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, Ed Wallis from Locality discusses the work the organisation is doing to help councils retain more wealth locally and drive economic resilience by harnessing the power of local community organisations.

Watch the full video below:

To find our more about Locality’s Keep it Local for Economic Resilience project, read Locality’s recent report ‘Powerful Communities, Strong Economies’. 

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Look anywhere on Carillion’s website and we see metaphors for its supposed tangibility and strength, from the way it advertises its Tarmac Group heritage to its list of construction achievements which in fact precede its inception. The website projects an image of a company steeped in all things concrete and solid. However, as Carillion moves into liquidation it is evident it was anything but. By 2016 Carillion’s tangible fixed assets were just 3.3% and stocks 1.8% of its total assets. Much of its balance sheet was instead made up of intangibles (37.7% of total assets), of which almost all was goodwill (35.5% of total assets) (Figure 1). The value of that goodwill depended on Carillion continuing as a going concern, which is not now an option. Creditors now want their money back, but Carillion do not have assets which can be sold to make them whole.

Carillion is the very epitome of the modern financialized firm and its liquidation tells us much about risk in this phase of financialization. The Carillion financialization story is not one of distributional struggles between stakeholders in linear time, where dividends and share buybacks come at the expense of either wages, employment or investment in a zero-sum way. Employment and average labour costs actually rose between 2012 and 2016. Carillion’s financialization story is about how firms manipulate their balance sheet to intervene in the temporalities of income and obligation; and how this may create unanticipated inter-temporal tensions.

This view of financialization owes more to critical accounting than political economy. Critical accountants such as Hines (1988); Hopwood (1986); McSweeney (2000); Morgan (1988); Robson (1982, 1984) have long argued that accounting is a process which constitutes financial reality by inscribing a particular temporality or temporalities. Processes like discounting or depreciation are future-oriented and require the inscription of particular time periods. The assessment of goodwill under International Financial Reporting Standards rules are a case in point. At one level, goodwill is simply the difference between the market value and book value of a firm recorded at the point of acquisition. But this difference in price is supposed to reflect both an assumption about the future income streams likely to accrue to the holder of the underlying assets and the future discount rate to acknowledge the many factors that could affect the future-present value of that income (such as the future costs of capital). When a future emerges that looks very different to that inscribed in the balance sheet, whether through unanticipated risks, a cost of capital increase, or a change to cashflow assumptions, it is expected that those goodwill assets are impaired in the accounts.

Goodwill therefore no longer needs to be amortised (gradually expensed) on an annual basis and is instead subject to periodic impairment assessments. Goodwill therefore forms a larger part of large firm assets on average than they did before the accounting change. Many firms have levered up against that larger asset base; Carillion is not unique in that regard. But levering up against your goodwill is a dangerous inter-temporal gamble. If goodwill is supposed to capture the present value of discounted future cashflows of underlying assets, debt is a claim on the future cashflows of the firm (its liability identity), but also allows firms to bring cash forward into the present (its asset identity) which can then be put to use for a number of purposes. The difficult temporal balancing act for a firm is to make sure that the present costs of its future liabilities can be met from the income generated by its underlying assets. And this is where firms like Carillion come unstuck. It over-estimated the future income generating capacity of its assets (contracts) and this encouraged it to do a number of silly things to keep things going for the stock market and senior management.

First, Carillion borrowed against its assets (intangible or otherwise) and paid out dividends to placate shareholders and trigger board bonuses: for the period 2012-2016 Carillion paid out £394m in dividends. Although it will not have been audited as such, this looks a lot like a firm paying dividends out of debt – aping the dividend recap practices of the private equity sector. In 2016 for example it paid out more cash in dividends (£78.9m) than it received in net cash flows from operating activities (£73.3m). This ultimately eroded shareholder funds as a percentage of total liabilities, which fell from 26.2% in 2012 to 16.5% in 2016.

Second Carillion took on more short-term liabilities, leading to problems of maturity mismatch. Current liabilities to total liabilities (including shareholder funds) rose from 43.8% in 2012 to 50% in 2016 (Figure 2) – although some of this is accountable for by the erosion of shareholder funds. Third, despite being faced with underperforming contracts, Carillion did not impair its goodwill, but instead tried to grow its way out of a crisis by bidding for more and more new contracts to generate income to pay next year’s creditors, who had lent on an increasingly short-term basis. This sounds suspiciously like a lawful Ponzi scheme, as Matthew Vincent points out. If Robert Peston’s conversation with a cabinet minister are also to be believed, Whitehall officials gave Carillion over £1bn of contracts knowing their financial position was precarious, effectively making taxpayers a kind of Ponzi scheme investor of last resort. With the NHS under serious financial pressure, this largesse towards a company whose chairman is a Tory party advisor and donor is surely a scandal in waiting.

The push to win contracts to pay back its short term creditors led to top line growth but margin collapse. Their Earnings Before Interest and Taxes (EBIT) margin fell from 5.34% to 4.09% between 2012 and 2016. The recent failure of a number of PFI contracts was the perfect storm and the firm went under.

There are so many lessons to take from the Carillion debacle. For financialization scholars it tells us about the modern financialized firm: the prevailing emphasis on present-ist distributional struggles between workers or investment and shareholders misses the point that these are not zero-sum trade-offs when companies borrow to finance investment or distributions. A more central financialized tendency is for firms to manipulate their balance sheets to play with the temporalities of income and obligation. The primary tension that arises is one between claims made today and those who wish to claim tomorrow; between distributions in the present and the claims of pension fund beneficiaries in the future. Or to put it another way: the firm is a portal (moving income through space and time), collateralised by an activity, working for elite advantage. That advantage includes abusing limited liability privileges to use the firm as a repository for risk that others must bear. The process of levering up against your intangibles to enable payouts is creating ‘go-to-zero risks’ which the state is on the hook for.

Second, this inter-temporal transfer whereby firms lever up against their intangibles and then payout on dividends and buybacks (often with additional tax benefits) is not unique to Carillion. Brexit is ushering an alternate future to that currently inscribed on many firm balance sheets, with all kinds of uncertainties looming about what that means for projected future income streams and the discount rate. We may well see more – potentially many more – collapses of this kind. The propensity for thinly capitalised firms to jettison their pension scheme obligations when they run into trouble should now be a serious governance issue. With the Pension Protection Fund already in deficit to the tune of £103.8 billion, it is not clear how sustainable things will be if many more follow Carillion’s path.

Third, it raises questions about the management of the outsourced state. Firms like Carillion moved into areas where they had no experience or competence. This reveals a tendency within UK senior management circles to value generic, transposable skills around governance structures, risk management processes and performance management systems. This may facilitate the circulation of increasingly well-paid management elites who can simply take their techniques from firm to firm, but does little to improve services, where tacit knowledge and a facility with operations should be prerequisites. The failure of a small number of contracts in unfamiliar areas was always likely to have a disproportionately disruptive effect. And this has devastating consequences for users and workers.

Fourth, it raises serious questions about the viability of the state outsourcing project more broadly. This is discussed in a book on outsourcing I co-authored. Public and private sector are never truly separable when the State assumes the downside when things go wrong, and companies seem increasingly willing to exploit that moral hazard. But Carillion raises special concerns about the networks that accrete around serial contract winning firms. This is not just about the relation between the Conservative Party and Carillion, but also the role of KPMG, Carillion’s auditor. In its 2016 accounts it is difficult to understand why the company did not impair its goodwill to signal to investors and creditors that its cashflow situation was deteriorating. Did KPMG believe that there were viable plans for the firm to grow its way out of its predicament? Were KPMG briefed about potential new contracts the firm might win? If they were, then the question is not the fuzzy boundaries between the state and outsourcing companies, but about the very purpose of this form of outsourcing: is it for outsourcing firms to help the state with its service delivery problems, or is it for the state to help capital with its profitability problems?

This article was originally published at SPERI Comment.

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The UK has a grossly financialised economy, heavily overbalanced towards the South East. Our industrial sector is uncompetitive, we have uncomfortable and dangerous levels of inequality, and whole sections of our younger generation are virtually excluded from the housing market. Our National Health Service is struggling to cope with current and increasing demand on its services.

If this wasn’t enough, we also have to cope with the uncertainties of Brexit and the looming and inescapable problem of climate change. Against this context, the current neoliberal emphasis on shrinking the state is quite misplaced, if not dangerous. Instead, fixing these issues requires a new approach to our economy. Here are six policies that would help kick start the necessary transition.

1. Introduce a Land Value Tax

The introduction of a tax on the value of land and property would tick many boxes. Land provides a huge taxable base – it is the classic commodity that cannot run away. Taxing land would have an immediate effect taking the heat out of the South East property bubble, so helping to correct regional imbalances. It would also have a big impact on land hoarding, and could be tailored to discourage non-resident holders of land, or holders of land who are not natural persons

2. Reform public procurement

Public procurement is now widely recognised as being the driver of new technology and innovative high tech companies – witness how the US has directed its public procurement programme to transform our world and its own industrial base. But this doesn’t just happen naturally. It is not enough to go to the private sector with lots of money. Instead, what is required is intelligent procurement: that is, actively identifying the needs, and driving the development process, (either within the public sector, or in close relation with the private sector), until the new innovations are ready to be rolled out.

This is the opposite of how the UK’s hollowed out state conducts public procurement. Initiatives like PFI have resulted in financial innovation for the benefit of the financial sector, often not even based in the UK. Instead, we need a new technology based policy focused on transforming the UK economy. One of the key priorities should be developing technologies related to addressing climate change.

3. Invest in new infrastructure

With so much focus on financial services and the South East, far too little attention has been paid to our island’s need for good transport and port provision. Much greater infrastructure investment, in transport and communications particularly, will be key to correct imbalances within the UK and reduce the cost of exporting. Anyone who looks, for example, at the inadequate state of Scotland’s ports, or the inadequate roads and rail links to Cairnryan, the UK’s shortest sea crossing to Ireland, would realise that the present system is not working. At the other end of the country, the constant blockages at Dover need to be addressed.

There should be a national infrastructure plan, linked to a strategic vision of how the country should be operating. Where private owners of key infrastructure (for example, the owners of privatised port facilities) are not providing adequate investment they should be incentivised to do so under threat of renationalisation.

Taking a strategic view will be even more important given that shipping patterns will likely change with global warming and the retreat of Arctic ice.

4. Reform Regulatory Asset Base (RAB) pricing

Another vital aspect of infrastructure investment is how it will be funded, and here the UK has got things disastrously wrong. Much of our key infrastructure – rail, airports, water, electricity transmission and gas – is ultimately funded by charges on the user or passenger, calculated on the basis of what is known as regulatory asset base (RAB) pricing.

RAB pricing is a version of current cost pricing, where the charges on the customer go up in line with inflation. But when RAB pricing was introduced in the wake of the Thatcher privatisations, the general public was not made aware of its flaws.

Under the old fashioned system where the funding of infrastructure was based on fixed interest loans, the effect of inflation was to erode the real value of charges through time. Inflation was the consumer’s friend. With RAB pricing, however, prices keep on rising with inflation. Far from being immaterial, the difference matters immensely. In the long run, prices for the consumer are much higher under RAB. This price differential can be, and is, extracted by the asset owners in the form of a windfall capital gain. If you want an explanation for high rail fares in the UK, or high utility prices generally, as well as huge company dividends – RAB pricing is a major factor.

All of this was glossed over when RAB was introduced. But the important point is that RAB is not an essential adjunct of privatisation. Changing the pricing model for utilities and privately funded public infrastructure onto a more rational basis could still enable investment to be fully funded – it would just remove the current excess windfall profits for the utility owners. And there would be further benefits to rationalising RAB pricing. For one thing, it would strike a major blow against the current culture in the UK in which financial interests dominate: finance should be our servant, not our master. Reforming utility pricing would also make the eventual renationalisation of utilities much easier as the private owners would no longer have today’s large windfall profits to defend.

5. Establish a State Investment Bank

A new state investment bank (SIB) would have two main functions. Firstly, after the reform of RAB, there will be opportunities for investment in infrastructure and utilities. A SIB would borrow, at low public sector borrowing rates, to provide funding for such investment. The existence of such a funding source would provide the ultimate counter argument to any of the present utility owners who might otherwise argue that they could no longer afford to invest, given the reformed pricing structure for utilities after the changes to RAB.

Secondly, the SIB would put in funding to selected new tech start-up companies – for example, those being spawned out of the proposed reform of public procurement, and those addressing climate change. This SIB funding would come with an important proviso in the form of a golden share, which would ensure that the new company could not be sold out and taken over without the approval of the government. Equity investors in promising new tech start-ups in the UK have been too keen to sell out at the first opportunity – with the effect that the new companies are taken over and their intellectual capital lost from the UK. SIB funding would ensure that this could not happen.

6. Reinvigorate Freedom of Information

Full information on the costs and performance of services is absolutely central to efficient government and the proper assessment of policies. Unfortunately, given the trend towards the privatisation of services in the UK, there has been a great decline in the accessibility of information. Forces of reaction have carried out a successful rear-guard action against the Freedom of Information Acts.

This process has been helped by the failure of the private bodies which carry out so many functions of the state to recognise the spirit or the letter of Freedom of Information. Freedom of Information should be revisited to make it absolutely clear that if the Government pays for a service, then all the information about that service will be publicly available, even if the actual provider is in the private sector. For example, this provision would cover the full details, including the contracts and financial projections, of Public Private Partnership schemes.

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Sainsbury’s just gave African fair trade farmers a real kick in the teeth. The supermarket has devised its own ‘fairly traded’ accreditation system, snubbing the well established independent Fairtrade Foundation scheme. But I’m not buying it (although I did buy their fair trade tea).

As the 200,000 African tea farmers and workers put in their letter rejecting the new Sainsbury’s scheme, “Our destiny must be kept in our hands”. Top of the list of concerns was the fact that farmers would lose control of the money they had earned to spend on community and local projects. Instead, they would have to apply to a board in London to access the money they had rightfully earned, with no guarantee they would receive it. It all sounds rather colonial.

Underlying this is the desire of UK retailers to retain control over the money that is made from food production. This is a great shame, as the whole point of Fairtrade was to make sure a reasonable amount of final spending on food reaches the farmers and workers overseas.

A similar motivation lies behind the rapid rise of the ‘gig’ economy in the food retail and service sectors. By placing all the precarity and risk associated with the ‘just in time’ system onto the worker, supermarkets can keep as much of the profit as possible. But there is another way.

Genuinely affordable, kind and healthy food initiatives – local box schemes, farmers’ markets, internet retail, coops, community cafés and Community Supported Agriculture – are on the rise. Loyalty to supermarkets, on the other hand, is not.  These initiatives are a crucial lifeline for farmers as they provide an opportunity to sell directly to customers instead of a few, rapacious supermarket buyers.

A new network called the Better Food Traders (BFT) network was formed in 2016 to support genuinely sustainable alternatives, challenge the dominance of the supermarkets and help farmers get a fairer route to market. Better Food Traders aims to be “changing the way food works so it’s fair, sustainable and better for all our futures”, and it has ambitions to grow.

The concept is radical and, by design, not uniform or easily branded. It currently has 12 food traders on its books, ranging from community supported agriculture schemes, fruit and veg pick up schemes, an organic Farmers’ Market and urban patchwork farms.  Before you cry “elitist”, many of these initiatives take Healthy Start Vouchers, and paying suppliers fairly and workers a living wage are core principles.  And before you say “too small”, remember that the ethical food entrepreneur behind the new network runs an award-winning values-led social enterprise called Growing Communities that has more than £1 million of turnover in fresh, healthy and sustainable food business.

Supporting BFT is one logical way to build a new vision for a diverse, fairer food system. It allows customers to reward good producers by buying their food and developing a much closer relationship with them. Shorter supply chains mean better communication and less chance of confusion or even contamination and loss of food quality.

In a way it is the opposite of the gig economy, which has been described as “a labour market characterised by the prevalence of short-term contracts or freelance work, as opposed to permanent jobs”. For some workers, the precarity of the gig economy is not an issue. Some people like the flexibility and degree of control over their working hours. Technological advances have provided the digital tools that enable the industry to shift output at a moment’s notice. But it can clearly mean worker abuse, bogus self-employment, fewer rights in areas such as sick pay, holiday pay, pension contributions and maternity/paternity pay, and widespread exploitation of the welfare state. And if work does not pay, poverty ensues. In 2016, 7.4 million people, including 2.6 million children, were living in poverty despite living in working households.

Things like decent pay, sick pay, protection from unfair dismissal, holidays and parental leave are not only hard won rights that have been struggled for over the past 100 years. For many, these rights mean the difference between decent work and a constant battle to feed your family, keep a roof over your head and maintain mental and physical health. If the worst parts of the ‘gig’ economy are allowed to succeed, other providers will be unable to compete and may ultimately disappear.

For the African farmers, losing control over their finances can have a similar impact on their ability to live decent lives and support local schools and other projects. Worse, the impact of unfair trading on African farmer incomes lacks the kind of visibility and voice that leads to change. This is why independent schemes such as the Fairtrade Mark and Better Food Traders are so important in making the issues and solutions visible and valued.

We need something better which is healthier and fairer, supports decent livelihoods and protects the valuable farmed environment.

These UK food schemes may seem a long way from African tea farmers, although most do incorporate Fairtrade items in their product range in solidarity. But this is about taking back some control over our food and making sure that the money we spend enables people to live a decent life. Strengthening the Groceries Code Adjudicator to stop unfair risks and costs being passed down to suppliers – at home and overseas – and cutting excessive high pay in the food sector would also help.

At the moment the schemes may be small and out of reach for some. But like Fairtrade they need customer support to succeed. Likewise, trade unions need support in their fight to stop the gig economy eroding hard won rights.  Joining their demands for strong and fair regulation of the ‘gig’ economy is vital. Anna Cura of Food Ethics Council has written recently on the importance of being citizens rather than consumers going “beyond engagement to involve people, and recognising the multiple roles citizens can have in the food system.”

Voting is infrequent, and referendums even more so. We therefore need to vote with every pound we spend. If that means shopping around and spending a bit more time thinking about the food we eat, then in the long run it will be worth it.

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Samsung has been in more than a spot of bother over the last year. In October 2016, just two months after its release, the latest model in Samsung’s flagship Galaxy Note series was discontinued, as batteries within the phones had been causing them to combust. Exploding phones caused Samsung to lose its coveted spot as the smartphone vendor with the largest portion of global market share, falling behind Apple in the last quarter of 2016 for the first time since 2011.
Samsung’s corner cutting and dangerous practices haven’t been reserved solely for consumers either – they’ve hit their workforce too, seeing them replace Foxconn as the poster child of worker rights abuses in the electronics industry. A group of workers, their families and trade unionists – Supporters for the Health and Rights of People in the Semiconductor industry (SHARPS) – have been staging a sit-in at Samsung’s South Korean global exhibition space for over a year. SHARPS accuse Samsung of causing the death of more than 70 factory workers, and occupational disease of many others due to their exposure to toxic chemicals without adequate protection and are fighting for compensation for workers and their families, as well as for a full disclosure of the chemicals Samsung has required workers to use in manufacturing. Earlier this year a South Korean court confirmed that the Korean Workers Compensation and Welfare Service should pay compensation to an LCD worker – Kim Mi-seon, for Multiple Sclerosis she suffered through her work at Samsung – the first ruling of its kind.
SHARPS campaign is not an isolated case. In October, the International Trade Union Congress (ITUC) released a damning report on working conditions across all of Samsung’s supply chains, from China to Brazil and from South Korea to Indonesia. One of the most concerning allegations in the report is that Samsung operate a ‘no-union’ policy in its own factories and actively seeks to prevent the formation of unions at its suppliers. Attempts to restrict freedom of association are common with much of the global manufacturing industry, but few companies have been as effective as Samsung at achieving it. In 2014, it was estimated that across Samsung’s entire supply chain in South Korea, just 300 workers were members of trade unions. Samsung Electronics directly employs more than 300,000 people.
Samsung’s ability to suffer relative impunity is a direct result of the significance the company has in South Korea’s economic and political system. The centrality of the company to the economy of South Korea allows their practices to go unchallenged. Samsung is gargantuan monolith that is responsible for more than a quarter of South Korean exports, has an annual revenue exceeding the GDP of Cambodia and Honduras , and is responsible for almost a fifth of South Korean GDP. Samsung is the largest of the ‘chaebols’ – vast, Korean, family run conglomerates which are often accused of engaging in aggressive monopolisitc behaviour and asserting significant influence over government officials and policy. So unfathomably large is Samsung, and so wide its influence, a common joke among South Koreans is to refer to their country as the ‘Republic of Samsung.’
Since the 1997 economic crisis that affected South Korea, along with other so called ‘Tiger Economies’ of East Asia, much has been written of the declining political influence of South Korea’s chaebols. The state no longer has a majority stake in any chaebol and numerous executives have been charged and convicted for white collar crime. In spite of this, the few CEOs found to have engaged in embezzlement, bribery, fraud and tax avoidance have been granted pardons or offered laughably lenient sentences.
The true extent of corruption within the South Korean political system is slowly being revealed in the scandal that engulfed the currently suspended and impeached President Park. The scandal began to emerge at the close of 2016, with allegations that Choi Soon-sil, an associate of the president with no official government position, was granted access to confidential government documents, exerted influence over key aspects of state policy and extorted millions of dollars from the chaebols. As the scandal has boiled over into 2017, Samsung’s heir apparent Lee Jae-yong was arrested on February 16th, with authorities alleging over $30 million were paid by Lee to Choi Soon-sil in return for political favours in addition to accusations of embezzlement and perjury.
This isn’t the company’s first major run-in with the law. Lee Jae-yong’s father previously faced allegations of bribery of prosecutors, judges and political figures in 2008. He was sentenced to an almost $100 million fine and a suspended jail sentence after having been found guilty of financial wrongdoing and tax evasion, but was later pardoned by the then President of South Korea.
Only time will tell if this corruption scandal will cause more lasting damage to the political system and the chaebols that prop it up. Pressure is coming both from outside traditional structures, with up to 2 million people regularly taking to the streets in South Korea in protest over the scandal, and in the courts. Perhaps the time has finally come for long overdue reform of the political and business models of South Korea. With it, there would come a unique opportunity to ensure the dignity and rights of workers across the country, but specifically at Samsung.
In the meantime, the ITUC has gathered nearly 15,000 petition signatures calling for the abolition of Samsung’s no-union policy, and students across the UK and Ireland are taking action against and applying direct pressure to Samsung over the next two weeks, as international solidarity with Samsung workers grows. At a time when Samsung is under intense media scrutiny, we have a real chance of putting pressure on the company to improve working conditions within their supply chain.
Samsung and the struggle to hold them to account is a key example of how public procurement is being used in solidarity with local organisers to put pressure on companies and defend workers’ rights around the world: with people across the UK campaigning to get their college, university, local authority or other public body to join Electronics Watch, an independent labour monitoring organisation in the ICT industry.
You can sign the ITUC’s petition here.

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This piece is a response to John Mills’ challenge, ‘We need to rebalance the British Economy‘.

In her first big party conference speech, Britain’s new prime minister rode the wave of populist revolt that swept Britain before 23 June, 2016. “This is our generation’s moment” she said: “To write a new future upon the page. To bring power home and make decisions…here in Britain. To take back control and shape our future…here in Britain.”

But the prime minister only went halfway to meeting the concerns of more than seventeen million British ‘leavers’. For May’s vision is not just to “bring power home and make decisions…..here in Britain”. It is also “of a confident global Britain that doesn’t turn its back on globalisation but ensures the benefits are shared by all. And that Britain” she said emphatically “the Britain that we build after Brexit – is going to be a Global Britain.” (My emphases).

The prime minister’s approach builds on Tony Blair’s view that there was no need to stop and debate globalisation: “you might as well debate whether autumn should follow summer” he said to the Labour Party Conference in 2005. Or Gordon Brown’s recent Guardian plea that “we need a national conversation, and a national commission, on making globalisation work for Britain.”

Like her Labour predecessors, the new prime minister clearly signalled that she will do nothing to tame the global financial tail that wags the British economic bulldog. While she was willing to acknowledge that ‘global citizens’ are ‘citizens of nowhere’, her government will not address the much deeper economic and political malaise facing Britain – namely, financial globalisation.

Financial globalisation is the system whereby ‘citizens of nowhere’ – active in global capital markets – determine the life chances and living standards of citizens around the world. In other words, the system which permits financiers to use capital mobility to enjoy absolute advantages over all other sectors of a domestic economy, and which thereby elevates financiers to the position of masters not only of economies like Britain’s but also of the global economy. Capital enjoys this power because unlike trade or labour, flows of capital face very few barriers to movement, and can therefore quickly migrate to where returns or capital gains are highest. By contrast, flows of trade and labour face geographic, political, regulatory, physical and even emotional barriers to movement. It is this that makes capital dominant over trade and labour in the global economy, and increasingly so in a domestic economy like Britain’s.

And it is this dominance of finance over the real economy that has persuaded many industrial capitalists that if ‘you can’t fight ‘em, join em’. The result is that the economy has become increasingly financialised; Capitalists have tried to find ways of mimicking the finance sector’s ability to make gains effortlessly from debt and speculation. They make large amounts of their profits by accumulating unearned income from ‘rent’ on pre-existing assets, including land, houses, commercial buildings, vehicles, databases, brands, works of art, yachts etc. Those that do not own pre-existing assets that can be rented out are obliged to earn income – invariably from their labour.

A stock ticker screen at the London Stock Exchange in the City of London. Picture by Philip Toscano PA Archive/PA Images

We should be mindful, as ecological economist Herman Daly once remarked, that policy-making in taxation, greenhouse gas emissions, pensions, criminal justice, welfare, etc, requires boundaries. British pensions and benefits are not payable to e.g. Brazilian citizens. Criminals could render the justice system meaningless if there were no barriers set by borders. HMRC cannot tax South African citizens resident in South Africa. However, while policy requires boundaries, global finance abhors boundaries.

We can be almost certain that Mrs May’s finance-friendly government will not bring offshore capital back onshore – to operate within the boundaries of British government law and policy-making. There will be no substantial re-structuring of Britain’s finance sector.  On the contrary, it is very likely that British taxpayers will be expected to continue to finance and subsidise the footloose activities of these ‘citizens of nowhere’, and to bail out the City of London’s institutions in the event of failure. Contrary to the fine words in Mrs May’s conference speech, there is even talk of taxpayers footing the bill for the City of London to continue operating within the EU, when other traders will be excluded from access to the Single Market. If the British government persists in this deference to the City, both the government and voters can look forward to a continuing decline in real living standards while global elites deploy mobile capital, new technology and algorithms to gouge rent from every conceivable British asset – and from British workers in a range of sectors, and in their homes.  The income from these ‘rents’ will not be reinvested in the British economy, but will be channeled to wherever tax and regulation are lowest, and wherever in the world speculative returns are highest.

Participants in the London Stock Exchange’s float in the City of London during the Lord Mayor’s Show. Picture by Laura Lean PA Archive/PA Images

While the recent fall in sterling may be welcome relief for exporters, its rapid decline is nothing less than a defiant reaction by financiers in global capital markets to the Brexit vote. It is but the latest manifestation of the power of these financiers to dictate political preferences and to act, in effect, as masters not just of the economy, but of British democracy.

Financial globalisation has weakened and unbalanced the British economy, and that in my view, explains more fully the Brexit vote. For it is my contention that financial globalisation has led to the decline of British industry, the decline in investment, the rise in unemployment or insecure employment, and to the fall in labour’s share of the economy. Above all, it is financial globalisation that has caused regular, overlapping and increasingly catastrophic crises.

Key decisions by Britain’s public authorities to re-regulate (not de-regulate) the British economy in the 1970s had the express purpose of advantaging the City of London and disadvantaging industry – especially the export sector, as Davies and Walsh explain in their 2014 paper ‘The role of the state in the financialisation of the economy’.

One of the most significant of the changes was the removal of controls over capital flows in and out of the country. A second change was the transformation of banking to allow bankers to lend, not on the basis of the value or viability of a project, but instead on the basis of whoever was willing to pay the highest price (or rate of interest) on a loan. As a result, borrowing for investment became prohibitively expensive, afforded only by the few.

In addition as Davies and Walsh demonstrate, other changes were made to advantage finance:

“Stamp duty on the purchase of shares and bonds was cut in stages from 2 to 0.5 per cent. Dividend payment controls were abolished in 1982. In contrast, although corporation tax was cut for all businesses, this was paid for specifically by removing capital investment allowances for machinery and plants – measures which primarily hit manufacturing. There were steady value-added tax (VAT) rates rises on goods and services, but financial and insurance services were made VAT-exempt. This doubly disadvantaged industry next to finance as the former made much greater use of real world goods and services than the latter.”

As its architects intended, these changes to the financial system took place without much public or academic debate. Partly as a result of this stealth, the process of financial globalisation was not, and is still not well understood by either economists, or politicians – a fact that reflects badly on the mainstream economics profession. Aeronautical engineers have an understanding of the climate and engineering conditions that affect the safety of passengers. By contrast, economists, especially microeconomists, do not share the same concern for the safety and wellbeing of citizens operating within market economies. Whereas no aeronautical engineer would abandon passengers to the vagaries of the weather or to untested technology, economists breezily delegate management of the financial system and of the British economy to ‘the invisible hand’.

As a result of the transformation of the economy in the 1970s, globalised financiers have starved firms of affordable finance, which in turn has led to cuts in investment in both skills and infrastructure. Management of the exchange rate is no longer the responsibility of Britain’s public authorities. Instead this critical economic tool was privatised, and the currency – like many others – is now subject to the whims of speculators in capital markets. The result of these changes was entirely predictable. Labour’s share of the economic cake was slashed; inequality intensified and divergences between British regions deepened, fuelling public outrage. Worse, I will assert here, it is financial globalisation that has ratcheted up both Britain’s but also the world’s toxic emissions.

If we want to balance the power wielded by the financial sector over our economy, we must be clear that rebalancing the economy also means re-thinking the relationship between the economy and growth. An alternative, more balanced economy will not be based on the untenable and environmentally disastrous concept of ‘growth’, let alone ‘green growth’. Instead, a balanced economy is one that promotes sustainable economic activity – in particular full, meaningful employment aimed at substituting labour for fossil fuels. As the economist Robert Pollin explains

“spending on green investments creates approximately three times as many jobs as spending the same amount of money on maintaining our existing fossil fuel sector. The reasons are straightforward. First, clean energy investments are simply more labour intensive. Also, a higher proportion of overall spending on the green economy remains within the domestic economy as opposed to purchasing imports.”

So a rebalanced British economy is one in which Britain’s demand for goods and services meets the nation’s well-managed supply of finance, labour, commodities, products and services.

Picture by Joe Giddens PA Wire/PA Images to an official report.

Before the Second World War the concept of ‘growth’ scarcely existed, as Geoff Tily explains in his PRIME essay On Prosperity, Growth and Finance.

“National accounts and measures of national income (the forerunners of GDP) were devised in the 1930s, in the wake of the great depression. Policymakers and economists were preoccupied by getting the economy and financial system to function and addressing a crisis in unemployment. Later in the Second World War economic statistics were needed to try and prevent inflation, given that all resources – especially labour – were fully utilized. Then, later in the Bretton Woods era, full employment was regarded as the proper goal of economic policy-making.”

With financial liberalization all this was to change. Financiers could make extraordinary capital gains from financial speculation – far more than the average industrial capitalist could make in profits. This was largely because financiers can gamble and make gains in money markets without engaging with either the land – in the broadest sense of the word – or labour. Industrial capitalists by contrast have to engage with both land and labour. The substantial capital gains made from speculation by increasingly deregulated financiers were then pitted against the lower profits made by industrial capitalists from investment, employment and output. As financiers became more dominant, competition with industrial capitalists intensified.

It is hard to pinpoint the exact timing for the shift of emphasis, but under the surface changes were underway from at least the 1950s. The pressure on industrial capital was applied by both the finance sector, but also by friends in the economics profession, and in particular economic commentators. The latter began to reframe the key concept of levels of economic activity, and invented the term growth. Growth follows the trajectory of capital gains more closely than it follows that of more volatile profits. Capital gains – like those made from winning the lottery – can rise exponentially (until they crash). Profits rise and fall as capitalists battle the land and labour.

In the UK one of the most prominent campaigners for the concept of ‘growth’ was Samuel Brittan of the Financial Times: he proudly identified himself as a ‘growthman’.  At a time of full employment, he and other economists castigated the government (and industry) for what they regarded as an economy less profitable or dynamic than that seen in other countries. To apply pressure on those active in the real economy, they had to raise the bar of economic expectations. Full employment was not a sufficient goal. It was to be abandoned.

The concept of growth was subsequently adopted as the goal of all economy policy by the newly-founded OECD in 1961. In that year the organisation agreed an extraordinary fifty per cent growth target for the whole of the 1960s, as Tily explains:

“The aim of fixing the level of employment and output to sustainable levels had been abandoned. Instead the world had officially been set a systematic and improbable target: to chase growth. Nobody seems to have paused to consider whether growth derived as the rate of change of a continuous function was a meaningful or valid way to interpret changes in the size of economies over time.”

Whereas in nature growth is part of the process of life that begins with birth, moves to maturity and ends in death, in economics ‘growth’ is expected always to expand, and to be boundless.

Sunflower Electric Cooperative’s coal-fired power plant. Picture by Charlie Riedel AP/Press Association Images

The result of the new unmanaged ‘growth’ strategy of the 1970s was disastrous: a decade of uncontrolled inflation followed, as management of the exchange rate was abandoned, and as too much ‘easy’ money chased too few goods and services. 1970s inflation is always wrongly blamed on Maynard Keynes and the unions, but in truth these policies were anti-Keynesian. It was the 1971 decision to remove controls over bank lending that caused a massive expansion of credit (often for speculation) and that fueled inflation. The almost simultaneous decision by Britain’s public authorities to abandon responsibility for managing the exchange rate, and instead to switch to ‘flexible exchange rates’ meant that sterling fell 16% between 1971 and 1974. Import prices rose by 79%; consumer prices by 35%. The unions tried to ensure wages kept up, but they were to be defeated. Loss of control over bank lending was a key factor in 70s inflation, but so was the now out-of-control exchange rate.

These changes hurt consumers, workers and manufacturers, but greatly enriched and empowered the finance sector. Vast sums of money were made from buying and selling sterling; by speculating on whether the currency would rise or fall and by ‘buying cheap’ in one currency and ‘selling high’ in another. Even greater sums were made from lending at high rates of interest. But then, once the public authorities gave up acting as ‘guardians of the nation’s finances’ why would speculators invest in Britain for the long-term? Why would they engage with either the land or labour in the process of manufacturing – when vast sums could be made short-term, by gambling on tiny movements in the value of any marketable asset?

The ‘growth’ and inflation of the 1970s, was followed by decades of rapidly expanding consumption, falling real incomes, de-industrialisation and rising income inequality. Britain became less self-sufficient, and more dependent on imports. We began to rely on ‘the kindness of strangers’ to finance the nation’s rising overdraft with the rest of the world.

Policies for what were effectively exponential growth took their toll not just on the real economy, but on the ecosystem as ‘easy money’ at high rates of interest (think of credit cards) facilitated a massive expansion of consumption and, to satisfy that demand, extraction of the earth’s scarce assets. Which is why ‘green growth’ is an oxymoron, and should never be used by those concerned to protect the commons. Instead we should replace the language of ‘growth’ with the term ‘economic activity’ – to include employment, investment and output.

The real aim of rebalancing the economy will be to increase activity – especially skilled, well-paid, meaningful employment – within a framework that subordinates finance to the role of servant, not master of the economy; and that builds an economic framework of national self-sufficiency within the finite and sustainable limits of the ecosystem.

Financial information displayed inside the London Stock Exchange. Picture: AP Photo/Matt Dunham

The policy prescriptions for returning the British economy back into balance are both viable, tried and tested. We know they work, because they have worked before, in our very recent history: a period known by all mainstream economists as ‘the golden age’ of economics: 1945 – 71.

Of course the argument will be that “it is not possible to turn the clock back”. But if we survey the current political scene in both Europe and the United States it is possible to see, before our very own eyes, the clock being turned back. Once again electorates are turning in desperation to ‘strong men’ for leadership and protection against the predatory forces of financial globalization. These are rightly perceived to be beyond the control of democratic governments. They are not of course, but both social democratic as well as conservative governments in Europe and the US have subordinated the interests of domestic economies to the interests of those active in global capital markets – ‘the citizens of nowhere’.

In Europe in the 1930s, as Karl Polanyi argued in a famous passage from The Great Transformation, the masses turned to authoritarian leaders like Mussolini and Hitler for such protection from “the self-regulating market’. For Polanyi

“the self-adjusting market implied a stark utopia. Such an institution could not exist for any length of time without annihilating the human and natural substance of society; it would have physically destroyed man and transformed his surroundings into a wilderness. Inevitably, society took measures to protect itself…..”

Former chancellor George Osborne attends the inauguration of the ceremonial market opening in London. Picture by Stefan Wermuth PA Wire/PA Images

Today the people of Europe are once again turning to populist, protectionist anti-immigrant leaders, for protection.  France’s Marine Le Pen leads the National Front, a party founded by Nazi collaborators that promotes protectionism. In Hungary Viktor Orban leads his right-wing, protectionist and anti-immigrant Fidesz party. Norbert Hofer of the nationalist and anti-immigration Freedom Party has been given another chance by the Austrian courts to become the first far-right politician elected head of state in Europe since World War II. Jaroslaw Kaczynski leads Poland’s right-wing Law and Justice party, which has embraced economic interventionism. In Greece the neo fascist party, Golden Dawn openly uses violence to pursue its aims. And in Britain UKIP and the right-wing of the Tory Party have campaigned for Britain to “take back control”.

In the United States ‘America First’ is the slogan of the Donald Trump campaign – a campaign that will not go away after the presidential election. His campaign slogan is taken from the 1930s ‘America First’ campaign backed by the anti-war Left, and which counted Charles Lindbergh as one of its leaders. Lindbergh blamed Jewish people for drawing America into war, and warned “their greatest danger to this country lies in their large ownership and influence in our motion pictures, our press, our radio, and our government.” Today ‘America First’ is once again the slogan of the Trump campaign – but this time it is Muslims that are blamed for US weakness. Trump proposes to renegotiate trade terms; strengthen the military; make American energy independent, and build a wall against Mexican immigrants.

The rise of populist, nationalist, and even fascist political parties is a predictable response to the ‘stark utopia’ of a self-regulating globalized financial system. A major incentive for pushing back on the war-mongering of political populism would be the introduction of policies for managing and regulating the global financial system to restore political, economic and social stability and balance.

This argument in turn is based on a simple democratic one: that elected governments have a duty to their people, and to their domestic economy – not to invisible players in global capital markets. Governments, like aeronautical engineers, have a duty, and are accountable for the management of the domestic economy and for keeping it safe for the population it governs. To abandon such duties is to vacate the nation’s political space and to invite populist, authoritarian parties to ‘take control’.

Picture by AP Photo/Lee Jin-man)

The most important policies for rebalancing the British economy require management of capital flows in and out of the UK: capital control. In other words, monitoring and restrictions (perhaps in part using ‘Robin Hood’ taxes) applied by the authorities on flows of mobile capital – to act as ‘sand in the wheels’ of such mobility. Such taxes are vital to slow down and manage flows of ‘hot money’ into and out of Britain, where valued property acts as an attractive tax haven for laundered, and often illicit flows of speculative capital. Unbridled flows can cause the exchange rate to rise, or to fall suddenly, hurting both exporters, investors and consumers. They can of course be reversed quickly, as we have seen happen since the EU vote, and in so doing can destabilize the economy. These flows have been left to ‘the invisible hand’ with governments apparently helpless in the face of instability and disorder.

Above all, capital mobility renders all domestic taxation policy-making meaningless. If firms (like Apple, Starbucks, Facebook or Amazon) or wealthy individuals can simply move their money abroad, tax policies are rendered futile. Campaigning for big oligopolies to pay taxes is meaningless without campaigns for capital control.

Second, the Bank of England must re-introduce a range of macro-prudential tools – regulations that aim to mitigate risks to the financial system as a whole. These are needed to manage the production and distribution of money, and to discourage credit-financed speculation – in property and other pre-existing assets (stocks and shares, bonds, works of art, vintage cars, brands etc.). The use of such tools is necessary if society is to ‘take back control’ of the management of the financial system from bankers. Above all, they are important if the Bank of England is to regain control over the whole spectrum of interest rates – not just the ‘Bank of England policy rate’ – which applies only to bankers. All rates, short and long, safe and risky and real – should be managed in the interests of Britain’s domestic industry and of sustainable activity. High rates of interest demand high rates of return on all forms of economic activity – and explain why so much of the ecosystem is plundered (think of forests, fisheries and the land) to finance debt repayments.  Low, affordable rates will make the financing of climate change projects viable, and will support a wide range of activity, including public projects and services.

Third, democratic governments must begin once again, to coordinate and cooperate at international level, to manage exchange rates, global imbalances and the global financial system. Its management and stability can no longer be left to the insatiable greed and rapacious instincts of the ‘citizens of nowhere’: Vulture Funds, Private Equity firms, Silicon Valley billionaires, global investment bankers and speculators.

The Bank of England. Picture by Anthony Devlin PA Wire/PA Images

If Britain is to maintain political, social and ecological stability then it is absolutely essential for the British government to manage the financial system, not leave it to the anarchy of unregulated financial markets. Proper governance of the financial system will make finance for productive investment affordable. Management of the financial system will help stabilize the exchange rate – much as was done during the Bretton Woods era. Management of the exchange rate can begin to address Britain’s massive (6% of GDP) current account imbalance, and help to rebalance the economy away from financial globalization, and towards greater domestic self-reliance.

Such governance is necessary if we are to return the British economy to balance: one where well-paid, meaningful employment is available for all who are able to work – regardless of which region of the country they happen to live in. Employment at liveable wages, and supportive of families and communities, will be our most valued measure of balance and stability. This is because full, meaningful employment is not just vital to social and political stability – but also to environmental stability. One has only to think of the way in which mass youth unemployment has laid waste to much of the Middle East. If we are to transform the economy away from dependence on fossil fuels, then substituting labour for insecure energy sources will be a central part of that transformation.

Management of the financial system will support a wide range of economic policies that can restore social as well as political balance and stability to Britain. These include effective taxation of the owners of wealth to help reduce the rampant inequality that now dogs Britain. Policies and activity that can provide hope, meaning and respect to those millions whose roar of anger and despair was heard so clearly in the vote for Brexit. Policies that, given the finite nature of the world’s natural resources, can ensure a degree of self-sufficiency for the people of Britain; can diminish the threat of conflicts and sustain peace between Britain and her neighbours.

For as Keynes once famously argued:

“Ideas, knowledge, science, hospitality, travel–these are the things which should of their nature be international. But let goods be homespun whenever it is reasonably and conveniently possible, and, above all, let finance be primarily national.”

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I’m a campaigner against workers’ rights violations in the supply chains of major clothing and electronics brands. That essentially means I’ve spent 7 years trying to make public procurement – governmental purchasing of goods and services from private companies –a sexy topic. Why?

Procurement can be sexy  

Ultimately, money is power. If we’re going to more effectively regulate big corporations in a globalised world, then we need to set our crosshairs on the one thing they particularly care about: their wallets.  

And government consumption of products and services makes up a big wodge of those wallets. Public procurement makes up a fifth of all spending in the UK, and 16% of GDP across the European Union. Including legally-binding conditions in public contracts can therefore be a major tool in enforcing better standards of corporate behaviour.

Any push to use this method to promote social or environmental justice, however, must currently ensure that it is compliant with the convoluted requirements of European Procurement law, which is also the legal framework currently governing UK public procurement. Despite recent legal revisions, this framework is very restrictive towards public bodies wanting to use contract conditions to advance socially just outcomes; often for perfectly laudable reasons such as avoiding corruption.

For example, amongst other absurdities it would not technically be possible for a government to require in a procurement tender that any potential suppliers have a company-wide policy on not employing slave labour. Although, paradoxically a government could require in a contract that there was no slave labour in the specific supply chain they end up using.

Using our collective power

After Brexit, we’re no longer tied into this policy framework. This gives the government a huge opportunity to use its £242 billion of spending power as a force for regeneration, de-privatisation or environmental protection, alongside getting good value for money for the public sector.

Procurement is a powerful medium through which to push a progressive agenda in a wide range of sectors. Here are just a few:

1. The triumph of Brexit fed on the the desperation felt after 40 years of underinvestment in post-industrial towns. Why not require companies gaining large government contracts to invest and employ in those regions, or to share project ownership with and transfer technology to local infant industries?
2. Why not favour cooperatives, rapidly expanding the cooperative sector of the economy?
3. Why not require suppliers to invest in carbon reductions in parts of their supply chain over the course of large 4 year contracts, perhaps sharing costs where this contributes to national targets?
4. Why not favour public entities over private companies for supplying relevant products or services; the profits they retain effectively subsidising them, enabling them to invest or cut user costs?

Colin Cram recently argued against this position, calling on government to keep procurement legislation the same for efficiency’s sake. Any reformists would also have to face a potential for backlash from other countries if government procurement action is seen as protectionist. Furthermore there are other legal frameworks such as competition law and international trade law, which, even pre-TTIP, need to be considered when developing procurement policy. Some of these ideas may fail after legal analysis, but the aim here to start off a much needed debate.

Money is power, and 20% of GDP is a lot of concentrated power. Progressive governments would be unwise not to use procurement, one of their biggest potential available levers, to achieve the structural reform that our economy requires to meet our needs in the 21st Century.

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