Workers clear rubble following the collapse of a shoe factory in Kampong Speu, Cambodia, on Thursday
When even the IMF’s free market ideologues recoil from the UK chancellor’s austerity politics, democracy itself is at stake
George Osborne and his Treasury officials are gearing up for a fight. They’ve promised to make life difficult for the other side for the next two weeks. The unlikely opponents are the team of economists visiting from the IMF for a regular policy review.
Why has this routine meeting, which would hardly be noticed outside professional circles, become a confrontation? Because the IMF has recently dropped its support for the chancellor’s austerity policy and repeatedly urged him to rethink it. It even said he was “playing with fire” in refusing to change course.
This is an astonishing development. For in the past three decades the IMF has been the standard-bearer for austerity. Back in 1997 it even forced South Korea – with an existing budget surplus and one of the smallest public debts in the world (as a proportion of GDP) – to cut government spending. Only when the policy turned what was already the biggest recession in the country’s history into a catastrophe, with more than 100 firms going bankrupt every day for five months, did it do an embarrassing U-turn and allow a budget deficit to develop.
Given this history, being told by the IMF to go easy on austerity is like being told by the Spanish Inquisition to be more tolerant of heretics. The chancellor and his team should be worried.
If even the IMF doesn’t approve, why is the UK government persisting with a policy that is clearly not working? Or, for that matter, why is the same policy pushed through across Europe? A certain dead economist would have said it is because the government is “in reality instituted for the defence of the rich against the poor“. Dead right.
Current policies in the UK and other European countries are really about making poor people pay for the mistakes of the rich. Millions of poor people have lost their jobs and the support they received through welfare, but how many of those top bankers who caused the crisis have suffered – except for a cancelled knighthood here and a partially returned pension pot there? If anyone has suffered in the financial industry, it is its poorer members – junior analysts who lost their jobs and tellers who are working longer hours for shrinking real wages.
In case you were wondering, it wasn’t Karl Marx who wrote the words that I quoted above. He would have never put it so crudely. His version, delivered with typical panache, was that the “executive of the modern state is but a committee for managing the common affairs of the whole bourgeoisie”. No, those damning words came from Adam Smith, the supposed patron saint of free-market economics.
To Smith and Marx, the class bias of the state was plain to see. They lived at a time when only the rich had votes (if there were elections at all) and so there were few checks on the extent to which they could dictate government policy.
With the subsequent broadening of suffrage, ultimately to every adult, the class nature of the state has been significantly diluted. The welfare state, regulations on monopoly, consumer protection, and protection of worker rights are all things that have been established only because of this political change. Democracy, despite its limitations, is in the end the only way to ensure that policies do not simply benefit the privileged few.
This is, of course, exactly why free-market economists and others who are on the side of the rich have been so negative about democracy. In the old days, free-market economists strongly opposed universal suffrage on the grounds that it would destroy capitalism: poor people would elect politicians who would appropriate the means of the rich and give handouts to the poor, they argued, completely destroying incentives for wealth creation.
Once universal suffrage was introduced, they could not openly oppose democracy. So they started criticising “politics” in general. Politicians, it was argued, would adopt policies that maximised their chances of re-election but damaged the economy – printing money, handing out favours to powerful monopolies, and increasing social welfare spending for the poor. Politicians needed to be prevented from making important policy decisions, the argument went.
On this advice, since the 1980s, many countries have ring-fenced the most important policy areas to keep politicians out. Independent central banks (such as the European Central Bank), independent regulatory agencies (such as Ofcom and Ofgem) and strict rules on government spending and deficits (such as the “balanced budget” rule) have been introduced.
In particularly difficult economic times, it was even argued, we need to insulate economic policies from politics altogether. Latin American military dictatorships were justified in such terms. The recent imposition of “technocratic” governments, made up of economists and bankers who have not been “tainted” by politics, on Greece and Italy comes from the same intellectual stable.
What free-market economists are not telling us is that the politics they want to get rid of are none other than those of democracy itself. When they say we need to insulate economic policies from politics, they are in effect advocating the castration of democracy.
The conflict surrounding austerity policies in Europe is, then, not just about figures on budget, unemployment and growth rate. It is also about the meaning of democracy.
As José Manuel Barroso, the president of the European commission, has recently recognised, the policy of austerity has “reached its limits” in terms of “political and social support”. If European leaders, including the British chancellor, keep pushing these policies against those limits, people will inevitably start asking: what is the point of democracy, when policies serve only the interest of the tiny minority at the top? This is nothing less than crunch time for democracy in Europe.
Investigators consider whether powerful ‘wind shear’ or ‘microburst’ caused Bali crash in which all 108 on board survived
The Lion Air pilot whose jet fell into the sea while trying to land in Bali has reportedly described how he felt it “dragged” out of its trajectory and into the water. Investigators are considering whether a powerful downdraft of wind caused the crash in which all 108 passengers and crew survived despite the Boeing 737 cracking in half on impact.
The newly built plane undershot the tourist island’s main airport runway in Denpasar and belly-flopped in water on Saturday. Authorities from Indonesia, the US and Boeing are investigating.
Initial debriefings, witness comments and weather reports have focused attention on the possibility of “wind shear” or a downdraft from storm clouds known as a “microburst”. Experts say such violent and unpredictable gusts are rare but can leave even the most modern jet helpless if they are stronger than the plane’s ability to fly out of trouble – with the critical moments before landing among the most vulnerable.
“If you have a downdraft which exceeds the performance of the plane, then even if you put on full thrust you will go downhill and you can’t climb out,” said Hugh Dibley, a former British Airways captain and expert on loss-of-control events.
The cause of the crash has potential implications for the reputation of one of the world’s fastest-growing airlines, which is fighting to be removed from a European Union safety blacklist just as it buys record volumes of Airbus and Boeing jets.
According to initial pilot debriefings, details of which have been described to the Reuters news agency, flight JT-904 was on an eastwards approach to Bali’s Ngurah Rai airport at mid-afternoon on Saturday following a normal flight from Bandung, West Java.
The co-pilot, an Indian national with 2,000 hours of relevant flying experience, was in charge for the domestic trip, which was scheduled to last one hour and 40 minutes.
As the Lion Air plane was coming in to land, with an aircraft of national carrier Garuda following behind and another about to take off on the runway just ahead, the co-pilot lost sight of the runway as heavy rain drove across the windshield. The captain, an Indonesian citizen with about 15,000 hours’ experience and an instructor’s licence, took the controls.
Between 122 metres and 61 metres altitude (400-200ft) pilots described flying through a wall of water, according to the source. Bursts of heavy rainfall and lost visibility are not uncommon in the tropics but the aircraft’s low altitude meant the crew had little time to react.
With no sight of the runway lights or markings the captain decided to abort the landing and perform a “go around”, a routine manoeuvre for which all pilots are well trained. But the captain told officials afterwards that instead of climbing the 737 started to sink uncontrollably and their well-practised routines unravelled quickly.
“The captain says he intended to go around but that he felt the aircraft dragged down by the wind; that is why he hit the sea,” said the source, who was briefed on the crew’s testimony. “There was rain coming east to west; very heavy,” the source said, asking not to be named because no one is authorised to speak publicly about the investigation while it is under way.
A passenger on board the jet painted a similar picture of an aircraft getting into difficulty only at the last minute. “There was no sign at all it would fall but then suddenly it dropped into the water,” Tantri Widiastuti, 60, told Metro TV.
Lion Air declined to comment on the cause of the crash.
According to the Flight Safety Foundation, bulletins for pilots at around that time indicated a few storm clouds at 518 metres (1,700ft) and a wind blowing moderately but varying in its direction from east-south-east to the west.
The aircraft itself was delivered in February and there had been only one technical problem: a landing light that had to be replaced.
According to Boeing, the 737-800, its most popular current model, is equipped with a system that detects wind shear ahead and warns the pilot audibly to go around.
Falling factory output and investment hit first-quarter GDP growth – down from 7.9% but still above Beijing’s 7.5% target
China’s economic recovery stumbled unexpectedly in the first three months of 2013, forcing analysts to start slashing full-year forecasts despite official insistence that the outlook was favourable.
The world’s second-biggest economy grew 7.7% in the first quarter from a year ago, slower than the 7.9% hit in the fourth quarter of 2012, below the Reuters consensus forecast of 8% and confounding expectations of a surprise uptick that emerged after surging credit and export data were published last week.
Sheng Laiyun, a spokesman at the National Bureau of Statistics, which released GDP in a flurry of other data on Monday, said: “China’s economic fundamentals haven’t changed. We are confident about future growth and optimistic about achieving this year’s growth target.” China has set a 7.5% GDP growth target for 2013, a level Beijing believes will create sufficient jobs while providing room to deliver structural reforms the government – and international policy advisers – believe are necessary to put growth on a more sustainable long-term footing.
“Employment is very stable,” Sheng said. “Stable employment is a basic indicator of China’s economic stability,” he added, quoting ministry of labour and social securities data showing that China created more than 3m new jobs in the first quarter.
Commodities from crude oil to copper, wheat and corn all fell after the data, share prices were knocked lower and the Australian dollar slid as investors repriced expectations of import demand from China.
A 0.1% downgrade of the World Bank’s 2013 China growth forecast to 8.3% following last week’s cut to the global trade outlook from the World Trade Organisation was a further blow to economists anticipating that broadly brighter global economic data in the first three months of 2013 would underpin China’s recovery.
Industrial output growth of 8.9% on a year ago in March versus expectations of 10% and fixed asset investment growth of 20.9% in the first quarter versus the 21.3% market consensus were big drags on sentiment – as well as GDP.
The most sluggish increase in power generation in six months, up 2.1% year on year in March, and a 3.2% fall in daily crude steel output in the same period, were taken as signs of cooling activity.
That data, released alongside GDP, overshadowed a gentle uptick in retail sales growth to 12.6% year on year in March from 12.3% in February and expectations of 12.5%.
Yen dips against major currencies after Bank of Japan buys government bonds in effort to beat deflation
The yen hit fresh lows against a host of major currencies on Monday, resuming its slide after the Bank of Japan lost no time in launching its new easing policy to underline its determination to beat deflation.
The central bank conducted its first government bond buying operations on Monday and said it will buy 1tn yen of bonds with maturities of between five and 10 years, and 200bn yen of bonds with maturities exceeding 10 years.
The dollar gained 1% to 98.54 yen after jumping more than a full yen to 98.85, its highest since June 2009, according to the EBS trading platform.
“After a big spurt in the morning, it started to stick a bit, but the possibility of it getting to 100 has increased,” said Soichiro Tsutsumi, a trader at eWarrant Japan Securities KK.
Last week, new BoJ governor Haruhiko Kuroda said the central bank would inject about $1.4tn into the economy in less than two years, a gamble that sent bond yields plummeting as prices rose on expectations of massive purchases of debt by the BoJ.
Analysts assume the flood of new money will be partly used by Japanese investors to buy higher yielding assets abroad, putting downward pressure on the yen.
JPMorgan analysts wrote in a client report that they had re-initiated a basket of yen shorts and were recommending the Australian dollar and Brazilian real as carry trades against the yen after the BoJ announced its aggressive stimulus plan.
The Australian dollar was up 0.2% against the yen at 102.12 yen after rallying to 102.32 yen, its highest since July 2008.
The euro climbed as far as 128.43 yen, its highest since January 2010, before pulling back to 127.90 yen, 0.9% higher than late US levels on Friday.
Some analysts said that a flare-up in the eurozone’s problems could ramp up risk aversion, prompting investors to buy “safe haven” yen and put a floor under its slide. Others said signs of cracks in the US economic recovery could weigh on the dollar.
“Getting to 100 yen against the dollar is just a matter of time
New Bank of Japan governor seeks to end long spell of deflation which has hindered investment and economic growth
The Japanese central bank has said it will massively expand the country’s money supply to spur inflation as it strives to get the world’s third-largest economy out of its slump.
The Bank of Japan (BoJ) on Thursday vowed to achieve a 2% inflation target at “the earliest possible time”.
To do so, the central bank has launched “a new phase of monetary easing both in terms of quantity and quality” that will double the money supply, it said in a statement.
The new BoJ governor, Haruhiko Kuroda, has vowed to meet the inflation target within two years, heeding demands from the prime minister, Shinzo Abe, to once and for all end a long spell of deflation which has hindered investment and economic growth.
Abe’s government, which took power late last year, accused the previous central bank governor, Masaaki Shirakawa, of balking at undertaking bold enough monetary easing to get the economy back on track. The steps announced on Thursday under the first policy meeting chaired by Kuroda were in line with expectations and are likely to reassure jittery financial markets of Japan’s resolve to push ahead with its “reflationary” strategy.
The announcement pulled the Nikkei 225 stock average out of the red and sent the yen lower against the US dollar.
The BoJ will conduct money market operations to increase the monetary base by about ¥60tn to ¥70tn (£420bn to £490bn) a year. At the same time it plans to increase purchases of Japanese government bonds to total ¥50tn a year to encourage interest rates to decline, which it hopes will facilitate more lending.
The central bank is also extending the average remaining maturity of the bonds it purchases from three years to an average of seven years. Meanwhile, bonds with all maturities up to 40 years will be eligible for purchase.
As expected, the bank also extended the range of assets it can purchase, to include more risky real estate investment trusts and exchange-traded funds.
As part of the new strategy, the BoJ will end its current asset-purchasing programme, absorbing it into the future purchases of bonds, it said.
Answering concerns that the stimulus programme would further raise Japan’s public debt, the statement said that the government bond purchases would be “executed for the purpose of conducting monetary policy and not for the purpose of financing fiscal deficits”.
The BoJ will “examine both upside and downside risks to economic activity and prices and make adjustments as appropriate”, it said.
Women’s world No 15 Ju Wenjun refused permission to board flight to London as she did not hold a transit visa
A top Chinese chess player has found herself stuck between the Rock and a hard place after an airline refused to allow her to board a flight to London following a tournament in Gibraltar because she did not hold a transit visa to enter the UK.
Ju Wenjun found herself stranded after taking part in the 11th annual Tradewise chess festival held in Gibraltar, having travelled there on 19 January via London from Hong Kong on a British Airways flight. However, when she went to board her return flight to China via Heathrow on 1 February, the day after her 22nd birthday, she was denied entry onto the flight.
“I don’t have a UK transit visa and they let me board (in Hong Kong). When I arrived in the UK, I told them I was going to play in Gibraltar at the Tradewise festival. I showed them my airline ticket and they let me pass through. They let me show my tickets and my invitation,” said Ju on the telephone from Gibraltar.
Ju is a grandmaster, ranked No 15 in international women’s chess and No 3 in China. The
tournament organisers, who have been rallying on her behalf, said she has been told she must send her passport to the UK to be issued a transit visa and then have it sent back to Gibraltar. But Ju doesn’t understand why she should have to go through this when she was allowed to pass through the UK in January on her way to the chess tournament.
“I don’t want to send my passport to the UK. It takes time, and my parents are worried about me,” she said. “I hope this will end soon.”
The tournament director, Stuart Conquest, said Ju is growing increasingly distressed about her extended stay on the Rock. “I think they should use a bit of compassion and let this girl go home. What is the point of making her send her passport to the UK? Everyone’s waiting for her in China,” he said.
A spokeswoman for the Home Office said that the UK Border Agency was not responsible for visa checks made by airline carriers outside the country. “It has nothing to do with us,” she said.
At the time of publication, British Airways was unavailable for comment.
Conquest says this is the first time any incident like this has happened to international players participating in the tournament in the 11 years it has been running.
In the meantime, Ju is being looked after by Conquest and others in Gibraltar, even being treated to a meal out – at Kowloon Chinese restaurant.