Bobbing around the river Elbe in a barge is probably the best way to get a sense of the huge scale of Hamburg’s port (Hafen Hamburg). It is hard to avoid using superlatives to describe the sights: massive cranes, huge numbers of containers, enormous dry docks and gigantic ships. There are also cruise liners, ferries and even an old Russian submarine. Close by is the Kiez red light and entertainment district, centred on the Reeperbahn, which is designed to service different kinds of needs for visitors.

The port’s vital statistics are also impressive. According to the Hamburg Port Authority it has a surface area of 72 square kilometres, its own 140km road network, 304km of railway track and over 130 bridges. Every year about 10,000 ships use the port and the total cargo handled in 2014 was 145.7m tons .

The port area of Germany’s second largest city is of course an expression of economy’s formidable trading power. Although its GDP is substantially smaller than that of the world’s global giants (America, China and Japan) its current account surplus is easily the largest in the world. In other words it exports more than it imports by a significant margin. Its output of machinery, vehicles, chemicals and household equipment are an expression of the economy’s industrial competitiveness

A large current account surplus is associated with high levels of savings. In effect the Germans bank a high proportion of the proceeds of their strong exports. From a German perspective its export performance is a sign of competiveness and the high savings rate is an indication of national prudence. It follows from these assumptions that countries such as America and Britain, with their yawning deficits and low savings, are irresponsibly living beyond their means.

Germany’s critics, particularly those of a Keynesian persuasion, see it rather differently. In their view the problem is not deficit countries consuming too much but Germans consuming too little. Germany’s large current account surplus and substantial savings amount to stealing demand from the rest of the world. If Germany would only buy more foreign goods, so the critics argue, the global economy would achieve a better balance. Since China’s surplus has decreased substantially in recent years the Germans face the brunt of such attacks.

Both sides in the debate, with their shared emphasis on consumption, are one-sided. It is telling that it would be possible to use the same evidence to draw conclusions opposite to those of the Keynesians. If America and Britain, for instance, made themselves more competitive their deficits would presumably narrow. Through this alternative route the world economy could theoretically also move closer to equilibrium.

The fundamental flaw in the debate is that both sides downplay the importance of production. A far better starting point would be to examine the productive weaknesses of the main western economies. For over three decades now the main western economies, including Germany, have all suffered from insufficient investment and economic atrophy.

Rather than trading criticisms it would be far better if each country focused on addressing its own economic shortcomings.

A slightly edited version of this piece was published on Fundweb on Friday.

This is my Polemic column for the May issue of Fund Strategy.

Writing about economic and investment topics in recent years I have kept stumbling across some initially unexpected themes. It is time to start pulling them together.

The most striking is what could be called inside-outerism. This is the pervasive tendency for elite functionaries and thinkers to view themselves as embattled critics of prevailing orthodoxies. In a recent blog post for Fundweb I wrote about one of the most high-profile British examples of this: Adair Turner. His glittering CV includes a stint as the director general of the Confederation of British Industry, and the chairmanship of the Financial Services Authority when it was Britain’s main financial regulator.

Perhaps the most consummate American example of inside-outerism, at least in the economic sphere, is Joseph Stiglitz. He is a Nobel laureate in economics, a former chair of the president’s Council of Economic Advisers and a former chief economist at the World Bank. Yet he constantly casts himself as a marginalised figure in economic debate.

Indeed this phenomenon goes beyond economics. For example, Nick Clegg, the deputy prime minister, recently described himself in a Guardian interview as “anti-establishment”. Across the western world it is common for leading politicians and officials to view themselves as opponents of the mainstream.

It is important to recognise the peculiar character of inside-outerism. It is entirely different from the earlier cases of people from privileged backgrounds rejecting their past to join radical political movements. The contemporary trend is for people currently at the peak of politics, official institutions or even academia to regard themselves as outsiders.

This is an odd phenomenon regardless of the content of their arguments. Even if the inside-outers were right on many points it would still beg the question of why they perceive themselves as anti-establishment.

To answer the question it helps to ponder a parallel development. That is the common tendency for those who view themselves as progressive to condemn what is sometimes called neo-liberalism or market fundamentalism. Such critics range from radical academics to George Soros, the billionaire fund manager and backer of such initiatives as the Institute for New Economic Thinking.

The essential thrust of their argument, that most western economies are free markets with the state playing a minimal role, is difficult to maintain. For example, total state spending in the America (including federal, state level and local spending) was 37% of GDP in 2014 or $6.4 trillion (£4.3 trillion). That is not a typo: the figure is in trillions rather than billions. Another indication of the size of the US government is the 26,417 pages in the Federal Register, an official record of federal government, is 2013.

It should be noted that the focus here is what exists rather than what is desirable. There are cases to be made both for and against extensive government spending. But in terms of what actually exists it is odd that so many authoritative figures insist that America and Britain have free market economies.

The final part of the jigsaw is the characteristic view the inside-outers have of the proper role of the state. Typically they argue that official institutions should play the central role in tackling any challenge. Any kind of instability, such as financial crises, invariably leads them to call for yet more regulation as a solution.

In this respect I was struck by a recent letter in the Financial Times penned mainly by radical academics including David Graeber, the thinker behind Occupy Wall Street. It argued that the European Central Bank should bolster the eurozone economy by creating new money to finance government spending. In other words, one part of the state, the central bank, should create money to bolster spending by another part.

Once again the point here is not to examine the pros and cons of such a proposal (although it is easy to spot potential pitfalls). It is that the inside-outers seem to see expanding the state’s role as the solution to virtually every problem. In the past, in contrast, radicals typically saw a greater role for the public or alternatively they demanded the reform or even abolition of state power.

It is now possible to start explaining the enigma of inside-outerism. The perspective is an inside one in that it typically looks at the world from the viewpoint of state functionary or professional technocrat. State officials hold this view but many academics and senior journalists share the perspective. On the other hand, the views of business, let alone the mass of the population, generally have a marginal influence in the current environment.

However, this technocracy has a profound lack of confidence in its ability to manage society. It feels that events too often have a tendency to spin out of its control. That is why its instinct is to propose ever more regulation at any sign of difficulty. That also helps to account for its perception of itself as an outside force.

The reasons for the technocracy’s profound crisis of confidence will have to be explained at another time.

One of the biggest economic questions of the decade is undoubtedly whether China will succeed in changing its development model. Since the late 1970s the Asian giant has enjoyed spectacular success in transforming itself from a poor rural economy to a dynamic industrial power. The time has come to shift the balance even further towards improving the quality of its output rather than simply catching up with the West.

This should mean more innovation and better technology. It also means raising labour productivity by investing more productively rather than simply throwing huge resources into prioritised sectors.

To a large extent the Chinese leadership recognises these challenges. There are already significant signs that it is becoming more innovative and moving towards developing more advanced forms of technology.

The problem is that the challenges facing China are often misunderstood. For example, last week the Financial Times ran a series arguing that China has reached what is called the Lewis turning point. That is essentially the point at which it can no longer grow simply by shifting surplus rural labour to the cities. China will have to raise urban wages and raise industrial productivity to continue developing.

In putting this argument the FT is following research from the International Monetary Fund, World Bank and others. Although there is debate about whether China is still yet to reach the Lewis turning point – named after Nobel laureate Arthur Lewis – it is widely seen as a valuable concept.

Before examining why this conception of China’s economic challenges is flawed it is worth doing a back-of-an-envelope calculation on the country’s labour situation. It is hard to imagine how, at least on the face of it, a country with a population of more than 1.3 billion people can be facing a labour shortage.

According to the latest statistics from the World Bank just under half of China’s population is rural. That amounts to about 640m people. However, a disproportionate share of that population is either elderly or children since a large number of those of working age migrate to work in cities. The FT quotes an estimate from China’s National Bureau of Statistics that 278m people lived outside their home towns for at least six months last year.

It is also worth noting that some people classified as living in the countryside work in the service or industrial sector. The true share of agriculture in the workforce could be as low as 20 per cent.

The flaw in the notion of the Lewis turning point is that it conceives of the challenges facing China in primarily demographic terms. It sees the main constraint as one of the number of available workers.

But that is an upside-down way of viewing the problem. It would be more accurate to see the challenge as one of increasing productivity across China. That way the whole of China’s enormous labour pool, amounting to many hundreds of millions of workers, can be harnessed more efficiently. It should be possible for China to produce far more than it does at present with the existing number of workers. Indeed, with the right investment it could even produce multiple times what it does at present even with a substantially smaller labour force.

China should also move much faster to abolish hukou: the system of household registration that ties an individual’s access to education, healthcare and housing to their home town or village. This represents a formidable barrier to labour mobility and hence to raising productivity.

The economic and social challenges facing China are far more pressing than any demographic shifts.

 This blog post was first published today on Fundweb.

My latest book review for the FT was published yesterday.

Russian oligarchs, in the popular imagination, are often seen as exemplifying the worst qualities associated with wealth. They are frequently linked to ostentation, corruption and even outright gangsterism.

The reality, of course, is more complex. Oligarchs emerged in the 1990s alongside the tumultuous transition to a market economy that followed the collapse of the Soviet Union. That does not excuse all their actions, but it does help put them into context. The more recent generation of wealthy Russians seems anxious to avoid the gross excesses of some of its predecessors.

Once Upon a Time in Russia tells the story of the Russian oligarchs by focusing on two of the leading figures from 1994 onwards. Boris Berezovsky went from a career as a mathematician to making a huge fortune, largely as a result of gaining control over former state assets. He was also a close ally of Boris Yeltsin, the first president of the Russian republic, and an early supporter of Vladimir Putin, the current president. However, Berezovsky died in mysterious circumstances at his home in Ascot in the UK in 2013 after a dispute with the Russian authorities and losing much of his fortune.

Roman Abramovich is the other high-profile figure in the tale. The senior school dropout started his career by running a toy company before making his fortune in the trading and transportation of oil. He was an early protégé of Berezovsky before famously falling out with him. Abramovich was the victor when the two tussled in an English court in one of the most expensive legal cases in history.

There are many secondary characters, but in a way, implicitly at least, this is also the story of Putin’s rise to leadership in Russia. First as prime minister and then as president, he succeeded in taming the power of the Russian oligarchs in the early 2000s. They were allowed to keep their wealth on the strict condition they accepted his government’s authority.

Ben Mezrich relates the story in the form of a true-life novel. The bestselling author has used the device before, including in The Accidental Billionaires, which provided the basis for The Social Network, the Hollywood film on the creation of Facebook.

Mezrich uses interviews, first-person sources, court documents and newspaper accounts as the basis for his narrative. In many cases he imagines what the characters would have said to each other, what he calls “recreated dialogue”, while he acknowledges “settings have been changed, and certain descriptions have been altered to protect privacy”. This approach has some advantages as well as considerable disadvantages.

The clearest benefit of the approach is that it makes the story more accessible. It is easier to grasp the main elements of the narrative and get to know the protagonists.

Sometimes it also provides insights that are harder to glean from factual accounts. For example, the willingness of the Russian authorities to sell state assets at such knockdown prices in the 1990s can seem crazy in retrospect. Even the most avid advocate of privatisation is likely to blanche at the memory. But it becomes a little more understandable once the mindset of the Russian authorities at the time is understood. The government was experiencing substantial financial difficulties and, at least according to Mezrich, feared the return of communism.

An important disadvantage of the approach is that inevitably some details are imagined rather than real. Mezrich cannot possibly know for certain what Putin was thinking at a particular time or even some of the dialogue related in the book. Even assuming Mezrich did exemplary research — and no doubt he did an immense amount of work on the project — there is a degree of poetic licence. Indeed, the “Once Upon a Time” part of the book’s title could itself be taken as an acknowledgement of the work’s partly fictional character.

It should also be recognised that easy accessibility has a downside. Fully understanding the transition from the Soviet Union to a market-orientated Russia means examining a host of cultural, economic and social factors. Even if it were possible to insert a microscopic spy drone into President Putin’s private office it would not reveal the whole story. Russia’s unprecedented transition is too complex to be reduced to a straightforward narrative.

Once Upon a Time in Russia: The Rise of the Oligarchs and the Greatest Wealth in History, by Ben Mezrich, William Heinemann, 2015, RRP£18.99/$28.00

The idea that a Hounslow-based day trader caused the American stockmarket to drop by 10 per cent in a few minutes on 6 May 2010 is absurd. Even if his actions acted as a catalyst for the drop – itself a questionable claim – they were certainly not the fundamental cause.

Yet it is widely accepted that Navinder Singh Sarao, the trader for whom the American authorities have requested extradition, is partly responsible for the “flash crash”. He is officially charged with devising a computer program that manipulated the futures market and had a subsequent knock-on effect on the stockmarket. In effect he bet that the S&P 500 would fall and allegedly created a program that made it look like prices were likely to drop.

Even assuming the charges are true it is hard to believe a lone trader in a West London semi-detached house could cause a market loss of almost $1trn. Futures contracts would have given him more leverage than investing directly but it is unlikely his actions caused such a huge fall. He may be guilty of market manipulation but, with only a few million pounds at his disposal, he was a relatively small player.

Although some commentaries have expressed cynicism about the case few have asked fundamental questions about why the market is prone to such falls. In particular, how relatively small interventions can appear to have such a dramatic impact.

There are two key factors at work. First, the huge amount of liquidity held in financial assets. This volume has increased sharply over time relative to the size of the economy. The ratio of total debt to GDP in America has risen strongly since about 1980. The stockmarket too has trended strongly upwards.

This massive surge in market liquidity over time is a symptom of underlying weakness rather than strength. It shows, among other things, that firms would rather hold or manipulate financial assets than engage in capital investment. This itself betrays a fearful attitude towards the future.

With so much liquidity around there is more potential for volatility. Many factors could cause waves in the markets under such circumstances. These could include the acts of a dishonest trader or the prospect of the disorderly unwinding of quantitative easing.

But there is an additional key factor besides the sheer volume of liquidity sloshing around. That is the pervasive fear of uncertainty that has long gripped the markets.

Such anxiety should be seen as a particular example of the angst that has permeated society more generally. We seem to live in a time when people are often particularly fearful about the future. This manifests itself in all sorts of areas from reluctance to let children play unsupervised to the obsessive drive to regulate the behaviour of football fans. Any type of action seen as posing a potential risk is viewed with extreme caution.

In the financial markets such free-floating anxiety can manifest itself as a propensity to be easily spooked. The effect of relatively minor developments can be magnified to prompt market turmoil. Small ripples can be transformed into tsunamis.

Such instability points to fundamental weaknesses. Scapegoating a relatively small-scale trader is a way of evading the challenges posed.

This blog post was first published on Fundweb on 28 April.

Let’s boldly go

16 Apr 2015

This was first published as my Polemic column in the April edition of Fund Strategy.

It may seem a stretch but the death of Leonard Nimoy, who played Mr Spock in Star Trek, reminded me of a key debate in economics. Even those who are not science fiction fans should bear with the argument as it has far-reaching implications.

Spock has become an iconic figure in popular culture. Even those who have never watched the original 1960s TV series often have an image of him as the ultra-logical alien aboard the USS Enterprise.

This is where the economic debate comes in. Critics of free market economics often cite him as the epitome of “rational economic man” or Homo Economicus. The implication is conventional economics makes the erroneous assumption that people always behave rationally.

Diane Coyle, one of Britain’s most accomplished economic writers, is among those who has used Spock to make this point. Back in 1997 she argued in the Independent that a flawed assumption of mainstream economics is that people are fully rational: “They assemble all the available information, they consider the possibilities and they make the choice that maximises their own gain. Mr Spock, the Vulcan first lieutenant in Star Trek (traditional Vulcan greeting: live long and prosper), is the ideal economic agent. The profession assumes that we all think like Vulcans.”

Although I am generally a fan of Coyle’s writing she is way off the mark here. Spock is actually half Vulcan and half human. This is more than just a nerdy point. A recurring theme in the original Star Trek TV series was the conflict between Spock’s rational Vulcan side and his emotional human side. The character did frequently assert the power of logic but often he found himself inwardly torn.

In fact the “real” Spock, that is the character as he actually appeared in the TV series, resembles an economic agent more closely than the caricature. Those economists who focus on humans as rational agents do so as part of a model rather than a literal representation of reality. Their working assumption is people generally behave rationally most of the time. No serious commentator would claim everyone always acts perfectly rationally.

But the problem goes deeper than a caricature of the notion of rational economic man. The critics generally present themselves as radical opponents of free market economics. However, the thrust of their argument is deeply conservative: downplaying or even rejecting human reason.

Proponents of behavioural finance and neuronomics (the application of neuroscience to economics) typically take a dim view of rationality. They accept reason may play some role but generally argue decision-making tends to be warped by substantial cognitive biases. Since I have talked before about the limits of behavioural approaches let’s look at an older form of the argument.

Karl Polanyi, a Hungarian-American economist, attacked the idea of humans as rational economic agents in his work The Great Transformation. He was essentially a moderate socialist who associated rationality with the kind of abstract free market economics common in the Vienna of his youth. In his view, free market economics made the fatal error of seeing markets as natural entities rather than as products of human intervention.

But on closer inspection Polanyi is not just attacking a particular brand of economics but the core idea of human reason. For the thinkers of the Enlightenment – the intellectual and cultural movement that swept Europe and America in the 18th century – the power of reason was a defining quality of human beings. It was by harnessing this power that humans could achieve a freer and more prosperous world.

Polanyi’s work is therefore not so much an attack on the free market but a rejection of Enlightenment thought. His eschewal of this central principle tends to lead to much more downbeat views on the capacity of humans to achieve greater prosperity. It also suggests our ability to understand how the world works is constrained.

Such pessimism was understandable in the midst of the Second World War when Polayni wrote his book. This is particularly true of someone who spent his early life in Vienna.

However, Polanyi has influenced later generations of thinkers who are, if anything, gloomier than him. For example, Joseph Stiglitz, one of the world’s most prominent economic thinkers, wrote the foreword to a new edition of The Great Transformation.

If anything, the advocates of behavioral finance and neuronomics take a darker view still. For instance, Dan Ariely, one of the superstar pundits of the behavioural approach, twists a famous quote from Shakespeare’s Hamlet to make a point about the limitations of human capabilities: “We are not noble in reason, not infinite in faculty, and rather weak in apprehension.”

Unfortunately we live in a world in which such cultural pessimism has taken hold in economics and other disciplines. It would be a great step forward if we could boldly go forward towards a world in which people thought more like Spock.

Yesterday Novo published a German translation of my recent spiked article on why the American president loathes the Israeli prime minister.

Barack Obama kann den israelischen Premier Benjamin Netanjahu nicht ausstehen. Aber weitaus bedeutsamer ist die Geopolitik, meint Daniel Ben-Ami: Wie zuletzt das Atomabkommen mit dem Iran zeigt, distanzieren sich die USA seit Jahrzehnten mehr und mehr von Israel.

Wenn man sich Videos ihrer gemeinsamen Pressekonferenzen anschaut, kommt man leicht zu der Schlussfolgerung, dass Barack Obama den israelischen Premierminister Benjamin Netanjahu verachtet. Wenn Netanjahu die Standpunkte seiner Regierung in der für ihn charakteristischen direkten Art erklärt, scheinen die Augen des US-Präsidenten regelrecht glasig zu werden.

Man muss nicht einmal auf seine Körpersprache zurückgreifen, um Obamas Gefühle auszumachen. Seine Abneigung gegenüber dem israelischen Regierungschef ist seit Jahren ein offenes Geheimnis. Obwohl Obama es bisher vermieden hat, Netanjahu persönlich zu beleidigen, sind sich die US-Medien seiner Haltung offensichtlich bewusst. Der Präsident hat Netanjahu wiederholt scharf kritisiert. So bezeichnete er die jüngste Ansprache des Israelis vor dem US-Kongress [1] als „Theater“ [2] und warnte, dass Netanjahu „die Bedeutung der Demokratie“ [3]aushöhlen könnte. Es ist schwer vorstellbar, dass der Stabschef des Weißen Hauses, Denis McDonough, seine Forderung, die „50-jährige israelische Besetzung“ [4] des Westjordanlandes zu beenden, ohne die Zustimmung des Präsidenten aussprach.

Es ist wahrscheinlich, dass zumindest ein Teil dieser Abneigung persönlicher Natur ist. Netanjahu, in Israel als „Bibi“ bekannt, beherrscht die im israelischen Slang als „Dugri“ bezeichnete Unverblümtheit perfekt. Was Israelis für wohltuende Offenheit halten, erscheint Fremden oft als unhöflich oder arrogant. Ein Artikel des BBC zu diesem Thema [5] nennt mehrere Beispiele, die vielen Israelbesuchern sicherlich bekannt vorkommen werden. Der Autor beschreibt zum Beispiel, wie die Frage an einen Museumsmitarbeiter, ob Fotografieren erlaubt sei, ihm eine Standpauke über Zeitverschwendung einbrachte.

Aber natürlich sollte man, wenn zwischenmenschliche Spannungen die Beziehung zwischen zwei Staatsführern belasten, den Gesamtzusammenhang nicht außer Acht lassen. Offensichtlich nimmt Obama Netanjahu übel, dass dieser ihm nicht mit dem ihm seiner Meinung nach zustehenden Respekt begegnet. Schließlich ist er der Präsident der Vereinigten Staaten, während Netanjahu letzten Endes nur an der Spitze eines kleinen Staates im Nahen Osten steht.

Die Doppelmoral gegenüber Israel

Das zeigt, dass hier eine krasse Doppelmoral vorherrscht. Zweifellos mangelt es Netanjahu an diplomatischem Gespür. Und ebenso zweifellos stellt seine auf Einladung der Republikaner gehaltene Rede vor dem US-Kongress eine Einmischung in die inneren Angelegenheiten der Vereinigten Staaten dar. Aber auch Obama hat kein Problem damit, wenn Amerika in fremden Ländern interveniert. So ordnete er Drohnenangriffe in mehreren Staaten an [6] und unterstützte 2013 de facto den ägyptischen Militärcoup. [7] Bis hin zur militärischen Gewalt dürfen westliche Staatenlenker anscheinend alle Mittel nutzen, die ihnen recht sind, um in die Angelegenheiten fremder Länder einzugreifen. Im Gegensatz dazu wird Netanjahus etwas parteiische Haltung zur US-Politik als unerhörtes Gehabe eines dreisten Israelis gesehen. Für Obamas Regierung war Netanjahus schlimmstes Verbrechen, dass er sich anmaßte, dem US-Präsidenten ebenbürtig zu sein.

Ironischerweise glauben auch viele selbsterklärte Unterstützer der Palästinenser, sowie einige namhafte Angehörige der israelischen Führungsschicht [8], dass Netanjahu dem amerikanischen Präsidenten, und dem Westen im Allgemeinen, nicht die ihnen gebührende Achtung entgegengebracht habe. Pro-palästinensische Aktivisten setzen sich seit Monaten verstärkt dafür ein, dass der Westen diplomatische Schritte (bis hin zu Sanktionen) [9][9] gegen Israel einleitet. Neben dem westlichen Interventionismus billigen sie damit, dass ein im weltweiten Vergleich recht unbedeutender Staat zum Sündenbock abgestempelt wird.

Netanjahus Kritiker verweisen auf eine unbedachte Facebook-Videobotschaft [10], in der der Premier die linke Opposition bezichtigt, massenhaft Araber zu den Wahllokalen kutschiert zu haben. Aber diejenigen, die meinen, dass allein Israel das Etikett eines Pariah-Staates verdient, sollten sich die Bilanz westlicher Politik vor Augen führen. Vielleicht sollten sie die durchweg stark befestigte 3145 Kilometer lange Grenzanlage zwischen den USA und Mexiko besichtigen. Sie sollte jeden Zweifel daran beseitigen, dass die amerikanischen Behörden Mexikaner diskriminieren. Oder sie könnten zum Mittelmeer reisen, das dank der EU-Seemacht zum wässerigen Grab für tausende verzweifelte Flüchtlinge aus Afrika und dem Nahen Osten geworden ist. [11]

Diejenigen, die Israel für besonders verdammungswert halten, begründen dies manchmal mit der vermeintlich besonderen Beziehung des Staates zu den USA. Laut dieser Auffassung ist Israel aufgrund seiner engen Verbindungen zur weltgrößten Wirtschafts- und Militärmacht besonders gefährlich. Die verbreitetste Version dieses Argumentes knüpft an traditionelle antisemitische Stereotype an, indem sie die Israellobby als finstere Macht darstellt, die die US-Politik beeinflusst. Laut einer, meist von Linken verbreiteten, Alternativversion fungiert Israel als im Nahen Osten als Aufpasser für den Westen.

Bis circa 1990 enthielt diese alternative Sichtweise einen Kern Wahrheit. Die USA neigten dazu, Israel als strategischen Partner zu sehen, dessen Interessen sich größtenteils mit denen der Amerikaner im Nahen Osten deckten. Dies ergab sich unter anderem daraus, dass beide Staaten den radikalen pan-arabischen und palästinensisch-nationalistischen Bewegungen feindselig gegenüberstanden. Beide Bewegungen versuchten, eine gewisse Autonomie jenseits des westlichen Einflusses in der Region zu erstreiten. Dies geschah zu einer Zeit, als die USA noch zögerten, sich direkt in die Angelegenheiten des Nahen Ostens einzumischen. Stattdessen setzten sie darauf, dass regionale Verbündete (Israel und – bis 1979 – der Iran) westliche Interessen vorantreiben würden.

Zeitgenössische Israelkritiker ignorieren jedoch, dass dieses Arrangement schon vor einem Vierteljahrhundert hinweggefegt wurde. Im Zweiten Golfkrieg (1990/91) zogen die USA an der Spitze einer riesigen Militärmacht gegen den Irak in den Krieg. Dem folgte 2003 eine vollständige westliche Invasion des Landes, sowie ab 2001 die Entsendung unzähliger Soldaten nach Afghanistan. Daneben gab es zahlreiche kleinere Eingriffe, wie die militärische Intervention in Libyen 2011 oder die vielen von Amerika lancierten Drohnenangriffe.

Der Westen distanziert sich von Israel

Solche Interventionen zeigen, dass Israel schon lange seine Rolle als strategischer Partner des Westens im Nahen Osten eingebüßt hat. Im Gegenteil: In Zeiten des Islamischen Staats und zahlreicher Bürgerkriege in der gesamten Region ist Israel für den Westen eher zu einer Bürde geworden. So versucht der Westen zunehmend, sich von Israel zu distanzieren.

Dieser Gesamtkontext erklärt den Zwist zwischen Obama und Netanjahu. Es geht um viel mehr als persönliche Abneigung. In den Jahrzehnten nach dem Zweiten Weltkrieg konnte sich Israel auf die Unterstützung der zwei großen amerikanischen Parteien verlassen. In den letzten Jahren haben sich jedoch große Teile der Demokratischen Partei, inklusive des amtierenden Präsidenten, von Israel abgewandt. Zwar pflegt Israel bis auf weiteres ein gutes Verhältnis zu den Republikanern. Dennoch haben sich durch das Zerwürfnis mit den Demokraten die amerikanisch-israelischen Beziehungen grundlegend gewandelt. Daran wird sich auch nach 2017, wenn Obama aus dem Amt scheidet, vermutlich nichts ändern.

Es bleibt, was Israelkritiker für ihren höchsten Trumpf halten: Die Tatsache, dass die USA Israel noch immer jährlich mit ungefähr drei Milliarden US-Dollar an Hilfsmitteln unterstützen. Dies beweise aus Sicht der Kritiker, dass noch immer eine Sonderbeziehung zwischen den beiden Ländern besteht. Bei genauerer Betrachtung der Daten zeigt sich jedoch, dass die Entwicklung genau entgegengesetzt zu der von den Kritikern suggerierten Richtung verläuft. Die drei Milliarden Euro an Hilfsmitteln sollten zuerst in Beziehung zum Bruttoinlandsprodukt Israels (290 Milliarden US-Dollar) und Amerikas (16,8 Billionen US-Dollar) gesetzt werden. Dann zeigt sich, dass die Zuwendungen weniger als ein Prozent der Jahreswirtschaftsleistung Israels ausmachen.

Bei näherem Hinsehen zeigt sich auch, dass die amerikanischen Hilfszahlungen an Israel effektiv rückläufig sind. Eine Studie des Forschungsdienstes des US-Kongresses [12] belegt, dass die offiziellen Zuwendungen 1979 (dem Jahr, in dem der pro-westliche Schah im Iran gestürzt wurde und Israel ein Friedensabkommen mit Ägypten unterzeichnete) mit circa 4,9 Milliarden US-Dollar ihren Höhepunkt erreichten. Inflationsbereinigt wären dies nach heutigem Wert circa 15,8 Milliarden US-Dollar. Effektiv sind die amerikanischen Zahlungen an Israel also seit der Spitzenzeit Ende der 1970er-Jahre um mehr als vier Fünftel zurückgegangen. Dies bestätigt, dass sich die USA von Israel distanzieren. Selbst wenn 1979 ein Ausnahmejahr war, lässt sich nicht leugnen, dass die finanzielle Unterstützung Israels durch die USA über die Jahre stark nachgelassen hat.

Das Verhältnis des Westens zum Nahen Osten hat sich grundlegend gewandelt. Die Diskussion darüber könnte etwas mehr „Dugri“ verkraften. Die Beziehungen zwischen Israel und den USA (insbesondere den Demokraten) haben einen beispiellosen Tiefpunkt erreicht. Israel hat seine Rolle als strategischer Partner des Westens im Nahen Osten eingebüßt. Für westliche Politiker ist der Staat heute eher ein Problem als ein Verbündeter. Unter solchen Bedingungen ist es wichtiger denn je, westlicher Einmischung in die Staaten des Nahen Ostens, einschließlich Israels, entschieden entgegenzutreten.

Aus dem Englischen von Kolja Zydatiss.


1Sean Collins: „Netanyahu in Washington: how Bibi eclipsed Barack”, Spiked, 05.03.2015.
2George E. Condon Jr.: „Obama: Netanyahu Speech ‚Theater’ and ‚Nothing New’”,NationalJournal, 03.03.2015.
3zit. n. Jessica Elgot: „Huffington Post Meets President Barack Obama: On Netanyahu, Iran, Ebola And Getting Enough Sleep”, Huffington Post, 21.03.2015.
4Rebecca Shimoni Stoil: „Top White House official calls for end to ‚50-year occupation’”, The Times of Israel, 23.03.2015.
5Raffi Berg: „Getting behind Israeli ‚frankness‘“, BBC News Online, 13.04.2013.
6Brendan O’Neill: „The Obama administration has been a colossal failure. Who in good conscience could vote for him again?”, The Telegraph online, 06.11.2012.
7Ders.: „Al-Sisi und die westliche Doppelmoral”,NovoArgumente online, 11.06.2014.
8Daniel Ben-Ami: „Modern Zionists: gatekeepers of what?”, Spiked, 16.04.2013.
9z.B. „Sign the petition. Israel says no to Palestinian state – sanctions now!”, Palestine Solidarity Campaign, 31.03.2015.
10Benjamin Netanjahu, Facebook, 17.03.2015.
11Benjamin Ward: „The EU Stands By as Thousands of Migrants Drown in the Mediterranean”, Human Rights Watch online, 25.02.2015.
12Jeremy M. Sharp: „U.S. Foreign Aid to Israel”, Congressional Research Service, 11.04.2014.


It was almost inevitable that privatisation would provoke heated exchanges during Britain’s election campaign. Sadly it is to be expected that all sides should make misleading claims. Perhaps more surprising is that, despite the vociferous debate, the protagonists share so much in common.

So far the discussion has focused on the NHS. Labour has for several years accused the Conservatives of encouraging “creeping privatisation” of the NHS which the opposition party claims was ushered in by the Health and Social Care Act 2012. However, Ed Milband, the Labour leader, was made to look uncomfortable in the 2 April television debate when some of the other party leaders pointed out that the last Labour government itself privatised some NHS services.

No doubt some readers will see this topic as one of social policy rather than economics. But before such a hasty dismissal it is important to remember that in England alone the NHS employs about 1.4m staff and it spends roughly £100bn, equivalent to £2,000 per person. That is a huge slice of the economy that represents a key customer for many private sector companies. The purchasing power of its staff is also a substantial component in consumer demand.

In any case the discussion of privatisation extends well beyond the NHS. Historically it was linked to a broader debate about economic revitalisation. This reached its peak in the second half of the 1980s when Personal Equity Plans (Peps), the forerunner of Isas, were introduced by the then Conservative government. Privatisation and wider equity ownership were together seen as prompting a renaissance of popular capitalism.

To understand the debate’s implications it is necessary to dig deeper. There is a pervasive misconception that privatisation is primarily driven by ideology. Critics, such as Naomi Klein, typically portray it as part of a malevolent free market drive to roll back the frontiers of the state. Supporters, perhaps most famously Margaret Thatcher, have often described it as a way of reducing the deadening hand of socialism.

The overlap between the two apparently conflicting views is striking. Both see privatisation as the application of free market ideas. A closer look shows this shared assumption is flawed. Support for it was always driven more by pragmatism than ideological zeal.

In this respect a paper presented by Adrian Williamson, an academic at Trinity Hall, Cambridge University, to the Economic History Society’s recent annual conference is helpful. A key part of his argument is that support for privatisation did not suddenly appear in 1979 with the election of a radical Tory government under Thatcher. On the contrary, it gradually emerged in the earlier period under both main parties.

For example, as far back as the late 1960s the then Labour government was demanding a higher rate of return from nationalised industries. State-owned enterprises were expected to start acting more like commercial firms. In 1976 the Labour government privatised part of BP, back then state-owned, then in 1978 it supported a radical plan of cost reduction at British Steel, a state-owned enterprise later privatised by the Tories.

It is also striking that the Conservative election manifesto of 1979 said little about privatisation. It was only a few years later that the denationalisation process got underway. Even then it was driven more by a practical desire to make the government’s spending figures look better. Older readers may remember the Thatcher government achieved this goal by using the neat trick of counting the proceeds of state asset sales as negative spending. The Conservative’s gloss on privatisation as an economic liberator only emerged later on.

Sadly the privatisation debate is like so many of the election exchanges. Clouded by misconceptions and misleading statements on all sides.

This review was first published last Thursday in the Financial Times.

Neoliberalism is frequently portrayed as the malevolent ideology of the super-rich. Its critics contend that its preference for minimal state regulation favours the strong over the weak. The conclusion usually drawn is that state powers need to be strengthened to protect the vulnerable.

Unfortunately the term is rarely defined clearly in such discussions. It often simply suggests a sense that the wealthy are free to abuse their economic power by dominating the rest of society. In that respect it is more often used pejoratively than with an understanding of its true meaning.

Against that backdrop The Rise and Fall of Neoliberal Capitalism should be warmly welcomed. For one thing, it has a whole chapter called “What is neoliberalism?” Supporters and critics of the concept would do well to read it.

David Kotz, a professor of economics at the University of Massachusetts Amherst, rejects one common definition of neoliberalism. He accepts that relative to gross domestic product the size of American government has not decreased since the onset of the neoliberal era in about 1980. Instead it has stayed at more or less the same level once cyclical fluctuations are stripped out.

Indeed, in terms of absolute spending the size of government has increased considerably in real terms. Since the economy is substantially bigger than it was in 1980, the amount of spending is much higher, even though the share has remained steady.

Despite this concession, Kotz maintains his view that the US has become neoliberal. His argument is that the neoliberalism is defined by the state’s withdrawal from key areas of economic intervention. For instance, it has renounced Keynesian demand management and allowed for the deregulation of the financial sector.

But Kotz is too quick to dismiss the significance of the size of American government. According to figures from the International Monetary Fund, the total spending of US government in 2014 amounted to $6.4tn or 37 per cent of GDP (that is, including not just federal government but also state level and local spending). These figures alone raise questions about what the state is doing if not intervening in society or the economy.

Not only does it spend huge amounts on the military — which Kotz concedes — but substantially more on education, healthcare and pensions. Whether such spending is desirable is another matter, but it is certainly inconsistent with a classical liberal view of a minimal role for government.

The activist character of government is also reflected in the huge number of regulations published annually by the federal government. For example, the number of pages devoted to rules in the Federal Register, an official record of federal government, reached 26,417 in 2013. This compares with 21,092 in 1980 and 12,589 in 1976. Such figures may not be a perfect measure of state intervention but strongly suggest government is playing an extensive regulatory role.

Of course Kotz is right to point to important policy changes over the years. Keynesian demand management has certainly gone out of fashion even if high public spending has not. But the changes are more accurately described as a reregulation – a change in the forms of regulation and intervention – rather than deregulation.

For example, monetary policy has become far more activist over what Kotz characterises as the neoliberal period. The Federal Reserve has taken a high-profile role in managing interest rates and more recently quantitative easing. It is richly ironic that the Fed chairman from 1987 to 2006 was Alan Greenspan, an ardent devotee of Ayn Rand, an arch free marketeer.

Kotz is on particularly shaky ground when he refers to the emergency measures enacted in 2008–09 as a return to a “Keynesian moment”. He is forced to accept that the huge bank bailout and the rescue of General Motors were inconsistent with a free market. The same is true of the Dodd-Frank Act for financial reform. It is arguable that such measures were necessary, but they were not an aberration. They were not nearly as great a departure from the previous or subsequent years as Kotz suggests.

Even on the level of rhetoric, the ideas of neoliberalism have little purchase. Outside of a few university seminar rooms and think-tanks it is, for better or worse, pragmatism that reigns.

The Rise and Fall of Neoliberal Capitalism, by David M Kotz (Harvard University Press, 2015). RRP£29.95/$39.95




When trying to refute a misplaced idea it is best to take its most coherent and lucid expression as a target. Taking apart a sloppily expressed argument is unlikely to convince many that its premises are fundamentally flawed.

In the spirit of aiming at hard targets it is worth looking closely at the work of Adair Turner. Not only is he exceptionally clever but he is also what could be called a go-to guy when government wants someone to think through difficult challenges. His many roles have included chairing three high-profile public investigations: the Pensions Commission, the Low Pay Commission and the Climate Change Committee. He was also chairman of the Financial Services Authority, then the main financial regulator, when the financial crisis broke in 2008. His early career was at McKinsey, a management consultancy with a reputation for recruiting many of the brightest graduates.

It was with this impressive CV in mind that I was keen to attend Lord Turner’s recent lecture entitled “Caught in the debt trap” at Cass Business School. I suspected, based on past experience, that I would disagree with much of it but I knew I would also find it stimulating.

The thrust of his argument was that the western economies are likely to suffer from a prolonged period of slow growth, mainly as a result of a debt overhang. Although private sector debt has declined in some cases in recent years an increase in public sector debt has more than compensated for it. This was the conclusion of what he described as a “very fine” report called Deleveraging? What Deleveraging?.

Turner also pointed to a well-known study by Richard Koo, the chief economist at the Nomura Research Institute, on the Balance Sheet Recession. The book contends that in high debt environments the priority for firms is often to pay down debt rather than to make profits. In such a climate, with little capital investment, economic growth is likely to be slow. Koo’s analysis was initially based on Japan’s experience but Turner and others have claimed it now applies to many other advanced economies.

For Turner the debt overhang has merged with other trends such as widening inequality and a shifting demographic balance. He also argues that there is a reduced need for capital investment as developments in information technology have made it much cheaper.

There are additional elements to Turner’s scenario but it seems to me that on a fundamental level he gets things upside down. The long-term rise in debt levels is a symptom, rather than cause, of sluggish growth. In a weak economy it is often more attractive for firms to invest in financial assets, including property, rather than the real economy.

Low levels of capital investment are much more problematic than Turner suggests. They are also symptomatic of a fundamentally weak dynamic towards economic growth. In contrast, his arguments on the cheapening effects of information technology are grossly exaggerated.

Although Turner is a consummate economic insider it is interesting that he presents his argument as a challenge to the orthodoxy. That helps explain his involvement with the Institute for New Economic Thinking. It is also worth noting that there are parallels between his arguments and those of David Graeber, who I wrote about in my last blog post. Both mistakenly see a heavily reliance on debt as a cause, rather than a symptom, of the plight of the western economies.

This blog post was first published today on Fundweb.