The View from Ohiwa

This is how the world seems from where I see it. I have posted some of my recent writings, both published and unpublished. They cover a range of issues, mainly of current interest, and arising mainly in the areas of politics and economics.

Your own contributions would be welcome.

CONTENTS

Implications of the Euro Political Rumours Tony Blair's Easy Options Rates Reform Political Cross-Dressing How Has Labour Done? Global Warming and Market Failure

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Implications of the Euro

The subtitle of “Implications of the Euro’ (edited by Philip Wyman, Mark Baimbridge and Brian Burkitt and published by Routledge, 2006) is “A critical perspective from the left”, and that is exactly what it provides. With a foreword by David Owen, and essays from academics like the editors and Jonathan Michie, politicians like Austin Mitchell and Tony Benn, and journalists like Larry Elliott, it is a long overdue and valuable exploration of the political and economic aspects of the euro from a left perspective.

Bryan Gould provides a preface which summarises the issues in these terms:

“This book is long overdue. The debate about Britain and the euro – so far as there has been a debate at all - has been largely the preserve of the right, and has been pretty much dominated by simplistic posturing. On the one hand, those in favour of British adoption of the euro have stressed the lower transaction costs and the convenience to travellers, and – if they are a little more knowledgeable – the familiar argument that to stay out would be to threaten trade and investment.

The opponents, on the other hand, go for the nationalistic pitch, stressing the importance of national symbols like the pound and the Queen’s head on our currency. Neither side seems greatly interested in exploring the fundamental issues of economic and political significance that could help shape both Britain’s and Europe’s future.

The left has hardly entered the debate, reflecting an unwillingness to be identified with either position adopted by the right, a broad but rather fuzzy commitment to internationalism, and an unthinking suspicion that exchange rates and currencies are properly the concerns of right-wing businessmen and technicians. Some – like the commentators – prefer to see the issues in terms of domestic and especially personality politics. Could Tony win a referendum? Or will Gordon use opposition to the euro to open the door to Number Ten?

All of this misses the point – or rather several points. As a policy issue, the euro poses real challenges, and real opportunities, to the left. The careful exploration and successful resolution of these issues could determine the prospects of Labour governments for years to come.

The economic consequences of embracing the euro can hardly be overstated. A single currency inevitably requires and dictates a single set of monetary conditions brought about by a single monetary policy. In an economic zone as large as the current European Union, it is inherently unlikely that a single monetary policy could conceivably meet the interests of all the diverse parts of that economic zone. A monetary policy that suits the stronger countries (who have the major say in what that policy should be) will harm the interests of the weaker, reinforcing the natural tendency in any economy for productive capacity to concentrate in the stronger parts.

A single currency means the renunciation of one of the major (and potentially beneficial) instruments for dealing with this misalignment. Correctly aligned exchange rates allow differently developed economies to interact with each other to mutual advantage, encouraging each to move resources to the potential growth points where they enjoy a comparative advantage. With a correctly aligned exchange rate, a weaker economy can trade productively with a stronger one, with both concentrating on the things they do best.

In the absence of that possibility of adjustment, inequalities do not disappear. They simply re-emerge in other forms. Those parts of the wider economy that find the going tough will experience a further loss of economic activity, investment and employment. The consequent fall in demand will in turn depress the wider economy, affecting even the stronger parts who were the initial beneficiaries of the single monetary policy.

It is for these reasons that the United Kingdom’s decision on the euro is important for Europe as well as for the United Kingdom. A decision to stay out of the euro zone could be argued not only to be in the United Kingdom’s interests but to point the way to a better economic future for the European Union as a whole. The European economy would function better if component parts had the freedom to set their own monetary conditions and exchange rates so that they can trade with each other in optimal conditions.

These arguments are not purely theoretical. The experience of European countries over the last twenty years (bearing in mind that the Exchange Rate Mechanism gave us an early test of the economic consequences of currency union) testifies to the damaging effects of compressing diverse economies into a single monetary and currency zone. It is no accident that the European Union continues to struggle while the United Kingdom has, by comparison and since leaving the ERM, prospered.

In the absence of any possibility of exchange rate adjustment, there are only two escape routes for depressed parts of a wider currency zone. First, they can wait until a lower level of economic activity so depresses comparative living standards and wage rates that investment is attracted by those lower labour costs. The problem with this is that it takes a long time and that the loss of output while this slow and painful adjustment takes place will harm both the particular component part and the wider economy. This is, nevertheless, where the euro zone now is.

Secondly, the depressed area can throw itself on the mercy of the wider entity, arguing that it is making a sacrifice of its own economic prospects for the sake of some wider goal, and that it is therefore entitled to all the benefits (such as they are) of the wider entity’s regional policy and, ultimately, social security largesse, in order to offset the loss of economic welfare.

The wider goal for which this sacrifice is made is presumably a degree of political integration which is also the necessary pre-condition for the assumption of regional policy and social security responsibilities by the wider entity. It is only in a political union (and even then the strains are immense) that the parties recognise such a community of interest as to make possible both the sacrifice on the one hand and the assumption of responsibility on the other.

The economic aspects of a single currency, in other words, inevitably elide into the political aspects. The deleterious economic effects of an inappropriately wide currency union can only be made tolerable – so it is calculated – if the parties agree to throw in their lots with each other to the point where the value they place on their common political identity outweighs the economic sacrifice. Those who do not dare propose such a step in its own right calculate that it can be achieved by a detour.

Such a step remains, however, fraught with difficulty. We know from our own experience in the United Kingdom that even a long-established political union suffers huge strains that are only exacerbated by economic divergence. Major questions of concern to any democrat arise – issues of self-determination and accountability, representation and identity. Democracy is, after all, about more than voting. It means being governed by those by whom we choose to be governed.

The price we are asked to pay for a less than optimal economic performance is, in other words, a political step which we might be prepared to take one day, but which even its proponents do not dare to describe openly right now. This should be of real concern to the left – indeed, to any democrat - and this book is a valuable step towards a proper exploration of that concern.”

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Tuesday, October 31, 2006

Global Warming and Market Failure

The Stern Report draws some alarming conclusions from the growing scientific consensus that global warming is a fact and is caused by greenhouse gas emissions arising as a result of industrial and other man-made processes. The Report demands an immediate and effective response from governments around the world.
It also prompts a prior question. Why has the free market - so often hymned as infallible by right-wing economists - allowed this situation to arise? And why have governments not intervened before now to protect us against this extreme example of market failure?
As I point out in The Democracy Sham, the world economy is now controlled by a small number of highly ideological and self-interested power players who are prefectly prepared to put that self-interest ahead of the health of the planet itself. They are able to treat any cost that does not arise directly - in terms of the bottom line - as "externalised" - that is, to be borne by someone else or, in many cases, by no one at all. Environmental costs fall clearly into this category. Their existence is either denied altogether, as in the case of global warming, or lip service is paid to dealing with them. Governments, other agencies and individuals who dare to take a different view are told that if they do not like it, the economic activity at issue will simply be moved somewhere else.
A prime example of the impotence of governments, when faced with this kind of blackmail in the global economy, arose recently in New Zealand. The New Zealand government has signed the Kyoto Protocol and proposed a carbon tax as a means of helping to meet its Kyoto commitments. They were promptly told by Alcan, the multinational aluminium smelters, who are major users of electricity, that a carbon tax would mean that they would move their plant elsewhere. The government abandoned the carbon tax and is left for the time being without any credible means of bringing about a significant reduction in emissions.
Global warming, in other words, is just the latest and highest-profile example of the heavy price we pay for conceding control of the world economy to a "free market" in which a handful of operators can hold the rest of the world to ransom. It is time, in the interests of us all and of the planet, to re-establish political and democratic control over the economic process.

Bryan Gould

5:36 pm est

Monday, October 23, 2006

Bryan Gould Speaks at Labour Party Conference

The New Zealand Labour Party has invited Bryan Gould to speak at their Annual Conference in Rotorua on 28 October. Bryan Gould will give two presentations on the theme of his book The Democracy Sham and will discuss the impact of globalisation on the New Zealand economy and society.

5:10 pm edt

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Political Cross-Dressing

In his speech at News Corp’s celebrations in California on 30 July, Tony Blair said that the old divisions between left and right were no longer relevant and that the modern political debate was “no longer between socialists and capitalists but instead between the globalisers and the advocates of protectionism, isolationism and nativism.”

Let us accept his analysis for a moment and his contention that one of the protagonists in the debate could be characterised as the globalisers (including, of course, his host and friend Rupert Murdoch). His description of those on the other side of the debate as protectionists, isolationists, and “nativists” is, however, less easily accepted or even understood. Those who want to oppose or at least criticise some aspects of globalisation do not necessarily do so on the basis of isolationism. Many of us would see our positions as consistent with openness, freedom and internationalism. We just happen to have some regard as well for democracy, self-determination and values other than those of the market.

It is a common trick, error and in some cases self-deception to attach unflattering but inaccurate labels to one’s opponents so that their arguments can be more easily dismissed. It is perhaps not surprising that Tony Blair should have descended to this kind of puerile argumentation.

What is a little more surprising, however, is the firmness with which he identifies himself as a globaliser. What a reversal of normal expectations it is that the leader of a Labour party should so happily align himself with the big battalions. Little wonder that voters are confused and apathetic. Not for nothing did I call my book on globalisation – to be published this month - “The Democracy Sham: How Globalisation Devalues Your Vote.”

Bryan Gould

1 August 2006

How Has Labour Done?

My friend and colleague, Austin Mitchell MP, asked me a month or two ago to write a short piece for the House Magazine on the state of the Labour government. He was kind enough to publish it on his own website but I reproduce it here for visitors to this site.

"What is the role of the Left in an advanced democracy like Britain? What can reasonably be expected of a Labour Government? And these two questions prompt a third. Does the Labour Party still represent the Left in British politics?

My answer to these questions (which were often raised with me by Labour Party members on my recent visit to Britain) is a personal one and starts with a proposition. In every society, power – unless checked – tends to concentrate in fewer and fewer hands. Britain is no exception. The powerful will always use their power to make themselves more powerful. The role of the Left in a properly functioning democracy is, surely, to counteract that concentration of power. The true business of Left politics, in other words, is (pace Mrs Thatcher) the diffusion of power throughout society.

If that is to be achieved, the less-than-powerful majority must use their democratic political power to put in place a government that will achieve that purpose. That is what they think they are doing – even if not articulated - when they elect a Labour government.

The expectation of a Labour government is, therefore, that it will restrict the growth of untrammelled economic power, especially in sensitive areas like the media. It will ensure that political power is equally shared – that the democratic process is maintained in good shape and that human and civil rights are protected. It will allow less powerful people to organise themselves so that their collective strength can protect them against the economic force of powerful individuals and groupings. It will guarantee the basic decencies of life to all in society, irrespective of their power or lack of it in the market-place, so that their life-chances are not arbitrarily restricted. It will develop the cohesion of society so that communities as well as individuals have a role to play and enjoy a stake in its success.

None of this means that Left politics must always act against the powerful. Nor does it mean that the undoubted and unique benefits of market operations must be eschewed. It takes no account of other important requirements of good government, of which basic competence and good sense would rank high on the list and where the Labour government has, arguably, scored well. But it does mean that Left politics, and a government of the Left, should be distinguished by their willingness to restrain the powerful and to ensure that the less powerful are not overlooked or ground down and are, on the contrary, encouraged and liberated.

This is not, it should be noted, a revolutionary agenda. It owes little or nothing to Marxism. It is, on the contrary, a sober, careful and non-ideological statement of what might reasonably be expected to distinguish a government of the Left from that of any other persuasion.

So, how much of this can we see in today’s politics? And how does the Labour government measure up?

The answers are - not much and not well. We see a Labour government which pays excessive attention to the powerful, both internationally and domestically, and which apparently believes that nothing can or should be done without their support. We see a Labour government that is prepared to endanger the democratic process and civil liberties by placing the interests of government and other big players ahead of those of ordinary people. We see a Labour government that has pursued an economic policy that favours asset-holders but jeopardises the jobs of those who make and sell things, a government that has – in areas like education – re-introduced unwelcome and unnecessary divisions, a government that apparently distrusts the idea of community and collective organisation, and prefers to entrust the functioning of society to the unchallenged market-place.

If I am right in identifying a gap between what a Left government might reasonably be expected to do and what a Labour government has actually done, we might begin to make sense of the current political landscape. That gap means that there is a void in British politics – a hugely significant part of the political spectrum is no longer represented in the politics of power. This is more than just a deficiency, or an absence. The democratic Left, which has been the wellspring of so much that is progressive, innovative and reforming in Britain, finds that it is not only unrepresented but has actually been supplanted by what it thought was its own instrument – that, instead of what should be its voice, a different and contrary voice is heard.

This in turn explains the sense of disappointment, even of betrayal, that I found so often expressed. Left activists and supporters are at best bewildered and apathetic, at worst angry but impotent, at what has happened. There is a powerful sense of lost opportunity. The thoughtful realise that the opportunity presented by an overwhelming popular mandate for change, the intellectual bankruptcy and debilitating divisions of the Right, and a consequent period of virtually unchallenged power in government, is unlikely to be repeated.

They know that, while the Tory party may still – under an unproven leader who has yet to demonstrate any substance – lose the next election, there is a palpable sense that the balance of political advantage is shifting. David Cameron is at least succeeding in drawing a line under the disintegration of the past fifteen years and signalling that a new Tory Party is ready to contest for power. The risk to Labour is compounded not only by the cumulative failures that attend the progress of any government but by the loss of trust and sense of disappointment on the part of its own natural supporters.

As the Blair period draws to an end, and an unparalleled window of opportunity closes, an alleged government of the Left will not only have wasted a unique chance of promoting real change. They will have achieved the reverse of what many of its supporters expected. They will have presided over, even engineered, an entrenchment of power for the powerful. Gordon Brown may well find that his inheritance is worth little more than a mess of pottage."