Thursday, August 31, 2006

Kaletsky delivers a zinger

Anatole Kaletsky in the Times today, delivers a pungent message to Blair:

TONY BLAIR is finished — no ifs, buts or maybes. The Prime Minister no longer has any chance of recapturing his popularity, regaining his credibility or restoring his authority. The only question is whether Mr Blair will use his speech at the Labour conference as a last chance to announce a dignified departure date, around next May’s local elections, or whether he will have to be dragged kicking and screaming out of Downing Street before Christmas à la Margaret Thatcher, with men in grey suits doing the dirty work, and men in white coats standing a figurative step behind them. As in many other respects, Mr Blair seems eager to follow Mrs Thatcher’s example.

...........................So widespread is the loathing of Mr Blair that a putsch against him would no longer need to be spearheaded by the Labour Left. This means that Mr Brown is in a position to accelerate the Prime Minister’s departure without making any promises to Labour activists and unions that he might later regret. In fact, by distancing himself from President Bush’s foreign policy as soon as he become Prime Minister, Mr Brown could immediately help to restore the Government’s popularity and simultaneously win himself all the gratitude he needs from the Labour Left.

He seems to think it will be all over by Christmas, and to be endorsing Gordon Brown. I do hope Blair has the sense and self-preservation to announce his departure rather than wait to be pushed.

Sunday, August 27, 2006

Cameron & Apartheid

David Cameron apologised for the Tory support for apartheid in a piece in the Guardian today.

The reaction from the non political people I know was, "I didn't know the Tories had supported apartheid!" said with various degrees of surprise and concern.

And of course twenty-something Brits wouldn't know about it, and Brits older than that will have forgotton, especially if they arn't particularly political and hadn't followed the events in South Africa closely. And everyone likes Mandela, recall the Spice Girls being photographed with him, well everyone being photographed with him, and the pictures of Live8 etc. So it's all come as a total shock to be reminded that things weren't always thus.

Which begs the question, why remind people? Why has David Cameron decided to drag up the past? Is he afraid of charges of "hypocrite" following on from his own photo-opportunity with Mandela? Is he afraid photos will come out with Tory front benchers in "Hang Mandela" T-shirts? Or did he genuinely think that this apology would help his rehabilitation?

Saturday, August 26, 2006

Certain to Vote

It's well-known that Labour supporters are less likely to vote than voters of other parties, and the latest polls from ICM confirm this. What is interesting is how big the gap is between Labour voters and the others.

The results of the August ICM poll were as follows:

Con 40%
Lab 31%
Lib 22%

The figures on Certainty to Vote were as follows:

Con 64%
Lab 49%
Lib 56%

The July ICM results were as follows:

Con 39%
Lab 35%
Lib 17%

and the figures on Certainty to Vote were:

Con 64%
Lab 55%
Lib 52%

I would have liked to compare the June ICM poll too, but unfortunately the ICM web-site has incorrectly linked June06 to the Aug2004 pdf.

It's quite clear that as certainty to vote increases, the results for Labour and Lib Dem go up, and vice versa. The conclusion must be that in order to win the next general election, Labour must make every effort to get the vote out. If we could match the Tory turnout, we'd have another landslide. How to get the turnout up is another matter though.

Wednesday, August 23, 2006


The Department of Work and Pensions has issued a report on the number of migrants who've been granted National Insurance numbers. Of particular interest is the breakdown of the top ten countries from which the migrants come. The figures for 2004/05 and 2005/06 are as follows:

All figures in thousands

2004/05 2005/06
Poland 62.6 Poland 171.4
India 32.7 India 46.0
Pakistan 20.3 Lithuania 30.5
South Africa 19.3 Slovakia 26.4
Australia 16.6 South Africa 24.0
Lithuania 15.6 Australia 23.8
France 13.3 Pakistan 22.3
China 12.6 France 17.2
Portugal 12.2 Latvia 14.2
Slovakia 10.5 Germany 13.3

What is remarkable is the countries missing from the list: the Czech
Republic, Hungary, Slovenia, the three most successful of the eight
countries to join. This indicates that the Polish migration is down to
specific economic problems in that country.

The pressures should be relieved by Spain, Portugal and Greece opening their doors to the eastern europeans without restriction from 1 May 2006. France, Belgium, Netherlands, Luxembourg and Denmark have eased restrictions. Only Germany and Austria have full restrictions in place. As these countries start to open their doors, and as the eastern europeans themselves lift restrictions on movement between themselves, we should start to see the migration fall. What would really help of course is Poland improving her economic performance - not sure that is possible at the moment as the very strange Law and Justice party is in power.

Monday, August 21, 2006

UK Productivity

Interesting piece on UK productivity by Robin Marris in The Times. He thinks our productivity is catching up everyone else's. Here's an excerpt from his article:

The UK started in 1993 with a shortfall in performance of nearly 20 per cent and ended with a figure of less than 10 per cent. Notice that the UK line in the first chart not only grows more steadily than the other line, it also grows faster. The UK annual average growth rate from 1993 to 2005 was actually 2.1 per cent, compared with the corresponding G6 figure of only 1.5 per cent.

Of course, the “64 trillion dollar question” will be whether, if and when we catch up the others, our relative performance slows down. That will be the challenge of whatever government we have in office around the year 2020.

The chart gives a strong clue to the main reason for this modest success story — a single word: “stability”. When the present Government first took office in 1997, the statistics on which the charts shown here are based did not exist. But there was plenty of other evidence all pointing in the same gloomy direction, namely that in the field of productivity, Britain had a major problem.

In my opinion it is much to the Government’s credit that it showed early concern with it. As an early sceptic I must concede that the left-hand chart awards high marks to the Government’s subsequent performance. As can be seen, whereas our curve was steady, that for our G6 competitors was not.

It is well known that when markets droop, employers are initially disinclined to shed labour. They fear that if and when business improves, their good workers may be difficult to recover. Consequently, in a recession either working hours or working rates must be cut.

The resulting cyclical behaviour of apparent productivity is well known. When production falls as an economy slows, and companies hoard workers, the same staff are producing less output, so productivity slides.

Less clearly established, however, is the persistence of the effect. Productivity trends, once pushed back in time, are not easily recovered.

Consequently — though in so saying I eat not a few words — my first chart is a great vindication of all those people who have contributed to its story: the Chancellor, Gordon Brown; his chief lieutenant, Ed Balls; and the Bank of England’s Monetary Policy Committee under its brilliant chairman, my old tutorial pupil with whom I often disagree, Mervyn King.

The second chart on the right shows productivity per hour worked. We still have a way to go to catch up France, Germany and the USA, but our curve is steeper than theirs, which indicates the gap is narrowing and we can console ourselves that we are more productive than the Japanese.

Thursday, August 17, 2006


Inspired by Patrick at AgitProp, I've decided to do a poll. It's on the side-bar on the right. Please take part - I am curious to know who reads this blog!

Is Labour neglecting to get across the good news about the economy?

I'm always astonished at the number of people (usually Tories or somehow indisposed towards Labour) who believe that the economy is now slowing down (when it is accelerating), who believe that the economy is growing slower than forecast by Gordon Brown in the budget (it's growing faster than predicted) and who complain that we arn't doing as well as other countries.

I thought I'd do my bit to counter these false impressions by posting some stats.

First recent growth. The growth figures for the year to June 2006 are as follows:

0.4% Third Quarter 2005
0.7% Fourth Quarter 2005
0.7% First Quarter 2006
0.8% Second Quarter 2006

That gives growth in the year to June 2006 at 2.63%. The treasury forecast for the whole of 2006 was growth of 2 - 2.5%. The Bank of England yesterday revised their forecast up to 2.8%.

Regarding comparisons to other countries, this handy pdf file from Eurostat, gives growth figures from 1996 for all EU countries, EFTA countries, countries applying to join the EU and the USA and Japan.

I thought it would be instructive to post the figures for the UK and the USA for comparison.


1996 2.8% 3.7%
1997 3.0% 4.5%
1998 3.3% 4.2%
1999 3.0% 4.4%
2000 3.8% 3.7%
2001 2.4% 0.8%
2002 2.1% 1.6%
2003 2.7% 2.5%
2004 3.3% 3.9%
2005 1.9% 3.2%
2006 2.5%* 3.2%*

* = forecasts

During the four years from 2000 to 2003, we outperformed the USA. This year, though the US is forecast to grow faster than us, they are slowing fast (they grew slower than us in the second quarter), while our forecast might have been too low. We might find ourselves outperforming them again. Which means we're not doing badly at all.

Commodity Bubble, Anyone?

The graph speaks for itself. The move upward in oil, copper, aluminium, nickel started just before the end of 2001, when world (and especially US) interest rates got cut. How long before the slowdown in the US economy and tightening global liquidity cause a reverse?

Tuesday, August 15, 2006

The Pakistani Connection

Pakistan was clearly heavily involved in helping uncover the latest terrorist plot, but the connection remains mysterious. It's hard to understand what is going on. Here are excerpts from two different articles from completely different points of view.

The first is from the Washington Post, and tells of how the money flowed back and forth. As with most stories in the American press about the Pakistan connection, the spin is of "helpful Pakistan":

LONDON, Aug. 14 -- The transfer of millions of dollars from Britain to a Pakistani charity working on earthquake relief last year helped investigators uncover the alleged plot to blow up airplanes bound for the United States, according to two senior Pakistani intelligence officials.

The officials, who spoke on the condition of anonymity because of the ongoing investigation, said that a large portion of the money sent from Britain to the charity was siphoned off and ultimately used to prepare for the attacks. The officials said that about 5 million British pounds, or $10 million, was transferred to Pakistan, but that less than half was used for relief operations after the earthquake last October, which killed tens of thousands of people.

"British intelligence smelled a foul play the moment the transfer was made in December last year," said one of the senior intelligence officials, who is directly involved in the investigation.
"The innocent Pakistani souls in Britain who contributed so generously for the victims of the earthquake didn't know that their money would actually be used for one of the biggest terrorist operations," the other Pakistani official said.

...........The Pakistani officials did not identify the charity in question. The New York Times reported Monday that investigators are focusing on Jamaat-ud-Dawa, a Pakistani charity that is a front for Lashkar-i-Taiba, an Islamic militant group.

In 2002, Pakistan's president, Gen. Pervez Musharraf, banned Lashkar-i-Taiba, but the group renamed itself Jamaat-ud-Dawa as a way to evade sanctions, according to the State Department. Lashkar-i-Taiba is one of the largest and best-trained groups fighting Indian forces in the disputed Himalayan province of Kashmir. Lashkar-i-Taiba has been linked by U.S. authorities to al-Qaeda.

According to Michael Clarke, a terrorism specialist at King's College London, Jamaat-ud-Dawa played a considerable role in helping the residents of Pakistani-controlled Kashmir and northern Pakistan recover from the earthquake, which struck a region that is home to several camps and bases belonging to militant Kashmiri groups and other radical organizations linked to al-Qaeda.

..........."Within a week, it was being said this actually is quite an opportunity for both the government and jihadis to reposition themselves in a lot of ways," Clarke said.

I imagine after this Brits in general will be very reluctant to give money if there is another disaster in Pakistan. The second excerpt is from an article in the Asia Times, which provides very a different point of view:

.....This is where different opinions emerge, however. Pakistani officials have arrested Rashid Rauf (a British national) as a key suspect in the foiled terror plot and have accused him of being linked with al-Qaeda.

Contacts with close knowledge of the arrested men - in the earlier swoops as well as in the wake of the foiled plot - claim that none of them had links with al-Qaeda. Rather, they claim, they were linked with al-Muhajiroun and Hizbut Tehrir.

Hizbut Tehrir (Liberation Party) is a non-violent organization founded in the early 1950s in Jordan for the liberation of Palestine. Its ultimate aim is the revival of the caliphate, which it tries to bring about by toppling what it sees as corrupt Islamic governments.

Pakistan has been particularly hard on the group, most of whose members are British-born Pakistanis sent to work in Pakistan. The most apparent reason is these youths want to stage a coup against the government of President General Pervez Musharraf and infiltrate institutions such as the army.

Muhajiroun is a breakaway faction of Hizbut Tehrir. Most of its members are in the UK. Famous Egyptian scholar Omar al-Bakri was its leader. Muhajiroun was banned in the UK last year after its praise of the attacks on the London Underground.

A contact from among the senior levels of the jihadist cadre told Asia Times Online, "Boys from organizations like al-Muhajiroun and Hizbut Tehrir come to Pakistan from the UK and have nothing to do with al-Qaeda. They are British-born Pakistanis and are interested in [fomenting] a coup in Pakistan. A few of them have been arrested in the past in Islamabad while distributing pamphlets, and then released. I can tell you with surety that the boys [recently] arrested in Pakistan have long been identified by the Pakistani establishment.

"Their fate started when they interacted with a few officials of the Pakistani army. This they were very keen to penetrate to stage a coup, therefore they were close to a few army officers. They were delighted that they had penetrated into the army, but in fact Pakistani intelligence - coming from a strong military background - penetrated deep into them," said the jihadi.

"Those youths, in their 20s and completely unaware of Pakistani society, were very thrilled with their success and even shared their views with people in Islamabad, saying that many officers had agreed to a coup. In fact, we warned them that military officials were only loyal to their job and they would not be committed to any revolutionary cause.

"The youths from Muhajiroun did not agree, and continued to meet with intelligence operators, whom they thought were military officials of the Pakistan army," the jihadi said.
"The closeness of the Pakistani intelligence with some boys with a Muhajiroun background was a known fact, but at what stage it turned out to be their 'London terror plot', we are completely in the dark.

"However, I safely make a conjecture that those highly motivated boys were exploited by agents provocateurs. A religious Muslim youth in his early 20s is undoubtedly full of hatred against the US, and if somebody would guide them to carry out any attack on US interests, there would be a strong chance that they would go for that.

"And I think this is exactly what happened. The government of Pakistan has been seriously trying to cleanse groups like Muhajiroun and Hizbut Tehrir from Pakistan, as well as from the UK. Both groups are fiercely anti-establishment and serious about staging a coup in Pakistan and were enhancing their influence among youths in cities like Lahore and Islamabad. So they were basically trapped," the jihadi said.

It's possible both accounts are right - that the people arrested were trying to blow up planes over the Atlantic and ferment a coup in Pakistan in accordance with some mad jihadi master-plan. The Pakistani officials briefing in the first article, and the jihadi briefing in the second probably both have agendas. There are probably dollops of spin and slivers of truth in both acounts.

Pakistan remains problematic. The Afghans complain bitterly about how Taliban enter their country across the Afghan-Pakistan border. Pakistani forces helped create the Taliban in the first place in an effort to control Afghanistan. The Indians complain about Pakistani connections to the bombing in Mumbai. The July 7th bombers had connections there too. Mullar Omar and Osama bin Laden remain at large, it's believed somewhere in Pakistan's western provinces. And Pakistan is the one country that has been actively selling nuclear secrets to the Libyans, the North Koreans and possibly to the Iranians.

Pakistan remains the nexus of all terrorist activity. And yet, no one has even begun to criticise them, let alone formulate a way to get them to extinguish terrorist activity there.

Saturday, August 12, 2006

Breakpoint in Iraq

I received the following article via a circular from John Maudlin, a financial guru. Occasionally, he circulates articles on geo-politics and the following is by George Friedman of Stratfor, who are geo-political analysts.

Maudlin allows his e-letters to be reproduced as long as the link is provided, and he is notified (which I've done), so I thought I'd post the whole thing as it is stuff not usually seen in the mainstream press. Everything that follows is from the article:

Breakpoint: What went Wrong

By George Friedman

On May 23, we published a Geopolitical Intelligence Report titled "Break Point." In that article, we wrote: "It is now nearly Memorial Day. The violence in Iraq will surge, but by July 4 there either will be clear signs that the Sunnis are controlling the insurgency -- or there won't. If they are controlling the insurgency, the United States will begin withdrawing troops in earnest. If they are not controlling the insurgency, the United States will begin withdrawing troops in earnest. Regardless of whether the [political settlement] holds, the U.S. war in Iraq is going to end: U.S. troops either will not be needed, or will not be useful. Thus, we are at a break point -- at least for the Americans."

In our view, the fundamental question was whether the Sunnis would buy into the political process in Iraq. We expected a sign, and we got it in June, when Abu Musab al-Zarqawi was killed -- in our view, through intelligence provided by the Sunni leadership. The same night al-Zarqawi was killed, the Iraqis announced the completion of the Cabinet: As part of a deal that finalized the three security positions (defense, interior and national security), the defense ministry went to a Sunni. The United States followed that move by announcing a drawdown of U.S. forces from Iraq, starting with two brigades. All that was needed was a similar signal of buy-in from the Shia -- meaning they would place controls on the Shiite militias that were attacking Sunnis. The break point seemed very much to favor a political resolution in Iraq.

It never happened. The Shia, instead of reciprocating the Sunni and American gestures, went into a deep internal crisis. Shiite groups in Basra battled over oil fields. They fought in Baghdad. We expected that the mainstream militias under the Supreme Council for Islamic Revolution in Iraq (SCIRI) would gain control of the dissidents and then turn to political deal-making. Instead, the internal Shiite struggle resolved itself in a way we did not expect: Rather than reciprocating with a meaningful political gesture, the Shia intensified their attacks on the Sunnis. The Sunnis, clearly expecting this phase to end, held back -- and then cut loose with their own retaliations. The result was, rather than a political settlement, civil war. The break point had broken away from a resolution.

Part of the explanation is undoubtedly to be found in Iraq itself. The prospect of a centralized government, even if dominated by the majority Shia, does not seem to have been as attractive to Iraqi Shia as absolute regional control, which would guarantee them all of the revenues from the southern oil fields, rather than just most. That is why SCIRI leader Abdel Aziz al-Hakim has been pushing for the creation of a federal zone in the south, similar to that established for the Kurdistan region in the north. The growing closeness between the United States and some Sunnis undoubtedly left the Shia feeling uneasy. The Sunnis may have made a down payment by delivering up al-Zarqawi, but it was far from clear that they would be in a position to make further payments. The Shia reciprocated partially by offering an amnesty for militants, but they also linked the dissolution of sectarian militias to the future role of Baathists in the government, which they seek to prevent. Clearly, there were factions within the Shiite community that were pulling in different directions.

But there was also another factor that appears to have been more decisive: Iran. It is apparent that Iran not only made a decision not to support a political settlement in Iraq, but a broader decision to support Hezbollah in its war with Israel. In a larger sense, Iran decided to simultaneously confront the United States and its ally Israel on multiple fronts -- and to use that as a means of challenging Sunnis and, particularly, Sunni Arab states.

The Iranian Logic

This is actually a significant shift in Iran's national strategy. Iran had been relatively cooperative with the United States between 2001 and 2004 -- supporting the United States in Afghanistan in a variety of ways and encouraging Washington to depose Saddam Hussein. This relationship was not without tensions during those years, but it was far from confrontational. Similarly, Iran had always had tensions with the Sunni world, but until last year or so, as we can see in Iraq, these had not been venomous.

Two key things have to be borne in mind to begin to understand this shift. First, until the emergence of al Qaeda, the Islamic Republic of Iran had seen itself -- and had been seen by others -- as being the vanguard of the Islamist renaissance. It was Iran that had confronted the United States, and it was Iran's creation, Hezbollah, that had pioneered suicide bombings, hostage-takings and the like in Lebanon and around the world. But on Sept. 11, 2001, al Qaeda -- a Sunni group -- had surged ahead of Iran as the embodiment of radical Islam. Indeed, it had left Iran in the role of appearing to be a collaborator with the United States. Iran had no use for al Qaeda but did not want to surrender its position to the Sunni entity.

The second factor that must be considered is Iran's goal in Iraq. The Iranians, who hated Hussein as a result of the eight-year war and dearly wanted him destroyed, had supported the U.S. invasion of Iraq. And they had helped the United States with intelligence prior to the war. Indeed, it could be argued that Iran had provided exactly the intelligence that would provoke the U.S. attack in a way most advantageous to Iran -- by indicating that the occupation of Iraq would not be as difficult as might be imagined, particularly if the United States destroyed the Baath Party and all of its institutions. U.S. leaders were hearing what they wanted to hear anyway, but Iran made certain they heard this much more clearly.

Iran had a simple goal: to dominate a post-war Iraq. Iran's Shiite allies in Iraq comprised the majority, the Shia had not resisted the American invasion and the Iranians had provided appropriate support. Therefore, they expected that they would inherit Iraq -- at least in the sense that it would fall into Tehran's sphere of influence. For their part, the Americans thought they could impose a regime in Iraq regardless of Iran's wishes, and they had no desire to create an Iranian surrogate in Baghdad. Therefore, though they may have encouraged Iranian beliefs, the goal of the Americans was to create a coalition government that would include all factions. The Shia could be the dominant group, but they would not hold absolute power -- and, indeed, the United States manipulated Iraqi Shia to split them further.

We had believed that the Iranians would, in the end, accept a neutral Iraq with a coalition government that guaranteed Iran's interests. There is a chance that this might be true in the end, but the Iranians clearly decided to force a final confrontation with the United States. Tehran used its influence among some Iraqi groups to reject the Sunni overture symbolized in al-Zarqawi's death and to instead press forward with attacks against the Sunni community. It goes beyond this, inasmuch as Iran also has been forging closer ties with some Sunni groups, who are responding to Iranian money and a sense of the inevitability of Iran's ascent in the region.

Iran could have had two thoughts on its mind in pressing the sectarian offensive. The first was that the United States, lacking forces to contain a civil war, would be forced to withdraw, or at least to reduce its presence in populated areas, if a civil war broke out. This would leave the majority Shia in a position to impose their own government -- and, in fact, place pro-Iranian Shia, who had led the battle, in a dominant position among the Shiite community.

The second thought could have been that even if U.S. forces did not withdraw, Iran would be better off with a partitioned Iraq -- in which the various regions were at war with each other, or at least focused on each other, and incapable of posing a strategic threat to Iran. Moreover, if partition meant that Iran dominated the southern part of Iraq, then the strategic route to the western littoral of the Persian Gulf would be wide open, with no Arab army in a position to resist the Iranians. Their dream of dominating the Persian Gulf would still be in reach, while the security of their western border would be guaranteed. So, if U.S. forces did not withdraw from Iraq, Iran would still be able not only to impose a penalty on the Americans but also to pursue its own strategic interests.

This line of thinking also extends to pressures that Iran now is exerting against Saudi Arabia, which has again become a key ally of the United States. For example, a member of the Iranian Majlis recently called for Muslim states to enact political and economic sanctions against Saudi Arabia -- which has condemned Hezbollah's actions in the war against Israel. In the larger scheme, it was apparent to the Iranians that they could not achieve their goals in Iraq without directly challenging Saudi interests -- and that meant mounting a general challenge to Sunnis. A partial challenge would make no sense: It would create hostility and conflict without a conclusive outcome. Thus, the Iranians decided to broaden their challenge.

The Significance of Hezbollah

Hezbollah is a Shiite movement that was created by Iran out of its own needs for a Tehran-controlled, anti-Israel force. Hezbollah was extremely active through the 1980s and had exercised economic and political power in Lebanon in the 1990s, as a representative of Shiite interests. In this, Hezbollah had collaborated with Syria -- a predominantly Sunni country run by a minority Shiite sect, the Alawites -- as well as Iran. Iran and Syria are enormously different countries, with many different interests. Syria's interest was the domination and economic exploitation of Lebanon. But when the United States forced the Syrians out of Lebanon -- following the assassination of former Prime Minister Rafik al-Hariri in February 2005 -- any interest Syria had in restraining Hezbollah disappeared. Meanwhile, as Iran shifted its strategy, its interest in reactivating Hezbollah -- which had been somewhat dormant in relation to Israel -- increased.

Hezbollah's interest in being reactivated in this way was less clear. Hezbollah's leaders had aged well: Violent and radical in the 1980s, they had become Lebanese businessmen in the 1990s. They became part of the establishment. But they still were who they were, and the younger generation of Hezbollah members was even more radical. Hezbollah militants had been operating in southern Lebanon for years and, however relatively restrained they might have been, they clearly had prepared for conventional war against the Israelis.

With the current conflict, Hezbollah now has achieved an important milestone: It has fought better and longer than any other Arab army against Israel. The Egyptians and Syrians launched brilliant attacks in 1973, but their forces were shattered before the war ended. Hezbollah has fought and clearly has not been shattered. Whether, in the end, it wins or loses, Hezbollah will have achieved a massive improvement of its standing in the Muslim world by slugging it out with Israel in a conventional war. If, at the end of this war, Hezbollah remains intact as a fighting force -- regardless of the outcome of the campaign in southern Lebanon -- its prestige will be enormous.

Within the region, this outcome would shift focus way from the Sunni Hamas or secular Fatah to the Shiite Hezbollah. If this happens simultaneously with the United States losing complete control of the situation in Iraq, the entire balance of power in the region would be perceived to have shifted away from the U.S.-Israeli coalition (the appearance is different from reality, but it is still far from trivial) -- and the leadership of the Islamist renaissance would have shifted away from the Sunnis to the Shia, at least in the Middle East.


It is not clear that the Iranians expected all of this to have gone quite as well as it has. In the early days of the war, when the Saudis and other Arabs were condemning Hezbollah and it appeared that Israel was going to launch one of its classic lightning campaigns in Lebanon, Tehran seemed to back away -- calling for a cease-fire and indicating it was prepared to negotiate on issues like uranium enrichment. Then international criticism shifted to Israel, and Israeli forces seemed bogged down. Iran's rhetoric shifted. Now the Saudis are back to condemning Hezbollah, and the Iranians appear more confident than ever. From their point of view, they have achieved substantial psychological success based on real military achievements. They have the United States on the defensive in Iraq, and the Israelis are having to fight hard to make any headway in Lebanon.

The Israelis have few options. They can continue to fight until they break Hezbollah -- a process that will be long and costly, but can be achieved. But they then risk Hezbollah shifting to guerrilla war unless their forces immediately withdraw from Lebanon. Alternatively, they can negotiate a cease-fire that inevitably would leave at least part of Hezbollah's forces intact, its prestige and power in Lebanon enhanced and Iran elevated as a power within the region and the Muslim world. Because the Israelis are not going anywhere, they have to choose from a limited menu.

The United States, on the other hand, is facing a situation in Iraq that has broken decisively against it. However hopeful the situation might have been the night al-Zarqawi died, the decision by Iran's allies in Iraq to pursue civil war rather than a coalition government has put the United States into a militarily untenable position. It does not have sufficient forces to prevent a civil war. It can undertake the defense of the Sunnis, but only at the cost of further polarization with the Shia. The United States' military options are severely limited, and therefore, withdrawal becomes even more difficult. The only possibility is a negotiated settlement -- and at this point, Iran doesn't need to negotiate. Unless Grand Ayatollah Ali al-Sistani, the top Shiite cleric in Iraq, firmly demands a truce, the sectarian fighting will continue -- and at the moment, it is not even clear that al-Sistani could get a truce if he wanted one.

While the United States was focused on the chimera of an Iranian nuclear bomb -- a possibility that, assuming everything we have heard is true, remains years away from becoming reality -- Iran has moved to redefine the region. At the very least, civil war in Lebanon (where Christians and Sunnis might resist Hezbollah) could match civil war in Iraq, with the Israelis and Americans trapped in undesirable roles.

The break point has come and gone. The United States now must make an enormously difficult decision. If it simply withdraws forces from Iraq, it leaves the Arabian Peninsula open to Iran and loses all psychological advantage it gained with the invasion of Iraq. If American forces stay in Iraq, it will be as a purely symbolic gesture, without any hope for imposing a solution. If this were 2004, the United States might have the stomach for a massive infusion of forces -- an attempt to force a favorable resolution. But this is 2006, and the moment for that has passed. The United States now has no good choices; its best bet was blown up by Iran. Going to war with Iran is not an option. In Lebanon, we have just seen the value of air campaigns pursued in isolation, and the United States does not have a force capable of occupying and pacifying Iran.

As sometimes happens, obvious conclusions must be drawn.

Thursday, August 10, 2006


I found a great blog, by an American, Ezra Klien, which compares the healthcare in Japan, USA, France, UK and Canada. I'd urge everyone to read it (the conclusion is at the top of the blog, and the analysis of the health care of each individual country is beneath).

He concludes that the Americans should switch to the French system, which makes sense from an American point of view, as it costs less than the American one, while delivering better outcomes. Increasingly you hear Brits too, especially Tories, claim we should switch to the generous choice offered by the French system, while at the same time decrying without irony the "vast amounts" that Britain is spending on healthcare.

Britain is spending "vast amounts" only compared to the Tory years. Compared to other countries, we are cheap - we spend 8.3% of GDP compared to 10.5% of GDP in France (and 16.2% of GDP in the USA). And despite the extra expenditure in France, their health system is 10.9 billion euros in deficit. Makes our small deficit of £500 million look positively trivial.

The result of France's healthcare budget deficit is that while other countries are looking to emulate them, they are concluding that their healthcare is unsustainable and are looking to Britain's system of fierce cost control for answers. In 2004, the French government initiated some mild reforms moving the French away from it's pure choice system, where you could see whoever you wanted, whenever you wanted, to a British gate-keeper system, where you only see a consultant if your GP has referred you. They also introduced an ID card, the "Carte Vitale", to prevent abuse of the system, especially with regard to prescriptions. The Carte Vitale is linked to a database giving your entire medical history and expenses, which is designed to ensure that duplication does not take place. Huge protests accompanied these mild reforms, not least from people worried about the database and civil liberties.

Further reforms will follow. Many French felt that their expensive system was a failure when 15,000 elderly people in the care of the state died in the 2003 heatwave. They've also experienced occasional bed shortages, which came as a shock, considering how much they spend on healthcare.

Demographics will continue to move inexorably in the wrong direction, medical bills continue to climb, competition in places like the USA and France fails to deliver price cuts. As these pressures build, more and more countries will conclude that Britain's unglamourous but fierce centralised method of holding down costs by the weight of the dept of health is the only way to square the circle. This would have seemed absurd ten years ago, and some people are still in denial, arguing that it's possible to do what no nation has done - to have lower costs at the same time as having higher quality care and the latest medical technology. But in the end cost will be the priority. The public will always choose adequate care at relatively low cost over deluxe care at exorbitant cost. Especially in Britain, where they think that our meagre spend of 8.3% of GDP is "vast".

Saturday, August 05, 2006

More on the Oil Price

In 1997, the world consumed almost 74 million barrels of oil. In 2002 this had increased to 78 million barrels of oil. This year, the amount consumed will reach 86 million barrels of oil. The oil price in January 2002 was $20 per barrel. This month it's trading at around $75 per barrel.

The increase in consumption from 2002 to 2006 was 10.26%. The increase in the price from 2002 to 2006 is 275%. So it's not demand that's moving the price, it's speculation based on the fear that supply will be disrupted (due to wars, strikes in Nigeria, Hugo Chavez teasing the Americans etc).

Juicing up the speculation has been the easy money regime the globe has experienced since 2002. The US Fed funds rate was 1.75% in Jan 2002, and fell as low as 1% in mid 2003. Rates in the euro-zone hit a low of 2% in 2003, and rates in Japan were 0% throughout the period, until last month, when they rose to 0.25%. For a speculator, borrowing at 0% or 1%, is essentially free money, and the money was being invested speculatively (i.e. with no intention of taking delivery) with returns of nearly 300%.

Central banks around the world have been removing the easy money in a steady and determined fashion. As it becomes less cheap to borrow, the speculative element of the oil price should drop (and of course higher interest rates will also slow the global economy, reducing demand for oil). The weakest link is still Japan as a 0.25% rate is still practically free money. You could argue that the world economy is more influenced by Japanese monetary policy than by US policy (but that's a post for another day.

I've included two graphs in this piece. The first shows the oil price from 1947 to 2004, with the world events that affected it, (the oil price has since increased to $75, taking the red line up and off the chart). The second shows the oil price since 1869, adjusted to 2004 dollars (i.e. adjusted for inflation). Oil is still cheap when you take inflation into account.

Friday, August 04, 2006

A Precautionary Rate Rise?

The Bank of England raised interest rates by 0.25% yesterday, to 4.75%, restoring rates to what they were in July 2005. They weren't alone. The ECB raised by 0.25% to 3% for the euro-zone, the Reserve Bank of Australia raised by 0.25% to 6% the day before, the US Federal Reserve raised by 0.25% to 5.25% in July and smaller banks as far apart as South Africa and South Korea also raised rates. And most momentous of all, Japan finally ended six years of zero interest rates last month by raising to 0.25%.

Central banks around the world are worried about rising oil and gas costs, and are determined to stamp on the trend.

The Band of England of course had started raising rates much earlier than every one else (in Dec 2003), and therefore the latest rate rise caught the City by surprise as they hadn't anticipated anything till October at the earliest. Everyone should have been paying attention to Ed Balls, who sharp as ever, was cautioning about the need to be "vigilent" about inflation in mid July, a strong signal that interest rate rises were in the pipeline.

Why did the Bank move now? It's probably a precautionary move, on the grounds that a 0.25% rise now will forstall a 0.5% rise later. I personally think what tipped them was the sign that last month for the first time retailers felt able to pass on price rises to the consumer, plus the housing market is showing signs of resuming it's previous strong growth. This is a warning shot across their bows.

I think the central banks of the world are right to raise rates in concert. Much of the rise in oil and gas prices are down to speculation by global hedge funds who move from one country to another looking for cheap finance for their trades (note that oil has increased from $25 per barrel in 2003 to about £75 now - a 200% increase in three years while global growth has increased by a total of just 20% during those three years, which means that something other than demand, which is growth-related, is influencing the price) . Speculation becomes far more difficult for the hedge funds if the entire planet takes away the access to cheap finance.

Thursday, August 03, 2006

Cameron, Channel4 and the Cocaine Interview

According to the Press Gazette, David Cameron has been boycotting Channel 4 over the "cocaine interview" he did during the contest for leadership of the Tory party.

A spokeswoman for Cameron told Press Gazette: "During the leadership election there was a live interview during Channel 4 News which overstepped the mark completely. David felt that the line of questioning went completely over the top.

"Fair enough, ask the question, but after the way in which they went about it we took the decision that they are not going to have a live interview again for some time."

According to a Channel 4 source, following the interview, which was pre-recorded and not live, Cameron's press officers contacted the programme and demanded sections of the interview be pulled.

During the interview, which took place in October last year, following the election of the Conservative party leader, interviewer Alex Thomson said to Cameron: "You say you want to listen.

So if or when a constituency says to you ‘David Cameron, have you ever taken class A drugs as an MP?' would you answer that question?"

Cameron responded: "I've always said law makers can't be law breakers. All I've said about my past though is what's private in the past should remain private."

Thomson went on: "Well, if I asked you if you snorted cocaine as an MP you'd therefore say no, wouldn't you?"

Cameron said: "That's right, but please, I think we've dealt with this."

He continued: "I've absolutely answered your question." Thomson said: "So, say ‘No'."

Cameron answered: "I've just said ‘No'."

Up until this interview, Cameron, whose camp described Thomson's tactics as "obnoxious and cheap", had never answered questions over whether or not he had used cocaine while an MP.

According to a Channel 4 source: "Cameron's machine then got on to Channel 4 News and said pull the interview, it's outrageous. We don't mind you running the second half of the interview, where he went on to talk about policies, but pull that interview, we don't want that on television."

But why would he want the interview pulled? Was he worried that by going on the record and saying, No he'd not done cocaine whist he was an MP, he was giving hostage to fortune? It's a hostage to fortune only if what he said in the interview was false.....