Special Reports
 
 


WHO LOST THE COLD WAR?
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WHO LOST THE COLD WAR? 
(WE ALL DID)

In early 1991 Boris Yeltsin, president of Russia called a weekend meeting at a former hunting lodge near Brest Litovsk, close to the Belarussian border with Poland. His only soviet colleagues present were the presidents of the two other slav republics, Ukraine and Belarus, both of whom, like Yeltsin himself, have passed into the pages of history. 

When the weekend was over the Soviet Union had ceased to exist and a seventy four years long tyranny was over. This was certainly the most significant event of the second half of the 20th Century, for as a result, the world had changed fundamentally. The west was completely taken by surprise, despite deploying the most sophisticated intelligence gathering organisations the world had yet seen. It was not predicted anywhere, and certainly was not expected. It was not just the spooks that were caught flatfooted. The world of Academia was similarly unprepared. The libraries of the world's great universities were stuffed with treatises about how world and western economies could or should become socialist, but apparently not one book existed to show how to convert a communist economy into a capitalist one. With only one adversary left standing, the red meat eaters of the capitalist marketplace launched the approach of no-holds-barred global expansion and a departure from the constrictions of national governments. 
It was as Alexander had told his victorious troops, "Yours is the victory - yours the spoils." In Russia itself, the economic shock tactics nearly destroyed what was left. The oligarchs came out of the woodwork, and certainly showed what could be done in the field of raw capitalism, when governments are prepared to stand back in favour of the sentiment of that other enlightened communist, Deng Xiao Ping a decade or so earlier, when he proclaimed that it is indeed "glorious to be rich!" 

By the time that the dust of this extraordinary epoch-ending episode had settled, a hubristic self-congratulatory mood had taken root in the chancelleries of the west. It was reflected in their national media and entered the annals of conventional wisdom to be relayed to successive generations of students.

The bottom line of this was not just the simple fact that democracy had triumphed over totalitarianism, so much as that communism with its wretched economic record, had collapsed under the weight of its own contradictions, in the face of the more successful capitalist model of the west - which now found itself the only economic show in town. The prescription for the west from now on, was to be global expansion and a move away from government interference of any kind (the Friedrich von Hayek doctrine), enabled by the ultra-rich providing the financial resources to obtain the election of particular politicians, to ensure that thereafter the US government would stay in its kennel. 

Now after some fifteen years experience of this unchallenged economic system newly reinforced by the massive self-confidence of success, vis--vis the former Soviet system, it is not before time to point out that looked at objectively, and not in comparison with the failed dogma of the commissars, what we are left with appears both highly dangerous and deeply unsatisfactory as the way forward for humanity. 

Certainly communism was no good and happily that has gone, but the unrestrained global capitalism that has rushed into the vacuum that was left, is not good either!

THE RISE AND RISE OF THE CITIZEN STOCKHOLDER
The powerfully promoted Wall Street version of market capitalism can be seen to be heavily risk-laden in pursuit of instant enrichment, that being one aspect of the Bourse. Risk was always a part of that equation, but now the really big financial game has become the gambling on currency values involved in hedge trading and currency speculation of all kinds, and the sums involved are breathtaking - EVERY DAY $4 trillion is invested in the worlds currency markets, a sum larger than the ANNUAL GDP of the USA and this without accountability to any government. 

Now the commercial world has become overweighted to the advantage of managers and stockholder-citizens at the expense of employee-citizens. Having raised such incredible appetites for individual wealth, it has diverted the nascent brilliance of some of its leading practitioners into get-rich-quick fraudulent schemes of great complexity, with a brazen disregard for what would now be considered the quaint notion of the public good. 

More than that, in some countries - the US in particular, the balance that long existed between the citizen employee-taxpayer and the citizen stockholder has swung emphatically towards the latter. The stockmarket investor who places funds in what may once have been a US or UK company but now is registered in the Dutch Antilles, the Cayman Islands, Bermuda or many another available island paradise, is now (perhaps unconsciously), exporting their funds and investing in a foreign country. 

The tax element of those companies and in many cases of their investors, are placed offshore to avoid paying anything other than totally insignificant sums to the new national host. And to pay no corporate taxes at all to the country where the company itself originated, does most of its business and which services and defends its citizens, which includes many of those employed by that company which is quite legally avoiding the tax. Inevitably the big-time stockholder citizen acquires wealth and thus influence on a scale that is not available to the plain, ordinary taxpayer citizen. If ever they have to decide not so much on residence but on nationality, it can be seen that given the sheer size of the money involved, for many, the chosen citizenship would no longer be that of their native land. The point being that there is an incentive for an influential, effectively stateless, transnational plutocracy with loyalty only to their assets, and depending primarily upon big financial muscle, which has already emerged. 

It has long been the case that wealthy people from many none-too-stable countries: Latin Americans, Africans, Iranians and others have put substantial funds into stable, reasonably discreet, easily reachable financial systems, like those of London, Paris, Luxembourg, Switzerland, and many more. It was characteristic of the new mega-rich of Russia and the former communist countries of central Europe, to export their funds as soon as it was feasible to do so. Even a nation such as the former supposedly stoney-broke, 'socialist' Yugoslavia during the regime of Milosevic, with massive international sanctions in force against them and nil exports, found ways of exporting wealth. There were at that time over 400 Yugoslav companies registered in Cyprus, then a favoured money launderer for the 'Orthodox' countries and hosting a large number of ex-pat Russian 'operatives' newly resident there, sitting on their paymasters' newly acquired and very large funds.

So whether the expatriation of funds is entirely or substantially legal, obviously shady or somewhere in between, nevertheless it is happening on a scale and to a volume which by its nature is not measurable, even though we all know it to be huge. It is a short-haul from there to an unconcern and a detachment from the societal problems of their former native land, or of the wider world. Big money means big privilege - the ability to build a cordon sanitaire separating you and yours - from the rest, whether that is via a gated community in town, or self-imposed golden exile on a sunsoaked isle in the company of their peers. 

There is little in the above which is not widely known. This is not a manifesto against wealth honestly come by, and in no circumstances a call for anything remotely akin to communist economics. Who in their right mind could seek the re-imposition of a command economy, managed by a corrupt and inefficient regime, which was not accountable to its citizens and indeed could and did incarcerate them or worse, if their power was challenged? That has been - spectacularly failed, and gone. But even to mention that concept is to reiterate the core problem that our modern society faces. Because communism after seventy years of failure finally collapsed, does not endorse the alternative of global capitalism, purportedly in the interests of the citizen consumer, but as it is now increasingly practiced, obviously heavily imbalanced in the interests of the citizen stockholder. 

This is a wake-up call for attention to the fact that the kind of free market capitalism that once we all signed up for, which in its global model is now being called 'American Capitalism', is in fact per se dangerous and a substantial step backwards in the evolution of the average modern man, who may be both an employee and a taxpayer, but is always a consumer. 

The commercial philosophy which now prevails is one of utter singlemindedness in policies designed to squeeze the maximum yield from the minimum labour cost. That is inevitably the logic of the marketplace, not a criticism of business managers. It could hardly be reasonably expected otherwise from those who have to deliver results, or be replaced. But they can only operate in an environment, an arena, the rules for which are set by others. This activity can either have no restraints at all, or be regulated by elected governments with the lightest of touch, or through the armoury of tax weapons available, or even by agreement between governments. The World Trade Organisation would seem to fit that bill, but in fact it has nothing to say about the problem. 

WHEN THE 'HAVES' BECOME 'HAVENOTS'
If in twenty years it appears that 75% of all the manufacturing jobs in the US will have gone to China, India and other currently low-income states, leaving just what might still be left open in the service industries - (for example overnight short-order cooks jobs for skilled machinists) - then without doubt, governments would discover there was plenty that they could do. It is only a matter of degree, the amount of pain statistically significant indigenous employees have to suffer, until that point is reached. In the American culture as of this time, there is a well-fostered belief that the hardiness and self-sufficiency of the individual will see him through. Twenty years ago in one of Detroit's massive layoffs, many thousands of newly displaced auto-workers loaded up their cars with all the furniture they could carry and still fit in themselves and the kids. They abandoned their mortgages or rented homes, and headed off due south 2000 miles to Houston, where it was said that the oil-industry was hiring. There are not many nations whose citizens have that kind of resilience - it was the same kind of facing-the-facts that had brought them, or their immigrant parents to the USA in the first place. But it will be a sad day if the furniture-laden convoy of family cars pursuing the latest jobs rumour, becomes as it did in the Great Depression, a commonplace of trans-American highways. 

Frequently a set of relatively disappointing results for a corporation, even over a short term, can herald the retirement of one chief executive and his replacement by another with an even bigger incentive compensation reward for cutting costs. How many times has the financial press, mainly read after all by stockholders and managers, heralded such a new appointment triumphantly with the new CEO declaring that he will cut costs. This well understood phrase, calculated to steady or improve the share price, means that he will fire a lot of people, the sickly bromide used in this case being, to 'downsize' the workforce. 

Breakthroughs in international transport and communications have coincided with the refurbished freemarket philosophy of the worlds leading economic powers, to create what is now the norm - the offshore transnational corporation, recruiting at every level on the basis of cost-effectiveness of the workers, and ability of the corps of management. What is now apparent to many that understand that lower labour costs are the killer competitive ingredient, was a quarter of a century ago pioneered by the stateless states of Hong Kong and Taiwan. When their local labour got too pricey (we are talking low cost already), factories were moved, repeating the process after some years between Malaysia, Thailand, Vietnam, and on to even lower priced south Asian nations, until it was suddenly politically possible and indeed desirable to get into mainland China. The world is now witnessing the formidable rise of the Chinese economy, but hold, Bangladesh is now substantially undercutting the textile labour costs of China's coastal cities, so be sure at least that jobs have not stopped moving between countries.

The citizen-employee is always the disposable raw material of a rapid swing towards enhanced profits, or away from loss or otherwise, whenever the citizen-stockholder's interests seem to require it. Up to a point the theoretical presiding authority, individual governments, should not get involved and hold only a watching brief, but there finally comes a point when they must act, or abdicate entirely to the ultimate interests of investors and to corporations that rival the power and influence of nation states, whose loyalty is only to themselves. 

THE CULTURE OF THE MBA
In these circumstances it is absurd that the practitioners of American Capitalism should sneer at and denounce, as they seem to do (in what might be called the culture of the MBA), the standard Business School assessment of the European model, where economics has not been divorced from politics and is unlikely to be so. Here the social and economic responsibility of governments, is to manage the affairs of both in the interests of all their citizens, not just citizen stockholders, but also citizen employees. It should not be to feather-bed employees, or to preserve jobs where there is no work, as notoriously took place in some state-owned industries in the last century, before trades-unions power was brought more into balance with reality. Certain nations will need to address the impossible-to-sustain 'jobs for life' syndrome, but this has successfully been done, not by government fiat, as was recently unsuccessfully attempted in France, but by governments careful and democratic negotiation with trades-unions and opposition parties, as has been successfully taking place in the Scandinavian countries.

It would be foolish to take say France, to be a model of what a good and desirable economy should be all about. It certainly is not that, but only the French can take the unpopular and tough measures to put their unemployment problems (youth unemployment is at 24%), behind them. There is a stubborn resistance to any diminution of hard-won employee rights, which whilst admirable in itself, is brittle because of the inflexibility of organized labour to modify when such modification is clearly necessary. That said, it is always amusing to read the over-reactions in the US press, after some particularly intractable piece of French resistance to an economic measure seen perhaps as standard in the US. Doom is routinely prophesied, and there is incredulity and no small frustration at the fact that the French on the whole continue year after year, to live so well, with arguably the best free health service in the world, a seriously high standard of living, and are able to continue to play their part as a large and important nation of the earth. But nations like Denmark, the Netherlands or Sweden, that make no such presumptions about being any kind of world power, really do show the way in providing a high standard of social welfare, a high average income compared with anybody, anywhere, in clean cities without major crime problems. 

None of these nations can be regarded as anything other than mature polities, and highly successful ones. Their citizens can and some do, still get very rich, some of those opt for tax exile, or just to live somewhere else, and in a free world that is their right and privilege. But those are not nations like the US, whose successful citizens are prejudicing the social welfare of their less prosperous fellows by stigmatising free health, reasonable levels of taxation for the rich, proper pensions, etc, and the fundamental concept that the state should provide at general expense for the general good, an intelligent yet compassionate safety-net approach to life, and employment generally. 

MBA students may be brainwashed into placing their faith in the unrestrained capitalism that is presently so triumphant in the US, but that is what you get when you accept the notion that politics and economics are separate and best kept that way. Monetarism, little talked about now, but in the past (Business schools then hailed it as the golden key to success), was the first display of such a concept. Its exponents preached that government policies should be subsidiary to the volume of the money supply, hence divorced from the concerns of actual people - and for a while it was considered the only way to go.

The USA is perhaps the only nation in the world that practices the policy of reducing tax for the very rich on the specious grounds, recently once again disproved for the snake-oil economics that it is, that the extra funds returned to them will boost the national economy (instead of that of Dutch Antilles bank balances, et al, to where it is swiftly exported). To the extent that payback for election funding takes that form, it demonstrates that politics and the economy are not totally divorced, even in America. But the mantra that the state has no place in the market, is in practice a particularly American notion even if devised by Dr Hayek, taken up also, if only in a minor key by the UK (more as a reaction against ill- managed state industries of the past, than as a unalterable blueprint for the future). The US must hope that somewhere out there someone is listening to them, at a time when there is a move led by an unconvinced Russia and now followed by other poor nations, to smartly re-nationalise their oil and gas industries. 

In the UK the unions are relatively weak, partly because of the general prosperity of the country, and that the workforce is not oppressed. Also, because the government is constantly wrestling as its priorities, no less, with the problems of providing a good free health service and a better standard of free education, which priorities are also the sine qua non of every political party in the UK, as indeed in Germany or France. There is state involvement in the marketplace, but this comes largely at the point of perceived national interest, not unlike the US in fact, when it seemed that an Arab company from Dubai was about to take over several big cargo handling ports in the continental US. The small matter of the furore over the proposed takeover of Unocal by China's CNOOC, and its frustration, demonstrated that the US is as much into economic nationalism as anyone else.

This manifested itself in the UK when it appeared that Russia's giant Gazprom was about to take over Britain's gas industry - which possibility has not yet gone away. France routinely interferes in mega-corporate takeovers if they appear to affect her national interest, which has not been unnoticed by British watchers of the scene when the only British aerospace company announced that it was selling its sizeable holding in the Airbus manufacturer in favour of reinvesting in the US defence industry. So the UK is quitting the present and future promise of booming civil aviation and European aerospace, to help the US arm against the anticipated invasion from Mars (see "KICKING MARTIAN BUTT").

POWER HAS ALREADY SHIFTED
Corporate culture within the globalisation move of the last decade has for some while now transcended national or civic interests, unsurprising really where several global corporations have substantially larger annual revenues than a majority of the world's 191 nation states. The current profit reports from the worlds oil majors alone, emphasise that regularly, as prices and profits continue upwards. Fortune Global 500's current top four corporations all have larger annual revenues than 171 nation states. The top forty corporations each have greater revenues than 140 countries. 

The Corporation as an institution is now challenging and has perhaps already passed the nation state as the leading unit of organization with the most effect on our lives. This is manifested in numerous ways. Nationality is secondary to managerial or other premium talent in middle and senior appointments, where corporations seek the best where merit is supreme, like the highly efficient Chinese mandarin system of the past. Now headhunters scour the world to find the talent. Small wonder then that beneficiaries of that system have their first loyalty to their global corporation as long as they work for them, in whatever part of the world they are sent to.

Money is, as it has probably always been the measurement of business success, but now it has also become the plastic that fills all gaps in the wealth creation process. For several years past it has become commonplace to follow the reports of criminal activity by some very large corporations in the world's media, but there is now often a tendency where they accept massive fine assessments by the prosecuting authority, to avoid court- proceedings, which could ultimately 'knock-on' to result in jail sentences for the corporate officers. It's called cost efficiency on behalf of the tax-payer, but it does mean a parallel system of justice to that available for the ordinary man.

More sinister even than that, has been the revelation that world-famous firms of auditing accountants, capitalism's essential police force (and not 'mickey mouse'outfits), had been helping to create and then sign-off fraudulent accounts, possible only because of the staggering size of the riches accruing to the auditors in question. 

Thirty years ago in Britain there was an outcry when Mrs Thatcher's government sold off publicly owned 'council housing' (social housing for lower income bands), to any of their inhabitants that wanted to buy, and at quite favourable prices. It was a policy which was soon recognised to be enlightened, on behalf of those who previously had next to nothing and who now had become property owners. In the German city of Dresden, City Hall has now just sold its entire stock of publicly owned social housing - 48,000 apartments, but not to the residents. An American property company has paid them $1.2billion . It appears that a further 750,000 additional publicly owned social housing units in Germany will be sold to US and British property corporations over the next five years. 

Goldman Sachs, the worlds leading transnational investment bank is the epitome of the truly international business that manages to make supreme profits (return on equity for Q1 of this year is 40% ), whilst so ordering their many national reporting obligations in such a way that nobody knows how they make so much money. Their revenue, 'The Economist' reports, has grown from $15.8 bn in 2001, to $24.8bn in 2005. Perhaps it is a matter of the bigger you get, the more opaque you become. Certainly managers of this kind of entity of which there are many, there for as long as they can deliver results, which can mean a whole lifetime career, operating if they so choose above or below the 'celeb' publicity radar; must necessarily exercise more clout in world financial affairs than with few exceptions, elected politicians, often with a flimsy tenure and subject to re-election every four or five years. What is particularly worrying here is that companies like this are those collectively that invest more money every day in the worlds currency markets, than the annual GDP of the USA, without accountability to any government. If that were to go wrong, it would be tsunami time, the 'ripples' would be a tidal wave affecting much more than the shareholders of those companies. For those who say it can't happen, remember the purgatory of the collapse of Lloyds Insurance market; the failure of Barings Bank through one rogue trader; the bursting of the dot-com bubble; and other spectacular reverses of recent times. 

In the UK there is massive financial competition between very few giant-sized retail grocery corporations, a story closely followed in the financial press. The government's Office of Fair Trading has announced that it will be investigating practices, including groups buying in land 'to bank,' seeking planning deals with local government, not just to enable them to open stores, but that will EXCLUDE rivals from being able to set up in competition in a given area. So much for the citizen-consumer being the beneficiary of raw capitalism. 

SEE OUR NEW WORLD BECKONING
There is now an equivalent of Huxley's "Brave New World" and Orwell's "1984" appropriate to the new century, a racy, engaging read with alarming implications which projects not too far forward, to see where corporate power in the global age may be leading our civilisation. Max Barry's " Jennifer Government" (Vintage Books), postulates that taxation has been abolished and a privatized police force competes for security work with a fully militarised NRA (sic), both competing for corporate work from the only paymasters available. Significantly, Newnations said in the March '06 report on South Africa, that in that crime-infested society, already there are twice as many registered private security guards (280,000), as there are police -in whom the population appears to have little faith. 

It is one of the casualties of our time that the English language has been distorted (by mainly US political practitioners within the US), whereby the fine and honourable noun and adjective 'liberal,' has become a term of abuse or even contempt, following into the political wilderness the fast receding 'socialist,' and nearly defunct 'communist'. Happily that abusive translation is one export that has not prospered outside the US, not even in neighbouring Canada, and in other such places where liberal democracy describes very well what that is. Regardless of specific party politics, it is the framework within which they all function and what they and their mainstream politics are about. 

Strangely, the same word 'liberal,' when applied to economics has simultaneously acquired yet another meaning, which has been hi-jacked to describe something more akin to the practice of the American Capitalism described above.

Where, one asks, are the minds that can address the problems that arise from this immensely powerful world-changing force, effectively under nobody's control? One such has unfortunately just left us, albeit after a distinguished life of 97 years. John Kenneth Galbraith was in that liberal tradition that populist media slaggers thought to use as an insult, whilst it was in truth typifying a great and noble record of public and humanitarian service. He had a number of apposite things to say. He attacked the very concept of 'the conventional wisdom,' which in our time typifies the Business school ideal of American capitalism. On the question of tax cuts stimulating the economy, he spoke dismissively of "feeding the horse more oats so some would pass through to the road, to feed the sparrows". In his approach to the idea that it was competition between companies that best prevented monopolistic exploitation, he said that what really mattered was the countervailing power of other vested interests - suppliers, customers, trades unions. He maintained years ago before it was generally perceived, that the planning of giant corporations superseded market mechanisms. John Kenneth - where are you now that we really need you? 

In terms of where we started - the collapse of communism, the US capitalism model of the MBA schools and its comparisons with Europe. The Soviet experience taught the world conclusively that command economics was a dangerous illusion . Apart from that, the world had already understood the lesson from West European experiments with moderate socialism, that the state could not be a creator of wealth. Out of this came a form of capitalism 'with a human face,' moderated by national laws which have now not so much been broken, as sidestepped by the ethos and practice of the 'no-rules' of globalisation. 

The citizen everywhere as employee, as taxpayer, as consumer is individually small, going on tiny . Collectively it is quite otherwise. But with few exceptions, citizens as stockholders have assigned all power to the managers of their chosen investment vehicle, indefinitely on an open-ended commitment to deliver results. Governments are not able to function that way. The politicians have to 'present' to their electorates on a regular, quite short-term basis, to give account of their stewardship. The numerous ways in which corporate power is superseding that of government should not remain unchecked indefinitely. But with the pork-barrel of the lobbyists, and the tenor of reportage in a mass media, itself largely owned by corporate conglomerates in all nations that are significant players, it cannot be denied that perhaps that combination will eventually prove too powerful for the voices of moderation. Enter then "Jennifer Government"!

The social welfare provisions of European states of course vary from nation to nation. In most they are constantly under review and it is the stuff of national party politics that these issues are amended - balancing the national competitive interest against the needs of individuals and the families they provide for. But it is to assume that citizen-employees in Europe are sleepwalking that they would believe that their elected governments should prefer the rampant capitalism of the USA and wind down the State medical services, the social safety nets, the retreat of state pensions, and butt out of the marketplace, all in pursuit of concentrating great wealth beyond the reach of those nations within which it was created. That isn't and shouldn't be about to happen, any time soon. 

Clive Lindley Publisher