The Ricardian September 2011 by Abdur-Razzaq Ahmed

Editorial Board Tom Hill Adam Salisbury Chief Editors Akbar Ali James Chauncy Khalid Hayat Nathan Holt Pearse Johnson George Taylor Rayhan Uddin Topic Editors Alex Ireland Multimedia Rayhan Uddin Magazine Operations Abdur-Razzaq Ahmed Paul Bridges Directors

Why

Ricardo?

Ricardo is the economist most identified with the importance of trade in economics, arguing that free trade will lead to benefits for all. Whether or not you believe Ricardo, we are living in a world when trade is increasingly seen as the way for countries to grow out of poverty. India, China and Africa are recording impressive growth figures backed by a trade based development model. The idea of interconnectivity underpins Ricardo‟s theories, and with the rise of the behavioural economists we are seeing this inter-connectivity more and more at the micro-economic level. As the UK tenderly emerges from arguably the worst financial crisis since the Great Depression of the 1930‟s, all political attention is seemingly veered towards the prospect of a complete and sustained economic revival. In resonance with our current situation, we have selected the theme of „economic recovery‟ to embody this edition of The Ricardian. ‘I was surprised to hear that The Ricardian is produced by sixth form students at Tiffin School. It looks and reads like something that should be available in WHSmith. The study of economics will be enhanced by this welldesigned and well-written magazine. David Ricardo would be proud to lend his name to such a project.’ Alan Johnson MP

The Ricardian Magazine Issue 3, September 2011

5 Join Us at The Ricardian

Editor’s Piece 6 What Next For Britain

Front cover „Recovery and Hope‟. The financial crisis has made us question the true stability of the economy. The Ricardian‟s Chief Editors dig deep to explain Britain‟s chance of recovery on Page 6. Photograph: Courtesy of eHow.com

News & Current Affairs:

32 Ireland: Boom to Bust 33 E-coli: Economic Casualties 34 Grey Britain 35 Cybernomics

8 Top News Stories

36 Why America will never recover

10 The Selfish Middle

38 Interview: Will Hutton

11 A True Greek Tragedy

42 Renewable Energy

12 Aid to India

43 It’s The Economy, Stupid!

Middle East Special 14 An Overview 16 A Storm is Brewing! 18 Is time running out for Israel? 19 Rise and Fall of Gaddafi 22 Interview: UKIBC Chairman, Patricia Hewitt

44 The Brain and The Consumer 46 Is There Such Thing as a Safe Investment? 48 High Speed 2: For and Against

History 50 Spanish Democracy

25 Column: Cromwell

Features The sand in the egg timer won’t flow forever... Israel is in no doubt in an extremely complex political situation - where do they go from here? After years of conflict, is peace a realistic prospect? Page 18

26 The Rise of China? 28 Competing by Co-operating 29 Do you love wealth better than liberty? 30 War-led Economic Recovery: USA vs. Iran!

America’s recovery - Is it possible? Is there ever going to be an opportunity for America to recover? And if so, when will this shining beacon arise? Page 36

Contents continues overleaf >

Double Review The Ricardian reviews both the bestselling film, “Capitalism: A Love Story” and the director, Michael Moore on Page 64

War-led Economic Recovery: USA vs. Iran! Page 30

Lectures: 52 Lectures in the Future Ireland: Boom to Bust What does the future of Ireland look like? And how did we get to where we are now? Page 32

Capitalism: A Love Story

Michael Moore - Author and Filmmaker

54 Tim Harford

Classroom Economics: 56

When Boris Met Bob!

Dear Riacrdian,

Importance of Interest Rates

Arts and Books:

The Ricardian is now in the hands of a new editorial team! The new logo was created by Minuk Lee and Alex Ireland. Find out how you can write for the magazine and get involved with the editorial team on Page 5

Discover Your Inner Economist

The End of History and the Last Man

The Discipline of Law

Free Lunch

“An impressive magazine delivered by editors with passion and drive - and above all, an understanding of economics!” Will Hutton

Grey Britain What will be the outcome for Britain‟s ageing population? Daniel Teh takes a look on Page 34

To contact The Ricardian: Chief Editor: ricardian@tiffin.kingston.sch.uk

Editor in Chief: ricardian@tiffin.kingston.sch.uk A.Ahmed: aa.ricardian@live.co.uk P.Bridges: p.bridges@rgs-guildford.co.uk September 2011

Dear Ricardian reader, When we first began The Ricardian a year ago, the main priority was to enhance the university applications of Tiffin students, by giving them a platform on which to exhibit their passion and ability in the fields of economics, history, philosophy and politics. What we have discovered though, is that the magazine has far more potential and could benefit far more students. Thus, for the first time, with the help of Tutor2U, we are opening up The Ricardian to students from all UK schools and foreign students. We aim for our fourth edition, set to be published in February 2012, to showcase the ideas and opinions of student economists, politicians, historians and philosophers on a far wider breadth of issues that face us today. If you choose to write an article, you can rest assured that our editorial team will help you create an interesting piece that others will enjoy reading. Many of our previous writers have described how writing in a journalistic style has helped them in many other genres of essay writing. The previous editions can be viewed online at www.issuu.com/thericardian Still not convinced? Our previous editions earned us recognition with many schools and academic institutions across the country and our online editions have been viewed in 14 countries across the world including the USA, China and India. With us, you are not only writing to bolster your UCAS personal statement, your words will also be read by thousands of like-minded people. What more is there to say? If you are a student and want to make your voice heard start drafting your article now! Send your draft to our Editor-in-Chief after October 1st 2011. For more information and contact details, please visit our website. If you are an academic institution or a prominent individual, we may be interested in creating a partnership or conducting an interview. We would like to hear from you as well â&#x20AC;&#x201C; please contact Paul Bridges, our director, on p.bridges@rgs-guildford.co.uk.

Yours faithfully,

Abdur-Razzaq Ahmed Director

Paul Bridges Director

The Ricardian Magazine Queen Elizabeth Road Kingston Upon Thames Surrey, KT2 6RL www.thericardian.co.uk

’

Editor’s Piece What Next For Britain? When the Ricardian was first published, there was much ambiguity with regards to the future of Britain‟s economy, as all previous predictions had been distorted by the recent financial crisis. Two editions later, it seems that our future is no more obvious than it was back then, and so the topic of recovery still induces heated economic debate. In this editions Editor‟s Piece, we shall attempt to produce a balanced assessment of what lies in store for Britain's economy. Adam Salisbury and Tom Hill

s we experience the aftershocks of the 2008 global financial crisis, it is understandable to feel slightly pessimistic towards the prospect of a British recovery. With reports of the Eurozone running wildly out of control, accompanied by the ever-present threat of a double-dip recession, the next few years appear to be shrouded by gloom. But is Britain‟s future so set in stone? Whilst a turbulent few years seem all but guaranteed, there are also several reasons for optimism in the British economy, which somewhat counterbalance the bleak prophecies littered throughout the newspapers. This era of ambiguity forces us to ask the inevitable question; what lies in store next for Britain? The „shape‟ of the British recovery has been subject to intense economical debate. Early last year, hopes for a V shaped recovery (a strong, immediate recovery after a brief period of economic decline) were enhanced, having been encouraged by robust quarterly economic growth. However, these hopes were somewhat dashed by the growth faltering again in late 2010, which was much attributed to the heavy snow in the months of November and December. The dreaded double-dip recession is encompassed by a W shaped recovery, as it states that the brief respite of growth we are currently enjoying is only temporary, and will soon give way to a sudden period of economic hardship. Fears of a doubledip recession were ignited during the latter part of 2010, but thankfully for now, whilst it still lurks on the edges,

recent economic improvement has made this a slim possibility. Instead, the pessimists have put faith in a U shaped recovery, which argues that whilst we may not encounter another sharp fall in national output, we shall continually fluctuate around positive and negative economic growth, and it will be a sustained slump before any real prospect of recovery emerges. The real doom-mongers among us have even warned of an L shaped „recovery‟, which predicts a long-term slump with no improvement, much like Japan has experienced for the past two decades. After examining our current economic arrangements, which of these possibilities are we most likely to encounter? Starting off on a positive note, the minor slump last winter by no means justifies completely writing off the possibility of a V shaped recovery; indeed, there are many reasons to feel confident about the future of our economy. Firstly, the gradual weakening of the pound has allowed Britain‟s export market to flourish recently, as it has made British goods relatively cheaper to foreign countries and has thus stimulated demand. More encouragingly, it appears that the Euro will continue to strengthen, which is particularly reassuring considering that the Eurozone is by far Britain‟s strongest trading partner. As Axel Murk, portfolio manager for the Murk Hard Currency Fund explains, the Euro‟s continued strength against the pound can be accounted for by both robust German economic growth, as well as David Cameron‟s five year fiscal austerity programme.

Assuming this continues, we can expect the trade deficit to improve, which will lead to a sustained rise in GDP and hopefully a strong, export-led recovery. Not only this, but a powerful stock market rally has also helped boost both business and consumer confidence. Whilst recent events such as the Japanese earthquake

“ The „shape‟ of the

British recovery has been subject to intense economical debate

”

and Middle East unrest have caused a slight falter, this must not detract from the fact that the FTSE‟s total rally to the mid-February 2011 high of 6091 represented an incredible 73% recovery from the low of 3512 in March 2009. Moreover, the recovery may have been even more substantial had it not been for BP‟s Gulf of Mexico oil spill, as BP was ranked as the index‟s biggest stock at the time. This recent boom can be much attributed to companies revealing better-than-expected profits, as well as the incredibly low interest rates which have made it cheaper for companies to operate. Assuming that we are experiencing a brief blip in an otherwise stable upward trend, this increase in confidence will ultimately lead to sustained investment and consumption, which will aid the prospect of a „V‟

shaped recovery. Furthermore, the London InterBank Offered Rate (LIBOR) has fallen back to pre-crunch levels, measuring 0.82625% on June 6th at latest measurement. The LIBOR influences the level at which lenders set some rates on loans, especially mortgages, to consumers and to businesses. It is the rate at which banks lend to each other and is therefore a measure of how much they trust each other, and a measure of the credit crunch. The return to precrunch levels provides a positive outlook for the British economy as a whole, as it indicates that confidence levels are returning back to normal. This bodes very nicely with our hopes for a strong, quick recovery. As you can see, the bleak forecast may be accounted for by traditional British pessimism rather than genuine economic rationale. However, there is another side of the coin as it were, which paints a significantly different picture with regards to the recovery. Perhaps the most topical point to consider is the savage spending cuts that have been recently pioneered by the coalition government. Whilst they will serve as an efficient means of tackling the budget deficit, the loss of public sector jobs will significantly reduce our economy‟s overall output. This degree of fiscal austerity comes with a certain time lag, so currently we have been relatively unscathed by these cuts, but we can expect their full impact to take its toll within the next few months or so. This makes our recovery a slightly hazy prospect, as it is clear that the rising unemployment levels associated with a lack of spending will definitely hinder any future economic growth. Aside from the spending cuts, the impact of Quantitative Easing remains unknown, and there is a worrying risk of it inciting increased inflationary pressures. If this is the case, then the Monetary Policy Committee may raise interest rates to combat this, as unsustainable levels of inflation can lead to wealth erosion and popular un

certainty. However by doing so, individuals and businesses will be more incentivised to save rather than to consume or invest, which in the short run, will lead to a fall in aggregate demand. This supports the notion that we are currently experiencing a U shaped recovery, as future growth shall continue to fluctuate around typically low levels. However, this inflationary scare is somewhat dwarfed by the problems presented by the colossal debt that consecutive British governments have accumulated. Currently, the total debt stands at an incredible £870 billion (or 62% of GDP), and is increasing at £178 billion per year (or 13% of GDP). But it doesn‟t end here; the official measure fails to include public sector pensions, the costs of bailing out banks, and consumer debt in the form of credit cards and mortgages. All this combined together adds a further £3.7 trillion on to the overall debt, which amounts to an unbelievable 466% of overall GDP. If this continues, the government will be forced to pay higher rates of interest to borrow more money, making it more expensive to service its debts and thus leaving less money to spend on helping the economy. Not only this, but the interest rates on yields have a significant influence on the pricing of some overdrafts and fixed rate mortgages, which will ultimately increase the costs of borrowing for both consumers and

businesses. In order to not let this happen, we must face a prolonged period of fiscal austerity, as it is only by making these cuts that we stand any chance of conquering this massive financial burden. The prospect of sustained cuts makes the likelihood of economic revival all the more distant, which teases us with the threat of a „U‟ shaped or maybe even „L‟ shaped recovery. Yet we must not lose faith. For one, the fiscal tightening that David Cameron has introduced is certainly a step in the right direction, and whilst in the short run the labour market may suffer a shock, in the long run we can be sure that it will adapt. This will be further aided by an increase in privatisation, as this will create more jobs and help reduce government expenditure. Moreover, as the world economy is undoubtedly recovering, the demand for British exports looks set to increase, as the recent development of less economically-developed countries has led to a rise in the demand for financial services; Britain‟s primary export. Whilst no conclusion can be made with any degree of certainty, it seems that these contributors should just about ensure a full British recovery. Whether the recovery shall be instantaneous, gradual, or on the back of another recession is another question in itself, however. Whatever the outcome, it shall be interesting to see whether Britain emerges from the recession with her head held high, or whether she crawls out upon hands and knees. R

Nathan Holt summarises the world‟s most important news and assesses the situations of global economies.

United States of America GDP Growth: 2.3% Interest Rate: 0.25% Current Account: -0.84% of GDP Budget Deficit / Surplus: Deficit of 10.3% of GDP

GDP Growth: 1.80% Interest Rate: 0.5% Current Account: -0.77% of GDP Budget Deficit / Surplus: Deficit of 10.2% of GDP

The USA‟s recent history has been distinguished by the dark shade of war in the Middle East. But with the death of Osama Bin Laden, it seems the USA feel they can finally draw to a close another painful chapter in American history, that begun with the 9/11 terrorist attacks, and was followed by wars that cost thousands of military and civilian lives. In a televised statement to the US, the president Barack Obama has begun the long retreat from Afghanistan, proudly proclaiming success against Al-Qaeda and the Taliban and announcing the withdrawal of about a third of US forces next year. 33,000 US troops are to be withdrawn by the summer of 2012 and by 2014 all remaining US and British combat troops are scheduled to have departed the country. However, the war‟s legacy will still be firmly printed in history, with the data released by Wikileaks last year showing the total death figure will be over 25,000, with over 4,000 of them civilians caught up in the conflict.

The UK has shown uncharacteristic resilience against the EU‟s fresh attempts to resolve the catastrophic Greece crisis that threatens to shake the whole economic world if left unresolved. David Cameron, the British Prime Minister, has repeatedly refused to contribute to any new bailout being negotiated for Greece, but will only contribute its share of the UK‟s IMF obligation. But whilst Britain is not liable for the main part of the EU bailout, which will come from the €440bn fund guaranteed by the 16 members of the Eurozone, it does have liability for the €60bn European Financial Stability Mechanism (EFSM). Although the EFSM is instigated by qualified majority voting, and thus Britain does not have veto and the power to block the economic instrument, Cameron is nonetheless confident that the mechanism will not be used. Meanwhile, the Afghan death toll reached 300, after 15,000 British, US and Afghan troops launched a joint offensive against insurgents in central Helmand.

Mexico GDP Growth: 2.80% Interest Rate: 0.25% Current Account: -3.29% of GDP Budget Deficit/Surplus: Deficit of 9.10% of GDP

Since Felipe Calderón began his presidency in 2006, more than 28,000 people have been killed in the renewed assault on the drugs cartels. The Mexican populate had begun to grow weary with the crusade on which Calderón staked his presidency, with less than a quarter of the people believing that the ever rising death tolls are an acceptable price to pay. However, recent developments have provided the much needed willpower to continue the flagging war against the rampant cartel bosses. Police have arrested Jose de Jesus Mendez Vargas, alleged leader of the notorious La Familia drugs cartel, a group with a reputation for gruesome violence. In addition to this positive news, is the announcement from US Secretary of State Hillary Clinton that the US would increase its aid by more than 10% to nearly $300m

Argentina GDP Growth: 9.9% Interest Rate: 9.00% Current Account: -0.22% of GDP Budget Deficit/Surplus: Deficit of 1.50% of GDP

The current president, Cristina Fernández de Kirchner, would have been mad not to run for re-election as president in the scheduled vote for October. With a strong economy running at an annual growth rate of 9.9%, a hopeless opposition and a flood of sympathy from the whole nation after the sudden death last year of Néstor Kirchner, her husband and predecessor, her candidacy seemed unstoppable. But with merely days left for candidates to announce, Ms Fernández has finally put herself up for a second term in office, claiming "I always knew what I had to do and what I needed to do." Despite ever-increasing inflation, which is now running as high as 30%, and the attempts of Ms Fernández‟s opposition to rally has left the president‟s chances of reelection almost certain. .

9 Italy

China

GDP Growth: 1.00% Interest Rate: 1.00% Current Account: -3.30 % of GDP Budget Deficit/Surplus: Deficit of 4.60% of GDP

GDP Growth: 9.77% Interest Rate: 6.31% Current Account: 0.61% of GDP Budget Deficit/Surplus: Deficit of 2.5% of GDP

Silvio Berlusconi‟s continued reign in power as Italian Prime Minister seems completely irrational. For years, Italy's longest serving post-war prime minister has narrowly dodged a series of political, sex and corruption scandals, and the constant drip of accusations against him are causing many of his friends and allies to slowly drift away. Only in February was Berlusconi ordered to stand trial on 6 April on charges of paying for sex with a minor, but once again the Italian Prime Minister is in the news for the wrong reasons. An Italian court has ruled that his holding company Fininvest must pay 560m Euros (£500m) in damages to a rival media group, CIR, over bribery allegations.

Ai Weiwei, the Chinese artist and activist against the undemocratic Chinese regime, ironically came to world fame with the help of the Chinese secret police, when he was arrested in April for typically doubtful allegations of tax evasion, in a recent wave of oppression over Chinese activists as the world's eyes were elsewhere. But in an unexpected turn, after nearly three months of detention the outspoken artist has been released from detention after apparently confessing to tax evasion and pledging to repay the money he owed. A hopeful sign of democracy? Unfortunately the answer is no, as the inevitable catch is said Ai Weiwei now lives under a gag order and cannot leave Beijing without permission. This move by the Chinese authorities emphasised concerns about China's growing use of extralegal methods to mute dissent, instead of simply just detaining its targets.

Greece GDP Growth: -5.55% Interest Rate: 1.00% Current Account: -0.84% of GDP Budget Deficit/Surplus: Deficit of 10.5% of GDP

The European chapter of the global economic crisis has centred around Greece from the beginning, and still is now more than ever. At the time of writing, a second colossal bailout is being debated, but only in order to rescue international bondholders and buy time for banks, before its unavoidable bankruptcy, default and possibly even exit scheduled for 2015. Even now the Greek Prime Minister, George Papandreou, can find no friends either abroad or at home, and faces an uphill struggle for continued leadership . Internationally, Greece faces the scorn of the rest of Europe for bringing the Euro to the brink through an economic system of vast public and private indebtedness, low competitiveness, huge current account deficits, and rapidly ballooning public deficits and debts. While on the domestic front. the government‟s austerity measures have brought violent demonstrations onto the streets. Zimbabwe GDP Growth: 2.2% Interest Rate: 8.00% Current Account: -23.0 %of GDP Budget Deficit/Surplus: Deficit of 7.60% of GDP

Although the world media‟s attention has been diverted to the incredible uprisings in Northern Africa and the Middle East, the tales of war, corruption and suffering have by no means disappeared from the rest of world‟s most volatile continent, in particular Zimbabwe. The power share between Mugabe and Morgan Tsvangirai that helped stabilise the economy and reduced political violence is already wearing thin after two years. After his ally, Energy Minister Elton Mangoma, was arrested in March, the „prime minister‟ Tsvangirai said that the relationship between the parties had broken down and called for elections to be held. But not only has the possibility of another election been delayed until 2012 at earliest, there are increasing signs of the old dictatorship, with a top army officer from the political biased national military openly labelling the leader of the Movement for Democratic Change party, “a major security threat.”

Australia GDP Growth: 1.20% Interest Rate: 4.50% Current Account: -0.16% of GDP Budget Deficit/Surplus: Deficit of 3.11% of GDP

The Australian government has signed the final set of network deals that will deliver high-speed internet to more than 90 percent of its households across a country with a total land mass over 30 times greater than the size of the UK. Previously, the great distances and harsh terrain of Australia have kept internet speeds slow and costs high, but the government hopes that the introduction of the National Broadband Network will change this. The $38 billion plan will be the linchpin success for a deeply unpopular Labor government, who hope to boost their own poll ratings by boosting competitiveness for businesses and providing a service for the populate as a whole that is rapidly becoming a „need‟ in the modern era.

The Selfish Middle Political history holds the key to our unprecedented era, and our unknown future. Nathan Holt

y no means is Britain and much of the rest of the Western world fully out of the recession. Yet as the Greek crisis threatens to bring down the whole Eurozone and Britain with it, it seems the public, the financial professionals and the politicians are more interested in raggedly fighting their corner in a blame game set in the past, rather than tackling with total focus the far more pressing matter of a difficult future ahead. This blame game centres around the seemingly desperate „need‟ to place the causes of the downfall of a whole hemisphere on one section of Western society, and ultimately punish them by placing the burden of the UK economy‟s recovery fully on their shoulders. The only current general consensus nearly two years after the first signs of the financial collapse seems to be that there must be a single cause for the world‟s woes. On the surface it seems the struggle‟s allegiances have come from the same old sides; private sector vs. public sector, while an indecisive UK government, which already is dogged by a reputation of U-turns, closely supports the right but with an unsure eye on the opinion polls. The October 2010 budget that contained the most drastic budget cuts in living memory placed, if not the blame, the burden of mending the UK‟s broken economy on the public sector and the poorer, disadvantaged sectors of society, while the banks that were arguably at the centre of the downfall escaped with barely a slap on the wrist. Yet while this all should have sparked such intense public-sector anger that the government would be made

to think again, the backlash was oddly muted, even rhetorically, only surfacing briefly in the riots over the rise in Tuition fees. The long awaited public sector protests only began finally to call the government to account in the public sector strikes on the 30th June. Angered by the proposed cuts to all public sector pensions, the marches consisted mainly of Teachers‟ unions, causing disruption to 11,000 state schools and also to courthouses, tax offices and employment centres. But while the walkouts were the first round of what

“ The promised public sector strikes are reminiscent of the industrial confrontation of the 1980‟s

”

unions hope will be a summer of discontent against the Conservative-led government‟s austerity plans, the target of 750,000 workers that unions expected to join the one-day strike was clearly unmet. Ultimately from the protestors‟ point of views, while the outcome was more respectable than the student riots, it was not the sensational success that seems to be needed to grab the government‟s and nation‟s attention and support. Yet a leaked letter from the Communities secretary Eric Pickles to the Conservative Prime Minister David Cameron reveals that another 40,000 are to become homeless under the austerity measures set out by the Conservative government, the question of how the Conservatives are escaping any reprimand from its public is arising. The British Prime Minister currently seems bullet-proof, reflected in the May Local Elections, which saw a large 9% swing away from the Liberal Democrats but gains for both the Conservatives and Labour, as the Conservatives somehow deflected any

resentment over the announced cuts culture onto their coalition partners, and David Cameron still is by far the most supported party leader in opinion polls. But while this irrational result arguably could be due to a weak and disunited opposition in the Labour Party and the Liberal Democrats taking the brunt of the blame for the austerity measures, history suggests another reason. The promised public sector strikes are reminiscent of the industrial confrontation of the 1980s, when Arthur Scargill‟s miners‟ union clashed with Margaret Thatcher‟s Conservative government, in which the unions were crushed so emphatically that it marked a turning point in British industrial relations. In stark contrast, the Poll Tax, a Community Charge that shifted the tax burden from rich to poor, as it was based on the number of people living in a house rather than its estimated price, was a disaster for Thatcher, with the rampant riots preempting her loss of the Conservative party leadership and Prime Ministerial post. Political commentators have noted that significantly, while the two events occurred under the same government and caused similar levels of outcry, significantly, they affected different classes. From a cynical but possibly telling perspective, while miners‟ strikes mainly affected the lower classes who already were largely Labour supporters, the Poll Tax saw all political factions of the middle classes turn on the Conservative party because they weren't acting in their interests. Unfortunately, this could explain why the Conservatives continue to actively pursue policies that they know will have hugely damaging impacts on the lower classes. As the recently leaked letter from Eric Pickles indicates, the effects of the current austerity measures on the Middle Classes are being kept to a minimum, so the Government is able to continue its controversial cutting culture without any significant losses of public support. R

A True Greek Tragedy A tale of grief and sorrow, but will there be a happy ending? Keshav Kapoor

he Greek economic crisis truly is a tragedy equal to classics of Homer and Bath. Currently the total national debt stands at 340bn Euros, equivalent to over one and a half times Greece‟s GDP or 30,000 Euro for every Greek citizen. But even now the situation is only to worsen, as the rate of borrow-

“ indebted countries already struggling with their own financial woes

”

ing continues at a rate of €20bn per year and the Greek government is continuously runs budget deficits of 10%. The situation has only come to a head in the past year as the lenders – the banks and investment firms – have finally awakened in the global economic crisis and seen that Greece could very possibly default on its debt payments. If they did the effects could be catastrophic, not only locally with the Greek banks and economy collapsing, but widespread damage could be felt all over the Eurozone area, including the key countries of Germany and the UK. The crisis first started roughly a year ago, when already the Greek economy was in colossal debt and desperately in need of an austerity package. The IMF stepped in and loaned Greece an emergency credit deal of 110bn Euros, but the problem was from solved as Greece would have to pay out €170bn to in spiralling debts payments. Now once again the Greeks are in

urgent need of another €120bn in order to survive, but according to experts once again this is only staving off the practically inevitable, with the Bank of England recently stating that there is an 80% probability that the Greek government won't be able to repay all its debt‟. Mats Persson, an economist from Open Europe believes that, „Even with the second bailout Greece will run out of money in a few years time, the economy simply isn‟t growing and they would not have enough cash to fund itself post 2014. Probably meaning that it would default anyway and it‟s better to do it now in an orderly fashion than wait till late‟. However, despite the common view that a Greek default is inevitable and even calls for autarky, in other words that the country should simply stop paying its debt, a second bailout seems likely due to leadership by the German Chancellor Angela Merkel. Merkel, amongst other European leaders, is desperate to avoid the damaging consequences of not helping Greece with a second bailout, such as the potential collapse of the single market currency, which would cause chaos across Europe due to fluctuating exchange rates. Furthermore, the Greek austerity package that European donors and the IMF required to be passed by the Greek parliament before the €120 billion rescue package would be approved has been voted through. Merkel's message came on the back of an IMF statement that warned debt stricken European countries were „playing with fire‟ and unless they took immediate steps to reduce their budget deficits, they could face double-dip recessions so severe that they could bring down the Euro. The IMF has also said recently in a global economic report detailing that they believed the dangers of the „Euro zone debt crisis and signs of overheating in emerging market economies‟ were bigger threats to growth than ever. Either way, as a Greek default is inevitable despite any number of bailouts, it is therefore important to consider what the default would mean for the UK, the Eurozone and rest of the world? Alan Clarke an economist from Soctia Capital,

says that as „the biggest banks exposure to Greece are in Germany, France and the UK, we are already seeing reports that banks are becoming increasingly wary about lending to one another just in case that exposure goes wrong. In turn that will hurt business confidence, consumer confidence and lead to an unpleasant downward spiral which could mean another recession.‟ And Danny Gabay from Farthom Consulting said, that the damaging effects „of that default will reverberate far beyond Greece and will hit London and New York. Not just the French and German banks who lent to Greece but the markets in London have taken CDS contracts which insure against default‟. Thus, considering that the Greek default will set of a chain reaction so colossal that the effects on European banks and other markets could jeopardise the efforts of the other indebted countries already struggling with their own financial woes, there are two ways to view this view. Either, as some suggest, the world financial leaders should stop staving off the inevitable, instead of throwing money at Greece in a second bailout, which will just make the eventual default even more painful for Greece‟s creditors. Or alternatively, take the route that world leaders are currently following, and stave of the eventual downfall of the Eurozone for as long as possible with a second bailout. Either way, the story truly is tragic.

12 aid package is the desire to establish a close relationship with India, with the view to possibly invaluable business and trade deals in the future as the Ineconomy booms. However, yet In times of hardship, Britain dian again the argument falls down when has always stood by India. the seemingly large sum £280m per year is put into perspective. The asBut now, during austerity sumption that giving India 0.01% of measures, is the assistance their economy‟s value would lead to a rapid improvement in relations, is inentirely necessary? credulously flawed to any commentaKenneth Au tor. If this is the government main motive behind this move, then it undoubtn February it was decided that Brit- edly means that more action would ain was to give India a billion pounds in aid over the next four years. £280 million a year, to be precise – though not that it makes any difference to India, as this announcement came in spite of the fact that India is rapidly developing into a major economy, estimated to surpass that of Britain‟s within years and even overtake China as the world‟s largest economy by 2050. Consolidating this irrationality is that the decision also coincides with one of the deepest economic struggle Britain has ever faced. Therefore, as the British public witness the toughest austerity cuts Britain has ever undergone, it is extremely questionable how the government can justify such a need to be done, including more money seemingly illogical action. being thrown around. But again, this There are undoubtedly benefits raises questions, for is this really in that will arise from the delivery of aid line with our current situation? In fact, to India. Of course it is not refuted that it could be said that such moves like poverty is still rife in various states this, are in the exact opposite direction within India. The millions of pounds of solving Britain‟s financial woes. will obviously help towards combating Furthermore, if future financial this, but still there are many questions gain is what the government is seeking, raised. With the rapid growth of the then many of the government‟s other Indian economy and the emergence of policies come into question, such as the many extremely wealthy individuals cuts to funding projects such the UK (there are currently three times more Film Council. The backlash against the billionaires in India than there are in irrational cuts and subsequent closing Britain), is it not their duty to first help of the Council is there for all to see, aid its people, before foreign interven- but the truly surprising aspect is that tion? Moreover, seeing as they now the government described such cuts as have the capacities to do so, why do we „unfortunate necessities‟, when in fact believe it our duty to interfere with the funding received by the UK Film such matters? Surely our immediate Council amounted to £15 million a concerns should be that of our own year – mere in comparison with the economic and social recovery? voluntary Indian aid. Furthermore, the Nevertheless, another reason UK Film Council had proven to be an being put forward by supporters of the organisation able to deliver profits,

Aid To India

“ Britain is no

longer a global powerhouse with regards to the economy - we continue deluding ourselves that we are

”

with The King‟s Speech being a prime example. To make matters worse, the Film Council is not the sole victim to creative industry cuts; the University of the Arts London are now staring at an across the board 6% budget cut. The justifications of the recession and the need to rapidly reduce the government deficit were just about strong enough for the public to stomach the far reaching cuts to spending. But this when put against the contrasting circumstance of the vast aid to be given to India, this puts into context how inconsistent and irrationally prioritised the cuts have been, and is surprising why the cuts have not prompted even wider discontent within individual sectors. Ultimately, Britain is no longer a global powerhouse with regards to the economic aspect, nor should we continue deluding ourselves that we are. Our priorities should undoubtedly be to solve the high unemployment figures, to reduce companies‟ needs to deliver redundancies, to improve the confidence of consumers, and reduce both drastic cuts, such as those seen with the university tuition fees and the NHS, and help the public with increased burdens, such as the steep rises in prices of goods and petrol. These priorities are likely to be agreed upon by the majority of the public, and are repeatedly assured by politicians to be theirs too – but when the Secretary of State for International Development announces such an unnecessary and contradictory decision - the coalition‟s trustworthiness, competence and priorities must be rightly questioned. R

In a very significant period of uprisings and changes to the political spectrum, Rayhan Uddin looks at some of the key areas of activity in the Middle East.

Rayhan Uddin

Bahrain: Despite being one of the smallest countries in the Middle East, the island state of Bahrain has been involved in revolutionary movements similar to its surrounding nations. Protests began in the capital Manama with mainly Shia Muslims demanding reform against what they believe to be a politically and economically biased monarchy towards the Sunni minority. King Hamad has undergone a severe crackdown on such protests with numerous arrests and acts of force against his people, highly criticised by the UN. Among many other implications, this has lead to the withdrawal of Bahrain as a venue on the Formula One circuit. The on-going sectarian conflict has raised fears of a Shia majority being backed by Iran, going up against the Sunni minority who have already been militarily supported by the likes of Saudi Arabia and the UAE in an effort to bring down protesters. A state of emergency has been lifted however strong security measures still remain and the imprisonment of several demonstrators mean that rebellious retaliation could be on the horizon. Iran: The protests occurring in recent months in Iran have not been as a result of the Arab Spring, but rather have been reinforced by it. Unrest which has persisted since the dubious presidential election of 2009 came to a head in February and March of 2011 as opposition party leaders led pro-democracy protests alongside the uprisings across the Middle East. President Mahmoud Ahmadinejad has cracked down on protests, much like other leaders across the region, arresting hundreds of demonstrators, notably opposition leaders Mehdi Karroubi and Mir Hossein Mousavi. Not only has there been conflict with the opposition, but the internal ranks of the Iranian regime appear to be in disagreement a very rare public row between Supreme Leader Ayatollah Ali Khamenei and President Ahmadinejad. The future outlook for the nation is one of increasing uncertainty as its nuclear programme continues to instil fear amongst the rest of the world. Libya: The UN intervention in Libya makes it one of the most significant countries amidst the revolution. The „no fly zone‟ implemented has quickly turned to one of strong military presence, using „all means necessary‟, as stated in the UN resolution. Fears have risen over the direction of the coalition effort, with early disagreements occurring as to whether or not the task was to target Colonel Gaddafi. This seemed to have been put to rest on 27 th June by the International Criminal Court, issuing an arrest warrant on Gaddafi for his personal involvement in a systematically oppressive crackdown on civilian protests. However, the continuous accusations by Libyan officials and television networks of reported civilian deaths as a result of NATO strikes – however fictitious they may turn out to be – have created a cloud of uncertainty hovering over the operation. As for the civilians themselves, the few rebel held cities such as Misrata and Zintan have come under relentless rocket attacks from Gaddafi‟s forces, and many fear a bloodshed stalemate as the collated international effort so far fails to ensure rebel victory. Syria: If the events in Libya are to be labelled destructively inhumane, those occurring in Syria are equally, if not exceedingly so. After protesters demanded the release of political prisoners in March 2011, scenes turned ugly on a day where security forces began shooting on its own people. Since then, the conflict between the government and rebels has worsened with an estimated 1,200 civilian casualties – surpassing anywhere in the Middle East during the current uprisings. President Bashar al-Assad has attempted to make concessions with the release of several hundred detainees, and a promise of reforming the current authoritarian system. This had little influence, with US and EU sanctions as well as an on-going monitoring by the Human Rights Watch increasing the likelihood of a stronger international crackdown on the regime.

15 Egypt: The inspiration of pro-democracy across the Arab world stems from events which began in Tunisia and Egypt. The overthrow of the Egyptian President Hosni Mubarak after 18 days of civilian protests sent shockwaves across the world as a 30 year reign was brought to an end by popular demand. Egypt has since been going through a transitional period, with hopes of a free and fair election taking place in September. A military government led by former transport minister Essam Sharaf – who sided with protesters during the uprising – currently administrates, with a set of constitutional reforms being passed to overlay the grounds for an election to occur. The Muslim Brotherhood who were not allowed to prosper under Mubarak, are set to play a role in elections and the formation of a new government, with the West and Israel wary of an Iran-like Islamist rule being adopted if the Brotherhood gains power. Meanwhile, Hosni Mubarak and his sons face trials against corruption and violence, and have had their assets frozen as the investigation continues. Yemen: In the Middle East‟s most impoverished nation, Yemen, the strife of recent months has proved to be turbulent enough to suggest that civil war could lie ahead. Demonstrations against the 33 year rule of President Ali Abdullah Saleh, have led to violent scenes between government forces and protesters who are backed by the influential Hashid tribal federation. President Saleh has failed in his attempts to reach a deal in which he would not renew his presidency in 2013 and hand it over to his deputy, in return for immunity from prosecution. Since then Saleh has been receiving treatment in Saudi Arabia after being struck by a rocket attack on his own home. The situation in Yemen has indeed aggravated and thousands of people have been fleeing the capital Sanaa, the forefront of fighting between troops and tribal fighters. Should civil war break out, British and French troops have vowed to carry out the process of evacuating civilians.

Source: www.hamlineoracle.com

The Arab Spring: A Storm is Brewing! Elham Fakhro speaks to The Ricardian about the Arab Uprisings. Rayhan Uddin

storm is brewing in one particular region of the globe. The world became accustomed to a politically stagnant Middle East, and a revolution (or at least a rapid one) could not have been predicted. Some go as far as to argue it was a black swan. That can no doubt be contested, though what is for certain is that the geostrategic implications of the Arab Spring will rumble far further than merely where the lightning flashed. The UN intervention in Libya proves that point on both a humanitarian local level, and a collated international one. Elham Fakhro, a leading Middle East analyst, offers her opinions to The Ricardian to help shed light on the historic uprising. Asked whether the bloodshed for democracy is worthwhile, she replies “It is important to place the Arab Spring in historic context. Most historic movements for „

Elham Fakhro

democracy were far bloodier than the current Arab Spring. The French Revolution, for example, claimed tens of thousands of lives and the American War of Independence claimed approximately 25,000 lives.” Putting it into exactly that historic context Fakhro continues that “The decision by a population to revolt is ultimately made by the same population that decides it is worth the personal sacrifice.”

“ the American War of Independence claimed approximately 25,000 lives.

”

The revolution, despite all the positive approval it has received, could be well short of what the world not only hopes for, but now expects. After eventual success in Tunisia and Egypt, the movement has somewhat stunted and become increasingly difficult in other countries. In response to this point Fakhro says “Prior to the Arab Spring, analysts on the Arab World often repeated mantras such as the Arab World is not ready for democracy‟ and „the Arab citizen is uniquely apathetic.‟ Uprisings across the region have not only proven these theories incorrect but have also shown the extent of sacrifices born by populations across the region. No revolution will ever have the full support of 100% of its population, not even a developed democracy can claim to achieve this, but after a period of stagnation, the will of the majority of citizens in some Arab states are beginning to be heard”. One of the central issues raised by the events of the Arab Spring was the compatibility of the Muslim way of life, with democracy. Fakhro puts this argument to bed by frankly stating.

“There is no evidence that Islamic principles, correctly applied, clash with democracy.” She goes on to say “Indonesia, for example, is home to the world‟s largest Muslim population and constitutionally guarantees its people the right to elect the President and Vice -President. Turkey, also a predominantly Muslim country, has a secular democratic government. Numerous Islamic scholars have affirmed the compatibility of Islamic principles including the right to life, respect, justice, and equality with universal principles of human rights.” If then, Islamic life is indeed democratically harmonious; the next query would be that of al-Qaeda. The continued existence of the radical extremist group despite the death of its leader Osama bin Laden (which incidentally came amidst the revolution) could no doubt prove to be disruptive. Fakhro disagrees. “One of the most important lessons from the Arab Spring was the growing irrelevance of AlQaeda and radical Islamic ideology. In country after country, citizens expressed a desire for greater political representation through peaceful nonviolent methods, rejecting Al Qaeda‟s ideology and rendering a greater blow to the organization than any external military action could”. If ever a storm was brewing in the Arab world, it would be impossible for it not to rain on the parade of Israel. Whether any territorial or political changes occur in the near future remains to be seen, however a revolution will always beg the question of Palestinian freedom. This issue was brought further to the table by discussions between President Barack Obama and Israeli Prime Minister Benjamin Netanyahu. Elham Fakhro believes the implications are fundamental. “Israel today finds itself faced with a new Arab landscape. Fears within Israel initially surfaced over whether a

17 the long term outlook is one of positivity. It will take time for the full transition to occur and for the rest of the world to realise each and every implication of this changing tide. When it does occur though, the idea of popular uprising and democratic rule which dates all the way back to Athenian democracy in 500 BC, will have spread to one of those rare places in the world where the people have longed for revolution but only a dramatic set of events, as is now occurring, would allow for it to materialise. R

new Egyptian government may express hostility towards it but there are no indications that Egypt‟s future leadership intends to withdraw peace agreements made with Israel. Increasingly, Israel may find itself faced with renewed pressure from its other Arab neighbours to make the concessions required to achieve a lasting peace with the Palestinians, by dismantling illegal settlements and complying with UN Resolutions 338 and 242 which require it to withdraw from territory that it occupied during the 1967 Arab-Israel war. The Obama administration has so far failed to extract these concessions and it is unlikely that a lasting peace can be achieved without this”. Considering the events with regards to all surrounding countries offers a degree of light. Though it is when putting things in the perspective of the West, and all modern democracies (a large proportion of the world outside of the Arab states); when illumination really occurs. Many analysts say the West see the inflexibility of change in the Middle East as commonplace and may not be ready for a newly rejuvenated, modern democratic Arab region. When asked about this, Fakhrohad no doubt the West and the Arab Spring would positively integrate. “The

West today is faced with a genuine opportunity to build lasting partnerships with Tunisian, Egyptian, and other governments that are better representative of the Arab people. Many Arabs have expressed antagonism towards the United States in the past for lending its support to dictators such as Mubarak, who was the second largest

“ the storm will be met by what looks to be a sunlit future

”

recipient of foreign aid from the US after Israel, for example. The voice of the new Arab generation has largely shown itself to be democratic, peaceful, and determined to build a better future for itself. I can hardly think of better partners to further the goals of democracy and human rights that have been championed by the West for decades.” A rainbow waits at the end of it all: the storm will be met by what looks to be a sunlit future. Despite the bloodshed and negative headlines which the Arab Spring will continue to attract in the coming months if not years,

Elham Fakhro is a Middle East research analyst for the International Institute for Strategic Studies, who graduated from Harvard Law School. The views expressed in this article are Fakhro‟s alone and not that of the IISS.

Is Time Running out for Israel? Israel is in no doubt in an extremely complex political situation - where do they go from here? Giles Smith

srael enters the latter months of 2011 in a tight situation: political turmoil across the Middle East, strained relationships with the United States and an increase in terrorist and military action both in the Gaza Strip and on the disputed Palestinian West Bank of the River Jordan. But is Israel itself to blame for the pressure it is under? The continued failure of peace negotiations in the Middle East suggests that if Israel does not change its stance towards the Palestinian people she could be entangled in yet another military conflict. The Palestinians are yet to drink from the Arab Spring as it spreads revolution across the Middle East, proving that the power of the crowd can beat that of mighty dictators. However Israel herself risks drowning in this spring if she continues her violent crackdown on protests against her control of the West Bank and the Gaza Strip. Unfortunately this happens as Israel‟s own legitimacy is still at threat as the United Nations General Assembly vote in September upon the formation of an official Palestinian State. Trapped in by the Israeli West Bank barrier, or „the security wall‟, Palestinian discontent turned violent in the first 5 years of the 21st century, as over 500 Israeli citizens were killed in suicide bombings attributed to Palestinian separatists. Most recently a bus was bombed in Jerusalem killing one person and injuring 30 others. These Palestinian attacks may be designed to cause military retaliation from the Israeli government and hoping for a response by world leaders, like the one in Libya, in defence of civilians. This internal turmoil is harmful for the Israeli‟s and should the UN not have a clear manifesto on borders, security or

the city of Jerusalem, a key religious centre for both Jews and Muslims, the violence will continue. Israel‟s main threat perhaps comes from the North, as Hezbollah‟s support in Lebanon grows. In May for the first time since 1974, Israel‟s border with Syria, a country with who Israel is still officially at war, saw violence, as refugees fled to escape the Syrian government‟s death rolls against protestors. Should the Syrian government be overthrown then the

“ rocket strikes from the Gaza Strip have increased 20% in the first six months of 2011

”

chance of an anti-Israeli regime taking control is considerably high, given Iran‟s close ties with Syria. The threat of two anti-Israeli Iranian funded regimes on her northern border scares Israel massively; this coupled with the real opportunity of an independent Palestine, could lead to an armed conflict in the near future. The south also provides a major headache for Israeli defence chiefs, as rocket strikes from the Gaza Strip have increased 20% to 51 in the first six months of 2011. In response to the regular threat of Hamas attacking Israeli towns with these non discriminatory rocket attacks, Israel has had to deploy her new „iron dome‟ missile defence system, capable of intercepting short range rockets in flight. However as Hamas is able to strike Israel with thousands of rockets including the Iranian built Fajr-5, which is capable of hitting central Tel Aviv - there is concern over the system‟s ability to cope with a mass attack. Another of Israel‟s concerns is the growing strength of the Muslim Brotherhood in Egypt - this

expansionist anti-Zionist group could spark yet another armed conflict in the Sinai Peninsula; a key battlefield in the Yom Kippur War. The greatest military threat to Israel still comes from Iran, as President Ahmadinejad attempts to increase his influence in the Gulf with state visits to Lebanon and increased negotiations with Jordan. Iran is one of the major military powers in the Middle East and as it continues striving towards nuclear armament, Israel is progressively more concerned with its most powerful adversary. An American withdrawal from Iraq and Afghanistan could open the door for Iranian Shia influence to spread and engulf the Middle East. This Iranian power increase occurs at a time when the West are unwilling to act, simply implementing punitive sanctions on the Iranian government and moving their focus away from Israel towards the rest of the Middle East. Israel receives an average of $3 billion Dollars of aid from the US every year, according to one statistic. This equals almost 2% of the total Israeli GDP and excludes military aid and the discounts that the Israelis enjoy when buying surplus US military equipment. Any cuts in this budget could be disastrous for Israel and lose her the economic advantage she has enjoyed over her neighbours for many years. Further to this, President Barack Obama pledged his support for a Palestinian State earlier this year and stated how he wished for Israel to return to her pre1967 borders in the hope of creating lasting peace and stability in the region. This speech was not received well by the Israeli delegation in the White House and Israeli Prime Minister Benjamin Nethanyahu stated how “the viability of a Palestinian State cannot come at the expense of the viability of the one and only Jewish state”. This straining of AmericanIsraeli relations may mean that Israel must tackle the threats facing her alone, at the current time.

19 There are still some positives for the Israeli government: their armed forces still have dominance in the region and their economy is stronger than it has ever been. With the 34th largest number of active military personnel in the world and an air force capable of crippling any of her neighbours within minutes of hostilities being declared, it is little wonder that Israeli defence chiefs have been drawing up plans for a multi-frontal war within the next two years. This has been coupled with a 4.7% growth in Israel‟s GDP in the first quarter of 2011; showing that Israel remains a key economic power in the Gulf Region. A further increase in foreign investment into Israeli business and a 6.8% increase in consumption mean that Israel‟s aggregate demand is being stimulated on all accounts. This strong economy allows for the further armament of the Israeli Defence Forces enabling them to keep the Qualitative Military Edge (QME) they possess over their neighbours. Israel, no doubt is in an extremely complex political situation. She is under attack from terrorist armies and faces foreign threats at a time when her most powerful ally, the USA, is distracted and unwilling to provide political and economic support. Israel‟s actions following the UN General Assembly vote in September will define the future of the region. It is doubtful that the Palestinian State, already recognised by most of the world, including Russia, China, India, Brazil, Argentina, Indonesia, the Ukraine, South Africa and many others, will stay under Israeli control, but its legitimacy is likely to cause a further escalation of the violence in the region. The largest threat to Israel seems to be Israel herself: if the Israelis continue to disregard the views of their neighbours and international community, then they shall find themselves at war. The only way forward is a strong and legitimate peace programme including the possibility of a new Palestinian State. R

The Rise and Fall of Gaddafi Aman Samra

e are currently living in a world rife with authoritarian and undemocratic regimes, especially apparent in the Middle East. These regimes command great power over the state and its people, with opposing beliefs and dissident behavior brutally stamped out and severely punished. However these past six months we have witnessed the power of the people to upset the existing order and bring about huge swathes of change, what is being dubbed the Arab spring has already seen decades of rule by one-person end in both Tunisia and Egypt. It is precisely this period of time that the Gaddafi government in Libya is under threat from its own people and could mark the end of the 41 year rule of Colonel Gaddafi. Muammar Gaddafi‟s rise to power and consolidation of power has been a turbulent journey to say the least, and its beginnings can be traced back to the 1969 revolution where a 27 -year-old Gaddafi was part of a coup that overthrew the constitutional monarchy of King Idris. In 1959 huge oil

reserves were discovered in Libya, the revenue from which helped the Kingdom of Libya transform itself from one of the poorest nations in the world into a prosperous state. However there was growing resentment at the fact that wealth was heavily concentrated in the hands of the monarchy; and in 1969 a group of 70 young army officers, labelled the Free Officers Movement, carried out a bloodless coup that began in Benghazi and within 2 hours wiped out the monarchy. The coup was a success and the 12 member body that had overseen it, the Revolutionary Command Council, served as the new governing body in the newly formed Libyan Arab Republic with the Chairman of the RCC Gaddafi becoming the de facto head of state. One of the factors that is attributed to Gaddafi‟s rapid rise to power in the decades after the revolution, is the enormous support that Gaddafi received during it. During the coup there were protests against the government which were supported by thousands of people, especially amongst

20 the younger generations, and ensured that the new Libyan republic would receive the full support of the people. Gaddafi‟s new government was all about giving power back to the people and he did this through the use of the Basic Peoples Congress (BPC), a body attended by men and women who came to discuss government policy and could put forward ideas for discussion to General People Congress. Not only did Gaddafi give power to the people, he also implemented large-scale reforms that went some way to improving the standard of living for Libyans and enhancing Libya‟s role in the global economy. One of the key reforms implemented early in Gaddafi‟s reign was the Great Manmade River project in 1984. The aim of the project was to build a series of underground pipes to pump water from a fossil aquifer which was then used to provide fresh water for Libyan families all over the country. Moreover the fresh water not only provided a means for washing and cleaning but also for irrigation of farmland which meant more crops could be grown. The ability to do so opened the possibilities for Libya to compete in the European and Middle Eastern markets. Not only did Gaddafi‟s early reforms improve standard of living, but they also helped to improve the national economy, this was shown in the 1970‟s where Gaddafi successfully renegotiated contracts with foreign petroleum companies to allow Libya to receive a higher share of the revenue from the oil industry. Increased production from oil during this time and a relatively small population led to Libya to having one of the highest GDP per capita in Africa. The drastic economic and administrative reforms Gaddafi implemented in the early years of his government show how his leadership has helped to turn Libya from a smallimpoverished country to a strong prosperous state, which is probably the main reason Gaddafi had been able to garner so much support in his early years and continue to stay in power. However whilst in theory Gaddafi‟s government was about giving power to the people through use of various

peoples committees and the BPC, these were all supplemented by repression and intolerance of anyone who spoke out against the regime. The Revolutionary Committees created in 1977 were in theory created to guide the peoples Committees, however in practice they were used as a method of surveillance to ensure that any dissident behavior was rooted out and eradicated. With 10-20 percent of Libyan people working as informants for the government in conjunction with a 1973 law which made dissent illegal it is easy to see what was created to ensure

“

Have turned Libya from a small impoverished country to a strong prosperous state

”

power was vested with the people, slowly shifted to a fully blown police state with Gaddafi wielding the power. Anyone brave enough to speak out against the government was simply assassinated on Gaddafi‟s order with Gaddafi himself saying “it is the Libyan peoples responsibility to liquidate such scums who distort Libya‟s image abroad”. Human rights organization Amnesty International has listed at least 25 assassinations between 1980 and 1987, which display just how oppressive the nature of the Gaddafi regime is. Libya‟s relationship with foreign states is also an important factor when looking at Gaddafi‟s potential fall from power. Numerous events have taken place which have all added to the rising tensions between Gaddafi and the Western states, most notably the refusal of Gaddafi to allow the extradition of the two men suspected of carrying out the Lockerbie bombing in 1988, and also the shooting of WPC Yvonne Fletcher outside the Libyan embassy in London during antiGaddafi protests. Both of these events

soured relationships between Libya and the West and the refusal to allow extradition also led to economic sanctions being imposed upon Libya. Not only did these events attribute to the cooling of relations between the Gaddafi government and the West, others include Gaddafi‟s attempt to procure nuclear weapons from China, Pakistan and India in the 1970‟s. The fact Gaddafi was involved in the sponsorship of terrorism, giving his support to revolutionary groups such as FARC and the Provisional IRA. Gaddafi‟s sponsorship of terrorism and his close ties with political figures such as ex- president of Serbia and war criminal Slobodan Milosevic have created a climate whereby there is a huge amount of tension between Libya and other Western states and an atmosphere which makes genuine diplomatic discussion difficult to undertake. Whilst the Gaddafi regime has been in place for almost 42 years now, the last six months have seen the tide turning against Gaddafi. Libya under his rule relied on repression and intolerance, and the climate of fear that has been created by the Gaddafi regime together with the recent protests which removed both Zine El Abidine Ben Ali of Tunisia and Hosni Mubarak of Egypt, have inspired the Libyan people to unite together against the regime that has restricted them for over four decades. The Libyan regime we see today is a long way from the idea of government by the people that was set out by Gaddafi in his Green Book in 1975. Today‟s Libya is one of oppression and inequality with power being controlled by Gaddafi and his family and it is only now we see the possibility of a new more democratic Libya, and a Libya not governed by Gaddafi. The fact that Gaddafi had a strained relationship with the Western states could prove costly to him as they are now joining together to help the rebels in their struggle against Gaddafi‟s forces, and with the ICC issuing a warrant for Gaddafi‟s arrest his days in power may be numbered. R

Image: Courtesy of „Vector Portal‟ on Flickr

About: Patricia Hewitt is an Australian-born British Labour Party politician, who was the Member of Parliament (MP) for Leicester West from 1997 until 2010. She served in the Cabinet until 2007, most recently as Health Secretary. She is currently the Chair of the UK India Business Council (UKIBC).

They need to take their time! Patricia Hewitt spoke to The Ricardian in July 2011 about her work at the UK India Business Council. Ric: Could you describe your role as finances were in good shape, and generthe chairman of the UKIBC and how ally co-ordinating the work and providyou came to the position? ing support to Richard Heald. It is very much about making sure we have the PH: I am the non-executive chairman, right strategy, the right team to deliver but I have a long relationship with the it and helping to make sure we have the organization because of my work as right relationships with the governTrade and Industry Secretary, when I ments and of course the businesses in was involved with UKIBCâ&#x20AC;&#x;s predeces- Britain and in India. sor, the Indo-British Partnership which was designed to bring together businesses from the two countries. When I left government in 2007, I wanted to find an India facing role because I put a lot of effort into the relationship when I was Trade and Industry Secretary. When our founding chairman, Lord Bilimoria stood down, the board asked me whether I would be interested, and I said absolutely! Day to day I have meetings with the Chief Executive, Richard Heald, and other Board members, and Ric: What developments have there we go through all our different work been in business behaviour towards streams, deal with staffing issues, trade with India since 2009, a time making sure the preparations for the when many businesses were put off by AGM are underway, making sure our large trade barriers?

â&#x20AC;&#x153; Trying to do business in India in a British manner it was a complete disaster!

â&#x20AC;?

PH: A couple of things have changed since 2009. Firstly, most businesses are aware of the growth and the opportunities in India so we no longer have to campaign around that generic message. We can now get into the details about the different opportunities in different sectors and tailor it to specific businesses. Secondly, in 2009, businesses were focused on survival. Some of them began looking at growth markets because there certainly was not growth here, but it would have been a hard sell. Ric: Since the recession, some economic experts believe TNCs should retain their capital within the UK to strengthen a clearly weak and exposed domestic economy, and not build up business positions in foreign countries in the form of foreign investment. Why should we persuade our businesses to flow into India, and not restrict them to the UK? PH: This is very interesting. In the UK, I think we are seeing a great deal of

23 deleveraging and thus there is an enormous amount of cash sitting on corporate balance sheets. So you have large corporates looking at where the best investment opportunities are. The UK and more broadly the EU, the low risk economies, are going to be slow growing for quite some time. On the other hand, most ambitious businesses are looking seriously at high growth economies, of which India is a key. Obviously the risks are higher and very different. Some British companies are making major investments into India and elsewhere. Serco for example began as a public-sector outsourcing company and is now expanding in India and are involved in, for example, light railway projects between India and Bangalore. Pearson/ Edexcel, JCB, A4E, Rolls Royce and many others are also growing rapidly in India. I certainly wouldn‟t want to see governments trying to dissuade British business from expanding into India – and I‟m glad to say they are doing the reverse. But it‟s also important to look at Britain from the Indian perspective because India is an increasingly important source of FDI to the UK. Among Indian corporates, we are seeing some worries about the Euro because of the uncertainty about Greece and thus apprehension about the UK. Couple this with the growing opportunities in Africa and other developing nations, it becomes apparent that although it is important to take any opportunities in India, actually we also need to be thinking about how we in Britain make ourselves more attractive to India because Indian corporates have the world at their feet. Ric: Large and rapidly growing industries in India, such as the healthcare industry, will attract businesses from all over the globe. How would you evaluate the competitiveness of UK

businesses in light of all other players?

mote inclusive growth.

PH: The best of British companies are amongst the best in the world. A lot of them can create partnerships with leading Indian firms, including the opportunity to take products into new areas of innovation, and not only sell in Indian and UK markets, but in new markets as well. Healthcare and life sciences is one of the six priority sectors we have identified and agreed with the two governments. Our work in this particular sector is at an early stage but interestingly, Bupa has been looking into working in India for some time. People within the National Health Service are working with Indian partners specifically in the primary healthcare, drawing on the great strength we have in primary healthcare.

Ric: Do you think India can aid a possible resurgence of the UK manufacturing sector or that the UK‟s economic model is such that it can no longer compete in this sector?

Ric: In the long term, because companies would be attracted by the same amenities, could this potentially create pockets of inequality in parts of India? PH: If you are a foreign company looking to come into India, the natural inclination is to go to one of the big metro cities. If that remains the dominant position, then it could worsen the problem of uneven growth in India. However, it is important to remember that most businesses in India are domestic ones and only a few are foreign. By encouraging British firms to look beyond the metros to tier-2 and tier-3 cities, we are helping to spread prosperity and create new magnets of growth in different parts of the country. Clearly for a foreign company, moving into a rural part of the country is just not feasible – there is no business infrastructure. But we are doing a lot of work in the infrastructure sector where we are looking at how British expertise can be harnessed to help push prosperity further out and pro-

PH: The Tata Group is now Britain‟s largest manufacturing employer – bringing investment, leadership and innovation to Jaguar, Land Rover and other great UK companies. The Tata Nano, which is a great example of „frugal innovation‟, was developed with the help of the Warwick Centre for Manufacturing. Although Britain certainly has a comparative advantage in many elements of services, but it does not mean we have lost our advantage in manufactured goods. Indeed, the UK remains one of the world‟s largest manufacturers and we are particularly strong in high-value added, advanced manufacturing and engineering. Britain houses some of the most advanced manufacturers; BAE systems, Rolls Royce, ARM, PACE and Tata of course. But not all of the products created by these manufacturers show up in the trade statistics – ARM is an interesting example; the chips it creates are licensed to mobile phone manufacturers like Nokia. Sometimes goods like these are not captured well in the trade statistics, which works to our disadvantage. So I think getting a much more nuanced and richer understanding of what the economic relationships of trade are, would be beneficial for Britain and other economies. Ric: Do you think some businesses will find the cultural differences so much of a challenge they may be put off from investing in India altogether? PH: There are a lot of reasons why some businesses choose not to go into India – sometimes there are easier markets, or they feel that India is too big

24 and too difficult, sometimes there are specific worries such as corruption or red tape Particularly with the new anticorruption law here, it is vital that businesses choose their partners carefully and make it clear from the outset that they do business ethically. We put a lot of emphasis on cultural knowhow. At our events we play a video which starts on a typical Mumbai street and you are immediately assaulted with the energy, the colour and almost the smell that is so typical of India – it is a story which shows a British businessman trying to do business in India in a British manner and it a complete disaster! It is a wonderful way of telling the businesses we advise that they need to take their time and get to know the people. Investing time in the relationship is perhaps most essential. Ric: Some experts have advised that companies should employ local people to gain a local advantage. Do you think this is possible for SMEs for whom it is harder to diversify? PH: The strategy has to be tailored to the specific company. India is twice the size of the EU – you are talking about going to Europe and more! So do not assume one visit is enough. You need to think about which state or which city is appropriate. It may not be one of the tier-1 cities which we have outlined; a tier-2 or tier-3 city may be much better for your company. We are finding that more and more companies, once they have worked out their market-entry strategy, are employing local people rather than flying in the expatriates so that they have people with local knowledge and relationships. In India, you can use already established companies to hire the employees. They have the employment structure and can employ a person for

you for a certain time period. Ric: Now I would like to discuss the other BRIC nations. Is there anything, in your view, that India could contribute to UK businesses and British families that other BRIC nations could not? PH: Britain has the great advantage of the Indian Diaspora and the east Africa Diaspora. The colonial history is a difficult part of the relationship and can sometimes get in the way partly because people can assume there is a cultural familiarly when there is not. Whereas Germany knows there is no such familiarity and thus has to work much harder and is actually doing brilliantly. But Britain‟s economy is massively strengthened by the second and third generation of Indian-origin entrepreneurs and business professionals. . In the global economy, having a significant part of your population who already have links of family, culture, language and business ties is a great source of competitive strength for Britain – I think that is very helpful.

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One of the things that struck me when I visited India was the extraordinary increase in self confidence

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Ric: How would you evaluate the shift in economic power from Europe and America to the likes of China and India, in the perspective of the UK consumers, government and businesses? PH: This is a decades long trend which has been enormously accelerated by the global financial crisis. One of the things that struck me when I

first visited India as chair of UKIBC, after a period of two years away from India, was the extraordinary increase in self confidence. Just extraordinary! 10 years ago, India was keen to get Britain involved in its economy; actually it is now very different. Now they have the world at their feet, they are one of the world‟s fastest growing economies. Britain‟s businesses are no longer „key‟ to India‟s growth since France‟s, Germany‟s and everybody else‟s businesses will be there to provide the necessary goods and services. It is Britain‟s loss not India‟s if British businesses are not part of the Indian story – it is a completely different mind-set. R

The UK India Business Council is a business-led organisation promoting bilateral trade and investment between the UK and India. On their website, you can find some interesting background information on historical trade as well as free reports about business conditions in India. Alternatively, you can scan this barcode for a link to the webpage:

Cromwell One Great Tug-o-War!

he Pre-Budget Report in December 2009 announced that £600 million would be cut from higher education and science and research budgets by 2012-13. In a modern society where all sectors are facing cuts, one might see this austerity measure as a necessary movement. However, this directly contradicts the calling of politicians midway through the economic down turn in 2009. Tony Blair urged world leaders to look at the economic crisis as “an opportunity to create a better future for all” when he called for greater investment in energy, science, technology and education. Similarly, Barack Obama claimed that the fastest way out of recession was by “investing in science and new technologies”. Even as recently as last week, Michael Gove the Education Secretary claimed that “[the government] unequivocally believe that maths and science education are at the heart of improving our society and our economy.” There is clearly a tug of war going on between heart and wallet on the government‟s part; fair enough. However, one team has all the verbal backing, and the other has all the brute force; not fair enough. I am a strong believer in the benefits that research and development bring to society, and the vital role they play in the furthering of modern technology, medicine and infrastructure (to name but a few). To claim, however, that they have the power to help claw our countries‟ miserable finances out of the billion dollar red they have sunk into is, I believe, one gross exaggeration, aimed at the public masses to whom the notion of „research‟ is still men in white coats shouting phrases like „Eureka!‟ and who one day will

find “the cure” for cancer. Controversial? Perhaps. I am not an economist, nor particularly politically-minded, but falling slightly closer to the „scientist‟ line, I would like to think I have my motivations for this opinion. For nearly 4 years, the Western World has been stuck in recession. It is clear that drastic measures need to be put in place in order to get back on track financially. Whilst I am certain that an improved scientific community would benefit finances in the long term (providing we kept up with the global scheme of things), as a quick fix, I think the idea is laughable. Let me provide you with some examples. The average academic has spent 3 years doing an undergraduate Bachelor‟s degree, a year doing a Masters, a minimum of 3 years on a PhD, and then joined a research group, whether in a university or affiliated institution. In terms of the cost of their study, in today‟s terms, you are looking at £9000 for a BSc, and a further £3000 for a Masters (up to £13000 if you‟re an international student, or already have a previous Master‟s qualification). That‟s already £12000 before you‟ve reached the research stage of your academic career. The Biotechnology and Biological Sciences Research Council (BBSRC) has a fund of £43.5m per year to fund the 2000 PhD students it accepts. This includes funding their education, and the expenses of their research. That‟s approximately £21,000 per student. Before they enter into a paid career of research, each student has already cost the government at least £33,000. What one then has to take into account is how much their research will put back into the economy, and how many will actually pursue research as a career. Education is an expensive business, and for the majority of students, it would take decades in a career as a research scientist to put back into the economy what they originally took out. This is not to say that students are without their value; far from it. Without research, we would be without

a host of medicines, treatments, vehicles, buildings, industrial processes and countless other amenities that would otherwise leave us in dire straits. But we then have to think of a number of areas of research that may eventually cause more problems economically than they prevent. Cancer research is a key example. Over the past 10 years, money pumped into cancer research has nearly doubled to £500m. Cures for cancer have far reaching problems; contributing to an ageing population, placing greater strain on the NHS and the need for more money to produce drugs. These will all contribute to a greater strain on government finances in the long term, especially with the new reforms posed in the NHS already. The other problem that seems to have been brushed aside is that of time. According to one American study, it takes between $800m and $1.7bn to bring a new drug onto the market. Only 10-15% of drugs actually make it through the discovery, development, testing, and marketing stages and onto pharmaceutical shelves. On average, it takes 15.3 years for a drug to complete this process. Arguably, not a quick way to make money. Scientific research is unlikely to ever make a lot of money, quickly. The research and development stages have to take time and money, or standards will drop. If this country is banking on making money from science in the future, proper investment must be maintained now, and our high standards must be upheld. There is a very small likelihood that investment in science will provide the “quick-fix” our economy needs, but investment now may well ensure that it stabilises the economy and prevents (or at least minimises the risk of) another recession later on. Budgets are important. Science is important. It is a tug-of-war, a balancing act, but government reforms need to make sure they practice what they preach. R

Is the Rise of China good for America and Europe? A global debate in which economics is challenged by politics and philosophy Abdur-Razzaq Ahmed

hether you believe the global economic system is controlled by market forces, governments or perhaps God, China‟s rise is an unquestionable fact of the twenty-first century. However, judging whether China‟s rise is good is subjective. Why? Ask yourself this: will China‟s ascendance generate a violent power struggle? If so, then some observers argue the global system will sail into the eye of a devastating storm. Consequently, China‟s recent achievements have been greeted by handshakes marred with suspicion from Western economies – are these ominous opinions over China‟s rise justified? Is not a neighbour‟s victory in a world integrated so closely, a victory for which you can also rejoice? From an economist‟s perspective China‟s rise is an example of mankind operating at its zenith, where local firms attempt to outperform their competitors creating benefits spreading beyond China‟s borders. Milton Fried-

“ China behaves like the “iniquitous partner – the Mr Hyde, while it simultaneously plays Dr Jekyll

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man believes such triumphs extend even beyond the borders of economics – speculating that “economic freedom is a means towards political freedom.” Friedman and other free-marketers suggest China‟s growth is Pareto Efficient - its activities benefit its economy with no repercussions for neighbours – perhaps benefiting them. Have China‟s efforts benefited American and Europe-

an economies? From a consumer aspect, perhaps; families going on holidays often bring back tangible memories – this demand created the market for souvenirs. Producers compete to create cost-effective items which capture the essence of the location. Recently, souvenirs amongst many other items have been produced in China because of cheaper input-costs as firms attempt to increase their profitmargins. Families benefit by purchasing cheaper souvenirs, therefore, it can be argued that China‟s ability to decrease costs is beneficial because, in the words of Ludwig von Mises; consumers are sovereign. This is not China‟s first taste of economic power as China was the world‟s leading economy in 1820 with a 32.4% share of World GDP. It then slumped to 3.4% in 1978 before rising to 12% recently and is expected to reach 18% by 2020. Many believe this revival is due to China‟s new „statecapitalism‟ model – a market-economy coated with state power to support native companies. But John Cassidy cleverly indicates this model is not new; such state intervention can be traced to the 19th century where Abraham Lincoln assisted the construction of private American railroads via subsidies Modern-day Americans have fallen victim to the myth that America was built on untroubled free enterprise, proving the belief that China is blanketing the world with a Communismfocused model is false. In truth, the model resembles the West‟s and “the result has been not only the emergence of a new economic superpower but of one highly integrated into the world economy” as Martin Wolf describes. By letting China continue growing undisturbed, it is possible the West will benefit from China through long-term multipliers, specifically in terms of trade and credit. Indeed, this is already happening – China‟s economy pro-

vides overseas companies like America‟s General Motors with massive export opportunities in some industries. To contextualize this, General Motors sold more vehicles in China last year than it did in America for the first time in its 102-year history! However, if the West continues to hold suspicions about China, this door to export growth will be shut swiftly. Perhaps the most significant argument advocating China‟s rise is a socio-political one. Consider the life of a typical Chinese citizen in 1989 - the sorts of interactions upon which modern-day markets are built were nonexistent. Chinese society was deliberately structured to hinder entrepreneurship. The state determined everything: Edward Steinfeld, author of Playing Our Game observes life was “a sentence as much as an assignment.” Just twenty-two years later, China is relaxing its socialist control system as Steinfeld articulates that China is growing because it has embraced a new industrial revolution; only rewarding economies that forfeit control over rules and people - manifestations of socialism. It becomes apparent that China‟s rapid growth is simply a precursor to something far greater: growth not in terms of GDP, but in terms of freedom, an assertion put forward by Friedman which was explored earlier. This is perhaps the greatest way in which China can benefit America, Europe and the world. China‟s move towards modernity could benefit the West by spreading ideas and laying the foundations for more efficient markets. Yet Stefan Halper, author of The Beijing Consensus, believes China will “threaten ideas about how prosperity is attained and the society we want to live in,” stating China approaches the world by handing out money to dictators with no strings attached and buys materials from Africa and Latin America – without forcing transparency or reform

27 down oligarchs‟ throats. This is the counter-argument: that necessity lies at the heart of China‟s expansionist policies with no inherent responsibility motive. While the West attempts to create a system that is sustainable, competitive and peaceful, China behaves like the “iniquitous partner – the Mr Hyde – to the malcontents of international society, while it simultaneously plays Dr Jekyll, an honest stakeholder in global civic culture.” This dual behaviour is ever-present in China‟s dealings with Africa. China is thus illuminating a path around the West and making her irrelevant in world affairs. As Halper asserts, “in effect, China is shrinking the West.” China‟s growth will eventually halt the West‟s „unipolar moment‟; realists further note China will try to reshape the rules of the international system to suit itself. Such an action would create tension causing the West to consider China a real security threat. China is emerging as an economical, military and strategic threat, prompting some commentators such as Robert Gates, the American Defence Secretary, to believe that China will “threaten America‟s primary way to help its allies.” The danger of multiple power surges is captured best in the case of twentieth-century Germany, who‟s military and economic might grew just as rapidly. As it gained power, the rest of Europe became restless resulting in World War I. Many observers now see this same nervous

/ The Economist (12/10)

energy arising in U.S.-China relations. Yet, by closer analysis, it is apparent that China‟s government has not adopted any policy to explicitly bolster its military. The military budget has remained proportional to China‟s growth rate; suggesting China may simply be aiming to grow all of its industries, equally. More importantly, China will not necessarily trigger a hegemonic power transition since it is evolving in a system different to the ones previously confronted by rising states. Unlike those of the past, this system is built around rules of nondiscrimination and market-openness, creating conditions for rising states to advance within it. We also live in an age of nuclear-deterrence, where war is no longer a mechanism for historical change as it was for previously rising states. Little incentive exists for China to change this system because it can thrive hugely within it - today‟s Western order is harder to overturn and easier to join. Until 2006, Chinese imports subdued US inflation, and global interest rates sank considerably. But there was a catch. The more China was willing to lend, the more America was willing to borrow. This was partly the reason why the U.S. mortgage market was so saturated with cash; you could get a 100% mortgage with no income. This means that China was partially responsible for the chaos that ensued after 2006.

In addition; China could cash its Treasury bills and demand the $1.1 trillion owed by the US government. If that occurs, the US economy would be in dire straits; as would Europe‟s. The risk of such a financial shock exists but would only arise if China felt neglected in some way, leading us to the important principle of how one‟s actions differ from one‟s potential. It is clear that Western opinions about China are shaped around the latter, when perhaps they should be shaped around the former; as The Economist points out, “the best way to turn China into an opponent is to treat it as one.” America and Europe can benefit hugely from China‟s growth, as long as they respect the Chinese and treat them as equals. China‟s recent economic rise has benefited the West in the form of goods through trade and capital through the credit-markets. China has benefited in a more intangible manner – economic influence in the American and European economies, something which has upset the Western powers. Perhaps then, apprehension around China is merely a behavioural reflex of the West when its dominance is threatened. But we in the West must realise the world has and will never, operate as a zero-sum game and thus, China‟s rise should be seen as an asset to America and Europe. R

Competing by Co-operating How the tobacco and photographic industry have got a step ahead. Sam McArdle

ame Theory is a mathematical and economic theory, first written about in 1713 that can be applied in many different scenarios. It shows how an interaction between two bodies can have different effects on each other and the success of a body depends on the choices made by the other. The best outcome for all parties as a whole is achieved through cooperation. Examples of the game theory can be found everywhere from multimillion pound business deals to the final of Big Brother or the game show Golden Balls. Game theory has become

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Whether aware of it or not, they were actively applying the concept of game theory.

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particularly prevalent in the aftermath of the recession, as it has aided certain industries such as the tobacco and photography industries in their recovery. By 2005 all tobacco advertising was fully banned in the UK, with general advertising, such as television adverts, banned as early as February 2003. On the face of it, this might have been expected to have a devastating effect on the tobacco industry. The government implemented this ban in an attempt to reduce and eventually stop the consumption of tobacco. By comparison, since the 2008 recession many companies have relied heavily on advertising to try and ensure that the

demand for their products doesn‟t fall. However, statistics for the Tobacco Manufacturing Association tell an interesting story. Surprisingly, despite the absence of advertisement, the revenue from the tobacco industry has risen from £9.9 billion in 2003 to £10.5 billion in 2010. This could be explained by the addictive qualities of cigarettes; tobacco is an habitual good therefore smokers will buy cigarettes regardless of whether they are being advertised or not. However, a more interesting explanation is that the £0.6 billion increase in revenue could actually be attributed to the tobacco advertisement ban. By reducing expenditure on advertising, profits could increase as costs decrease. If the tobacco companies have reinvested the increased profit back into the business, we can assume that the increase in investment could have largely contributed to the large increase in revenue. It could also be explained in terms of game theory, which states that the best possible outcome for the industry as a whole is achieved through cooperation. For example, before the ban was in place, companies could have colluded and agreed on a massive reduction in advertising across the industry. This collusion would have been classed as price fixing and deemed highly illegal, so this example is entirely hypothetical, but it provides a good example to show how game theory functions. In the long run, this advertising ban, alongside anti-smoking campaigns will eventually cause the industry to suffer. However in the short run, it is ironic that in seeking to restrict the tobacco industry, the government‟s actions may well have had the opposite effect to what was desired. Aside from the tobacco industry, there are several other industries are choosing to behave in ways that demonstrate the game theory. An example of this is the professional photography industry. Since the start of the recession, consumers have become

more price sensitive, and this has heavily hit the professional photography market. Factors include the availability of cheap high quality digital cameras, the advent of low cost photo sharing sites such as iStock and Flickr, and the proliferation of photo editing software such as Photoshop. This has led to an influx of semi-professional photographers offering low-priced services, which have under-cut the existing professionals.

Existing professional photographers realized that it was more difficult to compete on price; therefore they needed to compete on quality and service. In order to achieve this, professional photographers have run workshops and classes, increased the use of online forums, expanded their networking and developed conferences. This is all with the intention to raise the standard of the professional photography industry as a whole and to differentiate on quality of service rather than on price. By seeking to raise the overall standard of the community, the market leaders are sharing the best practice, techniques, tools etc. at the expense of some of their comparative advantage. However, this allowed the whole photographic community to charge higher price for higher quality services. As these two examples show us, if game theory is utilised correctly, it can have a marked impact on the success of an industry. As more and more companies are consumed by the aftershocks of the recession, it shall be interesting to see whether the technique will be more widely adopted. As well as this, Britain‟s steady recovery will also test the sustainability of game theory; will the companies still honour an arrangement when the economy begins to improve? The success of game theory still hangs in the balance, and only time will determine the outcome. R

Do You Love Wealth Better Than Liberty? Pearse Johnson

ited as the economic miracle of the 21st century, China is forecast to overtake the US as the largest economy in the world by 2030, but less than 50 years ago, China was suffering from the effects of the Great Leap Forward, which caused the deaths of tens of millions. To ask someone then to forecast the future of China, economic dominance would not have been one of the answers. Since then the Chinese economy has grown and expanded based upon several key strengths which give it an edge over competing countries; the level of export-led manufacturing being the central pillar of Chinese power. Undoubtedly, this economic boom has had real life impact on the Chinese people, over the last 10 years GDP per capita has grown by $1,300. The growing Chinese middle class certainly has nothing to worry about then, nor do the large amount of rural migrant workers, Chinese urban population having grown by 17% in the last 13 years, this means that many of the rural poor will find work and satisfaction within the growing urban landscape. However beneath the veneer of efficiency, there is a sickness at the heart of the Chinese economy, not only that but at the heart of the entire Chinese political system. This internal weakness does not confine itself to China alone; indeed there are many countries where civil freedom is limited, which will inevitably fail. History has given us multiple examples of this from fascist authoritarian, to supposedly “egalitarian” communist utopia which fail precisely because they do not provide equality. Being an example of the latter China has two choices, reform or failure. The former is potentially the hardest to stomach for the politburo at the centre of the Chinese Communist Party, acknowledgement that the liberal economic and political model is the only viable one in the modern world, is

to effectively turn its back on the past 60 years of Chinese tradition. However there is a precedent for reform, China made a gigantic effort to make a move towards a more market orientated economy under Deng Xiaoping, however these reforms have been taken as far as possible within China‟s current political system. An Authoritarian system can only take an economy and a people so far before its crushing nature becomes a cap on the potential of the nation. Furthermore, such a country cannot but help be reviled by its more moderate neighbours, frosty international relations are never conducive to building a strong and sustainable economy and government. Support of North Korea must be drastically reconsidered and disputes over the South China seas must be settled before China can begin to be truly seen as a true and credible modern nation. As a matter of principle, the issue of Chinese authoritarianism transcends the current situation, in fact we can look to history to provide us with an image of what China may become. The dispute between personal freedom and state power is an interesting one, and one that has been at the core of human politics, economics and philosophy since the advent of organized society. To what extent can individuals be subjugated to the will of the state, and how long will a burdened people remain content with their oppressive government. The blueprint of modern totalitarian states can be found in the philosophical and ethical theory known as Utilitarianism, born in the 19th century amidst a background of growing proletarian angst and bourgeois anxiety, this model has become obsolete as a governing system in the 21st century. To justify the abuse of minority groups by chalking it up to the “greater good”, has not only clearly become unethical in a world where modern communications allow us to view

events on the other side of the world from the comfort of our homes, but has also become contra to long term liberal economic theory. By suppressing certain groups and limiting freedoms governments may be able to achieve short term economic boom, however in the long run, the social angst this creates will be detrimental not only to the health of the economy but also to that of the regime. Suppressed groups are not likely to accept the degradation of their dignity for long, strikes and other dissent will become rife. Eventually the argument comes down to personal freedom against state power, and this conflict has been the central question of politics since the advent of popular sovereignty, recent history has unequivocally shown that the only political model that works is that of liberal democracy based upon liberal economics. States which refute this fact, such as the USSR, face a sticky end. Looking to history for inspiration, the 20th century provides us with many examples of states in similar positions to modern China, namely having forsaken individual rights for the greater good. The portents are not good. Meiji era Japan, 1930‟s Germany, Stalinist Russia; not only were all of these states veritable dens of inequity but they were also guilty of mistaking short term economic growth provided by their authoritarian regimes, for a sign that there system was in fact durable, which the collapse of these states has proven its not. The reasons for the failures of these states are varied and complex, but the lesson remains, in order sustain economic growth, a free political system with an emphasis on personal rights, coupled with liberal economics is necessary to counterbalance an over-mighty state. China is a modern example of a state with too much power and too little time. The Chinese are quickly growing dissatisfied. The state has one questions to consider with concern to the future of their economy, do we sink? Or swim? The Chinese people have only one, in the words of Samuel Adams “Do you love wealth better than liberty?” R

War-led Economic Recovery: USA vs. Iran Is an invasion of Iran the Answer to America‟s Economic Problems? Alex Ireland

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ith strong Republican support in Congress for challenging Iran's ambition to become a nuclear power, he [Obama] can spend much of 2011 and 2012 orchestrating a showdown with the mullahs… as tensions rise and we [the USA] accelerate preparations for war, the economy will improve.” This controversial statement made by the late David Broder, political commentator and columnist with the Washington Post sounds warmongering and irrational at first glance. But, underneath the surface is genuine economic theory and potential political benefit, this is a subject of understandable controversy however, and sound

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World War Two federal spending on defence peaked at 37.8% of GDP

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economic analysis of its merits and faults is often buried beneath strong opinions and forced agendas. David Broder‟s suggestion is based around the notion that a huge increase in military expenditure would act as a fiscal stimulus, pumping money into the circular flow and creating jobs both in war industries and the army – essentially a case of military Keynesianism. He argues that it was the Second World War that brought the USA out of the Great Depression, and in the same way another large-scale war could work to save the USA from

its current woes. This theoretically generates four separate effects: greater government spending directly increasing aggregate demand, a multiplier effect achieved as a result of the higher spending, workers removed from the idle workforce in order to act in the army, and a long-term benefit as military-researched technologies become available to the populace (this effect is only likely to be seen with long-term high military spending and not just spending on a single war with Iran). A great advantage of this over other forms of fiscal stimulus is that “the opposition party will be urging him [Obama] on”. Efforts for war against Iran would be far less likely to receive the same deadlock that has been paralysing Congress recently, and it is for this reason that David Broder‟s plan has the potential to be more successful than other controversial forms of stimulus that could split Congress. A large war with a definite enemy for a clear purpose would likely increase civilian morale too, motivating the workforce to be more productive for the war effort, creating a separate benefit for the American economy. Furthermore, the war, providing it is successful, would remove the perceived threat of Iran and its alleged nuclear programme, which would have a significant positive reception in the USA. However, the war would have to be very large to have a noticeable impact – the current two in the Middle East show no signs of bringing widespread economic benefit to America – and the Iranian military is unlikely to be able to stand up to the United States army for more than a couple of months at most: the two branches of the Iranian army number in total 545,000, with 650,000 reserves and a paramilitary force of unclear size, though estimated to have 90,000 active personnel and 300,000 reserves (although greater numbers could be called upon in a emergency). In comparison, the United States Army has 1,478,000 active per-

sonnel (186,000 of which are tied up in Iraq and Afghanistan) and 1,459,000 reserves, and also possesses vastly superior technology and equipment. It is not to be forgotten that the Iraqi army was completely overcome within three weeks in 2003 with a total of 265,000 coalition men, and although Iran represents a larger country and has an army of greater manpower than Iraq had the open war is unlikely to reach a scale demanding the required huge investment in defence that could recover the economy. As a point of note, during World War Two federal spending on defence peaked at 37.8% of GDP, and although this is an extreme example it gives an idea of the scale of warfare needed for David Broder‟s claims to stand a chance of success – a scale that would not be reached fighting the Iranian army, nor fighting potential insurgents after any initial victory. In addition, military spending does not provide the most efficient form of fiscal stimulus. According to extensive research by Robert Pollin and Heidi Garrett-Peltier at the Political Economy Research Institute, $1 billion of spending on defence would

create 8,555 new jobs, but compared to the same amount invested in education or mass transit, of which job numbers created are 17,687 and 19,795 respectively, it is a small figure. In fact, it is the smallest number of jobs created out of all six categories investigated in the paper, demonstrating that purely in terms of economic growth, spending on a war with Iran would be better put to use in other places. The multiplier effect achieves little benefit either, being less than one for defence spending: Robert Barro, Harvard professor, and Charles Redlick estimate in their paper that the multiplier effect of defence spending in the USA is between 0.78 and 0.88 for current unemployment levels of 9.1%. This means that for every 100 units of spending on defence, the economy grows by only 7888 units, as other sections of the economy are reduced – most notably private investment. This is not to say that increased military spending as a result of war would have no economic benefit, but that investment in other areas, such as construction or education, could be far more beneficial. A serious fault in the proposal is that an invasion of Iran would cause new economic problems, most notably around the price of oil. Iran is the world‟s 4th biggest oil producer, accounting for 4.95% of total world production, an amount that OPEC, of which Iran is the number two producer, has asserted they would not be able to replace in the event of catastrophe. Invasion would at best seriously disrupt and at worst completely halt Iranian production of oil, leading to soaring prices as demand outstrips supply – Operation Iraqi Freedom greatly damaged Iraq‟s oil production and was partially blamed for the increase in oil prices during 2003: this effect will be hugely magnified with Iran, Iraq being only 12th greatest producer of oil in 2003 in comparison to Iran‟s current 4 th place position. It has been suggested by Congressman Ron Paul and threatened by Saudi Arabia that energy prices would triple were such an assault on Iran to take place, and even the serious

possibility of an invasion of Iran would be enough to raise oil prices, as was seen with the single day $11 per barrel price increase (the largest single day increase in history) on the 6th June 2008, after a senior Israeli politician raised the prospect of an attack on Iran. Although America has strategic oil reserves of 700 million barrels (enough to completely satisfy demand, also accounting for domestic production, for 47 days) a sustained rise in the price of oil would severely hamper growth prospects in the USA, and even risk recession. This represents a serious flaw in the assertion of American economic benefit resulting from such an attack, as the consequences and risks outweigh any potential benefit to the economy. There is, of course, the ethical element of this proposal too. Such an invasion of Iran would cause massive death and destruction: the three week invasion phase of Iraq killed 7,000 civilians and conservative estimates report at least 7,500 Iraqi combatants killed too, with many estimates ranging much higher.

An invasion of Iran would undoubtedly produce greater casualties as Iran has an army considerably larger than the 2003 Iraqi one, and it is important to note that these figures regard only the initial invasion, and not the human cost of a potential occupation against insurgent forces, which would be far greater. Causing the deaths of thousands of people for economic gain is extremely immoral, and in the eyes of many, completely unjustifiable Not only would an American war with Iran for the purpose of economic recovery be hugely unethical, the economic consequences would at best be inefficiency, with resources better dedicated elsewhere, and at worst be devastation, with the USA and large parts of the world plunged into an oil-crisis-led recession. Despite having a basis in economic theory, David Broder‟s calls for war with Iran are flawed and the USA would fare far better by investing in a more conventional means of economic stimulus, or simply not spending the money at all. R

Source: Photo by Senior Airman Brian Ferguson

Ireland: From Boom to Bust Ireland‟s dramatic change – when will it all be over? Mark Kelly

he last few years have seen Ireland brought to its knees by the recession, causing global concern for the stability of the Euro and the World‟s Markets. With all this it easy to forget that Ireland was one of the most prosperous countries in Europe only a few years before the recession. We have seen a huge boom and bust in Ireland within the last 10 years, and at a glance it does look like a unique situation. But Ireland‟s history is an economic roller coaster full of ups and downs. What caused Ireland to fall so badly this time and will it be able to recover like it did in the past? The Great Famine or Irish Potato Famine of 1846-52 caused Ireland many setbacks and saw its economy crippled. The blight killed most of the potato crop in Ireland, and 2/3 of the Irish population were dependant on agriculture as their source of income, so it left many families in a dire situation. During English rule, subdivision of the farms meant that the land was so small only one crop could be grown, and therefore when the blight hit there were no other types of crops to eat or sell. After the famine farms were passed on to the eldest son, so the others had to emigrate to America, England, Scotland, Canada and Australia in search for work. By 1854 nearly 2 million people had emigrated abroad since the start of the famine, representing approximately 25% of the population. A further 1 million died from starvation, leaving Ireland short of skilled labourers and farmers to rebuild. The price of local food dropped considerably, and the money from food exports to England dropped too.

1995 was the start of the most recent boom years for Ireland. Between then and 2000, Irish GDP grew at an average rate of 9.4% per year, and at an average of 5.5% from then until before the recession, earning itself the name „Celtic Tiger‟ in that period. Many economists credit the lowering of Corporate Tax by the Irish Government as the main cause of the economic boom. It was lowered to between 10% and 12.5% through the late 90‟s. Global companies such as Microsoft and Dell flocked to Ireland to take advantage of the low tax rate and also the educated English speaking workforce, providing jobs and income for the Irish people. Unemployment hit a low of around 4% from 2000 until the recession. This boom is similar to the expansion of the economy during the Napoleonic wars, where Ireland was the largest exporter of Corned beef in the world, supplying it and other foods around the world and to the British army during the war. This boom is similar to the expansion of the economy during the Napoleonic wars, where Ireland was the largest exporter of Corned beef in the world, supplying it and other foods around the world and to the British army during the war. Ireland has been hit harder than most countries in the world by the recession, due to it‟s property bubble. The bubble had a larger impact on Ireland than most countries because the government had invested heavily in property, with construction being 9.4% of Irish GNP and

new residential construction nearly 7% of that just before the recession. House prices had been steadily rising since 2000 and peaked in 2006 at around three times the price in 2000 and it was clear that the rapidly expanding bubble was going to burst soon. Demand for property went down in 2007 lowering the value of properties and creating an expectation of a drop in house prices which combined with higher interest rates caused the property market to plummet. Judging by its history it seems as if the ride isn‟t over yet. The question isn‟t if Ireland will recover, but when. The recovery should be quicker than after the Great Famine because this time it isn't facing its problems alone like it did after the famine where English politicians including Prime Minister Robert Peel were stuck to a policy which argued against any state intervention in Ireland and ended in the class of farmers being wiped out. This time relations between the two countries have improved, culminating in a visit by the Queen earlier this year. Ireland has received approximately €50 billion from the EU and the IMF, England being a major contributor in order to bail out the banks, and although growth has been negative for the last few years, it is showing signs of improvement and positive growth in the near future. R

E-coli: The Economic Casualties How the Eurozone has fallen foul to the outbreak Ha Yeong Lim

he on-going outbreak of the deadly rare strain of Escherichia coli has not only affected nearly 4000 people‟s health but it has also caused economic casualties for thousands of producers. At least 43 people have died so far and thousands of kilos of fruit and vegetable have been thrown away; in just one week Germany threw away 270 tons of tomatoes. The outbreak has been described as the “worst crisis” for Germany‟s agricultural sector since the Chernobyl nuclear disaster. According to Gerd Sonnleitner, president of the German Farmers‟ Association, the warnings from the health authorities did little to prevent further spreading of the outbreak since there was a lack of scientific evidence. What it did, however, was cause uncertainty about the source of the contamination, further damaging the EU‟s agricultural sector. Spain was initially blamed as the source of the outbreak, meaning they were the first and largest economic victim to be hit by the e-coli outbreak. Later, the German food authority, the Robert Koch Institute, announced bean sprouts from northwest Germany as the source. But by then it was too late; the damage was already well and truly done. Farmers were throwing away some 150,000 tons of fresh produce every week while the Spanish agricultural sector was branded with a stained image. The Spanish government estimates that farmers lost around 200 million Euros in sales per week, whilst the EU farmers reported weekly losses at around 400 million. Another consequence of the outbreak was significantly higher levels of unemployment, particularly in Spain. The crisis is reported to have left 70,000 people out of work. When the Spanish construction bubble burst, many of the labourers moved to agriculture in search for work. But due to

the outbreak, farmers were forced to close their farms or to make cuts which led to the unemployment of labourers, many of whom are poor immigrants. Even when the compensation eventually arrives these workers are likely to see none of it which will only worsen the already wide income inequality gap. All this in a country where unemployment is over 20%; the outbreak will further contribute to an already stumbling economy. But it‟s not just the Spanish who have suffered terrible economic repercussions. The Federation of German University Hospitals reported that around 20 university hospitals have accumulated costs up to several million Euros. Whilst we cannot be sure of the overall costs just yet, the annual budget for the university and regional hospitals is 180 billion Euros and this is proving to be inadequate. As the average cost per patient increases to around 20,000 Euros, German healthcare looks set to meet a budget crisis of unprecedented magnitude. So how are the sufferers being compensated? The EU commissions have offered 210 million Euros and again, this is described as insufficient – the compensation would not be enough to cover Spain‟s first week losses alone. Although the market is now recovering, it will take years for the damage to be repaired. This outbreak is the worst e-coli outbreak since 1996, when the bacteria affected over 9000 people in Japan, and for the insurance companies, the prospect of recovery looks bleak. Christof Bentele, the managing director of Aon Ltd.'s recall and contamination crisis management group, said as soon as it is clear that a particular product or producer is responsible for the outbreak, people will look for compensation for bodily injury claims. However it‟s important to note that it‟s too early to estimate the total costs of the outbreak, and the insured companies may not even face charges. Whilst bodily injury claims are likely to be compensated, the majority

of the financial costs for producers across Europe are unlikely to be insured. Reto J. Schneider, head of agriculture for Europe at a Swiss reinsurance company, said losses which are not due directly to measures ordered by authorities, are not likely to be eligible for compensation. Moreover, according to Ian Harrison, product recall specialist at Lockton Cos. L.L.P, growers are likely to have only limited insurance. This is because contamination insurance is normally bought by companies that use fresh produce in their products rather than farmers. Due to this outbreak, the cost of insurance for fresh produce is likely to spike as it is now considered high-risk. Aside from insurance, the relationships between European countries were also harmed due to the outbreak, mainly between Germany and Spain. Financial Times reported that officials were furious that an EU government would question one of its main export sectors without firm evidence. Spain was understandably furious to be blamed for the epidemic and is likely to demand full compensation from either Germany or the EU. Anthony Moreno, a spokesman for Coag, the Spanish farming organization, said “we don't care where the money comes from. Obviously the Germans are to blame, but we are inside the European Union and that is where it may have to be dealt with.” Although the outbreak has slowed down and the economic crisis in Greece and conflicts in the Middle East have somewhat clouded the issue, it is still very much a pressing issue with long lasting damages inflicted on the agricultural sectors of Germany and Spain. R

Grey Britain The implications of a ageing Great Britain. Daniel Teh

he evidence is undeniable – Britain‟s population is slowly but surely ageing. In a technical sense, this means the proportion of over 60s in Britain is increasing at the expense of the under 16 cohort. In the UK, in 1921, the figure was at a mere 6.1%. By 2001, this had risen to 16.7%. Fast forward to 2034 and the official prediction is set at 23%. It is even suggested that one in five of us will live to see out 100 years! In both the developed and, to a smaller extent, less developed countries, fertility rates have been in decline, a trend that normally occurs with development. In 1871, the average woman was having 5.5 children, which dropped to 2.4 in 1921. Since then, the fertility rate in the UK has fallen even further to 1.7 in 1999. This pattern has been mirrored more recently in Senegal, where fertility rates in 1970 was 7.4, whilst in 1990 it was 6.7, with a further drop to 4.9 in 2009. Improved healthcare, development of new drugs and advances in medical knowledge are a few factors causing this change.

Furthermore, the increased emancipation of women and the wider availability of contraception have further contributed to this decline in birth rates. So is this problem of an ageing population really a big issue? There are a number of problems associated with this. Firstly, there will be an increased strain on the NHS. Currently, the NHS is facing increasing costs from obesity (which takes up about 9% of the NHS budget, and the number of cases is on the rise), as well as increased demand for IVF treatment, to name a couple of examples. The elderly are generally considered to have more medical needs than those in the younger group due to their more fragile immune systems. This is likely to see them spend more time in hospitals and requiring more treatment, which will result in increased spending, as the numbers of over 60s is set to increase. However, their needs are not just medical. Some of the extra services include meals on wheels, large print books and granny mobiles. Furthermore, the elderly are more prone to accidents – it is estimated that falls from the over 65s cost the NHS £4.6 million daily. An increasingly elderly population will only see this figure rise. Aside from medical expenses, we must also consider the costs associated with caring for an elderly population. As people live longer and longer, more and more people are likely to move into care homes, once again adding to the financial burden of the NHS. The current NHS spending of up to £110 per patient weekly in care homes is likely to rocket as the demand for care homes increases. Another issue that Britain faces is the funding of pensions. Under current policies, an extra £32 billion annually will need to be spent, with the number of workers for each pensioner tumbling from 3.9 to 2.5 in this time period. It is looking increasingly likely that the current pension system of pay as you go, where the money comes from the current generation of workers, is unsustainable, as there will be huge funding deficits. The fact that life expectancy has increased from about 68

in 1950 to 78 in 2009 only adds to the financial headaches for the government, as it means that people are likely to be receiving their pension money for longer. Currently, about 10% of GDP is spent on pensions, and longer life expectancy is only likely to result in mounting expenditure in the future. However, it is not all bad news. There are a number of benefits to having an ageing population. The socalled “grey pound,” (economic power of the elderly) has led to a sustained increase in the level of consumption within the economy. Many of the over 60s, especially from the Baby Boom generation, have a higher amount of disposable income than those much younger, and thus spending amongst this group has increased. It is estimated that in the UK in 2010, £100 billion was spent by those over 65. This “grey pound” has also resulted in the tourist season being extended, as pensioners take advantage of the lower holiday prices outside school holidays, bringing in income for hotels and travel

“ life expectancy has increased from about 68 in 1950 to 78 in 2009

”

companies during the off-peak period and allowing them to spread out costs throughout the year. In addition, some pensioners are wealthy enough to pay for their own residential care and health expenditure, which serves as a huge respite for the government. Large properties that were previously seen as having little value have also benefited from an ageing population, as they have been converted into residential homes, with some even making a profit. In order to fully utilise the opportunities provided by the “grey pound”, the government must take several measures to tackle the negative economic consequences associated

35 with an ageing population. One option is to follow a system implemented by the United States. This is where the elderly posses their own studio apartment, or 1 bedroom flat within an area where there is medical care and social facilities to cater for the elderly. This will help to ease the problem of the shortage of care homes in the UK. If Britain can provide such communities, it will ensure that the elderly can enjoy both the freedom of their own property, as well as the reassurance of having nearby medical care should they need it. The building process will also provide a source of employment, which can help stimulate Britain‟s overall GDP. A more unpopular alternative would be to raise the retirement age, which will inevitably occur before I reach the age of 65. As life expectancy increases, perhaps it is only fair that the retirement age increases proportionally, so the government does not have to pay out pensions for a longer period of time. We can still enjoy the same amount of years in retirement, as past generations have. A final solution is to increase the age of obtaining a freedom pass for transport. The current age is 60, which does seem rather odd, as it is some way before the actual retirement age. Surely someone who is still working at 60 should be made to pay for their transport? Perhaps a compromise would be to charge a half price fare from the age of 60, and then offering a freedom pass after they reach the retirement age. This would save the government a rather large sum of money. It is an inescapable fact that fundamental changes will need to be introduced in order to accommodate the growing population of Britain. For example, the retirement age will need to increase to maintain government revenue and more care homes will need to be constructed so the elderly can live comfortably. The evidence stated paints a clear picture and to prevent this demographic change coming as a shock to Britain, the government should implement provisions now so that phasing into Grey Britain will not be such an ordeal. R

Cybernomics How hacking jeopardises our economic potential. Frazer Carroll

n today‟s society of computer overdrive and excessive internet usage, it is of little surprise that hackers have seized this exploding opportunity with open arms. With the International monetary fund, Sony, Shell, BP, Exxon Mobil and many other big names with supposedly sound and sophisticated software, all being subject to hackers, what are the implications for the rest of us? The new economic world is governed by 24 hour activity across the globe. However, hacking serves as a real threat to this round the clock activity. For example, the IMF recently had to break their connection with the Central bank due to the threat of hackers, which left no other secure connection link due to a lack of realistic contingency plan. Sony has also suffered three compromising hacks in as many months, with thousands of users‟ details and accounts stolen. It previously had 77 million users‟ details stolen a month before, which in context is greater than the total UK population. It leaves a growing number of people apprehensive towards the reliance on technology in our modern economic age. With internet usage in 2011 for some expanding parts of the world up by over 1000% from 2000, surely the threat of hacking is also only set to increase? But what does this mean? Well hacking could instigate a possible backwards step for economic growth, due to our sheer reliance on the internet to initiate economic development. The internet provides an extra marketing platform for consumers to make fast and spontaneous purchases without leaving their home. Putting this resource in jeopardy would almost guarantee a fall in Aggregate demand of not just the UK, but nearly every economy around the world. Coupling this with

Image: Courtesy of www.pubarticles.com

the already precarious growth, a fall in AD may just be the deciding factor on a double dip recession. Subsequently with UK unemployment at 7.7%, a further fall could prove disastrous for citizens and the government‟s finances, which are already grossly over stretched. On a more individual level, other complications have arisen for some people after

“

The threat of hacking is only set to increase

”

MasterCard were reported to have of been attacked, and many may find themselves victims of fraud. How can we prevent this? Well, the market for security software is also growing and advancing, providing greater and greater resistance to the prospect of hackers. Not only this, but people have generally become more wise to potential risks such as credit card scams and fraudulent web pages, meaning that on the whole there are less people that are effected directly. However, to combat this problem further, greater responsibility must be confided in the big corporations, as it is their duty to protect the details of our online transactions, and ensure that its content remains private. R

Why America Will Never Recover The desperate struggle America faces is one that no country wishes to undergo. Adam Salisbury

n August the 6th 1945, the US military dropped an atomic bomb on the Japanese city of Hiroshima, which served as the culmination of years of progressive research in the pursuit of Western domination. This development of nuclear weapons marked the final step in America‟s ascension to world superpower status, which had begun modestly after the Civil War ended in 1865. Ever since then, America has held somewhat megalomaniac power on the global stage, and has been seen as the unbridled flagship of economic prowess and prosperity. But now, in light of the recent global financial crisis, it seems that incredulously, this flagship has taken on water and is about to sink. Well, perhaps this sinking analogy is a bit of an exaggeration, but as this article shall demonstrate, America has not only lost much of its economic transcendence, but may never return to the tremendous figurehead that was so prominent throughout the latter part of

“ the current situation looks pretty bleak for the US economy.

”

the 20th century. So why will America never recover? Before we delve into this concept in its entirety, it is worth exploring several aspects of concern that exist presently in the US economy. On a more individual and entirely selfish level, the most troubling fact that the average American must embrace is that it is now harder than ever to find a job in the United States. In May 2011, there were just under 14 million people unemployed, around 9.1% of the over-

all labour force of America. Furthermore, at the beginning of last year, 929,000 of US citizens had simply ”given up” looking for work, the highest statistic there has been since the government first started tracking this in 1948; a sure sign of chronic unemployment. To make matters even worse, the exponential increase of globalization has forced American workers to compete with the cheapest labour available anywhere on the globe, which is usually derived from poorer, less economically developed countries. In allegiance with the free market economy that was so emblematic in America‟s rise to power, the corporations have been motivated by profit to hire this cheaper foreign labour, which has only contributed to the astronomical unemployment rates that America is now experiencing . Aside from unemployment, the recent economic turmoil has also seen the American housing market similarly crippled, causing the Federal Housing Administration to announce plans to increase the cash deposits required by new borrowers. Tighter standards have meant that less people are eligible for loans, fewer loans meant less people have been able to afford housing, and less demand has caused house prices to plummet even further. Incredibly, these falling asset prices are not the primary concern for many current homeowners. As the massive wave of sub-prime mortgage defaults in 2008 showed us, the tendency of mortgagees to suddenly default has become more prevalent and even more alarming, as the consequences are that many people will simply not be able to pay their mortgage. For the average American homeowner, this is an extremely worrying prospect indeed. Whilst we continue to examine the current economic hardship, it is worth recognising that it is not just the labour force and home owners that

have felt the effects of the recession; pensioners have endured equally ferocious repercussions. As the baby boomers from the post-war period reach the age of retirement, the massive underfunding of pensions has created a crisis of unprecedented magnitude. With pensions, Social Security and Medicare expenses all running wildly out of control, there is simply no way that this situation can be adequately resolved. So as you can see, the current situation looks pretty bleak for the US economy. But wait a minute, haven‟t we seen this all before? Well, in a sense yes; the American economy has sustained many recessions in the past, and has developed a reputation of notorious resilience. Memories of the Great Depression of the 1930‟s have made America‟s demise inconceivable for many; after all, they survived that so they can survive this, surely? Wrong. America‟s financial, political and demographic situation has changed dramatically since then, which has made only one outcome seemingly plausible; that America shall never recover. Let‟s begin, shall we? Firstly, the American recovery from the Great Depression was much attributed to the re-opening of their factories. As the global economic situation slightly improved so did America‟s, causing factories to re-open, stimulating a fall in unemployment and a rise in consumer spending. As spending increased, the economic situation began to flourish, causing more and more factories to re-open and thus creating a gloriously prosperous snowball effect. However, today America‟s factories have not only shut down, but have also relocated to communist China. This did not happen in previous recessions, except to a smaller extent where there was a manufacturing scare in the 1980s when Japan was taking manufacturing jobs. To put the impact of this into perspective, economist

Alan S. Blinder estimates that around 25% of all current U.S. jobs will be international within the next two decades. Whilst offshoring jobs to China was initially seen as an effective method of cutting production costs, it is now abundantly clear that such an initiative is fundamentally unsustainable, as for the first time ever, the American labour market is deteriorating with no likelihood of revival. Another factor that is quickly blurring any prospect of recovery is the dollars rapid descent from its position as the reserve currency for the rest of the world. Prior to this, this position had allowed the US financial system to enjoy an unusual level of stability, as it meant the dollar was always sought regardless of exchange rate shocks. However, in recent times, foreign countries have begun to turn away from the dollar and towards alternative currencies, in an attempt to diversify their foreign exchange reserves. The loss of confidence in the dollar may prove instrumental in America‟s eventual decline, as a weaker dollar shall cut the real spending power of American consumers, as well as produce inflationary pressures due to the rising costs of imports. Despite all these considerable implications, the most damning fact that America must face is the irreconcilable amount of debt that has been accumulated by successive American governments. Never in the history of America, or indeed the history of the civilized world has one generation had to bear such an overwhelming financial burden. At the time of writing this article, the US debt level is just under $14.5 trillion. By the time you read it, the debt level will be substantially more, as it is increasing by $100,000 approximately every 7 seconds. To get a rough idea as to how much the debt is increasing, add an additional $2 trillion immediately after the final bar on Figure 1. Although the cause of this astronomical debt is a subject of intense political debate, it is generally recognised that the main contributors have been the corporate bailout, the poorly managed social security initiative, and

Image: Courtesy of politics4all.com the disastrously expensive wars in Iraq and Afghanistan. Moreover, the situation has not been helped by American tax receipts falling through the floor, which has made it even harder for America to pay her bills. Taking all this into account, is it at all feasible for America to reduce their debt to more sustainable levels? With the current system, the Federal Reserve prints money and loans it to the government with interest, and then the governments pays the Federal Reserve with government bonds or basically IOU‟s that they create out of thin air. However, because there is interest with the money that the Federal Reserve printed, there is simply no way the American government can ever pay it back, and thus this system is entirely unsustainable. Moreover, this reckless expansion of money supply is not only ineffective but also extremely damaging. As the supply of dollars increases, the value of each individual dollar decreases, as well as the remaining net worth of individual Americans. As inflation steadily increases, individuals and corporations see their potential returns diminish on „economy-driving‟ investments, and turn to „inflationproofing‟ investments such as gold and

collectibles, which do absolutely nothing to stimulate the economy. Amidst previous recessions, the problem of National Debt was never fully embraced, and was rather „swept under the rug‟ for the future generations to deal with. However, it is now abundantly clear that this process can no longer continue; the issue of debt simply must be addressed before America is forced to default. Furthermore, the repayment programme will have to be funded by a substantial increase in direct and indirect tax, which will lead to a sharp fall in overall consumption and a gradual decline in America‟s overall GDP. As if these realisations were not damning enough, one must only consider the rapid economic ascent of China and India to fully acknowledge that America‟s status of superpower is slowly but surely deteriorating. As Sir Winston Churchill famously stated: „The era of procrastination, of half-measures, of soothing and baffling expedients, of delays, is coming to its close. In its place we are entering a period of consequences.‟ Certainly, the day of reckoning for the US economy is on the horizon, and when it comes it is not going to be pleasant. R

About: Will Hutton is an English writer, a weekly columnist and former Chief Editor of The Observer. It was announced in April that he was to become the new Principle at Hertford College, Oxford. He is currently working as the Executive Vice-Chair at The Work Foundation (formerly Industrial Society).

„Them and Us‟ together... Will Hutton spoke to The Ricardian in July 2011 about his book, „Them and Us‟, and his opinion on the UK‟s economic climate. - according to the Bank of England calculations- have lent close to 1 trillion euro to euro zone Governments, banks and corporations; that is a exposure out of our own country which is at least as great as any other member of the euro zone country, including Germany and France. Yet we live in a make believe WH: By the time you go to print, this world in which it‟s their problem and story is moving so fast it will probably not ours. You‟re both middle class stubecome more obvious to more people, why I‟ve argued what I‟ve argued. I think it‟s now highly likely that Greece is going to default on its bonds, the open question is whether the Greek banks will default on paying the rest of their bondholders and actually what default means. Is it payments to the European Central Bank? Is it repayments on public debt held by foreigners? Is it Greek banks that have sub- dents, were you in Greece your parents stantial borrowings?; which of these would now be hoarding the currency are going to be reneged on. The inter- and turning it into gold bars. That is connectedness of these triple events, I something happening in a far away believe will lead to similar events hap- country and not in South-West London, pening in Portugal and Ireland. I fear however if this crisis ricochets through, that can then have ricochet effects in one of the banks that will undoubtedly Spain and possibly Italy. British banks go is Santander. Santander is a major Ric: From your various televised and written articles it is clear to see that you are for the consistent EU/IMF bail out of Greece and continued British involvement in such an action- could you highlight the main reasons behind such a view?

“ By Autumn,

Britain could be in a first order financial crisis

”

UK high street bank and all the banks that have lent to it in the UK will now be fearful over whether they can get their deposits back from Santander. We‟ll be in the middle of a first order financial crisis and by Autumn it could be your parents that are hoarding gold, so to pretend that this is a problem in a far away country in a far away place because you are worried that the people at News International will accuse you of being pro-European is such a spectacular misreading of the national interest for our country. Really only because of what we now understand to be a profoundly compromised newspaper organisation and its allies, held successive British governments to ransom and shaped public opinion in a way that makes it quite hard to do the right thing. Ric: On a broader scale, taking the recent discussion by Moody‟s on a potential rating downgrade on US debt repayments, do you believe that the US debt position is sustainable in the long run?

39 WH: Yes, I certainly believe the US debt position is sustainable in the long run, but it requires raising taxes, to which the Republican Party is implacably opposed- not everyone in the Party is opposed to tax raising- but the dynamic path of the Republican Party; crucially the Tea Party movement, have made it impossible for United States Republicans to support raising taxes. The United States debt is actually peaking at 80-85% of GDP, this is not high, what makes it problematic is that all the burden of deficit reduction is to be shouldered- in Republican eyes- by Federal Government. In many respects, the United States has developed an entrepreneurial state; if you look at the international comparisonsthe United States spends 6% of GDP on R&D and knowledge based assets, of which vast proportions are paid for by the Federal Government, which is one of the sinews underpinning US business pre-eminence and yet the Republican Party wants to do away with all of it. The debt position is sustainable if the Democrats can persuade the Republicans and if the American people will turn away from the Tea Party movement, otherwise I think the United States will go through some very serious problems, I don‟t exclude debt default… The consensus that a bargain will be reached misreads the deep opposition from some of the Republicans towards any form of tax raising. Ric: With regards to the current situation, would you block the BskyB deal? WH: BskyB is going to emerge as one of the most valuable media assets in the world in the next 5 or 6 years, it holds a monopoly position within satellite broadcasting, it will cross subsidise titles and newspaper titles and will privilege Rupert Murdoch more than any other media organisation has

been privileged in the West. As we now know he runs almost a state within a state, he makes his own law, he doesn‟t acknowledge the law of the land- his editors don‟t, and on a range of political issues including Europe to cultural issues including misogyny and one parent families- he has a particular world view which he doesn‟t hesitate to promulgate through his titles. If you believe, as I do, that one of the aspects of good capitalism is the capacity for insurgents to challenge monopolistic incumbents- we have permitted a monopolist incumbent to have enormous power in Rupert Murdoch, he was once an insurgent but now he is a monopolist incumbent. Furthermore, one who is using politics to bend the rules in his favour, just as monopolist incumbents have always done. We have to seriously consider not just competition policy but also ownership and media concentration, as a country we have never done this, one reason I think we don‟t do that is because the conservative wing of politics seem to hold the view that if it is business it is fine and they don‟t understand that capitalism is about churn and its about having insurgents embracing the newsimply to say because its business its good is a pathetic position, but is broadly where most right-wing writers, commentators and politicians are. On the left, the view is still hankering on either socialising the means of production and taking stuff into public ownership or regulating it, which again I think is a hopeless position. You want to reach out for a good capitalism where owners take responsibility seriously, where the law of the land is neutral between insurgents and incumbents, and prop up a competition policy that understands the dynamism of markets rather than takes a static view and so on and so forth… we are not at the races as a country in thinking about these questions, I hope you do and I

hope The Ricardian does, when your generation gets into power you need to raise these questions in a way that my generation has been too timid or too intellectually tyrannous to really think through. So, because the debate is as it is we get bad capitalism to which Rupert Murdoch is a perfect example, and what happened in the financial system in 2008 is another example of bad capitalism. Ric: One of the fundamental arguments in your book is how Britain needs to incorporate „good capitalism‟; this involves proportionality, fairness and respect. Do you believe that in our current system one can realistically implement them? WH: I am not a utopian, I don‟t believe in utopias, instead I believe the quest for utopias- on the right and left- leads to disaster, on the left the 20th century is a long list of attempted utopias which have ended in disaster but on the right there is also the free market fundamentalist attempt to create utopias which have also led to disaster. In the real world you have to accept second bestthe road to hell is plagued with good intentions. I think one has to acknowledge that Britain isn‟t a Tory country in the classic sense of the word, I think it is a Whig country; mildly reformist, very fair minded and very pro capitalist, it basically wants its institutions to run around those principles yet we‟ve allowed ourselves to slip far away from that. So yes it does seem improbable in 2011 that actually we can have some proportionality and reward, a relationship between reward and contribution and that the fairness of the value system might underpin capitalism, but… lets try for it. Ric: Another key point in your book is the need to introduce due desert to encourage innovation and entrepreneurs,

do you also believe that there should be due desert- in a negative sense- for those in the financial system who are responsible for the recent crash? WH: Yes I do, in fact I use this principle for my fair pay review for the government to come up with a way of paying people, I argue that if you want to make big money you should put some of your base pay at risk, so if you want to qualify for big uplifts in your salary as a banker you should put an equivalent proportion of your base pay at risk to be earned back, and that this earn-back principle should be implemented to all high paying people in the public and private sector alike. It is

“

We won‟t become a great country, ever, until we tackle the City of London and private schools.

”

only fair that if you want to make big money, you should also be at risk for not making big money if you underperform or screw things up in some way. What you have, is people wanting to make dynastic fortunes on the basis that they are risk taking entrepreneurial capitalists, but not actually having any downsides. I think this strikes everyone as unfair, even as soon as it is expressed people say „its unfair‟, socialising losses and privatising gains is another way of making the same point- the banking system operates on fundamentally unfair principles which is why reform is vital and why, of course, reform is so resisted by so many financiers- not all though it must be said. One of the things that has impressed me in the last 6 or 9 months, is

that in my private contact with people at the top of UK banking- many accept what I say completely, for example with the recently created £2.5 billion Business Growth Fund; all the British banks put money up for it but not the foreign bank- Santander. Barclays, HSBC, NatWest and Lloyds executives who said they will create a £2.5 billion Growth Fund to support smaller British businesses and enterprise, we‟re doing it because- at their limit- they are British and they recognise that they need to put something back and they recognise the system has failed. So to live in a world where bankers are all dark figures, is wrong, as many recognise that the system they have built is morally flawed and needs to be changed.

n‟t done their job in our democracy which is to conserve our institutions, they have been too mad keen to pull them down in the name of- I don‟t know- when I read Melanie Phillips in the Daily Mail, leaders in the Sunday Times or some of the rants the Daily Express have, you wonder what‟s their ideal world they want Britain to be, they are negative but what positively would be the institutions they would build up; a prison in which a prisoner would only get half an hour a day outside their cell? You wonder what is the institutional structure that they champion and thus the values that they

WH: It could be very fast; the principles of fairness, due desert, proportionality, trying to compensate people for brute bad luck and sharing in brute good luck are hardly revolutionary ideas, most good families, good communities and good companies are organised around these already in some way or another, so trying to generalise these as principles upon which organise our society shouldn‟t be difficult. There will be certain vested interests, for example Rupert Murdoch would be opposed to it of course, along with his editors. So in one way it shouldn‟t take long, in another way there is a complicated relationship, which I don‟t really explore in the book, between institutions and values; you may believe in public service broadcasting but you need the institution of the BBC to embody, you may believe in the rule of law but you need an impartial judiciary to embody it. I sound slightly conservative, but in fact the conservatives have-

Ric: In your book you also refer to a „social apartheid‟ whereby those privately educated seem to make up a disproportionate amount of the top jobs… what would be your views towards completely scrapping independent schools?

champion. So, it shouldn‟t be difficult in one way to move towards fairness, building institutions and upholding the Ric: How long do you think it will take ones we already have that embody the to establish the before mentioned prin- things I believe it is a one, two, three ciples of „good capitalism‟? generation task.

WH: In 1988, I was working in Switzerland for a couple of years and I will never forget a situation where I was at a dinner party in which one of the guests confessed that they had to take their child out of the local primary school and send him to be educated privately, the other upper-middle class Swiss parents were completely horrified and they said that „that means (Johnny) won‟t be Swiss, he wont have the common experience of every Swiss person‟ and it was a tragedy that this child was to be educated privately as it was away from the common run of Swiss education, and its made a undeniable impression on me actually, I‟ve never forgotten it.

41 Some years later in Oxford, admissions to Oxford High, the feeder school, started at 8 so from the primary school a lot of the middle class would depart at this age, I remember on the last day of term my daughter up all night crying at the prospect of losing all her friends and my wife cryingit was bloody awful. We‟ve created this structure and we won‟t become a great country, ever, until we tackle the city of London and private schools, and there‟s no appetite to tackle private schools. Ric: You also state that „society has become more selfish than pre-war‟ do you believe we have become more fixated on the pursuit of material growth and in a sense lost the pursuit of happiness? WH: One of my great friends is Richard Layard who has written a book on happiness, I‟m very fond of Richard. I‟ve thought a lot about this. I think you‟ve got to be slightly careful about this, as we get richer and spend more, from what people buy they want performance from it, they want fulfilment from it, self expression and this is just moving along Maslow‟s hierarchy of needs and that can quickly be just condemned as a sophisticated consumption culture, but actually why the hell shouldn‟t you? You see people who are striving and striving; alpha males who are trying to climb to the top of a career, trying to get to the top, and they have often lost sight of the fact that the friendships they are sacrificing or not maturing are much more valuable to them than getting to some level in a corporation or hierarchy. I do think we have lost sight of that, not enough people talk about it and not enough people write about it, but I think everyone knows it. So, that question invites a certain stock answer and I‟ve tried to navigate it, we have gone

through a 10 year consumer boom up to 2008 where its been easier to consume, that‟s not going to be the story in the next 10 years; we are going to go through a mini ice age I think, and that‟s going to lead to a reappraisal of values. Ric: Knowing what you do would you cap banker‟s salaries? WH: I don‟t believe in automatic caps, the reason why bank bonuses are so high is because bank profits are so high, and the reason why bank profits are so high is because bank balances have risen to 5 times GDP now - they were twice GDP- because the banks believe they can run such big balance sheets with less risk, which they cant, and in parallel to that they have run down the capital, they did do anyway, underpinning that mountainous increase in assets along with playing around with trading in other assets and investment products. This generated the profits and increase in compensation ratios, most people have a comp ratio of 10-15% whereas investment bank went to 45%, and they tyrannised the managers and shareholders and said if you don‟t pay us these fancy sums of money then we‟re walking; no one wanted them to walk and people could pay them the fancy sums of money because the economic rent in banking is so high, so what you‟ve got to do, it seems to me, is to attack the rent rather than attack the bonuses. I am actually a small scale liberal in that sense and I don‟t believe in regulations and caps, I believe in trying to get the basic structures right… Ric: Surely regulations over such aspects as derivatives would have helped prevent the crisis? WH: Most definitely, I don‟t believe in their not being rules to the game, the role of the state and democracy is to be

Above: Will Hutton‟s book „Changing Britain‟ seeks to tackle the socio-economic equity issues that are currently plaguing our country. the architect of the rules. Take rugby for example, what the rules for rugby should be are constantly debated every season, should it be 3 or 2 points for a penalty etc. This is discussed because you know the impact this has on strategy and the way the game is played. The idea that could be spontaneously generated by rugby players themselves during the course of the game is risible, and yet we are told by market theorists that the architecture of how markets will operate will be spontaneously created by the actors in the market and therefore there is no need to create the architecture via governmental or public agencies… reflect on it for a second and you can see how self serving and stupid it is. I‟m weary about too much state; I‟m with George Orwell in the sense that you have to be slightly careful about the state. However, we have probably had too little state and too much market in the last 25 years, so its time for a bit more state. R

Renewable Energy - An Inconvenient Truth What will power our homes in the future? Enpu Zhang

sk anybody on the street, and they will tell you that oil is running out. The notion that we are drastically using up the fuel of our society, is one which vaguely worries, but doesn‟t really take hold in the minds of most people. Now the good news is, reserves are estimated to last at least another 40 years if consumption doesn‟t rise; although it will be a miracle if it doesn‟t. Of course, new reserves may be discovered or become more economically viable in the future, giving us more time. What do we do with that time though? I have faith mankind‟s ability to innovate and find new ingenious solutions to our problems, but however hard we try, we cannot escape the fact that oil is finite. Eventually, there will be no more oil, and unless we are willing to wait millions of years for a new batch, we will have to turn to dreaded renewable energies. In 2009, global investment in green energies reached $140 bn, overtaking the $110 bn invested in fossil fuels. Wind was the most attractive investment, with $52 bn, followed by the fast growing solar $33.5 bn (rising at almost 50% year on year). But while this looks to be, and is indeed a step in the right direction, fossil fuels have had over 100 years of investment to reach the efficiency it enjoys today. Wind, solar, tidal and hydroelectric all suffer from different drawbacks, which seriously hinder their efficiency. To attract the investment that it needs, renewable energies have to overcome these barriers to create a market which is economically viable to enter. Here the pressure falls on governments to create the stimuli needed to further advances in renewable technology, in order to secure investments in the future.

It is very likely that as fossil fuels continue to rise in price due to increasing scarcity, renewable energy prices will fall. Mainly this is because after the infrastructure is put in place, there is an infinite supply of free energy available; but also, as the technology improves, hopefully there will be improvements in the efficiency department. Currently, renewable energies contribute only around 20% of global energy, and that is including biomass, which comes with its own plethora of environmental problems. In the UK, roughly 7% of all electricity generated comes from renewable sources, with electricity being only a fifth of energy consumption. However you look at it though, renewable sources such as wind and solar just cannot provide enough energy to match rising demand, and there is no guarantee that they will ever reach the desired efficiencies. Unless the world decides to commit now, renewable energies cannot hope to fill the void left when fossil fuels inevitably disappear. Perhaps the answer is nuclear. High levels of output and efficiency make nuclear an attractive investment, and although it is not cost competitive with fossil fuels at the moment, further advances in technology and the rising cost of fossil fuels will certainly narrow the gap. Furthermore, with carbon emissions charges raising the cost of fossil fuels, nuclear power becomes a competitive alternative.

However, the cost of constructing a nuclear plant is much greater. The lack of a standardized model in most countries has affected the capital costs of new projects, and has led in many cases to delays and actual costs greatly exceeding projected ones. Nuclear power still suffers from the stigma of events of Chernobyl and, more recently Fukushima. It seems unlikely that such events will be forgotten soon, and this may cause hesitation of opposition to new investments in nuclear power. The problem of nuclear waste continues to present a barrier to further developments. One option is to permanently bury the radioactive rods in repositories of up to 1km deep. There are dangers with this method, such as the possibility of earthquakes uncovering radioactive material, or of terrorists getting hold of the material for weapons. Another way is to reprocess nuclear waste. France is a leader in reprocessing technology, utilizing a method to break down waste into reusable materials. Of course reprocessing is not without its own dangers, including increased handling and transport of radioactive waste. I have faith in human ingenuity. The question is not whether we can solve the energy crisis; the question is whether we can solve it before time runs out. Do we try to make renewable energies viable? Do we focus on improving nuclear power? Or do we binge on fossil fuels until the lights go out. R

It’s the Economy, Stupid! (Somebody better tell the President) It‟s the economy, and the economy alone that wins Presidential elections. Really? Jack Rogers

itizens of the United States expect the elected captain of their ship to steer the economy in the right direction. With the 2012 election on the horizon it appears that President Obama‟s perceived complacency concerning the issue of economic recovery may leave him in trouble at the polling booth. His approval rating has plummeted from 56% in October 2009, in the midst of the financial crisis; recent figures cite his July 2011 rating as 45%. Despite the successes of Obama‟s presidency, such as the introduction of tougher financial regulation, healthcare reform and of course the killing of America‟s most wanted, Osama Bin Laden, if he is seen to be laid-back in his approach to the economic issues the country faces, he may quickly lose his tag as the favourite in the presidential race. The issue of America‟s labour market should be made a priority in the Whitehouse; unemployed voters tend to point the finger directly at the country‟s leadership. In fact 35 percent of Americans stated that „Unemployment‟ was the biggest problem facing the country in a recent poll, not „The Economy‟ which came second with 29 percent. Indeed recent statistics put America‟s unemployment rate at a worrying 9 percent. The average duration of unemployment stands at 36.9 weeks, the highest level seen since 1948. The fact that the condition of the labour market has deteriorated on Mr Obama‟s watch will not sit well with voters. Indeed it is perhaps too straightforward to conclude that it is Obama who should be held responsible for the woes of America‟s Economy. He was inaugurated in the midst of the biggest

financial crisis seen for a generation; the banking collapse was completely out of his jurisdiction. It is he who has had to deal with the consequences of this credit crunch and one could argue that he has done so effectively; GDP has been growing steadily since late 2009. In fact it seems to be the Republicans who are making Obama‟s job more difficult; their fierce opposition to the raising of the legal debt limit could see the world sink into another recession. If no solution is reached by the 2nd of August the treasury has

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American default on the global economy would be catastrophic

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indicated that it will be forced to default on its debts, considering the volatility in the markets the prospect of a Greek default has had the impact of an American default on the global economy would be catastrophic. Republicans argue that public spending should be cut to address government debt; however this would lead to the destruction of masses of jobs, sucking all confidence out of the economy and conceivably resulting in a double-dip recession. The President‟s staunch defence of public spending seems to be the right course of economic action, 235 senior economists wrote to officials in Washington last week warning them of the repercussions of cuts in public spending. Confidence in the economic

recovery appears to be low, 57% of Americans believe that the economy has not even begun to recover from the recent recession. Political history seems to suggest that the economic performance is one of the deciding factors when judging an incumbent president‟s term in office. Perhaps the most famous example of a failing economy resulting in a presidential defeat is the 1992 capitulation of economy, stupid‟, referencing Bush‟sGeorge Bush. Bill Clinton won the campaign with the slogan „It‟s the ineffectiveness in dealing with the recession. Despite a seemingly effective presidency, characterized by strong foreign policy, it was Clinton who prevailed with 43.3% of the vote. If we consider this political blueprint then it appears that President Obama has reason to worry if the economy is not in an encouraging state in the months leading up to the election. Next year Americans will choose whether they would like to see Obama in office for another 4 years. The President should be wary of disenfranchised voters, the unemployed would much rather blame the Whitehouse than themselves or the nature of the global economy. It remains to be seen whether America will judge Barack Obama to be the captain who is sinking the ship, or merely navigating them safely through a stormy economical climate. R

The Brain and The Consumer Psychology plays a large part in our rational decisions - but can that be affected? Kiyan Djalai

hineas Gage, a foreman constructing a railway road in Vermont, was preparing the bed alongside a railroad when an accidental explosion of one of his charges resulted in his tampering iron (3ft 7in long) being blown under his left cheekbone and completely out through the top of his head. The explosion destroyed a profound part of the frontal lobe of the left side of his brain; miraculously Phineas neither lost his life nor consciousness. Perhaps even more impressively, was that Phineas was able to walk minutes after the accident and was back home just 10 weeks later. Phineas was not completely unscathed however; he became increasingly fitful, impatient and disregarded other people‟s feelings. He had also become more unpredictable and was unable to adhere to instructions, ultimately leading to his employers refusing to give him his place back as a foreman. The loss of these social inhibitions was documented over the years and Gage‟s case became the pin-

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confidence from high returns may distort the judgement process

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nacle of many neurological papers thereafter, with many psychologists and scholars at Harvard medical school using his case to help identify the functions of the different areas in the human brain and considerably aided our understanding of the frontal cortex today. It was from these early findings from Gage‟s case that neurologists and psychologists concluded that the frontal lobes of our brains are our emotional hub. It is involved in motor function, memory, judgment, social and sexual

behaviour, therefore playing a key part in the rational decision making processes we make as consumers. Consequently, the frontal lobes provoke a lot of curiosities in both psychologists and behavioural economists as to why consumer‟s act the way they do when faced with differing circumstances. Dan Ariely, a professor of psychology and behavioural economics at Duke University perhaps articulates these curiosities best in his enthralling book Predictably Irrational where he uses powerful examples to show how different factors shape our decision making. Ariely conducted an experiment with test subjects to consider the effect of zero cost on rational decisions using Lindt Truffles and Hershey‟s Kisses. When a truffle was $0.15 and a Kiss was $0.01, 73% of subjects chose the truffle and 27% chose the Kiss, when both chocolates were reduced by $0.01, 69% chose the Kiss and 31% the truffle. According to standard economic theory, the price reduction should not lead to any behaviour change as the relative price and expected pleasure should be equal between the two experiments. Further experiments were conducted with different price values for the two chocolates and each time, the free “cost” made a huge difference to what the subjects chose. From this, Ariely theorised that humans consider both the upside and downside of a normal transaction, but when something is free we ignore the downside. He also concluded that when something is free humans perceive the item to be excessively more valuable than it actually is, and when something is “free” humans can‟t seem to comprehend the idea of making a loss. This is interesting because the “rational” part of our brain seems to have been overridden by the excitement of free or zero-cost goods leading to an unanticipated change in behaviour. If two products A and B are pri-

ced at £0.50 and £0.05 respectively, it is no great leap to suggest that consumers would rationally assume that product A was of a higher quality than product B and given the choice they would more than likely choose to consume product A. However, as demonstrated by Ariely‟s experiment, if product B was being given away for free, something about the concept of zerocost overpowers the consumers‟ ability to identify the differences in quality the prices of each product may imply, and causes them to disregard this downside of choosing product B. Similarly, in blind taste tests between Pepsi and Coca- Cola, researchers have identified that Pepsi is the favoured taste for most subjects, but when the brands of each drink are shown, subjects tend to prefer Coca-Cola. The researchers identified that when a person drinks Coca-Cola or Pepsi, the ventromedial prefrontal cortex (VMPFC) was stimulated, but when a person knew they were about to get a drink of Coca-Cola, the dorsolateral aspect of the prefrontal cortex (DLPFC), an area involved in higherorder brain functions, was also activated. The Coca-Cola brand name was able to enhance activity in the brain's pleasure centre, actually changing the experience of drinking Coca-Cola. So from this you could argue humans rational decisions are swayed somewhat by expectations and general consensus, possibly at the detriment of our actual preferred tastes and the rationally more viable options in different circumstances. During the booms before the recession, confidence was high in the cities and many believe this led to people becoming greedy for high returns. This arguably led to banks and individuals investing more in the boom periods, when they should have been saving and government should have been contracting fiscal policies in order to reign in the speed of the economic

growth and prevent the severe risks of depression. Be that as it may, the actions of these bankers and other individuals during the boom periods again show how the judgement processes in the frontal lobes are influenced by the confidence of the person, which may not be too surprising. An experiment undertaken at the Missouri Western State University with 30 individuals tried to demonstrate the affects of positive and negative environments, similar to those when one was experiencing more confidence or less confidence. The results showed that those students who had been made to feel more confident positive words performed both better, and were confident of doing better at the tasks if given another chance. One can relate this to the feelings of confidence individuals felt through the booms before the recession and how this confidence from high returns may distort the judgement process in the frontal lobes, causing people to take more risks, as their focus lies more on the money they have already made and less with the rational concept of saving or taking less risk. Moreover the “Money Illusion”, a phrase coined by Keynes referring to the incidence of nominal wages rising, leading to the false impression of people being better off, led to people overestimating returns in the long-run on house prices and thus helped contribute towards the boom in house prices.

When coupled with the “endowment effect”, the idea that when you own something you begin to value it more than other people do, this saw consumers behave in ways that only worsened the prospects of a recession. Consumers saw house prices and wages rising during the boom in nominal terms, many ignoring the levels of inflation and its effects on real incomes and prices, (although this is highly debated as to how ignorant consumers were of the inflation level) and accordingly spent more due to the wealth effect and either demanded higher prices for their housing, or held out on selling their housing in search of even higher prices due to the endowment effect. As we can see during the boom period, the different affects on decision making are numerous and can result in uncharacteristic behaviour leading to dire consequences for the economy. A final experiment described in the paper “Frames, Biases, and Rational Decision-Making in the Human Brain” by Benedetto De Martino, Dharshan Kumaran, Ben Seymour, and Raymond J. Dolan saw subjects choices scrutinised when the presentation of options were changed. The findings from this experiment proved intriguing as it showed when faced with the options of losing the majority of a sum of money given to you or gambling it, a higher proportion of people decided to try and gamble to keep the entire sum (61.6%). Conversely, when other subjects were faced with the option of keeping the minority of the sum of money or gambling with the same odds to try and keep all of it, the majority of people decided to keep the minority (57.1%). This experiment showed intricately how decisions were affected by manipulating the presentation of choices. When faced with losing the majority of money people felt

inclined to take a gamble since they perceived to be losing most of the money anyway, however when faced with keeping the minority, most people decided that they preferred not to gamble it, although both outcomes would be the same if both sets of subjects had decided to keep the money. The conclusions drawn from this experiment were that firstly, humans employ a wide range of emotional information when making a decision, and secondly, when placed in a environment which requires the subject to take the situation given to them out of context, the effects the emotional information have on the decision process can lead to humans making a seemingly irrational decision. From the large amount of evidence in these experiments, and the many more like them, it seems humans are a lot less rational than we are given credit for and that more often than not, our judgement and decision making processes are overrun with a multitude of different factors which ultimately lead us to make less than rational decisions. When expressed in real world situations, these decisions can lead to unanticipated and even unwanted outcomes and events unfolding, and quite possibly, the complexities of our human nature are to blame. R

Source: Life Science Database

Is there such thing as a safe investment? Shahil Thakar

n the current economic climate, jobs are scarce and inflation is high. It is therefore important to ensure that whatever money we do possess is yielding strong financial benefit. There are many options to consider when looking to increase the value of our capital, but which way is the most successful? Which poses the least risk? Which will give you the greatest return, or the quickest? In order to answer these questions, we must explore the main choices available to the average consumer.

Stocks and Shares:

Bank Savings:

Entering the stock market is often an attractive option for those looking to make larger returns in a shorter amount of time. However, an investment into the stock market generally requires a longer-term commitment, and the stories of making thousands over night are few and far between. Stocks and shares require careful management, thought and attention. Nevertheless, they are under your control; generally, you are not forced to fix your money in a particular area and you are at liberty of when, where and how much to invest. In order to minimise the risks of losing large amounts of money, there are many funds and share indexes, like the FTSE 100 or the Dow Jones, which allow you to spread out your investment. However, these have still been heavily affected by stock market crashes, such as „Black Monday (1987)‟, where the value of the „Dow Jones Industrial Average‟ fell by 508 points to 1738.74 (22.61%) while the FTSE 100 fell by 10.84% on Black Monday, and a further 12.84% on the day after. So while stock markets are volatile, they also make returns of around 10-20% per annum relatively achievable, provided you invest in the right markets. There is also a value of £10, 680 set aside for tax free savings on Stocks and Shares through tracker ISAs. Through careful research and sensible risk taking, investing in stocks and shares can achieve large rates of growth.

Having seen the collapse on Northern Rock in 2007, many people have been sceptical about saving money in UK banks. This has been furthered by the historically low base rates set by the Bank of England, meaning that any money that is saved in banks will yield very little return. However, the security benefits are very positive. All registered UK banks and building societies are protected by the Financial Services Compensation Scheme (FSCS). Since December 2010, this compensation scheme now offers compensation to anyone who has money in any registered UK bank or building society (up to £85,000 per saver). In addition to this, if you hold a joint account, then the compensation limit is doubled to £170,000. For students, there are some very competitive and attractive perks, such as cash gifts and railcards, offered by banks to encourage students to save with them. Banks assume that once students begin banking with them, they will become lifelong customers, so taking time to shop around regularly may give the best deals. When compared with other ways of investing money, saving money in banks is definitely one of the most reliable and safest options. However, the return that can be received is restricted, and in our current climate, will never be more than 3% unless you choose to save in longer term fixed rate bonds. Another way that you can earn a reasonable return is once a year, by opening ISA accounts, which offer higher returns as they are tax-free, provided you are able to commit your money for at least a year.

Security rating: 4/10 Return potential: 8/10

Security rating: 9/10 Return potential: 2/10

Property:

Innovation:

Margaret Thatcher introduced the “Right to Buy” policy in 1980, allowing tenants of council properties to buy their council homes at a discounted value. This proved very popular and stimulated our nation‟s desire to own their homes rather than rent. However, it is not since the 1980s that house prices have steadily increased; it is in fact, since the post war austerity years of the 50s. In 1952, Nationwide valued the typical British home at £1,891. During 2011, a similar property would have been valued at £160,395. According to Halifax, the price of an average household has risen from £2,507 to £162,379 between the years of 1959 and 2010. Taking away inflation from this Halifax value, house prices have enjoyed a real rise of 278% in this time. It should not be forgotten that if you are living in this property, you are not only benefiting by the house price increase, but by the fact that you are saving on the value of the rent you would otherwise be paying in another property. In UK history, house prices have generally increased at a higher rate than inflation, which suggests that this type of investment is the most profitable. However, in the last four years, the average value of a home has fallen by £40,000. In August 2007, the average house price was around £200,000. Figures now suggest that average house prices are £160,000 which shows that there is still some risk involved with property investment.

With low interest rates, it is definitely an optimal time to look to create a business or design a new product. David Cameron recently delivered a speech where he promised to cut the high levels of bureaucracy in an attempt to encourage entrepreneurship and boost growth. There is a larger market than you may be aware of; especially with the Olympics coming to London and the ever growing potential of the internet, through internet marketing. The advantage of having your own business is that you have the ability to make decisions and take your own risks. You do not need to rely on properties or banks, you are in complete control. However, in the early stages of being self employed, you are likely to experience little, if any, salary, and you may be forced to work longer hours than if you are employed. Keeping up to date with your business during weekends and evenings is usually necessary. Further to this, regardless of how hard you work, if your product or business is not unique or effective, you will not be guaranteed any success at all.

Security rating: 7/10 Return potential: 7/10

Security rating: 4/10 Return potential: 9/10

In conclusion, although there may not be such a thing as a safe investment, there are ways to increase the chances of making your investment safe; such as careful research, planning and hard work. However, due to external factors and unexpected events, no investment is completely risk free. It is this element of risk that gives investing money its lucrative potential. In the words of Richard Branson, “If you don‟t take risks, you won‟t achieve anything”. R

The Case for High Speed 2 Charlie Hudson

n the latter half of the 19th century, Britain led the world in the expansion of its railways. The British rail network was the pride of an empire, and the foundation on which Britain strengthened its position as Europe‟s dominant industrial player for half a century. However, in recent years, Britain has fallen behind other countries by failing to construct a high speed rail network, and Britain‟s economy is suffering as a result. Nevertheless, the Department for Transport‟s „High Speed 2‟ proposal for an initial high speed link to Birmingham in 2025 and then expansion further north is a welcome, if long overdue, development. Despite some opposition, the case for High Speed 2 is clear: in order to achieve its potential as a 21st century hi -tech economy, Britain needs a rail network to match. One pressing reason for a new rail link north of London is that there simply isn‟t enough capacity on the existing network. Passenger numbers have increased above projections in the last decade, with this trend looking set to continue into the next. The current principal route between London and the north, the West Coast Main Line, is the busiest mixed-use rail line in Europe and runs at 90% capacity on its southern stretches. As well as giving passengers a faster journey, High Speed 2 will alleviate traffic on this busy artery, allowing for more freight trains and thereby helping to rebalance our economy towards manufacturing. The economic benefits of High Speed 2 are hard to overstate. Principally, it will bring British urban centres closer together by giving companies access to a wider range of labour markets and customers. This will also help to support employment growth and urban regeneration in northern cities, which have seen decline in recent decades, and bring them back up to speed with the rest of the UK. When a rail

journey from London to Paris or Brussels is cheaper, faster and more reliable than one to Newcastle or Edinburgh, it is not hard to see why the north-south divide that exists in the UK is such a powerful socio-economic barrier. The ability of a high speed rail link to stimulate growth, even in times of recession, is shown by the town of Ashford whose journey time to London was slashed to just 38 minutes by opening of the High Speed 1 line in 2009. Many businesses have relocated there and the South East England Development Agency has named it Kent‟s fastest growing economy in the year 2010-2011. As well as the benefits brought to those connected to the line, Britain‟s economy as a whole will reap the rewards of high speed rail investment. The international audit firm KPMG has published a report on the projected economic benefits to be gained from High Speed 2, estimating that it will add 2.1% to national economic output by 2040. They have gone on to suggest that between 25,000 and 42,000 new jobs could be created thanks to greater productivity. This is separate from the 40,000 jobs that the Department for Transport estimates will be created in the construction and operation of the railway. Some have criticised the plans as being extravagant in a time of austerity, but the £20 billion bill is comparable to the £15.9 billion being spent on the Crossrail project, and even if £2 billion is spent per year of construction, this amounts to less than 0.3% of public expenditure. In reality some sort of private partnership is likely to be agreed on, so that the cost to taxpayers will be further reduced. Another important aspect of the case for high speed rail is the environmental benefit that such a line will bring, by promoting a shift away from domestic air travel. 2010 figures from the Association of Train Operating

the Association of Train Operating Companies show that rail only has a 44% share of the market for the 10 most popular domestic air routes in the UK. High speed rail will be able to better compete with air travel, and in doing so reduce the amount of carbon dioxide released for those journeys. Furthermore, as high speed rail uses electric trains, there is a possibility in the future of fast carbon neutral travel between Britain‟s major cities. An often repeated environmental argument against High Speed 2 is that it will tear up the British countryside and create a visual and noise disturbance. In reality, the 22m wide trackbed means that the entire area of the line will amount to less than that of London Heathrow airport, and the effects of noise and visual pollution will be minimised by tunnels where possible and the planting of some 2 million trees on the tracksides. If the stopHS2 camp prevails and Britain is denied the rail upgrade that it so badly needs, it will fall further behind countries like France, Germany and Spain which are developing an extensive network of European high speed rail. Even Iraq, a country devastated by 3 wars and a terrorist insurgency, has recently come to a preliminary agreement with French transport giant Alstom to link its two main cities, Basra and Baghdad, with a high speed railway. The progressive world in which we live in calls for the fast and efficient movement of labour. Bottlenecks in the transport system remain an obstacle to growth and this will only increase as passenger demand increases, leading to more people to fly or travel by car. If Britain fails to take the opportunity to build a high speed network, it risks missing the last train to a cleaner and more prosperous future. R

The Case against High Speed 2 Daniel Teh

ver since the Liverpool and Manchester Railway, the first public railway, opened in 1830, Britain‟s railways have played a vital role in connecting the country. Since the Victorians laid the foundations for the railways, Britain has been constantly upgrading the 16,000 km of track, with projects such as the Thameslink project, as well as building new railways, such as High Speed 1. However, surely the proposed High Speed 2 rail link is one step too far. Having been announced in March 2010, a new link between London and the north would have a “transformative effect on the country;” said Mr Cameron, as well as creating a “smaller Britain.” However, at a cost of £32 billion, is this what Britain really needs? In his report on high speed rail, Lord Adonis, the former transport secretary claimed that a new rail link connecting London and Birmingham would herald environmental benefits and carbon savings. However, high speed trains travelling at over 200 mph use twice the amount of energy that a standard 125 mph train would require. In addition, construction of the rail line would result in very high emission of gases and that would not be considered as being green. Moreover, Lord Adonis‟ statement is based on the assumption that there will be a decrease in demand for domestic air travel. However, the railway already accounts for 79% of travel between London and Manchester, and there are no flights between London and Birmingham. So, although there appears to be a shift towards a demand for High Speed trains, is this likely to result in a significant reduction in carbon emissions? Furthermore, if we look at Germany, which has one of the most extensive high speed rail networks in the world, the market for domestic air travel has seen an explosion recently. This proves that we are not able to simply presume that passengers will decide to use the train instead. Even if

domestic air travel did reduce, the extra slots at Heathrow, currently operating at 99% capacity, are only likely to go to long haul flights, which emit even greater amounts of carbon dioxide, making the situation environmentally far worse! It is also claimed that by building High Speed 2, the north/south divide would be bridged. Supposedly, the link would provide a huge boost to regeneration in the cities along the route, with businesses choosing to move to these cities. The evidence is clear that despite these claims, London will be the ultimate winner, possibly extending the divide. According to the Department for Transport, 70% of the predicted 30,000 jobs will be in London, creating very minimal benefits for the other cities and ensuring that more money will go into London. Professor Tomaney (CURDS) who authored a full literature review into the high speed rail, wrote „The impacts of high speed rail investment on local and regional developments are ambiguous at best‟. A further argument for High Speed 2 is the proposition that it would create extra capacity along the West Coast Mainline. It is claimed that the mainline would reach full capacity within 6 to 10 years. However, this statement is based solely on the premi-

se of an annual increase of 10% continuing, which is very unrealistic. There are, on the other hand, much cheaper alternative options to High Speed 2. Firstly, one way around the problem would be to deregulate first class carriages on Virgin Trains. On a Class 390 Pendolino, there are 4 first class carriages and only 5 standard class carriages. Therefore, by deregulating at least 2 of the first class carriages to standard class, capacity could be quite easily increased. In addition, trains could be increased to 12 carriages, with some work to extend platforms at stations. This would mean that capacity is increased by 121%, and would be delivered well before 2026. A further alternative would be to go ahead with Rail Package 2, an upgrade plan for the mainline by Network Rail. This incorporates the cost of upgrading the existing line to allow more trains with extra carriages, delivering 151% more capacity. Experts suggest that Rail Package 2 is likely to be twice the value for money at 3.4 NBR compared with 1.6 NBR for High Speed 2, whilst only being one sixth of the net cost. At a time of such fiscal austerity, is it right that we should invest £32 billion in a railway to cut 20 minutes off a train journey? It is clear that there are better alternatives that Britain should look to take up. R

Spanish Democracy: Turbulent Times Spain‟s history is rocky to say the least - are they now on dry land? Ben Crespin

pain‟s current economic situation has been a major talking point across Europe recently and the question has been raised as to whether the EU should bail out such a major force on the continent. However should this country so proud of its heritage, culture and history be in such a situation? The crisis in Spain has bought together the population to a certain extent and have a united target of their tirades in Prime Minister José Luis Rodreíguez Zapatero. However it can often be forgotten that its political and social make-up has been, and in many respects still is, turbulent to say the least. With seventeen autonomous communities, varying in everything from size, to language, to culture, it really is one of the most diverse countries in the world. These differences rose to prominence throughout the 20th Century when Spain was ruled under the dictatorship of General Franco. His death in 1975 led to the establishment of a new const-

itution and a turn towards democracy in one of Europe‟s most hostile countries. Just how was Spain able to transform from what in reality was a dictatorship, to a democratic, fair society? And what does the future hold for one of Europe's great countries in the current economic climate? After the Spanish Civil War in 1936, General Francisco Franco was able to establish a regime in which thousands of Spaniards were persecuted. Despite there being no real presence of a clear political policy, many see Franco as not being a “full-on dictator” as he had no real revolutionary style aim to overhaul society. However, he demonstrated a staunch hatred towards Communism, Socialism and Anarchism. Franco can be seen as more of a traditionalist, with very strong Conservative views. These are echoed no better than in his promotion of flamenco and bull-fighting as national traditions, and subsequent reject-

Image: Courtesy of www.blodgehumour.com

tion of anything 'not-Spanish'. The degree of censorship was also prevalent – all cultural traditions and works were subject to arbitration.

“increasing in Spain's Unemployment Rate to 20.33%; suggesting a country in turmoil

”

Most prominently, however, was Franco's non-recognition of any devolved governments; Power was completely centralised and the administrative system was similar to that of the French Bourbon's. This caused vast inequalities across the country. The more affluent regions such as Madrid, Catlonia and the Basque fared better in key areas such as education and health care than the poorer regions such as Extramadura and Galicia. Not only was there economic inequality, but Franco also discriminated against any areas deemed as inferior and thus not part of Spain as part of his Nationalist policy. All recognition for the languages spoken in Catalunya, the Basque and Galicia was abolished and any use of such languages was made illegal and only Castillan (the most common Spanish language) was permitted. Franco did have some good effect on Spain however, the famous economic period of recovery dubbed “The Spanish Miracle”. Pre-Franco, the Spanish economy was in turmoil – “The Great Depression” of the 1920's devastated Spain and culminated in the further traumatic Civil War in 1936. The state of the economy did not fully recover until the late 1950s,

when under Franco's guidance, government “Technocrats” put in place a number of economic polices under the guidance of the IMF, resulting in Spain having the second highest growth rate in the world, joining the industrialised world in the process. Factors such as a rural exodus of workers, reinvigoration of industrial areas such as the Basque and Ferrol, entrance into the automotive industry through Seat and perhaps most importantly, the opening up of the country to mass tourism. However, after Franco's death in 1975, it was necessary for Spain to establish a democracy in keeping with the modern Western world. Having named his successor as Don Juan Carlos de Borbón to become Head of the Spanish State as King, Juan Carlos set about establishing the system of government still in use today. The transitional period was an extremely long, drawn out process, with contrasting views influencing decisions – the right wing supporters of Franco (which included the army) often clashed with the left leaning people who were already unsure of a King becoming Head of State after being chosen by Franco. Their worry was to become evident when King Juan Carlos swore allegiance to the principles of the Movimiento Nacional, the sole political party under Franco and furthermore to the Ley Orgánico del Estado, the laws of the Franco state. However, the King did show support for reform in speeches. The first stage towards democracy was the government of Adolfo Suarez, which began in July 1976. Chosen by the King, Suarez was deemed able to convince the Spanish parliament (Cortes), full of Francoists, that the regime needed dismantling. Suarez outlined two measures – firstly, he insisted there be a Law for Political Reform that, once approved by the Cortes and Spanish public in a referendum, would open the constituent process for creating a liberal democracy in Spain. Secondly, Suarez called for free and democratic elections in June 1977 which would result in an elected Cortes

who would draw up a new constitution. The following elections showed massive change from the Franco Era. The centrist party Unión de Centro Democrático received the highest percent of the vote, perhaps not too surprisingly. These elections were followed by the introduction of the Spanish Constitution of 1978, approved by referendum. The supposed peace and more democratic state in operation came under threat not too long after it was drawn up however. The result of the election meant the UCD had to head a coalition government. Many of the UCD's members were tolerant of constiutional change, however an extensive shake-up of the system angered many of its other members, most notably with the issue of legalising divorce, creating factions within the party which eventually led to the coalition falling apart. The inability to keep a lid on the clashes within the Cortes undermined Suarez's position as leader, leading to his resignation in 1981. Leopoldo Calvo Sotelo was appointed, first to lead the new cabinet and later to the presidency of the UCD, with the Social Democrats defecting from the coalition. The rising prominence and good performance of both the Basque and Catalonian Nationalist Parties showed a complete turnaround from the Franco era. The situation regarding the Basque Country in particular intensified by the minute and is still present today, through the political terrorist group ETA. The new-found democratic nature of Spain in 1978 had persuaded ETA to call a ceasefire and abandon their arms. Despite this, threats from elsewhere, most notably the army carried significant weight. Lieutenant Colonel Antonio Tejero led an occupation by a group of Guardia civil in an attempted Coup d'Etat. Although the attempt failed, it demonstrated the existence of insurrectionary elements within the army. After many years of turbulent change The Partido Socialista Obrero Español (Socialists) won an absolute

majority in parliament in two consecutive elections (1982 and 1986), and exactly half the seats in 1989, allowed the PSOE to legislate and govern without establishing pacts with the other parliamentary political forces. Therefore, the PSOE could make laws to achieve the goals of its political program, "el cambio" ("the change"). At the same time, the PSOE led many local and regional administrations. This comfortable political majority allowed the PSOE to give the country a long period of tranquillity and stability, after the intense years of the transition. After many years of stability, Spain has encountered problems recently, most specifically regarding the economy and the worldwide recession. Politically, its runs under a constitutional monarchy system, with elected representatives choosing a Prime Minister under appointment from the King. Currently, José Luis Rodríguez Zapatero is in government at the head of the Socialist Party. However, the difference in votes at the last election between them, and the Conservative party El Partido Popular was just under one million. However, Zapatero has announced he will not be standing for election in 2012, mainly due to the fact that in the past four years, he has become increasingly unpopular as a consequence of failing to deal with the Spanish economy and the increasing in Spain's Unemployment Rate to 20.33% both suggesting a country in turmoil and many suggesting that it is in need of an EU bail-out. This begs the question; can this country steep in political and military history once again recover from a seemingly dark and gloomy position just like it did after nigh-on forty years of a dictatorship? Only time will tell. R

Lectures in the Future Adam Salisbury and James Chauncy have picked out a few of the very best lectures available in the UK over the next few months. Lectures are not just a place where you sit down, listen and take notes. They are also mechanisms that allow you to think deeply and become inspired.

Vision and Values in a Volatile World: Lecture One In this lecture, Professor Kenneth Costa focuses on the positioning of ethics and forward planning in corporate society. In potentially continuing troubled times how can we be sure to temper business advantage with sustainable and moral consideration? It provides yet another slant on the on-going debate between capitalism and morality. (See Capitalism: A Love Story on Page 64)

Speaker: Professor Kenneth Costa Date: Tuesday 27th September 2011 Time: 6:30pm Venue: Barnard‟s Inn Hall, Gresham College, London Booking required.

Restructuring Competition Policy: what is the best Institutional Model? This lecture is part of a series called the „Beesley Lectures‟, which are a series of eight annual lectures covering regulated industries in the UK. Different options for a reformed competition policy framework in the U K are currently being consulted on, as the existing system is called into question. The lecture will examine the drawbacks of the current two-body system and discuss how a single body approach would work. With Britain facing an upward struggle towards recovery, the need for an efficient model has become all the more important, making a visit to this lecture all the more worthwhile. Speaker: Peter Freeman Date: 29th September 2011 Time: 6.30pm Venue: Institute of Directors, Pall Mall, London No booking required

Stability and Competition in the Banking Sector As the recent recession was largely attributed to failings in the banking sector, it has become a heated source for rich, economical debate. In this lecture, the recommendations of the final ICB report this September will summarize what reform should be undertaken to make banks safer. Sir John will discuss banks‟ capacity to absorb losses, measures to improve competition in the UK and in the broader international context. Speaker: Sir John Vickers Date: 6th October 2011 Time: 6.30pm Venue: Institute of Directors, Pall Mall, London No booking required

Solving Water Scarcity: Markets, Prices and Property Rights Our final recommendation for this year‟s Beesley Lectures is perhaps the most controversial and important. How can the problem of water scarcity be solved? Taking a market-based approach to encourage water conservation unveils many opportunities, and this lecture will assess possible designs for the effective allocation and management of water rights. As the effects of global warming steadily take its toll, can we resolve this crisis before it is too late? Speaker: Tom Le Quesne Date: 20th October 2011 Time: 6.30pm Venue: Institute of Directors, Pall Mall, London No booking required

What does it mean to give a reason? Can you always give a full reason for why you behave the way you do? If not, what prevents us? Surely, if we can‟t give a complete account of why we do what we do, how can we be said to be truly rational? This is just the kind of philosophical dilemma that allows behavioural economics find its legs. Dr Maria Alvarez is a lecturer at King‟s College, London and specialises in questions about human agency and reason-giving. The discussion promises to build on and develop a number of themes from past events, although newcomers will, as always, be very welcome and no special knowledge will be required to take part. Speaker: Dr Maria Alvarez Date: 25th October 2011 Time: TBA Venue: The Wheatsheaf, London No booking required

Tim Harford: Preventing Financial Meltdowns Tim Harford, the author, presenter and columnist, relives the recession. Alex Reid

“"The Most

successful industry of the last forty years has been built on failure, after failure, after failure, after failure."

”

n the second of a series of lectures, the author, presenter and columnist Tim Harford (writer of The Undercover Economist) marked the launch of his new book, Adapt: How Success Always Starts With Failure, by looking at what there is to learn from the recent financial crisis; and its parallels with other disasters such as Piper Alpha, Three Mile Island and Deepwater Horizon. In the late 1980‟s there was a „mini crisis‟ on the Lloyds of London insurance market; the creation of a reinsurance spiral - the LMX spiral. It started from the common practice of retrocession, where reinsurance companies buy reinsurance themselves as they pass some of the „risk‟ they are insuring on to another company. The problem with this particular model is that the insurance can eventually find its way back to the original reinsurance company, causing this „spiral‟. The LMX spiral occurred because insurance syndicate A had a bad year, but was covered by insurance syndicate B who has a bad year as a result; fortunately they were covered by insurance syndicate C, who in turn was insured by insurance syndicate A. This spiral was caused by Piper Alpha, which in turn can be used as an example of a tightly coupled system; as every safety feature was based within the central control room which was destroyed in the initial explosion. This meant that no one could turn the emergency water pumps to dowse the flames, or turn off the oil pumps, or tell the other rigs to stop pumping gas towards Piper Alpha; the result was the disaster we know of today. Harford argues that these industrial disasters are the ones we need to look at in order to understand what went wrong on Wall Street. Charles Perrow labelled the idea of „tightly coupled‟ and „complex‟ systems. On a

basic level, dominoes are an example of „tight coupling,‟ knock one down, the rest follow and you cannot interfere easily to stop it. The LSE is an example of a „complex‟ system as lots of little process a required to make it function. Perrow argues that you cannot have a „tightly coupled and complex system‟ as it will inevitably fail. What we see when we look at industrial incidents is that this failure comes from the „tightly coupled, complex‟ safety features. If we take the 1966 Fermi reactor incident, we find that a filter, installed at the request of the regulatory authorities; had blocked the coolant from leaving, leading to a partial meltdown. At 3 mile island, a safety system was triggered and the secondary coolant system shut down, and well, history tells the rest. The problem that comes with tightly coupled, complex systems is that we introduce new failure modes; new ways for more things to go wrong. This can be linked to credit default swaps, a safety system created by JP Morgan to work around regulatory requirements. There are two problems with credit default swaps; the first is that if people feel safer, they have a tendency to take more risks and the same goes for the guys on Wall Street. The second is that it introduces new failure modes; this is because by insuring a portfolio of assets, you rely on the rating of the insurer and therefore rely on the stability of their clients. As Harford puts it, „its all very well having climbers roped together if one climber falls of a cliff, but if half of the climbers fall, its not at all helpful for the other half tied to them.‟ If we return to 3 mile island, the engineers working on the problem were completely lost due to the fact that all the lights and switches were not labelled and at 4 in the morning, the engineers had no chance of getting

Above: Tim Harford‟s book „Adapt‟ explicates how our economy is continually developing by improving upon previous mistakes. things back under control. The connection between this and the financial crisis is during the collapse of the Lehman Brothers. Tim Geithner, then head of the Federal Reserve was so concerned with the inevitable fall of Lehman Brothers that when presented with a request for a bailout by AIG, he looked past it because he had not been told that AIG had insured $2.7 trillion of derivative contracts, including $1,000 billion with the 12 most important financial institutions in the US. The complexity of these systems is what makes it so hard to understand and gain the knowledge required to prevent these crises. However, knowledge alone is not going to be enough to prevent the fall of another bank bringing down the entire financial market. So how can we? If the problem lies with complicated and interconnected systems, the

best choices should involve simplifying the system to make it safer. One thing we can do stems from our earlier dominoes example; the idea of safety gates, that prevent more than a few dominoes being toppled at a time. Now banks are slightly more complicated than dominoes, so its not easy; but one safety gate could be a bigger capital „cushion‟ in a bank, a simple safety device that can be used as a „selfbailout‟ as it were. However banks obviously dislike having a load of deadweight capital floating around, so a second approach could be to restructure banks, decouple the system. An idea of narrow banks for example, take a bank that services small businesses and consumers, and capitalise and regulate it independently so it is unaffected by the big risks taken by the parent company. Finally, he raised the concept of latent errors; a „slip, mistake or violation‟ that then leads to failure. Unfortunately, these latent errors aren‟t discovered until it‟s too late, and the people who discover them, whistleblowers, are in short supply. So our final prevention method is to encourage whistleblowers, employees on the front line, to alert the regulators so the problem can be stopped. The best way of doing this is by offering reward and protection for whistleblowers, who often keep quiet due to lack of governmental protection. What we have learnt from industrial accidents, has given us an insight into the causes of the financial crisis and how we can prevent one in the future. The most important of these is that of simplifying and decoupling the system, without slowing down the financial sector. We need to simplify the system to reduce the number of failure modes and decouple the system so that in the inevitable event of another financial meltdown, we can isolate the issue without crashing the financial sector of our economy. R

Who is Tim Harford? Born: 1973 Resides: London Tim Harford is a British journalist and economist, who currently writes a humorous weekly column for The Financial Times called „Dear Economist‟. He also presents the BBC programme, „Trust Me, I‟m an Economist!‟. In 2007, Harford replaced Andrew Dilnot on BBC Radio 4‟s „More or Less‟ show, and has been hosting the programme ever since. After studying at Aylesbury Grammar School, he attended Brasenose College, Oxford, from where he graduated with a BA and then an MPhil in Economics. Over his career, he has written five books, the latest, „Adapt‟ was released earlier this year. Another of his books, „The Undercover Economist‟, has been translated into over 30 languages, and has sold more than 1 million copies worldwide! Harford won the Bastiat Prize for economic journalism in 2007, along with Jamie Whyte. Again, in 2010, he was runner-up along with Whyte.

Impact of Interest Rates Jeevan Thind takes a look at how Interest Rates effect Gross Domestic Product (GDP).

he rate of interest can be defined as the price of money; lenders expect to receive interest if money is supplied to money markets. The Bank of England has manipulated interest rates in order to achieve their policy objectives, last year one was to increase GDP. They adopted expansionary interest rates, setting them to a historic low of 0.5% forecasting GDP to increase between 2% and 3%. Interest rates control the flow of money in an economy. High interest rates restrain inflation but can also slow down the economy, whereas low interest rates can stimulate the economy but could lead to inflation. An increase in interest rates will increase the cost of borrowing therefore consumers will be less willing to borrow. Higher interest rates encourage savings and reduce consumption. This is known as the substitution effect. Lower interest rates will have the opposite effect of reduction in saving and a rise in spending. This is due to the decrease in the cost of borrowing. One of the main effects of low interest rates is the increase in GDP. This is because the low interest rates will make people more likely to borrow money since it becomes cheaper to. It will also cause an increase in consumption as people have more disposable income, since 60% of aggregate demand is made up of household consumption, this will have major benefits for expanding the economy. Investment will also increase as firms can borrow money at a cheaper rate. This will enable them to purchase capital goods and not only will this increase aggregate demand, but also aggregate supply as firms will be able to produce more in the long run.

Therefore the lower the rate of interest the more profitable investment projects become. However, the fact that people are less likely to save can become an issue. This can lead to individuals having to borrow money and being unable to pay it back causing them to fall into a debt trap. This can be proven when comparing Britain to China. The percentage of GDP saved in Britain is around 14% whereas in China it is more than three times the amount at 46%. A resulting factor of increased GDP can be an increase in employment. An economist named Arthur Okun looked at the relationship between unemployment and GDP. He noticed a pattern and came up with an equation to explain it. The equation shows: % change in real GDP = 3% - [2 x (change in unemployment)] This equation states that real GDP grows at about 3% per year when unemployment is normal. For every point above normal that unemployment moves, GDP growth falls by 2%. Similarly, for every point below normal that unemployment moves,

GDP growth rises by 2%. The relationship between real GDP and unemployment can be seen on the graph. In 2001 when real GDP growth (% annual change) was about 2.5% the unemployment rate (% of labour force) was 5% and in 2004 when real GDP growth was about 3.3% the unemployment rate was 4.8%. This data supports Okun‟s theory, the fact that there is a negative correlation between unemployment rate and real GDP. The effect of increasing consumption and investment increases productive output (GDP). This is because individuals and businesses are encouraged to spend more and are likely to experience an increase in sales. This often requires them to increase their operations and employ additional labour. Dr. Paul Krugman stated in his book „The Accidental Theorist‟,“it is quite possible to reduce the deficit and increase employment at the same time. All you need to do is cut interest rates, so that private spending takes up the slack”. To conclude interest rates easily influence the economy and hence have a significant impact on Gross Domestic Product. R

Discover Your Inner Economist

Wafiq Islam

yler Cowen‟s „Discover your Inner Economist‟ uses quirky and logical approach to illustrate how simple economic reasoning can enhance our 21st Century everyday lives. From successful dating, to choosing good restaurants, Cowen explores economics beyond the academia into daily life situations which directly affect us. Co wen is an established „culture‟ economist. He does not view economics in pounds and pence but in behaviour and benefits. He thinks everyone has the „Me Factor‟- the attention of oneself- and that every decision we make is because there is some spiritual or material benefit for ourselves even if they are not apparent. Cowen wishes us to go beyond stock prices and free markets but more into understanding the complexity of human motivations and beliefs. When we look at the cover, we instantly challenge this notion of „Inner Economist‟. What is it and are we

aware of it? Cowen claims everyone is an economist in which we all have to make rapid and best possible decisions. Throughout this book Cowen installs several in depth examples to explain to us the theme of this book which is incentives; how, why and when it is used? Cowen introduces his book by posing the question, „Do we live by good economic principles?‟ He argues that good economics argument should fit on a moderate postcard, be understood by our grandmothers and it makes people go „aha‟. He sets the benchmark for the rest of the book in which he believes he can bring much better understanding and use of incentives leading to much better decisions and thus much better lives to the readers. In the second chapter, he explores a theory that if we offer money to those whose work require effort, weakly motivating and gain social approval we control the world - a theory which

Tyler Cowen Plum Books by Penguin ISBN: 978-0-452-28963-5 seems too unpractical. In the next two chapters, he elaborates on the objective of economics- to get what we want. However our desires are mainly scarce. Humans have to decide which desires one chooses to pursuit the most that the others. Cowen believes time and attention we would give to our desires are two major factors. Cowen philosophises about how individuals react to how society perceives them. We are egoistic in our decision making- we do things to promote our self image. Yet most of this is self deception. We think we are better than average which is rational human behaviour, claims Cowen, even though when everyone knows that is impossible because we make ourselves feel better and be optimistic on future projects. He moves away from his philosophy and engrosses our mood with food and how humanity can maximise their meal outings. He says our input of

59 time and effort in researching restaurants will provide fruitful output of an excellent meal as well as loosening our control of food choice. Sin arouses from humanity‟s egoistic nature of what we do in markets. The term „market‟ not necessarily refers to bonds and stocks but more to human values such as luxury, pride which are impacted by the individual behaviour. Cowen presents this observation that „we should have things we want when we ought not to‟. This is considered as counterproductive to us and ruins our

“good economics arguments should fit on a moderate postcard

”

projected identity. Do individuals donate due to empathy or popularity? Cowen believes individuals donate because everyone else is donating and that we only donate when a disaster is publicised in the media. He raises this idea that we should take time to pick a charity of a worthy cause, stick to it and donate like it‟s an addiction instead donating every other disaster. When we don‟t donate to charities, we should feel bad but when we do donate we feel wonderful. One recommends this compelling read to anyone who desires to understand how economics is applied beyond the economy or be introduced to subject itself. It teaches us to broaden our thinking and open our mind to glaring events. To summarise, our Inner Economist is our hidden life in society that needs to be exposed to make society a better place. Our Inner Economist takes advice, listens and is self critical yet amongst these things, it achieves wisdom, prioritises our values and maximises our benefits. R

The End of History and The Last Man Pearse Johnson

n his controversial work “The End of History and the Last Man” Francis Fukuyama argues with controlled elegance that the liberal democratic and economic model that has spread from Britain and the United States and has become so prevalent throughout the modern world, has become so widespread because of its supremacy to any previous system of government, and in fact it represents the final version of human government because it satisfies what Fukuyama defines as man‟s essential needs. The central theme to this book is that of Progressive History, a view of history as moving towards a goal, which Fukuyama concludes if Liberal democracy, which represents his End of History. This view stands out amongst modern relativist culture because of the inherent value that it places upon liberalism, and the inference that liberalism is superior to other modes of government. This is a scary proposition in the modern egalitarian world where every view is credited with the same legitimacy and value. This view can be seen as ethnocentrism, the narrow minded view that the West is superior, however the depth of thought along with his eloquence discredits the view that the ideas put forward in this book are nothing more than poorly thought out prejudice, and instead is proven to be compelling, authoritative and eminently relevant to our experience of the modern world. Fukuyama states that liberal democracy has become recognized as the best form of government because it appeals to the three aspects of man, Desire, Reason and Thymos. The first represents the animal nature of man, the part that we recognize in our personal need for hunger and shelter. The second being what has traditionally been considered the divine aspect of man, his ability to reason in order to satisfy his desire is what separates humans from animals. The final aspect is the most central to this account. Thymos is defined by Fukuyama as the dignity of a human being, his ability to deny his desire and sublimate it to a higher, sometimes symbolic, goal. The goal of government, then is not only to satisfy man‟s desire and reason, in this instance democracy is unnecessary as shown by China for economic success, but also to recognize his dignity purely because of his humanity, and this necessarily leads to democracy, a society where every mans worth is recognized and guaranteed by his unalienable rights. Fukuyama says that it is the dignity of man which drives the motor of history, from prehistoric master-slave relationships, through agrarian society and serfdom to the liberal revolutions of France and America. This book in its mastery of its subject area, which ranges from history, politics and economics, all built upon a framework of philosophy, is an essential read for anyone who seriously wishes to understand and contemplate the position that we were in, and most significantly the position that we find ourselves in now, which could potentially represent the end of history. R

The Discipline of Law

The Discipline of Law The Rt Hon Lord Alfred Denning Lexisnexis: Butterworths ISBN: 978-0406176059

Khalid Hayat

„T

he past 25 years will not be forgotten in our legal history. They are the age of legal aid, law reform and Lord Denning.‟ This review from by Sir Leslie Scarman is reflected in The Discipline of Law. The underlying theme of this book is centred on law reform and the necessity of reshaping the principles set in the nineteenth century to meet the social necessities and social opinion of the twentieth century. Focusing on the seven branches of English law, Lord Denning presents proposals for reform using extensive quotations from his judgements linked by his running commentary. He advises lawyers to learn language before studying law, to draw on literature as a means of perfecting adversarial skills and critical faculties. He understands the importance of language as it is seen as the only and most important tool a lawyer has. This book is an essential compi-

lation of his judgements in various areas of public and private law since his elevation to the Court of Appeal in 1947. The book is impressive as it is remarkable that his lordship takes an unusual position of summarising his own philosophy of law. In a country with no written constitution, where Parliament is content on giving discretion to ministers to restrict the scope of judicial review, Lord Denning begins to expand on the basic principles of Law, studying those lawyers who are „Strict Constructionists‟ and „Intention Seekers‟ . This is all evident from the rise of negligence, the modification of rigid doctrines of estoppels and consideration in contract law to the use of precedent in the common law. The development of Administrative law (a system highly credited to Lord Denning) is a focus in the Discipline of Law. Without a written or stat-

utory constitutional base the concept of „natural justice‟ has arisen, through which elementary fairness applies to both private and public bodies in „quasi -judicial proceedings‟. In Part I he presents a powerful but eloquent tutorial on the art of document construction. He discusses the dangerous ramifications of the „implied term‟ and truly nails down the ideals on contract construction, consensus ad idem study of outside intention. It takes true skill to study a situation on its face. In Part II he highlights the growing use of executive or ministerial powers negatively. These were rooted in the clauses in the various Acts: "if it appears to the minister or satisfied" others use ouster clauses to render impossible any attempt by distressed parties from seeking judicial redress, while the rest come from error of law by the administrative tribunals, or ultra vires.

61 Part III shows many instances where executive powers were used to stifle freedom of expression or privacy; and the effort of the judicial system to restore them through declarations, reviews and injunctions that preserved private rights. Part IV in the case of Showman's Guild is used to illustrate that the club had no jurisdiction to interpret its contracts with members wrongly, as well as against other parties. In Part V documents the most elaborate case High Trees, was a wartime case which led to the introduction

“to draw on literature as a means of perfecting adversarial skills

”

of the doctrine of equitable estoppels into common law. In Part VI enters into his legal memory on the development of tort law, negligence resulting in Lord Atkins decision in Donoghue V. Stevenson 1932 and the impact of Hedley Byrne 1964. The new dimension of these decisions were damaged appeared unrecoverable, economic loss did not feature prominently. Lord Denning also deals with doctrine of precedent in Part VII. Stare decis, a vital doctrine of English law. His movement focuses on where past decisions are wrongly reached should the court on discovery continue to follow until the decision is over-turned by the House of Lords? But he argued that many cases never got the chance to reach the House of Lords. Does this provide the equitability that society requires? Throughout he decorates his accounts with quotations from his judgements, some support his views and others do not. The most notable quote is taken from the Packer v. Pack-

er case of 1954: “What is the argument on the other side? Only this, that no case has been found in which it has been done before. That argument does not appeal to me in the least. If we never do anything which has not been done before, we shall never get anywhere. The law will stand still whilst the rest of the world goes on; and that will be bad for both.” This statement highlights the attitude Lord Denning has taken towards this book, that he himself hoped would become an „essential textbook‟, for all students of law. Overall this book is a great read that clearly represents Lord Denning‟s ability to style common law to modern political and social circumstance through his eloquent writing style married with his wealth of knowledge and practice. An essential read for all who wish to understand the development of the British legal system, and how human sentiment and executive restlessness were changed by a single judge. R

Free Lunch: Easily Digestible Economics

Free Lunch: Easily Digestible Economics David Smith Profile Books Ltd ISBN: 978-1-846-68263-6

Wafiq Islam

he world of Economics and Finance is currently subject to the immense pressure been brought about by the 2008 global financial crisis. Newspapers and new channels have excessively analysed the economic problems that are affecting millions of lives. Yet what do these problems mean? David Smith‟s Free Lunch unravels the mysteries of the current economic climate, answering fundamental questions such as what is difference between Fiscal and Monetary Policy and Should UK join the euro? Free Lunch is a book which enables non economic readers to understand various aspects of the economy and thus the reasoning behind politicians‟ economic claims. The sub phrase “There is no such thing as a free lunch” is a theme reinforced throughout the book in which argues that every decision has its cost. The job of many economists and

politicians is to create solutions where the negative effects are minimal. The book itself is structured into five part lunch: Starter, Main Course 1 and 2, Dessert and Paying the Bill. His style attributes to the idea of the average consumer understanding economics, gradually taking in economics by being “fed” in a concise and non forgetful way. Smith also includes an appetiser recounting events caused by the credit crunch such as Lehman Brothers collapse and UK bank bailouts. The “Starter” gently eases the readers into economics by stating its definition and more intriguingly presenting a restaurant analogy of a financial bubble in a stock market; Restaurant A quickly fills up creating an „expansionary bubble‟, but the highly anticipated opening of Restaurant B initiates a sharp rush out of Restaurant A, causing this bubble to burst.. Smith then feeds in a popular issue of housi-

ing how housing is an asset and the negative correlation between demand of housing and interest rates is causing the change of house prices. The opening chapter entices the readers due to the simplicity of how subject matter is conveyed. “Main Course 1” climbs a level to economic behaviour concerning marginal utility and the factors affecting incentives of individuals to consume its earnings. The underlying conc e p t S mi t h e x p l o re s h e r e i s „diminishing marginal utility‟- the more you have the less you need. For example, the more money you earn, the less hours you need to work for it. The second main course for lunch is the concept of „the economy‟ which Smith engagingly describes as a football match where any variable (i.e. ball possession, quality of player) can affect the overall outcome. In addition, Smith places a pre and postlude of history of

63 economic thought ranging from Adam Smith and David Ricardo, famed for capitalism and free trade to the „lesser known‟ Stuart Mills, a „utopian socialist‟ and Robert Malthus, creator „law of diminishing returns‟. Moving on, we have dessert, named „Cordon Bleu Business‟ which translates as high quality business. Smith examines the different angles of firms in the economy, focusing specifically upon their varying contributions to the countries overall GDP. Then we polarise effects of monopoly-single

culation of opportunity costs and marginal revenues. This is where the economics becomes difficult to follow so it is sometimes useful to re-read. However, Smith assists our information intake with use of sub headings and less technical language to understand the direction of each text in the chapter. The next three chapters revolve around „Paying the Bill‟, where Smith ties in the most important economic issues that we must embrace in our current financial climate. Firstly, he explicates the various budgetary decisions the government must make every year, such as decisions on taxation and government expenditure, and how these relate to the various markets in the economy. Secondly, Smith ploughs onto the most heated debate in economic society; which is superior, Keynesianism or Monetarism. He dedicates a chapter to each of them to justify their economic policies and in particular how they aim to take the economy out of recession. Keynes was a company dominance- and how firms strong advocate for the “Multiplier maximise their profit through the inter- Effect”- the notion that injection of net, described as “perfect market of spending has knock-on effects beyond information”, and investment, the calthe initial impact. In contrast, Monetar-

“Economists are

being “fed” in a concise and nonforgetful way

”

ists such as Milton Freedman believe changing interest rates will have a far more profound effect on the economy in terms of borrowing and spending. Smith goes on to explore other topical issues as the book seems to expand, the further it goes. Smith explores why America has dominated modern economics, believing that the birth of Milton Freedman and Laffer had created mathematical equations to illustrate economic ideas and thus far easier to simulate different economic options. With the readers obtaining the fundamental economic ideologies, Smith levelly answers questions that have been debated for years including Should UK join the euro? David Smith‟s introduction to economics is very successful as it presents a non-technical, organised and comprehendible style. In my personal opinion, I feel that this book gives vital insight into those students who are looking to study economics in the future. Smith‟s immaculate understanding of economics is reflected in his writing, and I can recommend reading this book with confidence, as it is a truly delicious book.

Double Review: Capitalism: A Love Story & Michael Moore

Capitalism: A Love Story

Maximilian Spies-Majewski

rom the director and producer of Bowling for Columbine, Fahrenheit 9/11 and Sicko, Capitalism: A Love Story is a film that illustrates investigative journalism at its most audacious. The film challenges everything we take for granted in the western world, not least the freedom to do what we want, within the law. Yet it also shows the very fine line between the law and the outlaw and the ease with which individuals in positions of corporate power have on occasions even changed the law to meet their needs. But surely, no one is above the law? Capitalism: A Love Story combines humour and the bitter reality in an attempt to expose those individuals who have exploited the system for corporate, political or private gain. It reveals the extent to which Capitalism has affected every aspect of the “American Dream” over the past 50 years and investigates the role Wall Street has played in Federal decisionmaking through the years.

The influence Goldman Sachs has exercised over the US government has been substantial, and Capitalism: A Love Story raises the question as to whether this Capitalist influence is damaging the democratic ethos upon which the United States of America was built. It uncovers some of the darkest secrets of America Inc. - perhaps the darkest being “Dead Peasant Insurance”, a method by which an employees life was insured for corporate gain. Despite the focus on Capitalism, Michael Moore also presents the other face of America, often hidden and perhaps unpopular. He presents the rise of a “left wing” social state and even goes as far as to suggest a people‟s uprising, which would have McCarthy turning in

Director: Michael Moore Year: 2009 Genre: Documentary Runtime: 127 Minutes

his grave. He links these increasingly popular views with events such as the recent banking crisis, lending a context to explain how such a fiercely Capitalist country can abandon its once proud heritage. The film explores these aspects of American financial history chronologically, starting with the massive industrial might boom, caused by the Second World War. It then explains the demise, coupled with corporate infiltration of politics and manipulation by leading figures in the financial. It employs case studies throughout, especially on the housing markets and banking crisis, detailing its impact on the global economy. Although the film is a documentary, the presentation is far from dull or highbrow – Michael Moore‟s comical antics keep the audience entertained. At one stage he attempts a citizen‟s arrest on the Chairmen of Goldman Sachs. In another he seals off Wall Street with police “Crime Scene” tape. Nevertheless, interviews with leading mem-

65 bers of America‟s financial and political world, remind us of the gravity of Michael Moore‟s accusations. Moore exams how the American middle and working classes are effected by Capitalism. The film is well balanced and as such unbiased, presenting and contrasting the views and concerns of the rich and poor, encouraging us to view it as an informative documentary. And it is the humorous presentation of this information which makes Capitalism: A Love Story a truly educating experience, yet so controversial that it inclines you to continue watching. The film is both revealing and enlightening. It forces us to face the dangers of being gullible, yet having accepted these, the film empowers the audience with the potential to take action and shape the world in which they live.

Michael Moore - Author and Filmmaker Maximilian Spies-Majewski

ichael Moore is one of America‟s most famous and controversial journalists. His career has seen him criticize everything from large corporations, globalisation, Capitalism, the Iraq War to U.S. Presidents Bill Clinton and George W. Bush, the American health care system and assault weapon ownership in his written and cinematic works. His films and books have given him the limelight, having won Academy Awards for Documentary Feature and having been considered for Best Picture. Moore was born on April 23, 1954 in Flint, Michigan, USA. His father was a car assembly-line worker in the Flint General Motors factory and his mother was a secretary. At the time, many General Motors factories were located in Flint, where his parents and grandfather worked and where his uncle was one of the founders of the United Automobile Workers Labour

Union. Moore described his parents as "Irish Catholic Democrats, basic, liberal, good people" and it thus comes as no surprise that he was brought up as a Roman Catholic. He attended the parochial St. John's Elementary School and planned to join the Seminary. However, he then attended Davison High School, where he was an active participant in both drama and debating, and at the age of 18 was elected to the Davison School Board. He later attended the University of Michigan-Flint, dropping out after his freshman year to work at the local Buick plant. During his time at university, Moore wrote for the student paper The Michigan Times, and at the age of 22 continued this interest in journalism by founding the alternative weekly magazine, The Flint Voice (later to become The Michigan Voice when it expanded to cover the entire state).

In 1987, after becoming the editor of Mother Jones (a liberal political magazine), Moore closed The Michigan Voice. However, he was fired after a month for refusing to print an article that was critical of the Sandinista human rights record in Nicaragua as he believed it to be inaccurate. He sued for wrongful dismissal, and settled out of court for $58,000, allowing him to fund his first movie, Roger & Me, a documentary on Flint after General Motors had shut down their factories. Michael Moore‟s work has arguably been influenced by the effect that the closing of General Motors in Flint had on Moore‟s family, and on the community in which he once lived. This led him to question Capitalism, the US Government, and its inherent injustice. R

When Boris Met Bob! By Tom Hill

BBC Radio 4‟s “Any Questions” Broadcast: 25th March 2011 Recorded: Kingston Grammar School Producer: Victoria Wakely Run Time: 30 Minutes Images: From the Conservative Party and The Workers‟ Party of Ireland

with a select audience, can I, along proudly boast to have witnessed

the first ever meeting of Boris Johnson and Bob Crow, both notoriously divided over certain transport issues! The banter between these two „larger than life characters‟ was certainly as comical as Friday night television, though not quite as trashy! Who would have thought that the Mayor of London, and the leader of the Rail, Maritime and Transport (RMT) Union, would have so much in common? Playing to the audience, quick witted responses and a lack of formality were some of the obvious traits. However, on a more serious note, the encounter, along with Sadiq Khan (Shadow Lord Chancellor) and Dame Ann Leslie (Foreign Affairs Journalist) on the panel of BBC Radio 4‟s “Any Questions?” was quite a momentous occasion, and one I am pleased to have had the opportunity to attend. The topical weekly question show, chaired by Jonathan Dimbleby, covered a range of national and international questions, from the uprising in Libya, the harsh economic cuts about to hit peoples‟ wallets, to the well publicised TUC march in London. Jonathan Dimbleby had a challenging time keeping the panel in check, and I am sure the knowledge that the encounter

was unravelling on air was anything but relaxing. The atmosphere was one of excitement and high expectation whilst the audience waited for the panellists to come on stage. As the producer called the selected questioners to come to the front, the brief disappointment that I felt when I knew that my own question hadn‟t been chosen, soon turned to realisation that I clearly hadn‟t been sufficiently controversial in my thinking! Boris Johnson, renowned for his quick-witted, yet slightly rambling persona, certainly provided his usual deft and entertaining responses to the many topical questions. During the show, we were often reminded of Dame Ann Leslie‟s adventurous escapades during her long career reporting for the Daily Mail. How she danced on the Berlin Wall as it was torn down, reported live from Tiananmen Square, and was flashed at by Salvador Dali! Sadiq Khan couldn‟t quite match this worldly experience, but brought his own political perspective to the debate. The 30 minutes did, however, have a surprisingly economic feel. The discussion covered many issues, such as the background to the current financial crisis and the importance of consumer spending during these austere

times. But no matter how much hypothetical and root cause analysis is undertaken, the truth of the matter is that most people are fairly disgruntled by the economic woes that we face. The Middle East also came in for scrutiny. As David Cameron had just sanctioned our response to the growing Libyan crisis, the panel opined their views on this and the conflicts in other areas. With humanitarian charities from across the world calling for Western support, the panel were divided over what our response should be. To conclude, whilst the show touched on important and topical issues, the whole essence is one of both debate and entertainment. And to demonstrate this, a particularly noteworthy anecdote to close the programme came from our Mayor of London “We must remember, London was founded by a bunch of bushy Italian immigrants, the first thing to happen to them, 20 years later, was that they were all massacred by an Essex girl!”. Who says topical debate is either boring or dead! R

DEAR RIcardian, How can we, consumers, get the most from our money in today’s tough climate? With interest rates so low at the moment, there is very little, if not no incentive to save. Thus we need to find an alternative way in which to maximise the value of our hard-earned cash. Investing is always a risky business, as the slightest fear of another global recession can throw the markets into turmoil. However, having said that, you don‟t lose or gain any money until you sell your stocks – highlighting investments as a long-term financial solution. So I think the best way to get the most value out of our money, is not to try to make more, but to shop around carefully, and spend money more wisely.

Does Football benefit the economy?

sioners being scammed out of their life savings, or emails sent from a flat in Dagenham claiming we‟ve won the Nigerian Lottery! During times of slow economic recovery, there are people out there doing anything they can to steal or embezzle money from others. But unfortunately, many of these conmen go around unnoticed, as the FSA focus on large scale issues involving corporate companies. So there is definitely more that can be done to protect the welfare on consumers in today‟s „survival-of-the-fittest‟ society.

The FSA regulates the financial sector in the UK, and is appointed and owned by the UK Government. All too often we hear of harrowing tales about pen-

They say Chuck Norris counted to infinity twice, and can accurately predict the future, but can he tell the difference between private and public goods?

Will reductions in university Of course, although even he may suffer funding have long term impair- at the hands of some ambiguity. Generments on the economy? ally speaking, public goods are both Without doubt. The cuts in funding come amidst a time when the West faces an education problem of significant magnitude; OECD PISA statistics show that in just under a decade, Britain has gone from 7th to 17th in the world for reading, whilst our mathematic ability has slipped from 8th to 24th. The 40% cuts to higher education will undoubtedly be at the expense of better teaching and facilities, whilst some universities will have to rationalise courses to save costs. Given the rapid convergence of the Asian economies, can we further jeopardise our competitive edge in education?

By the definition of GDP, football generates a huge amount of money for the economy, which enhances our GDP and makes us appear more economically-active to the prying eyes of the investment world. One should also consider the fact that football clubs create large pockets of employment and influence, something which becomes truly valued when the rest of the economy falters. Clubs attract large businesses to advertise their products, the effects of which percolate far beyond the borders of football. Thus the With advances in Genetic Modifianswer is yes, football does benefit the cation within the food industry, economy. one day will money grow on trees?

Should the Financial Services Authority (FSA) be doing more to protect consumers from financial scams and dodgy-dealing?

dent that the value of money adequately equates to the wealth that it promises. The growth of money on trees would destroy this confidence; if money was so easily attainable then its promise of material wealth would be dismissed as untrustworthy, making the idea of growing money on trees and unfortunate impossibility.

A novel prospect indeed, but unfortunately such an endeavour would only destroy moneys purpose as a medium of exchange. Put simply, money is any object that is accepted as a payment for goods or a repayment for debts, and so people must be confident in its function. As money has no substantial material value, consumers must be confi-

non-excludable (no one can be excluded from benefitting), and non-rival (consumption does not reduce the amount available to the next person). On the other hand, private goods are both rival and excludable; for instance, if you eat a cereal bar, then your friend can no longer eat it. Problems arise when goods hold both public and private characteristics, for instance toll roads, which are non-rival but excludable. These are called quasi-public goods.

Is HSBC struggling with the pressure of Payment Protection Insurance (PPI) repayments to millions of customers? Could they be in trouble with the FSA? Yes, HSBC will inevitably incur the wrath of the Financial Services Authority, due to its backlog of PPI misselling complaints. Whether the delay is due to poor administration or an inability to repay has been kept under wraps, however, the FSA have announced that the maximum time to respond to complaints between 1st September and 31st December 2011 will be 12 weeks.

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