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The Anglo Disease – an introduction
Jerome a Paris, Daily Kos
I’ve been developing … a concept which I think can usefully describe our current economic system, that of the Anglo Disease, mirroring the “Dutch disease”, a term coined in the 70s to describe the economic effects of the rapid development of one sector (in that case, natural gas, today, the financial industry) on the rest of the economy.
…In the Netherlands, the discovery of the large Groningen gas field which brought about a boom in that resource sector, with a lot of – highly profitable – investment concentrating in that sector. The reason that something which sounds like good news is called a disease is that the investment in that profitable sector tends to cause a drop in investment in other industrial sectors, because it is so much more profitable; at the same time, there is a lot of extra revenue from the export of the resource, which generates new demand which cannot be fulfilled by domestic production and gives rise to increased imports. The fact that resource exports grow strongly also tends to cause the domestic currency to get stronger, thus further penalising other sectors of activity on international markets. The result is a weakening of the rest of the economy, and increased reliance on the resource sector.
This then becomes a problem when the new sector is based on finite resources, and eventually goes into decline. At that point, exports dry up, but the rest of the economy, having become uncompetitive and fallen behind, can no longer pick up the slack and has become too small to carry the economy over. Thus the overall economy suffers.
In effect, the displacement of existing activity by the new sector is, to some extent, irreversible, and thus, when the resource dries up, the overall economy is permanently weakened. It’s also part of the “resource curse”, which usually includes additional symptoms like corruption and weakening of democratic rules as a lot of money gets concentrated in relatively few hands (those that own and those that regulate the resource industry). In the worst cases, it can include militarisation of society (weapons being an easy way to spend a lot of foreign currency and being occasionally useful against those that might want to take your sweet spot overseeing the cash cow).
I think that the above is increasingly relevant to describe the economy of the UK and, to a lesser extent, that of the US, which are increasingly dominated by the financial services industry.
That prevalence of the financial world is no longer a matter of dispute. In fact, it is celebrated with increasingly euphoric words in most business publications and current affairs books. There is an air of hegelian (or marxist) inevitability about the triumph of markets and Anglo-Saxon capitalism, led by the powerhouses (banks, hedge funds and assorted accomplices) in the City of London and on Wall Street. …
Unfettered finance is fast reshaping the global economy (by Martin Wolf, senior editor, Financial Times, 19 June 2007)
It is capitalism, not communism, that generates what the communist Leon Trotsky once called “permanent revolution”. It is the only economic system of which that is true. Joseph Schumpeter called it “creative destruction”. Now, after the fall of its adversary, has come another revolutionary period. Capitalism is mutating once again.
Much of the institutional scenery of two decades ago – distinct national business elites, stable managerial control over companies and long-term relationships with financial institutions – is disappearing into economic history. We have, instead the triumph of the global over the local, of the speculator over the manager and of the financier over the producer. We are witnessing the transformation of mid-20th century managerial capitalism into global financial capitalism.
Above all, the financial sector, which was placed in chains after the Depression of the 1930s, is once again unbound. Many of the new developments emanated from the US. But they are ever more global. With them come not just new economic activities and new wealth but also a new social and political landscape.
(24 June 2007)
Also posted at The Oil Drum.
The middle classes have discovered they’ve been duped by the super-rich
Madeleine Bunting, The Guardian
Never have so many of us appeared so well-off yet felt so poor – and we used to believe obscene wealth was victimless
—
Public opinion can sometimes shift suddenly, and a new consensus emerge with striking force as familiar details are re-ordered, rather as a kaleidoscope makes a new pattern. That’s what is happening now: inequality has been the lonely preserve of hoary class warriors worried about child poverty for much of the past decade. No longer. Inequality has shifted to the centreground of politics; it has been propelled there not, however, by a sudden outbreak of social conscience worried by poverty in the UK, but by the increasingly powerful sense of grievance of middle England.
If you want to understand this gathering storm, check out the Daily Mail, the Telegraph, the Spectator – even Tatler. You could see it in the coverage last week of the private equity bosses hauled up before the Commons select committee to defend their paltry tax returns, or the news reports that “non doms”, those resident but not domiciled in the UK, don’t pay stamp duty.
“It’s not fair” is the indignant cry, and out tumbles a self-pitying litany of dispossession and deprivation. The middle classes, normally a bastion of effortless entitlement, are feeling very hard done by.
(25 June 2007)
Tidal wave of debt engulfing the young
Jacob Saulwick, The Age Australia
MOUNTING piles of small but unpaid debts are swamping consumers at an increasingly young age.
Half of borrowers who defaulted on loans last year were under 32, the credit agency Dun & Bradstreet said yesterday. That is a 25 per cent increase on the previous year.
The agency, which monitors the credit reliability of people and companies, said many young people were defaulting on small loans and jeopardising their future access to credit.
Households are still feeling the pinch of last year’s three interest rate rises. Interest payments hit a record high of 11.9 per cent of disposable income in the first three months of 2007, Reserve Bank figures showed yesterday.
The bulk of household interest repayments were for mortgages, which consumed a record 9.5 per cent of all household disposable income. But Dun & Bradstreet’s chief executive, Christine Christian, said many people were paying off their mortgages, but were struggling to pay off their smaller obligations. “When you start to see a lot of small debts not paid it’s generally the first sign of financial strain,” she said. ..
(22 June 2007)
Peak Suburbia
James Howard Kunstler, Clusterf*ck Nation
I get lots of letters from people in various corners of the nation who are hysterically disturbed by the continuing spectacle of suburban development. But instead of joining in their hand-wringing, I reply by stating my serene conviction that we are at the end of the cycle — and by that I mean the grand meta-cycle of the suburban project as a whole. It’s over. Whatever you see out there now is pretty much what we’re going to be stuck with. The remaining things under construction are the last twitchings of a dying organism.
It is not an accident that the housing bubble coincided with the phenomenon of Peak Oil. First of all, the housing bubble should more properly be called the suburban bubble, because most of the activity came in the form of “greenfield” housing subdivisions, and included all the additional crap-o-la accessories required by them — strip malls, power centers, Outback steak houses, car washes, et cetera. The suburban expansion has been based entirely on cheap-and-abundant supplies of oil. Similarly, it was not an accident that the suburban project faltered briefly in the 1970s, when America’s oil production entered its long decline, OPEC seized the moment, and oil prices shot up. Notice that the final suburban blowout occurred after 1990, when the North Sea and Prudhoe Bay oil strikes came into full production, disabling OPEC, and a world oil glut finally drove prices as low as ten dollars a barrel in 1999. That ushered in the climactic phase of suburbia, as represented by things like the standard 4000-square-foot Toll Brother’s McMansion and the heyday of the super-gigantic SUV to go with it.
… Perhaps the most imminent danger is that the financial markets, which have been driving our insane, hollowed-out economy, will soon recognize what’s in store and implode, creating a crisis of capital that will leave us with no ability to make any emergency investments, such as would be required to rebuild the railroad system. The equity markets sure blinked last week when two hedge funds based on phony-baloney collateralized debt obligations tanked. The collateral underlying this load of hallucinated “wealth” is comprised of contracts made by the insolvent for suburban houses worth far less than the value stated on the contracts — with every indication that the real value will keep dropping.
(25 June 2007)
