Category Archives: Capitalism
Part 1: economic ramifications, food security and pandemic bonds
Many of the points highlighted in this article are summarised below. It is published in full here.
Alan Simpson opened: “The delusions of neoliberalism stand at the edge of an implosion just waiting to happen. But, as with the emperor’s new clothes, global leaders are too fearful to say that their economic model has been stripped naked”.
The last week has seen that – following the wild weather – coronavirus and tumbling stock markets are ganging up to form an economic “perfect storm.” It will only get worse.
Initially, the industrial world had only a passing interest in the coronavirus outbreak in China: stupid Chinese, eating the wrong stuff it thought — good job that an authoritarian state could turn a city of millions into a quarantine zone.
Then markets began to panic and central banks are having to intervene
But now Italy has followed suit. In a dramatic, middle of the night statement, the Prime Minister announced the quarantining of a whole region of northern Italy, affecting 16 million people around Milan and Venice. Even this may be too late. The ramifications are massive. Start with China.
- Its output accounts for around a quarter of global manufacturing,
- huge quantities of which are currently stored up in containers that cannot get out of Chinese ports.
- accounts for one quarter of global automotive production
- provides 8% of global exports of automotive components for other manufacturers, many of whom rely on just-in-time assembly processes.
- The same applies to steel and plastics, chemicals and high-tech telecoms.
- Tankers arriving now set off before China went into lockdown. The real shortages will start to kick in this month.
The ripple effect of these logjams is running through the entire industrial economy, including a shortage of available containers themselves.
And when goods don’t flow, nor do payments associated with them. First-world firms struggle to work out how to pay bills (and workers) in the same way that China is having to pay workers to stay at home in quarantined areas.
The UK Treasury official who has just advised that agriculture is unimportant to the UK economy could barely have been more mistaken. Real alarm bells should be ringing all around Parliament about the amount of crops that will rot in the ground of waterlogged fields around the land. How are we to feed the public throughout the coronavirus crisis?
Weather related problems, including flood, drought and fire will throw food production systems crisis, with no globalised supply lines to step in as the safety net. But food security is an issue Parliament has barely touched on.
Why are political leaders reluctant to call what we are facing “a pandemic”?
(WHO) definition of a pandemic is relatively clear. It is “an epidemic or actively spreading disease that affects two or more regions worldwide.” This clearly describes today’s geographical spread of the highly contagious novel coronavirus and its significant clusters of cases far from China; principally in Italy and Iran. Countries closer to China, like South Korea, have also experienced an explosion in novel coronavirus infections. And Europe and the US are rapidly catching up.
The World Bank has launched a $12bn fund to help developing nations deal with “the epidemic.” But this is where the politics turns ugly. Behind the scenes, casino spivs stand to lose lots of money if we call this a “pandemic” not an “epidemic.” It all goes back to
In June 2017, the World Bank announced the creation of “specialised bonds” that would fund the previously created Pandemic Emergency Financing Facility (PEFF) in the event of an officially recognised (ie WHO-recognised) pandemic. The high-yield bonds were sold under the premise that those who invested would lose their money if any of six deadly pandemics (including coronavirus) occurred. If a pandemic did not occur before the bonds mature on July 15, 2020, investors would receive what they had originally paid for the bonds along with generous interest and premium payments.
This is why Trump has gone out of his way to pooh-pooh use of the word “pandemic.” If we don’t call it out until after July 15 speculators get paid and it’s the public who then pick up the bills.
The first “pandemic bond” raised $225 million, at an interest rate of around 7%. Payouts are suspended if there is an outbreak of new influenza viruses or coronaviridae (SARS, MERS). The second, riskier bond raised $95 million at an interest rate of more than 11%. This bond keeps investors’ money if there is an outbreak of filovirus, coronavirus, lassa fever, rift valley fever, and/or Crimean Congo haemorrhagic fever. The World Bank also issued $105 million in swap derivatives that work in a similar way.
In 2017, $425 million of these “pandemic bonds” were issued, with sales reportedly 200% oversubscribed. For many, they looked more like “a structured derivative time bomb” — one that could upend financial markets if a pandemic was declared by the WHO.
He adds, “And that’s where we are now. Call it a crisis. Call it an emergency. But whatever you do, don’t use the word “pandemic” because it might kill the market”. Concluding that there is no way to magic this crisis away, he says we must manage our way through it as best we can, adding, “But calling a pandemic a pandemic would at least treat countries and communities as human entities, not just chips in casino capitalism”.
8 March 2020
Today, Times columnist Clare Foges, a former member of Boris Johnson’s mayoral team and then David Cameron’s speech writer, challenges the narrative that Brexit is down, in large part, to a high-handed and callous establishment’s neglect of the “left behind”, deploring the belief that:
”Those in poor northern constituencies and bleak coastal towns were left trailing in the gold-flecked dust thrown up by the golden chariots that bore the wealthy, the Londoners, the elite onwards — throwing back their heads to laugh heartily and pour some more Bolly down their gullets while failing to give a monkey’s about those in their wake”.
Truly, those in poor northern constituencies and bleak coastal towns were and are left trailing – but the elite do not spend time laughing at them – those people are neglected because they are simply of no interest.
She asserts that the deindustrialised towns have suffered because of globalisation or automation, not because those in government sat on their hands.
But the elite constructed, fostered and continue to be enriched by globalisation and automation – the system which impoverishes many is necessary to their lifestyle. Clare admits that “When you know that you are on the lower rungs of a socio-economic ladder that reaches, at its heights, into the realm of millionaires and sports cars and Maldivian holidays, you may well feel resentful. It must be profoundly demoralising to see swathes of your countrymen and women enjoying seemingly easy success while you struggle”.
She also concedes, “Of course there is serious poverty and inequality in our country, but over the past 20 years in particular governments have tried a thousand different policies to reduce them” but fails to mention the ways – under recent Conservative governments – in which people on low incomes and those in poor health have been harassed, ‘sanctioned’ and deprived of their due allowances, in order to make derisory savings. She adds:
“I don’t deny that the Brexit vote may have been driven in part by resentment. Yet here is the crucial point: just because people have felt cruelly neglected by the powers that be, it doesn’t mean that they actually were . . . Let us not mistake a failure to revive left-behind areas with wilful neglect. For the most part the much-traduced “establishment” has been well-meaning and hardworking in pursuit of a fairer country.”
Yes, wilful neglect does imply a degree of awareness – the correct term is indifference; ‘left-behind’ people are simply not on the radar of the affluent, preoccupied by “sports cars and Maldivian holidays”. She ends with more burlesque:
“With a more benign and interventionist establishment at the helm, the taxes of rich people could be spread thickly all over the country with no fear that wealth will flee; billions could be borrowed for major infrastructure projects with no damage to our economy; the streets of Grimsby and Oldham would be paved with gold. By giving this impression, we are inviting people to vote for Jeremy Corbyn and his fantasy economics”.
But would those in government circles – who benefit from corporate sinecures, stock exchange speculation and commodity trading – be willing to change the globalised system for one in which government invests in strengthening the economy through regional production and supply chains? Or will they oppose such changes with all their might, to maintain their current privileges?
For years Stroud District Council has been led by a cooperative alliance of the Labour, Green and Liberal Democrat parties – a ‘rainbow alliance’ (below).
Last May. Gloucestershire County Council’s agenda and minutes post recorded that Cllr Lesley Williams and Cllr Rachel Smith advised that the Labour and Green members had formed a political group called the Labour and Green Cooperative Alliance. They explained that under the arrangement the Labour and Green members would work cooperatively but would continue to look at issues on an individual basis.
Professor John Curtice summarised the electoral maths: almost half the nation voted for broadly progressive parties in 2015 (49% backed Labour, the LibDems, Greens, SNP or Plaid Cymru, while 51% chose the Tories or Ukip). He considers the impact of a coalition with even one ‘minor party’.
Labour MP Clive Lewis and Green MP Caroline Lucas noted that in the 2017 general election more than 40 local alliances were formed, where almost exclusively Greens put the national interest before that of their party.
It had a huge impact on the vote – more than doubling the average swing away from the Tories.
They pointed out the challenges we face:
- markets that are too free
- a state that can be too remote,
- a democracy that still leaves so many voices unheard
- and climate change on a scale our people and our planet simply can’t cope with.
Continuing: “It will take a politics that is social, liberal and green to overcome these challenges. No single party or movement has all the answers. We are going to have to learn to cooperate as well as compete to build the society of which we dream. And we are going to have to recognise that the future is not a two-party system but one in which smaller parties grow – both in influence and in their electoral representation”.
They point out that the millions of young people who voted live in a world of social media in which their identities and allegiances are permanently in flux. They like and they share. They flock to one idea, group or party and then another. A politics that is purposeful but also responsive, open and collaborative is needed.
The case for an alliance between ‘progressive’ parties, has been described by Simon Jenkins (above right) as unanswerable:
“In 2015, 49% of voters went for broadly progressive parties, including Labour, the Lib Dems and nationalists. But at elections they fight each other as rivals. As a result, 40 to 50 seats that might have gone to a single left-wing candidate went Tory.
Then, as now, Westminster tribalism won. Machismo required Labour “to contest every seat in the land”. That is apparently more important than denying the Tories a strong majority – let alone winning elections.
MPs Lewis and Lucas end:
“We are from different parties and different political traditions – and we celebrate that because, while we share so much, we can learn much more from each other. If we work together there is nothing progressives can’t achieve.
“The limits of the old politics are there for everyone to see – the limitlessness of the new we are just starting to explore.
People on the mailing list of this website are drawn from many areas of Britain and visitors come from several countries (opposite: eleven in May), the overwhelming majority from America.
British readers, expats and other well-informed readers are asked to send, via comments, any other examples of an effective co-operative alliance within councils and parliaments.
George Monbiot recently pointed out that the Commons report on the Carillion fiasco is one of the most damning assessments of corporate behaviour parliament has ever published. It trounces the company’s executives and board and laments the weakness of the regulators.
But, as Prem Sikka said in his April article, it scarcely touches the structural causes that make gluttony a perennial feature of corporate life.
Both agree that the problem begins with an issue the report does not once mention: the extreme nature of limited liability. Sikka points out that this system, under which executives are only financially accountable for the value of their investment, has also benefited frauds and led to the self-enrichment of executives at the expense of workers, consumers, creditors, pensioners and citizens.
Monbiot adds that the current model of limited liability allowed the directors and executives of Carillion to rack up a pension deficit of £2.6 billion, leaving the 27,000 members of its schemes to be rescued by the state fund (which is financed by a levy on your pension – if you have one). The owners of the company were permitted to walk away from the £2 billion owed to its suppliers and subcontractors. (Left: the former Carillion chief executive Keith Cochrane in Westminster after appearing before the Commons work and pensions select committee)
Monbiot continues: “There is no way that fossil fuel companies could pay for the climate breakdown they cause. There is no way that car companies could meet the health costs of air pollution. Their business models rely on dumping their costs on other people. Were they not protected by the extreme form of limited liability that prevails today, they would be obliged to switch to clean technologies”.
So what is to be done?
Prem Sikka (right) proposes that the bearers of unlimited risks and liabilities should be given rights to control the day-to-day governance and direction of companies.
He advocates including employees and citizen/consumers on company boards – because both ultimately have to bear the financial, health, social and psychological costs associated with environmental damage, pollution, poor products, industrial accidents, loss of jobs, pensions and savings. Through seats on company boards, they could secure a fairer distribution of income, challenge discrimination, curb asset-stripping and influence investment, training and innovation.
Across the 28 European Union countries (plus Norway), most have a statutory requirement for employee representation on company boards – unlike the UK, Belgium, Bulgaria, Cyprus, Estonia, Italy, Latvia, Malta and Romania.
George Monbiot proposes a radical reassessment of limited liability.
He points out that a recent paper by the US law professor Michael Simkovic proposes that companies should pay a fee for this indemnity, calibrated to the level of risk they impose on society. He adds, significantly, that as numerous leaks show, companies tend to be far more aware of the risks they inflict than either governments or the rest of society. Various estimates put the cost that businesses dump on society at somewhere between 4% and 20% of GDP
His own ‘tentative’ and ingenious proposal is that any manager earning more than a certain amount – say £200,000 – would have half their total remuneration placed in an escrow account, which is controlled not by the company but by an external agency. The deferred half of their income would not become payable until the agency judged that the company had met the targets it set on pension provision, workers’ pay, the treatment of suppliers and contractors and wider social and environmental performance. This judgement should draw on mandatory social and environmental reporting, assessed by independent auditors.
If they miss their targets, the executives would lose part or all of the deferred sum. In other words, they would pay for any disasters they impose on others. To ensure it isn’t captured by corporate interests, the agency would be funded by the income it confiscates.
Monbiot then says “I know that, at best, they address only part of the problem” and asks, “Are these the right solutions?
- support them,
- oppose them
- or suggest better ideas.
He ends: “Should corporations in their current form exist at all? Is capitalism compatible with life on earth?”