The Parallel Parliament

by Glen Pearson

Tag: finance

It’s All Greek to Us

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AVERAGE CITIZENS CAN BE FORGIVEN for a general confusion and alarm emerging from the Greek debt crisis. The sheer financial numbers, opinions, and economic layers are dizzying. For every economic theory coming from established experts comes another established opinion stating exactly the opposite coming from others.

Let’s put the various viewpoints aside for a brief moment, if indeed we can, and consider the trends emerging from the crisis.

First, it’s not really the Greek currency that’s back of all these difficulties but the euro itself. Across the vast networks of the EU the rips appearing because of the competing policies from individual member nations are increasing and troubling. Britain particularly appears on a collision course with the EU framework, especially now that British PM David Cameron is just coming off a convincing win in the recent election. Yes, today it’s Greece, but tomorrow the crisis could shift in numerous directions across the old continent. Ambrose Evan-Pritchard, international business editor of the Daily Telegraph, was forced to conclude as a result of yesterday’s vote: “Leaders of the Eurozone have learned nothing, and forgotten nothing” – a conclusion that confounds us even further.

Second, the recent financial compromise reached in the last few hours in many ways is as infuriating and harsh as the earlier arrangements that led to the Greek revolt in the first place. According to recent economic reports, the new deal creates levels of austerity more severe than its previous counterparts. Following 31 hours of grueling torture, the EU got its questionable deal, but for Greece, as Evans-Pritchard adds, “the terms are harsher by a full order of magnitude than those rejected by Greek voters in a landslide referendum a week ago, and therefore can never command democratic assent.”

And herein lies the deeper problem. For almost two centuries it appeared as though democracy and finance walked a similar path, albeit with frequent tensions. The world’s managers – financial, corporate, and political – are still attempting to hold to the line they believe necessary for future prosperity. Citizens, however, now harbour increasing doubts as to whether the global financial system acts in concert with the ideals of democracy itself.

This dislocation grows every day and in every financial quarter. Greece’s leaders can’t just expect the EU to bail them out every time and then pretend as though their debt doesn’t matter – they at times borrowed irresponsibly. Yet the EU is also realizing that soon enough what took place among the citizens of Greece will surely happen again, and perhaps spread across the continent – partly due to irresponsible lending. Though President Obama supports the outcomes of this week, it was only a few months ago that he observed, “You can’t keep squeezing countries, like Greece, that are in the middle of depression.” That is exactly how the Greeks feel, and whether people agree with it or not, it is a sentiment creeping into other nations.

Spain and Portugal are about to head into national elections, with the present governments enacting heavy austerity measures for dealing with debt while arousing increasing anger among voters at the same time. France and Italy will go to the polls at a later time, but the opposition to austerity measures has found significant support in those countries, with the developments in Greece surely not far from their minds.

In real terms, Greece’s problem has become our dilemma. How else to explain the surging popularity of Bernie Sanders south of the border? That he was popular was no surprise, but that he could raise millions of dollars and pick up as much momentum among Americans as he has must surely signal that democracy is increasingly at odds with the global financial practice of austerity.

Regardless of our opinions on the Greek crisis, we must all become more concerned over the growing gap between democracy and economic viability, as much as the expanding chasm between the rich and the poor. New York Times writer and economist, Paul Krugman, noted a few years ago that, “For most Americans, economic growth is a spectator sport.”  As the signs from Greece and the rise of the anti-austerity movement are revealing, citizens are now pouring out of the stands and onto the field. This is going to be a melee of significant proportions, and only adroit leadership, and economies heavily seasoned with humanity, will find their way through this next difficult phase. Regardless of which side you are on, or even if, like most of us, you just remain muddled, it’s in everyone’s interest that a global consensus be achieved.

 

 

 

 

 

Devouring Social Capital

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WHEN CANADIAN MARK CARNEY LEFT his post as the head of the Bank of Canada to take on the prestigious role as the Bank of England’s governor, it was like he was jumping from the frying pan into the fire. That was almost 18 months ago and times have been turbulent for the world economy, including Britain’s. He was deemed a typical mild-mannered Canadian who would bring a sense of stability. So when he was asked to speak at England’s prestigious Guild Hall to the country’s elites no one was expecting anything out of the ordinary.. They should have been better prepared.

He surprised everyone when he launched into his view of how capitalism itself is at risk. “Just as any revolution eats its children, unchecked market fundamentalism can devour the social capital for the long-term dynamism of capitalism itself,” he offered at the beginning of his speech, to which the room grew deathly quiet.

Carney talked about how the affluent nations had subtly morphed from being market economies to market societies and how that fundamentally changed everything. He said he worried about the “mistrust” that was clearly growing between citizens and the global financial order..

Then he went on to describe how investment needs to change if capitalism is to save itself. “Prosperity requires not just investment in economic capital, but investment in social capital.” In case people wondered about what he meant by “social” capital, he defined it as, “the links, shared values and beliefs in a society which encourage individuals not only to take responsibility for themselves and their families but also to trust each other and work collaboratively to support each other.” The eerie silence in the room continued..

Carney reminded his audience that six years after the economic crisis, the core problem remained, with little desire among the financial elites to remedy it. And the longer they took to address it, the more populists movements were growing, both in developing and developed nations, and they were getting increasingly angry. What else should we expect, he argued, “when bankers make enormous sums, while taxpayers pick up the tag for their failures.”

And then he gave his prescriptions to remedy the ailment. 1) recreate fair and effective markets with real transparency and make every effort, through codes of conduct and regulatory obligations, to instill “a new integrity;” 2) curtail compensation offering large bonuses for short-term returns; 3) end the kind of investment that overvalues the present and the discounting of the future; 4) above all, understand that “the answers start from recognizing that financial capitalism is not an end in itself, but a means to promote investment, innovation, growth and prosperity for all.

Governor Carney closed by reminding those listening that human beings matter. He found it ironic that in an age that has seen poverty getting better in the developing world there has also been a spread of new poverty in the affluent nations. He concluded with the belief that it is the loss at all levels of community, of social capital, that most threatens the world, and capitalism itself.

Then the mild-mannered Canadian sat down following prophetic utterances that not only showed his human grasp of capitalism, but served as a warning that if economies are all about money and not people, then there is no way out of our present financial mess.

The Declining Melancholy

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IT IS BECOMING AN EVER MORE PUBLISHED theme that capitalism and inequality appear to be walking down the same path. Worse is the growing suspicion that the glaring global challenges facing this generation – climate change, unemployment, debt, widening gap between the rich and poor – are occurring because of modern capitalism, not in spite of it. The more data and economic insight that emerges, the more this hunch is bearing itself out.

World Bank executives recently held a discussion in which they wondered if the modern capitalist states have actually blown it – irrevocably. They spoke of how major economic powers like China and India, while investing heavily in Western opportunities, have made virtually nothing since the year 2000. Gone are the days when the affluent West would teach the rest of the world how to do business. Those global partners that once believed that are now seeing precious little return on investment these days.

So, yes, the modern free market is having its troubles, with many questioning its very foundations. We are in a kind of stasis – unable to get ourselves off the mat as affluent societies, though some have become fabulously wealthy in the process. It is this very inability to rise that Adam Smith, often claimed as capitalism’s initial architect, worried about. Peruse this insight he wrote some 300 years ago:

Though the wealth of a country should be very great, yet if it has been long stationary, we must not expect to find the wages of labour very high in it. It is in the progressive state, while the society is advancing to the further acquisition, rather than when it has acquired its full complement of riches, that the condition of the laboring poor, of the great body of the people, seems to be the happiest and most comfortable. It is hard in the stationary, and miserable in the declining state. The progressive state is in reality the cheerful and the hearty state to all the different order of the society. The stationary is dull, the declining melancholy.”

The “declining melancholy.” Don’t most of us feel this way, almost exactly? We used to more or less blindly accept that capitalism was the unparalleled vehicle for meeting human needs, improving lives, creating jobs, and building sustained wealth. Few vouch for such a view today. In fact, the modern makeover of capitalism has focused on a narrow conception of how to do business separate from the betterment of societies overall. Citizens have already worked themselves into a position of opposition to a largely out-of-touch political estate. Now they are rounding on the corporate community as their next opponent.

London, Ontario is like any other community, where large corporate entities negotiate significant breaks from municipalities in order to remain in place, while small and medium-sized operations (which make up some 80% of all employment opportunities) must endure endless loops of red tape in order to give their businesses a chance to grow. It gets downright dispiriting when the corporate giants decide they see better opportunities elsewhere, leaving communities reeling from the absence. If the corporate network feels it is in an endangered position, it is because they greatly underestimated the effects of such on-the-ground realities for local communities.

An increasing number of corporate leaders are acknowledging that, by maintain such operational practices, they eventually run the risk of losing their customer base, either through the lack of disposable income for customers or their decision to switch their loyalty to other firms that seem to “get it” about investing in community. Yet, just as with politicians, corporate executives continually ignore a citizenry that says the competitiveness of a company and the health of the community in which it operates are closely intertwined. Successful businesses require successful communities that can afford to purchase products and provide the public infrastructure required to do house, design, manufacture, and move products out to the market.

And successful communities must have businesses that can excel – there’s no other way around it. But there’s no point in giving away the farm to help large corporations if its means depleting the resources of the community itself, and endangering its future. If the formula is, successful company = declining community, then both sides of that equation will eventually lose. One cannot endless pilfer from the other if both wealth and social good are to be sustained.

We used to believe that there was a direct link between the profits a company made and the community in which it functioned. But it’s a new and globalized world, in which profits can increase exponentially, even as a community fades in potential. That only works for so long, until the community fights back and demands that at least some of the profits made in its confines be given back to social and equitable improvement. At present, both politicians and corporate elites hope that such a day will never arrive. They hope in vain. Communities are on the verge of fighting back for themselves and their children, and the businesses of the future that will prosper will be those that help them build that future.

Greasing the Skids

Earth-Oil-FaucetInnately, everyone comprehends that the days of cheap oil are over and that supplies have passed their prime.  Yet a large contingent of governments, instead of implementing sustainable policies to slowly maneuver their economies in accordance with that reality, continue to pursue growth in ways that refuse to take the decline of oil into account.

In the 1980s, China used up a modest two million barrels of oil each day; currently that consumption stands at nine million – every day.  That seemed okay in an era where oil seemed boundless and all industrialized nations had geared up their national economies to reap the dividends.  No more.  With the end of cheap oil comes the era of shrinking economies and hard choices.

According to the International Energy Agency in its 2010 report, 80% of all oil fields operating today won’t be producing in another 25 years.  Yes, new fields are always being discovered, but they are the expensive kind and inevitably lead to the rise of oil pricing and an outright attack on sensitive environmental regions around the world.

This is important because almost all Western nations have geared their concepts of economic growth and productivity on the availability of oil for everything from production to transport.  We were warned about the danger of this years ago from major reports by the United Nations and energy and environmental think tanks to rather cheeky predictions of Canadian author Jeffrey Rubin.  They were ignored, and now each country’s finances is in a bind.

As oil prices rise, so will the price of everything else, and the cost of running national economies will be forbidding.  Those economies, like Canada’s, will stall because, despite all the warnings, governments never really prepared for the days when they would have to do more with less.  And since they’ve been caught in these difficult times, they are attempting to peddle the message that we’ll be okay if we just keep going. This is understandable, but what is damning is that our governments never established the economic infrastructure that could assist us in transitioning to an era of sustainable development and growth.

Average citizens and their governments will be hit everywhere they turn.  Food prices will rise markedly.  Holidays will be curtailed.  Home ownership will become more of a dream than a reality.  We’ll have to get by with less because everything we pinned our hopes upon for prosperity and growth was linked to a commodity that has been in dwindling supply.  Growth might not stall entirely, but the double-digit economic gains of the past are over.

I personally view this as an inevitability that provides significant hope.  If how we have been living has been unsustainable, then the quicker we transition to sustainable economies the better.  If Al Gore was correct in his interview of last week, that, “we’re borrowing money from China to buy oil from the Persian Gulf and Canada to burn it in ways that destroy the future of human civilization, and every bit of that has to change,” then for our children’s sake we’d better get it right this time and refrain from joining our economies to commodities that are finite.

These are not easy days for most of us.  Some make billions of dollars from the extraction, refinement and distribution of oil, but that might as well be another world for most of us.  Yet we have been just as guilty as our leaders of contentedly engaging in past excesses that now leave us with fewer options.

According to author Gwynn Dyer, we either face a financial meltdown or a physical one if governments refuse to deal with our dependence on a commodity that once enriched us but now poses our greatest threat to our economies and our planet.  No political party or financial institution prepared for this moment, and we went along with it because we were having such a good and affluent time.  None of the choices from this point on will be easy, but that’s what transpires when we refused to make the difficult priorities in a timely fashion.  It turns out that the sky isn’t the limit after all – we are.

 

 

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