Gaian Economics

From Democracy to Plutocracy

2012-01-31T11:40:00.008Z

Davos is over: the corporate power-brokers have returned to their notional national boundaries and their over-priced lives, leaving the rest of us to struggle through the disaster that their version of a global economy has bequeathed to us. More than anything else, this annual ritual of the wealthy on the piste makes clear where real power lies in the 21st century world.

It is in Greece, however, that we will see the battle for power, the battle between the ideas of democracy and capitalism, fought out in the coming days. The struggle for the future of Greece is too symbolic to be other than a cosmic joke: the origin of the word 'democracy' becoming the site of its demise. Although since Athenian democracy vested power in the hands of a tiny elite supported by slaves may mean that it is apt that it is also the backdrop for the global challenge to a system of rule by the people for the people.

The decision by Brussels that Papandreou should not be allowed to hold a referendum, followed rapidly by the replacement of democratically elected politicians with bankers, and the agreement reached by 26 EU members that they would allow unelected European officials to control their domestic economic policy have all made clear that the interests of finance are taking power away from the people who vote and the politicians they choose.

Over the weekend the German economy minister Philipp Roesler took the dangerous next step along this path by proposing that Greece should explicitly give control of its economic policy to European bureaucrats. This is just a natural extension of what happened in Marseilles and might be a threat that is coming the way of other countries soon. In spite of its historical resonance it is not the fact that this proposal was made by a German that matters, but the fact that democratic politicians are to be replaced by technocratic lackies of the financiers.
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Squandering the Wealth of Life

2012-01-28T08:30:00.002Z

In the immediate aftermath of the 2008 financial crisis, Bank of England staff attempted to estimate the financial costs to the UK economy. In 2009 Andrew G. Haldane, Executive Director for Financial Stability at the Bank estimated that the permanent loss to the UK economy from the banking crisis was anywhere between £1.8trn. and £7.4trn.

The softer, less measurable, more human consequences are only just now becoming clear. A paper in the Lancet in July 2011 began to measure the impact of the 2009 crisis on health, and specifically on suicide rates. Economic crises unsettle people in various ways, but the most obvious, pressing and observable is the loss of employment, which quite literally kills. The authors of the paper considered the pre-2004 EU members and the more recent members separately.

The graphic from the paper reproduced here compares unemployment rates amongst adults with rates of suicide across the EU. Unemployment began rising rapidly in 2009, with a 35% increase over 2007 levels. Shockingly, however, the increase in suicide preceded this, suggesting that it results from fear of unemployment and general rise in anxiety as a result of the instability caused by financial shock. As the authors conclude:

‘the steady downward trend in suicide rates, seen in both groups of countries before 2007, reversed at once. The 2008 increase was less than 1% in the new Member States, but in the old ones it increased by almost 7%. In both, suicides increased further in 2009. Among the countries studied, only Austria had fewer suicides (down 5%) in 2009 than in 2007. In each of the other countries the increase was at least 5%.’

The fact that it is fear and uncertainty that causes suicide, as well as the reality of unemployment and poverty, indicates the irresponsibility of the Coalition strategy of creating an aura of austeria in order to make it easier to impose their draconian cuts. This undermining of social confidence can itself cause increased rates of suicide, which are only a marker of more general social dis-ease.

Greece gives us an indication of the future for the people of Europe if these desperate austerity measures are continued, a policy that Cameron recently argued for at Davos. Official statistics for that country indicate a 40% rise in those taking their own lives between January and May of 2011. Studies of rapid social change repeatedly indicate that the increase in uncertainty and the fraying of the social fabric are not only politically dangerous but also very destructive to human life and health.
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Institutional Racism

2012-01-21T16:04:00.000Z

The indifference of the Metropolitan Police to the murder of Stephen Lawrence rightly led to private soul-searching and public examination of procedures, and we have to hope that our country and particularly our police service is better as a result. But there is a more insidious form of racism that goes unquestioned and causes the death of far more people. This is the racism of an economic system that values the lives of the poor differently from the lives of the rich.

According to a recent blog post, such an attitude was subscribed to back in 1991 by Larry Summers, tipped to become the boss of the World Bank, and therefore one of the most powerful people in the global economy. According to the totally undemocratic procedures by which the global financial institutions are run, the Europeans choose the head of the IMF while the head of the World Bank is a position virtually in the gift of the US President, and the rumour is that he is thinking of giving the job to Summers.

US blogger Doug Henwood cites a memo issuing from Summers's office back in 1991, when he was the Bank's Chief Economist. The memo explains why Africa is seriously under-polluted and argues for the Bank to encourage highly polluting industries to move to Africa because this would be so much more efficient. The efficiency arises from the fact that paying compensation for the deaths of Africans is so much less costly than paying for the deaths of US citizens.

The author of the memo writes that 'I think the economic logic behind dumping a load of toxic waste in the lowest wage country is impeccable and we should face up to that.' The argument is that should there be a claim for damages, the costs would be based on the economic value of the people who died, that is to say their potential lifetime earnings. Since Africans earn so little their deaths would cost polluting companies relatively little.

In spite of the morally outrageous nature of this reasoning, and the blatant racism that lies behind it, this sort of costing of human lives is fairly routine amongst neoclassical economists. A seminal paper in the field cites that value of human lives, based on earnings potential, as ranging between nearly $10m. if you are Canadian to a mere $0.8m. if you are South Korean. The African countries favoured for pollution dumping by Summers and his ilk do not have enough money to invest to be part of these studies.

The estimates vary widely, suggesting that the methods as well as the morality lying behind these sorts of studies is grossly unreliable. Yet it is on this sort of basis that decisions are made about the siting of factories and the disposal of the noxious effluent of Western lifestyles. Those debating the future of capitalism should take note: the challenge to values needs to run much deeper than merely questioning relative wage differentials in the wealthy economies of the West.
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Community Currencies Invade Dark Towers of Davos

2012-01-19T08:11:00.000Z

The global elite, the men we have come to know as the 1%, will be assembling soon in Davos, Switzerland to discuss the global economy over which they have so much power. This year's conference is organising under the rubric 'The Great Transformation: Shaping New Models'. It the reference to Polayni intended or accidental? It certainly gives intellectual scope to those of us who who seek to unwind some of the worst consequences of the original transformation from an embedded to a capitalist economy.

One idea that they will encounter is certainly a challenge to the centralised finance that has been such an important driver of the economic crisis. John-Paul Flintoff has published an article about alternative currencies in the mainstream business magazine CNBC Business, which he assures me will be distributed in hard copy to all Davos delegates.

Is capitalism compatible with barter? I would suggest not, but if there is a way to extract an unfair share of value from others' work, the Davos delegates are certainly the people to find it.
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Clegg Stuck on the Capitalist Fence*

2012-01-17T12:20:00.005Z

As we seek to find an alternative to the discredited corporate capitalist model of enterprise it is vital that we understand clearly the range of options on offer, which is why Nick Clegg's confusing statement about the John Lewis economy is particularly unhelpful.

John Lewis is a company without shareholders, whose value is vested in a Trust and can only be shared between the company's employees. This is quite distinct from a standard corporation which allows its employees to buy some of its shares while its management is free to inflate profits by risky endeavours or extract value in bonuses. While John Lewis employees receive a share of the profits they generate, employees of share ownership schemes might find, like the employees of Enron, that they lose not only the value they created but also their jobs and their pensions.

Understandably, those who currently profit from others' work via their share ownership are nervous about the suggestions that workers might keep all the value of their work themselves. The response to Nick Clegg's speech from the Financial Times includes the expression of these views from the side of capital, skilfully woven in with the completely distinct anxieties expressed by Charlie Mayfield, chair of the John Lewis partnership.

Unsurpsrisingly, most of the discussion entirely avoids considering the option of a full-scale co-operative business, where risks and rewards are shared between those who work in the business, who are also its owners. The suggestion that workers might own and control their workplaces is part of the real alternative that may not be articulated. Whether we look to the Basque Mondragon Group or our own Suma Wholefoods co-operative we see a model that is stable, sustainable and just: a model that could form the basis for a national economy we could all buy into.

*An edited version of this letter was published in today's Guardian.
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Currency Warts and All

2012-01-16T11:26:00.004Z

As the struggle for dominance in the 21st century global marketplace intensifies the battle over which currency that economy will be denominated in is becoming more explicit. Can we see Osborne's appeals to China to use London as its banker to Europe and the world as the final betrayal of the dollar empire?

This blog has been following the currency wars and I have long been calling for a globally agreed trading currency. This is also the preference of the Chinese, who understand the risks that come with being the banker to the world and are apparently not seeking to take over from the US the role of global hegemon and global policeman that so often accompany the role of banker to the world.

More importantly, the renbinmi is not a convertible currency but is still controlled by the Chinese government. Although this value of external trade balances settled in the currency has increased rapidly in the past couple of years, this is a fraction of the global trade in dollars. Since the currency is tightly controlled it is also not held in reserves – the other key feature of any candidate for status of global currency.

China has long been calling on the IMF to extend the role of SDRs (special drawing rights) so that they can become a de facto global currency. In this context perhaps we should interpret today's intervention by Osborne as not only an attempt to tout for banking business but also an attempt to pressurise China to take on more of this role itself. Such a decision deeply affects the peace and stability of the world and should be taken, rather than via press release and bilateral discussions, in a full-scale global conference to remake the world economy and to focus on the need for stability, sustainability and equality.
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All Quiet on the Euro Front

2012-01-13T07:48:00.005Z

Am I the only person who is so cynical as to think that 'no news' rather than being 'good news' is actually an indication that the news hasn't quite been prepared for public consumption yet? It was probably the 20 years I spent campaigning about climate change, which only became a news story once it had been turned into a profitable business opportunity, that first put me onto this. But can we assume that something similar is now happening with the euro story, of which we have heard precious little since Christmas? Post-festive queasiness aside, how can the most serious financial crisis in 70 years have disappeared like so many unnecessary mince pies?

A while back I floated the idea that the reason the finance markets were speculating against the euro was that, unlike its counterparts in the US and UK, the European Central Bank had not engaged in a policy of creating money to be hoovered up by the financial institutions and transformed into bonuses. The news now is that they are doing just that, making 'cheap' money available to financial institutions, who are then depositing it right back with them, but in their own accounts. This is the outcome of the silent coup - the transfer of power to unelected bankers in Italy and Greece, backed up by Mario Draghi at the ECB. The last vestige of politicians protecting the people of Europe was removed, with nothing now constraining the power of the financiers to extract obscene amounts of value from the European economy, destroying public services and undermining investment in the real economy.

How else are we to interpret the shift in policy towards the making available of cheap money? The ECB money has a limited life of three years, presumably to keep the inflation-averse Germans happy, but it is free money none the less. In similar vein, Merkel's insistence that the pain of the Greek default should be shared by the creditors as well as the debtors, the so-called 'hair cut', has been removed from phase two of Greek refinancing - another indication that financiers have beaten back even minimum political demands, and in response are reducing the pressure they are putting on European finance ministers.

This is, of course, a self-limiting and ultimately self-defeating response to financial pressure. Once the banks have hoovered up the latest round of newly minted money they must, like the debt addicts they are, find ways of exercising their power to extract more. Meanwhile the public and private sectors alike, which actually circulate money and thus energise rather than stifling economic activity, are starved of funds.
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Free Trade or Bioregional Security?

2012-01-12T11:20:00.005Z

Word reached me yesterday that Colin Hines is writing again about the destructive nature of the global trade system and the need to protect our security of supply. In standard economic theory protectionism is a dirty word, the impulse to be resilient and self-reliant undermining the ability of merchants to achieve arbitrage profits. My own view is closer to that of Gandhi when he said ‘Any country that exposes itself to unlimited foreign competition can be reduced to starvation and therefore, subjection if the foreigners desire it.’

So much for theory, what about the practice of trade in the globalised economy? The governance of global trade is overseen by the World Trade Organisation (WTO) which replaced the General Agreement on Tariffs and Trade that the global body with authority in this area under the tripartite systems established at the end of the Second World War, signed by 23 governments in 1947. Its aims was to replace the chequered history of mercantilist policies based around the protection of national interests that had dominated the early years of capitalism and was considered to have been implicated in the unstable and conflict-ridden history, especially of Europe, up to that time.

The WTO ‘does not adopt a neutral stance on trade policy. It is passionately against protectionism and just as profoundly for trade liberalization', in the words of Richard Peet. In its mission to liberalize trade the WTO has proceeded well beyond the GATT’s aim of ensuring efficiency and stability and follows this imperative even when this ‘conflicts with the need for environmental protection in an age of burgeoning production, massive consumption and the use of powerful technologies’ and even when the restrictions on trade are intended to ‘protect the environment, ensure food quality and safeguard public health’. According to Peet’s critical account, the single-minded emphasis on free trade undermines national attempts to ensure environmental protection, as well as undermining the power of labour to ensure decent working conditions and acceptable levels of pay.

The failure of talks to extend the liberalization of global trade further, the so-called Doha Round, indicate that the nature of the WTO as a membership organisation has resulted in a political stalemate, with the rising nations of the South refusing to accept the terms of trade that favour the more powerful nations that have traditionally dominated trade talks. Global trade is now governed by a patchwork of bilateral and regional trade agreements, the regional agreements between the countries of Latin America (Mercosur) and South-east Asia (ASEAN) being examples of co-operation at different levels that contrast with the continued rhetorical emphasis on globalisation.

The last time we had an economic crisis on anything approaching the scale of the current one the response by the competitive world powers was to engage in trade wars that eventually led to real wars. This time around the wars seem to be being fought through currencies, while trade remains in the hands of corporations. While the objective of avoiding war must remain the priority, this does not preclude the introduction of policies to ensure national security in essential goods and services. On this basis I look forward to what Colin has to say.
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Who Will Guard Future Generations?

2012-01-04T16:23:00.005Z

It is a story told in green circles that the Iroquois took seven generations into account when making their decisions. How many of the decisions taken by our 21st-century politicians would survive this sort of scrutiny? Of course the question is never asked because the scrutineers do not exist.

But why should future people be disenfranchised in this way, asks Rupert Read in a new report to be published by the Green House thinktank next week. To protect their interests he argues for a jury of twelve random people selected by lot and obliged to protect their rights to enjoy life and happiness. Such a body could hardly be expected to support untrammelled economic growth or a new generation of nuclear power-stations without any idea of how the highy radioactive waste they produce will be disposed of. In fact, the economistic process of 'discounting' ensures that the future effects of current actions are minimised.

While the idea may seem somewhat New Agey the same concern was raised by that crusty political theorist Edmund Burke as long ago as 1790 when he argued that: "[Society is] a partnership not only between those who are living, but between those who are living, those who are dead, and those who are to be born."

Damian Carrington has picked the idea of Guardians for future people up on his Guardian Enviroment blog. Let's hope this will bring plenty of attention to the report and its interesting proposal. The launch will take place at the House of Commons, cttee room 5, on 10th January (RSVP to Rupert Read: rupertread@fastmail.co.uk). It offers us a chance to give the future a voice and perhaps encounter the shade of Burke himself.
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Will the World End in 2012?

2012-01-03T07:38:00.007Z

The millenarian prophecies of doom that have rumbled on since 2000 are coming to a head this year, with the Mayan prophecy of the end of the world receiving serious news coverage. Often these reports run alongside statistical analysis of the state of the global economy and appear to have much the same level of credibility. Both encapsulate the feeling of powerless of the modern citizen and the give the lie to the notion of ourselves as rational economic men.

Apparently it was the Slovenian social critic Slavoj Zizek who questioned why we find it easier to imagine the end of the world than to imagine the end of capitalism. If we want a better economic system then we must have the courage to do this and must spread the word to our friends that 2012 is the end of one corrupt and destructive economic system, not the end of the world itself. And we must propose our alternative with confidence and grace. We are not speaking about revolution but revulsion against an economy that is destroying our mother the earth and blighting the lives of humans and other species.

There are three central aspects of capitalism which I think we can all decide to end in this year. First we have the way the system creates money and uses it to concentrate power in the hands of the few. The creation of money as debt in the private sector ensures the engorgement of the 1% at the expense of the 99% while simultaneously creating a pressure for economic growth that is causing the ecological crisis. We can share this message as well as taking steps to use our own money differently: switching our bank accounts to the Co-operative Bank or the Nationwide, making sure our mortgages are with mutual providers (the old building societies) and if we have any accumulated money investing it in local eco-projects rather than depositing it to gain interest from the corrupt system we are seeking to change.

Secondly, we can reconsider how we work and how the dominant economic system shares the rewards of work unfairly and also removes our autonomy and our self-respect in work. This is where I began as an economist, challenging the Seven Myths About Work which persuade us to give our creativity to the system that is destroying our happiness. We need to counter the lie that says that all wealth is generated in the private sector with the public sector parasitic upon it and to encourage the growth of co-operative enterprise, where work and rewards are shared fairly and the business is democratically controlled. It is perhaps no coincidence that the UN has declared 2012 the Year of Co-operation.

Finally, we need to undermine capitalism at the level of culture and ideas. My book Market, Schmarket described how capitalism operates through a system of mantras that encourage us to behave like selfish individualists. Every time we do something for nothing, or buy something that is more expensive because we value its maker, or give away something we could sell, we are undermining the hold of the mean-spirited culture of capitalism on our lives and in the world.

So, 2012 offers tremendous hope to the world and all its peoples. If we believe that the world will end then it will, but if we believe that the world will change fundamentally and positively, then this also becomes possible. It is profoundly untrue that the alternative is not clearly articulated: a green vision of economic and social life has been developed over the past 30 years and is ready to be tried. 2012 is the year when we need to make this humane, balanced and joyful expression of human possibility the path to our future.
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Financial Chincanery Threatens Our Future

2011-12-28T09:46:00.007Z

While our policy-makers have been striding around their Cotswold estates burning off an excess of Christmas pudding, elsewhere in the world events are occurring that provide further signals that the economic game we have played so effectively for the past two centuries is being superseded.

Do not let your festive white-out blind you from the important decision taken a historic decision to avoid the dollar in their trade relationship. As reported on this blog, for some time China has been arguing for a change in the global terms of trade, a system that has hugely benefited the USA since it was negotiated at Bretton Woods in 1945. The US has refused to negotiate and so China is now taking bilateral action, and Japan appears to be following a similar strategy.

Japan and China have agreed to make direct currency exchanges to settle their external trade balances, rather than negotiate via the dollar. In addition, Japan will buy Chinese government bonds. This shifts the Chinese renminbi towards the status of a reserve currency that China's economic power suggests, although the currency is still controlled entirely by the government, rather than being available for free exchange as the other reserve currencies have been until recently.

The extraordinary fact that the dollar is still the global medium-of-exchange, giving the US completely undeserved and misused global economic advantages, is omitted from discussion of our economic woes. And yet the way that the City operates as the 52nd state leaves us increasingly vulnerable in a world where the powerful economies are those who produce and gain access to resources, rather than those who control currencies.

Another sign of the UK's vulnerability emerges from a report showing that we have been overtaken by Brazil in terms of the global economy league table. As the UK economy shrinks and those of the resource-rich and industrious economies outside the West expand, this is more a shock than a surprise. These economies face another significant advantage over those of Europe: they are able to create their infrastructures in a way not dependent on fossil fuels and hence face significant advantages in terms of a green economic future.
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Time for a Christmas Carol

2011-12-23T08:17:00.003Z

We are going to have wall to wall Dickens this Christmas. His bicententary has come at an apposite moment: we have never needed his wisdom and his diversion more. He has a strong claim to be our second national writer after Shakespeare, and this must be because we need the moral of his tales as much now as we did when they were written.

Personally I have never got along with Dickens, finding his characters unconvincing and preferring the earthier tales of George Eliot, with the greater depth of relationship and her overwhelming and winning compasion. The ubiquity of Dickens this year has taught me that I was wrong. Dickens's characters are intended to be unreal because his writing is allegorial, not realistic. This is the reason they have daft unconvincing names, but names that tell you immediately what role the character is to play in the morality tale that you are reading (or watching).

The point is most obvious in A Christmas Carol itself, where the unhappy Ebeneezer Scrooge is given the chance to abandon his love affair with his account-book and rejoin the human race. We remember scrooge as a miser, but this is not the role he plays. The Scrooge is actually the businessman driven by the quest for profit rather than people, abandoning love and humanity to commit his time to his enterprise. This book is a tirade against capitalism as powerful as any camp staged outside St. Paul's or any pamphlet from Marx and Engels. It tells how capitalism distorts the human spirit and, most importantly, makes even those who succeed within the narrow and shallow rules of its game, almost as unhappy as it makes the losers. And because capitalism, in its rotten essentials, has not changed, the message is as relevant 200 years on as it was in 1843.

Meanwhile, the characters of Bleak House are fixated by a legal case from which only lawyers gain, the Jarndyce and Jayndyce chancery case standing iconically for the project of any who would dedicate his or her life to the pursuit of financial reward. Many characters in the novel see relationships and health destroyed while they battle for their 'expectations'. The choice of this word throughout the Dickens oeuvre so neatly sums up the way capitalism always offers but never rewards, thereby ensuring a lifetime's unhappy slavery and a perpetual discontent.

At the end of this year during which we saw the 99% who place love and common humanity above profit and power challenge the 1% who are destroying human society and the planet simultaneously, we should congratulate ourselves that this division has been articulated. We must gain in strength as a movement in 2012, but also as individuals we can try to share the Dickensian sense of comfort and joy and remember that both are for life, not just for Christmas.
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The Government that Likes to Say 'Yes'

2011-12-21T09:09:00.007Z

The parliamentary Communities and Local Government Committee has come out clearly against the plans made by Pickles and his ilk to tear up the Town and Country Planning Act and allow untrammelled development of the countryside. Their report into the National Planning Policy Framework lays bare its fetishisation of simplification and its attempt to prioritise the narrowly 'economic' at the expense of people and planet. As I discuss in a short paper on localism published recently by Green House, this makes a mockery of the government's espoused support for community-led decision-making.

Bizarrely, the original NPPF document relies on the Brundtland definition of sustainable development as 'Development that meets the needs of the present without compromising the ability of future generations to meet their own needs.' I am constantly mystified by the way in which people can spout this without considering at what point development would have to stop. Where between the situation we have now, with species becoming extinct but there still being enough green land to enable breathing, and the future development paradise where every scrap of field and hill is covered with concrete and tarmac, is development supposed to stop? Assuming that future generations will still need air to breathe, there must be a boundary, so how do we know that we have not already reached it? And if not, when will we know we are there?

Gamely, the CLG committee has, in its para. 67, added to this definition of sustainable development to include the concept of limits: 'Policies in plans and decisions on development should be assessed against the principles that the nation and areas within it should live within their environmental limits; should achieve a sustainable economy and should seek to ensure a strong, healthy and just society.' It also requires a locally based and democratic basis to planning: 'The achievement of sustainable development through planning should be based on the responsible use of a sound evidence base and developed through an open and democratic system.'

The presumption in favour of development has nothing to do with national well-being or sustainability: it results from the lobbying undertaken by the big construction companies who dominate Tory policy-making. Note the following quotation from the website of Curtin & Co, who are not only experts in planning but also in 'managing green issues':

‘There is no doubt that the local government and planning landscape will change considerably in the next 12 to 18 months. There are still significant holes in the proposed legislation and Curtin & Co will be monitoring the progress of the bill as well as making representations on its community engagement aspects. Curtin&Co’s founder and chief executive is the author of Managing Green Issues (Macmillan, 2001) which advocates many of the aspirations of the Localism Bill and this is embedded in our methodology.’

On this day which our ancestors celebrated as a festival of hope that life would return after the darkness and cold of the winter season we need to remember that 'there is no wealth but life' and resist the equation of development with progress while utterly rejecting the possibility of future economic growth.
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Make the Rich Pay for their Emissions

2011-12-11T12:46:00.004Z

An excellent funding programme from the Joseph Rowntree Foundation into the social impacts of policies to address climate change is beginning to bear fruit. They have created a microsite to make the findings available.

As well as the more conventional investigations into the impact on poorer households of rises in energy bills, a research team based in Bristol and Oxford has produced data about how responsibility for CO2 emissions is shared across the socio-economic classes. Put more bluntly, to what extent can we blame the rich for climate change as well as for inequality?

The primary finding is that:

'Mean average CO2 emissions are strongly correlated with income: households within the highest equivalised income decile have mean total CO2 emissions more than twice that of households within the lowest equivalised income decile. Emissions from private road travel and aviation account for a high proportion of this differential: aviation emissions of the highest income decile are more than six times that of the lowest income decile.'

In other words, the concerns that are often raised about alienating those who fly to Ibiza for a summer holiday by introducing aviation taxes are quite misplaced. It is the rich who jet around the world for conferences and business meetings who are most responsible for aviation-related CO2 emissions.

The figure represents mean annual emission of carbon dioxide from all sources across the income deciles. As we move from the lowest 10% to the wealthiest 10% there is a clear increase, class by class, in the amount of CO2 emissions that are produced. More importantly, a larger proportions of the emissions of the richer people in our society are transport related.

The policies implications are clear. Using household energy bills as the focus of increasing the cost of carbon is not only regressive but will also be ineffective:
'if household carbon reduction policies addressed all transport emissions as well as those from household fuel use, there would be far fewer low-income/high-carbon households, and policies which placed a cost on carbon itself would be likely to be more progressive.'
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Carbon Politics Down Under

2011-12-10T10:27:00.002Z

The final word in my short recent series on the developments in carbon policy in Australia should be given to Clive Spash , who was there on the inside and, as an academic economist of the social-ecological position, in a strong position to analyse the policy outcomes from a planetary perspective.

Spash has produced a paper describing how Julia Gillard was able to depose the previous Prime Minister Kevin Rudd, also of the Labour Party, because of the unpopularity of his carbon emissions trading scheme. The powerful mining sector lobbied strongly against this and the opposition thus generated, most on the basis of untrue claims about the effect on ordinary Australians, allowed Gillard to successfully challenge Rudd and create a new government with support of Green and independent MPs.

Spash describes how the political compromise involved a temporary carbon tax for three years, to be followed up by an ETS very similar to that which had been proposed by Rudd and at considerable political cost:

'That cost extends to allowing major emitters to make guaranteed windfall profits from pollution permits. The emission trading scheme suffers numerous problems, but the issues raised show taxes can also be watered down and made ineffectual through concessions. Taxpayers will get no assets from the billions of dollars to be spent buying-off the coal generators or other polluters. The scheme hopes to stimulate private investors to create an additional 12 percent in renewable electricity generation by 2020.'

Spash sets a much more stringent target of a wholesale shift to 100% renewable energy within a decade, the only proposal he considers 'serious' given the urgent nature of the issue of climate change. His working paper explores the difficulties of implementing meaningful greenhouse gas taxes in Australia.
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Unified Continent not Single Currency

2011-12-09T07:32:00.005Z

The first time that I was in the uncomfortable position of agreeing with Conservatives was some ten years ago when, on behalf of the Green Party, I joined the national campaign against Britain joining the Euro. The pro-finance and little Englander Tories felt the need for a bit of breadth and so invited Euro-sceptic former foreign minister David Owen, a couple of anti-European Labour MPs and a representative from the Green Party to join them.

Around the same time I published a chapter in a book called Implications of the Euro: A Critical Perspective from the Left. In my chapter I discussed the ways that a single currency would force the pace of political change in a way that the institutions could not follow and would alienate the peoples of the countries involved. This, and the growing tensions between nations that would be created, could threaten the future of the European project as a whole. The self-interest of finance could overwhelm the common interest of peace.

This morning I believe we have seen these predictions come to pass. This is why I believe that David Cameron was right not to join the treaty although, just like the Tories on the anti-Euro committee a decade ago, we could not be further apart in terms of the economic route Britain should follow. Cameron's interest is almost entirely to protect the City and to avoid its spivs and speculators from being forced to consider the social consequences of their actions. However, some in his party are articulating concerns about democracy that I still believe have merit.

It is tempting to believe that the European institutions might impose acceptable standards on the City, just as they have forced us to improve our environmental standards and reduced exploitation at work. But the problem every time has been that we have not had the power to make these decisions democratically. We do not elect people with sufficient power to make decisions at the European level and so these decisions have no more political authority than the current unelected prime ministers of Italy and Greece.

The democratic deficit is more threatening to the aims of the EU than the collapse of the euro. For many years the single market and then the single currency were ambitions driven by business to serve its interests. They have utterly distorted the institutions of Europe and have alienated many of the people of Europe from this organisation that was designed to protect their peace and prosperity. How else can we interpret the huge votes in many of Europe's most loyal members for parties of the nationalist right?

Although the details of the new treaty are as yet unclear we do know that it will involve allowing unelected European officials to set levels of spending and rates of taxation in countries over which they have no democratic mandate. The Euro always constrained monetary policy and therefore reduced the room for manoeuvre in terms of fiscal policy. But as the fiscal straitjacket is imposed, and austerity follows, it is Europe and the other nations that make up the continent that will be blamed by the citizens of the countries who suffer.
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Divided We Fall

2011-12-08T10:17:00.005Z

It is rather ironic that the main question the media has drawn from the latest publication of Social Attitudes in Britain is whether we are more Thatcherite now than we were in the days of Thatcher. If we were we would certainly not have these data to mull over, since Thatcher was notoriously opposed to social research and abandoned the most valuable tool for the social researcher: the National Child Development Survey, as well as virtually eliminating sociology from our universities.

So having survived the Thatcherite axe the social researchers, though privatised, are still funded to tell us that we care less about each other than we used to and that we have utterly lost faith in our public institutions. While we did hear on the BBC about the fall in support for a government role in redistributing wealth we did not hear about the decline in trust for that institution itself: from 72% to 49%. The politicisation of the BBC has destroyed its role as a public-service broadcaster. The only public institution to have gained trust is the National Health Service. There are no data about the extent to which people's faith in statistics has been undermined by the privatisation of those who seek the data: NatCen (a company limited by guarantee) would have no interest in such a question and its results would not reach a high market value.

This sort of data is, as the Spanish say of history, a field in which all can make hay. I would be interested to see some socio-economic breakdown of the responses to the questions about welfare. It seems that those most vulnerable, including many dependent on benefits themselves, are some of the most vociferous in criticising the dependency culture. This represents another example of the cognitive dissonance that is a necessary skill to survive in late-capitalist Britain.

The media emphasis was on the declining levels of support for redistribution, which was matched by a growing sense of injustice about the unequal way in which hard work is rewarded. This chimes with the findings of another report released this week, by the OECD. Called Divided we Stand it rang alarm bells about the negative social consequences of rising rates of inequality withing societies. Hardly the message one might have expected from the club of the world's richest nations and a traditional cheer-leader for globalisation.

Angel Gurría, OECD secretary-general, is quoted as saying that 'the social contract is unravelling', and this seems to be reflected in the responses to the Social Attitudes Survey as well. The interesting question is why the OECD should suddenly have become interested in the social impact of growing inequality. The real struggle is between the greedy and thoughtless elites and those who realise that capitalism has always relied on the consent of the masses and that without a social contract that consent cannot be guaranteed.
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Poor Standard of Credit Rating

2011-12-06T09:57:00.003Z

The delight about the rapprochement between Merkel and Sarkozy was short-lived, being undermined almost immediately by a threat from the credit-rating agency Standard and Poors. How are we to interpret these events?

The estrangement in the Franco-German affair was the result of Merkel taking a hard line on monetary policy and refusing to sanction the direct creation of money by the European Central Bank to ease the debt problems of the 16 other Euro members. Apparently yesterday she relented on this, allowing a relaxation of monetary policy in return for a new treaty imposing debt restraint on the Eurozone members.

In response to this a downgrading of the quality of the debt of most Eurozone countries might seem reasonable. But why Germany, which is clearly capable of paying its debts? It appears that this may be more an act of revenge for Merkel's previous insistence that bond-holders must bear some of the cost of their risky investment decisions. The Greek hair-cut was the last stand of a politician who would not accept that the innocent would bear all the pain. Germany will now be punished for the losses this brought to financiers, its own national debt now attracting higher interest rates than the state of its economy demands.

More fundamentally we might question why the US and UK, who are far more debt-ridden and whose economies are struggling much more than that of Germany, are not being threatened in the same way by the markets. The huge money-printing operations of both the Fed and the Bank of England makes investment in these countries far more risky, as does their lack of real production and their low rates of growth, and yet they are not the target of the credit raters. The conclusion is clear: the credit-rating agencies are rating finance-friendly policies, not the strength of national economies and the debt they issue.

More fundamentally the explicit evidence of economic policy being negotiated between politicians and rating agencies makes more urgent the need for politicians to have the courage to articulate an alternative and to co-operate to reclaim the democratic power to determine the direction of their own economies. We need to find a way through this present crisis that is compatible with democracy, not just compatible with the wishes of market investors. If alternative views are not articulated then we will be heading for a political rupture rather than the evolution to a more stable and equitable economic model that our happiness and well-being requires.
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Creating New Economists

2011-12-05T08:01:00.007Z

I had a very interesting experience over the weekend while attending university open days. I was enquiring from a young woman encouraging people to take economics how pluralist her course was. She really seemed unable to understand my question. She responded that they taught 'normal' economics. I asked her if this meant neoclassical or whether they also had space for classical or Marxist varieties. She was simply unable to answer.

This is the problem the discipline faces: really nice, well-motivated people who have no conception that there might be other ways of thinking about economics than in terms of supply and demand curves and the marginal analysis. To address this problem the Association of Heterodox Economics is running training in alternative methods for economics, beginning with a course of training for researchers.

The postgraduate workshop on research methods will take place at London Metropolitan University on 10th and 11th February next year. It is funded so places are available free for students. Workshop topics will include:

· Reorienting economics to match method with social material

· Open system methodology in Economics

· Grounded theory in Economics

· Mixing quantitative and qualitative data

· Qualitative data analysis

To book a place you need to contact Andrew Mearman: Andrew.Mearman@uwe.ac.uk.
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Carbon Floored

2011-12-04T17:51:00.001Z

However many cheers we decide to cheer in response to Australia's introduction of a carbon tax , it is an encouraging sign that a country dominated by mining and energy interests and one of the highest carbon polluters is introducing an unpopular policy. What about the UK? Should we be arguing for a carbon tax here? Interestingly, it appears that this discussion is already underway, although in strong contrast to the situation in Australia, it is happening between the government and business, with little or no public debate at all. It is also happening without any mention of the word tax, and yet it is hard to find any other interpretation of the consultation document about a 'carbon price floor' published this March.

The first graphic illustrates the need for such a 'price floor'. It shows the price at which carbon was trading (bear with me on this nonsense) during the first phase of the EU's carbon trading scheme. The collapse in the price in 2007 resulted from the over-issue of a permits as a result of industry lobbying. There were more permits than companies needing to emit CO2, hence no scarcity, hence no price and the market failed.

The second graphic illustrates the government's proposal to use the Climate Change Levy to create a predictable upward trend in the 'price' of carbon to give a clear signal to industries reliant on fossil fuels that they had better increase their efficiency and/or shift their source of energy. This is a purely indicative graphic, with no suggested price, although later the document suggests 'Three illustrative carbon price scenarios for the UK power sector: £20, £30 and £40/tCO2 in 2020 rising to £70/tCO2 in 2030.'

This is one of the major problems with carbon pricing as a solution to climate change: we have no idea what the price should be. Real solutions to the problem of excessive emissions begin with a scientifically determined cap, and then find some way of sharing out the emissions the cap implies. Trading leaves the field wide open for industrial emitters to lobby to increase the number of permits available, and hence fix the market price. We can see from the first graphic that the current carbon price in the EU system appears to be stabilising at around €15 per tonne. As one of my students recently pointed out, given that our individual carbon quotas are around one tonne per year, and our actual emissions are 2.5 times that, he could easily afford to pollute to his heart's content, even on a student income.
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Enclosure 3.0

2011-12-03T13:58:00.002Z

The role of McKinsey, the US-based management consultants, in spreading the new gospel of corporate capitalism around the world has been widely noted. A new report now makes clear how the creation of the concept of 'ecosystem services' was always, as some of us have long believed, a step towards the commodification and sale of life itself. In spite of the clear evidence that globalisation has resulted in rising rates of inequality and ecological destruction, the report, called Resource Revolution, argues that what the world needs is more capitalism, not less.

Green economists have long been arguing that the two centuries of focus on labour and capital and the sidelining of land has been a mistake. McKinsey have now caught up, concluding that:

'In the 20th century, governments and businesses didn’t have to worry about resource productivity; they could focus on capital and labor. Over the next 20 years, resources must be at the heart of public policy and business strategy.'

The report provides a range of scarey statistics about rising population and increasing demand for resources, but then reassures readers that these offer tremendous opportunities. Unsurprisingly given its source, the opportunities are for businesses to take control of global assets and then organise their distribution. This is justified by the claim that the McKinsey model can offer the necessary increase in resource productivity.

Although couched in 21st century language, this is precisely the same argument made by the 18th-century improvers, who provided the intellectual justification for the theft of land during the Enclosures. Then, as now, the role of politicians was limited to freeing up the market ('unwinding subsidies'), making capital available, guaranteeing property rights. Oh yes, and providing safety-nets for those 'very poor people' who may lose out to deal with change. Perhaps we could ask McKinsey to hold a public meeting to discuss their findings - I'd like to suggest we book the Speenhamland Village Hall.
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High Hopes?

2011-12-02T13:28:00.001Z

Last week the High Pay Commission reported the results of its detailed survey of the structure and culture of remuneration in some of our largest companies. Yesterday's headline in the Independent ('The rich get richer and the poor get poorer') may result from the decisions about public spending made by the Chancellor, yet the origin of the huge increase in inequality in our society is in the way pay setting takes place in the private sector.

Perhaps it would not be going to far to conclude that while the Tory governments of the 1980s and 1990s liberated the private sector to pay top executives out of all proportion to their performance, it is the current coalition government (which has never had a majority of support) that is undermining the redistributive policies that previously held inequality in check.

The graphic illustrates the differences in pay between teachers (£34,476), cleaners (£7278) and higher level civil servants (£163,000), none of whom come anywhere close to the average pay of the CEOs of FTSE 100 companies, at £4,200,000. Perhaps even more striking is the relative increase in the pay of top executives between 1980 and 2011. The Barclays executives have seen their pay rise by nearly 5000%, while those of BP have received increases of more than 3000%.

The report is a useful source of data that helps inform the debates we are having, in these times when the struggle for value within capitalism is becoming more explicit. The recommendations for change, by contrast, are surprisingly weak. Putting employees on remuneration committees is all very well, but unless they are in a majority they are likely to be intimidated and their views dismissed. Similarly, forcing companies to publish pay ratios will aid transparency, but amongst the shameless people who head our companies it is unlikely to bring any change.

A government really concerned about inequality and the pernicious effects of high pay could easily introduce a tax regime that would make pay above some upper limit, say £1m, meaningless, since it would all be reclaimed for the public purse. But then that sort of government would be unlikely to reach power in our less-than-democratic political system.
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Defending Dissent

2011-12-01T13:07:00.007Z

In support of the courage of dissenting economists I posted the news that Clive Spash had been forced to resign from his post at Australia's publicly-funded research body CSIRO almost exactly two years ago. The political disagreements over how Australia, one of the greatest carbon emitters per head of population, should address its climate sins, has resulted in the carbon tax also discussed recently on this blog.

The behaviour of CSIRO has now reached the Australian parliament, with questions raised over CEO Megan Clark's involvement with financial organisations involved in carbon trading and the fact that Simon McKeon, executive chairman of Macquarie Bank’s Melbourne office, was appointed as CSIRO’s chairman. In connection with the paper 'The Brave New World of Carbon Trading' that was at the heart of the dispute, Senator Colbeck asked:

'CSIRO’s internal review concluded that the original paper did not report new research or present empirical evidence to support all of the authors’ conclusions. The paper was also viewed as offering opinion on matters of government policy by applying a critique of neoclassical economic theory to the ETS. Therefore it was not approved for publication. Were those issues to have been rectified as CSIRO strived to do with Dr Spash, CSIRO would have supported the publication of that paper and any public comments that related to the papers findings.'

As Peter Earl notes in his post on the Real World Economics blog:

'This organisation apparently rejects institutional analysis, historical analysis, descriptive analysis and policy analysis . . . it is now evident that the fact that [Spash's] critique was levelled against the use of neoclassical economics as foundations for the policy was the heart of the problem. Their statement explicitly supports neoclassical economic theory and rejects anything critical of that theory because it is being used to support carbon emissions trading. According to the CSIRO this was not about the content or politics!'

This is a rare explicit statement of the role that neoclassical theory plays, much more one of catechism than of scientific theory. As the global economy spawned by four decades of neoclassical theory founders between the Scylla of ecological disaster and the Charybdis of the renewed credit freeze, we need thoughtful pragmatic economists like Spash more than ever.
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OMG

2011-11-29T13:36:00.007Z

The Guardian columnist Simon Rogers has produced a useful graphic, illustrating how the changes to growth forecasts announced by Osborne in the autumn statement affect our national borrowings.

This is truly scarey, especially if you notice how the GDP predictions in the later years have clearly been fixed to keep the borrowing possible in the next couple of years. As the predictions move through time it is clear that they lose contact with reality and are created post facto to make the numbers work inside the Treasury. What we will really be facing in 2014 or 2015 if we carry along the path that Osborne has set does not bear thinking about.
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A Matter of Life and Debt

2011-11-28T12:25:00.003Z

There has always been something about the nature of pension calculations that is faintly unsavoury and few roles in life can be as unattractive as that of the actuary. While we all take a vague interest in our life expectancy as well as our life expectations, we frequently balance these with superstitious and childlike attempts to ensure our health and well-being, whether these take the form of prayer or sporadic bursts of jogging. For the actuary, the minute calculation of the likelihood of death from a range of causes is the bread-and-butter of life.

On Wednesday we will see millions of the people who ensure that we live long and healthy lives, and that we enjoy high standards of well-being, going on strike to protect their own security in a retirement they hope to live to see and to enjoy. Investing in a pension is itself a gamble, since a significant proportion of people die before reaching the age of 65. As retirement ages increase and the pension funds those working in the public sector have saved become the subject of the acquisitive attention of politicians, the risks can only increase, making the prudential decision to invest for your old age a much less appealing one.

A rational government would applaud the regularity with which those working for the public sector save for their old age, rather than attacking the union officials who encourage them to do this, and then defend the conditions under which those savings are paid back to them in retirement. Such a government would also value the contribution to the life of the nation made by these servants of the public, rather than consistently downplaying it relative to the 'wealth creation' of the private sector.

More typical of private-sector motivation and value-system is today's news that Rolls Royce has agreed a 'longevity swap' with its pension provider, meaning that it is gambling against its employees ability to live a long and healthy retirement. The company has transferred its unwillingness to countenance a large number of retirement years on the part of its former employees to Deutsche Bank financial services. As pension shifts from being a system of care and mutual support to one of risk and financial reward, one cannot help wondering how long it will be before we are offered a cash incentive to do the decent thing, and make away with ourselves before our allotted time. A moral hazard if ever there was one.
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Speaking Truth to Power

2011-11-20T17:05:00.006Z

I have an exciting day this Wednesday and if any readers of this blog would like to join me for part of it that would be very welcome.

Back in the summer I put together some evidence for the Environmental Audit Committee's Inquiry into the Green Economy on behalf of the environmental thinktank Green House. As a result I have now been asked to give evidence to the committee members, who will ask me questions about how we might move towards a green economy.

This is, frankly, rather daunting, and it doesn't help that the sessions take place in the Thatcher Room of Portcullis House! My job appears to be to sit in the heart of government and tell them that the economic model we are working with is not only unsustainable but unjust and unstable into the bargain! The key target of government policy is entirely misguided.

In preparing for this I have come across a very interesting document called Enabling the Transition to a Green Economy. We can celebrate a small victory in that the draft version of this document was labelled as a Roadmap, something Green House criticised in our evidence. Like the report 'Keeping the Lights on' about energy a few years back, it makes clear the mental barriers to a sustainable future.

This report is not that encouraging, clearly identifying business rather than people as the key partner in the transition to a green economy. It focuses on efficiency and competitiveness, with no mention of the structural problems of a capitalist, growth-based economy. This is my clear task for Wednesday, and in the face of the evidence of the hegemony of business it is no wonder I feel rather daunted.

After the Commons I am moving down river to speak to the Occupy London protestors at their Tent City University. With luck I may be moved into the Bank of Ideas at the newly occupied former UBS building. I am calling my presentation 'The Audit-city of Hope', which doesn't quite work but you know what I mean. I hope to radicalise the demands beyond 'What do we want?' 'Better regulation of the banking sector'; 'When do we want it?', 'Within a reasonable timeframe'. My focus is going to be on building the energy to establish a national audit committee to find out who we owe the debt to and decide what proportion of it can reasonably be repaid.
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Rebalancing, What Rebalancing?

2011-11-17T08:30:00.000Z

I write this post as a councillor in the local authority that faced the largest cut in its central government funding in the current funding period - a full 28% over this and next financial years. I assume this is a reward for having a Tory council and having just elected a Tory MP, as well as being a debt-free local authority. I have to hope that the good voters of Stroud draw the right conclusions and do something different with their votes next time.

Recent research from Newcastle City Council has made me feel both better and worse. Published in today's Guardian it makes the partisanship of the present government plain to see. Traditional redistribution measures, including the sharing of local authority rents and local business rates, are being abolished, leaving the richer parts of the country free to profit while those in the deindustrialised north in particular struggle. Northern cities and boroughs are losing £150 to £200 per head, while the leafy boroughs and shires of the south lose between nothing and £50 per head.

The inequalities are magnified by the fact that poorer areas are more dependent on public-sector jobs, which are some of the few well-paid jobs in northern cities that once depended on skilled manual jobs. The massive cuts to the public sector will also hit these areas disproportionately hard.

From a macroeconomic point of view this makes plain the massive withdrawal of liquidity from the local economies up and down our country that is taking place. The paradox of thrift is alive and well in Stroud, as councillors and officers alike respond to fear and threats of future austerity by leaving posts unfilled and cutting spending to add money to the growing reserve. The shade of Keynes haunts our council chambers, but nobody is listening.
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Argentina Learns not to Pampa Financiers

2011-11-16T08:52:00.007Z

As the credit noose tightens, it is not surprising that commentators are seeking examples of countries who found their way out of unrepayable debts - and lived to tell the tale. In the case of Argentina, whose debts at the time of its default in 2001 were $81bn. - a record for the time although dwarfed by current debts - life after debt has proved to be a very positive experience.

The story is told in a couple of podcasts made by Peter Day for his World of Business series on Radio 4. A paper I wrote about Argentina's barter networks introduces this story. Caught in the orbit of the US dollar, Argentina was unable to allow its currency to adjust to the needs of its own economy, much as the smaller economies of the Eurozone are today. This culminated in a financial collapse in 2001, with the loss of huge amounts of savings by the members of Argentina's middle class.

What becomes clear from the podcast is that clever young economists within the Argentinian finance depart and/or central bank were alive to the causes of their crisis and took political control. As a recent report (pp. 58-62) indicates, refusing to pay socially impossible debts was a positive decision both in Argentina and in Russia. Default was the first step, followed by a decision not to become involved in debt again. Similar decisions by other Latin American countries actually threatened the future of the IMF - since without debtors a bank is defunct - until the credit crunch in Europe gave it a new lease of life.

With no possibility of receiving credit Argentina had to live from its own resources, which turned out to be a blessing rather than a handicap. With a massive and fertile land mass, and a popuation of only 40 million well-educated people, Argentina had nothing to fear in its debt-free future. As food and fodder prices have boomed, so has Argentina, with its government benefiting from a 35% export tax on soya production.

Another interesting lesson is the rapid growth in the 'informal' sector, which is a typical feature of many poor economies but less typical of a highly sophisticated economy like Argentina. This may also be a feature of the future of European economies. On the positive side it can be interpreted as self-provisioning and self-reliance, but its shadow side is exploitation and precarity.

The sting in the tale of the story of Argentina is that its economic success has enabled it to seek foreign finance. The credit vultures are circling and seeking their share of the natural wealth of the country. How far will Argentina's politicians remember their lesson and keep control of their national wealth?
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24/7 and Other Fallacies of Modernity

2011-11-11T11:12:00.002Z

For all our technology and the vertiginous nature of our consumption, we live mean lives. In his last book the great commentator on 20th century life Ivan Illich bemoaned the loss of our senses, by which he did not mean that we had taken leave of our senses—although he might have done—but that we have lost much of the sensory richness our ancestors enjoyed. He gives as an example that 'Dozens of words expressing the nuances of perception have fallen into disused. In terms of the sense of smell, the victims of this process have been enumerated: of the 150 German words that indicated variations on smell that were used by the contemporaries of Durer, only 32 are still in use today.' (p. 197)

And for all our presumption of what Val Plumwood has called a 'mastery over nature' we are still thoroughly dependent on the productivity and cycles on the natural world. We take the phrase 24/7 to be an expression of our hubristic conquest of time, of being a civilisation that never sleeps. In reality, however, it demonstrates precisely the reverse. To choose a week of seven-day weeks and 24-hour days is an attempt to force some kind of uniformity on the free-flowing pattern of seasons. Some calenders still follow years of 13 rather than 12 months, enabling a more equal number of days per month.

The need for an intercalary day ever four years demonstrates the problem of trying to accommodate the cycle of the moon with the cycle of the sun, and provides further evidence of nature's refusal to fit within the rational, orderly systems through which we choose to arrange our lives. And this is to say nothing of the position of Easter, a festival whose ability to retain its meandering pattern through our spring is the most cheering vestige of a time when seasons ruled our lives.

Bioregionalism is the reintroduction of place into political economy: personally it is about learning about place in the world and perhaps the universe. We can see many ways in which the relearning of ourselves in relationship with our local places might impact on the understanding of political economy. How might such a naturally embedded approach to living facilitate the shift from the culture of over-consumption that is threatening our planet?

One thing that the bioregional economy might offer in exchange for the material consumption of the globalised capitalist economy is a strong sense of identity in relationship with our local places and the other people and species we share them with. This should be balanced by a reassertion of our power within the provisioning systems of our contemporary world: a reassertion of the politics within political economy, and a realisation of the need to put the economy in its place.
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The Silent Coup

2011-11-10T13:47:00.006Z

For some time I have been worried about the political consequences of the social unrest in some of the Mediterranean countries whose history of democracy is limited and whose political cultures are unstable. I had been watching out for action by their militaries to quell street protests or a greater role for the military in political life.

But during the past few days I have realised my foolishness. The coups are happening in an entirely civilised way, carried out by men in suits rather than men in fatigues. An online dictionary defines a coup as 'The sudden overthrow of a government by a usually small group of persons in or previously in positions of authority.' In the case of democracies it can be taken to mean the replacement of one government with another without recourse to elections.

The first evidence that this was becoming the preferred strategy of the financial elites came with the removal of Papandreou when he had the effrontery to announce that such a major decision as subjecting his people to financial rule by the IMF would require their agreement through a referendum. Within 24 hours he had been ousted and today we hear he is to be replaced by Papademos, who is being politely referred to as a 'technocrat' but whose banking credentials are the reason for his appointment.

As a former vice-president of the European Central Bank he is considered a safe pair of hands by the holders of financial assets. Since he is not a member of the socialist party, who won a majority at the last election, he could hardly become the leader of such a government. In Orwellian style, the government is to be titled one of 'national unity'. In an affront to democracy Greece will now be led by a man who has never held elected office.

Italy also seems to be lurching its way towards a 'government of national unity' again headed by an unelected banker. Last evening Mario Monti was made a senator for life by Italy's President, a step seen as preparatory to his taking over as Prime Minister. He is a former politician and was European Commissioner for the single market, which included the finance brief. The total of governments that have fallen as a result of the financial crisis has now risen to five. As the financial elites jostle to protect their ill-gotten assets the main loser appears to be democracy.

The lack of democracy in our own country is blatant and was the real cause of the expenses scandal. Charging to stand in elections and the continuing and growing bias in the media against any views that question the capitalist status quo is a threat to democracy. But in May 2010 voters did have other choices: their refusal to take them is entirely different from citizens who are being prevented from making democratic choices that might cause a loss in the value of assets being held by the elite, as we are seeing in Italy and Greece.
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McKinsey: The Jesuits of Capitalism

2011-11-10T10:31:00.005Z

Had you been wondering why, for the past decade or so, all developments in the health sector and most developments in the public sector generally were going against the public interest and in favour of corporate interests. The heavy involvement of global management consultancy firm McKinsey begins to explain this failure of democracy in such a crucial area of our lives.

Barbara Panvel has been studying McKinsey's activities for several years now. In a recent post on her Political Clean-up blog she explains the history of infiltration of the Labour Party by these Jesuits of capitalism, with their free-market catechism and their worship of the God of Greed.
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Why is the Euro so Strong?

2011-11-04T07:23:00.004Z

With chaos in the negotiations with Greece, rumours of potential bankruptcy in Italy, and real concerns about the economies of Portugal and Spain, you would expect the currency that binds all these countries together to be falling through the floor. The graphic indicates that, over the past calamitous year, the range of movement has been between 1.48 and 1.28, and that at the value of the euro is hardly any lower than it was a year ago.

I was stung by a comment on one of my blogs from last week, complaining that I was being incomprehensible and jargonistic, so here I am going to explain simply why I think this is the case. This comes down to a discussion about what I have been calling for several years the 'currency wars'. When faced with hard times countries seek to return to growth and one means of doing this is to increase the volume of exports. Having a weaker currency makes your exports cheaper to the countries who buy them. So countries have been deliberately reducing the value of their currencies.

There are various ways of doing this. Some commentators claim that the US policy of quantitative easing is deliberately designed to achieve this end. Certainly, putting a lot of extra currency into circulation should reduce the inherent value of that currency. A more obvious way is just to lower your interest rates: since interest rates are effectively the price of money, this is an automatic means of making your money cheaper and causing its value relative to other currencies to fall.

To keep some sort of idea of the relative value of different currencies we need a standard, sometimes called the numeraire. In the 19th century gold was used as this standard, but this had all sorts of distorting effects on economic activity - primarily the fact that you couldn't increase economic activity unless bare-chested chaps deep in the bowels of the earth were digging up enough of a golden metal, which was frankly completely irrational, although emotionally appealing.

At Bretton Woods, the conference where the victors in the Second World War negotiated the shape of the world economy in the decades to follow, it was agreed, reluctanctly, to allow the dollar to take this role and to become the world's reserve currency. The consequences were hugely beneficial to the US in terms of imports, but ultimately destroyed its productive economy.

As the power of the dollar wanes, the other currencies that traders consider strong enough to take the role of a global reserve currency - the Japanese Yen, the Swiss Franc, the euro, and even sterling itself - have all become more attractive. This explains why we are not facing the speculative attacks that Greece is, not the performance of George Osborne at international conferences. As each currency becomes attractive to traders seeking a safe haven, the authorities that control its value seek to undermine it, since they do not want to suffer the export problems that result from having a highly valued currency.

In this form of reserve currency, the euro is still an attractive option and its interest rate of 1.5% now seems high by comparison with just 0.5% in the UK and 0.25% in the US. In addition, its competitors in terms of being the currency of last resort would resist its value falling too far, since that would require them to take more of the strain. This has led to the currency wars, which are a form of trade war in disguise. Because such wars cause international tensions, a solution that involves the creation of a neutralreserve currency, run for the benefit of the world's people and not an individual state, has long been my preferred option.
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Economics Students on the Move

2011-11-03T06:43:00.010Z

How our economy will be organised in the future relies heavily on how our future economists understand the world and its workings, as well as their values. Economics education is obviously, therefore, of fundamental importance. The movements to reform economics education, shifting it from the realm of theology into one of pluralism and genuine debate, have been followed with interest by this blog.

So it is with delight that I heard this morning of the revolt by Greg Mankiw's students. Manikiw is the author of one of the most widely used introductory textbooks, as described by Geofrey Hodgson:

'Gregory Mankiw’s Principles of Economics, in its five versions, has internationally been the dominant basic text for more than a decade. Also its author was chairman of President Bush’s Council of Economic Advisers from 2003 to 2005.'

Here is the letter his students at Harvard, paying $40,000 for the privilege of biased and distorted information, presented to accompany their walkout from his introductory economics class, according to a US blog:

'Dear Professor Mankiw

Today, we are walking out of your class, Economics 10, in order to express our discontent with the bias inherent in this introductory economics course. We are deeply concerned about the way that this bias affects students, the University, and our greater society.

As Harvard undergraduates, we enrolled in Economics 10 hoping to gain a broad and introductory foundation of economic theory that would assist us in our various intellectual pursuits and diverse disciplines, which range from Economics, to Government, to Environmental Sciences and Public Policy, and beyond. Instead, we found a course that espouses a specific—and limited—view of economics that we believe perpetuates problematic and inefficient systems of economic inequality in our society today.

A legitimate academic study of economics must include a critical discussion of both the benefits and flaws of different economic simplifying models. As your class does not include primary sources and rarely features articles from academic journals, we have very little access to alternative approaches to economics. There is no justification for presenting Adam Smith’s economic theories as more fundamental or basic than, for example, Keynesian theory.'

The students undertook this action to express solidarity with the Occupy Wall Street movement.

Mankiw is a populist, using his own blog to blandly reassure about the existing economic model, blithely ignoring its destructive impacts and its lack of connection with reality. The fact that his own students are alive to this and are following the example of students in Paris and Cambridge in calling for an economic education that takes seriously the problems of the world we live in is hugely encouraging.
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Subverting the Agenda

2011-11-02T12:10:00.005Z

An opportunity has arisen to test the nature of the democracy we live in. The powers that be have magnanimously agreed to allow we mere citizens to set up petitions on the Direct Gov website. It was this process that led to the fiasco of the debate over the European Union. But will the revolting peasants be permitted to enquire into the tax affairs of their betters?

To test what happens when more than 100,000 people sign to require that to happen we need you to sign the that has been launched on that very site. Please sign today and circulate the link far and wide.
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Politicians Paint Themselves into a Market Corner

2011-11-01T11:58:00.005Z

The shenanigans over the rate of the feed-in tariff is a good example of the way in which politicians have, in accepting the myth of the omnipotent market, limited their room for manoeuvre and made themselves incapable of taking the steps necessary to ensure social and environmental benefit.

We can argue about the appropriateness or otherwise of the 43.3p set by Labour for the rate of the feed-in tariff and whether it was just a deliberate banana-skin for the incoming Tory government, but the broader question of who should pay the cost is what really demands attention. The transfer of money uniformly via energy bills in a market dominated by an informal cartel and from those who can least afford to pay, towards those who have the spare resources to buy solar panels to install and would then receive the tariff was always a questionable scheme.

Imagine a world where the production and distribution of energy was in public hands - local government rather than national, ideally - and where the cost of energy rose as you used more, rather than costing most when you use least. The extra money charged to heavy energy users could be made available via grants to local people, or used to directly fund the installation of solar panels on the roofs of the tenants of social housing, who are least able to pay their energy bills. You have neatly created a just solution and simultaneously generated sustained demand for solar panels, reducing costs and making them available at a lower price to those who can afford to buy their own. This is a political solution, but it is hardly communism.

In the end this decision to set a price to underpin the development of a market for solar in the UK, immediately followed by a reversal, is bad for business too. It gives a mixed message which is exactly the opposite of the clear signal businesses need to make investment decisions. It will have negative knock-on effects in other areas, as managers doubt political commitment to the transition to a green economy.

As the myth of the market itself corners the market in ideas, we see the consequences in terms of inert and impotent politicians, and we all pay the social and ecological price.
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Green Queasing Gathers Support

2011-10-28T09:30:00.005+01:00

Last year Colin Hines and Richard Murphy of Finance for a Future called for money to be into businesses helping us make the transition to a sustainable economy, a call which has been by Green MP Caroline Lucas and repeatedly on this blog. If we are to create money it needs to generate truly effective demand, not just disappear into banking black holes.

A recent post to Power Switch, the UK's peak oil discussion forum details how such a scheme might work. Meantime, more rhetorical support was offered by Tim Jackson during his presentation to the Schumacher centenary festivities in Bristol earlier in the month.

Meanwhile a useful piece of research commissioned by WWF indicates another important direction that manufactured money should be directed: towards transforming our energy grid towards sustainability. The report's encouraging conclusion is that:

'This report makes it clear that decarbonising the UK power sector by 2030 in an environmentally sustainable way that avoids reliance on risky nuclear technology and high levels of unabated gas is achievable without compromising the security of the UK’s electricity system.'
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Mammom 1; God 0

2011-10-27T07:31:00.009+01:00

The resignation of Giles Fraser, Canon Chancellor of St. Paul's Cathedral, is a clear sign that things may be about to get rather nasty for the economic justice activists claiming the church's sanctuary in the heart of the City of London. From the start he had welcomed their protest and made them welcome inside the church. The church hierarchy decided to to close the church to put pressure on the protestors - a decision that seriously backfired. Once it closed its doors a conflict seemed inevitable and Giles Fraser has been the casualty.

The worrying signs began with a news story, emanating from the cathedral, that it was losing £20,000 per day because of the closure. This immediately raised several questions: how could a house of God be so lucrative? Why had they voluntarily closed their doors to ensure that this income would be lost? And perhaps most important of all: what would Jesus have thought of all this?

Most historic churches now include a 'gift shop' which sells a range of tat to enhance church funds. While live chickens no longer change hands and the trade is always seemly and made in hushed, respectful voices, you still can't help thinking of Jesus overturning the tables of the money-lenders and questioning what should have been a house of prayer becoming a den of thieves.

This is a shame, because the various parts of the Christian church have a wonderful reputation for taking practical steps towards greater social justice. The fair trade movement arose originally from a Christian inspiration and grew up through the sale of coffee and tea on stalls at the back of churches. A more direct attack on Mammon was found in the work of the Jubilee 2000 movement for the cancellation of debt owed by poor countries, as well as the work of the Christian Council for Monetary Justice.

It seems that the final straw for Giles Fraser was a decision by St. Pauls to join in the legal action by the Corporation of the City of London to sue the protestors and achieve their eviction. We can expect ugly scenes in the City and huge damage to the reputation of the church, as those who are standing up for the poor against an oppressive economic system are battered and bruised on the steps of one of the nation's greatest churches.
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The Eurozone Crisis: A Warning from History

2011-10-26T08:02:00.008+01:00

I am thinking of creating my own derivative, called a political default swap. This is how it works. We each choose a country and bet against the length of survival of its government as it tries to introduce enough austerity measures to keep the markets happy. It works like a sort of insurance policy, where the riskier the country, in this case the less able its politicians are to bear down on its people and extort their work to pay bankers' debts, the higher the cost of betting on it.

The manoeuvres by EU finance ministers in Brussels today conceal as much as they reveal and demonstrate that power is balanced between politicians and financiers. This is seen most clearly in the negotiation over the extent to which those who made risky investments in Greek debt will lose their shirts (or their hair). The risk seems to be approaching 50:50.

Harder to agree is how the effects of this on Europe's banks will be accommodated. If the banks take the full hit, the financiers argue, they will become bankrupt, leading to Credit Crunch II: Return of Debtonator. So the bank welfare fund has to be massively increased. We have grown tired of billions, yawn the financiers, we need to move into the zone of trillions.

But where is this money to be found? The devastated citizens of Europe, their bodies already straining beyond breaking point to keep the capitalist wheels turning, can offer no more. Eyes turn to the European Central Bank - can it be asked to create money from thin air, the sort of money bankers like best - power without responsibility? The Germans, with their historical fear of inflation, will not accept this option. The most likely outcome is a solution dreamed up by the very 'quants' who created this disastrous situation: a solution that uses a combination of mathematics and conjuring to make the money disappear through time, emerging at some future date enormously swollen in value.

In his masterpiece The Great Transformation, written in 1944 and reflecting on the last great capitalist disaster, Karl Polanyi describes the contortions that Europe's politicians went through in the 1930s to save the Gold Standard. They seem eerily similar to what we are witnessing today. The system must be saved, no matter what the sacrifice in terms of human lives and political stability.

In the 1920s financiers inflated a bubble which burst in 1929, but through the 1930s the economists defended the position of laissez-faire capitalism whose social costs were unacceptable to the people of Europe. The result was political polarisation, economic chaos and the rise of fascism. This crisis has already provoked the collapse of the Slovakian government, the government of Iceland, and the government in Ireland, and the Italian government could soon follow. Somehow the political system is still holding in Greece, but the massive civil unrest leaves it vulnerable. So, will you take my offer of a punt? Which country's political system would you bet on surviving this financial turmoil intact?
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One Cheer for Australia's Carbon Tax?

2011-10-20T09:30:00.009+01:00

During our summer of discontent there was a very discontented debate happening on the other side of the globe over whether or not Australia, one of the world's worst carbon offenders in terms of emissions per head of population, was going to be the first member of the OECD to introduce a national carbon tax. In spite of the lobbying, lies and loss of three leading politicians, a carbon tax was introduced. That in itself seems to me to be worth celebrating.

It has also led to the production of some trite but rather useful short videos, made available via the Australian government's website. In typical aussie style, these make the points without any fuss - a far cry from what we could expect from our own DECC. These could be useful to share with friends and colleagues who find the rather abstract idea of 'pricing carbon' difficult to grasp.

The carbon tax is a policy proposal emanating from the Australian Greens, who are celebrating its acceptance by the ruling coalition. The fight over whether to control emissions through a trading system, which effectively gives the value generated by the right to pollute to companies - the sort of system we have in the EU - or through a carbon tax, where the value goes to governments and can be shared with citizens who will pay higher fuel prices, has been a bitter one, with Bob Brown becoming a hate figure amongst Australia's huge mining companies and in the Murdoch press.

Due to the power of this lobby, there are a large number of accommodations and compromises, limiting the effectiveness of the tax. The price of carbon, at around £15 per tonne, if massively too low, and the money raised has been used to buy off both citizens facing higher bills, but also the very companies that are guilty of producing the pollution. The target for emission reductions - at 5% by 2020 - is also totally unrealistic.

But Julia Gillard has looked weak since she knifed her own party's leader PM Kevin Rudd, and in that context this is a significant political victory. It also represents a historic victory for the Australian Greens, who first proposed a carbon tax for their country. We should build on this start and argue for carbon taxes in our own countries.
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Why is it easier to imagine the end of the world, than to imagine the end of capitalism?

2011-10-17T10:10:00.007+01:00

This is the title of a new book published in Czech and it encapsulates an important thought given the extraordinary contortions we are witnessing at the G20 and amongst Eurozone leaders. It has been clear for several years that the money created during the banking boom was produced from thin air and could never be repaid, yet those amongst the elite who nominally hold this value are refusing to relinquish it now that their bubble has burst.

Initially, the extorted money from governments to pour into the debt black holes and maintain the value of their assets. This merely had the consequence of threatining the financial stability of the countries involved, in the case of Greece and possibly Portugal and Spain to the extent of bankrupting those countries. Now that more of the debts are coming home to roost the asset-holders are seeking another round of welfare payments from the 99% who are suffering the austerity cuts their profligacy has caused. No wonder that European capitals are filled with angry demonstrators.

The impasse is the result of a struggle amongst capitalist elites. On the one side we have the US, Christine Lagarde, the US puppet at the IMF, and the UK, the traditional US poodle. This group seeks to maintain the power of the dollar in the global financial system. On the other side the rising economies of China, Brazil, India and Russia are proposing a greater role for the IMF, which should no longer respond solely to US dictat.

Without a strengthening of the IMF bailout fund money must be found from the Eurozone countries to provide money to support European banks when their Greek assets are obliterated, some time later this month. Otherwise some, or perhaps all, the European banks and a large number of its countries, will become bankrupt. If European citizens cannot be persuaded to accept the use of public money in this way, then control of European and US financial institutions may have to be ceded to the sovereign wealth funds of the BRIC economies - the only group capable for finding additional money to invest.

Meanwhile the people of the world are calling time on an economic system that maintains the value of the corrupt assets of a tiny elite while the vast majority of the world's people suffer. The inchoate mass of political opposition camped around the world's capitals is waiting for a political leadership with the courage to proposed a new economic system, and for a media prepared to break the strangledhold of its pro-capitalist owners.
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Public Sector Jobs Carnage

2011-10-10T07:37:00.004+01:00

Job losses in the public sector are happening much more rapidly than predicted, which will have serious knock-on effects in terms of reducing demand in the economy as a whole, as well as reducing tax payments and increasing the amount of money needed to repay the deficit. This is according to figures from the Chartered Institute of Personal and Development and published by the BBC this morning. Put together with the misguided comments from Cameron about people reducing their credit card debt, which were later pulled from his conference speech last week, this adds to the growing sense that Conservative politicians do not understand how to respond to the second Great Depression which faces us.

An early political move by the New Ricardians was to create the Office for Budget Responsibility - a figleaf to justify their unacceptable policies. Such an Office only has a reason to exist if it can provide informed judgements about the economy that are also genuinely independent. Yet it has repeatedly produced reports to support Conservative policy, and its predictions have been inaccurate to the point of uselessness.

In November 2010 the OBR predicted that the government cuts would lead to 410,000 job losses in the public sector between 2010/11 and 2015/16, a revision downwards from the 610,000 it had predicted that June. The CIPD statisticians indicate that the original figure was correct. So why did the OBR change it? Was this to support the government in difficult political times?

The hard news for the UK economy is that the risk-averse managers in the public sector are cutting jobs more rapidly than their immediate financial situation demands, so that the number of jobs lost since the beginning of this financial year is five times what the OBR predicted. With projections as far out as that, with consequent impacts on deficit management, what is the use of the OBR?

It proves its usefulness to the government by enabling a Treasury spokesman quoted in the article to opine as follows: 'Half a million private sector jobs were created last year and the independent OBR has forecast that there will be 900,000 more jobs created in the private sector than lost in the public sector by 2015'. But if this forecast is as unreliable as the rest then it provides no basis for policy-making, just an opportunity for the spokesman to save the government's face.

It begins to seem increasingly likely that the OBR is a research unit created to provide statistically impressive but factually inaccurate cover for a government bent on its own destructive course. As such, it is itself a waste of money in these days of austeria. It should either be funded from Tory party coffers or abolished.
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The Apple of My i

2011-10-08T08:27:00.012+01:00

Much of the debate surrounding the consumerist culture focuses on the way we are sold objects apparently to satisfy a certain need when really they satisfy a deeper and perhaps even subliminal desire. Beautiful women draped over fast cars persuade young men that they will acquire sexual allure as well as a set of wheels. In this way our desires and needs are themselves distorted, ultimately leading us towards lives of dissatisfaction and longing.

It seems to me that excelling in this process was at the heart of what is widely being called the 'genius' of Steve Jobs. Here is Julian Baggini writing in yesterday's Guardian:

'Jobs's success was built firmly on the idea that you should not give consumers what they want because they don't know what they want. No one thought they wanted the first desktop Mac, iPod, iPhone or iPad before they existed. Jobs repeatedly created things that people came to want more than anything else only by not trying to give them what they already wanted. This challenges the idea that consumer culture inevitably means pandering to the conventional, to the lowest common denominator. Markets are not necessarily conservative: truly great innovations can become popular.'

A companion piece focuses on the 'soft-machine aesthetic' that Apple pioneered, making what had seemed geeky and cold appear friendly and cool: 'instead of chilling you out' they 'glow like fireplaces and nuzzle like digital pets'. Jones admits that he writes articlse on an impractical machine that does not facilitate the process of typing because he is 'captivated by the beauty of this piece of technology'. Jones goes so far as to suggest that the way an Apple computer slowly lights up suggests that is it coming alive.

The moment of the death of the God of such distorting desires has left many a lover of technology open in a way few experience probably do. I am grateful to Jones for laying out what I had long suspected to be the case. Many people, and I would hazard that the majority are male, actually love their personal technology. They relate to it with greater intimacy and trust than they relate to their friends.

There is a narcissistic aspect to this relationship with technology, which I can't help finding in the use of the letter 'i' before the name of the products: istuff is not for sharing, it is for relating to intimately, whether in public or private; it is for gloating over. Jones also admits as much when he writes: 'Perhaps the greatest insight of Steve Jobs, when it came to design, was that the most beautiful, marvellous creation on earth is not the computer, but the person using it.' Not the human race, or the people the user loves, or a tree or a real juicy apple or a minah bird, but the individual who has bought the Apple product.

In his 1996 book The Spell of the Sensuous, David Abram described how a relationship with industrial products diminishes us:

‘the mass-produced artifacts of civilization, from milk cartons to washing machines to computers, draw our senses into a dance that endless reiterates itself without variation. To the sensing body these artifacts are, like all phenomena, animate and even alive, but their life is profoundly constrained by the specific “functions” for which they were built. Once our bodies masters these functions, the machine-made objects commonly teach our sense nothing further; they are unable to surprise us, and so we must continually acquire new built objects, new technologies, the latest model of this or that if we wish to stimulate ourselves. (p. 64)

Natural products, with their endless unpredictability and randomness are, by contrast, stimulating and deeply fulfilling.

It would be easy to dismiss my criticisms as coming from a Luddite or a technophobe but I am neither. I just believe in keeping categories clear: computers are to support us in our work; friends and family are to share love with. There is nothing anti-technological in holding fast to the view that you should approach your computer as a tool and not as a lover, and yet I daily watch friends and strangers caressing their phones. The main reason I am still holding on to an ancient Nokia is that I cannot bear to acquire a mobile that I cannot using without stroking it.

In all the panegyrics the phrase that was often repeated was that Steve Jobs changed our world. Leaving aside the questions about the authenticity of somebody who attempts to portray a whole company of intelligent and hard-working individuals in the image of his own ego, should we not also be asking whether he changed the world for better or worse. With evidence of our disembedding from the natural world and its destructive consequences growing every day, and being matched by evidence of our dislocation from each other, this question seems a disturbing omission.
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Where is the social in social enterprise?

2011-10-07T09:00:00.001+01:00

A good colleague of mine, Len Arthur, raised this question during work we were conducting into the theory of social enterprise. What we found is that is a portmanteau term: when almost anybody can claim to be one, the term itself becomes pretty meaningless.

This has become a live issue in my local community of Stroud, where the local health authority produced a plan during the summer to transfer a range of non-emergency health services to a community interest company. There was almost no consultation and what there was took place in August when most people had other things on their minds. During an emergency debate at Stroud District Council, Green Councillor Martin Whiteside produced a copy of the registration document for the 'social enterprise' he had obtained from Companies House. It indicated that there was only one shareholder: the Chief Executive of our local health authority.

Our story has now made the national media, thanks largely to the dedication of our Green mayor, John Marjoram, and the eloquence and determination of Michael Lloyd who is testing the legal process of transfer in the courts. Once local people got wind of what was afoot they were immediately activated, joined the rally, and spoke passionately in support of keeping their health services public.

So how do we answer the question with which I began this post? Again I think we do have a method for finding and answer: the useful scalpel in this dissection is made up of ownership and control. If you are being offered a social enterprise instead of a public service the questions you need to ask are: who will own it? and who will control it? If the process of being elected to the board is straightfoward and open to all, and the assets transfer to members then what you have is probably a multistakeholder co-operative and may have a good chance of providing you services that are responsive and meet your needs without extract value for somebody else's profit. If not, then you may be being handed a pig in a poke: beware of imitations.
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Currency War Lurches Towards Trade War

2011-10-05T11:43:00.007+01:00

The growing power of China over the US resulting from its ownership of US treasuries, not to mention its superior productive capacity, is the driver of the currency wars that have been the subject of a series of posts of this blog. Earlier this week this power struggle took a dangerous new turn, with a bill that was accepted onto the floor of the US Senate by a big majority.

According to the Guardian website, 'The Senate bill, which does not specifically mention China, sets in motion a process for imposing punitive tariffs against a country with misaligned currencies. The bill also makes it easier for specific industries to seek higher tariffs on foreign competitors when undervalued currencies become a means to subsidize exports.'

The US it attempting to fight back against China's decision to keep control of its currency. This is of course a root cause of the under-valuation of the Yuan, but what would be the appropriate value. In a global trading system dominated by the US, its allies and the international organisations such as the WTO that they control, why would China feel any inclination to fight fair?

This is a high-risk strategy. Given that China is the US's largest creditor by far, it is only its decision to continue to hold and buy US government debt that keeps the country afloat. In a fair market the US looks almost as unsaleable as Greece, given its vast national debt and low levels of productivity.

The only safe way out of this situation is via international negotiations in which countries and their interests are fairly represented. The removal of the dollar as the global trading and reserve currency would be a necessary first step if China is going to accept an invitation to such a negotiation.
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George Makes King Mad

2011-10-04T09:21:00.005+01:00

Proof that the economic crisis is still, fundamentally, a monetary crisis came during the Chancellor's speech to the conference yesterday, when he announced that he would be experimenting with another novel policy, which the policy advisors have decided to call 'credit easing'. This represents a worrying incursion by the Treasury into the realms of monetary policy traditionally reserved for the Bank of England.

You may have noticed the media pressure in recent weeks from 'financial commentators' attempting to force Mervyn King, governer of said bank and therefore the chap in charge of the nation's monetary policy, to resort to another round of quantitative easing, a policy that the media usually refer to as 'printing money' but which has actually consisted of the bank buying up a lot of corporate debt, thus making it easier for the corporates to take on more debt. Since that is the way that this form of capitalism considers appropriate to create money it is a novel but predictable response to a squeeze on credit.

It seems that King and his eight wise men of the Monetary Policy Committee (for such they are - no sign of skirt in the room when such decisions are made) have refused to put more money into the economy in this way, and so the Chancellor has found a way around this block by inventing a system of government guarantees of corporate IOUs, allowing them to issue bonds and get the liquidity flowing. Few details have been given yet, but it appears that the process of creating money through issue bonds is being privatised, with corporations now being allowed to create money in this way.

The Treasury will guarantee this process, which appears to mean the we, as taxpayers, will become entangled in the securitisation corporate debts that was the process that led to the credit crunch in the first place. With bank debts looking so dodgey, only debt backed by our obligation to work is acceptable. The problem is we have no say over who is allowed to create this debt, how they bundle and sell it, and what it is invested in. These deeply political decisions have been privatised and devolved to corporates.
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I must confess that the arcane niceties of what is referred to in textbooks as 'open market operations' baffles my mind, but the political economy of this seems clear: the debt crisis has resulted in the sucking of money - liquidity - out of the economy at all levels. Everybody is clamouring for investment, whether in hospitals or from the corporate sector: it is a political decision that money will be allowed to be created in the private sector while the public sector will continue to be starved of cash.
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Banking Mad

2011-09-27T10:45:00.001+01:00

Holmes and Watson pursue an errant banker

So the Vickers Commission has reported and made its bland recommendations. In view of the apocalyptic views expressed about the behaviour of the banking sector by Bank of England Governer Mervyn King earlier this year the proposals seem mild indeed. More telling is the eight years that the banks have been given to wheedle, wangle, and reorganise their business to avoid the legislative changes that are proposed having any potential to curb their room for manoeuvre.

Given the devastating consequences of the banks' nefarious practices over the past 30 years the only conceivable response is one of rage. But while rage seems to me quite appropriate, and proposals along the lines of a national audit committee to repudiate much of the debt that is presently destroying our society may be a way of channelling this rage, there is also a need to engage in the debate about the future shape of the banking sector in the UK.

My Green House colleague Thomas Lines has done this with admirable grace and restraint (not to mention some wit) in his recent report The Dog that Didn't Bark. As its subtitle indicates it provides useful historical background to the present limited debate by analysing 'when banking crises did not occur and what we can learn from that'.

Lines reaches some rather unexpected conclusions. If I may risk mixing his extended metaphor (over which he himself is quite scrupulous) he finds that the focus on competition between banks is a red herring. During the nearly three decades following the end of the Second World War when there were no significant banking crises, British banks were not very competitive and operated more like an informal cartel. This was elitist and resulted in the rationing of credit, but it did achieve stable banking.

Interbank lending was also rare during this period. It was the interconnectedness of banks, as much as their size, Lines argues, that left them so vulnerable in the period leading up to the 2008 crash. Its origin lay in the laziness of bankers, who sought easy profits without effort:

'An uncharitable way to describe inter-bank lending would be as lazy banking, since the wholesale markets make it possible to build up a bank's assets without the hard work of developing a customer deposit base.'

The report recommends that banks return to their function within a stable economy: that of unglamorous utility banking, providing a haven for savings and a source of reasonably priced loans. A key recommendation is one that finds a comfortable home on a blog on the theme of Gaian Economics:

'Ecological theory suggests that a system will be most resilient when it is divided into compartments to protect it from external dangers. The banking system should be set up in this modular way too, without financial interconnectedness between banks. For this reason we proposed severe restrictions on interbank lending and derivatives trading, and a reintroduction of exchange controls designed, among other things, to sharply reduce international flows of money between banks.'
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Stability Facility Two-Step Reaches Conclusion

2011-09-26T10:44:00.004+01:00

After weeks of rising political rhetoric the outline of a plan for the Eurozone appears to be emerging. The road that involved further debt guarantees from the wealthier nations of the EU, primarily Germany, and a consolidation of all Eurozone debts into one Eurobond, appears to have been abandoned. This was presumably because Chancellor Merkel refused, or argued successfully that this was politically impossible and might lead to a less market-friendly government in her country—perhaps even a Green one.

Since the debts cannot be absorbed the new plan is that some will be turned into losses, with a negotiation between the banks that unwisely took on Greek bonds and the Greek government that cannot repay them: the so-called hair-cut, which is now moving down to a number 2 on that automatic machine that muscular men with early hair loss so often favour. It was the Argentinians back in 2002 who taught us that it takes two to tango: serious debt crises require losses to creditors as well as pain to debtors.

The other side of the plan is more interesting: a larger bailout pot, now tastefully renamed the European Fiscal Stability Facility. This will be available to support governments whose national debt is so large as to undermine market confidence. It is assumed that it will never be used: its existence is intended to be enough to underpin confidence. This means it will have to be a very large pot indeed. And once the money is in the pot you can guarantee that the financial market makes will find some way to provoke a crisis and make it their own.

The argument now seems to be about where the money will come from to fill the pot. We must keep very close attention on this. If the money comes from national governments then our obvious question should be: 'How can there be money to put into a bailout pot when there is no money to pay for hospitals or children's services?' If, alternatively, the money is created directly by central banks—in a process akin to quantitative easing—then our question should be: 'Why not create enough money this way to repay all the national debt and so remove the need for the pain of spending cuts?'

This is the most interesting question of all. We know that the Bank of England is under pressure to quease more money into the economy at any time. Some of that money has previously been spent buying back our own debt; a similar process has been undertaken by the European Central Bank to buy Italian debt. So why not go the whole hog? Could it be that this would make it clear that there really is no need to create money as debt in the first place? That money could be directly spent into the economy as needed. The reason for resisting this is the power of those who live by lending money: without debt they would have to go to work like the rest of us.
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Explaining PFI

2011-09-22T07:36:00.012+01:00

Scandals about the extortion of public money by private companies seem to arrive daily, as the decade of corporate governance begins to unravel. The political conclusion is clear: we need to keep the public and private separate.

This morning's news is about the disastrous economics of the PFI policy. Money that was created from thin air in the private sector was loaned to the public sector to build hospitals. Over time the interest on that money will have to be repaid from the public money that is taken from taxation and paid to hospitals to support patient care. The quality of health services will decline so that the financial interests of private corporations can be served. According to Department of Health figures, 22 trusts face bankruptcy because the payments on their PFI contracts cannot be met.

The fact that the PFI contracts the private companies who loaned the money became obvious when they started to be sold in a 'secondary market' - the companies who set them up were selling the income stream on to other investors. Serco has been assiduous in keeping its investors up to speed with the growing concern in government about the disadvantageous PFI contracts entered into by health authorities and the possibility of renegotiation. Dubbed by the Guardian as, the biggest company you have probably never heard of, Serco is all over the public sector, profiting at the public expense.

The PFI deals are just the most obvious example of how the claimed efficiency of private sector arrangements to provide public services were a front to enable the embezzlement of public money. The most charitable interpretation is that corporations and consultants have used politicians' ignorance about finance and about IT to profit at the public's expense.

When the operation of private values and private finance in the public sector has been so devastating it demands one to question why this has happened. The answer appears to be simple greed, the chief motive of the private sector, and which privatisation allowed to swamp the public sector too. Most seriously, we can observe the greed of ministers who foresee their own nest-eggs as directors on the boards of the companies who have destroyed the public interest they were supposed to serve.
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Sunshine State or Resilient Region?

2011-09-21T17:43:00.005+01:00

Those of us who are active in Transition Towns have been disappointed by the government's inability to respond to the impeding food crisis that will result from the exhaustion of oil supplies. So I was surprised, I'm not sure whether or not it was a pleasant one, to find that the Department for Business, Innovation and Skills employed some consultants in 2008 to develop a range of scenarios in response to the need to radically reduce our national use of energy.

The scenarios are based on a series of 2 x 2 matrices arising from two ‘axes of uncertainty’. The x-axis ‘describes the significant uncertainties in the global political and economic context in 2050’, while the y-axis ‘looks at the type of innovation which attracts investment’. On the x-axis are represented possible assumptions about the extent of co-operation between nations, while the y-axis marks out the continuum between investment in optimising existing systems or developing wholly innovative solutions.

This process results in four possible scenarios: Green Growth, Carbon Creativity, Resourceful Regions and Sunshine State. Two of the scenarios have commonalities with a bioregional future, although both are based on this relocalisation as a response to a failure of global solidarity which is by no means the basic assumption of a more regionally based economic future. In the first, the Resourceful Regions, ‘The key distinguishing feature is that English sub-regions have a high degree of autonomy, matching Scotland and Wales’:

‘The countryside is used more intensively than in the past, for food production, mining
and other activities. Within built up areas, retrofitting rather than new build is the
preferred approach. Any new buildings are increasingly built in a local vernacular
style, and there is considerable emphasis on urban green space to tackle overheating. People in this Britain like to think they are self-reliant, and are proud of being British, even though the country is closer to breaking up than any other time in the previous century. Their living conditions vary widely as regions have their own economic structures and differing levels of economic success. But acceptance of the situation is underpinned by strong regional identities and the effectiveness of most regional government’s moves to support vulnerable groups and public services such as public transport.’ (Foresight, 2008: 14)

In the Sunshine State scenario, ‘Government has fostered an emphasis on localism to respond to energy problems’ and there are other aspects of the imagined future that could find resonance with a bioregional approach: ‘There are more local shopping streets and other community resources, partly because of planning decisions intended to promote local autonomy and partly because of municipal enterprise.’

I cite these examples not to support their vision of the future, which I think is limited by the nature of the underpinning assumptions, as well as the method used, but to indicate that government is considering the future design of economic systems that must result from rapid reductions in energy use. Policy focus has been most strongly on the Green Growth scenario, with profit-driven companies providing technological solutions, and to a lesser extent the more co-operative Carbon Creativity approach, but these are political choices. In a democracy, visioning the future is a job for all and these scenarios make clear that a bioregional future of the sort I am proposing frequently on this blog is a realistic possibility already under consideration by policy-makers.
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Waking the Dead

2011-09-17T08:39:00.012+01:00

The proposed changes to the UK parliamentary constituencies have brought to light some interesting political debates that usually lie under the surface. The presumption behind the review was that the previous system was biased in favour of Labour, since the constituencies they held contained fewer voters, on average, than those held by Conservative MPs.

Labour MPs have objected to equalisation on the grounds that their constituents are more deprived and therefore require more time from their MP, compared to comfortable voters in the Tory shires. This seems a bizarre example of special pleading, and lends support the unhelpful ideal of the MP as gold-plated social worker rather than respected legislator.

Emily Thornberry in the Guardian makes a more congent political point, arguing that in her Islington constituency 10,000 of her potential 'constituents' are not included in the count because they do not have British nationality. This represents more than 10% of her potential electorate and makes clear that changes to the law on nationality and citizenship are more pressing than revisions of constituency boundaries.

But how about other people who can't vote because they are dead? I have been wondering how constituency boundaries, not to mention elections themselves, might change if Labour and Conservative voters had the same life expectancy. A couple of years ago the Scottish Daily Record reported that men living in Glasgow east end have a life expectancy of 54. This compares with the 82 years that men living in the prosperous constituency of Lenzie can expect. That represents an additional 28 years of voting.

These huge health disparities can be assumed to have affected the outcome of the Scottish parliamentary election, benefiting the SNP, whose voters are more affluent compared to those in Labour's industrial heartlands. And what about if we compare Hartlepool's expected 76 years with the 85 of Kensington and Chelsea? How are these health inequalities, and the additional voting years they represent, affecting the outcomes of elections to the Westminster parliament?

Danny Dorling and colleagues published an article in the BMJ questioning the relationship between the way health inequalities had widened under Labour and the outcome of the 2010 election:

'National statistics show that the gap in life expectancy between the worst and best local authorities in the United Kingdom grew from under nine years in 1997 to almost 13 years by 2007. This suggests that during the period of the New Labour government the “political participation expectancy gap” between these local authority areas grew—because of differences in mortality—from roughly two to three general elections.'

Democracy is about representation and participation, not bureaucratic boundary changes. If the Electoral Commission took their job seriously they would themselves be raising these questions and considering how government refusal to deal with the open sore of health inequality is a greater threat to democracy than a slightly misplaced line on a map.
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Two Bald Men Fighting Over a Comb

2011-09-16T13:36:00.008+01:00

As we blunder towards another credit crisis, with banks losing confidence in each other and increasingly refusing to accept each other's debt, the inability of politicians to act is extraordinary. This morning's headlines might have read: 'Lagarde says nothing, recommends doing something, not clear what'; 'Osborne demands strongly that something is done'. Tomorrow's headline should read 'Geithner insists on urgent (unspecified) action'.

Everybody is demanding action from everybody else, but all those who apparently have power have given it away and forgotten how to use what they have left. My Ten Point Stabilisation Plan is still available, free of charge, to any who would wish to use it. But while our politicians find themselves incapable of thinking their way around free markets we can expect more blundering and empty performances in the days to come.

While Tim Geithner appears to have no thoughtful content to contribute, the intervention by the US Treasury Secretary adds interest and takes hypocrisy to new heights. Geithner's advice will presumably be to cut public spending harder and faster, this coming from a country whose own debt is so out of control that it threatens to incapacitate the political system entirely.

Thinking back a while we can recall why the Euro was invented in the first place: because the Europeans were tired of the trade advantage the US enjoyed by controlling the world's trading currency. The Euro was intended to compete with this supremacy and become an alternative reserve and trading currency. The US's intervention is thus more evidence of its presumption in favour of its own interest, no matter what the consequences.

But it was no only the Europeans who had grown tired of producing goods for the US and receiving only arrogant pronouncements in return. The Chinese worked their way into such a massive external trade balance that they could buy up the US and have change. Hence their continuing and repeated calls for a neutral trading currency to replace the dollar and the euro. Meanwhile, the growing economies of Latin America and south-east Asia found ways to facilitate mutual trade without using the dollar. The US no longer has anything to support its assumption of a right to tell the rest of the world how to behave.

If this really is a situation of two bald men fighting over a comb it's fairly clear that the comb, like everything else these days, has been made in China, and the Chinese are holding on tight.
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A Reverse Transformation?

2011-09-10T07:32:00.001+01:00

Polanyi's work is valuable in denying the priority placed on the market in most economic theory. His account of how we arrived at the situation where most of our needs are met by the market is worth consideration. Polanyi identifies three stages in the 'subjection of the surface of the planet to the needs of an industrial society. The first stage was the commericalization of the soil, mobilizing the feudal revenue of the land. The second was the forcing up of the production of food and organic raw materials to serve the needs of a rapidly growing industrial population on a national scale. The third was the extension of such a system of surplus production to overseas and colonial territories. With this last step land and its produce were finally fitted into the scheme of a self-regulating world market.' (p. 188)

Given that the market system needs to be re-evaluated in an era when our most pressing task as a human community is to ensure the sustainability of our society, we might raise questions about all three of these process of transition. It is taken for granted by most contemporary economists that land can operate like any other resource, that the process of the commodification of land—its bundling into parcels over which ownership rights can be asserted—and of its sale in a market is unproblematic, but recent developments towards land reform across the world, based in the indigenous view of land as having its own rights, argues against this.

Polanyi's second stage of the transition to a market economy he calls the 'forcing up' of production of food and organic raw materials' in response to the movement of the population from the land and its rapid expansion in the industrial cities. What he has in mind here, I think, is the loss of balance between people and their land, which is a nexus of interacting pressures and conflicts rather than a simple cause-and-effect process. This reopens the generally accepted view that economic growth increased population and then put pressure on resources.

While some environmentalists have traditionally taken what can be judged to be a neo-Malthusian stance on the population question, the more nuanced response to the debate is to recognise that the shift to the market broke the connection between people, their need for resources and the land they inhabited. In a peasant community, each new birth represents a mouth that needs feeding from a limited land resource; in contrast, in an economy where livelihoods are based around the labour-market, each birth represents a potential labourer whose time can be sold. Evidence of the extent of child labour in Victorian cities or in the megalopolises of the global South today is greeted with horror, and yet it is a rational response to an economic system where people have no right to land and need their children to guarantee their subsistence.

Polanyi's third point is linked to the second, since once the industrialised country's population were engaged in producing goods for trade rather than for their own subsistence, their basic needs for food and the raw materials to make clothing, had to be met from the work and land of others, and in the colonial era and subsequently this has meant through using the over-priced land and labour of countries of the global South. Extending Polanyi's insight into the present globalised economy we can see the system of the global trade system as a means of enabling the rich Western economies to rent land in the poorer countries, and exchange which cannot be fair while the former's currencies dominate the system of global trade.

Polanyi's central point is that the role of the market as the central and controlling mechanism in economic life is a modern and short-lived one: 'Though the institution of the market was fairly common since the later Stone Age, its role was no more than incidental to economic life.' (Polanyi, 1944: 45). To move towards a provisioning based economy we need to reverse the three stages Polanyi identifies as forming the transition to a market economy. In other words we need policies to:

Decommercialise the soil - perhaps a Land Value Tax is a first step here;
Return to sufficiency via the strengthening of self-reliant local economies;
Limits on global trade rather than hyper-globlisation.
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Neutral Switzerland Joins Currency Wars

2011-09-07T17:37:00.004+01:00

There has been discussion in earlier posts on this blog about the role of reserve currencies and of the developing conflict over the value of different national currencies. Switzerland's currency, the Swiss Franc, plays a unique role in the global economy. It is the store-of-value currency of choice, rather than the medium-of-exchange currency of choice, which until very recently has been the dollar.

So what does it mean that Swiss francs will now be sold at a price determined by the Swiss central bank? It means that for the first time in around 30 years one of the world's leading reserve currencies is not finding its price according to market forces. Those market forces were driving up the value of Switzerland's national currency to such a degree that it was find it impossible to be competitive. It's central bank is now maintaining a lower level.

Two points are of interest to observers of the global economy. First, this is a historic moment. Those of us who have been ridiculed for suggesting that a system of freely floating exchange rates removes democratic control over national economies, encourages conflict between nations, and facilitates harmful speculation have been vindicated. In currency terms, one of the most powerful players in the global economy now agrees with us.

But more important is the clear need to separate the role a national currency plays in facilitating economic transactions within a nation-state from that of enabling trade between nations. The hegemony of the dollar since 1945 as the global medium of exchange has enabled the obscene consumption of that country's citizens and facilitated its acquisition of military firepower that has allowed it to reign supreme. It has also destroyed that country's domestic productive economy. Switzerland fears similar consequences. It has benefited hugely from being the safe-haven currency, but in this era of instability is paying the price.

The logical answer is clear, and has been a key demand of posts on this blog since its inception. What we need is a global trading currency that is not linked to any national economy. Without this, the currency wars can only grow more intense, and, as we saw in the 1930s, currency wars can lead to wars that are even more destructive.
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Co-operative Enterprises Build a Better World

2011-09-07T07:42:00.008+01:00

Here's an image I hope you are going to see a lot more of during the next year and a half. The UN has designated 2012 as the Year of Co-operation and the global trade body for co-operations, the International Co-operative Alliance, has set itself the target of massively increasing the visibility of co-operatives during this year.

The ICA has some extraordinary statistics on the level of participation in co-operatives across the world. Over a billion people are members of co-operatives worldwide, including 9.8 million in the UK and 239 million in India. 1 in 4 Germans is a member of a co-operative, and 62% of Finns belong to their leading co-operative, the S-Group. In Japan 91% of farmers are members of co-operatives, and in Korea it is 90%. In Kenya, co-operatives are responsible for 45% of economic output including 70% of coffee production and 95% of cotton. Co-operatives appear to represent something like 20% of the global economy.

It is easy to ignore co-operatives just because they are under your nose. But in fact this form of economic organisation represents a solution to the crisis in capitalism and a humane approach to the improvement of the situation of the poor world. Co-operatives allow people to work with dignity and without exploiting others. Because they do not need to extract surplus value for shareholders they are also a sustainable way of producing and consuming goods and services.

Why are co-operatives so invisible? Part of the reason is obviously that the dominant global media system is part of the corporate economy and so has no incentive to give space to the co-operative economy. But I think a deeper reason is that mutual activity is so natural to us that we take it for granted: we marvel at the cut-throat competitive capitalist economy partly because it is so exceptional--and not in a good way.

If, as I do, you believe co-operatives represent a way of organising economic life that is just and sustainable, then please organise an event or two in your local area in the coming year. And if you are a co-operative or are involved with one, please add the logo to your marketing for this year. Although the logo is not the most attractive I have ever seen, if it appears on every co-operative-related site, whether virtual or real, co-operatives should have a chance of getting around the corporate media blocks.
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The Value of Land: A Taxing Debate

2011-09-01T08:33:00.010+01:00

Here's an issue we shouldn't lose sight of. There are many reasons for supporting a tax on land, and there are noises from various quarters that suggest such a policy might be gaining the sort of support it needs to receive serious political attention.

Well, yes, I know you are not going to take me seriously if I follow up that enthusiastic opening by telling you that Land Value Tax is to be debated at the Liberal Democrats annual conference this year. But it is fairly historic that a government party should debate in public this very radical approach to taxation.

Of course there are many variants of how a tax on land might work and why it might be useful. To liberal economists, those who live from rents are not economically productive, so land tax encourages them to put their land to the most productive use and is thus a stimulus to economic growth. To more redistributively minded conventional economists, the windfall gains from planning decisions should not be privatised to developers but shared with the community: a tax on land values enables this.

But the reason I like land value tax is that I believe it would operate like a transitional demand. While it could be seen to be part of a market approach to the economy, in fact land ownership enables people to escape the market system and meet their needs directly from the land. Hence any move that suggests that land is a public resource, rather than a private one, and implies the value of land as a part of the common wealth moves us towards the non-market society that will maximise human happineess and protect the planet.

If this debate is new to you, you might like to read a special issue of the newsletter Tax Justice Forum which focused on the issue. If you're in the mood for something a bit more rousing and rhetorical you can check out a short speech I gave at the House of Commons during a meeting on the same theme several years ago.
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News from the Finland Station

2011-08-30T10:29:00.006+01:00

I have a running joke with colleagues and students about the Joanna Lumley society. This draws on a sketch from the Mitchell and Webb show, where various young men engaged in socially destructive but highly lucractive activity are reduced to ashes by a roomful of grey-haired ladies. How excellent, we thought, if derivatives traders had to seek licences from a committee of such women, chaired by Dame Joanna herself.

I had been trying to imagine what a society run along these principles might be like, and I am beginning to think I may have found it in Finland. If the USA is the testosterone-fuelled adolescent of nations, then Finland is surely the babushka: wise, caring and quietly in control. I was surprised by Finland: it is not the laid-back happy-go-lucky society I had imagined a Scandinavian society to be. Saunas are places of meditation and business, not of sensuality and titillation.

Being in a country where everything happens as planned, where trains and buses run to the minute and where good design is second nature is immensely reassuring. I had reached the point after a few days where, when I felt the need for something, whether a left-luggage locker or a napkin, I looked about to see where some foresighted Finn had placed it. And mostly I was not disappointed.

What is most skilful about the way the Finns approach the 21st century is there ability to portray themselves as successful players in the globalised corporate economy, when really they have retained much of what was good about a socialist approach to life. But this is not an oppressive state socialism, rather one informed by self-reliant and mutual values.

Finland has a greater density of co-operatives than any other economy: the number of members far outstrips the population of the country. Its dominant corporation, the S-Group, is itself a co-operative. So I was able to stay in co-operative hotels, shop in the S-market shops and the bus we travelled in refuelled at ABC!, the S-group's national network of filling stations. In total the S-Group is a €10.5bn business with interests in farming, retail, and tourism, as well as department stores.

Women play a powerful role in Finnish political life, with nearly 50% of the members of parliament being female. Data from the Fawcett Society indicates that, in terms of a ranking of the percentage of women in national legislatures, the four Scandinavian countries are all in the top five, together with Rwanda. Since 2000, Finland has also had a female President, Tarja Halonen. The influence of women is obvious in small ways, such as the children's rooms on trains and the special wall seats for babies in women's showers.

I would not like to paint Finland as a utopia, however. It seemed to me that the public imposition of social awareness had squeezed out more human neighbourly responses. For example, Finns have a joke that they emerge from their flats in the spring and greet their neighbours with 'Oh, I'm glad to see you have made it through the winter'. When everything works so well, there is no space for the shared whinge or the mutual self-help that we Brits rely on. There is also a sense of heavy social control which, while reassuring, might be stifling if a part of one's everyday experience.

Finland also has problems in its political system, with a massive vote - out of nowhere - for a nationalist party in this spring's elections, as has happened in the other Nordic democracies. The 'True Finns', who rode to success on the back of opposition to the Eurozone bailouts to become the largest opposition party in the parliament, are a frightening hint of the vulnerability of a democracy, not matter how strong, in terms of economic crisis.
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Who's Fooling Who[m]?

2011-08-21T18:56:00.003+01:00

This posts begins with a conversation I had with my daughter about whether Banksy would be elected as Mayor of Bristol if he chose to stand. Everybody wants to know Banksy, to be like him. The pride we feel in somebody who manages to make political argument witty and accessible is unexpected in an era when we are told that people are not interested in politics.

Banksy's variety of street politics is more appealing because it is more open, and also more directly challenging without having any apparent victims. His anonymity adds to the allure as well as to the appeal. He has become an Everyman character: like Charlie Chaplin's tramp, standing up to authority and using ridicule to emerge victorious. We would all like to feel that we could legitimately claim 'I am Banksy (and so is my wife)'.

The trickster character plays an important role in mythologies across the world. In West Africa he is Anansi, who plays tricks on the Gods and takes the form of a spider. In Japanese mythology he is Kitsune, the fox. Tricksters are cunning and witty, but often end up with joke on them. In native American cultures Coyote often plays this role, while in historic mythological systems the Norse cultures had Loki and the Greeks Hermes.

The role of the trickster, like the fool in Medieval courts, is to prick the pomposity of those in authority. He is the antidote to hubris. Perhaps it is because our society, with all its scientific knowledge, has lost the wisdom of being able to laugh at itself that Banksy is proving so popular. He also tempts us to revel in, rather than eliminate, doubt and uncertainty. His first foray into film-making, the Oscar-nominted Exit through the Gift Shop, could itself be one extraordinary hoax. But whether the joke is on the duped majority, the art establishment, Mr Brainwash, or even Banksy himself, is hard to tell.
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Which side are you on?

2011-08-19T09:52:00.000+01:00

Has anybody learned anything from the riots? The responses across the political spectrum suggest that people are reading into the events what they need to see to reinforce their prejudices. This is happening to me to: I am warming to Ed Miliband with his soothing words about diverse families and immoral bankers, and snorting involuntarily as Nadine Dorreys tells us about the Good and Bad uses of Twitter, as though she had barely left kindergarten.

In times of stress it is predictable that we will cling more strongly to what we know, rather than being opening to new ideas. The research into brain function initiated by Colin Firth as a playful attempt to discover what was biologically wrong with people who didn't agree with him in fact generated interesting results about the security levels of those who identify with Labour or Conservative world-views.

Clearly, I am not a neuro-expert, but it appears that the amygdala, the primitive part of the brain that was found to be enlarged amongst Tory voters, is associated with the foundation of emotional memories, and how we relate these to our responses. if the neuro-scientists will forgive me, I would like to suggest that this relates to our decisions about what should make us afraid and how we should act as a consequence.

The performance by a range of Conservative spokespersons in the past fortnight can be read as a live demonstration of their insecurity and need for strict boundaries. When we hear Iain Duncan Smith being so firm about the difference between Right and Wrong we should remember that, as a Catholic, he believes that these are clear categories determined by the Pope. For his emotional security he needs to believe that, just as he needed to join the army to gain some sense of structure.

Similarly, the talk of absent fathers is interesting coming from politicians whose busy work schedule makes it questionable how much they can really be there for their own children, and whose fathers were also presumably rarely present. For those who were sent early to boarding schools, family life must be something they yearned for, a yearning they are now happy to project onto others.

Might it be going too far to suggest that joining a political party is itself like joining a gang. Each party has its own code, its own set of firm beliefs, a togetherness gained from adversity - except for the Green Party they even have a whipping system to prevent failures of group loyalty. Nothing can repair the damage caused by a dysfunctional childhood, but clinging to a dogmatic belief system can certainly help you feel less insecure.
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Man or Superman?

2011-08-17T15:07:00.002+01:00

In the wake of last week's riots there have been no shortage of supermen rushing forward to suggest how the rest of us might live. I have found many of the prescriptions, frankly, sickening. The focus on the failure of families is especially troubling, because it slides so easily into blaming women for their failure to be adequate parents.

I also find the use of the phrase 'underclass' troubling. Like the idea of the 'undeserving poor' that preceded it, it suggests a natural hierarchy in society that actually arises as a result of a capitalist economy. The easy way with which Duncan Smith and Cameron talk about Right and Wrong, as though these were generally agreed categories, identifies them clearly as members of the dominant class and its hegemonic ideology.

The Wrong values are, apparently, about selfishness and greed; whereas the Right values are about hard work and supporting your community. I can't be the only person who questions whether the wealthy are more likely to find themselves in the first value set or the second.

As Cameron styles himself as some sort of Nietzschean Übermensch, the 'creator of new values' striding forth to save us mere mortal from chaos, I am reminded of the balancing word Untermensch, and the danger of defining human beings into more or less worthy categories. How much more wholesome is the Yiddish word Mensch, that comes without qualification or hiearchy and means, according to the Webster-Merriam online dictionary: a 'good person, human being, person'.

That is where most of us are at: struggling to do our best in a hostile economic system and without the advantages of wealth or elite status. We haven't broken society and, through our daily acts of mutual kindness, we make and mend it anew.

Strange Fruit

2011-08-15T12:37:00.010+01:00

I think it was Arthur Scargill who said that if people start attacking you, you are obviously shaking the right tree. The interesting thing is that when you post a plan to stabilise the global financial system it is Austrians who fall out of the tree. They feel duty bound to contest the fact that politicians can have any kind of positive impact on the situation.

I have some time for the Austrians because at least they are intellectually consistent. Their position appears to be that banks should be free to make money in a money market system with no inteference from politicians. If the banks fail, those foolish enough to deposit money with them lose it. Similarly, those who in vest in duff businesses lose their investment. The market is ruthless but fair, as are the Austrian theorists themselves.

The problem with this view of the world is that it is ethically, socially and politically untenable. What Hayek learned from the financial chaos of the 20s and 30s was that politics and economics did not mix. What he failed to learn is that unmitigated market chaos generates extreme politics, of both right and left. The role of politicians in a democracy is to mediate that, and they cannot do this without involving themselves fundamentally in the economic framework within which market transactions take place.

My ten-point stabilisation plan is no doubt flawed - and I am grateful to initiate a debate to identify and remedy those flaws. For fear of being seen to be fools, politicians are singularly failing to rush in and sort out the financial crisis. At the risk of appearing a fool I have made a proposal for others to support or attack.

Lee the Austrian makes some points typical of his intellectual wordview. However, when he responds that 'Suspension of government bond trading would push lending costs through the roof, bankrupting all world governments and ending the welfare state for good' he seems to miss my point about suspending such trade in sovereign debt. Perhaps he cannot imagine a world without markets, but I see this as analogous to the situation when a company is going bankrupt and trade in its stock is suspended. So there is no market and hence no price - so there cannot be an increase in the price of lending.

Tim Worstall raises another point that is worth debate in his comment that 'If we stop trading currencies then we've got to stop trade'. This suggests that most of the trade in foreign exchange is directed to settle external trade balances, rather than for speculative reasons. I don't have the proportions to hand, but the residual quantity of exchange between, say, pounds and Ukrainian Grivnya that relates to exchange of goods could surely be suspended for the six-month period, held as an external trade debt? Alternatively, IMF special drawing rights could be used for the purposes of external commitments, until a new global reserve currency has been negotiated.

The tone of the Austrians' comments is harsh, to match their philosophy. I would invite those holding other positions to join the fray. Surely it is worth the risk of appearing a fool!
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The Voice of Reason

2011-08-15T10:23:00.003+01:00

The following exchange from Hansard neatly illustrates the benefits and the limitations of having a Green MP:

Caroline Lucas (Brighton, Pavilion) (Green): Violence is always to be condemned, but as the Prime Minister said, seeking to understand violence is a world away from seeking to justify it. Indeed, we ought to try to understand it to stop it happening in future. Given the growing evidence, from Scarman onwards, that increasing inequality has a role to play in drawing at least some people into violent behaviour, can the Prime Minister reassure the House that comprehensive impact assessments will be undertaken before his Government introduce any more policies that increase inequality?

The Prime Minister: Everyone wants to see a fairer and more equal country, but I have to say to the hon. Lady that young people smashing down windows and stealing televisions is not about inequality.
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Ten-Point Stabilisation Plan

2011-08-12T12:22:00.006+01:00

Spurred on by my recent realisation that I am better qualified for the job than Christine Lagarde, I have put together a modest proposal to resolve the turmoil in the global financial markets. Please send it around, discuss it with your friends, and most importantly: improve upon it.

The most obvious feature of the current crisis in the Eurozone, and the longer-term crisis over the rebalancing of power in the global economy between east and west, is the way that it is happening in a political vacuum. The sense of failure of politicians to manage these historic developments risks exposing us all to an extended period of chaotic change during which the vulnerable suffer.

This short statement is a summary of what it would mean for politicians to act in the interests of their electors to protect them against financial instability. It begins by listing the assumptions that are framing, and limiting in an unhelpful way, the present debate. It then moves on to propose 10 specific actions which need to be taken; further explanation for these actions and greater detail is provided in the following notes.

Failed Assumptions

The most striking feature of the present crisis is the limited range of policy options that are included in the discussion. The most constructive actions are being ruled as ‘impossible’ because of a number of mistaken assumptions which should now be abandoned. These include:

• That markets are efficient while politicians are not;
• That the problem of finance is essentially technical rather than political;
• That politicians should not have a role in managing the flow of money and credit within and between national economies.

Our proposal rests on the understanding that we need politicians to take strong and wide-ranging action to support the interests of their citizens rather than responding to the increasingly incoherent and inconsistent demands of a range of financial interests.

10-point Stabilisation Plan

1. The announcement by the finance ministers of the world’s leading economies of a six-month moratorium period during which all trade in their currencies and their bonds will be suspended.
2. During the period of moratorium, the negotiation of a global international agreement to create an agreed system of political control over finance.
3. The creation of a new reserve currency instrument, not linked to any single national economy.
4. The linkage of the new reserve instrument to carbon dioxide emissions.
5. The reintroduction of national democratic control over currencies, with a system of negotiated exchange between currencies.
6. The reintroduction by national governments of strict reserve requirements on their national banks and a parallel system of rationing of consumer credit.
7. The creation of public banks to provide a safe haven for citizens’ deposits and with lending designed to facilitate the transition to a sustainable economy.
8. The creation of an independent body to undertake the monitoring of country’s sovereign debts and the rating of their credit-worthiness. The majority of the membership of this Global Audit Committee should be comprised of academics and laypeople, rather than those who work in the finance sector.
9. The creation of national Audit Committees to evaluate the process by which current debt was acquired; where this debt was acquired by a process that was not in the interests of the citizens of the country it would be possible to repudiate that debt.
10. The elimination of secondary markets trading in the debt of nation-states and the establishment of a global body to register all derivative instruments on the basis of their ability to increase social and/or environmental welfare.

Notes on the Plan

1. At present politicians are finding it impossible to act because of fear of the immediate response from the financial markets. The moratorium would give them the space to consider a policy proposal.
2. Following the last period of international financial instability in the 1930s, which ultimately led to the Second World War, a global agreement to govern international finance was signed at Bretton Woods. It was gradually abandoned following the US’s unilateral decision to cut the link between its currency and gold in 1971, however, the role of the dollar as the global reserve currency, which depended on the link with gold, has continued. The story is told by Paul Davidson in ‘Reforming the World’s International Money’.
3. The role of the dollar as a national currency of the world’s largest economy, as well as the international numeraire, is a key cause of the instability in the global financial system. Such a call was made in UNCTAD’s Trade and Development Report 2009. Earlier this year the IMF proposed that its Special Drawing Rights might play such a role (Enhancing International Monetary Stability—A Role for the SDR?), however the lack of neutrality and representativeness of the IMF undermines its credibility in making such a proposal.
4. This linkage, first suggested by Richard Douthwaite in The Ecology of Money, would enable the new reserve currency to also introduce an ecological limit on the global economy, in contrast to the current emphasis on a return to rapid economic growth whatever the environmental consequences. A discussion of the proposal can be found in Molly Scott Cato’s paper ‘A New Financial Architecture based on a Global Carbon Standard’.
5. The fact that the Chinese currency the Renbinmi is under political management by the state has attracted attention in recent discussions, but less has been made of the fact that until the 1980s most western economies also managed their currencies. The history of exchange controls in the UK between 1939 and 1979 is described in an article by Brandon Hugget in the National Archives.
6. The financial crisis of 2007/8 was clear evidence of the failure of the Basel process for determining the capital requirements for banks, which is unsurprising given the domination of the financial interest in these negotiations. Simon Johnson, former Chief Economist at the IMF, has made this case in an article ‘Capital Failure’ published in the New York Times. Since as was made clear following the crisis, the citizens of nation-states are the ultimate guarantors, it should be the role of their democratic representatives to ensure that banks do not take on more liabilities than they are able to support.
7. Such a bank could operate in a way similar to the Banco do Brasil, which is state-controlled and uses credit to support the interests of the citizens of the country, while also providing a place for them to invest their savings.
8. Such a body would replace the increasingly discredited credit-rating agencies. It has long been apparent that these agencies have fundamental conflicts of interest, since they profit from the very system that they are established to monitor. They have also faced criticism for their failure to accurately assess the risk faced by banks as a result of the range of ‘exotic’ financial products before, during and since the financial crisis of 2008. Such a crucial role as assessing the costs national governments should pay for their borrowing should be undertaken in a democratic and transparent way. President of the EU Commission Jose Manuel Barroso is one leading European politician to have challenged the role of these US-based institutions; German Chancellor Angela Merkel another.
9. The prototype for such and Audit Committee is that established by President Correa following his election as President of Ecuador in 2005. In spite of the country’s oil wealth poverty was widespread because 50% of national income was being spent on servicing foreign debt. The Audit Committee was established to investigate who the creditors were and how they had persuaded governments to take on the debt. Eventually, it found that some 70% of the debt was illegitimate and the creditors were forced to sell at reductions of around 90%. Audit Committees have now been established in Greece and Ireland.
10. Such a proposal would help to democratise this centre of power in the global economy. During the process of registration, the onus will lie on the product’s originator to demonstrate that it is beneficial and there is no alternative way of achieving the same purpose. The root cause of the financial crisis was the deliberate obfuscation on the part of financiers of the riskiness of the activities. Under this proposal, only those derived investments which can be demonstrated to have a social value, say by spreading risks over a wider group of people, would be permitted.
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The Just Price

2011-08-11T12:10:00.005+01:00

I spent my usual lovely summer holiday at Clissett Wood - making another chair of which I am irrationally proud. Nothing beats working with your bare hands and spending time in a woodland living with a community of people far from the reach of the internet. It is equally valuable to learn something about craft, and to admire those who make their living from wood. You can find something about the skills involved, and browse the beautiful products, at the blog of the Green Woodwoman.

During the many peaceful hours we talked about the difficulty of making a livelihood in competition with Chinese children or factory machines. We waxed nostalgic about the role of Medieval guilds in protecting their crafts and their craftspeople. We have launched an idea about reviving the idea of the Just Price, which was enforced by medieval craft guilds. Some of the woodworkers showing their wares at the H.art festival have agreed to sell according to a double pricing system. Here is the text we agreed to explain the reasons for this.

'Before industrialisation, prices were fixed by guilds which protected the livelihoods of craftspeople. The 'just price' reflected their skill, the time invested and their needs. We are reviving this custom, which we see as analogous with the system of fair trade. If you earn more than the average wage - and therefore more than we do - please pay the just price.

We also list a 'bare price' which is a realistic comparison with mass-produced and imported goods. We will not sell for less than the bare price because this also prevents craftspeople from undercutting each other.

We are prepared to negotiate between these two prices on the basis of your ability to pay.'
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Make Votes Count!

2011-08-09T12:49:00.004+01:00

I've had my most successful year ever in terms of elections - after standing for the Green Party for a quarter of a century I have actually been elected. Please help me make sure this is not a fluke by voting for me in the Total Politics annual poll.

Some excellent green blogs have fallen by the wayside this year, so if you have enjoyed reading this blog or feel you have been informed please help me out with a vote or two. Well, only one each of course. We wouldn't want to be accused of political corruption on this site.
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Christine Lagarde: Is She the Man for the Job?

2011-08-08T11:07:00.006+01:00

The extraordinary thing about Christine Lagarde is not that she is a woman, but that she is a lawyer. In spite of holding the second highest political office in France, and now the most important position in the global economy, she is not trained in economics and does not have any experience or training as a politician. This leads one to the inevitable question: how has Christine Lagarde reached this position of power?

Lagarde's appointment to the head of the world's bank was not an accountable or transparent process. There was no election, no selection process, no job description. Had there been, she would certainly not have been selected, since she is not qualified. But in the murky process by which the IMF is governed, political influence and having the right connections is far more important than understanding the problem.

The majority of Lagarde's career has been spent with the Chicago-based corporate law firm Baker & McKenzie. Presumably in a drive to undermine the French reputation for a protectionist approach to international economics and to bolster its globalist credentials, she was chosen as Trade Minister of France in 2005. By 2007 she was Minister for Economic Affairs. Her credentials have passed corporate scrutiny, but can she really be expected to carry authority without a proper understanding of how the economy functions?

Christine Lagarde has skilfully used her sex to deflect attention from her lack of suitability and her dubious politics. The titillating headlines about her as the bankers' dominatrix, her Chanel clothes and her synchronised swimming medal should not be allowed to divert us from the fact that, in spite of appearances, the choice of US financiers has determined who will head up the IMF.

As Jayati Ghosh questioned on the Guardian site,

'Would someone like Christine Lagarde be better? [than DSK] Unfortunately, she may even be worse, if her record as France's finance minister is any indication. The irony is that she would pursue, even more enthusiastically, the same self-defeating and economically damaging measures whose only beneficiaries are the German, French, Dutch and British banks.'

Just at the time when radical change is necessary, the world can only expect more of the same from Christine Lagarde.

How can we solve the crisis in the Eurozone?

2011-08-06T08:49:00.007+01:00

The growing tension in the Eurozone is matched by a total failure by the media to give space for alternative views of how our economic lives, and especially our monetary policy, might be determined. Last night's Radio 4 debate, hosted by the well-meaning and well-informed Paul Mason, Economics Editor of Newsnight, fell into the trap of setting up a false dichotomy between Keynesian and Hayekians. Three conclusions emerged: the audience was partisan and wholly unrepresentative, the two iconic figures around whom the debate revolved both had some arguments on their side, and none of this has anything to do with how our governments make policy. Plus, of course, the obvious fact that neither Keynes nor Hayek could imagine a world where ecological limits mean that economic growth can no longer happen.

Green Economics grows in strength and confidence: we are growing clearer about the design of our alternative future, and the expanding evidence of the failure of globalised capitalism adds to this confidence. An example is the new work by James Robertson, a book addressing the question of money to be published by Green Books next year. The publisher is allowing us all a sneak preview of Robertson's proposal for managing the national money supply.

James Robertson has been right about money for years. He has a claim to be one of our leading economists, and yet his work is excluded from the public debate. In this chapter he provides an excellent critique of what is wrong with a money system based on bank debt and, more importantly, cogent proposals for an alternative system.

It is important that we know where we are going, and all those who support a just and sustainable economy should read and understand the Roberthttp://www.blogger.com/img/blank.gifson proposal. But it does not help us with the transition. We cannot be naive about the vested interests dedicated to maintain the current system in place, and the courage required to politicians to stand against them.

What would a transitional policy look like? Presumably politicians would have to secretly agree to simultaneously suspend trade in the national debt of all the leading economies, and exchange transactions between their currencies. The moratorium would allow breathing-space for a new international agreement between nations to be drawn up: this would be a democratic agreement based on national control of sovereign debt and currencies exchanges: Bretton Wood with knobs on, as this blog has been arguing for since the beginning of the crisis. The market has no solution: only by taking political action can its destructive consequences be forestalled.
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Chote Chokes

2011-08-04T07:17:00.004+01:00

Robert Chote, who heads up the Office for Budget Responsibility, is the sort of economist on whom our futures rely. His career profile is unusual, in that he appears to have no practical working experience either in government, academia or industry, the closest being two years he spent as an 'adviser' at the IMF. He is a former journalist who then moved on to head up the Institute for Fiscal Studies, a leading thinktank analysing economic policy. For a man in such a powerful position the biographical detail available on him via the internet is rather thin,* but it seems safe to assume that he has spent his whole professional life on the theoretical rather than the practical side.

The Office for Budget Responsibility he heads was invented by the Tories following the election as a way of artificially distancing themselves from economic policy-making. Don't blame us if we make a wrong move, they enabled themselves to say, we are following the path scientifically determined by our independent economic advisors. The Office's reputation, and hence its power, relies on its ability to predict the course of the UK economy. This morning Chote admits, on behalf of his Office, that his predictions have been wrong. Growth forecasts will be revised downwards: the OBR was wrong about the impact of the government's policies on the UK economy.

In an interview in this morning's Independent Chote belittles the importance of the OBR's forecasts, commenting that 'You shouldn't bet the farm on any macro-economic forecasts being correct. We set out to make key judgments and to see how sensitive our judgements are, for example to how strong the recovery is or the pattern of growth.'

But this is just too glib: in reality, the OBR's forecasts have been used to back up Osborne's policies. Because the Office for Budget Responsibility predicted that the austerity programme would result in higher growth rates the Chancellor accepted this course of action on our behalf. Now it is apparent that in fact these policies are devastating our economy and stalling growth, are we to see a change of direction? Is Robert Chote about to lose his job? Will the OBR be abolished so that politicians have to demonstrate convictions and the courage to act on them, rather than indicating a phoney adherence to a bogus science?

This morning's interview makes clear how dangerous it is to leave our economic future in the hands of men like Chote who talk a good talk and cover the government's back. What we rather need in these times of crisis is politicians with the courage to take responsibility and to take action.

*The short biography at the end of the Independent article appears to be taken from his Wikipedia entry, which is shorter than mine.
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Factors of Production and Fictitious Commodities

2011-07-27T17:34:00.002+01:00

When economists address the issue of the production of goods they begin with the concept of ‘factors of production’: these can be thought of as akin to resources, but fundamental productive resources that are necessary to make anything that can later be sold in a market. This is important because, as Polanyi pointed out, labour is not labour until there is a labour-market. Before this momentous transformation people are people or citizens or even workers, but not labour.

Land also undergoes a transformation when it becomes available for sale in a market, although it does not undergo a change of name. What an economist means by land, however, is not what the layman means by land. As a factor production land includes everything that can usefully be extracted from land (including from deep beneath it) to become part of a productive process. Thus ‘the economic notion of resources is strictly anthropocentric. That is, the economic value of any resource is defined by human needs and nothing else’ (Hussen, p. 4). There is no space in this definition for land to have a spiritual or relational importance, what economists would call an ‘intrinsic value’, as it does for many indigenous people, who see the land as their mother.

Polanyi referred to land and labour as ‘fictitious commodities’. Real commodities are ‘objects produced for sale on the market’. Land, by contrast, ‘is only another name for nature, which is not produced by man’ while labour ‘is only another name for a human activity’. To refer to these basic economic elements as equivalent to goods that were produced specifically to be sold he considered to be a fiction.

The third conventional ‘factor of production’, capital, confronts us with even greater definitional problems. Within a market system, some additional force is required to harness the two fundamental factors into useful production: this factor is capital. In everyday discourse, capital might be considered as akin to money, but again it has a different meaning for economists:

‘Capital refers to a class of resources that is produced for the purpose of creating a more efficient production process. In other words, it is the stock of produced items available not for direct consumption, but for further production purposes. Examples include machines, buildings, computers and education (acquired skill).’ (Hussen p. 4)

This is a somewhat confused definition combining intermediate goods and plant with human capacities. Shann Turnbull has suggested that instead we use the phrase ‘procreative assets’ for this type of capital. But any definition along these lines excludes the consideration of money and the power money conveys to acquire productive resources and to encourage people to work to transform them into products.

For Polanyi money was the third basic element of economic production: he addressed the issue of money directly and considered it ‘merely a token of purchasing power which, as a rule, is not produced at all, but comes into being through the mechanism of banking or state finance’. Land and labour are both fictitious commodities in the sense that they are not produced directly for sale, but money is surely an even more fictitious commodity since it is called into being to enable exchange and is maintained by credibility. It therefore has the strongest claim to be a fiction.

Hussen, A. M. (2000), Principles of Environmental Economics: Ecology, Economics and Public Policy (London: Routledge).
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Work, Land and Provisioning

2011-07-24T17:26:00.002+01:00

When systems of industrial production burst onto the British landscape in the 18th century they represented a break with a timeless pattern of social and economic life: it is this fundamental change in the relationship between people, their land and their systems of provisioning that has led to this process being termed a 'revolution'. In the 250 years since the advent of industrialism this system has spread geographically and across the productive sectors. It has brought extraordinary technological innovation paralleled by unimaginable improvements in lifestyle and longevity. While the yields of this system have been apparent and immediate, the costs have been more diffuse and have taken longer to express themselves.

In the book I am writing about the Bioregional Economy I am considering how the relationships between employer and employed, and between labourers and the resources they work with, changed as agricultural production gave way to industrial production. The complex social networks that typified production in rural communities that had changed little since feudal times were replaced by market exchanges.

In redefining an economy compatible with sustainability we need to reconsider the creation and distribution of goods and services within a market system but taking the achievement of sustainability to be the most important guiding principle. However, it is important to question whether this market system is the most conducive to achieving sustainability, or perhaps at all compatible with a sustainable future.

The achievement of an equal and sustainable society raises questions relating to 'provisioning', and economy that enables people to meet their needs directly, without feeling constrained by the strait-jacket of the market ideology. This may be considered to be a utopian project, but I would rather concur with Polanyi in his suggestion that it is in fact the ideology of the free marketeer that is utopian, in fact not merely utopian but dangerously so:

'the origins of the cataclysm [the Second World War] lay in the utopian endeavor of economic liberalism to set up a self-regulating market system. Such a thesis seems to invest that system with almost mythical faculties; it implies no less than that the balance of power, the gold standard, and the liberal state, these fundamentals of the civilization of the nineteenth century were, in the last resort, shaped in one common matrix, the self-regulating market.' (Polanyi, The Great Transformation, p. 31)

While the precise forms of the institutions has changed since Polanyi wrote his masterpiece in 1944, his central point remains: that they all collaborated in the underpinning of a unified system with the market economy at its heart. Like Polanyi, I would challenge this totalitarian approach to economic life.
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Green Welfare

2011-07-21T18:43:00.006+01:00

Why should we look after each other? Why should we have a concern for each other's welfare? Today we launched Green House, an environmentally focused think-tank and one of our initial papers was on the theme of welfare. What we found is that welfare systems have a range of different motivations.

In Britain we have never had a welfare system that was motivated by our commitment to care for each other; rather our system is focused on the labour-market. Pensions reward people for service to the economy; sickness and unemployment payments support people while they are temporarily unable to work; and more recently child tax credits support women with children also being part of the labour market. Our welfare system is designed to support a growing economy rather than a happy society.

In the paper we re-imagine a welfare system designed to ensure real social security, while recognising that we have an ageing population and that our economy has to stop growing. This takes us to several controversial conclusions:

- the close historical connection between welfare and the labour-market should be broken;
- the idea of an official ‘retirement age’ should be abandoned, to be replaced with a more flexible approach to social contribution and dependence through the life-course;
- we should re-open the discussion about the usefulness of a relative definition of poverty in the context of a limited planet.

This is not a prescription for a nanny state: quite the reverse. We suggest that citizens should be given the skills and assets they need to provide better for their own security, either individually or within local communities. A green economy would be based on strong local economies and sustainable livelihoods and we argue that such an economy would, in many respects, reduce the need for a costly social support network.

Finally we welcome Iain Duncan Smith's suggestion of the need for a universal approach to welfare, but we take this suggestion more seriously than he dares to by proposing the introduction of a universal payment—a Citizens Income - paid to all citizens of the UK as a right and without work-based qualifications.

The debate about welfare is dishonest and divisive: commentators focus on the tiny number of so-called welfare scroungers when the overwhelming majority of welfare spending goes to the increasing number of pensioners. Most importantly, from a green perspective, we ignore the way that defining poverty assumes, as well as requiring, continuing economic growth which cannot be maintained within the fixed limits of the planet.
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The Joy of Lean Logic

2011-07-14T08:14:00.002+01:00

Shaun Chamberlain, the self-styled Dark Optimist, has provided a tribute to his friend and mentor David Fleming, the green economist who died at the end of last year. He has painstakingly seen through to publication David's masterwork Lean Logic.

I find this a rather bizarre coincidence, since I was sifting through my sheet music over the weekend and came across my ring-bound copy of one of the many drafts that the book went through during David's life. He found it hard to give it up for publication, and it was also typical of his style that more of the bulk of the book is taken up with definitions and notes than with the book itself.

But this is the very beauty of it: each definition perfectly honed like a miniature, capturing David's wisdom and understanding. There is something that strikes me as Japanese in this. Western culture might consider it misguided to focus on the detail, but this is what David did so expertly, and no doubt why he was right about so many things. Here is a wonderful example - David's definition of 'Tactile Deprivation':

'The loneliness, coldness and lack of communication in a society which, owing to anxieties about its abuse, has largely lost the language of touch. At the same time, we are losing the touch of language, for language began as a replacement for grooming and, with careful, gentle articulation, it has mildly erotic qualities, making speech a true heir to grooming. It works best when you take your time, travelling hopefully rather than being distracted by arrival. Community will be held together by touch and sound: soporific, inspissated, stretch, Limpopo. Slow and atthttp://www.blogger.com/img/blank.gifentive is best.'

I do doubt the political or even social value of the concept of 'leanness', which seems so close to meanness and reminds me of the frugality that was once made the unbidden title of one of my own papers by well-meaning green editors. We might be just about able to sell thrift, but frugality and leanness are not going to win people around to our vision of a no-growth economy.

In fact, I also have objections to logic, but let none of this detract from the extraordinary achievements of David's life, now celebrated by Shaun on a dedicated website. And please buy this book and keep it by your bed alongside the sayings of the Dalai Lama. While David may not have reached his level of contemplation he knew a great deal more about economics.
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Repudiating Odious Debt

2011-07-13T09:08:00.003+01:00

The frustrating reality of the situation we face in this unwarranted Age of Austerity is the difficulty of turning the anger against the banks and the unwillingness to pay for their corporate corruption into meaningful political action. While it seems unglamorous the answer may be to establish a national Audit Committee.

This idea comes from Ecuador, where President Correa was elected in 2005 to preside over an economy which was oil-rich but whose wealth was being drained whose people were left in poverty because 50% of national income was being spent on servicing foreign debt. The Audit Committee was established to investigate who were the creditors and how they had persuaded the former politicians to take on the debt. Eventually, it found that some 70% of the debt was illegitimate and the creditors were forced to sell at reductions of around 90%.

The story is told in a film called Debtocracy, whose main focus of attention is the debt situation in Greece, where a national Audit Committee has been established. The idea has now spread to Ireland. Exploring the sources of and responsibility for national debt can help to shift the violence in the streets towards a quasi-judicial process and may help to focus political anger, but as London-based economist Costas Lapavitsas makes clear in the film, these are political rather than economic or legal decisions.

The film also helpfully resuscitates the concept of 'odious debt', created by the US in the 19th century to enable it to repudiate the debts it inherited from Spain when it conquered Cuba. It used a similar legal wheeze to renege on Iraq's debts after the 2003 invasion, although it kept this quiet for obvious reasons.
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Elite Syncopations

2011-07-12T11:56:00.006+01:00

For those not familiar with the working of universities this post may seem rather obscure, but in reality it explains one crucial mechanism used by neoclassical economists to ensure that the routes to publication and promotion are controlled by their own. It explains how orthodoxy maintains its hold on the economics profession.

This is a large claim made for a research paper presented at the recent Association for Heterodox Economics conference in Nottingham by Harry Bloch, from Curtin University in Perth, Australia. It traced how Australian economists were involved in the process of deciding the quality of different pieces of research produced by their peers. In Australia this process is transparent; in the UK it is not. Hence the focus on scholars on the other side of the world.

The academics were told to rank the journals they commonly read into four categories; it was suggested that they should have 5% in A* (Nobel Prize material), 15% in A, 30% in B and 50% in C. The first conclusion from Table 5 is that economists are very hard on themselves: they considered a full 60% of journals in the also-rans category, a much lower percentage than other disciplines.

But it also demonstrates the domination of the field by proponents of econometrics. The method of regression analysis is the fast route to promotion. A mathematical model is always ranked more highly in terms of esteem than a paper which relates to a real-world problem, such as the financial crisis for example. Theory is rated well, with applied economics – that area which deals with policy – less so. Meanwhile ‘other economics’, such as that which actually questions the status quo, receives the lowest rating, with no journals featuring in the A* category at all.

It is also important to note that these were not everyday academics but Professors and members of professional societies. These are the guardians of orthodoxy, and their own work is likely to be in the field of econometrics and economic theory that presently dominate. As the table shows, none of the journals that covered heterodox economics was included in the A* ranking, making it extremely difficult for those outside the mainstream to achieve research funding. The process of ranking specifically excluded heterodox economists, although they were identified as a specific group - the only group to be excluded.

The second table (Table 7) illustrates the effectiveness of the gatekeeping by the orthodox. It shows the domination of the field by conventional economics while the majority of economists with different views languish at the lower tiers.

Bloch concludes his article as follows:

'The processes employed in the 2010 round of research evaluation under Excellence in Research for Australia (ERA) did not provide a fair assessment of heterodox economics research in Australia. The rankings used as the indicator of the quality for journal articles were unbalanced in favour of economic theory and econometrics and against applied economics and other economics (which included heterodox economics).'

We can expect no better form the UK's Research Excellence Framework process.
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Market Failure

2011-07-11T08:45:00.004+01:00

What do the scandals at Southern Cross and News Corpse have in common? They are being treated as separate news stories and yet they make the case, a case that has been growing in strength since the financial disasters that began in 2008, that even on its own terms the market has failed. The failure that is being demonstrated in this case is the failure of the market to know its limits.

It is most unfortunate for the coalition that they have chosen this day to launch their white paper on opening up the provision of public services. For while they seek to imply the involvement of well-meaning middle-aged ladies who will provide better services for less money, the reality is that they will attract the market wolves seeking a profit.

This was the reality of Southern Cross, which picked up care homes cheap from local authorities who had grown tired of their responsibilities. It then sold these assets to venture capitalists and others to release the capital to pay to its shareholders. The value was extracted at that point, so the future progress of the company was presumably of less concern.

Government cuts led to a worrying reduction in budgets for care, meaning that the financial projections about occupancy went awry, the business model failed, and the company folded. It is a classic case of making money during the boom and abandoning responsibilities when the going gets tough. Why should we expect private firms to do otherwise? This is how they are programmed. But given that we know that, should we really be allowing them into vital areas of our lives like health, education and care?

The murky Murdoch affair raises other, but related, questions of public interest. Here we are concerned with the pluralism of the press and the freedom of manoeuvre of our elected representatives. The fact that these cannot be safeguarded in a free market explains why democracies introduce media regulation. A national newspaper or major TV channel is not a business like any other: it is a public service and so should be expected to be subject to greater political control.

The unseemly haste with which Jeremy Hunt is now acting to block the buyout of BSkyB, which he had clearly signalled he would have approved (in fact, why else was Vince Cable removed from the decision-making?) is an attempt to divert attention from the deep entanglements between both Labour and the Tories and the corrupt Australian moghul. But the real questions, about how far we can allow an amoral and profit-driven market to extent its tentacles, remain unasked.
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Green House Gas

2011-07-09T07:43:00.004+01:00

If knowledge is power then Tim Jackson's book Prosperity without Growth should have moved the political debate. By now our politicians should have been making plans to shift our central economic objective from growth to sustainability. The book, and the report for the Sustainable Development Commission on which it was based, provided the evidence: where is the policy that should duly follow?

Instead, the government abolished the Sustainable Development Commission during its 'bonfire of the quangos' just three months after its election, giving the lie to the mantra about evidence-based policy-making, as well as its claim to be the greenest government ever. The evidence that the late capitalist paradigm is suicidal is all around us: what we need is to turn that knowledge into meaningful change.

To take a step forward towards that end a group of green-minded academics and politicians are launching a new thinktank: Green House. Its commitment is to a politics of hope and to a greater confidence in the new paradigm in social and economic life that has been built up since the environmental movement arose in the late 1960s. The strategy is one of 'reframing', so that policies which seem disconnected and extreme come to be the common sense of tomorrow.

Caroline Lucas MP will launch the Green House thinktank in central London on 21st July. The launch will begin at 9.30 am and will be held at the Westminster Friends Meeting House at 8 Hop Gardens, off St. Martin's Lane, WC2N 4EH.
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Rule of Law is that Money Talks

2011-07-07T07:18:00.006+01:00

The term financialisation has been coined to describe the process where, in late capitalism, all systems of values have been hollowed out and money alone remains the driving-force of economic and social life. The Skygate saga demonstrates clearly the distorting effect this process has on political life.

We are receiving our information about the nefarious activities of News International employees through the lens of the media and so it is inevitably distorted. The focus has, as so often, been cast away from the political and onto the personal. From sordid to disgraceful, the adjectives available to describe a person who would profit from the grief of the parents of a murdered child have grown tired with use. Yet this is not the most serious aspect of the current crisis: that lies in the way the media barons, led by Murdoch, have undermined our democracy.

Our politicians make the laws. Rupert Murdoch's minions have gained control over those politicians by illegally acquiring information about them through hacking into their phone messages. So we have no laws to constrain the the media or to limit them to the role appropriate in a democratic society. Such a claim was made by Adam Price, who later withdrew from public life, although his blogs on the subject are useful evidence. His rhetorical skill and political insight singled him out amongst our dreary politicans - was his decision to quit another proof that the rotten alliance between media and power is destroying the health of our democracy?

Our police should enforce the laws, yet for years it appears they have been bribed by News International: through wining and dining and the open payment of cash for stories the police have been bought by the media. Can we still believe that they are 'our' police, enforcing the laws on 'our' behalf. The Jo Yeates case is just the latest where the interests of justice have been sacrificed to the interests of media power and profits.

This post may seem inappropriate to a blog dedicated to economics, but it is not. The theory of financialisation predicts exactly this sort of behaviour in response to a process where values are lost and only money remains of importance. A public enquiry into the behaviour of our newspapers and broadcasters will not solve these flaws in our democratic system: only a fundamental restructuring of our economic system can do that.
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University Futures

2011-07-06T11:37:00.005+01:00

The hiatus in posts was caused by a brief trip to Cambridge to see my son graduate. The ceremony was typically bizarre in a way only Oxbridge can manage. The graduands were gowned and robed, but had little sense of what they were undergoing, since the ceremony took place in Latin. Much of this seemed entirely appropriate to a ceremony which is one of the few rites of passage that remains in our civic life and would have provided excellent subject material for an anthropological study.

More fun might be had designing the robes for the co-operative university, which has been under discussion here and elsewhere. The UK Society for Co-operative Studies held a session at Co-operative Congress last week as part of an ongoing debate about the need to establish a co-operative business school for the UK. The document produced there for discussion, and the report Co-operation in the Age of Google to which it in part responds, can be found on the Social Exchange Repository.

One aim of the Society is to take forward the debate about the structure of education: 'An educational programme, therefore, is not simply an opportunity to accredit what is already taking place. It is a mechanism by which those who have spent years on co-operative development activities can contribute their knowledge in a way that informs the development of higher education.'

In this regard there are interesting developments already underway in Lincoln's Social Science Centre, which is 'run as a ‘not-for-profit’ co-operative and managed on democratic, non-hierarchical principles with all students and staff having an equal involvement in how the Centre operates'. Staff donate their time for free, but such models could be developed as alternatives to the elite private universities that the government is encouraging.

Perhaps more important, though, is to build up our research knowledge about alternative economic models. So much of the existing neoclassical framework, from economies of scale to the concept of profit itself, have no meaning in the context of co-operative businesses. Until we can create our own concepts and coherent intellectual framework we are not equipped to replace the destructive and defunct capitalist paradigm with a new business model that we can teach with confidence in our universities.
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Resist Divide-and-Conquer Tactics

2011-06-30T17:34:00.001+01:00

The Tory rhetoric over today's strike is a clear attempt to divide and conquer. We are told that the poor downtrodden taxpayer is subsidising the fat cats of the public sector, and that private-sector pension schemes are poor and the public-sector schemes should be as poor. No attempt is made to argue that private companies should provide properly for their employees' retirement. We are to be set against each other, workers in private or public sector, taxpayers and public sectors workers, when it is quite apparent that most of us fall into more than one of these categories at once.

I am proud to be striking today. I am proud to be defending the right of myself and my colleagues to contribute a reasonable amount to dignity in old age, should we be lucky enough to get there. I was pleased to receive the instruction to strike from my rep., together with the helpful information that 'UCU believes the proposals are not only unfair, but totally unnecessary. The TPS was renegotiated in 2007 to make it affordable and sustainable over time. There is no crisis or deficit in the scheme. This is nothing more than an ideologically motivated attack by a government that wants us to pay for an economic crisis we did not create.'

The changes to pension contributions, which represents an increase of some 50% or about £150 per month, are actually a tax specifically on the public sector, the government's target of choice, to extract money to pay for the deficit caused by the banking crisis. Since our future pensions will be politically controlled there is no limit on the number of times the government can come back to us for more money, or how many times they can reduce our consitions, our pay, or our future pensions. No limit, that is, except our unified political resistance.

In The Great Transformation Karl Polanyi gives an interesting new perspective on the strike. If labour is to be distributed in a market, he argues, then the seller, i.e. the worker, has a perfect right not to sell until his price is reached. It is the absurdity of considering labour a commodity like any other that causes the strike to appear anomalous. Here is his lucid prose from p. 239:

'Actually, strikes in vital services and public utilities held the citizens to ransom while involving them in the libyrinthine problem of the true functions of a labor market. Labor is supposed to find its price on the market, and other price than that so established being uneconomical. As long as labor lives up to this responsibility, it will behave as an element in the supply of that which it is, the commodity "labor", and will refuse to sell below the price which the buyer can still afford to pay.

Consistently followed up, this means that the chief obligation of labor is to be almost continually on strike. . . The source of the incongruity of the theory and practice is, of course, that labor is not really a commodity, and that if labor was withheld merely in order to ascertain its exact price society would very soon dissolve for lack of sustenance. It is remarkable that this consideration is very rarely, if ever, mentioned in the discussion of the strike issue on the part of liberal economists.'
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Wales: A Co-operative Nation?

2011-06-28T17:32:00.001+01:00

Since I'm a bit short of time I thought I would share a short speech I gave earlier today at a meeting in Cardiff Bay for the Assembly Cross-Party Co-operative Group.

Last week we had the Chief Executive of the co-operative development organisation in British Columbia giving a lecture called 'Co-operation and the Wealth of Nations' here in Cardiff, in fact in the building where I work at UWIC in Llandaff as part of a nationwide speaking tour. He made an interesting and important point about the failure of our economy in recent years and how this is linked to the failure of our political system.

Restakis looked back to the first half of the 19th century, when the franchise was extended beyond the wealthy elite and when the co-operative movement was founded. This parallel is not a coincidence, since both were a response to the development of capitalism and the way it concentrated power and resources in a small number of hands.

Restakis's conclusion was that, while we did gained the right to elect our government we did not see the extension of a similar level of democratic involvement in the economic sphere. And more importantly, he argued that so long as economic power is concentrated and unresponsive, it can feed back into our democratic system and poison it. Whether we think of the ownership of media outlets by the super-rich or the ability of politicians to use their influence to buy themselves well-paid directorships we see evidence of his argument all around us.

While I'm in the business of mentioning our impressive new teaching building I should tell you that the Co-operative Group will also be using it for their conference called Wales: A Co-operative Nation this coming weekend. I'd like to link this title to that of an inaugural lecture by one of our Professors, which he called 'Entrepreneurship: Do we have a word for it in Welsh?' This title had a question mark at the end of it, and I'd like to answer what may have been a rhetorical question with the word 'co-operation'.

When I wrote my thesis some ten years ago now I concluded that the reason successive entrepreneurship action plans had not been successful in Wales was that they focused on individual self-advancement, whereas the culture of Welsh people is that we should all advance together. I found during my research that the Branson model of enterprise was viewed as getting on at the expense of others and was widely despised. I coined the term 'associative entrepreneurship' to describe the creative energy that could be released through shared enterprise for the good of the community, and I used Tower Colliery as a practical example of this associative entrepreneurship.

The destructive impact of the globalised, autocratic economy has become clear in the past few years. Both the financial crisis and the economic crisis it has produced are consequences of economic power being in too few hands. They are also products of the 'myth of the market' which states, in the face of all historical evidence, that we no longer need politicians and that the market will solve all problems, that individual self-interested behaviour will lead us all to the promised land.

We are living in an important historical moment. The last time we saw an economic collapse on this scale it took the dislocation and suffering of the 1930s and the Second World War to put the uncontrolled market back into its box and the tensions in the Eurozone are indications of the sorts of passions that result from economic failure provoked by selfishness and greed.

I understand that I am not the only person who has been re-reading Karl Polanyi's account of this period, The Great Transformation. It is said that this book is also favoured reading for Ed Miliband's economic advisors and I sincerely hope that this is the case. Polanyi's favourite economist was Robert Owen. He argued that Owen was the only commentator of the time who recognised that we are primarily social rather than economic beings and to try to understand what this means in the era of an industrialised and complex society. His very practical answer was the co-operative movement.

So in closing I would like to emphasise another important point that was made by John Restakis and that is that what we need most as co-operators is to have the confidence that our model is what the world needs right now. And we need to use that confidence to argue for our model as the alternative that people are seeking. Whether as academics, through our political parties or in the media the time is right and we should have the confidence to propose co-operation as the expression of a revitalised democracy in the economic sphere.
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Market Myths: Perfect Information

2011-06-24T15:22:00.001+01:00

The superiority of the market as a system of allocation for goods and services relies on a number of assumptions. It was the central theme of my 2006 book Market Schmarket that these assumptions no longer held in the highly developed globalised economy of the 21st century. This post is offers more evidence that this is so.

One area where this assumption is clearly being broken is in the purchase of train tickets. The hugely complex details about when many types of ticket are valid defeats understanding. Not only is it complex, but it also changes frequently and is not easily available. When you buy a ticket at the station machine you are simply required to consult the website for information about the validity of the ticket you are buying. How can this possibly fulfil the market requirement for perfect information?

The answer, of course, is that it is not intended to. You are expected to buy a ticket with greater validity than you need, at higher cost, rather than risk being caught without a ticket and obliged to pay a penalty fare. This also contravenes another assumption of the market system in being entirely abitrary. Whether or not you pay the penalty fare relies on the mood of the inspector you encounter. If he is hungover you are likely to suffer. If he takes pity on you for a foolish young woman you may be spared.

Most people who travel regularly by train are aware that splitting your journey works out cheaper than buying a through ticket. This is easily done by visiting website such as Split Your Ticket. However, a new rule has gone out to ticket salespeople: they are no longer allowed to give you the information you need to compare prices at the station. This makes a lie of the poster of an attractive young woman at our station who promises you the cheapest ticket, and advice on how to find it.

This left me playing a bizarre guessing game at the ticket office in Cheltenham the other day. I enquired about the relative prices of a ticket to Manchester, and two tickets, one to Birmingham and the other for the second leg. The downtrodden salesman was trying to stick to his rules: he was not allowed to tell me which way was cheaper; he was allowed to tell me prices if I asked for specific routes.

This refusal to inform the customer about the best value way of buying a ticket to their destination clearly contravenes the market assumption of perfect information. But it also illustrates how the market system really works: by setting us against one another and undermining the basic human motivations towards honesty and mutual aid that enable us to live a good and happy life.
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Interest, Money, but No Employment for Keynesian Scholars

2011-06-23T07:57:00.007+01:00

Keynes was an example of that rare thing: a sociable and entertaining economist. Not only was he married to a Russian ballerina, he was a member of the Bloomsbury set and a friend of Virginia Woolf. According to a biopic of Wittgenstein by Derek Jarman that I watched recently, he also wore rather natty and colourful clothes. The film, with a script by Terry Eagleton, is well worth watching.

How glamorous this all seems compared to the life of an academic economist today. The poor quality of work is surely related to the absence of creativity and joy. Now Keynes has even been excluded from the conference celebrating the 75th annivesary of his own major work, The General Theory of Employment, Interest and Money. The work cannot be ignored, but its relevance in this time of crisis is so threatening that only those who oppose it were invited, according to a scathing critique by Ann Pettifor.

Co-operation and the Wealth of Nations

2011-06-21T10:52:00.003+01:00

John Restakis, Executive Director of the British Columbia Co-operative Association, is on a lecture tour of the UK as part of the events to celebrate Co-operatives Fortnight. His recent book, Humanizing the Economy, raises a number of useful questions in terms of how the co-operative form can offer solutions to the disastrous failure of the market. He is lecturing at the House of Commons tonight, Edinburgh on Wednesday and Rochdale on Thursday. His lecture is powerful and inspiring and well worth a trip.

For me, his most powerful question was why the democratisation which took hold of political systems in the 19th century did not also take hold of economic systems. The co-operative movement, of course, was one example of successful economic democratisation, but John's view that we need to focus on 'taking the democratic revolution beyond politics and into economics' demands attention from politicians of all colours who espouse the democratic vision.

The failure of economic democracy has led to the atrophy of political democracy, as corporations buy politicians: we are 'citizens in politics but subjects in the marketplace'. (This reveals John's North American outlook, since I fear that in Britain we are still formally subjects in both realms.) While we enjoy voting rights in our political systems, 'our economic systems are still stuck in the 18th century'. Challenging the ideology of free markets, he asks how can we claim to have free markets when firms are still stuck in the ideology of command and control?

So much for John Restakis's theory. In terms of practice he shared the powerful example of the co-operative economy of the Italian region of Emilia-Romagna, Italy's most productive region. The regional capital of Bologna has a dynamic economy, with one enterprise for every 10 inhabitants. Across the region as a whole, 40% of GDP is generated by co-operative enterprises, mainly of small and medium size. The construction, agriculture, food processing, transport and social care sectors are all dominated by co-operatives.

There is no attempt to enforce a co-operative monoculture, however, with a variety of different types of owner-managed and worker-managed firms thriving in a vibrant and diverse local economy. John draws an analogy between this and a healthy ecosystem, where a variety of different species co-exist without any dominating the others.

The success of the co-operative businesses in Emilia-Romagna has spilled over into the wider economy bringing about what John referred to as 'the socialisation of capital'. There are high average pay rates, low levels of inequality, high levels of female employment. Co-operation has led to economic dynamism, with Bologna figuring 10th in the list of Europe's economic regions in terms of its productivity.

In conclusion, John Restakis offered a challenge to the movement as a whole to have more self-confidence in celebrating its successes. But beyond this there needs to be a development of co-operative theory and a willingness to argue politically and theoretically for co-operation as a more successful and more innovative form of economic life, as well as having the social and community advantages that it has long been known for.
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I Sat Down and Wept

2011-06-20T15:11:00.002+01:00

The parallel being drawn between the failure of Lehman Brothers and the potential default of a sovereign nation makes clear the blurred nature of democratic and corporate accountability in the world of 21st century capitalism. Rating agencies are at liberty to value national and corporate debt by the same measures. This is not only irrational but also a deeply political play, since the democratic right of the people of any nation to reject the debt that the banks have loaded onto them has been marginalised.

Fortunately, in the country whose language the word democracy arises from, the people have not given up their democratic rights so easily. Their continued and increasingly violent presence in the streets is the visible exercise of the political reality that makes a nation an entirely different beast from a corporation. Shareholders and board members hold power through the exercise of property laws; politicians only hold power by the will of the people.

Our refusal to allow Lehman and Greece to be compared as though they were equivalent should remain our own commitment to a democratic future in which our rights to have power remain intact. But we need to match this with a demand for our politicians to exercise the power that we have delegated to them as our representatives.

The most infuriating aspect of the Lehman-Greece link is that in the nearly three years between the first default and the second, our politicians have apparently done nothing to restructure the global financial system or to gain a political handle over the banking system. By some combination of corruption, co-optation and lack of courage, the breathing space that was bought by the bailout of banks has not been used to ensure the future stability of the system, never mind its equity.

It was a long time from 1929 to 2008 – several generations in which memories of the previous disasters of capitalist finance faded - but there was really no excuse for policy-makers to remain ignorant of, to literally ignore, the obvious weakness and injustice of the liberal finance system their political retreat had allowed to flourish. Acting in our interests it was their duty to return to a form of global settlement like that reached at Bretton Woods, but with equity and sustainability as two additional guiding principles. Their failure to do so, their pusillanimous determination to allow the market mayhem to continue ruining human lives and planetary systems is a shocking abnegation of responsibility.

As viewed daily in Greece, as in Iceland, as soon to be seen in Ireland, Portugal and Spain, when politicians fail their people so disastrously economic instability rapidly becomes political instability. Few of those alive and voting today remember serious political instability, although it is less than 40 years since the three Mediterranean countries mentioned were all ruled by military dictators. There is so much more at stake here than the investments of finance companies and it is politicians with the vision to grasp that who are so seriously, and tragically, lacking.
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Chancellor Fails to Separate Retail and Commercial Banking

2011-06-16T07:58:00.001+01:00

The loudest call for reform following the failure of the banking system in 2008 was that the risky activities undertaken by investment banks should not, in future, be able to threaten the deposits of ordinary working people. Osborne's speech at the Mansion House last night indicated that he is not going to separate these two very different aspects of UK banking activity.

The newspapers this morning draw attention to the proposal, adopted by the far-from-independent banking commission, to 'ring-fence' the savings and deposit side of banking from the global casino. Like the stock-market itself, this tired metaphor is drawn from the agricultural sector. But the beasts of the City are far more powerful than the politician's fence. Admissions that negotiations are still ongoing makes it clear who will decide the outcome. Needless to say, the citizens who have paid for the banking fiasco are not represented in these discussions.

If retail banking remains within the same company structure as its more glamorous, more profitable and more powerful investment-banking sibling, the efforts of all the most creative and Machiavellian minds within each global conglomerate will surely be bent towards finding ways through the barrier. Only a clear separation into separate companies, with separate boards pursuing different agendas can remove the threat of another crisis in future. The banks will refuse to settle until they have made this clear separation impossible, until they are sure that the ring fence is full of holes.

But this whole discussion addresses only half of the problem. Even if your own savings are safe, if the massive investment banks run into problems as a result of their absurd and irresponsible activity then, while they are large enough to provoke a systemic crisis, the risk that we will all have to carry the costs and take over their debts onto the public balance-sheet will remain. Another policy proposals is, if anything, even more important than the separation of retail and venture banking: to limit the overall share of the market held by any individual institution.

I would anticipate that most readers of this blog keep their own money far away from the commercial banking system, in a mutual organisation such as a building society or with the Co-operative Bank. However, we are still vulnerable to the threat that the uberbanks make to the credit system on which our national economy depends. Never was there a clearer example of when finding your own small-scale solution is not enough: we must rather find a way of turning public anger into a significant political challenge to the banking sector.
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Want Not Waste

2011-06-15T08:07:00.005+01:00

The cries for a weekly waste collection as a human right give us a fine opportunity to introduce a classic green economy discussion into our bus-stop conversations. Waste is an obsolete concept: the future is one without waste where materials will circulate through our economy rather than entering as raw materials at one end and being dumped into landfill at the other.

This conception of the economy as circular is due to Kenneth Boulding, a leading figure in the development of a green approach to economics (and has now been picked up by the Ellen Macarthur Foundation, where much detail can be found). Kenneth Boulding was born in Liverpool, UK in 1910 and studied at Oxford, Harvard and Chicago; he taught economics at Michigan and Boulder, Colorado. He began his career in fairly conventional economic vein, and achieved an impressive academic reputation for publishing and teaching. However, after the war he changed tack, attempting to fuse biology and economics in the book Evolutionary Economics published in 1944. This was the first attempt to synthesise the scientific aspects of economics and ecology and thus an important precursor to green economics.

As an early proponent of the need to move towards a non-growth or ‘steady state’ economy, Boulding used the contrasted images of the cowboy and the spaceman to explore our attitude to our environment. The cowboy, who finds his apotheosis in American capitalism, is always pushing outwards, expanding his available resources, finding ever new frontiers to exploit. The spaceman, by contrast, is forced to recognize the limits of what he has brought on his small ship:

‘Earth has become a single spaceship, without unlimited reservoirs of anything, either for extraction or for pollution, and in which, therefore, man must find his place in a cyclical ecological system which is capable of continuous reproduction of materials even though it cannot escape having inputs of energy.’

This image provides a stark illustration of two of the key principles of green economics: the importance of the circular flow of materials around the planet and the need to handle wastes positively. It is an interesting ironic development of this contrast that, with the NASA project to put a human being on the surface of Mars now itself using up a large quantity of earth’s resources, the cowboy will meet the astronaut at the final frontier: space.

Boulding was also critical of the straight-line thinking inherent in mainstream economics; this he described as ‘a linear economy . . . which extracts fossil fuels and ores at one end and transforms them into commodities and ultimately into waste products which are spewed out the other end into pollutable reservoirs’. This way of organising an economy was, he declared, ‘inherently suicidal’. His alternative was a prototype for the spaceship earth which he thought he had identified in the traditional village economy of Asia. Rather than a linear form this had a circularity built in—‘a high-level cyclical economy’. This was written nearly forty years ago and laid the groundwork for the closed-loop economy and the principles of permaculture that are now being translated into practical policy in calls for a zero-waste economy.
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Open Source Planning

2011-06-09T17:27:00.000+01:00

In a comment on an earlier post to this blog, a reader asked where George Orwell is when we need him. I believe I may have found the answer: he has been employed as a Discourse Adjustment Analyst in the Department for Communities and Local Government, where doublethink is thriving. How else could we have a planning document that draws its title from the free software movement and yet is deliberately designed to commodify nature and sell it to the richest developer? His work can also be seen in the title of PPS4, called Planning for Sustainable Economic Growth, published under the Labour administration. It is rumoured that he will shortly be setting us his own consultancy, Oxymoron Inc.

During a training session organised by two members of the Planning Officers Society earlier this week I was told that my definition of Localism was entirely wrong. In spite of any lingering hopes about the Localism Bill, the trainers made it clear that it is hierarchy dressed up as subsidiarity: ‘The localism agenda is there to promote growth’ was the message. The National Planning Policy Framework has a presumption in favour of development where no core strategy exists, as in Stroud, and now that the Regional Spatial Strategies have been swept away this leaves us extremely vulnerable.

Unsurprisingly, the voice of the developer, the British Property Federation, has welcomed the new Framework. The changes are all, apparently, about efficiency and the removal of red tape: 'The planning system has become unwieldy and needs to be pared back'.

While regional planning has been all but swept away, there is a new level altogether: that of the neighbourhood. This is as yet undefined for urban areas, but in rural areas must be defined by parish boundaries. Neighbourhoods will be able to organise themselves to develop their own plans and, so long as they stick to the council's plan, the council must provide them with expertise and fund a referendum on the plan. If the neighbourhood votes in favour the plan must be followed.

This is not quite as exciting as it sounds, since the system is still hierarchical so that the neighbourhood can only make minor changes. For example, if it has been decided by the higher-tier authority that nuclear waste will be desposited in your neighbourhood, you are only at liberty to decide its precise siting. As the recent decision by Eric Pickles to permit the dumping of radioactive waste in a community near Peterborough that had clearly voted against this course indicates that the real motivation is profit and the real power still the national government.
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A Land Theory of Value

2011-06-07T09:11:00.003+01:00

It must be something to do with the way that George Osborne is channelling David Ricardo, but I do keep coming back again and again to his liberal economic theories. Ricardo's Labour Theory of Value was particularly influential on economists of the succeeding generation, including Robert Owen and Karl Marx. Both derived from it the idea that there was an inherent unfairness in those who created value through their work losing a share of it to those whose only contribution had been capital.

Marx argued that the only way to wrest the power to extort economic value from the rentier class was via violent revolution. Owen, meanwhile, sired the co-operative movement and enabled generations of working people to establish their own non-exploitative businesses and to gain access to their necessities without becoming involved in exploitative consumption systems. But what about if the labour theory of value was itself a mistaken route? Throughout the 19th century the focus of economic theorising and political debate was on labour, but as the opposing forces of labour and capital struggled over the share of production, the real source of value, the planet itself, was sacrificed.

The labour theory of value replaced an earlier system of economic thought developed by the physiocrats, whose foremost thinker, the Irish economist Richard Cantillon, worked according to a land theory of value. It was these theories that were overturned by the classical economists and their neoclassical inheritors, who lost sight of the real value of land. The environmental consequences of this theoretical error are clear to see.

So how might we construct an economic system that paid due heed to the contribution of land as well as labour to the production of economic value? Could we imagine enterprises where the sorts of negotiations between producer and consumer that take place in co-operatives could be extended to include the planet? In a co-operative economy neither side should take too much, or be expected to give too much. In a green economy perhaps the planet should also be included as a negotiating partner, whose contribution is recognised and not exploited.
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A Politics for the Earth

2011-06-06T08:01:00.008+01:00

Today is the day that Vince Cable launches the next salvo in the battle between capital and labour. This is the battle that has been central to our politics for the past 200 years or so, since the industrial revolution finally broke people's ability to create a livelihood by use of their own labour and on their own land. Interestingly, this is the word, a very green word, used by the TUC in their assessment of how the labour side is doing in this battle.

The TUC report shows that labour has been losing for several decades with headlines such as: 'The wages of middle income Britain grew by an average of just 56 per cent between 1978 and 2008, despite GDP increasing by 108 per cent over the same period, and for workers in some skilled trades incomes actually fell in real terms.' This is clear evidence that the consequence of globalisation and the neoliberal revolution in economic organisation has been the extraction of an increasing share of value by the interests of capital, and at the direct expense of labour.

The report frames the discussion against the background of a dichtomy between a welfare model of the economy and a model of finance capitalism. It argues that the consequence of a move towards a reliance on finance resulted in no extra jobs to replace those lost due to the movement of manufacturing overseas: 'Finance and banking created almost no net jobs in the 15 years to 2007, despite the industry’s greatly expanded share of the nation’s output and profits.'

In its proposals the report offers the beginnings of a revival of vision on the left, a vision which includes demanding that politicians pay more attention to equality and investment in manufacturing, reopen the question of the selfish and destructive design of the corporate business model, and of course the inevitable demand for more union involvement in economic policy-making. The report also provides the sort of information about who is gaining from the neoliberal model - the wealthy and the professionals - that has been so lacking in the debate about economic policy in recent years.

The most killing statistics of all are those that show that the economy has not thrived under this neoliberal model. Growth has been slower and recessions deeper. Even on its own terms the capitalist economy has utterly failed, and the most extreme version of it, with all the social costs attached, has failed most extremely.

The weakness of the report is that, in spite of using the word livelihood, the word is used in the predictable narrow sense that a 'labour' movement seems incapable of transcending. Hence the emphasis is still on the fight between owners and earners, while the object of that fight, the source of all true value which is the earth itself, is still left outside the debate.
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Pricing the Priceless

2011-06-05T07:25:00.001+01:00

In the era of ecosystem assessment it is essential that we all understand how limited are the techniques for pricing nature. This post is rather dull and technical but shares what I hope is useful information about what the ecosystem assessors are up to. There are a number of actual techniques that can be used to create pseudo-prices for aspects of the environment. According to David Pearce all have two stages: first the economic value must be demonstrated and measured; second, it must be captured or ‘appropriated’.

Conventional Market Approaches

This is the most straightforward method, since it begins with the existing market cost that needs to be paid to restore the environment to its pre-existing state. If the environmental problem we are considering is pollution from a factory, for example, the price is whatever it would cost to clean up that pollution. If this price is not enough to protect the intrinsic value of the watershed which absorbs the pollution, then a technique of ‘shadow pricing’ might be used as well—adding to the cost of the clean-up an additional value which reflects what people would be prepared to pay to have their watercourse restored. Sometimes these market approaches aim to restore the value of something that has been destroyed by pollution, for example paying a farmer the value of a crop that could not be sold because it had been contaminated.

Household Production Functions

This name appears to bear little relation to the technique it describes, which involves costing the substitute that can be offered to the consumer who has lost out because something they value in the environment has been destroyed. Examples might be the cost of installing insulation to prevent noise from aircraft destroying the peaceful enjoyment of the home or the cost of travelling to a park that is far from a person’s home because the nearby park has been used as development land by a supermarket.

Hedonic Price Methods

Hedonic pricing involves using markets that do exist that approximate to the goods or services that are destroyed and using the prices that are paid in that market to impute a price to the non-tradable commodity. The price that exists in the real market is considered as an implicit price for the missing market. A popular example is the ‘hedonic housing market’, which relates the price premium for homes in a certain area to the value people place on the peace, proximity of green space for leisure, low levels of noise pollution and so on in the local environment.

Experimental Methods

The previous methods are all conducted by environmental economists working from existing data and in the quietude of their offices. In experimental methods they venture into the world and discover how much people value aspects of the environment by asking them directly what they would be prepared to protect it. In a method known as ‘contingent valuation’ people are asked what they would be willing to pay to protect their local park or to avoid having a nuclear power-station built in their community, for example. The method known as ‘continent ranking’ or ‘stated preference’ involves how much they value an environmental good relative to other goods which are actually bought and sold in a market, enabling the researcher to fix the relative price of the environmental good that they are interested in.

It is clear from these various techniques that they are hugely complicated (and expensive) to calculate and that the prices that are arrived at can never be considered to have a definite relationship with the value people place on the environmental good or resource that is under threat or has been lost. An environmental economist would argue that, in a society where markets dominate, pricing the environment, no matter how inadequately, affords the environment the best protection. Critics might suggest that a more pragmatic conclusion would be that there are areas of life too precious to be included in the sphere of the market.
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What the Fukushima is Going on?

2011-06-04T08:25:00.000+01:00

Well how could we possibly know? The major consequence of the Fukushima disaster in this household is that we now have a dish aerial so that we are no longer reliant on the BBC's coverage which, in this case, I can only designate as propaganda. The truth is beginning to emerge from Tepco, who are now admitting that three of the Fukushima plant's reactors melted down within days of the tusnami. Those presumably were the days during which the BBC was engaging a range of pro-nuclear stooges to reassure us that there was no problem.

While the internet appears to be ephemeral it can in reality provide a trace, and we can use this trace to assess exactly what we were being told by the BBC. On 14 March BBC churnalists were reporting the view of 'international nuclear watchdogs' (presumably the IAEA) that there was no sign of a meltdown, balanced by the comment of an unnamed minister that the 'melting of rods' was 'highly likely'. On 27 March the BBC reported that workers were 'trying to cool the reactor core to avoid a meltdown' at a time when we now know that three meltdowns had already occurred. Perhaps strangest of all was the constant repetition of the bizarre phrase 'partial meltdown', as though nuclear fuel could somehow resemble a chocolate fondant pudding.

We were, throughout the early days of the disaster, when people were still listening to the stories, being reassured that this was an old plant whose design is no longer used. This is, as made clear in a film made for the BBC by Adam Curtis back in 1992, when it still had a degree of independence, to entirely miss the point. The real question is why these plants were still running if they were not safe: and that is a question about politics not science.

The BBC's inability to provide clear information about the nuclear threat is no doubt a consequence of the increasing political pressure it has been under in recent years, making the inference that we no longer have an independent national broadcasting channel a sad but inevitable one. No wonder, then, that there has not been a reaction against nuclear power in Britain, compared to Germany, where the tide of revulsion from a better informed public has led to the closure of the entire nuclear industry by 2022 and the election of green governments in a number of the country's regions.

What the Frack is Going on?

2011-06-03T07:44:00.000+01:00

I must confess that my disappointment at learning of the advance of the shale frackers into my backyard rapidly morphed into the miserable realisation that I am going to have to learn about a whole new energy technology. Unwanted technical knowledge is the inevitable lot of the environmental activist. The shale oil drilling has reached public consciousness because of the suggestion that the operations of the Cuadrilla company near Blackpool has caused two minor earthquakes. In my backyard there are threats of similar developments by a previously unknown company called Coastal Oil and Gas which has already submitted plans to begin drilling at Llandow industrial estate in the Vale of Glamorgan.

There is limited information available about the Bridgend-based company Coastal Oil and Gas, although local campaigners claim that it is a husband-and-wife team which is fronting up a major investment from a larger Australian company. Certainly, whatever the past activities of the company they appear to have left no internet trace. The difficult question for me is precisely how this company came to own the rights to what is a natural resource. My best information so far is that, in our bizarrely feudal system, all land in the UK, and the resources in it, belong to the Crown. So can we assume that Gerwyn Williams, MD of Coastal Oil and Gas, has taken a trip to the palace with an envelope of greasy tenners? Answers to this question would be very welcome.

Although the quantities of gas available appear to be fairly limited, the race is on to profit from this latest energy boom. In South Wales this boon for a tiny number of people while the majority bear the cost has haunting echoes of the history of coal. It was a small number of English coal barons who grew fat, while the working people of Wales suffered and died in the pits. This time around there should be no permission given to exploit natural resources unless the value of those resources is shared fairly amongst the local community.

You can post your opposition to fracking and support the call for a moratorium until a participatory democratic process guaranteeing environmental safety and fair sharing of the proceeds here.
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There is No Wealth But Life

2011-06-02T07:22:00.009+01:00

Finally, in a move that became inevitable once bogus methods of valuing nature were invented by economists with the very same mental framework that produced sub-prime lending and credit-default swaps, a price has been put on the natural beauty of our land. Our country has been degraded into an accounting unit; our beautiful land has been marketised.

This, in my view, is the only possible interpretation of the UK National Ecosystem Assessment, an attempt to put a monetary value on everything that we, the human species, gain from our fellow species and earth's sacred existence. It styles itself as 'the first analysis of the UK’s natural environment in terms of the benefits it provides to society and continuing economic prosperity' and is 'part of the Living With Environmental Change (LWEC) initiative'. That is what we have to do of course: learn to live with environmental change, rather than learning to cherish and respect nature's way. The ideology here is very much about nature learning to live with us, in contrast to the opposing lessons of permaculture.

The naivety of the respectable, well-meaning but misguided scientists, like Bob Watson, Chief Scientific Adviser to Defra, who have become embroiled in this exercise is baffling. The majority appear to be natural scientists, and this, alongside the large-scale funding that was presumably available to support this research, appears to explain their mistaken decision to become involved. Perhaps they genuinely do not understand how economists can, once given something 'scientific' to work with, warp and distort values until they arrive at the answer that suits their profit-driven objectives. The process of discounting is just one such technique.

Knowing exactly how much people would pay not to lose a bit of woodland is a real step forward for a developer. He only has to find this much money and give it to the local authority and he has solved the problem of the devastating loss of the trees. A little bit of carbon mitigation, a few bus fares to travel to the next closest park, and the problem of local resistance to concrete is solved. Profits expand and the irritating impediment to economic growth from nature and those who love nature has been eliminated.

The impossibility of substituting money for nature is a central tenent of a green approach to economics; to imply that we can somehow find a price for nature, a price for life, only proves that those who come up with such calculations need to be removed from positions of authority. If they are allowed to continue to dominate our national life it is clear that our future and that of many of the species we share the planet with is doomed.
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