Saturday, 21 January 2017

Trump, Brexit, Nationalism and ‘Neoliberalism’

In the wake of Brexit, European political developments and Trump now being POTUS #45, surely it is time for the left that goes on about ‘neoliberalism’ to wake up instead to the emerging nationalist economic policies in the rich imperialist countries. Unwelcome as it may be, these policies are backed by the mass of the people in such countries, not simply by a small bunch of reactionaries. Furthermore, the nationalism of one imperialist power is, as one would expect, opposed by another, so it is also a time for the left to consider whether it will play a part in siding with one of these or rejecting all of them. That often turns out to be difficult. As with some parts of the left-wing vote for Brexit in the UK, there is often an attempt to adapt to reactionary nationalism by claiming that it represents an opposition to the established political order that can be turned to radical ends. (Which, however, is not to say that voting for EU membership was a progressive option – so I abstained)
The term ‘neoliberalism’ describes the changes in economic policy after the 1970s. I do not use it for several reasons. Firstly, there was not much of a change and what change did occur did not start from the Thatcher and Reagan governments after 1979-81. Secondly, the most important reason for the new stance in capitalist economic policy was derived from the new imperatives of the global capitalist economy, riven by crises from the late 1960s, not from a policy ‘coup’ by arch conservatives or due to the domination of government economic policy making by reactionaries. Thirdly, the perspective of people arguing for the notion of ‘neoliberalism’ is to argue for alternative and more progressive policies, but under a capitalist government and/or in a capitalist economy. Nostalgia for an illusory past – a more caring capitalism – was their common trait, and they also ignored how pressures from the global economy on policymakers led to the ‘neoliberal’ policies.
A number of articles on this blog have covered the question of the ‘China price’ and the benefits that inhabitants in the rich powers have gained from the import of cheap goods produced by super-exploited labour elsewhere. Although it is an uncomfortable fact for radicals in rich countries, this has also underpinned the complaint by workers that their jobs and living standards are being undermined by low-cost imports. In a related fashion, a more strident complaint from these workers is that the problem is migrants who will work for less than them. I would be generous here and describe these complaints as economic nationalist, and not necessarily racist, although sometimes they are.
In recent years, the ruling elites in several rich countries have adapted to these popular complaints, even if they had previously been at the forefront of promoting free trade and global economic connections. In democracies, popular opinion ends up influencing the political stance of the government. This has been behind Trump’s support in the US, Brexit in the UK, Marine Le Pen in France, Geert Wilders in the Netherlands, etc. Much of the anti-Moslem sentiment in Europe and the US is also due to a resurgence of such economic nationalism. Not that Moslems can rationally be seen as an economic threat, but they provide a convenient focus when the issue is to ‘protect our way of life’ from foreign influences.
The real challenge to the left in many rich countries comes not from the ruling class, or its policies, but from their inability to take on reactionary popular sentiment in the mass of the population. Instead, mostly they focus on their own version of progressive policies that their national capitalist state should implement, whether taking over banks or diverting public spending to better causes. That is why most radical invective around these issues will use the more acceptable pejorative term ‘racist’, rather than the often more accurate term ‘nationalist’. With this approach, they will be wrong-footed by the new, more strident nationalist stance of Trump for the US and likely similar positions taken in other major powers.

Tony Norfield, 21 January 2017

Tuesday, 17 January 2017

Theresa May's Brexit Speech

In her much-heralded Brexit speech today, UK Prime Minister Theresa May continued to adopt the pose of the strict headmistress delivering an address on the school’s achievements. She attempted to be bold and proud, but avoided mentioning that no prizes have been won this year and the school trip abroad is now cancelled owing to insufficient funds. The speech was long on rhetorical cliché, yet short on detail that could not have been deduced from what has already been reported. However, there was a clear statement that the UK would not aim to stay in the EU single market after Brexit and, more interestingly, another implicit threat to the EU on what would happen if there were no good deal for the UK in the forthcoming negotiations.
She seems finally to have got the message from other EU political leaders that membership of the single market is part of a broader agreement that includes freedom of movement for people too. She may also have been informed that the existing EU customs union agreements (eg for Turkey) are based on trade in goods. They do not include services, and would not help the UK’s interest in maintaining financial services access to the EU market. So the PM declared that there will be no such membership, and neither will there be any payments to the EU budget for these things. Brexit means Brexit!
Then came the brazen bit: ‘as a priority, we will pursue a bold and ambitious Free Trade Agreement with the European Union’. The great thing about this is that, because it is not called being a member of the EU single market, it will presumably cost nothing! Nothing at all, since although the UK plans to repeal the European Communities Act as part of the exit, it will at the same time ‘convert the “acquis” – the body of existing EU law – into British law’. So, you see, everything can really remain the same. Well, except that, not being an EU member, the UK can avoid paying anything into the EU (except for some specially considered exceptional cases), can control EU immigration and can pay no attention to the European Court. Which EU member state would not see that as completely reasonable?
If the rest of the EU did not agree that this was a wonderful solution to an intractable problem, then there was the threat, one initially posed by Chancellor Philip Hammond in his recent interview with the German newspaper, Welt am Sonntag. The newspaper stated that ‘your government sees the future business model of the UK as being the tax haven of Europe’. Hammond did not deny this, but indicated that it could happen if they were ‘forced to do something different’. Hammond said
‘If we have no access to the European market, if we are closed off, if Britain were to leave the European Union without an agreement on market access, then we could suffer from economic damage at least in the short-term. In this case, we could be forced to change our economic model and we will have to change our model to regain competitiveness. And you can be sure we will do whatever we have to do. The British people are not going to lie down and say, too bad, we’ve been wounded. We will change our model, and we will come back, and we will be competitively engaged.’
Theresa May was clearer on this ‘change our model’ option in her Brexit speech when she said that ‘no deal for Britain was better than a bad deal for Britain’
‘Because we would still be able to trade with Europe [even with no deal]. We would be free to strike trade deals across the world. And we would have the freedom to set the competitive tax rates and embrace the policies that would attract the world’s best companies and biggest investors to Britain. And – if we were excluded from accessing the Single Market – we would be free to change the basis of Britain’s economic model.’
Britain is the second largest EU economy, and the one with the second largest net EU budget payments after Germany, so it does have some negotiating power. But it is still in a relatively weak position compared to the other 27 states negotiating as a bloc, especially if it does not want to make any payments to the EU. The UK government is obviously not promising to change the capitalist economy, but merely to change or cut some taxes and regulations that would make domestically-based business ‘more competitive’ – meaning more attractive for business. This would be a problem for the rest of the EU, since they would either lose out or also have to adapt to these changes, so it is a credible, if desperate, negotiating tactic.
A big problem for the global capitalist system is that the UK moves are helping to undermine the existing structures of international political-economic relations that have been slowly built up over decades. This makes the international policies of all major states up for grabs, and we can obviously add in Trump's US to the mix. Partly in compensation for this, PM May went on about how much she valued the partnership with Europe and how Britain was important for European ‘security’ in terms of its permanent membership of the UN Security Council, nuclear weapons and ‘intelligence capabilities’.
These are more signs of how the chronic economic crisis is leading to growing tensions in capitalist policy making. In Britain’s version of the economic nationalism being introduced by Trump, Theresa May uses blather about a ‘fairer Britain’, rather than a strident ‘Make GB Great Again’, if only because she knows there is a more vulnerable position to protect and no ability to force unilateral deals. We will see more arguments and conflicts between the major countries in the years ahead.

Tony Norfield, 17 January 2017

Thursday, 12 January 2017

The EU Budget: Who Pays What?

In the lead up to the UK's exit from the European Union, there will be debates not only on the question of market access and migration but also on the EU's budget. Twenty-eight member countries both pay into the EU central budget and receive funds from it, the numbers being broadly related to the relative size and wealth of an economy. For example, in 2015, Germany paid in most, 28.1bn, while receiving 11bn, to give a net payment to the EU of 17.1. At the other end of the spectrum, Poland paid in €4.2bn and received €13.4bn, so was a net recipient of €9.1bn. However, there are some interesting anomalies in the payments dating back to earlier budget debates among members.

The EU budget is no longer so dominated by the farming lobby as it was in 1985, when 70% of payments went on agriculture. But direct payments to farmers still account for 30% of the total, with another 9% on 'rural development'. It is this mechanism that France, in particular, has used to secure large payments from the central EU fund, amounting to €9bn in 2015 under the 'Sustainable growth: natural resources' budget. The agricultural payments vexed the Brits back in the 1980s, and Prime Minister Margaret Thatcher secured a rebate for the UK. In 2015, this amounted to €6bn, and the EU accounts show how this 'UK correction' was allocated to other EU members ... with France paying back the largest amount, nearly €1.5bn.

So, when the UK leaves, France might stand to gain somewhat by not paying the UK correction item. However, the bigger problem is that the UK has been the second largest net contributor to the EU budget, significantly more than France, despite both countries being not so far apart in terms of GDP and GDP per capita. Budget figures for 2015 show the UK with payments into the EU of €21.4bn, close to France's €20.6bn. But the UK received back just €7.5bn compared to France's €14.5bn. 

The following chart is taken from European Commission data. For payments made by each country it adds the total national contribution and the 'traditional own resources' payments passed on to the EU. The latter item is often missed out in graphs that are derived from an EU summary table, which leads to understating the actual payments. For receipts of funds from the EU budget, all the standard items are included.

When 'net payments' are negative, this means that the country has paid more into the EU budget than it has received; when positive, that net funds have been paid to it from the EU budget.

Let us see how this plays out!

Tony Norfield, 12 January 2017

Saturday, 31 December 2016

From Alpha to Omega

A couple of days ago I was interviewed by Tom O'Brien for his From Alpha to Omega website. The hour long recording is available on his site. The discussion covers a wide range of topics, including the development of imperialism post-1945, the role of the City of London, government economic policy, why I do not use the terms 'neoliberal' and 'financialisation', Brexit and Syria.

The link to the episode (#076)  is here.

A YouTube version is here.

Tony Norfield, 31 December 2016

Thursday, 29 December 2016

Some Books

Based on my non-economic readings over the past year or so, here are some books to follow up if you want to find out about …

The British Labour Party
Edmund Dell, A Strange, Eventful History: Democratic Socialism in Britain, Harper Collins, 1999
Written by a Labour right-winger, this book contains a telling critique of the reformism and hypocrisy of the Labour left, plus rarely noted information on how the colonies (and the US) provided the funds with which to set up the welfare state in 1945. Its main message is that the British electorate will not warm to ‘socialism’, so Labour has always had to retreat from radical programmes, even ones that were far from socialistic and which at best could be called national welfarism.
The Partition of India
Narendra Singh Sarila, In the Shadow of the Great Game: the Untold Story of India’s Partition, Harper Collins 2005 and 2009
This is the only book I have found that explains what was in it for the British when India was partitioned. It shows how the British backed Muhammad Ali Jinnah in his opposition to the Indian National Congress, and how they encouraged the formation of Pakistan as a dependent state that they could better rely upon to be anti-Russian than an independent India. Historians usually avoid this and explain partition by claiming that there were deep-rooted ethnic/religious differences that demanded a Moslem Pakistan separate from a Hindu India.
Middle East historical background
James Barr, A Line in the Sand: Britain, France and the Struggle that Shaped the Middle East, Simon and Schuster, 2011
A very interesting account of the carve up of the region between the British and the French, from Iraq to Syria, Lebanon, Palestine and Israel, mainly covering the 1915-49 period. This brings out the hypocrisy and double dealing of the major powers very clearly. For example, it shows how France armed and supported the Zionist opposition to Britain in Palestine as a means of getting back at the Brits for edging them out of Syria.
David Fromkin, A Peace to End All Peace: the Fall of the Ottoman Empire and the Creation of the Modern Middle East, Phoenix Press, 2000
Fromkin has some very good coverage of the machinations of the big powers in the region, from the late 1800s to the 1920s. Although he is pro-Zionist, he provides a lot of useful material on who did what, when and why.
However, neither of these books (nor many others) asks the question of why the Palestinians had to pay the price for the European murder of millions of Jews – in terms of expulsions and seized land in the UN 1948 deal to set up Israel (quite apart from the new state’s later annexations).
Immigration/racism in Britain
Robert Winder, Bloody Foreigners: the Story of Immigration to Britain, Abacus Books, 2004 and 2005
This covers a long history from the 1200s (!), but very well, and with interesting insights into popular prejudice and political responses, giving many striking examples. The 20th century takes up most of the book, and is most relevant for contemporary politics.
Africa and nationalism
Basil Davidson, The Black Man’s Burden: Africa and the Curse of the Nation State, James Currey, 1992
This is the best thing I have read on the problem of nationalism, and why Africa is such a mess. Davidson shows how the efforts of post-colonial governments in Africa to adopt a national perspective, largely adopted from Europe, could not work. This perspective did not suit the realities on the ground, where there were all kinds of cross-border relationships and also divergences within supposedly unified nations. Davidson puts this in a materialist perspective, showing how the up and coming African bourgeoisie was still very weak, and in the 20th century could not replicate what the Europeans did in the 19th in terms of building nation states. This was a clear sign of the limits on development created by the imperialist world economy, both in colonial times and today.

Tony Norfield, 29 December 2016

Friday, 16 December 2016

Trump and the US-Russia-China Triangle

Although it is the world’s major power, the US has found it difficult to impose its will in the past decade or so. From President Bush’s ‘mission accomplished’ speech about Iraq in 2003, to the continuing disasters in Afghanistan, Libya and Syria, from US policy in Ukraine also being upset by Russian intervention in Crimea, to how the Saudis and other Gulf states have destabilised the Middle East, the US has not been getting its own way and has been unable to impose settlements that would otherwise be expected of a hegemonic power. This puts the incoming US administration under The Donald in an interesting position.
Early signs suggest that POTUS-elect Trump is taking a softer line on Russia, one different from the still Cold War-inspired position of the Obama regime. Trump has stated that he expects the Europeans to pay more for their own NATO-related defence, which might make them less willing to finance an increased build up of military operations close to Russia’s borders. Trump has also rejected Obama’s rhetoric on Putin’s supposed involvement in Russia’s alleged cyber attack on Clinton’s emails. Perhaps most striking of all, Trump plans to appoint Rex Tillerson as US Secretary of State, that is to be the main person in charge of foreign policy. Tillerson is Chief Executive Officer of ExxonMobil, and is well known to have friendly relationships with the Russian government.
ExxonMobil opposed sanctions on Russia from its own business perspective, but one would have to agree that the aggression shown to Russia by the current US administration makes little economic or political sense. Russia is far from being a threat to US interests. Instead, Russia may have prevented the unravelling of Syria that was the direction of previous US policy, and which would have had a deleterious impact on the stability of the Middle East, with knock on impacts into Europe. For this reason, Trump’s likely Russian rapprochement makes sense, even if it will embarrass the Europeans.
All this, and more, is still to be determined, since the billionaire has yet to establish himself in the White House. However, it seems that while there is very likely to be a US-Russia rapprochement, the US political antagonism to China will continue under the Trump administration.
Under Obama and previous US presidents, Taiwan had remained in the limbo of being diplomatically isolated (it has not been a member of the UN since 1971, under the ‘one China’ policy) although politically and militarily supported by the US. But Trump took a call from Taiwan’s president, much to China’s displeasure, which saw the incident as an implicit recognition of Taiwan. This also makes sense from a US perspective. China is both a political and an economic threat to US interests, one that has been recognised in numerous US Congressional reports. China’s economic power has seen it gain influence in Africa, Latin America and Asia, often giving governments in these regions an alternative to the US-dominated world financial and economic system.
More pointedly for the current political climate, it is China, rather than Russia or anywhere else, which is being singled out as the country that is being ‘unfair’ in trade and taking American jobs. An anti-Chinese political stance makes far more sense for the US on many more levels than the anti-EU stance does for the UK, since it not only appeals to the latest domestic populism but also coincides with longer-term US strategic interests.
Trump’s election is one more sign of a shift in the tectonic plates of the imperial world economy. It will impact not only US relationships with Russia and China, but also the position of Europe, and even the acceptability of Russia outside Europe. Interestingly, in the past day or so, Russian President Putin had a meeting in Japan with Japan’s Prime Minister Abe on the Northern Territories/Kurile Islands, an area of dispute between the two countries since the end of World War Two. No resolution was made, and no peace treaty agreed on this, but there were 80 documents signed, including 68 on planned commercial deals between the two countries.

Tony Norfield, 16 December 2016

Tuesday, 13 December 2016

Norwegian Blues: Pining for 4%

It being the Christmas season in many countries, and this being a blog on the economics of imperialism, please spare a thought for the problems of Norway’s Government Pension Fund Global (GPFG). I would ask you to fear not, and not to let mighty dread seize your troubled minds, since I am not asking you for any money. However, the GPFG is asking for a 4% return on its investments outside Norway, ie from approximately 99.93% of the world’s population. In these difficult days, I am prepared to make some allowances. After all, Norway’s capital city of Oslo supplies Trafalgar Square in London with a Christmas tree each year, and this country is also one of the homes of reindeer, the intrepid beasts of burden for Santa’s present-laden sleigh. Yet, surely 4% is a bit much?
In fact, Norway’s demand is for even more than 4%, since that number is its planned ‘real return’, ie a nominal return after inflation. While inflation has been close to 1-2% in many major countries, in Norway it has been more than 3%. So the average asset in which the Norwegian fund invests is meant to produce a return far above the 4% level. This is a problem for a Norway’s position as one of the world’s biggest rentier states now that financial returns are much lower.
The worst outcome is for GPFG’s bond investments, which make up 36% of its total holdings. In 2015, the return on fixed income investments was a mere 0.33%, measured in the fund’s currency basket. The recent months’ rise in yields will have hit the value of its bond holdings, although yield levels – and the related coupon income – still remain well below 3% in all major bond markets. For example, 10-year government bonds yield 2.4% in the US, 1.5% in the UK, 0.4% in Germany and 0.1% in Japan. The fund also holds corporate bonds, which generally have higher yields, but the yield premium there is not significant. This problem of falling yields in 2011 led the fund to cut its holdings of bonds and to allocate some cash to foreign property assets, but these still only account for 3% of the total. The GPFG owns a portfolio stake in real estate in around a dozen European countries – including in Regent Street, London, and in Paris – and also in New York, Washington and Boston in the US.
GPFG’s equity investments – 61% of its assets – have performed better in recent years, given the boost to stock markets from central bank monetary policy. These assets are invested mainly in European and North American stock markets, with the largest holdings in big corporations like Apple, Alphabet (formerly Google), Microsoft, Nestle, Novartis, Roche and Royal Dutch Shell. Dividends from these investments boost its returns, together with any rise in the prices of the equities held. The fund tries to avoid the political problems associated with being a major investor by limiting its holdings to 10% of the equity of any company.
An important component on all the investment returns (measured in Norwegian kroner) in 2014 and 2015 came from the depreciation of the krone versus the US dollar. In 2014, the NOK value of the fund rose by 24.2% and by 15.5% in 2015, given that 37% of Norway’s equity holdings are in the US and 43% of bond holdings are in US dollar securities. However, in 2016 the krone’s exchange rate has strengthened on FX markets and the NOK value of the total fund fell by nearly 4% in the year to end-September 2016.
What these percentage change numbers should not hide is that the GPFG is the largest ‘sovereign wealth fund’ in the world. As of mid-December 2016, its value was NOK 7395bn or, in US dollar terms, about $875 billion. This is serious money for a country of just five million people, ie roughly an investment fund of $175,000 for each man, woman and child, built up within the GPFG from the late 1990s. The oil and gas revenues accruing to the Norwegian government fund the investments of GPFG, and these have grown dramatically in the past twenty years, accentuated by the accumulated revenues from the investments themselves. In turn, the GPFG funds the government’s spending: in 2015 the budget took NOK 179.6bn from it.
Norway has the highest percentage of foreign investment income to GDP in the world. At 6% in 2015 it was even higher than Switzerland’s, and was some NOK 36,200 per person! This is the scale of Norway’s appropriation of surplus value from the rest of the world economy through its foreign investments. Norway’s net foreign investment income to GDP has been comparable to that seen at the height of British imperialism’s economic power in the late 19th century! This is the economic reality underlying Norway’s benign international image as a liberal, although somewhat insular and unexciting social democratic nation, home of the Nobel Peace Prize.
The following chart shows Norway's net foreign investment income from 1990 to 2015. The figures are for the country as a whole, not just the GPFG, but the latter accounts for the bulk of the income.

Norway got lucky with the discovery of energy resources in the Norwegian waters of the North Sea from the late 1960s, just ahead of the sharp rise of energy prices in the 1970s. With large energy supplies and a small population, Norway became the ‘Saudi Arabia of Scandinavia’. Despite being Christian, rather than Wahhabi, Norway’s governments have also frowned upon alcohol, keeping prices very high via taxation. To be a drunk in Norway, you need your own private distillery, or a large income, or a big credit limit, or a decent supply of return tickets to Denmark. Other sales and income taxes also remain high in Norway, despite the largesse received by the government from the oil and gas revenues. This is because the state’s spending policy funds very extensive welfare payments to consolidate the conservative (social democratic) national consensus, a policy that is now even more dependent upon the revenues derived from the country’s energy-revenue-funded financial investments.

Tony Norfield, 13 December 2016