Friday 23 October 2015

David Cameron's surrender to the Chinese

Some people (including David Cameron's former adviser Steve Hilton) have described the way that David Cameron and the UK establishment have been prostrating themselves before the Chinese as a "national humiliation", but I think it's actually far worse than just shameful behaviour, it's an abject surrender in the economic war that's been going on between China and the west for the last three decades. 

It's nothing new to see the British establishment sucking up to totalitarian human rights abusing regimes. After all it's only a couple of weeks since David Cameron was reduced to blustering incoherence when challenged about Britain's "squalid deal"  to get the vile Saudi Arabian regime representation on the UN human rights council (UNHRC). 

The British establishment has a long and sordid history of alignment with brutal totalitarian regimes when it suited their geostrategic interests to do so (think Saddam Hussain in the 1980s).

From a relationships with totalitarian regimes perspective, Cameron sucking up to China this week is no less embarrassing than Cameron sucking up to Saudi Arabia two weeks before, or Margaret Thatcher chumming it up with the likes of Pinochet, Suharto and Hussain back in the 1980s.

The particularly terrible element to Cameron's dealings with the Chinese is not so much about who he's dealing with, but the ludicrous terms to the deals he's signing with them. In this article I'm going to explain how the absurdly one-sided deals Cameron has agreed with the Chinese represent not just a surrender to Chinese economic interests, but also a stunningly clear demonstration of the abject failure of the central Tory ideology of hardline free-market economic dogma.

The steel industry

If you've been following the news you'll know about the appalling job losses in the British steel industry, and how cheap Chinese steel imports and high energy prices are cited as two of the main causal factors in the chaos.

Some 5,100 UK jobs in the steel industry are under threat, yet Cameron has done nothing to intervene, because Tory free-market dogma dictates that the state mustn't intervene in the economy. The problem of course is that at the same time as ignoring the plight of the UK steel industry and the communities set to be devastated by massive job losses, Cameron is busy bribing the Chinese state (and the French state) into building a staggeringly expensive nuclear power plant by promising to pay double the 2012 market rate for its electrical output for 35 years!

The ideological incoherence should be obvious to everyone. Why does David Cameron have such a visceral hatred of the idea of the British state intervening in the market (so we can't defend our steel industry or construct our own energy infrastructure), but sign ludicrously one-sided contracts with the Chinese and French states to build our energy infrastructure for us? 

Why is it that the Tories only seem to object to the British state intervening in the UK economy, while other foreign states aren't just welcomed in, but actually bribed to the tune of countless £billions to provide the infrastructure investment and services that the British state is deemed incapable of providing for itself?

Not only is Cameron doing nothing to defend the British steel industry from the glut of artificially cheap Chinese steel, he's also signed up to a deal to keep UK energy prices artificially high for 35 years. He's not just callously ignoring the death throes of the UK steel industry, he's busy nailing the coffin lid shut as fast as he can.

The nuclear price-fixing deal
There are very few people who are willing to come out and defend such a ludicrously incoherent deal. It just makes no sense whatever from whichever perspective it is observed. Even George Osborne's father in law (a former Tory energy minister turned energy company lobbyist) describes the nuclear price fixing arrangement as "one of the worst deals ever" for the British energy industry and the UK consumer.

It's utterly bizarre that the Tories have pushed on with such a shambles of a deal. The idea of a supposedly free-market supporting Tory party compelling the UK state to intervene in the energy market with guarantees to pay the French state and the Chinese state double the 2012 market rate for electricity for 35 long years is bizarre enough in its own right, but against a backdrop of falling energy prices it looks like utter madness.

Pretty much everyone is aware of how energy prices have dropped since 2012, and anyone with even a passing interest in renewable technologies will know that the cost of renewables (especially solar) has fallen dramatically since the turn of the century, and continues a sustained downward trajectory towards grid parity (when the cost of production matches or falls below the electricity grid price). 

This general trend of falling energy prices makes the decision to tie the UK taxpayers into paying double the 2012 price look even more crazy. If the downwards trend continues, which seems likely given the downwards market trajectory (and the threat of a global deflationary spiral caused by another financial sector meltdown), a contract to pay double the market price set when energy prices peaked in 2012 is clearly an extraordinarily bad deal for the British taxpayer.

As terrible a deal as it is for the British taxpayer, it's a fabulous deal for the Chinese and French states, who would be able to pass these vast UK taxpayer funded windfalls on to their own economies through lower energy prices at home, rendering the UK economy even less competitive than it is already (the UK has been floundering far behind the other G7 economies when it comes to productivity).

I'm a well practiced writer, but even I have to admit defeat when it comes to finding the words to describe what a staggeringly, staggeringly bad deal this absurd nuclear-price fixing agreement is. There just aren't enough negative adjectives in the English language to explain how ridiculously terrible it is.

The economic war

Outright war is a very costly method of achieving geostrategic objectives. The scale of resource destruction from outright war, as well as the misdirection of resources away from productive industry, means that economic warfare is often a much more efficient method of shaping circumstances to your own advantage (think economic sanctions instead of an all-out ground invasion).

Making your country the workshop of the world is a pretty good global domination strategy compared to the misallocation of capital that would be necessary in order to build a military force strong enough to fight NATO for global supremacy, and the unimaginable destruction such a conflict would inevitably cause.

The shift of manufacturing to China has been cause for concern to a lot of economists for some time. Especially the way that complex financial shenanigans have allowed unscrupulous crony capitalists to buy up western companies, load them up with the debt it cost to buy them, fire the workforce, asset strip them, shift production to China, then fold the empty debt-laden shell into administration (leveraged buyouts). This vast global shift towards Chinese manufacturing was always going to eventually leave the smaller western economies at the mercies of the Chinese market. Thus these days the British steel industry can face ruination caused by fluctuations in Chinese demand for steel.

If we look back to the much maligned 1960s and '70s the British steel sector produced almost double the output of the whole of China (24.3 million metric tons to 14), and plenty enough to meet UK domestic demand. Since then British steel production has halved (to 11.9mmt), while Chinese output has grown 63 fold to account for almost half of the word output (882mmt).

It's beyond obvious that the UK steel industry (which is now just 1.3% the size of China's) must be afforded protection if it is to survive fluctuations in the gigantic Chinese steel market. The militant free-market enthusiast might choose to argue against industry protection out of misplaced faith in the idea that government intervention is somehow immoral, but it's a ludicrous stance to take given that the Chinese steel market is a vast example of state intervention in itself.

If the British steel industry is left to ruination out of adherence to this free-market non-intervention principle, British output will have to be replaced by Chinese imports originating in a much less free-market economy than the UK. By opposing British state intervention in the UK steel market, free-market militants are simply inviting Chinese state intervention in the UK steel market instead.

By adopting such a militant free-market stance the Tories are simply inviting China to obliterate the UK's core manufacturing industries, leaving our economy ever more dependent on Chinese imports in the future.

Tories know the cost of everything and the value of nothing

The idea that the British steel industry should just be left to ruination out of misguided adherence to free-market principles is absolutely crazy. Right-wingers like to defend Cameron's lack of action with arguments along the lines of "why should we waste money subsidising the British steel industry when we can buy cheap steel from China?". But this stance betrays a very simplistic balance-sheet approach to economics, and a refusal to take other factors into consideration.

Of course subsidising the British steel industry to save it from annihilation would cost money, but then allowing it to fail would also come with a price tag too. Just think of all of the unemployment benefits for 5,100 or more workers and the economic harm to communities like Redcar where the steel plant is the main employer. How much social and economic damage will be caused by letting cheap Chinese imports ruin the British steel industry? 

Another factor to consider is Britain's appalling trade deficit. Of course it's deeply unfashionable these days to concentrate on the balance of trade (the trade deficit) rather than public sector borrowing (the budget deficit), but just because the political class and the mainstream media don't like to talk about it doesn't mean that its not an important issue.

The UK has been running vast trade deficits for decades, especially in goods, but the press don't like to talk about this woeful state of affairs because it blows a gaping hole in the Tory "recovery" propaganda. How can the UK be have "recovered" when we're still so desperately dependent on imports, and increasingly so?

Right-wingers will tell anyone daft enough to listen that it's madness to subsidise the British steel industry to the tune of a few quid a ton, but they'll totally ignore the fact t
hat buying Chinese steel instead means even more wealth flowing out of the UK, not circulating around the British economy. 

Defenders of this kind of ideological inaction are not only blind to the fact that rigid adherence to free-market fundamentalism is completely crackers if the main beneficiaries are very unfree economies like China, but also to the fact that the free-market fundmentalist ideology is highly damaging to the long-term health of the UK economy because it causes the ruination of British industries and ever greater flows of wealth out of the UK economy.

The media reaction

The media reaction to this abject kowtowing to the Chinese has been curious to say the least.

Just imagine if it was Jeremy Corbyn laying down so pathetically to kiss the feet of the Chinese and handing them vast bribes to build our energy infrastructure for us at the same time as cheap Chinese steel imports were destroying the British steel industry?

Does anyone seriously believe the right-wing media wouldn't be in all-out attack mode, shrieking on relentlessly about "dangerous lefties" inviting the communist takeover of the UK economy? 

But when Cameron's doing it, there's almost complete radio silence on the plight of the British steel industry and how much of shockingly poor deal the Tory nuclear price-fixing contract is for the UK economy, British bill payers and the British taxpayer alike.


The pathetic kowtowing to the Chinese and the ludicrously one-sided trade deals being signed are not just embarrassments to the UK, they're the terms of surrender.

Through his inaction David Cameron is telling the Chinese that he's happy to let the British steel industry die as a sacrifice to the economic might of China. The vast ludicrously one-sided price-fixing contracts he's signed us up to are appalling deals for the UK taxpayer and the long-term health of the UK economy that are more akin to terms of surrender than "trade deals".

David Cameron and the UK establishment aren't just embarrassing the UK, they're signing the terms of surrender while trying to spin the situation as if it's some kind of victory tro be celebrated. But by now we should all be familiar with this kind of Orwellian "war is peace" propaganda from the Tories after all their empty rhetoric about how they are the party for "hardworking people"

I'm not sure the hard-working former steel workers in places like Redcar, Scunthorpe, Cambuslang and Motherwell will be merrily toasting David Cameron's dealings with the Chinese, nor believing his propaganda campaign about how much he supports "hardworking people" when he's so happy to let their jobs disappear without a fight.

 Another Angry Voice  is a "Pay As You Feel" website. You can have access to all of my work for free, or you can choose to make a small donation to help me keep writing. The choice is entirely yours.

Austerity is a con
The Tory nuclear price-fixing deal
The Tory "economic recovery" mantra is a lie
George Osborne has created more debt than every Labour government in history combined
How Ed Balls' austerity-lite agenda ruined Labour's election chances
The Tory ideological mission
Asset stripping "bankrupt Britain"
Margaret Thatcher's toxic neoliberal legacies

1 comment:

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