Divided We Fall

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

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

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

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

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?

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

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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