This year’s Champions League final provides an uncanny example of football imitating life.
The arguments about the success of the German model, with two Bundesliga teams reaching the final, bear a striking resemblance to the economic debate. That is even leaving aside clichés about German “efficiency” in both arenas.
Success for Bayern Munich and Borussia Dortmund is strengthening the hand of those who contend that other countries should emulate German football. Among their arguments are the controlling ownership interest held by fans, relatively low ticket prices and strict financial controls.
From this perspective Bundesliga clubs are compared favourably with the Premier League. The German teams are presented as representing their fans while many British clubs are viewed as the playthings of foreign oligarchs.
This should be eerily familiar to anyone who follows the discussion of economics. Germany is arguably the best performing large economy in Europe at present – although there are several small ones doing better – so it is increasingly viewed as an attractive model. As a result pundits are arguing that key features of its economy should be emulated. These include high quality vocational training, workers’ representation on corporate boards and industrial strength.
Not surprisingly similar views on both football and economics can be heard inside Germany. After it became clear that the Champions League final would be fought between two Bundesliga teams the German equivalent of the Sun, Bild, ran an article with the English language headline “We are the Champions!”. It went on to describe Germany as “top of the class” in the economy and an overachiever in savings and reform.
The common feature of the arguments about German success at football and the economy is their short-termism. Both sets of claims give too much weight to recent results while paying relatively little attention to the longer run.
It certainly reflects well on the Bundesliga that two of its teams are competing in this year’s final. But the last time a German team won was in 2001 when Bayern was victorious. In the intervening years teams from England, Italy, Portugal and Spain have taken the title. If anything it is notable how geographically dispersed the winners have been.
As for Germany’s national team it last won the European Championship in 1996 while it last triumphed in the World Cup in 1990 as West Germany. This is not to deny that Germany has often done well in these competitions but to view its footballing prowess as towering above everyone else’s is a fallacy.
A similar pattern is apparent in relation to the German economy. It is true that from 2006-2011 it grew faster than the average for the large developed economies in every year but one. But from 1981-2005 it generally lagged behind.
If compared with emerging economies, most notably China, Germany’s growth is substantially slower. Indeed one reason the German economy has outperformed many other advanced economies in recent years is its link to developing countries. While many other European countries are more domestically oriented the German economy exports huge amounts to emerging Asia and elsewhere.
There are other ways in which the benefits of the German model are open to question. For example, according to the German Institute for Economic Research net real wages have hardly risen since the start of the beginning of the 1990s. Austerity started in Germany long before it hit Britain.
Germany does have considerable strengths in football and economics. But the temptation to draw sweeping conclusions on the basis of short-term success should be resisted in both cases.
This blog post first appeared today on Fundweb.
This is my Perspective column from this week’s Fund Strategy magazine.
It has become widely accepted that the wealthy, and particularly the super-rich, have changed fundamentally in the recent past. Not so long ago the rich mainly inherited their wealth but the current crop, so the argument goes, usually made their own fortunes.
The editors of the Sunday Times put forward this view in its annual survey of Britain’s wealthy. A comment accompanying the list was headed “No longer born with a silver spoon” and concluded that a lot has changed since the publication’s first wealth survey in 1989. Back then “it was much more Downton Abbey than Dragons’ Den”.
Chrystia Freeland, the author of Plutocrats (Allen Lane 2012), drew a similar conclusion in her survey of the global super-rich. Only her metaphor was slightly different: “If you are looking to define the archetypal member of the global elite, he isn’t Jane Austen’s Mr Darcy, with his gorgeous acres of Pemberley. He– and they are almost all still men– is an aggressive, intensely educated mathematician, the son of middle or upper middle-class parents, who made his first fortune young.”
However, a closer look at wealth surveys themselves shows a more complex pattern. The past quarter century or so have not seen a simple shift from wealthy aristocrats to self-made men (with a sprinkling of women thrown in).
It is true that three British aristocrats headed the 1989 Sunday Times rich list: the queen, the Duke of Westminster and Lord (John) Sainsbury. Gad and Hans Rausing, originally from Sweden, held the fourth spot while Sir John Moores was fifth.
In contrast, four of the top five in the latest list have Russian connections. In fourth place, the Mittal family, hails originally from India. Indeed the family in seventh place is Indian too while a Norwegian family is at number six. The highest ranked native Briton, only making eighth place, was the Duke of Westminster.
But there are several ways in which a direct comparison between these two lists is misleading. For a start the 1989 valuation included the Crown Estate and the royal art collection as part of the queen’s individual wealth. Subsequently these assets were excluded as it was decided they belonged to the state rather than to her personally.
This is not to take a stand about how the queen’s wealth should be classified. However, it is clear that in that respect the two lists do not compare like with like. In relation to the queen’s wealth the definition, rather than the reality, has undergone an important change.
It is also easy to exaggerate the importance of the aristocracy in the original list. A relatively small number were peers at all and many who were gained life peerages as recognition of their success in business. Aristocratic landowners such as the Duke of Westminster, the Earl of Cadogan and the Duke of Buccleuch were a small minority. Britain at the end of the Thatcher era did not feel like Downton Abbey except perhaps within a tiny circle of traditional aristocrats.
Even more striking is how many of the current richest of the rich are of foreign origin. Many of those domiciled in Britain are not British citizens. That is not to criticise them for basing themselves here. But it does suggest that the character of their wealth is different from those at the top in 1989.
In particular, much of their wealth is held and originates outside Britain. They may be domiciled here for legal purposes but their business empires extend well beyond these shores. In that sense their great wealth reveals far more about developments overseas than in this country.
Many have benefitted, either directly or indirectly, from the rapid rise of emerging economies since the 1980s. A substantial number on the Sunday Times list have connections to China or India. This is a welcome development but it is not one that is specifically British.
Nor is it a coincidence that so many of the very richest come from the former Soviet Union. Back in 1989, at the time of the first Sunday Times survey, the Soviet Union was intact. Since then the break-up of the former power has provided opportunities for a few oligarchs to become fabulously wealthy.
This points to another reason why the self made tag is misleading. It is true that in many cases the current generation of the super-rich did not inherit their wealth. But many benefitted enormously from good connections with the authorities. In that respect ties with the state were as important as business acumen.
This trend is clearest in relation to the Russians. As the Soviet Union was dismembered having close contacts with the state became a great advantage. It gave a select few an inside track in gaining control of assets and seizing opportunities.
It is misleading therefore to talk about a shift from Downton to the Dragons’ Den. Such a characterisation gives a misleading impression of what Britain was like in the 1980s. It also understates the importance of the rise of emerging economies and connections to the state to the success of the current generation of super-rich.
It is hard to imagine a more embarrassing public humiliation. Two Harvard economics professors, one a former chief economist at the International Monetary Fund, made a basic spreadsheet error in a hugely influential paper.
Carmen Reinhart and Kenneth Rogoff’s 2010 work, Growth in a Time of Debt, helped provide the economic underpinning for the case for austerity. Its headline finding, that economic growth falls rapidly after public debt exceeds 90% of GDP, was taken to identify a tipping point.
For example, George Osborne, then shadow chancellor, cited the Reinhart and Rogoff paper in a key lecture given shortly before the last election. The politician mentioned the two economists by name before going on to argue:
“The latest research suggests that once debt reaches more than about 90 per cent of GDP the risks of a large negative impact on long term growth become highly significant.”
Nor was its influence confined to Britain. In a speech earlier this month the European Commission vice-president, Olli Rehn, argued that:
“Public debt in Europe is expected to stabilise only by 2014 and to do so at above 90% of GDP. Serious empirical research has shown that at such high levels, public debt acts as a permanent drag on growth. If it is not reduced, it will become an ever-heavier burden on our economies, eating resources that could otherwise be channelled into productive investment needed to support job creation.”
With the key finding called into question it is not surprising that many Keynesian critics about the failings of those they often dub “Austerians”. Thomas Herndon, the doctoral student at the University of Massachusetts who discovered the Excel error, has enjoyed glowing profiles. Together with two of his professors he published a paper highlighting several alleged mathematical errors in the Reinhart-Rogoff paper.
Critics of austerity have followed up with what are probably best described as “told you so” articles on Excelgate. A typical example claimed in the headline that: “the argument is over, Paul Krugman has won”. Krugman, as regular readers of this column will know, is one of the most high profile proponents of fiscal stimulus.
Conservatives reacted by downplaying the significance of the mistake. Reinhart and Rogoff themselves acknowledged a spreadsheet error but rejected allegations of two other mathematical mistakes.
The two authors accept that they accidentally left out the first five countries in the alphabet when calculating figures for average economic growth. However, they strongly object to the allegation that there were selective omissions in the data they used. They argue that they used all the data that was available at the time of writing their paper.
The final disagreement relates to how averages are calculated. But here there is considerable room for disagreement about which is the most appropriate approach.
An alternative riposte to austerity’s critics points out that many other authorities have reached similar conclusions to Reinhart and Rogoff. The case for austerity does not rely solely on their one paper.
Although this debate has received enormous attention its importance is exaggerated. The focus on the correlation between government debt levels and growth is itself an illustration of how narrow economic debate has become.
In ascending order of importance here are three reasons the debate should not be taken seriously:
This blog post first appeared today on Fundweb.
Economist and author Dan O’Neill and journalist and author Daniel Ben-Ami go head-to-head. This debate is from the May issue of New Internationalist. Feel free to comment on the magazine’s site.
Kenneth Boulding once warned that anyone who believes exponential growth can go on forever in a finite world is either a madman or an economist. It’s time for us to put an end to this mad pursuit in wealthy nations like the US and Britain.
Besides being a recipe for environmental disaster, we have reached a point where economic growth is no longer improving people’s lives. Although the British economy has more than tripled in size since 1950, surveys indicate that people have not become happier. Inequality has risen sharply in recent years, and jobs are far from secure. At the same time, increased economic activity has led to greater resource use, dangerous levels of carbon dioxide in the atmosphere, and declining biodiversity. There is now strong evidence economic growth is costing us more than it’s worth.
The real question is not whether we should ditch the pursuit of growth – that’s a given – the question is what to replace it with. How do we build a stable economy that meets our needs without endangering the life-support systems of the planet? Five years ago, it would have been difficult to answer this question, but now a new economic blueprint is emerging based on the work of hundreds of researchers around the world. It’s a blueprint for an economy of enough. It includes strategies to conserve natural resources, stabilize population, reduce inequality, fix the financial system, create meaningful jobs, and change the way we measure progress.
But in order to implement these strategies, we first need to let go of our obsession with economic growth. Only then can we build an economy where the goal is better lives, not more stuff.
Before I make the case for economic progress it is necessary to challenge your peculiar premise that the US and Britain are obsessed with economic growth. On the contrary, the sentiments you express are essentially a stronger form of an outlook that has long prevailed among the élites in both countries.
Admittedly, Western leaders sometimes proclaim support for growth. But they also, like you, talk incessantly about various types of alleged limits to prosperity: environmental constraints, the need for happiness and the dangers of inequality. Both US President Barack Obama and British Prime Minister David Cameron have made countless statements along these lines. Indeed, they became mainstream in Western thought back in the 1970s.
In that respect, your Kenneth Boulding reference from 1973 is fitting. Yet you fail to mention he was chair of the American Economic Association – a pillar of the establishment.
Before we go on, I would therefore suggest that to be intellectually consistent you should concede two points. First, that green ideas are mainstream even if the élite does not go quite as far as you would like; and second, acknowledge that for all your talk of ‘better lives’, what you favour is savage austerity. The implication of your argument is that the cuts in living standards that people have suffered since the 2008-09 recession do not go nearly far enough. If you believe such sacrifices are necessary you should at least say so explicitly.
I’m stunned that you consider a clean environment, happiness and equality to be ‘limits to prosperity’. These are the very foundations of prosperity. I fear that your definition of a prosperous society simply equates economic progress to an increase in GDP – to consuming more and more stuff.
Once we have access to enough goods and services, additional money fails to buy additional happiness. But other things do improve our lives, like strong personal relationships, good health, safe communities, and having a secure and fulfilling job.
I agree that the concept of a socially just and environmentally responsible economy is gaining traction, as demonstrated by initiatives such as the European Commission’s Beyond GDP project and the Organization for Economic Co-operation and Development (OECD)’s Better Life initiative. However, despite these hopeful projects, economic growth still remains the primary goal of most nations.
The main economic debate centres on how best to grow the economy: austerity or stimulus spending. But this is a false choice, and I don’t support either option. There is a much better alternative: a steady-state economy. We must change our economic goal from increasing GDP to improving quality of life. A steady-state economy would mean consuming less stuff and protecting the environment, but it would also mean creating meaningful jobs, a stable system of finance, and a more equal society. In short, it would mean real prosperity.
If you read what I actually wrote – for example, ‘alleged limits to prosperity’ – we could have a more productive debate. My argument is that it is you, not me, who is obsessed with constraints.
You also misrepresent the case for growth. I have never argued that material progress is simply about having more ‘stuff’ – although I’m all in favour of people having the possessions they desire – or about infinite economic expansion.
The fundamental argument is that a high level of material prosperity is a necessary precondition for the full realization of human potential. As long as we are limited by scarcity we will not be able to flourish as a species.
This certainly means having consumer goods but it also involves building more and better airports, art galleries, hospitals, museums, power stations, roads, schools, telecommunications, universities and all the paraphernalia of modern life. All this takes enormous resources. It also means the associated development of medicine, science and technology.
During the period of modern economic growth from about 1800 to the present day the average life expectancy worldwide has increased from about 30 years to 70. Pause for a moment to consider the enormity of that achievement. What’s more, life expectancy is still rising. This is just one of innumerable benefits of prosperity.
Unfortunately, growth in the West has stalled and even in the developed world there is still enormous scope to raise living standards further. The challenge is to go forward with economic progress rather than rebranding austerity as ‘prosperity’.
I agree that we could have a more productive debate – by discussing real solutions to the environmental, social and economic problems that we face.
Resource scarcity is no longer the problem. We have enough stuff, and we probably have enough airports, roads and power stations. People’s lives would be improved much more by reducing inequality, shortening working hours, and fixing the financial system, than by growing the economy by three per cent.
You equate more with better, but the two are not the same. More schools is not the same thing as better education. More hospitals does not mean longer lives. There is an optimal scale for all of these things, beyond which there is no point in building more. The law of diminishing returns is one of the most basic concepts in economics.
You say you don’t believe in ‘infinite economic expansion’. This is comforting because it shows you recognize there is a point where expansion should end. But where is this point for you? It should be where the costs of additional growth (for example, environmental degradation) begin to exceed the benefits (for example, more goods and services).
I agree that there is a correlation between affluence and life expectancy, but it only holds at very low incomes (less than $5,000). Life expectancy can increase, technology can develop, and people can lead better lives – without economic expansion.
Economic growth may have been a good strategy for the 19th century, but we need a new strategy for the 21st. Fortunately, a blueprint is emerging. Read Enough Is Enough.
A crucial difference between us is our attitude towards the problems facing humanity. You see us as being constrained by insurmountable barriers whereas I believe progress means overcoming challenges.
Take the notion of natural limits. You essentially argue that we need to accept savage cuts in living standards for the sake of the environment. I contend that through the application of ingenuity we can and should transcend environmental problems.
Climate change illustrates the point vividly. To the extent that it is a problem which will require massive investment to solve. De-carbonizing the energy supply – including investing in new generations of cleaner power stations – will not come cheap. Only economic growth can generate the huge resources needed to pay for it. Building modern flood defences and the like also costs money.
Ironically, the thrust of your approach to climate change undermines our capacity to tackle the problem. The poorer and less technologically advanced we are, the worse our plight will be.
All you offer is an egalitarianism of misery. An impoverished world in which almost everyone will have their incomes slashed for the sake of green dogma.
I suspect that, whether you like it or not, coercion would be necessary to achieve your desired outcome. Few would embrace lower living standards voluntarily. That probably explains why you are coy about spelling out the pro-austerity consequences of your arguments.
Instead we should go forward with economic growth until the vast bulk of the world’s population feels its needs have been met. It is not for you or me to decide what is enough for everyone else.
How to Get Filthy Rich in Rising Asia is probably unique as a literary novel written in the form of a self-help book. It has several other unusual features. The main protagonist is referred to only as ‘you’ while the other lead character is simply ‘the pretty girl’.
Mohsin Hamid’s novel also all takes place more-or-less in our present. Its characters age from childhood to old age but the story all takes place in the early twenty-first century. This device allows Hamid to provide a demographic snapshot of an Asian society being thoroughly transformed by rapid economic growth. He portrays what is happening at a given time to people at different stages of their lives.
Nor is it clear whether the Asian city where most of the action takes place is Hamid’s native Pakistan. It could be any urban expanse in emerging Asia or indeed many other parts of the developing world.
This practical guide should help you to appreciate Hamid’s novel more fully.
1) As a self-help manual
Hamid has described in interviews how he started using the self-help form as a joke. But as time went on, he became more serious about it.
His novel could certainly serve as a practical guide if you are a budding entrepreneur in Asia. Some of the advice – such as leave the countryside for the city or get an education – is standard fare. It is a route taken by many millions across Asia and beyond.
But as a novel it can be more honest than conventional guides. One chapter describes how you must be prepared to use violence if you are to become not just plain wealthy but filthy rich. Another emphasises how you need to befriend bureaucrats to ensure the authorities are amenable to your needs.
Less expected is the advice to avoid both falling in love and idealists. Both are distractions from your pursuit of the serious business of becoming filthy rich.
In the novel, the protagonist’s main business is bottling water taken, at least initially, from the public water system. The pretty girl has intermittent encounters with the central character throughout her life. She is also an entrepreneur, although her break comes in the fashion business.
2) As a story of growth
If you live outside rising Asia the novel paints a far more vivid picture of life in rapidly developing countries than economic texts. This goal is achieved in clear English reminiscent of the writing of George Orwell. No need for the ugly jargon of social science.
Hamid sketches a society that is being overhauled by breakneck growth. The country is becoming more urbanised, as migrants stream from the countryside into the cities. Overall living standards are rising for the bulk of the population. People are becoming more educated. At the same time, the gulf between the rich and the rest of the population is widening considerably.
As a native of Lahore, Pakistan’s second city, Hamid has observed these developments more closely than any outsider could realistically hope to achieve. Yet many years of living in America and Britain put him in a good position to outline these trends to you as a Western reader.
3) As a counter-story of loss
Hamid is anxious that you understand that this process of rapid change brings with it severe problems. He believes that the market economy has a strong narrative of growth but no narrative of loss.
Market economics cannot help make sense of key stages of your life, such as the emergence of ill health, the death of loved ones and eventually your own demise. In traditional societies you could generally understand these stages in the life cycle in religious terms. Yet the transformation of Asian societies has also undermined traditional religion.
How to Get Filthy Rich in Rising Asia is as much an exploration of this loss as it is a study of how you can become seriously wealthy. Although the protagonist becomes rich in the course of the novel, his ties with his family, and with society more generally, become looser. He has few people he can rely on to help him navigate life’s milestones.
In broader terms, the theme is the lack of a framework of meaning in contemporary societies. This dilemma is posed most sharply in rapidly developing economies, but it also applies in the West. Although the world has generally become much wealthier than it was in the past, it has also become harder for us to situate our lives in a broader context.
4) As a growth-sceptic text
Hamid is too good a novelist to write a crudely didactic text. He describes life as he sees it in a rapidly changing Asian city rather than prescribing how it should be.
However, it is easy to see why Western liberals, with their profound scepticism about economic growth, like it so much. For them it is easy to draw a direct connection between greater prosperity and the broader problems afflicting Asian societies. They simply blame economic growth for all the other difficulties – not only widening inequality but also falling social solidarity, increased isolation and the decline of what Hamid refers to as a narrative of loss.
For such growth sceptics, it is easy to draw the conclusion that growth should be downplayed if not stopped all together. Often they end up romanticising poverty as a result. They forget the enormous benefits of growth and simply focus on the problems afflicting Asian societies.
You should not fall into this trap. There is still enormous potential for growth to benefit the populations of developing countries. In Hamid’s native Pakistan, for instance, the percentage of the population living in extreme poverty (defined as less than $1.25 a day) fell from 66 per cent in 1987 to 21 per cent in 2008. Poverty in Pakistan has become less prevalent during the period of rapid economic growth, though Pakistan is still far from a universally prosperous country.
Prosperity should not be counterposed to the problems that afflict developing societies. The challenge is to generate rapid growth while dealing with the other difficulties – for example, achieving prosperity while developing a framework of meaning to understand contemporary life. These two goals do not necessarily conflict. Indeed, richer societies should have more time and resources to tackle other problems.
You should not be bashful if your desire is to become filthy rich. But there are also other challenges that we should tackle along the way.
This is my Perspective column from this week’s Fund Strategy magazine.
Whatever happened to the march of the makers? Back in March 2011, Chancellor George Osborne proclaimed in a parliamentary speech that an industrial renaissance was central to the Government’s plan for growth:
“We want the words: ‘Made in Britain’; ‘Created in Britain’; ‘Designed in Britain’; ‘Invented in Britain’, to drive our nation forward. A Britain carried aloft by the march of the makers. That is how we will create jobs and support families.”
If this pledge were being realised, it would be expected that Britain would be heading towards an export-led recovery. Manufacturing would be leading the way towards creating a more balanced and vibrant economy.
Yet two years on from the pronouncement, the trend is, if anything, in the opposite direction. The latest trade figures showed the current account deficit at a 25-year high. The deficit on the trade in goods is widening rather than narrowing. In other words, the British economy is becoming even more unbalanced than when the chancellor made his pronouncement.
Osborne should certainly take a share of responsibility for this failure but it also needs to be seen as part of a broader trend. Manufacturing has suffered a long-term relative decline since at least as far back as the early 1970s. It is not, as some critics have claimed recently, a trend peculiar to Margaret Thatcher’s time as prime minister from 1979-1990. It started before Thatcher came to power and continued after she left.
Nor is it unique to Britain. On the contrary, all the developed western economies seem, to a greater a lesser extent, to have moved in a similar director. Even Germany, the industrial powerhouse of Europe, has also suffered a manufacturing decline in relative terms although its share is still higher than Britain’s.
Before considering what drives this trend, it is necessary to distinguish between different types of relative decline. Some of them pose a problem while others do not.
The relative decline of British manufacturing output as a share of global output is, paradoxically, a welcome development. That is because it is part of a trend for production to increase and become more diversified ?on a global level. With the rapid industrialisation of China and other emerging nations it would be expected that the Britain’s global share would fall.
By this measure, Britain has a smaller share of a much larger cake. On balance, both Britain and the world are benefiting from the global trend towards greater prosperity.
The decline of manufacturing employment in Britain is in itself not such a clear positive or negative. Employment in manufacturing fell from 5.7m in 1981 to 2.5m in 2011. That represented a fall from 22% to 8% of the workforce.
Yet if those who lost their jobs found work in other areas, it would not necessarily be a problem. The key goal from a labour market perspective should be to achieve low unemployment overall.
The form of relative decline that is most clearly a problem relates to the economic output. Manufacturing accounts for a much smaller share of Britain’s overall economy than in the past.
Some explanations for this trend are convincing while others are not. For example, when Ken Livingstone, the former Labour mayor of London, blames the banks for this decline, he gets things upside down. The long-term rise in the importance of the financial sector was a symptom rather than a cause of manufacturing decline.
Nor will it do to blame the rise of low- cost producers such as China. A vibrant manufacturing sector would be resilient in the face of competition. It would revitalise its existing output and also find new areas in which to produce. Growth in emerging economies should also mean substantial new export markets for British firms.
This failure to adapt relates to one of the most formidable genuine problems in relation to British manufacturing: the lack of long-term investment. Rather than create the basis for future expansion, many firms have preferred to simply cruise along in the present. Such an approach may work in the short-term but over the longer term it means manufacturing becomes increasingly uncompetitive.
Government policy has exacerbated this trend. The authorities have typically preferred to pump money into the economy through high spending or low interest rates rather than promote restructuring.
The final part of the puzzle is cultural rather than narrowly economic. Society has become increasingly uneasy with production. The manufacturing process has become associated more with pollution and waste than ingenuity and prosperity.
Rebalancing the economy towards a greater role for manufacturing will require kicking back against some of these trends. Pronouncements such as those by Osborne are pitifully insufficient.
From a corporate perspective, it means more willingness to invest for the long term. Simply drifting or responding to events will not do.
For governments, it means being willing to take hard decisions. These include promoting economic restructuring rather than simply pumping money into the economy or shoring up failing businesses.
More broadly it requires a cultural shift.
I rarely write about Israeli politics nowadays but this film review is one of my occasional forays into the subject.
The Gatekeepers is a remarkable documentary that illustrates an important shift in Israeli attitudes over the past four decades. Unfortunately, most Western commentators only see in it a confirmation of their own prejudices.
Dror Moreh, the film’s director, provides a unique vantage point by interviewing six former heads of the Shin Bet, Israel’s internal security service. The organisation, roughly equivalent to Britain’s MI5, is mainly concerned with tackling security threats from the Palestinians inside Israel, in the West Bank and in the Gaza Strip. Its responsibilities also include preventing Jewish extremist terrorism in Israel and protecting senior politicians, embassies, airports and other Israeli facilities.
Gathering all six former directors together for interviews in the film was an impressive feat. Moreh first managed to persuade Ami Ayalon, the head of the Shin Bet from 1995 to 2000 and subsequently a Labour party politician, to participate. Ayalon, in turn, convinced the five others to take part. Yuval Diskin was the serving director of the organisation at the time of filming.
The sections of the film that have garnered most foreign interest deal with Israel’s brutal suppression of the Palestinians in the occupied territories. Soon after capturing the West Bank and Gaza Strip in 1967, the security agency started creating a vast intelligence apparatus to curb any Palestinian militancy. Many Palestinians were arrested and forcefully interrogated in a systematic attempt to glean information about anti-Israeli activities. Some were pressed into becoming part of an extensive network of informants.
A related section of the film deals with Israel’s policy of assassinating Palestinian militant leaders. Most famously, Yahya Ayyash, the chief bomb-maker of the Islamic Hamas organisation, was killed when Shin Bet detonated an explosive charge placed in his mobile phone.
All of this would seem to confirm Western allegations that Israel is waging a ruthless war against the Palestinians. It is certainly true that Israel systematically denies Palestinian democratic rights, but even here it is necessary to put such criticisms into their proper context.
It is all too often forgotten that Western countries have also used brutal tactics in military occupations. Afghanistan and Iraq are only the two most high-profile current examples of the massive use of force by Western armies in the Middle East. Western forces were not averse to assassinations, mass arrests, coercive interrogations and the recruitment of informant networks. Barack Obama’s policy of assassination by drone in Pakistan and Yemen also receives relatively little criticism in the West.
None of this justifies Israel’s repressive actions against the Palestinians, but it is naive and dishonest to present Israel as uniquely morally culpable. Yet it is common to find Western liberals slamming Israel’s tactics against the Palestinians while avidly supporting Western military interventions overseas. At least Israel can make some claim that it is facing an existential threat. Western liberal interventionists seem mainly preoccupied with making themselves feel that they are doing good. It is hard to imagine a more repugnant conceit.
In any case, the novel feature of The Gatekeepers is not what it says about the treatment of the Palestinians, but what it reveals about the mindset of the Israeli elite. It is striking that none of the Shin Bet leaders interviewed present a positive vision of what they are fighting for. In that sense, they can be described as post-Zionist. Maintaining the security of the state just seems to have become an end in itself.
The Shin Bet leaders’ main concern about the occupation is not the suppression of the Palestinians in itself but that it has corrupted Israeli society. From their perspective, Israel is the victim of the occupation. In particular, they point to the emergence of nationalist Jewish settlers in the occupied territories and their extremist fringe in the Jewish underground. The assassination of Yitzhak Rabin, Israel’s prime minister, in 1995 by a Jewish militant is only the most high-profile manifestation of this trend. Among other activities was a plot, mercifully unsuccessful, to blow up the Temple Mount in Jerusalem, widely regarded as the third holiest site in Islam. (A fictionalised version of such an attempted attack, thwarted by the Shin Bet, was the subject of Hahesder, an Israeli film released in 2002.)
This ambivalence about the occupation helps explain why the Shin Bet chiefs often come across as conflicted liberals to Western ears. On the one hand, they take palpable satisfaction in the efficiency of their military operations against Palestinian targets. On the other, they sound like peaceniks with their support for Palestinian autonomy or even a two-state solution.
In practice, this means letting moderate Palestinian leaders, who long ago gave up any claims to self-determination, take over day-to-day control of the occupied territories. If this leads to more efficient suppression of the bulk of the Palestinian population, then, from a Shin Bet view, so much the better. It would be naive to expect Shin Bet leaders to uphold genuine Palestinian freedom.
From the Shin Bet leaders’ perspective, the central obstacle to containing the Palestinians is posed by nationalist Israeli politicians. The compromised Palestinian leadership is eager to go along with a division between the two sets of territories. In contrast, many Israeli leaders, particularly those associated with the right, are reluctant to accept such a division.
Anyone with knowledge of Israeli history should see the irony in this discussion. Until the watershed year of 1977, when the right won its first election, the left dominated Israeli politics. It was under leftist leadership that Israel was founded in 1948 and the West Bank and Gaza were captured in 1967. It was also under a leftist government that the settlement programme got underway.
In the early decades of the state, the Israeli left had a clear vision of what it stood for. It had a pioneering zeal for the creation and establishment of a Jewish state. It also generally favoured Israeli control over the occupied territories, despite the large Palestinian populations.
Since then, the Israeli elite – particularly its leftist component – has become increasingly jaded. It no longer has the spirit for Jewish settlement it once had. It has also found that in many respects, Israel’s problems seem similar to those in other nations, including crime, corruption, poverty and inequality. On top of this, there are deep divisions between different segments of Israeli society (satirised in the Sticker Song). In addition, the elite finds its vision of a Jewish state undermined by the presence of many non-Jews, including numerous Eritreans, Filipinos, Russians and Sudanese, as well as the Palestinians. Contemporary Israel is a long way from the Jewish nirvana the elite once envisaged.
The Shin Bet chiefs interviewed in The Gatekeepers can all be seen as part of the faded remnants of this leftist tradition. Even the youngest, Yuval Diskin, would have spent his formative years in an Israel with a strong sense of identity. Indeed, the film’s director, Dror Moreh, clearly comes from this strand in Israeli society, too.
In contrast, the rightist minority that still retains a degree of Zionist zeal tends to be associated with the settler movement and religious Jews. The latter would generally be referred to as modern orthodox in America or Britain, but in Israel they are called national religious. These are not the ultra-orthodox haredim, where the men wear long black frock coats, but Jews who try to marry religious belief with modern life.
In contemporary Israeli politics, it is Naftali Bennett, leader of Habayit Hayehudi (the Jewish Home party), who most clearly personifies this trend. He is economy minister in the current government, a settler leader and former software entrepreneur. Bennett also always wears the kippa sruga, the knitted skullcap that is the marker for religious male settlers. His outlook does not rest on traditional leftist beliefs, but on a fusion of national religious convictions and support for Jewish settlement in the territories.
So contemporary Israeli politics is beset by an awkward paradox. The descendents of the old left, who established the state in the first place, still hold positions of power but are unsure what they believe. At best they can point to Israel’s achievements in high technology, but this is hardly sufficient basis for a coherent national identity. In contrast, the right still upholds some notion of Zionism, but one based much more on religious conviction than was the case in the past.
The remnants of the old left try to resolve this paradox by inviting more Western, particularly American, intervention. In their view, only the US can put pressure on the Israeli right to make the necessary accommodation with the moderate Palestinian leadership. This goal is stated explicitly by Shin Bet leaders in the film and is Moreh’s view, too. Indeed, it is in this context that the film’s director has stated that his dream ‘is to go to the White House and show the film to Obama’.
This, then, is the proper context in which The Gatekeepers should be put. It is an attempt by the post-Zionist Israeli left, bereft of energy or ideas, to persuade America to intervene against the Israeli right. In that sense, it can be seen as a cry of despair.
This outlook also explains why the film has received such a warm reception among pro-intervention Western liberals. For example, Jonathan Freedland, a columnist for the Guardian, argued in the run-up to Obama’s recent visit to the Middle East that the president should echo the message of The Gatekeepers. ‘These are not men to hold hands and sing Kumbaya’, he said approvingly.
As long as this support for Western intervention holds sway, no one in the region will be in a position to determine their own future. Palestinian freedom, in the proper sense of the term, is not on the agenda. All that is really being offered is for a narrow Palestinian clique, who renounced liberation long ago, to be the public face of the occupation. Meanwhile, even Israel, for all its talk of independence, will also find its future increasingly determined in Western capitals.
Margaret Thatcher’s admirers and her critics are both overestimating the extent to which the former prime minister transformed the British economy and financial markets. Although she made some important changes an awful lot remained intact.
Let’s get the genuine shifts out the way first.
Perhaps the most dramatic was winning acceptance for the idea that there is no alternative to the market economy. It is easy to forget that before Thatcher became prime minister in 1979 it was widely accepted that socialism was an alternative to capitalism. By the time she left in 1990 relatively few held that belief.
To be sure this was not just a British development. The demise of the Soviet bloc in the late 1980s also played a key role in discrediting socialism worldwide.
A parallel trend was the marginalisation of the trade unions. Until the 1970s governments frequently consulted union leaders. Unions were in turn backed by millions of members who professed some attachment to the organisations. Since the Thatcher assault of the 1980s the unions have proved to exist largely on paper.
In relation to the financial markets the “Big Bang” deregulation of 1986 did make some important reforms in the City. For example, it opened the way for international firms to play a much larger role than was the case previously.
However, as I have argued previously on Fundweb, it is not true that the Big Bang ushered the City from a regulated world to a deregulated one. It would be more accurate to say that the forms of regulation changed.
Before 1986 the City was more like a gentlemen’s club. Most people knew each other and those who were caught misbehaving were blackballed. Since then an elaborate system of statutory regulation has emerged.
Indeed in many respects the City is much more regulated than it was. Financial firms typically have large compliance departments to ensure they conform to a huge range of rules.
Perhaps the biggest myth about Thatcher is that she ushered in a free market economy. Although she often used the rhetoric of markets, as well as limited government, she completely failed to reduce the state’s role in practice.
Public spending as a proportion of GDP rose early in her term then dipped. But even this change was large a cyclical effect as spending tends to rise around recessions (as it did in the early 1980s) then fall back a little during economic expansions.
The long-term trend is for public spending to remain resolutely high. Despite all the rhetoric about markets the state continues to play an enormous economic role.
Perhaps the most important thing to remember in the current debate is that Thatcher left office in 1990. There are many young adults who were not even born when she was prime minister and even more who are too young to remember her time in office.
Yet many, particularly among her critics, still talk as if she is shaping political and economic debate. For all that has happened since 1990, including the economic crisis, her successors, Labour as well as Conservative, should take responsibility.
This blog post first appeared today on Fundweb.
This is my Perspective column from this week’s Fund Strategy magazine.
When is a euro not a euro? The question might sound philosophical but the Cyprus crisis has posed it in brutally practical terms.
Recall that the eurozone is meant to be a currency bloc. Therefore, at least in theory, a euro in, say, Germany or Finland, is meant to be the same as a euro in Cyprus. In that sense there should, strictly speaking, be no such thing as a German euro, Finnish euro or Cypriot euro. They are all simply meant to be plain euros without any national prefix.
The advent of capital controls in Cyprus has changed all that. It has clearly violated one of the fundamental tenets of a currency bloc: that money and capital should be able to flow freely within its borders.
As Eurointelligence, an internet news and analysis service, has noted on its blog: “The only thing that a Cyprus euro has in common with a euro from now on, are the similar looking banknotes, and a one-to-one exchange rate for small denominations.”
Of course these are the parts of the euro most visible to everyday users so the difference many not be evident immediately. But, as Martin Wolf, the chief economics commentator at the Financial Times, has pointed out there is a much larger amount of euro-denominated bank liabilities than bank notes. So the value of a euro in a Cypriot bank is backed by the solvency of the bank itself and behind that the government of Cyprus. In practice it is therefore likely to be worth significantly less than a euro in a German bank or indeed a French one.
Admittedly there was always an element of fiction to the idea of truly pan-European euro. The country codes on eurozone banknote are a thinly disguised giveaway. For example, the serial number on German notes starts with an X and Cyprus notes with a Y. Evidently the eurozone authorities wanted to retain a national marker without making it clear it was there.
However, it took about a decade from the advent of the euro in 1999 – initially as a cashless currency – until large cracks began to appear in the façade. Initially it seemed that there was, more-or-less, one euro across the region.
Companies of similar credit-worthiness could borrow at roughly the same rate across the eurozone. The national premium paid by borrowers from weaker countries virtually disappeared. In effect the stronger economies were implicitly underwriting the weaker ones. If, say, Greece got into trouble it was assumed that Germany and others would not hesitate to bail it out. For years everything appeared to be going smoothly.
Yet as successive countries got into difficulties in 2010 the gap widened dramatically. The spread between yields on German Bunds and the debt of weaker countries increased. There was the first indication that a euro in one country was not necessarily worth the same as a euro elsewhere in the region.
Since then sovereign spreads have proved volatile. But significant differences between the yields on bonds from different member states remain. It is no longer true that all eurozone member states are more-or-less equal in the bond markets.
However, the recent events in Cyprus have taken the monetary divergence in the region a step further. For the first time euros in one particular member state cannot easily be transferred to another.
The opening of differences between different national euros reflects wide divergences between different national economies. Some countries are far more productive than others (see chart). This discrepancy can be covered up in the short-term, indeed it was obscured for several years, but it has started to reassert itself.
For years the northern Europeans, in effect, lent money to the peripheral countries to keep their economies going. But eventually the time would come when the bubble had to burst.
Nor were Germany and other core states propping up weaker eurozone economies for altruistic reasons. For one thing the strong economies were, in effect, subsidising their exports to the periphery by keeping the euro artificially weak. They were pursuing a mercantilist economic policy.
The medium-term effect of this arrangement is becoming clear. An overtly two-tier set-up has emerged in what was supposed to be a unified community.
The emergence of two levels of currency is only one manifestation of this division. Another is that a small core of countries, particularly Germany, is dictating the terms on which the eurozone operates. An elite group of technocrats based in Brussels and Frankfurt are more than willing to help them in this task. In effect this is a new form of colonialism with the eurozone core, along with EU institutions, ruling over the periphery.
Such developments point to great uncertainty ahead both for the eurozone and for outside users of the currency. The eurozone has become something fundamentally different from what its founders envisaged. Although it set out to be a community of equal participating nations this vision has clashed with economic reality.
Nowadays it seems that all euros are equal but some are more equal than others.
My appearance on this morning’s BBC1 Big Questions programme is available to watch on iPlayer for the next week. The three topics were whether it was right to take from the rich to give to the poor; should we “go forth and multiply” and whether the Grand National horse race should be banned. Probably the only time I will ever share a platform with a leading jump jockey: Bob Champion, winner of the 1981 Grand National.
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