Sunday 28 September 2008

The coming new kind of capitalism

Geoff Payne very kindly sent me the attached essay by John Gray, which says that the collapse of the American model of capitalism is as significant an event as the collapse of the Soviet model. We are now heading for a different kind,he said:

I think that’s absolutely right. The question for Liberals is: what kind?

Because it seems to me that we might have a choice before us. We should certainly express a preference before it is too late. The two kinds of capitalism that remain on offer are:

1. The Chinese version: a technocratic and monopolistic clash of barely regulated giants, where monopoly power is allied to the authoritarian power of the state, where dissent from Tescoworld becomes downright dangerous, all underpinned by the power of sovereign wealth funds.

2. The Liberal free trade version: a model with small enterprise at its heart, where monopolies are cut down to size, where people can raise the finance they need to start in business, and where financial services assume their proper place – as the plumbing function of local enterprise, no longer the fearsome, corrosive tail wagging the dog.

It’s miserably ironic that Liberals should have been searching for the past generation or so for something to say about economics – rather than clinging pathetically to ‘sound money’ long after its funeral oration – when, all along, Liberal free trade needed re-articulation.

It’s simple really. It might feel a little rusty to start with, but we Liberals will soon get the hang of it again.

But we’d better do so quickly, because nobody else is going to do it. And we will otherwise sleepwalk into the long night of Chinese-style corporate capitalism.

Friday 26 September 2008

Cameron and the hedge funds

I’ve just listened to Chris Huhne’s slightly intemperate demolition of Chris Grayling on Any Questions. It was good to listen to, and I hope the Lib Dems have grasped that the Conservative vulnerability on the issue of the global financial meltdown is something that needs to be exploited.

But not just exploited. We need to build a philosophy on it which embraces the other issues as well. That’s what you might call a narrative.

David Cameron’s embrace of the hedge funds is a major Achilles Heel. Not just because they have been his funders but because, overwhelmingly, they are his friends. That’s what the Notting Hill Set is all about.

But Liberals are still some way from forging this into the political weapon we need. We have yet to go beyond the ‘bright ideas’ stage of critique of the abuse of the financial markets. Wouldn’t it be good if there was help to prevent home repossessions, or regulations about mortgage lending. Well, yes, it would – but we need a good deal more than that, and we need it quickly. To be absolutely precise, we need three things:

1. A philosophical underpinning which distinguishes between the free market of productive finance and small business, and the greed and abuse of global finance which has ended up threatening and corroding both.

2. A clear set of proposals that goes beyond the dismal, deeply old-fashioned and disabling idea of ‘sound money’ which has deadened Liberal thinking in this country since Keynes. Global finance has become the tail wagging the real economy: it is the precise opposite of sound money.

3. A New Deal that is capable of rescuing us from financial meltdown, but which can make a parallel contribution to tackling the climate and food crunches too, aware that major investment in the green collar economy will also keep its wheels in motion, just as a commitment to tackling monopoly power and rebuilding local economies will keep us all alive.

The key political debate of the 20th century is over. It isn’t public versus private any more, free market versus state control. It is big versus small, and Liberals need to be clear which side they are on – centralisation or life.

Tuesday 23 September 2008

Slaves of some defunct economist

It really is amazing how timid the British authorities are in the face of financial meltdown, despite what Gordon Brown said this afternoon.

The Americans really understand finance – they have a culture and history dominated by financial innovation and banking collapse. The British naively swallow all that stuff about sound money: they really think it’s real – as if anything that cascades round the world at the rate of $3 trillion a day can ever be sound. The authorities watch with fingers crossed as the markets plummet, believing they are watching the free market in action – when actually it is a perversion of the free market, a caricature that corrodes it.

Lloyd George intervened in the banking crisis that preceded the First World War by getting the Treasury to print their own notes. Maybe the Brown government would do the equivalent if they had to, but I wonder.

Keynes had it right when he said that “Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist.” Unfortunately for us, the current batch of practical men now rule the world. They certainly rule the UK.

Monday 22 September 2008

Reclaiming free trade for sanity

For most of my adult life, we have wrestled with a narrow interpretation of the free market which has come to dominate the globe.

That interpretation seems suddenly to have reached the logical limits. There are no investment banks left on Wall Street, many of the great American financial institutions – and some of the British ones – are on the equivalent of welfare hand-outs from the taxpayer (though their chiefs still seem to be drawing their vast salaries). It is time we wrested the idea of open markets and free trade from their clutches so that we don’t lose the baby with the bathwater.

Yet, in this country at least, where are the politicians? The Conservatives are still defending the hedge funds. Labour (as far as one can tell today) is struggling with plans to keep the excesses going. What are these proposed nurseries for two-year-olds but a hidden subsidy for ridiculously high house prices? It is up to the Clegg/Cable show to set out the way forward.

The truth is that this financial services roller coaster must end, and must end because it is corrosive of free markets – it obstructs small business, bypasses enterprise and innovation except of the narrowest kinds, and threatens to undermine a great deal more than ordinary people’s thrifty livelihoods.

This isn't just my peculiar take on it. The Ur-hedge funder George Soros said that he could believe the financial system would crash far easier than he could believe it would struggle on. The Ur-investor Warren Buffett talked years ago about derivatives as “financial weapons of mass destruction”.

No, it’s time for something else: a return to Liberal free trade based on enterprise and sustainable finance for innovation, not a handful of crumbs from a passing ubermensch.

But it takes a long time for politicians to realise the argument is shifting. It isn’t any more – hasn’t been for some years – about free trade versus state control. We all know pretty much where we stand on that, within some margins. It is big versus small. And when our financial system fraudulently assigns to itself the label of free trade – when it actually allows the big to corrode the small – then it needs good deal more changes than Brown and Cameron are planning.

Friday 19 September 2008

Why the FSA hasn't done nearly enough

I suppose the people most to blame for the financial meltdown, apart from those who invented collateralised debt obligations – funny how we don’t know their names – are the credit ratings agencies which were conned into giving them a nod of approval. But what makes me most hot under the collar at the moment is the sheer hypocrisy from the cheerleaders of the financial world.

All those columnists, from the FT to the Evening Standard, now complaining about the rampant greed and risk-taking, were notably silent about while it was going on.

At least the Conservatives are sticking by their convictions, or at least their funders, and defending the hedge funds. Long may they continue to do so – it could be the main differentiator with their opponents.

They also imply that the financial system is fine, were it not for a handful of sharks. In fact it is semi-corrupt, has drawn such power to itself that it can swallow up the resources of all the central banks in the world in about eight hours of normal trading, and bears little relation to useful productive finance. It is corroding the conditions for open markets not enabling them.

Only about five per cent of the $3 trillion a day that roars through the wires has anything to do with real exchange of goods and services; all the rest is speculation. It is speculation that we all collude with, in a sense, in our pensions and investments. But otherwise it lays waste, and where it builds, it serves only to create incredible fortunes for a very few.

This isn’t the way forward for the world, and it is time we worked out what to do about it. We need a new system, and the system will be better if it isn’t created overnight in the eye of the next storm.

Because a four month ban on shorting bank stocks is not nearly enough. The hedge funds will short the next most vulnerable entities out there – the currencies of the nations that are pouring unsustainable billions into propping up the financial markets. They will drive down the pound.

That is why the Asian currency crisis of a decade ago was a dress rehearsal for this moment. An anonymous hedge fund manager called the Australian Treasury minister at the height of the storm and told him he was outnumbered and must submit. The Thai treasury minister phoned the IMF in a panic, and found it was the middle of the night in Washington and he had to talk to the security man. Patients were turfed out of hospital beds at bayonet point when currencies crashed, and their hospitals were made suddenly bankrupt.

Did Gordon Brown act, let alone the Federal Reserve? No, it wasn’t our currencies under attack. But it could be, and one day it will be.

Fast forward a decade. Can you imagine Chinese hedge funds driving down the US dollar? Or the Chinese sovereign fund doing so? I can – and that thought alone guarantees an end to this corrupt system. Let’s make sure it’s sooner rather than later.

Thursday 18 September 2008

That's a quarter of a million fewer votes, then

To my absolute astonishment, I visited the Total Politics stand at the Lib Dem conference, and found this blog was 182nd in the top 500 UK political blogs. This is so peculiar and undeserved, especially since I haven’t posted anything since going on holiday to Sweden, that I’m duty bound to get blogging again.

Especially during this financial crisis, where I actually have something to say, and I will try to post every night.

But before we talk about the end of the financial world, just one word on the current Liberal Revival. Nick Clegg’s speech was delivered with enormous verve and personality. The vote on Make it Happen went the right way (for reasons I’ll explain if anyone complains). One of the energy company speakers in the fringe meeting was handcuffed to the table. All good stuff. But there was one extraordinary blemish, one insane decision by the party, which can’t go by without a rant.

The massively counter-productive decision to use computers to phone a quarter of a million people with the Lib Dem message. A sure way to lose a quarter of a million votes.

There appears to be an inate weakness in the Liberal psyche, which means they get very excited about sophisticated technological solutions just when the vast majority of the population finds them crass, intrusive and more than a little creepy. In fact, the more human the computerised callers sound, the creepier the experience.

Ten years ago, I read an outraged article in the USA by a losing Democrat candidate whose opponent had used computerised push-polling against them. That meant the computerised canvasser phoned under the guise of an unbiased pollster, but actually inserted messages according to the answers they received.

At one point in the interview, the computer asked who the interviewee will be voting for. The candidate was complaining bitterly that his opponent’s computer was programmed, on hearing his name, to reply: “Why are you voting for him, he’s a jerk.”

Being phoned by a computer, in these days where people increasingly long for authenticity – certainly in their own living room – is an experience that gives most of us the heebie-jeebies. Not everyone perhaps, but particularly people with the kind of independent mindset – those with a horror of corporate power – who tend to vote Lib Dem.

Let’s face it, anyone these days who allows themselves to buy anything over the phone from a computer – especially one of them which leaves long pauses while the phone bill clocks up – is a loser. If a computer phones me on behalf of anyone, I shall probably re-think my own vote.