INTERVIEWS

Domenico Moro: Fascism was the open and brute dictatorship of the elite of capital

Saturday, October 27, 2018

13 min read

foto: Domenico Moro’s private archive
Posted on Oct 27, 2018 by IL GRIDO DEL POPOLO

Domenico Moro (1964, Rome) is an Italian economist, sociologist and political researcher who for years has been analyzing and researching the European monetary system as well as large multinacional financial monopolies and groups such as Bilderberg and the Trilateral commission. So far, he has published several books: “Il gruppo Bilderberg” (2014), “Globalizzazione e decadenza industriale” (2015), “La terza guerra mundiale e il fundamentalismo islamico” (2016), “La gubbia dell’euro” (2018).

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First I would ask you if the European Union has a future in the form of a corporate project of the ruling elites?

I think we have to distinguish between Eu and single European currency. It is difficult that Euro can survive, in the same way as other previous monetary unions in the History, for example the Latin union. First of all, the Euro system is unfit for coping with the evolution of world economy, because makes impossible to the single countries to adapt themselves to economic cycles. Without any control on exchange and interest rates, and on money emission of the central bank is impossible for a single State making any industrial policy and contrasting the decrease of GDP and employment. Euro is broadening the differences between countries, producing millions of poor people and, more of all, makes difficult resisting to external shocks. Another crisis, like the 2008-2009 one (the worst one since 1929), would means likely the collapse of euro system. But for which reason the ruling classes in Europe are so determined to defend Euro? Euro is a political project.  From a class point of view, Euro is the tool to force the working class to accept the European rules, written in the Treaties. The target is removing the control of public budget and industrial policy from other classes and put it only into hands of the superior sector of capital, the biggest and more internationalized one. Above all Euro is the tool to accept limitations on popular and democratic sovereignty, as it was established during a century of struggles, and make the Parliaments more weak with no power in public budget and industrial policy decisions. In this way, Euro and treaties has made possible modify the balance of power between capital and labour that was defined in favour of working class after the fall of fascism and after the struggles in sixties and seventies. With regard to the Eu treaties, also the European targets that force the decrease of debt to 60% on GDP are impossible to be reached. Perhaps what could survive is another system of relationships among European countries, with agreements which establish some kind of trade rules among countries.

How do you look at Brussels latest pressures on fiscal monetary policy of Italy, in terms of her debt?

Italian government actually is not doing an expansionary policy. It would be exaggerated call it a Keynesian policy. A public deficit of 2.4% is just 0.1% above the deficit of the previous Pd government. Notwithstanding the European commission is attacking the government as if it was doing a policy of strong spending, which can destroy Europe. It is the demonstration that European Commission is far from reality. According to Junker and Moscovici, Italy should cut public expenses further after years of austerity in order to pass from 131% to 60% of debt on GDP just in a couple of decades of years. All this during a period of economic stagnation with an inflation between zero and one per cent and with 5 million of absolute poors. It is ridiculous.

Italian public debt has already reached 131% of the state GDP, which is more of 2340 billion euros, while economic growth is below the EU average, and the unemployment rate is 11%, which amongst the young population is unbelievable 32%. How can Italy deal with these problems and can it at all?

That’s for sure that Italy cannot cope with unemployment and its big debt if it follow the European rules and cut the public expenses. We need to increase investments, particularly in construction, in order to revitalize the domestic market. Only the state can do it. For this reason Italy has to go much further a 2.4% deficit. In this case, it should be inevitable to crash with European authorities.

Right-wing populist “5stelle” and Lega Nord government in Rome are opposed to austerity measures, but will they step in front of the Brussels bureaucrats, as did in Greece once?

Italy is not Greece. First of all for its dimensions. Without Italy euro can arrive to the end quickly. Secondly, Italian industrial structure is quite strong and quite competitive. Italy has been realizing strong trade surpluses (goods and services) for the last 7 years (53 billion of euros in 2017). Instead France and Uk continue to have trade deficit. Italy has been doing public primary surpluses for last 20 years (Germany for only 12 years), i.e. Italy State expenses are less than its revenues. Furthermore in Italy household savings are quite high. International investments funds know it, as JP Morgan said recently. For this reason they are investing in Italian debt even now. From the other side, we do not have to forget the euro is a strong cage. Exiting from this cage requires a strong political determination. The question is if M5S and Lega will be firm and concerned to it. I have some doubt about this. In my opinion the true government target is to negotiate better conditions with Eu. Lega and M5S are bourgeois parties. They represent some sectors of capital and middle and petty bourgeoisie damaged by austerity.  Do not forget that Italy has a biggest sector of little and middle firms than other European countries, like Germany and France. In any event the situation could fall if the Commission hardens its position, but it is difficult forecast what will happen.

We are witnesses today that the Italian left is at the lowest possible level of its existence and socio-political action. Which is the real reason for it?

The reasons of collapse of Italian left are many and have origin in the past twenty-thirty years of Italian history. When Italian communist party (Pci) broke up in 1991, it was divided in two parts. The majority organized  a party (called Pds and then Ds and Pd), which was rather liberal democratic than social democratic. It was the demonstration of how Pci was changed in the last decade, surrendering on the political and ideological field. This party become the spokesperson of big capital interests and in particular of European union and single currency. All of this was hidden by the opposition of Berlusconi, depicted as the most important danger for Italy. The minority of former Pci and some other far left little organizations and groups organized the Party of Rifondazione Comunista (Prc). This party was the assembly of many political and ideological currents in perpetual fight each against other rather than an organization composed by well-blended elements. Not much was done in this direction by the leadership, more interested in electoral tactics. Furthermore, in order to fight Berlusconi, considered the most (or the only) dangerous enemy, the sole political tactic of Prc was the centre-left coalition with Pds (later Ds) and leaded by Romano Prodi, a former State top manager, the person responsible for privatization of many State enterprises. The second Prodi government (2006-2008) was a disillusionment for many voters of Prc, PdCI (a 1998 secession from Prc) and Greens. At the elections in 2008 the votes of this parties decreased from 12% to 3% and they were expelled from Parliament. This result was destinate to do not change. For two reasons. Firstly, a part of far left electorate moved to abstention and a bigger part passed to Movimento cinque stelle, which will began the first Italian party in 2013 and go to the government in 2018. Secondly, because of the defeat, the political and ideological differences broke up inside Prc and the far left. Some people wanted go on with centre-left collation, some did not. Some people thought that was necessary get rid of communism and marxism, some did not. There were many secessions, which weakened Prc. The situation fell with the 2008-2009 crisis and European austerity, in particular during Monti government, a sort of Eu commissioner, supported by Pd and Berlusconi. The moderate left was the more sure supporter of European constrictions and payed the price for this at the last elections,  in the same way the as moderate left did in France, Greece, Spain, Germany. The far left was negative with austerity, but its position on Eu and the single currency was little clear, confusing defense of Eu with internationalism and the fight against Euro with nationalism. Summarizing, moderate left was the defender of big capital interests while far left was not able to understand the modification of the Italian and European society, in particular the impact of Euro on economy and policy. On the contrary, M5S and Lega were able to do it. It was remarkable the ability of Lega to transform from defender of North Italy interests into defender of “national” interests, building a social alliance (in the sense which Gramsci gave to the word) with some sectors of capitalist firms (which have the leadership), middle classes and working class. In a way, today we assist to a civil war inside the Italian (but also European) capitalist class, of which the birth of last Italian government is the evidence.

How do you see today on this growing rising climax of fascism in Europe and whether a modern left can even oppose this trend and how?

The rising of fascist groups depends on the European austerity and crisis, in the same way as nazism depended on the austerity policy with which was faced the 1929 crysis. They also depend on the tolerance towards them of moderate left and centre-right parties that underestimated antifascism and Resistance importance in the last decades. But the true question is: there is a danger of fascism regime in Europe? In order to answer we have to understand what was fascism and why took power. Fascism was the open and brute dictatorship of the élite of capital. This dictatorship was useful to remove popular and democratic sovereignty, eliminating Parliament and elections, as well as trade unions and working class parties. Furthermore fascism and its nationalistic soul was coherent with a capitalistic accumulation that was mainly domestic and with a territorial shape of imperialism. Fascism was the preparation to the second time of the world war for the defeated country (Germany) and the unsatisfied country (Italy) of the First World War. Today  – we have to ask ourselves – what has eliminate o reduced popular and democratic sovereignty? What has neutralized the universal suffrage, trade unions and popular parties? The answer is simple. European treaties and single currency. You can vote a policy after that the European constraints and Euro prevent to put into practice. Thanks to them, élite of capital do not need to abolish democracy or use direct brutality. Furthermore, the capitalist accumulation is much more global than in the thirties and imperialism is not territorial but managed by multinational enterprises. The most bizarre thing is that M5S and Lega – a centre and a far right party – seem the defender of the vote results (and of the democratic sovereignty) against the international market and European Commission influence on the political decision. Meanwhile, Pd, Berlusconi and President of Republic defend the European Commission and say “We have to respetct the rules, otherwise the markets will punish us”. The problem is that Italian workers and unemployed people has been punished for a decade by austerity, of which is impossible to see a end. You can imagine the consequences of Junker declarations on Italian electorate: Lega has increased its votes from 17,3% to 30%. This is the demonstration of the confusion existing in Italy (but also in many European countries) and of the difficulties of the left to fight the M5S and Lega positions. For this reason we have to be clear about European treaty and single currency. Exit from Euro or even from Eu do not resolve all the problems but is a necessary conditions, particularly if we want to be credible. It is true that the problem is the capital, but capitalism fights its class battle and do profits in different historical ways. Today European integration takes on a strategic role for European capital egemony and capital accumulation.

All this does not mean that does not exist any difference inside capital and between capitals of different nations and consequently that does not exit competition among capitals and among States. On the contrary, Euro, widening differences in economy and reducing domestic markets, increases the imperialistic tendency to expansion abroad and tensions among States, strengthening the role of the national State, as well as nationalism and xenophobia. Euro and Eu do not abolish or weaken national-States, but change them, redefining their parts and the relationship among these in order to put in a cage the subordinate classes.

Consider one of the best experts when it comes to organizations such as the Bilderberg Group and the Trilateral Commission. Tell me how really these organizations really are capable of carrying the decision on the international political scene, and is there any cooperation between them and the NATO military alliance through an institution such as the Club of Rome?

Usually people connect Bilderberg to conspiracy theory. They think that there is a little group of people that decide about all what concern the events in the world. Actually Bilderberg and its sister organization, Trilateral Commission, are think tanks of a part of the superior sector of international capital of western countries, the majority member countries of Nato (Usa, Canada, Uk, Germany, France, Italy, Spain, etc.). Their target is discussing and defining policies useful to their interests. Even if there is no conspiracy, the strategical importance of Bilderberg and Trilateral is evident in connection with European integration. The proposal of a single currency in Europe was proposed in a meeting of Bilderberg in Buxton in 1958, in order to control the public budget and reduce the power of Parliaments. Particularly meaningful is The Crisis of democracy, a report for the Trilateral meeting at Tokyo in 1975, written by Huntigton and Crozier. The crisis of democracy, according to the two authors, was depending on an excess of democracy, which should have been reduced. The tool to reach this goal was European integration. The strength of Bilderberg and Trilateral depends on the connection between business élite (top managers and member of boards of multinationals, transnationals, and internationals banks), policy élite (prime ministers and heads of State, finance and foreign ministers, European Commission members, Nato council members), élite of European and national bureaucracy (International monetary fund, central banks and Bce members), and élite of University and mass media.  Many European prime ministers has attended the meeting, among them Blair, Merkel, Prodi, Monti. In this way the business élite can exercise an influence on politics. Summarizing, there is no conspiracy theory but hegemony building of transnational capital in western society.

This interview was taken by Gordan Stosevic.

Dictatorship Domenico Moro Fascism

Shutdown – How Covid Shook the World Economy by Adam Tooze

October 19, 2021 

Book Review by Michael Roberts

Adam Tooze has a new book out, Shutdown.  Tooze is the liberal left’s current favourite historian.  His previous book, The Wages of Destruction,  won the Wolfson Prize for History and the Longman-History Today Book of the Year Prize. He has taught at Cambridge and Yale and is now Kathryn and Shelby Cullom Davis Professor of History at Columbia University.  He is a prolific writer of articles in the elite press; a mine of information and data on his Twitter account and his Chartbook site.  And of course, he is on SubStack.

I reviewed his last best-selling book, Crashed.  After singing the praises of Tooze’s account of the global financial crash and the ensuing Great Recession, I made the point that “Crashed provides us with the most granular and fascinating account of the crash and its aftermath.  It powerfully shows what happened and how, but in my view does not adequately show why it happened.  But maybe that is not the job of economic history, but that of political economy.”

There are two critiques there.  The first is Tooze’s historical method: he decries ‘historicism’ as such and aims to provide a history of ‘the moment’, as it happens.  That can offer an excellent survey of who does what and when, but it does not serve well to understand why.  And second, although Tooze is an historian of events ‘as they happen’ (or immediately after), this approach has a false ‘neutrality’ in its analysis.  For Tooze is not ‘neutral’ or ‘objective’ at all – and after all, nobody can be where social interests and viewpoints are often contradictory.

So beneath the ‘history of the moment’ lies an analysis of events that is really based on what Tooze calls ‘liberal democratic’ ideals, politically and on Keynesian theory and policy, economically.  Tooze sees himself as offering a viewpoint “of a left-liberal historian whose personal loyalties are divided among England, Germany, the “island of Manhattan” and the EU.” (Tooze, ‘Tempestuous Seasons’, London Review of Books, 13 September 2018, p. 20.)  Also: “the political intellectual tradition, which I personally feel attached to, which is left liberalism of the British variety.”  And more:“I’m a confirmed liberal Keynesian in my broad politics, and my understanding of politics and the way expertise ought to relate to it, and the operations of modern democracy.”

On the whole, Tooze sees, for all her faults, that the US is on the side of the angels along with Western Europe, in defending the ideals of ‘democracy’ against the forces of authoritarian rule from the likes of Russia, China, Turkey etc. Perry Anderson (Anderson-NLR-119-1.pdf points out that Tooze’s book, Wages of Destruction argues that Hitler saw America as the main enemy of Nazi Germany ie the US was the force for democracy against fascism.  And yet all the evidence suggests that Hitler’s main ambition was to crush the Jewish Bolshevik conspiracy and, from the start, looked to invade and defeat Stalin’s Russia.

When it comes to the economics, in Crashed, we are asked to accept that, even though the actions of the US administration and the EU were full of holes, in the end they delivered in shoring up the system and avoiding a meltdown into a deep depression.  Yes, the draconian measures imposed by the Troika on Greece were terrible, but Tooze says nothing about Syriza’s capitulation to the Troika.  For him, there was no alternative but to ensure the survival of the EU as part of the liberal democratic order.  As he wrote: “Left-wing hostility to the pro-market character of the EU and nationalist hostility to Brussels’ united to deliver a profound shock to Europe’s elite. ‘Whatever the rights and wrongs of the constitution, popular democracy had asserted itself’.  Really?  Have the ECB and the EU Council mended their ways?

In Shutdown, Tooze examines the unprecedented decision of governments around the world to shutter their economies in the face of pandemic. “The virus was the trigger,” writes the author. But other elements were at play, including a serious slowing of global economic growth, a rise in nationalist and authoritarian regimes around the world, and what, in effect, was a new cold war with China. In other words, the agents for destabilization were myriad well before Covid-19 arrived. Tooze calls this ‘polycrisis’, to describe this multipronged series of failures of imagination and governance.

Tooze moves fluidly from the impact of currency fluctuations to the decimation of institutions–such as health-care systems, schools, and social services–in the name of efficiency. And he shows how no unilateral declaration of ‘independence” or isolation can extricate any modern country from the global web of travel, goods, services, and finance.  No country is an island when it comes to a virus, trade and supply chains – as we currently see.

The crux of Tooze’s message is that at the onset of the Covid-19 crisis, governments found themselves ‘flying blind’: none of the economic and political theories that purported to be guides for public policy proved to be of any use and were rapidly abandoned. Instead, driven by the need to “do something”, and be seen to “do something”, governments innovated.

Tooze recounts what public figures said in the very early stages of the pandemic. On February 3rd 2020, Boris Johnson, Britain’s prime minister, warned of the danger that “new diseases such as coronavirus will trigger a panic”, leading to measures that “go beyond what is medically rational, to the point of doing real and unnecessary economic damage”. Within two months, he had locked down the British economy. On February 25th 2020, Larry Kudlow, an adviser to President Donald Trump, said that “we have contained this”, cheerfully adding: “I don’t think it’s going to be an economic tragedy at all.”

Tooze confirms what this blog and other analyses both from health and economics have shown: that decisive government action, such as lockdowns and prudent and socially responsible behaviour by citizens, reduced mortality and economic damage, the behavioural balance between these being roughly one-third governmental and two-thirds at the level of citizens.

The politicians may have been disastrous, but the institutions of the liberal democratic order compensated.  Whereas the financial crisis of 2008 showed the weakness of the world banking system, Tooze writes, the shock of the pandemic spoke to the weakness of asset markets as a whole, requiring entities such as the US Treasury to assemble “a patchwork of interventions that effectively backstopped a large part of the private credit system.”  Apparently it helped that Steven Mnuchin, “the least ‘Trumpy’ of the Trump loyalists,” led those Treasury efforts. It is strange that Tooze has a good word for this hedge fund multi-millionaire, who said in April 2020: “This is a short-term issue. It may be a couple of months, but we’re going to get through this, and the economy will be stronger than ever,”

Tooze also has kind words for the central bankers.  They were quick to grasp the implications of the disease. “In 2008 there had still been a note of hesitancy about central-bank interventions. In 2020 that was gone,” he writes. “Governments ended up backing this monetary stimulus with fiscal policy. The $14trn-worth of support they had provided by the end of 2020 was much larger than the stimulus they had offered in the wake of the global financial crisis.”

The business community also responded to the central bankers by apparently rejecting the policies of austerity. So when Joe Biden assumed the presidency, he pushed for big-dollar measures, which corporations supported, to jump-start the economy —with the proviso, Tooze notes, that Biden dropped his push for a $15 minimum wage.

It is an odd conclusion to reach about the policy response to the pandemic.  Did central banks act to save people’s jobs or to shore up financial markets just as in 2008?; will the supposed fiscal largesse introduced in the 2020 slump be sustained in the rest of this decade?: are austerity policies really over?  In the UK, the current Chancellor has already cut back subsidies to workers and businesses and is preparing regressive new taxes to fund government spending.  In the US, Biden’s supposedly large infrastructure programme has been cut back by Congress and anyway will be financed by significant tax rises over the next five years.  Keynesianism is not really making a comeback.

Yet Tooze’s instant history goes through the prism of Keynesian theory.  Tooze is explicit about this.  In a review of Geoff Mann’s excellent demolition of Keynesianism, In the Long Run We Are All Dead: Keynesianism, Political Economy and Revolution (2017), Tooze defines the distinctive virtue of Keynes’s outlook as a “situational and tactical awareness’ of the problems for liberal democracy inherent in the operations of the business cycle in a capitalist economy, requiring pragmatic crisis management in the form of punctual adjustments without illusion of permanency.”

He even argues that China’s huge state-led investment during the Great Recession, amounting to over 19% of China’s GDP, was an example of Keynesian policies in action and commands Tooze’s unstinting admiration. “This was the largest Keynesian operation in history, a mobilization of resources on a scale that Western economies had only ever achieved under the pressure of war. Its global impact was decisive. ‘In 2009, for the first time in the modern era, it was the movement of the Chinese economy that carried the entire world economy”. 

I have argued elsewhere that this claim for Keynes is not supported by the evidence:  China’s state investment, run and operated by state banks and state enterprises, bears no relation to Keynesian macro policies.  Moreover, China’s avoidance of a slump did not ‘save capitalism’ in 2008-9; the Great Recession remained the widest and deepest slump in capitalism since the 1930s – until the pandemic slump of 2020.

In Crashed, the global financial crash was the result of the deregulation of the banking system, financial greed and incompetent authorities.  For me, all these were just symptoms or immediate catalysts of the underlying causes in the capitalist economy.  In Shutdown, we are again offered same Keynesian solutions to the pandemic slump: fiscal and monetary largesse.

As Tooze says in an interview with Tyler Cowan, the neoclasscial mainstream economist, “Keynesianism, classically, of course, is a liberal economic politics. It believes in a multiplier, and the multiplier’s the be-all and end-all really of Keynesian economics because what it suggests is that small, intermittent, discretionary interventions by the state — relatively small — will generate outside reactions from the economy, which will enable the state to serve a very positive role in stabilizing the economy but doesn’t require the state to permanently intrude and take over the economy”.

Thus, there is nothing in Shutdown about needing to end the failure of markets in the pandemic. The banks and the tech and social media giants that have made trillions out of the pandemic slump are to remain as they are, while hundreds of millions globally have been driven into poverty.  It is not part of Tooze’s instant history agenda to “take over the economy”.

Shutdown – How Covid Shook the World Economy by Adam Tooze

Published by Allen Lane

ISBN: ‎ 978-0241485873

Defusing the Derivatives Time Bomb: Some Proposed Solutions

by Ellen Brown / February 16th, 2024

The “protected class” is granted “safe harbor” only because their bets are so risky that to let them fail could crash the economy. But why let them bet at all?

This is a sequel to a January 15 article titled “Casino Capitalism and the Derivatives Market: Time for Another ‘Lehman Moment’?”, discussing the threat of a 2024 “black swan” event that could pop the derivatives bubble. That bubble is now over ten times the GDP of the world and is so interconnected and fragile that an unanticipated crisis could trigger the collapse not just of the bubble but of the economy. To avoid that result, in the event of the bankruptcy of a major financial institution, derivative claimants are put first in line to grab the assets — not just the deposits of customers but their stocks and bonds. This is made possible by the Uniform Commercial Code, under which all assets held by brokers, banks and “central clearing parties” have been “dematerialized” into fungible pools and are held in “street name.”

This article will consider several proposed alternatives for diffusing what Warren Buffett called a time bomb waiting to go off. That sort of bomb just detonated in the Chinese stock market, contributing to its fall; and the result could be much worse in the U.S., where the stock market plays a much larger role in the economy.

The Chinese Derivative Crisis

A January 30 article on Bloomberg News notes that “Chinese stocks’ brutal start to the year is being at least partly blamed on the impact of a relatively new financial derivative known as a snowball. The products are tied to indexes, and a key feature is that when the gauges fall below built-in levels, brokerages will sell their related futures positions.”

Further details are in a January 23rd  article titled “’Snowball’ Derivatives Feed China’s Stock Market Avalanche.” It states, “China’s plunging stock market is leading to losses on billions of dollars worth of derivatives linked to the country’s equity indexes, fuelling further selling as retail investors offload their positions…. Snowball products are similar to the index-linked products sold in the 2008 financial crisis, with investors betting that U.S. equities would not fall more than 25% or 30%,” which they did.

Chinese shares rose on February 6, as officials took measures to prop up the ailing market, including imposing new “zero tolerance” curbs for malicious short selling.

The Greater U.S. Threat

The Chinese stock market is much younger and smaller than that in the U.S., with a much smaller role in the economy. Thus China’s economy remains relatively protected from disruptive ups and downs in the stock market. Not so in the U.S., where speculating in the derivatives casino brought down international insurer AIG and investment bank Lehman Brothers in 2008, triggering the global financial crisis of 2008-09. AIG had to be bailed out by the taxpayers to prevent collapse of the too-big-to-fail derivative banks, and Lehman Brothers went through a messy bankruptcy that took years to resolve.

In a December 2010 article on Seeking Alpha titled “Derivatives: The Big Banks’ Quadrillion-Dollar Financial Casino,” attorney Michael Snyder wrote, “derivatives were at the heart of the financial crisis of 2007 and 2008, and whenever the next financial crisis happens, derivatives will undoubtedly play a huge role once again…. Today, the world financial system has been turned into a giant casino where bets are made on just about anything you can possibly imagine, and the major Wall Street banks make a ton of money from it. The system … is totally dominated by the big international banks.”

The Speculators Dominate the Regulators

In a 2009 Cornell Law Faculty publication titled How Deregulating Derivatives Led to Disaster, and Why Re-Regulating Them Can Prevent Another, Prof. Lynn Stout proposed stabilizing the market by returning to 20th century derivative rules. She noted that derivatives are basically wagers or bets, and that before 2000, the U.S. and U.K. regulated derivatives primarily by a common‐law rule known as the “rule against difference contracts.” She explained:

The rule against difference contracts did not stop you from wagering on anything you liked: sporting contests, wheat prices, interest rates. But if you wanted to go to a court to have your wager enforced, you had to demonstrate to a judge’s satisfaction that at least one of the parties to the wager had a real economic interest in the underlying and was using the derivative contract to hedge against a risk to that interest.… Using derivatives this way is truly hedging, and it serves a useful social purpose by reducing risk.

… Under the rule against difference contracts and its sister doctrine in insurance law (the requirement of “insurable interest”), derivative contracts that couldn’t be proved to hedge an economic interest in the underlying were deemed nothing more than legally unenforceable wagers.

… Hedge funds, for example, should really call themselves “speculation funds,” as it is quite clear they are using derivatives to try to reap profits at the other traders’ expense.

The rule against difference contracts died in 2000, when the US embraced wholesale deregulation with the passage of the Commodity Futures Modernization Act (CFMA):

The CFMA not only declared financial derivatives exempt from CFTC or SEC oversight, it also declared all financial derivatives legally enforceable. The CFMA thus eliminated, in one fell swoop, a legal constraint on derivatives speculation that dated back not just decades, but centuries. It was this change in the law—not some flash of genius on Wall Street—that created today’s $600 trillion financial derivatives market.

The Casino Gets Special Privileges

Not only are speculative derivatives now legally enforceable, but under the Bankruptcy Act of 2005, derivative securities enjoy special protections. Most creditors are “stayed” from enforcing their rights while a firm is in bankruptcy, but many derivative contracts are exempt from these stays. Similarly, under the Dodd Frank Act of 2010, derivative claimants have “super-priority” in the bankruptcy of a financial institution. They are privileged to claim collateral immediately without judicial review, before bankruptcy proceedings even begin. Depositors become “unsecured creditors” who can recover their funds only after derivative, repo and other secured claims, assuming there is anything left to recover, which in the event of a major derivative crisis would be unlikely.

That’s true not only of the deposits in a bankrupt bank but of stocks, bonds and money market funds held by a broker/dealer that goes bankrupt. Under the Bankruptcy Act of 2005 and Sections 8 and 9 of the Uniform Commercial Code (UCC), “safe harbor” is provided to entities described in court documents as “the protected class.” The customers who purchased the assets have only a “security entitlement,” a weak contractual claim to a pro rata share of a residual pool of fungible assets all held in the name of Cede & Co., the proxy of the Depository Trust and Clearing Corp. (DTCC). As Wall Street financial analyst John Rubino put it in a January 27 podcast:

What we used to think of as a bank bail-in where they take your deposit in order to support a failing bank, that is now spread across the entire financial economy where whatever you have in an account anywhere can just disappear, because they’re going to transfer ownership of it to these big dominant entities out there in the financial system that need those assets in order to keep from blowing up.

Derivative speculators are considered “secured” because they post a portion of what they could wind up owing as “margin,” but why that partial security is superior to the 100% security posted by the depositor or purchaser is not explained. The “protected class” is granted “safe harbor” only because their bets are so risky that to let them fail could crash the economy. But why let them bet at all?

The Solution of the Regulators

The fix of the G20 leaders following the global financial crisis, however, was to force banks to clear over-the-counter derivatives through central counterparties (CCPs), which stand between buyer and seller and protect either party if the other blows up. By March 2020, 60% of credit default swaps and 80% of interest rate swaps were centrally cleared. The problem, as noted in a December 2023 publication by the Bank for International Settlements, is that these measures taken to protect the system can actually amplify risk.

CCPs tend to ask for more collateral than banks did in the pre-crisis world; and when a CCP hikes its initial margin requirement to cover the risk of default, this applies to everyone in the market, meaning cash calls are synchronized. As explained in a May 2022 Reuters article:

It’s logical that CCPs ask for more collateral during a panic: that’s when defaults are most likely. The problem is that margin calls seem to have made things worse. In March 2020, for example, a so-called “dash for cash” saw investors liquidate even prime money-market funds and U.S. Treasury securities.

… [R]ampant margin calls have intensified a financial panic twice in as many years, with central banks effectively bailing out markets in 2020. That’s better than in 2008, when taxpayers had to step in. But the problem of margin calls remains unsolved.

… Central counterparty (CCP) clearing houses should consider asking clients for more collateral during good times to reduce the risk of destabilising margin calls during a financial panic, a Bank of England official said on May 19.

Yet all this, as Michael Snyder observes, is to allow the big international banks to run the largest derivatives casino that the world has ever seen. Why not just shut down the casino? Prof. Stout’s suggested solution is for Congress to return to the pre-2000 rule under which speculative derivative bets were not enforceable in court. That would include reversing the “superpriority” privileges in the Bankruptcy Act of 2005 and the Dodd-Frank Act. But it won’t be a quick fix, as Wall Street and our divided Congress can be expected to put up a protracted fight.

What If the DTCC Goes Bankrupt?

In a 2015 law review article titled “Failure of the Clearinghouse: Dodd-Frank’s Fatal Flaw?,” Prof. Stephen Lubben points to a more ominous risk from pushing all derivatives onto exchanges; and that concern is shared by former hedge fund manager David Rogers Webb in his 2024 book “The Great Taking.” The exchanges are supposed to be safer than private over-the-counter trades because the exchange steps in as market maker, accepting the risk for both sides of the trade. But in a general economic depression, the exchanges themselves could go bankrupt. No provision for that is made in the Dodd-Frank Act, which purports to decree “no more bailouts.” Still, reasons Prof. Lubben, the government would undoubtedly step in to save the market from collapse.

His proposed solution is for Congress to make legislative provision for nationalizing any bankrupt exchange, brokerage or Central Clearing Counterparty before it fails. This is something to which our gridlocked Congress might agree, since under current circumstances it would not involve any major changes, wealth confiscation or new tax burdens; and it could protect their own fortunes from confiscation if the DTCC were to go bankrupt.

Other Possible Federal Solutions

Another alternative that not only could work but could fix Congress’s budget problems at the same time is to impose a 0.1% tax on all financial transactions. See Scott Smith, A Tale of Two Economies: A New Financial Operating System, showing that U.S. financial transactions (the financialized economy) are over $7.6 quadrillion, more than 350 times the U.S. national income (the productive economy). See my earlier article summarizing all that here. On a financial transaction tax curbing speculation in derivatives, see also here, here and here.

There are other possible solutions to customer title concerns. There is no longer a need for the archaic practice of holding all securitized assets in the street name of Cede & Co. The digitization of stocks and bonds was a reasonable and efficient step in the 1970s, but today digital cryptography has gotten so sophisticated that “smart contracts” can be attached by blockchain-like distributed ledger technology (DLT) to digital assets, tracking participants, dates, terms and other contractual details. The states of Delaware and Wyoming have explored maintaining corporate lists of stockholders on a state-run blockchain; but predictably, the measures were opposed. The practice of holding assets in street name has proven very lucrative for the DTCC’s member brokers and banks, as it facilitates short selling and the “rehypothecation” of collateral.

In October 2023, the DTCC reported that it has been exploring adopting DLT; but the goal seems only to be speedier and safer trades. No mention was made of returning registered title to the purchasers of the traded assets, which could be done with distributed ledger technology.

South Dakota’s Innovative Solution

The most readily achievable solution is probably that in a South Dakota bill filed on Jan. 29.  The bill is detailed in a Feb. 2 article titled “You Could Lose Your Retirement Savings in the Next Financial Crash Unless Others Follow This State’s Lead”, which observes:

… [I]f your broker … were to go bankrupt, the broker’s secured creditors (the people to whom the broker owes money) would be empowered to take the investments that you paid for in order to settle outstanding debts….

To avoid a catastrophe in the future, a nationwide movement is desperately needed to alter the existing Uniform Commercial Code. Of course, that won’t be easy to accomplish, especially because bank lobbyists and other powerful financial interests will almost certainly fight kicking and screaming to stop policymakers from taking away their advantage over consumers.

The good news is, this “great taking” can be stopped at the state level. Americans don’t need to count on a divided Congress to get the job done. Because the UCC is state law, state lawmakers can take concrete steps to restore the property rights of their constituents and protect them in the event of a financial crisis.

On Monday, South Dakota legislators introduced a bill that would do just that. The legislation would ensure that individual investors have priority over securities held by brokerage firms and other intermediaries.

It would also alter jurisdictional provisions so that cases are determined in the state of the individual investor, rather than the state of the broker, custodian or clearing corporation. This would ensure that individual investors are able to rely on the laws of their local state.

Hopefully, other states will follow South Dakota’s lead. Tennessee, for one, is reported to have such a bill in the works.

• This article was first posted on ScheerPost.

Ellen Brown is an attorney, founder of the Public Banking Institute, and author of twelve books, including the best-selling Web of Debt, The Public Bank Solution, and Banking on the People: Democratizing Money in the Digital Age. She also co-hosts a radio program on PRN.FM called “It’s Our Money.” Her 400+ blog articles are posted at EllenBrown.com. This article was first published in Scheer Post. Read other articles by Ellen.

UK

Boris Johnson an ‘egotistical chancer’, says Rory Stewart

Clea Skopeliti
Sat, 16 September 2023

In this article:

Rory Stewart has described Boris Johnson as an “egotistical chancer” who did not understand his own Brexit proposals.

In an article in the Guardian’s Saturday magazine the former international development secretary is withering on Johnson’s performance during the Brexit negotiations.

He writes: “I had discovered that he did not understand his own Brexit proposals and did not care. Worse, I had learned that he was allying himself with the most divisive forces in the Conservative party and in British politics.”

Stewart, who stood to be Conservative leader before leaving the Commons in 2019, shares his horror upon realising that many MPs were planning to back Boris Johnson in 2019.

“This shocked me more profoundly than anything that preceded it. Nine years in politics had already been a dismal insight into the lack of seriousness in British politics,” he writes. “To put an egotistical chancer like Boris Johnson into the heart of a system that was already losing its dignity, restraint and seriousness, was to invite catastrophe.”

Stewart had worked with Johnson when Johnson was foreign secretary, and said he had witnessed how Johnson had “wreck[ed] a delicate engagement over the Kenyan elections with a single careless phone call”.

Stewart, who has recently published a memoir charting his decade in parliament, decried a ministerial merry-go-round system in which he held five different ministerial portfolios in little more than three years, despite little expertise. “I had discovered how grotesquely unqualified so many of us, including myself, were for the offices we were given. I was put in charge of all the prisons in England and Wales knowing nothing about prisons, the Prison Service, the law or probation,” he wrote.

Hecriticised UK government incompetence and said many of his parliamentary colleagues did not understand the meaning of a customs union during Brexit negotiations.

He also described being asked by Liz Truss, the then environment minister, to create a 10-point plan for the national parks in his first week of taking office, “thus revealing that what pretended to be policy was simply a press release designed to give the illusion of dynamism”, he writes.

In his piece, which also charts how the geopolitical and economic landscape has radically shifted since the financial crash, he admits that on many points he too failed to understand how the world was changing as the assumptions of the liberal global order were upended.

The former politician is now president of non-governmental organisation GiveDirectly and hosts a popular podcast with Alastair Campbell, the former communications official to Tony Blair. Since its launch in March 2022, The Rest Is Politics, in which the pair discuss and debate national politics and international affairs, has become one of the UK’s biggest podcasts.

Earlier this week, the former minister said some fellow MPs came close to killing themselves while he was in parliament, describing how politics placed an “almost unsustainable” strain on people. He told GB News that he “ended up despising [himself]” for trying to advance his career while he was in the Commons.

In an author’s note in his book , Politics on the Edge: A Memoir from Within, Stewart acknowledged that his former colleagues will be angry with him for sharing their private conversations, but justifies it by arguing that only transparency can mend the “shameful state” to which parliament has fallen.

‘I saw how grotesquely unqualified so many of us were’: Rory Stewart on his decade as a Tory MP

Rory Stewart
Sat, 16 September 2023 


It is December 2015. I am the minister for flooding. (I am also the minister for forestry, for national parks, for nature, for chemicals, for air quality, for waste and recycling, for water and much more than can be written on a business card). I knew almost nothing about any of these topics when, six months earlier, the prime minister, David Cameron, made me minister for these things. It may have been a mistake. In a recent meeting he has given me the impression that he believes I am the minister for agriculture.

Exactly 341mm of rain has fallen in the last 24 hours – the highest rainfall ever recorded in the United Kingdom. More than 60,000 houses in Lancaster have lost power, and the epicentre of the flooding is my own constituency in Cumbria. I have been wading into front rooms, filled with dirty water above the level of the mantle-shelves, their interiors a swirling mess of photo albums and wooden furniture.

Bloated corpses of sheep lie strewn across field edges. Business owners are staring in horror at the destruction of their stockrooms and getting no response from the insurance agencies. My notebook is filled with names and emails and requests from residents. Now it is just after dawn, and I have been dressed in an Environment Agency coat and a hi-vis jacket, and put in front of the television cameras.

My feet are wet and cold because I made the mistake of tucking my waterproof trousers into my wellies. Behind me, in the halogen lights of a winter morning, rescuers in boats are drifting down Warwick Road in Carlisle, lifting families from upstairs windows. Journalists are finding different ways of asking me how I could possibly have allowed this to happen. There are some earnest but imprecise attempts to link the flooding to climate change. Finally, I insist “the flood walls are working well. The only problem is that the water is coming over the top.” This idiotic line is then replayed across all the networks and is selected by Have I Got News for You as one of the political blunders of the year.

***

In the flood water in 2015 I felt like a minor player in Yes Minister or The Thick of It – part of an ancient tradition of underqualified and off-balance ministers wrapped in the old consensus of British politics. And, on the surface, the political universe seemed very stable. An election had just happened. Two Oxford-educated former special advisers in their mid to late 40s – David Cameron and George Osborne – had just defeated two Oxford-educated former special advisers in their mid to late 40s – Ed Miliband and Ed Balls. They had tried, for the sake of the election, to draw clear lines. But in truth, they shared beliefs about the world, which they had developed during their 20s and early-30s: the period just after the fall of the Berlin Wall in 1989, when they had left Oxford and become high-flying party aides and aspiring politicians.



The key assumptions around globalisation, markets and prosperity were fatally undermined by the financial crisis of 2008

This first 15 years of their political careers was a period of striking optimism and consensus – occasionally interrupted by scandal, and domestic crisis (cash for honours, foot-and-mouth and flooding). The cold war had ended. The number of democracies in the world had doubled. In Bosnia and Kosovo, international interventions had ended wars and brought war criminals to justice, at minimal cost to the west. There was confidence in global efforts to address climate change and global poverty. The UK economy – rooted in privatisation, deregulation and globalisation – had generated the fastest-growing per capita GDP in the G6 and the second-highest productivity in the developed world. The majority of citizens believed their children would be better off than they were. The polling graphs, which had brought Bill Clinton and Tony Blair to victory, looked like bell jars with the votes heaped in the centre, and few at the extremes. This era had left a whole generation of politicians with three assumptions: that liberal global markets were the answer to prosperity; that prosperity would spread democracy; and that the world would be governed by a liberal global order. It was Francis Fukuyama’s End of History.

***

In the late 2000s, all of this changed. The key assumptions around globalisation, markets and prosperity were fatally undermined by the financial crisis of 2008. It became brutally clear that the prosperity that came from global markets actually led, for many, to stagnant incomes, rising inequality, unaffordable houses and the collapse of manufacturing industries. The second belief that prosperity would lead to a global spread of liberal democracy was eroded by the rise of China, which became larger than the UK economy in 2005, than the German in 2007 and the Japanese in 2008, without liberalising politically. The third conceit, of a legitimate western-dominated global order, was shattered by the humiliations of Iraq and Afghanistan. And the idea that these shared assumptions created a future politics of the centre ground was destroyed by the polarising algorithms of Twitter and Facebook. This was the moment at which I entered parliament. I found an institution that hardly acknowledged any of these changes.

By the time of the 2015 election, the productivity of the British economy had been stagnant for seven years, wages had barely risen in real terms, public sector debt had risen by 50% since 2008, and government revenues struggled to keep pace with the demands of public services. Globally, the rise in democracies had halted, and then began to fall. The “social media revolution” of the Arab spring had failed. Hundreds of thousands had been killed in the Syrian civil war and more than four million refugees had fled the country. The west was humiliated further by our inability to influence the direction of the Yemeni civil wars or to bring any form of stability to Libya. Russia had invaded Crimea. Egypt had reverted to military rule. Modi had been elected in India, and the Law and Justice party was on its way to taking power in Poland. Donald Trump was poised to be the leading Republican contender for the presidency of the United States. Boris Johnson had re-entered the House of Commons. And David Cameron had promised a Brexit referendum.

In short, each of the three assumptions of 90s liberal democracy were now discredited. The open markets which had once seemed a guarantee of global prosperity were now increasingly blamed for many lives of precarious misery. (And in many minds also linked to unwanted immigration.) The prosperity and power of authoritarian China led much of the world to question the centrality of liberal democracy and human rights. The dream of a liberal global order based on solidarity and international cooperation was replaced with isolationism.

After 2015, things got rapidly worse. In 2016, Trump was elected, Britain held its divisive Brexit referendum, horror deepened in Yemen, the horn of Africa and the Sahel, and the number of refugees, internally displaced people and civilians killed in conflict rose steadily. Politics became deeply polarised. Simplified and largely symbolic policies replaced nuanced manifestos: “take back control”, “Make America Great Again”. There was a dramatic rise of populist parties in almost every European state. Politicians like Trump were supported by people who knew they lied to subvert the system, but voted for them nonetheless, to fling them like a hand grenade at the political structures of their world. An age of liberal optimism had been replaced by an age of populism.

***

But it took a very long time for these changes to seep through to Westminster. Perhaps because I had served abroad as part of the international interventions, was younger than the party leaders and had entered politics later, I did not share quite all of their old worldview. Walking across Afghanistan, I had stayed with too many people who compared the US intervention to British colonial and Soviet invasions, and were not ashamed of their links with the Taliban. Serving in a provincial town in southern Iraq, I had realised how very little we understood about the links between the new political parties and Iranian militias across the borders. I had seen how the Afghan National Development Strategy, with its acronyms, jargon and fantasies of state-building, excluded all references to real places, ethnicities or recent history. I had learned how much we lied to ourselves to conceal our failures; and how marginal the United Kingdom could be. I was more inclined to see the liberal global order as fragile, hypocritical and disintegrating. I was troubled when I entered parliament to find Cameron still defending the missions in Iraq and Afghanistan as though they were versions of Bosnia and Kosovo, and I was worried by his approach to interventions in Libya and Syria. I also felt he didn’t take sufficiently seriously the risk that Putin might try to invade and annex former Soviet territory (I was focused on the threat in the Baltic not Ukraine).

But in almost every other respect, I was as much as anyone a product and a prisoner of the ideas of the 90s and early 2000s, and shared the blind spots of the others on global economics, democratisation and political consensus. Despite the financial crisis, I voted repeatedly for an economic policy which still bore the strong mark of Margaret Thatcher’s economists and focused on reducing the deficit through cuts to public spending. I continued to assume the economic benefits of globalisation, saw China as an economic opportunity not a strategic competitor, celebrated its accession to the World Trade Organization and supported its investment in critical parts of the UK economy. Like the others, I convinced myself that the Arab spring might be a symptom of a global spread of democracy and human rights. I shared the same optimism about Turkey and Myanmar. And although I was one of the more active tweeters in parliament, I underestimated social media’s power, and continued to insist that elections were fought and won in the centre ground. I was only beginning to sense how polarised the public debate was becoming.



I was put in charge of all the prisons in England and Wales knowing nothing about prisons, the Prison Service, the law or probation

When in 2016 I was reshuffled to become a minister in the Department for International Development (DfID) I continued to defend the old order. The department was one of high temples of the global liberal system, and it had been established by Blair at the height of optimism about international efforts to end global poverty. Over the years of austerity, Cameron nearly doubled its budget, from £6.4bn to £11.1bn. (This was 10 times the amount needed to avoid all their cuts to policing – enough in a decade to build every single hospital in the UK from scratch.) The assumption of the department was that “experts” could and should “capacity-build” developing nations – improving their “governance”, “private sector” and “livelihoods”. Our systems of consultations, needs assessment, logical frameworks, strategic plans, training seminars and compliance mechanisms were designed to provide poorer countries with what we felt they lacked most – our knowledge.

I should have questioned the fundamental assumptions of this model. But I didn’t. Instead, I simply tried to tighten it. I examined grants in which salaries were paid to teachers who did not exist, saw clinics with no patients, and visited programmes in which only 10% of the budget actually reached the ground. And I sensed that none of this was unique to DfID, and reflected not so much incompetence as a rigid global ideology about development. I tried to fix it through investing more in language training, delegating more to field offices, and trying to create more flexible programmes, managed closer to recipients. I hoped that this would improve the quality of our programmes so much that we could begin to win over the 70% of the British public who were opposed to our development spend. But of course the Daily Mail and Nigel Farage remained opposed to the whole system. And the public remained unconvinced.

I was still attached to these old assumptions when I was asked by Theresa May’s government to enter the Brexit debate and become one of the advocates for her withdrawal agreement with the EU in 2018. I still acted as though politics was a matter of compromise in the centre. I advocated for her version of a customs union (which would end open EU immigration while keeping very close links with Europe on trade, and retain open borders in Northern Ireland) because I felt this was the best hope of healing a divided country after a close vote. But instead of establishing a middle ground, I found myself under simultaneous attack from Brexiters who wanted a much harder Brexit, and remainers, who believed they could prevent Brexit entirely. Tony Blair, once a key symbol of the old centre, thundered, “Remainers like me [and] leavers like Boris Johnson are now in an unholy alliance: we agree this [version of a customs union Brexit] is not the best of a bad job but the worst of all worlds.” All ideas of compromise and political realism seemed to have departed. An opinion poll showed that only half of Brexiters or remainers were now happy to even talk to someone from the other camp, and only a quarter were happy for their child to marry “out”. The old bell jar opinion poll, with the votes in the centre, had been replaced by a U-shape with the votes at the extremes.

Finally, at the beginning of 2019, it became clear that many of my colleagues were preparing to vote for Boris Johnson to be the next prime minister when Theresa May fell. This shocked me more profoundly than anything that preceded it. Nine years in politics had already been a dismal insight into the lack of seriousness in British politics. In 2015, the then environment secretary Liz Truss, for example, had asked me to produce a 10-point plan for the national parks within a week of my taking office, thus revealing that what pretended to be policy was simply a press release designed to give the illusion of dynamism. I had discovered how grotesquely unqualified so many of us, including myself, were for the offices we were given. (I held five different ministerial portfolios in just over three years and was put in charge of all the prisons in England and Wales knowing nothing about prisons, the Prison Service, the law or probation.) It was a culture that prized campaigning over careful governing, opinion polls over detailed policy debates, announcements over implementation. I felt we had collectively failed to respond adequately to every major challenge of the past 15 years. I realised this most starkly when I understood that many of my colleagues still did not know what a customs union was two and a half years after the Brexit votes. Many of the political decisions I had witnessed were rushed, flaky and poorly considered: the cuts to the military paired with the purchase of ruinously expensive aircraft carriers, the lurches in health policy, the privatisation of the probation services. The lack of mature judgment was palpable, the consequences frequently terrible. But to put an egotistical chancer like Boris Johnson into the heart of a system that was already losing its dignity, restraint and seriousness, was to invite catastrophe.

I had been unable to prevent a man who was the antithesis of everything I valued in public life becoming the prime minister

I had worked closely with Johnson when he was foreign secretary and seen him wreck a delicate engagement over the Kenyan elections with a single careless phone call. (“Cripes,” said Boris, “I am so sorry. She caught me on my mobile as I was going into a meeting. So I thought I should be friendly … ”) I had discovered that he did not understand his own Brexit proposals and did not care. Worse, I had learned that he was allying himself with the most divisive forces in the Conservative party and in British politics.

I stood against him in the ensuing leadership election and lost by a large margin. I resigned as secretary of state for international development. Johnson threw me and 20 colleagues out of the party and parliament for trying to block a no-deal Brexit. The approach changed. Boris Johnson left the European single market, loosened fiscal rules, borrowed more and promised investments, shaped by political calculations, to areas such as the north-east. He challenged the courts, parliament and ministerial codes. He abolished the Department for International Development, reduced the bilateral budget for Africa to a small fraction of its former size, withdrew entirely from Afghanistan, and created a national security policy centred on confronting China. The new approach, however, did not lead to better outcomes on the ground. Productivity did not improve, nor was the manufacturing base strengthened. His challenge to courts and parliament did not fix our constitutional foundations, it weakened them. The world became more, not less dangerous.

***

I had been rejected by my colleagues in the leadership race and I had been unable to prevent a man who was the antithesis of everything I valued in public life becoming the prime minister. I lost confidence in myself, my judgment and – because so many of its people had voted for Boris Johnson – almost in the country itself. In 2020, I moved to Yale University to teach and reflect on what I had learned in government and in defeat. I began to present a podcast with Alastair Campbell, called The Rest Is Politics, and wrote a book – Politics on the Edge. The question haunting my book was how should I have responded when the central assumptions of the liberal order – on economics, democracy, and international relations – collapsed? I found myself struggling to produce policies that were other than either a grey compromise between past ideals and the populist present, or policies of the new right, cloaked in the language of the old centre. I acknowledged that the liberal consensus had failed to support manufacturing, adequately regulate the financial industry or invest appropriately in areas such as the north-east. But I struggled to come up with an alternative that did not echo Jeremy Corbyn’s nostalgia for the borrowing, protectionism and subsidies of the 70s.

Back in Britain, I observed Keir Starmer criticising Boris Johnson’s cut to international development. He did not seem to feel there had been anything wrong with the pre-Johnson approach. He and most of the leading politicians still assumed, just as I did as a development minister, that what poor people in the global south lacked most was “capacity” and therefore that “experts” should be brought in to “train” them. They rarely acknowledged that many recipients saw aid as inappropriate, patronising and tinged with colonialism. But equally Starmer avoided setting a date for reinstating the department or restoring spending. He was reciting the old centrist language while preserving the policies of the new right.

Starmer shared the assumptions that I was not clear-sighted or brave enough to challenge when I was a minister. But what if we had inverted them all? What if we had assumed that communities had a better understanding of their own priorities and needs than any outsider? What if programmes, instead of imposing a single training scheme on a village, were designed to respond to the different priorities of every house – a bicycle for one, a roof for another, a cow for a third, support for education for a fourth? What if, instead of assuming that the villagers needed to be taught to fish, we acknowledged that many villagers either already knew how to fish but lacked the money for a fishing rod, or didn’t want to fish and wanted to open a bakery? Then the answer might be not to cut development aid, but instead to deliver it in a radically different way through giving cash directly to poor communities and letting them decide their priorities.

In my case, it took leaving politics entirely and joining the NGO GiveDirectly to see the force of an entirely different model. (I declare a great interest here since I work for this NGO, but I hope the insight stands.) Here, I found my first clear example of something which could acknowledge the fundamental flaws of the old liberal model, without embracing populist pessimism. It retains the ethical insight that poverty is a stain on our world, and that wealthier countries have a moral obligation to assist the extreme poor. But instead of tinkering with the old liberal system, it upends it. Instead of the old paradigm of expertise from the global north, it trusts recipients entirely. It doesn’t even “consult” them. It simply gives them the cash and lets them choose. It turns an act of patronising development into an act of radical respect. It is an approach based on evidence from randomised control trials, which we use in medicine.

In a Rwandan village, for example, such schemes have, within about three months, brought electricity and new roofs, livestock and latrines to almost every house. Bone-density and stunting have improved. New businesses have been created. Savings and school enrolment have gone up. All for a fraction of the cost of a traditional programme. It is a post-populist, post-centrist approach which could be a fundamental part of addressing extreme poverty globally, and provide hope and a reason to increase development budgets again with confidence.



The new centre needs the emotion the populists deploy, and the theory, empathy and ethics they lack

The challenge, of course, is to seek equivalent insights in other policy areas at home and abroad. We need trade and industrial strategies, which are far more flexible and well-calibrated than those of the past. We require economic policies that go beyond growth and financial returns to take into account impacts on environment, landscape and structural injustice. We need to hit our net zero targets without pushing a disproportionate cost of the change on to poorer households. (And I think here the answer, again, would be large, unconditional cash transfers.) We need to make more confident arguments for the moral qualities of our democracy, and reinforce these with reforms to our voting systems and our parties. We must use citizens’ assemblies in which randomly selected citizens engage deeply with policy dilemmas. But we also need a vision and a framework to hold this all together – one that clearly acknowledges what was wrong with the assumptions of the 90s and early 00s. And we need to communicate it in a way that avoids, on the one hand, the dividing lines and culture wars of populism, and on the other, the dry technocratic language of the old centre. The new centre, in other words, needs the emotion the populists deploy, and the theory, empathy and ethics they lack.

Centrism and populism are not moral equivalents. Whatever the crimes and follies of the 90s, the consequences of populism, isolation and western withdrawal have been worse – an era in which the world was growing more democratic and peaceful has become one in which the number of deaths in conflict and the number of refugees are rising, the number of democracies has fallen and those that remain have been weakened. The epidemic of coups, which is now spreading across the Sahel, with generals backed by crowds waving Russian flags, is a dismal catastrophe. The climate crisis and AI require more stable, outward-looking, altruistic global cooperation, not less.

***

I am painfully aware how poorly I understood the changing world, as a working politician. And how much I am still struggling to articulate the new world. But at a time when public trust in institutions is plummeting, when the majority of the public feel their children’s lives will be worse than their own, and half the population is actively avoiding the news, we need a much more distinct vision of a different future. It is no longer enough to lament the populism, or be nostalgic for Blair and Clinton. It is not enough to campaign on being more serious and diligent than our predecessors. We must change. Otherwise the old liberal centre will continue in something akin to the Carlisle floods: in a slow rising of water, that seems to ruin living rooms but never quite destroys foundations; in a landscape unpredictable, humiliating and muddy – in which it is never quite clear how we have taken on the role of Canute.

• Rory Stewart’s Politics on the Edge is published by Vintage at £22.