Paul Polman,the chief executive of Unilever, is reported by the Guardian to have made this comment at a company meeting yesterday:
The financial markets have become totally interdependent, technology is adding to that, and the effects of climate change mean [that] one country's actions can affect another country. The world has become so interdependent at a time that political systems are moving away from each other to some extent.
I have already written about disruptive events in political economy this morning and here is the essence of one summarised in a couple of sentences.
Globalisation requires political stability and, to be candid, support. It is not now clear that support will be forthcoming. The resulting tension has all the making of a disruptive event within it. How will that be resolved and to whose advantage is the question.
And I admit I do not know the answer.
What I do know is that this is the paradox that was always inherent in the trend towards globalisation now beginning to be writ large for all to see. And the resulting stresses will be huge.
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In The Telegraph Today. Somebody else who has come around to your thinking
Mr White said it would be a good start for governments to stop depending on central banks to do their dirty work. They should return to fiscal primacy – call it Keynesian, if you wish – and launch an investment blitz on infrastructure that pays for itself through higher growth.
Penultimate Paragraph
http://www.telegraph.co.uk/finance/financetopics/davos/12108569/World-faces-wave-of-epic-debt-defaults-fears-central-bank-veteran.html
That may get blogged when I get time
Perhaps Robert Skidelsky was right when he wrote ‘Return of the Master.’!
There Is No Alternative!
It seems that when China coughs the rest of the world is convulsed.
But that’s a recent development
And it is not just China coughing
Oil is not their fault
China is more than a cough. The suppression of the Tienanmen Square protests in 1989 confirmed the CCP leadership along an authoritarian ‘capitalist road’. By doing so, it vastly increased the pool of labour power available to global capitalism while the collapse of the Soviet Union shifted the geopolitical balance. This has been fundamental to the development of the world economy for the last generation.
This cycle is now coming to an end as the supply of young Chinese workers dries up and the associated infrastructure boom reaches its limits. This has already had a major economic and political impact on Latin America through the fall in commodity prices and will similarly impact the rest of the world. It is a more immediate factor in the collapse in oil prices than environmental concerns.
There is no obvious growth alternative to Chinese labour power. India and Africa have the demographics but lack the health and education that the Chinese revolution had provided. Despite the famine of the ‘Great Leap Forward’ and the excesses of the Cultural Revolution, life expectancy had doubled and literacy had become universal. Robotics offers a technical solution but requires massive investment and risks creating mass unemployment in richer economics while blocking the development path of poorer ones.
Globalization has been the curse of mankind, it should be outlawed. I’ve just heard from my brother-in-law in Aussie that all three car plants(Ford,GM & Toyota) are closing down, turning to import from cheap Asian countries, that’s globalization for you!
That’s some fairly shocking news given the history of GM and Ford in Australia in particular. Taken with the collapse in demand for natural resources it surely signals dark days for Australia’s economy.
Another great Parodox , possibly, is that Globalisation and free trade beguiled the Left and stole its ‘Internationalist Thunder.’ Internationalism is an important concept for the Left and Neo-liberalism appropriated it, financilaised it leaving the Left in a quandary.
Agreed
That is a quite profound statement from Mr Polman, even if he is just worried about his shareholders (and therefore his own job). In fact, he may be underestimating the true gravity of his statement.
The only answer I foresee is a reduction in global competition and more global co-operation.
A planned economy – not a market one (or bit of both balanced by better leaders).
To me it is obvious.
And I’m not pretending to be superior to anyone.
Slightly O/T – but maybe not so much. Here’s a link to a great paper from a bloke who works for an investment management firm on ‘Debts, Deficits and Delusions’. Coming from a source such as this is encouraging:
https://www.gmo.com/docs/default-source/research-and-commentary/strategies/asset-allocation/market-macro-myths-debts-deficits-and-delusions.pdf?sfvrsn=2
Thanks for that reference-I’ve just glanced at it and it mentions ‘functional finance’ a term used (I think) by the economist Abba Lerner, who is one of the main intellectual sources of what is now called Modern Money Theory.
Looks worth a read!
I agree – they are a “global investment management firm” in spite of the fact that I thought a GMO was genetically modified. (Perhaps with views like this in their field, they are!)
“In fact, given the counterpart nature of the government
deficit, the national debt could (and perhaps should) easily be relabled as national saving. Suddenly that $18.8 trillion figure doesn’t seem anywhere near so scary”
Looks a bit like Murphynomics to me 😉
It’s a good read, and well thought-out.
Obviously not representative of Ozzynomics at all (the microeconomic theory that the best way to solve a financial deficit is to give all the money to those with the most and let them save it on a south-sea island)
My view on this is it mainly the fault of the *financial sector* and the government not stepping in to regulate it.
The large corporates desire to form and maintain supranational structures that hog-tie national legislatures is part of that process.
Essentially what they want to create is a world with low cohesion and high coupling. A spaghetti mess where nobody can get in the way of their decisions. That’s what ‘free trade’ BS is about. Creating a monoculture.
The opposite philosophy are nations with high cohesion and low coupling to other nations. The floating rate exchange mechanism is an effective way of decoupling an area and making it more internally cohesive, and therefore it is interesting to see the copious academic and speculative attacks on the mechanism, especially from the banking sector, which seems to have been especially aggressive. And it has worked. We now have the Euro!
It really is time to get our bankers under control. The first thing I would do in power is *ban* lending for forex settlement and short selling, etc. I can’t see any justification for that.
You proscribe a list of valid purposes for a loan. Anything outside that list becomes unenforceable in court.
That leaves the courts to decide what fits and what doesn’t fit the list. If they decide it doesn’t fit, then it becomes a gift of shareholders funds.
Operate like that and I guarantee you that banks will become very keen on their due diligence – because the client just has to argue in court that the loan was ‘ultra vires’ to get a freebie.
It’s really easy to regulate for the government banks if you want to.
The transaction system is clearly also being used as a hostage by the banks to get whatever they want out of the government and the central bank. Do as we say or we shoot the transaction system!
There are lots of ways of designing a mutual transaction system. But at its core is one concept – transactions operate on the balance sheet of the central bank, not the individual banks. So you would have a Transaction Department at the Bank of England (alongside the Issue and Banking Departments) and current and savings account ultimately represent liabilities on that balance sheet.
The functional aspects are less important – existing bank accounts could be held in trust by the current banks, run as separate subsidiaries companies and a myriad of different other options. But the key point is that the operational entity is acting as agent and the legal ownership and responsibility is always at the central bank. That makes anything recorded in the transaction system exactly the same as holding cash. You have a receipt for liabilities at the central bank.
However that makes the individual banks short of deposits and balancing liabilites. The replacement on the individual bank’s balance sheets is of course an overdraft from the central bank – as mentioned in the section on lending. Existing banks would then have to get the match funding to free themselves from the central bank lending restrictions, conform to requirements or just enter run-off.
The transaction system is like the road or rail infrastructure and is a common good required by all.
Inevitably the state will have to fund its existence – because there is no money in running it. I see the state providing a ‘white box’ system that anybody authorised can put a marketing veneer on. Done correctly it would mean that you can literally operate your bank accounts through any of the competing front ends. Account numbers would stay the same whoever you are notionally with.
The other important thing about cutting down on bank lending is it free ups a *huge* amount of space for government spending. I can see this as a good way for ‘funding’ a basic income – certainly better than raising the basic rate of tax to 45%.
This applies to most other countries also (USA, Australia etc), as ironically pointed out by Tim Worstall (even if he didn’t intend it):
http://www.forbes.com/sites/timworstall/2016/01/07/does-bernie-sanders-understand-hes-about-to-abolish-the-credit-card-industry-and-cause-a-recession/#2715e4857a0b1b6fbe4954c9
“If you set the price of something below the market clearing price then you don’t get cheaper toilet paper: you get an absence of toilet paper. If you set the cost of credit below what it costs to provide credit then you won’t get cheaper credit: you’ll get an absence of credit. Plus, as with toilet paper, people turning to substitutes. Instead of with credit yesterday’s newspapers aren’t even a bad substitute, while the guy around the corner who lends money illegally against the security of your kneecaps is an alternative.
Looking up the actual speech, yes, he really did say it:
Today, we need to cap interest rates on credit cards and consumer loans at 15 percent.
In 1980, Congress passed legislation to require credit unions to cap interest rates on their loans at no more than 15 percent. And, that law has worked well. Unlike big banks, credit unions did not receive a huge bailout from the taxpayers of this country. It is time to extend this cap to every lender in America.
Yep, Bernie is going to cap unsecured lending at 15% APR. Which is something of a pity because I rather like Bernie. I certainly prefer him to his current opponent. And while I think he’s wrong in many areas I think he’s wrong in interesting ways. But this is simply madness. Such a price cap won’t mean cheaper unsecured lending: it will mean the near total absence of unsecured lending in the American economy. ”
“The adjustment to that would be a really most painful recession, as every household had to make sure they had savings in place for any emergency rather than having “future savings” available on their credit card balance.”
Any views or criticism of these ideas, Richard?
I was involved in a campaign for a cap in the UK more than a decade ago
We settled on 60% precisely small unsecured credit would remain available in that case, usurious as it seemed
Richard,
There’s reference in this sequence to Modern Monetary Theory. I detect in past passing comments that you are not, at least entirely, persuaded by this approach. There’s no mention of it in your blog categories or that I found in Joy of Tax. If I’ve got that right, and for those of us still trying to catch up with all this, could you give a reference, or a few key points, on your view of its shortcomings.
Bob.
MMT does not understand tax or social issues, let alone the operation of financial markets and the role of gilts
The job guarantee is just fantasy
Some of what it says about money creation is useful but it is not alone in saying it
Thereafter because of its massive social failings it has little merit