Should Capitalism Come With An Instruction Manual?

Over a lengthy (and almost indescribably relaxed) breakfast this weekend, our CSO’s attention was diverted from his habitual rummaging through the FT Weekend magazine by a piece in the main section of the Financial Times. Voice of indignation is household name (Tobias Buck, 9th/10th March 2013) charted the rise of one Ada Colau Ballano (‘Ada Colau’), a 1992 graduate of Barcelona University’s Faculty of Philosophy who recently hit the headlines for her actions as a social activist during a briefing session on Spain’s mortgage crisis in the Cortes Generales: turning to the member of the Spanish banking association with whom she was co-briefing the parliamentarians, she labelled him a criminal worthy of treatment as such – and she has never looked back, with regular appearances in the Spanish media as a spokeswoman for the Plataforma de Afectados por la Hipoteca (‘Platform of Mortgage Victims’).

Colau’s group has collected 1.4m signatures in favour of proposed legislative changes to, amongst other things, make evictions of non-paying mortgagors much harder, and preventing banks demanding payment in full of mortgages on repossessed properties. In an era when suicides of soon-to-be evicted homeowners are an all-too-real occurrence, this would appear to be the type of step which should be contemplated; any system which evinces a lack of flexibility in the face of genuine human suffering is treading on thin ice.

Yet while compassion must ultimately reign supreme, we at Mediolana wonder whether these kinds of solutions are the correct long-term approach, because on some level they themselves enshrine a fundamental injustice: that of the debtor failing to make good on their promise to pay back money that is not theirs. Both the educational system and wider society must in the future take much more profound steps to ensure that mortgage-dominated financial crises of the type that threaten to decimate Spain are rendered much more unlikely to happen:

1. Capitalism: No One-Way Street. During the boom years to 2007 – and not just in the eurozone periphery – the idea that capitalism was perpetual no-risk feast, with everyone guaranteed a slice of Shangri-La, was perpetuated by policymakers, financial institutions and media organs – and gleefully swallowed up by the general public at large. That successful capitalism required hard work, delayed gratification, transparent (and accurate!) accounting and cutting one’s cloth accordingly (including not purchasing a house if the means to do so were not realistically sustainable) – all these and many more principles were pooh-poohed with a combination of bogus mathematical models and naive arrogance that merely fuelled the inevitable bust.

2. Capitalism: The Sum of Its Parts. Economic systems are not just abstract entities: they are constituted of people and organisations. And as much as those across the political spectrum may prefer to ignore this, the moral quality of these entities matters enormously. As the example of Silvio Berlusconi has copiously illustrated, if your country’s leader’s personal morals can be encapsulated in the phrase ‘bunga bunga’, they will probably have no compunction swindling you of your pension. On a more prosaic level, the honest negotiation and enforcement of contracts, business dealings and the like cannot proceed in a sustainable manner where the sole motivation for economic actors is that of personal enrichment.

3. Capitalism: Not the Same as Anarchy. The approach of Ms. Colau and her pressure group – while doubtless well-intentioned – in many ways betrays the impoverished understanding of capitalism that has characterised Spain in recent decades. At things stand, the Platform of Mortgage Victims are beggars pleading for clemency at the door of the Spanish government – whereas if they took a more consistent ‘zero bailouts’ moral and legal position, they would have a possibly irresistible case. In the absence of state aid for banks and population alike, the financial institutions would cease to exist – and with no counterparty to enforce the mortgage contract, eviction of indebted mortgagors would become a pretty slim possibility.

An Italian Lesson for Europe: Immigration May Not Be Forever!

Italy is presently making headlines because it is a country where a political party led by a stand-up comedian has just won the largest share of votes to the Chamber of Deputies in a general election (and where, some may posit, another stand-up comedian who happens to be a longstanding statesman is also polling strongly).  But the backdrop of these elections continually looms over the polling figures: the Italian economy, Europe’s largest as recently at the early 1990s and still a key eurozone and G7 member, is faltering. Austerity measures forced through by the mysterious technocrat ‘Super’ Mario Monti have not delivered the promised land of fiscal respectability, and any entity wanting to push through stimulus measures or even leave the euro may find its path blocked by the twin towers of massive extant public indebtedness and a near-certain currency war.

How this hotly-contested election (or a potential re-run later this year) will pan out is anyone’s guess. But one barometer of one of the few potential sources of authentic growth for Italy makes for ominous reading. As the Financial Times reported in its recent article with a self-explanatory title - Immigrants abandoning recession-hit Italy (6th January 2013) – both relatively and absolutely recent arrivals to the boot-shaped nation are packing their bags prontissimo. The reasons behind their departure are telling, and comprise a sobering warning to other EU economies which forget the immense value that migrants bring to their economies – not to mention their societies – that in an era of unparalleled economic globalisation and flattening, people – migrants included – increasingly have options:

1. What’s a Job Again? ‘No business and no work. It is a terrible situation.’ This is the refrain that characterises the situation faced by huge numbers of agents in the Italian economy. Living in a First World country may have little meaning if there is no way to make a living – and immigrants to Italy from rapidly-developing nations such as China are cutting their losses and heading back to Asia.

2. Fighting them on the Beaches. In recent years, Italy has become synonymous with a crude racism that is not befitting of a land that has traditionally been an important mediator between Europe and the exotic East. Ignoring dead Roma girls whilst sunbathing, treating African-heritage footballers as subhuman and exhibiting visceral hostility to Yugoslavs, Albanians and Maghrebians are just a few examples of this trend. But immigrants are well aware of how they are perceived. As many as 800,000 of them may have left Italy in recent years without cancelling their household registration, meaning they are still officially in the country; these ‘ghosts’ may haunt the Italian peninsula for many years to come.

Italy’s New Absolutism: Poverty

5.7% of Italians (3.4m) live in absolute poverty (2011), 13.6% more live in relative poverty; families 'overstretched' tinyurl.com/dynfvq4—
Asad Yawar (@Mediolana) August 08, 2012

French Revolution: Zlatan arrive à Paris!

Most cumulatively expensive football player ever leaves Serie A for Ligue 1; move 'symbolic of Italian decline' tinyurl.com/chtpqaa—
Asad Yawar (@Mediolana) July 18, 2012

Zlatan Ibrahimović + Mediolana > The Daily Telegraph + The Guardian + The Times…

Fresh from another session on the step machine, Mediolana’s CSO had to verify that what he was seeing was not the result of a combination of poor posture and dehydration; however, as the reports rolled in, he had no choice but to credit his eyes with some intelligence. Zlatan Ibrahimović, the Sweden and AC Milan icon, was being hailed as a minor deity by the opinion makers of English football!

One performance – a sublime ninety minutes sporting the red-black shirt of the soccer and cultural asset in the perhaps increasingly tenuous ownership of Silvio Berlusconi – was enough, apparently, to bury a decade of negative appraisals. Ibra, we are told, is now one of the best, if not the best, strikers in the world. The fact that clubs such as Ajax, Internazionale and FC Barcelona – as well as Milan – have all paid out a king’s ransom for Ibrahimović is no longer an anomaly, and his presence in a squad a guarantee that his club will win their domestic league is, we are assured, not the stuff of coincidence.

What next? What will be the next piece of nonsensical, incredible dogma to be vanquished, with Damascene conversions aplenty ensuing? Could it involve something from the world of economics? Or is that hoping for far too much?

Three Priorities for ‘Super Mario’: Entrepreneurship, Exports – and Emigration

As noted in this blog on 13th November 2011, Mario Monti – a man with the enviable moniker of ‘Super Mario’ – has been appointed as Prime Minister of Italy. A distinguished technocrat with the European Commission (1995-2004), stylistically Monti is a world away from his flamboyant and legendarily corrupt predecessor Silvio Berlusconi; bespectacled and professorial, Monti’s decades of involvement in academia at both the University of Turin and Bocconi University have engendered a thoughtful, intellectual approach to finding solutions. An October 2010 interview with the man who is now in charge of the boot-shaped peninsula reveals a contemplative personality trying to grapple with the problem of making Europe more competitive without diluting the identity of what is still by global standards a social market: a paradigm, albeit flawed, of capitalism with a human face.

Yet as a recent Al Jazeera English report filed by the evergreen Copenhagen-raised Italian Barbara Serra illustrates, ‘Super Mario’ is faced with a predicament so multitiered that his computer game namesake would be daunted by it. Like in many eurozone economies, the Italian labour market is characterised by enormous structural youth unemployment: at 24%, it is three times the 8% general rate of unemployment. This demographic is arguably the most troubled sector of the Italian economy, since it is relatively impoverished, exploited and, lacking any profound stake in the system as a whole, liable to explode. And given Monti’s corporate links – the new Italian Prime Minister and Minister of Economy and Finance is also an adviser to Goldman Sachs and the Coca-Cola Company – there is every chance that any approach to growth will be focused on the cream of the most privileged actors in the macroeconomy, rather than the millions on the social and economic margins of Italy.

To avoid this scenario – and turn Italy into something approaching the economic behemoth of twenty years ago – we at Mediolana think that Monti needs to concentrate on the following objectives:

1. Entrepreneurship. As things stand, millions of young Italians are collecting degrees which are practically worthless in the job market. Monti needs to recalibrate Italy’s education policy to make sure that the link between qualifications and jobs is strengthened, and promote self-employment – with generous government incentives – as the way to slash Italy’s huge welfare bill and empower the next generation of wealth creators. Otherwise, an entire cohort of Italians will continue moving from job centre to job centre and temporary contract to temporary contract without any long-term prospect of security or satisfaction.

2. Exports. Despite intense competition from China, Italy is still a remarkably resilient player in industries such as textiles, food production and design; moreover, anything that requires an artisanal touch and which possesses durability and class will almost always have a market, even in the deepest of recessions. Furthermore, the global middle class is expanding at a phenomenal rate, particularly in Asia and Latin America; as Turkish entrepreneurs are showing – while cutting into Italian market share – there is an unfathomable desire for pasta even in Africa.

3. Emigration. In the short term, rebuilding the shaky foundations of Italian capitalism will take time: the cultural and political shifts necessary to prioritise the creation of SMEs and the families that are their incubator could take at least one generation. In the interim, the current generation of Italians cannot afford to wait: they must emigrate if opportunities cannot be found closer to home. As native speakers of a Romance language, those born and raised in Italy enjoy a natural advantage in seeking their fortunes not merely in swathes of the largely depressed EU, but also much of the booming developing world, most obviously Latin America.

 

Super Mario: Just for the Taste of It?

Mario #Monti – former European Commissioner and present adviser to #GoldmanSachs and #Coke – replaces Silvio #Berlusconi as Italian PM—
Asad Yawar (@Mediolana) November 14, 2011

The London Evening Standard, 09/11/2011: Deconstructing the Collapse with David Cameron

As long-term denizens of Western Europe’s most unkempt metropolis, we at Mediolana feel especially well-placed to comment on goings on in London; today’s edition of the London Evening Standard, the sole remaining post-morning commute title dedicated to the UK capital, left us convinced that both the city and the country at large are in for some extraordinarily tricky times in the months and years to come.

The front page led on the unfolding ‘descent into chaos‘ faced by the eurozone in the light of Italy’s sovereign debt crisis, a slow-burning debacle that may well break the European Financial Stability Facility (‘EFSF’) barely eighteen months after its inception. But what caught our eyes was a quote from Prime Minister David Cameron urging the creation of a ‘firewall’ of ‘solid figures’ in order ‘to stop this contagion going any further’; we raised our collective eyebrows. The notion that one can somehow halt the eurozone crisis in its tracks simply by producing a balance sheet that is a model of clarity is sadly naive; there are profound structural economic defects across much of Europe – not just the eurozone – which are the product of years of misguided policy. Nevertheless, we trusted that Cameron had been influenced by another night reinstalling Kaspersky on a Downing Street laptop, and were content to leave it at that.

But while attempting to get a fix of football – a forlorn hope, as it turned out – on the back pages, we spied the Prime Minister’s words once more, this time blasting FIFA’s decision not to permit the English and Welsh football associations to modify their national uniforms with poppies for the forthcoming round of internationals. Cameron termed their verdict – later overruled – as ‘outrageous and absurd‘; the English FA’s response was to enact a series of steps which would do everything but make the tattooing of poppies on the forehead of every spectator a mandatory condition of admission to Wembley Stadium.

Were our eyes deceiving us? Was the Prime Minister of Great Britain in a position to seemingly devote almost as much time to solving the ‘Poppy Crisis’ as to giving his considered response to the burning of Rome? Or perhaps the protestors now becoming a medium-term fixture in London - first in St. Paul’s, then spreading into the heart of the city at Trafalgar Square – and well-meaning observers are unaware that the real collapse is not in the financial markets and the economy at large, but in the integrity of those masters of symbolic interpretation dwelling in the far-off corridors of Zürich. How could they – and we – have been so unfocused?

Berlusconi: Flirting While Rome Burns?

#S&P downgrades Italian govt debt from A+/A-1+ to A/A-1; 'weakening economic growth prospects' cited, Moody's considering its rating #Italia—
Asad Yawar (@Mediolana) September 20, 2011

Italy’s Serie A: Tax Stops Play

Payment of austerity-era solidarity tax for incomes >€90,000.00 major sticking point; accord elusory tinyurl.com/3pmjnsb #SerieA #Italy—
Asad Yawar (@Mediolana) August 26, 2011