Crony capitalism in action

25 06 2011

Capitalism is a system whereby wealth can be distributed through an economic system by means of private entities competing for profit. In theory it is an efficient system of managing the flow of money through an economy, except if it subject to bias. When those at the top of the system interfere in the workings of capitalism, because of the narrow interests of one group, it becomes something different. Its called the highly inefficient system known as crony capitalism.

This is the background that has to kept in mind when understanding the crisis in the Greek economy today. ‘The Troika’, the high priests of European finance (the ECB, the IMF and the European Commission) are obstructing Greece from following the rules of capitalism. The Greek economy is drowning in a sea of debt that has been rolled up like a carpet over the years. They need to default on their loans and then start again, free from the burden of debt. Anybody who is owed money from the collapse will have to form an orderly queue and they will get whatever is leftover from the mess.

The Greek government has now had more stringent austerity measures rammed down their throat, images such as this will be repeated many times in the coming months and years ahead.

If your local baker starts selling mouldy cream cakes, his revenues then fall off a cliff and he borrows more and more to keep the bakery open, he will go bankrupt. The above is the set of rules set out to deal with aftermath of the bakers (or a country’s economic) failure.

But that is not acceptable to the archbishops of finance, because many of the mega banks in the world are exposed. However, it is not true to say that those dastardly Greeks took advantage of their international financiers. In fact they couldn’t have done it without them, as we discovered when the ‘creative accounting’ services offered by Goldman Sachs exposed how the Greek government and international finance have conspired to hide the true level of Greek debt.

In this story, nobody is truly innocent. The big banks have a lot of money sunk into the Greek economy, and they want it back, with interest. They do not care who pays, whether its Greek, German or French taxpayers.

The financial masters of the universe have a simple argument which they are willing to defend at all costs. Basically they bet a lot of money on a horse that came 12th in a race. Now they are back in the betting shop banging their fist on the counter demanding their winnings. Nobody told them the horse had one leg shorter than the other, in fact the horse was supposed to have bionic super legs, its not their fault.

The major banks deemed the horse in the foreground of this image their best chance,
it has now had the audacity to come last in the race

So our wise elected officials should tell them where to go right? The financial masters have an answer to that of course. If anybody defaults, the ATM’s could freeze, the world economy could suddenly grind to halt. The politicians buy this because that is what nearly came to pass after the collapse of Lehman Brothers in 2008.

To avoid disaster the politicians had to subsidise the banking systems so that they could continue to operate. This is where the cronies come in, banking is a now a publicly underpinned business given special treatment, in a similar way to farming.

European farmers are protected from the wrath of capitalism by public subsides, basically so that there is food on the shelves in the shops. Now bankers operate without fear of failure, safe in the knowledge, that if governments ever get tough with them, all they need do is begin prophesying armageddon.

An Irish dole queue, ordinary citizens must line up for their social welfare payments,
the ‘bankers dole’ is a much more civilized affair, usually drawn down over coffee and biscuits in government buildings.

This is what Germany tried to do with the latest Greek bailout when they tried to impose losses on the banks involved. But the bankers steadfastly refused, warning the sky would fall in if such a thing happens. The politicians backed down and now the banks can make ‘voluntary’ losses, what moron would voluntarily lose money?

So ordinary Greeks are not allowed capitalism, they are in need, but the high priests of finance in Frankfurt, Paris, London, New York and Brussels are deemed more worthy. Go to the back of the line and wait patiently, or the four horsemen will come riding over the hill.

Interestingly, the Irish bank AIB defaulted last week and nothing happened. The ATM’s kept working, the grass kept growing and the sun rose the next day. Remember, the emperor is stark bollock naked.





Economics as a religion

2 06 2011

Back in the 20th century when the world had two competing ideologies, economics began lurching towards taking on a religious role. A subject that was once closer to science, started to drift in the direction of theology. What was once based on statistics and evidence now revolved around earlier beliefs set in stone and taken as ‘truths’.

This initially took place in Communist Russia as the cult personality of Lenin and Stalin ensured the economic doctrine of their version of Marxism became the only viable way. The democratic west snorted at this totalitarian vision of every detail in an economy being run from within the bowels of a building in Moscow. As we discovered in the late 20th century, Communism was a hugely inefficient way of running an economy. It had rotted away from the inside to the point where it collapsed, the only reason it kept going for so long was that it was propped up by those who believed religiously in its virtue and success.

Josef Stalin and Vladimir Lenin imposed Communism on Russia almost as a replacement for religion, mostly for their own political ends.

In the capitalist economies of the west those who called themselves socialists were dismissed by their opposites of clinging onto a discredited cult religion. They argued that trying to manage the economy was a disastrous approach, one that led to totalitarianism. Better instead to let the market economy run its course. Out of this idea was spawned a new belief by the very people who derided the assumptions and theories of their old enemies in the communist party.

This new idea of pure capitalism was developed most notably at the Chicago School of Economics and by its main cheerleader, Milton Friedman. In a nutshell, this idea worked on the assumption that markets will go up and down but will always find a level playing field. The market with hundreds, thousands or millions or transactions will always deliver efficiency and competitiveness to the economy that lets it operate and does not interfere. This became known as neoliberalism, these theories found favour at the end of the 1970’s when Ronald Reagan in the US and Margaret Thatcher in the UK picked up on these radical new outlooks for the western economies.


Milton Friedman, godfather of neoliberalism and the majority of current economic thought.

Over the next 30 years the introduction of market economics was introduced to nearly every aspect of industry and public services. Across the political elites of Europe and North America it has become the fix all answer to any of societies woes. If a publicly run service has problems at its core, privatise it and let competing private entities find that level playing ground and the service will now, completely naturally, run efficiently and cost effectively.

Politically there is no real trumpeted alternative to this, like communism before it, neoliberalism has passed into the realm of religious fervour. There is now a long list of test cases where market economics has been applied and utterly failed. Chile in the 1970’s, Russia in the 1990’s and the financial worlds of the US and Europe in the 21st century.

From the top of politics to the upper reaches of academic economics, right through to the most vocal media commentators, neoliberalism is alive and well. This despite the world being well into the aftermath of the second catastrophic failure of laissez-faire capitalism in under a century.

At this moment Greece, a country where the neoliberal crisis has caused the failure of its economy, is being given strong medicine to cure its ills, its called…… neoliberalism. The country is being told that privitisation and deficit reduction should be its main priorities. So it cuts government spending, which exacerbates the downward tailspin of the economy, resulting in less tax receipts and further burden on social spending, which results in a larger deficit. When the medicine does not work, it is told rinse and repeat again.

Greece in crisis as ordinary people suffer the economic catastrophe, but although neoliberalism has failed them, they must suffer for the sake of Europe’s failed neoliberal bankers.

Politics and economics now find themselves wedded to a religion, a sacred economic doctrine to which there is no alternative. Most of the top politicians and their economic advisers have been brought up in this church and in the cold hard world of evidence and statistics that don’t add up, they do not know where to turn.

We are at a turning point in political and economic history with leaders that are wholly unsuited to understanding where they are in this vacuum. Interesting times, but we have not heard the last from the school of neoliberalism, because as Albert Einstein once described insanity, “doing the same thing over and over again and expecting different results.” What else is a politician to do when he has never contemplated an alternative.