Monday, 14 August 2017

Partition of India

The partition of India took place seventy years ago today. British media coverage of the event focuses on the bloodshed that followed and, not surprisingly, ignores the role of the British in fomenting divisions between Muslims and Hindus. Narendra Singh Sarila's book, In the Shadow of the Great Game: the Untold Story of India’s Partition (Harper Collin, 2005 and 2009), fills this gap.

This is the only book I have found that explains what was in it for the British when India was partitioned in 1947. It shows how the British backed Muhammad Ali Jinnah in his opposition to the Indian National Congress, and how they encouraged the formation of Pakistan as a dependent state that they could better rely upon to be anti-Russian than an independent India. Historians usually avoid this and instead explain partition by claiming that there were deep-rooted ethnic/religious differences that demanded a Muslim Pakistan separate from a Hindu India.
A highly recommended book that highlights another crime of British imperialism, and one that has had repercussions long after the formal end of colonial power.
Tony Norfield, 14 August 2017

Wednesday, 9 August 2017

Lenin in London #2

I first wrote about Lenin’s stay in London in May. By chance, I have just come across a book first published in 2000 that gives some interesting details of Lenin’s visits to London from 1902.[1] My previous article provided the solution to that author’s question about what happened to the bust of Lenin, first put up in 1942. Here I note some of the points she makes about Lenin’s visits. I am not usually one to dwell on such details, but it is a nice irony of history that the UK, a centre of anti-communism in the 20th century, and still today, was also a minor aid to the success of the Russian Revolution in 1917.
Lenin’s visits to London were more by necessity than choice, with political restrictions on operating in Russia under the Tsar or in some other, closer European countries, such as Germany and Belgium. London housed a number of radical Russian émigrés, but also a small group of UK radicals with a printing press. So Lenin wrote to Harry Quelch of the Social Democratic Federation, asking if he could print Iskra (The Spark, the revolutionary journal) from their offices in Clerkenwell.
In April 1902, Lenin moved to 30 Holford Square in Islington, renting two rooms with his wife Nadezhda Krupskaya. Pamela Shields notes that they breakfasted on bacon and eggs, washed down with beer because the poor water quality was a health risk. Lenin worked on Iskra in the Twentieth Century Press offices at 37a Clerkenwell Green, the building which is now the Marx Memorial Library, and which was not far to walk from Holford Square. He sat at a desk in a tiny office close to Harry Quelch, while Krupskaya was busy at Holford Square, deciphering cryptograms and sending coded messages to agents in Russia.
From April 1902 to May 1903, the Clerkenwell printers were responsible for Iskra numbers 22 to 38. During this period, a certain Lev Bronstein, later known as Leon Trotsky, arrived at Lenin’s home and told him that Iskra, for various reasons, was not getting through to Russia. The decision was taken to smuggle in the four-page Iskra into Russia on thin paper wrapped inside the knee-high boots of supporters!
In 1902-03, with his comrades, Lenin organised meetings of the Russian Social Democratic Labour Party (RSDLP), usually in pub rooms and with them pretending to be trade unionists. One room was also booked in the name of the ‘Foreign Barbers of London Association’, which was just as well since they were speaking Russian. On several occasions, the London Metropolitan Police attempted to eavesdrop or find out what was going on, but they had little luck, not least because their fluency in Russian left much to be desired. Lenin made further visits to London, including in 1907 and, the last one I believe, in 1911.

It is not known what Lenin liked to drink in the various London pubs he frequented, including the Crown and Woolpack, which closed some years ago, and the Old Red Lion, both in St John Street EC1. This was before his work on imperialism, so it is possible that he sampled India Pale Ale. However, one suspects that he would have rejected light and bitter as a typical Menshevik compromise.

Tony Norfield, 9 August 2017

[1] Pamela Shields, Essential Islington, Sutton Publishing. It is not clear that there were as many as six separate visits to London as she claims. Her book is available on Amazon.

Tuesday, 1 August 2017

Brexit & the City of London

Brexit is a big economic and political mess for British imperialism. It also undermines some of the previous plans to boost the City of London’s operations, especially in deals with China. The City will not collapse. But it will lose business as other European Union countries are already aiming to divide up the soon to-be-deceased member’s estate while the body is still stumbling around.
A large proportion of City financial dealing is with the rest of Europe, although London has been pre-eminent because of its worldwide links – including with offshore financial centres, many of which sing God Save the Queen as their national anthem. These European ties formerly helped underpin the City’s growth, but have since been a factor in decline, even before the Brexit vote in June 2016. So problems for British-based finance due to Brexit now add to those resulting from a drop in European economic strength.

Shift in economic power from Europe to Asia

IMF data show that the European Union’s share of world GDP fell from 25 per cent to 22 per cent from 2011 to 2016, a sharp fall in just five years. This was offset by a higher share for the US, and especially so for China, based on their faster growth. Weak economies, massive debts and bad loans also undermined Europe’s banks and led to a cut in their dealing operations – most of which are in London.
A good example of the impact is seen from the global foreign exchange market, which reflects the cross-border deals in the currencies used for investment in bonds, equities and real estate, and the buying and selling of goods and services. From 2013 to 2016, the size of the foreign exchange market had declined for the first time in more than a decade, based on low world growth and problems in banks. The UK’s share of the foreign exchange market fell from 41 per cent in 2013 to 37 per cent in 2016. Although the City still remained by far the world’s biggest FX dealing centre, and the US in second place had a much lower 19 per cent, the US share rose a bit, helped by the better position of its banks.
By contrast, Asian financial trading centres were the clear winners. Singapore’s share of trading rose from 5.7 per cent to 7.9 per cent from 2013 to 2016. Taken together, China’s and Hong Kong’s rose from 4.8 per cent to 7.8 per cent. Though still a small share, this is an astonishing result for China, one backed by the near-doubling in the use of the renminbi in global FX dealing to 4 per cent. This made the renminbi the eighth largest trading currency in 2016, just behind the far more established Canadian dollar and the Swiss franc. Meanwhile, the euro, now the currency of nineteen countries, saw its share slip to the lowest since its inception.

UK politicians: dumber than you might think

The City had a falling share of a falling market even before Brexit,[1] but now faces the prospect of Brexit. A key problem it faces is how far will UK-based financial companies be able to conduct business with the European Union once the UK leaves. Implausible as it may seem, despite UK governments having promoted the financial sector for more than three decades, there is no sign that the current UK government has given this much attention.
Under the Labour governments from 1997-2010, there was also a clear pro-finance policy. This was seen as one of the few competitive UK ‘industries’, one that also provided lots of tax revenues to fund public spending, from income taxes on the high paying jobs and the various duties imposed. Finance supported millions of jobs related to trading in foreign exchange and all kinds of financial securities and insurance services. It also provided international revenues that covered nearly half of the UK’s record-breaking trade deficit in goods that in 2016 amounted to 7% of GDP. Even non-financial UK business services, from accountancy to information technology, are very closely tied into the financial sector, and offset another chunk of the trade deficit. Basically, without the City’s financial business, UK living standards would be lower.
In more recent years, the UK political class has had trouble maintaining support from a disgruntled electorate. Voters worried about pressure on living standards focused on immigration from the EU, so this has led the two main parties, Conservative and Labour, to accept the referendum vote and reject EU membership. They obviously want free access for all UK business to the EU market, but this is not possible under EU treaties for a non-member, unless, at a minimum, that country also accepts the free movement of labour, ie no restrictions on migration from the EU. UK politicians can grandstand as much as they like, declaring what they want from a deal, but the end result will come from a negotiation
With the UK a member of the EU, City-based financial firms can freely do business across the rest of the EU single market, due to so-called ‘passporting’. This means that banks or other financial institutions in the UK can sell their services in all other EU countries, as these are considered part of the same market. Without the ‘passport’, or something very similar when the UK leaves the EU, that ability will either cease or become much more restricted.
More than 5,000 UK-based firms rely on these passport agreements, and some 8,000 European companies also need them to offer services in the UK. So there may be some compromise. But it is in the interests of the remaining EU-27 countries not to make this a favourable one for the UK, or else the longstanding European Union project would risk being unravelled as others considered the exit too.

How to get a piece of the financial action?

Whatever the wider economic and political issues for the UK and the rest of Europe, the UK’s financial business is an area coveted by some of the major EU players. Already, many UK and international banks and other financial institutions have said that they plan to relocate some business into the EU-27. So far it is only on a small scale, and as a precaution so as not to be left high and dry if there are barriers to their UK-based operations doing business in the EU. If it becomes clear that full access to EU financial markets will be difficult, more will follow.
The likely outcome is a piecemeal lopping off of some parts of City business into several other EU locations rather than into one new rival centre. Frankfurt, home of the European Central Bank, is one of the favoured alternatives, but there is also Dublin, Paris, Amsterdam, Luxembourg and others, depending upon where a financial company might already have some existing business.
Ironically, Frankfurt, the main financial centre for Europe’s largest economy, Germany, is a rather provincial town, not particularly attractive to financiers, and is based in country whose politicians have shown little orientation to finance. They have instead been able to benefit from the prowess of German engineering business and have had other ways of promoting German capitalists on their minds.
I do not think that the Brexit effect by itself is likely to add up to a dramatic reduction in the City’s operations. London has built up a series of reinforcing advantages that are difficult to replicate elsewhere, as shown by the several directions in which alternatives are sought. For now, at least, London has very many more international connections than rival financial centres, plus a broad range of financial services and personnel skills that other centres lack. English is the main business language and English commercial law is the foundation for many financial contracts, for example interest rate swaps, the largest traded financial derivatives contract.
The commercial law issue is more important than one might think. Lawyers based in other countries, or sent from the UK, might be trained in the relevant aspects of English commercial law, but legal judgements are based on court decisions. Being part of the relevant legal network is important. It would also take a long time before contracts are changed into another legal system, and that system may not have the specific aspects necessary that have been developed over decades within the UK legal set up.
Furthermore, most other possible centres have also had governments that have been advocates of a financial transactions tax. This will not help them make a convincing case for expanding their role as a financial business centre. Nevertheless, the incompetence of the present British government could make them question favouring London.

What next for the City?

Despite the impact of Brexit and the recent decline in the growth of financial dealing, it will not be easy to dislodge the City of London from its pre-eminent position. London will almost certainly lose business to other financial centres, but it is costly for banks to move even some operations from London to the rest of Europe, estimated at anything from $30-$50bn.[2]
As these decisions play themselves out, British financial elites are planning to secure for the London Stock Exchange the flotation of Saudi Aramco’s shares. This state-owned Saudi Arabian oil company is the world’s largest and the deal would produce big revenues for the exchange and banks handling it. Around five percent of the company might be on sale, but even this is expected to raise some $100bn.
Only a major stock exchange could handle such a large deal. But although New York is the biggest, and Trump’s pro-Saudi politics are supportive, US financial regulations could be a barrier since the Saudis do not like giving much information. London is more lax on that score and has also changed its rules to help its bid for the deal. Furthermore, there could be US legal claims against the Saudis regarding the 9/11 attacks that would impact Saudi Aramco, and this kind of trouble looks more likely to occur in a US court than any such thing in British courts.
One deal, no matter how big, would not point to sunlit uplands ahead for British finance. But the outcome for Saudi Aramco’s deal will be an interesting signal of how far a Brexit-hobbled City can have a future outside the European club. It would also indicate how far Britain’s status as a key player in world politics has been damaged, since the Saudi decision will certainly have that in mind.

Tony Norfield, 1 August 2017

A fuller discussion of City finances in relation to British imperialism, plus Brexit and Trump is available in the paperback edition of my book, The City, available from these sources.
For a brief article on this blog covering the background to the City’s business relating to British imperialism, see here.

[1] The Bank for International Settlements surveys from which this information is taken are conducted in April of the relevant years, so in 2016 it was before the June Brexit vote. Similarly, the UK’s share of the trade in financial derivatives fell back between 2013 and 2016, based largely upon a drop in the volume of dealing in euros.
[2] See this Bloomberg story:

Monday, 31 July 2017

Facebook, etc

For reasons I have only recently, if belatedly, begun to fathom, quite a lot of people like Facebook. Being reasonably open minded about such things, I have also just set up an account in my name on Mr Zuckerberg's domain, with a Group page 'Imperialism Today'.* No surprise there, anyway. The link (I hope) is here. Work on this is in progress. (If the link does not work, let me know!)

In practice, my own Facebook entries will likely deliver more than the material available on this blog, although these extra items will be much the same as what I might put on my Twitter account, StubbornFacts, located here. The main articles will appear on this blog, nevertheless, this being my favoured method of presenting an explanation of what is going on.

Tony Norfield 31 July 2017
Note: * The name of the Facebook Group page was changed from 'Economics of Imperialism' to 'Imperialism Today' on 1 August, but should have the same link.

Thursday, 27 July 2017

Amazon: Becoming the Market

Most people have heard of, at least most in the richer countries. [1] People like it for its low costs and the efficient delivery of consumer goods; people hate it for its ruthless cost cutting, with the impact on warehouse workers, delivery drivers and any business that competes with it, from bookshops to electrical goods stores and many others. But the key thing about its business is not that Amazon aims to move into all markets for goods and services. Amazon’s business is to be the market. Looking for something? Check the price on Amazon!
Exploitation aside, Amazon is an unusual company. It is very big, with a market capitalisation just over $500bn on 25 July, so putting it within the top five corporations on world stock markets. Yet it hardly makes any profit. In the five years from 2012 to 2016, it made a loss in two of those years; in 2015 its net income was a mere $596m, although in 2016 that rose to $2.4bn. While these are big numbers to have in your personal bank account, they are peanuts for a major corporation. The 2016 net income was only around $5 per share, when the average price of a share in that year was $700, giving a return of less than 1%. Even this potential return was negated by the fact that Amazon has never paid any cash dividends on its common stock.[2]
But don’t shed any tears for Amazon’s capitalist investors. Despite the lack of dividend payments, they will have found the price of the shares they held rising rapidly. So they could turn a blind eye to the lack of regular income from the shares and instead marvel at the fact that Amazon’s share price has risen from less than $100 ten years ago, and less than $240 five years ago to over $1000 now. The capital gains from these moves have been dramatic, increasing the wealth of shareholders, if not directly their incomes.
What has made Amazon attractive in stock markets is that its business has also been growing rapidly, recently at some 20-25% per year, with net sales of $136bn in 2016. Still, a big business with little profit now can only remain in favour if the capitalist market’s implicit bet on Amazon’s future turns out to be true. That bet is whether Amazon can gain a stranglehold on the markets it has chosen and be the market to which everyone goes, even just to check prices. In other words, it would be a bet on how far Amazon can own the arena in which millions of companies sell to consumers.

Scaling up

From the outset in 1994-95, Amazon's founder Jeff Bezos had planned that it would become a major commercial enterprise. Its rapid expansion from bookselling into each new market was always seen as a small step to bigger things. Bezos was able to use his previous financial connections and his links into a network of wealthy individuals, including family and friends, to help fund his ambitions. The company had its stock market listing on Nasdaq in 1997. Despite the need for ever more funds from investors and the postponement of any profit at all appearing on these in the early years, he was able to use his model of being an online innovator in consumer markets to gain both market share and investor confidence.
The business logic of Amazon is to scale up, as it is for any major commercial company. This strategy is only avoided if a company aims to become only a niche player, for example in luxury goods. That is far from being Amazon’s perspective, and it depends upon many benefits of scale:
  • Consumers pay for products before Amazon has to pay suppliers, so the rising volume of sales also gives Amazon a rising volume of available revenues.
  • A huge volume of business, even at a low rate of return, can still generate a high amount of profit to fund investments and also to cross-subsidise new areas of business.
  • Once Amazon becomes a major route through which other companies sell their products, then it is able to negotiate lower supply prices, part of which goes into lower consumer prices, building more business volume, and the rest becomes potential profit for Amazon.
  • Economies of scale are also a key feature of its many warehouse ‘fulfilment centres’, in which a surprising amount of technology is used to speed up shipments and reduce costs.
  • High volumes of package deliveries to consumers also enable Amazon to negotiate lower rates with postal service and delivery companies.
  • A large and growing business also boosts Amazon’s brand recognition, both in consumer markets and in the stock market, where its size makes it a major corporation with full access to financial markets, and one in which the big investment funds are encouraged to invest.
Another aspect of Amazon’s business is to cut down on its fixed investment costs. Not surprisingly, being principally an online seller means that it can avoid the costs of setting up physical stores in convenient locations for consumers. Although it has begun recently to move into the latter area, as a major commercial company it held a relatively minuscule footprint of just under 180,000 square feet for office space, fulfilment centres and data centres in the US and other countries in 2016. Only four percent of this space was actually owned, the rest was leased. This gives it some extra flexibility for threatening a local state that it will move if conditions are not favourable, as well as working out as a cheaper option or one where costs are balanced better against the flow of revenues.
Understanding capitalist companies demands attention to how they operate. Especially for companies involved in buying and selling, scale is clearly an important factor for their viability. In Amazon’s case, the rapid growth of the size of its business has also been able to overcome what has been traditionally seen, by Marxists at least, as the real hurdle for capitalist companies: profitability. The dramatic growth of business volume has generated a higher share price for investors in the company, even if they do not benefit from dividend payments, ones that would have been difficult to finance from the relatively small volume of profits available.

Commercial power

A starting point in the huge US market cannot be overerestimated as a key advantage for Amazon. Home to numerous millionaires and billionaires with spare cash to invest, a pool of skilled technicians and a large supply of pliable cheap labour, a relatively uniform system of commercial laws and secure property rights, and a population of over 320 million people with one of the highest per capita incomes in the world, it is no wonder that the US is home to most of the commercial behemoths today. Competition may be fierce, but success in this market can be a springboard for gaining commercial power worldwide.
There are many ways in which to measure the relative size of companies, but one simple measure of size is stock market capitalisation: the total market price of the company’s outstanding shares. Although based upon the latest prejudice of capitalist investors, it has the advantage of being a clear vote, though a changeable one, on how a company ranks in Mammon’s beauty contest. Amazon’s claims to capitalistic beauty are dependent upon the image it projects for future market domination. The reason that, at around $500bn, it has more than double the market capitalisation of US retail giant Walmart is that it has a potential commercial power lacking in the latter company that is much more focused on its physical stores.
There are three dimensions of Amazon’s commercial power. One is how Amazon’s US-based business has subsidised its expansion into foreign markets. Another is how it uses its position in the US domestic market and elsewhere to exert pressure on suppliers. The third is how it manages to use its resources to expand into new business areas, the promise from which has so far kept the accumulation machine running.

The American base

Of Amazon’s business in North America, the US accounts for very much the largest chunk. The growth of the US market has been most important for the company and, even in more recent years when it has expanded overseas, the pace of American growth has been fastest. Amazon Web Services (AWS), an important and rapidly growing area of business ‘which offers a broad set of global compute, storage, database, and other service offerings to developers and enterprises’ is difficult to pin down geographically, but it will very likely also have much of its revenue coming from the US. Sixty-six percent of Amazon’s total net sales of $136bn in 2016 came from the US. This share was up from 61% in 2014, showing the continued, even higher, importance of the US base.
Amazon’s operating income (loss), 2014-2016, year to 31 December ($ million) [3]

North America
AWS (Amazon Web Services)
The growth of US (North American) operating income, and especially that of AWS, has outrun increasing losses in Amazon’s international business, as shown in the table. Higher international losses are mainly due to higher operating expenses as Amazon expands its ‘fulfilment centres’, technology infrastructure and marketing in these countries. But that still means Amazon has faced prolonged losses on its international business, financed by its North American (mainly US) operations.
So Amazon’s magic has not yet worked elsewhere, although it is continuing to invest in that prospect. Germany, Japan and the UK, in declining order of importance, are its major foreign markets at present, generating a combined 25% of its total net sales in 2016, with the rest of the non-US world making up another 8%. But Amazon has hardly been able to penetrate another major market, China, where it has less than 1% of e-commerce business there – minuscule compared to the local company, Alibaba, which has nearly 60%.

Power to pressure suppliers and targets

The first companies to feel Amazon’s competitive pressure were book publishers, which had previously operated in a cosy cartel keeping high book prices for consumers. Amazon’s volume of sales enabled it to demand price discounts from them, ones that it could pass on to purchasers given that it had relatively low costs for warehousing and delivery. This squeezed the margins of publishers and also spelled the end of many bookshops, including Borders in 2011. Pressure was also put on those publishers or booksellers offering eBooks. Amazon dominates eBooks, with around three-quarters of the US market, and close to half of other main ones, helped by its development of the Kindle, which became a favoured method of reading eBooks.
One of Jeff Bezos’s famous aphorisms is ‘your margin is my opportunity’. That certainly applied to books. It has also been applied to other products, such as CDs, DVDs and other more specialised goods. Because other offline companies found it difficult to match the scale and efficiency of Amazon’s commercial operation, they sometimes tried to use its system for their sales to consumers. But they often lost out, such as Target and Circuit City in the US, with Circuit City eventually going bust. Others have had mixed fortunes, using it, boycotting it, and then coming back again.
Amazon was also able to undermine the arrangements that some producers had with their offline retailers to maintain a ‘minimum advertised price’ that would help secure both their and their sellers' profit margin. Amazon could use its Marketplace option as a means of delivering products at below these prices, and could also threaten producers that it would put advertisements of lower-priced rival sellers next to any of those showing the producer’s own products.
Amazon’s monopolistic power also extends beyond its purely commercial strength. The best example, one from Brad Stone’s book, The Everything Store, was where Amazon wanted to develop video sales and streaming, and was in competition with Netflix, Google and others. Netflix was strong in the US, but another company, Lovefilm, had a big operation in the UK and Germany, focused on DVD-by-mail and streaming video on demand. In 2008, Amazon did a deal with Lovefilm, exchanging its UK and German DVD rental business and investing cash to become its biggest shareholder, with a stake of around 30%.
Lovefilm later had to get more funds for expansion, but to do that it would need to do a stockmarket IPO (initial public offering). Normally, that is what the shareholders aim for, so they can make a big capital gain on their holding as the company floats on the market and they also have an opportunity to cash in some of their stake. But Amazon had different plans. It had enough influence on the company to prevent Lovefilm from doing the IPO, and this was the leverage that made them sell out to Amazon in 2011, for a low price of some £200m, since their alternative was to stagnate. The monopolist’s bet turned out well, since video streaming – rather than downloads or deliveries – has grown strongly.

Expanding Amazon

Amazon has moved very far from being just a US-based book, CD and DVD warehouse, into many other markets and other countries. Its financial resources have helped it undertake more than 70 mergers and acquisitions since 1998, principally in the US but also in the UK, Germany, Israel and China. It has also expanded into India with its own investment. The largest recent deal was to buy Twitch, a live streaming and gaming platform, for $970m in 2014. But the biggest ever Amazon deal is currently under way and subject to regulatory approval, its purchase of Whole Foods Market Inc, a US-based premium grocery chain, for $13.7bn. If finalised, this deal would add to Amazon’s other forays into groceries, such as Amazon Fresh. It goes against the company’s normal business model, being based in stores on the street, but this is seen as a useful physical footprint from which to pressure other premium retailers.
Such expansion helps Amazon sell more or less everything, presumably creating openings for new business from anyone attracted by just one of its many tentacles. But the data (see the previous table) show that the bulk of its earnings come from its web services arm, AWS, not from the more visible retail business.
AWS was built from the core commercial online business that also depended upon an effective technology infrastructure of software and computer servers. It now has a very strong position in the ‘cloud’, that euphemism for the physical, very much on the ground set of computer facilities, often located in the US, which is accessed via the Internet, and which has become an important source of services for everything from data storage to building applications and website development. AWS reportedly has a million customers, including not just General Electric, Kellogg’s, McDonalds and Netflix in the US, but also BMW, Canon, Nokia, Philips, Siemens, Sony, Tata Motors, the UK’s Guardian and the UK Ministry of Justice.
Recent surveys show Amazon has around 40% of cloud business, well ahead of Microsoft, Google/Alphabet and IBM. Amazon’s business revenue and profits from this source have also grown very rapidly in recent years. As with most other areas of new markets in the global economy, this is one in which only the largest companies, with the best access to finance, can compete. A Wall Street Journal story reported that Amazon, Microsoft and Google/Alphabet alone spent $31.5bn in capital expenditures last year on cloud-related items.

Economics of imperialism

Amazon’s business operations highlight many of the paradoxes of modern imperialism. It provides an efficient delivery of a wide range of goods and services to satisfied customers, but the workers involved in the process are stretched to the limit, and businesses competing with them are liable to come off badly, or may have to do a deal that undermines their viability. It exemplifies how economies of scale and good technology can provide low cost products to the mass of consumers, and how this also undermines previous areas of market privilege (books, music, specialist products, etc) from which sections of the population had formerly benefited. This is the ‘market disruption’ lauded by proponents of capitalism, but is one that inevitably leads to monopolistic power. For now, Amazon is valued by the stock market as a company that is able to use its huge scale and scope of business to eventually produce the required profits. Amazon does not necessarily want to destroy the competition, but to absorb other companies into the market system it has built.

Tony Norfield, 27 July 2017

[1] This is the third of my analyses of major corporations highlighting key features of capitalism today. Previous articles were on Apple and Alibaba.
[2] At end-2016, Amazon had outstanding 497m shares in common stock.
[3] Business accounting definitions can be tricky to follow, but note that Operating income is defined as Net sales minus Operating expenses minus Stock-based compensation and other items. Also, Net income is defined as Operating income minus Non-operating income/expense, Provision for income taxes and Equity-method investment activity, net of tax. So the total net income in 2016 of $2.4bn, mentioned earlier in the article, is much lower than the operating income of $4,186m shown in the table.

Tuesday, 25 July 2017

Capital.150: Marx's Capital Today

Here are details of the two-day conference in September, with the relevant links:

Location: London WC1E 7HY, Malet Street, Student Central (formerly ULU)
Conference attendance fee £10.
Date/time: Tuesday 19 September (11am-8pm) – Wednesday 20 September 2017 (10am – 4pm)
Registration URL:
King's College website details here

Tuesday 19 September

Crises (11am–1:30pm)
  • Guglielmo Carchedi – The old is dying and the new cannot be born: the exhaustion of the present phase of capitalist development
  • Rolf Hecker – Marx’s critique of capitalism during the 1857 crisis
  • Paul Mattick jr – Crisis: abstraction and reality
  • Ben Fine, discussant
Imperialism (2:30pm–5pm)
  • Marcelo Dias Carcanholo, Dependency, super-exploitation of labour and crisis – an interpretation from Marx
  • Tony Norfield, Das Kapital, finance, and imperialism
  • Raquel Varela (& Marcelo Badaró Mattos), Primitive accumulation in Das Kapital
Mapping the terrain of anti-capitalist struggles (6pm–8pm)
  • David Harvey, Perspectives from the Circulation of Capital
  • Michael Roberts, Perspectives from the Accumulation of Capital

Wednesday 20 September

The future of capital (10am–12:30noon)
  • Alex Callinicos, Continuing Capital in the face of the present
  • Hannah Holleman, Capital and socio-ecological revolution
  • Fred Moseley, The rate of profit and the future of US capitalism
  • Eduardo Motta Albuquerque, Technological revolutions and changes in the centre-periphery divide
Labour and beyond (1:30-4pm)
  • Tithi Bhattacharya, Social reproduction theory: conceiving capital as social relation
  • Michael Heinrich, Communism in Marx's Capital
  • Lucia Pradella, Marx’s Capital and the power of labour: imperialism, migration, and workers’ struggles
  • Beverly Silver, Marx’s general law of capital accumulation and the making and remaking of the global reserve army of labour

Friday, 7 July 2017

Eric Hobsbawm’s 20th Century Self-Censorship

Eric Hobsbawm was a famous Marxist historian and member of the Communist Party who died in 2012. Recently I read his autobiography, Interesting Times: A Twentieth Century Life, first published in 2002. He overcame Cold War-inspired barriers to his early career and contributed much to our understanding, so his story looked to be fascinating. Instead, it was rather dull. What struck me as most interesting was interesting for bad reasons.
Not to be accused of quoting out of context, I will cite a relatively long passage of text. It occurs in Chapter 17, ‘Among the Historians’, on pages 291-292, and discusses post-1945 developments in historiography:
“Explosive subjects such as Russia, especially in the twentieth century, and the history of communism were, of course, ideological battlefields, although the debate was one-sided, since the orthodoxies enforced in the Soviet Empire crippled both their historians and their interpretations. If one was a serious Soviet historian, the best thing was to stick to the history of the ancient East and the Middle Ages, although it was touching to see how modernists rushed to say (within the constraints of the permissible) what they knew to be true every time the window seemed to be slightly opened – as in 1956 and in the early 1960s. I myself became essentially a nineteenth century historian, because I soon discovered – actually in the course of an aborted project of the CP [Communist Party] Historians’ Group to write a history of the British labour movement – that, given the strong official Party and Soviet views about the twentieth century, one could not write about anything later than 1917 without the likelihood of being denounced as a political heretic. I was ready to write about the century in a political or public capacity, but not as a professional historian. My history finished at Sarajevo in June 1914.
“Luckily, I abstained from twentieth century history until it was almost over, but it went against the grain of the historiographical movement, which was away from the remote past and towards the present. Until well past 1945 ‘real’ history finished, at the latest, in 1914 after which the immediate past reverted to chronicle, journalism or contemporary commentary. Indeed, since the archives remained closed in Britain for several decades, it simply could not be written to the standards of traditional historians. In most countries, even the nineteenth century had not yet been fully absorbed by academic history departments, except by the economic historians. The great historiographical debates had not been about it, although political radicalism, not least in the form of a new passion for labour history, now drew attention to an era which had been seriously neglected by historians in a number of countries. Even in Britain, until the 1960s politicians, serious journalists, relatives and essayists wrote the biographies of the great figures of Victorian Britain, not the professors. Nevertheless, the gap between past and present narrowed, perhaps because so many professional historians had actually been involved in the Second World War.”
While these are interesting biographical details, they are also an apologia for a lack of intellectual integrity. Hobsbawm starts out by noting the key point, Soviet censorship of dissident political views. Then he notes his capitulation, but tries to support his stance by arguing that, because ‘the archives remained closed’, he could not have analysed the post-1914 period until the late twentieth century ‘to the standards of traditional historians’. Ah yes, those ever so incisive and objective traditional historians!
Notably, his Age of Extremes: The Short Twentieth Century, 1914-1991, was first published in 1994. In its Preface, he makes the same basic point as in the later autobiography, distinguishing his ‘professional historian’ scholarly position from those cases where he wrote about post-1914 events in ‘other capacities’. There he also says: ‘I think it is now possible to see the Short Twentieth Century from 1914 to the end of the Soviet era in some historical perspective’ (p ix). This is the telling point: he could now exercise his historical scholarship on the post-1914 period because of the end of the Soviet Union in 1991!
In one book, Revolutionaries, published much earlier in 1973, Hobsbawm does cover post-1914 developments in a number of ‘contemporary essays’. But there his Preface makes the point that ‘speaking as a historian, these are not fields in which I would claim professional expertise’. His essays were written in a general style, and one that would be safe from political censure.
Hobsbawm’s argument about ‘closed archives’ meaning that historians cannot analyse a historical period to a sufficient standard is just ridiculous, especially so for the UK. Yes, more information of all kinds may well surface in future, and possibly it will provide a different perspective. But neither that future information, nor the present sources to analyse, need necessarily be the government’s officially released archives. Nor is one only limited to ‘chronicle, journalism or contemporary commentary’. Let me take one example from the supposedly barren, pre-1991 days of insufficient material.
In 1975, Partha Sarathi Gupta published a book on the labour movement in Britain, a topic close to Hobsbawm’s favoured subject area. Gupta was a professor of British and European history at Delhi University and president of the Indian History Congress, who died in 1999. His book, Imperialism and the British Labour Movement, 1914-64, was published by Macmillan as part of the Cambridge Commonwealth Series. So he was well within the realm of the ‘traditional historians’. Gupta’s focus was not on the British working class as such, although he makes a number of pertinent comments on its political outlook. Instead, the book focuses on ‘the attitudes and policies of the British Labour Movement towards the British Empire and Commonwealth’.
Gupta recognises a limitation due to British government records after 1945 being closed at the time he was writing. However, he still makes a thorough analysis of the available private papers and public documents. The latter for the post-1945 period include House of Commons debates, statements by policymakers and advisers, and records from the conferences of the major political parties. Having read Gupta’s book only a few years ago, I was not aware of anything that has since emerged from the ‘archives’ to question his basic conclusions written some three decades earlier. My citation from his work is in an article on Labour’s colonial policy, on this blog.
I do not blame the late Eric Hobsbawm for the weak analysis of (British) imperialism after 1914. Yet it is a pity that someone of his abilities could not have applied himself more effectively, and much sooner, to this subject.

Tony Norfield, 7 July 2017

Thursday, 6 July 2017

Apple Concentrate

On 24 May 2017, I published my analysis of Apple Inc on this blog. The following image is a slide from a lecture I gave at Goldsmiths on 1 July that summarises key points in the 24 May article and adds some others:

I will make the wild assumption that the text speaks for itself.

Tony Norfield, 6 July 2017

Wednesday, 28 June 2017

'Open Sesame' on Alibaba

China has been the ‘workshop of the world’ since the late 20th century, providing cheap products to global markets, especially to the richer countries. Alibaba is now becoming recognised as an important addition to China’s economic prowess, although in the sphere of commerce rather than in production.
Alibaba’s business has been focused domestically upon the huge and growing Chinese market. It has been able to fend off Google and eBay, important US competitors. It has also benefited from funding by Goldman Sachs and Yahoo – who both provided much-needed cash in its early days – while managing to avoid their control of its operations. Now Alibaba is in a strong position to expand into other countries. So, rather than being prominent only as a big player in one big (Chinese) market, Alibaba could become a major global player too. When commerce is the core of a company’s business, then huge volumes are critical for generating revenues. Alibaba has been able to get these, helped by being based in China, a country with a strong government and also with the largest national population.
Here I do not plan to discuss all of Alibaba’s operations or its historical development.[1] Instead, I want to use the example of Alibaba to weigh up China’s economic challenge to the established order, when imperial economic power today takes on a much more commercial and financial form.

Millions and billions

Alibaba’s operations can most easily be summarised as a combination of Amazon, eBay and Paypal. But that understates the scope of its business as it expands into other areas. Nevertheless, the limit on seeing it as a global giant is that more than three-quarters of its commerce-based revenues derive from China, as does basically all of its profit. Its newer segments of business – including cloud computing, digital media and entertainment – are running at a loss, subsidised by the China commerce revenues.
In terms of stock market capitalisation, the main company, Alibaba Group Holding, was worth $365bn on 26 June. This was not so far behind Amazon’s $475bn value, especially if one also includes the separately managed Ant Financial arm (formerly known as Alipay) estimated at around $60bn. Alibaba’s profitability was also much higher than Amazon’s in the latest financial year, at $6.0bn versus Amazon’s $2.4bn for net income after tax and net interest payments.[2]
Alibaba started out as a business-to-business middleman, facilitating buying and selling, but this failed to generate much revenue. Now retail business (business-to-consumer) dominates its commercial operations. Hundreds of millions of Chinese use its systems to shop online, sell goods and make online payments. Alibaba has two retail sites: Taobao, selling products sold by smaller scale Chinese-based companies; and Tmall, which has attracted three-quarters of the world’s top 100 brand-names to sell into the huge Chinese domestic market. Although China is a poor country, 1.4 billion people and a growing middle class consumer base make it an attractive market for all global corporations.
Merchants on Alibaba’s Taobao site get a free listing; on Tmall, these bigger sellers pay an annual service fee, plus commissions on their sales ranging from 0.4% to 5.0%, depending on the product. However, revenues from these sites derive mainly from companies buying extra marketing services that Alibaba’s system provides, including its analysis of consumer activity to target advertisements. In this respect, it follows what other established companies do, like Amazon, Google and Facebook.
In the year to 31 March 2017, Alibaba had a huge volume of business: 454 million active buyers on its retail platforms and, in March 2017, 507 million active users of its mobile services. This potential for economies of scale is fundamental for a commercial operation, and one that helps Alibaba’s expansion into other countries.
The relatively low retail revenue per buyer deflates the importance of these numbers, and reflects low average Chinese incomes: just $36 per active buyer in retail revenue per year and $26 per person from mobile-based services. Nevertheless, a growing revenue per person multiplied by a very large and increasing number of buyers and users in China leads to big and rapidly rising total revenues. Alibaba’s China-based commercial revenues rose by 40% in the year to March 2017, reaching some $18 billion.
Helped by this position in a market US business would like to penetrate, Jack Ma, the principal founder and the controller of Alibaba, was the first foreign businessman to meet US President Trump in January this year. Playing up to Trump’s ‘America First’ policy, Ma promised that he could add one million jobs in the US if its small companies joined its commercial platform, Tmall, to sell their products into the Chinese market. This no doubt appealed to Trump, but it would also help Alibaba boost its revenues outside China, when its foreign revenues have so far been largely dependent upon regional Asian countries.

Ownership and financing

The ownership and control structure of Alibaba is murky or, more charitably put, difficult to pin down. The Alibaba Group Holding company was registered in the Cayman Islands in June 1999, and there is, in addition, a system of contractual links between its many subsidiaries. Good luck in working your way through its 303-page 2016 annual report, with 74 of them giving ‘Notes to consolidated financial statements’.
Jack Ma started out by being moderately generous with his offering of a (very) small stake in the fledgling company to the initial group of employees, but had later to divest a much larger share of it to important early backers and suppliers of funds. More or less the first was Goldman Sachs, which lent Alibaba $3.3m and later sold its stake very profitably for around $22m, although much too early to realise dramatically higher returns. Sometimes you just cannot be greedy enough.
Another important supplier of early funds was Yahoo, which still maintains a stake after later reducing its holding. The biggest backer of Alibaba, however, was Japan’s Softbank, which has built an important share. According to the 2016 annual report, Jack Ma owned 7.8% of Alibaba Group, other directors owned 4.7%, Softbank had 32% and Yahoo had 15.4%. However, this understates Ma’s position.
At first sight, the ownership numbers would imply that Jack Ma has little control over the company. However, this conclusion is questioned by an important deal, one ostensibly made to get around Chinese government restrictions on foreign ownership of non-financial companies. This was when Ma took control of Alipay.
In the early 2010s, almost all of the payments made through the Alibaba commercial system were transacted through its subsidiary Alipay, which handled $700m per day in transactions. Alipay had an ‘escrow system’ for security of payment, whereby funds were transferred to the seller only after satisfactory delivery of goods to the buyer. This payment system proved very attractive to users, especially given inefficient Chinese bank payments and the low use of credit cards in China, since it improved the chance of getting your money back after being delivered poor quality goods. Although Alipay itself did not necessarily make any charges directly, and so was not an important source of funds to the main company, it was nevertheless a key part of the Alibaba operation, important for keeping the buying/selling/services business model ticking over.
In 2011, news emerged – buried in a quarterly Yahoo earnings report – that Jack Ma had taken control of Alipay in the previous year or two and had transferred it out of the Alibaba group. The price paid by the company owned by Jack Ma was roughly $51m for a business that was seen as then being worth around $1 billion. This was done through a so-called Variable Interest Entity (VIE) structure, something that other companies have also used to get around China’s regulation of foreign ownership of companies licensed to operate payment systems in the country. However, whatever the motivation behind the deal, it meant that a VIE company largely owned by Jack Ma would now control a key Alibaba-related business.[3] After its expansion into other areas, Alipay is now Ant Financial. Today it is estimated to be worth very much more.
Such deals may have been a reason for Hong Kong’s stock exchange to reject the initial public offering (IPO) of Alibaba shares on the public capitalist market, although it appears that the most important issue was the favoured voting positions of Alibaba’s founding shareholders that were seen as being detrimental to new shareholders in an IPO. The New York Stock Exchange nevertheless accepted the deal, no doubt encouraged by the potentially lucrative transaction fees. In September 2014, the IPO sale of some shares in Alibaba Group Holding (ie minus Alipay) raised a record $25bn, with reported fees amounting to some $300m.

Alibaba and Ant Financial

Alipay was renamed Ant Financial in 2014. Based on its 2016 round of fundraising, which brought in China’s sovereign wealth fund and other state institutions, it has been valued at $60bn, but there is no detail of costs and revenue flows in Ant Financial’s 2016 report. Nevertheless, it is certainly big. Ant Financial performs more than 150 million payments per day, 10 times the volume for Paypal; it is the world’s third largest cash management service, lends money to small businesses and offers insurance services.
Alibaba’s own annual report shows the following key fact: 37.5% of Ant Financial’s pre-tax income is due to Alibaba (although I have not been able to find what that income might be!). There are also many other flows of income between the two groups, with Alibaba paying Ant Financial for bank processing costs and operating costs – roughly $760m in the 2016 financial year – and the latter paying Alibaba royalties, fees for software technology and for other services. The impression given in one table of transactions is that Alibaba pays Ant Financial more than it receives, roughly a net $350m in the 2016 financial year, but that will probably exclude the share of pre-tax income Alibaba gets from Ant Financial. More information on the latter’s business will be published when it eventually lists its shares on a stock exchange, an event expected to happen by 2019. In the meantime, both companies are continuing to expand into other markets and other countries with acquisitions and cooperation deals, including in the US and Europe.

Alibaba and global corporate trends

The company’s name comes from the story of Ali Baba and the Forty Thieves, one of the ‘Arabian Nights’ tales. The hero, Ali Baba, finds out the command ‘Open Sesame’ for the cave in which the thieves have hidden their stolen treasure. Jack Ma chose the name as something that would both be recognisable in global markets and encourage consumers to think that they too could find treasure. In the same way, the name of one of the company’s original sites, Taobao, means ‘searching for treasure’ in Chinese. But the company name is more revealing than might have been intended about Alibaba’s business.
In economic terms, Alibaba is not itself stealing or receiving stolen goods, although through its powerful mechanism it is taking a cut from the commercial transactions taking place, including through selling its advertising services. In this, it is at one with key developments in the world economy over the past few decades: don’t produce anything; instead take a share of the value that others have produced by managing the markets in which they operate!
Monopolisation of commercial relationships has been a fundamental feature of global corporations, so much so that most of the leading companies by stock market capitalisation these days are ones that have a strong commercial power, rather than being powerful producers. For example, Amazon is now worth more on the stock market than ExxonMobil, and so is Alibaba. Apple Inc, the world’s largest company in these terms, has the largest capitalisation of a private company, but does very little production itself and relies on its domination of supply chains for assembly and its consumer market power – one should also note its use of the financial system.[4] Alibaba’s business model fits with these important trends and it could well develop into another of these powerful global companies, supported from its strong domestic base in China.

Tony Norfield, 28 June 2017

[1] For more detail on these I would recommend Duncan Clark’s book, Alibaba: The House That Jack Ma Built, Ecco, 2016, and this article by Louise Lucas, ‘Alibaba bets on do-it-yourself globalisation’, Financial Times, 23 May 2017.
[2] Alibaba does not have Amazon’s system of warehouses for delivering many of its online ordered goods, which saves it some costs. Instead, it delivers most goods within China through the ‘warehouse and delivery network partners’ of its 47%-owned affiliate, Cainiao, which employs 1.7 million delivery personnel and operates in more than 600 cities in China.
[3] See Duncan Clark’s book, pp219-224.
[4] See my review of Apple’s business here.

Wednesday, 21 June 2017

Rethinking Economics

On Saturday 1 July, students of Goldsmiths’ Rethinking Economics Society and the Political Economy Research Centre are holding a conference on ‘Rethinking Economics in a Post Truth World’.

The venue is: Professor Stuart Hall Building, Goldsmiths,

‘The Limits to Unconventional Monetary Policy’, Maria Ivanova

Brexit Panel, Will Davies, Aeron Davis, Joe Earl and Jack Mosse

‘What can Economics Learn from Anthropology?’, Massimiliano Mallona

‘Deconstructing Finance – Deregulation of Finance as contributing factor to Post-Truth Narrative’

Johnna Montgomerie, Anastasia Nesvetailova, Clea Bourne and Daniela Gabor

‘Alternative Political Economy Panel: Reinvigorating Forgotten Perspectives’

Paul Gunn, Jamie Morgan, Sara Stevano and Marissa Conway

‘Platform Cooperative Workshop’, Jack Thorpe

‘New Forms of Labour’, Ozlem Onaran

‘Global Capitalism and Finance’, Tony Norfield

‘Democratising Economics’, with

‘What does the “Future of money” actually look like’, Brett Scott

Tony Norfield, 21 June 2017

Tuesday, 20 June 2017

Twitter's Stubborn Facts

I sometimes add entries on Twitter, using @StubbornFacts. These may refer to articles or notes on this blog, but often they are links to points made by others that I find of value and which do not often hit the media headlines.

Recent Twitter entries include a note on the scale of the 18-24 youth vote in the 8 June UK general election and on developments in Middle East politics, particularly focusing on Saudi Arabian and US policy (the latest issue being their policy on Qatar). Incidentally, here is my analysis of the evolution of Saudi power in the Middle East.

Tony Norfield, 20 June 2017

Tuesday, 13 June 2017

The City, Brexit, etc

The paperback version of my book, The City: London and the Global Power of Finance, is released today. This edition contains a sixteen-page Afterword on the following topics:
  • Brexit and imperial power
  • The City, Brexit and world developments
  • Immigration and nationalism
  • Trump and the US hegemon
  • Shifting tectonic plates
These develop and update points raised before.
With a cover price of £10.99 and US$16.95 in the global book market, the paperback version of The City is currently available at the following prices:
Verso, £7.69, £9.98, $11.52
An eBook is also available.
Do your own calculations!

Tony Norfield, 13 June 2017

Selections from some of the reviews for the hardback edition:
“It is not every day you read a book about global finance by a banker who quotes Lenin approvingly on page two. Unlike many of those who produce Marxist critiques of financial capitalism, Norfield writes from a position of experience: he has worked in the belly of the beast, and the book is the better for it...In The City, he has done the research and pulled together the financial statistics that explain how the bloodsucking works.” – Brooke Masters, Financial Times
“Tony Norfield has provided a strikingly original take on the international financial system by placing it systematically within the world imperialist structure of power. He rejects the currently fashionable path of interpreting the ascent of finance by looking at how the leading financial sector agents, operating by way of banks, hedge funds, private equity firms, and the like, manipulate the political-economic game to increase their own personal wealth, while downplaying any useful economic functions they might be fulfilling. He insists, on the contrary, that finance be understood as a form of power deriving from the economic-cum political capacity to compete at the highest levels of global capitalism, which simultaneously endows a limited group of countries and corporations disproportionate access to the world’s resources and operates as the system’s indispensable nerve center. Norfield’s unusual clarity as both an analyst and expositor is reflected in his ability to lay out for his readers an easy-to-grasp introduction to how finance works today in the process of offering a detailed historically-rooted account of the multiple hierarchies and privileged relationships through which global economic domination is constructed and reproduced. The City is a tour de force, which will soon be recognized as a formidable challenge to conventional wisdom and an essential contribution in its own right.” – Robert Brenner, author of The Economics of Global Turbulence
“This book does the seemingly impossible: rendering finance’s mysteries transparent to the average reader, and at the same time delivering a penetrating analysis of the global economic system that will enlighten even experts. Tony Norfield has written a truly exciting and important book.” – Paul Mattick, author of Business as Usual
“The City is a valuable addition to the critical analysis of the financialisation of our world. And Tony Norfield is an experienced and radical guide to London’s role in this process. This book should be required reading for both bankers and activists alike.” – Joris Luyendjik, author of Swimming with Sharks: My Journey into the World of the Bankers
“A timely and insightful book...It is an excellent read for anyone seriously wanting to consider the financial system” – Scottish Business Insider
“With heaps of empirical research and a clear style of argumentation, he demonstrates that the City isn't a "satellite of Wall Street" as many think, but its own beast, using Britain's imperialist privilege to extract value from the world economy. Much of the book is directed against bad arguments made by the liberal-left – the distinction between "productive" capitalism and "casino" banking; the populist vitriol against "the banks" – which Norfield believes aren't just analytically false but let capitalism off the hook.” – Yohann Koshy, Vice
“An invaluable book for anyone wishing to better understand the world of finance, how the City operates and how this relates to the broader capitalist system.” – Tom Haines-Doran, rs21
“Tony Norfield has had 20 years experience in City of London financial dealing rooms, for ten years as an executive director and global head of FX strategy in a major European bank. He went on to complete a PhD in economics at SOAS, London. Above all, he is a Marxist. It’s a perfect recipe for an excellent book on modern British imperialism and the features of global finance in the 21st century.” – Michael Roberts (author of The Long Depression)
“How many Marxists are at work in the dealing rooms of the City? Presumably they keep their heads well down. Tony Norfield is—or was—one. Twenty years a trader at the centre of the financial web, he has married the insights into the workings of the system he gained to a thorough Marxist understanding of political economy. The result is this fascinating book.” – Andrew Murray, Morning Star
“Tony Norfield's opus The City takes on a big subject and makes it, well—big … Casts a new light on a well-researched subject.” – William Clutterbuck, Financial Adviser
“As England and Europe prepare to set the terms of Brexit, Norfield’s historical perspective on how England has promoted finance is fascinating.” – Tom Groenfeldt, Forbes