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From G8 to G20 to G-Zero: Why no one wants to take charge in

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  • From G8 to G20 to G-Zero: Why no one wants to take charge in

    From G8 to G20 to G-Zero: Why no one wants to take charge in the new global order

    There are three big unfolding geopolitical stories: China’s rise, Middle East turmoil and the redesign of Europe. The three countries with most to lose from these trends are Britain, Japan and Israel. This is not a G7, G8 or a G20 world. This is the era of G-Zero.


    BY IAN BREMMER PUBLISHED 11 JUNE 2013
    From just £199 per couple. Book by 30th June















    The sleeping giant of tomorrow? Brazil is rapidly expanding its global clout and soft power. Photograph: Getty Images


    As G8 leaders prepare to gather in Northern Ireland on 17 and 18 June, we are reminded of days when American, western European and Japanese officials could credibly claim to set an international agenda. Then came the financial-market meltdown of 2008, a catastrophe that made unavoidably obvious that most “problems without borders” can no longer be addressed without substantive support from China, India, Brazil, Saudi Arabia and other emerging powers. Members of the G20 gathered in Washington in November 2008 and London in April 2009 to claim their seats at the world’s most important bargaining table.
    Yet, despite positive early results –the product of a crisis that appeared to threaten all the major powers at the same moment – the G20 has not produced much of value. We shouldn’t be surprised. Without the urgency that only a crisis can create, it soon becomes obvious that it’s much more difficult to build agreements that impose costs and risks on 20 negotiators than those that demand compromise from seven or eight.
    This is especially true for a group that does not share a common set of assumptions about the proper role of the state in an economy, or about the value of the rule of law, transparency and freedoms of speech, press and assembly. Competing values create competing interests.
    Further undermining these institutions is the problem that voters in developed countries such as the United States, Britain, Germany, France and Japan expect their elected leaders to focus on domestic challenges rather than problems abroad. The United States will remain the world’s most powerful and influential country for the foreseeable future, but Washington is now fully occupied with battles over budgets, debt, immigration reform and how best to create jobs. European leaders are locked in a multi-year struggle to bolster the eurozone. Japan’s government, under its new prime minister, Shinzo Abe, has launched a grand experiment to reawaken the animal spirits trapped inside its once-dynamic economy. Meanwhile, next-generation powers such as China, India and Brazil are too busy managing the fallout from recent economic slowdowns and edging towards the next stage of their respective domestic development plans to welcome the burdens that come with new international responsibilities.
    The result is a lack of global leadership, one that has developed just as growing numbers of transnational problems –Middle East turmoil, intensified territorial disputes in Asia, climate change, conflicts in cyberspace and poorly regulated cross-border financial flows – are gathering momentum. The world needs leaders, those with the wealth and power to keep the peace, to persuade other governments to take actions they wouldn’t otherwise take, to pay for projects that others can’t afford and to provide services no one else will pay for. There are many countries now strong enough to block international action, but none is both willing and able to bring about lasting positive change.
    This is not a G7, G8 or a G20 world. This is the era of G-Zero.
    A more volatile world

    Because of the expanding global leadership vacuum, the world is becoming ever more volatile. Fights over commercial and investment rules and the clash between the statedriven and free-market varieties of capitalism are generating frictions between America and China, as hostile exchanges in the undergoverned expanse of cyberspace are making matters worse. In years to come, no ties will be more important for global peace and prosperity than those that bind these two countries, the world’s most powerful developed and developing states, and no issue would exacerbate the G-Zero dilemma more quickly than a dramatic worsening in their relations.
    In addition, the risk of confrontation in Asia has grown – between China and Japan (the world’s second- and third-largest economies) in the East China Sea, and between China and several south-east Asian countries in the South China Sea. In the Middle East, Syria’s civil war grinds on as Turkey, Russia, Iran, Saudi Arabia and Qatar stoke the fire with arms and money and as US, European and Chinese leaders resist pressure for more direct involvement. Spillover from Syria has triggered another surge in sectarian violence in Iraq. Despite a brief French intervention in Mali, Islamist militants are on the offensive from Libya to Nigeria. This is another region in which rivalries among local heavyweights and a lack of global leadership ensure that the pain will get worse before tangible progress can be made.
    Finally, if a wobbly US economic recovery and a war-weary American public weren’t enough to discourage a more ambitious US foreign policy, changes in the US energy sector will add their own effect. Hydraulic fracturing, or “fracking”, is opening access to liquid energy deposits locked inside onceimpenetrable rock formations, and breakthroughs in horizontal drilling methods are making the technology much more profitable. As a result, US oil imports from Opec producers have fallen by more than 20 per cent in just three years and natural gas prices inside the US have fallen 75 per cent over the past five. The US Energy Information Administration estimates that, by the end of this decade, more than 80 per cent of the crude oil consumed in the US will come from North and South America. The International Energy Agency has forecast that by 2020 the US could become the world’s largest oil producer, and that by 2035 the country could be almost energy-self-sufficient.
    This development will exacerbate what I call the G-Zero problem by encouraging Washington to continue to shun deeper involvement in Middle East hot spots. Syria’s civil war reminds Americans how costly engagement in the region can be, and the Obama administration will continue to help Syria’s opposition fighters only from the sidelines. Some will say that less US involvement is a good thing, but who else has both the deep pockets and the military muscle to end the slaughter in Syria, even temporarily?
    This trend will also shift the balance of power between energy exporters and consumers and help undermine political and economic stability among energy producers with poorly diversified economies. In countries such as Russia, Saudi Arabia and Venezuela, higher prices in recent years and a resulting spike in revenue have allowed governments to protect their domestic popularity with subsidies and other social spending projects. However, as a surge in US supply lowers demand for more expensive Russian natural gas, Russia, which earns well over half its government revenue from energy exports, will find itself in a tight spot. In 2007, Russia needed an oil price of $34 per barrel to balance its federal budget. By 2012, the target climbed to $117 per barrel. Easing demand in Europe will erode Russia’s finances in years to come, putting the current government to a significant test. In addition, though neighbours such as Ukraine and Poland remain deeply dependent on Russia for affordable supplies of natural gas, each appears to have enough shale deposits of its own eventually to kick this habit.
    Washington is ready to help. In 2010, the US government created a programme to transfer unconventional gas technologies to friendly countries – such as Poland and Ukraine – in part to reduce Russia’s power over its neighbours.
    That’s good news for the US and some of its friends, but the destabilising effects of a shift in the balance of market power between energy producers and consumers can also generate shocks from unexpected sources as some of the world’s most potentially volatile countries struggle to adapt.
    Look to the regions

    Some governments will adapt more effectively than others to the G-Zero and the instability that it creates. Because global leadership is lacking and international co-operation has become all but impossible to co-ordinate, some governments are turning to regional solutions that are more likely to produce results. For instance, because the World Trade Organisation’s Doha round of global trade talks essentially has ground to a halt, China and the United States are looking to extend their influence and expand their trade ties by turning to regional agreements that are easier both to negotiate and to dominate.
    China has completed more than a dozen major deals in recent years and hopes to form a commercial bloc that includes the ten members of the Association of South-East Asian Nations (Asean), plus South Korea, Japan, India, Australia and New Zealand. The US has responded with a push to finalise and expand the Trans-Pacific Partnership (TPP), a free-trade agreement that includes a dozen countries in Asia and the Americas. The Obama administration has also announced plans to begin work on a transatlantic trade deal that will open new areas of commercial exchange with the European Union.
    This is good news for trade generally, and for all who participate in these agreements. By establishing new and more comprehensive rules for trade and investment, the TPP and transatlantic agreements will set new standards for future global trade talks. They could push the WTO to launch another round of multilateral bargaining under more comprehensive terms. This is also good news for those who believe in the power of trade to lift the entire global economy, because the opportunity costs are rising for those unwilling to come to the table.
    Trade agreements of this sort are also likely to undermine less ambitious deals. TPP, in particular, is exacerbating trends visible in Latin America. Chile and Peru are original members of TPP, Mexico formally joined last year, and Colombia and Panama have opened talks to join the club. Most TPP members in Latin America have already signed free-trade agreements with the United States, the EU and even China. As TPP moves towards completion, it will draw these countries (which are already more business-friendly and open to trade than the Mercosur members – Argentina, Brazil, Paraguay, Uruguay and Venezuela) more fully into its orbit. As a result, frictions within Mercosur, particularly between Brazil and Argentina, will both deepen and become more visible.
    A little help from new friends

    Diversification has always been an essential tool for managing risk, but in a world lacking clear leadership, one in which shocks have become all too common, governments must avoid over-reliance not simply on one export product, but also on security and commercial relations with a single dominant ally. Growth is good, but resilient growth is better, and the best way to build resilience is to diversify one’s friends and partners. Some countries are better positioned to manage this than others.
    Though its economy has slowed over the past year, Brazil enjoys an expanding middle class, a broadly diversified economy, ample energy reserves and growing national selfconfidence. Crucially, it also has an increasingly diverse portfolio of trade and investment partners. Trade with the US remains robust, yet Brazil’s imports from China have risen more than twelvefold since 2000, and its exports to China have grown even faster. Four years ago, China became Brazil’s largest trading partner, helping Brazil absorb the shock of the financial crisis and US recession. Thanks to still-expanding ties with the US, China and a growing list of other partners, it has become a “pivot state”.
    Asia is home to a number of pivot states, in part because many of China’s neighbours want to avoid too deep a dependence on China and its markets by reaching out to US companies and investors. Indonesia, home to more than 240 million people and a welldiversified economy, maintains strong trade ties with China, the US, Japan and Singapore. Vietnam draws most of its machinery from China, its aid from Japan, its arms from Russia and its biggest export market from the US. Singapore has 18 free-trade agreements with 24 separate partners.
    Africa, home to the world’s fastest-growing middle class, has become a pivot continent. For years, African governments were forced to turn almost exclusively to western institutions such as the IMF and the World Bank when they needed financial help. China has become Africa’s largest trading partner, though it still accounts for just 25 per cent of foreign direct investment in the continent, and the Gulf monarchies and other Asian states are deepening their interest. Multinational and state-owned companies from developed and developing states now compete for access to African consumers and the most favourable investment terms.
    Beyond a general diversification of relationships, we have seen the emergence in recent years of a new set of (sometimes unlikely) strategic alliances. Henry Kissinger is reported to have asked, “Who do I call when I want to call Europe?” China’s leaders have an answer: when they want to engage Europe, they call Berlin. In fact, China and Germany have the makings of at least a mutually profitable partnership, if not a beautiful friendship. They have a few important things in common. They are export-driven and have the world’s two most favourable trade balances, and each champions a “responsible” approach to debt and deficit that sometimes leads them to criticise the profligacy of other powers – particularly the Americans and the Japanese. Each presents itself as a model of efficient governance in its respective region.
    More importantly, both governments have ample incentive to deepen their commercial relations. Germany represents an important destination for outward-bound investment by Chinese firms and the safest debt in Europe. Berlin also has considerable influence over eurozone decision-making and EU foreign policy, and is more willing than London or Paris to avoid direct criticism of China’s human rights record. For Germany, China represents an inviting economic opportunity, particularly given the bleak prospects of many of its historical European trading partners. German exports to China grew at an average annual rate of nearly 16 per cent between 1995 and 2012.
    Next, while US dependence on imported oil and gas is easing, China’s is intensifying, forcing Beijing to build new partnerships in the Middle East, as well. The primary beneficiary of this trend will be Iraq. (After two US-led wars on Saddam Hussein and years of US occupation, the irony is unmistakable.) The feeble state of the rule of law inside Iraq and the country’s increasingly unstable security environment have given many a multinational oil company pause, but China’s stateowned behemoths, which ultimately answer to a single, energy-starved shareholder back in Beijing, are moving in. The embattled Iraqi prime minister, Nouri al-Maliki, welcomes the investment. Given present trends, Iraqi oil will account for more than half of China’s oil imports by 2030 – and there is a growing risk that China and its economy will become ever more deeply implicated in the continuing upheaval in the Middle East.
    Elsewhere in the region, Qatar, a Persian Gulf emirate with a population of fewer than two million people, is using its considerable wealth and growing influence to make new friends and punch above its weight in Middle Eastern politics. No country has provided more direct material support for the Syrian rebels, or has proven a more reliable foreign ally for Egypt’s Muslim Brotherhoodled government. Qatar has also become much more involved in the politics of other North African countries, such as Tunisia and Morocco. Though technically the Doha-based al-Jazeera, the Middle East’s most influential satellite television network, is no longer a state-run company, it remains a willing instrument of Qatari foreign policy.
    Finally, there is another emerging power extending its influence in sub-Saharan Africa. Brazil’s drive to expand its diplomatic and economic relations on the continent – especially with the resource-rich, Portuguesespeaking Angola, Mozambique, Cape Verde and São Tomé e Príncipe – began to intensify a decade ago under the former president Luiz Inácio Lula da Silva. Brazil’s trade with Africa has expanded by more than 500 per cent in the past decade. The country’s growth and the active promotion of its own national champion firms has deepened the relationship, as the state-owned oil company Petrobras becomes a critical player in Angola’s oil sector and the Brazilian mining champion Vale invests in a world-class coal project in Mozambique. President Dilma Rousseff announced in May, during celebrations to mark the African Union’s 50th anniversary, that Brazil would cancel or restructure $900m worth of debt from 12 African countries.
    Greater influence in Africa boosts Brazil’s claim as a leader in South-South development. The votes of African countries can help Brazil gain greater influence within international institutions and might one day help provide the country with a permanent seat on the UN Security Council.
    The isolated few

    For some countries, making new friends, even in a G-Zero environment, is not so easy.
    There are three big unfolding stories in international politics and the global economy: China’s rise, Middle East turmoil and the redesign of Europe. The three countries with most to lose from these trends are, respectively, Japan, Israel and Britain. These three also happen to be America’s most reliable allies in the world’s three most important regions, yet self-involved Washington can’t protect them from the worst effects of these sweeping changes.
    China’s rise leaves Japan in a tight spot. Access to China’s expanding consumer market is critical for Japanese companies, yet Beijing’s new foreign policy assertiveness, particularly in territorial disputes involving Japan, is fuelling patriotic fury inside both countries. China and Japan are not sliding towards war, but the growing antagonism between them is reversing progress in their commercial relationship – a problem that will hurt Japan much worse than China. In response, Japanese policymakers want to diversify, to hedge bets on China by strengthening trade and investment ties elsewhere in Asia. Unfortunately, while neighbouring South Korea has already signed free-trade agreements with the US, the European Union and Asean and has launched talks with Canada, Indonesia and Vietnam, Japan has been slower to diversify its trade ties and remains dangerously exposed to overreliance on Chinese markets.
    Japan’s decision to join talks on the Trans-Pacific Partnership may eventually pay enormous dividends, but that is a long-term project and the country still has near-term economic problems to address. As for its security, while Washington can help defend Japan’s territorial claims in the East China Sea, it cannot protect Japanese companies operating in China from the cost of doing business in a sometimes hostile environment. That is the greatest immediate threat to Japan’s economic stability.
    Israel’s anxieties bear more directly on its national security. Syria’s civil war has spilled over into Iraq, Turkey and Lebanon. The risk is also rising that Iran, the object of biting sanctions and intense international pressure over its nuclear programme, will lash out in unpredictable ways, including at Israel, using proxies such as Lebanon’s Hezbollah, which is fighting in support of the Assad regime in Syria. In addition, Arab states, those that have new governments following the region’s recent upheavals and those that resisted demand for change, are eager to safeguard their popularity at home and will try to satisfy public demand for a harder line on Israel. And although Washington will continue to act as the ultimate guarantor of Israel’s security, an Obama administration focused on domestic priorities and on expanding its presence in Asia will have fewer resources to spend on helping to resolve the various conflicts taking shape along Israel’s borders.
    Then there is Britain, where, according to a poll conducted in May by ICM Research, just 30 per cent favour continued membership of the European Union. If the UK eventually lands outside the EU, it will pay a heavier price than many Britons now realise. Shedding many of Europe’s rules and regulations and its Common Agricultural Policy would pay early dividends, but waving goodbye to a club whose members buy half of Britain’s exports would damage the country’s core economic strength, and dozens of bilateral trade deals would have to be renegotiated. Outside Europe, Britain would lose much of its international political clout. Even if Britain remains a member, its unwillingness to help shape the eurozone redesign and fully engage on new financial regulations will leave London as a taker rather than a maker of the new rules of the European game. And as Washington eyes new opportunities in Asia and begins work on a trade deal with the EU, the special relationship with a Britain outside Europe will look a lot less special to future American presidents.
    Leaders enjoy summits. Their choreographed pageantry commands the attention of the world’s media, allowing presidents, prime ministers and chancellors to play the global statesman, and provides a welcome holiday from political attacks back home. Even the protests outside the gates seem to underline the power of those within. Summits can be useful in a crisis. But the G-Zero era of instability has only just begun and the new global order will take shape off camera, the result of decisions made and relationships formed among the leaders of individual states who are doing their best to absorb new shocks and make new friends.
    Ian Bremmer is the founder of Eurasia Group. His most recent book is “Every Nation for Itself” (Portfolio/Penguin, £14.99). He will be taking part in Zamyn’s cultural forum “After the G8: Is It Going to Be G-Zero or a Positive Number?” at Tate Modern, London SE1 this evening (11 June) at 6pm. For more details and to buy tickets visit: www.zamynforum.org/events
    Listen to George Eaton interview Ian Bremmer on the NS podcast at:newstatesman.com/podcast
    THERE IS ONLY ONE ONANDI LOWE!

    "Good things come out of the garrisons" after his daughter won the 100m Gold For Jamaica.


    "It therefore is useless and pointless, unless it is for share malice and victimisation to arrest and charge a 92-year-old man for such a simple offence. There is nothing morally wrong with this man smoking a spliff; the only thing wrong is that it is still on the law books," said Chevannes.

  • #2
    Creative destruction: our economic crisis was wholly predictable

    Keynes, Hobson, Marx - and the crisis of capitalism.


    BY ROBERT SKIDELSKY PUBLISHED 17 MAY 2013
    From just £199 per couple. Book by 30th June










    Artwork by Julie Cockburn
    Is it to the wrong ideas of economists or to the interests of the power-holders that we should turn to explain the “Great Contraction” of 2008-2009? John Maynard Keynes believed that the Great Depression of 1929-32 was caused by the wrong theory of how the economy worked in the minds of policymakers – the remedy for which was to equip them with the right theory. But this ignored one thing: that the reigning ideas are, more often than not, the product of the dominant power structures.
    Economics, therefore, needs to be supplemented by political economy – the study of how power affects the choice of ideas and policies and the distribution of income; in short, Keynes plus J A Hobson and Karl Marx.
    Keynes explained that it was uncertainty that causes economies to crash. Hobson explained how unequal income distribution makes crises more likely and recoveries more difficult. Marx explained that this inequality is inherent in the power structure of the capitalist system. All have their part to play in explaining the crisis and collapse of 2008.
    Let’s consider first of all the case of the “closed” economy – what happens in an economy without foreign trade.
    The closed economy

    The strong message of Keynes’s General Theory is that investment is the unruly element in a decentralised market economy, because of the existence of irreducible uncertainty. For one reason or another, businessmen lose confidence in the future and stop investing at the same rate as before. This is how recessions or depressions start.
    In Keynes’s theory there is no automatic recovery mechanism, so that, in the absence of an external stimulus, a collapsed economy might get stuck in a situation of “underemployment equilibrium”.
    The present crisis exhibits the truth of both parts of this analysis: there was a collapse of “animal spirits” in 2007-2008 and the developed world has since been in semi-slump.
    Hobson, Keynes’s near-contemporary, argued that because of the unequal distribution of wealth and income too much of the national income is saved and too little consumed. This leads to more investment producing more goods than the remaining income of the community can buy at prices profitable to the producers. Periodic crises of “realisation” are the result. Today China is a classic case of an oversaving, underconsuming economy.
    This has some affinity with Marx’s theory of capitalist crisis, but the mechanism is different. For Marx, crises were the result of a fall in the profit rate. In the Marxist scheme, the surplus value extracted from labour – paying workers less value than they produced – was the source of profit. With the substitution of machinery for labour, surplus value became increasingly difficult to obtain. So, like Hobson’s economy, Marx’s suffers from periodic crises. In Hobson’s economy these are crises of surplus production. In Marx’s economy these are crises of profitability or surplus value.
    Keynes, Hobson and Marx all suggest permanent remedies for the tendencies towards crisis. Keynes called on the state to maintain enough effective demand in the economy to offset the ravages of uncertainty. Hobson wanted the state to redistribute income in order to reduce the share of saving in national income. Marx’s more radical cure, as we know, was to abolish surplus value – the profit-seeking system we call capitalism – altogether.
    Keynes never engaged properly with Marx, but he saw some similarity between his views and Hobson’s because Hobson, as Keynes did, challenged the core classical belief that saving is always good.
    Where Hobson went wrong, Keynes suggested, was in identifying overproduction as the worst consequence of excess saving. For Keynes this was only a “secondary evil”; the primary evil was a propensity to save, which was not realised in investment and production.
    According to Keynes, Hobson’s theory was incomplete because he had no “independent theory of the rate of interest”. In Keynes’s theory, the rate of interest (the rate that banks charge for loans) is determined not by the volume of saving, as Hobson, following the classical economists, believed, but by “liquidity preference” – the desire, in situations of great uncertainty, to hold savings in liquid form, chiefly cash. Thus the interest rate cannot be the price that keeps the desire to save in equilibrium with the desire to invest: far from falling when people decided to save more, the rate of interest might easily go up, as people decided to hoard cash. Situations could thus arise when the expected rate of profit fell below the minimum rate at which banks were willing to lend. “Oversaving” thus went with “underinvestment”, not with “overinvestment”. This speaks to the present situation where, despite huge injections of liquidity by central banks, commercial banks refuse to lend to customers, preferring to sit on piles of cash.
    What, then, eliminates the excess saving and brings the economy back into balance? Keynes suggested it was the fall in income. As economies get poorer, the amount of saving falls to the level of the reduced investment. Thus economies regain “equilibrium”, but it is an inferior equilibrium to the previous one. This is a good approximation to the current state of Britain, with no clear tendency for a shrunken economy either to grow or to contract.
    Keynes was aware that a grossly unequal income distribution made it harder to maintain full employment. The rich save more than the poor, so the more unequal the distribution of income, the larger the gap to be filled by investment if the economy is to reach full employment. At the same time, the richer that societies are as a whole, the fewer new investment opportunities there will be. Hence the problem of unemployment would get worse over time from both ends. Underinvestment becomes a structural problem as wealth increases, because bona fide investment opportunities decline while the ratio of saving to income rises.
    So, what should governments do to maintain full employment? Keynes suggested that in the short and medium term a government should provide sufficient public investment from loans, but in the longer run it should redistribute wealth and income in favour of those with a higher propensity to consume. This latter was in line with Hobson’s remedy for slumps, reached by a different theoretical route.
    Keynes’s ultimate policy aim was to absorb some of the unwanted surplus of saving in increased leisure. This would mark entry to the “golden age” of capital abundance – the theme of his futuristic essay “Economic Possibilities for Our Grandchildren”, published in 1930. A hundred years hence, Keynes thought, both capital accumulation and consumption would approach saturation.
    Marx, too, looked forward to this kind of utopia but he denied that it could ever be achieved by capitalism. The capitalist class (and the political apparatus it controlled) would never allow the scale of public investment Keynes wanted – which it would deem inefficient and wasteful; nor the measures of redistribution advocated by both Hobson and Keynes – which it would condemn as weakening the incentive to save and work. As machines increased the productivity of labour, and thus the possibility of shorter hours of work, capitalists would force down real wages by raising unemployment, and more generally by pauperising the mass of the population. Sooner or later this would cause a revolution. It was socialism, not capitalism, that would inherit the era of abundance.
    The ideas of the three thinkers all play out differently when we introduce a foreign sector. Let us call this “globalisation”.
    The open economy

    In a closed economy – one without a foreign sector – it is excess saving, according to Hobson, that causes periodic slumps. But an open economy provides an alternative: the domestic saver can lend his savings abroad to develop new markets. Hobson called the need to find a foreign vent for saving the “economic taproot of imperialism”. This was taken up by Lenin to explain why capitalism hadn’t collapsed on schedule. Faced with a falling rate of profit, capitalists could restore their profits by opening up sources of exploitation abroad.
    Unfortunately, this remedy – which both Hobson and Lenin called imperialism – only postponed the evil day. The competitive drive to capture new markets and open up new sources of exploitation would lead to wars between the leading powers for the “division and redivision of the world”. Hobson thought the Boer war was a precursor of a new type of capitalist war. Lenin interpreted the First World War in the same terms. Keynes drew a similar conclusion to Hobson and Marx. “If nations can learn to provide themselves with full employment by their domestic policy,” he wrote in 1936, “there would be no longer a pressing motive why one country need force its wares on another or repulse the offering of its neighbour.”
    The contemporary value of the analysis of all three thinkers is that it forces us to look more critically at the phenomenon of globalisation. Is globalisation the consequence of a benign and normal search for higher returns? Or is it an attempt to solve problems of underconsumption and declining profitability in the capital-exporting countries which would otherwise bring their economies crashing down?
    All three analyses are relevant to this problem. Keynes was the least interventionist of the three. He thought moderate globalisation was potentially beneficial but it needed to be underpinned by monetary “rules of the game” which would prevent surplus countries from “hoarding” their surpluses and thus impose austerity on the debtor countries. In his International Clearing Union, which he proposed in 1941, the reserves of persistent creditor countries would be taxed and the proceeds redistributed to the debtor countries. But no such mechanism was established by the Bretton Woods Agreement of 1944, and the problem of adjustment of trade balances between creditor and debtor countries plagues not just the eurozone but US-China relations, threatening a descent into currency wars and protectionism.
    The intuitions of Hobson and Lenin also speak to our present situation. Hobson’s notion of a structural imbalance between production and consumption, leading to “excess saving” that requires a foreign vent, surely applies to China. Lenin’s idea that the export of capital is required to overcome periodic crises of profitability in the advanced capitalist nations helps explain the “offshoring” of manufacturing (and service) jobs to China and east Asia.
    Today’s “crisis of capitalism”

    We have gone in the opposite direction to Keynes’s, Hobson’s and Marx’s hopes, pushing into a distant future the golden age of capital abundance. We are still fixated on economic growth and have abandoned any attempt to control the level or kind of investment. In order to make growth happen, we encourage more and more consumption through advertising, while actively promoting inequality.
    And instead of the state embarking on wasteful and unnecessary investment programmes to keep people in jobs, we leave it to the financial sector to do this, wasting the money of investors in order to enrich a tiny minority, while most people fall ever deeper into debt.
    A structural analysis of how we got to where we are should start with an account of how Keynesian ideas, which saw off the Marxist challenge after the Second World War, were in turn dethroned by neoliberalism in the 1970s, opening the way for the dominance of finance capitalism.
    The political economies of the capitalist world between 1950 and the 1970s brought about a balance of forces between capital, labour and government. Economic policy was designed to achieve full employment, wages grew with productivity, incomes were equalised through progressive taxation, and international exchange was restricted. This configuration created a virtuous circle of growth.
    This was the Keynesian age. Keynes believed that the power of ideas – his ideas – would be enough to kill off Marx permanently, but he never considered the possibility that his own ideas might be at the mercy of changes in the power structures of western societies. After 1980, the state proved unable to protect the Keynesian revolution from the consequences of the continuing full employment it guaranteed. Over time, full employment strengthened trade union power; unions used their position to push wages ahead of productivity; wages started to encroach on profits; inflation took hold as governments tried to stay ahead of trade union demands. To end what had become a vicious spiral of “stagflation”, the business class demanded lower taxes, freedom to export capital, free trade and an end to the full employment commitment. Two of the countervailing powers, the unions and the state, were humbled, leaving capital in control. This brought back the power system of the 19th century, brilliantly aaalysed by Marx.
    The economics profession justified the shift back to an older form of capitalism. The technical ammunition for the monetarist counter-revolution was provided by Milton Friedman’s restatement of the quantity theory of money, coupled with his assertion that in each economy there existed a “natural” rate of unemployment, which could not be lowered, except temporarily, by printing money.
    Friedrich Hayek’s slow-burning Road to Serfdom, published in 1944, offered a powerful political economy argument against state intervention in economic life. There was also a revival of the Schumpeterian idea that the dynamism of capitalism depended on bouts of creative destruction. “Free-market” think tanks and journalists, funded by business, provided the simplifications and slogans needed for politicians to understand and mouth the new verities.
    In this way, after 1980, a new economic paradigm established itself, based on widening income inequality, repression of real wage growth, an accelerated transfer of manufacturing jobs to east Asia and a resulting high level of structural unemployment and underemployment. A rickety economy was rescued from collapse in the 1990s by the dotcom boom, and in the 2000s by asset-price inflation, financed by exploding private debt-to-income ratios. A banking collapse was inevitable.
    Globalisation was business’s “open” economy answer to the problem of domestic underconsumption identified by Hobson and the declining rate of profit predicted by Marx. Hobson’s oversaving analysis best explains China’s reliance on export-led growth, but it also sheds light on western countries’ reliance on access to cheap credit to maintain the stagnating purchasing power of what is now called “the squeezed middle class”. Analysis in terms of the declining rate of profit is good at explaining the accelerated transfer of productive capacity to east Asia. And by completing the destruction of the Keynesian state, globalisation has handed our future to finance, which Keynes identified as the most uncertain, least stable element in the economic structure.
    According to the Harvard economist Dani Rodrik, we face a “political trilemma”: press on with globalisation and restrict democracy to improve economic efficiency, limit globalisation in the name of democracy, or globalise democracy.
    The first option will be politically intolerable for large democracies of the west and the third is pie in the sky, which leaves the second. It is time to call a halt to the rush towards globalisation and take stock.
    At the minimum, there needs to be a global bargain between the US and China and a regional bargain between Germany and its partners in the eurozone on their respective “rules of the road”, which should aim to prevent the continuing current account imbalances. This is the problem that Keynes’s clearing union was designed to overcome but which the Bretton Woods system failed to solve.
    Yet Rodrik’s “trilemma” does not dig deep enough. It assumes that globalisation would be best if it could be made to work equitably. But global economic integration, in the absence of domestic policies to maintain full employment, create a broad base for consumption in all countries and reduce hours of work in the rich countries, is bound to be destructive for the reasons Keynes gave in 1936: it forces countries into export-led solutions to domestic problems which deny democratic control and are bound to bring them into conflict. Closed economy problems identified by Keynes, Hobson and Marx must be overcome if the open economy is to work harmoniously.
    What hope is there of this? Given that the Marxist physic of abolishing capitalism is worse than the disease, the question is whether it is any longer in business’s interest to go along with a system that crashes every few years, with increasingly harmful economic and social consequences. Keynes repeatedly said he had come not to destroy capitalism, but to make the world safe for capitalism – and make capitalism safe for the world. It may be that business interests are now sufficiently aligned with the needed domestic reforms to enable further global economic integration to proceed peacefully, if less hectically. If a change in the configuration of “vested interests” allows better “ideas” to succeed, the recent crisis will not have been in vain.
    Robert Skidelsky’s most recent book, co-written with Edward Skidelsky, is “How Much Is Enough? The Love of Money and the Case for the Good Life” (Allen Lane, £20)
    THERE IS ONLY ONE ONANDI LOWE!

    "Good things come out of the garrisons" after his daughter won the 100m Gold For Jamaica.


    "It therefore is useless and pointless, unless it is for share malice and victimisation to arrest and charge a 92-year-old man for such a simple offence. There is nothing morally wrong with this man smoking a spliff; the only thing wrong is that it is still on the law books," said Chevannes.

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    • #3
      Mi nuh need fi red all this mumbo Jumbo. Years ago mi tell it right here that all the so called boom time was unsustainable. Too many shenanigans.

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