It isn’t a crisis of capitalism but a crisis of globalism


by Robert Henderson
http://livinginamadhouse.wordpress.com/?p=1116

It isn’t a crisis of capitalism but a crisis of globalism

Amongst the wailing and gnashing of teeth from all parts of political mainstream over the ongoing economic crisis its prime cause goes unmentioned. Free market capitalism, which has been accepted , whether enthusiastically or resignedly, by Western elites for the past quarter of a century as the only economic theory worthy of support, is being questioned. Even some of its firmest adherents are questioning whether there has been too much freedom of individual action in the economic sphere. Some mainstream commentators who write for resolutely “free market” supporting newspapers like the Daily Telegraph and Daily Mail, are even beginning to wonder if capitalism is in a crisis from which it may not recover:

http://www.dailymail.co.uk/news/article-2022993/Capitalism-crisis-80-years-ago-banking-collapse-devastated-Europe-triggering-war.html#ixzz1aUJrGGaG

and

http://www.telegraph.co.uk/finance/financialcrisis/8814560/If-capitalism-does-fail-the-alternative-is-far-far-worse.html

Those coming from the left are unsurprisingly joining in the “end of capitalism” rhetoric (http://www.marxist.com/world-capitalism-in-crisis-1.htm).

What you will not find are many if any mainstream politicians and economic commentators addressing the real source of the crisis: the cloying and uncritical embrace of the internationalist creed which we call globalism by Western elites, especially those in Britain and the USA.

Before I turn to the ill effects of globalism there is the tricky matter of defining capitalism needs to be addressed, because there is a case for saying that capitalism is a state of theoretical purity which does not exist in the real world.

2. What is capitalism?

Capitalism is seriously difficult to define because it shares so much with economic systems which are not considered to be capitalist. For example, if the state undertakes an economic activity such as providing healthcare in an organisation such as the NHS or nationalises the railways and coalmining are they capitalism in action? After all they employ capital, land and labour, the three factors of production in classical economics and provide goods and services to the public just as a private business would do.

What do state enterprises lack which private business has? The entrepreneur? Well, most large companies are not run by entrepreneurs but corporate administrators. The profit motive? Perhaps, but what about state enterprises which consistently make profits for the taxpayer such as the Post Office in Britain while it had a monopoly? Freedom of action? Private enterprises are heavily constrained by law and state regulation in every developed economy and state organisations are often granted a remarkable operational freedom. The risk of going bust if they do not perform? Any state enterprise can in principle be ended or privatised while private companies when they are large enough have a good chance of being rescued by taxpayers, vide the banks in the present financial crisis. An absence of private money? State businesses frequently draw all or much of their income from payments they receive from the general public in return for goods or services, for example, nationalised energy companies . Moreover, many companies which are classified as private enterprise organisations draw all or much of their income from taxpayer funded contracts. Then there are the not-for-profit organisations, especially the charities, which increasingly act as sub-contracted arms of the state as they draw much of their income from the taxpayer and the rest of their income from donations. Individual and corporate. How should they be classified? Part of capitalism? Part of the state? A separate class of economic actor altogether? It could be any of the three options.

To all those blurrings of the distinction between private enterprise and public service must be added the macro-economic fact that all developed economies have a massive part of their GDP in the hands of the state. The mixed economy is a fact of all reputedly capitalistic economies. Does that render the idea of capitalist society redundant? In a sense it does. The broad differences in developed (and increasingly the more advanced of the developing countries) is in the degree to which state control and ownership is balanced against private enterprise.

There are of course qualitative differences in the application of the law as it affects the economy and the nature of the control which is exercised over the economy by the state, especially in areas such as the banking system and the ability of foreign companies to operate. For example, while countries such as Britain and the USA allow vast swathes of their economies to be purchased by foreign countries, China will often in practice only allow foreigners in on the basis of joint ventures with Chinese firms. (http://www.booz.com/media/uploads/Making_Partnerships_Work.pdf ) . Nonetheless, there is a general similarity in the economies in as much as all are a mixture of public and private and all permit some degree of government interference and direction of the market.

Despite the difficulty of definition the term capitalism is not without utility. There is clearly a difference between a company which acts on its own behalf without state direction or assistance and a nationalised industry. Parts of mixed economies are capitalist if by that is meant private companies which operate without deriving any part of their revenue from the taxpayer, have management free to act within the general restraints of the law without state direction and which operate on the principle that they stand or fall on whether they can at least break even. The companies which receive taxpayers’ money, especially those which rely on the taxpayer for only part of their income, also have much of the aspect of a pure private enterprise business in that they will in practice dictate how things are done, the public body funding their work being essentially in the position of a customer who merely sets ends not means. Capitalism is a spectrum of behaviours rather than a clear-cut behaviour.

It is important to understand that free trade does not equal capitalism. Free trade is simply the exchange of goods, services and capital between countries. It says nothing about the circumstances in which these things are created. These can be anything from a command economy to the economies in which free enterprise is most dominant.

3. Globalisation and the developed world

Globalism equals destabilisation. Until the financial crash of 2008 the globalists argued that ever increasing free trade generally and the internationalisation of financial markets in particular increased economic and international stability by spreading risk more widely (which reduced the cost of credit and consequently increased economic activity ) and by that by making countries ever more interdependent the likelihood of international conflict was ameliorated. In fact, both ideas were pipe dreams and the exact reverse of what globalism actually creates.

There are two central elements of globalism. The first is the end (or at least considerable diminution) of protectionist practices. Domestic economies in the developed world are stripped of great swathes of their economies, including strategically important ones such as coal mining and steel making, by the removal of protectionist barriers such as quotas, embargoes and tariffs. This results in either entirely foreign imports from low-wage economies such as China driving out the necessarily higher priced goods made in the developed nations or businesses in the developed world throwing in the towel and off-shoring their production of goods and services to low-wage economies. To that is added in much of the developed world the banning of state aid and intervention by both treaties and the domestic laws and rules imposed by national governments in thrall to an uncritical belief in laissez faire economics and small government.

Getting rid of protectionist barriers and privatising state owned industries massively reduces opportunities for employment for the native populations of the developed countries. This creates greater competition for jobs which reduces wages and other conditions of employment and increases insecurity of employment. In some instances, as occurred with Britain in the 1980s, the opening up the domestic markets to imports results in the most dramatic and socially damaging of economic traumas, structural unemployment, which lays waste the primary sources of employment of large areas , the effects of which carry down the generations.

The second central element of globalism, the free movement of peoples across borders, amplifies these consequences of free trade and adds other destabilising effects. Mass migration of labour inevitably goes from lower-wage economies to higher wage economies because there is no incentive for those in higher paid economies to take a run-of-the-mill-job in a lower-paid economy. In a addition, developed economies offer not only higher wages but also many non-monetary benefits such as those provided by a fully-fledged welfare state which are absent in developing economies.

Mass migration allows employers to radically cut wages in the higher-wage economies and greatly increases competition for most jobs, especially those which require little training or skill. The difference in cost of living between the immigrant’s country of origin (low) and the developed country they go to (high) are important. Immigrants, whether unskilled or skilled, are willing to work in such jobs for mediocre pay and live in poor, cramped accommodation because they know that they will be able to save a few thousand pounds in a year or two . They can do this even if by living honestly by paying tax. But often they will be paid cash- in-hand (no deductions for tax) , and live in in a squat (the taking over of someone’s house or flat without permission and living there rent free. Many will work while they are claiming unemployment benefits. If they have saved four or five thousand after a year or two, this will be enough to buy a house or flat in their own country where prices are a fraction of what they are in a developed country. (Give Britons the chance to save the price of a house or flat in Britain by working for a couple of years in those conditions in a foreign country and you are likely to be trampled in the rush).

As more and more immigrants come to developed economies, the position of the native worker worsens. This is because not only are there are more people chasing jobs, but also because native employers increasing rely on gang masters and other recruiters who are foreign and only want to employ foreigners (frequently foreigners from their own country: in the following case it was a Bulgarian employing Bulgarians http://www.express.co.uk/posts/view/277363/Workers-are-fired-for-being-British).

Sometimes employers deliberately exclude native workers by insisting that those employed speak a foreign language in the workplace, for example, http://www.dailymail.co.uk/news/article-1257784/Biggest-Asda-meat-supplier-excludes-English-speakers-instructions-given-Polish.html ).

In Britain many employers excuse their recruitment of foreign workers on the grounds that they either cannot get native workers to apply or that those who do apply are unqualified for the job. As the vast majority of the British jobs being taken are low or non-skilled and there are now millions of native Britons desperately seeking work of any kind, this must be an excuse in most instances (http://www.metro.co.uk/news/878903-500-queue-for-just-20-sales-assistant-jobs-at-new-poundland-store#ixzz1b85oCrLr)

Even in the case of skilled workers there is discordance between the claim of lack of skilled applicants and the numbers of skilled British workers unable to find jobs. For example, there are large numbers of doctors and nurses trained in Britain who cannot find posts in Britain, while at the same time the NHS is recruiting heavily from abroad. (http://englandcalling.wordpress.com/2011/09/09/no-need-to-speaka-da-english-in-the-nhs/).

More generally, new British graduates are finding great difficulty in getting both appropriate jobs and, increasingly, any job at all (http://www.telegraph.co.uk/education/educationnews/8283862/Graduate-unemployment-hits-15-year-high.html).

All of that suggests that British employers are favouring foreigners for reasons other than they give. The most plausible causes are lower pay and inferior conditions being accepted by immigrants, the greater ease with which immigrants can be sacked , especially those who are here illegally, and the possibility of bribes being paid, especially by foreign agencies, gangmasters using foreign labour and people traffickers, to those recruiting for British employers to persuade them to choose immigrants over native workers. An example would be where a public service employer uses a foreign agency to recruit abroad. The agency will receive a hefty fee from the public service employer for each foreigner recruited and that fee will be split between the agency and a corrupt recruiter in the UK. There is also a natural disincentive for native workers to seek work where they would be in the ethnic minority in their own land, for example, if you are English imagine working a factory where the common language is Polish or Hindi even if it is not a requirement of the job that the language is spoken.

These various practices mean large swathes of employment become effectively closed to the native population. The extent of the problem in Britain can be seen from one stark statistic: out of two million new jobs created under 13 years of the last Labour Government 1.8 million went to immigrants (http://www.dailymail.co.uk/news/article-1325013/Migrants-took-9-10-jobs-created-Labour.html)

The removal of protection for the domestic market, off-shoring and mass immigration has meant that material inequality has grown considerably in the developed economies over the past quarter of a century as the wages of those competing with immigrants has fallen and unemployment has risen, including an army of long term unemployed. The countries showing the greatest growth between the haves and the have nots have been the USA and Britain, arguably the two countries most committed to globalism. (http://www.guardian.co.uk/world/2011/sep/18/bronx-manhattan-us-wealth-divide).

But there is much more to globalisation than the creation of material inequality. Mass immigration does not just create competition for jobs. It means there are more people seeking housing, healthcare, benefits and education . This further increases insecurity and resentment amongst the native population, especially amongst the poor because they are the ones most reliant on the welfare state and consequently are the people most likely to be in direct completion with the immigrants.

More generally, there is the natural resistance to large numbers of foreigners settling in an area. Any sizeable influx of immigrants is never evenly spread. Immigrants in large numbers congregate in self-created ghettos which radically changes the nature of the area they settle in. This arouses resentment amongst the native population, most fiercely and poignantly by those directly affected, but as immigrant numbers grow massively, increasingly amongst the native population generally, regardless of whether people live in areas of heavy immigration. The concern is not primarily that the immigrants provide completion for jobs, houses and social services , although those are important triggers of resentment, but anger at territory being effectively conquered by immigrants (http://englandcalling.wordpress.com/2011/02/22/part-of-england-has-been-invaded/)

4. The suppression of dissent

Those consequences would be enough to condemn globalism as a political creed , but there is much more to be set in the debit column of its balance sheet.

Because native populations in the richer countries are increasingly disadvantaged and angered at the effects of immigration, the elites who have permitted it and are committed to globalism have to control the resentment and anger. Politicians do this in various ways. They use their power to prevent any honest opposition to mass immigration and its consequences by passing laws which criminalise the native population if they express dissent to the policy. They create other laws which in practice privilege immigrants, for example, the British Race Relations Amendment Act 2000 which forces all public bodies in the UK to prove they are not discriminating against racial and ethnic minorities. They use their ready access to the mass media to incessantly push the “multiculturalism is good” message and force it in school curriculums – in Britain there is barely a subject untouched by its taint, even those subjects such as physics, chemistry and maths which you might imagine would be immune can be taught from this ethnic perspective or that ethnic perspective (Islamic maths anyone?)

Companies which rely on public contracts and charities have to play by the same multicultural rules as public service organisations and large public companies whether or not r they are reliant on public contracts in practice do so voluntarily. As an overarching deterrent, all employers are liable to be taken to Employment Tribunals if someone claims racial discrimination relating to dismissal, unequal treatment or the failure to get a job and risk unlimited awards against them if a complaint against the employer is upheld.

The multicultural message and the intimidation of dissenting views is religiously supported and underpinned by the British mass media , the members of which all publicly subscribe to the idea that racial discrimination (by which they mean any preference for any racial or ethnic group not approved of by the politically correct) is the ultimate evil and as a consequence are only too willing to conduct a hate campaign against anyone at whom the cry “racist” is directed and ensure that anyone with a dissenting voice is kept from public view.

The consequence of this wholesale enforcement of the multicultural dogma is that anyone in Britain who expresses an opinion which suggests that mass immigration and its consequences are less than the quickest path to social Nirvana runs the risk of penalties which range from losing their job (especially if the person works in the public sector) to being imprisoned for inciting racial hatred.

As for the economic aspects of globalism, Western political elites and their allies in the media and other positions of power and influence have overwhelmingly bought into the idea of free trade, at least to the extent that they have been willing to agree to greatly reduced protectionism. Those who would vigorously oppose the idea of out-of-control laissez faire economics at home and abroad have been almost entirely censored out of the public picture. On the odd occasions when some brave soul breaks the censorship and puts forward in public complaints about mass immigration reducing wages or taking jobs and scarce housing or the export of jobs to the developing world , these are squashed by the media proponents of globalism with mantras such as “It’s inevitable because we live in a global world” ; “It’s market forces”; “We have to compete globally”.

5. The loss of national control

On top of all this is piled two things, the loss of control of national governments over finance and the signing up of nation states to treaties which emasculate democracy by granting powers to supra-national bodies that should rightly belong to individual states. The most striking example of this is the EU, where the nations of the European Economic Area (over 30 of them) are bound to the so-called four freedoms; the free movement of goods, services, finance and people.

The failure to control the banks and their ilk is a direct consequence of globalism. The political elites in the developed world have been driven to not interfere with the major players in finance by ideology, self-interest (think of all the cosy post-politics sinecures in private business senior politicians acquire) and fear (they are terrified that if the banks are not pandered to economic catastrophe will follow). To those bars to sane financial policies can be added the interference of supranational bodies such as the EU. The existence of such bodies has meant that even if national governments had wished to behave responsibly by restraining the bankers’ excesses, they could not have done so because it would have been judged to be anti-competitive by a supra-national body such as the EU competition Commission.

The upshot of this development was frighteningly reckless finance industry business models based on selling mortgages to those who could not possible afford to service them, the development of exotic derivatives such as Collateralised Debt Obligations and Credit Default Swaps and the relentless gearing up of their debt to deposits ratio. This last practice resulted in even supposedly staid financial institutions such as British building societies getting into serious trouble because they became dependent on constant and massive recourse to short term wholesale borrowing , something which froze once the financial panic of began in earnest in 2008.

If banking had remained primarily a national matter, as it was until the late 1980s before the sudden explosion of computers and the embrace of laissez faire economics , the damage caused would have been minor compared to what has occurred even if banks had been allowed to engage in the unsafe practices described in the previous paragraph. There would have been both far less scope for credit expansion and, where bank failures occurred, they would have almost certainly happened sooner than they did under a globalised system because there would be far fewer places for a bank in trouble to go to try to borrow to put off the evil day of insolvency. Most importantly, the national financial institutions would have been smaller and less able to cause mortal damage to the national economy and would not have had the potential to undermine the international financial system. In addition, if banking is kept within national boundaries it can be much more readily supervised. Once it expands beyond a national single jurisdiction, as it does with the EU, meaningful government supervision and control becomes utterly impossible.

6. The developing world

Those are the ills of globalisation from the standpoint of the developed world. But the developing world and the remnants of undeveloped and still undeveloping world are not left unscathed by globalisation. The developing world experiences an aggregate increase in wealth as it takes manufacturing and service industries from the developed world and improves its infrastructure. But these improvements come at great human cost. Traditional ways of living are disrupted. Vast numbers flood from the countryside to the towns where they live and, if they are lucky, work in miserable conditions. (http://www.telegraph.co.uk/news/worldnews/asia/china/8818059/100-million-Chinese-farmers-to-move-to-city-by-end-of-decade.html)

Many find their material conditions (but not necessarily their psychological state) improve, but far more are actively disadvantaged by the changes. If they remain outside the cities people find their areas being denuded of many of the most able and vigorous people who leave for the cities; their land being taken with little or no compensation for infrastructure projects such as dams, railways and factories and their way of life becoming less and less sustainable. Those who go to the cities for work find their lives are worse than they were before in terms of the conditions they have to endure and subject to great job insecurity . Even in the more developed of the developing Asian countries, where most of the world’s population now lives, there is a great chasm between the haves and the have-nots.

Although offshoring production and opening up their markets to imports from low-wage economies are disruptive for the developed world and potentially dangerous because it puts them to an increasing extent in the hands of foreign powers , it also bound the likes of China and India into a dependent embrace. As the economies of the developing nations grow they will increase their domestic demand and the capacity and willingness to satisfy it which will make them less dependent on international markets. But that is a fair way in the future. At present the developing world is reliant to a very heavy extent on exporting to the developed world.

Countries such as China are also massive holders of sovereign debt of Western countries, especially of the USA. These two things mean that the developing economies are affected by the present depression (let us give it its proper name) in the developed world, which is reducing demand for the products of the developing world and, in the case of countries with large sovereign debt holdings, at risk of losing vast amounts of money. It is also by no means clear that the financial systems of the developing nations are sound, even if they have not suffered from the same ills as the developed world’s financial sector. For example, China is constantly having to patch up bankrupt [projects and organisations (http://www.telegraph.co.uk/finance/china-business/8821094/Chinas-debt-spree-returns-to-haunt.html).

7. The undeveloping world

The part of the world which is not seriously industrialising also suffers from the destruction of traditional ways of life with nothing adequate replacing them. Again there has been a flight from the countryside to towns and cities, although in this instance it has not resulted in large-scale industrial or even substantial commercial development. The only winners are those who have tapped into the funds controlled by the elite who dispense the vast amounts of foreign Aid and the income from foreign companies for mineral rights to those they favour, whether that be through the award of government jobs or through straightforward corruption.

Many have been displaced by the demands of foreign countries, especially those extracting raw materials. Countries have abandoned their traditional agriculture and turned to farming to produce food and flowers for the developed world. A growing practice is for countries in the developing world, especially China, to buy or lease large amounts of land in undeveloped countries to produce food for the country which has purchased the land. It is a kind of imperialism, but imperialism without any sense of moral obligation to the ruled.

All of these practices mean that much of the undeveloped world, primarily black Africa, live their lives in conditions which range from abject poverty to perpetual civil war. Although I would never pretend that living under colonial rule is unreservedly palatable, it can bring order and where the colonial power develops a sense of moral obligation to those it rules, as happened with British officialdom in the final century of the Empire, it can prevent serious abuses. What most of these countries currently have is the worst of all worlds, deeply corrupt native elites who sell their countries to the highest bidder, whether that selling being in the guise of gaining aid or commerce, and foreigners exploiting their people and land. There is no check on abuse.

8. Supra-national politics

There is a special subset of internationalism, the advanced supra-national body comprised of nation states which has the nature of a federal government even if it does not have that formal structure. The EU is the only organisation which comes close to meeting that description at present ,but it provides a warning of how such groupings can display the ill-effects of globalism together with some novel features of their own.

Member states of the EU have to allow unrestricted migration within the EU (to be pedantic, within the European Economic Area which includes the likes of Norway and Switzerland as well as the EU) and accept the loss of other great swathes of sovereignty ranging from the economic (competition, the making of trade treaties) to the social (the conditions of work, health and safety).

Most dramatically for the world in general, 17 of the 27 EU states have signed themselves up to the Euro. This was a criminally reckless enterprise because it married massively disparate economies such as the German and Greek without creating a central executive with the powers of a nation state. This meant that the controlling and guiding body for the Euro, the European Central Bank, was unable to do such essential things for a supra-national currency as determine tax regimes throughout the Euro area and move money from the richer to the poorer Euro members . These errors were compounded by the failure to implement what powers existed to impose financial discipline on the Euro members such as the restriction on the size of member states budget deficit. Unsurprisingly, the Euro eventually ran up against reality and for the past eighteen months the currency’s situation has looked ever more dire as Greece, then Portugal, Spain and Italy looked candidates for a default as they found it more and more expensive to borrow on the international markets to cover their budget deficits and service their national debts, something exacerbated as their tax bases shrunk during the depression . In October 2011 the poison looks as though it might even encompass France and Germany.

The ill consequences of the formation of the Euro stretch far beyond its members. The constant delay in coming to a conclusion as to what should be done to deal with the Euro crisis, whether that be the wholesale or partial break-up of the Euro or a decision for the Eurozone to go for full fiscal integration including massive movements of money from the rich members to the poor (the only thing which might rescue the Euro), has created uncertainly throughout the world and has significantly worsened an already dire world economic situation.

The Euro crisis has also sucked in countries from outside the Eurozone to help fund the vast sums needed to bail out the Republic of Ireland and Greece. This affects the non-Euro members within the EU and those from outside the EU who are liable to provide IMF loans. Countries such as the UK have had to pay both towards the EU stabilisation fund and the IMF loans.

The lessons from the EU (so far) are that far are that such supra-national bodies amplify the general problems of globalism, especially the loss of democratic control, and add the joker of grand follies such as the Euro which have massive effects beyond the supra-national body.

9. Just another outbreak of an old disease

Globalisation should not be seen as a completely new phenomenon, although its modern extent and scale is novel, not least because of the ceaseless march of digital technology and the encouragement, or at least toleration, by Western elites of mass movements of people from the poor to the rich world . From an historical perspective it is simply the latest example of the laissez faire economic ideology capturing elites and becoming the dominant ideology.

Laissez faire economics has its roots in the late 18th Century when Adam Smith made himself its John the Baptist with his Wealth of Nations (The Invisible Hand playing the role of God’s avatar). In comparison with those who became his disciples in the following century, Smith was responsible and restrained, acknowledging that there were things such as the provision of roads which only the state could undertake and economic areas such as armaments which should as a matter of national prudence be kept in public hands. His followers such as Richard Cobden, John Bright and David Ricardo In the 19th century knew no such restraint and wanted little if any state interference in the economy at home or abroad.

The consequence was that Britain was tied to the idea of free trade from the 1840s until the First World War intervened in 1914. During that time the rest of the then advanced world practised protectionism while Britain outside of the Empire did not. This resulted in Britain’s dominant economic position in the world in 1850 deteriorating badly by 1914, with the GDP of the USA and Germany then exceeding that of Britain. The years 1840-1914 were a period of great economic instability in Britain with frequent booms and bust, frequent bubbles, bank failures and great damage being done to Britain’s self-sufficiency, most particularly in food. It was also a period when British industry became deficient in many of the new major industries such as chemicals, despite having been leaders in the early days of those industries. This was the outcome of an economy which was allowed to evolve without any state guidance or initiative. Come war in 1914 and Britain found itself dangerously dependent on imports of not only food but other vital materials and products, a dependency made all the more problematic with the development by Germany of efficient submarines to prey upon boats bring the imports to Britain.

Nonetheless, the period 1850-1914 saw a very considerable increase in global transactions and movements of peoples. This was a consequence of the development of the railways , the steamship, the Telegraph and vastly improved roads and the existence of the various European empires (including the Russian) which allowed much free movement of people and goods within the bounds of each empire.

But although this was a form of globalism, its pernicious social and economic effects were greatly ameliorated (at least for the developed world) by the fact that so much of the world was controlled by the European empires. The mass movement of peoples occurred within the colonial possessions not between the colonial possessions and the colonial power’s homeland. Politics was still contained within the nation state. The developed countries, with the exception of Britain, still thought their national advantage was to be gained by protectionist measures. Even Britain did not completely buy into the idea of free trade because legal preference was given to trade within the Empire

A World war and the Great Depression killed off the laissez faire creed as the elite British and British imperial ideology for 50 years. The European Empires were dismembered and the Soviet and Chinese communist blocs created . Protectionism ruled (even the European Economic Community, as the EU was then, did not greatly change the picture because it was small to begin with and the radical measures such as the single market were for the future).

After the second World War it was, for the developed world, an era of great stability. There was no war in Europe worthy of the name, the nearest approaches to it were several uprisings against Communist rule; such serious wars as the West became involved in – most notably Korea and Vietnam – were either wars of choice not necessity or native uprisings at the fag-end of European colonialism like the British fight against communists in Malaya and the French retreat from Indo-China and Algeria.

In this protectionist world the economies of the United States and Europe did not shrink or stagnate. Just as the economies of those which practised protectionism in the nineteenth century grew, so did those of the developed world grow between 1945 and 1980. It is a myth that only laissez faire economic policies produce strong growth. Britain was an exceptionally interesting case because the Attlee government of 1945-51 undertook arguably the most radical programme of nationalisation ever seen outside of the Communist world and British governments of all formal colours followed what were essentially social democratic policies domestically until the election of Thatcher in 1979

Most tellingly, after 1945 there was no general serious economic crisis until the early seventies when two extraordinary events occurred. In 1971 the USA unilaterally collapsed the Bretton Woods system which imposed discipline on the world’s freely exchangeable currencies by pegging the dollar to the gold standard and the other currencies to the dollar at fixed prices. This introduced the destabilising volatility of floating exchange rates into the world’s economic system. In 1973 the oil producers’ cartel OPEC doubled oil prices. But even these considerable shocks did not knock the world economy over ; they merely made it stagger. It took the advent of Thatcher and the American neocons to drive the economies of the developed world into a world of ever increasing make-believe where their politicians kept on saying how things were getting economically better, that countries such as Britain could become post-industrial and live off service industries alone. The insanity of that mentality can be starkly seen now as unemployment has remained stubbornly high in the developed world, something exacerbated by the present depression but not created by it.

10. Unemployment as a barometer of an economic system

Unemployment is arguably the prime barometer of the social utility of an economic system. It was very low in Britain until the early seventies running along at 2-3% (http://www.parliament.uk/documents/commons/lib/research/rp99/rp99-111.pdf).

Even at the end of the 1970s its was low compared with what it has been since globalisation took off. In 1979 the Independent Labour Organisation (ILO) count of those seeking work without necessarily being signed on for unemployment pay was 1,528,000 and the figure for those signed on for unemployment pay was 1,064,000. (http://www.york.ac.uk/res/ukhr/ukhr0405/tables&figures/04%20004.pdf)

In Britain in 2011 the official ILO survey figure in August was 2,566,000 (8.1% of all economically active). Those actually signing on for unemployment benefit totalled 1,597,200. (http://www.parliament.uk/topics/Unemployment.htm).

However, that is not the true figure because there were 2.58 million people claiming long-term sickness benefit (Incapacity Benefit and its 2008 successor Employment Support allowance) in February 2011. (Perhaps even more staggering there were 5.8 million working age benefit claimants). (http://research.dwp.gov.uk/asd/index.php?page=statistical_summaries).

In 1979 the long-term sick figure stood at 720,000 (http://www.dailymail.co.uk/news/article-1042141/60-long-term-benefits-claimants-work-admits-minister.html).

It stretches credulity beyond breaking point that there are there are some 1.8 million more people of working age who are too ill to work indefinitely in 2011 than 1979. The reality is that much of the 2.58 million will be disguised unemployment.

During the 1980s the Thatcher Governments adopted a policy of moving people off the ever growing unemployment register (those claiming unemployment benefit peaked at over 3 million in 1986) and onto the long-term sick count, where they often remained more or less permanently because much of the unemployment was structural (a consequence of deliberately destroying much of Britain’s extractive and manufacturing industry) and the unemployed simply had no jobs to go to. The policy was carried on by the Tory and Labour Governments which followed Thatcher.

How much of the 2.58 million now on the long-term sick register are really just unemployed? As it is only those of working age (16-65) who are part of the statistics, it is difficult to see why the real figure would not be similar to that of 1979. The population has grown since 1979 by a few million so let us say that 1 million are the genuinely long-term sick. Add the other 1.58 million to the ILO figure for 2011 and the unemployed rises to over 4 million. To that figure can be added those who now stay on at school until they are 18 (in 1979 far fewer did) and the vast increase of university students (from around 13% in 1980 http://www.le.ac.uk/economics/to20/greenaway03.pdf to around 40% in 2011 http://www.telegraph.co.uk/news/uknews/1584495/Labour-sticks-to-50-per-cent-university-target.html).

It is difficult to give exact figures here but it would probably push the true figure of unemployed in the UK in 2011 up to around the 5 million mark.

As an example of how globalisation brings instability, both economic and social, Britain is probably the prime example among developed nations. All it has brought to Britain is seemingly permanent mass unemployment.

It would be argued by the Thatcherites and their ilk that the high level of employment in the post-war period was due to overmanning, especially in the nationalised industries. That has some truth in it, although the extent of the overmanning is exaggerated by modern neo-liberals. It is also a question of what service is given. Much of the supposed overmanning of the nationalised industries was really a matter of giving a superior service to that which is given by the nationalised industries after they were privatised and manning levels drastically reduced.

But even if it is allowed that there was substantial overmanning in the post-war period that does not necessarily mean it was not of social and economic benefit. What needs to be considered is the overall picture of society where such overmanning exists. It ensures that most people in a society are employed. That creates social stability by giving people a routine in their lives, by ensuring that people are bound into society , by giving them a sense of purpose and most importantly a feeling of security so they can plan for the future, something particularly important when it comes to starting and raising a family.

That was essentially the situation in the period 1945-1979. People felt secure in their jobs, housing was cheap and plentiful, not least because the massive council housing programme of the 1950s and 1960s, the NHS had been created and perhaps most importantly a single adult wage was enough to support a family.

Compare that with what we have today. People in Britain are increasingly insecure. If they have jobs they fear that they will lose them. If they keep their jobs there are pay freezes or wage reductions. The unemployed seek desperately for jobs – any jobs – but find they are competing with dozens or even hundreds of people for unskilled work. It is difficult in 2011 to support a family on a single adult average wage. Housing, both bought and privately rented , has become obscenely expensive – If the average house price in 2011 was the same in real terms as the average house price in 1955 it would be less than £40,000 (http://livinginamadhouse.wordpress.com/2010/10/24/the-vicious-poison-in-the-british-economy-is-the-outlandish-cost-of-housing/). It is a recipe for rabid insecurity and the fuel for renewed class hatred and racial and ethnic strife.

The dirtiest secret of all in this matter of overmanning under the social democratic regime of the post-war years or the supposedly more efficient workings of laissez faire since 1980, is that the British government has developed a universal subsidy for employers. It is tax credits which are paid to people in work on low pay (the definition of low pay has been somewhat elastic being up to £60,000 until recently but it is still at £41,000 – http://www.hmrc.gov.uk/taxcredits/start/who-qualifies/what-are-taxcredits.htm#8).

Hence, the taxpayer is in effect paying employers to take on labour, rather than, as used to be the case, the taxpayer paying the employee by funding more generously manned nationalised industries than were strictly required.

The true cost of unemployment is rarely calculated. For example, where structural unemployment occurs, as with the coal mining closures in Britain, large numbers of people are lost to work for many years, not infrequently for life. The cost to the taxpayer in maintaining long-term unemployment is immense, as is the psychological cost to the unemployed individuals and their families. Even where those made redundant get new jobs they are rarely as well paid as those which have gone. Often precious skills are lost to the country when an engineering company closes or offshores its production. These factors are rarely if ever built into cost-benefit analysis of the loss of employment. British government contracts are a good example. They are frequently awarded simply on the basis of who offers the lowest price. A recent example of this is the awarding of a multi-billion pound contract to Siemens rather than the British-based Bombardier for trains for the Thames Link. (http://www.bbc.co.uk/news/uk-england-derbyshire-14019992). If skilled people cannot find appropriate work in Britain, they go abroad.

There is also a general economic benefit from having people in jobs, drawing regular wages and feeling secure: it helps maintain aggregate demand because people both more confident about spending and , because the money and the spending appetite is spread throughout the population the rate of circulation of money is kept high which stimulates economic activity.

11. Capitalism in a protected domestic economy

If it is not capitalism but free trade and the mass movement of people across national borders which causes instability what is the solution? WE could remove those practices and societies, but then what?

If capitalism was allowed free rein in the domestic economy but free trade and mass immigration were not, would that be the ideal regime? Capitalism in the domestic market would certainly have the capacity for damage if there was no state support for the poor, the sick, the disabled and the old in the form of ensuring that there was sufficient housing, healthcare , educational opportunity, pensions for the old and support in times of unemployment and illness within the reach of the poor.

There are also things which should remain in public hand as a matter of policy either because it would dangerous for them to be in private hands (the armed forces, police, justice) or because they can only operate efficiently as a monopoly (the post office) or are a natural monopoly (roads, railways).

Perhaps most contentiously there is a strong case for nationalising banks, both because of their potential to wreak havoc in an economy and because their nationalisation would return control over the money supply, as far as it can ever be controlled to national governments. Nationalised banks should also make a handsome profit to for the taxpayer because it would next to impossible not to regularly make large profits if they eschewed the reckless practices of the past generation. (There would of course have to be very strong constitutional bars to politicians debauching the currency.)

But even if banks were not nationalised, they would be much easier to control within an economy operating within national borders with national politicians committed to the idea of nations not internationalism. For example, national governments could ban any financial instrument which created confusion between lender and borrower, creditor and debtor. They could cap the amount of sovereign debt held by a bank. They could insist upon minimum deposits and maximum multipliers of wages for mortgages. Restrictions on lending to foreign borrowers could be introduced.

The existing banks are of course operating internationally and it might be thought that all they would have to do is shift their entire operations out of any national territory which tried to control them. There are two good reasons why they would not want to do that. First, banks may be international in their trading, but often they still have much or a majority of their business in a particular country, normally the country of their origin. That would make it difficult to shift their operations because they would have to be willing to kiss goodbye to a large part of their business if the national government of a country where they had much of their business was serious about controlling them. Any national government could simply say, all right you won’t play ball with us, we shall not let you trade in this country.. The second reason is the fact that banks rely on governments underwriting them to a large degree both in terms of guaranteeing deposits and by Central Banks acting as lenders of the last resort. There are not that many countries which can safely offer such guarantees. That would make the threat of leaving somewhat hollow.

Provided that all things are done – welfare, nationalisation, protection, control of the banks – allowing free enterprise to generally organise most things economically within the nation state is the best way of proceeding. If a general protection for strategically important parts of the economy such as farming and energy production are put in place, a judicious use of quotas for a wide range of necessary goods implemented (says, 75% of all necessary goods to be home produced) and mass immigration is outlawed, there is little harm that capitalism (or private enterprise if you prefer) can do .On the credit side of the ledger, there is undoubted great utility in having a self-organising part of the economic system which satisfies human ambition and efficiently delivers goods and services where the ability to pay is either not an issue or the good or service is not a necessity. This would cover the large majority of economic activities, because much of the welfare provision would come in the form of money to the claimant and this would then be spent to purchase food, clothes and so on provided by private enterprise. There is also an argument that it is healthy for a society to have large numbers of people who are capable of taking charge, making their own decisions. One of the problems the countries of the Soviet bloc had after the USSR split and the communism fell was the lack of people who were capable of taking charge, of creating new businesses or even doing jobs which required initiative.

The alternative to capitalism is states running command economies. These do not have a happy record. Much better to allow a properly controlled capitalism to do most of the job of meeting most human needs.

Will the elites of developed world wake up and see that globalism is the problem? Not from choice because they have nailed their colours to the internationalist banner. But fear of what is happening in the world they have created – growing class feeling, racial and ethnic strife and increasing material deprivation and insecurity – may drive them to bite the bullet. Let us hope that happens before it is too late.

See also

http://livinginamadhouse.wordpress.com/2011/05/23/the-wages-of-globalism/

http://livinginamadhouse.wordpress.com/2011/01/10/a-sane-alternative-to-globalism/

http://livinginamadhouse.wordpress.com/2011/03/13/market-economies-and-the-illusion-of-choice/

http://livinginamadhouse.wordpress.com/2011/03/03/does-the-welfare-state-corrupt/

http://livinginamadhouse.wordpress.com/2011/02/14/public-service-and-private-enterprise-what-do-we-mean-by-efficiency/

http://livinginamadhouse.wordpress.com/2011/09/21/another-day-another-lethal-financial-derivative/

http://livinginamadhouse.wordpress.com/2011/01/30/the-consequences-of-an-end-to-mass-immigration/

http://livinginamadhouse.wordpress.com/2010/12/27/does-free-trade-deliver-greater-prosperity-the-lessons-of-economic-history/

One response to “It isn’t a crisis of capitalism but a crisis of globalism

  1. Richard Allan

    So no-one has the guts to point out that this is a load of economically illiterate garbage? Whoever wrote it, why don’t you at least try adding some academic citations into your next rant. A fog of unbacked assertions such as this should be taken seriously by no-one.