Toward a European Marshall Plan

Thursday 08 Sep 2011

It's been an amazing August. Across the Western world there's a real sense of gloom and desperation out there, people increasingly feel as if some sort of end of the world economic oblivion is just around the corner. The most amazing example of this is in Greece. Whilst a few Eastern European states such as Latvia are emerging into the daylight after three years of tough economic reforms, and even Ireland is looking a bit better these days, Greece is falling down a black hole. Successful reform requires attacking vested interests on the right and left- in Greece, for example, punishing tax evasion on the right and destroying labour unions on the left. Yet Greek democracy has utterly failed, in the last three years everything that has happened in Greece has been forced on them unwillingly at knifepoint by the EU / IMF / ECB, and now Greece is in the emergency room with a life threatening case of "way too little, way too late".

The Greek stock market has been absolutely slaughtered, its lost over 80% of its value since the 2007 high, which is almost as bad as the 90% fall in the American stock market recorded during the 1930s depression. Overdone? Because Greek democracy cannot respond intelligently with economic reforms or targeted cuts, all the heavy lifting has to be done by brutally and haphazardly slashing state spending. Imagine Greece as an overgrown hedge, an expert gardener could prune the hedge in such a way that health is restored relatively quickly, but Greek democracy is like a catastrophically incompetent gardener who keeps hacking away at the softest parts and endangers everything. For example, Greek doctors don't pay tax and they deliberately prescribe excessively expensive medicine because they get commission from drug companies. To cure Greece you have to heal these inefficiencies, trying to make up for such failings by cutting infrastructure spending or increasing sales tax is not only unnecessarily painful, it's also potentially fatal. This year Greek GDP is expected to contract 5% and corporate profits have plunged so badly the PE of the stock market is negative. Where does it end for Greece? The terrible truth is that this abyss is potentially bottomless. Back in 2009 I said EU politicians should set a vital precedent by offering the Greeks a choice between generous aid combined with a technocratic state of emergency to implement reforms, or some kind of spectacularly terrifying punishment such as ejection from the EU. Instead Merkel choose to put her faith in Greek democracy, now she has lent Greece vast sums in various ways, so default today will probably cost Northern European taxpayers literally hundreds of billions of Euros. Greek default might well outrage voters to such an extent that it brings down the whole Northern European political system and plunges Europe into conflict.

Anyway, all of this disaster is extremely good news because it allows people to evolve into a more sophisticated viewpoint. In order to understand how things have changed, look at the optimistic and childlike tone of the following article published about three months ago by Gideon Rachman in the Financial Times. It is called In defence of gloomy columnists, and it runs as follows:

The other day, I bumped into a friend from my days at The Economist. Why are your columns so depressing, he asked me? I began to deny the charge until it was pointed out that I had recently published a book about globalization with the doom-laden title "Zero-Sum Future".

So instead of denial, I went for explanation. The western world is in serious economic and political trouble, I argued. Europe is ensnared in a debt crisis that threatens the future of its single currency and with it the social stability of the European Union. The US cannot control its budget deficit and must contend with infantile politics and a palpable sense of national decline...

But the more I laid out my case, the more uneasy I felt. Perhaps all my short-term gloom is missing the point. Maybe the really big trends still point inexorably upwards – towards a more prosperous and peaceful future for humanity?... And that is, I think, my response to the charge of being what The Economist would doubtless call a “gloom-monger” or, even worse, a “doomsayer”. It all depends on what timeframe you are looking at – and whether you are worrying about politics or enthusing about technology. In the long run, I think that the techno-optimists like Matt Ridley and Bill Gates will be vindicated. The world will get richer, more peaceful and more prosperous. It is just that I think there may be a few serious “blips” along the way.

I posted a comment on that article which runs as follows:

Of course your friend at The Economist is optimistic, for the die hard liberal this crisis is just another blip, nothing fundamental has changed, and everything will be back to normal sooner or later. Those of us who dare to confront self delusions in the quest for self knowledge and enlightenment, know, on the other hand, that not only is this crisis is going to get much worse, we are actually living through Capitalism's 1989 moment. Much as we give FT journalists a hard time for naivety, your friends at the unreadable Economist are vastly worse. In fact, "The Zombie" would be a better name for the elite rag that calls itself "The Economist".

The Economist remains optimistic today, but three years after the credit crisis made the failings of capitalism absolutely obvious the rest of the world is beginning to wake up. It takes disaster because as long as things are OK people aren't interested in questioning their cherished beliefs. In Plato's Apology Socrates said you can kill your critics but you can not escape evolution, the more you resist the more painful the lesson gets. Behind this harsh reality is, of course, the philosophical concept the Indians called "karma", Socrates called "the straying cause", and Homer called the "nemesis that follows hubris".

So things are, in a sense, getting better intellectually even as the world gets worse economically. These days the FT is trying to embrace the public's gloomy mood, it's even beginning to write about zombies itself (Politics and the markets: Week of the living dread). Indeed, this August we have had some really remarkable articles about the new economic paradigm in the press, such as:

Wall Street Journal, Nouriel Roubini Video, "Karl Marx was right"

Bloomberg, George Magnus, "Give Karl Marx a chance to save the world economy"

Talking about Karl Marx is a real wakeup call for people still stuck in the capitalism mindset! The Guardian had a field day with the Marx stories, although they haven't realised that what people are talking about isn't conventional socialism, it's something new.

From China we got this:

People's Daily (a CCP publication), "Western Countries Should Rethink Consumerism"

I love that article because you see so many articles in the Western press saying China has to switch from investment to consumption, now the Chinese are saying hold on consumerism is poison both economically and psychologically. Long ago I wrote an article about this, it's a topic very dear to my heart.

From Stiglitz:

Financial Times, Joseph Stiglitz, "Governments must invest in enterprise to save the economy"

This Stiglitz article says "The real answer, at least for countries that can borrow at low rates, is simple: borrow money to make profitable investments, this will both promote growth and generate tax revenue." Stiglitz is not just talking about building roads and bridges in the usual infrastructure way, he is talking about the government actually investing in things that earn money directly. For example, the European company Airbus is an example of a quasi "State Owned Enterprise" that's made a big positive difference to Europe. Until recently it has been fashionable to talk about privatization, suddenly government leadership and investment is being talked about again. This is the first major article in the Western press I have seen about state investment for profit, but it's been a topic I have long obsessed about on this blog, eg Rent Seeking, Laissez-faire and State Capitalism. At the end of that last article I explain:

What is the differences between State-Owned Enterprises (SOEs) and Privately-Owned Enterprises (POEs) in China? The POEs are companies owned privately with little or no government involvement, traditionally they are perceived to be run by business-savvy executives with global business experience. The SOEs, by contrast, are traditionally perceived as hulking, unprofitable behemoths chocked full of aging assets and run by 55 year old Party hacks in moth-eaten Mao suits and greasy comb-overs...

One of the many reforms that the Deng Xiaoping administration started in the early 80s was captured under the Party phrase “POEs will advance; SOEs will retreat.” What this meant, in effect, was that the Party wanted to get out of the business of being in business and started the long, mind-numbing, ulcer-inducing process of unwinding the complicated SOE culture … which included, for many people, guaranteed housing, education and healthcare... It looked as if the SOEs were going to go the way of the dinosaur, only to be studied by business anthropologists who dug up their jerry-rigged balance sheets and padded expense accounts...

Fast forward to today and we are seeing a surge in Chinese SOE. Eg in automotive, the so-called “Big Four” (First Auto Works, Shanghai Automotive, Dongfeng and Changan) are on a consolidation tear, encouraged by the government to acquire smaller, regional automotive companies, much like GM, Chrysler and Ford did in the early days of the U.S. auto industry. The Chinese oil, gas and mining giants are actively looking outside of China for investment and expanding their global footprint. Several of the larger SOE construction equipment companies are aggressively expanding, both inside and outside of China. In 2009 state owned airlines have taken advantage of the credit crisis to gobble up essentially all remaining privately owned airlines...

All of this has led to speculation that the Chinese government is trying to reverse their dictum of the 80s and say, rather, “SOEs will advance and POEs will retreat.” Commentators are talking about the end of the "Washington Consensus" adopted by Deng Xiaoping in 1980s, and rise of the "Beijing Consensus", or "State Capitalist Model". The SOEs are no longer run by Party hacks … their CEOs are often Western-business educated and understand very well both international commerce and the unique requirements of doing business in China. They are dressed in Armani suits, have their hair styled and show up at the right parties...

More an more we see Chinese companies – and particularly SOEs – coming to the forefront of Western Business worries. For example, we have just watched Shell being squeezed out of oil refining in China by the low returns on capital its SOE competitors are prepared to run. These guys are no longer the lazy competitors we once knew, they are well run, government backed, in it for the long term, and prepared to run much smaller profits. So they are a big threat to our economic model, whether you know it or not...

China's re-embracement of State Owned Enterprise was driven by several factors. First, it's about economy of scale. We now realise that huge corporations have economy of scale advantages which make them impossible to compete with. The most extreme examples of this might be in the Nuclear Industry or Semiconductor industry where facilities cost billions. However, economies of scale are also of critical importance to simple companies such as Tesco and Wall Mart. Lenin and Marx talked about the inevitable rise of monopoly driven by economy of scale advantages, and out of it the never ending rise of corporate profits as a share of GDP, eventually provoking a rebellion amongst the impoverished masses.

That brings us to China's second reason to embrace SOE: inequality. By capturing corporate profits in State Owned Enterprise society as a whole is enriched rather than a handful of lucky shareholders and chief executives. Whereas corporate profits as a proportion of GDP continue to rise inexorably in the USA even in the midst of recession, in China the tide is beginning to slow.

China's third reason for embracing SOE is macro economic. Airbus may not be as profitable for its shareholders as Nike, but Airbus is a vastly more valuable national asset. SOE allows government to direct the economy away from the fluffy easy money in consumer brands, real estate and banking. Today we realise this kind of economic planning is absolutely critical (eg we talk about the failure of British Banking and Spanish Real Eatate), only die hard liberal zombies still turn a blind eye to the problem (take a look at this idiotic article published a few days ago in the WSJ by Jamie Whyte).

China's fourth reason for embracing SOE is environmental. Enforcing environmental standards on small private companies with regulation and taxes proved almost impossible, so instead China has encouraged consolidation of production into a handful of massive SOEs which share its environmental vision.

Stiglitz is well aware of Chinese SOE, but his advocacy of SOE today is different. He see it as a way to leverage the ultra cheap financing available to the US government, and to promote investment at a time when private sector counterparties are scaling back.

The Stiglitz article has set off a developing wave of interest in a European Marshall Plan, and that's what I really want to talk about in this article. The other day Martin Wolf wrote an article about state investment and on it I commented:

The idea that the government should use cheap debt to invest in the economy is the Stiglitz point made a few weeks ago. It really needs making over and over again until people get it, because it's absolutely vital. There are a couple of things to point out:

(1) These investments must generate minimal positive returns, they can't be subject to democratic capture creating loss making vanity projects (eg UK high speed rail), or loss making hot air projects (eg UK wind farms), they need to be managed in a hard headed non democratic way.

(2) They can't get caught in existing public sector labour markets and unions etc, they must sit apart in a special blue sky structure or they will end up in Post Office style incompetence.

(3) They shouldn't be afraid to compete with the private sector, stepping on private sector toes is likely to be inevitable if the projects are to have real world value, besides destroying private sector monopolies is the proper way to return excess shareholder returns to the public.

(4) They shouldn't enrich vested interests in the old fashioned crony capitalist way of 1930s Germany. Avoid outsourcing in order to build up in-house talent and avoid handing private sector counterparties a bonanza.

The political problem with such investment is that it takes on both the unions and the private sector at once, it is antithetical to the vested interests on the left and right who control today's political parties by patronage and tradition.

To this one FT reader, Eleftherios Leontaridis, replied:

It is telling that, whenever "out-of-the-box" suggestions are made, such as those suggested by some commentators, they run against the boundaries of that box. This shows clearly that a new definition of 'public interest" is necessary and hence a need to escape the orthodoxy.

Unfortunately governments are all but banned to undertake investment that might compete with the private sector. This is certainly the case in the EU, where there is still willingness (and some budget) for public investment in areas including infrastructure, R&D etc. but when projects are implemented, there is so much fear that public proponents might be sued on anti-competition grounds, that they stop short of real results in order to "let the market take over".

This reminds me of a conversation I had with a European Official about Northern Cyprus, a country in which the EU invests a small amount of money to promote peace and reconciliation etc. The most beautiful place in Northern Cyprus is the Karpaz Peninsular, it contains a national park which, unlike the rest of the country, has not been spoilt by low quality housing developments. The problem is that the local people living in the Karpaz region are poor and the government needs to bring more money into the region, so the temptation is to allow developers to build holiday homes for foreigners there.

The Karpaz contains some of the best beaches I have seen in Europe, and I suggested to this EU Official that he invest in an eco-tourism beach project. Professional investors won't touch Northern Cyprus because of it's unrecognised status, but it's a tiny country with little expertise of its own, so it's desperately in need of professional projects. Now the EU could build high quality traditional wooden or stone cottages on government land behind the beach, bringing tourists to the area without spoiling it. In this way the EU could make a return on investment and bring much needed revenue into the Karpaz region without spoiling it. It's a beautiful idea to help the country and protect the environment without costing anything. It's the perfect sort of project to leverage the political and economic power of the EU.

The EU official looked depressed and told me that he wasn't allowed to run projects, only gift money. So what the EU spend most of their Northern Cyprus money on is giving away tractors or giving away small sums to village projects. Instead of a beautiful EU owned eco tourism project on Golden Beach in the Karpaz, today you will find four shoddy little beach resorts spilling onto the beach and run by some totally unprofessional people who make a small fortune on a captive audience. The resorts don't even clean the beach, it's a sort of ultra low quality monopoly that does nothing for either the country or the environment. You pay more for a cockroach infested wooden shed without electric on Golden beach than you do for the average Northern Cyprus hotel!

The official admitted it was a tragic waste, then he explained the EU is obsessed by rules, it's like a religious order which creates a biblical quantity of new dogma every day. They have armies of people that obsess about every last detail, the idea of actually running a commercial project would be sacrilege of the highest order. For a Marshall Plan to work these rules have to totally junked, the EU has to turn from some kind of naive cash rich cow into an idealistic commercial business organization. We need to burn all the EU bibles, we need to create an organization with a culture of professionalism and innovation, not an organization with a culture of self deluded wastefulness.

You think Northern Cyprus is a special case, and the private sector works in the rest of Europe? I was on holiday recently on the Amalfi Coast staying on the islands of Capri and Ischia. Ischia's a sweet place but it's a fraction of what it could be. It's been developed in the most chaotic way, and although the houses are way better than in say Northern Cyprus, they are still pretty ugly. As a result houses in Ischia sell for peanuts compared to the more historical Capri. Now have you seen Prince Charles' Poundbury Project?

Although the village of Poundbury is brand new, the buildings were designed by Neo-Classical Architects to mimic a traditional Dorset Village. The design is high density rather than suburban. Instead of zoning, the developers mixed shops, houses and business together giving the village more character. The project echoes the United States 'New Urbanism' movement (eg town of Seaside), except the design influences are, of course, English. The houses include many period features such as chimneys. Even the occasional bricked-up window is included (a feature found on many old British buildings, due to the window tax). The roads are free of lane markings and road signs are kept to a minimum. Street furnishings are also traditional. To reduce unsightly on street parking there are many courtyards in the Village. Building in the tradition style, using mostly modern materials and techniques, apparently adds just 15% to overall costs. Moderate build costs, relatively high density and skyrocketing house prices have delivered Price Charles handsome profits. Other developers are now copying the idea. Once derided, Poundbudy has now become a model for sympathetic and popular development.

If I ran the the EU, I would use cheap finance and compulsory purchase orders at generous market prices to buy everything on Ischia. I would then bring in the Neo-Classical architects and build something absolutely extraordinary which I would rent to local people and sell to Chinese zillionaires. In the process I would create jobs, improve the environment, and make a tidy return on capital. Long ago I wrote an article about the UK in which I pointed out that the government can simultaneously solve the housing crisis, mend our broken society, stimulate the economy, and make a profit at the same time! Why "mend our broken society"? If you think about it carefully, the underclass isn't created from poverty, it's created from squalor. Rebuild our cities with the right architectural "psychological consciousness" and the social diseases will dramatically moderate.

People think this idea of rebuilding Europe is absurd, but that's because they have no vision or idealism. Look, the 29 houses that make up Kensington Palace Gardens in London England have a total market value of about three billion pounds - more than some English cities! I was at a dinner party several years ago with a very rich Italian and I said the property market looks heavy to me. He said "Maybe where you sit, but from my position property is the cheapest asset in the world!" I asked him what he meant. He said, "I spent ten million dollars on my wife's engagement ring, I spent thirty million dollars on my favourite painting, and I spent eighty million dollars on my favourite boat. But the best thing I have in the whole wide world in my favourite house. It cost one hundred and fifty million dollars, but it's like paradise on earth, in truth it's worth infinitely more than rings, paintings and boats. When you are old you realise that good property, my boy, is the most valuable commodity in the world, everything else is overpriced junk."

Do you understand that with a bit of brains the government can turn little bits of London into a billion pound bits of real estate for sale to the world's elite? Give them paradise, the environment doesn't suffer and the revenue can sustain the masses. Even thought they like to live in secure environments, they like the rest of us to live relatively close as well. They want to pop down to their local pub or local village for a bit of colour, as long as the plebs are civilized of course. Done right it can be a symbiotic relationship. Capitalism is hopeless because it is every man for himself, it has no cooperative vision, it builds Los Angles not Paris. If you have all the money in the world you spend your life looking for that little bit of land that hasn't been raved by trashy modern culture. Although we have technology our forefathers couldn't imagine, compared to the sort of vision we associate with Age Of Enlightenment Statesmen we are like a bunch of cockroaches sitting on a gold mine and feeding on garbage. Sixty years after the Wright brothers flew the first plane we landed on the moon - but what have we done since? Can you imagine if Christopher Wren or Haussmann could teleport into the earth 21st Century. What do you think he would think of our cities? How have we used out great technological powers? Do you think he would say the gods are happy with modern humanity, or appalled? It's the law of evolution that our pitiful incompetence dies out, the question is will we change ourselves, or will someone else destroy us the way we destroyed the Aborigines?

Capitalism stinks as badly as those plague ridden medieval cities! Look, last time I was in Italy I rented a car for 100 euros a day and it didn't come with a GPS Satellite Navigation unless you wanted to pay another 50 euros a day. Fifty Euros a day for a GPS I said, you must be kidding. If you had a corporate credit card, said the man behind the desk, you wouldn't care! There were ten companies renting cars at Rome airport and it was total chaos. Capitalism is rubbish, the EU could trash these private sector car rental companies by leveraging economies of scale and political muscle. The EU should be a sort hedge fund which gobbles up everything in Europe, bringing higher standards to multiple industries and multiple companies. Plato said the aim of government, which it must aim at like an archer, is to bring wisdom. Imagine the EU as NASA, Steve Jobs and Warren Buffet combined, that's the future Plato wants for us!

Then you have the really the big projects. In an article I wrote at the time of Obama's election, called What Obama Should Do, I said:

The next issue we must look at is the size of the stimulus package and the form it will take. China announced a stimulus package of 15% of GDP over a two year period. That would equate to about two trillion dollars if applied to the US economy so I will go for that amount. The money would be entirely used to build Nuclear Power Stations - at least 400 of them. This is enough power to end the use of fossil fuels in US electricity production, and it should produce a surplus capable of enabling at least the beginning of the switch to electric or hydrogen cars. One of the possible goals of this massive nuclear investment is to bring the marginal price of nuclear electricity so low it can eventually be used to end the use of fossil fuel industrial heating, which would be an event of monumental significance.

The two trillion dollars would be placed inside a government owned company that would own and operate the power stations. It would be expected to make a profit, especially given the economics of mass production, and would be an asset to future generations rather than a financial burden. Hopefully this company would become the world leader in nuclear energy and would go on to profitable projects abroad as well. Just as America has led the computer revolution this investment should enable America to dominate nuclear energy. The potential market is mind boggling - one day virtually the entire whole world will be 100% nuclear.

As well as meeting all CO2 targets and transforming the Climate Change problem the switch to electric/hydrogen cars would provide an enormous stimulus to the automobile sector. American could dominate car manufacture as well.

In order to ensure the new nuclear and car industries do not fall prey to union inefficiencies as GM & AA etc did, I would introduce legislation banning the right to strike in the US. If the workers don't like the wages they will have to leave, it's as simple as that. It sounds radical for a democrat but in truth only a tiny proportion of workers in the USA belong to unions anyway and those that do are concentrated in industries that are consequently on the edge of bankruptcy. (Note: the key failure of communism was not state owned enterprise, or even central planning, but rather the absence of worker incentive. The Thatcher / Regan revolution was really about supply side labour market deregulation.)

In addition to solving climate change and stimulating the economy, the famous American addiction to Oil would be utterly killed. America is forced to intervene in the Middle East in order to ensure the stability of its oil supply. This would end and America could disengage from Middle Easter politics.

That's the way forward! I am not saying that Europe doesn't face some enormous challenges in the 21st Century, but the truth is if we steal a few of China's tricks we can give China a run for her money. What's the ultimate vision? Napoleon said "Let the Chinese sleep, for when they wake the world will shake". Well we are in luck because they the truth is they are still sleeping, and now it's our chance to get a head start. So let me really blow your socks off with some proper vision! Think of the EU as some sort of viciously powerful evolutionary mechanism which deliberately competes with the private sector, destroying the profit margins of rent seeking companies and brining better economic practice to society. These chief executives will suddenly find themselves on a playing field which tilts gently down toward the state. They won't be able to coast along earning fat profits anymore, they will have to fight tooth and nail to out compete the brightest and best scientists over at the EU. Never again will people like me say (over a few beers and in private): "To be honest, I am rich because lucky, I was just in the right time at the right place, and I was surrounded by fools who were even more stupid than me." Yes the poor old stock market will be demolished in our new world, and the investment of choice will become government bonds. The EU won't just grab the stock market by the balls, it will run viciously competitive labour markets and the unions will be up in arms as well. It's a total transformation of our society, its works alongside the old system, but it slashes through the problems of both capitalism and socialism. It will have the lady journalists at the Guardian screaming as hard as the boys at the Telegraph. It will bleed the rich and hammer the lazy. It will feel like a cross between Ancient Sparta and Star Trek.

In another article of mine I said:

The EU needs to bear in mind the critical factor which will allow it to survive is it's cultural, architectural and environmental advantages. If ever we see the quality of life in China beginning to eclipse Old Europe, we know the EU, and the entire Western World, is finished. Europe has to imagine itself as place of beauty and intelligence which captures the high end of economic production. It also has to build an educational and cultural system which ensures it's own people will not ruin that sophisticated vision. It's disgraceful that China now leads the world in Classical music, and China's educational system now outclasses that of Europe. The EU needs to remain the most culturally and intellectually advanced state in the world.

Germany was devastated by the War, but Munich was rebuilt and it is now a place of outstanding beauty. If I spoke German, I would happily spend my weekdays in Munich and my weekends in Saltsburg. Let the Chinese build skyscrapers, remodel Germany along traditional lines. Tear down the post modern concrete ugliness of post war Germany, and rebuild a country Mozart would approve of. Have the guts, or just the common sense to say: Objective truth exists in aesthetics just as it does in economics, Jimmy Hendrix is worse than Mozart, and modern architects are no better. Make Europe the best place in the world to live, a place of outstanding architectural beauty, a place of refined and intellectual values. Make sure that rich Chinese retire in Europe, and that Chinese intellectuals prefers to work in Munich instead of Bejing. Frankly I think the Germans should go the Singapore route and move their education system into English, as HG Wells pointed out, a utopia without a common language is an absurd idea.

The importance of capturing the world elite is far more important than people realise. America grew by immigration, but America became a 'hyperpower' by elite immigration. It was German science that build the Atomic Bomb and the Rocket Engine. One can survive without elite immigration, and even prosper, as Finland shows. But to be the world's most powerful state you need to be the centre of elite immigration. The EU can do that, better than any other place on earth. For China the risk is that it's enormous population density and modernity stifle it's quality of life, and it consequently suffers from continuous elite emigration. Led by Otto von Bismarck the EU would give China a run for it's money, it might even become the most powerful state in the world.

Our new Otto von Bismarck would know that the goal of government is not letting it's people do what they want, or even keeping them happy and well fed, it is building a beautiful and intelligent society. That would be his single aim of government, to recreate the modern equivalent of Fredrick The Great's Germany. It's not trashy capitalism, it's not equality obsessed socialism, it's an enlightened utopia orthogonal to conventional political models. Our new Otto von Bismarck will know he has succeeded when composers better Mozart.

What about Greece, she can't borrow and business is suffocated in red tape. My new EU hedge fund would enjoy special trans national regulations which means it can bypass local laws and taxes. On the FT web site today there was an article by some Dutch politicians about austerity and threatening the Greeks with being kicked out of the Eurozone if they don't improve their game. This long overdue toughness is a good thing, but a Greek commentator wrote:

In a country such as Greece the economic architecture for high quality growth is sorely lacking and the problem is that both the political and citizen classes don't have a clue how to create it, nor were even aware of the need for it until recently. This is where we need true European cooperation - other EU countries should send in experts to advise, to do analyses and indicate what is going wrong and how to put it right. It shouldn't be just about passing directives and expecting each member-state to implement them because some member-states don't know how to do so. We need coordination on values, behaviour, mentality and attitudes as well. In Greece it is common in every sphere of life to set deadlines and then to break them and constantly try to set later deadlines and just stumble along and hope things sort themselves out eventually. Everyone does this all the time, not least the government and the state. So, when the bailout terms set certain deadlines, instead of making an effort to stick to those deadlines, to plot a strategy and have some element of project management, Greek politicians just think, "yeah, we'll try and stick to it but if we can't we'll just tell the Europeans that we need a bit more time and of course they'll understand." That all needs to change and fellow EU politicians need to make this clear to the Greeks, but they also need to be aware that Greece doesn't have a tradition of keeping to deadlines or an understanding of how to plan and strategise so that things get done on time. We need help with that.

I thought that was a nice post, and replied:

This comment emphasises the point that fixing Europe is not about fiscal straight jackets, it's about meaningful reforms that create more efficient, more smart economies. It includes the sort of supply side reforms the Spanish never made, and the sort of regulatory reforms the Irish never made, but which later suddenly derailed their economies. The politicians we see in these articles simply turn the debate into a sort if "risk on - stimulus", "risk off - austerity" type analysis which drives us all up the wall. It's as if intelligent economic reform has eluded them for so long they have given up all hope and settled on managed depression. I wish these politicians could think more carefully about proper reforms. They probably don't want "interference" in Holland or Germany where they think times are good, but they must give it their utmost attention in Greece and Italy, imposing it at first unwillingly in return for cash, but eventually winning the hearts and minds of the people with the success of their labours.

Furthermore if you think about this post you realise the troika have, in a way, let Greece down almost as badly as Greece have let them down. All they have come up with is sacking some government workers and selling some state assets at a knock down price. What Greece needs and wants is proper micro involvement in government, not just an axe job on society. So how can Greece get what it wants? Some reform has to be by the stick, by which I mean the threat of ejection from Europe in disorderly default. But a lot of reform has to be by the carrot as well. Instead of handing Greece chunks of cash we need this idea of a European Marshall Plan which is cross border investment projects designed to make small returns. That investment can trickle down into better working practices etc in a way that doesn't have to fight against democratic irrationality. You can exempt these investments from Greek labour laws and regulations, allowing quick bypass of red tape. As these investments flourish voters see the advantage of less red tape etc and reform the wider economy. Think of the the Chinese special economic zones that pioneered Chinese development long ago. The countries that lend own these investments in Greece and take profits, so it doesn't have the political toxicity of bailouts. The other day we had an article in the FT about how it would be a disaster if the German government bought some Airbus shares. We need to move past that out of date mentality and think about the sort of profitable private sector competing State Owned Enterprise the Chinese are advocating. Chinese ideas about State Capitalism have taken Africa by storm and contributed to dramatic improvements in African economies, we need these ideas in Europe too.

I am almost finished, but I think there is another nettle Europe needs to grasp for salvation. There is a quick way to bring an end to this sovereign debt crisis and I think it should be taken. Here is another post of mine:

What do you think about this idea of mine which puts to bed the Greek sovereign debt crisis by confiscating the assets of wealthy Greeks? You can nationalise real estate, freeze bank accounts in Switzerland etc. It would require some new laws rushed through parliament and a bit of negotiation with with the EU, and Greece is not as top heavy as India, where wiping out a couple of men could pay the national debt, but it's still perfectly feasible. Frankly I would nationalise banks as well, wiping out share holders and bond holders in one swing of the axe. You don't need to think of it as necessarily the end of extreme wealth and capitalism, just a sort of inequality reset button which recognises the inefficiencies of the system up until to now. The only danger is that politicians become addicted to nationalisation instead of using it as a one off. They wipe out their debts, then fail to reform, then wipe them out again. Don't you see nationalisation is the natural replacement mechanism for devaluation in a fixed currency system like the Euro? You never see nationalization mentioned in the public debate, just tax increases on millionaires, but it's a much better way. I think it's probably inevitable for Greece, people are just too blind to see it yet. What do you say my friends, will you grasp this nettle with me a year before the mob? Remember Plato's Laws, periodically we need to press the reset button on society by either nationalising everything or destroying the monetary system. Remember Casablanca, during WW2 the rich had no place to hide. Or Gone With The Wind? Or Doctor Zhivago? Riches should come with dangers, or the rich become fat cats! Are you with me? Even for we who will suffer, don't you think it's not just unfair on the little people, it's boring for us?

That's about it, my simple plan to restore Europe. By the end of it, perhaps fifty years of rebuilding, Europe would be a neo-classical paradise, most of the real estate would belong to the government and be rented out Singapore style, and every rich Chinese scientist would have jumped ship and joined us. 

Radical? Let me remind you of a few things Steve Jobs said: "When you're a carpenter making a beautiful chest of drawers, you're not going to use a piece of plywood at the back, even though it faces the wall and nobody will notice it. For you to sleep well at night, the aesthetic, the quality, has to be carried all the way through."

Capitalists say using a better bit of plywood at the back is irrational. But it's not irrational if you look past the market value toward what Plato would call the perfect invisible Form the manifestation articulates. So when Steve Jobs describes the 'aesthetic-quality judged by the idealistic carpenter' he is describing a concept from Platonist philosohpy. The reality is that you can maximize wealth by dumbing down or upping your Form expressing game; it's another one of those dualities; like the reality that you make yourself happier by going out to get more, or by being happy with what you have. The philosopher leans to see past these dualities in the illusionary sense perception world, and instead stays focused on the invisible Form of good and beauty. What I am saying is that if you treat money as a proxy for wisdom you can head in precisely the wrong direction. Conscious human stupidity comes out of focusing on the wrong target, philosophy is the art of seeing the target. Don't you see that's precisely what capitalism has done, it has taken the dark path towards the cave wall shadows by assuming that wealth is wisdom instead of one of the fruits of wisdom, and that path ends in disaster, and now it's time to start again in search of that perfect scientific aesthetic utopia.

So actions which damage the market price can bring greater wisdom, and actions loved by the masses can damage social good. It's not just about chests of drawers, it's about our entire liberal culture. Under liberalism consumers start ordering the experts around, gradually everything that's good gets chipped away by superficiality and populism, and one day we wake up to realise that everything we produce is superficial junk, all our specialist skills have disappeared, and we are nothing more than worthless advertising executives. China produced 560 million watches in 2009, Switzerland produced 22 million, yet the Swiss industry’s revenue was almost five times higher. Is that because Swiss watches are so much smarter than Chinese watches, or because the world is inefficient? Is it just marketing smoke that will blow away one day and leave us to freeze in the horrifyingly cold light of day.

Talking about the trashiness of modern society, Steve Jobs said: “When you’re young, you look at television and think: There’s a conspiracy, the networks have conspired to dumb us down! But when you get a little older, you realize that’s not true. The networks are in business to give people exactly what they want. That’s a far more depressing thought. Conspiracy is optimistic! You can shoot the bastards! We can have a revolution! But the networks are really in business to give people what they want. It’s the truth.”

In my opinion Hollywood has already reached its Microsoft moment, these days remakes are back in fashion because producers worry that people have tired of shallow modern scripts. But it's much worse than that, everything about Hollywood from the scripts to the acting to the camerawork to the editing is toxic waste. The very zeitgeist of modern cinema is a sort of pure hypnotic mindlessness that is so completely and utterly unworthy we should just burn the entire house down and start again.

In Plato's philosophy for dummies what's the opening argument? The purpose of life is wisdom, and wisdom is on the one hand idealism, and on the other hand focus. Utopia is the hive society in which each person has his particular skill which he loves and focuses on. He leaves decisions outside his area of expertise to the relevant experts. It horrifies the liberal arts crowd because they think of themselves as skilled in everything, they don't believe in expertise. Plato called that viewpoint "sophistry", and it's the primary evil that has brought our world to it's knees.

Dyson said he build a machine to vacuum the floor and wash the floor, but no one was interested. When he stripped out the washing feature it became a hit. Too much information is confusing. I should stop, but there is one more thing to say because I am going back to writing about Plato for a while and leaving this "idle talk" (see Plato's Sophist). How far can we push the post capitalist model? Do you know what the difference between Tesco's Toothpaste and Colgate's toothpaste is? Can you tell them apart in a blind tasting? Do you know which is better for your health? Do you even know what the basic ingredients of toothpaste are? No? Then how can you possibly call yourself a rational agent maximizing utility? Capitalism is so completely stupid only a god forsaken zombie could believe in it. All those toothpaste brands are a waste of time that enrich stock holders like me at your expense, we could set up one factory in Greece that made all the toothpaste in Europe and save a fortune. We can give people twice the quality of life at half the price by cutting away the rubbish that serves no function and just contributes to economic and environmental waste. That's what the new world is all about, using your brain not relying on some absurd theory called invisible hand which is supposed to be perfect in the long term. In the long term we are all dead - and dead is what you are going to be if you don't get what I am saying soon!