The Real Greek Crisis
Most people will feel that they don’t need to look far for an explanation as to what lies behind the Greek crisis. Lazy reporting and racial stereotyping will persuade them that the Greeks – a feckless lot, no doubt – have spent more than they should, got into debt, taken out loans from the hard-working Germans and now won’t repay the loans because they refuse to tighten their belts.
But there is another narrative that tells a somewhat different story. That story is one of a powerful economy enforcing its will on its weaker neighbours and refusing to acknowledge that it has thereby made it impossible for them to dig themselves out of a hole.
The story begins at the turn of the century when the Greeks, along with many others, were persuaded that being part of Europe required them to give up their own currency and accept the euro. A single currency meant a single monetary policy and a single central bank – and guess who decided what that policy should be and what the central bank should do?
Germany, by far the most powerful economy in the euro zone, ran it to serve its own interests, but life wasn’t so easy for the weaker countries. The Greeks, for example, with their smaller and less developed economy, had no chance of surviving the competition from efficient German manufacturing. We do not need the benefits of hindsight to make this point, since many commentators, myself included, foresaw the inevitability of this outcome at the time.
As things began to go wrong, and they had to borrow to keep their heads above water, the Greeks were assured that they could look to the Germans and others to help them out. But this was in the days of cheap and plentiful credit; when the Global Financial Crisis struck and the cheap credit dried up, the creditors who had happily lent to the Greeks wanted their money back.
The Greeks didn’t have the money. But the price they had to pay for borrowing yet more from the IMF and the European Central Bank was to accept a programme of savage austerity. The cuts they have already been forced to make have meant that 25% of the Greek economy has simply closed down and 60% of young people are without a job. Again, as some commentators observed at the time, it was impossible to see how the Greeks could ever – from an already weak economy that is now so much smaller and still going backwards – find the resources needed to repay their debts.
And so it has proved. The price that creditors insist upon for a continued bail-out is yet more austerity which can only mean yet more closures and unemployment. Leaked papers show that the creditor institutions themselves recognise that more austerity will make it even less possible for the Greeks to pay back their debts.
So why are the Germans and other creditors determined to force the Greeks into such a damaging dead end? The answer is that they care little for the travails of the Greek people. Their focus is on those countries that are watching the Greek situation closely – countries like Spain, Portugal, Bulgaria, even Italy, that have faced similar problems, and suffered similar penalties, but that have not yet been compelled by pressure from their populations to resist a further descent into even more austerity.
The fear from the financial establishment and from the Germans in particular is that the Greeks might find a way to demonstrate to other similarly afflicted countries in the euro zone that there is a way out – and that those other countries would then follow a similar course. The rational course for the Greeks to take, after all, would be to leave the euro zone, restore their own currency and then print the drachmas needed, as monetarily sovereign countries are able and entitled to do, and repay their debts in devalued drachmas.
The difficulty that Greek Prime Minister Tsipras faces is that he has committed to resist austerity but also to retain the euro. It is doubtful that he can achieve both. In the forthcoming referendum, no one can be sure whether the dislike of austerity or the fear of leaving the euro zone will prevail. The poor and the unemployed – those who have suffered most from austerity – will vote to reject the new bail-out offer; the holders of assets and the pensioners will vote to stay with the euro.
Either way, the outlook for the euro looks bleak. In the long run, the attempt by the financial establishment to over-ride the wishes and interests of ordinary people and to negate the power of a democratic government to protect them will fail. The only question is as to how many more crises there will be and how much more suffering has to be endured before common sense prevails.
Bryan Gould
2 July 2015.
Old-Time Religion
Martin Kettle, in today’s Guardian, joins the ranks of those no doubt well-intentioned observers whose advice to the Labour party, as it chooses a new leader, seems to be based on a curiously limited and one-dimensional view of the political landscape.
In this view, there are only two possible directions of travel and therefore just one issue to be resolved. The Labour party, in this tightly constrained, imagined environment, must choose to go either forwards or backwards (or, perhaps, to use slightly different terminology to describe the same choice) rightwards or leftwards.
The choice to go “backwards”, Kettle says, is to opt for “purity rather than power”. It is a journey back to the “old-time religion” guided by the “everlasting gospel”. We are spared such emotive descriptions of the other possible choice – to go “forwards” – but we don’t need to try too hard to recognise that it means that Labour must appeal more to middle-class voters and their “aspirations” – shorthand, in other words, for accepting even more of the Tory agenda
If the political landscape really were the one of Kettle’s imaginings, and those really were the only choices available, his advice might be seen as unpalatable but difficult to resist. Better perhaps an occasional “Tory-lite” government, when the voters periodically tire of the real thing, than a permanent sojourn in the political wilderness. We might then at least hope for a brief respite every now and again from the relentless, not to say ruthless, passage towards a society of entrenched and growing privilege, widening inequality, extreme poverty, economic failure and social disintegration.
But is Martin Kettle right to describe the political landscape in this one-dimensional way? Surely there are many other possible directions of travel that, in our increasingly diverse society, would stand a better chance of attracting popular support than either of the unpromising options he offers.
Why is there no recognition of the possibility that a truly reforming and radical party might actually come forward with new ideas as to how the enduring goals of a good society might be achieved? Why should Labour not set out to reach new destinations and objectives, and use new modes of travel?
Why should we accept a political map that does the Tories’ work for them by locating them at the centre, with the only other directions requiring a literally eccentric diversion? Why should Labour not aspire to create new and different poles of attraction, so that voters are offered a real choice – a different vision of how society could operate and of how that could be achieved?
These questions may sound other-worldly, but that is only because they are so far removed from anything the Labour Party has even contemplated, let alone tried to achieve in its recent past. The recent election campaign was notable for Labour’s complete failure to bring forward an alternative analysis and strategy as to how the economy could not only be run better but run in the wider interest, so that the “aspirations” of most people are properly served.
What we got instead – the only real thing said about economic policy by Labour – was that a new Labour government would commit to austerity and continued spending cuts, in the over-riding interest of eliminating the government’s deficit – a goal that makes absolutely no sense when taken in isolation from other economic factors such as the country’s perennial trade deficit.
The election was lost when that commitment was made. It immediately validated the Tory claim that the deficit – the government’s, not the country’s – had to be the over-riding priority. It disabled Labour from persuading voters that they could somehow get better results from the same policies – indeed, from saying anything else remotely sensible about economic policy.
Labour’s new leaders could have said that austerity and spending cuts have failed (even in their own terms, since the government’s debt is still rising) and have produced unacceptable inequality and poverty, that the way to get the deficit down is to get the economy moving again on the basis of increased output rather than unsustainable consumption and asset inflation, that unemployment is a shocking waste of human resources and lives, that full employment is not only essential but achievable if we tackle our real economic problems.
They do not say any of these things because in their heart of hearts they do not believe them. They are trapped in an intellectual straitjacket, because they have never done and are not prepared to do the hard work needed to produce a convincing alternative that would be in line with much current and developing economic thinking. So they accept advice from sympathetic observers like Martin Kettle that the smart thing to do is to masquerade as Tories but try to look nicer and kinder. They would have nothing different or new to say and could only hope that the voters wouldn’t notice. Little wonder that the voters search in vain for the ring of truth and the genuineness of conviction.
If they were to say such things and mean them, and if they were to develop policies that would achieve such outcomes, would that mean travelling backwards or forwards, rightwards or leftwards, on Martin Kettle’s one-track line? Or would it mean striking out in a new direction, one of Labour’s choosing, one that is consistent with both its great traditions and with a cutting-edge future – a future a long way away from Tory central.
Bryan Gould
26 July 2015
Why Are Labour’s Would-be Leaders So Right-wing?
Why does a Labour party whose proclaimed raison d’etre is to offer a brave and radical alternative to current orthodoxy throw up would-be leaders who are clearly so reluctant to rock the boat? These are, after all, people who no doubt entered politics with lofty intentions. They would have felt concern – even righteous anger – at the Tory defence of privilege, the Tory contempt for the disadvantaged, the Tory neglect of what a decent society might look like. They would have been determined to do something about it. So when, and how, did that bright flame dim?
Some critics will say that they are merely careerists who were never true believers and that their allegiance to Labour and its principles was only ever skin-deep, to be discarded as they got nearer the top of the greasy pole. But it is not as simple as that.
I have no doubt that the impulses that took them into politics were good and true, and that their intentions were to act on those impulses so as to make a difference. But they discovered that noble impulses and good intentions are not enough, and are in any case easily displaced by apparently more pressing considerations.
What takes people into politics is not just political conviction. Many people have strong political views, but practising politicians tend to be self-selecting on grounds of temperament. These are the people who want to see their ideas carried into practice and who have the ambition and self-confidence to believe that they are the people do it.
But when they get to Westminster, they discover that the team game – one side against another, Labour against Tory – is only part of the story. There is also a whole series of individual contests, as the more able begin to distinguish themselves, and the possibility of influencing, even eventually leading, one’s party becomes apparent.
The skills that the Westminster arena requires are not necessarily those of commitment and consistency, innovation and courage. They are those of the debater and speaker, the media performer and glad-hander. The minutiae of politics, rather than the clarity and strength of vision, become increasingly important in determining who is up and who is down.
And the day-by-day requirements of Westminster become more and more pressing and absorbing. Our leading MPs work very hard; they put in long hours, spinning from one difficult topic to another at often half-hourly intervals. It is not surprising that the hand-to-hand, close-quarters combat across party lines takes virtually all of their attention, and they find it easy to persuade themselves that they must be fighting the good fight because they are so busy.
The influences brought to bear on them as they become more senior and more influential are equally short-term. The focus is on the latest newspaper headline or television interview. And, as they are drawn into the party’s higher councils, they are made privy to the findings of the pollsters, each nuance of which is given great weight.
The polls are treated, not as a snapshot of opinion at a given moment, but as signposts to future action that can be ignored only at one’s peril. So they will, in the case of Labour politicians, tell them that Labour is not trusted on the economy; this is seen as immediately requiring redoubled efforts to assure voters that Labour will be prudent and responsible – prudent and responsible, that is, as seen in the context of the current orthodoxy.
The way to win, it is accepted, is to find out what people think, and then frame policies accordingly – to follow rather than lead. An attempt to change the way people think is doomed to failure. The best that can be done is to follow the much-admired Clintonian “triangulation”.
The original impulses and intentions are taken as a given and are rarely reviewed. They are submerged by the new imperatives – to perform well, to get good notices, to raise one’s standing in the eyes of one’s colleagues.
As to actual analysis and policy, there is no time – and even less incentive – to go beyond an increasingly automatic recital of vague objectives that are disconnected from any of the hard work and thinking that would be required if orthodoxy is to be effectively challenged. And that is in any case unlikely. Today’s generation of leaders were brought up in a world where voters were consumers rather than citizens, where the market would deliver better outcomes than could be expected of public provision, where running a country was best done according to business principles and where spending and borrowing in the public interest was dangerously irresponsible and imprudent.
Today’s leaders, in other words, are totally ill-equipped to advance any persuasive account of how they could run the economy better so as to deliver the commendable objectives that took them into politics in the first place. They are still capable of reciting the old catechisms about social justice and helping the disadvantaged but are at a loss as to how these are to be achieved – largely because, in their heart of hearts, whether they know it or not, they accept so much of the Tory analysis and agenda.
Labour’s would-be leaders have never done the hard work needed to mount a proper challenge to the neo-liberal hegemony. That is why, for example, when Labour entered the last election prioritising a commitment to eliminate the deficit, most of those who endorsed that commitment had no idea which deficit – the country’s or the government’s – they were actually talking about and why it was in any case entirely beside the point if we are seeking a well-performing economy that serves the interests of the great majority of voters.
Bryan Gould
20 June 2015
Chickens Coming Home to Roost
“Rock-star economy” is a catch-phrase that has served very well to persuade us that we are doing well in economic terms. But “chickens coming home to roost” and “living in a fool’s paradise” may be nearer the truth about our economic performance.
First, those chickens. The warnings that some of us have voiced for some time about our dangerous dependence on a single commodity are, sadly, proving all too accurate. The slump in world dairy prices has exposed the unwelcome truth that our apparent good fortune depends substantially on just one price for just one product – and we now know that the milk powder price will not remain consistently at its recent high levels.
The charge that must be laid at the door of successive governments is that we have wasted the chance, during the good times, to prepare for the day when they came to an end. Instead of broadening our economic base by developing significant new industries and products, our economy is more dependent than ever on just one industry that, despite its great success and strength historically, cannot be expected to carry the rest of us forever.
This failure to diversify is not just an error of omission. Ministers may have failed to do much about the problem, other than make the occasional speech, but their real failure is one of commission. Our reliance on dairy products is the inevitable result of the macro-economic policies that governments have consciously pursued over decades.
Over a very long period, they have quite knowingly engineered an over-valued exchange rate as the consequence of the high interest rate policy they have used as a counter-inflationary tool. They have equally knowingly turned a blind eye to the inevitable consequences of thereby making our goods more expensive than they should be in international markets, including our own.
Those consequences include a perennial trade deficit that can only be financed by borrowing and by selling assets to overseas interests. And that trade deficit arises because new producers find it difficult to sell over-priced goods into export markets, however good they may be, with the result that our potential growth points cannot get a secure foothold that will allow them to grow and prosper.
The over-valued dollar has, in other words, killed off or otherwise stifled many of the new industries and products that are needed if we are to diversify. In the end, if we charge too much, it is only our very best and long-established performers that can survive – and even they will do less well in terms of the margins they earn and will struggle if markets turn down.
None of this is surprising. The economic consequences of the current policy settings are, or should be, well understood. But our leaders either deliberately or ignorantly choose to ignore the damaging consequences of their policies – and then wonder why we have failed to develop a broader base for our dangerously narrow economy.
And what about that fool’s paradise? It is not just the fall in world dairy prices that has revealed it for what it is. The dairy industry on which we have relied for so long is now vulnerable to a number of threats that we have scarcely begun to recognise.
As the dairy price has fallen, Fonterra’s travails have shown up in greater relief. They are, of course, partly of its own making, but they are also the consequence of a gung-ho approach to the Chinese market for our products.
No one doubts that we are now very vulnerable to any diminution in Chinese demand for our products, but what may not be so clear – yet – is that the great benefits we have enjoyed for so long from the success of dairying are in the course of passing into foreign hands.
The availability to investors – many of them foreign – of Units in the Fonterra Shareholders Fund means that much of the income stream from our dairy industry is now on its way out of the country. Even more importantly, an increasing proportion of the industry itself is being acquired by foreign interests. The proportion of milk production now being handled by Fonterra is falling steadily as foreign – and largely Chinese – owners of New Zealand dairy farms choose to bypass Fonterra and market their product directly into the Chinese market.
This development, too, should come as no surprise, but it has clearly never occurred to our naïve government. Yet, it is clear that – as we see from Chinese acquisitions around the globe in industries of much greater importance than dairying – the Chinese aim across the board is not merely to buy the products they need but to acquire and control the productive capacity itself.
To make this point is not to criticise. The Chinese are perfectly entitled to pursue their own interests. But we should surely be equally ready to recognise what is happening and to take appropriate action. The dairy production which has sustained us for so long may soon not be ours to rely on. Sadly, fools do not enjoy paradise for long.
Bryan Gould
12 June 2015.
Labour’s Intellectual Straitjacket
Labour’s leadership contenders are constantly asked, by party members and commentators alike, whether they propose to move the party leftwards or rightwards. Few seem willing or able to answer that question other than in the terms in which it is put.
They thereby seem to accept the contention that all of politics can be encapsulated in a simple one-dimensional left/right spectrum – a concession that is hugely beneficial to Labour’s opponents.
On the one hand, the Blairs and Mandelsons (and even the occasional Miliband) warn against a move leftwards. The only way forwards, it is implied, is to be more like the Tories – to be more business-friendly, more understanding of “aspirations”, more prudent and reliable in managing the economy in accordance with the orthodoxy that has prevailed for nearly four decades.
It is not explained why the voters should respond by electing this ersatz version of the real thing, when they have on offer a Tory party that knows exactly where it wants to go and whose heart is really in it. The proposed strategy, even judged purely in terms of its appeal to the voters, seems to rest entirely on waiting for the voters to tire of Tory government – even if, if history is anything to go by, that might mean waiting a very long time.
On this simple view of politics, any new thinking – that is, thinking that departs significantly from current orthodoxy – must inevitably require a move to the left that will leave the voters unimpressed. The only change that is possible is a continuing acceptance of the inexorable move rightwards, perhaps accompanied by unconvincing assurances that Labour would be more compassionate and less ruthless.
Those who doubt the efficacy of such a strategy seem nevertheless to endorse what is argued to be the inevitable corollary of such scepticism – the notion that the only other direction of travel is leftwards. And that, of course, so often described even by its proponents as a “return to Labour’s roots”, is easily portrayed as taking refuge in a past that no longer exists and that is increasingly unrecognised by today’s voters.
Why, oh why, do Labour’s would-be leaders, or at least some of them, not reject this simplistic view and advocate instead something that is not easily (or properly) characterised as right or left, but that offers voters something that voters are desperate to see – some semblance of hope for a fresh and different view of the society we want and of the economic and other policies that will deliver it?
Why, instead of solemnly assuring the voters that Labour will give priority to deficit reduction and will accordingly be just as tough as the Tories on beneficiaries, do Labour’s leaders not show that the deficit that really matters is not the government’s but the country’s – a huge and growing perennial deficit that negates any chance of a better economic performance?
Why not show that a trade deficit makes a government deficit virtually inevitable, which is why government debt continues to rise; that a “recovery” based on asset inflation and a short-term import-led consumer boom cannot be sustained; that, as the OECD has demonstrated, growing inequality is not the price that must be paid for economic efficiency but is an obstacle to that efficiency; that unemployment is not the fault of the lazy and feckless but is a deliberate waste of human resources that – if employed – could make us all better-off; that the decline of manufacturing has left the UK dangerously vulnerable; that cutting public spending – as even the IMF now partially concedes – is bad for economic growth; that monetary policy should involve more than allowing the banks to create 97% of the money in circulation for their own profit rather than the public good; that restoring full employment and lifting low wages is an important means of raising essential purchasing power and enlarging markets for our goods? Where is the leader to ask these questions, let alone provide the answers?
Is there anything about them and the issues they raise (and there are many more like them) that is particularly left-wing? Are they not the questions that should be asked by anyone intent on breaking out of the economic cul-de-sac and the social disintegration that now threatens the UK? Do they not take us in a new direction, neither turning back to Labour’s past nor trailing along unhappily in the wake of an intensifying and defective Tory status quo? Should not the answers enable Labour to put a fresh and hopeful agenda to the British people, neither right-wing nor left-wing, but appealing to the great majority of the electorate because it offers the prospect of an economy and a society that serves everyone’s interests?
I once contested the Labour party’s leadership myself. The answers to the dilemmas facing British politicians today seem to me to be more clear-cut than was the case in 1992. It is easier now, with a longer perspective on the orthodoxy that has prevailed for so long, to see what has gone wrong, and to see what is needed to put it right. What is needed now is to unlock the intellectual straitjacket in which Labour has been shackled for too long. Where is the leader to deliver that?
Bryan Gould
11 June 2015.