Expect to see more big names from the oil industry, such as Shell, ExxonMobil and Statoil, moving into the British shale sector now that one of their competitors – Centrica – has taken the plunge. The international companies have always taken a keen interest in the UK fracking scene, despite endless statements from their chief executives that there are better prospects in China and elsewhere.
There is some speculation this weekend that the reason Centrica paid a fairly toppy price for the stake in the Bowland Shale licence from Cuadrilla Resources was because it faced competition from Shell and others.
It is not so much the geological uncertainty that made big oil hesitate in the past, but the fear of reputational damage. And as one of the industry players told the Observer: “That all changes now because Centrica has elected to become the lightning rod for the industry.”
Indeed it will. Green groups opposed to fracking because of the chemicals used and because they believe more gas use means more carbon emissions have already condemned Centrica. A couple of small earthquakes in the Blackpool region that helped to trigger an 18-month drilling moratorium have heightened public concerns. Fracking remains banned in France, Bulgaria and some other countries.
In fact it was always likely that the British Gas parent group would be first out of the blocks, not least because it has the largest retail supply business in this country.
Equally, if anyone is going to have the inside track on what government is thinking about the future taxation structure planned for a shale gas regime, it is going to be homegrown Sam Laidlaw, chief executive of Centrica, rather than say Peter Voser, the boss of Shell, who spends much more time in The Hague than London.
Laidlaw is constantly in and out of Whitehall. Until recently he was part of David Cameron’s Business Advisory Group, while Centrica, as one of the UK’s few, and by far the biggest, British-owned power suppliers, stands most to gain from changes in UK energy policy.
Was British Gas pushed by ministers to front UK shale? Certainly Centrica had privately expressed reservations about the flack it might take if it got involved at an early stage. Ministers were keen to give credibility to a sector populated by small firms, even if some have big backers behind the scenes, such as IGas’s connections with the partly state-owned China National Offshore Oil Corporation.
But it seems more likely that Laidlaw, who as recently as January had expressed the view that UK shale was no “game changer”, just changed his mind and decided it was worth having first-mover advantage.
He had no doubt spent much time talking to John Browne, whose chief executiveship at BP was characterised by being first off the blocks (into Russia, mega-mergers with Amoco etc) and just happens to be a director of Cuadrilla and the UK government’s lead non-executive board member.
So Centrica is to spend £100m helping Cuadrilla with an exploration programme which restarts in earnest next year with a new, fourth, well. A further £60m is promised if the exploration turns into production.
But the size and scale of the shale sector in Britain remains unclear. The British Geological Survey is shortly expected to come up with some encouraging new reserve estimates. Equally, the Treasury will confirm the level of tax breaks available before the parliamentary recess next month.
But the issue that will decide whether Britain can replicate the enormous success of the shale frackers in America, where prices have dropped like a stone, is whether the gas can be made to flow from the rocks easily and in large quantities. That will only be known once more wells are drilled, but Centrica is clearly optimistic.
Deflation could be the way forward
Hard though it is to believe, historically Britain has been as prone to bouts of deflation as it has to inflation. Not in the past half-century, of course, but in the three centuries or so since the Bank of England was founded in 1694, there have been as many years when prices have fallen as there have when they have risen.
Indeed, until quite recently deflation was the natural order of things. Competition resulted in downward pressure on prices and it was only during wars that inflation moved upwards. The price level in the UK was lower at the outbreak of the first world war than it was when the guns fell silent after the battle of Waterloo.
Dhaval Joshi, an investment strategist at BCA Research, says we are on the cusp of returning to this sort of environment. The age of inflation, he says, has also been the age of credit growth, with a strong correlation between the annual increase in the cost of living and the annual increase in debt.
But debt is likely to rise far more slowly in the future than it has in the past, argues Joshi. Why so? Because debt levels are already uncomfortably high; the collateral against which the debt is secured is impaired; and there has been a widespread backlash against debt that was sparked off by the financial crisis.
As a result, the only way the age of inflation could be extended into the future is if central banks decide that it is a lesser evil than deflation. In the short term, that is certainly the case, which explains why central banks have been pumping credit into their economies through quantitative easing.
But will central banks really be comfortable with the next stage on from QE, helicopter drops of money into economies?
Joshi says that ultimately policymakers will prefer modest falls in the price level to the risk of runaway inflation, and that deflation will become the new normal.
Cosy chair awaits Tucker
Paul Tucker’s decision to quit his job at the Bank of England was not unexpected. He has been at the bank for more than 30 years, risen to deputy governor and had been regarded as the nailed-on certainty to take over from Sir Mervyn King. Missing out on the top job meant he was always likely to walk.
He now plans what Threadneedle Street describes as a sojourn in “US academia”.
But it is unlikely that Tucker, an expert in the way that banks work, will disappear into a black hole of research and quiet contemplation. He will without doubt be top of many headhunters’ lists when they cast around for candidates to chair UK banks in the coming years. And it just so happens a couple of jobs might just come along to suit his timing: Sir Win Bischoff has already made it clear that he won’t be hanging around at Lloyds Banking Group beyond next May. And if that is a tad too, soon then there will be a berth at Royal Bank of Scotland as soon as it has bedded down a new chief executive.
Tucker will be back.
Quietly, without much public fuss or discussion, a new ruling class has risen in the richer nations.
These men and women are unelected and tend to shun the publicity hogged by the politicians with whom they co-exist.
The decisions that emerge from those meetings affect the entire world. And yet the broad public has a dim understanding, if any, of the job they do.
In fact, these individuals now wield at least as much influence over the lives of ordinary citizens as prime ministers and presidents.
Who are the world’s central bankers?
The tool they have used to change the world so profoundly is one they alone possess: creating money out of thin air.
There is an economic term for this: quantitative easing. More colloquially, it’s called printing money.
Since the great economic meltdown in 2008, these central bankers have probably saved the world’s economy from collapse, and dragged it into the unknown at the same time.
The amounts they have created are so vast as to be almost incomprehensible — trillions of dollars in pounds and euros, among other currencies.
At the end of 2012, the balance sheets of the world’s largest central banks, those of the G20 nations and the eurozone, including Sweden and Switzerland, totalled $17.4 trillion US, according to Bank of Canada calculations from publicly available data.
That is nearly a quarter of global GDP, and slightly more than double the $8.5 trillion these same institutions were holding at the end of 2007, before the financial crisis hit.
Stock markets have risen on this tide of cheap money. So has real estate. So, arguably, has everything else.
But there are two big concerns with what this new central banker elite has done.
One is that no one really understands the consequences of pumping such vast amounts of money into the world economy. It’s already distorted the prices of certain assets, and some fear hyperinflation or market crashes are inevitable (the subject of tomorrow’s column).
The other is that it’s caused a massive shift in wealth, from savers to borrowers, and is taking money out of the pockets of almost everyone approaching or at retirement age.
A war on savings
Probably the most painful of the consequences of quantitative easing has been borne by the elderly.
Most of that generation grew up believing that if you save and exercise prudence that you will earn at least a modest return on your hard-earned money to keep you comfortable in your old age, perhaps along with a pension.
But the money-printing orgy of the last five years looks to have shot that notion to smithereens.
Very deliberately, the central bankers have punished savers, pushing interest rates so low that any truly safe investment — and older people are always advised to play it safe — yields a negative return when inflation is factored in.
British pensioners Judy White and her husband Alan, at their home in Teddington, south of London: ‘I now have 50 per cent less.’ (CBC )
The policy has savaged pension and savings returns worldwide, but particularly in Britain, a nation of savers and pensioners.
There is more money in British pension funds than in the rest of Europe combined, and now that money is just sitting, “dead,” as some call it, not working for its owners.
Ask Judy White, a retiree in her late 60s who lives in Teddington, south of London, with her husband, Alan.
British pensioners Judy White and her husband Alan, at their home in Teddington, south of London: ‘I now have 50 per cent less.’ (CBC )
This year, the Bank of England shattered her retirement. Her pension benefit was effectively slashed by half.
“I don’t understand what quantitative easing is, except that it’s printing money,” she says. “But I do understand that I now have 50 per cent less.
“What they have done is take money from people who have been really careful all their lives.”
On the backs of the virtuous
Actually, by the Bank of England’s own reckoning, the £375 billion of quantitative easing it has carried out since 2008 has cost British savers and pensioners about £70 billion, roughly $100 billion. (At the same time, the richest 10 per cent of British households saw the value of their assets increase over the same period, the bank reported.)
That cost to the elderly is largely because pension payouts in the U.K. are pegged to the yields on government bonds, and quantitative easing has forced those yields down to almost nothing.
Speaking for the Bank of England, Paul Fisher acknowledges that the bank has created a paradox: It does want people to save and be prudent — just not right now.
“We try,” he says, “to get people to do things now to get out of this mess, which in the long run we prefer not to do.”
In other words, might we please have some more of the wild consumer spending and borrowing that helped get us all into this situation, at least for a while?
Ros Altmann, a governor at the London School of Economics: ‘A monumental social experiment.’ (CBC)
The plain fact, though, is that central bank- and government-imposed solutions to disasters caused by irresponsible, greedy, foolish behaviour are almost always carried out on the backs of the virtuous.
So it was with the bank rescues in 2008, and so it is with quantitative easing.
As Ros Altmann, a longtime pension manager and director of the London School of Economics, puts it, quantitative easing has amounted to a “monumental social experiment” — a large-scale transfer of wealth from older people to younger people.
“Anybody who was a saver and has got some accumulated savings will have had a reduction in their income,” she says.
While “anyone who had a big debt, particularly mortgage debts, would have had improvement in their income because their interest payments have gone down.”
As stupid as it might sound, older people everywhere would probably be better off if they’d abandoned prudence and borrowed more.
That is obviously not what the central bankers or our political leaders want. But that’s the situation they’ve created.
What’s the alternative?
This transfer from savers to borrowers has also been taking place here in the U.S. and in Canada, to varying degrees.
Some U.S. pension funds are in danger of default, at least partially because of these artificially low interest rates, and Canadian pension funds that are heavily invested in safer debt have been injured, too.
In an interview in his Ottawa office, Bank of Canada governor Mark Carney defends quantitative easing elsewhere, and his own low-interest rate policy, though he does acknowledge that it has been hard on pensioners and savers.
Like all central bankers, he argues the (impossible to prove) negative: There have been consequences, yes, but if we hadn’t done this, things would be far, far worse.
As for carrying out these solutions on the backs of the virtuous: “I don’t see a world where the virtuous are rewarded if we suffered a second Depression,” he says. “These are the stakes.”
Carney would prefer not to talk about the enormous power central bankers have gained since 2008, saying only: “We have a tremendous responsibility … because of a series of mistakes that were made in the private sector and the public sector.”
As Canada has performed better than most Western nations, Carney has not ordered any new money printing.
But he has kept interest rates down, and that has fed the real estate booms over the last few years in Vancouver, Toronto, Calgary and elsewhere.
See the surge in central bank holdings, the printing of new money, beginning in the spring of 2008 with the bank bailouts and the acquistion of long-term securities to keep interest rates down. (International Monetary Fund)
He scoffs at the suggestion that “the party” will end at some point. “I am not sure we are having a party right now,” he says. “It doesn’t feel like a party.”
And, in fact, he has repeatedly expressed concern at the huge debt levels Canadians are accruing, at least partly because of his low-rate policies.
But surely he understands the anger of an older person watching their savings being eroded, I ask him.
Carney smiles grimly. That question is clearly a sore point. He gets a lot of mail on the topic.
Canadians, he says, must understand that the alternative is massive unemployment and thousands of businesses going under, and “my experience with Canadians is that they tend to think about their neighbours and their children and more broadly … they care a little bit more than just about themselves.”
Asked whether central bankers are not in fact enabling irresponsible behaviour by speculators enamoured of cheap money, not to mention politicians who can’t curb their borrowing and spending, Carney merely remarks that voters in a democracy get the governments they choose.
Mark Carney has been the Governor of the Bank of Canada since 2007. During his time as Governor, the main chartered banks were injected with “liquidity” totaling about $114 billion because of the financial crisis of 2008. The Prime Minister denied that this injection was a “bailout.” The Canadian banks also borrowed from the US Federal Reserve discount window–one bank alone borrowed $10 billion.
Canadian banks have gradually been deregulated and now are getting bigger than ever before. They can sell insurance, make investments and take deposits where previously they had been just boring depository banks. They are also getting bigger through acquisitions of other banking institutions.
Mark Carney gets credit for keeping Canadian banks from failing during the crisis but it was mostly luck (“horsehoes”) or previous regulation that actually kept the financial system stable. Carney and Finance Minister Flaherty frequently warn Canadians to get out of debt even though savings earn very little interest with our low interest rate policy and wages are stagnant or decreasing while prices continue to increase. Debt levels in Canada reflect the conditions of our economy. At the same time, the government has decided to impose austerity on the population by reducing expenditures across the board by 10% including loss of government jobs.
Here’s a little song for Mark Carney as he leaves Canada to become Governor of the Bank of England:
“When I was a Lad” (Carney Style)
By Polemic – Macro Man
After prompting from a reader and getting bored of guessing Italian election outcomes, we have adapted Messrs Gilbert and Sullivan’s “When I was a Lad” from “HMS Pinafore“. Instead of the Queen’s Navy, we think the B.o.E is more topical.
“When I was a Lad” (Carney Style)
When I was a lad I served a term
As a junior trader at the Goldman firm.
I cleaned the books and soon wasn’t poor,
As I traded debt and made the profits soar.
He traded debt and made the profits soar.
I traded debt so carefully
That now I am the Governor of the B.o.E
He traded debt so carefully
That now he is the Governor of the B.o.E
As trading boy I made such a fee
That they gave me a post in the ministry
As Canadian minister with no recourse
I introduced a tax on income trusts at source.
He introduced a tax on income trusts at source
I introduced the tax when at the ministry
So now I am the Governor of the B.o.E
He introduced the tax when at the ministry
So now he is the Governor of the B.o.E
In raising tax I made such a name
That a central bank governor I soon became
I saw a crash, chose policies to suit
To prevent Canada becoming destitute.
To prevent Canada becoming destitute.
I passed so well through the G.F.C
That now I am the Governor of the B.o.E
He passed so well through the G.F.C.
That now he is the Governor of the B.o.E
Of central bank skills I acquired such a grip
That they took me into the partnership.
Bernanke, Merve and then Draghi
All showed me the way to play the great Q.E.
All showed him the way to play the great Q.E.
Balance Sheet Constraint won’t apply to me
Now that I am the Governor of the B.o.E
Balance Sheet Constraint won’t apply to he
Now that he is the Governor of the B.o.E.
I grew so known that I was sent
By a select committee into Parliament.
I always voted for the strong growth call,
I never thought of thinking of inflation at all.
He never thought of thinking of inflation at all.
I thought so little, they rewarded me
By making me the Governor of the B.o.E
He thought so little, they rewarded he
By making him the Governor of the B.o.E
Now bankers all, (don’t look at me Moody)
If you want to rise to the top of the tree,
If your soul isn’t bothered by a ratings fall
Be careful to be guided by this golden rule.
Be careful to be guided by this golden rule.
Preach growth, restraint yet huge Q.E.
And you all may be Governors of the B.o.E
Preach growth, restraint yet huge Q.E.
And you all may be Governors of the B.o.E
Just how does Goldman Sachs influence the policies of government? In 2011, Goldman economists suggested that additional asset purchases would help the Fed‘s easing policy. The Fed did decide to buy $85 billion in assets each month beginning in 2012 when the unemployment rate in the US was 7.8%. This policy is supposed to reduce the unemployment rate but the unemployment rate has gone up to 7.9% since the implementation.
Here is Goldman’s economist, Jan Hatzius:
“With short-term interest rates near zero and the economy still weak, we believe that the best way for Fed officials to ease policy significantly further would be to target a nominal GDP path such as the one shown in the chart on the right, indicating that they will use additional asset purchases to help bring actual nominal GDP back to trend over time. The case would strengthen further if deflation risks reappeared clearly on the radar screen.” (from Business Insider)
Mark Carney, Governor of the Bank of Canada, takes Goldman’s suggestions seriously, having been a Goldmanite himself. So why would anyone be surprised that he will be taking Goldman’s economic ideas from Canada to the Bank of England? Besides that, Carney now will have additional duties to perform such as supervising the other British banks. It is so easy to spread Goldman’s economic ideas!
Carney set for first taste of Bank of England job
The Treasury Committee is among the more powerful committees in Britain’s Parliament and it recently won the power to interview the incoming governor before he takes office. Although it doesn’t have the ability to block Mr. Carney’s appointment, the committee could make it difficult by issuing a negative report to the House of Commons and forcing a vote on whether he should be appointed.
No one is expecting that to happen, or the committee to give Mr. Carney a particularly rough ride on Thursday. “This is an opportunity for the new governor to get to know the committee,” member Andrew Love, a Labour MP, said in an interview. “It’s important for us to get to know him. And it’s an opportunity for the British public to find out more about how he sees the job as governor of the Bank of England.”
But it won’t all be easy going. Committee chairman Andrew Tyrie, a Conservative MP, has made it clear he has reservations about the recently expanded role of the governor, which now includes a supervisory role over London’s financial district along with setting monetary policy. Mr. Tyrie and other committee members have called for more oversight of the central bank, given its additional responsibilities. “We will want to hear what [Mr. Carney] has to say about making sure the bank is equal to the challenge of these new responsibilities,” Mr. Love said.
Mr. Carney will also be grilled about his decision to take the post for five years, instead of the eight requested by the British government. Mr. Carney told The Globe and Mail in November that he wanted the shorter term for family reasons and because it matches his potential tenure as head of the global watchdog known as the Financial Stability Board. Mr. Love said he and other committee members will need more of an explanation.
Merging the new responsibilities won’t be easy and it is hard to see how that can be done quickly, the MP added. “He certainly comes well qualified but there’s a major challenge and we will want to hear from him why he believes he can achieve that in five years.”
There will also be plenty of questions about Mr. Carney’s recent statements about whether central banks should scrap inflation targets during extraordinary times and move to a target that includes nominal gross domestic product, or GDP that has not been adjusted for inflation. Economists say targeting to nominal GDP growth would allow for higher inflation when the economy is slow, and lower inflation when the economy is strong. The idea is to try to smooth out the boom-and-bust cycles with an expanded approach, rather than fixating on a specific inflation number.
That kind of change would mark a major shift in policy for the Bank of England, which has followed a strict policy of targeting inflation at 2 per cent. Even the man who appointed Mr. Carney, George Osborne, the Chancellor of the Exchequer, has expressed little interest in the idea, saying inflation targeting has served Britain well. During a speech at the recent World Economic Forum in Davos, Switzerland, Mr. Carney also mused about using “unconventional measures” to kickstart an ailing economy.
Those comments have been given front-page treatment in Britain and will make up a large part of Thursday’s hearing. “We hope that he will lay out in some detail how he sees [nominal GDP targeting] developing and where he sees us moving,” Mr. Love said.
The ruling class has no alternative to austerity and the drive to create a pristine capitalism. Not only is that impossible, but, as shown by South Africa, the working class is beginning to revolt. This is an edited version a speech by Hillel Ticktin, editor of Critique, on November 17
Capital will kill and destroy: that is its nature
If one looks at the current situation, one would have to conclude not that we are coming out of a crisis, but that the ruling class is becoming more and more afraid. Mervyn King, the governor of the Bank of England, says that the real position is getting worse. Why is he saying that? One could say, of course, that he is coming to the end of his term, and that he has to say how bad everything is. But it is clearly more than that. There really is a degree of pessimism now within the ruling class itself, which he is expressing.
The second aspect of the situation is that austerity has more or less become the dominant mode of discourse. Barack Obama represents the left wing of the ruling class, and even he frames his policy within it. Except that his austerity is not the same as the Tea Party austerity, which seems to rule in the Republican Party and would have been the policy if Romney had won. Nevertheless, there will be a form of austerity, whichever side you take in mainstream politics at the moment.
In this country it is obvious that Ed Miliband has more or less accepted that line as well. In fact it is the line that was set in the 1930s – the Austrian line, as it was called. Paul Krugman has said that austerity is in effect a means of control. Behind the word ‘austerity’ one can hide the form of control, hide the fact that there is a ruling class that is doing very well, and that society is, if anything, becoming more unequal, not less so. That can be hidden behind the word ‘austerity’ – that is what Keynes said and what Krugman has been saying.
One might have expected Keynes to have said that if he had been a reformist. But he was nowhere near the left, and was strongly anti-working class. However, one has to accept that the ruling class, in order to survive, has to make concessions at certain times. And in order to make concessions they have to recognise their own real position, and make it clear that by making concessions they are retaining control. It amounts to removing the veil of commodity fetishism and saying, ‘Yes, we are here in control, despite these concessions’.
However, the austerity line is the reverse: it amounts to a refusal to accept what is real. Yet it is the dominant viewpoint now. In 2007 I attempted to analyse the different forms of capitalist control – both those that are inherent in the nature of capital itself and the substitutes employed at this time – and see how far they could be maintained. Austerity is part of that.
At the present time no alternative policy is being put forward. Krugman is isolated and the Keynesian approach is not being advocated, except in a very limited sense. Obviously, it was used in 2008-09 to pump money into the system, and it did save the world economy from going into a bottomless slump. Without that taking place the system really would have collapsed. What would have happened afterwards we do not know. But they simply had to act, but, having done so, they are now reversing the line.
They are not prepared to countenance the Keynesian solution, and so the only place left is austerity. Various people, including Krugman, are saying that the policy is mad. It is mad because it is impossible. Welfare cannot simply be abolished, which is what it requires. Apart from anything else it would mean a collapse in demand, and at a technical level it would mean reintroducing debtors’ prisons. How else do you deal with a situation where millions of people are near to starving and where there would be riots? So, it is impossible, simply because the population would not accept it. Of course, the ruling class understands that, and a number of economists who advocate austerity are not that stupid either. But I have to say many of them are – much of what has appeared in the press is simply nonsense.
In attempting to balance the budget, they are actually restoring the reserve army of labour. In other words, they are returning to a classic form of capitalism, as outlined in Capital volume 1. This is particularly prominent in volume 3, where Marx examines the nature of crisis, although it is also present in volume 2 of Theories of surplus value.
However, there are at least some sections of the ruling class who see that it is impossible to actually do it. That if they try to do it, it will increase the momentum towards change, or cause riots; as in South Africa. The trade unions and working class may start to act as a unified class and that would be highly dangerous. This is the contradiction at the heart of capitalism itself.
It was not like that in 2007. They had not yet got to this point, and nobody knew people were quite so mad. That the Tea Party is mad is obvious, but that the mainstream ruling class would actually proceed in this manner – the Conservative Party in the UK and the CDU in Germany – was totally unexpected. That is a paradox and, of course, a weakness. It does serve the purpose of providing a cover, as it puts forward a false enemy. It appears to be a policy which can be reversed, but they do not want the alternative policy: that is to say, they cannot re-inflate the economy; they ruled that out from the 70s onwards.
Why was there a shift towards finance capital at that time? Some people argue in terms of the falling rate of profit, but there are many arguments against that viewpoint. I think that they simply ruled out reflation because it would lead back to the 70s. If the working class got back to anywhere near full employment, it would start being able to act collectively as a class again; it would become far too powerful. So it is not that they cannot do it: they will not do it. They simply will not take the Keynesian road.
One can also look at the question more generally. I am thinking in particular of what was said in 2007 by Bill Gross, head of Pacific Investment Management, which holds more than $1 trillion in government bonds. It may only be half of what the Chinese hold, but it is still pretty important. It was he who declared that British bonds were toxic, and it was this that justified the government’s policies of austerity. The influential viewpoint of that company was one of the reasons that the US credit rating was downgraded.
Speaking at the 2007 annual general meeting of his company, he said that it was “far better to recognise that only twice before during the last century has such a high percentage of national income gone to the top 0.1% of American families”. This was long before Occupy, and not from a person on the left. It was “far better to understand”, he continued, “that society should place an initial emphasis on abundance, and the state should continually strive to distribute the abundance more equitably”. One might think that the following might perhaps be a quote from Skidelsky, in his phase as a leftwinger, but it is still Gross: “… when the fruits of society’s labour becomes maldistributed, when the rich get richer, and the middle and lower classes struggle to keep their heads above water, as is clearly the case today, then the system ultimately breaks down”. He continues: “… boats do not rise equally with the tide; the centre cannot hold.”1
This from a member of the Republican Party who has to be considered an integral and central figure in the ruling class. But that was in 2007. The situation is clearly much worse today, in terms of income distribution, for example.
The most important aspect of the crisis is the fact that money is not capital. That is to say, there has been a build-up of money which cannot be invested, and when that happens value does not create more value. There is no self-expanding value and money which does not self-expand is not capital. This build-up of trillions around the world is obviously the problem today – the reason why things are getting so desperate and people are starting to demand the government adopts a different policy.
However, the level of unemployment has not risen in the way it did during the great depression. In America it may not be wonderful, but it is a lot better than it was in 1933. That is so precisely because of the policies adopted, which in part has meant that around the world, particularly western Europe and the United States, companies have tended to keep workers on, while effectively decreasing their wages, or have allowed workers to retire early.
The effect is that, although unemployment has risen, it has not done so as fast as it did in the great depression. That is why most economists do not refer to the current situation as a depression, although it does constitute one from Marx’s point of view – a point also made by Krugman. A depression is not a matter of one or two quarters without growth, but long-term stagnation, in which there are ups and downs.
The point is that in the recent period the capitalist class has been doing very well: profits have actually gone up during a depression. Well, that cannot last, but it is actually what has happened. So if Bill Gross were to repeat his remarks today (although I am not sure he would) he would have to go even further.
This affluence does not just apply to the top of the capitalist class; it also applies to managers. The income of the top percentile in Britain, the top 11,000 earners, has increased by 50%. As a result, top managers who were previously receiving, say, £2.5 million a year are now getting five million. Not bad. So for some people it has been a rather good depression.
There is increasing antagonism towards people who pocket so much money, although it is not class antagonism as such. Yet the whole argument around companies that are avoiding tax is really a blind alley. That is the nature of capitalism – companies and individuals must always strive to minimise their tax bill. Instead of making a big deal about a managing director who is making 10 million, why not just tax them at say 95% or even 99%? They would still be doing very well compared to most of us.
The reason that will not happen can be explained by the nature of capitalism itself. Obviously, the logic would not just be to tax the capitalist class, but for the state to redistribute their entire wealth to the working class. But that would not be capitalism. So campaigning on the basis of this or that company, or this or that terrible capitalist who does not pay their taxes is really just a way of avoiding fighting the system.
However, that is the kind of form that resistance has taken, and that clearly is where we are today. But the left just seems to go along with this miseducation of the population. In fact why is it ‘responsible’ to pay tax? Why do we want to pay for more wars?
An interesting aspect of this is that in the third world we can see control beginning to fray. There is an obvious case of this in South Africa, and I would like to say a few words about that. A central question is the crucial role of Stalinism in maintaining the system. Now obviously, the Soviet system no longer exists, and the Chinese Communist Party is a kind of afterlife – market Stalinism, Stalinist capitalism, or whatever one calls it. It is a form of derived Stalinism.
In South Africa, Stalinism is still playing a key role. The fact is – and I have to say this because people do not generally understand it – in 1994, the capitalist class preferred to put in a non-racist government. The whole concept of racial capitalism is simply wrong. The theory was that, in order for capitalism to develop in South Africa, the capitalist class had to use racial discrimination.
I do not intend to go on about this, as I have written a book about the question,2 but it does appear to me to be simply wrong. But it was the basis of the South African Communist Party’s ideology that took a nationalist line rather than a line against capitalism, putting off the day that capitalism could be overthrown to some time in the future. That, as you know, is the hallmark of Stalinism – there is always some reason why communism is always something for the day after tomorrow.
In South Africa the SACP adopted the line that the essential thing was to end racial discrimination, but the capitalist class would be unwilling to do so. In fact, it meant that they could stop paying white workers between 10 and 20 times what black workers were paid. From the point of view of the capitalist class, this was simply an incubus that they did not need. The result was that the rate of profit was not high and they regarded it as preferable to abolish the wage difference, which is what they did. As a result, profits have gone up, and so it was a successful change from the point of view of the capitalist class.
The South African government includes not only members of the Communist Party, but those who to a large degree they have been influenced, or controlled, by the Communist Party. The major trade unions have also been controlled by the SACP. So when there is an industrial dispute it has been compared to ‘playing tennis with yourself’ – on one side of the net there is a minister who belongs to the SACP and on the other an SACP union leader.
The unions are closer to Soviet-style unions, except that it is cleverer than that, because they do go on demonstrations, they do demand higher wages and they go on strike. But it is easy to put wages up every year because the real wage is something different. Although it is hard to work out the real figures, one could argue that sections of the workforce have either the same wage as in 1994, when the government came in, or a lower wage.
That is the way South Africa has been run for the last 20 years, and why people should have put up with that is not very clear. But things have finally snapped.
The point of going through this description is to show that the form of control rested to a large degree on Stalinism: the way they actually control the unions and the propaganda they are putting forward. When the government arrived in 1994, and before then, there were slogans all over the place calling for socialism – there was a level of socialist consciousness. But the overall understanding of what socialism would mean and how it would take place was very low, and a lot lower than it was in the 1950s. The level of understanding among the left was very poor.
Unless you understand the nature of Stalinism, you will not understand what has happened in South Africa. And unless you have a more general theory of the global economy, with Stalinism bound up in it, then you will not understand the current economic situation either. The world is in transition – away from capitalism, whilst remaining within capitalism – and there are three sets of laws in operation: the laws of capitalism, the laws of transition and the laws of decline.
In South Africa there are people now in power who talk about socialism, who have spent many years in jail fighting the apartheid regime and who appear to be honest. Some of them are honest and genuine, of course, although many are now millionaires. There is the wonderful example of Cyril Ramaphosa, the former general secretary of the National Union of Mineworkers, who is now a multi-billionaire and director of the company against which workers in Rustenberg have been on strike. He is not the only one.
The point is that there is a highly complex situation, with obviously a very low level of education, including socialist education. The ANC government has one of the worst records on education. According to The Economist, it comes somewhere like 120th in the world. So it is not surprising that it has taken 20 years for people to react. It is little wonder that people do not understand socialism when there is a government of multi-millionaires proclaiming themselves to be communists and socialists, presiding over an economy where the majority have very low wages.
That includes the opposition within the African National Congress milieu. Even someone like Julius Malema, the expelled former leader of the ANC Youth League, who calls for the nationalisation of the mines, is simply an opportunist. He is personally very well off and in fact seems to act as a spokesman for outside interests.
Despite this complexity we are now seeing the beginnings of a revolt. So far it is taking a trade union form – demands for higher wages, for more workplace control and so forth; and concessions have been made. And it is not just in the mines. It began in the platinum and other mines, but now it has spread throughout industry and even agriculture. There is a generalised revolt of workers in South Africa, precisely because of the conditions they have to endure, and without there being any understanding, any theory whatsoever, about the underlying causes.
Since perhaps the 50s and 60s, there have been perhaps two countries where Trotskyism has been some kind of force. One was Ceylon, where a Trotskyist faction entered into government, and the other was South Africa. In the Western Cape in particular Trotskyism was dominant on the left, even when it was not dominant in the country as a whole. It is no accident that quite a significant number of Trotskyists come originally from South Africa. The late Neville Alexander came from that tradition, and was immersed in it in Cape Town. But now it has been degraded, and the level of discussion is very poor. So I do not think you can expect very much more to happen at this time, but it does give hope: if the working class is acting as a whole, then that provides impetus for a left to be formed. One that is to the left of the Communist Party, of course.
Global profits have tended to go up since 2009. But here you have an important source of those profits – the third-world extraction of minerals – being threatened. If you look at the FTSE 100, the Financial Times bellwether of companies, a large proportion of those whose profits are under threat are in mining. There is an acceptance that capitalism is in trouble, which is not surprising: they are in trouble and they are going to be in trouble.
Hence the importance of South Africa technically, politically and economically. The interaction between South Africa and other countries on the continent means the revolt will spread. There are many migrants in South Africa because even the low wages paid to workers there are higher than in other African countries. So it is not surprising that workers try to get into the country, and that is why the population has grown so fast in spite of the Aids epidemic. In the 50s, the population stood at around 12 million, and now it is over 50 million. Life expectancy went down under president Thabo Mbeki, dropping to something like 45, but, now that proper HIV medicine is available, it has gone back up to 51.
South Africa is an example of what is happening, and the degree to which they control is being challenged. What I have argued is that, on the one hand, there are the classic means of control: commodity fetishism and the reserve army of labour; on the other hand, they have already been partly shot through. In the period from 1945 to, say, 1972, there was no reserve army of labour in Britain: it is hard to talk of what existed as a simple reserve army, when there were welfare benefits and what Marx would have called a surplus population. But now the intention is to fully restore the reserve army of labour – and for that the reduction of welfare benefits to the absolute minimum is necessary.
Any such attempt will, of course, result in big problems for the capitalist class. Workers will fight for their rights and the fact that capitalism has been overthrown, even if the result was Stalinism, has meant that it can be seen through and exposed, and this will continue to happen as long as capitalism exists. Anyway, the point is that the revolt will spread – it must spread. The stories of what happened, that people were shot down and tortured, are well known. So we can expect the revolt to spread to other countries on the continent – and I would think to other continents too.
The Chancellor George Osborne stuns the city with the appointment of Mark Carney the Canadian central banker who will replace Sir Mervyn King as the next Governor of the Bank of England.
Carney had previously had previously ruled himself out of the job but his old employees Goldi Sucks persuaded him to reconsider.
Mr Carney will serve a five year fixed term rather than the normal eight years.
A spokesperson for Goldi Sucks stated they were delighted with the appointment and expected Carney to relieve the British economy of all its wealth within the allotted period.
Goldi Sacks added they had offered Mr. Carney generious incentives to take on the job of Governor of the Bank of England.
They further added they expect to play a meaningful and significant role in advising the UK on its future bailout terms. The signal for this will be a ratings agency downgrade of the UK economy.
The immediate outlook for the UK is Greek style austerity for the general population but the good news is the 1% will get richer
Michael Cohrs, a former Goldman Sachs banker who now sits on the Financial Policy Committee, said regulators may be trying too hard to “re-fight the last war” and that “allowing financial companies to blow themselves up, and then try and deal with the fall-out, may be – whether we like it or not – the reality of where we end up”.
Speaking at the University of the West of England, he also warned the authorities against forcing banks to increase lending, saying it was “no silver bullet” for the current economic malaise. Higher lending risked weakening the banks as most households and businesses were trying to pay off their debts and those wanting more debt were the least creditworthy.
“If we push too hard on the lending theme, we will simply raise default levels, as more of the borrowers will not be creditworthy,” he said. “There is no silver bullet to quickly fix the current economic situation.”
Drawing attention to the wide variety of financial crises over the past 200 years, Mr Cohrs said: “We shouldn’t pretend we can eliminate financial crises completely. Nor that the next crises will necessarily be a carbon copy of the last one.”