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     Aug 16, 2011

London riots reduce lies of left to ashes
By Chan Akya

A lazy and semi-educated Chinese man will probably not get married given the country's ratio of males to females; and even if he did, life would be made hell by the curses of his mother-in-law. A lazy Indian is likely to decline in society to the point where all support systems fail him. leading to an early death or a violent one. There are no lazy Africans because they wouldn't survive to adulthood.

A lazy European on the other hand, gets to sit at home and watch television while receiving benefits from his government. On his television over the past week, he would have seen unfamiliar scenes - rioting in the streets of London and other major cities across England, where youth apparently much like himself can be seen running from shop to shop grabbing the latest consumer gadgets and other easily sold items. For the average lazy

European on government benefits, the pictures may have been amusing and probably even shocking.

August is a time for Europeans to go on holiday, vacating their cities for the influx of Arabs and Asians fleeing the oppressive summers of their geography. This summer, the veterans of the Arab Spring might have brought more than their dollars to London, as events for the past few days showed the scale of ugliness that were seen earlier in the year in Cairo, Tripoli and Manama.

It was delicious irony for various left-leaning, anti-imperialist commentators in the British press to make comparisons between the age of the English empires and the sudden echoes from its former colonies on the streets of its capital.

The scenes may be familiar, but the situation on the ground couldn't be more different. For what echoed in the streets of London wasn't the pro-democracy protests of the Arab world, but the portents of the failed welfare state to come. Terms such as disaffected youth, protesters, hooligans all do gross injustice to the description of the phenomenon that actually erupted in London over the past week.

The ghost of Marx ... and Keynes
Perhaps it is Europe's fate that while Karl Marx was buried quietly with the implosion of the Soviet Union in the 1990s, the path towards a post-Keynesian world may well be littered with copious doses of violence as a civil war looms between those who produce value and those on state welfare.

The ideological battle being waged now does have its foundations in the post-war reconstruction of Europe wherein governments had to attend to mass impoverishment and nutritional issues in the population.

The expansion of the state as part of the social contract meant increased taxes relative to the rest of the world. Some, like the Scandinavian states, embraced comically high marginal rates of taxation at over 75% from time to time in a bid to provide equality at all costs among the populace. Language barriers and a general stability of the population kept these various experiments - like alternating versions of botanical gardens - in check.

As the Soviet Union collapsed and the Grand French Project - the European Union - took root, the bad habits of the French were to be transferred to all. Elites ruled over the less privileged, but in return shuffled enough subsidies to ensure that the mortal coil was never insufferable. That particular lesson had been learnt well enough when the Bastille fell even if the other supposed achievements such as democracy were quietly emasculated.

Soon, the various European experiments had to be integrated under the French banner and, as with all lies of the left, it was always the "sum of" mistakes rather than a choice between. Thus, for example, Italian workers had strong rights while the country's farmers received very little in the way of subsidies; after the European project, workers had stronger rights and farmers received generous subsidies. Spaniards had long holidays but awful salaries; after joining the EU, their holidays got longer still while wages soared.

Meanwhile, the United Kingdom, after having embraced Labour reforms following the defeat of Winston Churchill in the aftermath of World War II, had created social programs that produced the most immediate benefits, such as vast improvements in health metrics across the population.

The reconstruction of the country after the war helped to stabilize its economy from the depravations of the Nazis and, sure enough, the credit for the achievements was laid at the door of the Keynesian policies of the government; a case of happenstance being confused with causality.

However, the slide to militant trade unionism soon damaged industry, and with the steady collapse of export competitiveness in state-owned sectors and the steady decline of the pound sterling as a reserve currency of any note by the end of the 1960s, the grounds for a crisis were at hand.

The oil crisis of the 1970s alongside crippling strikes would have felled the UK; but the discovery and exploitation of North Sea oil in the early 1970s saved the day followed as it was in short measure by the advent of Margaret Thatcher and her structural reforms.

The politics of the left, though, were never too far behind. and following from the evisceration of industrial capacity in various manufacturing sectors, time was ripe by the mid-1990s for a different set of politics. So it came with "New" Labour in the late 1990s, leading to substantial increases in welfare spending, particularly in the most broken parts of society - single mothers, drug addicts and the like.

The major impetus for the UK to go down this path was its apparent desire to "integrate" closer with Europe where such norms had been in force for decades.

Why not sooner
So much for the background; but why, when various smaller countries with similar financing problems as the Europeans tend to blow up rather quickly - the Latin American descendants of European colonialists hit the wall pretty quickly after the first oil shock and its subsequent US recession by the early 1980s - did the Europeans manage to hold on much longer?

The answer is that they were much bigger to start with as economies - the UK, France, Germany and Italy are seriously large economies - and that also means that the relative increase in debt since the 1990s was slow and methodical. Indeed, until the advent of the 2007 financial crisis, overall European debt stocks only rose around 4% annually - high, but not high enough to panic the world into action.

The second part of the answer was extraneous factors that overwhelmingly helped the Europeans, ranging from the collapse of the Soviet Union and the peace dividend it caused (smaller armies for one), the technology boom of the 1990s, and the rise of China and other emerging economies (adding to demand for otherwise surplus European goods like cars and ships).

Ironically, it was Germany, which had to face its own sudden increase in debt levels following the absorption of the former Eastern Germany in 1989, that enacted significant reforms aimed at reducing the stock of debt and increasing productivity measures; in essence being the only European economy that entered the new millennium with the right strategy.

The Germans suffered privations while the rest of Europe boomed. France and others who had suffered against the Germans in World War II took the signs of progress to mean a resounding vote of confidence in their economic systems, when it was once again a case of mistaking happenstance for causality.

Sovereign crises
Today's debt crisis in Europe is but the Ghost of Christmas past. Those of the present and the future are yet to visit the old continent. This is because sovereign debt funding is simply a function of confidence reposed in the ability of one people to pay by usually another people. Thus, Chinese buying Greek debt is as much a calculation on the part of the former as it is of the latter that a failure to repay to the Chinese will have unhappy consequences in other areas.

The most telling aspect of the current crisis management (or whatever passes for it in Europe) is the simple observation that not a single voice has been raised against the continuance of the welfare state. Rather, the discussions have all been around the mechanics of adjustments - does Greece default, and when it does what is the settlement price on credit default swaps - rather than its core logic.

Asians and other savers watching the process are not fooled as the Europeans may think they are. Riots in Greece exposed the population's severe opposition to any austerity plans, and guarantee that the road to reform will be paved with Molotov cocktails in that country. Seeing the rioters, German politicians withdrew some of their harshest demands for austerity, subscribing to the French idea that piecemeal achievement was better than none at all.

That particular brand of nonsense has now been exploded in the streets of London. Here in an economy that is outside the euro, and hence free from the structural constraints, are the same rioters with apparently the same complaints against any adjustments to the welfare state (it is another matter that cuts have hardly taken place yet in the UK). The UK is a large enough economy that its totality can be compared to the aggregate reality of the European economy.

That reality isn't one of whether austerity will succeed or not - it is whether the European welfare state will survive.

The alternative of no reform is no longer available to the Europeans because there just isn't enough additional savings being generated in Asia to absorb the increased debt loads of both the US and Europe. So savers have a real choice - to vote for the economy that they see has the best chance of succeeding in the long run. As of now, that is not Europe but rather the US (much as that choice isn't cast in stone, much as Republicans and others like to pretend otherwise).

To confront the idea of cutting welfare payments though, Europeans have to come to grips with the idea that not everyone is entitled to everything - housing, education and what have you. The youth burning shops and looting homes in London had been given houses and free education to boot and yet there they were, exercising and reveling in the kind of anarchy around which broadly disenfranchised and perennially looted peoples in Cairo and Damascus were coalescing.

If there is no absence of ability to address basic needs and the environment exists for hardworking people to succeed, why then are the rioters in London showing their ingratitude towards the welfare state? The question boils down to one of negative and positive reinforcement strategies: for too long the left in Europe have argued that society's failures must be embraced rather than cast out for life's hard knocks. The burning shops of London are proof that leftist thinking is dangerously wrong - the rioters aren't sated by the welfare state, they are spoiled by it.

What is needed is the fear that a failure to work hard and so one will lead to social downward mobility. It is the absence of this fear that was most visible in the streets of London last week. Careless violence and dismantling the properties of others will likely visit other European capitals over the next few years as the feral youth of Keynesian benefits enter the economy completely confused about their worth and role.

The Chinese and Indians buying sovereign debt these days do not care for the structural deficits being run by either America or the EU: this is money down the drain, which will never be recovered by revenues unless a miraculous growth trajectory can be found.

For their money, the structural deficit is more galling in Europe than in America simply because of the sheer unfamiliarity the welfare state holds for them. Therefore for Europeans, the choice is clear - cut the welfare state today, or the Chinese and Indians will do it for you tomorrow.

(Copyright 2011 Asia Times Online (Holdings) Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)

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5. No kisses, Mr Davutoglu

6. How Pyongyang's propaganda backfired

7. Speaking up for Beijing in Hong Kong

8. Balochistan caught in spiral of violence

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10. US shocked and awed by the Taliban

(Aug 12-14, 2011)



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