A Word in Your Shell-like

Today should surely see the hammering of the final nail into the coffin of the concept of CSR--corporate social responsibility. This trite phrase has always been a contradiction in terms and the implicit admission by oil-giant Shell of their collusion with the Nigerian government in the execution of 11 Ogoni activists including the writer Ken Saro-Wiwa tears away the remnants of the thin veil covering the naked greed of the global corporate elite.

Shell was a leading proponent of CSR, or a leading exponent of Greenwash , depending on your point of view. The global reach of the oil corporate's activities had left a similarly extensive trail of shame reaching all the way from the Niger delta to the North Sea, where Shell's attempt to dump the disused Brent Spar rig in the Atlantic was successfuly opposed by Greenpeace. Shell was also a founding member of the Global Climate Coalition, which fought against the evidence of climate change and may have ensured the extinction of the human species.

As a timely response of questionable scope Shell set up a Foundation and started distributing a tiny proportion of its profits to worthy causes, including environmental organisations naive enough to take the filthy lucre. Attempts to rebuild the company's reputation in Nigeria itself were particularly criticised. Health centres and schools were launched across the Niger delta, only to be left half finished when the TV cameras moved on.

The complaints by international leaders about the poor standards of governance that prevent African governments from improving the lives of their people are illuminated as the rankest hypocrisy by the story of the joint project by the Nigerian elite and Shell to serve their limited self-interest at the cost of the millions of Nigerians. The courage of Saro-Wiwa and his comrades in drawing the world's attention to these iniquities has been vindicated by the court judgment. Tweet

The Q&A of the Borrowing

I was recently commissioned to answer some questions about where on earth the government is getting all of this money from - a question asked by many in pubs and on buses up and down the land. Irritatingly, they did not then publish the answers I had spent time considering, so I offer it now, in a temporary change to the style of the blog. Comments and corrections are welcome.

What is government borrowing?

When I learned my economics this was called the PSBR or ‘public sector borrowing requirement’ but it has since been renamed the PSNCR or ‘public-sector net cash requirement’. These renamings usually have political intent and in this case I’m guessing it it is to get away from the unhealthy concept of ‘borrowing’. This is the annual amount that central government, local government and the public services borrow each year to keep themselves going. The ‘national debt’ is the accumulated total money that government has borrowed over the years which it couldn’t afford to pay back. Sometimes it goes down but, since the Bank of England was set up in 1694, the trend has been steadily upwards.

Where does this money come from?

The government has three sources of revenue: taxation, where it takes money directly from companies or individuals; from selling government bonds; and from printing money directly. The last of these has become increasingly unpopular since the Second World War, but is in fact a liberating way for government to create money without putting anybody into debt. At present government only creates note and coin in this way, which represents around 3% of total money.

What role do gilts play?

Gilts is just another name for government bonds—gilt-edged securities—because they are safer than anything else, since so long as the country doesn’t sink the government is bound to pay interest twice a year on them. Investors will get their money back after a certain fixed time specified on the bond, however before that time the value of the bonds will fluctuate, depending on the rate of UK interest rates. If interest rates are expected to fall, investors will tend to buy bonds because they are likely to be worth more in the future.

Who is stumping up?

This is an interesting question. Why should anybody want to invest in UK bonds when our economy is clearly short of a paddle and in unpleasant surroundings? If you are somebody with plenty of money to invest your primary concern at the moment is going to be security, so bonds might look quite attractive compared to stock in a corporation. So your gamble is likely to be about which countries bonds are most attractive, based on your view of how the interest rates of countries are going to move. Given that all countries are cutting interest rates one would assume that all national bonds are equally (un)attractive.

This question makes it clear how we are all entangled in the same mess. China owns a vast quantity of US treasuries (their name for government bonds) and if it chose could sell these and destroy the US economy. But if it did that it would lose its main export market and its own economy would falter. So, on a global basis, owning more stock doesn’t necessarily make you more powerful. Remember the old adage: if you own £1m. the bank owns you, but if you owe £1bn you own the bank!

Why should anybody buy our national debt?

Your ability to sell you bonds depends on the general perception of your reliability as an economy. This was the problem Iceland faced, being a volcanic rock with a population the size of Bristol and no resources other than fish and hot water, it couldn't realistically stand behind the debts that its entrepreneurs had racked up. A country’s ability to do this depends on its perceived power in the global capital market. The most powerful economies are those that control the ‘reserve currencies’—the dollar, euro, pound, yen and Swiss franc. These are currencies other governments hold their national reserves in and therefore are good for massive debts. The US is in a special position because in 1944 it negotiated that its currency would actually be held as equivalent to gold in reserve terms. It had to maintain a link between its currency and gold to back this up, but broke that rule in 1971 and since then has been able to print paper and get massive amounts of resources in exchange for it.

The UK is therefore in a strong position in increasing its national debt. One important way of measuring this is comparing the amount our economy produces each year with the size of our national debt—the so-called debt-to-GDP ratio. Ours is currently around 40% and is predicted to go above 50% as the recession deepens. Argentina went bust in 2001 with a debt-to-GDP ratio of less than 40% and a healthy level of exports and resources. The difference was it did not have a reserve currency and when speculators targeted the peso the government could not defend it. So it is really about political rather than economic power.

Who calls in the debt, both to the banks and the government? When?

So long as government continues to pay the interest it owes on the bonds there need never be any ‘calling in’ of the debt. There never has been since this malarkey started in 1694. When the bonds come to the end of their life, the government creates new ones to pay back the people who bought the old ones. The same people probably buy the new ones—at least to some extent.

Aren’t we the taxpayer then going to pay for what we’ve lent?

Yes. Absolutely. This is why Percy Bysshe Shelley called the national debt ‘a system for transferring income from the labouring segment of the population to those who’ had money to lend to government and would thus accrue interest, and who profited from government expenditure in wars. It is a way of transferring money from the poor to the rich and always has been. Amazing how they’ve got away with it for so long isn’t it? I wonder how many people will wise up now.

The banks seem to want to have their cake and eat it; they can take our money but still decide that we’re too much of a risk to invest in?

What is happening with the banks is a bit different. They do not lend pre-existing money but create money through a multiplier process—because they never expect all depositors to come back for their money at the same time. But to accept other banks’ promises to pay requires mutual confidence between the banks and this is lacking. You can see it as rather like a pyramid-selling scheme. While you can find new buyers it works fine, but when the market is exhausted the people at the end of the chain lose their money and the system collapse. That is what just happened. The only way out is for banks to believe in each other again—which is what the government is trying to ensure. Then they will bring money into existence again and the whole upward spiral can start again. So, to be fair, I don’t think the government gave money to the banks to be passed on in loans, but rather to reboot the system. This doesn’t appear to have worked and banks are only following their rulebook in not lending their own money.

Why does government policy on banking keep changing?

When the Rock started the rot the government still believed it could stop the rapid downward spiral if it stood behind just this one bank, initially just in theory. But the bad debts were so frightening to the banks that this didn’t work and it was clear that other banks—-perhaps all the banks—could go down like dominos. At that point it took complete control of Northern Rock. At each stage it has in mind to achieve the rebuilding of confidence as cheaply as possible. Supporting Northern Rock did not rebuild confidence so then they moved to the full-scale bail-out. This also doesn’t seem to be working, since credit is still tight. In a world where businesses rely on debt to survive this is now damaging the real economy that provides goods and services. So the economic bail-out is the latest stage. But it is still jump-starting and is by no means guaranteed. We will have to pay the damage whether or not it succeeds.

There is still no plan to address the problem at source, which is the gap between nominal value in terms of finance and real value in terms of what our economy actually does. On a global basis, 98% of the transactions that take place everyday have nothing to do with the real economy, they are just gambling in the casino economy, most of it speculation in the possible future rises and falls in the value of the various currencies. This is a much more efficient way to make money than actually making stuff.

This sounds like a merry-go round rather than a rescue plan?

It always was a merry-go-round. That is how finance works. It has worked fairly well for the 200-odd years that we have lived in the capitalist economy, but with periodic booms and busts. To achieve a steady-state economy would also require stable money. Government could just create that money by fiat—we would believe it because we believe the government, just like investors believe in the value of government bonds. But this would be money creation without debt. The difference would be that the process would not require our work to pay back the national debt and would therefore undermine the work-money nexus at the heart of capitalism. Sounds tempting doesn’t it?!

Surely the global financial system as currently configured is on any accepted measure a write off?

I agree with you about this. I think the only solution is to go for the full-scale jubilee and go back to the Bretton Woods conference table. We could then reinstate the two major planks of Keynes’s plan at that time: balanced budgets between nations with fines for deficits and surpluses, and a neutral international currency so that no government had the ‘reserve currency’ advantage. In addition I think we could tie this currency to an agreement on climate change and therefore stitch the environmental crisis into the solution too. The main difference between then and now is the liberalization of finance so that it is not under national control. This needs to be reversed with the reintroduction of credit and exchange controls. Without control of finance how can a government claim to be sovereign? And how can we imagine we live in democracies? Tweet

Poetry vs. Greed

Shelley wrote extensively on a very modern theme: the way scientific and technological advances are used not to create the earthly paradise for all but to generate profits for the few:

The cultivation of those sciences which have enlarged the limits of the empire of man over the external world, has, for want of the poetical faculty, proportionally circumscribed those of the internal world; and man, having enslaved the elements, remains himself a slave. To what but a cultivation of the mechanical arts in a degree disproportioned to the presence of the creative faculty, which is the basis of all knowledge, is to be attributed the abuse of all invention for abridging and combining labour, to the exasperation of the inequality of mankind? From what other cause has it arisen that the discoveries which should have lightened, have added a weight to the curse imposed on Adam? Poetry, and the principle of Self, of which money is the visible incarnation, are the God and Mammon of the world.

If we substitute a word like ‘imagination’ for what Shelley called ‘the poetical faculty’ this quotation has immediate relevance to our political project.


Shelley was not alone in his revolutionary interests. Other poets of the so-called the Cockney School, including John Keats, shared his anti-capitalist views. Robert Southey, who later joined the establishment and became poet laureate, wrote a poem in praise of Wat Tyler in 1817. Coleridge and later Wordsworth joined Southey in brainstorming ideas about an ideal form of just and egaliatarian government they called ‘pantisocracy’. The aim of all these poets, now termed romantic but more accurately revolutionary, was to rekindle the energy that had led to the French Revolution around the time of their births. The group revolved around Leigh Hunt and bears his name:

The Hunt Circle believed that one could subvert power by undermining the intellectual, emotional, ideological grounds for its appeal. If one could not literally assault the Bank of England, one could raise questions about the use of paper currency and ultimately the economic system it underwrote.

This revival was successful, resulting in political unrest in the UK leading to the Peterloo Massacre, the Chartist movement and the Great Reform Bill of 1832. Several of the revolutionary poets had already predicted that an extension of franchise would be granted rather than a reversal of the economic changes which had led to wage slavery and were their real target. Rather than this message being heard the poets have been sidelined into nature-lovers and creators of beauty. The message from their verse with the greatest staying power ‘A thing of beauty is a job forever’ (written by Keats in 1817) has been transmuted into an appeal for consumption rather than the rallying call of a movement bent on restoring mankind to its natural paradise on earth, as it was intended. Tweet

Call to Freedom

Last night I attended the first proper meeting of Transition Wootton. Wooton-under-Edge is a delightful small town in semi-rural Gloucestershire. No doubt people there are as concerned as people everywhere about the reality of climate change. They would be willing to do their bit, make the necessary sacrifices, given the right political leadership.

But I must admit I came away from the meeting feeling alienated and depressed. The level of disempowerment amongst the 30 or so people attending was palpable. The two most enthusiastic discussions were about the technical aspects of energy generation (this is largely a displacement activity in my view) and a shared whinge about public transport.

A significant minority were for lobbying our local authority - around half of whose members are the Tory friends of big business who got us into this mess. My own suggestions for actually doing something - the something in question ranging from joining the car club to setting up a community farm and switching from buying a sofa to paying for a weekly massage - were dismissed as anarchism. Anarchism, it was pointed out as though this were holy writ, doesn't work.

Aside from my gloom at the self-imposed oppression of many of the people there I was hugely flattered to have been dismissed as an anarchist. What a noble tradition that is! From Kropotkin's ideal rural communities to Shelley's calls for non-violent action right up to Bob Marley's demand that we 'liberate ourselves from mental slavery' it is those who can shake off the shackles of received opinions who most powerfully change the world.

Shelley ends his rousing poem 'Call to Freedom' with these lines:

Rise like Lions after slumber
In unvanquishable number -
Shake your chains to earth like dew
Which in sleep had fallen on you -
Ye are many - they are few.

You can find the whole poem on this blog.

Shelley is gorgeous. I first came across him in my teens when a boyfriend who is sadly no longer around to cause consternation to the bastions of authority gave me a book of his verse. I immediately learned Ozymandius by heart. Who could resist a poem that begins 'I met a traveller from an antique land' and includes the line 'two vast and trunkless legs of stone'?!

Of course it is anarchism that won't work. The system of authoritarian control, injustice and inequality is working very well. That is why we see children starving and the planet burning. What further evidence of success could we require? Tweet

Robbing hoods

The fact that, as a national economy, we operate with a large and growing level of debt is now accepted as being unproblematic. Yet, as well as being a way of mortgaging our future, the national debt is another mechanism for transferring money from poor to rich. The government borrows money by selling bonds in itself, i.e. a promise to pay the purchaser the sum they invested plus an interest payment at some specified future date. The interest on the bond is paid from taxation income. Since the creation of the Bank of England in 1694 it has operated as a manager of the government’s debt, which it has managed to the advantage of its rich investors. The Bank’s website quaintly states that ‘the public’ were invited to subscribe, although we can imagine how many butchers and seamstresses contributed to the £1.2 million initial capital stock. To the poor debt represents fear and loss of control; to the rich it is an opportunity to use their money to make more. Government debt is the ideal form, since there is no risk involved and if all else fails you can claim you own the country!

Criticism of the national debt is a common thread in radical economics. For poor countries national debts force them to engage with an unfair trading system to generate enough foreign currency earnings to pay the interest. They are tied into a system of debt-bondage with which the rich countries replaced their more unsightly imperialist policies. The national debts of rich countries are less immediately troubling, since if you have a reserve currency at your disposal you can accrue as much debt as you need. In this setting the debts are rather a pump that operates to transfer money from the poor to the rich, since the earnings on government bonds are paid for through taxation of those who have to work because they do not have enough money to live by making investments, including in bonds. Hence the national debt of the UK is making the rich richer and the poor poorer just as the national debt of Tanzania or Peru is.

Shelley identified this fraud nearly 200 years ago when he wrote, in 1820, that ‘the public debt is a system for transferring income from the labouring segment of the population to those who’ had money to lend to government and would thus accrue interest, and who profited from government expenditure in wars. He related this process to the debasement of currency through the printing of paper money, noting that once a real link with gold is broken: the system of money creation thus enables those with power to use money to extract labour from others: ‘to increase the labours of the poor and those luxuries of the rich which they supply . . . to augment indefinitely the proportion of those who enjoy the profit of the labour of others as compared with those who exercise this labour.’ His radical conclusion is that the consequences of this new system, which we would now have the benefit of calling ‘capitalism’, ‘have been the establishment of a new aristocracy, which has its basis in fraud as the old one has its basis in force’. Tweet