Though Cowards Flinch

The Independent have it today that Putin’s Russia will not stop selling arms to Syria (for fairness!). Why would it? Syria is Russia’s seventh-largest customer in a global market yielding almost $8 billion for Rosoboronexport [Russia's official arms export cooperation] in 2009. Sales to Syria over the past decade have amounted to about 10 percent of Russia’s total weapons exports.

Stanislav Belkovsky, founder and director of Russia’s National Strategy Institute, recently told Haaretz that “the quality of Russian weapons has deteriorated to a point where that is the level of customer that remains. It is a matter of choosing the only possible customer, and without customers for Russia’s military products, he [Putin] will be forced to retrench hundreds of thousands of people working in the industry, which would stir commotion.”

The excuse is clear – we have to sell arms to a despot, else people will lose their jobs and they will punish the government. Unlikely, Putin is looking to be in his high chair until 2024.

Clearly on the back foot Belkovsky said recently, doing his best not to upset Israel, “Even if another leader were to replace Putin, he would be loyal to Israel because these days Muslim immigration is a bigger problem for Russia than anti-Semitism, and that is the dynamic that will develop; Islamophobia will intensify, anti-Semitism will erode” (is this an admission?).

Furthermore, on the question of deteriorating weapons, this discussion came up circa Libya. In order to arm those countries with as little training as possible low-grade weapons need to be sold because that’s what soldiers in Syria would have worked with during their training. It is militaristically expedient for Russia to sell such weapons. But being Russia’s seventh-largest customer, and the money that is changing hands, surely doesn’t just get you bad weapons.

In any case backing despots is consistent with Russia’s master plans today. The UK and the US cavorted with Arab autocrats when they thought, in spite of their corruption, they would bring stability to their countries; now that we know they are only key to instability, so Russia is happy to be the arms dealer of choice.

According to Mark Katz in the US, Russian exports to Iran grew from $249 million in 1995 to $3.3 billion in 2008, all the while Rosoboronexport, the Russian arms export agency, Atomstroyexport, the Russian atomic energy power equipment exporter and Gazprom, in petroleum, will put pressure on continued good relations between Tehran and Putin, not because of peace, but because of business.

Pressure shouldn’t be so difficult here. Though Russia’s official policy on Iran’s nuclear development is that it doesn’t want it to be a nuclear burden on the world, it is far more relaxed than Israel and the US. The relaxation probably comes from oil companies themselves, in whose pockets the Russian government reside. In 2009, while the chips were down for the Russian economy, the government decided to give a tax break to oil companies and, according to Boris Nemtsov and Vladimir Milov, refused to raise rates for Gazprom.

When Putin first came to power, his first move was to give Yeltsin complete immunity, pardoning “Yeltsin and his family for any and all crimes – apparently including future crimes.” Putin’s crimes against Alexander Litvenko, Anna Politkovskaya and Sergei Magnitsky have been noted as examples of deteriorating human rights in Russia (refusing to release the anti-Putin punks Pussy Riot is another reminder that sticks out) while it punishes its neighbours economically if they don’t follow Russia’s line. Soon after setting out economic plans to save Russia, Putin declared the “dictatorship of the law”. This is the kind of capitalism with dictatorial values we have to look forward to.

Russia is going to be key to all future problems for the world. Bombastic as that sounds, it is true. Its only resolve to some is that it matches authoritarianism with an eye on economic growth – but this is not sound politics. It props up the despots abroad to be lackeys for the future. It votes in the UN with China because they are on the same political path; to take the worst from Communism and apply it to the worst of capitalism. It’s Pinochet’s Chile with global ambitions. If this is the future then stop the world, I want to get off.

It’s always a tricky one asking difficult questions of one’s own party leader, but while we’re talking about Wonga, it might be worth just bringing an old one up again.

In October 2011, the Guido Fawkes chaps were brimming with delight that they’d uncovered information of Ed Miliband meeting with the PR man Roland Rudd – the chief executive of Finsbury.

What makes things rather tricky is that Mr Rudd, back in April 2011, made Wonga a client.

Courtesy of Guido Fawkes

According to the TBIJ, Robin Walker, the Conservative MP for Worcester:

tabled an amendment that watered down a backbench bill which proposed imposing a cap on the cost of taking out an unsecured loan. Two months later Finsbury started working on behalf of Wonga, an online lender that charges interest rates of more than 2,600% a year.

According to his wikipedia page, Walker had an advisory role in Finsbury, which raised eyebrows given the proximity of his amendment in parliament to the introduction of the new client.

*

Today, the debate revolves around predatory and producer capitalism – this was scoffed at by David Cameron once upon a time, now, the Tories are running around like headless chickens in order to do battle with Labour on the latter’s turf.

Wes Streeting, for LabourList, today said:

The mood music in Westminster is shifting. Ed Miliband was mocked for talking about predators and producers last autumn, but now every party leader is trying to stake out the ground of ‘responsible capitalism’ as their own. The behaviour of legal loan sharks like Wonga are an indication of the tough times we live in and why students – as well as hard pressed families – need more than warm words.

Government has a role to play: offering practical help in tough times. It must act.

But how can Ed operate on Wonga? And what is the proximity between Ed and Mr Rudd? Should we be concerned?

Francis Fukuyama in his new Foreign Affairs piece (no longer available for free) has held off positing for sure what the end of history will be (like he did back in 1989), instead plumping for situating a series of challenges that may knock off existing liberal democracy as it exists today.

In the piece he notes that the left, particularly in the US and Europe, have failed to hone in on where capitalism has seemingly failed us. Further, in the marketplace of ideas, where historically liberal democracy has come up trumps, business-as-usual is threatened, and that something new is needed because the sharp elbowed elites are knocking aside the middle classes worldwide.

For Fukuyama, the left have only really been able to make a case for an “unaffordable form of old-fashioned social democracy”. (Has the American academic not read In the Black Labour?). What he spends too little time doing, in this article at least, is understanding those movements that have not only challenged the staus quo by way of occupy movements, but also acknowledge how good the powers that be are at flogging what is essentially a dead horse, i.e. lightly regulated financial systems.

Further on this point, though he does at least tip his hat at mentioning those social conservatives who are also feeling the pinch, but would sooner cut their noses off than stand on the streets handing out leftist leaflets, he doesn’t make any effort to understand  or acknowledge the capacity of conservative anti-capitalism – something very small at the moment, but which will play a part in the oncoming shift in the marketplace of ideas (at odds with the prevailing tea party movement).

On global challenges to western capitalism, Fukuyama mentions the two hot potatoes: China and Iran/ Saudi Arabia. With the latter, their rejection of liberal democracy is in turn a promotion of Islamic theocracy, but Fukuyama writes that off as a “dead end” model (neglecting to mention its global reach). China, for him, is the threat. Combining a partially marketised economy with an authoritarian government, the Chinese may have started touting their model as an alternative model to the American one, but it is a sub-model of capitalism. If anything the Chinese model is the one that sits at a dead end. As Fukuyama says himself, later on in the essay after some time to forget an obvious contradiction, “it is unlikely that a spreading middle class will behave all that differently in China from the way it has behaved in other parts of the world [and further] there is little chance that much of the world will look like today’s China 50 years down the road.”

The proof of the supremacy of western liberal democracy is not in the pudding, but in the eating. The pudding, here, is the Middle class, and for Fukuyama the bit that really provides the proof is that they are getting better off. Nobody can stop the middle class now. Fukuyama says:

Marx believed that the middle class, or at least the capital-owning slice of it that he called the bourgeoisie, would always remain a small and privileged minority in modern societies. What happened instead was that the bourgeoisie and the middle class more generally ended up constituting the vast majority of the populations of most advanced countries, posing problems for socialism.

This seems only to have posed a problem for socialism, if one’s socialist politics are predicated on the race to the bottom. Looking beyond the fact that Fukuyama seems to confuse the bourgeoisie and the petit-bourgeoisie in the same paragraph (carelessly writing “middle class more generally”), there is more to the left wing challenge than simply saying we want to see a growth in how many people can call themselves middle class.

The gap between the rich and the poor in the US, where Fukuyama is, is growing rapidly. Recently the Congressional Budget Office said that the richest one per cent of the U.S. population saw its income jump 275% over the past three decades, while the poorest one-fifth gained just 18 per cent.

Furthermore, the “Organization for Economic Cooperation and Development show[ed that] the wealthiest one-tenth of U.S. society has an income 14 times the size of that of the poorest one-tenth.”

Closer to home in the UK, the Office for National Statistics (ONS) revealed that “workers in the worst paid jobs – such as dinner ladies, hairdressers and waiters – have seen their pay fall sharply in real terms” and the “bottom tenth of earners saw their pay creep up just 0.1% between 2010 and 2011 while the top tenth saw their pay grow 18 times faster.”

Added to that, on a global scale, tax evasion accounts for more than $3 trillion, or about five per cent of, world gross domestic product, and the UK is losing £69.9bn a year to tax evaders.

Real incomes of the middle classes will stagnate, too.

As is typical of Fukuyama, his latest piece is bluster. Of course, he is correct to say the left haven’t acted on this global crisis, but before posing his ultimate question – what is there in the wings that can save us today? – he denounces socialism, as he always does. I say, there is nowhere else to turn but socialism.

During the recent Communist Party Congress, the ‘cuentapropismo’ initiative was adopted after being presented to the country by the Cuban Trade Unions. It will consist of the legalisation of small enterprises, pertinent at a time when many state jobs are being cut, and the private sector increasingly relied upon.

Parallels are already being made to this initiative and the New Economics Policy (NEP) in Russia circa 1921.

Back then there was an economic crisis of epic proportions, war communism became the bane of the peasantry life, which culminated in mass refusals to plant more food than could be eaten owing to the confiscations by the state. Millions of Russians in the countryside had died from famine, which led to an uprising by the peasants, joined by sailors and other workers against war communism policies, who were eventually defeated by the Red Army in what came to be known as the Kronstadt Rebellion.

The NEP was a policy taken by Lenin to allow private enterprise limited freedom in order to raise productivity; in his words it was taking one step backwards in order to take two steps forwards later. It was not a long-term policy, but its use would take as long as it needed. It has been speculated that had Lenin not died a few years after its inception, and had Stalin not committed to central planning and the dismantling of NEP policies, laws for private capital might have been relaxed way past their eventual demise in 1928.

It was of ethical concern to all those involved with the Communist party – particularly the Left Opposition both within and out of the Bolsheviks – but the concession was that trade unions would protect workers in both the public and private sectors.

However, with the state legislating for the creation of a class enemy within the working class itself – the Nepman (rich business people) or the kulacs (better off peasantry) – and the fact that in 1928 Russian production had begun reaching levels not seen since 1914, the bargaining chip of the trade union within an economy which seems to be working, seems hardly a concession towards the achievement of full socialism.

If Lenin’s policy was towards a capitalism mandated by the state, would he really have bent down to union pressure in the face of workers’ rights versus a productive economy? In other words, since Lenin sacrificed socialism – the project he had worked all his life to pursue – for the gain of production, come what may – would he have sacrificed the conditions of a worker in the private sector, against trade union best wishes, for that same goal of increased industrial and agricultural production?

Unfortunately he died before any substantial answer to this question could be made, but its possibility cannot be ignored.

The difference between Russia and Cuba is that while Lenin freed up capital, not once did he give the impression that he’d stopped believing in the socialist model. However on the other hand, even Fidel Castro has been explicit on this: “the Cuban model doesn’t even work for us anymore”.

This is where the comparison falls short. Lenin believed that a spell of capitalism would increase productivity – and it did – and then they could re-join the road to socialism. Then he died. Raul Castro has mentioned nothing about the cuentapropismo being a short term measure, in fact judging by his brother’s words, it looks quite the opposite. If history is anything to go by, for socialism to return to Cuba, Raul Castro needs to die. But then, perhaps if history is anything to go by, a new economic policy wouldn’t be such a bad thing as far as production is concerned.

I have a post up on the LSE blog reviewing Eli Pariser’s recent book The Filter Bubble.

Read it by following this link:

http://blogs.lse.ac.uk/politicsandpolicy/2011/07/10/book-review-the-filter-bubble-what-the-internet-is-hiding-from-you/

I have tried very hard to find an online source for the wryly comic quote, supposedly from Che Guevara, saying that all he and Fidel were striving for, in the Latin American countries they fought in, was to recreate the same state monopoly model as was practiced in the United States.

The crucial meaning to this comment is that on principle they were not opposed to state monopolies, but they were quite open about that. The US, they would’ve contended, had been doing just that, only they were not honest about it, and operated their monopoly under the guise of free markets and open competition.

But nonetheless, the US was, and still is, a capitalist country, despite the stranglehold on free competition and the secret sanctioning of monopolies.

It is hardly surprising that capitalists, particularly small ones, are annoyed at this type of operation. After all, if competition is suppressed from the top, by greedy corporations not wishing to play the game, then the spirit of Adam Smith is being crushed.

More and more, friendly capitalism is winning the argument. And the variants of capitalism in today’s economic landscape testify to this; you have green capitalism, philanthrocapitalism, compassionate capitalism. Capitalism can be against sweatshops, capitalism can be pro-aid to third world countries, capitalism can provide your community with a new civic centre, capitalism can be against bonuses, capitalism can be against city greed, capitalism can be against corporate ‘short termism’ and so on and so forth.

This, in short, though perhaps for one day only, can go by the name of Cable-nomics.

The Left Foot Forward blog says today:

This summer, Anatole Kaletsky published ‘Capitalism 4.0‘ in which he argues that after the collapse of Lehman Brothers, capitalism will reinvent itself and emerge stronger than before

This is the one true thing about capitalism, it will make timid changes to change perceptions of itself, and why wouldn’t it do that today, particularly when it is popular to bash the bankers. 

In political jargon, bashing the banker might be called ‘populism’. And this, as Dave Osler points out, is exactly what Vince Cable is playing at today.

As they have their annual conference, the Lib Dem popularity rating is sinking quicker than a dead dog tied to a brick in a lake, and needs a boost – and who better to administer such a boost than their cross-party hero Mr Cable.

He threatened to tax banks away from bonusing, he criticised city murk, he has attacked corporate short-termism, and has managed to be called a ‘left-wing socialist’ and even a ‘Marxist‘ as a consequence. In fact, what the capitalists at work blog have said about him is particularly amusing:

The thorn in the coalition’s side is Vince Cable. A left-wing socialist is never going to co-exist easily with a Conservative Government.

It’s so black and white to them – but to serious political thinkers it is quite simple to see how a person, who is avowedly pro-market and pro-business, is able to take the view that bankers are “Scargills in pin-stripes” while not being socialist, but a liberal, a free trader and a fan of open markets.

Bloggers have gone to great lengths today to show that if Cable is really “Red Vince” then he has many unsuspecting allies. Left Outside contributes Adam Smith, while Sunder Katwala throws out a myriad of characters including Red Ted Heath and Red Angela Merkel.

Of course what Cable does want, which Richard Seymour has rightly picked up on, is a better regulated capitalism. But, as Seymour elaborates:

he knows he can’t even deliver that while he’s a helpmeet to George Osborne, the trust fund chancellor who is one of the many millionaires in the Tory front bench, and who is committed to defending a robust, liberated financial sector.

There is a massive difference in opposing how the markets work, and opposing how capital operates. As postmodernism triumphs, and ideology as a term is discarded like last night’s leftover casserole, even those naturally on the “anti-capitalist” left seem to be content with the hot air of Cable-nomics 

Those unhappy with capitalism’s green credentials can be rest assured that the green market is obliging companies to head this direction. Those unhappy that capitalism is not fairly trading will be happy to learn that ethical capitalism has won its battle, and companies like Nestle, in order to remain market players in today’s sensitive consumer age, source their ingredients from sound places.

What passes for anti-capitalism today is just speeding up the process where capitalism itself takes a makeover, and ensures the market is filled with big companies committing to the bourgeois politics of the day.

Capitalism, fear not. Vince Cable is your poster boy.

People who wish to continue to believe that, while capitalist systems of finance may have their ups and downs, they are probably the most sensible way of managing the word’s affairs, are advised to look away now.

People who wish to see what the capitalist world of high finance is really about are invited to read some of what Eric Kolchinsky, a whistleblower sacked by international credit rating agency Moody’s had to say on Wednesday,  in testimony before the US House Committee on Oversight and Government Reform:

‘My name is Eric Kolchinsky, and during the majority of 2007, I was the Managing Director in charge of the business line which rated sub-prime backed CDOs (Collateralized Debt Obligations) at Moody’s Investors Service. More recently, I was suspended by Moody’s as a result of a warning I sent to the compliance group regarding what I believed to be a violation of securities laws within the rating agency.

…………

The conflicts of interest which ail the ratings industry remain unmanaged. Senior management still favors revenue generation over ratings quality and is willing to dismiss or silence those employees who disagree with these unwritten policies.

The Credit Policy Group is a team of analysts whose role is to ensure that the methodologies and procedures used in the rating process are sound and meet minimum credit standards. Unfortunately, the Credit Policy Group at Moody’s remains weak and short staffed. The group’s analysts get routinely bullied by business-line managers and their decisions are over-ridden in the name of generating revenue.

………..

In many ways the incentives for rating agencies have become worse since the credit crisis. There are now more rating agencies and they are all chasing significantly fewer transaction dollars. The new controls put in place by regulators are too weak to significantly alter this dynamic.

As an example of how little things have changed, ABS  (Asset-based Securities) are being rated once again. These are the same products which are responsible for hundreds of billions of dollars of losses at major financial institutions. They were significant contributors to the problems at Citibank, Merrill Lynch and AIG. While the CDOs held by these institutions had the highest ratings possible, they still ended up being nearly worthless. I firmly believe that ABS CDOs cannot be rated with any certainty and especially not during this volatile period in the capital markets.

The ‘new’ methodologies used to rate ABS CDOs have not improved their poor credit performance – many of the recent deals have been downgraded or have had to resort to restructuring to maintain their ratings. This toxic product needs to be consigned to the dustbin of bad ideas, but unfortunately, there are still no incentives for rating agencies to say ‘No’ to a product no matter how poorly thought through.’

Those are just the highlights of his statement.  The whole day’s witness testimony merits a thorough read, including the Chairman’s closing statement in which he compares the credit rating agencies’  secretive practices with those of ‘Soviet Russia’.

Of particular interest, though, is the historical perspective provided by Lawrence White of New York University:

‘A major change in the relationship between the credit rating agencies and the U.S. bond markets occurred in the 1930s. Eager to encourage banks to invest only in safe bonds, bank regulators issued a set of regulations that culminated in a 1936 decree that prohibited banks from investing in “speculative investment securities” as determined by ‘recognized rating manuals’.

……..

In the early 1970s the basic business model of the large rating agencies changed. In place of the ‘investor pays’ model that had been established by John Moody in 1909, the agencies converted to an ‘issuer pays’ model, whereby the entity that is issuing the bonds also pays the rating firm to rate the bonds.

…..

Regardless of the reason, the change to the ‘issuer pays’ business model opened the door to potential conflicts of interest: A rating agency might shade its rating upward so as to keep the issuer happy and forestall the issuer’s taking its rating business to a different rating agency.’

So what does all this boil down to?

Essentially, the story goes like this:

1) A crazy, technology-based stock trading bubble driven by the desire for quick profits on the part of the new ‘high finance’ part of the ruling class brought about a massive crash in 1929, and millions of the working class suffered.

2) The investment banks were allowed by a compliant US state to outsourced their credit rating operation in 1936, thus providing a temporary ‘fix’ in public.

3) Over time the credit rating agencies empowered by the 1936 decree came to be so far in league with the ruling financial class that they became a prime mover in the crazy, property-based stock market bubble of the 2000s, legitimizing ever stranger structures of finance in order to make ever higher profits themselves.

4) A massive 1929-style stock market crash ensued, billions of dollars were used to bail out financial institutions who had caused the crisis, but a massive bonus culture soon returned to the financial ruling classes and states worldwide  that the best way to restore financial balance was to attack the living and working conditions of the working classes by allowing unemployment to soar and reducing public services.

As a result of what the credit rating industry did, between 28,000 and 50,000 babies in Sub-Saharan Africa will die this year.

5) International credit rating agencies, which were complicit in the making of this latest financial disaster, thought it perfectly in order to issue stern warning to governments that they must reduce public spending and impoverish the working classes or risk losing the trust of their investor colleagues, and their moves were welcomed warmly by governments and wanabee governments acting in happy complicity with the ruling financial classes.

6) Meanwhile, the credit rating industry is unfettered and is right now assigning corrupt credit ratings to new structured finance products, so that both they and the issuers of these products can make large profits until such time as the next bubble bursts.

You couldn’t make it up.  But capitalism did.

But perhaps there’s a crack in the façade.  Even Newsweek has noticed what’s going on and is complaining.

Why, I wonder, is the report on international credit rating corruption a headline in the Guardian, or the Mirror.  Where’s Jon Pilger when you need him?