Age of Austeria

A recent FT article gloating about the 'resilience' of corporate earnings in what we are misguidedly calling 'the age of austerity' is the final straw. In all plethora of abbreviations we have been using in discussing the financial crisis the two letters we should have been focusing on were PR. The greatest success of the financiers has not been their takeover of our political and educational elite, but their ability to convince the working people of this country that the destruction of their public services and loss in incomes is inevitable.

The FT article discusses the latest corporate reporting season with glee: corporate profits are up and shareholders are celebrating. In both the UK and the US the profits of companies are demonstrating an 'extraodinary resilience': 'Companies on both sides of the Atlantic escaped the financial crisis in fine fettle.' The article is called, in a title I cannot help admiring in spite of myself, 'Bulls graze on resilient corporate earnings'.

I have been searching for some time for data that explores the share of productive value in this country which goes to employees and companies. The difficulty of finding such data is evidence in itself of the politically biased nature of research funding and the consequence of the privatisation of the Office for National Statistics, undertaken by Gordon Brown in 2005. Private-sector data gatherers collect the data that the profitable want to know about.

The best data I have been able to find come from a report by the TUC called Unfair to Middling. They show that much more of the value created in our economy is going to owners than to earners. Since the 1970s the share of wages and salaries has dropped from a high point of 65% in 1975 to just above 50% now. By contrast the share of profits has risen to almost half. The burden of taxation falling on individuals went up from around £50bn. in 1990 to £110bn. in 2000 and £150bn by 2009. At the same time the tax on corporate profits, which increased massively during this period, increased more slowly. That is because the taxes on business profits have been cut: during the past decade they have fallen from 32% to 23%.

The conflict of the 1970s is not warmly remembered, but it was that generation's refusal to accept inequality that won a relatively comfortable and prosperous life for working people. On this day of international worker solidarity we should remember that it was solidarity and struggle that brought us some measure of equality, and unless we continue to fight for them, these gains will be lost.

Perhaps it is just about time that we all told Mr Cameron to 'Calm down, dear'. We have had more than we can stomach of his politically motivated whipping up of an atmosphere of austeria which is used to conceal a massive reallocation of wealth within our society. Tweet

The Future of Universities: A Rhetorical Question?

The higher education sector is giving clear evidence that the Tories are responding to their own rhetoric rather than the reality of the way a modern economy is organised. Cuts to university funding have been savage and sudden: 6% to the teaching grant and 54% to the capital grant for 2011/12. Universities are supposed to make up the shortfall through increasing fees, but these increases cannot be imposed until 2012/13, leaving a year with a massive spending gap.

These cuts are aimed particularly at teaching, penalising those universities which continue to focus on teaching rather than research and contribute to social mobility by accepting students from less wealthy backgrounds. As Sally Hunt, UCU General Secretary, put it:

'Exceptional universities that concentrate on teaching and widening participation have been told today that they are being left to scrap it out in an untried market place. In addition, institutions that focus on arts and humanities will be forced to charge higher fees to make up the shortfall when they are given the option to triple the current maximum fee to £9,000 in 2012.'

In the market for education of the government's imagining, a lower-quality university will compete on price, offering cheaper degrees to those with less money, first-generation hopefuls perhaps, rather than public-school leavers. If we were talking about shoes or beefburgers this rationale might work, but no university wants to think that its degrees or its students are second-rate. A full 57 of the 80 English universities that have so far revealed their fee structure have tripled their fees to the maximum £9000, with many more within a thousand or so of that maximum.

Universities, long the object of managerialisation, are now being treated as though they were private-sector businesses, but they are not and never can be: they face different rules and constraints. In the private sector, if you see your market share contracting you cut costs and change the quality of your product or cut output. Since standards of education are controlled by the QAA and numbers of students are fixed by government dictat, neither of these options is possible for university managers.

What we are facing in the UK's once proud university sector is a bloodbath as managers struggle to be impressively ruthless by engaging in a process of random downsizing without any sense of strategic direction. In spite of the continuing public support for higher education, courses of practical value to the country will be cut if they are not the ones favoured by students. Staff who have failed to make themselves fit for the purposes of corporate managers will be lost.

The threat posed a generation of politicians who cut their teeth under Thatcher, and imbibed market rhetoric with their mother's milk, is only now becoming clear. Their failure to understand that the public sector cannot behave like the private sector is a danger to us all.
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Where are you from, originally?

The extraordinary spectacle of the most powerful man in the world having to justify his parentage is one of the clearest signs to date that the US is having a collective nervous breakdown. The invention of the concept of birtherism is a tribute both to our American cousins' impressive inventiveness with language and their abysmal record of public education. Obama's reaction is tribute to the resilience of US humour.

Both the neurotic hounding of a man whose colour was always and will always be an issue for a large majority of his fellow citizens, and the creeping of the public debate in this country towards problematising immigration, draw attention to the hypocrisy over issues of birth, nationality and belonging in our 'globalising' world.

So how important is it to know where you come from? In Wales, where I lived for 12 years and still work, it is very important indeed. In its Welsh form 'O ble rwyt ti'n dod yn wreiddiol?' it is one of the first questions you are taught when learning Welsh. Knowing where somebody comes from, and perhaps identifying their family, helps to connect you. It is not a rude or nosey question, but one that seeks relationship. It is this need for connection with place that has been denigrated and marginalised by the globalised economy. The consequent dislocation is the real source of the rise in politics based on identification, whether based on race or nationality.

From the standpoint of economic theory, free movement of labour is taken as an assumption of the market model. Unless labour can move to the market where it will receive the best returns to its skills, efficiency will not be achieved. This is but one of many examples where the market model bears not relationship to the real world, where immigration is strictly controlled.

The struggle between the deterritorialisation that results from globalisation and our identification with place has been a hallmark of the past decades. The birtherism farce is one piece of evidence of this tension; the rising votes for nationalist parties in some of Europe's most enlightened countries a more disturbing one.

Rather than encouraging the destabilising and environmentally destructive advance of a globalised economy, we should instead be working towards a system of self-reliant local economies within a bioregional framework. Within such a structure the ability of the local, and especially the local land, to evoke powerful responses could make it an appealing substitute to the our unsatisfying consumer culture, rather than a threat to social harmony.
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Bringing Economies Down to Earth

What was so disturbing about the recent history of Iceland, and in this it merely represents a microcosm of the globalised economy, is the way that there needed to be no apparent connection between the size of the real economy and the size of the financial economy. Nominally Icelandic businesses could use each other’s collateral to borrow many times more than the country where they were based was worth. But the unravelling of the story demonstrates that this disconnect is more apparent than real.

When the financial intermediaries can no longer borrow the credit consider that the government of the country where the bank is registered has a duty to take on the losses and repay the creditors. Hence when British depositors in Iceland’s banks lost their deposits, Prime Minister Gordon Brown immediately insisted that the Iceland government should repay, leading to a lengthy legal battle the outcome of which is still undecided.

The myth of deterritorialisation was created by the Vikings of various national origins who had found ways to create money from thin air by the process of mutually supportive bank credit. But when the bubble burst the creditors ignored this myth and targeted national governments to support the debts that had been taken on by companies registered in their territories. Far from floating free in a globalised world without governmental authority, those seeking repayment reverted to nationally based legislative frameworks.

The legally enforceable contracts between banks and the national governments who register them are, it seems, still valid in the post-geographical world of globalisation. The lesson that was learned from the collapse of financial institutions, in Iceland and elsewhere, was that geography matters very much indeed.
And beyond the question of where the bank is registered and who should pay, comes the question of how the economic value that the money can make a claim on is to be generated.

Robert Wade has written of the Icelandic economy as Icarus, the Greek mythical hero whose hubris caused him to fly too close to the sun, and who was destroyed by his own arrogance. Following the bursting of the financial bubble in 2008, every economy that has lived through finance creation was forced to come down to earth with a bump. The apparent severing of the link between finance and the real economy was only ever apparent. Now that those who are left holding credit come to make a claim for real goods and services it is the citizens of those countries whose banks generated the artificial financial value who have to pay for it, with their work, and the resources of those countries that have to be exploited to produce those goods and services.
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Great Transformation: Phase II

I have finally overcome my inherent thrift and bought Karl Polanyi's Great Transformation, allowing me the leisure time to consider his arguments at length during train journeys, rather than in haste before his book had to be returned to the British Library stacks in Wetherby. What I found surprised and impressed me immensely.

At the level of chat, Polanyi is discussed, dismissed even, as an 'economic historian'. This is a familiar glitch in discussion of economics, where considering long-term trends is thought to undermine the quality of your contribution. After all, it might risk allowing in the possibility that there have been alternatives to the market, even that these have dominated human history and achieved high levels of well-being.

The popular view of Polanyi is of a social historian who offered an understanding of non-market provisioning systems. The motivation for his book, however, is clearly that of political economy. He begins with two chapters on the gold standard and its role in maintaining peace in Europe in the 19th century. Far from peasant economies and mutual aid, this is a story of political intrigue and the power of global finance.

Polanyi describes four institutions that held 19th-century Europe together: the balance-of-power system, the gold standard, the self-regulating market and the liberal state. He is in no doubt about which mattered most: 'Of these institutions the gold standard proved crucial; its fall as the proximate cause of the catastrophe. By the time it failed, most of the other institutions had been sacrificed in a vain effort to save it.'

While history never repeats itself, this quotation made me ask myself which of the institutions and values we hold most dear we are willing to sacrifice to support the existing reserve currency system, and particularly the power of the dollar and the euro. The political pressure required to service the needs of finance today are ripping apart the social fabric, leading to the rise of nationalism and racism, the destruction of social services, and the waste of our skilled young people to unemployment.

Perhaps even more familiar is Polanyi's judgement on the impact on equality of the currency wars of the 1930s: 'Internally and externally alike, dwindling currenices spelled disruption. Nations found themselves separated from their neighbours, as by a chasm, while ta the same time the various strata of the population were affected in entirely different and often opposite ways. The intellectual middle class was literally pauperized; financial sharks heaped up revolting fortunes. A factor of incalculable integrating and disintegrating force had entered the scene.'

It is said that Karl Polanyi is an influence on Maurice Glasman, theorist of the self-parodying ideas of Blue Labour. In such quarters Polanyi's book appears to be used unopened, as an iconic support for mutual aid and communitarianism. But if Glasman and ilk have the influence they claim on Ed Miliband, Polanyi may soon be a name worth dropping.
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The Bourne Derivative

Where is George Orwell when we need him most? The lasting contribution of his writing is not his lucid and baldly honest descriptions of historical events, valuable though these are, but his nailing of the operating mechanisms of a totalitarian state, whether of the right or of the left. While Big Brother and the Big Society seem locked in some process of intellectual dialectic, the concept of doublethink thrives in Cameron's Britain.

Let's think, for a while, about the Independent Commission on Banking. Who precisely is it supposed to be independent of? Given that it was established in the wake of the greatest financial collapse history, caused by the reckless behaviour of privately owned and profit-driven banks, one might hope that it would be independent of the finance sector.

This is far from the case. In fact, the most independent member is probably Martin Wolf, who has made his living as a financial jourjnalist. Hence he is entirely reliant for stories on the sector from which he is supposed to be independent. John Vickers himself was Chief Economist at the Bank of England, Martin Taylor is a former Chief Executive of Barclays, while Bill Winters had a similar post with J P Morgan until 2010.

The justification for this make-up is presumably based on expertise, in line with the oft-repeated and highly patronising thought that we the people are simply not smart enough to understand what goes on in the arcane world of finance. Like latter-day alchemists, the financiers make something from nothing, and then make things of real value disappear. Such knowledge is far too dangerous to be made available to the unwashed masses.

I have an alternative proposal: a truly independent banking commission. This would be made up of five ordinary people, drawn by lot in a process akin to the jury system. It would be chaired by Joanna Lumley, who would be responsible for reporting its findings to the general public. It could take evidence from a range of people: financiers, politicians and journalists, but also those who have been on the rough end of the miracle of finance: small businesses owners who cannot raise finance, single mums who cannot feed their children, and dissident economists of course.

The purpose of the commission will be to create the general principles within which technocrats can then make policy. If a derivative or other 'financial product' cannot be explained to them in a convincing manner, then they will be duty bound to reject its role in the finance world of the future. If we are truly to live in a democracy then finance must be required to submit to such rules, while the people, in an equally painful process, must take responsibility for understanding the financial system that is such a vital part of their lives.

Last night I went to watch Inside Job with some friends. I was frankly disappointed by the failure to nail the nature of the coup by the financial sector, which has effectively taken over the US government. The film was also short on remedies, ending on a platitudinous quotation about how the struggle to regulate finance 'will not be easy'. Hardly an insightful observation. My friend the Green Bean Counter has a better idea. Why don't we hire Matt Damon for one last vengeful performance, where he outwits the bankers and destroys their empire by force. Hence the title of this post.
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A bouquet for the BRICS

The movement in economic power towards the populous and productive nations of Asia, and the resource-rich countries of Brazil and Russia, has been obvious. The Western nations' strategy of extracting an unfair share of the value of this work and taking resources that do not belong to them through the trade-and-currency system is finally being challenged politically.

The BRICs, once a theoretical grouping, are beginning to operate like a political force. Their call for a new reserve currency to replace the US dollar as the basis of global trade is a sign of frustration with the failure of the US government to tackle the injustices in the global economy. The invitation to South Africa to join this grouping is an indication that, much more so than the G7, it is beginning to represent a global decision-making forum.

To some extent the leaders of these countries are being polite in making statements. They hold the power in the global economy and, if the UK and US fail to negotiate, it can only be a question of time before our currencies are simply sidelined. At present the call is for the use of special drawing rights as a global reserve; it might just as well be a currency set up in common between the BRICs countries and their allies, sidelining entirely the Western countries that have dominated the global economy through power rather than performance since the end of the World War II.
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