On Tuesday morning one of our Treasury Ministers, Paul (Lord) Myners, remarked in a radio interview on the dangers inherent in ‘push button' computerised trading which now accounts for some 70% of all transactions in company shares in the U.S. and is a growing practice here in the U.K. Myners, a self-made man with a distinguished city career, was brought into the government by Gordon Brown to assist with the financial crisis in September 2008. The crisis has led to considerable, sometimes justified, finger-pointing at small sets of individuals and companies. Now Myners has raised a wider and deeper system issue and, predictably, this has received almost no public discussion. But it is just the kind of issue that demands wide debate. For Myners has raised the question of whether the fundamental relationship which he believes in between investors, especially institutional investors like pension funds, and the companies they invest in, will be destroyed by the spread of pre-programmed computers making buy or sell decisions.

Paul Myners has long argued that the best way to ensure that boards of directors manage effectively and with due regard to the social obligations of their companies is for shareholders to behave as responsible owners and play a stronger supervisory role in the companies in which they invest.

The trouble with this is that most institutional shareholders are disinclined to take on such a role. They have arguments on their side. They own shares in companies not the companies themselves. There are severe practical limits to the influence they can sensibly bring to bear on managers who know their businesses. And their own responsibilities to those whose funds they manage may be better discharged if they can take unrestrained advantage of the liquidity that a modern stock exchange affords them.

Moreover, it is simply not possible to plug the holes that the new computerised world has bored through the dyke: the old idea of joint stock companies - from which comes the notion of distributed ownership which Myners is talking about - is being swept away in the flood.

Nonetheless Myners has identified a serious structural problem. The boards of companies have great economic and social power. To put it at its lowest, it is in the interests of all of us that they are interrogated on how they use their power. If shareholders do not, who will?

This month's most surprising Nobel Prize winner was not Barack Obama  but Elinor Ostrom, a political scientist from the University of Indiana who picked up the coveted Nobel Memorial Prize for Economic Science. 

Not only is Ostrom the first female recipient, she is also not an economist.  For the past 20 years, the Prize has been dominated by financial economists for their work on weird and wonderful sounding things like "option pricing formula" (Robert Merton, 1997 winner). When the financial markets were inflating the bubble, that was fine. But the Nobel panel clearly gets the zeitgeist. Awarding this year's prize to someone like Robert Engle (the 2003 winner who came up with a new formula for predicting volatility in financial markets) would seem rather odd after the biggest financial meltdown in the modern era. Ostrom, on the other hand, is the perfect choice. Her life has been dedicated to understanding humans can live sustainably with our environment. And coming just a month before the Copenhagen Summit on climate change, it couldn't be more topical.

Ostrom has been entirely devoted to understanding one thing: managing what are known as common pool resources. Common pool resources are resources that are ‘non-excludable' (it is impossible to prevent individuals from using them) and "rival" (use by one individual means that there is less available for next).  In other words, no one really owns them, and we can all use them to destruction.  Farming on a public field or fishing in common waters are the classic examples. The problem is this that is in everyone's interests to limit usage to ensure there are enough cod in the North Sea for the stock to replenish.  But, left to our own devices, we will all over fish and exhaust these finite resources, and all be worse off for it. 

Why does this happen?  Suppose I am concerned about my carbon emissions and decide to walk to work rather than drive.  I alone bear the costs of this altruism - getting wet, arriving to work late and so on.  But everyone, including people who still drive, benefit just as much as me from the reduction in emissions and congestion that my act of civic duty afforded.  I am left with what the economist calls the "sucker's pay-off" - all the costs and just a fraction of the benefit.  And because no one can be excluded from enjoying the "positive externalities" of my sacrifice, (known as free-riding), I conclude, quite rationally, that driving to work is the best strategy, and wait for some other sucker to act first.  So does everyone else.

Our environment is the biggest and most important common pool resource we have. But apply the logic to installing solar panels, taking a coach to southern France rather than a cheap flight, or taking my rubbish to the recycling point.  Then multiply it by 60 million people. Then by six billion.  The result is that we are unable to act together to achieve our mutual goals and all rush, quite sensibly and entirely rationally, towards ruin.  In 1968 Garrett Hardin rather beautifully dubbed it the "tragedy of the commons".

Traditionally, there have been two major approaches to getting ourselves out of this rather unfortunate spot and they dominate political debate to this day. The first is the oldest of all: a government with coercive powers forcing us to act enforcing restrictions. A Leviathan that can manage the resource for us, setting limits on fishing for example, thereby forcing us to cooperate for the common good.  The second is to harness the power of the market: privatise common-pool resources so the selfish farmer bears the cost of his actions, rather than passing it on to society.  The economist calls this "internalizing the cost of the externality" - and so he then has an incentive to manage his consumption more wisely. In environmental terms, carbon trading is the obvious example, the "polluter pays" principle.

More than anyone else, Ostrom sought out and theorised a third way, based on the assumption that we do have the psychological and socio-moral capacity to find our way out of this unhappy malaise without coercion. In her classic work Governing the Commons (1990), she showed how across the world communities of people have been able to come together to manage collective resources sustainably, "who" as she puts it "are in an interdependent situation and can organize and govern themselves to obtain continuing joint benefits when all face temptations to free-ride, shirk, or otherwise act opportunistically." In one famous example, Swiss Alpine cheese-makers with a grazing commons for their cattle managed to govern it sustainably with a simple rule - if you got three cows, you can pasture them in the commons, provided you carried them over from last winter - but you can't bring new cows in just for the summer. The community simply polices itself. Everyone knows whose cow is whose and no one transgresses the rule. This is what Ostrom calls polycentric governance.

Her work suits the times. It also has huge practical resonance for any number of local small-scale collective action problems. Her hopes that she would "shatter the convictions of many policy analysts that the only way to solve common pool resource problems is for external authorities to impose full private property rights or centralized regulation" has more than been realized. Her design principles of how to collectively manage resources have been applied all over the world, with the emergence of civic-led groups coming together off and on-line to get things sorted without government intervention.  Not only that, Ostrom deserves great praise for the way she conducts the research itself, developing theories in the field by studying people's behavior, rather than generating a-historical models about human nature from a library. All in all, few would begrudge her the Nobel Prize.

And yet as the Copenhagen Summit approaches, some caution is needed. The relevance of Ostrom's award to the Summit - which hopes after all to deal with the greatest collective-action problem the world has ever seen - is widely noted.  The timing itself is conspicuous. However, as Ostrom quite openly admits, the conditions for mutual collective management in the way she describes are quite restrictive - it tends to take place in small communities, with high visibility, high social capital, and clear enforceable sanctions. These conditions are certainly not met in a world of six billion people.

Therefore, I hope that Ostrom's work will be taken for what it is - proof that not every common pool problem can be best solved by government or market. But Ostrom herself has always been vocal that many collective action problems do need government enforcement.  And when it comes to climate change, we don't have time to experiment with a multitude of potentially interesting civic led options; because we can't really afford to fail. The real task for Copenhagen will be to figure out where Ostrom's insights can be used - often together with government and the market incentivising collectively responsible behavior - and where only the clunking fist of national government legislation will do.

Pat Stamp's letter on the postal workers' strike in the London Review of Books...

I am a postman and concerned at the absence in the media of any account of how mail delivery is organised and what Royal Mail's modernisation programme entails. The programme was introduced because the popularity of email and texting has caused a drop in mail volume. Royal Mail's first step was to reduce the number of walks. It did this by cutting some walks in each area and making the remaining walks longer. A postman who normally delivered mail to six streets, say, now found himself delivering to eight or nine. During the summer months, when mail volumes were low, he could, perhaps, just cope with this. But as autumn begins and the Christmas catalogues start to come out, every week and sometimes every day can be heavy. In the run-up to last Christmas, there were postmen who only finished their walks at 7 or 8 p.m., sometimes two or three times a week. In one depot alone, around 15 postmen phoned in sick. This Christmas, with the even longer walks, it could be worse. Royal Mail is a strong promoter of general health and safety, but as the walks lengthen and the loads increase, many of us feel that our own health isn't being taken into consideration.

The next step in the modernisation was to stop overtime. The new, longer walks were generated by a computer program called Pegasus. We were assured that Pegasus had made all the new walks around three hours long. Some of the walks were indeed three hours long, and the postmen on those rounds had no trouble completing them in time. But a significant number turned out to be considerably longer - some of them up to four and a half hours long - and mail began piling up as postmen brought post back at the end of the day because they couldn't deliver their loads without working extra, unpaid time.

An openEconomics Conversation: Peter Johnson > Tony Curzon Price > Thomas Ash

Earlier this month, Peter Johnson gave an account of Karl-Heinz Brodbeck's critique of the famous utilitarian philosopher Jeremy Benhtam's defence of usury, the charging of high rates of interest on money. Below, Tony Curzon Price and then Thomas Ash respond.

Tony Curzon Price response to Johnson/Brodbeck

The Deuteronomic injunction against usury--at the basis of Islamic finance as much as the Roman Church's injunctions against it--prohibits interest from being charged within the tribe, but leaves the door open for receiving interest from outside the tribe. (For universalising religions like Chirstianity or Islam, the tribe becomes all of humanity, hence the strengthening of the injunction.)

There are many layers of logic to the prohibition. The first is broadly inspired by Nobuhira Kiyotaki and John Moore's theory of "inside and outside money" (see "Evil is the root of all money") . Within the group, there is a great deal of information about prople, their behaviour and their abilities allowing investment to be financed without recourse to the broad-brush insurance scheme of charging interest. It is when you don't have the information needed for subtle assessments of projects that you supply surplus (savings, capital) only if there is insurance against default.

But that is only the start of it. When money is supplied to outsiders, the boundary of the "inside" changes. The investor starts to exchange more than just gold with the adventurer--the love between Jessica and Lorenzo in the Merchant of Venice would presumably never have flourished had there not first been outside interest. Once interest flows, so can much more--usury, in the best of cases, weakens the boundary between the inside and the outside.

This suggests another reason for the traditional prohibition on usury: it defines a border, maintains a strong sense of "us" and "them". If  investment only comes where traditional trust bonds are strong, then the returns and losses from risky ventures all become part of the social calculation of the group. They reinforce the group's meanings, rituals and stories. The energy of meaningful social interaction is all kept inside. That may be good for the tribal priests and the tribe as a collective entity, but it means a particular sort of human flourishing is crowded out: self-creation and self-discovery are subborned to the interests of the group and its hierarchies.

I agree with Peter Johnson that Bentham picked the wrong argument in his Defense of Usury. But the right argument for usury is not addressed by the Johnson/Brodbeck critique: well-used, interest dissolves the boundaries of the tribe and opens a space for a new kind of human flourishing.In terms of human history, that is the great value of finding substitutes to traditional structures of trust.

This is not to excuse the fraudulent and irresponsible extension of  money we have seen in this credit crunch and others. The justification proposed for usury is still instrumental: does it help or hinder the creation of that particular type of human flourishing that comes from weakening the bonds of the tribe? When it becomes self-realisation only for fraudsters and a new type of "insider"--the tribe on the inside of the creation of  money--at the expense of others, I agree it is no longer working. But to solve this through a return to traditional money would be oppressive. The challenge that Johnson and Brodbeck rightly pose is how do we reap the social dividends of usury without creating a new kind of tyranny of money.

Thomas Ash comments on Johnson/Brodbeck

Peter Johnson has written a very interesting and detailed account of Karl-Heinz Brodbeck's critique of Bentham for openEconomy. Nonetheless, readers are at risk of forming an uncharitable picture of Benthamite utilitarianism.

Peter sometimes writes as if utilitarianism is an ethic of greed, but nothing could be further from the truth. It accords every person's happiness equal weight to our own, and as such is notorious for demanding improbable levels of self-sacrifice - the donation of all but a small remainder of one's income to charity, an end to ‘favouritism' for one's children, and perhaps a highly restricted diet to boot.

Bentham did sometimes flirt with psychological egoism - the view, which he found in Hobbes, that human motives are inevitably self- interested. Since someone cannot be obliged to do something that is impossible for them, such as jumping the Atlantic, this would rule out any obligations to act other than out of self-interest. (This observation is sometimes summarised as ‘ought implies can'.) However, when this conflict with his ethical theory was pointed out to Bentham, he reacted by modifying his account of human psychology. Utilitarianism's altruistic characteristics took precedence.

If utilitarianism cannot be described as an ethic of greed, it can be described as an ethic of accumulation - not, as we have seen, as it applies to one's own ‘accounts', but in those of humanity as a whole. In this respect, Brodbeck's apparent charge that it is "the money- subject's book-keeping interpreted as a spiritual process" might find its mark. However, it is natural to see the psychological goods Bethamite utilitarianism deals with as cumulative: the more the better, with the value of two goods simply being the sum of their respective values. To show that this is inappropriate would need an argument. It is more plausibly inappropriate of other goods such as freedom which utilitarianism does not recognise as intrinsically (as opposed to instrumentally) valuable, but utilitarians have their reasons for not recognising these, which are a separate matter.

A more direct connection between Bentham and the money-subject's attitude is found in the line Peter quotes: "Money is the instrument of measuring the quantity of pain or pleasure. Those who are not satisfied with the accuracy of this instrument must find out some other that shall be more accurate, or bid adieu to politics and morals." The fact that this device was not alien to Bentham and his audience is certainly telling, but it was only a device: Bentham did not think a person's welfare was equivalent to their wealth, but suggested that goods be measured by the sum their possessor would swap for them. These ‘goods' need not be goods: some, like the enjoyment of freedom, might be neither monetary nor available for purchase.

The use of money as a measure in this way may be subject to some of Peter's criticism. It has its flaws - for example, it is undermined by a phenomenon Bentham himself noticed, the diminishing marginal utility of wealth. An additional hundred dollars is not worth as much to a rich man as to a poor one, so the rich man might not trade away a pleasure for it which the poor man would gladly swap. However, this flaw in Bentham's measure only further shows that the value he was trying to appraise cannot be identified with money.

The second-generation poor stand in contrast to the second-generation rich. One group inherits their parents’ poverty, the other their wealth. Together they demonstrate the hard facts of the rich-poor divide and its permanence - the children of the rich stay rich, and the children of the poor stay poor. And while wealth may often be squandered - fortunes, the Chinese say, never last three generations – poverty persists, with even third and future generations unable to change their fate. 

So who is responsible for the vast numbers who inherit poverty? And how to change their fate?

In China, the cycle of poverty is due to the failings and irrationalities of a number of systems – of household registration, education, state-owned monopolies, taxation, distribution of resources, welfare, the press, public representation and government bureaucracy.

The household registration (hukou)  system classifies people according to domicile and rural or urban status, and creates congenital poverty for rural families. Their children will always be classed as rural residents unless: – they get into university, and the chances of that are extremely slim. The offspring of those who move to work in the cities will not be treated as locals or even Chinese citizens

By leaving their domicile, they lose entitlement to even the limited welfare / services they would get at home, so the very much fall through the cracks. – their parents buy property or start a business, and the chances of that are again extremely slim. According to one report only four or five of Nanjing’s one million migrant workers obtained an urban hukou over a five year period - even the lottery offers better odds. The household registration system is the prime cause of prejudice, social immobility and second-generation poverty.

The hukou system also gives rise to a divided educational system. Vastly greater spending in urban areas leaves rural children struggling to obtain a good education. Their chances of attending university are slim: According to a report from an academic seminar on the theory and reality of educational equality in China, children from rural households are only one fourth as likely as children of urban workers to be accepted to a key national university, and have less than one thirtieth the chance of children of government and Party officials. Educational inequality passes poverty on through the generations.

Meanwhile, the state monopoly on banking results in guarantee requirements, borrowing costs and a lack of credit rating information that only large firms can overcome. SMEs, individuals and rural residents are left without credit and so many smaller firms collapse, jobs are lost, and individuals cannot start their own businesses. In the US and EU there are numerous smaller private banks, community credit cooperatives and loan companies lending to ordinary people – but in China a handful of state-owned banks ignore the poor in favour of state monopolies and multinationals. Businesses fail and vulnerable groups are denied the financial assistance they need to achieve a better life.

Ever-stronger state-owned monopolies crowd out private enterprise, which can only survive by offering low wages and benefits. This again harms the interests of urban workers and young migrants to the cities – the inheritors of poverty.

China’s finances are controlled by government and bureaucrats. Party cadres have the final say on government spending. This leads to huge waste on government wining and dining, official vehicles, travel within China and overseas, and the construction of government buildings – yet public service funding is barely adequate. Meanwhile taxation is levied mainly on businesses and the wages they pay – worsening the plight of small companies and poor families.

The social structure of rich northern countries can be described as bell-shaped – the bulk of the population is middle class, with small groups of the very rich or very poor. In China the picture looks more like a dumbbell – many people are either very rich or very poor. In particular workers and rural residents are vulnerable, with very low annual incomes. Unreasonable distribution of resources directly creates second-generation poverty.

China’s welfare system works on three levels, or classes. Cadres and civil servants enjoy the best treatment. Next are urban residents and company employees, many of whom face issues with unemployment or healthcare provision. The third class is rural residents, with medical care and pension provision only just getting started and currently at a very low level. Generational poverty will, I fear, just carry on.

But these are just the secondary causes of second-generation poverty. The most fundamental cause is that vulnerable groups lack the right to speak, to organize and to exercise oversight of government. We lack private publications – local officials control radio, TV and the new media to protect and add to their own interests. The voices of the poor, petitioners, the workers and the rural are not heard. Workers and rural residents lack a truly representative organization. They are therefore unable to negotiate on a level playing field with capital, and so wages and benefits stay low. There are severe restrictions on what farmers can do to market their products, so rural incomes remain low and quality and safety remain in question. Meanwhile, people’s representatives and officials who have not been appointed through genuine elections will not of their own accord represent the people’s interests. And so poverty will be passed on again and again through a vast and vulnerable population.

James Galbraith talks about Paul Krugman's NYT article, "How Did Economists Get It So Wrong?",  the academic discipline after the crash, the forgotten traditions in economics, the economics and law of fraud and much else over breakfast at the Goodenough Club

The philosopher Jan Patočka is something of a national hero in the Czech Republic, and deservedly so. A teacher of Vaclav Havel, he was, in addition to one of the most important Central-European thinkers of the twentieth century, a martyr to the struggle for freedom in the Czech Republic during Communist rule. In 1977, at the age of 70, he died from a brain haemorrhage after a prolonged police interrogation. The reason for this treatment at the hands of the authorities was that Patočka had signed what was known as Charta 77, a document, which called upon the Czechoslovakian government to uphold article seven of the 1975 Helsinki Accords, of which it was a signatory, and which demanded respect for human rights and fundamental freedoms, including the freedom of thought, conscience, and religion or belief. 

Darian Meacham is a lecturer in philosophy at the University of the West of England, Bristol, where he specializes in phenomenology and political philosophy. He is the author of several articles on Merleau-Ponty, Jan Patočka and political philosophy, and also blogs on Patočka and European politics at www.post-europe.org. Patočka's place in Czech and European history has to a large degree been made possible by the tireless and often courageous work of his former students in Prague. In the truest Socratic spirit of philosophy and science, which Patočka made the subject of so much of his reflection, they have worked hard to disseminate his work and ideas, first through illegal pamphlets (Samizdat), and then following the fall of communism in Eastern Europe, in European Universities and centres of intellectual life like Charles University in Prague and the Institution of Human Sciences (IWM) in Vienna, who host an annual Patočka lecture.

One of the most important themes of Patočka's later work was what he called "radical over-civilisation" (Nadcivilisace in Czech). In his posthumously published working notes, he succinctly defines this idea as the "clumping of all forms of life under the perilous form of industrial productivity".[i] What he meant by this was that in modern industrial society all forms of life and of thought were becoming increasingly valued only in accordance with a scale of efficiency determined by the model of industrial productivity. Patočka's concern was that this European principle of instrumental rationality had serious negative consequences for the possibility of carrying out intellectual inquiry and scientific research in Europe, to the extent that it threatened the spirit of scientific inquiry and philosophical introspection that he thought comprised the very essence of Europe, and its value and potential contribution to the world.    

So it seems appropriate to invoke Patočka's name and his legacy in a controversy over the funding of scientific research that is currently taking place in the Czech Republic. As the journal Nature recently reported:

"Scientists in the Czech Republic are up in arms over drastic changes in the national science-funding system that they say will damage basic research in the long term. Starting next year, core funding for Czech universities and research institutes will be allocated according to rigorous metrics. Institutes can obtain ‘points' for a variety of publications and for patents, but also for any software, methods, samples, prototype devices and ‘validated technologies' developed in-house. The government plan, drawn up over the past three years with the goal of increasing the efficiency of research and development, was approved by the Czech cabinet on 29 June. But critics say that the prescribed funding formula gives a grossly distorted picture of the real assets of Czech science, and threatens to destroy its best parts. Ill-defined criteria of ‘innovation' will downgrade the merit of detailed work on books and peer-reviewed papers, they argue, while rewarding impressive sounding concepts and rushed patent applications.[ii]  "

The Czech Academy of Sciences argues that the proposed changes will see its budget reduced by 20% in 2010 and up to 45% in future years. The Academy has set up an "emergency website" to inform people about the situation. At the heart of the "emergency" is the concern that these new criteria for research funding, and the impending cuts, will have a devastating impact on the level and quality of fundamental or basic research in the Czech Republic. Fundamental research in the sciences can be understood as research into the workings of the natural, physical, and cultural world that does not have an immediate application, either clinically, industrially, or socially (in terms of policy etc.). In other words, it falls foul of the principles of efficiency and productivity that Patočka warned were coming to dominate all aspects of European life. The understanding is that fundamental research provides the foundation upon which applied research can be carried out, and so is in fact absolutely essential to research that has clinical or industrial application.

The Czech government is not however on its own in downgrading the status of fundamental research and by doing so putting the applied research that relies upon it also at risk. It has for some time been European policy (on the level of the European commission) to privilege scientific research which is "relevant to the need of European industry", though the European Commission has also made commitments in the past to raising levels of support for basic research.[iii] There is indeed nothing wrong with wanting research to be relevant to industry, or perhaps more ideally, relevant to the concrete improvement of people's lives, but to demand that this be the first principle of scientific research puts the cart before the horse. This was indeed part of the "internal contradiction" of radical over-civilisation that Patočka warned of, and which he thought the European sciences and society as a whole were succumbing to. Patočka's name is often uttered in near hallowed tones in the Czech Republic, and his legacy is often invoked as part of the struggle for freedom in Central and Eastern Europe. Sadly, it seems that his lessons and warnings about the dangers to Europe posed by subsuming all thought under the dictates of industrial productivity are ignored by those who hail him as a national hero and a "European role model" par excellence.

Struggles over funding for scientific research may seem very removed from the everyday lives of most people, especially those suffering in some way or another from the fallout of the financial crisis, or struggling to make ends meet regardless of the current crisis. But Patočka's thought endeavoured to show that there was not a remove, that a world where the value of all things could be reduced to a measure of efficiency or industrial productivity was a world where human needs could be ignored. This is not at all to say that industrial productivity and efficiency are bad things. Only that they must be placed where they belong, behind concerns for human well-being. Fundamental scientific research has played an immensely important role in the improvement of our lives in Europe, both in terms of material gain and the freedoms and liberties that we enjoy in the social and political spheres. As Patočka told his students in the 50's, 60's and 70's, the task now lies with the citizens of Europe to reclaim Europe's scientific and rational legacy. One way that we can do so is by supporting the Czech scientists who are fighting for the future of research in their country.      

[i] Jan Patočka, L'Europe après l'Europe, translated from the Czech and German by Erika Abrams and Edited by Marc Crépon, Lagrasse: Éditions Verdier, 2007, p. 265

[ii] Nature, v. 460 (July 9, 2009), p. 157

[iii] cf., COMMUNICATION FROM THE COMMISSION EUROPE AND BASIC RESEARCH, Brussels, 14.1.2004 COM(2004) 9 final

If management rhetoric is anything to go by, the post-industrial workplace should be a pristine model of participative democracy. Strict, Taylorist routine has been out of favour, both economically and culturally, for well over thirty years now. It has been replaced by an emphasis on ‘teamwork', ‘the psychological contract', ‘dialogue' and ‘participation'.

William Davies is a Demos Associate and a Research Fellow at the Institute for Science, Innovation & Society, Said Business School. He blogs at potlatch.org.uk

Earlier this year, the UK's Department for Business, Innovation and Skills commissioned David MacLeod, a management guru, to carry out a review of ‘employee engagement' as a necessary factor in Britain's future prosperity. Again, the case for flatter, more interactive relationships was made.

But what does any of this have to do with democracy or dispersal of power? The republican agenda, advanced by theorists such as Stuart White, Quentin Skinner and Philip Pettit, stresses the need to tackle forms of domination and restraint on positive freedoms, in all facets of society. The workplace can not be exempt from this sort of political critique. And yet a common assumption about the status of firms in society suggests that they sit in a political vacuum, allowing their decisions and structures to be only evaluated in terms of economic efficiency.

The problem with the managerial ‘participation' rhetoric is that it only values human autonomy to the extent that it contributes to productivity and business performance. Hence a growing feeling of irony pervades our workplaces, as described eloquently in the sociology of Richard Sennett, and conveyed brilliantly in the BBC sit-com, The Office.

We no longer mean the words we speak to each other at work. The rhetoric of equality and power appears to exert no friction on the dominant, Anglo-Saxon capitalist model, in which management power is unchallenged, so long as value is constantly returned to external shareholders. Some recent studies have shown a gradual decline in the number of employees who feel they have considerable control over their work.

Electoral reform is back on the British political agenda, which is good. There are some important things that the British state simply cannot do properly under its present electoral system, and which it would stand a good chance of doing well under proportional representation.

The British state is very bad at providing for a workforce adequately skilled for the twenty-first century, establishing a pension system that doesn’t take your retirement funds for a flutter at the casino-on-Thames, or facing up to big environmental problems like climate change. You might be inclined to blame the current government for such problems, but you could equally well blame the previous one, or the one before that. If you look across the North Sea, you can find governments left and right - and, more to the point, coalition governments - in PR systems, that have done a much better job on such matters.

PR systems seldom produce one-party parliamentary majorities, and can look messy and unstable: governments ‘fall’, coalitions must be re-negotiated. The Westminster system, by contrast, almost always gives a single party a majority in parliament, and so produces governments which look strong and decisive. Yet Britain’s governments are incapable - constitutionally incapable - of making credible promises to future generations: anything today’s government does can be thrown out after the next election, on the whim of the leader who dominates a party that gets perhaps 40% of the popular vote. In those apparently messy, unstable PR systems on the Continent, policy reversals don’t come so easily: they require the consent of legislators representing a majority of the electorate; they can seldom be pushed through by a leader dominant within one party apparatus, because they must be negotiated between parties. For this reason PR governments can often make credible long-term commitments. The inability of UK governments to make such commitments takes a lot of policy options off the table.

For many Russians the dacha or country cottage is a very important part of life, but this too has been affected by the economic crisis according to statistics - or has it?

The long-running issue of Russia's entry to the World Trade Organisation may finally be coming to a head. Last month Putin declared that Russia would apply only as part of a customs union with Belarus and Kazakhstan. Then at the G8 Medvedev suggested Russia might still accede alone. This would be the right course of action, argues Natalya Volchkova. Putin's proposal is not remotely in Russia's interests

The Joseph Rowntree Foundation has updated its Minimum Income Standard report, first published last year. It provides a valuable insight into what British people consider to be a minimum tolerable, civilised standard of living, and what that might cost.

Thought for the Day, the homily slot on the BBC's main morning news radio program, used to play the really useful role of getting me out of bed when I was a university student. I had worked out that if I set the radio alarm to go off at quarter to eight and placed it out of my reach, then come 0750 I would be forced out of bed to turn the radio off.

I gradually became more used to it; it stopped working as a morning call to action, and slowly I began to enjoy it, although usually with remnants of the aversion to being preached to that has abated only slowly. There are occasionally some really thoughtful thoughts ---Mona Sidiqqi, for example, stands out. And sometimes, even when the thoughts are aggravating, they have pushed me to record a counter-thought (like here, on Catastrophes, or here on Exodus versus Odyssey).

This morning's thought by Dr Giles Fraser was particularly good --- maybe it struck me so because it resonates with what feels like a big thought that has been stalking me for a while about sameness and difference.

Fraser uses Jonathan Freedland's view that we have now seen the "human face of Iran", and, specifically, that the last 3 weeks of protest have developed in the West "a strong affinity" to Iranians in the streets to ask a big question about our common humaity. Does this "human face" do its work of transforming out attitudes because it emphasises the humanity that we commonly share (apparently Freedland's view)? or because it recognises the profound difference that unites us (Emanuel Levinas' view)? and does this foundational difference matter?

The thought that has been stalking me is that the distinction really does matter because within it lies a guide to how liberalism, in some of its recent incarnations, became so anti-pluralist. "Let the market solve it" is attractive if what we all share is the kind of thin nature assumed by modern economists; "let the tanks impose regime change, democracy and rule of law" is attractive if political value and social selves are given, invariant, and waiting only for an opportunity to be expressed.

More convincing, practically and philosophically, is that difference is irreducible and the starting point of our social selves. This makes the basic human impulse for politics that of hospitality rather than sympathy. If we base morality and politics in sympathy, then we will always be looking at ways of thowing away what really makes others others.We will think that conflict can be dissolved by easy universalism rather than real and respectful accommodation. 

I look forward to more on this during the conversation this evening between Susan Richards and Anatol Lieven around Susan's emergent recent history of ordinary Russians. It is the quality of difference, not sameness, that seems to permeate the extracts we have here on the site. 

Chris Giles and Simon Briscoe in the FT have a beautifully produced flash-data feature describing the state of the UK economy. Their basic message would not have sounded out of place in 1980: the state has become too large; taxpayers are unwilling to fund it; public spending will have to give.

But their message is too crude for their graphics. We now understand better than we have for 50 years what the "mixed economy" really is: it is a mixture of centralised and decentralised decision-making processes with all the fundamental parameters of markets relying on explicit or implicit social choices. The financial sector has effectively been socialised in "capitalism" ever since the lender of last resort interventions of central banks became the norm (1825); technology has been set by the social choices of the strength of patent protection; basic R&D occurs mostly in non-market institutions; entertainment economics has been underpinned by access to scarce broadcast media, content-related law, and copyright; land-use and house prices have been determined by planning politics; agriculture has been socialised ... The list goes on.

The truth of the mixed economy is not that it is a little bit pure capitalism and a little bit pure socialism. It is that the significant, parameter-setting choices are all made socially and varying usage is made of decentralised decision procedures thereafter.

An OurKingdom conversation. [History: Thomas Ash > David Marquand > Thomas Ash > George Gabriel > Thomas Ash > George Gabriel > Thomas Ash > this post]

All ideologies offer conceptions of a person upon which their social vision is constructed. For neo-liberalism this is that of the “rationally self-interested” individual, a being solely concerned with its own self-interest and to be judged “rational” according to the efficacy with which that interest is pursued. Power and self-interest, a nihilistic nightmare.

In his latest post Thomas Ash suggests that “rational man” is a mere “simplifying assumption” which predicts our actions with a relative degree of accuracy and which neo-liberals need not insist captures all the motivations that move us. Likewise we can be comforted that such a philosophy extends only to certain domains of our behaviour, not on the politics of offering one’s seat.

This mushy Jekyll and Hyde human being, free from self-interest in certain concerns and moderately guided by it in others provides no individual ethic whatsoever. Neo-liberalism, as envisioned by Thomas on an individual level issues no directives except for those demanded by the legally constituted neo-liberal system. It is from this lack of something to say presumably that neo-liberal claims to be somehow “realistic” derive.

We have seen the dangers of a macro social vision that provide no individual ethical imperatives before. Historically determinist Marxism stripped values in the name of inevitability and thereby commended only an ethic of acceleration, it was this that Camus observed to lead to “Slave camps under the flag of freedom, massacres justified by philanthropy”. Thomas suggests that neo-liberalism is not necessarily committed to an “egoistic code of ethics”, but if this leads to a vacuous “realistic” conception of personhood the consequences are equally to be feared - the absence of an individual ethic within an ideology is as dangerous as its presence, it’s just that the latter holds the promise of a better future too.

An OurKingdom conversation. [History: Thomas Ash > David Marquand > Thomas Ash > George Gabriel > Thomas Ash > George Gabriel > this post > George Gabriel]

George Gabriel is targetting "neo-liberalism as an individual code of ethics"; effectively, one of egoism. I doubt that any of neo-liberalism's defenders have ever understood it as such; most commonly, they advocate a set of policies on the grounds that they will promote some value, be it individual freedom or an increase in welfare supposedly brought about by more efficient markets. True, as George points out, they have often modelled individual economic choices as self-interested in the course of arguing that their policies will best promote these values. But for this purpose it functions only as a simplifying assumption, which needs only predict a subset of our choices (not extending to many moral ones, such as whether to offer bus seats to frail old gents, which have little impact on the efficiency of markets) with a rough degree of accuracy. The neo-liberals are commited to its doing so does not mean that they are commited to its capturing all the motives behind human behaviour, let alone to adopting self-interest as their only motive.

If neo-liberals are not commited to an egoistic code of ethics, what about bankers? The bulk of George's commentary concerns them, after all, and they are  a quite distinct group, not all possessing neo-liberal opinions about public policy (or any opinions about public policy at all). In the comment thread on his initial post, George claims that their actions show that they live by this code in practice, if not necessarily in theory. I would be surprised if most bankers' lives did contain some altruistic acts which belied this claim, but perhaps George was concerned only with their work lives. However, I struggle to see what they do in this that reflects a concern with self-interest to the exclusion of any other value. George talks of those who "short sell a productive company into oblivion, reap obscene payments for failure, and gamble the money of others". It is only possible to do the first in a highly unusual situation in which a company's survival depends on its stock price - generally a sign that it is not a succesful, productive company. The second does no harm to anyone else, and hence it shows a concern with select-interest, but not to the exclusion of any other value. And it was ultimately the bank bosses' decisions while led to investors' money being put at such risk - some of them (like Jimmy Cayne of Bear Sterns) supposedly did not understand this, and the decision was evidently against their self-interest.

An OurKingdom conversation. [History: Thomas Ash > David Marquand > Thomas Ash > George Gabriel > Thomas Ash > this post > Thomas Ash > George Gabriel]

In our ongoing exchange concerning the nihilistic implications of neo-liberalism, Thomas Ash challenges my suggestion that “the congregation believes in neo-liberalism as a social vision”. Is it true that anger from the bailout is because public money was used to compensate private liability or is it, as Thomas puts it, because it was “our money”?

The question is however too simplistic. People’s social visions are normally not highly defined, signposted, or even coherent. My own contains as many contradictions as opinions, despite the ongoing struggle for consistency. The point is that the neo-liberal social perspective informs individuals’ social visions. Neo-liberalism espouses a pure cause and effect individualist paradigm of responsibility; quite simply “I am responsible for what I do freely”. A public bailout to privately incurred risk is a clear violation of this ethic. So though few define themselves as neo-liberals many continue to be profoundly defined by elements of this neo-liberal social vision.

Thomas rightly observes that the logic of the market is not itself nihilistic, nor is contractualism for that matter. But this is a part of what I described as the “social vision”. Neo-liberalism as an individual code of ethics is stridently nihilistic. Why? Because of its utter subservience to the concept of “rational self interest” – the cornerstone of most contemporary microeconomic analysis, the justification of a hyper-individualist money-obsessed life, and at the same time the death of values.

An OurKingdom conversation. [History: Thomas Ash > David Marquand > Thomas Ash > George Gabriel > this post > George Gabriel > Thomas Ash > George Gabriel]

I want to make a few points about attitudes to competive markets in response to George Gabriel's post on 'neo-liberal nihilism' below.

The first concerns public attitudes to them. George describes me as saying that public anger at bankers stemmed from violations of free market norms, but it's important to read this the right way. I claimed that the anger stemmed from taxpayer bailouts. These are violations of free market norms, but that fact was not the main cause of the anger.  After all, it's not clear that most people care about these norms in general - though open to correction on this point, I'm not aware of evidence that they dislike subsidies for agriculture or car-makers, as they would if they were convinced free-marketeers.

Instead, it seemed that the main cause of public anger was public money being used for pay for bankers' compensation. A sense that this was against the rules of the neo-liberal game we'd been playing (to bankers' benefit) - because, as George says, after privatising profit it socialised risk - may have played a small part. But if so it was small indeed compared to the simple fact that it was our money being used. (Contrary to what many on the left now claim, I doubt that the average taxpayer objects to excessive salaries if they come out of banks' own money, and employers are left to pick up the tab if they prove to have catastrophically over-estimated their employee's financial value.)

So I question George's claim that "the congregation believes in neo-liberalism as a social vision, that fair and free competition will allow those who deserve it to advance in the market in the pursuit of happiness by the sweat of their brows." Even some of neo-liberalism's defenders reject the second half of that claim, if it's read to imply that all the 'deserving' (presumably those who are talented, hard-working and so on) will succeed.

Now, move on to George's own attitude to competitive markets, which I sense many on the left now share.

Although the price of oil is rising, the outlook for the Russian economy remains uncertain. Official statistics suggest that one in seven of the workforce could be unemployed by the end of the year, warns Andrei Zaostrovstev

The Association of Train Operating Companies tells us that there is a case for re-opening 40 stations and 14 lines that were closed after the Beeching report of 1967. A moment for environmentally concerned rail-lovers to rejoice, surely? After all, rail is, according to David MacKay's numbers, by far the most efficient form of fast land transport:

Actually, he has a full electric train as being about as energy efficient as walking. Only cycling beats the energy efficiency---at about a tenth of the speed.

The Latvian national currency, the lats, has become one of the most expensive currencies in the world. And that despite the fact that the country is on the verge of bankruptcy and may find itself unable to fulfil its internal obligations, never mind the foreign ones. With an increasing intensity, economists from New York to Barcelona have been saying that Latvia should opt for currency devaluation to aid the crippled economy. But in the country itself, the topic of devaluation is being consistently, or some may even say, stubbornly, ignored.  

The Lats has been pegged to euro since 1 January, 2005 at the rate of 1 euro = 0,702804 lats with +1% fluctuation. Many international economists (Edward Hugh and Nouriel Roubini, among others) and some local ones, point out that the zealous, regardless-of-the-costs policy of keeping the peg is becoming too costly for the already weakened Latvian economy. But Ilmars Rimsevics, the governor of the Bank of Latvia, remains steadfastly determined to pursue it. He is convinced that the policy remains the right one and dismisses critical remarks as "irrational, irresponsible and silly." His main argument in favour of keeping the value of lats untouched is that 82% of the 16.4 billion lats worth of loans in Latvia have been issued in euros. Should the lats devalue, the borrowers, he argues, will have trouble paying back their loans.

It is worth noting that the aforementioned ‘trouble' would also affect Rimsevics himself, because last year, at the height of the real estate market, he bought a flat and land for 750 000 euros. What the governor fails to acknowledge is the fact that some Latvian people will experience, if are not already experiencing, problems with their mortgage payments because of the massive layoffs and pay cuts for government employees, reaching, in some cases, 30% of their pre-crisis salary. With Latvian economy shrinking by 18% in the first quarter of 2009, similar cost-cutting is inevitable in the private sector, too.

The management of the Bank of Latvia is becoming lonelier by day in its desire to preserve the lats but is not losing its resolve to ignore other arguments, presented both by local and foreign economists. One can spot some signs of mounting pressure in Rimsevics' rhetoric. More and more frequently, he appears to be losing his nerve and calls those suggesting devaluation ‘pseudo-economists', even if the ranks of his opponents include such stellar names as Roubini.

So far, business leaders have not been forthcoming with their opinion on the issue. They are the ones to whom the government pins its hopes in filling state coffers with much-needed cash, but they may have a hard time delivering it as they are rapidly losing market, both at home and abroad. On the one hand, business leaders admit that devaluation would serve as an additional boost for their business, on the other, they are trying to find arguments in favour of keeping the peg intact. In fact the economy has become a hostage to the euro-borrowers who chose this currency over the lats because loans in the national currency simply were, and still are, too expensive. The base lending rate for the lats, set by the Bank of Latvia, is 5%.

A forbidden topic

For many years, the topic of devaluation of lats has been a ‘holy cow', something not to be disturbed. In 2007, Latvia started experiencing high inflation, which rapidly reached double digits, and the competitiveness of Latvian businesses suffered. In February 2007, the first voice in favour of using devaluation as a mechanism for restoring it was raised. It was Morten Hansen, head of the Economics Department of the Stockholm School of Economics in Riga. The official response was quick and strong: the economist was accused of incompetence. Later the same year, another Latvian economist, Alfs Vanags of the Baltic International Centre for Economic Policy Studies, suggested the same. And he, too, was told to mind his own business and focus on the issue of raising productivity instead.

The lats survived the first wave of growing inflation, which started in early 2007 and reached its peak in May, 2008 hitting a record, 17.9%. However, with problems in the economy mounting, the discussion on devaluation sparked again with a renewed passion. Those who initiated the discussion were, once again, accused of ‘spreading rumours' and ‘feeding the panic' over the stability of lats. The official response to the renewed debate brought back memories of the USSR: in December, 2007 the Latvian parliament passed amendments to the Criminal Law introducing a new section, Dissemination of Untrue Data or Information regarding the Condition of the Finance System of the Republic of Latvia. According to the new law, a person "who commits knowingly the dissemination of untrue data or information orally, written or in other ways regarding the condition of the finance system of the Republic of Latvia" can be sentenced to up to two years in prison, community service, or a fine of a maximum eighty minimum wages. Citing the new law, the Latvian Security Police last autumn arrested Dmitrijs Smirnovs, lecturer at the Ventspils University College, who had expressed his opinion on the future development of Latvian economy, banking system and lending institutions in a round table discussion published by the local paper Ventas Balss.  Musician Valters Fridenbergs also ended up in handcuffs after encouraging the audience to listen the concert till the end "before rushing off to the nearest ATM."  These arrests sparked a discussion as to the proportionality of the police's response and the word ‘devaluation' in people's conversations was jokingly replaced by the term ‘the D word'.

Section 194 of the Criminal Law is still in force and therefore anyone who dares start a discussion on the current state of Latvian economy and the ways of dealing with the crisis may end up on the Security Police's black list. The government and central bank officials claim that any mention of possible devaluation in mass media adds to the run on the lats.

Economists press on

Latvian government has decided to protect the lats and instead is implementing income devaluation through pay cuts. The ‘no devaluation' option was agreed with the international lenders and both the IMF and the European Commission have recently confirmed that the euro-peg is an "anchor of stability" in Latvia. "Given that we have chosen the policy of cutting costs and income we have to continue pursuing it. It is not sensible to hop back and forth between two different solutions," says investment banker Girts Rungainis.

However, an ever-growing number of economists are saying that, apparently, propping the national currency is becoming too-expensive an affair for Latvia (so, the legal implications of discussing devaluation have not stopped the debate). Although a coordinated wage cut could in theory approximate the effects of a devaluation, it is extraordinarli difficult to achieve, and will in any case have different impacts on borrowers and lenders.

Spokesman of the Bank of Latvia Martins Gravitis dismisses the arguments of devaluation supporters as ‘laughable'. Despite the results of a recent survey by the leading daily Diena, which showed that nearly half of the population would like to hear a ‘serious discussion' on the subject of devaluation, paternalist attitudes still prevail in official circles. ‘The people' are perceived as ones who do not understand the issue and a public discussion on such matters is therefore unnecessary and potentially harmful as it would lead to further destabilization. Another popular official line is that the experience of other countries that have gone through similar crises is irrelevant in Latvia. It seems that the ranks of those who "do not understand" include the undesirable economists, in other words, those who argue in favour of devaluation. If ‘the D word' is discussed by officials at all, it happens behind closed doors in the government meeting rooms to which the devaluation advocates have no access.

"Rimsevics [the governor of the bank of Latvia] believes that he is the only one who can speak on the subject of devaluation competently. It seems that he no longer sees any options for backing away. He is experiencing psychological problems. People are just being told, in a mantra-like manner, that devaluation will be a great calamity," says Janis Ogsts, who has worked as the senior broker for Swedbank and is now one of the economists discussing the issue of devaluation in his blog. He believes that, thanks to the internet, the discussion has spilled into the "real life" and is convinced that devaluation is an issue of "when" rather than "if". The stubbornness of state officials is going to cost Latvian economy dearly, he says.

The fact that officials are reluctant to listen to expert advice is obvious to Uldis Osis, an economist, business consultant and the first finance minister of independent Latvia. He says: "everybody is talking about devaluation of the lats, except for the government and the central bank, which has declared that in no case it will devalue."He points out that, in the name of the stability of lats, businessmen are losing market and are forced to close factories and let off workers thereby increasing the army of unemployed. Besides, suffering goes beyond the remaining exporters for whom the expensive currency means shrinking export markets. Those businessmen who are working locally are affected too, because they are unable to compete with imported goods that come from the countries whose currencies have recently fallen in value, such as Poland.

Last week, not a single day passed without Latvia's name being mentioned in the international press. Columnists and bloggers, The Financial Times and The Times, Latvia Economy Watch and A Fistful of Euros, all have been talking about the "when" of devaluation and the cost of postponing it. As Copenhagen-based macroeconomist Claus Vistesen points out, "this is called a market discourse and although the commitment to maintain status quo may be there one cannot make the waters go back." The Bank of Latvia may continue chanting the mantra, "we will not devalue, we will not devalue", but it may find itself in a position that will contradict this song.

The worst is yet to come

The survey by one of the biggest banks in Latvia, DnB Nord shows that, in April, optimism among the general population started growing. 15% believe that, in a year's time, the situation will be better. But a 2% monthly increase of optimism is more likely to be related to the beginning of spring (which is always a welcome change in this northern country where winter temperatures may reach minus 20 degrees Celsius) rather than to a real improvement. Besides, both economists and government officials are convinced that the hardest time is yet to come. In the autumn this year, the situation could even turn critical because many people will simply run out of money.

By early May, the unemployment rate had already reached 11%. However, the social support system has not been amended, which means that only those who have been paying social tax for 20 years are eligible for a 9-month unemployment benefit. If the period of social payment is lower, 10 to 19 years, then the benefit expires after 6 months. And those whose official working life is shorter than 10 years can only hope to receive support for 4 months. Employment experts estimates show that currently about a half of the 50 000 unemployed are not receiving any benefits. In the autumn, the numbers are very likely to go up whilst the funds available for social needs will continue shrinking.

The new Latvian prime minister, Valdis Dombrovskis, who came to power in March following the fall of the previous government, has repeatedly stressed: if the country fails to receive international help then in July or, possibly, even June Latvia may face default, in other words, it will be unable to fulfil its international obligations and will not have money for paying public servants and other state employees. Ivars Ijabs, a prominent Latvian political scientist, has even argued that the country is rapidly approaching the classic definition of a failed state.

Late last year, the IMF and the European Commission agreed to lend Latvia 7.5 billion euros over the period of three years. However, after the first payment of 1.6 billion, further funding stopped. In March, the 200 million euros due from the IMF did not arrive and it is not clear whether the June payment will come either. International lenders are waiting for the structural reforms that were promised but never implemented.

The latest statistics on the Latvian economy, published by the Latvian Statistics office in early May, were shocking even by the global downturn standards. In the first quarter of 2009, Latvian GDP had shrunk by 18%. Economy minister Artis Kampars has admitted that the cost-cutting measures will likely have to be even harsher than previously expected and new ways of stimulating economy will have to be found to stop the freefall. But does that mean that the government is ready to talk to experts, initiate the discussion people are so eager to hear and start acting decisively? So far, there is very little to suggest that this is the case. Last week, prime minister Dombrovkis pledged to push through budget cuts and ensure the inflow of loan payments. "These rumors and speculations [about devaluation of the lats] should finally be stopped," Dombrovskis said in an interview to a Latvian TV station. „The currency will not be devalued!" We will not devalue, we will not devalue. And we will not talk about it either. Not yet.

Latvia’s financial meltdown raises questions of a neighbour: are you more regional power or friendly partner? Mats Engström, in Riga, reports.

A crisis in the US real economy marked by growing unemployment and failing businesses is not a product of the current financial crisis. In fact, the financial crisis was but a symptom of a long brewing systemic crisis in the real economy. These claims are made separately by economists Richard Wollf (Univ. of Massachussetts, Amherst) and Ravi Batra (Southern Methodist University, Dallas). They propose an alternative diagnosis of the current economic crisis. If their analysis is correct, fixing the financial system might just deal with one of the symptoms but not the root cause of a deeper economic malaise. Given the amount of public money being thrown at fighting the economic downturn, it is crucial to consider alternative explanations of current economic problems in order to devise strategies that make the best use of scarce resources.

Housing Bubble
The most widely accepted diagnosis of the current financial and economic crisis is that it started with the housing bubble in the US. This in turn resulted from irresponsible sub-prime mortgage lending coupled with unregulated and reckless financial engineering. When the housing bubble burst, banks found themselves holding heaps of unsecured debts packaged into complex financial products that could no longer find new buyers. Financial institutions suspected each other to be in a precarious financial position similar to their own and inter-bank lending came to a halt. Several of these institutions went bankrupt or would have gone down that route if public money ($2.98 trillion at last count) had not bailed them out.

Wage-Productivity Gap
Wollf and Batra do not deny the role of housing bubble and financial malpractices in triggering the financial collapse. What they seem to suggest is that there is a need to explore the chain of causation further. Doing so in their analysis reveals that a wage-productivity gap since the last three decades in the US created a systemic imbalance between aggregate demand and aggregate supply in the economy. Since the early 1970s wages of employees in the US have not risen at the same rate as their productivity (output per hour). In fact, real wages of roughly 80% of the US workforce have been stagnating for more than three decades. On the other hand, productivity has been increasing rapidly due to technological innovation and improvement in human skill levels. Now, wages are a key lever for creating demand in the economy whereas productivity drives the increase in supply. In other words, workers' wages need to increase in order to absorb the increase in supply of goods that results from increased productivity. Yet, the wage-productivity gap has now existed for nearly 35 years.

The consequence of this imbalance is that demand for goods and services required to keep up with supply is created in the short term by creating new debt. The housing bubble was a product of this demand-supply disequilibrium. Since real wages are not rising in step with productivity, people could only consume the increased supply of goods and services by taking help of cheap and easy credit. But after the housing bubble burst, credit is no longer easily available and levels of debt have been exposed to be unsustainable. Businesses realize that their goods will not be sold, profits will decline and they are laying off employees and in many cases closing shop. Due to the wage-productivity gap, this economic decline may have happened even in the absence of a mortgage driven financial crisis. Then again, the housing bubble may have simply postponed the real economy crisis that was imminent, and in the process exacerbated the systemic tensions between demand and supply in the economy.

Where did the profits go?
So why have wages not kept step with productivity despite a "golden era of profitability"? Where have the profits from the productivity growth gone? A paper by Gordon and Dew-Becker, economists from Northwestern University, found "that over the entire period 1966-2001, as well as over 1997-2001, only the top 10 percent of the income distribution enjoyed a growth rate of real wage and salary income equal to or above the average rate of economy-wide productivity growth...[whereas] the bottom 90 percent of the income distribution fell behind or even were left out of the productivity gains entirely" (italics in original). Additionally, the wage share of national income is declining in the US, while the share going to corporate profits has increased from 17.7% in 2000 to 20.9% in 2005. The European Trade Union Congress complains of a widening wage-productivity gap in the eurozone as well.

It appears that "the killing fields of inequality" (as Göran Therborn puts it in his recent piece) and the relentless pursuit of profits by many businesses are critically undermining the primary source of demand in the economy - its workers' wages. As more people lose their jobs in the recession, there is further downward pressure on consumer demand. Making credit available to businesses alone is not likely to reverse the unemployment trend since businesses will invest only when they have confidence in potential returns on their investment. Lack of demand for goods and services in the economy, however, does not give that confidence. It is a vicious cycle but one that can be broken by restructuring the economic system to distribute the wealth more equitably. And unless this fundamental factor is addressed, according to Wollf and Batra, it is hard to see a long term economic recovery.

Barclays Bank and BP have both announced the closure of their final salary pension schemes. Beyond the financial arguments, this highlights the decline of the workplace as a source of social cohesion and solidarity.

"Today" featured an item today about whether we should know the salaries of top BBC radio presenters (as if queued by Anthony's reply to my post about their lazy journalism yesterday). The National Audit Office had asked for the information, but had not been able to sign the confidentiality agreement that the BBC needed to have in order to protect its contract with employees. That sounds like a plausible excuse --- if I were embarrassed by the amount I had been able to negotiate for myself, and even more if I thought that it might reduce my credibility in my job, I would certainly negotiate a clause in my contract making the pay confidential.

The real question --- and one which Humphreys avoided in his faux-probing of Jeremy Peat, Trustee of the  BBC --- is whether the BBC should sign such contracts. Morning radio shows are today's equivalent of a church service---they prepare millions of minds for the day ahead; they are the daily cult that makes up our culture. It is crucial that the priests of the cult be exemplary. This was the great discovery of the 10th century West European movement of monastic reform: you can only claim authority if you are seen to be beyond reproach. In the 10th century, this meant re-establishing the chastity of the monks (... yes ... they had given it up; poverty had to be re-established later as a sign of authority---the fabulous wealth of the monasteries was not at that time anticipated).But if the Church was going to legitimate the rule of monarchs as representatives of Christ on earth, they had better come across as credible authorities on the subject.

I don't want chaste or poor priest/presenters on my morning radio. But what the monastic reformers got right is that whatever the standard of legitimacy it is that you champion, those in ritualistic charge of the system must adhere to it. Journalism lives under the standard of transparency and accountability, and it cannot afford to itself be opaque. It will lose its ability to probe if it is.

There was a fascinating demonstration of this in the morning interview: Edward Leigh, the MP who is chair of the select committe that was looking into BBC Radio's performance, turned the tables  on Humphreys as I have nver heard before. Listen to the clip: at minute 1:48, after the usual priest-to-victim grilling, Leigh says: "the taxpayer pays a polltax for the BBC, and has a right to know. How much do you earn, John?" Humphreys is stumped. He doesn't want to break rank, he stumbles, he blames the men in suits. The high sacrificer has turned sacrificial victim. At minute 1:48, the logic of accountability---one that MPs have been thinking a bit about these days---is confronted to the logic of the Corporation's interest. Not only is accountability the clear winner, John Humphreys clearly knows it. When he asks for a justification from his trustee, Jeremy Peat answers that "the BBC is not like any other public body. It is established by Royal Charter." 

Well ... the aura of monarchy may not extend so far these days as to keep the BBC closed. What I really look forward to is not so much knowing the salaries --- though I expect that will reduce the bill to taxpayers, not increase it --- I look forward to having transparency in the news-making, and in particular to reducing the power of public relations in our public realm.

When Michale Buerk went onto the Today program today to announce this evening's Moral Maze about the crisis of trust and authority, he signed off with a little insider joke: "It's not just MP's, it's judges, churches, doctors ... who is left that people can trust? Just journalists and broadcasters..." There was a satisfied chortle from Humphreys. Not the laugh of the joshing that Today encourages when it is Melvyn Bragg making a joke about Humphreys' age. No. It was the embarrassed chortle of someone who is trying to hide the satisfaction of believing this was true but should not be said too loud. "We know "Today" is a rock of truth and trustworthiness" whispered the chortle. 

And yet, just a few minutes before, we had had someone from the Institute of Mechanical Engineers talking about combined heat and power - the practice of taking waste heat from power stations to heat houses and supply hot water. Innocent enough, it seems. And trustworthy. Yet there was no probing questioning. A small amount of research would have revealed David MacKay's fascinating argument for heat pumps and against combined heat an power.

So was this piece just lazy journalism? No doubt a Public Relations company approached Today with a ready-made story that didn't seem as if it would cause too much of a fuss and filled the difficult slot of 0650-0653 when politicians have gone to ground. But do we want to be paying a license fee to maintain a Public Relations channel open for whatever lobby group happens to strike the audience equivalent of a small win on the national lottery? Who was behind the story? Where were the engineering firms that supply combined heat and power plant? And how many stories, like this one, are lazy and questionable plugs?

The wind of mis-trust is blowing hard, and the national treasures on the BBC should not confidently chortle as they think of themselves as the rocks in the system while all other sources of confidence fall away.

We will soon, I hope, be asking the BBC to tell us how stories have come to them. We will want to know whether we would believe a story less if we understood its provenance. And we will be shocked to discover how much news that is presented as trustworthy becomes questionable when examined closely. And, in so far as we become more responsible for our own judgements,  that will be a good thing.

May 31st 2009. Join the Group Read. Chapter 22. Can we be more efficient users of electricity?

(Instructions on how to join are at the bottom of the original post)

Evolved biases that made sense long ago now threaten to make us wilfully ignorant of real threat. Environmentalists must try to work with human psychology in making and "selling" policy.

I agree with David Purdy that the real issues that we need to collectively deal with today are the economic and environmental crises. But the character of these big issues is such that we won't get the right sort of solution to them from a Parliament that demonstrates the attitude we have seen towards problems of social choice.

Think about the deep nature of the big crises. The economic crisis was the end and failure of "gentlemanly capitalism"---a system by which agents (bankers) were assumed to be the trustworthy delegates of pension fund beneficiaries, shareholders, etc. But they weren't trustworthy, and ultimately they took down the financial system and the world economy with them. Rebuilding a way of allocating capital is an important political task today. But wouldn't we expect a group---our MPs---who have abused their own institutional position in such an analogous way, to be rather blind to the deep causes of the financial problem?

Similarly with climate change. Despite widespread recognition of the dangers of climate change and the sorts of action we need to take to counter it, there is a sense that collectively we continue to "fiddle our expense account with nature." Everyone's doing it, so no one's responsible ... We haven't been caught yet, so why not continue ... We're not bad, carbonophagy just creeps up on us ... We will have to change our systemic dishonesty to nature and to the future if we are to reduce our carbon emissions. But how can a group that has become institutionalised into a culture of "getting away with whatever you can" really change our political decision-making to tackle a problem which requires us to abandon exactly that thinking.

The way these bigger issues are dealt with will reflect the institutions through which our collective wills are exercised. And the nature of the issues suggest that Parliament as it now stands will not generate the right kind of understanding of the world to solve these bigger issues.

May 10th 2009. Join the Group Read. Chapter 21. Efficient Heating

(Instructions on how to join are at the bottom of the original post)

There are three strategies for reducing the carbon footprint of keeping warm: reduce the temperature difference between the inside and outside; reduce heat losses from inside to outside and increase the efficiency with which energy is transformed into heat.

The first two seem obvious and cheap solutions. We hear a lot about "nudging" as a policy, and this seems an ideal area for clever devices to make people aware that they could be heating less and leaking less heat. David does not mention my own favourite long term solution here---a widespread move to small exoskeletons as a substitute to housing: we should be able to walk around with our temperature control close to our bodies and our living spaces open to the elements.

David makes a powerful argument for heat pumps rather than Combined-Heat-and-Power plants, and slips in a big fault-line in eco-politics versus eco-engineering: energy transformation efficiency tends to rise as scale rises, whereas green politics loves to decentralise and make solutions small and local.

This chapter is full of low-ish tech, labor-intensive investments that make energy-efficiency sense today. This is just what government policy should be stimulating our economies with today.

Royal Bank of Scotland’s first quarter loss of £44m masks increased recession-related loss provisions, and includes significant revenues from the bank’s investment banking arm. It includes £1bn of accounting profit relating to the depreciation of the group’s own debt. 

Much of RBS’s increased revenue comes from continued derivatives trading, no doubt taking advantage of the unprecedented opportunities presented by international government support for the banking sector itself and central bank activity in the bond markets. 

The British Government proclaimed a return to sound banking, but it has washed its hands of any substantive involvement in deciding what the banks do. Instead, it and the taxpayer are busy funding a derivatives business.

So the hedgies are about to pack their bags and go to Geneva? Maybe we should give them a hand.

Let's grant that hedge funds do some useful global capital allocation work. Their work is essentially global, so in terms of  usefulness, it doesn't really matter where they are located.

But Britain seems to me to be particularly ill-equipped to welcome the industry. There are two political preconditions to being global money manager, neither of which exists here.

BBC Radio 4 carried a piece on 3 May covering Berkshire Hathaway's annual shareholder jamboree in Omaha, NE. It included an interesting interview with the sage himself, Warren Buffet. He is clearly a likeable, intelligent, and conscientious man whom one should respect. Inevitably, he was asked about the financial crisis and his view of the prospects. He was wise enough to say that neither he nor anyone else could predict when or by how much the economy might start to grow again. But he expressed two sentiments - and I think they are sentiments - about capitalism, specifically free-market capitalism, that are often heard and rarely challenged. They are these: (1) capitalism has provided a tremendous increase in living standards since WW2; and (2) the capitalist system will move forward into a new phase of growth.

There is no available proof or disproof for statement (1). Had some clearly different system whose aim was also to increase wealth done better or worse, we might be in a position to judge. The disaster of communism is no evidence that capitalism did this, because communism was not primarily intended to increase wealth measured with money. We don't know whether capitalism did a good job but believe it did for the simple, circular reason that that's what capitalism is for. We should also ask how far the enrichment of the US and Europe might have been at the expense of other people in the world and of the world's own natural resources. It is not self-evident that the solution to world poverty and inequality is capitalism in more countries and more capitalism in one country. I don't know that the statement is false, only that it is an article of faith rather than demonstration.

Statement (2) is more interesting. It offers a notion of progress, a hope that the future will be better than the past. Visions of a brighter future, particularly as a relief from present misery, are common to many ideologies and religions and this may be such a statement of faith. But if it's really a statement about the economic system as such, a prediction of long-run growth, then (a) it contradicts the (true) statement that economic outcomes are not predictable; (b) it expresses the political position that forever increasing wealth is the right objective for society; (c) it says that the human and social costs of the downturn - which must be ascribed to capitalism if the upturn is - are worth paying, so instrumentalising people; and finally (d) by reifying capitalism, it reinforces the idea that the capitalist market is objectively given. It also, of course, ignores what happens to those outside the charmed circle.

The need to question what we really mean by and want from capitalism is far from new, but it has certainly been put into sharper focus by the current economic troubles. Capitalism is part of the political system and can be changed. But that means the politics have to change too.

John Authers starts this otherwise disappointingly fluffy Long View video interview with Andrew Lo with these fascinating charts.

The top chart shows that it was getting tougher being a hedgie between 1998 and 2007. Whereas in early years you really could point to extraordinary returns, these were clearly getting harder to generate. Competition and arbitrage wasn't completely ineffective, we presume.

But the bottom chart shows what the hedgies did: they took on more and more leverage. That is, for a given amount of capital they were given to play with, theyborrowed more and more. In 1998, a hedge fund with $100m to gamble would borrow  $200m from the bank and gamble with $300m. The same $100m capital in 2007 was translated into a $1bn to gamble with. Returns fell about five-fold and leverage increased about five-fold ... making for a remarkable constancy in the take home $s of the hedgy.

Here is a plausible behavioural hypothesis. A whole lot of no longer so young men congregated on the big financial centers in the late 90s with the attitude of "we're here to dig for gold; the world owes us a pile of cash; now we just need to go about satisficing our modest goal."

May 4th 2009. Join the Group Read. Chapter 20. Transport

(Instructions on how to join are at the bottom of the original post)

David MacKay comes down softly on the car---which shows great realism---and finds that electrification is the only real solution there. He debunks hydrogen as a good energy carrier. Flying is a really tough case---there is not much that can be done to reduce its energy intensity. (I was sitting in an easyjet plane the other day that tried to convince me of its greenery by saying: "Flying contributes less CO2 than driving to the atmosphere" ...). Batteries are the way to go---though just wait for the peak lithium scares.

David has an interesting aside on nuclear ships. If we could make the (political) world safe for small-scale nuclear power, maybe there's more than ships that could benefit.

The Mail has this interesting story about a tax proposal hatched somewhere between Andy Burnham's DMCS and Mandelson's BERR to tax internet advertising to fund the BBC. I don't like the idea of shovelling more money at the BBC---I think there are lots of others providing public service content who need support (like us! Donate Here!)---but I like the idea of an online advertising tax.

Taxes are basically a good thing when you put a cost on something that needs some degree of discouragement. This is why a carbon tax would be good. Advertising---and especially online advertising---falls into that category. Every time an advertisment mis-sells a product, it should be counted as a pure social cost. Moreover, in a world of internet search, I do not believe that someone who is actively searching for a product actually needs advertising---searching does the job if you know what you're looking for. And if you end up buying when you don't know what you're looking for, I think that the likelihood of a mis-sell---of buying something which does not corespond to your considered desire---is very high.

That suggests that online advertising, which has a high private pay-off to the advertiser, also has a high externality, or social cost.

So, Mandelson: yes, go ahead and tax online advertising; but Burnham, please sort out a way to support non-BBC public service providers.

John Kay has a telling of Labour's economic record that I think is wrong -- he thinks there was "good Blairism" that sought to increase public provision without centralising decision-making and "bad Brownism" that sought to increase public spending and central control.

He writes:

"When Labour came to power in 1997, dissatisfaction with publics ervices such as health, education and transport was widespread, and justified. For two decades not enough money had been spent, particularly on capital projects. This underspending had contributed to weak and demoralised management, reservations about which led to a fear that simply allocating more cash would provide poor value for money.

There were two possible directions of reform. One – it might be described as Blairite – decentralised management authority and financial responsibility. The other – it might be described as Brownian – tightened centralised control and imposed performance targets on managers, with associated sticks and carrots. Both approaches were pursued, inconsistently, but overall with more Brown than Blair. When, by 2000, there was little to show in the way of beneficial results, the decision was made to spend lots more anyway. There were some service improvements, but the concern that the extra money would not be well spent proved largely justified."

Actually, I think there is very little evidence of decentralising Blairism anywhere. This is probably most visible in the rapidly abandoned regionalisation agenda.

Gillian Tett's micro-historical view of the crash is extracted in the FT. Quite apart from satisfying a sort of morbid fascination about which regulators had what wooled pulled over their eyes, it highlights another aspect of the great waste of the last 20 years of finance-mania: what passed as innovation.

In this extract, she tells the story of one team of bankers doing the first securitisation, or "Bistro" deals as they were then called. The "innovation" seems amazingly paltry: "let's bundle some loans together and resell them". It seems an absolute triumph of form over substance. It is "innovation" from an age that thinks that packaging is an art. Harry Markowitz, a 1950s economist, formalised an investment practice that had been known for thousands of years: you don't put all your eggs in one basket. What the bankers did in the Tett story was to offer a very slight increase in the number of baskets available for egg-storage. This is innovation in the same way that the stall-holder at my local streetmarket innovated when she offers a basket of mixed apples and pears for a pound, rather than offering only apples or only pears. (I will congratulate her on her breakthrough next time).

The "innovation", of course, was not in weaving another basket. It was in tricking regulators to accept that some magic had been done to make risk disappear. What is fascinating in the Tett story is how that regulatory bamboozlement happens. Find a firm that falls outside the regulations; get them to perform the magic trick; then get your regulators to feel that if they won't let you claim magic, they'll lose their regulatory empire.

The Virginia and Chicago schools of economics love regulatory competition. This is exemplified by the image of "voting with your feet": if you are abused by one sovereign, some degree of regulatory competition means you can move to another sovereign. This "divide and rule" should help keep sovereigns honest.

But the trouble is that the process does not keep sovereigns honest---it forces them in the direction of those who can exert pressure. So if the pressure is to be dishonest, this is a recipe for making sovereigns even worse than they naturally would be.In the case Tett describes, this is a process of putting pressure on a regulator to ignore proper misgivings.

Yet another case where we'll have to learn that competition is not good per se, but good only if the pressure moves us in the right direction. The religion of competition from Chicago and Virginia, just like the innovation in the finance sector, is the abandonment of substance to form.

Here's an excellent piece of rapid debunking of Treasury rhetoric by Robert Chote, Director of the Institute for Fiscal Studies.

The basic point he makes is important. The Treasury would like to write recent economic history to be as consistent as possible with the "end of boom and bust" Brown used to boast of. The official account from the budget is that "the productive potential of the economy grew by almost 3½% a year inLabour's first term and then by roughly 2¾% a year thereafter until thecrisis hit and trend growth fell to 1% a year for three years". Odd to make "trend" growth fall for just three years, isn't it?

As Chote says, the alternative (and more plausible) view is that trend growth has been pretty constant at 2.6% since 1997, but that worldwide falling prices (from ex-USSR raw materials and Chinese workers) blinded policy-makers to the fact that they were running highly inflationary policy throughout the period when growth was higher than trend. So the end of "Tory boom and bust" in fact meant the arrival of Gordon's alternative: "HUGE boom, followed by HUGE bust".

 Over and above the intrinsic interest of the analysis, there is an important point here about the political manipulation of history. Why are public servants involved in massaging facts for political reputations? Can we have a real Parliament with the equivalent of the US's Congressional Budget Office  since we can no longer trust the Treasury to give us plain data?

James Kwak has a great post about cultural transmission between Wall Street and the Treasury. It could just as easily have been written about the City and Westminster for the UK. Krugman also has a deflating piece saying: "First, there’s no longer any reason to believe that the wizards of Wall Street actually contribute anything positive to society, let alone enough to justify those humongous paychecks.". John Kay has a similar point about the infection of public service by the banking lobby: "But the illusion was at its most influential at the highest levels of government. Investment bankers had become the most powerful political lobby in the country and there was no vestige of political support for action to restrain City excess. Light touch regulation was not just a matter of policy but a matter of pride."

Why this flurry of meta-economic pieces? It used to be the ultra-liberals from West Virginia who were preoccupied with the process by which lobbies turned policy to their advantage. When centrist economists start to blog about Bourdieu, the French structuralist Marxist sociologist, something important is happening.

I think these pieces reflect two undercurrents. The most immediate is that the bankers seem to have won. They have been bailed out, they can now grow again, and, importantly, so can their bonuses. This seems extraordinary: while we have been waiting for reform of this value-destroying sector to churn slowly out of the political process, the banks have been rebuilding their balance sheets and now claim a return to profitability.We may have a generation of high taxes to payfor the bail-out, but it seems the party is back. In disbelief, the economists are searching for tools that can analyse the causes of this scandal, and Bourdieu is a pretty good start.

The second undercurrent is the realisation from within the profession of economics that it is powerless. When push comes to shove, wonga rather than right wins. A crisis for a discipline makes it turn to others who had a better theory of the role of knowledge in society.

Gideon Rachman is the emblematic "good liberal" of my generation. He viewed the world from his office at the Economist since the late 80's and saw the unfolding of the idea of individual freedom---a sort of British, whig ideal of the Victorian era--- and reported its good progress. Since moving to the FT a couple of years ago, that view has been harder to sustain. In December '08, he became a europhilic advocate of world governmen. During the latest Gaza war, he reported the thrill of the return of history in our lives. And today, he almost writes that Thatcherism is dead.

 Almost, because he feels that if the Alternative cannot supply an alternative "ism", the last hegemony holds its place.  Although I don't think that is true --- beliefs can be generally seen to have failed before a new model emerges --- he is right that the difference between 1979 and 2009 is that Thatcher used the economic crisis of the winter of discontent to launch a coherent assault on all that was wrong with the late bi-partisan Keynesianism of 1966-1976.

But Gideon choses the wrong date for comparison, I think. 2009 is like 1974, not 1979. The failure of modernising Keynesianism was clear then, in its response to the oil shocks. But the inertia of old system  extended its life for another five years. During that time, the ideas of Chicagoism was turned into the politics of Thatcherism. 

Expect the same sort of timetable today. Our political systems, entirely captured by the finance industry (read this De Long post, please), will have a final go at making money manager capitalism work. It will fail just as the reflation of '74-5 failed. The game-changing election to prepare for is 2015.

 “Budget 2009: Building Britain’s future” was the title of Wednesday’s budget report, published by the UK government.  But on what will this future be built?  

April 21st 2009. Join the Group Read. Chapter 19. The basic solution

(Instructions on how to join are at the bottom of the original post)

Assume: a) we can't change energy per capita too much; b) we can't change the capita (ie no creepy population control) and we still want sustainability ... The basic solution is: 

1. electrify transport

2.  electrify space heating

3. produce electricity with whatever local renewables we can, augmented by clean coal, nuclear and imported solar from desert regions.

Sounds simple, no?

It very well may be that we are witnessing the beginning of the end of financial capitalism. This is becoming a popular refrain, and one certainly being taken up by a number of our contributing authors on the Dictionary of Ethical Politics, who are each proposing some interesting solutions to this particular econocrisis. See how Hazel Henderson, Charles Eisenstein, and David Korten are attempting to reinvent economics to serve the needs of the 21st Century.

As European progressives seeking to allay contemporary anxieties look to Obama's US for comfort, they may be inspired, but should not assume that this is a model for what is needed in the ‘Old continent'.

Should those eager to rule protectionism out of order as a tool for growing sustainable economies prevail, even in an economic crisis?

A viable Palestinian economy is impossible without disengagement from the Israeli economy, thoroughgoing reform of the Palestinian Authority, not to mention lifting the siege.

The financial logic of neo-liberal capitalism has devoured the world and exhausted itself in the process. A new model beyond "financialisation" is needed, says Saskia Sassen.

(This article was first published on 1 April 2009)

From the FT on what's happening at the G20:

"A large police presence kept under control a small group of protesters playing a game of Monopoly outside the London Stock Exchange on Thursday morning."

I hope no one cheated and that the police kept an eye on that, too.

The global economic crisis is rooted in failures of governance in the rich world whose harshest effects fall on the poor. The remedy, says Stephen Browne, must be a rethinking of approaches to aid, trade, finance and the way multilateral institutions work. The London meeting on 2 April 2009 is the place to start.

Paul Hilder from Avaaz will give us a write-up of what the poll tells the G20 leaders.

The financial crisis afflicting much of the world is part of more fundamental shifts in the world's economic power-balance. It is time for a new model of global governance that recognises the reality of current trends - starting with the creation of a Global Strategic Council, says Krzysztof Rybinski.

(This article was first published on 4 December 2008)

The university is a space of public freedom and part of the fabric of democracy. That is why we should sign the petition to keep UEL open during the G20

March 30th 2009. Join the Group Read. Chapter 18. A first balance

(Instructions on how to join are at the bottom of the original post)

This is the first chapter attempting to balance-up consumption and production. While the story told so far of the raw energy potential from renewable sources shows an ecouragingly close race to maintain our rich lifestyles with sustainable energy sources, a little digging provides much disappointment. Between the potential and the realisation lies a factor of over 100! From a production potential of 180 kWh per day per person, we get to an actual production figure of just 1 kwh/d/p and a "realisable" estimate of 18 kwh/d/p---a full ten times less than our consumption.

Looking at the heart of the physics problem, David MacKay points to the geographically diffuse nature of renewables: each person needs a huge amount of land, tidal exposure, wind per person to make the sums add up. The sustainable potentials, as David emphasises, need "country-sized solutions". "To get a big contribu- tion from wind, we used wind farms with the area of Wales. To get a big contribution from solar photovoltaics, we required half the area of Wales. To get a big contribution from waves, we imagined wave farms covering 500 km of coastline. To make energy crops with a big contribution, we took 75% of the whole country."

Yet protection of species, habitats, nature, beauty etc. all move the same people who want to reduce fossil fuel dependency to limit the installations. Something will need to give to balance our energy ...

At the first signs of a cessation of the conflict in Gaza, tunnel building recommenced. They are both goldmines and graves

A perilous fusion of land and climate crises is at the heart of the problems consuming the planet. But the G20 summit in London won't help, says Sue Branford.

The financial plans of Barack Obama and Ben Bernanke will drain life and energy from the rest of the planet, says Krzysztof Rybinski.

(This article was first published on 18 March 2009)