Was it caused by fractional reserve banking? Not really.

Almost a year ago, I wrote an entry in my parallel environmental blog entitled Why capitalism must expand - whatever the environmental consequences. Rather surprisingly, yesterday I received a comment, from Jerry Fox, an American engineer and blogger. His comment ran as follows:

Capitalism supported by fractional reserve banking and the artificial support of governmental bailouts does require constant expansion both to pay off the inherent interest and to delay the inflationary effects of the money supply. I hope that you are not trying to lump the great system of free enterprise which has helped to make America the envy of the world, being linked to a Constitutionally maintained money supply, to this travesty that has come to be called "Capitalism". Under the former, there is no need for constant expansion to support a healthy thriving economy along with proper concern for any environmental issues.

I repeat Jerry’s comment here because it is equally relevant to a point I have recently been considering. There is a striking difference between the diagnoses and remedies offered by American and non-American bloggers and other commentators, which, quite by chance, Jerry’s comments expresses very well.

Here is my reply, which is equally relevant to this blog:

Thanks for your comment, Jerry. I sympathise strongly with the view that fractional reserve banking has played a terrible role in the current crisis, and my impression from tracking a number of American blogs is that this is widely held to blame for the crisis as a whole. However, I remain sceptical of the idea that this is a distinct phenomenon from capitalism proper, for two reasons.

Firstly, fractional reserve banking has been a feature of financial capitalism ever since the first capitalist banks came into existence – far earlier than the fist Europeans arrived in the Americas, let alone anything specific to the US economy or constitution. It is simply a matter of risk management: although I don’t have enough reserves to cover all my commitments, I take a chance that all the chickens won’t come home to roost at the same time. And by and large this has proved a good and familiar bet – to the point where one of Shakespeare’s best known tragedies, The Merchant of Venice, which was first performed around 1596-1597, depends entirely on a situation in which this bet on fractional reserves fails.

And it was essentially the recurring failure of this bet that led to regulations specifying exactly how much reserves were required for various kinds of transaction. In other words, there was no pure capitalist system with non-fractional reserves, which was then polluted by the creation of fractional reserve banking. Rather, capitalism was always a system of fractional reserve banking, which governments, sick the regular crises, eventually normalised with formal requirements for banking licenses, specified capital requirements, the 1933 Glass-Steagal Act, and so on.

As I understand it, the issue with the recent collapses was two-fold. When markets have been massively aligned (as they were, for many reasons, over the last few years), a boom that had looked fantastic turned into a bust proved that it was all just a fantasy, because everything went up and down at once. But even more importantly, the problem with many speculations (it’s hard to describe credit default swaps as investments) was that they were not required to be backed by any reserves at all. I have seen of what would have been a large enough reserve to cover most defaults and so forestall this crisis, and none of them were very different from the standard fractional reserve requirements for more conventional loans and obligations.

You can blame a number of technical features for this – the rise of ‘mark to market’ accounting, for example. In my own view, a more profound explanation lies in the process of systematic deregulation. This seems to have been a pretty universal phenomenon – certainly rife in London, where the absence of effective capital requirements made it the most popular financial centre in the world. Other centres tended to be more reserved (as it were) than London and the various US exchanges, but unfortunately they are collectively large enough to push the planet into a financial nosedive.

So fractional reserve banking played a role in the current crisis, but primarily because it did not extend to the specific types of transaction that actually brought the system down. Not much to do with the corruption of free enterprise or Constitutionally-protected monetary system.

The lovely Pat Robertson

Pat Robertson, reports today's Guardian, blames the Haiti earthquake on the people of Haiti themselves for making a pact with the devil to gain independence from France in 1804. You can see him saying so on Youtube.

From this we can infer that:

1. Both Pat Robertson and God are opposed to countries freeing themselves from tyranny. Apparently it takes a pact with the devil to get you free. So who did the American Revolutionaries do a deal with, Pat? And does that mean that you (and God) believe that we Brits should have our American colonies back? Or perhaps that we Brits should hand ourselves (and the USA) back to the Romans? Or ...? (Opened a bit of a can of worms here, Pat.)
2. Mr Robertson's God is a bit slow on the uptake. The Haitians sign a pact with the devil in 1804 and God punishes them in 2010? Oh all right, they've been ahveing two centuries of hard time, but that only makes the matter worse - not content with punishing the first Haitian revolutionaries, he punishes their children adn their children's children. I assume that Pat would welcome the imprisonment not only of criminals but also their children and their children's children, for century after century. Why do so few Christians seem to have any grasp of morality and responsibility?
3. President Obama would be wrong to close Guantanamo - this is exactly where vicious lunatics like Pat Robertson belong. But perhaps the base itself could be moved across the strait to Haiti itself, so that this Man of God can be more directly in touch with the suffering people of Haiti - and vice versa, perhaps with a sign around his neck explaining his interesting theological position.

The Limits to Growth

Just about the most convincing – and scary - book I ever read about the environment was The Limits to Growth. I would guess that everyone has heard of this book but my impression is that relatively few people have ever read it, or the two follow-up volumes. I read it when it first came out – almost four decades ago – and then again a few months back.

The book was written by a group of MIT researchers - Donella and Dennis Meadows, Jorgen Randers and William Behrens – and published in 1972 by the Club of Rome. The timing is interesting, as the first edition of The Limits to Growth is roughly contemporary with a number of other foundation texts in the overall environmental movement. 1971 saw the publication of Paul Ehrlich’s Population Bomb, which gave the growing concern with population growth a kick start. Then in 1972 Barbara Ward and the well-known anthropologists René Dubos published Only One Earth – a sort of semi-official UN report that attracted a lot of attention. And then in 1974, M. King Hubbard gave what was perhaps his most important summary of the position on oil and energy production, namely his testimony to Congress on the peaking of US oil production.

The reason I found The Limits to Growth so compelling – even more than Only One Earth or Silent Spring - was the simplicity and centrality of the question it posed and the directness of the method its authors used to answer it. Instead of endless facts and figures and yet another multi-faceted discussion of our environmental predicament, they simply asked what would happen if humanity at large continued with a small number of key trends:

• World population.
• Industrialization.
• Pollution.
• Food production.
• Resource depletion.

Their method was equally straightforward – so much so that, had I felt very doubtful about its validity when I first heard about it. They started with a very generalised model of these factors - the ‘World3’ model developed by Professor Jay Forrester (also from MIT). This is described in Forrester’s World Dynamics (published the previous year), which used a ‘system dynamics’ approach. This was really a very simple model - basically a suite of functional interactions (circular, interlocking, sometimes time-delayed relationships, etc.) between what the modellers regarded as the key social and natural phenomena. World3 was based on large, long-term factors, which it defined in self-consciously simple and gross terms, without much detail. It made little attempt to explain why these interactions were as they were.

When tracking what happened when the trends they were interested in unfolded, the Limits to Growth team were not looking for trouble. They made strongly optimistic assumptions when in doubt, and took into account most of the qualifications critics usually offer about predictions of environmental doom and gloom – resource substitution, the power of innovation, and so on. On the other hand, they did assume that all these factors tend towards compound growth - which is to say, that they grow by a constant percentage, and constantly accelerate, not by a constant amount, which would lead only to regular increments of the same size. They also interact with one another, which has the effect of overshoots and disruptions in one undermining the others.

A typical outcome of the model went like this:

1. Population cannot grow without food.
2. Food production can only be increased by growth of capital.
3. Creating more capital requires extracting and processing more resources.
4. Discarded waste from resource extraction, refining and usage become pollution.
5. Pollution interferes with the growth of both population and food.
6. So the system tends towards eventual collapse of both population and food production.

It’s crucial to understand that this collapse happens not only because a specific input is damaged or reduced (which might be ameliorated by resource substitution, innovation, etc.) but because the system undermines itself. That is, the initial success of the system destroys the conditions for its continuing success. This is, I think, why it makes relatively little difference to assume that we will eventually find far more resources than are currently expected, or that we can continue to have cheap energy.

The authors made multiple runs of the model based on different assumptions. Although, like most futurologists, they avoided claiming to be making strict predictions, the consistency of the outcomes is quite frightening enough.

The book analyses quite a few scenarios (though only a fraction of those actually run, apparently). The starting point was ‘business as usual’, which led to the following outcomes:

1. Massive industrial growth depletes resources.
2. Resource prices then rise and stocks are depleted.
3. So more capital used for obtaining resources, leaving less for growth.
4. Eventually investment cannot keep up with depreciation.
5. With that, the industrial base collapses, taking with it the service and agricultural systems, the tax base for government, and so on.
6. However, population keeps rising, so the death rate is driven upward by lack of food and health services.

Radical collapse comes ‘well before the year 2100’.

As I say, the authors presented other scenarios in which:

• Nuclear power is cheap and safe.
• We manage to discover vastly increased resources.
• Innovation and technology allow much reduced pollution.
• Agricultural yields are greatly improved.

And so on. By and large, these optimistic assumptions mean that the eventual collapse is delayed by a decade or two – never more.

Here’s another typical example: the Green Revolution. This has indisputably increased food production, but at a price. The specialised seeds require a great deal of fertiliser and water. The former accelerates fossil fuel use and depletion, while the latter extracts more water than natural systems can sustain. In addition, the need for extensive capital also leads to peasant farmers being evicted from the land by their landlords, and hundreds of thousands of landless peasants end up in Mumbai, Kolkata, Sao Paulo or Mexico City, where they have no resources and no relevant skills from what they might earn a living. This increases pressure on urban systems and causes fertile land to be built over by slums.

The increase in capital requirements – tractors, petrol, fertiliser, shipping etc. – needed to operate the Green Revolution hugely depletes resources, including oil and natural gas. What is worse, the intensive treatment of the soil under a monoculture régime means that it becomes less able to support any other sort of agriculture, so the system becomes even more locked into an inherently unsustainable ‘solution’, and by this remarkable ‘advance’ we have managed to convert what one would have thought was an inherently renewable resource – fertile soil – into a non-renewable resource. Aren’t we clever? Meanwhile, the planet’s carbon footprint is made that little bit bigger, global warming is given that small extra shove upwards, and the glaciers that feed the irrigation systems that feed the crops melt that little bit faster. More jam today, but not only less jam tomorrow but also a lot less ability to manage having less jam tomorrow.

More generally, the consistent result reported by The Limits to Growth was overshoot and collapse. If the present trends in world population, industrialization, pollution, food production, and resource depletion continue, the limits to growth will be reached by 2070. The alternative scenarios only delay collapse: all end by 2100. The most probable direct outcome will be sudden, uncontrollable falls in population and industry – in other words, the ‘hundreds of millions’ of deaths predicted by the Stern Report. Only The Limits to Growth predicted it all three and a half decades earlier.

The authors conclusions about the ‘business as usual’ scenario are stark:

The unspoken assumption behind all of the model runs we have presented in this chapter is that population and capital growth should be allowed to continue until they reach some ‘natural’ limit. This assumption also appears to be a basic part of the human value system currently operational in the real world. Given that first assumption, that population and capital growth should not be deliberately limited but should be left to ‘seek their own levels’, we have not been able to find a set of policies that avoids the collapse mode of behavior.

As so often, the reactions to the original publication illuminating not only for the welcome offered to this absolutely vital book but also by the disdain expressed by those who could see no further than the status quo. It was described as ‘the most fascinating and the most disturbing book’, and it was said that ‘if this doesn't blow everybody's mind who can read without moving his lips, then the earth is kaput’. But it was also described as ‘a piece of irresponsible nonsense’ and ‘an empty and misleading work’.

The authors reviewed their findings in updates published in 1992 and 2004. These books are worth reading in their own right, as they both go far beyond updating the original methods and finding. Their original conclusions, they find, were sound. They needed some qualifications, but by comparison with the critics who greeted the original publication with such scorn and the deniers by whom they are still surrounded, they seem to have been pretty much spot-on.

Nor is this merely their own opinion. In 2008 Graham Turner published a comprehensive re-evaluation of the data, and concluded that:

The analysis shows that 30 years of historical data compares favorably with key features of a business-as-usual scenario…, which results in the collapse of the global system midway through the 21^st century.

In other words, we have done nothing significant to deflect our fate.

So are there no scenarios that lead to a happy ending? Maybe - it depends on what makes you happy. If you want interminable consumerism, then no, there aren’t. If you ever wanted a ringside seat at the end of the world, consumerism represents the front row. But if you are willing to settle for mere sufficiency, to imagine that there might actually be an ‘enough’, then yes, a somewhat reduced standard of living – something like the 1940s or 1950s, it is said – is available for all. Not bad, given the alternative, and hardly desperate poverty by any standard. It’s not as though we are any happier than we were then, though it might take a bit of getting used to. Nor need it look quite like that slightly dismal era – we start from here, not there, and a great deal can be done with a 1950s carbon footprint, give the science and technology of the 21^st century.

But there is a lot to be done – population control, the end of ‘the American Way of Life’ (which surely represents the biggest threat to the planet since the last ice age), serious support for developing countries, and so on. But it’s hardly worth thinking about – we never have done anything about these things, we show no signs of doing anything about it, and we are led by politicians, media and business people with as much grasp of our situation and as much interest in dealing with it as a bucketful of molluscs.

But not to worry – it will soon be too late to deflect the worst effects of our own actions, so we won’t have to worry about it any more. Just die in our millions. If you have ever wondered what the fall of the Roman Empire looked like, stay tuned.

Read this book.

References

Ehrlich, P. (1971). The Population Bomb. Cutchogue, N.Y.: Buccaneer Books.

Forrester, J.W. (1971) World Dynamics. Cambridge, Mass.: Wright-Allen Press.

Hubbert, M.K. (1974). Testimony to Hearing on the National Energy Conservation Policy Act of 1974, hearings before the Subcommittee on the Environment of the committee on Interior and Insular Affairs House of Representatives. June 6, 1974. Published as The Nature Of Growth by Technocracy.org.

Meadows, D.H., Meadows, D.L., Randers, J. and Behrens III, W.W. (1972). The Limits to Growth. A Report for the Club of Rome’s Project on the Predicament of Mankind. New York: Universe Books.

Meadows, D.H., Meadows, D.L., Randers, and J. (1992). Beyond the Limits: Confronting Global Collapse, Envisioning a Sustainable Future. Earthscan.

Meadows, D.H., Randers, J., and Meadows, D.L. (2004). The Limits to Growth: The 30-year Update. Earthscan.

Turner, G. (2008). A comparison of the Limits of Growth with thirty years of reality. CSIRO Working Paper Series 2008-2009.

Ward, B., and Dubos, R. (1972). Only One Earth. Harmondsworth: Penguin Books.

Economic myth no.1: Who are the wealth creators?

One of the necessary consequences of governments failing to measure up to the current economic crisis – and as yet there is no evidence whatsoever that they plan to do anything the change or manage the system that put us where we are today – is that the old self-congratulatory myths start to resurface. Perhaps the most important of these myths is the fantasy that it is bankers and investors who are the true wealth creators.

Why does this myth matter? Because it is this myth ensures that the rich are also the powerful, through their unchallenged control the commanding heights of the economy. Because it is the myth that they are doing something unique and almost magical that we must not importune them for taxes or justifications of their prestidigitations, lest these magicians, these golden geese, fly away, casting us into helpless penury. It is also this myth that allows them to escape the sort of scrutiny to which every other strategic area of society is rightly subject, such as the social services, manufacturing, the education and health systems, the military and so on. It is this myth that allowed them to reward themselves with a disproportionate share of society’s wealth. It is even more important than the myth of the market because, above all else, the myth of the wealth creators allows those it mythologises to disempower everyone else.

But in reality is quite preposterous to identify wealth creation with a single sector of society. It is a simple tautology that wealth is created every time anyone takes a resource and turns it into something it solves a human problem (from hunger to vanity), that makes the real world materially more efficient or effective, or otherwise makes the world a better place.

A small part of this wealth is economic. But even if one focuses exclusively on goods and services that can be bought and sold, even there it would be preposterous to claim that wealth is created at the top. Every bolt screwed onto a machine, every machine operated to make a useful product, every product used to perform a valuable service, every service performed – they all add value. Nor is simply a question of the direct production of wealth. Every manager with a discretionary budget has the opportunity to create more wealth or less, depending on how they chose to use it.

One feature of modern economies that especially militates against the idea that wealth is created at the top is the progressive professionalization of roles in the economy. An employee is someone you pay so that you can tell them what to do; but a professional is someone you pay so that they will tell you what to do. This is clear enough with doctors, lawyers and so on, but it is equally true of professional staff. And their role in the organisation is specifically to know how to create wealth in their area better than their superiors. So the more the modern economic organisation is staffed by professionals, the less claim those a the top have to be exclusively the wealth creators. On the contrary, they are increasingly only coordinators of those who create the wealth.

Hence the difficulty of maintaining a hierarchical structure in strongly professional organisations – because it is increasingly difficult to maintain the myth that those a the top know best. This leaves senior executives in the contradictory position of wielding the power to hire and fire, to invest and disinvest and generally control the organisation, yet lacking any realistic claim to unique insight, awareness or pre-eminent skill. Rather like the absolute monarchs who created to modern state in the seventeenth and eighteenth centuries, the business hierarchs of modern world have created a massively powerful system – the modern capitalist business – that has less and less time or place for those who were its progenitors.

So what is it that distinguishes the bankers and the financial sector in general? In these terms, not very much. To the extent that they are merely managing budgets, nothing at all. The leverage and reach they exercise may seem vast, but to claim that this means that they create more wealth than others makes no more sense than saying that only the top person in a human pyramid gives it height. It’s rather like a previous era when it was salespeople who were idolised rather than the analysts, the superstar executives, the ‘quants’ and other financial monsters: they too were disproportionately rewarded for selling things other people actually made. Of course, an exceptional individual can make an exceptional difference, but that is true of wealth creation at every level. And it is not as though the evidence actually support the claim that bankers, let alone the financial sector as a whole, actually do create disproportionate wealth.

So what have they been doing for the last couple of decades that explains their fabulous rewards? Haven’t our economies grown exceptionally quickly? Isn’t that to the credit of the financial sector? In the illusory terms of global figures and monetary values, yes to both. But did anyone but themselves enjoy the wealth? No. When in 2008 the banks finally realised how unsure their financial footing was and started to pull the rug from under one another, it turned out that most of the monetary increase in wealth was an illusion. The bubbles had inflated the money but not increased the material wealth society enjoyed. In fact most people are no better off now than before the financial sector was let off the leash. The geese, it turned out, produced eggs of gilded lead, not true gold.

But even that is not the bottom of the barrel. Even if they had been creating exceptional wealth, those at the top of the tree are also the ones who decided on whose behalf wealth is created. This is not after all a completely neutral activity. You can decide how to divide up the surplus. The choice is quite simple: they can allocate the wealth to the shareholders, to the workers, to society (through taxation and true corporate social responsibility) – or to themselves. As ever, those at the top favoured their shareholders. But not as much, it turned out, as they favoured themselves. Despite the longer hours, the heightened insecurity and lower happiness, the average American is no better off than in the 1970s, and much the same is probably true in Britain too. There were no more goods and services, especially not for ordinary people – which is to say, for the vast majority of the real economic wealth creators. So even if they had created great wealth, don’t hold your breath waiting for your share. What you get is a insecurity and relentless pressure.

Finally, the bankers turned out to have produced something that is now busily reducing the total wealth in society. By dislocating the structure of ownership and credit in the economy as a whole, a great deal of its material wealth, its homes and security and comforts, has been debased from wealth to debt, as people of honest working people who thought they had the money to pay for it suddenly don’t. Through no fault of their own, millions are losing their livelihood. Among the very poorest in developing countries, tens of millions have been shoved into absolute poverty. Many will simply die.

But the mythology of wealth creation has already started to revive itself. And why not? For nothing has really changed, except that we now despise the bankers we once admired, and politicians (who have been offered a truly golden opportunity to become popular heroes without a hint of crass populism) are confirming the electorate’s worst suspicions about them.

Economic myth no.2: Trickle-down economics

One of the mainstays of market economics is the idea of trickle-down – that it does not matter that the rich corner the money, because eventually they will spend it only lesser mortals, who will then benefit from it.

This is not a very convincing idea, yet it stays on the lips of conservative politicians and economists everywhere. And it’s not true, of course – not even about the money, let alone the real economic consequences. Starting with the real economy, what happens when a rich person acquires money and spends it as a private individual? They spend it on, say, a house. Eventually everyone who works on the house is paid of course – hence the trickle-down. But what happens to the real human effort and the resources that go into that house? They are the real value in the economy, and what happens to them? They remain in the hands of the owner. They enter the economy through the paid work, but promptly leave society in the form of a private dwelling that absorbs a disproportionate amount of social activity and resources. That time, effort and resource can never be used by society again.

Contrast this to what would have happened if the same amount of money had been spent on, say, new classrooms and facilities for the local school. The same effort and resources would have been expended, but this time all those who built it would still benefit from the product of their work – the school itself. This remains in circulation in society, as it were, in complete contrast to the private home. So trickle-down economics is aptly named – only a trickle of the great flood of real social value benefits society as a whole, while much the greater part remains in the hands of the wealthy in the form of the real goods and services they enjoy.

What about the money, then? Surely that has to circulate? Some of it, such as the payment for work and materials, yes, but not all. A good deal will be set aside for investment. And what is investment for, if not to buy further property that both generates further income to be used for socially exploitative purposes and places more of the real economy into private hands? Of course, the money is eventually released, but only under conditions that not only repeat the same cycle but also reinforce the control of the propertied over the rest.

Quaking in their Gucci boots

... as George Monbiot described the bankers the other day[1], writing about the British government's utterly supine response to the banking crisis and those who caused it. Apparently Brown and Darling have declined to learn the lesson Nassim Nicholas Taleb suggested last April - that 'People who were driving a school bus blindfolded (and crashed it) should never be given a new bus'. In fact it's pretty hard to identify even one of Taleb's 'ten principles for a Black Swan-proof world' [2] that has found its way into public policy.

1. What is fragile should break early while it is still small. Nothing should ever become too big to fail.
2. No socialisation of losses and privatisation of gains.
3. People who were driving a school bus blindfolded (and crashed it) should never be given a new bus.
4. Do not let someone making an “incentive” bonus manage a nuclear plant – or your financial risks.
5. Counter-balance complexity with simplicity.
6. Do not give children sticks of dynamite, even if they come with a warning.
7. Only Ponzi schemes should depend on confidence. Governments should never need to “restore confidence”.
8. Do not give an addict more drugs if he has withdrawal pains.
9. Citizens should not depend on financial assets or fallible “expert” advice for their retirement.
10. Make an omelette with the broken eggs.

No, as far as I can see it, not one of these lessons has been learned. Well done, chaps. Apparently, say Brown and Darling, it is 'impractical' to change the system so that we can exercise any control over it. Which can only mean that that system is out of control, but we are not worried enough about its unintended effects to do anything about it.

But is Taleb's own prescription enough?

Let us move voluntarily into Capitalism 2.0 by helping what needs to be broken break on its own, converting debt into equity, marginalising the economics and business school establishments, shutting down the “Nobel” in economics, banning leveraged buyouts, putting bankers where they belong, clawing back the bonuses of those who got us here, and teaching people to navigate a world with fewer certainties.

But even if we did all this (personally I love the one about abolishing the Nobel prize for economics), would Capitalism 2.0 really be the answer? We got into the present crisis by allowing capitalism's basic rules - the structures and interests that underpin all forms of capitalism, which Taleb and other critics from within show no inclination to criticise, even in the name of Capitalism 2.0 - to play themselves out with unprecedented freedom. This particular 'black swan' was no improbable mutant but the entirely predictable (and predicted on both right and left) effect of capitalsm's most basic causes, that was only inconceivable to those of the Thatcher/Reagan generation of politicians and the idealists of economic theory for whom, no matter what the question, unbridled capitalism was the right - no, the righteous - answer.

Meanwhile, George Monbiot's own diagnosis - that no one bears more responsibility for the current mess than Gordon Brown and Alan Greenspan - essentially that this was a crisis induced by political irresponsibility and weak regulation - has some merit, but by focusing on the individuals or even on rather secondary functions of the economy rather than the structure of the economy itself - distracts attention from the real problem. The crisis was not created by poor management of our economic system; no, it was created by the very nature of that system.

So what are we looking at here? Both capitalism's intellectual critics and its would-be political masters are unable to see what got us into this, or that there is no version of capitalism that will not, eventually, pull the same trick.

Not that capitalism is an unqualified disaster. Far from it - it is after all only through capitalism that the modern world, with all its fabulous wealth and freedom, took shape at all. But it must be understood that capitalism is rather like adolescence: a huge improvement on its predecessors, but not something to be hung on to for its own sake. There is life after the teens, and there is history after capitalism.

[1] 'The Great Cop-Out,' Monbiot.com, 8 September 2009.
[2] 'Ten principles for a Black Swan-proof world', FT, April 7 2009.

Markets and the Return of the Economic Zombie!

As someone or other once said, generals always plan to fight the next war with the weapons of the last. Much the same seems to be true of economists. In the light (if that is the word) of the last year or two, the idea that market economics is still a contender for the basic model for the economy is quaint to say the least. Even if you take capitalism for granted (which, for the time being, I think we can), markets and market theory are hardly contenders for tools for managing it. The reason I say this is because a) markets don’t really exist, and b) even if they did, standard market theory is at best half-baked and at worst simply false.

Perhaps I should restate the claim that markets don't exist. Markets don't exist as market economists imagine them. The assumptions market economics is based simply do not apply to current economic conditions, and have not been relevant for at least half a century. Market theory has always assumed a number of things (the various perfections of 'perfect competition'), most of which only really exist in minimal, distorted and illusory forms.

For example, 'perfect information' was always nonsense and we have a whole raft of industries - marketing, advertising and lobbying - on hand to keep things that way. The recent history of financial engineering also demonstrates amply how easy it was for markets to be dominated by mechanism that many players plainly did not understand, so that they had little idea what they were doing from day to day. Even George Soros said he had kept clear of derivatives because he did not understand them. Recent developments such as ‘deep pools’ can only worsen this situation by deliberately concealing market information. There are some areas where markets are still quite real, but I doubt that plumbers and fish markets command much of anyone’s GNP.

As for another key condition for markets to be efficient, ease of entry, this ceased to make any sense when economies reached the scale where only major corporations and governments could summon up enough capital to enter any major industry. Conversely, ease of exit was rendered irrelevant with the arrival of large-scale fixed capital as the sine qua non of most industries. Fixed capital is notoriously difficult to dispose of at a decent price even when it is still usable, and if you are keen to exit a market it is probably because it is shrinking, so you won’t find anyone to buy it.

Likewise for all the other key assumptions of market economics. They make a neat, if narrow, theory, but none of them actually applies under modern economic conditions.

As for the idea that market theory is at best half-baked and at worst simply false, market economics claims that markets will always tend towards equilibrium. This is hardly what history would suggest, and it ignores at least two intrinsic features of market economies.

Firstly, the various kinds of market imperfection I have just mentioned all serve to push markets into disequilibrium, because they create special interests (often very widespread or of involving very large players) who are keen to seek, create and exploit disequilibrium.

Secondly, the real tendency of markets is not towards equilibrium but towards bubbles and monopoly. Bubbles arise when it is not the intrinsic value of goods and services that are being invested in but movements in the market itself (i.e., when, as Keynes put it, the speculative froth on the surface of the stream of solid investments is inverted into a maelstrom of speculation that drowns out real investment). This inversion became inevitable as soon markets become a forum for making money by speculation rather than for allocating scarce resources. When this orgy of money-making has reached the point where market players start to notice just how far this process has diverted the formal ownership of resources from any economically plausible use, collapse ensues as inevitably as the original bubble.

Given how market economists like to define the market as an efficient mechanism for distributing scarce resources, inveterate leftists like me find it grimly ironic to note that it capitalism itself, whose sole rationale is to make money, that ensures that markets lead inevitably to bubbles, the misallocation of resources and collapse.

As Oscar Wilde said, a cynic is a man who knows the price or everything and the value of nothing, so it’s nice to see that even in the impersonal world of the market, the inherent cynicism of market theory gets its comeuppance. Pity about the millions of ordinary people whose lives it destroys.

As for monopolies, as we all know, productivity is generally much improved by economies of scale. That in turn generally demands large-scale investment, typically in machinery and rationalisations that are closed to small players. But this reduces the number of businesses that can afford to operate in this market, or for which the size of the market leaves elbow room. And so the spiral starts and continues until only a handful of players is left. Not technically a monopoly, so there is still some limited competition, but even an oligopoly consists of a small number of players whose interests vis à vis their customer are identical – and identically predatory. And certainly any notion of a free market has long since disappeared.

Another nice irony of market capitalism then: as with bubbles, monopolies show how it is the very workings of historic markets that rendered modern market theory irrelevant. Not in this case because they create bubbles that destroy the value even as they generate lots of money, but because they create an economic universe in which, far from a large number of small players buying and selling, a small number of truly vast players distort the entire economy to suit themselves.

Basically, Adam Smith’s enthusiasm for the market was based on an economy of small players with small, easily liquidated investments in a large market. A nice dream of a cosy middle class world. Market theory persists with this dream. But we don’t live there any more.

Is Asian capitalism different?

What I hope is a last word on derivatives. Apparently in 2000 Gao Xiqing, an adviser to the then Chinese premier, said that:

if you look at every one of these [derivative] products, they make sense. But in aggregate, they are bullshit. They are crap. They serve to cheat people.

[Quoted in an article by Kishore Mahbubani in today's FT.]

On a somewhat wider stage, however, Mahbubani's piece claims - quite rightly for the moment, perhaps - that there are various distinctively Asian versions of capitalism, all of which are a good deal more conservative than the ‘western’ model. For example, Asian societies have much higher levels of savings, since the Asian financial crisis of 1997-98 have restored a degree of government regulation, they have learned to ignore the IMF’s market fantasies, and so on.

Which is very sensible indeed. But how sustainable is it? As Mahbubani notes, the high savings level is the product of centuries of economic and social uncertainty. But the same might be said of westerners, whose personal prudence in these matters was once legendary. Indeed, some economic historians have claimed that our high ‘propensity to save’ was one of the foundation stones for capitalism itself. Likewise for regulation: it is not so very long ago that no one in the West would have dreamed of deregulating our economies to anything like the extent that we have.

But things change. Once consumerism – rapidly emerging in the east as in the west – takes command, the vast marketing machines will make sure that savings are quickly eroded. There will come a time when Asian economists will recommend the deregulation of markets, and there will come a time when Asian governments will be so exposed to global economic pressures that they will be unable to resist. That’s how capitalismworks – not western capitalism or Asian capitalism - just capitalism. After all, what we have in the west is not a specifically western model at all – it is simply capitalism completely let off the leash. When it is let off the leash in Asia too, they can fully expect the same tribulations.

And plainly Asian capitalism can be fooled into playing along with the western model, because for a long while they did. In 1997-8 they learned better – but to what extent did even that happen because there are at least two major global players in Asia – India and China – neither of which has really been absorbed not the global capitalist network at every level of society? They are both heading – indeed, sprinting – that way, so why should we expect them not to succumb to the 'western' model?

There is an answer. It's a combination of peak oil, climate change and the ecological devastation that is already making itself felt all across Asia. But Asian capitalism? No, I doubt very much that that can resist effectively on its own. Why should it? 'Western' capitalism didn't, even though philosophers and historians and politicians and pundits of every stripe claimed the same virtues for the west as Mahbubani does for Asia.

Alternative histories

One of my minor enthusiasms is alternative histories. You know the sort of thing – what-ifs about the wrong side winning wars, Jesus not being crucified, and so on.

My personal favourite is what would have happened if Napoleon had not sold Louisiana to the United States in 1803. In those days, Louisiana was rather more than the present-day state – it included all of present-day Arkansas, Missouri, Iowa, Oklahoma, Kansas, Nebraska, plus much of Minnesota west of the Mississippi, most of both Dakotas, north-east New Mexico, all of Montana, Wyoming, and Colorado east of the Continental Divide, plus all of the modern state of Louisiana that lies to the west of the Mississippi River, including New Orleans. It’s more than 800,000 square miles or 2 million square kilometres. That’s about a quarter of the modern USA, and completely divides the east and west coasts. As Napoleon rightly said of the Purchase that ‘This accession of territory affirms forever the power of the United States, and I have given England a maritime rival who sooner or later will humble her pride.’

So what would have happened had the Louisiana Purchase not happened as it did in 1803 (at 3 cents an acre!)? Assuming that the USA had no later opportunity to buy this land, plainly the USA would have been a much lesser country – locked to the east coast, cut off from the Great Plains, Texas and California, with no interest in the Pacific, Hawaii or Alaska, and extremely unlikely to emerge as the Great Power sans pareil at the end of the 20th century.

And what about Napoleon? Assuming that he was still defeated in 1814, what if he had fled to a still-French New Orleans and been welcomed (or at least forced his acceptance) as ruler? It is not hard to envisage his subsequent career, with two basic themes: keeping Americans to the east of the Mississippi, and establishing a new French empire to the west. Imagine the results: all the familiar additions to the USA – Oregon, Texas, California, maybe even Hawaii and Alaska now go to a new French-speaking power. Mexico defeated and perhaps absorbed. New French conquests in central America and the Caribbean, perhaps. A great French naval power in the Pacific. Conflict with Britain over western Canada. All of the oil wealth in the hands of a new power.

But whenever I think about alternative histories, I never get very far before a quite different train of thought sets out. For how long would even such a great change have made a difference? A century later - certainly. A millennium? Well, less so, at least as far as the general shape of the world is concerned. And the longer you wait, the smaller the likely impact. Or at least so I would have thought. I really don’t know. There are countervailing arguments. Chaos theory, for example, seems to suggest that, for some phenomena at least a small perturbation in 1803 would change the future irreversibly.

But I am not convinced. I do not doubt that, at the level of, say, who is born and who dies, a great funnel of causality spreads out indefinitely, within which nothing is the same again. But in terms of the larger structures of society and history, two things occur to me. Firstly, are social systems sensitive like the weather? A butterfly may change the weather halfway around the world (though I have never seen a convincing proof of that idea!) but great systems such as capitalism or feudalism do not look quite so touchy. And secondly, what of all the things – the infinitely many more things - that do not change? Is their effect erased? Presumably not. For human (and intelligent) systems have two features that make this unlikely.

Firstly, like living systems, intelligent life does not react to things like a billiard ball- just bashed about willy-nilly. A living system assimilates the things it encounters (i.e., adjusts them to it own patterns of activity), or if it cannot, it accommodates to them in ways that are as specific to its own nature as they are to the thing to which it accommodates.

As for any intelligent system (e.g., a human being or society), not only do they (like all living things) respond only in ways that reflect their own structure, but they also - and in this they transcend non-intelligent organisms completely - include within themselves knowledge of the principles through which they do this. That is, they include within themselves their own values, goals, methods - any number of other more or less explicit, more or less deliberate structures that ensure that the randomness of the chaotic system is replaced by its very opposite.

So is the result an ever-widening funnel? Or a lens-shaped hole in history that widens and widens and widens – and then narrows and narrows and narrows again, until the point is reached where you can no longer tell whether or not the original trigger actually occurred? At that point, the effects of the initial cause have been so dissipated and diluted by the effects of all the events that were not changed that everything – or at least things of a more structural and functional level – are as they would have been anyway?

I suspect that the answer depends on the relative breadth of this causal ‘funnel’ at its widest and the historical ‘space’ into which it irrupts. Where the former exceeds the latter, it would seem that irreversible change is unavoidable. Even if it is smaller, there is presumably a kind of ‘critical mass’ of effects that set history on a radically new course. Hitler dies in the First World War? Climate change devastates civilisation? Nuclear winter kills every large animal and literally every bird and mammal (i.e., every potentially intelligent organism) on the planet? And planet Earth would otherwise have founded of a galaxy-wide society?

Or are there rules to the structure of human history that either are not affected by empirical events, or at least can force themselves back into control? As I have argued (implicitly) in my History of Human Reason, there are. If there is life, there will be intelligence. And if there is intelligence, there will be history and consciousness. And if there is history and consciousness, there will be something very like feudalism and capitalism and their successors - the still more advanced social systems we did not quite get up to.

Intellectual capital

My son tells me about a recent TED Talk, which includes, among much else, the idea that it would be wise to go beyond ‘procedure’ in our social dealings, Quite right, and who would disagree that justice and propriety don’t always follow from following the rules? That is after all why we have a concept of equity.

There is a much unappreciated aspect of this problem, I feel, that is almost the reverse of needing to go beyond ‘the system’. This is the ways in which the way we create and manage the system in fact disempower us from even understanding it, lest alone going ‘beyond’ it. This is even a subject of much enthusiasm, and in certain respects should be too. But at the same time it is rapidly creating a situation in which people who have neither legal nor moral right nevertheless find themselves with more and more of the hi-hand over the rest of us.

The issue I am referring to here goes under the name of ‘intellectual capital’. The significance of intellectual capital is not merely that it creates legal titles on knowledge, experience, and so on – that is intellectual property. ‘Intellectual capital’ goes beyond mere ownership (although there is nothing ‘mere’ about ownership, even in its barest forms), to actually place that knowledge within the system itself. This may take the form of documented procedures, databases of information, the structure of a patented process, the workflow engine that controls a great factory, the books of ‘due process’ through which society’s highest courts and most powerful administrations proceed.

So what is the problem with these systems? In principle, absolutely nothing. Indeed, they become the basis for future developments that take these building blocks and synthesise them into yet higher structures, through which human beings come to still more profound insights and exercise yet greater powers. But it was not only systems I started from – it was ‘intellectual capital’. And capital, of course, is owned, and ownership means not only that somebody owns it but also that everyone else is excluded. Now, under recent patent laws, it can even mean that if discover something for myself, that knowledge can still belong to someone else. I am not even legally entitled to use some of the knowledge I acquire while working for company A when I go to work for company B.

But even beyond that, there is a still more profound issue. For by embedding the knowledge (skill, etc.) in a system, the users of that system no longer need to understand that system or have any insight into its purpose, goals or even mechanisms to operate it. I just have to follow the instructions. Indeed, once this is possible, people who are smart enough to understand the system as well as simply use will probably be too expensive ‘resources’ to be employed using it. So for more and more aspects of human life, ‘the system’ will come to dominate over mere human beings.

And who will now control human life? Who but those whose capital intellectual capital is – the owners. And I should not be afraid of this?

Pundit, heal thyself

An interesting article in the Financial Times this morning, from Michael Skapinker, entitled ‘Our sorry need for others to apologise’. It is about how the overpaid idiots who brought the financial system down around their heads and so will cause millions to suffer – lost jobs, lost pensions, lost futures – still can’t bring themselves to say they’re sorry. The reason, says Skapinker, is cognitive dissonance – which is to say, because saying they were sorry would mean they were not the wonders of nature they imagine themselves to be.

I suspect there is another, more serious problem – which is that they really don’t think they’ve done anything wrong.

Be that as it may, I would like to apply Skapinker’s complaint to another group – the cheerleaders for deregulation. Step forward the Economist, the right-wing press – and the FT. As Skapinker himself puts it:

Then there are those of us – governments, regulators, ratings agencies and journalists – who never blew the whistle... It is worth asking why bankers find it hard to apologise. It is also worth wondering why the rest of us need their apologies so badly.

But that is a bit selective - what about all the others he mentions - the governments, regulators, ratings agencies and journalists? More specifically (and just to prove that I can be as selective as the author), when can we expect an apology from the FT, Mr Skapinker?

The answer is, of course, never. The stock in trade of journals like the Economist and the FT is that they know more than you and me - and, in their case, that they are cleverer than you and me too. Which is hard to stomach, especially at times like this, but it does make it difficult for them to admit that for more than two decades now they have been endangering society as a whole with their willfully ideological advice.

Not that I have any problem with ideology. In fact I have far more problems with people with no ideology. But they really should get theirs straight. If they must go for Adam Smith, they really should get the whole story. Smith refers to the shibboleth of FT-style economics, the 'hidden hand', only once in the whole of The Wealth of Nations - exactly as many times as he describes business people as -

an order of men, whose interest is never exactly the same with that of the public, who generally have an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it.

Even landlords, who are otherwise roundly criticised by Smith, are seen as being in greater harmony with society as a whole than capitalists, and he presents the condition of wage labourers - which has declined so badly relative to that of capitalists - as a sensitive barometer of the state of society in general.

I look forward to the FT and the Economist checking out their evidently untouched copies of The Wealth of Nations and apologising to the world for their ignorance and sophistry. We will try to forgive them. Maybe.

The most important event in history. And Diana's dead too.

Today is the anniversary of the most important event in history: the day humanity took its first step towards living in the universe rather than just on this planet. On October 4 1957, human beings launched the Sputnik, the first artificial satellite. Within 12 years we were walking around the surface of our celestial next-door neighbour. Two wonderful moments.

If the flight of Sputnik represents the most important event in history, the death of Princess Diana continues to be treated as though it was pretty vital too. And as it happens, the 50th anniversary of Sputnik happen to coincide with the start of Princess Diana’s inquest.

Like most people, I'm not very interested in dead princesses. Although the media would have you believe otherwise, practically no one I knew thought that Diana's death was anything but a tragic but, from any impersonal point of view, relatively inconsequential event. True, Radio 4 went completely gaga for a week, with literally not a single non-Diana programme for days on end. The other media were almost equally deranged. Collectively they managed to create the impression that the world had gone into shock, whereas I knew only a single person who thought there was anything special going on.

So why the furore all those years ago, and the continuing media fascination? To which I reply, what furore?

Here is some simple arithmetic. Suppose that when Diana died there were a little less than 60 million people in Britain. Suppose also that about 2% of them were much affected by her death. That’s about 1,200,000 people – quite a number, but a tiny fraction of the population as a whole. Assume also that 5% of those affected individuals bothered to express their feelings in some public way. That’s still 60,000 people. I don’t know how many wreaths and crosses were laid for Diana, but 60,000 sounds about right.

So 0.1% of the population of Britain were affected enough to do something about it? Why would anyone imagine that this was the earth-shaking historical event it was reported as? Evidently a million people marching against war in Iraq wasn't significant enough for the government to notice it, so why should 60,000 be taken as so much more seriously?

But there is another lesson to be learned from these events, which is tied directly to the discrepancy between the public image and the numerical facts. This is that, although the death of The People's Princess was nothing special from the point of view of history, it was a fabulous story. And the media are interested not in what is important but what sells copy and puts bums of seats. And so are politicians, starting with the buffoon who invented that ludicrous soubriquet.

On the other hand, if there is a competition for the most boring media event in history, then surely one very powerful contender would be that climactic event of the First Space Age, the first Moon landing.

I sat there that night, expecting to be enthralled, but in reality it turned into five or more hours of grainy images and nothing happening, waiting while they got ready to open the door. It was a complete drag, as we used to say. I was even tempted to go to bed (though I resisted – just).

So I have always felt that there was a strange paradoxical tie between Princess Diana and Neil Armstrong’s respective entries into history. Armstrong’s was assuredly one that will be remembered for centuries, yet it was excruciatingly tiresome to observe and of no obvious significance in itself, while Diana’s will be forgotten by everyone but cultural historians in due course, but has been amazing (or, I should say, appalling) to witness.

Which only goes to prove that great history and a great story are only tangentially related phenomena. And that we generally don’t give a damn about the for history, while a good story has quite a few people gaga too.

So where are the social systems that help us to appreciate the history through which we are living? Certainly not the media or our education systems. And there is no folk history worth the name any more. And what is the fate of those who are ignorant of history?

A slogan for Britain? Why not - one good fiction deserves another

Gordon Brown (who sanctimoniousness grates ever more) wants a slogan for Britain. The good ones, such as Liberty Equality Fraternity, having been taken, and the really British ones such as "Mustn't grumble" having been suggested elsewhere, how about "Please form an orderly queue"?

But what is this really about? Why does Britain need a slogan? Because, in fact, Britain is so lacking in inherent unity that we are forced to resort to a marketing ploy so make people believe in it. A British slogan might just as well invoke our collective faith in phlogiston as in 'the nation'. As far as I can tell, patriotism is a scarce commodity in this country, not only in the positive sense but also in the sense that quite a few people feel very uneasy at the tricks that are currently being played by politicians, the media and other still murkier forces under the guise of ‘national identity’. Or as Michael Flanders put it almost 50 years back, regarding patriotic songs:

There'll always be an England. Well that's not saying much, is it? I mean, there'll always be a North Pole - if some dangerous clown doesn't go and melt it.

Indeed.

Nor is this a peculiarly British problem. The fact is, it is hopelessly unhistorical to regard countries - or more precisely nation states - as natural expressions of human social relationships, and equally absurd to suggest that it is a deadly threat to society when an outside organisation takes over some control or an internal forces threaten to break the nation up. The issue is not of any threat to our ‘national identity, or ‘British values’ but of whether such changes takes place democratically. From a historical viewpoint the nation state is a recent phenomenon. What is more, many states are the products of a series of not very rational accidents, many of the problems in society could probably be solved by ignoring state boundaries, and there is no reason to believe that states will last very much longer as the many body for decision-making.

In fact nation states are always being redefined or even totally invented, and it is hard to identify any nation states that are more than three centuries old or one that still corresponds at all closely to a real social unit. Indeed, many never have.

For example:

• Many major European nation states were created through accidental rights of succession, such as the UK and Spain.
• Belgium was created as a buffer state between France and the Netherlands in 1830 and even now suffers spasms of internal division between the Flemish and the Walloons.
• Italy came into existence in 1860 as a result of internal revolution.
• Germany emerged in 1870 as a result of Prussia forcing union on various German states, was divided again in 1945 as a result of conquest (i.e. the ‘iron curtain’) and was then reunited in 1989. In addition, had Prussia not defeated Austria at Sadowa in 1866, huge areas of what is now southern Germany might have remained completely aloof, and ‘Germany’ would probably not have become the politico-economic powerhouse of the eight decades after that.
• As a result of the collapse of the Austro-Hungarian Empire after the First World War many states came into existence, with Yugoslavia being a particularly artificial invention, as it was deliberately structured to finally put a stop to the ‘balkanisation’ of the Balkans.

Not is this a uniquely European phenomenon.

• Most of the countries in South America came into existence as a result of local revolutions against the Spanish and Portuguese empires in the first half of the nineteenth century.
  Many Asian countries had their first taste of national identity as a result of resistance to European imperialism.
• Dozens of countries were likewise created for the first time by post war decolonisation in Africa and Asia.
• Finally, all the successor states to the Soviet Union were only formed in 1991 when more than a dozen new states were created, and Yugoslavia and Czechoslovakia each divided as part of the same post-Soviet collapse.

Furthermore, if the nation state is defined as a political unit with the powers of the modern state, including a central administration, sovereign authority, territory with borders, all members becoming citizens at birth, a constitution, monopoly of the means of violence and so on, then there were no nation states at all before the fifteenth century. For example, even up until the rule of Elizabeth I, the Percy dukes of Northumberland were often more powerful in terms of military might than the monarch who at the time was recognised as the sovereign head, and attempts to oust them by Plantagenet monarchs came to grief on local allegiance to the Percy name.

As for what is probably the current bastion of unqualified patriotic enthusiasm, the USA came into existence in 1776 as a result of the American War of Independence.

• At first, the thirteen original states seriously considered setting themselves up as individual countries.
• Later, when Louisiana, a territory with little previous involvement with the US, was bought in 1804 from Napoleon, the United States doubled in size. However, had Napoleon not been forced to sell, and Britain not been distracted by her wars in Europe, the US frontier would probably stand only a little west of Chicago and the USA would probably be no more powerful than, say, Germany or Japan. On the other hand, an independent Republic of Louisiana, created perhaps by a fleeing Napoleon, is a fascinating historical 'what-if'.
• Meanwhile, the 'real' USA grew again in 1867 when Alaska, which does not even have a geographical connection with the rest of the US, was bought from the Russians. Finally, the USA very nearly became two separate nation states as a result of the Civil War of 1861 to 1865. Is this the history of a natural social unit?

Nation states are often thought of as representing a particular group of people who share a common identity and culture and live together more or less as a unit. But in reality many nation states were created by a series of not very rational accidents. For example, when the British left their colonies in Africa it was convenient for them to draw lines on a map dividing the land up into Uganda, Tanzania and Kenya, without considering the groups of people living in that area. As a result one the largest tribes in East Africa, the Kikuyu, found their territory divided and their identity ignored. This made them a minority in each state, causing massive problems for them and their neighbours alike. Likewise the decolonisation in the Middle East left the Kurds separated into Syria, Turkey, Iraq and Iran, with disastrous consequences in all these countries including extensive terrorism and repression.

On the other hand, because nation states don’t always correspond to natural social units they frequently have major problems built into them, often expressed by separatist movements or endemic conflict, as with the IRA in Northern Ireland, the Kurds, the Basques and the Catalans in Spain, or the Hutus and the Tutsis in Rwanda. Many of these problems could probably be solved by overriding the powers of nation states. This has already been reflected in policies of subsidiarity (delegating power to the lowest appropriate levels) and the creation of supranational bodies such as the EU (conceding sovereignty to a higher level entity). In many cases, multinational bodies have also been involved in mediating between nation states and their regions. For example, African Union troops and United Nations negotiators are helping in Darfur in Sudan.

Assuming then that nation states came into existence because of political reasons at the time, then changing political reasons are likely to mean that, even if the nation state does not disappear in the near future, it will no longer be the basis for most important decisions. Supranational organisations like the EU and UN will become more powerful, as will regional government. The last real nation states are likely to be those such as the USA and Russia whose pre-eminence (global or local) allows them to act as independent powers long after this ceases to be a viable strategy for most of their neighbours, or those too marginal to provide grist to any significant historical process.

Nation states made sense for a while. They genuinely were the basic social structures for a huge number of people living in industrial societies over the last couple of centuries. But before, say, 1650? Or even 1750? How many genuine nations, where people’s genuine sense of identity resided in a nation state, were there even in Europe? And with progressive (if that is the word) globalisation, especially in the industrial/capitalist world, how much of our identity resides there still, leaving aside the trivia of international sport and the fictions of modern politics?

Not a whole lot, I suspect.

How doth the little crocodile

One detail of Alice's Adventures in Wonderland I have always liked is Carroll’s poem, ‘How doth the little crocodile’:

‘How doth the little crocodile
Improve his shining tail,
And pour the waters of the Nile
On every golden scale!

‘How cheerfully he seems to grin,
How neatly spreads his claws,
And welcomes little fishes in,
With gently smiling jaws!’

Carroll was parodying a typical Victorian homily entitled ‘Against Idleness and Mischief’, written by the English theologian Isaac Watts:

‘How doth the little busy bee
Improve each shining hour,
And gather honey all the day
From every opening flower!’

And so on for three more sickly verses.

Last night my daughter Beany, a voracious reader, mentioned that one of the characters in R.C. Sherriff’s play Journey’s End recites Carroll’s poem. If you have not seen it, Journey’s End is a play about life in the trenches in World War One. I do not know what Sherriff meant by inserting this detail, but a contemporary resonance struck me straight away.

The war in Iraq – as previously in Vietnam, Aden, Cyprus and a hundred post-colonial wars – has always been accompanied by shrill nonsense about defending this or that value or principle. Like Vietnam, Iraq is meant to be a ‘shining hour’ for freedom and democracy. But once more such ideals are being dragged in the dust by ignoble individuals like the US and British leaderships, and it is impossible to imagine that the cause of liberty will be advanced one inch by this awful disaster. On the contrary, the very idea of democracy has already been debased so far that in Arab discourse 'damakrata' translates as the forced imposition of western ideas.

But what should one expect when the West is led by arrogant and self-serving fools like Bush, Cheney, Blair and Rumsfeld, who imagine that abstractions like ‘freedom’ have any meaning at all in a country we spent a decade blockading and bombing, causing perhaps a million deaths, all in the name of these self-same ‘principles’. What were they expecting? To be welcomed with open arms? Their own experts had told them that they would be anything but welcome. But Blair’s abstractions told him better, and as the Americans managed to demonstrate almost immediately, the only thing they would do with any efficiency was sell the country’s assets to American corporations.

And the military? Having been promised that they would be welcome with open arms, they find that the peaceful cultivation of the beehive they were promised by our ‘leaders’ has turned into fighting with crocodiles. We have so obviously lost that we should get out immediately. Western governments and armies cannot save Iraq from the disaster they have created – they are the disaster. To persist out of sheer arrogance and fear of failure is to condemn tens of thousands more Iraqis, and many soldiers too, to pointless suffering and death.

After World War One they put up statues to Field Marshal Haig, Prime Minister Lloyd George and all the rest, whereas they should have hanged the lot of them. Meanwhile, shortly after the character in Journey’s End recites ‘How doth the little crocodile’, he is killed in a raid. Is that going to be the outcome in Iraq too – until, we finally admit that, in our arrogance and idealism, we are the problem, not the solution?