Home > Gender Politics > ‘The harsh reality of economic power': what Gordon should say

‘The harsh reality of economic power': what Gordon should say

GordonBrownThe other day Blograde Dave was asking whether what Giles calls ‘institutional bias in favour of clients’ on the part of the international credit rating industry (but which I’d prefer to call rampant corruption) was symptomatic of ‘outmoded ideology’, or whether it is ‘an expression of naked class interest’.

Good question, and the answer lies in an analysis of the hegemonic power of discourse exerted by capitalism.  I mean, doesn’t it always (here’s Paul Sagar moving towards a similar conclusion).

I’ll be tackling that in more detail, and suggesting ways forward.  But today, as a little taster, here’s Geoff Dyer in the FT assessing why ‘China’s century’ has not arrived just yet:

‘The crisis has also given China, with its $2,000bn-plus foreign exchange reserves, a lesson in the harsh realities of economic power. Many developing countries have sensibly built up a foreign currency pile to insulate themselves from financial crises. Yet real power lies not with the country with the most reserves, but with governments that can easily borrow in their own currency. After all, who does the US borrow from?  China.’

It’s not about fiscal responsibility, about living within your means, says Geoff.  That’s not done the Chinese much good so far. 

No, it’s about naked power. 

The US has the dollar,  and it’s not going to give up its position as the lead currency,  whatever the longstanding Kaldorian arguments that a world ‘commodity currency’ would bring greater long term economic stability to use.  It’s not going to because it doesn’t have to.

And here, for good measure, is Simon Kuper in the same FT edition, on the reality of football, not as business, but as an expression of class interest:

‘Clubs are immortal chiefly because creditors dare not pull the plug. The clubs’ brands are strong enough to cow banks and taxmen. And so clubs can incur debts without fear………….. Much of football’s debt will never be repaid. So it will be written off.

…..Large chunks will be nationalised. In many countries football lives off state support. The prime example is Argentina, whose government last month bailed out the clubs by “buying” football’s television rights for almost triple their previous price. In Italy and England, governments have quietly accepted that many clubs will never pay their back taxes. Even Dutch city councils bail out profligate clubs. Taxpayers are therefore funding footballers’ Porsches.’

Just like the United States’s strategy for maintaining world domination, football doesn’t need to operate within the limits of  fiscal responsibility.  It has institutional power, and that’s what counts. 

And just like the big football clubs, in their patronising attitude to the smaller clubs (yeah, I do support Blackpool), the international credit rating industry doesn’t need to operate according to the rules it sets out for others.  It has the power not to do so.

The ‘rules’ of fiscal restraint and responsibility are only for those without power.  That’s why, in this new neo-neoliberal universe, where the expression of naked class interest is just a little more visible to the naked eye than it was before the smokescreen of the efficient-market hypothesis  was blown away by the crisis, the dominant narrative is that of slashing public services to curb the national debt. 

Because curbing the national debt by slashing public services and hiking unemployment to previously intolerable levels (see part 2 of my essay)  is done at the expense of those without power, that is what those with the power will do.

That is why Osbourne can crow ‘we have won the argument on spending’.

Osbourne is correct.  The argument IS won, because it is the ‘powerful’ argument.  It simply doesn’t matter that, from any other perspective than that of naked class interest, it’s stupid and wrong, and that prioritising the national debt over investment is incredibly short-sighted

That, comrades, is the harsh reality of economic power, and what we’re up against.

It would be nice to think Gordon Brown will stand up in conference this week and call out the Tories on their economic strategy, that investment IS more important than the debt as a percentage of GDP, and that Britain should be confident enough to know that it can keep on borrowing as much as it takes to make that investment happen, because the markets will not in fact refuse us further credit, and because the gilt market will stay manageable anyway as they remain an attractive investment option (see also this tentative FT ‘long term’ view). (See also Giles at Freethinking Economist on his view that ‘whatever grim future awaits Iceland holds no auguries for Britain or other advanced nations.’)

It would be nice to think that the Labour government was stronger and more confident in its cause than your average indebted football club.  If that were so, I’d happily stay up late and write Gordon’s speech for him, just like last year.

Message to Gordon: my mobile’s on if you want to call.  Try to avoid kids’ bedtime though, if you would.

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Categories: Gender Politics
  1. Paul
    September 27, 2009 at 8:36 pm

    I largely agree with this post (and have replied to your comment over at BC).

    Incidentally, on this big picture, “what’s going on underneath the surface” stuff, I’ve just finished John Dunn’s Setting the People Free

    A short book in pages, but a big book in ideas. Definitely recommended for thoughts about where the word and idea (of) “democracy” fits into an awful lot of things.

  2. September 27, 2009 at 8:37 pm

    The point about football clubs is well made; last time I looked, United and Liverpool carried between them about £900 million in debt, and Chelsea was posting losses of around £70-80 million per year – though this is part of a longer term business plan that is meant to see them break even by about 2011.

    But let’s compare these clubs to nations; they’re not being let off scot free. With the exception of Chelsea, which is loaned money interest free by Roman Abramovich, all the other clubs are paying interest. Meanwhile, they are being hollowed out; a lot of the support staff are being sacked, there are major inroads into terms and conditions of the staff (leaving aside footballers and managers, obviously).

    When it comes down to it, these clubs are treated exactly like countries. As soon as there is some doubt, the market comes crashing down on them – as we saw with Newcastle United. Asking price dropped from £300 – £100m, firesale of players. Things like property get sold off as well, and with diminishing returns on merchandise and television rights, the club may not find an equilibrium and may go broke. The only way that doesn’t happen if there’s someone with enough investment capital to turn things around and break the negative feedback loop.

    This will never happen with countries of course. They’re too big. They would simply go broke – and Britain has come close. The United States might step in to prop us up, like they did following the Second World War, but how likely is that if we’re going broke as the result of policies the US wants to see shelved? Just as with these football clubs, such a precarious financial situation leaves us politically vulnerable.

    Of course, by us, I mean ‘the government’ and those who want ‘responsible government’ where such is set within the parameters of global capitalism. Which is all about naked class interest, and the powerful-powerless dichotomy you were evoking in your article. Only by seizing our own means of power – trades unions, mass political parties, class revolution – can we counterbalance all the means of exercising power at the disposal of what is in fact a very narrow cabal of people.

    We are, in effect, the football fans. Things simply go on above our heads; we pay our ticket price and whether it goes up or down isn’t much to do with us. Until we say different.

    Yet this wasn’t quite what I was getting at with my comment. Osborne has claimed that they have won the argument on spending – but even within the ruling class, I don’t necessarily think that is true. As you point out, even on the basis of capitalism, there are those claiming it is shortsighted to prioritise rebalancing the budget over long-term investment.

    Hence my question on the previous post: is it naked class interest, i.e. has the argument been won, has the ruling class come down firmly on the side of balancing the budget (in which case the neo-liberal paradigm has not shifted) or is the argument still being fought, even without the intervention of the organised proletariat. Is it possible that the national debt will be tolerated and the ‘long term investment’ substantiated (in which case, neo-liberalism has perhaps been shifted and we must call this phase something else).

    In either case, how we think about this period (and subseqnently, how we think about the past) will be conditioned by the answer. For if the ruling paradigm can shift without the intervention of the proletariat, then historically this raises some interesting questions about the worldwide shift of paradigm between 1933-1951 and what caused it, if it was ‘forced’ or not.

    For some indication of what I mean by ‘forced’, check out this fantastic article by Louis Proyect: http://louisproyect.wordpress.com/2009/09/25/capitalism-a-love-story/ (particularly the section about strikers and soldiers in the 1930s).

    I hope there’s something productive in this long ramble!

  3. freethinkingeconomist
    September 27, 2009 at 9:13 pm

    Paul

    I don’t think the US has any strategy for maintaining world-domination beyond “being a very large and productive economy” – which it overwhelmingly is. Ask yourself why you would not be happy having remnimbis instead of dollars in an emergency, and the huge size and relatively stable character of the dollar – plus a relatively strong record in property rights play a big part.

    It is also wealthy – as are we. That is one reason we can borrow (read the Spencer dale recent speech for good illumination on wealth: http://www.bankofengland.co.uk/publications/speeches/2009/speech403.pdf Most wealth is future earning power, of which we have plenty).

    This doesn’t help China:

    http://socioecohistory.wordpress.com/2009/09/10/bob-chapman-implications-of-the-chinese-reneging-on-derivatives-contracts-on-precious-metal/

    You know I’m on the record (to the point of testing the boredom thresholds of my audience) on the subject of the knuckle-headed preKeynesian nonsense of the Tory economic policy during the deflationary part of the crunch. The reason it would have been stupid is plain: they would not have achieved lower debt (see Dillow, today), and merely ended up with a smaller economy.

    If inflation and rates rise – we escape Japan, 1990- – then there is a genuine dilemma. But in that situation I am not convinced you are right. Factors like crowding out, competition for investment funds, etc, become quite real. I bet a lot of people foresaw soaring unemployment in the mid 1990s. It didn’t happen.

    best, Giles

  4. September 27, 2009 at 9:30 pm

    We should be careful when we’re attributing motive and aims to “the US” – what exactly do we mean? The American ruling class very clearly has explicit strategies for maintaining world domination – indeed the last President was one of a cabal specifically set up for the purpose: Project for a New American Century.

    Not to go all “conspiracy theorist” but these pressure groups consist of some of the most powerful people in the world. The main democratic counterpart to the neo-conservative PNAC is the Council on Foreign Relations. There are other organizations too, such as the Trilateral Commission and the Bilderberg group – all of which have as their aim the furtherance of American supremacy – and all of which consist of major policy makers, thinkers, academics and so on.

    Hell, such a process has even gone global – just look at some of the accounts of Davos: http://www.amazon.com/Superclass-Global-Power-Elite-Making/dp/0374272107 – sounds like populist wank at first, but actually some interesting inside accounts of the way conferences of global leaders (and their entourages, right down to the associated pop stars) function.

    Having a supremely productive economy entails certain policies to keep it productive, and to keep it more productive than anyone elses. I don’t think such a thing, which is what Paul is getting at, is controversial.

  5. Paul
    September 27, 2009 at 10:14 pm

    “The American ruling class very clearly has explicit strategies for maintaining world domination – indeed the last President was one of a cabal specifically set up for the purpose: Project for a New American Century.

    Not to go all “conspiracy theorist” but these pressure groups consist of some of the most powerful people in the world.”

    These thoughts are certainly justified, and you are not “going all conspiracy theorist”: it goes much wider and deeper than just the Project for a New American Century nuts.

    Those nuts are all Straussians, who form a much wider grouping of rightwing Americans throughout academia and politics, who expressly see themselves as the true defenders of America, and enablers of America’s true destiny. The nuttiest ones do Project for a New…the rest just advised or joined the Bush administration.

    I’m not making this up: excellent, funny and short book on this called “Leo Strauss and the Politics of American Empire” by Anne Norton, Profressor of Politics at Penn State University, no less.

  6. September 28, 2009 at 1:07 pm

    Yikes, a lot to respond to their comrades and quasi-comrades, and I’m not really up for it as well as I ought to be up to engaging with your helpful engagements, but here goes anyway:

    Paul S @1: thanks for tip – will have a look

    Dave @2: I’m quite happy to acknowledge that the analogy between footie clubs and countries lacks real depth, though I think your valid point about the way clubs ‘hollow out’ strengthens the analogy with capitalist countries, which ‘hollow out’ public services and employment in order (misguidedly) to protect class interest.

    The point the FT bloke was making was that clubs simply do not go bust, other than Aldesrshot, though I accept your point about the knock down on the Newcastle price. My poiont from there was not so much economic as political – if the UK has the confidence to say ‘we can borrow to invest without going bust’, it’ll be a self-fulfilling prophecy. If no-one seriously expects Newcastle to go bust, why should be tolerate righwing rhetoric about a bankrupt UK?

    In the end, the whole post is about the need to challenge the dominant economic narrative and to put out the message that the economic environment is not a thing that is done to us, but something over which the government still has a fair deal of control – the structure/agency dialectic and all that.

    Giles @3: I think Dave @4 picks up the point well about what ‘the US’ actually is, and I akcnowledge that my own terminology in the post is loose around this. I agree with Dave, and with what Paul S @6 brings detail to, that we need to separate a US government acting in the interest of capital from the US people.

    Thanks for the reading tips. I’ll perhaps come back when i’ve digested (though like with you the reading pile overfloweth somewhat. I know where you are coming from with the argument that, ‘in-paradigm’ speaking, rising inflation and rates may be perjurious to long term payback, but I’m still not convinced that states with the political will to negotiate with the markets cannot do so; increasinlgy my impression is that states subjugate themselves to the will of the markets as a useful convenience in the interests of their ruling elite.

    Of course, I accept that this may seem unworldy, but in the end that is why I am becoming more revolution-oriented (I hesitate to call myself a revolutionary) than I think you are. n ym post on Keynes in explored how Keynesian logic is only brought to bear by the threat of revolution/insurrection, and I have to say i am increasibgly convinced by the argument, not least in the face of the additional ‘conspiracy theory’ evidence that both Dave and paul S bring to this comments thread.

    Specifically in terms of crowding out, I’m not going to claim expertise here, but I do know that e.g. Duncan would argue that this is an overplayed fear in the context of an under capacity economy. i’ve emailed Duncan to see if he wants to engage further on this one.

    I’ll leave the issue of Chinese lack of wealth till I’ve read your stuff, though I suspect it may all get sucked back into the ‘what paradigm’ question which lurks around a lot of the posts and commentary at TCF.

    Paul S @6: Thanks for that eludication and literature link, Paul – which I’ve tried to weave into my comments above.

    Thanks in general to all for the courtsesy and time investment in commenting on this post and at TCF in general. It is, as Giles has indicated, good to engage in detailed but respectful debate, and I hope TCF, BC and FTE can all lead the way on that in a blogosphere where it’s usually the volume of the shouting that is most noticeable.

  7. September 28, 2009 at 1:20 pm

    Paul, I think the difference is that I do expect more football clubs to go broke over the next while. Newcastle may well be one of them.

    On the rest, I am merely remarking at the strange ramifications even narrow discussions such as these can have.

    I think you’re right, that the government does have a great deal of control. Yet even when the government maintained the strategic interests in the economy that it picked up during and after the war, the value of sterling, confidence and investment frequently suffered problems.

    Pretty much every Labour government has had to deal with them – and the problem is that there is no way to placate labour and investors at the same time, so ultimately one must lose. Hitherto, it has always been labour. Yet changing the narrative will not be sufficient to rectify that.

    Indeed every time we elevate people to power, they tend to use it in ways we dislike. So what we need to talk about and work for, even while changing the narrative, are alternative structures of governance – which is an essentially revolutionary step (to link this to your last comment).

  8. September 28, 2009 at 1:27 pm

    Dave

    Yes, I think you are bang on. Changing the narrative will not in itself change structures. It is, however, an essential component in any worker struggle.

    Quite simply, more workers will join the struggle if they are convinced by the narrative of a need for one. Not rocket science, I know, but something the left’s not very good at the moment, and the core of my ‘part 4 of 6′ if I ever write the bleedin’ thing.

    I bow to your expertise in football matters, but there is an argument that the state will prop up Newcastle United as long as it takes and in whatever way it has to done, not just because it will act in the interests of the rich directly, but because football is the opium of the people.

  9. redpesto
    September 28, 2009 at 3:49 pm

    If this analogy holds true then the FA’s description of AFC Wimbledon as ‘not in the interests of football’ when the original club was stole– sorry, ‘relocated’, was the equivalent of the rejection of workers’ control.

  10. duncanseconomicblog
    September 29, 2009 at 7:41 am

    Hi Giles & Paul,

    Sorry to be late – was away yesterday.

    Paul is correct that I don’t worry about inflation – broken banking transmission mechanism plus massive under capacity in the real economy. Given this I don’t expect gilt rates to move a huge a amount in the next few years.

    I admit – we’d have a problem if they did.

    On the crowding out point though, I’d offer two points. First, crowding out what? There isn’t much demand for private sector finance at the moment, see for example the BOE’s survey of credit conditions. Second – I think myself and Giles view the savings=investment relationship in a different way:

    http://duncanseconomicblog.wordpress.com/2009/07/07/savings-investment-is-lm-an-answer-for-tim/

  11. freethinkingeconomist
    September 29, 2009 at 8:39 am

    Duncan –

    at the moment, I quite agree – and in your excellent argument with Tim, I’m definitely on your side. (The ‘where do the savings come from’ thing is maddening – I’ve found DeLong’s answers to Cochrane, and comments below, very useful here).

    But I am trying to imagine a few years’ hence. The escaping Japan is a big IF. But if, come the recovery, the UK will need to direct its resources to the best possible use if it is going to enjoy the productivity that underlies everything that matters. If talented people are going into the Westminster bubble; if interesting capital is just lending to the govt; if ideas are being directed from the centre, still scarred by some nasty unemployment stories; if public goods are still overwhelmingly publicly-provided, then resources will not be well used.

    So I only really see the investment causing savings thing when there are underutilised resources. Does that put me out of the Keynesian camp?

    G

  12. duncanseconomicblog
    September 29, 2009 at 9:49 am

    Giles,

    I think we agree in the short term – possibly even the medium term.

    So lets talk about the medium term. Either we’ve entered Japanese style stagnation, in which case cutting the deficit won’t be very help, and the lack of better investment opportunities will make the deficit easier to fund or… the economy will have recovered, tax revenue will be picking up, welfare spending going down and the whole deficit will be much smaller. I don’t think that crowding out is a major issue in either case.

    Now, running a large deficit simply to keep the economy moving is hardly ideal.

    But I’d far rather be discussing meaningful ways to prevent a ‘Japan’/get us back to decent growth, rather than worrying about potential crowding out in the medium/long term. Public action to raise investment levels for example.

  13. September 29, 2009 at 2:56 pm

    Duncan/Giles

    Interesting points from both of you, and it does seem that there’s a meeting of minds on the short term, and that’s what I find especially scaray about both the Fiscal Resp Act and the Office for Fisc Responsbility ideas, though of course implementation is another thing. It’ll be interesting to see what develops on the Labour proposals as/if they take shape (I have in my head a ‘what if’ scenario post, where a govt fails to abide by the legislation, is impeached, hundred of millions are spent on lawyers, Krugman and Ferguson are the star witnesses,only to discover that a clever new economist came along 4 years into the trial to prove to everyone’s satisfaction that breaking the law on fiscal responsibility was ineluctably good for the long term health of the economy anyway, not least because bond traders started to trade in ways unforeseen at the time the law was passed, with this in itself related to pressure from a new working class movement vanguarded initially by Comrade Dave Semple, but with much of the later intellectual leadership taken up by Jurgen Habermas and a young factory worker from Rotherham called Kylie).

    Moving to the medium/long term, I side with Duncan’s view expressed at the end of his piece that we need to be more focused on what we can do now re: investment than what may come along later. To the importance of investment in industrial (green) capacity etc) I’d add investig in egalitarian education so that there is more of the ‘talent’ that Giles refers to than can be sucked into the Westminster bubble; I have to say Giles’ is an approach which is too accepting of the status quo around equality for my liking, though I may have read him wrong.

    Specifically on Giles’ view that publicly-provided public goods will lead to poor use of resources, I think that’s also a fairly conservative future of what’s possible, and even inaccurate if you take on board what John Ross (one of Duncan’s favourite’s has to say about the comparison between (pulic sector) Chinese and US productivity levels:

    ‘Criticisms of China’s high level of investment would be valid only if China used that investment inefficiently, and contrary to claims made without evidence, all studies on productivity show that China uses that investment with an efficiency rate from respectable to high (pdf).’ (see http://www.guardian.co.uk/commentisfree/2009/aug/18/china-economic-growth).

    No, I’m not suggesting that a Chinese style economy is right for the UK, but the idea that there is a publicly driven (in the Habermasian sense) part of the economy open to democratic will and innovation is appealing.

  14. freethinkingeconomist
    September 29, 2009 at 3:27 pm

    Sorry I am late and have to rush.

    Personally, I think the fiscal policies discussed are taking it too much for granted that we will end up in Japan 1995 territory. I think that would be a nightmare – for everyone but those who would not mind seeing such a high level of public investment regardless of the poor economic backdrop. In fact, I would reather we let loose with inflation than went there, because Japan seems to have become an almost pyschological dead end. Sure, if we end up stuck there, then being a fiscal nutter a la Redwood would produce rioting. But then you’d get the Tories chucked out . . .

    China’s return on investment is high? I think that is not as surprising as you may think I’d find it. Solow growth model – Low levels of K, high dY/dK (have I got that right, Duncan?) To be more exact: when your productivity is so low compared to advanced nations (GDP/head is a fraction of ours), all you need to do to get more productive is adopt already-invented innovations. You don’t have to be pushing the world’s curve outwards. In the UK and US, it is different – the inventions etc that we need to create to keep buzzing along at 2.3% p/a are currently only known to future generations. Roads, clean water, washing machines – we’ve already done them. We need b2b buying, the Internet, Apple Apps, whatever.

    And I am SURE that if the Govt had tried to centrally find them in 1994, it would have plumped for cold fusion, super conductors, and monorails. Not the Internet, which for all its public good aspects needed a million garages full of dermatologically-challenged youngsters to produce its full potential. And lots of failure – Government does failure really badly.

    Moving on – I’ll accept that my views on private education sit uncomfortably with strong statements of equality, and so can only thank your understanding so far . . .

    China, in the New Statesman:
    “About 65 million Chinese people live in households with more than $20,000 a year in income. Around 165 million make between $2,000 and $20,000 a year. Most of these live within 100 miles of the coast. About 400 million Chinese have household ­incomes between $1,000 and $2,000 a year, while about 670 million have household incomes of less than $1,000 a year. China is a land of extra­ordinary poverty.”

    http://www.newstatesman.com/north-america/2009/08/power-china-world-japan-poland

  15. duncanseconomicblog
    September 30, 2009 at 7:27 am

    Giles,

    On the China question… You mention Solow (which is fair enough) but it’s worth taking a look at Jorgenson. Especially:

    http://www.economics.harvard.edu/faculty/jorgenson/files/acounting_for_growth_050121.pdf

    “Exploiting the new data and methodology , I have been able to show that investment in tangible assets is the most important source of economic growth in the G7 nations. The contribution of capital input exceeds that of total factor productivity for all countries for all periods. The relative importance of total factor productivity growth is far less than suggested by the traditional methodology of Kuznets (1971) and Solow (1970), which is now obsolete.”

  16. freethinkingeconomist
    September 30, 2009 at 9:56 am

    The chances of my being able to stay up to date on this subject are clearly receding . . . now there’s another 60 pages I lack.

    One quick observation: if that capital input had all been from the govt, would we have the same result? Written in 2000, yeah? I suspect TFP takes a while to bed in – the Solow productivity paradox.

    Gains from certain investments (high tech) are harder to monetize/express in GDP – my ability to communicate with you, for example, which is generating no cash value for anyone but clearly has value . . . though such intangibles could come from either private or public investments

  17. duncanseconomicblog
    September 30, 2009 at 11:26 am

    Giles,

    To be entirely honest, I wasn’t in anyway up to date on modern growth theory until recently – and I’m still learning a lot.

    The stuff from Jorgenson in particular is worth reading. Indeed the paper I’ve linked to above is mainly about ICT.

    Or if you fancy a long, but excellent, read:

    http://ablog.typepad.com/keytrendsinglobalisation/2009/09/the-issue-of-whether-chinas-economic-stimulus-package-and-the-asian–growth–model-in-general-is-correct-and-therefore-its.html

  1. September 27, 2009 at 9:32 pm
  2. September 30, 2009 at 12:41 am

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