the major pharmaceutical companies, which have often sought to extend the life of patents (typically by making very slight modifications to existing products) rather than undertaking or allowing research by others so as to permit development of new drugs incorporating vital advances in treatment. This constraint has been identified by at least one very respectable body of academic opinion – including two Nobel prize winners – as a reason for recasting the entire global structure of IP law and regulation (http://www.isei.manchester.ac.uk/TheManchesterManifesto.pdf).

At the same time there is growing recognition that most of the vital innovations that are central to the modern global economy are largely the result of publicly financed research, so that the claim of any private sector companies to any exclusive rights over them seems obviously indefensible. This is the clear implication of a recent study (authored by a leading economist, Prof. Mariana Mazzucato and published by the think-tank Demos – http://www.demos.co.uk/publications/theentrepreneurialstate – pointing out that such key technologies as the algorithm central to Google’s search engine and the touch-screen facility used by Apple and other smart-phones were largely developed with the aid of US federal funding, while many important advances in biotechnology made by UK public bodies have been made available at little cost to pharmaceutical companies which have used them to make substantial, patent-protected profits.

Perhaps the most egregious perversions of the concept of IP have been those based on attempts to patent new products derived from naturally existing ones such as the human genome and planting material for crops. The latter case in particular has been the subject of a long campaign (led by the main chemical company concerned, Monsanto Inc.) both to promote the adoption of genetically modified (GM) seeds and to ensure that farmers using them cannot save and replant them – according to traditional agricultural practice – in supposed breach of the manufacturer’s patent. The seemingly endless controversy surrounding this campaign – centring mainly on the issue of the costs and (highly questionable) benefits of GM varieties – has thus far led to no objectively measurable public benefit; rather the contrary. Indeed Monsanto’s recently announced decision to abandon attempts to have its GM seeds authorised for use in the EU would indicate they are starting to see the whole campaign as a futile waste of effort. Yet unquestionably in the absence of restrictive patent laws and TRIPS Monsanto and others would hardly have had the incentive to embark on such a wasteful course and those resources could have been devoted to more constructive purposes.

As suggested earlier, all these largely vain efforts to assert IP rights to an extent that has never been attempted before may come to be seen as worthwhile insofar as they have provoked a strongly hostile reaction against the idea that certain economic actors should seek to claim a right to monopoly control of access to productive assets – and the economic rents that go with them – which are either the common heritage of mankind or have been developed at public expense and thus, notionally, in the public interest. Nowhere has this revulsion been stronger than in the area of pharmaceutical products when the dominant global corporations have sought to deploy their patent rights to deny access to the world’s poorest to affordable life-saving drugs (e.g. to treat HIV) in pursuit of maximum profits. But equally significant is the trend towards developing freely available “open source” software – such as the Linux alternative to Microsoft’s Windows, which has clearly been conceived as an express rejection by its creators of Microsoft’s anti-social values.

There seems every reason to hope that such developments (as well as the inconclusive outcome of the Apple / Samsung litigation) point to a future where such intangible productive assets will be regarded as freely available to individuals or communities to use for whatever legitimate purpose they choose. This is akin to the increasingly popular concept of the “creative commons”.

It needs to be stressed that this does not mean that the concept of intellectual property is wholly without validity. Indeed it is likely to remain the consensus view that inventors, authors and producers of intellectual “products” – whether technological or “cultural” should be entitled to reap a monetary reward from their creations. The question of how this may be achieved, while balancing the interests of individuals and the public at large, in an age when copyright is increasingly hard to protect, needs to be the subject of international public debate. Perhaps the most rational solution would be a structure of rewards for properly authenticated inventors or originators of different types of IP that allows them to be suitably (but not exorbitantly) compensated on a one-off or time-limited basis, preferably according to internationally agreed criteria.

What these developments in relation to IP do signify, however, is that the attempt by the global corporate establishment to seize control of intangible assets on an increasing scale in order to meet their helpless addiction to seeking ever more high-yielding investment outlets is doomed increasingly to fail.

 

17 September 2013

Capitalism’s terminal debauch

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As the Global Financial Crisis (GFC) drags on, the inability or unwillingness of the ruling global elite to recognise or address its true causes appears ever more surreal, not to say terrifying. The sense of impotence and ideological bankruptcy among political leaders is manifested almost daily – as in President Hollande’s attempt on 9 June to convince his Japanese hosts that the Eurozone crisis is “over” (http://www.bbc.co.uk/news/business-22832471) and in Britain’s opposition Labour party simultaneously embracing the governing Coalition’s policy of austerity and welfare cuts even as the independent Institute for Fiscal Studies projects that this strategy will preclude any relief from public spending cuts and tax rises until at least 2020.

This flight from reality is a sign of the utter helplessness felt by world leaders in face of their failure to find a solution to the global economic paralysis stemming from the GFC. From their perspective, of course, any such solution must be compatible with preserving the present “neo-liberal” world economic order, which since the 1980s has concentrated untold wealth in the hands of the tiny minority that they represent, while the vast majority of the world’s population sinks deeper into impoverished hopelessness.

A conspicuous recent symptom of their frustration is the attempt by the new government of Japan, whose economy has experienced no significant growth in over 20 years, to break free from chronic stagnation by engaging in a renewed massive bout of Quantitative Easing (QE) – or money printing by any other name. The main idea behind this move is ostensibly to promote domestic inflation – instead of the chronic deflation the country has experienced since around 1990 – by encouraging a devaluation of the Yen and thereby, it is hoped, a rise in consumption and growth. The immediate impact of this initiative was dramatic, prompting a 25 per cent fall in the value of the Yen against the US dollar in the 6 months to mid-May 2013 and a corresponding rise in the Nikkei stock market index (over 80 per cent) in anticipation of the higher inflation and economic growth investors apparently believed would result from this stimulus.

The scale of this intervention – involving the purchase by the Bank of Japan of government bonds (JGBs) with Yen newly created by itself – has been even larger (proportionate to the size of the national economy) than the parallel initiative in the United States, where the Federal Reserve’s QE programme is currently monetising debt at the rate of over $1 trillion annually. Not surprisingly, it may seem, such massive injections of funds, channelled through major banks and investing institutions, have served to underpin the broad-based market euphoria building round the world since late 2012, which has seen most stock market indices rise by upwards of 20 per cent. Yet for all the efforts of politicians and mainstream commentators and media to spin this market surge as an indicator of rising economic optimism and the long-awaited revival of economic growth (GDP) – even though it has failed to lift most market indices as high as the all-time peaks attained before the bursting of the dot.com bubble in 2000 – manifestly it has been an entirely synthetic, liquidity-driven bonanza.

Moreover, mainstream propaganda is at pains to downplay the vital role of QE in allowing both public and private debt to continue to be financed. Yet without such massive official purchase of government bonds (and also private-sector “toxic waste” such as US mortgage backed securities) there is no doubt that their market value would have fallen – and interest rates correspondingly risen – to unsustainable levels, thereby forcing public and private institutions into open insolvency and mass default.

Corruption of the market place

The artificial nature of the recent stock market “boom” is still more obvious once we discover that a large proportion of the stock purchases fuelling it has been made by companies buying back their own shares, (http://usatoday30.usatoday.com/money/perfi/stocks/story/2012-03-20/stock-buybacks/53674154/1) often financed by increased debt rather than retained earnings. In other words, company executives and directors are using the opportunity provided by the abundant cheap finance conjured out of thin air by QE both to manipulate their share price higher – facilitated by the prospective reduction in the number of shares outstanding – and to enrich themselves by selling their own shares in the company at a higher price, as well as through increases in their remuneration where (as is often the case) this is linked to rises in the share price. At the same time the whole process reflects dwindling rather than growing confidence among corporate insiders in the prospects of their businesses and an irresponsible tendency to cash in while they can, even if that means further weakening balance sheets (now loaded with more debt which will be even more of a handicap once interest rates rise again).

These corrupt, market-distorting practices in the stock market may be seen as just another manifestation of a broader climate of manipulation now pervading all asset markets. The best publicised case of such market rigging has been the LIBOR interest rate fixing scandal exposed in 2012. On top of this now come allegations – which have thus far received little media coverage – that the vast foreign exchange market (with daily turnover of more than $4.5 trillion), whose epicentre is once again London, is also subject to widespread distortion of exchange rate benchmarks by market traders. Even more hidden from view is the abundant evidence that the US authorities are colluding with private sector financial institutions to suppress gold and silver prices (http://www.gata.org/node/12708) (in the interests of maintaining the value of the US dollar, otherwise severely threatened by the Federal Reserve’s ever more profligate monetary policy) – a process which is illegal under anti-trust law.

All this reinforces the growing sense that virtually all international financial markets are by now effectively rigged – and that the often criminal practices involved are tacitly sanctioned, indeed orchestrated, by the governments of the industrialized world under US leadership. Indeed, while evidence of this has been building for many years – as witness the establishment of the shadowy US presidential Working Group on Financial Markets following the stock market plunge of 1987 and a number of well documented instances of official share buying in Japan and other Far Eastern markets since then, it may be said that the widespread adoption of QE since the onset of the GFC has served to underpin and sanctify the whole principle of generalised market manipulation.

It should go without saying that allowing such an essentially fraudulent market climate to develop is extremely hazardous for those who would preserve the illusion that the world economy is governed by more or less free markets and a “level playing field” for all. For once market players perceive that markets have become institutionally perverted and corrupt arenas where a privileged few with inside information can make vast profits at the expense of the mass of ordinary investors the latter are bound to start leaving the casino in droves – if not burning it down. At the same time it will become harder and harder to convince the public at large that they should make huge sacrifices to keep the system afloat.

Checkmate

Against this background the continuing resort to QE – an unprecedented experiment that turns the basic principles of market economics on their head – represents an enormous gamble. It has been justified largely on the basis that it can stimulate revived growth by pumping more money into the economy. However, its failure to do so thus far – notwithstanding attempts to pretend that the US economy at least is now recovering – has led in recent months to growing worries in the markets that it will soon prove unsustainable. For without the prospect of a boost to growth leading to a reduction, let alone a reversal, of budget deficits holders of US Treasury Bonds and JGBs are losing confidence that they will hold their market value. This concern is already being reflected in a slight rise in market interest rates. Yet for reasons noted above any significant rise in interest rates – of 1 percentage point or more – would likely precipitate mass global insolvency, which would be compounded by a generalised collapse in asset values. Even more chilling is the prospect that, even if the longed for revival of growth were to occur, it would inevitably lead to a sharp rise in interest rates as both demand for capital and inflationary pressures pick up. The only way this might be averted would be by engaging in further monetary expansion (via QE) so as to continue bearing down on interest rates, although this would bring the obvious danger, indeed certainty, of hyperinflationary collapse. Either way, therefore, there is now evidently no way of avoiding the catastrophic market meltdown that policy makers have been struggling to avert since 2007.

This harsh reality is finally starting to be reflected in the mainstream media, as it continues to pay lip-service to neoliberal orthodoxy while at the same time being forced to recognise its inevitable failure. Thus a leading commentator in the right-wing Daily Telegraph (http://www.telegraph.co.uk/news/politics/labour/10103347/If-the-Labour-Party-wont-spend-whats-the-point-of-it.html) on the one hand chides both the Tories and Labour for their failure to make serious cuts in the welfare budget, but none the less concludes that the British national debt burden is after all too large be paid down and can only be eliminated through inflation or default. This thought is echoed by a former senior economic policy official in the George W. Bush administration, Dr Pippa Malmgren, who in a recent interview states that “at the end of the day, the magnitude of the debt that is held by the United States, and indeed by all of the industrialized economies that have a debt problem, is so great it cannot be paid down. The human suffering involved would be so far beyond our capacity to withstand, so it has to be defaulted on.” (http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Archive.html – 8 June).

Thus the global elite – or criminal syndicate – which attempts to manage the world economy in its own interests now finds itself in the position of a chess player who has run out of moves. Yet such is the irresponsibility of those in charge that, so far from conceding defeat, we can only expect them to try ever more desperate ploys – such as precipitating yet more wars – in trying to escape the inevitable. One thing that seems most unlikely to deter them is the scale of human suffering they might unleash.

20 June 2013

Immigration and the mythology of globalisation

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One symptom of the ongoing global financial and economic crisis (GFC) that is recurring more and more frequently is the demand to address the problems associated with migrant workers who, whether legally or not, have for decades been leaving their home countries in seemingly ever larger numbers in search of improved economic opportunities abroad. This has become a particular focus of concern in those relatively wealthy countries – located mainly in North America, Western Europe and Australasia – which are the target destination for most such migrants. Here, as economic growth has faltered since the turn of the century and virtually dried up since the start of the crisis in 2007, unemployment levels have inevitably soared to the point where the capacity of these economies to absorb more migrant labour from overseas – or even to continue providing work for those already here – is increasingly being called into question, as is the capacity of public and social services to cope with the influx of foreigners, many of whom are substantially deprived, if not destitute, when they arrive.

 

 

As a consequence of these developments immigration has become a priority concern in the eyes of the public, such that political parties are forced to consider measures to try and cut – or even reverse – the inflow of migrants, particularly in the face of xenophobia fanned by increasingly popular far-right parties such as Golden Dawn in Greece and the UK Independence Party in Britain.

 

 

Unfortunately, but not surprisingly, debate on the issue is seriously distorted by misinformation emanating from particular vested interests underpinned by a continuing mainstream political consensus that “globalisation” – involving largely free cross-border movement of trade, capital and labour – is a desirable if not inevitable feature of modern economic organisation. A notable instance of this has been the (not entirely successful) attempt by the further and higher education sector in Britain to minimise restrictions on the issue of visas to foreign students, on whose fees it has become increasingly dependent. Yet while arguing that this benefits the national balance of payments by increasing the volume of fees paid in foreign exchange, it ignores the well documented fact that a significant number of such students are either incapable or have no intention of paying the fees due, seeing their visa as a way of gaining entry to the UK in order to seek employment illegally.

 

 

At the same time it is often argued by business lobbyists – and even a number of economists – that net inward migration of labour does not tend to depress wages, by increasing the supply of labour relative to the demand for it, even though such a claim amounts to a negation of the most basic law of economics. Such self-serving delusions are seemingly given further credence by those – including many who would count themselves on the left – who evidently consider immigration as positive from a broader socio-economic perspective, e.g. in terms of promoting cultural diversity and international solidarity. In any event it is clear that many who are otherwise strongly opposed to the exploitation of labour are very reluctant to express any support for tightening restrictions on immigration – often, it would appear, out of fear of being branded racist.

 

 

Such “political correctness” is regrettable not only because it plays into the hands of those on the cynical right who quietly welcome the role of migrant workers in keeping wages depressed while at the same time gaining political mileage by pandering to mounting popular xenophobia if not actually “playing the race card” (as reflected in the British tabloid press). It is arguably even more damaging in that it prevents a more rational debate on the whole issue of transnational migration based on a realistic perception of its causes and the interests and needs of those affected.

 

 

Above all such attitudes typically rest on the very questionable assumption that migration by deprived people from poor countries is generally beneficial to migrants and their families – and indeed to their countries of origin – and is so perceived by themselves. Nobody is more guilty of promoting this rosy view than development agencies such as the World Bank, who never tire of pointing out that the remittances sent home by migrant workers to their families constitute a vital source of foreign exchange to many developing countries, with annual flows to the latter now as high as US$ 400 billion (far more than they receive in development aid). Remarkably, the Bank tries to claim that the process is also positive for the host countries’ economies, though they are unable to quantify this or relate it to the corresponding loss to their GDP resulting from the outflow of remittances. What they also fail to mention is the negative social impact of migration resulting from the prolonged splitting up of families. Equally they take no account of the subsidy given by poor countries to rich ones when their skilled workers, trained at their national expense, are lost to the domestic economy – e.g. Filipino nurses recruited for the British NHS rather than for local health care services that are in dire need of upgrading.

 

 

Such official exaggeration of the benefits resulting to those migrating to rich countries also plays to the popular belief, eagerly fostered by Western media, that many immigrants are actual or potential “freeloaders” seeking to take unfair advantage of supposedly generous welfare systems in the industrialised West. The grim reality for the vast majority of migrants is that

 

 

  1. they only resort to leaving their home countries out of desperation in order to escape utter destitution for themselves or their families – or, in a rising number of cases, under threat of death, persecution or loss of human rights (all increasingly common in the now disintegrating world order);

  2. the prospect of leaving the familiar surroundings of their community and of prolonged separation from their friends and relations for an environment where the culture and language are alien to them is a daunting one;

  3. the risks of failure – of losing most of their remaining money or even their lives in the process – mean that emigration represents an enormous gamble.

 

 

Equally, there is a steadfast refusal by the mainstream media and political parties to recognise the economic inefficiency and distortions involved in allowing the importation of cheap migrant labour to do menial jobs – such as car washing or fruit picking which could easily be done by the plentiful supply of existing unemployed labour which otherwise remains stuck in benefit dependency at the taxpayer’s expense. As such the policy amounts to a subsidy to private employers of cheap labour. Still less is there any recognition of the extent to which the whole process of migration – trading on desperation and feeding exploitation – encourages the lucrative branch of organised crime that is human trafficking, encompassing international prostitution rings.

 

 

Hence any realistic attempt to address the problems linked to growing inward migration of workers in the developed countries must be based on the recognition that such migrants are as much victims of the process as are those in the receiving country – who inevitably tend to be more concentrated in relatively deprived areas – who suffer the consequences in terms of increased pressure on local public services as well as competition for ever more scarce job opportunities.

 

 

Furthermore, such a reappraisal would need to face the fact not only that unrestricted labour migration is socially undesirable and economically inefficient but that the entire globalisation project has proved to be based on a false prospectus and has been a major factor in bringing economic and social ruin to the whole world, developing and developed alike. Above all it has demonstrated that removing restrictions on cross-border trade, financial transfers and migration, so far from being a recipe for rapid economic expansion and wealth creation, has simply served to increase insecurity and instability – social as well as economic – and the concentration of wealth in fewer and fewer hands. Perhaps the most graphic symptom of its failure is the so-called Arab Spring which has erupted since 2010. For there can be little doubt that a crucial source of the discontent driving this movement has been the chronic mass unemployment and intensifying poverty and hopelessness in those Arab countries without significant oil wealth. The tipping point may well have been the onset of the GFC, particularly as it has affected Europe, which has long provided an outlet for surplus labour, particularly for Maghreb countries such as Tunisia, where the uprising began. For the sudden drying up of employment opportunities in the EU – notably in Spain, where unemployment has now mushroomed to 27 per cent – has inevitably had huge repercussions for Arab economies which had come to depend on them. At the same time local enterprises have been seriously weakened by the global downturn and intensifying competition from abroad.

 

 

The lesson to be drawn from this experience is that problems arising from cross-border labour migration can only be solved by a comprehensive restructuring of the world economic order such as to eliminate the enormous economic waste and social damage associated with it. This will entail renouncing the delusions of the “free market” in favour of an economic model based on the principle of guaranteeing minimum security for all within a framework of relative economic stability (recognising also that a revival of rapid global growth will not be sustainable). For this to work it will also mean giving national and local communities more control over their markets and resources – ensuring the retention of national value added by restricting capital flows – rather than sacrificing them to the destructive forces of international competition.

 

 

Sadly, of course, in the real world such ideas are very far from the political agenda, which remains dominated by the neo-liberal dogma of the 1980s. Seemingly it will need the Arab Spring – or worse – to come to Europe and the US before a meaningful shift in this ideological logjam can occur.

 

31 May 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

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Last days in the bunker?

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As the economic news across the world has turned increasingly ugly since the beginning of 2013, signs of intensifying desperation within the leadership of the industrialised nations are starting to appear. In the face of negative growth of GDP in all major countries (including the supposedly more buoyant US) in the last quarter of 2012 politicians, central bankers, leading economists and captains of finance and industry have all begun to express alarm at the failure of official measures designed to stimulate revival to have any positive impact.

As from the start of the global financial crisis (GFC) in 2007-8, there are two broad strands of official opinion as to how it should be overcome, starting from the common perception that its initial manifestation – the impending mass insolvency of the financial system – had to be averted by unprecedented state bail-outs of (largely private) banking institutions. The first, and predominant, strand of opinion has been that the resulting huge extra burden of public sector debt must be reduced by means of intense fiscal austerity, principally through cuts in expenditure rather than tax increases. The second strand asserts that, in order to reduce the excessive levels of debt in both the public and private sectors there needs to be yet more public sector borrowing – thereby increasing the debt level, at least initially – to finance new capital spending on the basis that this will boost growth throughout the economy and hence raise the extra revenues needed to pay down the debt. Although economists continue to argue about which of these somewhat conflicting strategies is more likely to lead to the desired recovery, most governments have in practice pursued a combination of both. At the same time there has been near unanimity that monetary policy must be extremely relaxed, so that near zero interest rates have been the norm ever since the start of the GFC – on top of which “quantitative easing” or QE (using money created by the central bank to buy government debt and thereby increase liquidity in the economy while also serving to prevent interest rates on the debt from soaring to unsustainably high levels) has increasingly been resorted to by central banks.

In fact at the time these “extraordinary measures” were first widely adopted following the banking disaster of 2008 it should have been obvious, on any objective analysis, that such measures could never lead to anything resembling normality – let alone a sustained revival of growth – while the economies of all major countries remained weighed down with such a crippling burden of debt, and that consequently most of this debt would need to be written off before equilibrium could be restored. Despite this the main organs of establishment propaganda – naturally including the mainstream media – have for the last four years maintained a public posture of confidence that the global economy is on course for recovery.

However, now that it is apparent that all the policy measures, conventional and unconventional, that governments have managed to deploy have predictably left their economies flat-lining at best – with real GDP no higher now than in 2007 and public indebtedness still rising – panic is evidently starting to set in. Thus in Britain two leading establishment economists – Martin Wolf, chief economics commentator of the Financial Times, and Lord Turner, Chairman of the Financial Services Authority – have seemingly joined forces to call for the printing of “helicopter money” (cash freshly minted by the state) to be distributed across the economy in a last-ditch effort to stimulate consumer demand. Yet it must be obvious to them that such an approach, if adopted, would risk much higher levels of consumer price inflation (which is already well above both the official target level and average income growth) and / or a renewed bubble in asset prices, including house prices, which are still well beyond the reach of most first-time buyers five years into the downturn. As it is, one of the few positive symptoms resulting from QE is that, as a result of the extra liquidity injected into the system, stock market prices have risen significantly in recent months, although strikingly the main benchmark indices in the US and UK are still below the all-time high levels reached in 1999-2000. Doubtless Wolf, Turner and their colleagues are also aware that, if they could get away with such an “inflationist” strategy for a few years it could significantly devalue the huge debts still weighing down the economy, albeit at the price of reducing many millions dependent on small savings and low incomes to penury.

At the same time right-wing commentators and Tory politicians desperate for some action to revive growth are calling for huge tax cuts on business and investment (corporation and capital gains tax) to be paid for by even bigger cuts in spending than those already inflicted on the bleeding body of the public sector. This despite the copious evidence from past experience that a) “supply side” measures such as cutting direct taxes tend only to result in only higher public debt (as under Reaganomics in the US in the 1980s) and b) trying to cut one’s way to fiscal balance is equally self-defeating, as most recently demonstrated by Greece and Italy. Yet all the while the inescapable reality remains, as it has been since the start of the GFC, that there is no way of restoring any kind of stability or balance to the global economy without effectively writing off virtually all of the unpayable debt still paralysing the system. However this is achieved – whether through the ending of state support for financial institutions and asset values or via hyperinflation through QE or other forms of money printing – the inevitable outcome will be a market meltdown even more cataclysmic than that of 2008 and a consequent collapse of personal income, wealth and savings such as to threaten social stability and civil order across the world.

This intensified resort to vain fantasies as the inexorable forces of systemic failure close in calls to mind the delusional behaviour of Hitler and his dwindling entourage in the Berlin bunker in 1945, summoning non-existent divisions to be thrown into the Eastern front as the Red Army remorselessly advanced on the capital. For Hitler the stark choice was surrender or suicide. For Chancellor Osborne and his peers in other countries the options may seem almost as unpalatable, although unlike the Fuhrer they may hope to survive capitulation personally.

In contrast to the position facing Germany in 1945, however, there is now no obvious alternative regime available offering a vision of a more humane economic and social order that could restore some degree of stability and hope to the world. This is because, despite the West’s supposed commitment to pluralism and democracy, all our political institutions – including most of the media – have, over the last 30 years, been progressively coopted and absorbed into a monolithic structure committed to sustaining the neo-liberal ideology propagated by and for big business interests.

In this climate of extreme market liberalisation and globalisation – modified by highly distorting government-supported manipulation and subsidy favouring selected groups or individuals – there has been no place for any notion that the resources of the state could or should be deployed to control or restrict economic activity in the wider public interest if that is seen to be at odds with corporate power and private profit maximisation. Hence it seems quite hard to conceive of any major Western government having both the will and the capacity to do what now needs to be done to maintain or restore minimum conditions of survival as the global economy progressively disintegrates. For this would require the creation, at least on a temporary basis, of some form of command economy, involving tight government control over all aspects of the economy – including not only credit but prices, incomes, production, trade, foreign exchange and capital flows – as a prelude to restoring economic life on a more stable long-term basis.

Given the current balance of political forces in the world’s rich countries there is evidently no prospect of any government acting to pre-empt the gathering financial holocaust. Even once it clearly manifests itself – almost certainly in the form of a new round of bank failures – it seems hard to believe that the increasingly criminal ruling élite will easily submit to the need for such a command economy. For this would entail not only a) huge financial losses for themselves (and the rest of the “1 per cent”) as asset values are wiped out on the markets, but b) a demonstrable failure of the dominant neoliberal ideology (if not of capitalism itself) as comprehensive and terminal as was that of Soviet Communism in the 1980s. For the powerful few, therefore, the stakes are high. Yet for the mass of ordinary people round the globe they are higher still, and many may increasingly feel they have nothing to lose but their lives in the struggle for a more hopeful future, as the Arab “Spring” arguably demonstrates. As the world approaches the moment of maximum danger it is crying out for leadership to take it in a different direction.

3 March 2013