In Part 1 last Sunday, I looked mainly at the history of cause and cost in relation to the 2008 near-implosion of the globalist economic and sovereign fiscal systems. That Part 1 was supposed to appear on Saturday, this Part 2 on Sunday, and today it’s Tuesday. But that’s France Telecom for you: they inhabit a different Time continuum to the rest of us.
In this installment (an appropriate noun given the state of the West’s indebtedness) I want to examine the two economic assumptions that lie behind the solutions so far applied – without even a scintilla of success – to the economic consequences of the factors I outlined for the period 1971-2008.
These assumptions I would summarise as follows:
- There is no problem with mercantile globalism…it is the only way forward, as is the neoliberal capitalist model that works with it so well.
- There is no problem with the banking system…we merely need to learn the lessons of 2008, and help the banks repair their balance sheets.
Mercantile Globalism
We have been, as a Western culture, giving obeisance to globalism now for over thirty years. Mercantile globalism is merely a development of it by which, instead of simply Western multinationals exporting to everyone else, everyone trades with everyone else and the accent is entirely on everyone exporting like billy-o, and everyone else wanting what they’ve got to export.
The ‘mercantile’ word was added to take on board the reality of Asian and South American tigers joining in a club which had become almost exclusively American. Ted Levitt’s original argument that globalism must be the future was, in fact, written with the Dollar giants in mind: among many other things, he argued that one globalised product launch would dramatically cut distribution, marketing and advertising costs.
Having made the argument, almost all of Levitt’s philosophy thereafter is a spurious attempt to rationalise an idea based on the ‘we sell, you must buy’ principle – as opposed to the real world wherein emerging nations and a uniting Europe were increasingly keen to produce their own goods….and in many cases disliked American economic imperialism. Further, Levitt posited his maddest and least empirically valid idea: the Global Village.
The Global Village simply doesn’t exist – any more than a united culture called “Europe” exists. Yet somehow, it seems to have been accepted without any serious interrogation. But not only does it not exist (and the assumption that it does goes a long way to explaining the US trade deficit right now) it is a dangerous idea because it suggests a cooperative community. The real world simply isn’t like that.
The mercantile globalist assumption (and it is just that – a blithe assumption) is that there is and always will be a perfect balance between domestic surpluses for the exporter and shortages at the importing destination. As a form of reality, it’s on a par with flying pigs and the market gap for low-alcohol meths. Worst of all, it is at least 50% of the reason why the hugely export-dependent nations are now in deep trouble.
The most obvious and long-lasting problem exporter is Japan. For years a wealthy leader in cars, hitech, and entertainment hardware, two things have hit the nation especially badly. The first is a changing wealth distribution in the US and Europe that has slowed the growth rate for medium-priced items; and the second – by far the most telling factor – is the emergence of Asian competition allied to increasingly cheap skilled workers there….most notably in Korea, India and China. The process began around 12-15 years ago, and has steadily worsened with the dominance of China as a maker and exporter of cheap goods.
The risible ideas of Abenomics add up to little more than an artificial suppression of the Yen’s value in order to make Japan’s exports more competitive. It can’t work, because competitors will also adjust, and the sheer size of asset purchase required by Tokyo to make it work at all will render the country insolvent in the likelihood of even a tiny rise in interest rates. The truth is that Japan’s plight is the direct result of neoliberal social consequences, alongside the model’s engine, mercantile globalism.
Much as the GOP in the US loves to castigate bureacrats in Washington and at state government level for the state of US finances, in reality Levitt’s original idea of American dictation of global tastes has been shown to be the nonsense it always was. On a thousand different levels, American industry has taken the money in bonuses and dividends it should’ve invested in product development, design and export market research. It has lost out to other car manufacturers on these bases and invested far too little in workforce skills. And as China emerged from its long sleep, American consumers pauperised by neoliberal employment policies turned to their cheap products. The Americans may have a different problem to the Japanese, but its root causes are the same: neoliberal business principles and the acceptance of the globalist mercantile premise.
Somewhat behind the curve in neoliberalism, the Eurozone (in the shape of Goldman-trained Mario Draghi) is nevertheless in the throes of making the same mistake as the US: to reduce production costs in order to compete globally, it is rapidly lowering real mass incomes and creating high unemployment as a stick-and-carrot way to reduce wage costs further. Just as the US now finds that, despite over three years of QE, the economy won’t kick-start, so Draghi’s Europe is in the same boat.
The UK is, however, in a more parlous position than any of these countries for one simple reason: it lost its export edge much longer ago, and it self-destructed its manufacturing base after 1979. The Coalition’s ‘solution’ (austerity) was a case of too little too late, but also (by the time it was applied) rather like trying to lose weight when you have terminal cancer: it has no chance of addressing the problem. There too, Chancellor Osborne is engaged in the classic manoeuvre of managed unemployment pools and employment deregulation to lower output costs. All this does is reduce the mass-market’s ability to consume goods.
This is not simply a case of embracing the madness of global export/import balance. It is also about the rise and rise of the braindead accountant at the expense of the marketing-driven business strategist. Everything is about cost control and workforce engineering: nothing is about changing the idea the West has about what the Asians want to buy. Only one nation – Germany – has fully taken this on board….and look my my, they are the leading exporter as well as being Europe’s powerhouse. But even if Berlin has got more things right than most (they reduced workforce costs in the 2004-2007 period, when the sun was shining) they too will run out of steam once China’s export output slows….and the true disaster that is ClubMed comes to light. For Germany needs export markets as much if not more than everyone else if it is to continue down the road of globalism.
What these case histories show us again and again is that globalism per se (and this suffocating level of interactive world trade) is far from being the only way forward: it is actually a 5th reverse gear driving us backwards. Its internal flaws are irrefutable: it is based on a globally cultural assumption that we’re all similar folks living in a sweet little village trading fruit gums for herbs; and it asserts that there will always be a balance between what exporters can make and importers might need. The entire construct is made of barley rice and candy floss. Which is absolutely fine, because the Moon consists largely of St Agur blue cheese.
Let me tell you what I think we have done: we have been conned into thinking that what’s good for controlling mega-combines, global investment banks and their shareholders is always good for us, the citizens of a sovereign State. The only thing that matters in fact (we’re told – here it comes again) is growth through selling. The more balanced idea of surpluses via both exports and self-sufficiency is never even considered for one very simple reason: that isn’t going to help combines and bankers one little bit.
Gordon Brown slavishly admired the globalist concept because he was a bright idiot. Bush supported it because he was a thick acolyte. Blair, Cameron, Obama, Draghi and Osborne support it because they rely on Big Business and Banking for munneeee. And dear old Geli Merkel supports it because it sells cars.
Globalised investment banking
I think there are probably two elements under this sub-head: the investment banks themselves, and the various bourses with which they are involved. It is impossible (and for that matter pointless) to think about them separately, for they’re Siamese Twins: that’s the problem.
Any globalised banking system with an investment risk element within it is a row of dominoes likely to fall over in a gust of wind. A retail banking system that allows for easy international payments is one thing: the idea of senior executives suffering from frontal lobe syndrome trading amongst themselves (aka selling each other worthless paper and toxic sub-prime loan packages) on a globally connected basis is beyond insane: it is the equivalent of playing dominoes on top of the Fukushima reactor in 80 mile per hour winds. It will either be blown up or blown away, and quite possibly both.
Let’s stop and think about the sort of thing in which investment sections in retail banks and Bourse banking firms trade. They include fiat currencies valued against nothing that reflects economic performance on the ground; derivatives of everything from crops to rental payments whose value has been inflated to the power of 1,000+; packaged swaps – a mass Russian Roulette game for 60,000 people across five continents in which the hope is that the other person’s gun has less bullets in it than yours did; stock market IPOs where the valuation is, shall we say, inaccurate; underwriting mergers that may well shatter shareholder value; and loans made to Sovereign states so poorly risk-assessed as to make one doubt the real motive for lending them the money in the first place.
The one (and there is only one) safety mechanism involved in this never-ending season of Fantasy Rollerball is the process of ‘netting’ – that is to say, ensuring that any risk taken on has been laid off by either insurance or deals so sweet they can’t fail haha. In 2006 I wrote a piece in a marketing magazine that doubted whether Lehman Brothers could possibly be sure they had netted securely. My reward was a blustering threat to sue me. Thirty months later they crashed.
In fact nobody has the remotest idea whether their netting is good enough, because they can never be sure what they’ve bought or whether who they sell to is properly netted either; and if everyone suddenly turned round to the insurance firms one day and said “pay up”, that would be the end of the banking insurance sector. (See some of the Greece Bailout2 gymnastics for clear evidence of the fear involved in even the default of a nation housing just 11 million people).
But let’s assume for a minute (because this is the cuckoo farm, and so some things are allowable no matter how daft) that everyone’s all netted up, and the firms involved have enough liquid capital to weather any storm, because their assets are vast, and their business-to-business endeavours are dwarfed by them.
Unfortunately, you can’t do that because the opposite is true: the interbank paper-throwing sector of the banking business is thirty times bigger than global gdp, and the top ten Wall Street firms are geared up to this commerce at an average ratio of 62.5:1.
Now think for just a few seconds about those client areas in which investment bankers are involved, and the overlaps that apply. These include Sovereign lending, large businesses, currencies, and stock markets. While the stock markets are going up (thanks to QE) things are dandy. While borrowing rates are low (thanks to Zirp) things are dandy. When a 1+1 = 5 merger takes place, things are dandy. When currencies are stable and their valuations predictable, things are dandy. And when the governments pay back your loans, things are very dandy indeed. When one or more of these circumstances don’t apply, things can get dire very quickly. None of them apply at the moment.
The real problem is that the people who work at a senior level in these sectors are strangers to delayed gratification. They don’t like small companies taking five years to get to market, they don’t care whether the Sovereign pays back just so long as this year’s targets are hit, they demand 25% growth on the gross profit every year, and they don’t give a chuff about the risks: they want the munneee now.
One way in which we could make all raising of finance for robust businesses far less risky would be to dramatically reduce the Bourse, “public quotation” share of the lending market, and have community retail banks specialise in SME lending, or mutual fund consultancies find sympathetic finance. But this isn’t the case now, and nobody in politics on either side of the Pond will even consider it: for they too are the banks’ creatures.
Indeed, the lack of banking reform or capital risk-spreading since 2008 is directly due to the obvious fact that global business and banking (alongside large media combines) now control the political process totally. The lack of any personal prosecution of people at RBS for proactively defrauding SMEs, for example, is derived from exactly the same problem: no longer Too Big To Fail, but now even Too Big To Jail.
Not a single lesson has been either learned let alone applied; and where attempts to regulate and reform based on learning have been tried, they have been hugely watered down by banking lobbyists.
The conclusion I reach (and this won’t be a surprise to anyone) is that the economics of the model upon which “solutions” are being loaded is both flawed and dangerous. Frustrated mercantilism will one day turn to war. Punishing citizens for unrepayable debts sold and run up by the greedy will always act against economic recovery. Neoliberal focus on production costs and growth means bad social consequences, and exacerbates the inability to consume inside a mass consumption model. And banks are neglecting support for young, vital industries and start-ups in favour of jib-destroying mega-mergers and fantasy “money” with little even notional value in a world where the fiat currency form dominates.
So it’s not just unethical as a way of trying to ‘put things right’, the tentative tinkering about with the existing system is a waste of time because the economics simply don’t add up.
Part 3 of this series will be coming your way in the future. But the future isn’t bright, it is Orange. So be prepared for anything (and nothing) to happen.
In Part 1 last Sunday, I looked mainly at the history of cause and cost in relation to the 2008 near-implosion of the globalist economic and sovereign fiscal systems. That Part 1 was supposed to appear on Saturday, this Part 2 on Sunday, and today it’s Tuesday. But that’s France Telecom for you: they inhabit a different Time continuum to the rest of us.
In this instalment (an appropriate noun given the state of the West’s indebtedness) I want to examine the two economic assumptions that lie behind the solutions so far applied – without even a scintilla of success – to the economic consequences of the factors I outlined for the period 1971-2008.
These assumptions I would summarise as follows:
- There is no problem with mercantile globalism…it is the only way forward, as is the neoliberal capitalist model that works with it so well.
- There is no problem with the banking system…we merely need to learn the lessons of 2008, and help the banks repair their balance sheets.
Mercantile Globalism
We have been, as a Western culture, giving obeisance to globalism now for over thirty years. Mercantile globalism is merely a development of it by which, instead of simply Western multinationals exporting to everyone else, everyone trades with everyone else and the accent is entirely on everyone exporting like billy-o, and everyone else wanting what they’ve got to export.
The ‘mercantile’ word was added to take on board the reality of Asian and South American tigers joining in a club which had become almost exclusively American. Ted Levitt’s original argument that globalism must be the future was, in fact, written with the Dollar giants in mind: among many other things, he argued that one globalised product launch would dramatically cut distribution, marketing and advertising costs.
Having made the argument, almost all of Levitt’s philosophy thereafter is a spurious attempt to rationalise an idea based on the ‘we sell, you must buy’ principle – as opposed to the real world wherein emerging nations and a uniting Europe were increasingly keen to produce their own goods….and in many cases disliked American economic imperialism. Further, Levitt posited his maddest and least empirically valid idea: the Global Village.
The Global Village simply doesn’t exist – any more than a united culture called “Europe” exists. Yet somehow, it seems to have been accepted without any serious interrogation. But not only does it not exist (and the assumption that it does goes a long way to explaining the US trade deficit right now) it is a dangerous idea because it suggests a cooperative community. The real world simply isn’t like that.
The mercantile globalist assumption (and it is just that – a blithe assumption) is that there is and always will be a perfect balance between domestic surpluses for the exporter and shortages at the importing destination. As a form of reality, it’s on a par with flying pigs and the market gap for low-alcohol meths. Worst of all, it is at least 50% of the reason why the hugely export-dependent nations are now in deep trouble.
The most obvious and long-lasting problem exporter is Japan. For years a wealthy leader in cars, hitech, and entertainment hardware, two things have hit the nation especially badly. The first is a changing wealth distribution in the US and Europe that has slowed the growth rate for medium-priced items; and the second – by far the most telling factor – is the emergence of Asian competition allied to increasingly cheap skilled workers there….most notably in Korea, India and China. The process began around 12-15 years ago, and has steadily worsened with the dominance of China as a maker and exporter of cheap goods.
The risible ideas of Abenomics add up to little more than an artificial suppression of the Yen’s value in order to make Japan’s exports more competitive. It can’t work, because competitors will also adjust, and the sheer size of asset purchase required by Tokyo to make it work at all will render the country insolvent in the likelihood of even a tiny rise in interest rates. The truth is that Japan’s plight is the direct result of neoliberal social consequences, alongside the model’s engine, mercantile globalism.
Much as the GOP in the US loves to castigate bureacrats in Washington and at state government level for the state of US finances, in reality Levitt’s original idea of American dictation of global tastes has been shown to be the nonsense it always was. On a thousand different levels, American industry has taken the money in bonuses and dividends it should’ve invested in product development, design and export market research. It has lost out to other car manufacturers on these bases and invested far too little in workforce skills. And as China emerged from its long sleep, American consumers pauperised by neoliberal employment policies turned to their cheap products. The Americans may have a different problem to the Japanese, but its root causes are the same: neoliberal business principles and the acceptance of the globalist mercantile premise.
Somewhat behind the curve in neoliberalism, the Eurozone (in the shape of Goldman-trained Mario Draghi) is nevertheless in the throes of making the same mistake as the US: to reduce production costs in order to compete globally, it is rapidly lowering real mass incomes and creating high unemployment as a stick-and-carrot way to reduce wage costs further. Just as the US now finds that, despite over three years of QE, the economy won’t kick-start, so Draghi’s Europe is in the same boat.
The UK is, however, in a more parlous position than any of these countries for one simple reason: it lost its export edge much longer ago, and it self-destructed its manufacturing base after 1979. The Coalition’s ‘solution’ (austerity) was a case of too little too late, but also (by the time it was applied) rather like trying to lose weight when you have terminal cancer: it has no chance of addressing the problem. There too, Chancellor Osborne is engaged in the classic manoeuvre of managed unemployment pools and employment deregulation to lower output costs. All this does is reduce the mass-market’s ability to consume goods.
This is not simply a case of embracing the madness of global export/import balance. It is also about the rise and rise of the braindead accountant at the expense of the marketing-driven business strategist. Everything is about cost control and workforce engineering: nothing is about changing the idea the West has about what the Asians want to buy. Only one nation – Germany – has fully taken this on board….and look my my, they are the leading exporter as well as being Europe’s powerhouse. But even if Berlin has got more things right than most (they reduced workforce costs in the 2004-2007 period, when the sun was shining) they too will run out of steam once China’s export output slows….and the true disaster that is ClubMed comes to light. For Germany needs export markets as much if not more than everyone else if it is to continue down the road of globalism.
What these case histories show us again and again is that globalism per se (and this suffocating level of interactive world trade) is far from being the only way forward: it is actually a 5th reverse gear driving us backwards. Its internal flaws are irrefutable: it is based on a globally cultural assumption that we’re all similar folks living in a sweet little village trading fruit gums for herbs; and it asserts that there will always be a balance between what exporters can make and importers might need. The entire construct is made of barley rice and candy floss. Which is absolutely fine, because the Moon consists largely of St Agur blue cheese.
Let me tell you what I think we have done: we have been conned into thinking that what’s good for controlling mega-combines, global investment banks and their shareholders is always good for us, the citizens of a sovereign State. The only thing that matters in fact (we’re told – here it comes again) is growth through selling. The more balanced idea of surpluses via both exports and self-sufficiency is never even considered for one very simple reason: that isn’t going to help combines and bankers one little bit.
Gordon Brown slavishly admired the globalist concept because he was a bright idiot. Bush supported it because he was a thick acolyte. Blair, Cameron, Obama, Draghi and Osborne support it because they rely on Big Business and Banking for munneeee. And dear old Geli Merkel supports it because it sells cars.
Globalised investment banking
I think there are probably two elements under this sub-head: the investment banks themselves, and the various bourses with which they are involved. It is impossible (and for that matter pointless) to think about them separately, for they’re Siamese Twins: that’s the problem.
Any globalised banking system with an investment risk element within it is a row of dominoes likely to fall over in a gust of wind. A retail banking system that allows for easy international payments is one thing: the idea of senior executives suffering from frontal lobe syndrome trading amongst themselves (aka selling each other worthless paper and toxic sub-prime loan packages) on a globally connected basis is beyond insane: it is the equivalent of playing dominoes on top of the Fukushima reactor in 80 mile per hour winds. It will either be blown up or blown away, and quite possibly both.
Let’s stop and think about the sort of thing in which investment sections in retail banks and Bourse banking firms trade. They include fiat currencies valued against nothing that reflects economic performance on the ground; derivatives of everything from crops to rental payments whose value has been inflated to the power of 1,000+; packaged swaps – a mass Russian Roulette game for 60,000 people across five continents in which the hope is that the other person’s gun has less bullets in it than yours did; stock market IPOs where the valuation is, shall we say, inaccurate; underwriting mergers that may well shatter shareholder value; and loans made to Sovereign states so poorly risk-assessed as to make one doubt the real motive for lending them the money in the first place.
The one (and there is only one) safety mechanism involved in this never-ending season of Fantasy Rollerball is the process of ‘netting’ – that is to say, ensuring that any risk taken on has been laid off by either insurance or deals so sweet they can’t fail haha. In 2006 I wrote a piece in a marketing magazine that doubted whether Lehman Brothers could possibly be sure they had netted securely. My reward was a blustering threat to sue me. Thirty months later they crashed.
In fact nobody has the remotest idea whether their netting is good enough, because they can never be sure what they’ve bought or whether who they sell to is properly netted either; and if everyone suddenly turned round to the insurance firms one day and said “pay up”, that would be the end of the banking insurance sector. (See some of the Greece Bailout2 gymnastics for clear evidence of the fear involved in even the default of a nation housing just 11 million people).
But let’s assume for a minute (because this is the cuckoo farm, and so some things are allowable no matter how daft) that everyone’s all netted up, and the firms involved have enough liquid capital to weather any storm, because their assets are vast, and their business-to-business endeavours are dwarfed by them.
Unfortunately, you can’t do that because the opposite is true: the interbank paper-throwing sector of the banking business is thirty times bigger than global gdp, and the top ten Wall Street firms are geared up to this commerce at an average ratio of 62.5:1.
Now think for just a few seconds about those client areas in which investment bankers are involved, and the overlaps that apply. These include Sovereign lending, large businesses, currencies, and stock markets. While the stock markets are going up (thanks to QE) things are dandy. While borrowing rates are low (thanks to Zirp) things are dandy. When a 1+1 = 5 merger takes place, things are dandy. When currencies are stable and their valuations predictable, things are dandy. And when the governments pay back your loans, things are very dandy indeed. When one or more of these circumstances don’t apply, things can get dire very quickly. None of them apply at the moment.
The real problem is that the people who work at a senior level in these sectors are strangers to delayed gratification. They don’t like small companies taking five years to get to market, they don’t care whether the Sovereign pays back just so long as this year’s targets are hit, they demand 25% growth on the gross profit every year, and they don’t give a chuff about the risks: they want the munneee now.
One way in which we could make all raising of finance for robust businesses far less risky would be to dramatically reduce the Bourse, “public quotation” share of the lending market, and have community retail banks specialise in SME lending, or mutual fund consultancies find sympathetic finance. But this isn’t the case now, and nobody in politics on either side of the Pond will even consider it: for they too are the banks’ creatures.
Indeed, the lack of banking reform or capital risk-spreading since 2008 is directly due to the obvious fact that global business and banking (alongside large media combines) now control the political process totally. The lack of any personal prosecution of people at RBS for proactively defrauding SMEs, for example, is derived from exactly the same problem: no longer Too Big To Fail, but now even Too Big To Jail.
Not a single lesson has been either learned let alone applied; and where attempts to regulate and reform based on learning have been tried, they have been hugely watered down by banking lobbyists.
The conclusion I reach (and this won’t be a surprise to anyone) is that the economics of the model upon which “solutions” are being loaded is both flawed and dangerous. Frustrated mercantilism will one day turn to war. Punishing citizens for unrepayable debts sold and run up by the greedy will always act against economic recovery. Neoliberal focus on production costs and growth means bad social consequences, and exacerbates the inability to consume inside a mass consumption model. And banks are neglecting support for young, vital industries and start-ups in favour of jib-destroying mega-mergers and fantasy “money” with little even notional value in a world where the fiat currency form dominates.
So it’s not just unethical as a way of trying to ‘put things right’, the tentative tinkering about with the existing system is a waste of time because the economics simply don’t add up.
Part 3 of this series will be coming your way in the future. But the future isn’t bright, it’s Orange. So be prepared for anything (and nothing) to happen.
Yesterday at The Slog: The blogosphere must stop eating the cream of the crop
www.hat4uk.wordpress.com / link to original article
Lucas 2012 Infos 