In his op-ed “Why the National Broadband Network (NBN) will fail” Malcolm Turnbull argues that the commercial sector is better placed than the government to deliver the technical infrastructure needed to provide high-quality, reliable and affordable broadband in Australia

His argument follows a fairly logical economic line, with a twist of Australian context:
- it will cost too much to build ($43b over nearly 10 years),
- it will cost too much to users (hundreds of dollar of subscription per month),
- it is decreed by politicians rather than driven by market demand (so assumes inefficient allocation of capital and funding),
- it will be build by Canberra which is notoriously bad at delivering commercial services (remember the insulation programs and school halls?),
- and finally it is potentially taking money away from other government services (why spend money on optic fiber when basic health issues still need fixing?).

In summary Malcolm Turnbull really prosecutes his case along 2 lines:
- the size of the investment is misguided because it is too big
- the commercial sector would be better at delivering this important piece of infrastructure.

When asked to give an argument why the commercial sector would be qualified to deliver to the national interest, Malcolm responded that “he would give the same argument as Adam Smith gave”. i.e.:
“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.”

If the considerations on the NBN were not enough, this invocation of Adam Smith is definitively an invitation to try to articulate a response. In 3 points:
1 – why Malcolm’s criticism of the NBN illustrates the “Pensée unique” (”unique/restrictive thinking”) that has been infiltrating every aspect of the public debate for a few decades,
2 – why quoting Adam Smith to assert the obvious supremacy of the commercial sector could actually be slightly misguided as Economics Nobel Prize Amartya Sen shows us,
3 – and finally how looking at examples in the Finance and Banking industry actually shows that the research of profit doesn’t always work to deliver backbone infrastructure. Even businesses have learnt this lesson.

Let’s also make clear here that this post is not about vilifying Malcolm’s piece, but rather an opportunity to open the discussion.  If anyone actually *gets it* on the Liberal side of the Australian political spectrum, he would be the one, as attested by the bi-partisan support he regularly receives. Also being cognisant of the fact that his opposition to the NBN is a political posture, not a technology consideration.

1 – ‘La Pensée unique’ and ‘our National Interest’

The French have coined a name for the ideological entrapment that consists in trying to analyse everything though an economic rationalist lens. They have called it ” La Pensée unique” (the Single/Restrictive/Unique Thinking) since Ignacio Ramonet published his landmark editorial in Le Monde Diplomatique in 1995.

The ‘trap’ is to bring everything back to a pseudo science of numbers, which gives the financiers and other “responsible adults” the upper-hand in buiness matters. A financial-busisness language has become the Lingua Franca to discuss and decide the way things work in our global society. It’s all about “return on investment”, “profit margins”, “cost drivers”, “market share”, etc.

So strong is the Force that it now defines major political orthodoxies and debates. Despite some posturing at the margins, this dogma has been widely accepted by all mainstream parties. This is why it has become *Unique*. The Right was always a clear champion. The Social-democrat-Labour Left has also accepted it, and swallowed the pill.

The media is logically the main vector and victim of this thinking. This economic dogma is now insidiously part of our daily liturgy of news: ‘Business Insider‘ programs serve repackaged corporate strategies for dummies for breakfast on Sundays; daily Nikkei index fluctuations are incantated at every news bulletin. Even respected news and current affairs programs such as ABC’s Lateline have succumbed and now have a ‘Business’ extension (see ‘Lateline Business‘). What is the trouble? Well, the trouble is that instead of being inquisitive pieces of journalism they have turned into a sort of on-going complicit celebration of businesss achievements. A metaphorical allegiance to the ‘great spirit of the market’. The tone of the reports and interviews goes nowhere near the level of investigation expected on politcal or social issues;…
… and also – trust me – the people who really need to know the fluctuations of the Nikkei index, or the latest market briefing from CitiBank to do their job won’t get it from the current affair TV shows!

The consequence of this “Pensée unique” mentality is how decision makers apply an economic rationalist judgment in their dealings. Its core principle is that, in today’s global world, political will is subordinate to economic laws. In other words, the market knows best and should decide the appropriate allocation of capital towards productive assets.

This is how Malcolm Turnbull assesses the NBN. The business case doesn’t stack-up. Therefore this is no good. Politicians should not decide where the money will be allocated. Let the market decide instead.
Given the comments on his social media feeds, people buy this argument. Although most of them have probably never put a business case together and don’t really understand how fudged an exercise this can be.

Just a short side anecdote to illustrate this ‘business case’ view of the world…

I remember going to lecture given by one of the most senior Microsoft executive a few years ago. He was talking about innovation and himself provoked the audience asking if they had ever seen a business case for… the telephone:
“have you ever seen a business case for the Telephone? You know… the telecom system first patented by Alexander Graham Bell in 1876…. No? you have not seen any? Too right. Because there was none.”
And the same goes for the internet, airplanes, modern hospitals, or even the modern public school system…

Yep. Public social infrastructure too:

When the French Minister for Education Jules Ferry established “free mandatory education for all children of both sexes between the ages of six to thirteen years” in the early 1880’s in France, he did not do a business case. Had he done so, he would have probably found that it would make more economic sense to keep those kids working in the mines.

So. Those things happened because at some point in history some decision makers had the vision that it would be better for society, not because it was going to stack up on pseudo short term economic returns.
Regarding the NBN, numbers are in an order of magnitude that Australia can afford and absorb:  1.5% of the Commonwealth total expenses in 2010-11, that is  a quarter of the Defence expenses during that year (1).  So rather than nitpicking on the size of the investment, should we rather focus on understanding and realising the indirect returns that will be generated years after and will flow back into the country’s economy?

2 – Adam Smith has to be one of the most misquoted and misunderstood authors

Modern economists and pro free-marketers invoke him to explain in a Panglossian logic that self-interest ends up creating the greater good. As an echo to Gordon Gekko’s “greed is good” – albeit in a more respectable manner.

However most of the misunderstanding about Adam Smith comes from focusing solely on one paragraph of his writing, resulting in a partial reading of his theories. The famous quote from The Wealth of Nations, which was invoked by Malcolm Turnbull is a classic example:

“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages”

Quoting this requires prior knowledge and understanding of the hidden literary historic context of the paragraph. Otherwise we run the risk of reducing his work to a bunch of aphorisms.

Economics Nobel Prize Amartya Sen did some work to remind us of the context of the butcher, the brewer, or the baker quotation. (See the enlightening essay in The New Statesman )

Smith dealt in relatives, not absolutes. The ‘butcher, brewer, and baker’ were living under the monopolistic Guild system that had controlled the supply of food and necessaries in most British towns since the 16th century. Workers would be paid more than likely unjust wages. Traders would lie about the quality and origins of their products.
In summary, the bargaining power was skewed in favour of those in position of monopoly; and transparency of information was a pretty alien concept.

In this context the Smithian antidote to monopoly is competition, not as an idealistic model, but as the best known remedy to selfish behaviours emanating from monopoly.

The Acts of Parliament that created state-granted monopolies, which often fostered private cartels and ‘conspiracies’ against the consumers, were often originally awarded with good intentions, and had by mid-18th-century Britain become barriers to commercial growth, jobs and good health.

This is the context in which Adam Smith’s critiques of such government interventions have to be understood. They are enunciated in a severe manner in the Wealth Of Nations. So severely that modern readers often generalise incorrectly his specific remarks about 18th-century government interventions as his supposed opposition to all government interventions. It is far from the case.

I could paraphrase Amartya Sen extensively:

“Smith was convinced of the necessity of a well-functioning market economy, but not of its sufficiency. He argued powerfully against many false diagnoses of the terrible “commissions” of the market economy, and yet nowhere did he deny that the market economy yields important “omissions”. He rejected market-excluding interventions, but not market-including interventions aimed at doing those important things that the market may leave undone.
Smith saw the task of political economy as the pursuit of “two distinct objects”:
- “first, to provide a plentiful revenue or subsistence for the people, or more properly to enable them to provide such a revenue or subsistence for themselves;
- and second, to supply the state or commonwealth with a revenue sufficient for the public services”.
He defended such public services.
Beyond his attention to the components and responsibilities of a well-functioning market system (such as the role of accountability and trust), he was deeply concerned about the inequality and poverty that might remain in an otherwise successful market economy.

Coming back our NBN story, I am not sure that invoking the need for more competition in the Butchery would really settle the argument for decisive action from the Commonwealth to look after the common national interest and build a much needed public service.
This is the point: it would not be inappropriate for the infrastructure backbone to be public (like our roads). Up to the applications and services transiting through the internet pipes to be private (like our cars).

3 – Finally let’s ponder examples that show that even businesses have come to realise the limitations of pure commercial profit driven models

Let’s even pick an industry that nobody would accuse of flirting with a ‘misguided’ pro-socialist agenda: Banking and Finance.

In Germany and in New-Zealand banks realised that having a functioning payments system was of the highest public interest: we are talking about credit cards, debit cards and EFTPOS terminals that you find at the merchants.

Banks realised that consumers were reluctant to be charged fees at Point-of-Sale (eg. The 2% to 5% surcharge that you pay in some countries if you use your credit card). Reluctant enough to stick to cash (bank notes & coins) or cheques.
On their sides, Central Banks saw systemic risk in a dysfunctional payments system. After all, it is the blood system of our retail economy. Millions of Euros and Dollars get cleared everyday between the merchants and their clients.

Rather than leaving it to commercial interests to engage in destructive competitive behaviours, the German Bundesbank stepped in and coordinated the creation of a Payments Utility whose aim was to run at very low cost, for a very low profit, a solid reliable infrastructure backbone making German debit cards extremely cheap for bank customers.

A very similar scenario happened in New-Zealand where 4 major banks joined forces 20 years ago to create a Utility Company with the support of the regulator, which drove the highest levels of EFTPOS adoption per capita in the world. Over there, you simply pay your coffee with your Debit Card because banks barely charge for it.
For all the talk about electronic money, the Kiwis just did it. Not via a ruthless commercial venture, but by setting up a Utility, not focused on profit making, but with a charter to deliver a cheap robust service to the community.

Conclusion

On the other hand, I could give examples of commercial ventures clearly not working in the public interest when it comes to delivering infrastructure. Just one example of social infrastructure.

In Malcolm Turnbull’s electorate of Wentworth the Bondi Junction Childcare centre is run by a private company – ABC Learning Centres – and charges $110 per day (yup. one-one-zero). The neglect/saturation of the public services is such that parents have little choice not to resolve to abide by the private tariffs. Do the maths. $110 represent $2,200 per month if your go 5 days a week. That is $26,400 per year…. for what is considered in other civilised countries with a decent social contract – such as France – basic social services that you receive ‘for free’ because your taxes are put to good use. This is a fairly shaky invisible hand on that one, isn’t it.

Your correspondent hopes this helps put some perspective on the Butcher’s own interest.

{ leLaissezFaire }

(1): Doing some rough maths on the NBN numbers: $43b over 8 years is around $5.5bn per year. That is 1.5% of the Commonwealth expenses in 2010-11 (total: $354b) (source treasury). As a comparison Defence is 20bn per year.

“Why is the religious right so obsessed with teh gays?” … this sounds like a legitimate question, and an invitation to do a bit of History research.

The control of moral of virtue by the Church is a power play whose roots and incentives can be traced back in the historical context of the birth of Christianity.

The third century saw a significant growth of the Christian Church across the Roman empire. So successful that it reached 5 millions of followers by 300AD, becoming equal in numbers to its other monotheist rival: Judaism. Even more noticeable, the Christian Church had become wealthier that the Jewish temple.

How did this accumulation of wealth happen? Especially amidst a massive systemic challenge: the Roman empire was not expanding anymore and its economic costs were shooting through the roof?

To answer this question will not only enlighten us on the Church’s early strategy  but also shed some light on the fallacies on which the Church dogmas are built, and therefore answer the introductory question regarding the religious right’s obsession with (homo)sexuality.

We need a strategy…

a. An ideological strategy

- The first plank of the early Church strategy was to “reclaim the Abraham inheritance”. In other words: to try to appear as the one original religion going all the way back to the Bible, and by doing so, positioning Judaism as an intermediate step, a temporary side show whose natural next evolution was Christianity.

- The second part of the ideological strategy was a strong control of society’s sexuality. It led to a series of subtle and terribly efficient dogma developments around the control and repression of the followers’ intimate life.

- Sexuality in the community as a whole: the main measure was the ban of Divorce (as attested by the call of Ignace bishop of Antioch of an “orderly sexuality” at the beginning of the 2^nd century).

-Sexuality of the Church’s celebrants: the priests celibacy and the impossibility for women to be ordinated became a fundemental pilar of the Church.

The Council of Nicaea held in AD 325 locked this in Canon 3:
“The great Synod has stringently forbidden any bishop, presbyter, deacon, or any one of the clergy whatever, to have a subintroducta* dwelling with him, except only a mother, or sister, or aunt, or such persons only as are beyond all suspicion [* meaning a female human being].”

The Council of Nicaea is really worth reading about. It was to the early Church what an extraordinary Board meeting deciding the strategic direction for the next decade would be to a Global Corporation these days. All the major bishops from around the Mediterranean region met and agreed a variety of foundational  canons that have been digested by 2,000 years of worship as ‘the way it has to be’ for millions of Christians, when in fact they are just the outcomes of arbitrary decisions made by mortals priests subpoenaed to this Ecumenical assembly…

Back to our main point. This particular repressive stand on sexuality became the “Mark of the Christians”.

The church had been looking for a differentiated trade mark from Judaism. A social differentiator that would give its follower a strong sense of belonging to a unique group. The ‘finding’ of an a-sexual dogma was a line that it pursued enthusiastically.

However there was more to it than just ideology. As every shrewd business man knows, ‘marketing and branding’ are nice. This is what the masses get to see. But there is one ulterior motive above and beyond ‘controlling the hearts and minds of teh people’: that is to control their finances.

So here you go. Economic incentives for the founding fathers (surprise surprise).  Here is how research gleaned by your correspondent can be summarised…

b. An economic strategy

First, it has to be made absolutely clear here that the moralistic justification of a reaction against an assumed debauchery of the Roman society, which we hear from superficial Christian sources, is an absolute fallacy. Presumed systemic licentious Roman deviance among the elite is a myth. The ‘paterfamilias’ had a firm grip on his household. Loss of virginity for girls, if not as dramatic as it would become in Christian society was still a major deal.  Stoicism was in the air (read Artemidorus condemning excesses in The Interpretation of Dreams).

Faced with population decrease, the imperial regime tried to react by blaming late marriages and divorces. Augustus had bills passed to that effect Lex Iulia de maritandis ordinibus and Lex Iulia de adulteriis: adultery became a crime for women; single men and childless married men faced carrier restrictions.

If Christian dogma was really an overstatement aimed at Romans as well as Jews to try to forge a differentiated social brand, the real coherence of the Church was to win the ‘culture war’ AS WELL AS the ‘economic war’: The other big monotheist competitor – the Jewish Temple – was rich and had to be beaten at this game as well.

So the Church devised strategies that would not only deliver on the ideological, but also on the financial front. Wealth accumulation was top of mind.

This is where priest celibacy, and sexual control can be analysed under a different light

Back in those days the ‘church’ buildings were the homes of the priests. Their houses. And their main assets. Having those assets divided and passed on to the priest children was a massive loss for the church. Imposing celibacy  and therefore gaining the assurance that the Vatican would eventual inherit those houses because of lack of descendants was a massive strategic coup, which paid off. Imagine the quantity of real-estate that got credited to the Church’s balance sheet as years went by. Thousands of childless early priests leaving their homes to the Church after their death.

The same philosophy applied to the ban on divorce. The risk of a divorcee re-marrying outside of the Christian community was just too much of a threat to see wealth evasion. It has to be mitigated. The interdiction to divorce was a convenient economic measure.

Which leads us to the opening statement of this post: the absolute obsession of the Church with homosexuality.

From the Church stand-point, the annoying aspect of homosexuality is that it inherently defies the core of the power game it is trying to play.

Homosexuality inherently dissociates sexual activity from procreation. In the mind of a third century Bishop this would  meant uncontrolled sex, because outside the perimeter of a family. Homosexuality clearly states that sex is gay (‘gai’ in French means ‘fun’). Sex is entertainment.

This is the biggest insult of all for the self serving guardians of the Episcopal moral order. A counter-moral-stand involving humour, fun or entertainment would brush away the constrains of the canons, which can only hold as long as fear of sin keeps the flock in check.

It is an intolerable menace to the ideological strategy: if we can not control your intimacy, we won’t be able to control your mind.

It is an equally intolerable menace to the economic strategy: uncontrolled partnerships between priests or monks, or within the community would mean a weaker grip on where inheritance, donation and wealth would flow. If you are not convinced, think again of the strategic positioning of the church for 2,000 years in celebrating marriages and therefore being in the circuit of wealth nuptial exchanges between families. It would be interesting to see if there have been any rigorous sociological studies on this topic.

Conclusion

The proposed answer to the original question “Why is the religious right so obsessed with teh gays?” is that they actually don’t know themselves. They have forgotten, or probably have never rationally studied the origins of the canons. Their modus operandi relies on incantations and hysteria.

It is clearly amusing to hear Christians justifying the gospel canons exclusively through a moral and spiritual prism. Whilst it has its importance – the Church’s business is to look after spirits and souls after all – introducing a bit of real-politik and rational analysis should help the informed minds understand what lies at the root of some of the hysteria, and who knows, it might also help diffuse some of the ambient bigotry.

{leLaissezFaire}

Sources:

The relationship between the Church, Money and Power is an intriguing field of research, which tells a lot about the hsitory of western societies in the past 20 centuries. Philippe Simonnot ‘Les Papes, L’Eglise et l’Argent (The Popes,  The Church, and Money) is a rigorous and accessible start, and the source of most the facts put forward in this post (unfortunatelly I believe in French only)

You all did love him once, not without cause
- Julius Caesar Act III, Scene 2

Iron Chef, every Saturday night on SBS

In some respect, the political assassination of Kevin Rudd was executed like a reality TV show.
Millions of viewers watched live on prime time TV political correspondents turning into a bunch of Iron Chef Commentators: “skuza! I think the Deputy Prime Minister is now walking to the PM’s office. We don’t know if they will have Miso soup for dinner” (1)

As the night went on, the rumour inflated: would the ‘factional leaders’ among the 115 contestants of the governing tribe(2) decide to subject their Chief to an Immunity Challenge?
The whole thing ended up 24 hours later with an elimination ceremony at the Tribal Council. Kevin was the weakest link. Kevin had to go.

So much eloquence has been displayed to comment, and even predict this downfall (David Marr’s Quarterly Essay, Annabel Crabb’s Rise of the Ruddbot). What is it to add? Especially as we are heading towards a new federal election anyway.
Maybe we could clarify some simple questions and recap what we’ve learnt?

Bill Shorten on the night of Kevin Rudd’s Immunity Challenge (Wednesday, 23 June 2010)

Question #1 – Who are those factional leaders?
“We don’t vote for them, we don’t even know their names and we’re not quite sure what they do. But they wield enormous influence. They are the power behind the power. They are The Hollowmen.” was the tag line of the eponymous ABC series The Hollowmen.
The reality has caught-up with the fiction, albeit the hollowmen responsible for Rudd’s demise were not Canberra public-servants from the policy unit of the fiction series, but a handful of Labor party operators who terminated him “à la Italian way”: at night, from the restaurant, over the phone by rounding up the troops and “doing the numbers”.

Answer and Lesson #1: although known to the constituency, the Party’s king makers are not the people we see taking profound and thoughtful roles in shaping the public debate. Your correspondent remembers watching Mark Arbib from time to time on national TV (ABC lateline or QandA. Pick any): to put it nicely, he frankly comes across more as your Party Room bouncer than policy maker or deep thinker. Has he published anything of substance? How he ended up having the power to change the PM remains a bit of a mystery. And more a reflection on his Party than himself by the way.

Mark Arbib

Question #2: So what is this Westminster System exactly?
According to the text book: A democratic parliamentary system of government modelled after the politics of the UK. It has a head of state, the Queen, who despite being the theoretical holder of executive power mainly does ceremonial duties. Her representative in Australia is the Governor General (ceremonies for a living). The Prime Minister (PM) is the head of government: typically the head of the majority party in the elected Parliament. The executive branch is the cabinet led by the PM. The parliamentary opposition plays an important role by appointing a shadow cabinet on its front bench: ministers have opposites who work on the same portfolios and make sure not issue is left unturned.
The parliament is often bicameral: a lower house (house of representatives) and upper house (senate). Among a few frivolities, the lower house does have the ability to dismiss a government by “withholding -or blocking-  Supply” ie. rejecting a budget. It happened in Australia in 1975 to Labour PM Gough Whitlam, who eventually got sacked by the Governor General.

But the killer difference with a Presidential regime is that the real boss (the PM) is actually NOT DIRECTLY elected by the people. As Bob Hawke (PM in the 80s) put it in his usual colourful language when hearing the claim made that Kevin Rudd had been elected by the Australian people.
“That’s a lot of bullshit – the Australian people don’t elect the prime minister; the Australian people have never elected the Prime Minister.”
“The parties, on both sides of politics, elect the Prime Minister, and once they’ve done that, if they’re still around at the time of the next election, he or she gets the chance to get the endorsement of the electorate.”
“To say otherwise is a fundamental misunderstanding of the constitution and of parliamentary practice.”

Answer and Lesson #2: we don’t vote for the Prime Minister. Thatcher and Hawke ousted by members of their own cabinets in the 1990s – respectively John Major and Paul Keating – would concur. We vote for a Party.

Question #3: What’s with this leadership challenge (or #spill) that left everyone wondering WTF was going on? (and it’s not going away)
It actually did not look like a political process, but rather like a corporate sacking.
“Get in the room. See your boss with an HR officer. 15mns conversation. You’re done. Put your things in a box, give your security pass back and please leave the building accompanied by a security guard. You’ve been fired.”

Answer and Lesson #3: This is in essence what happened to Kevin. The Hollowmen fans were dreaming of The West Wing, they got Up-in-the-Air instead.
In our conditioned civilian minds, that’s not the way things are supposed to work in politics. Processes are supposed to take time. The players were supposed to come to the 7:30 Report or Lateline to massage the case a bit. Not this time.

Conclusion: What about the health of our democracy in all of this?
This is probably the real question that I have not heard in the last 4 weeks.

There is actually some good and some bad.

The pretty bad?
There is something quite unsettling in seeing a PM, head of government, accountable and responsible for major decisions such as sending the country to war, vanish in 24 hours. Vaporised. In 24 hours. Not by the will of the people after a long (albeit often unsatisfying) campaign but by party apparatchiks.
The unease is probably coming from a vague subconscious association between the disposability of the leader and a potential flimsiness of the institutions. Social constructs where leaders get purged that way are not usually healthy beacons of democracy.

The good?
On the other hand – taking a totally opposite view – it could be argued that compared with presidential regimes where unpopular Presidents are sticking to their position like clams on a rock (e.g. Sarkozy in France), the ability for constituents to pressure the governing party is a more democratic proposition. In theory, the Aussie way enables citizens to send signals via polls and dissatisfaction feedback through parliamentarians, and be heard. The Parties are supposed to take notice. Their incentive to stay in power is to take corrective action further to the citizen’s grievances and change the executive branch. A sort of self regulation.

But is it?
Irrespective of what you think of Rudd, his style or his policies – this was not the point of this post – you probably want to reflect on the real lesson (re)learnt from this episode. We have a system that really favours the role of the Hollowmen and their mode of operation. It really does.
To paraphrase what Arthur Sinodinos wrote in his Australian column: “party powerbrokers saw the polls and blinked. It became save-the-furniture time. Imagine this lot running Britain in 1940”. He has a valid point.

This alone should be enough to re-open the debate about the Constitution and the Republic.

The terms of this re-prosecution would not be about the Queen or the flag. It would be about asking if Australia is equipped with the appropriate mode of government so that political leaders can make the required uncompromising choices to deal with environmental issues, wealth redistribution, and basically the future of the Nation; without fearing to be bumped at the next poll hiccup.

{ leLaissezFaire }

Julia Gillard, 27th Australian PM – Kevin Rudd, backbencher

Foot-notes:

(1): Japanese television cooking show which run from 1993 to 1999 and got revived with uber-kitsch cult status on Australian’s SBS Channel.

(2): the 115 Labour members of the House of Representatives and Senate form the Labour caucus.

With relatively low media coverage, Australia is facing a pretty defining ‘moment’: the design of a new National Curriculum which is to supersede individual State Curricula over the years Kindergarten to Year 12 (K–12).
Teachers and education professionals have now embarked on the ambitious project to design a new education structure “to support all young Australians to become successful learners, confident and creative individuals, and active and informed citizen; as well as to promote equity and excellence in education”.
If properly seized this opportunity could be to schools and academia what the superannuation reforms of the Hawke / Keating era have been to the economy: the type of visionary stuff whose consequences we are still measuring 20 years later. If properly seized. (1)

The point of this post is to suggest that to get it right the designers of the new curriculum should reinforce the role and place of Humanities in what students learn. They should focus on going beyond the increased ‘business requirements’ to ‘deliver’ vocationally-trained and technically-ready students satisfying employability criteria, and instead set the goal of making better students by making better-rounded human beings. A consequence of which will be the re-appreciation of the role of Teachers.

The Mother and Aunty of all battlelines: Culture and Education

It is a cliché but let’s reassert it again: getting Education right, and preserving the integrity of its Schools and University Campuses is a fundamental challenge for any self respecting Nation.
The classroom is where every kid’s apprenticeship for becoming a citizen starts… and Uni campuses where the first expression of this citizenship has been at times vehemently expressed. Think La Sorbonne in Paris, 68, Berkley in the 60s, the University of Political Science & Law in Beijing in 1989…
Closer to home we can reminisce how former Australian PM Kevin Rudd campaigned on an Education Revolution in 2007. This was before the GFC. The following months revealed what a premonition that was.

Culture vs Business

Policy makers and economic commentators have spent the past two years on a hangover from the Global Financial Crisis rivaling in eloquence to explain how things possibly went so wrong.
We have heard a lot about technical financial fixes. However your correspondent firmly believes that the real issue is the development of a materialist mindset caused by excess focus on business disciplines and an alarming shift away from the Humanities and the true appreciation of cultural disciplines.

How many times have I met successful corporate warriors whose hyper-specialised (and obviously valued) business skills where in stark contrast with a total lack of literary, philosophical or historical culture. The same persons who would dominate the-meeting-on-the-latest-project-update would – without a shadow of guilt – confess not regularly reading books ‘because – you know – we just don’t have time’. These are the same people we trust to guide us and steer our economy. Right?
Worse. The ultimate insult I recently overheard in a business meeting held at a major Australian company was something along the lines of “interesting philosophical considerations, but let’s focus on the outcome”
What situation have we got ourselves into where the words “interesting” and “philosophical” can now be turned back as negative comments? – and, yes, semantics does matter.

It is this mindset that needs to be corrected if we want to address the excesses of an increasingly materialist and commercially driven society. Business managers need to (re)learn the appreciation of ‘good things’. It would help them develop empathy, self awareness and a few other basic social #human skills, which could prevent the next f*ck-up.

Where do we start? At school. In the classroom. Amongst other places. (2)
How do we do that? By rediscovering the virtue of the Athenian Education. Call it Renaissance if you don’t want to go that far back in time.

The idea would be to re-balance the pragmatic requirement to ‘train’ students so that they can be readily employable, with the aspiration to ‘educate’ well-rounded individuals through the appreciation of the Humanities and the Arts.

Double jeopardy – The ‘Two Cultures’ debate needs to be prosecuted once for all

A useful framework to position this debate could be an old debate raging since the 1950s: “the Two Cultures”

More than 50 years ago – in 1959 – C. P. Snow, an English physicist, civil servant and novelist, delivered a lecture at Cambridge called “The Two Cultures and the Scientific Revolution,” which was later published in book form. Snow’s famous lament was that “the intellectual life of the whole of Western society is increasingly being split into two polar groups,” consisting of scientists on the one hand and literary scholars on the other.
Snow’s basic thesis was that the breakdown of communication between the sciences and the humanities (the “two cultures” of the title) was a major hindrance to solving the world’s problems. After rightly diagnosing the divide, he went on to assert the supremacy of Science over Humanities – not so good.

As British literary critics F. R. Leavis puts it “For Snow, a society’s material standard of living provides the ultimate, really the only, criterion of “the good life”; science is the means of raising the standard of living, ergo science is the arbiter of value. Culture— literary, artistic culture—is merely a patina or gloss added to the substance of material wealth to make it shine more brightly. It provides us with no moral challenge or insight, because the only serious questions are how to keep increasing and effectively distributing the world’s wealth, and these are not questions culture is competent to address.”

The point of this paragraph is that Snow’s deeply anti-cultural bias has all but gone away. His idea that the individual’s ultimate value is purely a function of his place in the tapestry of society has crept into our modern corporate mindset.
The hard core positivist pro-science fundamentalists of the 1950s have been replaced by the economic rationalists of the 2000s, but the terms of the debate seem unfortunately still relevant.

This is the nut we need to crack.

To be clear. This not a post against Sciences. The study of natural, social or economic sciences provides us with intellectual pleasure, excitement, and profound insights into the nature of reality. It is essential to our development as a society.
However it has to be balanced and integrated with the study of the Humanities, which are equally profound insights into the human condition. The works of great artists, writers, and composers, such as Victor Hugo, Mozart, Leonardo da Vinci, and Shakespeare, are as valid and relevant now as they were when they were originally made.

Reasserting the importance and relevance of Humanities is what this new curriculum needs to do.

Is it feasible? Yes.

An intriguing and innovative example demonstrating the positive value of re-appraising the teaching of Culture comes from the introduction of Humanities courses into the syllabus of Medical Schools in the US.

“if it’s good enough for US doctors, it can’t be bad for Aussie Kids”

In 2006 the NYTimes reported the story of Mount Sinai School of Medicine which began an art-appreciation course for medical students, joining a growing number of medical schools that are adding humanities to the usual forced march of physiology, pathology and microbiology.

Similar programmes have been implemented at Yale, MIT or in California.

The goal is to enhance aspects of professionalism including empathy, altruism, compassion, and caring toward patients, as well as to hone clinical communication and observational skills.
This includes the use of poetry and prose, especially about and often written by doctors and patients; narrative ethics, in the form of elicited patients’ and preceptors’ value histories; and visual and performing arts, including art and photographic exhibits, readers’ theater, plays, musical performance, dance, and independent humanities research projects
Humanities and arts were identified as a potentially rich method for addressing these concerns. The craft and artistry of literature and painting can help learners see clinical situations and patients not only from different perspectives, but also with greater clarity, identifying insights and feelings in ways learners might not be able to fully articulate.

A study, published in The Journal of the American Medical Association in 2001, has found that looking at painting and sculpture can improve medical students’ observational abilities.

Initial trials have been a success and this new trend in teaching is on the uptake. Partly intended to make better doctors by making better-rounded human beings, such art courses are being joined by other, mostly elective humanities courses — and in some medical schools, like the one at the State University at Stony Brook on Long Island, whole humanities departments — that bring playwrights, poets, actors, philosophers and other imports from the liberal arts into the world of medicine.

Conclusion

Two points to conclude:

1 – Annabel Astbury raised an important issue on her blog about “the skill to teaching”:

“I wonder, when people talk about teaching and education’s need to change, whether we sometime forget about some of the basic traditions of the profession. The knowledge of the teacher, the quality of the materials with which they work should be carefully scrutinised and then revered. We shouldn’t see teachers as a fashionable commodity or as purveyors of faux luxe. I think it’s time to look at the teacher as artisan and look how each type, with their own expertise in whichever area they practice, can offer something of much more value to an individual than the generic educator who seems to take on everything.”

A refocus on the Humanities would translate into ‘a Renaissance in teaching’, and therefore would certainly contribute to achieve what Annabel is advocating: the reverence of the quality of the studied artistic materials coupled with the better appreciation of the unique skills required to be a good teacher. And who knows, we might even dream of a future when we show true appreciation of what they achieve and start paying them like bankers.

2 – The French have a popular say: “Culture is what’s left once one has forgotten everything”.  Sounds like a pretty concise and compelling reason to focus on it.

{ leLaissezFaire }

Footnotes:

(1) If you think the above statement is too emphatic just look-up how 100 years ago the French definitively settled the transition to a stable republican regime after decades of political turmoil by dispatching teachers equipped with a canonical curriculum to every corner of the country. (‘Les hussards noirs de la République’ – Black Hussars of the Republic)

(1bis) “the superannuation reforms of the Hawke / Keating era” consisted in shifting Australians’ retirement income from Pensions (retraites) to Superannuation (fonds de pension – different from the US pension funds, much more regulated). The contribution to the fund is mainly done by the employer who has to provide the equivalent of ~9% of the employee’s salary to the fund. I wrote that we are still finding out about the consequences of this reform 20 years later, because the ‘cushion’ of savings locked-away in superannuation funds (that people cannot touch until they retire) has been tagged by many economists as one of the reasons why Australia avoided a major recession during the GFC. The Nation’s savings where safely protected and untouchable, adding to the sentiment of financial safety and preventing panic.

(2) Press and Media are probably another area for improvement

(3) Source US Medical Schools teaching Humanities: http://www.nytimes.com/2006/04/17/arts/design/17sina.html?_r=1&pagewanted=all

In her recent post on edufutures.com Annabel Astbury raises a point that your correspondent has been wondering about from time to time:

“The amount of times that I see people on Twitter ask a question that could be just as easily ‘googled’ demonstrates to me how people want to have interaction with others.”

Her answer is that “the very act of asking a network shows that you want interaction with people”. “Humans are social creatures – they are curious and generally want and try to maintain or create relationships.” Asking a question that could be otherwise obtained from a reference book or google is a way to create an excuse for social interaction: “the responses indicate a desire, I feel, of people to interact with others.”

This very much resonates with Orwell’s Common Decency – one of our favourite themes – as well as with some more recent research conducted at Harvard Law School by Professor Yochai Benkler.

Benkler has been called “the leading intellectual of the information age”. He published a seminal book “the Wealth of Networks” in 2006 discussing the effects of net-based information production on our lives and minds and laws. Benkler has gained admirers far beyond the academic spheres. He released his book online with a Creative Commons license.

In 1776, Adam Smith wrote The Wealth of Nations, which is viewed by some as the blueprint for the capitalist system. The Wealth of Networks, in its title, implies that Benkler sees the networked economy generating wealth largely in a social sense rather than in a monetary sense. Benkler argues for a reasoned and balanced approach between the commercial and the social aspects of the internet. He takes a deep look into the issues of how the ‘Net affects cultural production, social justice, and economic development.

I have reproduced below extracts from the book, which are really worth sharing; or as they say these days ‘which really nailled it for me’.

“Human beings are, and always have been, diversely motivated beings. We act for material gain, but also for psychological well-being and gratification, and for social connectedness.” – Yochai Benkler, The Wealth of Networks, 2006

In the industrial economy in general, and the industrial information economy as well, most opportunities to make things that were valuable and important to many people were constrained by the physical capital requirements of making them. From the steam engine to the assembly line, from the double-rotary printing press to the communications satellite, the capital constraints on action were such that simply wanting to do something was rarely a sufficient condition to enable one to do it. Financing the necessary physical capital, in turn, oriented the necessarily capital-intensive projects toward a production and organizational strategy that could justify the investments. In market economies, that meant orienting toward market production. In state-run economies, that meant orienting production toward the goals of the state bureaucracy. In either case, the practical individual freedom to cooperate with others in making things of value was limited by the extent of the capital requirements of production.

In the networked information economy, the physical capital required for production is broadly distributed throughout society. Personal computers and network connections are ubiquitous. This does not mean that they cannot be used for markets, or that individuals cease to seek market opportunities. It does mean, however, that whenever someone, somewhere, among the billion connected human beings, and ultimately among all those who will be connected, wants to make something that requires human creativity, a computer, and a network connection, he or she can do so — alone, or in cooperation with others. He or she already has the capital capacity necessary to do so; if not alone, then at least in cooperation with other individuals acting for complementary reasons.

The result is that a good deal more that #human beings value can now be done by individuals, who interact with each other socially, as human beings and as social beings, rather than as market actors through the price system.

Sometimes, under specific conditions, these nonmarket collaborations can be better at motivating effort and can allow creative people to work on information projects more efficiently than would traditional market mechanisms and corporations.
The result is a flourishing nonmarket sector of information, knowledge, and cultural production, based in the networked environment, and applied to anything that the many individuals connected to it can imagine. Its outputs, in turn, are not treated as exclusive property. They are instead subject to an increasingly robust ethic of open sharing, open for all others to build on, extend, and make their own.

Enhanced Autonomy

The networked information economy improves the practical capacities of individuals along three dimensions:
(1) it improves their capacity to do more for and by themselves;
(2) it enhances their capacity to do more in loose commonality with others, without being constrained to organize their relationship through a price system or in traditional hierarchical models of social and economic organization; and
(3) it improves the capacity of individuals to do more in formal organizations that operate outside the market sphere.

This enhanced autonomy is at the core of (a whole series of other) improvements. Individuals are using their newly expanded practical freedom to act and cooperate with others in ways that improve the practiced experience of democracy, justice and development, a critical culture, and community.

Analysing the effects of networked information economy on individual autonomy

- First, individuals can do more for themselves independently of the permission or cooperation of others. They can create their own expressions, and they can seek out the information they need, with substantially less dependence on the commercial mass media of the twentieth century.

- Second, and no less importantly, individuals can do more in loose affiliation with others, rather than requiring stable, long-term relations, like coworker relations or participation in formal organizations, to underwrite effective cooperation. Very few individuals living in the industrial information economy could, in any realistic sense, decide to build a new Library of Alexandria of global reach, or to start an encyclopedia. As collaboration among far-flung individuals becomes more common, the idea of doing things that require cooperation with others becomes much more attainable, and the range of projects individuals can choose as their own therefore qualitatively increases.

- The very fluidity and low commitment required of any given cooperative relationship increases the range and diversity of cooperative relations people can enter, and therefore of collaborative projects they can conceive of as open to them.

These ways in which autonomy is enhanced require a fairly substantive and rich conception of autonomy as a practical lived experience, rather than the formal conception preferred by many who think of autonomy as a philosophical concept. But even from a narrower perspective, which spans a broader range of conceptions of autonomy, at a minimum we can say that individuals are less susceptible to manipulation by a legally defined class of others–the owners of communications infrastructure and media. The networked information economy provides varied alternative platforms for communication, so that it moderates the power of the traditional mass-media model, where ownership of the means of communication enables an owner to select what others view, and thereby to affect their perceptions of what they can and cannot do.

Moreover, the diversity of perspectives on the way the world is and the way it could be for any given individual is qualitatively increased. This gives individuals a significantly greater role in authoring their own lives, by enabling them to perceive a broader range of possibilities, and by providing them a richer baseline against which to measure the choices they in fact make.

{ leLaissezFaire }

For all its drama and tragedy the Global Financial Crisis has been a time of such intense focus on all things Finance and Economics that one of its positive collateral effect could have been to increase the mainstream’s literacy on the topic. There has not been a week without media outlets dissecting the most arcane concepts from securitisation to over-the-counter trading.

In the avalanche of forensic investigations conducted to explain how we got there, and more importantly how to avoid doing it again, two topics stood out in your correspondent’s mind: Hedging and Regulation.

The point of this post is to discuss how they paradoxically both carry the seeds of a moral failure that is not only at the origin of the Financial Crisis but also the reason why our market-based system needs profound reforms.

To give an indication that this not just another whinge about exhausted topics, your correspondent has been hearing first hand the following thoughts and concerns from people as unlikely as former Goldman Sachs traders (yep).

Hedging

If you spend a bit of time thinking about it, hedging actually underpins a lot of what is going in Finance, and to a larger extend how our society works.

Hedging (Arbitrage in French) is the technical term used to qualify the activity which consists in making a profit from an abnormal price difference between ‘what should be’ and ‘what is’.

Traders have several ways to ‘hedge’ their position. They can play the ‘location’, for instance by buying equities on the NY Stock Exchange to resell them instantaneously in Tokyo at a better price. They can play on the ‘timing’ by securing a higher resell price for the future. Or they can exploit ‘legal differences’ and buy in a given jurisdiction benefiting from tax advantages to resell in another jurisdiction for a profit.

Classic examples are Future Contracts on agricultural commodities negotiated to take advantage of the seasonal variations of supply and demand. Closer to home, we all do hedging when buying premium wine the year of its release, knowing that it will cost 10 times the price 10 years later when ready to drink.

A more controversial example would be what happened in September 1992 when George Soros’ Quantum Funds made $1.8b by shorting British pounds and buying German marks, earning Soros the title of “Man Who Broke the Bank of England”.

All hedged transactions have one thing in common: they realise profits without risk. They exploit gaps in the market without going illegal.
So you understand why they are investment banks’ favourite past time. To the point that years ago, when what we know of today’s financial system was still in its formative years, some cluey golden boys left the big banks to set-up their versions of financial start-ups: Hedge Funds, which by the way, should really be called as per their French name – ‘Speculative Funds’.

As the finance insiders would tell you, according to the economic theory hedging would not be possible in a ‘perfect’ market; however because financial products are so complex, market ‘imperfections’ pop-up every now and then. Traders who spot them exploit them to make a profit. These guys don’t care whether such or such situation is fair on unjust: their job is purely to focus on detecting them and making buck out of it. To reach their goal, they will use the best resources made available to them: lawyers, IT systems, and tutti quanti.

The reason why Hedging is so important to understand is because it is much more than just a financial activity: it is a philosophy and an attitude towards life. It is the student who applies for the dole, the employee who found a new job and tries to be made redundant to get a pay out, the middle-class family who gets money from the social security they don’t deserve. The list could go on for ever.

In a way, our finance-driven consumption-obsessed society is architected in a fairly simple manner: we have rules and regulations to tell people what they can and cannot do, and the rest is left to the law of Offer and Demand. That’s it.

The almighty market has made us hedge-traders who can not tolerate not optimizing our economic relationship with the system. This is the case for executives who do not see why they would have to cut down their salary given their workload and pressure, unemployed who do not see why they would have to look hard for a job when they can live on the dole, bankers who cannot understand why their profits are seen with such contempt given their contribution to the economy. All those attitudes are frowned upon but none of those guys have done anything illegal. Besides, as a society, we have not agreed any official superior moral imperative that would condemn what they are doing.

So here we are, in a system where individual ethical principles and economic relationships are totally uncorrelated. Instead we prefer to put our faith into more detailed regulations and a more sophisticated market to sort things out. Individual morality – the common decency so dear to George Orwell – has disappeared. We have collectively agreed to operate in a system guided by competitive behaviours, where – it seems – we have no other choice but to systematically hedge ourselves.

The trouble with Regulation

So to counter-balance these cunning hedgers, we regulate.

As a general principle your correspondent is rather on the pro-regulatory side. As far a general policy making goes, regulation usually leads to good outcomes for the public. We should be rather happy than cows are not fed with meat and bones anymore after the UK mad-cow outbreak of the mid 1990’s.

However for global financial markets around the globe it is more and more becoming a never ending game of cats and mice between policy makers and financiers who will put the best lawyers on the case to find the loopholes that new regulations ineluctably contain.

Not only relying solely on regulation seems ineffective, but it also carries the seeds of moral failure.

As Joseph Stiglitz points out in this article published in the Guardian:

[Bankers’s] innovations focused on circumventing accounting and financial regulations designed to ensure transparency, efficiency, and stability, and to prevent the exploitation of the less informed.

Stiglitz also highlights somewhere else in his works that bankers are not born greedy and selfish: they just have more opportunities and incentives to become this way.

So why is it that the concepts of hard work and duty to the rest of society have given way to investor and hedging mindsets? To answer this question might help fix the current issues and move forward…

Is it that the root of this moral failure is in the disappearance of the link between professional activity and solidarity? Have we forgotten that the initial purpose of shoemakers is to make shoes for others, farmers are to supply milk to the community and doctors to cure people around them? Not to optimise their bottom line!

“Sorry, but business is business” or the death of Common Decency

How many times do you hear that personal considerations should always put aside in a corporate context? The nirvana of managerial ethics seems to be attained when you are able to drive a business on pure economic rationale: determine the “value pools”, understand where “profit margins” will be made and you are assured to be best in class. The end of year bonus is likely to be pretty good.

Things have developed as if the promulgation of regulations has given extra incentive – or excuses – to corporate behemoths to systematically remove the concepts of solidarity and care from their operating models.
As if the policies themselves gave a license to become totally oblivious to the moral intend that the texts aim to promote.

The game has become to get as close as possible to the edge (no h!) in order to maximise returns. Think of those Oil Companies who where in all seriousness lobbying the White House to lift a ban to drill in protected natural parks in Alaska…

So as painful as it is to admit it, those who argue that regulation kills virtues have got a point.

The trouble is that when corporate and market money-makers are trying to sell the view point that (over) regulation is bad and will damage the system, they are certainly not motivated by those noble philosophical considerations of virtue.

Where to from here? As mentioned above, maybe the beginning of a solution for Policy Makers and motivated Corporate Leaders is to (re)read Orwell and his principles of Common Decency and start pondering how they can build on it.

{ leLaissezfaire }

Do different standards apply when rescuing Wall-Street vs. the Greek economy?
A thorough review of the media coverage leaves a sort of unease.

Back in 2008, it was all about saving the system

Lehman did play the role of the sacrificial lamb, but ultimately massive rescue packages saved the banks against promises that things would change: bonuses would be controlled, risk would be managed, greed was not going to be rewarded anymore.

The money makers of the Bull-Market days rivaled in statements of contrition, such as this extract from the Economist special issue on “Progress and its Peril”

“In the rich world the idea of progress has become impoverished. (…) the scope of progress has narrowed. The popular view is that, although technology and GDP advance, morals and society are treading water or, depending on your choice of newspaper, sinking back into decadence and barbarism. (…)
The Economist puts more faith in business than most. Yet even the solidest defenders of capitalism would, by and large, agree that its tendency to form cartels, shuffle off the costs of pollution and collapse under the weight of its own financial inventiveness needs to be constrained by laws designed to channel its energy to the general good.”
- The Economist, Dec 2009

Fast forward to 2010. Can the financiers honestly put their hands on their hearts and swear that all the promises of the past 2 years have not turned out to be empty rhetoric, or tokenistic measures at best?

Your correspondent has been regularly talking to traders and staff from major banks in Asia and America: the guys are laughing. Those who lost their jobs have been re-hired across the street. Bonuses are back where they were post crisis. If anything, it has allowed the banks to do some cost cutting without disclosing it, while bailouts helped maintain the remuneration required to keep paying those who stayed.
A concerted effort has resulted in forgiving the Golden Cow for its poo-poo.

A rather stark contrast with the treatment inflicted to Greece and how the news is reported

Greek citizens see insult added to injury: columnists and commentators somehow feel the need to up the ante on their economic rationalism in order to attest their mastery of the ‘reality principle’ – the stuff that seems to separate the hippies from the business beasts with cojones.
In short, it is all about the shame and guilt that this country should wear for having the audacity and bad taste of getting itself in the mess. Just like Lehman. The difference is that average Greek dudes are no Wall-Street traders and probably wondering why they have drawn the short straw on that one…

I looked very hard and did not find many informed articles in the mainstream media actually properly explaining the magnitude of the sacrifices imposed on the Greek people in exchange of the bailout (110 billion euro – US$145 billion). As if these were mere details not worthy of consideration.
- retirement age moved to 65 (it currently spans from 58 to 61 depending on the job category)
- civil servants to lose 2 months of salary
- social and public budgets are decapitated, etc
A total of 100b euros have been extracted. I understand the concept of sacrifice in times of crisis, but would have liked to see the reaction of the Finance industry if 100b euros had been squeezed out of it in exchange of the bailouts 2 years ago…

Instead, there seems to be no shortage of reports about unions and protesters fomenting chaos. The pearl is probably this lovely piece published by the Australian Financial Review (AFR), sourced from ‘Bloomberg, with AFP’ on how the protests are going to spoil the holiday season in Mykonos…

<< The demonstrations come as the spring tourist season is getting under way. (…) Even before Wednesday’s riots, the Athens-based Association of Greek Tourism Enterprises was planning a public-relations initiative to counter the impact of weeks of strikes and protests. Its first target: Germany, where public resentment has been rising against the government’s contribution to the bail-out package.(…) The negative headlines could be an initial deterrent for travellers concerned about safety, said Drew Patterson, the chief executive officer of Jetsetter, a private luxury discount agency based in New York. “Consumers do read things in the press and they do respond,” Mr Patterson said. “When things blow up, when there’s negative news in the press, that will slow down the booking pace.”>>

So while this is a valid point (Tourism accounts for 16% of Greece’s GDP and is an important part of the economy bringing much needed cash), there could probably be a fairer and more subtle way of reporting it. Maybe by explaining that after spoiling the Aegean beaches for the last decades and enjoying the free booze on the islands, Europeans could help when Greece needs them?

Coda – the Shock Doctrine at work?

Naomi Klein described the Shock Doctrine, by which neoliberal reforms and advances could be rolled-out under the urgency of a crisis. The theory is that people being so stunned would accept the financial sacrifices required to put the country back on track.
The trouble with Greece is that the people don’t see it that way. They make it quite loud and clear given the protests of the past weeks. Because it is western Europe, and not Latin America or Asia where brute military force can keep protesters at bay, they cannot be repressed easily.

So how to to push the reforms if not with bullets? By using psychology: guilt to be precise.
Greece is guilty of not been able to manage its finances properly; guilty of generating a debt that future-generations-will-have-to-repay; guilty of spoiling the party of the financial European Union.

So in fine, we see that Greece has to take the bullet for the lost dream. Like in an old classic drama, it has been assigned the role of scapegoat. It will have to expiate for the failure of the European Market dogma.

What happened to the positive rhetoric used when promoting the European construction: it was going to create a ring of solidarity between countries?

A variation of the Shock Doctrine might also come out of those events. Like viruses, those things mutate fast.

Indeed it represents a significant window of opportunity for neo-liberal European policy makers: A very convenient precedent is about to be created. Imagine the political argument: “surely French workers should be able to accept working 3 more years before being able to retire: look at the sacrifice that their Greek counterparts have accepted…”

{ leLaissezfaire }

Also acknowledging French blogger @Vogelsong who posted two excellent and pugnacious pieces titled “la mondialisation” (Globalisation), in which he covered the Shock Doctrine theme. He really triggered the initial idea for this post. I have elaborated around some of his arguments to open them to an English speaking audience, and added the part about the Lehman-ization process.

If you thought Australians did not give a stuff about what is happening in Greece and Europe because they are too busy dealing with China, think again.

The PM is following up the situation closely and Mike Smith, CEO of ANZ bank (one of the 4 major Aussie banks) described the situation as *a mess*.

The picture speaks for itself

Nothing really surprising in a way, as this is the pure manifestation of the financial entanglement that comes out of building the European Union. It is probably just a shame that we only built a financial Union and never really got to the more noble part of the agenda: a political and social Union….
The points that jump at us is how exposed to the PIIGS, France, Germany and the UK are: The PIIGS owe France the equivalent of 34% of its GDP, Germany 21% and the UK 19%: there is no doubt a default would compromise them, notwithstanding the threat to the Euro currency itself…

Ose-Europe Web of Debt

Down under, the reason the situation is seriously worrying Australian Bankers and Policy makers is that Australian banks could face higher wholesale funding costs if markets go belly-up.

Wholesale funding – What does it mean?

A little digression is necessary: The Bank’s job is to gather deposits (people’s savings) in order to lend it back to borrowers who need to buy a house or a flat TV screen (Mortgages and Loans).The bank takes a cut on the way to make a little profit.

In a basic model, the bank lends only the money it receives (minus a little 10% kept in reserve). Everybody is happy and the Loan-to-Deposit ratio is below 100% (more on this in a later post)
Example: John brings $100 at the bank. The bank keeps $10 in reserve and lends $90 to Paul. Loan-to-Deposit ratio = 90/100 = 90%

The trouble is that our hyper-materialistic western model of society requires *a lot* of Mortgages and Loans because people want to buy truck loads of TV screens and very big houses. So banks need way more money that what depositors can give them when putting their salaries on their savings account. To satisfy this demand for Consumer credit, as well as for Business financing they can literally end up lending $150 for every $100 deposited. Just for the anecdote, Northern Rock had a Loan-to-Deposit ratio of 322% before its collapse: that is – it was lending £322 for every £100 deposited….

So the question is: since money is not created out of thin air, where is this extra cash coming from? If the bank receives $100 and ends up being able to lend $150, where do those extra $50 come from? Answer: wholesale markets. The money market – aka Wall street, aka la Bourse, aka the Stock-Exchange ….
This is where banks borrow money from each other and from other financial institutions to get their daily mass of cash. They borrow the money and pay an interest for that: the cost of funding, which they pass onto the consumers’ loans and mortgages.

Coming back to the point this post: Australia is small country (20m people) and is structurally lacking deposits to fuel the credit required to finance its industrial activity: not enough people put money on their savings, for the banks to lend to big industrials who want to build mines and harbours in the north (I’m being simplistic but you get the drift….)

So if things start to turn sour in Europe, wholesale markets will globally start to play up again, the price of borrowing money between banks will go through the roof, and mortgages interest rates will sky-rocket in Australia. Not a enviable situation for an incumbent government in an election year….

By the way, we’ll do a proper post soon to develop on how those markets work.

Another post should also be required to critique the credit intensive model that we run – this vicious circle of needing cash to build mines, to dig the dirt, to sell the dirt to China, and to spend the money made on consumer goods, etc…

So stay tuned….

{ leLaissezFaire }

This post continues the theme started in a previous note “Will the Empire Ever Strike Back?” and takes us on a bit of a journey to recap some key

The point is to reflect on the make-up of the United States as a geopolitical superpower and to understand its Imperial dimension. The US Empire is entangled in an intricate set of issues forming quite an explosive cocktail: household debt, country debt, convalescent economy, and an administration looking for warfare as an exit strategy.

Tales of Empires have been told time and time again since Gibbon’s masterpiece on Rome: They *classically* stands on 3 pillars: Economic, Military and Cultural.

Like many of its predecessors the American Empire is nearing critical mass and – it might be argued – has been moving to the advanced stage of its life cycle. Survival then becomes a race forward. A bit like a bike: if it loses speed, the collapse is not far.
So a pattern is emerging as the dust settles on the GFC and the US military peregrinations:
- a severe Economic imbalance that runs deeper than short term media headlines, and is likely to hinder Obama’s ability to get away with conventional economic weaponry
- a serious challenge to its perceived Military almightiness: after a less than convicting (understatement) performance in Iraq, the world is watching how the Afghan situation will unfold.
- maybe the Cultural part might be the victory of last resort. Beyond Wall Street, the current account deficit, or the Apache Helicopters random shootings, the Anglo-Saxon pop culture will be what we’ll remember when everything is all over, Red Rover…

In the meantime, he is a summary of the situation in 11 pop hits.

ONE CHART IS WORTH A THOUSAND WORDS

First, we should remember how this GFC started.

(Historical index of US housing prices, http://www.financialsense.com/editorials/quinn/2009/0218.html)

The recent hit record in housing prices has only been possible thanks to the prodigality of the banking industry, which was not driven by philanthropy (or ‘Christian charity’ as the French would say), but was a consequence of the great achievement of the financial industry: derivatives such as the now famous Credit Default Swaps (CDS). Their formidable nature was to allow to ‘pass on’ the mother-of-all-monkeys: debt.

A Man Needs A Maid – [1]
This housing prices rise was positive in many ways. It helped owners get a revenue increase, which had failed to come from salaries for years. Credit was sustaining the standard of living of many. It had also some more political effects: Home was the solution to the madness outside, providing Wealth and Security.
The housing bubble was therefore a strategic support to the neo-conservative agenda, promoting Home and Family Values. It was also a strategic support to the neo-liberal cause: architecting an individual solution and thus undermining the need for societal construct.

More on that pre-crisis strategic alliance in the warmly recommended bilangual revue “Justice spatiale | Spatial Justice”: http://jssj.org/05.php#a

Goodbye The Ferrari – [2a or 2b]
Then, suddenly confidence vanished and the bubble collapsed. More, the lack of any evidence that these prices were rational (euphemism meaning no sound wealth rise was behind this) made any hope for a trick to get these prices rise back irrelevant: should it be either private or public. However the Loans still remain and the Private Debt with it.

We all know the story: this private debt was so huge that even the most venerable bankers (TBTF – Too Big To Fail) had to be rescued by the Fed thus transferring a Private Debt to the Federal budget. However – Private or Public – the debt still exists.

The next step was to put the ‘classic’ mechanism to survive a Severe Financial Crisis in motion: to borrow money for a while, in order to buy time for the economy to recover before cleaning up the balance sheet. At first sight, this Global Financial Crisis looks no different. The usual remedy has been called and the Fed is emitting more and more bonds to save the entire economy.

However, this time, things might be a little bit different…

A SECOND CHART IS WORTH A THOUSAND TRILLION

The last 30 years saw a massive blast of the US Debt (Private and Public) which went unnoticed oddly, up to recent months. Way before the GFC (2003), the debt ratio had already equaled levels reached at the climax of the Great Depression (1933).

The Tide Is High But I’m Holding On – [3]
The sand pile question is now on top of the agenda (http://www.economics.harvard.edu/files/faculty/51_Aftermath.pdf). Having entered the crisis with a very high debt, the US government is now left with much less capacity than in the 30s. Obama cannot use the magic trick the way Roosevelt did. Yet this is the only tool used so far, and massively.
But, as mentioned in an earlier post, the market is now questioning the ability of the US economy to give the money back, after all the good samaritan investors would have rescued it by buying US Bonds. (You see, this is the trick: people might agree to buy one’s debt for a while, like China has been buying US Bonds, but ultimately, one has to pay it back…)

GFC-TORN COUNTRIES EVERYWHERE

(Last G20 meeting. Photo by BGNES)

This crisis is much more Global than in the 30s. The world financial economy is now instantaneously interconnected thanks to the connected progress of liberalisation and IT. To some extend every State inside and at the borders of the Empire now faces the same dilemma.

Have You Seen The Little Piggies? – [4]
Iceland was the first to open the ball of sovereign risk. Greece is now on top of the wanted list, not to mention each of the named-and-shamed *PIIGS*. Even the economy of the European financial champion, Great-Britain, is convalescent. Major world exporters like China and Germany now face the prospect of a seriously diminishing world demand. The US might follow (http://www.creditwritedowns.com/2010/03/what-does-greece-mean-to-you.html).

The Angry Mob – [5]
If the Great Depression paved the way to nationalisms, totalitarianisms and ultimately WWII, the risk is back and global crisis requires global remedies. “Those who cannot remember the past are condemned to repeat it”, quoting US philosopher George Santana. Everybody knows that, but then what?

IS THERE AN ECONOMIC OPTION?

Here Comes Your Man – [6]
“Your view of the world, your ideology, was not right, was not working?”
“That’s precisely the reason I was shocked, because I have been going for forty years or more with very considerable evidence that it was working exceptionally well.”
[ U.S. Congressman Henry Waxman questioning former U.S. Federal Reserve Chairman, Alan Greenspan, October 2008 ]

Losing My Religion – [7]
Back in late 2008, after decades of greed and individualism proselytism, Government and State suddenly became the solution and not the problem any more – to paraphrase actor-President Ronald Reagan. More than a year later, after massive public investments in banks, the dream is over. Obama is trying to maintain the political status-quo, certainly not to change it at all. His legislative fight on Social Healthcare is about true Wealth Distribution, but is not tackling the main issue.
The partisan decisons Obama took to impose his reform will not be used in the economic field. Bipartisanism or conservatism, as you wish to call it, should remain its motto: http://www.guardian.co.uk/commentisfree/michaeltomasky/2010/mar/22/healthcare-barack-obama.

The Laissez-Faire is in Da Place [8]

(Bianco Footwear: ignore the crisis keep on buying shoes)

Indeed, the US administration is so much controlled by bankers that not much should be initiated to change business rules. The FED is corrupt stated Stiglitz on CNBC: http://www.cnbc.com/id/15840232?video=1435168723&play=1

Yet the public debt is so high that it has already endangered the credibility of the US dollar as the world central currency (http://lelaissezfaireisover.posterous.com/will-the-empire-ever-strike-back). Something must be done and done now. If the banking industry is not ready to change the rules of business, what’s left to Obama to save the Empire? Trade war – and plain war.

THE US CANNOT AFFORD TO LOSE

“This era of U.S. military dominance is waning at an increasing and alarming rate,” Andrew Krepinevich, a West Point-educated officer and former senior Pentagon strategist, writes in a new report. “ http://www.csbaonline.org/4Publications/PubLibrary/R.20100219.Why_AirSea_Battle/R.20100219.Why_AirSea_Battle.pdf

(Orion telescopes ad)

The Enemy is Everywhere – [9]
Regarding Afghanistan, a lot of eligible observers consider that the US cannot win in the military battle field. But isn’t war about military victory? Well not just. From West to East, total war or war without rules is the military paradigm (Ming Zhang, « War Without Rules », Bulletin of the Atomic Scientists, November/December 1999, released in French in 2003, see http://socio13.wordpress.com/2007/09/26/la-guerre-sans-regles-developpee-par-les-theoriciens-militaires-chinois-contre-la-superpuissance-etasunienne/. There are no more battlefields i.e. the battlefield is everywhere (real and virtual).
So communication also becomes a weapon. Not only communication between the forces engaged in the battle fields, but but political communication too.

Communication Breakdown – [10]
Lethal communication is to be delivered to the enemy. Hitler was a precursor at Guernica during the Spanish civil war and later with the London bombings during WWII, shortly after imitated by the Allies in Germany and by the US in Japan with 2 nuclear-death shows that ended the war.
Political communication is to be delivered to the back to maximise support to the frontline as well as to the world public opinion is to win the hearts-and-minds and limit support to the enemy. (http://www.washingtonpost.com/wp-dyn/content/article/2010/02/21/AR2010022104201.html).

This is typified by the Battle for Marja in Afghansitan (you don’t know where it is? Don’t worry, a few top brass in the Pentagon didn’t know either a few months ago):
“A year ago, the mention of Marja, a speck on the map in southern Afghanistan, would have drawn befuddled stares in the Pentagon.(…)
Today the town of 50,000 is the target of the largest U.S.-NATO military operation since 2001. (…)
But in purely military terms, sending 11,000 U.S. and Afghan troops to defeat a few hundred Taliban fighters in Marja won’t change much in Afghanistan. The greater significance of the battle is in how it is perceived in the rest of Afghanistan and in America.” – washingtonpost.com

This Is How Empires Die – [11]
Both inside and outside, the US Federal Power looks condemned to show its strength to keep control of any centrifuge force that could break down the Empire and the State. This is Obama’s predicament: elected on promises of Hope, Change and Peace, he is actually strapped in war boots and has no alternative but to win in Afghanistan and to a less extend damage-control Iraq.
So in their current model the US cannot afford a defeat in Afghanistan: it would mean a significant loss of imperial power across the world, including among allies, not to mention China and Iran. This would be perceived as adding military insult to economic injury – a prospect Obama would not find very palatable.

{ NKN }

Pop-Cult References:
1: A Man Needs A Maid – Neil Young, live Video
2a: Goodbye The Ferrari, Terranova – 2b: Performance (1970). Movie. W/ James Fox, Mick Jagger
3: The Tide Is High But I’m Holding On – Blondie
4: Have You Seen The Little Piggies? – The Beatles
5: The Angry Mob – Kaiser Chiefs, video
6: Here Comes Your Man – The Pixies
7: Losing My Religion – REM, Live video
8: The Laissez-Faire is in Da Place: Everybody is in The Place – Prodigy
9: “The Enemy is Everywhere” Titus Andronicus Forever – Titus Andronicus
10: Communication Breakdown – Led Zeppelin
11: This Is How Empires Die – John Oliver, Stand-up comedy, Comedy Central

The Commonwealth Conundrum

The Australian Commonwealth economic conundrum is the result of significant regional imbalances between states.

Western Australia is busy digging up dirt and selling it to China,…

Remember Midnight Oil’s Blue Sky Mine?
“But if I work all day on the blue sky mine
(There’ll be food on the table tonight)
Still I walk up and down on the blue sky mine
(There’ll be pay in your pocket tonight)
The candy store paupers lie to the shareholders
They’re crossing their fingers they pay the truth makers
The balance sheet is breaking up the sky”

Queensland is growing bananas,…
While on the South-East coast the older states of New-South Wales and Victoria and busy importing Goods and Services to consume and live the Aussie dream.

The conundrum is that the recovery of WA and QLD seems to go absolutely busters, while the economies of NSW and VIC are much more sluggish.

Just (re)listen to ABC’s segment of Alan Kohler interviewing a hyper-pumped Adam Carr, Economist at ICAP Australia ( http://www.abc.net.au/insidebusiness/ – http://www.abc.net.au/insidebusiness/content/2010/s2858138.htm )
-ALAN KOHLER, ABC: (…) Adam, what does the capital expenditure pipeline look like for Australian resource projects at the moment?
-ADAM CARR, CHIEF ECONOMIST, ICAP: It’s enormous, there’s approximately 250 billion undergoing feasibility or awaiting commencement and in addition to that there’s 100, an additional 100 billion currently undergoing construction.
-ALAN KOHLER: So bottom line, do you think all this makes Australia bullet proof?
-ADAM CARR: Yeah look, absolutely, the way things stand at the moment you bet, I think that’s the right way to look at things, there’s not too much apart from policy blunders that could really ruin things as we talked about before, immigration policy etc and we really are the lucky country, we are well placed to deal with faster growth rates than Asia vis a vie growth rates in Europe as US and we just happen to have the right stuff.

This means that the Reserve Bank (RBA) will eventually have to increase interests rates to calm things down and prevent a bubble in the West (just check houses prices in WA to get a feel of the issue).

The trouble is that the majority of the people (voters) who have to repay their mortgages and credit cards around Melbourne and Sydney will feel the pain of an interest rise, without getting the direct benefits from the resources. This would mean troubles for the government, which will want to avoid such unpopular moves in an election year. Not that they can do much about it anyway, as the RBA governor (independent by status) made it clear that he won’t give in to political pressure from Canberra.

So a few years later, we are back to the issue: Australia needs a strategy to be more than just a mining country. It is easy for white collars working in office or retail jobs in Melbourne & Sydney to feel insulated from the reality that the country does run a model, which is not that far from – say – Saudi Arabia: bless Heavens there is so much good stuff underground. Dig it up. Sell it. And put the money in the bank.

This problem has been regularly raised in many circles, and not just by hippies crackpots. I remember hearing Greg Gailey, Director of the Business Council of Australia being quite vocal about it at the Australian Davos Connection Future Summit in 2009. ( http://www.futuresummit.org/files/Documents/FS_2009.pdf )

{ leLaissezFaire }