Monday, 30 June 2014

Neo-paganism in corporate Britain

Andrew Fisher investigates the underworld of corporate cult beliefs ...

You probably won't have heard of McBride. No, not the Brown-era spin doctor, rehabilitated by the greater depravity of his No10 successors, but a UK company that shares the name.

McBride - a UK producer of household cleaning products - has exposed itself today as yet another devotee of the neo-pagan dogma that dominates corporate Britain.

Today, the BBC reports that 'McBride set to cut 400 UK jobs' - a quarter of its total UK workforce - and bringing savings of £12 million - necessary the article explains due to "worsening conditions in the UK retail sector" ("what about my recovery?", interjects George Osborne to laughter).

McBride's chief executive, Chris Bull, told the press "We are announcing a robust plan that will help restore our UK profitability". So workers are being sacrificed because the company is making a loss, the reader would assume.

But, no! The BBC ends the article by stating: "In February, the firm reported a pre-tax profit of £3.7m for the six months to the end of December 2013". So profits of £20,218 a day and workers must still be sacked?

To the uninitiated in corporate rituals this must seem dreadfully unfair. But to the true believers of Britain's corporate neo-paganism - who will sacrifice anything to keep happy the director and shareholder Gods - workers are like lambs to the altar.

Friday, 27 June 2014

Super-rich get even richer

Ryan Fletcher in the Morning Star

BRITAIN’S richest 20 per cent are the only ones enjoying Chancellor Osborne’s economic recovery as incomes slumped for working families last year, official figures revealed yesterday. 

The Office for National Statistics (ONS) found that disposable income had increased by £940 for the richest fifth of households between 2011/12 and 2012/13, while the disposable income of all the other groups fell by around £250. The poorest households experienced the sharpest fall of all with a loss of £381. 

The highest earning fifth of households now have incomes £30,000 more than average household earnings.

Left economist Andrew Fisher blasted crowing Tories for failing ordinary people.

He told the Star: “It is clear that this is a recovery for those at the top, while the majority see their living standards eroded.

“Not only is our economy failing to create enough decent jobs, our tax system is failing to redistribute wealth.”

The ONS also pointed out that 52 per cent of households received more in benefits (including services such as education) than they paid in taxes.

In response Mum v Austerity blogger Bernadette Horton said the government should get tough on poverty-wage employers who exploit the in-work benefits system at the expense of taxpayers.

She said: “People like myself on tax credits are being hit hard. My local foodbank has seen a 30 per cent increase in the attendance of working people.

“We need living wages and living hours rather than zero-hours contracts. It sounds simple and it is. The government needs to reel employers in.”

TUC general secretary Frances O’Grady also warned that the government is leaving people behind in favour of big business and the rich.

She said: “The gap between rich and poor is growing again after a brief post-crash pause.

“The return of rising inequality should worry everyone as it suggests that nothing has been learned from the financial crisis despite the huge fall in living standards that so many people are still experiencing.”

The ONS figures came as analysts XpertHR reported that pay deals have been in decline as workers take the brunt of corporate greed.

The study showed a median pay increase in the three months to May of 2 per cent, down from 2.5 per cent in the first quarter of 2014.

Only two out of five agreements were worth the same or more than the 2.4 per cent May RPI inflation figure.
Settlements in the public sector were around 1 per cent, with one in seven workers having their pay frozen.

Ms O’Grady commented: “This slowdown in pay awards is yet further evidence of the cost of living crisis gripping Britain’s workers.

“Only a few at the top seem to be sharing in the recovery.”

Tuesday, 24 June 2014

Living wage will be won by workers' struggle not handed down from on high

Andrew Fisher, author of The Failed Experiment ... and how to build an economy that works, gives his verdict on the Living Wage Commission's report

Over five million workers earn less than the living wage - but a report by an independent commission today says, "recovery means UK 'working poverty' can be slashed by 2020" (see full report in today's Morning Star)

The Living Wage Commission consists of both the British Chamber of Commerce and the TUC, and is chaired by Archbishop John Sentamu, who said "Working, and still living in poverty, is a national scandal".

Despite these words, the commission's final report, published today, recommends only extending the living wage to around 20% of those currently earning less than the living wage - "warning that the increased wage bill would not be affordable for some firms in some sectors, such as retail and hospitality, and for many small firms".

"Sorry, escaping poverty is not affordable" - that's the message.

The refusal of this commission to back basic dignity for workers in the retail and hospitality clearly demonstrates that a fair day's pay won't be delivered from on high by benevolent leaders, but will be won through workers' struggles.

The tax dodging brands that litter our high street pay their executives seven figure salaries, hide their profits in tax havens, and plead poverty when it comes to giving their workers dignity.

By exempting retail and hospitality workers this report is saying executive pay, profit margins and shareholder dividends cannot be cut back to benefit workers. That is why trade unions, not reports, will win the living wage

And we all pick up the bill for this corporate greed and poverty pay - through higher payments of tax credits and housing benefit. In the first two years of this government, 93% of new housing benefit claimants came from working households.

Of course, the bosses' organisations will say it's unafforable, but they said that before the national minimum wage became law too. Poverty pay is their choice, not a necessity - and unions can win it in all sectors.

Friday, 20 June 2014

Why Ed is wrong (again) on welfare

Andrew Fisher

I've written previously about why social security was the reason for me developing my heartfelt hatred for the Tory Party. Like millions of others, I am where I am due to social security, and I feel a particularly deep dislike of those who would vilify that system.

It's hard not to share a similar animosity for the Labour Party at the moment. Every time you think the legacy of Purnell and Byrne parroting bigoted Tory bile about welfare is being consigned to its rightful place in history's dustbin, it springs up from the garbage can like a Sesame Street puppet.

Yesterday was another example and the excellent John Millington (@Johnjournalist on twitter) has written a wonderful blogpost on what's wrong with it.

I won't attempt a second rate imitation of that post, but here's why I think Ed's policy announcement was all wrong.

You won't convince people Labour is tougher on welfare than the Tories ... and you shouldn't f***ing want to

People who are hostile to the whole concept of the welfare state vote Tory. Labour created the welfare state. It's one of its proudest achievements. It reduced destitution, poverty, malnourishment and underachievement - and still does.

If people want someone to give a kicking to those on welfare they will trust the Tories to do it more efficiently. They've been doing it for years and are frankly better at it.

Not only does this strategy fail to win over sceptics but it loses Labour its own voters and supporters. It's morally vile and electorally counterproductive too.

Rights are better than the contributory principle

Ed Miliband and Jon Cruddas have both been vocal about increasing the contributory element of the social security, and emphasising its role.

This is wrapped up in the clothes of William Beveridge - the Liberal architect of the post-war welfare state. But the contributory element of welfare was always partial - the insurance was called 'national insurance' - us as a nation collectively, not individually, insuring ourselves against illness, disability or unemployment.

But Miliband and Cruddas have been using this negatively - to strip away rights from the young who, precisely because they are young, have no record of contribution. And therefore will have their benefits means-tested (if they don't have A-levels) and will be sanctioned if they don't take up training.

Adults shouldn't be means-tested on their parental income. If they're old enough to work, pay tax and vote then it's ludicrous that they should still be treated like they are dependent upon their parents. Young people deserve dignity and independence - and they need those to be enforceable rights.

But then shouldn't we all have a right not to live in  poverty - and a right to an independent dignified life? And that's whether or not we have been able to contribute through employment.

Education, education, education

Labour should be in favour of more education, more training and of people developing their skills. Primarily we should favour for this for reasons of human liberation. Education broadens the mind, develops our critical faculties and gives us confidence and greater life choices. Making ourselves more valuable in the labour market is a valuable secondary outcome, but it should be just that. We should encourage education and training for its own sake.

Young people don't need sanctions to take up training. If it's in their interests and will further their job prospects they will take them. The need for 'tough' rhetoric is futile. Labour should be emphasising what it will be offering people by way of support and training, and acknowledging that the person best-placed to judge what will help is the young person themself - it's called respect.

So offer young people training, give them an allowance while they're at college, on a course, learning a skill - but don't strip people of their benefits if they want to carry on looking for work and turn down the training on offer.

It's jobs, not skills that we lack

The other problem with what Ed proposed was that it assumes the reason we have high youth unemployment is due to a lack of skills among young jobseekers. In fact our economy is increasingly becoming low skill, low wage and low productivity. In fact we are wasting the talents of many people who are overqualified for the mundane jobs they do. The main jobs shortage in the UK has actually been for a long time for unskilled work. So it's skilled jobs, not skilled young people that are lacking.

That is a major problem that needs addressing, but reshaping our economy and labour market would take a courageous politician - not one who cowers before the Daily Mail or The Sun - and gets tough on young unemployed people at a time when four people are chasing every vacancy.

Why rob children to fund childcare?

A proposal that went under the radar a bit yesterday was the proposal to freeze child benefit to pay for extra childcare. Reports differ as to whether Labour is likely to adopt the proposal.

But the real question is whether an additional childcare commitment should be funded by taking money away from the already depreciated child benefit - a universal benefit with a much better take-up rate than means-tested benefits like child tax credit.

Why not fund increased childcare for families by increasing general taxation, or hitting the wealthy with increased capital gains tax, inheritance tax or even a mansion tax - or indeed by cutting truly wasteful expenditure like Trident.

The Labour Party that pledged to scrap the bedroom tax is the Labour needs to find its voice on the benefit cap, sanctions and workfare too. Labour can cut social security spending (as I've argued before), but this pathetic capitulation politics which reinforces right wing narratives is vile and will prove counterproductive.

Thursday, 19 June 2014

Corporate ‘inversions’ are destroying the tax base

Professor Prem Sikka on corporations scouring the globe for tax avoidance opportunities

People can raze mountains, divert rivers, clear forests and give subsidies, grants and preferential loans as a welcome to corporations, but the companies themselves don’t have any loyalty to communities or the nation-states which nurture them. Their sole concern is profits, and they are off as soon as they can find a better financial deal.

US medical device maker Medtronic’s US$42.9 billion purchase of the Ireland-based company Covidien is the latest example of such a move. The deal not only highlights our weakened international tax system, it draws attention to the entire trajectory of western capitalism.

The rationale for the takeover has little to do with increasing production, access to skilled labour or access to foreign markets. Medtronic wants to move its headquarters because Ireland’s headline corporate tax rate of 12.5% is more attractive than the US rate which can hit 35% (though the effective rate in the US is considerably less, due to various allowances and tax deductions).

Medtronic is engaging in what has become known as an “inversion”. The key idea is to re-incorporate in a low-tax country by taking over an entity there and thus subject your profits to its tax laws. This deal alone may save the combined entity US$850m in taxes by 2018.

Inversions are proving to be popular among American companies whose non-US profits are rising. In general, the US levies taxes on a corporation’s global profits, but these taxes can be reduced, subject to numerous anti-avoidance rules, if profits are not brought home. US companies have therefore built up vast piles of cash abroad to avoid taxes at home.

Inversion does not mean that the companies will give up their markets and production facilities in their former home countries. All they are changing is the fiction of their legal existence. Medtronic is not alone. Earlier this year, Pfizer made a similar attempt. US pharmacy chain Walgreen is under pressure from shareholders to relocate its headquarter to Switzerland. Chiquita, best known for its bananas, is moving its headquarters to Ireland, and insurance broker Aon shifted its head office from Chicago to London.

What we are witnessing is a race to the bottom as corporations exert pressure on elected governments to reduce and eliminate corporate taxes. This is not a zero-sum game; the erosion of tax revenues would result in loss or dilution of hard-won social rights relating to education, healthcare, pensions, security and other things that make for a civilised society. Citizens would have to pay higher taxes for a crumbling social infrastructure while corporations and wealthy elites enjoy a free ride.

So what can be done?

Nation states should increase the costs associated with inversions. For example, before a company ups sticks and changes its legal status it should be required to return all subsidies, grants and loans, and make good any environmental degradation. This needs to be accompanied by a fundamental reform of the system for taxing corporations.

The current system is the outcome of tax treaties negotiated nearly a century ago. Its key elements were that corporations would be taxed at the place of their residence or control rather than where the economic activity took place. Companies in a group were not treated as part of unified whole but as independent entities. Thus, each of the hundreds of subsidiaries of Medtronic or Pfizer would be treated as separate taxable entities which could simultaneously reside in numerous jurisdictions. There is the problem of how to deal with transactions within a large corporate group (such as management fees, royalties, transfer of raw material or partly finished goods) which could be used to shift profits from one jurisdiction to another. So the treaties agreed on a system known as transfer pricing. The idea was to value intra-group transactions at what the OECD calls “arm’s-length” principle, or free-market prices.

All of the above features are now a source of problems. In a world dominated by global corporations, independent arm’s-length transfer prices are difficult, if not impossible, to obtain. The idea of treating subsidiaries as independent entities rather than part of a single group merely invites tax games as corporations shift their profits to whereever the tax system is most favourable. Companies can have assets, sales and employees in one place but for tax purposes can claim to be resident in places where they have little economic activity and thus escape tax liabilities. All of this can be checked by a system known as unitary taxation.

The essential idea of unitary taxation is that a group of related companies is treated as a single unified economic entity. The group’s global profit is calculated. This profit is then allocated to each country in accordance with a formula which takes account of what drives profits. These could be the sales in each jurisdiction, the number of employees and the location of assets. The allocated profit can then be taxed by each country in accordance with its democratic mandate.

Unitary taxation does not attach any importance to where the corporation is located. It negates all intra-group transactions because they do not add any economic value. Value is only added when a group transacts with an external entity. The European Union is advocating a system known as the Common Consolidated Corporate Tax Base (CCCTB), which is a variant of unitary taxation, and has the potential to check corporate strategies for tax avoidance.

Wednesday, 18 June 2014

Inflation slow down fails to stall falling living standards

by Roger Bagley in the Morning Star

WORKERS’ living standards are still falling despite a slowdown in inflation, official figures showed yesterday.

The consumer prices index rose by 1.5 per cent in the year to May, compared with 1.8 per cent in the previous month. But earnings only rose by 0.7 per cent.

The traditional inflationary measure the retail prices index — which the government has sidelined — rose by 2.4 per cent, compared with 2.5 per cent in April.

House prices soared even further out of reach for many working-class people, rising 9.9 per cent over the 12 months to April.

Leading left economist Andrew Fisher said the drop in inflation would be “cold comfort” for workers and benefit claimants who were not seeing increases above 1 per cent.

Mr Fisher added: “The cost of living crisis is far from over, with the average worker 12 per cent worse off than a decade ago.

“We’re certainly not all in it together. In those same ten years, executive pay has risen by 74 per cent.

“It is no wonder that unions are gearing up for co-ordinated strike action over pay. 

“There will be no sustainable recovery unless people’s incomes improve markedly.”

Labour shadow minister Catherine McKinnell said: “The fall in the rate of inflation is welcome, yet most people are still feeling the squeeze.”

“Wages after inflation have now fallen by over £1,600 a year under David Cameron and the link between the wealth of the nation and family finances is broken.”

Saturday, 14 June 2014

Thames Water: a lesson in privatisation

In the last year Thames Water made a profit of £259 million on revenues of £1.9 billion - a very comfortable 13.6% profit to turnover ratio. While revenues were up 8.5%, profits leapt by an astonishing 79%.

The Thames Water profits bonanza was "driven by increased prices", their Chairman, Sir Peter Mason (presumably knighted for services to larceny), explained to shareholders.

This begs the question what is Ofwat doing? The water industry regulator obviously thinks this is acceptable. But light regulation was part of the privatisation deal. Water bills have risen 40% above inflation since the industry was privatised.

The UK water industry was privatised under the Thatcher government. It followed the privatisation textbook: 'the profits shall be privatised, the losses shall be nationalised'. Her then Chancellor Nigel Lawson stated "once it was clear the regulatory and environmental responsibilities would remain in the public sector, privatisation never looked seriously at risk".

And so today, the state funds the Environment Agency because the privateers just wanted to cherrypick the profitable bits. At the time (1989), opinion polling found  79% of people opposed water privatisation.

But if Ofwat is about as effective as a chocolate fireguard, then the Treasury is actively complicit.

This government has slashed the corporation tax that Thames Water will pay on their rip-off profits (from 28% to 20%). So instead of a tax bill for £72.5 million, the bill landing on Thames Water's mat will only be for £51.8 million.

Except it won't be paying a penny in corporation tax. And according to its Finance Director, Stuart Siddall (staggeringly overlooked so far for a knighthood) it won't do for the next ten years.

This is because it is receiving tax credits to invest in the infrastructure that it profits from - the same infrastructure it inherited on the cheap and has failed to invest in despite making bumper profits on the back of ever higher bills.

So here's a quick 8-point guide to how privatisation works:

1. The government privatises the profitable bits of the water industry on the cheap - underselling your taxpayer investment
2. Your taxes continue to fund the unprofitable bits of the water industry
3. The privatised company puts up bills, overcharging you
4. The privatised company puts up the pay of its directors and pays generous dividends to wealthy shareholders
5. The government cuts taxes on the profits of the privatised company
6. The privatised company refuses to invest in maintaining or upgrading the taxpayer funded infrastructure it inherited, so government introduces a tax credit scheme meaning you the taxpayer are paying for the upgrade to an industry that the privatised company profits from
7. Government has constructed a system in which you the taxpayer subsidise the people ripping you off
8. Government gives out knighthoods to the people ripping you off 

N.B. a correction was made to this article - Sir Peter Mason is chairman of Thames Water, not chief executive as originally stated.

Friday, 13 June 2014

Reviews for The Failed Experiment by Andrew Fisher

Below are extracts from reviews for The Failed Experiment ... and how to build an economy that works - with links to the full review. The book is available from all good bookshops or online.

"Andrew Fisher ... succinctly explains how the crisis and the political response can be understood as the logical outcome of a series of political choices guided by an ideology which has gripped government economic policies of all major political parties since at least the election of the Thatcher government in 1979.

"Fisher’s language of democratising the economy, giving people democratic rights over how goods and services are produced and consumed in the economy, is reminiscent of the late Benn and points towards a modern and relevant conception of socialism"

- Michael Calderbank in Red Pepper

"The Failed Experiment is a searing examination of the causes - and complacencies - that led to the global financial crash of 2008, whose still-gaping wounds will take many years to heal.

"Fisher does a hugely impressive job in presenting complex economic issues in layman’s terms as he chronicles the causes of the spectacular financial collapse from the first early symptoms, that saw queues of Northern Rock customers looking to take out their savings in September 2007, to the credit crunch."

- Will Stone in the Morning Star

"I enjoyed this book. It starts with one of the clearest explanations you will read of how the Northern Rock and the business model behind it inexorably led to disaster.

"Much of the book looks at how we got here – the origins of what Fisher calls the “great experiment” under Thatcher. In the early 1980s, the poorest half of the UK held 11% of the nation’s wealth. Twenty years later that share had fallen to just 1%."

- Mike Phipps in Labour Briefing 

"Fisher’s book is an antidote and corrective to the mainstream propaganda that opines ‘there is no alternative’ to neoliberal capitalism and private sector dominance. Fisher sees his suggestions as a menu of policy options, not a political programme, but intentionally or not it develops into a manifesto for radical economic change.

"Fisher is unique in the world of political economy in that he writes with the passion of an activist and the erudition of an economist. His research and experience leave us in no doubt that the privatisation of our economy has proved ineffective as an engine for economic growth, but has succeeded in rapidly shifting wealth from workers to capital"

-Enrico Tortolano for the Institute of Employment Rights

Order your copy online 

Thursday, 12 June 2014

Chronic low pay is not acceptable in a civilised country

This is an extract from Katy Clark MP's speech in Parliament during the debate on the Queen's Speech - 11 June 2014

"The reality is that our country faces massive challenges. We face the massive challenge of responding to an economic crisis and to the austerity that is being imposed not only on the people of this country, but throughout Europe and the western world, yet there is little discussion of that in this place.

The Secretary of State spoke about statistics and referred—quite interestingly—to the 99%. He accepted that the vast majority of people in this country are paying the price of the economic crisis and he also conceded that the 1% are doing very well, nicely. Of course, that is not just the case in this country. As we look around, we see that it is the case throughout the western world, whether that is in Greece, Ireland, Portugal—it is true in any country that people choose to look at. The super-rich, those who are really in control of many of the decisions that affect most of our lives, are seeing their wealth and power increase, while most of us have been put in a position where our living standards have been squeezed by the economic crisis and the way that politicians have responded to it.

I am pleased today to speak in favour of the amendment that has been tabled by the Opposition Front Bench team to bring forward measures to raise the minimum wage faster than average earnings. We know that the measures that this Government have introduced have led to a squeeze in the living standards of the vast majority of people in this country, and when proposals are put forward to try to address that situation—for example, the proposal of a price freeze for people’s energy bills, whether those are electricity or gas bills, which would obviously affect not only individuals but businesses—the Government react with horror. They also react with horror when it is suggested that we should do something to try to deal with the private rental market, even though in parts of the country rents are increasing at far higher rates than people’s incomes.

The reality is that since this Government took power, in all but two months real wages have failed to keep pace with inflation. Indeed, after the welcome real-terms increase in pay in March, there was another fall in April. As we know, the Living Wage Commission has highlighted that 21% of people in work in this country— 5.8 million people—receive less than the living wage. Therefore, the amendment that we are considering today clearly outlines the direction of travel we should be taking and we need to say that it is simply not acceptable that we continue to be a country where there is chronic low pay and where people are not paid a decent amount that they can afford to live on if they work full-time. That is not an acceptable way to organise ourselves in a civilised country.

The Government can put forward proposals that refer to welfare caps and fiscal responsibility, but until we put in place the measures that put the pounds into ordinary people’s pockets and give them the ability to make decisions for themselves and live in dignity, we will not address the real issues.

This Queen’s Speech fails the British people; I look forward to voting against it."

Tuesday, 10 June 2014

It's poverty and inequality we need to address

Andrew Fisher explains why he doesn't like Alan Milburn, child poverty or social mobility

Everything about it makes my skin crawl. Strangely, Alan Milburn, the New Labour privatiser now at home working for the Tory government, in between his corporate duties, is the least of them.

The conclusion of Milburn's commission is depressing too - that far from only 5% of UK children living in poverty by 2020, the most likely scenario will be 24% of children in  poverty at that point. This equates to 3.5 million children in poverty, before housing costs (though Oxfam says it could be as high as 5 million, after housing costs).

It's the title of it - 'The Social Mobility and Child Poverty Commission' - that irritates me. Both terms reflect the descent of political discourse into the sentimental, marketable and individualistic.

Let's start with 'child poverty'. No one wants children in poverty, but no one wants adults in poverty either - and given children's incomes depend on those of their parents, you won't end child poverty without tackling adult poverty either.

But there's a sentimentality about children - understandably so - but there is a danger in the political context of this drifting into the divisive narrative of the deserving vs undeserving poor, i.e. children are blameless innocents and therefore 'deserving', but adult poverty is something to which labels canbe attached like 'shirker', 'scrounger', 'skiver', 'feckless', and 'lazy' - all of which pepper the political discourse around welfare and poverty.

So let's be honest with ourselves and say unashamedly that anyone living in poverty in the UK should be a source of shame and ruins lives whether child or adult. If we lift adults out of poverty, we lift their children out of poverty too.

Whether it's low wages, poverty benefits, or rip-off rents we should campaign against these things because everyone should have the right not to live in poverty.

... And then there's 'social mobility', the individualistic perversion of 'inequality'. Social mobility is the concern about the movement of individuals or groups of people in social position.

Research in 2010 found that:
"social mobility in Britain - the way in which someone's adult outcomes are related to their circumstances as a child - is lower than in Canada, Germany, Sweden, Norway, Denmark and Finland. And while the gap in opportunities between the rich and poor is similar in Britain and the US, in the US it is at least static, while in Britain it is getting wider"
But this ignores that it is widening inequality that has made people socially immobile - and you won't solve social mobility without tackling inequality.

So let's talk about inequality - if Pickett & Wilkinson and now Piketty haven't made it safe to talk about inequality then a lot of trees have died in vain.

So let Alan Milburn go back to his corporate boardrooms, put Wilkinson & Pickett in charge, and rename it the 'Poverty and Inequality Commission'.

Here endeth the rant.

Saturday, 7 June 2014

Monetarists flounder with negative interest rates

Andrew Fisher, author of The Failed Experiment, on how negative interest rates won't solve the crisis

"Negative interest rates!", the headline writers exclaimed this week when Mario Draghi (President of the European Central Bank) announced the deposit rate would drop to -0.1%. So it costs banks to keep money overnight.

The Eurozone economy is in a deep malaise - hit by austerity and the monetarist framework deemed necessary to keep separate political economies together in a structurally flawed currency union. So this week's announcement is designed to stimulate the economy by making it costly for banks to hoard money rather than lending it out to businesses and individuals .

This is based on the assumption that a) banks lend physical money they hold; and b) that the problem is primarily a lack of credit supply rather than demand. Both are mistaken, and so the headlines that this week marvelled at the curiousity will soon pass and be replaced with more agonising about the dire state of the Eurozone economy.

Assumption a) rests on a myth explained by Ann Pettifor in her excellent book Just Money,
"In this view money can represent a surplus to be set aside or saved, accumulated and then loaned out. In this story, savers lend to borrowers, and bankers are mere intermediaries between savers and borrowers" 
Money is not a commodity, but a construct - one based on trust, which incidentally why we had the 'credit crunch' when banks refused to lend to each other because each other's balance sheets were untrusted. Banks do not create credit directly from their deposits, and so taxing deposits (effectively what the ECB has imposed) will not solve a credit shortage ...

Assumption b) is that the problem of the Eurozone economy is a lack of lending from banks. The problem though is a lack of demand. Across the Eurozone people's wages aren't rising, unemployment is high, and many people are living in a precarious situation - worried out losing their job and/or their home.

In these circumstances, businesses are not confident of investing (and banks are worried that if they do lend the investment may go bad (the Swedish economist Wicksell was concerned about low interest rates leading to malinvestment that would be worse for the economy in the medium to long-term).

What further informs against negative interest rates being the solution is that we've had real terms negative interest rates for some time now. This means inflation is higher than interest rates. That has not sparked increased lending - which should be have been a warning that further lowering will not be the 'big bazooka' some think.

While the UK has yet to have nominal negative interest rates, we (like the Eurozone) have had real terms negative interest rates for some time. For the consumer this means the money in their current account is probably only attracting 0.5% interest, while inflation is 1.8% (CPI) or 2.6% (RPI) - and so you are better to spend than to save (unless you can find a much higher savings rate - and indeed, if you can afford to save at all).

This reflects the continuing weakness of the UK economy. In November 2011 George Osborne told MPs , "Low interest rates are helping to keep people in their homes, mortgage payments down and businesses going" - with the clear implication that raising them would do the reverse. And so it is telling that despite the proclaimed 'recovery', the UK economy still cannot risk raising interest rates even marginally.

Low interest rates are stabilising a very fragile economy - they are a sign of weakness not of strength.

But the continued use of monetary policy is a reflection of the impotence of governments to use fiscal policy to solve the crisis. The monetary policy solutions of interest rates and quantitative easing are at best mild ameliorations until incomes and investment levels are increased.

With governments across the Eurozone and in the UK unwilling to step outside the monetarist straitjacket, the economies of Europe will continue to be fragile and teetering on the edge of crisis.

Also worth reading on this subject: Paul Mason, Ed Conway and Andrea Terzi

Thursday, 5 June 2014

Labour MPs endorse radical left economy

by Will Stone in the Morning Star

LABOUR MPs are backing a radical left strategy that challenges the lazy status quo “to build an economy that works.” 

Next week sees the parliamentary launch of left economist Andrew Fisher’s new book The Failed Experiment … And How to Build an Economy that Works.

The book is being endorsed by many Labour MPs who want to go beyond party leader Ed Miliband’s timid calls to encourage “responsible capitalism.” Yesterday it was confirmed MPs Teresa Pearce, a member of the Treasury select committee, Katy Clark, Jeremy Corbyn, Ian Lavery, Grahame Morris and Mike Wood will speak at the book’s Westminster launch next Wednesday hosted by John McDonnell MP.

“Labour is failing to inspire people because it has not broken from the 35-year consensus that reduces governments to a middle-management role within the economy,” said the book’s author, Mr Fisher. 

“Ed Miliband’s proposed forays into energy, housing and financial markets are only addressing symptoms rather than the cause. Our failed experiment with a deregulated, privatised and undemocratic economy has led to higher unemployment, inequality and poverty. 

“We need an economy as if people mattered, and I’m delighted to see the ideas in my book resonating with so many parliamentarians.”
His book is broken down into five chapters that analyse the policies that led to the recession, how politicians masked the cracks in the economy, the state of the economy today and how to build one that works.

Among many proposals for change, Mr Fisher calls for the public ownership of public goods so that key parts of our economy are democratically controlled and accountable and the nationalising of banks to help reduce debt.

Monday, 2 June 2014

London: It's capital, not the capital, that's the problem

Andrew Fisher on the London vortex
"London never sleeps, it just sucks
The life out of me
And money from my pocket"
So sang Welsh songbird Cerys Matthews*... pre-empting Aditya Chakrabortty's Guardian column today - 'Britain's economy is dangerously imbalanced – just look at the London property bubble' - by a full 15 years.

What Mr Chakrabortty was advocating though was not a retreat to the Valleys, but more equal investment across the UK's nations and regions.

He's absolutely spot on in diagnosing London's acute housing crisis (a crisis of affordability and supply):
"The reason homes in the capital cost so much more than they do outside is because London has the best jobs and the best economic opportunities – and therefore the longest queue of would-be residents"
Although I'm still not convinced London has a 'bubble' in the traditional sense (that is an overpiced asset, that will 'burst' in a market correction) - partly for the reasons outlined above by Chakrabortty himself. But partly because London's housing market is also a speculative asset for the global rich, who have all the loopholes and non-domiciled status required to keep pumping money in with minimal tax liability. Additionally, landlords are buying up more and more - and their returns are growing, like those at the very top of the income scale.

Housing prices don't need to keep pace with average wages necessarily, and indeed they haven't: "the median home in London is now worth 12 times the median London worker's salary". So while a slowdown in growth is plausible (last year's 17% rise is partly a reflection of lost value since 2008), I'm unconvinced by the bubble thesis unless public policy changes dramatically, or an external shock hits.

However, his prescriptions echo a pamphlet published by Doreen Massey in 2003 ('Decentering the Nation: A Radical Approach to Regional Inequality'), but are actually inspired by more recent research by Adam Leaver of Manchester Business School. Chakrabortty concludes:
"The longer term solution is to put the next Tech City in Liverpool, or to move government departments out of Whitehall and up to Middlesbrough. And to use the tax system and strategic lending to encourage industries to move their headquarters to all those lovely cheap buildings north of the Watford Gap"
Under Gordon Brown tens of thousands of civil service jobs have already been relocated outside of London (including moving the ONS to Newport) - but all the solutions on offer are viable, though to me they are insufficient.

An industrial strategy - what the UK has lacked since the devastation of Thatcher's assault on UK manufacturing - has to consist of more than tax incentives or business enterprise zones.

Likewise, the problem of London is in large part the finance sector, rather than London itself. The City of London acts as a poison in public policy - using its power to keep the UK a low-tax, free-market, prostrate-government state. It also sucks in huge amount of capital to be invested in speculative markets and convoluted financial products rather than in the productive economy.

Taxes like the Tobin Tax (now branded as Robin Hood Tax) could discourage this useless activity, and in so doing start shutting down the destabilising, tax avoidance enabling and unproductive aspects of the City.

In fact Chakrabortty acknowledges this, because he used his column in February to say it, asking "What's that sucking sound? It's all the public money and private wealth being swallowed up by London".

Of course to some this is not a problem at all and we should foster, not fret over, London's growth (now heading towards a quarter of the UK economy). Daniel Knowles of The Economist makes a powerful case, but it's a dehumanised, market-led, vision that suggests everyone should eventually live in Greater London - with other towns depopulated, left with only a few dead end jobs left or as he puts it:
"boring small towns where there are never really going to be any decent job prospects"
If we value community and a strong economy, then throwing all our eggs in one basket (geographically or sectorally) is a risky dereliction of strategy - though I doubt Knowles wants a democratic economic strategy: the market knows best (except when it crashes and requires public bailouts).

But leaving aside my revolutionary vision of a democratised economy, Knowles also ignores the German model in which several cities share the centralised goods that London has: political, financial, cultural, industrial (OK not the last one, but the UK doesn't really have any industrial cities any more). The same is true to some extent in the US and Canada too, where cities share the national goods.

What Knowles implicitly makes clear is that decentering the nation cannot be left to the market (incentivised or otherwise), it will require strong government with an industrial strategy, and almost certainly strong local (or regional) goverment outside of London.

However, there is little chance of this since politicians seem less than keen to break the despotic power, not of London, but of its finance sector.

*Londinium by Catatonia (youtube here)