Osborne Offers Dodgey Deal on Employment Rights

A surprising article from the Financial Times identifies 'cash upfront on the road to serfdom'. It describes how plans announced by George Osborne offer employees the chance to sell their birthright for a mess of pottage, or in this case to voluntarily relinquish their employment rights in exchange for shares in the company they work for. This is taking the idea of self-exploitation to new depths.

This is surely unlikely to be legal, and a letter from an employment lawyer in the same edition of the paper suggests that this is more ineptitude on the part of Osborne, or what he calls a 'car crash of a policy'. His argument relies on the precedence on European law, however, and the defence we have from European human rights and employment law is clearly the target of the 'renegotiation' with the EU that Cameron is calling for. Tweet

Adair Turner Makes Play for Job as Governor

At last a crack appears in the establishment position over the national debt. Following the statement from the Office for Budget Responsibility that the country is bankrupt, last night Adair Turner, former head of the employers' organisation and now boss of the financial regulator the FSA, came out arguing the case for the Bank to take the necessary steps to eliminate the national debt. He has effectively conceded one of the key planks of the arguments of those who seek monetary reform: if you have maintained the control of your currency, as we did by resisting the push to join the Euro, then you can print as much money as you need to eliminate your unpayable debts. The limit on this is faith in your currency and your national economy.

This is, of course, a deeply political point. It continues the theme of earlier posts that the decision to accept our level of indebtedness is political rather than economic. Turner's proposal is relatively limited. He appears to be arguing about the government debt that was bought from companies through the quantitative easing programme, and that the Bank is cautiously holding onto rather than cancelling. In my article 'Who owes whom?' I quantify this as around 25% of our national debt. It is important to note that Turner is suggesting this as a means of reviving the economy and stimulating growth. He is not conceding the monetary reformers central demand: that the creation of money should be exercised by the state in the public interest rather than by the banks for private profit.

This is clearly a move by Turner to establish himself as the radical and creative candidate to succeed Mervyn King as Governor of the Bank of England. Perhaps King would like to follow this policy but lacks Turner's political nous. The contest within capitalism is now clearly between those who are using the debt crisis to bear down on the power of working people and shift the balance of ownership towards the wealthy, and those who would seek a more workable form of social contract. To those of us who consider that capitalism is inherently an unjust and unsustainable form of organisation this is still something of a sideshow.  We also need to keep our focus on how the massive financial readjustments themselves transfer value between rich and poor - whose assets will be protected? Those of the banks or those of the pensioners?
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Sisterhood is Powerful

The most successful challenge to the global domination of neoliberalism has been slowly maturing in Latin America. The latest development is an interesting coalition between two women in powerful positions where you might least expect. In Argentina, where stereotypes suggest the men rides horses and the women are pushed around the dance-floor like shopping trollies, the female President and female head of the Central Bank are cooking up a distinctly different monetary policy.

The banker, Mercedes Marco del Pont, has recently achieved the rare accolade of being voted 'worst central banker in the world' by the lackeys of the financiers. Her sin appears to be balancing the needs of the Argentinian people with those of the finance sector. She is refusing to have the sole focus on inflation that the IMF demands and has annouced that financial stability, employment creation and economic development with social equity will also be objectives of monetary policy.

Somewhat predictably Christine Lagarde, Managing Director of the IMF threatened Argentina with a 'red card', to which President Cristina Fernandez de Kirchner responded 'My country is not a soccer team. It is a sovereign country and, as such, is not going to accept a threat.' Last time we caught up with Argentina on this blog, they were celebrating their liberation from debt-based financing, and  reclaiming their right to the value of the country's resources. Wray updates us: the recent poor weather has threatened both of Argentina's main exports: soya and beef. This helps to explain the inflation problem that the central bank is facing, but so far the political and monetary sisterhood in Argentina is holding firm.

This story is based on the account of Modern Monetary Theorist Randall Wray; he tells the story in greater detail on his Economonitor blog.
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Spies, Cash and Conspiracy Theories

The similarities between the current global economic crisis and that of the 1930s has led many more thoughtful commentators to re-evaluate the importance of history to the development of policy. A striking recent example, which has been poorly trailed but is well worth watching, is Stephanie Flanders recent series Masters of Money. The link with the Open University shows, but isn't it time we all knew a little more about the variety of economic theories? Flanders makes a sterling effort to explain the thinking of three 20th-century giants - Keynes, Hayek, and Marx - none of whom, interestingly are being paid much heed by contemporary politicians.

I revealed my own interest in economic history in a recent article that was posted on the New Statesman economic blog Current Account. What perked my interest was the revelation that Harry Dexter White, Keynes's sparring partner at the Bretton Woods negotiations and effectively the architect of the post-war global financial settlement, was in fact a Soviet spy. As I point out in the article, in 1944 the US and Soviet Union were still allies, so this is not such a bizarre situation as it might have been by 1948, but none the less it does raise questions about exactly what the negotiators at Bretton Woods were seeking to achieve.

Perhaps the most touching lesson from history is that 100 or so years ago key figures in public life made it their life's work to understand the complexities of the economy. Their objective was not self-aggrandisement or self-enrichment but the impulse to make life better for their fellow citizens. While I find Hayek's idea that politicians should never intervene in markets to be utterly misguided, I can understand how he learned this lesson during the hyper-inflated Vienna where he was a young man, and that his scholarship was dedicated to preventing the same sort of suffering from occurring again. How distant and quaint such motivations seem today, when the highest aim of most authors is to be granted the accolade of a TV series.

As I conclude in my article about Bretton Woods, both the authors of the compact appear to have died of broken hearts: Keynes was dead within two years of the ending of the conference, worn out by his attempts to ensure peace in his time and ours. White outlasted him by two years but could not survive the pressure of the McCarthy era. He suffered a heart attack shortly after giving evidence to McCarthy’s House Unamerican Activities Committee in August 1948.
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Ineffective Government Breeds Ineffective Demand

The launch of the Bristol Pound on 19 September was the subject of international media attention, and rightly so.  The decision by a whole city to reject the pound sterling and take charge of its monetary affairs is an exciting and unique one.  However, the most important aspect of the Bristol Pound went widely unreported: the local council is prepared to accept it for payment of local taxes.  Once a political authority underwrites a local currency in this way it can become a viable alternative, and the Bristol Pound is the first currency that has been accepted in this way in the UK.

This week I published a report with the Green House thinktank called Local Liquidity where I discuss the implications of this change.  I frame the post-2008 financial crisis in terms of the failure of effective demand. Quantitative Easing has not only increased inequality, as indicated recently by the Bank of England, but has also created only ineffective demand.  If local authorities were to back their local currencies this could enable them to generate effective demand to replace the financial energy they have removed through successive years of spending cuts. A more immediate and effective alternative, of course, would be for the government to spend the QE money on building green infrastructure, but that is beyond the control of local communities.

The report includes an authoritative account of the different types of local money that are in circulation across the world from Germany's hugely successful Chiemgauer to the currency issued by Banco Palmas in Brazil and Rotterdam's Nu-Spaarpas.  It explains how the design and democratic control of local money can help to reverse the tendency of central bank money to favour elites and starve small businesses.

From a green perspective, the building of s sustainable society requires a transition towards a system of self-reliant local economies, where the majority of our needs are met from genuinely local production. Green economists see the lengthy supply chains of the global economy as wasteful of energy, as well as leaving us vulnerable in the face of rising fuel prices and more unpredictable weather resulting from climate change. Rather than increasing growth for the sake of it, local currencies can shift economic activity out of the globalised economy and into the local economies on which we will all come to rely.

The rapidly growing body of evidence about local currencies indicates that their popularity is counter-cyclical, that is to say that they flourish in times of liquidity crisis, when there is not enough conventional money to support necessary economic activity, and shrink again when the capitalist crisis passes and the economy revives. This is true of the non-circulating currencies such as LETS and time-banks but particularly notable in the case of the scrip currencies that supported local economies in the US Midwest during the Great Depression and more recently during Japan’s lost decade. In a globalised economy local authorities often feel powerless to act to support the economies which support their citizenry, but they are not. Local authorities across the world have the power to support local currencies and enable them to underpin struggling local economies of both production and distribution.

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More Links to Germany

As the parallels with the 1930s grow stronger, another commentator has written an article drawing attention to the way Germany was treated in the 1950s and the way the Eurozone, at Germany's behest, is treating the debtor nations of Europe's periphery. As Eric Toussaint notes, the 1953 London Agreement acknowledged that Germany was simply unable to pay its debts, and that failure to recognise this could cause social and political tensions within and between countries. With the second great European war still a vivid and personal memory for many this argument was heeded. Amongst our generation of politicians, sadly, the focus on punitive measures and judgemental attitudes is outweighing the good sense that says when countries can't bear, forcing them to do so will only break them and their populations.
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Market is Slow Motion Train Wreck

At his valedictory address to the Trades Union Congress Brendan Barber used the Olympics as a proof of the way that community is stronger than markets. The fiasco of the G4S contract was spectacular evidence of the fact that in key strategic areas we cannot rely on the market: ‘Congress, it’s right to celebrate the Olympics, but it’s even more important to learn from them. For the central lessons of this summer – that private isn’t always best and the market doesn’t always deliver – surely need to shape future policy.’ Even the blogger at the Spectator had to admit that he had a point.

We now have similar evidence of market failure in the area of our key strategic transport network: the railways. It was a whole series of fatal crashes, caused by poor safety standards and inadequate oversight by managers with no railway expertise, that led the Labour government to take the track back into public control. Now the fiasco of the West Coast mainline franchise indicates that the train services themselves cannot be effectively run in the private sector. The three franchise contests currently underway, which will now be suspended with further costs to the taxpayer, and the 15 due before the next general election threaten an omnishambles on the railway.

The costs of the market obsession to the taxpayer are huge. Privatising the role of money creation has cost us the biggest bank bailout in history, caused the longest and deepest recession in the history of capitalism, and bankrupted the country. In comparison the mere £60 million we will shell out to refund the huge companies whose competitive bids could not be effectively compared seems small beer. The lesson is clear: the railway should come back under political control, as should other key strategic sectors. Who would bet against the energy sector being the next to expose the flaws in the market ideology.

But other wider lessons should also be drawn. In areas of key strategic importance, or which involve high levels of risk and uncertainty, the market simply cannot function well. This current problem will be blamed on mathemetical errors by civil servants but that is simply unfair. How are we to measure the risk that the Virgin brand will become tarnished, or that the cost of fuel will increase more than anticipated. How can a contract that includes a numerical measurement of uncertain variables over a period of 15 years possibly be concocted?  It is because vast and complex systems that we all rely on, whether financial or infrastructural, are so risky that accountabity for them should be political rather than financial. In such areas the market will always fail, and until this lesson is learned we will continue to pay the human and financial cost.
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