It was more than passing strange (750)

The second most powerful person in the world flew in yesterday. Not to Heathrow, but to Birmingham Airport. No red carpet. No Prime Minister to greet him (nor even Deputy Prime Minister, nor even Chancellor of the Exchequer, nor even anybody governmental at all). No guard of honour by the army with gold braids or even the local constabulary with silver braids. Just a bunch of seedy-looking executives from the nearby MG car factory.

After a tour of the factory, he visited William Shakespeare’s birthplace at Stratford-on-Avon and then soliloquized on a garden seat about his country’s reverence for “the greatest writer in the world”. Where he stayed the night I don’t know. The local Travel Lodge perhaps? No, surely not. The Lord Mayor of Birmingham would by then have bestirred himself and found him a place where at least they serve a Full English Breakfast.

Which, come to think of it, the Premier of China, Wen Jiabao, might be eating right now as I write this piece. But soon he’ll be whisked down the M1 and then given the full treatment, no doubt. Photos with David Cameron at the front door of 10 Downing Street and, this afternoon, tea and biscuits with Queen Elizabeth and the Duke at Buck Palace.

“What on earth are you here for?” David Cameron (or the Queen) will certainly not be asking him. “Oh, I was just passing by and thought I would drop in,” Wen Jiabao will certainly not be replying.

So I’ll have to surmise. Could it be that this isn’t a state visit, but much more important than that? Could it be that David Cameron was ensconced yesterday somewhere over the Channel with all the other prime ministers and chancellors of Europe desperately trying to save the Eurozone? The general strike in Greece tomorrow might bring about a full-scale collapse of its government and its default — and possibly the unpeeling of the Eurozone itself as bond investors flee the whole show.

But why didn’t Wen Jiabao drop into France or Germany? After all, as a pretext for a visit, those countries no doubt keep the birthplaces of Voltaire and Goethe in good repair. But I’m being facetious. The fact is that Premier Wen has been back and forth between Beijing and Berlin and Paris many times in the last six months, telling them that China wants the Eurozone to survive. At least that’s what China has been letting known publicly — and increasingly so recently.

No doubt President Sarkozy and Chancellor Merkel have got the message by now. But perhaps David Cameron has been . . . well . . just a little too obstreperous recently. Although England is not in the Eurozone itself, it’s in the European Union. It’s also a member of the IMF. Either way, we’ll have to fork out yet more billions of pounds if Greece is bailed out with yet more loans. And, increasingly aware of his own rocky political tenure here, Cameron has been sounding off recently that we’re not going to play ball.

Oh, and I almost forgot! Premier Wen also had a chat with BBC TV’s business editor, Robert Peston, yesterday. In effect, and in the nicest possible diplomatic language, Wen was saying that if only the UK government would sort itself out a bit then we could have oodles and oodles . . . and oodles . . . of engineering exports to China. We could be as prosperous as Germany! It was the gentlest slap on Cameron’s wrist. Later this morning, and inside 10 Downing Street, Wen will probably deliver a full-scale bollocking. (A crude word, I’m afraid, but the exact one for this occasion.)

China needs the Eurozone to survive. It’s in its interest to — at least for a few years longer while its renminbi (yuan) rises to parity with the euro and the dollar. My guess is that David Cameron will scuttle back to Europe later today with a completely changed attitude. My guess also is that Greece’s Prime Minister will send Evangelos Venizelos, his strong-man finance minister (and recent minister of defence) back to Athens to get the troops out and make sure that tomorrow’s rioting crowds don’t tumble into their Parliament and take over — as they did in Georgia not so long ago (2003).

Will I be right? Will Greece be saved for the Eurozone (even if, as has happened before in Greece, it will actually become a military dictatorship in the guise of a civilian administration)? As an old has-been industrial chemist I believe in the scientific method — that any hypotheses worth speaking of must be testable. I’ll know tomorrow.

Little hope for the Islamic countries (300)

The basic reason why the populations of Islamic countries in the Middle East have little hope of improving their way of life for many decades to come is that their religious leaders are increasingly opposing Western science as a whole (although supportive of military technology). They’ve actually been doing this for two or three centuries or more, but it is now becoming rampant. Even imams in Western mosques dare not support Darwinism in their Friday sermons for fear of being hounded out of office.

The fact is that Darwinian evolution is not, as it were, a quaint (and slightly old-fashioned) sub-set in the history of science but the very basis of the fastest-growing area of science today — biology. Continuing progress within the fields of medicine, neurophysiology, agriculture, education and human behaviour has no chance at all without evolutionary genetics as the explanatory key and the basis of all experimentation and subsequent development. And it is in these fields, rather than yet more of the consumer goods and mass entertainments of the last 300 years, that economic growth in the Western countries has a chance of resuming.

There are many Muslims — even biologists — in the Islamic world who know this, but they’re in a very small minority — microscopic even — within their countries. Goodness knows when they’ll ever be allowed to practise more freely and also to influence public opinion. If politicians in the Western countries genuinely want to bring the Islamic countries out of medievalism then they ought to be applying themselves as to how to encourage science education in those countries and not in fanning the flames of social protest, when they occur, with abstract notions such as ‘democracy’ — procedures which, even now, are still pretty fragile in the West.

Sticking my neck out for Carstens, the gold digger (400)

In the last two weeks there has been a curious silence about who is going to be the new chief of the International Monetary Fund. True, the decision by the appointment committee (whoever they are — variable from week to week, or even day to day, I imagine) is not expected until 30 June. And why has the front-runner, Christine Lagarde, been lying low? Has she nothing to say about the present looming catastrophe in the Eurozone? It is in the worst crisis of its 11 years of existence and now is not the time for reticence by a European candidate if she has anything at all to contribute by way of a solution.

I can only surmise that a dispute is now going on between the weightier members of the IMF. But never mind how ambitious Christine Lagarde may be, or however much she’s supported by President Sarkozy of France (who has also been curiously silent), she has spent most of her life as an antitrust and labour lawyer in America and knows little about economics au fond. If she’s appointed, then what can emergent countries such as China, or India or Brazil say other than she’ll be just a figurehead who will be manipulated by Eurozone bigwigs?

So I’m shifting back to what I wrote about a month ago — that she will not be appointed. It is probably too much for the Americans to stomach that a Chinese be appointed. So out goes who would be my choice — Justin Yifu Lin, the main economic architect of China’s 30-year resurgence, and now chief economist of the World Bank. Also, out go Grigori Marchenko of Kazakhstan (too controversial) and Stanley Fischer of Israel (too old).

Which leaves Agustin Carstens (53), the present governor of the Mexican Central Bank. Precociously talented in economics, married to a brilliant writer, C. M. Mayo, and already a deputy managing director of the IMF, he’s the only other contender who has been buying gold publicly for his bank. Most other central bankers are buying gold surreptitiously because they daren’t nail their colours to the mast in publicly stating that gold will ultimately be restored as the basic world currency. Carstens, like Robert Zoellick, President of the World Bank, has been the only eminent banker who has had the courage to say so.

Quite whether America or the European powers or Japan are yet quite ready to admit that the days of printing money ad lib are over remains to be seen.

Conundrums in the world of sport (400)

A fascinating example of the default syndrome, as described yesterday, is occurring right now in the world of soccer — more specifically, the soccer played on these islands. The British Olympic Committee want to go against the ratchet and bring a UK Football Team into existence in order to take part in the 2012 Games. It’s been plotting this for six years apparently. It’s been rather similar to Gordon Brown’s constant speechifying with a ‘United Kingdom’ theme during those two years when he was Prime Minister because he was acutely sensitive that he was a Scotsman (with a Scottish accent to boot!) trying to maintain the UK as a world power. Of course, no-one took any notice of this attempt at old-fashioned jingoism because the UK — as was — is just an ordinary country these days. Besides, Scotland and Wales, with their own elected assemblies in Glasgow and Cardiff, are already on their way towards complete independence, Northern Ireland remains ungovernable and — Gosh! — some English people are actually calling for an English Parliament. (Presumably — although they are too polite to say so — wanting to send Gordon Brown back to where he belongs. In this, they are partially successful in that he hardly shows his face publicly in England now while still remaining an MP and occasionally attending the House of Commons.)

Anyhow, the Scottish, Welsh and Northern Ireland Football Associations will have none of it. They already have their independent status registered with the soccer’s world governing body, FIFA, and don’t want to compromise this. Then again, they have their own defaulting problems. Increasingly, some players have actually been turning down invitations to play for their national side, saying that they’re already playing enough games at club level.

Well . . . we’ll have to wait to see who wins. But this raises another sporting puzzle in my mind. This is that although the prowess and financial perquisites of top sports individuals have never been higher than today, young people in the advanced countries are increasingly avoiding physical exercise, according to some surveys. They’ll watch sports but don’t want to take part in it. There’s an athletic/fitness gap opening up alongside the wealth/income gap which separates the top 20% or so of the population (who generally “do” sports) from the rest who are merely watchers.

With those two conundrums I’ll wrap up this morning and have breakfast.

Just a wispy thought about Greece (600)

Yesterday, apparently, the IMF and the ECB have left Greece to flounder for another month in order to await Greek government decisions about taking further austerity measures and the selling of state assets. Obviously, the French and German banks which have large quantities of Greek eurobonds are not prepared to take a partial haircut. The IMF, the ECB and the finance ministers of the Eurozone are taking a bet, it would seem, that the Greek government, as it’s presently composed, will not default.

Also, America and China have no intention of allowing the Eurozone to fail if they can possibly prevent it. The big American banks have substantially insured the European banks against a Greek default. They can’t be allowed to run the risk of failure. As for China, it still needs a continuing smooth supply of producer goods from Germany, Finland and Holland to maintain its own economic momentum.

However, I have a tingling in my bones that the Greek Government, the Greek Parliament and the Greek People all want Greece to default from the Eurozone but only the rioting crowds dare say so openly. Greek politicians know, from the history of the Argentinian default in 2002, that defaulting on its debts and re-establishing the drachma is now the only way of Greece getting on an even keel again. However, they also know from the Argentinian default that, for at least a couple of years the country would be thrown into such economic chaos and widespread impoverishment that some sort of subsequent revolution would be highly probable. For many of them, that might well put paid to their future political careers!

The tingling in my bones started when Prime Minister George Papandreou re-shuffled his government on Friday. Among the new appointments was the large frame of Evangelos Venizelos and, from the little I saw of him on television, obviously a charismatic figure. He is the new finance minister. He was appointed in order to be Greece’s strong man at the IMF-ECB talks on Sunday. But was he also appointed because he’d formerly been Greece’s minister of defence? What are his relationships with the army generals?

Could it be that even Papandreou has realized that the anger of the crowds now gathering every day outside Parliament is now becoming so great that only the army can now deal with it? On Tuesday, when Parliament is due to have a vote of confidence, then, if it votes in favour of Papandreou — and the retention of Greece within the Eurozone — what will the crowds do then? Will they simply walk into Parliament and take over, as happened (successfully) in Georgia as recently as 2003? (The Rose Revolution) Or will the army be needed? Furthermore, will there then be a military dictatorship?

This would be unthinkable in most European countries, but not in the case of Greece. In 1967 America helped to institute the ‘Regime of the Colonels’ which lasted until 1974 when an even more brutal dictator, Brigadier Ionnidis took over. It was only when Turkey invaded Cyprus and humiliated the Greek Army that Ionnidis was overthrown and tried for treason in 1975. The point is this: how much does this still resonate in Greek culture. Or, rather, in the minds of the powerful non-Parliamentary elite groups in Greece when faced with the possibility of a left-inclined public service union take-over?

It’s just a tingle at present. Just a wispy thought. Otherwise there doesn’t seem to be the remotest chance of a solution that could keep Greece within the Eurozone.

The real simplicists today (900)

In its current issue, the Atlantic magazine has an interesting item,”The 14 Biggest Ideas of the Year”, together with a short discussion about each of them. (The sub-headline is: “A guide to the intellectual trends that, for better or worse, are shaping America right now. (Plus a bunch of other ideas, insights, hypotheses, and provocations)” ). For interest, I’ll show them below (headings only). They’re a varied bunch. Some of them, in my view, are significant and some are insignificant (even untrue).

What grabbed me about the list is that the first and third of the ideas (presumably of high importance in the Atlantic’s view), would also be high on my list. They happen to be written by two of the most brilliant observers of the current world scene, namely Gillian Tett and Chrystia Freeland. As for Dana Priest — someone I haven’t come across before — I am not so sure about her contribution, “Nothing stays secret”. We will probably never know just what is being discussed right now in the two most powerful decision-taking groups in the world, namely the top clique in the US Treasury and the nine members of the Chinese Politburo. Perhaps our grandchildren might when memoirs will be published.

However, here follows the list. I’ll then follow this with what I think is by far and away the most important new idea (or, rather, bunch of them), not just of this year, but of this century.

1. The Rise of the Middle Class — [it’s] just not ours
2. Nothing stays secret
3. The Rich are different from you and me
4. Elections work
5. The Arab Spring is a jobs crisis
6. Wall Street, same as it ever was
7. Public Employee, public Enemy
8. Grandma’s in the Basement (and Junior’s in the Attic)
9. The Next War will be digitized
10. Bonds are dead (Long live Bonds)
11. Gay is the true Normal
12. The Players own the Game
13. The Maniac will be Televised
14. The Green Revolution is neither

Except perhaps for the cosmos or the quantum world, scientific investigation is now proceeding into the most complex of all the disciplines that have ever been attempted — and with astonishing success. I speak of evolutionary biology (or evolutionary psychology as it is also known as). The first draft of the Human Genome Project in 2003 was a thunder-clap that has been reverberating ever since with an ever-expanding number of research teams all round the world.

DNA (for all life-forms) is proving to be far more complex than was ever dreamed in the 1990s when the HGP and other parallel projects were first started. At least three or four major revisions have had to be made to the orthodox view of genetics that arose in 1953, when the structure of DNA was first established by Crick, Franklin, Watson and Wilkins. However, the other side of the complexity coin is a huge paradox. This is that the behaviour of the human species is becoming clearer than ever, simpler by far than all the outpourings of philosophers, poets and visionaries since they started to be recorded about 2,500 years ago.

In the simplest terms, human nature is no different from the behaviour of 3,000 other mammalian species. Rank order, and consequent choice of sex partners by freely choosing females, is the only method by which quality control of DNA within a species is maintained. Furthermore, the rank ordering takes place within relatively small groups, and sexual choice mostly takes place between groups of extremely similar cultures. Furthermore, it is only in small groups that significant new ideas can be developed and thenceforth propagated, and then only to other small groups of a similar cultural level. As to both cases — sexual choice and ideas-transfer — they only take place when there is a degree of friendliness between groups, but this is usually only a temporary condition. Most of the time, the relationship between groups is tense, even to breaking out occasionally into warfare, even to the extent of indescribable cruelty.

Such a view is regarded by hundreds, if not thousands, of intelligent writers and observers around the world as being simplistic. At present, they hold sway in the media and political circles. But these are the views of those who know little about biology and even less about genes. We’re not yet fully into the era of the DNA-sequencer machine, just as the world of 1700 or thereabouts was not yet into the era of the steam engine or the electrical dynamo. However, because genetics is powerfully driven mainly for medical benefits — and knowledge of human nature is, as it were, largely a byproduct — then scientific investigation will continue to accelerate and the newly clarifying views of human nature will follow also.

Our present form of government, the nation-state, was in the making for centuries but really didn’t crystallize to its present form until the days of the artillery regiment two centuries ago. Our civil services — the only true power brokers within the modern nation-state — are largely multi-level civilian copycats of the armed service hierarchies. But this has only led us into chaos. We can hope for better forms of governance in due course when the findings of evolutionary biology make their way into the minds of politicians and economists who, at present, can only think in terms of aggregates, whether of votes or banknotes. They’ll be the ones who will one day be regarded as simplicists.

China’s Plan C as an Emergency Procedure (950)

While Europe and America are proceeding towards their respective train crashes (unpayable governmental debts) China is now quietly proceeding with Plan B as fast as it can.

But what was Plan A? This was the naive belief on the part of the Chinese government in the past few years that they could persuade America by rational argument to take part in founding a new world trading currency. I am, of course, not privy to the details of what the new world currency would be based on. The Chinese Politburo might have conceived it to be based on the free market price of gold. Or on the price of grain. Or on the price of energy. Or on a balanced package of existing national currencies. Who knows? It scarcely matters, so long as it was on a basis that alters only slowly from year to year.

No matter. The US Treasury (the true masters of US financial policy) repeatedly sent the Chinese packing with a flea in their ear. This has been public knowledge for the past two years or so. (The Chinese were probably trying privately for several years previously. In my opinion, ever since Deng Xiaoping’s launched China’s free-market reforms in the 1980s.) Anyway, it looks as though the Chinese have now given up on this hopeless quest. As they watch the printing presses (or digital keyboards) of the US Federal Reserve or the European Central Bank — and many other central banks — churn out more of their national currencies they must be saying to themselves: “Those whom the Gods wish to destroy, They first make mad.”

So what is Plan B? It is to promote the renminbi (yuan) to world class status as a universal trading currency. This would displace the dollar and the euro from their present 55% and 40% duopoly. This has been public knowledge (to the observant) for about two years now, ever since the Chinese government enrolled about a dozen major Western banks, such as HSBC and JPMorganChase as their associates. Their job is to acquire enough renminbi in their cash reserves so they can give credits to any of their customers which are negotiating trade transactions which could be carried out in renminbis. At a higher level, the Chinese government are now making more formal agreements (actual trading floors at both ends) with other governments so they can more directly exchange their national currencies with the renminbi, rather than going through the dollar or the euro as intermediaries (with their risks of daily fluctuations due to speculators).

So far, at various stages of fruition, these arrangements involve Russia, Brazil and about a dozen more countries. After about a year of Plan B, the renminbi accounted for 1% of world trade. A year later, this reached 7%. By now it’s probably at least 10% and heading towards 20%. Given no financial catastrophes in Europe or America (on which China still depends as export markets) then the renminbi will probably reach about 30%, this being the size of the trading market which Chinese firms (governmental and private) presently have — directly — with other emergent countries. Overall, this would then approach the “multipolar” trading currency of something like 30:30:30 (dollars, euros, renminbis) that some economists are already forecasting.

But this doesn’t take into account that the emergent countries already occupy about 55% of world trade and is still growing relative to the advanced countries. Within that, the direct trade between China and the emergent world would also be growing. Within a few years the multipolar currencies could easily arrive at a 20:20:60 ratio. But this also assumes that there’ll be no shocks to the dollar or the euro along the way. If the US Bond market in America, or the Eurozone collapses (either would also trip off the other) then the ratio could become 0:20:80 or 20:0:80 overnight. Or at least within a few days, depending on whether China decides to save America or Europe. Either would probably give just enough export market (in addition to the emergent countries) for China to barely survive. China would not be able to afford to save both (as it is helping to do at present by holding a large part of American government debt) and would have to save one or the other because it, too, would be in desperate circumstances. (My guess is that China would save America and also a German-northern European detachment from the ex-Eurozone.)

I’m sure that China does not have a Plan C as such, any more than America had in the years before the Bretton Woods ‘Agreement’ of 1944 when, as a by-product, it displaced the pound as the predominant world trading currency and replaced it with the dollar. It was “all for the best in the best possible world” as Dr Pangloss would have said. So it would be with Emergency Procedure C. The renminbi would perforce have to take the place of the dollar and/or the euro.

China’s Plan B can’t be avoided. But what about Emergency Procedure C? This could be avoided. Western and European governments could do what the Chinese government always does. This is to establish total control over its banks by insisting on sufficient reserves. In its own inflationary difficulties from time to time, the Chinese government not only adjusts its interest rates but also its banks’ reserves (governmental and private), thus preventing undue credit expansion. American and European governments haven’t done this for 20/30/40 years. They’ve been running on 0% for several years now even though the Bank for International Settlements (the central bank for central banks) has been telling them how foolish they have been. In effect, the banks and the financial sector have been in control. No wonder the credit-crunch finally found them out (that is, both governments and banks). Even now, knowing what must be done, government are still largely only talking about it, with only feeble nods in that direction.

We’re probably at the beginning of rampant inflation (1,050)

It is a fallacy that the official inflation rate (now 4.5% in the UK) is an accurate guide to true inflation. For anybody with the faintest trace of discretionary income (over and above normal basic spending) — and spends it — the true rate is higher than this. What the true rate of inflation is for any individual at any moment in time is almost impossible to measure because it would require keeping an accurate account of everything on which the individual spends money over several years in order to include items which are only bought at long intervals. Suffice it to say that the true rate of inflation for any individual is different from the official rate.

The reason is that the official rate of inflation is based on the composite price index. This index consists of a list of many items which most people buy most of the time. Each item is weighted according to how much of that item the average person buys. However, most people with discretionary income — and, these days, this includes almost everybody — buy items outside the official list. For someone with discretionary income over and above what is normally necessary (according to one’s social status and locality) then the individual rate of inflation is higher than the norm. For someone who has no discretionary income and, moreover, seeks cheaper alternatives of normal items (which appear on the official index) then he will “enjoy” a lower rate of inflation.

Unless an individual is actually on the breadline, he or she, at best, can only “feel” in a more or less vague way what the true rate of inflation is. At times of inflation, which is normal, then most individuals feel that the true rate of inflation is higher than the official rate. At times of normal inflation of around 2% — what governments usually aim for in order to reduce their debts steadily from year to year — then most people will actually be experiencing a rate of inflation of anything from 2.1% upwards. This applies even if many of the items on the composite price index are actually decreasing in price (as, for example, food and many household items have been for the last 20 years or so even while inflation has been growing).

The reason for this is that any individual is likely to be buying goods which don’t appear on the official list of normal consumer items. The total list of items that people buy in the aggregate is far larger than the official list. So an individual can only feel what the rate of inflation is. My own feel of the present rate of inflation in the UK, as it affects me, but also more widely from general observation, is that the true rate of inflation is already more like 6% or 7% rather than the official rate of 4.5%.

Be that as it may, we already know from the history of inflation in many advanced countries in the last century that 4.5% is already at the hinterland of accelerating inflation. Because governments have been the originators of currency in the last century then they, and only they, can reduce inflation. And it takes discipline on their part to reduce the rate to inflation to the politically acceptable levels of around 2%. In the case of the present 4.5% (and similarly in the US) it would probably take three or four years at least.

Governments have two ways to reduce inflation. Firstly, they can inhibit banks from creating too much new money (credits) by insisting that the banks holds a percentage of their money in reserve (a “fractional” reserve). Traditionally, a safe reserve is between 10% and 20%, though some would say that it ought to be 100%. However, most banks in the UK (and all other advanced countries) don’t have any real reserves. They only have notional reserves on their balance sheets by inflating the value of the collateral which lenders have lodged with them in exchange for their loans. Although most banks now have lashings of money or other assets lodged with their central bank as their fractional reserves, their true balance sheet reserves are negative. This is, of course, something that neither governments or most banks dare reveal because it would expose their joint negligence over many years. So, in all advanced countries at the present time, this method of reducing inflation is hypothetical, though some emergent country governments such as China or Mexico increase the required fractional reserves from time to time as a tool to reduce inflation.

Secondly, central banks can increase their basic interest rate which then becomes the platform on which banks build higher rates for their borrowers, particularly so for two of their most important classes — mortgagees and small businesses. The basic interest rate in the UK at present, and for the last two years, is 0.5%. It is, in effect 0%, but this couldn’t be adopted officially because it would expose the central bank (that is, the government) to total ridicule by even the least financially educated of the public. Nevertheless, the Bank of England cannot raise its interest rate even by 0,25% at present because thousands of additional homes would be foreclosed by the banks and building societies, and thousands of additional small businesses either couldn’t grow or would go into liquidation. Unemployment would go up and even a moderately stable government, such as the UK’s, would start rocking. This particularly applies to the most important single country in the world, America, at the present time. President Obama dare not contemplate the slightest increase in the Fed rate, now or in the immediate future, or else he will never have a chance of re-election in 2012.

So there we are — as we have been for the past year or so since the credit-crunch — poised between gathering inflation and the possibility of the present recession turning into full-scale depression. Economists are divided at present between a minority of those brave individuals such as Tony Weale and Spencer Dale in this country who advocate an increase in interest rates, however small, as at least a gesture towards ultimate economic sanity, and those who are more sympathetic to the plight of politicians. My bet (though not my money) is on the latter view prevailing until we reach anything between 10% and 15% (real) inflation when there’ll be no other alternative.

I wuz wrong about Christine (650)

Well, I was wrong about the nominations for the IMF chiefdom. It looks as though China and the other emergent countries didn’t get behind a candidate of their own. No new names of any weight emerged yesterday and it looks as though Christine Lagarde will be duly appointed.

She will have an enormously stressful job. Politically, she’ll be under sideways pressure from President Sarkozy and many others to throw much more money at the Eurozone. Her new deputy in the autumn (presently John Lipsky) will almost certainly be American, as are most of the economic advisors under her. The latter will certainly not be suggesting anything inimical to the Eurozone, but they won’t necessarily be over-helpful either. At the highest political level, America is becoming increasingly cool to Europe and, as by far the largest fund-provider to the IMF but yet deeply in debt itself, America is hardly likely to be a generous benefactor as the Eurozone tries to save Greece, Portugal, Spain and Ireland (and probably Italy) from defaulting sooner or later.

If any entity is going to save the Eurozone from now onwards it’s going to be China. It’s in its interests to do so, Europe being a significant export market for its consumer goods, and still necessary to supply China with specialized producer goods that it doesn’t yet make for itself. China has already been buying Greek, Spanish and Portuguese bonds to keep their governments financially alive and will very possibly do so for Ireland, too.

However, China will do the minimum necessary to try and help the Eurozone. It won’t want to help promote the euro as a world trading currency and thus a strong competitor to the dollar. For the past couple of years China has been promoting its own renminbi (yuan) as a contender and, what’s more, with the help of some of the largest banks in the West, such as HSBC.

However, this doesn’t preclude the distinct possibility that the Eurozone might collapse of its own accord anyway. It could easily do so. Because of austerity cutbacks already, Greece is in constant social turmoil, mainly by its public service unions, and a left-wing revolutionary government (with a military counter-coup more than likely) could take control which could then default on its international debts just as Argentina did in 2002. This would be a body blow to many European banks, mainly Germany and French, and the European Central Bank itself. This would precipitate a financial catastrophe quite as bad as, and on top of, the 2007/8 disaster. We are still many years away recovering from this.

If Christine Lagarde becomes the MD of the IMF she will have the most stressful job imaginable. One can only wish her all the support she will need. But she’ll need to be a miracle worker to succeed. The basic problem is far greater than the Eurozone, but that of world-wide currency inflation itself. That began almost a century ago when most of the significant currencies of the world went off the gold standard, finally compounded by President Nixon’s decision to take the dollar off the gold standard in 1971. Governments — and particularly the American government — all too easily took to printing money whenever they got into difficulties.

We have had inflation ever since. Significant currencies such as the dollar, the pound and the Swiss franc are only worth 3% of what they were in 1914. That is, when compared with basic commodities such as a loaf of bread or a ton of copper. Instead, because of industrial efficiencies, these currencies ought to be worth a lot more compared with the price of commodities. Until a rock-solid world currency is re-established we have no chance of stabilizing the massive imbalances which the G20 countries are trying to do. Perhaps Christine Lagarde can knock their heads together. Miracles can happen occasionally.

From Gobekli Tepe and onwards (1,050)

A simple indication of how ‘advanced’ a country is is the number of elites which are politically active within it. At the present time, and within countries such as America, Germany and the UK, there are, I would judge, something like half-a-dozen to a dozen elites. For example, there are the politicians, the civil service, the judiciary, the international rich, the media, the bankers and the major businesses. Others, such as the medical profession and research scientists, are bubbling up in power from below while others, such as the army, are gradually settling downwards, with other previous power elites such as organized religion and landed aristocracy fading quietly into retirement.

All these power elites have distinct agendas of their own and all are contending against one another in order to maintain their own power bases or to enlarge them. All these machinations usually take place quietly and far from the madding crowd — who normally only learn about power shifts as vague hints and usually after the event. The ordinary person only learns what happened in some detail (and often not then!) at least 50 or more years after the event when papers become revealed and historians gradually piece together the various vacillations that gradually settled into significant trends.

As historians (and anthropologists and archeologists!) go backwards in time they discern fewer and fewer contending elites within any continent, region or locality until, in hunter-gatherer times, say 100,000 years ago, only one remains — the individual leader (and perhaps his immediate supporters) of small groups. But, even then, life was not quite as atomistic as it seems. For genetic reasons, pubescent girls were innately impelled to eschew their immediately accessible males and move to neighbouring groups before becoming mothers. Also, archeologists can discern the existence in those times of long-distance consecutive trading in personal status goods such as seashell necklaces and tablets of coloured ochres for personal adornment. And, no doubt, the leaders of groups had first — and sometimes only! — say in these matters. Today, all of the power elites within any advanced country are gradually becoming internationalized.

But that’s not quite the tack that my thoughts took this morning. They were more to do with the relative aggressiveness and publicity of the contentions between power groups. Today, in the more advanced countries, as already mentioned, they are quieter and hardly visible to the general public. However, in the least advanced countries of those people who register themselves as ‘nations’ with the United Nations Organizations, the power shifts often involve only two contenders and are not only highly aggressive and public but also involve the deaths of many of ordinary folk.

I was sparked off this morning by reading in the current The Atlantic about how, in Iran, Supreme Leader Khamenei has recently, and publicly, slapped down some of the political decisions of President Ahmadinejad. In that country — by no means among the least advanced in the world — the situation is still mainly a stand-up fight between two contenders. This is between secularism and organization religion. This is still the major problem that besets all Muslim countries.

In turn, reflecting on this took me back to an article in a recent National Geographic about an amazing circular stone construction built by hunter-gatherer people at Gobekli Tepe in what is now Turkey and presently being carefully excavated by German archeologists. This goes back some l1,000 years, and long before stone houses and cities were being built. These only began thousands of years later in times of systematic agriculture. Its beautiful stone carvings of animals suggests that Gobekli Tepe was a religious temple of some sort. Also, the massiveness of its stone pillars means that it took thousands of people to make over, probably, many years. Was this work done by slave labour under the whiplash of an immensely powerful hunter-gatherer overlord on behalf of religious priests? Or was it done by voluntary workers under the guidance of a religious leader? Were there two co-existent leaders (as in Bhutan until recent decades) or was the builder of Gobekli Tepe a politico/military leader and religious leader both rolled into one?

My guess it that it was the latter (in which also the concept of slavery and loyal adherent to the leadership could scarcely be separated). But never mind, at Gobekli Tepe we are discerning the first faintest traces of religion as a power base. Whatever the true nature of its political role 11,000 years ago, religion rose ever since as a separate political elite in most civilizations. By 500BC religion was powerful everywhere in Asia and the Mediterranean region where civilizations existed. However, China managed to exclude it from the highest levels of government power from about 200BC as did the Greeks and, one by one, most civilizations have managed to exclude or sideline organized religion from the portals of power ever since.

But there are some countries, such as Saudi Arabia and Iran, in which religion still has almost total power. There are several other Muslim countries in which there is still great contention going on between power centres. In Pakistan, it’s mainly between religion and the army (with the wannabe power elite hardly getting a look in); in Afghanistan, it’s mainly between religion and tribal chiefs (both presently heaving out the occupying powers in different ways); in Syria it’s between religion and secularism; and so on.

Individual religious belief will probably always exist, even among those who are also scientists, because it is highly likely that there’ll always be questions about existence and the universe that two-and-a-half pounds of grey matter in our heads will never be able to resolve. But, as an organized body of power, the religious elite has to learn at the very least to share its power with other elites but, better still, to retire gracefully from the scene altogether. At least some religious elites have learned to do this in Western countries and in China. It usually takes generations for cultures to change and new elites to emerge so I can’t see anything resembling peace in the countries of the Middle East and North Africa for a very long time to come. We would be very wise not to get involved with their problems and only trade with them with very long spoons — as no doubt hunter-gatherer groups did with their neighbours who could be jolly on market and marrying days but viciously savage on others.

“The giant sucking sound” (1150)

By far and away the three most important countries of the world are America, Germany and England. These three countries predominate in scientific research, particularly in ‘pure’ or leading-edge research. In terms of Nobel Prizes won for discoveries in Physics, Chemistry and Physiology between 1901 and 2010, the numbers are 246, 92 and 85 respectively. For comparison purposes with other high-tech countries, France has won 30, Russia 24 and Japan 15. China — to which I will return in a little while — has won 10.

The importance of pure research is that it inevitably leads on to developmental research when discoveries (and sometimes the original discoverers) move out of academic labs and research institutes and into business corporations. There, new applications are dressed up in patents and ultimately appear physically as new consumer goods or new (or improved) production methods. However, because the original discoveries first appeared as papers in scientific journals and able to be read by developmental scientists anywhere in the world, the subsequent distribution of patents between countries is far wider than that of Nobel Prizes.

Here, the picture is very different. Regarding existing patent applications (up to 2008), the US, with 400,000, has already been overtaken by Japan with 500,000, while China is fast catching up with 200,000 already (this year it is already applying for more patents than America). For comparison, the figures for Germany, France, England and Russia are 135,000, 48,000, 42,000 and 29,000 respectively.

Does it matter, therefore, that pure scientific research (as measured by Nobel Prizes) is so unequally distributed? Yes, it does, for two reasons. The first is that the vast majority of patent applications are merely tweakings or minor improvements of existing patents. Almost any country or corporation with sufficient investment and a modicum of work-a-day scientists can catch up with existing consumer products or industrial methods and then can add tweaks of their own for which they can make patent applications. Thus, those countries which, as a matter of government policy, educate a disproportionate number of graduate scientists, are able to catch up in whatever goods or methods that are initially developed in America, Germany or England. Thus Japan, and more recently China, have been able to get to the leading edge in all existing industrial sectors without — at least so far — developing any brand new sectors of their own.

The second reason is the obverse of the first in that the most important patent applications follow directly from major discoveries. Thus those countries which have the lead in pure research have first mover advantage in translating major discoveries into brand new products or methods — that is, if they want to do so. In England, for example, where industrial vocations are still considered to be inferior to retailing, law, banking, football, literature or pompous ceremonials (which almost daily become more convoluted and ridiculous) then new, economically-productive ideas increasingly tend to go abroad for development, mainly to America so far but also, more recently, to Asia.

Which now leads directly to the title of this piece. It was first uttered by Ross Perot in 1992 when he was an American presidential candidate. He used it to describe how Mexico, China and other countries were “sucking” jobs out of America. Indeed, this was true (for low-skill jobs mainly) but he avoided mentioning that American corporations were only too eager to expectorate American jobs outwardly in order to save on labour costs and enhance their profits. Like everything to do with economics it is a two-way process.

Nor, I suppose, Ross Perot was aware that a much more important giant sucking syndrome — albeit less dramatic — had been going on for almost a century. This time to America’s benefit. I refer to the recruitment of the cream of European scientists by American universities and research foundations. Einstein, fleeing persecution of Jewish scientists in the 1930s, was the first of quite a number of brilliant German physicists in that decade to settle in America. Immediately after the war a further crop of German rocket scientists migrated. This was followed by a long steady succession of other key European scientists, mainly English, all through the 1950s right up to the present day. Also, the cream of Chinese science students and young research scientists tend to stay in America after their initial research spell. In the fields of particle physics and evolutionary biology — two of the most complex disciplines — half of the papers in the top research journals are authored by Chinese researchers who elect to remain in America.

So far, no “giant sucking sound” has emanated from China. True, China certainly recruits from America and Europe but mainly, so far, those with managerial experience in manufacturing and banking in which China is still in short supply. The most eminent of these has been John Thornton, who was a past partner in Goldman Sachs. He was appointed the Dean of the business faculty at Tsinghua University in Beijing (the number two in China) and was a close confidant of several top Chinese politicians. However, although China has had a green card system for about five years now there has been no great push in offering positions to the cream of American research scientists. Chinese born Bruce Lahn, who is arguably the leading geneticist in the world and runs research teams in both America (Chicago University) and China (Beijing University), prefers to live in America. However, now that China is up to scratch in every technological sector, it may now wish to forge ahead in one or the other and for this it will need the most creative minds in science.

Perhaps, so far, the Chinese government has not wanted to be too provocative towards America. After all, there are already too many differences and difficulties (e.g. currency issues, Chinese investment in America) for not wishing to fan the flames further. Economically, both countries need each other — so far, anyway. But what would happen if the American economy wound down much more deeply into recession? Since the credit-crunch of 2007/8 it has half-collapsed already. The great endowment funds of some of America’s major research universities, such as Yale and Harvard, and also those of the big research foundations, such as the Howard Hughes Medical Institute, have already taken a 20-30% knock in their equity assets. If the expected double dip occurs — and then remains there for years while debts are paid off, as many expect — then funding for pure research is bound to suffer. The cream of American scientists might well leap at the opportunity of better facilities, opportunities and salaries in China.

The possibility of this new giant sucking sound is never — ever — mentioned in America to my knowledge. Yet, potentially, it might yet turn out to be the most serious aspect of the worsening situation in America. And, if Germany can’t extricate itself from the iron bands of the Eurozone, or if England doesn’t succeed with its present austerity programme, then China might start waving green cards in our direction also. After all, both countries are still producing innovative minds in science.

What the West must do also (550)

Here we go again! The use of Apache gunships in Libya by a gung-ho David Cameron means that the UK is about to make a deeper mess in Libya than there is now. Just as Bush and Blair did in Iraq, and just as NATO is presently doing in Afghanistan, we’ll probably set Libya back 50 or 100 years into ethnic and religious tribalism.

It takes generations for cultures to change. Do Cameron and Obama and Sarkozy never read their history books — about the centuries it took for Europe to finally overcome the thought-control of the Christian Church and allow independent thinking? What’s more, cultures can only radically change from within. Two thousand years ago, the Romans ruled England for 400 years. But, within a generation of Roman administrators and army leaving the place, and except for some new strains of grain and a surfeit of Latin, the country almost completely reverted to type — as though the conquerors had never been here at all.

Even in countries such as Turkey and Israel, for which the West has high hopes, there are still doubts as to whether secular governance will finally prevail over Islam and a fast growing ultra-orthodox Judaism respectively. As for Tunisia and Egypt, and despite their recent mass protests, they are already going backwards — socially, religiously, economically — as their mullahs begin to re-establish their thought-control again and, as a byproduct, encourage their people to burn down churches and ransack ancient archeological sites. They may not revert to full-scale Iraqi or Bahraini wretchedness, where Sunnis are daily slaughtering Shias, but we’re still not going to see anything resembling Western democracy in Tunisia or Egypt. For the time being, we can only hope at best for the resumption of some form of elite dictatorship which looks a little more kindly on their people than their predecessors did.

Not that the present form of democracy in the West is anything to shout about. Worthy though it originally seemed, what one person-one vote has actually brought about in the last century are governments which have to repeatedly bribe one tranche or other of their electorates in order to maintain or gain power. The result is that almost all Western governments are now deeply and hopelessly in debt — though, of course, they still have more than sufficient assets held on our behalf which they could sell.

When the double-dip into deeper and longer-term recession occurs — any day now — then Western governments will have to decide between two alternatives. They’ll have to try and force repayment of their past profligacy and financial irresponsibility onto present tax-payers and their children for at least a generation to come, or they’ll have to sell some of their assets — which Greece is having to do already. Realistically, it’ll have to come to the latter sooner or later, unless governments want to risk committing suicide via revolutions or coups d’état.

Meanwhile, if the sensible solution is adopted, perhaps thoughtful people in the West can start talking more openly about better ways of selecting governments. Fortunately, we have a few signs that are beginning to point in the right direction — the rise of countervailing specialized interest groups, the growing use of focus groups, the growing power of special parliamentary committees, etc. During the same period, hopefully, the young revolutionary intellectuals of the Islamic countries will have learned what they must do first before they have a chance of economic development and longer-term stability in the modern world.

What are five billion people watching today? (800)

What do the rich and the poor have in common? That is, apart from the basic things like eating and having children? They watch television. Not the very very rich (or the very well educated)—they’re much too engaged in interesting work and social activities. Not the very very poor in refugee camps—unable to tap into an electrical supply. But, for about five billion of the world’s population in between, in the West and elsewhere, they watch television or use their DVD players or play with their mobile phones and similar devices. And increasingly, too. In the West, the young are leading the way with approaching eight hours’ use every day. Adults slightly less, but are catching up.

It’s the modern equivalent of the bread and circuses of ancient Rome. In those days, by laying on regular spectaculars of gladiatorial fights-to-the-death or of feeding Christians to the lions, the Roman authorities were able to prevent the potentially seething masses from rising up in anger at their lack of opportunities for a normal life. Today, in the barrios of Mexico City, or the favelas of Sao Paulo, or the hovels of Dakar there’s almost always an individual family television set hooked into the electrical supply—which illegality the authorities usually turn a blind eye to for fear of social unrest.

Furthermore, once newly urbanized refugees have a shelter from the rain and a cooking pot, they will save and scrape enough money to buy a television set above that of an adequately nutritious diet. As MIT researchers, Abhijit Banerjee and Esther Duflo, discovered in their recent interviews with hundreds of the poor all round the world, the latter are all as one in that, once they can pay for, or are handed out, sufficient carbohydrate food to give them just enough calories to get by on a daily basis—but no more—then a television set is their next priority, even if it takes them months or even a year or two to afford. They’d love more interesting and nutritious food or all sorts of other consumer goods but they’re not at the top of their priority list.

This is not only astonishing as a social phenomenon, but it is also revolutionary in its economic consequences. It means that, for a large proportion of the world’s existing population (shall we say half?), they will be able to leapfrog over the motivation to work for, and the wherewithal to pay for, the cascade of consumer products that the Western poor did in the last 300 years of the industrial revolution as they proceeded, status-wise, from various states of wretched serfdom to middle-class-hood. And as, approximately, a billion of hard-working people in coastal China, Japan, South Korea and Taiwan are now recapitulating.

But for the remainder it’s different. The basic assumptions of Western politicians and international aid agencies that all the poor countries of the world need to ‘develop’ in the classical way described by economists no longer really applies. The capitalist model of innovating, saving, investing and producing ever yet more consumer goods no longer operates in quite the same way as before. Furthermore, the all too frequent statements by Western politicians that all the young people of the West must be educated to very high levels of expertise must also be examined much more critically. Not only do increasing numbers of young people in the West have no intention of working hard and experiencing the thrill of learning, but they know that they really have no need to. What with increasing automation, all the consumer products that most of the population will ever need, or have the time and energy to use, will increasingly be designed and produced by a minority.

The recent sudden ubiquity of the television set and the mobile phone and their vicarious displacement of the real world of interesting work and social satisfactions paints a world-wide picture for the next 50 to 100 years that is very different from the developmental assumptions and hopes of most orthodox economists and politicians. At first sight, there appears to be a sort of large soggy bottom and middle of the world’s population that is just about going to be kept reasonably restrained (except for occasional frustrated outbursts now and again, as in the Middle East and North Africa right now) as they acquire over the next two generations the Western habit not only of watching television for seven to eight hours a day but also of producing families which are of less than replacement size.

This is a pretty awful possibility but it’s considerably more realistic than the hopes given to us in the West by politicians as we stand poised on the edge of a double-dip recession that will at least sanitize the madness of the investment banks and commercial banks to which governments have given almost complete freedom to be irresponsible in the last 30 or so years.

Justin Yifu Lin for the IMF — and gold (700)

The silence surrounding the choice of the next IMF chief is curious to say the least. Nominations were open a week ago and yet only two names have been mentioned. Next week (10 June), the IMF committee (whoever they are) intend to announce three candidates. If the job has the clout that it is supposed to have, then one might have expected at least half-a-dozen well-qualified candidates by now. But no, only two have turned up so far.

One of them, Christine Lagarde, has been nominated by France and has the strong backing of most European countries. With 35% of the votes in her hand already, she is by far the leading candidate. The problem with her—articulate and personable as she is—is that she has relatively little financial or banking experience. For most of her career, she has been a practising lawyer—and in America, too, which doesn’t go down all that well with half of the votes of IMF members around the world (those countries outside America and Europe). With the Eurozone crumbling from week to week, she would hardly have any time or energy for the rest of the world during her term of office.

The other candidate so far is Agustin Carstens, presently the Governor of the central bank of Mexico. His qualifications could hardly be bettered. His experience and current positions at the highest levels of international finance and banking fill a page in Wikipedia. A more able chief at the IMF is difficult to imagine. His problem is that . . . well . . . he’s rather plump. Obese, in fact. He’s hardly the sort of handsome figure that is required for people in high places in these televisual days. The job is as much a political one as a techno-financial one. Besides, I’d rate him as a decided health risk already, even though he’s only 52.

He would walk into the job if he had both America and the emergent countries supporting him. America’s backing is extremely unlikely, however, because Cartsten has already shown his hand earlier this year by buying large quantities of gold for his central bank rather than US Treasury bonds. It very much depends whether he has the votes of China, Brazil and other countries with fast-growing economies.

My candidate is Justin Yifu Lin, 58 (and, incidentally, slim and telegenic!). He was the first post-revolution Chinese to receive a PhD in economics from an American university (Chicago, 1958) and was the main influence in China in the 1980s and ’90s in deflecting the country away from investing in heavy industry and towards the production of consumer goods. He is currently the Chief Economist at the World Bank and is probably highly influential in the views of Robert Zoellick, the President of the WB in calling for the free-market price of gold to become the basis for a world trading currency.

If the Chinese government is supporting Mr. Lin then this might explain the unnatural silence that is now surrounding the IMF candidates. Premier Wen is going to have to work hard to persuade President Obama (with 16% of the IMF vote), considering Lin’s likely views concerning gold versus the dollar as the future world’s reserve currency. Lin’s candidacy will be fiercely resisted by Ben Bernanke, America’s central banker, and Tim Geithner, US Treasury Secretary who still want the American dollar to dominate the world’s trade. It may well be that resistance in Washington is working in Mr. Lin’s favour, as China works the leaders of the emergent nations. China might also have the votes of Greece, Spain and Portugal because it has been trying to help them by buying their bonds recently. Germany also depends a great deal on China as a considerable part of its export market of its luxury cars and machine tools.

My guess is that there are fierce arguments going on between the Chinese and Americans in Washington and that Christine Lagarde is already out of the frame. The fact that Agustin Carstens has not yet been invited to visit by either America or China probably means that he will have few votes also. IMHO, to use the jargon, Justin Yifu Lin or some other hitherto unknown candidate from China or the emergent countries will be the one that will emerge as the third candidate on 10 June and probably get the job.