. Poor's show | London Progressive Journal
A non-partisan journal of the left.

Poor's show

Sun 11th Dec 2011

Ever since the decline of European Socialism in the 1980s and the collapse of the Soviet Union in the ’90s, capitalism has considered itself king of the world and has behaved accordingly.

In Britain especially, the triumph of capitalism has been celebrated by successive governments, whether Conservative or nominally Labour. Under the spell of the Chicago school of economic theory, Margaret Thatcher played a key role, greatly accelerating the switch from a manufacturing to a service economy begun by Harold Wilson and James Callaghan. This switch was in part motivated by a desire – yelled by Tories, whispered by Labour – to “smash” the unions that had, in the Westminster demonology, “held the country to ransom”.

This melancholy history reached its latest chapter in the exercise of the veto by David Cameron at the European summit that was designed to save the euro, the eurozone and indeed the national economies of the member states. Cameron’s sound-bite summary, parroted endlessly by ministers, is that he stepped out of line “to protect the national interest”. Even were that the whole story, it hardly presents Britain as a welcome player in a mutually beneficial alliance of nations, as ''communitaire'.

But of course his stance does nothing to benefit you and me. Cameron’s only desire has been to protect the interests of the city, which is to say the interests of his party’s paymasters. The banks feared new regulation from Brussels. Cameron claims to intend to impose his own regulation but we will believe it when we see it – don’t hold your breath.

There is nothing in these quixotic dramatics that bodes any good for Britain’s dwindling manufacturing sector, or indeed for our export drive and hence our growth prospects. And as for realpolitik, it is a blunder of astonishing puerility. If the eurozone does not quickly recover its equilibrium, Merkel and Sarkozy will persuasively blame Cameron. If the eurozone climbs back onto its feet, no one will thank Cameron and it will occur to no one to reward Britain with increased trade. It’s a lose-lose result. As former President of the European Commission and former Italian Prime Minister Romano Prodi put it, “Britain has gained freedom and lost power”.

The financial sector continues to bewitch politicians, not just in Britain but across the globe. In Durban, the climate change talks inevitably reached the conclusion that international short-termist capital wanted: ineffectual muddle. Despite menacing and even sometimes angry noises from governments, the money markets continue to enjoy a lack of supervision that must make the black economy green with envy.

Why is this? Is the path being made smooth by under-the-counter “considerations”? Or is the general run of ministers too finance-illiterate to know how far the speculators and their accountants and lawyers are taking them for patsies? Why is it that nothing uttered or threatened by banks and financial consultants is taken with a whole sackful of salt? Do politicians not understand that, of all the lobbyists and vested interests with which they deal day in and day out, the city is the most powerful and the most sophisticated, with deep enough pockets to set any hare running, however fantastical, and confidently to expect the desired outcome?

Consider the credit ratings agencies. The best-known, largest and most powerful is Standard & Poor’s, but there are others: last month, the US government tripled the number of such agencies that it recognises. S&P’s has been busy of late. In August, it set the markets on their ears by downgrading the US from its triple-A rating, the topmost rung. A couple of weeks ago, it downgraded France’s rating. And on the eve of the eurozone summit, it declared that it was considering the ratings of fifteen of the member countries of the eurozone. These credit ratings determine the cost of governmental borrowing. Downgrading a nation’s ratings heaps vast extra expense on that nation’s costs.

So who are these people at S&P? Why should anybody pay them heed? Well, S&P’s finds its origins in charting and invigilating the books of America’s railroads. For getting on for half a century, it has been part of the portfolio of the dynastic publishing conglomerate McGraw-Hill. It makes its home in Manhattan, a short hop from Wall Street.

It’s important to note that S&P’s is just down the road from the speculators. It is not based in St Patrick’s Cathedral. It is not the voice of God. Nor is it infallible, as Archbishop Dolan would doubtless decree if it were indeed emanating from the Archdiocese of New York. Commenting on the agency’s musing-aloud about the eurozone, The Wall Street Journal (prop: Rupert Murdoch) noted: “Less than five months after it made its dramatic decision to downgrade the biggest economy in the world, S&P’s has again put itself in the hot seat”.

Despite the ratings agencies’ edicts being unveiled by the news media as if they were carved in stone, these pronouncements are not only the frequent subject of dispute but also sometimes agreed even by the agencies themselves to be mistaken. For instance, S&P’s conceded a $2trillion error in the calculation that led it to downgrade the US rating. That ain’t peanuts. Perhaps to save a little face, S&P’s cleaved to its downgrade in spite of the error. But it speedily reversed its downgrading of France after the Élysée angrily rebutted the basis for the decision.

A long-term agency decision has occasioned a damaging disenchantment with credit ratings across the world’s markets, especially those in Europe. This was the maintenance of Greece’s status as a good risk for several years before the habitual imprudence of successive Greek governments was finally recognised in 2009 when the country had already experienced several months of civil unrest. Greece’s most supportive agency was Moody’s, another of the so-called Big Three in the credit-rating market (the third is Fitch). Moody’s, be it noted, was being paid half a million dollars a year by the Greek government. How far does a fat cheque condition the fixing of a favourable rating, do you suppose?

I repeat that the ratings issued by the self-appointed agencies do not have the force of either moral law or statutory application. They only become powerful because powerful people pay them heed. I do wonder what exactly constitutes the appeal process against a rating that costs a nation many millions of dollars in increased charges on national debt. Could a government sue an agency for damaging its economy and its freedom to trade? Is it possible to gain reparation for agency findings that impacted the finances of enterprises and individuals? After all, the agencies played a leading and inglorious role in the collapse of the American subprime mortgage market that led to the US government taking over the two leading government-sponsored enterprises in the mortgage field, popularly known as Freddie Mac and Fannie Mae.

The overarching problem with the world of financial services is that everything therein is driven by subjective readings of more or less subterranean manoeuvrings. We are routinely told that the markets are “nervous”, that capital is “in flight” from this or that enterprise, that traders “don’t like” this or that enactment of governmental policy. Those of us who live in a rather starker world of fixed prices and incomes, plying our various trades according to what we can get rather than what we would ask, are apt to lose patience every time the city is in the news. “Man up” we think, reluctantly using a phrase that the boy racers of the markets will perhaps understand.

Why is the security of national economies allowed to depend on the whims of consultants and speculators who anyway have their own axes to grind and who, for all we know, are delivering their verdicts with only the lining of their own pockets in mind? Regulation? We should elect a few governments who are ready to tear down the paper castles of the financial sectors and instead dedicate national economies to the welfare of the people. We should expect our representatives to reclaim what used to be called “the commanding heights of the economy”. Oh dear, I think I may be calling for a revival of Socialism.
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