Cyprus – Cinderella and the Ugly Sisters

The oldest known version of the Cinderella story dates back to ancient Greece – how ironic.

Cyprus was, for many years, an idyllic island – originally settled by Mycenaean Greeks around 4,000 years ago. Known for its beauty and its beaches, it became a tax haven before 2004 when it joined the European Union. Its economy benefitted enormously – Cyprus did, indeed, go to the Ball.

The Sisters turn Ugly

Yet Cyprus is now being rejected by its two ugly sisters – the EU and Russia, who have conspired with Cyprus throughout the last ten or so years by enabling illicit money to flow into the country. Cyprus has benefitted from its relationships with the EU and Russia but those sisters are now turning ugly.

Isaac Newton was an alchemist but even he could not transmogrify base elements into gold. Modern counterparts are far more able to magically transform base elements into gold on a massive scale that would amaze even the alchemists of the seventeenth and eighteenth centuries. Now that money is digitized, base elements (the profits made from illicit activities) can be changed in seconds within banks situated in secret jurisdictions.

The essence of the problems in Cyprus is that a vacation destination, home to many hard-working and energetic people, has been itself transmogrified into an offshore banking centre that is many times the size of the rest of the economy. That the part of Cyprus within the European Union is close to bankruptcy is astonishing enough to many.  Even more astonishing is the evidence that is mounting about a small country enriched in the short-term by a Faustian sale of its soul to Russian criminals.

Cyprus is an island with around 1 million people and a GDP of around $24 billion. Some years ago, the government of Cyprus decided (or was persuaded) that attracting huge sums of digitized money from wherever it could get it would increase their income. So, through increased secrecy laws, a multitude of double-taxation agreements with other countries and low tax rates in Cyprus, it created itself as a tax haven. Russians, for many years with interests in the country, flocked to Cyprus – preceded by their money. Cyprus became a home of money laundering as well as a tourist destination. The combination has been very powerful.

The banking crisis

When the sub-prime crisis hit in 2007/8, Cyprus was enjoying substantial growth. However, it had followed the high interest rates in Greece and invested in Greek banks. When they failed so famously (requiring massive “haircuts” from those investing in them), Cyprus – massively over-extended in them – suffered badly.

While its two ugly sisters worked out a way to enable Cyprus to be the beneficiary of illicit hot money for many years, one ugly sister (the EU) rebels at the thought of such mismanagement leading to a call on it to prop it up. While the EU is full of tax havens – from the City of London to Luxembourg to Austria – the political will of members of the EU such as Germany to continue to prop up Cyprus is vanishing fast. Hard-working German taxpayers, already riled by the needs of Greece, the political anarchy in Italy and the mass youth unemployment in Spain, have been further spooked by the machinations of discredited politicians in Cyprus – already in hock to the Russian mafia on a grand scale. This is why they demanded a contribution from Cypriots that resulted in the mass demonstrations in Nicosia and elsewhere as the middle classes were confronted by the fact that their insured deposits in Cypriot banks were not, after all, insured against the EU.

Where’s the Fairy Godmother?

Cyprus now realizes that its pact with the devil (Russian mafia) and its focus on becoming a secretive, tax haven has turned sour. To remain in the EU, it needs to save its banks. To save its banks, it needs to raise significant sums from its people (in terms of further tax revenue or long-term bond issues) and also from other, overseas, depositors. The latter are mainly Russians – and much of that money is illicit. The mere thought of taxing the Russian mafia is enough to make the story of Cinderella into a horror film – that might make the new wave of horror films based on fairy tales (such as Hansel and Gretel – Witch Hunters) look insipid by comparison.

There appears to be no Fairy Godmother who will let Cinders go to the Ball. It seems to be the case that Cyprus is between the rock and the hard place – between two ugly sisters: one that has plied it with funny money for years, the other that has conspired with it to do so and stayed quiet until now.

Greece has suffered five years of depression. The problems for Cyprus are only just beginning but whereas Greece’s problems remain its own, Cyprus is in much more danger – it is in hock to a mafia-ridden nation and appears to have few friends within the EU who are willing to turn it around. For its people, this could be a disaster – economically and also in terms of the way of life for its citizens. The EU allowed this situation to develop – it should not be blind to the plight of its smallest member. It is enough that fear has been struck into the citizens of Cyprus and to those in Italy, Greece, Spain and maybe France, who now know that bank deposits are not theirs any longer. Bank runs come from times like this.

Allowing Cyprus to be so wayward for so long is bad enough – to allow it to go completely off the rails and into the clutches of a mafia state would be too far.  Cyprus needs a short-term remedy and a long-term plan to get it away from the drug of tax havens. The EU has to turn from Ugly Sister into the Fairy Godmother (and stay the course) or this may well be a Lehman moment that will not easily be forgotten.

See-through Society – transparency

Cleaning Up

Chuka Umuna, the Shadow Business Secretary, recently called for companies in the UK to declare their tax payments to Her Majesty’s Revenue and Customs (HMRC). This followed the widely reported, bad publicity surrounding the minimal tax payments made in the UK by Amazon, Google, Starbucks and many others. Whilst not wishing to name and shame, he believes that all companies should glory in the tax they pay. Justin King, head of Sainsbury’s, one of the big four food retailers in the UK, made a similar statement, suggesting that consumers could make change happen through their custom. International Corporations have been cleaning up by transferring their tax liabilities to low tax regimes and tax havens – they can virtually choose where to pay tax.

Nick Clegg, the leader of the Liberal Democrats and Deputy Prime Minister, states in his most recent letter to LibDem members: “The idea of combining a strong economy with a fair and transparent society is something that will also be seen in an international context this year when we host the G8 in Northern Ireland.”

Transparency is becoming the mantra of the well-meaning in society and many would say “about time, too”. While not the answer to all of societies’ ills, it is a precursor to re-directing society towards solving some of the greatest problems we have – because transparency of key information allows people (civil society) to make informed decisions – either on their own (through the marketplace) or through their government.

Sweeping away the leaves

For years, organisations like Transparency International have campaigned for dramatic improvements in the way governments, publicly owned organisations and companies provide important information. The danger with secrecy (and the UK remains a very secretive country) is that beneath the opacity of information lie secrets that those with vested interests wish to keep hidden. Whilst secrecy is always claimed by Governments to benefit all of us where they wish to enforce it, the evidence is usually to the contrary. The benefits of secrecy accrue to vested interests and results in economic mismanagement at best – at worst, in countries which are, for example, resource-rich and economically poor, it leads to mass corruption, impoverishment of the mass of people, illness and suffering.

Economics and economies thrive on the open availability of good information and only monopolies thrive on secrecy. It is only when information is made available that proper judgments can be made by the mass of participants in the marketplace.  In a world population of billions, markets can only work where information is not controlled from the top down. Stockmarkets and financial markets depend on the freest possible flow of information to the widest audience and there has been a progressive move towards freer access to information along with the spread of technology that enables it to be used. The driving force is the same human one that drives freedom and democracy. There is an inherent motor behind individual freedom and the right to self-govern and the same motor drives transparency because it is with transparency that the potential can be seen and with transparency that informed decisions can be made.

Transparency is not closing your eyes when the wind blows

In the UK, a nation that always appears to be governed by a conservative mindset where change is difficult, where the Official Secrets Act dominates, where GCHQ and CCTV appear ubiquitous, where the challenge to maintain a fairness between an open society and a society that bears down on terrorism often seems so far weighed in the latter’s direction, the motor for transparency often seems to be running in neutral. Conservatism (especially in England) means keeping things the same and with direction from the centre. This often means that vested interests operating from the centre or with the centre will disallow the move towards more openness. The Labour government provided a Freedom of Information Act, for example, to the chagrin of its then leader, Tony Blair., who was and remains a centrist. In a sense the provision of the Act was odd, because Labour remains as much a centrist party as the Conservatives. Nevertheless, the human motor for more transparency was stronger than the urge to opacity in this case – even if the Act is not itself allowing the freedoms desired.

Yet, it was a step towards a more open society and towards transparency that many countries would relish. A free press (the subject of so much discussion following and before Leveson) has helped to unearth the secrecy in banking, for example, that has plagued the UK for centuries. Manipulation of LIBOR, money laundering, sub-prime casino banking and support for tax havens may have helped to make London a key banking centre but it did not insulate the UK from the collapse in 2007 – it made it far worse – and “only when the tide goes out do you discover who was swimming naked” (Warren Buffet commenting on naked transparency). Sometimes, opening our eyes hurts.

Nothing to Hide?

One example of eye strain concerns the opacity of the banks and their cozy relationship with Government (not just in the UK). The secrecy allied to the special relationship has hindered the UK to an intolerable degree. Under Nigel Lawson (one of Margaret Thatcher’s Chancellors) the post-manufacturing society was hailed as the future as banks gained more freedoms and we all kept our eyes closed. Yet, we now see Germany as Europe’s economic motor because of its manufacturing prowess and the revitalization of the British motor industry (although hardly any it owned by Brits) is now lauded much louder than our “success” in financial services. The illusion of banking remains, though – as a key driver of the economy rather than what it really is – a provider of services that should assist the real economy. And the illusion has been propped up by a lack of real transparency which enables banking to remain a secret society.

Transparency is the ability to be strong enough to reveal information because there is nothing to hide. The true strength of transparency is the confidence that it portrays. So, the opportunity for companies and Governments to be open, to be transparent, only exists where there is not much to hide. Clearly, international companies that are paying virtually no corporation tax on sizeable UK earnings have something to hide; clearly, those (companies and individuals) who put money into offshore tax havens or to secrecy jurisdictions may have something to hide.

If banks and individuals had nothing to hide, Wegelin, the oldest Swiss bank, which is closing as a result of its plan to take on all the clients of Swiss banks that had decided to be more transparent with the US authorities over tax evasion would still be open for business. Their clients, who wished anonymity, made their way to Wegelin – which had been founded in 1741. They knew they were doing wrong and Wegelin knew the same – and the bank is closing after a hefty fine from US regulators and after 271 years. Secrecy was in the bank’s DNA – it could not evolve to the realities just beginning to dawn in the 21st Century. It became extinct.

So, lack of transparency in a world with eyes opening can be also hurt and be expensive and the US executive is now proving to be vigilant on  behalf of transparency on a world-wide basis – as is the US Congress which passed legislation in 2010 called Dodd-Frank. Part of this related to section 1504 which requires extractive industry companies registered with the SEC (Security and Exchange Commission) to disclose their revenues and taxes paid on a country by country basis worldwide. This includes all companies registered on the NYSE no matter where they are based. The EU looks to be following this example so that the people of resource-rich, economically poor countries will know how much money their precious natural resources raise in annual income and then can follow through what their Governments do with that money.

However, the American Petroleum Institute and the US Chambers of Commerce (vested interests if ever there were) are trying to fight back and have initiated a law suit in the US to nullify section 1504

How curious that libertarians fight on behalf of secrecy – the proponents of a free market arguing against a main tenet of economics – free information.

Battle lines are being drawn – the light and the dark.

21st Century Schizoid Man, King Crimson’s take on Spiro Agnew, was written in 1969 but the 21st Century does even now witness such schizoid tendencies characterized by corporate and governmental secretiveness, emotional coldness and apathy that typifies the illness. The lack of openness is world-wide and exhibited by the Chinese authorities’ suppression of its Southern Weekly newspaper when an editorial criticizing Chinese leadership was thrown out and one supporting the leadership was superimposed. Anyone reading Martin Jacques book “When China Rules the World” would not be surprised at the suppression. It characterizes the central leadership of this “civilization state” but Jacques argues that we see it too much with western eyes. But, what if we in the West are right and democratic freedom and openness are the motors that drive our human endeavours? What if the Chinese have, for 2,000 years, actually got it wrong. As China grows stronger, the move away from freedom for information will intensify and Chambers of Commerce will battle against laws for transparency that they will argue provides Chinese firms with advantages. This is a battle that has to be fought world-wide.

Our pursuit of progressively greater freedom (whether press freedom, open markets, democracies, freedom of speech) and equality (of race, religion (or non-religion, sex, sexual orientation and more) appears to be the real motor rather than the schizoid tendencies of the centrist control of monopolies, dictators, and vested interests. Transparency is a hugely important base upon which this basic human drive can persist. In a post-2007 world where the risk is that wealth is being driven to the top 1%, the drive for transparency is fundamental.

EZ money – you can Bank on it!

It is just like a circus act – spinning plates as the audience waits for one to fall. When one falls, the act is over and they all fall. The plates – the Eurozone and banks – are spinning still – just – but the spinner is tiring, there is less time to go and the plates are shaking wildly.

 

Both the European banking system and its impact on the Eurozone are in critical mode. The illnesses are not being treated – we are merely ameliorating the symptoms. The new package of measures announced on 29th June provide some breathing space but the banks are the same banks as they were before and the Eurozone has exactly the same problems as it did on the 28th June.

 

Twin Devils: EZ and Banking

 

Banking is a devilish concoction – see my earlier posting: https://jeffkaye.wordpress.com/2012/02/05/banks-and-time-travel/

which focuses on the Mephistophelean trade that banking makes with us – the bringing forward of tomorrow’s wealth into today (with our soul in return). No government since money was invented has properly understood banking or had the ability to control it and democracies are ill-suited to manage the banks, the bankers or their products (although that is not a case made for ending democracy!).

 

On the same day that the EZ nations announced their new answers to the EZ crisis, UK banks were being vilified for their LIBOR manipulations and for wrongly selling interest rate insurance to small businesses (many of which collapsed under the strain of the repayments when interest rates collapsed under the banking-induced downturn in 2008). It couldn’t be made up!

 

The EZ nations horse-trade over more loans to the banks which bypass the sovereign debt obligations of Italy and Spain, amongst others. Banks will get loans directly from the ECB (for example) – which means that Germany will guarantee 50% of the loans, but France, Italy and Spain will also carry a burden.

 

The twin devils are fighting for their existence and the markets applaud every move – but, the problems persist.

 

Twin headache

 

Banks have existed far longer than the EZ and will outlive it. The likelihood is that the EZ nations, fighting for the survival of the Euro, will continue to miss the point. Banks are not, in the main, national entities, they form part of a world-wide consortium. Banks are a supra-economy and their product – money – can be created easily and changes time – lending and borrowing transform today’s problems into tomorrow’s – in a way that nothing else in economics can do.

 

Banks’ ability to transform time (the magical transformation that lending and, to some extent, insurance provides) is exactly what has provided the EZ with its problems – and the issue that wrecked Lehmans and nearly wrecked the US banking system. The banks’ inability to control themselves within reasonable and rational limits of lending has now been transferred to the countries where they are based. Sovereign debt has been amassed to cover the time travelling antics of the banks. Twin problems.

 

Paying it Back

 

Most economists are unclear about the problems that banks provide when unregulated on a macro-economic scale – all governments suffer the same lack of understanding, Money is not just easily created and employed, it effects transfers between time that equilibrium-based traditional economics does not understand. A loan provided to a company at an interest rate with payments spread over many years represents the ability of that company to achieve something now rather than later. The debt is paid off through interest (the economist’s price of money) and over time. Discounted cash flow techniques (based on interest rates) debase the future – eventually, it completely discounts it as though it was worthless.

 

But, the price of money is not just the interest rate. Price is repaid from tomorrow’s debt mountain when the debts pile up beyond the ability of payers to pay. The devastation of the Greek economy and young people’s work prospects in Spain testify ingloriously to this. The price is a heavy burden when the macro-economic effects of out of control banks are misunderstood. Supply and demand curves for money are meaningless when money is more or less free and money becomes free very often in society – which assumes a zero risk. It happened in the 1990’s and it happened just prior to 2007/8 – money was free because it was being created from nothing – by new forms of leveraging in secondary and tertiary markets that no-one understood. Interest rates were of no use as bankers and financiers scoured the market for easy bets (for that is what they were).

 

Now, we face many years of deleveraging – where yesterday’s over-leveraging is paid back – where time travel gets reversed. It must be that the discounted cash flow calculations were wrong – the assumptions were riddled with errors.

 

3D Chess played with blindfolds in different time zones

 

Economic management of banks and of sovereign debt makes assumptions based on projections that are misunderstood. Fund flows and interest rates that are meant to cover the supply and demand parameters miss the critical build-up of debts at a national level and at an international level. It is the mass of debt and the difficulty of managing that debt pile against a continuously changing assembly of poorer and poorer borrowers that constantly defeats bank management. The constant desire to bring forward projects from tomorrow into today – whether by an individual or a company or a government – feeds that process. It is the drive to consume now, the size, complexity and continuous shifts that make the problem so much greater than it was in the 19th Century.

 

3D Chess played with blindfolds and over different time zones looks easy in comparison and the answers are not easy to come by. The answers being implemented are micro-economic in the way that individual banks are required to increase capital ratios, for example.

 

The complexity in a period of deleveraging allied to a need for growth is enormous. Governments cannot (over time) have it both ways. Most developed nations are over-leveraged having borrowed far too much out of tomorrow’s wealth. At the same time, we are being told that we need more growth to help repay the debts. There is a limited intelligence involved here – or just maybe that the limited intelligence of politics is competing with economic reality. We should all be aware that for those countries in a downward spiral there are but three ways out of this: to deleverage (i.e. pay back debts); to reflate and debase a currency; to default – or a mix of the three. In the US and UK, reflation and currency debasement has been attempted; in Greece, there has been a default; elsewhere in Europe, the can keeps getting kicked but it looks more and more likely that German taxpayers will pay out for Italian and Spanish profligacy without the huge institutional and cultural changes that would make the investment worthwhile.

 

What’s the answer?

 

Governments have been trying to control banks for hundreds of years and failed. In the 21st Century, complexity has risen as has the ability of major banks and their staff to manipulate markets and manipulate customers.

 

This is not just a banking or EZ crisis – we have now to question our economic judgement and whether capitalism as we have practiced it for the last fifty years works. Just like corruption, banks and bankers will swarm into any gap that the market allows. It is not much use to anyone to swing the pendulum back and forth on regulation as economies grow or splutter.

 

After all, the problems in banking and in the EZ are problems of economies and problems that are due to a laissez faire relationship with growth as measured by….money (GDP). The only targets that we (not just the UK but world-wide) measure our success in is in money. The only targets are GDP targets – growth targets are GDP.

 

What is the answer? The answer lies in our ability to bring quality (and ethics) into our economic affairs.

 

Quality vs Quantity

 

As the Chinese and other developing nations rise up the GDP scale and as the world continues to use up its natural resources, we have not assessed why we continue to follow 19th Century economic principles that propose that we spend our way to happiness. GDP growth is important as societies develop – as hunger is eradicated, shelter is found, clothing is ensured and jobs provided. How important it is when we are “grown” is the debate that is now needed. Growth in what?

 

The rush for money (what seems to be the mainstay of society) is what has rushed the banks and EZ into the mire. We don’t understand the impact we are having on the next generation and beyond in terms of debts built-up and resources squandered.

 

We now have a quality vs quantity argument that underlies all the short-term “solutions” that we read about. The right answers require the right questions and the right questions may include something like: “do we need to use up tomorrow?” – that is what banking is, a discounted cash flow estimate of the future where everything is translated into numbers and where quality is completely overcome by the quantitative.

 

Numbers are in charge – and therefore banks (based solely on numbers) are at the forefront of such an economy. EZ crises are based on money and the addiction to numbers – GDP and growth. While this continues, so will our willingness to allow banks to seek out new methods of extracting tomorrow’s benefits to today.

 

To untangle societies from the rush for loans and products that banks supply (and EZ countries end up securing – and paying back through taxation) we should address the root cause – our predilection to the amassing of tomorrow’s money or its equivalent at the expense of tomorrow’s quality of life. Our kids and their kids deserve better – ask young Greeks or Spaniards.

 

 

From Euro Chaos to Chasm

As Greece Votes

I was on an ethics panel this week – organized by CGMA and Accounting Magazine. This has been arranged to discuss the outcome of CGMA’s recent survey “Managing Responsible Business” http://www.cgma.org/Resources/Reports/Pages/ManagingResponsibleBusiness.aspx

This survey explored the range of issues around business and doing things properly – ethically. It found that most businesses tried to, CEO’s were handing down responsibility for this to other staff, the ability to do so changed by country and there was real pressure not to in some countries.

With elections in Greece on Sunday and the Euro in everyone’s mind, the issue of business ethics seemed mighty small in comparison.

Ethics – moral rectitude, the rules of conduct – are not just about business. It is from society that ethics emerge and it is the destruction of the rules of good conduct that has tipped Europe and many other parts of the world into an economic, political and financial chasm. It is a chasm that threatens our way of life and, deep inside that chasm, there is not a lot of light.

The Chasm is not just a Banking one

 

We are continuously being told by our politicians that the current banking crisis can be resolved with large amounts of cash. The latest attempts are the £100bn on offer by the Bank of England of low rate loans to banks to regenerate lending in the UK and the €100bn on offer to Spain to prop up their banks.

In the chasm, sticking plasters don’t work.

Banking liquidity is not the problem anyway. The problem that banks have in Spain, for example, is solvency – their very being is at stake not their ability to lend in the short-term. They were over-stretched by awful decisions ten years ago to lend to get-rich-quick property schemes that were doomed and, when the tide went out, were shown to be naked. Borrowers across the western world were too highly geared – over-leveraged. While companies have managed to get their act together, individuals have not and while savings are higher, they are still, by normal standards, far too over-leveraged – which is still leading to house price reductions everywhere but London (where funds are rushing in from all corners of worse of countries).

But, the banks are hiding behind the problem in front of them – national insolvency. The transfer from nations (i.e. taxpayers) to banks has been enormous and continues. Well over a trillion dollars was poured into the US banking system and the same in Europe. The estimate is that this needs at least to be doubled. National solvency is at stake throughout Europe (west, south and east especially) and the austerity programmes now in place are a testimony to them.

Like the 1930’s, this is leading to massive unemployment and a risk that the chasm into which nation by nation is being thrown will swallow them whole. In Europe, the answer, we are told lies with Germany – they should assume the debts of all the others with Eurobonds – a financial answer to a financial problem.

But, the chasm is bigger than this.

The Chasm is engulfing Politics, Economics and Finance

Behind the financing of banks and the insolvency of nations lie the root causes. These are the disenfranchisement of the mass of people in most nations – disenfranchised not by their inability to vote every few years but by the paucity of choices on offer.

Greece offers a great example of a nation in economic chaos but the causes and the choices open to the people there are not often recorded.

Whoever read Michael Lewis’s “Boomerang” will understand some of the corruption that underpins the chaos. It is endemic and led by a political elite that have rampaged through the economy and gouged out any life from it. At the same time as The President of Equatorial Guinea is about to meet with four NGO’s (including my former employer, Global Witness) to discuss the rampant corruption inside his country, who is meeting with who to ensure that Greece can emerge with some dignity from its corruption?

Who can blame voters for, at last, running away from Pasok and into the arms of Syriza – the main concern is not the Euro, it is the corruption of the political elite and complete lack of trust in any politicians. The whole political class is tainted.

Outside Greece, the same is true to some extent in Spain and in Italy, where technocrats (unelected) now rule. The paucity of choice for voters – why vote for politicians when they are all the same and as corrupting and corruptible as each other?

The euro problem is much deeper. It is not just about emulating hard-working Germans, it is about serious change needed throughout Europe where leadership is absent or tainted by nations that are corrupt, unable to raise taxation, where the cash culture is rampant. This is true in Greece, Spain, certainly southern Italy and elsewhere. Why would Germany want to pick up the tab for this when the problem is chasm deep – not the surface banking or financial issue that has been painted?

The Ruling Class

In democracies, we are supposed to be able to vote out political parties that do a bad job. What happens when the whole political class is damned? The whole electorate is disenfranchised as a result.

This is true throughout the Eurozone – political parties have joined forces with other powerful elites to seemingly run countries – now, it is clear they have run them into the ground or, worse, into the chasm where conventional politics, economics and finance are drowning.

The ruling classes – politicians of all political persuasion, big business, the public sector – decided to run off with the benefits and have left the rest behind. Somewhere those funds reside in tax havens, well away from the hands of civil society. If it was all about harder effort, there could be some light ahead, but the problem is so deep that it will take years of real change and real hurt to recover to anywhere near where countries thought they were until recently.

From Chasm to ……what?

The European dream of one country living under one flag, which to many is a nightmare, is not a new one as the wars of the twentieth century showed. Now, a war just as savage is being fought – but a war where the fighting is hidden and where the soldiers don’t even realize they are in the trenches. Greek citizens and the young in Spain (where 50% are out of work) probably realize the consequences of the post-war European experiment. Many others don’t yet, but soon will.

Papering over a crack or two is relatively easy. Papering over a chasm is impossible,

The core problems of societies need to be resolved – corruption has to be ended, taxation has to be collected, public servants have to serve the public, politicians have to be credible and respected and people have to believe that if they work hard they stand a chance of being successful. For banks to function, they need finance; for businesses to succeed, they need markets and finance; for an economy to succeed, it needs good business but also a society that works – and that is not riven with insidious corruption of people and dignity.

Many African states (with massive natural resources) are corrupt and wealth is held by small elites. We did not believe that the corruption in Europe was on the same scale and, indeed, it is not the same – but the scale may be greater and just as endemic.

Solutions will not be found purely through the injection of more money into a chasm – the chasm has to be filled first or cleansed at least. Liberal democracy was supposed to be the best solution (the best worst solution). The 21st Century struggle may not be against the same totalitarians as in the last century (fascists and communists) and, hopefully, it may not be sullied by war and death, but, metaphorically, it will be just as bloody and won’t be complete until political elites are brought down to earth and civil society gets inside the tent.

Politics – the battle lines between citizens and the state

 

Why the party system is breaking down

Communications leads to changes

 

Types of government have changed with changes in communications. When communications was by word of mouth, strong central government through despotic leaders was the norm.

 

With the advent of the printing press, information could be made more available and (certainly in the West) education could be obtained more widely, leading to different forms of government and wider emancipation.

 

Now, with the dramatic communication changes wrought through mobile telephony and the internet, information (of all types, good and bad, intelligent and unintelligent) is made available throughout the world and the strains in our current governing structures are made worse.

 

The Arab Spring erupted for a variety of reasons but spread through new communication devices and systems. The organization of mass campaigns becomes easier and the attempts to stifle protests by shutting down websites and demanding changes to other, online capabilities is progressively harder.

 

Is the Party over?

 

Political parties are now finding it tougher to piece together coherent and wide-ranging policies that appeal to more than a small percentage of a nation’s population. In a word of communication possibilities, single-issue lobbying is becoming the norm. Politicians in the west continuously argue for choice but the choice that is now on offer, between major political parties without a cause (such as labour rights in the early 20th Century) is not welcomed.

 

As wealth increases (as we develop into the Affluent Society of Galbraith – see:   https://jeffkaye.wordpress.com/2012/05/06/the-affluent-society-and-social-balance/

 

so do the opportunities to connect with a wide range of issues – be they environmental, health, sport, education, self-help, business, charitable or whatever. The numbers of people that engage with politics becomes less because people are engaging with single issues. Parties rarely have a key message that intoxicates any more and are driven to compromise on a wide range of issues that appeal to no-one in particular. This means that voting may be on single issues or they are watered down to choose a party that is less bad than the others.

 

 

 

 

Greece – democracy’s floundering founder

 

In Greece, so dismally rent by bad government and economic disaster, the situation is playing out. Here, the people cannot elect a majority party to power and are being forced to vote again until they do. The party system is broken in Greece and single-issue politics dominates to the extent that the people have made their choice but the politicians don’t like it and tell them to do it again.

 

This makes a mockery of democracy in the home of democracy – an irony that is surely not lost on anyone but a potential disaster. The problem is that even if the Greek people are forced to make a different decision in a few weeks’ time, there is no guarantee that the result will be accepted by them and the demonstrations will begin again. The parties need to adapt to the will of the people by ensuring that the single-issues are wrapped into an acceptable set of policies that the majority are willing to accept – they should have done this first time around and it speaks volumes about the paucity of leadership in Greece that this has not happened.

 

Centralisation no longer works

 

A problem with the European Community which has been exacerbated by the Euro is that political judgements made after the end of the Second World War are not relevant to the 21st Century. While trading blocks are an economic decision, a political block (aimed at tying Germany into a framework which would prevent it from the belligerence of two world wars and providing Europe with a seat at any political table for many years to come) becomes a heavy weight to bear in a world that is likely to eschew centralization.

 

Vastly improved communications (including air travel) means that real globalization is the norm. Opportunities are now in place for a dramatic de-centralisation of political power in many countries and between them. Even if we need the UN, the WTO and other world-wide organisations, they are based on a 19th Century division based on the nation-state. We witness daily the huge challenges that this brings in places like Sudan or Iraq – nation states drawn by the pencils and rulers of 19th Century European civil servants, where older affiliations strike at the heart of the state philosophy.

 

In developed nations, the struggle is less severe but the economic stresses that are beginning to tear at countries like Greece, Spain (where half of the young people are unemployed), Ireland (the scene of a mass exodus after so many years of its reversal) are leading to a disenfranchisement. Italy, with an unelected government of “technocrats”, is surely not the model for the future – where votes are wasted and bankers rule from the centre.

 

A New Model needed?

 

New Model politics has to take into account the needs of a better-educated and often single-issue motivated people who need politicians that are there for them.

 

The political parties have to show themselves to be free from corruption and independent of being in politics for what they can get out of it.

 

The parties have to work together where needed and confront the problems of the past that means that each party opposes each other.

 

In the UK, this has been shown very clearly when, after a hundred years of parties being set up to oppose others, the Coalition of Tories and Liberal Democrats is set upon by many (especially a quixotic press) because they are trying to work together!

 

This is likely to be the norm. It means that coalitions will be the norm. This will be the political “new normal” to go with the new normal posited for our economic future.

 

Single-issues dominate our thinking and generate enthusiasm more than any political party in the developed world. It is only where democracy is new that parties with major and wide-ranging programmes gain real enthusiasm – which is usually dissipated quickly. Elsewhere, massive disenfranchisement is continuous and leads to a dissatisfaction with politics and politicians.

 

Parties are now the vested interests that need to change. We should see a situation where each party’s manifesto shows clearly what they would do together if that is the way it turns out – not be scared of the prospect because it may lose some votes early on. This is a big change but essential as voters’ (citizens’) needs over single issues dominate and they have no way to select a range of issues from those on offer – only a range of parties with massive ranges of policies.

 

In a world of perceived “choice”, the parties need to change to excite and enthuse or we will suffer the continued estrangement of citizens and political parties that will not result well.