This is the concluding chapter of openDemocracy’s e-book New Thinking for the British Economy. You can download the full e-book here for free.

“It is not possible to build democratic socialism by using the ancient institutions of the British state. Under that, include the present doctrine of sovereignty, Parliament, the electoral system, the civil service, the whole gaudy heritage. It is not possible in the way that it is not possible to induce a vulture to give milk.”[1]

As the forces of entropy have continued to pull at the threadbare remnants of Britain’s empire state, Neal Ascherson’s claim in 1985 has become more potent than ever.

This “gaudy heritage” includes the House of Lords where a combination of the only hereditary legislators in the world, the only automatic seats for clerics outside Iran, and hundreds of appointed cronies get a say on all the UK’s laws. This valve in the British state allows the interests of the powerful to flow freely, while holding back progressive change.

When the Conservative party pushed through the Health and Social Care Act in 2012, which undermined the foundations of the NHS, a quarter of its peers had shares in private health companies.[2] To begin the building of the welfare state in 1910 the Commons first had to limit its influence, but it still has the power and desire to delay and disrupt much of what is proposed in our e-book.

There’s the Royal family, and the empire-kitsch nationalism it encourages, allowing tabloids to imply that anyone who isn’t loyal to Britain’s iniquitous institutions is a traitor to their country.

There’s the fact that 86% of the land, 90% of the biodiversity[3] and an unknown but large proportion of the wealth for which the British state is responsible lies outside our North Atlantic Archipelago. Stretching from the Cayman Islands to Gibraltar, from the UK’s military bases in Cyprus to the US military bases on the British Indian Ocean territory, the Overseas Territories spin a dark web around the world, allowing the mega-rich to launder their spoils in the shadow of vestigial empire and prompting the leading expert on the mafia to call the UK “the most corrupt country on earth”.[4]

There’s the constitutional oddity of the City of London, which sits at the centre of this web, which has managed its own affairs since before the Norman Conquest with a corporate-elected council, has its own police force (dating back to Roman times) and enjoys the only constitutionally mandated permanent lobbyist in parliament, known as the “Remembrancer”.

There’s the absurd concentration of power which ensures that decisions of the state are held out of reach of ordinary citizens. Local government in Britain is both less local, and has less power to govern, than almost anywhere else in the western world, helping produce a country with the most extreme regional inequality in Western Europe.[5]

There’s the mess of asymmetric devolution, the now multidimensional West Lothian Questions it delivers, and demands for more autonomy from Cornwall to Shetland. There’s the collapsed institutions of Northern Ireland; the immunity of the Bank of England from democratic influence; and the towering power of the Treasury, whose wonky models often seem to shape government policy more than the manifestos of the parties we elect.

There’s an electoral system which encourages millions to believe that voting can never make a difference, that democracy is defunct. There’s a civil service whose culture and revolving doors with the institutions of British capital ensure that it would likely be as much of a barrier to change today as when it was founded as a check against the growing enfranchisement of working class men in the 19th century, on the back of the Northcote-Trevelyan report[6], whose co-author, Sir Charles Trevelyan, is most famous for his genocidal approach to the Irish famine, and who based its structure on the lessons of the colonial administrators of the East India company.

There’s the lack of constitutional protections for human rights or civil liberties. One of the central exhibits in the Stasi museum in East Berlin is a bug inserted inside a kitchen door, which had recorded family conversations for years. But the Edward Snowden revelations showed that the UK spy agency GCHQ’s Optic Nerve programme collected images of millions of people through their laptop cameras and smartphones: a level of surveillance that the government of the German Democratic Republic could only dream of, and which poses a drastic threat to the activism and journalism needed to hold power to account. As the Guardian revealed at the time: GCHQ had a “sustained struggle to keep the large store of sexually explicit imagery collected by Optic Nerve away from the eyes of its staff” [7].

While the US has constitutional protection to stop the government spying on civilians without a warrant, the UK doesn’t, and the ability of structurally racist security services to collect both data and meta-data, tracking our networks and movements, gives it capacity for unprecedented social control, including new tools for undermining social movements and trade unions during protests and strikes.

The UK sits at 40th in the latest rankings for press freedom, behind almost every other Western country.[8] After Beijing, London is the most watched city in the world, while the shifting terms of citizenship as Britain has made its way from an empire to an EU member to neither – is the beaker holding the poisonous conversation about immigration.

Underlying all of this is the ultimate principle of the British constitution, that sovereignty lies not with the people, but with the crown in parliament: the compromise of failed democratic revolutions, which stumbled as the bourgeoisies of previous centuries were bought off with the plunder of empire and slavery.

But these questions are as relevant today as ever. Neoliberalism is the process of shifting decisions from one person one vote to one pound – or dollar or Euro or Yen – one vote. It’s no surprise that it has thrived most in those countries in which the democratic revolutions were least complete, in which people are most easily convinced that markets are a better way to make decisions than politics.

Most of the policy proposals in this volume demand a different approach: that democratic institutions of various flavours take some kind of control over major areas of decision-making. And if they are to do so, it’s vital that they are genuinely democratic, that they are responsive to the needs of the population, and that they act in the interests of those they are supposed to serve.

And if these proposals are to survive beyond the lifetime of more than one government, then their implementation must come alongside a process of empowering citizens to defend those policies and institutions which work. One of the many lessons from the Blair/Brown era is that much of the good they did do – Sure Start Centres and rising public sector pay – was swept away within the term of one austerity happy government.

What is to be done?

Image, K99.com

Britain’s constitutional debate often feels like a car owner attempting to repair a smashed-up windscreen by trying to mend each fracture separately. A much better approach would be to replace the whole mess with a constitutional convention.[9]

Specifically, the government should gather a jury of citizens – representative of different races, genders, ages, classes, regions and nations of the UK – to draw up a new constitution, and then hold a referendum or series of referendums on whether to accept it. It was a similar process in Ireland which triggered the magnificent referendums there on equal marriage and abortion rights, which have both undone huge historic injustices, and also unleashed an energy which has helped change Ireland. But while a huge amount can be learned from the Irish process[10], the UK, without a codified constitution to start with, begins from much further back.

Of course, once such a group was convened, it wouldn’t be up to the government to decide what it concluded. But progressives should absolutely be free to advocate for particular decisions during the process, and what follows are a number of the changes I would wish to see.

What rights?

Human rights can be an atomising way to see morality and they are of little use in determining the most complex questions, which arise when rights conflict. However, democracy requires protection for the marginalised and minorities, for the unloved and unlovable, and for everyone against the powerful. The current set-up means that any government – especially without the framework of the EU – could quickly pass a law abolishing any right it didn’t like. This is why most countries enshrine rights in constitutions, which require deeper democratic mandates to amend. A bottom up Convention should help ensure that such rights are seen not as an imposition from some ‘metropolitan elite’ as they are sometimes described, but as emerging from a conversation among the people.

Among the principles that should be enshrined is the core of the Magna Carta – equal access to the justice system, which has been so corroded by years of cuts to legal aid. Such a principle is core to any economic reforms: how, for example, can we ensure minimum wage laws are enforced or tenants’ rights are protected unless workers and renters can access the courts on equal terms with their bosses or landlords?

A set of rights for women would be important in our systemically sexist society. While they should of course be drafted by women themselves, I’d include rights to equality in pay, property and political representation as well as reproductive rights such as access to safe abortions. Similarly, people of colour, LGBTQI people and disabled people face structural discrimination and their rights should be enshrined.

Recent scandals around both the state and corporations spying on trade unionists and environmental activists show the need for protection of both privacy, and of collective organising. And the story that the Home Secretary will allow people accused of terror charges to be sent to the United States to face a potential death penalty shows the potential fatal consequences of elected dictatorship.[11]

The 2016 Trade Union Act drastically undermined the capacity of workers to organise collectively, and in 2018 the International Trade Union Congress ranked the UK alongside Russia and the Congo as a country where there are “regular violations of workers’ rights”[12]. A constitution should enshrine collective rights for workers, and for marginalised groups such as the UK’s traveller community, who have been victims of cultural vandalism in recent years.

Likewise, we should guarantee not just civil and political rights but also social and economic rights. It seems likely that a list of rights drawn up by a representative sample of British people would include a right to healthcare, and legal protection for the NHS as a universal service, making future attempts at eroding it much harder, and similar rights should exist to education, social care, housing, food and digital access.

And when other countries have debated rights in the modern era, some have chosen to think beyond people. The constitutions of both Bolivia[13] and Namibia[14] enshrine protections for nature, which mean environmentalists and indigenous people have legal recourse to challenge corporate polluters and plunderers in the highest courts in the land. If the point of constitutions is the long-term stewardship of a civilisation, then it ought to build in protection for the planet.

The same is true of digital rights. If data is the new oil, then asking who owns it means asking who owns much of our economy. A modern democratic revolution should have Google and Facebook in mind alongside government and finance. There are important questions to be asked about how this sort of data should be owned, stored and used. Our current governance structures have proved woefully incapable of even asking those questions – it is clueless when it comes to contemplating possible answers.

And the flip-side of data protection is transparency. The 2001 Freedom of Information Act has helped sweep aside some of the deep corruption of the British state. Without it, we wouldn’t have had the expenses scandal or known as much as we do about corporate lobbying and the revolving doors between the civil service and big business. But with MPs dodging the Act with WhatsApp groups, and government departments now turning down Freedom of Information requests wholesale, with more and more of the functions of the state being privatised beyond the reach of the Act (for now) there’s a deep need for new rules – and a newly empowered Information Commission – to ensure our government is transparent.

And just as the Information Commission needs to be renewed, so the Electoral Commission and the rules protecting our democracy from big money need to be comprehensively refreshed. In the 2010 election – which took place immediately after the banking crash – more than half of the donations to the Tories came from the City of London.[15] They were paid to not regulate the banks, and they didn’t: a historic dereliction of duty. As I write this, I’ve spent nearly two years investigating where much of the cash that paid for various campaigns to leave the EU came from, and I couldn’t tell you the answer with certainty, other than that it came through tax havens and loopholes in the British constitution, from people with vast wealth who believed that Brexit was in their interests. Without either public funding for political parties, or much tougher enforcement of stricter laws on funding, British democracy is in real trouble.

Similarly, the 2000 Elections Act was written before the advent of Facebook or Twitter. These are new spaces for democratic debate and they need new rules.

Regulation, regulation, regulation

There’s another way to look at the Information Commissioner’s Office and the Electoral Commission. Both emerged during the Blair/Brown years, where regulation became part of a “third way” compromise between public and private ownership, and led to a set of organisations which blur the old constitutional lines between judiciary, legislature, and executive. For the most part, though, as Anthony Barnett has pointed out Britain has regulated goods and services in an increasingly complex and globalised market by participating in the EU. [16] And if we are to leave the EU, then we will need to rapidly take on many of these functions, and in that context, there is important thinking to be done about what sorts of regulators we want in the future.

If, for example, the Food Standards Agency, or the Financial Conduct Authority, or the Care Quality Commission, or Natural Resources Wales, or the General Pharmaceutical Council, or the Social Care Inspectorate, or all of the new regulators the UK will have to create as we take on work previously done at an EU level – are to have the powers they will need to hold the powerful to account, then they will need the legitimacy of democracy in some form. Otherwise they will find themselves in the same position as the EU: facing accusations of being unaccountable legislators. And this applies as much to those who regulate democratic and non-profit institutions as it does those who oversee the market.

Britain’s current regulatory structure was mostly built by a New Labour administration which was largely populated by the great and good of bureaucratised NGOs and elites from within the public sector. As such, it is essentially a new form of unaccountable governance by those elites. It will either find a way to democratise itself, or it will be torn down by those it ought to be regulating, and their allies in the media.

The basic functions of the state

Image, ‘inspector gadget’ with thanks to Clare Sambrook.

At the very core of the state sits two groups. First, there are those who run it: the civil service. Second is those who administer its most defining power: the monopoly on legal violence.

In recent years, the work of the civil service has been increasingly outsourced to the big four accountancy firms, Deloitte, PwC, EY and KPMG. To take just one of them, PwC has played a key role in everything from military procurement[17] to Brexit negotiations[18], to the justice system[19] to healthcare[20] and almost any other function of the state you might imagine.

The big four audit all but one of the FTSE 100 and 97% of US public companies[21], meaning they were responsible for signing off the books of all of the major banks which would then go on to collapse in 2007/8.[22] PwC is also the UK’s “leading provider of tax services”[23], and in 2015 was accused by Margaret Hodge, chair of the House of Commons Public Accounts Committee of “promotion of tax avoidance on an industrial scale”.[24] In 2018, the firm was banned from auditing listed companies in India after a company it had audited turned out to have committed a billion dollar fraud (PwC denied any wrongdoing).[25]

Ahead of the 2015 election, PwC was, after the trade unions, the biggest donor to the Labour party[26], having seconded staff to the offices of then shadow ministers Chuka Umunna and Ed Balls to write the party’s policy on tax and education. Given the key role that it plays in writing, shaping and delivering government (and opposition) policy, PwC, alongside the other big-four firms, should be understood as a key component of the modern British state (and of most other Western states).

As the journalist Ellie Mae O’Hagan has pointed out, there was until 2010 a public body called the Audit Commission, which audited 11,000 public bodies, but which was abolished by the coalition government. [27] It’s vital that we bring back the Audit Commission, and I would suggest that as well as all public bodies, all major firms ought to be audited by it, rather than being allowed to choose who will check their sums. More broadly, any progressive government is likely to find it impossible to deliver its agenda with a hollowed out civil service, which relies heavily on the big four to deliver any major project: the reforms in this volume conflict directly with the interests of most of their corporate clients, and of the big four themselves. This means there will need to be a major project in re-building and re-skilling the civil service.

Similarly, the monopoly on violence has become more of a competitive marketplace for physical force. From the G4S employees who suffocated Jimmy Mubenga to death[28], to the guards in our privatised prisons and the staff at the firm Maximus[29] (who determine whether or not people are fit to work), the right to decide who lives and who dies is increasingly being outsourced to private firms. And as the NGO War on Want has revealed, this is equally true outside the country.[30]

Since the 2001 invasion of Afghanistan, the work of war has increasingly been contracted to mercenaries, whose industry has grown exponentially. The industry is now worth hundreds of billions of dollars, and is one of the few sectors in which the UK is the world leader, in part because the government allows it to regulate itself. This process had a direct impact on British and American democracy when SCL, a mercenary psychological operations contractor hired by NATO and the defence departments of various of its members, realised it could apply the skills it had developed in warzones to domestic campaigns, and set up a subsidiary called Cambridge Analytica, which secured the contract to run Trump’s 2016 presidential campaign, while its close associate, AggregateIQ, effectively ran the pro-Brexit campaign. In both cases, the firms won by smearing racism across the internet.[31]

Private armies, mercenary military propagandists and social-media monopolies are drowning our democracy. We need robust independent media and democratically refreshed public broadcasters. And if prisons, the police and the military are to exist (that’s another debate), there must be a constitutional requirement that any monopoly on legal violence and the broader work of war is held directly by a democratically accountable state, not outsourced to mercenaries.

Where is British?

British Overseas Territories and Crown Dependencies. Image, George Bozanko, Wikimedia Commons.

The geographical reach of the British state peaked in 1920 at around 25%[32] of the surface of the earth and remains much larger than most British citizens realise – with most of it still falling in the Southern Hemisphere. There are, by my count, 18 legislatures sitting under Westminster’s wings; with varying degrees of autonomy over populations ranging from the 5.3 million citizens of Scotland to the 50 people on Pitcairn, descendants of the mutineers of HMS Bounty and the women they kidnapped and raped.

First, there’s the five recognised nations of the UK. Recent polls in Scotland have consistently shown majorities of people under the age of 55 supporting independence[33], and sooner or later, Westminster will find itself facing a constitutional choice similar to the one which has been bungled by the Spanish government in Catalunya: if Holyrood demands a legally binding independence referendum, will Westminster block it?

Similarly, the sickly Good Friday Agreement – the official discussion of which has been described by Robin Wilson as a constitutional re-enactment of Monty Python’s dead parrot sketch[34] – requires that the UK Secretary of State for Northern Ireland hold a referendum on Northern Ireland’s constitutional position “if at any time it appears likely to him [sic] that a majority of those voting would express a wish that Northern Ireland should cease to be part of the United Kingdom and form part of a united Ireland.”[35] How the Secretary of State is supposed to divine such a likelihood is, however, left unsaid, and it doesn’t take much imagining to ponder a scenario in which disagreement about this reaches crisis point, producing further chaos in what is already one of the poorest corners in Northern Europe. In the meantime, as I write, every institution set up by the Agreement apart from the police service is not operating, and the likely imposition of border controls with the Republic risks bringing with it chaos and queues.

Meanwhile, England and Wales are going through their own, different, and ongoing, processes of emergence from empire, in which England maintains the arrogance of believing it isn’t just a normal country, while Cornwall[36] – a recognised national minority and the second poorest region of Northern Europe[37] – normally goes unnoticed, despite strong support for devolution there.

Then there’s the fourteen British Overseas Territories: Akrotiri and Dhekelia; Anguilla; Bermuda; British Antarctic Territory; British Indian Ocean Territory; British Virgin Islands; Cayman Islands; Falkland Islands; Gibraltar; Montserrat; Pitcairn, Henderson, Ducie and Oeno Islands; St Helena, Ascension and Tristan da Cunha; South Georgia and South Sandwich Islands; and Turks and Caicos Islands. Each of these has its own complex stories, from the disgraceful expulsion of the Chagosians from the British Indian Ocean Territory to the child rapes on Pitcairn[38] to the financial secrets of Cayman and Gibraltar.

Finally, there’s the Crown Dependencies: the Isle of Man, which has the oldest (and only tri-cameral) parliament in the world, and the Bailiwicks of Jersey and Guernsey, the latter of which includes three jurisdictions: Guernsey itself, Alderney and Sark. These are the property of the Crown and have a series of complex arrangements with the British government, particularly around defence.

Twice since 1980, Britain’s armed forces have fought wars in defence of Overseas Territories. In 1982, the Falklands War revived Thatcher’s ailing government and so played a key role in shaping a generation of British politics. In 2003, the famous ‘dodgy dossier’ declared that Saddam Hussein had weapons of mass destruction capable of being deployed within 45 minutes against Akrotiri and Dhekelia, Britain’s mini-military dictatorship on Cyprus, where 8,000 Cypriots live under the rule of an appointee of the Department of Defence. This is what provided the supposed legal justification for the invasion which triggered the ongoing disaster in Iraq, and which has helped shape much of British politics ever since.

Under the protection of Britain’s armed forces, but without the scrutiny of international politics, the Crown Dependencies and many of the Overseas Territories play a key role as the world’s most important network of tax havens and secrecy areas. More than half of the companies registered in the Panama papers were listed in Britain or its Overseas Territories, and Crown Dependencies.

A distinct part of any constitutional convention would probably have to look at the Overseas Territories and Crown Dependencies in conversation with those who live in them and their governments. Each has a different history, different controversies and by their nature, each will have a slightly different relationship with the UK.

However, here is my fairly simple proposal. First, England should be given a parliament of its own and treated as the biggest in a family of nations, not the imperious parent. If the people of Cornwall wish their own, separate chamber, then they should have one too. England’s regions (such as Yorkshire) should also have their own assemblies. While this will be attacked as “more politicians” by neoliberals, a growing state, with publicly owned public transport, water, regional investment banks and other renationalised services means more work for elected officials, and such services will often be best managed at a regional level.

Second, if the people of any given Overseas Territory wish to remain under the purview of the British state and to nestle under the protective wings of Her Majesty’s Royal Air Force, then the government should offer a basic set of rights and responsibilities, including the two or three MPs between them that their collective population merits. They should be allowed legislatures of their own, like Scotland or Wales, where they can develop their own health and education systems. But corporation tax rates, transparency laws and basic rights for citizens should be shared: no more tax havens and secrecy areas. They should not be allowed to use the British state as a protective screen as they hide wealth for the crooks of the world.

Thirdly, each constituent nation of the British state – from the citizens of Scotland or England to the people of Pitcairn or Montserrat – should be given a legal right to vote for their own independence or to join with another country of their choosing, with a referendum triggered by a petition signed by a pre-agreed portion of registered voters: say, a fifth. Those who wish to remain within the UK should negotiate between them which powers they wish to delegate up to Westminster, and which they wish to retain at a national level.

How to arrange our democracy

Ester Tewogbade, 3, from London, helps support her mother Dolapo show support for reform in the House of Lords. Image, Michael Stephens/PA Archive/PA Images

Then there’s the basic infrastructure of our democratic processes. The question of what to do with the House of Lords is long running. As Anthony Barnett has pointed out to me, if it were replaced by a proportional senate but the Commons left unreformed, then it would immediately become the more representative chamber and accrue more moral legitimacy. And so, both must be reformed at once.

Proportional representation is both fairer and tends to produce more progressive governments[39] – citizenries, on the whole, are more egalitarian than their establishments. Endless dull texts have pondered which system is best, and I don’t propose to mull here on the various advantages of STV over AV+ or D’Hont[40], but it seems clear that a switch to a system in which every vote contributes to the final result would be an important step towards restoring faith in democracy.

The institution of Westminster is itself damaging to British democracy, as the disciplinarian mother of parliaments insists that its citizens are seen but not heard. Both Caroline Lucas[41] and Mhairi Black[42] have written well about their experiences as MPs entering a building that intimidates anyone unfamiliar with the cloisters of an old public school or Oxford college, where you are given a hook for your sword but have to fight for desk space. It is closer to Versailles – which aimed to awe subjects into submission – than it is to more egalitarian institutions, such as the Scottish Parliament. The fact that only 30% of MPs are women – 47^th in the world, just behind Sudan[43] – indicates a deep sickness in the culture of the place, and recent stories of heavily pregnant MPs being marched through the voting lobbies show that things need to change.

To walk into the Houses of Parliament, I need to pass a statue honouring a man – Oliver Cromwell – whose troops murdered a fifth of the population of my home city, Dundee[44], and who is considered by many in Ireland to personify the slaughter of their ancestors by the British state.

A simple solution would be to turn the whole palace into a museum and debunk to a city further north. Apart from anything else, Northern England’s rackety trains might finally get the upgrade they have long needed if more MPs were forced to travel on them every week. And if the two chambers were placed in different cities, the narcissism of the place might dissipate a little. At the same time, the various absurd traditions of Westminster should be replaced with clear, accountable democratic procedures, including two proportionally elected chambers with different systems, an element of sortition (which I’ll come to), and mechanisms to ensure women and minority groups are fairly represented.

But ultimately, bringing power closer to people is vital if we are to build a democracy at a more human scale. For too long, local government has been stripped of power, to the point that Britain is now, by some measures, the most centralised developed country. It’s no surprise that people have paid less and less attention to disempowered local authorities with little capacity to shape their communities. But when people are given real decisions, they show up in their thousands.

Across Europe, the average population of a local authority is 5,620.[45] The smallest council area in England is West Summerset, with 34,000 people.[46] The biggest is Birmingham – the largest ‘local’ government area in Europe – with 1.1 million people.[47] Scotland and Wales aren’t much better, while local government in Northern Ireland has very few powers.

In Germany, the average local councillor represents 600 people.[48] In England, that figure is 7,000, with 3,500 in Wales and 4,270 in Scotland. In Norway, as Lesley Riddoch points out, one in every 81 people will stand for local election at some point, while the equivalent figure in Scotland is one in 2071.[49] And that’s before we consider the numbers who stand for election to the broad array of other democratised institutions, like school boards. As Riddoch points out, “In Norway a small kommune of 3,000 people is still responsible for fire and police.”

Moreover, she goes on to say, “Sweden has even more powerful local councils. Anyone earning less than £35k per annum pays all their income tax to the local council and none to central government; financed by higher rate earners and corporation tax.”

For neoliberals, of course, none of this matters much. You’re unlikely to mind what sort of government is getting out of the way of the market, and the more ‘politics’ is confined within the walls of an obviously anachronistic Westminster, the more that the mantra “there is no alternative” wins. But once we accept that neoliberalism has failed and some sort of government intervention matters, if we believe that politics is about power everywhere, then the sort of government – and its ability to understand local differences – becomes enormously important.

While there is often discussion among progressives about the Nordic social democratic model, there is little understanding in Anglo-American debate that the key to building the ‘social’ has been the ‘democracy’.

Since the Beveridge Report, progressives in Britain have relied on a strategy of universalism to defend the social security system, on the grounds that public services just for the poor end up being poor public services. This, of course, remains true, and Blairism’s embrace of means-testing was a key precursor to Cameron’s cuts: see, for example, the broad resistance to fortnightly bin collection versus the ease with which housing benefit has been cut.

It’s clear, though, that universalism isn’t sufficient. If future governments hope to protect parts of our lives from the brutality of the market for the long-term, that means building institutions and policies that people will be willing to organise to defend, over generations. And the best way to do that is to involve citizens directly in building and running those institutions.

Beyond social democracy, to radical democracy

In 1972, the Glaswegian trade unionist Jimmy Reid was elected rector of Glasgow university on the back of a work-in he led of Clydeside shipbuilders. The speech he gave accepting the post was so powerful it was re-printed in the New York Times. In it, Reid railed against both the market, and the centralisation in the local government reforms going through at the time. He opened with a stark claim: “Alienation is the precise and correctly applied word for describing the major social problems in Britain today”.[50]

In the 46 years since he gave his speech, the extent of alienation has only got worse. The claim is even more true today than it was at the time. But three major things have changed.

The first is that progressive governments at both local and national levels across the world have developed a range of techniques to support citizens to make large scale decisions through participatory and deliberative processes. Since 1989, the people of Porto Allegre in Brazil have come together every year to choose how to spend the city’s multi-million pound budget. And the scheme has been such a success – even the World Bank[51] has accepted that it’s been more efficient in alleviating poverty than the conventional process of leaving budget decisions to political elites – that it’s been repeated in cities across Latin America, and even the world. In Edinburgh, where I live, the people of Leith have an annual process for divvying out community funds, inspired by lessons from Brazil.

One of the most remarkable effects of such processes though is not just the way in which it changes how money is spent, but how it changes the people involved. As the World Bank report mentioned above says, “information disclosure through meetings involving public representatives has facilitated a learning process that leads to a more active citizenship. Citizens have become aware of new possibilities, and this has helped them to decide on civic matters influencing their everyday lives.” A study by the University of Columbia in 2005of the impact of participatory budgeting on the people of the Argentinian city of Rosario came to a similar conclusion. [52] People they interviewed talked about how the process had helped bring together the community and give them a sense of ownership over it.

The various experiments in radical democracy that have taken place around the world stretch beyond budgeting, and they don’t always involve mass assemblies: as mentioned above, Ireland’s recent constitutional referendums were the result of a citizens’ jury, and the participatory processes have been used to look at a whole range of questions. But what they have in common is that they allow space for people to have conversations about the future, outside the endlessly atomising force of the market.

The second thing that has changed since Jimmy Reid railed against alienation is the arrival of the internet, and with it a series of tools to facilitate collective decision-making. While it’s important not to fall into the perils of tech-utopianism, the web can be a powerful tool for radical democracy.

And the third change is the arrival of big data. Mostly, this important new tool has been used to sell us things and spy on us. But the depth of information humanity is now able to gather on how to understand major problems ranging from cancer rates to climate change is vast.

In this context, the centralised British constitutional system – where 650 MPs plus 792 Lords make the vital decisions which affect all of us, is an absurd anachronism, designed more to protect a ruling elite than to unleash the collective wisdom of the country.

As Peter McColl has argued, the mix of near-universal literacy, the power of pervasive and ubiquitous data to help us better understand the challenges we face, and success in trialling and developing the tools of radical democracy, means that now is the time for a participatory society.[53]

Such suggestions are often contentious among those who worry that decentralising the power of the state can be a divide-and-rule tactic which allows capture by big business. But in reality, the states which have managed to stop being entirely controlled by big business are the least centralised, because the best guardian against corporate capture is an empowered citizenry with hands-on control of public investment.

In practice, what I’d propose is a mixed model of direct and representative democracy, with powerful local government facilitating participatory processes for decisions like budgeting and the production of urban plans, and national government using jury-style processes as a stage in the writing of major new laws, to oversee the work of public bodies such as government departments, police forces, regulators and the central bank, and in public inquiries as Dan Hind has proposed.[54]

Who’s sovereign?

The Queen’s Speech. PA/ROTA PA ROTA/PA Archive/PA Images

Any basic politics course will teach you that such a society is anathema to the British constitution. In the UK, we’re told, the Crown in parliament is sovereign. In reality, however, this principle is already broken, as Anthony Barnett and I pointed out last year.[55]

First, there’s the question of Scotland. Here, there is a strong cultural belief that the people of Scotland are sovereign, sometimes claimed to date back to the declaration of Arbroath in 1320. In 1989, the majority of Scottish MPs (mostly Labour and Liberal Democrat) signed “the Claim of Right”, which declared “We, gathered as the Scottish Constitutional Convention, do hereby acknowledge the sovereign right of the Scottish people to determine the form of Government best suited to their needs”.[56] A majority of MSPs currently sitting declared, as they were sworn in, that “the people of Scotland are sovereign” – a position taken by both the Scottish Government and the Church of Scotland[57], but in direct contradiction to the sovereignty claimed by Westminster. And when David Cameron, Nick Clegg and Ed Miliband signed “the Vow” ahead of Scotland’s independence referendum, they declared that the Scottish parliament is permanent: a promise restated in the 2016 Scotland Act[58], which bans future incarnations of Westminster from abolishing it without consent of the people of Scotland, meaning that there is a level of sovereignty greater than that of the Crown in Parliament.

This principle went further in 2017. When the activist Gina Miller won her case at the supreme court determining that MPs had to vote on Brexit, two things happened. First, the three dissenting Supreme Court judges argued that they could not instruct Parliament to vote on the matter, because to do so would be to declare that the court had power over Westminster, and therefore that Parliament was not sovereign. They lost 8-3, but the very fact that three of the country’s most senior judges believe that this means that the Supreme Court – another product of Blair’s constitutional tinkering – can now overrule the Commons is vitally important. Secondly, MPs then voted, overwhelmingly, for something they believed was a bad idea, because, they said, the will of the people must be respected. They abdicated responsibility for deciding on the matter. In other words, the Brexit vote produced the best display that, in reality in modern Britain, we have no idea where sovereignty really lies.

There are two reason for this collapse in the idea that the Queen-in-parliament is sovereign. First, the contemporary concept of parliamentary sovereignty dates from AV Dicey’s famous book, ‘Introduction to the study of law of the constitution’ from 1885. When he wrote that parliament is “an absolutely sovereign legislature” with “the right to make or unmake any laws”, London was the capital of the biggest empire in human history. It was a literal description of the power of a chamber which, ultimately, could enforce its will across the world. This, clearly, is no longer true, with power shifting both east and west, and capital becoming increasingly footloose.

Secondly, Anglo-Britain (the Welsh, Irish and Scots have different stories), maintains a cognitive dissonance about the monarchy. On the one hand, they are at once the deities of reality TV Britain and icons of empire-kitsch sentimentality. They are the zenith of a nationalism so ubiquitous it goes unmentioned, which permeates the society of a past-it empire desperate to remain cool in the modern media market. On the other hand, the absurdity of the idea of the divine right of kings in a country where fewer than one in fifty actually attend a Church of England ceremony each week is overwhelming. We are left with a Schrodinger’s sovereignty, where the compromises of the seventeenth century are alive, until you look at them too closely.

Looked at another way, at the core of the British constitution lies the creaking old class system. Only five British universities have produced a prime minister, and more than twice as many have gone to Eton as to non-fee paying schools. And at the centre of this system, reminding us all that it’s the natural order of things for posh white people to be in charge and that vast inequality is part of our national culture, is the monarchy.

To clean up our current constitutional mess means therefore means resolving the question of who is sovereign. For any democrat, the answer to that question is “the people”. But that means a head-on confrontation with monarchism: whilst, of course, it would be possible (though undesirable) to maintain a Nordic style monarchy, with a role that is genuinely only ceremonial, even such a cautious move would almost certainly be treated by the tabloids as what it was: an all-out assault on British traditions, and so would likely provoke a confrontation with Anglo-British nationalism.

To understand the scale of this challenge, you need to understand that the UK is currently spending around £170 billion renewing its nuclear submarines, with the support of both main Britain-wide parties, despite MPs knowing them to be technologically redundant, because it’s easier to do so than to explain to the voters of Anglo-Britain that the sop they got for losing the empire was designed in a world before maritime drones.[59]

A new economy is impossible without democracy

There will be those who read what I have proposed above and feel that none of it is a priority. There are people starving on the streets of Britain, and we need to hurry on with sorting the housing crisis and income inequality. The planet is burning, and we must prioritise the transition to a low carbon economy.

Others might argue that this is all a side-show: power in our system lies with big corporations, not governments. The system we should be focussing on is neoliberal capitalism, not archaic questions about constitutional sovereignty, and provoking a bare-knuckled fight with revanchist nationalism is a dangerous game.

But a political system built to ensure elite rule will always mean that decisions are steered towards the interests of the elite. Powerful property owners still have huge sway. Shell and BP still have their teeth deep into the Foreign Office. And we will never succeed in taking power away from corporate elites if the only alternative is a laughably anachronistic system of quasi-democracy that is deeply in hoc to those elites anyway.

Deep down, people understand this. When Scotland’s independence referendum campaign kicked off, it was the height of austerity, and the response from much of Scottish Labour was to treat it as a sideshow to ‘bread and butter’ issues. But the vote produced huge levels of political engagement, unseen in a generation, because people understood that without mending the system somehow, the bread and butter questions would never be answered. Similarly, the biggest turn out in England in recent years was the European referendum, when people voted for a campaign promising them the chance to “take back control”: the ultimate desire in the age of alienation.

The future

If a future UK – or its consciously uncoupled constituent countries – is to transform itself into a democracy, then it’s imperative that the rules of that state are written not by the politicians of any one party, but through a process which itself is seen as legitimate, democratic, and plural. The best evidence seems to be that mixed models work well: where a randomly selected and representative jury is interspersed with a small group of elected politicians from across the party spectrum (who are there mostly to advocate for the process in the old institutions), and given the power to determine its own direction and ask advice from the experts it chooses. Such a group, I would hope, would bring a string of proposals similar to those I’ve sketched out above, to the public, through carefully thought through referendum processes, which would lead us to democracy. Perhaps one such proposal would be a return to the EU.

In the last five years, these islands have seen four iconic, culture-shifting referendums. Scotland’s independence vote shifted attitudes in the country, making them more progressive as thousands became enthused about politics once more. Ireland’s votes on abortion and equal marriage awoke a progressive spirit and helped the country cast off its conservative Catholic heritage. England’s Brexit vote (because that’s what it was) pulled in a different direction, unleashing a negative energy which often feels scary. This certainly reveals the risk of badly run democratic process in a noxious context. But the risk of progressives retreating to a belief in elite rule is much greater.

National identity and national institutions help create each other. England, specifically, desperately needs to find a way to escape the prison of imperial longing, and emerge as a modern democracy. A vast national debate about how to really ‘take back control’ from those who have hoarded power for generations is long overdue. It’s time to complete the democratic revolution.

Click here to download a free electronic copy of ‘New Thinking for the British Economy’. Hard copies of each chapter can also be purchased 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

Further reading

Barnett, A. (2017). The Lure of Greatness. Unbound.

Cave T, Rowell A. (2015). A quiet word: lobbying, crony capitalism and broken politics in Britain. Penguin.

Hind, D. (2018). The Constitutional Turn, Liberty and the Co-operative State. Available at: https://opendemocracy.net/uk/dan-hind/constitutional-turn-liberty-and-co-operative-state

Lucas, C. (2015). Honourable Friends: Parliament and the Fight for Change. Granta Publications

McColl, P. (2018). It’s time for a participatory society. Available at: https://opendemocracy.net/uk/peter-mccoll/its-time-for-participatory-society

openDemocracy. (n.d.). Great Charter Convention. Available at: https://www.opendemocracy.net/ourkingdom/collections/great-charter-convention/constitutional-convention

Ramsay, A. (2018). Cambridge Analytica is what happens when you privatise military propaganda. openDemocracy. Available at: https://opendemocracy.net/uk/brexitinc/adam-ramsay/cambridge-analytica-is-what-happens-when-you-privatise-military-propaganda

Reid, J. (1972). Alienation. Available at: https://www.gla.ac.uk/media/media_167194_en.pdf

Riddoch, L, 2017: Local democracy needs a hand. Available at: https://www.scotsman.com/news/opinion/lesley-riddoch-local-democracy-needs-a-hand-1-4415708

Sambrook C and others. (n.d.). G4S, Securing whose world. openDemocracy. Available at: https://www.opendemocracy.net/shinealight/g4s-securing-whose-world

Sambrook, C. and Omonira-Oyekanmi, R. (n.d.) Shine a Light. openDemocracy. Available at: https://opendemocracy.net/shinealight

Shaxton, N. (2011). Treasure Islands, tax havens and the men who stole the world. Palgrave McMillan.

[1] Ascherson, N. (1985). John MacIntosh Memorial Lecture. Available at: https://opendemocracy.net/uk/neal-ascherson/ancient-britons-and-republican-dream

[2] Robertson, A. (2012). Will private interests of peers swell the vote for England’s health bill? Retrieved from: https://opendemocracy.net/shinealight/andrew-robertson/will-private-interests-of-peers-swell-vote-for-englands-health-bill

[3] Rand, M and Briggs, J. (2016). The United Kingdom’s Overseas Territories harbour an environment worth protecting. Retrieved from: http://www.pewtrusts.org/en/research-and-analysis/articles/2016/07/07/the-united-kingdoms-overseas-territories-harbour-an-environment-worth-protecting

[4] Yeung, P. (2016, 29 May). UK is most corrupt country in the world, says mafia expert Roberto Saviano. Retrieved from: https://www.independent.co.uk/news/uk/home-news/roberto-saviano-britain-corrupt-mafia-hay-festival-a7054851.html

[5] Inequality Briefing. (2015). Regional Inequality in the UK is worst in Western Europe. Retrieved from: http://inequalitybriefing.org/brief/briefing-61-regional-inequality-in-the-uk-is-the-worst-in-western-europe

[6] Northcote S, Trevelyan C. (1854). The Northcote-Trevelyan report. Retrieved from: https://onlinelibrary.wiley.com/doi/pdf/10.1111/j.1467-9299.1954.tb01719.x

[7] Ackerman, S, Ball, J. (2014). Optic Nerve: millions of Yahoo webcam images intercepted by GCHQ. Retrieved from: https://www.theguardian.com/world/2014/feb/27/gchq-nsa-webcam-images-internet-yahoo

[8] Reporters Without borders. (2018). Retrieved from: https://rsf.org/en/ranking

[9] White, S. (2015). Building a constitutional convention: Citizens and the UK’s constitutional moment. Retrieved from: https://onlinelibrary.wiley.com/doi/full/10.1111/j.2050-5876.2015.00838.x

[10] See more at: https://www.citizensassembly.ie/en/

[11] Grierson, J. (2018). UK government criticised over change in death penalty stance on Isis pair. Retrieved from:  https://www.theguardian.com/uk-news/2018/jul/23/uk-will-not-oppose-us-death-penalty-for-isis-beatles

[12] International Trades Union Congress. (2018). ITUC Global Rights Index: The worst countries for workers. Retrieved from: https://www.ituc-csi.org/IMG/pdf/ituc-global-rights-index-2018-en-final-2.pdf

[13] Plurinational sate of Bolivia, constitution. (2009). Articles 30, 280, 352, 376, 380, 381, etc. Retrieved from: https://www.constituteproject.org/constitution/Bolivia_2009.pdf

[14] Republic of Namibia. (n.d.) Constitution, Article 95. Retrieved from: https://www.gov.na/documents/10181/14134/Namibia_Constitution.pdf/37b70b76-c15c-45d4-9095-b25d8b8aa0fb

[15] Mathiason, N, Bessaoud, Y. (2011). Tory Party Funding From City Doubles Under Cameron. Retrieved from: https://www.thebureauinvestigates.com/stories/2011-02-08/tory-party-funding-from-city-doubles-under-cameron

[16] Barnett, A. (2018). Why Brexit won’t work: the EU is about regulation, not sovereignty. Retrieved from: https://opendemocracy.net/anthony-barnett/why-brexit-won-t-work-eu-is-about-regulation-not-sovereignty

[17] Aston, S. (2014). MoD announces selected private sector contractors for DE&S transformation. Retrieved from: https://www.civilserviceworld.com/articles/news/mod-announces-selected-private-sector-contractors-des-transformation

[18] Crump, R. (2016). Civil service turns to big four for help over Brexit trade negotiations: https://www.accountancyage.com/2016/07/05/civil-service-turns-to-big-four-for-help-over-brexit-trade-negotiations/

[19] Gibb, F. (2018). Fears over £30m bonanza for consultants. Retrieved from: https://www.thetimes.co.uk/article/fears-over-30m-bonanza-for-consultants-lljfwltmm

[20] Molloy, C. (2013). Milburn, the NHS and Britain’s revolving door. openDemocracy Retrieved from: https://opendemocracy.net/ournhs/caroline-molloy/milburn-nhs-and-britains-revolving-door

[21] Alberts, J. (2018, 19 March). The audit market: if the big four became the big three. The Market Mogul. Retrieved from: https://themarketmogul.com/audit-market-big-four/

[22] Brooks, R. (2018). The financial scandal no one is talking about. Retrieved from: https://www.theguardian.com/news/2018/may/29/the-financial-scandal-no-one-is-talking-about-big-four-accountancy-firms

[23] PWC. (n.d.). Services – Tax. Retrieved from: https://www.pwc.co.uk/services/tax.html [assessed 29 August 2018]

[24] Public Accounts Committee. (2015). Tax avoidance: the role of large accountancy firms, press release. Retrieved from: https://www.parliament.uk/business/committees/committees-a-z/commons-select/public-accounts-committee/news/report-tax-avoidance-the-role-of-large-accountancy-firms-follow-up/

[25] Shoaib, A. (2018). PwC slapped with 2 year audit ban in India. Retrieved from: https://www.accountancyage.com/2018/01/23/pwc-slapped-2-year-audit-ban-india/

[26] Ball, J, Davies, H. (2015). Labour received £600,000 of advice from PwC to help form tax policy. Retrieved from: https://www.theguardian.com/politics/2014/nov/12/pricewaterhousecoopers-tax-structures-politics-influence

[27] O’Hagan, E M. (2018). The failure of accountancy’s big four has one solution: nationalisation. Guardian. Retrieved from: https://www.theguardian.com/commentisfree/2018/jun/13/accountancy-big-four-nationalisation-pwc-ey-deloitte-kpmg

[28] Sambrook, C. 2013. Jimmy Mugenga and the shame of British Airways. openDemocracy Retrieved from: https://opendemocracy.net/shinealight/clare-sambrook/jimmy-mubenga-and-shame-of-british-airways

[29] Hodgeson, K. (2017). Maximus ‘admits’ using brutal and dangerous suicide question. Retrieved from: https://www.disabledgo.com/blog/2017/03/maximus-admits-using-brutal-and-dangerous-suicide-questions/#.W4aaan4nbEZ

[30] War on Want. (2016). Mercenaries Unleashed. Retrieved from: https://waronwant.org/Mercenaries-Unleashed

[31] Ramsay, A. (2018). Cambridge Analytica is what happens when you privatise military propaganda. openDemocracy Retrieved from: https://opendemocracy.net/uk/brexitinc/adam-ramsay/cambridge-analytica-is-what-happens-when-you-privatise-military-propaganda

[32] National Archives. (n.d.). British Empire Overview. National Archives. Retrieved from: http://www.nationalarchives.gov.uk/education/empire/intro/overview2.htm

[33] IpsosMori. (2018). Scottish Public Opinion Monitor – Wave 35. Retrieved from: https://www.ipsos.com/sites/default/files/ct/news/documents/2018-03/scotland-spom-march-2018-tables.pdf

[34] Wilson, R. (2018). Tweet. Retrieved from: https://twitter.com/robinwilson250/status/983981603457327105

[35] HM Government. (1998). The Belfast Agreement. Retrieved from: https://www.gov.uk/government/publications/the-belfast-agreement

[36] HM Government. (2014). Cornwall granted national minority status. Retrieved from: https://www.gov.uk/government/news/cornish-granted-minority-status-within-the-uk

[37] Smallcombe, M. (2016). Cornwall is the second-poorest region in northern Europe and a quarter of children live in poverty – so what are the problems and what can be done? Retrieved from: https://www.cornwalllive.com/news/cornwall-news/cornwall-second-poorest-region-northern-617199#

[38]Hirsch, A. (2008). Pitcairn victims of child sex abuse win compensation. Guardian. Retrieved from https://www.theguardian.com/uk/2008/oct/10/law-foreignpolicy

[39] Doring, H, Manning, P, Jan 2017. Is Proportional Representation More Favourable to the Left? Electoral Rules and Their Impact on Elections, Parliaments and the Formation of Cabinets. British Journal of Political Science, 47, 1 pp. 149-164.

[40] You can read about the different systems here (I prefer STV with large numbers of MPs (8-10) per constituency): https://www.electoral-reform.org.uk/voting-systems/types-of-voting-system/single-transferable-vote/

[41] Lucas, C. (2015). Honourable Friends: Parliament and the Fight for Change. Granta Publications.

[42] Unknown author. (2018). Westminster is a club masquerading as a parliament says Mhairi Black. Scotsman. Retrieved from: https://www.scotsman.com/news/westminister-is-a-club-masquerading-as-a-parliament-says-mhairi-black-1-4778873

[43] Interparliamentary Union. (2017). Women in Politics. Retrieved from: https://www.ipu.org/resources/publications/infographics/2017-03/women-in-politics-2017

[44] Dundee Evening Telegraph. (2013). September 1, 1651 the day a fifth of Dundee’s population were massacred. Retrieved from: https://www.eveningtelegraph.co.uk/2013/09/18/september-1-1651-the-day-a-fifth-of-dundees-population-were-massacred/

[45] Common Weal. (n.d.). We need real local democracy. Retrieved from: http://www.allofusfirst.org/the-key-ideas/we-need-real-local-democracy/

[46] LGIU. (n.d.). Fun facts about local government. Retrieved from: https://www.lgiu.org.uk/local-government-facts-and-figures/

[47] Ibid

[48] Riddoch, L. (2017). Local democracy needs a hand. Retrieved from: https://www.scotsman.com/news/opinion/lesley-riddoch-local-democracy-needs-a-hand-1-4415708

[49] Ibid

[50] Reid, J. (1972). Alienation. Retrieved from: https://www.gla.ac.uk/media/media_167194_en.pdf

[51] Bhatnagar, D, Rathore, A, Moreno Torres, M and Kanungo, P. (2001). Participatory Budgeting in Brazil. Indian Institute of Management and World Bank. Retrieved from: http://siteresources.worldbank.org/INTEMPOWERMENT

[52] Lerner, J and Schugurensky, D. (2005). Learning citizenship and democracy through participatory budgeting: The case of Rosario, Argentina. Conference paper presented at Democratic Practices as Learning Opportunities, Columbia University, New York. Retrieved from: www.linesofflight.net/work/rosario_pb_columbia.pdf

[53] McColl, P. (2018). It’s time for a participatory society. Retrieved from: https://opendemocracy.net/uk/peter-mccoll/its-time-for-participatory-society

[54] Hind, D. (2018). The Constitutional Turn, Liberty and the Co-operative State. openDemocracy. Retrieved from: https://opendemocracy.net/uk/dan-hind/constitutional-turn-liberty-and-co-operative-state

[55] Barnett, A, Ramsay, A. (2017). The abdication of the Commons: how article 50 saw parliament vote against its sovereignty. Retrieved from: https://opendemocracy.net/uk/adam-ramsay-anthony-barnett/abdication-of-commons-how-article-50-saw-parliament-vote-against-its-

[56] See, for example, BBC. (1999). Claim of Right passes to parliament. Retrieved from: http://news.bbc.co.uk/1/hi/special_report/1999/06/99/scottish_parliament_opening/380989.stm

[57] Church of Scotland. (2017). Church responds to second referendum request. Retrieved from: http://www.churchofscotland.org.uk/news_and_events/news/2017/church_responds_to_second_referendum_request

[58] HM Government. (2016). Scotland Act 2016. Retrieved from: http://www.legislation.gov.uk/ukpga/2016/11/part/1/crossheading/the-scottish-parliament-and-the-scottish-government/enacted

[59] Ramsay, A. (2017). Trident and the very British yearning for empire bling. openDemocracy. Retrieved from: https://opendemocracy.net/uk/adam-ramsay/trident-and-yearning-for-empire-bling

The post Trying to milk a vulture: if we want economic justice we need a democratic revolution appeared first on New thinking for the British economy.

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

The post Costing the country: Britain’s finance curse appeared first on New thinking for the British economy.

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

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

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

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

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

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

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

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

Wealth, property and plunder

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

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

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

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

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

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

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

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

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

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

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

Capital gains, labour losses

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

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

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

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

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

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

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

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

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

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

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

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

Conclusion

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

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

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

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

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

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

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

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

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

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

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

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

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There are essentially three ways of financing an ambitious Labour Government’s programme of public expenditure. These are through taxation, monetary credit creation, and the issue of debt securities. The sections below explain how each of these three methods works, and their respective limitations. Those limitations mean that, in the end, a Labour Government’s programme will have to be financed by some combination of these three methods. A final section suggests that financial stability should determine the degree to which any of these three methods should be used in financing a Labour programme.

Taxation

The first, and most obvious, way of paying for government expenditure, is through taxation. In most countries this covers the vast bulk of government expenditure. The remainder is the so-called ‘fiscal deficit’ that must be covered through monetary credit creation or the issue of debt securities. A programme of government expenditure in a given period that is covered by tax revenue, is called a balanced budget. Financing expenditure through taxation is a purely redistributive activity: the public in general are taxed and the money is paid back to the public that obtains incomes from government expenditure programmes (public services, health, education etc., and public investment). Business and property-owners then obtain the money as those incomes are spend on consumption goods, rents etc.

The idea of a balanced budget is very appealing to Conservatives, because it epitomises the virtues of thrift and ‘living within ones means’ that in their view makes for sustainable household budgeting. This is of course a public virtue that, on the whole, they themselves do not practice, because private means and the possession of wealth allow the rich to live beyond any earned income, and the home ownership so ardently promoted by Conservatives allows increasing numbers of the middle class to generate cash flow from the housing market by realising capital gains. Nevertheless, the government is, in this view, supposed to balance its budget. However, the balanced budget doctrine is inappropriate because it ignores the important part that government expenditure and financing play in maintaining the stability of the financial system, through the provision and absorption of liquidity and risk-free financial assets.

This balanced budget approach is often combined with two other doctrines that are founded on political prejudice rather than analysis of the way in which the economy works. The first is that taxation distorts prices, markets and incentives. If this argument is to be taken seriously, then its proponents should be advocating the abolition of the state, and all that that would entail. The possibility of getting rid of all these distortions is an anarchist dream. Even that would not be enough, since it would also be necessary to get rid of all monopolistic distortions of the price system, and that would be difficult, if not impossible, without a state to enforce competition. The policy issue is what distortions (such as free education or environmental protection) improve the functioning of society and the economy.

The other, related, doctrine is that taxation is an insupportable burden on business. But this need not necessarily be the case. This depends on the ‘incidence’ of taxation (who pays) and the programme of expenditure. A tax on wealth does not affect profits from production. In no way therefore does it reduce the incentives that profits provide to firms to invest. A tax on wealth that is used to build hospitals creates incomes for firms that build hospitals. Business circles on the whole actually like government expenditure, providing that someone else pays the taxes. The armaments industry is a particularly egregious example of this self-serving attitude towards public finance. Business too benefits from healthy, educated workers, whose capacities have been enhanced by public support, not to mention the subsidies given to employers in recent years through income support. Business also obtains revenues as welfare payments and public employees’ incomes are spent goods and services that the private sector provides.

Nevertheless, behind austerity lies the desire to reduce taxes on the rich. In combination with the doctrine of balanced budgets, this means reducing public expenditure. Fiscal austerity is therefore first and foremost a distributional argument. If this distributional argument could be ignored then a Labour Government would have no difficulty. However, the rich have power.

The other limitation of taxation is that the ability of a government to extract taxes from the economy (i.e., the ‘fiscal base’) is finite. Major expenditures, such as the war effort in the two world wars of the twentieth century, or financial operations, such as the nationalisations of the coal and steel industries and the railways by the Attlee government, were on a scale that was beyond being financed from taxation. Historically, balanced budgets have been rare. There is moreover a technical reason why government expenditure cannot be wholly covered from taxation, namely because tax revenue does not come in at exactly the same time as the government spends its (our) money. Tax revenues are usually bunched in the first quarter of each calendar year. Arrangements have to be made to finance public expenditure in the period before each New Year. These arrangements are the other two methods of financing public expenditure, monetary credit creation, and the issue of debt securities.

Monetary credit creation

Monetary credit creation is sometimes misleadingly called ‘printing money’. The term is misleading because governments on the whole do not pay in cash. Except for their remaining weekly-paid employees, who may receive a wage packet with banknotes and coins in it, virtually all government payments are by bank credit. What is called ‘printing money’ is, in today’s credit economy, the provision of loan or overdraft facilities by the central bank, the Bank of England. These come in the form of the creation of reserves at the central bank which are then transferred to commercial banks that receive government payments on behalf of their account-holders, teachers, pensioners, policemen, doctors, civil servants, and government contractors.

In recent years a view has emerged that such ‘monetisation’ of a fiscal deficit, through the creation of bank reserves, or even a parallel currency, is an effective way of financing that deficit. After all, the loan from the central bank may easily be made effectively non-repayable by being ‘rolled over’ or renewed on maturity, and any interest on the loan (minus the Bank’s costs) is added to the Bank’s profits which of course belong to the owner of the central bank, the government. In this way, monetisation costs the government and the tax-payer virtually nothing. This economical, apparently cost-free, method of financing government expenditure is of course attractive when public services, welfare and infrastructure are deteriorating in the face of austerity. But this low cost is only the case at the time of the expenditure. To understand the true efficiency of this kind of financing, it is necessary also to consider the consequences of such financing. In particular, it is necessary to understand how that money would be absorbed by the economy.

Supposing that a Labour government decided to raise expenditure on public services, the NHS and infrastructure by a total of 5% of GDP in each year of its five-year administration, and ‘monetised’ this extra expenditure. After five years, the total money stock of the country would have increased by 25% of GDP. Supposing that economic activity accelerated (in accordance with Keynesian multiplier principles) up to 3% per year, on average over the five year period. One could make the case that, with GDP 15% higher at the end of this Labour administration, ‘normal’ economic activity would absorb in the usual exchange and financing 15% out of the 25% of the increase in the money stock. But what would happen to the rest? Where would it go?

To answer this question it is necessary to look at how money circulates in the economy. The essence of a profit-making, capitalist economy, is that firms make profits and, in this way, accumulate monetary savings or reserves. Not all of course make the same rate of profit: many small businesses operate at a loss, or just break even. It is large corporations that have the highest rates of profit, due to their market power and their control over resources through their extraordinary ability to tap the whole range of financial markets. Through this economic activity, the extra money spent by the government will end up being accumulated by corporations, their shareholders, and the banking system that holds their accounts. If those corporations and banks are happy to hold onto this extra liquidity then there is no problem with the monetisation.

However, if the monetisation is done by a Labour government to finance a radical programme, then it is unlikely that big business and its allies in banking and finance will contentedly sit on their accumulations of bank deposits. To paraphrase Kalecki, the cry will go up that the situation is ‘manifestly unsound’ and they will find more than one economist to adjudicate that the increase in the money supply is inflationary. Even if there is no inflation, economists can be relied upon to provide models that will show inflation accelerating in the future. The alarm will be raised among corporations, banks and the rich, that their bank deposits are about to be devalued by inflation. In this situation there is only one thing they can do: convert their bank deposits into bank deposits in a currency deemed to be more secure (the US dollar is the traditional haven in inflationary times). The result will be a sterling crisis and the eventual devaluation of the currency. That devaluation of the currency will then cause the inflation that was the pretext for the alarm.

Monetisation of government expenditure may therefore be effective on an occasional limited basis. But a systematic policy of monetising public expenditure hands ammunition to the enemies of the Labour Party. The greater the monetisation, the greater is the mass of credit that can be mobilised by those enemies to bring about the financial crisis that its agents can blame on the ‘unsound’ expenditure, monetary practice and fiscal policies of a Labour government.

That said, it should also be pointed out there are ways in which a government can increase the ability of the financial markets to absorb larger amounts of money. This is through expanding the long-term debt financing of the government.

The issue of debt securities

With debt financing, no new money is created. Instead the existing money stock is used more efficiently in the sense that the velocity of its circulation is increased by the more frequent turnover of money in the financial markets. This may be illustrated as follows:

In the case of taxation, the government takes money from the public and then returns it to the public as the government spends the money. In the case of monetary credit creation, the government adds money to the stock already held by the public, in the hope that, for the sake of financial stability, that money will end up as private bank deposits that, the government hopes, will be spent in the economy (increasing the fiscal multiplier) or will remain idle in the bank. In the case of borrowing, the government takes idle bank deposits from the public and then returns those deposits to the public in the course of spending that borrowed money. Through taxation to pay the interest on the borrowing the government takes money again from the public, and then returns that money to that section of the public that holds the government bonds. When the time comes to repay the borrowing, the government may do this by again taking money from the public through taxation (or borrowing), and returning it to those members of the public who hold the bonds.

In effect, what the government has done in financing expenditure through borrowing, is to redistribute idle bank deposits through the economy. The procedure does not in itself increase the stock of money or bank deposits, but it accelerates the circulation of existing bank deposits through the economy and the financial system. In practice the amount of bank deposits in the economy will increase, because holders of government bonds may want to obtain their money back before the bonds mature. In that case, they can sell bonds to someone who has spare bank deposits. But they can also use the government bonds as security to borrow money from banks. In that case, the amount of bank deposit money increases. The new deposit money usually stays circulating in the financial system. However, the degree to which government bonds may be used as security for credit, i.e., the value or price of the bonds, does depend on how much confidence banks or holders of government bonds have in the future value of those bonds. If the prices of government bonds fall, then not only are their holders exposed to a capital loss, which would make them more reluctant to hold those bonds, but also the effective interest rate (the ‘market yield’) on the bonds rises, increasing the rate of interest that the government must offer if it wishes to issue any more bonds.

It is therefore vital for the stability of its financing, that the government keeps control of the prices of its bonds. If bond prices start to fall, then the government can raise them again by financial operations ‘along the yield curve’, for example through a procedure known as ‘operation twist’. In such an operation, the government issues short-term Treasury bills, usually with a three-month maturity. Since these are ready substitutes for central bank reserves, a government can issue such bills at more or less at the central bank rate of interest. The money borrowed with these bills is then used to buy long-term government bonds. Since the majority of British government bonds are held by the Bank of England, or long-term investors like pension funds and insurance companies, it does not take very much buying in the bond market to force up the price of the bonds. In this way, by operating along the yield curve (the curve showing the rate of interest payable on bonds of different maturities), the government can control the rate of interest on its borrowing. This operation was famously conducted at the end of 2011 by the US Federal  Reserve and the United States Treasury to bring down the rate of interest on US government bonds.

Needless to say, such operations increase still further the turnover of money in financial circulation or the liquidity of the financial system. This liquidity is the precondition for the ability of the financial markets to absorb new government securities and new securities issued by firms and banks. It also helps to absorb otherwise idle bank deposits that may too easily be turned to a run on sterling or a financial crisis.

Is there any limit to which government debt can be issued? In the first instance, the limit is provided by the distortions that a swelling and liquid financial system imposes on an economy, with the increased possibility that the liquidity in the system becomes unstable, leading to financial crisis. To prevent this it may be necessary to impose a wealth tax, targeting in particular holders of financial wealth, and using the proceeds of that tax to repay government debt. This would reverse the tendency of government debt to redistribute income in the economy towards wealthy bond-holders (but also pensioners). It would in effect mean a budget surplus for the government, a solution that cannot but appeal to fiscal conservatives. If the liquidity in the financial markets is regulated by government or central bank operations to maintain the stability of the financial system, the limit to government borrowing is the extent to which it is possible to tax the holders of government bonds in order to service those bonds. In this situation the limit is the scale of the political influence of bond-holders, who would resist such taxation, and the proportion of the bonds held by pension funds (whose capacity to pay taxes is not significant).

Conclusion

The balance between taxation, monetisation and debt issuance not only provides the means for financing an ambitious expenditure programme by a Labour Government, but also provides the instruments for financial control in an open economy in which financial regulation is difficult.

A future Labour government’s spending programme should be financed from taxation. However, it is unlikely that the scale of such a programme could be financed entirely from taxation. Any deficit should be covered by the issue of long-term bonds that can be risk-free assets for pension funds and insurance companies, and offer those funds a return that does not tax their solvency, as the recent programmes of quantitative easing have done. Such bonds, and government operations in their markets, can then be used to stabilise liquidity in the financial system, absorbing any monetisation to which the government may need to resort.

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

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

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

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

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

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

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

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

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The 20^th century American comedian Rodney Dangerfield had a catchphrase: “I don’t get no respect”. The public debt is the Rodney Dangerfield of government finances. It is a long term benefit treated as perennial problem.

When we change our perspective on of the nature, size and ownership of the UK public debt we can see that it poses no threat to economic stability. Its size is modest and its burden on taxpayers is minor. If we treat the national debt as an asset, we can use it as a means to end austerity. 

Give the public debt some respect and end austerity!

The claim that our public debt is excessive has been used as a major justification for austerity – cuts in spending. That massive debt, we are told, 1) must be repaid, 2) threatens our country with bankruptcy, and 3) is a burden on future generations. All these are wrong. Let me explain why.

When our government borrows it does so by selling a promise to pay, called a bond. For example, a household buys a £100 bond and our government promises to buy it back at the same amount in ten years with interest (at present 2.5% or £2.50 every year). A pound note also is a promise to pay (look at the small print near the Queen’s picture). A pound note is a bond paying zero interest.

Britain’s national currency is managed by our central bank, the Bank of England, owned by the citizens of the United Kingdom (that is, our elected government). As a result, the British government can never default on its bonds. Our government can replace maturing public bonds with new ones. Should private buyers, households and businesses, refuse to purchase the new bonds at the interest rate set by the British government, our government can sell them to the Bank of England. The option to sell to the Bank of England provides a fool-proof mechanism to prevent excessively high bond rates.

Whether the economy is strong or weak, the British government can never default on its debt. The debt is nothing more than pieces of paper that the government promises to buy back on a specific date. These pieces of paper can be bought back with new pieces of paper (new bonds) with later buy-back dates. If the private owners of the debt paper do not want the new bonds (new debt paper), our government can sell those new bonds to the Bank of England for cash and use the cash to pay the bond holders.

This buying and selling of public bonds is not the much-misunderstood Quantitative Easing (QE). QE was a one-way street – our government bought private corporate assets from companies threatened with bankruptcy. In a phrase, QE was “bail-outs” of reckless private sector financial behaviour.

The size of the public debt is not a problem

Figure 1 shows that outstanding public bonds (called “gilts” from the days when the edges of the bond had gold gilt) amounted to £1.9 trillion or 96% of GDP at the end of 2016, which was the UK gross debt.

When we look closer at the national debt, its nature changes. Public sector liquid assets (for example, cash deposits held by the central and local governments and financial assets such as stocks and bonds) reduced this to £1.7 trillion or 86% of GDP. When we subtract the government’s assets from its debt, we have the net debt, the measure of public indebtedness used by the Treasury. The gross/net distinction also applies to households. A household with a £300,000 mortgage and £50,000 in the bank has a net debt of £250,000.

Another 27% of the net debt amount (£466 billion) was held by public sector institutions, the vast majority by the Bank of England. This portion of the national debt is what the public sector owes itself. Subtracting this gives the effective debt, the debt that the UK government owes to others. In 2016, the effective debt was 62% of GDP.

 The public debt is not a burden

Who the government owes is an important factor determining whether the public debt is a burden. In the UK, the public sector itself owns 25% of the £1.9 trillion UK gross public debt (see Figure 2). The government pays the interest on this portion of the debt to itself. Thus, one-quarter of the debt and the interest paid on it are not a burden.

Pension funds hold a large portion of the 75% of gilts not owned by the government. The interest paid on debt held by pension funds is income to retired households. As such, this portion of the national debt is a source of household income, a benefit not a burden to citizens.

Debt held by the government itself and pension funds are long term holdings, rarely bought and sold. They do not represent a speculation danger that might put upward pressure on bond rates. When these are subtracted the remaining “gilts” constitute the market-active public debt, £808 billion, or 45% of GDP.

At the end of 2016, private corporate and foreign gilts holders owned 41% of the UK’s national debt. Only the £524 billion of gilts held by foreign creditors could be considered a “burden” in that the associated interest payments are from UK taxpayers to non-UK creditors. For fiscal year 2015/16 interest payments to foreign creditors were approximately £12 billion, or 0.6% of GDP – quite a small burden.

This analysis of the nature, size and ownership of the UK public debt shows that it poses no threat to economic stability. Its size is modest and its burden on taxpayers is minor. From this come the following policies to end austerity:

1. Sound management of the national debt means more public borrowing for investment and current expenditure, which is justified by the modest size of the effective debt.
2. The minor burden represented by foreign interest payments could be reduced by measures that would limit bond sales to domestic buyers (already applied in several other countries).
3. Implementing a fair and progressive taxation system will ensure interest payments to domestic bond holders don’t have negative redistribution effects.
4. Any speculative pressure on government bond interest rates can be prevented by selling bonds to the Bank of England.

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Accelerated by austerity’s inequities, the 20^th century income distribution system has broken down irretrievably in what is an era of global rentier capitalism. More and more income is flowing to a rent-extracting elite, returns from financial, physical and so-called intellectual property, bolstered by subsidies and an international architecture of institutions geared to rent-seeking. For various reasons, the returns to labour have declined and will continue to do so.

Real wages are stagnating across the OECD, not just in Britain, and are falling for the growing precariat, which is also losing non-wage benefits, access to the commons and from a punitive welfare system, fatally flawed by means-testing and the inevitable behaviour-testing that is being made vicious by the woefully misnamed Universal Credit. The economically illiterate austerity strategy has only made matters worse.

Millions of people in Britain are economically insecure and at risk of absolute poverty. Nearly two-thirds of those in poverty are in jobs or in households with someone in a job. It is a bad joke to say work is the best route out of poverty.

A new distribution system is needed. Real wages will not rise by much, full-time well-paying jobs will not become the norm, the precariat will continue to grow. Progressives should stop pretending marginal adjustments would rectify the trends and should offer a transformative economic strategy instead.

The key lies in capturing the rentier income for the precariat and others facing economic insecurities. Contrary to Keynes’ prediction of the ‘euthanasia of the rentier’, rent-seeking will not disappear in a global market economy, and stronger anti-trust regulations would only have limited effect given that much of the rent is going to multinationals. Instead, we must find ways of redistributing – or ‘recycling’ – the rent.

Sooner or later it will be seen that the only sensible way of reducing the widespread economic insecurity is by gradually building up a basic income as an anchor of a new distribution system. It is no panacea, and must be built alongside better public services and supplementary benefits for those with special needs. But the left has offered no alternative way of providing everybody with basic economic security. If it does not offer that, it will only win elections by default.

The primary reasons for moving in the direction of a basic income are ethical. If we accept private inherited wealth – ‘something for nothing’ – then we should accept the principle of ‘social dividends’ on inherited public wealth, created by many past generations. It would also compensate those without the lucky talents rewarded in a market economy, and compensate all commoners for the enclosure and privatisation of our commons. There are other justice rationales, discussed elsewhere.

It would also enhance personal freedom – something those on the ‘left’ should want, but which it allowed the ‘right’ to claim in the past century. The emancipatory value of a basic income would exceed its monetary value, unlike any viable alternative. It would also provide everybody with basic security, not only a human right but also a superior public good – you having it would not deprive me of it, and all of us having it would increase its value for all of us.

It is affordable. It should start at a low level, as the funding is built up. Unlike means-testing, which suffers from huge exclusion errors and is stigmatising, the progressivity should be ensured by clawing it back from the affluent by modest increases in income tax. By contrast, ‘targeting’ by means tests has notorious exclusion errors and is stigmatising. But the main funding should come from levies on all revenue from use of our commons, which are forms of rent, starting with a Land Value Tax, ecological levies and a wealth-transfer levy, plus rolling back the 1,156 tax reliefs paid out each year. The 209 principal tax reliefs, most of which are very regressive, amount to over £400 billion of tax revenue foregone each year.

As a long-time advocate, I am convinced there is a perfect storm of factors making it not only desirable to start building a basic income, but vital. The perfect storm includes economic insecurity, the suffering from the folly of austerity, the loss of freedom entailed in the vindictive Universal Credit that is creating incredible suffering across the land, the disruptive effects of the digital revolution and those impending robots, and the political dangers represented by a society in which growing numbers feel a sense of relative deprivation – ‘licking at the windows’, as the saying goes, of a consumerist society in which they cannot participate.

Unless progressives offer a vision of societal economic security, more people will either opt out politically or vote for neo-fascist populists like Trump, Boris Johnson, Victor Orban or the League in Italy. Fiddling with paternalistic placebos such as ‘job guarantees’ or regressive productivity-depressing tax credits will merely allow the fire to grow. It may take a journey of up to a decade to construct an adequate basic income. But there is no sensible alternative. If we are not scared by the forces behind Trump and Brexit, we should be.

And there is a lovely secret inherent to a basic income, as our pilots and other evidence have shown. A basic income would promote work that is not labour – ecological, community and care work – that we should all want, and which we need. If a basic income created a few free riders (which every transfer system does), that would be nothing compared with what exist now and it would cost far more to chase them down than let them be.

In short, I plead with friends on the left to took afresh at what would be an emancipatory policy. It would not be a panacea but should be integral to a progressive strategy to revive the Enlightenment values that are the hallmark of a good society.

This article is part of the ‘100 Policies to End Austerity’ series in collaboration with the Progressive Economy Forum. 

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The premise of “austerity” is that there isn’t enough money to deliver a decent standard of living for all because there was a financial market crash in 2008. To banish this idea from the political landscape we must tackle the cost of accessing the essential ingredients that allow anyone to live a decent life. That is the aim of Universal Basic Services (UBS), and our report from UCL’s Institute for Global Prosperity clearly demonstrates that this is easily and practically within our grasp.

For less than 2.3% of GDP, we showed that we can kiss austerity goodbye and welcome in a new age of joy and freedom that would make the UK the envy of the world. We already have the NHS and free education, now we just need to extend the same ethos to housing, transport, information access and food. Imagine for a moment living in a UK with 1.5 million extra social housing units, no Council Tax for the poorest, free local transport, basic Internet access for everyone, and community food programs designed and delivered locally that would ensure that no family need again be scared of not having a meal. That UK would be utterly transformed from the one we live in today: free from fear, free from destitution, and well fair to everyone.

Universal access to basic services will require substantial devolution of power and responsibility to local democracies – and that’s a good thing. But it will also require an upgrade of our local democracies. Our UBS budget included funding for 650 new local assemblies with well paid, locally elected representatives who would have direct democratic control over the administration of UBS funds. The revenue for the UBS would be collected from taxation and guarantees basic services to all citizens.

Austerity is a top-down policy from a distant national parliament that has starved local services of funding. UBS is the opposite, and restores power, money and control back to democratic institutions closest to the citizens they serve.

To make this increase in investment in our people and our lives we will need to raise a little more tax. Our report fully funded the proposals with an extra £20.42 a week net coming from the top half of all earners. This would take the UK’s total tax take to around 43% which is around the average of the EU19 countries, and less than France at 45%.

The value of the basic services is worth £126 a week to anyone who uses all of the services, which is basically like an 80% pay rise for those on the lowest incomes. People who use the services have their costs reduced, which is the same as a pay rise (this effect is sometimes called a “social wage”). With an ageing population, having adequate health and social care effects everyone. Young people need access to the same level of social services their parents enjoyed. Reducing costs for ordinary people is the key to ending austerity for ever.

If we want to escape the cyclical battles over ‘tax and spend’ policies, we need to shift the focus to the cost of living crisis. Ten years on from the 2008 financial crisis, it is time for austerity to end. We must ask a deeper question: are we willing to stop asking for more money, and start asking for a better life?

This article is part of the ‘100 Policies to End Austerity’ series in collaboration with the Progressive Economy Forum. 

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The lost decade?

A decade on from the Global Financial Crisis (GFC), now is the time for serious reflection on where we are, how we got here and what future lies before us. In the aftermath of the 2008 crisis, finance-driven capitalism appeared to be on a precipice. The collapse of leading global financial institutions in the US and UK led to a free fall in global markets, followed by the European Sovereign Debt crisis. It all seemed to herald the end of unfettered financial expansion. Indeed, many believed 2008 was another 1929 moment – a systemic crisis would bring about a New Deal style recovery and a Bretton Woods agreement for the 21^st century to establish clear parameters for a stable global financial system. A decade later the outcome is far different: finance capitalism has never had it so good.

The initial bailouts, deemed necessary to keep the financial system afloat, were followed by drastic reductions in interest rates that have yet to return to pre-crisis levels. Risk guarantees offered by Central Banks and Treasury Departments across the globe were committed to providing the money (liquidity) necessary to maintain the stability the global financial system. This was followed by asset buy-back schemes and long-term refinance operations which became systematised into successive rounds of Quantitative Easing (QE). Technocratic speak refers to the last decade, euphemistically, as the ‘era of unconventional monetary policy’, or the biggest ever helicopter money drop onto the financial sector in living memory. Those who believed 2008 could have been a reckoning for the failures of finance-driven growth could not be more disappointed. The financial sector is more entrenched than before the crisis, and the political power of finance to control the public policy agenda stronger than ever.

Looking to the future and seeing much of the same

Looking back over the past decade, even achieving an economic ‘recovery’ took longer than the Great Depression. The promises of a rebalancing of growth across Great Britain, well-funded health and education services, and prosperity for 95% that did not benefit from QE, never materialised. The failures of austerity are plain for all to see: the economy is stagnant and most people are worse off now than a decade ago.

Our shared economic future only promises more austerity. Wages and incomes will continue to stagnate. The economy will be still dependent on private debt to fuel asset bubbles and ever more household debt will be needed to sustain meagre economic growth. With the economy in the doldrums and Brexit looming on the horizon, we face entrenched economic malaise or another severe financial crisis. When growth is forecast over the medium term, it is always revised downward. To put it simply, no one is predicting that the UK’s economic future will get any better.

Making another future possible: we need an alternative policy agenda

In the face of peril, we cannot lapse into fatalism. We need to break out of the perpetual loop of anti-austerity, which points to the real failures of the austerity policy agenda without clarity on viable alternatives. The Progressive Economy Forum (PEF) seeks to dispel the myths and lies of austerity economics and replace that pernicious ideology with a progressive macroeconomic vision and narrative that makes another future possible.

The aim is to develop a 21st century Keynesian policy platform, that will end today’s austerity just as Keynes’s ideas in practice helped end the Great Depression and usher in a generation of economic stability and prosperity.  In his pioneering work, The General Theory of Employment Interest and Money (page 383), Keynes famously wrote:

“Practical [people] who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.”

Today, the global economy is gripped by these same “madmen in authority” that bring us austerity. The current “voices in the air” come from economists who are very much alive and whose scribbling continues unabashedly. In response, we must begin mapping out a new direction, to forge a different path that leads to a better future.

100 policies to end austerity: a call for interventions

The goal of PEF is to build a policy platform that will end austerity in a way that embraces the progressive values of equality, dynamism and sustainability. In line with openDemocracy’s New Thinking for the British Economy agenda, our aim is to cultivate a rich garden of new ideas, policies and plans to end austerity by forging a new path. Our bold plan is to curate 100 Policies to End Austerity as a starting point for a better future. We will bring together contributions from economists and policy experts that articulate clear proposals for a progressive, sustainable and equitable British economy for the 21^st century. This is the start of an interactive conversation, not a definitive policy platform, about a vision of a better future.

In practice this means debating the key ideas that inform public policy, like monetary, fiscal and taxation policy needed to end austerity. In addition, it requires addressing the problems created by austerity. For example, creating an investment bank, green jobs, affordable housing, a fully-funded NHS and education system, compassionate care for an ageing population, a secure social security system, better local authority services and regional development. The list of ways to end the harm caused by austerity goes on. The challenge for progressives is to create a policy agenda that can foster a better future for everyone.

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

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

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

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

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

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

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

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

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

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From time to time, there is a surge in advocacy of a job guarantee for everyone, or for everyone ‘able to work’. It is happening again, this time from a slew of politicians and social scientists positioning themselves on the centre left, as social democrats. In the USA, several prominent Democrat senators and possible candidates for the next presidential election have said they support the idea, including Bernie Sanders, Cory Booker, Elizabeth Warren, Kamala Harris and Kirsten Gillibrand. In Britain The Guardian has endorsed it unequivocally as ‘a welcome return to a politics of work’, joining the likes of Lord Layard, Blair’s ‘happiness czar’.

The Guardian claimed a job guarantee policy ‘would secure a basic human right to engage in productive employment’. Throughout history, the vast majority of people would have found that a very strange ‘human right’. Having a job is to be in a position of subordination, reporting to and obeying a boss in return for payment. Indeed, historically the words ‘job’, ‘jobbing’ and ‘jobholder’ were terms of regret and even pity, referring to someone with a bits-and-pieces existence. Subordination and alienation have also been at the heart of labour law, which is based on the master-servant model.

The newspaper added that the job guarantee ‘would only offer employment under-supplied by the private sector’, singling out ‘environmental clean-up’ and ‘social care’. These may sound appealing on paper but represent a narrow and unattractive range of jobs to be offered. They also bear more than a passing resemblance to the menial jobs convicted offenders are obliged to undertake under ‘community payback’ schemes.

The practical objections become evident as soon as the details are considered: what jobs, who would be responsible for providing them, who would qualify to be offered them, what would the jobs pay and for how many hours, who would pay, and what would be the effects on other workers and on the wider economy?

To start with, identifying jobs to be provided and administering the process would be a bureaucratic nightmare (witness the shambles of many ‘community payback’ schemes, even though they are on a small scale and the labour they offer is ‘free’). And, when asked what type of job would be guaranteed, proponents never suggest the guaranteed jobs would match people’s skills and qualifications, instead falling back on low-skill, low-wage jobs they would not dream of for themselves or their children.

Then other questions arise. If guaranteed jobs are providing desired services or goods, and are subsidised, there must be substitution effects – guaranteeing jobs now taken by others – and deadweight effects – putting people in jobs that would have been created anyhow. If somebody is given a guaranteed job at the minimum wage, what happens to others already doing such jobs? Would the job guarantee agency guarantee their jobs as well, with no decline in wages if they happened to be higher? If the unemployed were offered a job at a minimum wage subsidised by the state, this would increase the vulnerability of others, either displacing them or lowering their income.

Ro Khanna, a California Democrat congressman, has said firms would not be allowed to hire subsidised workers if they were substitutes for previous employees. Clever employers could find ways round that. However, it would also be unfair. Why should a firm coming into a market be subsidised relative to one that has been in it for a while, giving the newcomer an unfair advantage?

The Guardian further claimed, without citing evidence, that a job guarantee scheme would not be inflationary because ‘any restructuring of relative wages would be a one-off event’. This contradicts generations of research. If all were guaranteed a job, what would stop wage-push inflation? The only restraining factors would be fear of automation and more offshoring. But it would hardly be fear, as a job would be guaranteed anyhow!

The gross cost of a job guarantee might outweigh the net gain. If the government guaranteed the minimum wage in guaranteed jobs, those in jobs paying less (or working fewer than the guaranteed hours) might quit or find ways to be made redundant, so they could have a guaranteed job instead. Social democrats might like that, as it would mean better-paying jobs for more of the underemployed and precariat. But the fiscal cost would be daunting. For example, in the UK, over 60% of those regarded as poor are in jobs or have someone in their household who is. In the USA, the situation is just as bad. It is estimated that about half its 148 million workers earn less than $15 an hour. Would they all become eligible for a guaranteed good job?

At its unlikely best, a job guarantee would be paternalistic. It presumes the government knows what is best for individuals, who would be offered a necessarily limited range of jobs at its disposal. Suppose someone was pressed to take a guaranteed job on a construction site (‘infrastructure’, a favoured area for guaranteed jobs) and that person proved incompetent and was injured. Would the job guarantee agency be held responsible and pay compensation? It should, since it put the person in that position. How would that be factored into the costing of a job guarantee scheme? Similarly, if a person put into a ‘social care’ job was negligent and caused harm or distress to the care recipient, would the latter be able to sue the job guarantee agency for compensation?

In addition, a job-guarantee scheme would spring a familiar trap – the phoney distinction between those who ‘can work’ and would thus be eligible for a guaranteed job and those ‘who cannot work’. In Britain, this has led to demeaning and stigmatising ‘capacity-to-work’ and ‘availability-for-work’ tests, resulting in discriminatory action against disabled and vulnerable people, and those with care responsibilities.

Another failing of the job guarantee route is the mapping of a path to ‘workfare’. What would happen to somebody who declined to accept the guaranteed job? They would be labelled ‘lazy’ or ‘choosy’ and thus ‘ungrateful’ and ‘socially irresponsible’. Yet there are many reasons for refusing a job. Studies show that accepting a job below a person’s qualifications can lower their income and social status for the long term. As what is happening in the current UK benefit system attests, those not taking jobs allocated to them would face benefit sanctions, and be directed into jobs, whether they liked them or not. Jobs done in resentment or under duress are unlikely to be done well.

A job guarantee would be a recipe for perpetuating low productivity. What would happen if a person in a guaranteed job performed poorly, perhaps because of limited ability or simply because they knew it was ‘guaranteed’? This was a fatal flaw of the Soviet system. If you are guaranteed a job, why bother to work hard? If you are an employer and are given a subsidy to pay employees guaranteed a job, why bother to try to use labour efficiently?

If subsidised through tax credits or a wage subsidy, a worker would need to produce only a little more value than the cost to the employer to make it profitable to retain him or her. This would cheapen low-productivity jobs relative to others and inhibit the higher productivity arising from labour-displacing technological change. If a job of a certain type is guaranteed, what happens if an employer wishes to invest in technology that would remove the need for such jobs?

Those calling for a job guarantee also ignore the fact that any market economy requires some unemployment, as people need time to search for jobs they are prepared to accept, and firms must sift applicants for jobs they want to have done. To adopt a job guarantee policy would risk putting the economy in gridlock.

Job guarantee advocates, such as Larry Summers, President Clinton’s former Treasury Secretary, argue that people without jobs ‘are much more likely to be dissatisfied with their lives’ and are more likely to be drug addicts and abusive than those with even low-wage jobs. This is bogus. I suggest there would be no correlation between life satisfaction and having a job if the comparison was made between those in lousy jobs and those with no job but an adequate income on which to live. Somebody facing a choice between penury and a lousy job will prefer the job. But that does not mean they like or want it for itself.

The polling company Gallup conducts regular State of the Global Workplace surveys in over 150 countries. In 2017, it found that globally only 15% of workers were engaged by their job, and in no country did the figure exceed 40%. One recent UK survey found that 37% of jobholders did not think their job made any significant contribution.

Summers ends his article by equivocating – ‘the idea of a jobs guarantee should be taken seriously but not literally’. He seems to mean government should try to promote more employment, through ‘wage subsidies, targeted government spending, support for workers with dependants, and more training and job-matching programmes’. In other words, he reverts to the standard social democratic package that has not done very well in the past three decades.

Besides being a recipe for labour inefficiency and labour market distortions, tending to displace workers employed in the ‘free’ labour market and to depress their wages, the job guarantee proposal fails to recognise that today’s crisis is structural and requires transformative policies. Tax credits, job guarantees and statutory minimum wages would barely touch the precariat’s existential insecurity that is at the heart of the social and economic crisis, let alone address the aspirations of the progressive and growing part of the precariat for an ecologically grounded Good Society.

The emphasis on jobs is non-ecological, since it is tied to the constant pursuit of economic growth. There are many instances, with support for fracking and for the third runway at Heathrow airport being recent examples, where the promise of more jobs has trumped costs to health and the environment. And a job guarantee policy could have a strong appeal to the political right as a way to dismantle the welfare state. Why pay unemployment benefits if everybody has a guaranteed job? In the USA, one conservative commentator chortled that ‘over 100 federal welfare programs would be replaced with a single job guarantee program.’

Finally, there is what this writer regards as the policy’s worst feature. It would reinforce twentieth-century labourism, by failing to make the distinction between work and labour. Those who back guaranteed jobs typically ignore all forms of work that are not paid labour. A really progressive agenda would strengthen the values of work over the dictates of labour. It would seek to enable more people to develop their own sense of occupation.

A job is a means to an end, not an end in itself. Economists tend to be schizophrenic in this respect. In the textbooks, labour has ‘disutility’; it is negative for the worker. Yet many economists who use or write these textbooks then advocate putting everybody in jobs. Why make a fetish of ‘jobs’? A job is doing ‘labour’ for others. What about all the forms of work that we do for those we love or for our community or for ourselves?

Many forms of work that are not labour are more rewarding psychologically and socially. A regime of putting everybody into jobs, in unchosen activities, would be orchestrated alienation. Surely a progressive should want to minimise the time we spend in stultifying and subordinated jobs, so that we can increase the time and energy for forms of work and leisure that are self-chosen and oriented to personal and community development.

There is one last point, to do with the claim that a job guarantee would be politically popular. Much is made of a US poll which asked people whether they would support a scheme to guarantee a job for anybody ‘who can’t find employment in the private sector’, if paid from a 5% tax on those earning over $200,000. The result was 52% in favour. Supporters thought this was ‘stunning’. With such a loaded question, one should be stunned by the bare-majority support. After all, most respondents were being told they would not have to pay, and that there were no alternative jobs available, an unlikely scenario.

Rather than jobs per se, the primary challenge is to build a new income distribution system, recognising that the old one has broken down irretrievably. The rentiers are running away with all the revenue thrown up by rentier capitalism, and real wages will continue to lag. Putting people into static low-wage jobs is no response.

The post Why a Job Guarantee is a bad joke for the precariat – and for freedom appeared first on New thinking for the British economy.

Britain’s economic model is broken and needs to be radically overhauled. In 2018, this is not a controversial statement. But when the messenger is one of the UK’s most influential think tanks, backed up by voices as diverse as the Archbishop of Canterbury, the Global Managing Partner of McKinsey and Company, and the General Secretary of the Trades Union Congress, it certainly means something.

Today the Institute for Public Policy Research (IPPR) published the final report of its Commission on Economic Justice (CEJ) – Prosperity and Justice: A Plan for the New Economy. The report is the product of a two year long work programme, led by Director Michael Jacobs and supported by a crack team of policy wonks: Mathew Lawrence, Grace Blakely, Laurie Laybourn Langton, Catherine Colebrook, Carys Roberts, Lesley Rankin and Alfie Stirling.

Throwing their weight behind the report are 21 Commissioners from the world of business, policy and academia. Although it is made clear that the Commissioners do not support every single recommendation, the fact that they all support the “broad thrust” of the report is significant.

Prosperity and Justice begins with an astute diagnosis of where contemporary British capitalism has gone wrong, building on the findings of the interim report published a year ago: an over-reliance on household debt and rising property prices; a large current account deficit; stagnant productivity and low wages; a financial sector that serves itself rather the real economy; a corporate sector plagued by short-termism; and a highly unequal distribution of income and wealth. This economic model is broken, and as with previous episodes of socio-economic breakdown, it must be replaced.

The report structures its key recommendations for a “new economic settlement” around ten policy areas. Among these are new mechanisms to raise the level of public investment (including reference to my own work on state investment banks with Professor Mariana Mazzucato, who was one of the Commissioners), a new industrial strategy, stronger collective bargaining powers, higher minimum wages, worker representation on company boards, greater control over the financial system, and a more progressive tax system.

But much to its credit, Prosperity and Justice goes beyond reheated social democracy. It offers fresh thinking on a range of policy areas, much of which stems from the consistently excellent output from the CEJ team over the past two years (work which we have featured regularly on this site). Proposals such as commencing a process of ‘managed automation’ to accelerate the diffusion of productivity enhancing technologies across the economy; a new ‘Office of Digital Platforms’ to regulate the major digital platforms like public utilities; and the creation of a ‘digital commons’ to organise and curate public data, show an acute understanding of the forces shaping our future.

Perhaps most significantly, Prosperity and Justice has put the issue of ownership back into the limelight. New models of ownership are central to the report’s overarching goal of rebalancing inequalities of power and reward. A new Citizens’ wealth fund would transform private and corporate wealth into shared public wealth and pay a ‘universal minimum inheritance’ of £10,000 to all 25-year-olds, while new legal and tax incentives would encourage employee ownership trusts and co-operative and mutual businesses. Taken together, these proposals represent a significant step towards democratising the ownership of capital – a radical ambition from what was once described as “Tony Blair’s favourite think tank”.

Last but not least, environmental sustainability is treated as a binding constraint, not a vague ambition. A new Sustainable Economy Act would require on government to set environmental limits in law, and to produce economy-wide plans to achieve them.

Prosperity and Justice is not a final blueprint, and neither was it intended to be. There is hardly any mention of welfare policy or trade policy, for example, and in some areas there is scope for bolder thinking. But taken as a whole, the report is an impressive attempt at setting out a credible alternative to the failures of neoliberal capitalism.

For this the IPPR should be commended. At a time of political upheaval and environmental collapse, we need bold and ambitious ideas more than ever. But too many of our think tanks – and most of our media – have failed engage in this debate, or even acknowledge the scale of the challenges we face.

That’s why at openDemocracy, we have been collaborating with the IPPR and others from across civil society to get to grips with the long running economic crisis unfolding in Britain, and promote discussion and debate on alternatives.

Prosperity and Justice has set a high benchmark. The task now is to challenge, critique and expand its offering, and to build the infrastructure that is needed to turn ideas into reality.

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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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This summer I attended a behavioural science school at the University of Warwick. Among the speakers was the economist Paul Frijtas, who said something that sparked my attention:

“Individually economic ideas can be fantastically idiotic, but as a whole they provide the bureaucracy with a framework for thinking about the right things, communicating and looking at the data.”

This is quite a disarming rejoinder for us critics of mainstream economics, in that it already concedes most of the substantive points we might make about unrealistic assumptions, limited methodology and empirical issues (many of which Frijtas himself did not shy away from making for the duration of the School). Instead it throws up a different challenge: are any of our alternatives feasible, practical and comprehensive enough to provide a general framework for thinking about economic problems?

We may call for adopting a variety of perspectives – pluralism – but I am increasingly of the view that none of them can suffice in this regard.

Pluralism as a check

Any call for utilising pluralist economics needs to be clear on exactly how it would be put into action. Like it or not, the mainstream has a wide range of tools ready for use in situations: from business cycle management to competition regulation; from environmental protection to health policy; and for estimating the effects of both early education and criminal rehabilitation programs. Although there are many schools of economics which would ideally be incorporated into the pluralist’s toolkit, none of them are sophisticated enough to replace mainstream economics entirely. Schools such as feminist, behavioural and ecological economics are non-starters because they are designed to highlight specific (and important) features of the world which the mainstream has historically missed, rather than to present a full alternative vision of economics.

There are several approaches which are more general, including the well-established schools of Austrian, Marxist, and post-Keynesian economics. But it would be difficult to persuade institutions which utilise economics to embrace the former two for the simple reason that they usually object to the existence of these institutions altogether. Many Austrians would like to get rid of all governmental functions but the ones that facilitate basic market operations, which is not helpful for an economist working in the Government Economic Service (GES) or Bank of England (BoE). Marxists would go one step further and do away with the market operations as well, making it difficult for a private or public sector economist to whole-heartedly embrace the use of Marxist economics.

Post-Keynesians offer a sometimes appealing, non-burn-it-all-down vision of capitalism, but they are often focused on macroeconomics and are at best ambivalent about many of the microeconomic policy tools of the mainstream such as cost-benefit analysis, econometrics and auction theory, all of which are easily actionable for practitioners. The lack of workable alternatives outside macroeconomics makes it difficult to see what a ‘post-Keynesian GES/BoE’ would look like. At the other end of the spectrum, Agent Based Computational Economics (ACE) – which I wrote about recently – offers a variety of flexible simulations which could in principle be applied to nay problem. But this approach is arguably too flexible at this stage, such that there is not a standard framework from which analysis can be benchmarked and compared across problems.

So what is the role of pluralism? Increasingly I believe that it should function as a much-needed check on the mainstream, since if economic ideas can be “fantastically idiotic” then it goes without saying there are things they can miss. As the Nobel Laureate Robert Lucas put it “the construction of theoretical models…necessarily involves ignoring some evidence or alternative theories… [sometimes]… I simply fail to see some of the data or some alternative theory”. Pluralism can make the mainstream more aware of these blind spots.

If you think that to cast pluralism as a mere check on the mainstream is to diminish its role, you are mistaken. Highlighting problems the mainstream cannot see and proposing an alternative framework where necessary is hugely valuable, both intellectually and from a policy perspective. Feminist economics, for example, would highlight issues such as the gendered impact of recessions, or of infrastructure investment in developing countries. They would also suggest counting household and care work in GDP, which can drastically alter its level, growth of and volatility (up, down and down respectively, in case you’re wondering).

Ecological economics would force economists to look at the impact of economic activity on the environment, questioning whether growth represented true ‘progress’ or whether it was just borrowed by depleting natural resources and destabilising ecosystems . As with feminist economics, a revealing way of doing this is to incorporate ecological concerns into GDP estimates.  And just as governments across the world have recognised that behavioural economics helps to simplify a vast range of government policies based on insights about how humans actually make decisions, the GES have recently recognised such ecological considerations in their Green Book.

However, we have a long way to go before pluralism is part and parcel of the economists’ toolkit, and this can have deleterious social consequences. Around a decade before he was appointed Chair of the Federal Reserve, Ben Bernanke dismissed the post-Keynesian Hyman Minsky’s Financial Instability Hypothesis – which posited that investors can become overconfident, getting sucked into speculative bubbles and ultimately crashing the economy – on the grounds that “the best course of action is pushing the rationality postulate as far as it will go”. Needless to say, this faith in the self-regulating power of financial markets was widespread among economists, policymakers and politicians in the run up to the crash.

Subsequently, the mainstream is trying to incorporate Minsky into its models, but the presence of post-Keynesians on monetary policy committees, in financial regulation authorities and as talking heads on the media would have been more helpful in the run up to the crash – which is why the phrase ‘too little, too late’ springs to mind. Who knows what other insights we have missed, or are currently missing due to the intellectual straightjacket placed on understanding and policymaking by the mainstream? To return to my above examples, Marxists might have voiced concerns about falling rates of profit and declining investment in the 2000s, while Austrians would have taken a step back to ask policymakers whether intervention, particularly in the form of low interest rates, could actually improve the situation at all.

Checks, checks and more checks

Of course, in a discipline as broad and socially impactful as economics, pluralism of economic ideas will not be enough. An obvious extension that is needed is interdisciplinarity: as this New York Times column pointed out, some knowledge of sociology – in particular the fact that work is not just a source of income but of identity and self-worth – might have helped economists to notice the problems emerging in former manufacturing hubs in the United States, seeing and speaking to them as individuals rather than as simple ‘costs’ in models of trade. No doubt similar insights could be gleaned from psychologists, anthropologists, geographers, philosophers and even humanities scholars if they had more of a seat at the policymaking table.

Any collection of experts making political decisions – no matter how diverse their expertise is – also needs to be accountable to the public. As a recent Guardian article about public economics education noted, the alienation and distrust people feel towards the economy and those they perceive to have power within it, believing that “economics is something that’s done to them, by people sitting far away in Westminster or the City”. One participant encapsulated the extent to which expertise shuts people out of democratic debate when she said “information is power…if I can learn in this class, maybe others will listen to me.”

Ensuring that experts were accountable to the people they served through public consultations and education programs would help to alleviate this sense of disconnection from economics and politics, and would likely help the experts too. The locals may not help you program your DSGE model, but they can highlight issues such as the regional economic disparities which have proven so salient since the financial crisis, a fact that dovetails nicely with the approach of sociologists and anthropologists to actually go out and speak to people. The Science Communication movement has learned a lot from this two-way, interactive model of participation, where both experts and non-experts are deemed to have valuable contributions.

A final, much-needed check on mainstream economics it the need for an ethical code akin to that of doctors. Relatively speaking, egregious ethical violations are rare in economics, but egregious violations needn’t be rare to be harmful, as some economists’ connections to the financial sector during the financial crisis showed. An ethical code combined with professional sanctions would prevent and punish such violations to the benefit of both society and of those economists (i.e. the vast majority of them) who have done nothing wrong.

Yet there is also a more general problem with ethics in economics: the embedded tendency to recommend policies based on purely ‘technical’ criteria without recourse to ethical considerations, something which only make sense if you consider the normative propositions of mainstream economics ethically neutral. Yet growth, efficiency and ‘Pareto optimality’ are no less politically contestable than economic freedom, well-being and security, even though the former are the focal points of most economic models. Sheila Dow has outlined a vision for ethics which tries to take a more pluralist view, outlining the professional duty of a discipline which has a large degree of socio-economic power.

From here to there

Ideally all or most of these checks would take place in the same person’s head, aided by a fully reformed economics education which encompassed pluralism, ethics, interdisciplinarity and communication. However, this is still a long way off, and in any case it is admittedly a little much to ask every economist and expert to be constantly aware of all of these issues in every decision they take. Thus, the inclusion of individuals, guidelines and consultation processes which involve people with different perspectives and create accountability mechanisms would be a valuable first step to pushing economics back in the right direction whenever it became too fantastically idiotic.

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Supporters of Jeremy Corbyn’s Labour Party have become used to diatribes on social media which predict that its policies will lead Britain’s economy into a Venezuela type scenario, with a collapse in the currency and hyperinflation. However, readers of three recent blogs by Richard Murphy on his Tax Research website may be surprised to learn that Labour is supposedly trapped in what Murphy describes as “deeply neoliberal and profoundly conventional thinking”. They might also be puzzled to discover that this denunciation was provoked not by a new policy statement from John McDonnell, but by a two-sentence comment on someone’s Facebook page by James Meadway, McDonnell’s “chief economic adviser”, on what’s known as ‘modern monetary theory’ (or MMT). According to Meadway:

“MMT is just plain old bad economics, unfortunately, and a regression of left economic thinking. An economy ‘with its own currency’ may never ‘run out of money’ but that money can become entirely worthless”

In his first response Murphy produced a series of what he claimed to be ‘entirely fair extrapolations’ from those two sentences alone. These concluded with the rather unfair claims that Meadway believes that “achieving full employment and growth will leave the currency valueless”; that under a Labour government “austerity will remain in place”; and even that we can “expect Labour to deliver more Tory economic policy”.

Murphy has a well-deserved reputation as a leading figure in the tax justice movement who, as a trained accountant, has expertly dissected the tax avoidance practices of multinational companies and the failures of successive British governments to crack down on them. He is also a vigorous advocate of MMT, which explains why he was so annoyed by Meadway’s somewhat dismissive Facebook comment. Sadly, however, he now seems to have descended into quite seriously misrepresenting Labour’s policy position, and this has much wider implications.

One curious aspect to this is that Murphy’s onslaught is almost entirely focused on just one strand of Labour’s current economic policy. This concerns the so-called ‘Fiscal Credibility Rule’ which was formulated by two Keynesian critics of Conservative austerity policies, Simon Wren-Lewis and Jonathon Portes. The rule commits Labour to balancing the budget for current (day-to-day) spending over the first five years and borrowing only to invest in reconstructing the economy.

In his first two blogs Murphy disregards all Labour’s proposals for public ownership, ‘democratisation’ of the economy including support for cooperatives and workers’ rights, financial regulation, a national investment bank, and even policies he himself has supported such as a financial transactions tax and cracking down on tax havens. In a third blog, responding to a defence of Labour policy by Jo Michell, Murphy is dismissive of what he terms unspecified ‘supply-side reforms’. This suggests that Murphy has paid less attention to the debate that has been taking place within McDonnell’s team than The Economist magazine, which devoted a critical but respectful three pages to those same reforms.

Equally problematic is Murphy’s failure to acknowledge what he must know to be the case. Borrowing to invest is very different in its consequences than borrowing to finance tax cuts for the rich and corporations, which is what the Conservatives have been doing since 2010. If Murphy wants ‘demand-side’ policies to generate full employment and growth, job-creating investment programmes, whether they be for housing or for renewable energy and sustainable transport, will be far more effective in achieving those goals. By comparison the ‘multiplier effects’ on aggregate demand of tax-cuts are much more limited, because corporations and the very wealthy are more likely to save the money or invest outside of the national economy.

A close reading of Murphy’s argument reveals, however, the critical implication of his reliance on MMT thinking. Murphy believes that governments do not need to borrow on the money markets at all because the Bank of England can simply create as much money as needed with a few keystrokes on a computer. MMT argues that this is what normally happens when Governments spend. It claims that taxes as well as bonds sold to the ‘public’ are only necessary to withdraw excess money from circulation and avoid inflation (an argument which is not that modern, as it harks back to what Keynes argued during the Second World War).

As Meadway acknowledged, MMT advocates are correct to insist that states with ‘sovereign currencies’ (which critically no longer includes any of the countries inside the eurozone) can never run out of money. Central banks can create as much of it as they want with a few strokes on a keyboard. Indeed, the so-called quantitative easing (QE) programmes pursued by all the major central banks since the financial crash of 2008 has provided the most spectacular possible confirmation of that. Trillions of dollars, euros, pounds, and yen have been pumped into the system’s money markets over the last decade which, while helping to restore bank balance sheets, has also fueled a boom in asset prices (bonds, shares and property prices) which has mainly boosted the wealth of the 1%.

Back in 2013, the fifth anniversary report of the Green New Deal Group, to which Murphy contributed, called for Green QE. This, along with measures to prevent tax dodging, was to finance a programme of spending on green infrastructure projects of around £50 billion a year. Creation of a Green (or National) Development Bank would bypass the private banking system by issuing bonds which the Bank of England could purchase along with all the other bonds it has been purchasing under its QE measures. The advocates of this plan argued persuasively that this would be a far better use of the additional QE money than feeding into property prices in cities such as London.

So what’s the problem? And why did Meadway follow up his initial Facebook comment with the rather cryptic observation that ‘Any country that isn’t the US trying to apply MMT’s prescriptions would find itself in the same position’ i.e. ‘close to catastrophe’? As one commentator quoted by Murphy asked: ‘Why is the US different?’. Meadway did not respond to this, but Wren-Lewis himself has replied to Murphy’s critique of the allegedly neoclassical economic assumptions behind his models. I am not concerned here with that rather technical debate. In my view the critical question, which neither Murphy nor Wren-Lewis address, is what happens to the exchange-rate if the Bank of England keeps on pumping out more money when other central banks have called a halt to QE?

The MMT school originated in the USA amidst a current of heterodox Keynesians who are understandably insouciant with respect to the strength of the dollar. They stress the willingness of foreigners who want to sell to the US to not only accept dollars in payment, but to hold onto those dollars for extended periods of time. Central banks in China and the rest of East Asia (especially since the region’s financial crisis in 1997/8) as well as the Gulf states of the Middle East continue to hold billions of dollars in their reserves. Indeed, any attempt to swap sizeable quantities of those reserves into another currency or gold would lead to a sharp fall in the dollar and reduce the value of their remaining assets. In summary: the US is different because it retains the ‘exorbitant privilege’ of controlling the only national currency which also functions as world money.

This of course is not true of the pound. But when the US Federal Reserve, the European Central Bank and the Bank of Japan were all engaged in pressing those keyboards and generating extra liquidity to compensate for the implosion of the global banking system, the Bank of England could join in without worrying about the exchange-rate. A future Labour Government cannot assume it will be in the same situation. If it was, and interest-rates fell again to very low levels, the fiscal rule would, as Jo Michell noted, be suspended and fiscal policy can be used “with all means necessary”.

Murphy sneeringly commented that in this case the rule would be “just a sham”. He also sneered at the very idea that “Labour thinks it has to live in fear of the money markets. And so bankers. And so their supposed ability to manipulate exchange rates”.

Unfortunately, the experience of other radical social democratic governments in Europe (France in the early 1980s, Sweden in the early 90s) as well as the not so radical Wilson/Callaghan government of the mid-1970s suggests that any future Labour government should be worried about the money-markets. Even if exchange-rates are not simply ‘manipulated’ by what in the 1930s was termed a ‘bankers’ ramp’, they are vulnerable to intense speculative pressure. A Corbyn-led government, with its commitments to all the other radical measures Murphy ignores, may well have to ride out a period of capital flight and a sharp fall in the pound. Being aware of this possibility is not “neoliberal”. The recent crash of the Turkish lira (by 45% at the time of writing) is an illustration of what can happen in the course of a few days.

Some might respond that a fall in the pound will make exports cheaper abroad and contribute to reducing the current account deficit and rebalancing the economy. But Britain’s economy is also far more dependent on imports than the US, and after decades of deindustrialisation rebalancing will take some time. Meanwhile, the higher prices of imported food, energy and manufactured goods will cut into living standards – as they did after Brexit – and potentially fuel an inflationary spiral. In an extreme case this process can, as in Venezuela in recent months, make the currency worthless. Of course, the British state remains in a far stronger financial position than Venezuela or Turkey, but regardless of Brexit we do not and will not inhabit an autonomous national economy. The wartime economy, sometimes referenced when MMTers quote the Keynes of the 1940s, was managed on the basis of tight controls over both prices and cross-border currency flows – as well as cheap raw materials from the Empire and dollar credits from the USA.

Today, we have a national economy inextricably enmeshed in both the European and the world market. Most of the major banks and corporations operating in Britain are multinationals capable of transferring funds from one currency to another with the stroke of a keyboard. Imposing effective controls over speculators and tax dodgers will require at a minimum cooperation with the European Union. The best thinkers in the Marxist tradition always understood that socialism in one country was not a sustainable option. One could say the same today for the unfettered demand-side Keynesianism advocated by Richard Murphy and the MMT school.

Does that mean we should abandon hope and reconcile ourselves to more austerity? Certainly not. A radical break with neoliberal policies of spending cuts, deregulation, privatisation, outsourcing, and anti-union legislation remains on the agenda. There is much that still needs to be thought through about how to manage the threat posed by the money markets which Murphy blithely wants to ignore. There are policy proposals which I disagree with, such as retaining Trident nuclear submarines and wasting more money on HS2, and I am skeptical about recent proposals for a universal basic income.

However, I also attended the daylong New Economics conference in London in May which was open to all Labour Party members. What most impressed me was not the lineup of headline speakers, but the diversity of contributions in workshops I attended on finance and housing, and the openness to debate on questions such as alternative forms of public ownership and the urgent challenge of climate change. If Richard Murphy wants to contribute to those discussions, I hope and suspect he would still be very welcome to join.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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It’s 1944. In a small hotel in Bretton Woods, world leaders meet and imagine an end to a world divided by war and terror. It was here that a new age, promising peace and prosperity, began – and with it the birth of Gross Domestic Product (GDP). The arrival of GDP firmly marked the economy as a nation’s priority, while also promoting global competition, providing a way for thriving industrial economies to champion their advancement over others.

But times have changed, and the global agenda has shifted priorities. Neoliberal globalisation has redefined the world economy, bringing with it previously unimaginable swathes of wealth and consumption, but a lifestyle defined by material possession has brought the question of economic wellbeing and development to the forefront of the conversation. Without an appropriate measure to capture wellbeing, GDP was swiftly introduced as a measure for development and wellbeing as well as economic growth, despite its design as a statement of a nation’s income, output and expenditure.

GDP cannot begin to capture economic development – it is static and quantitative, which provides a reliable measure for economic growth, but economic growth alone. In contrast, development is a constantly evolving concept: first coined by Truman in 1948 as justification for Marshall Aid, the term is loaded with history and has been manipulated over time to justify foreign policy. Defined as both a goal and a process, development is too contested as an idea to be bluntly confined to statistics – it is a highly intangible and qualitative concept.

Our understanding of economic development is constantly evolving. It is dynamic and context-specific, and thus needs a metric that evolves alongside it. The role of the nation state is changing too, meaning that a comparative measure will find it harder to pin down the specific workings of an economy and the people that define it, as borders become more flexible and disputed, compressing space and allowing people and ideas to travel faster and in higher volumes. These movements are not always tangible, such as creativity and human capital, and also may be temporary, making the actual potential of a country highly variable.

GDP is associated with aspects of an improving life, such as raised life expectancy, education and healthcare, but a more direct indicator is needed to qualify these and weight them correctly while also predicting which of these are prerequisites for improvement. This is why the 2017 Indigo Prize asked entrants to reimagine GDP, and why I, a 20-year old Geography undergraduate, entered the competition with my proposed alternative – the Global Integration and Individual Potential (GIIP) index.

The GIIP index is my solution to the GDP crisis – an indicator that prioritises individuals as key markers of development, extrapolating these individuals onto the world stage and championing integration. The index is designed not to force countries to compete, but to encourage nations to take advantage of the enriched cultural, social, political and economic ideas, practices and innovations that the integrated world economy offers.

The GIIP Index is divided into four equally weighted components: Perception, Opportunity, Ability and Global Integration.

Perception

Perception is a both qualitative and abstract idea, but the most important and refreshing. Perception is never normally considered in a state’s potential and this index pioneers its use as an alternative to GDP.

According to Deloitte, uncertain economic outlook is the leading obstacle to growth. Perception not only acts as an indicator of the present state of affairs within a country, but just as equally gives some idea to the shape of their future. Having citizens that are confident in an economy, supported by strong social and political stability, results in more expenditure, greater ability and support to take risks – conditions that foster creativity.

Opportunity

Opportunity is something largely provided to citizens by government through equal opportunity laws, investment and infrastructure, as well as whether governance is technocratic and incorporates technical expertise in policy. Social norms also dictate opportunities available, as equal opportunities will not arise simply as a result of a change in law. Cultural and religious standing on marriage and gender take precedence over national law, and countries where FGM, child marriage and disregard for a girl’s education are prominent will severely lack opportunities regardless of what the law states.

Ability

The ability to execute ideas, by providing the right networks and conditions, can overcome physical geography, instead of aiding the course it has chosen for a nation. If a country is able and fulfilled in a number of areas, its vulnerability to and frequency of natural hazards will not be reflected in its ability to bounce back. The ability to dream is inspired by role models, the desire to build oneself up from nothing or bounce back from a bad event, or being inspired by success are all possible due to economic interconnectedness and technological advancement that proves what success can be.

Each of these is measured in 8 factors: social (perception of minorities, women and wealth distribution), economic, international relations and their position in global economy, geographical (physical limitations and world issues), human Capital, health, political/government and freedoms.

Global Integration

Global integration extrapolates these individuals onto the world stage, as measuring people is our best representation of the state of not only national but global affairs, which are taking an increasingly important place in international discussion. A number of issues confronting the entire human race irrespective of nationality, such as poverty, population and climate change, mean that this measure will become increasingly important over time.

The GIIP Index looks at the following factors in assessing how integrated a country is into the global economy: aid/debt, response to global issues, trade, TNCs (whether they benefit from or are exploited by), technology, involvement in supranational organisations (like the UN, IMF, World Bank), influence and attractiveness to investors, migrants and financial flows. Global Integration champions collaboration and cooperation between each of us. Sharing models and ideas, which have been bred from our cultural and physical distinctions, has the power to strengthen all of our economies and solve world problems while creating huge potential for their development.

Engine economics

Presenting the GIIP index in engine form is a new way of representing the workings of an economy. Individual perception, which takes into account ability, opportunity and perception, together make up the length of the propeller (like a composite bar chart), represented by each colour within the segment. The three measurements are weighted equally and hence the potential length (not the area) of the propeller is split into 3.

The larger an engine size is, and the larger the propellers, the nearer a country is to achieving their full creative, political, social and economic potential. The symbolism is that an engine allows us to imagine the potential a plane has before take-off – how fast is their ascent, how high they are able to fly, and how long the plane is able to fly for. A large engine without suitably large propellers will not function properly, nor a small engine with large propellers: both must be of a similar size for an economy to function at a sustainable rate. GDP can be defined as the plane’s journey alone, but with the GIIP there is much more diversity in what enables its present and future successes, and what gets the plane off the ground.

Making change happen

There is an urgency about this change. Changing our metrics is the first step to changing how we understand and quantify development, and thus allows us to see where policy is providing positive and negative solutions. Scores of countries are being left behind by GDP and it remains a mechanism for exerting power or support over other countries, enhancing an unequal world economy. A new indicator would present development as the responsibility of more than just the economy, and encourage long term investment instead of policies for political gain. Rewarding countries for these factors will also create a more equal world economy, where cooperative measures promote mutual prosperity instead of competition.

Alice Lassman’s ‘GIIP Index’ was awarded the ‘Rising Star’ award in the 2017 Indigo Prize. The full proposal is available here.

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Over the past few years there has been an outpouring of progressive proposals for the British economy. From universal basic income (UBI) to a citizen’s wealth fund, it is encouraging that people are trying to find real solutions to the problems of growing inequality, depressed living standards for many, and a generally dysfunctional British economy.

While these ideas have attracted significant debate about their impact on the British economy, there is rarely much discussion about their impact on those living in other parts of the world, namely the global south. When discussing national economic policy, we seem to assume that our economies operate in isolation, and rarely reflect on their place in a global division of labour.

However, putting these national policy options into a global context gives rise to many questions, especially when capitalism is considered as an imperialistic world economic system. To put the key question bluntly: should we support basic incomes or citizen’s wealth funds that might reduce inequality in the UK even if they are at least partly funded through exploitation in the global south?

Globalisation or global imperialism?

It is a strand of Marxian economic theory called dependency theory that has been most dedicated to understanding capitalism as imperialistic. Dependency theory took off in the 1960s and went out of fashion in the 1980s, but now its more useful parts are being revived to explore how imperialism works in the current age – i.e. through globalisation.

Imperialism in this sense doesn’t just refer to formal empires such as those of 19^th century Europe, but describes some countries benefiting from the extraction of resources from other countries. Dependency theorists argue against mainstream development theory, which claims that if developing countries improve productivity and tackle corruption, they will ‘catch up’ to the developed world. Dependency theory argues that, on the contrary, it is impossible for third world countries to ‘catch up’ because the wealth of the first world is achieved at the expense of the underdevelopment of the third world. In other words, our gain is their loss.

While agencies like the IMF claim that globalisation has been a gift to developing countries, dependency theorists argue to the contrary. There are several dimensions along which this sort of domination has been said to take place.

Global production

Transnational corporations make their profits by paying ultra-low wages in the global south – often pushing wages below the cost of living – and selling at much higher prices in the global north. Corporations are big winners in modern-day imperialism, but the GDP of countries in the global north also benefits.

Tony Norfield, author of the acclaimed book The City, tells the story of a T-shirt made in Bangladesh and sold in Germany by H&M for €4.95. H&M pays the Bangladeshi manufacturer €1.35 per shirt. 40 cent of this covers the cost of importing the cotton from the US. Thus only 95 cent of the final sale price remains in Bangladesh, to be shared between the factory owner, the workers, the suppliers of inputs and services and the Bangladeshi government, expanding Bangladesh’s GDP by this amount. 6 cent is spent on shipping costs to Hamburg, and the remaining €3.54 counts towards the GDP of the country where the shirt is consumed: Germany. €1.99 goes towards distribution costs, shop rent, sales force, marketing and administration in Germany. H&M makes 60 cent profit, and the German state captures 79 cent of the sale price through VAT at 19%.

The German state will spend its piece of the pie on its own citizens, military and companies (in the form of ‘corporate welfare’), and it will even give ‘a few pennies to the poor countries in the form of “foreign aid’’ . It is this dynamic that has led some analysts to claim that the way global production is currently organised fundamentally benefits some parts of the world at the expense of others.

Global finance

Norfield has also shown how a country’s financial sector can enable that country to gain privileges in the world market. He argues that out of some 200 countries in the world, only around 20 count as major players in global affairs. He has ranked countries according to an ‘index of power’ in the world economy. The index adds up countries’ nominal GDP, stock of Foreign Direct Investment outstanding, cross-border lending and borrowing by banks, use of currency in international markets, and military expenditure. Because of how vast and international its banking sector is, Britain comes second in the rankings (though dwarfed by the US). Britain’s huge financial sector helps offset its chronic current account deficit. Alongside global production, financialisation is therefore central to present-day imperialism.

Tax havens

Although tax havens may appear marginal to the financial system, Nicholas Shaxson has shown that they have been at the heart of the growth of finance capitalism. Tax havens are key vehicles for modern imperialism. Britain controls a ‘spider’s web’ of offshore centres based in its former colonies.

Moreover, developing countries lose vast sums through the use of tax havens by individuals and, above all, transnational corporations – most of which are headquartered in Western Europe, the US and Japan. The Global Financial Integrity (GFI) programme estimates that developing countries lost $1.2 trillion in illicit financial flows in 2008 alone. This is compared to $100 billion in total foreign aid. In the words of the GFI’s Raymond Baker, “for every dollar we have been generously handing out across the top of the table, we in the West have been taking back some $10 of illicit money under the table”.

Global governance

The global justice movement has long argued that the agencies of economic globalisation – the World Trade Organisation (WTO), the World Bank (WB) and the IMF – have benefited the global north at the expense of the south. The WTO sets the rules for world trade, and these have been accused of favoring rich countries. For example, while all the other WTO agreements formally aim to promote free trade and competition, the agreement on intellectual property (TRIPS) is protectionist, seeking to protect profits on patents – which happen to mainly be registered in rich countries.

When an economic crisis arises, the IMF and WB step in with loans in return for the now infamous ‘structural adjustment’ programmes. These have included privatisation, cuts to public spending, removal of subsidies on basic items, opening up the financial sector to foreign ownership, and labour market reforms to push down wages. It is corporations based in the global north that largely benefit from these reforms.

***

How money flows in the global economy, and who benefits, is a complex and hotly contested issue. But this doesn’t mean we should ignore it. We need to start asking where the money for our lovely hypothetical basic incomes and social wealth funds is coming from.

It is vital to develop progressive national economic policies, but do we really want to benefit from policies that come at the expense of people elsewhere? If not, any debate about such policies should be rooted in the ongoing debates about global justice. There are many ideas about how to decolonise the economy, from global taxes and regional minimum wages to tackling tax havens and ‘deglobalisation’ – the replacement of current global governance agencies with regional institutions or a fairer international system. If we are serious about economic justice, debates about UBI and other national economic policies must start taking place alongside these wider global discussions.

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Throughout more than fifty years as professional economist, rare has been the opportunity for me to claim “I was right” – even less “I told you so”. However, the recent meeting in Chequers of Theresa May with her unspeakable cabinet provides me with one of those rare moments.

Despite repeated and almost universal denials of the possibility of a Brexit agreement brokered by the accident prone May, a deal now seems if not imminent then certainly in the offing. And, yes, I predicted it. As much as I might like to attribute my prediction to analytical brilliance, the explanation is mundane: recognising the obvious.

The coming of what May dubbed a “UK-EU free trade area” is what any reasonably open-minded observer would have anticipated. The pieces of the Brexit puzzle have been lying around in full sight, awaiting some momentarily open-eyed person to put them together.

The Brexit jigsaw puzzle

Like jigsaw puzzles, the likely Brexit outcome is more easily assembled when one begins with the corner pieces then works to the centre. First among these is that any Brexit outcome will be determined by the most powerful actors. These are the financial interest of the City of London and German manufacturing capital.

Especially important is German trade in transport equipment with Britain (including cars). German producers have a substantial surplus as a glance at the numbers shows. The Merkel government has sought and will seek a deal acceptable to German manufacturers, as May will with the barons of the City. Both governments are right-wing, whose natural constituency is big business. As with most decisions in Brussels, the other EU governments are likely to yield to German economic interests and seek compensation and reciprocity on other issues (immigration, in EU budget negotiations, etc).

The second corner piece is that few if any Conservative MPs will cast a vote the result of which is to bring the government down and force an early election (that is, before 2022). The Chequers game demonstrated yet again that the enthusiasm of Tory Brexit MPs for “no deal” is more than offset by their loathing for a Labour government, with Tory Remainers in agreement on that point. To put it simply, fear of an end to almost forty years of Tory and Blairite neoliberalism far outweighs fear of leaving the European Union.

The improbability of a second referendum of any type provides the third corner piece. The first obstacle is timing. The average time it takes for parliament to process a bill to law is about 12 months. The Article 50 two year deadline is 29 March 2019. If a referendum were scheduled for the 11^th hour, such as 21 March, referendum legislation would need Royal Assent not later than a month before to allow minimal campaign time. Parliament “rises” for recess on 17 July and does not return until 5 September when party conference season begins, which does not end until the first week of October. That leaves very little time, about 18 calendar weeks for legislation to run its course. The schedule is even tighter because of the five weeks of scheduled recess during October through mid-February.

This leaves a very tight parliamentary schedule to achieve a very contentious goal.  The difficulties are compounded by the likelihood that a May government might not itself introduce a second referendum bill, even were a Tory revolt to be successful. The alternative, a private embers bill, would face well-known and insurmountable obstacles. The likelihood that all the best outcomes occur – a sufficiently large and solid revolt of Tory MPs, a shift by Labour to enthusiastic support, new legislation that gets passed through parliament, and a question that is favourable or neutral to Remain – is very small indeed.

The fourth and final corner piece is that the fear of Brexit economic disaster represents a losing strategy in 2018, just as it was in June 2016. Thanks to fiscal austerity, the British economy has fluctuated between stagnation and sluggish growth for eight years. The most negative calculations of Brexit compare economic growth with and without EU membership. Were the same method used for the impact of austerity, the Brexit estimation would seem trivial. For a decade UK growth performance has been dismal, so how persuasive is the fear that GDP growth might decline from 2% to 1.7%?

After identifying the corner pieces, filling in the puzzle is an easy task. The important players want a deal. Tory parliamentarians are unlikely to bring their government down. The odds are stacked against a second referendum. And the public propaganda strategy for retaining membership was and is ineffective. All of this is obvious, yet even after the Chequers game almost every commentator and some of the public still persist in the “no deal” illusion.

Let reality intrude

As I write, articles are dismissing May’s cabinet agreement as temporary and certain to collapse. Remainer optimism has seized on cabinet resignations as indicating “chaos” in the government, an oft-used word with no clear meaning. The immediate question is not whether the Tory government is chaotic or orderly. Instead the important question is: will May survive? If a revolt removes her, the Chequers deal becomes an irrelevant.

If her removal prompts a new election, the probability of stopping Brexit increases dramatically. A successful leadership challenge requires that a majority of Tory MPs take the gamble of bringing the government down and prompting an election that ushers in a Labour majority, or a Labour coalition government. Every progressive should hope that so-called chaos transforms into successful Tory rebellion, while recognising that its likelihood is not high. The obvious “stop-Brexit” strategy is to eject this government.

Bitter experience and many disappointments have convinced me that, when it comes to politics, one must plan strategy and tactics for the worse outcome. For a realistic Remainer, the worst outcome is the following scenario:

1. May and her allies reach a tentative agreement with their continental counterparts (all right-wing except in Portugal and Spain).
2. The agreement is announced at the Tory party conference at the end of September.
3. Three weeks later at its scheduled meeting, the European Council gives conditional approval to the same or similar agreement.
4. In November the British and European parliaments approve the agreement.
5. Before the end of 2018, Britain is out of the European Union with a new trade agreement in place.

As Will Hutton has written, approval by the European Council is quite likely.  Furthermore, no announcement will be made at the Tory Conference without de facto agreement with Brussels. Members of the European Parliament may grumble, but any agreement approved by the European Council will pass. For the May government, the weakest limit in this scenario is UK parliamentary approval. This is also the only point at which progressives can block the scenario from running its course.

We face the possibility that long before any second referendum could be approved, much less voted on, Brexit will be a “done deal”. The anti-Brexit strategy must therefore take that seriously and plan accordingly. We must pressure Tory Remainers to think, for them, the unthinkable – a rebellion that could bring the government down.

Accepting reality

The refusal to entertain the possibility of a Tory brokered deal may in part result from deep anxieties about the consequences of Brexit, an outcome many view as too disastrous even to contemplate much less plan for. While I share those anxieties, I also realize that what we want to happen, and what will happen, are frequently different.

For many reasons, I want the British government to retain membership of the European Union. Contrary to what I want, the probability is high that Theresa May’s government will end Britain’s membership of the European Union, perhaps before the end of the year.

The time has come for rational Remainers to shift strategy, away from methods of prevention and towards developing a policy agenda to mitigate an undesired outcome.  Managing adversity requires foresight and policies. If by a great stroke of good fortune we remain in the European Union, our Brexit preparations will prove unnecessary, erring on the side of caution. But if Brexit happens, our preparations for it will provide the progressive policy response to mitigate disaster.

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

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

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

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

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

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

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

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

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

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

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

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Today the 70 year-old National Health Service finds itself in a world radically different to that in which it was born. Compulsory health insurance had only arrived in 1911, part of a reformist welfare agenda spurred by concerns over working class conditions and the revolutionary urges they engendered. As in all ages, the nature and causes of ill health were a function of the social and economic conditions of the day, as summarised by William Beveridge’s timeless evocation of the Five Giant Evils: “squalor, ignorance, want, idleness, and disease”.

Emerging from the ashes of the Second World War, the founding principles of the NHS – free to all, at the point of use, beyond the insurance principle – allowed Britain to win the peace. Universal health coverage gave succour to a sick and dispirited nation, providing the conditions in which Fordist consumer-capitalism could mature by creating a “secret, silent column” of healthy and productive citizens who helped usher in the post-war Keynesian boom. For a nation bowed but unbroken, scuttling its empire in a new age of human rights, it may have seemed reasonable for Aneurin Bevan to proclaim that Britain, with its NHS, now had “the moral leadership of the world”.

This was an era of rapid and momentous change. Little less than a year before, at the stroke of midnight, the nations of India and Pakistan achieved freedom from a dying empire; in 1948, as 4^th July turned to 5^th, the British people could dream of freedom from fear.

The NHS was the archetypal child of its ideological time. The concept of public healthcare under the NHS model sat atop a new wave of political and economic ideas. Centralised state bureaucracies and Keynesian demand management washed away the failed political economy of the Wall Street Crash and the Great Depression. As Bevan pushed through his plan for a publicly provided rather than ‘publicly organised’ NHS, a former Conservative health secretary asserted that this “would destroy so much in this country that we value”. Precisely the opposite occurred.

However, contrary to some contemporary opinion, this revolutionary turn in the role and functions of government came with broad support from across the British state. This is not to disavow the achievement, merely a reminder that the time for a profound shift in political and economic ideas had come. When it came again, in the late seventies and early eighties, the vanguard of the new order identified themselves almost in direct opposition to what the NHS stood for, the ideas that justified it, and the objective reality it delivered.

The NHS has always been the target of opprobrium from the intellectual evangelists of incongruous market liberalism. This is the case whether they are set to gain from outsourcing and privatisation, or are merely captured by the shadows on the collective cave of our economic discourse. In the case of the former, from its inception, health insurance giants watched the NHS and pumped money into proto-neoliberal think tanks that criticised all facets of Britain’s public healthcare model with gleeful abandon.

It was in reaction to an attack on the principles of non-fee-paying blood donation that the sociologist Richard Titmuss wrote The Gift Relationship, his seminal exploration of the impacts of pecuniary incentives in social policy. Titmuss warned that the unabashed introduction of markets into previously untouched areas of policy would result in a destructive, pervasive “ideology to end all ideologies”. Into what future would we now head if it was this book that British prime ministers pulled from their bags, slammed onto tables, and over which they declared “this is what we believe”?

As the post-war consensus fell, practical men, finding themselves quite exempt from intellectual influence, slaved away to deliver the assertions of defunct economists. The theoretical basis of neoliberal economic ideas considers markets the superior means of coordinating allocation of resources under conditions of scarcity. However, when applied to healthcare, market dynamics are profoundly inappropriate. This is not the case with, say, food, where you, endowed with sufficient information on which apple is appropriate for your own needs, can enjoy the benefits of a plurality of apple vendors, each optimising their products and prices to meet market demand. For serious heart problems, even a world-renowned cardiothoracic surgeon would suffer from incomplete understanding of her condition and treatment, opening up information asymmetries with the consultant sitting opposite.

It took until the nineties for the neoliberal revolution to strike the NHS. Market structures were the order of the day as the state sailed heroically into the End of History. The NHS, as with all areas of public provision, was now going to compete – by hell, high-water or penalty imposed from central government. That it has taken until now for the contradictions, inefficiencies and failures of marketisation to be recognised by elements of the political mainstream stands testament to the dangerous paucity of our policy discourse. One cannot look upon the collapse of Carillion and the eye-watering cost of the Private Finance Initiative – £310 billion for assets worth around £55 billion – without concluding that something is profoundly wrong with those economic ideas that justify such cruel, inefficient policies. Where does duty of care come in a contract that allows a private company to charge an NHS hospital £333 for a lightbulb?

The NHS under neoliberalism has failed on its own terms. Firstly, inappropriate and unnecessary marketisation has delivered waste, moral hazard, and, ultimately, exposed the system to structural risks, imposing large costs on the taxpayer through the socialisation of failure. The Centre for Health and the Public Interest estimates that the annual cost of marketisation in the NHS is in excess of £4.5 billion per year, with additional start-up costs of over £3 billion per major market reform. Indeed, the benefits of market ‘reforms’ have always been hotly contested, with opposition across academics and health practitioners, who stress a high opportunity cost in forgone patient care and clinical innovation.

Secondly, privatisation – distinct to the wasteful outsourcing of healthcare provision to private companies – has seen the loss of assets built up over decades and paid for by generations of taxpayers, a particularly vindictive, socially and economically irrational policy. For example, the coalition government famously sold 80% of the UK’s blood plasma resource company to Bain Capital for £90 million, putting the security of blood supplies at risk. Bain soon enjoyed profits in excess of £700 million when the company was subsequently sold to Chinese investors. Into the future, the government is seeking to sell large quantities of NHS land, imposing the opportunity cost of missed public investment in productive assets, such as the construction of much needed hospitals and the installation of renewable energy that could power the NHS and reduce its carbon emissions.

Thirdly, it has simply been a deliberate political choice to underfund the NHS over a period that now approaches a decade. Over the 2015/16 financial year, NHS trusts and foundation trusts fell into a combined deficit of nearly £2.5 billion, only three years after reporting a surplus of over £500 million. While the changing nature of ill health and demand for services plays a part, this gap has opened up due to a deliberate policy of underfunding: real terms increases in NHS funding were 0.9% a year between 2010-2015, in contrast to an average of 3.7% over its lifetime. There is now a near universal consensus that the NHS is underfunded and that the lack of resource is the greatest contributor to successive crises – something that even the government has begun recognised. In all, health and social care spending cuts have been linked to 120,000 excess deaths.

At best, the justifications for George Osborne’s ‘Age of Austerity’ were the spurious frenzies of a politician appealing to the polluted ideas of a discredited yesteryear to benefit wealthy vested interests. At worst, they have cost lives and halted the inexorable, centuries-long tradition of improvement in public health driven by the noble efforts of British academics and clinicians. Do not forget that life expectancy had been rising continuously for over one hundred years, a trend that has likely faltered because of the political choice to cut public expenditure, with the rate of increase in life expectancy having dropped by almost 50% since austerity began. If medical science has been of the greatest benefit to mankind, uncritical adherence to outworn economic dogma has been of the greatest detriment.

For the neoliberal experiment, as in nearly all areas of policy, has imposed a wicked cost on our health. It has damaged systems that seemed to be working moderately well in the past and eroded the institutional basis upon which we can effectively respond to the challenges of the age. Take the future of the digital technology, which could alter social and economic relations at a pace and scale not seen since the Industrial Revolution. The manner in which digital technology is integrated into healthcare in the UK is and will always be a political choice. Smart phones, ubiquitous data collection and machine learning could be harnessed by the NHS to better realise its founding principles, creating possibilities beyond the wildest imaginings of Bevan, Beveridge et al. Instead, the digital frontier is dominated by multinational monopolists and speculators pumping money into consumerist start-ups that flood markets springing up in anticipation of continued underfunding and privatisation. We can do better.

Moreover, the very basis of our healthcare model is being shaken by demographic change and a shift in the nature of ill health. Underfunding is simply unsustainable in the face of these trends. Into the future, environmental change, already described as the greatest threat (and opportunity) to public health, will determine the parameters of our healthcare imaginations. There is no room for systemic waste, fragmented private providers, and the inefficient adoption of innovative technologies in a world that has warmed by 1.5C and in which the majority of soil fertility has been lost.

What is to be done? Much of a post-neoliberal approach to the NHS must seek to repair the damage done over the last few decades. Primarily, the NHS needs to be adequately funded as part of a wider move away from the discredited policy of austerity. Ill health over the period of fiscal retrenchment has resulted from damage to the systems of the state, encompassing everything from transport to social care, that provide the foundations upon which good health can spring. It will be a tragedy if the number of lives lost during the application of these failed, pre-Keynesian ideas should not banish them forever.

The government’s recent pledge to up NHS spending by an average of around 3% a year to 2023/24 does not do this. It is below the 4.3% annual growth needed to keep pace with demand and much lower than that needed to recover from the damage wrought by the past eight years of underfunding. What’s more, the funding is delayed until next year, opening up a cavern across which the NHS must jump and into which much of it could fall, particularly if another cold winter pushes the service into collapse. The increase also leaves out public health, staff training and building and other key capital investments. It has nothing to say about the cost of debt repayment.

Marketisation can no longer be the first port of call for policymakers, as should be the case across the public sector. This includes needing to handle the growing burden of PFI debts, with options including the centralisation and renegotiation of contracts. Into the future, the social, environmental and economic power of the NHS should be brought to bear, with hospitals acting as ‘anchor institutions’ that provide a local basis for everything from the rollout of clean energy through building energy assets on NHS land, to improving employment standards by targeting local recruitment and procurement. These developments are already occurring, with, for example, some hospitals in London recycling their heat into local housing. Maximising the local socioeconomic role of the NHS could also present a more meaningfully democratised approach to decision-making.

Until then, be wise to what neoliberalism has done and will continue to do to the NHS. Born of war and strife, Britain’s health service celebrates its 70^th birthday in a bad way – bowed, nearly broken, ill-prepared to suffer the burden of continued underfunding and held together by the goodwill of staff. All the while, foreign insurance giants watch with patient eyes for opportunities arising from Brexit trade deals. The NHS is about being civilised; as we dismantle it, we become less civilised.

Over the course of the 70^th anniversary, the official celebrations shall likely focus on NHS staff. Quite right. But do not forget that the NHS is and has always been about economics, politics and power. It is about multinational corporations getting richer while sick people die in corridors. It is about bright young management consultants repeating failed economic cantations to justify inefficiency. Alone in a society brutalised by years of austerity, the NHS is increasingly the first and last line of care for people up and down the country, and is kept going by the blood, sweat and tears of its staff.

The NHS is no longer national. Fragmented and sucked dry of resources, it cannot invest in responding to modern health problems. The NHS is increasingly becoming a logo under which private enterprise may suckle on the teat of the state, growing fat off our taxes. The predicament of the NHS at 70 is the result of a concerted application of failed economic ideology. Neoliberalism’s legacy is the private ambulance provider who bungles an emergency call because their staff are under-trained and poorly equipped; it is the baby who dies in the night, away from their parents, as the private provider of an out-of-hours service fails to adequately respond. Stand this no longer. If the Labour Party are to enter government in the near future, a test of their willingness to deliver a new society will be whether they create a post-neoliberal NHS.

The NHS can be all that its staff and its patients believe it to be. A harbour in which fear is kept at bay, in which everyone maintains the right to be relieved of the pressures of ill health. In the final analysis, the crisis of neoliberalism is inherently a political crisis founded on the inadequacy of a certain set of economic ideas. In the same way that the NHS has always proven there is an alternative, the orthodox approach to healthcare policy proves that we need, now more than ever, an alternative to neoliberalism.

This essay is a modified version of an article published in the Mint.

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

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

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

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

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

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

The co-operative advantage

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

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

A hostile economic environment

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

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

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

A winnable future

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

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

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

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

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

Scaling democratic ownership

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

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

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

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

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I’ve written previously about the role played by media amnesia in the decade of austerity and general doom we’ve found ourselves in since the 2008 financial crisis. Briefly, after the banking collapse, private debt became public debt as governments saved their banking sectors and the credit crunch led to a deep recession. Concurrently, a dazzling rewrite of the crisis was also taking place in the mainstream media – at the same time that the debt was being transferred from the private to the public sector, so too was the blame being transferred. Public sector waste and Labour overspending became the culprits behind the deficit, as the real reasons for the crisis were forgotten or misremembered. This shifting of blame onto the public sector was a key justification for austerity.

I’ve also written elsewhere about the causes of this media amnesia – from the concentration of media ownership and the crisis in journalism funding, to the ‘Westminster bubble’ and elitism, to news values that prioritise the very latest happenings over context and process.

In this piece, I’d like to put forward some potential remedies for media amnesia. How can we solve the problems with media that have had such serious consequences for the way we have all lived our lives for the past ten years?

Regulation

There are some simple, modest things we can push our government to do about the media. Pressing ahead with part two of the Leveson inquiry, and properly implementing the recommendations of part one, are clear examples. Media activists and some journalists have called for a strengthening of regulation around the right to privacy, the right to reply, the publication of corrections and the process of lodging complaints against media companies. These proposals aim to protect members of the public from having their privacy violated or from being misrepresented in the media. Another demand concerns the transparency of media policy – particularly contacts between senior government officials and media owners or executives. Justin Schlosberg recommends that details of these kinds of interactions should be published on a central register, made available in spreadsheet format and updated at regular intervals. Yet another proposal is to implement plurality safeguards that protect the editorial autonomy of journalists and editors from interference by management, owners or external sources.

Meanwhile, the BBC and public service journalism should be protected and also reformed. The Media Reform Coalition has a proposal for how to make the BBC more independent, democratic and representative. In these ways, selective amnesia, misremembering or all-out blackouts could be curtailed.

Alternative media

What with the proliferation of voices now on offer thanks to the interwebs, we are free to seek out media that we trust and find informative. Supporting your favourite alternative media through sharing, subscribing, donating, or just using, is central to creating a healthier media environment. The recent success of Jeremy Corbyn’s Labour Party at the 2017 general election (well, relative success) has been in part put down to social and alternative media. I would recommend particularly supporting alternative media that are collectively owned and run – that prefigure the kinds of ownership models on which we might hope a future economy will be based.

We also need to start asking ourselves questions about what we actually want from news. Why do we need to frantically keep up with everything reported? Would we rather have less news but better context? Instead of a tsunami of information about certain goings on in certain places, would we prefer to learn about the processes connecting different parts of the world together? The slow news movement, for example, tries to offer less quantity but more quality of news. Understanding how the present connects to the past, and how geographical regions connect to each other through the global economy and geopolitics, are key to beating media amnesia.

Public journalism

There are two problems, though, with focusing only on alternative media. Firstly, alternative media by definition reach a lot fewer people than mainstream media. If we want a more level playing field in public debate, we need to get involved in discussions about the media ecology as a whole – not confine ourselves to just one part of it. Secondly, alternative media often reach us via the mega corporations that have taken over cyberspace. The internet giants like Google and Facebook are part of the problem at the heart of both the 2008 financial crisis and its amnesiac reporting – the consolidation of resources in the hands of a few. It is therefore essential to target ownership structures, and reorganise our media from the bottom up.

Caps could be placed on the share of the market for content provision controlled by individuals or groups, with violations of the threshold remedied through forced divestment if necessary or through shareholder dilution. Tackling the media barons and breaking up media oligopolies is vital if we are to put an end to deliberate amnesia and misremembering in the interests of the uber rich.

At the same time, non-corporate media could be supported through an independently dispersed public fund. The fund could be used to support a whole plurality of media with a public service interest. As well as supporting the production of content, it could facilitate civil society-run social media and community open access and media infrastructure initiatives. Where is the magic money tree to pay for such a fund? Taxes on the mega media corporations of course, who are notorious tax avoiders. There are all kinds of proposals for these kinds of funds and how to pay for them. The crucial thing about them is that a) they aim to achieve media that are independent from both the state and from corporations. And b) that they are funded through progressive taxation.

There have been more ambitious proposals. Back in the 1960s, the late cultural studies scholar Raymond Williams argued that the means of mass communication should be owned by media workers. In this scenario, small scale equipment would belong to media producers themselves. Large scale media infrastructure would be taken into public trusts, and content-producing organisations could make use of it. More recently, Dan Hind proposed the idea of public commissioning. Again, a fund would be set up and members of the public could vote on what investigations they want journalists to do and how to disseminate the results. This would sit alongside the existing media system, but eventually as people got more used to being autonomous it could be expanded. In this way, plurality would be safeguarded and the media would become more democratic – making media amnesia a thing of the (forgotten) past.

Obviously, these bolder solutions are about a million miles away for where we are now. For now, we should celebrate if we manage to prevent the Murdochs from taking over Sky. But it’s important to consider a whole range of options and to think about what kind of media we actually want, not just about what’s ‘realistic’. Who knows, in developing visions for the kinds of media systems (and other societal systems) we want, we could change the parameters of what is considered ‘realistic’ in the first place.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Four main points can be made and briefly stated.

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

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

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

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

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

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

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

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

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

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

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

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

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

***

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

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To win power, the left must build a narrative around ending privatisation, empowering the workforce and borrowing to invest. To stay in power, left governments must transition towards an economy based on high automation, shorter working hours and free services. 

***

After Trump, Brexit, the formation of a right wing coalition in Austria and now the M5S/Lega government in Italy, the way the current era might end is becoming clearer. Right wing populism demands an end to migration and offshoring. Right wing conservatism, in response, harnesses the populist into a programme of nation-centric free-market economics – call it “Thatcherism in One Country”.

Meanwhile, Russia’s perennial hybrid warfare against Western democracies opens up the social fissures within them even further.

The G7’s failure to commit to a “rules based global order” after Trump’s walkout then presages the actual paralysis of multilateral institutions. At worst the EU, NATO and the Eurozone fall apart.

Of course, it’s possible to imagine that the populists, the demagogues and their right wing, authoritarian voters suddenly become exhausted and satisfied with the world as it is. But it is much easier to imagine that the anger of their voters escalates, that democratic institutions become frayed and discredited, and that the nerves of liberal technocrats crack.

Either way, the project I am trying to outline in this series – namely the programme, philosophy and moral basis for a radical social democracy in the 21st century – has increasingly to be conceived as a plan for picking up the pieces, not the deepening and extension of an essentially stable system.

In my book ‘Postcapitalism’, I argued that information technology creates the possibility of a long transition beyond market-based societies towards an economy based on relative abundance, high automation, low work and free utility produced by network effects. This remains, for me, the 21st century equivalent of the “maximum programme” adopted by social-democracy in the 1890s.

However, the crisis of the short-term demands answers – and better ones than the re-treaded Keynesianism on offer from the traditional social-democratic left.

A programme of immediate, “minimum” actions and principles – which social democratic parties across Europe and North America could sign up to – would have at its heart two twin aims:

1. to revive economic growth, prosperity and social cohesion in Western democracies; and
2. to defend and deepen their democratic rights and institutions.

It would also need to contain elements of “transition” – though not of the kind originated by the Communist International in the 1920s and later associated with Trotsky’s Fourth International. Then the aim was to introduce elements of planning and workers control into the programmes of left governments, moulded around scarcity. Today the transition path has to embrace the potential for abundance contained in information technology and, of course, to deal with climate change as an urgent issue.

So the core issue for those who want to radicalise social democracy is: what kind of capitalism is it possible for us, in these conditions, to create?

Before attempting an answer I want to recapitulate the argument of my previous essays in this series for openDemocracy:

• To solve the problem of working class atomisation, and create a narrative for social democracy, the British Labour party and other social-democratic parties should focus their efforts on achieving a tangible upward movement in incomes, health, lifestyles and prospects for working age adults over the next 10 years.
• To solve the problem that globalisation empowered corporations while limiting the sovereignty of electorates, we must be prepared to retreat from extreme globalisation, into a “second trench”, consisting of national economic policymaking in the context of international solidarity, abandoning certain supranational regulations deemed currently to have the force of eternal law.
• To solve the problem of agency, we need to understand that oppression and exploitation take many forms in late-neoliberal capitalism, and that the movement to deliver a progressive government will most likely be a tribal alliance of people adversely affected. In that alliance, the traditional working class and labour movement structures will exist, but will not have hegemony; where working class culture has been inverted into a form of nostalgic ethno-nationalism, the movements and demands it produces will have to be resisted.

In Britain, the practical implications of the above are for Labour to seek a progressive electoral or governmental alliance with the Greens and left nationalists; for a rapid rise in real disposable incomes to be the number one deliverable of a progressive government; and for that government to fight for the reform of all multilateral treaties or obligation that stand in the way of social justice – whether it be the EU or the World Trade Oraganisation.

But what, practically, should a left-wing government do, and in what sequence? The answer to this is not obvious from reading Labour’s 20,000 word 2017 general election manifesto – detailed though it was, nor from the 100+ bullet points that formed the manifesto of Podemos. Nor even the 83 chapters of L’Avenir En Commun, on which Jean-Luc Melenchon fought for the French presidency in 2017.

None of these documents reads like a battle plan; in fact, they read more like an infantry manual full of standard procedures, rules and principles. None was likely to survive contact with the enemy if the parties that produced them had gained power.

To transform capitalism rapidly in the direction of democracy and social justice, you need a linked series of actions – and a project-management understanding of their synergies and interrelationships.

***

Day One

What should a left-wing British Labour government – or a Podemos-PSOE coalition, or a France Insoumise presidency supported by the trade unions and the remnants of the socialist party – do on their first day in office? The obvious answer is: survive the financial market backlash. If you observe the market turmoil caused by the possibility of a far-right/populist alliance in Italy, you get a taste of what’s in store for a government of the radical left.

The clear danger lies not just in the kind of capital flight experienced by France under Mitterrand in 1981-83, but flight on a scale resembling the “sudden stop” phenomenon that plagued Latin America and parts of Asia in the mid-1990s, and which have re-emerged in the post 2008 period (sudden stops have been defined as a sudden reversal of capital inflows causing GDP to decline by the order of around 6% in a twelve month period).

Almost everywhere a left government is conceivable, financial markets would be capable of mixing a rational aversion to risk with speculative and politically-motivated capital movements to cause the currency to plummet, growth to tank, and foreign exchange reserves to be depleted, demanding central bank action to counteract the declared programme of the winning party.

It is this – not a rerun of the coup against Allende in Chile in 1973 – that left governments need to be ready for.

François Mitterrand during the 1981 presidential campaign. Image: Jacques Paillette, CC BY-SA 3.0

Of the four remedies usually chosen to combat a sudden stop – fiscal policy, monetary policy, currency depreciation and pro-market structural reform – the last is a non-starter for a left government. With capital controls ruled out except in extreme circumstances, any left party contemplating power has to wargame how it might use reserves, monetary policy, fiscal expansion and currency maneuvers to sit tight through the average three to four quarters most sudden stop episodes last for.

I don’t intend to wargame such tactics here. They would have to be highly time and country specific. Suffice to say, as left governments appear on the brink of power, their right wing nationalist and neoliberal centrist opponents are likely to try to tie their hands, for example by running down reserves.

What is certain however, is that from Day One a left government taking power has to give as many people as possible “skin in the game” of its survival.

Fortuitously, the neoliberal model of capitalism has over the past 30 years depleted the amount of power wielded by parliaments in favour of executive power. Though the medium-term aim of a left government would be to reverse this trend, the Day One question would be: what is possible through urgent ministerial action?

Let’s take the example of the UK. Here, ministers can, technically, order their departments to do anything that is not illegal or forbidden by treaties. However, a huge realtime audit power is given to senior civil servants by their role as “accounting officers” for each department. They can object to ministerial actions and have frequently done so, most commonly on grounds of “value for money”. If not doing something is cheaper than doing it, or if a minister is proposing to pursue anything other than the value for money option, the permanent secretary can object, requiring the minister to issue a “direction”, which then becomes a public cause célèbre.

In the case of a left-led Labour government in the UK, it’s not hard to imagine the process becoming weaponised: one minister after another clashing publicly with their civil servants over whether a state investment bank, state aid to a steel works, or the choice of a public healthcare provider over Richard Branson, is “value for money”. This power, in other words, would lie in the hands of civil servants even after Brexit. Without Brexit, the rules of the single market would simply give the permanent secretary added justification.

However, the definition of value for money lies entirely in the hands of the Treasury. Though the National Audit Office is headed by an officer appointed by the Queen, the value for money guidelines (last issued in 2004) are drawn up by HM Treasury.

So the most far-reaching thing a left Labour government could do on Day One would be to set out new value for money rules aligned with the macroeconomic philosophy of its new Treasury economics team, which recognises the power of public spending multipliers to stimulate growth in excess of the sum outlaid.

This revised philosophy on public spending would ripple through Whitehall in the space of a few days. It would probably ruffle a few people’s people’s feathers, above all the National Audit Office which has been working to different guidelines. But it would remove one of the classic neoliberal objections to ministerial actions. It would free individual departments to take operational decisions in pursuit of short term objectives.

First 100 days

What might these be? If things go wrong, the answer could easily end up as: a set of reactive or piecemeal measures designed to address long-held grievances, or assuage public opinion. Or measures that make sense in the long-term but deliver very little “skin in the game” for the electorate that has installed the left-wing government in the first place.

To make things go right for a left government in its first few weeks, you have to understand the strategic objective: to change the dynamics of the whole British economy so that if ever a right wing government returns to power it will, as the Tories did in 1951, accept large parts of what the left has achieved as the foundation for a new consensus.

With this in mind here are the five things I would urge a Corbyn/Sturgeon government in the UK, or a Sanchez/Iglesias government in Spain, or Democrat government in the US under Bernie Sanders to do in the first 100 days:

1. Switch off the neoliberal privatisation machine. This is not yet about reversing existing privatisations but declaring that there will be no new ones, and stating that outsourcing will no longer be done on the cheapest-wins basis, or by preferring private over public provision. The government should state that its preference is for essential public services to be provided by publicly-owned bodies and that the market, and any competition rules required by the EU, NAFTA or WTO, will be worked-around. Furthermore, existing privatised utilities and monopolies, once renationalised, will not be run as profit-making corporations but with the aim of providing social value in the form of cheaper energy, cheaper rail travel, higher wages, and of creating templates for new forms of social ownership at large scale such as co-operatives, platform co-operatives, credit unions, ethical banks and benefit corporations.

2. Publish, and therefore signal the imminence of, a basic package of new labour rights to be legislated without consultation. The consultation stage was the election, should be the argument. The new rights should be a mixture of individual and collective:

• With regards to individual rights, the aim would be massive, free and easy access to the justice system, whereby individual workers can enforce their human rights against employers. Though in the UK it would require reversal of legislation from the neoliberal era, ministerial directives could do a lot of the work up front.
• With regards to collective rights, the removal of exemptions for small businesses, and for people in post for less than an arbitrary time limit would be easy game changers before primary legislation takes place. An employment minister turning up at McDonalds, TGI Fridays or Pret A Manger, with the cameras but unannounced, to tell the workforce that within six months they will have the right to a living wage, union representation on the board, collective wage bargaining, paid holidays and maternity leave could have as much effect on behavioural change as the legislation itself.
• The issue of bogus self-employment, which plagues industries as diverse as construction, hairdressing and journalism could be addressed by the relevant Treasury surveillance department having its staff tripled and bonuses paid for successful prosecutions of the relevant employers. Since the business model of these sectors would have to change, it would require a transition period to get the relevant workforce on the books, paying the right taxes and receiving the right benefits. But the early signal should trigger rapid behaviour change among all those businesses that intended to survive.

3. Set up an Infrastructure Commission. The UK already has a National Infrastructure Commission which advises on long-term projects, but a progressive solution would be to set one up with executive powers, allied to a state investment bank to raise and spend the money.  While it might take more than 12 months to legislate and raise money for a state investment bank, and get regulatory clearance from the EU, the Treasury could require a sub-department to begin operating in the shadow of the intended bank immediately, assessing the likely funding decisions, modelling the outcomes etc. Meanwhile, the Infrastructure Commission should, drawing together major sectors, cities and town governments, determine the detailed plan to spend billions borrowed under new rules which allow borrowing for investment.

To the extent that a Labour – or Spanish or French left government – remained under the tutelage of the European Union, it would have to press for the reform of the Maastricht criteria or secure opt-outs from them – above all exempting borrowing to invest from the deficit limits. A US left government would, as long as it controlled Congress, face very few obstacles to enacting a major fiscal stimulus, unless China decided to use the extra borrowing to trigger a currency and debt showdown. In the medium-term, the success of such projects would be indicated by whether they began to transform blighted communities, not by the kilometres of motorway or railways upgraded. However, the major signalling job has to be done upfront. The private sector – both domestic and international – should react positively to a clear, irreversible long-term signal from government to upgrade not only the physical infrastructure but the social and environmental situations. The earlier and clearer it is given the better.

4. Change the remit of the central bank. For left governments in the Eurozone this would need a prolonged and co-ordinated struggle to reform the ECB. In Britain and the USA, much of it could happen through a letter from the finance minister. The principles of a post-neoliberal remit for, say, the Bank of England are not hard to design. They should be:

• Non-intervention in fiscal policy: then Bank of England governor Mervyn King once threatened to counteract any fiscal stimulus by the Brown government in excess of what he deemed strictly necessary to maintain inflation at around 2%. Such reasoning should be explicitly excluded, demoting the central bank from its high perch in the neoliberal hierarchy.
• A policy to promote mild inflation: under neoliberalism, because the implicit fear was of a wage take-off which never materialised, central banks like the Bank of England always put the brakes on growth and never put the brakes hard enough on recessions.
• Macroprudential regulation: i.e. spotting and preventing boom-bust cycles and the failure of systemic banks, roughly as now only with more political transparency and prejudice in favour of early intervention.

And that’s it. You would also need an industrial policy, but as I outlined in the previous essay if you want to keep a roughly multilateral and global system the industrial policy more or less writes itself: move legacy industries up the value chain, build “human capital” (i.e. skill and wage-earning potential) and keep some core industries, like steel, energy and defence manufacturing onshore and domestically owned for reasons of national security (in a deteriorating global environment).

Industrial policy and a long-term fiscal expansion would pay their dividends over five to ten years, not 90 days. But the combination of ending privatisation, empowering the workforce, borrowing to invest in infrastructure and subordinating the central bank to the national economy’s interests, not the global elite’s doctrines, are the four big pumps a left government needs to make work.

“McStrike” in Crayford, 2017. Image: War on Want, CC BY 2.0

Hard as it may be for some Corbynistas to accept, the rest is basically tactical. Whether to bring all state-owned housing back under the control of councils or to incentivise the housing associations to deliver the same result; whether to build a tidal lagoon at Swansea or a nuclear power station at Hinkley Point –  these are legitimate matters of debate inside the left, mobilising interest groups, obsessions and differing priorities. But they are secondary issues when it comes to implementing a new model, stabilising the country’s position within a fragmenting global system and giving the mass of people “skin in the game”.

The problem is, even as you revive a high-growth, high-wage, state-led economic model in northern-hemisphere countries, across the whole of the developed world the dynamics I described in ‘Postcapitalism’ are inescapable. It is these that make classic Keynesian expansion programmes unsuitable for the 21st century.

How technology alters the medium term agenda

There are four main processes triggered by information technology which, medium term, left governments have to construct responses to. They are:

• the collapsing cost of production of everything that is touched by infotech, which then disrupts the price mechanism itself (making things cheap or free);
• the delinking of work from wages, which allows leisure time and labour to bleed into one another, promoting massive under-employment and – at the bottom of the labour market – precarity;
• the emergence of new, positive, network effects, producing new use-values on an exponential scale, which are not prima-facie the property of any company or individual; and
• massive asymmetries of information, and therefore power.

As I argued in ‘Postcapitalism’, these processes fundamentally challenge the property relations on which the market system rests. In response, over the past 15 years, the following structural mutations have taken place, which a left government would need to deal with:

• The zero-marginal cost effect, which calls into being vast monopolies like Facebook, Google, IBM and Microsoft whose sole aim is to suppress price formation.
• The possibility of rapid automation, which calls forth its opposite: mass precarity and under-employment. Today we create millions of jobs which do not need to exist, just to include the low paid in the more lucrative mechanisms of exploitation, namely the credit system and social media (via the smartphone)
• Network effects, dubbed positive externalities by economists, which are captured by information monopolies, preventing the socially useful exploitation of user data except where it is useful to the monopolies.
• New information asymmetries, which market theory says should be eroded by competition, are institutionalised with copyright, IP and patents extended ad infinite by the power of global corporations, and with the mass of small investors permanently disempowered compared to the large, niche, unaccountable ones.

From this contrast between the potential of the information economy and its malformed present arises the need for a programme of transition which radical social democracy should graft onto – and indeed into – the more traditional measures outlined above. It should include:

1. Breaking up or nationalising information monopolies, like Facebook and Amazon, so that price competition can bring the cost of information goods closer to zero.

2. Subsidising a programme of rapid automation with taxpayer-funded basic services and basic incomes: transport, education to degree level, healthcare and housing should be at a basic level free and beyond that cheap.

3. Outlawing the seizure and colonisation of collective user data by the IT industry and make data a public good. Empower citizens to tweak and control the conditions under which private companies own and exploit their data, using mechanisms such as the blockchain. This is the principle behind current trials both in Barcelona and Amsterdam, and if generalised would represent a major reversal and limitation of the power of the info-monopolies.

4. Enacting a new, universal human right to information symmetry: “no decisions about me, without me”, if translated into the information sphere, would force global corporations to cease building business models on the basis of permanent asymmetry of power and information. Algorithms should be transparent, and artificial intelligence deployed only with informed consent and under strict ethical guidelines. Data privacy should be a fundamental human right, and flouting it should lead to the termination of a corporation’s licence to operate.

Though breaking up the tech monopolies costs you nothing (apart from political grief), the move to a basic income and services model, paid for out of taxation, would demand a major rebalancing of the tax system in favour of redistribution. Winning the argument for this becomes the key objective of a radical social democracy. Consequently, squandering redistributive taxation measures in pursuit of the pet social-democratic objectives should be, where possible, avoided.

Instead of relying on redistributive tax measures, a sovereign state like Britain, the USA or the Eurozone has the ability, using its central bank, currency and new borrowing, to fund the “Keynesian” half of what I propose here. The other half – the massive cheapening of goods and services required to make everyday life with low work hours – is what needs new, redistributive taxation.

“Your kids go to school, your healthcare becomes world class, your journey to work cheap and your home affordable… and Facebook, Google, Deutsche Bank and some hedge funds pay for it,” is a narrative that I think, if confidently outlined, could allow the radical left to breakthrough into government across the developed world. Especially once the ethnic-utopias of the demagogic right deliver, as expected, only tears and disappointment.

Facebook CEO Mark Zuckerberg meets members of the European Parliament. Image: European Parliament, CC BY-NC-ND 2.0

For Labour in Britain, the art of winning the next election revolves around switching off the scatter gun of progressive promises and building a tight narrative around economic transformation, wage growth and the right to free basic services. The fact that the left controls the spray gun, not the right, does not solve the essential problem RH Tawney pointed to in the 1930s: either Labour has a clear strategy or it has a shopping list written by a committee.

Tawney’s survey of Labour under George Lansbury in 1934 described Labour’s programme then as “a glittering forest of Christmas trees with presents for everyone, instead of a plan of campaign for… a pretty desperate business”.

Tawney advised Labour’s hierarchy to set out the kind of society it wanted to establish, the kind of resistance expected, and the mechanisms needed to overcome that resistance. Though Podemos and France Insoumise are equally guilty of the “forest of Christmas trees” approach, it should be said that their leaders have made no bones about the need for mass organisations focused on overcoming resistance.

***

The first half of the strategy I have proposed here draws on classic Keynesianism but goes way beyond it: it requires a revolution in thinking about the central bank; the removal of market-oriented culture across government; and the explicit adoption of a high wage and moderately pro-inflation policy that could, over time, begin to de-financialise society. And the imposition of new macroeconomic thinking in key government departments so that the likely positive effects of borrowing, spending and printing money are factored in.

The second half, though more future oriented, has fewer policy shibboleths to overcome. The art of staying in government, and delivering irreversible change, revolves around how much of this new, transitional strategy Labour (or any other left social democracy) can manage to insert into its change programme in the first five years.

Suppose it goes right. What could a radical left government expect to achieve in four or five years?

In week one and month one: survive the financial backlash and mobilise the people by giving them clear, tangible things to defend. In the first year, kickstart growth and wage growth through fiscal and monetary expansion. In years two to five, allow infrastructural investment and human capital growth take over and, if possible, produce a sustainable upswing. Meanwhile, begin the microeconomic transformation to the new kinds of business model, ownership and technology regulations that are needed to allow the move to a shorter-hours, higher welfare economy.

This is still only an outline. But it’s a clearer outline than the ones contained in any left manifesto in the past three years. The clearer and simpler the outline, the more easily it can be communicated to the managers, civil servants, trade union/community activists and entrepreneurs who will have to respond to it.

I can anticipate numerous objections – and will deal with them if people respond to this essay. But to one objection I want to be brutally honest in advance.

Is this strategy designed to allow the populations of the developed world to capture more of the growth projected over the next 5-15 years, if necessary at the cost of China, India and Brazil having to find new ways to break out of the middle income trap? Would it, in other words, flatten out and reverse the trends captured in Branko Milanovic’s famous “elephant graph” over the next two decades?

For me the answer is yes. This is a programme to save democracy, democratic institutions and values in the developed world by reversing the 30-year policy of enriching the bottom 60% and the top 1% of the world’s population.

It is a programme to deliver growth and prosperity in Wigan, Newport and Kirkcaldy – if necessary at the price of not delivering them to Shenzhen, Bombay and Dubai.

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UPDATE: after this article was published, debates on both the EU-Canada and EU-Japan deal were taken off the parliamentary agenda. It is expected that they will be brought back to parliament soon.

This Monday, MPs will be asked to debate and vote on two EU trade deals with Canada and Japan. The government will argue that this is all about stability for business and normal because we remain an EU member until the end of the transition period. We must not be fooled: tabled ten months before the transition period and in the midst of Brexit mayhem, this is a cynical move to quash debate about the democratic processes for – and the content of – the UK’s future trade deals.

Let’s start with the argument that signing on to the EU-Canada (CETA) and EU-Japan (JEFTA) trade deals sends a strong signal to business that the UK is serious about maintaining stability as it enters the transition period. In fact, the opposite is true. The government has delayed, beyond all reasonable expectations, bringing its Trade Bill back to the Commons. The Bill is extremely limited in scope, but it does seek to establish the transfer of EU trade deals into UK law. Not bringing it to parliament means that, ten months before we enter the transition period, when we are allowed to start formal trade negotiations, we still don’t have an adequate procedure in place to govern the transfer of EU trade deals into UK law. More importantly, there is no agreement from partners that they are prepared to do this without making changes to the text. There is also no indication from the UK government about the kind of trade deal it wants nor how it will incorporate expertise from business or civil society into the negotiation of those trade deals.

Is this a normal part of our ongoing EU membership? Absolutely not. For the blatantly obvious reason that we are no longer normal members. There is no requirement to rush into ratifying these deals, indeed it is likely to take other countries much longer and there is uncertainty about whether Italy will sign at all. Most importantly though, ratifying now ties us into provisions in the deal for a further twenty years, not least of which is giving companies registered in Canada the ability to sue the UK through private courts. It is hard to describe this as anything other than sheer foolishness.

There is then a significant question about why the government would seek to ratify a deal that might not come into force before we leave the EU, that we might not be able to replicate but that we would not be able to totally extricate ourselves from for a couple of decades.

There are two likely answers. First, the government can be pretty certain that the deals will be voted through, not because MPs have carefully considered their contents or implications but because the politics of Brexit overrides everything else. Remainers will likely vote for it because it looks like it keeps us close to the EU. MPs worried about seeming anti-business or anti-trade will vote for it to shore up their credentials in that area. For Labour, this means ignoring MEPs like Jude Kirton-Darling who have spent much more time considering the deal. For Conservative Brexiteers, this means reinforcing the kind of doublethink that has characterised their positions since the referendum: we want to leave the EU because we don’t like it but we like trade liberalisation so we’ll sign up to EU deals anyway.

What is of huge concern to organisations like the Trade Justice Movement, is that rushing these deals through now will allow the government to claim that MPs have no issues with the current criminally weak procedures for agreeing trade deals. These procedures allow the government total control over decisions like what partner countries we will trade with, what will be in the deals and whether or not we sign. Parliament’s role is symbolic at best and there are no structures and no real expectation that civil society should have a voice. If you’re an MP voting through CETA and JEFTA, you are in effect saying that you’re fine with that.

Finally, a vote in favour of these deals on Monday also sends a signal that MPs are happy with them as a model for future UK deals. Yet these deals lock in the privatisation of public services (because they contain something called a ‘negative list’), which means Labour can forget its proposals to renationalise the railways. They require the UK to consult with partner countries and business on any proposed regulation, shifting power away from ordinary people and politicians, and they give corporations registered in Canada and Japan the right to sue the UK if a change in our regulations negatively impacts on the profitability of their investments.

Trade deals are no longer just about the movement of goods around the world, they cover many areas of everyday life. Ratifying CETA and JEFTA will threaten our ability to decide how we run our public services and the kinds of standards we want for our food, health, labour and environment. It is beyond undemocratic to rush a vote through that will tie us in to liberalisation in these areas. Politicians need to set aside their Brexit straightjackets and reject the deals.

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In what is by now a wholly unsurprising development, the East Coast line has once again been taken into public ownership. We have been here before: the repeated inability of private firms to actually fulfil their contracts and operate the line has been a recurrent theme of the privatisation experience.

Back in 2006, when GNER defaulted on their contract and were duly stripped of the franchise, calls for nationalisation and the scrapping of the franchising system were ignored. Whilst the former chief of GNER – rather accurately – pointed out that the franchise model was bound to ‘self-destruct’, then transport secretary Douglas Alexander was busy arguing that he would have no problem whatsoever with GNER re-bidding for the franchise they had just defaulted on!

National Express subsequently took over the line – and duly defaulted less than two years later. As a 2011 Parliamentary report made clear, ‘instead of paying the government £1.4bn over seven-and-a-half years, it paid just £120m as the contract was terminated after less than two years.’ This farcically fast failure had minimal consequences for National Express: the £120m represented less than 9% of the contract value and – once again – the Department for Transport, somewhat absurdly, made it clear to National Express that their failure would not be held against them in future franchise bids.

Following National Express’ calamitous management, the East Coast line eventually found itself nationalised under the government-run Directly Operated Railways between 2009 and 2015. The result? The line subsequently returned £1bn to the national purse, requiring the lowest levels of governmental funding as a percentage of total income.

Despite these successes, it was seen fit to re-privatise the line – this time to a consortium run by Stagecoach and Virgin – in 2015. Three years later, this franchise has now collapsed: transport expert Christian Wolmar is quite right in questioning ‘the point of franchising if the risk is never with the private company, and the promised gains to the taxpayer are clearly just theoretical?’

In response to this latest franchising failure, Labour’s Shadow Chancellor John McDonnell congratulated the Conservatives for implementing the ‘first stage of Labour’s Manifesto promise to renationalise the railways’, whilst the Labour MP Jenny Chapman called on Chris Grayling – Conservative Transport Minister – to stand up in the House of Commons and say ‘My name is Chris Grayling, and I have just nationalised a rail line.’ There are clear political reasons to make these arguments: a 2017 Legatum Institute report showed 76% support for rail nationalisation, and nationalisation is a key pillar of Labour’s renewed commitment to economic democracy.

It is crucial, however, to remain cognisant of the legislative lay of the land. In 2013, my colleagues Joe Guinan and Thomas Hanna penned a piece for this site, describing privatisation as a very British disease: what better demonstration of this than the fact that, in ostensibly nationalising the East Coast, Chris Grayling has actually fobbed it off to a different private operator? Directly Operated Railways, the public body which successfully ran the nationalised East Coast line prior to 2015 – and which will operate the line now Stagecoach and Virgin’s franchise has collapsed – was itself quietly privatised (‘Future prospects for DOR’, p. 7) by the Conservative government in 2015: the operator of last resort is now a consortium of Arup Group, Ernst and Young, and SNC-Lavalin.

When measures utilised by government as recently as 2015 no longer exist, it becomes necessary to look seriously at conceptualisations of nationalisation – and the pervasive persistence of privatisation – in the British economy. There is certainly a lot of talk about nationalisation currently, much of it characterised by disingenuous assertions and wishful thinking. Chuka Umunna’s rather spurious claim that Labour nationalised Northern Rock during the financial crisis is but one recent example of this trend. A House of Commons Research paper offers a rather different take on the matter:

The government investment into the banking sector during this period (often characterised as ‘part-nationalisation’) was always intended to be temporary and the government deliberately avoided taking any operational control over the banks which received assistance. The sales of these holdings from 2010 onwards are therefore not examples of ‘privatisation’ by any normal definition.

If this divestiture is not regarded as privatisation, it logically figures that the preceding investiture cannot be regarded as nationalisation. Indeed, the statement given by then Chancellor Alastair Darling was explicit on these points: public ownership was an option of last resort, only taken due to the rather unsurprising unwillingness of the private sector to clear up the mess, with all operational decisions ‘made by the Board with no interference from the Government’.

Bailing out banks or fixing the failures of privatised rail franchises is thus far from the nationalisation we need: privatisation – as the Ridley Plan demonstrated – was always about recalibrating power. The state stepping in to pick up the pieces when privatisation collapses does little to redress these imbalances.

Past nationalisations failed for precisely these reasons: ownership of industries might have changed, but not the distribution of power. In his study of the nationalised industries, Reuben Kelf-Cohen described how:

“[T]he ‘boss’ had not gone on 1 January 1947. He was still there but behind him there were other bosses reaching all the way back to London. It was all somewhat bewildering – well put by a miner who described working for the National Coal Board as working for a ghost.”

On similar lines, Andrew Cumbers – in his excellent Reclaiming Public Ownership – cites discussions with former miners carried out by Beynon and Wainwright:

“I can remember standing at the pit with the banners, celebrating with my father and his friends. They thought, this was it. What a surprise they were going to get. They thought nationalisation would bring everything they’d fought for. But within a very short space of time they found out that they’d swapped one boss for another. The first boss we got was a major from the Indian Army, six months later followed by Captain Nicholson… Later we had a banker!”

As Labour’s accomplished Alternative Models of Ownership report made clear, the party leadership has no nostalgia for this top-down, Morrisonian model of nationalisation. Against dissenting voices – some within the Parliamentary Labour Party – it needs to be made clearer still that nationalisation is not a mere palliative for private sector collapse, but a tool to bring about a fundamental rebalancing of wealth and power.

Under the privatisation doctrine that still prevails in Britain, even the temporary successes of the nationalised East Coast Line between 2009 and 2015 cannot now be replicated: Directly Operated Railways – the operator of last resort – is now a consortium-led, indirectly contracted service.

The collapse – yet again – of a private franchise on the East Coast validates our critique of privatisation; the government response, however, is far from the kind of nationalisation we should be supporting. Privatisation by proxy – replacing Virgin and Stagecoach with EY and Arup – is not the answer. With strong support for public ownership, it is incumbent upon us to put forward models of democratic ownership – nationalisation, municipalisation, worker-led co-operatives – which can become properly entrenched in – and fundamentally rebalance – our political economy and in so doing remain impervious to attack and dismantlement.

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A review of ‘Media Amnesia: Rewriting the Economic Crisis’ by Laura Basu

Mark Blyth described it as the greatest bait and switch in history. Just a year after the financial crisis everyone was talking about the government’s deficit. Why did the media seem to effortlessly move from one story to another without apparently looking for any connection between the two? That question is at the centre of a new book by Laura Basu entitled ‘Media Amnesia’.

The book has a wide range, looking at media coverage of the Global Financial Crisis (GFC), the subsequent recession, austerity and the Eurozone crisis. The author uses her own research and that of others to examine how the different parts of the mainstream media (MSM) attempted to report and frame these events. There is increasing evidence that the media can have a profound influence on voters and therefore politicians. Although nowadays social media might get more attention, the traditional MSM remains the main source of news, and even in social media MSM brands dominate.

Although the author describes inadequacies in the coverage of the financial crisis in some detail, she herself says that these problems were as nothing compared to what happened under austerity. Furthermore in the UK what she calls hysterical coverage of rising government deficit began while the Labour government was still in power, in April 2009. Before then there had been a theme of Labour ‘overspending’ in the Tory press, and others had speculated that bank bailouts might put pressure on the public finances, but this discussion did not become centre stage until the Budget of 2009.

That Budget showed the full extent of the recession’s impact on the public finances. Budget deficits always increase during a recession, and as the recession following the global financial crisis was the largest since the Great Depression in the 1930s the deficit unsurprisingly rose more rapidly than it had done in previous recessions  In addition, the Labour government had quite rightly added to the deficit in the short term in order to apply a fiscal stimulus to the economy. Monetary policy had run out of steam with interest rates at their lower bound and Quantitative Easing a completely untried policy instrument. For all these reasons the majority of economists were reasonably relaxed about the rising deficit. It was what was required to end the recession and start a recovery.

The media told a different story. Words like ‘horrific’ and ‘frightening’ were used to describe the deficit. In part this was because George Osborne had opposed the short term stimulus and had started to focus on the deficit and linking it to Labour ‘overspending’. But this is not enough to explain why the balance obsessed broadcast media took up the same tune. In my view it had a lot to do with the decade or so before the crisis. Journalists, helped by the IFS, had got into the routine of focusing on deficit projections at each budget event, and speculating on what it meant for government spending on taxes. They did this partly because the Bank of England was taking care of the job of stabilising the economy, but also because the analogy between the government’s accounts and a household was easy to make.

The Treasury had estimated that some of the decline in UK GDP following the GFC was permanent, producing what is called a structural deficit even when the economy had fully recovered. They had persuaded Labour Chancellor Alistair Darling that some fiscal savings would be required after the short terms stimulus. When the UK Treasury and then the IFS revealed this in the April 2009 budget, the media behaved as they would have behaved before the GFC, except at greater volume because the numbers were bigger. The media amnesia came in not understanding that a consequence of the GFC was that budgets were now about helping the recovery, and the household analogy was now wildly inappropriate.

From that point on things went from bad to worse in terms of media coverage, like a tragic game of Chinese whispers. The author describes how the phrase ‘Labour’s decade of debt’, originally used by Osborne about private debt, morphed into being about public debt. The right wing press began to frame the bank bailouts as fiscal irresponsibility. As academic Mike Berry found in focus groups, 70% of respondents thought that increased public spending had caused the deficit. In reality, the structural budget deficit before the GFC was trivial compared to the impact of the GFC. Thus the media completely misinformed the public in a highly political way.

The broadcast media also began to play up how budgets had to please the markets as well as voters, giving credence to the (largely false) idea that if deficits were too high interest rates would rise. Parallels with Greece were just too easy to make, even though they were largely invalid. In my view a major problem here is that economic journalists working for broadcasters become dependent on City economists for instant ‘analysis’ of short term market moves, and City economists are naturally pro-austerity and also overstate the importance and volatility of markets. The amnesia runs deep here, relying on ‘experts’ from the institutions that had brought the economy to its knees in the GFC.

What I found extraordinary, as a macroeconomist at Oxford working on fiscal policy, was that the view of most macroeconomists was almost completely absent from the media. BBC reporters saw it as their job to reflect the opinions of politicians, and that to bring in other information (like the view of experts) would be, according to one former senior editor quoted in the book, ‘doing the opposition’s job for them’, and would therefore be a breach of impartiality. This is classic ‘shape of the earth:views differ’ stuff, and miles away from the BBC’s mission to inform and explain.

The consequence was that austerity was increasingly seen as common sense in the media, even though it the complete opposite of what every economics student around the world is taught, and was very different from how governments had behaved in previous recessions since the 1930s. As a result, we had after the GFC the slowest recovery in the UK for at least a century. What is more this media coverage led the majority of the public not only to believe austerity was necessary, but to also see imagined Labour government profligacy rather than the GFC as responsible for it. This was why just before the 2015 elections polls showed the Conservatives ahead on the economy, despite the slow recovery and an unprecedented decline in real wages. In my view this in turn led Labour politicians to shy away from attacking austerity, or even to embrace it, which was a big factor behind Jeremy Corbyn’s victory.

As the book’s title suggests, Basu does not regard this particular case of forgetting as unusual. Instead she describes how well known changes to how the media industry works, like 24 hour news and reduced resources from advertising, gives journalists just enough time to react, and little time to tell any kind of story. We have information overload with ever fewer journalists to process it. This makes them much more dependent on the PR industry and lines that come from a government’s spin doctor. Journalism becomes ‘churnalism’.

Which is a shame, because the public remember stories better than a succession of facts without context, and they want journalists to separate facts from spin. More and more journalism privileges events over process and causes. It also means that journalists become more dependent on what Stuart Hall calls primary providers, allowing these providers to frame news events. In the final part of the book the author presents an interesting discussion of how the various problems with the media identified in the book can be remedied. This book is required reading for anyone who wants to understand the key role of the media in shaping events in the UK after the GFC.

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

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

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

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

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

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

A longstanding tradition

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

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

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

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

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

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

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

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

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

Municipal socialism revisited

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

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

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

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

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

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

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

Onwards to municipal socialism!

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

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

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

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

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

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

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

***

References

Chakrabortty, A. (2018) ‘In 2011 Preston hit rock bottom. Then it took back control’, The Guardian, 31.01.2018, https://www.theguardian.com/commentisfree/2018/jan/31/preston-hit-rock-bottom-took-back-control

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

This week, Rhea Stevens and Shea Buckland-Jones from the Institute of Welsh Affairs discuss their work creating a practical plan for Wales to move to 100% renewable energy by 2035.

Watch the full video below:

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Remember when the banks created the mac daddy of economic crashes? Back in 2008, you would have had plenty of company if you thought the end was neigh for the economic model producing that crisis. You would have been mistaken. In the UK, the political consensus around this model is only now beginning to be questioned, after Brexit, the tragedy of Grenfell and the Carillion and Capital scandals. How was it maintained through a decade of crisis?

There are many factors, not least the grip of corporations on politics – power that intensified rather than receding after the 2008 financial collapse. The mainstream media have also played a major role, one that shouldn’t be underestimated. In particular, media have suffered from an acute amnesia about the causes of the crisis. As it morphed from a banking meltdown to a public debt crisis, blame shifted from greedy bankers and free market ‘casino capitalism’ onto public sectors, immigrants and people who didn’t have much money. This forgetting and misremembering helped make austerity, privatisation and corporate tax breaks seem like common sense responses to the problems. Understanding media amnesia is therefore vital if we are to find a way out of the neoliberal groundhog day in which it has trapped us. With that in mind, here are five factors causing media amnesia.

1. Media barons

It probably won’t come as a shock that British media is controlled by a handful of media barons and corporations. Three firms control 71 per cent of national newspaper circulation and five companies command 81 per cent of local newspaper titles. Rupert Murdoch’s media empire is probably the most notorious, and is currently trying to take full control of Sky plc. Social media may have led to a proliferation of voices online, but the mainstream brands still dominate the online news space. And don’t forget that the new gatekeepers to news like Google and Facebook are themselves giant corporations.

2. Political partisanship

With journalism in the hands of media barons, it is hardly surprising that the mainstream news landscape is skewed to the right. Whether proprietors intervene directly, whether they hire editors whose values reflect their own, or whether journalists censor themselves to fit in with the culture of their title, make no mistake: content will more than likely reflect the interests of proprietors. The right-wing press deliberately manufactured amnesia about the causes of the crisis to bash Labour and back the Tories, and to promote austerity, the shrinking of the social state and the passing of resources from the public to the private sector.

The liberal sections of the press may not have manufactured media amnesia deliberately, but they often reproduced it passively. Because they backed Labour or the Lib Dems during elections, they often ‘retweeted’ the narratives of these parties, especially close to election times. It wasn’t in the interests of either of these parties to dwell on the role of financialisation or corporate capitalism in causing the problems, as no party had any intention of tackling those roots causes. Labour was in a pickle. It had no choice but to take the blame for the crisis, since it had been in power for the past decade. It could either take blame for deregulating and liberalising the economy or it could take blame for overspending. Since it was planning some level of austerity anyway and wasn’t exactly chomping at the bit to take on the 1%,  Labour was unable to develop a convincing alternative narrative about the crisis.

3. The Westminster bubble

Regardless of which party their paper backs during elections, senior editors of newspapers have close professional and personal ties with politicians. The same goes for the public service broadcasters like the BBC, which are mandated to be politically impartial. They all live in the ‘Westminster bubble’, meaning that the views and narratives of politicians will shape news content. In my media study, 51% of the sources quoted in the content were politicians and other officials. As stated above, the Tory narrative about wasteful public spending was not being successfully challenged by Labour, so the media would have had to look outside the bubble for other explanations. This they often failed to do, and when they did, they turned to people who were giving out similar messages.

The second biggest group of sources in my study were financial services representatives and the fourth biggest category was business representatives (excluding financial services). Together, politicians, business and finance accounted for around 70% of all sources quoted. And so, those responsible for causing the problems were called upon to make sense of them and offer solutions. Those who might have had more accurate explanations for the crisis – for example campaigners and activists, heterodox economists, or trade unions – hardly got a look in (each accounting for less than 2.5%) . As long as the pool of sources remains confined to politicians and business representatives, the range of views will be limited and analysis will be partial.

4. News values

Media scholars have long been studying the professional values and routines that shape journalism. A major news value contributing to media amnesia is an obsession with the very latest events at the expense of historical context, explanation and process. In my sample, 49% of coverage offered no explanation whatsoever for the crisis. In the vacuum created by the absence of other explanations, the inaccurate ‘public sector profligacy’ narrative was able to become dominant. This was the key justification for austerity.

The social values of journalists might also play a role here. Although there are many kinds of journalists and media outlets, it remains the case that those with staff jobs at established media organisations come from among the elite. They might lean left or right but their interpretations of events and ideas about appropriate responses will likely not be too far removed from those of the politicians with whom they studied at university.

5. Churnalism

Journalist Nick Davies coined the term ‘churnalism’ to describe the state of journalism in the current era. Since the 1980s, media companies have been stepping up their cost-cutting and revenue-raising practices. They have done this to maximise profit in a context of both increased competition in the digital era and increased media privatisation, deregulation and conglomeration. This has put enormous pressure on journalists, who are having to fill an ever widening news hole with fewer resources. Unsurprisingly, this has had an effect on the quality of content, and has led to problems of inaccuracy, cannibalisation, and an unwillingness and lack of time to hold the powerful to account and seek out alternative viewpoints. Thus, the neoliberal era of corporate power and profit-seeking that produced the crisis is also partly responsible for its amnesiac media coverage.

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Curing media amnesia

To tackle the causes of media amnesia and develop media systems that are fit for purpose, we will first need to tackle the question of ownership. Media oligopolies should be broken up and non-corporate media should be supported. This goes for the social media giants as well as organisations producing media content. Secondly, if the current political system continues to fail to represent the interests of the majority of people, we should rethink whether politicians should get to have such influence on the media narratives we’re exposed to. Certainly, the pool of sources needs to be much broader than politicians and CEOs. Thirdly, diversity should be increased within journalism itself. Fourthly, we as news consumers should ask ourselves questions about what the purpose of news is and what we actually want from news. And finally, we need to understand that the struggle over media is part of the wider struggle over the control of resources at the heart of the 2008 crisis and the aftermath with which we are still living. We need to have a good think about how we want our societies to be organised and what role we want the media to play in them.

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It hasn’t escaped many people’s attention that, a decade after the biggest economic crash of a generation, the economic model producing that meltdown has not exactly been laid to rest. The crisis in the NHS and the Carillion and Capital scandals are testament to that. Sociologist Colin Crouch wrote a book in 2011 about the ‘strange non-death of neoliberalism’, arguing that the neoliberal model is centred on the needs of corporations and that corporate power actually intensified after the 2008 financial meltdown. This power has been maintained with the help of a robust ideology centred on free markets (though in reality markets are captured by corporations and are maintained by the state) and the superiority of the private sector over the public sector. It advocates privatisation, cuts in public spending, deregulation and tax cuts for businesses and high earners.

This ideology spread through the media from the 1980s, and the media have continued to play a key role in its persistence through a decade of political and economic turmoil since the 2008 crash. They have done this largely via an acute amnesia about the causes of the crisis, an amnesia that helped make policies like austerity, privatisation and corporate tax breaks appear as common sense responses to the problems.

This amnesia struck at dizzying speed. My research carried out at Cardiff University shows that in 2008 at the time of the banking collapse, the main explanations given for the problems were financial misconduct (‘greedy bankers’), systemic problems with the financial sector, and the faulty free-market model. These explanations were given across the media spectrum, with even the Telegraph and Sun complaining about a lack of regulation. Banking reform was advocated across the board.

Fast-forward to April 2009, barely 6 months after the announcement of a £500 billion bank bailout. A media hysteria was now raging around Britain’s deficit. While greedy bankers were still taking some of the blame, the systemic problems in finance and the problems with the free-market model had been forgotten. Instead, public profligacy had become the dominant explanation for the deficit. The timeline of the crisis was being erased and rewritten.

Correspondingly, financial and corporate regulation were forgotten. Instead, austerity became the star of the show, eclipsing all other possible solutions to the crisis. As a response to the deficit, austerity was mentioned 2.5 as many times as the next most covered policy-response option, which was raising taxes on the wealthy. Austerity was mentioned 18 times more frequently than tackling tax avoidance and evasion. Although coverage of austerity was polarized, no media outlet rejected it outright, and even the left-leaning press implicitly (and sometimes explicitly) backed ‘austerity lite’.

In 2010, the Conservative-Lib Dem government announced £99 billion in spending cuts and £29 billion in tax increases per year by 2014-15. Having made these ‘tough choices’, from 2011 the coalition wanted to focus attention away from austerity and towards growth (which was, oops, being stalled by austerity). To do this, they pursued a zealously ‘pro-business’ agenda, including privatisation, deregulation, cutting taxes for the highest earners, and cutting corporation tax in 2011, 2012, 2013, and in 2015 and 2016 under a Conservative government.

These measures were a ramped-up version of the kinds of reforms that had produced the crisis in the first place. This fact, however, was forgotten. These ‘pro-business’ moves were enthusiastically embraced by the media, far more so than austerity. Of the 5 outlets analysed (The BBC, Telegraph, Sun, Guardian and Mirror), only the Guardian rejected them more frequently than endorsing them.

The idea behind these policies is that what’s good for business is good for everyone. If businesses are handed more resources, freed from regulation and handed tax breaks, they will be encouraged to invest in the economy, creating jobs and growth. The rich are therefore ‘job creators’ and ‘wealth creators’.

This is despite the fact that these policies have an impressive fail rate. Business investment and productivity growth remain low, as corporations spend the savings not on training and innovation but on share buy-backs and shareholder dividends. According to the Financial Times, in 2014, the top 500 US companies returned 95 per cent of their profits to shareholders in dividends and buybacks. Meanwhile, inequality is spiralling and in the UK more than a million people are using food banks.

Poverty and inequality, meanwhile, attracted surprising little media attention. Of my sample of 1,133 media items, only 53 had a primary focus on living standards, poverty or inequality. This confirms other research showing a lack of media attention to these issues. Of these 53 items, the large majority were from the Guardian and Mirror. The coverage correctly identified austerity as a primary cause of these problems. However, deeper explanations were rare. Yet again, the link back to the 2008 bank meltdown wasn’t made, let alone the long-term causes of that meltdown. Not only that, the coverage failed even to identify the role of most of the policies pursued since the onset of the crisis in producing inequality – such as the bank bailouts, quantitative easing, and those ‘pro-business’ measures like corporation tax cuts and privatisation.

And so it seems we are living with a hyper-amnesia, in which it is increasingly difficult to reconstruct timelines and distinguish causes from effects. This amnesia has helped trap us in a neoliberal groundhog day. The political consensus around the free market model finally seems to be breaking. If we are to find a way out, we will need to have a lot more conversations about how to organise both our media systems and our economies.

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On 16 May Caroline Lucas MP, co-leader of the Green Party, and Anneliese Dodds, Shadow Minister for the Treasury, spoke at the launch of the Progressive Economy Forum (PEF), an organisation initiated by prominent London human rights lawyer Patrick Allen. The following day the PEF Council, which is made up of leading economists, met to initiate its project of transforming the economic narrative in Britain. As part of our commitment to policy making, Peter Dowd, Shadow Financial Secretary in the Treasury, joined us in the afternoon.

The Progressive Economy Forum will launch a new macroeconomic narrative, founded on the progressive values of equality, dynamism and sustainability. To put it succinctly, PEF seeks to dispel the myths and lies of austerity economics and replace that pernicious ideology with a progressive macroeconomic vision and narrative.

What we seek to dispel is nothing less than the ideological justification for the destruction of public services and the associated disintegration of our national sense of community. Conservative governments have implemented this destruction and disintegration through expenditure cuts whose long run purpose is the weakening of the public sector, sometimes encapsulated in the term “neoliberal agenda”.

Austerity: the Tory default Mode

Severe as it has been for the welfare of the British people, the last eight years of austerity under three Conservative governments are only the most recent manifestation of Tory assaults on public services. Since Margaret Thatcher became prime minister almost forty years ago, shrinking the public sector has been the recurrent theme across Tory governments.

Far worse than a drip, drip, drip of water torture cuts, Conservative governments have assaulted the public sector with the siege machines of constrained departmental budgets, privatisation and catastrophic reductions in local government grants. This is the sorry history of Tory governments that PEF, through its educational and outreach activities, seek to expose and discredit.

That sorry story appears in Chart 1, which shows total public spending as share of GDP over four decades (from 1980-2017). I was initially surprised that in the first three years of the Thatcher government the share of public spending in GDP rose. This unexpected rise is the “exception that proves the rule” of Conservative governments, resulting not from expenditure increases, but from austerity-driven contraction of GDP. Then Chancellor Douglas Howe consciously provoked a severe recession with the putative and punitive purpose of reducing inflation. As the economy haltingly recovered, the public sector declined. The share of public spending fell continuously for the rest of the decade, from 42.8% in 1979 in the last year of the Labour government to less than 35% in 1989 (Thatcher’s last full year in power).

By comparison, the years of the Major government were relatively benign for public spending, though it remained continuously below the 38 year average and fell after 1992.  The return of a Labour government briefly coincided with further decline, to 35% in 2000 from 37% when the Major government staggered to its unlamented end in a near electoral wipe-out. The decline at the end of the 1990s represented the reverse causality of the early 1980s. A four year above-average growth rate of 3.5% resulted in GDP expanding faster than public expenditure. During the last of the Blair years, 2000-2007, the public expenditure share in GDP rose almost continuously, to well above the period average.  In 2007 just before the global financial crash public spending relatively to GDP had returned to the four decade average of 39.7%.

In the early 1980s a policy-induced recession pushed up the spending-GDP ratio by driving down GDP. A far more severe and certainly not intended recession arrived in 2008. The collapse in GDP combined with strong countercyclical fiscal policy took public sending to 44% of GDP in 2010.  Following the reactionary tradition of Thatcher, the Cameron-led governments quickly and aggressively reversed that increase. This neo-Thatcherite assault on public spending, faithfully continued by the May government, again brought the spending share below 40%.

Chart 2 shows the clear link between squeezing public expenditure and economic growth. During the Thatcher-Major years, when the public expenditure share fell drastically and remained consistently for long term trend, the 17 year average GDP growth rate was 2.2% and negative in five of those years.

By contrast, during the 10 Blair-Brown years prior to the global crisis the spending ratio rose and GDP growth increased to an average of 3%. The seven full years of Cameron-May brought us back to the Thatcher-Major rates, even lower at 2.0%. Four decades changed neither Tory economic policy nor its outcomes – a contracting public sector and growth rates well below potential.

To quote a famous song by Frank Sinatra, Tory austerity and stagnation “go together like a horse and carriage”, and multiple conservative governments have confirmed “you can’t have one without the other”.

Exposing Austerity

Those of my generation may remember another song, this one of the 1960s and satirical, “Lilly the Pink”. The song celebrates the virtues of a miracle cure for all conceivable bodily ailments, the “medicinal compound”. However, when taken by hopeful sufferers, the consequences are disastrous – e.g. its “cure” for a stammer is to leave a person unable to speak.

It would be difficult to find a better metaphor for the austerity ideology. Thatcher, Osborne and Hammond all promised that it would repair and revive the British economy. As in the song, when urged to “drink-a-drink-a-drink” the austerity compound, the British public finds itself not cured but suffering from a collapsing health service, economic stagnation, local governments in bankruptcy and social services in tatters.

Building on the gathering public recognition that the austerity ideology is no more than snake oil, the Progressive Economy Forum provides focus for a new, positive economic narrative. It is a narrative of hope not despair, identifying the policies that can take Britain from the current austerity-induced malaise to a vibrant society managed for and by the many not the few.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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“The really fascinating battles in intellectual history tend to occur when some group or movement goes on the offensive and asserts that Something Big really doesn’t actually exist.”

So says Philip Morowski in his book ‘Never Let a Serious Crisis Go To Waste: How Neoliberalism Survived the Financial Meltdown’. As Mirowski argues, neoliberalism is a particularly fascinating case in point. Just as Thatcher asserted there was ‘no such thing as society’, it’s common to find economics commentators asserting that there is ‘no such thing as neoliberalism’ – that it’s simply a meaningless insult bandied about by the left, devoid of analytical content.

But on the list of ‘ten tell-tale signs you’re a neoliberal’, insisting that Neoliberalism Is Not A Thing must surely be number one. The latest commentator to add his voice to the chorus is Sky Economics Editor Ed Conway. On the Sky blog, he gives four reasons why Neoliberalism Is Not A Thing. Let’s look at each of them in turn:

1. It’s only used by its detractors, not by its supporters

This one is pretty easy to deal with, because it’s flat-out not true. As Mirowski documents, “the people associated with the doctrine did call themselves ‘neo-liberals’ for a brief period lasting from the 1930s to the early 1950s, but then they abruptly stopped the practice” – deciding it would serve their political project better if they claimed to be the heirs of Adam Smith than if they consciously distanced themselves from classical liberalism. Here’s just one example, from Milton Friedman in 1951:

“a new ideology… must give high priority to real and efficient limitation of the state’s ability to, in detail, intervene in the activities of the individual. At the same time, it is absolutely clear that there are positive functions allotted to the state. The doctrine that, one and off, has been called neoliberalism and that has developed, more or less simultaneously in many parts of the world… is precisely such a doctrine… But instead of the 19^th century understanding that laissez-faire is the means to achieve this goal, neoliberalism proposes that competition will lead the way”.

You might notice that as well as the word ‘neoliberalism’, this also includes the word ‘ideology’. Remember that one for later.

It’s true that the word ‘neoliberalism’ did go underground for a long time, with its proponents preferring to position their politics simply as sound economics than to admit it was a radical ideological programme. But that didn’t stop them from knowing what they stood for, or from acting collectively – through a well-funded network of think tanks and research institutes – to spread those ideas.

It’s worth noting that one of those think tanks, the Adam Smith Institute, has in the last couple of years consciously reclaimed the mantle. Affiliated intellectuals like Madsen Pirie and Sam Bowman have explicitly sought to define and defend neoliberalism. It’s no accident that this happened around the time that neoliberalism began to be seriously challenged in the UK, with the rise of Corbyn and the shock of the Brexit vote, after a post-crisis period where the status quo seemed untouchable.

2. Nobody can agree on what it means

Well, this one at least is half-true. Like literally every concept that has ever mattered, the concept of ‘neoliberalism’ is messy, it’s deeply contested, it has evolved over time and it differs in theory and practice. From the start, there has been debate within the neoliberal movement itself about how it should define itself and what its programme should be. And, yes, it’s often used lazily on the left as a generic term for anything vaguely establishment. None of this means that it is Not A Thing. This is something sociologists and historians instinctively understand, but which many economists seem to have trouble with.

Having said this, it is possible to define some generally accepted core features of neoliberalism. Essentially, it privileges markets as the best way to organise the economy and society, but unlike classical liberalism, it sees a strong role for the state in creating and maintaining these markets. Outside of this role, the state should do as little as possible, and above all it must not interfere with the ‘natural’ operation of the market. But it has always been part of the neoliberal project to take over the state and transform it for its own ends, rather than to dismantle or disable it.

Of course, there’s clearly a tension between neoliberals’ professed ideals of freedom and their need for a strong state to push through policies that often don’t have democratic consent. We see this in the actions of the Bretton Woods institutions in the era of ‘structural adjustment’, or the Troika’s behaviour towards Greece during the Eurozone crisis. We see it most starkly in Pinochet’s Chile, the original neoliberal experiment. This perhaps helps to explain the fact that neoliberalism is sometimes equated with libertarianism and the ‘small state’, while others reject this characterisation. I’ll say it again: none of this means that neoliberalism doesn’t exist.

3. Neoliberalism is just good economics

Neoliberalism may not exist, says Conway, but what do exist are “conventional economic models – the ones established by Adam Smith all those centuries ago”, and the principles they entail. That they may have been “overzealously implemented and sometimes misapplied” since the end of the Cold War is “unfortunate”, but “hardly equals an ideology”. I’m sure he’ll hate me for saying this, but Ed – this is the oldest neoliberal trick in the book.

The way Conway defines these principles (fiscal conservatism, property rights and leaving businesses to make their own decisions) is hardly a model of analytical rigour, but we’ll let that slide. Instead, let’s note that the entire reason neoliberal ideology developed was that the older classical “economic models” manifestly failed during the Great Depression of the 1930s, leading them to be replaced by Keynesian demand-management models as the dominant framework for understanding the economy.

Neoliberals had to update these models in order to restore their credibility: this is why they poured so much effort into the development of neoclassical economics and the capture of academic economics by the Chicago School. One of the great achievements of neoliberalism has been to induce such a level of collective amnesia that it’s now once again possible to claim that these tenets are simply “fundamental economic rules” handed down directly from Adam Smith on tablets of stone, unchallenged and unchallengeable in the history of economic thought.

In any case, even some people that ascribe to neoclassical economics – like Joseph Stiglitz – are well enough able to distinguish this intellectual framework from the political application of it by neoliberals. It is perfectly possible to agree with the former but not the latter.

4. Yes, ‘neoliberal’ policies have been implemented in recent decades, but this has been largely a matter of accident rather than design

Privatisation, bank deregulation, the dismantling of capital and currency controls: according to Conway, these are all developments that came about by happenstance. “Anyone who has studied economic history” will tell you they are “hardly the result of a guiding ideology.” This will no doubt be news to the large number of eminent economic historians who have documented the shift from Keynesianism to neoliberalism, from Mirowski and Daniel Stedman-Jones to Robert Skidelsky and Robert Van Horn (for a good reading list, see this bibliographic review by Will Davies.)

It would also be news to Margaret Thatcher, the woman who reportedly slammed down Hayek’s ‘Constitution of Liberty’ on the table at one of her first cabinet meetings and declared “Gentlemen, this is our programme”; and who famously said “Economics is the method; the object is to change the soul”. And it would be news to those around her who strategized for a Conservative government with carefully laid-out battleplans for dismantling the key institutions of the post-war settlement, such as the Ridley Report on privatising state-run entities.

What Conway appears to be denying here is the whole idea that policymaking takes place within a shared set of assumptions (or paradigm), that dominant paradigms tend to shift over time, and that these shifts are usually accompanied by political crises and resulting transfers of political power – making them at least partly a matter of ideology rather than simply facts.

Whether it’s even meaningful to claim that ideology-free facts exist on matters so inherently political as how to run the economy is a whole debate in the sociology of knowledge which we don’t have time to go into here, and which Ed Conway doesn’t seem to have much awareness of.

But he shows his hand when he says that utilities were privatised because “governments realised they were mostly a bit rubbish at running them”. This is a strong – and highly contentious – political claim disguised as a statement of fact – again, a classic neoliberal gambit. It’s a particularly bizarre one for an economist to make at a time when 70% of UK rail routes are owned by foreign states who won the franchises through competitive tender. Just this week, we learned that the East Coast main line is to be temporarily renationalised because Virgin and Stagecoach turned out to be, erm, a bit rubbish at running it.

***

It may be a terrible cliché, but the old adage “First they ignore you, then they laugh at you, then they fight you, then you win” seems appropriate here. Neoliberalism successfully hid in plain sight for decades, with highly ideological agendas being implemented amidst claims we lived in a post-ideological world. Now that it is coming under ideological challenge, it is all of a sudden stood naked in the middle of the room, having to explain why it’s there (to borrow a phrase from a very brilliant colleague).

There are a number of strategies neoliberals can adopt in response to this. The Adam Smith Institute response is to go on the offensive and defend it. The Theresa May response is to pay lip service to the need for systemic change whilst quietly continuing with the same old policies. Those, like Ed Conway, who persist in claiming neoliberalism doesn’t even exist, may soon find themselves left behind by history.

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The word ‘tome’ gets bandied about all-too often. But in this case, despite claims on the cover to constitute a “brief guide to global inequality and its solutions”, tome really is apt. Jason Hickel’s The Divide is as weighty physically as it is intellectually.

And yet, fortunately, it is highly readable. I say ‘fortunately’ because this is a book that if our world is to have any chance of meeting the challenges of the 21st century, people need to read. It challenges so much received wisdom via a well-argued, flowing prose that guides you through economic history, international trade, colonialism, politics and power, and the limits to growth debate. In setting out the reality of global inequality and its tangled roots, Hickel, matador-like, destroys the statistical pivots used by official agencies and unpicks their portrayal of an optimistic account of the state of global poverty and inequality.

But The Divide is not just about statistics – it is about the political economy of today’s entrenched inequalities and why the economic model currently doing so much harm to people and planet exists.

Early pages share the story of how a writer for President Truman concocted the notion of ‘development’, almost as a space filler for a Presidential speech. This anecdote shows how much of the development agenda began in what almost amounts to a spin exercise. This is a brilliantly brutal call-out that somewhat undermines the original intentions of one of the most popular and ostensibly most virtuous causes of the 20^th century, a cause that has galvanised political agreements, huge rallies, not to mention songs from well-known rock-stars.

From here Hickel challenges the implicit – arguably deliberately concocted – belief so many hold: that inequalities and the circumstances endured by the poorest are just a ‘technical’ challenge, solvable by governments in the global ‘South’ simply setting up the right institutions, picking the right suite of policies, eliminating corruption, and so on. An early knockout punch in the bastions of mainstream policy-making comes as early as page 3, where Hickel reminds us that:

“…in the year 1500, there was no appreciable difference in incomes and living standards between Europe and the rest of the world….yet their fortunes changed dramatically over the intervening centuries – not in spite of one another but because of one another.”

The chart on page 30 then summaries the crux of Hickel’s argument, showing the ‘annual gains from aid vs. selected outflows & structural costs/losses’. Spoiler alert: aid pales when compared to the multiple (and massive) flows in the opposite direction. This is one of those “if you only look at one chart this year, look at this one” charts. So much said in one diagram.

And from here the book takes the reader on a journey of the relationship between rich and poor countries. And one is left feeling it is one of the most toxic, abusive, manipulative relationships possible to imagine. Hickel forensically sets out the contours – the cuts and the bruises and the hectoring – of that relationship. And, crucially, the imbalance of power and profit inherent in it. On page 29 he writes:

“…the World Bank, for example…profits from global South debt; the Gates Foundation, which profits from an intellectual-property regime that locks life-saving medicines and essential technologies behind outlandish patent paywalls; and Bono, who profits from the tax haven system that siphons revenues out of global South countries.”

As is probably the way with any book anyone reads, there were some points where I wasn’t entirely nodding along. As someone who has spent a good chunk of my working life working for a large international NGO, I found the sweeping discussion of international NGOs and their work to be problematic. In pointing out (admittedly not unreasonably in some instances) how the communications of many NGOs entrench the ‘aid narrative’, the discussion skims over that so many of them campaign hard – and often effectively – against many dimensions of the system Hickel calls out as so insidious. Hickel does acknowledge this in an endnote, but I worry a reader who doesn’t diligently check every endnote would walk away with the impression NGOs are all working from the same mantra, one of heroic donor and grateful recipient.

This is far from the case and Hickel himself draws on evidence Oxfam collated about the extent of inequality and wealth hoarded by billionaires, something that would have been impossible if NGOs like Oxfam weren’t proactively identifying that the economic configuration is a root cause of poverty and suffering. Moreover, many solutions Hickel offers are bolstered by the work of NGOs. Jubilee 2000, for example, had huge NGO backing, as do the efforts to end tax dodging, mobilisation against inequality, and of course the fair-trade movement. Many of these feature in Hickel’s five key areas for change, areas more likely to see success with continued, and perhaps bolstered, NGO involvement.

As always, it is a matter of balance: help people survive the current system or change the system? I think there’s an urgent need for both. Helping people cope with the current challenges is vital, lifesaving work. Humanising the system is still worth it, anything else is cruel. But clearly, what is needed is also capacity and preparedness to look beyond supporting people’s immediate survival – and to call out the systemic reasons why so many people’s survival is in peril. These dual tasks may not necessarily be undertaken by the same people or even by the same organisation (and need not be covered simultaneously in the same book), but one without the other is not enough. Without the former people will die, and without the latter dying will carry on in the face of policies that should and can be changed.

So I am left hoping that Hickel’s next project might be helping craft a new lexicon, one to replace the increasingly redundant notion of development. For example, his penultimate chapter is called ‘from charity to justice’ – a nice contrast between the two fundamentally different concepts. One system preservation. One that requires system transformation.

The transformations Hickel identifies as most important in making that shift are debt resistance; global democracy; fair trade; just wages; and reclaiming the commons. These are as good a place as any to start (and others will of course have their own top five).

What’s needed to get there is mobilisation and political action, together with connecting and amplifying the work already underway (read here about the Wellbeing Economy Alliance, a new effort to do just that). This is a task that will be aided by the questions Hickel poses and the assumptions and orthodoxy he slays.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

This week, Paul Sander Jackson from Wessex Community Assets discusses how Community Land Trusts and other community led asset owning organisations are making communities more sustainable across England. 

Watch the full video below:

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This article is a response to Paul Mason’s recent essay ‘Labour must become the party of people who want to change the world, not just Britain’, in which he argues that there can no longer be any privileged position for organised labour as an agent of socialist change. This reply will respond to that question specifically, leaving aside some other aspects of Mason’s essay, and argue that the working class remains the key strategic actor for overhauling capitalism.

The post-class left

Paul Mason’s 2007 book ‘Live Working Or Die Fighting: How The Working Class Went Global’ described how advanced capitalism had globalised capitalist class relations. The process has been recent, and spectacular. An internationalised proletariat has only recently become the world’s biggest single class; there are more wage workers in South Korea now than there were in the entire world when Marx and Engels wrote the ‘Communist Manifesto’. Vast new working classes have been created in Brazil, India, Mexico, Nigeria, Bangladesh, and elsewhere. Objectively, the material potential for socialism as a politics of working-class self-emancipation, based on workers organised as workers at the site of production, exists on an unprecedented scale.

But the Paul Mason of 2018 faces in a quite different direction to the Paul Mason of 2007. He is now one of the figureheads of what might be termed a new “post-class left”, writers, commentators, and activists who no longer believe in any privileged role for the working class as an agent of socialist change.

Mason argues that: “Networked technology, combined with high levels of education and personal freedom have created a new historical subject across most countries and cultures which will supplant the industrial working class in the progressive project.” What has caused Mason to give up on the idea of the centrality of class? The proletariat, it seems, has let him down. “It persistently refused to play the role of capitalism’s gravedigger”, he complains.

Some facts appear to lend weight to Mason’s argument. While new and powerful labour movements have emerged around the world, on the whole labour is weak and on the defensive. It is certainly the case that the past generation has been characterised by defeat and decline for organised labour in Britain. The trade union movement is now half the size it was at its 1979 peak, with vastly fewer elected workplace reps and shop stewards. In 2016, strike levels were at their lowest since records began. In 2017, after a period of stagnation, trade union membership fell. Recent high-profile national disputes – my own union’s fight against the imposition of “Driver Only Operation” on the mainline railway, or university workers’ strikes against pension cuts – are very much exceptions rather than a rule.

Do those sobering and disappointing statistics speak to an objective change? Is the organised working class disappearing from the historical stage as a distinct actor? What the statistics in fact reflect is working-class defeat, not changes in the structural position of labour under capitalism. That defeat is not eternal, or insurmountable. Mason and the rest of the post-class left have extrapolated erroneous claims of objective changes from those subjective realities of those defeats. Rather than attempting to challenge and overcome them, they have assimilated them into their worldview. Mason describes what the French labour movement called “la vie ouvrière”, what has elsewhere been called the “union way of life”, as having been “vapourised”. A more accurate metaphor might be to say that it has been smashed. Not much more comforting, perhaps, but containing an implicit potential for rebuilding that Mason rejects.

The post-class left is not a new phenomenon. It is a political tradition with a long history, that reasserts itself in periods of retreat for organised labour. In 2017, Paul Mason won the inaugural Ellen Meiksins Wood Prize. Three decades previously, the Marxist theorist after whom the prize was named wrote ‘The Retreat From Class‘, a superb polemic against those careering away from the idea of working-class agency in the direction of, amongst other things, liberal “social movement” politics. The new agents to whom Wood’s targets looked greatly resemble Mason’s “networked individuals”, including in the respect of being largely non-existent as a cohesive social element with any structural power within capitalist society.

Wood described the post-class socialists’ perspective like this:

“The formation of a socialist movement is in principle independent of class, and a socialist politics can be constructed that is more or less autonomous from economic (class) conditions. This means two things in particular […] A political force can be constituted and organised on the ideological and political planes, constructed out of various ‘popular’ elements which can be bound together and motivated by purely ideological and political means, irrespective of the class connections or oppositions among them. […] The appropriate objectives of socialism are universal human goals which transcend class, rather than narrow material goals defined in terms of class interests. These objectives can be addressed, on the autonomous ideological and political planes, to various kinds of people, irrespective of their material class situations.”

Wood was prescient. She could have been describing Paul Mason in 2018 directly. His incantational listing of movements such as the Arab Spring, Occupy, Scotland and Catalonia’s independence movements, demonstrations against Orban in Hungary and more besides are precisely an attempt to conjure a new agent “out of various ‘popular’ elements which can be bound together and motivated by purely ideological and political means, irrespective of the class connections or oppositions among them.”

It might be noted that the only one of those movements to come anywhere near to achieving any of its goals, the initial Egyptian revolution at the heart of the Arab Spring, did so precisely because of the unique role played by organised labour in huge industrial combines like the Mahalla Textile Company.
What is it that Mason claims gives his “new subject” its revolutionary potential? Neither the mere condition of being “connected” (connected to what? By what means?), nor that of being “educated” (by whom? On the basis of what ideology?) imbue structural power vis-à-vis capital. As Christian Fuchs put it in his critique of Mason’s 2015 book ‘Postcapitalism: A Guide to Our Future’:

“Almost all managers, CEOs, and other members of the class of the 1% are ‘educated and connected’. They are the globalised, networked, educated, influential – and wealthy. Are the educated, connected and networked hedge fund manager and the educated, connected and networked entrepreneur, who parks and hides his wealth in tax havens, part of this subject? Definitely not! Education, networking and connectedness are not automatically politically progressive.”

Mason argues that our consumption power may give us leverage:

“We are ‘pro-sumers’ in many different ways: our fashion choices create the value of global brands. In addition, huge new corporations have adopted business models based on harvesting the positive network effects of our online behaviour.”

But what common, socially-cohesive, interests, do “pro-sumers” having their data harvested by tech corporations actually have, beyond perhaps a desire for more digital privacy? What structural power can people organised on this basis actually wield? Indeed, how can they even be organised, except perhaps as passive electoral supporters of a party that promises to represent their “values”? Maybe that is indeed Mason’s ultimate aspiration: there is more than a little evidence to suggest this may be the case. He is entitled to this view, but whatever else it is, it is not a strategy for “overhauling capitalism”.

What appears to underlie much of Mason’s wider perspective is a morass of theorisation that contends that capitalism itself has entered a new condition. Sometimes referred to as “information capitalism” and “cognitive capitalism”, the claim is that individualised cognitive labour, based on interface with digital systems, has replaced the collective production processes of “industrial” capitalism.

Certainly, information technology has changed the nature of a great deal of waged labour. But a dockworker who operates a semi-automated crane from a digital workstation is still engaged in an industrial process and in a wage relation. Combination and common organisation with other workers engaged in other aspects of that process – the workers on the ships, the workers driving the containers away from the port, the transport workers running the train networks serving the port – are still the means by which that worker, “cognitive” and technologised though their labour is, can confront their employer and affect change.

It is on that basis, of structural position within the social and economic infrastructure of capitalism, that Marxists have understood the working class as central to the socialist project. As Wood puts it:

“Revolutionary socialism has traditionally placed the working class and its struggles at the heart of social transformation and the building of socialism, not simply as an act of faith but as a conclusion based upon a comprehensive analysis of social relations and power. In the first place, this conclusion is based on the historical/materialist principle which places the relations of production at the centre of social life and regards their exploitative character as the root of social and political oppression. The proposition that the working class is potentially the revolutionary class is not some metaphysical abstraction but an extension of these materialist principles, suggesting that, given the centrality of production and exploitation in human social life, and given the particular nature of production and exploitation in capitalist society, certain other propositions follow.”

In other words, it is the position of labour in the machinery of capitalism that gives its unique power. The wage relation is capitalism’s essential core. It is in the workplace where capitalism most fundamentally “happens”. Until the answer to the question “where does value come from under capitalism?” is something other than “human labour”, organised labour will continue to have this unique potential, no matter how weak, beaten-down, or misled our organisations may be at any given moment.

For all his insistence that it must be supplanted as the agent of socialist change, Mason makes little attempt to account for what has actually happened to the working class, or where he alleges it has gone.

“The bargaining power of the individual worker is weakened by globalisation” he says, without making any attempt to substantiate this. Globalised production process and supply chains in fact provide the potential for a greatly increased bargaining power: what is lacking is a subjective element, an organisation of workers across the supply chain that can take collective and coordinated action.
In many ways, Mason’s use of the word “industrial” is misleading. The types of work traditionally associated with this word, such as mining and heavy manufacturing, have certainly declined in Britain. But firstly, that is not the case globally. Read against the backdrop of miners’ strikes in South Africa or factory workers’ revolts in China, Mason’s present thesis seems parochially Anglocentric, even on its own terms.

And secondly, it is not the “industrial working class”, or any other section or subset, that Marxists posit as the key agent of change, but simply the working class as a whole: all those live by selling their labour power, and the social collective around them. Yes, certain industries, such as transport, logistics, and telecommunications, may have more strategic significance within capitalist economic functioning than others. But it is neither the case that workers outside these strategic industries are powerless, nor that the strategic industries themselves have disappeared.

Kim Moody’s new book ‘On New Terrain‘ examines a generation of change in the American working class, and concludes that far from causing it to disappear as a strategic anti-capitalist actor, many of the changes (for example, the creation of vast logistics hubs and distribution networks) provide a renewed potential to build working-class organisation and power. Again, it is the subjective element of working-class organisation and resistance that is missing, rather than objective changes to the way in which work is structured under capitalism having rendered organised, or potentially organised, labour powerless.

At its height, the great 1984/85 miners’ strike involved less than 150,000 workers. Around 20 times that number, close to 3 million, work in the supermarket industry today. This is not a picture of a disappearing proletariat. Many of those 3 million retail workers may not have the same direct leverage in terms of the immediate strategic significance of their labour to the economy as coal miners did, but collectively, their labour is of huge strategic significance.

Imagine a union organised across the retail sector, organising shop workers, warehouse and distribution workers, and drivers. A strike by such a union would have an immense economic and social impact. Many of those workers might, according to some of Mason’s categories, also be “networked individuals”, in the sense of being connected by their common usage of various social media platforms, for example. Many are young. Many are migrants. All of these conditions and identities are important, but it is their position as workers, and their involvement in the production process and a wage relation, that fundamentally coheres them and gives them socially-transformative power.

Mason also cites “precarious work” and “a culture of individualism that would have been obnoxious even to the dockers of Limehouse fighting over halfpennies on the streets in 1889” as factors that have destroyed the working class’s power to affect socialist change. Neoliberalism has indeed had ideological and cultural impacts (the “culture of individualism” Mason refers to), but there is something of imaginary-golden-age reminiscence about his Limehouse dockers “fighting over halfpennies on the streets”. In any case, those dockers were no strangers to precarious work. Indeed, the organisation of employment on the docks were heavily based in precarious hiring practises and zero-hour contracts. Far from being a uniquely new development, “precarity” has been a feature of capitalism, since its inception.

New Unionism, and a new New Unionism?

Mason’s article makes much of the period of “New Unionism” in the 1880s, a moment of immense upheaval and recomposition for the labour movement in Britain. This is indeed a useful focus. Where was the organised working class movement prior to this period? Weak, bureaucratised, divided in conservative and exclusionary unions based on craft, and still reeling from the defeat of Chartism, the great movement for working-class democracy, a generation previously.

But, as Mason’s article and history records, organised labour revived. That revival did not happen by mere collision of historical forces but because conscious, organised actors within the working class undertook political and educational work to develop an approach that could catalyse struggles, spread them, and help them win.

Mason refers to Eleanor Marx telling a crowd in Hyde Park: “enough of strikes, fight for socialism and the eight hour day”. But this is a gross misrepresentation of Marx’s role in the period. She taught Will Thorne, a gas worker in Beckton and a key strike leader and founder of the ancestor union of today’s GMB, to read. She helped found that union’s women workers’ section, and sat on its executive committee. She spoke repeatedly at rallies for the dockers and other strikers. The role of Marx in New Unionism was absolutely not, as Mason alleges, as a carrier of “the left wing orthodoxy of the previous century”. Indeed, while Marx, Thorne, Tom Mann, and other New Unionist leaders were members of the Social Democratic Federation, Britain’s first organised Marxist group, their political activity as SDF members and their industrial organising were largely separate, and the SDF as a whole tended to take a sectarian attitude to the reviving labour movement. Their roles in New Unionism were precisely to break from orthodoxy and inertia, to find an opportunity to light a fire, and to help it spread.

The potential for labour movement renewal and recomposition today, a new New Unionism, lies precisely in the struggles of the modern analogues of the workers who made the 1880s movement: the precariously-employed, often migrant, often women, often young workers largely on the margins of the existing, bureaucratic unions, whose self-organisation and activity exploded the inertia.

Fast food workers in the Bakers’ union and cinema workers in the Bectu section of Prospect taking on multinational corporate giants in McDonald’s and Cineworld; restaurant workers in Unite; outsourced migrant cleaners in small unions like IWGB, CAIWU, and UVW, as well as in established unions like RMT, fighting for living wages and direct employment; “gig economy” workers exploding the myth that superficially atomising employment practises have robbed them of power and leverage; and politically-disparate but expanding attempts to consider how workers in the immensely strategically-significant logistics and distribution industries can organise. These are sparks that can be fanned into a conflagration if the workers within them, supported by organised socialist activists in the wider labour movement acting as the “memory of the class” and providing a repository of previous struggles, victories, and defeats, undertake the same conscious efforts that Marx, Mann, Thorne, and others took in their day.

The Corbyn surge and the return to class: how to transform the labour movement?

The immediate backdrop for Mason’s essay is the Corbyn phenomenon in the Labour Party. Still immensely febrile and in flux, this movement has seen hundreds of thousands of people, many of them young, flood into the Labour Party, inspired by a sharp break from Blairite orthodoxy on many policies. The movement has the potential to radically transform the party, making it more democratic, rooted in working-class communities, and a catalyst, supporter, and political representative of working-class social and industrial struggle.

In this sense, Mason is right to aspire to a party that is both itself a social movement and part of a wider social movement. But to overthrow or even meaningfully confront capitalism, that social movement needs deep roots in capitalism’s engine room: the workplace. A return to class on this basis can move past the psephological triangulations between the perceived wants and desires of “metropolitan”, socially-liberal workers and youth on the one hand, and those of ex-“industrial”, socially-conservative workers in the north and Midlands on the other. A democratically and politically transformed Labour Party could seek to organise, represent, and empower both groups on the basis of a shared class interest.

The Corbyn surge is yet to find a real expression in the trade union movement. Even Unison’s Dave Prentis, a notoriously bureaucratic and conservative leader, has managed to position himself as a Corbynite. What the situation requires is not a desperate casting around for a new agency, but a conscious effort to transform and revolutionise the existing labour movement.

In the first place, the young people energised by the Corbyn surge need to express that energy where they work. The US collective Labor Notes’ Troublemaker’s Handbook provides a basic manual for fighting back against the direct and immediate representative of capital in your own life: your boss. Socialists involved in the Labour Party should be seeking to adapt it for a British context, and run workshops on it through local Labour Parties and Momentum groups.

Trade union militants in Labour should be agitating for it to become the party of strikes. For the first time in generations, a genuine organic link can be made between the demands of strikes and Labour Party policy. Labour can say to striking McDonald’s workers: we are the political expression of the demands of your strike. If we are in government, we will legislate to secure your demands. And, conversely, McDonald’s workers seeking to politically bolster their industrial dispute can join and becoming active in Labour, not as passive electoral foot-soldiers but as conscious actors seeking to express their class interests on the political terrain.

Within unions, the dynamic energy of the Corbyn surge can be a force for democratic renewal, just as it has the potential to be within the party. The tradition of independent rank-and-file organisation and insurgency is largely submerged in the British labour movement, but it is one that may soon be rediscovered by, for example, University and College Union (UCU) members organising to build a counter-power in their union against a capitulatory leadership. UCU is not a Labour-affiliated union, but many of the activists leading the new rank-and-file initiative are broadly situated within the milieu of the Corbyn surge. Many of them, no doubt, would also fall into Mason’s category of “educated, young, networked people”, but like the skilled cognitive dockworker operating computer systems in a container port, it is their position as workers, and their involvement in transformative struggle within class organisations, that gives them their power.

In this way, there can be a symbiotic relationship between the radical transformation of both the political and industrial wings of the labour movement. This will be a prerequisite for consolidating and defending, even on its own moderate social-democratic terms, the Corbyn project in government. If a Corbyn-led Labour government attempts to legislate for a £10/hour universal living wage for example, and rogue employers simply refuse to cough up the increase, how else will that policy be enforced other than by those employers’ workers leveraging their own class power and striking to enforce it? That level of militancy and organisation can be achieved if socialists active in the Labour Party and the unions develop a perspective of building for it right now.

There are other voices in the Labour milieu advocating what might present itself as a “return to class”. But refocusing on class on the basis of seeking a radical transformation and renewal of the labour movement is quite distinct from the perspective advocated by, for example, the Blue Labour tendency. This ostensible return to class is in fact a form of nostalgic identity politics, with class conceived of as a category of cultural identity, often figured in deeply socially-conservative terms – see Blue Labour’s use of the slogan “faith, family, and flag” – rather than a collective social relation.

The working class has never really resembled the picture painted by both Stalinists and Blairite “authentocrats” like Stephen Kinnock, centred on an archetypal male, white, essentialised worker, in a manual industrial job, part of a “stable community”. That was not the working class of New Unionism; it is not the working class of today. Our class comprises migrant workers, women workers, LGBT workers, benefit claimants and the unemployed, and women engaged in unpaid domestic labour. A revitalised and transformed labour movement must become the organised expression of our class as a whole.

Horizons beyond electoralism

Accompanying, and informing, Mason’s retreat from class is an unacknowledged but massive contraction of his political horizons.

Despite his selective quotations from (Karl) Marx, and despite stating in the introduction to his essay that he wants to “overhaul” capitalism, he now argues that “the ultimate, and most revolutionary form of political action that can be taken amid a neoliberal system in crisis is to put a party into government committed to the positive goals and values of “educated, young, networked people”, etc.

Wood answered him in 1986:

“In the final analysis, the theoretical and political touchstone for the NTS [“New True Socialists”, Wood’s tag for the post-class left of her day] is not socialism at all, but simply electoral victory. Once we understand that the logic of their argument is an electoralist logic, once we accept that their standards of success and failure have little to do with the conditions for establishing socialism and everything to do with constructing victorious electoral alliances […] it will at least make some kind of political sense.”

This is not to dismiss the importance of electoral activity, or organisation on the political terrain. Marx and Engels’s identification of three fronts of class struggle – ideological (or theoretical), political, and economic – remains a vital frame, and the socialist movement must be actively organised and intervening on all three. Electing a Labour government and shaping, pushing, and radicalising its policies via pressure from below, including extra-parliamentary action, should be a key aim. But it is only by reconnecting with class, the structuring relationship at the core of capitalism, that this electoral horizon can be expanded into a horizon of revolutionary anti-capitalist counter-power.

Mason has retreated from class into the diminished horizons of electoralism, confecting a substitute agent for the project that is part radical-sociological woo-woo (tip: another word for “member of the ‘salariat'” is… “worker”) and part psephological fantasy. It is a defeatist recoiling from a situation of weakness, masquerading as innovation. Contrary to its own claims, it does not develop Marxist politics, but gives up on them.

Our task is to rebuild class power, not to pretend it no longer matters. The socialist project does not need to move beyond class, but return to it. This is not a matter of millennarian faith in a historical mission, but of renewing our political resolve and undertaking an act of will to help our class unlock its potential. As Hal Draper, the great writer of the unorthodox-Trotskyist American left, put it in his 1950s article ‘Why The Working Class?’:

“The socialist revolution, once observed Rosa Luxemburg, is a war in which there are necessarily a continuous series of ‘defeats’ followed by only one victory. Nothing can be guaranteed, of course, except the honor and dignity of fighting for a new and better world, rather than the vileness of adapting one’s mind and heart to a vile one.”

Young activists eager to forge from today’s febrile political moment a movement that can overhaul capitalism and replace it with socialism – radical democracy, common ownership, and social freedom – would do better to take their strategic advice from Hal Draper, Eleanor Marx, and Ellen Meiksins Wood than Paul Mason.

The Marxist project – working-class self-emancipation, and through it, the emancipation of all humanity – is as possible now as it ever was. What it requires is new activists to fight for it.

The post Why class still matters: a reply to Paul Mason appeared first on New thinking for the British economy.

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

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

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

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

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

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

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

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

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

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

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

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

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

The post Creating Britain’s first citizens’ wealth fund appeared first on New thinking for the British economy.

The case for a Universal Basic Income (UBI) has rapidly become part of mainstream political debate. The Labour Party is actively considering the policy, in the US it was revealed Hillary Clinton almost included it as a manifesto pledge. Trials have recently begun across the world, including close to home in Scotland.

The policy is again in the news as the Finnish government chose not to fund an extension to their two-year basic income trial. This led to much speculation as to what this means for the policy, leading many to argue that a basic income had fallen flat. In reality, the government simply chose not to fund an extension to what was always intended as a time limited policy experiment. But this provides a useful chance for reflection on the idea of Universal Basic Income, its aims and the debate that surrounds it.

The idea of Universal Basic Income, or Citizens Income, is superficially quite simple. A monthly payment made to every adult and/or child in the population, of equal value and with no conditions attached. No need to search for or be in work, no means testing, just a condition of citizenship.

For its proponents, UBI has several benefits. It would remove bureaucracy, and therefore cost, from the system through eliminating means testing, and protects workers in an increasingly insecure labour market. This latter point is particularly important in an age where many are concerned about the impact that automation and AI might have on our working lives, and the resultant power balances between capital and labour.

These benefits, and a perceived coalition of support from both left and right, have led many to view UBI as a potentially revolutionary policy which could bring about positive change to a welfare state battered by years of austerity and ideologically driven reforms.

However, the superficial simplicity of a Universal Basic Income belies a multiplicity of versions, and raises several questions. At what level should a UBI be paid? How does it factor in children? How will it support those with disabilities or who are out of work? Will it sit alongside or replace existing social security arrangements? And most importantly, what are the economic arrangements which govern how a UBI would be paid for?

In reality, those who advocate Universal Basic Income have varied motivations for doing so, and there are also multiple versions of what a UBI could look like in practice. For instance, there is a drastic rift between those for whom UBI is about transforming the economy and those for whom it is about papering over its cracks. This acknowledgement is often lacking from the UBI debate, but should be of primary interest.

Those who seek a radical departure from capitalism see UBI as part of a radical platform to move away from a world in which work is central to our lives, identities and economies. In their book Inventing the Future, Alex Williams and Nick Srnicek argue that UBI is a fundamental part of delivering a new economy in which citizens have much greater freedom over when and if they work.

To do this, Williams and Srnicek acknowledge that UBI “must provide a sufficient amount of income to live on” so that people can refuse employment, thereby freeing them to engage in more meaningful labour, whether paid or unpaid. This is often picked on to claim that a UBI would simply be unaffordable. There is truth in this. While Williams and Srnickek have not proposed a specific payment level, modelling conducted by IPPR shows that were a UBI paid at a high enough level to meet the Minimum Income Standard (a measure of what the public think people need for an acceptable minimum standard of living), it would cost around £1.7 trillion a year – equivalent to almost all of the UK’s GDP in 2016.

What this shows is that for UBI to be a viable proposition at these levels, there would need to be a fundamental transformation in the ownership of the economy. Williams and Srnicek acknowledge this, arguing that UBI will only work in combination with large scale and collectively owned automation, a reduction in the working week and a shift in social attitudes around the value of the ‘work ethic’.

It is this level of transformation which sets the ‘post-workists’ against many other proponents of the policy. Those who argue for a basic income from a post-work platform have little in common with the tech entrepreneurs of Silicon Valley who are funding trials of UBI in the US. For this group, the appeal of a basic income lies in its ability to offset the impacts of automation and AI, whilst their creators still accrue the benefits. Here, rather than using technology to facilitate a radical platform, UBI is a capitulation to the rise of inequality in the age of the robot and AI.

This critique has been central to the argument forwarded by left wing opponents to UBI who argue that it is an individualistic policy that accepts a status quo in which capital exploits labour. These criticisms recognise that as an indiscriminate policy UBI is blind to structural inequalities in a way the labour market isn’t. As Anna Cootes notes, UBI fails “to tackle the underlying causes of poverty, unemployment and inequality”.

That there are radically different visions for Universal Basic Income is somewhat lost in a policy debate, which often presents UBI as a catch all policy which can offer both cost-effective efficiency and radical emancipation for those on low incomes. Worryingly this tension, and the myth of a coalition of support between left and right which underpins it, might see policymakers sleep walking into a position that suits very few.

In Scotland for example, the Green Party has proposed a model of UBI which could get close to being fiscally neutral. This would see much of the existing welfare system replaced by a payment of £5,200 per year for adults and £2,600 for children, alongside significant reform the tax system. In this scenario, personal allowances would be removed and combined tax and NI rates increased for all.

Citing security in the labour market as a key reason for the policy proposal, this model has been welcomed by proponents of UBI. However, at £400 a month for adults while also removing almost all the welfare state, it is unlikely to buy much economic freedom for those on low incomes or insecure and exploitative employment contracts. In reality some would see their incomes drop. For instance, in Scotland lone parents would see their monthly earnings fall by around £300 a month.

What’s more, a model of UBI paid at this level would also have notable impacts on rates of relative poverty. Were this model introduced in the UK as a whole, it would also raise relative child poverty by 17%, placing a further 750,000 children into households who earn below 60% of the median income. This is because while it would raise the incomes of those earning the least, it would also raise incomes for all but the highest income decile, lifting the poverty line higher.

Research commissioned by the Joseph Rowntree Foundation has similarly found that UBI schemes increase relative poverty for working age adults, children and pensioners. The introduction of a UBI, according to their modelling, could see the number of children in poverty rise by up to 60%.

Increasing the incomes of those at the bottom of the distribution is imperative. This is demonstrated clearly by the rise of food banks deprivation and income crisis in the UK since 2010, which is a direct result of government policy choices. However, using a UBI to achieve this, at the expense of say increases or reforms to Universal Credit and a more generous and less conditional unemployment benefit, comes at the cost of addressing, and in fact exacerbating, relative poverty.

Action on relative poverty is important, and inequality is not cost free. As Kate Pickett and Richard Wilkinson show in their book ‘The Spirit Level’, countries with higher rates of inequality perform worse against a range of social outcomes – physical health, mental health, drug abuse, education, imprisonment, obesity, social mobility, trust and community life.

The pursuit of a fiscally neutral UBI has led to a series of proposals which, if implemented, would do little to raise the material circumstance of those in poverty nor provide sufficient additional power in the labour market. In light of this, can it be really said that such proposals meaningfully fit with a progressive, radical vision for the welfare state?

The need to act in delivering a better vision for the welfare state is clear. In 2016, 22% per cent of adults and 30% of children were living in poverty. By 2019/20 the number of children in poverty could increase by 500,000. This is driven by political choices, the consequence of welfare reform and austerity. As such, it is welcome that as a society we are discussing more ambitious plans for the collectivisation of income and wealth and how it can be best deployed to support the needs of all in society.

However, unless we are to engage in a radical economic transformation which drastically increases common ownership of economy, it is unlikely that Universal Basic Income on its own will do more than lock us into our current predicament. In the meantime, we need to look for equally radical policies which make a much more material difference to the lives of those on low incomes and who suffer from structural inequalities. Proponents of UBI need to go big or go home.

The post Want a more equal society? Universal Basic Income might not be the policy you are looking for appeared first on New thinking for the British economy.

‘Networked individuals’ have replaced the industrial working class as the key agent for overhauling capitalism in the digital age. To win power, Labour must represent their values, culture, aspirations and political priorities.

***

In the spring of 1888, a sociologist called Beatrice Potter went undercover in the East End of London to research conditions in the garment industry – publishing the findings as Pages of A Workgirl’s Diary not long after. One finding, however, proved too scandalous to publish:

“The fact that some of my workmates, young girls in no way mentally defective… could chaff each other about having babies by their fathers and brothers, was a gruesome example of the effect of debased social environment … The violation of little children was another not infrequent result…”

Potter saw the unskilled working class as helpless and degraded, incapable of rising out their ignorance and self-oppression without intervention from above. This was a consistent trope in 19th century sociology – reinforced by skilled, self-educated workers themselves as they clawed their way out of poverty and expressed scorn at those they left behind.

The popular assumption was that middle class women like Beatrice Potter had agency; the workgirls of Limehouse did not.

Within 12 months the entire assumption was blown away. In July 1888 the “match girls” famously went on strike at the Bryant & May factory; then in 1889 the dockers – whose lives Potter had described as a mixture of “bestial content and hopeless discontent” – shut down the Port of London through mass, spontaneous strike action. Then much of London joined them, led by union organisers who could quote Marx because Karl’s own daughter had been educating them.

The London Dock Strike of 1889 was not just a British event. It was part of a global moment in which the unskilled and migrant working class of the late 19th century found collective agency. Potter’s memoir of that year is entitled “How I became a socialist”, though by now she had also become Beatrice Webb.

It took 12 years from the formation of mass trade unions in 1889 to the formation of the Labour party in 1901, under the tutelage of Webb and the Fabian socialist movement she helped create. Between then and the outbreak of the war, progressive social movements hit the British establishment like a meteor shower. The Suffragette agitation and the mass strike agitation, which reached a peak in 1911-1913, had the greatest impact. But Robert Blatchford’s The Clarion newspaper and the emergence of working class voices via the new repertory theatre movement show that a wider popular radicalisation was also under way.

The London Dock Strikes. Image from the Illustrated London News of 7 September 1889. Public domain.

By 1914 nobody could dispute the facts: a labour-movement consciousness was widely and spontaneously shared by millions of working people; it was rooted in the technological and social realities of early 20th century capitalism; and it was allied to demands for wider democracy and social justice – even if it took until 1924 for the word ‘socialist’ to appear in a Labour party manifesto.

Labour’s challenge today is to repeat this process with a whole different set of people. It’s not going to be easy and, as with the Fabians, the Suffragettes and the syndicalists of the Edwardian era, it will take time.

***

Neoliberalism is the first form of capitalism since the 1830s in which capital is needed to atomise the working class instead of regimenting it. The sheer social strength of organised labour in the early 1970s, combined with the unworkability of the economic model that had allowed that strength to accumulate, required a break from paternalism and incorporation.

We live with the results. It’s not just that trade unions are weak and the old, fixed working class communities are destroyed. The bargaining power of the individual worker is weakened by globalisation, by precarious work and by a culture of individualism that would have been obnoxious even to the dockers of Limehouse fighting over halfpennies on the streets in 1889. The radical culture and lifestyle once known in France as “la vie ouvriere” (the working life) has been vapourised.

As a result, the most fundamental question facing the modern social democratic left is: who do we represent?

From 1945 until around 1989 you could say that the left’s problem in many countries was the decline in voting by class identification. After 1989 it became much more serious: the actual demographic basis of social democracy was dissolving, while the electoral base of the right – the middle class, people dependent on financial investment and the repressive state – was actually hardening up.

This demographic challenge was compounded by a political one after the 2008 crisis, when most centre-left politicians refused to see how badly the system was broken. They chose to implement austerity and to double down on support for globalisation, free market economics and the coercive imposition of competitive behaviour that required.

As a result there began a conscious switch among some – mainly white – working class voters towards authoritarian, xenophobic nationalist parties. Meanwhile the educated salariat were also drifting away, towards cosmopolitan nationalisms in places like Catalonia or Scotland; or towards Green or radical left parties, as in Spain, Greece and the Netherlands.

For the technocrats in charge of social democracy, this presented a sudden and insoluble problem. Their strategy had always been – as with Blair and Clinton – to take the manual working class vote for granted and to create an electoral alliance with the educated, urban middle class through policies differentially positive for the latter. These included support for the consumer against the “producer interest”; suppression of union rights; deference to the agenda of social liberalism; and the introduction of market mechanisms into public services, which the better educated were able to game to their advantage.

At its most effective, as the Labour peer Maurice Glasman pointed out, technocratic centrism created a community of interest between the atomized urban poor and the salaried public servants employed to police, jail and rehouse them. This was not the intention of the original Third Way, which assumed all could rise out of poverty and dependency, but one of its byproducts. Centrist politicians were happy to go with the flow. They treated the urban poor and the elderly as clients; revived social democracy as the administrator of the client state; and told the traditional manual working class of the small-towns to adapt or die. As a consolation prize, what was left of the trade union movement in the defence, aerospace and supermarket sectors could have “partnership”, albeit usually on the terms of the corporations.

Once austerity replaced fiscal expansion, the assumptions and alliances that held New Labour together fell apart.

In Britain, the problem was compounded by the unresolved national question. The tribal alliance needed to put Labour in power was never just about class. For a majority Labour government you needed the working class of the north of England, Wales and Scotland; the city-dwelling workforce of all big cities; plus some swing voters from the salariat of small towns in Southern England.

But Labour’s support for unionism during the Scottish referendum saw them punished by the section of the Scottish working class that wanted independence, losing 40 seats. Labour’s support for carbon-heavy energy policy and for nuclear weapons were some of the reasons one million people voted Green in the 2015 election. Meanwhile, the 4.3 million votes for UKIP in the European election of 2014 was another signifier that the tribal alliance was no longer possible. UKIP – and later the Tories – would feed off an unaddressed English nationalism that Gordon Brown, with his “Britishness” ideology, barely understood.

Today the facts about Labour’s support, and its membership, are clear. Its half a million members are overwhelmingly drawn from the urban salariat, with more than 112,000 in London alone. It has lost maybe a fifth of its voters – typically white, unskilled manual workers in small towns – to right wing nationalism. The 2017 election showed that, for many of them, UKIP was a gateway drug to voting Conservative. And it has lost vast numbers of elderly people.

But in turn, vast numbers of educated, young, networked people have mobilised themselves to vote Labour.

To party strategists, this problem presents itself as: “how do we win?”. The persistent ability of Theresa May’s Tory party to poll around 40%, however badly they mess up, is not about competence or charisma. Instead it reflects a new political alliance involving a section of the “old” working class who are opposed to migration, globalism and social liberalism, with a layer of middle class people who are opposed to redistribution and social justice.

We can only move forward if we can answer the deeper question: who wants to change the world, and who has the agency to do it?

***

After reporting on the 2011 revolts, and observing the similarities between the people in the streets and squares of Cairo, Athens and New York City, I became convinced that a new kind of person had emerged, which sociologists labelled the “networked individual”.

Networked technology, combined with high levels of education and personal freedom have created a new historical subject across most countries and cultures which will supplant the industrial working class in the progressive project, just as they replaced the cottage weavers and artisans of the 18th century.

An Occupy London Public Assembly at St Pauls, 16th October 2011. Image: Neil Cummings, CC BY-SA 2.0.

Orthodox Marxists are appalled by this proposal, and for good reason. If the classic proletariat, owning no substantial property and destined to spontaneously solidaristic ways of life, is not in fact destined to overthrow class society, then a key tenet of Marxism is disproved.

This, as I argued in ‘Postcapitalism’, is the inevitable conclusion we have to draw from 200+ years of working class history. The working class always wanted to go beyond the piecemeal reforms offered by parliamentary socialists like Beatrice Webb, but never – outside extreme circumstances – wanted to impose the proletarian dictatorship proposed by Marx. Nor during the rare times that workers’ council-type bodies gained power were the working class able to secure these institutions against the influence of outside parties and bureaucracies.

The actual 200 year record of the proletariat is heroic: it wanted control and cultural space within capitalism and would fight to the death for this, even against parties claiming to be communist. But it persistently refused to play the role of capitalism’s gravedigger.

However, all this is only a tragedy if you have never read the early Marx. In the so-called Paris Manuscripts of 1844, Marx argues that the ultimate goal is not communism; that humanity needs to overcome scarcity and to reconnect with its fundamentally social nature. Communism, says Marx, is only the initial form society will take once you abolish private property, but this itself is not the goal. Individual human freedom is the goal.

But since the individual human being created by mid-19th century capitalism cannot achieve it, there needs to be a collective subject to make it happen. The Marx of 1844 designated the working class the agent of human liberation because of the altruism, self-organisation and education he observed among the left wing workers of Paris.

If you see the networked individual of the early 21st century not as a degenerate offshoot from the proletariat but as an improvement on it, then it is possible to accept that Marx was wrong about the industrial working class while maintaining the belief human history has both an outcome (self-emancipation via the abolition of private property and the achievement of individual freedom) and a collective subject with the interest in achieving it.

It’s been clear since 2011 that this is the role that the networked, educated and connected people of the 21st century will have to play. Work, the working class, its culture and trade unions are not abolished, but the place of each one of these things in the progressive project has to be rethought.

What’s become clear to me since 2011 is that, just like the 19th and 20th century working class, the networked individual group will have to undergo a process of political maturity analogous to the one the British working class went through between 1889 and 1914.

***

Marx is thought to have distinguished between a class “in itself” and a class “for itself”. This too is the change that has to happen with the networked individuals.

The first concept can be summarised by the idea that “we have a common way of life, a common interest and we hate the rich”. The second concept can be pithily summarised by the words used at Jeremy Corbyn’s famous Seder celebration: “fuck capitalism!”

However, Marx’s account of working class consciousness was more complex, and the more complex version has relevance to our political tasks today.

Marx never used the term “a class in itself”. Discussing the spontaneous tendency of workers to form organisations in ‘The Poverty of Philosophy’, Marx says they become “a class against capital but not yet for itself”. This makes a lot more sense, especially in the original French, where the first condition is described as “une classe vis-à-vis capital” – i.e. both opposed to and defined in relation to capital.

What would it mean for the networked individuals to define themselves “vis-à-vis” capital today? Once you understand how 21st century capital exploits us, it’s obvious.

Today capitalism exploits us at not just at work, but through financial transactions and via consumption. We are “pro-sumers” in many different ways: our fashion choices create the value of global brands. In addition, huge new corporations have adopted business models based on harvesting the positive network effects of our online behaviour. In addition to that, as with all previous generations, capital exploits us by invading and commoditizing our ordinary human behaviour.

In its current form – overshadowed by a global debt mountain four times the size of annual GDP – this mixture of broken financial capitalism and unregulated info-capitalism relies heavily on coercion: we are coerced off disability benefits, coerced into competitive behaviour patterns, coerced away from cash as a store of value.

In addition, as long as people stick by the rules of market behaviour they are allowed to form all kinds of destructive power hierarchies – from organized crime to the culture of workplace harassment that triggered the #MeToo movement.

Harvey Weinstein. Image: Thomas Hawk, CC BY-NC 2.0.

Almost everything the networked generation has done can be interpreted within the framework of resistance and adaptation to these new forms in which capital exploits us.

The #MeToo movement is just the latest example. Consumer boycott movements against cheap labour in garment factories; the widespread sit-ins in banks and pharmacies in 2010-11 launched by UK Uncut; the Occupy movement and its political aftermath – which was the occupation of the Labour party by tens of thousands of active, educated, young networked people – can all be seen through this lens.

In the USA, Black Lives Matter was a product of the independent means of communication, access to the legal system and, above all, the emergence of a networked and educated generation who had actually studied at school and college the movements they would now emulate.

Even where issues of social oppression collide – as with the increasingly bitter “trans vs radical feminist” dispute in the English speaking left – you are dealing with two sets of network-empowered people fighting for the right to define their own oppression and set social norms to alleviate it.

When they first emerged among the tech workforces of the 1990s studied by Richard Sennett, the behaviour patterns of networked individuals seemed negative from the point of view of social justice movements. They cultivated weak ties, refused to form permanent organisations, framed all struggles in terms of the self not the collective, and seemed at home in the most alienating of modern environments – the newly gentrified inner city. The title of Sennet’s 1998 book sums up how the effects of networked technology looked then: “The Corrosion of Character”.

Since then, I think it is fair to say that this new demographic (I would not call them a class in the sense of 20th century sociology) have defined themselves fairly clearly “vis-à-vis capital”, as Marx put it.

They don’t like its effects. They fight its effects sporadically and in a framework centred on the individual. But they have no overarching concept of collective liberation, and their political project is poorly articulated. However, that too is changing.

***

When Marx used the term “a class for itself” he added that “the struggle of class against class is a political struggle”. The evidence that a social group recognizes its own interests and begins to fight for them as a positive concept comes through political action.

The Arab Spring was a political action. So was Occupy. So were the Corbyn and Sanders movements. But so also was the Yes campaign in Scotland’s big cities. So was Catalonia’s referendum on 1 October 2017. So was the camp at Gezi Park. So was the US women’s march of 21 January 2018. So was the anti-Orban demo in Hungary a few weeks ago. So is the Repeal the 8th movement in Ireland.

All over the world what appear to be the defence of “liberal” values against authoritarian, racist conservatism are in fact much more than this. They are the defence of a new concept of freedom, in the face of coercion from markets, states and kleptocratic elites.

But the ultimate, and most revolutionary form of political action that can be taken amid a neoliberal system in crisis is to put a party into government committed to the positive goals and values of this demographic group.

Above I said that the group I am talking about is not a “class” in the sense that the proletariat was from around 1820 to say 1989. But EP Thompson once made the point that the 18th century working class also had to be defined using different criteria.

Thompson taught us not to apply the concept of class that emerged alongside the 19th century workforce retrospectively onto the class struggles of the 18th century. The players then were the gentry, the monarchy, the respectable cottage artisan and the urban crowd. You could discern a class struggle within these blurred lines only by refusing to use the factory proletariat as the framework.

By the same token if my blasphemous proposal is correct, and the proletariat has been replaced as the historical subject by a more diffuse behaviourally-identified layer of people, not defined by their role in production but also by consumption, culture, attitude and ideas – then we can’t hope to describe them adequately in a framework based purely on people’s relationship to work.

***

The social explosion of 1889 didn’t happen by itself. Tom Mann, the organiser of the Dock Strike, had been an activist in the Marxist-led Social Democratic Federation, a member of the engineering union when it functioned more like a brotherhood, and worked in the USA at the time of the anarchist-inspired eight hours campaign.

But once it did happen, it posed left wing thinkers and strategists with a major question: are we going to provide this movement – mass, cultural and inchoate as it is – with a sharpened political tool or not? Are we going to leave parliamentary politics to the liberals or burst through into the power system with something of our own?

If you listen to Eleanor Marx on a soap box in Hyde Park on Mayday in 1890, she’s trying to answer the problem in the old way: enough of strikes, fight for socialism and the eight hour day, she tells the crowd.

If you listen to Beatrice Webb, however, there’s the beginnings of a new answer. Webb understood that the power of capital was too strong to be defeated and restrained by meagre things like co-operatives or garment workers’ unions. You had to enact the co-operative principle at the level of the state, she wrote.

Fabianism is often accused of belittling the agency of ordinary workers, but at its inception it was an attempt to focus that agency around achievable – and massive – political goals.

Mann himself, in the aftermath of the Dock Strike, contributes a different principle: that through self-organisation, self-improvement and the struggle for control, workers can create the beginnings of the new world through their everyday practice.

Here’s what I think that means for Labour in Britain now. As Brecht once wrote: those who will change the world are the people who don’t like it. Right now, what these people don’t like about it is, in no particular order:

• the coercive and invasive nature of markets;
• the unfairness and rising inequality;
• the lawlessness and tax evasion of the rich;
• the perennial resort of elites to wars of aggression;
• the persistence of racism, sexism and homophobia in a world where they’re supposed to have disappeared;
• the return of fascism, xenophobia and ethnic nationalism;
• the unaccountability of elites; and
• the precariousness and often pointlessness of work.

As they move from simply resisting these impacts of capital to a more political goal, the Labour party has to be the tent in which they gather. There has to be room in the tent for the modern Tom Mann, who wants to build the new society from below through defiant practice. There has to be room for the modern-day Eleanor Marx, who can’t forget the left wing orthodoxy of the previous century. And there needs to be a Beatrice Webb, to tie it all together into a long-term strategy at the level of the state.

Once you conceive Labour’s strategic task as representing and empowering networked individuals who want to change the world, the tactical problems don’t go away, but they can be placed in the right framework.

Labour has to represent the networked individual: their values, culture, aspirations and political priorities. Insofar as these things are represented by other parties – as in young urban Scotland or in Green voting parts of Bristol and Brighton – it must expect, and live with, the fact of other progressive parties.

Labour’s programme cannot be a mishmash of last-century demands with a few deferential nods to the agenda of the networked, precarious, individually-minded people who form the core of its support base and membership.

The radical thinking that has begun under Corbyn and McDonnell – the exploration of new forms of ownership, new business models, commitments to co-operatives and consideration of the basic income idea – has to gain pace and deepen. It took the Labour party from 1901 until 1924 to stop issuing manifestos that were simply appeals for more democracy and demands for higher wages and welfare benefits. We don’t have that long in which to overhaul the programme, culture and strategy of British social democracy in a radical direction.

Right now, the attention of many Labour activists and pro-Corbyn MPs is being sapped by the tawdry rearguard action of a few Blairite die-hards who seem determined to form a new party after they have trashed the reputation of the old one. When the break with them comes – and all the signals are there that it is coming – the danger is that it will empower “old-think” inside Labour. People will run towards comfort blanket of Keynesian state management, welfarism and corporate nationalisations.

Instead we need a new, expansive radicalism that enables everybody who wants to resist capitalism’s invasion of the self – via markets, coercion, authoritarianism, xenophobia and illiberalism – to identify Labour as the tool they will use to change the world.

That means, in turn, a Labour party that is both more like a social movement and part of a wider collection of social movements. It is to that organizational question I will turn to in a future essay.

The post Labour must become the party of people who want to change the world, not just Britain appeared first on New thinking for the British economy.

Back in February I found myself in the unusual position of being attacked in an editorial published by The Times. In a piece setting out the paper’s position on the land reform agenda in Scotland, I was named and shamed as the author of a “disturbing document” which “blithely ignores the rights of private owners and the laws that protect them”.

The document in question is a discussion paper that was commissioned by the Scottish Land Commission. In the paper (which is available here), I outlined how a broken land market lies at the root of the housing crisis, drawing on a recent book I co-authored on the subject.

The problem with the paper, according to the editorial, is that it “urges the compulsory purchase of land”.

Even if that was the case, it shouldn’t be controversial. In virtually every developed country on earth it is recognised that there are circumstances where individual property rights become secondary to the wider public interest, which is why compulsory purchase powers exist. In Britain these powers emerged in the nineteenth century to prevent individual landowners from blocking the construction of new railways. Without these powers, landowners could hold society to ransom by refusing to sell land for critical infrastructure and development projects.

But that’s not what the paper was about. Instead, the paper proposed reforms to enable what is often referred to as ‘land value capture’. The basic premise of land value capture is that in modern economies, especially in urban environments, the value of a piece of land depends on what can legally be built on it, and the infrastructure and amenities in the surrounding area. The granting of planning permission, or the creation of new transport links or other infrastructure, typically brings about a large increase in the locational value of the land.

The question of who should capture this uplift in land value has been at the centre of land reform debate for centuries. In many countries, the planning system or compulsory purchase laws enable the uplift generated by planning and collective development to be captured by the state – effectively enabling the costs of development to be recouped. This was also historically the case in the UK, and it was this self-financing model that delivered the New Towns.

There is a strong moral case for this: the uplift in the value of land does not reflect the efforts of landowners (who don’t lift a finger), but that of the state and the wider community who grant planning permission and develop the surrounding infrastructure and amenities. It also makes economic sense: there is solid evidence from around the world that capturing land values is an efficient way of funding new housing and infrastructure.

The early classical economists such as Adam Smith and John Stuart Mill objected to the ability of landowners to make windfall gains at the expense of wider society. They considered returns earned from the ownership of land to be unjust and inefficient – referring to these windfalls as ‘economic rent’.

However, under current legislation public authorities across the UK are prevented from adopting this method of land value capture. Legislation introduced in the 1960s, notably the Land Compensation Act of 1961 (1963 in Scotland) reinstated the principle that landowners are entitled to ‘hope value’ on any land compulsorily purchased. In practice, this means that where public authorities wish to purchase land for development, landowners must be compensated not on the basis of what the land is actually worth at the time, but on the basis of what it one day might be worth if it was granted planning permission.

Because the difference between existing use value (i.e. agricultural value) and ‘hope value’ is usually dramatic, these changes significantly increased the cost of land for development, and ended the ability of public authorities to acquire land cheaply for new housing. In other words, the changes meant that the benefits from rising land values would flow to landowners rather than the general public.

Since land acquisition is usually the largest single cost of housebuilding, this system has created a significant obstacle to building genuinely affordable housing. It has also created incentives for speculators to buy land and hold onto it as a financial asset rather than develop it.

In my paper I proposed that the law should be changed so that public authorities, rather than just the landowner, are able to capture some of the uplift in the value of land that results from collective development, unlocking significant funds for development without having to raise taxes. As I’ll return to below, I am far from the first person to propose this.

The mechanism for doing this involves making changes to the Land Compensation Act so that assessments of market value for compensation purposes do not include prospective planning permissions for land acquired for housing and infrastructure. Although this relates to compulsory purchase orders (CPOs), it does necessarily mean that more land will end up being bought compulsorily. Evidence from the UK’s own past, and from other countries, shows that the very existence of strong compulsory purchase powers can be enough to shift the balance of incentives in the operation of the land market. In the knowledge that the land could be purchased by the state at near use value, landowners would be incentivised to sell land for development at a low but fair price. Speculation and land banking would become much less attractive.

But this crucial point was lost on The Times, who presumably saw the words “compulsory purchase” and robotically deployed the usual tropes around state coercion and erosion of property rights which, as I have written about previously, aren’t coherent anyway.

But should we really be surprised by this? After all, the right wing media has consistently resisted the land reform agenda in Scotland – occassionaly resorting to hysterical headlines involving comparisons between the Scottish Government and Robert Mugabe’s Zimbabwe.

But here is the irony: The Times and the rest of the right wing press are now spectacularly out of touch with political reality – not just in Scotland but across the UK. Thanks to years of campaigning by organisations such as Shelter to Civitas, there is now cross-party political consensus on the issue of land value capture. The Conservatives quietly included proposals to reform compensation laws in their 2017 general election manifesto, and Labour recently committed to similar reforms in its new housing green paper. Politics has moved on, but the press is still stuck in the past.

Then last week I came across a new article titled ‘Rewriting a 1960s law would take us past the annual target of new homes — without spending £44bn’. Funnily enough, the article was published in The Times.

The article refers to the “growing consensus” that the land market is “quite literally, the underlying cause of our housing crisis.” It then identifies the legislation that lies at the root of the problem:

“The market takes its cue from the Land Compensation Act 1961: public bodies that force owners to sell land for development must pay prices that assume planning permission would be granted. Yet before 1961, councils had powers to buy at “existing use value”. When Milton Keynes was built, the land was bought at just 1% of the final value of a house at the time.”

The article ends by offering a solution to fix the problem. Referring to a recent study by the Centre for Progressive Policy the article explains that:

“If we fixed the land market, councils could buy plots at low agricultural or industrial values. They could give planning consent, borrow against the higher value to build infrastructure, then sell ready plots to developers, as well as small and self-builders.”

If this sounds familiar, it’s because it’s literally the exact same as what was proposed in my paper, which The Times said “blithely ignores the rights of private owners”. In fact, the author of the study cited in the article is Thomas Aubrey, whose excellent work I also referenced extensively in my paper.

I’m glad that The Times eventually decided to give land value capture a fair hearing within its pages. It’s just a shame they didn’t extent that courtesy to me.

But as the saying goes: first they ignore you, then they laugh at you, then they fight you, then…. Well, we all know what comes next.

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

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

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

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

1. Stronger universal entitlements

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

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

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

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

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

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

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

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

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

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

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

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

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

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

3. New ways of investing: looking under the bonnet

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

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

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

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

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

Towards a democratic future for pensions

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

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

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“The test of science is its ability to predict”
— Richard Feynman

As if governed by some deterministic law, the current debates between economists and critics follow a predictable path. Critics begin by mentioning the failure of economists to predict or warn of the crisis. Howard Reed for example recently wrote in Prospect that ‘When the great crash hit a decade ago, the public realised that the economics profession was clueless.’

Thus provoked, economists then reply by pointing out that macroeconomic forecasting is only a small part of what economists do, that their models are based on mathematics and logical consistency, and that it is critics who don’t know what they are talking about – as in the riposte by Diane Coyle, which describes Reed’s piece as ‘lamentable’, a ‘caricature’ and an ‘ill-informed diatribe’ that furthermore ignores existing guidelines on what criticism is ‘good’ and ‘bad’ (the former includes ‘The criticism is by an economist’ which doesn’t seem in the multidisciplinary spirit, and would rule out this piece since I am an applied mathematician).

In a similar debate last year in Times Higher Education, Steve Keen wrote that the global financial crisis caught ‘leading economists and policy bodies completely by surprise. A decade later, economics is a divided and lost discipline.’ Christopher Auld responded that ‘Criticism of economics that relegates the field to … failed “weather” forecasting is not just misguided, it is anti-intellectual and dangerous.’

Over in the Guardian, Larry Elliott wrote that ‘Neoclassical economics has become an unquestioned belief system and treats those challenging the creed as dangerous’. A group of economists from the Institute for Fiscal Studies (IFS) appeared to confirm the latter when they called the article ‘dangerous’ and ‘ill-informed expert bashing … Like most economists, we do not try to forecast the date of the next financial crisis, or any other such event. We are not astrologers, nor priests to the market gods. We analyse data.’

The usual excuse offered for failing to predict the crisis, as Robert Lucas put it in 2009, is that ‘simulations were not presented as assurance that no crisis would occur, but as a forecast of what could be expected conditional on a crisis not occurring.’ That is like a weather forecaster saying their forecast was explicitly based on no storms. (The claim here reflects the efficient market-related idea that changes are caused by random external shocks.) Another is that no one else predicted it either – though a number of heterodox economists and others would beg to disagree.

But for both sides, the debate soon veers from discussing the crisis, to the topic of politics, with critics saying that economic models have been exploited by the right, while mainstream economists claim that in fact they are terribly progressive.

I would argue though that the debate isn’t really about politics, and less so about what most economists do with their time (the oft-advertised fact that economists apply their models to many things other than macroeconomic forecasting isn’t necessarily reassuring to a critic). Instead it is one of scientific legitimacy, and it as old as the word ‘forecast’.

Forecast

The argument between orthodox economists and their critics resembles one that occurred in weather forecasting in the mid-nineteenth century, with the establishment of the UK Meteorology Office in 1854 by Admiral Robert FitzRoy.

As captain of the Beagle, FitzRoy had taken Charles Darwin on the trip around the world that sparked Darwin’s theory of evolution. Seeing the potential that weather forecasting had to save lives by warning mariners of storms, he set up a network of 40 weather stations around the UK, with weather reports published in London newspapers.

However FitzRoy’s efforts were not well received, either by the public or the scientific establishment. At the time, weather prediction was something practised by astrologers, and the popular press enjoyed themselves comparing the Met. Office’s inaccurate predictions with those from sources such as ‘Zadkiel’s Almanac’. The mainstream scientists saw this prediction contest as a threat to their reputation, just as economists do today.

FitzRoy tried to blunt the comparison with astrology by avoiding use of loaded words such as ‘prediction’, and instead invented a new word of his own: forecast. ‘Prophecies or predictions they are not; the term forecast is strictly applicable to such an opinion as is the result of a scientific combination and calculation.’ In 1863, he published The Weather Book, which tried to make the weather comprehensible to people of average education. However the attempt to popularise the subject only further annoyed elitist scientific institutions like the Royal Society.

Two years later, FitzRoy took his own life at the age of 59. He may have been affected by his association with Darwin’s theory of evolution, which, as a creationist, he considered blasphemous. However it appears that the primary cause of his depression was being caught between the so-called astro-meteorologists on the one side and the scientific establishment on the other.

After his death, a committee chaired by Darwin’s cousin, Sir Francis Galton, released a report which claimed that his forecasts were ‘wanting in all elements necessary to inspire confidence’ and storm warnings were suspended. However FitzRoy was not without supporters; fishermen, maritime insurers, and the Navy had actually found the warnings useful, and they were reinstated in 1867. And today of course we rarely head out on a trip without checking the forecast.

Deniers

Now, one might think that astrology and creationism would have little to do with a debate over the scientific legitimacy of modern economic forecasting, but it seems that not much has changed. Indeed, in recent years – when most people have found economic forecasts ‘wanting in all elements necessary to inspire confidence’ – economists have been as anxious to draw distinctions between what they see as science and non-science as FitzRoy once was.

Diane Coyle for example writes that Reed’s piece conforms to a list of ‘bad’ criticisms helpfully compiled by Auld, which begins: ‘Every mainstream science which touches on political or religious ideology attracts more than its fair share of deniers: the anti-vaccine crowd v mainstream medicine, GMO fearmongers v geneticists, creationists v biologists, global warming deniers v climatologists. Economics is no different.’ Economist Pieter Gautier similarly explained the existence of heterodox approaches by saying that ‘You also see this happening in the other sciences; in biology you have intelligent design, in climate science you have the climate skeptics.’ Pontus Rendahl told the Financial Times in 2016 that calling for more pluralism in economics is ‘the same argument as the creationists in the US who say that natural selection is just a theory,’ while Michael Ben-Gad said that student groups want to be ‘liberated from neoclassical economics’ dogmatic insistence on internal logic, mathematical rigour and quantification … Still, we do not teach astrology or creationism in our universities, though some students might enjoy them more than physics.’ According to Simon Wren-Lewis, the problem with pluralism is ‘obvious once you make the comparison to medicine. Don’t like the idea of vaccination? Pick an expert from the anti-vaccination medical school.’ Or as the IFS economists put it, ‘We are not astrologers’.

Just as Robert FitzRoy had to defend the Met. Office against astrologers (though not creationists, since he was one), so economists are in a battle for what counts as science – which as Feynman noted has always been associated with the ability to predict. The difference is that, while FitzRoy was distancing himself from actual astrologers, mainstream economists tar a broad range of critics as ‘ill-informed’ and ‘dangerous’ deniers, regardless of their background or experience, in what looks like a kind of Hegelian ‘othering’.

Reality check

However, the issue is not ‘political or religious ideology’, it’s science. Predictions are obviously an important part of the scientific method, and when predictions do go badly wrong, it should serve as a reality check. While providing storm warnings is far from being the only job of economists (and expectations are much lower than in something like meteorology), it is surely one of the most important, which is why central banks for example devote considerable resources to it. And reflexively stamping critics and heterodox economists as anti-scientific deniers doesn’t seem very scientific – especially when some of them actually seem to be better at the prediction stuff.

Of course, as I point out in my forthcoming book Quantum Economics, economics should not be compared directly with weather forecasting. For one thing, the fact that economists’ predictions and models affect the economy (the financial crisis of 2008 for example was in part caused by faulty economic risk models) means that their responsibility is more like that of engineers or doctors. Instead of predicting exactly when the system will crash (no one has ever asked for a precise ‘date’), they should warn of risks, incorporate design features to help avoid failure, know how to address problems when they occur, and be alert for conflicts of interest and ethical violations. The profession’s failings in these areas, rather than any particular forecast, are the real reason so many are calling for a genuinely new paradigm in economics, as opposed to a rehashed version of the old one.

In the meantime, perhaps economists should just follow FitzRoy’s lead and invent a new word for their predictions. Econo-prognostications?

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Last week, much of the economic and business community were left scratching their heads. Billy Bragg – renowned songwriter, musician and campaigner – was delivering his debut lecture at the Bank of England.

The topic of his speech? UK monetary policy, of course.

One of Bragg’s arguments – that quantitative easing (QE) should have been “directed to schools, to hospitals and to a national investment bank” – has been hastily brandished as ‘misguided and dangerous’ by some commentators.

It’s true that Bragg’s case was not articulated in the language of mainstream economics or orthodox policy making. But might his fundamental point have been right nonetheless?

In the latest policy paper for the IPPR Commission on Economic Justice, ‘Just about managing demand’, I argue that it is.

The basic argument goes like this. Since the global financial crisis, policymakers in control of the UK’s two main macroeconomic policy levers have essentially been engaged in a tug of war – pulling simultaneously in opposing directions.

On the one hand, the Bank of England has been testing the limits of monetary policy to get people to increase spending. UK monetary policy has essentially been set to ‘recession mode’ for the best part of a decade – with record low interest rates and vast sums of money pumped into the experimental policy of QE.

On the other hand, governmental fiscal policy has seemingly been set as if to dampen a non-existent economic boom, by deliberately drawing demand out of the economy in the policy generally known as ‘austerity’. In the effort to cut the budget deficit and overall national debt, government spending and borrowing has been cut back by more than 7 per cent of GDP since 2010.

To have the two major macroeconomic policy instruments working in direct opposition to one another for such a prolonged period represents a structural weakness in the way the UK manages its economy.

In fact, there are two structural weaknesses.

First, conventional monetary policy loses its effectiveness when interest rates are very low. Nominal interest rates have an ‘effective lower bound’, a minimum beyond which further reductions have little or no positive effect on spending in the economy – and interest rates in the UK have been at this lower bound for the past eight years.

Second, politicians do not in fact always act as policy makers and academics thought they would. A key assumption underpinning the Bank of England’s independence in 1997 was that governments tend towards overspending – they exhibit what’s known as ‘deficit bias’. But since 2010, governments in the UK have in fact done the opposite, favouring excessive underspending, or ‘surplus bias’.

Neither of these problems would be insuperable on their own.  But taken together, they have left macroeconomic policy dangerously ill-equipped to tackle the next recession.

The costs are non-trivial. The government’s Office for Budget Responsibility estimates that the isolated impact of government cuts was to suppress the level of GDP by around 4.5% in 2017/18 alone. That’s more than £1,400 per person.

This is only assumed away if monetary policy is thought to be working properly. But at the lower bound of interest rates we know that it isn’t. Eight years of painfully slow growth – by both international standards and the UK’s own historical record – shows how ineffective policy has been.

Since 2009, the attempted solution to unstick this policy gridlock has been QE. QE represents an attempt to get around the lower bound by creating new money out of nothing, which is then invested in financial markets to reduce interest rates on debt – thereby simulating some of the effect that would have been achieved by an interest cut in the first place.

But as even the chief economist of the Bank of England has conceded, the effects of QE are inherently uncertain and unreliable. QE has also contributed directly to growing wealth inequality, with research at the Bank of England estimating that the isolated effects of the policy have increased stocks of wealth for the richest 10% of households by tens of thousands of pounds compared with the poorest 10%. This has happened with little democratic or public accountability.

As the economist Simon Wren-Lewis has argued, monetary policy makers should regard QE just as the medical profession would regard a new drug where the correct dosage is inherently unknowable, but the side effects are powerful and dangerous. Every possible effort should be made to find a better alternative.

On average, the UK experiences a recession every 10 to 15 years. Now, almost 10 years on from the last crisis – and partly because an effective alternative to QE has not been found – the UK finds itself dangerously unprepared to combat the next downturn.

New fiscal rules, which encourage increased flexibility and investment during recessions, would help. So too would new monetary policy targets. If the Bank of England could be guided by the level of unemployment or nominal GDP as well as the existing inflation target, this would help interest rates rise above the lower bound more sustainably during recoveries.

But neither of these will be sufficient if, when the next recession hits, the UK finds itself with ultra-low interest rates and a surplus biased government, as it does today.

What is needed is a way of getting around the lower bound of interest rates in a way that is both more effective, less regressive (in a redistributive sense) and more democratically accountable than QE – but at the same time shielded from government surplus bias.

Part of the answer borrows from long standing recommendations of other organisations such as the New Economics Foundation. The first step is the creation of a National Investment Bank (NIB), independent of government but mandated to support its industrial strategy and societal ‘missions’. Such a Bank could use a mixture of public and private finance to ‘crowd-in’ further private investment in business growth, innovation, housing and social and physical infrastructure.

But the creation of such a public investment bank would also allow for a further structural innovation in the UK’s macroeconomic framework: the provision for the Bank of England to ‘delegate’ a stimulus to the NIB in the form of increased lending to new and existing projects, when interest rates are at their lower bound.

The Bank of England could calculate the value of a ‘missing’ stimulus, perhaps in terms of the size of an interest rate cut that would otherwise have taken place (such as has been argued by economists such as Tony Yates), and then ask the NIB to deliver all or part of an equivalent stimulus through increased lending.

European law prevents the Bank of England from creating new money to fund a public corporation like the NIB directly, and in any case the NIB would normally be able to fund any delegated stimulus itself by raising capital from private markets (just as similar state investment banks from Germany to Brazil already do today).

But as a backstop to ensure that any required stimulus could always be funded independently from government, the Bank of England could also choose to buy up the NIB’s corporate debts from other financial actors – just as it does through existing QE programmes.

In effect, this would follow a very similar financing mechanism to QE, only the Bank of England would know exactly where the stimulus had gone and how it was benefiting the non-financial economy.

This mechanism would also be preferable to QE on democratic grounds. The Bank of England would be able to determine the size and timing of a stimulus independently from politicians, but the investment targets and public ‘missions’ will have already been specified by elected government.

So was Billy Bragg right after all? Time may still tell. Bragg may not want to change the world, or indeed be looking for a New England – but in his own way, he may yet help the UK prepare itself for the next recession.

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

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

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

Watch the full video below:

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In his excellent book ‘Economics Rules’, Dani Rodrik outlined what he saw as “the rights and wrongs of the dismal science”. One of his key refrains was that the problem was “economists, not economics”: that is, some economists mistook their models for the real world and applied them inappropriately, abusing a potentially useful set of tools. All too often the consequence was ideology masquerading as science, resulting in economic failures such as quantity-targeting monetarism in the 1980s; the 1990s Russian privatisation; and recently the 2008 financial crisis. According to Rodrik, good economics is about making sure you have picked the right model for the right job, basing your decision on sound theory and evidence. Any economist worth their salt should be pragmatic, not dogmatic.

Rodrik is not wrong that there are some economists who are prone to misusing their models, in some cases to an alarming degree. Neither is he wrong about what good economics should entail: intellectual flexibility and a grasp of a wide range of tools for understanding the economy. Despite this, I cannot agree with the general idea that the framework of economics is not the problem with the discipline, and that if this framework were only taught and practiced better many of the discipline’s problems would be overcome. In fact, I believe modern economics is characterised by the exact opposite problem: reliance on a single framework is hamstringing the research of capable, conscientious and (to a degree) critical economists. In other words, the problem is economics, not economists.

The bad economics Rodrik highlights should be resisted for sure, but it largely a vestige of the past and does not represent the current direction of the discipline. This is what causes researchers who better represent contemporary economics to become exasperated in response to the myriad of articles criticising the discipline as if it consists solely of free-market ideologues who cling to models of perfect markets. Two Manchester colleagues of mine, Rachel Griffiths and Diane Coyle, have been involved in this debate recently, and the hashtag #whateconomistsreallydo illustrates the frustration and perplexity many of these researchers share at criticisms of the discipline.

In a recent article for Prospect Magazine, Coyle counters a critique by Howard Reed by rattling off several contemporary examples where she believes economists are doing relevant, empirical work that has nothing to do with incubating financial crashes. Among these are papers looking at the benefits of railroads in 19^th century India; the effect of modern technological change on jobs; and the effect of sugar taxes on obesity rates in the UK. These examples should be enough to convince people that a lot of modern economic research is going in the right direction.

But in my opinion the issue is not so much what economists do as how they do it. Critical thinking exists within the discipline but this criticism remains solely within the bounds of the mainstream. For a long time now ‘economics’ has been synonymous with a specific methodology, the use of which is considered interesting in itself regardless of whether it uncovers anything new.

Relevant, interesting – and unnecessary

At the Royal Economic Society (RES) conference this year, Botond Koszegi gave one of the keynote lectures, ‘A Pro-Market Case for Regulation’. Koszegi is a prominent researcher in prospect theory – which happens to be where my research interests lie – and along with his co-author Matthew Rabin is a likely candidate for a future Nobel Prize. The nub of his presentation was a model in which consumers, due to cognitive limitations, were unable to fully examine every single product they purchased. The result was that regulations guaranteeing a certain standard of safety, quality and the like could improve competition by giving people more time to shop around instead of having to devote so much time to investigate specific products. Thus, regulation would improve markets and competition.

I cannot fault Koszegi’s presentation, which was lucid and engaging. I also cannot fault his technical skills, which certainly surpass mine (a low bar, admittedly). I cannot fault the subject matter of his presentation, which was relevant and interesting. Nor can I fault the certain kind of creativity required to put these insights into an economic model. But then, that’s just it: to get an audience among economists, these insights had to be put into an economic model. Incorporating ideas into these frameworks is a necessary condition for their acceptance, something which stifles the production of knowledge.

Like them or not, the points highlighted by Koszegi were not especially novel. Koszegi himself argued that his framework rationalised existing policy by UK, EU and US regulators, rather than proposing a bold new direction. A quick search uncovered a 2011 UK government document on regulation – produced a good while before Koszegi’s research – which stated that “If consumers do not have sufficient information, or find it difficult to make informed decisions, firms face less competitive pressure”. Institutional economists such as Jamie Galbraith have claimed for a long time that markets function best when “the product is what it claims to be, and that it will function as it is supposed to do. This is what a strong system of regulation provides”. Clearly, we did not need a complicated theoretical model to make this point.

The dynamic of using standard economic methods to say something which is in some sense already known is quite common. One largely glowing article about last year’s RES conference published in the Independent came close to realising this when it said that “there is one [paper] that shows that married women are tidier than married men and do more housework after they get married. I think many people will be unsurprised by that, but it is good to have it established.” I can’t help but feel that this point was “established” long before economists turned their gaze toward it, and despair at the wasted intellectual capital from “establishing” it when there are far more pressing questions in the world.

As the old saying goes, “if you have a hammer, everything looks like a nail”. Economists have two main hammers: choice models and variants thereof form the basis of most theoretical models (I include behavioural economics in this, which still uses the utility maximising framework). Linear regression is economists’ preferred empirical technique (again, commonly used variants such as panel methods or instrumental variables are still fundamentally linear). Research incentives typically mean adhering to at least one of these two techniques, despite the plethora of other techniques available. The aforementioned ‘institutional’ school of economics might prefer a theoretical lens which looks at social and legal structures over individual choice, and an empirical method which focuses on qualitative details over statistical techniques. This is just one of the many alternative methods available to economists.

Mainstream economic papers often deal with what seem like exciting questions, but give ultimately disappointing answers because they follow the same old methods. I cannot count the number of times I’ve been lured into an economics presentation by a promising title only to be frustrated with the actual content. At Manchester last year there was a presentation with the scintillating title “Networks in Conflict: Theory and Evidence from the Great War of Africa”, which I enthusiastically attended. Many others clearly felt the same since the room was completely packed out, including undergraduates (who don’t usually go to these seminars).

But as the presentation began it became apparent that they were going to approach the issue using…dum dum dum… a rational choice model, followed by some linear regression! I felt that the war in the Congo was as good a candidate as any for something that was neither rational nor linear, but these underlying assumptions were not even discussed in the presentation or in the paper, which has since been published in a top journal. This could be forgiven if the paper contained revelations about the war in the Congo, but actually its key conclusion verged on trivial: the more your enemies fight, the more you have to fight; the more your friends fight, the less you have to fight. Besides being underwhelmed by this, I was surprised a paper on networks didn’t utilise Granovetter’s network analysis, arguably one of the most famous tools in sociology.

The question is not whether rational choice and linear regression can be useful; anyone who believes they cannot is talking nonsense, as some of Coyle’s examples illustrate. The question is whether they are always useful, which would also be nonsense, but is something you could be forgiven for thinking economists believe when following economic research. The rational choice model has had quite a few successes, including in matching kidney donors to one another, but it has at least as many failures, most of which are so well-worn at this point that it’s not worth going over them again. Linear regression is likely to be the right statistical model most of the time, but this still cannot be assumed a priori. Coyle rightly highlights two recent papers, one by Alwyn Young and one by John Ioannidis, which have cast serious doubts on widely used econometric practice and they are far from the first to do so.

Economists may respond that modelling and empirical estimation allows them to isolate and quantify formerly nebulous mechanisms to make the exact trade-offs of policies clear. However, I suspect that in many cases this is a spurious kind of precision, since estimated coefficients and modelling parameters are notoriously unstable. Out of sample predictions are not made habitually in economics, and when they are they have a mixed track record, to put it mildly. Furthermore, the choice of model will affect the conclusions, both by determining what to model and by modelling it in a certain way. As both Coyle and Reed agree, this makes value judgments implicit in economic models, but many economists are insufficiently aware of this point and tend to see standard models and regression as the default framework.

The other defence is a practical one: sure, these methods have their flaws, but they are the best way to convince policymakers, politicians and the public that a policy has a quasi-scientific justification. While this may be true given our current state of affairs, there is a circularity to it. Part of the reason that this kind of research is deemed necessary is because of the influence of economists in government and society over the past 80 or so years. By embracing a wider variety of approaches to knowledge, economists could use their considerable influence to alter the perceptions of those in power instead of reinforcing the reliance on a single framework.

It’s monolithic all the way down

The uncritical acceptance of one methodology begins with undergraduate economics education. Rethinking Economics conducted a curriculum review of 174 modules at 7 Russell Group universities – rightly or wrongly considered the ‘top’ universities in the UK – and we found that the uncritical acceptance of one type of economics begins with education. Under 10% of modules even mentioned anything other than mainstream or ‘neoclassical’ economics; in econometrics, over 90% of modules devoted more than two-thirds of their lectures to linear regression. Only 24% of exam questions required critical or independent thinking (i.e. were open-ended); this dropped to 8% if you only counted the compulsory macro and micro modules that form the core of economics education.

We have previously called this ‘indoctrination’, and while this may seem dramatic the dictionary definition of indoctrination is to “teach a person or set of people to accept a set of beliefs uncritically”, which we think adequately characterises the results of the review, as well as our own experience and many widely used economics textbooks. Given this education, it is no wonder that economists remain wedded to the fundamental precepts of choice models and linear regression no matter where they turn their attention. By putting the method first, the implicit assumption becomes that answering a question using this framework is prima facie interesting, and critical evaluation of these tools against others is made unthinkable.

This debate may seem too abstract to warrant such extended public discussion, but economics exerts more influence over government, the private sector and the media than any other social science – perhaps than any other discipline altogether. And the intellectual monopoly outlined above makes itself known through this influence, which limits our perceived political choices. Economic debates, including the one surrounding the recent Brexit vote, are frequently conducted in terms of aggregate GDP, which despite some criticism remains the standard measure of economic success both among economists and the public, even though it ignores (among other things) regional disparities in the UK and therefore does not speak to many peoples’ lived experience. This is perhaps one reason why the ubiquitous forecasts of a loss to GDP from Brexit failed to persuade the country.

One, more concrete example of the influence of economic ideas is the Green Book, a document produced by the UK Government that sets out the framework for the appraisal and evaluation of all policies, programmes and projects. It is remarkable how much this book reads like a first-year economics textbook in places: like a standard textbook, it focuses largely on economic efficiency while also acknowledging equity (distributional) considerations. It then spends much time discussing how to place economic values on the costs and benefits of policies to weigh them up. Other economic objectives such as security, stability, or economic freedom are not given much (if any) attention; other decision-making criteria (especially more democratic ones) are similarly absent.

Rethinking Economics believe that the curriculum needs to embrace a wider diversity of views, as well as focusing more on the real world and less on derivation of abstract models. But even in this debate the poverty of imagination resurfaces: when we call for the curriculum to teach us about issues such as the financial crisis, inequality and immigration, we are frequently met with the rebuttal that the relevant models are too complex for undergraduate education or would take too long to teach. Once again the assumption is that mainstream economic models are the starting point, when it is perfectly possible – desirable, even – to learn about issues such as the financial crisis without using any type of model. Models may help you to understand it at a higher level, but this should be built on top of a strong real-world foundation. Putting the real world first would mean that future business leaders, policymakers and academic economists would not enter the world believing that ‘economics’ is synonymous with one type of approach.

I believe that Rodrik’s bad economists are not a few unfortunate renegades; they are the reductio ad absurdum of the education and research practice outlined above. When economists are only taught one approach as if it is economics, then it’s unsurprising that some take it too far. In one sense what’s remarkable is how far contemporary economists have been willing and able to stretch the core framework to accommodate more relevant insights, working with such a limited set of tools. Despite this, areas of the discipline risk finding themselves in a bit of an intellectual dead end by putting their method first and using it to say things which are new and interesting only to economists.

Rethinking Economics and the wider student movement to reform economics believe that ‘critical pluralism’ is the antidote to this problem. If future economists are taught about relevant issues, using a wide range of models where necessary but not insisting upon them, less effort will be devoted to extending particular methods to trivial or long-answered questions. In policy and in the public arena, economics will give us a better conception of how the world works, and a broader array of political choices for making it a better place. Students will not only have a better understanding of why standard economic tools may fail; they will have a better understanding of when and why they are successful. Critical thinking will be embedded from the start of an economists’ training.

Several positive signs indicate that the discipline could go in this direction: the open-minded initiative Rebuilding Macroeconomics; a new focus on economics communication, including the fantastic session I attended at this years’ RES; the revamped CORE curriculum, which seems to be slowly becoming pluralist even if its adherent are reluctant to admit it; and initiatives from within government institutions such as the Bank of England and Government Economic Service, which are embracing pluralism. In fact, the newest version of the aforementioned Green Book, published this year, now includes an entire section on the limits of standard economic analysis when dealing with the environment and alternative approaches.

Here’s hoping that this kind of approach will be the norm for the economics of the future.

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Laurie Macfarlane speaks to Finance Watch about how addressing today’s major challenges such as climate change and inequalities means not only challenging the power of finance, but also tackling the ideology that underpins it.

Watch the full video:

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

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

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

Watch the full video below:

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

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

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

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

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

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

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

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

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

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

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

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

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

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It might come as a surprise – but something innovative is happening in Hull.

Hull is one of those cities, like Swindon and Slough, that’s long been the butt of jokes – like the one about the guy that typed ‘Hell’ instead of ‘Hull’ into his Sat-Nav, but still got there – it’s not that funny, or even really justified.

In the 2003 book of Crap Towns Hull came in at number one but so did London in 2013 whilst Hull dropped out of the top 50. This year, though, Hull is the UK City of Culture but it still has some major needs: a 2015 survey by the City Council found that over half the population lived in the most deprived areas of the country.

“Most deprived areas” don’t normally spawn innovation and the City Council’s main solution was to throw £100 million of its capital reserves into civic improvements to overhaul Hull’s image, and to cosy up to Siemens in an attempt to secure more jobs. Meanwhile, while other people poke fun about #CityofCulture2017, a small group of truly community minded ‘hactivists’ have set to work at the real cutting edge of social development to “unlock the hidden value in Hull’s economy”.

Enter David Shepherdson and Lisa Bovill, from Kaini Industries, an initiative which sprang out of a 2014 piece of research, funded by Hull City Council, that explored how the disruptive technology underpinning bitcoin could be facilitate a local currency to support communities in Hull affected by poverty. After a few years of development and community outreach they launched Hullcoin which enables people who engage with charities and community groups across the city of Hull to earn digital coins by volunteering and undertaking activities that benefit themselves. Hullcoins can then be redeemed as discounts against all sorts of things at over 140 participating retailers across the City. Hull City Council and the NHS are both supporting the project, as is the University, Hull College group and the Department of Work & Pensions.

How does the Hullcoin economy work?

Kanini Industries ‘mined’ 10 million Hullcoins – a quick non-energy-intensive process that took about 30 minutes (because it did not requires the competitive ‘proof of work’ process associated with Bitcoin). Kaini Industries then run due diligence on any local community groups that wish to issue coins, to ensure they promote activities which “create a better community”, and allocate them “bundles” of coins – normally in batches of 500. These community organisations, health and employment services then issue individual coins to people for volunteering or helping themselves or others to “create a better community”. People with Hullcoins can then redeem them at participating retailers across the City in return for discounts on goods and services of between 5 and 50%. The retailers can then choose what to do with the coins, either re-issuing them as employee rewards, to loyal customers as discounts on future purchases, or they can donate them back to a community group or charity to help stimulate the local economy even more. Kiani industries monitor the amount of coins in circulation and have an agreement with the council to take some offline, if required, to help manage supply and demand.

It’s a truly novel idea which uses the blockchain to empower Hull’s real assets, it’s people, by placing a direct and tangible value on community support, self betterment and volunteering – the key aspects of mutual aid which are so critical to community development but so often ignored or undervalued in modern society.

Hullcoin is the first initiative of its kind to utilise blockchain in this way. The project is still only in private beta at the moment and the developers are keen to “iron out the glitches” which will prevent the system from scaling. But if their forthcoming crowdfunder, scheduled for April 1st 2018 (hopefully the date won’t be too off-putting!) is a success they have plans to white-label the system for other cities at which point it could really provide a pathway out of poverty for millions of people.

The concept of Hullcoin has many similarities to ‘Covestment‘, a term coined by Jordan Bober and Michael Linton, the inventor of LETS, to describe a means of “financing the future and creating economic resilience by weaving innovations in network currencies, crowdfunding and community microlending”. In Covestment, companies issue currency (or ‘discount vouchers’ if you like) to a Community Covestment Fund from which members of the community can buy the local currency with regular money. The Covestment fund uses the cash to provide loans to local entrepreneurs and businesses, and people use their local currency to obtain discounts when they shop at the businesses which backed the currency at the start (see diagram below). In exactly the same way as Hullcoin the result is a stimulation of the money supply and hence local economy.

The recent surge in interest in new forms of money makes experiments like Hullcoin and ideas like Covestment highly topical and what’s most exciting is that we don’t need to wait for the government to wake up to the possibilities. These are ideas which we can start experimenting with right now – to take control of our local economies and make them work for the benefit of everyone.

Lisa Bovill, one of the developers at Hullcoin will be speaking at the OPEN 2018 conference on “collaborative technology for the cooperative economy” in July and it will be fascinating to hear how the project is progressing and the impact it is having for the people of Hull. If our hunch is right it has probably already had a more direct impact on less privileged people’s lives than a single cent of the £100million the City Council “invested” in beautifying the city. Watch the 3 min video featuring Bob Clark from the BBC to see how chuffed Bob is to get 15% off his brisket pie – that’s the real “hidden value” – right there.

Find out more about Hullcoin or listen to a 23 min podcast on Hullcoin from World Hacks on the BBC.

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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.

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

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

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

Watch the full video below:

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

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This week hundreds of activists will gather in Wigan for ‘CTRLshift: An Emergency Summit For Change’ – a three day conference exploring the uncertainties and opportunities of our times, convened by around 20 grassroots, social change organisations.

Kicking off on Tuesday 27 March, the event will bring together activists, organisers, and entrepreneurs to develop a shared agenda to shift power over our democracy, economy and environment, from Westminster and multinational corporations, to people and communities across Britain. By bringing these solutions together and mobilising people for local and regional action, the organisers hope to make ‘taking back control’ a positive reality. As the conference summary explains:

“Our departure from the European Union is a moment of significant disruption and presents us with an unparalleled opportunity to reshape the future. We believe that the best way to effect change is to bring together those working to reform the system with those actively building practical radical alternatives on the ground.”

Over the course of the conference participants will hear from a wide range of organisations and speakers and spend time discussing challenges, examining possible solutions, and exploring opportunities for collaboration. There will also time for socialising, networking and live performances. The overarching goal is to help a more effective movement for positive change to emerge from collective actions.

Partners include Co-ops UK, The Alternative UK, Forum for the Future, People’s Food Policy, Shared Assets, Permaculture Association, Solidarity Economy Association, Social Enterprise UK, The Finance Innovation Lab, Stir Magazine, Totnes Economy Project, Transition Network, Local Futures, Shared Future CIC, Coop Business Consultants, Schumacher Institute, The Low Impact Living Initiative, Real Farming Trust, Red Pepper, Schumacher College and many more.

For more information on the programme, or to find out how to attend, visit the summit website: www.ctrlshiftsummit.org.uk

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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.

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

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

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

Couriers in Europe

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

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

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

The potential of cooperative digital platforms

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

This week, Mark Walton from Shared Assets speaks to us about the work the organisation is doing to reclaim land as a common good, and pioneer new models of land management that deliver shared social, economic and environmental benefits.

Watch the full video below:

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It would be funny if it wasn’t so distressing. After every recent election in the West, the reaction of so many pundits has been to ask: Why are the anti-establishment parties so strong again when GDP has been picking up recently?  But perhaps the pick-up in GDP is so removed from what really matters to people that voters are seeking significant change.

Voter’s intuitions – that our economies are not aligned with what really matters to them – are mirrored in the evidence. The research is clear: growth in GDP has not been widely shared, instead it is the wallets of the already wealthy that have expanded. Moreover, while policy makers strain to squeeze more GDP from a stagnating economy, we know that, beyond a certain threshold, increases in GDP per capita don’t bring greater progress.  Quality of life is about more than gains in average incomes. GDP doesn’t capture the value of non-monetized or non-marketed work, like housework, raising children, caring for the elderly, or volunteering. It is blind to the carrying capacity of our environment.

Recognition of the limits to GDP is nothing new. Fifty years ago today, on 18 March 1968, then-presidential candidate Senator Robert Kennedy made the exact same point:

“The gross national product does not allow for the health of our children, the quality of their education or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials. It measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country, it measures everything in short, except that which makes life worthwhile.”

To avoid another fifty years with an economy geared up for inappropriate goals, we need to cultivate a new economic vision. We need an ambition that relates to people’s daily experiences, not the growth of abstract numbers. This is the vision of a ‘wellbeing economy’: an economy that promotes wellbeing for people and planet. It’s an economy that meets the needs of all within planetary boundaries. It is fair, sufficient and ecologically sustainable.

This isn’t an unrealistic pipedream of a utopia where people flourish and the planet survives, it is an ambition being realised, right now, by innovative and creative people who are taking on the challenge of growing wellbeing, rather than just financial wealth.  We see this happening in communities, in businesses, and even in the corridors of government.

Take Costa Rica. Most of the time, they run completely on renewable energy. In 2017, their energy production was 100% renewable for more than 300 days. And while the rest of the world is desperately trying to halt deforestation, Costa Rica is actively re-foresting, doubling its forest coverage between 1983 and 2016.  Coupled with low poverty and inequality compared to other countries in the region, they are punching above their weight on  the Social Progress Index. No other country is better at marrying individual wellbeing, life expectancy and equality with a low ecological footprint. That’s true leadership.

Closer to home, consider Scotland. In 2016, the Scottish Government published a Circular Economy Strategy which sets out a vision for an environmentally sustainable, low-waste Scotland, with several new regulations soon following. It has cross-party support for the Living Wage and has recently created a commission to tackle inequality and poverty.

And turning to Slovenia, we find a country where inequality and the gender pay gap are among the lowest in the OECD. Last year, after extensive public dialogue, they published their Vision 2050. Its core themes are learning for life, innovative society, trust, quality of life and an identity that is inclusive and outward-looking.

Examples such as these offer hope for all of us. There are many more examples around the world where governments, businesses and communities are putting the wellbeing of people and planet first, and living up to their promises.

But these pockets of progress on wellbeing are not enough. In isolation, they cannot challenge the status quo.  Deep, sustainable change needs a comprehensive, cooperative, and collaborative approach.

Fortunately, in October last year, several national and subnational governments from around the world, including Costa Rica, Scotland and Slovenia, decided to establish a group of governments, somewhat akin to the G7 or the G20, that commit to creating wellbeing economies. They agreed that only by collaboration and sharing of lessons will efforts to create economies that serve people and planet have a fighting chance of being realised.

With plans for a public launch later in the autumn this is a pivotal moment for such an initial group of governments to take up Robert Kennedy’s challenge and lead the way in setting a new course for 21^st century progress and development.

This new form of governance and policy-making is needed in a complex, interconnected world. If we are to tackle the shared global challenges we face, from rising inequality to the effects of environmental degradation and climate change, then we need exactly this kind of international co-operation between countries who recognise that a wellbeing economy should be a key aim in their public policy frameworks.

Working together to promote policies that improve all our lives and protect our planet offers this ambitious group of governments the means to demonstrate to the rest of the world that the shift to a new economic and social paradigm with the wellbeing of people and planet at its core can be done. In doing so, they will encourage other governments to follow their lead.

Realising wellbeing economies will require political will and bold leadership. It’s time for political leaders all around the world to step up and commit to a new vision of wellbeing. People and planet won’t wait another 50 years.

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The failure of privatisation is more apparent in the energy sector than perhaps any other. A small group of companies are profiteering from an essential public service, failing to provide sufficient social goods or play a fair role in the meeting the most pressing challenge of our times: climate change. For the most part, the ire has focussed on the biggest energy supply companies – collectively known as ‘the big six’ – and rightly so.

But now, the grid companies are starting to feel the heat. The regulator, Ofgem, is trying to tighten regulation and cut their profits. But more regulation and a polite request to repay money they’ve overcharged us is not enough – these are just sticking plasters for a broken energy system. It’s time we brought the whole grid network into public ownership.

The energy grids form a core part of our energy ecosystem – they distribute energy and gas around the country, keep the lights on and the gas flowing in times of high demand. Our national infrastructure is run by National Grid, and regional distribution by a network of private companies with a monopoly in their region. These are natural monopolies – it is impractical and of little value for the consumer for companies to compete to provide rival infrastructure. Like the water industry, the sector has been characterised by weak regulation, financial engineering, takeovers and bumper dividends for shareholders wanting to cash in on a business they know is too important to fail. And, like the water industry, these networks should be in public hands.

Our messy system of subsidies and regulation allows the grid companies to pass on all their costs to the consumer plus a healthy guaranteed profit, encouraging operators to cut costs and pay out to their shareholders. As customers in such a system we can do nothing about it, even though energy network costs make up around a quarter of our bill; it is risk-free monopoly capitalism at its most perverse.

There is a better solution. Public ownership of these networks would remove the commercial incentive to exploit their position – and exploit it they have. We’ve become accustomed to the idea that if you don’t change energy supplier you’ll be overcharged, but the energy grid is just as bad. They’ve overcharged customers by £7.5bn over the last 8 years, according to Citizens Advice, and run a profit margin of 19%. This is a rip-off that’s gone on too long, and one that tinkering from the regulator won’t fix.

Our energy system should have tackling climate change at its heart, but private ownership of our grids is holding us back. We know that local energy is often the greenest, but operators have little incentive to make it easy for such projects to be hooked up to the grid – it’s a process that can currently take years. Communities from Cornwall to Hackney are queueing up to connect to the grid, but the time and cost is prohibitive. A publicly-owned grid could be mandated to connect up communities fast, boosting renewables and helping us get the clean green energy we need.

The grid was designed for an age of coal, oil and nuclear. It is centralised, monolithic and privatised. The future of energy is decentralised, flexible and diverse, with community generation and local energy playing as vital a role as large offshore wind or tidal projects. This means we need a grid that is radically transformed and ready to meet the challenges of the future, which will require a long-term view that private companies are unable to take. With the grid in public hands, we can put planning for our low-carbon future at the top of the agenda, not paying out dividends to shareholders.

We Own It’s vision for energy run for people not profit is not only possible, it’s a smart investment. To build a public energy system, we’d buy back the national grid and the regional energy distribution companies. This could cost approximately £32bn, according to the Public Services International Research Unit at Greenwich University. Such a public energy system, where a newly public national grid delivers electricity and gas sold by regional supply companies, could pay for itself in ten years – principally through eliminating payouts to shareholders and benefiting from the lower cost of capital. Consumer bills will start to reduce once the  years is up, and possibly earlier if the extra investment in renewable sources contributes to a drop in energy prices.

Taking the grid into public control is a radical idea, but one whose time has come. Professor Dieter Helms’ independent review of the cost of energy for the Government recommended bringing some aspects of National Grid into the public sector, an uncomfortable home truth for a regime wedded to privatisation. Public ownership of the grid forms a core part of Labour’s plan for the energy sector, a commitment recently reaffirmed by Jeremy Corbyn. In Germany, hundreds of communities have taken back control of their energy grids. We Own It has long called for our energy system to be publicly owned, and we’re backed by the public: 77% want to see energy in public hands.

With the grid in public ownership, we can not only put an end to monopoly pricing and sluggish innovation, we can put the public interest at the heart of how these services are run. This means we can have energy system that is accountable, puts people before profit and doesn’t jeopardise the future of our planet. Tinkering around the edges is not enough. It’s time we took control of our energy future, starting with the national grid.

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Britain has never had especially high levels of trust in economic and political institutions. But in recent years, levels of trust have fallen to a point that raises questions over the legitimacy of those institutions. At the RSA, the motivation for our Citizens’ Economic Council work was a view that the quality of economic debate in the UK was poor and deteriorating.

Our new report ‘Building a Public Culture of Economics’ makes the case for rebuilding trust in, and the trustworthiness of, political and economic institutions. We make several recommendations to strengthen the democratic management of our economy.

Democratic voice

Democracy is a structure designed to find solutions that work for the largest possible section of the population – for the public good. Democracy is about listening and compromise, not individual interests winning because they have the loudest voice.

The divisions in British society brought to light by the EU referendum, and indeed demonstrated across the world by the rise of populist politics in the US and much of Europe, are a threat to democracy. They threaten democracy not because people want different things to what the infamous “experts” – our economists and politicians – tell us we should want, but because they are creating  “weaponised narratives“ of us and them. Narratives which shout loudly into the void, uncaring of other voices and unwilling to listen or compromise, polarising society to the point where we can’t agree how to govern our economy anymore.

To make matters worse, many media organisations appear to be struggling to report the news in a balanced way that gives appropriate respect to the reality of people’s lived experiences around the country. This can be considered true of traditional media organisations and new social media platforms such as Facebook and YouTube.  As research from City University London shows that 95% of journalists in the UK are white, 55% are men and 36% live in London. It is therefore perhaps unsurprising that news reporting has a diversity problem.

Our report evidences a widening chasm not just between expert and citizen, but also between citizen and citizen. These diverging views in and of themselves are not problematic, but we argue that it is the failure of these perspectives to engage critically and respectfully with each other that is undermining the quality of public discourse on the economy.

So what should we do about it?

Despite the EU referendum, a Populus poll commissioned by the RSA reported that only 21% of respondents felt they had either a lot or a little influence on the Government handling of Brexit as Britain initiated the process of leaving the EU. This figure was significantly higher in London, and lower in areas that will arguably be most affected by Brexit such as the north-east and Wales (as shown in the map below).

This demonstrates how trying to distil an issue as huge and complex as whether or not to leave the EU into a binary black and white vote will not answer the concerns of a public, who have complex needs, experiences, fears, and hopes. Instead, we need a democratic mechanism that allows for a nuanced discussion of the different stakeholders and trade-offs within such a decision. We need to ‘build a public culture of economics’ in which diverse citizen voices can be included in and have influence over economic decision-making so that outcomes are reflective of the needs of people across the country. We argue that the process of deliberation, where citizens exchange arguments and consider different claims designed to secure the public good, could be a way to start these necessary and meaningful conversations, adding to democratic structures that already exist and strengthening the democratic management of our economy.

Deliberative democracy

Deliberation emphasises collaboration, cohesion and empathy in political discourse. It also greatly enhances the sense of agency of participants and, we contend, it could also increase the sense of agency and degree of trust and confidence among the wider public if the use of deliberative democracy were to become widespread, consistent and well publicised.

This is not to say that everything is perfect in the realm of deliberative democracy: it is impossible to represent all 65 million people living in the UK within a deliberative process, for example. What it can do however is bring together a greater diversity of voices than currently exist in the media or in our representative form of democracy, and use their different perspectives to explore and widen the debate on how and why we make economic decisions. Just as the British public trust our criminal jury system despite not having necessarily served on one, our opinion survey revealed that 47% of people would trust economic policymaking more if they knew that ordinary citizens had been formally involved in the process.

Deliberation strengthens representative democracy by shortening the feedback loops between decision-makers and those governed. It also strengthens direct democracy by ensuring that, before individuals cast a direct vote on an issue, they have directly participated in, or at least observed, a vibrant and respectful democratic discourse.

Where next?

We argue that conversations about the economy start at home. To build a strong democratic discourse about economics, it is essential to meet people where they are and to proceed from people’s everyday experience of the economy through work at play and in their communities. This suggests that the most fruitful domain for applying deliberative democracy may be, at least initially, at the local and regional level.

At our report launch last week, Bank of England Chief Economist Andy Haldane announced that the Bank of England wanted to “climb the ladder of engagement”, moving up from the rungs of ‘inform’ towards ‘collaborate’, and would be acting upon our recommendation for the Bank to pilot Citizen’ Reference Panels with each of its 12 Regional Agents.

Our other recommendations are addressed to HM Treasury, national and local government, and combined authorities in the context of devolution. Will they show similar leadership and understanding in the need to diversify the voices within our democracy?

Read ‘Building a Public Culture of Economics’ to find out more.

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

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

This week, Anna Laycock and Marloes Nicholls from the Finance Innovation Lab speak to us about the work the Lab is doing to incubate the people and ideas that can transform the financial system to make it serve people and planet. Watch the full video below:

The post Transforming the financial system from within: an interview with the Finance Innovation Lab appeared first on New thinking for the British economy.

“We are all in this together” was the familiar refrain used by former Chancellor George Osborne. If we want to pay down the public debt, we must all bear some of the burden for tax rises and spending cuts. After it was announced this week that the target for reducing the deficit had been reached, Mr Osborne announced triumphantly that “we got there in the end”.

It is, however, not at all clear who Osborne is referring to when he says “we”.

The enlarged deficit in 2009-10 was created by the slump in output that followed the global financial crisis, and the spending required to get us out of it. It was the decision to bail out the banks which added £1.5 trillion to the national debt — not overgenerous public spending by the previous Labour Government.

And yet, those people who rely most heavily on our public services have been the ones to bear most of the cost. Our schools have seen almost £3 billion worth of cuts since 2015. Local councils will see their funding fall by 77 per cent by 2020 versus 2015. The NHS funding gap stands to reach a staggering £30 billion by 2020.

Meanwhile, successive Conservative governments have reduced the rate of corporation tax from 30% in 2005/06 to just 19% today. This is the lowest rate in the G7, and one of the lowest rates among the 35 countries of the OECD. Astonishingly, a further reduction to 17% is still planned before the end of this Parliament.

These changes have seen revenues from corporation tax fall from 3.5% GDP in 2005/06, to just 2.6% today. At the same time, it has become increasingly easy for multinational companies to shift their profits to low-tax jurisdictions in order to avoid paying tax in the UK altogether.

Today, nearly half of all children in London, Birmingham, and Manchester live in poverty, whilst UK-based corporations enjoy some of the lowest tax rates in the developed world. So much for “we’re all in it together”.

It is in this context that the IPPR has released a new report calling for a fundamental rethink of the system of corporate taxation in the UK.

First, we are proposing an increase in corporation tax from 19% to 24%. We argue that the revenues from this should be used to reduce taxes on workers by reducing employers’ national insurance contributions from 13.8% to 11.8%.

Taxes on profits are more likely to be borne by the people who own a company, whilst taxes on payrolls are more likely to be borne by workers themselves. So reductions in corporation tax have benefited shareholders at the expense of workers, who have yet to see their wages recover to pre-crisis levels. This imbalance has also had important distributive effects between companies, raising the tax burden of less profitable, higher-employment companies, and reducing that of more profitable ones.

Second, we propose the introduction of a new tax designed to prevent multinational tax avoidance. Our ‘Alternative Minimum Corporation Tax’ (AMCT) would link a company’s tax liability to its sales or turnover in the UK, to ensure that firms were not able to avoid taxes by shifting their profits to low-tax jurisdictions.

While we do not currently have any reliable data on the extent of multinational profit shifting, the exchequer is estimated to lose somewhere between £3 billion and £12 billion each year as a result of these practices. Our AMCT would capture a significant portion of these lost revenues, which would go some way to closing the gap in the NHS budget.

After eight years of austerity borne primarily by the most vulnerable in our society, it’s time that all businesses started paying their fair share.

The post Our corporation tax system is broken. Here’s how to fix it appeared first on New thinking for the British economy.

In his second essay in a new series for openDemocracy, Paul Mason argues that only a new left internationalism that accepts a limited reassertion of national economic sovereignty can defeat the rising tide of authoritarian populism.

If there is a founding document of social democracy it is Eduard Bernstein’s ‘Evolutionary Socialism’. Written in 1899, it taught the leaders of the Social Democratic Party of Germany (SPD) that capitalism had permanently stabilised; that socialism would be achieved through parliament – not the industrial class struggle – and that the working class of the 20^th century would be neither culturally homogeneous nor spontaneously socialist.

Social-democrats should stop waiting for a mega-crisis to kill capitalism, stop obsessing about mass strikes and the dictatorship of the proletariat, and make a moral case that, while capitalism had improved the workers’ lot, socialism could do it better. [i]

The stability lasted a mere 15 years, ending on the day Bernstein’s party voted for the war budget of Kaiser Wilhelm II. By 1919 the dictatorship of the proletariat was an actuality – not just in Russia but in Bavaria and Hungary. What was left of the SPD entered the first coalition government of the Weimar Republic where, on Bernstein’s advice, it resisted the attempts of its own left wing to “socialise” the economy and ruthlessly suppressed the communist left.

If there is a re-founding document of social democracy, it is Anthony Giddens’ book ‘Beyond Left and Right’. Published in 1994 it emerged, like Bernstein’s work, from a critique of orthodox Marxism. Like Bernstein, Giddens argued that the structure of capitalism had changed, creating conditions that made the old programme of state-led socialism permanently impossible. Once crystallised into the doctrine of the Third Way, in the 1998 book of the same name, Giddens’ ideas provided the ideological frame for social-democratic governments in Britain, Germany, Australia and the Netherlands, and for Bill Clinton’s second term in office.

Unlike Bernstein, Giddens never claimed capitalism had become permanently stable; instead it had become permanently mercurial in a way that was potentially benign, so long as progressive governments could take control. The task of social-democrats was to help working class people survive amid the permanent insecurity and disempowerment that globalisation had unleashed. Instead of a programme to clear the capitalist jungle, social-democracy would become a kind of survival kit.

The general crisis of social democracy is happening because the world Giddens described has vanished. The world of Trump, Putin, Erdogan and Xi Jinping is as different to the world of Blair and Schroeder as the street fights of Weimar were to the peaceful, electoral socialism of the 1890s.

Twice, then, in the space of a century, social democracy has entered crisis because its strategic project came to be based on conditions that ceased to exist. If we survey the remnants of centrist social democracy and social liberalism – Renzi in Italy, Schulz in Germany, Hillary Clinton in the USA and the Progress wing of the British Labour Party – the image that springs to mind is of shipwreck survivors clinging to pieces of wreckage.

Schulz clings to Merkel, Renzi wanted to cling to Berlusconi, but they both lost so many votes it became pointless. Hillary Clinton clings to Wall Street. Labour’s Progress wing clings to the possibility that a new, Macron-style centrist force will emerge to save it from the nightmare of the Corbyn leadership. All of them are clinging to a form of globalisation that has failed; and for the Europeans it has become obligatory to cling to the Europe of the Lisbon Treaty – even as this, too, is failing.

To renew social democracy we have to do what Bernstein and Giddens were trying to do: construct an analysis of the world we live in. Both argued from premises concerning the future dynamics of capitalism, the role of the state in the economy, and the atomisation of class structures, cultures and alliances that had prevailed in the decades before them. Significantly, both were critically engaged with, and borrowed eclectically from, the Marxist method of historical materialism – a method of no concern to the party apparatchiks who used their theories as adornments for the project of managing capitalism.

Starting from a material analysis of the world – rather than a list of policies, tactics and principles – is a tradition that got lost inside European social democracy during the neoliberal era. Neoliberalism’s ideological premise was always anti-theoretical: don’t ask why this kind of economy exists, or how long it can last – just accept it as permanent and get on with making it better.

So amid the panic – as the Alternative fur Deutschland (AfD) draws level with the German SPD in opinion polls, and as the Italian Partito Democratico (PD) slumps below 20% while populists and xenophobes surge – we must start by analysing the situation, not by issuing frantic demands that the word “go back to normal”.

***

If neoliberalism is broken, what exactly is the central mechanism that has failed? It cannot be that the collapse of a mere banking system has turned large parts of the population of the West against universal rights and cosmopolitan social arrangements.

Goldsmiths University economist William Davies offers two definitions of neoliberalism which explain why the world Giddens described – and fairly accurately – has disappeared.[ii]

The first is “the elevation of marked-based principles and techniques of evaluation to the level of state-endorsed norms”. Davies points out that neoliberalism, over time, became less about the creation of exchange-based relationships and more about the imposition of competitive behaviour in areas where no market could exist.

School league tables and global university rankings are just two examples of this – a third being the fake tendering process which has seen billions in public service contracts handed to firms like Carillion and Interserve. For Davies, it is economic calculation – not markets per se – that is being coercively forced into all aspects of life under the neoliberal system. That leads to his second, pithier, definition of neoliberalism: “the disenchantment of politics by economics”.

Neoliberalism failed because it was not a solution to the problems of the Keynesian system but, in fact, a work-around. What caused the ruin of both models was their inability to sustain both productivity and corporate profitability.

Between 1989 and 2008 growth was driven by unsustainable financial expansion, by fiscal deficits, by the rapid catch-up of Asia and Latin America, and by the expansion of the working population. In 2008 a global system reliant on financial fiction exploded. As a result, we now have a global economy kept afloat by $19 trillion of central bank money creation, by the permanent socialisation of banking risk, and where many of the advanced industrial countries exhibit the following features:

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.

There are typically three kinds of response to this situation among national political elites. The first is to try to maintain the status quo, resulting in the continued rise of inequality, continued impoverishment of workers and the lower middle class. This is the approach of Macron in France, Merkel in Germany and the liberal-conservative Remain lobby in the UK.

The second is a kind of “nationalist neoliberalism”: the attempt to deepen the coercive introduction of market mechanisms through a partial break with the multilateral global trade system. This is the intention behind the European Research Group (ERG) inside the UK Conservative Party: to scrap environmental and safety regulations, and to scrap – as Liz Truss wants – professional licensing and qualifications that are said to “suppress growth” by insisting that doctors, airline pilots or physiotherapists must be licensed and therefore difficult to replace with the precariat.

It is, in effect, “Thatcherism in One Country” – and it also forms the unacknowledged common ground between the three factions of the German right: the AfD wants deeper free market reforms but no immigration; the Free Democratic Party (FPD) wants Germany to double down on gaming the Eurosystem to let the rest of Europe go hang; so effectively does the right wing faction of the Christian Social Union (CSU) around Alexander Dobrindt who, for good measure, wants a “revolution” to roll society back to a pre-1968 social conservatism.

A third response – best illustrated in Europe by the Law and Justice government in Poland – is to break overtly both with neoliberal economics and “liberal democracy”. Law and Justice has secured a 49% poll rating not only through crass nationalism and dog-whistle antisemitism, but by daily verbal attacks on “liberal democracy” and the elites who profit from it, and by distributing significant universal welfare payments to working class people. Liberal democracy gets in the way of the real democracy – which is the will of the white, Catholic Polish people, untrammelled by such things as an independent media, judiciary and multilateral obligations. That is the message of Law and Justice.

None of these responses can remedy the breakdown of neoliberalism strategically. The problem is, however, two of them could work temporarily and locally, providing that the national elite concerned is prepared to renege on multilateral obligations to its trading partners. In the 1930s such attitudes were described as “beggar thy neighbour”. In modern parlance, it’s about being prepared to say to other countries: fuck you.

Law and Justice has placed itself on a collision course with the European Commission, while the Tory ERG wants Britain to stage a hard, confrontational exit from the EU altogether. Trump, likewise, with tax cuts that will boost America’s debt pile and a trade war over steel, is determined to deliver a revival of prosperity in the USA at the expense of its key trading partners.

Social democracy’s problem is that for 30 years it moulded its project around the priorities of the neoliberal model, and around the certainty that a multilateral global system would (a) always exist, and (b) deepen.

Both conditions have been falsified, while the neoliberal elite’s priorities are rapidly evolving to adapt to the growing power of authoritarian kleptocrats and the Mafiosi who trail behind them.

The basic problem with the Macron strategy – carry on regardless with a globalised free market – is that it cannot be done by standing still: you have to double down on the coercive imposition of competitive behaviours and values onto a population weary of being coerced. You have to renew TTIP; you have to do more privatisations; you have to go expanding the EU to the East, pulling in yet more xenophobic and corrupt national elites. If we return to Davies’ definitions (the elevation of market principles to state endorsed norms, and the disenchantment of politics by economics), we can say with certainty that these are strategies that no longer work. People have had enough of free market coercion and are prepared to “re-enchant” economic decision making with the only things that lie to hand: nationalism and xenophobia on the one hand, radical anti-authoritarianism, feminism, environmentalism and leftism on the other.

To renew social democracy, we need to stop clinging to the wreckage. Even though it was mainly window dressing for Blair and Clinton, the Third Way was a serious and coherent theory. Some of its premises survive even though, as a practical project, it is dying.

***

Giddens’ framework for radical politics in the neoliberal era consisted of six priorities. The first, to “repair damaged solidarities”, involved recognising that even the free-est market makes people interdependent. While the neoliberal right would have us stab each other in the back, people with a stiletto between their shoulder-blades will still need a hospital to go to.

Second, social democracy had to accept that instead of improved economic conditions, people would fight over “life politics” – that is for the individual freedom to behave as they please. Unequal opportunities to do so – as we are today seeing with the #MeToo movement – could, he said, be a much stronger driver of protest and radicalism than pure economic inequality.

Third, in place of solidarity there would have to be “generative politics”: social democracy had to create a space between the state and the market in which people could do things for themselves, which neither the state nor the market were capable of delivering.

Fourth, recognising that globalization would weaken the formal democracy of states, Giddens called for a democracy of self-help groups and social movements. These, it was understood, should forget trying to bend the state to their wishes – it was irrevocably under the control of corporations and destined to shrink – but they could achieve stuff for themselves, empower themselves, and boost their own emotional literacy in the process.

Fifth, the left must be prepared to rip up the welfare state. Instead of a safety net designed to protect people against “what might happen”, it had to be a kind of survival guide. The welfare state, said Giddens, was sexist, bureaucratic, impersonal and never fully eradicated poverty anyway.

Finally and perceptively, Giddens warned that a neoliberal global order would lead to violence, and that the left needed to find ways to mitigate that. When social conflict occurs in a globalised free market, Giddens said, you can’t solve it by coexisting or by separation.

“No culture, state or large group can with much success isolate itself from the global cosmopolitan order,” Giddens wrote.[iii] As a result, conflicts would lead more quickly to open violence and the left would have to be the party of dialogue not conflict.

What strikes me today about this political framework, on which Third Way social democracy was built, is its absolutism. The state would wither, the market would triumph, the welfare state would have to be abandoned, class solidarity would collapse, and individual lifestyle politics would dictate everything. This was the assumption.

But nearly 25 years after its publication all of the things that were considered already gone are still here, even in a society like Britain which became under Major, Blair and Cameron a laboratory of social atomisation. The RMT union is still able to shut down London’s Tube network; the welfare budget still makes up 34% of all state spending in the UK; market experiments in the railway system have gone badly wrong. Even at my local tube station in London, there is a union rep who defies the management instruction to wear a name badge by sporting one with the word “Lenin”.

Though Giddens never subscribed to the “end of history” thesis, the assumption underpinning his project was that markets were efficient and tended towards equilibrium and prosperity. Like Bernstein, he created a formula for coping with capitalist stability that failed to survive the return of instability.

In the hands of Blair, Clinton and Schroeder these assumptions became an excuse for venal collaboration with the interests of corporations against those of the very people who voted for social democracy. But even in their purer, academic form, Giddens’ assumptions have been negated by the political, economic and social realities of the capitalism that emerged after 2008.

The most important fact about the new reality is that, since 2008, states, regions and communities have begun to attempt to exit the system. What was deemed impossible has become the dominant trend: the desire to cancel, reverse or block globalisation. Whether it be 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.

Interestingly, the very forces Blairism assumed were spent – community, trade unionism, working class identity and of course language and ethnicity – have been factors driving this rush for the exit, both to the left and right.

As Giddens predicted, such projects are met with violence – sometimes literally as the Catalan people found out on 1 October 2017 – and sometimes via the more subtle coercion of closing a nation’s banking system, as the Greeks experienced in June 2015.

But wherever the “exit” strategy is adopted, the key institution is the one Giddens – and Blair – assumed would have diminishing power in a neoliberal universe: the democratically elected national government.

As to what is driving the desire for exit, it is primarily insecurity. All over the world, state welfare provision has been ripped up, but not replaced by any new forms of solidarity as Giddens advocated. As I wrote in the first essay of this series, one of the huge drivers of populist anger and insecurity is the enhanced fear of “what might happen”, whether it’s the possibility of the working class person falling into the under-class because they lose their highly precarious job; or a migrant occupying a place in front of you in the doctor’s waiting room; or a home-grown jihadi terrorist blowing up your children at a pop concert.

“No more change!” was the demand campaigners in Thuringia told me they heard on the doorstep, from voters who had switched to the AfD. Ludicrous as it may sound to the paid-up technocrats who still believe in neoliberalism, it is a rational desire when change brings only stress, impoverishment and anxiety – and in this case perceived competition for a limited welfare and social budget.

Practically, far from empowering those from whom the safety net was removed, neoliberal policy during the crisis became increasingly focused on coercing them, as with the scandalous disability assessments by the DWP in the UK or in the mass incarceration programmes of black people in America which boomed under both Clinton and Obama.

Finally, and ironically, it has been the populist right and radical left, together with some cosmopolitan nationalist parties and environmental NGOs, who have engaged with the task of “repairing damaged solidarities”. Blairite social democracy might have urged people to discover the new solidarities of suburban life, or the professionalised workplace or the private members’ gym,  but these were unavailable to the newly impoverished lower-strata of the workforce neoliberalism created. They clung, instead, to what was left of their old solidarities, which – as I have described in ‘The Great Regression’ – were often stripped of their progressive content.[iv]

***

That the Third Way doctrine suffered the same ultimate fate as Bernstein’s “revisionism” is no accident: both were formulated during the upswing and stabilisation phases of a global economic model. Neither could survive the model’s crisis.

Indeed, understanding that our task today is to construct a “crisis politics” – not a survival guide for the losers within a successful form of capitalism – is the first step towards a solution. In subsequent contributions I will try to spell out the details. Here, however, it important to state the broad conclusions if you accept the idea that neoliberalism is over.

First, the rise of authoritarian nationalist projects among some western elites is both logical and inevitable, given their histories. You only have to listen to the British elite’s continuous dirge of devotion to Winston Churchill to understand how powerfully the myths, narratives and traditions of national bourgeoisies guide their actions, even in the age of Davos and globalised consumer culture.

When I asked Polish progressives at a seminar last month, “why is a section of the Polish elite prepared to break with globalisation and seek nation-centric and xenophobic solutions?”, they simply shrugged and said: “that’s what they did in the 1930s”.

It is not that the globalism of the elites during neoliberalism was fake – only that, in the entire history of industrial capitalism there have been only two modes of regulation: the nation-centric one and the multilateral globalist one. Most elite groups in the world have intellectual traditions that can accommodate both, and some are prepared to reach into the dark basement of those traditions to revive the nationalist ideologies that suited their grandparents. What sections of the elites and intelligentsias of Poland, Hungary, Italy and Austria are doing now is no mystery. It’s a reversion to type.

Second, the rise of authoritarian populism and xenophobic narratives among the populations of many western democracies is – as I argued in the first essay – the result of the breakdown of a coherent narrative and of intense perceptions of insecurity. The strategy of keeping the economy on life support does not keep the ideology that underpinned neoliberalism on life support. The reward for all the backstabbing, atomisation and conformity to market individualism was supposed to be prosperity. Once that disappeared, the story became incoherent.

It follows from this that social democracy – and the wider progressive movements it must ally with – needs to construct very quickly a new narrative about how the world gets better for you, your children, your community. People want to know how life becomes less insecure, and how change becomes more predictable and manageable. Unless the left answers that question, the xenophobic right will do so.

Third, logically the new project of social democracy must be framed around a radical break with neoliberalism. What is destroying our movement is that a whole generation of social democratic leaders have tied their personal prestige and identity to an economic model that no longer works.

Schulz wanted to keep Merkel in charge forever; Renzi in Italy would rather see Berlusconi in power than admit the grievances that are driving people towards the Northern League and the Five Star Movement were real. Indeed, when I spoke to Italian social democrats before the election disaster of 4 March, it was always the possibility of being beaten by Beppe Grillo’s Five Star Movement, not the racist FI-Lega Nord alliance, that haunted them. In Britain, the spectacle of Haringey’s Labour leader Claire Kober self-destructing amid mass popular opposition to her housing privatisation project, is a vignette painted from the same colour scheme.

To be clear: a break with neoliberalism  means a limited, reversible and calibrated retreat from some aspects of globalisation.

To salvage what is salvageable from the global system we must prevent its implosion: that means preventing the chaotic breakup of the EU, the collapse of multilateral global trading arrangements and – the ultimate threat – a spate of mutual debt defaults during which everyone heads for the exit in a disorderly manner.

Here the analogy with trench warfare holds good. If the front trench is overrun, the last person standing in it is going to get bayoneted. Better to retreat to the next trench and defend that.

This has informed my approach to Brexit. The substantive issue was always going to be: what form does the semi-detached relationship of Britain to the EU take in future. I voted Remain because the alternative – which has now transpired – was Boris Johnson and Jacob Rees-Mogg constructing Thatcherism in One Country, with Naomi Klein’s ‘The Shock Doctrine’ used as a handbook.

Because people were told freedom of movement was non-negotiable inside the EU, they voted to leave it. They did not believe the assurance that “ever closer union” no longer applied to the UK – and the actions of the European Commission during the Brexit negotiations have tended to confirm that suspicion.

Given that, it is neither possible nor desirable to use intrigue and elite chicanery to override the votes of 17 million people. What is possible is to persuade them to accept a limited – and thus reversible – semi-detachment from the EU in the form of a Norway style agreement, a customs union or something in-between.

The question for Europe’s social democrats is far bigger than the one that usually greets me in seminars and one-to-one meetings, which is “how do we emulate Corbyn?”. Nevertheless, it is worth reminding ourselves that UK Labour’s current recovery and dynamism is premised on the fact that, first, Britain was always effectively exempt from the Maastricht rules mandating fiscal austerity.

Corbyn’s ability to draft a post-austerity manifesto, centred on a £250 billion borrowing programme and a £50 billion tax redistribution plan, together with some limited renationalisation and a state investment bank, was an act of imagination unavailable to Renzi, Sanchez and Schulz.

On top of that, Corbyn has – correctly – accepted the result of the Brexit referendum, refusing the invitation from the die-hard Blairite right to destroy his own party by labelling a third of Labour voters deluded xenophobes.

What lesson can the rest of European social democracy draw from Labour’s success? The exact lesson they refuse to draw: which is that “retreating to the second trench” means adopting as an overt goal a revision of the Lisbon Treaty in favour of greater social justice. Europe has to be redesigned to allow state aid, nationalisations, the equalisation of social safety nets and minimum wages – removing the Maastricht criteria on debt and borrowing which mandate austerity.

A Corbyn government in Britain, and a Sanders or similarly left-led Democratic Party government in the USA, would at least have some fiscal freedom. Until they can imagine themselves operating in the same way – either collectively across an alliance of core EU countries or individually – the European social democratic parties will go on destroying themselves for the sake of Lisbon and the Bundesbank. They should stop doing so.

***

Which brings us face to face with a general principle: over the next five years the venue in which authoritarian populism and economic nationalism have to be fought is the nation state itself, and state-level democratic institutions.

Trump will be beaten at the level of Federal elections, the Supreme Court and the FBI, not the WTO or the United Nations. Orban, Kaczinsky and the Blue-Black coalition in Austria will be beaten at the level of the national cultures, parliaments, intelligentsias and the national demos – not through the authority of the European Commission and tongue-lashings by Guy Verhofstadt in the Brussels parliament (welcome though these may be).

Done intelligently, and without conceding to the rhetoric of the right, a limited reassertion of economic sovereignty is going to be key to the revival of left politics both in Europe and the USA. Indeed, if it had been done five years ago then, like a flu jab, it might have prevented the current sickness.

Working out how to reform capitalism to meet the needs of those on stagnating wages and in precarious jobs becomes easier once you accept that the place that is going to be done is national parliaments and regional assemblies. They will still have to be constrained by multilateral agreements, but they will probably look more like the flexible deals that preceded the heyday of neoliberalism, not the inflexible ones that are currently falling apart. Customs unions, free trade areas, bilateral currency pegs, an exchange rate mechanism rather than a single currency for Europe, and a two-speed structure for the EU itself – these might have to be the forms in which globalisation survives.

For social democracy, internationalism – which was rooted into its practice from the formation of the Second International in 1889 – is a strong trench to fall back on as globalism evaporates. The globalism of elites – from Mar-a-Lago to Budapest – is proving depressingly fragile; the internationalism of left parties can, given the right basis, prove much more durable.

And social-democrats will not be the sole occupiers of this second trench: liberalism, radical left, feminism and green movement have all made strong intellectual contributions to the progressive, internationalist ideology that will have to replace free market globalism.

The advantage of forcing social democratic politicians to focus on the dynamics of their own society is that in most countries they face the same demographic challenge: cultural conflict between an educated, younger workforce with liberal values and a less educated, older workforce clinging to social conservatism. It is a split between the city and the small town; between old and young; and, at its worst – as with the alt-right in America and the populist right in Poland – it weaponises gender inequality as well.

From Bernstein to Giddens, the prophets of stability socialism always focused on the atomisation of class and community loyalties, and the decline of solidarity. As early as 1899 Bernstein warned that “the precision tool maker and the coalminer, the skilled decorator and the porter… live very different kinds of life, and have very different kinds of wants”. It would be easier to unite them around race and nation than it would around pure class politics, he wrote. A century later Giddens’ entire project was premised on the idea that most social solidarities – even ethnicity and nationality, let alone class – would be atomised under the impact of marketisation and networked individuality.

It turns out that the current struggle is not between atomization versus old solidarities; it is in fact a death match between two spontaneous solidarities that can no longer coexist.

For now, wherever the authoritarian right is on the march, it is mobilising people around nationalism, racism and sexism. Yet the ideology of an educated, networked, diverse, globally focused and tolerant section of society is equally spontaneous and, in some places, stronger.

In one way, the salariat, the Millennial generation and their natural allies among ethnic minorities, women, the LGBT community have achieved what Giddens had called for: an agency born out of fear. As he wrote: “Values of the sanctity of human life, universal human rights, the preservation of species and care for future as well as present generations of children may perhaps be arrived at defensively, but they are certainly not negative values.”

Instead of a proletariat with a historic, positively-defined mission, we might have to make do with a motley tribal alliance with many missions, some of them conflicting, Giddens said.

I will return to this question of agency in a future essay, but here it is worth acknowledging how closely Giddens’ 1994 position anticipates what came to be known in the anti-globalisation movement as “One No, Many Yesses”.

The difference is, today, we have two “Noes”: no to neoliberalism and no to the xenophobic right. In turn, that limits the number of “Yeses” that are practical in the short term: yes to defending universalism, yes to mitigating climate change and yes to upholding the rule of law. That should be the terrain on which the progressive forces of humanity come together.

But social democrats should not flinch from adding one more “yes” to this list, and that is to the right of electorates to use democracy to regulate and control the market at a national level – even if this means reforming, suspending or defying the institutions through which global corporations have dictated the world’s affairs for 30 years. That is the ground on which social democracy and the radical left should converge.

The journey towards a radical social democracy will be fraught with temptations to ditch what was progressive in the era of free market globalisation alongside what’s been wrecked. In fact, studying centre left thinkers who tried to move the SPD on from Bernstein between 1914 and the early Weimar era – Karl Kautsky, Otto Bauer in Austria and the workers’ control advocate Karl Korsch – I am struck by how unstable the centre ground was between Bernsteinism and Bolshevism. Every attempt by the German centre left to stabilize, humanise and democratize capitalism was outflanked by the venality of the ruling elite and the brutality of the street politics the far right adopted.

If there had been no USSR and no Leninism, could that large and vibrant movement of German workers who vacillated between the communists and the social-democrats in Germany between 1919 and 1929 have succeeded in creating a more sustainable left social-democratic pole of attraction than the one the doomed Communist Party of Germany (KPD) did? It’s an interesting ‘what if’. Put another way, in a time of crisis and breakdown, is radical social democracy even possible?

Because today there is no equivalent of the USSR, no Lenin, and a much-weakened industrial working class, we are destined to find out the answer to that question through our own practice.

Today we need a form of social democracy attuned to a period of crisis, not stability. Accepting the need for it is the first step towards achieving it.

[i] https://www.marxists.org/reference/archive/bernstein/works/1899/evsoc/index.htm

[ii]   Davies, William. The Limits of Neoliberalism: Authority, Sovereignty and the Logic of Competition (Theory, Culture & Society) (p. xiv).

[iii] Giddens, Anthony. Beyond Left and Right: The Future of Radical Politics (p. 19). Wiley. Kindle Edition.

[iv] “Overcoming the Fear of Freedom” in Geiselberger H, ed The Great Regression, 2017

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This International Women’s Day, Rethinking Economics is campaigning to #PushForProgress and get #MoreWomenInEcon. In this article, six current female students, all part of the Rethinking Economics student network, offer their voice on why economics has a problem with women.

The curricula does not represent women so women do not feel the subject relates to them

“Women are invisible when you study economic theories. Economics, especially neoclassical economics, uses heavily ‘male centred’ concepts and language. For instance, of the central theories, the model of the ‘economic man’ is defined by self-interest, greed and actions that are usually associated with a ‘male’ pattern of behaviour. This kind of thing is demonstrated in the approach of market logic, too, in which work traditionally undertaken by women such as household labour or caring, is ignored and thus neglected in GDP analysis.

“However, with a closer look it becomes clear women are interested in the economy. Many study other social sciences such as politics, anthropology or history, which incorporate economic theory, but through approaches that might appear traditionally more relatable to women. A more pluralist degree invites critical thinking and opens the doors to engage a more diverse body of students.”

— Janina Zakrzewski and Sari Easton, 3rd year, Politics, Philosophy and Economics:

Gender Dynamics are not addressed in the classroom

“Economists are terrified of discussing political issues for seeming non-objective, especially issues concerning gender. But including gender issues in the curriculum is not only a political claim, it is also an economic one. For example, one of the central pillars of economics is understanding the dynamics of economic growth. It has been proven by study on study that female participation in the workforce and female representation in the board room has a large impact on growth. Thus, if economists want to understand growth, why neglect studying one of the factors influencing it? And this is just one of many examples. If we want to understand the economy, gender issues is something economists should be more curious about.”

— Sally Svenlen, 2nd Year Economics.

There are few women role models in economics, and the ones who are in economics are much less likely to achieve a promotion

“Going through four years in an economics department can often seem quite discouraging if you aspire to be an academic. Being a woman, however, brings about yet another nuance to it. Although, the gender diversity in an undergraduate classroom is often balanced, the share of female economists progressing to a higher stage in academia decreases as the prominence of the position increases — as has been shown by the American Economic Association. The lucky (read: hard-working) ladies who manage to secure a tenure position often face a range of stereotypes, as documented by Alice H. Wu .

“And, of course, this is nothing new. When studying the history of economic ideas dating from Ancient Greece to present times students only hear of women when and if feminist economics is discussed. The explanation often is something along the lines of ‘times were different’ or ‘this is how it used to be in the past‘. Other fields such as the STEM subjects have recognised the economic benefits of having a more equal gender representation in academic and research positions. Economics, as always, seems to be the only one stuck in the past.”

— Iva Parvanova, 4th Year, Economics

Essential topics such as health and education are undervalued

“Many women don’t consider a career in economics as an option. This may be due to their preferences; women may favour careers in other fields (health and education being the common ones). Naturally, there is nothing wrong with this; everyone deserves to choose which area to work in. However, in some cases, it is undoubtedly because people don’t deem economics an appropriate career choice, or they don’t think it relates to the topics they find interesting. Economists have failed to make the public aware of the discipline’s wide-reaching real-world applications beyond banking and investment, including in health and education. I believe a priority of the discipline should be on improving peoples’ understanding of the many uses of economics so that a wider range of individuals will find it worth pursuing. There are several ways this could be achieved: approaching young people, simplifying the language used, among others.”

— Laura Freitas, 1st Year Economics

Household labour and care are not counted as valuable activities

“It is not a generalisation to say that one of the first understandings of economics that one develops is that of a mathematical subject concerned with constantly evaluating the cost and benefit of our activities and choices, so that we obtain the highest gain from what we choose. Moreover, much of what students are taught suggests that you are a good, non-entitled citizen, as long as whatever you do can be directly converted into money for someone else, and accounted for in a country’s Gross National Product. Such definitions inevitably downplay the contribution of women in society because a large number of activities that tend to be done by women, including household labour and care, are not immediately translated into profit and neither are they accounted for in labour participation statistics. This causes women to be underestimated as economic agents.

“The economist Lionel Robbins once stated: ‘every act which involves time and scarce means (abilities, wealth resources, dedication) for the achievement of one end and that involves relinquishing their use for the achievement of another end, is an act that has an economic aspect’. Thus, it is only fair to say that women’s dedication of time, physical and emotional activity to core household labour and care, either by personal choice or necessity, while foregoing other intellectual or professional development areas  are indeed economic acts.”

— A  Fernandez, PhD Student, Economic and Social History

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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.

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Just over two weeks ago I went to Paul Mason’s Clement Attlee Memorial Lecture, on ‘The Radical Left in Power — Challenges for Labour in Government’.[i] The lecture theatre was full. I stood in a corridor leading from the lecture theatre to the lobby, and even that corridor was full. It’s clear that Mason — author of Postcapitalism: A Guide to our Future — is one of the most important, and sought after, thinkers working on the present and future of the British Left (perhaps alongside Owen Jones, Mariana Mazzucato, Gary Younge, and Jeremy Gilbert).

But I left the lecture, an hour later, feeling a little empty. I didn’t feel like I’d heard an inspiring vision for what was possible under a Corbyn-led government, or a convincing account of how Corbyn and co. might address inevitable challenges. Mason fell back on tired, technocratic language: the language of “resilience”, “innovation”, and “human capital”. Even he seemed to realise that “human capital” was an ugly phrase, wincing and acknowledging this the second time he used it. When he spoke about what the new Corbyn paradigm would be, he said it would be a mixture — some arrangement of “state, market, and non-market”. But he did not say what this mixture or arrangement might look like. And though the lecture was meant to be about the general “challenges for Labour in government”, the focus was on economic policy, hived off from questions of foreign policy or race or justice, for example.

What the lecture did help me realise is that we are all — or at least all of us engaged with progressive politics in the United Kingdom, all with some hopes for a Corbyn-led Labour government — wrestling with what needs to be done on the British Left, how that is to be done, and who decides. And, as Paul Mason eloquently argued, we all need to direct our intellectual energies to these dilemmas, especially those of us with the privilege of having time to think about them.

So, coming out of this realisation and Mason’s encouragement, here’s my attempt to sharpen some of the questions I think those that identify as being part of the British Left need to grapple with — along with some suggestions about further work that needs to be done to get to some answers. I discuss questions in the realm of economic policy in particular, building off Paul Mason’s prompt, though I try to say something about how economic policy is connected to other parts of policy and politics. Others — especially people at the New Economics Foundation, Novara Media, Momentum, and in local Labour branches around the country — have contributed to sharpening these questions. I tweeted about at some of them a week ago. This is my effort to articulate my thoughts in a more elaborated, considered form, and to say a bit more in closing about the strategy for taking these ideas forward.

I write this all as a supporter of the Corbyn project, who is nonetheless open to criticisms of that project that need to be addressed; as a non-economist, who has a basic grasp of economics and an interest in new economic thinking; and as a critic of neoliberalism, hungry — like others are — for a different dominant political paradigm that better meets the needs of our time.

1. What kind of State will a Corbyn-led Labour government build?

If the 2017 election manifesto and the policy discussed since then is anything to go by, a Corbyn economic paradigm is not just going to be any haphazard arrangement of market, State, and non-State — and will involve a rejuvenated role for the State. That is clear from the proposal to nationalise the railways and from the proposal (to borrow the words of Tony Atkinson) to restore more progressive rates of taxation, amongst other things.

This role for the State needs to be articulated coherently. To justify this expanded vision of State action, Shadow Chancellor John McDonnell and others need to speak about why the State can be better at the market in carrying out key economic tasks: for example, the State can borrow more cheaply than the private sector, the State can achieve economies of scale, and the State can coordinate activity across different civil service departments. They need to speak about what they want the State to do — which might include a more expansive industrial policy, of the kind Mariana Mazzucato has alluded to.

But they also need to show how this State will address the shortcomings of the post-Second World War State. The State of the Attlee-Beveridge-Bevan era secured major achievements such as the establishment of the NHS, but it was also dominated by white men in positions of leadership and top-down.

No one in the Corbyn camp is talking about a return to that kind of State; one of the Tories’ easy attack-lines has been that a Corbyn government would take Britain back to the ’70s, or earlier. However, more needs to be done to show how newly nationalised services — like the railways — can be run in a bottom-up way.

What is the role for co-operatives in public services? Can new legal forms and structures support a different form of public ownership? And what place do trade unions have in all of this? Some answers to these questions are offered in outline in Andrew Cumbers’ interesting report for the Labour Party on different models of public ownership: he writes about the need to improve co-operatives’ access to finance, more democratic accountability on the boards of newly nationalised services, and the role of municipal public ownership. Jeremy Gilbert has also pointed to the two strands of Corbynism that pull apart from each other — one top-down and focused on Jeremy Corbyn, the other bottom-up and emphasising mass movement politics — and highlighted the need for the Labour Party to be clarify this tension. The organisation We Own It has been communicating in an accessible way the value of this new public ownership.[ii]

Thinkers and campaigners could usefully dedicate their energy, in the way called for by Paul Mason, to this sort of work: setting out the kind of State the Labour Party wants to build, explaining how this State interacts with and supports the community, and being specific about the policies that will realise that kind of State. (I say more below about how thinkers and campaigners can work together on this.) All of this is essential to building a new framework of thought beyond neoliberalism.

2. What is that State working towards?

A rejuvenated State, however, is not an end in itself. It is not the answer to our problems. It is a means to an end: a tool that can be used to build a better society. The harder task is spelling out what that better society looks like.

This was also a gap in Paul Mason’s Clement Attlee Memorial Lecture. Mason spoke of reclaiming social mobility as an ideal, and referred in moving terms to his father. But an important question remained unanswered when Mason mentioned social mobility: mobility towards what? Across the twentieth century, particularly in the United States in the context of discussions of the American Dream, social mobility was hailed as a sign of a successful society. However, references to social mobility were all too often silent about where mobility was leading, allowing a basic truth to remain unuttered: that many proponents of social mobility simply sought access to wealth for all. Is that what we should be focused on, in progressive politics today?

Of course, some answers are close to hand, and were implicit in Mason’s talk. Social mobility is about ensuring that class positioning, or other forms of oppression, do not dictate the shape of a person’s life. Social mobility means that people are not held back. It means that people have access to the opportunities that those born into privilege take for granted: opportunities to be educated, to find meaningful employment, to lead lives of security, to draw on the bonds of community in order to become individuals.

Yet we could still do more to state — in language that is fresh — what the goals of social mobility, and the State, are. If the State is transitional, as Gramsci says, we need to know the next step in that transition. Paul Mason spoke of radical social democracy, a theme he has continued to explore in his public writing. That concept could be unpacked further; I have also written about a new ideal of public democracy,[iii] since I think the limitations of social democracy have been well laid out, including by Joseph M. Schwartz and Bhaskar Sunkara.

The need to avoid stale terminology has led me, in the past, to write about love as the object of politics: not a banal love, a love that collapses into generalised and directionless niceness, but a deep sense of warmth that is directed towards others — a love that might motivate anger and conflict just as much as it motivates goodwill and generosity. Others will disagree with love being identified as the end-point of economic policy, and a progressive policy platform more generally.

What is clear, though, is that some sense of direction can help to mobilise people to take action. For as historian Robin Kelley has said: “Without new visions we don’t know what to build, only what to knock down.”

3. How will Corbynomics be integrated into a broader policy platform?

Paul Mason’s talk was not only disappointing because it narrowed a discussion of ‘The Radical Left in Power’ to an analysis of economic policy. It also disappointed because Mason, from that hemmed-in starting point, took a limited view of what economic policy is.

I think in the last twenty or thirty years ‘the economy’ has been viewed in more and more blinkered and technocratic terms. It has become regarded as a collection of numbers: the central bank’s interest rate, the level of growth over the past quarter, the inflation rate, the unemployment rate. (Nancy Fraser has hinted at this shift over time in an illuminating recent talk with David Harvey for Verso Books, available online.) But the choice to make the economy about these metrics, over others, involves value judgments. And the economy has always been about more than the sum total of a set of statistics covering inflation, interest rates, growth, and unemployment (as important as some of these might be).

Therefore a vision of economic policy under Corbyn needs to be connected to other features of the Labour policy agenda. One of the attractions of the current Labour Party is that it has attempted to integrate analysis of race and class (at a time when thinkers such as Keaanga-Yamahtta Taylor are working through similar issues in the States). But how will anti-racism and class consciousness — as well as a willingness to reckon with colonial pasts — feed into economic policy? Momentum has done fantastic work building progressive political energy amongst young people in the United Kingdom. How will economic policy deal with the problems faced by young people across the country, especially debt, and draw on their organising skills? The environment must also be a part of this debate. Can a government still follow the traditional Keynesian prescription — pumping money into an economy to boost aggregate demand — at times of crisis if that boost simply means greater consumption, and a contribution to global warming? Is that old Keynesian model appropriate, too, given the globalised structure of the British economy, and the likelihood that this increased spending might leak offshore rather than revive British aggregate demand? All of these questions must be explored if an economic policy is to be consistent with a broader Left agenda, and if a (justifiably) wide view is taken of what ‘the economy’ is today.

***

There is more and more talk of the need for progressive strategy in the US and the UK, as we see a resurgence of interest in radical politics — and as a Corbyn government appears to be within reach. Bhaskar Sunkara, founding editor of Jacobin, recently set up Catalyst, a journal of “socialist theory and strategy” (my emphasis). I heard discussion of this at an interesting recent talk by Madeleine Davis of Queen Mary University, London, called ‘Problems of Socialist Strategy Redux’. By ‘strategy’ I think what is meant is the coordination of different actions that are needed to bring about a better future.

But one final question is: whose responsibility is it to develop strategy, and to answer some of the questions laid out above? How should responsibility be divided between people like Paul Mason, who have done hard thinking about future economic and political challenges, and others doing work on the ground to organise campaigns?

Michael Hardt and Antonio Negri have offered the promising suggestion that in contemporary activism there is a need to flip the usual roles given to leaders and the rest of the mass movement: instead of leaders dictating strategy and the mass movement implementing tactics, the mass movement should dictate strategy — with logistics and tactics left to leadership. That is the approach already taken by many activist and campaigning groups. It is discussed in this conversation between Michael Hardt and James Foster from Novara Media.

This is, in one sense, the bottom-up model of change that is meant to underlie the Labour Party: remits are proposed by members, with the leaders having the responsibility to carry out the action taken to turn remits into policy and law. But for some time, in the United Kingdom and overseas, the ability of the mass movement to shape change within social democratic parties has become stunted. Work needs to continue to make membership of the Labour Party in the United Kingdom more meaningful, including through reform of internal processes. (Max Shanly’s note on strengthening Young Labour offers some ideas of reform in one part of the party.)

It may be that Hardt and Negri’s suggestion also leaves leaders of a social movement only doing administration — and that this is too technocratic. Whilst there does in my view need to be greater power given to members of a mass movement, leaders — as Jeremy Corbyn has demonstrated — may play some useful role in charismatically giving voice to ideas emerging out of the movement.

What is the role of intellectuals in all of this? We might need to challenge old dichotomies here, too: in particular, the distinction between intellectuals and non-intellectuals. it is important to remember that ‘intellectuals’ are not the same as ‘university academics’ — and by intellectuals I mean something broader than university academics (without at all demeaning the work of those academics).

Everyone is capable of doing intellectual work. There are different forms of intelligence — analytical, emotional, cultural, social, and practical intelligence. (Each of these forms of intelligence also comprises different parts: analytical intelligence, for example, might mean a comfort with abstraction, a skill for drawing distinctions, an ability to foresee and combat counter-arguments, or a combination of these things.) As Gramsci wrote in his ‘Prison Notebooks’:[iv]

“There is no human activity from which every form of intellectual participation can be excluded: homo faber cannot be separated from homo sapiens. Each [person], finally, outside their professional activity, carries on some form of intellectual activity, that is, [they are] a “philosopher”, an artist, a [person] of taste, [they participate] in a particular conception of the world, [have] a conscious line of moral conduct, and therefore [contribute] to sustain a conception of the world or to modify it, that is, to bring into being new modes of thought.”

In short: we’re all intellectuals. Some people have the privilege of being paid for intellectual work, including those at universities (though their pay and work conditions are not always as good as they should be, as the upcoming University and College Union strike highlights) — and those people can, where possible, use the time they have to work through these challenges. Others, including those who write for a public audience, may have a skill in finding words that speak to people’s instincts and intuitions, and if they can use this skill for the purpose of advancing a broader movement, that is all for the good.

But then the intellectual work that feeds into strategy — the work that clarifies what actions need to be taken — must be combined with practical work: coming up with a sequence of those actions (something Paul Mason alluded to in his Clement Attlee Memorial Lecture), thinking through what is possible (while always pushing to widen the existing Overton window, in the spirit of what Mark Fisher discusses in Capitalist Realism), and organising people to make the action happen.

A division of labour — tailored to the task ahead — can help to clarify the different forms of intellectual work that must be done, the practical work that can discipline that intellectual work, and the way that mixed intellectual-practical labour adds up to a strategy. (After all, as Marx notes in volume 1 of Capital, division of labour is not necessarily a capitalist idea: it is rather the case that a capitalist conception of division of labour has been developed that distorts our proper place in the world.) That division of labour will emerge out of the fierce furnace of activism, and in calmer moments of community-building and conversation.

In sum, then, the work of developing the strategy — to accompany the theory — of Corbynism is partly intellectual and partly practical. The responsibility of developing that strategy lies with all of us.

[i] Some of this lecture has been reproduced in this piece for openDemocracy: http://neweconomics.opendemocracy.net/neoliberalism-destroyed-social-mobility-together-must-rebuild/. (Paul Mason was not, however, wedded to his notes in his Clement Attlee Memorial Lecture, and there are sections in this openDemocracy that did not appear in his lecture.)

[ii] I sit on the Board of We Own It.

[iii] I have written about this in my book, The New Zealand Project, and in this piece about street art: https://thedial.co/articles/graffiti-politics-on-street-art-space-and-public-democracy.

[iv] My particular thanks to Franck Magennis for his comments on this section, and his suggestion of this quote from Gramsci.

The post Economic policy and strategy for a Corbyn-led government: reflections on Paul Mason’s Clement Attlee Memorial Lecture appeared first on New thinking for the British economy.

Diane Coyle is Professor of Economics at Manchester University, and this year will become the inaugural Bennett Professor of Public Policy at the University of Cambridge. In 2017, Diane was awarded the prestigious Indigo Prize in economics .

In the first in a new series of interviews with leading economists, Diane speaks to openDemocracy about industrial strategy, universal basic infrastructure, moving beyond GDP, and how to build an economy that works for the 21st century. 

The post VIDEO: Diane Coyle on fixing Britain’s economy 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.

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This week, university staff have been on strike against devastating changes to their pensions, braving the freezing weather to stand on picket lines waving placards with brilliantly dweeby slogans (personal faves: “Geertz ya dirty hands off our pensions” and “The provost is an ontological turn off”). Universities UK have finally agreed to talks with the union, UCU, about the future of the Universities Superannuation Scheme (USS), but with staff wary of falling into the same trap as junior doctors, the strikes are set to continue for the next two weeks.

As a current postgraduate student, I’m supporting my striking lecturers all the way. But I also think it’s crucial that we use these strikes as a wakeup call. What’s being proposed for USS members is no worse than what faces millions of us when we retire – and probably better than many of us. The difference is that, like the frog slowly boiling in a pot of water, we don’t realise it. Unlike USS members, we probably never had a guaranteed pension to lose in the first place. Unlike USS members, we haven’t had the sudden shock of being told it’s going to be taken away to galvanise us into action. But there’s a quiet crisis brewing in the UK pensions system – one that will affect us all unless we stand up and demand change.

To understand this better, let’s look at three of the key things striking university staff are angry about, and explore how they play out across the rest of the pensions system.

1. Members’ pensions will be at the mercy of the capital markets

At the heart of the dispute about USS is a proposal by management to turn it from a ‘defined benefit’ (DB) scheme, where the level of members’ pensions is guaranteed (i.e. the benefits the plan pays out are fixed), to a ‘defined contribution’ (DC) scheme, where your pension depends entirely on how your individual investment portfolio performs (i.e. the contributions into the scheme are fixed, but the benefits it pays out are not). There are two key things to understand here.

Thing One: You probably have a DC pension

The first is that DC pensions are the norm across the UK: there are very few DB schemes left in existence, and many of those that do exist are struggling with massive deficits, or are already closed to new members. For most workers outside the public sector and formerly nationalised industries, a guaranteed pension is a thing of the past.

Of course, the whole point of a pension is to provide a secure income in retirement. In a very real sense, a DC pension is not a pension at all: it’s just an investment plan, a tax efficient way for individuals to save towards their retirement. No risk sharing, no social insurance: just you and the financial markets. DC pensions fly in the face of the whole notion that it’s fairer and more efficient to pool our risks and resources than to leave each other to sink or swim. But this is the model that now dominates in the UK.

The rationale of DC is based on a classic neoliberal story about individual choice: individuals take responsibility for their own retirement savings, individuals choose who they want to manage their money, individuals decide how much risk they want to take on. This is also how the proposed DC scheme has been sold to USS members. But the reality is very different. Like railways and other public utilities, this is one area of life where reality simply refuses to conform to the free market utopia of neoliberal theory.

The reality is that, right now, most people in permanent jobs are being ‘automatically enrolled’ into pension schemes chosen by their employer – most likely schemes of baffling complexity designed by an army of investment consultants and asset managers, which neither they nor their employers really understand. They will not make an active choice about how much to save. They will not make an active choice about who to entrust with their money. They will not make an active choice about where to invest or how much risk to take. Most of us don’t have the time or expertise to be making those kind of decisions anyway. And yet the whole system is based on the fiction that we are making those decisions – that the consumer is king, when really the saver is being shafted (more on that later).

To give him his dues, Lib Dem Pensions Minister Steve Webb understood what a disaster in the making this situation could be. He tried to change the law to make it possible to run ‘collective defined contribution’ schemes – a sort of half-way house between DB and DC, with flexible ‘targets’ instead of hard guarantees. The Royal Mail and its union have recently agreed to try this approach, and UCU have suggested it as a possible way forward for USS. These schemes are the bedrock of the Dutch pension system – often held up as a model the UK could learn from – but are not accommodated by UK rules, which are designed only for DB and DC. But Webb’s Tory successor Ros Altmann scrapped the plans, saying it was ‘not the time’ to ask the pensions industry to absorb more regulatory changes.

Yes, you read that right: the government introduced laws requiring millions of us to be automatically signed up to pensions we didn’t choose, creating a multi-billion dollar new market for the industry. It failed to do any serious thinking about how to make sure those pensions represented good value for savers or society. And when proposals came forward to fix the mess, they rejected them on the basis that the industry couldn’t cope with the extra changes. This is entirely symptomatic of an approach to pensions regulation that has consistently put the interests of powerful City firms ahead of the needs of ordinary savers. The Tories are now saying that CDC could be back on the agenda, but there are no concrete commitments, and they may well cave to the industry again without popular pressure.

Thing Two: Your pension is definitely at the mercy of the capital markets

The second thing to understand about all this is that, in a sense, even traditional DB schemes are already at the mercy of capital markets. Both DB and DC schemes function on the basis that members’ contributions are invested in financial markets and pensions are paid out based on the returns. The only difference is who bears the risk if returns don’t match up to the pensions people want and expect. In both cases, the financial markets are the goose that lays the golden eggs, and when the goose stops laying, the scheme can hit the buffers.

Since the financial crisis, the recession and prolonged period of exceptionally low interest rates have caused problems for many pension schemes, making it hard for them to get the high returns their projections depend on. This either causes deficits to yawn open, or prompts funds to look further afield for more risky and exotic investments to push up yields (such as developing country corporate bonds, flirtations with expensive private equity, and other ‘alternative’ investments). At a system level, this could be inflating speculative asset price bubbles and storing up future financial crises.

Of course, investing pension contributions to produce a return isn’t a bad thing in itself. Pension funds have huge potential for social good, to act as vehicles which mobilise the capital of millions of small savers and invest it in the things society needs, from housing and renewable energy to small businesses. But, as the landmark Kay Review concluded in 2012, today’s pension funds are increasingly not acting as long-term, productive investors in the real economy, but as more or less speculative participants in global financial markets – employing armies of asset managers who try and ‘beat the market’ by buying low and selling high, across thousands upon thousands of different stocks, bonds and other financial assets.

DB, DC or CDC, our pension funds are not only at the mercy of financialised capitalism – they are key players in financialised capitalism, fuelling rather than counteracting its cycles of boom and bust. Regardless of the type of pension we have, we all need to be worrying more about how our money is being invested on our behalf. This is the engine on which our retirement savings depend, and it’s long overdue an MOT.

2. Unaccountable middlemen are getting rich while members’ benefits are cut

This brings us to the second way in which the anger of USS members shines a light on the bigger problems with our pension system. One of the targets of UCU members’ ire in recent weeks has been the pay packets of USS’ executive committee (reportedly paid an average of £488,000 each), and in particular of its Chief Executive Bill Galvin, previously head of the Pensions Regulator.

When it comes to rent extraction in the pensions system, this isn’t even half the story. Most of us will be separated from our money not just by the management of our pension fund itself, but more crucially by an elaborate chain of asset managers, fund-of-fund managers and investment consultants, all of whom take a cut out of our savings. In fact, USS is an interesting exception to the rule, in that it recently ‘in-sourced’ its asset management (although whether this team is doing a good job or delivering value for money for its members is still contested).

Because they tend to be paid based on funds’ relative performance against other funds, rather than their absolute performance, the fees extracted by this City circus have continued to grow even as our pensions do worse. From 2002-2007, pension funds’ payments to intermediaries rose by an estimated 50%, while real returns to savers actually declined. This also incentivises the merry-go-round of financial trading which adds no value to the economy – as fund managers ‘churn’ portfolios at ever greater speeds, extracting hidden transaction fees every time.

Often this happens without the full awareness of the pension fund itself, let alone the members who ultimately pay the price. It’s only now, after years of tireless campaigning by organisations like ShareAction, that we’re finally going to get the right to know where our money is invested and to see the full picture on fees and charges being extracted. That’s right – in this brave new world of competition and choice, we don’t yet have access to basic information about what we’re ‘choosing’. And even when we do get this right, how many of us will have the power or expertise to do anything with that information?

Economists like John Kay and Paul Woolley, and pensions experts like David Pitt-Watson, have long been sounding the alarm about the level of rent City middlemen are siphoning out of the pensions system – yet politicians have seemed paralysed to do anything about it, in thrall to the powerful interests of the City. If anything, the system as a whole is becoming less rather than more accountable to pension savers.

USS is an example of a trust-based scheme, overseen by a board of trustees which includes member representatives. At least in theory, these trustee boards exist to protect members’ interests, and have strict legal duties to do so. But, like DB schemes, trust-based pensions are a declining part of the picture. Under auto-enrolment, more and more people are being enrolled into what’s known as ‘contract-based’ schemes – as the name suggests, essentially just a contract between you and an insurance company – which are even further away from the ideal of collective provision which should characterise a true pension.

I myself have three of these ‘pensions’, accrued during stints with different employers (incidentally, a proposal to have pensions follow you from job to job to prevent this kind of situation – another Steve Webb initiative – was kaiboshed by the Tories after industry lobbying.) I can barely manage to make sure they all have my current postal address: the idea that I’m in any meaningful sense keeping an eye on what they do for me is a farce. And I worked on pensions policy for four years: if I’m not the ‘informed consumer’ of economic theory, then who is?

Unlike trust-based schemes, insurance companies do not have an overriding legal duty to protect the interests of savers, and savers do not have to be represented in their governance. Again, this problem has been pointed out for many years, but so far all that has been done about it is the introduction of toothless ‘independent governance committees’. The saga of RBS’ Global Restructuring Group, which destroyed small businesses it was supposed to be helping, shows us all too clearly what happens when vulnerable borrowers and savers are thrown to the wolves of Wall Street and the Square Mile with nobody to look out for their interests. Yet that’s exactly what is being done with our pensions.

3. Members stand to lose up to 50% of their pensions

Of course, what all this ultimately comes down to is that USS members now stand to get a significantly lower pension than they did before the proposed changes. And again, this is indicative of a wider trend.

All the problems discussed above – excessive rent seeking, speculative churning of portfolios, long chains of middle men – have been chipping away the value of UK pensions for decades now. Because of the effect of compounding, fees that eat 1% out of your pension annually can erode it by up to 30% by the time you retire. It’s hardly surprising that UK net retirement income ‘replacement rates’ (your take-home pension as a proportion of your final salary before retirement) are the lowest in the OECD, with only Mexico coming close to being as bad.

Until recently, policymakers’ only response to the looming crisis of pensioner poverty has been to ‘nudge’ people into saving more. As with broken energy and banking markets, it’s easier to point the finger at citizens and tell them to be ‘better’ consumers than it is to take on vested interests. In practice, all this means is that millions of us are now automatically opted into a broken and destructive system – handing even more power to those who run and benefit from that system.

But it should now be crystal clear that we’re not going to retire poor just because we’re insufficiently thrifty. Instead, stagnant wages mean we’re paid too little to save enough, and too much of what we do save gets sucked into the black hole of speculative rentier capitalism. David Pitt-Watson has argued that cracking down on rent extraction and embracing CDC could boost UK pensions by as much as 33%, “perhaps ending the pensions crisis at a stroke”. Whether you believe this or not, it’s clear that something has to give.

Our pensions system simply isn’t working – not for savers and certainly not for society. In fact, it increasingly seems like the only people it’s working for are the City firms who manage it. Policymakers who don’t really understand capital markets have seen them as a magical black box that can resolve deep-seated problems with our economy – like an increasingly precarious and poorly paid working population having to support a growing population of retired people. They’re banking on the City’s ability to transform the lead of inadequate wages and savings into the gold of a decent pension. If this sounds familiar, that’s probably because it is: a similar mindset underpinned the mortgage bubble that led to the financial crisis. This folly is slowly but surely brewing up a crisis of old-age poverty and financial instability – one that could reach epic proportions unless something is done about it.

What that something should be is beyond the scope of this article – and will probably require deeper and more imaginative thinking than has been done on this subject to date. But in broad terms, we need to see the same shift in the parameters of debate that Labour has achieved in relation to public ownership of things like energy and the railways. Instead of taking our broken, rent-extracting privatised system as a given and seeking to apply sticking plasters, we should be exploring democratic and not-for-profit models which put power back in the hands of the people. Instead of assuming there is no alternative to the UK system, we should be learning from other countries who do it better. And instead of kowtowing to the demands of the City elites who run our pension system, we should be ready to pass regulations that force them to do right by savers.

It’s to be hoped that Universities UK are coming back to the negotiating table in good faith and that an end to the USS dispute is in sight. But if we want a decent retirement for everyone, we need these strikes to be just the beginning.

The post USS is the tip of the iceberg. Our pensions system is a hot mess 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.

The post Why the Tories do not believe in free markets appeared first on New thinking for the British economy.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The post Who owns Britain? appeared first on New thinking for the British economy.

In 2010, the British right wing media and political parties told a very convincing story about the economy that persuaded the public we had no choice but to make massive cuts to public spending. You probably know it already: there was no money left, the economy was like a household budget, we’d maxed out the nation’s credit card, and it was time to tighten our belts. Anyone who watches the news will be familiar with this story, and if you’ve ever gone door knocking, you will have heard people repeat it back to you with total conviction. Since 2010, there have been 120,000 excess deaths linked to austerity, the Red Cross declared a humanitarian crisis in the NHS, and use of foodbanks has soared. Why, in light of all of this, did people still support it?

This was the backdrop for the Framing the Economy project. We believed the public endorsed a right wing story about the economy because progressives had failed to come up with an alternative. There weren’t that many progressive spokespeople on current affairs programmes, and when they were it was like they didn’t know what to say. So four organisations came together to understand how British people understood the economy and what new story could be told to persuade them to share our ideas. The four organisations that led the project were NEF (New Economics Foundation), NEON (New Economy Organisers Network), PIRC (Public Interest Research Centre) and the Frameworks Institute.

Of course a lot has changed since 2010. We didn’t expect the host of The Apprentice to become the American President, for example. But the tumultuous politics of the last eight years do suggest the austerity consensus is breaking down, and that there is a real opportunity for a resonant progressive story about the economy to win public support. After the 2017 election, where the Labour Party defied all odds to destabilise the government on an anti-austerity programme, the need for a project like Framing the Economy seemed more urgent than ever. The public are finally ready to hear about an alternative economy. This project is to help communicators explain how we might create one.

So in June 2016, shortly after 52% of the British public voted to leave the European Union, we got to work. The project consisted of three phases: first, we would conduct in-depth interviews with a cross section of British voters to understand how they conceive of the economy. Second, we would compare these interviews to how progressives think of the same thing, to identify gaps in our ways of thinking. And finally, we would come up with a new and resonant story, rich with metaphor, that would be able to close those gaps. The eventual story would be rigorously tested, so we could safely say it moved people’s thinking from where they were originally to where we wanted them to be.

Our interviews revealed several “cultural models” held by most members of the British public to understand how the economy works. We use the word “how” because cultural models show us how people think of the economy as a whole, rather than what they think about single issues – which is what opinion polls tell us. Cultural models are the durable, deep assumptions we hold to organise information and interpret the world around us. They are shared by all of us. Here are the main cultural models we found:

Cultural models

What the economy is and how it works

• People only really understand the economy as the monetary system and expressed this through the metaphor of circulation. They don’t consider things like social care, for example, to be part of the economy.
• People think the economy is always on the edge of disaster, using language like ‘tumbling’, ‘falling’, and ‘rocketing’ to describe it.
• People conceive of the economy as a container, with people putting in (contributing) or taking out (draining). The government was assumed to control what goes in and out of the pot, as well as how its contents are distributed.
• People actually don’t understand how the economy works, by and large – except for in quite limited ways. They also lack confidence in talking about it.
• People think that the economy exists in competition with the environment – what is good for the environment is thought to be bad for the economy and vice versa.

Why the economy works as it does

• People think the system is rigged by elites in government, business, and the media who pull the strings of the economy for their own benefit.
• People viewed the media as having a hidden agenda and were very distrustful. Having said that, several of our participants who said they distrusted the media later dispensed arguments that correspond with popular news frames.
• People assumed greed is a basic part of human nature: all people are motivated by a desire to enrich themselves, even at the expense of others.

How the economy should work

• People wanted Britain to have more national self- reliance, producing key products at home and be able to meet its basic needs without relying on other countries. Globalisation and, to a surprisingly small extent, Europe are the foil for this model.
• People often idealised an earlier time – typically the post-war period – when wages were high, jobs were more secure, inequality was low, there was a greater sense of community, and ‘we did more manufacturing’.
• People believe the government has overall responsibility for managing the economy.
• Overall people were extremely fatalistic and didn’t think the economy could be changed for the better. This meant that they often drew a blank when asked about different ways to run the economy.

Telling a new story

Because we found so much fatalism in the responses of our interviewees, we felt that we could not make economic arguments to the public if there was a pervasive belief that change simply wasn’t possible. For that reason, the story we told argued that the economy had been designed as a result of human choices, made by a small elite, and could be redesigned with different choices. After testing and analysis, we found two powerful but fairly different stories that help shift people’s thinking. If you want to use them in your work, we recommend you read our full report on the project first. It contains lots of information how to best deploy the stories so they’re most effective, and there’s some pointers on what to avoid doing so you don’t undermine your argument.

Story 1: Resisting corporate power

There are a lot of different ways to interpret the term “populism,” so it is important to be clear that when we use the term, we mean a story that pits elites against the people. Story 1 is a fundamentally populist story. It contains the following elements:

• The value of equality or economic strength
• The explanatory metaphor of reprogramming the economy
• An explanation that connects the dots and explains: 1) how corporate elites have programmed the economy and how this has undermined equality/economic strength, and 2) how the economy can be reprogrammed to promote a strong/equal economy.

Here’s a sample message that uses the value of economic strength. Our research shows this value is particularly successful in convincing Conservative voters, but this story can also be employed using the value of equality (but not both at the same time).

Over the last forty years, our government has become a tool of corporations and banks, and as a result our society has served their interests while failing to provide the broad-based supports that our economy needs to work well. This has weakened our economy, so it doesn’t meet people’s needs.

Our economy is like a programme that is constantly being revised and updated. Corporate elites have gained the password to the economy, and have programmed the economy to work well for corporate users. But the public have been locked out, so the parts of the economy they rely on have been neglected. As a result, many users of the economy experience constant glitches, and the economy as a whole doesn’t run well.

By programming the economy for financial services rather than manufacturing, we’ve destroyed the types of good jobs that put money back into the economy. And cutting taxes and privatising industries has undermined our ability to invest in ways that strengthen the economy and keep it running smoothly.

As a society, we need to prioritise a strong economy over the desires of corporations and wealthy elites. We need to reset the password and give control of the economy back to the public. That way, we can reprogramme the economy so it works better. We can create a strong and durable economy by guaranteeing decent wages for the least well-off, investing in local communities, and restoring public ownership of common resources like energy and transport. Creating a good society means taking back the password to the economy from corporate elites and reprogramming the economy so it runs smoothly and makes a good life possible for all users.

Story 2: Meeting our needs

Sometimes it might not be appropriate for communicators to tell a populist story about the economy. So for these cases, we recommend the second story, which doesn’t blame elites but instead focuses on how the economy fails to meet people’s real needs. It includes the following elements:

• The value of fulfilment
• The explanatory metaphor of economic tracks
• An explanation that connects the dots and explains: 1) how our economic tracks have made it difficult for people to reach fulfilling lives, and 2) how the economy can be rebuilt to get people to their real needs.

Here’s a sample message that shows how these elements can be put together:

A good society makes it possible for everyone to lead a meaningful and fulfilling life. Yet, our society is currently focused solely on profit, and people are forced to chase money rather than happiness.

Our economy is like a railway network—it’s built to take people to particular places. The laws and policies that we make lay down tracks that determine where the economy takes people. Right now, our economy is built around profit, rather than being built to get people to their true needs. By allowing businesses to use zero-hour contracts, provide low wages, and require people to work more and more hours for the same pay, we have built economic tracks that move profit forward but leave people without the things they need to achieve wellbeing and realise their potential. When people don’t have decent wages or stable jobs, this undermines wellbeing in all sorts of ways. And for those of us who do have stable jobs, the need to work more hours means less time with our families and to pursue our goals in life outside of work.

As a society, we need to prioritise happiness and fulfilment over profit. We need to lay down economic tracks that make it possible for people to arrive at a meaningful life. We can build an economy that gets people to happiness by guaranteeing decent wages for the least well-off, banning zero-hour contracts, and reducing working hours. Creating a good society means laying down economic tracks that enable us to get to our real needs rather than keeping us all on a train whose only destination is profit.

Making sure people listen

So we’ve got a new story on the economy. But we need to make sure the public will actually hear it. To do this, NEON is founding a Communications Hub which will provide tools, research and training to make sure people in communications will be able to get the stories we’ve identified into the public sphere as efficiently as possible. We know certain frames already exist in political discourse – like the ‘system is rigged’ cultural model – but progressives need to insert themselves into public debate to make sure these frames are wielded in a way that does convince people to share our ideas.

The Communications Hub will launch in Spring 2018. It will expand on NEON’s existing programme to train progressive spokespeople who appear in the media, as well as introducing new training programmes like a training programme for press officers. The Hub will also help communicators frame their messages effectively, connect communicators in the same sector to one another, and share the latest research on framing and public opinion. In short it will do all of the things communicators should be doing, but simply don’t have time for. With the Communications Hub and the two stories from the Framing the Economy project, NEON will be able to provide the tools for communicators to fundamentally change the way we talk about economy – and then progressives can start telling stories that are as effective and impactful as the one the public bought into about austerity.

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Jeremy Corbyn’s call for an economy that works “for the many” has proved a revitalising rallying cry for a new social settlement beyond neoliberalism. But the democratic socialism that inspires Corbyn and McDonnell promises more than a redistributive agenda delivered for ordinary people from on high.

Just over one week ago, the Labour leadership used their “alternative models of ownership” conference to launch a set of proposals for economic democracy: an attempt to transfer power away from both private capital and government bureaucrats, giving control to workers and service users.

The plan here is a return to public ownership for public services and utilities. Then, the devolution of control to regions and municipalities where possible, and the inclusion of workers and users on governing boards. In the private sector, we’re promised the mass rollout of co-operatives and mutuals.

But as encouraging as these proposals are, is there anything that new? In healthcare, for instance, attempts have been made to involve patients in service design and delivery for some time. Are Clinical Commissioning Groups really the stuff of mass democratic renewal?

In Germany, the incorporation of workers on boards has seen German trade unions increasingly co-opted into the internal operations of capital. Is making M&S work a bit more like John Lewis really “taking back control”?

In sum: How can these plans be more than the hollow and tokenistic forms of “stakeholder involvement” championed by Blair onwards? Why, actually, would anyone want to give up their free time to help run their energy company or post office? Would you give up your Thursday evening pub trip to deliberate the small print of procurement policy?

Actually, maybe I would. But only if I truly believed that doing so would really enrich my life, and the lives of others around me.

If Labour really wants a New Economics, we need to commit to something really new. Just as it took the creation of a host of new institutions and processes to build the welfare state, equally it will take new institutions and processes to build a radically democratic economy. These institutions and processes should make participation in day-to-day economic decision-making as easy, effective and rewarding as possible. To do this, I suggest four principles.

1. Shaping society as a whole

Part of the problem with Labour’s current proposals is that they allow for participation only within pre-existing, predefined and constricting silos. Those with chronic illnesses have a clear reason to participate in managing health services; renewable energy geeks would relish the chance to input on energy sector decision-making – and great, so they should!

But what about those of us without such specialist interests? Why would we actually want to participate and how would we decide which sector to get involved with?

If we have trouble paying the fuel bills, chances are we’ll also be struggling to pay for water, rent, food. If we have a chronic health condition, this will often give us specific needs beyond health services, for instance around housing or the workplace. Accordingly, we need to build institutions that allow people more control over their everyday lives in their entirety, without forcing choices about the one thing that matters.

Instead of limiting democratic engagement to a health service users group or an energy co-operative general meeting, our task is to create spaces where people can debate and shape how society is organised as a whole.

2. Neighbourhood assemblies

But millions of people live in the UK. Wouldn’t giving everyone a say on everything be a total mess? Not if we develop systems to allow manageable forms of participation in the places we live.

What if every council ward in the UK held an assembly every six months, facilitated and organised professionally but open to all to participate in. Community organisers could be recruited to get as many diverse folks from across the area as possible involved.

What if these were not bureaucratic exercises in “consulting” people on decisions that were already made? If instead they were spaces to meet your neighbours, to become less isolated and lonely? What if the unexpected was allowed to happen, if lively debate and argument about both micro and macro level politics were encouraged?

These assemblies would be given the power to inform local government decision-making, and in addition to shape the direction of national services and industries. They would be spaces for dialogue, deliberation and local direct democracy. They would be able to signal approval or disapproval for particular policies in ways that would be hard to ignore.

3. Integrating direct and representative democracy

Neigbourhood assemblies would also elect delegates who would work together at a local authority level, always directly accountable and recallable to their neighbourhood. Local authority assemblies could then vote through delegates to constitute thematic regional and national working groups, for instance on energy or transport. The idea would not be that these working groups would be totally in charge of running industries and services. Rather, they would be able to participate in the management of industries and services alongside workers, politicians and experts.

What this amounts to is a proposal for bringing together two forms of democratic participation. While neighbourhood assemblies could allow for direct democracy on certain issues of specific localised concern, they also provide the building blocks through which systems of federation and representation are built. Layers of delegates coordinating across scales would be tasked with amplifying the voices of their neighbours within regional and national decision-making.

This deepens the democratic credentials of Labour’s current proposal. Yet it’s worth noting that this proposal for participation building from the local to the national is not a far cry from the Labour Party’s own internal democratic structures, or those within trade unions – structures that thousands across the UK already participate in.

What’s different here is that if we adopted these structures in government, mechanisms of democratic participation would be integrated within the political and economic structures that make or break our lives.

4. Digital participation

Finally, we should maximise opportunities for online participation in governing our economy and institutions. While digital democracy cannot replace the collective experience of being, discussing and deciding together in person, it provides a less time-intensive form of involvement that should be fully integrated.

In Barcelona, the city set its strategic plan with the aid of an online democratic forum in which all were free to suggest, discuss and vote on proposals – a process that over 40,000 people participated in.

Taking inspiration from this, an online forum could provide an opportunity to present and discuss proposals to be taken to each of the various layers of decision-making. This could also be a platform to maximise transparency, on which official documents and decisions are made easily accessible.

For those less familiar or comfortable with digital technologies, again following the example of Barcelona, specialist teams tasked with facilitating online participation could be formed.

***

The right’s story about taking back control proved compelling precisely because it was attached to a set of political acts – leaving the European Union, closing the borders, winning “national sovereignty” – whose radical consequences needed little explanation.

We absolutely need to reclaim questions of control as the territory of the left. But if the last few years of political turmoil have taught us anything, it’s that you cannot declare an alternative trajectory that anyone will believe without proposing something that looks and feels truly different.

We need a more believable vision of economic democracy that leaves no doubt as to its transformative potential. A vision that makes clear that mass participation is the only way to re-rig the economy in our interests as opposed to the interests of investors and speculators. A vision of renewed collective culture and belonging in a society that is still reeling from decades of being told that it does not exist.

We need a vision of a society that learns to live together differently. A society run both for and by the many, not the few.

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Paul Mason, Dr Faiza Shaheen, Anthony Barnett and Dr Johnna Montgomerie discuss whether radical social democracy offers a way out of the crisis of neoliberalism, and what that means for future economic policy. 

The debate is part of a new series by Paul Mason exploring what radical social democracy means during the next decade. Paul’s first essay in the series can be read here. 

* Dr Faiza Shaheen is Director of the Centre for Labour and Social Studies (CLASS)

* Anthony Barnett is co-founder of openDemocracy and author of The Lure of Greatness. 

* Dr Johnna Montgomerie is Deputy director at the Political Economy Research Centre, Goldsmiths University of London. 

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According to the think-tank IPPR, a third of the UK’s annual pay and 44% of jobs are under threat from automation. This translates to £290 billion and 13.7 million jobs, with low paid jobs most at risk.

The impact of automation will also be unevenly spread geographically. The Centre for Cities estimates that workers in the north of England and the Midlands are most at risk, while northern towns including Sunderland, Stoke and Mansfield could see nearly 30% of jobs automated in the next 12 years. In contrast, cities such as Cambridge and Oxford may only see 13% of jobs automated.

Another report by PwC suggests that 30% of jobs could be under threat from artificial intelligence within 15 years. Unskilled jobs may be lost to robots, while skilled jobs could be lost to AI and algorithms. Some locations and sectors will fare better than others. In Shadow chancellor John McDonnell’s constituency of Hayes and Harlington – which contains Heathrow Airport – 40% of jobs are estimated to be at risk.

Despite the challenging road ahead, automating roles with robotics and artificial intelligence will present us with vast opportunities if we can seize them: from closing the productivity gap to ridding ourselves of backbreaking work and greatly improving our quality of life. A million people currently make their living from driving in the UK, yet driverless vehicles could make our roads much safer.

But if mass unemployment is mismanaged through a lack of planning by government and a lack of awareness among the public, it could add fuel to populist movements. The impact of automation on democracy has been a blind spot in the debate thus far. If we are to ensure democracy thrives in the information and network age then we must start planning now.

It is not difficult to imagine a future government indulging the temptation to deregulate the labour market in a desperate and futile bid to keep humans competitive with robots. Whilst this might keep employment artificially high, those hit by chronic unemployment, incredibly low pay and the indignity of working in a job they realise is utterly absurd will ultimately drive people to the edge, provoking populism and extremism. This effect will be amplified further if the narrative of “strivers versus shirkers” continues to be exploited.

Our careers and our pay brackets position us within society, our political engagement, and even the way we vote is influenced by our economic value. People may engage less in elections when unemployment rises. As automation increases, we may see political instability as elections become less predictable. For many, active democratic participation comes from collective bargaining at work via trade unions, associated party memberships and industrial action. A loss of unionised work would close these channels of democratic participation.

Not everyone believes that mass automation will lead to mass unemployment. At the launch of the Future of Work Commission the co-chair and Labour MP Tom Watson insisted we should not fear the “march of the robots” who will set us free to pursue more rewarding and skilled work. Watson echoed the chancellor Philip Hammond, who weeks earlier got into trouble on the Andrew Marr Show when he dismissed the threat of driverless vehicles to the 1 million people who make their living from driving:

“I remember 20 years ago we were worried about what would happen to a million shorthand typists in Britain as the personal computer took over. Nobody has a shorthand typist these days. Where are all these unemployed people? There are no unemployed people. We have created 3.5 million jobs since 2010.”

Later on, the chancellor used his appearance on Peston on Sunday to clarify his message:

“But the point I was making to your former colleague Andrew Marr is that previous waves of technological change have not resulted in millions of people being long-term unemployed. They have been reabsorbed into the workforce.”

While it’s true that previous mechanisations created more rewarding and better paying jobs, the staggering advances in AI and robotics could spell the end of this trend. It is the difference between the original introduction of the combine harvester and an imaginary (for now) introduction of a combine harvester built by Tesla. This combine harvester is driverless; works day and night including over weekends and lunch; can sort, package, distribute, clean and self-repair; and use the data it collects on the job to design a more efficient harvesting programme. It might make food cheaper, but where do people fit in?

In the last century, deindustrialisation and mass job losses preceded the growth of the finance sector in the UK, which now employs 7.3% of Britain’s working population. But these roles are especially vulnerable to automation and many future job losses are predicted to come from this sector. A shrinking state, the potential loss of tax receipts and loss of middle class roles would make it difficult for the public sector to absorb people back in to work as it did in the past. A funding crisis in higher education could make retraining an expensive gamble.

Despite the obvious upheaval that automation will create, the term ‘Artificial Intelligence’ was mentioned in Parliament only 19 times between 2010 and 2016. A Future Advocacy report showed that only 7% of the general public are worried about their jobs being displaced by robotics and AI, despite increasing evidence of the gathering storm.

The authors of the IPPR report list ways to ensure that we all benefit from increasing automation, as well as mitigate some of the potential pitfalls which threaten to entrench increasing inequality. These include profit sharing for businesses above a certain size, expansion of employee ownership trusts and a new sovereign wealth fund for investing in the new companies that will flourish with automation. Other ideas include a robot tax.

Our expectation of ever-increasing economic prosperity makes kicking the can down the road a tempting prospect. But we are only three parliamentary terms away from 40% of jobs being automated in some constituencies. Rising living standards and economic prosperity have lent our democracy legitimacy — we must ensure these are not allowed to fall as a result of mismanaged automation.

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The housing market seems balanced on a knife edge. In January house prices fell for the second month in a row and buyer enquiries fell for the tenth consecutive month. Some commentators are calling for governments to ‘loosen monetary policy’ and ‘reinstate tax incentives for real estate investment’ in order to head off the risk of a crash. But excessive mortgage lending and real estate speculation helped get us into this mess, and more of the same is not going to get us out. If the government (or government in waiting) is serious about fixing the housing crisis, then it must get ready to give the housing market a soft landing.

Our lack of preparedness for dealing with a downward adjustment in house prices is a key obstacle to meaningful housing system reform. Take the issue of rent controls – by far the swiftest and most effective way to address the insecurity and exploitation in the Private Rented Sector. Rent controls are commonplace elsewhere in Europe, and polls show there is broad public support for them in the UK. They could take the form of strong tax penalties for landlords who charge more than a “living rent” (say, 30% of lower quartile earnings), alongside rent stabilisation measures, which would prevent landlords from raising rents faster than price or wage inflation. To give renters the additional peace of mind that they will not have to uproot at short notice – pull their kids out of school, leave behind jobs, friends and family – we could also have minimum five year tenancies, or better still, an end to ‘no fault evictions’, as implemented in Scotland last month.

Why do these proposals have so little traction in Westminster? Vested interests and ideology clearly play a role, but for many the reluctance to improve renters’ rights is borne out of fear – of triggering a sudden flight of investors and with it a crash in house prices.

This is not an unreasonable concern to have. The Buy To Let frenzy and loose mortgage lending of the last two decades have left us in a highly exposed position, with a long way to fall: prices in London are now 22% higher in real terms than they were at the height of the 2007 bubble, and a fifth of the UK housing stock – around 5.5 million homes – is in the hands of investors. As the Bank of England has repeatedly warned, this high concentration of investors carries with it the risk of a more sudden and dramatic house price fall: houses which are primarily conceived of as financial assets rather than homes are readily put up for sale if they no longer present a good investment.

A dent in rental income will be most concerning for those landlords who are servicing outstanding mortgages – which is the case for somewhere between 49 and 77 per cent of UK landlords. If a chunk of these opt to sell, it is unlikely that the spike in supply would be easily absorbed. Quite the opposite: if there is improved security and affordability in the Private Rented Sector, many potential first time buyers could decide to postpone their purchase decision until the dust has settled post-Brexit.

Unfortunately, high levels of mortgage debt make the UK economy uniquely vulnerable to a house price adjustment. Low interest rates and weak supervision of mortgage lending have enabled loan-to-income ratios to creep even higher than they were in 2007. Thus, a price fall could push a hundreds of thousands of households into negative equity, making it difficult to either move house or remortgage. This would be particularly problematic for those coming to the end of teaser deals and facing expensive Standard Variable Rates. Mortgage defaults could in turn affect the solvency of major banks whose balance sheets are now dominated by mortgage loans.

Once prices begin their descent, the feedback loops that push prices up during a boom could quickly slip into reverse. Banks could become far more cautious about extending mortgages, and households could become far more cautious about buying, which would put further downward pressure on prices. Meanwhile, households worried about their fall in housing equity may cut back on consumer spending, leading to falling profits and dampened business confidence.

With this domino effect in sight, is it any wonder that successive governments have dragged their feet on effective housing reform?

But what if we could intervene to ensure that prices fell in a controlled and gradual way? What if we could ensure that first time buyers who bought at the height of the boom were protected from negative equity, and that houses put up for sale by investors were bought by ordinary renters and not by second home owners? In that scenario, wouldn’t a reduction in housing costs be just the ‘reset’ that our economy needs, in order to better serve the interests of society? It would mean a smaller proportion of future household budgets eaten by landlords and banks. It would address one of the major blockages on the supply side of the housing system – the high price of land. It would begin to reverse the socio-economic cleansing of neighbourhoods that has occurred over recent decades.

What might such an intervention look like? How do you burst a bubble in slow motion? One idea that might be worth exploring is a People’s Land Trust and Building Society[*] (PLT hereafter) – a publicly backed but independent non-profit institution which would buy land from underneath houses and lease it to members.

There are two groups likely to be interested in leasing land, instead of owning it. The first is highly indebted homeowners who could sell the land from underneath their homes to the PLT, and use the income to pay down their mortgage debt. This ‘mortgage rescue’ element would help to protect banks and building societies from defaults and debt write-downs.

The second is people who want to be homeowners (privately or mutually) but cannot meet the current mortgage deposit requirements. Households or housing coops could approach the PLT when they’d found a house they wanted to buy and ask the PLT to cover the cost of the land and to grant them a mortgage to cover the cost of the bricks and mortar. Since bricks and mortar can account for as little as 30% of the price of a property, this would require people to save much lower deposits than is conventionally the case. Like the first group, the new buyers would sign a lease with the PLT which would entitle them to exclusive and indefinite use of the land in return for paying a land rent.

A PLT could thereby create a pool of renters ready and able to buy as soon as investors decide to sell, mitigating the risks of a precipitous fall in prices and a sudden shortage of rental properties. We can think of the PLT as a lever for introducing ‘desirable’ sources of demand into the market as ‘undesirable’ (speculative) sources of demand are exiting the market. In this way, the PLT could make all sorts of other housing and land reforms – such as the introduction of a Land Value Tax – more feasible too.

Depending on how it was financed, the PLT would sooner or later start to run a surplus which could be used to proactively purchase land for social housing, and/or be partially redistributed as a dividend to all members who have been paying into the PLT for some minimum number of years – 25 years, say. The latter option could improve the attractiveness of PLT membership compared to the mainstream model of homeownership.

Of course, if people wanted to leave the scheme before this point they would be free to go. When moving house, members of the PLT would sell only the bricks and mortar. The land itself would remain in the Land Trust, and the lease (and obligation to pay land rent) would transfer to the new occupant.

There would be no scope for making windfall gains or unexpected losses from such a sale, because land rents would be adjusted in line with changing land values, with the explicit aim of making sure that the sale price for the bricks and mortar remained roughly stable. This adjustment is essential to ensure that changes in the value of land do not result in arbitrary rewards or punishments for homeowners who have done nothing to deserve either. However, to protect PLT members from unexpected hikes in land rents (e.g. in the case of a gentrifying area), land rent increases could be capped in relation to wage inflation and only fully adjusted when the property changed hands.

To summarise, the purpose of the People’s Land Trust and Building Society would be to:

• protect ordinary households who bought at the height of the boom from ending up in negative equity.
• make it possible for people to own their own bricks and mortar without buying the land underneath.
• improve financial and macroeconomic resilience, by reducing the likelihood of mortgage defaults and making house price adjustments more gradual.
• allow for the gradual socialisation of unearned land rents which are currently captured privately by banks and landlords.

Needless to say, there are numerous questions to resolve in relation to this proposal. Perhaps the most obvious is the question of how the PLT ought to be financed: options could include bond issue; borrowing through the Public Works Loans Board; Strategic Quantitative Easing; a Land Value Tax, or taxation of the capital gains and rental income of property investors. The form of finance will obviously have a bearing on how quickly the PLT can grow and deliver a surplus.

There are challenges to overcome in relation to the valuation of land in periods of economic adjustment. And in the case of households who wished to sell their land to the PLT in order to pay down debt, there is the added dilemma of whether they ought to be remunerated for their land at the price they paid during the boom, or at contemporary (lower) values. The former option would seem fairer in the case of first time buyers who would not have benefitted at all from the preceding boom through ownership of previous properties. But of course, if the PLT were to buy the land at its value before house prices began to decline and then charge a land rent in proportion to new lower land values, it would take longer for the land rents to cover the PLT’s initial outlay.

There is also the challenge of ensuring that the separation of land and housing does not make it difficult for people to move house, as Shared Ownership schemes have sometimes done. If a new buyer could not be found to buy the bricks and mortar and take on the land lease, one option might be for the PLT to offer to buy the bricks and mortar at a price determined by independent Chartered Surveyors, and then sell it at a discount to social housing providers.

And finally there is a question about how the scheme would operate in the case of flats, where ownership is of a leasehold, and not a freehold. Perhaps the scheme could precipitate an end to leaseholds altogether?

The purpose of this article is to not to present a perfectly polished proposal, but to stimulate discussion. There is a risk, I realise, that the complexity of the challenges presented here might induce some readers to put their heads in the sand. Some might be thinking to themselves: ‘Perhaps we can solve the housing crisis without affecting Buy To Let profits?’ This is delusional on several levels.

High rents are inhumane: they mean children growing up in overcrowded, damp and unsafe conditions, and workers wasting hours every day on the commute. High rents are a drain on public resources: every year £8 billion of public money is paid out to private landlords in housing benefit. And high rents are driving a wedge through society. Until the 1980s, the housing costs facing renters and homeowners were broadly similar. Today, average private renters hand over twice as much to landlords as mortgaged homeowners hand over to banks in interest.

There are faster or slower ways of addressing these injustices. Theoretically, a massive state-led house building programme would, eventually, reduce pressure on the Private Rented Sector and improve tenant bargaining power. But there is a huge backlog of housing need to address (DCLG estimates as many as two million households) and major skills shortages in the building sector, to mention just two of the potential hold ups. We don’t have time to wait for these hurdles to be cleared. Rent hikes and evictions are ruining lives now.

It is time to face reality and listen to the demands of increasingly organised renters – in London, Scotland, Bristol and beyond. Rents must come down, security of tenure must be improved, and we must prepare for the long overdue bursting of the UK’s housing bubble. This means finding a way to cancel the unpayable debts of homeowners in negative equity, prevent banking insolvencies, and ensure that it is ordinary renters – and not second home owners – who benefit as investors flee the market. The People’s Land Trust may not be the answer. But it is time for fresh and bold thinking in this direction – or the societal fault line that has opened up between property haves and have-nots will only continue to widen.

[*] The idea presented here was originally inspired by a draft paper from the New Economics Foundation, making the case for a gradual but mandatory separation of the ownership of land and housing. See McCann et al. (forthcoming). Modern Land Reform. New Economics Foundation.

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

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

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

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

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

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

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

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

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

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

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

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In recent months, there has been a lively public debate between mainstream economists and its critics. Newspapers such as the Guardian have declared that economics needs a ‘reformation’, while there have been a number of response articles from mainstream economists complaining that the economics profession is misunderstood, and that it has been the victim of ‘dangerous’ and ‘ill-informed expert bashing’ for both failing to predict the 2007/8 financial crisis, and failing to take on new approaches.

The main points of contention seem to be:

1. Forecasting is very difficult
2. Most economists are not involved in forecasting or macroeconomics
3. A more pluralistic approach would dilute economists’ influence over policy makers
4. Economists are not right-wing as commonly portrayed
5. Economics has become increasingly empirical
6. Critics misinterpret the use of mathematical models
7. Economics is no longer based on simplified assumptions such as rational behaviour
8. Criticism is dangerous because it erodes the authority of experts

We believe that the critics have a point, one which many economists’ responses have failed to address. Nonetheless, the critics often get some things wrong about the discipline, which only serves to muddy the waters and put economists on the defensive. Below we will discuss each of these eight issues in turn to see what the critics have right and wrong.

1. Forecasting is very difficult

The point that forecasting is hard is obviously true, and it does play a smaller role in economics than it does in something like meteorology. However economists, and not just those who work for central banks, do regularly make forecasts which have enormous influence over policy makers, the private sector, the public – and therefore the economy. When in 2004 Alan Greenspan responded to suggestions that housing was in a bubble by saying ‘a significant decline in consumer incomes or house prices could quickly alter the outlook; nonetheless, both scenarios appear unlikely’ he was making a forecast that would have a profound effect on the subsequent course of events.

Forecasting also has a special role to play in the scientific method, as a way of falsifying theories. This is more difficult in the social sciences than in something like physics, but one reason the 2007/8 event gets so much attention is because it seemed to falsify many of the key assumptions of mainstream economics, such as the influential idea that markets are generally efficient and self-correcting, while heterodox approaches that have traditionally been marginalised did better.

The real problem though is not that mainstream economists failed to predict ‘the timing, extent and severity’ (as the London School of Economics put it) of the crisis – economists have never been held to any such standard of forecasting skill, and no one asked for an exact date. It is that they could not have predicted or warned of the crisis, even in principle, because their models didn’t allow for such events. Furthermore, the models directly contributed to the crisis by enabling the financial sector to develop increasingly risky and dangerous products.

2. Most economists are not involved in forecasting or macroeconomics

It is also true that most economists are not involved in forecasting (nor are most meteorologists). However the fact that #WhatEconomistsReallyDo involves lots of things other than warning of #MajorEconomicCatastrophes is not much comfort to the many millions of people who have been affected by such events; or to those who worry that economists are still not using the appropriate tools to model the economy.

3. A more pluralistic approach would dilute economists’ influence over policy makers

On plurality, it is often pointed out by economists that offering diverse viewpoints makes it harder for economists to shape policy. As Simon Wren-Lewis puts it, ‘The point is obvious once you make the comparison to medicine. Don’t like the idea of vaccination? Pick an expert from the anti-vaccination medical school.’

This is an interesting – but not unusual – choice of analogy, given that mainstream economists were the ones who saw no need to vaccinate the financial system against crisis. But to stay with the medical comparison, surely a bigger issue than plurality (doctors don’t always agree either) is rebuilding credibility with the public; a 2017 UK survey by YouGov asking which experts could be trusted when talking about their own areas of expertise showed that doctors were trusted by 82 percent, and economists by 25 percent. This isn’t just the fault of the media, or a public relations issue: according to Dean Baker (who presciently warned in a 2005 paper with David Rosnick that for economists to miss the US housing bubble would be an ‘act of extraordinary negligence’) the crisis cost each person in the US around $27,000 in lost earnings.

Comparing economics to a well-established science like medicine simply assumes the conclusion: that economics is a science. The all-too-common corollary comparison of heterodox thinkers to anti-vacciners – or climate-change deniers, or creationists, or all three – also points to the fact that mainstream economics, or at least the part of it with influence over policy, remains too much of a monoculture with little real interest in reinventing itself, despite numerous well-publicised initiatives to do just that. It seems that economists’ interest in the benefits of competition and new ideas breaks down rather quickly when it comes to their own field.

4. Economists are not right-wing as commonly portrayed

On politics, it is correct that economists aren’t all the free-marketeers they are so often portrayed as by the media. At the same time, one reason for this perception may be that economic models incorporate various assumptions that tend to lead to unequal and unfair outcomes. For example, mainstream economists have traditionally aimed to optimise economic growth and paid less attention to distribution, in part because their models make what amount to symmetry assumptions which don’t fit easily with things like extreme inequality. Another concern is that many influential economists have been captured by the financial industry through things like lucrative consulting contracts, one cause of ‘regulatory capture’. For instance, one study found that whenever none of a paper’s authors worked in a business school, it was ‘significantly less likely to be positive on the level of executive compensations and significantly more likely to be negative.’

5. Economics has become increasingly empirical

On the use of data, it is again true that economists have been incorporating more empirical data into their research, which is an encouraging development. However, while most economists who speak of a data-revolution lean on a 2013 paper by Daniel Hamermesh that makes this discovery, what they don’t mention is that Hamermesh himself concludes his paper cautiously, suggesting it is too soon to be confident that this development will do much to change the discipline. Besides, the real test is whether the data is being used to falsify key assumptions and modelling approaches. One data point, for example, is that the main macroeconomic models all failed during the crisis. But according to Paul Krugman, writing as part of the Oxford Review of Economic Policy’s Rebuilding Macroeconomic Theory Project, ‘Neither the financial crisis nor the Great Recession that followed required a rethinking of basic ideas.’ What then would it take?

6. Critics misinterpret the use of mathematical models

Economists claim that critics do not understand their mathematical models. However, it seems that non-economists are beginning to understand these models all too well – for example the Nobel-winning techniques used to evaluate complex derivatives, which blew up so spectacularly during the crisis. In fact, some of the most vocal critics include people with a training in mathematics or physics, who simply believe that the mathematics used by economics is inappropriate for the problem at hand.

And while it is regularly said that mathematics acts as ‘a powerful lie detector’ because it forces the economist to clarify their assumptions, the reality is that complex mathematics is often used not to clarify, but to obfuscate; something that even prominent mainstream economists – Paul Romer being a case in point – now recognise (though this will come as less of a surprise to people with a training in media than to those trained in abstract theory). One of the main criticisms of models used in everything from environmental economics to quantitative finance is that, in the wrong hands, they are easily adjusted to give whatever answer the modeller wants.

7. Economics is no longer based on simplified assumptions such as rational behaviour

A related claim from economists is that their popular critics are attacking a simplified impression of their models. Lionel Robbins for example wrote back in 1932 that if it were ‘commonly known, if it were generally realised that Economic Man is only an expository device … it is improbable that he would be such a universal bogey’ (today, economists prefer to use the term ‘straw man’). It is true that areas such as behavioural economics have grown in influence, and economists have never relied exclusively on simplifications such as rational economic man. However, these modifications generally take the form of small adjustments to existing models rather than a wholesale rethinking of the approach, something which has been left to other disciplines such as psychology.

Economists rightly criticise those who repudiate their work without reading it; curiously, though, they do not always abide by that same standard: among all the social sciences, economists are by far those least likely to read outside their discipline. One benefit of having economics discussed in the media is exactly that they can pull together ideas from different experts.

8. Criticism is dangerous because it erodes the authority of experts

Finally, there is the oft-repeated claim that criticism is ‘dangerous’ (or even ‘anti-intellectual and dangerous’ as a piece in Times Higher Education said) because it erodes public trust in experts. But how could public criticism of mainstream economics possibly be more dangerous to society than something like the complete failure of orthodox economic tools during the crisis?

To summarise, the problem we believe is not so much that economists are misunderstood by critics or by the public; it is that they have failed to adapt following the crisis, other than to come up with new ways of defending their tired paradigm. Heterodox economists and people from other disciplines, including those working in the media, have already played a useful role by contributing new ideas and advocating for alternative approaches from areas such as biology and complexity theory. But if further progress is to be made, mainstream economists and policy makers need to engage more seriously with alternative viewpoints, and realise – as many in the public and the media have already done – that the days of monoculture neoclassical economics are over.

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In his first monthly column for openDemocracy, Paul Mason argues that the mission of radical social democracy must be to rekindle hope in a simple idea: that life in your community will get better. Next week Paul will discuss the issues raised in this essay at a roundtable discussion hosted by openDemocracy at Goldsmiths, University of London. A video of the event will be released shortly after. 

The earliest picture I have of my Dad, John, is a class photo at primary school, sometime around 1936. He is clearly one of the poorest kids in the school and one of the most sickly: deaf in one ear, stick thin, small for his age, struggling to smile.

When I look at my favourite picture of him, on a beach at Newquay in the 1960s, he is happy, healthy and doing OK: a lorry driver who can sight-read and sight-transpose music, and discuss the ideas of EP Thompson and Solzhenitsyn.

His income had risen steadily in the post-war decades. But his life had been transformed. The technical term for what happened to him is intra-generational upward social mobility. But it does not even begin to capture the upswing in mood, quality of life, confidence and freedom of action that his generation experienced.

During the Depression, my dad used to cling to his mother’s knees to stop her answering the door, in case it was bailiffs coming to take their furniture. Furniture you could do without; the self-esteem that went out of the door with it, to be replaced by cold humiliation, was a different thing.

Today, the ghosts of my Dad’s childhood are back. Massively indebted households; poverty deep enough for food handouts to matter; rampant domestic violence; housing insecurity, and far-right xenophobic politics.  All these are symptoms of a deeper problem which has made the idea of upward mobility in your lifetime feel impossible to many working class people and – equally important – made the fear of a downward plunge distinctly rational.

The post-war Labour government of Clement Attlee met the aspirations of my Dad’s generation so exactly that it was the political equivalent of throwing a treble 20 at darts. It made, both at the time and in their memories, a satisfying clunk.

Labour under Attlee was able to transform British capitalism irreversibly because they understood: what they needed to do, who to do it for, in what order, what the risks were, and how to overcome the resistance.

Labour under Jeremy Corbyn has clawed its way to just above 40% in the polls because it has answered some of these questions; it will get to form a majority government when it answers all of them. The same lesson holds for other would-be transformative left governments across the world.

The what, the who for, the sequencing and the mitigation of risk will the subject of this essay series for openDemocracy on what radical social democracy means during the next decade.

***

What’s the problem we are trying to fix? It was described clearly by Jeremy Corbyn in his speech to the European Social Democrats’ conference in Brussels in October: “the neoliberal economic model is broken”.

That model, like all paradigms within industrial capitalism, had a beginning, middle and an end. In a brilliant confirmation of the dialectic, the same factors that drove neoliberalism’s upswing also caused its downswing.

Globalisation expanded the world’s workforce and delivered gains from trade way in excess of any previous period of international open-ness. Smashing the power of organized labour allowed a historic global reversal of labour’s previously rising share of GDP. The globalization of finance allowed household and corporate debt to grow, apparently, without destabilizing the system.

But from the mid-1990s onwards capitalism began to regurgitate capital. From the Asian crisis, to the Russian crisis, to Long Term Capital Management and then the dotcom crash of 2000-2001 a pattern emerged: an excess of capital compared to real growth and productivity.

With the wage share depressed, consumption had to be driven by credit, forcing large numbers of people to believe they had a stake in the financialisation of everyday life.

The pattern between the mid-1990s and 2008 is repetitive: capital floods into the financial sector triggering a boom-bust cycle; central banks respond by creating more money; this floods into a new asset class or country or region – triggering a renewed financial boom and bust cycle.

If, in the meantime, the information technology revolution had delivered what it promised – high productivity, high wages and high growth – this speculative frenzy might have ended with a new take-off of capitalism. The problem is: information technology is real but its value-producing properties are over-estimated. It produces increased usefulness but collapses the price of everything, above all itself.

According to the Bank of England’s economists Rachel Lukasz and Thomas Smith, out of an average global growth rate of 3-4% per year, technological innovation is responsible for precisely minus 0.2 percentage points over the past 30 years.

If you look at the positive drivers of growth identified by the Bank’s economists during the neoliberal era, they reach an inflexion point somewhere around the year 2000. In the 1980s and early 1990s about half the growth comes from the expanded global labour supply and half from “growth at the frontier of productivity”: that is rising education levels, falling inequality and the long term fiscal expansion that had pushed global government debts up to 60% of GDP by around 2000.

But from around the turn of the century global productivity growth disappears, to be replaced by “catch-up growth”: poorer countries industrializing their economies, urbanizing their populations and moving into the services sector. The price is massive financial, trade and fiscal imbalances which can only be reversed through a devastating financial crisis. Paying for that crisis boosts global government debt above 90% of GDP and has left the entire world economy dependent on monetary life support.

The problem is that over the next 30 years the Bank’s economists predict that catch up growth will peter out; growth in the global workforce will be slower; fiscal expansion from a base of 93% of global GDP will be very difficult; and tech-driven productivity is nowhere.

Their projections accord with the view of Larry Summers, the former US Treasury Secretary, who wrote in 2014:

“the difficulty that has arisen in recent years in achieving adequate growth has been present for a long time, but has been masked by unsustainable finances.”

If he is right, then the brutal conclusion we have to draw is that neoliberalism was not a solution to the problems of Keynesian system: it was a work-around.

The essential problem my Dad’s generation faced after 1973 – declining productivity and rising state spending – has not been solved by globalisation, or by vastly inflating the finance system with cheap money. It was just shoved to one side.

Unless it could go on expanding private debt and the money supply forever, sooner or later the neoliberal model was going to hit the wall just as Keynesianism did. That’s what happened in 2008. The system ran on empty until 2016 and then with Trump and Brexit the multilateral global framework began to fragment. Elites all over the world discovered that human brains cannot run on empty: they need a coherent story and the neoliberal model no longer tells one.

The implications of this for social democracy should be obvious. It means you can’t replace neoliberalism with a return to the Keynesian model. It, too, was broken. The assumption of many activists on the Labour left – that if only we could nationalise more, tax more, write better industrial strategies, upskill more people, build more infrastructure and homes, we would come out with a working model of capitalism – is wrong.

Likewise – from the Bernie Sanders movement in the USA to the Left Party in Germany – the illusion that working class discontent with globalization can be fixed by offering people over 50 a return to the economics of their childhood is also false.

In power the left will have to use tools and techniques borrowed both from the Keynesian era and from the neoliberal era, but its aim must be to design a model that is different from both – with an emphasis on modelling over planning; mixed ownership models rather than straight nationalisation, massive decarbonisation, and the proactive creation of a collaborative sector – using open source software and non-profit production.

And because all governments exist within in a highly connected global system, we will have to take a lot more people with us: foreign investors, foreign governments, foreign exchange markets.

A Labour government led by Corbyn, and committed to measures similar to those of the 2017 manifesto, would take its first steps amid resistance. It would come from an almost totally hostile press – whose job would be continuous de-stabilisation through misinformation; from those parts of the London finance sector that have made the City a playground for every crook and tax dodger in the world; and from a small but viscerally reactionary section of the population influenced by the international far right, from which Jo Cox’s murderer, the alleged Finsbury Mosque attacker and the five soldiers accused of neo-Nazism were all drawn.

Against each of these adversaries, a left-wing Labour government has to deploy the powerful weapon of hope. Not long-term hope, but the short-term promise and delivery cycle that saw my Dad’s pit nationalised and healthcare made free within two years of Labour’s election victory.

The aim of a radical left government in Britain should, over a five- to ten-year period, establish a new dynamic to drive economic growth, which replaces the broken dynamic of neoliberalism.

That means: replace growth driven by asset price inflation with growth driven by productivity. If, in the process, it has to rely on growth driven by expanding the workforce or catch-up growth with more advanced economies, or even further monetary expansion, it shouldn’t flinch from that. But Labour will have to wean consumers off cheap money; wean the elite off tax evasion and rent-seeking; wean entrepreneurs off the creation of low-wage, low value businesses; and wean the private sector off reliance on outsourcing and on rent-seeking activities like PFI.

That, in one paragraph, should describe Labour’s economic strategy. People who think John McDonnell’s fiscal policy – essentially a £50 billion redistributive tax plan plus £250 billion borrowing – amounts to an economic strategy are mistaken. These are simply the fiscal conditions for beginning a much wider transformation project.

And that transformation project has to be defined around a social goal. Labour has to use the extra money, together with micro-level reforms to company law and business regulation, radically changed outsourcing rules and a limited nationalisation programme. I will explore the options in a later essay, but the basic aim is to achieve two things:

1. Tangible and rapid improvement in the real pay, housing costs and public service quality for working age adults on middle and low incomes.
2. The revival of towns, estates and communities whose economies have had the heart ripped out of them.

This means rethinking the very concept of social mobility.

So cynical have people become during this fag-end era of neoliberalism that, on the left and among community activists, it is becoming common to hear the very idea of social mobility decried as “elitist” – as if it is always for someone else.

Since Thatcherism, it’s become a code word for the “aspirational voter” – someone who wants to escape poverty by stabbing everyone else in the back and leaving them behind; someone who wants to scale the class hierarchy even as the gaps between rich and poor widen.

For my Dad’s generation, it meant something different. It meant being able to do well by working hard, while seeing your town, your community, its built environment and its commercial vibrancy rise with you.

So we need to start defining social mobility in terms of people and place. Before they resigned in frustration at Theresa May’s negligence, the government’s Social Mobility Commission produced 16 criteria against which to state the bleeding obvious: that rural areas, coastal areas and old industrial areas are seeing conventionally defined social mobility stagnate.

But only five of their criteria concerned adult life – and these criteria were almost always static: the level of the average wage, the number of homeowners, the number of managers and professionals in an area.

At best, the official social statistics of the Tories’ now-abandoned social mobility project reflected the “value added” by schools and nurseries – not changes in the life chances of adults. The subtext was that the best you can hope for in an era of wage stagnation is that the next generation escapes their parents’ no-hope towns and dead-end jobs via the education system.

This is not good enough.

If instead, the Social Mobility Commission had measured changes in the value of take-home pay, in leisure time, in the quality and speed of public transport and the affordability of housing they would, in many areas, be recording a big reversal. And that’s even before you start considering the intangibles like how safe or how crime-ridden does an area feel, how dead or vibrant the high street, or simply whether there’s an atmosphere of hope.

In 1962 the urban theorist Charles Stokes divided the world’s informal settlements into “slums of hope” and “slums of despair”. Though no government has dared apply these categories to British towns, their inhabitants subconsciously do so.

Labour’s economic policy has to be framed in a way that offers all adults at or below the median wage the believable possibility that their real pay will rise; their housing costs fall and the quality of their environment will improve. Whereas post-war governments targeted bomb damage, slum clearance and areas of extreme privation, today it is the “town of despair”, to borrow Stokes’ phrase, that should be highest on the rescue list.

One of the first things Labour needs to do is frame new metrics that will force civil servants, local councils and outsourcing contractors to judge their success or failure against these goals – and to scrap the market metrics which have been coercively applied to the public sector to justify rip-off outsourcing and PFI contracts.

People must see a future where wages rise, instead of stagnating; where servicing their debts does not swallow half their salaries; where life in towns and cities becomes easier; where the basic amenities of life become cheaper; where there is a rich and vibrant cultural life.

An important part of this story is about restoring people’s belief in public services. That means not just funding the health service, reversing cuts to education and local government but uncapping public sector pay; creating salary structures and rewarding career paths for the millions of people who work in public services; space to innovate in public service, not just to survive the week.

For all this, you need money. Labour’s 2017 manifesto promised to raise £50 billion in taxes from corporations, property speculators and high earners to fund NHS and education spending, the beginnings of a Nordic childcare system and free university education. It was the right thing to do but it is not the whole solution. That £50 billion pushed at the limits of what can be raised in a stressed economy like Britain’s.

Far more important is the £250 billion Labour has promised to borrow and spend via a state investment bank. The next time Labour goes into an election it needs to concretise how, when and where that £250 billion would be spent. Every school needs to know how much of that money it can expect; every local Labour party needs to be asked for a wish list of what their town needs.

From the conversations I had on the doorstep around the general election in 2017, my guess is that the local demand will rarely consist only of new motorways and railway lines. I had primed myself for a Brexit backlash, but even in the classic pro-Leave communities the first encounter usually involved a person pointing angrily over my shoulder at a hole in the road and asking simply: when will this get filled?

People want the fabric of their local communities restored: youth clubs, adult social services, mental health facilities, green space and thriving high streets.

One of the most depressing things about the narrative of neoliberalism was its insistence that old communities must be disrupted, their facilities allowed to rot, so that shiny palaces of uninhabited luxury flats could be built next to them. That the pubs must close so that the high streets of small towns could become lined with shops selling alcohol for consumption at home.

Labour in power has to defy the idea that public spending on skills, human capital, the urban environment and culture is somehow “not investment”. I would like to see significant amounts of that borrowed £250 billion go into human capital and urban renewal. We’re short of nurses, doctors, home care workers; we’re short of people who can design and virtually manufacture aircraft; we’re short of recruits to the armed forces. Invest in that.

But even £250 billion may not be enough to kick-start the investment needed to restore dynamism to those areas of Britain that time – and successive governments – seem to have forgotten. That’s why a Labour government should maintain and even expand quantitative easing, and broaden the scope of what the printed money can be spent on. The aim should be – as Bank of England Governor Mark Carney himself suggested at Shanghai in February 2016 – to create a bridge to the future economic model, not a “pier” that ends up nowhere.

Any government that did what I am suggesting would be an outlier in the global system. It would meet domestic and external resistance and I will discuss in a later essay how this resistance could be overcome.

But I want to finish where I started. For my Dad’s generation, the ideas of Edward Thompson and Alexander Solzhenitsyn were – beyond the complexities – distinct signifiers. Thompson taught them that the British working class has a story, and that what Labour did after 1945, and Wilson in the 1960s, was designed to achieve progress for them before anyone else. Solzhenitsyn taught them that, if there was an alternative to capitalism, if could not be the abhorrent and inhuman forced march to planned scarcity we saw in the USSR.

When they smashed my Dad’s generation of trade unionists, and subjected them once again to the humiliation of mass unemployment, the aim of the neoliberals was not simply to defeat them, but to eradicate the idea that there might be something better than the coercive, monopolized, almost penal free market system that was then imposed.

In that sense, Thompson’s history of the working class and Solzhenitsyn’s revelations about Russia shaped the framework of the social democracy I grew up in much more clearly than, say, the writings of Labour intellectuals like Anthony Crosland.

With the industrial society I grew up in long gone, this battle for a cultural narrative is going to be harder for radical social democracy, but not impossible.

To get significantly beyond its current 40% poll ratings, Labour has to punch through into two demographics that are not yet excited by the prospect of Corbyn in power: firstly, the left-behind, impoverished and sometimes bitter people from my Dad’s generation who see de-industrialisation and high migration as the reason social mobility has disappeared. And secondly, a class of private-sector employed professionals; people happier voting Tory or Liberal Democrat, but increasingly concerned at the rising costs of their kids’ education and their parents’ social care.

The Attlee governments have been mythologized. Everybody wants to remember Bevan founding the NHS, but few know or care that Labour’s chancellor Stafford Cripps once slapped a 95% tax on the super-rich, proudly telling the TUC in 1948 that only 70 people in the country were capable of luxury spending.

And while everyone knows the post-war Labour government built houses, how many understand how vital it was that these were high-quality, low-rent properties offering tenancies for life, not insecure shoeboxes built as an afterthought to luxury developments?

Neoliberalism turned social mobility into a game of snakes and ladders – with even people on middle incomes worried that redundancy, offshoring or the insolvency of a major contractor like Carillion can plunge them several rungs down the ladder.

By implementing the Beveridge Report, and creating a nigh-impenetrable social safety net, the Labour government banished that fear for a generation.

Attlee’s 1945 manifesto gave my 18-year old Dad, in his first year down Astley Green Colliery, something positive to say both to the older generation, who believed nothing could change, and to middle class voters wary of a radical break. Its last lines contain an appeal to “all men and women of progressive outlook, and who believe in constructive change, to support the Labour Party”.

Labour’s message needs to be just as clear. Alexis Tsipras may have failed in his attempt to break Greece out of its EU-imposed austerity in 2015. But his slogan – “Hope is Coming” – sums up perfectly the message Labour and the other emerging forces of the left has to deliver to voters.

John McDonnell’s fiscal policy in 2017 acted like an electrical charge for voters in many working class communities; next time Labour needs something a lot more concrete.

People will believe “hope is coming” when they know that money, investment, decent jobs and better services are coming – not just to their town or region but to their street and postcode.

Next week Paul will discuss the issues raised in this essay at a roundtable discussion hosted by openDemocracy at Goldsmiths, University of London. A video of the event will be released shortly after.  

The post Neoliberalism has destroyed social mobility. Together we must rebuild it appeared first on New thinking for the British economy.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

In times of disjuncture and hardship, an impulse exists to take flight from reality and retreat into the comfort of old-worn habits and familiar surroundings. To some, this offers the opportunity to reflect and reimagine. Many may simply desire to escape, or remain entirely ignorant to the problems at hand. For others, to be seen to act is all that matters. It is in this way that we can identify the different tribes that amassed in Davos for this year’s annual meeting of the World Economic Forum.

Whether they realise or not, the attendees of Davos occupied a time and space in which two of the most significant stories in human history are colliding against the hubris and misguided optimism of the global elite. The first is the story of the prevailing set of economic and political ideas in major ‘developed’ nations, so-called neoliberalism. The neoliberal story began over forty years ago, and –  as inequality grows and economic crisis looms – has become one of failure. The second story concerns the impact of human activity on the natural world and, specifically, the implications of these impacts crossing safe thresholds. This story began much longer ago, back in the furnaces of the industrial revolution and on the creaking ships of colonial pirates, and has reached its terminal phase as global impact portends global collapse.

The neoliberal story

Davos 2018 came at a bad time for neoliberalism. In Britain, the preceding week was dominated by the collapse of the outsourcing giant Carillion and the exposure, to a wider audience, of the pervasive extent and expensive failure of the private finance initiative (or PFI). Many PFI schools and hospitals were built to unacceptably (even lethally) low standards, later than promised, and, when firms failed to fulfil their obligations – as they often did – the state socialised the cost while executives walked away with their pay-packets untouched. In all, we will likely pay over £310 billion for assets worth around £55 billion.

PFI has been one of the central pillars of recent British political economy. The continued failure of PFI makes it even harder to deny that the status quo is founded on a set of ideas used to justify unfettered profit maximisation and sweep aside any impediments to that end. In their infancy in the fifties and sixties, the development of these neoliberal ideas was encouraged by economic interests whose primacy was threatened by the New Deal and post-war consensus. Money flowed freely to entrepreneurial academics, who, in turn, told corporate leaders what to think and say. The ever lucid Milton Friedman, an economics professor in America and the supplest of intellectual gymnasts, gave them exactly what they needed when proclaiming that the sole social responsibility of business was to increase profits. In doing so, firms must, according to Friedman, stay “within the rules of the game, which is to [engage] in open and free competition without deception or fraud”. Inevitably, lavishly funded lobbying operations ensured the ‘rules of the game’ were changed, while, presumably, successive governments sought to minimise barriers to profit-making in order to maximise social welfare. It is easy to imagine the laughter of those benefiting from this arrangement pealing out over Westminster as they shopped between meetings with one uncritical adherent after another. Needless to say, there is nothing socially responsible about charging an NHS hospital £333 to replace a lightbulb.

The wider array of neoliberal ideas justifies policies that have relinquished economically productive state assets, create extraordinary levels of waste through unnecessary marketisation, and, ultimately, captured the state as a means to guarantee revenue streams with little to no risk. In theory, neoliberalism essentially ignores market failure; in practice, it benefits from it, actively promoting it at each turn. The financialisation of the economy is the deeper, inevitable consequence of a dictatorship of ideas that elevates short-term profit maximisation as the driving impulse of modern societies and economies.

The cost of this project can no longer be ignored. As is customary, Davos sees the release of the latest, greatest statistics on the failures of the prevailing economic model. Just over 40 people (nearly all men) now likely hold more wealth than half of humanity, with 82% of global wealth generated in 2017 going to the wealthiest 1%. In the UK, FTSE 100 bosses earn, on average, 120 times more than employees. These are the symptoms of a system that relentlessly minimises costs to maximise shareholder returns, eroding workers’ rights and exerting enormous influence on policymaking and political ideas. In 2000, Bill Clinton addressed Davos, the first sitting US president to do so, and expounded the virtues of globalisation as a unifying economic and social force. It is apt that Trump – a president whose position is partly a result of the hatred frothing from the dispossession and corruption bred by neoliberal policies – was the next president to do so.

As Trump brings the circus, bullish global markets belie the true global economic picture. Ten years after the Crash, its lessons remain largely unlearnt as optimistic investors commit the oldest sins in the newest ways and stock markets break records. Comfort breeds complacency and the word on the snowy boulevards of Davos was that another serious correction is coming. As younger generations gaze upon this spectacle – many of them from countries were youth unemployment still exceeds 30% – they could be forgiven for concluding that those in power are in charge only inasmuch as it serves them to be.

The environmental story

But the greatest tragedy of neoliberalism may be that it dominated our thinking over the period in which we had a final chance to halt catastrophic environmental change. Human activity has always impacted the natural world but the severity and reach of these impacts has accelerated exponentially over the last few hundred years, at least since Western powers began to establish colonial empires. With the advent of industrialisation and the first wave of globalisation in the 1800s, these impacts began to increasingly alter the functioning of the great biogeochemical cycles that facilitate life on earth. By the 1970s, as the global population reached 4 billion, the consequences of these impacts became evermore obvious, with our understanding enhanced by scientific advance. The decade of the seventies saw awareness of the growing crisis reach a mainstream audience, helped by landmark studies such as the Limits to Growth. Recurrent energy crises over the decade provided the economic pressure to seek more efficient, sustainable technologies, at least in providing alternatives to oil.

But these crises also sounded the death knell of the post-war social democratic era, providing the platform upon which an emboldened neoliberal movement could win arguments and, as the eighties began, power in the UK and USA. The neoliberal policies that have dominated rich nations and the global development paradigm ever since seek to maximise profit, usually through consumption, by extending markets across the world and minimising cost, particularly that arising from regulation. In segmenting environmental degradation as an external cost and insisting on the inadequacy of all incentives but the pecuniary, neoliberalism’s theoretical basis set the conditions for catastrophe. In practice, the relentless lobbying and legitimisation of regulatory arbitrage and tax avoidance has eroded state functions at precisely the moment they were needed to resolve the coordination problem at the heart of global environmental change.

In the 40 years since neoliberalism sought and won power, a third of arable land across the world has been lost. Around two thirds of vertebral life has died. Agricultural practices have disrupted the nitrogen cycle more than at any point in its 2.7 billion year history. Ours is the age of the Sixth Mass Extinction, the last being  that of the dinosaurs, the rates of which are exacerbated by climate change. According to the UN, the rate of toil soil degradation means there may only 60 global harvests left. In all, human activity has pushed environmental systems into ‘unsafe’ operating spaces, threatening the preconditions upon which civilisation can flourish, or even exist.

Societies are already feeling the effects, with a causal link being established between climate change driving a higher incidence of extreme weather, the resultant damage to crop yields, and the stress imposed by rising food prices in regions with already fragile socioeconomic positions, particularly in the Middle East and North Africa. In Davos, the yearly World Economic Forum risk report now regularly warns of ‘profound social instability’ resulting from a complex web of factors, ranging from economic crisis to migration, all of which are magnified by environmental degradation. Risk is becoming increasingly systemic, compounding and threatens non-linear outcomes. In response, institutions must become more resilient or global cooperation could be threatened as nations turn inwards to protect their interests.

What next?

As we have seen, parts of these stories are recognised by Davos’s organisers and guests. This year’s theme was “Creating a Shared Future in a Fractured World Inequality” and there was no shortage of panel discussions on inequality, climate change, short termism, fake news, the gender gap. As is customary, these discussions are predominantly conducted behind closed doors and between old men. In turn, media commentators grasp for engaging metaphors and snappy headlines to enliven the whole affair. This year’s favourite concerns the heavy snowfall and the increased threat of an avalanche engulfing the hapless participants of the ‘New Consumption Frontiers’ panel. There is strength in this metaphor, particularly from the perspective of younger generations, who look around aghast at the unfolding catastrophe brought about by the twin stories of the neoliberal era and environmental decline.

On the former, the status quo’s crisis of legitimacy is increasingly infecting its intellectual basis, with parties of both traditional left and right seeking to capitalise on the growing backlash against neoliberal ideas. In the UK, the 2017 election result and the clear depletion of the Conservative party as a governing and intellectual force stokes coals of excitement across the resurgent left. This is welcome, at least in that the Labour party and its hinterland are engaged in a process of disruption and intellectual innovation. Most notably, the voice and energy of younger generations sits at the heart of this project, which is essential, as it is they who must deal with the wreck of neoliberalism.

But the most damaging legacy of older generations is far worse than the loss of institutions, employment rights and social cohesion. As we get excited about moving beyond neoliberalism, we have to understand how the degradation – and maybe even collapse – of natural systems will dominate what is and is not possible into the future, whether our politics catches up or not. Recently, a special UN report on the chance of global warming reaching 1.5C was leaked. A working conclusion is that this could happen by the 2040s. This is also the decade that, dependent on a number of factors, soil fertility may be lost across most of the world, robbing nations of the ability to grow nutritious, or indeed any, food. The millennial generation will be in their forties and fifties by this point and will therefore have to deal with this grave new world. Nothing short of a global socioeconomic transformation to ensure the sustainability of human activity over the lifetime of the millennial generation is required. Even without the damage to economies and societies wrought by neoliberalism, this is arguably the most difficult task ever faced by humanity.

Thankfully, and to the credit of older generations, this transition is already underway. But time is running out and we must transition more quickly from opposition to proposition. In response, more and more young people are entering debates and positions of responsibility, facing up to the full reality of the task in front of them. In doing so, they must work closely with older generations, to learn from what they did well and what they did wrong, co-creating a leadership suitable for an uncertain future bolstered by welcoming stories of hope and redemption. Greater diversity and equality of representation from across the world is needed to combat what is and will remain a web of global problems – and must break through the artificial barriers being erected in the last throws of a dying order. We must not forget that we are more connected, more knowledgeable and more capable than at any point in human history.

Each year, Davos provides a platform for the world’s leaders to debate important issues and spur action at this crucial moment. But by being ignorant to the two greatest stories of the day, it does nothing of the sort, squandering time and resources. The hour is late, and Davos’s time is up.

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In a recent article in the Financial Times, Samuel Bowles applauded critics of economics education and praised calls for greater pluralism (diversity of viewpoints) within the discipline. He then went on to explain how the newly published CORE textbook, which is being promoted as an alternative economics text for undergraduates, provides the answer to this problem. But don’t be deceived: the battle for pluralism in economics has barely begun.

Rethinking Economics welcomes CORE’s incorporation of a variety of thinkers in their curriculum, as well as their efforts to make economics more real and engaging for economics students. However, it is vital to recognise the distinction between what CORE labels as pluralism, and how Rethinking Economics defines it.

In the article Bowles refers to ‘pluralism by integration’. This is the use of a variety of schools of thought in the development of a modified economic model, and is the only one to be taught to students in the CORE curriculum. The origins of the various ideas and assumptions employed in the CORE textbook are not always acknowledged, and alternative interpretations are rarely mentioned, so students are presented with what appears to be a singular version of economic truth. This doesn’t facilitate critical engagement or challenge, and is therefore vulnerable to creating the kind of ‘groupthink’ that the IMF has recognised contributed to the 2008 financial crisis.

Rethinking Economics, on the other hand, believes that students should have the chance to learn about multiple paradigms and models, and use their own critical faculties to decide which aspects of these are useful in analysing the real world. It is up to students to decide what school of thought they prefer, in a similar fashion to how one decides their own political and social leanings.

This is what Samuel Bowles calls ‘pluralism by juxtaposition’, but it can also be described as methodological pluralism. This is the approach represented by the new reader published by Rethinking Economics: an introduction to nine different schools of economics, in nine separate chapters, ready for students to absorb, critique and use. This encourages students to think critically about what they’re learning — a vital skill for employment after university.

Rethinking Economics does not advocate teaching just one paradigm to students, even if that one paradigm is made up of a variety of complementing views. This approach risks creating a new economic dogma which will ultimately limit students learning and the economics discipline itself

Recent media coverage has given the impression that the answer to university economics university education has arrived in the form of CORE. This was reinforced by a recent Bloomberg interview which gave the impression that Wendy Carlin, lead editor of the CORE textbook, represented the student movement Rethinking Economics. This is highly misleading, and it is important that it is challenged.

Wendy Carlin, lead editor of the CORE textbook, is implied by Bloomberg’s caption to represent the student movement Rethinking Economics

Rethinking Economics recognises that CORE is a step in the right direction. The teaching of insights from diverse pluralist thinkers from Marx to Hayek, and the incorporation of other social sciences, is something that the student movement welcomes.

But real critical pluralism that reflects the true diversity of real-world perspectives is still a long way off. There is plenty more rethinking yet to be done.

The post Will the real rethinkers please stand up? appeared first on New thinking for the British economy.

Public versus private is back. After the liquidation of Carillion, the government’s use of private companies and outsourcing to deliver public services is under close scrutiny. Now the National Audit Office has added to this with a new report which reviews the costs and benefits of the Private Finance Initiative (PFI). The conclusion will come as no surprise to anyone who has ever scrutinised any PFI deals. It finds that PFI projects can be 40% more expensive than doing it directly with public money.

This begs the obvious question: why did we ever enter PFI contracts in the first place? The answer is provided on page 11 of the NAO report: PFI is off-balance sheet for national accounts purposes, which means it “results in lower recorded levels of government debt and public spending in the short term”.

Time and time again, governments and other public bodies have been lured into using PFI, even when it costs taxpayers much more over the longer term. But while part of the reason for the proliferation of PFI undoubtedly stems from political short-termism and an irrational fear of the national debt, there is another culprit which is rarely discussed: Britain’s rather peculiar approach to measuring public finances.

Now be warned: this is not the sexiest topic. But it has had an enormous impact on the way that our economy has been run in recent decades, so try and bear with me.

Whenever the government establishes a new body or privatises or nationalises an existing one, the resultant body must be classified for National Accounts. The Office for National Statistics (ONS) decides the treatment in the National Accounts by applying international accounting standards. If a body is deemed to be controlled by government or a public corporation, then it will be classified as in the public sector. If not, then it will be classified as in the private sector. So far so good.

Once a body has been classified as either public or private sector, the next step is to assess whether it will have an impact on Public Sector Finance statistics and the UK Government’s fiscal targets. Here’s where things get interesting.

In the UK, the main measure of public debt is ‘public sector net debt’, which is defined as public sector financial liabilities (for loans, deposits, currency and debt securities) less liquid assets. According to the ONS definition, the public sector comprises central government, local government and public corporations.

While the UK government targets total debt across the whole public sector, this is not standard practice internationally. Most other countries, including across the EU, monitor and target ‘general government gross debt’, which includes both central and local government but excludes public corporations. There is a logic to this: typically, bodies classified as ‘public corporations’ are operated on a commercial basis at arm’s length from the government. Excluding the liabilities of these companies from measures of government debt and deficits ensures day-to-day running of government is kept separate from commercial, albeit publicly owned, operations.

The difference between these two approaches is particularly significant for countries where public ownership is widespread. Take Germany for example: in 2015 Germany’s general government gross debt stood at 71% of GDP – slightly below the average for EU countries. When the liabilities of public corporations are added (as they are in the UK measure) the total amounts to 181% of GDP – the third highest in the EU. This is largely attributable to the scale of the German public banking sector which includes the KfW at the federal level, the state banks (Landesbanken) and the municipal savings banks (Sparkassen). So much for the fiscally prudent Germans!

While German public banks and utilities can borrow and invest prudently without clouding the debate about day-to-day government spending, British public corporations cannot. In the age of austerity, this self-imposed constraint creates an obvious political bias against public ownership. It’s little wonder we hardly have any public corporations left.

The Green Investment Bank (GIB) is just one example: George Osborne said that it would only be granted borrowing powers when the ratio of public sector net debt to of GDP was falling. Of course, this never happened, so it was swiftly privatised on the basis that it could only access the capital it needed under private ownership. Contrast this with the German KfW, a publicly owned bank which raised €73 billion to invest in the German economy in 2016.

The UK’s approach is entirely voluntary: the inclusion of public corporations in measures of debt and deficit is not imposed on us by Brussels or anyone else. But it’s not an accident. In practice, these rules have served to reinforce an ideology that seeks to shrink the state and hand over our public services and public assets to the market. There will no doubt be many politicians who will be quite happy with the way things are. But for any progressive government,  a logical and straightforward step would be to align the UK’s measurement of debt with the approach used elsewhere and unshackle public corporations from their financial straightjacket.

But that’s not all. A balance sheet has two sides: assets on the one side, and liabilities on the other. But for some reason, when we assess public finances we only seem to focus on the liability side of the balance sheet: the ‘national debt’. But what about our ‘national assets’? Why do we never hear anyone talk about them?

We all know that government borrowing increases the deficit and the national debt. But borrowing is often used to invest in a new asset, for example new housing. Often these assets will generate a future income steam. However, under the current approach these new assets aren’t accounted for anywhere. To the casual observer (and to our less astute politicians) borrowing to invest simply appears to worsen the public finances.

But as any City analyst will tell you, if the return on the asset being invested in is greater than the cost of borrowing then the investment should be made because it is a net positive. So instead of having a debate about whether we can afford to make these investments, we should really be debating whether we can really afford not to.

But when it comes to management of the public finances, these basic accounting principles are overlooked. As Vince Cable, who knows a thing or two about dealing with the Treasury, has explained:

“borrowing to finance investment by a government body may create an asset (machinery, a building) but – bizarre as it may seem – this is not properly accounted for and so the activity is treated as adding to gross and net debt as well as government borrowing. The current enthusiasm for ‘selling the family silver’ has its roots in bizarre Treasury accounting conventions.”

A more rational way to measure public finances would be one which recognises we have national assets as well as national debts, and which differentiates between borrowing for consumption and borrowing to invest in new income generating assets.

From PFI to privatisation, countless daft decisions have been encouraged by our peculiar national accounting rules. These rules defy all economic logic. It’s time to change them.

The post From PFI to privatisation, our national accounting rules encourage daft decisions. It’s time to change them. appeared first on New thinking for the British economy.

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

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

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

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

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

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

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

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

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

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

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

This article was originally published at SPERI Comment.

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How can we face up to the enormity of environmental collapse? How can we collectively build a politics for the Anthropocene? Laurie Laybourn-Langton interviews activist and former climate diplomat John Ashton.

Laurie Laybourn-Langton (LL-L): You’ve been at the forefront of combatting climate change through your role at the Foreign & Commonwealth Office and by founding E3G, the climate change thinktank, among others. The concept of the ‘Anthropocene’ goes beyond climate, to bring in the wider picture of environmental degradation and its causes. Is the word a useful addition to the vernacular to provide focus in a way that climate change or the environment, arguably, did in the past?

John Ashton (JA): I would argue that the idea of the Anthropocene goes further. It’s about the relationship between human beings and nature, but it’s also about the relationship between human beings and each other. The ecological fabric and the social fabric are inseparable. You can’t address a problem unless you can talk about it, and you can’t talk about it unless you can name it. But my gut feeling is that the word ‘Anthropocene’ is never really going to be part of anybody’s vernacular, but at least it plants a flag in the ground.

I think it will be much easier to build a politics of the Anthropocene from the left because of its focus on collective responsibility and justice. For me there is nothing more fundamental to the Anthropocene than trying to address the enormous injustice which is inherent in the way we collectively conduct ourselves at the moment.

We have built a political and economic system which is based on plunder, and the most heinous example of that plunder is that which is being and has been carried out by my generation – I am 60 years old. We’re not wrecking our futures nearly as much as we’re wrecking the future of your generation. Your generation can no longer take it for granted that you have a prospect of a better life than mine, whatever that means. This is an extraordinary conclusion to be reaching because it would represent a collapse of everything we thought we had built, particularly with and since the Enlightenment. If I were your age, I would probably be fearful of the future rather than looking forward to it.

LL-L: There is a view that, in an era of potentially exponential environmental change, exponentially accelerating technical ability will enable us to address it. Therefore, we will be fine because we will invent our way out of the problem. Do you agree?

JA: I think that’s nonsense. It’s based on an impulse to respond to the problem through blind faith rather than through serious attempts to understand the problem. Also, it has within it an implicit assertion that this is a future problem, not a current problem. It represents a colossal failure of imagination, maybe in some cases a deliberate failure.

Just to take one example, we have had for the last few years an average of something like an average of 10 people a day drowning in the Mediterranean in the attempt to reach the shores of Europe from Africa or the Middle East. This is part of a crisis which is unfolding now. It may not be unfolding for the people who are at the top of the big decision-making institutions in Britain, but it’s unfolding for an awful lot of other people.

These events come from a complex interplay of social and environmental factors. Although those of us who live in cities in industrialised countries have built a certain amount of insulation from it, it’s not permanent insulation. We need to find ways of bringing the problem closer to the centre of our consciousness, not ways of holding it away from the centre. Our current language on the environment has become an obstacle. Natural systems are complex adaptive systems that have a tendency to self-regulate, but only when they remain within thresholds. Social systems are the same. Even neoliberalism asserts that the economy is self-correcting.

In the neoclassical economics that lies at the heart of neoliberal politics, the condition of the ecological foundation is not a fundamental concern. If you notice the occasional problem opening up, you just price it into the market and the price signal helps you correct. That doesn’t help you when you’re dealing with irreversible change. It doesn’t help you when you’re dealing with non-linear change. It doesn’t help you when you’re dealing with thresholds of resilience. If you cross the threshold, a system that was once resilient suddenly becomes non-resilient. For heaven’s sake, we ought to have learned that lesson from the [2008 financial] crash, because that applies to the financial system as well.

This is a theory which has no longer any useful application in terms of the practical challenges that politics faces and that societies face, but it remains far too embedded – and both explicitly and implicitly – in the way people in positions of leadership behave, all the time.

LL-L: Britain is ostensibly seeking to work out what its role in the world is. Do you think it could have a positive role on the world stage by helping people understand the scale of breakdown, and in mobilising action?

JA: It would have been much easier to say “yes” in response to that question a few years ago, even seven or eight years ago, than it is to say “yes” now. For a number of years, British climate diplomacy was my life. We didn’t do it from scratch; we stood on the shoulders of previous generations of politicians, officials, activists. But by 2010, or so, we had a sense that no country was being more influential around the world in building the foundation for a successful diplomacy of climate change than Britain was. This included the soft power that we’d inherited generation from generation, the fact that our climate scientists were contributing to the scientific debate disproportionately and were respected around the world. But our diplomacy was making a difference too, for example when we took climate security for the first time to the UN Security Council. For a while, we had a disproportionate impact.

Small and medium-size countries can have a big influence on the world if the right conditions prevail and they use their diplomacy wisely. You have to have a culture and disposition towards cooperation. In the last few years, it seems to me British discourse has moved away from the idea of cooperation. Brexit, and the way the conversation is being conducted, illustrates that. It’s moved away from the idea that we need to be rooted in reality rather than points of view that have their roots in blind faith. That means at the moment, I fear, it would be very difficult for Britain to play a significant, certainly a disproportionate, role in constructing a diplomacy of shared interest in sustainable development fit for the Anthropocene. It’s a tragedy because it’s a mindless squandering of diplomatic assets; you can lose in a few minutes what it takes years to rebuild. I’m afraid that’s where we are.

But diplomacy isn’t just about what diplomats do; it’s about the entirety of the conversations that we’re having in our society with each other, and with people outside our society and what they see of the conversations we’re having with each other. It may be that the most effective piece of Anthropocene diplomacy that we can do is to try and work out how to build a politics of the Anthropocene which can be scalable and which can start to influence others, which could be a reference point for others who are trying to do the same thing in their societies.

LL-L: At the moment, are there any narratives that could be particularly useful at drawing people into this debate? One example could be around health. Take air pollution – dealing with traffic and transport in cities has shot to the top of the agenda because people can comprehend the health effects. Are there any of these narratives that could draw people in, health potentially being at the top?

JA: The first question is: what do people care about? Not, how do you make them care about the Anthropocene? People care about their health and the health of their children. They care about what they eat. Look at the awful things that we keep learning about the way in which what we thought was a healthy and trustworthy food chain keeps being corrupted by people who are cheating and manipulating their freedom in the market in order to get away, potentially and almost literally, with murder.

I think in both of those areas there is scope for collective action, for bottom up building of projects that can help to take us in the right direction – in some cases very community based, where you go street to street. If you asked me, “How would I start if I were of your generation, if I wanted to play a role in building this?” I think I would say, “organise a group of you, wherever you happen to be. Start knocking on doors and finding ways in which you can help to solve problems for people who are in difficulty, people who are vulnerable, that aren’t being solved by the way the system is working.” With roughly a million people now resorting to food banks every winter, there are plenty of people who I think might be interested in a serious kind of street-by-street engagement. All successful political movements start like that. That’s the ground that our ‘mainstream’ politics has vacated. Is the emergence of Momentum a sign that this might be about to change, at least on the left? It depends in the end on whether it can make people up and down our country feel that politics can after all be something that is done with them, not something that is done to them.

A society which is coming to grips with the challenge of the Anthropocene is also going to be a society in which we care for each other when we need care. This is how we become part of a society in which humans are more than just a collection of atomistic, utility-maximising agents in an economic model. If we’re not caring for each other, we’re not going to be dealing with climate change; we’re not going to be dealing with ecosystem degradation; we’re not going to be addressing the drivers of mass migration at their roots. This is a comprehensive reshaping of politics.

LL-L: What kind of narratives would you like to bequeath to a younger generation to make sure we basically keep up our morale as we try to sort this out? What should get us up in the morning?

JA: The belief that together you have agency and the capacity to use your voices to repair the damage which is currently being done, and to start the healing and the building of the better future. This requires boldness and action. There’s room for lots of different projects, and activities, and types of mobilisation in different areas of society, but it’s just about coming together and doing that – having conversations that lead to action. The more you build in those conversations, the more inspiring they become and the more you believe that collectively you can build a critical mass.

One asset that young people have more so than my generation is moral authority; you can point out that the mistakes that my generation have made and make are going to shape much more of your future because you’ve got more of your future ahead of you. That’s the reason why we need to listen to you, and make it as easy as possible for you to draw on our accumulated experience.

Your generation would be justified in being angry, but actually that’s not going to get us very far. I think a more fertile conversation is to say to us, “we would like to enlist your help in building something very different from what you built, because that’s what we now need.” My generation don’t want to be thought of as not caring about our children’s futures – because we do – and so appealing to that would be quite a smart thing to do. You need our knowledge of how the system works and how the institutions can rapidly evolve into better institutions, because not everything is bad in our institutional framework.

LL-L: My generation might be, in many respects, terrified. It’s also got to be determined and it’s got to be hopeful. Do you think it should also be excited?

JA: Yes, hugely. But I don’t think terror is a helpful response, although I can understand why some people feel it. I don’t think we know enough to be sure that we will fail. I think there are grounds for at least entertaining the possibility that we can succeed.

That means that there is no alternative but to invest in that success; this is the most exciting project. It’s a cultural project, a social project, an economic project, a political project. It seems to me that this is the most exciting project that humanity will ever have embarked upon, no less significant for example than what we now call the Enlightenment. This is about building, for the first time in history, a capacity for collective self-awareness, a sense of shared identity, and a political expression of our common will in pursuit of our common interest – not only as nations, tribes and social groups but as the species whose ancestors first ate of the fruit of the tree of knowledge. That’s what would get me up in the morning if I were your age. That’s what still gets me up in the morning now.

This is an abridged version of an interview published in IPPR Progressive Review.

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In the run-up to the second anniversary of the Paris Agreement and in parallel to the UN Climate Convention in Bonn, climate justice campaigners and lawyers from six continents met to co-ordinate five clear legal demands for local, regional and national governments. The five demands are that legislators:

1. Acknowledge the climate emergency in national constitutions
2. Recognise that failing to reduce greenhouse gas emissions knowing the contribution these gases make to climate change is an act of ecocide
3. Provide all citizens with the legal tools they need to obtain climate justice
4. Introduce a legal requirement that greenhouse gas emissions associated with imports also be included in national and regional reduction targets
5. Better regulate the activities of multinationals in particular by ending subsidies for fossil fuels.

Why these five?

Local, regional and international law still prioritises private financial interests and a narrow definition of unsustainable economic growth over the public interest in minimising climate change. For example, it is estimated that current and planned airport expansion projects are estimated to involve USD1 trillion in investment over the next four decades, yet legal opposition to airport expansions on the ground that these will automatically increase greenhouse gas emissions is held to be an insufficient reason to limit this expansion.

Although the climate is one of the natural commons along with air and water, Marie Toussaint of ‘Notre Affaire à Tous’ says:

“What is really surprising and striking is only 100 companies are responsible for over 70% of emissions since 1988 when we already knew [about climate change] and still they are not punished for anything. We cannot prevent, we cannot repair. We cannot punish the people who destroy our planet. For this we really need a crime of ecocide to be recognised. We need this to first prevent them and then to condemn them for destroying the planet for other people.”

Legal recognition that knowingly emitting greenhouse gases is an act of ecocide will enable citizens to prevent, punish and obtain damages from those responsible. There is still no adequate legal mechanism for victims to defend their rights, obtain reductions in greenhouse gas emissions, hold those responsible to account or obtain compensation from them. The United Nations Environment Programme Law Division in its most recent review of priority areas for action noted that:

“[T]there is no international legal framework for the protection of the atmosphere of the planet in its entirety.”

Although this review pre-dated the Paris Agreement in December 2015, the ‘soft-law’ nature of the Paris Agreement still falls far short of establishing a crime of ecocide under International Criminal Law and fails to make the link between climate change and human rights law.

The inclusion of greenhouse gas emissions embedded within imports will prevent developed states from claiming they are meeting their pledges under the Paris Agreement whilst still contributing to an overall global increase in emissions. For example between 1990 and 2014 emissions produced within the EU decreased by nearly 30% whereas emissions produced in China increased by 310%. During this period EU imports from China increased considerably – between 2006 and 2016 alone the value of these imports increased by 75%.

Regulatory regimes remain weak and states continue to subsidise activity that contributes to climate change. The European Parliament’s own 2017 analysis of fossil fuel subsidies estimates that they are currently between 39 billion to over 200 billion euros per year, and makes the following admission:

“These significant figures indicate a lack of coherence between the EU’s energy and climate mitigation – correct price signals are important for Europe’s climate policy goals, hence phasing out fossil fuel subsidies is important in order to help align energy prices with environmental goals.”

Why make the 5 demands now?

Time is running out. In November the World Meteorological Organisation forecast that 2017 will be the worst year for the effects of climate change. The social, political and financial costs of climate change are escalating. In particular, extreme weather conditions, climate change refugees and the nativist populist backlash against migrants are increasing. Although it is still difficult to estimate the total number of people already harmed by climate change a number of organisations, for example Oxfam’s November report on displacement by climate change, are beginning to compile data. Even though the UN’s Refugee Agency (UNHCR) wanted the issue to be constructively addressed in Paris in 2015 we are still waiting for a joined-up approach to the two crises.

It is two years since the Paris Agreement, but according to reports published in November by the international research consortium Global Carbon Project, global CO2 emissions from fossil fuels and industry will rise by 2% this year. Emissions rose in 101 countries that together represent 50% of the emissions. China, the largest producer of CO2 emissions, is expected to increase its emissions by 3.5% this year.

We are running out of time to answer the key questions. Who is going to pay? How much are they going to pay? And when are they going to start paying?

The actions of the recently elected Emmanuel Macron are a good illustration of the way in which our attention is being diverted to ‘investment’ and ‘business opportunities’ while the question of compensation for loss and damage suffered to date is being ignored. President Macron has positioned himself as a world leader on climate change. He co-hosted the One Planet Event on the second anniversary of the Paris Agreement to “find new ways of financing the adaptation…and of ensuring climate issues are central to the finance sector.” However critics point out that he has still not yet accepted the underlying need to change the French legal system.

President Macron is not the only politician to avoid awkward questions, and of course this squeamishness is the underlying reason for the ‘soft’ voluntary nature of the Paris Agreement. It may be that turning a blind eye to past and current injustice is a price worth paying to begin to turn the system slowly around, but many are concerned that simply promising to make green investments in the future is not enough.

For example, the European social model has to a degree mutualised the risks of unemployment and health but not environmental damage. Marie Toussaint explains why this needs to change:

“Today when we look at environmental impact then we see that it’s all individual insurance that can cover what happens and then we have some systems, like the EU funds, that they put when there is a natural catastrophe but first of all you don’t have anything for the slow destruction of the environment … Then, with individual insurance the contributions are paid by potential victims but there is no way for the people who caused the damage to contribute. We don’t have the ‘polluter pays’ principle [Principle 16 of the 1992 Rio Convention on Environment and Development]. We really need to have that settled at the national, European and international level.

 

“The heads of state are beginning to say ‘OK for the moment we’re covered but at some point global warming will prevent us from paying because we won’t be able to pay any more for this big, big destruction.’ At some point the insurers won’t be able to pay anymore and we don’t have this solidarity and it’s going to be worse and worse for the victims. So we really need to have this new solidarity put in place at an international and at a national level.”

The UN Climate Conference in Bonn has led to several initiatives to provide some financial support to some victims, but there is still no move to assess the total costs of climate change. This includes the loss and damage to private and public property, health, ecosystems and cultures that depend on them; the current ongoing costs of dealing with this loss and damage; and the current ongoing costs of adapting and becoming more resilient to the future consequences of climate change. We also need to ask who is currently benefitting from the funds that are being made available.

Even when wealthy governments do provide state aid it is usually used to redevelop areas previously destroyed by an extreme weather event, which is therefore at high risk of being destroyed again in the future. Citizens can then become trapped by the state in an unsustainable and worsening cycle of extreme weather event/destruction/rebuilding. Such state aid can even have the negative consequence of fuelling construction booms in luxury coastal real estate, as has happened in the five years after Superstorm Sandy hit the US New Jersey coast. Finally, state disaster aid is always vulnerable to being cut or withdrawn on the grounds that it is needed to fund other state expenditure, so it cannot act as reliable compensation for climate change loss and damage.

For those who have already experienced loss and damage, talking about future investments misses the point that climate change justice is not only about money but fundamentally a question of changing the system. A culture that protects and prioritises the right to emit greenhouse gases over all other rights must change. The five demands of legislators outlined above are a necessary part of bringing about this change.

How to find out about your nearest legal proceedings?

The organisers of the five demands are all involved in legal action to obtain climate justice. Examples of ongoing legal proceedings are: the Our Children’s Trust cases in the US; the Global Legal Action Network crowd-funded case in the European Court of Human Rights, and the Peruvian Farmer’s case against the German Energy Company RWE.

The LSE’s Grantham Institute is collecting a database of non-US legislation and litigation. The largest database of climate change litigation is held by Columbia Law School’s Sabin Centre which includes both US and non-US litigation. All citizens are asked to participate in any local climate change legal proceedings.

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During his time as Chancellor of the Exchequer George Osborne liked to say “we are all in this together”. But until now it has been difficult to assess the distributional effects of the tax and welfare policies of the 2010-15 coalition government and the current Conservative government. The government has refused to do the calculations, for obvious reasons.

But in November the Equalities and Human Rights Commission (EHRC) published a distributional assessment of the impact of tax and welfare reforms between 2010 and 2017, modelled in 2021/22 tax year. It did not receive much attention, and does not include any discussion or set of recommendations. But the analysis in the paper is damning. It highlights just how regressive the tax and welfare changes have been, with the greatest burden falling on the poorest, ethnic minorities, women, children and the disabled.

The researchers modelled the effects of changes in taxes and benefits – specifically income taxes, national insurance contributions, VAT and excises, benefits and social security transfers, tax credits and the national minimum wage/living wage. These are then analysed in terms of household income distribution by decile, from the poorest to the richest. The results are initially expressed in terms of effects on cash flows for each decile:

Average net cash losses are greatest for the bottom 40% of households, at around £1,500 per year. This compares to just £200 for households in the second top decile. The largest losses are due to changes in benefits and tax credits, which amount to more than £2,000 per household for the lower deciles.

These cash estimates are then converted into shares of net household income. The results are shown to be highly regressive, with the poorest suffering the greatest proportional loss:

Households in the lowest decile have seen net incomes fall by 10%. In contrast, households in the second top decile have only seen net incomes fall by 0.4%.                     

The report then looks at the impact of the tax and benefit changes on households with different characteristics. Here the results are even more striking.

Ethnic minority households have suffered more than white households, with the average loss for African, Caribbean and Black British households amounting to 5% of net income – more than double the equivalent loss for white households.

Households with one or more disabled member have seen net incomes fall by £2,500 a year. For households with a disabled child, losses amount to more than £5,500 a year on average. This compares with a reduction of about £1,000 a year for households without any disabled members.

Lone parents have seen net incomes fall by 15% of net income on average, compared to between 0% to 8% for other family groups. Women have been effected more than men at every income level, with losses averaging £940 compared with £460 for men.

By age group, the biggest average losses are for those aged 65-74 who have seen net incomes fall by £1,450 per year, primarily due to the increase in the pension age to 66 in 2021 as a result of the Pensions Act of 2011. Those in the age range 35-44 are losing £1,250 per year on average.

Households with three or more children have been particularly hard hit, with cash losses amounting to £5,400 per year. In contrast, losses for households with no children have only amounted to £500 a year.

There are currently four million children living in poverty – 30% of all children in 2015/16. Between 1998-2011 public policy took 800,000 children out of poverty, but this achievement has been reversed by governments since 2010. Some two-thirds of children living in poverty live in families where at least one person is working. 36% of all children in poverty live in families where there are three or more children, so size of family is a significant determinant of child deprivation.

It is hard to believe that a government would target its cuts on children, and especially children in large families. Inevitably the government’s policies will add to the numbers of children living in poverty, and have major consequences for the lives that children lead.

How is it possible to pursue tax and expenditure policies that have such a skewed set of outcomes? One might like to think it is simply incompetence. But despite the impact of the changes now being clear, the government has continued down the same track – irrespective of the effects on the living standards of the poorest in our society.

There have been also huge cuts in local authority funding affecting services for children, the disabled, the elderly, and targeted services such as Sure Start centres. Funding has also been cut for breakfast clubs in schools, sports and recreation facilities, libraries and education.

All of these policies cumulatively add to the pressures on those households least able to manage. At the same time, investment in social housing has more or less ceased, while taxes on corporations and the rich have been reduced.

The Government can and should be held to account for their policies. Going forward, Parliament should require a full distributional analysis to be produced for all tax and expenditure changes at the time of a Budget. The government should also have to demonstrate that all proposed changes are consistent with existing human rights and other equalities legislation. The tax and welfare changes since 2010 clearly contravene rights and obligations in areas such as child poverty and the rights of children, ethnicity and gender, and trample on the rights of the disabled.

The strategy of hammering the poorest in society in pursuit of some chimera of a reduced level of national debt has failed. Surely, we have had enough. It is time to use fiscal policy in the interests of everyone.

The post Not in it together: the distributional impact of austerity appeared first on New thinking for the British economy.

If you hoped that 2017 would be the year Britain finally saw its economic fortunes improve, you were soon to be disappointed. Over the past twelve months, Britain’s economic malaise has continued: investment remained the lowest among advanced economies, productivity stagnated yet again, real wages declined even further, and households relied on ever-growing levels of borrowing to maintain living standards. Combined with an intensifying housing crisis, disintegrating public services and looming environmental catastrophe, the picture that emerges is not one of economic recovery – but of deep, existential crisis.

It is within this context that we enter 2018. As if these challenges weren’t enough, this year the UK government also faces the small task of delivering Brexit and navigating a path outside the EU. The magnitude of this task cannot be understated: Brexit entails a once-in-a-generation reshaping of our laws, trading relationships and economic model. The path is fraught with risk and uncertainty, and the decisions made will have major repercussions for decades to come.

Like it or not, 2018 is set to be a year of change. With so much at stake, what are the most important economic issues to mobilise around? Here are five suggestions:

1. A progressive trade policy

Following the passing of the EU Withdrawal Bill in December, attention is now turning to the UK’s future trade relationship with the EU and the rest of the world. This is a critical juncture: trade policy cuts across many aspects of our lives – from how we run public services like the NHS, to how we set food standards. Agreeing trade deals is notoriously difficult, and highly controversial. It’s not at all clear that the UK government is up to the task.

So far the headlines have been dominated by David Davis’s posturing about a prospective UK-EU trade deal. While agreeing a sensible deal with the EU should be the top priority, perhaps a bigger threat comes in the form of Liam Fox’s Trade Bill, which so far has attracted far less attention. Published back in November, the Trade Bill will allow the British government to negotiate new trade deals after Brexit. As Nick Dearden wrote here back in November: 

“If you were worried about US-UK trade deal TTIP, you need to take Liam Fox’s new Trade Bill seriously. If it isn’t amended, we have every reason to fear a ‘TTIP on steroids’ is coming our way. The Trade Bill will allow the British government to negotiate trade deals after Brexit. It is our only chance to make sure that these deals done will be open, democratic and accountable. And we only have a few months to do it.”

In 2017, we got a taste of some of the issues that trade deals can throw up (remember when Liam Fox told us not to be afraid of US chlorinated chicken?) – but as things stand we won’t be told what else might be sacrificed. That’s because, in its current form, the Bill ensures that trade policy will not be subject to any kind of public or democratic oversight. As Dearden continues:

“As things stand, MPs have no right to know what’s going on in these talks – or the talks that Fox hopes will commence with 16 other countries including human-rights bashing Saudi Arabia and Turkey. MPs can’t set any guidelines for Dr Fox. Once he concludes a trade deal with any of these countries, they can’t amend or stop that deal.”

The clock is already ticking. There is an urgent need to build consensus around what a progressive trade deal in the 21^st century looks like, and to ensure that any negotiations are subject to appropriate democratic oversight. Regardless of your political persuasion, we simply cannot afford to leave our future in the hands of someone like Liam Fox.

2. Meaningful financial reform

It’s been a frustrating few years for those of us who have been working to put meaningful financial reform on the agenda. After years of watching the limited reforms introduced after the financial crisis being watered down or rolled back, in December 2015 the Bank of England Governor Mark Carney declared that “the post-crisis period is over”. The message was clear: the financial system had been fixed, lessons had been learned, and it was time to move on.

But this return to “business as usual” was premature. The human and financial costs of the crisis are still being felt across the country, and scarcely anyone believes that the post-crisis reforms went far enough to prevent it from happening again. As I wrote back in August:

“As memories of the crisis fade, it is essential that civil society doesn’t roll over to the demands of bank lobbyists. Many experts outside the industry-regulator nexus warn that financial reforms went nowhere near far enough, and have predicted that another crash could be just around the corner. The Systemic Risk Council, a group of global experts on financial stability, recently warned G20 leaders that the global financial system is vulnerable to another crisis. This time round, they warn, central banks and governments will have far less ammunition available to respond.”

In 2018, many key events of the financial crisis will be marked by their 10 year anniversaries – from the collapse of Lehman Brothers to the bailout of RBS. Various civil society initiatives have already been established to capitalise on the ‘10 years after’ moment and put meaningful financial reform back on the political agenda. These include the ‘10 Years After the Crash’ project by PEP and the RSA, Finance Watch’s ‘Global Change Finance Campaign’ and a major conference being organised by the Transnational Institute.

With the Brexit negotiations heating up, the stakes are even higher. As more banks threaten to shift operations abroad, the government has indicated that it may respond by slashing regulation in a bid to stem the outflow of business. Bank executives and lobbyists are already working hard behind the scenes to turn Brexit to their advantage.

To avoid history repeating itself, there is a vital need to develop a credible and effective counterweight to the lobbying power of the banks, and work to transform our broken financial system to ensure that finance serves society, not the other way around.

3. Action on the housing crisis

In 2017, the Grenfell tragedy brought Britain’s housing crisis into sharp focus. Social housing tenants burned to death due to a lack of basic safety standards, while a few hundred metres away some of the world’s most expensive properties lay empty, acquired only as speculative playthings for the world’s super rich.

Grenfell was only the tip of the iceberg. Britain’s housing crisis is rapidly becoming one of the greatest policy failures in living memory, and the consequences for the economic and social fabric of the country are immense. After Grenfell, people have slowly been beginning to wake up to the scale of the problem. As Christine Berry wrote for us back in June:

“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.”

I’ve written extensively about how to fix Britain’s broken housing market. But proposing policy solutions is the easy bit. The real challenge is one of political economy: the drive to increase homeownership over the past fifty years has created an electorate where the majority’s personal wealth is tied to the buoyancy of the housing market. Although homeownership has been falling for over a decade, most of the electorate (63% of households) still have a vested interest in seeing housing perform well as a financial asset. Politicians have faced a tension between resolving the problems of supply and affordability for non-homeowners on the one hand, and maintaining the asset wealth of existing homeowners on the other. Time and time again, their actions have prioritised the latter — to the great expense of renters.

But with homeownership rapidly becoming a pipe dream for most young people, and the number of people renting privately skyrocketing, a tipping point has now been reached. A broad coalition comprising those stuck in the private rented sector, social tenants and concerned homeowners would be a powerful voice. If mobilised effectively, 2018 could be the year when Britain’s housing crisis finally starts to be addressed.

4. Breaking with neoliberalism                                

In November, the UK government published its industrial strategy. While the content is far from perfect, its publication marks a historic moment. The fact that a Conservative government has published a document which hails “a belief in a strong and strategic state that intervenes decisively wherever it can make a difference” is hugely symbolic. It represents the end of neoliberal orthodoxy’s role as the dominant intellectual force underpinning UK economic policy, after 40 years in the driving seat.

The rejection of neoliberal orthodoxy by both major UK political parties, combined with the intellectual upheaval underway in the economics profession, means that we are on the cusp of an epochal shift in economic thinking and policy. The question is what comes next.

There is already a broad movement spanning academia and civil society that shares a common diagnosis on the failings of neoliberalism, and a growing convergence on the need for an alternative rooted in inclusivity, sustainability and democracy. As Laurie Laybourn-Langton wrote here back in November:

“This movement is growing and we think it now covers most of the major functions required to shift the paradigm – from academic groups and think tanks, through communications websites and supportive networks, to funders and political figures. Each year, this movement becomes more influential and is full with talent stretching across generations.”

There remains much to be done to bolster the intellectual underpinnings, policy development and communications infrastructure required to make the transition from one political-economic paradigm to another. 2018 should be the year when these efforts shift into the next gear.

But making a definitive break with neoliberalism also hinges on developing a critical mass of political support. As Nick Pearce wrote for us back in November:

“Who will be the political agents of economic transformation, and how can broadly based coalitions that unite the interests of low- and semi-skilled workers with those of middle-class professionals be created? The decline of the industrial working class, the rise of finance and decline of the UK “national” business class in core sectors, the spread of the gig economy and the parallel growth of higher education as a social insurance policy for the middle classes, coupled with the electoral dominance of a socially conservative older population, have all made the task of constructing progressive economic reform coalitions much harder.”

It’s clear that the methods of the past are no longer fit for purpose. New approaches are needed to mobilise political support for economic transformation among an increasingly diverse and splintered electorate. Glimmers of what this might look like came in the form of the ‘Big Organising’ model pioneered by the Bernie Sanders campaign in 2016, which was also used to great effect by Momentum to mobilise young voters in last year’s general election. But Labour’s defeat shows that more still needs to be done to convince voters that change is needed. 2018 provides an opportunity to build on these successes and broaden the base of support for transformative change.

5. Stepping up the fight against climate change

 Given the scale of the above challenges, it’s easy to forget about the greatest challenge of all – the fight against climate change. Despite some positive developments in recent years, the hard truth is that we are still hurtling headfirst towards global climate catastrophe. As my colleague Adam Ramsay wrote for Civil Society Futures in June:

“Civil society organisations have mobilised across the country – and the planet – to demand ambitious action on climate change. And yet new fossil fuel projects continue to attract investment. Communities across the world face ever more extreme weather. The planet continues to warm. While there are many positive things to say, honesty requires acknowledging a simple truth: civil society, as it’s currently structured, has failed to stop climate change. And we’re still failing.”

What to do about this? Jamie Clarke, Executive Director of Climate Outreach, says that the climate movement must learn lessons from past failures, and take a fundamentally new approach:

“We need a mass, society wide, long term, sustained effort to keep the fossil fuels in the ground… And we need to make sure in 10 years’ time the new government doesn’t decide to change the policy. We need to shift the way society thinks about fossil fuels that make them morally, socially, and economically unviable and that’s a balance that our society has very rarely managed to do. The only equivalent is something like banning the slave trade. It took a mass-mobilised group of people, direct action from slaves and those impacted, and a moral shift and understanding that this was abhorrent.”

This means ending the presentation of climate change as an environmental or lifestyle issue, and reinforcing its status as an economic, political and – most critically – a moral issue. On a practical level, it means moving away from campaigning on climate change as a standalone issue and instead assimilating it into all progressive struggles. Working with other stakeholders to place environmental concerns at the heart of the four issues mentioned in this article – trade policy, financial reform, housing policy and replacing neoliberalism – should be a priority for 2018.

***

With so much at stake over the next twelve months, informed public debate is more important than ever. But for the most part the media has failed to engage in these debates, or even acknowledge the scale of the challenges we face. That’s why at openDemocracy we are bringing people together to get to grips with the long-running economic crisis unfolding in Britain, and stimulating a debate about a sensible way forward in 2018. Join the conversation.

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“This is the bit with the economicky words in it”, Chancellor Philip Hammond announced in his Budget speech last November.

It’s hard to imagine Stephen Hawking or Brian Cox saying, “this is the bit with the sciency words in it”. But the economics profession has a similar responsibility to scientists. As experts, they have a responsibility to convey complex information in an accessible and engaging way to the public, in order for the public to engage with democracy. Social and political issues are often framed in relation to their effect on the economy, and this can decide elections, referenda and policymaking.

While scientists have spokespeople who convey their messages in a palatable way, economists do not. Where are the economics pin-ups?

Economists aren’t famed for their social skills. Research has shown that they don’t communicate particularly well. A recent study of Twitter found that they were the least likely out of any profession to engage in general conversation. Economists aren’t storytellers like scientists are; they speak in cold, hard, technical terms most of the time, and unsurprisingly this can be disengaging for the public.

In a recent poll by Rethinking Economics, it was found that 60% of UK adults cannot define GDP, while 70% do not know what quantitative easing is. A recent OECD survey found that only 38% of the UK public understand inflation.

Andy Haldane, Chief Economist at the Bank of England, has argued that the public are less likely to trust a discipline and its spokespeople if they don’t understand the subject. This is reflected in a recent poll, which showed that while 82% of the public trust doctors, and 71% trust scientists, only 25% trust economists. Only 4% of the UK population feel that the information they hear in the news about the economy is “completely reliable and trustworthy”.

The economics campaigns website Economy found that only 12% of the public feel confident in the way that economics is spoken about in the media and by politicians. Meanwhile, economists were the group of ‘experts’ with the single biggest drop in trust in the Brexit referendum, with only 14% of Leave voters stating that they trust economists. Yet at the same time, it is clear that people want to understand economics. Four out of five people acknowledge that economics is relevant to their everyday lives.

This ‘twin deficit’ of a lack of understanding and trust within economics has huge ramifications for policymaking and democracy. If the public don’t trust or understand the economics that is being communicated, they cannot critically engage with the policies that affect their everyday lives.

What is the solution to bridge this gap between the public and experts? The answer must be for the experts to communicate in a better way. For this to happen, the economists of the future – economics students – must be taught this as part of their university curriculum.

The charity Rethinking Economics produces materials for universities to use if they want to change their economics curriculum. With their sister group Economy, who campaign for understandable economics, they are both calling for economics departments to include communications skills as part of their syllabuses, from presenting to public speaking.

This alone isn’t enough to make economics fit for purpose, but it is vital if we are to start rebuilding trust in the profession.

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It’s January, which means another winter crisis in the NHS. Last week record numbers of patients were forced to wait in the back of ambulances as hospitals in England struggled to cope with demand for treatment. On Tuesday, NHS England told hospitals to postpone non-urgent operations, leading to tens of thousands of cancellations.

The winter crisis has become an annual affair. So why can’t our health service cope?

The NHS is a complex beast, but as usual it helps to follow the money. There are good reasons why spending on health should be expected to increase over time: an ageing population means that demands on health services rise since older individuals on average consume more, and more expensive, healthcare. Demand will also increase over time as a result of the rising prevalence of some chronic conditions, improvements in access to care, and improvements in technology.

In recent decades spending on the NHS has indeed increased: since 1948, spending has risen by 3.7% each year on average (adjusting for inflation). Spending relative to the size of the economy – the most effective way to evaluate trends in health spending – increased from 4.1% of GDP in 1978/9 to 7.6% in 2009/10.

Since 2010, however, this trend has reversed. As the Kings Fund has reported, we are now experiencing an unprecedented sustained decline in NHS spending as a share of GDP.

More than anything else, the reason the NHS is under so much pressure is that the Government has decided to squeeze resources at a time when demands on the service are increasing. According to the King’s Fund, spending on the NHS must rise to at least £153 billion in 2022/23 to keep pace with demographic change and other increasing cost pressures. On current plans, however, the government will only spend £128 billion.

This funding shortfall is not inevitable: it is a political choice. The now common response that “there’s no magic money tree” is a cynical ploy. It is simply a convenient way to mask an ideological crusade to squeeze public services. For a country like the UK, financing government spending is not a problem. The truth is that the Government has simply decided spend money on other things. Like giving tax breaks to large corporations.

According to the Institute for Fiscal Studies, the Government’s corporation tax cuts since 2010 have reduced tax revenues by at least £16.5 billion a year. Then there’s the cuts to inheritance tax and capital gains tax – both of which will primarily benefit the wealthy – which have reduced revenues by another £1.5 billion.

Claims that “health tourists” are to blame for the crisis are also a myth. The Government’s own figures show that this activity amounts to no more than 0.3% the NHS’s budget.

There are undoubtedly cost efficiencies and service improvements that can be made in the NHS. But let’s be clear: the reason the NHS is in crisis yet again is because the Government has decided to spend money on other things it deems more important.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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As the old saying goes, ‘He who pays the piper calls the tune’. This week, a coalition of economics students, academics and campaigners gathered to get inside the process for the funding of economics research, to create an economics fit for the real world.

The ‘piper’ principle plays out for academic research through a process called the Research Excellence Framework (REF), and  its impact is  considerable. The REF is a very big deal for universities. Every five years or so, each institution gets assessed through the REF. Academics submit their published research which is then judged against a set of criteria and graded. The higher it is graded, the more money their department will receive for future research.

Within economics departments the REF  encourages a single type of economics, while broader research is sidelined. Work that draws on innovative insights about human behaviour, market failures, gender dynamics, ecological limits and institutions is  not valued whilst more mainstream research, underpinned by a narrow set of assumptions about how the economy works,  receives the highest grade.

Because it determines so much of their funding, universities take the REF very seriously. In economics departments, it influences who they hire and fire, which topics they research, and the kind of economics that gets taught to students. Because it dictates the teaching, this cycle is perpetuated. Narrow economics begets narrow economics and society is burdened with economists who can not deal with the challenges society faces, from climate change, to inequality, to financial instability and beyond.

Because the REF has such an impact on society, the new coalition REFunding Economics is working to defend the discipline and make sure that diverse, real-world economics gets the funding it deserves.

The bias derives from several factors, but possibly most crucial is the choice of individuals that sit on the REF panels. They set the criteria for what is classed as ‘world-leading’ research, and later they grade the thousands of pieces of submitted work, ultimately deciding if it is high quality or not. In the 2014 REF, the economics panel was overwhelmingly made up of experts who subscribe to a narrow view of economics, while more diverse, interdisciplinary economists were left by the wayside.

The REFunding Economics coalition is determined to have a positive impact on the next REF, due to take place in 2021. As a first step, they are working to get top quality diverse economists into the heart of the REF system. The REF organising body, which is connected to the Department for Education, allows organisations to nominate individuals for the sub-panels, although the final choice of panelists is up to them.

“We need to make sure that the REF Economics panel values diverse, real-world economics,”  explains Laura Bannister, Strategy Co-ordinator at Rethinking Economics, who are co-ordinating the REFunding coalition. “We’ve been pulling together a group of brilliant economics researchers to put forward, and we sincerely hope that REF will select a good number of them for the panel. This could have a huge positive impact on how economics research gets judged, and will send a strong message to university economics departments about what is wanted from them.”

The deadline for panel nominations is 20th December 2017, so the successful candidates are likely to be announced in the new year.

This is just the first step in a big campaign. The REFunding Economics coalition will be taking every opportunity available in the next few years to influence the REF process for the better. “If we don’t take action, the REF may be a real barrier to reforming economics,” Bannister explains.

Rethinking Economics has grown out of the international student movement for better economics in the classroom and in society.

“Students all over the UK and the world have been sitting in their economics lectures, wondering when they’re going to learn about the big issues: inequality, financial crises, post-growth economics for the climate change age. Often, the assumptions and models that they are taught seem to be based in a strange alternate reality that bears little relation to the real world in which they’ll later be employed. Students, as well as many academics and professional economists, have become increasingly worried about this. The system isn’t creating the kind of economists that the real world needs, and the REF is a big player in this issue.”

By pushing for change in economics research and teaching, and in the mechanisms that fund it, Rethinking hopes to shift the way economics is understood, taught and communicated by governments, universities and other bodies of influence.

“Economics makes the world go round. We need economists that can grapple with the big issues of the 21st century, and this requires a broader subject that can deal with these multidimensional problems. Economics is crucial to everyone’s quality of life, and good economics begins in the classroom, where the decision makers of tomorrow learn their trade. It’s time we made sure that we’re creating an economics that is fit for the future.”

The post The fatal flaw in economics funding appeared first on New thinking for the British economy.

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.

The post The politics of food: What to look out for in 2018 appeared first on New thinking for the British economy.

Eighteen months on from the Brexit referendum, the story that the ‘people have spoken’ is only one version of the truth. There was only a very small majority for leaving the EU: more than 16 million people were on the electoral register but did not vote, and a further 2 million were not even registered. It is now evident that many of those who voted to leave had no idea what this entailed, or the likely costs. Surveys confirm that enough people have now changed their position that, if there was a second referendum, a majority would now vote to remain in the EU.

But both the Government and the Labour opposition seem determined not to have a second referendum, despite the mounting evidence of the massive destruction Brexit will cause to the British economy. There is a daily record of companies preparing to leave the UK and establish themselves elsewhere in the EU. Cumulatively, the impact on GDP, employment and the public finances are going to be extremely large and yet these costs are simply shrugged off as if they were obviously worth enduring.

To take the most obvious example, let us consider banking and financial services, the only sector where the UK has established a global position. Many banks and associated enterprises have already begun the process of moving to Paris, Dublin, Frankfurt and elsewhere. These are highly paid jobs in firms that are very profitable and which account for a very significant proportion of GDP and government revenues. The CEOs of banks have been perfectly open about their planned shift to other locations, and have called on Government to re-evaluate their policies but to no avail. The consultancy and auditing firm EY has estimated that on day one of Brexit some 10,500 jobs would be lost in the City, and they had previously estimated that a total of 83,000 jobs would disappear.

Two EU agencies have already announced they will be moving to other locations in the EU – the European Medicines Agency and the European Banking Agency, with a loss of skilled jobs. In the case of the EMA, the transfer of jobs to Amsterdam will be 900 – all highly skilled and professional. More worrying is that the move of the EMA will lead to disinvestment in the UK by pharmaceutical companies as they shift their clinical research activities elsewhere.

Other sectors have pointed to the impact on their ability to function if EU residents leave. In the higher education sector, around a third of academic posts are filled by EU citizens – with many of them in scientific areas – and many university leaders have warned of the effects on system capacity. The impact on construction, health and social services, on transport, on agriculture, on tourist and related services have been enumerated and yet are shrugged aside as if they were manageable and unimportant. How the UK will source the 40% of food that is currently imported and which sustains national food production, given the massive dependence on EU labour, remains a mystery.

Then there is the economic and social impact on EU residents, and the effects on UK residents living and working in the EU. Not least of the predictive costs are those on Ireland where 80% of exports are sent to the UK, and where there is a possibility that these will subsequently face import tariffs. The impact on Ireland is more or less ignored in the UK and instead the focus is on the issue of the border between the North and the Republic. While this issue is important, it is clearly unresolvable unless the UK remains within the single market and the existing customs union. To believe that there is any other practical solution is like believing the moon is made of cheese.

Employment will contract, incomes will fall, tax revenues will decline, prices will rise and the balance of payments will worsen. The sterling exchange rate has already fallen against all of the major currencies with a decline of more than 15% against the euro. The LSE has estimated that the impact of Brexit has already been significant and that the average household has experienced an increased shopping bill by £400, largely due to the fall in the value of sterling. The effects will not be confined to the UK; residents from the EU will be directly and indirectly impacted by the resulting shifts in demand and supply.

Brexit has already diverted the resources of Government and of Parliament at considerable cost. Governance has more or less come to a standstill as the Tories battle it out amongst themselves about what kind of relationship the UK will have with the EU. It has always been clear to anyone who knows anything substantively about the EU what would be on offer, and this really should not have been a surprise to the British Government. There was never any chance that a deal would be negotiated which threatened the stability of the EU, and this would be paramount in any discussions with the UK.

Key basic principles such as freedom of movement of labour, goods and capital were sacrosanct and would be retained at all cost. So would be the demand that the UK meet all of its financial obligations. It has also been made clear that no trade deal would be possible after Brexit except under conditions in which the UK accepted and applied the existing regulatory regime. This means that the UK could not be in a trading relationship with the EU if it deregulated existing labour, health and environmental standards – and would be expected to apply future changes as well.

A deal would have to be struck for EU citizens in the UK, and for UK citizens living in Europe, that protected all of their existing rights. These and other key elements of the ongoing relationship between the UK and the EU would need to be subject to the European Court of Justice. Finally, a deal had to be agreed that was legally binding on both parties to any agreement to prevent any hard border between Northern Ireland and the Republic. In effect, this last requirement means that the UK has to remain a member of the single market and customs union.

Given these conditions, why would any rational government pursue Brexit at such immense financial and non-financial cost?  On the face of it none of this makes any sense given the easily predicted consequences of Brexit and the uncertainty created both in the UK and with our partners in the EU. Everyone has wasted resources over the past 18 months on negotiations and posturing that have led to an outcome that was always inevitable. One of the less evident consequences, but a cost nevertheless, has been a breakdown in national social cohesion and a release of ethnic tension. Putting this genie back in the bottle will not be an easy thing to achieve, with or without Brexit.

What are the forces driving Brexit given the above analysis? We now have more information on the funding of the leave side of the referendum, and after a good deal of pressure the Electoral Commission is finally doing some real analysis of the sources of funding. There can be no doubt that this funding was illegal and largely from overseas sources. In a series of articles Carole Cadwallader has documented the role that a very right wing American billionaire had in providing financial and non-financial support to a UK company called Cambridge Analytica. The purpose of this structure was to infiltrate social media with fake news so as to influence voting behaviour in the referendum. This process acted as support for the lies being told by Farage, Gove and Johnson and others who bombarded the electorate with falsehoods about extra funding for the NHS, swarms of Turkish Muslim migrants, and the threat from EU nationals to British livelihoods.

Also worrying is where most of the money for the leave campaign came from. It was supposedly provided by a millionaire called Arron Banks, but an analysis of his finances by openDemocracy suggests that he was in no position to make very large donations. So where did this money come from? This is presently under investigation by the Commission, but it is evident that it does not have the resources for such an investigation. Some of the funding was routed to the leave campaign via the DUP in Northern Ireland where the is no legal requirement to disclose the sources of funding.

This leaves it unclear where Banks’ money came from, except that we now have evidence of the role that Russia played in the US presidential elections and elsewhere. What is driving Farage, Mercer, Banks and their supporters? It is only too evident. They want to see the collapse of the post -war settlement in which the state actively intervenes in economic and social life in the interests of social stability and fairness in accessing social goods. They want to roll this back in the interests of the rich and the wealthy, and have managed to get Trump elected to pursue their objectives.

Brexit might yet do the same, and in the meantime, it has managed to divert the attention of policymakers in the UK from important issues such as how to reduce wealth and income inequality and associated issues of housing, jobs and pay. Brexit in their eyes is simply a source of instability that in the short and longer runs will enable them to bring about their ultimate right wing agenda. This includes a determination to deregulate the UK economy and remove regulations covering the environment, food safety, animal welfare and labour conditions.

But what of Putin: why would he be prepared to finance the leave campaign?  He has clearly been trying to undermine the EU for many years, hence his opposition to Ukraine joining the EU and to the EU sanctions after the annexation of the Crimea. Weakening the EU as was hoped would suit Russia just fine since this would further enhance Russia’s power in Europe. Furthermore, anything that weakened Europe’s military capacity would be highly desirable, as would anything that caused greater economic weakness.

Brexit is a failed process and will cause untold and unnecessary damage to the UK, the EU and elsewhere. The sooner it is dumped the better for everyone, including for those who voted for it given that most of the negative effects of Brexit will fall mainly on those living in the less favoured areas of the UK.

The question is: do we have political leadership capable of doing the obvious? The influence of big money is everywhere in politics – not least in the UK – and politicians are both too close to the rich and too isolated from the electorate. But it could all change. The Rand Corporation – a respected US think tank – recently published an assessment of the impact of Brexit on the UK . It has concluded that “a no deal Brexit will cost Britons £1,585 each. Even the softest Brexit of the customs union would damage the economy and any gains from leaving would take at least 12 years”.

Why would any Government, Tory or Labour, go down this route if it had the interests of the population, and of Europe, at heart?

The post Brexit is an economic catastrophe – the sooner it is dumped the better appeared first on New thinking for the British economy.

The divorce deal between the UK and the European Union (EU) agreed earlier this month has effectively averted the immediate prospect of a ‘hard Brexit’. After the UK’s capitulation on a range of key sticking points, talks on some sort of trade deal will now ensue. Any new arrangements will be preceded by a lengthy transition period during which nothing much will change. But we should be wary of assuming a return to an approximation of the status quo; the EU is being transformed from the top down, and it is unlikely that a half-in, half-out UK will be a viable part of its next iteration.

Brexit means…

I had predicted we would end up more or less where we are now shortly after the June 2016 referendum. Able to marshal only narrow and technical arguments in favour of EU membership, the UK’s overwhelmingly pro-EU business elite had little influence in the referendum campaign, but much more where it matters, over policy development. In the Remainer Theresa May they had a Prime Minister determined to deliver a ‘soft Brexit’, while able to retain just enough trust among leave voters.

Then the snap election happened. May threw away the parliamentary majority she needed to deliver Brexit on her terms; victorious over Labour’s Eurosceptic leader Jeremy Corbyn, but ultimately outsmarted as ‘the Brexit election’ became an opportunity instead to protest against a perceived fait accompli.

What few realised at the time, however, was just how much the soft Brexit cause would be helped by the Conservative Party’s enforced alliance with the DUP. While May has undoubtedly been weakened by the election result, the DUP’s refusal to endorse a Brexit deal that left the door open (in order to maintain the Good Friday agreement) to regulatory divergence between Northern Ireland and the mainland has proved to be a quite convenient constraint.

The leaders of the Scottish and Welsh governments, and of the Greater London Authority, quickly seized on the original draft to argue that they too wanted the opportunity to diverge from the rest of the UK, when the UK starts diverging from the EU after Brexit – even if Northern Ireland did not. But Theresa May believes in the union a great deal more than the payday patriots in the hard Brexit camp.

As such, underlying the redrafted deal is a quite remarkable concession. Brexit means Brexit means leaving the single market and customs union. But not if this ends up being too difficult! If the UK cannot agree trade arrangements that essentially replicate the single market and customs union – satisfying London and the devolved nations – while pretending to do the opposite, then we will leave the EU while retaining membership of both. We will not, after all, be taking back control over EU migration or trade policy.

This would, the agreement suggests, be a direct consequence of the Irish border problem. But since the Irish border is also a UK-EU border, the ‘fallback’ position would apply to the UK as a whole.

Labour continues to offer no meaningful input to the national conversation on Brexit, repeatedly vacating space for hard Brexit fanatics to offer the only sustained critique of May’s strategy. An aversion to single market membership is necessitated by Jeremy Corbyn and John McDonnell’s somewhat antiquated perspective on the EU, and the calculation that free movement of labour (a requirement of the single market) is unpalatable to a sizeable chunk of the Labour vote.

The only serious policy thinking – the thing between principle and politicking – on Brexit on the Labour benches is being done by the rather apolitical shadow Brexit secretary Sir Keir Starmer. But Starmer’s advocacy of a single market ‘variant’ for the UK has the misfortune of being the only plausible scenario now available. Home truths are bad politics.

What lies ahead?

As Richard Jones and I have argued, soft Brexit will be better for the UK economy, and especially the prospects for a new industrial strategy in the medium term, than ‘no deal’ would have been. But this is not a moment for celebration. The UK economy remains riddled with severe shortcomings, and it should be acknowledged that EU membership had allowed the UK to develop a growth model based on its structural advantage in financial markets. The Brexit vote was, in part, a fairly forgivable form of ‘voice’ for those ‘left behind’ by this model.

At best, soft Brexit kicks the need to confront these problems down the road a little. But this road remains a perilous one, because the EU itself is undergoing a transformation. It is the nature of this transformation – the trajectory of which the UK will have few ways of influencing – that foretells the more significant Brexit to come.

The UK’s departure extinguishes all hope of the EU moving towards a ‘Europe of the regions’ model, which attracted support before the 2008 crisis. By decentring nation-states within EU governance, this model would perhaps have helped to assuage the UK’s internal contradictions, but essentially signalled the end of the ‘ever closer union’ project which underpins both the EU’s ability to shape domestic governance in member nations, and its credibility as an international actor.

Instead, a state-led process of enhanced integration will now ensue, led by German and French elites. The Spanish government’s reaction to Catalonian independence ambitions is therefore a direct consequence of Brexit – a weakened Spain risked losing its seat at the reconfigured top table. The new approach will also accommodate, rather than challenge, the new authoritarianism evident in many countries of Eastern Europe. Democratic legitimacy is not central to the new European project.

The shape of the new EU has been outlined by the response to the financial and sovereign debt crises in the Eurozone, as emergency responses are institutionalised, exemplified by new forms of macroeconomic surveillance. Such powers are centred on the EU Commission – and its president Jean-Claude Juncker would clearly like to go much further – but it would be wrong to see this stereotypically as a contest between Brussels bureaucrats and member-states. The Commission is dancing to the tune of the most powerful members, and Juncker is very much their man.

Ironically, the new Europe is in many ways a product of a long-running process of Anglicisation, transposed to the supranational level – the EU is building a powerful central government to enforce an ostensibly liberalising economic programme.

Helen Thompson has rightly argued that the UK’s non-membership of the Eurozone had been becoming untenable, given the contradictions between the City of London’s financial entrepôt function and (German-led) European Central Bank regulation. While the City’s status, entrenched in the single market and upheld by the European Court of Justice, concerned Germany and France, it also exacerbated socio-economic divisions at home.

Elite support for Brexit in the UK can in large part be explained by a fear that Germany and France were gearing up to challenge the City’s power. Popular support for Brexit arose for almost the opposite reason, in defiance of a City-centred growth model. The alliance of these two groups is, frankly, bonkers. But such alliances are also stupefyingly mundane facts of political life, especially in the UK.

The apparent genius of the soft Brexit option is in navigating these contradictory developments at the national and supranational levels. Single market membership will be retained, while the prospect of Eurozone membership is decisively iced. As such, the UK may continue to use unconventional monetary policy to paper over the cracks in the British economy, without significantly jeopardising existing patterns of wealth distribution.

However, while the remaining EU may tolerate this compromise for now, it cannot last. A cleaner Brexit will be a near-inevitable marker of the next phase of European integration. But this project remains at an early stage, and could yet be derailed by the fragility of the post-crisis recovery. Soft Brexit is a short-term fix for the EU, as well as the UK.

Perma-Brexit?

It is beyond doubt that the post-Brexit EU will be messy and uneven, and accompanied by resistance. All political constructions routinely face such challenges. However, while disintegrative dynamics certainly exist, prophecies of doom are premature, especially insofar as they overlook the determination of the German and French states to reset the integration project.

The political capital required to manage integration from now on will be significant. There will, for instance, be much less scope for non-EU countries to benefit from single market membership. Members of the European Free Trade Association (EFTA) will experience the obligations associated with the European Economic Area hardening over time.

EFTA has been regularly promoted in the UK by a strangely over-informed group of soft Brexit aficionados. But membership of EFTA for the UK has never been on the table, and never will be. Technically, EFTA’s members (Iceland, Norway, Liechtenstein and Switzerland) could let the UK in. The problem is that the EU would in practice prohibit such a move, barring a radical reconstitution of the EU-EFTA relationship. EFTA is essentially a small group of satellite economies. Its own status will be questioned eventually by the new (leaner and meaner) EU, so it is hardly about to let the EU’s biggest headache – Europe’s financial centre and third biggest economy, no less – join just because we asked.

There will be no free-riding. The UK will have to demonstrate its value to Germany and France if its bespoke soft Brexit compromise is to endure beyond the short term – and while a relationship with the UK after Brexit has clear economic advantages, it has clear political disadvantages. And even the economic benefits will be significantly undermined if the UK rejoins the single market but not the customs union.

And once the UK formally leaves the EU in 2019, the prospect of returning as a full member will quickly evaporate, at least for a generation or two. It is not clear of course whether the UK would want to rejoin the EU once its post-Brexit transformation starts to take shape. The UK is a hugely unequal and disjointed economy and polity, and the preferences of different groups are quite often very far apart.

Even with a soft Brexit, EU-UK relations are likely to become further strained. Given that the new trade arrangements will not solve the UK’s malaise, I would expect that over time the mechanics of the UK’s relationship with the EU to again become politically charged, and indeed scapegoated. The only question is whether EU tires of us before we tire of them.

It is far easier said than done, but the UK needs to make its mind up, and quickly, about what kind of economy it wants to be. No politician, left or right, has dared to address the development trap which now ensnares us. Brexit did not cause, but will accelerate, the UK’s migration to the outer core of the global political economy (parts of the country are already firmly peripheral). We will be too weak to fend for ourselves, but too large to rely on Franco-German patronage.

Even if a new industrial strategy were to start bearing fruit, the UK simply has too many people and too many problems for success in a few new industries to have a transformative impact. We may well remain a large, resourceful and wealthy economy for the foreseeable future. But it might not feel like it for most. And our ability to retain and reproduce this status will, increasingly, be out of our hands.

The post The path towards a ‘soft Brexit’ has been established, but the real disjuncture may still lie ahead appeared first on New thinking for the British economy.

In 2013 Thomas Herndon shot to fame when he found major errors in a widely cited academic paper by Carmen Reinhart and Kenneth Rogoff which had been used to justify austerity policies in Europe and North America.

We caught up with Thomas at this year’s Festival for New Economic Thinking to discuss austerity, the financial crisis and the future of economic policy.

The post VIDEO: The man who debunked austerity appeared first on New thinking for the British economy.

On 12 December 2017, Rethinking Economics and the New Weather Institute published ’33 Theses for an Economics Reformation’ to mark 500 years since the Catholic Reformation. The Theses, which were endorsed by students and economists and nailed to the doors of the London School of Economics, are reproduced below.

The world faces poverty, inequality, ecological crisis and financial instability. We are concerned that economics is doing much less than it could to provide insights that would help solve these problems. This is for three reasons:

• First, within economics, an unhealthy intellectual monopoly has developed. The neoclassical perspective overwhelmingly dominates teaching, research, advice to policy, and public debate. Many other perspectives that could provide valuable insights are marginalised and excluded. This is not about one theory being better than another, but the notion that scientific advance only moves ahead with a debate. Within economics, this debate has died.
• Second, while neoclassical economics made a contribution historically and is still useful, there is ample opportunity for improvement, debate and learning from other disciplines and perspectives.
• Third, mainstream economics appears to have become incapable of self-correction, developing more as a faith than as a science. Too often, when theories and evidence have come into conflict, it is the theories that have been upheld and the evidence that has been discarded.

We propose these Theses as a challenge to the unhealthy intellectual monopoly of mainstream economics. These are examples – of the flaws in mainstream theories, of the insights that alternative perspectives have to offer, and of the ways in which a more pluralist approach can help economics to become both more effective and more democratic. This is an assertion that a better economics is possible, and an invitation to debate.

THE PURPOSE OF THE ECONOMY

1. The purpose of the economy is for society to decide. No economic goal can be separated from politics. Indicators of success represent political choices.

2. The distribution of wealth and income are fundamental to economic reality and should be so in economic theory.

3. Economics is not value-free and economists should be transparent about the value judgments they make. This applies especially to those value judgments that may not be visible to the untrained eye.

4. Policy does not ‘level’ the playing field, but tilts it in a direction. We need a more explicit discussion of what sort of economy we want, and how to get there.

THE NATURAL WORLD

5. The nature of the economy is that it is a subset of nature, and of the societies it emerges within. It does not exist as an independent entity. Social institutions and ecological systems are therefore central, not external, to its functioning.

6. The economy cannot survive or thrive without inputs from the natural world, or without the many lifesupporting systems that the natural world provides. It depends upon a continual through-flow of energy and matter, and operates within a delicately balanced biosphere. An economic theory that treats the natural world as external to its model cannot fully understand how the degradation of the natural world may damage its own prospects.

7. Economics must recognise that the availability of non-renewable energy and resources is not infinite, and the use of these stocks to access the energy they contain alters the planet’s aggregate energy balances, creating consequences such as climatic upheaval.

8. Feedbacks between the economy and the ecology cannot be ignored. Ignoring them to date has led to a global economy that already operates well outside the viable thresholds of the ecology that houses it, yet requires further growth to function. But economics must be grounded in the objective constraints of the ecology of the planet.

INSTITUTIONS AND MARKETS

9. All markets are created and shaped by laws, customs and culture, and are influenced by what governments do and by what they do not do.

10. Markets are outcomes of the interactions between different types of public and private organisations (as well as those in the voluntary sector and civil society). More study should be done on how these organisations are actually organised, and how the inter-relationships between them do work and could work.

11. Markets are also more complex and less predictable than may be implied by simple relationships of supply and demand. Economics needs a deeper understanding of how markets behave, and could learn from the science of complex systems, as used in physics, biology, and computing.

12. Institutions shape markets, and influence the behaviour of all economic actors. Economics must therefore consider institutions as a central part of its model.

13. Since different economies have different institutions, a policy that works well in one economy may work badly in another. For this reason among many others, it is unlikely to be helpful to propose a universally applicable set of economic policies based solely on abstract economic theory.

LABOUR AND CAPITAL

14. Wages, profits, and returns on assets can be shown to depend on a wide range of factors, including the relative power of workers, firms, and owners of assets – not merely on their relative contributions to production. Economics needs a broader understanding of these factors so as to better inform choices that affect the share of income received by different groups in society.

THE NATURE OF DECISION-MAKING

15. Error, bias, pattern-recognition, learning, social interaction, and context are all important influences on behaviour that are not recognised in economic theory. Mainstream economics therefore needs a broader understanding of human behaviour, and can learn from sociology, psychology, philosophy, and other schools of thought.

16. People are not perfect, and ‘perfectly rational’ economic decision-making is not possible. Any economic decisions that have something to do with the future involve a degree of unquantifiable uncertainty, and therefore require judgement. Mainstream economic theory and practice must recognise the role of uncertainty.

INEQUALITY

17. In a market economy, people with the same abilities, preferences and endowments do not tend to end up with the same level of wealth, subject only to some random variation. The effects of small differences in luck or circumstances can drive vastly different outcomes for similar people.

18. Markets often show a tendency towards increasing inequality. In turn, unequal societies fare worse across a range of social welfare indicators. Mainstream economic theory could do much better in understanding how and why this happens, and how it may be avoided.

19. The proposition that as a country gets richer, inequality must inevitably rise before it falls, has been shown to be false. Any combination of GDP growth and inequality is possible.

GDP GROWTH, INNOVATION & DEBT

20. Growth is a political, as much as an economic choice. If we choose to pursue ‘growth’, then the questions – ‘growth of what, why, for whom, for how long, and how much is enough?’ – must all be answered either explicitly or implicitly.

21. Innovation is not external to the economy; it is an inherent part of economic activity. Our understanding of GDP growth may be improved if we see innovation as occurring within a constantly-evolving, disequilibrium ecosystem, shaped by the design of markets and by the interactions between all actors within them.

22. Innovation has both a rate and a direction. A discussion of the ‘direction’ of innovation requires an understanding of ‘purpose’ in policy-making.

23. Private debt also profoundly influences the rate at which the economy grows. and yet is excluded from economic theory. The creation of debt adds credit-financed demand, and affects both goods and asset markets. Finance and economics cannot be separated.

MONEY, BANKS AND CRISES

24. The majority of new money circulating in the economy is created by commercial banks, every time they make a new loan.

25. The way in which money is created affects the distribution of wealth within society. Consequently, the method of money creation should be understood to be a political issue, not merely a technical one.

26. Since banks create money and debt, they are important actors in the economy, and should be included within macroeconomic models. Economic models that do not include banks will not be able to predict banking crises.

27. Economics needs a better understanding of how instability and crises can be created internally within markets, rather than treating them as ‘shocks’ that affect markets from the outside.

28. Financialisation has two dimensions: short-termist and speculative finance, and a financialised real economy. The two problems must be studied together.

THE TEACHING OF ECONOMICS

29. A good economics education must offer a plurality of theoretical approaches to its students. This should include not only the history and philosophy of economic thought, but also a wide range of current perspectives – such as institutional, Austrian, Marxian, post-Keynesian, feminist, ecological, and complexity.

30. Economics itself should not be a monopoly. Interdisciplinary courses are key to understanding the economic realities of financial crises, poverty, and climate change. Politics, sociology, psychology, and environmental sciences must thus be integrated into the curriculum, without being treated as inferior additions to existing economic theory.

31. Economics should not be taught as a value-neutral study of models and individuals. Economists need to be well versed in ethics and politics, as well as being able to meaningfully engage with the public.

32. An overwhelming focus on statistics and quantitative models can leave economists blinded to other ways of thinking. Students should be supported in exploring other methodological approaches, including qualitative research, interviewing, fieldwork, and theoretical argumentation.

33. Above all, economics must do more to encourage critical thinking, and not simply reward memorisation of theories and implementation of models. Students must be encouraged to compare, contrast, and combine theories, and critically apply them to in-depth case studies of the real world.

The post 33 Theses for an Economics Reformation appeared first on New thinking for the British economy.

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. 

The post Film review: The Spider’s Web – Britain’s Second Empire appeared first on New thinking for the British economy.

We caught up with economist and former MP George Kerevan at the Festival for New Economic Thinking to discuss the state of economics and the media in 2017.

Watch the full video:

The post VIDEO: Interview with George Kerevan appeared first on New thinking for the British economy.

openDemocracy economics editor Laurie Macfarlane spoke at this year’s Disruptive Innovation Festival about learning from the financial crisis, and building an economy that is fit for purpose for the 21st century.

Watch the full video:

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In the light of Brexit, can a new coalition of social class and territorial interests mobilise to deliver a meaningful industrial strategy?

This week, the government published its Industrial Strategy. It is a hefty document, weighing in at 255 pages, and clearly the product of many months of analytical and policy development work. Like most such papers, it is littered with the mini-reviews, micro initiatives and small spending pots that characterize cross-departmental policy documents. The prose is occasionally tortured by the Whitehall compromises it embodies. But it has a thematic coherence, drawn from a focus on tackling the UK’s productivity problem and proposals to orient economic activity strategically towards four “Grand Challenges” of an ageing society, the transition to a low carbon economy, mobility, and AI and the data economy. This focus on societal missions, some big increases in R & D spending, and the recognition that governments have a strategic role in shaping economic growth have pleased advocates for industrial strategy. It has been broadly welcomed.

The government’s white paper follows hard on the heels of two important contributions to industrial strategy policy, the first from the Commission on Industrial Strategy, established by the Universities of Manchester and Sheffield and chaired by Dame Kate Barker whose final report was published a few weeks ago, and the second, a discussion paper from the Institute for Public Policy Research (IPPR) Commission on Economic Justice.

Each of these sets out, in different ways, the persistent weaknesses in the British economy that justify a strongly articulated, non-partisan and consistently delivered industrial strategy: poor productivity performance, low rates of business investment, regional imbalances, chronically weak export performance, and poor diffusion of skills, R&D and innovation. These are familiar and largely indisputable lists.

Barker’s Commission on Industrial Strategy refrains from describing these weaknesses as symptoms of a deeper neo-liberal malaise or characteristics of a fundamentally broken British economic model; it positioned its report to appeal to policymakers across the political spectrum and its analytical framework reflects that.

In contrast, the IPPR contribution is directly addressed to the construction of a new economic model. It believes that the UK’s economy is governed by a neo-liberal intellectual paradigm that has manifestly failed and is on its way out, in academia as much as the institutions of economic policymaking. It adduces the government’s new industrial strategy as further evidence of the paradigmatic transformation in economic thinking that is underway.

Universal Basic Infrastructure

Like the government’s white paper, both of these contributions address policy frameworks and instruments that typically fall within the ambit of industrial strategy: infrastructure investment, innovation and R & D, skills, and regions (or “place” in the government’s parlance). Perhaps the most eye-catching feature of the Manchester and Sheffield report – doubtless a consequence of Diane Coyle’s membership of the commission – is the call for the state to ensure that a Universal Basic Infrastructure is provided in every area as a social minimum offered to all citizens. In broad terms, this infrastructure would be “hard” (rail, bus, broadband) and “soft” (schools, health and care services). The proposal deliberately echoes but subverts the idea of a Universal Basic Income, which has attracted significant political attention in recent years. Infrastructure is more important than income, the report argues, in promoting the capabilities of citizens for economic development while regionally-balanced investment in infrastructure would do more to address exclusion from centres of economic agglomeration and growth than income transfers.

The UBI proposal overlaps with recent calls for Universal Basic Services, another intellectual and political route into debates about securing inclusive citizenship in unequal, open economies like the UK’s. It has some congruence too with the argument for promoting the growth of the “foundational” or “everyday” economy that has been developed in recent years by the Centre for Research on Socio-Cultural Change at the University of Manchester. Here the anchor institutions of the local state – local government, the NHS and so on – are used to underpin sustainable demand in the local economy by paying living wages and using public procurement to keep income circulating locally, in strategic partnership with non-tradeable sectors like retail, hospitality and catering. A Corbynite version of this approach has been pioneered, with some apparent success, in Preston, where procurement budgets have been used to buy locally provided services and farmed food, and where cooperatives and other forms of worker control are being encouraged.

What about the millions in low waged sectors?

It is noticeable, however, that the commission’s report says relatively little (aside from the significant health and social care sector) about the low-skilled, low-wage sectors in which millions of British people work. This is also a major lacunae of the government’s Industrial Strategy, which focuses almost exclusively on high value-added sectors. This oversight is not accidental: political economists argue that all governments have an interest in meeting the needs of high value-added businesses, but it takes particular kinds of political coalition to ensure that the needs of low- and semi-skilled workers are addressed. Whereas in Fordist economies the interests of these workers could be aligned with those of skilled workers, in post-industrial service economies these working class coalitions have broken down, often leaving the low-skilled without allies. This is particularly true of majoritarian political systems that have co-evolved with liberal market economies, in which high-skill, professional employment in services has grown alongside low-wage, low-skilled work in the non-tradeable sectors.

To its credit, the IPPR discussion paper pays much more attention to these low skill sectors, where it empirically locates the bulk of the UK’s productivity problems. Importantly, it advocates a new focus on skills utilisation, rather than familiar invocations to improve skills supply. There is considerable evidence that UK employers do not appropriately utilise the skills of their employees and do not integrate skills into the design of job roles and business capital investment strategies. In a flexible labour market with high employment rates, employers have less incentive to invest in skills training, and weak trade unions and limited coordination between firms ensure that vocational skills development and utilisation are historically under-developed in the UK, in common with other liberal market economies.

Pet schemes – or Nordic vision and lifelong learning?

In this policy area, the government’s industrial strategy is noticeably weak. It claims to overhaul technical and vocational education in terms that are wearingly familiar from official policy documents of the last forty years (and even further back). But it amounts to little more than the usual policy mélange of small funding pots for pet schemes and the reorganisation of qualifications. This is a mark of how limited Whitehall’s understanding of the political economic and institutionalist determinants of employment training in the UK remains.

In the Nordic countries, the persistence of coordinated economic management, large public-sector employment and PR electoral systems has ensured that the interests of low-skilled workers have been represented in governing coalitions (although in recent years, the rise of anti-immigrant parties has fractured social democratic political strength). Liberalisation in the labour market has been accompanied by significant rights to skills training and flexible working, and increased public and business investment in lifelong learning (see in particular, Kathy Thelen’s work on reforms in the Netherlands and Denmark in Varieties of Liberalisation and the New Politics of Social Solidarity). In contrast, in parts of continental Europe, dualism in the labour market has led to a weakening of social protection and employment regulation for lower-skilled workers in the domestic economy, while the core social bloc of the export sector interests remains politically predominant, symbolised in grand coalitions (although this is under stress, as the recent German election showed). Yet here too, skills investment and high productivity in the manufacturing and higher valued added service sectors ensures that low unemployment is combined with significantly higher per capita GDP than in the UK.

A coalition of workers’ interests?

These considerations raise important questions for advocates of industrial strategy in the UK: who will be the political agents of economic transformation, and how can broadly based coalitions that unite the interests of low- and semi-skilled workers with those of middle-class professionals be created? The decline of the industrial working class, the rise of finance and decline of the UK “national” business class in core sectors, the spread of the gig economy and the parallel growth of higher education as a social insurance policy for the middle classes, coupled with the electoral dominance of a socially conservative older population, have all made the task of constructing progressive economic reform coalitions much harder.

In piecemeal fashion, the spread of devolution may provide new openings. It is noteworthy that Wales and Scotland have PR electoral systems and strong traditions of social solidarity, and each is pursuing prototypical industrial strategies with the (still limited) tools at their disposal. And on the same day as the Commission on Industrial Strategy published its report, England’s seven metro-mayors met together for the first time to advocate for increased devolution of skills and fiscal policy. In the more complicated multi-level governance of the UK, new political coalitions could emerge.

But these developments are unlikely to generate national economic transformation of the kind envisaged by industrial strategy advocates. Brexit may yet provide the critical juncture through which a coalition for political economic change can be formed, though the task is a monumental one and Brexit hangs over the government’s industrial strategy like a dark cloud, without any silver linings. In 20^th century, transformative change was driven by the exigencies of depression, war or the exhaustion of growth models, and it was typically state-led. In the 21^st century, Brexit and the painful realisation of relative economic decline may provoke the kind of rethinking that has hitherto eluded Britain’s political-economic elites. The question is whether a new coalition of social class and territorial interests in the UK can mobilise to underpin the necessary changes. For industrial strategy advocates, the politics ought to matter as much as the policies.

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Ten years after the crash, the movement to replace neoliberalism is in the ascendency. Well organised campaigns cover everything from the promotion of pluralism in economic curricula to the application of new economic principles in local communities. Academics and campaigners, who prior to the crash were lone voices in the wind, have been joined by a growing chorus of economists and commentators acknowledging that neoliberalism is not working. Importantly, these now include those in mainstream institutions that have become synonymous with the status quo, such as the IMF and OECD. Meanwhile, bottom up movements, surfing a heady mix of social media and dissatisfaction with orthodox economic ideas, are beginning to score political victories across the world.

This is because neoliberalism – the broad set of political-economic ideas and policies which have dominated public life over the last 40 years – has failed, in both theory and in practice. It is in the wake of the global financial crisis that these failures have plumbed new depths. Financial instability looms over economies shackled by insufficient investment. Living standards stagnate and work becomes ever more insecure, shattering the implicit bargain of the entire endeavour. The human costs of this experiment have been enormous, with psychological and non-communicable ill-health becoming the hallmark of a system that cares for little but profit. Inequality, itself linked to ill-health, has grown to levels unseen since the nineteenth century, leading to large power imbalances throughout society. Socio-economic mobility has been further stalled by the erosion of the public realm, from universities to the legal system. Most pressingly, neoliberalism continues to rely on a growth model that is destroying the biophysical preconditions upon which it relies, increasing the chance of collapse in the climate and other natural systems.

Major changes in economic ideas have happened before

Despite this, neoliberalism remains the dominant perspective of most commentary and policy-making in the UK, countries around the world, and the global economic systems through which they linked. But its dominance may be illusory. Rapid changes in ideas have occurred at key junctures in the past. Over the last hundred years, Western political economy has broadly experienced two major periods of breakdown and transition from one political-economic paradigm to another: after the Great Depression and into the post-war consensus of welfare states and the Bretton Woods financial order; and after the crises of the 1970s and into the free market policies of neoliberalism that we live under to this day.

Across each period, the process of a shift to a new sets of ideas can be split into three components:

1. its intellectual and academic underpinning, particularly within economics;
2. the policies and narratives through which it was expressed in the wider public domain; and
3. the political processes – notably elections of governments – which enabled it to be implemented and entrenched.

When considering these components today, it appears the conditions are now apparent for another shift. Across the first, intellectual component, the failure to predict, understand and react to the financial crisis fractured confidence in key pillars of the orthodoxy. This included, for example, the ‘efficient market hypothesis’, which, by asserting that assets could not be consistently mispriced, led generations of economists to shamefully underestimate systemic risk in the financial system. Theoretical failures have been compounded by the inadequacy of policy prescriptions. Most notably, fiscal consolidation and monetary policies have not generated growth or reduced public deficits at the speed anticipated, and so have failed on their own terms. Indeed, elements of the economics profession have consistently found themselves unable to adequately explain a multitude of economic phenomena, ranging from stalling productivity to the impact of quantitative easing. Moreover, orthodox economics has little concern for the major crises of our time, from rising levels of inequality to global environmental change.

New economic ideas are proliferating, but a major shift is still not apparent

In response, a plethora of alternative economic insights have grown up, many of them building on schools that have always contested neoclassical or neoliberal orthodoxies, such as institutional and post-Keynesian economics. Some have emerged in response to particular failings of the orthodoxy, such as behavioural economics and its focus on more accurate modelling of human behaviour. Others pursue a deeper re-conceptualisation of the economy, including complexity economics, which applies complexity science in modelling the economy as a system in constant change, as opposed to equilibrium. However, economics is still dominated by orthodox neoclassical or neoliberal approaches.

While this is a function of the political dominance of these ideas, it also reflects institutional inertias within the discipline. Prestigious journals predominantly publish articles that adhere to the mainstream view, limiting the profile of alternative approaches. In turn, non-mainstream academics can become marginalised, further reducing their ability to publish work at the highest level. Meanwhile, economic curricula at secondary schools and universities remain grounded in the mainstream and so new generations of economists are largely moulded in the image of previous generations.

While these dynamics have attenuated the flow of new economic ideas into the second component of a shift – the development and adoption of counter-narratives and policy proposals – these have nonetheless emerged and built much credence in recent months. Few credible commentators and policymakers now defend the status quo, falling instead along of a continuum of voices calling for reform. Even think tanks who, only a couple of years ago, were staunch supporters of key tenets of neoliberalism now find themselves arguing for change. This became starkly apparent in the 2017 Conservative Party manifesto, which claimed that the party now “… rejected the ideological templates provided by the socialist left and the libertarian right and instead embrace[d] the mainstream view that recognises the good that government can do”.

It is unclear how serious this view is, or how long it will last, but it suggests that a critique of neoliberalism is starting to embed itself into thinking across the political spectrum. Indeed, throughout the West, most government and opposition parties now found their rhetoric on a critique of the status quo. The results differ widely, of course, from the accelerated dismantling of what remains of the New Deal under Donald Trump, to the nationalisation policies of Jeremy Corbyn’s Labour party. And so we see that the third component of a shift – the embedding of a new political-economic paradigm through the election of a supportive government – is not yet apparent.

Change is driven by an ecosystem of influential organisations and individuals

How does a paradigmatic shift come about? Change of this scale is conditional on events that erode confidence in the status quo and heighten the legitimacy of alternative ideas. But it is also a function of the preparedness of those movements espousing an alternative. The conditions for change may come by chance, but the change is won by those most prepared to capitalise on crisis. Those seeking a shift away from the post-war consensus knew this and developed an ecosystem of influence to increase the chance that their ideas would win the day if and when crisis came.

This movement started by focussing on academic ideas, founding the Mont Pèlerin Society to provide a safe space for academics to play out their opposition to a catch-all ‘collectivism’. Members were united in their conclusion that an increased role for the state in economic and social management was incompatible with individual freedom. Around this assertion, they eventually built a coherent narrative and policy proposals that were prosecuted by a well-resourced ecosystem of institutions and networks mobilised to influence public debate and political processes. At its heart was a new breed of ‘knowledge professional’ located within the modern ‘think tank’, politically partisan and focussed on strategic influence as well as policy development. Journalists then provided the means by which neoliberal ideas could enter a wider circulation. This was an avowedly elite theory of change, lavishly funded by economic interests that were set to gain from the ideas being espoused.

By the early 1970s, the neoliberal counter-orthodoxy had organised into a transatlantic network of economists, think tanks and journalists. This network and its ideas increasingly populated political parties and government institutions, creating the intellectual conditions for change and ensuring that the neoliberal movement was prepared to capitalise on crisis. When this crisis came, neoliberal ideas entered government, first under the chaotic Labour and Democrat administrations of the late seventies, and later with the election of Margaret Thatcher and Ronald Reagan. After triumphing in key battles against the commanding institutions of the post-war consensus and New Deal, these administrations scored the ultimate victory when centre-left parties adopted major elements of neoliberalism so that even changes of government could no longer halt the march of its ideas.

Now is the time for the new economics movement to shift to the next gear

If today the conditions for another shift are apparent, how well prepared is the ecosystem seeking that change? This was the question Michael Jacobs and I sought to answer in a recent report that assessed, from a strategic perspective, the movement seeking a shift in economic ideas in the UK. Our main findings were positive. This movement is growing and we think it now covers most of the major functions required to shift the paradigm – from academic groups and think tanks, through communications websites and supportive networks, to funders and political figures. Each year, this movement becomes more influential and is full with talent stretching across generations.

We think there is now broad intellectual convergence across groups around a shared critique of the failings of neoliberalism and the need for a new paradigm. There is slightly looser convergence on the overall goals or values of a new paradigm, largely centring on equity, sustainability and democratisation. However, outside of one or two notable efforts, we have not seen common narratives or policy solutions emerge. Our conclusion is that this results from material barriers to progress, rather than profound differences between groups. These barriers cover three areas:

• the lack of a fully developed intellectual foundation;
• the fact that most organisations are non-mainstream actors, or ‘outsiders’, with ‘insider’ or establishment activity still relatively thin; and
• the absence of coordination and strategic direction covering a critical mass of the ecosystem, including for communications and media outreach, and funding and resource allocation.

In response, we’ve recommended the creation of a platform, or informal coordinating body, to serve the movement by providing a forum for the development of strategic coordination. This could help formalise those networks already emerging within mainstream organisations and provide a safe space to link them to non-mainstream groups in a shared endeavour, collaborating with the brilliant work of other facilitating groups. Such spaces should also exist in countries outside the UK and between countries, as globalisation and environmental change mean this movement will have to be more international than the analogous movements of the past. The challenge should excite us, as the time to accelerate efforts is now.

Younger generations must be given the chance to lead

But too often it feels like change is not happening fast enough. Members of the millennial generation look around and see the chaos of a British government mired in scandal, presiding over a collapse in our international influence at a time when nations need to work closer together than ever before. They wonder what kind of world they will inherit. While the progress described above is heartening – and Britain does sit at the heart of an increasingly global movement – frustration still abounds. A notable, recent example was the INET conference in Edinburgh this October. Held at a time when the ten year anniversaries of the crash have begun, the conference did little to recognise the political moment in which we find ourselves. Moreover, it felt like a chance was missed to facilitate strategic discussions between groups from across the world, and it was remarkable that there was an absence of shared spaces for people to meet and talk. Many came away from the conference feeling disappointed, doubting whether much new economic thinking has been done, or whether it would make a difference at this crucial time.

There are many reasons for this, and they echo throughout the movement as a whole. Firstly, there is a lack of diversity. This ranges from a large gender disparity, through the representation of cultures and nations, to a lack of intellectual pluralism. It has been heartening to see INET and others make some efforts to increase the participation of women, but change must come quicker and be of sufficient force to overcome large structural barriers. We see the same with the representation of people across the income distribution. Younger generations must also be given more power and opportunities, both to act and to learn. It will be they who have to inherit the world neoliberalism made, or unmade. And across all of these areas, we can no longer afford to follow a ‘common room theory of change’ – that if you win the intellectual argument, you change the world. This has not and will never be the case, as the Koch brothers and the other heirs to Mont Pèlerin so ably prove.

In the case of INET, the Young Scholars Initiative’s Festival for New Economic Thinking, organised before the INET conference proper, provided an exciting shared space that brought together a community to celebrate and plan. In doing so, it allowed a younger generation to appreciate the progress that has been made and to build for the future. This future does not look bright and time is running out. But, as we found across the movement in the UK, the millennial generation, and those below it, are facing the challenge with ambition and excitement.

In an oft quoted remark, Milton Friedman, a key part of the neoliberal ecosystem of influence, once described its basic function as being to “develop alternatives to existing policies, to keep them alive and available until the politically impossible becomes the politically inevitable”. We do not yet have a critical mass of those alternatives and a common narrative around which to bind them. More shared spaces and coordination are needed to accelerate the process by which we reach this point. And while those spaces should be populated by all ages, the torch must be passed to a younger generation. It is they who will one day make the impossible inevitable.

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Our constitution is being rewritten by perhaps the most right-wing government in modern British history, propped up by an even more fanatical party, the DUP. This week, despite an orchestrated campaign to amend the legislation previously known as the ‘Great Repeal Bill’, we’ve failed to land a blow on the government.

The battle is by no means over, and the renamed EU Withdrawal Bill will shortly move to the Lords. But it should be a wake-up call, that we can’t just wait for another government. Vital protections, safeguards and rights are being removed from us right now, and the EU Withdrawal Bill is just the opening salvo. It will be followed by legislation on food, farming and fisheries, on immigration and borders, on trade and customs.

The last of these bills was introduced into parliament two weeks ago, and carries with it serious implications for everyone in the UK as well as millions more people round the world. If you were worried about US-UK trade deal TTIP, you need to take Liam Fox’s new Trade Bill seriously. If it isn’t amended, we have every reason to fear a ‘TTIP on steroids’ is coming our way.

The Trade Bill will allow the British government to negotiate trade deals after Brexit. It is our only chance to make sure that these deals done will be open, democratic and accountable. And we only have a few months to do it.

Last week Trade Secretary Liam Fox rolled out the red carpet to Trump’s trade negotiators. We’re not allowed to know what they discussed, but we do know that Trump’s Commerce Secretary, the so-called ‘King of Bankruptcy’ Wilbur Ross, has said that lower food standards will be a prerequisite for any US-UK trade deal. So TTIP’s infamous chlorine-washed chicken and hormone-filled beef are likely to appear on the British menu. We also know US politicians are desperate to open the NHS to US healthcare multinationals.

As things stand, MPs have no right to know what’s going on in these talks – or the talks that Fox hopes will commence with 16 other countries including human-rights bashing Saudi Arabia and Turkey. MPs can’t set any guidelines for Dr Fox. Once he concludes a trade deal with any of these countries, they can’t amend or stop that deal. If they’re very good, they might get a debate.

As one newspaper editorial explained this week, the Trade Bill “is a coded way of saying that Dr Fox reserves the right to do whatever he likes without pesky MPs getting in the way”.

Fox’s behaviour to date justifies suspicion. It was, after all, Dr Fox who signed the UK up to the EU-Canada deal known as CETA, when it was discussed in Brussels. He told a furious parliamentary committee last year that two years simply wasn’t enough time for Westminster to have a proper debate.

The Trade Bill was preceded by a white paper. In among the platitudes about the great benefits of global free trade, there was mention of transparency and input to trade deals from ‘stakeholders’ like…. parliament. The white paper generated tens of thousands of submissions from campaigners. But given that the Trade Bill was published just one day after the submission closed, it would be safe to assume that Fox’s officials haven’t given those ‘inputs’ a whole lot of weight in writing the bill.

A proper timetable for the Trade Bill will be published any day now. Yesterday MPs of different parties will launch a campaign, backed by campaigners, to amend this bill. The demands shouldn’t be controversial in any modern democracy – that parliament gets to set guidelines for trade deals, that it can scrutinise the work of ministers while negotiations take place, and that it gets to stop deals it doesn’t like. Devolved administrations must get a say when their powers are involved, human rights and environmental impact assessment must be mandatory, and there should be as much openness as possible.

Trade deals today touch on more and more aspects of our lives – from how we run public services like the NHS, to how we set food standards, to whether or not big business is able to sue governments when they pass laws which corporations don’t like. So-called ‘e-commerce’ rules will decide what tech giants like Amazon and Google can do with your private data. There is no reasonable argument that MPs should not have a say over such major pieces of public policy.

And that’s before we start worrying about other people’s rights. Dr Fox, who hung a picture of arch-imperialist Cecil Rhodes above his desk and whose own staff mock his trade strategy as ‘Empire 2.0’, is in talks with countries with atrocious human rights records. Britain, home to some of the biggest pharmaceutical corporations, has always pushed for tighter intellectual property rules, which can literally mean life or death for people who need access to vital medicines. Britain has regularly been the most vociferous proponent of corporate courts, and is dedicated to expanding supermarket power around the world.

What’s more this procedure will be used to pass any post-Brexit EU-UK trade deal. As things currently stand, Brussels MEPs will have far more power over such a deal than Westminster MPs. In fact, depending on the content, it might well be that the deputies in the regional parliament of Wallonia will have more say than our MPs.

So much for parliamentary sovereignty. We have a few months to stop this.

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Yesterday the Chancellor announced a ‘crackdown’ on companies that don’t pay tax in the UK. From April 2019, companies will have to pay a withholding tax on royalty payments they make to their subsidiaries in low tax jurisdictions. The companies will have to make these payments ‘even if the group has no taxable UK presence under current rules’.

This is less a crackdown and more a tentative step in the right direction. It will bring in just £800m by March 2023 – to put this in perspective current estimates put the UK tax gap at between £34bn and £119bn – and in the absence of any real effort to tackle tax avoidance and evasion many companies will continue to slip through the net.

Yet in many ways this announcement is an important victory for tax justice campaigners in the UK. Not because we know something Hammond doesn’t about the policy itself, but because in implementing it the Chancellor has acknowledged something that no recent government has: that as long as a company has a physical presence on UK soil, sells to UK customers, or channels its profits through UK banks, it can be taxed by the UK Government.

Tax us if you can

It may seem obvious to anyone that has ever come into contact with HMRC that you can’t negotiate over your tax bill. But in recent years some of the world’s largest companies have managed to do just that.

One of the main ways in which large companies are successfully (and legally) able to avoid tax is through profit shifting. Multinational corporate groups have subsidiaries all over the world and each of the subsidiaries is taxed at the corporate tax rate of the country in which it is based. So a subsidiary of a company that makes £100m profit in the United States would pay £30m in corporate income tax, whilst another subsidiary that made the same profit in Ireland would pay just £12.5m.

Companies have lobbied for international tax law to treat their subsidiaries as legally separate entities because, they argue, it protects them from ‘double taxation’. In the above example, if the company was taxed on its global profits in both the USA and Ireland (and all the other countries in which it operates), that same profit would be being taxed over and over by different jurisdictions. So far, so fair.

The issue is that companies have abused this privilege by shifting their profits from high tax to low tax jurisdictions to reduce their overall tax liability. If the subsidiary in the US doesn’t want to pay 30% tax on the profits it has made there, it can use clever accounting techniques – from fake loans to transfer pricing – to shift those profits to Ireland where it can pay 12.5% instead, or to Bermuda where it can pay nothing.

In recent years, these practices have become more and more common. Today, the OECD estimates that profit shifting by multinational corporations is costing governments around the world between $100bn and $240bn per year in lost revenues. The UK is not an exception, despite the Government’s attempts to woo international capital by cutting corporation tax rates; in 2014 a fifth of our largest 800 companies paid no UK tax at all. Not only is this unfair on the public, it is also unfair on the vast majority of companies of all sizes that pay the taxes they owe.

A step in the right direction

In a striking departure from the attitude it takes towards benefits claimants, the Government has been arguing that it has to use a carrot rather than a stick to tackle the issue of corporate tax evasion. If a company claims to have made zero profits in the UK and billions of pounds in Ireland, there is very little the UK Government can do to challenge that.

But by stating that royalty payments made to subsidiaries in low-tax jurisdictions will be taxed as corporate income in the UK, Phillip Hammond has conceded that the UK Government does have the power to tax the profits of multinational corporations, regardless of where they are reported. After years of corporation tax cuts that have triggered a ‘new race to the bottom’ around the world, this represents a belated concession that the UK does not have to cut its corporation tax rates to tempt multinational corporations into paying their taxes.

The immediate question that arises now is if the Government can tax royalties offshored to tax havens, why can’t they do the same to profits? If multinationals continue to shift their profits to low-tax jurisdictions, why not just base their tax bill on their UK turnover, or sales to UK consumers?

The Government is more than capable of coming up with a fair way of taxing multinational corporations on their UK activities. It just has to put its mind to it.

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UK Chancellor Philip Hammond is likely to use his Budget speech on Wednesday to declare that the UK has turned the corner on public debt. Recent tax receipts have been higher than expected and the deficit continues to fall. As a result, we are likely to see some small but headline-grabbing giveaways to a nation weary of austerity.

He is less likely to note that the Coalition and Conservative governments have so far missed all of their self-imposed debt targets. Or that beyond the short-run jump in tax revenues, the longer term outlook is darkening: the Office for Budget Responsibility has finally conceded it has been guilty of “supply-side optimism” and will downgrade growth forecasts. Even the revised forecasts are likely to be unrealistically optimistic.

The chancellor is also unlikely to discuss a different kind of debt: that of households. Household debt, particularly unsecured debt such as credit cards and car loans, is growing rapidly. The total stock of unsecured debt has reached around £200bn and is increasing by around £20bn per year.

The relationship between deficit reduction – austerity – and the growth of household debt is remarkably stable. Adjusting for inflation, for every £2bn in public sector deficit reduction, the annual rate at which households have taken on new debt has increased by £1bn. Over the longer term, the connection between the two is surprisingly persistent – and also appears to work in reverse. During periods in which the deficit has been growing, household debt accumulation fell.

So the chancellor’s inevitable claim that the UK’s debt problem is finally under control should be taken with a large dose of salt. By squeezing incomes, rolling back crucial public services and refusing to invest for the future, governments since 2010 have consigned the UK to nearly a lost decade of stagnating wages and incomes.

The Bank of England has done what it can to make up for the shortfall in spending power but monetary policy is the wrong tool for the job. In holding interest rates at nearly zero and pumping money into the financial system, the Bank has managed to get banks lending again. Unfortunately, this lending has not been to businesses, for productive investment, but to households.

These households, facing an unprecedented squeeze on incomes, have relied on consumer credit to make ends meet. Household consumption has been the driver of economic growth in recent years. Growth in mortgage lending, in the absence of wage growth, pushes house prices up, putting home ownership ever further out of the reach of young people.

If the current pattern were to persist – a big if – and the chancellor were to achieve his “general aim” of a balanced budget, household debt would then be increasing at a rate of around £100bn per annum.

This looks unlikely in reality. The apparently stable relationship between the public finances and household borrowing may break down – as macroeconomic relationships usually do. More likely still, the chancellor will fail to achieve a balanced budget. Even he no longer claims this can be achieved within the current parliament.

Instead, the chancellor needs to concede what many of us have said all along: the public sector deficit is the wrong target for policy and austerity was a mistake – a deadly one. What is needed from this budget is plainly obvious: higher public investment. With interest rates close to zero and both public and private sector investment at historically low levels, the chancellor must reverse the policy direction of the last seven years.

A programme of public sector investment, along with a carefully implemented industrial strategy, is the most promising solution to the problem underlying most of the UKs current woes: very weak productivity. Without productivity growth, long run increases in income and declines in debt ratios – both public and private – will be impossible. Evidence is growing that weakness in productivity is the result of austerity – it is caused by lack of demand.

Such a reversal would be politically difficult for the chancellor. It would require him to admit, at least implicitly, that the austerity policies imposed over the last seven years were based on the lie that public debt is the most important issue facing policy-makers. It is clear that the public willingness to tolerate further cuts to wages, living standards and public services is exhausted. It is time for the chancellor to change course.

Paradoxically, this is likely to be the best way to reduce the level of debt. Higher investment should spur productivity growth, allowing for wage rises, increases in tax revenues and, ultimately, less reliance by both households and the public sector on debt.

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Ahead of this week’s Autumn Budget 2017, Reema Patel explains how the Citizens’ Economic Council programme has piloted models of engagement that seek to enable citizens, including those ‘left-behind’ citizens, to ‘take back control’ over the economic decisions that affect their lives.

“I feel I have no voice in society. I don’t have a concept of my voice being heard.”

— Participant, RSA Citizens Economic Council workshop, Oldham

In the RSA’s new Citizens’ Economic Council interim report, published ahead of the 2017 Autumn Budget, we caution that decision-makers need to find new ways of engaging citizens earlier and upstream in economics.

Drawing upon roadshow workshops held in Clacton-on-Sea, Port Talbot, Glasgow, Birmingham, as well as nine day-long workshops on economics with randomly selected citizens, we show how the UK public’s decline in trust in politicians, economists and business as revealed by the ‘Brexit’ vote and by the Edelman Barometer 2017 is closely connected to the distance they feel from decisions made about the economy. In Port Talbot, a town deeply affected by the steel crisis, one participant sketched the following when asked to draw an image of how they saw the economy:

Drawing, from RSA Citizens’ Economic Council Inclusion Roadshow workshop in Port Talbot

Our report illustrates how inequalities, such as gender and regional effects, are often overlooked or rendered invisible by national narratives about the economy and economic performance, which often aggregate figures and mask the varying levels of income and wealth distribution for different sections of society. This was a point somewhat more bluntly made by a Newcastle resident when Europe expert Anand Menon invited an audience to contemplate a plunge in the UK’s GDP as a consequence of Brexit: “That’s your bloody GDP. Not ours!” she yelled at him.

To address the problem, the Citizens’ Economic Council found ways of communicating and engaging  with citizens about how they could reclaim terms such as ‘GDP’ so that it was able to respond to their experiences once again. In this interim report, we set out some emerging recommendations which we seek to test with a range of stakeholders. We recommend that:

• HM Treasury pilots Citizens’ Reference Panels, juries and other ways of engaging citizens to give their views – rather than making policy behind closed doors in Whitehall.
• ­The Bank of England pilots Citizens’ Reference Panels and other deliberative approaches with a view to advising their departments and committees on key economic decisions including the setting of interest rates. ­
• Combined authorities, local authorities and LEPs seize the opportunities of devolution, using deliberative approaches to engage citizens through the development of their devolution deals and in their implementation.

But we also recognise that the adoption of advisory councils by institutions alone is not sufficient. It is also important to create the right conditions in which they can thrive. To this end, we propose that the government creates a code of practice for effective public engagement and participation, recognising the sheer range of engagement approaches that can empower citizens: for example, participatory budgeting, citizens’ reference panels, citizen juries and co-production methods. At its core should be engagement and participation practice that extends beyond simple consultation towards approaches that are more deliberative, promote dialogue and allow sufficient time and space for policymakers to respond to citizens’ views.

To make this possible we also propose the creation of an expert resource centre on inclusive and participatory economic policy that would support government departments, non-departmental public bodies and publicly funded organisations, including the Bank of England. It would be modelled on a similar programme funded by the Department for Business, Energy Innovation and Skills, Sciencewise, which offers public bodies support in participatory policymaking relating to science and technology issues. Both the code of practice and expert resource centre would also work in co-operation with the existing international Open Government Network, which engages civil society in creating a more open and transparent approach to government across the world, and build on those ambitions set out in the Civil Service 2012 reform plan.

It is clear that we stand at a crucial crossroads. We can either ignore the populist signal and the democratic deficit at the heart of our economy, trapping us in a vicious cycle of distrust and instability. Or we can build a legitimate, transparent and accountable system that brings the much maligned ‘expert’ and citizen together to shape a fairer economy.

Find out more about how to join us in our efforts to do so online here: www.rsa.org.uk/citizenseconomy. The final report will be published in Spring 2018, with confirmed speakers to include Bank of England chief economist Andy Haldane, Europe expert Anand Menon, Financial Times journalist Gemma Tetlow, and Citizens’ Economic Council participation Patricia Wharton.

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We spoke with journalist and author George Monbiot about the task of replacing neoliberalism, reinvigorating democracy and averting climate breakdown. Watch the full video:

George’s new book, ‘Out of the Wreckage: A New Politics for an Age of Crisis’ is out now.

The post VIDEO: George Monbiot on replacing neoliberalism appeared first on New thinking for the British economy.

One of the basic claims of capitalism is that people are rewarded in line with their effort and productivity. Another is that the economy is not a zero sum game. The beauty of a capitalist economy, we are told, is that people who work hard can get rich without making others poorer.

But how does this stack up in modern Britain, the birthplace of capitalism and many of its early theorists? Last week, the Office for National Statistics (ONS) released new data tracking how wealth has evolved over time. On paper, the UK has indeed become much wealthier in recent decades. Net wealth has more than tripled since 1995, increasing by over £7 trillion. This is equivalent to an average increase of nearly £100,000 per person. Impressive stuff. But where has all this wealth come from, and who has it benefitted?

Just over £5 trillion, or three quarters of the total increase, is accounted for by increase in the value of dwellings – another name for the UK housing stock. The Office for National Statistics explains that this is “largely due to increases in house prices rather than a change in the volume of dwellings.” This alone is not particularly surprising. We are forever told about the importance of ‘getting a foot on the property ladder’. The housing market has long been viewed as a perennial source of wealth.

But the price of a property is made up of two distinct components: the price of the building itself, and the price of the land that the structure is built upon. This year the ONS has separated out these two components for the first time, and the results are quite astounding.

In just two decades the market value of land has quadrupled, increasing recorded wealth by over £4 trillion. The driving force behind rising house prices — and the UK’s growing wealth — has been rapidly escalating land prices.

For those who own property, this has provided enormous benefits. According to the Resolution Foundation, homeowners born in the 1940s and 1950s gained an unearned windfall of £80,000 between 1993 and 2014 alone. In the early 2000s, house price growth was so great that 17% of working-age adults earned more from their house than from their job.

Last week The Times reported that during the past three months alone, baby boomers converted £850 million of housing wealth into cash using equity release products – the highest number since records began. A third used the money to buy cars, while more than a quarter used it to fund holidays. Others are choosing to buy more property: the Chartered Institute of Housing has described how the buy-to-let market is being fuelled by older households using their housing wealth to buy more property, renting it out to those who are unable to get a foot on the property ladder. And it is here that we find the dark side of the housing boom.

As house prices have continued to increase and the gap between house prices and earnings has grown larger, the cost of homeownership has become increasingly prohibitive. Whereas in the mid-1990s low and middle income households could afford a first time buyer deposit after saving for around 3 years, today it takes the same households 20 years to save for a deposit. Many have increasingly found themselves with little choice but to rent privately. For those stuck in the private rental market, the proportion of income spent on housing costs has risen from around 10% in 1980 to 36% today. Unlike homeowners, there is no asset wealth to draw on to fund new cars or holidays.

In Britain, we have yet to confront the truth about the trillions of pounds of wealth amassed through the housing market in recent decades: this wealth has come straight out of the pockets of those who don’t own property.

When the value of a house goes up, the total productive capacity of the economy is unchanged because nothing new has been produced: it merely constitutes an increase in the value of the land underneath. We have known since the days of Adam Smith and David Ricardo that land is not a source of wealth but of economic rent — a means of extracting wealth from others. Or as Joseph Stiglitz puts it “getting a larger share of the pie rather than increasing the size of the pie”. The truth is that much of the wealth accumulated in recent decades has been gained at the expense of those who will see more of their incomes eaten up by higher rents and larger mortgage payments. This wealth hasn’t been ‘created’ – it has been stolen from future generations.

House prices are now on average nearly eight times that of incomes, more than double the figure of 20 years ago. It’s unlikely that house prices will be able to outpace incomes at the same rate for the next 20 years. The past few decades have spawned a one-off transfer of wealth that is unlikely to be repeated. While the main beneficiaries of this have been the older generations, eventually this will be passed on to the next generation via inheritance or transfer. Already the ‘Bank of Mum and Dad’ has become the ninth biggest mortgage lender. The ultimate result is not just a growing intergenerational divide, but an entrenched class divide between those who own property (or have a claim to it), and those who do not.

Misleading accounting and irresponsible economics have provided cover for this heist. The government’s national accounts record house price growth as new wealth, ignoring the cost it imposes on others in society – particularly young people and those yet to be born. Economists still hail house price inflation as a sign of economic strength.

The result is a world which is rather different to that described in economics textbooks. Most of today’s ‘wealth’ isn’t the result of entrepreneurialism and hard work – it has been accumulated by being idle and unproductive. Far from the positive sum game capitalism is supposed to be, we have a system where most wealth is gained at the expense of others. As John Stuart Mill wrote back in 1848:

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

Britain’s housing crisis is complicated mess. Fixing it requires a long-term plan and a bold new approach to policy. But in the meantime let’s start calling it what it really is: the largest transfer of wealth in living memory.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The post The payments system is a vital public service – why don’t we run it like one? appeared first on New thinking for the British economy.

The annual Lord Mayor’s Show on November 11^th will instal Charles Bowman as Lord Mayor of London. He officially represents the Worshipful Company of Grocers and he will find a lot on his plate as he starts his 12 months in office.

In everyday life Alderman Bowman is a topline accountant at the multinational firm PWC, and his job as Lord Mayor will be tricky as Britain negotiates its way out of the European Union (EU) – and the City of London finds out if it can sustain its longstanding ambition of turning London into the world’s economic hub.  This goes back to the Bank of England’s lobbying of the Macmillan government in the 1950s to let dollar-denominated (‘eurodollar’) loans be issued in Britain.

One consequence of the globalisation of the City is that international lobbying organisations, or trade associations, are an established part of its ecology.  It hosts several of them, and a large umbrella organisation, the Transatlantic Coalition on Financial Regulation – based at the former Futures and Options Association in Botolph Street – persuaded the EU to push to include finance in the planned TTIP trade agreement with the US.

Meanwhile the City of London Corporation (CLC) has taken on more of the work done by the public sector in promoting financial business.  The Lord Mayor is described first and foremost as ‘an international ambassador’ for the sector, with a status which the CLC claims to be ‘on a par with that of a cabinet minister.’

This article will examine the central role played by the CLC in the curious business of official support for these private-sector lobbying activities – and how it is threatened by Brexit.

The CLC’s task amounts to coordinating many lobbying activities of the bankers and brokers, on behalf of Her Majesty’s Government.  The coordination is active, wide-ranging and well-organised.  After half a century of evolution, it took on its present form linked with the Corporation’s Guildhall under the pre-2010 Labour governments.

The public face of the set-up is TheCityUK, a membership organisation which calls itself ‘the representative body for the UK-based financial and related professional services industry.’ Operating from Finsbury Square, it arranges briefings and round tables with political figures from Britain and abroad, publishes reports on topics ranging from Islamic finance to a ‘general election manifesto’ last May, and will hold a national conference in Manchester on November 28^th.

TheCityUK boasts that it is ‘where senior government ministers, policymakers and key stakeholders from the UK, Europe and the rest of the world come to engage with and address the wider [financial] industry.’  Its 19-member Board is chaired by John McFarlane, Chairman of Barclays Bank, but also includes senior representatives of the CLC and the Greater London Authority.

TheCityUK descends in a direct line from the Committee on Invisible Exports, which the Wilson government set up under the Bank of England’s auspices in 1968.  It took its present form in June 2010 in a joint initiative of Chancellor of the Exchequer Alistair Darling and Sir Winfried Bischoff, a senior banker at Schroders and Citigroup.

In the shadows, the same initiative also created a little publicised but arguably more important sister body, the International Regulatory Strategy Group.  The IRSG’s mandate is explicitly to lobby for ‘an international regulatory framework that will facilitate open, competitive capital markets’, and it reports jointly to the public-sector CLC and the ostensibly private-sector TheCityUK.  It insists on the fact that it is ‘practitioner-led.’

It is tempting to see the IRSG as the engine room of the whole set-up.  Its policy is directed by TheCityUK’s Head of Policy in London, and its facilities by the CLC’s European Regional Manager in London and, critically, the head of the Corporation’s own lobbying office in Brussels.

The ambiguous ‘public or private?’ nature of this operation is seen in the fact that the IRSG’s Board is chaired by Mark Hoban, a Treasury minister in David Cameron’s government who now has an impressive array of City jobs in his bag.  He also sits on TheCityUK’s Board.  The compliment is returned with the presence of Miles Celic, TheCityUK’s Chief Executive, as one of two IRSG co-chairs – the other being Daniel Nussbaum, ​CLC Director of Economic Development.

The IRSG is characterised by international representativeness and a strong ideological thrust.  It works on technical issues such as capital markets, ‘coherence’ between regulatory regimes, corporate taxation and EU proposals for a financial transaction tax (which it opposes, even though the UK’s Stamp Duty on stock market trades is one of the oldest FTTs in existence).

Recently there has been an inevitable focus on Brexit.  In September 2017 the IRSG published a report, ‘A New Basis for Access,’ simultaneously in French, German, Italian, Polish and Spanish as well as English.

TheCityUK and the IRSG have similar structures, with a Board running operations and a large advisory Council directing strategy.  But there are differences.  The IRSG’s Council explicitly ‘seeks to reflect the international, cross-sectoral nature of the City of London’ and at Board level, the IRSG is rigorously international.  Besides the three who chair it, only four of the Board’s 17 members represent British organisations – accountants Deloitte, the London Stock Exchange, Prudential Insurance and Standard Chartered Bank.  Six are from the US, including Citi and JPMorgan banks and Moody’s rating agency, and three from other European countries.  Finally – remarkably – there is the Canadian media conglomerate, Thomson Reuters.

Thus, the strategy of the IRSG, which comes under the wing of what is essentially a jumped up local council, is determined largely by banks and financial firms from other countries.  There are witnesses to this multinational lobbying effort in the form of observers from the British government itself.  They represent the Treasury, the Foreign Office, the Department for Exiting the EU, the BIS Department, the Bank of England and three financial regulatory authorities.

Think about this for a moment.  Whitehall works hand-in-glove with British and foreign private ‘practitioners’ as they work out their research and lobbying plans on new financial regulations, in a body that was set up by a Labour government in the wake of a calamitous failure of the financial system.

It actually fits well with the CLC’s own electoral mandate, in which a small number of residents is overwhelmed by the ‘business vote’ of the City’s commercial residents, such as banks, insurance firms and financial exchanges. Abolished in the rest of the UK in 1969, the number of business votes in the City was greatly increased by the Blair government in 2002.

Under these arcane rules, the likes of Goldman Sachs, the Bank of China and Deutsche Bank have corporate votes in the City’s elections.  Institutionally, the Corporation actually does represent international finance, and not a specifically British interest at all.  For foreign banks and insurance companies to be determinant on the IRSG Council and Board truly reflects the Guildhall’s own ‘democratic’ mandate.

Of the IRSG Council’s 50 members, 21 represent non-UK organisations, 14 of them from the US.  However, only one is from Asia: the Japanese bank, Nomura.  There used to be more.  So is the global role steadfastly built up by the City’s patriarchs already receding?  This is not the only sign, and it may be that, without or without the Brexit vote, the high tide of that role already passed three or four years ago.

Thus, since 2015 officials of the Bank of China and Bank of Tokyo-Mitsubishi UFJ – Japan’s largest bank – have left the IRSG Council, without any Asian bodies replacing them.  And the City’s central role in financial lobbying over TTIP was prised apart when, in June 2016, a new alliance on financial regulations under TTIP was formed: the Transatlantic Financial Regulatory Coherence Coalition.  This one is based less narrowly on banking, capital markets and derivatives trading, and its office is at the European Banking Federation in Brussels.

Even before Brexit, these could be straws in the wind for a wider retreat from the City’s 60-year dream of a dominant global role.  In reality, most of TheCityUK’s and IRSG’s actual work has always been lobbying on regulations in the EU, where their influence is anyway bound to diminish with the loss of membership.  It is still unclear whether the City can even remain Europe’s largest financial centre.  As I finished writing this, a neighbour knocked on my door.  In conversation he told me he is currently helping a major US bank with plans to transfer some of its activities from London to Ireland, against the risk of a ‘hard’ Brexit.

With the UK moving outside what is now the core of the global system – the United States, the European Union and China – it is hard to see how the implicit goal of making global financial regulations converge in a network centred on London can be achieved.  But many opponents of Brexit might heave a big sigh of relief if one consequence is to cut global finance down from the high perch it occupies in British life.

The post Will Brexit upset the City’s ‘democratic’ plans? appeared first on New thinking for the British economy.

Liam Fox announced a Trade Bill this morning, the day after a consultation on proposals to be included in the bill closed.

What is most vital is what is missing from the bill – the absence of anything to ensure that trade policy is accountable to the public and parliament.

Trade deals today have profound effects across the full range of domestic policy – health, environment, jobs, inequality, and climate. There is a crucial need for a democratic and transparent process for negotiating and agreeing trade deals after Brexit, with parliamentary oversight at its heart.

People understand this. Around 11,500 people wrote to the consultation to ask for trade policy to be accountable to parliament, while over 50,000 more fed in through a petition.

The government’s proposals on trade sought to assure us that none of this is needed because the Dept of International Trade will engage regularly with stakeholders – effectively just asking us to trust them.

Yet today shows how empty that is – when the trade ministry makes a mockery of consultation by bringing the bill to parliament before they’ve even had a chance to read the feedback they have received, how can we believe that they would behave any better when it comes to trade deals. This is why there needs to be a legal requirement and clear procedure to consult the public and get parliamentary approval of trade deals.

The Trade Bill intends to give the government powers to replicate existing EU trade deals. These are already extensive and far reaching deals, and the process of recreating them for the UK is unlikely to be straightforward. Fox admitted last week that there is no agreement with the sixty plus countries involved in the various deals, to use the same texts as the existing EU deals. Such negotiations should be subject to scrutiny by parliament. Yet the Trade Bill will seek to allow the government to introduce them through secondary legislation and executive powers.

The bill doesn’t even tackle the new trade deals that Liam Fox has talked up, such as ones with the US, India or Saudi Arabia. All of these proposed deals need an open and transparent approach – they should only be embarked upon with the agreement of parliament, be open to scrutiny and must be voted on by parliament before signing. Yet at present parliament has no voice in these deals.

That’s why over a hundred MPs have signed an EDM calling for the:

• right of Parliament to set a thorough mandate to govern each trade negotiation, with a remit for the devolved administrations
• right of the public to be consulted as part of setting that mandate
• a presumption of full transparency in negotiations
• right of Parliament to amend and to reject trade deals, with full debates and scrutiny guaranteed and a remit for the devolved administrations, and
• right of Parliament to review trade deals and withdraw from them in a timely manner

This is what needs to be at the heart of the Trade Bill.

The post The gaping hole in the Trade Bill appeared first on New thinking for the British economy.

The basic income movement is growing in the UK, with Labour, the SNP and Green Party all showing significant interest. It has received a lot of discussion, but to date there has been little attention paid to the human rights aspects of it.

Though human rights are not unproblematic, examining basic income through the lens of human rights moves us into discussions about the type of society and economy we want to have, instead of hiding these real questions behind broad economic approaches and traditional cultural values.

The human rights framework can be used for discussing the impacts that basic income policies might have. Instead of simply looking at GDP growth and inflation, we can look at whether it gives more people an adequate standard of living, access to housing and education, and to work of their free choice or acceptance. Additionally, and perhaps more importantly, human rights values can help overcome cultural resistance to money which is not ‘earned’ as such.

Basic income is an idea that is both radical and simple: everyone in a society receives an income sufficient to provide for their basic needs. It is given unconditionally, with no need to qualify for it. This is unlike other welfare payments: Jobseeker’s Allowance requires someone to search for a job, and a pension recipient must be a certain age and have contributed enough over their lifetime. Most basic income proposals are also ‘universal’: for everyone in the society, including those who do not need the money, much like Child Benefit is.

Interestingly, basic income finds support (and opposition) across the breadth of the political spectrum, from communists to free market capitalists to centrist liberals. We can see the increasing popularity of basic income as a response to current circumstances, such as increasing automation and jobs being moved abroad, worsening working conditions, stagnant wage levels, precarious work, and the amount of environmental destruction we require for our current way of living.

Yet it is more than about just economics: it goes to the heart of cultural and political values about how society should be, challenging deeply held cultural notions that money must be earned and the traditional ‘work ethic’ – that hard work is morally valuable. Basic income proposals differ, but they almost all include a positive vision for how society could be. It could be part of a more just economy, enable more people to engage in politics, and give each individual a stable foundation so they need not fear falling into poverty and are better empowered to make choices about what to do with their lives and what work they do take on.

What are human rights?

Human rights are the array of rights which humans should have simply for being human, covering the breadth of our experience such as housing, education and cultural involvement. They are moral claims for things which ought to be achieved, or ‘realised’. Individual humans have these rights, and other actors – typically states – have obligations to help realise them.

They are listed in the Universal Declaration of Human Rights (UDHR), though there are also separate conventions for particularly disadvantaged groups. Despite the initial attempt to make them indivisible, international politics divided human rights into two different sets and two different international conventions. Civil and political rights, such as fair trials, free expression and privacy, have been heavily favoured by liberal democracies. Social and economic rights, such as housing, education, healthcare and food, have been favoured by socialist and communist governments.

The European Convention on Human Rights – incorporated into UK law by the Human Rights Act 1998 – only contains civil and political rights, and this reflects our cultural and political understanding. Though the UK has signed up to the Convention on Economic, Social and Cultural Rights, it does not do much more than submit reports to the international committee. So, although we have laws and provide education, housing and healthcare, these are not protected or seen in the framework of human rights.

How a human rights approach can advance the basic income debate

There are three ways in which a human rights approach helps us to discuss basic income proposals and policies.

The first is that we can see it as realising particular human rights and fulfilling obligations that states have. One is the right to social security (Article 22 UDHR), which a basic income provides. Another is the right to an adequate standard of living (Article 25 UDHR), which a basic income seeks to ensure, though a basic income would not necessarily be adequate. The right to work (Article 23 UDHR), which includes ‘free choice of employment’ and ‘just and favourable conditions’, is also very useful and will be returned to shortly.

However, although a basic income would realise these rights, it is not the only way of doing so. The traditional human rights approach is that people earn money by working. The role of the state is to support and ensure this, by providing a floor of social security and ensuring that working conditions, such as pay and unemployment levels, allow individuals to afford healthcare, education and so on. If work does not provide people with an adequate standard of living, the state must do something about this. So, although basic income is not the only way to realise these rights, it can be part of the argument as to whether states are meeting their obligations and how they ought do so.

The second way in which a human rights approach helps is in framing the discussion about the effects of basic income proposals. Instead of using crude economic measures such as GDP, unemployment and inflation, we can use international human rights standards to measure positive or negative impacts of policies.

Of course, it is not clear what the impacts would be, or whether they would be positive. Basic income is not a magic solution, nor does it exist in the abstract: outcomes also depend on what other policies there are. For example, though it may help people afford rent, basic income alone will not create a fair housing market without challenging free market approaches to housing. The same is true with healthcare, education and other public services, which is why some discussions are more focused on Universal Basic Services instead of income, though the two are not incompatible.

As most human rights are linked to resources, basic income is likely to have generally positive impacts. It could help people spend more time in education, such as working less to do part-time courses. As for the right to health, it may help people to afford healthy food. Less directly, if people choose to do less paid work, they can use this time to exercise, relax more, and partake in cultural activities, or with their children, which would benefit their development and education. Although the most obvious impacts are on social and economic rights which need money (and time), there would also be benefits for civil and political rights. It is difficult for people to engage in broader political issues when they are struggling to earn enough money to survive.

Lastly, human rights are also useful for discussing cultural values, such as the notion of work, the ‘work ethic’ and that people ought not receive money for nothing.

The Right to Work (Article 23 UDHR) is useful for reframing cultural notions of work, which focus on whether workers are working and how much they are contributing to GDP in a capitalist economy. The Right to Work is clear that what is important is not their contribution to the economy via their labour, but what work they do, and whether someone has ‘freely chosen or accepted’ the work. It could be that basic income empowers people to negotiate for better working conditions and supports people to be more creative and retrain, as they are no longer forced to work at risk of becoming homeless or starving. As an example of this, the union Unite passed a motion at its 2016 Policy Conference supporting basic income. It could also be that it subsidises corporate profits and results in lower wages. Either way, the Right to Work is useful for helping frame this discussion.

What counts as work can also be challenged: it is far more than what someone else can derive a profit from. A basic income would help support people to do work which is not economically recognised, such as caring for someone or volunteering, and which contributes to society in a different way. It would also support people to do creative work, which is often quite poorly paid, or to try out new careers or start their own business.

As well as challenging notions of work, a human rights approach can also support arguments about whether a basic income is deserved. It strives towards a society in which the inherent moral worth of all humans is recognised and realised, aiming for every individual to have a life worthy of human dignity. Human rights do not value people by their economic contribution to society via wage labour, instead recognising their existence itself as valuable. Basic income matches these values, giving people more freedom to lead their own lives and supporting people who contribute in ways beyond wage labour, such as caring for others, political engagement, artistic and creative endeavours.

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“The Falklands”, they said, “are British”. They are so British that we went to war for them. We also went to war for Akrotiri and Dhekelia, the British Overseas Territories on Cyprus. That’s where Saddam Hussein was supposedly able to get his weapons of mass destruction to within 45 minutes. And, less than a year ago, we were measuring ourselves up against Spain when they were threatening Gibraltar.

The Cayman islands are British, too. And Bermuda. And the British Virgin Islands – they even put it in the name.

Specifically, they are British Overseas Territories, the last vestiges of empire. Their citizens are entitled to British passports. They are, as much as English or Scottish or Welsh or Northern Irish people, subjects of Queen Elizabeth II.

And so when said Queen is revealed to store millions of pounds of her wealth in the Cayman islands in order to avoid paying the Treasury for it, it’s a misunderstanding to treat this as unpatriotic. It’s a misapprehension to imagine that the term ‘overseas’ means foreign. Tax dodging is as British as fried breakfast, the Bengal famine, and castrating Mau Mau leaders.

Like any good parent, Her Majesty loves her country just as we are. And what we are is the world centre for tax havens and secrecy areas.

The reason this story is so resonant is that it brings together the two ends of the British constitution. It’s the collision between the bling we parade in public and the cobwebs lurking in the corners. It forces the celebrities whose personal stories are used to maintain popular support for our empire state into the same narrative as the network of tax havens and secrecy areas, with London at its centre, which is how Britain’s elite maintained its wealth as land empire dissipated.

I often ask British people what they know about our Overseas Territories: how many there are, what their names are, where they are, how big they are. I bore my friends by delighting in telling them that Britain is responsible for more penguins than any other country on earth and more land in the Southern Hemisphere than the northern.

But the reason I do is this: the British constitutional issue which impacts on most people in the world is not our awful election system. It’s not even the unelected House of Lords, nor the fact that Westminster is the most centralised parliamentary system in Europe – especially for those who live in England outside London, and enjoy no serious devolution.

No, the piece of our uncodified constitution which matters most is the parts that mean that most of the wealth, and most of the biodiversity, for which the British state is ultimately responsible lies not in this North Atlantic archipelago, but in our fourteen Overseas Territories; the parts which allow the crooks of the planet to hide their ill-gotten gains in island chains protected by the might of the British state – and to launder their money through the centre of that web, the City of London, and the capital’s ever-inflating property market.

It’s the part which led the Tax Justice Network to rank the UK as the world’s most important player in tax havens. It’s the part which famously led the top mafia expert, Roberto Saviano, to call the UK “the most corrupt country on earth”. It’s the bit which ensured that more than half of the companies in the infamous Panama Papers were registered in Britain or its Overseas Territories. It’s the section which helped ensure a trillion dollars have been stolen from African countries since the UK and other European countries ended formal colonisation in the 1960s and ‘70s.

None of this is incidental to Britain. It’s core. The British state was built to manage an empire. It’s central constitutional principle – that the crown in parliament is sovereign – is asserted on the assumption of global dominance. It’s ability to stave off revolutions as they set most of Europe aflame came from the capacity of its elite to placate the anger of the domestic working class by parting with small amounts of the proceeds of plunder.

These days, the direct plundering is usually done by others. Britain with its Overseas Territories acts as the middle man – the safe haven. Support for the system is secured through increasingly shrill demands for loyalty to Queen and country, expressed culturally through increasingly tasteless British Empire Kitsch, and by channeling rage at outsiders: immigrants, Europe, whoever else can be blamed as wages shrink and the wealth of the ultra-wealthy mysteriously vanishes from sight.

And at the centre of all of this is the Queen, with her Jubilee street parties, and her adorable great-grand-children, the world’s biggest celebrities in an era of TV-celebrity rule.

And so, yes, the Queen stores millions of pounds of her wealth in her Dominions Beyond the Seas, as her original title called them. Why wouldn’t she?

The Cayman Islands are British, after all.

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Greenhouse gas emissions are deeply woven into our economy. We burn fossil fuels to produce energy, we use nitrous oxide to fertilize our fields, our trash generates methane – all of which contribute to climate change. Reducing this dependency will involve shifting a vast array of practices, throughout our economic and personal lives. And yet climate campaigners and lawmakers alike are paying alarmingly little attention to the financial system that makes these unsustainable practices not only possible but profitable.

Addressing climate change is, at its core, an issue of finance: whether one is fighting against entrenched economic interests tied to the status-quo, or pushing for the development and implementation of new technologies, much of the fight against climate change revolves around money. For example, in order to prevent catastrophic climate change the energy sector would have to invest nearly $17 trillion (US) in energy efficiency and low-carbon technologies from 2015 to 2030. Yet much of the world may be unable to access the finance required.

In order to meet these targets, public spending will have to play a critical role. And indeed, some governments are beginning to step up to this challenge. A great example is the German program on renewable energy, which played a key role in making solar and wind competitive. Governments are also working to provide finance through development banks and funds such as the Green Climate Fund. Meanwhile, projects such as the Global Innovation Lab for Climate Finance aim to create an enabling environment for private sector investment.

Yet while these developments may be encouraging, estimates suggest that public sector finance will fall woefully short of the finance flows required to address climate change. Given the glacial speed of public regulatory action and provision of finance, it is imperative that the financial and corporate sectors contribute to the shift towards sustainable development. The potential is enormous: the banking sector manages financial assets of almost $140 trillion; institutional investors, such as pension funds, manage over $100 trillion; and capital markets, including bonds and equities, exceed $170 trillion.

Important shifts have taken place in the financial and corporate sectors – even as the scale remains far too limited. Investors and managers, for example, are beginning to understand the importance of sustainability as a means of ensuring long-term profitability. Private commercial finance for sustainable businesses increased from $22 billion in 2012 to an annual average of $37 billion over 2013 and 2014, reflecting investors’ growing comfort with renewable energy technologies. Green bonds, which are bonds issued for projects with a positive environmental impact, are another good example. In 2016, nearly $100 billion in green bonds were issued, nearly surpassing the total for all previous years combined. 2017 looks set to beat this record. Greenwash remains a problem, as projects strive to claim ‘green’ status for themselves; yet as the market grows, labelling standards have begun to become stricter and more harmonized, helping concentrate attention on those projects with genuine impact.

More broadly, the pressures of a warming world change the risks we all face. Within the financial world, investors are increasingly looking towards innovative forms of finance that recognise the inherent risk posed to everyone by short-termist approaches to business. These new approaches to investment strive to account for global risks such as climate change in how they select and price shares. This is a slow process, but one gaining momentum.

Yet an increase in private-sector momentum is only possible within a broader policy environment defined by strong, long-term public policies that guide investment and provide credibility to climate action. An example here is the EU long-term mitigation goal of “cutting its GHG emissions, by 2050, by 80-95% compared to 1990 levels.”. The commitments made within the Paris Agreement also go in this direction. Yet there’s still further to go.

For one, there is increasing consensus that a strong carbon price is essential. By making polluters pay for the damage they cause, carbon prices can direct investments towards low-carbon technologies and provide for economic efficiency in climate action. They also provide for a level playing field for corporations, allowing them to compete fairly and encouraging broad buy-in. National and sub-national carbon pricing instruments currently cover 15% of global GHG emissions and their use is on the rise. China, for example, is on track to launch the world’s largest emissions trading scheme.

Beyond this, however, we need to address the failures of our current system, including dismantling the over $500 billion in subsidies given to the fossil fuel industry every year, and regulating the financial sector to re-align it with the needs of the societies it is supposed to serve. This includes increasing regulation that ensures prudential investments, more transparency and disclosure, and more liability, among many others. This would help close the climate finance gap; prevent abuses such as those that led to the 2008/2009 global financial crisis; and make the financial system resilient to the threats that climate change is shaping on the horizon.

Given the need for strong policies to guide both the public and private sector, none of this can happen if we, as citizens, simply stand by and let events take their course. Fighting for smarter climate policy can seem an uphill battle – not least since US has recently installed a ‘denier in chief’. Yet even in the US, 68% of the public now supports the view that humans are the primary cause of climate change, and only 9% believe climate change ‘will never happen’. In other words, the potential for popular pressure remains strong. And, encouragingly, there’s plenty we can do as citizens to bring the urgencies of climate and the financial system in line.

For starters we can each put our money where our mouths are and be willing to pay for the real cost of things: this means paying more for electricity, transport, and sustainable produce. As Dr Kim Nicholas explains, citizens are far from powerless in the face of climate change, and can often have significant impact through their choices as consumers. This should be coupled with strong demands to our government representatives to commit to ambitious climate action, put a high price on carbon, and shape regulation to favour prudential investments. Voters will need to push for this at the ballot box, but also make sure they keep the conversation going, holding politicians to account.

Regulators and investors alike must push companies to ensure that they take interest in sustainable business models and practices. Companies do not develop business strategies in a vacuum, but are shaped by their perception of the options available to them, as well as their perception of what shareholders want. And as David Pitt Watson argued earlier in this series, anyone with a pension is an investor. Financial decisions are taken daily in the name of shareholder interests, yet beyond the super-wealthy, very few shareholders bother to voice their interests at all. As Pitt-Watson notes, shareholder engagement is so rare that even just a few letters from ‘ordinary’ shareholders can change fund managers’ perception of their clients’ interests. Climate change, then, calls for us to be both more invested citizens and citizen investors.

The window of opportunity to halt the catastrophic threats of climate change is very small. We are fast exhausting our planet’s carbon budget, and we risk locking-in carbon-intensive investments that will shape our planet years into the future. In this context, it is imperative not only to be aware of our own power as citizens, but also its scope. The world of finance has long been out of focus for climate change campaigners. Now is the time to change that.

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In the aftermath of the financial crisis students all over the world began to express their dissatisfaction with the economics education they received at their universities. They were appalled by its failure to predict, to explain and in many cases even to discuss the financial crisis. Students felt like the world outside their classrooms was falling apart, while inside them the same models, equations and formulas were preached as if nothing had changed. Built on this disappointment, student groups formed all over the world and started to work towards the common goal of making economics more pluralist and more related to the real world. They wanted to challenge the existing mainstream of economic thought and enrich it by integrating a variety of alternative theories and approaches.

Many years have passed and a strong network of students and economists dedicated to pluralist economics has developed. They continue to push for new approaches to economics and for making it more accessible to lay people. They have achieved important curriculum changes at some universities, organised a number of conferences and forums for a more pluralist discussion of economics, and developed a range of pluralist resources. But despite that, in many respects economics has not changed. The majority of universities have maintained the old curriculum and the teaching of economics overwhelmingly continues as if the crisis had never happened. This makes it very clear that the journey towards a more pluralist economics continues. In many ways this is a journey to a destination unknown, because the question of what pluralism in economics really means is controversial and there are a variety of different views on what it could look like. To me it seems that there are broadly four different views among students, activists and scholars.

First, the ‘paradigmatic’ view of pluralism, which one might argue is actually not very pluralist at all. It argues that neoclassical (mainstream) economics as an economic paradigm has failed to conceptualise and analyse the economy and should, therefore, be substituted by a different paradigm. This view can be pluralist in so far as the new paradigm could be a pluralist paradigm but that still leaves the question of what a pluralist paradigm would look like. Second, there is the ‘sideline’ approach to pluralism, taken by many universities. While they allow alternative schools of thought to exist on the sidelines (in optional modules and electives), the universities continue to teach mainstream economics in the core modules of their degrees. This view rests on the belief that mainstream economics is the ‘real’ economics, the one that can properly explain the economy and other approaches are merely interesting curiosities to explore. Third, there is the ‘compartmentalized’ view of pluralism, which is centered around the idea that different approaches to economics can explain different aspects of the economy. Thus, all theories and schools of thought should exist side by side each analyzing economic processes in their own niche. Finally, there is the ‘cross-fertilization’ view of pluralism, the belief that different schools of thought should not only be equally valid approaches to analyzing the economy but actually influence and change each other. This view believes that pluralism is a process arising out of a continuous dialogue between different approaches and schools of thought that challenge and enrich one another.

All four views have valid arguments for the form of pluralism they propose, and the onus is on us to figure out what the economic pluralism of the future is going to look like. There are a number of important steps that we can take towards that goal, and I want to briefly shed light on two of them: providing knowledge about alternative economic approaches, and organising discussion forums for people to engage in a dialogue about pluralist economics.

Knowledge is the basis for any future discussion about pluralism. Without knowledge of alternative approaches, it is impossible to consider their viability. A group of colleagues from the student network Rethinking Economics and I have recently published a book that greatly contributes to providing this knowledge to a wide variety of people. The book ‘Rethinking Economics: an introduction to pluralist economics’ introduces a range of alternative schools of thought and highlights the ways in which they might enrich economic analysis. By being very accessible it opens up the dialogue to a broad group of people and gives them the opportunity to enter the discussion and contribute their thoughts and ideas.

The second crucial step is bringing these people together and inviting them to engage in a constructive dialogue on pluralist economics. This is mostly done through the growing number of pluralist academic conferences that students and scholars all over the world are organizing. On 17-19 November one such conference is happening in the North of Scotland. ‘Shifting Paradigms – Economics in the twenty-first century’ is the annual conference organised by the Aberdeen Political Economy Group (APEG). APEG is a student society dedicated to creating a pluralist, inter-disciplinary forum that actively promotes the exchange of ideas, resources and materials related to contemporary socio-political and economic issues. The conference is a prime example of how we can organise and shape the dialogue around pluralism. It aims to create a critical and diverse academic forum that is aimed at uncovering and debating the economic challenges of our time. Furthermore, it embraces and recognises the importance of interdisciplinarity in economics. Issues like economic, environmental, and social justice can only be understood and tackled from a multidisciplinary perspective and therefore scholars of different disciplines are invited to Aberdeen to engage in this dialogue. By connecting different economic theories and disciplines with each other, the conference hopes to inspire the development of new ideas and intellectual alliances.

Economics has to be a dialogue. It has to be a process that constantly changes. New ideas, concepts and approaches have to considered and discussed. We have to embark on this journey together and to find out how pluralist economics could work. Why not take a first step and join the Shifting Paradigms conference?

Let’s get together and reshape the future of economics!

Shifting Paradigms is taking place on 17-19 November 2017 at the University of Aberdeen. Tickets can be purchased here.
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If I were to use my money to invest in part of a company I would be a shareholder. This term does not only apply to large players. As David Pitt Watson has noted,  if you hold a pension, or if you invest your savings in any way, you are a shareholder. This means that a wide swathe of the public are, in fact, shareholders. Being a shareholder of a company also gives you ownership of it to an extent, but with this ownership comes responsibility.

An owner of a company should be able to steer company policy? But what if there are thousands or even millions of owners? How does policy get decided? On a day to day basis, most of this is the job of executives, who are hired and paid for this purpose. But companies ultimately operate by majority vote, at executives and their actions are scrutinized at Annual General Meetings (AGMs). It is in such meetings that board members and company directors – those who set the policy – are appointed. Though the extent of this varies across states, shareholders also possess the power to submit motions of their own, setting out their expectations for corporate strategy in the upcoming year.  Here, shareholders can influence company policy by grouping together to vote in a certain way, putting forward resolutions to be voted on or even just standing up and speaking at these meetings.

Shareholders can also exert influence without even being in the room, by signing up to ‘proxy voting services’, such as ISS and Glass Lewis, which seek to influence companies by gathering large groups of votes, and using them to vote in line with certain principles and goals. Other, more specialised firms such as Hermes EOS, not only vote client’s’ shares, but meet with executives on behalf of their clients as a whole, in order to promote their interests. And in recent years, many firms such as Hermes have been championing sustainability on behalf of clients, insisting that generating long-term value means tackling questions of sustainability head-on.

This is how shareholders can make a difference, so why should they? As members of the public these shareholders have an interest in ensuring their company’s policy is sustainable in the long term. Typically, the interests of an individual with a pension or savings  are very different from those of high-frequency traders. They want assurance that their money will be around for the future, and are more averse to strategies that do not benefit the long-term bottom line. They therefore have an interest in stopping high-risk, short-terminist projects. Projects ranging from the the tar sands, to drilling in the Arctic to explore new oil reserves, which are widely-condemned by environmentalists and financial experts alike, may represent gambits by executives to make a quick buck, over ensuring long-term financial sustainability.

However responsibility can extend beyond ensuring long term investment returns. Natasha Landell-Mills, (Sarasin and Partners, a specialist asset management firm with a commitment to stewardship principles), comments that she personally thinks owners also have a responsibility to monitor their companies, and ought to challenge  behaviour they consider irresponsible or likely to cause harm. This responsibility not only applies to environmental issues, but also social and governance ones (ESG issues). Dr Michael Viehs, (Hermes EOS) argues that the application of ESG issues by shareholders in company policy “ultimately benefits the wider society and economy as a whole”.

In effect, the fact that we are all shareholders gives us a status akin to the voting rights we have as citizens. And when it seems as if major corporations, rather than solely governments, are the key players in so much of today’s globalized world, it’s perhaps time we started taking our position as corporate citizens more seriously.Catherine Howarth of Shareaction, an advocacy group which works to ensure the ethical and financial concerns of shareholders get heard, adds a further requirement to citizenship: “citizenship is a technical category (i.e. some people are formally citizens and some are not), it’s also a mind-set involving a commitment to being engaged and active”. Therefore all shareholders have the potential to be citizens, but not all act as such.

Landell-Mills personally thinks “perhaps the single most important power” shareholders possess is being able to vote directors off a Board. The system of company governance is democratic and can be used by voters providing they do not sell their shares. Such actions can have knock-on effects, as the firing of a director can have a major impact on share price, and is thus something companies often fight hard to avoid. So voting can become both a way of influencing broader policy as well as share price – without even having to sell shares.

Yet aspiring citizen shareholders often find themselves running into obstacles. For some businesses the governance system is not democratic enough for shareholders to have a say in policy. Additionally in certain markets shareholder rights are more limited. In these cases shareholder engagement would not be as effective, because it relies on the governance structure giving shareholders power. For example, in the US, shareholders can’t nominate directors onto boards unless the company explicitly permits it. Meanwhile in many instances shareholder votes are not treated as binding.

Moreover Howarth, Landell-Mills and Viehs all emphasise that dialogue between a company and its shareholders is key. “Shareholder engagement with a tobacco company to encourage the company to become a candyfloss company will fail” writes Howarth, “engagement works when it involves a discussion between shareholders and directors/executives about meaningful choices a company has”.

Overall Viehs personally views engagement as an important tool in the activist’s toolbox, because “constructive shareholder engagement through dialogue is perceived very well by companies”. Again, the reference to dialogue is key. Getting companies to support environmentally friendly policies and practices could be a crucial part of the future transition to a green economy.

The 2015 Paris Climate Agreement represents a significant step on the way to this, because it pushes climate change into corporate agendas. Viehs comments that Paris has made companies realise that there might be “future climate legislation likely to be introduced which might adversely affect the financial situation of companies”. New realities, like the possibility of a carbon tax, or a shift to renewable energy, become a part of how corporations budget and plan for the future.

Landell-Mills similarly thinks the Paris Agreement changes the dialogue surrounding climate risk, as government action looks more likely than ever. Decarbonisation has moved from being “a far-fetched risk”, to “a foreseeable outcome that they must comment on and prepare for”.

Thus, even in the financial world, the Paris Agreement was therefore a game-changer.Take for example the 2016 AGMs of ExxonMobil and Chevron, two of the biggest US oil giants. At both companies, around 40% of shareholders defied the advice of management to back resolutions telling the companies to assess whether or not their business models are in line with the prospect of keeping below a 2-degree temperature rise. “The US system of corporate governance is less shareholder-friendly than in the UK” comments Landell-Mills, “given this context, the very material votes in favour of the shareholder resolutions on climate resilience reporting at Exxon and Chevron were significant victories”. As Viehs noted, even though both votes fell short of a majority, the idea of shareholders taking companies to task over climate is relatively new, and these votes represented  “maybe even the most successful climate change proposals in history”.

On the other hand, Howarth is less optimistic, because votes were not given to some excellent resolutions. Howarth names Blackrock, Vanguard, Fidelity as some of the larger investors, whose vote could have swayed the decision, but did not. She suggests that such large institutional investors therefore need to be targeted with some tough questions about the way they voted.

Viehs is however confident that climate-related proposals will gain even more support in the future, because “shareholders are becoming more aware of environmental issues that companies are exposed to”. Landell-Mills emphasises that these changes take time, but is also hopeful, even suggesting; “perhaps shareholder democracy is beginning to take shape in one of the world’s largest democracies?”

In 2017 shareholders again brought resolutions to Exxon and Chevron, demanding that they account for the impacts of climate change in their business models. This time around, however, they passed with a majority of votes, showing that shareholders are indeed willing to defy corporate boards. Shareholders are waking up to climate change and realising they can use their position to shape the companies that shape our world.

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For as long as we live in a capitalist financial system, someone is going to profit while someone else is going to pay. Is it not better that they profit from financing lung cancer breakthroughs rather than tobacco outfitters; from investing in low carbon engines rather than a 3rd Heathrow runway; from buy up solar power rather than arctic oil reserves? Is it not better that they profit from improving lives rather than destroying them?  

Climate change may ultimately be a crisis of the capitalist system. The naturally omnipotent financial structures that have, without grace, risen to the top of such a system have been fuelled by one source: investment. But as far as the crisis of climate goes, we are in too deep and we have not enough time to shift our political or financial paradigm. If we are to pivot on our path in time to make a real difference, great and global in scale, we must harness the forces that drive our markets today. In this, socially responsible investment practices are a crucial tool in bringing our financial system in line with our own social goals. Together, allocation of capital and changing public attitude could be highly influential in our fight to mitigate climate change.

To set the scene, imagine you are managing money on the stock market. This money is spread across a portfolio of carefully selected assets: listed companies (like Apple or Facebook), bonds, derivatives and private companies or property. Actively making money above and beyond the benchmark (the market average) is no small feat and, aside from creating your own, there are plenty of different strategies to choose from: Active or passive; defensive or aggressive; value or growth. More recently, socially responsible investing, known as SRI, has taken a strong hold. At COP21 auxiliary events, the number of investment firms advocating this strategy, and those encompassed by the term under different names – such as green or sustainable investment – astonished me: socially responsible investment is growing and here to stay^[1].

Broadly speaking, SRI involves selecting assets which take responsibility for financially material factors, such as the social and environmental issues important for tackling key global problems^[2]. The strategy is based on this assumption: companies which currently seek to protect their natural and social resources are more likely to weather tough times and gain competitive advantage in the future^[3]. SRI has evolved out of the concept of an ethical investment fund, which is run with negative screens, automatically excluding certain companies. Ethical investment funds date back to the emergence of the value-laden investment demands from Quakers groups and church officials^[4], who could not condone portfolios of slavery, weaponry, or porn. Modern institutions are similarly not keen to be associated with particular endeavours: For example, educational institutions would be foolish to invest in child labour; health services would be hypocritical to invest in tobacco and it might seem morally wrong for conservation organisations to be invested in oil companies. As the public began to hold various institutions to what they preached, an ethical fund market sprung up in response.

However, problems arise when portfolios are limited by exclusion screens. For one, a single screen for carbon would not address problems of pollution, health or women’s rights. Furthermore, calculating the carbon footprint of a portfolio is complex and expensive in labour (modern standards calculate the total embedded carbon, including the carbon emitted from design, manufacture, use and disposal). Operating with a restricted investment universe can also mean that funds suffer badly when the market drops because it means leaving out many of the largest, most defensive stocks, which pay good dividends even when times are hard – such as British American Tobacco, BP and Shell etc. SRI, which instead picks investments based on positive qualities, is an attempt to take a more robust approach both to ethics and economics, by trying to reconcile the two.

The power of SRI lies in the way it combines disinvestment (divestment) with the next, crucial step: reinvestment. Managers are not sending money directly to companies when they buy up shares (unless it is an initial public offering (IPO)). Rather, they are paying the previous investor who has sold out, or an intermediary who handles such transactions. Importantly, this means that withdrawing money out of a socially or environmentally irresponsible company by selling shares may not damage said company’s finances as there is generally someone less scrupulous ready to buy. This means that managers acting alone, who are unlikely to own large proportions of any one stock, will barely cause a ripple on that stock’s share price.

This question of  divesting and reinvesting in publicly-traded stocks is closely debated. Some research does show that when institutions band together in they can trigger cascading changes in social norms, affect company reputations and challenge their subsequent debt financing^[5], making it more difficult for irresponsible companies to fund new projects. The financial case for such divestment and reinvestment is likely to increase further with green-tech/clean-tech advances^[6], so we should hope to see greater reallocation of capital to SRI-like funds. Less controversial, however, is the idea that investing in privately owned sustainable companies can help to support changemaking entrepreneurs in their pursuit of a better world (and/or riches). Venture capitalists, for example, are considered the “gate keepers” to new business: lending expertise and making high risk investments^[7], with a key role to play in the development of sustainable start-ups.

Whether private or public, socially responsible companies can be selected for SRI portfolios by asking the right questions, before looking thoroughly at the financial returns: How sustainable is the product that the company provides? Are management well incentivised for a long-term outcome? Is the employee turnover low? Is employee diversity high? Do people enjoy their jobs? Are health and safety standards good? Have externalities, such as pollution, been internalised? Would they suffer from future carbon tax legislation? Could their reputation be damaged by poor environmental, social or governance practices? (According to research by Cone Communications^[8], 90% of people surveyed would boycott a company if they learned of irresponsible business practices.) Asking these questions is not only about being morally responsible citizens, rather it can be about doing good business. For example, if a company’s operations rely on labour force based in country with a high HIV rate, investing in HIV awareness education and employee testing facilities could make economic sense. The health of employees is essential to the success of the business: if more workers take sick days, then less work is done and company costs increase. From an investment point of view, offering this type of social service is not so much morally right as it is smart business. Financial performance and strength of balance sheets always remain important metrics but are no longer the first things an analyst looks for. Endorsing SRI is not the end of our plight, but it could certainly help to promote some of our most important ethical and societal goals.

Integrating social and environmental analysis into an investment strategy can help managers reach beyond ‘good’ companies to highlight solution companies, those whose core aim involves making the future safer, healthier and more sustainable. An example would be a battery company, whose product can be incorporated into renewable power sources and electric cars. Not all stocks in a sustainable portfolio must provide a solution to climate change however. Low diversification translates to higher risk, meaning fewer clients are attracted and resulting in smaller shifts in capital (meaning the fund is less influential more likely to fail). Funds can diversify by investing in best-in-class companies as well as “pure” sustainability. For example, a well run environmentally conscious platinum mine could be considered part of our sustainable future because platinum is currently essential for reducing pollution from car engines. Of course, it must be addressed that what is classed as “solution” or “best-in-class” can be subjective, opening the door for ‘greenwashing’ marketing campaigns. Clients should speak to potential fund managers and understand what drives their investments, selecting managers based on value-alignment and transparency.

So how do we ask for change and from who do we ask it? The reality is that when it comes to their own money, many people are likely to choose higher returns over better environmental practices. To shift the investments of these people we need to prove that SRI is equally or more profitable relative to traditional investing, over the long-term. Although there are skeptics and, realistically, failures, the generally consistent answers from research literature suggest there is not a performance penalty for investing sustainably^[9] – Generation, Impax, Jupiter and Alliance Trust Investments are individual success stories. As well as making demands of investors and their money-managers, we also need to demand changes in government policy. The financial sector may be largely private but if it is the broader system we seek to change we should look beyond individual investment houses. Pressure from government agencies is gaining and there is evidence that a confluence between organisational and policy responses is beginning to emerge^[10]. For example, the latest Intergovernmental Panel on Climate Change (IPCC) report contains an entirely novel section on projections and recommendations for Investment and Finance^[11].) Together, these actors must remould the system so it becomes realistic and more profitable for individuals within it to act virtuously.

That same unsavoury feeling you get upon realising you are indirectly supporting the tobacco industry via your pension and inconspicuously advocating for deforestation through your public bank is exactly the feeling that will drive investment decisions over the coming decades. Younger generations are growing up with climate change as a defining issue and there is an increasingly urgent demand for action and value-expression. In North America alone, $30tn of wealth will be transferred from baby boomers to millennials over the next 10 years,^[12] presenting an immense opportunity to redirect and inject capital into a more sustainable financial model. As this generation inherits a rapidly-warming Earth, socially responsible investment has the potential to play a major role in securing our planet’s future.

^[1] For example, the 2015 New York Times “Energy for Tomorrow” International Conference where I worked as a microphone runner.

^[2] N. Bocken, S. Short, P. Rana, S. Evans. A value mapping tool for sustainable business modelling Corp. Gov., 13 (5) (2013), pp. 482–497

^[3] M. Russo The emergence of sustainable industries: building on natural capital Strategy. Manag. J., 24 (2003), pp. 317–331

^[4] Sparkes, R. (2001). Ethical investment: Whose ethics, which investment? Business Ethics: A European Review, 10(3), 194–205.

^[5] Ansar A, Caldecott B, Tilbury J (2013) Stranded Assets and the Fossil Fuel Divestment Campaign: What Does Divestment Mean for the Valuation of Fossil Fuel Assets? Oxford: University of Oxford.

^[6] Linnenluecke, M. K., Meath, C., Rekker, S., Sidhu, B. K., & Smith, T. (2015). Divestment from fossil fuel companies: Confluence between policy and strategic viewpoints. Australian Journal of Management, 40(3), 478–487.

^[7] Bocken, N. M. P. (2015). Sustainable venture capital – catalyst for sustainable start-up success? Journal of Cleaner Production, 108, 647–658. http://doi.org/10.1016/j.jclepro.2015.05.079

^[8]http://www.conecomm.com/research-blog/2015-cone-communications-ebiquity-global-csr-study

^[9] Sparkes, R. (2001). Ethical investment: Whose ethics, which investment? Business Ethics: A European Review, 10(3), 194–205.

^[10] Linnenluecke, M. K., Meath, C., Rekker, S., Sidhu, B. K., & Smith, T. (2015). Divestment from fossil fuel companies: Confluence between policy and strategic viewpoints. Australian Journal of Management, 40(3), 478–487. http://doi.org/10.1177/0312896215569794

^[11] http://www.ipcc.ch/pdf/assessment-report/ar5/wg3/ipcc_wg3_ar5_full.pdf

^[12]https://www.accenture.com/us-en/insight-capitalizing-intergenerational-shift-wealth-capital-markets-summary

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openDemocracy partnered with the first ever Festival for New Economic Thinking which took place in Edinburgh on 19-20 Oct 2017. The Festival brought together organisations and individuals from around the world to discuss how to advance economic thought and inspire change.

Economics is at a turning point. Society faces mounting challenges, yet our dominant economic models are out of touch. But around the world, new ideas, approaches, and concepts for building a just, sustainable, and resilient economy are being developed.

At the Festival, we spoke to people about the ideas they have for building a new economy. Check out the highlights:

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It wasn’t long after he joined Uber in 2013 that it became clear to Yaseen Aslam – a ten-year veteran in the minicab trade – just how vulnerable he was if he didn’t team up with other drivers.

“For me it was about how Uber could turn me off at the touch of a button and just fuck my life up” he says.

Back then there were no unions with a strategy to help workers such as Aslam, so without any resources, except for his own time and knowledge of the trade, he launched his own driver association, The London Private Hire App Driver Based Association.

Move the clock forward to last month, and Aslam was marching side by side with hundreds of other workers that like him face low pay and poor conditions. Deliveroo riders, cinema workers, cleaners and others accompanied Aslam and fellow claimant James Farrar, as they went to face Uber at an employment tribunal for a second time. In the space of a few years, the debate around precarious work is increasingly taking centre stage, however, the trade union movement, with a few exceptions, is lagging behind.

Both Aslam and Farrar are members of the small, but rapidly growing, Independent Workers’ Union of Great Britain (IWGB), whose members are largely  precarious workers, from cleaners to couriers.

Different reports put the total number of the UK’s precarious workers – those who are easily replaceable and thus highly vulnerable to exploitation by their employers – at somewhere between 3.2m and 10m. What all these reports agree on, is that this number has been growing.

Besides the IWGB, only a tiny handful of unions are putting any resources in organising precarious workers. These include the equally small United Voices of the World (UVW), which focuses on low-paid migrant workers, the Bakers, Food and Allied Workers Union (BFAWU), whose members recently led the UK’s first McDonalds strike, and a few branches at Unite, the UK’s largest union.

Yaseen Aslam speaking at the IWGB’s Precarious Labour Strikes Back Protest. Image: Guy Benton

It’s clear when looking at membership numbers the extent to which the trade union movement has abandoned these workers. You are less likely to be in a trade union if you are a migrant, if you are low paid, if you don’t have a degree and if you aren’t in a professional occupation.

They’ve been left behind because the majority of unions in the UK, while they might not say it publicly, don’t believe precarious workers can organise and win, says Dr Jamie Woodcock, a research fellow at the London School of Economics, who has researched work and resistance at call centres and more recently Deliveroo.

“They feel they would invest more than what they would get out of them… instead they are stuck managing their decline,” he says. This decline is characterised by a focus on their existing membership and in their core sectors, many of which, notably the public sector, are facing a dramatic reduction in the total workforce.

Consequently, parallel to the massive rise in precarious workers, we are seeing a shrinking and increasingly older union membership, as around 39.1% of trade union members are 50 or older, while fewer than 5% are 24 or younger.

But while many in traditional unions might feel organising precarious workers is a waste of time, recent experience is proving the opposite.

There is the case of bicycle couriers organised by the IWGB, who against all odds won an average 25% pay rise in five workplaces through a campaign that lasted just over a year. Or the cleaners at the London School of Economics (LSE), who earlier this year became the first in the UK to force an institution to end outsourcing and hire all its cleaners directly, just to name two.

These victories aren’t significant just because they were unprecedented, but also because the unions that led them were dramatically under-resourced. The strength of these campaigns didn’t come from having a multi-million pound budget, political connections in the Labour front-bench and a well-staffed PR department, but from the commitment of the workers and their unions to fight and take radical action.

“It came down to the sheer determination and level of organisation of the cleaners, backed up by a union that was willing to support them as long as they wanted to take action,” says Petros Elia, General Secretary of UVW, the union that organised the LSE cleaners.

While train drivers can strike and significantly impact the running of the service and the business behind it, most precarious workers don’t have the same leverage. Cycle couriers, while they are currently gaining  rights through a number of legal challenges, at the time were being employed as independent contractors and had no formal employment rights. Striking cleaners, on the other hand, can easily be replaced by zero-hours workers that are on their employer’s books or by an agency worker.

This is what happened at the LSE, so in order to win the cleaners needed to amass significant support from other workers and the wider community

“If you don’t have a good network of motivated workers or supporters ready to take direct action then you won’t defend striking workers,” Elia says. “One of the things UVW and IWGB offer workers besides prospects of winning real gains, is a sense of community and space, and that is large part of the reason why workers join and stay.”

Anyone who went to one of UVW’s pickets outside the LSE could attest to the carnivalesque atmosphere, where on any given day you could stumble across a zumba class or a lecture on how pirates got sick pay. The protests were loud, noticeable and most importantly fun for those that wanted to get involved.

In the case of the bicycle couriers campaigning in 2015, despite working for many different companies, up to a hundred got together to target a single employer. It was an unprecedented level of unity – imagine workers from Tesco’s, Sainsbury’s and Morrisons all teaming up to jointly campaign against one supermarket.

One company in particular, CitySprint, dominated the market and was imitated by all of its competitors. If the couriers were able to bring it to heel, then it would be much easier to pressure the others, says Maggie Dewhurst, one of the couriers that led the campaign and who is now Vice-President of the IWGB.

“The protests were loud, noticeable and most importantly fun for those that wanted to get involved.”

And the strategy worked. After campaigning for nine months against CitySprint, they won a rate rise. This was followed by campaigns against eCourier and Mach 1, which lasted four and three months, respectively. In the interim, two other companies that were on the couriers’ radar, Addison Lee and Excel, raised their rates after seeing what was happening to their competitors.

“Because it [the campaign] was so successful, we could use it as a threat to the other companies to force them to put their rates up as well,” Dewhurst said.

What also set this campaign apart, was that besides targetting the companies themselves, much of the focus was on the company’s clients.

“It’s very important for them to maintain contracts with big corporate clients… so they are very susceptible to disruption by attacking their clients,” Dewhurst said.

The couriers protested and occupied the lobbies of Citysprint clients, such as Google and corporate law firm Linklaters, early in the morning, when people were coming into work. This was the time when a protest of that kind would be most visible and cause the most disruption.

IWGB couriers protest at Google offices as part of CitySprint campaign. Image: IWGB

Dewhurst suspects that Linklaters, a partner of the living wage foundation, ended up pressuring CitySprint to enter into negotiations with the union.

These victories could seem relatively small, with little potential to have a wider impact. However, it was precisely a strategy of combining worker and community solidarity with direct action that not only won a pay rise for McDonald’s workers in New Zealand, but managed to turn the dial on the debate around zero-hours contracts to the extent that they were banned by law.

“You talk to their organisers and they talk about creating chaos,” said Gareth Lane from BAWFU who helped organise the UK’s first strike of McDonald’s workers last month. He says that in New Zealand, besides having worker strikes, students went on strike and occupied McDonald’s stores, shutting them down.

The challenge that remains in the UK is to get larger unions to start organising precarious workers, while also allowing these workers to have ownership over their campaigns. Unite, which has the largest organising department in the UK, with approximately 120 organisers, doesn’t organise outside its core sectors, but there are glimmers of hope.

Earlier this year around 700 outsourced workers organised by Unite at Barts Health NHS Trust in London led the largest cleaners’ strike in UK history. After 24 days of industrial action, the workers were able to secure pay rises, concessions on workloads and job cuts, and a commitment by the employer, Serco, to stop hiring people at the trust through zero-hours contracts.

“The challenge that remains in the UK is to get larger unions to start organising precarious workers, while also allowing these workers to have ownership over their campaigns.”

And while many within the larger unions still push for what is called a service model – a union that provides legal service, health insurance and other services – others understand that the only way that the trade union movement will survive is through organising workers, particularly precarious workers.

“This isn’t just a flash in the pan,” says a Unite insider, “There is a realisation in Unite that we are going to die if we don’t reverse the decline in our membership and the lack of power in the movement.”

Even if these unions aren’t willing to look outside of their traditional sectors, years of austerity and deregulation mean that a growing number of precarious workers fall inside the remit of the larger unions such as Unite and Unison.

In fact, within many of these more established unions there are a small but growing number of campaigns that are being pushed from the ground-up, by the workers themselves. From striking British Airways Mixed Fleet, to the Picturehouse cinema workers and teaching assistants in Durham, the most high profile battles taking place at the moment involve precarious workers that previously had little or no involvement in trade-unions, but have become radicalised after months of struggle.

If there is some hope for the union movement to put precarious workers at the centre stage, it could come from a shift in culture brought about by these fights.

“The ground is so fertile for organising at the moment,” says Lane from BFAWU. “Workers wherever we go are ready to organise. If big unions put resources into it, it would explode.”

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Public debt is bad. We all know it. So we can surely breathe a collective sigh of relief at the news that the UK’s borrowing figures for September 2017 are the lowest for a decade. This is according to the latest numbers published by the Office for National Statistics. Finally, after seven years of spending cuts, wage caps and privatisation, the Conservatives are finally starting to get a handle on all that dangerous public debt.

Let’s ignore the fact that they originally planned to eliminate the deficit entirely by 2015. And let’s ignore the fact that George Osborne quietly dropped his target of achieving a budget surplus by 2020 after the Brexit vote. And let’s definitely forget that the Office for Budget Responsibility has drastically reduced its growth forecasts for the next five years, rendering any reduction in borrowing completely irrelevant.

What’s surely important is that borrowing is coming down. It’s been a long, hard seven years of austerity but it will all be worth it in the end. Because high levels of public debt are bad for the economy, which means getting the debt down is sensible, prudent and necessary.

Except that isn’t quite true.

The publicly entrenched perception of national debt being an essentially bad thing stems from two parallel and flawed beliefs.

The first more forgivable belief is that high levels of public debt impede economic growth. This belief stems from a dangerous cocktail of hasty empirical conclusions and economic zealotry. The fact is that, at worst, the jury is still out on this issue. There is little evidence to show that public debt has any serious impact on growth, and even compelling evidence to suggest that healthy growth can occur at high debt levels. Even just a casual glance at the history of the UK tells us that high public debt doesn’t always stymie growth. The average growth rate across the 1950s was a healthy 3.1% of GDP, despite a colossal post-war public debt averaging 145% of GDP. Whereas much lower public debt in the 1970s preceded an economic crash. This is not to claim any sort of inverse causal relationship but merely to point out that the exact nature of the relationship between public debt and growth is far from established.

The second belief, and far less forgivable, is the fallacy that it was high levels of public debt that actually caused the economic crash of 2007. The dissemination of this myth has caused the Labour party to be cast as careless spendthrifts who ‘got out the credit card’ in order to fund frivolous public services and, in doing so, plunged the country into economic meltdown.

The truth of the matter is that public debt under Labour immediately before the financial crash of 2007 was around 40% of GDP. This yet again serves to illustrate that a low public debt is no guarantee of a strong economy.

This is not to say we shouldn’t be entirely unconcerned with rising debt, however. There is one kind of debt that we should be very concerned with because, when it gets high, it’s usually bad news for the economy. This is private debt.

Earlier this year it was reported that, for the first time, levels of unsecured private debt had hit pre-crash levels. And this should worry us because it was precisely unsecured private debt that caused the economic crash of 2008. In fact, it is such worrying news that Andrew Bailey, head of the Financial Conduct Authority, has spoken of the need to take measures to tackle the issue. What’s more, credit rating agencies, Moody’s and Standard & Poor’s, have both issued a statement warning about the potential dangers of such high levels of private debt, and the Bank of England’s Financial Policy Committee has acknowledged the dangers of growing consumer credit in its September 2017 meeting statement.

So where are the cries of indignity? Where are the heated exhortations to ‘get the private debt down’? Where is the insistence that we must live within our means?

If we are so convinced as a society that public debt, which doesn’t cause economic meltdowns, is bad, then why are we so relaxed about private debt, which does cause economic meltdowns?

It all boils down to one simple thing. It benefits the political and business elites of the UK for the public to have this skewed view of debt. This works in two distinct, yet interdependent ways.

Firstly, If the public have a negative view of public debt, however unjustified, this gives government a pretext to both cut public services, creating more opportunities for private business, and to privatise. At the same time, if the public has a relaxed attitude to private debt, however dangerous that might be, it means that people have something to spend, even in a time of savage wage repression which should rob many consumers of their spending power.

There is in fact a direct causal link between public and private debt. As public spending comes down, as it has done drastically over the past 7 years, then private spending must go up to compensate. In an economy with such a preponderance of low-paying, insecure jobs, this inevitably means people need to borrow more. To give a concrete example, if a person’s wage rise has been capped at 1% for the last seven years, it is entirely likely they will be forced to make up that shortfall by borrowing. This is exactly what’s been happening.

The fact is that the government can borrow much more money, at far cheaper rates of interest, over much longer periods of time, in a much more manageable way than private individuals can. Ironically, the people who are most likely to be forced into borrowing to survive are those who will receive the worst interest rates, and be more likely unable to repay.  This is exactly the phenomenon that debt charity, Step Change, have observed in their mid-year report.

So given this context, the latest public borrowing figures make for pretty grim reading. Essentially we have, as a nation, swapped a load of safe and sustainable public debt for a mountain of dangerous private debt which could, if left unchecked, be the catalyst for the UK’s next economic downturn.

If the Government really wants to ensure the UK economy can grow in a safe and sustainable way, then it needs to tone down its obsession with public-debt, and focus on helping people survive and prosper without having to turn to unstable private borrowing. If the government can’t do this, then no amount of austerity will save the UK economy from another serious crisis.

Connor Devine tweets at @CDivinio. 

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Since the financial crisis of 2008 there have been hundreds of films, documentaries and features on the causes and the possible solutions to the economic malaise that followed. Who is to blame and how did it happen are the questions that have been hotly debated by experts and politicians. The film ‘When Bubbles Burst’, first released under its Norwegian title Når boblene brister in 2012, looks at the fallout from the 2008 crash through the stories of Vik – a small town in Norway that, along with seven other towns in the country, sued the Citigroup banking conglomerate for investment losses, demanding over $200 million in reparations.

The film, aired at this week’s Festival for New Economic Thinking, attempts to link the overarching reasons for systemic market crashes to the intimate tales of a town laid low by reckless speculation and an inherently unstable financial system designed to fail. Through the testimonies of local campaigners, financial experts and academics, we are taken into a network of links and a narrative that show how mortgage lending in the US could impact a tiny town in Scandinavia.

Around 2001 the Vik municipality found a loophole in the Municipality Act, and proceeded to invest borrowed money from Oslo funds and US Citigroup in the stock market. The trick was a law allowing borrowed money to be invested before seeking local or regulatory permission. Despite Vik borrowing 70 million krona, the Norwegian Ministry of Local Government and Regional Development certified the investments because in its view any debt payments would be secured in future income.

Rooting the story in Vik and then branching out to Detroit, the ultimate symbol of American decline, sharpened the focus on the ordinary people affected and the way in which grand technological advances and political decisions impact on our lives. The narrative of the film focuses on three main themes: firstly on the question of debt, second on technological revolution and finally on what needs to happen to the ‘real economy’.

Visitors from Vik to the US are used as useful commentary threading together the two countries and their joint experiences of pain. As viewers, the journey becomes one of learning of the ability of markets to not in fact be free but to be “designed specifically to fail”, as described by economist Erik Reinert. In his words: “If the system you design is destined to fail then there is in effect no risk. For you.” The film dwells on the notion of the separation of risk for investors, managers, elites and ordinary workers, small businesses and homeowners.

Debt may be utterly necessary to the system, and in fact can be good if leveraged in a smart manner. We are taken to ancient civilisations such as Mesopotamia and the Levant where the use of debt was a necessary evil that added value rather than a tool for coercion and short-term gain. Debt jubilees are touted as a solution to financial servitude for the citizen and economic inequality. In short, when debt stifles growth and opportunity for the majority of citizens, it serves no purpose.

Perhaps the most fascinating part of the film is dedicated to the power of technological revolution in financial markets and the modern economy. Bubbles are to be expected, but speculation increases when there is an advance in a new technology. The 2008 crisis is traced back to the 1971 innovation of the microprocessor which kick started a computer revolution in how data was collected, stored and modelled. The market was now truly global, an epic casino which allowed greater scope for leverage. This suggestion flies in the face of the idea that bursting of bubbles or bubbles themselves can be stopped. In fact, the film suggests the only way to do this would be to cease technological advancement and therefore leans closer to Schumpeter’s idea of creative destruction.

What are we left with? The ‘real’ economy according to Nomi Prins, former Goldman Sachs manager, was something “very close to the 1930s”. When the financial economy and the real economy are so decoupled that you realise that lots profit and wealth aren’t real. Her answer? “We need to address the fraud. They got away with it and are still in charge. It was fraud – plain and simple.”

Curiously, given the city’s decades long decline, the film provides a counterpoint of optimism where Detroit is shown to have a possible answer to the crisis. “After every crash there has been a boom but governments have to be bold enough and intelligent enough to create new chances for equity and growth.” Detroit was the site of huge technological growth in the automotive industry following the 1930s due to government action and investment in infrastructure. Petros Christodoulou, Greek economist and Joseph Stiglitz, nobel prize economist, use the FDR years in the 30s as an obvious example of planning and spending which has been overlooked for ideological reasons.

We begin with the economic and end with the political. The political will to imagine a new way of organising labour and capital and a new way to regulate and ensure the real economy is served by technological advancement. The question unanswered by the feature is whether that will exists in a majority of the Western world.

The post Film review: When Bubbles Burst by Hans Petter Moland appeared first on New thinking for the British economy.

In recent years China’s growing political and economic relationship with African nations has received much media attention. With significant Chinese investments in industrial infrastructure and energy extraction, it’s easy to see why. However, a quiet revolution has also been gathering pace in terms of trade cooperation between Africa and India. Compared to China, India has chosen to centre its strategy towards Africa in the tradition of South-South cooperation where nations and emerging economies in the global south aid one another to greater levels of growth and self-sufficiency.

In the area of food production, India has been using a combination of educational, technological and economic tools to help improve the situation in Africa. At first this was part of its continued policy of solidarity among developing nations but now it has shifted to a strategy to counter Chinese influence on the continent.

At the Festival for New Economic Thinking, Malancha Chakrabarty, an economist and research fellow at the Observer Research Foundation (ORF), gave a workshop on China, India and African Development. In her presentation Chakrabarty discussed India’s more balanced approach to international development based on anti-colonial principles when helping to improve African yields and food production.

Chakrabarty pointed to India’s green revolution where it has seen agricultural production rise and become far more sustainable since the 1960s. As a result of the legacy of empire, debates over population growth and rapid industrialisation, India has had to come to terms with its own issues of hunger, undernutrition, and low productivity. This is why India-Africa collaboration on food security is seen by both groups as the key not only to the development of African agriculture but also to India’s desire to compete with China.

Chakrabarty argued that India will prove that huge injections of capital and industrial investment – the traditional path of development – is not necessarily the future. Different nations will have different concerns, and food security will determine Africa’s development. India also helps Africa’s food output by offering low-cost technology solutions, building storage capacity, developing micro loan policies and providing improved seeds and agricultural machinery.

African agriculture suffers from a range of problems such as low productivity and limited use of modern technology. Although there has been a marginal improvement in Africa’s agricultural performance in the last decade, African farm yields are the lowest in the world with the average farmer in sub-Saharan Africa producing only 1,433 kg of cereals per hectare, less than half of what an Indian farmer produces.

Another reason for growing collaboration between India and African countries is that, although India has made great strides since the sixties, it still falls short on food security. India’s economic philosophy may be self-sufficiency, but in practice it copes barely better than Africa as a whole.

The reasons behind food insecurity in Africa and India are different. Africa’s challenges relate to increasing the production of cereals by improving agricultural productivity and adopting modern agricultural practices. For a continent that holds 65 percent of the world’s arable land it still relies heavily on food imports. According to a 2014 Africa Progress Report, Africa’s food import bill amounted to $35 billion each year. In West Africa, almost 40 percent of the demand for rice is met by imports. This is explained by economists such as Sam Moyo who blame Africa’s food insecurity on nation’s historical over-emphasis on exporting coffee and cocoa instead of production of food crops for self-sufficiency.

The historical significance of this has seen Africa go from a net food exporter during the 1960s to a net food importer in today’s global economy. As a result, many African nations have become extremely dependent on food aid since the 1980s and under the “structural adjustment programme” imposed by the International Monetary Fund (IMF) in that decade, many African countries were also forced to withdraw agriculture state subsidies leading to a drop in agricultural productivity.

In contrast, India’s achievement of self-sufficiency in food production was a constant focus of politicians and economists from the mid-1960s. India’s five-year plan between 1961 and 1966 prioritised self-sufficiency in food grains and increasing agricultural production to meet the needs of industry. This is effectively the opposite of African states today with rapid scrambles to industrialisation and energy extraction with low grain yields.

Chakrabarty argues that India can help African states achieve food security goals with technology and an African green revolution. Firstly, India is attempting to address the research and technology gap in African agriculture. International institutions such as the International Crop Research Institute for the Semi-Arid Tropics (ICRISAT) and International Livestock Research Institute (ILRI) are platforms for Indian-African cooperation in biotechnology. ICRISAT has established agribusiness incubators in five African nations, Angola, Cameroon, Ghana, Mali and Uganda, with India agri-bodies partnering with local bodies.

Supporting academic fundamentals of the agricultural economy India has opened a number of scholarships for African students in India with African scientists trained in the Department of Agriculture Research and Education (DARE) and the Indian Council of Agriculture Research (ICAR). ICAR has for the past few years provided month long customised training in water conservation and utilisation; production of seed, sapling and planting material; livestock production; farm mechanisation and post-harvest processing.

India has also extended credit lines worth $1,1 million towards agricultural development and food security in African countries. An example is a series of loans for projects funded by the Sudanese Agricultural Bank. In turn this funds technical and laboratory equipment at Higher Educational Institutions, scientific equipment for the Sudanese Ministry of Science and Technology, local rural solar electrification and the expansion of Sudan Railways.

Burkina Faso has allowed a 100-percent foreign investment deal with Indian companies being able to repatriation of profits, and new companies benefit from a tax holiday for the first few years. Although seen as controversial by some economists, the expertise of Indian technology is already evident in the improvement of African yields. The result has been a jump in foreign direct investment with around 80 Indian firms investing $2.3 billion in Ethiopia, Kenya, Madagascar, Senegal, and Mozambique. There are plans to invest a further $2.5 billion on millions of hectares in East Africa, to grow products such as maize, palm oil and rice.

Some African countries have gone as far offering land on lease to Indian farmers and a number of farmers from Punjab and Andhra Pradesh have taken up the chance to migrate to these countries. For example, the Andhra Pradesh government sent 500 farmers to cultivate 50,000 acres of land in Kenya and 20,000 acres of land in Uganda.

Chakrabarty’s conclusions may present a puzzle for UK policymakers and civil servants in charge of aid and trade policy with the African continent. The UK’s legacy of colonialism and current debates over the amount and commitment to aid leaves little room to reform the relationship between Western governments and African economic and agricultural development. If smarter agriculture that can strengthen grain yields and account for climate change is the foundation of lasting economic development, than India and China look set to be the main drivers of investment in Africa. This South-South collaboration may not be as turbo charged as the potential gains of Western financial booms but it is tailored to the fundamental needs to African economies.

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Last week openDemocracy attended the first ever Festival for New Economic Thinking which brought together people and organisations who are committed to advancing economic thought and inspiring change.

As part of the ‘Help the OECD write the new Narrative’ workshop, OECD official Patrick Love presented the organisation’s draft report ‘Towards a New Narrative’ in which 20 experts explain what was wrong with the OECD’s methods and advice from 2003 to 2008 and beyond.

The OECD (Organisation for Economic Co-operation and Development) has come in for rough criticism since the 2008 crisis in the way in which it has measured economic progress, market movements and growth. One example of the body rooting its research in flawed assumptions was a 2008 report that said that “a consensus had been secured that financial deregulation was an optimal contribution for economic development”, a comment that passed without further analysis.

Love suggested that both the tools economists used and way in which data was used has led to crisis the faith that institutions such as the OECD can effectively track economic behaviour. One particular macroeconomic tool for research used by treasury department’s, central banks, think tanks and academic institutions are DSGE models.

What are they?

For those of us who are not macroeconomists, DSGE stands for dynamic stochastic general equilibrium.

“General” indicates that the model includes all markets in the economy. “Equilibrium” points to the assumptions that supply and demand balance out rapidly and unfailingly, and that competition reigns in markets that are undisturbed by shortages, surpluses, or involuntary unemployment.

“Dynamic” means that the model looks at an economy over a period of time rather than in a single moment. “Stochastic” refers to a specific type of “manageable randomness” built into the model that allows for unexpected events, such as oil shocks or technological changes, but assumes that the model’s agents can assign a correct mathematical probability to such events.

The models attempt to explain economic growth, business cycles, and the effects of monetary and fiscal policy. They’re rooted in three ideas of how strategic choices in an economy are made:

First of all, they observe the behaviours and habits of “agents” be they consumers, companies, and financial institutions like banks or hedge funds. Secondly, the model takes into account the underlying economic environment of whether it is a competitive economy, how much monopoly power exists or any lack of information and transparency in what we may know. Finally, the model is estimated as a system, rather than equation by equation in the previous generations of macroeconomic models.

So what’s the problem?

Critics say that DSGE assessing an economy’s growth rate or how stable financial markets are based on unrealistic assumptions. They argue that it is fundamentally incorrect to model from individual actors because humans are first not rational and humans are not simply individual actors. The economics will always be flawed because such behaviour can only be understood in context of social interactions. Other suggest the opposite is true: there is too little individuality rather than too much.

Other problems cited is the idea of “general equilibrium.” This is an assumption that in an economy interaction of demand and supply will also level out. In the words of Patrick Love who authored a draft on reforming the OECD’s methods for economic measurements, “I think we need to come up with models that model behaviour, not models that assume that the system will always end at a stable equilibrium.”

Additionally DSGE models fail to look at labour costs, or details such as the relationship between profits and labour costs in order to predict the direction of the economy. In the run up to the 2008 financial crisis, the OECD models failed to take seriously the issue of lower wages combined with rampant household debt. Economists such as Love state that lower wages effectively kill jobs which runs contrary to mainstream assumptions of competition.

The issue of communication is also considered a major factor with communications networks and social media able to spread fear globally. The modelling tools economists used are  as Andrew Haldane Chief Economist and Executive Director, Financial Stability, Bank of England said “incapable of capturing today’s networked world, in which social media shape expectations, shape behaviour and thus shape outcomes.”

Finally economic models face the danger of perpetual obsoleteness because of the failures in understanding accumulative affects of human behaviour. Where this evident is looking at the issue of emergence. Emergent phenomena occur when the overall effect of human individual behaviour is qualitatively different to what each separate human is doing. You can not anticipate the outcome for the whole system of an economy or predict what will happen based on a few individual agents because the large system may add properties that individuals do not have.

These models used to inform policy and analyse the economy are vast and complex with very few outside the world of economists knowing about or understanding them. Love questions whether it is necessary to have such complex tools if they fail to anticipate disasters or point to macro solutions.

The OECD is currently working on developing new models to analyse economic behaviour and as a result win back the trust and sense of accountability in itself as an institution. It wants to educate the public about economic models and the tools that economists and bodies use to predict, anticipate and fix an economy which has seen drastic mutation and left millions feeling increasing insecure. As Patrick Love said during yesterday’s session: “New economics requires new tools and narratives.”

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