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Not only are they to merge but they will continue to trade separately, although they claim that sharing infrastructure and back office functions will generate savings of more than £3.5 billion. It suggests that in a intrinsically oversaturated market place – where after the initial years of rolling out the technology, everyone who is likely to get a mobile phone has one – the only option available are: undercutting competitors, obfuscation through overly-complex tariffs and locked-in contracts or consolidation. Since the first is self-destructive when consistently pursued while there’s a natural limit on the second – customers respond agentially by sharing information and relying on consumer groups and magazines – rationality inclines corporate strategy towards the latter.
However following the brands doesn’t tell the full story. As T Mobile and Orange are owned by Deutsche Telekom and France Telecom respectively. The former is the largest telecommunications company in Europe while the latter is the third largest. Now prior to today’s announcement of the merger – although I wonder if it still counts as a merger if they continue to trade under seperate brands – both Vodafone and O2 had made separate bids for T Mobile. 02 are owned by Telefonica of Spain, another one of the largest telecommunications companies in Europe, while Vodafone is the largest telecommunications company in the world by turnover. So this isn’t just a UK story. The biggest companies in the world – achieving that status inevitably through similar strategies of consolidation elsewhere – are eagerly chomping at the bit to further the same process in the UK and, with each step, taking the mobile phone market away from anything resembling meaningful competition. You’d have to be spectacularly naive to assume this is going to benefit anyone other than the shareholders of the companies in question.
the immediate problem is the financial system. The roots go back to the early 1970s, when finance was liberalized; it was freed from the constraints of the post-war period. Now, the constraints of the post-war period, roughly 1945 to 1970, they were instituted by the United States and Britain for a reason, one, because it was assumed correctly that allowing governments to control capital movements and currencies would provide a basis for rapidly expanding growth and trade and so on, which indeed happened. That’s called the golden age of modern capitalism. Whereas freeing these constraints would retard growth and development, as indeed it has done. But there was a second reason, which isn’t being discussed much: allowing governments to control capital movements provides them with a certain space for introducing what we call welfare state programs. If capital movements are free, attacks on currencies are free, there’s what economists call a “virtual parliament” of investors and lenders who actually vote, every minute in fact. If they don’t like what a government is doing, they attack the currency, there’s capital flow…
When the $700 billion bailout was announced, the public was outraged. There was furious objection, so much so that the House of Representatives had to vote it down. Now, on the surface, that looks like an exercise of democracy, but it isn’t. Even in a dictatorship, if the dictator does something outrageous, the public can riot and he’ll have to back down. Now, in a democracy, functioning democracy, what happens is different: not just shouting “no,” which is what happened, but active popular organizations like unions or political clubs or whatever would be coming forth with specific proposals and demanding that their representatives implement them.
And there are proposals; there’s quite a lot of proposals on the table. Joseph Stiglitz, who’s [inaudible] from outer space, made a very simple point. He said if we put money into the banks, pour liquidity into the banks, we can pour it in, and they’ll pour it out—mergers and acquisition, anything—for their own benefit, ’cause that’s what they’re in business for, for their benefit, not for our benefit. So he said we have to have veto power. Well, veto power means voting rights, and if it’s a real democracy, voting rights means popular participation and initiative. Well, the initiative should be coming from the population, like with health care, where the population has definite views. But the country is so depoliticized that popular views are considered politically impossible, lacking political support. Well, that’s what’s called a democratic deficit: formal democratic institutions, but not functioning. And we have to overcome that. That underlies lots of issues.
t’s well known among economists that markets are inefficient from the narrowest perspective. So let’s make it simple. Suppose you sell me a car, okay? We may make a good deal for ourselves, but we’re not taking into account the effect on him. It’s what’s called an externality. And there’s an effect. If you sell me a car, it increases gas prices, it increases pollution, it increases congestion. And that extends very broadly; these so-called externalities can be very large.
Now, in financial institutions it’s far worse. They are in the business of taking risks. If they’re well managed, say, Goldman Sachs, they calculate the potential cost to themselves if there’s a loss. But the important words are “to themselves.” They don’t calculate in what’s called systemic risk, the effect on the whole system if I go bust, you know, and it has a huge effect. The result is that risk-taking is under-priced, meaning there’s a lot more of it than there would be in a reasonable system. And so, therefore, it was predicted right off that when financial liberalization took place, there would be more regular financial crises and deeper ones. And this particular one is accelerated by the fact that there was a subprime housing bubble and many other factors, so it became far more severe than anyone expected. But it’s built into the system. Now, this was kind of combined with a kind of religious market fundamentalism based on doctrines of, you know, self-regulating markets and so on, which are pure fantasy. So the regulatory apparatus was dismantled. Well, that accelerates the pace of potential financial crisis. And along with that came the creation of highly exotic financial instruments.
Well, all of this combined, it was pretty clear the early part of this decade that a major crisis was brewing. Alan Greenspan, head of the Federal Reserve, refused to prick the bubble as could have been done in simple ways, on the basis of religious belief in self-regulating markets. And finally it came to this catastrophe where there’s a credit freeze, the system’s freezing up. Something has to be done, and it’s interesting what the choices are. It goes back to our earlier discussion. So this morning on the radio, George Bush announced that the government is intervening in the banks, but we want to make sure that we go back to the profit motive, not policy motives, not political motives. What are political motives? Well, that means participation of the population in making decisions. So we hate democracy; we don’t want the public to be involved in decisions about things; we want to go back to the profit motive, meaning that a private tyranny, which is what a corporation is, should look out for itself, not for the public interest.
Gordon Brown, for example, was as much in denial about financial realities as any toxic debt trader. In June last year, during his Mansion House speech, he boasted that 40 per cent of the world’s foreign equities are now traded here. “I congratulate you Lord Mayor and the City of London on these remarkable achievements, an era that history will record as the beginning of a new golden age for the City of London.”(2) The financial sector’s success had come about, he said, partly because the government had taken “a risk-based regulatory approach”. In the same hall three years before, he pledged that “in budget after budget I want us to do even more to encourage the risk takers”(3). Can anyone, surveying this mess, now doubt the value of the precautionary principle?
http://www.monbiot.com/archives/2008/10/14/this-is-what-denial-does/#more-11503
And now he’s the valiant hero riding to the rescue of an economy crippled by the risk-taking of the very figures who, not so long ago, were the harbingers of the ‘golden age’ described above. He didn’t just act in a way that was morally wrong, it was foolish and incompetent. In any sane world, he would be immediately voted from power. Yet when the alternatives are Cameron and Clegg, we find ourselves in the bizzare position of Brown being the best option.
In fact, since financial liberalization was instituted about thirty five years ago, there has been a trend of increasing regularity of crises and deeper crises, and the reasons are intrinsic and understood. They have to do fundamentally with well understood inefficiencies of markets. So, for example, if you and I make a transaction, say you sell me a car, we may make a good bargain for ourselves, but we don’t take into account the effect on others. If I buy a car from you it increases the use of gas, it increases pollution, it increases congestion, and so on. But we don’t count those effects. These are what are called by economists externalities, and are not counted into market calculations.
These externalities can be quite huge. In the case of financial institutions, they are particularly large. The task of a financial institution is to take risks. Now if it is a well managed financial institution, say Goldman Sachs, it will take into account risks to itself, but the crucial phrase here is to itself. It does not take into account systemic risks, risks to the whole system if Goldman Sachs takes a substantial loss. And what that means is that risks are underpriced. There are more risks taken than should be taken in an efficiently working system that was accounting for all the implications. More, this mispricing is simply built into the market system and the liberalization of finance.
The consequences of underpricing risks are that risks become more frequent, and, when there are failures the costs are higher than taken into account. Crises become more frequent and also rise in scale as the scope and range of financial transactions increases. Of course, all this is increased still further by the fanaticism of the market fundamentalists who dismantled the regulatory apparatus and permitted the creation of exotic and opaque financial instruments. It is a kind of irrational fundamentalism because it is clear that weakening regulatory mechanisms in a market system has a built-in risk of disastrous crisis. These are senseless acts except in that they are in the short-term interest of the masters of the economy and of the society. The financial corporations can and did make tremendous short term profits from pursuing extremely risky actions, including especially deregulation, which harm the general economy, but don’t harm them, at least in the short term that guides planning.
The system we live in should be called state capitalism, not just capitalism. So, take the United States. The economy relies very heavily on the state sector. There is a lot of agony now about socialization of the economy, but that is a bad joke. The advanced economy, high technology and so forth, has always relied extensively on the dynamic state sector of the economy. That’s true of computers, the internet, aircraft, biotechnology, just about everywhere you look. MIT, where I am speaking to you, is a kind of funnel into which the public pours money and out of it comes the technology of the future which will be handed over to private power for profit. So what you have is a system of socialization of cost and risk and privatization of profit. And that’s not just in the financial system. It is the whole advanced economy.
So, for the financial system it will probably turn out pretty much as Stiglitz describes. It is the end of a certain era of financial liberalization driven by market fundamentalism. The Wall Street Journal laments that Wall Street as we have known it is gone with the collapse of the investment banks. And there will be some steps toward regulation. So that’s true. But the proposals that are being made, which are major and severe, nonetheless do not change the structure of the underlying basic institutions. There is no threat to state capitalism. Its core institutions will remain basically unchanged and even unshaken. They may rearrange themselves in various ways with some conglomerates taking over others and some even being semi-nationalized in a weak sense, without infringing much on private monopolization of decision making. Still, as things stand now, property relations and the distribution of power and wealth won’t alter much though the era of neoliberalism operative for roughly thirty five years will surely be modified in a significant fashion.
There is a tremendous amount of mythology to be dismantled here, including the talk about the great growth and escape from poverty which, as I said earlier, isn’t false, but is missing the fact that it took place overwhelmingly in areas that ignored the neoliberal rules, while the areas that kept to the rules are the ones that suffered. The same holds in the U.S. To the extent that the neoliberal rules were applied, it was quite harmful to the majority of the population. So to talk about these matters, we first have to sweep away a lot of mythology and then, when we look, we see that a state capitalist economy that has, particularly since the Second World War, relied very heavily on the state sector, is now returning to reliance on the state sector to manage the collapsing financial system, its collapse being the predictable result of financial liberalization. The underlying institutional structure itself is being modified, but not in fundamental ways.
But if you look at the U.S., even with all the damage Bush has done, it is still the biggest homogeneous economy, with the largest internal market, the strongest and technologically most advanced military force, with annual expenses comparable to the rest of the world combined, and an archipelago of military bases throughout the world. These are sources of continuity even though the neoliberal order is eroding both within the U.S. and Europe and internationally, as there is more and more opposition to it. So there are opportunities for real change, but how far they will go depends on people, what we are willing to undertake.
The simultaneous unfolding of the US presidential campaign and unraveling of the financial markets presents one of those occasions where the political and economic systems starkly reveal their nature.
The immediate origins of the current meltdown lie in the collapse of the housing bubble supervised by Federal Reserve chairman Alan Greenspan, which sustained the struggling economy through the Bush years by debt-based consumer spending along with borrowing from abroad. But the roots are deeper. In part they lie in the triumph of financial liberalisation in the past 30 years – that is, freeing the markets as much as possible from government regulation.
Also predictably, the narrow sectors that reaped enormous profits from liberalisation are calling for massive state intervention to rescue collapsing financial institutions.
Such interventionism is a regular feature of state capitalism, though the scale today is unusual. A study by international economists Winfried Ruigrok and Rob van Tulder 15 years ago found that at least 20 companies in the Fortune 100 would not have survived if they had not been saved by their respective governments, and that many of the rest gained substantially by demanding that governments “socialise their losses,” as in today’s taxpayer-financed bailout. Such government intervention “has been the rule rather than the exception over the past two centuries”, they conclude.
The financial market “underprices risk” and is “systematically inefficient”, as economists John Eatwell and Lance Taylor wrote a decade ago, warning of the extreme dangers of financial liberalisation and reviewing the substantial costs already incurred – and proposing solutions, which have been ignored. One factor is failure to calculate the costs to those who do not participate in transactions. These “externalities” can be huge. Ignoring systemic risk leads to more risk-taking than would take place in an efficient economy, even by the narrowest measures.
The task of financial institutions is to take risks and, if well-managed, to ensure that potential losses to themselves will be covered. The emphasis is on “to themselves”. Under state capitalist rules, it is not their business to consider the cost to others – the “externalities” of decent survival – if their practices lead to financial crisis, as they regularly do.
Financial liberalization has effects well beyond the economy. It has long been understood that it is a powerful weapon against democracy. Free capital movement creates what some have called a “virtual parliament” of investors and lenders, who closely monitor government programs and “vote” against them if they are considered irrational: for the benefit of people, rather than concentrated private power.
Investors and lenders can “vote” by capital flight, attacks on currencies and other devices offered by financial liberalization. That is one reason why the Bretton Woods system established by the United States and Britain after the second World War instituted capital controls and regulated currencies.
John Maynard Keynes, the British negotiator, considered the most important achievement of Bretton Woods to be the establishment of the right of governments to restrict capital movement.
In dramatic contrast, in the neoliberal phase after the breakdown of the Bretton Woods system in the 1970s, the US treasury now regards free capital mobility as a “fundamental right”, unlike such alleged “rights” as those guaranteed by the Universal Declaration of Human Rights: health, education, decent employment, security and other rights that the Reagan and Bush administrations have dismissed as “letters to Santa Claus”, “preposterous”, mere “myths”.
The cost of the global rescue package is, as the frontpage of today’s Telegraph screams, over £2 trillion. Britain has pledged £500 billion to bail out its banks, the EU states have committed £1.16 trillion and America has invested £457 billion in an effort which, commentators are finally beginning to remark upon, will undoubtedly have huge ramifications for political debates on taxation and social spending. Presumably this is equally true of defence spending though there will inevitably be more resistance to this and in an increasingly mutlipolar world the geopolitical ramifications will take a generation to fully play themselves out. If this rescue plan does nothing more than restore neoliberalism for business as usual then a truly grievous crime has been committed here.
Last month saw British industry once again repeat its all-too-frequent demand that the form and content of higher education in the UK be assimilated to the needs of business. The Confederation of British Industry (CBI), in essence the union for bosses, launched a new task force along with the vice-chancellors of Bath and Coventry universities, as well as the principal of Kings College London, that aims to explore “what business wants from higher education, how business and universities can best work together and how the sector should be funded”. At a time of pervasive insecurity throughout the British economy and rampant levels of personal debt amongst students, one of their first suggestions was to call for the lifting of the cap on tuition fees.
The perverse timing of this intervention, as governments and central banks around the world struggle to repair an ailing financial system, demands critical scrutiny. The director of the CBI, Richard Lambert, while recognising that “the role of universities is broader than just business” argues that “as a significant funder, user and customer of higher education, it is only right that business sets out what it needs”. Surely this seems reasonable? It would be were it the case that the CBI merely intended to set out the ‘needs’ of business yet the launch of the task force purposively coincides with the review of higher educational policy by the main three parties and its ambitions extend far beyond simply giving voice to the desires of its members.
As the President and CEO of McDonalds, a member of the CBI’s task force, puts it, “It’s absolutely essential that universities and businesses work effectively together to maximise the benefit this delivers for the UK economy and ensure we remain competitive – the rest of the world certainly isn’t standing still”. The CBI is demanding that universities be made ‘competitive‘, as the harsh realities of the modern global economy are seen to necessitate that universities, not to mention wider society, reorganize themselves to meet the needs of the British economy. And who is best placed to articulate the needs of the UK economy? Well the CBI of course. Obviously business makes an important contribution to the national economy. Given we live in a market-based system, something would be seriously and confusingly amiss were this not the case. Even so, the recognition of this contribution doesn’t entail that what’s good for business is necessarily good for the UK economy.
The recent crisis in Anglo-American capitalism graphically illustrates how the unrestricted and short-termist accumulation of private profit, leading in this case to a largely unprecedented boom time for business (particularly the financial sector) and the super-rich, ultimately comes to erode the social relations that make wealth generation possible. As the economic commentator Will Hutton argues, “without trust and fairness, capitalism risks its own sustainability”. The rampant pursuit of short-term competitive advantage by individual businesses undermines precisely the sort of rational planning and investment that produces the social and intellectual capital that these business rely on for their long-term profitability.
The CBI, as well as private economic interests more generally, shouldn’t have influence over higher-education not simply because it’s wrong and undemocratic, relying on a utterly false conflation of the interests of business with the interests of the UK economy more widely, but also because it simply doesn’t work. The myopic subordination of all other concerns to the short-term demands of the market place undermine the sort of creativity and innovation which the UK needs if it’s to succeed in a global market place which is, as the CBI argues, genuinely competitive. If profitability, efficiency and immediate usefulness to business come to dictate higher educational priorities then everyone will, in the long run, be worse off. If universities are geared towards the needs of business than departments like English, Sociology and History will lose out yet the cultural value of these disciplines extends far beyond anything that can be quantified in narrow financial terms. Universities are not in existence to further the market economy or promote business but to allow the development of thought and knowledge. These goals may often coincide, particularly so in what has been called the UK’s modern ‘information economy’, yet where they do not the integrity of the university is something it is worth fighting to preserve.
I was just listening to David Cameron talk on the PM program on Radio 4 about the necessity of good economic housekeeping in the British government. Against accusations that the Conservatives instituted the lax regulatory regime that led to the current crisis, he claimed a tory history of opposing both personal debt and (crucially) government debt. In linking the two issues and professing a pragmatism that eschews empty promises in favour of prudent preparation for ‘tough times’ ahead, it seems like Cameron is preparing the political ground for large cuts in government expenditure: rather than offering any sort of new alternative, he’s moving towards the sort of neoconservatism (attacking budget defecits as a justification for slashing social spending) that has devestated American society – and, to a lesser extent, UK society during Thatcher’s government – over the last few decades. I’m now curious as to how long his social liberalism will last if he wins the next election, as well as how his foreign policy will evolve. Given his open admiration for the New Labour project, it’s not unreasonable to presume that the tolerance he’s imposed on the tory party – and it is an imposition, tolerated by the core support for the electoral success it promises to bring – is a function of electoral prudence (the Clinton Democrat strategy of triangulation) rather than some genuine conversion from Conservative moral common sense.
There’s an interesting article on the Economist website discussing the ambiguities in the French response to the crisis.
There is nonetheless a common thread in European responses to America’s troubles. It goes like this. We always knew that unbridled free markets were a mistake, yet we were derided for saying this; and now we are all paying the price for your excesses. In the face of popular consternation at capitalist decadence, the activist state is newly in fashion—and Europeans are taking the credit for it.
Yet there are doubts whether this will really alter any country’s policies. A good test is France. Judging by his recent declarations, the centre-right MrSarkozy has taken a decidedly leftward turn. In the space of two days, he twice laid into free-market capitalism. “Laissez-faire is finished,” he declared in Toulon. “The all-powerful market that is always right is finished.”
But does this imply a genuine shift of economic policy? In the past Mr Sarkozy has been labelled l’Américain, but in truth Sarkonomics has always defied classification. In industrial policy, he has a long record of supporting state bail-outs. As finance minister in 2004, he fought off European Commission disapproval to use state money to rescue Alstom, an engineering firm. In campaign speeches in 2007, he declared that “free trade cannot be a dogma” and called for financial capitalism to be “moralised”.
Yet Mr Sarkozy has also gone out of his way to press on the French the need to respond to, not deny, globalisation. He has implored the country that invented the 35-hour week to work more, take more initiative and expect fewer hand-outs from the state. He has exempted overtime work from taxes and social charges. He is tightening welfare rules to cut benefits if the jobless refuse more than two reasonable offers of work. He has strengthened the competition watchdog, and made it easier for discount retailers to set up shop. MrSarkozy was elected because French voters knew, however reluctantly, that they had to adapt to global capitalism.
It underscores the risk that the political elites who’ve presided over this mess will capitalize on the anti-finance sentiment that’s been building over the last month with shallow performances rather than substantive policy shifts. It seems the long-term political outcomes of the crisis depend a lot on whether the depoliticization of economic policy we’ve seen in the capitalist world over the last two decades gives to a renewed normative treatment of economic issues. This is why it’s important to resist any attempt to portray the issue as a merely technical one, that it’s simply a flaw in the regulatory architecture of global financial markets rather than a problem in the rather opaque normative assumptions underlying it. I’m just about to listen to this week’s moral maze which (according to the advert) covers the moralization of the crisis: the emerging moral narrative of greed and self-interest inevitably leading to breakdown and anomie. Given I start my PHD on Monday, on moral understanding and socio-economic life, I’m finding this all rather interesting.
Former House Speaker Newt Gingrich didn’t mince words, either. “You can’t be for capitalism on the way up and socialism on the way down, and you can’t be for a welfare state for the rich,” Mr. Gingrich told me last week. “The entire policy from Fannie Mae to AIG is a disaster. We need to recognize that most of the American economy is healthy, but Washington and Wall Street are sick. The politicians here would like to change America to be more like Washington, but we need to change Washington to be like the rest of America,” he said.
Weirdly enough I think he’s right about all of this, even down to localizing the problem in the financial sector. Seeing Gingrich be so outspoken at the current time has left me wondering how much of a divergence there is between the ‘true’ free-market capitalists who are still consistently making their case and opposing the bailout and the neoliberals who’ll happily proclaim it as a development model for the world while it serves their interests yet call upon unprecedented state intervention when this serves their interests too. They may give notional assent to a belief in free-market but how much can they possibly believe in them?
