19 May 2012, 5:58pm
economy:
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  • Robert Peston’s Great Euro Crash programme

    It was time to dust off the Ermine Telly lurking the corner of the spare room to watch Robert Peston’s Great Euro Crash. Despite a histrionic presentation and less than mellifluous voice, Pesto’s usually worth a gander, because he takes us a little bit beyond the ‘oh God it’s all so awful and going to end in tears’ into at least why it’s all so awful.

    Robert Peston in the Great Euro Crash

    One of the interesting questions about the problems in the Eurozone is how the hell did Europe get itself into this mess in the first place. The answer isn’t as obvious as ‘there was too much ganja lying about in Paris and Berlin in 1998’. This muddle has been brewing for years arguably from before I was born 😉

    One of the things that’s hard to appreciate from a large island on the northwestern edge of Europe is just how dear the United States of Europe is to many EU politicians, particularly those of a certain age. Most of ours in Britain just don’t have this either of personal conviction or because they know it isn’t something dear to the British electorate.

    It was all about trade and the Common Market in 1975 (and presumably 1973)

    I recall voting in the referendum of 1975 and it was all about trade and the benefits thereof rather than the creation of the USE. This referendum was about Britain’s continued membership of the Common Market – we had entered in 1973 ISTR. I wasn’t of voting age or even 16 by then; I believe the Daily Mail is wrong in throwing this hissy fit about the referendum that nobody under the age of 53 had the right to cast a vote. Either that or my own recollection of voting in this referendum as my first experience of democracy is wrong. I think you only had to be older than 14 to vote in this referendum. A flavour of the debate can be had from the text of the explanatory note. It’s about trade and given the same information I would vote yes again. What I did not sign up for was a USE. Most of the issues that yer swivel-eyed UKIPers get worked up about I don’t really give a toss about. I’m happy to drink beer by the half litre in Munich or the pint in Ipswich but if it gets to be the 500ml in Ipswich then so be it. But there’s no real appetite for a United States of Europe in terms of political union in the UK that I’m aware of.

    Which is why the UK has always been looked at as the Island Kingdom from the EU political commentariat. From virtue of its geography and its 20th century history the UK doesn’t share some of the experiences that for good or for ill shaped the founding of the EU. But the virtues of a European common market and some harmonisation of trade standards seemed like a good idea in an increasingly globalised world and I still feel that way.

    Somewhere the dream changed from a Common Market to a United States of Europe

    Peston’s programme really highlighted the emotional hold of the dream of a United States of Europe on a lot of the people that drove the direction of the EU. Now I’m not even fundamentally against the concept of a USE but I think it is clear to see that there isn’t the common cause as yet across the people of Europe. And it seems the most bizarrely stupid idea to first go for economic harmonisation before political harmonisation. There are lots of superficial reasons why a common currency would be great and indeed I was all for it in the early days. But then I’m an engineer not an economist so all I saw was it was a right PITA to change currencies all the time. I was wrong about all that but it didn’t matter because I wasn’t part of making the decisions.

    However I’m grateful that the old curmudgeon Gordon Brown inserted a hefty spanner in the works as far as the UK is concerned. Indeed I had personal unpleasant experience of currency unions before in paying 14% mortgage interest in the early 1990s when Britain was trying to match the Deutschemark.

    We couldn’t do it, for the same reason as the Greeks can’t do it. Say it quietly, but we just aren’t prepared to work as hard as the Germans. So we like to have more inflation that the Germans to lose some of the difference by quietly eroding the value of capital assets. And in the end it’s more important that we live according to our cultural values of work and thrift as opposed to profligacy and ‘have it now’, as long as we’re prepared to eat the consequences as far as it affects our ability to buy foreign stuff.

    Lose that ability like the Eurozone does and you need to reintroduce capital controls. Which is patently not the aim of the Eurozone, so we have the curious result of a Bretton Woods system of fixed exchange rates without the capital controls necessary to make it work. Result misery as Wilkins Micawber would say. Of course Germany could pay for the deficits other countries are running but for some strange reason that doesn’t play very well with the man on the Berlin S-Bahn even if the deadweight of some of that Greek deficit is keeping the Euro down and the man on the S-Bahn in a job.

    Lest we forget the most obvious example of a United States, America shared a common language and a largely common culture but started off with a very different economic structure across the States. The slave-powered and agricultural Confederate South of the US was very different to the industrial and mercantilist Union of the North.

    They had a bloody good punch-up in the mid 1800s to resolve their differences about how the economy should be run ISTR. I’m not all that sure that we want that sort of thing in Europe but looking at all the finger pointing and nationalist abuse going on between say Germany and Greece at the moment forcing both countries to agree on how to run an economy isn’t leading to peace, harmony and a collective outpouring of kum-bay-yah.

    peace, harmony and a collective outpouring of kumbayah, apparently

    If European politicians wanted a United States of Europe I’d say the experience of the United States of America should have warmed them up to that unifying economics isn’t the first place to start. I haven’t seen anything to date that changes this 😉 If a USE is such a great thing then it needs to be sold to the electorate first.

    I have no idea how you sell the USE to a bunch of disparate nation-states most of which have centuries of ways of living differently to their neighbours. And I’ve got no idea of why this idea is so magnetic to particularly a certain generation of European politicians. The EU has done much for a more general understanding and interchange between Europeans – I led a working party in a EU RACE project in the 1990s and drank a lot of beer in European cities as well as getting some research done into optical transmission systems. As an incidental improvement of a bunch of young Europeans’ awareness of each other’s countries they did well.

    However in the specific case of my team it didn’t lead to any of us having a greater desire for a United States of Europe, though we had an enhanced appreciation for the particular qualities of the various nations 😉

    Give me a wet fish for Angela with her ‘the answer is More Europe’

    Every time I hear Angela Merkel say the answer is more Europe I want to slap her round the chops with a wet haddock. The first answer to being in a dreadful muddle is to stop. Above all stop digging. Then to ask yourself how you got here and how you’re going to get out.

    More Europe? Nah more haddock methinks...

    More Europe ie hurrying up the creation of a United States of Europe is one answer. You’d probably have to kick out the island kingdom but perhaps that’s good riddance. However Merkel might want to look at the U.S. Europe she’s creating. It will be full of people who hate her guts with good reason. The Greeks have fouled up their economy, and will hate her guts for Austerity. The Germans will hate her guts for making them pay for the Greeks’ retiring at 50. Is this motley rabble really a recipe for lasting success? I never really understood why she wanted to go this way before I saw Peston’s programme, because the numinous quality of the United States of Europe just isn’t part of British culture. I don’t think it’s part of mainland European culture either but in the interviews with the politicians it does seem to be part of their culture.

    If a USE is desirable then we should have started a lot earlier to make it a politically desirable destination, rather than fudge it by trying to slam the economics together to make people bow to the political union from a state of fear. Seems a strange way to carry on. Basically if you have to trap the people of Europe in a political union then either you haven’t made it attractive enough or you’re pushing something people just don’t want to do. Either way this is not what democratically elected politicians should be doing.

    It also doesn’t look pretty when to get things done you have to eject elected politicians and start telling others what they should do. Merkel is perfectly within her rights to say you Greeks ain’t gonna be getting our lovely German Euros unless you sign up to our horrible austerity. Then she needs to back off, STFU and leave the Greeks to sort out what they’re going to do. It’s not going to be fun in Greece whatever happens. But it should be up to the Greeks which particular version of Hell they’re going to run with. More Europe is one answer. It’s not the answer until enough Europeans have decided that it is.

    This is what real money looked like when Helmut Schlesinger was at work

    Robert Peston left the conclusion open. So let’s leave it to the erstwhile president of the Bundesbank Helmut Schlesinger who saw Britain unceremoniously ejected from the ERM in 1992:

    “One should consider that monetary unions, or more precisely, coin unions, have survived for a long time, but never for more than three or four decades.

    “My personal experience with the German currency is that it has undergone changes at three occasions during my lifetime. When I was born, it was changed into the reichsmark. When I began to work, it became the deutsche mark. And when I became a pensioner, it became the euro.

    “The average lifetime of a currency is, as you can see, limited, as a rule, except when it is a great state with an endlessly long, beautiful history, from the kings of the Middle Ages until the Queen nowadays. Then you have got a long monetary history.”

    But in Europe, that is not the case. “And I would say that either we get the United States of Europe, that is an actual political union, and then that political union gets its own currency. But then it is no monetary union any longer, but the currency of that new state.

    “Or let’s stay with the current situation which we find ourselves in at the moment, and then it could be that this monetary union will not necessarily dissolve, but change, extend, scale down. I do not know. My horizon, my prognosis is very limited in time.”

    Each generation has their own crisis. This one is ours. What do democracies do when the time has finally come to stop grabbing debt with both hands and start living within our means? I hope to God that if Schlesinger is right we have the Euro scaling down. Because IMO Europe is not politically ready for a political union. And I am still young enough to expect to see the European Civil War that would result within twenty or thirty years.

    The sort of mutual fellow-feeling you build the United States of Europe on?

    I don’t think Britain would enter a USE, there’s not the taste for it here. I hope  the Euro isn’t precious enough to the people of Europe to be prepared to die for it. I have nothing whatsoever against a United States of Europe but it has to be done the right way – by making it attractive and probably over several generations if that’s really what people want. Then it can have its own currency, which may or may not be called the Euro.

    The problem with Kohl and Miterrand’s version of the United States of Europe is that it is forged in the light of a primeval fear of the power of the Third Reich. In fighting the shadows cast against the wall of their deepest fears they started to create another uncontrollable Beast in the same image. Let it go guys. Europe may have reason to be grateful to the Greeks if they are the extreme case that showed the folly of achieving political union via monetary union.

    24 Jan 2011, 6:58pm
    economy reflections:
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  • A New Capitalism – can it ever work?

    You might have noticed we’ve made a right mess of our economy of late. It seems to be a general fit of collective madness, though I should acknowledge I’m looking at this from Western eyes, and from 1950 to 2000 we’ve been king of the hill, particularly if we lived in the US.

    I’m not so sure that readers from Asia would feel the same – I can’t say from personal knowledge but I would imagine Chinese and Indian folk could say they have had a pretty good financial crisis, thanks very much. As Oswald Spengler said, civilisations rise and fall, sic transit gloria mundi… In his seminal work The Decline of the West (Der Untergang des Abendlandes) Spengler opined in the 1920s that we were living in the winter time of the Faustian civilisation, where the populace constantly strives for the unattainable. It’s not a bad definition of the rat-race.

    Not all the ills of the current time can be placed at the door of capitalism – population growth and environmental degradation are as much to do with our life choices as they have to do with capitalism. However, it’s probably fair to say that in the West the current gut feeling is that capitalism has gone wrong somewhere.

    Enter the New Capitalism

    If ‘new’ is good enough to promote soap powder, maybe it’s good enough to fix some of the things that are wrong with capitalism. A couple of respected commentators have postulated the idea of a ‘new capitalism’ which is presumably less rapacious than the old form. Less of the robber barons, more of the kindly face of philanthropic Bill Gates, fixing the world after he spent three decades making such a mess inside your computers, trashing you work with the blue screen of death  and disclaiming all responsibility with his impertinent ‘nothing to do with me’ EULAs.

    In the dark days of 2008, when it seemed that in the turning gyre the falcon could hear the falconer no more, it seemed that if we could hold our heads and recall the wayward bird of prey then everything could be different. No less a sage that Robert Peston, he of the BBC and ex FT, with his somewhat nerdish manner but excellent sense of timing and pace, delivered himself of this statement

    A New Capitalism is likely to emerge from the rubble. And although it’s impossible to be precise about how the reconstructed economy will operate, parts of its outline are taking shape. What lies ahead can be determined from an understanding of what’s gone wrong with the existing model.

    This, in itself, is no reason for gloom or despair. For many, the New Capitalism may well seem fairer and less alienating than the model of the past 30 years, in that the system’s salvation may require it to be kinder, gentler, less divisive, less of a casino in which the winner takes all.

    It is easy to be caught in the crossfire of history, and lose perspective. Yet Peston is backed up more recently by Harvard’s Prof Michael Porter, who breezily acknowledges that Harvard Business School pumped up all those MBAs to charge around Western companies beating the outsource, downsize, reduce drum but he’s changed his mind now and perhaps business should be less rapacious and look to some of the externalities it imposes on society.

    Porter elucidates on Peter Day’s World of Business, available from this mp3 from the BBC. He talks a good talk, even offers a mea culpa for some of the outsourcing excesses of globalisation that has degraded the world of work for many in the West.

    The solutions he proposes were to skew capital gains tax to favour holdings of more than three years, hmm, we used to call that taper relief and we’ve just got rid of that. He was also advocating social enterprises, which sounds all well and good until we remember that the skills to run a successful business are not that widely spread in the community. You need a certain degree of self-interest and low cunning to do well in business…

    What do we want of the New Capitalism

    Perhaps we should ask ourselves first, what does capitalism do for us? In the Adam Smith version, capitalism allocates effort in the most optimal fashion, and indeed when Adam Smith wrote that, he was talking about businesses that were largely SMEs. He may not have approved of multinational corporations, judging by what he had to say about the East India Company, probably the first MNC.

    in 1698 a proposal was made to Parliament, of advancing two million pounds to government at eight percent, provided the subscribers were erected into a new East India Company, with exclusive privileges.

    It quite warms the cockles of your heart, just how open a company could be about what we would call bribery and corruption. “Here’s two million quid, mate, so we can stitch this market up like a kipper”. Oh, all right then…

    The modern Adam Smith Institute is, of course, a bunch of right-wingnuts but we shouldn’t visit the sins of the children on the fathers…

    Let’s be a bit simpler about it. What is it that a capitalist enterprise does for society?

    • It provides goods at the cheapest price
    • it generally tries to not pay for any external costs imposed on society by its activities (pollution, noise, mine tailings etc)
    • in conjunction with other capitalist enterprise and according to the principles laid down by Smith, it allocates stored resources (capital) in an empirically determined optimal way.
    • it develops new technologies and ways of doing things

    That’s what most people think a company does for us. We miss something very important out here, however.

    • it provides jobs, and pay for people to buy the products of the company or those of others

    That is the bit we’ve lost sight of . Another thing we have an issue with is that there is a wide range of human abilities, so it would be good if in aggregate our companies were to provide a range of jobs that matched the bell curve of human intellectual and other abilities.

    Some of the other things we might like our companies to do work-wise are asking the impossible. We humans and frail, egotistical and greedy types. Just as the head of a sweet shop will never want for sweets, is it really so surprising that the the chiefs of a money shop, a.k.a. banks, decide they are so special that they need lots of…money?

    Indeed since money is desirable, is it such a surprise that the heads of bigger companies decide they are particularly special, so they need lots of money? Especially when you put a bunch of these guys together to slap each other’s backs and set each other’s pay as part of a remuneration committee? I mean, heck, I would, wouldn’t you 😉  I don’t know what we can do about the ratcheting up of executive pay, but I do know that we used to have long lasting successful companies before this all started to happen 20 years ago, after Bill Clinton forced companies to set performance related goals for their executives in 1991.

    So that’s an awful lot more that we want the New Capitalism to do for us than the Old Capitalism. Where Peston and Porter are a bit on the hazy side is how we get from where we are to where we would like to be. It’s all very well having goals, but you also want to have a roadmap for how you’re going to get there.

    Without that roadmap, and the will to follow it, and a big enough stick to bash the vested interests arrayed against the New Capitalsim (CEOs of the world’s multinationals, we’re looking at you, kid) I just don’t see how this ones going to fly. There may be other forces that may roll back the forces of globalisation enough to improve the world of work, but these forces will come from without.

    With a hard layer of embedded vested interest scum at the top of capitalism, it ain’t going to want to change of its own accord. It held the line in 2008, ably abetted by the taxpayers of the then rich world. It’s basically ‘so long, taxpayers, and thanks for all the fish‘, now let’s get back to business as usual.

    Maybe I’m wrong. I’d like to think so, but my money is on the slow thighs of the rough Beast slouching towards Bethlehem…

     
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