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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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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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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The Sainsbury’s-Asda merger is a perfect illustration of the accelerating race to the bottom in the grocery retail sector. It was a bombshell, and unless the rules – on competition, planning, environment and worker and consumer protection – are greatly enhanced and effectively applied, a significant part of society is likely to be badly hurt by this ‘mega merger’.

Combined with Liam Fox’s new UK trade deals, it could mean our shelves being flooded with obesity-fuelling Twinkies and more farmers going bust after Brexit. To avoid such an outcome, the government must decide whether it actually wants to nurture affordable and high quality food, good jobs and healthier waistlines.

To recap: Sainsbury’s is likely to become Britain’s biggest supermarket after agreeing a deal with Asda’s owner, Walmart, to buy it out. Walmart will then own 42% of the new mammoth, which will then control around a third of the UK grocery market share. Tesco has around 27%. The two companies involved have ‘suggested’ that food prices could fall by up to 10% on some popular items if the deal is approved, and they have also pledged not to close stores or lay off store staff. That sits in the realm of the unbelievable. Somebody, somewhere will always have to pay.

The way in which the news of this buy out was greeted was notable. In an urgent Parliamentary debate, Business Minister Andrew Griffiths more or less gave it the government’s blessing, saying that many high street names have been lost in recent years and that it is just “two businesses trying to get ahead of the curve and future-proof themselves in a very challenging market”. In response to one MP’s concerns about loss of stores in his constituency, the minister responded by saying that “the honourable member is spoiled for choice”. Spoilt! At least some MPs are concerned and on the case.

Other commentators felt this was all but inevitable in the face of new competition from Aldi and Lidl, as well as Amazon’s entry into grocery retail with its buy out of Wholefoods (and Amazon itself was seen recently circling around Waitrose). Yet there was also a resigned sigh about our pitiable competition law – the UK’s Competition and Markets Authority won’t have the teeth to stop such a blatant breach of what should be the cornerstone of our competition regulations. The Tesco-Booker buy out already proved that.

But maybe planning regulations can keep retail diversity in the high street, or make sure the supermarkets contribute to communities? Forget it.

The catastrophic impact which this deal could have on whole swathes of society is being ignored, including 330,000 workers and thousands of farmers facing even fewer powerful buyers and more squeezed prices. Then there are the millions of customers who will have less choice over what and where to buy, and who will walk along ever more ghostly high streets.

The supermarkets claim that they can slash prices without cutting jobs. Let’s be clear: that cut will have to come from somewhere, namely the farmers and growers and others in the supermarket supply chain. Supplier care should be top of mind. We need to have a diverse supplier network – from UK food producers to global fashion suppliers – paid enough to be able to pay workers well and to grow the raw materials safely and sustainably, with high standards of safety and human and animal welfare.

The New Economics Foundation have done some preliminary, and probably highly conservative, calculations of supply chain jobs losses. They found that a 5% cut in the price paid to these suppliers could lead to a loss of more than1,200 jobs in the UK, while a 10% cut could lead to a loss of up to 2,500 jobs. The knock-on costs in the communities where these suppliers buy their services or send their children to school are as yet unknown. The report out today from the UK’s labour enforcement agencies on worker abuse and slavery shows that we are already going backwards in terms of worker protection. Supermarket supply chains are one of the problems.

The Sainsbury’s-Asda merger just reinforces the urgent need to address the acute lack of fairness in grocery supply chains. Yes, we have an adjudicator overseeing the top grocery retailers to check they don’t breach the Groceries Code of Practice. It’s good, but it covers only direct suppliers, not those – such as farmers – who supply food via intermediaries. It was very disappointing that this was not rectified by the government in 2018, which they could easily have done, to protect farmers against unfair trading practices and the uncertainties associated with Brexit. Even so, the Groceries Code of Practice does not tackle prices and costs transparency. Less and less of the value we consumers pay in the shops is reaching those who need it. That needs to change.

Many food suppliers are already struggling to make a profit, and are facing uncertainties ahead with Brexit. New international trade deals that may undercut their costs and compromise standards. Do we really want more meat scandals, slavery, miserable animals and environmental harm in our food system?

Sainsbury’s and Asda say the merger will “create significant opportunities for suppliers to develop differentiated product ranges, become more streamlined and to grow their businesses as the combined business grows.” Some suggest the higher standards of one company could bring the other company up. I’m not convinced. I don’t have space here to detail the many systemic ways in which both companies fail to deliver on environmental, social and animal welfare promises. But two things need to happen:

1. Alternatives are desperately needed and should be actively nurtured. This means ensuring that new food enterprises can access capital, business support and advice, and that local planning and investment decisions favour diverse retail developments and support new community models like Community Supported Agriculture, food co-ops and Better Food Traders. It also means helping farmers to be better at marketing and finding new markets, including being able to access the overly complex public procurement systems for schools and hospitals, care homes and the armed forces. As the National Farmers Union (NFU) has suggested, the public purse can and should support local and sustainable suppliers.
2. Competition rules must be strengthened, and assessments should be based on the public interest not just on choice and price. Any merger should be judged against more than just short-term consumer interest, and should consider a wider range of issues including supplier welfare, workers and impact on local retail. The Competition and Markets Authority must do more than ask for a few stores not to be sold off and assess a wider breadth of impacts, but right now it is not able to do so. We need more analysis from BEIS and Defra, as well as parliamentary inquiries and action. Finally, we need to establish a regulator to complement the Groceries Code Adjudicator and support fair trading practices along the whole of groceries supply chains.

Without the twin approaches of nurturing diversity and curbing dominance, the race to the bottom will leave most of us poorer.

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On May 8^th the government will end its consultation period on a new agricultural policy for England. Revealingly, its policy document – called ‘Health and Harmony: The future for food, farming and the environment in a Green Brexit’– has more to say about the environment than either food or farming. The Department for Environment, Food and Rural Affairs (DEFRA) wishes to end the direct subsidies that farmers have received under European Union policies, and environmental schemes are at the heart of its proposals.  The policy seems likely to go through, with firm support from environmental groups.

But this is curious in two ways. Policy for the environmental consequences of agriculture is very important.  As we read this week, “In the past 50 years in Britain, through the intensification of agriculture, we have destroyed well over half of our biodiversity, and the populations of birds, butterflies and wild flowers that once gave the landscape such animation and thrilling life have been utterly devastated”.

The measures will be beneficial and they flow on from those of the EU’s Common Agricultural Policy (CAP), 87 per cent of which in England now goes to agri-environment schemes. However, they mainly concern indirect effects of agriculture. DEFRA has little to say about its immediate impacts on the soil itself and through emissions of methane and other greenhouse gases. The report’s 64 pages make no mention of the damage done to soils by modern industrial agriculture as such.

Soil scientists now understand the varied roles that soil microbes play in these areas and more: nutrient cycling; carbon, nitrogen and phosphorus utilisation; carbon sequestration; methane mitigation; soil fertility; and plant nutrient density. Carbon sequestration means a healthy soil will counter climate change since it absorbs carbon dioxide. This has stimulated a farming method called regenerative agriculture, which rebuilds organic matter and restores biodiversity in the soil, ‘resulting in both carbon drawdown and improving the water cycle.’ But DEFRA says nothing about that.

Meanwhile, the vital minerals found in food grown on British soil have reduced sharply. In 2006, it was reported that since 1940 the amount of iron in the average rumpsteak, for example, had dropped by 55 per cent and magnesium by 7 per cent. Cheddar cheese provided 9 per cent less calcium, 38 per cent less magnesium and 47 per cent less iron.

The second curious aspect is that the government largely ignores the complicated economics of food and agriculture, at the heart of most agricultural policies since the 1930s.  In the eight chapters defining new policies in DEFRA’s paper, more than three times as much space is devoted to environmental issues (including animal health) as the economic ones which affect farmers’ and farmworkers’ own livelihoods. Originally, policies were introduced to reduce price volatility and ensure that farmers had secure incomes, enabling citizens to have more reliable supplies of food. Global concern with food security was reinforced by the big spike in cereal prices in 1972-74. But by now, few politicians see agriculture as of much consequence since it accounts for only 0.7 per cent of UK gross domestic product and 466,000 jobs, or 1.5 per cent of UK employment in 2016 (of which 302,000 in England). The countryside seems to matter more for its visitor attractions.

However, the state of agricultural prices and farmers’ incomes is worrying. English farms are highly capitalised, but in the last three years they made annual profits of just £37,000 on average. Of that, 30 per cent came from non-agricultural activities and an astonishing 61 per cent from direct payments under the CAP: from agriculture itself, the average farm lost £700 per year. Even in nominal terms, total income from farming is less than half of what it was in 1995. Meanwhile, farmers’ median age is 59 and one-third are over 65, with only 3 per cent under 35. But to survive the end of EU direct payments, DEFRA offers only a pious hope, not a policy: “Removal of Direct Payments may be offset in a number of ways, including farm efficiency improvements and diversification, although this will vary by type and location of farm.”

Average income (£) from agriculture for cereal farmers, 2003-04 to 2016-17

Source: DEFRA, ‘The Future Farming and Environment Evidence Compendium’, p. 26.

Nevertheless, farming people are widely rumoured to have voted to leave the EU, although the actual evidence is mixed and it appears likely that they voted around 50:50. Farmers’ votes to leave would mirror the paradoxical finding that it was the regions most dependent on European markets that voted most keenly for Brexit. One explanation might be that farmers do not like depending on subsidies and the subsidies are associated with the EU, therefore they rejected the EU. The National Farmers Union itself recommended a vote to remain.

Higher farm prices and incomes are now needed for the sake of farmworkers as well as farmers. This is a global problem. Domestic agricultural prices largely reflect international prices, which have been the most volatile in their long history of volatility over the last 15 years. At the end of that, real prices are no higher than in the mid-1960s, according to the main global reference, the Food and Agriculture Organisation’s Food Price Index.

UN FAO Food Price Index, 1961-2018

Source: U.N. Food and Agriculture Organisation

The FPI is based on prices of foodstuffs as they cross international frontiers. However, because of corporate concentration, especially in retailing, the share of those prices received ‘at the farm gate’ is substantially less than it was. Farmers are price takers, squeezed by powerful businesses on either side of their activity. Not only do they receive less of the traded price for their outputs than in the past, but the real prices of essential inputs for industrial farming, such as fuel, agro-chemicals and fertilisers have gone up sharply (tropical farmers who supply coffee, cotton and cocoa to world markets have fared even worse).

Percentage changes in certain real average commodity prices 1984-86 to 2015-17

Sources:  Author’s calculations, using data from the World Bank

This even affects US farmers. In the most recent year only one out of nine major US crops – rice – covered its production costs, and then with no profits. Cotton, barley, oats and sorghum did not even cover their costs during the price boom ten years ago. The university which published these figures called the current situation ‘normalcy’, but other American academics disagreed. As one of them reported, in 2016 the US Centers for Disease Control found “that the occupational group farming, fishing, and forestry had the highest suicide rate of any occupational group” at 84.5 suicides per 100,000 persons.

Ratio of gross revenue at harvest to all costs, USA, 2003-2016

Source: University of Illinois at Urbana-Champaign, March 21st, 2018, citing the U.S. Department of Agriculture

Something similar is happening in the Indian Punjab – heart of the Green Revolution, which is reputed to have made many Punjabi farmers wealthy in the 1970s and 1980s.  By now, the controversy there is over the number of farmers and farm labourers who are taking their own lives. University studies show this to have been 542 over 2013-16, twice the official figure. Major causes of suicide are reported to be bankruptcy, debts and ‘farming-related issues.’

Nevertheless, the wider backlash against neoliberalism has not touched the sanctity of market mechanisms in agriculture, even though the markets that serve it fulfil their purpose of balancing supply and demand through the price system only fitfully. There is official pressure to develop large corporate units, like those in Californian dairying, still based on modern industrial inputs and equipment.  Price volatility is to be accommodated by ‘hedging’ on futures and derivatives markets as well as commercial risk insurance, without any public interventions.

But in Britain, the urgency of the situation is seen in a chronically weak balance of payments, part of which is a deficit in food trade.  In 1984, before the CAP reforms began, the UK had risen to 78 per cent self-sufficiency in all food and 95 per cent in ‘indigenous’ foods, based on international prices. Ten years ago this had fallen back to 60 per cent and 74 per cent respectively and it has stabilised at around that level. However, when valued at ‘farmgate’ prices – those actually received by farmers – Britain in 2007 produced only half of the food it consumed.

Origins of food consumed in the UK by value: 2007

Source: DEFRA

The new agricultural policies, in England at any rate, are likely to worsen the precarious position of many farmers (even under the CAP, agriculture has been a devolved power in the UK). The CAP’s import duties and ‘intervention’ prices above market levels brought an end to the UK’s ‘Cheap Food’ era, which started with the repeal of the Corn Laws in 1846.  The CAP replaced a previous policy which was designed for British needs as a food-importing country. This supported farm incomes with ‘deficiency payments’ to farmers when their costs for a crop were above the import price.

In addition, marketing boards – despite their name – took distribution and pricing essentially out of market hands, with prices negotiated year by year between all sides of the business.  They started with the Milk Marketing Board in 1933, when market concentration had enabled dairies to force down the prices they paid to farmers – just as in recent years. The MMB ensured the production, distribution and availability of good-quality milk and dairy products at stable prices for over 60 years. These measures were allied with practical, free technical advice to farmers from a government agency.

The economic principles of those interventions were sound, even though they accompanied the shift to industrial farming methods. However, because of the World Trade Organisation’s rules we cannot now go back to a system like that. The UK will be ill-placed to secure any changes in those rules, as just one among 164 member countries.

DEFRA’s current proposals portend a serious crisis in English agriculture, which will be entirely of the country’s own making.  If our farmers cannot afford to continue in business, who will feed the rest of us?

The post Is Britain sleepwalking into a food crisis? appeared first on New thinking for the British economy.

Responding to Paul Mason’s latest essay for openDemocracy, Tomas Hirst argues that globalisation should not be blamed for decades of domestic policy failure.

I expected to find much more to disagree with in Paul Mason’s recent essay, “The second trench: Forging a new frontline in the war against neoliberalism”. But after reading the essay, it struck me as measured, interesting and thoughtful on the whole. However, I found it frustratingly vague in its policy conclusions – which I suspect to be a feature, not bug, of the analysis.

To start with, let’s recall Mason’s five-point analysis of what has gone wrong in the aftermath of the Great Financial Crisis:

1. Rising inequality boosted by the surge in asset values triggered by quantitative easing.
2. Entire sectors dominated by rent-seeking monopolies.
3. A global financial elite clustered around the defence of its strategic privilege – which is to keep its wealth in offshore jurisdictions and unavailable to the tax collectors of nation states, and therefore immune to redistribution.
4. High under-employment and precarious work, as millions of people are employed in what David Graeber calls “bullshit jobs”; real wages failing to keep up with the rising asset wealth of the 1%; and a historically low wage share.
5. A global market that has begun to fragment along regional and national lines; the stalling of trade liberalisation treaties; the Balkanisation of finance systems and the information economy; and the beginnings of an open trade war.

Of these, point 1 is probably the most common and unfortunately least-well supported of the contentions. Income inequality in the UK (net of taxes but before housing costs) did not rise over the post-crisis period but in fact fell as a consequence of bigger hits to higher income earners from the crisis and policy measures including raising the tax-free personal allowance. However, it is reasonable to argue that income inequality, which rose rapidly in the 1980s, remains too high and that wealth inequality is also too high. According to a 2016 paper in Fiscal Studies, the wealthiest 1% of households hold about 20% of household wealth, the top 5% of households hold approximately 40%, and the top 10% hold over 50% of wealth.

Yet, even there it’s not absolutely clear that wealth inequality has “surged” as Mason would have it even in Piketty’s data, though there is compelling evidence that extraordinary monetary policy since the crisis has exacerbated the intergenerational wealth gap.

Moreover, there is an open question as to how we account for the effects of quantitative easing depending on whether you think the programme will result in a permanent increase in the money supply or if it will be unwound, meaning the wealth gains were merely temporary. And we must also deal with the counterfactual problem – what would have happened to the UK economy without the Bank of England’s asset purchase programme?

I am not saying that the UK has an optimal distribution of wealth. Quite the opposite: falling house ownership rates mean there is a generation that will be unable to benefit from collateral value of housing to secure credit, meanwhile overall UK households remain grossly over-invested in residential real estate – a fact that poses huge portfolio risks and creates awful incentives for policymakers. Instead, I’m saying that we should try to keep our arguments as close to the data as possible in order to ensure that whatever policy suggestions we make fit the facts, rather than making the facts fit the suggestions.

On point 2, I think it’s reasonable to fret about the increased concentration of large companies enjoying quasi-monopoly or outright monopoly power within their industries. Indeed Goldman Sachs has even taken a look at the subject and concluded that “a combined drag from the rise in concentration [of products and labour] to annual trend wage growth of around 0.25pp”.

Since we don’t really disagree on either point 3 or 4, I won’t spend a great deal of time on these points, but I think both worthy of serious political consideration. Point 4 in particular poses one of the greatest challenges for policymakers in the 21^st century – how to address increased bifurcation of experience and outcomes in labour markets without either low-pay, precarious employment conditions or persistent high unemployment.

Instead, I want to spend the remainder of this article looking at his fifth point: the fragmentation of global markets and the rise of protectionist nationalism (or should that be protectionism under the guise of nationalism?). Because here is where I think Mason and I are further apart in our analyses.

Mason sees “the rise of authoritarian nationalist projects” as the inevitable consequence of a combination of the failure of neoliberal globalists to provide a compelling narrative about how their policies would improve people’s lives, driving them instead to “populism and xenophobic narratives” expounded by cynical elites looking to take advantage of rising mistrust with the establishment. Or, as he calls it, something of a “reversion to type” for a certain set within the elite who can accommodate both globalist and nation-centric versions of power so long as they remain close to the top of the pyramid.

In this, he appears to be channelling the work of Dani Rodrik, Ford Foundation Professor of International Political Economy at the John F. Kennedy School of Government at Harvard University, who has been arguing that the populist backlash against globalisation was “perfectly predictable” as the regressive redistributive effects of liberalisation “swamp the net gains” for the majority.

Both Mason and Rodrik argue for a “limited retreat…from some aspects of globalisation” and reassertion of national economic sovereignty in order to curb the “excesses” and/or the “rigidities” of the current system.

That sounds like a perfectly reasonable suggestion, at first glance. However, as far as I can see, it is impossible to analyse the distributional impact of globalisation without reference to explicit decisions taken by domestic policymakers to redistribute income upwards.

There certainly are aspects of international trade deals that deeply unpopular with supporters of greater political accountability. Not least among these is the creation of so-called “investor-state dispute settlement procedures” or ISDS whereby certain investors can claim monetary compensation from nation states in cases decided by arbitration panels that sit outside the jurisdiction of the countries in question if a country is seen to alter domestic regulatory and/or tax policy in such a way as to impede the terms of the treaty.

The issue for campaigners is not that such arbitration procedures serve no purpose, but that their operations are conducted outside of democratic scrutiny and accountability (by necessity). As Rodrik puts it: “it operates outside accepted legal regimes, gives arbitrators too much power, does not follow or set precedents, and allows no appeal”.

The dogma of capital account liberalisation so prevalent in the ‘90s has also come under, in my view, reasonable scrutiny as it has become increasingly apparent that some capital controls can be of significant benefit to developing countries, especially in managing hot money flows.

But both Mason and Rodrik go further. In his essay, Mason talks about the desire of communities to exit “the globalisation of workforces through migration, or the privatisation of the public realm in the name of trade liberalisation, or the impoverishment of industrial communities through offshoring”, and elsewhere has discussed the need for Labour to ensure that the UK is not vulnerable to “neoliberal judges at the ECJ” in setting policy. Meanwhile Rodrik references the “alphabet soup of regulatory bodies…widely perceived as being rigged against ordinary workers” including “independent courts’ use of their prerogative of judicial review to promote civil rights, expand reproductive freedom, and introduce many other social reforms”.

Given how executive power is currently being wielded in both the UK and the US, one might question the wisdom of putting judicial independence in the same category as unpopular trade treaties. More broadly, given the case being advanced, we should be careful not to fall into crude majoritarian thinking that might threaten progress on hard-won minority rights simply because one group is currently seen as being in the political ascendency.

So, what does a “limited retreat” from globalisation really mean in this context and how does it both blunt the appeal of populism and increase democratic accountability?

The basic question we should look to answer here is whether a partial retreat from globalisation addresses the concerns of voters and whether it can be achieved in a welfare-positive or at the very least welfare neutral manner.

On the first, a recent study into the impact of globalisation by the IMF found evidence to support Mason and Rodrik in that it found diminishing marginal returns to increased globalisation and that efforts at redistribution via taxes and transfers had been “too small to offset the entire rise in inequality caused by globalisation”. We should be extremely wary of reading this result as suggestive that external constraints prevented national governments from enacting more extensive redistributive policies.

Meanwhile, the IMF paper shows that the gains from globalisation have been very real for developed markets and continue to be hugely positive for medium and low-income countries. For low income countries, a one point increase in globalisation is estimated to increase the total 5-year-period growth rate by about 2.2 percentage points, while for the average middle income country the expected growth effect would be 1.8 percentage points.

For those who claim to care about inequality, the impact of wealthy nations withdrawing even partially from international trade or imposing conditions such as no “social dumping” on trade deals could severely impair the catch-up income gains for some of the world’s poorest people. That in itself should give us pause for thought even before we look at domestic distributional issues.

Furthermore, while it’s true that for highly globalised, high income countries the benefit of additional trade liberalisation is found to be limited, that should not be read as implying that the downside to a retreat from trade openness would be equally small. For instance, a recent paper from the LSE estimates that welfare losses for the average UK household even under a soft Brexit Norway-style deal would be around 1.3% with losses rising to 2.7% if the UK trades with the EU under World Trade Organisation rules. The paper notes that effects could understate the impact on welfare significantly once the dynamic effects of Brexit on productivity via significantly lower business investment are taken into account.

This hit to households would come while Brexit is inflicting a likely supply shock on the UK economy as a whole, potentially hitting short-term growth and threaten to limit longer-term growth potential. Both would have the effect of lowering government revenues today and in the future. In other words, the cost of redistributive policies would be higher and the need for them somewhat more acute even under the most modest “retreat from globalisation” envisaged by Mason.

There is also very little discussion of what the mechanism for partial or temporary withdrawal from globalisation would mean in practice. Given just-in-time integrated supply chains, the likelihood of painful trade disruption from even the most modest retreat from existing trade arrangements may make it too economically and politically costly to countenance.

One significant point of concern in allowing the tide of populism to sweep in political reforms is that it is not at all clear to me that the compromise position between illiberal democracy and liberal autocracy necessarily yields greater democratic accountability or welfare enhancements. That is simply an article of faith that Mason and Rodrik would like us to believe.

For example, globalisation and technology clearly did have an impact on the ability of traditional trade unions to control the supply of skilled labour and it has proven extremely challenging for labour to organise itself across national borders. However, the resultant weak bargaining position of labour could well have been compensated for by setting and enforcing higher minimum wage laws, ensuring both out-of-work and in-work benefits were sufficient to avoid immiserating those at the bottom of the income spectrum and ensuring labour regulation was sufficiently robust to prevent increased flexibility from becoming a method of employers casualising their workforce.

None of that was blocked by the “neoliberal judges of the ECJ” – it was simply thought of as insufficiently important before the crisis due to the fast pace of real GDP growth and incomes, while after it has allowed the government to claim that it created an employment miracle. But it was always a policy choice.

It’s hard to see why we should believe that future governments will act more responsibly when loosed from their international obligations than they have in the past – especially given that recent electoral results have favoured parties that advocate weakening the social safety net and shrinking the state. In light of this, while Mason sees the ECJ as an impediment to radical Labour policies he might reflect on what effect removing the UK from its jurisdiction might have if a government came in intent on further weakening labour protections or human rights legislation.

So, while there clearly is scope of great radicalism in domestic policy, I cannot see the case for even a temporary retreat from the basic tenets of globalisation. Rather, the case that must be made is to ensure politicians accept that they are not operating under binding constraints imposed by some supranational treaty or obligation and cannot blame forces outside of their control for regressive policy choices – especially those pencilled in by the UK government during this parliament.

There is also little scope for the UK to address his concerns over the financial elite who hide wealth in offshore jurisdictions without greater international coordination on tax and transparency. Such coordination requires trust, which would be tested by a UK determined to prioritise sovereignty over cooperation and the narrow mandate of a single vote over decades of deep social and economic integration with neighbouring states.

And finally, to Mason’s point that “Europe has to be redesigned to allow state aid, nationalisations, the equalisation of social safety nets and minimum wages”, I would simply add that it is very difficult to aid in a process of redesign when one is walking away from the table.

Retreating from globalisation may seem attractive, but the resulting economic damage would hit the poorest the hardest. There is nothing progressive about that.

The post Retreating from globalisation is not the solution to Britain’s economic problems appeared first on New thinking for the British economy.

Roger Bootle is the founder and Managing Director of Capital Economics, and one of the few high profile economists who supported Brexit. His most recent book, ‘The Trouble with Europe’, was published in 2014. 

In the second of a new series of interviews with leading economists, Roger speaks to openDemocracy about the key challenges facing Britain’s economy, and the economic policies needed to overcome them.

The post VIDEO: In conversation with Britain’s leading pro-Brexit economist appeared first on New thinking for the British economy.

In June 2016, the UN Committee on Economic, Social and Cultural Rights reproached the UK Government its failure to reconcile austerity with international human rights law. The Committee made 60 recommendations in areas such as housing, equality law, social security and public health.

According to international law, the Government must comply with international obligations and engage with international human rights bodies in good faith.

However, in February 2017 the Ministry of Justice announced that it did not intend to report before June 2021 on the implementation (or lack thereof) of the UN’s recommendations.

Slightly over a year later, it is encouraging to see that the Ministry of Justice will be represented at a high level today in an event co-organised by Just Fair and the Equality and Human Rights Commission (EHRC) to examine precisely what progress the UK has made in relation to economic and social rights since the UN’s report of 2016. The Chair of the UN Committee, Ms Virginia Bras-Gomes, will be there and she will stress the importance of strong national mechanisms to hold governments to account. Ms Bras-Gomes will also present the recently launched UN procedure to follow up on governments’ consideration of the Committee’s recommendations.

The event today marks the launch of a report by the EHRC on the level of enjoyment of economic and social rights in Great Britain. The report focuses on four of the priorities identified by the UN in 2016: a) the status of economic and social rights in domestic law, b) ‘welfare reform’ and its impact on the right to social security, c) workers’ rights, and d) access to justice and legal aid.

The UK has not incorporated the International Covenant on Economic, Social and Cultural Rights into domestic law and policy. Hence, as pointed out by the Parliamentary Joint Committee on Human Rights in a report from 2004, the inadequate legal protection of socio-economic rights ‘may leave vulnerable marginalised groups or individuals’ unless their legal claims ‘can be brought within one of the rights protected under the Human Rights Act’. This Act incorporates most of the European Convention on Human Rights and few social rights claims succeed within its confines.

The EHRC draws from authoritative evidence provided by the Child Poverty Action Group, the Institute of Fiscal Studies and the Joseph Rowntree Foundation to show how thousands of families with children find it impossible to make ends meet as a result of the combined effect of inflation and the social security reforms implemented since 2012. The majority of children in poverty are in working families, which constitutes a depressive sign of the unfairness of our society: Those families are doing precisely what the system expects them to do (they are working) and yet an adequate standard of living is denied to them. The evidence also reflects that non-white households and single parent households (the vast majority of which are headed by women) suffer from higher levels of in-work poverty, which brings to light the intersections between ethnicity, gender and inequality.

The UK currently enjoys historically low unemployment levels, which is indeed very good news. However, the conditions are deteriorating for a significant number of workers. The increase in recent years of atypical work arrangements is well documented. In 2016, the UN Committee on Economic, Social and Cultural Rights recommended the UK Government to restrict the use of precarious self-employment and ‘zero hour contracts’ and to ensure that the labour and social security rights of people working in these conditions are fully guaranteed in law and in practice. The Taylor Review of Modern Working Practices recently pointed to the lack of clarity around the exact drivers of the increasingly flexible labour market, adding that ‘this is where concern around the balance of flexibility and security for individuals arises’. The enjoyment of workers’ rights is also unevenly distributed in society from the perspective of gender. Women held 67% of jobs paid less than or close to the National Minimum Wage or National Living Wage at the end of 2016. The overall hourly gender pay gap for median earnings for all employees, both full-time and part-time, is 18.4%.

The Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO) had a very negative impact on access to justice in England and Wales. The year before the relevant provisions of LASPO came into force, legal aid was granted in 925,000 cases; the year after, assistance was given in 497,000 cases, an astounding drop of 46%. LASPO restricted the access to legal aid in relation to housing, social security, debt, employment, immigration and family law. The EHRC’s report highlights the aggravated impact on persons with disabilities, Black Asian Minority Ethnic (BAME) families and survivors of domestic violence, including children. The Law Society has documented that cuts in the availability of early legal advice to individuals are resulting in the escalation of problems in relation to debt, housing and health, putting an additional burden on public services. Research by the Law Society also indicates that people who did not receive early legal advice were 20% less likely than average to have had their issue resolved.

International human rights bodies contribute to the democratic credentials of societies by holding public authorities to account. International bodies are important and we need them strong. That said, internationally recognised human rights are only as good as the national mechanisms that protect them. We welcome the EHRC’s contribution and the willingness of the Ministry of Justice to engage in the conversation. We hope the dialogue will continue from now on. Parliament’s Joint Committee on Human Rights could also play a more prominent role in monitoring Government’s compliance with the conclusions and recommendations of international human rights bodies. It would also be a step in the right direction if citizens were allowed to submit individual complaints directly to international committees if domestic remedies fail to protect their socio-economic rights.

The game of human rights is played at home, not in Geneva, New York or Strasbourg. If we end up leaving the EU, it will be more important than ever for Britain to enshrine economic and social rights in national laws and policies.

The post International rights are only as good as the national mechanisms that protect them appeared first on New thinking for the British economy.

“We need to eat more sugar,” said no dietician ever. So it may come as a surprise to learn that UK sugar beet refining was a nationalised industry until recently. State intervention in sugar supply has a long history. The Government encouraged sugar beet production as early as the trade blockades of the Napoleonic wars in the 19th century, then in the 1930s it nationalised all companies processing sugar. Sugar was that important. We could not get enough of the white stuff, so we decided to own it.

But setting aside our love of cakes and biscuits, the white stuff is not very critical for our survival. And it’s a product heavy with its history of colonial greed and slavery. Sugar, or ‘White Gold’, as British colonists called it, was the engine of the slave trade that brought millions of Africans to the Americas from the 16th-century onwards. As profit from the sugar trade was huge, European colonies quickly started to develop sugar cane plantations based on the readily available cheap slave labour. It’s a dark past and a good reason to choose fair trade sugar now, so that producers and workers are guaranteed better return for their efforts.

We de-nationalised UK beet production and refining in the 1970s, and now the sector is ultra-concentrated. It is dominated by just two sugar processing companies: Tate and Lyle (now part of American Sugar Refining) and British Sugar (now part of Associated British Foods).

These companies have vastly different attitudes to Brexit, and this is related entirely to their sugar sourcing. As Tate and Lyle imports its raw materials (sugar from cane form the global south) it favours liberalisation and a pivot away from the interference of Europe. When Tate and Lyle sponsored the Conservative Party conference in 2017, one could suspect they were subtly sweetening the Brexit pill and protecting their interests in future US-UK trade deals ahead. British Sugar, on the other hand, refines sugar mostly using beet from around 3,500 UK producers and EU producers to make its sugar. So it wants those farmers supported.

Making visits to the sugar processing factories seems to be a staple for Government ministers. The farmers and jobs associated with UK sugar (around 11,000) are not vast, so why is it so politically important? Locally it is a crucial employer, and as more sugar is made into bio-ethanol to put in cars, maybe that’s where the focus should be.

But calls to renationalise the sugar industry are misguided. Instead, putting less of it in our mouths should be the goal. UK policy now does, after much persuasion by Sustain and others, aim to reduce sugar consumption through a combination of measures such as education, local action, public sector food standards, product reformulation, junk food marketing restrictions and a sugary drinks tax. Though not enough, these will help tackle the huge social, health and economic costs of obesity, tooth decay, diabetes and other diseases related to high consumption of sugar and sugary foods.

And we are not alone. 26 countries have so far introduced sugary drinks taxes of some sort, the latest being the Philippines. The World Health Organisation is now advocating such approaches globally. The use of sugar taxes is not without its problems – it will take much more than taxes to counter huge marketing budgets and decades of sugary food culture. The threat of trade disputes is also very real as the US – with notoriously sugary foods and drinks, giant portion sizes, and aggressive resistance to marketing restrictions – wants to access our market.

Nevertheless, the huge social and economic harm caused by too much sugar in our diets is not going away and will thrust its ugly, painful way into governments’ agendas. That means that as well as diversifying here, overseas countries highly dependent on sugar – with old colonial ties to the UK – should be supported in diversifying where they can. Continued access to least developed countries and Afro Caribbean Pacific (ACP) countries is needed in the short term, however, given the vital revenues this crop provides.

As Defra have just announced a new consultation on future farm policy, it is also worth considering the environmental and wildlife impacts of sugar production. Sugar cane plantations are hugely thirsty, are responsible for significant habitat destruction and harm the soil. Domestic beet production is very localised, but where grown it is a mixed blessing. The upside includes providing a habitat for some key wildlife species – providing an important nesting habitat for lapwing and stone curlews and feeding site for pink footed goose, for example. Ensuring these are protected in any transition will be vital, and there could even be a marketing link (Lapwing-friendly sugar?). The downside includes significant use of chemicals, including bee harming neonicotinoid insecticides, as a seed dressing in the whole crop. New farm policy should deliver support for that transition for public health and well as environmental goals.

Tackling some issues such as chemical use could be delivered through other methods including converting production to organic methods, but there is none in the UK and none currently anticipated. New production recently commenced in Northern Europe, so there is demand out there. The UK could be driving demand and supporting organic conversion and Integrated Pest Management methods. Higher costs and segregation of the processed material is a key constraint to the development of organic, as are the pest and weed pressures, so this would need public support in development. Farmers should be demanding more research and development on insect control in particular, as the European Union and Gove have indicated neonicotinoid use may well be banned.

The MPs on the Environment Food and Rural Affairs (EFRA) Committee are worried about our sugar farmers and the impact of new trade deals on their market after Brexit. They’ve initiated a rapid inquiry on “how the sugar industry will be affected by Brexit and the options for an optimal trade policy surrounding sugar following Brexit”. Nothing is said in the initial briefing about health or environmental goals.

Sustain’s submission stresses three areas they need to consider: (1) we need to eat less; (2) so we probably need to produce less; (3) and what we do produce and eat should harm less (less pesticides, fairly traded, worker conditions and so on).

The 2017 sugar quotas – an EU measure previously limiting how much each producer could grow – means all European beet producers can grow what they like for the first time in decades. The likely result: a surge in beet plantings and a drop in resulting prices. This will suit the refiners and end users but not the farmers, and probably not the farmed environment. It is also likely to undermine the health purposes of the sugary drinks tax. It is likely to mean more sugar is eaten.

Farmers don’t like being told what to do, and always know best. But they would be wise in looking around to see the policy as well as the market atmosphere. Producing higher value such as organic may be one approach. Getting out altogether may be the route for some. If that means the public providing support for the transition, so be it. You could argue public health is a public good – being based on so many collectively agreed socio-economic and political conditions – from planning policy to labelling law. Reducing production of a harmful product could fit that category.

If reducing production here means we import more to fulfil some needs of the sugar industry maybe that should be a market for producers in countries still highly dependent on sugar for socio-economic reasons. Ideally, those producers should benefit from processing and selling the refined product – gaining the added value and jobs involved. This depends on ending tariff escalation, which may be one way Brexit can be used for a social advantage. Those wanting cheap raw materials won’t be happy, but trade policy must be guided by poverty reduction, sustainable development and health as well as climate and resource use protection.

This should be seen as not the end of the sugar rush, but the beginning of better sugar and healthier diets. Our waistlines and the bees demand it.

The post Why the sugar industry should not be renationalised appeared first on New thinking for the British economy.

Theresa May told the Bank of England in a speech in September, ‘A free market economy, operating under the right rules and regulations, is the greatest agent of collective human progress ever created’ and is ‘unquestionably the best, and indeed the only sustainable, means of increasing the living standards of everyone in society.’

In short, the Conservatives claim they believe in free markets, that they have built an economy based on them and that it produces the best results. We cannot say for sure if the last claim has any validity, simply because they have not tried it. Their claims amount to a lie. They have been building the most unfree market system ever conceived.

A free market is one in which firms produce and sell goods and services in competition with one another, and in which government provides a so-called ‘level playing field’ and operates anti-trust rules to prevent monopolies blocking competition. A principle is that capitalist entrepreneurs take risks in making investments, and gain rewards in the form of profits commensurate with those risks. This is not what the Tories have pursued.

Let us start with the international architecture they have helped to build. Thomas Jefferson said in 1813 that ideas could not be made the subject of property. He would be aghast today, since ideas have been converted into the means of blocking market competition. The big change was the passage in 1995 of TRIPS, the Agreement on Trade-Related Aspects of Intellectual Property Rights, as part of the World Trade Organisation.

Led by the USA and backed by the Tory government, TRIPS globalised the capacity of corporations to take production outside the sphere of market competition. The outcome has been dramatic. For instance, in 1995, fewer than one million patent applications were filed internationally. Last year, over 3 million were filed. Each patent guarantees the holder 20 years of monopoly profits from its use; in some sectors, such as pharmaceuticals, it can be longer. Whether or not one approves of this, it is the opposite of a free market. The income linked to patents has risen more than sevenfold since 1995, yet studies have shown that the spread of patents is not correlated with economic growth.

To compound its support for this market-restricting device, the government introduced the wheeze of the Patent Box tax break, meaning that any corporation coming to Britain with patents to produce monopolistic goods, and thus charge monopolistic prices, can receive a subsidy. In other words, firms with monopolistic products gain an extra bonus. This bribe has nothing to do with a free market, and is regressive. The Tories and Liberal Democrats in 2013 also introduced a measure to exempt multinationals from anti-tax avoidance measures, which amounts to another big subsidy.

Similar market-avoiding applies to copyright, which guarantees a monopoly income for someone for their life, plus 70 years or more. No free market there. Similar non-compete restrictions apply to corporate brands and industrial designs. All have multiplied and become more global in scope, cemented by over 3,000 trade and investment pacts that have entrenched monopolistic practices. The Brexiteers want more of those agreements once free of the EU.

All intellectual property rights restrictions limit the scope for free markets, and together account for a huge and growing proportion of income in Britain and elsewhere.

At the apex of the system, the Investor-State Dispute Settlement (ISDS) process gives multinationals unprecedented power, enabling them to sue governments if they introduce any reform that, in the corporation’s view, would hit their future profits. The ISDS is rigged in favour of the corporations, which appoint one of three judges and must approve the third. This reduces the investment risk to well below what would exist in a free market. We as citizens do not have such protection. The government has strongly supported the ISDS.

A derivative lie is that the IP system is designed to reward and encourage innovative risk-taking. But as many patents stem from publicly-funded R & D, it is the public that bears the risk, while the private patent holder reaps the benefits. Many patents are filed just to block competition. All this is as far from being a free market as one could imagine.

The Tories also preside over an edifice of subsidies that give privileges to favoured sectors, firms or individuals. Again, one cannot honestly claim this is consistent with free markets. Among the worst are subsidies given to large-scale land-owners, who are receiving millions of pounds.

The largest private landholder, the delightfully entitled Duke of Buccleuch, possessing 277,000 acres, which he gained by doing nothing (let alone dabbling in anything so grubby as a free market), received £1.6 million in subsidies in one year alone, based on the amount of land he owned, not on what he produced on it. If this is a free market at work, I am a duck.

The Duke of Westminster, reported to be the third richest individual in Britain, with merely 140,000 acres in the country (and 400,000 abroad), has received millions of pounds, simply because he owns land. Testifying to his faith in free markets, the late Duke told a reporter who asked what advice he would give to any budding entrepreneur, ‘Make sure they have an ancestor who was a very close friend of William the Conqueror.’

Excluding the six Dukes in the royal family, the 24 other Dukes own over eight million acres, none gained by free market means, and 17 of those for which information has been obtained receive over £8 million each year and gain a lot more from tax breaks. Surely these welfare payments would act as a disincentive to their working.

When other EU members tried to cap what large landowners could receive, the Tory government vetoed the proposal. That contrasted with what they were doing to state benefits. Ironically, the designer of Universal Credit, through his wife’s inheritance of 1,500 acres, without a free market in sight, has received over $1 million in agricultural subsidies. One crazy aspect of the agricultural subsidies received by the Dukes and their lesser brethren is that most of them are paid only if the land is bare, which has led to an obliteration of trees and wildlife over hundreds of thousands of acres.

Subsidies have been taken to absurd lengths by the fact that the government operates 1,156 forms of selective tax relief. According to Treasury data, the cost of the biggest 200 or so is over £400 billion in foregone revenue, in effect deliberately forgoing revenue that could easily cover the costs of the NHS and state education, and creating a budget deficit that has been used to justify the destructive austerity policy.

That little matter aside, the tax reliefs – for most of which, believe it or not, the Treasury has no estimates of public revenue foregone — automatically distorts market forces in favour of people like landlords, who do particularly well out of tax reliefs. Perhaps it is a coincidence that one in every four Conservative MPs is a landlord.

The housing market epitomises why the Tories do not believe in a free market. Consider their ‘help-to-buy’ subsidies, which have sucked up £10 billion, in spite of not actually helping house buyers. The money has gone into the pockets of developers, who merely put up prices. It sounds good – interest-free loans worth 20% of the property value if the person buys a new house – but has raised the price of new housing relative to old, while wholly benefiting developers. This was the conclusion of Morgan Stanley, hardly a bastion of leftist critics.[i]

Then of course there are the ‘buy-to-let’ subsidies, which have fuelled the growth of landlordism. What principle of free market economics is that meant to serve? The scheme began in 1996, and today about one in every 30 adults is a landlord, mostly amateurish, often letting sub-decent accommodation and relying on interest-only mortgages.

The latter mean that they are very vulnerable to any rise in interest rates. This has apparently distorted monetary policy, Because of fears that raising interest rates would cause a housing crash, the Bank of England has kept rates down to virtually zero, which amounts to a subsidy to the financial community.

Worst of all is the fact that property values have not been revalued since 1991, meaning that council tax is being levied on distorted low values. This amounts to a huge subsidy to house-owners, with more going to the rich with big houses. Now that the Tories have raised the inheritance tax threshold and given tax exemptions for capital gains on homes, they have effectively converted a large part of the property market into a tax haven for sheikhs and oligarchs.

We need to wage a war on subsidies. They are almost invariably regressive, distortionary and economically inefficient. If Theresa May really believed in free markets she would abolish all of them.

Some ad hoc subsidies are just bribes. Among the most egregious is the vast subsidy, which will haunt our children and grand-children with its cost, recently pledged to French and Chinese state enterprises (note, not private) to build a nuclear plant in Somerset. The frighteningly expensive and risky plant, set to cost £30 billion (or some multiple of that), will not be the outcome of a free market economy. In spite of dire warnings from the National Audit Office, May has guaranteed the French and Chinese a unit price that is twice the current and expected price, leaving future generations of taxpayers to be bewildered by the fiscal albatross.

Similarly, the government has promised over £21 million in subsidies to a Japanese firm, Toyota, to help pay for modernising their plant in Derbyshire. This will help them to increase their profits. Nobody should expect them to honour their stated wish to stay and expand. There are 800 Japanese firms in Britain. Expect many to emulate Toyota, and the government to be just as obliging.

Then there are the subsidies given to the privatised monopolies supposed to provide public goods, notably water, sewerage, rail, mail and energy. Those subsidies have continued even when corporations have demonstrably broken the law; Thames Water has been caught pouring millions of litres of untreated sewage into the national river while not fixing leakages and while giving its foreign shareholders over a billion pounds in dividends. Even though Thames Water has been making huge profits and has not paid any corporation tax, the government is giving it further subsidies, bearing the risk of its sewerage mega-project. If Theresa May was really against tax avoidance, surely she would not give subsidies to a firm known to be avoiding tax.

Similarly, the subsidies given to the privatised rail companies have exceeded anything given to British Rail beforehand, without much to show for it. Once again, this is not a free market, whether one likes what is being done or not.

Then there is the subsidy being given to the oil corporations to cut the cost of dismantling rigs in the North Sea. First, the Thatcher government gave them areas for drilling at well below market price; then they were given subsidies to help them make more profits; now they receive subsidies to cut their costs of winding up. This is totally inconsistent with a free market economy. Ironically, successive governments have allowed our national resource to become controlled by state enterprises from a communist superpower. It is not clear that this is a free market principle either.

Then there are the subsidies given via atrocious Public Finance Initiative (PFI) contracts that have locked state schools, hospitals and other public institutions into long-term debt traps, by which they have to keep paying for things that they do not want or that should be cheap. The PFI and the new PF2 are inconsistent with a free market, but are due in part to successive governments wanting to keep spending off their books.

Then there is the subsidy given to private schools. These are profit-making and serve the wealthy. It was revealed in 2017 that some 586 private schools, including Eton, have obtained charitable status and so are entitled to 80% relief on business rates. Eton is no charity. But it gains a nice subsidy from the general taxpayer.

Then there is a subsidy for the rich being phased in by stealth, whereby the Tories have cut inheritance tax by stages, raising the amount before tax becomes payable to £650,000 and now to £1 million, if a house is involved. This is an incredible subsidy to wealthy families, and has nothing to do with free markets. That £1 million received by wealthy offspring is pure unearned income, a huge something-for-nothing, to use a phrase favoured by Tory moralists. Studies have shown that while inheritances of less than £20,000 have no effect on labour supply, anything above £100,000 has a big negative effect. The beneficiaries become parasitic, if they were not so already.

In this, the Tories insult their original patron saint, Adam Smith, who was a passionate advocate for inheritance tax and said, ‘a power to dispose of estates forever is manifestly absurd.’

Then there is the labour market, where government subsidises favoured firms, repeatedly shown to be providing little of value. For example, the government has been giving £158 million a year to Learndirect, the privatised provider of what are meant to be adult training and apprenticeships. The regulator, Ofsted, has found that much of the money has been spent on worthless training and on a Formula One car team. Some 84% of its profits have been given as dividends rather than used as investment, leaving the firm saddled with net debt of £90 million. None of this is compatible with a free market.

And there have been numerous subsidies in the form of tax exemptions on perks given to salaried employees, notably on private pension contributions, childcare and benefits offered on top of salaries. These are regressive, and because of their wide range encourage firms to shift compensation from money wages to non-wage forms of compensation.

Finally, there are those misnamed ‘tax credits’. Over three million people are recipients of tax credits of one form or another. Undoubtedly, they top up low incomes, and thus do reduce poverty. However, they are analogous to the Speenhamland system between 1795 and 1834. They help to depress actual wages.

They are a subsidy to firms paying low wages, since both employer and worker know that whatever the wage it will be topped up. Scandalously, even though successive governments have spent hundreds of billions of pounds on tax credits, and even though independent research has shown that a significant part of that goes to employers, not to low-income workers, there has never been an official evaluation of the impact of tax credits.

Finally, there is the government’s step-by-step extension of personal tax allowances, that is, raising the amount of income a person can earn before it becomes subject to income tax. It is sold as an anti-poverty device, and a boast by Theresa May is that she has taken several million people out of paying any tax at all. That is hardly a worthy objective, if she believes in her own stated mantra that ‘tax is the price we pay for living in a civilised society’. But in any case tax allowances for all are a very ineffectual way to relieve poverty.

If Theresa May really believes what she says, let her set up a Free Market Commission to evaluate all policies on whether or not they are compatible with a free market economy. Ridding the economy of those that are not would surely be consistent with Tory claims. It would free up money enough to fund the crumbling NHS (calling the bluff that the government is not intending to privatise it) and still have enough to fund a modest basic income for every legal resident in the country.

We can be confident that this Tory government has neither the desire nor the energy and competence needed to do any of this. The Labour Party and others, like the Green Party, should promise to do it, and promise a war on the scourge of subsidies as a start.

[i] P.Collinson, ‘Help to buy has mostly helped housebuilders boost profits’, The Guardian, Oct.22, 2017.

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For a sector that rarely gets mentioned unless dead or diseased animals are piling up, food has had a lively political year. New Bills have been passed, and chlorine-washed chicken has been discussed at a Party Conference. The appointment of Michael Gove to the head of DEFRA put fire into the belly of the conservation lobby. We all got a little bit excited.

But the excitement remains tinged with frustration at the lack of a coherent joined-up plan, and so much confusion about just how the government intends to resolve its differences on standards in trade deals. Do we get chlorine-washed chicken or not? US Commerce Secretary Wilbur Ross thinks we must, but Gove says no. It’s almost as if the Doris Day song playing in our ears: “Perhaps, perhaps, perhaps…”

With a transition deal with the EU now likely, it seems possible that we will stay in the Common Agricultural Policy (CAP) and Common Fisheries Policy (CFP) for that period. So the promised new Agriculture and Fisheries Bills, and Gove’s vision of ecological farming and new marine policies are possibly four years away. Or maybe not?

However, we can make use of the opportunities that do arise. The big animal sentience bunfight has already delivered rewards – a new Bill – and indicated both a shift in Conservative strategy and the impact of people power. But the solutions don’t yet get at the heart of the problem. This, as ever, means following the money and power.

Four food Brexit issues will hit the stands in 2018. They illustrate why politics, finance and food are being increasingly entangled, and why a new vision, policies and partnerships are needed.

What’s going to happen to food prices?

Top of the confusion pile is the impact of Brexit on food prices and availability. The number of food banks is growing and there have been warnings of potential food price increases from industry such as the chairman of Sainsbury’s and, the British Retail Consortium and KPMG. While we still await government impact assessments, one scenario from the farming industry estimates that these additional costs could add 8% to food costs from the EU.

Politicians use this as an excuse to say we need free trade deals with the rest of the world where food (labour) and production is cheaper so we can import what we need. But let’s not spread the misery of cheap food – poor animal welfare, food hygiene, working conditions and environmental degradation – elsewhere. Pro free-traders such as Jacob Rees-Mogg MP also argue that we’ll get cheaper food through low or no tariffs on global produce after Brexit. But it’s a flawed idea. Any potential savings would be cancelled out by a weak pound, currency fluctuations and increased food costs from European countries where we get 30% of our food from. Longer term, our resilience will be poorly served by drawing more land, water and resources from across the globe in the form of cheap raw materials for the food industry.

And it is fair to say food that banks are generally not a function of food prices. They were around and swelling well before Brexit and reflect a problem of low incomes, in-work poverty, precarity and inadequate linking of welfare support to the cost of living. It’s likely that after March 2019, Brexit will be blamed for any food price rises and we need income safeguards for those affected. But any reaction that looks like a ‘cheap food’ policy could cost all of us dear in terms of job losses, food standards, NHS spending, and competitiveness in high calibre international food markets.

Will robots take over or will crops be rotting in the fields?

A fully mechanised food system is some years off, but the government made it clear they want a tech revolution in their new Industrial Strategy. This may help solve the worker ‘issue’; tech and robots will do the hard work us lazy British won’t, and cheap migrant labour may no longer be available. Under the Rees-Mogg model we’ll just import what we need, so no new workers will be needed. Simples.  

How much better would it be to make UK farming attractive for workers and entrepreneurs? It may seem like a pipe dream, but I meet such dreamers often and all they lack is land and support to deliver highly productive farming. From the rise of food pop-ups, new food growing initiatives and the keen interest of the younger generation in food provenance and sustainability, it is clear there is an opportunity here.

But again we need to follow the money. Making the supply chain pay its way (for a start extending and increasing the role of the Groceries Code Adjudicator) is vital, so that producers get a fair share of the pie. So too is stopping tax dodging which sucjs money out of the food system, and ending the massive executive pay gap. These are political decisions without which we can’t make the food system work fairly or sustainably.

What will happen to farm subsidies?

The long-anticipated Food and Farming 25 Year Plan bit the dust in 2017, and the promise of a 25-Year Environment Plan limps on. We are told we will get a new Agriculture Act in late 2018, but that may now be on hold. A new UK Agriculture Bill may have limited power outside of transition EU rules to govern public money or environmental standards for some years to come.

We are drowning in evidence that we could do farm and rural policy better (not just via payments for public goods but capital grants, training, advice, and even new private partnerships for environmental services) which would be better for farmers, their workers, their animals, the environment and for our health. Gove says he gets it, and DEFRA is full of bright new staff getting out and about on farms, listening to us and our members’ ideas. That’s all good and could mean something significant. It must stem the loss of farm businesses. But will it link up with Gove’s announcement of a possible new environmental body and hints of a new Environment Act?  Given that 70% of our land is farmed and farming contributes to air and water pollution, climate change and so on, we really need to see coherence between these two legislative outcomes.

A final word on farming in 2018: we need an extended groceries code adjudicator. The broad network of organisations calling for this could not be more diverse, yet they have worked together to make a clear case that such an extension is vital to end unfair trading practices and help support a wide range of farming businesses in the uncertain years ahead. Give this to Mr Gove.

Food standards: More than just chlorine-washed chicken

Trade deals that sacrifice food safety, animal welfare, reduction of farm antibiotic use, provenance and environmental standards (such as pesticides or nitrates) for the sake of a trade deal on finance or car parts will be toxic. Such messages helped to stop the much loathed Transatlantic Trade and Investment Partnership (TTIP) in its tracks; and never doubt the strength of the big food lobby. Liam Fox MP has flip-flopped on this, showing what a charged debate it is already, and we’ve not even started negotiating any trade deals even if Wilbur Ross thinks we have. MPs need to have oversight of any trade deals and we should look to strengthen food safety machinery, not weaken it. As Sustain said in its evidence to the MPs Environment, Food and Rural Affairs committee Inquiry which showed the difference in salmonella between UK and US eggs; we’ve been losing capacity to check what’s in our food packets for years. We must do better, not simply import tonnes of new unknown junk and contaminated food. In the long term, it will just cost us all far more.

A coherent vision on food could ensure trade policies, farm support and wider measures deliver an affordable food supply that is fair to people, food providers, animals and the environment. And it needs to be well policed.

Do tell your MP what you think on these four hot potatoes, and sign up to Sustain monthly updates here.

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On 1 December I attended SOAS University for a screening of the film ‘The Spider’s Web: Britain’s Second Empire’, co-produced by film maker Michael Oswald and John Christensen of the Tax Justice Network, and hosted by the SOAS Open Economics Forum and Dr. Ourania Dimakou.

The Spider’s Web offers unique insight into the British Empire, both past and present, and its colonies and far flung outposts. This is a story which, if known at all, is often understood through a rose tinted view of what that British Empire actually represented. The Spider’s Web details how the former Empire was transformed after World War 2 into a new financial empire of offshore tax havens and secrecy jurisdictions.

Nicholas Shaxson, author of ‘Treasure Islands’, notes that the historians Cain and Hopkins called the City of London the “Governor of the Imperial engine”, so it is perhaps no surprise to learn that ‘the City’ still controls the reigns of Britain’s second-run financial services empire, with as much as 25%  of the global offshore market controlled by Britain and its satellites. As City University’s Ronan Palan observes:

“The City of London is a truly unique and interesting phenomenon, which should have attracted the attention of political scientists and economists, but I don’t know of anyone, who has systematically studied the Corporation of London and its impacts on policy and economic policy.”

The City of London and the Bank of England, experiencing a crisis of legitimacy marked by Britain’s declining global influence following World War 2 and the Suez crisis, facilitated the transformation of former British territories and dependencies such as the Cayman Islands and British Virgin Islands into tax havens and secrecy jurisdictions, taking a relaxed view of increasing corruption risk provided that the monetary flows benefited the UK. As the Bank of England noted:

“There is no objection to their providing boltholes for non-residents, but we do need to be quite sure that in doing so, opportunities are not created for the transfer of UK capital to the non-Sterling area outside UK rules.”

The growth of the so-called “Eurodollar” market — an unregulated form of lending, based in London but conducted in US Dollars via a separate set of books and thus considered “offshore” (elsewhere for regulatory purposes) — helped enable the bypass of cross-border capital controls put in place under the post-war Bretton Woods agreement.

Alex Cobham, Director of the Tax Justice Network, explains how the Eurodollar market was ultimately about taking economic activity conducted in one country, and pretending it occurs elsewhere:

“It’s about creating a legal space where you pretend activity is taking place. You’re taking activity from a place where it is regulated and taxed, and pretending its happening elsewhere. Now where, doesn’t really matter. It’s just elsewhere.”

The Eurodollar market expanded rapidly, reaching $500 billion by 1980 and by 1988 $4.8 trillion. By 1998, nearly 90% of all international loans were made via the unregulated offshore markets.

This diagram via Haberly & Wojcik illustrates the geography of Foreign Direct Investment (FDI) and the relative dominance of Britain and the territories of its former Empire.

The City of London, Bank of England and Eurodollar markets deliberately allowed banks, corporations and wealthy elites to bypass the rules of the capitalist game — shifting wealth offshore and thus undermining the social contract and the post-war welfare state now visibly in collapse around us.

Clement Atlee, the post-war Labour Prime Minister remarked:

“Over and over again, we have seen that there is a power in this Country, other than that which has its seat at Westminster. The City of London, a convenient term for a collection of financial interests is able to assert itself against the Government of the Country. Those who control money, are able to pursue a policy, at home, and abroad, contrary to that which is decided by the people.”

One of the criminal banks which grew out of the deregulated City of London was BCCI – which quickly became the bank of choice for drug runners, mafia bosses and intelligence agencies, much like the role HSBC performs today.

BCCI, which collapsed in 1991 following US enforcement action related to money laundering, was at the time the 7th largest bank in the world. A young Fred Goodwin who would go on to run RBS (at the time working for Deloitte Touche) ‘led’ the complex insolvency of BCCI bank.

Much of what we know about Britain’s Second Empire can be attributed to the tireless work of the Tax Justice Network, including Nicholas Shaxson, John Christensen (a former Deloitte Touche economist and advisor to the Government of Jersey) and leading academics including Prem Sikka and Ronan Palan who feature prominently throughout the film.

The film provides viewers with both a technical and a moral analysis of what tax havens and secrecy jurisdictions do — creating opportunities for tax, legal and political arbitrage — and lays the blame at the door of the real perpetrators, the Big 4 accountancy firms (EY, Deloitte, KPMG, PwC).

The cancerous effects of the ‘Revolving Door’ are documented in the film through the lens of highly effective direct actions by UK Uncut who targeted former HMRC boss Dave Hartnett and his tax “sweetheart deals” with Vodafone, BT and Goldman Sachs.

A highlight is the disruption of a private tax planning dinner hosted by Harnett, who is presented with a “golden handshake award” by the intruders for services to tax avoidance in front of a group of suited, booted and visibly confused paying guests.

The Spider’s Web gives an excellent overview of the scale of the global tax dodging problem and its corrosive effects on democracy. As John Christensen observes:

“People think the National Rifle Association (NRA) is a powerful lobby, but to be honest they’re amateurs next to the City of London. The City UK uses its power in so many discreet ways, they don’t need to be that upfront about it, they’ve got MPs and Ministers in their pockets going in and out via the revolving door.”

The City UK was created by Chancellor Alastair Darling after the 2008 financial crisis, precisely to establish a stronger financial lobby in Westminster and Brussels. It is from the unelected, unaccountable City of London that, we should really be having the conversation about “taking back control.”

Discussion on solutions is left to five concrete proposals in the final scenes, which was followed by a lively Q&A session which spilled over into discussion over wine & nibbles.

SOAS host Dr Dimakou reflected on the fact there were not more critical UK academics interviewed on tax justice issues in the film. Perhaps this is because, as John Christensen observed, leading economics journals tend to avoid featuring critical academic work on tax justice issues.

Lack of widespread academic engagement with tax avoidance could also be due to other factors, such as a lack of academic grant funding for research on tax dodging, the increasing reliance of the UK third sector and NGOs on grant funding from tax avoiding donors. Or the the fact critical academics such as Prem Sikka often find themselves isolated within professional accounting bodies such as the ICAEW.

It turns out that critical voices being ignored is not restricted to the academic and accounting professions. During the Q&A, Director Michael Oswald said that The Spider’s Web had been entered into over 50 film festivals, receiving warm feedback, but curiously not being selected to feature. The response from the Atlanta Docufest selection panel is typical:

“We just wanted you to know that you made it to the final round of judging, but since we only have three days of screenings, we had to cut so many great films. Although we can not include your project this year, please keep in mind, you scored the second highest scores from our panel.”

The subtext of The Spider’s Web is that Britain is yet to face its own history. In a desperate attempt to cling to empire, The City of London threw open its arms to criminal dark money from all over the globe. This is why mafia expert and author Roberto Saviano labels London “the heart of global corruption”.

Until Britain is forced to confront the realities of its Empires, both colonial and financial, there is little prospect of real change. It’s no coincidence state broadcaster the BBC refuses to air the film.

Thankfully, with a fracture in the neoliberal order sparked by the election of Jeremy Corbyn there is now a growing thirst for radical political change and transformational economic ideas. It is now incumbent upon all of us who desire change to work together to tame the power of the City of London and its offshore satellites, and to free democracy from the shackles of neoliberalism.

As Tax Justice Network Director Alex Cobham observes:

“We have country after country around the world where the lack of financial transparency, about taxation, about ownership, about corruption, has undermined the extent to which governments deliver representative policy making for their citizens.”

Why not get involved and help put an end to corporate capture, censorship, and corruption by hosting a screening of The Spider’s Web in your local community. Discuss what action can be taken locally to help transform our broken economic model which sees wealth plundered from the four corners of the globe, laundered and stashed in London’s dysfunctional property market.

To host a screening: contact info@queuepolitely.com
Twitter: @spiderswebfilm
Facebook: www.facebook.com/Spiderswebfilm
Vimeo: https://vimeo.com/ondemand/spiderswebfilm

Disclaimer: Joel Benjamin was interviewed for the film on issues of PFI and tax avoidance. 

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Creativity has been in the news quite a bit over the last week. There’s been Theresa May calling for a more ‘creative’ approach to the Brexit disaster. There’s also been a major policy report on the Creative Industries. The latter has been part of the government’s industrial strategy, one of nine industrial activities targeted for specific ‘sector deals’. The others include quantum technology, clean energy, and robotics.

The rhetorical prominence of creativity in May’s speech, delivered on the same day as this set of policy recommendations, might seem to be great news for those working in creative jobs. On closer inspection both the rhetoric and the policy reality raise major questions about the role of creative industries in Britain today. Most seriously, both rhetoric and policy are based on fundamental misunderstandings of what the creative industries are and how they operate.

The Independent Review of the Creative Industries was written by Sir Peter Bazalgette, former chair of Arts Council England. It identifies the creative industries as a potentially booming part of the economy, contributing employment and economic growth, as well as having high levels of productivity. It also sets out several challenges, including access to finance for creative businesses; creative clusters; international competition; skills shortages and the ‘talent pipeline’; along with innovation and intellectual property. These are crucial issues. These headlines from the report, about the strong growth and international reputation of British creative business, conceal a set of proposals that will do little to address the inequalities at the heart of creative industries in the UK.

The report lumps together several different occupations under the heading of creative industries, which is a longstanding issue for policy in this area. This means that high performing areas, such as database design by IT consultants, are treated as the same sector as creative and performing arts. As extensive research shows, these are very different types of activity with very different workforces and very different levels of economic performance. The report seeks to have its cake, of economic good news from technical IT activities, and eat it too, by suggesting this applies to attractive cultural occupations such as acting, art, or performance.

These latter occupations are well known for the unequal and unfair characteristics of their workforce. The report pays lip service to these issues of inequality in the creative workforce. It identifies barriers to entry associated with class, gender and race. At the same time, it is open about its position that ‘employers alone will not solve this problem’. Its recommendations suggest there is an undersupply of skills for the creative industries; that young people need more role models; and they need to be made more aware of the diversity of jobs available in the creative economy.

All of these suggestions move the responsibility for the institutionalised sexism and racism across the creative sector from employers and organisations to the individual. If we ask why the low level of women in senior roles in IT; why the constant controversies about representations of BAME communities in film, TV and on stage; or about the ‘class ceiling’ for actors, then the report’s answer is clear: women, ethnic minorities, and the working class (all of which are intersecting and overlapping constituencies) just need to try harder, be more aspirational, and work on their skills for businesses. In effect, a crucial intervention into government industrial strategy is asking those communities excluded that they must just strive harder.

It is well known that the creative industries, as currently organized, are a closed shop, open to very few that are not privileged. The irony here is that they are also a sector, as a wealth of academic research shows, that believes in meritocracy, and is left wing, and supportive of diversity. The sector is also unlikely to have voted leave and it is supportive of many social issues, such as freedom of movement or immigration, which leave voters reject. Indeed, Bazalgette’s report makes it clear that visas and immigration are a crucial element to the economic success of creative industries.

This point returns to the rhetoric of May’s speech. By calling for ‘creative’ solutions to the problem of Brexit, May is addressing a sector of British society least ideologically interested in supporting her agenda. She is also, in her pursuit of a ‘creative’ relationship with the EU that foregrounds immigration control, likely to further alienate creative workers and damage creative businesses. Taken alongside the focus on talent pipelines and skills development in Bazalgette’s report, industrial strategy may produce a creative sector that does little to encourage those from outside privileged starting points, whilst being even less likely to show support for the goals put forward by May and the Brexiteers.

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You may have seen dairy farmers frantically promoting their product over summer with the #proudofdairy hashtag. Since the first picture of a dairy maid on her stool was used to reflect the purity of the pastoral idyll, the industry has worked hard to get you to enjoy #thewhitestuff.

Dairy farming is hard graft but lately farmers have been getting such low prices they have had to get bigger and more intensive, or get out. The dairy industry beyond the farm gate (the processing, catering and retail end) has largely not covered the cost of decent milk production. This represents widespread market failure. And the picture is the same in many other farm sectors – from bacon to cereals – as DEFRA farm income data show.

The imbalance of power is such that farmers, their workers, land and animals stay on a low price treadmill, whilst the big food companies reap big profit margins despite the race for market share which means they will make their prices look the lowest. Amazon’s entry onto the high street kicks the supermarket wars up a notch, and EU subsidies keep the farm sector alive – although that’s up for a major overhaul.

Who wins the price war is anyone’s guess, but any increased sales as a result of that #proudofdairy promotion could just result in more sales of cheap cheddar and milk which is used as a loss leader to lure customers into a superstore or online. Dairy farmers may just about survive on the same fluctuating but chronically low prices they always seem to suffer from.

Further industrialisation to cut farm costs – using zero grazing and high yield breeds – is an obvious response but the consumer backlash against cruel systems is a serious risk and the plant ‘milk’ market is strengthening in response. The animal welfare implications and pollution risks are high if farmers can’t afford adequate husbandry or fit effective slurry control. The future for those farmers still grazing their cows on expensive land, trying to compete with more intensive farmers, does not look good unless they are organic or otherwise have differentiated their market.

Poor cows, poor rivers, and poor farmers. In the last 10 years we lost 40% of our UK dairy farms. That’s 4,100 small businesses gone, as the farmland gets amalgamated mostly into larger farms. The picture is similar in many other farm sectors and uncertainty over post-Brexit farm policy means we could lose thousands more.

The generic milk promotions are probably useful, and will give farmers a feel good moment to counter the vegan lobby. Yet there may be better value in a brilliant campaign to better regulate the supply chain so they pay decently and act fairly. How about refusing to sell for one day – a #Onedaywithoutus? Or once again using tractors to blockade the distribution centre roads? Too aggressive?

Well aggressive has nothing on the big retailer buyers. Abusive behaviour by buyers beyond the farm gate, often harming vulnerable, relatively tiny suppliers, can push viable businesses into bankruptcy. Some may think its fine to lose farm businesses. After all, that’s the nature of growth – get big or get out. But losing capacity and businesses has huge implications for food employment up and down stream as well as our food supply. Alongside a loss of farm diversity, Brexit means we are facing severe blockages in the supply  of foods even from across the channel. Frictionless supply chains are looking further away than ever. What will we eat?

Ironically, it was NGOs like the Women’s Institutes and Friends of the Earth, not the National Farmers Union, who started to demand better regulation on this back in the early 2000s. They successfully demanded a better legally binding code to stop supermarkets abusing suppliers and an ombudsman to oversee it. They even went to court to force it to happen. A decade later and that Ombudsman – The Grocery Code Adjudicator (GCA) – has been reviewed and found to be doing a reasonable job, but it has too narrow an impact. It shines a light on, embarrasses and even fines bad practices by companies like Tesco who bully farmers in all sorts of way like delaying or cutting payments or demanding fees for positioning produce on shelves.

But this does not regulate most of the companies actually buying from farmers here or overseas, as it covers just the top retailers. Nor does it have much impact on those prices. At a time of Brexit and other and uncertainty for the farming industry, tackling abuse in the supply chain must be a high priority to ensure that farms can survive and we can feed ourselves.

Equally there is talk of the need to get new farmers and entrepreneurs into farming, and they need the protection of a well-regulated marketplace. The new regulatory code that is needed would be relatively simple to create as the Act which formed the GCA allowed for new responsibilities, and a new Code need not be vastly different than the existing one.  The additional costs for a bigger GCA could be met through a relatively small industry levy and there is no evidence this would translate into higher consumer prices.

On prices, however, we may have been hoping for some joy from a new European consultation on  making food chain fairer and stopping unfair trading practices. If they boost transparency in pricing that may help. EU farmer bodies point out that as they only receive 8% of the price of a loaf of bread and so “want the Commission to act to improve farmers share by bolstering their position and tackling unfair practices”. An EU wide mechanism is possible, but whether it will deliver for UK farmers, given the huge vested interests of the retailer lobby and the prospect of Brexit, and whether dairy and other farmers benefit, depends on our future relationship with the EU.

The only other option for UK farmers is to try and reach customers more directly and avoid those sucking out profit in between. Those that are doing this seem to be reaping the rewards of a loyal customer.

As a nation we should be protecting and enhancing our diverse food supply system as well as ensuring we can still source, fairly, from overseas. Extending the GCA’s remit to include indirect suppliers to supermarkets would lead to fairer, more competitive and more sustainable groceries supply.

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Pop quiz: which UK industry is approximately equal in size to sewing machine manufacturing, yet claims to have swung the Brexit vote?

You may have guessed it – it’s the fishing industry. The vociferous complaints of loss of control, sovereignty and access to our waters and fish have become the symbolic talisman of the Brexiteers. But would people have felt the same way seeing Nigel Farage aboard a sewing machine, or a lawnmower – another economic equal?

There is no denying that the fishing industry has emotive power. But it is time to start asking the serious questions about whether Brexit could deliver real control for UK fishermen.

Let’s start with some context. According to the most recent EU level fisheries publication there are 6,552 fishing vessels in the UK (90% of fishing businesses only have one vessel), and the industry employs around 12,000 fishermen. Between them the vessels landed 758.8 thousand tonnes, worth just over a billion pounds in 2014. On average UK vessels land around 400,000 tonnes of fish each year in the UK, and between 200,000 and 300,000 tonnes abroad. The capture fishing industry represents less than 0.1% of UK GDP.

This interest in an industry that is worth less than a tenth of a percent of GDP, and only marginal in employment terms, is a result of the famous flotilla on the Thames and the use of the fishing industry to claim that the EU has ‘failed UK fishermen’. The talk of sovereignty and controlling our waters is very emotive stuff, and taps into the maritime heritage and island mentality of ‘bloody foreigners stealing our fish’. On top of that, the fishing industry has had its expectations raised, probably unfairly, by promises of ‘total control’, exclusion of other fishing fleets, and increases in fishing quota available to them. But can Brexit deliver? Is the fate of the UK fishing industry going to be the litmus test for a successful Brexit?

Before we think about Brexit, it’s important to understand six key points about the fishing industry:

1. Fish stocks and profits have been improving under the Common Fisheries Policy since 2003. The recent communication from the European Commission on state of play of the Common Fisheries Policy showed that 44 stocks (61% of the total North East Atlantic catches of interest to the UK fleet) are at a level which can produce the maximum sustainable yield (MSY), the stated policy objective for all EU stocks by 2020. In the same sea area the average biomass of fish was 35% higher in 2015 than in 2003. Fishing capacity, which has been too high for decades in the EU overall, is also dropping (and therefore more in line with what is available to catch without risking stock collapse). In terms of profit, the industry across the EU recorded an unprecedented net profit of €770 million in 2014 – a 50% increase versus 2013 – contributed €3.7 billion to the EU economy.
2. The UK large scale fleet is the most profitable of the lot, with the gross profit margin increasing from 15% in 2008 to 25% in 2014 – amounting to over 280 million euros. It is hardly difficult times for those who sent their multi-million pound vessels down from Scotland to the Thames (burning hundreds of litres of red diesel subsidised by the UK taxpayer) to complain about their raw deal. However…
3. The UK industry is split between large and small vessels, who have had very different fates over the last 30 years under UK Government quota policy. The majority of UK vessels are ‘small scale’, defined as under 10m in length, who generally fish inshore waters (within 12 miles from shore). This inshore fleet is three quarters of the workforce, and mainly fish for shellfish bound for the continent (mainly France, Spain and Italy). Tariffs and non-tariff barriers are therefore a major concern given that part of the reason they have been targeting shellfish is that all shellfish (with the exception of langoustines) are outside of the EU quota system.
4. Investment has been increasing in fishing for years. There has been an unprecedented level of investment which has steadily gained momentum over the past two years, according to Fishing News. This confidence and investment started before the referendum on EU membership was on the horizon, which doesn’t align with the theory that the EU is suffocating the fishing industry.
5. Fishing is a globalised industry and seafood is heavily traded. Around half of the UK catch ends up in the EU market, and there are 6,187 British flagged vessels in EU w Meanwhile, there are thought to be around 26 Dutch and 40 Spanish vessels with rights to catch high percentages of the quota for some major fish stocks of interest to UK fishermen. It is these vessels that have often attracted the negative attention of UK fishers.
6. It’s the processing sector, not the catching sector, that generates most of the economic activity in fishing. Processing is the silent core of the industry, and includes the processing of imported fish and farmed salmon. The sector is highly reliant on EU labour, meaning that Brexit poses significant challenges. Environment minister Michael Gove has said that boats from EU countries will still be able to operate in UK waters after Brexit, as the UK does not have enough capacity to catch and process all its fish alone.

With this context in mind, what could Brexit mean for the fishing industry?

The nationalist-utopian idea of exclusive access to British waters and larger quotas could in theory be a massive windfall for some. But the reality of this kind of confrontational approach not only threatens a re-run of the Cod Wars, but would also create barriers to the EU market which would cause huge concern among many in the industry. And then there is the threat of a crash in fish stocks through overfishing – something we know from recent memory would have very negative impacts on the industry and society as a whole.

We simply don’t know how the negotiations will run, what will be traded-off against UK fisheries and how access regimes will be agreed. But we do know that ultimately the only way the seas can be managed fairly is through co-operation between the different nations who fish them.

It’s easy to understand why UK fishermen resent the EU and the Common Fisheries Policy. The quota shares that the UK government agreed to on entering the EU were less favourable compared to the French, for example. The way that the UK government allocated its share of the EU total catch has meant the inshore fleet has had to throw edible fish overboard. UK fishermen want the fish stocks they have exploited for generations to deliver economic benefits to the UK coastal communities which so desperately need a boost. An optimistic view is fair enough, and small-scale fishermen in particular need something positive to focus on, but can and will UK coastal communities benefit?

As things stand, EU owned vessels accessing British waters have to fulfil one of four requirements:

1. land at least half the catch in British ports;
2. hire a crew where at least half are British (coastal) residents;
3. spend at least half of your operating expenditure in the UK, or;
4. demonstrate other benefits to the fishing community (e.g. quota donations).

Post-Brexit this could be reformed in various ways (e.g. tightening criteria to ensure fish is landed and processed in the UK – but this may require additional investment in port infrastructure), or even replaced with a landings tax which could be used to cover management costs, science or enforcement and get a public return to ensure a genuine benefit to UK coastal communities without having to resort to confrontational approaches or massive enforcement and legal bills.

Was Brexit necessary to push for a different allocation of EU quota shares?

Ever since the late 1970s the European Economic Community (EEC) has operated a policy called ‘relative stability’ which fixed shares of catches to reduce fishing pressure. This was agreed by all members, including the UK, and was based on historical catches, losses incurred through the establishment of exclusive economic zones (EEZs), and the needs of coastal communities highly dependent on fisheries.

However, dissatisfaction with these arrangements has grown as climate change and specialisation in fishing activity by different EU countries and fleets has caused significant changes to fishing stocks. There is a clear case to reform the relative stability policy (which took 7 years to negotiate in the first place) with what is called ‘zonal attachment’. Under this new approach, quota shares would be determined by the share of biomass of each stock within each EEZ, rather than the volumes of fish caught by each country over 30 years ago.

It’s worth noting that the UK could have pushed to reform relative stability from within the EU and Common Fisheries Policy (and they might have used their influence within Brussels to more effect) so a car crash Brexit is hardly a prerequisite for improving UK fisheries.

Unilateralism won’t work

The UK would be reckless to unilaterally replace the Common Fisheries Policy with domestic law and dictate terms of access to EU vessels of EU Member States. Instead, agreeing a bilateral agreement with the EU is the best way forward. Research for the European Parliament’s Committee on Fisheries (PECH) suggests a preferential regime with EU Member States which currently fish UK waters would be necessary. If the UK fails to do this and pursues unilateralism, other countries could respond by saying that their access rights ‘trump’ UK domestic law. If this happens, there is a risk of starting the cod wars all over again, albeit this time in reverse, where the UK has to defend its EEZ from others. This is clearly a risk that the UK cannot afford to take, as the sea border for our 200-nautical-mile EEZ would be un-patrollable.

There have been moves towards copying the Common Fisheries Policy into the Great Repeal Bill, but according to legal experts this idea of ‘repatriating the CFP’ is delusional, as key EU legislation is so focussed on the commission, council and EU agencies that it would be easier to start from scratch, writing an entirely new policy as promised in the Queens Speech (in the shape of a Fisheries Bill / Act). Parliamentary approval, a devolution deal and systems and funding for science and enforcement will not be wrapped up immediately, so a transitional deal will be needed. Setting up meetings in Brussels and reaching that agreement now, rather than focussing on the Faroes and Iceland, would therefore seem a more pragmatic approach.

But with fishing not even on the Brexit agenda yet, we can expect more twists and turns over the coming weeks, months and, most likely, years.

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In the wake of the horrifying Grenfell Tower disaster, people are starting to ask questions about why reports on housing safety were sat on and ignored. And the finger is being pointed towards the government’s ‘war on red tape’ – more specifically, towards a little-known policy called ‘one-in, three-out regulation’.

As anyone who’s ever worked with us can attest, my partner-in-crime Stephen Devlin and I have been banging on about this for literally years. We wrote about it in this report for the New Economics Foundation, and I also blogged about it with tedious regularity over at my old site. But it’s only since Brexit that civil society has really started to sit up and take notice of the war on our protections – particularly with the advent of the ‘Great Repeal Bill’, through which the government hopes to strip out many of those protections which derive from EU law.

So here’s a quick primer on what people are talking about when they talk about things like ‘one in, three out’. The architecture the government has put in place has three main pillars, each of which are systematically designed to prevent new laws being passed and to privilege the interests of big business over ordinary people:

• ‘One in, three out’ (OITO). This means that no government department can introduce a new law that imposes a cost to business unless it can find another law to repeal that cuts costs to business by at least three times that amount. With the policy having been steadily ratcheting up for 7 years now, this basically means that new laws are nigh on impossible to introduce, because there is precious little left to cut.
• Impact assessments. This is the way civil servants have to assess proposed new laws to comply with OITO. All potential impacts have to have a price put on them, which immediately undervalues things that are hard to put a price on – like the benefits of clean air or safe homes. But it doesn’t matter anyway, because as far as OITO is concerned, the only number that matters is the cost to business: the benefits to society are literally irrelevant.
• The Regulatory Policy Committee. This is a quango with the power to give the green or red light to impact assessments, effectively vetoing new laws if they don’t think the OITO figures are good enough. It might sound like a bunch of technocrats, but it’s actually stuffed with corporate lobbyists. Stephen and I found that from 2013-2015 they met almost exclusively with other lobbyists, and boasted about being an “effective brake” on government’s ability to pass laws. Yes, we are putting the foxes in charge of the henhouse.

The key thing to understand about this regime is that it applies to any law that costs businesses money. That includes the cost of paying the minimum wage, the cost of building diesel engines that don’t emit poisonous fumes – and, yes, the cost of making our homes safe to live in. I’ve seen well-meaning people responding to social media posts about ‘red tape’ in the wake of the Grenfell disaster by saying “Oh, but when I hear red tape talked about it’s normally in the context of small businesses and the amount of forms they have to fill in, which is a real issue.” Yes – that’s what you hear talked about. But under cover of that narrative, what the government is actually doing is not just reducing administrative burdens, but cutting back all the laws that keep us safe.

The appalling fate of the Grenfell residents has laid bare the human consequences of this inhuman policy. And they are not the first casualties in this war on protections. Scientists have found that handing control of plans to cut salt and sugar in food to the likes of McDonalds and Mars may have contributed to 6,000 deaths a year. The government raised the speed limit for lorries on single carriageways in order to cut costs for haulage companies, despite acknowledging it would likely cause a 14% increase in accidents.

So make no mistake – this isn’t about form filling. This is about whose side you’re on – the side of big businesses with an interest in cutting corners, or the side of those who need protecting from exploitation and harm. Whether it’s our homes, our food, or the air we breathe, we need to scrap this poisonous regime if we want to be safe in this country.

After Grenfell, there are clearly a lot of battles that need to be fought to keep others safe and make sure that this kind of disaster can never happen again. More generally, the spotlight is turning onto the human cost of our dysfunctional housing market, and it must be kept firmly on it until we start to turn houses back into homes, rather than simply financial assets to be speculated with.

But there’s a wider war here that we mustn’t lose sight of. We have a real chance to rehabilitate the concept of laws and protections, and defeat the government’s pernicious deregulatory agenda. This stuff can be hard to mobilise around because it feels abstract and unimportant. But I just can’t get the horrific images from Grenfell Tower out of my mind – and they are reminding me in every single moment that this policy is neither abstract nor unimportant. It kills, and it will continue to do so unless we get it scrapped.

The three pillars described above are now all enshrined in law, in the Small Business, Enterprise and Employment Act 2015. If we want to start unpicking this murderous regime, we need to get those clauses repealed. I suspect the biggest challenge here is to get it on the parliamentary agenda as soon as possible – and then pressure Tory backbenchers to rebel. With the government’s position so weak, and the political climate turning in favour of stronger protections, I wouldn’t fancy their chances.

This piece first appeared on Christine’s blog.

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This isn’t a story about the disaster in Grenfell tower. If you want to know about that, then I recommend Dawn Foster. But it is a story about housing in London. It is a story about how communities became commodities and people were subordinated to money. And it is an important part of the under told history of modern Britain.

But it starts with a Neapolitan. Specifically, with the body-guard protected writer Roberto Saviano. The Italian author and journalist is well-known world-wide as the leading expert in the Calambrian mafia. Saviano has written about crime in Italy and about international drug money. He’s followed the flows of cash and he’s been awarded numerous prizes and honourary degrees for his work. But of all of the places he’s researched, he holds particular contempt for one.

Speaking last year, Saviano said:

“If I asked you what is the most corrupt place on Earth, you might tell me, well it’s Afghanistan, maybe Greece, Nigeria, the South of Italy and I will tell you it’s the UK.”

This isn’t because he thinks that the police in Britain generally accept more bribes than others, nor that our politicians stuff their brief cases with brown envelopes more than others. Rather, it’s because of the role of the City of London in laundering the proceeds of crime across the world. It’s because of the place that London takes at the heart of the planet’s biggest network of tax-havens and secrecy areas; which extends to our Overseas Territories, through the Crown Protectorates, and into the imperial metropolis itself.

But it’s not just Saviano, and it’s it just about the Cayman islands. Last year, the MPs of the Home Affairs Select Committee investigated London’s role in money laundering. Here’s their own summary of what their report says:

“poor supervision and enforcement in the London property investment market are making a safe haven for laundering the proceeds of crime. It calls for much stronger supervision of agents, buyers and sellers. It also says that the key tool for detecting suspicious financial activity across the financial services sector and connected industries, such as real estate, is overloaded to the point of being “completely ineffective”.”

The National Crime Agency agrees. And their 2015 report pointed out that the effect of tens of billions of pounds of criminal cash being sequestered through the London property market each year was to drive up property prices in the city.

Which seems pretty obvious. If you are a member of the world’s criminal elite, and you want to find a way to ‘clean up’ your cash, then one of the prime ways to do it is to buy a building in London. This increases demand for expensive London houses, which in turn puts pressure on the market as a whole.

Only, it’s not just a market. It is also a city, a collection of communities, a few million homes, lived in by people whose lives are more than numbers on spreadsheets. Yet we often fail to talk about the impact on the people living in the world’s laundromat.

And, of course, the answer is complex. The soaring house prices in London aren’t just about criminal cash. Capitalism works by extracting and investing surplus value. It is always hunting for new physical spaces, whether though foreign investment, or empire or gentrification. It will always disregard those who don’t fit neatly into the boxes in its profit maximising business plans. These things aren’t new.

But it is also about criminal cash. London’s place at the heart of crime and corruption across the planet does contribute significantly to the heat and the speed of the unfolding housing crisis in the city. It is one of the reasons that in much of London, a landlord earns more each year from the rise in the price of their property than a firefighter does from saving the lives of their tenants if it burns down; and why that same landlord is likely to make more money buying a second property than ensuring that the first one is mould-free or fire-safe.

And as criminal money pumps ever more air into the London housing bubble, driving up the prices in generally expensive areas, it’s no wonder that, to some, the relative value of the lives of the ordinary people who live there seem to diminish by comparison. It’s no wonder that priorities are warped by the heat of the market. It’s no wonder that people feel like councillors and developers want them out, like they have bigger things on their minds than basic fire-safety measures in aging tower blocks populated only by the kind of people who get in the way of plans for ‘regeneration’.

This isn’t a story about the Grenfell Tower disaster. The causes of that are complex, and we don’t yet know them all. But it is the story of what’s happening to the homes and lives of ordinary people in London. It’s a story about how communities became commodities. And it’s hard not to see the horrific events unfolding in West London as yet another horrific example of what happens when the needs of people are subsumed to the needs of the market.

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Who is going to grow, pick, sort, and process my food in 2020? Alongside concerns about the lack of migrant labour after Brexit, there is much talk of the need for robots to replace workers, picking veg, on the sandwich line or serving the coffee. Will they replace the workers no longer welcome when we leave Europe or who are too expensive to pay in a liberalised, free trading UK? The flipside is that maybe we should all be eating less processed food and growing and cooking for ourselves…

But are these the right solutions to the right questions?

It is true that we are facing a looming staff problem in the food industry. Farmers talk of crops rotting in the fields when there are fewer seasonal and migrant workers to pick them; and the British Hospitality Association has warned of a 60,000 annual staff shortage facing the catering sector.

But why is it so difficult to find workers for the food system? Could it be they are not valued enough or given quality work and conditions? Maybe too little of the money we pay in the shop or café flows down to the worker. Alongside austerity measures, casual contracts and squeezed welfare system, low wages are becoming a crisis and the food system has some of the lowest.

“Low wages are becoming a crisis and the food system has some of the lowest”

Yet serious issues with worker standards and inequalities in the food chain were evident well before we voted to leave the European Union last year. Gang-master horror stories of abuse were becoming frequent. The Guardian newspaper’s exposé of appalling worker abuse in the egg supply chain – culminating in a £1 million fine to the gangmasters – is sadly just the tip of an abuse iceberg.

This applies particularly to migrant workers who can lack access to key information and capacity to organise, given the language and cultural barriers. Food manufacturing is the sector with the highest share of foreign-born labour in 2015, hence the huge risk from Brexit to our food supply and the reason why we need better worker conditions not a race to the bottom.

For farm workers, the loss of the Agricultural Wages Board (AWB) in England in 2013 was very bad news. The AWB ensured some 120,000 salaried workers were able to negotiate effectively for decent working conditions but that protection body has been lost. Further down the food chain, flexible working – the gig economy – is growing fast. The inevitable protests such as by Deliveroo workers at some of the resulting poor wages and contracts has woken the public up to the plight of those making or delivering our food. In the US, food workers formed the Fight for $15 campaign some years ago – demanding a decent financial return for hard work in the fast food industry. Their protest on Mayday this year may be the biggest yet.

We all rely on food workers, for decent food on our plates as well as the success of our economy. So we need to protect food workers through good policy (keeping EU labour regulations after Brexit) and well-staffed enforcement of strong worker regulations. Sadly too few enforcement officers means labour standards are inadequately enforced. It is calculated that there is one labour inspector per 100,000 members of the workforce – and recent data suggests that a business will get a labour enforcement check once every 250 years. That is not enforcement and serious concerns exist that the newly re-formed body overseeing many ‘invisible’ labour issues – the Gangmasters and Labour Abuse Authority (GLAA) – has too few staff and their powers will be inadequate to cover the remit it now has. Workers must also be able to organise to demand decent conditions themselves. Effective representation via unions is key to provide support, legal back-up and advice.

Recent data suggests that a business will get a labour enforcement check once every 250 years

Consumers too need to demand proof of fair working when they buy food in a shop or restaurant, choosing outlets with Living Wage Foundation accreditation where possible (paying more than the government’s national living wage, below the real cost of living). Lidl has become accredited guaranteeing to offer decent pay and it has apparently increased their recruitment. So it’s clearly not a barrier to profits. Will Tesco follow suit?

Underlying these solutions, far more attention needs to be given to where the value goes in food supply chains. In reality it has been leaked away for corporate profits to the detriment of workers as well as farmers and the environment. We need strong supply chain regulation and MPs must oppose any weakening of labour standards to smooth the way for new trade deals.

But let us not forget me and the robots. Technology and robotics may inevitably do more of the hard graft in fields and factories – possibly delivering low impact farming systems such as solar powered, precision farming techniques and field work with lower soil compaction for instance. I should probably be cooking more of my own food and eating less processed food and ready meals, saving time, money and bad calories. But where do the workers go when these changes happen?

Has anyone asked the workers? Back in the mid-seventies workers at an arms company – Lucas Aerospace – proposed an innovative plan to retain jobs through other, socially-useful use of the company’s technology and their own skills. Created in 1976, the idea was described by the Financial Times as, ‘one of the most radical alternative plans ever drawn up by workers for their company’. They showed job losses did not have to happen when an industry was no longer needed in the same way.  Workers were involved as were local communities in coming up with ideas, technologies, new markets and new products. It delivered debate and engagement and should have delivered new jobs but for the advent of a new neoliberal ideology and union busting in the 80s.

Decades later, the threat of climate change, and the need for a fair transition to low impact jobs and sustainable diets, suggests that a new Lucas plan involving workers and stakeholders along the food chain may well be just what is needed. A Bernard Matthews plan for instance…

Sustain works for better conditions and opportunities for workers in our food supply and for them to have a voice in policy change. We are campaigning to have a sectoral bargaining system reinstated in England for farm workers as well as wider systemic changes so the financial value of food purchases can get to where it is needed.

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The subordination of society to self-regulating international markets is the reason why British workers and industries so often fall prey to predatory financiers, writes Ann Pettifor. It is also a fundamental cause of current political crises throughout the west – just as Karl Polanyi described almost 80 years ago.

‘I would rather see Finance less proud and Industry more content.’ Winston Churchill fretting about a return to the gold standard, in a memorandum to Sir Otto Niemeyer, 22 February 1925

As this article goes to press, the British government finds itself onthe defensive and virtually helpless in the face of two potential global ‘megadeals’ that may lead to substantial job losses. The first is the failed US $143 billion takeover bid for Unilever by Kraft Heinz and its cost-cutting partner 3G Capital – a private equity company owned by Jorge Paulo Lemann, a Brazilian billionaire. Unilever has 7,500 staff employed in the UK. While the threat of a takeover appears to have been averted for six months, 3G Capital has mobilised up to $15 billion for the next megadeal, and still has Unilever in its sights. 3G was behind the Kraft–Heinz merger, finalised in 2015, after which 13,000 jobs were shed. As Warren Buffett says of his partner 3G, their joint investments have been highly profitable, but 3G specialises in ‘eliminating many unnecessary costs… very promptly’.1

The second threat is General Motors’ sale of its European arm, Opel, to the company behind Peugeot, PSA. Because Vauxhall is part of the Opel company, the jobs of 4,500 workers – building Vauxhall’s Astra cars in Ellesmere Port and Vivaro vans in Luton – are at risk. Furthermore, more than 20,000 people work in Vauxhall’s retail network, and 7,000 people work in its wider UK supply chain.2 Vauxhall is particularly vulnerable because the UK’s lax labour laws makes it easier for PSA to cut costs by firing workers and closing plants in the UK than it would be in, for example, France or Germany.

Mrs Thatcher’s anti-union stance, inherited by successive Conservative and Labour governments, has exposed not only British workers to predatory behaviour by an unregulated finance sector, but also British industry. Unlike Churchill, Thatcher and her successors were content to see finance proud, and industry vulnerable.

The latest ‘fire sales’ and intensified ‘asset-stripping’ of healthy British companies by big, global, tax-dodging finance corporations can be explained in several ways. The first is the prospect of Brexit, and the fear that British firms will lose access to the single market. The second is also explained by the Brexit vote: the 17 per cent fall in sterling, which makes companies – and indeed all British assets – cheaper for foreign buyers. The third is that global private equity firms have strong appetites for acquiring healthy firms, and then financing takeover deals with taxpayer-subsidised debt. These subsidies represent substantial foregone tax revenues for the governments concerned – foregone revenues that will rise as a share of GDP as interest rates rise. Indeed, what appeared to gall the Unilever board most was ‘the idea that it was expected to cover the bill on credit – by having debt raised against its own pristine balance sheet’.3

Presiding over the fire-sale

Like parasites, private equity firms do not kill their hosts, as this would cut off the supply of rent (in the form of debt payments) gouged from healthy firms for many years into the future. Making a company pay for its own takeover by sacking employees, stripping assets and then systematically bleeding it of future revenues is capitalism at its most barbaric.

The prime minister seems to understand this, but also appears impotent in the face of globalised finance. In her speech to the 2016 Conservative party conference she said, ‘Our economy should work for everyone’.4 But hers are empty words as she oversees the systematic culling of nationally significant British firms like ARM, the UK’s largest tech firm, taken over in 2016 by Japan’s SoftBank.5 In this sense the British government, unlike most European governments, fails at its most important duty: that of defending the economic realm to ensure the security of its citizens.

And it is this failure of regulatory democracy to defend the livelihoods and living standards of its citizens that, I believe, lies behind the Brexit vote, support for Donald Trump, and the rising popularity of France’s far-right Front National. If democratically elected governments are not capable of defending citizens from voracious, parasitic capital, then citizens revolt. Rather than turning to social democrats perceived to be colluding with global, liberalised finance (or ‘globalisation’), they turn instead to a ‘strongman’ or -woman who promises to ‘build walls’ or exit the EU, and defend them from freewheeling, self-regulating markets in capital, trade and labour.

Grounding the ‘almost planetary’ economy

Karl Polanyi, author of The Great Transformation, explained this phenomenon in a series of lectures delivered in 1940, reproduced recently by PRIME economics.6

‘Within national frontiers representative democracy had been safe-guarding a regime of liberty, and the national well-being of all civilized nations had been immeasurably increased under the sway of liberal capitalism; the balance of power had secured a comparative freedom from long and devastating wars, while the gold standard had become the solid foundation of a vast system of economic cooperation on an almost planetary scale. Although the world was far from perfect, it seemed well on the way towards perfection. Suddenly this unique edifice collapsed. The very conditions under which our society existed passed forever.’7

The gold standard, he explained ‘had become the basis of a world economy which embraced capital markets, currency markets and commodity markets on an international scale’. The apparently simple proposition that all factors of production must have free markets implies in practice that the whole of society must be subordinated to the needs of the global market system, Polanyi argued. This subordination of society to self-regulating international markets, and the detachment of this ‘almost planetary’ economy from the policymaking boundaries of a national democracy ‘developed into a catastrophic internal situation’ in the 1930s and was ‘the critical state of affairs out of which the fascist revolutions sprang’.8

History, of course, does not repeat itself, and because of the rise of new technology and other developments, today’s democratic governments face challenges different to those faced by governments in the 1920s and 1930s. Nevertheless, Polanyi’s analysis of the impact of self-regulating international markets on democratic governments appears extraordinarily relevant to today’s events.

This piece was written for the IPPR journal Juncture

• 1  Gapper J (2017) ‘Warren Buffett needs a new recipe for investing’, Financial Times, 22 February 2017. https://www.ft.com/content/e76558cc-f834-11e6-bd4e-68d53499ed71
• 2  Blagg H (2017) ‘“Speedy changes” concerns: Unite GS to press case to PSA boss’, UNITE live blog, 23 February 2017. http://unitelive.org/speedy-changes-concerns/
• 3  Vincent M (2017) ‘Who wrote the chat-up lines in Kraft’s clumsy courtship?’, Financial Times, 20 Feb 2017
• 4  May T (2016) ‘Theresa May’s keynote speech at Tory conference in full’, Independent, 5 October 2016. 
http://www.independent.co.uk/news/uk/politics/theresa-may-speech-tory-conference-2016-in-full- 
transcript-a7346171.html
• 5  Farrell S and Kollewe J (2016) ‘ARM shareholders approve SoftBank takeover’, Guardian, 30 August 2016. 
https://www.theguardian.com/business/2016/aug/30/arm-shareholders-softbank-takeover-tech-lord-myners

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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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In early 2015, a group of bicycle couriers got together to work out how they could get a pay rise. They hadn’t had one in 15 years, while costs inflated by 58%, meaning a pay cut of over a third in real terms. In February of that year they joined the Independent Workers Union of Great Britain (IWGB) founding the Couriers and Logistics Branch (CLB). After 9 months of campaigning against CitySprint, London’s leading courier company, out of the blue drivers received notice of a 50p increase per delivery – a significant hike. CitySprint must have thought this would be the end of it. It was just the beginning.

“It’s nice to have a pay-rise,” Mags Dewhurst says, “but a lot of the problems in our industry are because of the bogus contracts that we’re on, and these contracts underpin all the layers of exploitation. We can be fired at any moment; we won’t get any holiday pay; and we’re still suffering the fluctuation of the supply and demand equation.” Dewhurst has just won a lawsuit against CitySprint. In a similar spirit to the ruling in last October’s case against Uber, or the recent success against Pimlico Plumbers, the judge ruled CitySprint’s classification of Dewhurst as an ‘independent contractor’ unlawful, and awarded her paid leave.

“If you look at their finances from 2008, their turnover has been increasing year on year by about 15%. You know, it’s meant to be a fucking recession,” Dewhurst says, pointing out that couriers’ work is hard, dangerous and important, with professional couriers often delivering such supplies as urgently needed chemotherapy. “You’re sitting there thinking, where’s the money going, because I’m working harder and harder, but earning less and less, and the company that I work for is defying all the financial stories that we’re told, about why we should accept less and why we should accept austerity, whilst my CEO gives himself a 55% pay-rise in 2013.”

The CLB employs a two-pronged approach, matching strategic legal action with on-the-ground campaigning, demonstrating a more dynamic, cooperative and horizontal model that responds to recent developments in the world of work than more traditional unions have proved able to initiate. As vastly more people file as ‘self-employed,’ there is an urgent need for innovative unions – forging alliances with coops, say, to more staunchly defend against precarity. They are, says IWGB Vice President Jon Katona, “moving at their own pace,” and Dewhurst’s recent win represents one ‘prong’ of this vision, which is picking up speed as Deliveroo IWGB-affiliated workers commence industrial action in Brighton, and now in Leeds with the Industrial Workers of the World, after a successful campaign in London last year. The IWGB is calling on the government to expand rights associated with worker status, and make it easier for claimants to access justice, since currently these contracts also prohibit workers from suing their (non) employer.

In Brighton, drivers supported by the likes of Labour’s John McDonnell and Green MP Caroline Lucas are to begin a high profile campaign after bosses at Deliveroo have refused to come to the table to discuss calls for a £1 pay rise per delivery. Though Deliveroo seemed to capitulate to a freeze on hiring, which was resulting in too many workers for too few jobs, they have refused to engage further. In a statement sent to drivers, they explained their hiring methods by saying, “when there aren’t enough riders at these peak times, resulting in delayed or unaccepted orders for customers, our system believes we require more help and begins to look for new riders in the area.” This means that the company recruits on the basis of demand at the busiest times, and means it is impossible for a courier to be fully employed the rest of the time.

Deliveroo have since sought to clarify this statement, denying that any freeze went on and telling openDemocracy they are “providing the well paid, flexible work which riders want.” This serves to obscure the reality that the majority of workers in the courier industry are in already precarious positions, and fails to interrogate why it might be that the gig economy more broadly employs a disproportionately immigrant workforce, people who are compelled to take up casual work because of the systemic racism which denies them more stable employment. Deliveroo also told me it doesn’t recognise any of this as industrial action since “the IWGB doesn’t represent our riders” – odd since its drivers have signed memberships – in a bid to double down on their status as independent contractors.

The union began by representing underpaid cleaners, invariably migrant workers, at London universities in 2012, and has most recently established a branch for foster carers. Campaigns such as Justice for Cleaners at SOAS university and the 3 Cosas campaign splintered from larger unions and reformed under the banner of the IWGB. “A lot of people are Polish in the courier industry, or Brazilian,” Katona says. “It’s a fact of the type of work that this is, because it’s low-wage, low-security, low-prospect. It’s the sort of work that’s more available to people who… are already vulnerable. They don’t have the same chances of securing financially secure and stable jobs, so this sort of precarious work is something they end up falling into.”

Deliveroo’s description of their system – and their stated refusal to curtail it – also betrays the workings of a more pervasive and deliberate strategy on the part of similar platforms to shirk responsibility for workers’ livelihoods: to falsely present the degradation that results from a ferocious capitalist business model as the unavoidable fluctuations of efficient technology which simply tries to give buyers and sellers what they want. These platforms profit from the ‘smart’ economy by exploiting and compounding existing precarity.

Workers and the public interface with companies which cultivate a futuristic image, set to ‘disrupt’ value networks and expand exponentially to conquer new markets, unleashing a tide of consumer convenience that can’t be turned back. The rapidity with which these companies scale up is only possible, as Dewhurst points out, because they don’t have to cover basic infrastructural costs – of vehicles, holiday pay, sick pay or national insurance. The same logic enables them to throw their hands up – “we’re just a tech company” – and defuse the political connotations of being a worker by casting employees as entrepreneurs who get a kick out of being their own bosses.

This myth of irrepressible technological advancement feeds off the great neoliberal chimera that markets must be allowed to abide by their own laws, shown up for its true nature when governments rushed in to shore up the financial system in the 2008 banking crisis, as Will Davies, among others, has argued. Instead, say groups like the IWGB, here is exploitation old as time – with a shiny new face: “the technology allows them to keep the workers at arm’s length, so that they can hide behind this idea that an algorithm is controlling it,” Katona cautions. But it’s this same distance that has so far enabled workers to organise themselves to great effect.

It’s for the rest of us to resist a culture which continues to sanctify corporate greed and consumer convenience at any cost. Innumerable services are being skimmed in this way, and we should be mindful that technology has created new scope for labour to be undercut right down to the bone. Automation could herald a world beyond work, but not under current arrangements of eroding social protections and a lack of decent regulation for evolving markets. Unions like the IWGB and those in a-to-b industries are at the forefront of challenging this onslaught, but shorter contracts, piecemeal payment and absent protections are on the rise across the board. These companies don’t care about their employees – but they do care about their public image and their profit margins. Keep track of their attempts to wriggle out of these basic requirements; things can get worse.

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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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In 2009, the Labour government sacked David Nutt, their chief drug adviser. A widely respected figure, Nutt had fallen foul of the home secretary after he advised the relaxation of legislation criminalising drug usage. He highlighted the lack of evidence-based policy in discussing the decision to reclassify cannabis back from a Class C drug to a Class B. Having dropped cannabis down to Class C for the five years between 2004 and 2009, the government decided to return cannabis to Class B in the run-up to the 2010 general election. New Labour started ignoring experts before it was cool.

This clampdown came despite cannabis consumption actually going down in that time. It appeared that one of the key tenets of New Labour’s decision making, that they endorsed what worked rather than what fit in with a certain ideology, did not extend as far as drug policy. Equally David Cameron’s ‘compassionate conservatism’ changed attitudes on some civil issues, but maintained a no tolerance stance to drugs.

However, the economics and public health arguments for legalising drugs is remarkably convincing. Firstly, the money involved in both the drug trade and the cost of drug-related crime is significant. According to the drug charity Transform, the UK spends up to £4 billion per year on fighting the ‘war on drugs’, an outgoing that has seen little return no matter how much it is increased.

The value of the drugs themselves is substantial. At the source, Afghanistan’s opium exports account for 10% of the country’s GDP. Official estimates in 2014 put the worth of illegal drugs in the UK at £6.62 billion per year, If that trade was charged VAT, the government could almost entirely plug the deficit in the NHS in one move.

Meanwhile a 2014 Public Health England report estimated the cost of crimes to support drug habits at £15.4 billion per year. The average heroin or crack user commits crimes worth £26,074 per year to fuel their habit. Reducing such crimes would have a huge impact on the cost for government, business and individuals. These are substantial figures that have the potential to make or ruin a government’s economic record.

To put it another way, the cost to the health service of drug overdoses is estimated at close to £600 million per year, with an extra £42 million spent on putting children of drug users into care. One report in 2011 estimated that each heroin addict costs the UK £850,000 when all criminal and health costs are counted. By some estimates, that is close to six times the cost of oft-discussed ‘health tourism’.

Switzerland reported an astonishing 90% reduction in property crime amongst those who signed up to their heroin prescription programme. A similar success in the UK would be worth nearly £14 billion of saving. In Portugal, where legalisation has been in place for 15 years, the death rate from drug overdoses is the second best in Europe, and HIV infections from dirty needles have been significantly reduced, easing the burden on the health service.

While it is perhaps too early to tell if America’s marijuana legalisation will definitively produce the same results, early signs certainly do not point to the increase in under the influence crime critics envisaged. In Denver, two years after Colorado legalised Marijauna, burglaries are down ten percent, automobile break-ins were down 35% and there were half as many murders.

While these figures do little other than refute conservative predictions of all out anarchy across the state, the most significant effect is the most obvious one. Marijuana possession charges were down by over eighty percent. With the cost of housing an inmate in the USA estimated at around $31,000 per year, Colorado effectively saved itself $275 million in one movement.

In addition to the savings on healthcare and crime from existing example, revenue from drug taxation is a significant factor. Dutch cannabis coffee shops bring in $400 million per year in tax revenues alone, not counting all the jobs and tourism they produce. In Colorado, in addition to the extra $275 million of savings, the state coffers can now count on around $70 million per year in taxation – alcohol taxation accounts for less than two thirds of that amount. Total spending on marijuana was a billion dollars in 2015.

For a perhaps less quantifiable but equally significant long term effect, it is necessary to reconsider the knock on effects of reduced drug-related arrests. America has understandably been under the microscope in 2016 for its law enforcement policies regarding minorities. However, in a number of areas Britain is actually guilty of more discriminatory policies than its transatlantic ally.

More black people are imprisoned proportionally in the UK than the US, and when it comes to drug-related arrests, black Britons are six times more likely than the general population to be arrested, doubling statistics in America. This is despite a lack of any evidence to suggest black people are more likely to use or deal drugs than their white counterparts.

The economic effects of incarceration are incredibly damaging for the individuals themselves and their families. In the UK in 2012, just 27% of offenders found work after leaving prison. Young men are on average three times more likely to enter the criminal justice system if they had a parent imprisoned at some point during their childhood. With minorities so disproportionately represented in prison, there is no doubt that these convictions exacerbate economic inequality between different ethnic groups. Wiping out the swathes of unnecessary arrests for offences such as cannabis possession would be a hugely positive step towards achieving that.

With a rational, evidence-based approach to drug legalisation, one founded on concrete outcomes rather than tabloid hysteria, Britain could achieve substantial savings and bolster public tax receipts. In doing so, we would go some way towards rebalancing an economy that for too long has discriminated against minorities to the detriment of all.

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For a chancellor who has been branded both ‘dull and cautious’, Phillip Hammond’s Autumn Statement caused quite a stir. Although much of the attention so far has been on his admission that Brexit could leave a £59bn black hole in our nation’s finances, focus is slowly turning to other matters, with funding for health and social care top of the list.

Over the past few days, medical professions as well as politicians from all the major parties have queued up to bemoan Hammond’s failure to allocate any more funding for health and social care. This includes members of his own party, such as former secretary of state for health, Stephen Dorrell. Cuts to social care in particular have so far been brutal, with local authority expenditure on caring for the elderly down 11 per cent in real terms in the last five years.

This squeeze has meant that huge numbers of people are now ineligible for state funded care; capacity in the sector has been shrinking; and there has been a fall in the standard of care. Furthermore, people are now coming to A&E or staying in the NHS for longer (so called ‘bed-blocking’) because they have nowhere else to go.

This, Dorrell argues, means that Hammond’s decision not to give social care more money is not just bad for people’s health, but also for the public purse as the costs fall on the NHS. He is, of course, spot on. We at IPPR have long seen extra money for both the NHS and for social care as a good investment.

However, the reality is that even if Hammond had stumped up some more funding, it would have only served to ‘kick the can down the road’ on the wider crisis that we face. The number of over-85s will nearly double by 2030, rapidly increasing demand for health and social care services (along with other support mechanisms provided by the state, such as pensions). Meanwhile, the working age population, who fund all of these services, will increase by only 2%.

This ageing effect will mean that as time goes by, either the government will need to raise more money through tax to fund this higher demand, or an ever increasing share of existing government spending will be spent on elderly people, with people of working age receiving less benefits and fewer services. So far, successive governments have leant on the latter option, with both the NHS and pensions largely spared the pain of austerity.

However, it’s far from clear how long this can last. At some point, today’s working generation will realise that the unspoken but deeply ingrained intergenerational social contract which the welfare state has rested on has been broken. They are paying for services that they themselves will never receive when they get older.

So, what should we do about this? At some point it is inevitable that we will have to recognise that an older population will probably require a bigger state. Voters may want Swedish public services at American tax rates, but this is simply not possible. A solid first step – both politically and in terms of policy – would be to introduce an NHS tax with the revenue shared between the health service and its poorer, frailer sibling in local government.

However, it seems unlikely that the public will accept the scale of tax rises needed to maintain existing spending growth on services and benefits for elderly people – especially as those in their 20s and 30s today are very likely  to be significantly worse off than their parents. This means that politicians must negotiate a new social contract between the generations.

At the heart of this new social contract must be a recognition that we are now living longer and will therefore have to work longer, but it may also have to include an end to the triple lock on pensions which ensure that pensions rise by either inflation, average earnings or a minimum of 2.5% (whichever is higher). This has meant that since 2010 pensioner incomes have far outstripped average incomes despite the fact this group are already doing better than most.

The revenues saved by these changes – which would be considerable, considering that the triple lock is costing the taxpayer an extra £6bn every year – could then be split between services for younger generations as well as targeted at those older people who are genuinely at risk from poverty or ill health.

This was the argument made earlier this week by an all-party committee of MPs, chaired by influential welfare reformer Frank Field. But the government has been quick to reject this. “We want to ensure economic security for people at every stage of their life, including retirement.” Fortunately, many MPs – including Conservatives – are now starting to question whether this is fair with former Minister, David Willetts, accusing the government of creating “country for older generations”. All told, it’s clear we must act, and now.

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The housing crisis runs deeper than high rents. We live in hovels. Our kids grow up breathing mould in damp tower blocks. We shell out arbitrary fees to letting agents who do nothing useful. The bedroom tax leaves families vulnerable to sudden eviction, tearing up the roots we’ve laid in communities, and banishing us from our jobs, our schools, and our friends. An increasing proportion of our wage packets are being hoovered up by housing costs; UK renters spend a reported average of 41% of their earnings just to keep a roof over their heads. 

The places that we live in aren’t a trivial matter. Simple things, like the amount of floor space we have per person, have huge knock-on effects. They have a profound and measurable influence on everything from the quality of our relationships to our risk of health conditions such as depression or asthma – and British homes are the smallest in Europe.

The only serious answer to all this is a massive program of social housing construction, the public buying up or confiscation of existing private rental properties, and the opening up of empty homes. These are demands we will never see realised without mass pressure, and such pressure does not exist yet. But a stepping stone towards it – rent control – is well within reach. If we’re going to live like crap, we can at least stop paying through the nose for it.

Rent control is a paradoxical policy in that it enjoys massive public support – 64% nationally according to Survation polling – but has almost no mainstream advocates. Many economists, including prominent Keynesians like Paul Krugman, think it’s a terrible idea. Even housing campaigning organisations like Shelter advise against it. A hint of support for the policy has come from John McDonnell and the Labour Party since Jeremy Corbyn’s election as leader, but that’s about it, and their tentative backing of it has attracted total opprobrium from critics in the press. So are rent controls sensible, or just well-meaning economic illiteracy? Can we make the cost of living fairer? Or is it a matter of sheer fiscal inevitability that my friend Stella pays £350 a month to live in an actual cupboard?

The doom-mongering around rent controls really centres on the idea that any form of price control is bad. The line of criticism is exactly the same as it is for those who are against the minimum wage, which is that if price is controlled, supply (of either housing or jobs) will fall as employers and landlords cannot make profit any more.  Let’s be clear. It’s not that price controls cannot have the effects their naysayers predict:  If you were to jack the minimum wage up to £1,000 per hour, jobs really would disappear. But few outside of the fringe right would object to the existence of any minimum wage at all. Even the Tories nominally agree with it, and propose meagre increases from time to time.

So the question simply becomes one of how we control prices. Generation Rent suggest a simple and sensible mechanism for determining fair rent costs – monthly rent is capped at one half of the annual council tax rate. So a property in Croydon with an annual council tax bill of £780 would have a maximum rent of £390 per month. The council tax bands are calculated to reflect the actual agreed values of a property, and therefore provide a stable and reasonable estimation of how much it ought to cost to stay there. Generation Rent allows for a landlord opt-out where they can go over this limit, but they must pay a 50% surcharge to a social housing fund. The focus on building social housing is welcome – it is this that will uproot the housing crisis where rent control merely eases the pain – and the suggestion that landlords foot the bill is equally so.

Enemies of rent control, rather like the historical enemies of ending child labour or equal pay for women, tend to squeal that business simply could not go on if any progressive change goes ahead. All controls are painted as the lunatic equivalent of a £1,000/ hour minimum wage, destined to hurt those the policy is designed to protect.

A good modern parallel for this is the Fight for $15 campaign in the US. Seattle-based socialist Kshama Sawant spearheaded a grassroots campaign for this increase a couple of years ago, and predictably enough the US establishment shot into overdrive, claiming that the policy would cause mass unemployment. Bosses simply cannot pay a burger-flipper $15! They’d go out of business! They’d die! Well, surprise surprise – there’s been no significant damage to the employment rate.

The fact is, employers lie about the wages they are able to pay in order to protect their profit rate, and landlords do the same with rent. That is exactly what you’d expect in a market system. But there isn’t the slightest reason we should bow to them unless they produce real, credible evidence that the tenant would lose out.  When landlords and bosses have lost their yachts and their luxury cars, when they’ve sold their villas to keep liquidity going and stand shivering in the food bank queue next to us, we can start talking. Until then, they’ll have to tighten their belts, and maybe attend some mandatory motivation workshops. We’re all in this together, after all.

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In Theresa May’s first speech as Prime Minister she announced a bold new approach to corporate governance, with a raft of measures aimed at curbing the excesses of executive pay. Last week, the government turned rhetoric in to action, with a Green Paper that included support for the mandatory publication of pay ratios between a company’s highest paid and median paid employee, to apply to all medium and large businesses.

As an organisation that has long campaigned on this issue, we at The Equality Trust are delighted to see light at the end of the tunnel. For those uninitiated with the issue of executive pay, and the importance of pay ratios, let’s start at the beginning.

Excessive executive pay is a key component of economic inequality. Over the past 30 years it has increased at a dizzying pace, outstripping the often glacial progress of median and lower wages. In fact, the average annual pay for a FTSE 100 CEO is now £5.5m – around 183 times the average full-time salary in the UK. Evidence shows that such high levels of economic inequality are hugely damaging for our society, resulting in poorer mental and physical health, worse educational outcomes and lower levels of trust in others. Significant research from the IMF and OECD suggests high inequality may even be bad for the economy.

The most common argument to justify the pay of executives is simply that ‘they’re worth it’. With companies now often global in their reach, and increasingly technologically and logistically complex, those running them are required to have a unique and multifaceted skills-set. The rarity of such individuals means they are worth their weight in gold, so the argument goes. This is, in part, true, but given the skills of many others have also improved, along with their productivity, it fails to account for why the wages of ordinary workers haven’t increased at a similar pace to executives.

This is all the more galling when you consider evidence that suggests that luck is a strong determinant of CEO pay.

In reality, much of the increase in executive pay, and subsequent pay inequality, is a result of the bizarre process by which it is set. While the pay of ordinary workers is determined by executives, the pay of executives is often determined by external remuneration committees. These often fall foul of the so-called ‘Lake Wobegon’ effect, insisting that to get, or retain, the best candidate, a CEO should be paid above the average pay for their peers in that sector (often in the top quartile). The predictable result of all companies attempting to pay in the top quartile is a ratcheting up of executive pay, and a widening of the pay gap. This idea of a common culture in remuneration is supported by the fact that in the US only five consultancy firms control 50% of the market on compensation consultancy.

So why does this matter? Most reasonable people recognise that the success of a business is built on the actions of all employees, and therefore, all employees should enjoy the fruits of this success. Businesses thrive when employees feel like they are valued, and have a stake in the company’s future. When millions of people are poorly rewarded for their hard work, while those at the top carry on raking it in regardless of performance, it’s inevitable that people will feel disillusioned and disconnected from those they work with.

Polling by the CIPD also warns of the demotivating effect on workers of excessive executive pay, with 71 per cent saying bosses’ pay is too high and 59 per cent feeling directly demotivated by it. When you consider more than half of the membership of the Institute of Directors identified ‘anger over senior levels of executive pay’ as a threat to public trust in business, it is clear that such pay inequality provides a serious business risk.

None of this is inevitable. The simplest way to tackle excessive executive pay and reduce the pay gap is to require large and medium sized businesses to publish the pay ratio between their best paid employee and their median earner, as proposed this week. Alongside this, companies should be required to provide an account of why the pay ratio is justified, in particular, if the ratio increases from one year to the next.

There are two benefits to such a measure. The first is the old adage that light is the best disinfectant. With the spotlight on them, it is unlikely companies will wish to appear more unequal than their competitors. The second benefit is the possible effect it will have on pay culture within companies. Rather than divorcing the process of determining executive pay from that of ordinary workers, companies will be forced to consider how their overall approach to pay fits together.

The extremely high pay ratios we now see in many companies are both unjustifiable to large numbers of the public, and often a woefully inaccurate measure of the financial value added by executives. Businesses rely on the trust of consumers. Those companies that see executive pay rocket while the pay of their average worker stagnates will struggle to square that with discerning customers, who correctly question why some organisations see executives as talent to be nurtured, and other staff as a cost to be reduced. Pay ratios are a first, but vital, step to develop a culture of governance where the worth of all employee are considered, and where businesses, and the economy, genuinely benefit us all.

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While attacking the ‘cost of living crisis’ was one of a range of former Labour Party leader Ed Miliband’s messages that failed to stick in the public consciousness, the fault did not lie in the legitimacy of the problem. The number of people struggling to survive while in work has steadily increased throughout the last decade, and the country is in a cost of living crisis even greater today as when Miliband headed up the government’s opposition six years ago.

Fundamental to this crisis is the abundance of low pay, and in-work poverty. Over half of those living in absolute poverty live in working households. People working full-time on the minimum wage lag behind, by thousands of pounds a year, the amount needed to live on a decent, no-frills standard of living as determined by the public1. As many were quick to point out, George Osborne branding of his minimum wage a ‘National Living Wage’, at £7.20 per hour (for over-25s), was well below the wage required to live on for many workers.

The Living Wage Foundation estimates a living wage to currently be £8.45 per hour and £9.75 in London. While Osborne pegged the current minimum wage to rise to 60% of median incomes by 2020, given Brexit, the likelihood of increased inflation and the persistent depression of real incomes since last year, this is now unlikely to even reach the headline aim of £9 per hour by that year.

Implementing a significant change in the wage floor of the labour market is an act that has a very high number of effects, some of which are reasonable to predict with some degree of confidence, and many of which are not. We are currently in one of the most uncertain periods of the UK economy in modern history, and the effects of a de facto living wage – of increased incomes, increased income taxes, possible short-term redundancies – are themselves interdependent with a range of other economic variables – aggregate demand, business and consumer confidence, fiscal discipline – that themselves are currently liable to change almost weekly, as the UK economy deals with its Brexit reconfiguration.

As a result, like with the Brexit discourse itself, the inherent economic ambiguity and uncertainty as to the true effects of a real living wage allows space for both fear-mongering, and utopian predictions on both sides of the debate, without the ability to either confirm or refute such claims categorically. When the national minimum wage was first introduced by Labour in 1999, the business community and Conservative party preached that it would cause mass unemployment as firms struggle to cope with their new wage bill; instead, employers adapted, adjusting profits and pricing strategies, changing pay differentials and improving productivity. Such predictions of mass job losses abound again with the prospect of George Osborne’s Living Wage and other, real living wage proposals, such as John McDonnell’s pledge for a £10 per hour minimum by 2020. Frustratingly, they cannot be dismissed, nor wholly refuted.

However, this should not prevent us making a few clear things clear. On the case of job losses, it’s important to remember that when a new wage floor is implemented, firms have a range of ways to deal with this new cost. Profits are reduced, job growth is slowed or employees’ tasks and responsibilities are increased. Business’ argument that a strong wage floor is not feasible for many small businesses to deal with was wrong in the 1990s, and the early evidence on this decade’s rises, looks wrong again.

When Osborne raised the minimum wage for over-25s from £6.50 per hour to £7.20, a Living Wage Foundation report found that only just over a third of firms reported their wage bill increased, and two-thirds of these firms managed to adjust through reduced profits or price increases, rather than redundancies. Only 14% of companies chose to use less labour, whether that was through slower recruitment, fewer hours offered or redundancies. There was no net slowdown in job growth across the economy for young people, the over-65s, women and part-time workers, the employees most likely to be earning the new minimum wage. This shows that evidence for ‘mass job loss’ concerns is very thin, and as such does not undermine the prima facie, fairness argument for a living wage, which says an economy fails to be just when one or more workers are employed on a wage that is not sufficient to live on locally.

Of course, we should not ignore the transitional challenges for small firms into a new wage structure. Companies do take time and managerial competence to adapt to new costs. Business figures often portray these challenges as fundamental incompatibilities with economic prosperity, rather than simply short-term hurdles. To transition overnight without any assistance to an economy with a full living wage may indeed see businesses in certain sectors, such as agriculture, textiles, social care and small-scale retail, fail to adapt with the requisite structural change to sustain their employment levels.

Thus, it will be crucial to recognize and work with the diverse incentives that drive firms’ operations across a range of industries, industries that have very different structures, profit margins and productivity gaps. While there is little excuse for the multi-national firm recording millions in profit every year, the village charity shop or church gift shop that employs a few teenagers may not be able to go to £10 over night. Firms that are not given the time or the opportunity to adapt to a living wage world may turn quickly to redundancies in the face of a higher wage bill, and this will not lead to higher living standards, welfare or flourishing of would-be employees who cannot then find work.

An additional case is also mounting for the living wage based on productivity grounds. The UK’s productivity is abysmal. The gap between the UK’s output per hour and the average of the other G7 countries’ output per hour at its widest level in 2014 since records began in the 1990s2. Perennial depressed productivity is an incredibly difficult, structural dysfunction to solve, and has essentially eluded every modern government.

This crisis is deeply intertwined with the abundance of low pay and in-work poverty that characterizes the UK’s labour market. The combination of low pay, high precarity, low motivation and high turnover mean productivity gains are incredibly hard to mechanize. However, more than 80% of London Living Wage employers3 study reported improvements in staff performance, while both absenteeism and staff turnover, two foundations of low productivity, both dropped 25% on average across the firms in the study. The same study found that 80% of such employers believe its implementation enhanced the quality of work in their staff.

The living wage question, like all questions of fundamental economic structuring, is constituted by complex economic variables, the interpretation of which are ripe for partisan distortion. It may be frustrating to have to integrate our current, unjust economic structure into our policy, policy that is driven by a desperate desire for overturning persistent economic injustice. However, we can only work with the current economic configuration in front of us, without the ability to structure the economy from scratch.

1 Joseph Rowntree Foundation’s Minimum Incomes Standard

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Last week the government was found guilty of failing to get to grips with lethal and illegal levels of air pollution for the second time in as many years – if it is serious about turning this around its response must begin with the phasing out of diesel cars.

The UK is facing a public health crisis of the highest order. Thousands of people are suffering from preventable conditions such as bronchitis, asthma, stroke, cancer, and heart disease caused as a result of invisible gases such as nitrogen dioxide (NO2) and particulate matter (PM). These are largely produced by diesel cars, buses and vans.

The government has known about this issue for some time but it has failed to do enough about it. In 2014 the Supreme Court ordered the government to introduce new measures to bring the UK within legal limits of air pollution ‘as soon as possible’. Unfortunately, it has taken the government 18 months to respond and the set of proposals they have produced do not go far enough. Last week the High Court agreed with this conclusion and ruled that the government must now step up its action to bring the UK into compliance with air quality regulations.

Research by IPPR has shown that it is not possible to adequately address air pollution over the next 10 years whilst diesel cars are on the road. Although our research was focused on London, this is true for all cities across the UK. Therefore, in response to the High Court ruling the government must make an explicit commitment to phase-out diesel vehicles (with a few notable exceptions e.g. vans) over the next decade. The key question would then be how to deliver such a seismic shift in the car fleet in such a short space of time. At IPPR, we believe there are three key steps.

Firstly, the government should pass a new Clean Air Act to replace and update EU regulation. This is crucial because without EU legislation it would be impossible for organisations like Client Earth to hold the government to account for legal limits. Britain’s vote to leave the EU does not give the government a mandate to relax environmental regulations. Andrea Leadsom, Secretary of State for Environment, Food and Rural Affairs, must now ensure that this does not happen.

Secondly, we need to create clear financial incentives to encourage people to buy cleaner alternatives to diesel cars by reforming our vehicle excise duty (VED) regime. At first this reform should simply take an ‘anything but diesel’ approach but over time it should ramp up the cost of all non-zero-emissions vehicles. This should be complemented by a policy to compensate people for getting rid of their old cars through the introduction of a national scrappage scheme for the most polluting vehicles.

Finally, the government, which has so far only mandated five cities across England to introduce new Clean Air Zones, should expand the number of cities required to put in place new policies to address air pollution. Cities should be use these zones – alongside the offer of devolved transport powers – to not only phase out diesel vehicles but also revolutionise the way in which we travel, promoting cars clubs, public transport as well as walking and cycling.

Elsewhere in Europe, leaders have read the warning signs and acted accordingly. Germany and Norway have moved to ban not just diesel, but also petrol cars, a policy that makes sense in terms of both public health and climate change objectives. It is now time for leaders across the UK to step up and follow suit.

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In just three years, the UK has shifted from having no understanding of labour exploitation to a point where, finally, real progress could be made in preventing the abuses that fuel exploitation. As a new labour inspection system is ready to be tested, this is the point where rhetoric meets reality. In 2013 Theresa May, then home secretary, proposed a ‘Modern Slavery Bill’ to tackle exploitation in the UK. When introducing the Draft Bill, she announced that the UK was to become a “world leader” in the fight against ‘modern slavery’. But this resolve was not extended to the more everyday experiences of workplace exploitation; those that may not fall under the definition of ‘modern slavery’, but are nonetheless abusive and detrimental to the wellbeing of workers. While the government’s ambitions to abolish slavery were publicly lauded, their work to deregulate the labour market, to the detriment of vulnerable workers, was well underway. The ‘red tape challenge’ advanced by the Department for Business Innovation and Skills and the Cabinet Office was aiming to make a bonfire of labour regulations, including many labour protections, supposedly to free up business to grow the stuttering economy. This policy stance is wildly self-defeating. By casting aside labour protections in the name of supporting businesses, the government was creating the perfect conditions in which modern slavery might flourish.

The Union of Construction, Allied Trades and Technicians (UCATT) warned that many regulations governing construction site safety had been lost and that those in already precarious employment, such as the bogus self-employed, were now at real risk of harm. As part of the red-tape cutting agenda, labour regulation agencies – the Employment Agencies Standards Inspectorate (EAS) and the Gangmasters Licensing Authority (GLA) – suffered major budget cuts. EAS was defunded to the point of near extinction. During the passage of the Modern Slavery Bill through parliament, Focus on Labour Exploitation (FLEX) and a number of cross-party politicians highlighted the disconnect between the Home Secretary’s modern slavery agenda and the rampage through labour regulations, meaning some small reversals were made. EAS had its budget reinstated and a commitment was made to review the GLA, ostensibly to see if it should be expanded in role and remit.    

The promised review of the GLA came at the end of 2015 with the outcome a new Gangmasters and Labour Abuse Authority (GLAA) that reports to a new director of Labour Market Exploitation. The new director will oversee the GLAA, EAS and the HMRC national minimum wage teams. There is logic to coordinating the work of the UK’s disparate labour inspection authorities, yet early indications are that there is a woeful lack of resources to do so. While the government heeded calls from FLEX and others to extend the remit of the GLA, to cover a wider range of labour sectors, as yet it has nothing like the funds to do this – so far securing only a £0.5M increase to its already meagre £4.5M budget. The new director is also tasked with producing an annual review of risks in the UK labour market, a herculean task which will require heavy resourcing. Despite missed opportunities for a world class labour inspection system, resourced to match the scale of the problem, some recent thinking within government and parliament is encouraging.

The new labour inspection set-up comes alongside increasing attention paid to people in precarious employment in the UK. In just the last month, the Prime Minister has commissioned a review of employment practices and the Parliamentary Select Committee for Business Enterprise, Innovation and Skills has launched an inquiry into the future world of work and rights of workers. After two years of high-minded proclamations on tackling modern slavery, there is now a chance to address the messy reality of the problem which is widespread labour abuses as a result of a complex, fragmented labour market and a government that has abdicated its responsibility towards workers.

While the new labour inspection architecture is still finding its feet, there is an opportunity to make real progress on labour protections, or at least to reverse some of the erosion that has taken place. Meeting this challenge will require the new Director of Labour Market Enforcement to have expertise in labour rights and first hand experience with low paid and vulnerable workers and the will to establish strong engagement mechanisms with charities, trade unions and migrant community representatives.  

Once the new director is in post at the end of this year she should take the following first steps in her role to make inroads on labour exploitation in the UK. Firstly, she must find a way for labour inspectors to truly reach abused workers, helping them access the information and redress they need. She would do well to look to countries like Belgium and Brazil who have innovative systems to reach marginalised workers. As the GLAA broaches new labour sectors, she should reflect on lessons from over a decade of successful licensing and apply this proven model across the labour market and demand the resourcing to do this. Critically she should initiate an assessment of the offence of illegal working established in this year’s Immigration Act on vulnerable workers, asking if this and other ‘hostile immigration’ measures have driven workers underground and in so doing increased the likelihood of labour abuses, as FLEX suspects. This role has the potential to add some real meat to the debate on ‘modern slavery’, to look at patterns of abuse that emerge in both informal and formal labour sectors. This is fertile ground, labour exploitation remains little understood, and few countries have cracked strong response mechanisms. If we take our new prime minister at her word then we have the political will. So now it is for the new director and the inspectorates she guides to show the way.  

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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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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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We live in a world in which it is increasingly possible to use online labour markets to outsource work directly to any corner of the planet. Millions of new jobs are thus available for workers in some of the poorest parts of the planet. But the fact that we now have millions of people around the world all competing for the same jobs threatens to undermine a range of working standards.

Some workers are willing to accept extremely low paying jobs and sometimes undertake speculative and free labour for the promise of securing future work. Furthermore, online work platforms – by design – treat labour as a commodity to be bought and sold. Digital labour is often packaged up into bite-sized tasks; virtual assistance, translations, transcriptions, computer programming, graphic design, writing, and other such intellectual and digital forms of work. When tasks can be packaged up and outsourced, employers are less accountable to any particular workforce who might be able to demand concession like a minimum or living wage. The very existence of a broad base of people working for subsistence-level wages can exert a gravitational downwards pull on any work towards them in a supply chain. Workers are treated as replaceable, and the system is often organised as a cut-throat bidding process: clients lists jobs on online marketplaces, and workers then try to outbid each other for contacts by offering a lower price or better service. 

Some workers are willing to accept extremely low paying jobs and sometimes undertake speculative and free labour for the promise of securing future work. Furthermore, online work platforms – by design – treat labour as a commodity to be bought and sold. As millions more potential digital workers join the global network every year, how can we avoid a situation in which an oversupply of labour can result in an unfairly low market price for work?

We’ll probably need to begin by reframing the very work that goes on in these platforms. If workers are all individual entrepreneurs, it is rational to use these platforms to try to out-compete and exploit their co-workers. Many workers have internalised these sorts of internalised visions of individuality, competition and predatory behaviour. But if people see themselves as workers rather than entrepreneurs, then we have more possibilities for workers to collaborative attempt to help each other through cooperative horizontal relations. 

There is a range of ways in which this could be done. One place we could learn from is agricultural production networks. For instance, as the poverty of workers began to impact yields and the supply and availability of coffee, the creation of cooperatives and other benevolent intermediaries was actually encouraged by multinational buyers.

We could therefore envision more digital platform cooperatives that would ensure that workers all have a stake in the platforms that mediate their work, and that they receive fair compensation for their time. Trebor Scholz and others have been working tirelessly to bring this vision into being for platform workers. The idea has even been adopted by Jeremy Corbyn as part of his ‘Digital Democracy Manifesto.’

However, while platform cooperatives will undoubtedly be beneficial for the workers who are enrolled into them, they do not inherently solve the problems introduced by a low market price for work. It would be hard to police employers preventing a cooperative worker being paid a fair wage by re-outsourcing that gig to other workers for much lower wages.

Others might look to digital unions or looser forms of networks as ways to build a sense of solidarity between digital workers. One explicit role for a digital workers’ union could be building a class consciousness amongst workers. This would highlight the precariousness of much of the digital work that is out there, ensuring that what Gina Neff terms ‘venture labour’ (the “explicit expression of entrepreneurial values by non-entrepreneurs”) does not become the norm. In other words, these networks would encourage worker to recognise that they are receiving all of the risks of entrepreneurship, but few of the rewards.

Some of these strategies for cooperative forms of organising present an alternative vision. As thousands of people join the internet every day, many of whom are hungrily looking for work, we need to creatively think about how best to use digital tools for collaboration amongst workers instead of competition between them. Our digital tools are new, the forms of work that they mediate are new, and many of the challenges they raise are new. But, in a world where the atomisation of work continues to be used against digital workers, let’s not forget an old rallying cry that has served us well: workers of the world, unite!

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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 Brexit campaign saw much pontificating about the need to free UK businesses from the yoke of workplace regulations and union protections, in order to ‘make Britain competitive’. This reliably translates to ‘allow business to suppress wages’; making Britain’s workforce low paid and malleable enough to attract transnationals to set up shop here. This is supposed to create investment, which creates jobs, which creates demand, which stimulates investment, and so on. The logic goes that wages are a cost to businesses, so an upwards pressure upon them begins to look a lot like a threat to those tantalising profit margins intended to attract investment. This enlightened progress towards poverty salaries can be thoroughly derailed by union action. Unions are after all one of the – if not the singular – most important forces in gaining and defending wage rises. Workforces and industries with greater union density have consistently higher wages; like herd immunity, it’s a benefit reaped even by those individuals who don’t happen to be unionised themselves.

If unions are a threat to the economy, then gutting their legal protections amounts to a defence of the public interest. In this respect, public interest has been very thoroughly and rigorously defended over the past few decades. The impact of collective bargaining has been weakened by a steady rollback on legal protections surrounding, making it more and risky to organise – combined with heavy police crackdowns on union action. Union density has halved in the last thirty years. If this was meant to allow wages to fall, it has worked like a charm. As a percentage of national income, wages have fallen by 8.9% compared with their peak in 1975. Since the start of the most recent financial crisis in 2007, the UK has enjoyed a real-terms fall in wages of over 10% – second only to Greece. In fact, wages have been so successfully shrunk that it’s a little mystifying why the economy, according to this rationale, is far from flourishing, and worker productivity is actually falling.

We must re-evaluate how we think about wages. They aren’t just a burdensome cost to businesses, to be avoided as much as possible. They are also the basis of demand. They largely provide the money people use to pay rent, buy food, heat their houses. They provide money we use to buy mini-scooters and electric toothbrushes and magazine subscriptions and all the other products whose manufacture, distribution and sale forms a fundamental part of the economy. If wages are squeezed, then people have less cash to spend on consumer goods and services. Whilst squeezing wages might be a good idea for any one business, for businesses in general it’s a recipe for disaster: they are essentially competing to gut their demand base. Indeed, this pattern obtains across Europe. With a common currency and tight controls on fiscal policy, wage suppression is one of the most readily available ways in which countries can pursue a competitive advantage over their neighbours, trying to make workers more productive per euro spent on their wage packet. It’s rapidly becoming a race to the bottom; with countries competing to pay people less, for harder and longer work days. Countries with a trade surplus, exporting more than they import, are less dependent on the wage packets of domestic workers to secure a basic level of demand. But if these countries trigger a race to the bottom – well, it means that foreign wage packets are diminishing too. There are few winners. 

If we strengthen collective bargaining, we bolster the power of trade unions to act as a bulwark against this mutually assured stagnation. If we roll out strong legal protections around union action, we can increase the power of unions to effectively demand wage rises. Moreover, by rebalancing the amount recouped in wages by low-income workers, we can ensure that wages do the most work in stimulating demand. If you give someone on minimum wage fifty quid, they are almost guaranteed to spend it – not through some inherent profligacy, but simply because they need that cash. If that same fifty quid is paid as a dividend to a CEO – someone who most directly benefits from rising profits – it’s much more likely either to be saved, or to be driven into unproductive investments (like, say, inflating the cost of houses). 

It also acts as a check on the enormous amount that the government shells out to plug the gap between inadequate wages and the rising cost of living. When people depend on welfare to scrape by, make it to work the next day, and keep the company running, welfare payouts amount to a massive public subsidy to businesses and landlords. This isn’t a magic bullet – the point of trade union action is not to save capitalism from its own caprices. But it’s a step towards rebalancing the distribution of economic power in our country, and stemming the collapse in living standards that threatens the real ‘wealth-creators’ with precarity and penury.

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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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