Politics

Capitalism

Friend Steve and I often discuss politics and, although there are many things we agree on, sometimes find ourselves at odds over capitalism. What we both agree on is that capitalism is the only viable economic framework. Small enterprises can be capitalised on sweat, an approach I have sometimes taken in my working life. Any large enterprise, however, will need funding and that can come only from private investors or the state. If all funding comes from the state the state necessarily controls all related projects, an approach that has been demonstrated not to work, for whatever reasons, countless times. So the role of private investment, and capitalism, seems to be crucial, irrespective of one's political views.

Steve and I also agree that unfettered capitalism, “red in tooth and claw”, is not desirable. The CEO of Unilever has been cited as echoing Winston Churchill's comment that democracy was the least bad system of government that has been devised: words to the effect that capitalism is the least bad economic framework that has been devised. Where Steve and I sometimes diverge is on the nature and placement of the restraints that should be put on capitalism. However, a recent article I read (in which the Unilever CEO was quoted and which I can no longer find and therefore attribute) could have a basis to reconcile our views.

The article was primarily arguing against companies buying back their own shares, on the basis that that was the company “eating itself”. Share buy-backs are a way of keeping a share price artificially high, in line with the prevalent business view that a company's first duty is to its shareholders, but essentially just move money between the company and its shareholders. They do nothing for the economy at large and it is economies at large that are the major concern now. The article argues that this is not only bad for economies but also for the company itself in the longer term. Most interestingly, the article argued that concerns about unemployment, the level of the minimum wage and the growing wealth inequality gap might all be resolved by a rather different economic view.

The basis of the difference was the assertion that a company's first duty should be to its clients and not its shareholders. By focussing on clients as its primary duty it would be in a position to create more income and, incidentally, more value to its shareholders. More income means the possibility of expansion and more jobs and raising the level of the minimum wage would mean more disposable income for employees to spend; since a percentage of employees might well also be customers, the additional wage cost was not simply a cost drain; moreover, it would serve to put a brake on the wealth gap.

Other large-company CEOs echoing this view were cited in the article. An intriguing point about this is that if this view comes to prevail and it is accepted that shareholders are best served in the medium to long term not by focussing on them but on the company's clients, then this is capitalism reforming itself from within rather than by any state instigated legislation. So an army of civil servants wouldn't be needed to enforce it. In a sense, it would be a return of the great industrialist philanthropists of the Victorian era. And arguments on minimum living standards and the wealth gap could move from the moral realm to the economic one, with potential benefit for all concerned; that is, all stakeholders in society.

I think that this is a view on which friend Steve and I, despite our slightly different starting positions, might quietly agree.

Cuba

The alternative to capitalism can be seen in Cuba. I have tended to regard Cuba with some sympathy, since I believe overthrow of the Batista regime benefited the large majority of Cubans. True, in return for the improvements Cubans received, in terms of healthcare and education for instance, they had to accept restrictions on many personal liberties (and listen to exceedingly long and boring speeches). Economic sanctions imposed by the USA were and remain a heavy burden, although that aspect may be changing. However, I have friends who know Cuba and have suggested to me that the country is now in an extremely parlous state, only marginally attributable to the USA's foreign (economic) policy. Shortages of essentials in the country can only partially be attributed to sanctions; the state-run economy has failed and the country is kept afloat only by tourism. To aggravate matters, interference with personal liberties has reached an intolerable level, unsustainable outside a dictatorship and police state. That is what I have been told and I have no reason to doubt the truth of it; and tourists are mostly kept in enclaves and can have little contact with local inhabitants.

I knew that some other friends of mine would be visiting Cuba shortly tourists and I knew that they, as well as wanting to enjoy their holiday, would be interested in meeting and knowing about the lives of the local inhabitants. I was going to prime them but was too late; they had already been and, anyway, apparently found no way to escape their enclave.

Implications of the Euro

I have a good life here in Mollans. I Like the place and most of the people in it; I garden, play boules, join in and promote village activities, eat frequently with friends, go shopping and do very many other satisfying but unremarkable things. And living here is well within my very reasonable financial means. I estimate the cost of living as similar to that in the UK, probably slightly less as a retired person, and there is not a lot to spend money on here. In short, I can live well here, quietly, and within my means. A significant factor though is the pound-euro exchange rate, since my income is in pounds which I have to convert to euros. In my time here I've seen the exchange rate swing by about 25% one way or the other but it has been easy to even out that effect on my income. What though if the euro or even the EU itself were to implode?

To my mind, the euro has been a big mistake. There was huge political backing for it at its inception, as a means to achieve financial integration in the EU. Financial integration and the euro are interdependent; you can't have one without the other. At the euro's inception financial homogeny didn't exist between EU countries and a nod to its necessity was made through financial requirements for joining the eurozone. These were widely and blatantly flouted though, particularly by Greece and Italy; only political wish-fulfilment saw them and a few other countries through. The result is a currency that is currently unsustainable. Of the major eurozone economies only Germany's is healthy. The second most important economy, that of France, now seems to be in serious trouble; if that continues to fail, questions about the economies of countries such as Ireland, Spain and Italy will become irrelevant. In fact, the financial crisis of the past few years has seen European economies diverge rather than converge, the opposite result to that desired. As in individual internal economies, the rich have got richer and the poor have got poorer. The euro will collapse, at least in some countries, unless Germany agrees to underwrite all eurozone debt.

The popular reaction to that possibility in Germany has been a swing to nationalism; why should Germany underwrite other countries' debts? That is the reaction not only in the most powerful country in the eurozone but also in the weakest: Greece. And similar rises in nationalism can be seen in Spain and France and even outside the eurozone, in the UK. When times are hard for most people, a rise in nationalism is normal and it generally subsides when a solution to the problems causing the hard times is found. In the current context the situation is serious because the only available solution could be disappearance or retrenchment of the euro and a fundamental rethink of the EU. We can probably dismiss the prospect of a Europe-wide war, a reaction to these circumstances in former times, but withdrawal of some countries from the eurozone and severe curbing of the power of Brussels are distinct possibilities. Certainly, global currency speculators will continue to attack the euro until its weaknesses are resolved; and they are currently being exacerbated rather than resolved. And, with the rise of nationalism, the idea of devolving more power to Brussels to achieve greater financial integration must be a forlorn prospect.

So what is to happen and how will it affect my quietly happy life? Accounting has always been a moveable feast, a game of smoke and mirrors, so I expect attempts to salvage the euro to continue, whatever fudges are involved, until or unless a total impasse is reached. That won't affect me greatly although, one way or another; I expect the cost of living here to rise sharply in the future, though hopefully still within my means. The rise in nationalism is unlikely to affect me nearly as much as it may other immigrant communities. But I think it may well produce radical changes in Brussels. If these include transference of power from the European Commission to the European Parliament, so much the better because that would apply a brake to the grand designers in favour of the pragmatists. And Brussels has always suffered from a lack of the latter. Such a change also could preserve the good work that the EU has done whilst eliminating its wildest flights of fantasy.

So I don't see any great threat to my quiet life but I do see some changes which, hopefully, won't be too disruptive.

St Martin

St Martin

I have not long returned from a fortnight in St Martin. A friend from my days at Bristol university, Kay, found me via the internet and invited me for a holiday at her house there. It was good to meet her again, after almost 50 years, and also to have a break from the winter in Mollans. It's not that often that I get the chance to swim in a warm sea and acquire a tan in February.

I found St Martin to be a beautiful island but strange in many ways. Not least of its many quirks is that despite being very small it is split into two distinct territories. About two thirds of the island is still officially part of France; the other third is an autonomous region within the Netherlands. Moreover, the official currency for the Dutch area is still the guilder, which exists only as a virtual currency. Dutch functionaries apparently have their salaries denominated in guilders but actually receive American dollars at a fixed exchange rate between the guilder and the dollar. So the physical currency is the American dollar.

The island has little history and what there is is recent, dating from European occupation. Arawak indians from South America landed on the island from time to time but it appears to have been uninhabited when Europeans arrived to fight over it. Ownership switched between the usual suspects, the English, Spanish, Portuguese, Dutch and French before ending up in the hands of the last two. What they fought for, apart from their natural inclination in past centuries to fight one another anyway, was salt. St Martin had, and still has, large expanses of salt lagoons.

But possibly the most defining characteristic of St Martin is that it has no natural fresh water supply. Clean water is provided nowadays by means of desalination plant and the houses mostly have roofs designed to enable rain water to be collected and used as a secondary supply. This probably explains why the island was rarely inhabited until European colonisation and also explains something else I found strange: the striking lack of cultivation. I saw no fields of crops or garden vegetable plots and most plants in gardens seemed to be trees or bushes. Irrigation by desalinated water is clearly uneconomic resulting, although there was some grazing by goats and cattle, in almost all food apart from fish being imported.

Despite this handicap, St Martin is a genuinely beautiful island. It's highest point is only 455 metres but it is far from flat, unlike it's near neighbour Anguilla; hills abound. Its most appealing features are the many spacious beaches, most fringed by restaurants and cafés serving quality meals. The fish in particular is excellent. There are also many restaurants offering creole dishes, which is what passes for “native” cuisine. Whether this is accurate or a delusion is a matter for debate as most of the indigenous population would seem to have its origins in the slave trade under colonisation. However beaches and food are what attracts the tourists, primarily from North America, who underpin its economy. The fact that the island is duty free no doubt helps too. And St Martin is famous also for Juliana Airport, the runway of which is no more than 50 metres from a beach on which sunbathers seem to risk getting a haircut from the wheels of landing jets.

Apart from the beaches and restaurants there is not a great deal to occupy tourists. There is a small but interesting museum in Philipsburg, a butterfly farm by the Le Galion beach and abundant bird life. The pelican is the islands national icon; I saw egrets, many varieties of sea birds and others I could not name but what particularly caught my eye were the humming birds, which seemed completely unafraid by my presence.

My friend Kay's beautifully designed house overlooks the Grand Case bay with what must be one of the best views on the island. It was a real pleasure to have a morning coffee and evening G&T (Kay makes a superb one) whilst admiring the view below. So I returned having renewed acquaintance with a good friend, eaten some very good meals, bathed on some spectacular beaches and with a tan. Moreover, I returned in time to witness the early days of spring here in Mollans. To compensate for a very noticeable drop in temperature I can start on my gardening.