Acknowledging Genius: Marx in History

Any student of the 20^th Century will have to marvel at the success of communism. Its ultimate failure should not overshadow its inherent vitality, leaving its permanent mark on mankind. The whole century saw ideological certitude replacing theological convictions. The neo-dogmas were many and varied. Fascism, pan-nationalism, politico-religious fanaticism and enforced democratisation all stepped forward to play their part. Yet while the soft left liberalist to hard right agendas could be considered as the manifestation of individual sentiments coalescing around a particular strand, communist thought had something entirely different to offer. It was not only totalitarian but also the only ideology to be exclusively and exhaustively schematised. We can trace it to the thought of one man, and one man only. Karl Marx.

Is it fair to so radically draw a line through later interpreters of Marx? And do we not run the risk of conflating communism and Marxism (not to mention what Marx himself believed)? After all the method of actualising the revolution and mass systems planning were two key components added on by later thinkers when they had to surmount the challenges ahead. Nevertheless we would be in denial if we were to avoid acknowledging the self evident fact that the ideology could never have existed without the Prussian. The man’s genius for political interpretation was startling. It bequeathed us not only the departure point for the communist phenomena but also the tools for historical interpretation. Monetary transaction is no static exchange. Following the monetary trail gave Marx his sense of historical direction. Writing history didn’t start with Marx. But it wouldn’t be so wrong to say that it did.

Until Marx, the larger part of history had been chronicling the comings and goings of kings. There was a lack of focus on the true dynamics that pushed on society. This was only natural. After all, under absolute monarchy systems, power was vested in the hands of the few. In the East a full three centuries before Marx, the Mamluke historians Ibn Khaldun and al-Maqrizi had made a tentative start at considering economics as a function of history. Adam Smith opened the door in the West. Yet it was Marx who, in an urbanising Europe, left us with the clearest ideas. His class divisions highlighted a transitional class roughly equivalent to the middle class. He correctly highlighted that the technological changes in modes of production affected the political relationship between peoples. The handmill gave us the feudal lord. The steam mill gave us industrial capitalist. This concept of the modes of production needs to be reopened for today and investigated as part of the debate on globalisation. An Africa migrating from the village to the city, a Middle East confounded by technological advances, have both found themselves ill-equipped to face the shift in politics. Then Marx also taught us to value the worker. True his economic theory of labour power cannot stand the innate rationalism of marginal utility, but we must not deny that the price of all produce is related to human effort. All goods have a human labour cost attached. Was he not correct when he taught that there are “two sources from which all wealth springs: the earth and the worker?”

Three criticisms of Marx damn his work. All revolve around the narrowness of the Master’s vision. Firstly, as Popper has highlighted, the selective data processing that Marx engages in is hardly objective. Anyone who questions the system stands to be ostracised through a set of cyclical rebukes which only serve to reinforce the system for the believer. Marxism provided the devotee with unshakable faith and an unquestionable religion. Secondly, as Schumpeter highlights, only two real classes could exist within Marxism: the haves and the have-nots. For all the talk of the petit-bourgeois Marxist sociology remains too focused on ownership and possession ignoring other reasons for social tensions. Yet can we honestly accept that the tribe, the culture or the family no role to play in society’s divisions? Lastly, we must recall that the fall of communism was essentially economic. Marx had forgotten to deal adequately with human incentive. The political collapse of the Marxist enterprise a century after his death proved that true binding equality was a fool’s dream. Human aspiration to possess created a large enough black market to undercut the idealised system.

The financial crisis has certainly changed things around. After two decades of being heavily discredited, Marx’s writings are now being revisited. The rush to nationalise failing banks has left the neo-liberal lobby wracked in self contradiction. Those on the left may well radicalise. Yet, one should be warned, Marx is a thinker who remains as dangerous as he is refreshing. Here was a man who spoke “only in the imperative, brooking no contradiction.” Marx needs to be reconsidered – not reaccepted.

Tariq Sami – As published on affectjournal.co.uk/blog

Taxing Questions

2008 was a tough year for European tax havens. Sympathy was in short supply and friends seemed ever scarcer. Liechtenstein was betrayed by a disgruntled bank employee who sold a CD containing names of tax evaders to Germany, Britain, France, Italy and the States. The UK Chancellor of the Exchequer Alistair Darling took a swipe at the Isle of Man, Sarkozy made sure he was heard on the issue and the German Finance Minister Peer Steinbrueck, in fairly colourful language, warned neighbouring Switzerland that, if Geneva did not mend its ways, they were ready to “use the whip.”

Perhaps it was cynical politics at its best. Burdened with the possibility of a near total systemic banking failure, European finance ministers released the pressure by lashing out at their tax free neighbours. Yet the issue remains frustratingly prickly for countries burdened with three factors: High Net Wealth Individuals, medium-to-large sized populations and a consistent rule of law. How to control against the leakage of potentially taxable capital without bending the rules?**

The immediate benefits for tax havens are obvious. Small populations ensure that any revenue collected off tax exiles is more than sufficient. Even if tax havens enforce a total zero percent tax rate and dismantle all regulation and licensing fees the circulation of capital within their regions provides a major boost to the local economy.

Now, one could well argue that the reason why such pockets of low/free tax provinces is successful testifies to the effectiveness of trickle down. So far, so true. Yet there remain corollary political  problems. Take for example the case of Sark – formerly Europe’s last fiefdom. The group of islands caught the eyes of the brothers Barclay who intent on making it a home worth living in, opened up their cheque books. Unhappy, however, with the regulations governing the region, they pressed for reform and eventually took the authorities to the EU on human rights’ pretexts. They won the petition and turned the region forcibly into a democracy with elections scheduled for later in the year. All this for a group of islands with a population of roughly 600. The brothers handpicked their candidates and sat back, expecting a comfortable margin of victory. Their failure, however, to account for local pride cost them success. Locals opted overwhelmingly to support a return to their feudal system. After a poor show at the polls, the brothers took revenge. Labelling the local victory as “suicide,” they pulled their investment out of Sark – leaving a sixth of the region unemployed.

Is the story anecdotal – or does it have wider lessons for the offshore community? Certainly the events should be warning enough for current tax havens. Ultimately small centres which attempt to play host to extreme levels of wealth run the risk of being dominated by private interests at the expense of the local populace. As much as Europe’s tax havens may chafe at the idea of being scolded by their bigger cousins – the current reprimands offer them the chance to rid themselves  from the grip of vested lobbies. If not, they stand to become a plaything of the super-rich. Whether for this reason or others, it seems that Liechtenstein has already taken the lesson to heart. After the recent turmoil the principality has pledged to reform, heralding, perhaps, the ends of its days as a centre of tax evasion.

 

(** Of-course “the rules” can be flexible when needs be. Lakshmi Mittal and Roman Abromavich are tax exiles from their countries of origin enjoying non-dom status which allows them tax exemption – allowing them to spend their money freely in the plusher parts of London.)

Relative Certitude

Human rights theorists should watch out. They stand to be undone by a six year old boy and his stuffed tiger. A short Calvin and Hobbes strip finds the two debating the meaning of moral virtue. What, Hobbes asks little Calvin, is your new year’s resolution? Calvin’s reply contains enough sophistry to leave ethicists dazed in lifelong conundrums. I haven’t got one, he says. To have resolutions one need aspire to a value system of good and bad, right and wrong . But why should I prefer one to the other? I refuse to discriminate between two binary choices. I have embraced diversity. I’m tolerant.

Calvin’s relativism has a simple and immediate charm. Its reasoning can be used to justify almost any of the means used in obtaining our pleasure-driven ends. Yet as an argument, it is nothing short of being a plague on human rights. Gender, race and cultural values have been confounded by this sleight of hand of modernity. Yet it wasn’t always like this. 60 years ago, this month, the UN General Assembly overwhelmingly agreed to adopt the UN Declaration of Human Rights in the good old spirit of grand absolutes.  It was a monumental step. A set of minimum moral entitlements were accepted and agreed upon by world citizenry. Representatives of every colour and hue, adhering to the world’s major faiths, with varying political and ideological backgrounds sat down, thought, discussed and came to an agreement over what the human condition is. They might not have told us who we were, but they did a fine job of telling us what we could expect to be entitled to.

Purists would say I am overstating the case. Let us admit, then, that there were certainly problems. Saudi Arabia, unhappy over the right to profess faith by choice, chose to abstain. Christendom also had its sceptics. Like Saudi Arabia some asked why the name of God was omitted. One Vatican newspaper even went as far as to warn, “If God be not the builder of the house, its building will be in vain.”

Culturally, the text was presumptuous. It was clearly a Western product. It assumed Enlightenment values, stressing, for example, ‘equality’ rather than ‘equity.’ Further, the world’s legislators were not as varied as their countries of origin might suggest. Many of those involved had been intellectually nurtured by the academia of the West. The rights, themselves, were muddled. No hierarchy of rights exists. Remarkably for a legal document, the document lays itself open to over-riding each one of its own stipulated clauses. Things were certainly amiss.

What then? To leave, or to leave be? For all its faults we should be wary of dismissing our forefathers’ absolutism too quickly. That direction, that certitude was a godsend smack bang in the midst of the bloodiest century has ever witnessed. The text stands chronologically in between the inferno of two world wars and the deathly chill of American-Russian relations. We saw Hiroshima, Vietnam, the emergence of concentration camps, the rise of police state, the first million plus genocides and the most sophisticated political, historical and biological arguments ever advanced for the eradication of whole peoples. Cuba, let us remember, almost pre-empted Fukyama by 30 years in bringing history to a premature end.

The document may yet redeem the bygone century from the worst of its excesses. For legal positivists and cultural relativists the text assumes too much. Yet for the vast majority, it strikes a chord. Its idea that in every human there is an innate sense of right and wrong – a sense that transcends the barriers of language, ethnicity and culture is almost universally accepted. To have that admission, on paper, on behalf of the wider human species, carries immense weight. The text is an argument for the uniform necessities of man, no more, no less. And that is why it is so important.

Still, we cannot merely wish away our problems. What should we say of the flaws of the UNHDR? Could they not be bettered? Is it not worth starting afresh? We should certainly continue to ponder upon the text and its wider implications. If ever enshrined, we will need to painstakingly work through the clauses, and cover all the loopholes, one by one. But we would ill forget that the text has morale mandate. A whole world signed up to this.  If the text was represented to the UN today, I doubt it would get very far. So let us leave the text for the moment as it is. It is good enough for now. At least… relatively.

The Riddle

“God Almighty has left us with a riddle – why are both the highest grossing GDP countries and the lowest grossing GDP countries Muslim?” So mused one of the speakers at the Islamic Trade and Finance 2008 conference in London last week. No-one answered the question. With addresses from three MPs, letters from both opposition leaders, and support from Gordon Brown, the trade conference was more about business opportunities for UK politicians rather than unravelling conundrums. In the rush for liquidity from the Middle East, the Government seems ever keen to grease hands with the bankers of oil money.

For long treated as oddities of the financial community, Islamic financiers now feel vindicated. They were giddy from the attention and almost exuberant with the current plight of the West. The head of the Malaysian sovereign wealth investment wing compared his country’s recovery from their 97/98 heart-attack with the current turmoil. He had to hold himself in check: “…I am not gloating,” he added, almost as an afterthought. It took Shaukat Aziz, the renowned banker and former Prime Minister of Pakistan to inject a more sober tone to the proceedings. The Islamic world was just as likely to be affected by the global credit crunch, he argued in a thoughtful and eloquent keynote address. Yet one could not help feeling perplexed by his intellectual somersaults. Was not this the same man who, instead of tax reform in a country where 1% of the population pay tax, took the artificial measures of privatisation, liberalisation and credit-ease? What right did he have now to castigate the IMF for a lack of leadership – given that their ideology had once been his? One remained equally puzzled by Jack Straw’s sarcastic barb directed at city bankers. As one of the key Labour frontbenchers, and perhaps the keenest legislating mind in Parliament, was not it his job to have protected us by having regulated the markets at the time?

Most interesting of all was the activist strand that the World’s non-conventional sector found itself uniting around. Anne Pettifor of Advocacy International, returning from Hungary, where meltdown threatens to ruin the country, railed against the reforms three decades earlier. The Credit Controls passed by the UK in 1971 were lambasted by her as “all credit and no control.” She was equally scathing of Nixon’s unilateral pullout from pegging the greenback to gold. Had she found a resonant audience with the Muslims? For sure, the audience lapped up her criticisms of the Occident. But I remain not a little sceptical of their sincerity to lasting reform. Remember the riddle we started with? Where there should have been answers, the silence was deafening.

Finite World

For all the headache the oncoming recession promises the average citizen, there remains the hope that, at most, a few years of market recalibration should see us through. Yet, with attention diverted, we seem to forget too quickly, that there is an even more worrying financial catastrophe well in the making. The spike in oil prices has, for the short-term , been averted. Yet its fall from its $147 peak to its current standing of $69 must not allow us to close our eyes. We have a resource crisis that demands our immediate attention.

The 2nd Gulf stands as unique. It was the first war of globalisation fought primarily for resources. The last century saw some international wars for ideology, others for alliances. Yet Alan Greenspan’s admission that the key to the Iraq invasion was oil allows us to discuss the glaringly obvious. In the wake of the worsening climate, such resource wars are likely to become ever more common. With an erratic water supply, dwindling energy commodities and rapid class shifts in the two most populous nations on earth, China and India, demand has begun to outstrip supply. In what is essentially a bad maths equation, we are allowing finite resources to be consumed at a linear rate.

This would be, perhaps, morally excusable were we faced with the threat now, with no pre-warning. Yet that is hardly the case. Text book examples made 10 year old students in the early 90s aware of the dangers of deforestation. Two decades later no significant solution has been advanced to protect our carbon sinks. Renewable fuels have long been on the agenda. Yet the conversion of wind and solar energy has never been funded seriously enough. We remain where we were on the Hydrogen battery. There was progress on the Montreal Protocol which cut down on CFC usage drastically. However we took steps backward when Bush refused to ratify Kyoto.

We tend to act despondently, as if we have hit the very limits of science itself – but that simply isn’t true. There are answers. The problem is that those answers seem to have never been translated out of primary school books into the world of hard policy. The fact that we have ignored our R&D on this issue is directly attributable to the will of our political masters. The intellectual power that obtained for us advances in our Quality of Life should, thereafter, have been channelled on towards long-term thinking. The discipline of engineering, the most critical discipline in this battle against resource shortage, is currently in disarray. Highly skilled unemployed engineers are a penny a dozen in England. Some pop up as gardeners, others as postmen. Technology graduates should come straight out of university and go directly into government funded research cells. Do you know how the US got into space? Kennedy wanted to get one over on Kruschev and poured the funds in. When we want something badly enough, we get it.

Let us put the argument in economically more sobering terms. In any purchase transaction there are three participants. The buyer and the seller are directly affected by the exchange. Society picks up the tabs for any externalities. It is these very externalities that responsible, democratically elected, transparent governments are supposed to deal with. Consider the automobile. Lauded as perhaps engineering’s greatest invention, it may also be its greatest failure. The manufacturer and the consumer may well be thrilled with the benefit afforded by the car. Yet the mass pollution generated has no small part to play on the erosion of Nature’s protection barrier, leaving us alone to bare the elements. Why have governments not been willing to fund, promote and educate us on the issue? Tied down by business, they remain unwilling to chide the electorate into more responsible transport behaviour. Both in UK and US public transport should have been invested in and made the norm long ago. Car-pooling should have been promoted. Limits to one car one family should have been enacted. Petrol rationing, such as is found in Iran, should have been enforced. The automobile is only one example, but perhaps the most resonant Western motif signifying our wanton misuse of this planet. Symbolising the freedom of transport, we have allowed ourselves to be seduced into the belief that a car is an individual’s right. How, on earth (pun intended), can we justify this? In a congested world, we have to give way. After all, the law of the road is supposed to be different from the law of the jungle.

Sliding Down the Learning Curve

‘Mammon being carried up from Hell by a wolf, coming to inflame the human heart with Greed.’ Aquinas on Avarice

In mid 1997, the Thai Baht began to falter. Its decline marked the beginning of the East Asia crisis. Currency speculation had led to a supra-artificial economy. As traders in the First World poured money in purchasing the exotic currencies, their values shot up. Predictably enough, the moneymen then cashed in and sold up. The flight of capital out of the East sent the economies of the Asian countries into free fall. It was (uptil then) the greatest recession since the Great Depression.

Why do we need to be reminded of this not so old economic history now? Because history seems to be bent on repeating itself. True, if we ignore the issue of the scale of central bank injections, there are other possible candidates that share more specific similarities to our current downturn. The Japanese crisis at the turn of the 90s has, perhaps, clearer parallels. Paulson and Co. seem to have pinned their hopes on emulating Sweden’s support for its failing financial institutions. All this admitted, there still remain central economic tenets that we should have gleaned from what happened a decade ago. Our failure to learn wisely has allowed for the chickens to come home and roost.

The sweet irony is that, although the modern transaction may take place in trendy neon-lit , soaring glass skyscrapers that house our financial industry , we still remain addicted to some pretty age-old economic wrongs. I refer the reader to my previous post. If gambling-addicted traders sinned in their pursuit of greed during the East Asian crisis, then usurious bankers have a lot to answer for today. Both built artificial economies on the presumption that the good times would always last. The difference was that , last time, we didn’t feel the pain and so had no incentive to learn the lessons that were clear to all. I suspect this time might be a little different.

So are there any golden rules that could help us avoid ‘next time’? There will be plenty of suggestions to come, but two basic laws must not be forgotten : (1) – Unimpeded free markets are an idealists dream; State intervention will always be needed to maintain the balance of economic forces. Then, the IMF couldn’t stomach this as it exacerbated the crisis with its monocular thinking that forbade capital controls. Today, the nationalisation and recapitalisation of world banks mark a watershed in economic thinking. The mixed economy has returned to being the default option. Now we must continue through and recognise that the markets are not solely accountable to the laws of confidence. To be sure, we cannot not engage in the folly of communism and seek to ignore the laws of supply and demand altogether. Nevertheless both recent failures have highlighted that the rampant flow of money based on a whiff of information can be catastrophic. We need to slow down our casino trading, regulate our bankers and align interests so that they suffer if they take wild risks. (2) – Just as importantly, prosperity is judged on true blue growth and not on inflated fiscal standards. Before the East Asian crisis we in the West arrogantly assumed that industrialisation had nothing to do with wealth creation. Instead of FDIs which could have been hardwired to the pre-97 manufacturing boom of East Asia we speculated with capital which was begging for investment. Today, the interconnectedness of banks means that we will end up paying for our national neglect of manufacturing. House prices may have provided paper wealth, but in this game of rock, scissors, stone, our monopoly money simply will not stand up against the Chinese spanner . The Thatcher/Major/Blair years saw manufacturing either outsource or grind to a halt. London might well aim to be a centre of finance, but that need not mutually exclude its being a centre of produce. Home and abroad, we need to reprioritise.

These, then, are basic, rudimentary lessons. In these testing times we are likely to acknowledge them, much like the fevered patient who must swallow the bitter pill. But when we are healthy will we remember such preventative prescriptions? Hardly likely. After all, man is made of haste.

Interesting Times?

‘May you live in interesting times’ – Chinese curse

The credit crunch may yet have a silver lining. The oncoming recession could well cause us pain, but the unwinding of toxic risk and firmer regulations will carry long-term benefits. Lessons are to be learned. Short-selling, souped-up derivatives , hollow ratings and 125% mortgages are all excesses of a Regan-Thatcher market gone berserk. Post-Enron, we saw accountancy reform. Investment banking is due for a similar audit.

Still “reform” is a funny word – like a host of other positive sounding terms (think “progressive”), the word comes straight out of the Tony Blair lexicon – all spin and no substance. Two parties, never averse to a little band-wagoneering, are using it a lot to lampoon a third. Hacks and politicians have joined forces to tut tut at the money men. Now, for sure, there is intelligent, intelligible discussion taking place in the corridors of power. There is also a lot of incisive commentary sharpening up the content of the business pages. Nevertheless the central tenet of our economy is not up for question. Whatever happens, interest, the lubricant for the borrowing-lending relationship, will remain indispensible to modern finance. Cheap credit will continue to be easily obtainable. Not only is the transaction recognised as efficient but also as clean and amoral. Yet it is worth remembering that it wasn’t always so. It took the Medici family to bank for the Vatican before the Church shook off its abhorrence to the practice. Nor was Christianity alone in its condemnation. Judaism, its Semitic sister, shared the moral revulsion. If Jesus confronted the extortion of the currency changers at the Temple, then Ezekiel’s revelation was more direct in its denunciation of usury.

It is an old truth that if theology is how the world should work, then economics is the way it does. True, the transaction in the time of the Prophets took on the form of loan sharking – while today rates are more affordable and less extortionate. Nevertheless it was pragmatism, far over ethical considerations, which succeeded in eroding away the question mark that hung over the practice. Yet pragmatism, itself, may cause us to revisit the issue. Given that the credit crunch could never have developed in an interest-free world, here is a question worth war-gaming. What it would be like in a world without interest?

Let us remember at the outset that zero interest and infinite interest are almost the same – borrowing becomes so prohibitive that either the lender or the borrower has no incentive to enter the transaction. A low stable interest rate however provides the key inducement – a 0% interest rate and a 0.5% interest rate will have radically different effects. At a low rate, the market comes to life as multiple borrowers and lenders engage in multiple one-to-one transactions at their negotiated convenience. Capital can flow through the system and the benefits are obvious. To abolish interest, today, would freeze borrowing-lending transactions, causing a sharp and prolonged contraction forcing the economy straight into recession.

Nevertheless the vitality that interest brings, comes at a price. Take the credit card. Consumer aspirations have swelled as wares have become so much more obtainable. Producers have been able to translate that raised aspiration to command a higher price. Flat screen televisions, designer shopping and Swedish furniture are luxuries only directly obtainable by the well-to-do. The less well off are left with two choices: to do without or to use their credit card. Too often the latter choice wins. Yet borrowing against tomorrow’s potential necessities for the luxuries of today must be among the greatest follies of modern consumerism. It is a reasonable presumption that if credit cards were snapped up, people would be forced to live within their means.

Still there may be longer term, more entrenched, consequences. The credit card market makes up only a small segment of the global economy and is only of real significance in the West. Despite this, the size of the credit card market in revenue terms, belies its importance. The average citizen of the West has a far higher quality of life because credit enables him to have options regarding the choicest merchandise. The credit card is a vital window which gives access to our end buyer – but also has the large scale implication of realigning world produce. To remove the credit card would be traumatic for manufacturers abroad, as the First World’s demand for imported luxuries would wane. This realignment would see a whole economic infrastructure dismantled. Foreign manufacturers might well turn to providing bread-and-butter goods to their national internal markets – but they would be cut off from a lucrative avenue. In the end, consumerism as an ideology would be drastically questioned.

Our hypothetical world would also shock the housing market. Naturally, house prices would plummet as mortgages would no longer provide the means of purchase. Currently prices stand at the better part of a lifetime’s net earnings for the breadwinner. No longer. In contrast to the luxury sector, the housing market need not be destroyed. Instead, affordability would become the watchword of the sector. Under such a system, the subprime crisis would have never come to be, since the risk floating around on house buying would have been minimised.

Structurally however, perhaps it would be financing which would have to change the most. We have to think in world terms. As long as investors have the choice they will always re-route their money into locations where they can pick up the guaranteed returns that interest brings. Only a closed system can remedy that. Now history has shown us that the only viable closed system is the world itself. Therefore the abolition of interest can only be viable at a global level. The hope is that forced to use their investing nous, investors would take up Foreign Direct Investments. New forms of development loans farmed out on the basis of profits and equity may evolve. Finance might shift to being less about speculation and more about development. This would be especially the case with banks, which, whilst retaining depositors, would have to shift their operations entirely to maximising the benefit out of the liquidity in their coffers. Given that trade is not zero-sum growth – the key beneficiary would be an efficient manufacturing industry, to whom our finances would be rewired.

A discussion on this topic would not be complete without considering the inflation-interest nexus. It remains an irony that the highest banker in the land, Mervyn King, seems to be reduced to the Homer Simpson of the banking world, moving the interest lever up and down to check inflation while encouraging growth. True, higher interest rates curb price inflation by slowing down borrowing. Yet as argued earlier, a no-interest world is intuitively parallel to an infinite interest world. We might just as well need to think in terms of deflation instead. In any case a system of capital controls should do just as well to address conceivable issues. Remember, borrowing will transform, not die. In our hypothetical world those transformations will need to be addressed, as and when they arise.

So should we look forward to zero-interest world? The question revolves around sustainability. Unsurprisingly there are a lot of unknowns lurking in unchartered waters. Yet one thing remains certain. Easy credit will have to be rethought. After all, whatever the pros and cons of free interest, there is no such thing as free money.

Robin Hood Medicine

Nye Bevan, the Welsh Labour Minister was a through and through socialist when he founded the NHS. His argument that “no society can legitimately call itself civilized if a sick person is denied medical aid because of lack of means” struck a chord and became the constitutional principle for the institution. With its 60th birthday this year, we are left to ponder upon its respective merits and flaws, and as ever the arguments revolve around resources, human capital and management. Criticism, being what it is, is easy to mete out, while praise is considerably harder. It took the Guardian journalist Will Hutton to put the brakes on and remind us not to flood ourselves with never-ending tabloid hysteria. A more sober appraisal is necessary. Let’s engage in some historical analysis.

Free healthcare, even within modern fields such as psychiatry, is not as new as one may initially presume. In the Middle Ages the Sultan Saladin ensured that Cairo had a functioning state mental hospital, something which the traveller Ibn Jubayr marvelled at, finding it staggeringly farsighted. Saladin, of course, is most famously known in the West for his battling against the valiant Richard the Lionheart while the big bad King John was crushing the mythical Robin Hood. The Sultan had his own system of take from the rich to give to the poor, he was using the Islamicate tax systems (as well as, arguably, the proceeds of a war-state) to cover his costs. Hospitals were not the only charitable institution that Saladin took an interest in, his endowments of educational establishments are especially well noted. Yet those had an obvious motive, they could act as centre of dissemination for his propaganda. His healthcare policy is more intriguing.

What does that Cairene hospital tell us which can inform us about today? I think we can legitimately derive a few things. Firstly free healthcare at the point of delivery, or at least at nominal cost, was a feat performed by the nation state long ago (purists will be upset that I took up the 12th Century when I could have gone back to Haroun al-Rashid’s Baghdad hospital, built some twenty-score years earlier). Granted, hospitals would have, at best, provided coverage to the city population, whilst today the West expects nothing less than full nationwide coverage, yet it should be remembered that the maintenance of the hospital was historically thought of as the (surplus) duty of the sovereign power. Within living memory, Reagan used lingering anti-Communist sentiment to convince his people of the imbalance of allowing healthcare into the hands of Government. Yet, somewhat ironically, the Sultan’s endowment shows us that “socialist medicine” predates socialism. Secondly, healthcare was emerging as a right. To be sure, at the time, the people of Cairo must have regarded it as a favour and not as the Sultan’s obligation. However one only need consider the how the discussion about basic rights has developed. King John’s Magna Carter was extracted at the point of the barons’ blades – but habeas corpus is now enshrined as law. By now we should have matured into accepting the right of healthcare as a basic premise. If not, we are being put to shame by our ancestors.

Nothing brings into sharper relief the difference between British and US domestic policy than healthcare. Citizens west of the Atlantic have difficulty comprehending the rationing out of goods that government administration demands. Drugs not being supplied on the basis of quotas, waiting-lists ever extended, these are intolerable by the standards of the market. Yet is health to be treated as a consumer good? A pill or a potion which offers an immediate cure may well be, but the problems associated with chronic long-term illness cannot be so easily resolved by market forces. After all, ethical issues begin to intrude. Is it morally right to hinge a patient’s cancer treatment on the number of his credit card or the small print of his insurance policy?

For long-term illnesses, good healthcare at the point of absolute need may be virtually perfectly inelastic (a man dying of heart disease is not going to quibble about the numbers). However consumers may still gamble that the point of need will never arise. Not being insured is common as millions (47 as of 2006) leave their health on hold. Whatever the merits of the finite legislation introduced by the Bush administration to attend to immediate healthcare, it is obvious that it is the poor and disenfranchised who suffer the worst.

Yet we should not rush into easy exaggerations. Health indicators in the US are still very good. The key statistic, life expectancy, according to the WHO’s 2006 figures was 78, only five years short of the top figure. Further, the lucrative rewards on offer, which is made available by its peculiar system of healthcare funding, means that the States possesses the best doctors. As a result it also possesses the best training facilities, Harvard and John Hopkins being acknowledged as the world leaders. Meanwhile, in the UK, Blair’s reforms of the NHS (erratic doctors’ pay, over-management but decentralisation) have placed it under such strain that we may well be witnessing the beginning of the end game for Nye Bevan’s vision. What then? Perhaps, in the end, we will have to cede to the American way. Perhaps, but I hope not. After all the NHS is an established equilibrium. It would be foolhardy to increasingly work towards it privatisation. Do we really wish to open it to the forces of creative destruction?

The Benefits of Bootlegging Vodka

For those who are interested in a fast buck, here is a quick tip - the UK black market vodka business is a nice little earner. Rewards are so lucrative that bootleggers are not just interested in smuggling: they are willing to brew the stuff on home-soil. In May last year a lab technician, Mrydul Das was found guilty of having run an illegal industrial-scale distillery for two years. Considering that the venture was found to have netted seven million pound sterling, it is perhaps not so hard to see what Das’s motive was. Yet the market still remains something of an enigma – Britain isn’t Saudi Arabia – alcohol is neither illegal nor scarce. In Russia, where the consumption of counterfeit vodka kills five people an hour, the issue is price. Yet here for the cheaper brands, prices are near rock bottom. Why, then, are the bootleggers so successful?

To answer the question, we need to look a little deeper at the market strategy of the bootleggers. It cannot be sheer chance that they have targeted the vodka sector. Vodka production is relatively easy while its high ethanol content means that it especially addictive, ensuring repeat customers. Low production costs mean that, after plant installation and bottling, the bootleggers’ mark-up can be fairly high. The bootleggers favour targeting the bottom sector of the market. Das was manufacturing low-key supermarket brands such as Aldi’s Tamova Vodka and Nisa Today’s Kommisar Vodka. It seems that the plan was to gain legitimisation whilst capitalising on low consumer brand loyalty and quality expectations, helping the fraud remain discreet.

Das’s strategy of counterfeiting supermarket brands has proved popular with subsequent bootleggers. At the end of last month the Food Safety Authority (FSA) issued a warning about counterfeit bottles of SPAR’s Imperial Vodka being sold in non-affiliate stores. Das had also targeted the low-priced Scottish manufactured Glen’s Vodka, and it has since remained a favourite target of the black market.  Another development last month saw a woman admitted to hospital in Cambridgeshire after having drunk from a counterfeit bottle of Glen’s.

Though supermarket chains are not implicated, being the victims of the fraud, smaller retailers do stock the counterfeit products. At a guess, if a retailer is selling 20 70cl bottles a week of a £7-99 product with a £3-99 mark-up he is an odd four thousand pounds richer by the end of the year. That perceived profit may be offset by the fines that the FSA can mete out, running into hundreds per bottle. Yet it is clearly not enough. To challenge the network, the oxygen of distribution needs to be cut off. In cash terms, the consumer barely benefits – one counterfeit brand was found to sell only a penny less than the price of the genuine article. If we want to defeat the market, it’s the bootlegger-retailer link that needs to be smashed.

No doubt the FSA and the lawmakers will take royal exception to this, but they need to remind themselves that counterfeit vodka can result in the loss of life. In 2003 a 42 year old woman died in Scotland after having drunk from a beverage called Vodka Russia. Even if that is a rare occurrence, injury is not unheard of. The counterfeited SPAR products contain such an excessive amount of methanol that it could blind. A small-time shopkeeper, who should have been more suspicious about his back-of-a-lorry delivery, is selling on potential poison. He hasn’t tasted the product and is wholly ignorant of the health consequences of the bottle he is stocking. It might not be malicious but it is exceptionally reckless. If prison sentences are automatically meted out for any counterfeit bottle found, you can bet your bottom dollar that there will be a lot less van-men walking through the shop-door.

The Economics of Pocket-Money

The 16-24 demographic is an interesting one. In days gone by, deference to a maturer, more stable authority was essential to society. Resultantly, young adults could be repressed and disenfranchised, forced to await their turn in the aging process. The early part of last century saw times change. The two wars saw male youths on the front line and their girlfriends in the factories. The erosion of Christian values accelerated. The teenager emerged.

That the teenager is an economic phenomenon should not be underestimated. Youth with disposable income shifted market power. The McDonald brothers in 50s San Francisco were among the earliest beneficiaries. Ray Kroc, eyeing a lucrative chink in the market, commercialised the franchise and gave us perhaps the most enduring brand of the last half-century.

Without exciting youth tendencies, perhaps branding would never have taken off. Mass production could now produce the goods, but to shift them advertising was needed. Andy Warhol, a former commercial illustrator, scandalised the art world when, in 1962, he put up his 32 Campbell’s Soup Cans for display. The painting of 32 uniformly ordered metallic soup cans with differences only in the titling of the soup variety brought to the fore themes of commercialisation, repetitiveness and cultural dullness. Whatever Warhol’s personal opinions, it was clear: advertising had much to overcome.

It was the youth market with their financial clout who propelled ad-men to consider branding in ever more innovative ways. The adolescent had a need to feel valued and esteemed  - something that brands cottoned on to as they began to offer spiritual comfort in material goods. Now, minimum reflection will cause one to observe that the growing pains of adult awareness lead to highly suggestible, unreasonable and downright financially obnoxious young people. Today, in a world where advertising has become ubiquitous, society is found obsessing with youth value.  The result is that  political revolutionaries have been reduced to bland cultural icons recognised only for having some vague alignment to teenage rebelliousness. Sports megastars have been granted the right to tell us what we drink, eat and wear. Brand logos are now so personally sentimental that they are tattooed onto people’s physical bodies. We should be worried on the assault of the brands against basic intelligence.  Advertising is stripping the ability to have a half decent intellectual debate from our society. Not for anything has television been called “the Idiot Box”, or the whole gamut of cinema, radio, newspaper etc as “the Great Stero Opticon.”

It was the activist author, Naomi Klein, who took up this question in her radical work No Logo (1999) to show that not only did the cultural degradation reflect badly on modern consumer society, but also that it was intertwined the sweatshop industries of child labour, poor pay and reinforced bondage. If the reader is unaware of Ms. Klein’s work, let me reproduce it in a nutshell: The artificial branding economy (e.g. mega-millions for Hollywood endorsements) is highly profitable so long as corporations outsource their production needs in order to keep their overheads to an absolute minimum. That outsourcing fosters and encourages labour practices which contravene any form of basic labour provision. However the countries to which they are being outsourced scrap any notion of labour rights in exchange for investment. This heavy deregulation which attracts multinational capital into their country leads to what can only be described as modern bondage.

Now, it is true, that there is a converse argument. To read it, one may flick through to Chapter 11 in Charles Wheelan’s Naked Economics, provocatively entitled “The Good News About Asian Sweatshops.” Here, Wheelan argues that to let the power of the market reign unbridled will allow a trickle-down effect. Sweatshop labour exists because there is a market for it, and the growth of that market will ultimately benefit the bottom-rung employees. Re-adjustment will happen by the forces of the market; any intrusive legislation is bound to hamper the process. Now, one could question how effective the so-called trickle-down effect really is. Yet, more worryingly, is it seriously possible to rule out legislating for humane working conditions? Anyone who is concerned about human rights will automatically cede the argument to Klein. Granted, she goes over the top (she rants against Wal-Mart’s decision to not stock products promoting Satanism because it contravenes their family value system) and her politics become a bit top heavy (she herself is part of the anti-globalization movement, granddaughter of Marxists, daughter of a staunch feminist i.e. left through and through) – but the core tenets of her work remain unassailable.

We need however to be careful of dismissing this network of teenage angst, scheming ad-men, profit-driven multinationals and victimised third-world labour as evil by definition. At the very least, financial capital is induced to flow through, money that would not be otherwise. Arguments must be made to reform and not to destroy. In my view, four things must happen: 1) Western media needs to re-examine its attitude to advertising and be more bold in challenging youth purchasing behaviour, 2) multinationals must be incentivised to work in 3rd world countries with strict labour laws, 3) we must rid ourselves of anti-trade-unions sentiment and realise that they will always be the first port of call for basic labour provision, and 4) the multinationals must engage in the trade-off between stratosphic profits and human rights. These are formidable tasks, but they are achievable. It is no good campaigning against the market – we need to reinvest it with a sense of humaneness.