The Ideological Contagion of dummy capitalism

A contagion most contagious

I could not help but snigger when an analyst from Goldman Sachs appeared on CNN and depicted the possibility of some Chavez socialist ideas being taken on by other Andean states as Ideological Contagion.

Now, that is something he definitely thought of earlier, however, that is beside the point. The threat to nationalise a number of previously privatised utilities lead to the suspension of trading in the shares of a number of companies which lost between 20% to 30% of their value as investors took fright.

Evidently, many political socialists are oblivious of market economics and how capitalism works, in fact, the only Nobel Prize winner in Economics from a socialist background won on the topical issue of the theory of optimum allocation of resources – the fixation on redistribution of resources and wealth without assessing merit creates an island of states that really cannot insulate themselves from the march of globalisation. [This comment is not an exegesis on the economics of allocation of resources or the socialist contexts of Karl Marx]

Chaos borne from Communism

Many would say the fall of Communism created a more peaceful world as we relaxed from the Cold War and settled into a more destabilising war between civilisations.

The states that gave up Communism and adopted shades of democracy have also ensconced capitalism, however, none have matured in appreciating the voice of their people now have they really accepted the force and good of market economics.

Nowhere is this more evident than in Moscow through the unconscionable way they instituted an asset raid on Yukos by claiming back-taxes that bankrupted the company because the chief executive of the company chose to pitch his tent in political opposition to the president.

Force of government abuse

All those assets are now in the hands of the Russian government, but two wrongs do not make a right. The sell-off of the national chattels to influential ex-Communists and opportunistic smart cads – oligarchs - in the Yeltsin years was wrong, however, rather than seek redress through the Rule of Law (A sign of matured democracies) and due process (another sign of matured democracies), the state apparatus terrorised and appropriated with untrammelled lien every means to redress that Yukos to access to dig themselves of out the rut.

So also, we see the kind of muscle that Gazprom exerts on all foreign investment with the force of government to invalidate contracts and threat major loss of investment that investors are literally stampeded into accepting minority stakes in their major investments to remain in business in Russia.

The first gas war

Last January, we saw the distorted face of capitalism when Gazprom decided subsidies to Ukraine were no more economical and rather than present a graduated withdrawal of subsidies, we were seeing price hikes of up to 50% for economies that would literally collapse if they were to be exacted.

A resolution was reached, but not without Europe realising that their energy security was being threatened by a newcomer to capitalism who had goods to sell but no marketplace decorum.

We were introduced to a large nation that was getting drunk on being the largest exporter of gas and oil, these was now being used a tool of political leverage to emasculate the near-abroad that was adopting a more Western outlook.

Europe with more money than sense

Historically, the USSR was somewhat energy self-sufficient, when the Soviet Union broke up; the states came to an arrangement which involved subsidised exports to these former Soviet republics.

The issue of subsidy arises because another part of energy economics does not necessary relate the cost of production to the selling price, but it is more related to the affordability of the demand-led sector.

It explains why Europe is probably paying over the odds for Russian oil and this is being used as a standard of measure of non-European countries which have hardly 20% of the average GDP of EU-15, probably more in relation to EU-25 or EU-27. Gazprom had 3^rd Quarter profits increase 68% in 2005.

The second oil and gas war

This energy bullying stance came to a head in December when Gazprom decided to double the price of Belarusian fuel supplies, they came to an agreement but Russia is now being taught a lesson in understanding their means of production when trying to reach their market.

In the case of Ukraine, the pipeline was a branch off from the main European supply route, Belarus however is the trunk of the European pipeline network, and everything goes through Belarus and they are not looking to make any friends and do not care.

Gazprom in its gullibility thought they could squeeze Belarus and then expect their oil to traverse the land of Belarus without sanction, retribution or reaction, well, a tit-for-tat in which Belarus imposed crippling taxes on traversal, extracted payment with oil and Russia ended up closing the pipeline as Europe looks on helpless against the tyranny of capitalism in the hands of cretins.

Learning capitalism the hard way

If Russia cannot get its oil to its customers, it would either have to back down with egg on its face or invade Belarus and institute regime change. No matter how reviled the Belarusian president Lukashenka is, standing up to Russia would fuel the embers of nationalism and support for their president.

This would lead to a very interesting conclusion.

Then we move on to Thailand where after a military coup, the government decided to tinker with the markets by imposing currency controls to prevent the flight of capital, that day, the market fell 15%, the first time the Thai market fell so much in its 31-year history.

The ideological contagion of stupid economics

The Ideological Contagion is very much like boys trying to play the games of real men, capitalism and market economics are not levers one can push and pull in isolation, these ideas sit in a globalised setting where everyone is in a train at the top of a steep incline, one wrong pull and the thing goes hurtling down unstoppably to a demise too gruesome to record.

Russia was never ready for capitalism and they are not in school learning to do it right, it would now take an unruly dictatorship to teach the lesson that without your means of good transportation, you would be making no capital; if your goods traverse fields you do not own, you should remain good friends with that field owner.

Venezuela probably wants to get those privatised organisations on the cheap and that is best done by threatening to create the flight of capital – however, does a nationalised entity end up getting better managed for the government or do company taxes paid by a privatised entity create more revenue?

As for Thailand, the military government would find no legitimacy, they must have forgotten that the economy is no Army battalion that you can order around like some recruit in a boot camp, I am sure they have duly learnt a lesson they would not forget.

References

Gazprom’s Strategy

The Folly of Renationalisation

The Kinks In Russia's Oil Pipeline