The great social paradigms are dead, long live the next ones (whatever they are)

16 02 2010

Are we witnessing a paradigm change? I suspect not. Remember Kuhn’s assertion that a paradigm does not truly collapse until another is ready to take its place. China does provide an alternative, apparently successful, model, but it is difficult to see it succeeding in many other countries.The free market will accommodate its lessons and find a way to survive. The Chinese model will continue for some time too. I don’t see business’s Copernicus. Kuhn was probably right: lessons from the history of science are hard to apply elsewhere.

Michael Skapinker’s article, from which the above quote comes, asks whether the creation of paradigms, that is of unifying if transitional theories, which are vital to scientific development, is applicable to social and economic questions. His answer is probably not as these ‘these other areas are more fragmented’.

I would argue the opposite. The creation of  paradigms in politics and economics is vital to progress. Humans do not live by bread alone. We require an overarching view of the world within which to locate our own feeble individual efforts. This role has been played throughout human history by various religions. In more modern times it has taken the form of economo/political movements like the bourgeois individualism of nascent capitalism and the reaction against this in the form of  both romantic conservatism and the communism of Marx and Engels.

While it is true that these paradigms never became universally accepted in all sections of society at all times they nevertheless played a key role in creating a world view within which adherents could comfortably operate. Crucially they also  allowed those who believed in the paradigm to take action and make things happen which required very tough decisions and were often to the detriment of other human beings. The driving of peasants from the land in the various forms of land enclosure is one example of this. These were acts which caused enormous hardship to many, but as Marx recognised  

They conquered the field for capitalistic agriculture, made the soil part and parcel of capital, and created for the town industries the necessary supply of a “free” and outlawed proletariat

The point here is not whether these things are right or wrong, but that without the firm belief in capitalism and the market of those who perpetrated the enclosures they would not have happened.

Skapinker acknowledges that we are a bit short on political or economic paradigms today. The ‘free market’ of  Thatcher and Reagan appears discredited. Communism is extinct.Skapinker  dismisses China as a possibility, although there are those in the west,as we have noted here, who seem to aspire to a Chinese model of political concensus and more centralised state control.  How is it that we seem to have reached this paradigm free state?

The answer lies in understanding how paradigms are created. In historical terms they are the product of historical developments. The paradigm of bourgeois individualism was the product of the development of the free market and an assault on the privileges of the landed aristocracy. Social change became embodied in the person of the new middle classes. The paradigm of communism was the product of the development of the working class, free of the means of production and therefore with no stake in the existing paradigm.

Today there is no rising historical force which can embody a new paradigm. In that respect history appears to be exhausted. The paradox of this development is that in the absence of a paradigm with historical force it appears to be impossible even to imagine that one could exist. We are suffering from a failure of historical imagination about the possibilities of social change because human history has reached an impasse. That is why politics everywhere is in disarray and confusion. It is also why throwbacks like islamic fundamentalism or the religious right in the US can appeal to people who need some kind of world view to give their lives meaning.

Perhaps the only comfort here is that history, like nature, abhors a vacuum. Our individual life spans are short but seem to encompass eternity. In historical terms the period since the collapse of communism and the discrediting of its only apparent alternative is very brief. It would be a mistake to think that we have reached the end of paradigms. As with science, it is just when we think that we know everything that something new comes along to reveal a new and higher truth.

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Our fight is not with the Chinese, but amongst ourselves

4 02 2010

 “Since the crisis, developing countries have lost interest in the old Washington consensus that promoted democracy and liberal economics. Wherever I go in the world, governments and business leaders talk about the new Beijing consensus — the Chinese route to prosperity and power. The West must come up with a new model of capitalism that’s consistent with our political values. Either we reinvent ourselves or we will lose.” Times

The recession may be over, and I stress the ‘may’, but the deep damage done to the confidence of western leaders remains. Anatole Kaletsky’s article in today’s Times, written as a review of the mood at Davos last week, reveals how deep the loss of confidence is. Let us review what forms the damage has taken.

Firstly, the recession has accelerated the economic balance towards China and the east. Secondly, it has destroyed the Reagan/Thatcher rhetorical commitment to free markets which underpinned most western economies. Thirdly it has revealed the ideological bankruptcy of western political parties. Kaletsky is right to point out that the failure of the meetings at Davos, and we could add of all of the global summits since the recession started, to address these issues is symptomatic of the crisis itself. There has been a studied refusal to properly debate the recession and its consequences. The western ruling elite has spent its time in the modern equivalent of a bar room brawl rather than addressing the main issues.

Kaletsky’s proposed solution is that western capitalism should reinvent itself. His suggested routes for doing this are themselves a symptom of the limited imagination that exists within the western elite. In fact, while appearing to want to challenge the Chinese model, Kaletsky’s solutions look suspiciously as if he wants to get as close to it as possible.

Do Western political systems need to be reformed to make them more conducive to compromise and rapid, consensual decision- making instead of the political paralysis that now threatens the US? Do we need an economy in which government plays a bigger role in finance, energy, environment and strategic infrastructure investment, but actually reduces public spending and taxes by backing away from some of its traditional, and ruinously expensive, responsibilities for health, pensions and education?

A political system which is based on consensus is what the Chinese Communist party enjoys. It is the antithesis of openly contested democracy. The ‘political paralysis’ which infects western governments is a product of the lack of any coherent political programme for change which can force its way on to the political agenda and persuade the majority in a democracy to support it. It is not more compromise that is needed, but more contestation.

It is not at all clear what western societies need to do in order to continue to make general progress. At present it seems as if the market is the only route. It may be, as Kaletsky suggests, that the state needs to play a more central role in developing the economy. But if this is the case there is even more need for a vigorous democracy to exist which can challenge and guide the state. At the very least we need an open public debate about the role of the state. It is not the form of politics which needs to be changed, but the content. Giving the state more powers without strengthening democratic control over it takes us closer again to the Chinese model.

Even Kaletsky’s final summation of the ‘choice’ facing us is wrongly framed. What we are trying to win against the Chinese is not continued global dominance by the west over the east. If it were only that why we would care? Capitalism is firmly entrenched in China and there is no threat to the market. If the stakes were only about which capitalist country comes out on top then most of us probably would not care very much. What is at stake is the future of democracy.

The experiment in democratic politics, which began with the Greeks and was taken up much later mainly in the west, is now weaker and feebler than at any time in the past sixty years. We do have a fight on our hands, but it is not with the Chinese. It is with our own narrow perceptions of what is possible. We suffer from a failure of political imagination and a climate of low expectations which infect every area of life. Any challenge to the status quo has to begin by taking on the pessimistic, risk obsessed cultures of the west.





After the recession-winners and losers

1 10 2009

ADR1SLKCAA3BDO3CAMR91MACAMICXACCAOCEYP1CAI1LJ91CA1T3JB8CACGBU4ECAW3UOYUCA4MN4QRCAFGIPYCCA5TT2W7CARIKEBXCABLGWTJCAR6GX1ICAU81D48CA175TUFCALF0KX9CAQRNIRKCAN99ILOEvery economic crisis creates its own winners and losers. At the level of any domestic economy a recession is often the last straw for an outmoded business, sometimes even whole industries can be swept away. This recession looks as if it might deal a grievous blow to the printed newspaper business as advertising revenue has dwindled. In the UK online advertising spend has overtaken tv advertising for the first time. The main benficiary in each of these cases case has been the digital industry and so the recession acts as a midwife to change. Such developments as these are seldom reversed.

It is important to remember that recessions only speed up developments which are already under way. We are only at the beginning of the process of change hastened by this recession. In fact, many of the actions taken by western governments have been attempts to prevent change, the propping up of the US car industry by the Obama regime being one example. It is also possible that western governments saving banks from bankruptcy may turn out to be a mistake in the longer term. As the IMF has pointed out, the empty hole at the centre of the financial system created by toxic debt has been painted over, not filled in. Trouble has been stored up for the future.

At a global level we can now also see how the recession has revealed a changing balance of power. The credit crunch has laid bare the dependence of the US economy on finance from China and other nations. It has also shown how undynamic most western economies currently are compared with these emerging nations. The emergence of the G20 as a body of international governance is an expression of these changes.

The UK is now in danger of being left behind. It appears increasingly marginalised from both its Atlantic and European allies. There is a measure of incompetence in the way foreign policy relations have been handled, for example over the Lockerbie affair which has annoyed the US. But the UK’s problems are based in the relative decline of its economy. It is  overdependent on the financial sector and an absence of any Plan B now that this source of growth has been threatened has created a biq question mark over its future. The movement of the headquarters of HSBC from London to Hong Kong may well be a straw in the wind, expressing both a shift  away from the UK as a leading financial centre and towards China and the east as its replacement.

The announcement of a new Franco German pact is a sign that the UK is seen as outside the mainstream of European developments. The UK faces a public spending deficit which threatens its  ability to stay at the top table internationally. Already Trident is being questioned and the UK’s willingness and ability to participate as a US ally in foreign wars is also being potentially undermined.

Does the UK’s relative decline matter? If other parts of the world are becoming more economically dynamic does it matter if this one part of it is in decline? Obviously it matters to us as citizens of this country if our living standards are to deteriorate. But I think there is also a greater issue at stake. Currently the most dynamic economies in the world are the least democratic. Perhaps this will change, perhaps it will not. Here in the UK we should recognise that the survival of democracy and its extension depend upon continued economic progress. A declining and stagnant economy tends to foster a declining and stagnant democracy.





Finding water on the Moon, an inspiration to us all

24 09 2009

moon1Readers of this blog will know that I have a deep interest in space travel. (Although I am not terribly good in aeroplanes so I cannot imagine I will be first in line for a moon trip). So it was exciting to read this morning that an Indian space probe appears to have discovered water on the Moon.

NASA has plans to build a permanent manned colony on the Moon within twenty years, although the Obama regime has been pouring cold water on these plans as the country’s economic crisis has deteriorated. If the plans were to go ahead then the presence of water would make a huge amount of difference to the viability of a permanent presence there. As today’s report indicated, availability of water would not only provide drinking water and enable crop irrigation but also permit the extraction of oxygen for breathing and hydrogen as an energy source.

A second reason for being excited about this discovery, if it is verified, is that it was made by an Indian lunar mission, its first in fact. As an emerging nation India has jumped ahead in the exploration stakes, not only of the US but also its main emerging rival, China. How inspiring it must be for the Indian people to know they are responsible for this discovery.

It is the inspirational aspect of space travel which is probably the most important aspect of it. As John F Kennedy understood, space travel has many potential economic benefits and acts as a huge boost to innovation, but its capacity to uplift and inspire stands above all of that. For an emerging country like India this success will encourage developments in other areas of life. It gives everybody a lift.

It may also be a harbinger for the 21st century in other ways. The inclusion of China and India in the G20 intergovernmental talks this weekend, and the raised status of this grouping, show how quickly emerging nations have become central to the governance of the world. The emerging rivalry between India and China, added to the international cooperation which the space programme demands, could give space exploration the edge which the rivalry between the US and the Soviet Union did in the last century. That rivalry pushed technology to its limits and landed men on the Moon. Perhaps this time we will cast our net far deeper into space.





Will the UK retain its global financial role and withstand the threat from China?

22 07 2009
  
imagesThe Government remains confident in the UK’s position as a major international financial centre over the medium- to long-term 
 
 
 

 

This statement of belief is contained within the document Reforming Financial Markets which outlines the government’s response to the financial crisis. It is clear from this and elsewhere that whatever desire there may be to rebalance the UK economy towards ‘more engineering and less financial engineering’ in Mandelson’s words, there is still a widespread hope that the financial services sector can get its dynamism back.

It is easy to see why the government hopes that this will be the case. The financial services sector contributed directly to the boom of the past ten years through the growth of jobs in that sector and the prosperity it brought , particularly to London and the south east. It also paid a large part in financing the growth of public spending during that time. The decline of financial services is now contributing to the decline in tax income and adding pressure to the crisis in funding the public sector.

Creating an alternative dynamo for the UK economy outside financial services would require a level of effort from the ruling elite in the UK which seems way beyond its current capacity. Better to cross their fingers and hope for business as usual.

Financial services in the UK have a lot going for them and there is a strong historical incumbency factor which works where markets are concerned. However there are two main reasons to question the continued dependence of the UK on finance. The first is whether the financial services market in the west can recover full stop. There are still strong reasons to believe that the global financial crisis is far from over.

The second relates to the aspirations of China. As Martin Wolf has pointed out, China is historically unique as a developing world power in that it is simultaneously the world’s most dynamic growing manufacturing power as well as the fastest growing exporter of capital. It is this combination which has created the global imbalances which lie at the heart of the current crisis.

China has now set itself the task of turning Shanghai into the leading global financial centre by 2020. As the article cited makes clear, there are still major obstacles in the way of doing this. However, one has to be very optimistic to hope that the future dynamism of the UK economy depends upon outperforming the Chinese in this area.

 
 
 




After the recession, a New World Order?

27 04 2009
<I>Fixing Global Finance: How to Curb Financial Crises in the 21st Century </> by Martin Wolf

Fixing Global Finance: How to Curb Financial Crises in the 21st Century, by Martin Wolf

BOOK REVIEW
Fixing Global Finance: How to Curb Financial Crises in the 21st Century, by Martin Wolf (published by Yale University Press)

Following the ‘credit crunch’ and now the full-blown recession, the big story of the twenty-first century is likely to be the shift in the balance of power between the indebted West and the credited East.  There are some writers on the economy who seem to understand better than others that politics should be seen as concentrated economics. Martin Wolf, associate editor of the Financial Times, is one such writer.

His FT column is a must-read for anyone who wants to understand what is happening in the current economic crisis. His latest book is about the problems of the world financial system and the events that led up to the current debacle. In it, Wolf explains both the underlying causes of the recession while also exposing the complex and potentially dangerous political consequences that have arisen as a result.

The central point in the book is that China is now playing a role in the world economy that no country has ever done before. China is ‘both the largest exporter of capital (as the United Kingdom was in the late nineteenth century) and the fastest growing emerging giant (the role played by the United States at that time)’.

China, along with other dynamic exporting nations, such as Japan, built up massive external surpluses of money in the period after 1997. The surpluses were based on the export of manufactured goods to mainly Western countries. By 2006, says Wolf, ‘The total Asian surplus was $511billion ($239billion for China, $170billion for Japan, and $102billion for the rest of Asia). The surplus of the oil exporters was another $396billion… But the US deficit was $857billion.’

So the US deficit was the equivalent of the total surplus of Asia and the oil-exporting countries. As a result, ‘The United States has in turn, been absorbing about 70 per cent of the surplus savings in the rest of the world, with the difference accounted for, not by increased investments, but by higher consumption and a lower rate of savings.’

Wolf is highly critical of the US for consuming rather than investing the massive amounts of imported capital, which ended up inflating the housing bubble and presaged the credit crunch. He sees the problem as one of underconsumption within China and other developing countries. He attributes the running up of huge external surpluses by China and others as a policy response to the Asian crisis of 1997/1998 when currencies collapsed and there were devastating consequences for the economies of some East Asian countries. He argues that ‘The lesson learned by many emerging economies – both those directly affected by the crises and those who have been onlookers – is not to tolerate current account deficits’.

So he sees the growth of external surpluses as a policy decision by developing countries. Others have argued that it is not as straightforward as that (1). China in particular would struggle to reinvest its huge surpluses internally because of the general underdevelopment of huge parts of the country (although its huge internal fiscal stimulus this year is trying to address that problem).

Wolf discusses why China and others have put huge sums of money into the US when the rate of return is so low. Given the problems China has in developing its own economy, the question really should be: what was the alternative, other than keeping the money under the bed? The nightmare scenario now for the Chinese is that the US inflates its way out of its debt, thus reducing the value of Chinese capital in the US.

So while we can understand from the Chinese point of view how we have got to where we are, from the US point of view the problem is completely different. The US and other Western countries, like the UK, have run up massive debts because, as Wolf points out ‘The high income countries have become importers of savings since their savings rates have fallen below their investment rates’.

Quite simply, we in the US and the UK have taken the savings from developing countries and consumed them, leaving ourselves in massive debt. The key question that comes out of this is how this imbalance in the world economy can be righted. As Wolf says: ‘A large-scale flow of capital from poor countries to the world’s richest nations is perverse.’

One consequence of the recession is that the international flow of capital has collapsed. It seems unlikely that, once the recession is over, the flows of capital from East to West will return in the same way. A rebalancing of some sort will have to take place. The West is unlikely to be able to resume its consumption of the savings glut from the rest of the world, certainly to the extent that it has in recent years. Western countries will have to find other ways to finance growth and consumption while we can assume that developing countries will shift their surpluses more towards the development of internal markets.

The rebalancing of the world’s economies will also, of necessity, affect the way the world is managed politically. Currently all of the world’s financial and political global institutions reflect the relative economic weight of countries 40 or 50 years ago. This will have to change. This is where it becomes politically challenging. As Roger Alton has pointed out:

‘The financial and economic crash of 2008, the worst in over 75 years, is a major geopolitical setback for the United States and Europe. Over the medium term, Washington and European governments will have neither the resources nor the economic credibility to play the role in global affairs that they otherwise would have played. These weaknesses will eventually be repaired, but in the interim, they will accelerate trends that are shifting the world’s centre of gravity away from the United States.’ (2)

As a result, some countries will lose power and influence and others will gain. Whether and how this can be managed is going to be the story of the first part of the twenty-first. Managing this shift in the middle of a recession is a huge political task, to which Wolf offers no solution except to argue for a restructuring of the International Monetary Fund. Nevertheless, he has written a fine account of the economic issues underlying the political problems facing the world today.

This book review was published by www.spiked-online.com on 23 April 2009

(1) See Darling, it’s all about the global imbalances, by Stuart Simpson.

(2) The Great Crash, 2008: A Geopolitical Setback for the West, Foreign Affairs, January/February 2009





What’s wrong with a Green New Deal? (Part 1)

17 04 2009

The Conservatives have unveiled their plans for a Green New Deal for the UK (although they do not call it that).  It is fast becoming an item of common sense, from Obama downwards, that the twin problems of recession and global warming can be tackled by investing in green technology, thereby killing two birds with one stone.

This may on the surface seem an eminently sensible suggestion. There is a problem in that the climate change agenda is so politicised it is almost impossible to work out from the outside what the real facts are. But let us assume for the moment that climate change needs to be addressed.

The first problem with the Green New Deal (GND) is that it is a very amorphous concept. However, as the Tory proposals demonstrate, the GND almost always begin with a requirement to cut energy consumption. If one intention of the GND is to stimulate the economy out of recession, then cutting energy consumption is an odd way of doing this. As the authors of Energise have pointed out, a more rational approach to the issue of carbon emissions is to accelerate the development of better and cleaner energy sources rather than cutting consumption which can only have the effect of lowering living standards.

Indeed, China, the fastest growing economy in the world, has 16% of its electricity produced by renewables, compared with 4.5% in the UK. This is because China’s rapid growth has stimulated research, development into and implemetation of new sources of energy. In the West by contrast the whole issue of renewable enegy has become linked to an anti-growth agenda. The subtext of the current discussion on the GND in the West is that it is part of the new austerity.

Whether you accept all or some of the climate change agenda, the solution lies in innovation and growth, not consumption cutting and austerity.