Are we all co-operative now?

5 10 2010

The co-operative movement has been around in one form or another for centuries, both in the UK and elsewhere. Its heyday was in the late 19th and early twentieth century and it now plays only a peripheral role in modern life. The most generous estimate of ‘employee owned businesses’ is stable at around 2% of GDP. Why then has there recently been a sudden resurgence of interest in common ownership?

In the past, small producers and working class people joined together in producer and consumer co-operatives to defend their interests in the face of a chaotic capitalist system dominated by big business. In addition, common ownership was seen by some as part of a peaceful and gradual move from the market to a more socialised economy. Even today the Co-operative Party, as an ally of the Labour Party, returned 28 MPs to the current parliament under the joint title of Labour and Co-operative candidates, including Ed Balls, one of the defeated leadership candidates.

But the current enthusiasm for common ownership does not come from those sectors of society who have traditionally seen common ownership as some kind of limited defence against capitalism, but rather it comes from within society’s elite. Indeed, even David Cameron is said to be keen on promoting common ownership as part of his ‘Big Society’. In other words, it is not a grassroots movement as it used to be, but more a top down strategy developed within the elite and proposed as part of government policy through state ‘empowerment’.

There are some critics who see some of the discussion of common ownership as an attempt to offload the responsibility for social provision from the state on to other sections of society. The proposals for more common ownership in the area of social services, for example, are in this view a cynical attempt to justify cutting state provision of social services as part of deficit reduction. While it is true that there is a congruence between arguing for a smaller state and the reduction of public spending it would be wrong to think that fiscal issues alone are at the heart of the common ownership revival.

The broader problem which common ownership proponents are trying to address is the overall loss of dynamism of British society and the consequent loss of authority of those who are running it. This  crisis of authority is most evident in politics but operates throughout society. It has prompted a search for new ways of engagement between leaders and led. The recession gave extra impetus to this but was not the initial cause.

The elites who run Britain are faced with a tremendously important paradox, that capitalism is both unpopular and unchallenged. Its unpopularity means that large sections of society oppose those elements of capitalist society which are the most positive, economic growth and human control over the environment. The fact that it is unchallenged, in terms of any alternative, leaves the mass of society powerless, passive and apathetic. The elite search for resolutions to these problems has created  pressure to find new ways to engage with and incorporate larger sections of a disaffected and cynical populace.

Workers control or shared sacrifice?

Does any of this matter when considering the pros and cons of more common ownership in our society? After all, arguing against the idea that people should have more ownership and control over their lives would appear perverse. What democrat could be against more democratic control?

 William Davies in his Demos pamphlet ‘Reinventing the Firm’, which focuses on the private sector, and Philip Blond, whose ’The Ownership State’ is about the public sector are the two weightiest contributors to the current debate. Davies argues that there are 4 interlinked reasons why common ownership has become important today:

1. The banking crisis

2. The longer term crisis of the UK economy

3. The crisis in public spending

4. The moral crisis of consumer capitalism

According to Davies these 4 crises all point towards a new model of social ownership.

Common ownership  can take many forms, with differing levels of ownership and control. The best known, John Lewis, has a structure which rewards staff out of profits, but offers only limited control over major decisions. There is some evidence that employees in firms with an element of common ownership identify more with the business and exhibit greater job satisfaction.

However, a major problem with private sector co-operatives from the employee point of view is that they offer no extra guarantee of stability or job security. Co-operative businesses enter the market in the same way as any business and are subject to the same market pressures and to the laws of profit. If they do not comply with these laws then the businesses will fail alongside their non co-operative competitors. This kind of failure was the fate of many of the workers co-operatives set up in the 1970s, such as the Meriden motor cycle cooperative formed out of the collapse of Triumph.

 Normal shareholders have the option of selling their shares if they sense the business is failing. Employees do not have that option. Employees may be better off without the extra worry that the equity they have in the business, along with their jobs, can disappear if the business fails. This is especially true if the ownership is separated from effective control of the company. The danger here is that shared ownership becomes shared sacrifice.

Should we be more co-operative in the public sector?

Philip Blond points to the advantages of common ownership in the provision of social provision as being better productivity and better services. He locates his argument within the context of a decay of civil society. In that sense his argument is attuned to Cameron’s view that the solution to the crisis in the public sector is the ‘Big Society’, the rebuilding of civil society as a buffer between the impact of the recession and the needs of ordinary people.

 Leaving aside for the moment the economic imperative for cuts in spending is there anything positive about the ‘Big Society’ in this regard?  There is something positive about community initiatives which bring together people to pursue local objectives, such as school improvements or community run nurseries for children. Calling this the ‘Big Society’ does not seem to me to make much difference. The people who do this will do it anyway and everybody else will continue their normal lives. The main way that this would change is if the provision of social services outside the state becomes a necessity, in other words if existing provision is taken away.

Any argument for changes in the way that social provision is made which begins from the premise that there will be less rather than more resources available would tend to  have an inherent austerity dynamic to it. Of course, just because something is cheaper does not necessarily make it worse. There is an inbuilt tendency for production goods, tvs etc, to get cheaper but without any loss of quality. Perhaps both businesses and services can become better and more efficient through the adoption of co-operative principles.

Measuring productivity in the public sector is a highly contentious issue. Philip Blond makes a lot of the Office of National Statistics’  estimate that productivity in the Public sector fell by 3.4% in the past 10 years compared with a rise of 27% in the private sector over the same period. Just quite how you measure or compare the productivity of a factory worker with that of a teacher escapes me. The commodities that a factory worker produces get cheaper because it takes less labour to produce them. Are we saying that a teacher should be judged by how much they can cut the time they put into their pupils, or a doctor into the general care of their patients for that matter?

This is of course where the plans to cut public spending come in. The danger is that if we buy into the co-operative model for social provision, how long before we are told that the old and infirm need to be looked after outside of state provision, or that community soup kitchens should feed the unemployed rather than them receiving unemployment benefit? Philip Blond offers some justification for this view when he argues that common ownership can compensate for low pay in the public sector. He also highlights the fact that voluntary carers save the treasury £87 billion per annum

The state provision of social services was the compromise outcome of a struggle between the aspirations of the working class for more security in their lives and the recognition by the ruling class that some measure of social welfare, usually provided at the cheapest possible level, was desirable for social stability and the maintenance of the workforce. The events of the past two years have shown yet again how easily capitalism can descend into chaos and how powerless individuals are to defend themselves when that happens. Common ownership is an attempt to paper over the huge problems that our society faces. It is a paternalistic policy which at best can only affect the fringes of our society whilst having no impact on the central problem, the stagnation of our economy and of our society.

*I will be debating the issue of co-operatives with Will Davies and others at this event

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Why should anybody oppose public spending cuts, and how?

18 05 2010

Naturally, nobody welcomes having services they benefit from taken away. The bulk of public spending, about 63% of the total, goes on health, education, pensions and social security. Everybody at some time in their lives will benefit from these services. The problem is that the current  level of government spending can only be sustained either by borrowing more money or increasing taxation.

The government, and most economists, believe that borrowing more money would push the country even deeper in debt, which would worry  those who lend us the money so much that interest rates would soar. Eventually, according to this argument, the loans would dry up and we would be faced with default and have to be bailed out, like Greece, leading to even deeper cuts. While we await the specific details of the new government’s plans to tackle this problem it looks inevitable that it will involve a mixture of higher taxes and some cuts in public spending. (For a full treatment of the background to this approach see Sean Collins)

Given the way that financial markets work, looked at in this way it is quite a plausible scenario. So how should we think about what will be in effect an austerity budget that George Osborne , the Chancellor of the Exchequer, will be producing in  a few weeks time? We could all simply take the view that we do not want our public services to be reduced at all.  It would certainly be a good thing if there was a more general opposition to austerity measures,  to any attempt to take this country backwards in terms of the quality of life.

However, in the absence of an intellectual case against the cuts, any such anti-cuts campaign will almost inevitably take the form of special case arguments, as has happened many times in the past. This can take many forms. A popular one is that management should be cut, not ‘shop floor’ workers. Another is that this or that other part of the state, usually defence or the civil service, should take the brunt of the cuts, rather than health, education or welfare. This approach does not oppose public spending cuts per se, but tries to divert them elsewhere. However this pans out, the result is job losses somewhere along the line and a net increase in human misery.

So is it possible, or even desirable,in the light of the undoubted economic problems facing this country, to make a case against public spending cuts per se?  Before we begin to answer this it is important to grasp one vital truth about public spending. All of it is financed out of the proceeds from private business, whether  industry or services,  through corporate or individual taxation. If these parts of the economy are struggling, as they are today, then the proceeds from taxation will stagnate. The current severe deficit problem was created because tax revenues fell in the past few years, not because public spending rose. While increased borrowing can make up for this increased deficit for a while, eventually the borrowing becomes too much and we are back in the Greece scenario.

So the real question about defending public spending is how to regenerate and revitalise the productive parts of the economy to the point where increased revenue from taxation, and therefore more public spending money, becomes plausible. That is why the most effective way of opposing public spending cuts is to argue for policies which encourage faster economic growth. Here is where we begin to part company with the government concensus about austerity. A key element of pursuing faster economic growth is for the state to invest more public money in science and technology education, in the encouragement of research and innovation and  in new infrastructure. This approach would involve some reorganisation and reprioritisation of public spending, away from consumption and towards investment.

Most importantly, the government must generate enthusiasm for a more dynamic economy and society. This would mean challenging the risk averse, pessimistic and therapeutic aspects of British culture. It would mean rejecting the view that economic growth should be green and sustainable, all code words for slow. It would mean restoring the pursuit of excellence as a goal of society and it would aim to bring out the best in people.





Will this be a jobless recovery?

6 10 2009

 

AUAFSC9CA3B1FKFCA8XU5EPCA777ZTDCAR59Y2VCASIJMODCALGU5QUCAMXXSGBCAB6JSZRCA8KMPKXCARPYO9JCA653CVZCA0PX1P5CAW6HNUCCAVKPXI4CA0ILQW3CA370OV9CA9IHIE3CA7MSGYCCAVC85EWBetween 1999 and 2007 manufacturing jobs in the UK fell from 4.5m to 3.3m. In the same period jobs in the financial and business services sector grew from 5.3m to 6.5 m, and jobs in the public sector grew from 8.4m to 9.9 m. The Financial Times claims that around two thirds of jobs created since 1998 have been in the public sector. Most strikingly, within that figure, of the 1.07 m jobs created in the public sector,963,000 were taken by women in health, education, social care and social administration. There are at least 10 areas of the UK, all outside London, where 40% or more of those working are in the public sector. 1

There is good reason to fear that whatever the eventual shape of the UK recovery it will not bring with it many new jobs. As a result we may have to live with a much higher level of structural unemployment than has been the case for the past ten years. The two main areas of job growth in the UK in the past ten years were across the public sector, particularly in welfare and education, and in financial and business services. None of these sectors is likely to play the same role in the next ten years, if for different reasons.

The public sector now looks as if it will be, if not necessarily cut back as severely as the bloodthirsty rhetoric might suggest, then at least contained. Financial and business services may stabilise but are unlikely to regain the dynamic growth of the boom years.

Neither is the long term decline in manufacturing jobs likely to be reversed. The UK’s role in manufacturing is predominantly in areas of high productivity with high skill levels. Even with more investment and more support and encouragement from government, which would be very welcome,  manufacturing is unlikely to add a huge amount of new jobs.

Both the Tories and Labour are proposing ways of trying to reduce unemployment, but these are mainly on the supply side, through for example attempts to get people off of sickness benefit. Forcing people back to work only makes sense if jobs are available for them to do, and at decent wages. The main effect otherwise is the traditional role of the unemployed as the reserve army of labour which helps to force down the wages of those in work.

The proposed extension of the retirement age to 66, although welcome for other reasons, will also have the effect in the medium term of adding to the ranks of the unemployed, particularly the young.

Unemployment is now nearing 8% of the adult population of working age. It is estimated that it will reach at least 3 million by next year. With benefits also likely to be squeezed this means misery for millions. This is the reality of the austerity plans both parties have in store for us.  Far more discussion is needed  about what kind of economy the UK could have which could gainfully employ the unemployed.

 

 

 

 

 

 

1 https://postrecession.files.wordpress.com/2009/01/whitepaper6.pdf

 

 





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.





The summer is over, what has changed and what needs to change?

2 09 2009

images[6]After a six week break I am returning to the fray, refreshed, reinvigorated and ready once again to try to make sense of the complex economic environment in which we live. The first thing to do is to draw up a balance sheet of what has happened in the intervening period before setting off into the future. So here goes:

1.As we explained back in May, while there are some signs that the technical recession, two or more quarters of negative economic growth, may be coming to an end, this does not mean that our problems are over. The financial crisis has to some extent been stabilised, but not resolved, through the massive and coordinated actions of central banks across the world. However the real impact of the recession is only now beginning to be felt. Unemployment is continuing to rise across the world and consumer spending is falling in most places. Real hardship is being visited on millions as a result.

2. The underlying causes of the recession have not been tackled,although there is increasing recognition in some quarters that this is the case and that we are storing up trouble for the future. The prevailing sentiment is that we should return to business as usual as fast as possible. While many see that there are problems with this approach, in the absence of any alternative plan this view will of necessity prevail.

3. There is an  intellectual void in the sphere of economics which is being filled by the irrationalities of the behavioural economists. The conclusion that many in the elite are drawing from the recession is that the view that the market is rational, which has prevailed for the past thirty years, can no longer be accepted. The problem is, as I argued in my review of a book by leading behavioural economists, that rather than this leading to a search for a more rational way of understanding and managing the economy, many are now saying that this proves that there are no rational explanations for human economic behaviour. This view and its consequences was summed up thus by Gillian Tett,

However, the unpleasant truth is that there is never going to be any complete intellectual system to explain how financial systems should work. ..That is not an easy idea to sell to politicians, voters or even regulators. After all, as Lord Turner points out, a world without a reliable compass is frightening, exhausting and time-consuming to navigate: “For the regulators of the world, once you have accepted that you don’t have an intellectual framework of ‘more market is always better’ you’re in a much more worrying space, because you don’t have an intellectual system to refer each of your decisions.”

4. In the UK the political parties are beginning to prepare for the next election in which the state of the economy is going to play a key central role. This discussion will take place in an  intellectual vacuum, or at best an intellectual climate in which the irrational is celebrated over the rational. The terms of the ‘debate’ will be over narrow issues, such as whether to call cuts in public spending ‘cuts’ (Tories)or ‘tough decisions on spending’ (Labour)

To sum up, we are entering a darker economic period with no intellectual framework nor any effective political leadership to help steer us through it. In these circumstances it is vital that more people focus on trying to comprehend the present as well as working out alternatives to what is on offer. This will remain the focus of this blog in the months before the next general election in the UK.





What future for business? Risk taking and innovation after the recession

8 07 2009

AR0UCTVCA3838BCCAIFF8UXCA19JEK3CAQ8BA1JCA74964FCA1VCLJNCA6PF3CECAA4KB0ZCAIM1R9SCAXA15DGCARAN6ALCADTF3IBCAR9Q12XCAKU4BXVCAYL6X9PCAR7T817CAP861NNCA1HBK90CAPC1B8MThis is an edited version of my speech at this last night.

Whenever there is a panic in society, for example around swine flu, I usually find myself on the side of those saying ‘calm down, its not as bad as you think’. I generally take the view that as a society we are too risk averse and liable to panic. However, as far as the recession has been concerned the opposite is the case.  The recession now appears to have been a bad dream about greedy bankers and corrupt politicians from which we are awaking. The concensus appears to be to forget about it as quickly as possible and get back to business as usual. I feel like Cassandra, condemned to tell the truth but to be disbelieved, because there is no ‘business as usual’ and here are three reasons why.

The first is that the damage done by the recession is deep and likely to be prolonged. I say the damage done by the recession rather than the recession itself because technically the recession, defined as consecutive quarters of nagative growth, may be over or almost over, but the damage will linger on:

  1. Unemployment is continuing to rise
  2. Toxic debt has not been removed from the system
  3.  Banks are not lending
  4. The securitization business, provider of investment finance, has disappeared
  5. World trade has collapsed
  6. Global capital flows have slowed dramatically

Secondly, for the UK there is no business as usual for three main reasons. For the past ten years financial services have been the main driver or the economy. there is very little chance that this will return. Also the crisis in public sector finance, affected badly by the reduction of taxation from the finacial services sector and the costs of propping up the banks, will mean big challenges for the public sector in terms of employment and services. Lastly our political class has run out of ideas and lost a large amount of authority. This will make any hard choices difficult for it to take.

Thirdly, real change in the economy will require inevitably some risk taking and more innovation. Yet even before the recession the UK had the lowest Research and Development and Venture Capital investment in the developed world. The recession, according to the Future Foundation, has made business even more risk averse.

We are culturally a safety first society. We view new developments in science and technology with suspicion and hostility. We are over protective to an absurd degree of our children and ourselves. Is it possible to imagine that this kind of attitude will foster and encourage a dynamic econopmy?

Take the banking crisis. We have capitalism which cannot stand on its own two feet and a state which cannot act decisively. The banks have been protected from their own recklessness by a state too feeble to either force them to face the market or to take complete control. Instead we have a half way house which allows the banks to stop playing their role as providers of credit. Some people see the banking crisis as an example of taking too much risk. But there is a big difference between taking a calculated risk and sheer recklessness and stupidity.  The creation of toxic debt began as an attempt to spread and minimise risk. It became reckless once the people buying the debt stopped checking on what they were buying. This was just plain stupid.

There is not one part of our society , business, politics, culture, which has not become more risk averse. The way to challenge it in the first instance is through politics, something anybody can play a role in. We have to renew our democracy as the prelude and the process of renewing our economy and our society.





Public Spending we could do without – your thoughts

17 06 2009
change-4-life

The government's anti-obesity campaign is a needless waste of our money and an intrusion into our private lives, according to one blog reader Jane Sandeman

The Chancellor Alistair Darling has declined to conduct a public spending review this autumn. This is in line with the government’s unwillingness to face up to the deep debt this country is in. There is no doubt that the best way out of this financial hole, as I have argued before is through innovation and economic growth. However, it is also true that there are whole parts of the state we can do without. There are also areas in which the state could be doing a lot more, particularly in enabling innovation and modernising the infrastructure of the UK.

Since I began this discussion there have been a number of very good proposals and some interesting ones. They range from the traditional left wing targets of Trident and ID cards from Charlie McMenamin to free market based changes from Julian Morris of the Policy Network. There are also a number of  comments which attack the various ways in which the state has intruded into private and family life, particularly from Jane Sandemanand Brid Hehir. James Woudhuysen reminds us that the education and health systems are now funding degrees in quack medicine. If you want to see all these and more in detail then go to the comments section on this blog.

Please feel free to add more suggestions and to comment on those already made. This blog will do its best to cost these suggestions up and put together an alternative public spending review based on the principles of economic growth, scientific and technical progress and personal privacy.

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