Tuesday, November 15, 2011

In Defence of Cronyism

There are few democracies in the world that do not have mechanisms to allow political patronage, to facilitate the bestowing of honours, rank, privilege or largesse in some capacity as a reward for service to a politician or a party once it has been successful in an election. From the humble councillor, seeing fit to award a small project to extend the town hall meeting rooms to his erstwhile part-time campaign manager, full-time contractor; to the worst excesses of high stakes lobbying in the US, it appears to pervade modern democracy.

In the first instance, we have to acknowledge that as democrats - or, to put it more accurately, as supporters of representative democracy - we have decided as free people to place power in the hands of a relatively small number of people at local, regional, and national level. As the jurisdiction increases, so too do the powers. There are big decisions to be made involving large interests, and someone needs to make those decisions. The idea, of course, is that we judge in the first instance in whom we should place our trust to make such decisions; and after a series of decisions has been made, we judge once more whether we retain our trust in our representative.

Giving them that power means that we also concede to them peripheral powers to enrich and potentially impoverish at the stroke of a pen. At this juncture we call for transparency in decision-making; impartiality in judgement; and an attitude that is above reproach. We also implicitly accept that the people who we appoint in our elections will govern and manage our affairs in a particular way, with a particular ethos. Who better to appoint to the quangos of government then than their supporters, their team, even their families! They are all more likely to agree with the politique du jour, and therefore more accurately reflect the will of the people in the administration of state! Should these appointments be flung open to the great masses, then even supporters of the ancien régime could apply, and that would be unacceptable in our democracy!

Granted not all democracies - including our own - make it easy to change previously appointed members of state boards and other quangos once there has been political re-capitation, and this is perhaps something that should be addressed. Political appointments reflect the political will of the day; once that changes, then the legitimacy of the appointment similarly subsides. Nevertheless, we must trust our political rulers, and our political system. If we do not trust our rulers, especially after they have just been elected, then we do not by implication trust our political system. And if we do not collectively trust our political system, then the revolution won't be long in coming.

Monday, November 07, 2011

An Economic Police State

Negri and Hardt's Empire and subsequent Multitude discuss the status of the police in modern democracy, and their role in enforcing a supposedly illegitimate will. In order to have this level of enforcement accepted by the people, it is necessary to build fear in the populace, and a consensus that the state is required to defend the majority. The argument was that in a post-9/11 world (though Empire was released just prior to the September 11th attacks), state's could ratchet up the fear, increase the level of imposition, maximise curbs on freedom (in the public interest) and exert controls over media and other propaganda weapons. Spooky stuff, and in America we had the Patriot act, in airports we had our nether regions fondled, and in law we saw our rights being eroded while civil libertarians were denounced as kooks or anti-Americans. The world was indeed becoming a scarier place. We now had threats of weapons of mass destruction, dirty bombs, global terror networks and rogue states that could destroy us all. We didn't quite have Joe McCarthy warning us of a terror within - thank goodness for small mercies - but the fear was now palpable.

The economic events of the last several years have served to layer another scoop of fear on top of that orchestrated by the late Osama bin Laden. Now, we are being told that in order for our economies to survive, in order to protect our economic sovereignty, in order to protect the currency (and by extension our prosperity) we must once more submit: we must submit to austerity (if you're Greek, Irish, or Portuguese); we must submit to a kind of neo-socialism (if you're German); we must submit to Brussels, and neo-Federalism (take note, Turkey!). There is resistance, but the European organisation moves on.

Personally, I'm getting a little fed up with all this fear. If the Iranians want to bomb the village Inch, where I live, let them try. If the Germans want to come and take my house in return for the debts of others in Ireland, let them try. The reality of course is that Ahmadinejad has no more interest in bombing Inch than Angela Merkel has in repossessing my house. The threats are hollow. But the system responds in a way that is self serving. Those operating the system, or more accurately within the system, have no alternative. There is no plan B.

Friday, November 04, 2011

We have reached the point of perpetual economic crisis

Today’s G20 non-event in Cannes showed just how impotent the global political leadership is – China included – in fixing the European debt crisis. That Europe and the US are not engulfed in this mess as directly as Eurozone members is in part due to their independence from a currency perspective; and in part due to their swashbuckling (some would call it reckless) approach to dealing with the crisis through quantitative easing. The problem is the same for all western developed capitalist liberal democracies. They are all leveraged to the hilt.

At the end of the day, it comes down to resource distribution – raw materials, be that oil gold, copper, or other commodities. If you have those resources in sufficient supply, then you have a fundamental wealth that can support the economy. Labour as a resource long disappeared as a significant asset because it cost so much. Knowledge as a resource – intellectual property, patents, researchers, education – has not managed to fill the gap that Globalisation has created.

Since the end of the Second World War, financial instruments and derivatives of increasing complexity have evolved to take advantage of an increasingly interconnected economic environment all over the world. Governments have taken advantage of this to maintain growth, and therein prosperity, peace, and most importantly of all – power. Power is its own master. It protects itself, it serves itself. And those who seek it always serve it. When their usefulness to the prosperity of power is expended, they are cast aside.

Governments and societies first cultivated domestic economies through resource balancing in globally competitive environments. They were able to subsidise one industry where labour rates were uncompetitive with another where oversupply was commonplace – like mineral production or farming. Ultimately, however, this was unlikely to persist. Growing populations meant that farming was unlikely in the long run to provide oversupply and that food derivatives could continue to be exported profitably and competitively. Minerals and other natural resources ultimately run out. The knowledge economy, a phrase coined by Peter Drucker in 1992, became the panacea to cure those ills.

Wealth, and resource, is a zero sum game. There is only so much of it to go around. We cannot manufacture wealth from thin air. This, however, was what economists and economic engineers were able to do. They did this in a number of ways. First, they mortgaged the future, borrowing against future income, predicating their maths on future growth, and accepting effective slower increases in general wealth in return for a less volatile path. The basic presumption was that growth would inevitably continue in the long run, and if that was somehow compromised by events such as war, severe depression, or some other globally impacting event, then the “long run” would simply become longer. For the last 100 years, equities and all other financial instruments have performed positively – so long as you take a long enough view.

Armed with these financial instruments, successive governments increasingly leveraged their states. Some time in the early 2000’s, western liberal democracies reached their peak. They could be leveraged no more. The “long run” became finite. They were dependent on perpetual uninterrupted growth at the risk of significant crisis and default. When the subprime property crash hit the market in the US in 2008, the global financial system shuddered.

Quickly, the US began printing money. That effectively began to devalue US wealth in a global context, but allowed the illusion of domestic prosperity. Imported goods began to grow more and more expensive, but a reasonably broad domestic industrial base allowed native foodstuffs and other goods to supply domestic demand. Gas prices have kept on rising, which is the one real element of the US economy that it has less control of. Many would argue that this is at the heart of their middle eastern policy. Lehman brothers imploded as its exposure to the domestic economy – and in particular to the property market – was too great.

In the UK the effects were felt pretty immediately. The Eurozone economies began taking on water also as banks that were exposed to overpriced domestic property began to fail in Iceland (not in the Eurozone, but openly integrated with UK and Eurozone investments), then Ireland, then Greece. Sovereign credit was denied these countries as they scrambled to make some coherent structure of their sovereign accounts. It was an almost impossible task. On the one hand, fundamentally underperforming economies were structured (particularly in the public sector) to support much more prosperous ones, requiring painful readjustment. On the other, these economies were suddenly aware of massive debts that would have been eyewatering in the good times, if anyone had cared to look. With massively reduced growth prospects, and readjusted economy sizes in absolute terms, the debts are simply unsustainable on an individual country level.

All current efforts are geared towards stabilizing the ship. The volatility in the markets is bad for business, bad for growth. Getting back to manageable debt burdens and reasonably balanced national budgets is good, right? Well, no. That, essentially, brings us all back to 2007, still leveraged to the max, and waiting for a single shock to the system that will send us all reeling again. The efforts today will not build into the system any real change, as the political leadership doesn’t have the capacity or the will to effect that change. The cycles are too short; the impacts are too wide ranging and long term to be of consequence.

The debt, of course, is real. The wealth belongs to someone. That’s China, it’s the Middle East, it’s other resource rich countries. They have an interest in seeking adjustment, because business ceases entirely unless a reasonable structure can be found for overburdened sovereigns. But they have no interest in restructuring the entirety of the international credit system. That would – essentially – undermine the basis for their current wealth, and involve some kind of global redistribution of debt. And even then, there is no real answer to what system replaces it.

And so we find ourselves in perpetual crisis. Any need to increase leverage will be met with consternation by the markets. Any failure to deliver on basic growth numbers will be similarly frowned upon. Any “boom” will be characterized by transience and caution; any bust will be dramatic and painful.

Perpetual crisis will be socially unsustainable; but, folks, at least the air is free J