Deep Doo-Doo

frankly_francophone · Deep Doo-Doo

Kilmarnock 0; Diageo 1

Unfortunately, it appears as if unemployment is going to continue to grow very considerably in both the USA and the UK, as well as other advanced economies, for the foreseeable future. Companies such as Diageo are adapting to an economic climate in which it is becoming more difficult for them to make money for their investors, for reasons with which we should all be familiar by now.

Who are these investors? And why don't they care about the wholesale sacrifice of livelihood on their behalf? Well, no doubt they do care, but whether they care or not is irrelevant, because they are you or me or you and me and the old chap in a bungalow near you whose private pension is no doubt derived from income resulting from investment in companies such as Diageo. He should have his pension, of course, and good luck to him. How else could he live in reasonable comfort if investment by pension funds in companies such as Diageo did not maintain its profitability?

Exploitation of populations and wholesale devastation of livelihood is part and parcel of that eminently resilient system known to us affectionately as capitalism. Why do companies' share prices generally rise on the stock market when they announce substantial redundancies and closure or sell-off of anything, up to and including their grannies, that might conceivably at some juncture pose a potential for developing a scenario in which it could be construed to be somewhat more than marginally likely that a degree of profit reduction might be incurred for a nano-second in some area, however obscure and apparently insignificant, of company operations at some point in time yet to be determined on the basis of projections the reliability of which may or may not be dependent to an indeterminate degree upon variables which it may not be possible to identify with absolute certainty or to quantify with any certainty? Because that is in the nature of capitalism, which is a machine in the workings of which it is best not to get caught.

Living, as we are, in a capitalist society, we really need to be aware that the nature of the beast is such that it is going to bite us now and then. When that beast is up against a wall and fighting for survival is exactly when one is most likely to get bitten, and that time is now. Consequently, unemployment in the USA is going to rise to at least 11 per cent quite soon, according to Dr Nouriel Roubini of RGE Monitor, and may reach the same sort of level here. In real terms, there may be up to about 16 per cent of the employment-age population who will not be economically active in the USA. In the UK the situation may be expected to be somewhat worse. This decline in the proportion of the population which can do much purchasing will put further pressure on capitalist enterprises to cut costs, which will result in further unemployment.

What else would you expect? We are in a capitalist recession which results in some measure from a serious malfunction of the system, a malfunction which has caused phenomenally and indeed almost unimaginably immense damage to the mechanism for transmission of credit. So immense is the damage that it has been said to exceed the capacity of governments to repair it. Capitalist enterprises which aim to remain viable in these circumstances and thus to continue to be able to get loans from banks which are struggling to provide credit have very little room for manoeuvre. They must cut costs, and they must do so now, as must government.

In these circumstances what can be done for the workers? In some parts of Europe workers threatened with unemployment have been occupying their workplaces and even threatening to blow them up. In China inter-communal conflict has already been produced by the Crisis as enterprises have gone under and competition for jobs has increased. Desperation such as this is going to spread. Social dislocation and political upheaval may be expected. None of it is likely to do much good, however, if at the end of the day capitalism as we have known it is still here.

The realization is dawning that very tough times are beginning. Companies that position themselves to cope with that are doing what they have to do. If the Scottish Government or anybody else is going to succeed in saving the Kilmarnock livelihoods, they are going to have to give Diageo the protection against those tough times that it was planning to achieve through efficiency savings. Is it credible that this is likely to be achievable at a time when UK and Scottish government budgets can be expected to be cut while their anticipated expenditure is rising?

We are in deep, deep doo-doo. A net loss of 300 Diageo jobs is bad for Scotland. For Kilmarnock it will no doubt be very bad indeed. But hey, that's capitalism for you, or rather a form of capitalism breaking down. For more on this see the Paul Jorion blog, Dr Jorion being one of the economists who forecast the recession:

http://www.pauljorion.com/blog/

Alternatively, turn to

http://frankly.yolasite.com/

chicmac

Well to get back to a sustainable economy, the UK (and anyone else) has to genuinely create wealth. The percentage of workforce involved in wealth creation has fallen from over 50% to less than 20% in the UK, similar tale in the USA. Europe, by and large, has not fallen for the Friedman/Greenspan (fronted by Thatcher/Regan) fantasy and percentage workforce in genuine wealth creating activities has not dropped nearly as much.

Poor old Adam Smith must be spinning in his grave at the economic travesties perpetrated in his name in the last 30 years. Laissez-faire does work within a market, an 'invisible hand of god' (rather more discernible with the aid of modern computer modelling) does manage, in a perverse manner, to convert individual greed into utilitarian progress, however the key word here is 'market'.

However often someone uses the term 'Global Market' and however much some would wish it to be true, there is no way on God's Earth that the term presently means anything in reality. You cannot have a sustainable single market unless all participants are playing by the same rules.

Consider the microcosm of the Barra's Market in Glasgow. Each trader has his stall, all the same rent etc. all playing by the same rules. Success or failure is dependant entirely on business acumen, choice of goods, presentation, attracting customers, selling technique etc. Competition will keep prices down and improve customer service. However, imagine a container lorry arrives selling, probably purloined, goods off the back of it at less than cost price for the honest traders. The market is completely disrupted and would be destroyed unless the police intervened (which they do).

In the so-called Global Market, that is the kind of scenario we have. There are participants not playing by the same rules. e.g. China where the workforce has nothing like normal wage bargaining rights or the right to strike, where health and safety is a joke, where the profits earned are being stockpiled by the state for their own fiscal-imperialistic reasons rather than distributed amongst their workers.

The other Pac-rim countries which were allowed to enter the international market were democratised and therefore low-wage advantage was a temporary disruption to the market and within 20 years wage rates were similar to the West and stability restored. That is not going to happen in China.

And even if China did accept 'the market rules' and became democratised it is still too big to follow past Pac-Rim models, it's ascent would still need to be controlled to avoid irreparable damage to Western wealth creation capacity.

That is the nub of the World market instability problem. However, on top of that, there is this seemingly unfathomable stupidity of America and the UK (aka "Lunatic Anglo-American policy" in Europe) which means that those two are much worse off.

[Aside: Anglo-American policy is not quite as lunatic as it seems. I believe that London and Washington thought they could(with the rest of Europe) re-invent Imperialism where the energy resources of the World came under Western control and the domestic bread and circuses paid for by the rest of the planet. This adventuring has, however, spectacularly failed. By now 'democracies' (read puppets with good propaganda control over their electorates) should have been well established in Iraq and Afghanistan and Iran should be under occupation and in transition.]

The mortgage/banking crisis, is just the first wave, really only symptomatic of the underlying problem of Geo-political imbalance in real wealth creation .

The big challenge is to prevent the collapse of manufacturing which will make the underlying problem much worse.

Subsidy of industry as a firefighting measure is justified and other countries whose politicians can extrapolate into the future are doing so. Gormless Brown, of course has handed the subsidy over to the financial sector which has no requirement to act strategically on a national economy basis. They are generally not lending yet and when they do there is nothing to stop them putting their money overseas.

The problem with direct subsidy to industry is that the market feedback required for success is eliminated, lame ducks can be splinted. What you need is an enterprise board which acts strategically and gives one off start up grants.

Regarding ongoing survivability of industry this needs to be subject to performance within the market, but the market itself has to be protected from other markets which are operating under different rules.

This will require re-looking at the Trade deals between Europe and China etc. and the re-introduction of fair tariffs.

If it comes to it, Europe is perfectly capable of growing all it needs to eat, manufacturing all it needs and providing its own energy to generate the standards of living we have become accustomed to. However, I do not want isolationism because then there is no leverage on China and Global antagonism is as bad as Global wealth creation imbalance.

At the moment, there is no incentive for the Chinese government to democratise or accord workers Western style rights or provide Western style budget levels for welfare and health care or invest in clean energy production capacity. Reintroduction of tariffs and investment controls, with a promise to greatly reduce them once they are playing by the rules, will have a much beneficial effect on the Chinese people and ultimately World stability.

Whining capitalists who complain about labour costs will just have to have their faces slapped. The alternative, that they can be persuaded to think beyond next month's balance sheet is a fantasy and I wouldn't even bother trying.

Britain is starting at the lowest point on the curve, so all things being equal, will take longer than the others in the G7 to return to a sustainable genuine wealth creation economy. Unfortunately, all things are not equal, there is a well recognised anti-industrial 'culture' in Britain (that is, within the British decision makers community, not the population at large) which itself is subject to much theorising as to where it originates.(Class system, privilege, SE parasiticism, lack of a revolution, ludditism, Romantic Poets/Blake/Tolkien/Lewis, monarchy, public schools, oxbridge, Westminster lack of professionalism) so there is a required paradigm shift in the way the British economy is run, tinkering with regulation is not going to be enough.

The required changes will probably be spearheaded by rescue teams from the IMF and/or from the EU which will arrive on strings attached to bailout money.

Britain will end up the better for ridding itself of the useless upper middle class who have run things up till now. It is a pity we cannot, like Douglas Adams' Golgafrinchans, put them on a space ship and send them off with the promise the rest of us will follow in due course.

Aventinian

Ah, recessions - always bring the far-left loonies out of the woodwork with their 'end is nigh' prophecies.

chicmac

frankly_francophone · Economic Anarchy

Were the current economic Crisis merely a common-or-garden cyclical downturn as distinct from an unprecedented systemic malfunction, there would be no cause for great alarm in all probability. As to why the present recession should be regarded as more than just one of those little phases that capitalism has always gone through from time to time, I leave you to take the opportunity to follow the links to two economists who predicted the present crisis of Anglo-American capitalism, Dr Nouriel Roubini and Dr Paul Jorion, at

http://frankly.yolasite.com/

Dr Jorion's qualifications for being taken seriously are particularly impressive and may be inspected at

http://www.pauljorion.com/

Both of these eminent academics are agreed that there is a distinct danger of what is known as a 'W double dip' rather than a normal recovery from a recession. In fact, they do not consider that a return to the state of affairs which existed before the present Crisis began is possible, for reasons which relate in part to developments which are not strictly speaking entirely bound up with the financial crisis which provided the catalyst for what is being experienced now.

To cut a long story short, very substantial unemployment which is in the process of being caused at present may be expected to prove to be to a large extent permanent and will cause further damage which may well be irreparable if the global financial system, which has revealed itself to be suffering from weaknesses which make it unfit for the era of globalized computerized speculation, is not reformed radically in ways which Dr Jorion gives examples of while working on a project to produce what he calls an 'economic constitution' to counteract what he refers to as the global economic anarchy of the present dispensation.

Having produced political order and largely successfully guarded against political anarchy by means of political constitutions of one kind and another at national and international levels, the human race has now reached the point, Dr Jorion argues, for reasons which he states with clarity, at which a continuation of economic anarchy has been shown to be no longer a viable option.

Anyone who imagines that we are going through a normal recession is deluded, frankly. Furthermore, anyone who imagines that the UK economy is favourably placed in all of this and that the UK will infallibly protect Scotland better than it could protect its own interests if it were independent within the European Union and the eurozone is indulging in wishful thinking, I venture to suggest.

chicmac · Re: Economic Anarchy

frankly_francophone · The Crisis

For the latest Paul Jorion media commentary on the unmitigated disaster that is referred to euphemistically as "the downturn" by 'anglo-saxons' but is known as "the Crisis" in the francophone world, links are provided in 'An Exacerbation of Disequilibriums' at

http://frankly.yolasite.com/

to facilitate access to a new 10-part France Culture radio series, part 2 of which (on the role of the banks in the Crisis) is aired this evening at 6 o'clock (BST). Dr Jorion is sure to be on form.

William_Cleland · Re: Economic Anarchy

William_Cleland

Well that killed this thread off stone dead probably because it doesn't connect with people on a visceral level where identity politics are concerned but the UK's energy crisis will increasingly shape the political discourse over the next 10 years. Worth noting there is an Economist editorial on the subject with week:-

http://www.economist.com/opinion/displaystory.cfm?story_id=14167834

By 2015, assuming that modest economic growth resumes, a reasonable guess is that Britain will need around 64GW to cope with similar conditions. Where will that come from?....There will be a shortfall—perhaps of as much as 20GW—which, if nothing radical is done, will have to be met from imported gas. A large chunk of it may come from Vladimir Putin’s deeply unreliable and corrupt Russia.

Many of Britain’s neighbours may find this rather amusing. Britain, the only big west European country that could have joined the oil producers’ club OPEC, the country that used to lecture the world about energy liberalisation, is heading towards South African-style power cuts, with homes and factories plunged intermittently into third-world darkness.

In terms of energy policy, this is almost criminal—as bad as any other planning failure in New Labour’s 12-year reign (though the opposition Tories are hardly brimming with ideas). British politicians, after all, have had 30 years to prepare for the day when the hydrocarbons beneath the North Sea run out....

Why has Alex Salmond not highlighted this over the last decade rather than going on and on about Scotland emulating arcs of prosperity and Celtic Tiger economies based on a bubble of cheap credit rather than genuine wealth creation? Would you trust a politician who wanted to head down the road that basically bankrupted HBOS and the Royal Bank with the reins of power in a newly independent state? There are reasons why the pragmatic majority in Scotland are wary about taking the plunge under the SNP but given the disastrous legacy of Thatcherism the economic conditions are definitely there now where a great politician could seize the day.

frankly_francophone

The subject of this thread being the current economic Crisis, it may be worth drawing attention to the latest report of Dr Nouriel Roubini's RGE Monitor, not least as Dr Roubini is one the economists who forecast the said Crisis:

http://www.rgemonitor.com/blog/roubini/

According to Dr Roubini's latest assessment, although Norway‘s economy slipped into negative growth in the fourth quarter, its downturn will be among the mildest of advanced economies, with analysts expecting a contraction in the range of 1.0-2.0% in 2009 and a return to growth in 2010. What sets Norway apart, he says, are years of current-account and budget surpluses (both in the double-digits as a percentage of GDP), a sizeable public sector and a hefty war chest of oil revenues amassed in the Government Pension Fund, with the result that Norwegian policymakers have had ample room to use fiscal and monetary policy to soften the downturn.

RGE Monitor reports that Statistics Norway estimates the impetus from fiscal policy in 2009 to be 3% of mainland GDP, the strongest stimulus since the 1970s. Meanwhile, the benchmark interest rate is at an all-time low of 1.25%, down from 5.75% in October 2008. Also helping to alleviate the pain of contraction, it is pointed out, is the fact that Norway's economy is well equipped with automatic stabilizers. Given Norway’s comparatively bright outlook, there is speculation, it seems, that the country will be the first among advanced economies to increase rates, the central bank seeing the first increase coming in Q2 2010, though some analysts think it may come earlier.

As for the French economy, Dr Roubini observes that it managed to avoid a recession in 2008 and is expected to fare best among the big four eurozone member states in 2009. France’s more balanced domestic demand-led growth model, he maintains, has served it relatively better during a synchronized global downturn, the large social safety net fully serving its automatic-stabilizer purpose in a counter-cyclical manner. Fiscal measures were targeted to the short-term, he states, and included mostly non-recurring spending. France’s relatively healthy banking sector received what he describes as targeted support and is in a position to fully sustain the recovery in the eurozone, unlike the UK, which Dr Roubini does not identify as one of the European economies that are well placed to recover from the Crisis.

So Norway and France turn out to be worth taking lessons from. No surprise there. The Scottish Government would no doubt agree, not least on the subject of the Norwegian oil fund. It recommends, as we know, that tax revenue be set aside to help stabilize the Scottish economy and help the transition to lower use of carbon fuels. Dr Roubini would no doubt commend such prudence. For more on this turn to 'European Bright Spots' at:

http://frankly.yolasite.com/

Stevie

William_Cleland

Dumbasses? Are you American rather than Scottish? If you are you probably won't like the argument I am about to make but the example of France should make it clear that Britain would be in a much stronger economic position over the next decade if progress in nuclear energy had been continued and there had been much less emphasis on the use of natural gas for electricity generation.

Luke P

Deep Doo-Doo

Economic Anarchy

Re: Economic Anarchy

The Crisis

Re: Economic Anarchy