The Nordic Model of Government

The Nordic Model of Government: Is it Still Relevant?

Note: this briefing draws heavily upon the superb Scandinavian Politics Today by David Arter, the foremost scholar in this area of study.

‘Up to date statistics and common sense observation depict a society that has found a viable mean between equitable distribution and solid economic performance.’ Henry Milner 1989, p16.

‘Majority building is the whole point of Swedish politics.’
Jan Bergquist, Social Democrat parliamentarian

Almost certainly the so-called ‘Nordic Model’ is based to a large extent upon the Swedish social democratic system of government which has been impressing and horrifying, according to taste, since the thirties. In 1936 the American journalist, Marquis Childs, wrote a book called Sweden: The Middle Way and it became a best seller. This was because it was written at a time when 20 million Americans were out of work while countries like Germany and the USSR provided full employment but no political liberty.

For the left the Soviet Union was especially difficult to comprehend as in theory- having abolished private property- it was ‘socialist’ and represented the shape of things to come. US journalist Lincoln Steffens visited and returned to pronounce: ‘I’ve seen the future and it works’. Others on the left like GB Shaw, visited to praise the new system and the Webbs’ Soviet Communism: A New Civilisation, was the high point of leftwing naivety But despite the carefully shepherded trips around the new ‘utopia’, many on the left distrusted a system which curbed so many democratic powers and accorded its leader the same adulation as Hitler.

Sweden, then, was seen as a salvation: a form of socialism which was midway between the two extremes, producing material plenty while preserving democratic liberty. Since the 1930s it became a Mecca for those looking for the secret of the ‘Nordic Model’ of socialism, welfare and democracy.

‘A Harmonious Democracy’: this term was used by Herbert Tingsten in 1966 to describe Sweden’s ability to resolve conflict and maintain a high standard of living. Thomas Anton in 1969 discerned how he thought how Sweden avoided conflict:

i) Policy preparation ‘extraordinarily deliberative’ via the utredning or pre-legislative commission. These were dominated by experts and fed into autonomous central boards rather than individual ministerial decision-making.
ii) Policy-Making is ‘highly rationalistic’ based on extended, thorough investigations and conducted, according to Arter in a ‘pragmatic, intellectual style… Broadly the view was that the government was established to do things, not to talk about doing things or think about doing things.’(Arter 153)
iii) Policy process is ‘very open’: all interested parties are consulted. There is a ‘remiss procedure’ whereby draft proposals are distributed to any party or group likely to be affected by them. Anton argued that while this procedure did not remove conflict, it ‘domesticated’ it and helped remove it from public view.
iv) Policy-making is consensual, with the agreement sought and reached with ‘virtually all the parties to them’ with even the dissenting statements of a commission not challenging the consensus.

Elements of the Swedish Model : David Arter discerns four of them:

a) A dominant Social Democrat (SAP) party which controlled government but not all political power. The SAP ruled Sweden from 1936, apart from a few months right up to 1976, meaning their vision had an excellent chance of being realised, though, it has to be said, they could not have done so without demonstrating a high degree of success as that vision unfolded. It should also be remarked that Swedish history for the century before the SAP came to power was one of grinding poverty; so much so that one third of its population emigrated to the USA during the first decade of the century. Sweden was known as the ‘poor house of Europe’ and it’s possible it was only mass emigration which headed off famine and rebellion. This suggests that any improvement in material conditions must have been deeply appreciated. Arter also points out that, despite being in ‘power’, other parties had a good degree of ‘policy influence’ of a kind denied to oppositions in the UK where they are almost entirely excluded from government. One explanation of the left dominance is that Sweden industrialised rather late by European standards and the traditionally elitist hierarchical society began to be transformed as the weak middle class could not resist the demands of the enfranchised proletariat. Consequently the SAP was able to gain power unencumbered by a strong middle class Liberal party. Finally, SAP prime ministers seemed to rule for a long time. Per Albin Hansson was leader of four governments; Tage Erlander was PM 1946-1969 and if Olof Palme had not been assassinated in 1986, he might have managed more than his seven years in power. Since then prime ministerial reigns have not been so extended.

b) A system which gave precedence ‘to representative over accountable government.’ By this he means, relating to the point above, that instead of holding governments to ‘account’ every four or five years, the inclusivity of the Swedish system, enables people to feel ‘the government is representative of the people as a whole. The notion of accountability, by contrast, is weak’ (p155).

c) A system which also was: founded on a historic compromise between capital and labour: organised by the social democratic party; and had established close relations with the major economic groups in society. The 1938 Saltsjobaden Pact between industry and labour was a crucial underpinning of the ‘compromise’. In effect the government invited in business representatives to advise on the economy and finance, leading to good relations between the SAP and business. This was strengthened by the informal Thursday Club discussions in the 1950s (a search on the web suggested this is now a dating agency!). ‘In short’ comments Arter, ‘neo-corporatism’ was at the heart of policy-making in the Swedish model.’

d) A political culture based upon consensus: traditionally Sweden has had a disposition to agree rather than disagree. Olof Peterson wrote(1994) ‘the aim of political decision-making has been to avoid divisive conflicts; and emphasis on compromise and pragmatic solutions has led to a political culture based on consensus’. Arter quotes Einborn and Logue to the effect that while parliamentary institutions are not dissimilar to other countries, it is the informal aspects, corporatism and political culture which make Sweden ‘more unique’. Arter explains that such a culture facilitates and reinforces a ‘bargaining democracy’ whereby ground is given in exchange for reciprocation, or as Stenelo and Jerneck suggest: ‘negotiations do not as a method of conflict resolution predominate over voting but naturally do not exclude it.’

Arter considers the deviations from this ‘Swedish model’ in other parts of Scandinavia:

Norway: this is the ‘closest fit’ in that: the Labour Party served for long periods after the war apart from a short time in 1963 and, unlike Sweden, never in coalition. Einar Gerhardsen was another long serving PM, leading four governments 1945-1965. Labour was careful to involve a wide range of group interests in the country. Again like its neighbour, using the commission device to prepare policy was traditional dating back into the 19th century, averaging about ten a year. It has been used along with the ‘remiss’ procedure to ensure new laws have been built on consensus. Group representatives are regularly co-opted onto planning committees. The Norwegian political scientist Stein Rokkan distinguished between the electoral channel determining the party in power and the corporate channel, determining what actually happens; as he pronounced: ‘votes count but resources decide’.

Denmark: here the social democratic hegemony was not present as this party had to rule in coalition for some of the 1960s but nevertheless they ‘could… be said to have exercised decisive influence on the policy agenda.’ Here again pre-legislative consultation was a feature of Danish politics long before the growth of the welfare state. ‘Corporatism’ was also a feature of Danish political practices since the 19th century, as the famous September Compromise in 1899 between unions and employers illustrated; in fact this was the first agreement of its kind in the world. On balance most students of Danish politics discern a ‘co-operative parliamentarianism in which pragmatism, tolerance, willingness to negotiate and competence are key behavioural norms’ (Fitzmaurice, 1981); all these recognisable as elements of the Nordic Model.

Finland: this country was not so famous for a consensual political culture but there was agreement for many years on keeping the USSR sweet. Also, in 1977 a meeting had established the Korpilampi Spirit when as gathering of leading pressure groups agreed to work together to stimulate the economy. Arter, however, points to clear deviations from the Nordic Model:
a) the existence of two parties on the left: the communist dominated Finnish Democratic League and the Social Democrats. The Agrarians were the party of government for many years before the rise of the Social Democrats.
b) Pre-legislative consultation was less open and less usual than elsewhere in Nordic countries. Instead interdepartmental working groups filled the gap.
c) Nor were there any significant examples of remiss and commissions of inquiry.
A kind of labour-employer compromise was agreed during the Winter war in 1940, renewed in 1946 but it was far from effective in surviving the 1950s and 60s. However a series of income policy agreements emerged from the 60s and an era of a more consensus political culture.

The Benefits of the Nordic Model
Economy: constantly expanding economic growth together with high-wage standards of living. Keeping business ‘onside’ meant there were few industrial disputes and satisfaction with their way of life, with their shining public services was high-some accused them of being ‘smug’ and ‘holier than thou’. But the economic system was most definitely capitalist, not ‘command’ as under communism or state -owned/nationalised as in UK. However the profitable outcome of the state’s business activities was translated into tax revenue and distributed to fund those excellent public services. An OECD report recently concluded a study on Nordic countries with:

“Income equality and poverty rates were lower in Denmark and Sweden than in any other OECD country, and they were below OECD average in Finland and Norway.”

Welfare Benefits include:

Medical free medical and dental treatment,
Education- free at all levels
High unemployment benefit-up to 80% of former wage plus plentiful retraining progammes for the unemployed.
Wage solidarity- worker differentials were initially reduced deliberately.
Parental leave: Gwladys Fouche in the Observer 16th November 2008 praises the benefits which return to Swedish citizens in return for their 60% tax rate:

“But the most eye-catching benefit is probably parental leave. Parents enjoy a joint parental leave lasting 480 days. For 390 days they receive 80 per cent of their income, capped at 440,000 kronor a year (£35,800), while for the remaining 90 days they receive 180 kronor (£14.60) a day. In theory the leave is split fifty-fifty, but it is up to the couple to decide how they want to organise it. One partner can give as many days as he or she wants to the other so long as each parent takes up to 60 days at the minimum. A single parent is entitled to the full 480-day period.”

The Nordic Model was and still is for many the envy of large parts of the world who felt it represented a viable ‘third way’ of material plenty plus

The Costs of the Nordic Model
These include:
High taxation, in many cases over 50% of take home pay. In the mid seventies the rightwing parties briefly were in government as anger at taxation was expressed in the ballot box.
Low Job Creation: Johan Norberg claims Sweden is good at making things but not good at creating jobs.
Economic Decline: from 1975-2000 per capita income grew by 72% in the US; 64% in Western Europe but only 43% in Sweden. By 2000 Sweden was only 14th in the OECD rankings, down from 4th in 1970.
Exploitation of the System: it was hard to prove but it widely felt to be the case: i)10% of retired people claiming invalidity benefit was more than was justified. ii) Even though Swedes are very healthy, in 2004 sickness benefits absorbed 16% of the government budget.
iii)One member of the Swedish union movement calculated that real unemployment when all the ‘hidden’ pockets were included, amounted to 20%.

Stultifying Conformity? Critics of Nordic countries focus on the conformity of their inhabitants. Madeleine Bunting, for example(Guardian August 2008) expresses it this way:

‘On successive visits to Denmark, Norway and now, just back from two weeks in Finland, I've kept bumping up against the same puzzling phenomenon: a kind of unquestioning assumption of how things should be, a form of social control about the way to behave and one's responsibilities to others. The point when it became starkly apparent in Finland was at Sunday family lunch in a country barn restaurant; every table was full but all you could hear were murmured whispers and the scrape of cutlery on china - until our families arrived, anarchic, squabbling and full of chatter, despite my Finnish friend's attempts to get us to be quiet.’

Andrew Brown, author of a charming book on Sweden called Fishing in Utopia, puts it thus:

“Everyone knows exactly what you have to do in every circumstance, everyone tries to do it, confident that everyone else is doing it and anyone who fails will be subjected to the justified scorn of everybody,"

Jante’s Law: this is a cultural phenomenon which is widespread throughout Scandinavia and it means simply:

Don't think you're anyone special or that you're better than us.

It has ten subdivisions including:
1. Don't think you are anything
2. Don't think you are as good as us.
3. Don't think you are smarter than us.
4. Don't fancy yourself better than us.
5. Don't think you know more than us
Given the ubiquity of this attitude it is hardly surprising there is such a pressure to conform to modest, discreet behaviour, not to seek to stand out or deviate from the norm.
Bunting concludes her critique with the advice that whilst we might admire the Nordic Model we should not ‘try to import it’:
“One Swede in Brown's book talks about the need for 100% "social control" in which "everyone works together": you could call it consensual authoritarianism, and it is profoundly foreign to most Britons. Despite the persistent illusions of the liberal left, it's part of why the Scandinavian welfare state has been one of the region's least successful exports.”
The next day letter writers begged to disagree: ‘what’s wrong with a remarkable degree of mutual trust and expectation’? asked one, Another pointed out at Finland has the highest number of people in higher education and the lowest number in prison. Yet another asked how we could criticise Finns for ‘not imposing their private conversations on everyone else in a restaurant’? Finally someone wondered if we might not benefit from a dose of ‘egalitarian conformity’.
Can We Transfer Nordic Model to UK?
Writer Johan Norberg comments:
‘To say that other countries should emulate the Swedish social model is about as helpful as telling an average –looking person to look like a Swedish super model. There are special circumstances and a certain background that limit the ability to imitate. In the case of the supermodel it is about genetics. In the context of economical and political models it is about the historical and cultural background.’
Sweden’s is political culture so much more consensual than the historically class divided British one.
Sweden is more unified with a small population of 9 million.
Sweden has a tradition of viewing their country as ‘The Peoples’ Home’ and trusts government to spend tax-payers’ money wisely on welfare benefits for all.
These problems however have not deterred Conservatives from urging a version of Sweden’s ‘free schools’ on the UK. When the Tories talked about a ‘voucher’ system, it failed to make much headway as the proposed values were so much less than fees for public schools. However, the success of the not dissimilar Swedish innovation has emboldened them to recommend imitation. Since 1992 Sweden has been funding private schools to educate children on behalf of the taxpayer. 900 schools, teaching 15% of children have opened up, with, it seems considerable success. Michael Gove is convinced, as The Economist (2/10/08) has it, of such

‘innovative entrants “selling themselves to parents” and driving up standards to previously unimagined heights.’
Has the Nordic Model Faded?
The articles quoted above suggest the Nordic Model is still alive and well and arousing all the old reactions of drooling jealousy on the left and sneering ridicule on the right. Arter’s analysis focuses more on the analytic:
1. Social democracy is not as strong now in Sweden where the rightwing Fredrik Reinfeldt rules; the Liberal Anders Rasmussen in Denmark; Mattie Vanhanen of the Centre party is in charge in Finland though Jens Stoltenberg sustains Labour in Norway.
2. The practice of widespread consultation is showing signs of decline. The number of commissions in Sweden is reducing; more single civil servant inquiries are being carried out; but inquiries including interest groups has remained steady at about one third of the whole. In Norway something similar is under way and a process more akin to British-US lobbying has taken its place.
In 1990 Kjell Olof Feldt, the Swedish Finance Minister regretted the failure of the unions to cooperate with its own government and predicted the ‘collapse of the Swedish model’. In November 2006 The Economist declared “ Farewell Nordic Model” judging that high taxes and inefficient public sectors made them in appropriate and old fashioned. Other articles cited in this briefing suggest these gleaming welfare utopias in northern Europe, have not lost their ability to fascinate and encourage imitation however inappropriate.

Reading
David Arter, (2008) Scandinavian Politics Today, MUP
Andrew Brown(2008), Fishing in Utopia, Granta.
Roland Huntford (1972) The New Totalitarians.
Johan Norberg, Swedish Models, National Interest Online, 6/1/06
Gwladys Fouche Where tax goes up to 60 per cent and everybody’s happy paying it. Observer, 16/11/08
Madelaine Bunting, ‘We may admire the Nordic way, but don’t try to import it.’ Guardian 15/8/08
Economist, 2/10/08, Swedish Lessons: the Tories assume the mantle of social democracy.
Bill Jones, 24/11/08 htttp//skipper59.blogspot.com/

Obama's Victory Analysed

‘I draw the line in the dust and toss the gauntlet before the feet of tyranny, and I say segregation now, segregation tomorrow, segregation for ever’ George Wallace, when Alabama candidate for governor 1962.
[in 2008 Alabama Democrats chose Obama as their candidate]

‘If there is anyone out there who still doubts America is a place where all things are possible, who still wonders if the dream of our founders is alive in our time, who still questions the power of our democracy- tonight is your answer’ Barack Obama Victory Address, 5th November 2008

A Historic Victory

1. Democratic Renewal: In The Guardian, 5th November 2008, Gary Younge wrote (surprisingly, given his expertise) that blacks did not even get the vote in the US until three years after Obama was born. This was not the case as the 1870 15th Amendment delivered this right. This is not to say that at the time of his birth Obama’s parents would not have been able to marry in certain southern states where segregation was in full swing and blacks could not eat with whites or ride on the same bus. However, many African Americans failed to register for voting for a number of reasons and continued to do so right up to the present day. Obama’s campaign however, focused on mobilising this section of the black population and encouraged hundreds of thousands to vote and to believe it mattered.

2. Primacy of the Spoken Word: when Obama first appeared as a candidate, few gave him much chance (including this writer)- he was too inexperienced, America was not ready to vote in a black man, he was opposed by the mighty Clinton machine and so forth. However, right from the start, in the Iowa Caucuses, he showed that, in his own phrase: ‘something’s going on’. His rallies were attended by thousands and the atmosphere was ecstatic, like revivalist religious meetings but adapted to politics. Obama’s gift for the language was soon revealed to be natural- he did not employ speech writers or autocues- and drawing on a deep well of intrinsic oratory .

3. Healing of Racial Divide: anyone familiar with the USA, knows its racism runs deep; even ordinary liberal apparently families could shock with the ferocity of their views on their black minority and the fears they felt of the threat they posed to the white population. Ever since the ending of slavery blacks have been a poor and often impoverished minority of some ten percent, its members frequently comprising the urban underclass and being disproportionately involved in crime. The Oscar winning film Crash, directed by Paul Haggis, 2004, centred on this theme, suggesting all aspects of US life were affected by its racism.

4. US People Becoming Multiracial: the US has always been a melting pot of different races, all of whom had been attracted by the freedom and opportunity America offered. African Americans had no choice in the matter but successive waves of immigrants from Europe, Asia and Latin America, chose to join this society in the belief they would achieve prosperity and freedom for themselves, families and their future descendants. Much immigration from south of the Mexico border was and remains illegal but once in the country, there is a strong tendency for immigrants to find their niche, become established and eventually become legal. White Americans are being out produced biologically and by 20409 will be in the minority. Obama’s victory is one of the first manifestations of this transformation. Rove urged Bush to woo Hispanics if the Republicans were to have any future and he even supported, against his instincts, a liberal immigration policy to do just that.

5. Recapture of the South: the Civil Rights Act of 1964 split voters in the south away from their traditional Democratic loyalties so that southern states became solidly Republican. This has damaged Democratic chances for several decades but now this seems to be reversing. Danny Finkelstein in The Times attributes this to an emergent ‘chattering’ middle class- richer and more educated than before which has markedly different views than previous recent generations.

6. Republican Agenda Outdated: this agenda of cutting taxes, fighting crime, reform social security, oppose abortion and support marriage, seems to have run its course. 29 million pay no taxes anyway, prosperity has taken the edge off crime worries and women generally tend to be opposed to the party’s stance on abortion. To even have a chance in the election Republicans needed to select a ‘maverick’ not associated with this old agenda.

7. Obama had Near Perfect Conditions for his Run: Obama would probably have lost had it not been for the huge unpopularity of Bush with 70% unhappy with his performance and only 30% giving him a positive rating. 50% believed McCain would continued Bush policies. The Republicans moreover, had eased American into the idea of black authority with Colin Powell and Condoleeza Rice. Moreover the 80% in polls who felt the country had lost its way, indicated a huge majority for Obama’s famous but comfortably nebulous notion of ‘change’. 60% felt McCain was more experienced but the positives outweighed the negatives for Obama in this contest. Finally, there was no credible third party candidate this time, unlike 2000 when Nader arguably cost Gore the contest.

8. The Campaigns: Obama’s campaign is being hailed by some as the most masterful of recent times. Based on his extraordinary inspirational appeal, he was able to show ecstatic rallies every night on the television and gather huge amounts of funding via internet campaigns: 3.1 million donations and volunteers contributed to the campaign, a huge mobilisation which will help Democrats for years to come.. The bitter fight with Clinton probably did little harm, giving the lesser known Senator precious airtime and name recognition. He was amazingly courteous, steady and calm in the debates, compared to a jittery, volatile and mostly negative McCain. His trip to Europe to speak to 250,000 in Berlin did little to help him as at that time voters were undergoing ‘Obama fatigue’.

But his strategy of contesting every state enabled him to pull off some surprising wins and forced McCain to divert resources he could have used elsewhere.
McCain’s name recognition was good as he had tried for the presidency before and been around US politics for three decades. However, he seemed to be impulsive and indecisive at times and overly negative in his style. While less experienced than Obama, he was clearly les intelligent, except to the totally committed.

Sarah Palin: his decision to adopt Sarah Palin as his running mate proved initially a huge success then a disaster as voters realised she was so raw, eccentric and ill informed. It seems, according to an article in the ST that she was known to have hugely impressed a group of senior Republican ideologues on a cruise to Alaska in 2007; the obvious thought was that the maverick McCain needed someone to firm up the core vote. McCain had only spoken to her twice before her selection and relied on the views of others. However, Nicole Wallace, given responsibility for looking after Palin by the campaign, could not prevent her charge exposing her ignorance in foreign affairs in interviews and this hurt the Republican effort.

Nor could she stop her spending embarrassing amounts on clothes-‘tens of thousands’ above the $150,000 allowance made- behaving according to one aide like ‘small towjn hill-billies looting Nieman Marcus from coast to coast.’ Yet even after the disaster on poll shows 91% of Republicans have a good view of her and 64% think she would be the best candidate in 2012.

In 2000 and 2004 Republicans won by building a more effective campaigning machine but this time Obama had more money and more volunteers on the ground. In Ohio 53% of voters said they had been approached personally by Obama canvassers. Finally, events came to Obama’s aid: the economy came roaring into the campaign to make it by far the major issue while foreign policy, McCain’s strong-point declined in importance. Satire, via You-tube also played a role in ridiculing Bush and Palin throughout the campaign.

Tina Fey on Saturday Night Live did a brilliant impression of Palin and reinforced the idea that she was not really equipped to step up to the presidency should anything happen to McCain. It might be argued that anyone in a position of governing a state of the USA should, at the very least, know that Africa is a continent rather than a single country. The impression she gave of being exceptionally ill-informed was unfortunately reinforced by just about every interview she gave.



The Results Analysed

Final Polls: Obama 53-McCain 40

Votes cast: Obama 52 (first Democrat since Carter’s 50.1% to get more than half the votes; McCain 46. Obama managed to win Independents by 8 points, supposedly McCain’s power base.

Electoral College Delegates: Obama 364; McCain 174(270 is the winning number)

Gender: Men voted about 50-50 but woman were 56 to 43 in favour of Obama; some think it was the ‘choice’ or ‘no choice’ over abortion which was the chief factor.


Race: Obama, predictably won 95% of the back vote, 41% of the white male vote plus 50% of white women and, importantly, 75% of Hispanics [he won Florida with 15 points compared to Bush’s 12 in 2004]. Race was les of a factor among younger voters two thirds of whom voted Democrat. McCain garnered 55% of the white vote, suggesting a ‘Bradley Effect’ to some degree in that polls had shown Obama only one point behind his opponent among white voters while the result was a 12 point gap. [Bob Worcester, the Mori pollster, however, reckons that over the USA as a whole, the effect was not more than 2%.] However, Obama managed to collect a bigger slice of the white vote than Bill Clinton did. For the future the Republicans have to consider how they adapt to the multiracial nature of their country, otherwise they face a long period in the cold.

Age: 69% of the 18-29 cohort voted Obama; 32% McCain. Among the over 65s the Republicans won 53-45, but for the future, older voters in future elections will have been part of the ‘convert’ election of 2008. First time voters went 68-31 to Obama reflecting the intense effort put into winning new voters and encouraging black voters to register.

Religion: Generally McCain did well among religious people in that: he won Protestants 54-45 and evangelical Christians, 74-24. However, he lost the Catholic vote 45-54 and the Jewish vote 21-78.

Urban-Rural Dwellers: Obama won:
63-35 among urban voters;
50-48 suburban
and lost out:
Small Towns: 53-45
Rural Voters: 53-45 (a 5% increase for Democrats on 2004).

Income: as usual lower income voters went democrat and Republicans picked up more of the wealthy. Obama won 73-25 of those earning under $15000; 55-43 among the $30-50,000 bracket but lost 48-51 among the $100-150,000 earners and 46-52 among those earning over $200,000.

Education:
Not high School Graduate: 28-63 Obama
High School Graduate: 47-52 Obama
Some College Education: 47-51 Obama
College graduate or More: 45-53 Obama

Issues Judged ‘Most Important’:
Economy, 63;
Iraq 10;
Healthcare, 9;
Terrorism 9;
Energy 7

Battle ground states which went Democrat [9 Democrat wins]:

Nevada 57-43
Colorado 53-46
New Mexico 57-42
Iowa 50-46
Ohio 51-47
Indiana
Virginia 52-48[home of the capital of the old Confederacy]
Florida 51-49
North Carolina
Pennsylvania55-44
[of these Florida and Ohio were probably the biggest prizes]

Is a Corrective in Order? Some Democrats are envisaging the sort of swing to the right which Bush did even on his minuscule win in 2000, but others argue-for example Paul Harris in The Observer, 9th November, that whilst the right has been rejected the left has scarcely been embraced. Even with all his disadvantages McCain still managed to poll 46% of votes and some of the wins were by tiny margins. Only 22% of Americans describe themselves as ‘liberals’ and USA is still basically a right of centre electorate. This was no landslide like FDR’s 48 states in 1936 or Reagan’s 49 in 1984. Obama lost the white vote by 12 points and whites comprise 74% of voters. ‘I don’t think it’s a mandate for a New deal’ said Howard Dean of the Democratic National Committee. Obama indeed offered an essentially moderate programme and whatever he seeks to do wil be limited by the harsh economic climate.


President Palin in 2012? The Economist seriously thinks Palin is seen by many Republicans as a good bet for 2012. Despite her fluffing of lines and mistakes, she has ‘star power’ and is a ‘quick learner’. She is certainly the best known woman politician in the USA, rather than Hillary Clinton. The nearest challenge, thinks the journal, is Mike Huckabee, who now runs his own show on Fox News. What does seem possible is that the Republicans, traumatised by their rejection will withdraw to core values and enter a period in the wilderness. John Halpin, of the Centre for American Progress commented that the Republicans ‘will factionalise severely’, just as the Tories did in UK after 1997 and Labour after 1979.


Congressional Results: Good but not a ‘Landslide’

House of Representatives: Democrats held 235 and won 19 seats while the Republicans held 173.

Senate: The Democrats managed to improve on their previous standing by 6 seats leaving them with 56 seats to the Republicans’ 40, with 2 independents and 3 undecided.

Despite this excellent result for the Democrats, they did not get the landslide many had predicted. 60 seats are required to defeat a filibuster- the procedure which enables a single Senator to speak continuously until a measure loses time. However the democrats have enough seats to pass most things and so Obama faces an auspicious opening period as president.

Challenges facing Obama:

On 6th November, The Guardian’s leader read:

‘The weight of expectation that today rests upon the frame of a 47 year old senator with no real executive experience is too great for one man and, in all probability, too large for one term of office. The nearest parallels are Abraham Lincoln taking over on the brink of civil war or Franklin Roosevelt arriving in the Great Depression. America, it seems, often reaches for a great man in its greatest need.’

Foreign Policy

Russia: One of the most pressing challenges facing the new president must be represented by ‘Putin’s Russia’, if its former president can still be seen to be in charge of it. President Medvedev made a longish speech on 5th November which:

i) blamed the USA for the world’s economic crisis.
ii) Suggested it was the USA to make the first move in repairing relationships with Russia.
iii) Expressed his anger at the expansion of NATO-Russia has always had a fear of encirclement
iv) Challenged American placements of missiles in Poland and the Czech Republic-the claim that these are ‘defensive’ missiles must ring false in the Kremlin.
v) Suggested to one major expert on Russia, Alexander Golts, that Russia is deliberately to create a military threat to the west by placing its own 500 mile range Iskander missiles in Kalingrad on the border with Europe as well as installing a radio-electronic device to scramble US control communications.
vi) Attacked state bureaucracy interfering in the economy- pretty rich, says the Economist, considering the president is the creature of Putin, who did much meddling himself.
vii) The presidential term is to be extended from four to six years- a sure sign Putin is addicted to power and wants to consolidate it further. And the Duma’s terms are to be extended from four to five years. Putin will be allowed to stand for president again in 2012 and then can in theory look forward to another 12 years in power. The Duma’s extension is less significant as it is virtually a rubber stamp via the United Russia Party anyway.

Writing in The Guardian 7th December, Simon Jenkins, reckoned:

‘No service is done to Obama by overstating his revolution as a second coming.’

In respect of the Russian threat he went on to say:

“An early test will be his response to the extraordinary sabre-rattling by the Russian president, Dmitry Medvedev. Medvedev's proposal to station missiles in the Russian exclave of Kaliningrad between Poland and Lithuania is a crude reaction to George Bush's location of defence installations in a number of former Warsaw pact countries. It is so clearly a challenge to Obama's resolve that it demands an immediate reply. The opportunity is for a classic show of firmness combined with an openness to negotiate. Kaliningrad could yet be Obama's Cuban missile crisis - the geographical parallel is eerily similar - before he has even taken office.”

Middle East
Iraq: Obama plans to pull out of Iraq within 16 months but some argue that in practice this might be finessed differently. The idea then is to ‘surge’ in Afghanistan but some argue e.g. Simon Jenkins, that this too will end in many tragic tears for the west.

Syria: rumoured Obama will seek to separate Damascus from Iran with a deal seeking to give them Golan Heights in exchange for peace with Isreael.

Iran: Obama wants to open up dialogue with Iran once present president has moved on.

Climate Change: Obama in favour of emissions cap and charging system as advocated by Europe though including China and India as some experts argue should be exempted.

Nuclear Proliferation: seeks to prevent Iran from joining club and mutual reductions with Russian weaponry.

Challenges at Home

Economic: he must
i) Act to remedy the imminent economic recession which will probably be the worst for seventy years.
ii) Act to solve the world economic crisis set in train by US banks.
iii) Alleviate problems of unemployment and poverty at home which will accompany recession.
iv) He has promised to reduce taxes on the poor and increase them on the rich but no details have been offered as yet.

Health service: he is committed to extending the range of health insurance in US. This was the rock on which Clinton’s early presidential hopes foundered so it must be handled with real care.

Poverty: nowhere in US society is poverty more of a problem than within the black community. More than 70% of black babies born in America are to single mothers; a black baby girl is more than twice as likely to die in infancy than a white one; she is also more likely contract diseases like asthma and diabetes; more prone to obesity and to end up in an underfunded understaffed state school where grades do not compare with white schools.
His victory has enthused some blacks to think Obama will initiate a big payout for them but he made no special promises and any perception of special treatment will put his winning electoral coalition at risk. It seems clear the astonishingly successful Harlem Children’s Zone programme-where welfare services, combine with education, health and environmental programmes to transform a specific block to be followed by a contiguous one and so on- will be rolled out in a range of other US cities.

Conclusion
It seems Obama has worked hard to assemble a key group of advisers and aides to address these problems during the interregnum before 20th January; he will need all the wisdom his able team can provide.
Obama’s degree of success will depend on how the world responds to him. Right now he enjoys a honeymoon but this will soon end as problems emerge and people feel they have not been treated fairly. It is by no means unlikely that if we discuss US politics in a year’s time, President Obama will not be perceived in such a saintly light and that critics will be condemning his administration as a dangerous failure. That’s no more than politics.

Putin's Russia

‘For Russians a strong state is not an anomaly that should be got rid of. Quite on the contrary, they see it as a source and guarantor of order and the initiator and driving force of any change….I am not calling for totalitarianism…A strong state power in Russia is a democratic, law based, workable federal state.

Vladimir Putin, 1999.

‘To grow further it [the Russian economy] will have to dismantle the lawless system Mr Putin has created’.

Economist, 1st March 2008

Historical Background: Russia has tended to have an authoritarian political culture, most popularly associated with Ivan the Terrible who became Tzar of all Russia in 1547. Ivan was intelligent and impulsive though some said mentally ill at times. He succeeded in expanding Russia into a major empire of a billion acres; Russia is still the biggest country in the world- 6.6.6mn square miles. His reputation has perhaps been unearned in respect of his character for, whilst he was a strong, autocratic ruler, he was not especially cruel. The same cannot be said for the man who eventually helped sweep away the machinery of the imperial court: Joseph Stalin.

Stalin: The son of an alcoholic cobbler in Gori, Georgia, Joseph Dzugashvilli, was an outstandingly bright young scholar and a charismatic leader of his peer group, [as well as, incidentally, a noted singer, often employed to sing at weddings]. Urged on by his resourceful and indefatigable mother, he managed to study for a time in the Tbilisi seminary as a trainee priest where studies resembled a form of highly programmed mind control- a precursor perhaps for his governing style from the Kremlin. He soon became engaged in gangster-terrorist activities-robbing banks and running protection rackets- to help finance those who would overthrow the Tzars in favour of a Marxist Russia.

He helped Lenin achieve this result and when Lenin died, cleverly manipulated his way into a position of power from whence he worked to eliminate his rivals until he had made his role of Secretary of the Soviet Communist Party, effectively that of dictator. He insisted his vision of ‘socialism in one country’ should be the template for the world revolution to be pursued in the names of Marx and Lenin.

Lenin had effectively retained the relatively well organised and established Tzarist police, the Okhrana- turning them into the ‘Cheka’ in 1917. The role of the secret police-more like an internal Bolshevik army- was to defend the revolution and police important parts of the new state like the forced labour camps. As Stalin’s rule evolved he used the secret police-now called the NKVD and later the KGB- to enforce his collectivisation of agriculture and suppress resistance to the resultant famine which accounted for hundreds of thousands of peasants. Vast numbers were employed, on flimsy punitive pretexts as virtual slave labour on state driven enterprises designed to establish the foundations of heavy industry in a mainly rural country.

There was no political freedom allowed in terms of democracy-despite an ostensibly highly democratic constitution- and cultural endeavour was kept rigidly to the support of the supposed ideological underpinnings of the state. The whole of the Union of Soviet Socialist Republics, the USSR, as it was christened in 1922, became the instrument for the fulfilment of a tyrant’s dream of ‘socialism’. During the war the Soviet people suffered to an even greater degree but they fought for the survival of their ‘Russian’ homeland rather than any worldwide revolution.

At the end of the war, the Soviet Union was now a great power which Stalin advanced into Eastern Europe and beyond, precipitating the ‘Cold War’ as the west mobilised to defend itself against what it feared might prove to be a military as well as ideological onslaught. Stalin died in 1953 of a stroke; amazingly, given the murderous nature of his rule, thousands visited his coffin in tears. He was succeeded by Khrushchev (1953-64) who, in a sharp departure from Soviet practice, denounced Stalin’s methods of governance, though did not do much to change them. Nor did his successors, Leonid Breznhev (1964-82), Andropov (1982-84) and Chernenko (1984-85). However, the next person in charge of the Soviet Communist Party was a remarkable man intent upon drastic change: Mikhail Gorbachev (1985-90).

Soviet Economy: the economy of the USSR was centrally planned, under its Gosplan agency, and a series of 5 year plans from 1928 laid the foundations of a modern economy. But the market had been excluded; all decisions were taken centrally: amounts to produce, amounts to consume, varieties of product and so forth. This worked well enough to establish the basic requirements of mining, iron smelting, basic manufacturing and so forth as the astonishing performance of the USSR in the 1941-45 war demonstrated. It also enabled high quality science based activities like nuclear weaponry and space exploration to progress to a degree which seriously worried the west in the 1950s. However, the Soviet economy was fundamentally weak as central planning is seriously flawed as a means of organising economics. Friedrich Hayek, in The Road to Serfdom pointed out that central planners just could not cope with their tasks.

‘Given that there were well over 12 million products in the USSR, some of which came in hundreds if not thousands of varieties, the volume of information within the planning system was- according to economists- exceeding the number of atoms in the universe.’
A Heywood, 1994, Political Ideas and Concepts, p272.

Decline of the Command Economies: Slowly the logic-or rather illogic- of this arrangement began to cause the economies of the ‘Eastern block’ of command economies, to slow down. Shortages were rife and western products highly regarded, so that visitors would be offered prices on the demin jeans and Beatles records. Because of waiting lists for wanted goods, shop assistants, a job with a low status in the west, had extremely high ratings in the east. Moreover, queuing was so ubiquitous a requirement in eastern block countries, that some people could make a living out of charging for queuing on behalf of others.

Inefficient operations were carried by the centralised system, fuel was wasted prodigally; no-one cared about their part of the economy as it was so vast and impersonal. An illicit black economy, of course, thrived in all communist countries. One other consequence was that politically driven targets, like defence, received priority, while consumers suffered. Potential dissent was contained by the dominance of the communist party, whose committees shadowed all the official ones. Nomination of candidates almost never extended beyond the single person favoured by the party. Democracy was a sham. But it was all overseen by the threat of the Red Army; the 1956 invasion of Hungary and the 1969 one of Czeckoslovakia proving the threat was real enough.

Slowly these economies ground to a paralysing halt, unable to compete with the more vibrant economies of the west. What was worse for the communist leaders was that their countries were now ‘more porous’; their citizens were aware of the west and the fact that the workers there did not live in poverty and desperation. Dissatisfaction was not long in asserting itself and throughout Eastern Europe in 1989, a series of revolutions occurred as former elements of the Soviet empire-sensing Soviet weakness, shrugged off Moscow’s control and resolved to become genuinely independent. This was the situation Gorbachev was forced to confront. Without the means to enforce any authority over former territories, or even over his own people, Gorbachev opted to compromise towards a liberal set of responses.

In his excellent book Russian Politics Today, Michael Waller, assesses the impact of communism in these Soviet dominated countries and notes that polls show that modern Russians still claim that life under the old regime was better. This is because over time the system did contribute some genuine benefits: everyone was in work, even if wages were low (differentials, moreover were nowhere near as great as in the west) and there was little in the shops to buy; the health service was good and was free; education was comprehensive and free; people living in towns and cities had access to more resources than when they lived in the countryside; and most people had access to cultural resources like libraries, books, television and even the theatre.

Moreover, prices of basic food were deliberately kept low while accommodation and fuel costs were ‘nominal’ according to Waller. Benefits like pensions, maternity pay, summer camps and the like were also free and administered by the trade unions. When looking back it seems citizens of the new post 1991 Russia forgot the very low levels at which living standards formerly rested nor the fact that several families often had to share the same small apartment.

Glasnost: the word means ‘voice’ in Russian, something for which Gorbachev called in March 1986. Initially Gorbachev intended merely to offer more transparency into government but this soon evolved into a spotlight on the past with Stalin’s victims like Bukharin rehabilitated and criticisms of the saintly Lenin made. Pressure grew to rename streets and towns by their pre-1917 names- e.g. Leningrad became St Petersburg again in 1991. Also circulation of political comment burgeoned and in March 1989 elections for parliament became genuine instead of prearranged. Debates in the Congress of People’s Deputies became unrestrained by fears of arrest and imprisonment.

Perestroika: meaning ‘restructuring’ is usually understood to refer to the economy;
most importantly it embraced the notion of choice. Enterprises were freed of ministerial control making them autonomous and responsible for their own success or failure. Additionally, all those small operations- moonlighting, illegal entrepreneurs, were made legal. A law in 1986 made it possible to be a private tradesman quite legally.

Federalism Unravels: Stalin’s 1936 constitution allowed substantial powers to the 15 republics of the USSR, including the right to secession. In practice this meant nothing; borders were ignored by the party and by state planners who treated the USSR as a unitary whole. Separatist tendencies were harshly suppressed. Gorbachev took steps to end the Cold War with the west, refusing to assist communist regimes as they faced domestic revolt. Within the more encouraging atmosphere initiated by Gorbachev, the constituent republics now experienced overwhelming surges of new found identity, leading to the eventual post- collapse creation out of the USSR of: Latvia, Lithuania, Estonia, Armenia, Azerbaijan, Kazakstan, Kirgyzstan, Moldava, Belorussia, Tajikistan, Turkmenistan, Ukraine, Uzbekistan and Georgia.

Attempted Coup: in August 1991 some senior Soviet officials attempted to win back the Stalinist system by deposing Gorbachev. Ultra reformist Boris Yeltsin-newly elected president of the Russian Republic in June 1991- led the popular defence of the new order symbolised by the seat of the Russian parliament and presidency, the White House. The collapse of the coup ended any residual authority of the communist party and left Yeltsin poised to succeed Gorbachev as the USSR was dissolved 31st December 1991. Given his position as the main leader of Russia, once Gorbachev was cast aside, he was able to direct future reforms as he thought fit.

Economy: Yeltsin abolished Gosplan in January 1992 and freed prices from official control at the same time. The latter was part of a ‘shock therapy’ designed, with advice from western economists, to catalyse the new economy. However, it had novel impacts for former Soviet citizens. Queues were ended almost at once. But prices increased by 350% in the first month and many goods were now too expensive for ordinary citizens; income inequality suddenly became evident. During this transition period many state enterprises were privatised and:

‘There emerged a number of phenomenally wealthy financial operators, who were able to exercise a powerful influence on government, on the media and on Yeltsin personally. These ‘oligarchs’ were making their greatest influence on public life- and on public opinion-when, in the mid-1990s, the basics of life were becoming unobtainable for most of the urban population, who at that stage were too stunned and too busy seeking the means of physical survival to react to this pillaging of the nation’s wealth by a few individuals.’ Waller p14.

Privatisation: Often these people were the managers of the industries concerned. Quite often the route was for a director of a state enterprise to hive off the profitable bits of a state activity into a holding whose title they could later appropriate, leaving just the valueless shell for the state. Essentially these were criminal activities but during the 1990s under Yeltsin it was a relatively lawless time. Waller cites a study suggesting the state’s income from privatisation 1991-99 was no more than $9,7bn for the privatisation of 145,000 enterprises(waller, p195). Bankers like Vladimir Potantin and Mikhail Khodorovsky acquired assets through loaning money to the state in exchange for shares in privatised businesses. The latter acquired a 45% share of the major oil company Yukos for a ‘derisory sum’. Others who did fabulously well, like Boris Berezovsky were actually part of Yeltsin’s advisory team.

Yeltsin encountered severe political problems with his parliament- elected while the USSR existed- where some urged him onwards and others to be cautious. His personal style of living also became an issue with his family seeming to be involved in policy-making not to mention his frequent embarrassingly drunken appearances, which shamed the many Russians hoping their country could regain respect and influence in the world. Under this leader Russia declined in many ways so that taxes were not collected, government servants were not paid, the government became virtually dysfunctional. Many Russians looked back nostalgically to the time of Stalin and the discipline of a communist system.

Vladimir Putin
On 31st December 1999 Vladimir Putin became acting president of Russia and then in March 2000 was elected for a four year term; he was re-elected in 2004. He was born in Leningrad October 1952 to a factory worker mother and a naval officer later NKVD officer father; his grandfather had been personal cook to Lenin and then Stalin. Vladimir studied law at university in his home city. He joined the KGB and the Communist Party, working as an intelligence officer on internal dissent. After a spell in Dresden, East Germany, he returned to Leningrad to become international adviser to Anatoly Sobchak, former law lecturer and now mayor of his city. He was accused of issuing licences for $93m of ferrous metals in exchange for food aid from abroad which never came to the city. A commission investigated and recommended he be fired but this did not happen.

He continued as chair of the Committee for External Relations, from 1992 to March 2000. He was also on the advisory board of the German property holding Saint Petersburg Immobilien und Beteiligungs AG (SPAG), a company which investigated for money laundering by the German authorities.
In June 1997 Putin defended his thesis on Strategic Market Forces; the web entry on this event claims the thesis was substantially plagiarised. In July 1998 he was made head of the FSB by Yeltsin, the successor body to the KGB. In August 1999 Putin was made a deputy Prime Minister and Yeltsin said he wanted Putin to be his successor.

Putin’s emergence into the limelight coincided with the 1999 Chechnya invasion of Dagestan and his tough policy towards this war provided him with a convenient platform for popular election; his \KGB background proved no barrier to popularity. He became acting president in December 1999 and was well placed to fight and win the March 2000 presidential election, pledging support- but significantly not membership- to the newly formed Unity Party. Waller characterises Putin’s style as subtly indirect (p43). He managed to stay detached from political issues, never leading a party- though certainly supporting first the United Party and then its successor United Russia.

‘From his detached vantage point in the presidency he has was able to criticise the government without making himself vulnerable for its failures. Putting himself above party and sectional interests, Putin has been able to present himself as the People’s President, aware of a popular belief in a strong hand at the centre, and aware also of a popular mistrust of political parties and business people determined to appropriate portions of the common patrimony.’ P43

In the conclusion to his book Waller judges that under Putin the political pendulum, which swung to the liberal side of the spectrum under Gorbachev and Yeltsin, returned towards the authoritarian end.

• The media has been effectively controlled so that united Russia has untrammelled access to air its views. The Chechnya affair allowed Putin to force the exile of Vladimir Gusinsky, whose television channel was alone in criticising Putin’s ruthless approach. The media is virtually as controlled now as it was under communism.
• The democratic electoral system has been allowed to ‘atrophy’, as, in the wake of the Beslan tragedy Putin ‘revoked the direct election of regional governors and republican presidents.’ Elections to the Duma had already been sullied to divest them of ‘their free and fair nature’.
• Nominations of key political positions became controlled by the president suggesting a return to the Soviet ‘nomenklatura’ system of a ruling elite. The difference in Putin’s case was that such powers of patronage were written into the constitution, something which Waller suggests ‘clearly undermines the regime’s professed democratic aspirations’.
• United Russia set up ‘party schools’ in June 2004 along the lines of the old communist party.

Russian Political Culture: as has been already mentioned, Russia has been used to an authoritarian style of government. ‘Demokratskaya’ has always been viewed as a Western European concept, more than a little alien to the Russian way of doing things. Similar problems were encountered by the USA when it attempted to impose democracy on Iraq: citizens had not become used to the idea of participation in decision-making and found it hard to adapt to such a system. Maybe this is why there was so much chaos in the 1990s when Yeltsin was in charge and why Putin became so popular once he arrived on the scene with his secret police background and aggressive way of dealing with those who opposed him.

Putin’s Personal Wealth: officially Putin is someone of modest means, only just making it into the richest 100 members of the Duma. Unofficially however, there are reports of him owning a vast personal fortune including a 4.5% stake in Gazprom- the largest extractor of natural gas in the world and Russia’s biggest company-plus a 50% share in the oil trading company Gunvor with a turnover of $40bn. The aggregate value of these and other holdings could make Putin Russia’s richest man. Putin’s response to such an accusation was as follows:

"This is true. I am the richest person not only in Europe, but also in the world. I collect emotions. And I am rich in that respect that the people of Russia have twice entrusted me with leadership of such a great country as Russia. I consider this to be my biggest fortune. As for the rumors concerning my financial wealth, I have seen some pieces of paper regarding this. This is plain chatter, not worthy discussion, plain bosh. They have picked this in their noses and have smeared this across their pieces of paper. This is how I view this."

Russia’s Economy Now: The Economist 1st March 2008 ran a special survey on the Russian economy. It notes how the Russian economy ‘took off’ in 1999-2000, growing from 6% in 1999 to 10% in 2000. Four days before Putin was elected president the first IKEA store opened in Moscow. Listening to advice from liberal economist Andrei Illarionov, he took sensible measures, accumulating foreign reserves simplifying taxation and allowing a free market in land. Illarionov quit in 2005 but now, critical of recent economic policy, reckons the takeover of Yukos in 2003 was a ‘breaking point’; before Yukos had been growing its oil output at 9% a year- by 2007 this had sunk to 1%.

Khodorovsky, owner of Yukos, had been exiled but a new state elite had taken over and legal control over the economy made to look nonexistent: ‘After Yukos, nobody can feel safe’ says one businessman quoted in the survey. The state moved in to take over more and more private concerns. Once again it is the centre of political power which determines what happens; ‘it is easier to get a competitor into jail than to compete with him’ is another quote. Corruption is rife, both regarding bribes officials to ignore rules and also in respect of officials who have shares in business and so are directly involved in making money. The World Bank places corruption in Russia on the same level as Togo.
Corruption: the giving of bribes to reduce tax demands is standard procedure and sufficient profits are made by many companies in building or mining, to make this bearable. Yet investment earlier in this year remained buoyant-up 21% in 2007. The Economist acknowledges high rates of growth but argues it would be much higher if corruption were stamped out. Big companies dominate and smaller ones struggle to keep up; the costs of starting a business in Russia is set prohibitively high say some and competition is so poor productivity is not improving. Countries like Ukraine and Georgia manage tom outperform Russia even though they have no oil.
Indeed, the journal suggests Russia is too ‘addicted’ to oil which is forging ahead but this creates a dependency and domestic manufacturing has been neglected, the value of the rouble is much too high so that new wealth is sucking in imports. Quality standards are also low as evidenced by the return of 15 jets purchased by Algeria from Russia. In addition inflation is running at about 10%. Economists note that the Russian economy, over-reliant on oil, has its fortunes tied to oil prices and when this is unpredictable, stability is lost. Income and wealth differentials are growing; as long as average salaries are increasing at a fair rate this is overlooked but new conditions might change things. The Economist pints out that after a decade of growth, Russia is only back to the level it reached just before the fall of the Soviet Union. ‘To grow further it will have to dismantle the lawless system Mr Putin has created’.

Presidency of Dmitry Medvedev: In March 2008 Putin stood down after the two terms constitutionally allowed but was able to place his close friend Medvedev as his successor and also assume the role of prime minister for himself. This relatively young Russian politician is clearly not finished exercising power in his native land. Extensive publicity of his prowess at martial arts and his well toned torso have reinforced the message that he is still the power in Russia’s Kremlin.

Putin and the Oligarchs: the emergence of a group of mega-rich Russian businessmen, dubbed the ‘oligarchs’ has directed attention to their emergence and possible involvement with organised Russian crime. Oleg Deripaska, for example, somehow managed to deal with the Russian mafia in the 1990s in the so-called ‘Aluminium Wars’ when 100 people were killed. His company Rusal, dominates the industry which provides 12% of the world’s needs. As a result of his experiences he is not allowed to visit the USA. Yet he is close to Putin and his circle. Other oligarchs, like Khodorovsky and Berezovsky are most definitely not liked by Putin and it is widely believed, according to the latter named oligarch, that Putin was behind the death of Alexander Litvinenko in November 2007, poisoned by polonium 210, a substance impossible to acquire without access to government establishments.

Russo-Georgia War in Caucasus: on 7th August Georgia’s president Mikheil Saakashvilli decided to invade South Ossetia, an area friendly to Russia and reluctant to accept the authority of Tbilisi. Russia quickly sprang to the aid of its potential ‘satellite’ with tanks pouring across the borders by 12th August. Georgia was quickly overwhelmed and had to accept terms. More difficult was the position of the west. For some time Russian weakness has encouraged the west to seek to prize countries like the Ukraine and Georgia away from Russia into bodies like the NATO and the EU. Despite plentiful statements of diplomatic support however, the west was forced to stand impotently by as Putin called their bluff. It is obvious that Putin is seeking to rebuild the way in which Russia is regarded by the west to something closer to the days of the Cold War.

Russia and the World Financial Crisis: Russia suffered more than any other emerging economic markets, destroying Kremlin claims it was immune fro world turbulence. Investment, which had been so buoyant in 2007 has been affected by the war in Georgia and signs that the Russian economy is not as strong as it might be. Since May, the dollar and rouble indeces have shed two thirds of their value. Russia’s construction industry, dependent on cheap money has seized up. Even Oleg Deripaska, Russia’s richest man had to sell big stakes abroad to meet his debt obligations. He was also given a $4.5 bn loan to his Rusal company from the government to help him survive the credit crisis.

The Economist 18th October suggests that Russia’s stability is founded on a growing economy- if that fails it could have dire political consequences. The Kremlin has come up with a $200bn rescue plan for their banks, the disbursement of which is likely to increase still more, Russia’s growing government control over the economy. However, a report on 2nd November from a Moscow news agency showed a ‘stable rise’ in Russian shares during the previous week.

Reading
Ecomists 1st March and 18th October, 2008.
Simon Sebag Montifiore(2005), Stalin: the Court of the Red Tzar, Weidenfled
Simon Sebag Montifiore(2007), Young Stalin, Weidenfeld.
Michael Waller (2005) Russian Politics Today, MUP.

Poverty and Wealth in the United Kingdom

"For the poor will never cease to be in the land; therefore I command you, saying, 'You shall freely open your hand to your brother, to your needy and poor in your land.'
Deuteronomy 15:11.

‘He who dies rich, dies disgraced’
Andrew Carnegie (major charitable donor)

‘The rich lists are lists of shame’
Ted Turner ( founder of CNN who gave a $billion to the UN)

Historical Background to Poverty in Britain: from medieval times to 1990s.

Slavery: The reasons why ‘the poor are always with us’ are manifold but date back, in some senses to the days when there was still slavery in Britain, beginning with Roman times and then continuing through the Saxon period up to Norman times when about 10% of the population were still effectively slaves. The group of people at the bottom of the occupational ladder in terms of skills and ownership have always made up the ranks of the poor. Ironically, perhaps, the Black Death 1348-49 which killed a third of the population, especially the poor and weak, had the effect of boosting wage rates. It also placed such a premium on labour that slavery was ended by the close of the 14th century.

1530 Poor Law: this gave licences to beg to the disabled and poor. But those without the licence were whipped cruelly and then forced to return to their home parish.

1536 Poor Law: this embodied the whipping but for a second offence part of the ear was cut off; for a third offence they were hanged. It was clearly judged as wrong to be poor and without a job. Echoes of such attitudes survive strongly into the present day. Every parish was obliged to build a workhouse for the old and disabled poor where they would work at whatever they could.

1597 Vagrancy Act: the death penalty for vagrancy was abolished.

17th Century Poverty: it was calculated that half the population ate meat every day; 30% 2-6 times a week and 20% only once a week or less.

1601 Act: Overseers of the Poor were appointed for each parish, empowered to levy a local rate to help pay for care for the poor. Refusing work would earn a whipping and children were apprenticed to local employers.

18th Century: the epidemic of gin drinking took its toll on the poor in this century; it was freely available and cheap until taxed in 1751. Maybe half the population lived on subsistence level. London was marred by incredible poverty whereby people dead from starvation were left in the street. Inevitably, in these circumstances, people were prepared to steal, rob and kill to survive and crime was a desperate problem. One answer was transportation of convicts to American and then Australian colonies: several hundred thousand were shipped out during the late 18th to mid 19th centuries. The fact that they provided the basis for new law abiding populations proves criminality is not hereditary but often related to living circumstances.

19th Century: numbers on subsistence level reduced to about a quarter, though 10% were bereft of even the basic requirements. The industrial revolution had created factories and huge towns in the north; workers lived in squalid courtyards with no sanitation, often with two or three families sharing a single basement. Often survival was dependent on retention of work and there were frequent recessions in manufacturing industries at this time.

Victorians had a conflicted view towards the poor: they wished to help out of chariable and religious motives, but still blamed the poor for being indigent, the assumption being that they could work if they tried hard enough to find a job.

‘If we shield people from the consequences of their folly, we shall people the world with fools’ said social Darwinist Herbert Spencer.

‘Self-Help’, by Samuel Smiles sold thousands of copies; it was described by Robert Tressel, in his novel The Ragged Trousered Philanthropists, as a book "suitable for perusal by persons suffering from almost complete obliteration of the mental faculties".

The workhouse was regarded as a place to avoid as the regimes were strict; intentionally so as it was felt any degree of comfort would encourage the poor to avoid work completely. So children could not live with their parents and all had to engage in physically hard work. Denizens had to work hard, lost their liberty and were not allowed to vote. British Army recruiters complained at this time that most applicants were too small, weak and sickly to make good soldiers to fight in the Boer War.

1878, Salvation Army: this helped change attitudes towards poverty and poor children were provided in some cases with breakfast. Boot funds provided money for shoes and boots for children who otherwise went barefoot.

20th Century Poverty:

Roy Hattersley’s The Edwardians, cites Seebohm Rowntree’s report into York which showed 10% in dire, helpless poverty and another 18% in effective poverty. PH Mann’s survey placed the poverty wage at 18s 4p a week and by this measure 41% of the working class lived in this category. Suffering was often greatest however, not in the cities but in rural areas, where average wages were fractionally above 17s a week. About a third of these comprised the old and young.

Nationwide, it is calculated, 25% lived in ‘absolute’ poverty in the early part of the century. Absolute Poverty is the complete absence of the means to live while Relative Poverty is in comparison with other incomes. A good 10% were living on subsistence income- barely surviving day to day. In 1906 poor children were given free school meals by the Liberal government. In 1909 old age pensions started to be paid: 5 shillings a week. There were also wages councils to set minimum levels in certain industries. In 1910 Labour Exchanges were set up and sickness benefits for workers in 1911.

By 1924 only 4% were living in extreme poverty though this varied from region to region. Pensions and unemployment benefit were slowly increased though they were cut during the Depression. However during the war thousands of children enjoyed a ‘proper’ diet as a result of rationing and health levels improved. This was a factor in increasing support for Labour in 1945.

Wealth in Britain: From Medieval Times to Early 21st Century
Initially wealth was based in the land and agriculture. Land distribution was essentially political and this explains to a degree why royal succession and positions in the aristocracy were so eagerly sought after. Palaces, manor houses and grand residences in the country were paid for out of rents from tenants for the most part or inherited wealth. Blenheim Palace, built in the early 18th century was funded partly by the Duke of Marlborough and partly by a grateful nation to its war hero.

During later centuries manufacturers were able to construct huge mansions in the countryside outside the squalid towns which generated their wealth as any visit to the outskirts of northern cities like Manchester, Bradford and Leeds easily demonstrates. This wealth reached its apotheosis in Edwardian times when rich plutocrats paraded their wealth proudly and lived lives of great extravagance, cruising around the world, living in huge houses, employing armies of servants (2m in London alone). Anthony Sampson observes that the rich suffered some reverses 1914-1990 as a result of: World War I; higher taxes combined with economic recession; World War II and its aftermath of austerity and rationing, not to mention fears induced by socialism and communism.

However, he argues, the advent of the 1980s saw a change of atmosphere and removal of constraints. The upper limit on income tax was reduced to 40% while the Big Bang of financial deregulation and the ending of the Cold War opened up a world market place unleashing riches of which the fabulously rich Edwardians could only have dreamed. New phenomena began to be identified:

Affluenza: this was a condition diagnosed by psychologist Oliver James, in the book of the same name in which: very high value is placed upon ‘having money and possessions; looking good in the eyes of others and wishing to be famous’

The Super Class: in his book A Class Act, Andrew Adonis (before he entered politics) identified a new group of beneficiaries of the new atmosphere of the 1990s.

‘The Super Class, like the medieval clergy and Victorian factory owners, has come not just to defend but to believe in the justice its new wealth and status. Buttressed by a revamped official ideology (which even New Labour does not dare question) lauding financial rewards as the hallmark of success and economic growth, and rejecting post-war notions of social cohesion, by the late 1980s the professional and managerial elite was unapologetic about the explosion of income differentials and prepared to concede few if any social disadvantages in the process.’

They enjoy a standard of living unimaginable only a few decades ago:

‘London; servants; second homes; globalism; the best of private education, health and leisure; exotic foreign holidays; modern art; and almost total separation from public life; intermarriage between professionals with both partners on large incomes- these are the dominant themes of the life of the Super Class.’

Richistan: this was defined by Robert frank in his book of the same name in which he identifies a small, but rapidly growing, group of mega rich people who seem to live beyond frontiers and national tax regimes; who live in protected mansions, have private health and personal travel facilities more appropriate to a suburb than an individual. They were:

‘Creating their own country within a country, their own society within a society and their economy within an economy’ (p3)

Frank was writing of an international phenomenon, but with London as one of its major hubs and showplace for aspiring new ‘citizens’.

Reluctant to give to charity: In the US the average given to charity is 2% while in UK it is 0.6%. In 1986 two leading businessmen Sir Hector Laing and Sir Mark Weinberg set up the Percent Club whereby they tried to encourage companies to contribute 1% of their pre-tax profits to charities. They soon had to reduce this to 0.5% but after ten years the average given by top companies was the same percentage as in 1976: 0.42%.

Unjust Rewards, by Polly Toynbee and David Walker: Toynbee and Walker present their case, basically in the first 35 pages of their book.

'Parental income pretty accurately predicts whether a child will win or lose in life: the more unequally income is, the tighter the link becomes.'

They observe that 19,000 people declared annual income of more than £500,000 2003-4. Over the next two years another 30,000 joined them and the incomes of the top 1% grew at double the rate of the average income. New Labour, having accepted the tenets of liberal economics, or ‘Thatcherism’, also seemed to like the company of rich people, or at least the PM did. While Brown’s style was more austere, he encouraged rich people to live in the UK, on tax lenient terms, on the assumption that they would be spending their money in the UK and that must be good. He had no objection either to remuneration committees allowing big salaries for directors.

Toynbee uses her (now famous) analogy of a camel train crossing the desert. If the whole represents society then, she points out, if the front part travels significantly faster than the rear part, there will come a time when it cannot be said the latter is part of the train, and hence the poor part of society. They are than ‘excluded’. She fears that the yawning gap between rich and poor had reached this point in the months before the banking crisis: ‘increasingly we do not belong to the same community’; ‘a canyon divides moneyed and sub-median income Britain and the bridges across crumb le and collapse’. The rich were getting ever richer while the chances of the poor to ever acquire any assets ‘diminish further’.

The Economist (1/2/07) noted how income was ‘distributed more unequally than in almost any big rich country except America.’ The top 10% of income earners get 27.3% of the cake; the bottom 10% get 2.6%. In 1988 'the average chief executive of a FTSE company earned 17 times the average employees pay; 20 years later the ratio was closer to 70-1. An ICM poll in February 2008 showed 75% of respondents think the gap between rich and poor is too wide. Grant Thornton Accountants calculated that the UK’s 54 billionaires paid only £14.7m in tax in 2006 on fortunes totalling £126 billion. At least 32 paid no tax whatsoever and few paid capital gains tax. Toynbee and Walker calculate that if the ST’s Rich List paid all the taxes they should on income and assets, the Treasury would harvest a further £12bn per year. If tax avoidance by accountants was included this figure would rise to £25bn. £3.4 bn a year would lift enough families out of poverty to reduce it by half by the year 2020.

Worryingly social mobility seems to have ground to a halt in that the middle classes have ensured the lion's share of the good jobs are occupied either by them or their children. Alan Sugar might have emerged from a poor background, but he is very much the exception and few broad conclusions can be drawn from his experience regarding the fairness of the social system. Everyone is now aware of the mega, US-style salaries being earned by top executives, some earning more money than they could ever spend in a lifetime. Toynbee points out that the super-rich can employ super accountants to minimize their tax liabilities. Out of the 54 billionaires living in the UK, thirty two pay no income tax at all and the whole group paid only a tiny fraction of their earnings. Thereby, calculate Toynbee and Walker, the Treasury and the rest of us taxpayers are denied some £12bn a year.

On the poor the authors argue those on low incomes are despised, whether in or out of work. Such work-cleaning, looking after the elderly, working check-outs- is necessary for society to function properly, yet ‘their paltry pay devalues the work they do- the poor have been excluded. They live in an archipelago of estates where there is frequently no law and order and their children have nom option but to avoid the schools middle class people take pains to avoid. They are no longer buttressed by a strong trade union movement and are mocked by the middle classes for being vulgar ‘chavs’-Wife Swap, Shameless- and feared for their potential disorderliness. Many middle class people will cross the road when approached by more than one shell be-suited, base-ball hat wearing or ‘hoodied’ denizens of the sink estates.

‘A child from a family getting by on around £200 a week has known from the first day at school what it feels like to be worthless. This child has no birthday parties, no holidays, no plane or even train rides, no Xbox games that other children talk about and no computer for online chatting. Face-book is a closed shop. Shop windows, television images and playground conversation all painfully remind this child that he/she is excluded from the mainstream. Is it any surprise that a few of these children will devise for themselves the private gang culture that causes a national outcry?’

In the next chapter the authors report on two focus group meetings with a clutch of lawyers and bankers on the subject of wealth and poverty. They displayed an astonishing ignorance of salary levels, claiming that their own salaries were way down the top 10% of earners when they were easily in the top 1%. While they earned over £15K each, they had no idea that 90% of people earn less than £39, 825, the higher tax limit. They seemed locked in a denial that they were even rich in the first place. When questioned on the morality of their high incomes they justified them by citing their extraordinarily hard work and desire to get ahead, especially compared to teachers.

They also seemed to accept unquestioningly the traditional Tory justification of the 'trickle down' theory- that more riches for the rich equals more ‘cascading’ down to the poor; even the Conservatives have recently admitted that it's wrong to 'pretend a rising tide raises all boats'. They reckoned a ‘poverty wage to be £22K, closer to the average income of course. When asked in surveys the general public have reckoned the level to be around £11K and under.

‘Here were professionals who deal daily with money, yet how little they turned out to know other peoples’ incomes.’

Toynbee and Walker conclude:

'Here were people who may be technically adept, or good at deal making, but as a group-with one or two exceptions- they were less intelligent, less intellectually inquisitive, less knowledgeable, and, despite their good schools, less broadly educated than high flyers in other professions. With minds this coarse they wouldn't succeed in the higher ranks of the civil service, as heads of hospital trusts or good comprehensives, nor would they match up to the level of good junior ministers. Most dismaying was their lack of empathy and their unwillingness to contemplate other, less luxurious lives.


No doubt the recession will introduce some changes in attitude and awareness. Already most people have realised the house price increase bonanza has ended and high street stores are reporting reductions in spending. No doubt the rich will carry on spending, as the4 ST reported regarding socialite Nicky Haslam’s 800 guest bash on 16th October. In anticipating the recession everyone expects, Will Hutton, Observer 19/10/08 argued that the rich will have to make every effort to cross and reduce the wealth gap:

‘This is going to change the politics of the next few years. In recessions there is always a renewed impulse for fairness. In good times when everybody is doing well, the super-rich can be indulged. In bad times the shared view quickly becomes that the pain should be fairly distributed; those who are wealthy should help to alleviate the distress of those suffering the bad luck of unemployment through no fault of their own.’

Reading
R. Frank(2007), Richistan, Piatkus
O.James, Affluenza,(2007) Vermillion.
R. Hattersley(2004), The Edwardians,Abacus
A.Sampson (2004).Who Runs this Place? Headline
P. Toynbee and David Walker(2008) Unjust Rewards Granta





Bill Jones October 2008
http://skipper59.blogspot.com/

Wealth and Poverty in United Kingdom

This briefing on wealth and poverty has been done for my Wednesday morning current affairs class

"For the poor will never cease to be in the land; therefore I command you, saying, 'You shall freely open your hand to your brother, to your needy and poor in your land.'
Deuteronomy 15:11.

‘He who dies rich, dies disgraced’
Andrew Carnegie (major charitable donor)

‘The rich lists are lists of shame’
Ted Turner ( founder of CNN who gave a $billion to the UN)

Historical Background to Poverty in Britain: from medieval times to 1990s.

Slavery: The reasons why ‘the poor are always with us’ are manifold but date back, in some senses to the days when there was still slavery in Britain, beginning with Roman times and then continuing through the Saxon period up to Norman times when about 10% of the population were still effectively slaves. The group of people at the bottom of the occupational ladder in terms of skills and ownership have always made up the ranks of the poor. Ironically, perhaps, the Black Death 1348-49 which killed a third of the population, especially the poor and weak, had the effect of boosting wage rates. It also placed such a premium on labour that slavery was ended by the close of the 14th century.

1530 Poor Law: this gave licences to beg to the disabled and poor. But those without the licence were whipped cruelly and then forced to return to their home parish.

1536 Poor Law: this embodied the whipping but for a second offence part of the ear was cut off; for a third offence they were hanged. It was clearly judged as wrong to be poor and without a job. Echoes of such attitudes survive strongly into the present day. Every parish was obliged to build a workhouse for the old and disabled poor where they would work at whatever they could.

1597 Vagrancy Act: the death penalty for vagrancy was abolished.

17th Century Poverty: it was calculated that half the population ate meat every day; 30% 2-6 times a week and 20% only once a week or less.

1601 Act: Overseers of the Poor were appointed for each parish, empowered to levy a local rate to help pay for care for the poor. Refusing work would earn a whipping and children were apprenticed to local employers.

18th Century: the epidemic of gin drinking took its toll on the poor in this century; it was freely available and cheap until taxed in 1751. Maybe half the population lived on subsistence level. London was marred by incredible poverty whereby people dead from starvation were left in the street. Inevitably, in these circumstances, people were prepared to steal, rob and kill to survive and crime was a desperate problem. One answer was transportation of convicts to American and then Australian colonies: several hundred thousand were shipped out during the late 18th to mid 19th centuries. The fact that they provided the basis for new law abiding populations proves criminality is not hereditary but often related to living circumstances.

19th Century: numbers on subsistence level reduced to about a quarter, though 10% were bereft of even the basic requirements. The industrial revolution had created factories and huge towns in the north; workers lived in squalid courtyards with no sanitation, often with two or three families sharing a single basement. Often survival was dependent on retention of work and there were frequent recessions in manufacturing industries at this time.

Victorians had a conflicted view towards the poor: they wished to help out of chariable and religious motives, but still blamed the poor for being indigent, the assumption being that they could work if they tried hard enough to find a job.

‘If we shield people from the consequences of their folly, we shall people the world with fools’ said social Darwinist Herbert Spencer.

‘Self-Help’, by Samuel Smiles sold thousands of copies; it was described by Robert Tressel, in his novel The Ragged Trousered Philanthropists, as a book "suitable for perusal by persons suffering from almost complete obliteration of the mental faculties".

The workhouse was regarded as a place to avoid as the regimes were strict; intentionally so as it was felt any degree of comfort would encourage the poor to avoid work completely. So children could not live with their parents and all had to engage in physically hard work. Denizens had to work hard, lost their liberty and were not allowed to vote. British Army recruiters complained at this time that most applicants were too small, weak and sickly to make good soldiers to fight in the Boer War.

1878, Salvation Army: this helped change attitudes towards poverty and poor children were provided in some cases with breakfast. Boot funds provided money for shoes and boots for children who otherwise went barefoot.

20th Century Poverty:

Roy Hattersley’s The Edwardians, cites Seebohm Rowntree’s report into York which showed 10% in dire, helpless poverty and another 18% in effective poverty. PH Mann’s survey placed the poverty wage at 18s 4p a week and by this measure 41% of the working class lived in this category. Suffering was often greatest however, not in the cities but in rural areas, where average wages were fractionally above 17s a week. About a third of these comprised the old and young.

Nationwide, it is calculated, 25% lived in ‘absolute’ poverty in the early part of the century. Absolute Poverty is the complete absence of the means to live while Relative Poverty is in comparison with other incomes. A good 10% were living on subsistence income- barely surviving day to day. In 1906 poor children were given free school meals by the Liberal government. In 1909 old age pensions started to be paid: 5 shillings a week. There were also wages councils to set minimum levels in certain industries. In 1910 Labour Exchanges were set up and sickness benefits for workers in 1911.

By 1924 only 4% were living in extreme poverty though this varied from region to region. Pensions and unemployment benefit were slowly increased though they were cut during the Depression. However during the war thousands of children enjoyed a ‘proper’ diet as a result of rationing and health levels improved. This was a factor in increasing support for Labour in 1945.

Wealth in Britain: From Medieval Times to Early 21st Century
Initially wealth was based in the land and agriculture. Land distribution was essentially political and this explains to a degree why royal succession and positions in the aristocracy were so eagerly sought after. Palaces, manor houses and grand residences in the country were paid for out of rents from tenants for the most part or inherited wealth. Blenheim Palace, built in the early 18th century was funded partly by the Duke of Marlborough and partly by a grateful nation to its war hero.

During later centuries manufacturers were able to construct huge mansions in the countryside outside the squalid towns which generated their wealth as any visit to the outskirts of northern cities like Manchester, Bradford and Leeds easily demonstrates. This wealth reached its apotheosis in Edwardian times when rich plutocrats paraded their wealth proudly and lived lives of great extravagance, cruising around the world, living in huge houses, employing armies of servants (2m in London alone). Anthony Sampson observes that the rich suffered some reverses 1914-1990 as a result of: World War I; higher taxes combined with economic recession; World War II and its aftermath of austerity and rationing, not to mention fears induced by socialism and communism.

However, he argues, the advent of the 1980s saw a change of atmosphere and removal of constraints. The upper limit on income tax was reduced to 40% while the Big Bang of financial deregulation and the ending of the Cold War opened up a world market place unleashing riches of which the fabulously rich Edwardians could only have dreamed. New phenomena began to be identified:

Affluenza: this was a condition diagnosed by psychologist Oliver James, in the book of the same name in which: very high value is placed upon ‘having money and possessions; looking good in the eyes of others and wishing to be famous’

The Super Class: in his book A Class Act, Andrew Adonis (before he entered politics) identified a new group of beneficiaries of the new atmosphere of the 1990s.

‘The Super Class, like the medieval clergy and Victorian factory owners, has come not just to defend but to believe in the justice its new wealth and status. Buttressed by a revamped official ideology (which even New Labour does not dare question) lauding financial rewards as the hallmark of success and economic growth, and rejecting post-war notions of social cohesion, by the late 1980s the professional and managerial elite was unapologetic about the explosion of income differentials and prepared to concede few if any social disadvantages in the process.’

They enjoy a standard of living unimaginable only a few decades ago:

‘London; servants; second homes; globalism; the best of private education, health and leisure; exotic foreign holidays; modern art; and almost total separation from public life; intermarriage between professionals with both partners on large incomes- these are the dominant themes of the life of the Super Class.’

Richistan: this was defined by Robert frank in his book of the same name in which he identifies a small, but rapidly growing, group of mega rich people who seem to live beyond frontiers and national tax regimes; who live in protected mansions, have private health and personal travel facilities more appropriate to a suburb than an individual. They were:

‘Creating their own country within a country, their own society within a society and their economy within an economy’ (p3)

Frank was writing of an international phenomenon, but with London as one of its major hubs and showplace for aspiring new ‘citizens’.

Reluctant to give to charity: In the US the average given to charity is 2% while in UK it is 0.6%. In 1986 two leading businessmen Sir Hector Laing and Sir Mark Weinberg set up the Percent Club whereby they tried to encourage companies to contribute 1% of their pre-tax profits to charities. They soon had to reduce this to 0.5% but after ten years the average given by top companies was the same percentage as in 1976: 0.42%.

Unjust Rewards, by Polly Toynbee and David Walker: Toynbee and Walker present their case, basically in the first 35 pages of their book.

'Parental income pretty accurately predicts whether a child will win or lose in life: the more unequally income is, the tighter the link becomes.'

They observe that 19,000 people declared annual income of more than £500,000 2003-4. Over the next two years another 30,000 joined them and the incomes of the top 1% grew at double the rate of the average income. New Labour, having accepted the tenets of liberal economics, or ‘Thatcherism’, also seemed to like the company of rich people, or at least the PM did. While Brown’s style was more austere, he encouraged rich people to live in the UK, on tax lenient terms, on the assumption that they would be spending their money in the UK and that must be good. He had no objection either to remuneration committees allowing big salaries for directors.

Toynbee uses her (now famous) analogy of a camel train crossing the desert. If the whole represents society then, she points out, if the front part travels significantly faster than the rear part, there will come a time when it cannot be said the latter is part of the train, and hence the poor part of society. They are than ‘excluded’. She fears that the yawning gap between rich and poor had reached this point in the months before the banking crisis: ‘increasingly we do not belong to the same community’; ‘a canyon divides moneyed and sub-median income Britain and the bridges across crumb le and collapse’. The rich were getting ever richer while the chances of the poor to ever acquire any assets ‘diminish further’.

The Economist (1/2/07) noted how income was ‘distributed more unequally than in almost any big rich country except America.’ The top 10% of income earners get 27.3% of the cake; the bottom 10% get 2.6%. In 1988 'the average chief executive of a FTSE company earned 17 times the average employees pay; 20 years later the ratio was closer to 70-1. An ICM poll in February 2008 showed 75% of respondents think the gap between rich and poor is too wide. Grant Thornton Accountants calculated that the UK’s 54 billionaires paid only £14.7m in tax in 2006 on fortunes totalling £126 billion. At least 32 paid no tax whatsoever and few paid capital gains tax. Toynbee and Walker calculate that if the ST’s Rich List paid all the taxes they should on income and assets, the Treasury would harvest a further £12bn per year. If tax avoidance by accountants was included this figure would rise to £25bn. £3.4 bn a year would lift enough families out of poverty to reduce it by half by the year 2020.

Worryingly social mobility seems to have ground to a halt in that the middle classes have ensured the lion's share of the good jobs are occupied either by them or their children. Alan Sugar might have emerged from a poor background, but he is very much the exception and few broad conclusions can be drawn from his experience regarding the fairness of the social system. Everyone is now aware of the mega, US-style salaries being earned by top executives, some earning more money than they could ever spend in a lifetime. Toynbee points out that the super-rich can employ super accountants to minimize their tax liabilities. Out of the 54 billionaires living in the UK, thirty two pay no income tax at all and the whole group paid only a tiny fraction of their earnings. Thereby, calculate Toynbee and Walker, the Treasury and the rest of us taxpayers are denied some £12bn a year.

On the poor the authors argue those on low incomes are despised, whether in or out of work. Such work-cleaning, looking after the elderly, working check-outs- is necessary for society to function properly, yet ‘their paltry pay devalues the work they do- the poor have been excluded. They live in an archipelago of estates where there is frequently no law and order and their children have nom option but to avoid the schools middle class people take pains to avoid. They are no longer buttressed by a strong trade union movement and are mocked by the middle classes for being vulgar ‘chavs’-Wife Swap, Shameless- and feared for their potential disorderliness. Many middle class people will cross the road when approached by more than one shell be-suited, base-ball hat wearing or ‘hoodied’ denizens of the sink estates.

‘A child from a family getting by on around £200 a week has known from the first day at school what it feels like to be worthless. This child has no birthday parties, no holidays, no plane or even train rides, no Xbox games that other children talk about and no computer for online chatting. Face-book is a closed shop. Shop windows, television images and playground conversation all painfully remind this child that he/she is excluded from the mainstream. Is it any surprise that a few of these children will devise for themselves the private gang culture that causes a national outcry?’

In the next chapter the authors report on two focus group meetings with a clutch of lawyers and bankers on the subject of wealth and poverty. They displayed an astonishing ignorance of salary levels, claiming that their own salaries were way down the top 10% of earners when they were easily in the top 1%. While they earned over £15K each, they had no idea that 90% of people earn less than £39, 825, the higher tax limit. They seemed locked in a denial that they were even rich in the first place. When questioned on the morality of their high incomes they justified them by citing their extraordinarily hard work and desire to get ahead, especially compared to teachers.

They also seemed to accept unquestioningly the traditional Tory justification of the 'trickle down' theory- that more riches for the rich equals more ‘cascading’ down to the poor; even the Conservatives have recently admitted that it's wrong to 'pretend a rising tide raises all boats'. They reckoned a ‘poverty wage to be £22K, closer to the average income of course. When asked in surveys the general public have reckoned the level to be around £11K and under.

‘Here were professionals who deal daily with money, yet how little they turned out to know other peoples’ incomes.’

Toynbee and Walker conclude:

'Here were people who may be technically adept, or good at deal making, but as a group-with one or two exceptions- they were less intelligent, less intellectually inquisitive, less knowledgeable, and, despite their good schools, less broadly educated than high flyers in other professions. With minds this coarse they wouldn't succeed in the higher ranks of the civil service, as heads of hospital trusts or good comprehensives, nor would they match up to the level of good junior ministers. Most dismaying was their lack of empathy and their unwillingness to contemplate other, less luxurious lives.


No doubt the recession will introduce some changes in attitude and awareness. Already most people have realised the house price increase bonanza has ended and high street stores are reporting reductions in spending. No doubt the rich will carry on spending, as the4 ST reported regarding socialite Nicky Haslam’s 800 guest bash on 16th October. In anticipating the recession everyone expects, Will Hutton, Observer 19/10/08 argued that the rich will have to make every effort to cross and reduce the wealth gap:

‘This is going to change the politics of the next few years. In recessions there is always a renewed impulse for fairness. In good times when everybody is doing well, the super-rich can be indulged. In bad times the shared view quickly becomes that the pain should be fairly distributed; those who are wealthy should help to alleviate the distress of those suffering the bad luck of unemployment through no fault of their own.’

Reading
R. Frank(2007), Richistan, Piatkus
O.James, Affluenza,(2007) Vermillion.
R. Hattersley(2004), The Edwardians,Abacus
A.Sampson (2004).Who Runs this Place? Headline
P. Toynbee and David Walker(2008) Unjust Rewards Granta





Bill Jones October 2008
http://skipper59.blogspot.com/

The Race for the White House 2008

‘He(McCain) hasn’t lost it, but it is slipping away’ Frank Luntz, Pollster, 9/10/08

‘If the election were held today, yeah, he’s toast’. David Johnson Republican strategist, 9/10/08

Only once in the past 50 years has a party won three terms on the trot to the presidency: 1988 when G. Bush Snr won. Then a popular president , presided over a strong economy. Now a hugely unpopular president approaches his last few months in office and the economy is close to possible extinction-though fingers crossed this won’t happen. The contest to take over the White House from George W Bush has been the most enthralling for fifty years. The Democrats managed to honour the attempted replacement of the most unpopular ever US President with two unique categories of candidate; a woman and a black man.

One alone would have been unusual but two at the same time was truly remarkable. Those who claimed the USA was not ready to vote in either for the highest position in their land have had to rethink their positions as Hillary Clinton pushed her candidature to the brink of nomination while Barack Obama, the Democratic candidate, is now in a position when he can create history on 4th November. Inevitably, where politics is so personalized, biographies are of key importance.

Barack Obama: born 4/8/61 in Hawaii, where his Kenyan father was a foreign student and his mother, Ann Dunham, was a white American from Wichita. His parents divorced when he was two and then his father died in a car accident in 1982 His mother remarried a man from Indonesia where the family moved in 1967 and Obama attended school there until he was ten. Then Obama moved to live with his grandparents, moving to Los Angeles to complete his schooling in 1979. [His mother died of ovarian cancer in 1995]. Obama admitted dabbling with drugs and alcohol during these years but it did not stop him from attending Columbia University where he studied political science with some distinction.

He then moved to Chicago where he worked as a Community Development Organizer, achieving much in a short time. He entered Harvard law School in 1988, doing very well and then, astonishingly at the time, selected on the basis of his grades and written work, to be the first black editor of the prestigious Harvard Law Review. He was later elected as the first black president of the Review, in charge of 80 editors. He was appointed to Chicago University in 1992, as a professor, lecturing in constitutional law. He married fellow lawyer Michelle Robinson in 1992. In 1995 he wrote a book on race relations which morphed into a memoir, Dreams of my Father. He also worked for a number of private law firms before being elected to the Senate for Illinois in 1996, re-elected in 98 and in 2002. In 2004 he was elected to the US Senate. In July Obama ‘arrived’ nationally when he wrote and delivered the keynote address to the Democratic Convention in Boston. It was a huge success and boosted his campaign for the US Senate. He was only the 5th black Senator to have been elected. He became a candidate for the presidency in Feb. 2008. Obama’s biography is necessarily shorter than that of his opponent John McCain.

John McCain (born 1936)
He was born in Panama where his father was serving at the time as a naval officer. He has Scotts-Irish and English ancestry. He comes from a military family with his father and grandfather as 4 star admirals. He attended 20 schools as service child but excelled as a wrestler and boxer as a young man. He attended Anapolis Naval Academy in the 1950s but his volatile temperament meant he had a chequered career there and finished only 894 out of 899 cadets, despite, as his wikipedia entry says ‘having a high IQ’. He then trained as a naval aviator, gaining a reputation, in the process, as an extroverted party going person-fond of drink and girls and with a quick temper.

He completed training in 1960 as naval pilot ground attack pilot on aircraft carriers. He crashed two of his planes in his early career but became a competent, if somewhat reckless flyer. He married a model, Carol Shepp, in 1965 and had a son to add to her two step children. He was involved in the severe fire on USS Forrestal in 1967, when he was almost killed but managed to save a fellow airman involved. His bravery cannot be questioned. In October 1967 he was shot down over Hanoi and taken prisoner in Hoa Lo prison (the ‘Hanoi Hilton’ as it was called by US troops).
Dragged out of a lake he was beaten and stabbed by North Vietnamese and further very badly treated in captivity, though wounded. But his treatment improved when his captors discovered his father was a senior admiral. He lost 50 pounds in weight and his hair turned white. In March 1968 he was placed in solitary confinement -for shouting obscenities at his captors- where he stayed for two years. However, he refused early release unless those captured ahead of him were also first released. In August 1968 a programme of torture was initiated, with frequent beatings every two hours. He actually attempted suicide but guards prevented this. Finally he signed a ‘confession’, having reached his breaking point, as he later admitted. Injuries sustained left him permanently disabled, unable to raise his arms above his head.

He was released March 1973. He required months of therapy for his injuries but resumed his career, being made commander of a training establishment in Florida. During this time he admits to extra-marital affairs initiated by him. In 1977 he served in the Navy’s liaison to the Senate and absorbed his first taste of politics. In 1980 McCain met heiress Cindy-Lou Hensley whom he married after an amicable divorce from his first wife. His children did not attend the wedding and were not reconciled for some years. In April 1981 he retired from the navy with the rank of captain, heavily decorated from his war service.

McCain initially worked for his father in law’s car dealership but ran for Congress, being returned for the Republicans in 1983, serving out his term as a staunch Reaganite. He and his wife had two children and adopted a Bangladeshi child as well. He was elected to the US Senate for Arizona in 1987. He soon made his mark but became enmeshed as in the ‘Keating Affair’ as one of 5 Senators who gave assistance to a private businessman who had given them favours. His career in the Senate has not been conventional and he has done much in collaboration with Democratic senators. His reputation as a ‘maverick’ stood him in good stead when it has been necessary to distance himself from the Bush presidency, over issues like abortion and global warming for example.

In September2000 McCain ran for the presidency against GW Bush and it was dirty primary campaign with smears re McCain fathering a black child and other accusations e.g. that he was gay and his wife a drug addict. He declared his candidacy for the presidency in April 2007.

Obama’s Primary Campaign: this was dominated by his battle with Hillary Clinton, wife of Bill and part of the Democratic ‘establishment’. He surprisingly won Iowa but Hillary came back in New Hampshire. However, Obama did better at raising money for his campaign and it was obvious he had struck a chord with his emphasis on ‘change’; his meetings were like revivalist religious meetings with vast audiences responding to his oratory. Hillary could not compete in terms of charisma though she won most of the debates held with other candidates. Obama however, established good fundraising via the internet and mobilized young people as no-one has since the Kennedys; millions more are now on the electoral register as a result of Obama’s participation.
One by one the others dropped out but Hillary insisted she could still make it. However, husband Bill, proved less than an asset with his interventions tending to be negative and alienating to his audience within the party. Slowly it became apparent that Obama would win and he even reneged(19th June) on a former pledge to accept state aid for his campaign as he was now able to exceed official limits and wished to avoid the constraints of federal aid. On 23rd August, 40 years to the day after Luther king’s ‘I had a dream’ speech, he accepted the nomination of the Democratic Party at Denver with Joe Biden becoming his running mate. The Economist (23/8/08) rated Obama’s achievement in beating the Clinton machine as ‘monumental’.
Positions
Obama inevitably began to tack to the centre once adopted as candidates tend to, but his liberal positions on opposing Iraq, urging action on Darfur, introducing health insurance for the 50 million without it in the USA, taking collective action against global warming and reforming the tax system to advantage the poorer people. He would close down Guantanamo Bay and pour cash into alternative energy.

John McCain Primary Campaign
McCain faced tough opposition from rivals like Rudy Juliani and Mitt Romney in the primaries and had some difficulty in raising the millions needed to win the long primary road to nomination. Indeed, in January 2008, McCain’s campaign seemed dead in the water and many expected him to give up in favour of the stronger candidates, especially that of the former mayor of New York who had a national hero’s status. However, his only moderate speaking skills and his lack of name recognition compared to the former mayor of New York did not prevent him from making his mark as the most impressive as his party’s would-be successors to George W Bush’s disastrous reign in the White House. By going for the early primary contests he improved his name recognition and established some momentum while Juliani’s decision to hold back until later in the process proved a fatal error. By winning Super Tuesday contests in February McCain never looked back and by early March, with Mike Huckabee beaten, he was confirmed as the winner.

Political Positions
McCain had long been seen as a maverick Republican with policies opposed to his president re immigration –he was more in favour of illegals being given a route to legality; global warming- he agreed man-made actions were responsible and on abortion and gay marriage he was less inflexible. He was also less inclined to follow the religious right in their various extreme ‘culture wars’ positions. However, he agrees with Bush on being hawkish in Iraq and towards Iran and regarding terrorists. He would also close Guantanamo as a blemish on the US reputation. His unconventional background has proved an advantage as US voters decide Bush inclined Republicanism has taken USA on the wrong road.

Mutual ‘attack’ positions
McCain attacks Obama for being inexperienced, rather as Clinton did. He tries hard to avoid even the slightest suggestion of racism, though, as with Bill Clinton, on behalf of his wife, there have been occasions when he has failed. Referring to him as ‘that one’ in a televised debate was seen as openly disdainful though not racist. Republican outriders have tried to suggest Obama is variously, a Marxist, a Muslim and a terrorist but with no real purchase for any of these slurs, none has so far stuck.

Obama attacks McCain mostly for being ‘more of the same’, seeking to identify him with the discredited Bush. His age-72- is also a factor as he would be the oldest president ever, though Reagan was older beginning his second term. Otherwise Democrats seem not to have used slurs overmuch as there is evidence that voters begun to react negatively to such approaches.

The Campaign Proper since August
Given that the Democrats were favoured by 10 clear points over the republicans, it was not surprising Obama held a lead over his rival early August but there were danger signals for Obama at that time. At that time he took a break home in Hawaii to allow a lower profile for a while. Polling evidence was suggesting voters had overdosed on Obama news. Worse, news that close ally John Edwards had had an affair while his wife was suffering from cancer, had not pleased potential Democrat voters. His ecstatic public meetings had allowed Republicans to pin the tag of ‘over confidence’, even arrogance, on Obama. 51% of voters in a Pew poll said they had been hearing ‘too much’ about the man. McCain’s ads compared his rival to Paris Hilton i.e. a brainless ’celebrity’ figure.

Given the fading of Al Gore in 2000 and Kerry in 2004 at about this stage in the proceedings, Democrats were understandably worried. They were also annoyed that a man with a huge fortune and six houses (he didn’t know how many when interviewed on TV) could portray their man as a member of the privileged elite when he was the one who came up the hard way, raised by a single mother and his grand -parents.. Obama’s visit to Europe, designed to improve his low profile on foreign policy produced some amazing footage of 200,000 enthralled by his speech in Berlin but failed to impress US voters who tend to be ethnocentric and the right wing of whom regard Europeans as virtually communist anyway. On 10th August, Obama’s lead over McCain was down to a single point.

Sarah Palin as VP Candidate
In late August McCain chose 46 year-old Sarah Palin, governor of Alaska as his running mate. Compared with Obama’s safe choice of Washington veteran, Joe Biden, this was a bold and possibly rash decision. Palin had been a beauty queen, a mayor of her home town and was known to hold ultra conservative religious right views which were unreconstructed ‘Bushite’ in content. Democrats hoped for skeletons in the cupboard and teams departed north to dig for dirt. However, Palin’s address to the Republican convention was a sensation as this straight-talking handsome woman, with five children with weird names, offered her unabashed Americana aimed at ‘hockey moms’ and ‘Joe six-pack’.

Her arrival ignited the often moribund Republican campaign. It had been high risk but it appeared to have come off. Before her nomination McCain stood at 41% in the polls to Obama’s 49%; afterwards the figures were, respectively: 48% and 44%. Palin delivered a huge shot in the arm to McCain and seemed to havde mobilized the rightwing coalition which had placed Bush in the White House. Things looked very bad for Obama in the second week of September.

Presidential Debates
When the polls are so close, as they were in the two previous elections, the televised debates play a key role in presenting the candidates to the public in a direct form. Obama is more intelligent and intellectually accomplished then McCain but much less experienced. Voters anyway do not always warm to cleverness or Reagan and Bush would never have been elected. At the time of writing two debates have been held and the single VP one. McCain has performed well in both debates, appearing relaxed and confident as well as being mostly courteous but signs of tension and aggression have been evident on the Republican side. Michael Tomasky, US editor of the Guardian, reached a significant conclusion on 6th October: it was ‘substance’ which was proving decisive in these debates.

Convention has it that appearance and demeanor count for more than content in these artificial confrontations but Tomasky points out that these have been different:

‘McCain had more zingers and one-liners than Obama did and was generally speaking the aggressor. And Sarah Palin, with her repeated winks at the camera, had far more folksy ‘I’m just like you Joe-Six-pack’ approach than Joe Biden did. One liners, aggression and emotive warmth are supposed to win these contests, we are told, and they usually do. But literally every poll I have seen show voters think Obama and Biden- who were direct and substantive and between them barely said one folksy or zingy thing- won the debates and handily so. ‘

Interestingly media experts rated the debates narrow draws or wins for McCain but the public disagreed. The USA Today poll poll showed that after the 30th September debate respondents divided 46-34 in Obama’s favour. CNN had it 54-30 and CBS 39-27, with similar numbers saying Obama came over as more likeable. Palin also has not impressed in interviews, trying too hard perhaps to mug the camera and gush feminine charm rather than intelligence. There was some evidence by early October that Palin’s magic was beginning to fade. The satirists made hay with her gauche performances in the media. In response to a question about the banking bail-out on TV she replied:
‘That’s what I say that like every American I am speaking with we’re ill about this position in that we have been put there where it is the taxpayers looking to bail-out, but ultimately what the bail-out does is help those who are concerned about the healthcare reform that is needed to help shore up the economy, um, helping the, oh, it’s all got to be about job creation, too, shoring up our economy and, putting it back on the right track, so healthcare reform and reducing taxes and reigning in spending has got to accompany tax reductions and tax relief for Americans and trade we have got to see trade as opportunity not a, a , competitive, um, scary thing, but one in five jobs being created in the trade sector today we, we’ve got to look at that as more opportunity, all those things under the umbrella of job creation, this bailout is a part of that.’

Economic Crisis Hits McCain’s Campaign
Soon after the problems with Fannie Mae, Freddy Mac and AIG, where Bush was seen regularly on television trying to explain why tax-payers’ money was being used to assist the richest group in society, it became clear that McCain’s campaign was being badly hit by the crisis. The Republicans, as the party of business, banking and rich people, was being blamed for the crisis. Steve Lombardo, long time Republican campaign runner is quoted in an October 8 Guardian article that:

‘The dynamics of this election race are being driven almost entirely by the financial situation here in the USA and globally, and that works for Barack Obama.’

He saw no comeback for McCain as ‘voters have decided that the base of the problems they face are the Republican party, George Bush and by extension, John McCain.’
On this day Bush registered a new ratings low of 25%, one point above Nixon in 1974 just before he resigned. Lombardo also argues that attacks on Obama’s character are inappropriate now and will ‘smack of desperation’. No amount of tactical maneuvering over the next 29 days will change anything. 15th September, when Lehman Bros filed for bankruptcy was the crucial day: McCain told a rally: ‘the fundamentals of the economy are strong’. Veteran Republican Senator, Chuck Hagel’s wife did not help much by coming out for Obama as well on the same day.

Issue Standings in early October
The Economist 4th October gave national standings on a variety of issues for both candidates.
1. Economy: O-44; M-36: % placing issue in top 3 concerns, 84.
2. Regulation of economy: O-32; M-29: 6%
3. National security: O-31; M-48: 40%
4. Foreign policy: O-31; M-47: 40%
5. Iraq/Afghanistan: O-40; M-44: 44%
6. Healthcare: O-44; M-27: 44%
7. Immigration: O-30; M-31: 27%
8. Energy and Environment: O-45; M-19: 15%
9. Education: O-44; M-24: 16%
10. Crime: O-29;M-32: 5%
11. Culture wars(values): O-33; M-39: 15%

Current Standings in Polls
Now staunch Republican states like Indiana, which has always voted for a Republican president, both candidates are tied on 48%. Moreover, the key state of Florida, where Bush won in 2004 by 537 votes, it is now too close to call. Poll trends analysed in the article suggest electoral college votes would allocate as follows:
Solid for Obama……..196
Solid for McCain……..143
Too close to call………111
When the ‘leaning towards’ numbers are added from state polls and translated into delegates to the electoral college the numbers are:
Obama………264
McCain………163

When it is realized Obama needs 270 delegates to win, it must be obvious McCain faces a tough uphill fight to win from here.

Palin Scandal: Into this unhappy situation came the announcement on 12th October that the officasl Alaskan inquiry into Palin’s dismissal of a senior official who had refused to sack a trooper from whom Palin’s sister was obtaining an acrimonious divorce. It concluded that Palin had abused her position of power in this instance, a devastating judgement for someone seeking election to the second highest office in the land and who, because of McCain’s age, might have more expectations than most to have to step up to the presidency over the next four years, should McCain be elected.

Conclusion
To return to the opening remarks in this briefing, circumstances are far from favourable for a Republican victory and McCain is far from being a perfect candidate, aged 72, with a history of cancer. But the polls have been close enough to suggest Obama cannot assume victory. The man whom a Pew poll showed was the firm favourite of majorities in 22 countries might well succeed in healing race relations in USA and offer a gleaming role model to young blacks of a successful black man with a happy and intact family. But life is not so simple. He is such an untried novice politically that despite his dazzling gifts as a speaker, voters are still unsure for what he stands. It is by no means assured that he will win.
It is also a fact that he is to an extent a divisive figure. Those who will not vote for him because of his colour, would never admit it but up to 10% of voters might well fall into that category and in the privacy of the ballot cubicle many voters may choose to vote according to their prejudicies. However, if McCain does get elected he will find it virtually impossible to get his proposals past Congress which will be solidly Democratic after 4th November.

Prospects: The Economist is sure that whatever the outcome the future of the USA will be much different under either Obama or McCain. Both favour multilateral solutions for foreign policy. Both want to close Gauntanamo Bay Prison. Both want to join worldwide efforts to combat climate change. Both would travel the world as Bush has never done and both would receive a better welcome: Obama especially so. Both will achieve more with Congress, for which Bush showed open contempt. McCain in particular has a record of bipartisanship; Obama would have useful majorities in both houses. McCain is a classical economic liberal who wants tax cuts and less intervention to stimulate economic growth. Obama has complex intervention plans involving subsidies of various kinds; he aims to reduce the weight of tax on the average person. Obama wants to spread health care comprehensively while McCain wants to reduce costs to improve affordability. On foreign policy, there seems to be more difference than there is. Obama would stand up to Russia and China and not roll over in the Middle east either.
Bill Jones October 14th 2008

Apportioning Blame for the Crisis

Occasionally a time happens- and this is probably one of them- when you feel a watershed in being passed. The global financial system has ben found wanting and no-one quite knows what will happen; it seems nothing will be quite the same again. So I thought I'd try to identify the reasons why things have gone so irrevocably pear-shaped over the past year or so. I have written a longer briefing on this topic elsewhere but here I'll confine myself to pointing fingers at a few culprits, some well known, others less so.

Ideology
The 1970s were a turbulent and unhappy time for the left: high inflation, unemployment, union power excessive and living standards in decline. Thatcher and Reagan came into power determined to allow market forces to 'work their magic'. Over here this meant crushing the unions, privatisation, slashing taxes and deregulating financial dealings via the Big Bang. These steps helped to launch trading in shares and securities to phenomenal heights and racked up levels of debt in the way investment banks operated. These changes also introduced the City bonus culture and the arrival of the 'super-rich'.

Subprime Loans
Faced with a glut of investment during the 1990s US banks hired it out to initiate a boom in home buying. Urged by government to help the low paid, just about anyone qualified. Some loans were given on the basis of 'no income, no job, no assets' or 'ninja' loans. Often they came with 'teaser' discounts of 4% or below, set to double after a couple of years. It followed that irresponsible lending like this caused an avalanche of foreclosures, rising from a quarter of a million in early 2007 to three quarters of a million in mid 2008.

Securitization
The secondary mortgage market has long existed. This entails mortgages being sold on, like IOUs, to investors abroad who hope the income stream of payees will realise a profit for them. In the past this has worked perfectly well. However these subprime loans loans were dodgy so financiers wrapped them up with good loans in Collateralised Debt Obligations which were so complex few could separate the good from the bad. By now, the 'build my bonus' culture was such that few bothered to look too closely and these toxic CDOs flooded the world's financial system. As debtors in the US began to cease paying, however, the extent of the problem slowly became obvious.

Underwriting High Risk Mortgages
Underwriters are the people who assess the degree of risk attached to loans regarding the borrower's ability to repay. Assessments used to take a week but a near automatic electronic system was introduced in the USA which completed the job in 30 seconds. These guys carry a heavy burden of responsibility in the wake of the crisis.

Credit Agencies
These bodies assess the credit worthiness of issuers of securities plus the securities themselves. Their incompetence was fully demonstrated by the case of Enron but in the euphoria of constant growth and huge bonuses they alolowed their eyes to be taken way off the ball and the CDOs were often given triple A ratings. These agencies also carry a heavy responsibility.

The Bonus Culture
Finally, as we all are now aware, bankers became transfixed by the ridiculous sums they could make if they acquired sufficient business for their firms. Close scrutiny and caution- the once hallmarks of bankers- gave way to a desperate desire to acquire that parking space beneath the skyscraper HQ in Wall St or Canary Wharf, for the new Ferrari. The super-rich thought nothing about spending a £100mn on new yachts or even private submarines to swank their way around the world's pleasure spots during vacations or a hugely early retirement, funded by all those bonuses, companies bought and sold.

Simon Jenkins suggested a week or so ago that a tribunal into the crisis was required. Well, he could fill up his dock from the above three categories with no trouble and if public executions were still allowed many would gather at Tyburn to watch those responsible breath their last. However, there is a problemette here. There is another group of people responsible and this is a huge one: all those people who exploited cheap money by loading up with chronic debt, which they now find they cannot sustain by further borrowing. We are all complicit, to a degree in what has happened and, I'd guess, will have to return to a much more sober and cautious way of spending from hereon. If you need a mortgage, you might even have to spend an awkward hour or so in the bank manager's office, as my generation had to back in the 1960s and 70s.

Explaining the Banking Crisis

The Collapse of Capitalism? The World Banking Crisis Examined

‘Greed is good. Greed is right, greed works. Greed clarifies, cuts through and captures the essence of the evolutionary spirit. Greed in all its forms: greed for life, for money, for love for knowledge, has marked the upward surge of mankind.’ Gordon Gekko, Wall St 1987.

‘Crisis, what crisis? Enough kerfuffle, it’s just a slowdown.’ Bill Emmot (former editor Economist), Guardian, 12th August, 2008

‘No need to worry, this crisis will probably turn out to be another storm in a tea-cup’ Anatole Kaletsky, The Times, 6th September 2007[and many similar statements since…]

Slow Realisation
It took a while-well over a year- for the world to wake up to the fact that the crisis was indeed a serious one and that it had to get much worse before it would get better. Kaletsky, for example, wrote, ‘a US economic recovery is now assured’ on 8th September 2008. Since then even he has realised this is the worst crisis since the Great Depression. For most of us these developments have been ‘noises off’, something happening to a much envied and much disliked group ‘fat cats’. However, the repercussions of plummeting shares, bankruptcies and non available credit will hit everyone soon enough in the form of unemployment and recession.

Sources of the Crisis

1. Eighties Reagan-Thatcher Economics
During this decade a reaction set against what was seen as the ‘over-regulation’ of the left-leaning seventies: union power was confronted and reduced; state owned operations were privatised; prices and incomes policies abandoned; upper tax rates slashed. More crucially, for the present crisis, the financial system was progressively deregulated. All this was reinforced by the fall of the USSR which seemed signal that ‘capitalism’ had won all the arguments. All over the world countries began to open up their economies to liberal capitalism: the new technology made globalization possible.

2. Big Bang 1986: this removed the distinction between stockjobbers, who were intermediaries when any stock was sold between stockbrokers, the professional financier who buys and sells on behalf of investors. It also made redundant the system whereby shares were traded via ‘open outcry’ through moving most trading to electronic processes. These changes had a dramatic effect making London the centre of world finance and helping to boost enormously the volume of world financial trade. Financial flows grew exponentially now that constraints had been loosened or scrapped; as in the 1920s debt levels grew to astonishing levels.

3. Abundance of Credit: From the early nineties investors, from Europe and especially Asia, believed a good return on their money could be gained by buying shares and securities from US banks. This meant that these banks had huge amounts of cash to lend out as capital to earn them even more money. Americans wishing to fulfil their dreams of owning their own homes constituted a large part of those seeking to take advantage of this glut of money.

Such availability of funding led to a price rise in housing and it was commonplace for homebuyers to exceed what they could afford in the knowledge that prices were soaring and that they could refinance their mortgages on more favourable terms once the discount period had expired. While the bubble of confidence lasted it seemed impossible for investment in the property market to be a poor judgment. These were golden days for builders, estate agents and property financiers.

4. Prices Ease Down and Interest Rates up: Homeowners increased from 65% to 70% of the whole and house prices more than doubled 1997-2004. Many remortgaged their refinanced properties to generate funds for consumer spending; something similar was happening in the UK as well. However, by 2005-6, when it became evident that house prices were falling and interest rates edging up; refinancing became problematic.

Notwithstanding, these developments, confidence in property was such, even at that date, that builders overestimated demand and produced surplus stock, which in turn led to reductions in values. This meant that many homeowners, overextended financially on adjustable mortgages, were prevented, through loss of equity, from refinancing, as before, when the higher rate kicked in. The result was a rising number of defaults. But worse, much worse was in store.

5. Subprime Loans: this was the practice of giving mortgage loans to bad risk customers. In some cases they had poor credit histories, insufficient deposits and poor or no employment. Some have been dubbed ‘ninja’ loans for which ‘no income, no job no assets’ were required. Companies often used ‘teaser’ rates-often 4% or even less- to acquire the business which then leapt up several points or doubled after a year or so. This often caused payment failure and subsequent repossession. It was adduced by some critics that banks and loan company staff were encouraged to sell to such risky customers because they were keen to gain the commission paid on each mortgage contract signed.

Many such sales went through in 2005-6 until by 2007 the value of such mortgages was $1.3 trillion, 20% of the whole. In March 2008, 11% of homeowners had zero or negative equity: their homes were worth less than their mortgage. By the middle of 2008 a quarter of such mortgages were not being repaid. In the first quarter of 2007 there were 239,770 foreclosures; by the fourth quarter 527,740 and by the second quarter of 2008, 739, 714, more than double the figure in just over a year.

6. Securitization: This innovation also proved toxic in that financiers devised a system whereby rights to mortgage repayments(a bit like IOUs) could be sold on to investors as ‘asset (or mortgage) backed securities’(MBS) or, a more complex formulation, ‘collateralised debt obligations’ (CDOs). These new financial products were often so complex, few could understand them, but in the atmosphere of the time, they were bought up by investors convinced they would reap a good reward. Those selling the products were, like the mortgage vendors, intent on maximizing their cut: their end of year bonuses.

Consequently these products, cleverly designed so that the ‘dodgy’ mortgages were wrapped up together with sound ones, were accorded good credit ratings and were sold far and wide to investors overseas. ‘Derivatives’ are complex products whereby a buyer agrees a priced at which something can be bought back in the future. Those embodying mortgage debts were often so complicated few could disentangle the ‘toxic’ elements of the product.

These products were often bought up by Structured Investment Vehicles (SIVs). An SIV is like a bank in that it borrows money at the standard rate from other banks and uses it to buy mortgage backed securities (MBSs), thus providing funds for mortgages, credit cards and student loans. The SIV would typically earn 0.25% more on these purchased bonds than it would pay on the money originally borrowed from other banks, thus accruing profit.
In consequence the ‘subprime’ crisis in USA was exported all over the world, especially, perhaps to the UK, where we have similar attitudes to home ownership and the centre of world securities trading: the City of London.

7. Inaccurate Credit Ratings: CDOs and MBS securities were given high investment grade ratings by the relevant agencies, thus fuelling the housing boom and encouraging the viral spread of the crisis. The US Securities and Exchange Commission, in June 2008 resolved to assess the rules governing such ratings.

8. Mortgage Fraud: this phenomenon, misrepresentation of mortgage information, hugely increased, by over 1000% 1997-2005.

9. Underwriting of high-risk Mortgages: Underwriters are the people who assess the risk of loans for banks and establish the criteria of lending, regarding the ability of the borrower to repay the loan. In 2007 40% of all loans were underwritten automatically via an electronic process. A process which took up to a week was reduced to a mere 30 seconds. Many point the main finger of blame at the underwriters who did not do their jobs properly.

10. Government Policies: critics claim the regulatory machinery is outdated and helped cause the crisis. There is much debate and accusations are being made regarding who is culpable, including the following candidates:

i) Repeal of the Glass-Steagal Act in 1999. This enabled banks like Citibank to operate outside conventional banking activities like taking deposits etc.; the most important consequence was that they were able to set up SIVs and buy the dodgy MBS and CDO securities.
ii) US Dept Housing and Urban Development Mortgage Policies assisted the issue of risky loans, it is alleged. In 1995 Fannie May and Freddy Mac began to receive housing credit for purchase of loans by low income borrowers.
………………………………………………………………………
Explainer: Fanny Mae and Freddy Mac: what are they?
‘Fannie Mae was founded as a government agency in 1938 as part of Roosevelt's attempt via the New Deal to provide liquidity to the mortgage market. For the next thirty years, Fannie Mae held a virtual monopoly on the secondary mortgage market in the United States.
In 1968, to remove the activity of Fannie Mae from the annual balance sheet of the federal budget, it was converted into a private corporation. Fannie Mae ceased to be the guarantor of government-issued mortgages, and that responsibility was transferred to the new Government National Mortgage Association (Ginnie Mae). Freddy Mac was invented in 1970 as a further vehicle to assist the function of Fannie Mae.
In 1995, Fannie Mae began receiving affordable housing credit for buying subprime securities. In 1999, the Clinton administration and Fannie Mae shareholders encouraged the lender to increase the number of mortgage loans offered to those of low and moderate income, both to improve rates of home ownership among those groups and to increase profits.’
How do they operate?
They buy up mortgages from banks, building societies and the like. It then repackages them by ‘pooling’ the accounts and sells them on as ‘Mortgage Backed Securities’ on the ‘secondary mortgage market’. But these huge national institutions provide a guarantee that the loans will be paid whatever the borrowers’ circumstances. So they provide both a guarantee that mortgages will be paid and, with the money they pay to banks, a hugely increased liquidity with which they can offer yet more loans.
Critics of the two institutions pointed out how they received financial support from government and then repaid in the coin of political contributions. In April 2006 Freddy Mac was fined $3.8m for making illegal campaign contributions with much of them going to members of the House Committee on Financial Services, which has some responsibility for the mortgage providing bodies.
…………………………………………………………………………

Progress of the Crisis

1. Stock Market falls: these had been in progress since July 2007 when the Dow Jones Index had stood at a record high of 14,000 by August the decline had begun and it continued throughout 2008, with builders and mortgage lenders suffering the most. All over the world investors withdrew from mortgage bonds and invest in ‘safe havens’.

2. Investment Banks: In March 2008 investment bank Bear Sterns, in desperate trouble, was the object of a bale-out, assisted by the Federal Bank. The rescue attempt failed and the bank, founded in 1923, bit the dus when it was taken over by JP Morgan. The Guardian reported:
In London, leading City figures said the scale of the crisis was virtually unprecedented: "It does scare me," said veteran trader Terry Smith, chief executive of specialist inter-bank broker Tullett Prebon.
"I have been working in finance in the City and worldwide for 34 years and I have never seen anything like this," Smith told BBC Radio 4's Today programme.
"I don't think anybody alive has seen events of this seriousness and magnitude affecting the financial markets."

3. Fannie Mae and Freddy Mac Nationalized, 8th September 2008
Fannie Mae and Freddy Mac guarantee half of all US mortgages, worth $5.3 trillion so their role is crucial to the US economy. Given their remit to assist lower income house purchasers, it was unsurprising that they should have been in the firing line as the subprime housing crisis developed. When it did, shares in the two institutions plummeted and rumours spread that they were no longer able to provide guarantees as foreclosures had reached such a crisis point.
On 7th September the Federal government stepped in to take over -i.e. nationalised- the ailing giants. George Bush explained their risk of failure was ‘unacceptable’ to the overall economy, affecting home loans car loans and consumer credit, not to mention business finance. The crisis was now exposed to the whole world and the battle by politicians to pre-empt panic and construct solutions had begun.

4. Related Failures: Shares in other investment banks, especially those known to have invested in the toxic mortgage securities, now tumbled. Investment banks were vulnerable as they do not carry large cash deposits but are dependent on big inflows of credit. Once banks stopped lending to each other this made their position desperate. On September 15th Merril Lynch’s shares, $97 in January 2007 were bought at $29 each in a takeover by the bank of America. Four days earlier shares had been only $17. 16th September AIG, the huge insurance concern was bailed out to the tune of $85bn. On 22nd September The Guardian reported:
‘The concept of a Wall Street investment bank was in its death throes today as Morgan Stanley and Goldman Sachs succumbed to a collapse in confidence in their financial stability by converting themselves into lower risk, tightly regulated commercial banks.
Beset by plunging share prices and alarmed by the demise of competitors, the two remaining standalone Wall Street banks accepted licences from the Federal Reserve which allow them to take deposits from the public backed by federal government guarantees.’

5. 25 September, the biggest bank failure yet: Washington Mutual closed by authorities. No government however, could allow a really big bank to fail as the knock-on effects could bring the whole system down in ruins.

6. Paulsen Plan: Within a few weeks the phenomenon of investment banks, vehicle for huge incomes for their board members and CEOs, had been virtually wiped out. The world’s financial system had become frozen, with banks unwilling to lend to each other in case they also began to slide. This was the situation in which US Treasury secretary, Hank Paulsen, former CEO Merril Lynch and someone personally worth £700m, announced his hastily constructed rescue plan for the US economy, an injection of a $700bn bail-out to purchase bad debts from banks.

7. 29th September: House of Representatives throws out the Paulsen plan, at the direction of their constituents who vocally point out in media interviews and elsewhere that these Wall St ‘fat cat’ bankers had only themselves to blame for the crisis and that the little guy on Main St had traditionally been allowed to go bust, or become unemployed in the case of millions of former Rust Belt industries. Around the world shares go into free-fall as an air of panic takes hold.
Ist October: Revised plan is passed by Senate
3rd October: House of Representatives also passes the revised deal.

The Crisis According to the UK

Britain had been keen to ape the deregulation of markets pioneered in the USA, with Gordon Brown as cheerleader for New Labour. Financial services flourished; the City now contributes about 10% of the economy. As important banking is an ‘enabling’ function, allowing business to function. Without credit, business is like a body without oxygen. Debt increased within a decade to an average of 180% of disposable income, the highest proportion of any member of the G7: £1.44 trillion (equals million millions).

12th September 2007: Northern Rock sought emergency help from Bank of England causing a run on their reserves. Government steps in to guarantee all deposits in the bank.

17th February 2008: Northern Rock nationalised.

21st April: Bank of England announces it will swap risky mortgages for up to £50bn government debt or ‘liquidity scheme’.

17th September: Lloyds-TSB buys HBOS, the owner of the Halifax, for £12bn. Gordon Brown has encouraged the sale.

28th September: Bradford and Bingley nationalised.

The days of cheap credit are now over: mortgages issued have shrunk to a fraction of a year ago and formerly extravagant consumers have opted to tighten their belts. The number of mortgage products on the ,market has reduced from 30,000 in 2007 to 6300 now. Shopping has ceased to be a national obsession as more discriminating practices have begun to be adopted. Even Prince Philip has been reported as having had a 51 year old pair of trousers restyled in Saville Row. Houses are now only being sold because of debts, divorce and death; playing the market is over for at least 3-4 years. A deep recession, comparable with the 1930s seems likely to affect UK for several years.

The crisis has also affected Ireland, Iceland, Germany, France, Greece, Russia, China, virtually every developed economy. When Ireland and Germany and Greece offered blanket guarantees to savers and account holders, there was some unease with the EU lest money leached across borders to such safe havens, thus disadvantaging countries like UK which has held back from such general measures, though may now be forced to follow suit.

So far,[but see below] it would seem, politicians have floundered for a measured response. Blaming bankers for incompetence might be understandable and accurate but to revive, the economy needs a functioning banking system and such resentment is irrelevant, though clearly politically significant. Something like a restructuring of the economic system seems necessary as in 1945 at Bretton Woods. Will Hutton, in the Observer, 5th October sums the situation up as follows:

‘A 30-year experiment has come to an end. The world of go-getting investment banks has gone forever. The danger is that we go from feast to famine; debt remains a vital element in any economy, and if we too suddenly try to live without it we will crush ourselves economically. What we are witnessing is a system failure that requires a systemic response – the creation of a new system that sponsors a fairer, more productive capitalism in its place, while maintaining high flows of credit and debt.’

Postscript: On 8th October, the British government announced a £500bn bail-out of banks in the firing line aiming to improve liquidity and confidence so that banks can start lending again. Strings were attached however and it seems clear the era of big bonuses has passed.
Bill Jones October 2008.
http://skipper59.blogspot.com/

Are UK Political Parties Dying?

[Plus Two Approaches which Might Save Them]

This is a question frequently asked by political scientists and if the answer is yes, our democracy has a mega crisis brewing sometime soon in the future.On 30th September, 2007, Simon Jenkins suggested in his Sunday Times article that ‘Political Parties are Dying’. Let’s look first at the case that parties are already in ‘intensive care’:

Ideology: some time ago now, Otto Kircheimer- a German writing in the USA- suggested that those mass ideological movements called political parties had ceased to relate all that much to ideology per se. Instead, they had become ‘catch-all’ parties: assemblers of voter coalitions, gathering in a pocket of support here, wooing a block of interest groups there. If we apply this model to the UK New Labour might easily be deemed a neat enough fit. Having realized its ideology had been rejected by voters four times in succession, it decided, in effect, to abandon it. But without a saleable message to market, what could it do? Answer, borrow another. New Labour acquired the economic programme of the Tories: Thatcherism, the unpleasant but apparently effective remedy for an ailing economy which focused on tight control of interest rates, opposition to trade union curbs on economic activity and an emphasis on ‘flexible’ employment policies which enabled employers to hire and fire without too much restraint.

To this lurch to the right Brown and Blair, advised by the likes of Mandelson and Gould, added: a line on law and order which openly competed for toughness with the Conservatives; a promise to follow Conservative spending plans for two years after winning power; and an approach to public services which seemed to accept the Thatcherite premise of ‘Public sector bad, private sector good’. Many traditional Labour party members thought Blair was advancing the interests of the privileged class from whence he sprang, rather than the disadvantaged one Labour had always championed. When he came to power, Gordon Brown, having posed as an ‘Old Labour’ supporter, seemed to take the process even further, with his embrace of rightwing policies and gestures like inviting Margaret Thatcher to Downing St. When Cameron turned the tables on him by advancing initiatives on inheritance tax and on the lightly taxed ‘non domiciles’, Brown promptly stole these policies. With this bare faced policy larceny, ‘Political cross dressing’ had reached a kind of apotheosis. Moreover, with Cameron seeking to haul his party into that electorally strategic centre ground, the current political spectrum is as narrow as I can remember. Polly Toynbee, writing in The Guardian 2nd November 2007 thinks the positioning for the centre ground masks a reality:

At heart, of course, Labour and Tories are viscerally separate tribes, deep-dyed by their own histories, born and bred in opposite intellectual and moral universes; government under either would differ much more than they pretend. Yet in public they converge, swimming in a shoal, afraid lest any difference might alienate anyone. So they nibble each other's tails on small policies, but stick together on everything large.

Participation: to function properly a representative democracy needs a participating citizenry to staff the parties and vote in elections.

Parties: Simon Jenkins, in The Sunday Times, 30th September 2007, sums this up as follows:
The collapse of parties in Britain has been spectacular. In the 1950s more than 4m people claimed some affiliation. Today the figure is 0.5m and falling, having dropped 70% in the past 25 years alone. Even those asserting some political activity amount to a mere 2% of adults, the lowest in any comparable democracy.
Voting Turnout: most people are now aware that the decline in party membership and activism is merely a symptom of a wider malaise. In the 1950 election turnout was 80%; during the seventies it averaged 75% but fell to 71% in 1997 and plummeted disastrously to 59% in 2001, recovering only slightly to 62% in 2005.
Grass Roots Membership: Jenkins lambasts British government for being so centralized, thus stifling the opportunity for parties to build up the kind of vibrant grass roots membership enjoyed in pother European countries. He points out that :
In France there is roughly one elected official for every 100 voters and in Germany one for every 250. In these countries local mayors and councillors are known by name and often in person to the overwhelming majority of voters. In Britain the figure is one elected person for every 2,600 voters and few can name any local community leader, let alone one to whom they might turn in trouble. The smallest unit of democratic administration in France, the commune, covers an average of 1,500 people, in Germany 5,000 and America 7,000. The equivalent figure in Britain is 118,000 and the Brown government wants that size to increase under “unitary” authorities, thus removing government still further from voters and consumers. It is no surprise that ever fewer people want to be patronised in this way.
Arguably British government is far too centralized and less competent for this. Critics argue that London based civil servants, party apparatchiks and their advisers are not able to cater for the needs of specific groups with anything like efficiency.
Funding of Parties: it follows that with smaller memberships parties have fallen on hard times financially. Modern politics is highly sophisticated with private polls, focus groups and scores of researchers to staff election efforts and keep the machine ready for when the big tests arrive. It costs around £20m p.a. just to pay for a party to survive, let alone finance election campaigns. So where does the money come from? And where can it come from in the future?
The Conservatives have traditionally drawn their funds from business and Labour from the unions. Membership subscriptions constitute just 6% of Conservative income; 13% of Labour’s. Corporate business donations used to infuriate Labour as ‘their’ party, the Tories, could always be relied on to outspend Labour when it mattered. Unions also delivered millions to ‘their’ Labour party when it mattered, though at the politically damaging cost of appearing to dictate party policies; this more damaging during and the decade after the seventies, the high tide of union power in the Labour Party.
Labour attacked the ‘dodgy’ donations from dubious rich foreigners and, when in power, its Political Parties, Elections and Referendums Act, 2000, banned overseas donations plus limiting anonymous donations to £5000. However, Labour found that as its own membership declined it was forced, like the Tories, to resort to a few big donors, like Lord Sainsbury and his ilk. Before the 2005 election, Blair’s office arranged for rich donors to help fund the forthcoming election but changed the ‘gifts’ to ‘loans’- a loophole that would keep the donors anonymous but which opened up the hugely damaging ‘cash for peerages’ scandal and accompanying police inquiry.
Sir Hayden Phillips, a retired civil servant was asked to head an inquiry in 2007 into how party funding could be improved. He came up with a possible plan-a £50,000 cap on donations, reduced spending on general elections and increases in state funding. However Labour could not accept Tory insistence that union contributions should be limited to this extent as this would have denied them the millions they have traditionally received from the unions. He gave up in despair at the end of October. So this way out of the dilemma has been foreclosed for the time being.
Charismatic Leaders: shorn of their distinctive ideologies, their membership and, to a degree, their income, parties seemed to invest in charismatic leaders. In a 24 hour news environment a figurehead was needed to attract attention and deliver messages crafted to reach the requisite groups of voters. Thatcher was a one –off but her example encouraged the emergence of Tony Blair with his voter friendly media brilliance. Cameron, without a doubt, sought to emulate such PR virtuosity and the party gratefully welcomed him- though having absorbed some of the focus group led changes, some-Simon Heffer in the Mail, Norman Tebbitt- protested their discontent. This development tends to support the ‘catch-all’ party thesis- part of the stripped down machinery designed to assemble the coalitions of voters needed to win elections- though Gordon Brown surely represents a return to a more traditional kind of politician.
Case that Parties still Function Democratically and Situation Remediable:
Ideology: it could be pointed out that Labour had not choice but to tack towards the centre and appeal to middle class voters as so many of its working class constituency has disappeared: from 75% of the population in 1911 to less than 40% at the end of the millennium. Moreover, it can be argued that the fact of globalization and the enthronement of market economics has made all parties conform to similar economic policies.
Nevertheless, Labour did pursue a distinct social democratic agenda, perhaps not in the generation of wealth, but in its distribution to the poorer strata- something which Brown assiduously sought to achieve in successive budgets. So public services were funded where, had the Tories been in power, they would not have been. Labour also implemented a radical programme of constitutional reform, in the form of devolution and ending hereditary peers in the House of Lords and introducing elected mayors; few would have expected the Conservatives to have done such things.
Representational: Parties still provide the crucial connection with voters and act as the nexus between them. Even the critical Jenkins allows that:
“Parties remain the golden thread that links voters to their governors both at and between elections. Parties embody the democratic mandate. They can discipline representatives and leaders who stray from what was pledged to the public. They hold MPs’ jobs in their hands.”
He goes on to point out that in the USA one in ten Americans gave money for a presidential candidate and $206 was raised by gifts under $200.
Funding: the parties are predictably wrangling over money, as they always have, but it is still very possible a compromise will be reached. There is also the possibility that state funding might fill the gap. Arguments over this are complex- and Jenkins’ trenchant views are recorded below- but other countries as in Scandinavia and Germany, think democracy is sufficiently important to the common good, to assist it financially.
Conclusion: Jenkins’ diagnosis that ‘the political parties are dying’ has a certain amount of truth in it- the parties are in a bad way and democracy has been healthier- but it is basically an exaggeration. The parties still function- there is no shortage of candidates to sit in the Commons- the debates in the chamber are heated enough to be called vibrant and the system, though ailing, still has popular legitimacy.
Reviving Democracy
Decentralize: local government has been revived to an extent by New Labour- e.g. elected mayors and improved consultation- but some structural reform is needed to bring voters closer to representatives, to devolve services to local level as in other countries like Sweden and France.
Refuse State Aid for Parties: Jenkins argues powerfully that ‘parties need to revive themselves’ and that denying them the easy answer of state aid is one way of doing this. Tony Blair decided to have a membership drive in Sedgefield he bumped up membership to 2000. It is possible but parties have to be made to renew themselves. As Jenkins concludes:
‘Nothing would do more to restore democracy than forcing parties to find more members to give them money and publicly declare it. An active and empowered membership, warts and all, is essential if the British constitution is not to lapse into oligarchy. Party finances will be restored only when parties persuade enough voters that they are worth preserving. Otherwise they will become mere offshoots of the state.’
Reform the Voting System: Polly Toynbee in The Guardian, 2nd November 2007, makes a passionate case for proportional representation(PR). A study by the Electoral Reform Society argued that, given the mountains of votes piled up in safe seats, only 8000 votes in marginal seats effectively decided elections. Given this reality parties refused to take any risks but all grapple for a slice of the centre ground, thus alienating people who might otherwise feel they are being represented.
Rather than targeting their millions on such a minuscule number Toynbee suggests a system in which every vote counts would encourage participation and democratic vibrancy. Yes, it would cause coalition government but at least they would be representative of what the nation believed and felt- they would be made via ‘public bargaining after an election instead of current pre-election merging by focus group’ Toynbee is not sanguine however about the chances of voting reform being delivered, despite nudges and hints that it might be on the agenda. It has to be said, however, that the introduction of PR in Scotland and Wales devolved elections, has not noticeably improved turn-out figures.
Bill Jones, November 2007.

Politics of Law and Order in UK

‘A society should not be judged on how it treats its outstanding citizens but how it treats its criminals’ Fyodor Dostoyevsky

Polls show that concern with crime is close to the top of voter priorities and has remained so over the last two to three decades. This note takes a look at ‘crime waves’, causes of crime, penal policy and alternatives. It draws on material from my chapter 25 in Politics UK but includes more up to date material as well.

The ‘Crime Wave’: Virtually everyone believes crime is on the increase and that we live in the middle of a perpetual ‘crime wave’. Everyone too has ideas upon why criminals are formed and how they should be treated. We also look back to a ‘golden age’ when we could leave our doors unlocked at night and walk the streets at any time unmolested and without fear. In 1979 the number of serious recorded crimes was about 21/2 million; a decade later it was closer to 5 million when most people would have agreed a ‘crime wave’ was in progress.

Political Party Attitudes: Conservatives tended to blame the permissive sixties for the collapse of values, and behaviour leading to crime: respect for authority had been undermined by the ‘anything goes’ attitudes of that decade and so crime had rocketed. They pointed to the thirties, for comparisons when desperate social conditions had not resulted in increased crime rates. Labour tended to see crime as the consequence of hardship and poverty: if these were removed, they argued, criminals would have no need to commit crimes. Tories argued increased crime could be remedied by ever tougher penalties; Labour argued such reactions merely made the situation worse.

This analysis remained gridlocked in its respective certainties for several decades after the war but around the early nineties policies began to converge. The Conservatives admitted that economic depressions caused increased crime (see also Polly Toynbee’s article quoted below), while Labour, insisting, under its Home office spokesperson, one Tony Blair, that the ‘causes of crime’ should be robustly addressed, as well as its consequences. From here on in-now convinced there were no votes in the liberal approach- parties vied with each other as to which could be the toughest.

Measuring ‘Crime Waves’: criminologists point out that crime statistics are something of a mine-field:

i) More people now report burglaries because more people have home insurance and telephones.
ii) Many crimes are very trivial and may not even have been recorded until quite recently.
iii) Britain used to be much more violent in past centuries. EG Dunning’s work in 1987 calculated that the murder rate in the 13th century was seventeen times today’s rate. The idea of a bygone ‘golden age’ when we were a peaceful country is a myth, though there have been fluctuations of course.
iv) The huge increase in police manpower has enabled more crimes to be registered.
v) Media coverage of crime- often sensationalist- masks the fact that the chances of being mugged in our country are less than once every five centuries and the chances of injury from assault less than once every century. UK is safer than Germany, USA or Australia.

Clear up Rates: when crime rates were relatively low, say under 3 million a year serious crimes, the clear-up rate for them was 40%; not perfect but a tribute of sorts to a police force overstretched and weighed down by bureaucratic requirements. By 1999 the figure had slumped to 25%. Since then Labour has claimed some improvements but their lack of specificity suggests they are only marginal.

Fear of Crime: this is a major problem and I return to it below. When old people are frightened to go out at night and young people are regular targets for violent crime, the streets become even more the property of the criminals. Most people wrongly (see below) believe crime to be increasing and have little confidence in the police. Particularly afflicted are residents of inner city areas which suffer over twice as much from burglary as any other kind of area: much of crime involves working class people offending against their own.

Causes of Crime

Gap between rich and poor: countries with low gaps between rich and poor suffer less overall from crime- e.g. Japan, Denmark, Sweden- than countries with large gaps like UK and USA. People with very little look out on a world where people are judged often by how they look and what they have; if the road to success by conventional means proves too difficult, crime can be considered as an option.

More crimes on statute book: Blair’s governments placed many more offences on the books so offending is now easier to do as so many more things have been classed as crime. More material goods in the shops also act as incentives to crime.
Professor Mike Hough, of King's College London, was quoted recently in The Guardian:

"In Victorian and Edwardian times, in the 1920s and 30s, a far higher general level of violence was accepted. Now people report quite minor incidents that would have been ignored."

Young people face more challenges: most crimes are committed by young people aged 16-24 and this often gives rise to ‘generational’ disputes: older people blame the youngsters while the former vent their anger on their parents’ generation.
a) more are the product of broken homes and fragmented families
b) long term unemployment has taken away the hope which earlier generations came to expect as of right and reduced the number of ‘working’ role model males as heads of families.
c) When unemployed crime can assume an excitement and glamour which makes it attractive.

Growth of an underclass: partly as a result of the above factors a stratum of society has emerged comprising poverty stricken older people and younger ones dependent on benefits where the dividing line between legality and illegality is harder to distinguish and where a culture has emerged disdainful of the values underpinning a cohesive society.

Drugs and Crime: the Home Office calculates that two thirds of property crime is drugs related. A heroin addict has to raise some £15K annually to survive but seldom is in work so crime becomes the obvious route to finance the habit. Police seizures of drugs amount to a mere 20% of the total involved.

Anti-Social Behaviour: this causes a huge amount of resentment- vandalism, graffiti, casual violence, gangs of youths the worse for drink appearing to intimidate ordinary people. When beer is available in supermarkets at prices less than mineral water, it is scarcely surprising that so many young people misbehave- the older generation testify that alcohol was relatively much more expensive when they were teenagers. Having substantially relaxed opening hours moreover, has not contributed much of a restraining effect on drinkers to desist from their binges.

Polly Toynbee and the Economic Connection: Toynbee is often pilloried for holding stereotypical Guardian views but her research is always well founded:

‘Trends in Crime and their Interpretation, by the Home Office in 1988, plotted crime figures in the last century against the economic cycles, with graphs tracking crime against boom and bust. Its evidence is conclusive: in good times when per capita consumption rises with higher employment, property crime falls. When people have money their need is less great so burglary and theft trends drop. However, theft rises as soon as consumption falls when the economy dips and people on the margins fall out of work. But that is not the whole picture. Something else happens in good times. People have more money in their pockets, they go out more and their consumption of alcohol rises. The result? They hit each other more and personal violence figures rise. Exactly this is happening now with near full-employment and soaring drink consumption creating a rise in assaults, mainly young men hitting each other at night (mainly not very hard: only 14% visited a doctor afterwards).’(12/7/2002)

Responses to Crime

The Police: Billions of pounds have been spent on expending police numbers over past decades. During the eighties rightwing commentators lambasted the police for failing; Blair’s New Labour responded by piling in with even more funding to bring the number of police over 130,000. However, Robert Reiner, the leading LSE criminologist, argues that the ‘golden age of policing’ in the 40s and 50s was largely a myth. He believes crime was controlled by:

‘informal social controls, above all by the gradual inclusion of the whole population into common citizenship. However, the police took much of the credit… Much research evidence shows that policing had little effect on levels of offending’.
.
Reiner saw rocketing crime rates as the consequence of neo-liberalism, unemployment, inequality, poverty plus ‘an egoistic consumer culture and declining deference’.

Prison: to advocates of tough law and order approaches, prison is their chief instrument. Depriving someone of their liberty widely thought to be a major deterrent and, given the nature of other inmates prison is indeed a very punitive consequence of being convicted of a criminal offence. When crimes increase or when particular crimes receive publicity, there are calls for heavier sentences- especially from the zealots who attend Conservative Party conferences. However, prison is not regarded by many criminologists as effective in either deterring future transgressions or rehabilitating offenders so that they can ‘rejoin’ society. 60% of offenders re-offend within two years and it is clear young men who graduate from young offenders’ institutions to prison merely emerge as more hardened criminals.

On 23rd February 1993 The Observer published the story of ‘Dennis’ who began his ‘career’ in an approved school aged 12. It was here he imbibed the ‘criminal subculture’; by 15 he was arrested for stealing a car and went to a Detention Centre where ‘the kids were already seeing themselves as gangsters’. Inevitably he graduated to burglary criminal damage and car theft and soon was in Strangeways, doing time. After another stretch he married and worked for while but then drugs, marriage break up and loss of his job led him back into crime, this time armed robbery. His story, unusually, ends happily in that prison education led him into a different world where he discovered his real self and was able to leave the criminal worlds behind him to study law at Bristol University. But ‘Dennis’ is only one out of thousands who fail to haul themselves out of the trough of criminality and waste their lives rotting in prison.

Britain imprisons more extensively with custodial sentences than any other country in Europe and only USA and South Africa imprison more. In the eighties it was clear that a system designed to accommodate 40,000 was having to cram 55,000 two and three to a cell. During the nineties the Conservatives opted for more non custodial sentences but Michael Howard broke with this trend with his ‘prison works’ policy, which saw prison populations grow relentlessly toward 70,000 and above. Private prisons took up some of the slack once riots in the 80s highlighted appalling conditions but at the present time there are 81,000 inmates and no sign of any let up. Writing in The Guardian, the doyen of columnists Simon Jenkins argues in his article, ‘Britain’s prisons reek of a wretchedly backward nation’:

‘The chief concern of the public, always cited by politicians, is violent or sexual offending. But there are only 18,000 such convicts in prison. Meanwhile, the Home Office reports that 55% of the jail population is related in whole or part to the failure of the 1971 Misuse of Drugs Act. Reforming this act along lines familiar elsewhere in Europe holds the key to reducing the prison population, yet ministers are terrified of "the press". Nor are the Tories any better. Their crime spokesman, David Davis, always refers to crime as "violent" and seems ashamed that Blair locks up 30% more criminals than did the Tories.
Young people whose discipline in other countries is a prime charge on schools, churches, sports clubs and communal authority, are in Britain left to the police. Yet the police answer not to any community, but to Whitehall statistical targets and the ministerial demand for good headlines. Crime in Britain has thus shifted conceptually from being an issue of social reform to being one of repression, and the figures show it’ .20/6/07.
Critics of the government’s penal policy do not just attack it on the grounds of its inhumanity, lack of rehabilitation and its sheer inefficiency, they also attack rising numbers when crime is in fact in decline. This is an extraordinarily difficult message to get across to voters, but serious crime has actually fallen by 40% since 1997. As Polly Toynbee argues, maybe this has something to do with the media.
Media and Crime
Polly Toynbee made a swingeing attack on the media’ coverage of crime in a recent article: 23rd October 2007. Pointing out at crime has ‘plunged’ by more than 40% over the last decade she surveys how the media insist on ignoring the good news and focusing only on the scary crimes for which the public has an obsessive horrified fascination . The most recent figures revealed a 7% decrease with serious violence down by 14%, lesser violence 12% and sex offences 7%. These figures are based, official police recorded figures but the British Crime Survey, published at the same time and based on interviews with 40,000 people, suggests crime is stable- neither up nor down. Yet these figures confirm the 40% fall, with a 59% decline in burglary, 61% vehicle theft and 45% personal theft.
Yet we Brits are more frightened of crime than anywhere in the west: 83% think crime is actually rising.
Ipsos Mori's Ben Page has no compunction in saying: "We're obsessed with crime and the media is to blame." He finds 57% say they think crime is rising because they see it on television, 48% because they read it in newspapers.
Fear of crime, stoked up by the media explains why we spend more on crime than any other nation in the world. This makes it prime target for political parties, seeking to win advantage by amplifying scares over crime- David Cameron, of course, has recently spoken of a ‘broken society’. With both main parties likely to be locked in a ‘boat race’ of poll ratings up to the next election, we can expect only more of the same.