Newsnotes 2011 11

Notes On The News

by Gwydion M Williams

Misbehaving Capitalism

Not Unequal Enough?

Fear of the Big Bad State

Tunisia and the West’s Moderate Liars

Culture and Cash in China

Europe [Britain Withdrawing]

Soros and Insider Trading


Misbehaving Capitalism

Capitalism misbehaved massively in the 1930s, causing a gigantic slump that nearly finished off the entire Enlightenment project. Fascism could and did fix the immediate problems of capitalism, but at the cost of closing down independent and critical thought. They were all in favour of establishing inequality as permanent and unquestioned: man over woman, white over black, elite over masses. And it could have worked – Hitler did successfully re-start the German economy and got everyone back to work.

Hitler and Mussolini were fairly successful as peacetime dictators, and were widely admired by the centre and centre-right in the USA and Britain. No one except a few leftists thought that the 1936 Berlin Olympics should be boycotted, for instance.

Meantime Roosevelt in the USA had found a better solution, public works to stimulate the economy and regulations to limit the damage that could be done by financial speculation. This was in danger of being stifled by the USA’s much-praised ‘checks and balances’, but then Hitler got impatient and started a war by invading Poland. If he’d waited a few more years, Roosevelt would not have won an unprecedented Third Term in 1940 or been able to get the US economy moving again through wartime spending.

During the first half of the Cold War, when Soviet power was rising, the West also had an unprecedented period of prosperity. It’s worth repeating the figures I showed in last month’s Newsnotes, because the hard facts are so very much against the impression we have been sold. If you take 1950 as the point of ‘normalisation’ after World War Two, growth in GDP per head was remarkably fast:

France WestGermany UK USA Japan
1955 120 149 113 114 144
1960 143 199 125 118 207
1965 178 237 141 140 309
1970 221 279 155 157 506
1975 251 310 171 170 590

Russia and China were also growing quite fast. Most current books about China give the impression that China made little or no progress under Mao, but fail to give a figure. Only in The World Economy: Historical Statistics, by Angus Maddison do you get any hard facts, and the hard facts are that the total economy tripled while GDP per head doubled. Not as good as the best of the Keynesian economies, but better than the USA

China maybe gained by a dose of Economic Liberalism under Deng: the rest of the world has definitely suffered, though the USA held its own thanks to a vast influx of skilled and ambitious immigrants. The overall picture was:

France Germany UK USA Japan
1980 115 118 109 114 118
1985 120 126 120 127 135
1990 136 132 139 142 166
1995 140 142 147 150 175
2000 157 154 167 173 186

The Soviet Union was meantime falling apart. Brezhnev stifled prospects for radical reforms that might have re-invigorated the economy. The collapse in 1989-91 was based on a loss of belief, and encouraged a mindless belief in versions of capitalism that had never been tried in the real world. That did immense damage and caused a moribund economy to shrink, and come close to collapse.

The West meantime had been dismantling the various regulations that had limited the damage done by financial speculations up until the 1970s. There had been plenty of cases of foolishness or outright fraud, but they were mostly scandals involving losses by investors who should have known better. The real economy was not greatly damaged by them. Only after several years of unregulated finance was it possible to have the disaster of 2008. Even then, capitalist propaganda was sufficient to switch the blame to state spending.

Of course the New Right have become masters of manipulation. Recognising that the Old Right values of deference and community were failing, they switched to feeding everyone’s vanity and greed. Advertising has been a leader in this, as George Monbiot recently noted:

“We think we know who the enemies are: banks, big business, lobbyists, the politicians who exist to appease them. But somehow the sector which stitches this system of hypercapitalism together gets overlooked. That seems strange when you consider how pervasive it is. In fact you can probably see it right now. It is everywhere, yet we see without seeing, without understanding the role that it plays in our lives…

“Advertising claims to enhance our choice, but it offers us little choice about whether we see and hear it, and ever less choice about whether we respond to it. Since Edward Bernays began to apply the findings of his uncle Sigmund Freud, advertisers have been developing sophisticated means of overcoming our defences. In public they insist that if we become informed consumers and school our children in media literacy we have nothing to fear from their attempts at persuasion. In private they employ neurobiologists to find ingenious methods of bypassing the conscious mind.

“Pervasiveness and repetition act like a battering ram against our minds. The first time we see an advertisement, we are likely to be aware of what it’s telling us and what it is encouraging us to buy. From then on, we process it passively, absorbing its imagery and messages without contesting them, as we are no longer fully switched on. Brands and memes then become linked in ways our conscious minds fail to detect. As a report by the progressive thinktank Compass explains, the messages used by advertisers are designed to trigger emotional rather than rational responses. The low-attention processing model developed by Robert Heath at the University of Bath shows how, in a crowded advertising market, passive and implicit learning become the key drivers of emotional attachment. They are particularly powerful among children, as the prefrontal cortex – which helps us to interpret and analyse what we see – is not yet fully developed…

“We are not born with our values: they are embedded and normalised by the messages we receive from our social environment. Most advertising appeals to and reinforces extrinsic values. It doesn’t matter what the product is: by celebrating image, beauty, wealth, power and status, it helps create an environment that shifts our value system. Some adverts appear to promote intrinsic values, associating their products with family life and strong communities. But they also create the impression that these values can be purchased, which demeans and undermines them. Even love is commingled with material aspiration, and those worthy of this love mostly conform to a narrow conception of beauty, lending greater weight to the importance of image.

“I detest this poison, but I also recognise that I am becoming more dependent on it. As sales of print editions decline, newspapers lean even more heavily on advertising. Nor is the problem confined to the commercial media. Even those who write only for their own websites rely on search engines, platforms and programs ultimately funded by advertising. We’re hooked on a drug that is destroying society. As with all addictions, the first step is to admit to it.” [B]

None of this is new, of course. My father Raymond Williams was making basically the same analysis back in the 1950s, noting how the newspapers were dominated by advertising revenue. It’s a pity Monbiot does not know of this (or else fails to see its relevance). Still, the point remains


Not Unequal Enough?

Right-wingers like to say that they believe in equality of opportunity, while their opponents believe in equality of outcome. I’m surprised they get away with this: no one actually believes that opportunities are equal. Any parent with ambitions for their children tries to make sure they get sent to a good school, sometimes moving house because the nearest school is better. Those who can afford it will spend large sums getting a superior fee-paying education for their children, hoping for the few extra points in A-levels that give access to the best universities and probably a lifetime of superior opportunities. Individuals from low-income backgrounds can still get through, but they have to be significantly better than those born rich. It’s not wholly hereditary as it once was, but it is very far from equal.

As for ‘equality of outcome’ – who actually believes in that? Hard work and qualifications have always been rewarded. The complaint is that excessive rewards have been given to people whose usefulness to the wider society is often doubtful. Who did at least as good a job when the rewards for such jobs was much more modest.

“Income for the richest Americans has grown 15 times faster than for the poor since 1979, a government study showed, as a poll out Wednesday highlighted deep anxiety over uneven wealth distribution a year ahead of US elections…

“From 1979 to 2007, the wealthiest one percent of Americans more than doubled their share of the nation’s income, from nearly eight percent to 17 percent, the non-partisan Congressional Budget Office said in a report released Tuesday…

“Government policy over the years has become less redistributive, and ‘the equalizing effect of transfers and taxes on household income was smaller in 2007 than it had been in 1979,’ the CBO added.

“For the wealthiest one percent of the population, average after-tax household income grew by 275 percent during the period, compared with just 18 percent for the poorest 20 percent.

“It was also a far greater increase than for the six tenths of the population in the middle of the income scale, who saw their average after-tax income grow by just under 40 percent during the same period.” [C]

And what has this done to the economy? A lot of the benefit has gone to parasitic finance, the biggest source of new money in the Thatcher / Reagan era. Banks perform a useful function as utilities, a place for people to safely store they money and a source of new loans for productive investments. The growth areas have been something else: various fancy forms of gambling, dignified as finance, and loans for foolish expenditure by people who can not afford it. Because it has nothing to do with the real wealth of the society, the society is not improved by it.

The growth in large retailers like Wal-Mart has also been of no net benefit, because mostly it is one business capturing the business of others. It has been a process of destroying small businesses which were the basis of a conservative outlook. Thatcher the grocer’s daughter favoured grocericidal policies: presumably she failed to see the connections. All of this is different from Japan and China, the new millionaires mostly oversaw the growth of actual productive industries. Manipulation came into it but it was mostly about better ways to produce. So the whole society got richer.

Japan lured into speculation and damaged by it. China so far has been holding out.

The current anti-capitalist protestors seem to see this as a conspiracy by the rich. Myself, I doubt that it was ever anything so fancy. The Keynesian system was in trouble in the 1970s, and right-wing economics sounded like a solid answer. For the wealthiest one percent of the population it has indeed been a splendid answer. Their average after-tax household income grew by 275 percent, on a level with Germany’s ‘Economic Miracle’ in the period 1950-75. I doubt that many of them are consciously aware that this prosperity has been gained by squeezing the middling and poor in their own society rather than actually creating new wealth. And this is the point to hammer them on.


Fear of the Big Bad State

“With nearly all Americans remaining fearful that the economy is stagnating or deteriorating further, two-thirds of the public said that wealth should be distributed more evenly in the country. Seven in 10 Americans think the policies of Congressional Republicans favor the rich. Two-thirds object to tax cuts for corporations and a similar number prefer increasing income taxes on millionaires.

“On Tuesday, the Congressional Budget Office released a new study concluding that income distribution had become much more uneven in the last three decades, a report that could figure prominently in the battle over how to revive the economy and rein in the federal debt.

“The poll findings underscore a dissatisfaction and restlessness heading into the election season that has been highlighted through competing voices from the Occupy Wall Street and Tea Party movements, a broad anti-Washington sentiment and the crosscurrents inside both parties about the best way forward.

“Not only do 89 percent of Americans say they distrust government to do the right thing, but 74 percent say the country is on the wrong track and 84 percent disapprove of Congress — warnings for Democrats and Republicans alike.” [D]

Reagan tapped into the USA’s long-standing distrust of its own government. The current dissatisfaction shows the same weaknesses. Some of the protestors seem to think that the government should have just let the banks crash in the crisis of 2008, not realising that the economy would have fallen apart had this been the choice.

A few of us insist that the Keynesian system broadly worked. That we need to restore the idea of regulation of finance and redistribution by taxes. But it’s not what most of the protestors are saying.


Tunisia and the West’s Moderate Liars

From the start of the Arab Spring, I had a strong feeling it was going to end with Islamist power. Tunisia looked the least likely to go that way, with an educated and westernised population and with a strong left wing. But the election has now given the Islamists about 37% of the votes and 41% of the seats. No one else has come close.

In a confused election with nearly a hundred alternative lists in some places, the Renaissance Party / Nahda has emerged as the only significant Islamist force, whereas the secular parties are badly split. If they are even moderately successful as the dominant party in a coalition, more power and votes are likely to accumulate to them. Note also that a lot of those eligible to vote chose not even to register, thinking that nothing useful would result. If the Islamists can get through to such people – between 40 and 60 percent of eligible voters, depending on which source you believe – the next election could give them an absolute majority.

“Partial results from home and abroad suggest An-Nahda has won 24 out of 57 assembly seats so far, or just over 42% of total…

“An estimated 90% of 4.1 million specially registered voters flocked to Sunday’s polls. The full electorate is around 7 million people.

“Results, however, were being released in a trickle. Election officials said the painstaking nature of the counting process had caused the delay.” [F]

“Tunisia’s moderate Islamist party Ennahda, has said it will form a new government within a month.

“Preliminary results for Sunday’s election give it a commanding lead, but not an overall majority, in the first democratic elections prompted by the Arab Spring uprisings.

“Ennahda has put forward its number two, Secretary General Hamadi Jebali, as the next prime minister.

“Coalition talks with secular parties have begun.

“Mr Jebali, 62, is an engineer by training and a former journalist. He was a co-founder of Ennahda.

“A vehement opponent of the ousted president, Zine el-Abidine Ben Ali, Mr Jebali spent 16 years in jail – 10 in isolation – for his political activities.

“Party leader Rachid Ghannouchi was not an election candidate and has said he had no government ambitions.

“He has pledged not to set up an Islamist state and to respect multi-party democracy.

“Ennahda, which was banned under the former regime, said it modelled itself on the governing AKP party in Turkey, another Muslim-majority country which has remained a secular state.

“It sought to reassure secularists and investors, nervous about the prospect of Islamists holding power in one of the Arab world’s most liberal countries, by saying it would not stop tourists wearing bikinis on the beaches nor impose Islamic banking.

“Foreign tourism is a major source of revenue for Tunisia.

“‘The tourism sector is among the achievements which we cannot touch. Is it logical to handicap a strategic sector like tourism by forbidding wine or wearing bathing costumes?’ Mr Jebali said.” [G]

I find it interesting that the top man has held back, letting his deputy handle the necessary compromises of shared power, with the option to step in or split if necessary. Clearly the Islamists must play a long game: they have the example of Libya right next door to them to show how the West can punish its foes. But the secular parties are all small and badly split. The pattern even includes an anti-revisionist Communist Party, the Tunisian Workers’ Communist Party with three seats. The pro-Moscow communists have vanished into a left-wing front that won five. But with the Islamists getting 90 seats out of 217, it is clear who will dominate.

As well as that, a previously unsuspected north-south split has opened up. A party called ‘Popular Petition’ or Al Aridha is articulating this, winning seats in Sidi Bouzid, the place where a fruit vendor set himself ablaze after a police officer seized his goods in December, unexpectedly resulting in the ‘Arab Spring’. They got 56% of the votes in the electoral constituency of Sidi Bouzid and should have got three of the eight seats, but were disqualified for alleged irregularities. In the current fluid politics of Tunisia, having a local elected representative would be likely to strengthen a party, while the lack of any would weaken it.

Overall, ‘Popular Petition’ have come out the fourth party but should have been third without the disqualifications. And Sidi Bouzid constituency, where three of their elected representatives were disqualified, seems to be the only constituency where the Islamist Renaissance Party / Nahda didn’t get the most votes. It could have been a hard core of resistance to the new Islamist-dominated government and still might be, but the disqualifications must make it much less likely.

The birthplace of the Arab Spring is now one of the losers: I expect to see many more.

[Tunisia has so far done better than I expected, keeping a broadly secular government.]


Culture and Cash in China

A few years back, the conventional wisdom was that China was stuck in an economic trap, prospering only as a low-wage economy. But this is proving to be untrue: China is successfully moving up the value-chain. And the serious gap between rich and poor is being addressed:

“The average minimum wage in most of the country rose by 21.7% at the end of September, the Ministry of Human Resources and Social Security said.

“This comes despite a broader economic slowdown engineered by Beijing to bring down inflation.

“Rising costs may mean China will lose its edge as one of the world’s cheapest manufacturing centres…

“The rise in minimum wages is in line with China’s efforts to boost spending power and domestic consumption.

“KPMG says that minimum wage levels in China are four times greater than other places in South and South East Asia.

“However, it believes China can defend its position because of its productivity and infrastructure.

“China is still dominant in the production of goods such as consumer electronics and furniture.” [H]

Meantime it seems that the party is taking back control of cultural matters, which had drifted into shallow imitations of the West:

“Satellite television channels are hugely popular in China, but often fall foul of authorities

“China is to clamp down on the number of entertainment shows broadcast on satellite television channels in a bid to boost public morality.

“Authorities are concerned at the ‘vulgar tendencies’ of light entertainment shows, particularly reality TV, dating and talk shows.

“From next year, satellite channels will each be permitted to screen only two programmes of this type a week.

“Networks will be required to promote ‘socialist core values’ instead.

“The directive, from the State Administration of Radio, Film and Television, follows a Communist Party meeting last week which asserted the need to strengthen social morality.

“The crackdown is intended to improve social cohesion in the face of rising materialism, and wrest back Communist Party control over cultural industries that are promoting alternative viewpoints.

“It coincides with a bout of national hand-wringing over a perceived decline in public morality, highlighted by the recent death of a toddler left for dead by passers by after being hit by a vehicle.” [J]

“Sick of tacky reality shows with egotistic wannabes? Tired of formulaic talent contests for shameless show-offs? If you feel the prime time schedules are packed with lowest common denominator viewing, you are not alone.

“Chinese officials share your pain and have ordered a curb on popular entertainment shows. Out go sexy dating shows and lurid programmes on crime. In come art appreciation, astronomy and weekly ‘morality building shows’.

“The new edict from the state broadcasting watchdog is expected to come into force on 1 January. Provincial channels will be allowed to show no more than two entertainment shows in the ‘golden time’ between 7.30pm and 10pm, according to a report on the Chinese NetEase website. Particular types of programmes, such as dating shows, will be strictly limited; no more than 10 talent contests will be permitted nationwide per year, and each must be of a different kind.

“‘The State Administration of Radio Film and Television also encourages [broadcasters] to produce harmonious, healthy and mainstream programmes, such as culture and art appreciation, history, geography and astronomy, and [those addressing] public welfare,’ the report added.

“Each channel will be obliged to broadcast a ‘morality building’ programme each week. The number of Taiwanese performers will also be limited because of Taiwanese controls on mainland performers, the report said.” [J]

“The 17th Central Committee of the Communist Party of China (CPC) concluded its sixth plenary session in Beijing Tuesday, adopting a guideline to improve the nation’s cultural soft power and advocate Chinese culture.

“It was the first time for the CPC’s decision-makers to focus on cultural issues in the Party’s plenary session over the past 15 years.

“After China’s eye-catching economic achievements in the past three decades, the session is regarded by observers as a strong signal and will for the country to score higher in cultural field.

“‘What Chinese people should do after their economic boom is a question we must answer,’ said Wan Junren, professor of philosophy department with Tsinghua University.

“China has surpassed Japan to become the world’s second largest economy. Even during the international financial crisis, the Chinese economy kept steady and fast growth…

“Although China has become the world’s largest producer of TV series, the ratio of imported productions and exported ones is 15:1. The American TV drama series Friends, Sex and the City as well as Japanese and Korean dramas are often more popular among young Chinese than domestic ones.

“China is one of the main OEM countries for Apple’s iPhone and iPad products, but many Chinese Apple fans query when a Chinese-version of Steve Jobs will emerge given China’s comparatively weak creativity in its cultural industry and electronics sector.

“By contrast, China’s Asian neighbor the Republic of Korea (ROK) has taken a lead in exporting its culture which achieved an annual export value of more than 100 million U.S. dollars for TV series 10 years ago.

“In 2009, the export value of ROK Internet gaming products was 10 times of that of China, and ROK movie export value was seven times of Chinese.

“‘Although Chinese government has vowed to both develop material and spiritual progresses for nearly 30 years, the need of material wealth is more prominent for Chinese people who have suffered poverty for a long time,’ said Feng Jicai, vice chairman of China Federation of Literary and Art Circles…

“The ambition to become a culture power shows the CPC’s top leaders are facing up to such a reality that some problems which can not be solved by economic growth should be tried through cultural construction, said Meng Jian, vice dean of Journalism School of Fudan University.

“‘If China’s economic construction is to pursue common enrichment, the cultural construction aims at pursuing social consensus,’ Meng said.” [K]

The initiative has been led by Li Changchun, Chairman of the Central Guidance Commission for Building Spiritual Civilization of the Communist Party of China. He is rated as 5th in the current 4th Generation of Chinese leaders. The expectation is that this 4th generation will hand over power in 2012 to Xi Jinping as the new top leader in 2012 and Li Keqiang as Premier and 2nd leader. Nothing much has been said about it this year, but there is nothing yet to indicate that plans have changed.


Europe [Britain Withdrawing]

“Recent polls have found that an overwhelming majority of voters want Britain to withdraw from the European Union – with support draining away thanks to the economic chaos surrounding the single currency.

“One poll for YouGov found that the public would vote by 50 to 33 per cent to abandon Brussels if a referendum were held tomorrow, a huge lead of 17 points.

“The poll found that the euro crisis has turned conventional political wisdom on its head and will fuel demands for David Cameron to renegotiate Britain’s relationship with Brussels. [L]

But we’ve been there before. Back in 1975, the Euroskeptics finally got their vote, which the polls indicated they’d win. But once people realised that their grumbles might actually change the world, they got more cautious. In the end we voted 67% in favour of keeping what we had.

Of course a British disengagement might actually be good for Europe, end the blight of Economic Liberalism which has caused most of the present crisis


Soros and Insider Trading

“George Soros, the hedge fund billionaire, has failed in his latest attempt to overturn an insider dealing conviction handed out in France 23 years ago. The European Court of Human Rights rejected his argument that French law on insider trading was not sufficiently clear to provide grounds for a conviction. Soros’s lawyer, Ron Soffer, said that he would appeal the ruling. ‘Mr Soros has maintained that he did not commit any act of insider dealing,’ he said, adding that ‘many issues’ were still unresolved and that he was confident the ruling would be over turned on appeal.

“The case relates to an investment Soros made in French bank Société Générale. Georges Pébereau and a group of elderly businessmen, dubbed the ‘golden granddads,’ contacted an adviser of Soros to invite the billionaire to take part in the raid, according to court testimonies. Soros declined to take part, and the raid was unsuccessful, but the investor did buy stakes worth a total of $50m in four former state-owned companies in France, including Société Générale. French prosecutors launched an investigation in 1989 and in 2002 Soros was found guilty of insider trading and fined $2.3m, the profit he made on the alleged insider trading.

“Soros, who famously made $1bn in a bet against the British pound in 1992, lost an appeal in France’s highest court in 2006 and then took the case to the European Court of Human Rights.

“In its ruling, the court agreed with Soros that the French law was not always precisely worded but argued that Soros was a sufficiently experienced investor and ‘could not have been unaware that his decision to invest in shares in [Société Générale] entailed the risk that he might be committing the offence of insider trading’, the court said in a statement.” [N]

I’d see this as another case of business people not being smart outside of their own area. Overturning a conviction on a technicality isn’t going to help his reputation any. Meantime he has brought the matter back to public attention. I missed it at the time, though I had noticed that he never mentioned the topic [of Insider Trading] in all of his lectures about the faults of global capitalism.

Meantime there has been an unrelated case of convictions and charges for Insider Trading in the USA:

“Rajat Gupta, a former Goldman Sachs director and senior figure in corporate America, has been charged with conspiracy and security fraud offences, making him the most high-ranking executive to become embroiled in a wide-ranging Wall Street insider dealing probe.

“Prosecutors said Gupta had provided disgraced trader Raj Rajaratnam with an ‘instant messaging’ service from inside some of America’s most esteemed boardrooms. The indictment accuses Gupta of entering into an insider arrangement with Rajaratnam, founder of the hedge fund Galleon Group.

“Rajaratnam was sentenced to 11 years in jail for insider dealing offences this month. During his trial Gupta’s name came up on several occasions, suggesting it was only a matter of time before the authorities called him in. Gupta’s lawyer told reporters the charges are “totally baseless [and] are based entirely on circumstantial evidence”.

“The indictment includes two episodes at the height of the banking crisis where Gupta allegedly went from a Goldman Sachs boardroom conference call and, within seconds, called up Rajaratnam with insider information.” [P]

It seems odd that apart from blatant fraudsters like Enron and Madoff, the only major casualties to date have been from the USA’s small community of immigrants from India. Are the rest looking after their own?



[A] These figures are my own calculations using the figures from The World Economy: Historical Statistics, by Angus Maddison

[B] []

[C] []

[D] []

[F] []

[G] []

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[J] []

[K] []

[L] []

[N] []

[P] []

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