Thursday, August 23, 2007

Afghanistan: 'Good war' or bloody failure?

The Guardian's excellent Seumus Milne provides a compelling denunication of the war in Afghanistan

"For Afghans, six years after they were supposed to have been liberated, life is getting worse. As the International Committee of the Red Cross reported two months ago, the humanitarian situation is deteriorating and civilians are suffering "horribly" from growing insecurity and violence in an increasingly dirty war. The fighting in the south has driven 80,000 from their homes, and the civilian casualty rate has doubled over the past year: more than 200 were killed by US and other Nato troops in June alone - far more than are estimated to have been killed in Taliban attacks. The savagery of indiscriminate US aerial bombardments provoked violent demonstrations and is widely seen as having increased support for the Taliban's armed campaign."


Read the rest here.

Tuesday, August 21, 2007

The Credit Crunch and the Free Market

I want to aim this short essay at the lay reader, rather than at people with some technical knowledge of economics and/or public policy. The recent turbulence on the global markets gives us a good opportunity to re-examine some fundamental political questions about how economies function: questions that have relevance to the world outside of the City of London and Wall St. Now people's eyes tend to glaze over when subjects like this come up, but stick with me because I'm going to try and keep it straightforward. Economic issues seem complex largely because they're often dressed up in a lot of technical jargon. In fact, the basic principles are pretty simple for any of us to grasp. And once we have grasped them, the world we inhabit is illuminated in all sorts of ways.

Background

In essence, here's what's been happening on the markets in recent weeks.

US lenders have been selling mortgages to high-risk borrowers. That is to say, people who are less likely to be able to pay those mortgages back: those on low incomes, with bad credit ratings, and so on. These are called "sub-prime" mortgages. They carry high-interest rates because of the unusually high level of risk associated with the lending.

Because they carry high interest rates, these kinds of debt can make lenders a lot of money. That means they can be sold on to other lenders at a profit. Often the debts are bought and sold, again and again, as part of a package comprising a selection of debts. Gradually these packages have become more and more complex and, as the international financial markets have been able to escape official scrutiny, they've become less transparent as well. That's all fine as long as things go well. But high profits are made in these markets precisely because the debts that are being bought and sold are high-risk - i.e. there's a high-risk that things might stop going well. And now they have.

In recent months, low-income, low-credit-rating US borrowers have started to default on their sub-prime mortgages. That means that those high-profit debts have started to turn bad: people have lent money that they're now not going to get back. The difficulty is that because these debts have been bundled up and sold off, and then sold on again, and again, in all sorts of complex and non-transparent packages, people aren't entirely sure where the bad debts actually are now. The result is panic.

Investors now have a couple of problems. First, they're having to work out how much money they may have lent and now lost. Second, to cover these losses they may want to borrow, but the people they want to borrow from are in the same predicament: nursing potentially major losses that they're unable to calculate. The result is that less money is being lent overall. If less money is being lent then less money is being invested, so less shares are being bought. If less shares are being bought then the value of companies starts to fall on the stock market. That's what we've seen in the last couple of weeks.

Of course, when stock prices fall, companies stop investing in new products and services, and start laying people off or cutting their pay. That means that consumers have less money to spend, which means companies see their revenue go down, which reinforces the cycle and sends us towards recession territory. That's where this may eventually lead.

Think of the world economy as a badly knitted jumper and of those low-income mortgage holders as a loose thread. When they default on their mortgages the thread is tugged, and the whole thing can potentially unravel.

Implications: Free market vs Intervention

What does all this say about how economies are run? Political debate on economic questions is often characterised as being between two sides: the free market and state intervention. Either government plays an active role in the economy, or the markets are left to their own devices. Overwhelmingly in the West, political discourse is weighted in favour of the market approach. This in a sense is unsurprising. Our collective political discussions take place in a media environment that is largely owned by private corporations which are legally obliged to maximise profits for their shareholders. Such institutions are generally unlikely to employ journalists and commentators who speak in favour of high taxes and stricter business regulation, whether such policies are in the wider public interest or not. All of us - voters and decision-makers – develop our understanding of the world within a political culture disproportionately influenced by corporate media and lobbying. Our understanding of how economies ought to be run are shaped in no small part by powerful interests. The result is a "neo-liberal" or free-market consensus on economic issues.

Or is it? A closer look, particularly at recent events, reveals some interesting contradictions in the apparently prevailing culture. Two weeks ago, when markets started to experience dramatic losses, national banks started to pump cheap loans into the financial system to avert serious problems. In 48 hours $323bn was poured into the money markets; no small amount.

Now is that the free-market, or is it state intervention?

Big Finance has always resisted tax and regulation on familiar, ostensibly principled grounds. The argument is the same as that put forward by business lobbyists and free-market enthusiasts more generally on all sorts of issues. It is that state intervention damages the natural working of the free-market, whose benefits were described by the philosopher Adam Smith. It discourages entrepreneurialism by binding the hands of potential risk-takers with reams of red-tape, and removes the natural efficiency that markets have when left to their own devices.

One might ask why we are not hearing from these free-market enthusiasts now, as irresponsible lenders are bailed out by same the "nanny state" that is so loudly condemned when it helps single-mothers, asylum-seekers, the unemployed and so on. After all, the state aid lavished on wealthy lenders in recent weeks violates an elementary rule of market economics by introducing a serious "moral hazard". Simply put, irresponsible lenders have been shielded from the full cost of their irresponsibility by the taxpayer, and the "moral hazard" is that they will only continue to be irresponsible as a result.

In a theoretical free market, if one lends to a risky borrower one is rewarded for taking on that risk by a high rate of interest. The risk is with the lender, who profits from it. We can hardly talk about the benefits of entrepreneurialism - of brave pioneers, driven by the promise of high profits and the costs of any potential failure to push the economy onwards and upwards - when these entrepreneurs are in fact cosseted by a state that bails them out when they screw up. The exact criticism free-market advocates level at the public sector is that it is inherently less efficient because it is not exposed to the rigours of the market. Where are these people now? Perhaps is hard to speak when you've got your mouth full with a below-market-rate $323bn dollar state loan.

The reality is that Western economies are not driven by free-market principles but, as I indicated above, by private interests to varying degrees. Often it suits these interests for the state to leave them alone in a market environment - at least that's the default rhetorical position. But in many cases the market is quietly avoided and the state called upon for assistance. Think no-bid contracts for Halliburton in Iraq. Think of the UK arms industry's incestuous links with government, where ministers on overseas trips (including the Prime Minister) practically act as salesmen for the likes of British Aerospace. Think of how the US economy boomed in the post war era, in no small part due to government defence budgets socialising research costs for technologies that were subsequently turned over to the private sector for profit; like aeronautics, like computers and the internet even. Plainly there is no free-market principle at work here.

The mixed-economy consensus

Talk of liberalism vs interventionism serves largely to caricature discussion of economic issues. The religion of business freedom is a useful default position. But it disguises the reality of a broad consensus that economies will inevitably be mixed, with the level of state involvement ranging from actual state provision of goods and services, through market provision via heavily regulated industries, to market provision where the state provides only a minimum legal framework governing standards of behaviour and then sits in the background while the market goes to work. Few argue that the state should disappear altogether and few argue that markets should disappear altogether. The real political question regarding economic affairs is this: how and, more specifically, in whose interests should the balance between state and market involvement be struck in any given area?

For all its talk, delivered by the media and lobby firms that represent it, of neo-liberalism and the wonders of the free market, economic power is not concerned with ordering the economy according to moral or technical principles. It is not interested in the liberalism vs interventionism question that frames political discourse the West. The question it is concerned with is the question I have just posed: whose interests shall the mixed economy serve? Business will demand, using whatever rhetorical devices suit the occasion (including lofty appeals to high principle), that the balance between state and private involvement in any given area be struck in its favour. This is quite natural. Businesses are obliged to maximise profit. The challenge for the public is to use democratic institutions and freedoms to thwart this effort, and instead ensure that the balance is struck in our favour when the two interests conflict.

Current events provide a useful example. Big Finance has argued for liberal financial markets and generally to be left alone by government. But plainly Big Finance does not object to state intervention in principle, having just accepted over $300bn of cheap public money. What Big Finance wants is for the government to back off when it is making a profit and step in when it is making a loss. This is not about liberalism vs interventionism. Its about what suits economic power at any given time.

Lets suppose that instead the free-market/intervention balance on the financial markets was struck in favour of the public interest. Plainly, it does not increase public utility when financial markets are effectively run by the equivalent of spoilt children, immune to the costs of their actions, acting ever more recklessly and endangering the broader economy as a result. In a public-interest economy, the state would involve itself at an earlier stage, placing restrictions on excessively risky lending and forcing transparency in the dealing of debt packages (genuine free markets rely on the good provision of information to function effectively). If the state is to intervene in these markets – as it has done these past couple of weeks - let it intervene in a way that ensures stable markets that reward intelligent and responsible business practices, rather than in a way that rewards incompetence and irresponsibility.

Conclusion

Recent events on the global markets provide a very useful insight into the limits of trying to understand economic issues in terms of liberalism vs interventionism. The reality is that economic questions are settled in favour of material interests, not philosophical principles. The moral-philosophical question of relevance here is whether we can accept a socio-economic settlement designed to benefit elite interests, or whether we should demand one that serves the common interest. Once that fairly straightforward question is answered, the answers to smaller questions on how and when to “intervene” in our economy will flow quite easily and naturally.

In fact, the experience of the Nordic countries – which consistently outperform the UK and US on social mobility, child welfare, poverty and other bottom-line indicators – show that searching for the right balance for our economy need not take us into uncharted territory. The solutions are available and we are free to choose them if we wish.

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.....and we're back

Apologies for the few days downtime. Some techie problems that needed dealing with by greater minds than my own. Back online now though.

Tuesday, August 07, 2007

United by a Goal

My latest UKWatch article, "United By a Goal", uses Iraq's victory in football's Asia Cup as a starting point for a broader discussion of Iraqi nationalism.

An excerpt

"If ever there was an example of a sporting event bearing a wider social significance, then Iraq’s heroic victory in football’s Asia Cup would be it. The Iraqi team have not only scored one of the history’s great sporting achievements but have also produced a symbolic event of substantial weight. Because right in the middle of one of the worst civil wars in living memory, their victory has provided both their nation and world with a shining example of the strength of that most beleaguered and underrated of Iraqi political trends: pan-ethnic and pan-sectarian nationalism."
Read the rest here.

Monday, August 06, 2007

More on Boris Johnson

Following on from my recent UKWatch article on the likely Conservative candidate for London mayor, Boris Johnson, its immensely gratifying to see that the tide of revulsion at Johnson's candidacy is gathering pace. Here's Chuka Umunna at the Guardian
"His writings on race and black people reveal the mindset of an old colonialist ......... In 2002, here he is on Tony Blair's then imminent visit to the Democratic of Republic of Congo: "no doubt the AK47s will fall silent, and the pangas will stop their hacking of human flesh, and the tribal warriors will all break out in watermelon smiles to see the big white chief touch down in his big white British taxpayer-funded bird." In 2003, he is reported cheerily remarking to Swedish Unicef workers and their black driver in Uganda, "right, let's go and look at some more piccaninnies". These are just a few snippets but you get the flavour."
Here's Johann Hari at the Independent, reminding us of Johnson's reaction to the London police's notorious handling of a race-hate murder in 1993, for which it was accused by an inquiry of "institutional racism":

"After the London police treated Stephen Lawrence's family with contempt and let his murderers walk free, it was essential for all London politicians to press the Met to reform itself to root out these attitudes. Boris did the opposite. He attacked "the PC brigade" for "punch[ing] a hole in the Metropolitan Police". He damned the sensible Macpherson reforms as "hysteria" and "a witch-hunt", even comparing them to the tyranny of Nicolae Ceausescu. If Boris was mayor, the pressure on the police applied by [current mayor] Ken Livingstone to treat all Londoners equally would be off."
Lawrence's mother, Doreen, reacted forcefully to news of the Johnson mayoral candidacy. The Guardian reports:
"Ms Lawrence, who does not normally become involved in party politics, said she had been moved to make the criticisms by her anger at Mr Johnson's attitude to the Macpherson inquiry in 1999 into the Metropolitan police's failure to bring her son's killers to justice 14 years ago. [She said:]

"Boris Johnson is not an appropriate person to run a multi-cultural city like London. Think of London, the richness of London, and having someone like him as mayor would destroy the city's unity. He is definitely not the right person to even be thinking to put his name forward.

"Those people that think he is a lovable rogue need to take a good look at themselves, and look at him. I just find his remarks very offensive. I think once people read his views, there is no way he is going to get the support of any people in the black community.""
And black London MPs Dawn Butler and Diane Abbott have added their voices to the rising crescendo. The BBC reports that:
"Ms Butler highlighted a 2002 article in which Mr Johnson referred to the Queen being greeted in Commonwealth countries by "flag-waving piccaninnies".
Ms Butler, whose Brent South constituency is the most ethnically diverse in the UK, said:
"These are disgraceful comments that shame Boris Johnson and shame the Conservative Party.
"This is the most offensive language of the colonial past and it shows that the Tory party is riddled with racial prejudice.
"No one with such views can be the mayor of a city with the largest black population in Britain.""
London is a long way from perfect, but there are a great many things that can be said in its favour. One of these is that it brings together one of the broadest ranges of cultures that can be seen in any of the world's great cities, and that it does so in a way that is, for by far the most part, enormously successful. Nothing could be less representative of multinational, multicultural London than Johnson's casual racism. But if we are not careful, his current image as a lovable rogue could swing enough second preference votes for him to sneak through to victory. In politics, these possibilities should not be written lightly. I recall perusing the range of US Republican presidential candidates in the summer of 1999 and dismissing, in between bursts of laughter, the prospects of one of the candidates: a semi-literate, recently alcoholic, apparent nepotism-beneficiary Governor of Texas by the name of George W Bush. Well no-one's laughing now, are they?
So if you're resident in London, please stand up for your city by making sure you're registered to vote now, in preparation for next year's election.

Wednesday, August 01, 2007

Oblivion looms for Mahmoud Abbas

Over at Rootless Cosmopolitan, Mark Perry gives an insightful assessment of the prospects for the West's new plan for the Palestinians, and the likely fate of the West's client Palestinian ruler, Mahmoud Abbas.
In Perry's judgement, it is Hamas, not Abbas and his US backers, that is poised to prevail, decisively, in the battle for control of the occupied territories. Perry says that,
"By turning his back on the Palestinians in Gaza, ... even actively seeking their impoverishment in the United Nations (as he did, shamefully, on Friday, when his diplomats blocked efforts to seek a Security Council statement on the humanitarian situation there), Abu Mazen [Abbas] has set out to divide the Palestinian nation, to set it against itself. And that line, in the end, cannot be crossed. And the fact that Abu Mazen has crossed it will, in the hearts and minds of the Palestinian people, make all the difference. There is only one Palestine and now, Abu Mazen is not a part of it. "
You can read the rest here.
Perry, an eminent security and foreign policy analyst, is Director of Conflicts Forum, an organisation working to foster an understanding of political Islam in the Middle East and facilitate a dialogue between Islamist groups and the West. The organisation produces some very useful written material which can really serve to broaden your understanding of groups like Hamas and Hezbollah, and the political landscapes from which they emerge. A few weeks ago I was lucky enough to meet Alastair Crooke, Perry's co-director, who gave me a lot of helpful info for a book on the West-Islamist relationship that I'm helping historian Mark Curtis to research. I probably learnt more in an hour's conversation with Crooke than I would have done in a day researching in the library. All in all, Conflicts Forum is a great resource. Highly recommended.

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