If G Brown saved the world why can’t he save himself

29 09 2009

images[8]What an ungrateful nation we are. New Labour has poured billions into public services over the past ten years. More recently, Gordon Brown claims to have saved the world during the financial crisis by bailing out banks and cutting VAT. Yet Labour is trailing in the polls and its Conference is a dire affair, devoid of politics, deserted by the lobbyists, destitute of any idea of how to stop the tailspin the party is in. It would be a hard hearted person who could not take pleasure in that.

Many blame Brown’s personality for all this. His dour demeanour and inability to communicate effectively are turning people off. Yet if we examine Labour’s record it is easy to see why this is a political problem of Labourism rather than the fault of one individual-however unattractive he may be.

Over the past ten years Labour had a tremendous amount of luck, as Tony Blair now admits. It took advantage of the huge global growth in financial services, based in the City of London. The City was a successful financial centre because of the ‘light touch ‘ regulation begun by Margaret Thatcher and encouraged by Brown himself. This is the same ‘light touch’ , by the way, now blamed by many for the crisis itself.

The boom in the City enabled Labour to extract huge amounts of tax which it spent on public services, particularly the NHS and education. During the same period Labour ceased to be a political movement in any traditional sense . It cut itself off from its traditional working class  roots in societyand became instead a narrow managerial clique.

Labour’s continued popularity became largely based on its ability to continue to fund the expansion of public sector jobs and services. The problem with this is twofold. Firstly, it assumed a continuing growth in the main source of the the UK’s wealth, the financial sector. After the financial crisis that is no longer assured.

Secondly, Labour’s relationship with the UK population was based upon the successful delivery of services. Yet there is still widespread dissatisfaction with health and education provision and a general sense that the money has not been well spent. There is a broader isue behind this which is to do with the way in which we have become a mass of service consumers rather than an active and engaged polity. This is the flipside of the way that Labour has become detached from society.

The decline of Labour as a representative political party has created a kind of politics based on consumer satisfaction surveys and market research. The Tories are ready to carry this on so we should not expect very much change even if there is a change of government. The Tories are also hamstrung by the fact that they will not have the same ready access to tax revenues that Labour had.

Labour was lucky, now its luck has run out. From an economic point of view the biggest mistake made during this period was to spend the windfall from the City on consumer services rather than investing in upgrading the UK’s infrastructure on a wider scale. Better roads, railways and more nuclear power stations amongst other things would have left a longer lasting legacy.





Finding water on the Moon, an inspiration to us all

24 09 2009

moon1Readers of this blog will know that I have a deep interest in space travel. (Although I am not terribly good in aeroplanes so I cannot imagine I will be first in line for a moon trip). So it was exciting to read this morning that an Indian space probe appears to have discovered water on the Moon.

NASA has plans to build a permanent manned colony on the Moon within twenty years, although the Obama regime has been pouring cold water on these plans as the country’s economic crisis has deteriorated. If the plans were to go ahead then the presence of water would make a huge amount of difference to the viability of a permanent presence there. As today’s report indicated, availability of water would not only provide drinking water and enable crop irrigation but also permit the extraction of oxygen for breathing and hydrogen as an energy source.

A second reason for being excited about this discovery, if it is verified, is that it was made by an Indian lunar mission, its first in fact. As an emerging nation India has jumped ahead in the exploration stakes, not only of the US but also its main emerging rival, China. How inspiring it must be for the Indian people to know they are responsible for this discovery.

It is the inspirational aspect of space travel which is probably the most important aspect of it. As John F Kennedy understood, space travel has many potential economic benefits and acts as a huge boost to innovation, but its capacity to uplift and inspire stands above all of that. For an emerging country like India this success will encourage developments in other areas of life. It gives everybody a lift.

It may also be a harbinger for the 21st century in other ways. The inclusion of China and India in the G20 intergovernmental talks this weekend, and the raised status of this grouping, show how quickly emerging nations have become central to the governance of the world. The emerging rivalry between India and China, added to the international cooperation which the space programme demands, could give space exploration the edge which the rivalry between the US and the Soviet Union did in the last century. That rivalry pushed technology to its limits and landed men on the Moon. Perhaps this time we will cast our net far deeper into space.





The cuts ‘debate’, dumb, dumber and dumberer

22 09 2009

A4PFSW8CAUKKZTSCA6U26I5CAOIW9TQCA7JXEVACAUDPMGWCAZGBJLQCAF8443HCA2LH38PCASMAT7FCA6NTCQ9CAC0J7EACAFICEB6CA8BB0GACAZNP1EJCA25DXN8CA6PNK19CA06HHYVCA4H06MZCA09WITTOn October 31st I shall be debating with Lord Skidelsky and others on the subject of economic growth at this Conference. It will be a great relief to be having a discussion about the key question of the times with Keynes’s main biographer rather than listening to the so called ‘debate’ on cuts in public spending which is now dominating politics.

After a long period in which all parties were in a state of denial about the public spending deficit, each is now desperate to show they are more fiscally virtuous than the last. The ridiculous Nick Clegg has now called for ‘savage’ cuts and I am sure that the Tories are browsing the lexicon of violence to find a suitably bloodthirsty description for their own cutting plans. This bravura posturing on cuts is just as useless as the period of denial which preceded it. Neither addresses the real issues at the heart of the crisis of the UK economy.

As I and others have pointed out on this blog before, there are no doubt areas of the state we can do without-the latest being the Independent Safeguarding Authority which would vet all contact between adults and children not their own. In other words there are sometimes good political reasons why some public spending programmes should be cut.

On the other hand there are areas of the state which we need and which should be doing their job much better with the funding they have. Education and health are the two most obvious areas. These require more effective leadership and execution, not less spending, in order to make them more satisfactory.

The recession has created a massive public spending deficit, which is likely to get worse. Tax revenues are falling as unemployment rises and the unemployed become a burden on the state. This is an indictment of the market economy which renders many millions of people surplus to requirements at regular intervals. This is the real problem we face, how to create an economy which fully utilises the productive energies of its people.

There are many things that politicians could be doing to encourage future economic growth. But these would require a hard look at the nation we are and what we want to become. It would mean planning where we want to be in 25 or so years time and then making the necessary investments needed to get there. It would mean, amongst other things, challenging current anti-growth and anti-science sentiments to push through nuclear power station building programmes and road and rail building.

When ‘Dave’ Cameron talks about a broken Britain he believes he is talking about other people, the underclass in particular. But the part of Britain which is most broken is the political class and its ability to lead. For the past ten years it has been allowed to coast because of the financial bubble, all the hard choices could be put off. Now it is faced with a problem which will not go away, it owes money to people who will want it back. Nothing in the experience of modern day politicians has prepared them for this. One can even be sceptical about whether the rhetoric on cutting public spending could ever be turned into reality because of this weakness and lack of conviction.

All the bluster about ‘savage’ cuts does not remove the fact that the British elite has no real plan for the UK economy which goes beyond hoping the financial sector will revive. The debate which should be taking place is about how we can grow our economy out of recession. This is the one we will be having on October 31st.





After Lehman-another year older and deeper in debt

17 09 2009

images[10]The anniversary of the collapse of Lehman brothers has provoked an orgy of retrospective comment. I hesitate to call it analysis because, as Charlie McMenamin has pointed out, the striking thing about all the comment has been the lack of any concensus even on what to call what has happened, let alone to provide an explanation for it. Everybody from President Obama downwards is saying that there can be no return to business as usual. Yet in the absence of any proper understanding of what happened business as usual is precisely what we will get.

If there is one emerging theme to the discussion it is that the whole thing is the product of aberrant human behaviour. In other words, there are no rational economic explanations for what happened, it is simply the product of human greed and irrational behaviour. The influence of economic behaviouralism is now making itself felt in most discussions of the recession and its causes. This approach was summed up in a  recent article on the credit crisis in the New York Times which ended with this comment,

“Ultimately, bubbles are a human phenomenon,” said Robert Shiller, a Yale economics professor and Cassandra of the current crisis. “People just get a little crazy.”

And what do crazy people need? More supervision, more regulation and tighter control of course. That is why the main thing that governments are focussing on is to try to rein in the greedy bankers by regulating what they do and their bonuses more closely. The deeper reasons for the recession are being virtually ignored. One severe consequence will be that the short term managerial approach to our economies exemplified by the last ten years of bubble economics will  be enhanced while any prospect of longer term strategic planning will diminish further.

Meanwhile it is worth reminding ourselves that in the real world the recession has taken and continues to take a terrible toll. As Mervyn King has helpfully pointed out, the end of recession does not compensate for the loss of output, the real drop in the wealth within our societies. In the UK we are only now beginning to experience this in the shape of higher unemployment and less money for public services. The OECD is predicting that a further 25 million people in high income countries will lose their jobs by next year and the World Bank that 90 million people will be pushed into extreme poverty in the developing world.

World trade is still severely depressed. There is evidence of the strengthening of protectionist tendencies, expecially in debtor nations like the US. The central problem of the imbalances between the developing and exporting nations and the rest of the world remains exactly as it was when the financial crisis started. All that has really happened over the past twelve months is that the financial system has been protected from bankruptcy. A symptom of the problem, excessive dependence on the financial sector,  has been taken for the cause, the loss of productive  economic activity in countries such as the US and the UK.

Diminished belief in the rationality of the market does open a small window of opportunity. It is not possible to plan capitalist society, but the weakening of an intellectual justification for the market opens the door to the possibility of thinking about what the advantages of a planned economy in a democratic society would be compared to the short term, chaotic character of modern capitalism.





Why has there been no social response to the recession?

15 09 2009

images[2]When Lehman brothers collapsed a year ago, a credit crunch turned into a full blown panic. The result has been recession and a collapse in world trade. But there the similarities (with the thirties) end. Growth is returning. Stock markets are booming. Democratic government survives.

Today’s Times editorial sums up the mood of many in the elite after a turbulent year. It has been tough but capitalism survives more or less intact. Perhaps the most striking aspect of this recession has been the lack of any serious questioning of the market system, despite the negative impact of unemployment and the collapse of world trade on millions across the world.

In the past, recessions have been met with widespread social disorder, even in developed countries. In the thirties of course the recession played a big role in the rise to power of Hitler and the Nazis. But even as recently as the  early eighties there were  large scale strikes and riots  in the UK which had an economic background to them. Why is it that this recession has been met with quiescence across the world?

During the summer I read Tristram Hunt’s biography of Engels. The most poignant section dealt with the forty years or so that passed after the 1848 revolutions in Europe which helped to inspire Marx and Engels to develop their critique of capitalism. For most of this time the two revolutionaries, Marx in London and Engels running the family firm in Manchester, wrote letters to each other pointing out what they hoped were signs if incipient insurrection around the world. A strike here, an outbreak of political radicalism there, all enough to raise hopes that something big was about to happen. In fact they were living through a period of relative social peace as capitalism began to expand around the world. How many times must each of them pondered on Marx’s profound words from 1852

Men make their own history, but they do not make it as they please; they do not make it under self-selected circumstances, but under circumstances existing already, given and transmitted from the past.

We appear to be living through a period of history in which the question of profound social change is no longer on the agenda. Does this matter? Most people in the world are much better off than ever before. Even in India, China and other traditionally poor countries living standards are rising, although from a very low base.

Yet there is a profound sense of unease running throughout western society. It is not the spectre of communism which is haunting Europe, but the actuality of capitalism. Many people now feel uncomfortable with the benefits which it has brought with it. The French government is leading the way in trying to replace the traditional yardstick of progress, economic expansion or GDP, with a ‘happiness’ index. This is part of a broader backlash against materialism and economic progress exemplified by the influential Green movement. Even in a recession, when many people in the west have experienced directly the misery that comes from lack of jobs and money, these voices have not been stilled.

It would be a terrible thing if mankind turned its back on material progress while so much remains to be achieved in raising living standards around the world to a tolerable level. Marx and Engels objected to capitalism because they did not believe that it could raise the living standards of all in a consistent way andf that it was prone to violent crises. We have seen their critique vindicated once again in the current recession. The truly radical approach today is to insist on the necessity for continued economic growth, and to deal with any obstacles to that. At some point this may mean that people begin to question the ability of the market to deliver that growth and a search for alternatives can begin again. But at present the most important thing to do is to challenge the anti-growth sentiments which are occupying the hearts and minds of many.

It was only at the end of Engels life on the last decades of the 19th century that the new socialist movement began to make itself felt in the world. History does not run in straight lines and is not predictable. Neither does it repeat itself and we should not be deluded into thinking that the mass socialist movements of the past will reappear. But neither should we think for one minute that human social history is over. As long as we want things to change then we can make them do so-but not necessarily in circumstances of our own choosing.





What is ‘socially useful’ work?

10 09 2009

work[1]Lord Turner of Ecchinswell, an influential figure in the reform of banking rules in London and beyond, said that the City had grown “beyond a socially reasonable size”, accounting for too much of national output and sucking in too many of Britain’s brightest graduates.

“I think some of it is socially useless activity,” he said, adding that the financial sector had “swollen beyond its socially useful size” and seemed to make excessively large profits.

There are actually two distinct things going on in Adair Turner’s statement. Firstly he is saying that the UK financial sector is disproportionally too big for the UK economy, that it is ‘beyond a socially reasonable size’, an issue which we have debated on these pages before.

His second argument, that some aspects of financial services are not socially useful is slightly different. This plays to the idea that there are some kinds of jobs which are socially useful and others which are not. Michael Skapinker took up this aspect of the discussion in a column where he pointed out that

The division of work into “socially useful” and “socially useless” was a particular preoccupation of the post-Woodstock generation. Teaching, trade unions and public interest law were good. The oil industry and investment banking were not.

So should we oppose the financial sector on the basis that it is not socially useful? After all it is hard to see how arbitrage, the ability to shave earnings form tiny changes in exchange rates, for example, contributes much to the health, wealth or happiness of anybody other than the person doing it for a living.

The concept of ‘socially useful’ work is not itself very useful in understanding the nature of work in a capitalist economy. Businesses do not succeed or fail on the basis of whether or not they are ‘socially useful’. They prosper if they make profits and fail if they do not. The question of what specifically they produce is always secondary to the necessity of profit.

Having said that, it is also true that there needs to exist a demand for the products of any business. If there was no demand then the products of that business would be unsaleable. That is why even those  industries and professions which most people would not consider ‘socially useful’, such as the arms trade or estate agents, still do well, because their products are in demand.

Even the most arcane of financial products, such as the derivatives which lay at the heart of the financial crisis, existed because there was a demand from institutions which wanted to derisk their debt. The people who bought them did so because they thought it would make their investments safer. The fact that they failed to do this does not take away the rationality of the original impulse to buy.

Turner may have a point when he says that the UK economy has become too dependent on the financial services industry. As we have argued here before there is a danger that over reliance on financial services could backfire given the ease in which such an industry can be moved around the world. We may also chose as a nation to invest more in exciting new technologies because we think that they are more exciting and future oriented than financial services. But introducing the notion of ‘socially useful’ into the debate does not help to clarify what the real problems are.





Is the UK elite too soft to cut public spending?

8 09 2009

AP3JW14CAIC0UF9CAP1ZS3HCA08CDRACA06ZKDNCAO1S3HRCA2QEX80CAH39K4JCASTQ9QWCA6W1DG3CAT17RVCCA3R31ZVCAYORE6JCAP4TZJJCATQOWU7CADGR38OCA9AFAVJCA2EEGUBCAV998NYCAM0TUPO‘There is no one in the civil service with real hands on experience of fiscal hard times. They know they have to learn very fast.’

This comment from an academic who has been teaching civil servants about the UK’s economic past sums up some of the problems facing the UK political elite in dealing with its current economic black hole. In fact the civil servants who administer the state on a day to day basis are lacking in many of the qualities which enabled the UK to survive and prosper in the past, not just the experience of dealing with recession. One symptom of this has been the increasingly porous character of state institutions with leaks and whistle blowing becoming more and more prevalent.

More importantly, over recent years as expressed through the policies of New Labour, the state has become used to dealing with market research led, short term policies rather than longer term strategic ones. This is all fine when the issues concerned are trivial domestic political issues, such as drinking in the streets. The problem is that when a serious and profound problem does arise, the ability to respond effectively does not exist.

Now that such a deep problem, the recession, has appeared the state is confronted with an enormous problem with which it is ill equpped to deal. The price of bailing out the UK financial sector has been to create an enormous budget deficit. There are two main ways that this could be managed. One would be to mobilise the resources of  the state into stimulating new productive investment in order to grow the economy as fast as possible. But growth has become a dirty word in the UK unless caveated by the need for ‘green ‘ growth.  The UK economy, along with most of the developed economies, needs fundamental restructuring. New growth can only come out of the destruction of the old and out-dated. The kind of dynamic political leadership needed to push through such a programme simply does not exist.

The second way of managing the debt is more short term, and therefore more attractive to the UK elite, and that is to cut public spending in an effort to balance the books. Even this approach makes politicians of both main parties feel extremely uncomfortable. Both parties are casting around for the language in which to disguise the cuts both are planning to make.

As Frank Furedi has argued in relation to the Lockerbie affair, the UK elite has become so incoherent that it has become incapable of managing even the day to day affairs of government effectively. The UK elite has become soft and ineffective at its heart. One expression of this has been the fact that despite the huge amounts of money put into education and health over the past ten years these public services are still hugely inefficient and unsatisfactory.

The good news for public sector workers from all this is that no government, Labour or Tory, is likely to have the strength to push through the kind of public spending cuts which many now fear are necessary. There have only ever been two prior occasions when public spending has been substantially reduced, after the massive increases caused by World War 1 and World War 11. It is quite possible that only external pressure, from the IMF for example, would make this happen today. The bad news is that the inability of our political elite to do this shows it is equally incapable of taking the tough decisions needed to keep the UK on a growth curve in the longer term.