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  als „Theater“  und warnte, dass Netanjahu „die Bedeutung der Demokratie“ aushöhlen könnte. Es ist schwer vorstellbar, dass der Stabschef des Weißen Hauses, Denis McDonough, seine Forderung, die „50-jährige israelische Besetzung“  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  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  und unterstützte 2013 de facto den ägyptischen Militärcoup.  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 , 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)  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 , 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. 
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  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.
This is the text of my latest feature for the Financial Times (published last Thursday)
Religion and wealth have long been seen as separate realms. “Ye cannot serve God and mammon,” says a famous passage of the King James Bible. But look more carefully and it becomes apparent that the links are closer and more surprising than widely assumed.
The connections go way beyond the routine injunctions for businesses to behave more ethically. Max Weber, one of the founders of modern sociology, is noted within his field for writing about the relationship between the Protestant ethic and the spirit of capitalism. Less well known are the parallels between the Jesuits, an order of the Catholic Church, and the commercial world.
To understand the link it helps to go back to 1540 when the Society of Jesus, as the Jesuits are officially known, was founded. Its creation was at least partly a response to the Reformation, with the new force of Protestantism ascendant in Europe. It was also, many historians argue, the dawn of the modern age when capitalism was emerging.
It was not long before the Jesuits had set up a network of missionaries around the world. Members of the order quickly became known for their international and cosmopolitan character. They were also renowned for the emphasis they put on the value of a classical humanist education.
In important respects, the development of the organisation foreshadowed the emergence of the multinational corporation. “The main comparable feature was the way they locally adapted,” says Jose Bento da Silva, assistant professor of organisation and human resource management at Warwick Business School. While strategic decision-making was centralised, the local subsidiaries, or “provinces”, had considerable autonomy.
John W O’Malley, a Jesuit priest and a professor of theology at Georgetown University, endorses this view. “There was a lot of local autonomy,” he says. He adds that in some respects the Jesuits can be seen as “empowered employees”. Every Jesuit province has a meeting every three years at which they vote for someone to send to Rome to decide whether to call a general congregation — the order’s highest authority.
A second similarity is the emphasis the Jesuits place on what in a business context would be called management education. Becoming a Jesuit priest is a notoriously rigorous process that typically takes 15-18 years. They are required to have a thorough grounding in classics, philosophy and theology as well as to speak several languages. “They are really highly trained people,” says da Silva. “For them talent management is not a buzzword.”
Indeed this high level of education has led some to compare them with management consultancies. McKinsey consultants in particular are sometimes referred to — by both admirers and critics — as “the Jesuits of capitalism” for their emphasis on elite educational attainment. However, the Jesuits were there almost four centuries before the consultancy was founded.
One perhaps surprising way in which the Jesuits anticipated modern business practices is in accounting. Not only was the Society of Jesus at the forefront of developing financial accounting but it ran parallel to the organisation’s more spiritual operations. O’Malley says in the past many Jesuits monitored, “very diligently how many confessions they heard, how many people came to mass, how many communions they distributed, how many members they had in their different lay organisations”. From this perspective, “you don’t know what is going on in people’s souls, but there is a way of counting”.
Paolo Quattrone, a professor of accounting at the University of Edinburgh Business School, says in some respects Jesuit accounting was superior to the contemporary discipline. It was not simply a way of keeping track of financial transactions but a method of reflecting on the society’s goals in any given situation. In that respect, there are contemporary lessons to be learnt from the Jesuits.
He points out Jesuit accounting emerged out of classical humanism. In the 16th century, the term did not refer to an atheist or anti-religious outlook. Instead it meant a viewpoint grounded in classical Greek and Latin texts on what it meant to be human. “The Jesuits translated humanist knowledge into a coherent system of administration and accounting that was functional to the organisation’s quick spread and long-distance control,” says Quattrone.
The study of rhetoric — which was concerned with the invention and classification of knowledge — was important to the development of Jesuit accounting, providing a means of reflecting on possible futures, rather than just an accurate representation of financial transactions.
For Quattrone this meant developing a system that could handle what nowadays are referred to as “unknown unknowns”. “When you go to the Amazon forest without a map you do not know what you do not know,” he says. There are, he says, parallels with path-breaking current projects such as hugely expensive development programmes for combat aircraft.
For Jesuits the point was not to add an ethical afterthought to traditional accounts but to develop a system that facilitated the making of judgments. It was a world away from the box-ticking compliance regimes in many contemporary companies. “They embedded into daily operations this highly sophisticated moral and philosophical basis,” says Quattrone.
Perhaps now is the time to start rediscovering classical humanist texts.
This is the text of my spiked article published on Thursday
It is hard to resist the conclusion that Barack Obama loathes Benjamin Netanyahu, the Israeli prime minister, after watching videos of their joint press conferences. President Obama’s eyes sometimes seem to glaze over as Netanyahu explains Israel’s official position in his characteristically forthright style.
In fact, it isn’t necessary to rely on body language to discern Obama’s feelings. His dislike of the Israeli leader has been an open secret for years. Although Obama has avoided insulting Netanyahu to his face, the US media have clearly been made aware of the president’s view. Obama has also made trenchant public criticisms of Netanyahu, blasting his recent address to Congress as ‘theatre’ and warning that Netanyahu is threatening to ‘erode the meaning of democracy’. It is also inconceivable that Denis McDonough, the White House chief of staff, would have called for an end to Israel’s ‘50-year occupation’ of the West Bank without the president’s permission.
It is likely that at least a small part of this animosity is personal. Netanyahu, known as Bibi in Israel, is a consummate practitioner of what Israelis call dugri: a slang term that can be roughly translated as frankness or straightforwardness. Foreigners often see what Israelis regard as honest directness as rudeness or arrogance. A BBC article on the subject gave several examples that will no doubt ring true for many who have visited Israel. For instance, the author recalled being told off for time-wasting by a museum official after asking politely whether it was permissible to take photographs.
But even interpersonal tensions should be seen in a broader context when they strain relations between two national leaders. Obama clearly resents Netanyahu’s failure to treat him with what he regards as due deference. He is, after all, the president of the United States, while Netanyahu is, when it comes down to it, the leader of a small Middle Eastern state.
When looked at from this perspective, it soon becomes apparent that stark double standards are in play. No doubt Netanyahu lacks diplomatic tact. It is also true that his recent address to Congress, made at the invitation of the Republican speaker of the House of Representatives, represented interference in domestic American affairs. However, Obama has no qualms about America’s right to intervene overseas, including launching drone attacks in several countries and, in effect, endorsing the 2013 military coup in Egypt. Western leaders are apparently allowed to use all means they see fit, up to and including military force, to interfere in other nations’ affairs. In contrast, Netanyahu’s slightly partisan approach to US politics is seen as the outrageous stance of an uppity Israeli. From the Obama administration’s perspective, Netanyahu’s biggest sin was acting as if he were equal to the American president.
Ironically, many self-proclaimed supporters of the Palestinians, as well as some prominent members of the Israeli elite, essentially endorse the view that Netanyahu is failing to show due deference to the American president, and to the West more broadly. In recent months, pro-Palestinian activists have redoubled their calls for Western diplomatic action, often including sanctions, against Israel. In one stroke, they are endorsing the West’s right to interfere overseas and supporting the scapegoating of what is, by global standards, a small nation: Israel.
Such critics point to Netanyahu’s ill-judged remarks in a Facebook video, in which he referred to leftists bussing in Arabs to vote in ‘droves’. But those who argue that Israel should be singled out as a pariah state should reflect on the West’s own record. Perhaps they should visit the 1,954-mile border, heavily fortified across much of its length, between the US and Mexico. If they did, they should be left in no doubt that the American authorities discriminate against Mexicans. Or maybe they should take a voyage to the Mediterranean, where they can witness a European Union naval armada keeping out desperate migrants from Africa and the Middle East. As a result, the sea has become a watery graveyard for many thousands of people over the years.
Sometimes the singling out of Israel for particular moral condemnation is justified by its supposedly special relationship with the US. According to this view, Israel is especially dangerous because of its close ties to the world’s largest economic and military power. In the most common version of the argument, which has echoes of traditional anti-Semitism, the Israeli lobby is portrayed as a shadowy body manipulating US politics. An alternative version, generally associated with the left, is that Israel acts as a watchdog for the West in the Middle East.
Historically, until about 1990, there was a degree of truth in the second view. The US typically saw Israel as a strategic asset that would generally align itself with American interests in the Middle East. This was partly because both were hostile to what were then radical movements of Palestinian nationalism and pan-Arabism. Both those movements viewed themselves as fighting for a degree of autonomy in the region outside of Western interference. It was also a time when the US was itself reluctant to intervene too openly in the Middle East. Instead, it depended on local allies, such as Israel and (until 1979) Iran, to help pursue Western interests.
What the contemporary critics of Israel miss, however, is that this set-up was swept away a quarter of a century ago. In Operation Desert Shield (1990/91), the US led a huge military force against Iraq. This was followed by a full-scale Western invasion of Iraq in 2003, and the sending of large numbers of troops to Afghanistan from 2001 onwards. There have also been numerous smaller-scale interventions, including the 2011 military intervention in Libya and the launch of numerous drone strikes in Yemen.
Such interventions mean that Israel has long since ceased to play its role as a strategic asset for the West in the Middle East. On the contrary, in the days of the Islamic State and civil wars across much of the region, the Israeli state is typically viewed by the West more as a liability than an asset. The West is increasingly keen to distance itself from Israel rather than to befriend it.
This is the broader context that explains Obama’s falling-out with Netanyahu. It is far more than just a personal matter. In the decades that followed the Second World War, both of the main US political parties could be relied upon to give Israel broad support. However, in recent years Israel has become particularly estranged from a large section of the Democratic Party, including the current president. It is true that, for the time being at least, Israel still has generally warm relations with the Republicans. But the fallout with the Democrats represents an important shift in relations between Israel and the US. It is also one that is likely to persist after Obama leaves office in January 2017.
That still leaves what critics of Israel typically regard as their trump card: the fact that the US still gives Israel about $3 billion (£2 billion) every year in aid. This, they contend, proves that the two countries still have a special relationship.
But a closer look at the aid figures shows the trend is going in exactly the opposite direction to that the critics claim. For a start, the $3 billion aid figure should be set against Israel’s GDP of $320 billion and US GDP of $16.5 trillion. In other words, US aid to Israel is equivalent to about 1% of Israel’s annual economic output.
A closer look at the figures also shows that, in real terms, the amount of US aid to Israel is steadily trending downwards. A study by the official US Congressional Research Service shows that official US assistance to Israel peaked at about $4.9 billion in 1979 (the year of the overthrow of the pro-Western shah in Iran, as well as the signing of the peace treaty between Israel and Egypt). Converted into current prices, using the official US inflation calculator, that is equivalent to about $15.8 billion in today’s money. In real terms, then, the level of US aid to Israel is running at less than a fifth of what it was running at at its peak. This confirms that the US is distancing itself from Israel. Even if 1979 is regarded as an exceptional year, the amount of US aid to Israel has diminished sharply in real terms over the years.
It is time for some Israeli-style straight-talking on the changed realities in the relationship between the Middle East and the West. Relations between Israel and the US, particularly the Democrats, are at an all-time low. Israel no longer plays the role it once did as a strategic asset for the West in the Middle East. If anything, it is increasingly seen by Western leaders as a problem. And under such circumstances, it is more important than ever to oppose Western intervention against all countries in the Middle East — and that includes Israel.
It was only recently that I recognised the adoration Britain’s leading financial newspaper has for the man often dubbed the thinker behind the Occupy movement. The Financial Times published a long extract from David Graeber’s new book, The Utopia of Rules, on the front page of its weekend Life and Arts section.
I quickly realised it did not end there. There was an associated podcast with Graeber and two leading FT columnists. Then there was the review of the book by Gillian Tett, another FT star, where she called his previous work a “brilliant treatise”. It was only recently that I recognised the adoration Britain’s leading financial newspaper has for the man often dubbed the thinker behind the Occupy movement. The Financial Times published a long extract from David Graeber’s new book, The Utopia of Rules, on the front page of its weekend Life and Arts section.
Helpfully BBC Radio 4 was running a 10-part serialisation of Graeber’s earlier book on Debt: the first five thousand years at about the same time. This provided me with the opportunity to grapple with his ideas having shamefully failed to read the earlier work. I do not begrudge David Graeber the publicity and I am not criticising the FT for covering his books (full disclosure: I sometimes write for the FT on a freelance basis). What I do find telling is that the newspaper apparently feels so comfortable with views many would assume are so far from its own.
The thrust of his argument is essentially that the world has been organised around the repayment of debt for at least five millennia. Not only does debt provide the economic rationale for society but, in Graeber’s view, it is also the basis for morality and religion. He argues it is a contradictory outlook since it assumes people should repay their debts but, at the same time, regards lenders as evil.
In emphasising the importance of debt rather than money he claims to be debunking a core assumption of economics. To make his point he cites Adam Smith who argued in The Wealth of Nations that barter preceded money. Graeber, who is a professor of anthropology at the London School of Economics, says that Smith and his followers get it the wrong way round. Graeber says the evidence shows that debt preceded money. Complicated credit arrangements were in place long before money was introduced.
Although it is not a central point there is more than one sleight of hand in this claim. For a start Graeber tends to assume that in earlier eras money meant coinage but that was not what Smith argued. In the chapter on the origins of money in The Wealth of Nations he wrote that during the time of Homer, the ancient Greek writer, oxen sometimes acted as a means of valuation. In any case, the assumption that barter predated money is not central to Smith’s economic model. The thrust of Smith’s argument is that specialisation and trade can make society much more prosperous.
This latter point relates to Graeber’s main error: his fetishisation of debt. In other words he attributes enormous power to debt but is virtually blind to the realm of production and even circulation. Graeber takes a blinkered view of the workings of the economy.
This narrow outlook can be attributed to what could be called Graeber’s anthropological method. His starting point is that of interpersonal relations rather than examining the operation of society as a whole. This leads to a fundamentally ahistorical approach in which the changing forms that social organisation has taken over 5,000 years are blurred.
No doubt many financial journalists would bridle at Graeber’s call for debt cancelation and a radical redistribution of wealth. But his fetishisation of finance and downplaying of the real economy are completely in line with the contemporary orthodoxy.
This post was first published yesterday on Fundweb.
I had not had any articles published for a while and then suddenly four appear in one day. I will upload the full text over the next week or so but meanwhile here are the links:
* A spiked article on why Barack Obama loathes the Israeli prime minister.
* A Financial Times feature on the links between the Jesuits, accounting and classical humanism. You may need to register (free) to read.
* A Financial Times book review on neoliberalism. You may need to register (free) to read.
* A Fundweb blog post on the work of David Graeber, often credited as the thinker behind Occupy Wall Street.
I appear in the latest Institute of Ideas podcast discussion the authoritarian implications of the frenzied debate about tax dodging.
For those interested in my more technical articles here is a piece I wrote for the March issue of IPE magazine (it can also be read on the IPE website here).
Smart beta has had a foothold in the foreign exchange market for years, although the approach is less pervasive than those of other asset types, and it rarely gets called by that name. There are certainly arguments for the presence of risk factors, most notably the currency carry, which investors have long sought to exploit.
Before considering these factors and how best to utilise them through smart beta, the peculiar features of the markets should be appreciated. These shape the contours of currency investment and highlighting them helps to identify the potential pitfalls of applying the smart beta approach.
First, there are no straightforward benchmarks within foreign exchange. In this, it is unlike bonds or equities where there is generally at least one index, often more, that suggests itself as a starting point for comparisons. In relation to currencies the means for gauging relative performance are less evident.
No obvious beta
For this reason Thomas Heckel, who leads quantitative research into foreign exchange at BNP Paribas Investment Partners, argues that it is inappropriate to use terms like smart beta in relation to foreign exchange.
“It’s a little strange to talk about smart beta because there is no obvious beta for this market,” he says. In his view it would be better described as a form of factor investing.
Another market peculiarity is that the odds are not in favour of a buy-and-hold strategy producing positive returns in the long run. On an aggregate global level, investing in currencies is a zero-sum game.
“One cannot simply hold a currency and expect to make money,” says James Wood-Collins, CEO of Record Currency Management. He contrasts it with the equity markets where the default position for long-term investment is to be long equities and short cash.
The number of different possible assets is also far smaller than with bonds or equities. There are only about 180 national currencies, many of which have a negligible presence outside their own borders. Of course the number of possible currency pairs and weightings is much greater but this still leaves it trailing by far other asset classes. Some would even dispute whether currencies should be called an asset class at all.
In stark contrast, the foreign exchange market dwarfs others in terms of size. According to the latest triennial survey from the Bank for International Settlements, the average total daily turnover of foreign exchange instruments was $5.3trn (€4.6trn) in 2013. In contrast, the daily turnover on the New York Stock Exchange was only about $30bn in January.
Yet most players in foreign exchange are not in the market for the purposes of profit maximisation. Non-profit-seeking market participants include firms engaged in hedging or trade, central banks and tourists. It is this combination of huge liquidity and a relative dearth of profit maximisers that, currency enthusiasts argue, helps create profit-making opportunities that can be exploited: one consequence of the vast depth and liquidity of these markets is that it would take a lot for the opportunities to be arbitraged out. In that sense, foreign exchange is not an efficient market in which news is quickly reflected in changing exchange rates.
It should not be a surprise that active managers have long tried to exploit the risk factors embedded in the market. Smart beta simply uses different tools to try to take advantage of the opportunities.
“What is new is smart beta lends itself to a much more structured and disciplined approach to implementing several of these strategies side by side,” says Wood-Collins.
The carry trade
The carry trade (which exploits a currency market anomaly known as the forward rate bias) is by far the best-known strategy. It first gained popularity in the early 1970s with the breakdown of the Bretton Woods system of fixed exchange rates.
Carry investing involves borrowing money at low interest rates and investing in high-interest-rate currencies. For example, borrowing in euros or yen to invest in Australian or New Zealand dollars. The typical pattern is for countries with a current account surplus to, in effect, provide funding to those with a deficit. Investors are therefore being compensated for the risk of investing in the higher-interest-rate, higher-deficit country.
Momentum or trend investing has also existed in the foreign exchange market for decades. It is usually explained in behavioural rather than fundamental economic terms. A common assumption is that there is a bandwagon effect, with investors assuming that currencies that are depreciating or appreciating are likely to continue to move in their existing direction.
Value investing is based on frameworks designed to gauge the fair value of currencies relative to one another. Typically it relies on the purchasing power parity (PPP) value of a currency which is defined by the World Bank as “the number of units of a country’s currency required to buy the same amounts of goods and services in the domestic market as US dollar would buy in the United States”. Using this conversion factor it is possible to gauge a currency’s value relative to the dollar and, by extension, to other currencies too.
Organisations such as the Organisation for Economic Co-operation and Development (OECD), the University of Pennsylvania (the Penn World Table) and the World Bank have long established data series on PPP. The Economist’s Big Mac index – which is based on the prices of burgers in different countries – is essentially just a simplified form of a PPP measure.
Although value investing can, in principle, be used for all currencies, it has a particular application for emerging economies. Typically, emerging currencies can buy a larger basket of goods and services within their own borders than can their advanced economy counterparts. However, as emerging economies gradually converge with richer ones in terms of their level of development, the PPPs would also be expected to converge over the long-term.
Volatility investing in currencies is premised on the assumption that many participants in the currency markets are looking to hedge themselves. Investors can therefore benefit from being on the other side of such transactions.
It is also possible to exploit risk factors indirectly by investing in particular themes. For instance, investing in the currencies of resource producing countries on the assumption that their economies are likely to grow faster than those of non-producers over the long-term.
Although currency investing can be lucrative at times, it has several potential pitfalls. For example, there is considerable controversy about the viability of the carry trade as an investment strategy. It can yield spectacular losses as well as gains. According to Deutsche Bank research the AUD/USD strategy gained 31.5% cumulatively between June 2004 and December 2007. It then went on to lose roughly the same amount during the market turmoil from July 2008 until February 2009. Currency investing is not unique in being prone to both large gains and large losses but it is a characteristic of which investors should be aware.
It should also be borne in mind that the success or failure of any strategy is highly sensitive to the particular definition used. The fine details matter. For example, anyone who was short the Swiss franc in January, when the peg with the euro was broken, would have made substantial losses. In contrast, carry investors who eschewed that particular trade could have made large gains. Even if carry works in the long term, its practitioners need to be aware of the possibility of substantial hits.
Another possibility is simply that now is a bad time to invest in carry. Marc Chandler, the global head of currency strategy at Brown Brothers Harriman, an American private bank, says that he suspects the current environment is “not really conducive for carry trades”. In his view the current high levels of volatility and narrow interest differentials between the main economies make the carry trade relatively unattractive. He adds that the advent of negative interest rates could have complicated the situation still further.
Others counter that new opportunities may be emerging with increasingly divergent behaviour by central banks. In particular, the Federal Reserve has stopped buying assets while the European Central Bank has embarked on a policy of quantitative easing.
Matthew Roberts, a senior investment consultant at Towers Watson, warns there are particular pitfalls of currency investment when it comes to smart beta.
“It is important to keep a close eye on the amount of money flowing in to factor-based strategies such as trend, value or carry, since one of the risks is that they become crowded over time,” he says.
In any case, there is widespread agreement that smart beta approaches are only appropriate when stringent risk controls are in place. Diane Miller, a principal at Mercer, is sceptical about whether this is being achieved in practice.
“I’m most concerned about a lack of risk controls in the naïve strategies,” she says. In her view, a lot of strategies look good on paper but they may not take into account all of the trading costs.
Proponents of smart beta in currencies contend that diversification between the three major risk factors can be effective in mitigating downside risks. A 2012 paper by a Bank of England economist illustrated one way this could work. According to the study by Gino Cenedese, investors would be better off unwinding carry trade positions during bear markets and following momentum, for example.
Currency investors have the choice of several ways of implementing a smart beta approach. These include UCITS funds, exchange-traded funds and linking bespoke swaps and options to indices. Traditionally institutional money managers have played the leading role in providing such products but in recent years the investment banks, such as Deutsche and Citi, have become increasingly important.
There are also specialist indices such as the FTSE Forward Rate Bias (FRB) 10. This series, developed with Record Currency Management, represents the return that can be generated from investing, on an equally weighted basis, on all 45 currency basis that can be derived from 10 developed world currencies: the Australian dollar, Canadian dollar, euro, Japanese yen, New Zealand dollar, Norwegian krone, sterling, Swedish krona, Swiss franc and the US dollar.
Russell Investments eschews the term smart beta but essentially follows the approach in its Russell Conscious Currency index series. There is one index each for carry, trend and value as well as an overall index that aggregates the other three.
It is also worth recognising that smart beta can even play a useful role for investors not interested in gaining exposure to such trading strategies. Jeppe Ladekarl, partner, investments at First Quadrant, says the income streams available from smart beta can be used to evaluate active management – although he hesitates to use the term ‘benchmark’ in this context. In other words, the returns on smart beta products can be used as a way of gauging whether or not active management fees are reasonable.
He goes on to contend that fixed-income managers can use smart beta returns as a tool to measure the extent to which they have unwittingly taken on currency exposure. In Ladekarl’s view, many such managers are not fully aware of the risks that have been taken on in this respect.
Towers Watson’s Matthew Roberts is sceptical about the possibility that fixed-income managers have unknowingly taken on currency risk on a large scale. However, he accepts that “it’s possible that some fixed-income managers could have unintended factor bets”.
Roberts agrees that smart beta strategies can be used as a quasi-benchmark to measure the performance of active managers. “It’s well worth thinking about it and using it to measure the alpha embedded in active managers,” he says.
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