Should we spend away stagnation?

The Christmas period is traditionally a time for indulgence. Between company Christmas parties and drinks with friends one usually exceeds the usual level of food and drink intake. Most people also spend more during the holiday season. As well as gifts for friends and family, decorations for home and work there is the general spirit of excesses and the desire to treat oneself after a year of hard work. You would think that so many people letting loose with credit cards and Christmas bonuses would kick the economy into gear and begin the climb out of the stagnation that has dogged business since the end of the recession.

It’s logical but not always true. During last year’s Christmas period the British economy actually shrank for the first time since the recession official ended. Economists posted negative growth for the fourth quarter of 2010, two such consecutive quarters of negative growth constitute a formal return of the recession. So why did the economy shrink with all this over spending?

There are a number of reasons for this. One was an increase in costs of production. Rising international oil and gas prices pushed up the cost of UK manufacturing and squeezed home’s budgets throughout the winter. Excesses around Christmas were matched by a cutting back elsewhere. The rise in production and transport costs restricted exports ultimate because our goods cost more and less money ended in the hands of the firms that produced the goods. When production costs are higher firms are unlikely to invest in new employees.

Not all of our present woes are the result of high energy prices. Partly it is the result of our patterns of consumption. Mince pies and turkeys are very pleasant but it is not the consumption of perishable goods that drives the economy. It is the purchase of consumer durables that drives growth and development. Although some people purchase fridges and television as Christmas presents this behaviour is hardly normal. If we are all perfectly rational in regard to the macro-economy in our Christmas shopping , we would all buy each other consumer durables. However in such a world we would all own too many fridges and have no food to put in them.

Politicians and executives of high street retain chains are keen to expose the values of spending away economic stagnation. As if the only thing prevent global economic recovery is austere Christmas parties. The solution to the problems of economic growth is not over spend now then have to cut back later. If you are especially concerned about growth rate of the British economy then consider buying a new car, television or computer system. Although in the current climate such purchases are out of the reach of most households.

The problems of our macro-economy require macro solutions such as investment in infrastructure to promote growth, guaranteed loans to business to encourage investment and programs to allow the unemployment access to jobs that go beyond simply slashing benefits. Encouraging the general public to over spend (especially financed by credit) is reckless and boost the revenue of Tescos but will not raise the long term trend rate of growth.

My advice to anyone during the holiday season is to reward yourself for a year’s hard work during difficult times but to remember that over spending is not the solution to your personal finical problems or the national ones. National problems require national solutions are not an increase in personal debt.

Kim Jong-il obituary

No right-thinking person would want to live in North Korea, or The Democratic People’s Republic of Korea to call it by its official name. Aside from the general advice to avoid any country with the word “Democratic” in its name, North Korea is a poor nation, gripped by famine and an overbearing authoritarian government. They are politically isolated and potentially unstable. Most of this is largely due to the personal influence of their recently deceased supreme leader, Kim Jong-il.

Kim Jong-il led one of world’s few remaining Stalinist states and the world’s only hereditary Communist authority. He became leader following the death of his father Kim Il-sung in 1994, who lead the nation since he was installed as the head of state following the Soviet invasion in 1945. The Kim’s created a vast personality cult surrounding themselves and their accomplishments. It is worthy of note that Kim Il-sung is still technically the Korean head of state as he was made Eternal President of the Republic after his death. Kim Jong-il was the de facto leader as he was the General Secretary of the Workers' Party of Korea, Chairman of the National Defence Commission and the Supreme Commander of the Korean People's Army.

During the 17 years of Kim Jong-il’s leadership, North Korea faced political isolation and came close to wars with South Korea, Russia and Japan on several occasions. When Communism collapsed in Russia, North Korea lost its main trade partner and economic hardship sent in. Their isolation from their neighbours and poor management by their central government has led to economic ruin and a famine reported to have claimed the lives of over 2 million North Korean citizens.

Kim Jong-il’s rule also been characterised by Stalinist totalitarianism. Rumours abound about state repression in ordinary North Koreans’ lives. Allegedly citizens are required to sing songs of praise for their leaders and homes come fitted with radios which broadcast state propaganda. Radios which not only cannot be turned off, but which it is illegal to tamper with.

Pursuit of nuclear weapons and missiles capable of reaching Japan and the United States has led to a breakdown in relations between North Korea and the rest of the international community. Despite this, Kim Jong-il made some efforts to repair damaged relationships, meeting the South Korean President in 2000 and taking meetings with Russian and American representatives. He also requested aid from the international community in dealing with the famine.

Those close to Kim Jong-il have described him as having a passion for Marxist-Leninism and a strict belief that North Korean society should follow this economic philosophy. Despite this, his personal life epitomises the worst excesses of capitalism. While he dined on fresh lobster and other exotic foods his citizens starved. While he owned private cars, planes and jets, the people of North Korea lacked essential services. While he enjoyed his collection of Hollywood films his government restricted all access to foreign media.

Kim Jong-il’s death can also be situated in the wider context of the end of Maoism and Marxist-Leninism, with private businesses bombing in China and their government moving ever closer to floating their currency on the international market. It also fits into the narrative of the end of authoritarian, centralised government, with 2011 seeing people all over the world rising up against their overbearing rulers. The age of big government might not be over, but the age of the all-encompassing government is.

The legacy of ruin and hardship left behind following the fall of the Titans of Communism is a reminder to those on the left that although our ideology should be informed by Marxism, we need to grow beyond the confines of this restrictive and incomplete philosophy. The left requires a new mode of thinking, focused on decentralised self-organising networks rather than the all-powerful state.

Kim Jong-il’s death leaves North Korea’s future in an uncertain state - even his son, Kim Jong-un’s succession is not certain. The world watches with bated breath to see how the famously unpredictable regime will respond. It is the hope of this blogger than the North Korean people will see an improvement in their political freedoms and material circumstances. Kim Jong-il has failed to deliver the abundance promised in theory by Marxist-Leninism and as a result is responsible for creating a society whose citizens are impoverished, hungry and repressed. Changing is sweeping across the world and we hope that in some way it can benefit the people of North Korea, who have suffered for so long at the hands of their supreme rulers.

Immigration and the flexibility of labour

There are few issues in politics that are as deeply dividing as immigration. Everyone holds an opinion on the topic, how much is appropriate, of what sort, from which country, etc. Immigration is blamed for many problems in society from crime to traffic congestion but has also advanced British art and engineering. A case in point, the Mini, that British icon of style, was created by Alec Issigonis, who was born in Smyrna (now Izmir in Turkey). Perceived failures of immigration policy can have dire consequences for a government; case in point is the hammering Gordon Brown received in the 2010 after a perceived rises in immigration. Anti-immigration outbursts can be equally as ruinous to a career, for example Maurice Glasman suffered a fall from grace after endorsing a halt on immigration.

As well as the economic implications, it is generally viewed that the problem with immigration is the divisions in society it causes can culminate in either acts of terrorism or violence directed at immigrants themselves. Many also argue that the economic impact of immigration is at the root of the social divisions it causes. In this article I hope to show that the social disorder caused by immigration is a response to market inefficiencies and not a problem with immigration itself. In essence it is weaknesses in our economy which make both immigrants and the indigenous population poor and angry.

The market based economy does not allocate resources to where they create the most social good. Some areas of society have an excess of economic resources and some have a great lack. This is partly because not all resources are perfectly mobile to where they are needed or to where they can create the greatest good. A clear example of this is housing which cannot be moved to take advantage of where there is a shortage. Without state intervention there is no way to correct the uneven distribution of quality housing. These market inefficiencies and misallocation of resources will always mean that some lack essential goods and desirable luxuries. Those who lack resent other social groups who have been allocated extra. This has driven many of the poor all over the world towards Socialism and other left wing movements. However this resentment is not always directed at the cause of poverty (flaws in the market based system) but at those who it is perceived possess more and have not worked hard to earn it.

Amongst the poor white population this resentment can be directed towards immigrants when individuals feel that they have been allocated a larger slice of society’s scarce resources simply because they belong to a different social group. The same can be said amongst immigrants who can become resentful of an indigenous population who they feel find it easier to acquire essential goods and luxury items simply due to being born in a country. On both sides of the divide people with a specific agenda can harness the anger at society’s uneven distribution of resources to push the disaffected towards either terrorism or hate crimes.

This fact applies to both sides. The EDL and Muslims Against the Crusade are images of each other. Young, poor and angry. Politicians and community leaders are unwilling to tackle this issue partly due to the difficulties with effecting real change but also because they risk losing the support those who the current distribution of resources benefits. Following being let down by community leaders and politicians, the disenfranchised taking matters into their own hands. These tensions which occasionally spill over to acts of violence are caused by an uneven distribution of resources and a lack of political engagement with this issue which create poverty and fosters feelings of alienation.

If the government were to intervene in the free market to correct the uneven distribution of society’s scare resources, then there would be less poverty and less anger to exploit.
Those who speak out against immigration often cite the effect it has on the wages of indigenous people, especially those in the lowest paid manual and unskilled jobs. However this effect can also be explained by inefficiencies in the labour market. The immigration can lead to an oversupply of labour especially in these low paid industries. A rise in supply of labour reduces the unit cost of labour (in this case wages) as the jobless are forced to look for a wage lower than their desired wage to remain competitive in the more crowded labour market. When firms see that the labour supply is increasing they desire to reduce unit costs of production and thus lower the wage they are offering to new employees. They can expect to find applicants for the role as an increase in labour supply has caused a job shortage.

Wages fall as a result of immigration not because of the actions of immigrants but because in an unregulated labour market increased supply will reduce wages mainly because firms seek to reduce costs of production. Like housing labour is not perfectly mobile. People are tied to a certain area by family commitments or the cost of moving which prevents labour from being reallocated from areas of surplus to areas of shortage. Similar labour markets where there is a short of supply often have barriers prevent entry to these markets by immigrants and the poor - barriers such as expensive qualifications or many years of experience.

This effect on wages can also be corrected by government intervention in the labour market. Access to education can break down the entry barriers to certain labour markets, especially training for the long term unemployed. Also the introduction of a living wage would ensure that even when there is excess supply firms are not able to drive down the wage price to point where it puts people into poverty.

Society’s scares resources are allocated in large quantities to a small section of the population. This does not just apply to wealth and material goods but also access to important services like education and health care. This divide is growing wider and those who which society has allocated less resources are growing poorer and angrier. This anger is often directed at the wrong parties where it is the system by which resources are allocated at this at fault.

The government needs to do more to address labour market inefficiencies to tackle the social problems caused by immigration. One possibility is to consider a return to the objective of full employment and guarantee a living wage. Both of which will involve government legislating the labour market but will result in higher wages for immigrants and the indigenous alike.
Until these inefficiencies are tackled, immigration will still be an issue dividing both society and political debates. This divide will always be to the loss of the poorest members of society both immigrants and indigenous alike.