Saturday, 26 July 2014

Economic recovery 'milestone' exists only on paper

Rory MacKinnon in the Morning Star

THE coalition’s promised recovery exists only on George Osborne’s spreadsheets, the chancellor’s critics warned yesterday amid Con-Dem crowing.

Front-bench Tories proclaimed a “major milestone” as they touted figures suggesting Britain’s economy had finally escaped a six-year economic crisis.

Office for National Statistics (ONS) data showed that gross domestic product (GDP) grew by 0.8 per cent in the three months to May, taking the size of the economy 0.2 per cent above the level of 2008 when the crisis began.

Prime Minister David Cameron was quick to label the figures a vindication of the austerity agenda.

“Our long-term economic plan is working and this is a major milestone,” he said.

Mr Osborne insisted their cuts offered “economic security and a brighter future for all.”

But critics on the left dismissed the Tories’ triumph, citing massive declines in full-time jobs and the real value wages.

The absolute GDP figure seized on by ministers stands in stark contrast to GDP per capita — a measure of the actual population’s wealth that remains 6 per cent lower than in 2008, according to ONS figures released earlier this month.

Analyst Andrew Fisher of the Labour Economic Advisory Panel (Leap) said the recovery only existed “in corporate balance sheets and Osborne’s spreadsheets.”

“Even on its own terms, this is an unsustainable recovery, based on increasing household debt and rising property prices,” he said.

“Without addressing the deep structural weaknesses in the UK economy we are simply storing up more problems for the future.”

General union Unite’s general secretary Len McCluskey said it was clear that working people were doing the heavy lifting.

“Quite simply, as our population grows more people are working but they are working for lower wages with zero-hours, insecure jobs at epidemic level and an historic collapse in living standards not seen since Victoria was on the throne,” he blasted.

“At the moment we have a wage siege combined with an investment freeze.

“Basically, working people’s graft is not being rewarded in their wage packets but banked by businesses which are hoarding millions.”

GMB union’s general secretary Paul Kenny agreed, noting ONS figures that showed the value of average earnings had declined 13.8 per cent since 2008.
“So the size of the cake is back to pre-recession levels — but the slice per person is smaller,” he said

Friday, 25 July 2014

What does Labour's commitment to Tory spending plans mean?

Andrew Fisher, author of The Failed Experiment, analyses the Labour leaderships' economic strategy

At Labour's National Policy Forum (NPF) last weekend, Ed Balls triumphantly declared:
"Party members have endorsed the tough fiscal position Ed Miliband and I have set out. We will match the government's overall day-to-day spending totals for 2015-16."
As he said those words I wonder if part of him recalled the 'Bloomberg speech' he gave when running to be Labour leader. In that speech he described the coalition government's day-to-day spending plans as:
"unnecessary, unsafe for our economy and unsafe for our public services too."
Now apparently they are, as a good New Labour politician might say, "the right thing to do".

I think Ed was right in 2010. But it reminds me of a joke about the devil convincing politicians to choose hell over heaven. When the politician chooses hell and realises it to be just that, he says:
"I don't understand. Yesterday I was here and there was a golf course and clubhouse, and we ate lobster and caviar, drank champagne, and danced and had a great time. Now there's just a wasteland full of garbage and my friends look miserable. What happened?"
The devil looks at him, smiles and says, "Yesterday we were campaigning ... Today you voted."
Ed Balls' devilish tricks didn't work on the Labour Party electoral college, but last weekend in Milton Keynes they seem to have worked on all the leaders of the major trade unions affiliated to Labour. At the NPF, the union delegates of Unite, Unison and GMB all voted to back Labour's pledge to extend austerity for an extra year if Labour wins. One can only imagine the confusion in their member's minds as their leaders back them to strike against austerity, but welcome Labour's embrace of the same policies for 2015-16.

It was left to member delegate George McManus along with a few fellow members and the BECTU union delegation to mount an honourable but ultimately futile rearguard action. Left Futures covers the NPF story

But what does it mean that Labour has endorsed Osbornism for an extra year? Firstly, it's an insult to the people who have voted to kick out the Tories that they will be lumbered their policies for the first year. And once you've stuck to austerity for one year, it means breaking from that logic will be that much harder.

As Ann Pettifor and Jeremy Smith point out in a must-read article, it also reveals a wider paucity of economic thinking in the Labour leadership. In fact they sound a poignant warning:
"Mr Miliband and his colleagues would do well to remember the fate of the 1929 to 1931 Labour Government. Its binding commitment to “balanced budgets”, and its genuflection before classical economics, caused its outright collapse and the disintegration of the Labour movement."
Even if the union leaderships could be bought off last week, it's unlikely that their hard-pressed memberships will be when facing another year of falling living standards and the threat of redundancy or privatisation.

The most important thing though is what will this mean in real economic terms. And the chart below, from the OBR, shows that it means a falling share of national wealth going to public services, including the NHS and education.

But while a falling share based on the assumption of rising growth may not imply real terms cuts, it is not as if there are not significant financial difficulties even in the supposedly ringfenced NHS budget. Remember, the Blair/Brown governments increased NHS spending as a share of GDP from one of the lowest health spends in Europe to the European average.

As the table below (again from the OBR) shows, departmental expenditure limits (RDEL) are going to fall by over £5 billion in 2015-16. So while the last three years have actually seen a roughly constant level of expenditure, from 2015-16 severe cuts are forecast:

You might think 2015-16 isn't that bad and the shackles come off in future years, meaning Labour can deviate from Osborne's plans from 2016-17 onwards. However, as Pettifor and Smith point out the two Eds are further committed to not just balancing the books, but creating a surplus on the current budget, and getting the national debt falling.

To put wider this in a wider economic context, the OBR helpfully produce this chart showing government consumption as a contribution to UK GDP. The drop from the Major/Blair/Brown years to Osborne's austerity has been severe, but government consumption is forecast to be a drag on growth for 2013-2018.

Labour's commitments mean that they are sticking to austerity throughout their term of office, even if they moderate Osborne's sharp downward trajectory. And don't forget that the last time Osborne tried this level of contraction (2010-12) it failed and he moderated it himself, but in doing so he kicked the can down the road and deferred the sharpest cuts for 2015-18 - cuts which Labour now accept in part, having welcomed his moderation!

In the early days of the coalition government, Labour was relentlessly saying that the government was "cutting too far, too fast". Yet just as austerity accelerates back to and beyond the levels of 2010-12, Ed Balls now endorses the policy. 

In reality, even if the Conservatives won outright the 2015 election, it is doubtful that he could deliver the level of harsh austerity scheduled for the first half of the next Parliament. This final OBR graph shows just how unprecedented is the level of cuts still to come:

If there is one saving grace to Labour's spending plans it's that they have excluded capital investment from their austerity spending commitment. And so the next Labour government is fiscally free to splurge from day one on council housing, renewable energy, high speed rail and all the other infrastructure investment the UK desperately needs.

The problem is though that infrastructure spending on any scale takes time to be realised - and will be cold comfort for losing their jobs and failing to see any rise in living standards.

Sunday, 20 July 2014

Trade unions: inequality busters!

Andrew Fisher, author of The Failed Experiment ... and how to build an economy that works on why the Tories are attacking trade unions
"It's class warfare. My class is winning" 
- Warren Buffett, US billionaire speculator 

The incomes of the richest 1% vs trade union membership

Yesterday I showed this graph during a talk at the SERTUC (the regional trade union council covering London and south east and eastern England). In my view it shows the effect strong trade unions have as a force for equality.

The original chart is one that appears in my book (without the added black line and right hand side vertical axis). It is borrowed from Professor Danny Dorling and shows how the incomes of the richest 1% (orange line) consistently declined from nearly 20% just after World War One down to around 6% in late 1970s.

So the elite had seen their share of the nation's income fall by two-thirds. Instead of grasping 18 times as much as the average person, by the time Harold Wilson was passing over power to Jim Callaghan the elite was having to scrape by on only 6 times as much.

As you can see the orange line has an inverse relationship with the black line - the level of trade union membership, which peaked in the 1970s at around 13 million.

But look at what happened post-1979, there was a sharp reversal of fortune ... and the rich amassed one. In just 30 years, 50 years of progress had been reversed. And the similar post-1979 reversal in trade union membership (the black line) shows how they did it.

It was a deliberate aim of the Thatcher government to attack unions. As her longest serving chancellor, Nigel Lawson, confided in his memoirs:
"a reduction in union power was an important aim of Conservative policy even though it was couched in language of checking abuse, democratising procedures, and so on."
Anti-union laws were as regular throughout the 1980s as welfare reform bills have been since the 1990s. The effect has been dramatic:
  • today there are only half as many trade union members as there were 35 years ago
  • while 85% of workers were covered by collecive bargaining agreements in 1979, today that figures is around 35%
  • unemployment was never above 1 million from 1945 to  1978. Since the early 1980s it has never been below 1.5 million
Much recent political commentary has focused on the recent sharp decline in wages, but this is only an intensification of a much longer term trend. In the mid 1970s, UK wages were worth 65% of GDP. Today that figure is less than 55%. Conversely the rate of corporate profit has increased from 13% to 21%.

The attack on trade unions is only one part of the story - but it is a major part of the reason why inequality has grown in the UK, why poverty, and particularly in-work poverty, is growing.

This has meant the rising burden of living standards is now paid for by the state - through tax credits and housing benefits. Whereas unions used to squeeze better deals out of employers, now the state subsidises low pay and corporate profit margins.

There could be no easier way for an incoming Labour government to reverse these trends than to strengthen the hand of trade unions.

Wednesday, 16 July 2014

The solidarity cycle

The chart below (from the Office for Budget Responsibility) may look fairly bland, but to me it is the illustration of all that is right with the UK welfare state: a cycle of solidarity

In this cycle those of working age fund the young and the old who are unable to work - and with the knowledge that those older did the same for them when they were young and when they are old today's young will do the same for them.

This chart also reflects the role the state plays in helpfully budgeting for us through our life cycle. It invests in us in our early years, then we invest during our working lives. When that time ends, again the state (in red) picks up the slack and ensures our needs are met.

That is why so many of us are passionate in defending the welfare state and public services, because we understand that this system is mutually beneficial to all: a cycle of solidarity - and long may we keep peddling that cycle.

Tuesday, 8 July 2014

Are we reaching the TTIPing point?

Andrew Fisher, author of The Failed Experiment ... and how to build  an economy that works, on the trade agreement that threatens us all

Fourteen years ago I read the excellent Captive State - The Corporate Takeover of Britain by George Monbiot. I was entering my final year of my undergraduate politics degree, and Monbiot's masterpiece (still his best book to date IMHO) was massively influential both on me and on many other young activists at the time.

Chapter ten of that book was the story of the Multilateral Agreement on Investment (MAI). It confirmed everything I instinctively knew. This was the exposition of a conspiracy to subjugate democratic rights to corporate greed - and the politicians connived in it.

MAI was defeated by movements around the world, and an by an effective veto by the French. But attempts to resurrect the agenda piecemeal continued through the World Trade Organisation (WTO) and the proposed Transatlantic Economic Partnership.

Fast forward fourteen years and that agenda is back with a vengeance, newly branded as the Transatlantic Trade and Investment Partnership (TTIP). The protagonists are the same, a corporate-driven agenda to elevate the right to make corporate profits above any democratic accountability, delivered by the US government and the European Union - pushed most enthusiastically by the UK government. For Clinton substitute Obama, for Blair substitute Cameron - different puppets with the same corporate paymasters.

Those attempting to cast this as the evil EU negotiating away our democratic rights have to concede that the greatest cheerleader for TTIP in the EU has been David Cameron, who claimed the deal would "bring £99 billion a year to the EU, giving an average family of four in the UK an extra £454 per year". A dubious claim presented without supporting evidence (refuted by WDM). If we look at the details of TTIP, they bear an uncanny resemblance to Cameron's agenda in government.

The proposals contained in TTIP would:
  • Remove regulatory barriers to trade - including environmental safeguards, labour standards (including trade union rights and health & safety), and food safety standards 
  • Liberalise procurement in a whole range of public services - effectively opening up the NHS and other areas to unrestricted privatisation by global corporations
  • Allow global corporations to sue governments if they believed their profits would be harmed by government decisions - with decisions made by a secret tribunal

This time a brilliant book, The Poverty of Capitalism, has been written in advance - outlining the corporate trade agreement agenda - and War on Want's John Hilary deserves huge credit (see our review here).

There is again a global coalition of campaigning organisations, activist groups, and trade unions organised to oppose the agreement, including War on Want, the World Development Movement, Friends of the Earth, the People's Assembly and UK Uncut. They also include the unions that fund Labour: Unite, Unison and GMB all vocally opposed, as are the influential non-affiliated campaigning unions NUT, PCS and UCU.

If Ed Miliband really opposed predatory capitalism, he would be shouting from the rooftops about the trampling of people's rights under the corporate jackboot that is TTIP. Yet the Labour leader and the frontbench have been silent.

So could the great redemption again come from France? If Hollande's repeated capitulations since his election are anything to go by then shouldn't place our oeufs in the French basket.

We are reaching the tipping point in the battle between capitalism and democracy. So ...

Take action:

Further reading:

Economists, trade unions and City chiefs slam financial sector corporate governance

British finance told to ditch its obsession with short-term returns and recognise workers’ contribution to the economy, writes CONRAD LANDIN in the Morning Star

Economists, unions and City chiefs have joined forces to press the finance sector to ditch its obsession with short-term returns and recognise workers’ contribution to the economy.

In new book Beyond Shareholder Value, TUC leader Frances O’Grady joins the Fabian Society’s Andrew Harrop, the Institute of Directors’s Roger Barkers and others in slamming the City’s current system of corporate governance.

Proposals include tightening rules for takeovers and changing taxes to encourage longer-term share ownership.

The writers call for a move away from shareholder value, the practice of measuring companies’ success on the basis of how much shareholders are enriched. 

Ms O’Grady said it was clear that the clear that the “appetite for reform is growing from across business, workers and wider society.

“Corporate governance may be considered a niche issue best left to the City. But when the prize for a more rational system is sustainable economic growth with more jobs, higher incomes and greater profits, it’s an agenda that should command support from across the political spectrum.”

Left Economics Advisory Panel’s Andrew Fisher, author of The Failed Experiment, called for more radical workplace reforms to the corporate system. 

He said: “The failure of corporate Britain to generate high-skilled, well-paid, secure jobs as part of a stable economy is in large part due to the growing imbalance of power — with tax changes, deregulation, liberalisation and weakened trade union rights all contributing.

“We need to empower workers to democratise their workplaces with new economic rights — including to co-operativise their company on a straight vote. We need to euthanise the rentier.”

Saturday, 5 July 2014

GDP - Greatly Distracting Piffle?

There's a brilliant discursive piece by David Pilling in the Financial Times (registration required) about gross domestic product (GDP), which draws on some excellent research and economic philosophising by (among others) Ha-Joon Chang, Diane Coyle, Jeremy Rifkin and Robert Skidelsky.

The piece looks at the severe limits of GDP as a statistical construct, and a pretty arbitrarily and dubiously constructed one at that. It also questions the measure's dominance. As Pilling puts it:
"Gross domestic product has become a ubiquitous term. It is how we measure economic success. Countries are judged by how much they have of it. Governments can rise and fall according to how effectively their economies create it ...In fact, the more you delve into the whole concept of GDP – one of the most centrally important ideas in modern life – the more slippery it becomes."
GDP is indeed "ubiquitous" and has also became hegemonic but, as the financial sector crash should have taught us, quality is sometimes more important than quantity. A point made by Diane Coyle whose new book looks at GDP, and who backs a more diverse range of measures.

Is the tide turning? The return to GDP growth may be fuelling George Osborne's hyperbole about a recovery - but to many people it rings hollow, precisely because of its failure to tell us what really matters to us - confirmed by other data that shows most are still worse off.

As Andrew Fisher puts it in his new book The Failed Experiment ... and how to build an economy that works,
"... instead of measuring badly what matters less, why not prioritise measuring what matters most: the change in average living standards, whether inequality and poverty are reducing or increasing, and whether unemployment is up or down. In a civilised society these things matter more."

Thursday, 3 July 2014

Germany becomes a minimum wage nation ... and immediately embarrases the UK's poverty wages

A little over a year ago we posted a popular piece on the national minimum wage and its relatively low level compared with that in other OECD nations (which the PCS union infographic below demonstrates).

At that point, Germany did not have a minimum wage, but today that changed with the news that one would be introduced from 1 January 2015 at a rate of €8.50 per hour.

By then the UK minimum wage will be have increased in October 2014 from its current £6.31 to £6.50. In a straight conversion the UK minimum wage is €7.95 now and will rise to €8.19 in October. So from January 2015, a low paid German worker will receive nearly 4% more than their UK counterpart.

Eurostat compiles data on EU nations' minimum wage rates (data here) and finds that Belgium, Ireland, France, Luxembourg, Netherlands all have nominally higher national minimum wage rates than the UK (as will Germany from January).

However, such a nominal comparison does not reflect differences in the cost of living, and differences taxation rates and additional social security available to workers in different countries.

The above infographic reflects the minimum wage relative to the average wage in each nation (and therefore as a marker for relative poverty).

But however you measure it, the UK minimum wage is low - which is why there is a  growing prevalence of in-work poverty - and so it's welcome that Ed Miliband stated today he wants to raise the minimum wage over the course of a parliament, in real terms.

As per Labour's already announced plans to increase and encourage the coverage of the living wage - including through incentives to companies - increasing the minimum wage in real terms would be partially offset by increased tax take and falling payments of tax credits and housing benefit.

The reality is that we are increasingly nationalising pay, because the private sector is failing to pay a liveable wage to workers. The best bulwark against this exploitation is not tax breaks or even welfare, but strong trade unions able to enforce collective bargaining rights. A big society solution underpinned by a legal framework that unshackles trade unions.

As Spirit Level authors Richard Wilkinson and Kate Pickett write in a new publication for Class, "strong unions are key to tackling inequality."

Tuesday, 1 July 2014

We all need a pay rise!

Andrew Fisher, author of The Failed Experiment ... and how to build an economy that works, looks at the coalition government's ability to increase poverty ...

Today the DWP and ONS published data on Households Below Average Income (abbreviated to HBAI data by wonks).

Overall, after housing costs, 21% of UK citizens (13.2 million) are in relative poverty. The HBAI categorises nearly all its data into before housing costs (BHC) and after housing costs (AHC).

While the distinction can be statistically interesting, for the very simple reason that most people live in housing as a necessary part of their existence I concentrate on AHC data in this post. This shows that 23% of working age adults are living in poverty - the highest level since 2000.

And if you look at the chart below, it's not hard to see why poverty has increased: real terms incomes have fallen dramatically since 2009/10 - and are at their lowest for 12 years.

This dramatic fall in incomes - down 8.5% in real terms since 2009/10 - gives some context to why nearly 1.5 million workers (from Unison, GMB, Unite, PCS, NUT and NIPSA) are taking co-ordinated strike action next week (10 July) over pay.

There's bad news on child poverty too - 27% of children (3.7 million) live in relative poverty in the UK, up 100,000 in last year. And Save the Children predicts this could balloon to 5 million by 2020.

There's even worse news for disabled people - which is hardly surprising given the attack on the social security system (including ESA, PIP and bedroom tax). After housing costs, 4.7m people in households with at least one disabled member live in relative poverty - up 300,000 in the last year. Even BHC, the report tells us that "the percentage of individuals in absolute low income in families where at least one member is disabled up from 20 to 22 per cent".

And while pensioners are actually the group least likely to be in poverty, the report also notes "there was a small increase in the percentage [of pensioners] in absolute low income since 2009/10".

Who'd have thought that cutting benefits, freezing pay, hiking VAT, and allowing house prices to rise would send more people into poverty?

But it's not bad news for everyone - the richest 1000 Britons increased their wealth by £70 billion in the last year alone.

So support the 1.5m workers striking to get a fair pay rise on 10 July.

Big accountancy firms have a human rights problem

Professor Prem Sikka on the battle capitalism wages against democracy

Protest and dissent are the foundation stones of modern societies and have helped secure a measure of democracy and human rights. Against all the odds, ordinary people have struggled to secure universal suffrage, equal opportunities, rights for women, rights to education, healthcare, pensions, protection of minorities and much more. Eventually, these achievements paved the way for the Universal Declaration of Human Rights which is adopted by every nation. These rights include the “right to freedom of opinion and expression”.

People in Hong Kong have recently chosen to exercise their human rights by organising an referendum on democratic reform. China has said local residents will be able to select their leader in the 2017 elections. However, candidates will be chosen from a list approved by an autocratic politburo – campaigners instead want the public to directly elect the territory’s next leader.

The so-called “Big Four” accountancy firms aren’t pleased. In an unprecedented move KPMG, PricewaterhouseCoopers (PwC), Ernst & Young (EY) and Deloitte & Touche have jointly taken out press advertisements in Hong Kong newspapers to oppose the people’s referendum. They claim the protests will persuade multinational companies to leave Hong Kong.

Enemies of the people

These adverts show the length to which big accountancy firms go to cultivate profitable relationship with authoritarian regimes. Big accountancy firms were among the foremost supporters of the apartheid regime in South Africa and have been accused of appeasing Nazi Germany just before the outbreak of World War II, sending a special delegation to cultivate a profitable opportunity.

Without tax revenues, no government can meet its human rights obligations. These include the citizens’ right to education, healthcare, housing, pension and security. Yet accountancy firms have developed a vast organisational infrastructure designed to empty the public purse.

Last year the Big Four firms became the subject of a hearing by the UK public accounts committee. Just before the hearing the committee received evidence from a former senior PwC employee stating that within the firm the policy was that it would sell a tax avoidance scheme which had only a 25% chance of withstanding a legal challenge. As the committee chairperson put it “you are offering schemes to your clients – knowingly marketing these schemes – where you have judged there is a 75% risk of it then being deemed unlawful”. The other three firms happily admitted to “selling schemes that they consider only have a 50% chance of being upheld in court”.

Laws do not seem to deter the big firms. KPMG paid a fine of US$456m after admitting criminal wrongdoing and fraud which generated phony tax losses for its clients. It also collaborated with Barclays Bank to mass market a tax avoidance scheme to several corporations, including AIG, Microsoft and several major financial institutions. Last year, the scheme was declared unlawful and the presiding judge said that the conduct of those involved in this and other transactions was “nothing short of reprehensible”.

In May 2012, a BBC Panorama documentary showed how PwC devised schemes to enable multinational corporations, such as GlaxoSmithKline and Northern & Shell, to move profits to offshore tax havens via Luxembourg and avoid corporate taxes. A PwC inspired mass marketed tax scheme was struck out by the courts last year and HMRC said the scheme had “43 followers, with £87.7m of tax at stake”.

Ernst & Young was reportedly once described by the UK’s senior tax collector as “probably the most aggressive, creative, abusive provider” of tax avoidance schemes. In 2013, Ernst & Young paid a fine of US$123m to resolve tax fraud allegations by the US authorities. The firm admitted wrongful conduct by certain partners and employees. Google, a well known tax avoider, has been advised by the firm. When the Public Accounts Committee asked for details of the schemes, Ernst & Young refused to co-operate and hid behind its duty of confidentiality to the client.

Banks may have been bailed out by taxpayers, but bankers don’t like paying taxes. Deloitte & Touche designed a scheme to enable staff at the London office of Deutsche Bank to avoid income tax and National Insurance Contributions on bonuses adding up to £92m. The scheme was declared to be unlawful by courts and the judge said the scheme “as a whole, and each aspect of it, was created and coordinated purely for tax avoidance purposes”.

In 2013, Deloitte paid a fine of US$10m and was also suspended for 12 months by the New York regulators from undertaking consulting work at financial institutions. This arose out of regulatory action against Standard Chartered Bank for violating US sanctions on Iran, Burma, Libya and Sudan. Deloitte was asked to oversee the implementation of an anti-money laundering programme, but leaked confidential information to the bank.

The above is a tiny glimpse of mounting evidence showing that major accountancy firms prevent million of people from enjoying their human rights. The intervention in Hong Kong simply represents a particularly obvious example of a wider trend.

In many other organisations such subversion of the human rights would be considered to be a badge of shame. At major accountancy firms it is increasingly considered to be a sign of business acumen.