Tag Archives: Plutocracy

“Free markets and “free trade” = elite propaganda”

Note: I wrote this long eassay  in 2005. The financial crash and recession since provide added grist to my arguments as the rich get richer, most people get steadily poorer, public provision shrinks and the inequality between people swells.

The lessons of economic history tell this story: a strong domestic economy is necessary for sustained economic growth and stability. The freer the trade with foreign states, the less stable and secure the domestic economy.

Post-war economic experience illustrates this nicely. Britain experienced her strongest sustained growth in the period  1945-1972. This was a period of protectionism and much state intervention in the economy.  Problems arose in the 1970s, but these were largely due to the oil price spike  after 1973, a consequence of globalism.  However, even with the oil price spike, unemployment in Britain never went much above 1 million until Thatcher arrived and wilfully destroyed our heavy and extractive industries.
During the period 1945-1979, Britain did not suffer a serious sustained recession. From 1979 onwards, under the Thatcherite ideology we have had three serious recessions: in the early 1980s, the early 1990s and the present recession.
To our post-war experience I would add the fact that England  built her commerce then the first Industrial Revolution behind very restrictive protectionist measures such as the Navigation Acts.  RH

 

Robert Henderson 20 4 2012

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“Free markets and “free trade” =  elite propaganda”

Robert Henderson

1. Unquestioned ideas

2. The “Free Market” is a state regulated market

3. The “free market” as its proponents conceive it

4. How effective is anti-monopoly legislation?

5. Microsoft and Windows – a natural monopoly

6. The historical trend towards contraction of competition

7. “Free trade”

8. Has “free trade” ever been practised?

9. “Free trade” today

10. Does “free trade” deliver? The lessons of economic history

11. Is society materially enriched by “free markets” and “free trade?

12. What is meant by material enrichment?

13. How the market fails to provide what the customer wants

14. Relative poverty and wealth and happiness

15. Man does not live by bread alone

16. Geopolitics

17. The democratic deficit

18. Does “free trade” increase competition and choice in the long run?

19. The reality of our economic circumstances

20. Why elites are so keen on “free markets” and “free trade”

21. A sane alternative to globalism

22. Free trade as a religion

23. An elite ideology

 

1. Unquestioned ideas

Because they have the word free in them, the terms “Free markets” and “free trade” have seduced those of all political colours to treat them uncritically as ideas. They are considered good or bad but their intellectual coherence is rarely questioned.

Neo-liberals believe in a childlike quasi-religious fashion in the workings of Adam Smith’s “invisible hand”, which, moved by enlightened self-interest, supposedly creates the best of all possible material worlds through the operation of the market. Socialists see “free markets” and “free trade” as economic “state of natures” which must be ameliorated by the state before a civilised society can be realised. Conservatives in the traditional sense no longer exist as a recognisable political force in the West, but when they did exist they opposed “free markets” and “free trade” primarily on the grounds of national security and the general disruption to society that they caused. Nationalists of the fascistic kind have traditionally opposed the ideas because they see the nation as a single organism which can only be strong if it is master of its own destiny, something which can only be achieved (they believe) through state direction of both the internal  market and of external trade.

There are varying quantities of truth in all these ideological responses, but their utility is seriously tainted by the lack of any  objective or even properly defined and permanent prescriptive truth in the concepts of “free markets” or “free trade”. The reality of these ideas is that they are arbitrary chosen bundles of behaviours which  are excluded or included at the will of their proponents. Moreover, the bundles of behaviours are not static.

The widespread negligence in examining the coherence of these ideas is all the more remarkable because their incoherence as theories and the arbitrary and dishonest nature of their practical realisation is not only readily apparent but fundamentally undermining of the claims made for them by their champions.

2. The “Free Market” is a state regulated market

There is a splendid irony in the objection of the self-defined “free marketeers'” and “free traders” to state intervention for the natural end of a truly free market is monopoly – or at least greatly reduced competition resulting in oligopoly and the rule of cartels. All so-called “free market” societies recognise this by passing anti-monopoly laws. The “free market” is in fact a market controlled by the state in the most fundamental way, that is, to prevent its natural workings. It is one of the great propaganda triumphs of history that “free markets” have been successfully sold as being what happens naturally without state intervention. Call a spade a spade and substitute the truthful “state regulated non-monopolistic market” for “free market” and the psychological shape of the idea changes dramatically.  (Some casuistical “free marketeers”might argue that the “free” in free market applies to the workings of the market rather than the market as a natural phenomenon. That explanation falls because “free marketeers” invariably make the blanket claim that markets only work efficiently without government interference. Their honest position would be to state that they want state regulated markets to prevent monopoly. They will not do that because it would be an acknowledgement that state regulation of the market is legitimate and hence remove any general argument against regulation. That in turn would mean any form of state regulation would be potentially reasonable and consequently each form of regulation would have to be argued down individually on the merits of the case, rather than simply empty-headedly dismissed on the grounds of no regulation = good; regulation = bad.

The state regulated “Free Market” is not even a natural phenomenon made somewhat artificial by rules to exaggerate the natural phenomenon in the same way that we breed animals to exaggerate nature. Rather it is just about as far from being a natural phenomenon as anything can be for it goes against all Man’s inclinations, both individual and social.

Economic history is overwhelmingly a catalogue of market regulation, local and national, from guilds to governments. It would be surprising if it were not because human beings, like all other organisms, naturally behave to secure their own advantage or that of their group. Extended to the nation state, this natural behaviour has commonly resulted in domestic markets being protected against foreign competition. Whether this is a good or a bad thing is another matter – a question I shall deal with later – all I am concerned to do at this point is to nail down that the fact that protectionist behaviour is what is natural.

Historically, whether you were anything from a rich merchant to a poor day labourer  it was obviously not in your personal interest to allow others free access to your markets to offer the goods or services at a lower price or to work for lower wages. The merchant might be driven to bankruptcy by competition, the labourer from his job.  History also tells us that whatever their previous economic station, such people will probably not be able to find equivalent or better paid employment and often may not be able to find any employment at all where structural unemployment arises. What was historically true not only remains true today, but its effect is much magnified because the opportunities for competition are greatly increased by modern communications and the ease of travel and cargo transportation.

Of course, any individual or sectional advantage causes strains in a society and if the material privilege of any person or group becomes excessive, sooner or later there will be a successful revolt and the wealth in a society will either be shared more fairly through a change in the way the society is structured, for example, through the abolition of tolls, the ending of state monopolies or even through a removal of the rich as a class without any increase in the wealth of the majority.

But wherever wealth distribution through social change has occurred it has normally been done with the express intention of benefiting a particular group or even an individual in the case of monarchs. The odd thing about “free marketeers” is that what they ostensibly advocate is not to privilege any particular individual or group but to benefit society as a whole. Whether free markets do so is another matter, but that is their claim.

The “free marketeer” says to a population, do what I say and in time society will become richer. He does not say this person or that group will become richer or even all will become richer, but merely that the society as a whole will become richer. This is an extraordinary thing to ask people to trust in. It is also the most wonderful blank cheque ever written to a politician because not only does it absolve him or her of any need to take the responsibility for regulating the economy, it also means that he or she can never be held to account for dishonesty by any individual if that individual is personally worse off. All a “free marketeer” politician has ever claimed is that his economic way will make society richer. Provided society overall is richer, he has met his met his promise.

It is also telling for their intellectual credibility and honesty that “free marketeers” will oppose government interference in such matters as subsidies, quotas, embargoes, wage rates and working hours and grumble about tax rates and public expenditure, but are generally quite happy to see other gross distortions of the market deriving from government action. They not only tolerate patents, copyright and trademarks, but often defend them as property in themselves and as devices which actually improve economic performance because they encourage invention, investment and expansion. In addition, those who constantly bleat about Adam Smith’s “invisible hand” sorting out the business wheat from the chaff insist that limited liability is necessary. This of course is also a violent interference with the market because it means that the individual shareholder never takes full responsibility for their investment. (It is worth noting that the British industrial revolution – the one and only bootstrapped industrial revolution – took place before limited liability became legally possible (Limited Companies Act 1862) and at a time when patent rights were insecure and in practice limited to the domestic British market.)

It is true that none of these things are actually part of what the concept of a “free market” is and that they are inimical to such a market, but the fact that almost all modern “free marketeers” have tacitly incorporated them into their vision of what a “free market” is demonstrates their intellectual confusion (or dishonesty if you prefer).

3. The “free market” as its proponents conceive it

Let us put aside for the moment the fact that “free markets” are state regulated markets and ask the question what is a “free market” as it is conceived by “free marketeers”? A jolly good question. Even if market distortions which appear acceptable to “free marketeers” such as patents and limited liability did not exist, that would leave many other things which prevent unfettered domestic competition. In an advanced modern economy these include:

Taxes

Non tax fiscal measures, for example, control of interest rates

The state of the currency

Exchange controls

Overall Government expenditure

State Subsidies

Industry and trading standards, official and otherwise

Public sector employment

Transport costs

Public ownership

Defence

Direct and indirect Government intervention

Copyright, trademarks and patents

The moral and social climate, for example, a tradition of wWelfare or the feeling of the

people, for example, the national feeling of Japanese Practical cultural barriers

such as the difficulty of a language

Dumping

Transport costs

Working hours

Trading laws

Labour laws

Wage rates

Bureaucratic differences

Company laws – particularly the attitude towards foreign ownership

Banking laws

Banking system

Social policy – welfare, health and so on

Physical infrastructure

Honesty of public servants

Foreign policy

National strategic considerations

Education – The amount spent, school leaving age, curriculum,

Limited Liability

Environmental laws

Some of these things such as subsidies, patents, quotas and limited liability could be obviously and legitimately ruled out of order by a “free marketeer” because they are deliberate state interferences with competition, but what of items such as the provision by the state of education or the physical infrastructure of a country? They are undeniably distortions of competition at some level, but they are not deliberate attempts by the state to distort competition. A purist “free marketeer” could just about say such things were no business of the state and still be intellectually coherent because it is possible to conceive of a society without such state provision. But however purist they might be, sooner or later the “free marketeer” will run into features which undeniably restrict competition but which must exist simply because they are an inescapable part of society. The most obvious is tax.

Any modern state needs a large tax revenue to sustain itself, the only questions to determine being how large should be the revenue and what  it should be spent on? Some things such as defence and policing are inescapable expenditures for any state, although even there the amounts to be spent are debatable and elastic. Items such as education and welfare are more subject to variable expenditure. Nonetheless, substantial amounts are as a matter of contingent fact invariably spent on such items by all advanced states. Such countries also engage to a lesser or greater degree in all the forms of regulation listed above.

In theory, and even more in practice, the notion of a “free market” seems to rest on little more than anti-monopoly laws, wages and prices set by the market (although in practice this does not happen purely through the market because of welfare provision, tax regimes etc) and a lack (or at least a minimum) of state interference in such areas as health and safety, employment law and company law.

The inclusion of these narrow criteria are merely a subjective choice made from a much larger menu of man-made distortions of the market. Consequently, there is no objective coherence to the concept of the “free market” as it is conceived by the “free marketeers”. It is an arbitrary ideology based on subjective choice.

4. How effective is anti-monopoly legislation?

Anti-monopoly laws operate within the constraints of the type of social and economic circumstances described above. That alone means they are severely limited in what they can do. They must, for example, tolerate state granted monopolies in the form of patents and copyright.

Anti-monopoly legislation generally only effectively attacks the problem from one end. A company can be prevented from growing its market share by taking over other companies but there is normally no meaningful restriction on a company growing its market share simply by expanding the existing company. Microsoft and the domination of Windows is a classic example.

Where companies try to expand by takeover, experience shows that those charged with applying the legislation allow very large parts of a market – 25% or more – to be held by a single company. The consequence is that a market which would seem to be an obvious candidate for competition, for example, food and domestic supplies retailing, can easily come to be dominated by three or four major players (as is the case in Britain).

There are also those products which are either natural monopolies because of the physical location of their infrastructure – railways, roads, the utilities such as gas – or which are inevitably going to have few entrants in the field because of reasons of cost, for example, aerospace, motor cars, ship building.

Finally, there are those rare markets which are dominated by one company simply because of the nature of their business. The classic example of this is Microsoft and their Windows operating system.

5. Microsoft and Windows – a natural monopoly

In South Park: The Movie, there is a glorious scene where, under martial law, Bill Gates is executed for falsely promising that Windows 98 would be “faster, easier to use and more reliable”. Many long-suffering Windows users doubtless wish that life had imitated art in that instance. Yet despite widespread dissatisfaction Windows remains the overwhelming dominant operating system.

At first glance it might seem that operating systems should be just the type of product which is open to fierce competition because software is a market which potentially has low entry costs. It is true that most areas of programming are competitive – within the constraint of the dominant operating system (OS) – but operating systems are the odd man out. The reason is simple. Once a single OS gained dominance, the chances of any other system effectively competing were very small. This is because the weight of programs available to run under the dominant OS soon became much greater than those which could be run under any other OS. Thus, it becomes inefficient to choose any other OS. That in turn means most of the software is written in a way to make in “friendly” to the dominant OS systems’ users. This further excludes OS competitors and the software to run under them because users, especially employers, do not want to spend the time training their employees on completely new systems, converting data  and so on.

The consequence is that Microsoft still has a stranglehold on the pc market. Moreover, if anyone wants to write any other software, they are constrained by the practical need for it to run under the Microsoft OS if they wish to reach the mass computer user market.

The near monopoly has lasted a long time. It has done this despite considerable attempts by both rivals and the US government to diminish their market position. Windows’ dominance looks secure for the foreseeable future.

 6. The historical trend towards contraction of competition

As remarked previously, the logical end of a free market is monopoly. The reason is obvious: competition tends to reduce the number of competitors through the natural process of success and failure and the takeover of one firm by another. In some trades this does not create an obvious serious anti-competitive difficulty because the initial capital investment is small and entry to the trade within the reach of many. But entry to a considerable and growing number of areas of manufacturing and service provision is too expensive for all but a few.

In a significant minority of trades starting a business from scratch is practically impossible for any one individual or even a group of private investors. The car industry is a first rate example, the number of companies now being small (and becoming smaller) compared with the number of even 40 years ago. Moreover, many of the car companies which do still exist do so only because of state subsidy and protection.

7. “Free trade”

“Free trade” is frequently treated as synonymous with international trade. In principle it does not have to be restricted to international dealings because the concept may be applied to any market, whether that be within a global, regional, national or even a local context. The United States for example displays considerable differences in local tax rates between not only states but within localities within a state, and, indeed, the ultimate aim of the “free trader” is to create a single world market. However, there are considerable differences in practice between domestic markets and international markets, not least because the criteria which are deemed to fall within the concept of “free trade” are not identical with those which are said to be a necessary part of the concept of a “free market”, for example, laws to prevent monopoly are redundant when it comes to international trade because one country will either supply or not supply goods and services to other countries and a country with a monopoly of an important good or service can as a matter of fact only be persuaded to supply the good or service against its will by extra-legal action, ultimately force or the threat of force. Consequently, it is convenient to treat “free trade” as being economic intercourse between nation states and that is what I shall do.

What does and does not constitute “free” international trading? In times gone by, people would have pointed to those honest workhorses of restriction: embargoes, quotas and tariffs and navigation laws and not much else. But in the modern world things are much more complicated as we discover almost daily during the seemingly interminable EU squabbling and the GATT rounds.

Some things are obviously incompatible with “free trade” such as embargoes or state subsidies, but what of different tax regimes, welfare provision or labour regulations? Why should they be excluded from the things which should not be tolerated in a “free trade” regime? After all, a low company tax regime could be regarded as a form of state subsidy to business and all welfare provision could be regarded as a subsidy to wages.

But even such items are straightforward compared to others. What of national sentiment which gives a preference to home produced goods regardless of whether they represent the best value when judged purely by price and quality? Should a country be forced to take the cheapest of  any particular equivalent good or service, regardless of the wishes of the  people of that country, on the grounds that not to purchase that which  gave “best value” constituted “unfair competition”? A reductio ad absurdum? Well, consider the fact that public bodies within the EU (which for these purposes includes any organisation drawing part of their income from public funds) must allow any company within the EU to bid for any work put out to contract, and if the lowest bid is not accepted, the public body risks being fined for a breach of the Single Market rules.

Even more problematic are things which are simply effects of economic activity. Take true dumping, not the state subsidized export regimes which often pass for such, but a simple economic practice to maximise profit.

True dumping works like this. Imagine that a company can make 2,000 units a week. It covers its costs for all 2,000 units if each week it produces and sells 1,000 units at œ1 each. The company finds it can sell a maximum of 1,500 units in the home market at œ1. If it reduces the unit price to 75 pence it could sell all 2,000 but that would only produce the same amount of revenue as selling 1,500 at £1 each.

Consequently, it sells 1,500 in the domestic market at £1 each and the other 500 at 50 pence each (carriage paid by buyer) in foreign markets. Total sales are £1,750 instead of  £1,500.

That is a very simple model of dumping but something akin to it happens regularly with differential pricing from country to country (the European car market is a prime example of this). No state subsidy has been given, no state intervention of any sort has occurred. Why should it not be considered as reasonable a practice as the toleration of different national wage rates? In fact, why should it not be considered more reasonable because wage rates are directly linked to such hidden subsidies as those of welfare and low company taxation? (in fairness, the economic activity of the dumper would also be linked to wage and tax subsidies, but the connection would be more remote.)

Most contentious perhaps is the question of immigration. Does “free trade” require the movement of people as freely as goods and services? This is generally accepted as self-evident by purist “free traders”. Yet there is no logic to the claim. Economic forms are made for men not men for economic forms. We know as a matter of practical experience it is possible to have the exchange of goods and services without the mass movement of people. If a society decides that the benefit gained from the free movement of people is outweighed by the social disruption caused by such migration, it is a perfectly rational decision. A people may decide that they will have or not have free exchange or movement just as they may decide to have this or that level of taxation or welfare provision. It makes no more sense to say a society which restricts immigration – which all advanced states in practice do – is not a “free trader” than to say they are not a “free trader” because their income tax rate is higher or lower than that of their competitors.

The treatment of human labour as merely a factor of production (along with land and capital) is also incompatible with the liberal democratic tenets of the equal worth of each person and the rights and obligations of citizens. Allowing mass immigration to reduce wages or the exporting of jobs to cheaper labour overseas is treating human beings as being of no more account than inanimate objects. It is inhuman.

So what does “free trade” actually mean? Does it require merely that countries may trade with one another without any formal barriers such as tariffs and quotas? Or should it take into account all those items such as national tax regimes, non-tax fiscal measures, wage rates (where these are set by the state), standards of practice and manufacture (official and otherwise), and the size of the public sector. All of these are controllable either entirely or to some degree by men. In other words, they could be removed or altered.

If a definition of “free trade” is accepted which includes these and other non-traditional elements of market distortion, the ultimate logic of the definition is that “free trade” as a global concept cannot exist until all peoples and countries are reduced or elevated to the same general economic condition.

Those who run the European Union would say that is precisely what is required, at least within the EU. But the experience of trying to create unified trading conditions at a supranational level in the most advanced of supranational political and economic entities, demonstrates just how difficult it is to create a supranational market in which there is a broad uniformity in the trading conditions within its constituent national parts. Despite nearly half a century of trying through treaty after treaty and the covering of the EU members with an avalanche of EU directives, there is no meaningful economic uniformity within the EU, either in the circumstances of private enterprise competition or in the function of the state. The introduction of the Euro has painfully revealed exactly how disparate the economies of even the richer EU states still are with Germany needing low interest rates to re-inflate and Italy requiring high rates to control public spending and the European Central Bank paralysed by their inability to square such an economic circle.

The Holy Grail of “free traders” is comparative advantage. This is a first rate example of a neat and emotionally satisfying (to a certain type of mind) intellectual idea which bears little relation to reality. The idea is that every country concentrates on making what it is best at and the overall global product rises because of increased efficiency. Even in theory this is rather dubious because it ignores every other aspect of society than a narrow view of economic relationships and assumes tacitly that a comparative advantage will last. David Landes in his The Wealth and Poverty of Nations (Little, Brown and Co 1998) cites the instance of the Englishman John Borrow, who in 1840 urged the states of the German Zollverin to concentrate on growing wheat, and sell it to buy British manufactures and comments: “This was a sublime example of economic good sense: but Germany would have been the poorer for it. Today’s comparative advantage…may not be tomorrow’s.”

The truth is that any definition of “free trade” is as subjective as that of a “free market”. It has no natural boundaries because the implications of both ultimately embrace the whole of human material endeavour and there are no true natural variables on which to base a definition – even those which might at first glance appear to be objectively and naturally set, such as wages and prices, are determined by matters other than the market, for example tax regimes and welfare provision.

8. Has “free trade” ever been practised?

Between 1860 and 1914 Britain operated the best approximation to “free-trade” the world has seen. In the period 1840-1870 not only did she by degrees open her markets to all regardless of whether other countries reciprocated, but the size of the British state was so tiny that the distortions of government expenditure and taxation were minuscule compared with the present day. But achieving the best approximation to “free trade” was not difficult to achieve because no other country of any size has ever seriously attempted it for any length of time.

For a quarter or a century or so, Britain got away with the ill-effects of being a reckless “free trader” whilst other major countries remained protectionist to varying degrees. She escaped the consequences for three prime reasons: Britain’s industrial dominance, long distance transport of bulk goods remained cumbersome and expensive and the fact that America and Europe were strangely slow to follow Britain’s example and industrialise.

That all changed in the 1870s. Bulk transport was becoming much easier and cheaper. Railways – ironically more often than not built with British capital and technical expertise – had begun to have a considerable influence on the continent and in America and were beginning to snake across Australia and South America. Perhaps most importantly the age of the practical steamship and refrigeration arrived. Manufactured goods, food and raw materials could now move around the world in volumes which dwarfed anything which had gone before. British farmers were especially badly hit when the Americas and Australasia flooded the British market with food and wool.

To these developments, and arguably in part as a consequence of them, there was a widespread retreat into a deep protectionism in the 1870s, most notably by the USA and Germany. Britain failed to respond to these developments by guarding her own markets.

The period of 1870-1914 saw the predictable results of Britain’s quixotic refusal to guard her markets when all about her were assiduously doing so: she lost her general industrial predominance, well nigh destroyed her farmers and failed to dominate vital new industries, such as the chemical, which at one time she had led – Britain produced the first synthetic dye (Perkin 1856) and the first synthetic plastic (Parkes 1855). Two of the most enthusiastic protectionists, the USA and Germany, became the first to exceed Britain’s GDP.

Bismarck summed up what had happened in a speech in 1882 when he said: “I believe the whole theory of free trade to be wrong…England abolished protection after she had benefited from it to the fullest extent. That country used to have the strongest protective tariffs until it became so powerful under their protection that it could step out of those barriers like a gigantic athlete and challenge the world. Free trade is the weapon of the strongest nation, and England has become the strongest nation in the world owing to her capital, her iron, her coal, and her harbours and owing to her favourable geographical position. Nevertheless, she protected herself against foreign  competition with her exorbitant protective tariffs until her industries  became so powerful.”

But even the “free-trade” Britain practised was far from complete. Government contracts were generally given to British companies. Ditto municipal contracts. Moreover, there was a strong sense of patriotism in the country which, as with the present day Japanese, mitigated the effects of free-trade. Nor, of course, was there a WTO, EU or any other body to question and interfere with the internal economic workings of Britain such as taxation, interest rates or working conditions.

British “free trade” was further complicated by the existence of the Empire and a widespread imperial sentiment which created the opportunity and the desire to trade with members of the Empire rather than the rest of the world. It does not do to over-egg the effects of this because British trade with the world outside the Empire, especially the USA, always remained strong, but it undoubtedly significantly distorted British trade.

9. “Free trade” today

If “free trade” was a gigantic gamble for an industrially, commercially and politically dominant Britain in 1850, it is vastly riskier for any country now. Transport even after the arrival of railways and the steamship was still expensive, slow and cumbersome compared with now. The electric telegraph was the height of sophistication. Most parts of the world could not engage in international trade on their own terms because they were colonies, under the practical control of foreign powers or unindustrialised.

Today physical transport is fast and cheap. In place of the telegraph, we have the internet. Many countries have industrialised. The age of formal empires is over.

But there is more than political and technological change which makes a difference between our own time and the last outbreak of “free trade” mania. The “free trade” being advocated now is doctrinaire to the point of idiocy, namely the god of comparative advantage (the idea that each nation should concentrate on those products which are most profitable and forget the rest) is to be applied to everything, even (in the EU) to all public contracts, including those for weaponry. Childishly doctrinaire as they were as they played with their untried intellectual toy, even the most extreme “free traders” in the 1830s and 1840s saw that some parts of the economy could not be reasonably opened to competition for strategic reasons, military supplies being the prime case.

Let us suppose that we had a perfect “free trade” world now, a world in which there were no tariffs or quotas or embargoes or “standards” to meet; that all the artificial restraints on trade were removed; that no government subsidized productive employment in any way and all that remained to differentiate countries were market decided labour rates, carriage costs and the cost of nonproductive public works such as justice and the army. What then?

The consequences would be extremely dangerous for the West. Farmers in the First World would be on their knees and mass production of virtually anything in general demand would quickly become impossible because whatever a company’s efficiency, it simply would not be able to compete with labour which was a tenth or less of the cost of its own native workforce. All such countries could do is try to make high-value goods,

Even if the redundant working populations of the First World could find alternative employment, which is dubious, their countries would be left utterly at the mercy of those who now produced their food and most of the manufactured goods they consumed.

10. Does “free trade” deliver? The lessons of economic history

Free traders base their case primarily on the increase in prosperity which they believe will only come through increased global trade. The general answer to that claim is that Man does not live by bread alone. Moreover, even if there is a general rise in the global product at present, it does not necessarily follow that the same or better result could not be achieved by other means. The experience of all industrialised countries to date is that industrialisation is best achieved – perhaps can only be achieved by protecting the national economy. Indeed, there is a powerful logic in the idea that developing nations today require protection more than the early industrialising states because the early industrialising nations had little competition.

But even if it could be shown indubitably that the global product is increased more by “free trade” than by protection, it does not follow that it is in a particular country’s interest to adopt free trade. Consider the position in a national market which operates “free trade” within that market, but protects its trade and industry from foreign competition. Companies go bust if they do not compete. But successful companies take their place and continue to provide employment at broadly similar rates of pay. The logic of global “free trade” is that countries which cannot compete will go bust and not be replaced by others in the domestic market. There will be no replacement jobs within the bankrupt country because the successful competitor is abroad.

The most lethal ammunition to discharge at “free traders” is the fact that no country in the history of the world has industrialised successfully without very strong protectionist measures being in place. That includes the first industrial nation, Britain, which spent a couple of cosy centuries behind the Navigation Acts, the first of which was passed in 1651, before becoming a free trader. Not only that, but Britain only adopted “free trade” principles after she had become heavily industrialised and did so at a time when the country was still the dominant industrial power in the world by a long chalk and her exports were more or less guaranteed to sell in foreign markets.

Before Britain dropped her old colonial protectionist system in the mid 19th Century, she had industrialised in the modern sense from scratch and expanded her GDP massively. Perhaps most impressively she had managed to continue to largely feed herself without the price of corn going sky high, despite the fact that the UK population almost doubled between 1801 (the first Census) and the repeal of the Corn Laws in 1846.

As described above, Britain’s experience during her most committed “free trading” period was one of declining market share and commercial and industrial dominance while rigid protectionists such as Germany and the USA experienced massive growth. Of course, Britain could not hope to remain so dominant but her decline was remarkably rapid. In 1870 Britain was the richest country by GDP in the world: by 1914 both Germany and the USA had larger GDPs. Moreover, by religiously adopting open markets, for capital as well as goods and services, Britain seriously distorted her economy. Vast capital exports resulted in underinvestment in Britain and foreigners manufacturers and traders took full advantage of Britain’s open doors. The result was that by the Great War in 1914 her farmers were on their knees and modern industries such as the chemical and pharmaceutical were sadly undeveloped because of foreign competition (this distortion of the economy was soon to be a great national embarrassment during wartime when many industries were found to be inadequate to replace imported goods).

Here is a German voice from 1913: “By its free trade policy England has been more useful to us than its numerous political machinations have been harmful to us. Where would our sugar industry – one of the first items to help us in our economical rise – have been today, or our textile and iron industries, had it not been for the free markets of England? Nowhere: we should have been entirely without our new German capital, our financial resources. On the back of free trade England we grasped at and secured our economical world-power….Industrial and political supremacy go together. Warships are machines, and the nation which succeeds in attracting the centre of capital is the nation that can afford to build most. The present rulers of England represent the fourth generation of dictators to the world. It will not be easy for them to give up the role of ‘primus inter pares'”. (Prof von Schulze-Gaevernitz quoted – p347 -in The fall of protection 1840-50 by Bernard Holland)

Britain limped on with “free trade” after the Great War until 1931 when the secular religion was abjured, at least temporarily, during the Great Depression. Although unemployment remained high by historical British standards until WW2, the British economy behind protectionist barriers recovered quickly compared with most of the rest of the world. Most interestingly, the newer high-tec industries such as the motor, chemical and electrical recovered and grew fastest following their protection.

From 1945 to the mid eighties of the last century at least, Britain continued in an essentially protectionist system, as did the rest of the world. The world economy grew strongly during the period despite the protection. Even within the EU the “free market” mania did not really get under way until the Single European Act of 1985.

It is true that since protectionist barriers have come down over the past 20 years economic growth has been strong in the First World, but then it has been strong behind protectionist barriers and, indeed, with state direction of the domestic market. Germany under Hitler in the 1930s recovered amazingly quickly, despite the fact that the Nazis pursued an economic course which was probably as close to autarky as it is possible for a major modern state to bear. Imports and exports were regulated according to what was perceived to be necessary to make Germany strong through self-sufficiency. What Hitler did not do was attempt to run industry directly. Instead, the Nazis allowed private enterprise to run commerce and industry whilst directing what was produced and supplied.

All that tells us three things: that “free trade” is not necessary for rapid economic growth, that state regulation of the domestic market and international trade is not a recipe for disaster and that being a “free trader” when the rest of the world is not reciprocating is a mug’s game.

11. Is society materially enriched by “free markets” and “free trade?

This is an impossible question to answer categorically because there is no way knowing what would have happened if protectionism had remained full blooded throughout the last century and a half. One can compare growth rates under stronger or looser protection regimes, but they really say little because the other determining factors such as public expenditure have varied so greatly. These variables also blur judgement about the comparative merits of controlled and “free” domestic markets.

The most certain thing one can say from the economic experience of the developed world is that governments running commercial industries such as coal and steel directly is generally a mistake. (Governments are the natural suppliers of universal services such as healthcare only because private provision of such things is never adequate.)

What is certain is the fact that the material effects of “free trade” are far from uniform. It is no consolation to those who suffer along the way that others may benefit from their disadvantage. The next generation or the generation after that may be richer but why should their benefit be brought at the cost of disadvantaging a prior generation? Certainly no politician or political party standing at an election would dare to do so on a platform of “we shall make many of you poorer to make future generations richer.” Those living at any point in time have their own moral context and needs.

The constant economic turmoil caused by “free trade” and its inevitable concomitant, the supranational corporation, undeniably leads to  circumstances which greatly disadvantage large swathes of the population in the First World through the removal of First World jobs to the rest of the world. At worst, these people become the perpetual victims of structural unemployment (try getting a job in an area where the main employer closes and you have no scarce or easily transferable skills or you are middle-aged or, indeed, try opening a new business or becoming self-employed in a depressed economy): at best they are driven into ill-paid and uncertain employment.

 12. What is meant by material enrichment? Britain as a case study

The assumption is that the material conditions for most have improved considerably over the past two hundred years. Any economics textbook will plot economic improvement in terms of rising real wages. But those supposedly rising real wages are based on measures which are often questionable, incomplete or derived from very narrow data such as corn prices. Even modern measures such as the Retail Price Index (RPI) are not static, their content and weighting being regularly revised. Nor do such measures fully represent the true costs of necessities, the most notable distortion in Britain being the failure of the Retail Price Index (and its successor index the Consumer Price Index) to reflect housing costs fully. Any comparison between different times based on such measures needs to be treated with caution.

Of course no one in their right sense would question whether there has been massive material advance in the past two centuries. A more  interesting question in our context is whether most people are materially better off now than they were in 1960s, by which time a fully fledged welfare state was bedded in, housing, both owned and rented, was reasonably priced, social housing was being built in massive quantities, university education was not merely free but students subsidized with grants, unemployment was tiny and inflation low.

Today the welfare state is constantly under attack by the British political elite and in some areas such as NHS dentistry already seriously inadequate, while the state pension is much reduced as a fraction of the average wage following two decades of increases linked to the cost-of-living pegging rather than increases linked to the average national wage.

Housing of all sorts in most parts of the country is presently absurdly costly and social housing is greatly reduced through Right-To-Buy and minimal new building since the 1980s.

The cost of university education is rocketing and grants are a distant memory.

Unemployment remains high today (2005) even by the official figures –  approximately 950,000 by the claimant count and around 1.5 million by  the most widely used international measure – figures which most  probably severely understate the real unemployment level because it ignores the considerable disguised unemployment within the 2 to 3  million people currently on long term sick benefit payments (the 1980  figure for such people was 600,000). The increase in those staying on at school after the age of 16 and going on to university has also reduced the present figures by taking hundreds of thousands out of the jobs  market for years. From 1945 to the late seventies unemployment never rose above a million on the official claimant count and for most of the time was considerably lower even with little disguised unemployment and far fewer people staying in education after the school-leaving age (which was only 15 until the mid sixties).

There are other fundamental social changes which bear upon the material state of the nation. Many more people today have to travel long distances to work than they did forty or fifty years ago. That is costly both in terms of fares and time. More generally, it is increasingly difficult for someone on the average wage to support a family on that wage. That often means both parents have to work not from choice but necessity.

Taxation bears much more heavily on the poorer part of the population now than it did in the past. Direct taxation – income tax, national insurance, inheritance duty – applies to many more people now than it did in 1960, primarily because a failure to maintain personal allowances and tax bands at a reasonable level. Direct taxation is also broader in scope, for example VAT compared to purchase tax. Such taxation takes proportionately more of the income of the poor than the rich.

It is a moot point whether overall people are generally materially better off than they in 1960. They may own more trinkets such as TVs and computers and some imported goods such as clothes may be at least much cheaper, but those are small advantages to set against the great increase in housing costs and commuting fares and the diminishment in social provision. Doubtless a section of society has benefited, but it would be a brave man who wanted to argue that the condition of the vast  majority has improved, especially the poorest third of the population.

Many will read this with astonishment, saying but we have so much more today, dazzled as they are by the many new products. It is important not to confuse technological advance with “free markets” and “free trade” or general material wellbeing. People are undoubtedly better off in 2005 in terms of being able to purchase such things as cars or electronic goods then they were in 1960. But people in 1975 were also better off in those respects than those who had lived fifteen years before. That improvement was long before “free markets” and “free trade” had become the elite ideology. It is worth adding that new products often result in additional expenditure regardless of whether the individual really wants the product – any product which becomes widely used is difficult to resist. Technological innovations are particularly prone to induce reluctant purchases.

13. How the market fails to provide what the customer wants

There is no better modern example of the market failing to provide what the customer both needs and wants than the computer industry. If it was driven by the customer, the computer industry would produce hardware and software which was easy to install, had continuity of use, was simple to use and was supported by adequate help lines and manuals. The industry signally fails to do any of these things.

Hardware and software are of course purchased in ever greater volume and computer services, including maintenance, continue to swell. But that is not an indication of customer satisfaction. Rather, it is simply a reflection of how computers have become an inescapable part of our lives, not only as obvious computers but also in the guise of so many of the other machines we use – everything from phones to intelligent clothes. Business and public administration have become so dependent on their use that they cannot do without them. That being so, whatever is on offer, however unsatisfactory, is bought out of sheer necessity. The computer companies have the modern world over a barrel.

It might be objected that although most people cannot completely escape computers at their work, they do not have to bring them into their private lives. Yet increasing numbers buy computers for private use.

Why do they do that if the machines are so unreliable and demanding? Simple: once a significant minority have private computers and business uses them very widely, it becomes very difficult for the rest to resist,  not least because businesses and government increasingly require those dealing with them to do so by computer. But there are other pressures as well.

We have long passed the point where a handwritten document is likely to be read by most people in business unless it is an order or payment. Now, except between social contacts, everything must be word-processed to be acceptable. A word processor or access to one has become a sine qua non for anyone who wishes to be taken seriously. Even amongst private individuals a letter is increasingly seen as unusual or even quaint.

With emails, we have not come to the stage that telephone ownership reached a quarter of a century ago when not to have a phone became considered eccentric, but we are rapidly moving towards it.

Employers increasingly wish to contact employees by email wherever they are and this means the choice is often between having a computer and email at home or not having a job.

Those with school age children, whatever they think of computers, find it next to impossible to deny their children not only a computer but access to the internet, both because the children want it to match their peers and because they have been brainwashed into believing that a computer is essential.

In short, people are increasingly being driven to become computer owners and users not because they actively want to, but because they feel isolated and excluded if they remain computerless. Again, as with the analogy between telephones and emails, within the foreseeable future, someone without a computer is in danger of becoming in the eyes of the majority as much as an oddity as someone without a TV is now considered.

14. Relative poverty, wealth and power

Even if most people or even all people were in absolute terms better off as a consequence “free trade”, that does not mean that their general situation has improved in power terms.

Wealth is not merely an advantage for what it can directly buy but also for the power it brings. The poor are doubly disadvantaged by their poverty by their restricted ability to purchase what they want and their subordination to those who can purchase anything they desire. Consequently, the ordinary man or woman may well be happier and freer in a society which is materially poorer overall but which is less oppressive through the absence of great differences in wealth. Charles Darwin in the Voyage of the Beagle describes a port in South America which suffered an earthquake while the Beagle was there in harbour. The town attached to the port was virtually destroyed and its inhabitants were reduced at least temporarily to the same material level. Darwin noted the happiness, almost gaiety, of the population after this happened.

The example of Britain is instructive when it comes to relative wealth. Until the 1970s inequalities in wealth were narrowing. Despite all the puffing of the “trickle down” of wealth which supposedly results from Thatcherite “free market” practices, wealth distribution has not changed dramatically over the past quarter century of “free market” policies by successive British governments.

A Royal Commission (1976-79) on the distribution of income and wealth found that in 1976 the top 1 per cent of the population owned 25% of all personal wealth, the top ten percent raked in 60% and the bottom eighty per cent had a measly 23% (Penguin Dictionary of Sociology p72). The Inland Revenue figures for wealth distribution in 2002 are show the top 1 per cent own 23% of national wealth and the bottom fifty per cent of the population have a staggeringly small 6% (Office of National Statistics (ONS) website – published 2004). Those figures, eye-opening as they are, conceal the fact that wealth inequality in 2002 would be much greater than 1976 were it not for the increase in home ownership and the rise in house prices.

Another ONS report (2005) entitled “The long shadow of childhood” (TLSOC) based on research by the London School of Economics concludes that there has been remarkably little change in social mobility in Britain over the past 30 years. The study was based on census records between 1971 and 2001.

TLSOC also demonstrated how the social and economic status of children is very much tied to that of the parents. For example, more than two thirds of those with parents in professional or managerial jobs managed to take a degree: of those with semi-skilled/unskilled parents, 14 per cent had a degree.

15. Man does not live by bread alone

Even if the “free traders'” claims of an overall increase in the wealth of a society were true, there would still be strong arguments against the policy because a society is more than its crude economic relationships.

Human beings do not like too much uncertainty. A certain amount of stress is good for them, but only so much. Like masochists and physical pain, human beings are comfortable with stress only in so far as they feel it is within their control. Manifestly, for many people the uncertainty they experience is utterly outside their control. This widespread insecurity leads not merely to individual suffering but damages the social fabric by generally diminishing confidence in the future and the ability to cope in the here and now.

A 2005 study (Molly Watson Western Mail 31 9 2005) by a Cardiff University Department of Psychology team led by Prof Aylward Mansel suggests that the general level of happiness in the Depression was greater than it is now (the team analysed data from surveys of assessing happiness and contentment from the past 70 years.) This conclusion might seem absurd to most people living today who, if they have any conception of the Depression, it is one of a dire time packed with the most horrendous stress. Yet the findings of the report have a certain plausibility because in the 1930s there was undoubtedly a greater sense of social solidarity, especially amongst the working class, than there is now and civil society was far stronger then – the working class not only lived in close-knit communities which offered support to those who fell on hard times, but they were woven into supportive institutions such as the co-operative movement and unions. They were anything but socially isolated whereas today people are often isolated. Social involvement, the Cardiff University study found, was the single most important cause of happiness or unhappiness.

One must be cautious with such studies because however scrupulous the researchers a degree of subjectivity is inevitable. Nonetheless the equation of isolation with unhappiness will, I think, strike a strong chord with most.

There is also the question of a people’s self-confidence. If a nation’s visible and everyday manufactures are predominantly foreign, it tends to produce a sense of dependence in the individual. A man looks around and can find next to nothing he can identify as produced either in his own country or made by companies owned by his countrymen. Not unnaturally he begins to lose confidence in the ability of his own country to stand alone. Peoples throughout history have allowed themselves to be conquered simply because they believed themselves to be generally inferior to those who confronted them and slaves have been routinely controlled by owners who deliberately attempted to reinforce their sense of inferiority.

16. Geopolitics

Free trade is postulated on an absurdity, namely that the world will no longer see wars which will significantly disrupt trade, or at least the trade of the First World. It is a fool’s paradise.

Those with memories greater than that of a goldfish may recall the help and support Britain received from her supposed EU “partners” in the Falklands. Remember how France supplied military equipment in the form of missiles to the Argentine during that war. Imagine what would have happened if Britain at the time had relied largely on equipment which was either wholly or partly produced abroad. Suppose, for example, her main fighter aircraft had been produced by an EU consortium (as it soon will be), what guarantee could Britain have had of fresh supplies of spare parts and weapons during the Falklands war?

The dependence on foreign suppliers affects even the greatest states. The New York Times (29 Sept 2005 – “More US weapons have foreign roots”) documents the reliance of the US military on foreign suppliers. This is still small as a percentage of the whole defence budget but it is growing and already encompasses important areas such as bio-chemical warfare protective suits.

17. The democratic deficit

“Free trade” emasculates democracy. It does this by confining politics within narrow limits. The present “free trade” agreements mean that no political party can easily stand on a platform of extending state intervention, whether by nationalisation, trade restrictions such as embargoes or the subsidy of its own industries. A party which wished to do any of these things could of course propose to withdraw from the treaties, but that would be in practice a very difficult course to follow, especially where the treaty obligations go beyond mere trade such as those involved in membership of the European Union.

Loss of democratic control is obviously to the disadvantage of the masses. However, it also has implications for competition. The prevention of the formation of monopolies and cartels can be done at the national level, but it is impossible when companies become supranational. You offend against America’s anti-trust laws? No problem, you remove your manufacturing abroad to countries which are happy to have you (or at least their clients are) regardless of what arrangements you may have made with competitors or the any monopoly position.

18. Does “free trade” increase competition and choice in the long run?

In the industrialised world at least, the experience of less restricted trade since 1945 is that competition has reduced not merely in the capital intensive industries and occupations but in those which are not obvious. The numbers of farmers has greatly contracted, but so have the number of storekeepers as chain stores and supermarkets have overwhelmed the individual proprietor. In fact, it is difficult, perhaps impossible, to find a mature field of economic activity, that is ,  one which has not sprung up since 1945, which has not displayed reduced competition within the post-war period.

Some of this reduction in competition is simply due to the working of the domestic market towards monopoly, for example, the growth of chain stores, but much of it is directly related to the removal of protection for First World economies.

It is true that large parts of the world have industrialised and increased the number of international competitors, but the overall number of businesses in the developed world has been reduced. multinationals control much of the economic activity of the Third World and, in some industries, dominate the national markets of the First World.

The car industry is a wonderful example of the squeezing of competition. All over the world car companies are being taken over by the giants and many car companies which do exist rely on state aid and favours. The number of companies now being small (and becoming smaller) compared with the number even 40 years ago. Moreover, many of the car companies which do still exist do so only because of state subsidy and protection.

Other traditionally important industries where competition is greatly reduced are aerospace, aviation, shipbuilding, oil, chemicals, steel and farming.

19. The reality of our economic circumstances

What we have does not even fall within the arbitrary and narrow definitions of “free markets” and “free trade” which most of their adherents espouse. States still protect their economies with state subsidies, favourable tax regimes, quotas and tariffs. Nonetheless, protectionist barriers have been reduced sufficiently to severely damage first world industries through products from the developing world with their absence of labour laws and wages many times less than those of developed economies.

First World economies have also exported vast numbers of jobs to the developing world. These range from manufacturing to skilled white collar work such many IT functions. The old middle-class belief that they were immune from the effects of globalisation has received a rude buffeting.

At the same time as jobs and industries have been exported, the industrialised world has increasingly allowed the purchase of native companies by foreigners. Perhaps the most dramatic example of this has been the complete transfer of London merchant banks to foreign ownership.

The fourth strand in the modern “free trade” web is immigration. Since 1945, with the exception of Japan, the First World has allowed through a mixture of design and neglect of border controls, vast numbers of immigrants into their territories, most of whom have been unskilled or low-skilled.

The primary consequences of the slowly evolving post war international economic regime have been two. The first has been the gradual growth of dependence on the imports of vital goods and services by the developed world and a loss of governmental control of companies within their borders, not least because any large multi-national can hold the threat of upping sticks to another country if a government does not play ball.

The second consequence has been the degradation of the economic circumstances of those whose jobs were most at threat from the internationalisation of trade. Those affected are mainly the poorer and less qualified workers and their dependents. They have found their opportunities for work much reduced and the pay and conditions for the suitable work which remains eroded by extra competition from both native workers chasing fewer jobs and immigrants competing for the same jobs.

Those whose jobs opportunities have been degraded have suffered a form of theft. Had mass immigration and the export of jobs been prevented, the wages for the jobs taken by immigrants would have been higher than they are when subjected to the additional competition of immigrant labour and the exported jobs would not have been exported, which in itself would have tightened the labour market. In societies of rising aspiration, this could result in jobs considered menial being better rewarded than those which enjoy high status under “free trade” circumstances. It might be necessary to pay a sewage worker as much as a doctor. Doubtless many would throw their hands up at this. But there is no logic to such a response, because in a society with a large private enterprise component a wage is simply a response to the value the market puts on a job. Unskilled workers may not earn as much as the average doctor or lawyer at present, but skilled tradesmen such as plumbers and builders often do.

20. Why elites are so keen on “free markets” and “free trade”

“I just think that a lot of modern corporate capitalists — the managerial class basically — has no loyalty to any country anymore, or any particular values other than the bottom line.” (Pat Buchanan quoted by Daniel Brandt in his article “Class Warfare” in issue 13 of Namebase Newsline -http//www.namebase.org/news13.html).

Buchanan is grasping a demon which he only dimly apprehends. What is happening is vastly more significant. We are presently witnessing the creation of an international class of plutocrats who care for nothing but their own class. They have the potential to form a true international aristocracy. If that happens, the imperfect democratic control the masses have been able to exert over their elites in the past century will end. The prime tool for the creation of such an international aristocracy is “free trade”.

There are parts of Western elites which are more or less reluctant to embrace “free markets” and “free trade”, but the general economic trend is clear: the internationalist, globalist creed is the dominant philosophy when it comes to trade and increasingly the idea of “free markets” in the domestic sphere is being accepted in practice if not in overt political policy.

Why have these elites moved from their previous socially oriented nationalism to internationalism? The answer to this question reveals the nature both of elites generally and the particular philosophy they currently support.

In most circumstances throughout history the wishes of the mass of a population have been of little or no account in any formal sense. The masses made their presence felt through rioting and social disturbance or as pawns in the service of elite members who wished to rebel. An elite took note only when they were frightened enough – the creation of a form of national public assistance by the Poor Law of 1601 is a classic example of such behaviour.

Eventually, representative government evolved to the point where the masses began to have a direct say in the political process through the vote. The elite as a group did not welcome this but felt it could not be resisted. It was not democracy to be sure but elective oligarchy, which was buttressed by elite constructed devices to exclude new entrants into the political process such as first past the post voting, election deposits and a very strong party system. Nonetheless, once the franchise was broadened the masses were able to exercise a large degree of democratic control because politics was still national and a political party had to respond to the electors’ wishes. The elite resented this control over their behaviour as all elites do and looked around for a way to diminish democratic influence. They found the means to do it through internationalism.

In a sovereign country elected politicians cannot readily say this or that cannot be done if it is practical to do whatever it is. That is a considerable block on elite misbehaviour. So elites decided that the way round this unfortunate fact was to commit to treaties which would remove the opportunity for the electorate to exercise control. The most notable example is the Treaty of Rome and the subsequent treaties which have tied Britain into the EU.

Vast swathes of policy are no longer within the control of the British Parliament because of these treaties. Add in the treaties tying Britain to the UN and the WTO and the commitment of every mainstream British party to them, and democratic control has essentially gone.

But internationalism is not simply a bureaucratic elite device to weaken democratic control, it is a sociological event in itself. An elite thinks of itself as a separate group, a group which may in some circumstances extend beyond national boundaries and jurisdictions. The medieval aristocracies of Western Europe thought themselves part of a chivalric whole. When Charles I of Egland was executed in 1649 the monarchs of Europe were horrified because they thought it would set an example for other royal killings.

The ruling elites in the First World today have a class interest which binds them more closely to one another than to the people they rule. Indeed, there is arguably a greater sense of international elite solidarity than ever before. This is because modern communications allow people, goods and ideas to move with an unmatched ease. Because of this the international class can constantly revitalise and extend their group solidarity.

The advantage to the elites of this culturally based international solidarity underwritten by many personal elite relationships across national boundaries, is that it allows them to weaken even further their dependence upon their immediate (native) populations, because not only does a particular national elite have a ready made excuse for not doing something – our treaty obligations will not permit it – but the personal relationships and the growing sense of class solidarity increases the confidence and hence the willingness of the various national elites to act ever more in the international elite class interest.

Indeed, the more they are together and the more they act together, the more natural it will seem.

It is important to understand that elites are not engaged as a group in a conscious conspiracy against the masses. What happens is that the psychological and sociological forces which press upon us all lead the elite to adopt policies which always lead to their retention of power. It is not difficult to see how this happens.

All human beings have a powerful ability to write a narrative in their heads which will persuade them that they act not from self-serving or disreputable reasons but honourable and socially useful ones. The consequence of this is that while individual members of an elite will consciously comprehend the likely effect of their ideology, the majority will simply accept their ideology at face value. This helps to bolster and stabilise the elite’s position because no elite ideology ever overtly states that the masses will be disadvantaged if the ideology is followed, and in the case of formal democracies, the ideology positively claims to materially better society as a whole. This will emotionally reassure most elite members, who will bolster their acceptance of the ideology through inter-elite conversations – if most or all those in a group are positive about something, that is most powerful social reinforcer.

21. A sane alternative to globalism

Economic history suggests that the most effective general strategy to promote economic development in a country is to allow competition within the domestic market (where it does not create serious social discord) whilst regulating international trade through protectionist measures sufficient to maintain the general capacity of a country to point where it can maintain itself in an emergency such as war or blockade and be sovereign in most circumstances.This would require the judicious use of embargoes, tariffs and quotas to ensure that all the vital industries remain as a presence in Britain.

A few industries should be in principle wholly supplied from the British market. These are defence equipment and the various energy sources. The reasons for defence equipment provision being domestic are simple: any foreign supplier can cease to supply goods for political reasons or simply be unable to produce the goods when wanted at all or in sufficient quantities.

Energy supplies should be domestic because if they fail the whole of society is brought to a halt. Self-sufficiency in energy in any advanced country could be achieved in the medium term by nuclear power supplemented perhaps by new sources of energy such as wave and current power and bio-fuels.

A country should also build up a stockpile of essential materials such as metals and the minerals used in the chemical industry. Five years national supply should be a minimum.

A country should be able to feed its population from its own production at a pinch. In Britain this is possible with modern crop yields and animal husbandry. Crop yields are considerably greater than they were even in WW2 and the opportunities for increasing the volume of animal products have multiplied greatly over the past 60 years, for example, in the massive development of poultry farming since 1945.

75% of the market in every other vital industry should be reserved for the domestic market. What is a “vital industry”? Try these for starters: metal (especially steel), chemical, biotech, computers, robotics, motor vehicles, shipping, aerospace, clothing, building, machine tools.

I would also reserve to domestic production at least 25% of the market for goods that are useful but not vital to provide a base for an expanded home production in times of emergency. Trade in wholeheartedly nonessential goods – Christmas trees, pogo sticks and suchlike – could be “free”.

I am not arguing for autarky. What I am advocating are trading circumstances which allow a nation to defend its national interests, particularly in time of war or international crisis. The measures I propose would produce self-sufficiency in food where necessary, the maintenance of the ability to manufacture a complete range industrial goods and most importantly the maintenance of an arms industry which can produce a full range of weapons necessary for the defence of the country.

Such a system would provide the security the state requires and permit very substantial international trade even in essential goods.

Obviously such a regime could not be followed in its entirety by most states. However, all could exist within those parts of it suited to their circumstances, for example, Britain could manage the entire regime, many third world countries could be self-sufficient in food.

22. “Free markets” and “free trade” as a religion

Free marketeers fancy themselves to be rational, calculating beasts. In reality, their adoration of the market is essentially religious. They believe that it will solve all economic ills, if not immediately, then in the medium to long term. Armed with this supposed objective truth, they proselytize about the moral evils and inefficiencies of public service and the wondrous efficiency and ethical outcomes of private enterprise regardless of the practical effects of their policies or the frequent misbehaviour of those in command of large private companies. Their approach is essentially that of the religious believer.

Like the majority of religious believers, “free marketeers and traders” are none too certain of the theology of their religion. (I am always struck by how many of them lack a grasp of even basic economic theory and are almost invariably wholly ignorant of economic history). They recite their economic catechism sublime in the concrete of their ignorance.

The religion has its roots in the first half of the 18th century when there were occasional attempts to suggest tariff reform, but the idea only became a serious political policy in the 1780s with the advent of Pitt the Younger as Prime Minister in 1784 who long toyed with “economical reform”.

The 18th century also provided the religion with its holy book, The Wealth of Nations by the Scottish philosopher and economist Adam Smith. This strongly argued for “free markets” and “free trade”, but Smith also recognised the demands of national security, the need for government to engage in social provision such as road building and maintenance which would not otherwise be done and, must importantly, the nature of a society and its economy. Here is Smith on the Navigation Acts: “…the Act of Navigation by diminishing the number of buyers; and we are thus likely not only to buy foreign goods dearer, but to sell our own cheaper, than if there were a more perfect freedom of trade. As defence, however, is of much more importance than opulence, the Act of Navigation is, perhaps, the wisestof all the commercial regulations of England.” (Wealth of Nations Bk IV. ch ii)

But Smith and his book suffered the fate of all those who found religions, secular or otherwise. As the decades passed Smith’s cautious approach was redrawn in the minds of his disciples to become a surgically “clean” mechanical ideology in which all that mattered was the pursuit of profit and the growth of trade and industry through the application of the “holy edicts” of open markets and comparative dvantage. The disciples, like other religious believers, avidly quoted the passages from their holy book which suited their purposes and ignored those which did not. They also found a further holy text in homas Malthus’ Essay on Population of 1802, whose predictions, although unproven by events, could be used to demonstrate that economic expansion was vital if widespread starvation was not to occur.

The clinical, soulless and inhuman nature of the laissez faire idea as it evolved is exemplified by the English economist David Ricardo. Here is a flavour of his mindset: “Under a system of perfectly free commerce each country naturally devotes its capital and labour to such employments as are most beneficial to both. The pursuit of individual advantage is admirably connected with the universal good of the whole. By stimulating industry, and by using most efficaciously the peculiar powers bestowed by nature, it distributes labour most economically, while increasing the general mass of the production it diffuses general benefits, and binds together by one common tie of interest and intercourse the universal society of nations”. (David Ricardo in The fall of protection p 174).

The Napoleonic wars largely foiled Pitt’s wish for broad reform and placed “free trade” in suspended animation as a serious political idea until the 1820s, when cautious attempts at tariff reform again were made. But underneath the political elite was a radical class who were very much enamoured of wholesale economical reform. With the Great Reform Act of 1832 they were given their opportunity to become part of the political elite. They took it with both hands, their most notable and extreme proponents being John Bright and Richard Cobden backed by the intellectual power of David Ricardo – all three became MPs.

Within a dozen years of the first election under the Great Reform Act’s passing, Parliament had been captured by the disciples of Adam Smith and the pass on protection had been sold by of all people a Tory prime minister, Sir Robert Peel, an action which kept the Tories from power for most of the next 40 years.

Such was their religious credulity that the “free traders” advocated not merely opening up Britain’s markets, both at home and in the colonies, to nations who would allow Britain equivalent access to their markets, they advocated opening up Britain’s markets regardless of how other nations acted. The consequence was, as we have seen, disastrous for Britain.

Disraeli in a speech on 1st February 1849 cruelly dissected this insanity:” There are some who say that foreigners will not give us their production for nothing, and that therefore we have no occasion to concern ourselves as to the means and modes of repayment. There is no doubt that foreigners will not give us their goods without exchange for them; but the question is what are the terms of exchange most beneficial for us to adopt. You may glut markets, but the only effect of your attempt to struggle against the hostile tariffs by opening your ports is that you exchange more of your own labour each year for a less quantity of foreign labour, that you render British labour less efficient, that you degrade British labour, diminish profits, and, therefor, must lower wages; while philosophical enquirers have shown that you will finally effect a change in the distribution of the precious metals that must be pernicious and may be fatal to this country. It is for these reasons that all practical men are impressed with a conviction that you should adopt reciprocity as the principle of your tariff – not merely from practical experience, but as an abstract truth. This was the principle of the commercial negations at Utrecht – which were followed by Mr Pitt in his commercial negotiations at Paris – and which were wisely adopted and applied by the Cabinet of Lord Liverpool, but which were deserted flagrantly and unwisely in 1846″. (The fall of Protection pp 337/8″).

Ironically, the “free traders” make the same general errors as Marxists. They believe that everything stems from economics. For the neo-liberal the market has the same pseudo-mystical significance that the dialectic has for the Mar ist. Just as the Marxist sees the dialectic working inexorably through history to an eventual state of communism (or a reversion to barbarism to be exact), so the neo-liberal believes that the market will solve any economic problem and most social ills. Neither ideology works because it ignores the realityof human nature and its sociological realisation.

The one track economic mentality of the early “free traders” is well represented by the father of J S Mill, James Mill:”The benefit which is derived from exchanging one commodity for another arises from the ncommodity received rather than the from the commodity given. When one country exchanges, or in other words, traffics with another, the whole of its advantage consists of the in the commodities imported. It benefits by the importation and by nothing else. A protecting duty which, if it acts at all, limits imports, must limit exports likewise, checking and restraining national industry, thus diminishing national wealth.” (The fall of protection p 174). And to Hell with any social or strategic consideration or changing economic circumstances.

After the Great War and the fall of “free trade” as public policy in 1931, the religion went underground for nearly fifty years. When it re-emerged as a political idea in the 1970s the politicians who fell under its spell were every bit as unquestioning and credulous as those of the 1840s. Tony Blair’ statement on Globalisation, ie, free trade, at the 2005 Labour Party Conference shows that it is alive and kicking today.

Scorning any attempt to discuss Globalisation, Blair said of those who wished to oppose it “You might as well debate whether autumn should follow summer”. (Daily Telegraph 1 10 2005.)

None of this would matter very much now if those who believe in “free markets” and “free trade” were without political power. Unfortunately, theirs is the elite ideology of the moment and the past 25 years. In Britain, the Tories may be more fanatical in their devotion to the market as panacea, but Blairite Labour have caught more than a mild dose of the disease. A good example of this is their response to house price hyperinflation where they desperately and futilely attempt remedies within the constraints of what they perceive to be “free market” disciplines rather than opting for the obvious state generated remedies such as restricting immigration, building a great deal of social housing and forcing developers to release land for building.

Both the traditional Left and Right have been duped by globalisation. The Left initially welcomed globalisation as a dissolver of national sovereignty, but they are discovering by the day just how restrictive international treaties and membership of supra national groups can be. As things stand, through our membership of the EU and the World Trade Organisation treaties, no British government could introduce new socialist measures because they cannot nationalise companies, protect their own commerce and industry or even ensure that taxpayers’ money is spent in Britain with British firms. A British government can have any economic system they like provided it is largely free trade, free enterprise.

The Right are suffering the same sickness with different symptoms. They find that they are no longer masters in their own house and cannot meaningfully appeal to traditional national interests because treaties make that impossible.

But there is a significant difference between the position of the two sides. The traditional Right have simply been usurped by neo-Liberals in blue clothes: the traditional Left have been betrayed by a confusion in their ideology which has allowed their main political vehicles to be surreptitiously by the likes of Blair.

The left have historically objected to “free-trade” on the grounds that it destroys jobs and reduces wages. But what they (and especially the British Left) have rarely if ever done is walk upon the other two necessary planks in the anti-“free trade” platform: the maintenance of (1) national sovereignty and (2) a sense of national cohesion. The consequence is that the Left has been and are still struggling with two competing and mutually exclusive ends: internationalism and the material improvement of the mass of the people.

23. An elite ideology

The best way of judging any political ideology is to ask cui bono? (who benefits?) The obvious answer in the case of “free markets” and “free trade” are those who believe (with good reason) that they nor their dependants will never be amongst those who will suffer the ill-effects of free trade. These people are and will continue to be overwhelmingly drawn from the middle and upper classes for the same reasons that such classes have always maintained their superiority, namely that such people will have inherited wealth, social connections and superior opportunities for education which are denied to the majority.

The new international elite is neither left nor right. Its ideology is simply designed to promote the interests of the elite. It has aspects of right and left, but they are merely the policies which allow the elite to both disguise their true intention and to give a pseudo-moral camouflage to their ends. They speak of the internationalist equivalent of “motherhood and apple pie” with exhortations to “end world poverty” and fund a “war on disease worldwide”. If I had to find a term to describe this elite I think I would settle for neo-Fascist because so much of what is proposed is reminiscent of fascism.

It is also telling that Western businessmen who ostensibly support the idea of the positive effects of competition arising from “free markets” and “free trade” never want it for themselves. They always happily grab a state subsidy or an embargo if it is to their advantage. None of the US airlines had any hesitation in grabbing billions of dollars from the Federal government after 911. Large companies publicly complain of government regulation while secretly welcoming it because they can bear the cost of it more easily than their smaller competitors. Multinationals shamelessly play one country off against another in their search for massive subsidies and other favours before they deign to operate in a country.

Countries play the same game, cheating wherever they can. And the more powerful the state the greater the cheating, both in terms of helping particular industries with direct state aid and in the formulation of the treaties governing world trade. Hence, the USA presents itself as the ultimate champion of free enterprise whilst being both now and throughout its history one of the greatest of protectionists and state subsidisers of its industries – that it is seen widely as an enterprise society is one of the great propaganda triumphs of history. Its behaviour after 911 is symptomatic of the unequal nature of modern “free trade”.

The US not only handed, as mentioned above, billions to its ailing private airlines, but put up protective tariffs to protect its steel produces.

It was ever thus. The two greatest names of the early Industrial Revolution, Josiah Wedgewood and Matthew Boulton, were happy to climb on the Enlightenment bandwagon with its beliefs in the universality of Mankind and advocate lesser tariffs and freer trade -until the proposed freeing threatened their own businesses.

What goes for businessmen goes for the individual worker. Who has ever met someone whose job was threatened by “free trade” speaking in favour of it?

Abe Lincoln’s used to put this question to pro-slavers who said slavery was a boon for the slave because they were provided for and were free of normal responsibilities: “What is this good thing that no one wants for himself?” An equivalent question should be put to the “free traders”.

The truth is simple: “free markets” and “free trade” are simply part of an elite ideology and like all elite ideologies they serve the purposes of the elite first, second and last. Those not of the elite who espouse it act merely as useful idiots to promote the interests of the elite.

Opposition to globalisation should not be a Left or Right issue. The socialist and the Conservative should both resist it because it removes the ability of the electorate to control those with power and the power of their political movements to realise their ends.

Another day another lethal financial derivative

Collateralised Debt Obligation (CDOs) and Credit Default Swap (CDS) are old hat. Say hello to the Exchange Traded Fund (ETF).

The EFT  is a fund which supposedly concentrates on a discrete area of economic activity such as a the trading of a commodity, a  particular  area of business, for example, banks, or a  particular country’s stock exchange index, for example, the FT 100.  Nothing wrong with that you might say.  Let me introduce you to its cousin the Synthetic ETF (SEFT). Suppose it is ostensibly an ETF concentrating on Japan ,  but contains  no Japanese shares. Instead it invests in  shares in Chile. That is an SEFT.

This sounds like an arrangement more suited to Alice in Wonderland than rational investment. The natural response would be to ask why on earth would  anyone set up such a fantastic investment vehicle? Well, it could entice the unwary and inexperienced investor into investing in funds they imagined were much sounder than they actually are. It also allows those holding unattractive hard-to-sell shares  to bundle them up in an SEFT and so disguised  shift them off the books.

The EFT fun does not end there. Holdings  in ETFs are  being shorted in massive numbers .  Short selling is the borrowing of shares for a fee for a period, say six months, selling them immediately  in the hope that their price will fall by the end of the borrowing period at which point they can be bought for less than they were sold for,  returned to the person or organisation from which the shares were borrowed with the difference between the selling and buying price representing the profit for those shorting. If the price rises they make a loss not a profit.  Just describing it makes it sound like a spiv’s delight. In fact it is worse than that because a share may be shorted by any number of people,  so at any one time short positions exceeding the total shares in existence  for a particular business or investment fund.  This means multiple people have a claim to the same share.  This could produce a situation where something akin to a bank to a run on a bank is possible.

The SEFT may be a new boy on the dodgy investment block, but  the CDO and CDS have not become extinct.  CDOs began in a quiet way  with those holding debt  bundling together a  few mortgages  or other debts such as those arising from credit cards, calling them a CDO and selling them to a third party.  Nothing too alarming at first, but the business rapidly ballooned so that vast amounts of debt of greatly varying quality were  bundled together  and traded freely so that the process became ever more complex and opaque the further the debt moved from the initial lender and borrower and the individual CDOs were divided into various layers  (tranches) of risk so that if the cash from the assets covered by a CDO were insufficient to pay all the investors those in the higher risk tranches suffered losses before those i9n the lower rick tranches.  Much more dangerous.

Much more dangerous became an open invitation to disaster when the rating agencies such as Moody’s and Standard and Poor  gave CDOs sparkling credit ratings, quite often AAA marks, almost regardless of the quality of the debt they contained.   Both the CDO issuers and the rating agencies had a vested interest in keeping the CDO balls in the air. The issuer of the CDO, typically an investment bank, earns a commission at time of issue and earns management fees during the life of the CDO;  credit rating agencies  receives fees from CDO issuers  for their service in providing a rating for  CDOs.

To put the cherry on the investment disaster, along came the CDS. This was in its original form simply an insurance against the repayment of the debt held by owners of a CDO not being met.  No harm so far. Then came Naked  Credit Default Swaps  (NCDS)  where the thing insured by the CDS is not held by the owner of the thing insured. This gives the  holder of the NCDS incentive to cause the default of that which is insured by the NCDS because they do not own the thing which is insured but can still get the insurance if, for example, a mortgage fails to be paid.   It is akin to the situation of someone being able to insure a house they did not own and then burning it down and being able to collect the insurance.

The fact that banks and their ilk are still behaving in this reckless fashion shows that either politicians have learnt nothing since the  economic crisis began or are too scared of  or too complicit with bankers to put a stop to their criminally reckless behaviour.

 

Laws are for “little people” – the Mandelson mortgage fraud cover-up

The present furore should have disabused those of the public who still believed the law and rules such as codes of conduct apply to the powerful as they do to the ordinary person. At present we are seeing how widespread-hacking by the media and the bribing of police by the media to gain information could go on uninterrupted by politicians doing anything about and the police failing to prosecute either their own people or the media people paying the bribes. (The most telling fact about the payment of police bribes is that no policeman or woman has come forward to say they reported such an attempt to their superiors).

The story below is another graphic example of how elites can get away with murder. It was published in the magazine The Individual in July 1999 under the title of ‘Elite Mischief’  (http://individualist.org.uk/pdf/1999julindiv_em.pdf.) It deals with Peter Mandelson’s gaining of a mortgage by making a false declaration to his mortgage provider and his taking of a £373,000 loan from a fellow minister in  the Blair Government Geoffrey Robinson, a loan he failed to publicly declare as required by the Commons’ own rules.

The story exemplifies the way in those with power, wealth and influence manage to live outside the rules and laws which supposedly bind them. For elites laws and rules are for the “little people”, not them.  In this instance politicians in the Government, the Labour Party and the Commons’ committee with responsible for disciplining MPs all failed to wholeheartedly condemn Mandelson, investigate his misbehaviour properly (especially the mortgage fraud) or impose appropriate penalties. The civil servant responsible for investigating complaints about MPs, the Parliamentary Ombudsman, refused to press the most damaging parts of the complaints (the mortgage fraud and the failure to declare the Robinson loan) and the police refused to open an investigation.  To close the circle, the media also failed to press the matter of criminal charges and tellingly I could get none of the mainstream media to take up the story of the police’s refusal to investigate.

The outcome of the protection of Mandelson is that went on to twice return to the Cabinet, received a peerage and got an EU sinecure as one of Britain’s Brussels commissioners. He is now a wealthy man, having benefited from the capital gains on the property he obtained through the mortgage fraud and Robinson’s loan, the considerable salaries drawn from his return to a Cabinet position under Blair; his remuneration as an EU Commissioner and the considerable returns from his autobiography. Those are the wages of elite sin.

Robert Henderson

7 July 2011

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Elite Mischief

The report of the  Standards and Privileges Committee (henceforth “the Committee) on three  complaints laid against Peter Mandelson is best described as incongruous.  The complaints concerned irregularities involving more than £500,000 and the report’s content is damming. Two  of the three complaints were found to have substance.  Yet the Committee treated Mandelson’s serious misbehaviour  as essentially trivial and concluded smugly  “We recommend that no further action be taken”. The report  is above all a classic example of how an elite controls  matters for its own advantage.

Why is the report damning? It contains explanations  and justifications from Mandelson so improbable  that I would stake my life on the vast majority of human  beings finding them incredible. Mandelson is also shown to be  massively arrogant by the manner of his rejection of the  complaints – he really cannot understand what all the fuss is about or why his private behaviour is under scrutiny. What  if I did accept a massive loan secretly from a fellow Member  of Parliament? What if that Member did became my junior  minister? What if I did obtain a mortgage as the result of a  failure to disclose all the relevant facts to the lender? What  business is it of the public? So says Peter Benjamin Mandelson. The affair is extremely complex.

In the space  available it is impossible to cover the detail as fully as  I would wish. That being so, rather than give a blow by blow  account, I have written an impressionistic piece which is designed to give the reader a flavour of the dominant themes  – in particular, the palpable desire of all those  engaged in the investigation and judgement to mitigate Mandelson’s misbehaviour by any means possible – while  providing enough detail to allow the reader to understand the  basics of the story.

To properly understand the matter even in outline,  it is necessary to ingest a paragraph or three of  facts which would bore a chartered accountant. Sorry about that.  First the main players in the business. Apart from  Mandelson and the ex-trade minister Geoffrey Robinson, these are  the Parliamentary Commissioner for Standards in Public  Life (Elizabeth Filkin), the firm of solicitors appointed  by the Britannia Building Society to report on  Mandelson’s mortgage application (Herbert Smith Solicitors),  Mandelson’s solicitor (Stephen Wegg-Prosser of Wegg-Prosser and  Farmer – WPF) and Mandelson’s personal aide (Ben Wegg-Prosser). Robert  Sheldon was the Committee chairman. The two named  complainants in the report were the conservative MP, John Redwood,  and myself.

The Committee acted on Mrs Filkin’s submission  after her investigation of the three complaints. The  first concerned a failure to declare a flight taken by Mandelson  at the expense Linda Wachner, chairwoman of a company  (Warnaco Ltd) which had interests in the UK. The other complaints  arose from Mandelson’s failure to declare loan of  £373,000 from a fellow MP, Geoffrey Robinson, in the Register  of Members’ Interests and irregularities in his application  for a mortgage of £150,000 from the Britannia  Building Society.

Mrs Filkin’s conclusions The Warnaco complaint concerned a potential conflict of interest arising from Mandelson’s position as Trade Secretary. Mrs Filkin found the complaint  unproven because she judged that the flight was “offered  to him as a personal friend rather than in his capacity as a Member of Parliament”. For reasons of space and the  fact that the complaint involved benefits involving only a few  thousand pounds, I will not spend any further time on Mrs  Filkin’s dismissal of the complaint other than to reflect  that politicians without great wealth are always  suspect if they take favours from the rich, and that the  public’s only guard against corruption in such circumstances is if  the favours are public knowledge. The rules governing the Register of Members’ Interests need amending to make the  receipt of any large benefit notifiable, regardless of the  nature of the giver.

Mrs Filkin found the other complaints proven. Of Mandelson’s failure to declare the loan from Geoffrey Robinson on the Register of Member’s  interests, she decided that Mandelson should have registered the loan  because of the possible conflict of interest when he became Trade  and Industry Secretary. The interesting thing about  this judgement is that Mrs Filkin decided that it would  have been acceptable not to declare the loan if he  had not become Trade and Industry Secretary and consequently  was subject to the Ministerial Code of Conduct. It was this latter code which necessitated the registration of the loan  on the Members’ Register of Interests. This is a dangerous precedent.

The receipt or supply of large material  benefits from one politician to another are self-evidently of public interest, for anything which can compromise  their freedom of action is a matter of public interest. That  applies as much to backbenchers as to ministers. Again, plainly  the register rules need amending. But a  declaration of interest is not enough for favours between MPs, because  both the participants to such a transaction are  directly involved in the political process, and therefore have the  opportunity to illicitly manipulate matters from the inside, unlike interests and individuals outside Parliament. There  needs to be a ban on substantial material favours  between MPs.

Of the third complaint concerning the Britannia  Building Society mortgage Mrs Filkin said this: “The  mortgage was obtained on a basis outside normal commercial practice. Mandelson’s mortgage application was incomplete  and inaccurate and therefore breached the Code of Conduct  for Members of Parliament”.

The objective facts of the Britannia mortgage

The Britannia mortgage was used (with the  Robinson loan) to fund the purchase of a property in Notting Hill, a district in the West of London. Mandelson made his mortgage application in August 1996 and completed his purchase of the Notting Hill property in October 1996.

At the time of the mortgage application for  the Notting Hill property, Mandelson owned two properties: a  house in his constituency (henceforth Hutton) and a flat in  Clerkenwell, London (henceforth Wilmington). He had  mortgages on both. Thus his application for the Britannia  mortgage was, at the least, the third time he had made a mortgage  application.

The Britannia interviewer (Mr Michael McDermott)  completed the application form for Mandelson who then  signed it. Mr McDermott was the branch manager and thus a  very experienced employee. He was consequently  unlikely to have made an  error when completing the form.

When he made the mortgage application (30/8/96)  Mandelson told the Britannia interviewer that the balance  of the purchase price for the Notting Hill flat would  be provided by his family. He also said that the purchase of the  Notting Hill property would be simultaneous with the sale  of his Wilmington flat.

Mandelson’s mortgage application form  unambiguously shows a failure to declare his the Hutton mortgage and  was thus false at the time he signed it. The application  became further invalidated by two failures to keep the  Britannia informed of changes in his circumstances, namely  his acceptance of the Robinson loan and the  failure to sell his Wilmington flat at the same time as he  purchased the Notting Hill property.

Section D of the application form contains the  questions “Do you have any hire purchase/loan agreements? (D1);  “Have you any other outstanding commitments including maintenance payments (D.3) and “Do you propose to borrow any other money upon the security of the property to assist in  the purchase of the property (D.5). Mandelson answered NO to  all questions.

The declaration at the end of the form which  was signed by Mandelson includes this statement: “I  confirm that this form has been completed by myself or at my  dictation and that the information given is true to the best of my knowledge and belief and all material information as  explained above has been disclosed. I understand that if any answer  has been written by any other person that person shall  for that person be regarded as acting for me.”

The Robinson loan and Mrs Mandelson

Mandelson claims that when he signed the  mortgage application on 30/8/96, he believed that his mother would give  him, as a gift, the money he needed to bridge the gap between  the proceeds of the Wilmington flat and Notting  Hill. Amazingly, during his evidence to the Committee Mandelson  admitted that he had not discussed the likely amount of the  gift prior to committing himself to a mortgage. His mother’s  subsequent rapid refusal of help shows how nebulous Mandelson’s expectation of a gift was, if it existed at  all.

Mandelson first discussed the Robinson loan in  May 1996. It was not finalised until October 1996 after  Mandelson’s mother had refused to help Mandelson. Mandelson’s explanations Mr Mandelson shares a quality with Ronald Reagan,  he is terribly forgetful. The report shows that he could  not remember when he first discussed the loan with  Geoffrey Robinson. He could not remember whether he mentioned the Hutton mortgage during his interview with Mr McDermott.  He could not remember what he had done during his  previous mortgage applications. He could not even  remember in 1999 (this is my personal favourite) how much he sold  his Wilmington flat for in 1997.

Mandelson is also apparently seriously lacking  in intellect and basic general knowledge. According to the  evidence given to the Committee, he did not even understand  the meaning of such difficult questions as “Do you propose to borrow any other money on the security of the property to  assist in the purchase” because at the time of completing  the mortgage application he “would not…have  understood what ‘security of the property meant”. 1

Translated into honestspeak most of  Mandelson’s excuses and explanations amount to this: I, Peter  Mandelson, a man deemed competent to sit in a British Cabinet, am  so lacking in intellect and general knowledge that I  cannot understand what every adult of normal intelligence in Britain  is presumed by the law to understand, namely a mortgage application form, despite the fact that I had previous experience of obtaining mortgages.

Mandelson’s other excuses rest on blaming  people such as his solicitor (WPF) and pleading overwork. The  latter is special pleading; the former deserves attention. WPF  in the person of Stephen Wegg-Prosser undoubtedly had a duty to  inform the Britannia of the Robinson loan and the failure  to complete the sale of the Wilmington flat on time. The  question is why he did not do so. Wegg-Prosser accepted that  he was grossly at fault but blamed it on family problems. Should  we believe him? In other words, was there a conspiracy  between Mandelson and Wegg-Prosser to keep the fact of the  Robinson loan from the Britannia? Consider these facts and judge  for yourself.

Mandelson’s Secrecy

For a man with nothing to hide, Mandelson was remarkably reticent about his loan from Robinson. He  failed to notify Tony Blair, the DTI permanent secretary, the cabinet secretary and the parliamentary commissioner of the Robinson loan. He failed to register the loan in the  Members Register of Interests. He used the solicitor father of  his aide Ben Wegg-Prosser to draw up the legal agreement with Robinson.

Such secrecy speaks of a desire to prevent not  only the general public and his political opponents and  colleagues from knowing the truth, but an intention also to  prevent the Britannia Building Society from discovering the true state of affairs. Publicity for the loan would  have revealed the illegality of the application. Thus  Mandelson had a prime dishonest motive for silence and secrecy. If any of the other people directly involved in the loan from  Geoffrey Robinson knew of Mandelson’s failure to declare  the loan and/or his mortgage on the Hutton property,  they would on the face of things be guilty of a criminal  conspiracy to enable Mandelson to obtain a mortgage fraudulently.

Mandelson’s desire to keep the matter secret  and his apparent willingness to lie to do so is further seen in  his reply to a question put by the Evening Standard in April 1997.  The Standard reporter, Mark Honigsbaum, asked Mandelson  to explain the difference between the amount of  money borrowed to finance the purchase of the house  registered on the Land Registry and the purchase price of the  Paddington house, ie the difference between the Britannia mortgage and  the purchase price. Mandelson complained of an invasion  of privacy (a rather rum do in a politician) to a more senior reporter, Alex Renton. However, he did tell  Renton that the balance of the cost of his new house would be  paid by the sale of his Clerkenwell flat and money from  his mother (see folios 5/6). He failed to mention the fact  that the purchase price had been met wholly by a loan from  Robinson and the Britannia mortgage.

Behind the scenes

Although her findings were significant, Mrs  Filkin studiously avoided the most serious and damaging issues which  were posed by Mandelson’s behaviour, namely the questions  of criminality and the relationship between MPs, both of which I asked her to consider in relation to Mandelson  and Robinson.

I had a considerable correspondence with Mrs Filkin,  yet after the publication of the report I discovered  that the committee only saw the first letter I sent to Mrs  Filkin. When I brought this to the attention of Robert  Sheldon, the chairman of the committee, he refused to either reopen the nvestigation or show the additional letters to theCommittee members. This is urther evidence of the Committee’s intention to produce a verdict favourable  to Mandelson come what may.

The Code of Conduct

In 19 July 1995 by a resolution of the Commons  a Code of Conduct for MPs was adopted. Rather like the 1936  Soviet Constitution, the code is a model of democratic  principle, regulating public duty, personal conduct, objectivity, accountability, openness, honesty and leadership.  My experience with Mrs Filkin and the committee  shows that it shares another quality with the 1936 Soviet  Constitution: it is not worth the paper it is written on.

I suggested to Mrs Filkin that Mandelson had  breached these parts of the Code:

Public Duty

Members have a duty to uphold the law and to act on all occasions in accordance with the public trust placed in them.

Personal Conduct

Members shall base their conduct on a consideration of the public interest, avoid conflict between personal and the public interest and resolve any conflict between the two, at once, in favour of the public  interest.

Members shall at all times conduct themselves in a manner which will tend to maintain and strengthen the public’s trust and confidence in the integrity of Parliament and never take any action which would bring the House of Commons, or its members generally, into disrepute.

In any activities with, or on behalf of, an organisation with which a member has a financial relationship which may not be a matter of public record such as informal meetings and functions, he or she must always bear in mind  the need to be frank with Ministers, Members and officials.

Leadership

Holders of public office should promote and support these principles [of the Code of Conduct] by leadership and example. Mandelson has clearly breached these parts of  the Code. Mrs Filkin concluded that he had done so, but only by his behaviour in obtaining a mortgage. Incredibly,  she judged that Mandelson’s failure to register a loan  eight times his salary did not breach the Code.

The Britannia Building Society

The failure of the Britannia to make a complaint  to the police goes against their normal policy. The  Daily Telegraph (26/12/98) ran this quote from a spokesman for  the Britannia, Joanne Hine: “When fraud has  been discovered in the past, then we have passed that to the police  to deal with.”

The Britannia commissioned the solicitors  Herbert Smith to produce a report on the Mandelson affair. This  report was codenamed Offenbach. It is worth noting that  the Committee Chairman had to quietly threaten the Britannia  with his powers to requisition documents before a copy of  the Offenbach report was supplied to the  Committee.

Was a crime committed?

In their report for the Britannia, the  solicitors, Herbert Smith, considered the question of mortgage  fraud which falls under Section 16 of the Theft Act 1968. This  runs:

“a person who by deception dishonestly  obtains for himself or for another any pecuniary advantage  is liable on conviction on indictment to imprisonment for a term not exceeding five years…”

The report continued by stressing that for an offence  to exist, it is not necessary for the person  deceived to have suffered a loss.

Peter Mandelson did profit from his irregular mortgage application because he obtained a mortgage unfairly.  This allowed him to gain a further pecuniary advantage  by acquiring a more expensive property, which  enabled him to make a massive capital gain he would not  otherwise have had the opportunity to make. Those facts would seem  to fall within the Theft Act’s provisions.

Herbert Smith claimed that the Britannia’s  money was never under threat from Mandelson’s failure to disclose  his financial circumstances. This is simply false.  It is true that if Mandelson kept to the terms of his agreement  with Geoffrey Robinson, that is did not put any  further charge on the property, the building society would have  been safe. But what if Mandelson did not keep to the terms of  the agreement? Suppose, for example, that he ran  into severe financial trouble and took further loans  against the property which exceeded the value of the property?

Such a scenario is plausible. Mandelson has  shown himself to be, secretive, very reckless and spendthrift. The  Commons report also shows how slender his means were  in 1996 – he had to borrow money from his mother to tide him  over the period when he had to pay not only the Notting Hill mortgage but also the mortgages on Hutton and Wilmington. A  situation could have easily arisen whereby Mandelson had taken loans to the value of less than the value of the  house at the time the loans were granted, but which exceeded the  value of the property when the loans were called in. The  most likely cause of such a situation would be a collapse in property  values similar to that which occurred in the early  nineties.

It is true that in such circumstances the Britannia  might still be able to exercise first call on the property eventually. But they would at best have to go  through a great deal of legal aggravation to make good their claim.  At worst, they might not be able to sustain a  claim if other loans taken by Mandelson had been given on the  same basis as that give by the Britannia.

The police

I submitted a complaint to the Metropolitan Police asking them to investigate Mandelson for gaining a pecuniary advantage by the use of false statements and  embezzlement and for possibly engaging in a conspiracy to  obtain a pecuniary advantage and embezzlement. I received this  reply from Chief Supt Paul Scotney: “After careful  consideration of all the facts outlined in your two letters, I have  decided not to commit police resources to investigate this matter.”

Wonderful isn’t it? Pure insolence of office. Police officers have an obligation to  investigate where they have reasonable grounds for believing that a  crime has been committed. Patently they did in this case because  of irregularities in Mandelson’s mortgage  application. Failure to investigate amounts to a perversion of the course  of justice.

Elite misbehaviour

What does all this show? It is classic elite  behaviour in an ostensible democracy. A member of the elite was  caught publicly in circumstances which were too serious  and outlandish for the elite to simply ignore.  Thus a charade was performed whereby an “investigation”  took place with a predetermined outcome, namely that no  meaningful punishment would be meted out to the errant member of the elite regardless of the evidence offered. The purpose  of the charade was to allow the elite to make a pretence that justice had been done.

The Code of Conduct for MPs demonstrates  beautifully the ease with which the elite can control things. The  introduction of this code was a major constitutional change. Before  then, there was precious little by way of formal restraints  on MPs’ behaviour beyond the election rules of the Representation of the People Act and the  rather toothlessregister of interests. Most extraordinary was  the fact that an MP’s behaviour towards his constituents was  unrestrained by anything other than convention, which were  mostly the product of the Commons of the eighteenth and  early nineteenth centuries which developed conventions in  keeping with the aristocratic flavour of its membership which took  Burke’s dictum that a member is not a delegate as its watchword.

Once the Code of Conduct was accepted by the  Resolution of 24/6/96, in theory the game changed. MPs became obligated formally and the old conventions were superseded where the Code of Conduct impinged upon them. Yet for all the practical effect it had in  the Mandelson case, it might as well not exist. As  things stand, it is simply a propaganda tool for the ruling elite.

Only the House of Commons can meaningfully enforce  the Code. The Code gives the appearance of an attempt to maintain  public probity but that is all it is, the appearance. Elites in an ostensible democracy have to make  a public playof honest dealing with members of the elite, but  it is just that, a play. The reality is that elites  ensure that justice is not done by controlling the bodies which  make judgements of members of the elite. The people who investigated  and udged Mandelson were a committee which had a majority of embers from Mandelson’s own party and a public servant whose appointment depended on the very politicians  she was due to judge. Just to add spice to this elite sauce, Elizabeth Filkin was a non-excutive director of the Britannia until a few weeks before her appointment as Commissioner  for Standards. Strangely, she did not feel that  this disqualified her from investigating Mandelson. I asked to  appear before the Committee. The request was refused. All  very cosy, all very elite controlled.

Throughout this affair every person involved in the investigation has behaved to benefit Mandelson  and mitigate his offence. Elizabeth Filkin refused to  investigate the most damaging charges against Mandelson, those of  criminality and of being under the influence of Robinson  because of the loan. She refused to investigate Robinson at all. The  Britannia’s solicitors, Herbert Smith, put the best possible gloss on everything Mandelson did or failed to do. The Committee concluded against all the evidence that Mandelson’s misbehaviour was trivial.

This affair raises the vital questions of  equality before the law and democratic control. Both have been negated comprehensively. The general public have been treated as impotent fools. We have not a democracy but an elective oligarchy, which is as effective at  maintaining control as any formal aristocracy.

1 Mniutes of  Report para 51

Don’t be surprised that the police failed to thoroughly invesitgate the News of the World

Many people will be mystified by the failure to date  of the police to successfully investigate the phone-hacking complaints against the News of the World (NoW). They may be even more surprised by the  failure to act on the admission by Rebekah Brooks (previously Rebekah Wade) when she was editor of the NoW  that the paper paid police officers for information. The fact that Brooks made the admission before a Commons Select Committee will add to their astonishment. (http://livinginamadhouse.wordpress.com/2011/04/16/the-refusal-of-the-police-to-investigate-rebekah-wade/).

They should not be amazed because this is regulation behaviour by the police. Those who believe that they rigorously investigate complaints as a matter of course are sorely mistaken.   The police  routinely fail to investigate complaints properly or at all  when it suits their purposes.  It is reasonable to assume that it suited  the purposes of the Metropolitan  Police  these cases involving the NoW, both because of the strong links between politicians and the Murdoch empire and from fear that the corrupt officers selling information to the NoW (and other media outlets) would result in criminal prosecutions of police officers, perhaps many of them with very senior officers included.

I have a good deal of personal experience of  the Metropolitan Police failing to investigate complaints or to even record them.  This ranges from  refusals to investigate Peter Mandelson after he obtained a mortgage by  fraudulent means (http://livinginamadhouse.wordpress.com/2011/07/07/laws-are-for-little-people-the-mandelson-mortgage-fraud-cover-up/) ; refusals to investigate complaints of incitement to racial hatred by Greg Dyke when BBC Director-General  (his “hideously white” description of the BBC) and a Plaid  Cymru leader who described the English in Wales as “a virus and, most topically, the illegal giving of information by a Met Police officer to the Mirror newspaper (http://livinginamadhouse.wordpress.com/2011/04/17/the-failure-to-charge-piers-morgan-with-illicitly-receiving-information-from-the-police/). The last has the added  interest that the complaint arose from Tony and Cherie Blair’s  attempt to have me prosecuted on bogus charges during the General Election campaign of 1997 (http://livinginamadhouse.wordpress.com/2010/10/26/when-tony-and-cherie-blair-tried-to-have-me-jailed/).

The NoW ” paying police for informagtion”story was broken in Britain by the BBC on 6 July 2011 by the BBC’s Business  editor  Robert Peston  (http://www.bbc.co.uk/news/business-14039915). I have sent the letter below  and  copies of letters from Piers Morgan to the PCC and my complaint to the police  to him and all other major British media outlets.

6 7 2011

Dear Mr Peston,

I have personal experience of the police selling information to the media.

In 1997  The Mirror ran a story about me which involved information being supplied to them by a police officer. I discovered this when I made a complaint to the PCC and they released a letter from the then editor Piers Morgan to them in which he admitted receiving illegitimately information from the police, viz:

“The police source of our article (whose identity we have a moral obligation to protect) [thus the police informant behaved illegally by supplying the information] gave us the detail of the letters that we then published. Nothing that Mr Henderson writes has convinced me that the article was anything other than accurate”

The complaint was passed to Scotland Yard where Det Chief Superintendent Ian Curtis supposedly investigated. My complaint ended in a curious way with Curtis ringing me to tell me that no action would be taken. During our telephone conversation, he admitted that no one at the Mirror, including the Piers Morgan and the reporter who wrote the story Jeff Edwards had been interviewed. Ergo, no meaningful investigation was undertaken.

If charges of receiving information illicitly from a police offer cannot be brought against an editor who has admitted in writing to a quasi-official body investigating a complaint that he has received illicit information no one could ever be charged with the crime.

Yours sincerely,

Robert Henderson

———————————————————————

The fact that a Chief Superintendent  (DCS) from Scotland Yard was deputed to investigate tells us a good deal in itself. Normally such a complaint would be conducted by a Detective Inspector (DI) I or just conceivably a Detective Chief Inspector.  A  DCS taking such a case is abnormal in the extreme; one from Scotland Yard simply bizarre.

The appointment of such an officer is simply a reflection of the  general panic which set in whenever the police had to investigate a complaint from me which was directly or indirectly linked to the Blairs’ attempt to have me prosecuted.  After they failed I made a series of complaints of criminal activity to the Met about the Blairs (an attempt to pervert the course of justice); the Mirror (various offences concerning paying the police for info; breaching the Official ACT   and criminal libel) and against officers who failed to investigate complaints meaningfully. During the course of this I had in my flat the following: a DCS who was head of the Met’s internal investigations office (a very senior and influential copper indeed); two other DCS; two DCIs and 2 DIs, all for cases which would normally have been investigated by anyone from a Detective Constable to a DCI.

—————————————————————————————

Here is Morgan’s full letter into which I have interpolated my comments in brackets marked RH.

FROM THE EDITOR

By fax (0171-353 8355) & by post

16 October 1997

Your ref: 970738

Christopher Hayes Esq

Press Complaints Commission

I Salisbury Square

London

EC4Y 8AE

Dear Mr Hayes

Mr Robert Henderson

I refer to Mr Henderson’s complaint as outlined in his letter of 23 September.

As you are aware, we have been in contact with Mr Henderson for some time due to his propensity to bombard individuals and this office with correspondence. [RH: Translation: Mr Henderson sent more than one letter because the Mirror refused to reply].

There are certain irrefutable facts that escape emphasis in Mr Henderson’s correspondence.

Far from ignoring any of his correspondence we have written to him on the 20 May, 22 July and 6 August. [RH: The letter of 20 May merely
said he was not going to enter into correspondence. The other two letters were from his legal department in response to Subject Access Requests I made under
the data Protection Act. These were legally required]. We have consistently made it clear that we have no intention of entering into any further
correspondence with him.

Be that as it may I will address his concerns:-

In essence, the basic “sting” of the article, of which he complains, was that he had been sending numerous insulting letters, some with racist undertones [No  such letters were ever sent, hence, no prosecution RH], to Mr and Mrs Blair which had been passed to the Crown Prosecution Service for consideration.

Mr Henderson himself admits that he sent Mr and Mrs Blair at least thirteen letters. I have no way of directly knowing of the content of those letters because I have not had sight of them. However, clearly they sufficiently concerned Mr Blair’s office to be passed to the Crown Prosecution Service [RH: The CPS said as soon as they saw the letters that they were entirely legal] and I think the Commission is perfectly entitled to draw an adverse inference on the contents of those letters as a result of that referral.

I cannot accept Mr Henderson’s explanation for writing to  Cherie Blair. To do so was clearly designed to intimidate. In Mr Henderson’s draft article “Moral Simpletons Target Innocent Man” the bile that he shows on the second page of that article clearly illustrates his capacity to insult in his letters to Mr and Mrs Blair[RH: an absurd deduction. What I wrote to the
Mirror says nothing about what I wrote to the Blairs] (to the extent that they be referredto the Crown Prosecution Service). I would also refer the Commission to Mr Henderson’s gratuitous reference to a “Blaireich”.

He also admits to expressing his disgust (we can only guess in what terms) of the decision of Mr and Mrs Blair not to send their son to a school whereby a white schoolboy was, apparently, murdered by five other boys (and that that murder was racially motivated). [RH: This was the Richard Everitt murder].

The police source of our article (whose identity we have a moral obligation to protect) [RH: thus the police informant behaved illegally by supplying the information] gave us the detail of the letters that we then published. Nothing that Mr Henderson writes has convinced me that the article was anything other than accurate.

Perhaps one can get a flavour of his correspondence with Mr and Mrs Blair by examining the final sentence of his draft article in which he states “It was a cargo of ancient male gonads”.

The Commission may be aware (I am attempting to get hold of the article) that the article of Mr Henderson’s that appeared in Wisden’s Cricket Monthly in 1995 gave rise to an  extraordinary amount of controversy and resulted in Wisden paying substantial libel damages to the Cricketer, Devon Malcolm,[RH: Malcolm refused to sue me after I made it clear I would take the case to the floor of a court] whom the Commission will be aware is a coloured fast bowler for England. As I understand the matter, and Mr Henderson will correct me if I am wrong, the article implied that coloured players will not try as hard when playing for England as white players. [RH: The article put it forward as a possibility, no more]. I have discussed the legal position with the newspaper’s solicitor, Martin Cruddace [RH: Cruddace is a proven liar. He made a declaration to my Subject Access Request under the Data Protection Act to the effect that the Mirror held no qualifying documents. Eventually after I had done some detective work, he had to admit that the Mirror had a small matter of 118 pages of documents relating to me], and he has assured me that the law has recently developed whereby words (be they written or spoken) can constitute assault [RH: No person in the UK has been convicted of such a crime. The definition of GBH has been extended to non-physical abuse such as abusive phone calls but it requires a psychiatric illness to be proved to be caused by the alleged abusive behaviour. Mere emotions such as fear do not qualify. The failure of the police to consider such a course and the CPS’ immediate definition of the case as “NO CRIME” shows that my letters were entirely lawful] if the pattern of those words is such as to make the recipient of them either anxious or ill. It has developed as a reaction to the former impotence of the law on stalking. The law has therefore developed since the publication of the dictionary reference on which Mr Henderson relies.

I cannot accept that the taking of the photographs of Mr Henderson, given the clear public interest concerning the subject matter of The Mirror article, could possibly constitute harassment under the Code. [RH: It was a clear breach both because I had advised them of my eye trouble and because they took photographs having come over my threshold.]

I am most concerned not to waste any further time in dealing with Mr Henderson’s complaint but, naturally, if the Commission wishes me to address any further matters then I will endeavour to do so. However, I hope that the above is sufficient to convince the Commission that the basic “sting” of the article is accurate and that Mr Henderson’s complaint ought to be dismissed.

Yours sincerely

Piers Morgan

———————————————–

Having got cast iron evidence that the Mirror had been involved in illicitly receiving information from the police, I made a complaint
to the Metropolitan police, viz.

26-August 1998

Chief-Supt Eric Brown

Metropolitan Police

12A Holmes Road

London NW5 3AE

cc Metropolitan Police Committee

Dear Mr Brown,

I enclose a letter from the Metropolitan Police Committee dated 25/2/98. Please note the third paragraph.

The complaints I wish to register are: 1. A breach of the Official Secrets Act Culprits: An anonymous police officer most probably
stationed at Belgravia station.

The Mirror reporter Jeff Edwards

The Mirror editor Piers Morgan

The most likely police officer is DS Connor of Belgravia Police. This officer handled the Blairs complaints against me.

2. A breach of the Public Bodies Corruption Act 1889 as amended by the Prevention of Corruption Act 1916

Culprits: The anonymous police officer mentioned in 1.

Any Mirror representative responsible for the offering or payment of a bribe.

3. A breach of the Prevention of Corruption Act as amended by the Prevention of Corruption Act 1916

Culprits: The anonymous police officer mentioned in 1.

Any Mirror representative responsible for the offering or payment of a bribe.

4. A breach of the Met’s Code of Practice

Culprits: The anonymous police officer mentioned in 1.

The basis of the complaints The offences arise from a Mirror story entitled “Pest Targets Blairs” published on 25/3/98 (copy enclosed).

The Mirror story quotes unnamed police officer(s) as follows:

“Police said that sending such material could result in an assault charge.”

and

A Scotland Yard source said “By sending letters in a very unpleasant tone the writer has committed an assault”

The statement that I have “committed an assault” is a breach of the Met’s Code of Practice. The police investigate complaints. They do not decide guilt or innocence.

In a letter to the Press Complaints Commission dated 16/10/97(copy enclosed) the Mirror editor Piers Morgan claimed that the primary source for the Mirror article was a policeman viz: The police source of our article (whose identity we have a moral obligation to protect) gave us the detail of the letters that we then published.”

The giving of such information would of itself be illegal.

The Mirror confirms that they knew it was illegitimate by their “whose identity we have a moral obligation to protect”.

All police officers sign the Official Secrets Act. The police officer who supplied the information to the Mirror is consequently guilty of a breach the Official Secrets Act. He has also breached the Met’s internal code of conduct.

The Mirror by knowingly abetting the breach of the official Secrets Act is guilty of a criminal offence which carries the same penalties as that to which the police officer is subject.

If the policeman was paid, both the Mirror and the officer are guilty of serious criminal offences under The Public Bodies Corrupt Practices Act 1989 (amended by the Corruption Act 1916) and The Prevention of Corruption Act 1906 (amended by the Corruption Act 1916).

The reasonable presumption must be that the officer was paid. First, he restricted the information to one newspaper. Second, what other plausible motive could he have had?

As the Mirror has admitted to receiving illicit information from the police, a failure to both record and investigate my complaints will be tantamount to an admission of deliberate maladministration of justice by the Met. As I am sure you do not need me to tell you, such deliberate maladministration by the police commits one of the criminal offences of  perverting or attempting to pervert the ourse of justice.

Yours sincerely,

Robert Henderson

Means subverting ends – The fatal flaw at the heart of libertarianism

Ends not means

A political philosophy should be about ends not means because there is never a single certain way by which a political end can be achieved and the interpretation of what constitutes the attainment of an end is subjective. Moreover, the prescription of means may subvert the desired ends, the most common example being the corrupting nature of violence used to gain that which is morally desirable.

Where a political philosophy hardens into an ideology (a menu of ideas which supposedly acts as a sociological algorithm to answer all political questions), the individual who accepts it unconditionally has given up his or her personal autonomy and has moved from rationality into the realm of religious belief. This is pernicious because all ideologies are inadequate descriptions of reality at best and contain internal contradictions at worst. These deficiencies mean that any attempt to rigorously apply the tenets of an ideology leads to outcomes which are damaging because they conflict with reality. Sadly, many libertarians have crossed the line between philosophy and ideology.

An example of rigidly inappropriate adherence to ideology is the distinction being made between depositors and shareholders in the present banking crisis. The argument that shareholders by definition take a risk while depositors do not looks attractive at first glance but has no logical substance. Any arrangement an individual or corporate body makes with a private company other than a bank has exactly the same status as the relationship between a bank and a depositor. For example, if I put down a deposit on a fitted bathroom and the company liquidates before I receive the goods I have almost certainly lost my deposit. That is exactly the same situation as a depositor who has placed their money in a bank which then finds itself insolvent. The depositor has provided the bank with his or her money to purchase banking facilities and possibly interest on the money deposited.

A rigid follower of laissez faire would say let the depositors lose their deposits, arguing caveat emptor and suggesting that depositors had only themselves to blame if they failed to take out insurance to guarantee their deposits. This is correct in logic if you accept the premise that what primarily matters is maintaining the principle of personal responsibility, a “let justice be done although the Heavens fall” approach. If it was their own savings at risk, the odds are that no libertarian would be arguing that the depositors should be left to stew in their own responsibility. Moral: don’t subscribe to a philosophy which is too demanding.

The sane and practical way for libertarians to proceed is to identify their general ends and then look at what type of society will bring them closest to those ends. This assessment should into account human psychology and sociology, for any system of thought which is incompatible with human nature or its sociological expression is at best futile and at worst destructive. Because of the emphasis on personal freedom and responsibility, the danger for any libertarian is that they concentrate so much on the individual that they recklessly neglect the fact that Man is a social animal. Where that happens, their vision of what a libertarian society should be becomes utopian and consequently unobtainable.

There is plentiful evidence that the extent to which human beings will behave badly or well is to a large extent determined by their circumstances. As a general rule those with power, wealth and influence will behave with less restraint than those who lack such advantages. The reason for this is easy to see: power, wealth and influence remove the social restraints which keep most people within the bounds of reasonable behaviour. The powerful tend to believe they are beyond criticism or punishment; and think they do not need the voluntary help of others because they can purchase what assistance they require, while those without power fear retribution,, for bad behaviour and recognise that they need the voluntary assistance of others. The lesson for libertarians is that their philosophy must be designed to create a society which produces not complete equality of circumstances for all its members but enough similarity between each to prevent significant abuses of power.

What are the general ends of libertarianism?

All libertarians support the idea of laissez faire (generally, not only in economics), although they vary considerably in the role they allow the state, They are united in their desire to see as much as possible of social interaction left to voluntary agreement between individuals,. They wish, if they wish for a state at all, for it to be the absolute minimum required to provide the necessary framework around which society can coherently form and survive. They are strongly opposed to the state intervening in the decisions the individual makes which are private to
themselves.. They wish to see human beings living lives in which the individual takes, as far as is possible, responsibility for his or her life and for any dependants. They expect to provide voluntary aid to those in need.

Perhaps most importantly libertarians give a central place to the notion of property, a word which in libertarian thought has a connotation which extends far beyond its commonplace meaning of the ownership of physical objects to such things as a man’s labour and his very body.

Varieties of libertarianism

The most unblemished libertarians favour a world in which each individual provides for and protects his own family and property, a world in which voluntary aid from relations and friends are the bulwarks against misfortune or incapacity, a world in which everything, including the right to property, is governed by personal relationships and behaviour is moderated not by laws or official force but the moral context in which people live, with good and bad behaviour being rewarded and punished by the informal responses of others.

Most of those who call themselves libertarian would subscribe to something a little less demanding of the individual. They want a world in which the state interferes with their lives as little as they deem practicable while providing a secure social structure comprised of defence, diplomacy, justice and policing to protect both their persons and their property. Some libertarians such as Hayek would go beyond the routine minimalist state and allow a basic welfare state.

The problem for libertarians, whether they be those who want no state or those such as Hayek who would allow quite a large role for the state, is that there is no instance in human history of a single community which has corresponded to any of the envisioned societies or even come close to it.

Where there is no formal authority the societies which result invariably lack the qualities which allow libertarian ends to be attained: property is not respected, there is no system of law to which individuals can appeal, the strong dominate the weak simply by their power. No state has ever concentrated solely on those items which are considered to constitute the minimalist state. Even the enhanced minimalist state of Hayek has never been realised, although it is comes closer to reality than the others. Societies which has never existed may reasonably be
assumed to be incompatible with being human. Libertarians need to accept that fact and ask what else is needed to produce the ends they seek.

What is missing from most libertarian thought is an understanding of the need for positive as well as negative freedom. Most human beings are not and never will be thorough going libertarians even in theory. That being so, libertarians need to re-configure their philosophy to aim for a society in which those libertarian ends which are most widely shared throughout society are best achieved. The ends which are most widely consciously shared, are those which relate to the state not intervening in private lives in matters such as raising children. .
In addition, libertarians need to understand that the intervention by the state to create material conditions which produces a rough equality of power and opportunity between individuals promotes the ability of all to take responsibility for their own lives.

The money problem

Money is the elephant in the minimalist state room. This is unsurprising because it presents a tremendous problem for all libertarians except those who would be satisfied with a society based on barter for if the state controls the money supply it has immense power., Hence, libertarians prefer not to mention it if they can possibly help it. But it cannot be ignored because it is the oil which drives the entire economy. If a currency fails general economic disaster ensues in an advanced economy. It is not just another commodity.

The record of state control of money (state being defined as a central controlling power) is not encouraging, history telling us that it has commonly resulted in the debauching of currencies through the diluting of precious metal content or by recklessly printing money and expanding credit in the case of a fiduciary currency.

That might seem an excellent reason for not trusting the state with administration of the currency and leaving the matter to private initiatives. The problem is that experience says that private initiatives to produce and maintain fiduciary currencies are vastly riskier, the record of private banks failing being legion. The current credit crisis is a prime example of the dangers. Governments in Britain and elsewhere have allowed banks to expand the money supply vastly through promiscuously granting with the consequence that is now upon us, a freezing of credit to the point where most, probably all, British banks are in reality insolvent, their insolvency only being hidden by the lines of credit and guarantees offered by the British government.

By allowing private institutions to inflate the money supply governments to their hearts’ content , governments have effectively privatised monetary policy. When currencies were based on precious metals monarchs and states debased the currency: now it is the financial institutions which achieve the same effect. An analogy would be with a government with a currency based on gold minting coins of a standard gold content whilst allowing private mints to produce coins with whatever gold content they chose.

Some libertarians hanker after a return to a currency based on a precious metal such as gold. This would be completely impractical in the modern world, not least because the amount of gold available is merely a tiny fraction of that which would be needed to be held to make the currency fully convertible as it was before the Great War.

The dominance of economics

Much of the difficulty with libertarian thought lies in the central position given to laissez faire economics., a system of thought which is intellectually incoherent and impossible to defend at any level other than that of emotional exhortation and has consequences which lead to non-libertarian ends.

A truly free market by definition must be one in which no artificial restrictions exist. Yet the so-called free markets we have rely on the most fundamental restriction of all, state-regulation to prevent the natural workings of a market.

How unnatural the idea of a “free” market as (defined by laissez faire economics) is can be seen by the complete absence of such markets throughout history. Economic history is a record of men attempting to reduce competition.

But the intellectual incoherence is not the main problem with laissez faire. The major  problems lie in its practical effects. These are to create greater wealth divides and produce regular bouts of serious economic instability. This has been true since its first real trial in Britain from the 1840s onwards (Trollope’s great political novel The Way We Live Now was an early critique of its effects), the bank crises of the 1890s, the banking crisis of 1907, the Wall Street Crash and Great Depression and currently the credit crisis the world is presently undergoing. These crises have all occurred during periods when laissez faire has been the dominant economic credo of the most powerful economies in the world.

Contrariwise, the period from 1931(when Britain came off the Gold Standard) and 1979 saw state intervention in the economy and protectionism re-established. During that time no major banking crises occurred. There were of course other financial problems, most notably the defence of the pound and a period of high inflation in the 1970s, , but the period overall was remarkably stable and there was nothing as dangerous as the present situation. Draw your own conclusions.

Plutocracy and the quasi-state

The central position given to property by libertarians , including the unfettered right to inherit, subverts the ends of libertarianism. Even in a society which starts out with a large degree of democratic control, the inevitable outcome of unhindered passing down of wealth through the generations is the rapid formation of a plutocracy. Such a society is a form of  authoritarianism, and arguably the most potent form of authoritarianism because it is not the direct and overt consequence of an elite which has seized power at a given point and
wielded it unashamedly for its own advantage. Rather, it is a social state which develops organically and is all the stronger for that.

There is no obvious villain for the have-nots to attack for there is no monarch, no party, no dictator to direct anger at, merely a group of the privileged who colonise and control the political system, reducing the democratic process to an pantomime of elective oligarchy in which parts of the elite compete for formal power.

A plutocracy also passes its power and privilege down the generations through inheritance, the importance being in the inheriting as a class rather than as an individual.  This avoids the habitual cause of failure amongst authoritarian regimes, the problem of succession.

Once a plutocracy is established , the state becomes less important because the elite have power which is not solely dependent on the formal positions of power as it is in states such as the Soviet Union. The elite’s power ultimately flows from the wealth they command, which allows them to effectively buy the command of society, both formally and in their relations with other individuals.

Wealth, as my old history master never tired of saying, is power. The consequence is that substantial differences in wealth mean that those without wealth are left in a grossly subordinate situation which undermines their ability to attain libertarian ends. Inherited wealth reinforces and amplifies these power relationships and very rapidly produces a plutocracy. a social state utterly at odds with the ends of libertarianism.

How to judge an ideology

A good way of testing the moral nature of an ideology is to ask what would be an honest election manifesto for a party adopting it. In the case of most libertarians it would be this: We shall pursue a policy which will make around a third of the population richer, leave a third of the population as they are and make a third poorer. There will be great differences in wealth which will increase with every generation. Wealth being power, this will mean those born to wealth and high social position will be able to exercise authority over those who are significantly poorer than themselves. Those who through incapacity or misfortune cannot support themselves will have to rely on the charity of others to survive at worst or on a meagre subsistence at best.  Society will not be a race in which everyone starts at the same point but a handicap gallop with the handicaps being decided not by Nature but by man made laws and customs. Would any libertarian be comfortable standing on such a political platform?

Libertarians also need to ask themselves whether they want the world reduced to the banality of a system of economic relationships, ironically exactly what Marxists do, That is the danger with making a god out of property and laissez faire economics.

It is a singular fact that I have never come across anyone who was poor, either through knowing them personally or through their writings , who was a libertarian or even just a supporter of laissez faire economics. That tells its own story. Only those who feel themselves beyond the reach of poverty or unemployment are comfortable with the idea that everything will work out in the end for the best aggregate result.

Voluntary action is simply too unreliable an engine to drive and maintain a society. For example, to argue that private charity will make good that which is provided by the welfare state is simply to go against all historical experience. There has never been a society in which private charity ever came close to meeting the needs of the incapable or the misfortunate. America in the Great Depression is a classic example of what happens. Until then the USA had been a society in which welfare even art the local or state level was very limited.

If libertarianism is to be more than simply an ideology for the haves, whether through their own efforts, luck or the accident of birth, then it must take into account the way societies actually work and cater for the wide range of ability, personality and personal circumstances which always occur. That can only be done if the positive freedom side of the liberty equation is given equal weight to that of the negative freedom side.

An ideology which unwittingly subverts its ends is worse than useless; it is absurd. That is what the libertarian thought does all too often through its emphasis on the individual to the exclusion of the social nature of human beings.

How do we explain liberal internationalism as a biological phenomenon?

Robert Henderson

What the liberals have done

The general facts of liberal internationalist elite behaviour are these. They have socially fractured societies which previously enjoyed a high degree of racial and cultural homogeneity by permitting the mass immigration of the racially and culturally different. They have undermined national security and reduced domestic employment opportunities by removing protection for their own agriculture, commerce and industry. They have wilfully suppressed their own cultures through manipulation of the education system in particular and public policy generally. They have engaged in a ceaseless propaganda conducted through the mass media which diminishes the native culture and promotes the interests of minority groups. They have dissolved national democratic control by entrapping their countries in treaties such as those which empower the EU, NAFTA, the WTO and the UN, the consequence of which is to greatly restrict the scope for national action.

Beyond the boundaries of their own countries, these elites have inflated through Aid the populations of Third World countries beyond that which their societies can naturally support. In addition, the traditional social and economic arrangements of these countries are eroded by direct Western political interference and trade rules which encourage cash crops over farming to feed their own people. The consequence of all this is an ever growing number of people in the developing world who have a desperate urge to move to the rich West, something made ever easier by the liberals’ support, tacit or open, for continuing mass immigration into the West.

At the same time, the populations of the liberals elites’ own countries are falling and are ever more vulnerable to the effects of the mass immigration being promoted by the elite. The necessary eventual consequence is the effective colonisation of Western states by immigrants.

The declining birthrates of the West are themselves the fruit of liberal elite decisions to permit abortion on demand, to actively promote the feminist agenda and to create economic circumstances which discourage breeding, for example, it is increasingly difficult for a family in Britain to be raised on a single average male wage. The relaxation of trade barriers weakens their own countries and leave them ever more vulnerable as they become progressively less self-sufficient, while promoting the wealth and self-sufficiency not merely of other states comparable in size, but states – particularly India and China – whose individual populations exceed the combined populations of Europe and North America.

Natural selection and group fitness

Western elites are doing just about everything an organism should not do to protect itself: allowing large numbers of those outside the social group to invade the group’s territory, removing resources from their territory and giving those resources to those outside the group and, most bewilderingly, assisting competitor groups to expand their population whilst restricting their own.

Why are liberal elites exhibiting such ostensibly self-destructive behaviour?? The answer may lie in the fact that elites think of themselves as a separate group, a group which extends beyond national and cultural boundaries. There is nothing new in this. The medieval aristocracies of Western Europe thought themselves part of a chivalric whole.

The putative advantage to the elites of international elite solidarity is that it allows them to weaken their dependence upon their immediate (native) populations.

How elites evolve

England provides a model of how elites can survive through evolution for a very long time. From the 14th Century onwards the general trend was to broaden the elite with, in the long term, the inexorable movement was towards Parliamentary government and from monarchical power. During this development the wishes of the masses were largely but not entirely ignored – the masses made their presence felt through rioting (the historian Lewis Namier memorably described the government of 18th Century England as “aristocracy tempered by riot”)

As the franchise broadened the masses were able to exercise an ever larger degree of democratic control because politics was still national and a political party had to respond to the electors’ wishes. The elite resented this control over their behaviour and looked around for a way to diminish democratic influence. They found the means to do it in internationalism.

In a sovereign country politicians cannot say this or that cannot be done if it is practical to do it. That is a considerable block on elite misbehaviour. So the elites decided that the way round this unfortunate restraint on their misbehaviour was to commit their countries to treaties which would remove the opportunity for the electorate to exercise control over policy. In the British case, the most notable example is the Treaty of Rome and the subsequent treaties which have tied Britain into the EU. Vast swathes of policy are no longer within the control of the British Parliament because of these treaties. Add in the treaties tying Britain to the UN and the WTO and the commitment of every mainstream British party to them, and democratic control has essentially gone. What has happened in Britain is mirrored to a lesser or greater degree throughout the West.

Does liberal internationalism make evolutionary sense?

Assuming the ultimate biological imperative for any organism is to pass on as many of its copies of its genes as possible to future generations, the liberal elites might seem to have a considerable advantage because the richer and more powerful the person the greater the potential for more and better quality mates and consequent offspring. The problem with this argument is that elites in the West do not breed prolifically and, indeed, have on average fewer children than those of the native masses whom they despise. Cultural norms have seemingly subverted biology.

But cultural norms are ultimately an expression of biology, so how has this occurred? I will offer this hypothesis: there is a strong natural selfishness in the individual. This is held in check to a greater or lesser degree by the social arrangements of a society. A society which emphasises tradition will rein in selfishness. Such societies will have a strong sense of “tribe” and frequently a religion which emphasises the need to breed, demands charitable behaviour and threatens punishment in an afterlife. There will also be an absence of any easy means of contraception – and quite probably a religious ban on it – strictly enforced marriage and the lack of a welfare state. All of these things will reinforce social cohesion and the immediate interdependence of individuals on one another.

Such societies are anathema to the modern liberal mind, whose perfect society is one from which national feeling has been leeched and whose members are held together by only a shared sense of “rational” desires such as a fair justice system and a good material standard of living. Having no sense of tribe they will not see it as a duty to breed. Having easy access to contraception they can copulate at will yet have few children. They even have an ideology which tells them that having children is simply a “life choice”. Selfishness is made respectable. A society has been created in which the restraints on selfishness have been loosened too far. The consequence is that the liberal elite behave in a way to satisfy themselves at the expense of their descendants.

What counts as biological fitness in human beings?

All organisms other than Man pass on their genes in the most obvious and straightforward way. The organism breeds and its descendants breed or do not breed. In animals which engage in extensive parental care what might be called cultural inheritance plays a part in the transmission process with members of the species varying in their ability to nurture their offspring. The young of such animals undoubtedly rely on the example of their parents and, in the case of social animals, other adults to acquire many of the behaviours needed to survive.

But even the biologically fittest of the most socially advanced non-human animal cannot pass on an advantage to their offspring which in any way approaches that which a human can pass to their children. Indeed, Man’s behaviour in passing non-genetic advantage from one generation to the next is so radically different from that of any other organism that it may be the biological imperatives which drive the rest of the natural world have been subordinated to this immense ability to pass on non-genetic advantage, an ability driven by the unique nature of Man who consciously identifies how advantage may be gained and passed on. Biological fitness in humans may be predominantly the ability to pass on non-genetic advantage rather than genetic advantage.

It might be argued that inherited non-genetic advantage will dissipate over the generations and that few families will maintain their privilege over more than a few generations. But the genetic inheritance of a family line is soon dissipated reducing by 50% per generation. In other words, non-genetic inheritance is at worst no poorer a bet in maintaining fitness than genetic inheritance and in some cases a considerably better one because the inherited advantage can be passed through a larger number of generations than any meaningful genetic legacy. There are aristocratic families in England today who descend from nobles who came over with William the Conqueror in 1066. But you do not need to be an aristocrat because the advantage goes down the social scale. In 2010 Prof Gregory Davis of the University of California published a very interesting piece of research which demonstrated that those with Norman descended surnames in England were on average richer than those with artisan origin names (Regression to Mediocrity? Surnames and Social Mobility in England, 1200-2009 http://www.econ.ucdavis.edu/faculty/gclark/papers/Ruling%20Class%20-%20EJS%20version.pdf).

If this a correct interpretation of biological fitness in Man, it makes sense for elites to grab as much power, wealth and privilege for themselves. But the haves must create social circumstances which allow them to pass their non-genetic advantages to descendants. It is no good enraging the have-nots to such a degree that they simply kill the haves or take their privileges away or changing the conditions of a society so radically that the elite loses control. The latter is precisely what modern liberal elites appear to be doing.

Can the liberal elite change?

It is undoubtedly true that elites as a group only ever have one settled principle, namely, to do whatever is necessary to secure their power, wealth and privilege. It is also true that liberals have at the personal level long feared the consequences of non-white immigration – vide the way they choose to live in very white worlds themselves – and since 911 have begun to openly acknowledge that heterogeneous societies are a problem. Many probably want change. The difficulty is that by internationalising their ideology through treaties and membership of supranational bodies such as the UN and the EU and a commitment to laissez faire economics, the liberal elites have surrendered control of their own individual national destinies and hence their power to readily change matters.

To this must be added the sheer inertia which is built into an international system which has grown since 1945 into an immense heap of political and bureaucratic power and privilege. An international army of politicians and bureaucrats have the most vested of interests in maintaining the status quo.

Most important is the existence of large populations of unassimilated and probably unassimilatable recent immigrants and their descendants. These populations manipulate the political process through their increasing electoral power and the tacit threat of serious violence to ensure further immigration from their respective groups, to influence foreign policy (including foreign Aid) and to maintain the practice of allowing unimpeded remittances from the host country to the ancestral country.

The liberal elites have seemingly adopted a suicidal strategy which because Man is a creature of culture and the culture of the Western elites has trumped not only the normal biological imperatives, but has led the liberal elites to create circumstances in which the human biological imperative of non-genetic inherited advantage cannot be exercised. By forgetting the importance of the tribe or, rather, mistaking what the tribe is, that is,  their own national group, they have set themselves on the road to oblivion. It might be likened to the evolutionary overshoot of certain of the nautiloids which evolved ever more convolutedly spiralled shells until they became biologically unfit and finally extinct. Evolution is not just about winners.

Japan and The Big Society

The response of   Japan to the triple  disaster of a massive  earthquake, gigantic  tsunami and nuclear  power failure  has been surprising. One of the most advanced industrialised states  and the third largest economy in the world has struggled desperately to deal with what is admittedly a dramatic and unusually devastating multiple disaster .  Not only has there been no clear resolution of the  nuclear power station problem  after several weeks, but the response to the distress of those who have lost their homes and all the conveniences of a modern state has been strangely inadequate.  People have been left with not only no homes or power, but without food and clean water.  In the worst affected areas even the legendary honesty and social discipline of the Japanese has begun to break down with looting. (http://www.telegraph.co.uk/news/worldnews/asia/japan/japan-earthquake-and-tsunami-in/8395153/Japan-earthquake-Looting-reported-by-desperate-survivors.html)

Is the inadequacy of the Japanese response simply a result of the scale of the disaster or is there something within Japanese society which has caused the lack of  useful response?   The scale should certainly not be underestimated because the tsunami alone damaged hundreds of miles of coastline to a reported depth of ten miles in some places and the toll of those dead is officially put at 10,000 and the missing at 17,000 as of  25 3 2011 (http://www.telegraph.co.uk/news/worldnews/asia/japan/8405619/Japan-earthquake-death-toll-passes-10000.html).  Moreover, the on-going problem of the damaged nuclear plant must be  a tremendous distraction for the Japanese government. Nonetheless, it does seem rather odd to the outsider that the response to the provision of basic necessities to the dispossessed has been so slow and patchy. It argues for at best a lack of reasonable planning for civil disasters of which there is a high probability. Japan is part of the Pacific “ring-of-fire” earthquake zone and tsunamis are a regular feature of the area. It might be argued that building nuclear power stations in a notorious  earthquake zone   is not the brightest thing to do, but Japan has little by way of natural energy resources so it is possible to see  why they have done it. What is less easy to see is why they should have built stations close to the coast with the obvious danger of a tsunami following an earthquake or even a tsunami overwhelming the station on its own.  

If there was a serious  lack of civil disaster planning why would that be?   After all, the Japanese are famously good at paying attention to detail and behaving in a disciplined social manner.   Perhaps the answer lies in the very social cohesion which has meant that  the development of  the state has been much more restricted than it is in most developed countries.  Japan has a population of 125 million, approximately twice the size of that of  Britain.   The Japanese budget for the present year is  less than £700 billion (http://www.reuters.com/article/2010/12/24/us-japan-economy-idUSTRE6BN0FQ20101224?pageNumber=1). The British Government’s projected  spend for the coming financial year is £710 billion (http://www.telegraph.co.uk/finance/budget/8403115/Budget-2011-graphic-Spending-income-tax-shortfall.html).  Japan spends less than the UK on public provision despite have a population twice as large. This means that the proportion of public spending is very low compared with most developed economies, the Japanese GDP being around £3.2 trillion of which the state spends  less than 25% .  Compare that with UK public spending which is pushing 50% of GDP.  

The surprisingly  low level of  Japanese public spending in itself means that the capacity of the state to deal with major disasters is severely limited.   This difficulty is amplified by the very high Japanese National Debt  which is approximately twice GDP.  Servicing this takes up a good deal of the Japanese government’s budget.   Money for public projects is in short supply and  it is a moot point whether Japan can be said to have a welfare state (http://www.onejerusalem.com/2007/10/14/japan-no-welfare-state/). If you fall out of work or ill in Japan and you are without the support of your family or friends, you can rapidly become  destitute.

Why is Japanese state spending so low?  Most probably it is  a continuation of traditional Japanese social relationships where support comes from  not only family and friends, but the general neighbourhood  and,  in the case of large Japanese companies at least, the organisation of  a person’s life around the place of employment. There is nothing abnormal about such development because it is precisely what happened in other industrialised countries before the state grew large.  Moreover, for many Japanese after  1945 the security offered by a fully-fledged welfare state was  largely substituted  by the giant Japanese companies who offered a job-for-life and  organised an employee’s life around the  business.  Although the job-for-life  culture has suffered considerable degradation in the past twenty years,  it stood in the way of the expansion of the state.

There is an important lesson for Britain and other developed states here. Japanese society is organised broadly as Cameron’s Big Society is supposed to be organised, with the state standing back and individuals forming a nexus of social-help. The problems this creates are only too obvious.  Japan has insufficient state capacity to deal with dramas such as it is currently experiencing or to provide for those who fall by the economic wayside. More generally, the insecurity which prolonged economic weakness produces – Japan has arguably been in recession for twenty years – will tend to make people less and less willing to think of the common good  if the support mechanisms they rely on are  informal and local.  

There is no question that there is often considerable waste in public spending . However, too little public spending is a greater evil than too much (provided the spending does not overwhelm the economy)   because too little leaves no spare capacity  to deal with either chronic problems such as long term unemployment or sudden disasters such as earthquakes or tsunamis.

Film reviews – Inside Job

Documentary

Director Charles Ferguson

Narrator Matt Damon

Released 2010

Run time 1 hour 48 minutes

http://www.sonyclassics.com/insidejob/site/#/cast

The last time I felt so angry coming out of a cinema was after a viewing of  The Smartest Guys In the Room, the story of the Enron scandal.   In the case of the Inside Job,  it was not that I was  given much by way of new facts, for I know the story it told  only too well.  Rather, I became angry simply by watching the grotesque drama which led to the present global financial disaster unravel from its beginnings; a  story well flavoured with recordings of the main players in the catastrophe either showing their reckless disregard for society at large before the recession arrived or trying to justify their behaviour afterwards in the most contemptible  and frequently risible fashion. (Watch out  for Prof  Frederick Miskin  explaining why he resigned as Governor of the Federal Reserve Board when the going got tough. His reason?  That he had to go back to his university to revise a textbook).  To that was added the dismaying knowledge that nothing has really changed since Lehmann Bros went down in 2008, with  the bankers who caused the financial disaster  still pocketing vast amounts of money, most of it provided by taxpayers.  There are some outrages which never  cease to shock no matter how familiar they become. This is one of them.

Those who have seen The Smartest Guys in the Room  will have a good idea of the approach and tenor of Inside Job. For those who have not, imagine a Michael Moore documentary without Michael Moore.  There are no cheap tricks, no exhibitionist presenter; just  mercifully jargon-free explanations of technical financial instruments and interviews quietly conducted by the director which allow the virtuous to express their outrage and the guilty to hang themselves with their own words and behaviour.

The film concentrates primarily on the American experience,  but there is no harm in that because the USA  is both an exemplar for what happened in much of the developed world and was arguably the prime driver of the global crash because of its globally dominant economy, although Thatcherite Britain needed no encouragement to tread the same criminally reckless path.

The film leads us through the story of the wilful creation of instability in the global financial system.   Jimmy Carter  began the process with the Deregulation and Monetary Control Act  (1980) and  Reagan followed it  up with the Garn–St. Germain Depository Institutions Act (1982). These  Acts allowed  Savings and Loans associations  (equivalent to British Building Societies) to behave like banks without being subject to the then  tight regulations  (the Glass-Steagall Act from the Depression) which divided investment banking from institutions taking deposits on a retail basis.  This resulted in colossal losses in the late 1980s and early 1990s with a great deal of US taxpayers’  money being used to rescue to rescue the situation.  This  gave the green light to the unscrupulous who believed, broadly rightly, that if any financial institution was large enough, it would be bailed out by the US taxpayer.

The experience of  the Savings and Loans scandal did produce  legislation to regulate anew the homes loans industry with   the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA).  That Act had one great flaw: it gave the two quasi-state mortgage granting bodies  Freddie Mac and Fannie Mae a  responsibility to support mortgages for low to  moderate-income families. That drove  the sub-prime lending.

The greatest  breach in the regulatory wall occurred in 1999. In 1998 Citi Group was formed by the merger of the bank  Citicorp and financial conglomerate Travelers Group . The only problem was that the merger was illegal under the remaining provisions of the Glass-Steagall Act which forbade any one institution from acting as any combination of an investment bank, a commercial bank and an insurance company.  Citi Group did all three . But  Citi Group were given a temporary waiver to allow them to dispose of their conflicting business in an orderly fashion.  Happily for them and sadly for the rest of the world, they were never required to make the disposals because in 1999 the  Gramm–Leach–Bliley Act (GLB )  repealed the parts  of the Glass–Steagall Act of 1933 which regularised Citi Group’s position and opened the way for any other US financial institutions to follow suit.

The final nail in the economic coffin was the failure of the regulatory bodies  such as the Securities and Exchange Commission (SEC)  to take any meaningful action against the newly freed  financial monsters .

The film does two other things well.  It explains the complicated  method by which deregulation was exploited by banks and their ilk and graphically shows the incestuous traffic between  politics and finance  and the way that academic economists have been all too willing to compromise their integrity by becoming hired pens for whoever is willing to pay them.  

How did sub-prime lending  and the general derivative mania become so rampant? Well,  there was the boost given by  the Recovery and Enforcement Act of 1989 mentioned above, but that  could not  cause the reckless lending to spiral  completely out of control. That required  the  Gramm–Leach–Bliley Act. After that anything went.  Dealers could create derivatives to effectively make a bet on anything.  

Most devastating to economies was the creation of Collateral  Default Obligations (CDOs)  and Credit  Default  Swaps (CDSs). The beauty of these  for financiers was that they effectively allowed a seemingly unending shuffling of responsibility and risk to someone else. With CDOs the relationship between borrower and lender changed dramatically. In the old days the borrower obtained a loan and paid it back to the person who made the loan. With CDOs the lender sold on the debt to a third party who bundled up various loans –  be it a mortgage, credit card spending or some other loan – with of widely varying quality and called it a CDO. This CDO could be sold on to investors, frequently with an AAA rating by one of the main credit ratings agency who were paid by – yes you have guessed it – the people selling the CDOs to investors.  To make the business even more opaque, CDSs were created to insure against losses arising from defaulting CDOs, effectively a form of reinsurance.   The final act in this fantasy world was institutions insuring CDOs they thought were junk with CDSs.  This meant they were compensated  when the CDOs failed while the buyer of the CDOs lost.   

Eventually the game of financial musical chairs had to stop and Lehman Bros  came crashing down to signal the advent of the worst global recession since the 1930s.  An interesting claim in the film is that Lehman’s was allowed by the US government to fail because the financial officers of the Bush Government did not understand the international implications of Lehman’s failure, most notably in Britain where the administration rules are radically different from those  in the USA and resulted in Lehman’s London offices being immediately closed. .

As for the nexus of  vested influence, this includes politicians, bankers, lobbyists, academics and credit rating agencies. One of the most telling sequences in the film is battery of senior personnel from the three largest credit rating agencies Standard  and Poor, Moody’s and Fitches – who consistently valued worthless or near to worthless  derivatives as AAA – testifying before Congress that their ratings are “only opinions”.  Closely running them up for dissimulation, is Scott Talbott, leading lobbyist for the Financial Services Roundtable, a man sharing with Dr Pangloss a belief that everything is for the best in the best of all possible worlds.  Particularly striking is the predominance of ex-Goldman Sachs employees in US government posts, men such as Henry Paulson,  Larry Summers and Robert Reubin.  It is worth wondering what the US government’s response would have been if Goldman’s not Lehman Bros had been the first US banking bottle to fall off the wall.

If you think Obama has made a difference, think again. He has employed a host of people from the financial world with  hands still dirty from their involvement in the genesis of the financial mess,  many of whom have served in the previous administrations which presided over deregulation.  This went right to the top of his financial administration. He chose as his Secretary to the Treasury  Timothy  Geithner , a protégé  of George W Bush’s  Secretary of the Treasury Hank Paulson, a  man who was up to his armpits in the ideological swamp of deregulation, while  the current director of the White House National Economic Council is Larry Summers who was Clinton’s Secretary of the Treasury when the  Gramm-Leach-Bliley Act was passed  – Summers greeted the Act by saying  “This historic legislation will better enable American companies to compete in the new economy.” In addition,  Obama  successfully nominated Bush’s choice for  Chairman of the Federal Ben Bernanke  for a second term as Chairman.  Plus ca change….

The most contemptible  excuse given by politicians around the developed world for the present financial debacle is that no one saw it coming. This is a blatant lie.  The film parades a baker’s dozen of people  in positions prominent enough to have  their voice heard by those in power who did warn of what was coming;  people like Nouriel Roubini (Professor of Economics at the Stern School of Business),  Raghuran  Rajan (when he was chief economist of the IMF) and  Christine Lagrade (French Minister of Economy, Finance, Industry and Employment). 

The coda to the film is the stark fact that none of the people chiefly responsible for the financial meltdown  have either faced criminal charges or had the vast fortunes they made during the period removed.  That applies not only in the USA but Britain, where provision exists to remove limited liability from company directors where they have failed to behave responsibly. The only people who have lost are as usual the less well off.

How the market fails to provide what the customer wants

 There is no better modern example of the market failing to provide what the customer both needs and wants than the computer industry. If it was driven by the customer, the computer industry would produce hardware and software which was easy to install,  had continuity of use, was simple to use and was supported by adequate help lines and manuals. The industry signally fails to do any of these things.

Hardware and software are of course purchased in ever greater volume and computer services, including maintenance, continue to swell.  But that is not an indication of customer satisfaction. Rather, it is simply a reflection of how computers have become an inescapable part of our lives, not only as obvious computers but also in the guise of so many of the other machines we use – everything from phones to intelligent clothes. Business and public administration have become so dependent on their use that they cannot do without them. That being so, whatever is on offer, however unsatisfactory, is bought out of sheer necessity.  The computer companies have the modern world over a barrel.

It might be objected that although most people cannot completely escape computers at their work, they do not have to bring them into their private lives. Yet increasing numbers buy computers for private use.

Why do they do that if the machines are so unreliable and demanding? Simple: once a significant minority have private computers and business uses them very widely, it becomes very difficult for the rest to resist, not least because businesses and government increasingly require those dealing with them to do so by computer.  But there are other pressures as well.

We have long passed the point where a handwritten document is  likely to be read by most people in business unless it involves an order or payment. Now, except between social contacts, everything must be wordprocessed to be acceptable.  A word processor or access to one has become a sine qua non  for anyone who wishes to be taken seriously.  Even amongst private individuals a letter is increasingly seen as unusual or even quaint.

With emails, we have not come to the stage that telephone ownership reached  a quarter of a century ago when not to have a phone became considered eccentric, but we are rapidly moving towards it.

Employers increasingly wish to contact employees by email wherever they are and this means the choice is often between having a computer and email at home or not having a job.

Those with school age children, whatever they think of computers, find it next to impossible to deny their children not only a computer but access to the internet, both because the children want it to match their peers and because they have been brainwashed into believing that a computer is a necessary educational tool.

In short, people are increasingly being driven to become computer owners  and users  not because they actively want to,  but because they feel isolated and excluded if they remain computerless. Again, aswith the analogy between telephones and emails, within the foreseeable future,  someone without a computer is in danger of becoming in the eyes of the majority as much as an oddity as someone without a TV is now considered.

Does “free trade” deliver greater prosperity? The lessons of economic history

Free traders base their case primarily on the increase in prosperity which they believe will only come through increased global trade. The general answer to that claim is that Man does not live by bread alone. Moreover, even if there is a general rise in the global product at present, it does not necessarily follow that the same or better result could not be achieved by other means.  The experience of all industrialised countries to date is that industrialisation is best achieved – perhaps can only be achieved by protecting the national economy. Indeed, there is a powerful logic in the idea that developing nations today require protection more than the early industrialising states  because  the early industrialising  nations  had  little competition.

But even if it could be shown indubitably that the global product is increased more by “free trade” than by protection, it does not follow that it is in a particular country’s interest to adopt free trade. Consider the position in a national market which operates “free trade” within that market, but protects its trade and industry from foreign competition. Companies go bust if they do not compete. But successful companies take their place and continue to provide employment at broadly similar rates of pay. The logic of global “free trade” is that countries which cannot compete will go bust and not be replaced by others in the domestic market. There will be no replacement jobs within the bankrupt country because the successful competitor is abroad.

The most lethal ammunition to discharge at “free traders” is the fact that no country in the history of the world has industrialised successfully without very strong protectionist measures being in place. That includes the first industrial nation, Britain, which spent a couple of cosy centuries behind the Navigation Acts, the first of which was passed in 1651, before becoming a free trader. Not only that, but Britain only adopted “free trade” principles after she had become heavily industrialised and did so at a time when the country was still the dominant industrial power in the world by a long chalk and her exports were more or less guaranteed to sell in foreign markets.

Before Britain dropped her old colonial protectionist system in the mid 19th Century,  she had industrialised in the modern sense from scratch and expanded her GDP massively. Perhaps most impressively she had managed to continue to largely feed herself without the price of corn going sky high, despite the fact that the UK population almost doubled between 1801 (the first Census) and the repeal of the Corn Laws in 1846.

As described above, Britain’s experience during her most committed “free trading” period was one of declining market share and commercial and industrial dominance while rigid protectionists such as Germany and the USA experienced massive growth. Of course, Britain could not hope to remain so dominant but her decline was remarkably rapid.  In 1870 Britain was the richest country by GDP in the world: by 1914 both Germany and the USA  had larger GDPs.  Moreover, by religiously adopting open markets, for capital as well as goods and services, Britain seriously distorted her economy. Vast capital exports resulted in underinvestment in Britain and foreigners manufacturers and traders took full advantage of Britain’s open doors. The result was that  by the

Great War in 1914 her farmers were on their knees and  modern industries such as the chemical and  pharmaceutical were  sadly undeveloped because of foreign competition (this distortion of the economy was soon to be a great national embarrassment during wartime when  many industries were found to be inadequate to replace imported goods).

Here is a German voice from 1913: “By its free trade policy England has been more useful to us than its numerous political machinations have been harmful to us. Where would our sugar industry – one of the first items to help us in our economical rise – have been today, or our textile and iron industries, had it not been for the free markets of England? Nowhere: we should have been entirely without our new German capital, our financial resources. On the back of free tradeEngland we  grasped  at  and  secured  our economical world-power….Industrial and political supremacy go together. Warships are machines, and the nation which succeeds in attracting the  centre of capital is the nation that can afford to build most. The present rulers of England represent the fourth generation of dictators to the world. It will not be easy for them to give up the role of ‘primus inter pares'”. (Prof von Schulze-Gaevernitz quoted – p347 -in The fall of protection 1840-50 by Bernard Holland)

Britain limped on with “free trade” after the Great War until 1931 when the secular religion was abjured, at least temporarily, during the Great Depression. Although unemployment remained high by historical British standards until WW2, the British economy behind protectionist barriers recovered quickly compared with most of the rest of the world. Most interestingly, the newer high-tec industries such as the motor, chemical and electrical recovered and grew fastest following their protection.

From 1945 to the mid eighties of the last century at least,  Britain continued in an essentially protectionist system, as did the rest of the world. The world economy grew strongly during the period despite the protection.  Even within the EU the “free market” mania did not really get under way until the Single European Act of 1985.

It is true that since protectionist barriers have come down over the past 20 years economic growth has been strong in the First World, but then it has been strong behind protectionist barriers  and, indeed, with state direction of the domestic market. Germany under Hitler in the 1930s recovered amazingly quickly, despite the fact that the Nazis pursued an economic course which was probably as close to autarky as it is possible for a major modern state to bear. Imports and exports were regulated according to what was perceived to be necessary to make Germany strong through self-sufficiency. What Hitler did not do was attempt to run industry directly. Instead, the Nazis allowed private enterprise to run commerce and industry whilst directing what was produced and supplied.

All of that tells us three things: that “free trade” is not necessary for rapid economic growth, that state regulation of the domestic market and international trade is not a recipe for disaster and that being a “free trader” when the rest of the world is not reciprocating is a mug’s game.

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