Archive | September, 2005

Le Roi est mort, vive le Roi….

17 Sep

Prime Minister Tony Blair has stated his intention to stand down during this parliament; some argue that Blair will hold out until Gordon Brown’s frustration gets the better of him and he forces confrontation. So will Brown show his hand and fulfil his destiny as the Heseltine to Blair’s Thatcher? Finally affirming Blair’s place as the true successor to the Iron Lady, felled by a final act of regicide.

Brown would be wise to keep his own council and wait out the final throws of the Blair era, waiting to take the helm of the New Labour ship as it approaches the next election. But what will a Brown government be like? Will it move decidedly to the left nourishing its base support, or will it maintain the strangle hold on the centre ground? Brown is cagey at best but he has hinted that he shares Blair’s vision of government, and why shouldn’t he? It has delivered 3 successive victories at the ballot box.

This week the strident Blairite Alan Milburn, argued in the pages of The Guardian against a return to the left-wing politics that have defined the Labour Party for a century:

…it sends a shiver down my spine when I hear talk in the Labour party of the need to get back to left-right politics. It is almost as if nothing had been learned from the 1980s.

So the New Labour revolution will not – Milburn demands – be rolled back, the centrist policies of Mandelson will continue to define the future of the party. The Chancellor himself in one of his few hints has claimed that his government would be pro-business. From The Scotsman:

A Brown government, the Chancellor said, would be about “enterprise, enterprise”, as well as “social justice”.

We can therefore expect more of the same from Brown, but this will leave many in the party – who have remained loyal despite grave misgivings about Blair – bitter and disillusioned. Backbencher’s who have become increasingly frustrated with policies such as Public Finance Initiatives (PFI), Foundation Hospitals, and the Iraq War, look to Brown to rekindle core Labour principles.

The dour Scot seems destined to disappoint.

A continuation of Blairism would I believe leave the party deeply and possibly irrevocably divided. Blair is like many ideologically driven leaders; they shatter shared unity in their demand for personal loyalty. Like President Bush whose style has divided not just Americans, but Republicans also; Blair will leave the party split as to which direction to follow. The Brown version of Blairism will be just as unpalatable to the core support and a further fall in membership will follow.

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With the exchange of power the future British Politics may well hang in the balance. Voter apathy has reached chronic levels, and political membership of the two main parties is now critically low. With the FPTP (First Past The Post) system that we operate, it is the party that can best control the centre that wins out. All serious parties therefore migrate to centrist politics in order to attract the electorate, and the choice the voter is faced with is diminished.

The superiority of New Labour in occupying the centre is impressive. Three significant victories in three consecutive elections is tantamount to a dynasty, and such is the dominance of New Labour consensus politics, that little oxygen is left in the centre for other parties to breath. This policy suffocation is so acute we saw The Conservatives during the last election; make a desperate lunge to the right in an attempt to appeal to Middle-England xenophobia. The Tory defeat in urban areas clearly displays that any movement away from the centre will mean disaster.

Like a huge fish in a small pond the Labour Party denies its competitors any opportunity to carve out an existence. Popular policies are hijacked, modified, and adopted by this constantly changing government.

But is there anything wrong with an evolving ideologically devoid political party?

With a centrist government that adopts good populist policies, the public should – in theory – be satisfied; voter apathy is a natural phenomenon in this ultra-sensitive version of consensus democracy. As there is little real choice, and generally Labour has all the relevant ‘bases covered’, why vote? This is why we have an elected government with a mere 26% of the electorates support – but again what is the problem? One may however argue that a low turnout could allow a far-right (or left) party to gain considerable power in parliament, and this is why the political parties claim to share concern about low-turnouts.

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I argue that the main problem with the current apathy in British politics is not the threat of extremist political groups gaining seats in parliament, but the loss of main party financial independence. With ever dwindling membership the parties are looking more and more to corporate donors for financial sustenance. The cash-strapped New Labour Party has become receptive to the vested interests of the corporate world, and policy is shaped not by the will of the electorate but increasingly that of big business. Political parties like all living things understand the realities of their own mortality, it is democracy that is sacrificed.

Democracy as we understand it changes, and – following the lead of the US – it is financial power that is kingmaker.

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Gordon Brown will not give up power for ideology and New Labour will shed yet more supporters. Members will either migrate to the Liberal Democrats, become politically disengaged, or join organisations that represent real left-wing politics. As many political commentators suggest the future of participation politics may well be fringe single-issue parties. The three major parties will contest the elections, but they will be almost solely financed by large donations.

Political Parties offer nothing if they can’t offer ideology.

When Blair came to power he rode to victory on a wave of relief and anticipation following the stagnant leadership of the Major years. He was ideologically fired up to undertake sweeping reforms to our political systems and he had both the electoral mandate, and parliamentary majority to make this dream a reality. If there is one missed opportunity of the Blair government it is this, modest reform of the House of Lords aside, Blair has made little progress in creating an electoral process that encourages public participation and interest.

Tomorrow the Germans will go to the polls and the balance of the vote appears to be on a knife-edge as Schroeder’s ruling Social Democrats (SDP) gain ground on Angela Merkel’s Christian Democrats (CDU). The Proportional Representation system used in Germany gives real power to fringe politics through the emergence of coalitions. Such a system has given Joscha Fischer’s Green Party a chance to influence both debate and policy (see the German position on Nuclear Power). I would argue that such a system – while not without its faults – should be introduced in Britain to breathe life into politics.

Of course power corrupts, and New Labour has experienced absolute power under the FPTP system, they will not commit political hari-kari and introduce reform that would limit their influence. So we are destined to continue this consensus politics where power is centralised for fear of gaffs and negative publicity, where the perception is more important than the reality. When government becomes centralised it becomes isolated and detached from realty, and it is unable to see what exists beyond its interior. The New Labour government is indeed becom
ing isolated from the country. Only when Labour and the other three major parties are forced to reengage with the people – through Proportional Representation – will the public take ownership again of their political system.

Blair & Brown have one chance to create a real legacy – the creation of a new vibrant progressive political system, I implore they take it.

Katrina and inequality

13 Sep

I have often discussed the American predicament. The quandary is the precipice of collapse on which the United States finds itself economically, socially, and strategically.

When I discovered that the US net-saving rate is 0.0%, I realised that the ‘tipping-point’ may well be closer than I had imagined. But the final warning may well have struck….

Hurricane Katrina

When I say ‘warning’ I am not meaning in the environmental sense, although one could argue that The White House’s ignorance of Climate Change was been punished by the ferocity of Katrina. I am referring to the huge inequalities that have been exposed in the aftermath of the flood. The plight of the poor in the wake of the disaster has been played out 24hrs a day on the rolling news channels.

What amazes me has been the reaction of the American press and public, as if the middle-classes were unaware of the huge levels of poverty in their country. You could almost hear the echoes of C19th London as they read the horrors of poverty in England’s north in Elizabeth Gaskell’s seminal novel Mary Barton (1848). It was a shock to the citizens of the world’s richest country that poverty, racism, and vast inequality still existed in their great society.

When those at the bottom of the socio-economic pile are united and mobilised they have the potential to usurp the status quo. Will the open wound of Katrina lead to the sort of suppressed anger, which the violence following beatings of Rodney King only alluded to?

The response to Katrina will be of potentially greater significance than the response to 9/11. The attack on the World Trade Centre unified socially and politically divided Americans and provided President Bush with a rallying cause to solidify his leadership. Katrina has again divided Americans, critics have openly derided the federal response and the overwhelming numbers of blacks who were unable to escape the city, point to the realities of American Society: Deep division and inequality.

Economists were already suggesting – prior to the hurricane – that America might slip into a recession in 2006. As insurers measure the impact of the catastrophe, investor confidence will suffer. Reports in the US suggest that Katrina will trim economic growth by 1% and cost 400,000 jobs. Can the resilient US economy survive Katrina? Will the horrendous financial irresponsibility of congress finally catch up them? Will the recession cost Americans their heavily mortgaged homes?

The future of American dominance is indeed precarious.

Rising prices at the pumps….

13 Sep

An increase at the pumps is a sure way to get the attention of the public, we all love our cars, and we resent any reduction of our right to drive where we want, when we want. The recent international developments have driven up the price of oil to record levels and the threat of protest is causing the government to sweat.

Today Gordon Brown addresses the TUC conference in the hope of placating industry, and will call for OPEC members to increase production. One wonders how much more capacity the oil producing countries are capable of; China’s daily consumption has risen from 2 million to 6 million barrels a day (representing nearly a third of the increase in energy consumption in the past 5 years).

The obvious Conservative response will be that the treasury should reduce fuel taxation but this response would queer the price mechanism, and the natural equilibrium that could solve the energy crisis and leave the UK more competitive.

It is widely anticipated that demand will outstrip supply over the next year or two leading to an increasing oil price and a likely global economic slowdown. In the September Outlook Report from the EIA (Energy Information Administration – the US governments official energy bureau) it predicts that global demand will reach 86m barrels-per-day, equal to predicted global capacity. With growth and usage climbing it’s hard to see any easing on energy prices for the foreseeable future.

The new globalised world is indeed leading to rising consumption in emerging economies (i.e. China and India), and we should not preclude others from enjoying the standard of living we in the west have enjoyed for decades, but infinite demand cannot be satisfied by finite supply and rising tensions between nations may lead to conflict. There is an argument that economic interdependence will prevent any squabbles becoming violent, but with rising military spending in China and the emergence of a Central Asian alliance (including Russia, China, and the former Soviet Republics) the threat of confrontation is increasing.

Free-Market thinkers will argue that increased demand will lead to improved efficiency and new resource exploration, but we know that oil is finite and exploration has been unable to maintain pace with the rapidly growing economies of Asia. Stability in Iraq may well lead to some progress on the supply-side but all these solutions represent short-run measures against the long-term problem of increasing consumption.

The argument that increasing fuel consumption will lead to greater efficiency is key to Britain’s future in a world of reducing energy supplies. One of the major problems with oil exploration is that the remaining supply is increasingly difficult to get out of the ground. The law of thermodynamics dictates that when the energy expended in sourcing oil becomes greater than the energy received, the process becomes redundant. As using oil reduces the natural pressure within the subterranean reserves (which causes the oil to naturally gush to the surface) the oil becomes increasingly costly to acquire.

We can assume therefore that the economies that are the most energy efficient will thrive in the coming decades. The economies most vulnerable will be the US – as the world’s largest user of oil – and China whose economy is geared for resource hungry manufacturing. In the US, industry is becoming more efficient (natural in a developed economy), but any gains are wiped out by rising domestic consumption (increased proclivity for air-conditioning and the rise of the SUV automobile).

In the US the record trade deficit will only widen as oil prices rise sending more capital to some of the most despotic regimes in the world, and leaving the US increasingly insolvent. Trans-global terrorism is also directly linked to the oil industry via the need for a complaint Middle East, oil revenue props up undemocratic governments in the Arab world leading to a disenfranchised and angry population who turn to Islamic Fundamentalism and violence in their frustration.

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Necessity is the mother of invention, why therefore should we reduce fuel taxation? We need to ensure the price mechanism does its job and drives innovation and reduced consumption. To reduce taxes we would corrupt the natural market forces that would lead to alternative solutions.

Last year the UK became a net-importer of oil following its peak production in 1999, this economic adjustment represents a reversal of capital flow, which hurts our own trade-balance. This outflow of capital needs to be addressed, as the money moving out of the economy will only increase as the North Sea reserves diminish further. We need to ensure there is ample necessity to drive our economy to innovate, by reducing fuel taxation we would hinder the long-run efficiency of our economy for a short-run gain.

Globalisation has up until this point been very beneficial for the UK. We have become increasingly prosperous over the past decade and employment has been healthy. While many British manufacturers have gone out of business we have been effective in attracting foreign companies such as the hyper-efficient Japanese carmakers. To maintain this position we need to ensure we involve and react to emerging pressures that will shape the new world order; the major pressure will indeed be energy supply.

If anyone is any doubt as to the critical nature of the oil supply they should note that BP estimates that Iran – OPEC’s second largest producer of oil – will be a net-importer of fuel by 2024. These frightening statistics should be enough to persuade politicians of the need to diversify our energy supply or face rapid economic decline.

So when the self-serving fuel protestors begin their blockade of Britain’s refineries, remember the difficult choices we face and the real cost of our dependence on oil.

Fox Enters the Race

6 Sep

I heard that Liam Fox has entered the race with the promise of reminding the voters that ‘the Conservative Party is the natural party of governance.’ Well this would be a retrograde attitude, which would consign the Conservatives to yet more years in the wilderness. Harking back to a by-gone era is not what the Tories need – they need a fresh approach to policy and an intellectual rethink of direction.

Tory thought following the Haige, IDS, and Howard leadership has become a stagnant pond, and for all intensive purposes New Labour has replaced them as the natural party of government. Public disillusionment with Blair resulted in a reduced but still significant Labour victory only a few months ago.

Fox is poor in front of the cameras and does not have the personality for the top job. Clarke, Cameron, and Davis however all offer different versions of a better future for the Tories: –

Davis although authoritarian offers clear guidance for a difficult future, and you feel his drive and determination would drive for better value from public services. His steel would also lead to increased public confidence in homeland security – however one wonders about his persona and the Conservatives need to shake free the ‘nasty party’ tag.

Cameron is young and fresh and would have the advantage of disassociation with the calamity of the Major years. With the Blair/Brown political recipe having been so successful one wonders if the Cameron/Osborne partnership would be attractive in the current political climate.

Clarke of course is the darling of the Tory left and may well be more in touch with urban England. He could never be described as perfect and his links to American Tobacco would be an albatross no doubt. He remains however the intellectual heavy weight and orator that Blair (and Brown) would fear in the House. While Davis would undermine the Blair authority, Clarke would mock Blair in the commons. Clarke’s personality would also be more palatable than the dour Brown.

All in all Clarke would be the choice – as agreed by a majority in the recent BBC poll (40%). Davis, Cameron, Rifkin, Green, and Osborne must make up the cabinet; any sulking to the backbenches would weaken the party further.

This may well be exiting times for the Tories; I do not think Brown will have the calm parliamentary waters Blair has enjoyed.

Are we heading for an economic meltdown?

6 Sep

I would argue that the Global Free Market – as propagated by the neo-liberal institutions the IMF and World Bank – is beginning to unravel.

As we have seen across the globe the enforced market liberalisation of the IMF has had more often that not, negative results. Even Brazil, which has enjoyed the most impressive recent recovery, cherry picked the reforms; its recovery was managed by the moderate socialist Luiz Inacio Lula da Silva. When Argentina was in economic dire straits its problems were made worse by neo-liberal market reforms. In the end Argentina broke with the IMF’s medicine.

In fact the most impressive economy of the past decade has been the Chinese model, a hybrid of communist central planning and capitalism. Privatisation was limited and controlled, so the economy suffered none of the system shocks that follow neo-liberal reforms.

John Gray in his book al Qaida: And What it Means to be Modern argues that neo-liberal economists such as Milton Friedman and Francis Fukuyama are the economic successors to the Positivist’s of the Enlightenment. However unlike their predecessors they forget the human factor in their mathematics. Neo-liberal economists believe foolishly that a single economic system can be successfully implemented across the globe. This belief has been roundly defeated in practice, yet the free-market acolytes continue to believe economics is a science devoid of human nature, and the realities of history.

The neo-liberal economists believe they have defeated the economic cycle and that they are ushering in constant uninterrupted economic growth. This fallacy is about to unravel….

The American Economy, which is the model for the free-market, is the greatest example of neo-liberal failure in the world. Indeed the US political elite are among the most prolific users of protectionist tariffs and limits on imports. The pharmaceutical and agricultural industries are among the most cosseted markets in the world. US manufacturing is on its knees and this is evident in its huge trade deficit.

American household savings recently dipped to the symbolically low level of 0.0%. This represents the nadir in the safety of the US economy as credit has reached unsustainable levels; with interest rates kept artificially low by massive inflows of foreign capital the irreversibility of recession is inevitable.

As the worlds biggest debtor the US will not be able to rely on household savings to soften the economic meltdown. It was the Japanese household’s proclivity to save that enabled it to re-emerge from its recent recession relatively unharmed; the US has no such reserve on which to draw.

With the misguided Congressional pressure on the Chinese to revalue the Yen, the American political leaders are facilitating a catastrophe. As the Chinese economy begins to cool the amount of capital invested in the US Treasury will undoubtedly reduce. At this point the US Treasury will have to look elsewhere for investment. The likelihood is that the capital available will be insufficient to keep American interest rates as low as the American people have become used to.

Unable to control its low interest rates the current housing bubble will collapse. Families that have borrowed heavily on property will find themselves in negative equity. The rising costs of servicing debts (with increasing interest rates) allied with this domestic financial insecurity, will decimate US domestic consumption.

With domestic automobile manufacturers already struggling against cheaper and superior imports, this industry – along with many more – will not survive the retraction in demand. As unemployment rises the compound problems that face the US economy will result in a massive recession.

As the US people are the major default consumers of global over production the globe will face a massive economic retraction.

We are approaching the biggest economic depression since the 1930’s.