2012 in review: The New Statesman . . . Abroad

From a portrait of Ai Weiwei to fascist rallies in Athens, the best foreign reporting, analysis and interviews of the year from the New Statesman.

Tidings of comfort and joy! With a bumper double issue of the magazine - guest-edited by Brian Cox and Robin Ince - sent to press, it's time to reflect on the year. 

Over the Christmas and New Year period, the NewStatesman.com team will be bringing you the 12 Days of Blog-mas, with links to some of the best content of 2012 that you might have missed the first time round. (Please forgive the fact that there are actually only 11 days of Blog-mas, and that they have started too early).

Today's theme is The New Statesman Abroad. Foreign reporting is - compared with domestic news and opinion - difficult, expensive and sometimes dangerous. It's also vital. 

In some of the places we've covered this year, the country's own media are unable to report honestly because of corruption or censorship. In others, the stories which usually reach Britain are simplistic and one-dimensional. Here are six stories which we hope get close to uncovering the truth about some fascinating parts of the world.

 

The cold choice - jobs or jihad

Since the beginning of the Arab Spring, the NS has commissioned Olivier Roy, a professor of social and political theory at the European University Institute in Florence, to write a series of essays on the uprising. His first piece of 2012, The Cold Choice, looks at the rise of Islamist parties in Egypt in the wake of the removal of Hosni Mubarak from power. 

His most recent piece for the NS, The Myth of the Islamist winter, was published this month.

Greece: The austerity laboratory

The NS assistant editor, Daniel Trilling, has written several longform pieces for the magazine this year after completing his book on the British National Party. In a recent dispatch from Greece, he considers the rise of Golden Dawn and the social effects of austerity. In a final coda, he visits a food bank near his house in London and asks: what can Greece's example tell us about Britain's austere future?

India after the blackout

William Dalrymple considers the contradiction at the heart of India: that its seemingly meteoric rise has divided the country even more sharply between the haves and have-nots.

For, even at the height of India’s boom, amid talk of space missions to Mars and fleets of nuclear submarines, and as the country tripled its defence budget to become one of the world’s top ten military spenders, it has also been home to one-third of the world’s poor. A full quarter of its population – about 310 million people – live in poverty.

Mexico's drug war: the battle without hope

Malcolm Beith, author of the book Narco, reveals the incredible toll of drug violence in Mexico and wonders why the one solution the US won't consider to the "war on drugs" is decriminalisation.

In 2009, a man nicknamed El Pozolero – “the stew-maker” – was arrested and confessed to dissolving the remains of more than 300 people in vats of caustic soda for a drug kingpin. Later that year, a man working for rivals of the powerful Sinaloa cartel was found; he had been beheaded and his face had been carved off and delicately stitched on to a football.

Israel's endless war

In November, the New Statesman's editor Jason Cowley visited Israel, just as it began a renewed assault on Gaza. He found a country unwilling to question its actions.

The message from inside Israel was one of profound and unyielding unity. “There can be no peace,” it is said, “until Hamas stops trying to kill us,” irrespective of the context in which Hamas acts or the suffering of the Palestinians inside Gaza.

Earlier in the year, the NS had looked at the fading possibility of a peaceful two-state solution, with Jonathan Freeland's essay Yearning For the Same Land, and Ali Abunimah's response

Ai Weiwei: If someone is not free, I am not free

In October, the NS was guest-edited by Chinese artist Ai Weiwei, who wanted to draw attention to the routine censorship of dissenting voices by the Chinese state. 

Features editor Sophie Elmhirst visited him in his studio, just outside Beijing, and wrote a long profile of a complex man: 

Ai lives like a king, though not in the clichéd sense. It’s more that he lives like an embattled medieval monarch, trapped in a palace that is half power base, half prison. Every day, visitors pass through to pay their respects or in the hope of finding favour. In the week I’m there, journalists, fans, gallerists, film-makers, photographers, artists, old friends and new all make their pilgrimage to the studio, and Ai patiently entertains them, having his picture taken or answering the same questions he has answered in the scores of other interviews he has done this year. One asks him to play “Water” in an experimental art film; Ai shrugs and agrees.

If Ai’s studio is his court, then Twitter is his kingdom. He might not be able to leave China, and rarely leaves his neighbourhood, but he can encounter his population directly through the social media site. He tweets to his 170,000 followers continuously; commenting on the latest political twists, retweeting support from followers and championing the causes of fellow dissidents. In 2005, he was invited to set up a blog by the internet company Sina Weibo, to which he contributed regularly until it was shut down four years later. Since then Twitter has been his platform of choice.

In his guest-edited issue, Ai used his leader column to issue a call to China to "recognise itself". "Right now, in China, we are living in conditions that no other generation has ever experienced – of great economic growth and expansion, but also great oppression of freedom of speech and human rights," he wrote. 

Photograph: Getty Images

Helen Lewis is deputy editor of the New Statesman. She has presented BBC Radio 4’s Week in Westminster and is a regular panellist on BBC1’s Sunday Politics.

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We're racing towards another private debt crisis - so why did no one see it coming?

The Office for Budget Responsibility failed to foresee the rise in household debt. 

This is a call for a public inquiry on the current situation regarding private debt.

For almost a decade now, since 2007, we have been living a lie. And that lie is preparing to wreak havoc on our economy. If we do not create some kind of impartial forum to discuss what is actually happening, the results might well prove disastrous. 

The lie I am referring to is the idea that the financial crisis of 2008, and subsequent “Great Recession,” were caused by profligate government spending and subsequent public debt. The exact opposite is in fact the case. The crash happened because of dangerously high levels of private debt (a mortgage crisis specifically). And - this is the part we are not supposed to talk about—there is an inverse relation between public and private debt levels.

If the public sector reduces its debt, overall private sector debt goes up. That's what happened in the years leading up to 2008. Now austerity is making it happening again. And if we don't do something about it, the results will, inevitably, be another catastrophe.

The winners and losers of debt

These graphs show the relationship between public and private debt. They are both forecasts from the Office for Budget Responsibility, produced in 2015 and 2017. 

This is what the OBR was projecting what would happen around now back in 2015:

This year the OBR completely changed its forecast. This is how it now projects things are likely to turn out:

First, notice how both diagrams are symmetrical. What happens on top (that part of the economy that is in surplus) precisely mirrors what happens in the bottom (that part of the economy that is in deficit). This is called an “accounting identity.”

As in any ledger sheet, credits and debits have to match. The easiest way to understand this is to imagine there are just two actors, government, and the private sector. If the government borrows £100, and spends it, then the government has a debt of £100. But by spending, it has injected £100 more pounds into the private economy. In other words, -£100 for the government, +£100 for everyone else in the diagram. 

Similarly, if the government taxes someone for £100 , then the government is £100 richer but there’s £100 subtracted from the private economy (+£100 for government, -£100 for everybody else on the diagram).

So what implications does this kind of bookkeeping have for the overall economy? It means that if the government goes into surplus, then everyone else has to go into debt.

We tend to think of money as if it is a bunch of poker chips already lying around, but that’s not how it really works. Money has to be created. And money is created when banks make loans. Either the government borrows money and injects it into the economy, or private citizens borrow money from banks. Those banks don’t take the money from people’s savings or anywhere else, they just make it up. Anyone can write an IOU. But only banks are allowed to issue IOUs that the government will accept in payment for taxes. (In other words, there actually is a magic money tree. But only banks are allowed to use it.)

There are other factors. The UK has a huge trade deficit (blue), and that means the government (yellow) also has to run a deficit (print money, or more accurately, get banks to do it) to inject into the economy to pay for all those Chinese trainers, American iPads, and German cars. The total amount of money can also fluctuate. But the real point here is, the less the government is in debt, the more everyone else must be. Austerity measures will necessarily lead to rising levels of private debt. And this is exactly what has happened.

Now, if this seems to have very little to do with the way politicians talk about such matters, there's a simple reason: most politicians don’t actually know any of this. A recent survey showed 90 per cent of MPs don't even understand where money comes from (they think it's issued by the Royal Mint). In reality, debt is money. If no one owed anyone anything at all there would be no money and the economy would grind to a halt.

But of course debt has to be owed to someone. These charts show who owes what to whom.

The crisis in private debt

Bearing all this in mind, let's look at those diagrams again - keeping our eye particularly on the dark blue that represents household debt. In the first, 2015 version, the OBR duly noted that there was a substantial build-up of household debt in the years leading up to the crash of 2008. This is significant because it was the first time in British history that total household debts were higher than total household savings, and therefore the household sector itself was in deficit territory. (Corporations, at the same time, were raking in enormous profits.) But it also predicted this wouldn't happen again.

True, the OBR observed, austerity and the reduction of government deficits meant private debt levels would have to go up. However, the OBR economists insisted this wouldn't be a problem because the burden would fall not on households but on corporations. Business-friendly Tory policies would, they insisted, inspire a boom in corporate expansion, which would mean frenzied corporate borrowing (that huge red bulge below the line in the first diagram, which was supposed to eventually replace government deficits entirely). Ordinary households would have little or nothing to worry about.

This was total fantasy. No such frenzied boom took place.

In the second diagram, two years later, the OBR is forced to acknowledge this. Corporations are just raking in the profits and sitting on them. The household sector, on the other hand, is a rolling catastrophe. Austerity has meant falling wages, less government spending on social services (or anything else), and higher de facto taxes. This puts the squeeze on household budgets and people are forced to borrow. As a result, not only are households in overall deficit for the second time in British history, the situation is actually worse than it was in the years leading up to 2008.

And remember: it was a mortgage crisis that set off the 2008 crash, which almost destroyed the world economy and plunged millions into penury. Not a crisis in public debt. A crisis in private debt.

An inquiry

In 2015, around the time the original OBR predictions came out, I wrote an essay in the Guardian predicting that austerity and budget-balancing would create a disastrous crisis in private debt. Now it's so clearly, unmistakably, happening that even the OBR cannot deny it.

I believe the time has come for there be a public investigation - a formal public inquiry, in fact - into how this could be allowed to happen. After the 2008 crash, at least the economists in Treasury and the Bank of England could plausibly claim they hadn't completely understood the relation between private debt and financial instability. Now they simply have no excuse.

What on earth is an institution called the “Office for Budget Responsibility” credulously imagining corporate borrowing binges in order to suggest the government will balance the budget to no ill effects? How responsible is that? Even the second chart is extremely odd. Up to 2017, the top and bottom of the diagram are exact mirrors of one another, as they ought to be. However, in the projected future after 2017, the section below the line is much smaller than the section above, apparently seriously understating the amount both of future government, and future private, debt. In other words, the numbers don't add up.

The OBR told the New Statesman ​that it was not aware of any errors in its 2015 forecast for corporate sector net lending, and that the forecast was based on the available data. It said the forecast for business investment has been revised down because of the uncertainty created by Brexit. 

Still, if the “Office of Budget Responsibility” was true to its name, it should be sounding off the alarm bells right about now. So far all we've got is one mention of private debt and a mild warning about the rise of personal debt from the Bank of England, which did not however connect the problem to austerity, and one fairly strong statement from a maverick columnist in the Daily Mail. Otherwise, silence. 

The only plausible explanation is that institutions like the Treasury, OBR, and to a degree as well the Bank of England can't, by definition, warn against the dangers of austerity, however alarming the situation, because they have been set up the way they have in order to justify austerity. It's important to emphasise that most professional economists have never supported Conservative policies in this regard. The policy was adopted because it was convenient to politicians; institutions were set up in order to support it; economists were hired in order to come up with arguments for austerity, rather than to judge whether it would be a good idea. At present, this situation has led us to the brink of disaster.

The last time there was a financial crash, the Queen famously asked: why was no one able to foresee this? We now have the tools. Perhaps the most important task for a public inquiry will be to finally ask: what is the real purpose of the institutions that are supposed to foresee such matters, to what degree have they been politicised, and what would it take to turn them back into institutions that can at least inform us if we're staring into the lights of an oncoming train?