30 September 2009

Money system of last resort

In a system that relies on debt to create money, as capitalist money systems do, there is always a temptation for individual banks to take imprudent risks and be unable to repay their creditors. Because greed tempts bankers to destabilise their own business, and a run on the bank leading to bank collapse would undermine faith in the whole system, capitalist economies have a 'lender of last resort'.

The lender of last resort in the UK economy is the Bank of England. When banks hit sticky times they turn to the Old Lady for a shot in the arm, and she must oblige. This is exactly what happened last year, when banks had massively over-borrowed, they were loaned vast sums by the Bank.

You may be left asking where this money came from: who were the creditors? The answer is that, because there was no one left to lend money, the government itself acted as what we might think of as the 'borrower of last resort'.* When all else fails, a government can decide to create money by political fiat - the quantitative easing policy. And who do they borrow money from? The answer, I'm afraid, is you and me - and we are now being asked to pay this back through spending cuts, higher taxes and more work.

Leaving aside the question of whether the UK is really capable of paying back this level of debt without unacceptable suffering and civil unrest, let us consider for a while longer the concept of a borrower of last resort. When demand in the economy is so low that we are in a self-reinforcing downward spiral, as we are now, a capitalist economy requires the government to step in and borrow, just as it would expect the central bank to step in and lend to banks. So rather than cuts and austerity in the public sector we need to see borrowing and investment.

So far I have only considered the last resort in a financial sense, but what about the ecological crisis we are facing: the ultimate situation of last resort. Surely it is time for the government to act as borrower of last resort and produce a massive spending package to create the infrastructure and home renovation projects we need to achieve the carbon reduction targets that are now enshrined in law? Mad as it may seem, if you insist on creating money as debt, that is the only way that we are ever going to be able to buy ourselves a future.

*Thanks to Richard Douthwaite for this useful thought - and so many others.

26 September 2009

Time to Buy Gold

Once upon a time I was taught by Danny Blanchflower. No, I have never played football, I'm talking about the economist of that name - well his name is really David Blanchflower but he told us that only his mother still calls him that. He was moonlighting from his day job at the University of Guildford to teach we humble Open University students.

He was ambitious and found himself a job at an Ivy League College in the States. Some time spent on the other side of the Atlantic is an essential stepping stone to a successful career as an economist, and membership of the Monetary Policy Committee a proof that you have arrived. So Blanchflower is an entirely pukka economist - the fact that he has published his latest tirade against spending cuts in the New Statesman is more an indication of the pusillanimous behaviour by the mainstream media than that he is a radical outsider.

What Blanchflower is trying to say, or scream, is that the recession is not over. If you look at the figures this is clear. Just look at the one graph that I've included with this post. It plots a comparison between the Baltic Dry Index and the price of gold. The first is a direct measure of how much stuff is trekking around the world; the second a measure of investor fear. When the shit really hits the fan you should put all your spare money into gold (I won't charge you for that nugget of advice since I know that if you read this blog you don't have any spare money!).

Of course I also agree whole-heartedly with Blanchflower's critiques of the economics profession. I remember him as a fairly conservative person, who thought I was a crazed hippy, but he did ring alarm bells about the house-price boom and he did call for cuts in interest rates long before his fellows on the MPC - and at a time when they might have made a difference.

He thought I was naive, but I would like to repay the compliment. Is it not rather naive to expect economics professors and politicians to come out and criticise an economic system that is deliberately constructed to suit their interests? And even more so to think that either party will give a damn about youth unemployment and the psychological pain caused to a 'lost generation'?

The meeting of the G20 in Pittsburgh was apparently intended to address the imbalances and distortions in the world economy. But the vision does not seem to extend beyond talking about limiting the bonuses of bank executives and the media is dominated by headlines about Iran. In one sense this is not so illogical: another foreign war would boost economic activity for certain sectors and might well put some of our young people back to work - and remove others permanently from the risk of unemployment.

But genuine attempts to address the causes of the economic crisis are either not being made or not being reported. The elite leaders of global capitalism are still seeing their role as trying to persuade us that all is fine and we should just carry on shopping as usual. I wish Danny well in his attempt to appeal to a more democratic tradition, where we still felt our power might be expressed through the ballot-box rather than the credit card.

23 September 2009

Underwear Economist

I've always been the sort of person who wants to get to the bottom of things. When my book Market, Schmarket was published in 2006 I had included an exploration of the excessive focus on prices in modern markets and the way this led to an undermining of quality. I unwisely focused the discussion around the underwear market, specifically that for women's knickers.

Needless to say, this attracted more attention than the other 250-odd pages put together and turned me overnight into the underwear economist - the doyenne of the news in brief column. The article published in the Welsh national newspaper under the title 'Knickers to Global Capitalism' was proudly displayed on the board outside my office door for several months. I am even more proud to think that I may have played some small role in encouraging John-Paul Flintoff to embark on his personal spiritual quest that resulted in making his own y-fronts.

My services were put to good social use when a colleague who works for a charity working with street-sex workers in Bristol asked my advice on knickers that would be long-lasting and capable of dealing with some fairly rough treatment. My answer at the time was People Tree, although I have since discovered the intriguing campaign group Pants to Poverty and we also have the delight of Green Knickers.

It is clear that in this area, puns are as cheap as the underwear itself. But, if I can be excused, I think it is encouraging that such a fundamental item of clothing, and yet one that can so easily be hidden from the public gaze, has been the subject of such intense web- and soul-searching.

22 September 2009

Seeking In-Vestas in the Future

Our man on the ground at the Isle of Wight Vestas site (well, mostly up a tripod watching for coppers, as it happens) reports that the action to keep the wind turbines in this country is happening now and bodies are needed.

More information is avaiable from the workers' website

18 September 2009

Anticipating the Irrational

I have always argued with the neoclassical economists over the power of 'rational expectations', mainly because I don't think most human beings act according to rational impulses most of the time. For those who are not well versed in economics jargon, rational expectations theory suggests that many players in the economy - employees, employers, politicians, consumers, and so on - are making informed guesses about what will happen in the future and base their current behaviour on this.

An example might be somebody deciding not to put their house on the market because they think prices are likely to rise next year. Or employees demanding wage rises because they expect prices to rise, or accepting lower wages because they expect prices to fall. Clearly, there is a lot of politics at play here, since a media which manipulates public opinion may - if the rational choice theorists are correct - influence their demands in the free-for-all that is the capitalist conflict over economic value.

But what I notice at present is how those in the private and public sectors are behaving quite differently in an economic crisis. Now that unpleasant material is flying in all directions from the metaphorical fan, the private sector players - who are there because they are comfortable with risk - are exercising the utmost political pressure to gain advantage for themselves, primarily by refusing to play the game of fair shares (continuing to claim their bonuses) and scaring and bullying the government into subsidising this.

Meanwhile, those in the public sector - who are there because they are risk-averse - are anticipating cuts and radically reducing costs in preparation for cuts that haven't arrived yet. Thus in my university we are preparing to cut expenditure by 15% over the next three years, although no figures are available for investment in universities for next year. In other words our apparently 'rational' behaviour is itself causing a significant shrinkage of the economy, and guaranteeing an extension of the Recession, making it likely it will turn into a self-reinforcing negative spiral.

Perhaps this is unsurprising. Those who came with the theories about rational expectations were themselves academics. They live in a world of brainy, cautious, forward-looking types and they have simply modelled the world they know. It now becomes clear what deeply irrational behaviour this can generate.

Rational expectations grew from one basic assumption: people behave selfishly. This assumption is in itself self-reinforcing, since is is hard to behave with generosity and grace when everybody else is scrabbling for the fastest buck, and harder still when the prevailing ideology tells you that this is irrational behaviour.

University planners may feel more comfortable that we public-sector employees cut our own throats before politicians do it for us. But by causing such a massive shrinkage of the public sector - which should actually expand during a recession - they are guaranteeing that the Recession will be longer, deeper, more costly and more painful. Having worked in a university for seven years I would not have expected rational behaviour from the bureaucrats who dominate the higher education sector, but to see such short-sighted and self-destructive reactions is depressing indeed.

15 September 2009

PM Uses Three-Letter Word

Downing Street correspondents have reported today that the Prime Minister Gordon Brown was able to use the three letter word 'cut' for the first time. His closest advisors had been working for several weeks to bring about this development, which is now heralded as proof of the success of the government's education policies.

Opposition Leader David Cameron, who has been able to use the word cut for nearly two months, has poured scorn on this achievement, while government critics have argued that Cameron's precociousness is evidence of the superiority of the country's public schools.

Molly Scott Cato, who speaks for the Green Party on economics, has been using two words in conjunction for the best part of a year. The first word, 'can't', involves the sophisticated usage known as a contraction, while the second, again only a three-letter word, 'pay', nonetheless indicates a wide range of vocabulary for one so relatively inexperienced.

A group of unemployed graduates who were questioned suggested that the Prime Minister had actually been referring to the leader of the opposition when he used the word, and that it had been misheard and might, in fact, have actually included four letters. A government spokesman was unable to substantiate this rumour.

11 September 2009

Extraction of Value(s)

Two reports are published today that are implicitly linked, and yet I wonder how many media commentators will make that link explicit? The first is the lengthy and damning report into the buyout of MG Rover by the team led by John Towers. Known as the Phoenix Four, since the final collapse of the car company in 2005, their reputation has turned back into ashes.

Yet what we witnessed during the five years of scavenging, while the suited vultures stripped the value out of Rover was no different in type from what happens every day in capitalist business: the extraction of the value of workers' expertise, skills and commitment by a small number of people who have the control of capital. That's why the system is called capitalism rather than labourism.

Ok, in this case the scale of the rip-off draws public attention, and the fact that Rover was an inconic national company that had also received public support added to our interest, but the model is the same in every shareholder-owned business in the world.

Which brings me to the second report, published today by Demos, and called Reinventing the Firm, it presents a strong case for the movement of a much larger proportion of what is currently the private sector into some form of worker ownership. There are several strong arguments presented, an interesting one being the nature of current ownership. Since shares are now so commonly held by institutions (70% as compared with only 25% in 1963) power over companies is now distant, consolidated and purely profits-driven. Why should a pension-fund manager whose bonus and continued employing relies on delivering a fixed percentage return show any regard to the human or environmental consequences of his investment decisions?

The report also makes clear the significance of the broadly defined mutual sector of the economy, which has annual revenue of £84bn. and £476bn. in assets. This is a whole alternative economy and one which has performed better financially during the economic crisis, and routinely performs better in ethical terms. Demos cites an index of productivity performance since 1992 which shows that mutual companies have out-performed the FTSE by an average of 10 per cent over that period.

Worker ownership is not a panacea - we all know examples of people who merely exchange hiearchical exploitation for self-exploitation when they set up a social enterprise or co-operative - but it is certainly a model for reorganising corporate life that has demonstrable advantages over the limited liability corporate model. It is time that co-operatives ceased to be Britain's best-kept secret and moved into the mainstream of our economy.

10 September 2009

Old Lady Rampant in Stroud

We're nearly there. On Saturday I will be donning my father's old business suit and the bowler hat from my daughter's dressing-up box. I'll be heading down to Stroud's Threadneedle Street, with its very own Old Lady (Teashop) to launch the Stroud Pound.

Let's call it rivalry rather than competition, but the brief we gave our designers was to make our notes more stylish than the Lewes pounds, which we loved and secretly envied. They have certainly met this requirement and exceeded our wildest dreams. Four denominations will be available from Saturday morning with a mixture of local celebrities (animal and human) and scenes. This post will only be able to be adorned with one once the strict embargo is past.

Laurie Lee is our star character. There has been much interest in the local press, and we are delighted that his widow, Kathy, will be unveiling the note. She and her daughter Jessy were sure Laurie would have approved. His humanity and deep commitment to equality shine through his writing and must have been drawn from the Stroud valleys, which have been described as a red hand in the middle of Tory-blue Gloucestershire. Our local paper went so far as to say that the courage of the Stroud Pound Co-operative was akin to that shown by Laurie Lee when he went to fight for the Republicans in Spain. We blushed at the excessive compliment, but are delighted by the level of support that we have been given.

Starting a local currency is a deep learning experience. Clutching our own notes for the first time last night generated a mixture of hilarity and awe. As the past year has proved, money is right at the centre of our lives. It really does make the capitalist world go around. Just try to imagine what would have happened to your life if the high-street banks had seized up and your credit card had ceased to function last September. No cashpoints, no ability to pay in shops, very soon nothing in the shops. This is the vital role that money plays in a complex modern economy, and the money we are using has inequality designed into it. It is controlled by the very forces that are wreaking havoc on our planet. Making your own money gives you a chance to really change the economic system that is so all-pervasive as to be invisible and unquestioned.

I still have a wistful longing for Tom Paine, but, although he belongs to Lewes, his belief that 'We have it in the power to make the world anew' belongs to us all.

7 September 2009

The Gender of the Gift

This title really has nothing to do with the subject of this post - I just think it is such a great one I thought I would share it. And that is the theme of this post. In passing I might mention a discussion we recently had in an academic seminar that is relevant to this title, which belongs to a book by Marilyn Strathern. The subtitle is 'Problems with Women and Problems with Society in Melanesia' - it is social anthropology and if I read it I'm fairly sure I would not be able to understand, although it might give me a warm feeling that I was in good sisterly company.

The debate concerned whether or not gender is a significant designator of personhood compared with, for example, hair colour. During the discussion nobody could make a rational argument about why it was and I found myself in that embarrassing situation of not being able to avoid seeing the funny side when in a small group of people. I was assaulted by the mental image of several brown-haired women struggling to use a urinal. This is the sort of thing that passes the time in the academic day.

Strathern struggles with unquestioned assumptions that Western anthropologists make about Melanesian society - and Western society - in its attitudes to gifts and women. I have my own struggles with gift-giving - a result of my attempt to reduce my impact on the planet and my own personal trait for being exceptionally mean. I can never be sure which predominates when I do - or don't - buy gifts for friends whom I love dearly.

A friend who lives on bread and scrape recently gave me a gift which epitomises the truth of the adage that 'It's the thought that counts'. We'd been together at a workshop at Climate Camp Cymru. I was responsible for the fuzzy-huggy closing bit and had decided to get everybody holding hands and send a bolt of energy around the circle. This didn't work that well and so we switched to the hokey-cokey. Apparently this was the most blogged about asepct of the workshop.

Which is fine - we are modelling a better life - the hokey-cokey is low-carbon fun and will clearly have a central role in any green society. The gift was a t-shirt asking 'What if the hokey-cokey really is what it's all about?' It could just be.

And while we are on the subject of gifts, a couple of co-conspirators have recently produced delightful books that I would like to share with you and that you might like to share with friends and family who have particular reasons to receive gifts, once you've been through all that problematic carbon-related angst, as already described.

First, we have John-Paul Flintoff's Through the Eye of a Needle: The true story of a man who went searching for meaning – and ended up making his Y-fronts. John-Paul is charming and so is his book. As an intellectual might say, it works on lots of different levels. There is a spiritual journey here, but also lots of hi-jinks and good jokes.

This is the way the world changes, gently, through Woman's Hour and in second-hand clothes shops, not the Today programme and no. 10. At least, I very much hope this is the case. How delightful it would be if Gordon Brown were revealed as wearing underpants made from nettles - that might explain why he always looks so uncomfortable.

The second book is more hard-hitting. In this world of ubiquitous cognitive dissonance how can we be anything other than Speechless? Polyp's fame has increased steadily since his origins as house cartoonist for New Internationalist. Like a really good comedian he can sum up everything that has been causing you frustration and rage in one drawing - and make you laugh about it.

Sometimes the laughter here is fairly dark and hollow, and the cartoons are so complex you could easily spend the whole duration of a bath perusing only one. On that basis the book could keep you going for a whole year - assuming you have cut down your bath-rate to reduce your carbon emissions. It would make a good present for friends (an increasingly large number of younger ones) who don't read.

5 September 2009

Labour or Ownership

I had an interesting time yesterday, revealing myself at the conference of the UK Society for Co-operative Studies (of which I am an Executive member) as not being a member of the Labour Party. I was invited to address a political panel as the Green Party economics speaker. The other parties declined the invitation, which left me hitting it out with Co-operative Party researcher Robbie Erbmann.

The curious thing was how Robbie felt bound to defend The Labour Party, in fact New Labour, which should be even more troubling for a co-operator. The arcane relationship between The Co-operative Party and The Labour Party has been the best kept secret on the British Left since Mandelson was revealed as gay on Newsnight.

The Co-operative Party was set up by co-operators, whose aim was to take direct control of the productive forces of the economy and thus undermine the power of the capitalists to extract their labour as surplus value. The party, set up in 1917, was their political wing, to lobby for a supportive environment to build co-operatives. But in 1927 it made the fateful mistake of signing an agreement not to stand against Labour candidates. Although there are 29 MPs today who are officially Co-operative/Labour, nobody would tell the difference. They are probably more likely to raise questions about the killing of innocent civilians as a result of resource wars in Iraq and Afghanistan, but they are still there at Westminster keeping the government who made the decision to launch those wars in power.

Why is it assumed that if you support co-operatives you must support Labour? Way back in the mists of the dawn of the last century the genuinely political working people of this country who were busy organising their own alternative economy (which made up some 30% of the economy during the 1930s) were utterly shafted by the Webbs and their ilk, who sold them out to a political party which took their power in return for a vote once every five years. But there is no reason why today's co-operators should support New Labour.

At a time when it is clear that the interests of working people in reclaiming control of the value of their labour, rather than merely their pay and terms and conditions, are coinciding with those of the planet, which cannot take the pressure from the extraction of surplus value, I find it bizarre that co-operators are still unquestioning about their commitment to Labour. Co-operatives are clearly a part of the future sustainable economy; the Labour Party is not. My proposal for the stranglehold that Labour has on the Co-operative Party was not favourably received, but may perhaps resurface during the bloodbath that will follow the next election.

2 September 2009

Ecological One-Upmanship

If only we could convert all those faceless automata who make up the corporate persona to approach the environment as if, rather than seeing it as something outside the window, they felt that we were truly a part of it. We would not then need to introduce policies to prevent companies from polluting because their employees would intrinsically resist poisoning their own air. If we were truly embedded in our environment then protecting it would become a personal commitment rather than something governments needed to devise policy to force us to do. This is the approach of environmental philosophers who develop the concept of ‘ecological citizenship’.

Ecological citizenship suggests that strict policy-making might militate against our best environmental behaviour. Two Swiss academics analysed a mass of international research into the effect of compensating people financially for acts and services they performed freely had on their willingness to continue in their virtuous behaviour. They distinguished between intrinsic and extrinsic motivations, i.e. those things that people do because they are ethically motivated or just feel good about them, rather than those things they do because there is some material incentive or disincentive. In the case of volunteering, they found that paying volunteers actually reduced the amount of volunteering. In similar vein, an Israeli childcare centre that began charging parents who picked up their children late found that more were doing so. The explanation is that, once it became a financial matter, they felt they had an implicit contract; whereas when they felt guilty about their lateness they tried much harder to be there on time.

The example of research most relevant to the theme of this book concerns the willingness of communities to accept the siting of a noxious facility in their backyard, in this case a nuclear waste repository in Switzerland. Conventional economists would suggest that the solution is to provide financial compensation. Initially, 50.8% of residents agree to have the repository in their community, with 44.9% in opposition. The next stage was to offer variable rates of compensation to local residents, who were then surveyed again:

The respondents were asked the same questions, whether they were willing to accept the construction of a nuclear waste repository, but it was added that the Swiss parliament had decided on a substantial compensation for all residents of the host community. While 50.8% of the respondents agreed to accept the nuclear waste repository without compensation, the level of acceptance dropped to 24.6% when compensation was offered. The amount of compensation has no significant effect on the level of acceptance. About one quarter of the respondents even seem to reject the facility simply because financial compensation is attached to it.

The findings have important implications for policy in this area, since we may conclude that taxation or charging may be expensive in itself but may also be inefficient if it discourages people from undertaking environmentally friendly behaviour they might have undertaken anyway, without the incentive. And in other areas they might now look for incentives before changing their behaviour. Policy-makers should beware of crowding out people’s natural motivations to do good, to respect each other and their environment. The danger with applying tools such as cost-benefit analysis is that they assume a selfish motivation which may not exist. However, assuming such selfishness can become a self-fulfilling prophecy and can then train citizens to be self-serving and less virtuous.

So if policy-makers might do more harm than good by their restrictive policies, how might they encourage the sorts of shifts in behaviour and moral (spiritual, even?) outlook that would enable a protective ethic towards the planet? Dobson suggests the rewarding and celebration of pro-environment behaviour—perhaps the designation of environmental ‘champions’ or the rewarding of particularly well-embedded citizens through the award of medals. Rather than struggling to live within our carbon quota perhaps we might find ourselves receiving the Order of the Lapwing or being designated Green Man of the Year?