Leaving Politicians To It

A Greek journalist faces arrest and imprisonment for publicising a list of reputed avoiders of foreign-exchange regulations, with the imputation that many of these people were corrupt and/or tax evaders. Successive Greek governments have held, and apparently ignored, the list. A new super-tough budget has been laid before the parliament which will further impoverish the residue of the middle-income groups and increase unemployment throughout the age spectrum. Yet the challenges to the government come as ritualistic strikes and occasional riots, rather than as any movement with the potential to bring down the government. The so-called 'technocrats' [some of whom are classic eurorats] will continue to perform the charade of compliance with German demands for austerity that does not affect their own caste.

The British parliament last evening voted to demand that the Prime Minister should use his entire power and influence to bring about a real-term reduction in the European Union budget. A significant minority of the Conservative Members of Parliament voted for the motion; which nobody expects will have any effect other than to deepen ancient fissures within the tory party. Earlier in the day the government had orally accepted and institutionally shelved a Report by Lord Heseltine that proposed a reversal of forty [or more] years of centralising bureaucracy which was dedicated to the systematic destruction of industry around the country. Some parts of the former deputy prime minister's Report will receive some lip service: the Prime Minister may attend one or two meetings of a National Growth Council before it is handed down to Clegg and allowed to run into the sand; and there may be announcements - vitiated in the event - about the manner in which flows of funds already announced to support 'investment' will be publicised so that they can appear to be responding to the Heseltine proposals. As usual, the politicians will ignore the best advice and steer a course that avoids obvious day-by-day responsibility for company failures and the increasing dependency of the economy on imported manufactures. The process that Harold Macmillan condemned as "selling the family silver" back in the nineteen eighties continues, as beloved brands [most recently Branston Pickle] follow the utilities into alien ownership so that an outflow of revenue to brand-owners augments the flood of payments for imports.

Britain desperately needs a growth policy: but even more it needs a capitalist policy. The term capitalist is massively misunderstood. One of the most capitalist regimes in world history was that run by Stalin; in that no regime has comparably sacrificed human living standards, human rights and human lives in the interests of investing in the growth of industrial production. Since the invention of Economics, with its atomistic obsession with transactions and its determination to submit transactions to 'free market' conditions, 'capitalism' has been retained only as a term of political abuse. One needs to go back to the Political Economy that pre-dated Economics, as exemplified in the school textbook by Millicent Fawcett that featured in my last blog, to get an  understanding of why the concept of capitalism is a good and necessary central feature of economic thinking.

Heseltine's plan, even if it were to be adopted, would be useless without a monitoring organisation to ensure that all the investments that it supports are capitalistic. Heseltine comes close to recognising that it is essential to rebuild and consolidate the nation's capital; its capacity-to-produce material things. To do that the system needs to deliver the services [appropriate education, excellent workplace training, access to applicable research, real-world banking, positive and powerful trade unions, supportive planning rules and flexible trade regulations] that conduce to making things. In one of the last textbooks of sensible political economy Mrs Fawcett emphasised that a country will fail unless its economy maintains and develops - continually - enough capital to provide all that people demand [and can pay for]: either by producing the required commodities and services within the country or by selling exports that directly pay for the things and services that are imported. It will be a hugely difficult and prolonged task, to compensate for half a century of borrowing [both within the economy and from foreigners] and asset sales to pay for imports. It has seemed comfortable to generations of politicians to observe reports of a growth of transactions - which have increasingly represented statistics of material imports and of contracts that simply churned debts - and accept a delusion that the economy was growing. In a world where 'capitalism' and 'capitalist' have been terms of abuse, a concern with material reality became an irrelevance.

 In future bank lending, government investment, and investment by the few valid pension funds that survive, and all other flows of investment should be steered towards investments that really do strengthen the nation's capital. That requires not merely a radical shift of policy but also an intellectual revolution. The renewal of the economy cannot be entrusted to machine politicians. British politics will go the way of Greek, unless the inexorable decline into poverty is halted. Capitalism is the only way out of the crisis.

Manning Democracy

Democracy has many weaknesses, some of which have recently become apparent.

Greece and Italy have had 'technocrats' slotted in as Prime Ministers, because their constitutional procedures did not deliver people for the top jobs who were acceptable to those who control the two national economies.

Politics in the USA are more bitterly polarised than at any time since the US became a global power. The Democrats are obliged to support their incumbent president, though it is doubted whether he will carry mass support into the next election to match the pile of money that has been promised by both loyalists and those who judge it a worth-while investment in the incumbent standing for re-election. His Republican opponents [who absolutely loathe Obama] are bitterly divided, with a leading candidate suffering the almost terminal disability of being a Mormon: this division is so profound that the 'Grand Old Party' has been seen as a probable looser  since long before the General Election campaign begins. Meanwhile the debt and the deficit are increasing enough to improve the prospects for Prophets of Doom; who are probably the only group of Americans who can look forward with confidence and are able to ignore the undoubted underlying strength of the economy.

Angela Merkel knows that she would face electoral suicide if she promised any significant amount of real support over the long haul to Greece and other struggling eurozone states. No significant commentator, and no opinion poll, indicates that Nicholas Sarkozi will be re-elected in this year's French election; leaving the field open to a Socialist machine-man and a woman from the far right. Vladimir Putin has massively lost support ahead of this year's election, entirely due to his own actions, but there is no credible opposition candidate: so Putin will almost assuredly win: but the lesser a proportion of the vote he gets, the more chance there will be of his taking notice of his need to project a different image.

Elections in Egypt will be a test of whether the Muslim Brotherhood and their allies really do aim to achieve "one person, one vote, once"; followed by a very different regime.

In China almost excessively elaborate succession planning will produce a hugely different array of personalia in the top political posts by the end of 2012, but they will be expected to continue with an agreed evolutionary programme. The names that appear to be in the frame for advancement include some that are associated with dogmatic assertions of communist - basically Maoist -  principle who counterbalance the Party's willingness to continue with sophisticated macro-economic management of a rampantly capitalist economy. The percentages may change from year to year but spectacular economic progress is essential: if growth falters too much the Party's monopoly  over politics will be challenged.

Nowhere is politics likely to produce genuinely popular outcomes that could give people new confidence in the direction that the country will take in the coming years. Charismatic leaders who become self indulgent and wilful are a danger to their own people, and often disastrous for their neighbours. Dull politicians who keep to the constitutional rules and who try to implement the policies on which they stood for election remain dull; but if they try to perpetuate their tenure they can mutate into oppressive dictators  More and more obviously politics produces unimpressive governments, precisely at the time when the consequences of the failure of Economics have matured into a new crisis of sovereign debt which can only be resolved through appropriate Political Economy applied by confident and competent governments. This big issue will be of major concern to this blog throughout 2012. On early signs, China will probably manage the political succession most effectively in 2012, and again western doomsters who predict catastrophe for the Chinese economy will not be vindicated.

Democratic Deficit

One of the discredited Rating Agencies has downgraded Belgian government debt: apparently on the grounds that they have not had an established government for well over a year. The cause of the bickering between political parties arises from an excess of democracy, that pretty well ensures that there is never a predominant party with a parliamentary majority. Belgium's policy options are restricted by the fact that the state is a member both of the European Union and of the euro: the national capital, Brussels is overshadowed by a few buildings within that city from which the EU is run and by Frankfort where the European Central Bank is located. Every opinion and brand of Flemish nationalism is represented in the Belgian Parliament; as are all the factions and aspirations of the French-speaking Walloons. This wonderfully democratic outcome is impotent: the politicians can't agree formally how to share out ministerial posts, so they have just shuffled the pack and carried on from week to week as 'caretaker' ministers; and operationally it doesn't matter. But cosmetically it looks untidy, so Standard & Poors have chosen to give Belgium a kick by reducing their rating from AA+ to AA: this will license market traders to have a whirl at making a bit more money by selling Belgian debt short: a great game for the insiders, and a worry for ordinary folk, who know that policy on trade and industry is made by the EU, and well understand that the euro is completely beyond influence from any Belgian government.

A Belgian is President of the EU Council of Ministers, but he has no power: he can merely try to co-ordinate 27 heads of state and heads of government. The EU Parliament remunerates it members exceptionally well, in the combination of salary [related to the local parliamentary salary in the members' home countries] and EU expenses; but they have no real power. The Commissioners are nominated by the governments of the member states without any convincing pretence of democratic consent. Britain's Commissioner is a Labour Party hack who has never held national elected office, was totally unknown to the public on her appointment [made in haste when the sitting Commissioner was recalled to serve in Brown's despairing government], and whose rare appearances on the British TV News cause a surge of national embarrassment.The democratic deficit on the EU probably exceeds 100%.

The new Italian and Greek Prime Ministers are described as 'technocrats'. The 'technology' that they are supposed to understand is Economics, the discredited subject whose practitioners sanctioned and applauded all the excesses that have created the crises in business and in personal and in governmental debt; that none of the 'Atlantic economies' has yet begun to addressed effectively for the long term. They personally applied their Economics in bringing their countries into the tissue of lies and false hopes that enabled a very disparate group of countries to create the euro. They went on to occupy cushy roles in the unaudited EU mechanism and now have been set up as proconsuls for their cronies. They are part of the problem, not of any radical solution.

Germany has a carefully drafted democratic constitution, with a special court to protect it and a Chancellor who grew up as a subject of a militarily occupied satellite state. She is committed to democratic principles  and is accutely aware of the fraud that was committed by the founders of the euro. She is reported to be viscerally unwilling to legitimate the lunacy that has created the state debts of those eurozone countries that have systematically [and knowingly] lived beyond their means by 'monetising' those obligations under a German guarantee. So she is pressing for something like a democratic structure to be created, within which at least part of the eurozone can move close to fiscal union [a united tax and budgetary system]. Ms Merkel is not prepared to guarantee past follies and frauds in the mean time.

The EU has never been even slightly democratic: the 'European project' is the imposition of an elite who have drawn on the widespread fear of European wars to justify their own job-creation machine. Any currency zone that adopts Merkel's principles will certainly be smaller that the eurozone of seventeen states that is just about surviving into another week. A German-led outcome may be a eurozone shorn of the weaker bretheren, or it may be a Neumark zone comprising Germany, Austria, Croatia, the Netherlands, Luxembourg, Slovakia, Finland and Estonia, probably Belgium, and possibly France, Poland, Latvia and Lithuania. The Czech Republic, Hungary and the Scandinavian EU members would probably be welcome to apply to join once the system were up and running. The 'Club Med' countries would not be considered for candidacy until their devalued euro - or their separate currencies - had well stabilised and their balance of payments was restored.

Britain's desperate imbalance of payments and its structural budget deficit would become even more conspicuous when it drew comparison with the Neumark bloc. It would become clearer that party politicians cannot solve the problems, and the yaa-boo antics of the House of Commons and in the TV  'question' programmes would move from being a national joke to become recognised as evidence of the failure of the entire political structure. The British situation is worse than that of the EU: it is worse than a democratic deficit: it is an advanced case of defective democracy. This tragedy has been developing for several decades: in Can Britain Survive? [1971] Ken Watkins and I wrote:
"...there is a kind of auction of popular programmes carried on by the major parties, in which the highest bidder tends to win the lot. Since the parties do not wish to commit political suicide they are, willy-nilly, compelled to act accordingly. The fact that this inhibits them from tackling the fundamental structural weaknesses in the in the economy can be seen from the study of the elections since the end of the Second World War."
The same political auction game has continued unabated for forty more years! The deep defects of democracy, British-style, will not easily be corrected; and yet only when that correction has taken place can a rational economic strategy be formulated: then implemented over several decades. If the democratic defect is not corrected by completely fresh democratic means; a less democratic solution is quite likely to intervene.

The oldest current Constitution in the world, that of the USA, is not directly under threat. But American commentators from all segments of the political spectrum are worried about a failure of their institutions to provide clear policy in a very grave national crisis. Franklin D Roosevelt was - in effect - given exceptional powers to lead the economy out of depression, and he continued to exercise exceptional powers, sanctioned by Congress and unimpeded by the Supreme Court, for the Second World War. Harry S Truman had barely begun the process of surrendering the special powers when the emergence of the Cold War brought the Marshall Plan. Then came the Korean War, then the long stalemate of the nuclear confrontation. After 1991 the US was the unique superpower and the Clinton presidency was the first 'normal' incumbency since the mid-nineteen-thirties. It led to impeachment proceedings and a reassertion of party politics over constitutional propriety. George W Bush was continuing with the diminished role when 9/11 created a crisis and led to two overseas wars. The role of the Commander-in-Chief was once again unquestioned, and guided by the Vice-President and Secretary of Defence it transcended constitutional propriety. The limits to US global power were challenged and the end of hegemony was slowly acknowledged. Obama came into office in a diminished power and he has faced the full force of a resurgent, if uncomfortable, congressional democracy. His fluency became his greatest failing: he was unable to listen to and to interpret the diverse dialogues that had been unleashed by the collapse of the financial system and the weakening of the military-industrial complex. The attempts at bold initiatives to deal with the human consequences of the crisis that he has promoted seem to be based on the European welfare state from the nineteen-fifties: which the Europeans themselves are having to abandon under the burden of debt with which it saddled them. The result is that the USA has its own, very specific demcratic deficit: it is a real and urgent stress-point, that has been confronted by a dialogue of the deaf in a polarised Congress that exactly mirrors the depth of division in the country. Meanwhile, the prophets of economic Armageddon are having a bonanza.