Ben's blog and articles

There’s something tragically appropriate about the fact that the most high-profile British industrial story, as the country staggers in the direction of a no-deal Brexit, should involve Nissan.

The proximate cause of the Japanese company’s reversal of its decision to build a line of SUVs at its Sunderland plant was the collapse of European demand for diesel vehicles. But as its management has made perfectly clear Britain’s departure from the EU was a factor too.

It’s worth recalling why Nissan is here in the UK at all. In the 1980s Margaret Thatcher practically begged the Japanese firm to establish a plant in Sunderland, promising a smorgasbord of public subsidies and support to make it happen. Such interventionism jars with the popular image of her administration as a callous band of laissez-faire ideologues obsessed with the City of London and happy to let former northern industrial powerhouses crumble.

Yet the biggest lure for the Japanese was not those subsidies, but the UK’s position in the European common market. As Keith Joseph, Thatcher’s industry minister, wrote in a memo to Thatcher: “Nissan had chosen the United Kingdom because it gave them access to the whole European market. If we were outside the community, it is very unlikely that Nissan would have given the United Kingdom serious consideration as a base for this substantial investment.”

Another irony about the Nissan investment is that France and Germany were, in those days, hostile to the idea of allowing Japanese car firms a production bridgehead within the European common market, fearing the impact of the competition on their own domestic automotive manufacturers.

Thatcher overcame those protectionist European impulses and indeed made the creation of a free market, regulation-harmonising, “single market” among the European member states a personal priority. Yet now, 33 years on, we have nominal Tory Thatcherites not only insisting that the UK must leave Thatcher’s single market but also airily dismissing the Brexit concerns of Nissan’s Japanese management – a management which their heroine was once so keen to court.

The suggestion by the chair of the European Research Group faction within the Tory party, Jacob Rees-Mogg, that because Nissan’s former boss Carlos Ghosn stands accused of embezzlement in Tokyo that nothing the company has to say need be taken seriously, shows how far this wing of Conservatism has drifted into denial. The ERG prefers conspiracy theories and witch hunts to listening to firms’ worries about trade barriers. Before the private “letter of comfort” to Nissan from the business secretary Greg Clark in 2016 was finally published on Monday, the great fear among these hardliners was that this letter had made unacceptably positive noises about Britain remaining in a customs union with the EU.

Another lip-chewing irony over Nissan is that the Labour leader Jeremy Corbyn has been fretting recently about the restrictiveness of EU aid rules and some of his supporters have gone as far as using this as an argument in favour of total rupture. But the Clark letter revealed £ 80m of promises of UK government assistance for Nissan, with £ 61m of grants formally offered. If such state aid is forbidden under “neoliberal” EU law, as some “Lexiteers” seem to suggest, the EU’s institutions and courts have been surprisingly tolerant of it.

The air is thick with accusations of “betrayal” over Brexit. But the reality is that it is Nissan and other foreign corporate investors in the UK that have been betrayed; betrayed by political extremists ignorant of history and by those who find their ideology preferable to reality.

#KeithJoseph #MargaretThatcher #Brexit #Sunderland #Nissan

Money doesn’t talk, it swears, sang Bob Dylan. And liberal billionaires in the US are certainly not being polite about the latest policy ideas emanating from America’s Democratic Party.

Howard Schultz, the billionaire founder of the Starbucks coffee chain who is considering running for president in 2020, last week condemned universal healthcare and higher rates of income tax on the superrich, as proposed by the new Democratic congresswoman Alexandria Ocasio-Cortez, as “un-American”.

“It concerns me that so many voices within the Democratic Party are going so far to the left,” Schultz lamented. “If I ran as a Democrat, I would have to say things that I know in my heart I do not believe.”

Meanwhile Michael Bloomberg, the former mayor of New York and billionaire head of the financial terminal business, also last week warned that a wealth tax, as proposed by Senator Elizabeth Warren, another Democrat presidential hopeful, is potentially unconstitutional and risks turning the US into Venezuela.

The historical solecism of saying that high taxes on the super-rich are unknown in American history has been widely noted (the top marginal rate of tax between the 1940s and 1970s was well over 70 per cent).

But just as important is the question of what the impact of such progressive, inequality reducing, changes to US taxation would be now. Would overall growth suffer? Would the pie of prosperity be smaller, as the likes of Schultz and Bloomberg suggest? A new book by three International Monetary Fund economists, Jonathan Ostry, Prakash Loungani and Andrew Berg, attempts to provide some answers to those questions. And their answer is that redistribution, unless it was extreme, would be unlikely to hurt growth and could actually sustain it.

“Inequality undercuts the sustainability of economic growth. More unequal societies tend to experience more fragile growth,” said Ostry at the Peterson Institute for International Economics in Washington last week. “There is too much caution about using redistributive fiscal tools in terms of their possible disincentive effects. On the whole, the macro data strongly suggests redistributive policies have done more good than harm … Going for growth while assuming that inequality takes care of itself seems to us to be a dangerous gamble.” In other words, Ocasio-Cortez and Warren are thinking along the right lines (although the devil will be in the detail of any policies) while those anti-redistribution liberal billionaires are essentially wrong.

Two other economists who specialise in tax research – Emmanuel Saez and Gabriel Zucman – advanced a subtly different argument in favour of higher US top tax rates and wealth taxes last month. “An extreme concentration of wealth means an extreme concentration of economic and political power,” the pair wrote in The New York Times. “Progressive income taxation cannot solve all our injustices. But if history is any guide, it can help stir the country in the right direction.”

The prospect of Schultz running as a well-funded independent candidate, splitting the anti-Trump vote and handing the property magnate the keys to the White House for another four years, seems to illustrate beautifully this argument about the distorting influence of massive wealth on politics.

It’s often asserted that mainstream economists are all shills for neoliberal politicians, and ignore issues of inequality. The fact that Ostry, Loungani and Berg are thoroughly mainstream economists and all work at that supposedly neoliberal death star, the IMF, shows what a crude caricature this is. One can say the same of the ideas and arguments of Saez and Zucman, who are both based at the University of California, Berkeley and who have both been published in the most prestigious mainstream economics journals.

The fact is that the thrust of mainstream economic research on inequality and policy development among Democrats are moving in the same direction. And the old road of the anti-redistribution billionaires? Well, it appears to be rapidly ageing.

#incometax #PrakashLoungani #AlexandriaOcasioCortez #wealthtax #JonathanOstry #AndrewBerg #ElizabethWarren

A robot called “Tappy” which monotonously jabs away at mobile phone screens does not, let’s face it, sound like the most sophisticated of technologies.

So it’s possible to feel a degree of sympathy with the Chinese firm Huawei which finds itself accused by the US Justice Department of the theft of this supposedly bleeding-edge bit of intellectual property from T-Mobile. The phrase “trumped-up charges” (in every sense) comes to mind.

Yet, of course, there’s a bigger picture here than Tappy and Trump. There are questions that go beyond the agenda of the current occupant of the White House and his rabidly sinophobic advisers. Foremost among them is this: are Chinese firms operating in the west a potential security threat? Specifically, should Huawei be shut out of the construction of new 5G infrastructure due to concerns that the company could build “back doors” into its systems that could then be exploited by the Chinese state for espionage purposes?

 In my 2013 book, Chinese Whispers, I suggested that much of the then suspicion of China’s commercial influence abroad was over the top. At that time I argued that it was simply not in the commercial or broad economic interests of the Beijing leadership to use western infrastructure assets, or allow them to be used, for nefarious purposes. In some respects that remains true. It’s hard to see why there’s such anxiety in the west over the Chinese state buying brands like Weetabix, trying to purchase US oil companies or even investing in nuclear power stations.

Why would the Chinese state, which wants to use Bradwell in Essex to provide a proof-of-concept for a new global nuclear reactor technology export business, interfere with the UK’s power supply for political reasons? This would, at a stroke blow up its own multibillion dollar investment.

However, one has to accept that the Chinese political leadership has changed profoundly over the past six years. There has been a clear authoritarian turn under Xi Jinping, who has abolished term limits in place since the death of Mao Zedong. Xi has also launched a severe clampdown on domestic dissent, harnessing the full power of online technology to do so.

The new online “social credit system” is somewhat overhyped as a dystopian authoritarian tool, yet it could become one.

Meanwhile there have been countless assertions of party control over nominally private sector firms. Xi came to power promising to let the market take a more “decisive” role; but he has presided over a resurgence of the party-state. The giant Chinese internet and e-commerce companies – Alibaba, Tencent, Baidu, JD. com – have found themselves much more closely regulated.

Once it was just about possible to believe the assurances of Huawei’s founder Ren Zhengfei that it had experienced no state influence whatsoever and would not permit it. But no longer. And Xi’s conduct is to blame for that.

Alibaba’s Jack Ma was “outed” as a member of the Communist Party last year in state media. Members are required to show loyalty to the party above all else. Ma has also announced that he will step down by the end of this year and some informed observers suspect government influence in that decision.

In this context of surging digital authoritarianism and growing private sector subordination it is, sadly, prudent to keep private Chinese firms at arm’s length. The UK should follow the lead of the US and prevent Huawei from providing its mobile phone infrastructure.

This is unfortunate for Chinese firms and employees. Huawei is a genuine world leader in its field. And it is precisely the kind of globally competitive technology firm that China needs to prosper if it is to see domestic living standards rise over the coming century.

Perhaps the one, small, positive is that the shut out of Huawei from the west underlines the true nature of China’s crisis: that the country’s authoritarian leadership is now obstructing the country’s economic development.

#Huawei #China #DonaldTrump #XiJinping #RenZhengfei