Anyone living in Britain could be forgiven for assuming that the only real and important economic crisis is the one facing the UK in the form of a hard Brexit. It is certainly true that this country is close to committing an historic act of economic self-harm. But other countries are facing stiff headwinds — and it is only British exceptionalism that makes the media and commentariat focus so totally on it. For many smaller countries the real threat they face stems from the steady increase in US Federal Reserve interest rates that look pretty baked in over the coming months. The semi-annual monetary policy report that the Fed released this month indicated that policymakers remained bullish on the economy’s prospects and that what it called “gradual” interest rate hikes would continue.
Who holds the power in international politics? Most people would probably say it’s the largest states in the global system. The current landscape of international relations seems to affirm this intuition: new Russian geopolitics, “America First” and Chinese state-led global expansion, among others, seem to put state power back in charge after decades of globalisation. Yet multinationals like Apple and Starbucks still wield phenomenal power. They oversee huge supply chains, sell products all over the world, and help mould international politics to their interests. In some respects, multinationals have governments at their beck and call – witness their consistent success at dodging tax payments. So when it comes to international politics, are states really calling the shots?
Given that almost 27 million Brits — well, Englanders — watched their team’s losing World Cup semi-final against Croatia, there must be some lessons to be learned. Thanks to the gods of political coincidence, the main learning came swift and fast. In the aftermath of their victory it emerged that Croatian captain Luka Modric had accused English journalists and pundits of showing a lack of respect to Croatia’s players and revealed that his teammates had used that criticism to motivate them to their 2-1 victory against England in their World Cup semi-final. As one Brussels-based British EU insider put it, it is not just in football that this complacency, this exceptionalism, this disrespect for one’s opponents that lets Britain down and motivates the other team. “If Croatian footballers can read UK newspapers then, guess what, so can the EU’s Brexit negotiators.”
The resignations of Boris Johnson and David Davis, the Foreign and Brexit Secretaries respectively, and the imminent arrival in the UK of the American President Donald Trump might seem to be wholly unrelated political events and neither of which has anything to do with economics. The opposite, in fact, is the case. The departure of the man who has been the lead negotiator on Brexit — although perhaps a Nino (Negotiator In Name Only) if reports are to be believed — is a clear sign that there is strong opposition within the Tory party to a “soft” Brexit that that would keep the UK within the EU market for goods and foods.
According to an African proverb, when elephants fight it is the grass that suffers. It is easy to forget that while the major geopolitical titans of the United States, China and Russia battle it out, that there are still around three dozen countries that economists call fragile. This is not some official grouping like the G20 but countries that just share a number of failings. Although there is no definition, they tend to share six major problems: a security threat from non-state actors; a government that lacks legitimacy; an inability to carry out basic functions; lack of protection of investors; a vulnerable economy; and deep divisions within society.
According to apocrypha among economic historians, Canada and Italy only became part of the Group of Seven nations, which was formed in the 1970s to cope with oil crisis, by accident. French President Valery Giscard d'Estaing began in 1975 with a meeting for leaders of France, Germany, Japan, the UK and US. He then added Italy. Feeling outnumbered, US President Gerald Ford pushed for Canada’s inclusion to bolster the anglophones. More than four decades later and these two second-tier economies are at the heart of a row that could wreck a centrepiece European trade deal that was billed as displaying multilateral cooperation in the face of Donald Trump’s increasing appetite for a trade war.
The British commuter is non-ideological: she just wants to get to and from work without wrecking her life. She’s the epitome of a self-interested, common-sense, even aspirational voter that politicians have been courting for decades. It is truly shameful (though who precisely feels this most keenly we aren’t sure) that one of the world’s seven largest economies cannot run a basic transport system that has been the hallmark of a competent country since the Victorian era. But then in a nation whose construction industry is built on a conjurer's trick known as PFI and where new nuclear plants will only come on stream on the backs of future generations having to fork out to French and Chinese for decades, it should come as no surprise.
When the International Monetary Fund, the global watchdog with a reputation for advocating the free flow of capital, starts to make noises about companies hiding money in corporate shells or tax havens, then the issue is clearly flashing reds on the authorities’ dashboards. The IMF used its monthly magazine to flag up an astonishing $12 trillion that it has calculated multinational firms have squirrelled away into what it calls empty corporate shells.
The decision by Donald Trump to impose tariffs on European steel and aluminium producers has surely exposed the brutal reality behind the claim by his Treasury Secretary Steven Mnuchin earlier this year that UK would jump to the front of the queue for a US trade deal. As voters, Britons were told repeatedly both during the 2016 referendum campaign and afterwards that one of the major gains from leaving the European Union would be our freedom to strike deals with as many as 40 countries around the world, and particularly with the US as the world's largest economy.
When the chief executives of BT and Rolls-Royce announce they are moving their headquarters from their prestigious central London locations, are they saying something the rest of us have missed? Like the canary in the coalmine or the 1920s American stockbroker who sold out before the Wall Street crash after getting share tips from his shoe shine, the CEOs of these blue chips may be saying something small companies have known for some time —that having an address in London is just not worth the candle.
Young people are poorer than older people. And it’s not simply because the old have worked all their lives and are enjoying the fruits of their labours in their sunset years. The wealth gap between the young and the old is on the rise in England. These were the stark findings of our research into deprivation levels between 2004 and 2015. We measured wealth (or lack thereof) using the the UK government’s English Index of Multiple Deprivation data, which pulls together relative deprivation across seven domains: income, employment, education and skills, health and disability, crime, barriers to housing and services, and living environment.
Zambian-born, Harvard-educated economist Dambisa Moyo jokes that she wishes she had never written her bestselling book, Dead Aid, as every question and answer session reverts to Africa whatever the topic up for discussion. This is precisely what happens at her London School of Economics event this month to launch her latest work, Edge of Chaos, a harsh analysis of the potential threats to the western model of liberal democratic capitalism along with 10 radical solutions. It should be no real surprise to her given that Dead Aid — full title: Why Aid Is Not Working and How There Is a Better Way for Africa — was a searing indictment of Western aid practices, which managed to gain huge publicity after software billionaire turned philanthropist Bill Gates called it “evil”.
The UK is introducing new legislation that will require companies to publish the ratio of what they pay their CEO compared to the average worker’s salary. The move follows a number of corporate governance reforms introduced by the government over the last year and a half as part of an effort to build a fairer economy. But if the government was truly committed to building a fairer economy, it would not rely primarily on companies to do its work for it. When Theresa May first became prime minister, she vowed to reform the UK’s economy to ensure that it would work for everyone. Reforming the way that companies operate is a key part of this vision. According to May, corporate governance mechanisms are the tools by which these responsibilities should be imposed.
With exquisite timing, the World Bank last week asked whether countries were prepared for the next Pompeii. However, it is not a natural volcano that worries people most — despite the car-eating lava from Hawaii’s Kilauea mountain. It is the volcanic temper of US President Donald Trump that threatens multiple outbreaks of wealth-eating economic crises that threaten to bring world economy’s nine-year recovery after the global financial crisis to an end. Risk is back after a beguilingly calm 2017 during which economic and political risks appeared to recede by the month and market volatility fell to historically low levels as traders bet that nothing would rock the boat.
The Trump administration’s face-off against China over intellectual property rights is a battle worth fighting. Unfortunately, the White House has chosen the wrong weapon: tariffs. The administration launched the first salvo in March, slapping steep tariffs on steel and aluminum, and more recently announced US$50 billion in new duties on a range of Chinese goods. Such unilateral tariffs almost certainly violate the rules of the World Trade Organization. Furthermore, they risk sparking a trade war with China, which would ultimately harm U.S. companies. There is a better way to respond to Chinese intellectual property theft: unfair competition law. Use of unfair competition law to sanction overseas piracy is a relatively new tool. However, our research has foundthat it has already proven effective in holding scofflaws accountable.
During my colonoscopy, I learnt my consultant was an offspring of two architects. As he directed the colonoscope into places mostly approached from the other side (unless you're a nematode worm) he asked what I thought of the new hospital where my procedure was taking place. Well..oh hang on, gas pleaasse...mmmm...who? Actually, I’d like to know the doctor’s views on the drawing below: it’s Stansted airport's new shopping mall whose striking wiggliness resembles an intestine. Thirty years ago, Foster’s design for Stansted was a vindication of architectural values. By the 1990s, clutter in public spaces, including airports, was a problem. Foster reputedly kept it at bay with a masterful design. Architectural Review in 1991 said so:
Two of the most egregious but malevolent side-effects of the version of the capitalist economy prevalent in the UK are the domination of corporate ownership by major investors and our rigged housing market. In an exquisite manoeuvre these came together last week when the head if one of the world’s largest investment funds decided to make a stand over the “enormous” pay-outs made to three executives of a house building firm. On first sight this might look like a lioness calling out the excessive nature of a tiger’s animal killing strategy and indeed, there is a little of the black pot and kettle about the row.
The treatment of the Windrush generation of migrant workers invited to come to Britain from the Caribbean is not just an appalling scandal of cruel bureaucratic indifference and political decision-making that is at best disinterested and, at worst, downright cynical discrimination. It is also a manifestation of the results of adopting political positions that run contrary to economic logic as well as natural justice. People from the West Indies were invited to come to the UK in the 1940s and 1950s - and later from the Indian sub-continent - because there was a crying need for people to staff Britain's factories, hospitals, and public transport after the devastation of the Second World War.
Economic acrimony has been bubbling between the US and China since Donald Trump became president. Now the tensions have boiled over into escalating tit-for-tat announcements of tariffs on key imports. This is serious not just for the US and China, but for the entire global economy and the UK, in particular, as it hopes for a free trade Brexit. As Christine Lagarde, the International Monetary Fund director, has warned: the world trade order “is now in danger of being torn apart”. Anyone familiar with Trump’s zero sum approach to international trade won’t be surprised by the turmoil. Although few might have predicted a US president assailing the free trade model, while the Communist leader of China rides to its defence.
With the Commonwealth Games in Australia’s Gold Coast, public attention has turned to the oft-neglected Commonwealth of Nations. The 2018 games dovetail with the Commonwealth Heads of Government Meeting (CHOGM) in London on April 16-20, the first since the UK voted to leave the EU. Tales of sporting prowess have competed with speculation about the possibilities the Commonwealth may provide for a post-Brexit Britain. Among hard Brexiters, re-engaging with the Commonwealth offers one of the more seductive “opportunities of Brexit”. Despite cautious neutrality prior to the referendum, and an initial response focused on mitigating risks, the Commonwealth secretary-general, Patricia Scotland, has pledged to “turbocharge the Commonwealth trade advantage”.
In a world where the United Nations appears unable to play a meaningful role in the growing military tensions over Syria, one should perhaps have little hope that its multilateral economic sister, the International Monetary Fund, will do any better when it comes to trade wars. But as ministers and central bankers start flying into Washington DC this week for its Spring Meetings, the IMF could find itself in the right place and right time to broker a de-escalation of tensions between China and the United States. US President Donald Trump and his Chinese counterpart have been playing long distance chess for some week — with Trump announcing his moves on Twitter. The White House has imposed $50 billion of tariffs and Beijing has responded with a similar value of sanctions carefully targeted at marginal constituencies.
The recent kerfuffle over Britain’s post-Brexit passports being made by a Franco-Dutch company exemplifies the level of control that will be “taken back” by the UK government in March 2019. The UK might be leaving the EU, but it will remain a part of the global economy. Contracts – like who makes the country’s passports – will be beholden to business interests. Similarly, rules on public procurement (if surprisingly omitted from a post-Brexit UK-EU trade deal), would still be regulated by the World Trade Organisation (WTO) general procurement agreement, to which the UK is a signatory. This means public contracts will be open to competition. Indeed, it is the importance of existing and new post-Brexit trade deals which will expose the myth that meaningful democratic control can be taken back.
Reckless Opportuntists: Has the British Establishment Become Self-Serving, Insecure and Incompetent?
Almost 70 years ago then Prime Minister Clement Attlee was asked by a reporter outside 10 Downing Street after he had seen the Queen to call a general election whether he wanted to expand on the campaign he was about to lead. He replied: “No.” As a long-standing MP of upper middle class stock who had been to public school and Oxford, he was clearly a member of both the elite and the Establishment at a time when the two terms were interchangeable. The worlds of business, finance and the media looked very similar. Their leaders were born to rule, manage and distribute finance and felt little need to address those outside their circle. Fast forward seven decades, and one could say that on the surface little has changed. The current foreign secretary and Archbishop of Canterbury, and the most recent former prime minister, all went to Eton College and Oxbridge. The current director general of the BBC is also ex-public school and Oxford.
Bitcoin and its fellow cryptocurrencies are about to lose the unique allure that has captivated the attention of libertarians, anarchists, tax evaders, money launderers, drug dealers and other people who want to circumvent capital controls and international sanctions. In the early hours of Wednesday UK-time, the leaders of the Group of 20 developed and emerging countries will draw the crypto issue into their web of obfuscation and broad-brush discussion. The G20’s communique will include a statement on cryptocurrencies. It will doubtless be bland and not call for any action (as is typical for these fora). But the fact they have chosen to debate the issue means that the whole debate about the price, legality, and regulation of these schemes is now part of public policy.
Hail Britannia, Farewell Globe. Will the Next Political Generation Succeed Where the Present are Failing?
If you can bear it, listen to a phone-in on the LBC radio station on the topic of Brexit. If you are (un)lucky you may catch a call from a Brexiter celebrating that Britain is leaving the EU because it means the country is to regain its mantle of a wealthy, sovereign, global trading nation. Never mind that Britain was known as the “sick man of Europe” in the 1960s and 1970s. The real irony of this clarion call is that it ignores the obvious truth that it was anger about the perceived negative impacts of globalisation that was a driving force behind people’s Leave vote.
A friend left the UK last Monday when the climate was chilly but calm and returned on Saturday to a similar environment. In between were five days of snowfall that brought chaos to large parts of the country, an event she missed entirely. Like her, now that the snow has gone, many people may wonder briefly what went wrong and move on. Sadly, this ignores the fact that the stranded motorists, road casualities, deaths among the street homeless, and the thousands of employees unable to get to the office or factory. The UK was clearly hampered by a lack of preparedness and investment to prepare for a predictable — and predicted — event.
On a finite planet, endless economic growth is impossible. There is also plenty of evidence that in the developed world, a continued increase of GDP does not increase happiness. Back in 1930 the economist John Maynard Keynes predicted that growth would end within a century – but he was unclear whether a post-growth capitalism was really possible. Today, mainstream economic thinking still considers growth to be a vital policy objective – essential to the health of a capitalist economy. There remains a concern that ultimately, a capitalist economy will collapse without growth. I recently published new research that suggests a different view – that a post-growth economy could actually be more stable and even bring higher wages.
After two days the war Cabinet — a phrase that must raise eyebrows in Berlin as well as Brussels — came with up three old English words put together like never before: ambitious managed divergence. Divergence means that British rules and regulations can move away EU rules which shows we are a sovereign state. This keeps the warlike Johnson, Gove, and Williamson happy. Managed means that it will be done very slowly and gradually, perhaps in the hope that the EU27 won’t notice. Ambitious? That’s just the sort of guff one gets at corporate strategy meetings. It doesn’t mean anything but sounds good and, well, who can really argue with it.
Given the proclivity of politicians and the appetite of the media, one would have thought it was sexual scandal that brought down British governments. But in fact is it is abuse and misuse of people’s money that tends to do for them in the end. While Gordon Brown’s administration could have survived the global financial crisis, it was the accusation that he had added a trillion pounds to debt to bail out the banks that condemned his government. It was the iniquitous poll tax that brought Britons out on the streets with clubs and petrol bombs that ultimately ended Margaret Thatcher’s 11-year reign, and going back to the 1970s it was the opposition to Denis Healey’s “squeaking pips” — a top rate of tax of 83 per cent, and a rate on unearned income of 98 per cent — that turned the people against Labour.
Take a walk through Kensington & Chelsea, London, and likelihood is you’ll pass a house that stands empty. It will be among 1,399 in the borough, and 20,000 across London that are unoccupied. Around Britain, 200,000 homes have been empty for at least 6 months, and more then 11,000 for over a decade. Some might be caught in legal disputes, others needing repairs. But for the rest, they’re empty because they’re owned as financial assets. Their owners range from multimillionaire tycoons, foreign princes, and private equity firms, to property-owning Brits who’ve re-mortgaged their first home to purchase another. And in the search for good returns, they’ve all come to the British housing market.
Transition was the word of last year as bickering between London and Brussels over the terms of Britain’s two-year departure from the EU dominated the headlines. Sadly, it seems even that minor deal is unravelling. As with so many areas of policy, the brouhaha over Brexit meant that many observers were blind-sided by the real transition that has already started to dominate 2018: the shift from ever booming stock markets and record low interest rates towards a new, more uncertain financial market. Standard & Poor’s 500-stock index fell more than 10% from its peak in late January. Equity markets in Britain, continental Europe and Asia saw similar falls, leading to headlines about trillions being wiped off the value of stocks (not that the media ever report about trillions being added).
The very areas of the UK which voted Leave in June 2016 are likely to be the ones hardest hit by Brexit. Our research on the likely economic consequences of leaving the European Union on different regions and industries is consistent with the recently leaked government analysiswhich suggests that London will be one of the areas least hit in the event of a no-deal Brexit. The north-east of England, meanwhile, will be one of the worst affected. An important element here is that these regions (and the sectors of the economy based there) have little representation in the Brexit negotiations and rarely figure in media discussions. When it comes to the potential impact of Brexit, the most prominent stories are those with underlying political or business interests.
In one of the finest examples of an intervention that had the precisely reverse impact than what was intended, Jacob Rees-Mogg has given the kiss of life to the economic forecast. These pinpoint-forecasts of economic growth, inflation, export volumes rises or increases in property prices X years hence have become the go-to tool for any government body, pressure group, financial institution, or thinktank desperate to bore its way onto the mainstream news agenda. And the media will always be happy to trot out the “findings”. The recent International Monetary Fund quarterly update to its economic forecasts that showed growth in the eurozone economy marching ahead by 2.2% in 2018 while Britain, its soon-to-be detached neighbour, bumbling along at 1.5% was a great example.
Any magician knows that the success to a good trick is to persuade the audience to look in one direction while the action is in another. Donald Trump is not a magician. And despite his hyperactivity on Twitter, he is not particular good at distracting attention. Yet it might be that as his first State of the Union address to Congress became front page headlines, the audience would have been better looking elsewhere. The constitutional requirement for the US head of state to give a report to both houses of Congress is a long-standing one. The address in person is more modern. Presidents from Washington to Lincoln all gave their report on the state of the union by letter. It was only Woodrow Wilson who began the tradition of appearing in person before lawmakers. Given Trump’s “modern-day presidential” addiction to social media, it is surprising he did not fulfill his legal obligation in 280 characters.
Normal people hate the deluge of publicity and news coverage from Davos, the Magic Mountain in Switzerland as Thomas Mann called it, because it throws into sharp relief the gross inequality in the world. Multi-billionaire executives rubbing shoulders with authoritarian leaders at champagne receptions is always going to leave a sour taste. Odd then, that Theresa May thought that by attending the World Economic Forum’s annual bash last week that some of the glamour would rub off on her and take away some of her robotic reputation. Instead, Britain’s interventions at the global rich person’s club has only acted to highlight our country’s diminished economic, international, and domestic standing. Not bad for a week’s work.
It will take 217 years for women to achieve equal pay, at the current rate, according to the World Economic Forum. So we can expect many more stories of women earning far less than their male peers – such as the recent case of Carrie Gracie at the BBC, who recently resigned over a pay gap of around 50% between her and men doing similar work. There has been limited improvement in closing the gender pay gap since the passing of the Equal Pay Act 1970. While comparing men and women doing similar work is how people normally think of equal pay, there is also the principle of being paid the same amount for making an equal contribution to an organisation – even if doing a different job within it. The first groundbreaking case to recognise this was Julie Hayward v Cammell Laird in 1988.
The construction industry has always been characterised by uncertainty. Managing large construction projects involves enormous challenges, coming from the political, economic, social and technological environments involved. The bigger the project, the bigger the challenge. For big infrastructure projects such as railways and hospitals, we’re talking multi-million pound contracts and thousands of employees, over a number of years. So, in many ways, the collapse of the UK’s second-largest construction company, Carillion, is not surprising. The National Audit Office, which scrutinises the UK government’s public spending, predicted that more than one-third of mega projects – the kind that the government outsources to Carillion – will fail in the years ahead.
The collapse of Carillion, the construction and services company, is a true catastrophe. The company directly employed around 20,000 workers, all of whose jobs are now under threat, while even more jobs are at risk at the estimated 30,000 small firms that are owed money. But this is not the only disaster to befall the country in recent months. Last year, 71 people died when Grenfell Tower, a public housing block in west London, went up in flames. Earlier this year a consortium of Virgin Group and Stagecoach was able to walk away from the Virgin Trains East Coast rail franchise leaving the Treasury with a potential shortfall of up to £3.1 billion. Going a bit further back in time, G4S famously failed to deliver the security detail it promised for the 2012 Olympics. The common theme should not be hard to spot.
Construction giant Carillion has gone into liquidation. The UK’s second-largest construction firm was one of the government’s biggest contractors, involved in huge infrastructure projects like the HS2 rail link and the Royal Liverpool University Hospital. It also provides services across the public sector such as running libraries, schools and prisons. Here’s what you need to know about Carillion’s collapse. It is possible that the government did this to keep Carillion solvent. But, as we’ve seen, there is always a day of reckoning. Carillion seems to have a number of long-term contracts which have been losing money. There is a view by some I’ve spoken to in the industry that they have been tendering at low prices to keep winning work.
If you want elucidation on economic theory and practice you should read a book or journal; if you want entertainment you should watch TV. Given the explosion in online learning via new media outlets such as YouTube it is no surprise that that boundary is getting blurred. Traditionalists will think that there is a real danger as it moves factual analysis away from the peer review filter of universities and thinktanks and into amorphous world of grading by views, likes and shares. But given people’s shrinking attention spans and the ability of demagogues such as Donald Trump to exploit that, there is almost a responsibility to use different media formats to raise problems with economic roots and whose solution may well lie within economics.
Almost all Britons will have been downcast as they returned to work or education last week, and not just for the normal reasons. All those who voted for Brexit will look back at how little has been achieved towards their causes for £350m a week to the NHS, a faster growing economy, and a plethora of trade deals around the world. Those who voted Remain will plod on with a heavy heart knowing that despite a series of concessions by the UK government, Britain still looks likely to leave the EU on 29 March 2017. For them New Year’s Day 2019 is the one to dread. Finally, those that did not vote or did not care about the outcome will have their heads in their hands as they realise that the government appears to be unable to take a decision on anything, whether on health, education, or housing to name three, because ministers and civil servants are tied up in Brexit.
As one economist, Frances Coppola, asked on Twitter, what had David Davis been smoking? In a keynote interview with the BBC’s Andrew Mar on Sunday, the Secretary of State for Exiting the EU said that Britain would simply not pay the £40 billion it had agreed just two days earlier that it owed as a departing member if it did not get a trade deal with the EU. While some might see this as a tough negotiating position, it is such patent nonsense it is hard to imagine why he said it. It immediately raised the idea that a member of the Group of Seven industrialised nations would simply turn its back on its financial obligations.
You only have to look at the levels of trade and economic development in Ireland over the past century to realise the significance of a smooth border between Northern Ireland and the Republic. The Republic is best described as a small, open economy whose fortunes have been inextricably linked with those of its larger neighbour, the UK. If this holds true for the Republic then it is even more so the case with Northern Ireland. What is perhaps not appreciated is the comparatively wealthy character of the Irish economy as a whole in the years before independence. In 1913 Ireland ranked tenth in a European league of 23 countries for Gross National Product per capita. The perception of Irish underdevelopment was only relative to industrial pioneers like Britain.
UK Poverty 2017 highlights that overall, 14 million people live in poverty in the UK – over one in five of the population. This is made up of eight million working-age adults, four million children and 1.9 million pensioners. 8 million live in families where at least one person is in work. Over the last 20 years, the UK has dramatically reduced poverty among people who had traditionally been most at risk – pensioners and certain types of families with children. But that progress is beginning to unravel; poverty rates for both groups have started to rise again.
from went to European migrants. Indeed, a report last week from the Social Mobility Commission showed that of the 65 places with the lowest chances of the next generation moving up the social ladder in terms of jobs and housing, all but six had voted to leave the EU. A year after Trump’s victory and 17 months after the Brexit vote, it might finally be dawning on their supporters that none of the things they were promised have come to pass. It should have become painfully clear in Washington last week when the Senate voted through a tax bill that will benefit corporations and wealthy individuals. If the bill reaches the statute book it will cut corporation tax to 20% from 35% and offer temporary tax cuts to individual tax rates.
The eurozone is out of intensive care; unemployment is falling and economic output per capita has finally recovered to levels seen before the 2008 crisis. But the crisis and the painful remedies prescribed have left many voters disillusioned with the EU and with their domestic institutions. In the countries that were hardest hit by the crisis, citizens felt disenfranchised, as creditors demanded austerity in exchange for financial assistance. This provided fertile ground for eurosceptics and populists, who promised to resist the alleged diktats from Brussels and Frankfurt. If EU memberstates fail to win back the support of disaffected voters, the bloc could end up facing a more serious existential threat as populists and eurosceptics look to win more seats in their domestic legislatures and the European Parliament.
To give the Government credit, it has identified the problems: growth will be below 2% for the next five years; wages after inflation will fall until 2022, productivity growth is on the floor; there is a housing crisis; the NHS is in the grip of a funding drought; and the Brexit negotiations are not going well. On the debit side, they are still struggling to come up with the answers five months after the General Election and 17 months after the referendum on the UK’s membership of the European Union. This is not for lack of opportunity. Last week’s Budget offered an ideal opportunity to deliver the headline-grabbing announcements to tackle those domestic policy challenges. But while some mention was made, little action was taken.
The Budget speech used to be a grand occasion. Political titans over the years such as Gordon Brown, Geoffrey Howe, Benjamin Disraeli and Willian Gladstone used the event to both steer the economy and bolster their own positions. With the opportunity to speak uninterrupted for anything from 47 minutes to five hours (Disraeli in 1852), the Chancellor has had a unique opportunity to delight his (yes, always a man) supporters and frustrate his opponents by pulling rabbits out of his hat. A tax cut here, extra spending there — soon he could be talking about serious money. This week’s Budget is unlikely to feature in the list of the great orations. With just 16 months until Britain leaves the European Union with or without a trade deal and with the final exit bill still not settled, Chancellor Philip Hammond has little room for mano
“The great financial crisis is still wreaking havoc through our politics and democracy and still costing households dearly. It’s deeply disturbing to see through this research how our system is still woefully exposed to shocks that could be even more cataclysmic. “With the vast uncertainties of Brexit on the horizon, consumer debt rising, and wages failing to keep pace with inflation, just such a shock seems ever more likely. And our financial system is simply not ready for that. “We need to see stronger regulation by the Bank of England to protect our financial system from over-exposure to risk. We also desperately need a more diverse banking system that invests in people, productivity and jobs and is responsive to the real needs of the different regions of the country.
It hardly needs saying, but there are changes afoot in the political economy of the world. Where there is globalisation, there are globalisation protestors. This is nothing new, but it is becoming mainstream. The antithesis of globalisation, nationalism, and the pursuit of your own country’s interests over those of everyone else, has bubbled back up in Europe. And it’s not just Europe, of course. In the US, president Donald Trump is (among other initiatives) rethinking the American commitment to free trade. In the rest of the world, the experience of globalisation shows it creates some winners and some losers. This varies geographically and in different economic fields, and is shown in different aspects of our lives.
A radical new offer is needed. The devolution agenda in England should be drastically accelerated. Commissioners need the power to design contracts for providers to meet local needs most effectively – in healthcare, employment services, skills and offender management. This requires commissioners to hold non-ring-fenced budgets, with maximum freedom to design contracts to offer to competitive public-service markets. This will only flourish if commissioning areas are designed to cover geographies requiring similar interventions, and governed by single, integrated and accountable commissioning bodies. This is more a change of tune than a tearing up of institutional arrangements.
There was no reason to change the chairman of the US Federal Reserve, the central bank of the world’s largest economy. Janet Yellen has successfully communicated the need to start raising interest rates to the financial markets while continuing to withdraw its extraordinary monetary stimulus. She has also been a safe pair of hands, maintaining stability and investors’ confidence even as rumours about her dismissal have run through the media since Donald Trump’s election in November 2016. But none of this matters to Trump who made a big deal during his election campaign of the need for a new head of the central bank. Trump hammered Yellen in the final months of the campaign, accusing her of keeping the benchmark rate “artificially low” to help fellow Democrats.
After decades of economic inaction, the UK is on the verge of adopting a comprehensive industrial strategy. This will involve major commitments to infrastructure and other targeted public spending. Many will bemoan the fact that it took Brexit – a hammer to the heart of the country’s current development model – to trigger such a shift. Nevertheless, Brexit has the dubious honour of making the challenge ever more pressing. When she became prime minister, Theresa May made the revival of industrial strategy one of the key elements of her economic agenda, believing it would help to address some of the distributional issues to which she attributes the Brexit vote.
On the face of it, the ideas of Adam Smith and Karl Marx could not be further apart. While Smith laid the foundations for the free market, Marx predicted Capitalism’s demise and eventual capitulation to Socialism; one the ‘Father of Modern Capitalism’, the other its greatest critic. And yet when we dig a little deeper, we can find areas where the ideas of these two great economic philosophers not only converge, but can in turn provide valuable lessons for us today Both Smith and Marx recognised similar effects of certain Capitalist processes on society – that is, the effects of the division of labour. As a principle of organisation, the division of labour has had a long history. But it was Smith’s work on the free market that brought it into modern consciousness.
“Communities that have seen industries shrink or disappear have not bounced back. The costs have been long-term and pernicious, and help explain the growing popular rejection of free trade. It is perhaps unsurprising that support for Brexit and Trump was strong in such communities in the UK and in the US. Too many people have lost confidence in the future; they do not believe that things will get better. Another reason is distribution. Governments have cited competition brought on by globalisation as a reason to cut taxes on business and capital, while increasing them on consumption and labour. This approach, combined with an unprecedented bail-out of the financial sector following the financial crisis, has undermined popular faith in market capitalism and the elites that benefit most from it.
A quarter of one percent hardly sounds like big potatoes. As most people with a current bank account know, even holding a balance £1,000 will only return £2.50 after a year. But the prospects that the Bank of England will raise the main interest rate it uses to regulate the economy by 0.25% to 0.5% on Thursday is putting the wind up homeowners, businesses and families running large debts on their credit loans or via payday loans. And with good reason If the Bank’s monetary policy committee goes ahead with the hike, it will be the first rate rise since July 2007. Since 2009, when the MPC cut rates to 1.5%, rates have been lower than any time in the Bank’s 323-year history. More importantly, every young adult in work or running their own firm has only ever known historically low borrowing costs.
The scale of wealth inequality in the UK is neither fair nor economically efficient. Without a change in policy direction, wealth inequality is expected to worsen, with acute and deepening divides in wealth between regions, generations, and households. The IPPR Commission on Economic Justice is exploring ways to create more broadly shared wealth and a more equal distribution of existing wealth, as well as ways to rebalance the economy more generally. It seeks to ensure that all the people of the UK share fairly in the country’s prosperity. Reforms the Commission is considering include: Fairer, smarter and simpler wealth taxation The Commission is looking at how wealth, including land and property wealth, can be more fairly taxed.
Britain has £490 billion less in its coffers than previously thought, according to revised estimates of Britain’s balance of payments from the UK’s official statistics body, the ONS. Whereas previous estimates indicated that in 2016 Britain’s assets overseas exceeded its liabilities to the tune of £469 billion, this has now been revised downwards to a net deficit of £22 billion. In the context of the potential disruption to trade and foreign investment from Brexit, this is a worrying development. It is important to note that this does not mean that the country has suddenly become nearly half a trillion pounds poorer. The ONS has now collected more detailed data on Britain’s financial transactions with the rest of the world to build up a more accurate picture of its net stock of external wealth.
First, the good news: the world economy is accelerating. According to both the World Bank and the International Monetary Fund at their annual meetings last week, every region of the globe can expect an uptick in economic activity. Against that backdrop one country stood out: the United Kingdom. Our economy will grow by 1.7% this year, down from the 2.0% the IMF had expected in April and well below the 2.1% expected for the eurozone, which is made up of 19 of the 27 countries of the European Union that we want to leave. Next year the story is the same, but worse: the UK grows by 1.5% versus 1.9% across the Channel.
If the UK reverts to most-favoured-nation (MFN) tariffs with the EU under a “no deal” Brexit scenario, then tariffs on clothing, footwear, beverages and tobacco will rise by 10 per cent. Tariffs on dairy products will rise by 45 per cent and by 37 per cent for meat products. Tariff changes will feed through into consumer prices. As a result of reverting to MFN tariffs with the EU we estimate the price of clothing will rise by 2.4 per cent, and the price of transport vehicles will rise by 5.5 per cent. Prices will rise even more for food products. The prices of dairy goods will rise by an average of 8.1 per cent and by 5.8 per cent for meat products.
I couldn’t help feeling a sense of déjà vu when I heard the news that Theresa May’s government has started preparations for a no-deal Brexit. For the notion of a no-deal Brexit resembles the thinking of those politicians who, in March 2013, argued that Cyprus should reject the Eurogroup’s bailout offer – because they thought the conditions involved were unfair – and prepare to abandon the euro, and consequently the EU. I was governor of the central bank of Cyprus at the time. “If we show our readiness to turn down their offer,” these politicians argued, “the Eurogroup will come to its senses and will then offer us a better deal, as they wouldn’t want to face a disorderly unravelling of the euro.” I suspect that’s the thinking behind Theresa May’s latest bravado.
The International Monetary Fund will be back in the news this week. Excoriated in the 1980s as the symbol of international capitalism then hailed as saviour of the world economy during the global financial crisis, it is again struggling to find a role. After being criticised for failing to spot any sign of the crisis and the subsequent recession in 2009 and 2010 - although it was far from alone - the IMF has since sought to balance its role as premier economic forecaster with that of an early warning system. A Cassandra with a PhD, if you like. This week will see it publish its keynote World Economic Outlook (WEO) with forecasts for every region and country in the world on everything from growth to the likely volume of exports through to the year 2022.
With plans underway for the UK’s biggest peacetime repatriation of 110,000 customers following the collapse of Monarch Airlines – the biggest UK airline ever to cease trading – questions are quite rightly being asked about what went wrong. Intense competition, terrorism, and Brexit-related sterling changes have already surfaced as the main culprits. But after the anger and recriminations have calmed down, attention should turn to the correct behaviour of the agency charged with protecting consumer rights. In this case the Civil Aviation Authority. The CAA’s job is to ensure that “consumers have choice, value for money, are protected and treated fairly when they fly”. To this end, it has made 22 prosecutions against various operators under its Regulatory Enforcement Policy over the past six years.
The decision by the Chancellor, Philip Hammond, to defend free market capitalism at the Conservative Party conference on the day that Monarch Airlines went bust proves — again — that in this modern age satire is redundant. At a time when citizens are increasingly looking to regulation to protect them from the downsides of the free market economy, the Tories decided to embrace capitalism, red in tooth and claw. The very fact that both Hammond and the Prime Minister felt the need to laud the benefits of open markets and accuse Labour as “a party taken hostage by a clique of hard-left extremist infiltrators”, show a debate over core economic policy not seen since the 1970s and 1980s is back on.
A sufficiently advanced Artificial Intelligence (AI) would likely asses a young person today and ask them how they’re planning on paying off their mortgage. To the UK’s youth the housing market looks less like a ladder and more like an endless void. Millennials spend about three times as much of their income on housing than their grandparents, and save for 19 years on average to afford a deposit. The average mortgage length is another 25 years. This is an extraordinarily long time in a world of exponential technological growth. The future of work will be modelled around advances in AI and automation - the 4th industrial revolution. Scenarios range from the utopian machine working harmoniously for humanity through to full cyber automated robot Armageddon.
The entire debate in Britain about how the UK will leave the European Union has so far been a giant version of the “dead cat strategy” — Lynton Crosby’s idea that by throwing a bizarre red herring into the discussion, voters will stop paying attention to the real issues. Boris Johnson’s 4,200-word article in The Daily Telegraph on Saturday about his vision for Britain in a sunlit post-Brexit world was perhaps the pièce de resistance. Despite the terrorist outrage the previous day, the media analysis of what the Foreign Secretary said, what he meant, and whether this was the start of a bid for leadership of the Tory party, dominated the print runs and airwaves for the next 72 hours.
Britons have returned to work after their holidays and many will have realised that even the prospect of Brexit is starting to make them poorer. Anyone who went for a trip to Spain, France or Italy will have noticed they received an exchange rate of close to one-for-one with the euro compared with €1.30 before the referendum. That is an effective 30% devaluation. Whatever they did on holiday, whether it was enjoying a meal out or having a bottle of wine at their hotel, it will have cost them more. Two years ago, a cheap meal out at €10 would have cost £7.70. That same meal this year would cost £10. It is a pretty big difference. The potential impact on the cost of a package tour will be much higher. Insurance and travel protection costs will be affected by the loss of EU reciprocal deals.
A fundamental change is underway in stock market investing, and the spin-off effects are poised to dramatically impact corporate America. In the past, individuals and large institutions mostly invested in actively managed mutual funds, such as Fidelity, in which fund managers pick stocks with the aim of beating the market. But since the financial crisis of 2008, investors have shifted to index funds, which replicate established stock indices, such as the S&P 500. The magnitude of the change is astounding: from 2007 to 2016, actively managed funds have recorded outflows of roughly US$1,200 billion, while index funds had inflows of over US$1,400 billion. In the first quarter of 2017, index funds brought in more than US$200 billion – the highest quarterly value on record.
The leak and then publication of the Labour Party’s general election manifesto triggered the much-expected claim by the Conservatives that it marked a return to the bad old days of the 1970s when growth was weak, inflation high, and the UK had to go cap in hand to the IMF for a bailout. Never mind that the 1970s problems was as much caused by the embargo by OPEC as by domestic mismanagement by both Tories and Labour - nor that it was also actually a decade of rising living standards, growth in credit, and rising property prices. It was still a good slur and was eagerly picked up by Theresa May’s allies in the rightwing press.
Under any normal Conservative government, the Budget would be a high profile opportunity to reward their core vote, whether it is big business leaders, pensioners, white van men or women, or the ubiquitous hard working families. If tough measures need to be taken then it will be against soft targets such as work dodgers, benefits scroungers, lie-in-bed-till-noon layabouts or public sector workers. But despite having a working majority of just 17 MPs, Chancellor Philip Hammond decided to use a third of his March 2017 Budget speech attacking the growing number of self-employed people and landing them with a hefty tax bill. They now face a rise in the National Insurance contributions they pay from 9% to 11% by 2019. Hammond justified this by saying that the new state pension had reduced the gap between the entitlements of the employed, who pay up to 14% NICs, and the self-employed.
The new chancellor, half a year into his job, has already given his last Spring Budget. Henceforth budgets will take place in autumn. Also gone are the theatrical days of Gordon Brown and George Osborne: this is a chancellor who revels in nickname ‘Spreadsheet Phil’. Hammond’s first full budget was an attempt to bring together the themes of Theresa May’s government. It was a budget that acknowledged the challenges that Brexit poses to the British economy but also the prime minister’s priorities of creating a country that works for everyone. Despite the challenging circumstances, Hammond was able to announce that cumulative borrowing has been revised down between 2016 and 2021 to £24bn since the Autumn Statement, a small improvement: public sector net borrowing as a percentage of GDP is also predicted to fall from 3.8% last year to 2.6%.
Two of the 12 priorities set out in the UK government’s Brexit white paper are focused on trade: Ensuring free trade with European markets Securing new trade agreements with countries outside the EU In terms of trade with the EU – the UK’s largest trading partner – the white paper makes clear that the UK will not be seeking membership of the single market and the customs union. Instead it will pursue “an ambitious and comprehensive Free Trade Agreement and a new customs agreement”. This is in line with the government’s desire not to abide by the single market’s freedom of movement rules. However, the white paper still lacks clarity on the matter. It stresses the interconnection of the UK and EU markets in many sectors (automobiles, agriculture, transport, financial and other services), and argues for the need to reach an agreement that guarantees continued stability in the trade relationship
We are only four weeks into this Godforsaken year but already everything is looking very different - and generally worse - than it did when we joined hands to sing Auld Lang Syne. Back then we laughed with grudging respect at the comment by Trump-backer Peter Thiel that while the liberal left had been foolish in taking the Donald literally but not seriously, his electors took him seriously not literally. In other words, how foolish we were to get irate when Trump said he would build a wall on the US’s southern border and make Mexico pay for it, those who listening to him properly realised he was echoing their anger at the volume of immigration. Equally, warning US companies that they would pay if they carried on using factories in Mexico to makes goods and then send them across the border for American consumers to buy.
The threat that Britain might soon become a “corporate tax haven” – issued by its chancellor, Philip Hammond – revealed a fundamental truth about Brexit. This is not just a decision about the UK’s relationship with the European Union; it is also about what kind of economic and social model the UK will have in the future. As the UK disengages from Europe, politicians have to consider how its role within the global economy will be redefined. This inevitably raises questions about its domestic policies and institutions, and how these might need to adjust to a changed international context. Hammond’s speech made clear that the UK government plans to use this uncertainty over the shape of its socio-economic model as leverage within the Brexit negotiations.
In recent years, the annual World Economic Forum meeting in Davos, a regular January fixture, has not enjoyed quite the same cachet as it did before the global financial crisis. Back then, this gathering of world political and business leaders was widely seen as setting the agenda for governments and multinational companies the world over. Following the crisis, it was patently clear that the participants in the Davos conferences were no closer than anyone else to having answers to the questions posed by ongoing trends in the global economy.
If 2016 brought Brexit, Donald Trump and a backlash against cosmopolitan visions of globalisation and society, the great fear for 2017 is further shocks from right-wing populists like Geert Wilders in Holland and Marine Le Pen in France. A new mood of intolerance, xenophobia and protectionist economics seems to be in the air. In a world of zero-hour contracts, Uber, Deliveroo and the gig economy, access to decent work and a sustainable family income remains the main fault line between the winners and losers from globalisation. Drill into the voter data behind Brexit and Trump and they have much to do with economically marginalised voters in old industrial areas, from South Wales to Nord-Pas-de-Calais, from Tyneside to Ohio and Michigan.
As Britain prepares to start its first full week of work of 2017 after the four-day warm-up following the New Year celebrations, there is a strong feeling that we are still in a phoney war and that the full drama of this year has yet to begin. President-elect Donald Trump does not starting wearing the cloak of power until 20th January and the much-awaited start of Britain’s exit from the European Union may not happen for another 11 weeks. Yet one thing is clear - much to US Democrats’ and British Remainers’ consternation - and that that is the economies on both sides of the Atlantic are doing very well despite forecasts that the election of the billionaire warmonger and the triumph of the Brexiteers would lead to immediate carnage. In fact the opposite is true.
Given that the campaign for the election of the 45th president of the United States was a circus from beginning to end, it should be little surprise that a clown got elected. But is Donald Trump just a pantomime villain with an arsenal of vile epithets and put-downs but little interest in anything but money, or a demagogue whose rise to power can be compared to Hitler’s in 1930s Germany? Trump’s election has rightly horrified and sickened liberal-minded people in America, Europe and many other parts of the world. The revulsion at his views is correct - his misogyny, racism, Islamophobia and nationalism need to be called out.
There has been much speculation about Mark Carney’s future as governor of the Bank of England, following an unprecedented series of attacks by leading proponents of the UK’s exit from the EU. There was even speculation about the state of his relations with the prime minister. Yet Carney has now confirmed he will stay in position until the summer of 2019. The impact on markets and on the economy is hard to gauge, but on balance it looks positive. Carney and the Bank made some strong statements during the referendum campaign, but those statements were in line with a very wide consensus among economists.
Since the Great Financial Crisis, most central banks have drastically cut interest rates and in some cases introduced the world to Quantitative Easing (QE): ultra-low (and in some cases negative) interest rates have become part of everyday life. And with only a handful of major central banks - including the US Fed - likely to even contemplate raising interest rates near-term, this is unlikely to change any time soon. Central banks argue they had no choice but to cut rates - to all-time lows in many countries - and introduce QE to help stabilise economic growth, inflation and employment by lowering borrowing costs and indirectly boosting confidence and the price of assets, including housing and shares. There is evidence that this approach has worked to some extent.
About five years ago at the nadir of the global financial crisis and Great Recession I was at a dinner with leading academic economists and fellow journalists. A consensus soon emerged that with interest rates at close to zero in the UK and most western economies this was an ideal time to take on long-term debt to fund productive investment in infrastructure and the like. While it might have seemed obvious at the time, after five years of austerity the idea of borrowing to invest is only even beginning to emerge in the global economic and political debate. Christine Lagarde, head of the International Monetary Fund, the multilateral lender that is hardly known for its support of public sector largesse, has been putting the case for more government spending.
A higher minimum wage; billions of borrowing to fund infrastructure; opposition to the transatlantic trade deal; initiatives to ease the plight of those left behind by globalisation. Is this taken from Donald Trump's manifesto? Or from Theresa May's Downing Street victory address? Yes bits could have taken from either but actually the whole lot come from shadow Chancellor John McDonnell’s Labour Party conference speech. On top of that was something that could have been spoken by a Lib Dem - aiming to maintain access to the European single market post-Brexit. So why the vitriolic action from the usual suspects: The Daily Mail, the Daily Express and the Daily Telegraph?
Outrage has been mounting over the untaxed incomes of the global elite, foreign ownership of urban land and soaring rents in the private rental sector. Much of this boils down to two key matters: who owns property, and how they are treated. The UK, it seems, is a place that makes it very easy for individuals to generate a great deal of wealth from property, with little concern for social justice or the provision of affordable housing. But this problem is not uniquely British. Across the world - and particularly in many developing countries experiencing fast economic growth – capital is flowing rapidly into real estate. And increasingly, governments are waking up to the need to effectively capture some value from these investments, for the public good.
The millions of Britons still reeling at the “shock” vote in the referendum on the UK's membership of the European Union should reflect on this stark fact: whenever they are given the opportunity, voters reject more Europe. The Danish and Swedes voted against joining the euro, the French and Dutch against the European constitution and the Norwegians on joining the EU at all. Then in 2015 61% of Greeks rejected their crisis bailout package while the Portuguese and Spanish voted in similar numbers against austerity. Yet on every occasion policy remained unchanged and the measures were put in place eventually (except for Norway which could not be forced to become a vassal of Brussels). This point is made three times by Nobel laureate economist Joseph Stiglitz in his new book, which is a devastating indictment of the way that the Eurocracy established the European single currency.
For years, economists and psychologists have argued about whether the standard model that economists use to explain how people make decisions is correct. It says that people make rational choices: they weigh all the options against a well-defined set of preferences to choose the one which makes them happiest, or is the most valuable to them. These preferences - and what a person can afford - define what they are willing to pay for goods and services. Businesses and governments around the world use this view of human behaviour as the basis for weighing the benefits and costs of decisions affecting trillions of pounds every year. Psychologists are also interested in people’s choices, particularly the effect of emotions.
The aftermath of the Brexit referendum has intensified the debate on alternative templates for the UK’s relationship with the European Union. The “Norway option”, an arrangement which allows Norway access to the single market without being a member of the EU, is often proposed as a transitional station on the journey towards Brexit’s final destination. If this is the case, and given that transitions often outlast their intended life-span, it is worth examining the context in which Norway operates with the EU. Norway is a member of the European Free Trade Association (EFTA), a free trade group, along with Iceland, Switzerland and Liechtenstein. It is also a member of the European Economic Area (EEA), which gives it access to the EU’s single market. The Norway option contradicts most claims of “taking back control” made during the referendum campaign.
London, Tokyo and New York. The holy trinity of high finance. These three “Alpha World Cities” are collectively known as the global economy’s commanding heights. It’s here, overwhelmingly, that money decides where it will go. Of course, London now has a little problem. At least some, and possibly a lot, of its claim to commanding height status hinges on the UK’s place as a gateway to Europe for global banking. And, as you probably noticed, the UK is walking out of the EU. As with any major decision the prospect of Brexit offers both hazard and opportunity. And one aspect firmly in the former camp is that a lot of European finance is all-but certain to migrate to an EU city. Frankfurt, probably, or Paris. Should we be desolate at this? Are the tumbleweeds about to start blowing through the deserted canyons of Lombard Street and Canary Wharf?
Ever since June the 23rd’s seismic shock, Remainers and Brexiteers, the Roundheads and Cavaliers de nos jours, have been hitting each other with statistics. Broadly speaking you can take your choice. For every crumbling economic indicator, there’s another one doing OK, thanks. But there’s one metric which leaves Brexiteers floundering. Sterling. The pound has been clobbered since the UK stunned the world. No getting away from it. A quid bought you nearly $1.50 on June the 22nd. Now, well not so much. $1.28 if you’re lucky. In the usually sedate world of developed market currency trading that’s a mighty collapse. Now some of this is readily explicable. Foreign exchange traders, bless ‘em, are no more immune to a set of bookmakers’ odds than the rest of us. Indeed I’ve had the pleasure of knowing quite a few and I’ll be honest: bookmakers’ odds are a big part of their lives.
The future of the Transatlantic Trade and Investment Partnership (TTIP) between the US and European Union seems bleak. Beset by doubts and stumbling alongside the UK’s referendum on EU membership, the TTIP is starting to look like an awful lot of effort for unremarkable gains. US president Barack Obama may have given the negotiation process a shot in the arm in recent weeks, but there is a good possibility that a deal will not be struck during his administration. After that, all bets are off. So why has such a major piece of international deal-making found it so hard to make headway, and what are the chances of a deal ever being done? Well, the first reason for the impasse is that no one can agree on what it should cover. It is deeply complex, but there are essentially two choices.
Amid an incredibly febrile world with Britons voting to leave the EU, an historic flow of migrants into Europe, worsening chaos in the Middle East, lonely eyes are again turning to the perennially stable United States. But the image that greets them now is not the calm but powerful Uncle Sam character but a simmering pot of tensions that is already displaying sudden outbursts of fury and which looks in danger of boiling over in a dramatic and horrible way. The last year has seen a series of attacks on African-Americans by predominantly white police officers. Almost exactly two years ago on 8 August 2014, a white police officer searching for a convenience-store robber in Ferguson Missouri shot and killed an unarmed black teenager, 18-year-old Michael Brown, kicking off mass civil unrest.
According to the old music-hall song, ‘everybody wants to go to heaven, but nobody wants to die’. Much the same is true of the British government that has now found itself accidentally (because it happened without any of the usual policy-making preliminaries that are supposed to serve as a check on plausible but impractical policies) committed to leaving the European Union. Essentially, the time-inconsistencies in the process of leaving means that Britain will be seriously disadvantaged for years to come. As we all know the process of leaving the European Union is governed by Article 50 of the Treaty of Rome, which would give two years for member governments to agree new arrangements, after which the country leaves the European Union.
With the greatest respect to the 19,240 British soldiers who died on 1 July 1916, the carnage that has followed the Brexit vote almost 100 years later has seen an astonishing cull of the country’s leaders. Prime Minister David Cameron has fallen on his sword, Boris Johnson had abandoned the ambition that fuelled his sudden volte face in favour of the Leave campaign, while Rino (remainer in name only) Jeremy Corbyn is hanging on to the Labour leadership by his finger nails. Michael Gove is limping toward defeat in the Tory party leadership campaign after knifing Boris in the back, while Nigel Farage is content to step down as Ukip leader and revel in his victory by insulting fellow members of the European Parliament. A revolution, like Saturn, will always devour its own children.
While most discussion since the Brexit vote has focused on how the UK will negotiate the terms of its new trading relationship with the EU, much less has been said about the rest of the world. Brexiters have tended to believe that the UK could continue to enjoy the access to foreign markets that it currently receives through the EU’s trade agreements with over 50 countries; and that for other markets it would simply resume independent membership of the World Trade Organization (WTO), the body through which 162 states set the rules for world trade. In fact, this is highly uncertain. It will require a long and complex process of negotiation, for which the UK is under-prepared and has little leverage. Since the UK joined the single market in 1973, Europe has negotiated tariffs and other international trade rules on the country’s behalf - both in bilateral and regional agreements and at the WTO.
Mr Tusk, the president of the European Council, has warned in the German newspaper Bild that a UK vote to leave the EU could mean ‘the end of Western civilisation’. Not even Mr Cameron, in his increasingly anxious attempts to win a Remain decision from the UK electorate, has gone quite as far as that. We might well ask why, if a Leave victory in the referendum will have the dire consequences Mr Tusk predicts, EU leaders did not make strenuous efforts to keep the UK on board by meeting more of Mr Cameron’s demands during his pre-referendum negotiations. Mr Tusk, to be sure, was not the principal player in those talks; perhaps Mrs Merkel and Mr Hollande did not see the issue in such apocalyptic terms. Then again, even if they had believed the UK’s leaving the EU would in some sense be terminal, they might have been daunted by the difficulties.
There may not be much rejoicing yet, but the repentance by the International Monetary Fund over its devotion to policies of neoliberal austerity policies will certain leave many of its critics with a wry smile. In a monthly magazine that the financial watchdog publishes (that does not often receive much attention), three of its most senior economists said that “neoliberalism” had been oversold as a remedy. Buried on page 38 of the magazine, Jonathan Ostry, Prakash Loungani, Davide Furceri - respectively the IMF’s deputy director, division chief and economist - authored an article that appeared at first glance to turn three decades of thinking on its head. “Instead of delivering growth, some neoliberal policies have increased inequality, in turn jeopardising durable expansion,” they wrote.
To paraphrase CLR James badly, sometimes people who only cricket know, know a whole lot more. After his astonishing 10-wicket haul against Sri Lanka in the Test match at Headingley, Jimmy Anderson spotted the reason that he and Stuart Broad had finally achieved success at the Yorkshire ground. “Me and Stuart have just had a chat and said it has taken us nine years to realise we are bowling at the wrong ends here,” said Anderson. This may be the cricketers’ version of Einstein’s alleged definition of insanity as doing the same thing over and over again and expecting different results. Observers of Greece’s financial crisis and the European Union-led response to it may hear echoes of both the eminent scientist and the great cricketer.
You may have missed it while you were looking the other way, distracted by the nonsense coming out from the Brexit and Bremain camps, but something important happened. The price of oil has risen from around $32 a barrel in mid-February to almost $50 a barrel by mid-May. Indeed on 16 May alone while Boris Johnson was banging on about Hitler and George Osborne was roping in Ryanair in support, Brent crude jumped 2.5% in one day alone. Compared with the levels of above $110 that it had two years ago, that might seem much, but inflation of 53% in a matter of three months is not to be sneezed at. Thanks to the high levels of tax - correctly for climate change reasons - on petrol, the increase in crude prices has only a marginal impact on motorists as more than 70% of the pump price goes to the Treasury.
It is a good sign that a political issue has achieved “meme” status when it becomes the subject of a film. Michael Moore got to the heart of US school shootings with Bowling for Columbine, Al Gore put climate change centre stage with An Inconvenient Truth and the complex financial transactions that almost plunged the word into an economic depression got full public exposure thanks to the Big Short. Finally poverty and particularly the gaping inequality between the richest and poorest in western societies are - not before time - getting their place on the red carpet. The Divide looks in almost painful detail at the struggles that families at the bottom of the wealth pyramid have to go through to make ends meet and the sacrifices the “squeezed middle” will make to ensure to stop themselves from slipping back. Established filmmaker Katharine Round uses seven people - five Americans and two Brits - to give a very personal take on the reality of daily life in two of the richest and most sophisticated countries on the planet.
In April 2014, the economist Thomas Piketty found global fame; the French edition of his book Capital in the Twenty-First Century had caused something of a stir in his homeland, and when the book was translated into English the stir became a storm. It rocketed to the top of the New York Times Best Seller List and won plaudits from politicians, academics and commentators - there was even talk of a Nobel Prize. He toured the newspaper offices, studios and universities of the English-speaking world. Surprisingly telegenic for an academic, he was described, almost ad nauseam, as a ‘rock star economist’. Keeping up such media momentum was, of course, impossible. Piketty is French, lives in France and writes in French. While many people in the English-speaking world made the effort to slog through the almost seven hundred pages of the book (and even more claimed that they had), fewer people would, or could, read him in French.
It was the fifteenth-century when the first modern banks flourished in Florence and Genoa and the seventeenth-century when fractional reserve banking developed in Amsterdam. Banking is a historical phenomenon, not a necessary element in the economic structure. Indeed, a myriad of economic structures are possible and it was only under the influence of powerful historical forces that the medieval usury laws were eventually eroded sufficiently to allow banking activity to come out of the shadows. With this understanding of banking’s contingent nature, we should not take for granted it will always be an important feature of the global economy.