The floating of Glencore today at a value of £38bn is a watershed in contemporary international capitalism. Its initial public offer is the biggest yet launched on the London stock market, making its chief executive an overnight multi-billionaire worth £6bn, but its significance goes far wider. It may well mark the turning point in the simultaneous boom in almost all commodities over the last 18 months which has pushed up inflation sharply in both the developing and developed world. Just as the ill-fated RBS takeover of ABN Amro foreshadowed the high-water mark of bank recklessness before the financial crash of 2007-8, so the Glencore flotation may well represent the point of disclocation which always occurs eventually in all unsupportable booms.
The vast commodity price bubble arose partly because of uncertainties in the North African/Middle East markets (a risk premium of perhaps $20 in the oil price of $140 a barrel) and partly because of asset speculation once the boom got under way, but mainly because China amid strong growth was only able to hold down its currency (a cardinal point of its economic policy) by fuelling a rapid rise in global commodity prices. What is worrying is that commodities have acted like the asset-backed derivatives that triggered the financial crash of 3 years ago, and are at risk of generating the same destructive effect now because of the manifest failures of Western policy-making in the meantime.
The global imbalances remain as severe and dangerous as they were just before the banking crash with the US and UK still running up huge import deficits with China, and it is staggering how little has been done to reform financial markets. The West still continues to base its economic goals on unsustainable bubbles of consumer debt (with Osborne planning for UK private debt to reach £2.1 trillions by 2015, 150% of GDP). Because financial markets were not re-regulated, the rise in commodity prices generated by growth in emerging markets has been intensified by the use of derivatives to speculate in futures markets. The West could also have used buffer stocks to limit price volatility and could have handled strategic reserves (e.g. oil) more cannily to deter speculation.
Once again it’s all being left to markets to sort themselves out. International economic co-ordination is minimal, and the ever-growing power of the hyper-corporations to distort the world economy in their own interest goes unchecked. Glencore already as a trading intermediary controls 60% of the global zinc market and 50% of the copper market. Its Belgian agricultural subsidiary is now charged with corruption over inside information on European export subsidies, and its intervention last August in calling for a ban on Russia’s wheat exports may have been a factor in the ensuing ban and 15% rise in wheat prices which Glencore’s traders had betted on. When will the lessons of unfettered market casinos ever be learnt?