Chinese Check Us

For a while now it has been obvious that China is the dominant global power, and that it has accumulated, by a combination of skilful strategem and sheer hard work, the power to pull the plug on the US economy at any moment. It is almost exactly a year since Hilary Clinton's humiliating visit to Washington, when she almost begged the Chinese not to do this. When we hear that China is now offering to also buy the Greek debt – for which we might read by the Greek economy, given the way things stand in that country just now – it raises intriguing questions about why China became a 'state capitalist' country in the first place.

The use of that phrase implies that China is following the rules of the same economic game, perhaps with different motives. It is clear that China has understood the money-work nexus that lies at the heart of the capitalist game but there seems no reason to assume that they have any respect for the game itself. They have responded to its rules by keeping a rigid control over their own currency (a fact much bemoaned in Washington and the pages of The Economist alike), and working extraordinarily hard to displace the need for most of the other labour in the global marketplace.

Meanwhile the the shift in the designation of the Chinese currency away from the yuan (as it was traditionally called) to the renminbi (or people's currency) implies a shift from a domestic to a global currency. In much the same way that China accumulated pieces of eight that the Spanish had minted in their new world colonies, it is now accumulating hoards of US paper. Although the renminbi is surely the most powerful currency in the world today, it is not held as reserves by foreign governments. So long as China is prepared to buy US debt and use it as a trading currency then the dollar is secure. Once it decides its economy can grow on the basis of domestic consumption alone it could easily just walk away, leaving the dollar to crash.

In conclusion we can see that China is winning the work game and is also winning the money game. So far China has used this power to gain access to the world's rapidly diminishing resources, especially by striking deals in Africa that are far more favourable than those that Western nations have offered. Compared to our primitive and short-term economic thinking, the Chinese appear to be demonstrating a master play: as they have adopted our industrial methods and excelled us in their use, so they are playing the economic game we invented better than we are.

On a more conspiratorial note, what are we to make of the inscrutable Mr Li who, according to John Lanchester's book Whoops! was instrumental in creating the algorithm that lies behind explosion of collateralised debt obligations that led US traders to destroy the global financial system:

'Li had been sent to North America on a government scholarship in the late 1990s to learn about capitalism. . . In 2000, while working at J.P.Morgan, Li managed to apply a piece of mathematics called a Gaussian copula function to the creation of CDOs' (p. 97) His paper, published in the Journal of Fixed Income, was attractively titled 'On Default Correlation: A Copula Function Approach'. It offered a way to model how different types of stocks move up or down in value together. This enabled the financiers to reduce the risks associated with mortgage-backed CDOs to a single number and the trade took off.

To imagine Mr Li on a mission for the Chinese government is too appealing to be true, but one way or the other it seems that the 'state capitalist' power has out-manoeuvred the 'market capitalist' power and we are all just waiting to see when they will assert their authority. Tweet

Gwlad Golff

I consider myself a Welsh patriot. I have been watching Wales play rugby since I was 7 or 8, I once used the word hiraeth in an academic paper, and I would live in Wales now if it were not for the fact that the more rampant nationalists made me feel that I had to apologise every morning for my English father. I am beginning like this lest you think that what follows is an example of the tired English chauvinism towards the Welsh that has offended me all my life.

On this day when the world's attention leaves Newport for another 400 years or so I have to ask: what is Wales doing hosting the Ryder Cup? Golf is not a sport: it is a statement of corporate intent. Golf is a game indulged in by men in suits who rarely have another opportunity to walk on grass. That it attracts spectators is as inconceivable to me as that there are hordes of crowds at the world paint-drying championships.

Thomas Friedman, author of the best-selling tribute to globalisation The World is Flat lists his ability to play golf in Bangalore as a demonstration of the equalising power of corporate capitalism. Here is how he starts that world-beating book:

'No one ever gave me directions like this on a golf course before: "Aim at either Microsoft or IBM". I was standing on the first tee at the KGA Gold Club in downtown Bangalore, in southern India, when my playing partner pointed at two shiny glass-and-steel buildings off in the distance, just behind the first green. The Goldman Sachs building wasn’t done yet; otherwise he could have pointed that out as well and made it a threesome. HP and Texas Instruments had their offices on the back nine, along the tenth hole.'

You do not need to be very much in touch with your local environment to realise that a game devised in windy, rainy Scotland does not transplant well to Bangalore, and consequently the water demand associated with golf's tracking of the movements of corporate executives has disastrous environmental consequences. In Dubai, apparently, they play golf on sand instead.

The word on the street is that ticket sales for the Ryder Cup at Celtic Manor were poor – even before nature decided to take a hand and send two of the rainiest days we have seen for months. (And before you amuse yourselves at the expense of the Welsh weather, just pause to think how long it will be before you will be grateful for – and paying for – the liquid stuff we have in such abundance.) I am genuinely not pleased about this, in spite of my squirming amusement at the desperate attempts to market Newport as a world city of culture and the hideous waste of resources spent prostituting ourselves to the global executive class.

What has always distressed me most about Wales is it inferiority complex. We have one of the most naturally beautiful countries in the world, with all the resources necessary to thrive in a bioregional future. Energy resources abound, population is sparse and the soil rich. And what about the likes of Dylan Thomas and Tom Jones: laughter, music and a depth of talent in poetry and spirituality could ensure a deeply fulfilling life. If only the Welsh economic planners would stop trailing along after the US management consultant's last-but-one bright idea. Tweet

Irish Tribe Buck the Markets

It seems that finally, a developed country has reached the point of saying ‘enough is enough’. Enough of transferring bank losses onto public balance sheets and destroying the public services that a civilised society requires. Enough of allowing the financial sector to create fictitious wealth at our expense. That country is Ireland and the outburst of discontent with the hegemony of the financial markets is emerging from the main opposition party Fine Gael.

Fine Gael Spokesperson on Enterprise, Trade & Employment, Leo Varadkar TD argues the banks took on the risky loans so it should be the shareholders who take the consequences, not the taxpayer. Under the party's so-called Good Bank policy, the National Assets Management Agency 'will pay the banks up to €54 billion for €77 billion of property loans. If the losses on these loans turn out to be very large, as many experts predict, our proposals could save the taxpayer up to €15 billion.' Given the much greater size of the UK banking sector, if we had adopted a similar policy it could have reduced the money paid to banks by a sum similar to this year's public sector borrowing requirement.

Refusing to respond to the shotgun demands of the banks that they receive their next fix of capital at the public expense is a bold but inevitable strategy in a country whose public borrowing is now ten times the size it is permitted by Eurozone rules and which has been on the verge of banktruptcy for at least a year. So much for bank debt, but what of the state? When the governments of Latin America got their people into excessive debt in the 1980s eventually they reached a point of refusal. The result was that the debts were ‘rescheduled’—either extended over a longer term or reduced so that credits got a proportion of their original loans back. Similarly, following Argentina's financial collapse in 2001, a solution was eventually negotiated where creditors received only 70% of their original loans.

In the case of Irish national debt, Fine Gael has been very careful to make the distinction between the debts of banks that are based in Ireland, and therefore backed up by the Irish government, and the debt that the government itself has taken on in the name of the Irish people to pay for its services. This was predictable, since Varadkar knows that the government will be turning to the market to sell more debt and its credibility must be maintained.

The UK government has taken a different tack through its Quantitative Easing policy. This has enabled it to wipe out chunks of our national debt on the sly. Money is created from thin air inside the bank of England and then used to buy bank national debt from the financial organisations who hold it. My assumption is that, since all such debt is time limited, it will quietly decay inside the bank's 'vaults' until it reaches its sell-by debt and goes to 'bank heaven' or perhaps--to keep my metaphor consistent--the rotten-money skip round the outside the back door of the bank. The banks are happy, since they now have 'real' capital that they can use to fill the black hole on their balance-sheets; the government is happy because its debt-to-GDP ratio looks more respectable than otherwise. We should be happy since this is less debt for our children to pay back.

Two questions remain: why are we not negotiating with our banks and their shareholders over how much of their fictitious wealth we agree to take responsibility for; and why should we not use the Quantitative Easing policy more creatively instead of seeing our public services decimated? Tweet

Time to Relaunch the Love Crusade

If you caught Lovely Ed's acceptance speech you will notice that he isn't afraid to use the word 'love'. We greens were onto this way ahead of you, Ed, having launched our own political love crusade some 20 years ago now. The reason why this works so well for us is illustrated by a two-dimensional graph of where the UK parties stand that you can find on the political compass website.

Of course we greens prefer to inhabit multi-dimensional space and live in a constant awareness of the whole system (man), but even two dimensions is better than one, and when we first discussed this in the regional council strategy group some 20 years ago we thought of the east-west axis as being about justice and the north-south axis as being about love vs. fear.

If you see it this way you reach some interesting conclusions. First, it doesn't appear to be possible to be loving and not concerned about social justice - hence the empty space in the lower right quadrant. But perhaps more importantly, we concluded, the way to gain more members for our party was to love them into submission. We need to bring them down across the horizontal line with an excess of free-flowing affection.

At that point, as I recall, Labour found itself well into the upper left quadrant, but I suppose that by now most of the members that kept them there have already left and joined us, or one of the other parties that is in the upper left quadrant. The love crusade was not a great success, but as a political strategy it was more fun than marching for jobs or fighting cuts. Perhaps we should revitalise it before Ed becomes the housewife's choice and takes up all the love space himself. I can't see that message going down well with the unionists who put him into power, but it could be fun to watch. Tweet

It Depends What You Mean by Depends

Thanks to the Green-Left list, my post on the motion to conference called Living within our Means has attracted more comments than any other. The point of the motion was to stimulate a debate about the relationship between green economics and a policy response to the public-spending cuts so this seems to have been achieved. Those with stomach for more may enjoy reading the longer version of my reasons for proposing the motion, which were published in Green World.

An interesting question raised by some of the comments is whether the Green Party should identify itself as being of the left, and whether it should identify itself as a socialist party. I'm sorry to say that any response to this question leads me to ask what people mean by identifying themselves as socialists.

I am sure there are highly technical answers to this question that inhabitants of the Ukraine more than 30 years old probably know clearly, but which are a mystery to me as the beneficiary of a capitalist education during the Cold War. Being of a similar vintage I can remember in my student days the heated debates in the Labour Club about whether the Labour Party should abandon Clause IV, which dealt with the ownership of the means of production. That seems to me key to being a socialist party, and since it has gone, I fail to see how Labour can claim to be one.

My own sympathies lie with the guild socialists, who lost out in the struggle for power within British 'socialism'. Their vision of self-reliant communities where craftspeople were organised into co-operatives which sold the goods they produced without anybody extracting value seems close to the green vision of a sustainable and just economy. We might argue about which sectors of our national economy are sufficiently important as to need to be democratically managed outside the market - health is obvious agreed by consensus, but what about housing? energy? water? - but beginning with local and co-operative ownership seems closer to the green way than nationalisation.

More generally, my belief is that the struggle between capital and labour that characterised the 19th and early 20th centuries has been superseded. The most important form of emancipation we can undertake today is from what Bob Marley called 'mental slavery', in this case the mental slavery of accepting the capitalist definition of ourselves as 'wage slaves'. We should not march for the right to work or fight for full employment; rather we should understand and challenge the system of money creation and resource ownership that leaves us in the weak position to begin with. Tweet

Systemic Failures too Great to Face?

I've been reading John Lanchester's book Whoops! about the financial crisis and finding it entertaining but somehow disappointing. It seems to offer evidence that, as T. S. Eliot would have it, 'human kind> Cannot bear very much reality', and when we cannot bear any more we go into denial.

I have to congratulate Mr Lanchester on fighting his way through the verbiage of abbreviations that hedge around the illicit and immoral activity of the City, but where we part company is at the point where he tells us that credit is essentially good for you, that debt works. Perhaps I should not have been surprised, since the book begins with stories of the young Lanchester and his father, who was not only a banker, but a banker based in Hong Kong.

The extended analogies explaining CDOs or securitization in terms of your mortgage or your neighbour's loft conversion are perhaps necessary, but essentially misleading. As Lanchester makes clear, government debt works more like personal debt than like corporate debt, which means we have to work hard to pay back both, whereas bankers and investors do not. But he does not question this. Eventually he admits that 'In practice, the personal-finance example breaks down here, because you can't lend money to yourself and create credit in quite this way. But large financial institutions can and do.)'

This is just one example of the way in which the book is explanatory but not critical. The author makes no attempt to explore how financing public spending through private finance necessarily advantages those who control capital. Nor does he have any inkling of the environmental problems that debt-based finance causes. In Lanchester's world, the economy would be marked by a steadily rising growth trend and managed by decent men in tweed jackets, not unlike his father perhaps.

But this is to miss the point that the growth of a capitalist economy is self-reinforcing, so that busts are inevitable. And it is to entirely overlook the fact that a limited planet makes it imperative to find a way of creating money that does not rely on such exponential economic growth.

The members of the establishment must have had their faith severely shaken by the financial crisis, when those who manage the messy world of finance on their behalf so riotously messed up. This is enough reality for one decade; to consider that the system of which they are the pillars might be inherently messed up would be too much reality to bear. Tweet

Transition Barter Habit Spreads up the Severn

A guest post from Simon Topping of Transition Gloucester.

Transition Gloucester recently held its first barter market, except we called it a “barter party” to make it feel more informal and experimental in case everything went horribly wrong! In fact the event went extremely well and has encouraged us to think how we might develop the idea in the future.

There were ten stalls at the market, held at Hucclecote Community Centre. Stallholders were asked to bring goods or services for their stall, roughly equivalent to ten pounds sterling. At the start of the market each stallholder was given ten “glevums”* with which to trade. They were told that they should try to return ten glevums at the end of the market which was to last for 45 minutes. They were also told that if they returned less than ten glevums then they had probably taken more than their fair share of goods and services on offer. If they returned more than ten glevums then they would have taken less than their fair share.

There was a rich mixture of goods and services on offer: homegrown fruit and vegetables, homemade wine, cakes and bread, mint tea and dried herbs, a selection of “service vouchers”, books, vintage records, low energy electric light bulbs and much more.

By the time the market was closed the majority of traders had exchanged most of what they had brought. Also, most traders ended up with roughly ten glevums, some with a few more, some with a few less. The deadline for the closing of the market encouraged those with too many glevums to make sure they bought something with them because, once the market was closed, the glevums would have no value.

We sat around with drinks after the market to talk about how it went. There were many positives, but also some questions:

Most traders were very pleased with the rich mix of goods they ended up with. We brought a pile of oinions to our stall and went away with a range of other vegetables, two books, a bag of mint tea and a low energy light bulb.

People also appreciated the direct link (in most cases) between the trader and what they were selling. The trader was usually also the producer (even with the books). There was a sense of connectedness in the whole process of producing, trading and, ultimately, consuming.

There was also a feeling that the trading was a social activity, as well as an economic activity – conversations naturally broke out over how goods had been grown or made and how best to use or eat or preserve what had been traded. This social interaction gave added value to what had been traded.

One very practical issue was how you could act as both buyer and seller at the same time. It was hard move around the stalls to see what was on offer and also be available at your own stall to sell your own goods. Maybe each stall should have both a buyer and a seller.

Some items were in high demand - two bottles of home made wine to be precise! How does the seller decide who to sell the wine to? Should s/he sell it to the person who gets there first – this might favour the fastest movers! Should s/he increase the price of the wine until somebody decides to drop out of the auction? And if the original price of the wine is increased then should the trader remove other items from their stall so that the total value of the goods they are selling is still the same as all the other traders? If not, that trader will have more glevums to spend than everybody else. Or should the wine seller keep the same price but just decide who needs it most!

The sort of conundrums which the barter market produced helped us unmask some of the hidden dynamics of markets, in particular how we measure value. The group who particpated in our experiment in bartering felt very positive about the event and we hope to run a further market in the coming months.

*The Roman name for Gloucester Tweet