A report published today from Andrew Baker of the Sheffield Political Economy Research Institute, Gerald Epstein, University of Massachusetts, and Juan Montecino, Columbia University, NY, suggests that the cost to the UK economy in terms of lost growth potential arising from hosting an oversized financial services industry was in the region of £4,500 billion between 1995 and 2015. In other words, had the City of London been smaller and focused on more useful functions, Britain might have enjoyed a cumulative boost to GDP over this period worth £4.5 trillion. That is equivalent to around £67,500 for every woman, man and child in the UK. With another recession in the pipeline, the spectre of the Finance Curse looms darkly over the UK economy.

In the fallout from the 2007-8 global banking crisis the financial sector lost some of its aura of invincibility. Once the bailouts had been paid, what had previously seemed like rewards for hard work and quick wits began to look like the proceeds of incompetence and criminality on such a scale that it daunted the public authorities. But even if the criminality and self-dealing could be checked by regulation, is London’s massive finance sector nonetheless a drag on the rest of the economy?

This was one of the questions thrown up by my work as economic adviser to the government of Jersey (a secrecy jurisdiction in the British Channel Islands) in the 1990s. Responsible for advising on how to maintain a ‘balanced and diversified economy’, I found myself trying to reverse an incoming tide as the booming offshore banking and trust administration sectors crowded out other industries. With the island’s economy becoming ever more dependent on financial services, political power skewed in favour of the banks and accounting firms, and the government became increasingly captive to those players.

I gave this phenomenon a name – the Jersey Disease – as a nod in the direction of the well-known Dutch Disease which afflicts mineral and oil exporting nations. For all the billions flowing through the island, a significant proportion of the population were (and are) struggling to pay their rents and make ends meet. I published several papers with a focus on Jersey with my research colleague Mark Hampton (see here, here, and here for example).

My interest in the Jersey Disease put me in contact with author and journalist Nicholas Shaxson, who was reporting for the Financial Times on how West African oil exporting countries were succumbing to the widely recognised Resource Curse. Also known as the paradox of plenty, the Resource Curse arises from the paradox that countries and regions which export minerals and oil and gas tend to have lower economic growth and worse development outcomes than countries with fewer natural resources.

In 2007 Nick joined me at the Tax Justice Network, leading to the publication of his best-selling book Treasure Islands, which explored how tax havens have devastated the global economy. We also discussed the overlaps between the Jersey Disease and the Resource Curse, leading to the publication in 2013 of a short monograph titled The Finance Curse: how oversized financial centres attack democracy and corrupt economies in which we explored how the curse appeared to impact larger economies, including the UK. This work formed the starting point for Nick’s latest book (published today) titled The Finance Curse: How Global Finance is Making Us All Poorer.

Our work on the Finance Curse attracted the attention of other researchers. Andrew Baker, for example, wrote on the SPERI blog that the Finance Curse framing provides an effective grand narrative that can help explain apparently disparate forces, including global economic imbalances, regulatory failures, state capture, and more. Duncan Wigan from Copenhagen Business School also discussed these ideas with us, leading to a joint paper in which we concluded:

The Finance Curse hypothesis overturns an entrenched orthodoxy that what is good for the City must be good for Britain. Claims about the financial sector’s gross contribution are overblown, and an oversized financial sector imposes a wide range of costs on the economy, the polity and society, to result in a net negative for the country.”

Alongside our work on the Finance Curse, since the 2008/9 banking crisis researchers at the International Monetary Fund, the Bank for International Settlements and elsewhere, have posited the idea that once household and corporate debt rises above a certain ratio to national income the debt retards growth and productivity improvements. This line of research, known as the too-much-finance question, rests on econometric analysis which suggests that once the level of debt in an economy rises above a tipping point of between 90 to 100 percent of GDP a number of potential harms to economic performance and overall growth are triggered.

These harms might arise from a variety of causes, including misallocation of investment into real estate and wealth extracting mergers and acquisitions; misallocation of skilled labour to financial services (the BIS researchers refer to finance literally bidding rocket scientists away from the satellite industry); and insufficient funding being allocated to research and develop new products and services.

With interest in both the Finance Curse and the too-much-finance hypothesis increasing, in November 2017 we co-organised with Andrew Baker a research workshop at SPERI, and invited Gerald Epstein to provide a keynote address about his ground-breaking analysis of how Wall Street overcharges Main Street USA. The research findings published today stem from this workshop at SPERI in Autumn 2017.

The City likes to argue that it is the engine of the British economy, generating jobs and taxes to boost our prosperity. This research, which is the first of its kind, shows that these benefits are outweighed by the much larger costs imposed on the rest of the economy by hosting an oversized financial industry. The real cost of hosting the City of London and its satellites at Canary Wharf and elsewhere is £4.5 trillion. This net loss stems from misallocation of resources, which is estimated to have cost the UK economy £2,700 billion during this period, and costs arising from the 2008 banking crisis, which are put at £1,800 billion. £4.5 trillion is approximately 2.5 years of average gross domestic product across the period 1995 to 2015.

The research identifies further potential losses amounting to £680 billion arising from rents extracted by the City of London in the form of excess compensation and excess profits. Since at least part of this rent extraction stems from services provided to offshore clients, we do not include these sums in our estimate of the net cost to the UK economy. Other countries are also being impacted by London’s wealth extraction and overcharging.

When compared with analysis of the costs imposed by hosting an oversized financial sector in the USA, this data suggests that the negative impacts on the UK might be two to three times greater than those imposed on the USA. Hosting the City of London causes more harm to the UK economy relative to the harm inflicted by Wall Street on Main Street USA.

Our hope is that this research, and the broader narrative frame provided by the Finance Curse will stimulate a fresh conversation among academics, activists and a wider public about the many pitfalls of hosting an oversized financial industry. Much more research is needed to test our analysis and explore these ideas, but the initial findings support the view that London, a global financial centre, extracts wealth from the rest of the UK economy as well as from the rest of the world. It is not the golden goose claimed by its vast public relations team: from our vantage point it looks much more like a cuckoo in the nest.

Read the new report here

Read Nick Shaxson’s Guardian Long Read on the Finance Curse

Watch this short video explainer on the Finance Curse

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According to a new OECD working paper, Britain is one of the wealthiest countries in the world. Net wealth is estimated to stand at around $500,000 per household – more than double the equivalent figure in Germany, and triple that in the Netherlands. Only Luxembourg and the USA are wealthier among OECD countries.

On one level, this isn’t too surprising – Britain has long been a wealthy country. But in recent decades Britain’s economic performance has been poor. Decades of economic mismanagement have left the UK lagging far behind other advanced economies. British workers are now 29% less productive than workers in France, and 35% less than in Germany. How can this discrepancy between high levels of wealth and low levels of productivity be explained?

The process of how wealth is accumulated has been subject of much debate throughout history. If you pick up an economics textbook today, you’ll probably encounter a narrative similar to the following: wealth is created when entrepreneurs combine the factors of production – land, labour and capital – to create something more valuable than the raw inputs. Some of this surplus may be saved, increasing the stock of wealth, while the rest is reinvested in the production process to create more wealth.

How the fruits of wealth creation should be divided between capital, land and labour has been subject of considerable debate throughout history. In 1817, the economist David Ricardo described this as “the principal problem in political economy”.

Nowadays, however, this debate attracts much less attention. That’s because modern economic theory has developed an answer to this problem, called ‘marginal productivity theory’. This theory, developed at the end of the 19th century by the American economist John Bates Clark, states that each factor of production is rewarded in line with its contribution to production. Marginal productivity theory describes a world where, so long as there is sufficient competition and free markets, all will receive their just rewards in relation to their true contribution to society. There is, in Milton Friedman’s famous terms, “no such thing as a free lunch”.

The aim was to develop a theory of distribution that was based on scientific ‘natural laws’, free from political or ethical considerations. As Bates Clark wrote in his seminal book, ‘The Distribution of Wealth’:

“[i]t is the purpose of this work to show that the distribution of income to society is controlled by a natural law, and that this law, if it worked without friction, would give to every agent of production the amount of wealth which that agent creates”.

Seen in this light, wealth accumulation is a positive sum game – higher levels of wealth reflect superior productive capacity, and people generally get what they deserve. There is some truth to this, but it is only a very small part of the picture. When it comes to how wealth is created and distributed, many other forces are at work.

Wealth, property and plunder

The measure of wealth used by the OECD is ‘mean net wealth per household’. This is the value of all of the assets in a country, minus all debts. Assets can be physical, such as buildings and machinery, financial, such as shares and bonds, or intangible, such as intellectual property rights.

But something can only become an asset once it has become property – something that can be alienated, priced, bought and sold. What is considered as property has varied across different jurisdictions and time periods, and is intimately bound up with the evolution of power and class relations.

For example, in 1770 wealth in the southern United States amounted to 600% of national income – more than double the equivalent figure in the northern United States. This stark difference in wealth can summed up by one word: slavery.

For white slave owners in the South, black slaves were physical property – commodities to be owned and traded. And just like any other type of asset, slaves had a market price. As the below chart shows, the appalling scale of slavery meant that enslaved people were the largest source of private wealth in the southern United States in 1770.

When the United States finally abolished slavery in 1865, people who had formerly been slaves ceased to be counted as private property. As a result, slaveowners lost what had previously been their prized possessions, and overnight over half of the wealth in the southern US essentially vanished. All of a sudden, the southern states were no longer “wealthier” than their northern neighbours.

But did the southern states really become any less wealthy in any meaningful sense? Obviously not – the amount of labour, capital and natural resources remained the same. What changed was the rights of certain individuals to exercise an exclusive claim over these resources.

But the wealth that had been generated by slave labour did not disappear, and it wasn’t only the USA that benefitted from this. Many of Britain’s major cities and ports were built with money that originated in the slave trade. Several major banks, including Barclays and HSBC, can trace their origins to the financing of the slave trade, or the plundering of other countries’ resources. Many of Britain’s great properties, which today make up a significant proportion of household wealth, were built on the back of slave wealth. Even today, many millionaires (including many politicians) can trace some of their wealth to the slave trade.

The lesson here is that aggregate wealth is not simply a reflection of the process of accumulation, as theory tends to imply. It is also a reflection of the boundaries of what can and cannot be alienated, priced, bought and sold, and the power dynamics that underpin them. This is not just a historical matter.

Today some goods and services are provided by private firms on a commodified basis, whereas others are provided socially as a collective good. This can often vary significantly between countries. Where a service is provided by private firms (for example, healthcare in the USA), shareholder claims over profits are reflected in the firm’s value – and these claims can be bought and sold, for example on the stock market. These claims are also recorded as financial wealth in the national accounts.

However, where a service is provided socially as a collective good (such as the NHS in the UK), there are no claims over profits to be owned and traded among investors. Instead, the claims over these sectors are socialised. Profits are foregone in favour of free, universal access. Because these benefits are non-monetary and accrue to everyone, they are not reflected in any asset prices and are not recorded as “wealth” in the national accounts.

A similar effect is observed with pension provision: while private pensions (funded through capital markets) are included as a component of financial wealth in the OECD’s figures, public pensions (funded from general taxation) are excluded. As a result, a country that provides generous universal public pensions will look less wealthy than a country that rely solely on private pensions, all else being equal. The way that we measure national wealth is therefore skewed towards commodification and privatisation, and against socialisation and universal provision.

Capital gains, labour losses

The amount of wealth does not just depend on the number of assets that are accumulated – it also depends on the value of these assets. The value of assets can go up and down over time, otherwise known as capital gains and losses. The price of an asset such as a share in a company or a physical property reflects the discounted value of the expected future returns. If the expected future return on an asset is high, then it will trade at a higher price today. If the expected future return on an asset falls for whatever reason, then its price will also fall.

Marginal productivity theory states that each factor of production will be rewarded in line with its true contribution to production. But although presented as an objective theory of distribution, marginal productivity theory has a strong normative element. It says nothing about the rules and laws that govern the ownership and use of the factors of production, which are essentially political variables. For example, rules that favour capitalists and landlords over workers and tenants, such as repressive trade union legislation and weak tenants’ rights, increase returns on capital and land. All else being equal, this will translate into higher stock and property prices, which will increased measured wealth. In contrast, rules that favour workers and tenants, such as minimum wage laws and rent controls, reduce returns on capital and land. This in turn will translate into lower stock and property prices, and lower paper wealth.

Importantly, in both scenarios the productive capacity of the economy is unchanged. The fact that wealth would be higher in the former case, and lower in the latter case, is a result of an asymmetry between how the claims of capitalists and landlords are recorded, and how the claims of workers and tenants are recorded. While future returns to capital and land get capitalised into stock and property prices, future returns to labour – wages – do not get capitalised into asset prices. This is because unlike physical and financial assets, people do not have an “asset price”. They cannot become property. As a result, it is possible for measured wealth to increase simply because the balance of power shifts in favour of capitalists and landowners, allowing them to claim a larger slice of the pie at the expense of workers and tenants.

To the early classical economists, this kind of wealth – attained by simply extracting value created by others ­­– was deemed to be unearned, and referred to it as ‘economic rent’. However, ever since neoclassical economics replaced classical economics as the dominant school of thinking in the late 19^th century, economic rent has been increasingly marginalised from economic discourse. To the extent that it is acknowledged, it is usually viewed as being peripheral to the story of wealth accumulation, resulting from  ‘market frictions’, such as monopsony and asymmetric information, which give rise to certain instances of ‘market power’. For the most part, economists have tended to focus on the acts of saving and investment which drive the real production process. But on closer inspection, it is clear that economic rent is far from peripheral. Indeed, in many countries it has been the main story of changing wealth patterns.

To see why, let’s return to the OECD wealth statistics. Recall that net wealth per household in Britain is more than double what it is in Germany, even though Germany is far more productive than the UK. This can partly be explained by comparing the power dynamics associated with each factor of production.

Let’s start with land: Germany has among the strongest tenant protection laws in Europe, and many German cities also impose rent controls. This, along with a banking sector that favours real economy lending over property lending, means that Germany has not experienced the rampant house price inflation that the UK has. Remarkably, the house price-to-income ratio is lower in Germany today than it was in 1995, while in the UK it has nearly tripled over the same time period. The fact that houses are not lucrative financial assets, and renting is more secure and affordable, means that the majority of people choose to rent rather than own a home in Germany – and therefore do not own any property wealth.

In Britain, the story couldn’t be more different. Over the past five decades Britain has become a property owners’ paradise, as successive governments have sought to encourage people onto the property ladder. Taxes on land and property have been removed, and subsidies for homeownership introduced. The deregulation of the mortgage credit market in the 1980s meant that banks quickly became hooked on mortgage lending – unleashing a flood of new credit into the housing market. Rent controls were abolished, and the private rental market was deregulated. Today tenant protection is weaker than almost anywhere else in Europe. Meanwhile, the London property market has served as a laundromat for the world’s dirty money. As Donald Toon, head of the National Crime Agency, has described: “Prices are being artificially driven up by overseas criminals who want to sequester their assets here in the UK”.

The result has been an unprecedented house price boom. Since 1995, skyrocketing house prices have increased value of Britain’s housing stock by over £5 trillion – accounting for three quarters of all household wealth accumulated over the same period. While this has been great news for property owners, it has been disastrous for tenants. As I’ve written elsewhere, the driving force behind rising house prices has been rapidly escalating land prices, and we have known since the days of Adam Smith and David Ricardo that land is not a source of wealth, but of economic rent. The trillions of pounds of wealth amassed through the British housing market has mostly been gained at the expense of current and future generations who don’t own property, who will see more of their incomes eaten up by higher rents and larger mortgage payments.

So while German property owners have not benefited from skyrocketing house prices in the way that they have in Britain, the flipside is that German renters only spend 25% of their incomes on rent on average, while British renters spend 40%. The former is captured in the OECD’s measure of wealth, while the discounted value of the latter is not.

Now let’s look at capital. In the UK and the US, the goal of the firm has traditionally been to maximise shareholder value. In Germany however, firms are generally expected to have regard for a wider range of stakeholders, including workers. This has led to a different culture of corporate governance, and different power dynamics between capital and labour.

Large companies in Germany must have worker representatives of boards (referred to as ‘codetermination’), and they are also required to allow ‘works councils’ to represent workers in day-to-day disputes over pay and conditions. The evidence indicates that this system has led to higher wages, less short-termism, greater productivity, even higher levels of income equality. The quid pro quo is that it also tends to result in lower capital returns for shareholders, as workers are able to claim more of the surplus. This in turn means that German firms tend to be valued less than their British counterparts on the stock market, which contributes to lower levels of financial wealth.

None of this means that Germany is poorer than Britain. Instead, it just reflects the fact that German capitalists and landowners have less bargaining power than they do in the UK, while workers and tenants have more power. While lower shareholder returns and house prices are reflected in the OECD’s measure of wealth, better pay and conditions and lower rents are not.

Conclusion

All statistics tell a story, but stories can be told from different perspectives. Embedded in the definitions of all economic statistics are value judgements about what is desirable and what is undesirable, which in turn shape the way we think about the economy. At the moment, the way we measure the wealth of nations mainly reflects the fortunes of capitalists and landowners rather than workers and tenants. Britain looks wealthier than Germany on paper, but this does not reflect the lived reality for most people. While it’s important not to overstate the extent to which statistics can influence the real world, this is important for at least three reasons.

Firstly, it illustrates how seemingly objective metrics often have ideological assumptions baked into them. While there is already a well-established literature on alternatives to GDP, many economic metrics are used in economic analysis and policy appraisal without any critical appraisal of their underlying ideological assumptions. This needs to change.

Second, it highlights how paper wealth has in many places become decoupled from productive capacity, and how conflating the two can be highly misleading. This is particularly the case where zero sum rentier activity is widespread, as in the case of Britain. Such discrepancies raise the question of whether the way that we currently measure wealth is really the most sensible.

But most importantly, it illustrates that the distribution of wealth has little to do with contribution or productivity, and everything to do with politics and power. As J.W. Mason states: “It’s bargaining power, it’s politics, all the way down.”

For economists who see their discipline as a ‘value free’ science which is separate from politics, this is uncomfortable territory. But if the aim is to understand the economy as it really exists, then analysing power beyond the narrow concept of ‘market power’ is essential. Among other things, this means grappling with the power dynamics that underpin ownership and property relations, as well as those that that drive inequalities between different social groups and identities.

It’s been 200 years since David Ricardo described the “principal problem” of political economy. Perhaps it’s time to revisit it.

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Neoliberalism – the set of economic ideas and policies that have dominated politics for the past 40 years – is rapidly losing legitimacy in the face of multiple crises: stagnant or falling living standards, sharply rising inequality of income and wealth, financial fragility and environmental breakdown. At this critical juncture, new ideas about the kind of society we want to live in, and the future we want to see, are needed more than ever.

‘New Thinking for the British Economy’ brings together leading thinkers to outline the broad pillars of a new economic agenda, and the type of policies that are needed to get us there. As well as more traditional policy areas such as trade, finance, housing and industrial policy, the book explores a range of areas that are not typically considered to be within the sphere of economic policy but which nonetheless play a critical role shaping our political economy – such as the media, our care systems, racial inequalities and our constitutional arrangements.

Contributors include Adam Ramsay, Andrew Cumbers, Ann Pettifor, Christine Berry, Craig Berry, Dan Hind, Johnna Montgomerie, Katherine Trebeck, Laurie Laybourn Langton, Laurie Macfarlane, Mathew Lawrence, Maya Goodfellow, Ruth Bergan, Susan Himmelweit, Thomas Hanna, Tom
Mills and Will Stronge.

Download the eBook for free – or purchase hard copies for events and reading groups

The eBook version of New Thinking for the British Economy can be downloaded for free here, or viewed in the embedded viewer below. Printed versions of each chapter are also available for £1 via Commonwealth Publishing and the Democracy Collaborative. If you would like to order physical copies, and inquire about organising author events, please contact Dan Hind or visit the Commonwealth Publishing website – www.commonwealth-publishing.com

New Thinking for the British Economy has been produced with generous support from the Friends Provident Foundation. All the authors have contributed to this volume in a personal capacity and do not necessarily endorse all the views expressed within it.

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This week at the Labour Party Conference, John McDonnell announced new proposals giving workers a small ownership stake in the companies they work for, thereby also entitling them to a small proportion of dividend payouts.

Labour’s proposals are based on the principle that when a company does well and generates a profit and pays a dividend, it should share a tiny proportion with the workers responsible for its success. No normal person would object to this. Given the UK’s well documented problems with pay stagnation, low productivity and huge pay gaps between those at the top and everybody else, proposals that put a bit more money in workers’ pockets, and link a small proportion of their pay to company performance, might seem exactly what we need.

Yet the announcement was greeted with total hysteria. Business lobbyists like the Taxpayers Alliance and British Chamber of Commerce were quick to deem the proposals “control of industry by the backdoor” and “an unprecedented over reach” that would scare off the investment that Britain needs.

Their response amounts to a complete dismissal of the interests of wider society in a country where the typical CEO is paid 160 times the average UK worker – and a pretty dim view of the values and purpose of UK business. To understand why, it’s worth considering how little is actually being asked of businesses through these proposals. Under Labour’s plans, they would transfer a tiny amount of equity (1% per year) to an ‘inclusive ownership fund’ run on behalf of workers, until the fund owns 10% of total equity. In other words, workers will have some ownership of the company (and therefore some say in the governance) but not a controlling stake. They would take a small share of dividends, but other shareholders would still get at least 90%.

At a fringe organised by Warwick University at the Labour conference, one CBI representative admitted that over 80% of companies already make some form of share award to some of their workers. So Labour is merely suggesting that business do a bit more than it is already doing, bringing the laggards up to the standard of best practice and ensuring that all workers at all companies benefit to a meaningful extent.

Ordinary people will understandably be worried by threats to jobs and investments. But what critics of Labour’s plans actually mean is that if big businesses are asked to share a small proportion of the fruits of their success with workers – in line with the wishes of wider society – they will simply up sticks and move to a country with a government that is less wiling to stand up to their demands. This would be an extraordinary statement of disregard for basic fairness and public opinion. Indeed, there are strong grounds to think it is just bravado aimed at encouraging Labour to weaken its position. Worker voice in corporate governance structures is a pillar of business practice in almost every other country in Europe, so bringing the UK up to the level of Germany or Sweden is hardly controversial. Mandating a share of dividends to workers effectively redistributes from one set of shareholders (existing investors) to another (workers), so ought to be of no relevance to company boards who are supposed to be impartial to the interests of different shareholder groups.

It therefore seems unlikely that Labour’s proposals will undermine business investment on a meaningful scale. To accept the alternative argument of the Taxpayers Alliance and their ilk is to believe that our biggest companies are run by such greedy and venal individuals, that they will do whatever is necessary – including restructuring their entire business model or re-locating major operations – just to keep every penny of their profits for executives and wealthy investors, rather than sharing a tiny proportion with their workers.

This is quite an ironic position to be held by groups who frequently accuse the left of being ‘anti-business.’

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What links Donald Trump, Sajid Javid and Jeremy Corbyn? Answer: over the last couple of months, they’ve all sought to capture the political energy from the seemingly endless sequence of tech giant scandals. Trump has tweeted about a supposed (unfounded) anti-right-wing bias in Google searches. In the UK, Javid has warned of tech firms’ record on child safety, while Corbyn highlighted the oversized role of social media and other platforms in our consumption of news.

All have proposed responses to these threats. Javid favours fines, which, in the practice, often amount to less than a few minutes’ revenue. Corbyn has gone further, announcing his intention to create a new public sector body to drive digital innovation and inclusion. This is an improvement on the tepid centrist playbook (and on Trump’s vague promise that this “will be addressed!”), but an adequate response requires something even deeper.

The wealth, power and reach of the tech giants into so many areas of our social and economic lives shows that a more radical approach is required. Deep, structural reform of how data is generated, governed and used is needed so that all can gain from the benefits of digital technology. This benefit can and could be enormous – from connecting people around the world on social media, through making industrial processes more efficient, to helping us understand and act on environmental change and opening up affordable, clean transport for all.

But, so far, the development of the digital economy has been dominated by a small number of powerful firms whose activities tend towards monopoly. It’s estimated that, in the UK, Facebook has 74% of the social network market share, Amazon is responsible for 90% of all e-book sales and 80% of online physical book sales, and Google has an 88% share of the desktop search engine market and 95% of mobile searches.

Critically, this isn’t the fault of Cambridge Analytica or a liberal conspiracy, but a result of the platforms’ business model and the outcomes this generates. This revenue model is simple: the extraction and interpretation of user data to generate insights that are sold for profit. These insights include everything from what you’d like to buy to how to make you angry, and so endow platforms with powerful tools for manipulating consumer, political and other preferences. In turn, insights are used to improve how platforms extract data and develop further insights, with commensurate increases in profit.

This creates a voracious hunger for data, leading platforms to enter as many new markets as possible and to then ensure users stay within the platform’s ecosystem of products. Why use a high street bank when you can send money over Facebook messenger? How great is it that you can access travel information from Google maps through Google Home? Why bother with local shops when you can order everything through Amazon? As you enjoy these services, which are often free, platforms ensure you maximise the amount of personal data given over through various devices and products, while simultaneously decreasing the chance you will leave and become the user of another platform. In all, platform firms have a universal ambition reflected in their increasingly universal platforms.

In turn, political and social as well as economic power is concentrated in the hands of the small band of data barons who run the platform monopolies. Alphabet generated revenues of $32.3 billion in the fourth quarter of 2017, up from 24% the year before, with 85% of that revenue generated from its advertising business. Apple and Amazon are now trillion-dollar companies, with the combined annual revenue for the world’s five largest companies by market value – all of them platforms in some form – already exceeding the GDP of 90% of the world’s countries. With their huge piles of cash, data oligarchs seek the development of digital technology primarily as a means of making profit from the ‘data-fication’ of as much as society as possible. As we’ve seen with recent scandals, this threatens our privacy and democratic discourse. It is also likely slowing innovation and accelerating inequality as the rewards of the digital economy flow to the data hoarders.

So, in the face of their power and limitless ambition, fines are almost irrelevant. Structural reforms are needed that target the platform business model. These reforms include changing the ownership and governance of data and that of the underlying, evermore ubiquitous digital infrastructures that penetrate our economic and social lives. Overall, as we argue in a new IPPR paper, we need to move towards a ‘digital commonwealth’ where data is a collective resource driving equitable innovation, instead of a hoarded commodity, sweated for profit to further enrich the wealthiest people in history. In turn, digital infrastructure – from the cloud to analytical capabilities – should become a public good.

We stand at a crossroads. We can either embrace these reforms to realise a world of digital plenty, in which new technologies increasingly play their role in overcoming the great problems of the day, or settle for a world in which the power of data oligarchs grows and society and economies become more fragmented, private and unsustainable. So, the next time you hear a politician bash the tech giants, see if they’re advocating radical reform. If they are not, they are advocating for a lesser world.

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Ten years ago I spent the summer after graduating waitressing in Cafe Uno in Cambridge. The most political campaign for me that summer was the fact that I was getting paid below minimum wage because they could top up my salary with tips. At the same time, the western world was on the verge of financial collapse that would not only change the course of my future work, but also deliver such a shock to the world order that nothing would ever be the same again.

So what has changed in ten years? I’m guilty of banging the angry drum that nothing has changed, and saying that finance is still totally self-serving. In absolute terms, this is true. The vast majority of new loans continue to pour into financial and property markets, and this hasn’t really changed since the crash. Lending to the productive economy, including SMEs, has not grown. It was the failure to reform the financial sector, and the vacuum of conversation about what must be done, that allowed the conversation to morph into the need for austerity, which was of course completely untrue.

But looking under the bonnet of the headline figures about our stagnating economy, rising food bank use and record high stock prices, there is some good news. We are building an army of voices who didn’t exist ten years ago. The public know that things are not fixed. Today we at Positive Money have released a poll showing 66% don’t think banks work in their interests, and 63% are worried about another crash. The conversation is changing.

Here are ten things that have changed over the past ten years, including some huge achievements, that should be cause for hope and celebration.

1. Occupy captured the public’s imagination

The Occupy movement struck a chord with many of us. It said that the system is unfair and broken, and we need something new. People camped outside St Paul’s, and there were book groups, workshops and lots of other activity that encouraged people to wake up and realise that we need something new. Importantly, it repeatedly made the news, and memes like ‘the 99%’ stuck and exploded across the world. The challenge of Occupy was always going to be ‘how do we take its passion, voice, energy, and impact and channel it into a self-sustaining movement?’. And now, in the years after Occupy, do we avoid saying the inevitable ‘we need another occupy’ whenever a meeting full of activists and campaigners get together?

2. A civil society movement exists

We now have an ecosystem of institutions, campaigners, organisers, thought leaders, and economists focused on reforming the banking and finance sector, and its growth is accelerating. Organisations that were set up before the crash, like Robin Hood Tax and Share Action, have grown in size, profile and impact. New organisations like my own, Positive Money, as well as the Finance Innovation Lab and Finance Watch have established themselves as key NGOs with expertise. Larger NGOs like Oxfam, Friends of the Earth, and WWF have allocated resources towards recruiting people dedicated to looking at the finance sector. Think tanks started work on finance and banking. The New Economics Foundation set up a banking and finance team and have done an awesome amount of research on issues ranging from financial system system resilience to stakeholder banks. IPPR, Demos, and Respublica have all looked at alternative banking models. Work focusing on how people at the sharp end of the finance sector are affected, such as from Responsible Finance and Toynbee Hall, continues to grow. Unions are finding their voice in criticising the financial sector. A coalition of organisations are organising a large event to mark ten years after the crash, which will be taking place on 15th September.

3. Women are leading the movement

Anna Laycock heads up Finance Innovation Lab, Catherine Howarth leads Share Action, Maeve Cohen is the Director of Rethinking Economics, Miatta Fianbullah leads the New Economics Foundation, Faiza Shaheen is the Director of CLASS, Sarah-Jayne Clifton heads up Jubilee Campaign, Jennifer Tankard is the Chief Executive of Responsible Finance, Sian Williams is the Director of Policy at Toynbee Hall, Grace Blakeley at IPPR has been doing some fantastic work on Financialisation and Tax, and the brilliant Christine Berry has been doing excellent work across the movement. This is a fantastic development, which is not totally unconnected to the next point.

4. There is a culture of collaboration and systems thinking

Civil society has always been victim to a human characteristic prevalent in modern society – competition. Starting essentially a new sector and movement, we knew we had to do things differently. Finance and civil society is clearly a David and Goliath situation. If we spend time competing with each other, we won’t be able to move fast enough. That’s why when I joined Positive Money at the end of 2012 I wanted to work with the movement and create a culture of support. So I partnered with Charlotte Millar and Chris Hewett, both then at the Finance Lab (which was set up by three amazing women and a great man) to set up the transforming finance network. An important aspect of creating this collaborative culture was that we have several ‘systems thinkers’ amongst us. Systems thinkers are able to hold uncertainty, hold tensions, have humility, and can adapt, innovate, and most importantly evolve. Donella Meadows’ paper ‘leverage points’ was a key text for us. Systems change attitudes results in less ‘my policy is bigger or better than yours’, and more ‘how can we work together to move our common agenda forward?’

5. The rethinking economics movement is growing strongly too

The crash also triggered a shaking up of the economics establishment. A close relative of the financial reform movement is the rethinking economics movement. As well as fantastic student and university focused organisations like Rethinking Economics, there is a growing number of thinkers writing about how we need to ditch neoclassical economics and be more pluralist in our approach. Even new institutes are being set up such as Mariana Mazzucato’s Institute for Innovation and Public Purpose at UCL.

6. The tax justice movement seized the opportunity to make gains

The shock of the crash, followed by hijacking of the narrative by austerity, presented an opportunity for the tax justice movement. In the UK we saw the flourishing of direct action groups like UKUncut and tax experts like John Christensen and Richard Murphy. Large NGOs also got on board, which allowed it to cut through the public consciousness. This hard work meant that even David Cameron picked up the baton to ensure tax avoidance was clamped down on. A key reason for the success of the tax justice movement was having some key bits of infrastructure in place before the crash, including experts, grassroots activists and large NGOs working on it.

7. More must be done to reform regulation 

It would be remiss to write about the last ten years without saying something about what has happened in the world of regulation. Whenever I go on panels to talk about regulation I generally complain about how regulation is a mess. It’s a tricky point of view, because obviously as civil society we all want banks to have greater regulation, but is more regulation good if the premise on which its developed is based on problematic first principles? For example, ring fencing will be in place by January 2019, but it has always been about a false logic that retail banking is safe, while investment banking is the risky side. But the 2007/8 crisis emanated from the retail arm in the first place, so ring fencing wouldn’t stop another crash. Basel III looks at risk-weighting of assets which categorises lending into the productive (or real) economy as high-risk, whilst mortgages are low risk, even though it was mortgage lending that was a key factor in causing the crash

8. The Bank of England is now a risk manager

After the crash the Treasury took positive steps to add financial stability to the Bank of England’s mandate. The Bank now understands that to predict a crash it must look at the system as a whole, rather than just individual banks balance sheets. Its regulatory approach since the crash has been focused on how to ensure a bank can fail without bringing down the whole system, and as such they have been looking at bank bail-in regimes. While it is an important step forward, it doesn’t go far enough to meet the Bank’s mission which is ‘to serve the good of the people of the UK’. If it was to take its mission seriously, it would look at how banking is failing to serve our domestic economy, and how monetary policy has nothing to offer in the event of another crash. Similar to regulation, this approach can be thought of like a ship sailing off a cliff and crashing, and then continuing in the same direction to sail off another cliff, but along the way making sure there is less mess this time. We might be calculating the risk of sailing off the next cliff in a more complex and rigorous way, but we are not thinking about changing direction.

9. Building the new

Buckminster Fuller famously said that ‘to change something, build a new model that makes the existing model obsolete.’ Several leaders from civil society’s financial reform movement are now also building the new. Tony Greenham, formerly Director of Banking and Finance at NEF, co-author of ‘Where Does Money Come From?’ and more recently Director of Economics at RSA, is now working full time on developing new co-operative banks in the South-West and London. The Finance Innovation Lab runs a Fellowship developing the leadership capacity and business skills of innovators building a new financial system – one that works for people and planet. Alongside Finance Watch, the Finance Innovation Lab is also sounding the alarm about fintech – which is not all cute and cuddly. We’ve also seen more interest in credit unions, as well as complementary currencies popping up, such as the Bristol Pound.

10. Changing the old

The story of RBS is probably the best example of the challenges associated with changing the old, and of the strong inertia inside the government and regulators. As a result of the emergency bail-out package in October 2008, the British public acquired a majority shareholding in RBS (almost 80%) at a total cost of £45.5 billion. Among the many examples of how RBS fails to serve the UK economy, including consumers and businesses alike, probably the worst is the Global Restructuring Group (GRG). It was found to be deliberately pushing SMEs towards insolvency in order to shore up RBS’ own capital position, in some cases then buying up their assets cheaply. Despite economists, campaigners, and researchers continuing to call on the government to think of alternatives for RBS, namely turning it into a network of regional banks, the government is fixed on selling it back to the private sector at a loss to the public.

Where do we go next?

We must continue to work together by forming alliances and coalitions, increasing our expertise and skills, and building new infrastructure for the movement. We must appreciate our different tactics and theories of change, and tackle different parts of the system at the same time. We must bring down the old, while also building the new. We must challenge the neoclassical thinking that underpins the status quo, while also developing new policy prescriptions that can be implemented now. To do all this successfully at the same time, we need more people.

Brexit means finance is at a crossroads

The government, the City, Mark Carney and the Bank of England all want our financial services sector to be our ‘engine of growth’. Carney said he wants to see it double in size over the next ten years. We know that the bigger our finance sector is, the more detached it is from our domestic economy, and the more detached it is from real people, jobs, work and investment. What 2008 should have shown is that we can’t have it both ways. We can’t have a bloated financial sector in the City of London serving itself and global financial markets, because it will always undermine the kind of economy we are trying to build for most people here in the UK. As Michael Hudson’s book aptly puts it, the finance sector is ‘killing the host’.

The stakes are high, but if the last ten years have taught us anything, it is that if we aren’t in the game, we definitely can’t change things. So let’s get stuck in.

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One of the most remarkable aspects of Joseph Bazalgette’s London sewage system was its pump house. The elaborate ironwork at Crossness pumping station transformed a home for raw sewage into a monument to public utilities. As one construction worker in BBC Two’s new series The Five Billion Pound Super Sewer put it, the pump house is so splendid, “it could be a hotel”.

Bazalgette’s tunnels were built in 1865 to accommodate the waste of 2 million people. Since then, London’s population has ballooned to 9 million, putting pressure on its creaking sewers. The BBC’s Five Billion Pound Super Sewer series focuses on the present-day solution to London’s sewage problems: a new “super sewer” that will stretch 15 miles and collect excess waste from the Victorian network before transporting it towards the East End.

But the series washes over the super sewer’s murky finance structure. Thames Water, the private company responsible for London’s sewers, claims it was too burdened by debt to pay for the sewer project. Instead, the new pipeline will be financed through price increases on water bills charged to London residents, which are set to rise £20 to £25 per year by the mid 2020s. According to the Consumer Council for Water, among household outgoings citizens are most likely to be in arrears with their water bills. Meanwhile, Thames Water will continue to pay millions of pounds in bonuses and dividends to its directors and shareholders (its CEO Steve Robinson is set to receive a £3.75 million bonus in 2020).

Together with the UK government, Thames Water has created a separate company, Bazalgette Tunnel Ltd, which borrowed £1.2 billion from a package of investors and £700m from the European Investment Bank. The government has promised to step in and shoulder the risk lest the project encounter financial difficulties – which looks likely, given the complications inherent to drilling a subterranean pipeline.

Thames Water has a dodgy history of siphoning profits while dumping toxic sewage. Every year, 39 million tons of raw sewage makes its way into London’s river. After UK water regulator Ofwat hit the company with a record £20 million fine in 2017, Thames Water promised to change direction. It elected a new CEO, and said it would stop dumping untreated waste. But such retroactive regulations are a sticking plaster.

England’s water industry was sold off in 1989. During the first decade of privatisation, household water bills soared by 147%. Thames Water is the perfect example of why privatising natural monopolies is a terrible idea. Arguments in favour of commercialisation go something like this: in order to be successful in a competitive marketplace, a company has to acquire the best possible knowledge of market conditions. Incorrect knowledge will lead to mistakes that will eventually bankrupt unsuccessful firms. Unlike the government, which does not exist in a state of market competition, successful companies will possess the best knowledge of market conditions and consumer preferences, and will therefore be better placed to act competently and efficiently when delivering services. Market competition will ensure both citizens and governments get a better deal.

Yet this Darwinian picture doesn’t apply to essential resources like water. First, as the case of Thames Water shows, market competition doesn’t function when you’re dealing with a resource that has to be managed at scale and is necessary to all humans. Thames Water is a monopoly with no competitors. Without competition, there is no incentive to provide a better service to customers. This is why Thames Water has idled into complacency, extracting profits and dumping waste without investing in the infrastructure that London’s sewers require.

Competitive markets normally offer consumers an array of options that differ in quality and price.  But there’s no such choice with water bills. Either you pay up, or your water supply is turned off. The truth is, citizens aren’t really consumers. The consumer is the government that has outsourced water supply, while the citizen is little more than a voiceless service user without any of the choice benefits typically associated with a market system.

Second, a company cannot have perfect knowledge of a market beyond the immediate future, particularly in a world where environmental conditions are rapidly changing and deteriorating. There’s a difference between knowing how an industry works at present, and knowing how decisions will affect that industry in the future. Thames Water’s decision to pollute the ecosystem with untreated sewage is a case in point: the present-day impetus of generating shareholder value eclipses the long-term degenerative effects of pollution. Instead of leaving crucial decisions about environmental stewardship to for-profit companies, water should be managed with greater public involvement and participation, giving people a say in how this common resource is safeguarded for the future.

Paris is one example of how this works in practice. After years of price increases under a water system controlled by global giants Suez and Veolia, mayor Bertrand Delanoë put water remunicipalisation on the ballot paper. In 2008, the city transferred water services from Suez and Veolia to the publicly owned Eau de Paris. Since then, Paris’ water prices have fallen below the national average, saving approximately €76 million in water bills from 2011-2015. Instead of paying dividends to shareholders, Eau de Paris reinvests profits into the system. It has increased free access to water and sanitation in addition to maintaining water supplies for those living in squatted accommodation.

The UK Government, in line with the United Nations, recognises water as a human right. But it doesn’t stipulate how water should be managed. Instead, the government says, “the [UN] right does not prescribe any particular model or role for public and private sectors”. This cynical sleight of hand cedes power to the private sector. As water activist Meera Karunananthan notes, sanitation companies have lobbied hard since the UN recognised the right to water, positioning themselves as best placed to deliver this right by claiming that governments don’t have the funding or expertise to do so.

Thames Water exposes the holes in these arguments. It has siphoned rents to shareholders without investing in infrastructure or showing any regard for its environmental impact. It has brought virtually no competitive benefits to government or water users. Instead of prolonging Thames Water’s extractive reign, it’s time to look for alternatives.

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This week Jeff Bezos was named the world’s richest man by Bloomberg’s Billionaire’s Index, with a staggering $152bn (£117bn) in net worth following a jump in the Amazon share price on Amazon Prime day. Looking further into how he came to be there reveals a story of the global economy in 2018. While a gilded class sees huge returns, it comes at the expense of workers and society not receiving their fair share.

Bezos did not make his fortune alone; the company’s customers, suppliers, workforce, and the public sector through investment in infrastructure, roads and services all played a part. In particular, Amazon’s employees, of which there are over half a million, are essential to Amazon’s business model of being reliably quick and convenient. Yet Bezos makes more wealth every 9 seconds than the median Amazon employee in the US makes in a year. In the UK, undercover investigations have shown work in Amazon’s fulfilment centres to be insecure, demeaning, excessively monitored and low-paid. Toilet breaks can cost a job and workers’ movements are tracked to check they are optimal for maximising Amazon’s profit. Amazon has consistently suppressed efforts amongst its workforce to unionise, and has created some of the most atomised labour markets imaginable through its Amazon Turk bank of online workers from around the world, reducing the ability of colleagues to organise. Amazon’s fulfilment centres are often in places where it’s close to the only gig in town for low-skill workers; evidence from America suggests this has enabled the tech giant to reduce wages for those jobs over time. Despite its poor record as an employer, mayors in the US have offered Amazon billions in tax breaks to attract the giant to create employment in their cities.

Unlike his workers who receive a wage, Bezos’ net worth rises as shares increase in value; his wealth comes from his ownership of shares – or capital – rather than a salary for his work. Those shares rise in value not only because workers aren’t receiving their fair share of growth produced, but also because Amazon – like many other tech companies – has a huge wealth of data at its disposal from which it can generate profit. That data is contributed by customers as they shop on Amazon, and use products such as Alexa. It can be used for advertising, product development and to support artificial intelligence to increasingly take on tasks once the preserve of humans.

This model of wealth production and distribution is not limited to Amazon. There is mounting evidence that workers are not receiving their share of profit across the economy, including here in the UK. Despite economic growth, real average wages are still 2-3 per cent below their pre-recession peak. This is partly a story of poor productivity growth – but it is also one of bargaining power between workers and executives and capital owners. Technology and increased economic and financial integration have enabled capital owners and multinationals to position their operations and investment anywhere in the world, increasing their power over workers and governments. The power of companies to pay very low wages and offer appalling working conditions is also strengthened by what employers call ‘monopsony power’: where a relatively small number of employers account for many job opportunities in an area.

Decreased labour bargaining power can be seen in the decline of union membership in the UK over the past 40 years: from one in 2 to less than one in 4 today. Partly as a result, the share of national income accruing to workers in advanced economies is falling. The Bank of England estimates that whereas 70 per cent of national income was paid in wages in the late 1970s, it is now as low as 55%.

Neither is Amazon alone in its use of data to take a large share of income. The last decade has seen the rise of highly profitable digital platform monopolies – from Google to Uber, with workforces which are relatively small proportional to value added, and which take an intermediary share of profit as they connect suppliers with consumers. The growth of ‘superstar firms’ which are able to use aggregation and analysis of data to make supernormal profits, and to dominate not just current digital markets but future ones in artificial intelligence and machine learning, is set to increase the share of national income going to capital owners. These companies, global in reach and in operation, are able to avoid paying taxes, while less mobile ordinary workers face a growing public finances crisis. Even when taxes are paid, the rate paid is lower; in the UK, capital gains and dividend income face lower taxes than income from work. While an ethic of hard work applies to ordinary people, those who live off wealth pay lower taxes on their income. The executive and owners of these companies are the gilded class of twenty-first century capitalism.

These are seismic changes in the global economy, though they follow an old pattern of capital finding new ways to enclose collectively produced goods (in this case, data), to maximise its own returns, and to keep one step ahead of the slow hand of the state. Policy has been slow to adapt, but it must – across countries, including the UK. Doing that will require overcoming the huge political power of the big tech companies, and insidious ideological justifications for policy that favours capital owners over workers.

There are three priority areas. The first is strengthening the hand of workers, through strong enforcement of employment rights and support for unions to match the expansive ambition of the tech economy. The second is to look to new models of ownership to ensure that everyone – workers, but also the unwaged – can benefit from growth in the economy that we collectively generate but which are being captured in the hands of a few. A Citizens’ Wealth Fund would help do this at a global scale, and new models of data ownership would curtail the power of the tech giants. The third is reforming our tax system so that those who make money from wealth pay their share. In an age of increasing returns to capital alongside a growing public service bill, that looks increasingly non-optional.

The richest man in the world did not get there alone; his wealth is created by Amazon’s millions of workers, suppliers and consumers. Rather than focussing on one man, we should look at how he got there to study the nature of the economy and how politics and policy should respond. Technology has the power to generate a future of plenty; but it is only through building a democratic economy of shared power and ownership that we can reach a future in which that plenty is shared.

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Facebook is being fined £500,000 by the Information Commissioner, the maximum amount possible, for its role in the Cambridge Analytica scandal. The fine is unlikely to change Facebook’s behaviour. The company is worth an estimated $540 billion, and in the first quarter of 2018 took £500,000 in revenue every five and a half minutes. Some claim the fine is symbolically important. In reality it is essentially meaningless, mattering little to a company run by a man who didn’t even bother to appear before Parliament when asked to explain his company’s actions.

If we want real change, we can’t rely on small, after-the-fact fines. Instead, we will need to undertake deep, structural reform of how data is created, governed and used to ensure all of us gain the benefits from digital technology and its revolutionary potential.

The fine is being levied for two breaches of the Data Protection Act over the Cambridge Analytica scandal. The Information Commissioner has concluded that Facebook failed to adequately safeguard the information of users and it was not transparent in how data was being harvested by others, including the apps used to extract data to build the influencing mechanisms used by Cambridge Analytica. The result was substantial and widespread breaches of privacy and, ultimately, the erosion of democratic principles and norms.

Clearly, it was a scandal. But was it also the beginning of a crisis, a moment that can generate support for deep and significant reform of both Facebook’s behaviour and how we regulate the platform economy more widely? This is less clear.

Critically, as the Information Commissioner’s analysis reveals, the deep scandal didn’t lie in the activities of Cambridge Analytica, but in Facebook’s business model and the outcomes this generates. The revenue model of Facebook and other major digital platforms is simple: the extraction and analysis of user data to generate insights that are sold for profit. These insights – from political preferences to how you react to certain emotions – are also used to fine-tune the platform and make it more effective at further extracting and analysing data for profit. Ultimately, the technologies that do this are a form of artificial intelligence. All our data is now providing the raw material for training this intelligence until it becomes mature enough to offer new products that provide extraordinary services to users, and gargantuan profits and market advantage to digital platforms.

This voracious appetite for data generates an expansive and circular dynamic of expansion and ‘enclosure’. Facebook expands into new sectors and offers new services to attract more users and acquire more data. These users are in turn incorporated into Facebook’s systems (enclosed) and analysed, generating huge profits and providing a growing data comparative advantage over data-light competitors. Why use NatWest when you can send money over Facebook messenger? Isn’t it convenient to be able to access commuting information from Google maps through your Google home speaker? The service works for you, by offering useful, free products, and for the platform, by providing a means in which you provide more and more personal data through a multitude of devices and services, all of which make it less desirable to leave and become the user of another platform. These companies have a universal ambition reflected in their increasingly universal platforms.

This business model concentrates economic power in the hands of the data oligarchs who control the platform monopolies. It puts at risk notions of privacy and democratic communication, when these companies seek to ‘data-ify’ all of society, from its physical infrastructure to our social relationships, making profit from the resultant insights. And it risks slowing innovation and accelerating inequality as the rewards of the digital economy flow to the data hoarders.

So fining Facebook the equivalent of five and a half minutes of revenue simply isn’t enough. What is required is structural reform to address the platform business model. This in turns requires rethinking the ownership and governance of data and the underlying, increasingly ubiquitous digital infrastructure of our economy and society. Whereas today the digital economy increasingly operates under conditions of data enclosure, where information is siloed and controlled by the digital monopolies, we need to move towards a ‘digital commonwealth’ where data is a collective resource that drives equitable innovation, and digital infrastructure – from the cloud to analytical capabilities – is a public good.

From regulating the tech giants as utilities, to new ways of curating and accessing public and private sector data, to strategies for building a digital commonwealth – drawing inspiration from innovative cities like Barcelona – our forthcoming IPPR paper will set out the concrete steps we can take.

We are now at a crossroads. We can either realise a world of digital plenty, with new technologies mobilised to solve the great problems of the day, or settle for one in which data oligarchs rule and society and economies become more fragmented, private and unsustainable. Small fines guarantee the latter. If we are serious about reining in the universal platforms, we need to rethink the deep institutional underpinnings of digital economy.

Mathew Lawrence and Laurie Laybourn-Langton are co-authors of forthcoming paper, ‘The Digital Commonwealth: from enclosure to a data commons’.

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Deep and intersecting crises confront us. Growth is anaemic; wages and productivity are stagnant; inequality is stark; investment is low; consumer debt is high; and asset bubbles are frequent. Future trends, from the rise of the data oligarchs to the disruption of automation, threaten to deepen the inequalities and inefficiencies of neoliberalism. Overarching everything, an extractive model of capitalism is driving escalating environmental collapse, threatening the conditions upon which all of human society ultimately depends.

In the face of a failing economic model, tinkering won’t suffice. Our future will depend on our capacity for institutional reimagining, on our ability to rethink and reshape how we produce and distribute wealth in more democratic and sustainable ways than present. Fundamental to this must be a new architecture of ownership. Co-operatives Unleashed, our new report for the New Economics Foundation (NEF), not only looks at how to grow pure co-ops, but also how to transform patterns of business ownership across the economy.

Ownership matters. Who owns and controls the productive wealth of nations and communities is fundamental to how an economic system operates and in whose interests. The nature and distribution of ownership intimately shapes the distribution of power and reward within society, undergirding the present and shaping our economic futures.

For 40 years, the economy has been a one-way-street. Assets and equity have flowed upwards and outwards, and with them wealth. Margaret Thatcher promised a world ‘where owning shares is as common as having a car’. But the grand promise of a share-owning democracy, and with it broad-based economic power, has crumbled. Now, more than half of UK company equity is owned abroad and only just over 12% by individuals, while the richest 10% own more than 60% of the nation’s financial wealth. The interests of those who own Britain’s businesses, moreover, are often misaligned with those of other stakeholders, such as employees, customers, service users and local communities. And even where they are better aligned, a concentration of shareholding and the distant power of capital markets hollows out the agency of individual shareholders and workers.

Piecemeal reform that leaves current models of ownership and the distribution of economic assets untouched will leave the fundamental values, operations, and outcomes of our economic system unchallenged. In place of extractive, disconnected and short-termist forms of ownership, we have to build forms of ownership that are distributive by design, generative in purpose, democratic in orientation, and have a sense of connection to place.

There is no single step that can achieve this. What is required is a pluralistic and proactive strategy to scale alternative models of ownership that can reorient enterprise towards the common good, shape production toward democratic needs, stem financial leakage and build a future of shared economic plenty by sharing the rewards of our collective economic endeavours.

The co-operative advantage

Co-operatives – a tried and tested means of democratising and equitably sharing the benefits of enterprise – must be central to this agenda. At their heart, they are free and democratic enterprises. Indeed, in the countries in which they have thrived, they are often rooted in resistance to oppressive government or the march of a market economy that is prejudiced in favour of an extractive and financialised model. Co-ops are by nature organisations with a purpose, and are very often established to achieve a specific social or environmental goal by pooling the resources of a defined group of people.

Co-ops exist to share risk, power and reward. They are therefore more democratic and accountable forms of business that cannot sell equity on capital markets and so are beyond the influence of the shareholding conglomerates. Recent studies have also shown them to be more enduring and resilient in the face of market disruption, more profitable, more productive, happier and longer-lasting than non-co-operative forms of enterprise.

A hostile economic environment

Yet co-operatives – and indeed all alternative forms of ownership – operate in a hostile economic environment. From challenges in accessing finance to poorly tailored regulatory and legal systems to an underpowered supportive infrastructure, they face an uphill challenge. By contrast, the most successful co-operative economies such as Italy, France, and the USA, provide the legal, financial and operational arrangements for the sector to thrive. It is not surprising then that the co-op sector in those countries is much deeper than our own.

Given this, we should not expect significant co-operative expansion to happen in the current institutional context. Nor can or should we expect co-operativism to expand dramatically through the force of ethical example and exceptional effort, not least because co-operatives are currently subject to intense external pressures due to their operating in a wider, extractive and dysfunctional economy.

Instead, it should be because they are a form of purposeful, successful enterprise that most effectively brings together the ability and interests of ordinary people backed by a supportive institutional, financial and legal framework. Co-operatives should thrive, in other words, as a form of economic organisational ‘common sense’.

A winnable future

Public policy – and an ambitious politics for a new economy – are crucial to creating the conditions for this to occur. NEF’s new report, Co-operatives unleashed, sets out how this can be done.

First, a new legal framework for co-operatives should be established, including a statutory underpinning for the creation of co-operative indivisible reserves and an asset lock, and the introduction of a ‘Right to Own’ to support employee buyouts and the co-operatisation of existing businesses.

The second step is to develop a range of financial instruments and institutions tailored to the needs of the co-operative economy. This should include the creation of mutual guarantee societies, common across Europe, that help co-ops and SMEs pool risk and access funding, as well as the introduction of tax relief on profits reinvested in asset-locked indivisible reserves and on profits paid into a co-op development fund to incentivise common wealth creation.

Third, to develop and extend the capabilities of the co-operative movement, a new Co-operative Development Agency for England and for Northern Ireland should be established. These would seek to replicate and expand on the success of Cooperative Development Scotland and the Welsh Cooperative Centre in developing the capacity of the co-op movement across the rest of the country. It should focus on facilitating knowledge exchange and sectoral co-ordination, supporting co-op business development, and help replicate, shelter and expand successful co-op models by providing an accessible co-op replication service.

Finally, cooperatives must be supported to thrive in their communities and localities as genuinely rooted businesses capable of retaining power and control within that place and returning value to communities. This requires creating real life contexts across the UK where people can come into contact with coop ideas and realise how they can be applied to their livelihood and community. Innovative place-based community wealth building and local industrial strategies are crucial to this and hence to co-operative development. This could include encouraging local procurement and commissioning strategies to support, where appropriate, co-operatives and social enterprises, and local authorities, in combination with the community, social oriented enterprises and unions, should work together to increase the capacity of co-ops and other local businesses to bid for anchor institution contracts.

Scaling democratic ownership

As the political sun sets on neoliberal economics, and demand grows for greater wealth-building and sharing of value with those that add it, there is a real need for policy that creates the kind of enterprises that can fulfil this demand.

What is needed – alongside an expansion of the co-operative sector – is a deep economic heartbeat that consistently and over time transfers the ownership and control of businesses to workers and other key stakeholders. Alongside the co-operative specific proposals, we therefore set out a new institution called an Inclusive Ownership Fund to do just that. Under this proposal, all shareholder or larger privately-owned businesses would transfer a small amount of profit each year in the form of equity into a worker or wider stakeholder-owned trust. Once there, these shares would not be available for further sale.

When the fund reached a controlling level of ownership of a firm (or, in the case of businesses succession, proposed takeover or crisis, a lower but significant level of ownership) the stakeholders controlling the fund could opt to assume control of the business. But prior to that, steps could be built into the fund that would see incremental improvements in worker or wider stakeholder participation when the fund reached certain levels. In other words, the Inclusive Ownership Fund would act as a mechanism for transforming ownership over time, putting power and control in the hands of people rooted in places that depend on the success of purposeful business rather than remaining the preserve of rootless capital.

Ownership matters. It is both a force and fulcrum; it is no coincidence that the two major transformations in the UK’s political economy were undergirded by changes in ownership models, with nationalisation securing the post-war settlement, and privatisation driving its undoing. As we urgently seek a third transformation, new models ownership – as today’s report sets out – must be at the heart of our economic reimagining.

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As two years since Brits voted for Brexit is checked off the calendar, the thick tar of inequality still hampers efforts to create a wellbeing economy. So it is good that economic inequality has been in the headlines for many years now. We’ve seen presidents decry it. NGOs campaign against it. Academics calculate the scale of it. Business leaders profess their concerns about it. And people have protest and vote in exasperation at it.

There seems to be a settled – almost – acceptance that levels of income and wealth inequality are unacceptably high. And that such levels do serious harm – to people across the income spectrum, to the functioning of society, to democracy, to innovation and institutions, to economic activity, and to the environment.

Some policies have been enacted which poke at the problem: increases in minimum wages; crack downs on tax evasion and avoidance; transfers to those whose income is inadequate; even taxes on companies paying steep multiples between highest and lowest paid. Too often these are isolated instances – or they are not implemented with the vigour necessary to bring about change anywhere other than at the margins.

And so the economy keeps on generating wealth for the wealthy. It keeps on churning out extraordinary rewards for those who are fortunate to own financial assets or to sit in the leather seats of executive offices. It keeps bearing down on those cleaning those offices and working to create the financial value that gets siphoned off to those owning the shares.

This is an economic system in which rewards are skewed to a certain type of individual, typically those who operate industries that benefit from monopoly rents (such as Carlos Slim’s ownership of telecoms in Mexico) or those whose inheritance or connections mean they started life standing on a pile of financial resources or have been able to shape policies that make wealth easier to amass. And it benefits those who have money ‘spare’ and choose to put those spare dollars and pounds and euros into activities that will earn them more money than most people will earn in a life time. Just by clicking the ‘buy’ button on their share trading app.

But what if the tables were turned? Is it possible to imagine a configuration of the economy where the rewards don’t flow to the rentiers, but to the rest of society? Where more wealth went to those who generated it rather than to those whose position as a shareholder ostensibly gives them greater access to the pool of financial value created by workers, by suppliers, by women outside the marketised economy, and of course by nature itself?

In that situation, where those creating the value got most, where more people owned the economic assets themselves, and where returns were better aligned to input of effort, would some level of economic inequality be OK?

Clearly not the sky high levels now – because by definition if there is a better spread of ownership and if rewards no longer follow rent then it would be impossible for a few people to hoard as much they do now.

But would divergences in economic fortunes be acceptable if the economy was geared up to reward social value rather than extractive activities?

If the work that is done in the care economy – which is so core to that of the marketised economy – was recognised and rewarded?

And if, on the other hand, people who extracted the most also paid in the most, for example if those doing most polluting had to dig deepest into their pockets and those using more natural resources than others were footing more of the bill?

Maybe, in such circumstances, inequality would be OK? If the economy was one where prices reflected the true cost of producing something. If rewards were about work rather than rents. If ownership was shared rather than commandeered by a few whose existing wealth means their money makes more for them than most people can earn by working.

This would be a vastly different economy from that of today. It would be an economy that cultivates wellbeing – where collective wellbeing is the primary goal, at the forefront of policy making in corridors of parliaments and in the board meetings of businesses. It would take account of nature to the extent that the environment is cherished, rather than simply deemed an input to be drained.

And yes, there would be some inequality – but it would follow the lines of social value and environmental harm: those bringing more of the former would get more and those doing more of the latter would give more.

Of course, such an economy is yet to be realised. Many are working on bringing it about – and are increasingly linking up as the Wellbeing Economy Alliance so as to better connect and amplify their work.

But until we have created a wellbeing economy, it is probably best to carry on advocating against inequality because it still reflects a rigged system rather than one that puts people and planet first.

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Leicester, May 2018: textile workers are paid half the minimum wage, their actual worked hours halved to fiddle the figures. The clothes they produce are sold by a new breed of on-line, “fast fashion”, retailers selling to “aspirational thrift” consumers with limited spending power. The workers themselves are mostly non-English speaking or recent migrants from Asia or Eastern Europe. From poor wage workers to poor consumers. And the retailers themselves are doubling profits year-on-year.

You could call it nineteenth century exploitation in the 21^st century. So, why do we need a new theory of exploitation, when surely Marx will still do, 150 years later? Well, no.

Even this small example of ‘dark factories’ asks for some rethinking, let alone other major historical transformations in the modes of making profits and the organisation of political economies. Both the existence of a minimum wage and its illegal evasion point to the significance of law in constituting and legitimising the exchange between wage labour and capitalist enterprises. Then, asymmetries of power in exchange run through every aspect of fast fashion: between the retailers as the dominant power and manufacturers, between manufacturers and their workers, and between retailers and their consumers. There is a churning of manufacturers, going in and out of bankruptcy. The consumers, mostly the in-work poor, locked-in to buying the cheapest available fashion items, pay the price of profit at margins hidden from sight. The workers, non-unionised, without high levels of education, migrant and ethnic minority, are constrained in varying degrees of economic powerlessness to sell their labour at below the legal rate to which they are entitled.

Together with my friend, the Marxist political philosopher, Norman Geras (now sadly deceased), we decided to go back to basics and do some necessary rethinking. We wanted to go forward from Marx to address the rampant and extreme inequalities that have emerged within national economies. We wanted to challenge the democratic illegitimacies (plural) of economic power, how economies as they have been politically constituted by law enable the undemocratic concentration of economic power and its exercise. There are extreme undemocratic rights to the wealth created in society, both public and private.

In a major historical transformation, not yet present for Marx to analyse, universal compulsory education has progressively, and to different degrees in different societies, fundamentally changed the social reproduction of labour, the capacity to work. Feminist economists long ago rightly insisted on the unpaid, non-commodity, process of reproduction in the household. Educational systems supplemented such processes on an ever increasing scale as school leaving ages were gradually raised. The theoretical significance of this transformation for a revision of 19^th century Marxism cannot be understated – let alone ignored.

Four main points can be made and briefly stated.

First, children are constrained not to sell their labour until a certain age. That changes the whole shape of the labour market. And it is a political and legal condition of who can and who cannot sell their labour.

Second, the model of a closed-circuit commodity system of labour and commodities has to be abandoned. Social reproduction of labour is no longer only secured by the consumption of a basket of commodities – food, clothing, housing and an increasing range of goods deemed ‘necessary’ for social life. It also requires the work of teachers and school students to acquire skills at different levels in a non-commodity public mode of reproduction. You cannot equate or quantify this non-market teacher and student labour with the market labour engaged in producing commodities.

Third, the fundamental polarity underpinning Marx’s conception of class has to be radically revised. The binary division between owners of the means of production (when means of production are equated to market assets) and those with owning nothing other than their labour to sell (when nothing is equated to physical means of subsistence) is unsustainable. Acquired skills and knowledge are an essential means of production complementary to any physical or indeed ‘soft’ means of production. People with more or less skills/knowledge are in different asymmetries of power when hiring out the use of those skills to the owners of market capital. Moreover, these skills/knowledge are collective social goods, not personally owned by us as individuals any more than the language we speak. Knowledge bearers do not part with their knowledge when they hire its use. Indeed, that knowledge is often enhanced in use, rather than depleted.

Fourth, as a consequence the differential rights to the public good of education are a source of fundamental inequalities, the exclusion by selection of those with more or less rights to more or less education. And here we come back to the example of the dark factories of fast fashion. Those without the social good of English language, without qualifications, with the vulnerability of being recent migrants, are at the extreme end of asymmetries of power in exchange. Graduates and school-leavers without qualifications are under fundamentally different constraints to sell their labour of one kind or another, manual or non-manual, high skilled and professional or low-skilled. Some have no option, as they enter the labour market, but for a life of low paid, insecure, work, on the worst of terms, as with zero hours contracts or bogus self-employment. Unequal rights to the public good of education combine with unequal rights to the world of market commodities. It should not be forgotten that divisions of educational exclusion and attainment were at least as significant as inequalities of income in accounting for the Trump election and vote Brexit.

Labour, in all its variety of skills, creates the wealth of society, of both market and public goods. And capitalists, in the market sphere, own and then sell at a profit what is produced by labour. With Marx, that remains a vital dynamic of inequality, indeed of exploitation. Owners of football clubs make profits and grow assets even when paying mega-salaries to their stars putatively endowed with the most uniquely valuable skills. Owners of banks make super-profits while paying market traders with physics degrees bumper bonuses.

But Marx had a one-sided view of profit-making, based on the extra-value created in production, and then simply realised in the market. Stiglitz has an equally one-sided view of profits made by primarily through distortions of the market, and Piketty a one-sided view attributing primary importance to inherited wealth – ‘inheritance’ societies, not exploitation societies. We need a theory of exploitation that combines the production side – the continuous creation of quality distinction – with the market side, through asymmetries of power in exchange.

Companies compete not to compete, but to create quality distinction in a unique and constantly shifting market. They do so by mobilising the transformative skills of labour. But they then have a position of market power.

As consumers, we are then under even more acute asymmetries of power in exchange than many of us are in our capacities as workers. Consumers are price takers, not price makers through some mythical process of aggregation of a multitude of individual purchase choices. Consumers blindly pay the price of profit, for which, as workers they have created the market potential. Organising consumer power to confront monopoly positions of powerful economic agents, whether supermarkets, Amazon or Facebook, is far more challenging than the workplace organisation of workers, and can, in general only be taken in the political arena, by consumers as political citizens.

So, exploitation is double-sided, combining quality value creation by market positioning and profit-appropriation on the one hand, and asymmetries of consumer power in exchange on the other. It is not one or the other, but both, pivoting on the wage. It is exploitation by the economic power of capital over what after all are the same social beings, worker-consumers, consumer-workers. Capital gives with one hand what it grabs back with the other.

Take Amazon. In the US it has a 67% share of a $290 billion e-commerce market. The next biggest player is Walmart, itself no small fish, with about 10%. It can then command mega-profits in its advertising and web-services markets, and has enormous power over its suppliers. And at the same time, consumers are faced with monopoly power of a dominant portal for a vast array of commodities, and drivers for Amazon deliveries are engaged as bogus self-employed, where minimum wages and working times do not apply. Amazon sits at the centre of a web of economic power-asymmetries going in all directions. That is modern exploitation, a fundamentally undemocratic organisation of the economy.

It should not surprise us. Capitalist economies have always been marked by the abuse of economic power, legitimated by law, and enforced by the state, at no time more so than the emergence of industrial capitalism from the 18^th century. Coercive legislation, punitive zero-hours contracts, workhouses and incarceration, were introduced to regiment working for factory wages in the metropolis. But, contrary to the dominant view, including Marx’s,  British industrial capitalism also drove the most significant growth in capitalist slavery, in the Deep South of the US. By 1860, there were 650,000 workers in the UK textile proletariat, but over 3 million slaves producing cotton for the industry. Wage labour and slavery grew in lock step. Moreover, the legacy of slavery in the racialized hierarchies of inequality are ever-present in all the slave-owning powers of Europe and the US. The Windrush scandal was only the most recent British example, when descendants of slaves have been deported for another forced migration back across the Atlantic.

There was no single closed system capital-wage labour-commodity economy, as portrayed by Marx. And it remains so to this day. Mobile phones are produced using high-tech high paid labour in Silicon valley, slaves mining coltan in the Congo, and assembly workers in market socialist regimes in China. Many other consumer goods (clothing, shoes, white goods) are similarly the combined product of heterogeneous regimes of exploitation. We need a different conception of the economy, other than the abstract models of closed systems that were formative of the discipline of economics in the 19^th century and have blinded it ever since.

These are the themes that drove Norman and I to rethink exploitation, and to consider the democratic illegitimacies of economic power, as an issue as much of political as of narrowly economic inequalities. The book is a small pebble thrown into a large pond.

***

Inequality and Democratic Egalitarianism. Marx’s Economy and Beyond and Other Essays. Mark Harvey and Norman Geras. Manchester University Press. 2018.

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There is no telling when the next UK general election will come, and when the Corbyn Project could accede to national political power in what R.H. Tawney once called ‘the oldest and toughest plutocracy in the world’. But there is still plenty of work to be done in the meantime. While there were some advances in last month’s local elections, the mixed results underscore the difficulty of mobilisation around a stale and sterile managerialist model of local government, as embodied in all too many Labour councils.

Austerity at the national level may have been eased, at least rhetorically, but a fiscal crisis of the local state still rages. Since 2010, government funding to local authority budgets has been slashed by 49.1 per cent, with more pain still to come; by 2020, cuts in central government funding are forecast to reach 56.3 per cent. Although plans for all councils to receive 100 per cent rates retention by 2019/2020 have been placed on ice, cuts premised on this change continue unabated. Almost half of all councils are set to lose all central government funding by 2019/2020, with a yawning £5.8bn funding gap opening up by the end of the decade. Even with the best will in the world—clearly lacking in places like Haringey, where until recently a ghoulish Blairite zombie local government politics still walked at night—this has not been a promising context in which to build political support for and project out a Corbyn-inflected ‘new economics’.

But difficulty need not be impossibility—as can be seen in the path taken by the flagship Labour council of Preston in Lancashire. In a few short years Preston has gone from being one of the most deprived parts of the country to a model of radical innovation in local government through its embrace of community wealth building as a modern reinvention of the longstanding political tradition of municipal socialism. Community wealth building is a local economic development strategy focused on building collaborative, inclusive, sustainable, and democratically controlled local economies. Instead of traditional economic development through public-private partnerships and private finance initiatives, which waste billions to subsidize the extraction of profits by footloose corporations with no loyalty to local communities, community wealth building supports democratic collective ownership of—and participation in—the economy through a range of institutional forms and initiatives. These include worker co-operatives, community land trusts, community development finance institutions, so-called ‘anchor’ procurement strategies, municipal and local public enterprise, participatory planning and budgeting, and—increasingly, it is to be hoped—public banking. Community wealth building is economic system change, but starting at the local level.

The term first emerged in the United States in 2005, and was coined by our colleagues at The Democracy Collaborative. It was used to describe the model then beginning to emerge in the severely disinvested inner-city neighbourhoods of some of America’s larger cities as a response to crisis and austerity. As federal and state fiscal transfers dried up, social pain intensified in communities that had long been suffering from high levels of unemployment and poverty. Precisely because large public expenditures for jobs and housing were seen to be no longer politically achievable, more and more people started turning to economic alternatives in which new wealth could be built collectively and from the bottom up.

There are now two flagship models of community wealth building—and a growing number of additional efforts in cities across the United States and United Kingdom.  The first model is the Evergreen Cooperatives in Cleveland, Ohio—created, in part, by our own organisation, The Democracy Collaborative. Cleveland had lost almost half of its population and most of its large publicly-traded companies due to deindustrialisation, disinvestment, and capital flight. But it still had very large non-profit and quasi-public institutions such as the Cleveland Clinic, Case Western Reserve University, and University Hospitals—known as anchor institutions because they are rooted in place and aren’t likely to up and leave. Together, Cleveland’s anchors were spending around $3 billion per year, very little of which was previously staying in the local community. The Democracy Collaborative worked with them to localise a portion of their procurement in support of a network of purposely-created green worker co-ops, the Evergreen Co-operatives, tied together in a community corporation so that they too are rooted in place. Today these companies are profitable and are beginning to eat the lunch of the multinational corporations that had previously provided contract services to the big anchors. Last month came the announcement of an expansion of the Evergreen Cooperative Laundry to a new site serving the needs of the Cleveland Clinic, with a hundred new employees on fast track to worker ownership.

The ‘Cleveland Model’ is one of the sources of inspiration for Preston, now the pre-eminent example of community wealth building approaches in the UK. Back in 2012, Evergreen caught the attention of Labour councillor Matthew Brown, now a colleague at The Democracy Collaborative. With the help of others, such as Neil McInroy at the Centre for Local Economic Strategies (CLES), Brown took the Cleveland Model and radically expanded it. The ‘Preston Model’ now encompasses a string of public sector anchors across Preston and Lancashire, to which has been added public pension fund investment, affordable housing, and—hopefully, in the near future—an energy company and a community bank.

A longstanding tradition

Both the Cleveland and Preston Models represent a reinvention of a longstanding political tradition that played a significant role in the development of mass socialist politics in Europe and North America—and could now do so again, just when such a politics is most needed. In the late nineteenth and early twentieth centuries, activists on both sides of the Atlantic began to articulate a sophisticated political-economic theory of change. They suggested that by advancing a radical yet popular economic strategy of democratised ownership, good governance, and better working conditions at the local level, they could begin to build political power from the ground up. “Little by little the conditions of the people are to be improved”, Carl Thompson, a Wisconsin State Legislator and one of the United States’ leading municipal socialists, argued in 1907. “[T]hus, in every way, society will be gradually prepared for and led into the experience of Social-Democracy” (Thompson, 1908, 28). Similarly, in Britain in 1919, the Russian émigré and radical journalist Theo Rothstein asserted that local councils should be transformed “into so many forts from which to assail the Capitalist order” (Rothstein, 1919).

Municipal socialists believed that by pursuing policies and conducting campaigns around economic issues that directly affected the community, they could build durable political coalitions, raise the aspirations and political awareness of ordinary working people, and develop the political and administrative skills for further social and economic transformation (Judd, 1989; Stave, 1975). This coupling of consciousness-raising with the marked material enrichment of everyday life could then be deployed to the furtherance of socialism more broadly—in local, state, and national elections.

In the UK, interest in the economic and political possibilities of municipal socialism came and went with the rising and ebbing of the tides of economic reform and mass politics. At the beginning of the twentieth century it was led by early Fabian thinkers, with six Fabians—among them Sidney Webb—being elected to the London County Council in the 1892 elections. Of the first hundred Fabian tracts, written between 1884 and 1900, some forty-three discussed issues of local government (Chandler, 2007, 130-131). In What About The Rates?, Webb’s 1913 treatise on the financial autonomy of the municipalities, he protested vociferously against a political strategy which sought to marginalise the municipal: “Let us leave such proposals to the enemy … We, as Socialists, much cherish local government, and aim always at its expansion, not its contraction” (Webb, 1913, 9-10).

Municipal socialism was thus conceptualised as a consciously-evolving process, simultaneously shifting ownership—and with it power—whilst raising local living standards. Economic and political successes were consciously built upon to expand the strategy both horizontally (to other municipalities and industries) and vertically (to larger enterprises and services, and higher levels of governance). F. Lawson Dodd demonstrated the unfolding logic of this approach in a 1905 tract, arguing that the merits of water municipalisation warranted a further municipalisation of the milk supply on the bases of both power and public health: “The establishment of municipal milk depots supplied from municipal farms is the first step towards the social organisation of the dairy industry … The community would take over the whole of the supply”, he argued (Lawson Dodd, 1905, 17). The full extent of the impressive economic footprint achieved by municipal ownership in late-nineteenth-century Britain is nicely captured in the account given by Webb in his 1890 book Socialism in England:

“The ‘practical man,’ oblivious or contemptuous of any theory of the Social Organism or general principles of social organisation, has been forced by the necessities of the time into an ever deepening collectivist channel. Socialism, of course, he still rejects and despises. The Individualist Town Councillor will walk along the municipal pavement, lit by municipal gas and cleansed by municipal brooms with the municipal water, and seeing by the municipal clock in the municipal market, that he is too early to meet his children coming from the municipal school hard by the county lunatic asylum and municipal hospital, will use the national telegraph system to tell them not to walk through the municipal park but to come to the municipal tramway, to meet him in the municipal reading room, by the municipal art gallery, museum and library, where he intends … to prepare his next speech in the municipal town hall, in favour of the nationalisation of the canals and the increase of government control over the railway system. ‘Socialism, sir,’ he will say, ‘don’t waste the time of a practical man by your fantastic absurdities. Self-help, sir, individual self-help, that’s what’s made our city what it is’” (Webb, 1890, 65)

Tensions soon arose, however, between local and national aspirations. With the rise of Labour as an electorally successful national party committed to a top-down reorganisation of the British economy, municipal socialism began to wither. This was partly the party’s own doing, with one of the deleterious consequences of the centralising tendencies of Attlee’s post-1945 nationalisation programme being the abandonment and erasure of the rich tapestry of local traditions of municipal ownership, mutualism, and co-operation. The boards of the newly nationalised (and centralised) public companies were comprised of a curious assemblage of the contemporary elite, which often meant that the extensive tacit knowledge of the workers and successful economic practices of municipal enterprises were marginalised, ignored, or lost altogether. Knights, Lords, and generals were well represented on these boards (Jenkins, 1959, 16), but—to take but one example—not a single member of the fourteen appointees to the board of the first Gas Council had been connected with any of the numerous previous municipally owned public gasworks (Kelf-Cohen, 1973, 59).

Only with the sunset of the top-down Keynesian economic management of the postwar Golden Age did municipal socialism begin to re-emerge as a political force. In the dark days of Thatcherism, radical local experiments re-appeared in the shape of the Greater London Council (GLC) and other metropolitan councils. As Stuart Hall wrote, the GLC “operated right across the spectrum, politicising sites of daily life and drawing them into the orbit of politics in ways unthinkable to most conventional Labour councils” (Hall, 1988, 237). Thatcher, perhaps more than anyone, immediately saw the political danger inherent in any significant revival of municipal socialism—especially one with a strong participatory, democratic character. “The GLC represents modern socialism”, the arch-Thatcherite Norman Tebbit stated, concluding that ‘we must kill it’ (Wainwright, 2003, 8).

Many of Thatcher’s own colleagues were made somewhat uneasy by “her deep-seated and almost obsessive objections to urban socialists” (Kösecik and Kapucu, 2003, 87), whilst the municipal socialist and Labour MP for Manchester Central, Bob Litherland, wondered aloud in Parliament as to whether it might be deemed “unfair that the metropolitan counties have to suffer because a Prime Minister takes a paranoic view of Ken Livingstone and thinks that he is immortal” (HC Deb 11 April 1984). George Tremlett, a Conservative councillor on the GLC and outspoken critic of Thatcher’s abolition agenda, was dropped from the Conservative Group altogether after arguing that “the proposals were so outrageous and so contrary to all the Conservative traditions of government that they must call into question Mrs. Thatcher’s capacity to form a balanced judgement on important issues of public policy”, and eventually encouraging Conservatives to vote Labour in the 1984 by-elections (Kösecik and Kapucu, 2003, 77).

Despite this opposition, Thatcher persisted in her determination to abolish the GLC, which was accomplished with the Local Government Act of 1985, wherby these resurgent experiments in municipal socialism were legislated out of existence. With Thatcher’s defenestration of local government, municipal socialism once again faded from the picture politically in Britain. Recent plans to devolve power to local government have been a mixture of unintelligibility and—especially since 2010—cynical exercises in political buck-passing, particularly attempts to shift the blame for implementing austerity. As a consequence, the public has quite rightly reacted negatively to such efforts, as well as other associated attempts to address the overwhelming centralisation of Britain’s political economy and governance. Referenda on regional assemblies in England advanced by Tony Blair were soundly rejected—by as much as 78 per cent in the vote on devolution to North East England in 2004—while George Osborne’s lopsided localism agenda has been plunged into legislative formaldehyde with the arrival of Theresa May in Downing Street.

Municipal socialism revisited

In the modern era of 24-7 news cycles and horserace political coverage, local politics rarely receives much attention. When local campaigns and politics are covered at all, it is usually because such elections are deemed to be a bellwether for the relative national political strength of the parties. This downgrading of local politics also extends to political analysts and activists, and often even to the political parties themselves, as can be seen in their reluctance to invest precious resources in local campaigns.

There are promising signs, however, that this is now beginning to change. With the leadership of Jeremy Corbyn and John McDonnell, municipal socialism has once again returned to the Labour Party’s agenda in a powerful way. “With amazing creativity in the toughest of times, we are seeing the first shoots of the renaissance of local government for the many, not the few—the rebirth of municipal socialism”, Corbyn proclaimed in February of this year.

As indicated above, one of the leading models of re-emerging, modern-day municipal socialism in the UK is to be found in Preston. In 2011, the city—which had been declining economically since the 1970s—was reeling from a bitter double blow. Central government funding was plummeting under the austerity regime of Cameron’s coalition government and long held revitalization plans based on a £700 million shopping centre had collapsed. The newly-elected Labour council realized that they needed to come up with a new strategy. It was then that Councillor Matthew Brown, Cabinet Member for Social Justice, Inclusion, and Policy, stepped forward with his ideas. Inspired by alternative forms of economic development around the world, including the Mondragón cooperatives in the Basque region of Spain and the Evergreen Co-operatives in Cleveland, Ohio, Brown and his fellow councillors began to develop plans to deploy Preston’s existing assets and financial clout to catalyse a new local economic model that builds wealth rather than extracts it from the community. Working with the Manchester-based CLES, Preston Council approached the large anchor institutions in the area and came up with a strategy to shift as much of their spending and procurement back into the local economy as possible. In 2013, six of the local institutions that signed up for the effort spent around £38m in Preston and £292m in Lancashire as a whole. By 2017 this had skyrocketed to £111m and £486m respectively. The new localized contracts cover everything from school lunches to large-scale construction projects. Moreover, contracts shifted locally have a multiplier effect, as pounds circulate and recirculate throughout the local economy, creating jobs which in turn lead to more spending on goods and services, which then leads to the creation of more jobs, and so on.

The Preston Model, however, is about much more than just developing the local economy through shifts in spending and procurement. It is about alternative forms of ownership that not only enrich the lives and livelihoods of residents and workers, but also give them the opportunity to actively participate in the economic decisions that affect their lives and the future of their city. Even before working with the anchor institutions, Preston Council backed plans to develop co-operatives (and link them to the procurement needs of the anchors) and a public financial institution (see Chakrabortty, 2018; Sheffield, 2017; Singer, 2016).

Preston has been lauded by the Labour leadership and by sections of the media as an example of what could be achieved—albeit on a far greater scale—nationally under a Corbyn-led government. “This kind of radicalism”, argued John McDonnell in a 2016 speech at the Preston-based, worker-owned transport company TAS, “is exactly what we need across the whole country”.

Star Guardian columnist Aditya Chakrabortty kicked off his excellent new series exploring real-world economic alternatives with an in-depth study of the Preston Model, following on the heels of a broadly sympathetic write-up in The Economist, which dubbed Preston ‘Corbyn’s model town’. In a speech to the Co-operative Party, Corbyn himself praised the “inspiring innovation” of developments in Preston, particularly when set against the wider backdrop of swinging cuts to local government funding.

Preston also demonstrates the renewed potential of modern municipal socialism as a political strategy. As was the case a century ago, advancing a radical and innovative program of local economic regeneration can quickly lead to tangible political benefits. In the May 2018 local council elections, the Preston Labour Party pledged (among other things) to increase investment and jobs based on the Preston Model; to create a public bank and local wealth fund; to support the creation of new worker cooperatives; and to ask the Lancashire Pension Fund to invest more in the local economy (Preston Labour, 2018). The voters responded, as Labour increased its majority on the local council by picking up two seats—College Ward and Garrison Ward—that had long been controlled by the Tories. Moreover, as new councillor for College Ward Freddie Bailey explained to local journalists, “what we found helped was the Preston Model” (Farnworth, 2018). This was reinforced in the wake of the election when Matthew Brown was elevated to become Leader of Preston City Council.

Onwards to municipal socialism!

While it is right to remain cognisant of the limitations placed on local government by colossal cuts and decades of restrictive legislation, the twin temptations of fatalism—that nothing can be done—and deferral—that nothing can be done until Labour is in power in Westminster—must be roundly rejected. As Preston today demonstrates, a new radical municipalism can indeed emerge in Britain (as it is doing all across the world in the face of neoliberal crisis and austerity) and can serve as the basis for potentially much further reaching national and international change. Exorcising the zombie councils who do little besides implement austerity is vital, but so is creatively, confidently, and collaboratively exercising the significant powers councils do still possess.

As Daniel Frost recently urged in New Socialist, and as we have argued previously, there is much that can be done already—as a movement we need not wait for Labour to gain power nationally before we begin advancing ambitious programmes around a ‘new economics’ based on radical modern reinventions of municipal socialism.

Working with and for the local community to invigorate popular participation in economic decision-making and create—rather than merely extract—community wealth represents both an electorally and an economically successful strategy that can be implemented by councils across the country. The manner in which Preston has caught the imagination as a laboratory of ‘Corbynomics’ points to the wider role such approaches can play, not just in delivering for their local communities (vitally important though that is, the foundation of all else that follows) but also in helping us all to imagine, experience, and get involved with systemic economic transformation.

In an earlier period of economic contraction and difficulty in Lancashire, none other than Karl Marx wrote, in the New York Herald Tribune, of the emerging workers’ movement in the region: “The eyes of the working classes are now fully opened, they begin to cry: Our St. Petersburg is at Preston!”

Today, anyone looking around, from Capita to Carillion to the grim shadow of Grenfell Tower and the travails of East Coast Mainline, can see the existing neoliberal economic model failing and collapsing. But what holds a system in place, often, is a failure of imagination that things can fundamentally change, and that there are real, viable alternatives for organising a next system. Part of the answer to our failing economic system lies in on-the-ground experimentation and model building that embraces the design and principles of a new systemic alternative.

There is precedent for this. In the political science literature in the United States, it is known as the ‘laboratories of democracy’. In Britain, when Nye Bevan launched the NHS in 1948, he drew as inspiration from the Tredegar Medical Aid Society, a community-based model in South Wales that began in 1890. This small Welsh experiment was then scaled up into one of the world’s truly great public health systems.

We now have an opportunity—in the unknown amount of time between now and the next UK General Election—to get people familiar with the elements of the democratic economy through a widespread embrace of community wealth building approaches by Labour councils and local authorities. This suggests the potential basis for a new institutional underpinning for socialist politics, building support for our new economics from the ground up in a way that is far less scary and more comprehensible in a local context than it can sometimes appear at the national level. Our ambition, as the Corbyn Project, should be to bring about what Tony Benn termed “a fundamental and irreversible shift in the balance of power and wealth in favour of working people and their families”. Community wealth building is what that looks like when you start at the local level and begin creating systemic economic change from the ground up.

***

References

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Chandler, J. A. (2007) Explaining local government: Local government in Britain since 1800.Manchester: Manchester University Press.

Farnworth, A. (2018) ‘Labour turns two parts of Fulwood red with local election wins’, Blog Preston, 04.05.2018, http://www.blogpreston.co.uk/2018/05/labour-turns-two-parts-of-fulwood-red-with-local-election-wins/

Hall, Stuart. (1988) The Hard Road to Renewal: Thatcherism and the Crisis of the Left.London: Verso.

HC Deb (11 April 1984) Vol. 58, https://api.parliament.uk/historic-hansard/commons/1984/apr/11/local-government-interim-provisions-bill#S6CV0058P0_19840411_HOC_413

Jenkins, C. (1959) Power at the top: A Critical Survey of the Nationalized Industries. London: MacGibbon and Kee.

Judd, R. (1989) Socialist Cities: Municipal Politics and the Grass Roots of American Socialism. Albany: State University of New York Press.

Kelf-Cohen, R. (1973) British Nationalisation 1945-1973. London: The Macmillan Press.

Kösecik, M., and Kapucu, N. (2003) ‘Conservative Reform of Metropolitan Counties: Abolition of the GLC and MCCs in Retrospect’, Contemporary British History, Vol. 17, No. 3, pp. 71-94.

Lawson Dodd, F. (1905) Municipal Milk and Public Health. London: The Fabian Society.

Preston Labour. (2018) ‘Preston Labour Manifesto 2018 City Council Elections’, https://docs.wixstatic.com/ugd/b14b61_3f842b96c215443cac627887a71a18d7.pdf

 Rothstein, T. (1919) ‘A Revolutionary Municipal Policy’, The Call, 27.11.1919, https://www.marxists.org/archive/rothstein/1919/11/27.htm

Sheffield, H. (2017) ‘The Preston model: UK takes lessons in recovery from rust-belt Cleveland’, The Guardian, 11.04.2017, https://www.theguardian.com/cities/2017/apr/11/preston-cleveland-model-lessons-recovery-rust-belt

Singer, C. (2016) ‘The Preston Model’, The Next System Project, 09.09.2016, https://thenextsystem.org/the-preston-model

Stave, B. (ed.) (1975) Socialism and the Cities. Port Washington, N.Y.: Kennikat.

 Thompson, C. (1908) The Constructive Program of Socialism. Milwaukee: Social-Democratic Publishing Co.

 Wainwright, H. (2003) Reclaim the State: Experiments in Popular Democracy. London: Verso.

 Webb, S. (1889) Socialism in England. Baltimore: American Economic Association.

Webb, S. (1913) What about the rates?: or, Municipal finance and municipal autonomy. London: The Fabian Society.

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The evidence of our broken economic model mounts. This week, the East Coast Mainline was taken back into temporary public control from Stagecoach and Virgin Trains. As a potent symbol of the failure of rail privatisation, where franchise operators win regardless of their performance but the costs are borne by passengers and taxpayers, it is striking. At the same time, Royal Mail year end results saw another record dividend payment to shareholders, with almost a billion pounds extracted from the company since privatisation, despite the sale promising increased inward investment. Meanwhile, the Business, Energy and Industrial Strategy Committee released a devastating report into the failings of Carillion, exposing the flaws of the outsourcing model.

Parasitic, over leveraged, weakly accountable, and delivering little value, these companies and their relationship to the state epitomise the inefficiencies and inequalities of our neoliberal political economy.

Critically, these are not isolated symptoms of failure. We are in the middle of the longest stagnation in earnings for 150 years. Average weekly earnings have decoupled from GDP growth for the first time since comparable data has been available. Young people are set to earn less than the previous generation for the first time. We have the richest region in Europe – inner London – but most British regions are poorer than the European average. The UK’s productivity performance has been abject for a decade. The cumulative environmental impacts of our economy are damaging and unsustainable. In short, our economic model is broken and needs radical reform.

Piecemeal tinkering won’t suffice. What is required is an urgent rethinking of how our economy is organised, and in whose interest. Fundamental to this must be an ambitious new agenda on ownership, one that isn’t satisfied with the piecemeal nationalisation of railway franchises, or indeed the railway system as a whole, but instead seeks to transform how our economy as a whole is owned and governed, and in whose interests.

Scaling up alternative models of ownership – new ways of owning and governing enterprise to give workers and communities a stake and a say – is critical. This is because ownership is the key to unlocking systems change. Indeed, we cannot achieve the paradigm shift we need in how we run the economy and for whom without changing how our economic assets and institutions are owned. From the post-war consensus undergirded by the nationalisation of the economy’s commanding heights, to the role privatisation played in shattering of the Keynesian settlement and popularising Thatcherism, history teaches us ownership matters.

The reason is because ownership of capital shapes the distribution of power and reward in a business and the economy as a whole. It structures how enterprise is organised, granting powerful control rights to the exclusion of labour’s interest. Ownership also generates income rights, which as capital’s share of national income has risen over time, has benefited business owners at the expense of the incomes of workers.

If capital was broadly owned or democratically governed, the growing share of national income going to capital would not matter for inequality and living standards, since the benefits would be widely distributed. In fact, the ownership of capital is highly unequal. The wealthiest 10 per cent of households own 45 per cent of the nation’s wealth, while the least wealthy half of all households own just 9 per cent. Property, the most widely spread form of wealth, gives people little control over the productive forces of the economy. Financial wealth which does, including stocks and shares, is particularly unequally held: the wealthiest 10 per cent own almost 70 per cent. Indeed, a striking paradox of the ‘shareholder democracy’ revolution of the 1980s was that it led to the concentration, not dispersal, of economic ownership. Compared to most other advanced economies the UK now scores poorly on economic democracy indexes measuring ownership and economic voice.

Powerful trends are set to increase the importance of ownership in the context of unequal levels of ownership. Technological change risks creating a paradox of plenty: society is likely to be far richer overall due to the material abundance generated by automation and digitalisation, but for many individuals and communities, technological change could reinforce inequalities of power and reward as the benefits are narrowly shared, flowing mainly to capital owners and the highly skilled. From the ownership of data that fuels the platform giants of surveillance capitalism, to ‘who owns the robots’, ownership of capital will become ever-more pivotal.

This is why IPPR’s Commission on Economic Justice has set out a radical agenda for broadening and democratising ownership of business equity. The goal of our proposals are two-fold: to give everyone a share of capital, both as useable wealth and for its income returns; and to spread economic power and control in the economy, by expanding the decision rights of employees and the public in the management of companies.

Our report, Capital Gains, proposes three mechanisms that can help broaden the ownership of companies and spread economic rewards and power more widely.

First, we propose establishing a Citizens’ Wealth Fund that would own shares in companies, land and other assets on behalf of the public as a whole, and pay out a universal capital dividend of £10,000 for every 25-year old.

Second, we propose a series of measures to expand employee ownership trusts, which create a form of employee common ownership that provides the basis for employee participation in both profits and corporate governance, giving employees both distributional and control rights. The effect is to turn the traditional company ownership hierarchy on its head: whereas capital normally hires labour, in an EOT-owned company the employees hire capital. We estimate that the UK could create 3 million worker-owners by 2030 with an ambitious reform agenda.

Finally, we set out steps to scale the co-operative and mutual sector, which are democratically owned and governed, through new financial and legal measures to support forms of enterprise in common.

Our crisis consists in the mounting evidence of deep structural failure, whether Carillion or the rail debacle, without yet generating overwhelming momentum towards much needed and systemic reform. An alternative ownership agenda must be critical to this.

From the national to the firm level, new models of ownership can begin to reshape how our economy works and for whom. It gives us a chance to own the future.

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The most urgent problem facing the next generation is the unaffordability of housing.  Although any solution will involve several elements, a central feature must be a major increase in public investment in social housing. To be effective, changes to housing policy must be sustained over the long-term and command wide public support to ensure they will be implemented by whichever political party is in power.

In our new report, ‘Remodelling Capitalism: How Social Wealth Funds could transform Britain’, we propose a radical expansion of the role of the state to ensure that future increase in housing supply, especially of social housing. We believe the state should be primarily responsible for ensuring there is enough land available for future housing development, building on the huge reservoir of land already owned by the public estate. The aim would be to ensure that land for public housing was available across the country, and to increase the overall supply of development land so as to reduce the cost of land, now a key element in the explosive growth of house prices.

Over the past 40 years the UK has sold off public land valued at around £400bn, but still retains considerable holdings. Although exact figures are hard to come by, the best estimate is that the UK public authorities currently own about 750,000 hectares, with two thirds owned by local authorities and public bodies like the NHS and the other third owned by central government.

Our proposal aims to create a series of regional or urban land trusts, based on consolidating and professionally managing the portfolio of existing publicly owned land suitable for development. The trusts would then hold and own this land in perpetuity. The primary aim of these regional land trusts would be to ensure that society retains what is left of publically owned  land and uses it to build the next generation of social housing, as well as other suitable developments such as social infrastructure. All public sector owners could, should they choose, transfer their operational land and property assets into the trusts. This would enable the trusts to coordinate the management of all the public land.

The local trusts could acquire additional parcels of land suitable for housing by purchasing them at existing use value. Land unsuitable for social housing, or public land in regions without demand for social housing, could be leased to the market for private housing, as well as commercial and retail development. The lease arrangement (with the income accruing to the trust ) would enable the trusts to ensure that they retain control over the character of the private developments, including the provision of adequate infrastructure and inclusion of social provision. The trusts could also specify conditions regarding maximum rent levels, maximum rent increases and/or minimum levels of security of tenure.  It would also include provisions for the forfeiture of land for non-compliance with the conditions stipulated in the lease.

The trusts would also have the power to borrow in order to acquire land, secured against its existing land portfolio, and could be given powers to acquire land banks that are being held by private developers who are not currently building housing on these plots.

Any rental income from social housing and leasing income from commercial and retail development would be used by the land trust to meet the financial obligations it incurred through borrowing to build the housing. Any additional capital would be ploughed back into the trust to further assist it in meeting its prime objective of building social housing. Where the demand for social housing has been met, the money would be ring-fenced to pay for future land acquisition and housing development.

The trusts would be bound by a number of core principles. Firstly although they would be established by the state they would operate independently of it. An independent board, which would include local people, would manage the governance of the trust and ensure that it met its social purpose and protect the assets in perpetuity from misappropriation. The day-to-day management of the trust would be conducted by property management professionals.

The title to all the publicly owned land suitable for development would be transferred to the trusts at no cost to itself or the previous owner, which would be granted temporary stamp duty relief. The urban land trust would retain ownership in order to ensure that it can develop land itself, as well as leasing land at an agreed rent for development. As it expands its land and property holdings it will generate additional income through rental and leasing income.

One of the fundamental challenges with building good quality social housing is the high cost of the land. Land now makes up the largest proportion of the cost of housing in many areas (up to 70% in some areas compared to just 1% for New Town developments such as Milton Keynes or Harlow). Building on land already in public ownership will allow the regional/urban land trusts to build social housing without needing to take into account the cost of the land. This will cut the cost of building substantially and means that the development will start to generate profit faster than private developments which also need to make back the cost paid for the land.

Utilizing the existing land that the regional/urban land fund owns, together with the newly acquired land at existing use value, should result in increased availability of housing, especially social housing, as well as dramatically lowering the cost of acquiring land for the trusts.

The advantage of adopting a local approach to this type of social wealth fund is that it is likely to get local buy-in, and could be implemented on a piecemeal basis, and would show results without waiting for many years for national social wealth funds to accumulate.

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In the last half century private wealth levels have risen from 3 to more than 6 times the level of national income. Wealth is much more unequally distributed than income, and has become ever more concentrated since the early 1980s. Today 70% of financial wealth, mostly shares, is owned by just a tenth of the population. Moreover, while the amount of personal wealth has been climbing, the amount of public net wealth (assets less liabilities) has contracted to such a degree that it is now negative, creating not just a serious public/private imbalance, but greatly weakening the national finances.

In recent months, a growing number of voices – from the IMF to former Conservative MP, David Willetts – have called for higher taxes on wealth. Yet income continues to be taxed much more heavily than wealth. The public tend to dislike such taxes, and distrust the way the revenue might be spent. But suppose the proceeds of higher taxation on wealth – household and corporate – was ring-fenced and used directly for public benefit, thus by-passing the Treasury?

This could be achieved by establishing Britain’s first citizens’ wealth fund. These are collectively-owned pools of assets – financial and physical – owned on an equal basis by citizens, with the returns shared across the population. By offering a progressive way of managing part of the national wealth, such funds would give society a powerful new policy instrument. All citizens would directly own part of the economy, creating a new ‘people’s stake’. By revolutionising the way that the gains from economic activity are shared, it would also create a powerful new pro-equality economic and social measure.

The French economist, Thomas Piketty, has argued that the present economic model has a built in systemic bias to inequality – a force, as he puts it, for ‘divergence’. Citizens’ wealth funds offer a way of creating a ‘new counter-force for convergence’ which would lock in a new bias towards greater equality.

In recent times, scores of countries (but not Britain) have pooled wealth through sovereign wealth funds, nearly all created from the proceeds of oil. Few of these act as a progressive force, with most little more than unaccountable and secretive investment arms of the state. One of the most transparent and pro-equality of these sovereign funds is the Alaskan oil-based Permanent Fund. This has been paying a highly popular citizen’s dividend – averaging £1100pa – since 1982, helping to turn Alaska into the most equal of all US states.

If the UK had used its own oil bonanza to build for the future, it would today have a fund worth in excess of £500bn, a quarter of the size of the economy. Instead of investing this windfall – described by the then Prime Minister, Jim Callaghan, as ‘God’s gift to the economy’ – the UK chose a one-off, short-term boost to personal consumption.

Building a fund therefore requires alternative sources of financing. Possibilities include the transfer of a range of existing commercial public assets into the fund (from property and land to a number of state owned enterprises); occasional one-off taxes on windfall profits (paid in shares) and the issuance of a long term bond. Another possibility would be to link such funds to higher wealth taxation. Paying revenue from reformed capital taxation directly into a fund which enjoys a high degree of public support might make reform of wealth taxation more politically palatable.

One of the most pro-equality approaches would be to establish a fund through the dilution of existing corporate ownership, with large companies making a modest annual share issue – of say 0.5% – with the new shares paid into the fund. Such an approach would gradually socialise part of the privately owned stock of capital to be used for explicit public benefit. By taking established stakes in companies, such a fund could help align the interests of society and business. A variation on this model was applied in Sweden in the 1980s through the creation of ‘wage-earner funds’ – a bold, decade-long social experiment to further develop their model of social democracy, though one that eventually came to an end in the early 1990s.

Such a fund does not offer a quick fix – jam today– but a vision for a much more secure social future, paid for by a higher rate of national saving. Fundamentally long-term, such funds would take time to establish, but in our report on the potential of such funds, we show that after a decade, a fund could grow to a level sufficient to boost key areas of social spending, including cash payments. Over time, as the size of the fund grows to command a larger share of the economy, such pay-outs could become more generous, and/or levels of payment into the fund reduced. Examples might include an annual citizen’s dividend as in Alaska, including a ‘next generation grant’ to all 25 year olds, or the extension of universal services such as child care or social care for the elderly. After a single generation, a fund could grow to a size sufficient to pay for a modest starter rate of universal basic income.

The case for such funds are now being more widely acknowledged. ‘Future funds’ have been established in Norway, Australia and New Zealand as well as Alaska. In the UK there is growing political interest in their potential. While the overseas models mostly differ significantly from the model we are proposing, the independent RSA and the IPPR think tank have proposed variants closer to the model presented here.

The overseas evidence is that such a fund could gain significant public buy-in. By rebuilding the nation’s stock of depleted ‘family silver’, it would re-establish the importance of social wealth, boost the ratio of public to private capital, and tackle extreme wealth concentration. Legally ring-fenced to prevent a Treasury ‘raid’, it would grow over time to play a significant social role.

While the model being advanced here is at the radical end of the possible range of proposals, it would offer a progressive way of managing part of the national wealth, provide a powerful new economic and social instrument that could command public support, and build in a pro-equality bias that could transform the way we run the economy and society.

Stewart Lansley, Duncan McCann and Steve Schifferes are members of the citizens’ wealth fund team at London’s City University. They will be launching their new report on citizens’ wealth funds at an event in central London on 10 May 2018. Tickets and further information are available here. 

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The Universities Superannuation Scheme (USS) strikes are over – for now – after staff voted to accept a new offer from Universities UK. UUK has professed its commitment to maintaining a defined benefit (DB) scheme, and has agreed to reopen talks on the controversial scheme valuation. This is a victory for striking staff, and marks a significant shift from its belligerent insistence that DB was unaffordable. But the story is far from over: this is just a staging post on the way to finding a solution that meets the strikers’ concerns. As many have pointed out, it’s crucial that university staff don’t demobilise and that their supporters keep a watchful eye on proceedings.

As I’ve argued before, the USS strikes have shone a light on failings in our pension system which stretch far beyond our universities. I’m not going to rehearse these here (if you’re new to the world of pensions, it might be worth reading my previous piece for openDemocracy as a quick primer on how the system works at the moment). TL;DR: our pensions are highly financialised, highly privatised and highly marketized. The shunting of risk onto individuals which UCU members were fighting is already a reality for most of us. Unsurprisingly, this system is currently delivering pretty great outcomes for the City of London and pretty terrible outcomes for almost everyone else.

But this isn’t another piece about the problems with our pension system. This is about finding solutions. Whether we’re focussed on getting a good deal for USS members, on turning this dispute into the catalyst to demand bigger change, or on policy thinking for a radical government – it’s urgent that we start developing serious alternatives to business-as-usual. From public banking to municipal energy companies to community wealth building, there’s an exciting resurgence of new thinking on the economy which offers real alternatives to neoliberalism. But so far, pensions have been largely exempt from this. That needs to change, and fast.

I don’t pretend to have all the answers – there’s a dearth of creative thinking on this subject that will take time to fill, and I’d love to hear from people who are keen to work on it. But here’s a starter for ten, bringing together some of the best ideas I’ve come across – be they models we know work in other countries, or more radical ideas which fundamentally undercut the assumptions of today’s private pension systems, both here and abroad.

1. Stronger universal entitlements

The UK’s state pension is one of the least generous in the developed world – on some measures, the lowest in the OECD – yet is still the most important source of income for many households, especially those who can’t rely on a generous private pension. Historically, we’ve relied on employers acting out of their enlightened self-interest to provide employees with good pensions to plug this gap. This worked OK for a while, but in recent decades a toxic combination of growing workplace precarity and the explosion of financialisation has ripped the guts out of our workplace pension system. Auto-enrolment was designed to fix this mess, but has largely tried to do so with the same thinking that created it. We arguably need a more fundamental rethink, adjusting the balance between private saving and universal entitlements to something closer to that in, say, France and Germany.

Of course, raising the state pension is hugely expensive, particularly as the population ages. Strengthening universal entitlements through the existing state pension system would require significant tax raises. In this context it’s worth noting that tax relief on private pensions – which costs about £25bn a year – is widely acknowledged to be regressive, since it disproportionately benefits those who can afford to save a lot. Reforming pensions tax relief should definitely be on the table as part of a progressive fiscal policy – though it’s unlikely to be sufficient on its own.

Some argue that we need a more fundamental rethink of our approach to welfare. Pension systems are all about using the wealth generated by working people to support those who can no longer afford to work. But advocates of Universal Basic Income are questioning that logic at a deeper level, suggesting that it may not hold up in an age of increasing automation. UBI could in theory subsume the state pension – though it’s unclear whether it could be affordable at a level that would significantly improve on the current state of affairs (most models of UBI still have to be funded out of tax revenues).

But are there other ways we could fund universal entitlements (whether for pensioners or for everybody)? One promising idea is to create Social Wealth Funds, ideally capitalised using revenue generated by common resources – such as public land, the extraction of natural resources, or even intellectual property rights for advances which depend on publicly funded research. The Norwegian Oil Fund offers a precedent for using this approach to fund pensions (and also happens to be a global leader on socially responsible investment), while the Alaska Permanent Fund offers a precedent for a universal ‘citizen’s dividend’ (albeit at a much lower level).

2. Democratic, not-for-profit workplace pension provision

Of course, the USS dispute is about workplace pensions – and indicates a wider trend of employers increasingly wanting to offload their responsibility for pensions as deferred pay, and transition to ‘defined contribution’ (DC) arrangements which push risk onto the individual. For most of us, this is already a reality. Demanding a revival of genuine pension arrangements, which pool risk and share it more fairly, has to be a priority. There’s been a lot of interest lately in the Dutch model of ‘collective defined contribution’, a sort of half-way house between DB and DC. But I’d sound two notes of caution about this.

Firstly, without significant pressure from pension savers and social movements, this model is more likely to be used as a way to ‘level down’ existing DB provision than to ‘level up’ DC. As a way of creating counter-pressure on this, movements could demand that the government-backed NEST scheme be converted from DC to CDC, as Craig Berry has suggested. Secondly, CDC works in the context of a whole host of other features of the Dutch system – features it shares with other pension systems such as the Danish and Australian ones. Introduced as part of a wider package of reforms, it could help transform the UK landscape. Bolted on to our existing privatised and marketized model, it could simply serve to accelerate the erosion of what’s left of DB and create new opportunities for City capture.

So what are these features of other systems that the UK lacks? In essence, they involve a bigger role for large-scale, democratically owned and run, not-for-profit pension schemes which are directly accountable to their members – and a smaller role for shareholder-owned commercial insurance companies, which are fast becoming the norm in the UK. These schemes are generally organised at a sectoral level, and are tightly bound up with sectoral collective bargaining arrangements – for instance, trade unions play a key role in organising member voice within pension schemes. Emulating this model in the UK would therefore ideally need to be part of a wider shift in the economy and industrial relations, as many on the left are already advocating.

There’s good evidence that these models reduce opportunities for rent extraction by financial intermediaries and produce better outcomes for savers and society. In Australia, all workplace pensions must be run by a board of trustees, although not all must be non-profit. The Australian system as a whole appears to deliver better outcomes than the UK system, and within this, non-profit schemes (which combine a different business model with more equal representation for savers on their boards) appear to deliver better returns to savers than for-profit ones. The Dutch system produces vastly superior pension outcomes to the UK – a fact often attributed to the CDC model, but which can also plausibly be put down to its more democratic ownership and governance arrangements.

NEST is comparable to these schemes (although it is DC) – but its role in the new system of automatic enrolment was pared back from the original plans after insurance industry lobbying. Instead, many of our pensions will be nothing more than a contract between us and an insurance company. In the same way that we hand over our data to Facebook by ticking ‘I agree’, we become parties to contracts with our pension providers that we generally have no say over and no clue of the implications. Worse, unlike a trust-based pension scheme, the insurer has no strict legal duty to put our interests first (known as ‘fiduciary duties’) – indeed, it has a clearly conflicting legal duty to prioritise returns to its shareholders. This fiction of contractual consent, which enables abuse of power in broken markets, needs to be challenged in pensions just as much as it does in tech.

A recent Law Commission report concluded that “there are serious problems with the law relating to contract-based pensions, particularly in an auto-enrolment context” yet very little has been done. This is perhaps unsurprising: imposing strict fiduciary duties on insurance companies would completely trash their business models, probably requiring them to split their asset management arms from their pension provision, and perhaps even rendering the shareholder-owned model unsustainable. It would also be inconsistent with the idea of a contractual relationship between insurer and saver – even though this is little more than a legal fiction.

Yet this is precisely why the imposition of such duties is such a good, even necessary, idea. Contract-based pensions as currently designed are a dangerous racket that should have no place in a progressive pension system. If it is not possible to impose a more muscular legal and regulatory regime to protect savers, then they should be barred from providing auto-enrolment pension schemes altogether. In the UK context, this may sound radical – but as we’ve already seen, other countries have no qualms about specifying what kinds of institution are and are not fit to look after our pensions. By transitioning our workplace pension system to the kinds of democratic, not-for-profit model proven to work elsewhere, we would be leaving behind a disastrous neoliberal experiment and entering the mainstream.

Of course, as the USS debacle shows, these trust-based models are not a panacea. This recent analysis of the make-up of the USS board illustrates a wider problem: the people running our pensions tend to be selected for their investment expertise and are therefore deeply intertwined with the City establishment. They’re also barely accountable to the members they exist to serve. By contrast, evidence suggests that Dutch pension schemes have a culture of driving a harder bargain with asset managers – perhaps because trustee boards tend to be more representative of members’ interests and less dominated by City ‘experts’. Active steps therefore need to be taken to reverse the capture of our pension institutions by the City. Enhanced member representation and participation rights, as in the Danish system (along with better training), and an overhaul of senior personnel at the regulators, could be a good start.

It’s worth noting that this entire agenda will require huge amounts of political will and political capital, since the insurance and asset management industries will vigorously resist it. The current system is worth billions to them, and shifting from a marketized to a democratised workplace pension set-up would seriously hit both their power and their profits. They have kaiboshed much, much milder reforms in the past, and are very used to getting their way even at the cost of massive detriment to savers. Add to this the complexity of the pensions system, and the opportunities for regulatory capture this produces, and it’s clear that a radical incoming government will need a fully worked-through policy agenda on Day One – and a strong, well-informed movement behind it – if it’s to genuinely reset our pension system. 

3. New ways of investing: looking under the bonnet

All the models we’ve discussed so far (apart from state pensions funded directly from taxation) still depend on the global financial markets to produce returns. In DB pension funds, the aim is to keep assets and liabilities balanced as money comes in through returns on accrued contributions and goes out through pension payments. In DC, the aim is simply to maximise the returns on the individual saver’s pot, which is then converted into an annuity (a financial product giving an annual income) at retirement. In Social Wealth Funds, the aim is to fund citizen entitlements out of the investment returns without eating into the principle (the underlying cash pile). Though the details differ, in all three cases, the returns are being generated through investing in tradeable financial assets such as equities and bonds. In this sense, all of these models are dependent on the financial markets – and thus on the decisions of investment managers.

Pensions policymakers tend to avoid looking ‘under the bonnet’ at the engine that actually generates the returns we rely on. If they did, it probably wouldn’t pass its MOT. Capital markets remain hopelessly short-termist and are a formidable machine for producing instability and inequality. We’re still much less good at managing the risks they produce than the City would like us to think. And, whether for economic or ecological reasons, there are genuine questions over whether they can keep delivering the levels of growth seen in the past. It’s therefore worth asking whether there are better ways of investing our common capital that are more democratic and less market-based.

The least radical (though not necessarily the easiest) approach would be to regulate capital markets for more long-term and sustainable investment. Suggestions I’ve seen include minimum holding periods for shares; financial transaction taxes to discourage speculative trading or ‘churning’ of portfolios; and banning or restricting ‘financial WMDs’, like certain kinds of derivatives. These approaches would be market-wide, but we could also rethink the regulations that apply specifically for pension funds, for instance by introducing caps on the level of portfolio churning, requirements to take climate change into account, or restricting particular ‘toxic’ investments, such as fossil fuels.

More fundamentally, we could seek new ways for pension funds to invest directly in socially useful activity. Pension funds could become sources of direct investment in public infrastructure, such as social housing or renewable energy generation, that delivers a stable long-term return. IFM, an investment manager owned by Australia’s not-for-profit pension funds, has pioneered ‘unlisted’ investments in infrastructure. In the US, the Capital Institute has proposed Evergreen Direct Investment, a model based on legal partnerships between individual companies and investors that sidestep the equity markets. In the UK, local authority pension funds in places like Strathclyde and Manchester have pioneered investments in local social housing and small businesses.

One proposal for scaling up this kind of activity is through state-sponsored national and local ‘economic renewal funds’, with pensions tax relief made conditional on pension funds contributing a certain minimum allocation to these funds. Another approach would be for pension funds to buy bonds which help capitalise a National Investment Bank (like the recently announced Scottish National Investment Bank), which would then lend in the pursuit of social and environmental missions. These approaches have the advantage of making it easier to preserve public ownership of public infrastructure – a risk when it comes to encouraging private pension funds to invest in infrastructure on their own behalfs, rather than via public or quasi-public institutions.

Towards a democratic future for pensions

There’s a huge amount of work still to be done, but I hope this sketch shows that there are real alternatives to our broken pension system. In fleshing these out into an agenda for change, we need to continually ask the basic questions about how we want our pension system to work. Where should the money come from to provide us with an income in old age? What kind of institutions do we want looking after this money, and who should they be accountable to? What is the economic model by which this money gets translated into a pension payout? And how do these payouts get shared out so as to fairly share the risks of old age?

Pensions can be hard to man the barricades for, but the USS strikes have shown it can be done. And it must be done. Our pension system touches on so many things that are central to the transformation we need in our economy and society. It’s about the future of welfare, how we provide for each other and how we pool risks and resources. It’s about our common capital, and whether we can imagine ways of owning, managing and investing it which don’t depend on markets and give us all an equal voice. It’s about taking on a financial elite which has its tentacles in far too many of our basic needs. If we want a democratic economy, we need to be fighting for more democratic pensions.

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The aim of openDemocracy’s ‘New Thinking for the British Economy’ project is to present a debate on how to build a more just, sustainable, and resilient economy. In the project so far we’ve debated policy areas ranging from trade policy and universal basic income, to childcare policy and housing .

But across Britain, hundreds of people are working tirelessly to build a new economy on a daily basis, putting new economic ideas into practice from the ground up. In a new video series, we will be showcasing some of the most exciting initiatives that are already working to replace different aspects of our failing systems with fairer and more resilient alternatives — from housing and finance to food and energy.

This week, Tim Crooks from Regen discuss how community energy groups can accelerate the transition to a decarbonised, decentralised and democratic energy system.

Watch the full video below:

The post VIDEO: How to create a democratic energy system appeared first on New thinking for the British economy.

The aim of openDemocracy’s ‘New Thinking for the British Economy’ project is to present a debate on how to build a more just, sustainable, and resilient economy. In the project so far we’ve debated policy areas ranging from trade policy and universal basic income, to childcare policy and housing .

But across Britain, hundreds of people are working tirelessly to build a new economy on a daily basis, putting new economic ideas into practice from the ground up. In a new video series, we will be showcasing some of the most exciting initiatives that are already working to replace different aspects of our failing systems with fairer and more resilient alternatives — from housing and finance to food and energy.

This week, Stewart Lansley, Steve Schifferes and Duncan McCann from City University discuss how citizens’ wealth funds — collectively owned investment vehicles with social aims — could tackle key issues such as poverty, housing, the NHS and social care.

Watch the full video below:

Stewart, Steve and Duncan will be launching their new report on citizens’ wealth funds at an event in central London on 10 May 2018. Tickets and further information are available here. 

The post How citizens’ wealth funds could transform our economy appeared first on New thinking for the British economy.

The UK is a wealthy nation, but an unequal one. Tinkering will not address the entrenched inequalities that disfigure society. Instead, we will need to reimagine the foundational economic institutions that shape how wealth and power are produced and distributed. Central to this must be the development of new models of ownership that ensure everyone has a stake and a share in the economy. Our new report – Our Common Wealth: a Citizens’ Wealth Fund for the UK – shows how a Citizens’ Wealth Fund can play a crucial role in building a new architecture of ownership, one capable of transforming narrowly held private wealth into public, shared prosperity, and providing a universal minimum inheritance.

The nation’s wealth continues to grow, totalling £12.8 trillion by the end of 2016. Yet the distribution of that wealth is deeply unequal. The wealthiest 10% of households own 44% of the nation’s wealth, around five times more than the wealth of the bottom half of all households combined. These stark inequalities exist between individuals and families, between areas of the country, generations and genders, and between people from different ethnicities and class backgrounds.

What’s more, powerful trends are set to deepen wealth inequality. Automation risks creating a ‘paradox of plenty’: the integration of artificial intelligence and robotics could make society far richer in aggregate, but, for many individuals and communities, technological change could reinforce inequalities of power and reward as the benefits flow disproportionately to capital owners. At the same time, the boundless ambition of the digital platform giants is resculpting society into a giant space for the extraction and monetisation of data, and is also likely to drive a rising share of national income going to capital.

If capital was evenly distributed, this would not matter. However, as capital ownership is extremely unequal and capital’s share of income is rising at the expense of labour, wealth inequality is likely to rise. This is particularly the case as financial wealth, such as stocks and shares, is highly unequally divided. Absent policy intervention then, we risk ever greater economic polarisation as wealth begets wealth, leaving the asset poor far behind.

In this context, there are three crucial measures that can broaden the distribution of wealth and reverse the entrenched inequalities facing the UK. First, we can increase labour’s bargaining power, to help boost its share of income relative to capital and reshape corporate governance. Second, we can more effectively tax capital and income from capital, using the receipts to distribute income and wealth. And finally, we can broaden ownership of capital, to ensure everyone benefits from rising returns to capital. Our new report, Our Common Wealth, sets out the case for the final approach via a Citizens’ Wealth Fund, an institution of collective ownership that transforms a part of private wealth into shared public wealth.

A Citizens’ Wealth Fund is a kind of sovereign wealth fund owned by and managed in the interests of citizens. By owning wealth in common in the form of economic assets, the fund would act as a force for economic equality by distributing returns to capital more widely and broadening control rights. Indeed, if current patterns of ownership act as a dynamic of divergence, the Fund would be a force for equalisation.

There are already over 70 sovereign wealth funds, at both national and regional level, capitalised from a range of sources, and with differing governance structures and distributional purposes. Of course, the UK has already missed a golden chance to establish a wealth fund when we squandered the economic windfall from North Sea oil. Indeed, if the revenues generated had been invested in a sovereign wealth fund in the 1980s, such a fund would have been worth over £500 billion today, and would act as a considerable force for intergenerational equality.

A successful Fund would require three elements: effective capitalisation, robust and sustainable governance, and broad social support. Our report shows how a Fund could be worth £186bn by 2029/30, if started from 2020/21, capitalised using a mix of planned asset sales, capital transfers, a small amount of borrowing and returns reinvested through the decade. We also suggest new potential revenue streams, such as a scrip tax requiring firms to issue equity to the Fund, and new wealth taxes through the introduction of a gift tax and reform of inheritance tax.

To ensure that the Fund is genuinely an institution owned by the people and for the people, the Fund’s investment mandate and ethical obligations should be defined by Parliament. The Fund should be independently managed but be accountable to Parliament.

The public should also directly benefit through the distribution of a capital dividend, as the ultimate owners of the Fund. Indeed, through careful stewardship we believe the Fund would be large enough to pay all 25-year-old UK citizens a one-off capital dividend of £10,000 from 2030/31, providing a universal minimum inheritance for all.

This could grow over time, if tax revenues such as reformed inheritance tax or scrip tax continue to be invested in the Fund. A substantial universal capital dividend would provide a basis for economic security, give everyone the resources to pursue opportunities such as lifelong learning or creating a business, reduce intergenerational inequality, and help cultivate a coalition of public support for the Fund.

The importance of ownership has never been more apparent. In communities, workplaces and households across the country, people lack meaningful control over their lives as neoliberalism has hollowed out institutions of collective control and excavated sites of democratic power in the economy. Wealth inequality has risen and is set to rise further, and capital has become overmighty. In the face of this, we urgently need a new architecture of ownership to give people genuine control and economic power. IPPR has previously made two recommendations alongside a national Citizens’ Wealth Fund to counteract rising inequality: new legal and tax incentives to encourage employee ownership trusts that are a form of collective worker ownership and new support for co-operative and mutual businesses. Taken together, the Fund at a national level and the others at a firm level, these proposals would help broaden and democratise the ownership of capital at scale, giving everyone a stake and a say in the economy. It is time we shared in our common wealth.

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In the UK seven million people from working households are in poverty, and real wages have seen a 10.4% drop in the last decade (more than anywhere else in Europe). At the same time the 1,000 wealthiest people in the country got richer by billions after Brexit.

Platform companies are helping to widen the gap between rich and poor by paying poverty wages while producing bubbles with unjustifiably high asset prices and low productivity. Alisher Usmanov, the fifth richest man in Britain, initially made his money from mining steel and iron ore but has now grown his fortune by investing in companies such as Spotify and Airbnb. Deliveroo doesn’t own its restaurants or employ its riders, but is worth more than the UK’s second biggest food chain Wetherspoons.

Deliveroo saw its losses increase by over 300% in 2017. But that didn’t stop its founder giving out £4.5 million in share bonuses to directors and treating himself to a generous 22.5% pay rise, all while Deliveroo’s riders are denied a minimum wage, sick leave and holiday pay. With profits from share ownership going to a small minority, coupled with stagnating wages, the wealth gap between labour and the owners of capital in the economy is ever diverging. It’s time to think not just about a fair share of income but also fair distribution of ownership, something cooperative food delivery platforms could be a leading example of.

Couriers in Europe

After the first strikes of UK Deliveroo riders in 2016, mobilisations rippled through to France, Spain and Germany, Italy, Belgium and the Netherlands, with strikes taking place in Bologna only two weeks ago. In Germany couriers began organising with the anarcho-syndicalist Free Workers Union (FAU) last year.

The FAU provided a horizontal and open space for the Deliverunion campaign to flourish, mobilising over 100 riders to direct action and winning a pay bonus per km. With no paid staff or organisers, support came from members from other sections, such as primary school teachers and carers, a reminder that unions don’t act or make decisions in themselves but that workers act in their name and with their resources.

The FAU union has gathered a group of developers to create its own online platform, where riders can login to discuss what to include in their collective agreement and vote on it. This tool allows couriers to take an active part in developing demands and making decisions without having to be physically present at union meetings. It is also a mobilising tool, to vote on strike actions and spread messages across the workforce quickly. If digital platforms can connect customers and couriers on demand, then this is an example of how they can be used by unions to help organise “fragmented” workers.

The potential of cooperative digital platforms

This collaborative culture fostered among organised couriers is the first step to be able to co-develop their own food delivery platforms. That is the idea behind “coopcycle.org”, an open source food delivery app licensed under the peer-to-peer foundation and co-operatively managed by its developers and any riders who want to use it. A forum of food couriers from across Europe are planning to implement it in France and Germany, while riders in Spain are on the verge of launching their own cooperative version of the Deliveroo app in Barcelona.

These co-owned delivery platforms could offer a meaningful business alternative to Foodora, Deliveroo, Uber Eats and co where the profits of the company go to those who are actually “driving” it, and where workers can enjoy better working conditions, safe contracts, sick pay, holidays and above all, respect.  Co-ownership wouldn’t just mean sharing the profits, it would also mean  democratic governance and accountability, as well as transparency on the use of workers’ data, and the functions of the algorithms that dictate couriers’ day to day work.

A cooperative business could also offer competitive prices. While Deliveroo charges an extortionate 30% to restaurants for each order, a cooperative model could reduce this charge once core costs are covered. For example, once an order reaches over £15 the cooperative has made enough to cover the rider’s wage and other outgoings, meaning orders over that amount could become cheaper.

These cooperatively run food delivery platforms would present a different vision from that of Silicon valley, a radical move away from the obsession of attracting venture capital to make short term speculative profits for a rich few. The platform economy isn’t going anywhere anytime soon, and monopoly digital platforms are further reducing workers’ slice of the pie. But examples emerging from Spain, France and Germany show how the power of unions and cooperatives can be combined to push back against gig employers, and offer a glimpse of hope for the future of delivery platform work.

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That Cambridge Analytica used millions of Facebook profiles to create tools to target and manipulate US voters comes as no surprise to those who watch and work in large digital firms. This is for two main reasons. Firstly, many simply already knew. Secondly, activity of this kind – data accumulation and analysis to build tools of manipulation – is foundational to the business model of large digital platforms.

Over the last half century, improvements in information and computer technology have precipitated the development of platforms that act as intermediaries between the provider and user of a service. For Uber, a passenger uses the app to gain access to a seat in a driver’s car. In the case of Facebook, the holder of a Facebook profile is a supplier, voluntarily giving up intimate data that is analysed and sold to advertisers, who, in turn, target the profile holder with goods of a type and in a way that maximise their propensity to purchase.

Our economic and social worlds are being remodelled by these firms. The many varieties of platform have stretched their operations across a broad range of markets, from groceries to transport. Though their activities are broad, platforms are united by an insatiable impulse upon which their business models are founded: the extraction and analysis of data. In using Facebook, you create data actively, by liking pages or typing intimate status updates, or passively, through location services. All this data is captured. It is then analysed to, among other things, build inferred profiles of you and your network – what issues drive you to vote, which products you’re likely to consume, your sexual preferences, your dreams, fears, and the issues that most exercise you, your nearest and dearest, or anyone that is similar to you. If it can be captured it will be used.

Two things then happen. Firstly, these profiles are used to sell advertising in ways and at a scale beyond the wildest imaginings of the past. Digital advertising is now the largest advertising medium in the world, with Google and Facebook accounting for over 80% of digital advertising outside China and upwards of 20% of total global advertising. Secondly, data and analysis are used to improve the algorithms that power the platforms and produce the insights. Opening up the world’s knowledge is not the primary motivation of Google engineers as they frantically scan book after book, but the rapid development of its machine learning capabilities. The artificial intelligence beast is hungry, and platforms must compulsively feed it.

Ultimately, these companies seek to maximise profits. When the means of doing so become dependent on the extraction and analysis of data, firms are compelled to seek new frontiers of activity through which data can be gained and exploited more effectively. This drives them into new markets, with banking, healthcare, and travel at the top of the list. Rapid growth is made easy by the low marginal cost of expansion (an extra user costs little to nothing to Facebook), that larger networks create more value to users and so attract more, and the first mover advantage enjoyed by the big platforms – put simply, their enormous stores of data provide insights that yield a competitive advantage in almost any market in which data can be a source of value (essentially all). In this way, data both enables and compels digital firms to seek and achieve enormous scale and reach. Look out for Amazon Health, Google Mobility and Facebook Bank.

Scale and reach mean impact, which spans across three main areas: economic, social, and political. Economically, digital firms exhibit classic monopolistic behaviour, stifling innovation by buying up small firms and barring access to datasets that could be used to invent new products and services. They also erode labour standards – either directly, through on-demand casualisation, or indirectly, by undermining other industries. Moreover, by requiring so little staff, platforms further reduce the share of the economy going to the general population over the owners of financial assets. That they provide services at little to no cost has bamboozled the existing approach to anti-trust policy, which only recognises a firm as a monopolist if it raises, not reduces, prices.

Beyond economic factors, platforms are now foundational to the social and political experiences of people across the world, providing a shared space to learn, converse and organise. This has delivered great benefit, but has also impacted the mental health of users and increased the areas of society that are under the purview of algorithms and the assumptions and biases that underpin them. Platforms also have an environmental impact through maintaining large, energy-hungry servers and by lowering the barriers to consumption, through on-demand car journeys or fast food delivery.

Recognition of these negative impacts will accelerate in the wake of the Cambridge Analytica revelations. As governments scramble to develop a response – the success of which is partly dependent on a rapid improvement in the digital literacy of politicians – they would do well to remember a key insight: it is Facebook’s business model that opens the platform up to abuses like those committed by Cambridge Analytica and others like them. As long as platforms raise the majority of their revenues from collecting and analysing data to better manipulate users through advertising or to purchase goods and services, third parties, from private firms to governments, will seek to exploit this power.

Thus, it is data that must become the focus of the response. A range of options exist: force the platforms to open up their data, allowing anyone to use it to produce innovative, more socially useful products; remove platforms’ ability to hold data, placing it into a public store that enables citizens to have ownership over it and limit that which is captured by firms for private use; or create marketplaces in which users become micro-entrepreneurs, raising personal revenues when platforms exploit their data. The last is the preference of many who wish to keep the hegemony of the platforms in place. But, crucially, this would limit the ability of wider society to benefit from large datasets and the insights they provide. Realising that benefit could be crucial to overcoming major problems – from environmental collapse to lifestyle diseases – and so something akin to options one or two is preferable.

This will necessarily mean that the platforms and their mercurial leaders are unseated from their positions of immense power, directly removing from them the very basis of the business model that has delivered their extraordinary riches. As public dissent grows and the space for political responses opens, Facebook, Google, Amazon and Apple will do all they can to resist fundamental change. How to overcome this resistance is the key question we now need to ask.

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The question of public or private ownership has been given a new prominence by recent commitments by the Labour Party to renationalise water, the railways and energy if  they are re-elected. To do so raises issues that have scarcely been discussed since the massive privatisations of public assets undertaken by Mrs Thatcher and subsequent Tory governments since the 1980s. These policies were based largely on the writings of Friedrich Hayek who, in ‘The Road to Serfdom’, argued for a minimalist role for the state in economic activity. This has been the mantra of Tory governments ever since – aided and abetted by Labour when in office under Blair and Brown.

Most countries have polices that restrict foreign ownership on the grounds that there are strategic sectors that need to be kept in domestic ownership. For example, the US refused to allow the Chinese to take over one of their key ports and a small oil company, and has restrictions on foreign ownership of airlines and TV stations as well. This is supposedly the country that is most enthusiastic about free trade and deregulation. Similarly, Germany has passed legislation that protects key areas of technology from takeovers by foreigner firms. This is again aimed at the Chinese who see company acquisitions as a way of acquiring  advanced technologies and market opportunities.

In the UK, not only public utilities but also a significant share of manufacturing is in the hands of foreign companies – most obviously in cars where there is no locally owned producer of any scale. The market for domestic and overseas vehicle sales is dominated by Japanese companies. Alex Brummer in ‘Britain for Sale: British Companies in Foreign Hands’ estimated that no less than half of British companies had been sold to foreigners – uniquely among other countries. The UK witnessed the sale of its premier chemical company, ICI, to Holland without a murmur. After Cadburys was sold off to Kraft, its capacity was closed and production moved elsewhere despite original promises by the new owners that it would continue local production and employment.

ARM Holdings, one the key British companies for research and innovation in electronics, was sold off in 2017 for £24bn to the Japanese company Softbank. The clear aim of the Japanese purchase was to get access to the intellectual property of ARM which is a leading player in mobile technology.

One might have thought that the lessons of an earlier privatisation in 2001 of defence technology contractor Qinetiq, a former British Government agency, would have been learned. A third of the shares in Qinetiq were acquired at knock-down prices by the US private equity group Carlyle and subsequently sold off in 2006 with enormous profits.  Carlyle was established by a former US Secretary of State, James Baker, and has a former British Prime Minister as a member in the form of Sir John Major.

But the British seem to see things differently, despite the clear social, economic and political costs of foreign ownership. Here are just some examples:

• Amazon, a US corporation, now dominates retail in the UK. Through cost cutting and other non-competitive activities, Amazon has caused significant reductions in retail capacity in all town centres. It pays no taxes in the UK despite billions in sales, and working conditions for staff are deplorable. It is worth noting that the former Director of John Lewis spoke of the impossibility of competing with companies that do not pay tax.
• Rupert Murdoch, an Australian/American, was permitted by Mrs Thatcher to take over the Times illegally despite owning the Sun and Sky, further increasing levels of media concentration with all of the costs that this has entailed . Other formerly British owned newspapers have been acquired including the Financial Times (bought by Nikkei Corp) and the Evening Standard (bought by a Russian oligarch). It is worth noting also that Waterstones, the only surviving national book chain in UK, is also Russian owned.
• Google dominates the browser market and pays derisory UK taxes, and Facebook is now the main source of news for most British people despite its biases and its inadequate constraints on the dissemination of fake news. Both of these companies are effectively unregulated despite their critical social media roles, and both make enormous sums of money from advertising that goes untaxed.
• Starbucks has effectively out-sourced their UK tax liabilities through various off-shore arrangements and scandalous high internal charges for management fees and inputs (purchases of coffee from subsidiaries overseas). These tax avoidance mechanisms make it difficult for independent companies to compete and survive.
• Apple has shifted its tax liability in the UK to Ireland. The EU has rejected Irish claims that corporate taxation is a national matter and have instructed Ireland to impose some 13bn euros of unpaid taxes on Apple – so far uncollected.
• The key national airports in the UK – Heathrow and Gatwick – are both in foreign ownership despite their strategic role in the national and international transport system Similarly, UK ports are now more or less all in foreign ownership having been privatised. Liverpool, Glasgow and Great Yarmouth ports are owned by Deutsche Bank and a family trust, Whitiker, registered offshore in the Isle of Man who according to the Public Accounts Committee ‘do not pay their fair share of tax’.  Britain’s busiest port, Felixstowe, is owned by one of Asia’s richest men and incorporated in the Cayman Islands. Even Associated British Ports, which manages many UK ports, is owned by the Singapore foreign reserve fund and Kuwait’s sovereign wealth fund and registered offshore in Jersey.
• The BBC estimates that there are currently no less than 97,000 properties owned by foreign firms in England and Wales. Of this total about half are in London (of which 10% are in Westminster) with a total value of £33.9bn. A quarter of all foreign owned property in England and Wales is registered to companies in a British tax haven, the British Virgin Islands, and the rest in other off-shore tax havens such as the Isle of Man and the Channel Island].
• Until April 2017 non-residents owning property in UK through offshore companies were exempt from inheritance tax – a nice arrangement for avoiding UK taxation and further concentrating inherited wealth. Foreign demand for property simply bids up the costs to residents in a housing market where prices are among the highest globally, and helps to increase already high levels of rents.
• The NHS, which is thought of as the great British innovation, is also increasingly being infiltrated by American health providers. Indeed, the government seems to welcome the possibility of further growth of US health providers as part of any free trade arrangements with the US post Brexit. This is something that most commentators see as highly undesirable given the generally poor performance of the US health care system, with its unjustifiably high administrative and other costs. Fee for service is not a route the UK should pursue and is alien to the whole concept of the NHS.
• Blackstone, a US company, purchased social care provider Southern Cross and then loaded it up with debt and made large payments to the parent company. This is a common strategy with foreign buyers of UK companies – to engage in asset stripping and then leave the company saddled with debt at interest rates that drive the company into insolvency with losses of employment. Along the way the company pension fund will also have been raided. Another example of this strategy is Boots, which has 2,500 shops in the UK. Boots was acquired by private equity in 2007, asset stripped and saw its HQ moved to Switzerland to avoid UK taxes. It is now wholly owned by the giant US pharmacy chain Walgreens – another key part of the health infrastructure in foreign ownership.
• The major public utilities – energy, railways and water – are all to a significant degree foreign owned and have been exceptionally poorly managed, while at the same time making large distributions of dividends to their owners. Their prices as well as inflated salaries have in all cases increased much faster than the general rate of inflation, and they have clearly abused their quasi-monopoly power to fleece consumers. In all cases the regulatory systems have proven to be totally ineffective. It is remarkable that nuclear power stations are owned and managed by the French company EDF (something the French would never allow in their own country) and that Hinckley Point C is a joint French/Chinese project.

What are the common elements in the above? The regulatory regime post Thatcher in the 1980s seems not to have had any interest in questions of ownership despite the mounting evidence of the costs of foreign acquisitions. It is clear that some at least of the purchasers of domestic assets have used the opportunity to launder illegally acquired money, and Britain has become the global centre of such transactions. This is most evident in foreign purchases of property, especially in London, where the scale of purchases has massively raised prices but without generating any sizeable tax revenues for the British Government.

What seems to have driven UK policy are the interests of the banking and financial sector including all the companies, estate agents and law firms that have benefited from the massive growth of the City. There have been some direct employment gains and government has been a beneficiary through increased tax revenues. But there have also been negative consequences and losses of employment and taxation elsewhere in the economy caused by what is called ‘the Dutch disease’ – the negative effects of a rising exchange rate.

The bidding up of the exchange rate caused by capital inflows associated with the increase in the size of the City to something like 10% of GDP has dramatically reduced the competitiveness of other producing sectors – especially of manufacturing. Hence the collapse of employment, exports and output in manufacturing post 1980 which have had strong regional impacts. It is precisely these regions that voted to leave in the EU referendum and which it is predicted will suffer most of the adverse impacts of Brexit.

Because of weak regulatory systems, especially in respect of privatised utilities, there has been price gouging at the expense of consumers in the UK. This has in many cases led also to the transfer to foreign owners of capital through the medium of excessive dividend distributions. Thus UK consumers have indirectly supported France and Germany, amongst others,  both of whom are major owners of UK energy and rail and where British prices have increased enormously.

Key to much of the overseas acquisitions has been a tax system that is not fit for purpose. It is evident from the Paradise and Panama papers that avoidance of UK taxation has been systematic and that accountancy companies such as PWC and others have been complicit in facilitating tax avoidance. Thus the shifts in ownership plus unnecessary cuts in UK corporation tax under the Tories have been contributory to the underlying structural fiscal deficit of government. This is the real reason for Tory imposed austerity.

Shifts in patterns of ownership and production have been causal in generating changes in working practices and the development of the so-called gig economy. It was an objective of the Thatcher de-regulation both of the City and elsewhere in the economy to undermine trade unions and in this they have been very successful. The result is only too obvious with unstable work, often poorly paid, and increasingly inadequate to support a family. It is unsurprising therefore that there has been a sharp increase in poverty much of it in families in full-time work. Government subsidies to wages that are too low (in the form of rent support and child benefits etc)  have added further to the structural fiscal deficit of government.

Thus the current structure of output and employment in Britain, the problems of inadequate tax revenues to finance public services, and the vast gap in living standards between the precariat and the executive class are all to some extent the result of increased foreign ownership of almost everything we continue to call ‘British’.

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Renting a home in London can be a living nightmare. Renters feel little control over their own homes, are forbidden to hang pictures on a wall, or take up state support in hard times. Their happiness and mental health is held hostage to the whims of landlords who refuse to do essential repairs or enter the property without the requisite warning. Renters live, above all, with the lurking fear that they could be evicted at any time, because the rent is going up, because the landlord is selling, or simply because the landlord doesn’t like them. This is a level of domination that would have chafed on medieval peasants. Why do we put up with it?

It is a commonplace observation on contemporary China that its population has done a sort of deal with their government: in return for economic growth and increasing standards of living, they largely accept undemocratic rule. This is often said in an almost wondering tone, expressing amazement that large numbers of people are prepared to compromise so far on issues of liberty. What this misses is that it is perfectly possible to conceptualise the citizens of Western democracies as having done a broadly similar deal. In return for economic growth and redistribution through welfare states, the population have accepted at face value the transparently absurd notion that a vote every four or five years gives them control over the country they live in.

It is transparently absurd, yet it must be pointed out and explained, in the same way the nature and mechanisms of abuse may need to be explained carefully and considerately to a victim of domestic abuse. There has been much discussion recently of certain small incremental improvements in the electoral system: proportional representation, or recall of MPs who are not carrying out the wishes of their constituents. It is noticeable that the former is considered possible, if undesirable, by much of the political class, while the latter is largely considered an outrage – as accountability often does appear to those with power. Meanwhile the very overt influence of money and moneyed media in politics is staring everyone in the face. Apparently no-one with any power can think of a solution to the problem, or wants to.

However these lacunas represent only the beginning of the problem. Suppose we had a far more accountable and functional electoral system than at present, with big money banned and revolving doors ended, with proportional representation and even MP recall. To determine whether this gives us control over our lives, we must track not just the effectiveness of such institutions, but also the everyday lives of ordinary people. Who makes the decisions that affect our lives? How much power do we have in the everyday? What we quickly realise is that only from time to time is it the politicians whose decisions we suffer from. Much of the time there is a much larger and more pervasive layer of managers and owners whose bidding we must do. While this remains merely irritating, as in the case of our phone provider or social media sites, or exasperating, like the apparently arbitrary actions of train companies or the Department of Transport, we have a tendency to ignore it. But I would contend that we can ignore it in part because of a very particular reason: we understand that if we are ‘successful’ we can buy ourselves out of most of the annoyances. We can drive cars, we can buy premium mobile phone packages, we can, given enough success, pay someone to deal with such constraints for us.

Where this is most clearly true is in housing. Social housing tenants and renters are all taught to be resigned to the lack of control they have over their own housing. If you want to escape this lack of control, the implicit narrative goes, you can buy your own house. The fact that millions of people live in social or private rented housing where they lack the control they need over their homes is accepted, even by many of those caught up in this housing. The lack of control people have over the basics of life is dismissed, because there’s a path out of it, and never mind that we know only a certain percentage of the population is able to get on this path. This attitude extends to many areas of life. We accept that others are in control because, in theory at least, we can buy our way into a position of greater control ourselves.

So truly, who can point a sanctimonious finger at China and the supposed implicit deal with the Communist Party? Haven’t we done a similar deal? We have sacrificed freedom to poor ‘democratic’ systems and entirely undemocratic management, over which we have minimal or no control. We let those rulers and managers and owners get on with managing us, on the understanding that we can gain more control over our lives – by getting richer. This is not how we conceptualise our situation on an everyday basis, but I contend that these assumptions underlie our thinking, nowhere more so than in housing.

What happens, we wonder of China, when the deal goes bad? What happens when the deal with the devil doesn’t pay? To private renters in London, and in many other cities in the UK, this is no longer a theoretical question. The deal with the devil has soured. He no longer wishes to pay. You are the one who is paying. Renting in London is failing tenants on multiple grounds. It acts as a massive deduction from wages into the pockets of landlords, reducing the quality of life of millions. It is too insecure, too difficult to stay in one place, too difficult to know where you will be next year, and maintenance too unreliable. The emotional effect of these factors – combined with the general balance of power in favour of the landlord – is that it is often impossible to feel that a rented house is a home. The knock-on effect of this long-term emotional homelessness has not, to my knowledge, been studied, but we can take a guess that it acts as a stress factor making many other personal problems worse.

By what right do landlords control the lives of their tenants to the detriment of their quality of life? By what right does the accumulation of property by the rich within the rigged market get to deny us homes? By what right is it decreed that we can no longer have sitting rooms if we are renting? By what right are our dreams now out of reach as our money disappears into the pockets of landlords? What devilry is this that we have bought into? Alas, it is an old and long-established devilry: a socio-political structure that denies freedom to all but those who are most successful within it. Yes, we have done this deal, and it is little better than the deal we perceive Chinese citizens to have done. As long as our standards of living were improving we would ignore the fact that our lives were controlled by managers and owners, for each step in economic advancement could seem like a movement towards freedom. Only when the economy stops growing, and rent begins to squeeze us, do we recognise the truth: that many in our society have always lived with these constraints, and only hope has kept them quiet.

It was a false hope. For a few decades living standards increased for most people in the UK, and then that too was undone, but even in that period we were dancing with the devil. Many of us did not feel in control of our lives, our nations, our worlds. We lied to ourselves that we were all liberated, and even winning the vote became a part of that self-deception. As the number of private renters in London increases, the reality is laid bare. Renters never controlled their own homes, and most of us accepted that. It should never be acceptable for one class of people to wield such power over another class of people, particularly when we recognise that the wealth of those at the top is created by the work of those below. For a while we understood that in the context of the workplace and a labour movement fought for a better balance of power. Now we must extend that understanding to our whole lives.

I am a member of London Renters Union, a new union formed to fight for increased power for private tenants. It is clear to me that the fight for renters is part of a bigger fight. We have allowed society to be run by others. Landlords are part of this society of control, parliament is part of it, but so too is the highly paid managerial class whose huge homes litter the south east of England while families sleep in hostels. The temptation is to say that it’s time to take the power back. The reality is that we never had that power. Now is the time to fight for a new autonomy, a new dignity that we have never had before; now is the time to fight for the right to control our own lives. Such a fight, if we dare take it on, will play out in multiple arenas, from the internet and the media to the workplace and housing.

You don’t have to start your fight by joining the London Renters Union, or Acorn tenants union in Bristol and Brighton, or Living Rent in Scotland, or Tenants Union UK in Manchester, but it’s as good a place to start as any. Control over our lives is a long term goal, but we can begin with getting more control over our housing. We can begin by making our houses into homes.

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A company is a company is a company—isn’t it? Actually, no. And this really matters: for as long as the company is treated in UK politics as a black box, with the only focus on the operation and regulation—or, nowadays, deregulation—of the surrounding markets, it will be impossible to rethink the British economy.

Indeed, it’s worse than that. Ever since the Thatcher years, and including the enthusiasm for the Private Finance Initiative of the supposedly left-wing Labour chancellor Gordon Brown, the presumption has been in Britain that society should be rethought as UK PLC. Public agencies should no longer deliver public goods, which should be reconceived as commodities like any others and provided by private monopolies. General ‘business’ expertise—the ability to sit on a board with like-minded men (almost invariably) or to take unilateral decisions from the power of a penthouse managerial suite—should replace accredited professional expertise and commitment to public service.

When the contrary should be true. Take an arresting fact: the word for company in German (Gesellschaft) and French (société) is the same as the word for society. As any first-year sociologist could tell any senior economist, the company is a social institution and thus is socially constructed—and so can take a wide variety of forms.

The ‘conventional wisdom’—a very socially conscious economist, J K Galbraith, famously coined that term—is that a company should exist to promote ‘shareholder value’. Its valuation on the stock market and the size of its annual dividend should, therefore, be the alpha and omega of its performance. But this is completely wrong-headed, for several reasons.

First, as the onetime City figure Will Hutton has pointed out many times, excellent companies do not focus on their current share price or the profits which can be gouged out of the investment but on making a good or supplying a service to the best of their ability. Companies driven by this focus on their long-term mission will do rather well thank you, because they will outclass their competitors, but paradoxically will do all the better for not being obsessed by the bottom line.

That’s why Hutton has always railed against the lax mergers-and-acquisitions regime in Britain, which has seen successful companies taken over by private equity firms and then mercilessly asset-stripped. And that’s why Rolls Royce—a company which has become the byword for high performance in common parlance—is the last remaining UK company of genuine world renown.

Once this is clear, there is no reason why a company should not have the broadest of goals. Rather than treating any non-financial impact it has as a mere ‘externality’—even if highly negative, as with pollution or over-exploitation of a finite resource—it can ‘internalise’ such considerations to positive effect. German engineering firms have been streets ahead of their UK counterparts, for instance, in addressing the Energiewende. They have recognised, with government support, the potential not only not to pollute the atmosphere but to replace forms of energy generation using fossil fuels and emitting greenhouse gases by manufacturing renewable, clean sources such as wind and solar. Every other wind rotor in Germany—and there are over 20,000 wind turbines there—is made by a German company.

A valiant effort by Lucas Aerospace workers in 1976 to save jobs in Britain by diversifying away from production of arms to ‘socially useful’ alternative goods unfortunately fell on deaf ears. Not only was capital averse to such initiatives but the Trades Union Congress took an oppositional stance to the Bullock report on industrial democracy appearing the following year.

Secondly, the pursuit of ‘shareholder value’ aligns the interests of company stakeholders in entirely the wrong way. The theory is that shareholder ‘principals’ need to keep their executive ‘agents’ in line via bonuses linked to stock-market performance and share options, on top of giant, peer-inflated salaries. Not only does this embed short-termism and rent-seeking behaviour by executives but it also occludes the key alignment on which successful companies depend—between staff and customers.

Gary Hamel, a prolific contributor to the Harvard Business Review and author of The Future of Management, makes this clear in his book through case studies of successful American companies. Key is the intelligence distilled from consumers by frontline work teams, if they are given sufficient discretion to act upon it—intelligence which no chief executive at the top of a conventional management hierarchy can hope to match.

Thirdly, conventional companies exploit labour—yet fail to get the most out of it. While labour is often called ‘human capital’ in today’s world—usually as token recognition—Marx rightly called it ‘variable capital’. The surplus it generates for the company, after the payment of wages and other production costs, thus depends on productivity. But from the worker’s point of view, if greater productivity merely means greater profitability for his/her employer, there is zero incentive to improve or innovate. A bonus might be thought of as the solution but performance-related pay is difficult to assign to individuals in a fair way and can thus undermine work teams, as well as having perverse incentive effects such as the cutting of corners.

A much better solution is employee ownership. This implicates the whole workforce collectively in the success of the company, stimulating collaborative outcomes which are greater than the sum of their individual labour parts. Not only does an annual dividend flow to those who have created the wealth—to the ‘partners’, as the successful, employee-owned retailer John Lewis puts it. But, perhaps more importantly, workers feel esteemed and recognised for their efforts.

Innovations in work practices will ultimately work to everyone’s benefit in an employee-owned firm, rather than being siphoned off by shareholders and stratospherically-paid managers. Indeed, the ratio of chief-executive to lowest pay at John Lewis, while still huge, is much lower than the average for a big UK company. It is in this context that Wilkinson and Pickett made the case for employee ownership as a driver for equality in The Spirit Level.

Worker owners are more likely to be committed to investing in their own professional development and reduced staff turnover will indeed make this a better investment for the company too. With secure, perhaps lifetime employment in mind, they are also less likely than avaricious executives to favour risky, short-term initiatives which could imperil the long term future of the company—in the way, for example, that Royal Bank of Scotland was brought to the brink before emergency nationalisation.

Fourthly, the conventional company makes little sense in the age of what Manuel Castells calls ‘informational’, rather than merely industrial, capitalism. Marx did warn that there was an inherent contradiction in the capitalist company between what he described as the ‘socialisation of the productive forces’ and private ownership of the ‘means of production’. But this was less evident when the factory was a walled-off ‘dark Satanic mill’ with workers left with no alternative but to trudge there every day—since only there was the machinery to put them to work.

Today, by contrast, workers come to work with the knowledge they have gleaned from public institutions and sources. Why should that knowledge then, largely publicly funded, be privately appropriated?  And it gets even worse when the big internet companies of today undermine the right to individual privacy by mining the personal data of their users to turn a profit. The case, therefore, for social ownership of the firm becomes unanswerable.

Fifthly, once the PLC is no longer recognised as the ‘TINA’ (Thatcher’s ‘there is no alternative’) of company governance, it becomes plain that a diverse ecosystem of forms is available. For example, the Mondragon co-operatives in Spain show an interesting ‘agglomeration effect’, as economists would call it. By collaborating with each other, they are again able to achieve positive-sum outcomes which could not be captured by private companies in mutual competition.

Consumer co-operatives offer of course another model, with the retail Co-op in the Britain of today an enduring success going back to a store founded by working people in Rochdale in 1844 to provide reasonably priced food of good quality for its member owners. Fan-owned clubs like Barcelona or Bayern Munich have similarly shown they can endure at the top of European football by drawing on the (in this case literal) ‘wisdom of crowds’, whereas a once-great English club, Manchester United, has been reduced to a European also-ran by being hollowed out by the Glaser family, who treated the club as the collateral for a loan to pay for it—leaving the fans only to pay the interest.

‘Municipal socialism’ used to be practised in progressive local authorities in Britain in earlier times—with little to show for it now but some still impressive city halls, especially with budgets cut to ribbons under the current government at Westminster. But the conviviality of an urban environment is ideal for such wonderful municipal projects as Birmingham’s public library or Strasbourg’s trams.

All that is necessary to revolutionise the typically under-performing companies which are the bedrock of the UK economy is to establish an enabling environment. Company law needs to change to favour the ‘disciplined pluralism’ by which John Kay describes a well-functioning market economy.

Fundamentally, this means making provision for wider membership of companies than shareholder subscribers—comprising employees, customers, independent members, or some combination of these—so that the annual general meeting of the company becomes a genuinely democratic, rather than ritual, exercise. Those—such as pension funds—with an instrumental stake in the company will still be able to benefit from the profits derived. They just won’t be able to substitute for those who should really be the decision-makers.

In addition, there needs to be a proper framework of state-wide and regional public banking, as in Germany, to support companies over the long term, including taking equity stakes. RBS should have been turned into such a public investment bank, like Germany’s KfW. This should be allied with a sovereign wealth fund to the same end.

Finally, there needs to be a revolution in education and training in the UK. Not only does there need to be a return to a collectively funded apprenticeship system but also there should be third-level institutes of technology as in Ireland for advanced training—and specific investment, allied with the TUC, in the training of worker governors.

Taking the UK economy off its flatlining path of precarious and low-productivity employment requires other changes—notably a supportive, Keynesian macroeconomic environment, re-socialisation of the privatised utilities and, of course, a reversal of the Brexit decision. But transforming company governance is one of the most critical structural reforms the UK economy sorely needs.

The post Beyond shareholder value: why transforming the firm can fix Britain’s economy appeared first on New thinking for the British economy.

Ownership is back on the agenda. Labour’s commitment to taking utilities back into public ownership has reopened questions of governance and control that had been dormant for a generation. But the debate is currently too narrow, focused on specific sectors rather than ownership across the economy more generally. This needs to change. Sharply unequal levels of capital ownership in the UK are a driver of inequality, powerfully shaping the distribution of reward and power in the economy and society.  As IPPR’s new report, Capital Gains, argues, to reverse this, we need to build models of common ownership – from the national to the firm level – that give people a stake and a say in our national wealth.

A defining feature of the last 40 years has been the rising share of national income going to the owners of capital in the form of profits, while the share going to labour, in wages and salaries, has declined.  This trend has been observed in most advanced economies, driven by a combination of the management of global economic integration and technological change, and their impact on both capital and labour markets, and political choices on the regulation and taxation of labour and capital. A declining labour share reflects a major shift in how economies generate growth and distribute their rewards, with a growing proportion of the gains from growth flowing to capital rather than labour.  The economic and political consequences of this transformation are all around us.

Three powerful trends make it likely that capital’s share of national income will continue to rise. First, the value of land continues to increase faster than economic growth, with the value of UK land having grown more than fivefold since 1995. At £5 trillion it now represents more than half of the country’s total net worth (ONS 2017a).  Second, growing automation in the economy represents a substitution of capital for labour. If it becomes easier and cheaper to replace human work by increasingly capable robots and artificial intelligence, automation could accentuate existing trends in the capital and labour shares. Finally, the rise of highly profitable digital platform monopolies is also likely to put downward pressure on labour’s share of income. These ‘superstar firms’ aggregate, analyse and monetise ever-growing amounts of data to make supernormal profits, and are set to dominate not just current digital markets but future ones in artificial intelligence and machine learning.

Technological and economic trends therefore risk creating a ‘paradox of plenty’: society will be far richer in aggregate, but for many individuals and communities, technological and economic change could reinforce inequalities of power and reward as the benefits flow disproportionately to the owners of capital.

Of course, if capital was broadly owned or democratically governed, the growing share of national income going to capital would not matter for inequality and living standards, since the benefits would be widely distributed. In fact, the ownership of capital is highly unequal. The wealthiest 10 per cent of households own 45 per cent of the nation’s wealth, while the least wealthy half of all households own just 9 per cent. Property, the most widely spread form of wealth, gives people little control over the productive forces of the economy. Financial wealth which does, including stocks and shares, is particularly unequally held: the wealthiest 10 per cent own almost 70 per cent. Indeed, a striking paradox of the ‘shareholder democracy’ revolution of the 1980s was that it led to the concentration, not dispersal, of economic ownership. Ownership of UK quoted shares by individuals and British pension funds has collapsed in the past three decades. Compared to most other advanced economies the UK now scores poorly on economic democracy indexes measuring ownership and economic voice.

Crucially then, given the concentrated and highly unequal distribution of capital ownership in the UK a rising share of national income going to capital has become a major driver of inequality. Moreover, it is a dynamic for growing economic divergence.

Given this, if we are serious about building a different type of economy, where prosperity is underpinned by justice, we need a new ownership agenda.  The goal of reform should be two-fold: to give everyone a share of capital, both as useable wealth and for its income returns; and to spread economic power and control in the economy, by expanding the decision rights of employees and the public in the management of companies.

Expanding ownership helps ensure we all have a claim on our common wealth. This matters for more than distributional reasons. Scaling alternative models of ownership also helps address some of the UK’s longstanding structural weaknesses, including productivity and inequality. This is because different models of ownership produce differing distributions of power and control within a firm, creating different purposes and outcomes within a business. While extraordinarily successful in some respects, the conventional company model has clear limitations, with a narrow focus on private, investor ownership which contributes to wider economic and social injustices in the contemporary UK political economy.  New models of common ownership, that give individuals and communities a meaningful stake and say in their workplace and local economy, is a critical route to redressing these weaknesses and building a more productive, just and democratic economy.  It is the most durable and effective way for people to ‘take back control’.

Our new report, Capital Gains, proposes three mechanisms that can help broaden the ownership of companies and spread economic rewards and power more widely. (We do not consider in this report the very specific sectoral questions arising from proposals to bring back into public ownership firms in fields such as railways, water and energy.)

First, we recommend the establishment of a Citizens’ Wealth Fund. Like other sovereign wealth funds around the world, this would own shares in companies, land and other assets on behalf of the public as a whole. It would thereby manage existing public assets and transform a part of national private and corporate wealth into shared public wealth. The Fund could be capitalised by a combination of capital receipts from the sale of public assets, revenues from a ‘scrip tax’ on corporate stocks, and the hypothecation of wealth taxes. The Fund’s investment mandate would be set by Parliament but it would be managed by an independent board on behalf of the public. The Fund would act to spread wealth by paying out a universal citizen’s dividend to all or particular groups of the population, and by investing in the provision of universal basic services.  A forthcoming IPPR report sets out in greater detail how a Citizens’ Wealth Fund could be established, capitalised and governed in the interests of the people.

Second, we propose a series of measures to expand employee ownership trusts. Employee ownership trusts (EOTs) are a form of business model in which a majority of a company’s ownership is vested in its workforce. Such trusts enable a considerable share of the returns to capital (company profits) to be distributed to labour, and for workers to exercise a much more significant role in the governance of the firm. The trust creates a form of employee common ownership that provides the basis for employee participation in both profits and corporate governance, giving employees both distributional and control rights.  The effect is to turn the traditional company ownership hierarchy on its head: whereas capital normally hires labour, in an EOT-owned company the employees hire capital.

A number of steps could incentivise the growth of EOTs, including stronger tax incentives for the transfer of business ownership and for external investment and measures to build individual capital stakes for employees. At the same time reform of pension auto-enrolment to increase minimum pension contributions would allow employers to credit company shares to their employees’ pension accounts. This would boost pension savings rates (which is urgently needed given the UK’s demographic trends), allow companies to use the working capital, and help transform the level of employee ownership in the UK. Indeed, we estimate that with these measures, the UK could create over 21,000 companies majority owned by their employees by 2030, with almost 3 million employee owners, a dramatic expansion of everyday common ownership.

Finally, we set out steps to scale the co-operative and mutual sector, which are democratically owned and governed. There are currently around 7,000 firms owned by their workers or consumers, with around 223,000 employees and a combined turnover of £35.7 billion. Strikingly, the five largest co-operatives paid 50 per cent more corporate tax than Amazon, Facebook, Apple, eBay and Starbucks in 2016. The number of co-operatives would be significantly increased if the financial, legal and infrastructure barriers currently facing them were addressed. Drawing on experience in other European countries with larger co-operative sectors, reforms should include establishing a Co-operative Capital Development Fund, financed by a levy on the profits of co-operative firms; a specialist Co-operative and Mutual Development Bank to finance co-operative enterprises; and the introduction of the same capital gains and inheritance tax incentives for companies at the point of sale to co-operatives as recommended for sales to employee ownership trusts.

Taken together, these models of common ownership – from the national to the firm level – can begin to reshape the ownership of economic assets and companies in society, distributing power and reward across the economy and society and producing differing distributions of power and control within the firm.  Without such reforms capital’s growing share of income risks a world of spiralling inequality; with them, we have a chance to own the future.

The post Capital: A new ownership agenda appeared first on New thinking for the British economy.

We know what banks do, don’t we? They manage people’s savings, help them to buy houses, and provide finance for businesses. The old 3-6-3 model of banking says it all: “borrow at 3 percent, lend at 6 percent, be on the golf course by 3 pm”.  If we could only strip away all the froth and bubble created by investment banks, we could restore banking as it used to be: a bank in every town and village, each headed by a responsible bank manager trusted to make his own lending decisions. People’s savings would be safe, businesses would be able to obtain finance, and house price bubbles driven by excessively risky mortgage lending would become a thing of the past. And above all, there would no longer be any risk of a financial crisis on the scale of 2008.

Since the financial crisis, ideas for bank reform have been dominated by the idea that this “golden age of retail banking” can be restored. People campaign for the return of 1930s legislation separating retail and investment banking, the breakup of too-big-to-fail banks, and the creation of a network of small banks with a mandate to focus on business lending. Some go further, calling for the introduction of what is variously known as “full reserve banking”, “narrow banking” and “sovereign money”.

But in the last half-century or so, banking has fundamentally changed. Taking in static savings and investing them to deliver a return to savers is no longer a primary function for banks: that has become the job of asset managers. And lending to households and businesses, while still important, has been eclipsed by a third function that banks have acquired in the last half-century – a function so crucial that if it fails, even for a few hours, the entire economy suffers a heart attack. I refer, of course, to payments.

Back in the 1950s – that “golden age” of retail banking – ordinary people didn’t use banks much. Blue-collar workers were paid in cash on a Friday night (the famous “pay packet”). They spent some of it in the pub and gave the rest to their wives, who paid the rent and bills, bought food and gave the children their pocket money, all of it in cash. Neither the men nor their wives had bank accounts from which they could make payments, though they might have building society savings accounts. In fact, as late as the 1970s, most women didn’t have bank accounts of any kind.

Lending, too, was very different then. Mortgages were hard to get, often taking six months or more to approve: only about 30% of adults owned their own home. If you needed money for an exceptional purchase, you had to save for it, or – from 1954 onwards – obtain your goods on hire purchase. British banks didn’t provide unsecured loans to ordinary people until 1958. Credit cards didn’t appear until the mid-1960s.

In fact, during this “golden age” of retail banking, the economy ran mainly on cash – and even that wasn’t easy to obtain. Cash could only be obtained over the counter in a bank branch, and bank branches closed at 3 or 3.30 pm. If you didn’t get your cash out by closing time on Friday, you had to do without until Monday morning. You could write a cheque, but before cheque guarantee cards were introduced in 1969, many retailers would not accept cheques.

Banks handled payments for larger businesses and richer households. But the millions of transactions between ordinary people and smaller businesses that are the lifeblood of any economy – those were in cash.

But these days, most of those transactions are no longer in cash. They are electronic payments. Wages are no longer paid in cash, but directly into bank accounts. Pensioners no longer have to queue at the Post Office for their pensions: pensions are paid directly into their bank accounts. People no longer pay household bills in cash, but directly from bank accounts with direct debits, online and telephone banking, and debit and credit cards. People buy goods and services using cards and – increasingly – mobile phones: for small transactions, contactless technology makes using cards and phones even easier than cash. Payment can even be made by text message. And the system is fast, too. The UK’s Faster Payments clearing system transfers money from one bank account to another within two hours.

Of course, some people prefer to use cash. But they no longer have to queue up to get their weekend money by 3 pm. With today’s extensive network of ATMs, they can obtain cash at any hour of the day or night. For those still using cheques, new digital technology promises to speed up cheque clearing so that money reaches the recipient within hours instead of days.

Payments have never been so easy or so fast, and cash has never been used so little. But as a result, our dependence on large banks has never been so great. We expect a 24/7, failsafe payments service. If a bank’s payments technology fails, even for an hour or two, its customers can’t pay bills or buy food, wages don’t arrive on time, business-to-business payments fail. Because the system never stops, IT glitches like this are difficult to fix: it can take weeks or months to ensure that payments have reached the right people and account balances are correct.

We’ve heard a lot about how interconnectedness between banks increases the riskiness of the financial system. But banks must be interconnected for our fast, efficient payments network to work. The problem is that if a large bank fails, the entire payments network can seize up, doing untold damage to the economy. This doesn’t just affect electronic payments: even cash can fail, because if ATMs stop working, no-one can obtain cash out of banking hours.

Moving money to a small bank or a credit union, as some have advocated, does not reduce dependence on larger banks. Larger banks clear payments for small ones – for example, Barclays might clear payments for London Credit Union. All moving money does is reduce large banks’ stable funding, which makes it more likely that they will have difficulty finding the money to clear the payments on which we all rely. Without radical reform of the payments network, breaking up the large banks or encouraging people to move to small banks is unwise.

The truth is that we have allowed a crucial public service to become deeply embedded in a system which is by nature risky. The folly of this beggars belief.

Proposals for full reserve banking at least recognise the problem. The payments network cannot be allowed to fail, so let’s prevent banks from taking risks. But risky lending is the business of banks: their job is to provide finance to people and businesses that need money, and that means accepting the risk that some people and businesses will fail to repay. It is inevitable that some banks will manage their risks disastrously badly. They need to be allowed to fail – but if the payments network cannot cope with bank failure, they can never be allowed to fail. This is the “too-big-to-fail” corner that we have boxed ourselves into.

To be sure, we now have a payments system regulator dedicated to ensuring that the system always meets the needs of customers. This is its mandate, according to its website:

• to ensure that payment systems are operated and developed in a way that considers and promotes the interests of all the businesses and consumers that use them
• to promote effective competition in the markets for payment systems and services – between operators, PSPs and infrastructure providers
• to promote the development of and innovation in payment systems, in particular the infrastructure used to operate those systems

There is nothing there about protecting the payments system and its customers from major bank failure. And as this regulator is an arm of the FCA not the PRA, there is no direct connection between regulating the payments system and regulating the banks that are its principal gateway. The payments system regulator may keep the payments systems themselves going, but it cannot address the inherent fragility of a payments system that uses risk-taking banks as gateways.

So how can the payments network be protected from the risky but essential activities of commercial banks? Perhaps commercial banks should be required to ring-fence current accounts and back them with cash and liquid assets. The ring-fencing that will come into force in the UK in 2019 is not fit for purpose, since included within the ring fence are various forms of highly risky lending, such as mortgages. With deposit insurance for static savings, and higher capital requirements for banks, ordinary savers do not need this ring fence. But current account holders can’t wait for deposit insurance to pay out, and locking people out of current accounts because a bank is experiencing IT glitches or temporary liquidity problems is socially and economically destructive. Ring-fencing current accounts and backing them with cash would protect ordinary people and businesses while still allowing banks to do risk lending.

A more radical solution would be a public utility for payments. Currently, all electronic payments are finally settled through the central bank’s real-time gross settlement (RTGS) system (in the UK this is the CHAPS system, in the EU it is Target2, in the US it is Fedwire). Commercial banks control the gateways to this system, because they hold the transaction accounts that are the start point and destination of all payments. But suppose the central bank – which cannot fail – provided transaction accounts for people and businesses, and a digital currency as a primary means of exchange? The gateways would need to be redirected, of course, though this is not an insoluble problem. Perhaps more difficult to solve might be the need for unsecured overdraft facilities (currently, central banks only provide overdrafts if securities are pledged as collateral). And the implications for monetary policy would need to be considered.

There may be other solutions, too. But until we recognise the payments system for the crucial public service that it is, people will continue to propose banking reforms that could do more harm than good.

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The first ever Festival for New Economic Thinking is taking place in Edinburgh on 19-20 Oct 2017. It brings together people and organisations who are committed to advancing economic thought and inspiring change. Here Professor Andy Cumbers explores how to reanimate economic democracy for the twenty first century. 

How do we develop a democratic economy, which is fundamentally underpinned by the values of social justice, rather than exchange value? For me, alongside tackling climate change, this is the critical economic question of our time. The alienation and marginalisation felt by many from three decades of increasingly autocratic neoliberal economic governance is becoming politically manifested in different ways. Horrifyingly – chaotically, brutally and barbarically – through the resurgent economic nationalism of Brexit, Trump, Le Pen, Orban and others on the right.

A revitalised project for economic democracy

There is however a more hopeful and inspiring economic narrative emerging through the Sanders and Corbyn insurgencies on the left, as well as movements such as Podemos in Spain, which involves the rejuvenation of alternative economic thinking. In Scotland, this has been partly invoked by the radical independence campaign, the Common Weal and the intriguing recent commitments by the Scottish government to a new public bank and public ownership in the energy sector. Although, this new economic thinking is still nascent, it does build on important alternative and longer established new left traditions of a more participatory and democratic economics from the 1960s and 1970s.

A critically important document in this regard is the Labour Party’s recent publication on alternative ownership forms in the economy. This has rightly been described by the US based Joe Guinan and Thomas M Hannah of the Next System Project, as “the most exciting economic programme to be developed by the Labour Party in forty years … to reanimate the old promise of economic democracy as we explore new avenues for the wholesale democratisation of the economy and society.”

Reanimating economic democracy for the twenty first century means coming to terms with a dramatically changing global economic context and the restructuring of working conditions, categorised by growing inequalities and an increased concentration of wealth, the gig economy and the collapse of secure employment, and the decline of trade unions as a powerful countervailing force to capital.

Given these unpropitious circumstances, a revitalised project for economic democracy means moving beyond older forms centred upon the workplace and collective bargaining to develop a broader strategy for democratic participation across the economy more generally. Labour rights, unions and collective bargaining will still be important in the struggled for social justice, but a much greater remit is required to democratise the economy. The Labour Party document was important in this regard for shifting the ground in which we think about ownership beyond monolith forms of centralised state ownership to advocate a diversity of forms of democratic collective ownership including cooperatives and community based forms of ownership, and giving decision power to users and consumers of services as well as workers.

Developing new narratives around the economy

But beyond ownership, democratising the economy is also about developing new narratives around individual economic rights, and public participation and deliberation of the economy itself.

The alienation from neoliberal globalisation, which is fanning the flames of reactionary right wing economics and xenophobia of Trump and his ilk, is driven by growing individual economic security, has been produced by disciplinary neoliberal labour policies around welfare and labour market deregulation under the guise of a flexible economy. Combating this requires new thinking and policy around how we generate individual economic freedom – not freedom just to exercise property rights and exploit the labour of others – but freedom to choose how you exercise your own labour.

This is an important but neglected agenda for economic democracy, bringing together the enlightenment liberalism of John Stuart Mill with the radical political economy, remembering that freedom from economic servitude was the animating core of Marx’s thought. In an increasingly automated economy, where decent, secure and well-remunerated work becomes scarce, there is a need to rethink how individuals, families and communities secure the income and resources needed to live decent lives. This needs new thinking around the redistribution of work, new initiatives around working time, and a rebalancing of work and leisure to advance individual economic freedoms and rights to decent sustainable livelihoods.

A second key component of a revitalised economic democracy is the need to open up the economy and in particular decision-making to broader public participation and engagement. Here, one might compare favourably Denmark’s associational economy where there are a high level of cooperative associations, strong trade unions and business associations with countries such as the UK or to a lesser extent US, where elite corporate interests, dominate the economic discourse, often with the result that policy-making becomes very restrictive and tends to favour established vested interests (e.g. property owners, financial elites, media moguls).

Democratising the public sphere and decentring economic knowledge production

This also requires a strong deliberative public sphere where economic ideas and narratives are not the preserve of elites but are the subject of debate, contestation and even conflict between competing groups. The contemporary global economy suffers a knowledge deficit in the sense that economic discourses – alongside wealth – have become appropriated and concentrated through elite interests and institutions. Again, radical liberal ideas, particularly those of pragmatist thinkers such as John Dewey can be wedded to broader political economy concerns in forging more active and radical civil societies that can contest elite hegemony and construct alternative economic narratives. As Dewey family put it:

‘No government by experts in which the masses do not have the chance to inform the experts as to their needs can be anything but an oligarchy managed in the interests of the few… The world has suffered more from leaders and authorities than from the masses.’

Economic decision-making should be embedded within the democratic public realm as far as possible, rather than delegated to a remote class of technocratic experts who end up serving elite and established interests. The triumph of a form of liberal capitalism globally – increasingly enshrined through the institutions of the Washington Consensus and supranational organisations like NAFTA and the EU – has not produced the much-trumpeted democracy or effective freedom of the individual, but instead over time has led to the effective suspension of democratic politics in many places: Greece and Italy for example in the wake of the Eurozone crisis.

If we accept that democracy is ultimately about offering competing alternative visions of society that are given effective voice in public debate, and individual economic rights to both flourish and participate in such public debates, the emergence of an austerity driven last gasp neoliberalism that ruthless represses, neutralises or incorporates alternatives to corporate capitalism is paving the way for the advance of the far right and economic nationalism, shading in to fascism, everywhere.

A more democratic economy would require greater investment in the development of popular education, engagement and participation of the citizenry in economic decision-making through institutional and organisational forms that both foster collective decision-making but also decentralise and disperse economic knowledge and practice throughout the community. Collective learning institutions dedicated to the common good should replace elite institutions (such as the rent-seeking neoliberal university model) that appropriate knowledge and education for commercialised ends.

The appropriate question then becomes what kind of economic institutions would be needed to deal with these issues? A citizens income is a critical element to the latter – set at a level that allows individuals the positive freedom to choose how they sell their labour. And democratic forms of public ownership are one important way to deal with the increasing capture of common wealth on behalf of the elite. The devolution of economic decision-making by the state and the increased use of participatory planning and budgeting for a are also essential ingredients. A functioning democratic economy would still require a mix of markets and planning, some private alongside the expansion of public and collective ownership. To retain its dynamism and ability to adapt to changing circumstances, we would also need to encourage the right kinds of markets (e.g. farmers’ markets rather than stock markets), innovation, entrepreneurialism and even competition, albeit with very different forms of social regulation and economic institutions than are currently on offer.

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Just like the railway, Facebook is a private monopoly running a public service. We, the public, don’t have real competition and consumer choice, but we don’t have a democratic say as citizens either.

The internet has been a virtual wild west, fast-moving and little regulated, with tech companies competing for territory. But now there are clear natural monopolies developing.

Author Jonathan Taplin points out that Google has an 88% market share in search advertising, Facebook (and subsidiaries Instagram, WhatsApp and Messenger) owns 77% of mobile social traffic and Amazon has a 74% share in the e-book market.

Economic theory – and real life experience – suggests monopolies need to be regulated, if not brought into public ownership. Here are five reasons why all of us should own Facebook.

Nick Srnicek argued today in the Guardian that Google, Amazon and Facebook are ‘platform monopolies’ and suggested they should be nationalised. He explains that reaching a critical mass of users is key to the success of these businesses, and it’s why they’re so entrenched.

He’s right. But if you’re shouting “I don’t want Theresa May getting hold of my Facebook data”, we’d agree!

The solutions we need here are surely international, not national. And these companies have powerful data about private individuals – we should be wary about how governments could use this, especially in dangerous political situations. Could we create some kind of new cooperative, democratic, accountable institution rather than relying on nation states?

We believe in a broad definition of public ownership. It can be local, regional, national or international. And it can involve different models like cooperatives and community ownership – as long as profits are reinvested and there is democratic control.

We could think really imaginatively about what it would mean for the public to collectively own some of the public spaces on the internet. Put aside the practical challenges for a moment – we’ll come back to those.

But what’s the problem anyway? Those clever people at Facebook and Google know exactly what we want, don’t they? And they’re delivering? Not really..

If you’ve ever felt addicted to the internet, you’re not alone. We’re all endlessly scrolling through Facebook, messaging on Whatsapp or watching the next YouTube video. We might prefer to be out in the sunshine, playing with our children, or getting things done – but we’re staring down at our phones. And it’s not a coincidence.

We are the product here. Tech companies make money by advertising to us. So the more time we spend online, the better. These companies are in a race for our attention, and they’re using their smartest designers in Silicon Valley to take as much of it as they can. These designers often protect their own children and themselves from their own technology.

They know that we get a shot of dopamine every time we see a notification. Those notifications make the internet addictive. Unpredictable but often rewarding – just like gambling in a slot machine, but easier to access.

They know that humans thrive on social praise and respond to social pressure. So they tell us when a message has been seen, so we feel pressure to always be in conversation.

They incentivise teenagers to collect ‘streaks’ of ongoing communication on snapchat, even if they have nothing to say – no wonder so many teens are staying indoors instead of going out partying. When we’re feeling lonely, they give us somewhere to go.

They know how inertia works. So they autoplay the next video, they always give us something more to look at, they leave out any ‘stopping cues’.

If we don’t do something about it, the battle for your attention will only get more brutal.

Do we want to be checking our smartphones every few minutes in a state of addled confusion? It doesn’t have to be this way.

Time Well Spent is a new movement which calls for better tech design. Its founder, Tristan Harris, explains the manipulative tricks that tech companies use to hijack our attention. He says designers could instead be tweaking technology on a large scale to make us less distracted online.

This could involve creating a new metric for measuring success on the internet which helps us live the lives we want. Couchsurfer is leading the way on this – it measures success by clocking up good time spent with new friends, and subtracting time spent online, counting it as a cost.

Perhaps there’s a way of creating another metric that would work against fake news and for useful, authentic news sources?

But why would private tech companies want to do any of this? Why would they put our well being ahead of their profits from advertising?

Professor Philip Howard argues that ‘Facebook is now public infrastructure and should be treated as such’. He believes the platform could help us solve social problems using big data. Public health, national security and democracy could all potentially benefit.

Social media – and the internet in general – creates an exciting marketplace of ideas that could help us all. But the barriers to entry are getting higher and higher.

When We Own It started up in 2013, there was much more ‘organic reach’ on Facebook (a good response to a post meant it would reach a bigger audience). Now, it’s increasingly a place where organisations must pay to connect with their supporters and reach new ones. That trend is set to continue.

The deck is stacked in favour of multinationals with big advertising budgets, while smaller start ups (which may have good ideas) struggle to get a foothold.

The internet itself is a public space and so are social media. Facebook and Twitter are places where people share information, explore new ideas, promote products and coordinate political activity. They’re not going away anytime soon – and we wouldn’t want them to.

But right now, they are places where the rules are set and enforced by unaccountable corporations. For example, Facebook decides on the range of ‘reactions’ we can give (creating profitable data about our emotional states). It can decide what content will be censored, with no reference to us.

Facebook is not a democratic, online public space – but it could be. It could even help to create more accountability for global decision making – or provide a place to re-engage people in local decisions. We could rename it ‘Placebook’.

Maybe, but how on earth do we do this? Well, that’s a tricky one.

The first option is to create an alternative platform. This is extremely challenging. Social media’s power and attraction comes from its ‘network benefits’ – why switch platform if your friends are still on Facebook? A switch would need to be a coordinated, well promoted global effort to have a chance of success.

Another way forward would be buying out the existing social networks. This would be a huge challenge, financially and politically. There is a glimmer of hope however – there’s currently a project for Twitter users to buy out Twitter, creating a community owned resource.

A third and final way could be to appeal to Zuckerberg directly! He’s said he wants to ‘take the long view and build the new social infrastructure to create the world we want for generations to come’. Zuckerberg, are you listening?! Could our social infrastructure be truly democratic please, and built for people, not profit?​

There are no easy answers, but ultimately it’s up to us to make this happen. Technology offers us so much – we need a real say over how it develops.

Facebook should belong to all of us. Love, like and share if you agree!

This article was originally published on the We Own It website.

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The following is an extract from the introduction to my book, ‘There’s No Place: The American housing crisis and what it means for the UK’. The book was published on 16^th June 2017, two days after the Grenfell Tower fire. Three months later, it’s difficult to overstate the impact of the disaster. The deaths of at least 80 people (almost certainly more) have exposed not just the historic failures of housing policy, but also deeper fissures in our urban social fabric. Grenfell symbolises the conflict between housing as a private commodity, or a social asset – a dichotomy personified by Donald Trump. Before Grenfell, I argued the UK was following in the housing footsteps of the US, with potentially disastrous consequences. After Grenfell, that warning feels even more pertinent. 

I’ve worked in and campaigned on housing in the UK for many years. During that time, I’ve become increasingly conscious of the threads linking – and ultimately binding – the development of trans-Atlantic housing policy. This cross-fertilisation has, at times, appeared to define the differences between the two nations, with attitudes to housing reflecting wider cultural and political divergence. But it has now reached a critical point of convergence reflected in a common housing crisis. In both countries, plans are well advanced to detach housing, once and for all, from any semblance of public or non-profit provision and in the words of a right-wing UK housing academic, privatise the social rented stock and “allow market relations to develop”.

I argue there are five broad features of this shared US-UK housing experience:

1. Relentless government attacks on municipally-owned rented housing as part of a wider assault on public services.
2. The unchecked rise of private landlordism as part of a broader advancement of private sector, profit-seeking interests.
3. Growing corporate links between US and UK housing in the context of global speculative property investment.
4. Socially-divided cities characterised by displacement and denigration of poor and working class people and communities.
5. The ideological promotion of housing as a commodity, not a home.

The common origins of US and UK housing policy lie in attempts to alleviate the conditions of the 19^th century industrial city. When utopian, charitable and philanthropic measures proved inadequate, the American and British establishments, under mounting pressure from organised labour, reluctantly accepted the need for action. However, from this early stage, differences emerged. In 1890, the Housing of the Working Classes Act enabled newly-created UK public authorities to clear and rebuild slums, paving the way for council housing. In 1891, the London County Council began demolishing the notorious Nichol rookery in Bethnal Green, east London. Nine years later the Prince of Wales opened the thousand-home Boundary Estate, the first of its type and scale in the world, still standing as a testament to its enduring quality and still in public ownership.

Faced with the same problem, the 1901 New York Tenement House Act concluded that improving the conduct of private developers and landlords, rather than replacing them, was the route to better conditions. As Peter Hall notes, American reformers feared that:

…public housing would mean a ponderous bureaucracy, political patronage (and) the discouragement of private capital…in comparison with Europe, it was to set the cause of public housing back for decades.

From this fork in the road, both nations proceeded in a fashion reflecting their social characteristics. In the first quarter of the 20^th century, the UK continued to build council housing against the backdrop of a strengthening labour movement and periodic rent strikes which gave added impetus to creating alternatives to private landlordism. There were similar tenants’ mobilisations in the US. But the country’s labour movement struggled to recover from a vicious establishment attack in the aftermath of the Russian revolution. It was not until the crisis of the Great Depression that the US began to explore the possibilities of large-scale State intervention on housing.

From the outset, US public housing was treated as ancillary to various other policy objectives, particularly job creation, but never as a rival to the supremacy of home ownership, which has enjoyed continuous financial, political and ideological support from US governments. The same is true of the UK, but for most of the 20^th century, council housing was also part of the social and policy mainstream, providing a home to 30 per cent of the UK population by the end of the 1970s.

When the 1937 US Housing Act was introduced, it could only gain political endorsement on the basis that it would not impose Federal decree over local decision making, a tension that continues to shape US housing policy. From the beginning, there was also an absolute requirement that public housing would never be allowed to rival the private sector as the primary provider of new homes. There is something constant and fundamental in the relationship between America and property that needs to be recognised. The founding acts and principles of the nation were based on acquisition and enshrinement of land rights. These were exercised, most obviously and brutally, at the expense of Native Americans and established a commodification of land that has been ingrained in the European American psyche.

But it would be wrong to regard US housing policy as monolithic. Since the 1930s there have been several changes in emphasis which, while not approaching the UK’s post-war political consensus in favour of building council homes, demonstrate a recognition that government intervention is needed in the housing market.

The expansion of US municipal housing quickly gave way to the extension of government mortgage subsidies which became a far more embedded feature of the country’s housing policy. Initially made available to former servicemen, the scale of State support for private home ownership soon outstripped that for public housing. This spurred the development of the American suburbs and entrenched ethnic and skin colour divisions in US cities. Only white veterans were entitled to government-funded low-cost home ownership. African-Americans were effectively excluded from the expanding suburbs and consigned to neglected inner-city areas, often with appalling housing conditions. Housing has been an instrument of racism in many times and places, but has gained prolonged legitimacy in America.

Accumulating anxiety about America’s urban crisis, periodically heightened by street unrest and rebellions, has directly influenced housing policy. Concerns, often expressed in moralistic, stigmatising and racialised terms, have been visited on public housing in particular. Since the 1960s disinvestment and denigration has led to the sector being widely viewed as “the housing of last resort”. A series of stereotypes have politically, physically and socially marginalised public housing and the people who live in it.

UK council housing has been the target of similar treatment since the 1980s. In both countries, the winding-down of direct State housing investment and provision has been accompanied by a variety of devices for advancing the role of the private sector, with significant trans-Atlantic mimicry. Both US and UK governments have used the camouflage of so-called partnership and regeneration to achieve the privatisation of public and council housing respectively. This ideologically-driven assault has sought to create a more diverse range of housing providers and funding mechanisms, leading to increasingly complex and misleading definitions of affordable and social housing.

While this book will focus on the growing resemblance between US and UK housing, there remain some fundamental differences. Perhaps the biggest of these is the extent of legal entitlements to housing. In the UK, certain categories of people – notably parents with children – can still present themselves as homeless to a local authority which then has a duty to house them (however inadequately). No such protection exists in the US. Although housing rights in the UK, particularly for the homeless, have been substantially reduced, the most vulnerable still have a safety net that doesn’t exist across the Atlantic. Furthermore, a substantial part of access to low cost housing in the US is controlled and administered by a voucher system which enables eligible tenants to find housing in the public, or more likely, private rented sector. UK Housing Benefit (HB) is increasingly acting like a voucher system, but is part of a wider system of welfare benefits which doesn’t exist in the US. Similarly, although council and housing association housing sit within the wider context of the UK welfare state, they have never been considered “welfare housing” as their US equivalents often are. Access to public and other non-market housing in the US is rigorously controlled by means-testing, with rigid income limits and rent calculated as a proportion of income. Until the advent of the Housing and Planning Act in 2016, this was not the case in the UK.

Historically, the private rented sector has been far more sizeable in the US. This has changed dramatically in recent years. Private renting fell steadily in the UK during most of the 20^th century – in inverse proportion to the rise of council housing – and settled at around eight per cent. That trend has now reversed. UK private renting has doubled in the last decade and is fast approaching US levels of 30 per cent, while social housing has fallen to 16 per cent, of which council homes make up only half.

This book will describe and explore a host of local issues illustrating that US and UK housing are morphing. The transnational force driving them together is the increasing economic reliance of both countries on the so-called FIRE sector of finance, insurance and real estate (or property). This in turn relates to structural economic changes over the last four decades through the deregulation of global investment markets. The result is the increasing commodification of housing, now a speculative investment vehicle for vast flows of global capital, the volatility of which brought repossession and homelessness for many in the sub-prime crisis of 2007-8. The grip of the international property machine has intensified since the great recession. Its primary targets are the high value areas of US and UK cities where over-heated housing markets are transforming, traumatising and trashing local neighbourhoods, particularly those with high concentrations of non-market housing.

The cross-fertilisation of US-UK housing was graphically demonstrated in October 2015 at a London convention of global property developers. The three-day MIPIM-UK event billed itself as a “gathering of professionals looking to close deals in the UK property market”. Sixteen US-based companies were represented at MIPIM-UK and among the subjects for discussion was The American Way. The US template of large-scale institutional investment in private renting was fawned over and illustrated in the conference brochure by a picture of the road to a house paved with dollar bills.

The post The 51st State of Housing: The American housing crisis, and what it means for the UK appeared first on New thinking for the British economy.

openDemocracy economics editor Laurie Macfarlane sat down with Real Media to discuss the roots of Britain’s housing crisis, the polarising effect it is having on society, and what can be done to fix it.

Via Real Media

The post Video: Laurie Macfarlane discusses Britain’s housing crisis appeared first on New thinking for the British economy.

A disaster such as the Grenfell fire does not happen because one person made a mistake. Many safeguards should be in place to prevent such a catastrophic event. A Grenfell fire happens then when an entire system fails. As we await the details of the system failure the inquiry must reveal if it is not to be a whitewash, it seems a good moment to think about other system failures that currently face us. Millions going to food banks or unable to afford decent housing in one of the richest countries in the world reveals a system failure. An epidemic of mental health problems reveals a systems failure. An inability to deal with climate change reveals a systems failure. A constant anger at government and at the institutions of government, channelled – largely ineffectually – through ballot boxes, reveals a systems failure.

Any way of talking about this failure must resonate with people’s experience, and also implicitly offer an alternative. What is visibly failing is management of large scale societies, management of us, by those who seldom fully understand our problems, management regimes too big to adapt as needed. It is not stated often enough that we live in a heavily managed society. Yet people instantly understand what is meant by this; they have experience of being managed. Sometimes we are managed well, sometimes badly, but at some point in a large system, the former state will always give way to the latter. Eventually a sense of lost control comes over us all. We must take back control, we feel. It is hard to know how, hard to know who to target, for no leaders or parties seem to return power to us.

Many see that capital has become a dominant force in these large systems, re-shaping our cities, our very lives, flinging aside humans as detritus of the development process. Yet as a solution we are constantly offered better management of ourselves. We can keep casting around for better managers, but as the ‘Accidental Anarchist’ Carne Ross has been arguing, we live in complex systems that cannot successfully be controlled from the top down. The point is not to simply be angry with the managers for doing the wrong things, or for being the wrong managers, or for not advantaging us rather than others in these huge dynamic networks around us. Intention anyway becomes lost in such large systems. It’s true that some managers do transfer wealth from poor to rich, and others attempt to do the opposite. But each of the managers fails at some point, often fatally undermining any good work they have done. So perhaps it’s time to start entertaining a new line of thought: perhaps we should stop asking to be managed.

This requires a deep shift in thinking and a new set of institutions. Almost all previous political claims, from both left and right, assumed that people must be managed. Elections every four or five years do not undo management: elections are a method by which we find the correct managers, not a form of self-rule. Those who think that a single decision every four or five years means we are in control are invited to reflect on the absurdity of the proposition: mere ownership of your house involves dozens, even hundreds of decisions in a year. How then can ownership of your government require fewer decisions?

Why have I begun talking about ownership? It isn’t the usual language of making democracies work, except in that vague and dishonest usage where we are encouraged to ‘feel ownership’ of decisions made by others. Socialism and communism did once talk about ownership but created a dichotomy between private ownership and central state ownership. Neo-liberalism bought into the same dichotomy and propagandised private ownership, or sometimes mixed forms of the two in unwieldy pseudo-free markets. It feels like we have not had a thorough, open-minded discussion about ownership for a long time. Doing so might begin to answer the question of how those of us dissatisfied with current institutions can picture what new institutions might look like.

Ownership, stripped back to its real meaning, is about control, and control is what we lack. The point of owning something is that we can do as we wish with it. To be made to feel ownership is a con, but to have ownership is to have control. The logical conclusion is that we should have ownership of as much of the world we inhabit as possible. Others have reached this conclusion before: digging at the practicalities of Lefebvre and Harvey’s ‘right to the city’, which sounds a little ambiguous in its meaning, it emerges as something like a ‘right to own the city’. We should have control, says Harvey, not just of public space, but of our housing, our energy sources, our data infrastructure, our food supplies and of course our workplaces.

This sounds difficult, and it is. Owning our world would share some of the problems of managing it: our world is so big, there is too much of it and too many of us. Yet what an ownership framework offers that management does not is that it works at multiple scales, rather than being always top down and so concerned with controlling entire systems. Where an overview is required – owning our atmosphere for example – we can construct decision-making systems that allow all to take part, but where detail is required we can conceive of much more localised forms of ownership, in which those most affected have the most say.

Breaking with management in favour of ownership means that if it affects your life, you should be able to have a say in it. This isn’t an entirely radical idea – even private ownership of property in our current capitalist system is compromised by the imposition of planning laws. ‘Compromise’ sounds like a bad word, but here it is a recognition that what people do to their properties has a public impact, so there should be some level of public control over this most private of ownership forms. Where the planning rules fall down in the UK is that local authorities and the planning system are astonishingly undemocratic, yet the underlying principle is established: in this most capitalist of societies we already recognise that we need some sort of collective, democratic control of our environment, and that it can take mixed individual/democratic forms.

We could extend the principle of ownership to workplaces, transport networks, open space, housing, rent levels, mobile phone companies, media bodies, power provision, foreign policy, money, and any area of life where we feel the decisions made affect us. Ownership and democracy are closely overlapping ideas. What ownership means is that we decide, what democracy means is that where we must make decisions together there is a process in place for that to happen. A call to own everything is a call for a democratic society.

Emerging technologies are making it easier for more people to be involved in discussion and decision-making. Taiwan and radical Spanish cities are currently experimenting with intense public participation in creating legislation, and it’s only a matter of time until other countries follow suit.
A further piece of the puzzle of how to make ownership work is that we must understand the concept of blended ownership, different types of ownership, overlapping ownership rights for different scale collectivities, all imagined beyond the private-state dichotomy. The recent Labour Party-commissioned paper Alternative Models of Ownership divided forms of ownership into worker co-ops, municipal and community ownership, and forms of state ownership with increased democratic accountability, but the commons of old that are inspiring many to establish new commons today often had very complex ownership and usage structures that endured over centuries. We should aim to construct what I call full spectrum ownership, that is to say, an infinite variety of ownership types and overlapping ownership forms designed to give us control over our own lives.

I will return to housing for a practical example of how the right to own the city (and everything else) could work. We could escape from the dichotomy of privately owned homes versus publicly owned homes, and instead establish systems in which the individual would have ownership rights, yet the surrounding community would also have rights, perhaps to regulate the re-sale price or rents, as though the entire city or country were a network of community land trusts. In order to prevent islands of privilege developing, regional and national ownership bodies would also exercise some rights within a neighbourhood. Again, this isn’t a million miles from how the planning system works now, but this would need democratic bodies at every level, starting from the street or neighbourhood up, to regulate the system, rather than a central government prodding bureaucratic local authorities to try to get the results they want. There would be room for representation, though more democratic than our current system, with delegates who can be recalled at any time, but there might also be a place for citizen juries in order to grapple with complex policy issues.

I’m under no illusions that creating a culture of ownership is an easy thing to do, even if we do have a major party interested in ownership once again. Education is a key method for changing culture, and education for ownership needn’t be restricted to children. A cultural shift would require a large scale education initiative to begin to educate people for working together. This is, admittedly, somewhat top-down, and so might be the establishment of local and regional councils and other new structures. Changing our current society will inevitably require a compromise with old methods. The way we have been taught to behave up to now was also imposed from the top down. We cannot avoid the tension of the fact that undoing this will sometimes require the use of top-down methods. What resolves the tension a little is that we will be attempting to undo the damage of the past together, we will be establishing ownership as we work, using discredited institutions to create new democratic institutions. To own together is to live together, to undo the atomised society that management has given us, to create, as I have argued elsewhere, a more caring society. A more convivial world could be seen as a by-product of taking back control, but it could be seen as potentially the best outcome of a culture of ownership.

If we were to embark on such a vast project it would be hard to know where to start. Thankfully we wouldn’t be starting from scratch. The world of cooperatives has always been the ideal training ground for those who want to run the world together. Co-ops’ radical potential is not that they eliminate the dominance of capital in themselves, but that they prepare us for a world that we control. They teach us what a liveable system might look like.

In campaigning work too we could begin to assert a culture of ownership. I am involved with a campaign to fight for renters’ rights in London. The radical approach to this, it seems to me, is to ask whether renters shouldn’t have partial ownership rights over the properties they inhabit. It may sound too radical put like that, but Germany, with its indefinite tenancies and high level of rights for renters, already gives the tenant much more power over their property. What is that but a transfer of some ownership rights to the tenants? A renters union, as envisaged by the nascent Renters Power Project, is a way to collectively achieve this. Real democratic council tenant power, of interest to some residents of Lancaster West, the estate encompassing Grenfell Tower, offers a similar promise that people might have ownership of where they live.

At the more governmental level, what would the world look like if we started acting as though we owned everything? What if we identified as owners and began to assert full spectrum ownership of our world? We could begin to challenge those who think they own everything now, and at the same time gain practice in working and owning together. We would spend more time interacting with our neighbours, with those who share our interests, and interacting as equals rather than as bosses and subordinates. The journey to ownership is bound to be a long one, but we needn’t await arrival at the destination to begin living in a more controllable and more convivial world.

The post Own everything! appeared first on New thinking for the British economy.

A recent post on Social Europe made some interesting points about the comparative process of policy development within the EU and bilateral trade negotiations. It stressed the benefits of the former in that national governments are integral to the development of trade and other regulations along with their partners whereas in bilateral trade negotiations. For example, between the US and the UK following Brexit the British would be junior partners and have limited options to determine the outcome. Undoubtedly true but the analysis even within the limited structure discussed simply did not go far enough. While lobbyists have a happy hunting ground in Brussels (and nationally) they are weak in comparison with their counterparts in the USA.

Thus in any trade negotiations with the US inevitably the UK would have to accept regulations relating to production and trade that are largely the outcome of corporate pressures which embody their interests at the expense of consumers. One has only to look at the funding mechanisms for the US Food and Drug Administration i.e. it is funded by the industry, and its failures to regulate effectively to be extremely concerned about probable outcomes of any bilateral trade agreement between the US and the UK. It is worth noting that at EU level the UK has been less interested in effective regulation than most other countries preferring less control by the EU vis a vis US multinationals.

But the issues are much broader than those discussed by Professor Crouch in Social Europe and it is worth looking in some detail at the whole issue of economic sovereignty since supposedly one of the aims of Brexit is to restore this in the United Kingdom. Even the following brief analysis of the economic structure of the UK shows that it is unachievable and is simply pie in the sky.

It has been Tory policy since Mrs Thatcher to reduce the size of the state in pursuit of some golden age where private ownership and management of more or less everything would dominate. For a review of this policy strategy and its outcomes everyone should read James Meek’s ‘Private Island: Why Britain Belongs to Someone Else’. The scale of the dismantling of the state and the destruction of what Meek calls ‘universal networks’ – the social and technological system deemed essential to all citizens independently of their ability to pay yet able to draw down – has been extraordinary. As Meek concludes:

“The most absurd paradox of Britain’s privatisation is that it has actually led to the nationalisation of British infrastructure by foreign governments with parts of former British state firms becoming the property of the governments of France, the Netherlands, Sweden, China, Singapore and Abu Dhabi”

Even the most basic services such as water, electricity, gas and public transport have been transferred into private ownership, and since in most cases these are natural monopolies and/or behave as collusive oligopolists they have been able to function as tax farmers. They have in fact substituted for Government and their pricing activities are analogous to levying taxes on consumers who have little or no alternative.

The most egregious example of this is water and sanitation where the privatised owners, who are mostly foreign, have fully exploited their economic power through their pricing policies. They are moreover in many cases now privately-owned companies – they are no longer quoted on the stock exchange but owned by pension funds in Canada, Australia and the Netherlands. These are managed through subsidiaries located in tax havens where they pay themselves huge management fees. Whereas supposedly a major aim of all of these privatisations was said to be to maximise individual share ownership in the UK, in practice the level of this fell from 40% before Thatcher came to office in 1979 to under 12% now.

British Governments since Thatcher have been totally disinterested in who owns what unlike most other countries which have had strategic objectives concerning the importance of ownership and control. The result is that most of the major industries are partially or wholly owned by foreign enterprises – including automobiles, pharmaceuticals, ports and airports, banking and finance and electronics. It is not that foreign ownership is in itself a bad thing but to argue that Brexit will permit the UK to re-establish economic sovereignty is simply a chimera. It is simply not going to happen.

Indeed it is totally unclear what economic sovereignty means in a globalised world. UK is a very open economy with a ratio of Imports and exports to GDP of 61% and rising, while it was 51% in 2003. This is one of the highest ratios of any of the G8 countries. How is it possible for an economy so dependent on trade in goods and services to recover its economic sovereignty given this extremely high dependence on imports both for consumption and for production? One of the results of joining the EU has been greater specialisation in production and further integration in industry with obvious benefits in terms of efficiency, prices and quality. It is worth noting that the import content of UK exports is extremely high at 23%, which is a further indicator of dependence on trade for both output and employment. Membership of the EU gives the UK greater control in these circumstances over imports since the UK participates in all bodies involved in regulation.

It is only recently that the impact of Brexit on food security in the UK has been identified and been the subject of discussion (see for example A Food Brexit: Time to get real). In part as a result of membership of the EU and in part due to rising incomes and population the UK is now much more dependent on food imports. Some 40 % of total food needs is presently imported and it is totally unclear how this dependence on trade could or should be reduced. There is little capacity in the UK for the substitution of local supplies for imported food and anything that threatened imports would have severe consequences for food security and health. The range of foods consumed has expanded dramatically since joining the EU and it is difficult to envisage returning to a diet of carrots, parsnips and peas.

It goes without saying that it is not only food supplies that are potentially threatened by Brexit but other aspects of security as well. The UK has been dependent on NATO for its post-war security and will presumably continue to be so. With the caveat that recent statements by the US imply that Europe will have to provide more resources for defence and inevitably this will involve the UK.  Thus security underlies economic sovereignty and UK is dependent on allies for this including imports of essential equipment, especially from the US. One of the least noted effects of the fall in the sterling exchange rate after the Brexit referendum has been a rise in the cost of imported military equipment and a sharp rise in defence costs both now and in the near future.

As noted above the UK is a highly open economy and yet the price at which trade takes place is only tenuously in the control of the British monetary authorities. The exchange rate of sterling against both the $ and the Euro has tumbled since the referendum and there is more or less nothing the Government can do about it.  The collapse of the exchange rate by this magnitude has caused a sharp decline in National Income since exports are sold at a lower price and imports cost more. The resulting fall in National Income is of the order of 10% – exports plus imports are 60% of GDP and this now costs 20% more than previously. It is not surprising that people feel much worse off than before the exchange rate collapsed. Notionally the Bank of England could raise domestic interest rates in an attempt to reverse the fall in the level of sterling but this would have adverse effects on the domestic economy which is now severely leveraged with debt once again.

The Bank itself admitted recently that unsecured debt is now at the highest level since 2008 and that it needs to be reined back. Any attempt to raise interest rates would thus have drastically adverse effects on domestic incomes and thus on employment and output. Inflation is above the Bank’s target of 2% in large part caused by the fall in the value of sterling. The Bank faces a dilemma and clearly doesn’t know what to do. Yet surely economic sovereignty means having the instruments of policy available so as to be able to establish an exchange rate that secures both internal and external balance?  The current account of the balance of payments remains in large deficit as it has been over many years and is largely out of policy control.

At the core of the case for economic sovereignty and Brexit is the claim that it is possible to control immigration. But this is another chimera since cutting immigration would mean immense damage across the board to the output of economic and social goods and services. The scale of dependence on skills and experience is such that there is no way that the UK could dispense with EU and other sources of immigrant labour. There is simply not the capacity to train those needed to substitute for the labour that would be lost through any set of autarchic labour control policies, and it would take decades to create this capacity and train British workers.

The scale of dependence on immigrant labour is immense – in higher education and research, in agriculture, in construction, in tourism, in transport, in health and social care. The levels have recently been documented by ONS and in some sectors the levels are well above 20%. In the case of food manufacturing, the largest manufacturing sector in the UK, no less than one-third is migrant labour. It should also be noted that in general immigrants are much better educated than local workers.

What can be concluded from the foregoing? In the kind of integrated world that we live in it is a chimera to believe that one can establish some presumed long-lost economic sovereignty. Economic and other systems have become too integrated to believe that one could dismantle existing structures without immense costs – social, economic and political. Any attempt to try and do so would inevitably fail and the UK is deluding itself if it believes that economic sovereignty can be re-established.

It would be more realistic to re-examine areas of domestic economic and social policy and to seek solutions to problems of under-performance and economic exploitation which are largely the result of previous policies such as privatisation of essential public services. Alternative, better, structures for the delivery of goods and services are feasible and worth pursuing. These would include taking key sectors such as water, energy and railways back into public ownership together with much more effective systems of regulation

It was announced at the end of July that Worldpay, the largest UK payment processing company, has been acquired in a takeover of £9.3bn by Vantiv, the US payment processing giant. No one in Government seems concerned with the change in ownership and control of yet another key national activity. It is worth also noting that the purchase is especially advantageous for Vantiv given the large fall in the sterling/dollar exchange rate since the Brexirt referendum.

It is also worth noting that in July the Germans announced a tightening of their company takeover laws to protect important areas of scientific and technical knowledge and together with France and Italy have proposed changes in EU policy with a similar intention. Nevertheless the UK continues to remain unconcerned about who owns what despite the loss of national sovereignty that is entailed.

The post The delusion of economic sovereignty appeared first on New thinking for the British economy.

Two fundamental errors block new thinking on the UK economy. The first is a failure to recognise, empirically, just how poor is the UK’s comparative, like-for-like performance. The second is an inability, conceptually, to abandon the dogma of market fundamentalism in domestic political culture. These errors not only consign the UK to a low-investment, low-productivity, low-income (but high-inequality) path. They also make it impossible to appreciate why this should be so—and what should be done to move on to a more successful (and greener) trajectory.

Innumeracy and insularity

Complacency about UK economic performance stems from a combination of innumeracy and insularity. It was encapsulated in the claim by the prime minister, Theresa May, in the Conservative Party manifesto for the June 2017 Westminster election, that ‘we are already the fifth-largest economy in the world’. As the House of Commons Library had explained a year earlier, this was the position of the UK in a league table of gross domestic product (GDP) using market exchange rates to generate common data in dollars, but adjustment of the data for differing price levels, or purchasing power parities (PPP), demoted the UK to ninth—behind, among others, India and Indonesia.

Yet this is not the biggest problem with blowing a British economic trumpet. The UK is, of course, a state with a large population and so the meaningful comparison is of GDP (PPP) per capita. On this basis, the UK falls to 21st in the world, according to 2016 World Bank data, or 24th according to the International Monetary Fund.

This is not all: the UK compensates for weak performance on GDP by a culture in a European context of long hours (engendering huge problems of work-life balance for women, given the paucity of publicly-funded childcare). So the best comparison should really be output per person per hour. This figure has flatlined since the financial crisis of 2008, after decades of trend growth, leaving the UK a laggard in Europe: in 2006 its output per hour was 109.7 per cent of the EU average; by 2016 that had fallen to 98.4 per cent. But of course the EU includes many weakly performing economies in its southern periphery and the former Soviet bloc. The following table shows how UK productivity measures up if it is placed in a set of ten northern European neighbours.

Source: Eurostat
* 2015 data, ** The Irish data are highly inflated by transfer pricing by multinationals, thereby shifting nominal output to Ireland to avail themselves of its low corporation-tax rate.

The UK is thus in the relegation zone of this mini-league. Its other members are all in the EU (except Norway in the European Economic Area), yet hardly seem hamstrung by its supposed ‘red tape’. Indeed, the UK also lags the average performance of the supposedly ‘sclerotic’ Eurozone, with its single currency, by a significant margin. And even this is not the full story: the City elevates the overall UK data markedly: disaggregated, these show that while inner London is the richest region in northern Europe, nine out of ten of the poorest regions are also found within the state.

Quite what magic can transform the fortunes of a ‘global Britain’ freed from ‘Brussels’, should the UK continue its lemming-like insistence on unilateral withdrawal from the EU, is thus hard to decipher. The real conundrum is of course the opposite: how Britain, hugely advantaged by being first mover in the industrial revolution at the birth of modern capitalism, should have engaged in such a long, slow decline to its current 21st-century economic mediocrity.

Enter the True Believers

Part of the answer is the cossetting the UK enjoyed through the era of access to protected empire markets. Part too is what the New Left figures Perry Anderson and Tom Nairn identified as the lack of a ‘bourgeois’ revolution in Britain, dismantling feudal ways. Part too is that the City dominates not only the UK economy but also economic thinking in Britain, as evidenced by how media commentary frequently anthropomorphises ‘the (financial) markets’, describing their ‘mood’ as if that of sentient beings. In a fallacy of composition, the performance of the UK economy is thereby reduced to individual market trades, as if these were barter—which, since for every  sale there is then a purchase, implies automatic equilibrium if market mechanisms are not subject to ‘bureaucratic interference’.

In his ‘The General Theory of Employment, Interest and Money’, Keynes however understood the economy as a system of production of goods and services in which labour is the source of value and investment is key. He showed that the classical equilibrium model only applied in the ideal case of full employment; in the typical context of involuntary unemployment, investment (with its multiplier effect) was required to engender sufficient demand for a full-employment equilibrium to be achieved. Look after unemployment, Keynes said, and the budget—enhanced by tax-raising and welfare-reducing employment—will look after itself. And he envisaged the ‘euthanasia of the rentier’ in an economy where public investment loomed ever larger. He argued against the statist ‘socialism’ of the USSR of his day but his economics was by no means alien to a distributed socialism of employee-owned/co-operative enterprises.

Indeed, in the absence of such a transformation of a modern capitalist economy, Keynes’ argument was vulnerable to the charge, as the Keynesian economist Will Hutton recognised, that it could take increasingly inflationary doses of demand injection to sustain a capitalist economy at full employment. And the inflationary spiral of the 1970s, while actually making the case for a more advanced ‘social contract’ rather than a market free-for-all, was used by the True Believers in the classical economists Keynes (like Marx) had criticised to make their ‘neo-classical’ comeback.

‘Market disciplines’ were applied in two devastating waves: the ‘sado-monetarism’ (as William Keegan of the Observer called it) of the Thatcher years and the unrelenting austerity imposed by Conservative-dominated governments in the UK since 2010. These have been characterised by massive disinvestment, with the deindustrialisation of capital in the first period succeeded by the devalorisation of now atomised labour in the second. In this shocking new world of zero-hours contracts, bogus self-employment and food banks, a TUC report in 2016 found that the UK had seen a steeper fall in real wages in 2007-15, still 10.4 per cent below pre-crisis level, than any OECD country except Greece. By contrast, France had seen a rise of 11 per cent and Germany of 14 per cent, over the same period.

Thus a UK economy which once boasted such household names as ICI or GEC, and associated public corporations such as British Steel or British Leyland—is now reduced to a wasteland where there are very few internationally competitive enterprises left. Hence the yawning balance-of-payments deficit, whose unsustainability brings a creeping devaluation of sterling and so further inflationary pressure on living standards. Today’s economic landscape is much more characterised by labour-sweating companies such as Sports Direct than those with high sunk capital such as Rolls Royce.

Hence the fashionable ‘productivity conundrum’ is no riddle at all. With public investment at rock-bottom, vocational training now left to the vagaries of the market, and trade unions and statutory labour protections so weakened, the UK economy has inevitably followed a directionless race to the bottom. With the high road of mutually-supporting levels of investment, productivity and income structurally blocked, the low road of casualisation and super-exploitation of unskilled labour has been opened wide. This is at the cost not only of mediocre economic performance but also of rising inequality as the Precariat expands—on top of the impact of the Thatcher interlude, whose suppression of taxes for the wealthy made the UK already a markedly inegalitarian outlier from the rest of northern Europe.

Beyond market fundamentalism

If the UK is such a poor economic performer, then it could at least seek to emulate its European neighbours and peers. Indeed, it would be foolishness to suggest—as purportedly left-wing UK Brexiters have done—that the UK would be more able to achieve economic progress outside the EU than within. In that sense the far-right-led Brexit campaign makes much more sense as a struggle for an authoritarian, ‘free-market’ British Singapore stripped of residual workers’ rights.

Such emulation involves learning three, really quite simple, economic lessons. The first is that the ‘invisible hand’—a phrase taken wholly out of context from Smith’s (incoherent) usage in The Wealth of Nations, referring to investment domestically rather than abroad—does not apply 241 years later. As Hutton also pointed out, once market interactions are financially intermediated, every purchase does not match a sale—so disequilibria become the norm, not the exception. Moreover, since the globalisation of the economy since the 1970s has been matched by its financialisation, there has been a growing volatility reflected in financial crises of increased frequency and intensity until the global crash of 2008—when it became apparent that the giant Ponzi scheme of exotic derivatives lacking any correlate in the real economy, in which companies such as Lehman Brothers were mired, had to collapse.

As John Kay has demonstrated, the vast bulk of what City financial institutions do is not to invest in the real economy: it is to speculate with other people’s money. So the investment necessary for enhanced economic performance, as well as the maintenance of demand, must be initiated from the public purse—albeit then multiplied through private sources. While the UK has squandered its asset of North Sea Oil, Norway has turned its oil resource into an enduring asset via a sovereign wealth fund. Indeed, such funds can be used, if democratically so desired, to expand the public stake in the economy over time as revenue from existing investments is reinvested elsewhere: favouring enterprises in the ‘green’ economy or those otherwise ‘eco-efficient’ in this way would be an ideal means to bring about the greening of the UK economy, which is a laggard too in such markets as for renewable-energy production. Germany, meanwhile, has its development bank, KfW, going back to postwar reconstruction, and the Landesbanken, involved in regional economic development, providing vehicles for public investment. Of course, until England stops being a European outlier in lacking regional devolution, the latter option is impossible there.

The second lesson is that public goods play an essential role. The market-fundamentalist economic discourse in the UK has completely crowded out the (economic) concept of ‘public goods’—those which are (or, arguably, should be seen as) non-exclusive and non-rival and so properly provided by public agencies democratically accountable to citizens, not privatised and subject to ‘commercial confidentiality’. Knowledge is a prime example, especially in today’s ‘informational’ rather than ‘industrial’ capitalism, as Manuel Castells has described it.

Yet in the UK the education system has been fragmented into a morass of competing providers, including obscurantist ‘faith’ schools as well as privately-sponsored ‘academies’. The performance of this patchwork is inevitably patchy, as the UK’s again-mediocre standing in the international PISA educational rankings demonstrates. The top performers in Europe are Estonia and Finland, which both have unified, comprehensive systems in which youngsters are not differentiated until age 16 when more vocational or academic paths are selected.

The UK’s former high performance in higher education is being rapidly eroded. The more technologically orientated ‘polytechnics’ became universities out of snob value and university is being turned into a ‘club’ good for students from wealthy backgrounds by the abolition of grants and spiralling fees, sacrificing the talents of poorer students. The increasing xenophobia towards foreign students and the threat to internationally significant collaborative research posed by Brexit are additional, entirely self-inflicted wounds. At the vocational level, ever since under Thatcher the industrial training boards were abolished, the fundamental appreciation that individual firms will freeride and poach rather than investing in training their own workforces has been forgotten. By contrast, in Germany firms are required to be members of their local chamber of commerce, through which training is collectively provided at a much higher level for the benefit of all. And the network of Fraunhofer institutes, supported by federal and regional funding, pursue applied research on which firms can draw.

Germany’s huge productivity differential over the UK is also a product of relative trade-union strength—yes, strength. High wages provide a ‘productivity whip’, forcing firms to innovate to enhance productivity, rather than resting on their laurels, if they wish to sustain profitability.

This is an instance of the third lesson which the UK has yet to learn—that social policy is a productive factor. ‘Free-enterprise’ ideology can only conceive of any kind of policy intervention as a ‘burden on business’—hence the ridiculous current requirement that any new regulation affecting business in Britain can only be introduced if three others are abolished.

In this cramped perspective, ‘welfare’ is a labour-protecting device which can only detract from the surplus generated by the private sector—hence it should be as selective and means-tested as possible. The UK has gone far down that route since the postwar highpoint of the measures succeeding the 1942 Beveridge report. When unemployment was (in Keynesian terms, correctly) seen as an involuntary risk, for example, unemployment benefit was graduated according to an employee’s National Insurance contributions. Now it is ideologically identified as a voluntary ‘lifestyle choice’ and so the benefit has been renamed ‘Jobseeker’s Allowance’ and is set at a universal minimum which is below subsistence and subject even then to sanctions if ‘jobseeking’ is not seen to be sufficiently assiduous.

By contrast, in the Nordic countries with broadly universal welfare states, it is recognised that high public expenditure, funded by progressive taxation, is essential to labour productivity—in terms especially of the education and health of the worker—and so to prosperity. Denmark’s ‘flexicurity’ system, for instance, deliberately has high unemployment benefits so that workers don’t hang on to obsolete jobs and active-labour-market programmes train them for new global opportunities.

This extends to a recognition that public funding for the cultural arena—Oslo’s beautiful opera house, for example—is essential to attract the specialised workers so essential to today’s economy for whom the labour market is close to global. There is also a recognition that high-salaried professionals will be willing to pay high taxes for high-standard, personalised public services rather than seek a ‘right of exit’ for private alternatives: childcare, for instance, is not only close to universal across Scandinavia but also employs a largely-graduate workforce.

It might be thought that this is all very well from a social perspective but that such a high ‘take’ by the public purse must nevertheless be a drag on the economy. Far from it: the Nordic countries tend to top the conventional leagues of economic ‘competitiveness’. And a 2012 academic study, which defined competitiveness as output per potential worker, placed the four main Scandinavians (Sweden, Finland, Denmark and Norway—in that order) among the top seven of 30 countries.  The UK, which often prides itself on being ‘business-friendly’, came in at again a merely middling 15th.

Radical?

In sum, then, the UK can only move on to a higher economic performance path if it abandons the blinkers of market fundamentalism for a more intellectually robust and evidenced approach. The latter will have at its heart a recognition that the ‘invisible hand’ turns out to be an out-of-control robot arm, that public goods such as knowledge are key to the public interest, and that social policy is not to be dismissed as ‘the nanny state’ but is a core productive factor.

None of this is rocket science. None of it is even particularly radical—though it is way moreso than Labour’s supposedly radical Westminster manifesto this year. It just requires progressives in the UK to look beyond their own shores. Which, of course, demands remaining in the EU to work collaboratively to tame the global capitalist tiger, rather than seeking to stop the world.

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The UK, along with many other advanced economies, is facing a major housing affordability crisis. Average house prices are now on average nearly eight times that of incomes across England and Wales, and up to 39 times in parts of central London.

A whole generation finds itself priced out of the market, struggling to make ends meet in the face of eye-watering rents. Over the past 15 years’ levels of home ownership have been falling sharply, particularly among young people. Homelessness is rising fast.

How did we get here? A popular explanation is ‘we’re not building enough homes’. While this is part of the answer, it is far from the whole story. At the root of the problem lies something that has for a long time been overlooked: the role of land in the economy.

But the issue of land goes far beyond the housing shortage. It lies right at the heart of many of the key challenges facing modern economies, from mounting inequality and financial instability, to intergenerational conflict and poor prospects for sustainable development.

To understand land properly, we must take a cross-disciplinary approach – we need a bit of history, a bit of economics and a bit about power and the law.

Theft and freedom: the paradox of property

Land is essential for all activity to take place, and indeed for life itself. Nobody ‘created’ land, it just exists. And we can’t create any more land, even if we wanted to. Land is not simply soil, and its economic uses are not simply agricultural. In economic terms, land is better understood as a set of legal rights over physical space.

Land first began to be treated as tradable, private property in the 16th century, triggering the birth of modern capitalism. But this transformation gave rise to a tension. On the one hand, landed property empowered people by providing physical and economic security, including collateral to leverage credit, which helped drive economic growth and technological advancement. But at the same time, private property in land was inherently exclusionary: by its very nature, granting some people exclusive rights over what was previously a common resource involves taking away the rights of others. Millions of people were driven off the land, often violently. Those who were allowed to stay found themselves having to pay rent to landlords to access what had previously been available for free. Landowners became the gatekeepers to an essential resource, a role which meant they were able to absorb much of the value that was being created in the economy in the form of higher rents.

The introduction of private property therefore brought economic power to some and dispossession to others – a paradox that was perhaps best summed up by the anarchist Pierre-Joseph Proudhon, who said that property was both “theft” and “freedom”.

Fast forward to the 21st century and this paradox is alive and well, it just manifests itself in different way: this time through the housing market.

Land in the Twenty-First Century

Today the value of the UK housing stock stands at £5.5 trillion – around 60% of the entire net wealth of the UK. This has increased from just over £1 trillion only twenty years ago.

As the Office for National Statistics acknowledges, this rapid increase is largely the result of soaring house prices:

“The increase in the value of dwellings was largely due to increases in house prices rather than a change in the volume of dwellings.”

But the price of a property is made up of two distinct components: the price of the building itself, and the price of the land that the structure is built upon. We don’t know the exact breakdown between these two components (bizarrely, there is currently no reliable public dataset on the land market in the UK) but the available data implies that land under homes is currently worth around £3.7 trillion – nearly 70% of the total value of the housing stock. This makes residential land the UK’s most valuable asset, even in today’s high-tech economy.

So why is land so valuable? And why have land values, and thus house prices, increased so much relative to incomes in recent decades?

Land values increase naturally over time as economic growth and a rising population increases demand for a resource that is inherently fixed in supply. Public and private investment in infrastructure and amenities also increases the value of land, making some locations much more valuable than others. For example, new transport links or being in the catchment area of a good school can dramatically increase the market value of nearby land. As a young Winston Churchill said in a famous speech to Parliament in 1909:

“Roads are made, streets are made, services are improved, electric light turns night into day, water is brought from reservoirs a hundred miles off in the mountains – and all the while the landlord sits still. Every one of those improvements is effected by the labour and cost of other people and the taxpayers. To not one of those improvements does the land monopolist, as a land monopolist, contribute, and yet by every one of them the value of his land is enhanced.”

There is also good evidence that as economies mature, the demand for land relative to other consumer goods increases. Land is a ‘positional good’, the desire for which is related to one’s social status. In economics jargon, land has a ‘high income-elasticity of demand’ – people will stretch their incomes to consume it. This goes some way to explaining why the rise of information technology and globalisation has not meant ‘the end of distance’ as some predicted, but has driven the economic pre-eminence of a few cities that are best connected to the global economy and offer the best amenities.

But this is only part of the story. The land economy is most decisively shaped by the laws and regulations that govern the ownership, trade and use of land. In other words, the rules of the game matter. But these rules have very little to do with economics, and much more to do with politics and power. They have varied immensely over time reflecting the evolution of power and class relations in society.

From a place to call home, to a financialised asset

After the end of the Second World War, council housing provision, tight mortgage regulation and taxes on property kept supply up and house prices (land prices) under control. The Labour government’s 1947 Town and Country Planning Act 1947 kept land in private hands, but nationalised the right to develop it – meaning that landowners and developers had to apply to their local authority for planning permission to build new property. Strong compulsory purchase powers enabled land to be acquired at low cost for housing development. This system was perhaps most successfully embodied in the New Towns programme which began in 1946.

For each New Town, a public development corporation was established which purchased land compulsorily at agricultural prices, drew up a comprehensive masterplan for the town, and then built the necessary infrastructure using money borrowed from the Treasury. They granted planning permission on the sites they owned and sold them to private house builders, using the uplift in the value of the land to repay the loans. This combination of low-cost land acquisition, strong plan-making and the power to determine planning applications proved to be a powerful means of delivering affordable housing.

But beginning in the 1960s this began to change. Taxes on property were removed, beginning in 1963 when the ‘Schedule A’ income tax, a tax on imputed rental income, was abolished. When capital gains tax was introduced in 1965 an exemption was made for primary residencies. Subsidies for buyers were also introduced: in 1969, the government introduced mortgage interest relief at source (MIRAS) which provided tax relief for interest payments on mortgages. Court judgments on compensation (particularly the Myers case of 1969) reinstated the principle that landowners should be able to claim ‘hope value’ on any land compulsorily purchased. This increased the price of land and ended the ability of public authorities to capture land value uplifts to fund new development – the model which had so successfully been used to build the New Towns.

With the arrival of Margaret Thatcher, the government withdrew from large scale house building, and councils were forced to sell their housing stock through ‘Right to Buy’, and prevented from building more. There was a shift away from supply side subsidies of ‘bricks and mortar’ towards demand-side subsidies of paying housing benefit to boost households’ incomes to enable them to access accommodation. Whereas in 1975 more than 80% of housing subsidies were supply-side subsidies intended to promote the construction of social homes, by 2000 more than 85% of housing subsidies were on the demand side aimed at helping individual tenants pay the required rent. Today the UK government spends an eye watering £25 billion on housing benefit.

Perhaps the most significant changes came with the liberalisation of the mortgage lending market. Before the 1970s, mortgage lending was mostly carried out by building societies. But beginning with the Competition and Credit Control Act of 1971, restrictions on lending were removed, and banks were incentivised to become active players in the mortgage lending market. This unleashed a flood of new mortgage lending into the economy, which increased from 20% of GDP in the early 1980s to over 70% before the financial crisis. An ever increasing supply of credit interacted with a fixed supply of land, fuelling a house price boom. In turn, households were forced to take out ever larger mortgage loans to get on the housing ladder. Thus, a feedback loop emerged between mortgage lending, house prices and ever increasing levels of household debt. The changes in credit supply conditions have been described as the ‘elephant in the room’ when it comes to understanding the behaviour of house prices, land prices and consumption in advanced economies.

The normalisation of double digit house price growth, combined with the expectation that house prices will continually increase, fuelled demand for houses as financial assets. Whereas fifty years ago houses were mostly regarded as simply somewhere to live, today homeownership is viewed as a means of accumulating wealth and long-term security in the face of stagnating wages and dwindling pensions. Although attempts to widen access to the benefits of homeownership succeeded for a while, eventually a tipping point was reached: prices are now so high that a whole generation finds completely itself priced out of the market, and levels of homeownership have been falling for 15 years.

The Great Divide

In recent years there has been a growing public debate about the causes and consequences of the widening gap between rich and poor, and the impact it has on our societies. In his bestseller ‘Capital in the Twenty-First Century’, Thomas Piketty argues that the rising inequality observed in recent decades is explained by a tendency for the rate of return to wealth to exceed the economic growth rate, causing a growing accumulation of wealth among those who already have it (a relationship he describes as r > g in notational form). When the return on wealth significantly exceeds the growth rate of the economy, Piketty states that inherited wealth grows faster than output and income.

Seen in the context of the UK, this explanation would appear to carry some weight. In recent decades growing economic inequality has been accompanied by a rapid increase in the amount of wealth relative to national income (the so-called ‘wealth-to-income’ ratio). Following a significant decline in the first part of the twentieth century, the ratio began to rise the 1950s and saw a marked increase after 1970. The return on wealth has significantly exceeded the growth rate of the economy for many decades now.

However, on closer inspection Piketty’s dataset indicates that much of the increase in the wealth-to-income ratio observed since 1970 is the result of capital gains from housing – or more accurately, from rising land values. Once the effects of housing are removed, the underlying wealth-to-income ratio has actually fallen significantly in the UK since 1970.

The implications of this are vital for understanding the dynamics of growing inequality in recent decades. It means that the increase in the wealth-to-income ratio observed in Piketty’s data, which has underpinned the rise in inequality, has been driven not by skills or technological advancement, but rather by increasing residential land values which have manifested themselves through rising house prices.

Some economists defend rising inequality on the basis that some people getting richer is not a bad thing, so long as nobody else is being made poorer. But in Britain this is not what has been happening, because housing wealth is fundamentally different to other forms of wealth.

When the value of land under a house goes up, the total productive capacity of the economy is unchanged or diminished because nothing new has been produced: it merely constitutes an increase in the price of the asset. For those who own property, rising land prices generate an unearned windfall gain which increases net wealth. This provides immense benefits to homeowners – housing equity can be converted into income via home equity withdrawal, increasing spending power for a new car or holiday, or it can be used to leverage up further, perhaps buying a second-home, or entering the Buy to Let market.

But rising land prices also has a corresponding cost: those who don’t own property see their rents increase, or have to save more for a deposit. This cost is not captured in wealth data such as that compiled by Piketty, because under current national accounting frameworks only the capital gain feeds through to measures of wealth; the present discounted value of the decreased flow of resources to those who don’t own property is not captured.

The reality is that the housing ladder is rather like a zero sum game. Much of the wealth that has been accumulated in recent decades has come at the expense of current and future generations who do not own property, who will see more of their incomes eaten up by higher rents and mortgage payments. The key dividing line running through society today is not wealth accumulation from entrepreneurialism or hard work, but ownership of property and the ability to capture unearned windfalls from rising land values. The paradox of property is back with a vengeance, and it is driving society apart.

As spiralling house prices render homeownership increasingly unaffordable for much of the population, this divide is set to grow larger. In some lucky cases, people will be rescued by Mum and Dad as housing wealth is passed onto some of the next generation via inheritance. Already the ‘Bank of Mum and Dad’ has become the ninth biggest mortgage lender in the UK. But many others will miss out.

Not only is this not particularly fair, it’s also not particularly efficient. Rising land values suck purchasing power and demand out of the economy, reducing spending and investment. The availability of comparatively higher returns from relatively tax free real estate investment crowds out productive investment, both by the banking system itself and non-bank investors. This may help us explain – at least in part – the great ‘productivity puzzle’.

The forgotten factor

The early pioneers of political economy – Adam Smith, David Ricardo and John Stuart Mill –acknowledged that land had unique qualities, distinct from capital and labour. They recognised that land was a free gift of nature, and considered returns earned from the ownership of land to be unearned – referring to these windfalls as ‘economic rent’. They believed that the ability to extract economic rent was so powerful that landowners could effectively absorb much of the value created in an economy. It was feared that this could undermine the political legitimacy of the private property system itself, and so they sought to limit the extent to which landowners could make unearned windfall gains at the expense of the rest of society.

Since then, the concept of economic rent has been expanded to cover any excess returns derived purely from the possession of a scarce or exclusive resource, unrelated to the costs of bringing it into production. Today a good deal of economic regulation exists to limit economic rents that arise from monopoly power, for example in the water, energy and rail sectors, because it is recognised that these rents are both inefficient and unjust. Strangely, however, the original and largest source of economic rent – that arising from land – gets a free ride.

Over the past hundred years land has been increasingly marginalised from economic discourse in the developed-world. Today’s economics textbooks mostly neglect land as a distinct factor of production, instead conflating it with capital in the still dominant ‘two factors of production’ models. Meanwhile, theories of distribution still follow the tenets of ‘marginal productivity theory’ which states that ‘income’ is understood narrowly as a reward for one’s contribution to production, whilst wealth is understood as ‘savings’ from deferred consumption.

Although presented as an objective theory of distribution, marginal productivity theory has a strong normative element. It paints a picture of a world where, so long as there is sufficient competition and ‘free’ markets, all will receive their just reward in relation to their true contribution to society. But marginal productivity says nothing about the rules around the ownership of factors of production – not least land – which are essentially political variables. For economists who see their discipline as a ‘value free’ science which is separate from politics, this is uncomfortable territory. The result is that unearned windfalls resulting from land ownership – the largest source of economic rent – are overlooked.

But these windfalls play an enormous role in a country like Britain, where much of the wealth accumulated in recent decades has come from housing. The classical economists would have viewed this as the accumulation of unearned economic rent; a transfer of wealth from the rest of society towards land and property owners. But in Britain, these windfalls are celebrated — house price inflation is hailed by economists and the media alike as a sign of economic strength. The cost this imposes on the rest of society is ignored. As John Stuart Mill wrote back in 1848:

“If some of us grow rich in our sleep, where do we think this wealth is coming from?  It doesn’t materialize out of thin air. It doesn’t come without costing someone, another human being. It comes from the fruits of others’ labours, which they don’t receive.”

Putting land back into economics and policy

How then to deal with these challenges? Firstly, the teaching of economics and related disciplines needs to be reformed to reaffirm the role of land. Practitioners across the field should seek to highlight land’s role as a distinct factor of production separate from capital, and a set of legal rights over the use of economic space. The role of economic rent should be placed squarely into theories of distribution and taxation, and the interaction between the value of land and the macroeconomy must be taken more seriously.

When it comes to policy, there is no quick fix. Because legal frameworks are essential for land to become property at all, any analysis of the land problem that starts from the premise of minimising state involvement cannot succeed. There can never be an entirely free market in landed property. Instead, policymakers need to start getting their hands dirty.

Compulsory purchase laws should be changed to enable public authorities to purchase land at agricultural prices, enabling the planning and development uplift to be captured for public benefit once again. A new National Land Bank should be established and made responsible for developing and leasing land, acquiring idle and vacant land for resale, and developing more New Towns. Planning authorities should be given more resources and stronger powers of plan making or zoning so that planning can be a ‘market maker’ rather than a market stifler.

Housing policy should seek to level the playing field between tenures, in terms of taxation and subsidies, so that people are not incentivised to invest in property over more productive assets. The stock of non-market housing, like social housing and community-led schemes, should be expanded in order to lessen dependence on the volatile market in land and homes. Taxation should be used to capture the unearned windfalls landowners currently pocket at the expense of society at large. This could be achieved by replacing council tax with a tax on the unimproved value of land.

Bold steps should be taken to break the positive feedback cycle between the financial system, land values and the wider economy. This should involve wide ranging changes to the regulation, ownership and structure of the banking sector to direct lending away from property and towards the productive real economy.

The long term-aim must be to return to a society where houses are viewed as somewhere to live, not as vehicles for accumulating wealth. This can’t happen overnight, and it won’t be easy. The task involves taking on the unholy alliance of private developers, banks and – most difficult of all – ordinary homeowners, many of whom now view ever rising house prices as normal and just.

This may seem ambitious. But the alternative is growing polarisation in society, ever increasing levels of household debt and bleak economic prospects. If we are to create a fairer and more sustainable economy, then we must start taking land a lot more seriously.

‘Rethinking the Economics of Land and Housing’ (Zed Books) by Josh Ryan-Collins, Toby Lloyd and Laurie Macfarlane is available at Zed Books and Amazon.

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“The modern joint stock company is a British invention… but the rules need to change as the world changes. Boards should take account of the interests not just of shareholders but employees, suppliers and the wider community.”

Which revolutionary firebrand said that? Who dared to question the fundamental correctness of modern shareholder capitalism?

You may be surprised to learn that the above passage is taken from the 2017 Conservative Party manifesto. In fact, the party joins a list of unusual suspects voicing concerns about the nature of modern corporate behaviour. Dominic Barton, the global managing director of McKinsey, has argued for years that capitalism needs to take a longer view. Andy Haldane, Chief Economist of the Bank of England, recently suggested that businesses ‘are eating themselves’. Even the Chief Executive of BlackRock, the world’s largest asset manager, has admitted that pressure to keep the share price high means corporate leaders are ‘underinvesting in innovation, skilled workforces or essential capital expenditures’.

They are right. Our current, highly financialised form of shareholder capitalism is not just failing to provide new capital for investment; it is actively undermining the ability of listed companies to reinvest their own profits. The stock market has become a vehicle for extracting value from companies, not for injecting it.

Corporate governance has become dominated by the need to maximise short-term shareholder returns. At the same time, financial markets have grown more complex, highly intermediated, and similarly short-termist, with shares increasingly seen as paper assets to be traded rather than long-term investments in sound businesses. This kind of trading is a zero-sum game with no new wealth, let alone social value, created. For one person to win, another must lose – and increasingly, the only real winners appear to be the army of financial intermediaries who control and perpetuate the merry-go-round.

There is nothing natural or inevitable about the shareholder-owned corporation as it currently exists. Like all economic institutions, it is a product of political and economic choices which can and should be remade if they no longer serve our economy, society, or environment.

The shareholder model is harming the economy by actively holding back investment. It is harming society by increasing inequality through ballooning executive pay. And it is harming the environment by encouraging risky short-term behaviour such as fossil fuel extraction. So why keep it?

Reforming shareholder capitalism is not as hard as it sounds. In a new report for the New Economics Foundation, we set out what needs to be done to take the first steps towards a better economic model.

For instance, corporations could be required to state their public purpose openly and regularly report on how they are fulfilling it. That would start to move companies from focusing entirely on shareholder returns towards thinking about their stakeholders as well.

At the same time, shareholders could be required to make longer-term commitments to their companies by making their voting rights dependent on the length of their commitment.

And we should restrict some of the damaging forms of speculation which drive short-termism. For instance, predatory high-frequency trading could be restrained without destroying their benefits.

For most people, our economy simply is not working, and the way corporations are structured is at least in part responsible. Reforming shareholder capitalism must not be dismissed as too difficult – the crisis is too urgent for that. We can take the first steps towards a better model right now. It’s time to act.

This article was originally published by the New Economics Foundation. The full report ‘Shareholder capitalism: A system in crisis’ can be downloaded here.

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This year is the 800^th anniversary of a founding document of the British constitution, and of other constitutions as well. Issued in the name of a ten-year-old King Henry III alongside the modified Charter of Liberties that had been sealed by King John and the barons at Runnymede on June 15, 2015 that became Magna Carta on November 6, 1217, the Charter of the Forest is among the first ecological charters in history and among the first to assert the rights of the common man and woman.

As it coincided with the first feminist advance, in a modified Article 7 of the Magna Carta, which could have been in the Forest Charter, it could also be called a first feminist charter. That new Article 7 gave widows the right to refuse to be remarried, to retain some of their husband’s land and to have the right to estovar on the commons, to take the means of subsistence, for the remainder of their lives. In effect, widows were given the right to a basic income. For the time and place, that was a remarkable advance.

The Charter has the distinction of being the most durable piece of legislation in British history, having only been superseded in 1971, with the Wild Creatures and Forest Laws Act, by when most of its principles had been embedded in other legislation, including the Commons Act of 1876, which ruled that enclosure should be allowed only if there were public benefit, and by the establishment of the Forestry Commission in 1919.

The legislation that chipped away at its principles turned it from being a fundamental assertion of common rights to a generalised plan to handle nature and turn it into resources, for production and commercial ends. From its origins as a great act of decommodification of commoners it gradually evolved into a body of legislation and institutions for the managed commodification of natural resources.

Yet the Charter is almost unknown, rarely mentioned in children’s history lessons. Almost certainly, this is because it is an assertion of the rights of ordinary people to the right to subsistence. Yet for hundreds of years after 1217 it was more influential than the Magna Carta itself; every church was required to read it out four times a year in designated services.

Some historians believe that it was the Charter of the Forest that carried the Magna Carta forward in the centuries after they both came into effect, not the other way round. This was partly because the commoners were obliged to struggle to maintain the rights to subsistence enshrined in the Charter.

Rights always begin with class-based demands made against the state. The Forest Charter was about restoring and preserving the right to common, the rights of commoners and their right to the commons. Of course, it was incomplete in all respects, and is hard to read, with words and concepts that have drifted into history, such as agistment (right to use the commons for livestock) and pawnage (right to pasture your pigs). Even the great verb ‘to common’ is scarcely recognised today, though users of it have a twinkle in their eyes in perceiving a revival.

The context of the Charter in 1217 was the aftermath of a period in which the monarchy, notably King John, had begun to use the forests to extract rents and fines, had curtailed the rights of commoners to use the land for their subsistence, and had imposed heavy sanctions on behaviour that did not serve the interests of the elite. Forests symbolised the land, since half the country was covered by them, but the idea of the forest covered much more than it conveys today. It included all forms of public, common spaces, including villages and towns.

What the Charter did was nothing less than provide a legal foundation for living, by asserting the commoners’ usufruct rights, the right to subsistence, on common land and water. It also asserted the right to reparation, if the high and mighty encroached on the commons, through commercialisation of its products, enclosure or encroachment.

The Charter of the Forest has been integral to class struggle throughout British history.  Tweet This!

It has influenced class struggles in many parts of the world. For many years after 1217, it carried the Magna Carta forward, rather than the other way round. It provided the basis for riots in defence of common rights. But it has been abused throughout its history, with the Tudors being egregious spoilers. For centuries, commoners protested against the threat to the commons, most notably in the 17^th century in a series of riots that helped to precipitate the Civil War.

Although formally superseded in 1971, the ethos of the Charter has been preserved in several institutions. The closest it came to defeat was the Coalition Government’s plan in 2010 to privatise the Forestry Commission. The plan was withdrawn after concerted public protests. But those who wanted to implement it are still in government or in the circles of influence supporting it.

Now, its values are under more surreptitious attack, through the micro-politics of privatisation. The government is deliberately running down the management of the commons, to the point where more and more people will not care whether it is privatised, commercialised or simply lost. We are at a critical point.

We must use this anniversary year to revive and to defend the Charter’s principles, including its assertion that every commoner has the right to subsistence.  It is a wonderful opportunity to organise a series of events to celebrate, defend and revive the commons, thereby exposing the ideology behind the ongoing plunder of the commons and the micro-politics behind it.

In short, a tragedy of the neo-liberal era (roughly since 1980) is that, as rentier capitalism has grown by the extension of private property rights, the state has orchestrated a plunder of the commons, against the spirit of the Charter of the Forest.

We may divide the commons into five types – spatial (or natural), social, civil, cultural and intellectual or educational.[i] The spatial commons are the foundation – land (and what is on or under it), water and air. They are natural assets that belong to all of us, as citizens. They do not belong to any government, just as they do not belong to any individual owner. They convey an array of common rights, including the right to roam. They are ‘nature’s bounty’ handed down to us by our ancestry. They were either never privatised or at some time became part of the commons. They belong to us collectively, and belong to nobody. Parts of the commons were improved by the labour of numerous people put to work in a public cause.

The social commons consist of amenities created and paid for by generations before us, including public libraries, public hospitals and clinics, public transport systems, public roads and squares, and parks and public gardens that are a combination of spatial commons and the efforts of numerous people who have shaped their design and their character.

The cultural commons include public art, for which we as society are stewards, not owners with a property right to buy and sell. One ugly aspect of the austerity era has been the stealthy selling of art works from public museums and public places, the most symbolic of which has been the tussle over Henry Moore’s statue, Old Flo, which he bequeathed to the borough of Tower Hamlets to give beauty to a public space.

Other works of art have been sold under duress, in a buyers’ market, in response to budget cuts forced by central government, so that the latter can continue with its policy of cutting taxation for affluent groups and its donors. If we knew the full extent of what has been done and what is planned, perhaps we would riot. We should.

The fourth form should be called the civil commons, encapsulated for eternity in the Magna Carta of 1217. These may be defined as a universal and equal right to justice, with respect to due process, affordable and accessible legal representation and so on. It is insufficiently appreciated how far those principles have been eroded in the past three decades. The current Government is merely continuing what New Labour and the Coalition accelerated, which is perhaps why there has been little parliamentary opposition to its erosion. If the right to legal aid is lost, the civic commons is eroded.

Privatising social and employment services has also been a means of shredding the civic commons. There is no due process in welfare sanctions and benefit denial. We should demand it, in the name of the rights of commoners.

The final form is the educational or intellectual commons. Think of our great universities and colleges. They should not be commodities to be bought and sold, or turned from bodies for nurturing learning, scholarship and research, and a culture of reflection, into an industry for maximising profits by churning out breadwinners, degrees and commodified academics. The educational commons must be rescued by reversing the commodification of education

The several types of commons – spatial, civil, social, cultural and educational – are integral to a good society. They have a value in themselves and contribute disproportionately to the social income of low-income groups in society.

The primary tragedy of the commons is not what is usually regarded as the depletion by over-use by commoners. It is that successive utilitarian governments, wedded to neo-liberal economics and private property rights, have seen all forms of the commons as resources and as capital, to be turned into revenue. The austerity rhetoric has been used to accelerate the plunder of the commons. Under the guise of decentralisation, the Government has made local authorities more responsible for the commons, and then cut their budgets, leaving under-funded authorities with painful choices. Most have buckled.

This is a wilful ideologically-driven campaign to privatise, enclose and commercialise the commons. Consider just a few examples. The iconic Sheffield public library is to be sold to foreign capital, so that it can be turned into a five-star hotel. That library belongs to the people of Sheffield, and not just today’s people, who are the stewards of the commons for the generations to come. In the same city, the authorities have turned the care of public trees along roads to a private firm, which has promptly cut down thousands of trees, on commercial grounds.

What is happening to our parks is scandalous. For instance, with its budget slashed, the authorities in the Lake District, an iconic part of our commons, have put prime sites up for sale to private buyers. In the Royal Parks, bequeathed to the nation by Queen Victoria for the use by rich and poor for rest and recreation, commercialisation is being allowed, rationalised by a need to raise money for their upkeep because of government budget cuts. A result is ‘eventism’, commercial events that shatter the calm and leave the grass needing months to recover, thus denied to the commoners.

Allotments, that wonderful legacy of commons for growing fruit and vegetables, and for connecting people to nature, are under commercial siege, some being converted to car parks or sites for supermarkets. The privatisers and their rich clients have no moral right to take it away. And yet they are being allowed to do so.

Then there is fracking, denuding our spatial commons. The Energy Secretary said before the General Election in 2015 that there was ‘an outright ban’ on fracking in national parks. Immediately afterwards, the same Minister said drilling would be allowed around and under them. Shamelessly, the Government has also hastily politicised the granting of drilling licences, bypassing democratic processes. It has no right to do this. Whether or not we favour fracking (and most of us do not), this year we should make it a matter of fighting to preserve the commons.

Then there is the farce of the Garden Bridge over the Thames in London, mercifully killed by the Mayor of London. The national river is part of the commons. A bunch of privateers, orchestrated by a well-connected actress, should not be allowed to build a private bridge, much of the time to be closed to the public, and to receive millions of pounds of public money and loan guarantees to enable them to do so. That is what happened. Happily, the new Mayor has killed the project. But one would be naïve to think it will be the last of its kind.

Meanwhile, the erosion of the social commons is extraordinary, with social housing, libraries, public toilets and much else quietly being lost. Thousands of routes of public bus services have been closed, which were used predominantly by low-income people. When libraries, bus services, allotments and parks are shrunk, the social income of the precariat falls, because low-income people, particularly those in and out of short-term jobs rely on public spaces and amenities much more than the affluent, who have their private cars, gardens and second homes.

Taking away the intellectual commons has been a globalisation trick. In 1813, Thomas Jefferson said that ideas cannot be property, and yet in the current era institutional and regulatory mechanisms for privatising so-called intellectual property have been built into a fortress since the passage of TRIPS (Trade-Related Aspects of Property Rights) in 1995. Patents, copyrights, trademarks and other wheezes have proliferated, all giving monopoly income flows for many years, sucking up rental income for those perceived to own ideas.

Supposedly a return to risk-taking, many patented ideas are actually the result of generations of ideas produced by numerous people. Many result from publicly funded research, in public universities, colleges and research institutes. Many are filed with the intention of just being artificial barriers to entry, not for actual use. They are the base of rentier capitalism. In this year of the Charter that established the rights to the commons, there should be a campaign to roll back so-called intellectual property rights. They enrich plutocratic corporations that are patent hoovers, buying up thousands of patents and stringing them together to earn billions of dollars, pounds or euros.

What should have priority in this momentous year? Let us demand that every local authority identify and produce an inventory of all commons under its stewardship or the stewardship of central government. Let us demand that no piece of the commons should be enclosed, commercialised or sold without public knowledge, proper public debate and adequate time for contestation. Instead of having referenda for complex issues that people cannot be expected to understand, let us have them around simple acts of plunder of the commons.

Let us expose the false vocabulary that conceals the plunder. To call a government body the National Capital Committee is a provocative, ideological trap. The commons are not capital. The fact that the Committee was set up by a ‘business-led Ecosystem Markets Task Force’ designed to ‘harness City financial expertise to maximise revenue streams’ tells us of the commercial priorities, a shield for a plunder that must be resisted. The voice of the commoners was excluded.

Let us demand an inventory of the POPS (privately owned public spaces) that are being spread surreptiously in cities and towns, demand to know why they are being allowed and demand that they be stopped. No POPS without representation by commoners! Why should a Malaysian business consortium be allowed to turn an iconic part of London into a mock Malaysian jungle? It should be part of London, embedded in the traditions and culture of generations of its commoners.

Let us demand our urban spaces back. Think of the implications of an injunction issued barring protesters from the Broadgate Estate covering Bishopsgate and Liverpool Street. It said pompously and arrogantly, ‘The are no public rights over the common parts.’ More of our cities and towns are being denied to the commoners.

In sum, now that an ill-judged General Election has ended messily, in the second half of this year of its 800^th anniversary, let us launch events across the country to celebrate and revive the values of one of the great charters of British history.

Among them, a group of us are hiring a barge to go up the Thames to Runnymede on September 16, holding workshops on critical issues en route and then a public event under the majestic Ankerwycke yew, over 2,500 years old, surely the finest tribute to the forest and the commons one could imagine in the country. There we hope to expand on a demand that the government, of whatever complexion, should organise a Domesday Book of the Commons, to be drawn up by 2020, listing all the commons that still exist. It would act as a defence line and a point from which to advance.

[i] This typology is developed elsewhere. G.Standing, The Corruption of Capitalism: Why Rentiers thrive and Work does not pay. London: Biteback.

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This election comes during a remarkable period in British economic history. Over the past ten years real wages have suffered a larger decline than in any other advanced country apart from Greece. Mark Carney, Governor of the Bank of England, recently said that Britain is experiencing its “first lost decade since the 1860s”.

Faced with an unprecedented squeeze on living standards, families across the country have resorted to desperate measures. The number of people using food banks in the UK reached 1.2 million in 2015-16 – up from just 26,000 in 2008-09. Unsecured household debt – credit cards, overdrafts and other forms of consumer borrowing such as payday loans – is set to reach record highs.

Years of austerity has pushed public services towards breaking point. A steep decline in funding relative to GDP has left the NHS facing a “humanitarian crisis”, while cuts to school budgets have forced head teachers to axe staff and raise class sizes. Decades of underinvestment has left the UK lagging far behind other advanced economies. British workers are now 22% less productive than workers in the US, 23% less than in France and 27% less than in Germany. Precarious jobs and zero-hours contracts have grown throughout the labour market.

Now, with Brexit on the horizon, things are likely to get worse before they get better. According to the Office for Budget Responsibility, a combination of stagnating wages and cuts to working-age benefits means that real earnings will be lower in 2020 than they were back in 2008. According to the Resolution Foundation, we are on course for the biggest increase in inequality since the days of Margaret Thatcher. Never before has the outlook for living standards been this bleak.

But this period of economic decline is not the result of “natural” forces. It is the result of a faltering political and economic order that has reigned supreme in Britain for four decades. A system which has put blind faith in market forces, and tipped the balance of power towards capital and away from labour. A system which has prioritised London’s status as a global hub for financial services, while leaving other regions to suffer at the hands of industrial decline. A system which has allowed wealth to flow upwards by rewarding value extraction more highly than value creation.

In 2008 this system came crashing down when the poster boy of deregulated market fundamentalism – the financial sector – failed catastrophically, taking the whole economy down with it. But without a clear alternative to take its place, the response was to double down on a broken model.

Nearly ten years on, and the economic recovery has been the slowest on record. In fact, when measured properly, there has been no economic recovery – output per head of population still remains below the pre-crisis trend. Interest rates remain stuck at zero, while the Bank of England has relied on £435 billion of quantitative easing to keep the economy afloat. Despite the upbeat rhetoric from the government and right wing press, the reality is that Britain’s economy remains on life support.

It is within this context that the political upheaval of the past twelve months – both at home and abroad – must be viewed. If an economic model delivers stagnating living standards, rising inequality and growing insecurity, it should not be surprising when citizens revolt.

In different ways, both Theresa May and Jeremy Corbyn are symptoms of this faltering economic model. Despite backing Remain in the EU referendum, Theresa May’s reign as prime minister is a direct product of the Brexit vote. While the reasons for Brexit are complex, evidence shows that geographical distribution of living standards, industrial decline and exposure to austerity played a key role in determining how people voted.

Since becoming prime minister, Theresa May has made a concerted effort to appeal to Brexit voters. Rather than tackle the root cause of genuine fears – a failing economic model – she has played into a toxic narrative which attributes blame to immigrants. In both style and substance, Theresa May’s Conservative party is bearing an increasing resemblance to Nigel Farage’s UKIP: a party hell bent on pursuing a hard Brexit, obsessed with reducing immigration, and nostalgic for archaic remnants of a bygone era – from fox hunting to grammar schools.

But despite the rhetoric of “an economy that works for everyone”, the Conservatives’ manifesto offers nothing new in the way of economic policy. Instead, we are presented with more of the same: more cuts to welfare and public services, lower taxes for corporations and the well-off, slashing “poor and excessive government regulation” and Orwellian rhetoric around a “strong economy”.

Where new polices do appear, their effect is usually to make peoples’ lives worse, not better. The commitment to reduce net immigration to “tens of thousands” is not only steeped in xenophobia, but is an act of gross self-harm. Even the government’s own forecasters say that reducing immigration to the tens of thousands will seriously harm growth and increase government borrowing by up to £30 billion. Combined with scrapping of free school lunches, the means testing of winter fuel allowance and the now famous ‘dementia tax’, the direction of travel is a continuation of the status quo, but slightly worse.

Jeremy Corbyn’s Labour party, meanwhile, embodies the mood of discontent and a hunger for something different. After twenty years of politics dominated by spin, sound bites and triangulation, millions of people viewed Corbyn’s sincerity and honesty as a breath of fresh air. Initially written off by the political and media establishment, his resilience in the face of constant attack has gradually won over sceptics. But it is not personality or persona that is Labour’s secret weapon – it is policy.

Corbyn’s unashamedly social democratic manifesto represents a marked departure from the politics of recent decades, and contains many sensible policies. A new National Investment Bank would provide long-term patient finance to upgrade physical and social infrastructure across the country. Taxes would be increased on the wealthy to pay for struggling public services. Key utilities would be brought back into public ownership, student tuition fees scrapped, corporation tax increased and workers’ rights strengthened.

Unsurprisingly, the right wing press decried that the manifesto would “drag us back to the 1970s”. But none of Labour’s flagship policies are remotely controversial in Germany, which is the most productive and dynamic economy in Europe, or in the Scandinavian countries, which consistently sit at the top of global rankings on socio-economic development. The hysterical response from the media shows just how detached Britain has become from the mainstream of European economic thinking.

Labour’s proposal to double the size of the co-operative sector – supported by the introduction of a “right to own” policy – is a bold and ambitious way to reinvigorate enterprise and democratise ownership of capital. The proposal to break RBS up into a network of local public banks would create the kind of mid-tier banking system that is the lifeblood of Germany’s industrial power. The pledge to utilise the public sector’s £200 billion spending power in procurement to help create good local jobs, protect the environment and reduce inequality could be transformative. The promise to introduce a financial transaction tax would put a break on harmful financial speculation, and help return finance to its rightful place as the servant, not the master, of our economy.

Many commentators have been quick to judge party manifestos on the basis of whether each individual policy measure has been “fully costed”. Journalists get excited about the prospect of tripping up politicians with questions about “where the money will come from”. Unlike the Conservatives, Labour made a noble attempt to the cost their manifesto. But as many economists have already pointed out, obsessing over specific policy “costings” may be good journalism, but it is bad economics. It makes little sense to obsess over whether each item of addition spending is matched to a measure to raise additional revenue, because this is not how government spending actually works.

Moreover, assessing individual policies in isolation overlooks the dynamic interactions which determine the health of the economy. Taken as a whole, Labour’s manifesto would reboot the economy by kick starting the positive feedback loop between investment, productivity, wages and tax revenues. It would also help to rebalance the economy away from London and towards other parts of the UK.

But while Labour’s offering is a welcome step in the right direction, it is no panacea. There are many areas for improvement. Addressing the housing affordability crisis means not only building more homes, but fixing our broken land market. An ageing population and growing intergenerational needs a bolder approach to social care and inheritance. Moving towards a low carbon economy requires a systematic greening of the economy, not just targeted investment. Automation, big data and the changing nature of work demands a more radical rethink of welfare policy, and a more sophisticated debate about ownership in our economy.

The media has failed to engage in this debate, or even acknowledge the scale of the challenges we face. That’s why at openDemocracy we are bringing people together to get to grips with the long running economic crisis unfolding in Britain, and figure out a new economic programme.

Join the conversation, and help us build an economy to meet the challenges of the coming century.

The post We have a real choice between different economic futures appeared first on New thinking for the British economy.

Robin Murray who died late on Sunday exuded vigour and hope. And he inspired those around him with his spirit. Maybe as a resuIt I find myself resisting the sadness which threatens to overwhelm me now that he is gone. The tears well, but they refuse to flow. He was not one for a passive response of any kind. The only respite is to ring common friends for mutual comfort: Stephen Yeo, the historian of the co-operative movement in which Robin had a passionate interest. Carlota Perez, whose far reaching theory of technological change and its connection with financial crisis he hugely admired and with whom he collaborated at the LSE. Mary Kaldor, the radical and original theorist of war and of movements for peace with whom he taught Marxist economics at Sussex university. “We didn’t always agree” she says, “but he loved debate”. My niece Jessi, who joined ‘Murray breakfasts’ after a swim at the London Fields Lido in Hackney for which Robin and his beloved artist wife Frances, campaigned after the nearby Haggerston baths were closed.

People and ideas, the lived and the meaning of life. Their connection was never lost in anything Robin did or said. Even as he lay breathless with the terminal lung disease which led to his death, and under firm medical advice not to talk too much, he could not contain his passion for both people and ideas. The energy of their relationship was his life force. He could not imagine living without talking about both, between sucking the means to do so from his oxygen machine. One evening’s topic were the ideas of Allende’s cybernetics advisor Stafford Beer and, more generally, the idea of the economy as a nervous system. At the same time, Robin’s starting point was always the health of the cell in its environment, the dynamics of the particular. He was forever fascinated by exemplary initiatives and how they worked, the conditions for their success. So, between breaths, the conversation would turn to the burgeoning Japanese consumer co-operative movement. Or to the co-operative shop in his original home county, Cumbria, to which even as his illness advanced, he devoted inordinate effort.

Above all, he was perennially fascinated by people’s personal stories, especially the stories of the young people in his family or helping with his care. The stories from his talented daughter, Beth and her Italian boyfriend Gianluca, of a visit to Gianluca’s olive growing family in northern Italy, and of exactly how his father harvested and sorted the olives. Or of how my niece Jessi proposed to her boyfriend in a tent during a hike across a Himalayan pass. “I asked her to describe the exact moment”. He said afterwards. He lived for the moment as his illness took hold. But his irrepressible curiosity about what moments were important for other people was, throughout his life, one of the qualities that made him so universally loved.

Our most thrilling moments together were when he was appointed to lead a small band of economic guerrillas who were brought into the GLC by Ken Livingstone in 1981; along with John McDonnell and the Chair of the Industry and Employment Committee, Michael Ward. Our brief was to draw up and help implement the London Industrial Strategy. Robin was a wonderful leader. He had the self-confidence to permit creative autonomy for diverse groups of us within the 70 or so strong Industry and Employment Department. At the same time he used the power of hierarchy to move against enemies of change – like the senior official who was determined to sabotage the Industrial Strategy in its early days. I led the Popular Planning Unit and although a few eyebrows were raised at our proposals – for example for the GLC to buy (unsuccessfully as it happened because of Tory government opposition) the Royal Docks in order to implement the People’s Plan for the Royal Docks (a community plan for an alternative to the City Airport) – Robin gave us constant encouragement. The politicians, Mike Ward along with Livingstone and McDonnell, won the space for new thinking. Robin was the ideal person to make full use of it and recruit a team to grasp every opportunity we could – and push them to the limit.

And what a team! Robin was immensely proud of colleagues like Mike Cooley, the brilliant design engineer who was one of the inspirations behind the alternative plan for socially useful production drawn up by the Lucas Aerospace Shop Stewards in the 1970’s. This in turn became one of the beacons guiding our work at the Popular Planning Unit. Sheila Rowbotham was another inspiring member of the team, who worked with women’s groups across London to draw up a London wide plan for child care – part of the innovative ‘Domestic Care’ section of the Industrial Strategy. John Palmer, ex-European Editor of the Guardian became the publicity director and a member of the board of the Greater London Enterprise Board (GLEB). Many more received a transformative, practical education: Geoff Mulgan, Ken Worpole, Marj Mayo, John Hoyland, Bob Colenutt.

With poetic licence, one could say we worked like a combination of a jazz band, integrating structure and improvisation and a guerrilla band, agile but with an unrelenting focus on the enemy: big corporate capital and the Thatcher Government (and sometimes, bureaucratic sabotage within County Hall). The guiding purpose was set out in the London Labour Party’s manifesto, whose radical principles we were employed to implement, and more important still, Robin’s overarching understanding of the transition underway in the capitalist economy in London as elsewhere – as the principles of Fordism faced crisis and challenge. He argued that the features that made for the Fordist goal of ‘economies of scale’ – standardised products, mass, flowline production, fragmented tasks controlled by management with little if any autonomy for workers creativity or discretion – were being abandoned under the pressures of workers revolt, demands for deeper democracy in state organisation and more differentiated, sophisticated consumer demand in favour of what he called ‘the economies of scope’. This meant a shift towards economies coming from an integrated product range from which customers choose their own basket of products. In the process, innovation and design becomes more important, and a flexible workforce becomes desirable. The post-Fordist bargain offered security in return for flexibility – in contrast to the Fordist bargain of high wages in return for obedience to the discipline of the production line.

But post-Fordism did not mean one single inevitable outcome of a skilled, well-paid and willingly flexible workforce. This is where Robin’s creative Marxism and his understanding of struggle and of a political choice came in. He saw it as choice between a Japan-style model, in which security in exchange for flexibility applies only in the small core of the economy and workforce flexibility on a widescale is achieved through mass insecurity. This was to lead on to the precariousness that is now all too prevalent within Thatcher’s post-Fordist world. Or, on the other hand, networks of social industrial institutions, decentralised, innovative and entrepreneurial, supported by a state organisations that plays the role of strategist, innovator, coordinator and supporter of producers, on the model of Northern Italy and parts of Southern Germany. Added to this, argued Robin, should be greater user/ community control and internal democracy in public administration to move away from a mass-produced administration towards a participative, responsive state.

Thus, whereas nationally the left response to deindustrialisation and the decline of Fordist manufacturing has been in terms of macro policy: devaluing the pound, controlling wage levels and expanding investment, with industrial strategy taking second place, Robin saw the opportunity of using the GLC’s considerable budget for investment and public purchasing and the land use powers and property ownership to develop exactly the detailed local industrial strategy which might expand the co-operative and social sector of the economy, creating skilled and fulfilling jobs and the local, targeted investment and integrated sectoral strategies which had worked well in regions of Northern Italy and Southern Germany.

It was in this detail that there was improvisation. Robin encouraged the various units of the Industry and Employment Branch to experiment with different kinds of intervention, collaborating as we worked. So, while in Popular Planning we worked with furniture workers developing their plans for the industry, others would be researching the trends in the furniture sector and yet others at GLEB, would be negotiating with furniture employers wanting investment funds; insisting with these employers that such funds were conditional on negotiating with the union over their worker developed alternatives. Had Robin been allowed to build on his strategy, London today would be a world centre not just of furniture design but of its manufacture.

In all this Robin’s understanding of the specific combined with his grasp of the theoretical meant that he could guide the implementation of strategy in a manner that was rooted in the actual relations of production in London in the early 1980’s. His was a rare and a precious practical intelligence and far-sighted mind.

He also thrived on actually having power, albeit the limited power of a large local strategic authority, to carry out the strategies on which previously he had only advised – as an academic at Sussex University’s Institute of Development Studies.

He also enjoyed a distinctive upper class confidence – without any hint of arrogance or presumption. He was the grandson of two members of what could be called ‘the dissenting posh’ Lady Carlisle a radical Quaker member of the Castle Howard aristocratic dynasty and the liberal classicist professor Gilbert Murray. He had been sent to Bedales – a co-educational boarding school for the progressive upper-middle class – with the egalitarian democratic ethos, and became head-boy. Frances was head girl and they formed a lifelong relationship.

At the same time influenced by the ‘spirit of ’68’ and active, again with Frances, in grass roots social movements  he had the social capacity and desire to make good a far-reaching political and strategic challenge. It was a potent combination. Together with Mike Ward he had no hesitation in challenging capital and bureaucracy wherever it blocked radical change, at the same time as opening the space for popular participation. Crucially, there was not an iota of paternalism, or presuming they knew what the populace were presumed to need. He set out on a path of socialism without Labourism and its upper class Fabian elitism. As Norman Tebbit said threateningly on the eve of the GLC’s abolition: “this is modern socialism and we intend to kill it”.

But it lives on. For it is not surprising that Robin’s four years of intense work, halted by Margaret Thatcher’s act of political vandalism in 1986, should have produced a wealth of ideas from which John McDonnell has been able to draw for Labour’s persuasive manifesto that just could on June 8th, finally put an end to neo-liberalism nationally as Robin’s London Industrial Strategy sought to defeat it in London.

This is just one way in which Robin’s legacy of hope will live on with us and through us. In the intervening years, to give just one example, his restless and inventive energy pioneered twin trading and created the Fair Trade network that supports tens of thousands of small farmers in developing countries. He lives on, he cannot but live on, and this is why, in spite of the sadness that this remarkable man with his indominatable spirit and generous enthusiasm is no longer physically part of our lives and no longer welcoming us with Sunday breakfast, tears will continue to well but not easily flow. Instead, his life and ideas continue to live.

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The economist Steve Keen was one of the few to predict the 2007/8 collapse. We interviewed him about how to avoid the next one.

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For most of the last decade, I’ve been a reporter, covering stories on how technology is reshaping public life, from debates about God to protests in the streets. One thing I’ve noticed is that Internet culture has an odd way of using a really important word: democracy. When a new app is said to be democratizing something – whether robotic personal assistants or sepia-toned selfies – it means allowing more people to access that something. Just access, along with a big, fat terms of service. Gone are those old associations of town meetings and voting booths; gone are co-ownership, co-governance, and accountability.

Words are the tools of my trade as a writer, so I like to have a handle on what they mean. We rely on them so much. They connect us to each other; they remind us what we’re capable of. And I hope that the Internet can help us make our definitions of democracy more ambitious, rather than redefining it out of existence.
In late 2014 I was reporting a story about Amazon’s Mechanical Turk platform, a website where users can find entirely online piecework – jobs that might take between seconds and hours, like transcribing a receipt, providing feedback on an ad, or taking a sociological survey. I went to Trebor Scholz’s Digital Labor conference in New York, which included real-life Mechanical Turkers. One was a wife whose husband lost his job, for instance; another was a former cable technician. I heard them describing what working on the platform is like. Employers can review them, but they can’t review employers. Their work can be rejected with no remuneration or recourse. There are no constraints to prevent below-minimum-wage pay. One of them complained in the media and her account was frozen.

Over the course of those days, a kind of question kept coming up among the Turkers, a thought experiment. They wondered aloud: What if we owned the platform? How would we set the rules?

They’d sit with that for a minute or two, batting ideas back and forth about how to make the platform better for themselves – and for Amazon. Reasonable ideas. Clever ones. But then the ideas would fade back into reality again: back to the complaints.

Since then the agonies over the dictionary-altering Internet have only intensified. People have blockaded Google Buses to protest wealth inequality in San Francisco, and Uber drivers have gone on strike around the world. Increasingly this online economy is becoming the economy – the way more and more of us find jobs, relationships, and a roof over our heads. Internet companies aspire to network and monetize everything from our cars to our refrigerators; the companies call this the “Internet of things.” But the Turkers’ questions have kept coming back to me.

Were they on to something? What if the platforms and networks really were ours? What if we had an Internet of ownership?

Real sharing, real democracy

Another word that the Internet has gotten to is sharing. Sharing used to mean something we do with the people we know and trust. In the so-called sharing economy, it means more convenient transactions that take place on distant servers somewhere. Convenience is great, but all along there has been a real sharing economy at work, the cooperative economy.

One can trace the modern cooperative movement to the Rochdale Principles of 1844, in England, though it had precursors among ancient tribes, monasteries, and guilds around the world. The rudiments of this stuff could be basic common sense: shared ownership and governance 16 among people who depend on an enterprise, shared profits, and coordination among enterprises rather than competition.

We might not know it, but co-ops are all around us. In Colorado, where I live, 70 percent of the state’s territory gets its power from cooperative electric companies that date to the 1930s and earlier, owned and governed by the people they serve. The credit union where I’m a member is one of the top mortgage lenders in the region. Up in the mountains west of me, some years back, a group of neighbours started their own co-op Internet service provider. There’s also Land O’Lakes, Organic Valley, and REI.

Co-ops come in all shapes and sizes. They fail less than other businesses, and they often pay better wages (except to top executives). Democracy, it turns out, works – though it can be less lucrative for those just trying to get rich. People in charge are harder to swindle.

I lived in a co-op house once; it followed a certain dirty, organic, folk-music-every-night stereotype. The same couldn’t be said, though, for what I saw at Kenya’s business school for managers of cooperatives. There, co-ops hold about half the GDP, and those students looked like business students anywhere – except that, along with all the marketing and case studies, they were also learning how to run a company where the people who work for you are your bosses. In the area around Barcelona, among the thousands of members of the Catalan Integral Cooperative, I got a glimpse of what twenty-first-century cooperatives might look like. Rather than securing old-fashioned jobs, these independent workers help each other become less dependent on salaries, and more able to rely on the housing, food, childcare, and computer code they hold in common. They trade with their own digital currency. In cases like this, the traditional lines between workers, producers, consumers, and depositors may become harder to draw.

Part of the cooperative legacy has played out in tech culture already. The Internet relies on free, open-source tools built through feats of peer-to-peer self-governance, like Wikipedia and Linux. Visit many tech offices, from a startup’s garage to the Googleplex, and there are self-organizing teams creating projects from the bottom up. Yet somehow this democracy doesn’t seem to make it to the boardroom; things are still pretty twentieth-century corporate in there, with whoever happens to own the most shares calling the shots. There’s a firewall. We can practice democracy everywhere, it seems, except where it really matters.

There are some pretty sci-fi questions before us these days: Will apps and robots replace our jobs? Will any aspect of our digital lives escape the notice of surveillance? Can there be a digital utopia without the dystopias of sweatshops and blood minerals? In each case the cooperative tradition poses necessary questions, which in the onrush of change we may neglect to ask: Who owns the tools we live by, and how are they governed?

Platform commons

Cooperative enterprises of the past and present have relied on two kinds of strategies to gain a foothold in economies and cultures premised on competition. One is the competitive advantage to be found in cooperation – the ability to succeed where conventional markets fail, for instance, and the power latent in solidarity. The second is when the rules of the system are changed to support more cooperative practices – especially through governments that see the value of cooperative enterprise enough to encourage and fund it. For platform cooperativism to flourish, I suspect we need both of these.

We can begin by identifying the competitive advantages of cooperation. Cooperative practices, for instance, are poised to thicken the notoriously loose ties that online connectedness normally offers. And as big tech companies continue having difficulty treating workers and users as – well, people – co-ops can offer positive, ethical alternatives that workers and users can turn to. Hybrid models – combining aspects of a conventional company with aspects of cooperative ownership and governance – seem promising in the short term. Yet the rules of the system remain very much tilted against cooperativism.

This needs to change. Governments should recognize that cooperative platforms will mean more wealth staying in their communities and serving their constituents. Rather than trying (and failing) to say “no” to the likes of Uber, platform co-ops are something public institutions can say “yes” to. We need laws that make it easier to form and finance co-ops, as well as public investment in business development – stuff that extractive businesses get all the time.

This also means thinking differently about the incumbents. The Facebooks, Googles, and Ubers aren’t just regular companies anymore. Their business models are based on how dependent so many of us are on them; their ubiquity, in turn, is what makes them useful. They’re becoming public utilities. The less we have a choice about whether to use them, the more we need democracy to step in. What if a new generation of antitrust laws, instead of breaking up the emerging online utilities, created a pathway to more democratic ownership?

Rather than donating Facebook shares to his own LLC, Mark Zuckerberg could put them into a trust owned and controlled by Facebook users themselves. Then they, too, could have a seat in the boardroom when decisions are made about what to do with all that valuable personal data they pour into the platform – and they’d have a stake in ensuring the platform succeeds. How would you vote?

These aren’t just questions about what kind of Internet we want, or even what kind of world we want; they’re about how we see ourselves. Do we trust ourselves enough to expect democracy from the institutions on which we rely? Are we bold enough to imagine, as the Mechanical Turkers were, what the Internet would look like if we were in charge?

Thirty years ago, when the Internet wasn’t much more than a lab experiment, the social critic Theodore Roszak saw a lot of this coming. “Making the democratic most of the Information Age,” he wrote in The Cult of Information, “is a matter not only of technology but also of the social organization of that technology.”

We forget that. New gizmos come and go so quickly that we hardly notice when the meanings of our words change, and when what we 19 expect of ourselves changes with them. Ordinary people have already made the Internet their own with their hacks, their memes, their protests, and their dreams. The cost of forfeiting control over these things is too high, and too mysterious. We need to expect better, to demand more. It’s time that we own and govern what is ours already.

This is an extract from Ours to Hack and to Own: The Rise of Platform Cooperativism, a new vision for the future of work and a fairer internet, edited by Trebor Scholz and Nathan Schneider and published by OR Books

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Unless you’ve been living in a hermetically sealed bubble, you can’t have failed to notice that this week the government triggered Article 50. Unfortunately for transport campaigners, that event overshadowed the Bus Services Bill, which went through its third reading in the commons with little fanfare on Monday. But put the two together, and we have a nice snapshot of the May government and its approach to local democracy, which shows just how hollow the idea of ‘taking back control’ really is.

For those who haven’t followed it closely, the Bus Services Bill includes a clause that would ban councils from setting up new public bus companies to provide bus services. This completely undermines the powers of general competence enshrined in the Localism Act, which is supposed to guarantee that councils can do anything they like as long as they can do it well. (And councils do provide great bus services: the winner of the Best Bus Operator at the UK Bus Awards has been a council-run for 4 of the last 5 years).

It is deeply ironic then, that in the same week that the government ‘took back control’ from the EU, it takes away the powers of the very organisations that are closest to voters – local councils.

And yet these two events – one full of pomp, the other prosaic – provide a nice snap shot of May’s government so far: concentrating power in the central government (and within that the executive, not least through the Henry VIII clauses), and all whilst ignoring the other institutions of democracy that are closer, or closest, to voters: local councils and the devolved administrations.

Of course, the financial pressures councils are under as a result of the cuts are so great that we would be surprised if many councils actually tried to set up a new bus company at the moment. But that doesn’t mean it’s ok to take that right away. That’s why 15 councils and countless councillors supported our campaign against the ban: it takes away their powers, which the government should be protecting.

If there is a local democratic mandate, or if private bus operators fail to provide decent services, councils should have the power to take matters into their own hands. Places like Bristol have ‘dreams’ of setting up a municipal operator, and other councils in the south west have thought about doing it to help them run the new regional MetroBus scheme. These dreams will be dashed.

This arbitrary limitation of council powers comes as new research by the New Economics Foundation shows that people feel they have little control of their public services or their local councils. But with moves like this, as well as the imposition of the Sustainability and Transformation Plans in the NHS, this is unlikely to change. In fact, it will just get worse.

Real control needs a vibrant, and empowered, local democracy. But the reality is that we’re getting the opposite – and it’s designed that way. In his excellent piece in the London Review of Books late last year, Tom Crewe describes the ways that over the last 35 years we’ve witnessed “the gradual but inexorable encroachment of central government on the autonomy of local government.” Which, leaves “the gap between the public and their government to be bridged by private companies, if at all.” The Bus Services Bill is one small piece of this wider picture.

Not everything in the Bus Services Bill is bad. Much of it is designed to give more authorities the powers of franchising. This is a bit of a half-way house, giving councils more say over prices, routes etc, whilst still being run by private bus companies. It basically means that more local authorities can copy London’s first rate bus system, which is run by franchising rather than the fully deregulated private system that much of the country creaks under.

But here again the government could have done more to support local democracy, and give people ‘control’. Instead they chose to overturn the suggestion made by the House of Lords that they should extend the franchising powers to all local authorities, rather than just their pet Mayoral authorities. This means that if you live in Newcastle (no Mayor) your council won’t be able to move to a franchised bus system, like they will in Manchester (mayor), and you’ll miss out on better services and/or lower fares.

Through this snapshot – forcing through the ban on councils setting up bus companies, and in refusing to extend franchising powers to all local authorities – we can see the sort of state Theresa May is creating. It’s one with little place for local democracy, or real ‘control.’ It’s one where control is getting funnelled upwards, quickly.

What would May’s ‘hero’, Chamberlain, make of all of this? Quite clearly, he’d be perturbed. Chamberlain was not only a great believer in local democracy – “I am inclined to increase the duties and responsibilities of the local authority, in whom I have myself so great a confidence” – but he was also opposed to monopolies, which is in effect what many bus services are. He even went so far as suggesting that all monopolies should be in the hands of “representatives of the people… and to them should their profits go.” A far cry from where May is heading on the Brexit Bus of hollow promises.

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Ten years ago, on 2 April 2007, the US subprime mortgage lender New Century filed for bankruptcy in a Delaware court. It was an obscure first domino to fall. But one and a half years later, Lehman Brothers was insolvent, and global finance on the brink of meltdown.

Whole bookshelves have been filled with the analysis of the crisis that followed. In essence, too much bad debt had accumulated in the system; on top of that, an impenetrable layer of derivatives had supercharged financial risks; and public regulators had been asleep at the wheel.

You would think that, armed with those lessons, we would have vanquished system instability. But in its Global Financial Stability Report last fall, the International Monetary Fund warned that medium-term risks were rising once again. Market sensitivity – essentially, anxiety among traders – breached levels we hadn’t seen since 2009.[1] Deutsche Bank’s wobbles last autumn were eerily reminiscent of the hot crisis years. Why is financial fragility still with us a decade after it burst into the open?

First, the financial weight that our economies had grown before the crisis is still there – or rather: it’s back. The immediate post-crisis shrinkage of the financial sector was like a cleansing diet after gluttony. But the needles of many economic scales are moving in the wrong direction once more.

According to the World Bank, the worldwide level of domestic credit to the private sector – households and non-financial firms – has roughly reached the level of 2006 again.[2] In the US, it has increased by 10 percentage points of GDP since the post-crisis trough in 2011.[3] Public debt burdens in many countries, especially in Europe, still hamper economic recovery.

Over-the-counter derivatives, the principal villains in many crisis accounts, are also thriving: the notional trading volume of OTC interest rate derivatives, for example, has risen enormously since 2007, from roughly $1.7 trillion a day to more than $2.6 trillion a day in 2016.[4] The repackaging and –selling of mortgages had collapsed in the wake of the crisis and never recovered. But at least in the US, the rest of this so-called securitization market has not budged much since 2007.[5]

Risk that disappeared from one corner of the financial system frequently re-emerged elsewhere in some distorted form. For example, regulators have forced derivatives dealers to set aside risk buffers for trades. That has pushed deals onto well-lit market platforms. But it has also encouraged traders to compress multiple deals into a single one, so that risks remain unchanged while the on-paper value sinks. (Much like there is more alcohol distilled into a one-liter brandy bottle than in the original wine.)

This moving-risks-around pattern holds for our economies as a whole, as well. Mortgage defaults turned outsized private debt into losses for banks, which were bailed out by taxpayers and governments, which in turn were propped up by ultra-cheap money. That has not resolved the excessive debt problem, either. Instead, it has inflated asset and stock prices in defiance of lackluster economic growth. And it has eroded real returns and put a dangerous squeeze on insurance companies, pension funds and other investors, both big and small.

The continued preponderance of finance in our economies wouldn’t be so worrying if regulators had finally found means to tame the beast. A key lesson of the crisis, after all, was that herding made individual risk assessments fallible. What made sense for isolated traders could be disastrous for system stability. Ergo, public authorities had to retake the reins. Risk assessment was too complex and consequential to leave the calculation of capital buffers to banks or default probabilities to private credit rating agencies.

Alas, regulation has proven incapable of stamping out financial volatility. From accounting standards for derivatives to risk weights for sovereign debt – that private firms failed to gauge prices and risks properly didn’t mean that public authorities would fare any better. The crisis revealed that valuation routines are never foolproof. So public authorities understandably shied away from forcing mechanistic risk models onto markets – lest they would take the blame when eventually things would inevitably go wrong.

Where does this leave us? The past decade has taught us that we should not wait for debt mountains and finance to shrink just by themselves, for risks just to disappear from the system, or for regulators to serve us a silver bullet with which it can be contained. All sorts of trickery – from special purpose vehicles to bad banks, accounting tricks and rock-bottom interest rates – can put an overburdened financial system on life support.

But to heal our financial systems for good, we need to add a powerful new instrument to our tool kit: debt forgiveness where no reasonable alternative exists – whether in Greece, on bank balance sheets, or in the private sector. There is an upper limit on the debt that can slosh around the global economy before it starts wreaking havoc on debtors, creditors, and everyone else.

Back in April 2007 New Century CEO Brad Morrice presaged that, even though his company had faltered, “the non-prime sector”– code for shoddy debt – “will remain an important part of the American economy”.[6]  Unfortunately, we have yet to prove him wrong.

[1] IMF, Global Financial Stability Report, October 2016, p.6.

[2] http://data.worldbank.org/indicator/FS.AST.PRVT.GD.ZS

[3] http://data.worldbank.org/indicator/FS.AST.PRVT.GD.ZS?locations=US See also here: http://bruegel.org/2016/10/private-sector-debt-matters-and-better-data-means-better-policy/

[4] http://www.bis.org/publ/qtrpdf/r_qt1612f.htm

[5] http://www.sifma.org/WorkArea/DownloadAsset.aspx?id=8589959663

[6] http://www.reuters.com/article/us-newcentury-bankruptcy-idUSN0242080520070403

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On Budget day, Ed Mayo has a proposal for the Chancellor: cut controversial tax breaks for high earners and invest in co-operative ownership that will help create the inclusive economy the government says it wants.

The welfare state has not gone away, but it has been redirected. Some commentators say that tax cuts on capital gains, coupled with generous allowances, have acted as a line of welfare support for senior executives. They have also helped to fuel pay inequalities.

In Co-operatives UK’s submission to the Treasury for today’s Budget we have turned a spotlight on some of the allowances that have been running, and how the money could be better used – to widen business ownership and share profits more inclusively.

One is the Employee Shareholder Status, which has been primarily used for tax planning by high earners, rather than a scheme to spread employee ownership in a co-operative way to all of the workforce. In the Autumn Statement, late last year, the Chancellor, Philip Hammond agreed to suspend new entrants to the scheme and to bring forward plans to close the loophole completely. Over the next five years, this will save £115 million in welfare payments to the wealthy.

A second is Company Share Option Plans and a third is the Enterprise Management Incentive, which together award £220 million a year in tax breaks to just 40,000 high earners. These are expensive and exclusive schemes that benefit less than 1% of the workforce.

If they were all abolished, together that would release over £1.2 billion over five years. This is money that could be invested in a far more democratic way, with the same underlying goal of encouraging business ownership.

Here is the billion pound proposal that we are making: these funds should be reallocated to create a UK Employee Buyout Fund and a Co-operative Entrepreneurs Programme.

The Employee Buyout Fund is designed to address the growing challenge of business succession, in the context of Brexit. The option of foreign investment when home grown firms get to a certain size has long carried the risk that capital and employment will end up being offshored. But if foreign investment dries up, the need for a solution to the succession and growth challenges of thousands of firms each year becomes an urgent one.

The second proposal is a Co-operative Entrepreneurs Programme and is designed for a different group, which may get left behind in the economic shifts around Brexit. This progamme would be designed to help entrepreneurial people on low and middle incomes, coming together to own and control their own livelihoods through co-operatives and social enterprises.

There is already a working version of this – The Hive, a business support programme for co-operatives, which we run in partnership with the Co-operative Bank. It operates at a far smaller scale, but has already supported 100 co-ops to start or grow over the last year, with 150 more in the pipeline.

These are co-ops like Leeds Bread Co-op. They formed in 2012 as a worker owned business to create decent work and to provide people across the city with high quality bread. With just two members of staff five years ago, the co-op now employs 16 people, bakes over 5,000 loaves a week and delivers to more than 60 businesses around the Leeds area.

Or co-ops like Choices4Doncaster, a group of micro-providers of social care which have come together and formed a co-op of small organisations that can offer a personal and responsive service able to compete with larger players. In a chronically under-funded sector, it is creative and co-operative approaches to care such as this that can make all the difference.

Or co-ops like Harcourt Pre-School, a well-loved nursery in Bristol. When its owners decided to sell-up the staff feared their jobs and a valuable community resource was at risk and so, rather than waiting on the side-lines, set up a co-op in order to buy and run the nursery themselves together.

The co-operative sector is strong, dynamic and resilient – twice as many co-operatives survive the difficult first five years than other businesses. With more support available we could see far more people benefiting from co-operative ownership.

There is a benefits cap for those in need, which is expected this year to affect around 88,000 households across the UK. Is it a good time now to cap allowances for those who are well off, and redirect the resources towards a more inclusive economy? It is a billion pound question.

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Toby Lloyd from Shelter, and Josh Ryan-Collins and Laurie Macfarlane from the New Economics Foundation have a new book out helping us get to grips with what’s gone wrong and how to fix it. I had a chat with Laurie in the NEF offices to find out more – enjoy.

The post Podcast: to rebalance Britain’s economy, we must rethink land and housing economics appeared first on New thinking for the British economy.

As health campaigners, we’ve been researching and discussing what to do about PFI for several years now. Having the new Royal London on our doorstep, and with struggling Barts Health NHS Trust paying out £2.4m a week in unitary payments to Innisfree and Skanska, PFI is way up our campaign agenda.

But, until now, we haven’t come across a solution we could wholeheartedly support. However you look at it, the most widely-discussed options – renegotiation of the contracts, centralisation of NHS debt and buy-outs – all have serious flaws. But now we think there’s a solution – and it could be applied to all PFI deals, not just in the NHS.

Let’s nationalise Special Purpose Vehicles

If we’re serious about taking back the public sector, we need to challenge the PFI model in its entirety. We could do this by nationalising the companies, known as ‘Special Purpose Vehicles’ (or SPVs), that have been set up to operate the PFI contracts.

Unlike any of the other ‘solutions’ to PFI, this would allow us to take back control over public assets from private finance companies. It would put an end to the securitisation of public assets like hospitals. They could no longer be used to create inflated debt and profits.

What’s wrong with the other proposals?

• Renegotiating contracts: PFI contract holders have no incentive to renegotiate or abandon them. There’s no danger of default through bankruptcy, because PFI debts are guaranteed by the government. By contrast, nationalising the SPVs would cut through many of the contractual difficulties and come without costly renegotiations or buy-outs. Plus, we’d get back control over our public assets.
• Centralising PFI debt: Shifting responsibility for repayments to the Treasury might relieve hospitals in the short term, but it fails to challenge the PFI model or stop new PFI projects. It would leave our hospitals in private hands and other PFI deals, including those for schools, housing and social care, intact. Importantly, there would be nothing to stop the government from selling on the debt – as it plans to do with part of the student loan book.
• Buy-outs: Buying out existing contacts might return assets to the public sector, but a study of the Hexham buyout proves you can end up saving little.

Why target Special Purpose Vehicles?

Special Purpose Vehicles are central to the PFI process. They are set up by the consortium that wins the PFI contract. The consortium typically consists of a construction company and an investment company.

Loans to pay for the PFI project are raised through the SPV: 90% raised through the bond markets (‘senior debt’) and 10% raised as equity loans (‘junior’ or ‘subordinate’ debt’) direct from the equity holders – the companies behind the SPV.

The hospital or other public body pays a regular unitary charge to the SPV, which has two elements.

• The ‘availability’ charge, which repays the debt, the principal, a nominal rent for leasing back the asset and ‘lifecycle costs’ to maintain the value of the asset – around 60% of the unitary charge.
• The ‘service’ charge for services like maintenance, portering, catering and laundry that are bundled in to the contract – around 40% of the charge.

How SPVs profit at our expense

Drop the NHS Debt and People vs Barts PFI have studied the profits made by the main shareholders in the SPVs for The Royal London, Lewisham, Queen Elizabeth Woolwich, Princess Royal and Bromley Hospitals. We found eight ways that excessive profit is being extracted from our frontline services and withheld from the public sector.

1. Equity holders receive 10-15% interest on their loan to the project (while senior bondholders are typically repaid at LIBOR + a given percentage + RPI).
2. They get dividends from any profit made by the SPV. These can be substantial because there’s often a big difference between amount a hospital pays for a service and the amount the SPV pays the contractor.
3. They get various directors’ fees and ‘administration’ charges.
4. They can sell on their equity – with the average annual return running at 29% between 1998-2012. These gains are not shared with the hospital.
5. They can refinance the original 90% to get cheaper loans and are allowed to pocket 50% of the gain. (But, in practice, only half of the gains anticipated for the public sector have materialised, because of the way refinancing has been defined in the code of conduct.)
6. Service providers under the contract make profits – in some cases, providing sub-standard services, while cutting wages and jobs.
7. SPVs benefit from having public bodies locked in to long service and finance contracts, which are hard to break. Just five companies are now sole or major equity holders for more than 50% of the capital value of PFI projects in the health sector.
8. And, surprise surprise, many equity holders and SPVs are registered in tax havens.

PFIs aren’t just bad contracts or examples of privatisation, they are emblematic of the global trend towards financialisation. PFIs are a tool to harness our public assets as investment vehicles for accumulated capital, in order to maximise private profit. If we’re serious about protecting public services like our NHS from the excesses of neoliberalism, surely we have to do more than just pay up in a different way?

How we propose nationalising SPVs

1. An Act of Parliament could nationalise all SPVs as a matter of principle, or a series of Acts could be passed as individual debts became unsustainable. The Act would set out how much it expected payments to reduce.
2. A national body could be created to own the assets of the SPV companies. It could operate like the German government’s ‘Treuhand’ agency in reverse.
3. The national body would:

• pay all dividends and directors’ fees paid back to the public body making the unitary payments
• return any service profits to the public body (or let the service provider keep them in return for higher standards and better wages and working conditions for staff).
• transfer ownership/control of the assets back to the public body, and
• negotiate compensation.

The above would remove every opportunity for future profiteering.

What about compensation?

The amounts of equity invested are small relative to the size of the project. They could be compensated for in full for simplicity and speed. Negotiations on compensation for loss of revenue would take into account the fact that this revenue is a profit on turnover. The senior debt could be compensated through a bond swap – bonds in the PFI loan would be swapped for government bonds.

And furthermore, compensation for the 10% of the total loan provided directly by the equity holders would depend on the amount of interest already paid. A variety of possible ways to offer compensation could be considered.

How we could start to take back services

In addition, to take back services privatised under the SPV, we would favour legislation to set minimum service conditions for all public sector workers – whether employed directly by the public sector or not.

Zero hours contracts would be illegal, levels of training for all cleaning, catering and maintenance staff would be set, and wages should be set at levels where it is possible to live without claiming any benefits. Firms that failed to comply could be compulsorily purchased.

This legislation would make services a lot less profitable. Private service providers might just walk away – an ideal end to a less than ideal chapter in NHS history.

Let’s talk

We hope you will read the full paper, which sets things out in more detail. With the NHS in such dire financial straits and with a new-look Labour Party that has vocal critics of PFI at the helm, we think there has never been a better time to sort out this appalling mess.

We would like to thank Dr Helen Mercer for developing this new approach to ending PFIs, as an active member of People vs Barts PFI and Drop the NHS Debt. Also, Dexter Whitfield for invaluable comments and advice.

The post Private Finance Initiatives are disastrous for the NHS. Let’s nationalise the assets, not the debt appeared first on New thinking for the British economy.

Ownership is central to who has power, voice and reward in society.  Stark inequalities in wealth and assets underpin and reproduce sharp hierarchies in economic and social life. Unless we build new models of democratic ownership – more dispersed, more transparent, more public – we cannot create a new economy that works for everyone. We have to own the problem.

The sheer scale of inequality in ownership is staggering. For example, the richest 10% of households own 45% of the country’s wealth, the poorest 50% only 9%.  The median wealth of lone parents with dependent children is just £26,800, compared to £678,000 for a couple without children approaching retirement. While the scale of wealth a person enjoys is partly due to their age, it also reflects patterns of ownership that are structured by gender, class, ethnicity and geography.

Moreover, the mechanisms meant to disperse ownership are broken.  The so-called ‘shareholder revolution’ boasted of by Margaret Thatcher has failed.  Individual share ownership has collapsed since the 1980s, falling from nearly 40% of UK quoted shares to just under 10% today. UK pension funds – which are a form of indirect ownership – have experienced a similarly sharp decline.  At the same time, the UK’s broken housing market means that for the majority of young people, owning their own home is fast becoming an impossibility, further accentuating inequalities of asset ownership.

Added to this, coming down the track are a series of trends that, if unchecked, will accelerate inequalities in ownership of wealth and capital.  Increasing levels of automation will boost capital’s share of income at the expense of ordinary workers.  As human labour is progressively replaced by machines, the owners of the robots will cannibalise more and more of the returns of growth.  Unchecked and without reform, accelerating automation could lead to a new ‘Gilded Age’, in which economic power and reward concentrates in a way not seen since before the birth of democratic capitalism.  Compounding this, powerful network effects mean key sectors of the digital economy are trending towards monopoly, further accelerating the concentration of wealth.

A new, more inclusive economy cannot therefore be built on the foundations of our current models of ownership.  Hierarchical patterns of wealth concentrate economic power, cede the future to investors based on the ownership of capital not social utility, starkly divide life chances, and ultimately inhibit broader social flourishing.

By contrast, the benefits of a more democratically owned economy are multiple: greater power for ordinary workers and citizens in shaping economic decisions that affect their lives; greater democratic control over key resources, from energy and infrastructure and data to shaping investment in the technologies of the future; and critically, a more durable, egalitarian distribution of income and wealth that can meaningfully allow people to take control of their own lives.

A more democratically owned economy is possible in the here and now that can prefigure the wider changes we want. In fact, there already are a wide range of successful institutional forms that can extend democratic control over capital and wealth to ensure returns are more widely shared in the here and now. From worker ownership to municipally owned energy, from consumer co-operatives to democratically owned and managed public housing, there are a host of options that can accelerate democratic forms of ownership in the economy today with the right legal, financial and fiscal support.

Yet more radical options are also required to truly democratise ownership in the UK in the future.  IPPR is therefore exploring new institutional approaches that can better hold wealth in common.  First, we are proposing a new Citizens’ Wealth Fund, in which a new wealth tax could fund the purchase of a broad portfolio of shares in major companies, held on behalf of the people in an independently managed fund. The dividends from the shares could be distributed annually to the bottom two-thirds of the household income scale, ensuring the benefits of economic dynamism are widely shared.

At the same time, a new wave of modern ‘wage earner funds’ could allow workers to take a greater ownership stake and sense of control over the firms they work for. Inspired by the Swedish Meidner Plan, the funds would operate by the government requiring major corporations to share their profits with their employees by issuing new equity shares to the funds.  Without diluting their working capital, the funds would both broaden collective ownership and help empower employees to better influence decision-making at work.

The point with these institutional initiatives is not to return to older, centralising and not particularly democratic models of public ownership that underpinned post-war settlement.  Instead, economic democracy in the 21st century is about building institutions that can allow participation, disperse economic power, and allow for new ways for wealth to be held in common, for the common good.

It is clear we need a new type of economy. It currently stumbles along, kept alive by the use of heterodox, largescale monetary policy and the flow of private credit, yet unable to deliver rising, sustainable and inclusive prosperity, nor the deep structural reform our economic weaknesses demand. We shouldn’t be in any doubt that the UK’s economy is out of shape, reflecting deep structural flaws. However, we will only build a better future if we can reform the deep interlocking institutions and practices that underpin our economy.  If we are to own the problem, reforming and democratising ownership must sit at the heart of that agenda.

The post Owning the problem: Democratic ownership in the 21st century appeared first on New thinking for the British economy.

Back in the 1970s, with unemployment rising and British industry contracting, workers at the arms company Lucas Aerospace came up with a pioneering plan to retain jobs by proposing alternative, socially-useful applications of the company’s technology and their own skills. The ‘Lucas Plan’ remains one of the most radical and forward thinking attempts ever made by workers to take the steering wheel and directly drive the direction of change.

Forty years later, we are facing a convergence of crises: militarism and nuclear weapons, climate chaos and the destruction of jobs by new technologies and automation. These crises mean we have to start thinking about technology as political, as the Lucas Aerospace workers did, and reopen the debate about industrial conversion and economic democracy.

Democratic egalitarianism

What so inspires me about the Lucas Plan is the democratic egalitarianism which runs through its every part – the work processes, the products and even the very technology they propose.

This egalitarian ethic inspired Laurence Hall to make ‘The Lucas Plan’ the focus of a regular gathering of Young Quakers in Lancaster, up the line from the Trident nuclear submarine yards in Barrow.

Eurig Scandrett from the Scottish Green Party made it the theme for Green Party trade unionists because ‘it is the most inspiring example of workers on the shop floor who get self-organised and demand to make what humanity needs.’

The fact that the plan was defeated has not diluted its capacity to inspire. For Scandrett, its defeat demonstrated that ‘it is the vested interests of the military-industrial machine which is the problem, and that workers liberating their collective brain is where the solution lies.’

The broad outline of the Lucas Aerospace workers’ story was familiar enough in the mid-1970s. Workers faced redundancies, got organised, resisted and insisted that their skills and machinery were not redundant. But here they went further. They drew together alternative ideas with those of supportive academics and, with the encouragement of Tony Benn (then industry secretary in the Labour government), produced their ‘Alternative Corporate Plan for Socially Useful Production’, illustrated with prototypes. Management refused to negotiate. The government, under pressure from the CBI and the City, made gestures of a willingness to talk, but would not move against management. The plan was never implemented, or even seriously considered, although commercial companies elsewhere picked up some of the ideas.

So what are the lessons we can draw from this past experience of ‘ordinary’ people organising and sharing their practical knowledge and skills to illustrate in the present the changes of which we dream? Some of the main ones are discussed below.

Lesson 1: Find common ground

A first condition for this group of fairly conventional, mainly middle-aged, male trade unionists to create what became a beacon of an alternative economics was building the organisation that eventually provided the means by which many individual intelligences became what Eurig Scandrett refers to as ‘collective’. Corporate ‘rationalisation’ meant groups of workers were being bought, discarded and the best sold on or used till they fell apart, like sacks of old clothes.

The shop stewards at the different Lucas Aerospace sites forged collective strength by taking action over basic common issues such as wages and conditions. This served to unite groups of workers with very different traditions and interests.

Lesson 2: Build democracy

Immense care and collective self-reflectiveness was needed to bring such diverse groups into a more or less united organisation.

All 35 (or so) delegates had the right to speak at meetings of the multi-union Combine shop stewards committee but decisions on recommendations to be taken back to the workforce were on the basis of ‘one site, one vote’. The decisions were binding on the delegates, who were expected to campaign for them at their local sites, although the sites were free to accept or reject them as they saw fit. This sensitive and consciously protected relationship between the Combine and the sites made it feel as though the members and local shop steward on the office and factory floor were ‘absent friends’, whose presence was palpable.

Lesson 3: Build alliances and look ahead

Although the Combine won victories, they felt as though they were engaged in a labour of Sisyphus – getting national agreement to halt job losses, only to find jobs were being slashed in different places and not because of decisions of local management.

The problem was Lucas’s restructuring towards longer production runs and more computer-controlled machinery, and its shifting investment into other European countries and the United States. The traditional approach of the trade union movement proved inadequate; instead the Combine produced its own experts and made use of outside help to educate and prepare itself.

Lesson 4: Building collective strategic intelligence.

‘We’re in a situation where politics is unavoidable,’ the Combine executive argued, in Combine News, in response to rumours of nationalisation of part of the aerospace industry. ‘Though there have been problems with nationalisation, we could, with the full involvement of all our members, insist on adequate safeguards against many of these. The advantages would be considerable, we would finally be working for our ultimate employers.’

They went on to sow the seeds of the alternative plan: ‘We could insist that the skill and talents of our members could be used to the full to engage in socially useful products like monorails and hovercraft, and that these skills are used in a much truer sense in the interests of the nation as a whole.’

This led to the presentation of the case for the nationalisation of Lucas Aerospace to Tony Benn, then secretary of state for industry. He was impressed: ‘Here was a group who had done the work to anticipate the problem. Others had come to me at the last minute saying their firm had gone bust and what could I do.’

For all his enthusiasm, he did not have the power to agree to nationalisation, but he suggested that the Combine should draw up an alternative corporate strategy for the company.

At first there was some scepticism. But the necessity of finding a new solution drove them on, and beyond management’s framework.

‘The only way that we could be involved in a corporate plan would be if we drew it up in a way which challenged the profit motive of the company and talked in terms of social profit,’ argued Combine delegate Mike Cooley, a designer who chaired the local branch of the technical trade union TASS.

The plan for socially useful production was a carefully phased process. Another Combine delegate, Mick Cooney, a fitter from Burnley, described the challenge: ‘The Combine wanted to know what machine tools we had. To do the Corporate Plan we were having to think as if we were planning. It really made the shop stewards sit up.’ The Combine asked site committees questions aimed to stimulate workers’ imagination: ‘How could the plant be run by the workforce? Are there any socially useful products which your plant could design and manufacture?’

Experiences of all kinds and knowledge of the company’s capacities led to 150 product ideas in six categories: medical equipment, transport vehicles, improved braking systems, energy conservation, oceanics, and telechiric machines.

Lesson 5: Know the limits

The idea inspired workers throughout the defence-related engineering industry, including the vast yards building nuclear submarines in Barrow, where designers worked with Mary Kaldor to submit alternatives to the Labour party defence policy committee. In the 1970’s the yards were owned by Vickers which also made tanks at the Elswick works on the Tyne in Newcastle. In Vickers a strong Combine Committee had been built in response to very similar pressures of rationalisation, acquisitions and closures that had stimulated the growth of the Lucas Aerospace Combine Commitee. Both Combine Committees had links with the Institute for Workers Control (IWC) and through the conferences and political connections organised by the IWC they found common cause in the idea of alternative plans for socially useful production. The shop stewards in the Elswick and Scotwood works responded to threats of reduncancies by drawing up such plans and gaining the support of Tony Benn and his close ally Stuart Holland. They made contact with shop stewards at Barrow, especially in the design office who were already doing their own work on alternatives. There had, in Barrow, been an earlier initiative towards diversification coming from Vickers management, led by an innovative engineer, George Henson, whose Quaker principles led him to refuse to work on the TSR2 at Vickers Weybridge plant and led to his move to Barrow where management wanted to diversify away from total dependence on government defence contracts.

However, Vickers responded to subsequent government nationalisation plans by keeping the profitable diversified section, making submersibles for deep sea oil exploration and handing over the yards to the government. The separation was a major blow to any longer-term diversification programme, but it’s success was a powerful memory for the designers who were still working on nuclear submarines and they were responsive to the contacts from across the country in Newcastle to collaborate on alternative plans to submit to the Labour party’s diversification committee. Labour’s defeat in 1979 closed down these possibilities. Later however, in the 1980s, some of those designers helped to create the Barrow Alternative Employment Committee (BAEC) to produce proposals for alternatives to Trident. By this time the Barrow yards were owned by British Aerospace, which rejected the strategy of civil diversification to keep skilled teams together. BAe concentrated entirely on its ‘core business’ whatever the cost in terms of loss of jobs. The only exception was war ships, the manufacture of which dominated the yards until the recent renewal of Trident.

Terry McSorley, a member of the now defunct BAEC, says: ‘The lesson I learnt is that site-based diversification won’t work’. Instead he now argues for an approach that integrates defence conversion with industrial strategy.

Steve Schofield, who was a researcher for the BAEC, draws a similar conclusion: ‘The Labour movement needs a much more ambitious arms conversion programme to challenge the embedded power of the military-industrial-complex.’ He argues for a change in security policy towards UN peacekeeping and peace building and suggests a combination of publicly-funded, national and regional investment banks for industries such as offshore wind and wave power to ensure an equitable distribution that benefits the small group of arms-dependent communities, including Barrow-in-Furness, Glasgow, Preston, Aldermaston and Plymouth.

Drawing on Lucas and his own more problematic experience in Barrow, he is certain that trade union and community participation is essential to guaranteeing that the skills of working people are maintained and enhanced.

We are in new times for trade union organisation but interest in democratic economics is increasing with the spread of green and solidarity economies, commons-based peer-to-peer production, and grassroots fabrication in ‘hackerspaces’ and ‘fab labs’. All of which has deepened ideas about connecting tacit knowledge and participatory prototyping to the political economy of technology development, as was the case with Lucas.

The lessons from the Lucas plan provide Labour’s proposed arms conversion agency with elements of a methodology for a network of organisations with an understanding of technological development not as a value-neutral process, autonomous from society, but shaped by social choices over its development – choices that the Lucas stewards showed need to become democratic.

This ‘ordinary’ group of workers demonstrated how it was possible to create a democratic economy. It is they, after all, who have the practical know how on which that technological development depends.

The post When the workers nearly took control: five lessons from the Lucas Plan appeared first on New thinking for the British economy.

It is a rare thing to hear a Conservative prime minister call for more responsible capitalism. Theresa May’s remarks at the recent Conservative party conference are a sign that large corporations are breaking the unwritten contract they have with society.

Corporate scandals that regularly hit the headlines (most recently Sports Direct and BHS, but there’s a long list stretching back centuries) are just the tip of the iceberg. It’s the routine, day-to-day greedy and destructive behaviour that is most alarming; the tax dodging; the excessive executive salaries; the steadfast resistance to regulations designed to improve societal or environmental well-being. Most of all, it’s the remorseless urge for growth that drives a never-ending cycle of consume and throw away, leading to widespread societal and environmental damage

We can’t eliminate greed and selfishness from human behaviour. What we can do is design human systems to encourage people to behave more in line with the dictates of their conscience and less likely to strive to please their corporate masters or satisfy their own egoistic desires.  And company law, which governs every company in the UK, has a big role to play.

Company law has changed very little in its essentials since the 1850s, when the Limited Liability Act was passed. That was a very different age. English society was even more stratified by class and only a minority of men (and no women) could vote.  The slave trade had only recently been abolished. Places in Europe and Russia were still structured on a system of feudal serfdom. Since then, we’ve seen the evolution of global capitalism, the invention of fast travel and instant communication. We’ve split the split the atom and decoded the genome.  Yet despite the enormous overhaul of how we conduct much of our daily lives, the fundamental legal structure of a business hasn’t changed.

A company still comprises members with ‘limited liability’, meaning no personal liability for the actions of the company.  Every company also has a board with responsibility for the day-to-day activities of the company. Such a structure would have been familiar to the powerful men of that age, many of whom owned vast tracts of land. Often living far from their estates, they relied on local managers who were incentivised to pursue profit for their masters. In essence, it was a feudal system.

British law is rooted in feudal thinking. This applies to property law (every bit of land in the UK ultimately belongs to the Crown) and even to human beings (we are subjects of the Queen, protected only by human “rights” that can be removed by Parliament).  Likewise company law is based on feudal thinking, dividing the world into a governing authority (shareholders); subjects (staff) to be used (employed) in service to the ultimate authority; and overseers (the board) who watch over the subjects.

This hierarchical structure channels the efforts of the whole into pursing private interests, whilst the dispersed responsibility allows individuals to avoid being held accountable for any public damage this might incur. Because it’s lasted so long and has become so all-pervasive, it is tempting to think that the limited company represents a universal pattern that can’t be improved upon. Yet this is actually a man-made, and relatively modern, contrivance and it’s ripe for change. It is time to start treating large companies not as the property of shareholders (a fiction that is used to justify a lot of the worst corporate excesses) but as institutions that exist to serve the common good.

How could such an overhaul be implemented? I’d suggest several things:

1. Professionalise the role of a director of all public limited companies (plcs). There would be compulsory training and exams to be taken before anyone could be a director of a plc. This is not so radical – to become the company secretary of a plc (a far less powerful or responsible position), you need a formal qualification.

2. Change the law to clarify that the ultimate duty of a director is to serve the common good.  Directors of a plc should be treated as public servants, not as servants of shareholders. This idea of a higher duty is familiar in professional practice – for example, a barrister’s highest duty is to the court, not her client.

3. The appointment of directors should be more transparent and participatory.  This could be achieved by setting up a panel to approve appointments, with representation from different constituencies such as staff, customers, government etc.

4. Task the company secretary to act as the “conscience” of the company, with the right to attend board meetings and to speak at the annual general meeting.  The difficulty with this is that the secretary, who is appointed by the board, risks losing their job if they speak out – a significant dis-incentive.  To safeguard the secretary’s integrity, we would require a government minister’s approval for their removal, mirroring the sort of constitutional arrangements commonly used to protect the integrity of the judiciary.

Such innovations would reap numerous benefits. I even believe, surprisingly perhaps, that they would have a positive impact on corporate profits. This may sound like wishful thinking. Yet the fixation on shareholder value that is characteristic of British companies, and embedded in section 172 of the Companies Act, has hardly turned British companies into world beaters. There is some evidence (for example from Scandinavian companies) that adopting a wider purpose that includes social and environmental well-being can correlate to enhanced financial returns.

Ultimately, what is needed is a change of mindset. We need government to stop trying to control or lecture from above (itself a symptom of out-dated thinking) and instead to focus on enabling corporations to be truly self-regulating, for the common good. This would indeed be a revolution!

NB: the above is an edited version of a submission by the author to the UK Parliament’s Business, Innovation, and Skills Committee which is running a consultation on corporate governance.

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By revenue, BAE Systems is the third largest defence company in the world. On any conventional measure it is a British success story, exporting world class products, leading in applied science innovation and employing over 80,000 people globally. It is one of the six largest suppliers to the US Department of Defence and every year sells billions of pounds of products in what it considers to be its home markets: the United States, the UK, India, Australia and Saudi Arabia. It is, unsurprisingly, listed on the FTSE 100 where it is that rarest of beasts: a British-based company of global renown which exports manufactured goods. It is also the UK’s largest manufacturing employer with more than 30,000 employees spread across more than fifty locations nationally.

In addition to its present day scale and success, BAE also enjoys a remarkable heritage. While the company was only created as recently as 1999 – as the result of a merger between Marconi Electronic Systems and British Aerospace – the real history came before, with the predecessors to those two companies giving rise to industrial innovations of momentous significance. They include the Marconi Company, the first venture devoted to radio manufacture and diffusion; de Havilland, manufacturer of the Comet – the world’s first commercial jet airliner; British Aerospace – who created the Harrier jump jet; the British Aircraft Corporation, a partner in the Concorde project; Supermarine, manufacturer of the much-loved Spitfire; Yarrow Shipbuilders, who built the Royal Navy’s first destroyers; Fairfield Shipbuilding and Engineering Company, pioneer of the triple-expansion engine and builder of the first ever battlecruiser; and Vickers Shipbuilding and Engineering, the company behind the Royal Navy’s first ever submarines.

What you get with BAE Systems, its antecedent companies and capital assets, is Britain’s industrial history in microcosm. The application of intelligence, ambition and technology for the purposes of both peace and war: civilian technologies that made possible globalisation and international communication; weapons systems that helped Britain project military power on a global scale.

But while the sale of arms is never an innocent undertaking, and the companies enmeshed in the story of BAE go back almost two centuries, a possible deal between the defence titan and the Kingdom of Saudi Arabia, estimated to be worth some £4 billion, would mark a moral nadir for the company. According to Berenberg the Kingdom’s ongoing war in Yemen, combined with a less diplomatically-isolated Iran, makes its interminable deal for 48 Typhoon jets all the more likely. Such a sale would take place in a context where one in three strikes by the Kingdom’s air force are hitting civilian targets, a situation which, according to a legal opinion issued last December, puts arms exports to the country in breach of UK, EU and wider international law. Earlier this year the UN said there had been 119 “clear violations” of international law by the Saudi-led coalition in Yemen with refugee camps, schools, hospitals, markets and weddings included as targets. And yet the weapons keep on flowing. It is among this mess of illegality and murder that BAE wishes to deliver world class fighter jets, presumably to continue the same process.

And yet even with this in mind, moral arguments relating to matters of war and commerce rarely prove sufficient. The law can nearly always be circumvented under conditions of expediency, especially when thousands of British jobs depend on deals precisely like this one. If Saudi Arabia doesn’t buy Typhoons, the argument inevitably runs, they’ll just buy French-produced Raffales instead. Thats just the way of the world, and while it makes for bleak realpolitik, Britain’s economic interests – profits for BAE shareholders and jobs for its workers – are at least ensured.

A different kind of Manufacturing: forty years since The Lucas Plan

Forty years ago, in January 1976, workers at Lucas Aerospace had other ideas. Amid the turbulence of redundancies, technological change and heightened global competition, they published an Alternative Plan for the future of a company beset by a myriad of problems. It was an inspired and original response to the announcement of imminent job losses. But instead of redundancy, workers argued the company should shift its resources to civilian purposes and ‘socially useful production’. At the time half of Lucas’ output supplied UK military contracts, and since this depended on public funds, as did many of the firm’s civilian products, workers argued that similar levels of state support could instead enable innovation in fields such as life support, public transport and energy. The plan was to transition to a different kind of economy, and while that was far from easy, it at least looked plausible with Lucas Aerospace. After all, in addition to a plan, world class technologies, processes and workers were already in place.

That might explain why, only two years later, the Financial Times described the Lucas Plan as, ‘one of the most radical alternative plans ever drawn up by workers for their company’. The following year, in 1977, the New Statesman claimed the ‘philosophical and technical implications of the plan are now being discussed an average of twenty five times a week in international media’. Such prolific discussion saw the plan even being nominated for the Nobel Peace Prize in 1979. And yet shop stewards suspected that their daring blueprint would be insufficient in an increasingly hostile economic climate. So it proved – while the Plan represented a plausible answer to de-industrialisation and rising global competition, it floundered without political support.

Occupy BAE: Building a 21st century economy

Fast forward to the present moment and the ideas behind the Lucas Plan are as apposite as ever. If anything the flat structures its engineers wanted four decades ago prefigured work practices that have since emerged in IT and software development, themselves increasingly replicated in MakerLabs and larger businesses such as X (formerly Google X) and SpaceX. Then, as now, defence was a major UK industry, and the impulse to repurpose British companies in the sector to more ‘socially useful’ production – with the present commercial climate particularly hostile for BAE – makes even more sense now than it did in 1976. After all, BAE’s primary market, the UK, has seen defence budgets at the centre of fiscal consolidation over the last six years. Brexit, continued economic stagnation and the distinct possibility of Scottish independence will only exacerbate that. Britain’s diminished military role means bad business for BAE – that being especially true if renewal of the Trident missile system doesn’t get the go ahead (BAE, who manufacture the Astute Class submarines will likely have a major role in any successor to the current Vanguard class of submarines). That, combined with the prospect of US military procurement becoming more protectionist doesn’t bode well for a company which, on present trends, will only become more dependent on deals like the Saudi one, in the process testing the very limits of international law.

Britain’s hasn’t had a discernible industrial strategy since the early 1980s, but between the demise of Pound Sterling as a petrocurrency, the UK’s imminent departure from the EU – and with it the possible demise of the City of London as a hub for global finance – and persistently low per capita growth and productivity since 2008, it is increasingly credible to talk about a different kind of economy. The question being how far that conversation goes.

While Jeremy Corbyn and John McDonnell are the most prominent voices in this debate – their own proposed dirgisme hinging around £500 billion of infrastructure spending focused on manufacturing and new industries – the Tories have been increasingly vocal about trying something different too. Indeed, one of the first things the May government did was to merge two former government departments (BIS and the DECC) into a single Department for Business, Energy and, yes, Industrial Strategy. No maverick move, that was the outgrowth of a surprisingly broad debate around the economy during the Tory leadership election and a first response to Britain after Brexit. Central to Stephen Crabb’s leadership bid, for instance, was a £100 billion “Growing Britain Fund” that would go towards flood defences, fibre optic broadband and Crossrail 2. This, Crabb claimed, would be financed through new government bonds. A similar position could well inform Chancellor Hammond’s approach in raising growth over the next 18 months and would have been considered heretical during the Cameron-Osborne years. While funds would not be on a scale proposed by the Labour leadership, increased government borrowing to pay for infrastructure and boost specific sectors is far from impossible. Ultimately, what will determine how far the Tories move on the issue is what happens after Article 50 is triggered. Even if that doesn’t happen until 2018, it’s possible the British economy will suffer while waiting in the EU departure lounge anyway, namely through lower foreign investment.

While that sounds like a crisis situation, and some kind of economic downturn in the next several years would appear almost inevitable (this is, after all, why May is delaying things) it also represents a tremendous opportunity. A decade of stagnant productivity, falling wages and flat-lining per capita growth are emblematic of a broken economy. Yes, record numbers have found employment since 2010, but they are primarily in low-paid, service-sector jobs overwhelmingly in London.

Elsewhere I’ll lay out how a new government agency focusing on deflationary technology and automation will be necessary, specifically in enhancing civil society. In addition, I want to see the national trial of a guaranteed social wage, as well as a massive program of social housing with homes, along with education and healthcare, ultimately withdrawn from commodity circulation and free at the point of consumption – as is presently the case with much of the NHS.

But even that vision ignores the capital assets and brainpower Britain has, and the infrastructure that is already there to build the economy of the future. While part of rectifying that will include recalibrating business models in the City of London; opening the BBC up to contestable funding and making it an incubator for new media operations; and, at the very least, a different approach with procurement and employment policy within the NHS, there is also a pressing need to build and empower industries around the growth technologies of the coming century, such as synthetic biology, renewable energy, AI and additive manufacturing. While a radically different approach in regard to research funding, the knowledge economy and higher education will be needed in all of these fields, there is also the opportunity to transition certain companies from low profit, socially useless production to something better.

It is for that reason that BAE Systems should be taken into public ownership, with tens of thousands of engineers and fixed capital re-directed towards renewable energy industries, automated civilian avionics and vehicles, space transport and climate change solutions – specifically around flooding and desertification.

Right now BAE has 33,000 employees across the UK, 70% of which are engineers or work in engineering-related areas. That is an immense amount of talent that is currently deployed to, among other things, build weapon systems to be used against civilian targets in one of the poorest countries in the world. As well as Saudi Arabia, other BAE clients include the UAE, where the company sells surveillance systems and, potentially Qatar, which is still looking to buy Typhoons despite recently purchasing a large number of French Rafales.

Rather than create weapons for some of the most authoritarian regimes in the world, while also depending on British defence budgets only set to shrink and the renewal of a nuclear deterrent ill-suited to the modern world, the resources and skills of BAE Systems, especially given its comparative edge in avionics, vehicles and energy architecture, would be instead be deployed in fields of importance to Britain and the wider world. New flooding solutions, crucial as Britain adapts to climate change, would not just be for the domestic market but for export too. The same is true for dealing with desertification, a major issue not only for North America, the Middle East and Africa, but Europe and Australia.

Then there are the fields of renewable energy, automated transport, AI and robotics. While many think of private enterprise as being behind the rise of contemporary consumer gadgets, such as the iPhone, the reality is that most significant engineering breakthroughs – from jet propulsion to HTML – are a result of public funding. The idea that Britain is on the cutting edge in this regard is absurd. While it has world class research centres and universities, it has fewer industrial robots than the likes of Spain and Thailand (Germany’s stock of industrial robotics is about ten times that of the UK). The last time a British-build rocket was used for a space launch was 1971 with the UK, to date, being the only country to have successfully developed and then abandoned a satellite launch capability. The glitz of Silicon Roundabout is little more than a facade for a country which has a remarkably low base when it comes to developing and building new technologies. Taking BAE Systems into public ownership would be a major step in addressing that.

Inventing the future: public ownership and innovation

Its clear that Britain has lost its way over the last several decades: its idea of collective purpose adrift, its post-war arrangements nearly eroded, its sense of identity a blend of post-imperial melancholy and vapid nostalgia. And yet Britain’s place as a high-tech economy, on the cutting edge of new technologies, did not have to inevitably follow its ebbing trajectory as a great power. That was a political choice, the embodiment of which is that a weapons company is, right now, the country’s largest industrial employer.

So what better signifier of a new direction for the British economy than taking BAE Systems into public ownership? The company whose antecedents built the world’s first commercial jet and pursued the production and commercial diffusion of radio, would once more find its purpose in civilian technologies that make the world a better place. What is more, away from the increasingly competitive global weapons market, its engineers would be able to work on disruptive technologies in more commercially open fields such as climate change resilience systems, automated vehicles and space transport.

No doubt some reading this will find the idea of nationalising BAE wishful or outlandish. To the contrary – what absolutely can’t be sustained, given Britain’s industrial shortcomings, the challenges of climate change and the opportunities of new technologies – is one where the largest employer of engineers in the country builds weapons for despotisms. What can’t endure is a situation where the taxpayer – right now – gives BAE more than £2 billion a year to purchase and maintain hardware for the Ministry of Defence. Everybody in Britain is already giving BAE Systems £30 a year, each. Don’t you want it used differently?

As Britain comes to terms with a much smaller army – and the prospect of unilateral disarmament – the future for BAE, with its main market in decline, should be one of promise and optimism rather than murky deals proscribed under international law. Publicly owned, with its talent working on the most pressing problems of the age; helping in the transition to a post-carbon economy, automating work and creating the conditions where citizens, as Keynes once put it, can live ‘wisely, agreeably and well’. It may have been forty years ago, but for the visionaries behind the Lucas Plan their time has come – there’s a world to build.

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The claim that unfettered markets are the most efficient means by which to organise human economic activity should invoke incredulity in the wake of the 2008 economic crash. Yet the ideology underpinning the belief in the rationality of the market continues to shape society, despite its deleterious effects on everything from public services to our most intimate relationships.   

In the face of ideologically motivated attacks on state services, much of the left’s energy has understandably been expended defending the crucial services it provides millions of people. Yet, at times this has been at the expense of developing and experimenting with both non-state and non-market alternatives.

58% of the population believe they have no influence over the British economy and 59% feel they have no control over big business. The sharing economy opens up new opportunities for people to self organise and develop services that better reflect the particularities and needs of their communities. Recent developments in technology mean such alternatives can operate at a pace and scale previously unimaginable.

In our efforts to foster the potential of the sharing economy for a New British Economy, we cannot assume its rise is an automatically progressive development. Airbnb and Uber are reminders of how it can just as easily develop on a model of corporate rent-seeking. It also has the capacity to constitute ‘Big Society’ style ideological cover for market failure and cuts to welfare provision. With this in mind, the sharing economy must develop in coordination with an ‘entrepreneurial state’, of the sort envisioned by Mariana Mazzucato and championed by Labour’s John McDonnell.

One of the most exciting, progressive examples of the sharing economy has been the rise of time banks, through which members offer knowledge, skills or services to one another. The shared currency is time and crucially, each hour of a person’s time is worth the same whatever they are offering. All races, professions and ages are welcome and considered equal.

Each time bank, and the services it offers, is an expression of its members, so it ends up reflecting the particular interests of the neighbourhood in which it is based. This, of course, is something in constant motion; time banks are flexible, ever changing, a work in progress and very much alive.

Time banks are not limited to groups of friends and neighbours, but also exist in association with larger institutions, including state services such as the NHS. Paxton Green time bank in London was created by the local GP surgery as a means of assisting people with mental health issues, in preference to an over-reliance on anti-depressant medication. 

Time banks offer not only practical, material help to those unable to afford goods and services via the capitalist market, but also reduce feelings of alienation and isolation. Studies have found that time banks are successful at engaging socially excluded and vulnerable groups of people, involving them in community activities, often for the first time. The schemes help boost confidence, social networks, skills and well being, creating spaces where values not recognised by the market, such as equality, prevail.  

As Paul Mason argues in his book ‘Post Capitalism’, the left needs to relearn to do positive things. This means building alternatives within the system and using governmental power in a radical and disruptive way to secure a transition path, rather than offering fragmentary defence of random elements of the old system. Time banks, cooperatives, credit unions, peer-networks, subcultural economies, unmanaged enterprises all signpost the way toward a potential post-capitalist future. Rather than regarding these examples as quaint experiments, they should be promoted with regulation as vigorous as that which capitalism transformed eighteenth century England.  

In our haste to challenge the market’s debasement of daily life, we must avoid reifying the state as the sole route through which to deliver positive socio-economic change. The state should be interventionist and ‘entrepreneurial’, but it can also empower by providing spaces for genuine human flourishing. A national investment bank network as envisaged by John Marlow would allow the state to fund and regulate exciting new projects across the country, whilst leaving the bulk of decision making to ordinary people. These projects would reflect the particularities of each community and empower individuals hitherto caught between the vagaries of the market and a too often one size fits all state. The potential of the sharing economy needs to be recognised and nurtured by Britain’s progressive social forces. If not, it risks becoming merely the latest avenue for corporate exploitation and handy ideological cover for those intent on rolling back hard-won welfare state provisions.

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A Citizens’ Wealth Fund is a state investment vehicle that invests a chunk of a community’s public wealth in global financial markets for a return. The returns of these funds provide an additional revenue stream for the state that can be used for a range of policy goals including tackling inequality, kick-starting growth or investing in local infrastructure. Thus, the public reaps the benefits of investing public assets. 

But to fully count as the citizens’ wealth, people must be able to directly influence the management of the fund as well as the use of its income. The UK’s recently announced ‘Shale Wealth Fund‘ looks set to become one of the world’s first fully-fledged citizens’ funds, with its commitment to localism, where citizens both retain control over and benefit from the fund. If realised in practice, Britain will be a pioneer of this citizen’s wealth fund model, offering a blueprint for the rest of the world to emulate.

Around 80 governments worldwide already have a version of these funds, known as ‘Sovereign Wealth Funds’. Yet, the assets of sovereign funds are rarely described or managed as citizens’ wealth. This is despite the underlying capital of the funds originating from different types of collective state property. Whether natural resource revenues, privatization proceeds, fiscal surpluses or central bank reserves, all such windfalls ultimately belong to the people. But unless citizens directly benefit from, and exert control over the funds managing these windfalls, their assets remain sovereign rather than citizens’ wealth.

There are certain exceptions that, if not fully-fledged citizens funds, are at least promising steps in that direction. Israel’s newly created citizens’ fund for its natural gas revenues is a semantic exception. Created in 2014 and due to commence operations by 2020, it is the first fund in the world to explicitly label itself a ‘Citizens’ Fund’. But time will tell if it actually operates as such. The deal itself, as well as the disputes over the ownership of the natural gas fields, cast doubt on that possibility. Alaska’s ‘Permanent Fund’ can also claim citizens’ wealth status by virtue of its unique annual distribution of a portion of its investment returns directly to Alaskan citizens. These examples aside, no existing sovereign fund boasts mechanisms for direct community influence over both fund management and spending.

Until now. In 2014, the UK became the first country to embrace the term ‘Citizens’ Wealth Fund’, when Boris Johnson proposed combining the UK’s 39,000 public pension funds to create one large investment fund for Britain to invest infrastructure. Those plans have stalled. But the UK is still trail-blazing with another citizens’ fund.

The Chancellor’s 2015 Autumn Statement set out plans for a £1 billion Shale Wealth Fund, seeded with a portion of tax revenues from shale gas production in the country’s Northern and midland counties. A key purpose of the fund is to benefit communities where shale gas sites are located and to engage the views of community members on how best to distribute that benefit to ensure that the industry leaves a positive legacy.

A government consultation is under way on the design and governance of the shale fund. Encouragingly, the consultation is heavily focused on issues of local control and benefit. Public views are sought on a range of questions around how the government can ensure local communities benefit from the Shale Wealth Fund and that decisions are directly influenced by local residents. This includes whether the fund should make direct payments to households; what decision-making bodies, new or existing, would be the most appropriate to oversight and administer the fund; and what level of community (local or regional) should be the primary beneficiary of the fund’s activities.

Setting aside the thorny issue of whether the UK should pursue fracking at all, the drive to ensure residents of affected communities have a direct say on how the proposed shale fund is designed and managed, and how they can directly benefit from its operations may be a world-first. Almost twenty years after Britain became one of the first countries to grant its central bank operational independence, the UK is once again assuming a leadership role in the institutional innovation of key economic architecture. British citizens must not waste this opportunity to help shape their economic future, and the first genuine citizens’ wealth fund.

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It can take a thousand years to form an inch, which can be washed away in a moment. It provides 95% of our food, and yet we allow it to blow off in the wind. Civilisations rise and fall on how they treat it, and we treat it like dirt. I am talking, of course, about soil. Researchers at Sheffield University concluded two years ago that Britain’s fields are so depleted that our earth had a hundred harvests left in it. So make that ninety eight. Other stats are even scarier. According to New Scientist magazine, if we don’t slow the decline, all farmable soils in the world will be gone within sixty years.

There are lots of simple things which the government really should be doing to combat this. It has a unique opportunity to rethink our approach to farming, as Brexit will remove the UK from the EU ‘Common Agricultural Policy’ (CAP), repatriating regulatory powers. The government should better regulate or indeed curtail disastrous maize farming. It should encourage more crop-rotation and upland tree planting; support wetland restoration and beaver-reintroduction; ban heather burning on grouse moors; minimise soil compaction from livestock and machinery, and invest in a mass switch to organic farming.

But it seems to me that, whilst all of these policies are necessary, they are insufficient to tackle the global scale of this crisis. Adjustments to conventional farming methods help – but they don’t tackle another great problem: that the extensive land use required by such practises means eating into ever more wilderness, wiping out ever more species. So as well as reforming our traditional land farming, we should look into alternative agricultural solutions, which will allow us to feed ourselves without asset-stripping the planet and dooming future generations to food scarcity.

Hydroponic and aquaponic farming allow for the growth of vegetables in water enriched with nutrients (in the latter case, through the presence of fish). Famous largely for its use by cannabis growers, many other kinds of crop can equally flourish without soil. It’s not a new idea: Francis Bacon referred to ‘water culture’ in his 1627 book ‘Sylva Sylvarum’, and there was an eruption of research immediately afterwards. Studies in the 1960s showed it to be no more efficient than growing food in good quality top soil. But with less and less good top soil around, those figures get more and more appealing. And that’s without mass investment in research and development that could make these methods even more efficient.

Similarly, 3D ocean farming offers the opportunity to grow much more of our food in the seas, whilst at the same time replenishing our life-bereft maritime ecosystems. Seaweed doesn’t currently form a significant part of the European diet. But it is delicious, and can also be used as livestock feed. As the soil crisis hoves into view, it seems likely that new farming techniques along these lines will see ever greater demand. And just as those countries who got ahead of the game in renewable energy twenty years ago are reaping the rewards now, it seems likely that government backing for such agricultural innovations will reap long term dividends on the global market.

But if we are going to go down this road, it’s worth asking another question: If the 1909 allotment act gave each of us the right to land on which to grow food, why not update it to give every family access to a space in a shared hydroponic tower? What about our numerous impoverished seaside towns? Why shouldn’t councils lead investment into ocean farming co-ops?

And if much large-scale modern agriculture is done by carefully programmed machines, why can’t we equally automate the growing of our own food? Why can’t Britain be the country which develops the technology by which your own veg, or seaweed, or shellfish, grown in your community allotment, can be picked by your community’s automatic harvester and delivered to your home by a community-owned self-driven car or drone? Ownership of Britain’s agricultural land is astoundingly unequal, and new technologies offer an opportunity to democratise food production, beginning to tackle a food poverty crisis whose icon has become a growing array of food banks.

The food and drink supply chain is the UK’s single largest manufacturing sector. It accounts for 7% of GDP, employs 3.7M people and is worth £80Bn per year. Because of CAP, it has been protected from the global market for decades. As Britain leaves the EU, we must decide what role it will play in the future of our economy. We can allow it to be asset stripped like most of our industry, or we can accept that at a time of fast technological change and vast environmental challenges, we will have to embrace the former if we are to survive the latter.

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Public promotional banks are used in many countries to provide cheaper credit to infrastructure projects and businesses. Given that investment in these areas has been endangered by austerity, setting up a national investment bank seems like a sensible move to help shield capital investment from opportunistic government cuts.

But let’s not just set up a bog-standard promotional bank. As I discussed recently, the results of these initiatives tend to be underwhelming. We should be more ambitious. We should set up a decentralised and locally accountable “National Investment Bank Network” with branches at the municipal level; a network of Regional Investment Banks. These would be public services working closely with municipalities and county councils, local companies and local initiatives. They would help to identify and develop investment opportunities and provide tailored finance to support the economic revitalisation of communities across the UK. They should:

Support small businesses directly: The usual practice of lending to other banks “for on-lending to Small and Medium-sized Enterprises” is just a cheap way to hit targets – there’s no way to know how much SMEs really benefit. A public service investment bank should invest in municipal-level branches and local client relationships to support small businesses directly.

Package funding with technical support: This would unlock investment opportunities, local municipalities, businesses and social enterprises need advice and support. Matching funding with technical support can have a larger macroeconomic impact than just trying to lower costs and maximise volumes.

Support the cooperative economy: We need not just investment in businesses, but a different way of doing business. Corbyn’s Digital Democracy Manifesto proposes that the national investment bank will be used to support platform cooperatives. Indeed, all kinds of cooperatives and social enterprises such as housing associations should be prioritised, helping to bridge the funding gap for coops and providing backing such as guarantees for cooperative P2P financing. 

Be radically democratic: We need to explore and develop a new public service model that moves away from top-down command management and fosters accountability to workers and the communities they serve. This model would be based around four principles of organisation (1) Run the local branches like cooperatives, so that managers are selected and accountable to the whole workforce and not the other way round. This already helps to reflect the public interest and keep managers honest. (2) Vest branch ownership in local authorities and make them accountable to those authorities, if not directly to citizens. Branch workers should decide operational matters (e.g. which projects are worth funding) and local communities should set the policy priorities (coops or housing or renewables…?). (3) Confederate these branches to create each Regional Investment Bank, like a coop of coops, each with a with a regional HQ to provide services to the network and support pan-regional operations. (4) Coordinate the actions of these regional banks at a national level. This way the whole system becomes radically democratically accountable, and very hard for the national elite to capture.

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The push for public ownership of vital services should not be about a return to top-down state industries. We can’t go back to the past – and we want the public ownership of the future to be better than ever before. But also because the public ownership of the future must explicitly involve a new dimension: local public ownership. Of course, national level services like the NHS and the railways are absolutely key. But local public ownership – of energy, water, buses and council services – is just as important.

Public ownership should mean more accountable, efficient services, whether that’s at the local, regional, national or international level. Locally, this involves councils running or taking over strategic public assets or contracts for services, and it has huge potential.

Extreme government pressure on budgets has led to council cuts and privatisation – what Polly Toynbee calls ‘the retreat of the human face of the state’. At the same time, there’s an exciting countertrend towards more local public ownership, not just in conversations happening within Labour, but also globally and in the UK.

170 German municipalities have bought back their energy grid since 2007. 235 cities worldwide, including cities like Atlanta and Houston in the US and Paris in Europe, have taken water services into public ownership since 2000. APSE research has shown that dozens of UK councils have brought services like recycling in-house to save money and improve quality. 12 municipal companies provide excellent bus services in places like Reading and Edinburgh. We now have Robin Hood Energy in Nottingham, the first council-owned energy company.

It’s no surprise that there’s been a global surge of interest in public ownership at the local level. Prices for basic needs like power and water keep rising, and private providers are often inadequate. But local public ownership is also exciting because of its potential impact on the wider economy and society. Here are five reasons to embrace it.

• Many people feel a lack of control over their lives in the UK today. At least one reason for the Brexit vote in June is that a large group of people had a sense of political powerlessness channelled into anti-EU feeling. Local ownership brings people closer to services, restoring people power and accountability.       
• Local ownership provides an employment boost. While nationwide unemployment dipped below 5% in mid-2016, unemployment remains high in some cities and regions.  Local ownership could be a part of a jobs strategy for these centres.      
• Strong local public services boost local economies through the multiplier effect. Councils who spend money on in-house services or local procurement will boost the money in the pockets of local employees and providers who re-spend a high proportion within the same area.
• Local ownership produces an important stream of revenue. Some compensation or payment is required at first to secure local ownership. But after an initial investment, local ownership builds the asset base of local government, which can be used to pay for public services or reduce debt
• Local ownership improves social cohesion and local pride, mobilising people to take action in their own lives or to be more involved with politics. Scottish community energy projects have boosted awareness of the benefits of renewables. It’s also a bridge to other forms of community ownership. Danish windfarms have succeeded through a combination of local ownership, national ownership, and cooperatives.

Privatisation often costs us more – in shareholder profits, fragmentation and higher interest – while evidence shows that it’s not more efficient. Local ownership gives us a clear alternative that would also boost local economies and communities across the UK. Let’s take it local.

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There is an unfortunate tendency in English – not British – political debate to make a sharp distinction between the ‘bread and butter’ issues of economic management and the highfalutin and technocratic world of constitutional design. Real politics is about schools and hospitals, things that matter to everyday people – the folk and the tots of the tabloid imaginary. Only a handful of liberal democrats care about the constitution.

But the distinction, like so much that clutters public speech, is a fiction. Patterns of uneven development in the UK are directly linked to the current constitutional order. The concentration of political power in London and the demotion of English local government after 1979 partly explain the economic decline of much of the Midlands and the North. Meanwhile, the privileges afforded the City of London in the ancestral constitution, privileges that date back to before the Norman Conquest and were confirmed in a still extant clause of Magna Carta, have helped the financial sector to achieve an almost perfect capture of the official mind.

The uncodified nature of the British constitution makes all this easy to miss, but the 2007-8 crisis should have made it obvious that economic outcomes are inextricably linked to the structure of the constitution. The independent Bank of England has so far created £435 billion in order to buy bonds from financial institutions. This quantitative easing programme is intended to encourage private sector borrowing and thereby restore economic growth. The trading commissions on these bond purchases are roughly equal to the amounts given in bonuses every year in the City of London.

That’s an awful lot of bread and butter, created ex nihilo by the state’s central bank. Parliament was not consulted. The response to the crisis was coordinated from Downing Street. A different distribution of power in the state might well have led to a different economic outcome, in which the failing of the financial sector led to their effective demotion.

Finance as a whole is considered of part of the private sector. But as the crisis showed, in the final resort, the sector is dependent on state power. At present we allow profit-seeking banks to create most of the money in circulation and so we outsource decisions about investment to them. Not surprisingly they use this unexamined power to blow bubbles in asset markets. A new constitutional order could bring credit creation under effective public control and head of the threat of debt deflation.

We rarely discuss these matters in public. The media themselves exist inside a constitutional order that determines, in Aristotle’s words, ‘who learns what, and to what extent’. Widespread ignorance of how the constitution works is part of how the constitution works. In this sense, the BBC is a cornerstone of the really existing constitution. By describing quantitative easing in 2009 as being like putting “imaginary petrol” in our cars, the BBC helped ensure that the financial sector’s pre-eminence was preserved in the aftermath of the crisis it caused.

Efforts to reform the UK economy that fall short of changing the constitutional order can only achieve so much. For all the flim-flam about markets, the state is the decisive arbiter of outcomes in the economy. The structure of the state, and the ways in which that structure is described, largely determine who ends up with what, and at whose expense.

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Say, for instance, that a community group takes over an abandoned piece of land in their neighbourhood and works together to transform it into a thriving and well-used community garden and growing space. This happened in the Lower East Side of New York City in the 1980s. The new community garden will no doubt improve the physical environment of the neighbourhood, make it a more attractive and pleasant place to be in, and help to improve the wellbeing of the people who use it. On the surface everything seems great – a local community have come together to improve the area their live in. This is perhaps ‘regeneration’ as it should be. It seems that land is often safer in the hands of residents than those of land owners: Lower East Side landlords reportedly took it upon themselves to burn out occupants for insurance monies rather than let the land be put to good use. It was this act of destruction that inspired the founding of the community garden.

A more everyday – but no less devastating – problem arises when the value of properties nearby the now-thriving community garden begin to rise. The garden has had a positive impact on the ‘locational value’ of the neighbourhood – a spill-over effect or ‘positive externality’ that could eventually threaten the existence of the community which the garden helps to sustain. Rising property values will begin to attract buy-to-let investors, small-scale developers and, worst of all, land speculators – putting in motion a series of processes that will see rising rents push existing residents and businesses out. These economic agents are drawn to the area by the prospect of appropriating the positive spill-over in value produced by the garden for their own private gain. What’s worse, unless it is adequately protected by planning policy, the community garden could find itself under threat from profit-hungry developers and speculators. This is one of the tragic paradoxes of regeneration – that those places and activities which initially make an area attractive and desirable are ultimately displaced or destroyed as gentrification takes hold.

Enter land value tax (LVT) – an idea with a long lineage in economic thought and perhaps the simplest solution to the vexatious problem of regeneration-cum-gentrification.

Rather than tax property – as council tax and business rates do – LVT taxes the unimproved value of land. Agricultural, industrial, commercial and residential land all have different values – largely as a result of their different location and the use that is most appropriate to these locations. Thus, LVT is a tax on the ‘locational value’ of a piece of land, though this value is admittedly mediated through land-use designation of the planning system. Set at a flat rate of 5-10%, LVT, rises in line with the value of a piece of land. Hence, the rise in land value that results from any improvement to a neighbourhood or town centre – be it a community garden, new transport links, local street market, or enterprise hub – will be captured and socialised through an LVT. The windfall in land value that is produced by regeneration can no longer be appropriated by predatory developers and speculators, but is made available to the community that produced it for reinvestment in the continuing improvement of their area.

There are many arguments for LVT: it’s efficient and hard to avoid, encourages productive economic activity, and tackles inequality. To these we can now add a further point in favour: LVT allows local communities to enjoy the benefits of regeneration whilst mitigating against the risk of gentrification that regeneration brings.

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