Militarism and irrelevant economic policies - the toxic mix
Our government's support of Israel in expanding the occupation of Palestine and marginalizing the sovereignty of the Palestinians resulted in five Arab-Israeli wars by 1973. The Arab members of OPEC reacted by imposing sanctions on those who supported Israel in the form of sharp rises in the price of petroleum. What followed was a widespread stagflation combining rising inflation and unemployment. Keynesianism, based on aggregate demand management, did not possess a theory or policy instruments to handle stagflation and by 1975 the Labour government abandoned Keynesianism to switch to monetarism. In reality monetarism operates on the same basis of aggregate demand management and therefore its theory and policy instruments could not handle stagflation either.
In the field of development economics, as a distinct field of applied economics from macroeconomic policy, there are two principal indicators of the progress achieved in economic development. These are a positive or stable close to zero balance of payments for goods and/or commodities (the minimum condition being at least exporting as much as is imported), and a constant reduction in real income disparity amongst constituents.
The truth of the matter, exposed in what then happened between 1975 and 2022, is something many politicians and economists seek to obscure. Our balance of payments entered and excessively negative territory and income disparity has constantly risen. Today we have the world's second worse negative balance of payments in goods after the USA. Our world leadership as the workshop of the world has disappeared. So this is what has happened. For a short time this status as the workshop of the world was taken up by the USA but in the last 35 years, its balance of payments decline accelerated along with rising income disparity. The truth is that the UK and USA have very large proportions of their constituents whose income status is well below the average and many cannot afford basic essentials.
No matter what politicians and Nobel Laureate economists might wish to assert, our economic development model has not delivered a balanced economic development.
The petro-dollar bonanza
There is little doubt that the recycling of petro-dollars occurred as a result of "gentle persuasion" following the US "gentle voice and big stick diplomacy" by Western strategists convincing very exposed Middle Eastern tribal communities that the accumulation of dollars and creation of stagflation in the West had become intolerable; it was not in their interests, not to recycle their accumulated dollars. Ford and Nixon wanted Johas Witteveen, the new Managing Director of the IMF to initiate a campaign through the IMF to call attention the rising petroleum prices were having on world development and low income countries in particular. Witteveen, unknown to most, was in fact a Sufi Moslem so he skillfully avoided any confrontation by convincing these kingdoms to recycle their dollars as a better option to facing very nasty consequences. Witteveen had just joined the IMF when, in reality, the IMF had lost its role in managing the Bretton Woods financial settlements as a result of the 1971 collapse of the Gold Standard. He took advantage of this opportunity to gain, for the IMF, the first recycling tranches of around $7 billion in loans for low income countries to purchase petroleum at ever increasing prices and landing them in a debt spiral. On the other hand this supported continued rises in petroleum prices to the benefit of the Arab exporters.
As a direct consequence of the increasing recycling of petro-dollars through private sector financial intermediaries as well as sovereign wealth funds, there was a practical transformation the operation of monetarism as a result of the growth within the financial services sector of options or derivatives and computer-based options trading making use of risk reduction algorithms such as the Black and Scholes Options hedging model. This rode on the wave of petro-dollars being recycled from
derivatives bonanza and control of the petroleum market depended on fluxes of large amounts of money being used to occasion false buy and sell bids to force monetary rises in prices used to reap gains. From this chaotic beginning arose increasingly large hedge funds and all of this culminating in the 2008 financial crisis, brought on, in good part, by fraudulent dealings and manipulation of markets and even LIBOR. By this time the Grey derivatives market was worth several times national GNPs and quite beyond the control of monetary authorities.
The rising obsession with assets
The most notable development between 1971 through 2022 was the increasing fixation of banks and financial services such as hedge funds in asset speculation managed by controlling asset prices to generate guaranteed profits (see box on right). A major associated change was the declining interest in addressing supply side investment to enhance production productivity.
Back to the toxic mix
The collapse of the Soviet Union in 1991 called for a response in the West to stabilize Russia to avoid a European economic contagion combining a new international security arrangement to include the Russian population as well as various forms of economic development assistance. The economic development assistance provided by UK Know how Fund, USAID and EU PHARE programmes was geared to "privatization" of past Soviet state enterprises. This privatization was carried out in Russia and all former Soviet satellites, including Poland and Ukraine. This was a brutal affair with millions of people being forced into unemployment with no alternative sources of income resulting in countless heart attacks and widespread suffering. It was as if Western "aid" was designed to punish the constituents of these countries. Audited state enterprises were handed to what were referred to as "the young communists", those destined to become political leaders of newly emerging political parties whose image was one of democracy and capitalism. The operational units with less promise were either sold to unsuspecting foreign investors or closed. This created a so-called oligarch class of millionaires who entered politics. All of this took place with the "assistance" of the UK Know how Fund, USAID and EU-PHARE programmes. Russia was one of the few countries where this widespread brazen corruption came to an end in an attempt to reduce the influence of the oligarchs in politics. Vladimir Putin became the anchor of an alternative economic development strategy, rotating through presidencies an prime minister positions. Working with selected oligarchs his skill in delegation to ex-colleagues in many ministries, helped bring the Russian economy back from the brink. However, an over-riding concern he had was to establish an all inclusive strategic security agreement with the West in order to guarantee peace throughout Europe and continued economic development.
Just as following 1945 our country had very little concern for the security of the people of Palestine leading to economic chaos for the people of this country in the 1970s, 1980s and 1990s, to our lack of concern with the security for Russians making up 50% of the population of Eastern Europe, we have ended up in 2022 in the same situation. Between 2007 and 2022 Putin requested a mutual strategic security agreement on several occasions. For example, at the 2007 Munich Security Conference, and Putin agree to await the implementation of the Minsk agreement signed by the Ukraine to allow the Donbass areas to become an autonomous regions within Ukraine as a peaceful resolution to a war initiated against Russian speaking Ukrainians in 2014 following the bloody coup managed by the USA State Department.
Just as the constant military support and build up of Israeli capabilities led to the first petroleum price crisis, so did the constant military support and build up of Ukrainian capabilities lead to an attempt by the UK, USA and EU to sanction Russia without working out the consequences for the constituents in the countries imposing the sanctions.
Globally, for the time being, energy resources remain under the control of a cartel with few members and to guarantee the health of our economy and the wellbing of our constituents, our political leadership, so-called, has an obligation to serve the interests of the British population by exercising constraint, intelligence and an effective real politik which at its root needs to be grounded in a peaceful framework of a mutual strategic security agreement including all Europeans and Russians. The lessons from not having followed this path has been period of 50 years of lost opportunities and based on William James definition of the truth as being "What happens, no amount of government assertions or the application of economic policies, long demonstrated to be without effect, are acceptable. The truth of the matters is that these facts are an affront to the people of this country whose wellbeing is seriously prejudiced by toxic motivations of an out of touch and incompetent leadership.