Gold at $2k+. So why the fuss?

By Alasdair Macleod




There appears to be no way out for the bullion banks deteriorating $53bn short gold futures positions ($38bn net) on Comex. An earlier attempt between January and March to regain control over paper gold markets has backfired on the bullion banks.

Unallocated gold account holders with LBMA member banks will shortly discover that that market is trading on vapour. According to the Bank for International Settlements, at the end of last year LBMA gold positions, the vast majority being unallocated, totalled $512bn — the London Mythical Bullion Market is a more appropriate description for the surprise to come.

An awful lot of gold bulls are going to be disappointed when their unallocated bullion bank holdings turn to dust in the coming months — perhaps it’s a matter of a few weeks, perhaps only days — and synthetic ETFs will also blow up. The systemic demolition of paper gold and silver markets is a predictable catastrophe in the course of the collapse of fiat money’s purchasing power, for which the evidence is mounting. It is set to drive gold and silver much higher, or more correctly put, fiat currencies much lower.

This is only the initial catalysing phase in the rapidly approaching death of fiat currencies.

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Introduction

Measured in dollars, the current bull market for gold started in December 2015, since when the price in dollars has almost doubled. Other than the odd headline when gold exceeded its previous September 2011 high of $1920, only gold bugs seem to be excited.

But in our modern macroeconomic world of government-issued currencies, which has moved on from the days when gold operated as a monetary standard, it is viewed as an anachronism; a pet rock, as Jason Zweig of the Wall Street Journal called it in 2015, only a few months before this bull market commenced.

Despite almost doubling, Zweig’s view of gold is still mainstream. His comment follows the spirit of today’s macroeconomic hero, John Maynard Keynes, who called the gold standard a barbaric relic in his 1924 Tract on Monetary Reform.

Keynes went on to invent macroeconomics on the back of his 1936 General Theory, and whether you profess to be Keynesian or not, as an investor you will almost certainly kowtow to macroeconomics. It has been well-nigh impossible to have a successful career in the investment industry unless you subscribed to inflationist Keynesian theories.

You are required to substitute the economics of aggregates for those of the human action of individuals, upon which classical economics was based. And with it, you must unquestionably accept the state theory of money.

Well, we are now witnessing the cataclysmic ending of the Keynesian fallacy; the destruction of macroeconomics in a systemic failure centred on paper markets for gold and silver.

The rescue attempt has already failed

You may have missed the establishment’s last-ditch attempt earlier this year to save itself.

Figure 1 below shows its failure.

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Comex open interest peaked in January, when the gold contract was being overwhelmed by global demand. Never before had open interest been this high: the previous all-time record had been in July 2016, when it hit 658,000 contracts.

At that time, the market had recovered strongly from a deeply oversold condition, the price rallying from the December low in our headline chart, from $1049 to $1380. That was successfully crushed with open interest taken down to 392,000 and the gold price to $1120. However, the take-down which commenced in earnest in January this year did not succeed.

There is no question it was a coordinated attempt by the bullion bank establishment to contain a developing crisis. From its peak of 799,541 contracts on 15 January open interest fell to 553,030 on 23 March. Initially, the gold price continued rising to $1680 on 9 March, but by 18 March it finally reacted, falling to $1471 in only nine trading sessions.

But while open interest went on to fall to 470,000 in early-June, the price exploded higher with unprecedented price premiums developing on Comex from 23 March onwards. The bullion banks’ short exposure net of longs on Comex in a rising market had risen to $35bn and the gross position was $53.5bn before the attempt to drive the market lower. Today, the respective figures are $38.3 and $53bn.

The failure of this well-worn tactic precludes it from being used again. We look at the seriousness of the current position on Comex and the LBMA later in this article.

The financial system depends entirely on inflationary fiat

In the investment industry it is monetary debasement that gives you your living. For the rise in the general level of prices of financial assets, measured by various indices, is little more than a reflection of the loss of purchasing power of your state’s currency.

The world has been enjoying the phenomenon particularly from the mid-1970s, four years after the last vestiges of Keynes’s barbarous relic, when President Nixon removed pet rocks from the monetary scene. A continual decline in the dollar’s purchasing power ensued. Apart from the occasional hiccup, from 1982 when the S&P500 Index rose from 291.34 to today’s 3,270 the general public has appeared to make money.

It has not been an easy environment to convincingly challenge, being populated by group-thinkers believing their stock and property gains have been the consequence of their individual financial acumens. But one of those periodic hiccups is now upon us, threatening to be more disruptive than anything seen hitherto in our lifetimes, which the macroeconomists in the central banks and governments tell us will require virtually unlimited inflationary finance to resolve.

The distinction between unlimited fiat currency being issued by the state compared with gold is important, because gold was always the money of the people, disliked by governments because its disciplines are limiting. History has always seen the right to issue money taken away from the failures of kings, emperors and governments and handed back to the people, so the empirical evidence is that it will happen again. But macroeconomists argue that their science is an advance on former economic science, so what went before is irrelevant. Therefore, so is gold.

For these reasons, the investment industry is not attuned to gold. Physical gold is not even a regulated investment, which means that government regulators do not permit the funds they license to hold physical metal beyond, if permitted at all, a small exposure.

The uncontentious position, taken by nearly all compliance officers, is for investment managers not to hold any. But besides mining stocks, today there are exchange-traded funds that do offer some investment exposure to gold for fund managers. Assuming, that is, they are willing to contradict the Keynesian views of their colleagues.

But even then, the context is wrong. Gold is not an investment but money, driven out of circulation over the last hundred years by the steady encroachment of gold substitutes evolving into pure unbacked fiat. It is no one’s liability, unlike the dollar, for instance, backed only by the full faith and credit in the Donald — or will it be Joe Biden. In the case of the euro or the yen, with negative interest rates and having banking systems arguably on the point of collapse, their central banks are similarly committed to accelerating debauchment of their currencies.

Even semi-official gold bugs, like the World Gold Council, promote gold as a portfolio investment, with its income arising from the securitisation of gold through the GLD ETF. An audience of professional investment managers, which subsists on an intellectual diet of macroeconomics, does not readily accept that gold is money, and if the World Gold Council argued that it is money and not an investment, they would doubtless fail to attract institutional investors.

But an understanding that gold is money is a vital distinction. When you regard it as an investment, you expect to sell it when its positive trend ends. You assume your government’s currency will always have the objective transactional value and gold is the subjective variable.

Accounting conventions force investment managers and advisors to ignore the reality that it is the currency failing and not the price of gold rising. Even the overwhelming majority of gold bugs cheer a rising gold price, instinctively treating it as an investment which rises in value, measured in fiat.

The objective/subjective confusion is the most important concept to understand when it comes to gold. If the wider public begins to understand that measured in goods, the state’s currency is no longer fit for an objective role in day to day transactions, it will be doomed. For that marks the point where fiat money begins to be discarded, and the public then ultimately decides what is its preferred money. That is where all this is going.

Forget currency resets

In recent years, suggestions that a monetary reset, centred on the dollar, is planned by the monetary authorities have been made by a number of observers. Central bank research into blockchain solutions have added to this speculation, but a recent paper by the IMF shows there is no consensus in central banks as to how and for what purpose they would use digital currencies — the central banking version of cryptocurrencies.[i]

In any event, it is likely to take too long for a central bank digital currency to be implemented, given the speed with which monetary events are now unfolding. Empirical evidence suggests that once initiated, a fiat currency collapse happens in a matter of months. Today, the Fed has tightly bonded the future of financial asset values to the dollar — one goes and they both go. The credibility behind financial asset values is already stretched to the limit, and the inevitable collapse, taking fiat money with it, is likely to be sudden.

As a side note, the last time a collapse in financial assets took the currency down in similar circumstances was exactly three hundred years ago — in 1720 when John Law’s Mississippi bubble failed. Interestingly, Richard Cantillon made his second fortune by shorting Law’s currency, the livre, and not his shares. His first fortune was made acting as a banker lending money to wealthy speculators taking in Mississippi shares as collateral, which he then promptly sold, pocketing the proceeds.

An attempt at a currency reset, with or without blockchains, can only be contemplated after the public has begun to abandon existing currencies. But the speed with which events unfurl when fiat currencies die precludes advance planning of currency replacements. Any attempt to produce a new fiat money after the existing one has failed will also fail — rapidly. The idea that the state can take control of the valuation of a new currency in a fiat reset in order to make it durable is the ultimate conceit of macroeconomics, the denial of personal freedom to make choices in favour of the management of the aggregate.

One of the specious arguments that arises time and again is that inflation reduces the true burden of debt. This is true for existing debt, but its advocates as a remedy for government indebtedness fail to understand that it also increases the cost of the government’s future debt. And while it similarly reduces the burden on private sector debtors, by destroying savings inflation leads to capital starvation and hampers any recovery.

It is possible, and desirable, that the ills of fiat currencies will be properly addressed. But that will require an abandonment of inflationism, and a commitment to balanced budgets. It requires governments to rein in their spending, reducing their role in the economies they oversee. Statist interventions, both regulatory and mandated by law have to be axed, and full responsibility for their actions handed back to the people. And only then, sound money, preventing governments from reverting to their inflationary ways, can be successfully introduced.

Assuming all this is possible, the only sound money is one with a track record and where governments have no control over it as a medium of exchange. In other words, metallic money.

They will have no alternative to turning their currencies into substitutes fully convertible into gold, with silver in a subsidiary coinage role. Coins in both metals must be freely available on demand from all banks at the fixed rate of exchange for gold, and for silver equating to its monetary value.[ii] The circulation of gold and silver coins ensures the public fully understands their monetary role, thereby deterring future governments from inflationary policies. Bank credit must also be backed by gold, and not expanded by banks out of thin air.

But the pervasive and mistaken beliefs in macroeconomics appear to be an unsurmountable impediment to an orderly change towards sound money. Imposing their fervent denial of economic reality, macroeconomists are in charge of both economic and monetary policy in America, Europe and Japan ­— and by extension those of almost all other nations. It is not even certain that a currency collapse will dislodge them from their position of power, prolonging the chaos that will ensue.

Talk of a monetary reset only makes any sense if those doing the resetting understand what they are doing. And one thing will become immediately clear: the Americans, who stand to lose power over global affairs, will be the most reluctant of all nations to accept that the days of its hegemonic currency are numbered and that a return to a credible gold standard is the only solution.

Transition pains on Comex

Only through knowledge of why fiat currencies’ days are numbered can one understand what is happening to the gold price. For now, those who do not appreciate the fallacies behind macroeconomics and think of gold as an investment see gold’s move from December 2015 as a bull market which sooner or later will probably come to an end — perhaps when interest rates or bond yields rise.

But those who see gold as sound money and no one else’s counterparty risk will understand that a rising price for gold should be regarded as part and parcel of a fall in the purchasing power of their fiat currency. In fact, it is a change of purchasing power for both. As fiat money loses purchasing power, gold gains it disproportionately because of its relative scarcity, while the collapse in fiat money progresses.

In the increasingly likely event that fiat currencies will lose all function as money, measured in them the gold price will trend to infinity. It is now difficult to see how the dollar can avoid this outcome, or something close to it.

That being the case, in this context a price move for gold above $2000 per ounce is an insignificant event, except for those trapped with short positions, which brings us to the chaos on the Comex futures market. Figure 2 shows the position in US gold futures markets on 28 July (the last Commitment of Traders information available) with the spread positions removed.

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The swaps are bullion bank trading desks, which typically take positions across more than one derivative market, notably London forwards settling unallocated accounts. Together with the Producers and Merchants category, they almost always run net short positions on Comex.

Producers, miners and their agents acting for them, hedge against falls in the gold price and make up the bulk of the short positions in their category. Merchants, typically jewellers and buyers for industrial and other purposes, hedge against price rises by holding long contracts.

The concept of futures markets did not originally include banks in the non-speculative category, because futures markets were a means for farmers to unburden themselves from price risk, due to seasonal factors, to speculators willing to take the risk upon themselves.

However, banks managed to persuade the CME to be categorised as non-speculators, on the basis they often acted as agents for producers in non-agricultural contracts. 

And in gold, which is what concerns us, they also ran positions in London which they wished to hedge on Comex. But as has been seen in Figure 2, the bullion banks now account for 70% of the shorts, when in the past they would typically account for significantly less. And as we show later in this article, they have no physical gold in London to hedge.

The result is their gross short position of 262,796 contracts is now an uncovered commitment of $53bn spread between 27 traders. Figure 3 puts this in an historical context over the last ten years.

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Bullion banks’ shorts net of longs (the blue line) are at record levels, and gross shorts are almost at record highs, only exceeded at the beginning of the year when open interest had risen to an unprecedented level of 799,541 contracts on 15 January.

On the speculator side, the dominant category is nearly always Managed Money, which is predominantly hedge fund traders. They are rarely interested in taking delivery and will close or roll their positions. They are nearly always biased to the buy-side, and over the long term have averaged a net long position of about 112,000 contracts, which we can call the neutral position. But currently, they are an unusual minority 42% of the speculator longs and are only moderately positioned above their neutral net long average.

Far from being the masters of the investment universe, hedge funds have proved to be an easy target for the bullion banks, regularly spooking them out of their long positions. And by acting in the fashion of committed macroeconomists, hedge funds have used the current strength in the gold price to take profits, reducing net longs from the previous week’s COT report by 21,362 contracts.

They seem unaware of or disinterested in a bigger picture. Furthermore, at 42,758, the level of their short contracts is above average, which could contribute to the bear squeeze in the coming weeks as they realise their mistake.

The Other Reportable category is for traders that do not fit into the other three categories described above. The longs in this category are close to a previous record level, which was on 24 March at 158,963 contracts. Unusually that was recorded two business days after the market turned higher following the price collapse in early March from $1700 to $1455. We can therefore count the Other Reportable category as smart money, at least in the current climate, less likely to be shaken out of their positions by swap dealers trying to trigger stops.

We can only conclude that swap dealers have not only ended up nearly record short, but the liquidity on Comex provided by hedge funds, which normally enables them to close their shorts, is restricted. Furthermore, mark-to-market losses come at a time when their banks’ wider operations are cutting back on risk exposure to financial commitments where they can.

But these near-record losses are likely to increase significantly as central bank money-printing accelerates in an attempt to prevent an economic slump and to maintain financial asset prices.

If something else does not break before, a full-scale banking crisis could evolve from the paper gold market.

The authorities can be expected to do everything to avoid a failure on Comex, because the damage to the wider market would be extremely serious. Instead, banking members of the London Bullion Market Association (LBMA) would probably be expected to bid up the gold price in the forward market in an attempt to square their books and for banks to swallow the losses. That cannot happen as will be explained in the next section.

In short, over the coming weeks, we can expect a transition phase as the crisis refocuses on London’s forward settlement market, which is the casino hidden from view.

London’s hidden liabilities

Trading in London for forward settlement is a far larger market than Comex. According to the Bank for International Settlements, at the end of 2019, the notional amount of over the counter (OTC) gold forwards and swaps outstanding stood at $512bn[iii], which compares with Comex open interest of $120bn on the same day, noting that open interest at 786,166 futures contracts at that time was an elevated level.

The London Bullion Market Association makes great play of its liquidity, in its last press release claiming total physical backing for its forward market was 8,424 tonnes in April.[iv]

But of that total, 5,464 tonnes are gold vaulted at the Bank of England, of which perhaps 95% is earmarked for central banks and foreign exchequers.

We have discovered from the SPDR Gold Trust’s quarterly filing with the SEC (the GLD ETF) that 45.91 tonnes of its gold was held at the Bank of England on 27 April.[v]

The fact that GLD’s custodian, HSBC, was forced to use the Bank of England as a sub-custodian suggests a serious lack of available bullion in LBMA member vaults.

To explore this issue, Table 1 below shows the notional bullion position in London, confirming the lack of free float.

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While admittedly simplistic, these figures show that there is no liquidity in London. According to the World Gold Council, total ETF physical holdings at end-April were 3,364 tonnes, of which, according to Paul Mylchreest’s Hardman report[vi], over 70% is vaulted in London, or 2,390 tonnes in Table 1.[vii]

To this figure must be added gold privately vaulted by sovereign wealth funds, institutions, family offices and agglomerating businesses on behalf of retail customers. These bullion stocks are held with the vaulting companies (Brinks, G4S, Loomis and Malca-Amit), and are likely to amount to a further 400-500 tonnes.[viii]

Since April, ETF holdings have increased by a further 387 tonnes, of which we will again assume over 70%, 275 tonnes, is stored in London (24 July – source WGC). While there are some guesses concerning underlying changes in these figures since end-April, they could easily result in a negative figure, as Table 1 suggests. Furthermore, if ETF and private demand for bullion escalate further a crisis in London is bound to emerge.

It is here that the Bank of England might have intervened by leaning on its central bank clients to lease some of their earmarked gold – vide the 45.91 tonnes reported to be held for the GLD ETF in April. But there is a further problem: the notional lease rate has been negative since March, which means that a central bank leasing at the market rate has to pay the lessee for the privilege. This suggests that leasing can only occur if market rates are ignored and a fee is paid instead.

It is important to note that under a lease agreement, ownership remains with the lessor. Gold leased through the agency of the Bank of England is unlikely to leave the Bank’s vaults, merely credited through book-entries to lessees. Therefore, for the lessor there is no counterparty risk because if the lessee defaults, the Bank of England merely reallocates the bullion back to the lessor. But in a wider bullion crisis, the double counting of bullion “ownership” through leasing will be exposed, the liabilities falling entirely on the bullion banks. Holders of the GLD ETF should seek confirmation that none of its gold in the Bank’s vaults is so leased.

The alternative to central banks providing liquidity is unthinkable: that bullion banks obtain their liquidity by illegally using bullion held in their custody. Unfortunately, suspicions are compounded by the LBMA’s secrecy over market operations, only releasing selected information when it is no longer relevant. The LBMA’s press releases are also misleading; headlining total gold vaulted in London creates the impression of physical liquidity, which is patently untrue.

For their wealthier customers, bullion banks offer gold accounts in two forms: allocated and unallocated. They are discouraged from opening an allocated account, through expensive fees, notionally covering the vaulting and insurance of physical metal and administrative costs.

The real reason is that banks prefer their customers to open unallocated accounts, encouraging them with minimal fees, because these can be fractionally reserved if they are reserved at all. In other words, a bullion bank can hold enough just enough gold to cover the random demands for withdrawals. But as Table 1 above demonstrates, not even that physical liquidity now exists.

While physical settlement involving allocated gold accounts obviously does occur, it is unallocated accounts settling through the AURUM electronic settlement system which accounts for almost all day to day London trade settlements. AURUM is the means of settlement between members of the LBMA through the London Precious Metal Clearing Limited.

Transactions for settlement in unallocated form are funnelled through one of the five members who net them down into a single settlement through AURUM. The five members of LPMCL (JPMorgan, UBS, HSBC, ICBC Standard Bank and Scotiabank) all have unallocated accounts with each other, and the settlements determined by AURUM are for currency on one side and unallocated bullion on the other.[ix]

Therefore, the massive quantities of gold being settled are divorced from physical settlement, and amount to nearly all the BIS derivative estimate quoted above of $512bn in positions outstanding at the end of last year. But depositors with unallocated gold accounts undoubtedly believe they have exposure to the gold price, otherwise they would insist at the least on their accounts being allocated with their bullion bank acting as custodian.

As the current crisis in paper markets evolves, loss of faith in the ability of bullion banks to settle unallocated accounts in gold will risk generating a run on these accounts and a rush to secure physical gold before prices rise further.

While the authorities in America will do everything to avoid a gold and silver crisis on Comex, any thought that it can be buried behind closed doors in London is fanciful. The same bullion banks trade both markets.

A crisis in the bullion banks threatens to leave at the last count about $500bn of unallocated gold accounts in London plus a further 262,796 Comex contracts ($53bn at $2,030 – see Figure 2 above) swinging in the wind.

The expansion of paper gold since the early 1980s which has put a lid on the gold price is coming to its end, and the removal of this obstacle will only serve to push the price significantly higher.

Conclusión

We appear to be witnessing the early stages of a breakdown in the paper gold markets on Comex and in London, brought forward by central banks committed to accelerating their inflationary policies in an act of macroeconomic desperation to save their government finances and their economies.

The method employed is a dead ringer for an earlier experiment in France exactly three hundred years ago when John Law’s Mississippi bubble imploded, destroying his currency, the livre.

If you bind the fate of financial assets to that of your fiat currency, as John Law did, and which is now the policy of the Federal Reserve, when the bubble pops the currency goes pop as well.

This outcome is so obvious that the smart money is now getting out of fiat and into physical gold and silver, as witnessed through deliveries on Comex active contract expiries and the disappearance of all physical liquidity in London.

This being the case, a gathering stampede out of paper currencies and derivative contracts into physical bullion has just started. Unless it is somehow stopped, it will destroy paper markets and with them the banks that have benefitted from them over the last forty years.

The acceleration in the destruction of fiat money will gather pace in the next few months, and anyone who spouts macroeconomic nonsense instead of acting in the face of these developments will end up with nothing.

The Chinese economic model

Xi Jinping is reinventing state capitalism. Don’t underestimate it

China’s strongman leader has a new economic agenda























America’s confrontation with China is escalating dangerously. In the past week the White House has announced what may amount to an imminent ban on TikTok and WeChat (two Chinese apps), imposed sanctions on Hong Kong’s leaders and sent a cabinet member to Taiwan. This ratcheting up of pressure partly reflects electioneering: being tough on China is a key strut of President Donald Trump’s campaign.

It is partly ideological, underscoring the urgency the administration’s hawks attach to pushing back on all fronts against an increasingly assertive China. But it also reflects an assumption that has underpinned the Trump administration’s attitude to China from the beginning of the trade war: that this approach will yield results, because China’s steroidal state capitalism is weaker than it looks.

The logic is alluringly simple. Yes, China has delivered growth, but only by relying on an unsustainable formula of debt, subsidies, cronyism and intellectual-property theft. Press hard enough and its economy could buckle, forcing its leaders to make concessions and, eventually, to liberalise their state-led system. As the secretary of state, Mike Pompeo, puts it, “Freedom-loving nations of the world must induce China to change.”

Simple, but wrong. China’s economy was less harmed by the tariff war than expected. It has been far more resilient to the covid-19 pandemic—the imf forecasts growth of 1% in 2020 compared with an 8% drop in America.  
Shenzhen is the world’s best-performing big stockmarket this year, not New York. And, as our briefing explains, China’s leader, Xi Jinping, is reinventing state capitalism for the 2020s.

Forget belching steel plants and quotas. Mr Xi’s new economic agenda is to make markets and innovation work better within tightly defined boundaries and subject to all-seeing Communist Party surveillance. It isn’t Milton Friedman, but this ruthless mix of autocracy, technology and dynamism could propel growth for years.

Underestimating China’s economy is hardly a new phenomenon.

Since 1995 China’s share of world gdp at market prices has risen from 2% to 16%, despite waves of Western scepticism. Silicon Valley chiefs dismissed Chinese tech firms as copycats; Wall Street short-sellers said ghost towns of empty apartments would bring a banking crash; statisticians worried that the gdp figures were fiddled and speculators warned that capital flight would cause a currency crisis.

China has defied the sceptics because its state capitalism has adapted, changing shape. Twenty years ago, for example, the emphasis was on trade, but now exports account for only 17% of GDP. In the 2010s officials gave tech firms such as Alibaba and Tencent just enough space to grow into giants and, in Tencent’s case, to create a messaging app, WeChat, that is also an instrument of party control.

Now the next phase of Chinese state capitalism is under way—call it Xinomics. Since he took power in 2012 Mr Xi’s political goal has been to tighten the party’s grip and crush dissent at home and abroad. His economic agenda is designed to increase order and resilience against threats. For good reason.

Public and private debt has soared since 2008 to almost 300% of GDP. Business is bifurcated between stodgy state firms and a Wild West private sector that is innovative but faces predatory officials and murky rules. As protectionism spreads, Chinese firms risk being locked out of markets and denied access to Western technology.

Xinomics has three elements. First, tight control over the economic cycle and the debt machine. The days of supersized fiscal and lending binges are over. Banks have been forced to recognise off-balance-sheet activity and build up buffers. More lending is taking place through a cleaned-up bond market. Unlike its reaction to the financial crisis of 2008-09, the government’s response to covid-19 has been restrained, with a stimulus worth about 5% of gdp, less than half the size of America’s.

The second strand is a more efficient administrative state, whose rules apply uniformly across the economy. Even as Mr Xi has used party-imposed law to sow fear in Hong Kong, he has constructed a commercial legal system in the mainland that is far more responsive to businesses.

Bankruptcies and patent lawsuits, once rare, have risen fivefold since he took office in 2012.

Red tape has been trimmed: it now takes nine days to set up a company. More predictable rules should allow markets to work more smoothly, boosting the economy’s productivity.

The final element is to blur the boundary between state and private firms. State-run companies are being compelled to boost their financial returns and draw in private investors. Meanwhile the state is exerting strategic control over private firms, through party cells within them. A credit blacklisting system penalises firms that misbehave.

Instead of indiscriminate industrial policy, such as the “Made in China 2025” campaign launched in 2015, Mr Xi is shifting to a sharp focus on supply-chain choke-points where China is either vulnerable to foreign coercion or where it can exert influence abroad. That means building up self-sufficiency in key technologies, including semiconductors and batteries.

Xinomics has performed well in the short term. The build-up of debt had slowed before covid-19 struck and the twin shocks of the trade war and the pandemic have not led to a financial crisis. State-run firms’ productivity is creeping up and foreign investors are pouring cash into a new generation of Chinese tech firms. The real test, however, will come over time. China hopes that its new techno-centric form of central planning can sustain innovation, but history suggests that diffuse decision-making, open borders and free speech are the magic ingredients.

One thing is clear: the hope for confrontation followed by capitulation is misguided. America and its allies must prepare for a far longer contest between open societies and China’s state capitalism. Containment won’t work: unlike the Soviet Union, China’s huge economy is sophisticated and integrated with the rest of the world.

Instead the West needs to build up its diplomatic capacity and create new, stable rules that allow co-operation with China in some areas, such as fighting climate change and pandemics, and commerce to continue alongside stronger protections for human rights and national security.

The strength of China’s $14trn state-capitalist economy cannot be wished away. Time to shed that illusion.

The Unraveling of America

Anthropologist Wade Davis on how COVID-19 signals the end of the American era

By WADE DAVIS

BAYONNE, NJ - MAY 3: A wind blown American flag at the Tear Drop 9/11 Memorial flies over the skyline of New York City as the sun sets on May 3, 2020 in Bayonne, New Jersey. (Photo by Gary Hershorn/Getty Images)
BAYONNE, NJ - MAY 3: A wind blown American flag at the Tear Drop 9/11 Memorial flies over the skyline of New York City as the sun sets on May 3, 2020 in Bayonne, New Jersey. (Photo by Gary Hershorn/Getty Images)


Never in our lives have we experienced such a global phenomenon. For the first time in the history of the world, all of humanity, informed by the unprecedented reach of digital technology, has come together, focused on the same existential threat, consumed by the same fears and uncertainties, eagerly anticipating the same, as yet unrealized, promises of medical science.




In a single season, civilization has been brought low by a microscopic parasite 10,000 times smaller than a grain of salt. COVID-19 attacks our physical bodies, but also the cultural foundations of our lives, the toolbox of community and connectivity that is for the human what claws and teeth represent to the tiger.

Our interventions to date have largely focused on mitigating the rate of spread, flattening the curve of morbidity. There is no treatment at hand, and no certainty of a vaccine on the near horizon. The fastest vaccine ever developed was for mumps. It took four years. COVID-19 killed 100,000 Americans in four months. There is some evidence that natural infection may not imply immunity, leaving some to question how effective a vaccine will be, even assuming one can be found. And it must be safe. If the global population is to be immunized, lethal complications in just one person in a thousand would imply the death of millions. 
Pandemics and plagues have a way of shifting the course of history, and not always in a manner immediately evident to the survivors. In the 14th Century, the Black Death killed close to half of Europe’s population. A scarcity of labor led to increased wages. Rising expectations culminated in the Peasants Revolt of 1381, an inflection point that marked the beginning of the end of the feudal order that had dominated medieval Europe for a thousand years.

The COVID pandemic will be remembered as such a moment in history, a seminal event whose significance will unfold only in the wake of the crisis. It will mark this era much as the 1914 assassination of Archduke Ferdinand, the stock market crash of 1929, and the 1933 ascent of Adolf Hitler became fundamental benchmarks of the last century, all harbingers of greater and more consequential outcomes.

COVID’s historic significance lies not in what it implies for our daily lives. Change, after all, is the one constant when it comes to culture. All peoples in all places at all times are always dancing with new possibilities for life. As companies eliminate or downsize central offices, employees work from home, restaurants close, shopping malls shutter, streaming brings entertainment and sporting events into the home, and airline travel becomes ever more problematic and miserable, people will adapt, as we’ve always done.

Fluidity of memory and a capacity to forget is perhaps the most haunting trait of our species.

As history confirms, it allows us to come to terms with any degree of social, moral, or environmental degradation.

To be sure, financial uncertainty will cast a long shadow. Hovering over the global economy for some time will be the sober realization that all the money in the hands of all the nations on Earth will never be enough to offset the losses sustained when an entire world ceases to function, with workers and businesses everywhere facing a choice between economic and biological survival.

Unsettling as these transitions and circumstances will be, short of a complete economic collapse, none stands out as a turning point in history. But what surely does is the absolutely devastating impact that the pandemic has had on the reputation and international standing of the United States of America.

In a dark season of pestilence, COVID has reduced to tatters the illusion of American exceptionalism. At the height of the crisis, with more than 2,000 dying each day, Americans found themselves members of a failed state, ruled by a dysfunctional and incompetent government largely responsible for death rates that added a tragic coda to America’s claim to supremacy in the world.

For the first time, the international community felt compelled to send disaster relief to Washington. For more than two centuries, reported the Irish Times, “the United States has stirred a very wide range of feelings in the rest of the world: love and hatred, fear and hope, envy and contempt, awe and anger. But there is one emotion that has never been directed towards the U.S. until now: pity.” As American doctors and nurses eagerly awaited emergency airlifts of basic supplies from China, the hinge of history opened to the Asian century.

No empire long endures, even if few anticipate their demise. Every kingdom is born to die. The 15th century belonged to the Portuguese, the 16th to Spain, 17th to the Dutch. France dominated the 18th and Britain the 19th. Bled white and left bankrupt by the Great War, the British maintained a pretense of domination as late as 1935, when the empire reached its greatest geographical extent. By then, of course, the torch had long passed into the hands of America.

In 1940, with Europe already ablaze, the United States had a smaller army than either Portugal or Bulgaria. Within four years, 18 million men and women would serve in uniform, with millions more working double shifts in mines and factories that made America, as President Roosevelt promised, the arsenal of democracy.

When the Japanese within six weeks of Pearl Harbor took control of 90 percent of the world’s rubber supply, the U.S. dropped the speed limit to 35 mph to protect tires, and then, in three years, invented from scratch a synthetic-rubber industry that allowed Allied armies to roll over the Nazis. At its peak, Henry Ford’s Willow Run Plant produced a B-24 Liberator every two hours, around the clock.

Shipyards in Long Beach and Sausalito spat out Liberty ships at a rate of two a day for four years; the record was a ship built in four days, 15 hours and 29 minutes. A single American factory, Chrysler’s Detroit Arsenal, built more tanks than the whole of the Third Reich.

In the wake of the war, with Europe and Japan in ashes, the United States with but 6 percent of the world’s population accounted for half of the global economy, including the production of 93 percent of all automobiles. Such economic dominance birthed a vibrant middle class, a trade union movement that allowed a single breadwinner with limited education to own a home and a car, support a family, and send his kids to good schools.

It was not by any means a perfect world but affluence allowed for a truce between capital and labor, a reciprocity of opportunity in a time of rapid growth and declining income inequality, marked by high tax rates for the wealthy, who were by no means the only beneficiaries of a golden age of American capitalism.

But freedom and affluence came with a price. The United States, virtually a demilitarized nation on the eve of the Second World War, never stood down in the wake of victory. To this day, American troops are deployed in 150 countries. Since the 1970s, China has not once gone to war; the U.S. has not spent a day at peace. President Jimmy Carter recently noted that in its 242-year history, America has enjoyed only 16 years of peace, making it, as he wrote, “the most warlike nation in the history of the world.”

Since 2001, the U.S. has spent over $6 trillion on military operations and war, money that might have been invested in the infrastructure of home. China, meanwhile, built its nation, pouring more cement every three years than America did in the entire 20th century.

As America policed the world, the violence came home. On D-Day, June 6th, 1944, the Allied death toll was 4,414; in 2019, domestic gun violence had killed that many American men and women by the end of April. By June of that year, guns in the hands of ordinary Americans had caused more casualties than the Allies suffered in Normandy in the first month of a campaign that consumed the military strength of five nations.

More than any other country, the United States in the post-war era lionized the individual at the expense of community and family. It was the sociological equivalent of splitting the atom.

What was gained in terms of mobility and personal freedom came at the expense of common purpose. In wide swaths of America, the family as an institution lost its grounding. By the 1960s, 40 percent of marriages were ending in divorce. Only six percent of American homes had grandparents living beneath the same roof as grandchildren; elders were abandoned to retirement homes.

With slogans like “24/7” celebrating complete dedication to the workplace, men and women exhausted themselves in jobs that only reinforced their isolation from their families. The average American father spends less than 20 minutes a day in direct communication with his child. By the time a youth reaches 18, he or she will have spent fully two years watching television or staring at a laptop screen, contributing to an obesity epidemic that the Joint Chiefs have called a national security crisis.

FILE - In this April 3, 1944, file photo Bofors guns used by the Army and Navy are shown lined up at the Firestone Tire & Rubber Co. in Akron, Ohio. Not since World War II when factories converted from making automobiles to making tanks, Jeeps and torpedos has the entire nation been asked to truly sacrifice for a greater good. (AP Photo, File)
Firestone Tire & Rubber Co. in Akron, Ohio on April 3rd, 1944. When the Japanese within six weeks of Pearl Harbor took control of 90 percent of the world’s rubber supply, the U.S. dropped the speed limit to 35 mph to protect tires, and then, in three years, invented from scratch a synthetic-rubber industry. AP


Only half of Americans report having meaningful, face-to-face social interactions on a daily basis. The nation consumes two-thirds of the world’s production of antidepressant drugs. The collapse of the working-class family has been responsible in part for an opioid crisis that has displaced car accidents as the leading cause of death for Americans under 50.

At the root of this transformation and decline lies an ever-widening chasm between Americans who have and those who have little or nothing. Economic disparities exist in all nations, creating a tension that can be as disruptive as the inequities are unjust. In any number of settings, however, the negative forces tearing apart a society are mitigated or even muted if there are other elements that reinforce social solidarity — religious faith, the strength and comfort of family, the pride of tradition, fidelity to the land, a spirit of place.

But when all the old certainties are shown to be lies, when the promise of a good life for a working family is shattered as factories close and corporate leaders, growing wealthier by the day, ship jobs abroad, the social contract is irrevocably broken. For two generations, America has celebrated globalization with iconic intensity, when, as any working man or woman can see, it’s nothing more than capital on the prowl in search of ever cheaper sources of labor.

For many years, those on the conservative right in the United States have invoked a nostalgia for the 1950s, and an America that never was, but has to be presumed to have existed to rationalize their sense of loss and abandonment, their fear of change, their bitter resentments and lingering contempt for the social movements of the 1960s, a time of new aspirations for women, gays, and people of color.

In truth, at least in economic terms, the country of the 1950s resembled Denmark as much as the America of today. Marginal tax rates for the wealthy were 90 percent. The salaries of CEOs were, on average, just 20 times that of their mid-management employees.

Today, the base pay of those at the top is commonly 400 times that of their salaried staff, with many earning orders of magnitude more in stock options and perks. The elite one percent of Americans control $30 trillion of assets, while the bottom half have more debt than assets. The three richest Americans have more money than the poorest 160 million of their countrymen. Fully a fifth of American households have zero or negative net worth, a figure that rises to 37 percent for black families.

The median wealth of black households is a tenth that of whites. The vast majority of Americans — white, black, and brown — are two paychecks removed from bankruptcy.

Though living in a nation that celebrates itself as the wealthiest in history, most Americans live on a high wire, with no safety net to brace a fall.

With the COVID crisis, 40 million Americans lost their jobs, and 3.3 million businesses shut down, including 41 percent of all black-owned enterprises. Black Americans, who significantly outnumber whites in federal prisons despite being but 13 percent of the population, are suffering shockingly high rates of morbidity and mortality, dying at nearly three times the rate of white Americans. The cardinal rule of American social policy — don’t let any ethnic group get below the blacks, or allow anyone to suffer more indignities — rang true even in a pandemic, as if the virus was taking its cues from American history.

COVID-19 didn’t lay America low; it simply revealed what had long been forsaken. As the crisis unfolded, with another American dying every minute of every day, a country that once turned out fighter planes by the hour could not manage to produce the paper masks or cotton swabs essential for tracking the disease. The nation that defeated smallpox and polio, and led the world for generations in medical innovation and discovery, was reduced to a laughing stock as a buffoon of a president advocated the use of household disinfectants as a treatment for a disease that intellectually he could not begin to understand.

As a number of countries moved expeditiously to contain the virus, the United States stumbled along in denial, as if willfully blind. With less than four percent of the global population, the U.S. soon accounted for more than a fifth of COVID deaths. The percentage of American victims of the disease who died was six times the global average. Achieving the world’s highest rate of morbidity and mortality provoked not shame, but only further lies, scapegoating, and boasts of miracle cures as dubious as the claims of a carnival barker, a grifter on the make.

As the United States responded to the crisis like a corrupt tin pot dictatorship, the actual tin pot dictators of the world took the opportunity to seize the high ground, relishing a rare sense of moral superiority, especially in the wake of the killing of George Floyd in Minneapolis. The autocratic leader of Chechnya, Ramzan Kadyrov, chastised America for “maliciously violating ordinary citizens’ rights.” North Korean newspapers objected to “police brutality” in America. Quoted in the Iranian press, Ayatollah Khamenei gloated, “America has begun the process of its own destruction.”

Trump’s performance and America’s crisis deflected attention from China’s own mishandling of the initial outbreak in Wuhan, not to mention its move to crush democracy in Hong Kong. When an American official raised the issue of human rights on Twitter, China’s Foreign Ministry spokesperson, invoking the killing of George Floyd, responded with one short phrase, “I can’t breathe.”

These politically motivated remarks may be easy to dismiss. But Americans have not done themselves any favors. Their political process made possible the ascendancy to the highest office in the land a national disgrace, a demagogue as morally and ethically compromised as a person can be. As a British writer quipped, “there have always been stupid people in the world, and plenty of nasty people too. But rarely has stupidity been so nasty, or nastiness so stupid”.

The American president lives to cultivate resentments, demonize his opponents, validate hatred. His main tool of governance is the lie; as of July 9th, 2020, the documented tally of his distortions and false statements numbered 20,055. If America’s first president, George Washington, famously could not tell a lie, the current one can’t recognize the truth. Inverting the words and sentiments of Abraham Lincoln, this dark troll of a man celebrates malice for all, and charity for none.

Odious as he may be, Trump is less the cause of America’s decline than a product of its descent.

As they stare into the mirror and perceive only the myth of their exceptionalism, Americans remain almost bizarrely incapable of seeing what has actually become of their country. The republic that defined the free flow of information as the life blood of democracy, today ranks 45th among nations when it comes to press freedom. In a land that once welcomed the huddled masses of the world, more people today favor building a wall along the southern border than supporting health care and protection for the undocumented mothers and children arriving in desperation at its doors.

In a complete abandonment of the collective good, U.S. laws define freedom as an individual’s inalienable right to own a personal arsenal of weaponry, a natural entitlement that trumps even the safety of children; in the past decade alone 346 American students and teachers have been shot on school grounds.

The American cult of the individual denies not just community but the very idea of society. No one owes anything to anyone. All must be prepared to fight for everything: education, shelter, food, medical care. What every prosperous and successful democracy deems to be fundamental rights — universal health care, equal access to quality public education, a social safety net for the weak, elderly, and infirmed — America dismisses as socialist indulgences, as if so many signs of weakness.

How can the rest of the world expect America to lead on global threats — climate change, the extinction crisis, pandemics — when the country no longer has a sense of benign purpose, or collective well-being, even within its own national community? Flag-wrapped patriotism is no substitute for compassion; anger and hostility no match for love.

Those who flock to beaches, bars, and political rallies, putting their fellow citizens at risk, are not exercising freedom; they are displaying, as one commentator has noted, the weakness of a people who lack both the stoicism to endure the pandemic and the fortitude to defeat it. Leading their charge is Donald Trump, a bone spur warrior, a liar and a fraud, a grotesque caricature of a strong man, with the backbone of a bully.

Over the last months, a quip has circulated on the internet suggesting that to live in Canada today is like owning an apartment above a meth lab. Canada is no perfect place, but it has handled the COVID crisis well, notably in British Columbia, where I live. Vancouver is just three hours by road north of Seattle, where the U.S. outbreak began. Half of Vancouver’s population is Asian, and typically dozens of flights arrive each day from China and East Asia.

Logically, it should have been hit very hard, but the health care system performed exceedingly well. Throughout the crisis, testing rates across Canada have been consistently five times that of the U.S. On a per capita basis, Canada has suffered half the morbidity and mortality. For every person who has died in British Columbia, 44 have perished in Massachusetts, a state with a comparable population that has reported more COVID cases than all of Canada.

As of July 30th, even as rates of COVID infection and death soared across much of the United States, with 59,629 new cases reported on that day alone, hospitals in British Columbia registered a total of just five COVID patients.

When American friends ask for an explanation, I encourage them to reflect on the last time they bought groceries at their neighborhood Safeway. In the U.S. there is almost always a racial, economic, cultural, and educational chasm between the consumer and the check-out staff that is difficult if not impossible to bridge.

In Canada, the experience is quite different. One interacts if not as peers, certainly as members of a wider community. The reason for this is very simple. The checkout person may not share your level of affluence, but they know that you know that they are getting a living wage because of the unions.

And they know that you know that their kids and yours most probably go to the same neighborhood public school.

Third, and most essential, they know that you know that if their children get sick, they will get exactly the same level of medical care not only of your children but of those of the prime minister. These three strands woven together become the fabric of Canadian social democracy.

Asked what he thought of Western civilization, Mahatma Gandhi famously replied, “I think that would be a good idea.” Such a remark may seem cruel, but it accurately reflects the view of America today as seen from the perspective of any modern social democracy.

Canada performed well during the COVID crisis because of our social contract, the bonds of community, the trust for each other and our institutions, our health care system in particular, with hospitals that cater to the medical needs of the collective, not the individual, and certainly not the private investor who views every hospital bed as if a rental property.

The measure of wealth in a civilized nation is not the currency accumulated by the lucky few, but rather the strength and resonance of social relations and the bonds of reciprocity that connect all people in common purpose.

This has nothing to do with political ideology, and everything to do with the quality of life. Finns live longer and are less likely to die in childhood or in giving birth than Americans. Danes earn roughly the same after-tax income as Americans, while working 20 percent less.

They pay in taxes an extra 19 cents for every dollar earned. But in return they get free health care, free education from pre-school through university, and the opportunity to prosper in a thriving free-market economy with dramatically lower levels of poverty, homelessness, crime, and inequality.

The average worker is paid better, treated more respectfully, and rewarded with life insurance, pension plans, maternity leave, and six weeks of paid vacation a year. All of these benefits only inspire Danes to work harder, with fully 80 percent of men and women aged 16 to 64 engaged in the labor force, a figure far higher than that of the United States.

American politicians dismiss the Scandinavian model as creeping socialism, communism lite, something that would never work in the United States. In truth, social democracies are successful precisely because they foment dynamic capitalist economies that just happen to benefit every tier of society.

That social democracy will never take hold in the United States may well be true, but, if so, it is a stunning indictment, and just what Oscar Wilde had in mind when he quipped that the United States was the only country to go from barbarism to decadence without passing through civilization.

Evidence of such terminal decadence is the choice that so many Americans made in 2016 to prioritize their personal indignations, placing their own resentments above any concerns for the fate of the country and the world, as they rushed to elect a man whose only credential for the job was his willingness to give voice to their hatreds, validate their anger, and target their enemies, real or imagined.

One shudders to think of what it will mean to the world if Americans in November, knowing all that they do, elect to keep such a man in political power. But even should Trump be resoundingly defeated, it’s not at all clear that such a profoundly polarized nation will be able to find a way forward. For better or for worse, America has had its time.

The end of the American era and the passing of the torch to Asia is no occasion for celebration, no time to gloat. In a moment of international peril, when humanity might well have entered a dark age beyond all conceivable horrors, the industrial might of the United States, together with the blood of ordinary Russian soldiers, literally saved the world. American ideals, as celebrated by Madison and Monroe, Lincoln, Roosevelt, and Kennedy, at one time inspired and gave hope to millions.

If and when the Chinese are ascendant, with their concentration camps for the Uighurs, the ruthless reach of their military, their 200 million surveillance cameras watching every move and gesture of their people, we will surely long for the best years of the American century. For the moment, we have only the kleptocracy of Donald Trump.

Between praising the Chinese for their treatment of the Uighurs, describing their internment and torture as “exactly the right thing to do,” and his dispensing of medical advice concerning the therapeutic use of chemical disinfectants, Trump blithely remarked, “One day, it’s like a miracle, it will disappear.” He had in mind, of course, the coronavirus, but, as others have said, he might just as well have been referring to the American dream.


Wade Davis holds the Leadership Chair in Cultures and Ecosystems at Risk at the University of British Columbia. His award-winning books include “Into the Silence” and “The Wayfinders.” His new book, “Magdalena: River of Dreams,” is published by Knopf.

How Boris Johnson lost control

A powerful prime minister means little without a governing purpose

Philip Stephens

Ingram Pinn illustration of Philip Stephens column ‘How Boris Johnson lost control’
© Ingram Pinn/Financial Times


 Seizing control is all very well. Sometimes forgotten is that power is useful only when you have a notion of what you want to do with it. Boris Johnson has stumbled upon this truth during an ill-starred year in 10 Downing Street.

Mr Johnson’s personal ambition never looked beyond becoming prime minister. With his hands finally on the levers of power, but lacking anything resembling a prospectus, he has been lost.

Initially, he seemed to think Brexit — “taking back control” as the Brexiters call it — would be purpose enough. In the event, his premiership is being shaped by coronavirus. Here, all the decision-making has belonged to No 10 from the outset, with no one in Brussels to gainsay British politicians. The policy and communications strategy have belonged to the prime minister and his special adviser Dominic Cummings. The result has been a shambles.

Mr Johnson was at first too slow to recognise the threat and then too impatient to lift the economic lockdown before it had sufficiently suppressed the virus. The result is that the UK has had the highest number of excess deaths from coronavirus of any nation in Europe, people are confused about the remaining rules and the government has had to call a halt to Mr Johnson’s plans for further relaxation of social and economic restrictions. His trademark “boosterism” has proven to be no match for a deadly virus.

Effective communications are vital in managing such a crisis. The most important ingredients are clarity and the capacity to instil public trust. In Britain’s case, trust was shattered when Mr Johnson refused to criticise Mr Cummings for openly flouting the lockdown.

Understandably, many took the view that it was one rule for the people, another for a privileged coterie around the prime minister. Insult was piled upon injury when Mr Cummings offered the extraordinary excuse that on the occasion he had broken the travel ban he had been driving his car in order to test his eyesight. Yes, really.

The absence of clarity in the government’s communications mirrors the lack of a coherent strategy. Advised by epidemiologists to apply tough social and economic constraints in the fight against Covid-19, Mr Johnson has struggled to accept that this endeavour will be a long haul. His forte is telling good-news stories.

The only effective policymaking during the crisis has come not from No 10 but from Rishi Sunak, the chancellor. You can quarrel with some of the economic measures Mr Sunak has taken to ease the economic pain, but they do at least fit together.

Mr Cummings, with a background as a political campaigner rather than policymaker, has responded to all this by seeking to hoard still more power in No 10. With a handful of exceptions, cabinet ministers have been sidelined. Mark Sedwill, the outgoing cabinet secretary, heads the list of victims of a purge of senior civil servants deemed to be overly attached to rigorous analysis and too willing to speak truth to power.

Mr Johnson, it should be said, is not the first in his role to have tried to centralise decision-making. It has been something of a modern tradition that new prime ministers are frustrated when they discover constraints on their authority. They start out believing they can do as they please. They then realise that Whitehall resembles a lumbering ocean liner with a wide turning circle rather than the sleek speedboat of their imagination.

Successive leaders have experimented with all manner of institutional fixes to bypass the great baronies represented by Whitehall departments. Inner cabinets, policy and strategy units and “delivery” groups have been invented, disbanded and reinvented. The authority of the Cabinet Office, the central clearing house for decision-making, has waxed and waned. Downing Street has appointed, and unappointed, its own permanent secretaries to counterbalance the weight of the cabinet secretary.

Some of these changes can help. The government machine puts too high a premium on policymaking at the expense of management and implementation skills — a weakness visible during coronavirus. And Mr Cummings is only the latest in a long line of ministerial advisers who have said Whitehall should recruit more engineers and mathematicians alongside its traditional intake of humanities graduates.

For the most part, though, rearranging the institutional furniture is a displacement activity — a poor substitute for the pursuit of an intelligent governing strategy. The prime ministers who have succeeded through the years in bending the will of Whitehall to their service have done so not by changing personnel reporting lines but by setting clear ambitions and pursuing them with consistency.

Few doubted Margaret Thatcher’s ability to get her own way in Downing Street. Beyond winning general elections, what mattered was her political determination and clarity of purpose. The same could be said of Tony Blair, even if he once complained bitterly about Whitehall obstructionism.

The irony is that both former prime ministers ended up as unwitting victims of their impregnable authority. No one in Thatcher’s cabinet was strong enough to prevent her introducing the politically ruinous poll tax that loomed large in her downfall. Mr Blair’s rush to war in Iraq likewise went almost unchallenged. I somehow doubt Mr Johnson will ever exercise such control.