28 March 2007

Rents and tears

I recently had the pleasure of sharing a platform with David Boyle of the New Economics Foundation, and we will be together again on Thursday. The focus of interest for both of us, and for those who invite us to speak, is the strange death of the real economy in the UK and the need to rebuild and revive our local economies.

David edits NEF's newsletter radical economics and has an article in the most recent issue called 'The Unbearably Empty Economy'. He highlights the hollowing out of the British economy so that businesses are 'little more than packaging for computer programmes, call centres and contract staff, while the corporations have divested themselves of most of their skills and activities except financial services'. He also asked the question: 'When was the last time you were in a shop where the person serving you knew more about the product that you did yourself?'

His concern was the loss of meaning in the economy but the more serious aspect is the loss of ownership and control. The economy is now being driven by a very small number of very large investors simpy as a mechanism to extract maximum wealth for them. This is the real 'unbearable lightness' at the heart of 21st century capitalism. The classical economists would have despised this from of economy, since they recognised the rentier class as parasites who obstructed useful economic activity. But now, whether by gambling on the stock-market or watching our house prices rise, we are all being encouraged to ape the rentier mentality rather than engaging in useful productive activity.

The latest wheeze of the late-capitalist wizards is the private equity company which profits by investing borrowed money. Public listed companies, those whose stock is sold on stock markets, are subject to some degree of regulation and auditing. Life is easier for the footloose private equity company, usually headed up by a dashing young Turk, who can persuade a bank to lend him a laughable sum of money which he uses to buy out a public company. He can then sell the assets of the company, or rent them back to the main business, in the case of shops, for example. The cash thus realised is used to pay off the loan, leaving the private equity company owning the real business.

Recently bastions of our economy such as the AA (formerly a mutual), Debenhams and NCP have been hollowed out in this way. Now the private equity players are aiming at Sainsburys, an attractive target because of its large land bank, and possibly British Airways. Because such buyouts are supported by borrowing rather than capital investment there are also huge tax advantages involved in acquiring assets in this way.

This is just the most recent form of asset-stripping, sucking money out of the real economy. We need to respond urgently and our response needs to be in the form of bringing about mutual or community ownership. This is particularly important in the case of land, which has become a target of speculation recently and has doubled in value over the past year. We need to work to build up a network of Community Land Trusts, and on the production side to establish and maintain our own businesses as co-operatives, and use our consumer power to support the co-operatives that others work for.

25 March 2007

Call for the Abolition of Wage Slavery

The conventional mindset loves to make clear distinctions, to paint the world in terms of black and white, to establish absolute dates when eras or cultures began and ended. As though the Neolithic, whatever 'new stone age' might mean, ended 5,347 years ago, in the middle of June, around teatime. Of course such chronological control does facilitate the celebration of historical landmarks, such as the era of slavery which is being greeted with much high-blown and self-righteous joy today.

The world does not in reality divide itself neatly between good and evil. Nor did slavery end in 1807. Even the formal historians point out that it was only the state-sanctioned market in human flesh that was abolished at that time. Slaves continued to be owned in the British Empire. But more than this, the consequences of the enclosure movement and the rapid development of an industrial system of production created what the man with the beard justly called 'wage slaves'.

As we come to face difficult decisions about a truly post-industrial age, not one where we simply export our dirty work overseas, we can reckon that the industrial age has lasted about 200 years. The era of the ending of slavery coincided with the invention of machines that could turn fossil fuels into mechanical energy. Climate change has put an end to that stage of capitalist development so where do we go next?

My suggestion is that we start asking important questions about ownership. It is because those who control the economic system we are forced to live with demand an unfair and excessive share of resources that the pressure on the planet arises. Self-providing communities will have to learn to share resources and work fairly if we are to live in balance with nature and in harmony with each other.

I think this helps us to understand how the globalised trade system is inherently linked to the solution to climate change, as the Contraction and Convergence model links the two at a policy level. Because of the pressure to extract profits and rents for the wealthy, capitalism has been marked by schemes to avoid the natural limits of ecological and social reality. Fossils fuels and human flesh have both enabled the ungrounded and unbridled greed of the spoilt child that typifies capitalism.

To switch attention to wage slavery is not to belittle the suffering of the slaves of our own era. The suffering and exploitation of forced prostitutes and forced labourers in factories and fields persists in every country. We have used our organised political power to ensure for ourselves one step up the ladder so that our exploitation is restrained and decent. But while we work in a firm we do not own we can never be truly free. And while we leave the structure of the economic system unchallenged we can be sure that the morally offensive exploitation of people and the planet will continue.

21 March 2007

Not as Green as Cabbage Looking

How excited should we be getting about the political dinosaurs’ battle over the green ground of politics? How much can we expect from this budget, hyped as the greenest ever? It is obvious that, as a green economist, I would be calling for progressive taxation on air flights, but even David Cameron has reached that point. Should we just be packing up and sitting under a tree?

Not so fast. Contrary to popular wisdom, green economics is not about providing incentives within the existing economic structure and constraining its worst excesses. Far from it. Otherwise I probably would spend more time sitting under a tree. Green economics requires us to ask searching questions about some of the basic assumptions underpinning our economic system.

Let’s start with growth. Policies to counteract climate change are not being introduced for fear that they would threaten this holy grail of our economic system, although in reality it is the constant striving for economic growth that is driving planetary destruction. The fact that economic growth does not increase happiness has been recognized by even mainstream economists and yet the way our economy works means we must still pursue this pointless and destructive course. Within this framework climate change is just another opportunity to increase growth and profits by selling a different range of products. Instead we should be curtailing consumption and relocalising production.

So a green chancellor would not fear introducing measures that would reduce economic growth, such as significant increases in fuel duty and aviation taxes—or why not go the whole hog and introduce a carbon tax on all fuels at the point of extraction to deal with the supply side? And to deal with the demand side we should have DTQs (domestic tradable quotas)—an annual carbon allowance forcing us to control our production of carbon dioxide while allowing us choice about what we spend it on.

As the UK manufacturing sector is exported to China our carbon dioxide emissions are counted in China’s total rather than our own, hence the increasing emphasis in the climate change negotiations on putting pressure on China to reduce its emissions. This is grossly unfair when the products they make are consumed by us. Figures from the Carbon Trust show that, if these indirect emissions are taken into account, our consumption of food, household goods and ‘health and hygiene’ goods actually produce around 22MtC each of our annual total of around 176MtC, each comparable in size to the 24MtC contributed by space heating. These are the values that climate change policies need to focus on, and the budget should include a commitment to measuring indirect as well as direct carbon emissions, as well as including transport-related emissions within the negotiated totals (they were omitted during the Kyoto process).

The nature of money creation within capitalism is the primary pressure for growth within the economy. Because money is created as debt by banks, rather than by governments, this automatically puts a pressure on the economy to grow as people have to work to repay those debts. The real economy is always under pressure to catch up with the money supply. Debt and growth are the Scylla and Charybdis of the modern economy: if we stopped borrowing or stopped growing the economy would implode. Politicians need to regain control over the levers of the economy, and taking back the right to create money within democratic control, rather than borrowing money from banks, would be a useful first start. A green chancellor would also welcome a diversity of currencies. LETS and local currencies should be allowed to flourish, without bureaucratic involvement or threats of taxation from the Treasury.

The modern corporation has become detached from the real economy and from local communities. The pressure for ever-increasing shareholder value has led to gross inequalities as corporations play one national government against another to exert downward pressure on tax rates. A courageous green chancellor would abandon the pose of powerlessness and stand up to the corporate bullies. The budget could include measures to stimulate local production, such as banding corporation tax so that smaller businesses pay at a lower rate than larger businesses. Windfall taxes would become routine in the case of companies making profits because of factors beyond their control, such as weather changes or wars causing increases in oil prices. To address the problem of inequality and the social divisiveness it causes we should have legislation for a maximum differential—say five times—between the highest and lowest earners.

The government missed an important opportunity in the Companies Bill to exert political influence over the behaviour of businesses. A green chancellor would not be so cowardly and would amend the Act to make reporting of environmental and social standards along the whole supply chain compulsory and create penalties for companies not reaching agreed standards. Companies would also be required to undergo, at the public expense, an annual audit carried out by state auditors. The results, including the real as well as nominal value of all listed companies, would be made publicly available.

And finally, while we’re talking about markets, why not have some real competition? The Office of Fair Trading should use its powers to enforce competition to break up some of our largest companies—why not start with Tesco?

19 March 2007

Tax owning not earning

In the UK it is assumed that the origin of money to be spent on services we all benefit from should be individual taxation, and individual taxation of earnings. A full 45% of government revenue comes from this source (direct income tax and National Insurance contributions), with another 16% coming from VAT. Corporation tax provides only 8% and of the other sources that contribute the rest, fuel duty is the largest component with its 5.5%.[1]

Two points might be made here. First, that the tax burden on individuals has increased rapidly (from £48.8bn. in 1989/90 to £109.5bn. in 2002/3) while that for corporations has not. Despite a massive growth in corporate profits during the same period the tax they paid rose from £21.5bn. to only £29.3bn. During a period of downward pressure on incomes and upward movement in profits individuals saw their taxes rise by 124% while corporate taxation rose by only 36%.[2] The table shows how this has affected the shares of wealth controlled by people in different income brackets.[3] The second point, which is not unrelated, is to question why we do not look further afield for our national revenue, bringing into the equation such sources as assets, land and pollution. Because of this chosen balance of tax base, our taxation system bears unduly heavily on the worse off, whose incomes are increasingly squeezed while the assets of the rich are left untouched.

The focus on income distracts attention from the fact that the heart of inequality in 21st century Britain is assets, whether we think of these in terms of savings, property, a pension fund or land. Between 1990 and 2000 the percentage of wealth held by the wealthiest 10 per cent of the population increased from 47 per cent to 54 per cent.[4] The obvious point is often overlooked that, since an asset both generates an income and removes the need for payment of a cost (for example somebody who owns their own home does not need to pay rent), it is directly related to income.

Our one serious attempt to tax the unearned wealth of individuals—at the point of their death via inheritance tax—is not achieving as much as it could in terms of tackling inequality. There are so many loopholes that those wealthy enough to employ accountants can avoid inheritance tax by setting up a cunningly devised trust or declaring their home a part of the wealth of the nation by allowing oiks entry on a once-per-year basis. A Fabian Society report identified the need to improve the system by making the tax paid relate to the wealth of the inheritor rather than the inheritee:

Taxing recipients rather than donors would properly reflect the purpose of inheritance tax, namely the taxation of unearned wealth. Taxing recipients also ensures that the tax rate is related to the circumstances of the recipient. Levying the tax on recipients might in theory lead to donors leaving their wealth to a larger number of people and therefore achieving a wider and more equal distributions of wealth.[5]

This is also the policy of the Green Party.

[1] All information on the UK tax system from Adam, S. A Survey of the UK Tax System (London: IFS, 2004).
[2] Sikka, P. ‘How about responsible taxes?’, Guardian, 17 November 2003.
[3] Taken from ‘Class, Tax and Spending: problems for the Left in postindustrial and postdemocratic politics - or why aren’t we taxing the fat cats till the pips squeak?’
by David Byrne published in Capital and Class using data from the Fabian Society Commission on Taxation and Citizenship (2000) Paying for Progress.
[4] Pearce, N. and Paxton, W., Social Justice: Building a Fairer Britain (London: IPPR, 2005).
[5] Wealth's Fair Measure by Ruth Patrick and Michael Jacobs, Fabian Society, 2003.

14 March 2007

Reasons to be Co-operative

Along with the other supermarkets John Lewis announced its record profits earlier this month, up from £250m. to £300m. But there is one big difference. Because of JL’s mutual ownership structure the profit will either be reinvested in the firm or paid out to employees in bonuses. Employees are actually known as ‘partners’ in the company and they will be paid an average of £2,000 on top of their salaries. As part of the group, Waitrose employees will benefit from this pay-out: a supermarket assistant earning £12.5K will get an extra £2,000.

John Lewis has a considerably smaller turnover than Tesco, and lower profits to match. But more important is the fact that Tesco’s profits will be paid to shareholders rather than employees, which helps explain why Tesco’s shares have increased in value by 25% over the past year. The basic justice of the situation at John Lewis compared to Tesco is so apparent that it barely seems stating: it is the employees who generate the surplus and so it is rightfully theirs.

In my world it seems obvious that, if employees know they will benefit from the success of the business they work for, they are likely to work harder. In the world of capitalist economics, though, co-operation is supposed to operate as a disincentive. It is cut-throat competition that yields efficiency. But if this were the case we would expect to see businesses like Waitrose failing, whereas in fact they are going from strength to strength.

A recent opinion poll asking about ethical brands reported in the FT shows that British consumeres do make the link between co-operatives and ethical consumption: 'UK shoppers emerged as the most aware, most critical and most likely to see national brands such as Co-op, the financial and retail group, or Innocent, the smoothie drinks brand, as standard-bearers.' Of the top 15 brands four are co-operatives.

As individuals playing our part in the economy we may be fortunate enough to work for a co-operative, or to be able to influence the movement of our place of work into co-operative ownership, or to start a co-operative business. If these options are not available we can at least choose to shop at a co-operative supermarket—Waitrose or the Co-operative—and use mutual banks and building societies—the largest being the Nationwide.This is much more than a token gesture. If we want to live by Gandhi’s maxim that we should ‘be the change we want to see in the world’, then if you want to see a just and co-operative world it is just common sense.

7 March 2007

Defending the poor

Who will defend the rights of the poor within our political system? The yawning gap in terms of power within the economy represented by the increase in inequality is barely challenged by the three political parties that are granted access to the levers of political power in this country. Now that the Liberal Democrats are being taken more seriously they too have abandoned their policy of a minimal increase in the top rate of tax for the richest earners. This demand was always startlingly inadequate: the political demands of those who are pledged to represent the underprivileged are depressingly limited. Why the discussion over whether the top rate of tax should be 40%, 50% or 60% when the rich keep their advantage not through earning but through owning?

This inequality has damaging psychological consequences. There is understandable anxiety in the medical community surrounding the statistical evidence that those in professional occupations live considerably longer than those in manual occupations. Data from the Office for National Statistics indicate that men in social class I live 7.4 years longer than men in social class V; for women the difference is 5.7 years.[1] More surprisingly, US researchers have found that inequality is bad for life expectancy of all in a society, since the relationship they found between a measure of inequality across society as a whole (the Gini coefficient) and the life expectancy of that society remained after they had controlled for poverty. They called this finding the Robin Hood Index, suggesting that Robin Hood’s redistribution deserves the warmth it has always received. The authors conclude:

The paper suggests that that there is a relation between income distribution and life expectancy. It concluded that variations between states in the inequality of income were associated with increased mortality from several causes. Relative poverty, i.e. the size of the gap between the wealthy and less well off, seems to matter in its own right: the greater the gap between the rich and poor, the lower the average life expectancy. This association is independent of that between absolute income and life expectancy. Therefore it matters, not only how affluent a country is, but also how economic gains are distributed among its members.[2]

Jeremy Seabrook argues that what is so damaging about inequality under capitalism is that it is used to spur us to greater economic effort and to do this we must feel ashamed of our relative lack of affluence. Our desire to remove the shame of poverty is what generates our energy to engage in capitalism, to increase our monetary holdings, to ensure that we are on the winning side of the unequal distribution:

If at the earlier moment of industrialization the persistence of poverty could be explained by a productive capacity only rudimentarily established, such an excuse is no longer possible. It becomes clear, therefore, that the survival of poverty is essential for ideological and no material reasons. Indeed, the maintenance of a felt experience of insufficiency is essential to any capitalist version of development.[3]

[1] ONS (2002), Trends in Life Expectancy by Social Class 1972-1999 (London: SO), Tables 1-4.
[2] Kennedy, B.P., Ichiro, K., and Prothrow-Stith, D. (1996) ‘Income Distribution and Mortality: Cross Sectional Ecological Study of the Robin Hood Index in the United States’,. British Medical Journal, 312:1004-1007.
[3] Seabrook, J. (2001), Landscapes of Poverty, p. 4

2 March 2007

Keeping it Real

What is the best way to persuade somebody to give something away? Obviously it helps if you believe that it is worthless or, better still, that it does not exist at all. The issues of what is or is not, what exists or does not exist, what does or does not value clearly have great economic significance. The long struggle between capital and labour over the value of production no longer takes place in the world of the real. Yet those prophets of the illusory and the delusional—the French postmodernists philosophers—have not seen their iconoclastic insights gain much purchase within the discipline of economics. Perhaps because they were gaining much more practical significance in the economy itself.

Three examples of the extraction of value follow. In each case a theoretical situation is developed to create a virtual entity, developed as the doppelganger of a real economic thing. The virtual entity is then expanded into a hyperreal entity, supported by a mythological system, into which the value of the thing is poured, leaving the thing itself as an apparent husk. The hyperreal is now bought and sold and its value determined by a mythological marketplace. The real good is seen almost as a by-product.

Let us take as our first example a cup of Starbucks coffee. Naomi Klein used this as a prototypical example of the selling of a brand rather than a product. The price of the coffee, the energy made to produce it and the wages paid to the Starbucks employees are a fraction of the price you are asked to pay for it. What you are paying for the is the privilege of being a person who can self-identify as a drinker of Starbucks coffee. You are paying your membership fee to a club. The value that club is created and maintained by Starbucks when they advertise their brand and associate it with other things you like, such as music stars or flash cars or sexy young people.

For a second, and more practical example I turn to Tower Colliery in the South Wales Valleys. I have argued long and hard with academic colleagues about whether the Colliery is important as more than a myth. My argument always proceeds along the lines that, mythology and markets apart, in a cold winter the anthracite will warm your hands whereas the myth can only ever warm the cockles of your heart. However, I recently saw for sale in my local farmers market coal from the Forest of Dean, washed and packaged in a lovely bag, and with a whole history of the industry in the Forest and the rights of local people to extract the coal as Freeminers, a right extending back to the middle ages. I am waiting to see whether this audacious piece of brand creation is successful.

More amorphously we can see the same process at work in the investment of money in stocks and shares or on-line gambling. Punters have here lost track of what they really value. The thrill of the chase, of the unpredictable outcome, has replaced the original incentive of real material gains. Owners of homes are prey to similar delusions when they seek comfort from news of the increasing ‘value’ of their home, which continues to offer them the same four walls and the same degree of material comfort. The supportive mythology suggests that there is some relationship between real world events and stock-market values. But the influence of the coldness of the winter on the oil price or the rate of consumer spending on the value of M&S stock has dwindled as the power of ideas has increased. Rational expectations have generated self-fulfilling prophecies and delusional dreams in a market where belief itself is the primary value.

These are all example of what Ben Fine has called, in another context, ‘making capital out of the ephemeral’. In each case the hyperreal is supported by a system of mythologizing, as so wittily pointed out by Baudrillard and Barthes. In the late form of capitalism, dominated by the 'creative industries', the extraction of surplus value has been developed in new and creative ways. Now it is meaning itself that is extracted, leaving only the sign of that meaning. The intellectual minimization of the use value and its substitution with a hyperreal value whose material worth can be extracted by the creator and owner of the hyperreal, invariably a global corporation such as Honda, which sells its brand under the rubric ‘The Power of Dreams’.

The philosophy of the postmodernists has been commodified and revalued to be used to generate economic value in the hyperreal they pilloried, and thus provides another trick to enable the unfair distribution of resources. However, the movement of capitalism’s age-old game of value extraction into the realm of the hyperreal is excellent news for those of us who seek to live alongside rather than within this economic nightmare. If we can wear the badge of lowly status endowed by the proletarian shopping brands with pride we can buy better quality real usable goods for absurdly cheap prices, thereby reducing our need to work. We need also to create our own real currencies to exchange between ourselves.

Although our intuitions and needs have been distorted by the advertising myth-makers it is not that difficult to extract yourself and to decide what you really want. No wonder keeping it real has become the mantra of our age.