This paper is based on the notes I prepared for the Climate and Capitalism seminar which took place in London on 12 September 09
Were are we now?
We are economically in a very deep hole which the whole political class are determined should be dug deeper. Not only do they want us to do the digging, they want us to buy the shovels and start working shifts.
When I wrote Confronting the Crisis in the spring it was in response to last winter’s financial crisis. What we now need to be planning for is how to counter the attacks that are going to come on working people – particularly the poorest and most vulnerable – as the ruling class responds to that crisis.
In this paper, I want to sketch out the sort of arguments and the sort of demands we should make as part of the campaign of resistance we are going to have to help grow. Essentially, we should be arguing - over and over again - that:
• Cuts aren’t necessary
• Cuts will be counterproductive
• Reducing inequality is both socially desirable and economically beneficial
• A huge programme of green infrastructural renewal is both necessary and affordable
Only a technical recovery
Despite to frequent claims in the press about green shoots, we are currently seeing only a technical recovery: slight twitching of growth in manufacturing sector, house prices have bottomed out for the moment and a trickle of buying is taking place, share prices have risen with the FTSE going through 5000. However, the British Chamber of Commerce said on 9 September that the economy will shrink by 4.3% this year, more than the 3.8% it expected in June, and other economists are predicting a fall of 4.5%.
In 1930, Keynes, writing of the Depression, provided an eerily accurate description of our situation seventy years later:
“The duration of the slump may be much more prolonged than most people are expecting ... Not, of course the duration of the acute phase of the slump, but that of the long, dragging conditions of semi-slump, or at least sub-normal prosperity, which may be expected to succeed the acute phase”
Preventing collapse has been at a huge cost
At the end of June, intervention to prop up the financial sector had increased the national debt by over £141bn, bringing the total debt level to £798.8bn (56.6% of GDP). On top of that, the government could be exposed to contingent liabilities of over £500bn in underwriting mortgage securities and other bad assets held by the banks.
In the middle of August, the Bank of England’s quantitative easing programme lurched upwards again by an extra £50bn of gilt purchases. This brought the total to £175bn. Mervyn King actually wanted to increase it to £200bn. King’s fear is that the UK becomes the new Japan, trapped in a deflationary cycle from which it proves hard to escape. The risks of deflation for an economy like Britain's are clear; a prolonged period of falling prices adds to the real value of debts held by individuals. And personal debt in Britain is around £1.4trillion, with unsecured debt (mainly on credit cards) is standing at about 17% of national income – twice the European norm.
Making us pay for their crisis
The finance sector and the Westminster village are busily calling for cuts in public spending. Not only is this the most extreme case of seeking to privatize profits and nationalize losses, deflationary measures are currently the last thing we need and inflation is the last thing we have to fear.
Over the next few months until the election there will be an ever growing clamour for cuts in public spending and services. Already the Institute of Directors has called for a pay freeze on the state pension, a 10% cut in the size of the civil service, a 10% cut in “non-frontline” staff in both the NHS and schools, cuts in free bus passes for the elderly and disabled, the abolition of child benefit and abolition of free TV licences. The McKinsey report commissioned by the Department of Health, recommended the axing of 137,000 clinical and administrative posts in the NHS. After the election there will be a series of attacks on public spending and public institutions. That will be our next battleground and we must prepare for it.
As Foster and Magdoff put it “it is the well-to-do who should foot the bill – not only for reasons of elementary justice, but also because they collectively and their system constitute the reason that things are as bad as they are; and because the best way to help both the economy and those at the bottom is to address the needs of the latter directly.”
But, they say: “capitalism takes advantage of social inertia, using its power to rob outright when it can’t just rely on ‘normal’ exploitation. Without resistance from below the burden will simply be imposed on those at the bottom. All of this requires a mass social and economic upsurge, such as in the latter half of the 1930s, including the revival of unions and mass social movements of all kinds.”
The only force that can stop the wave of attacks that is bound to come on our services and institutions is a mass popular mobilisation led and sustained by the grass roots trade union movement. That cannot simply be wished into existence.
The authors of last year’s Green New Deal pamphlet proposed that we should deal with the interlocked financial and environmental crises we face with twin strategies; first, “a structural transformation of the regulation of national and international financial systems, and major changes to taxation systems” and second, “a sustained programme to invest in and deploy energy conservation and renewable energies, coupled with effective demand management.”
Unfortunately, the programme they proposed, while being far bolder than any of the other pale green copies of its strategies that have followed in its wake, fails on three counts:
• it simply aims at further regulation of the banking and finance system rather than recognizing the need for its seizure and transformation;
• It doesn’t take the issue of inequality anything like seriously enough;
• Its programme for infrastructural investment isn’t ambitious enough doesn’t take into account the scale of rebuilding and restructuring our manufacturing and construction base that will be needed to put such a programme into meaningful effect.
There is an urgent need to redistribute wealth away from corporate profits and towards wages and income; not only because justice demands it but also because it makes sound economic sense in terms of stimulating demand. At the same time, we need to re-stimulate the economy with an ambitious programme of socially and environmentally necessary public investment of the sort of advocated in the Green New Deal and The People’s Charter, but taken further in terms of basic industry, home building and R&D and recognising that the necessary outcome of the huge programme of public investment that is required is a major extension of common ownership under democratic control.
Taking control of the financial system
The banks' huge losses in the last year and their continuing hidden insolvency have made them reluctant to lend and they have used the gigantic injections of capital provided by the government to protect their fragile balance sheets rather than to protect or create jobs. Despite the fact that that the government, through its continuing underwriting of their vast but still undefined liabilities could, if it wished, impose proper control on the banks, it cravenly refuses to do more than lecture them.
The state must take full control of the banking system by enforcing its monopoly on the creation of credit, based on a clear overall strategy, and the Bank of England must be transformed into the agency for implementing that strategy. This would result in individual banking institutions becoming local franchises for allocating credit in line with national economic policy. In turn, this could create the right environment for the development of a range of different forms of local and mutual financial institutions; a rebirth of local building societies for example, the establishment of credit unions on the scale of Ireland, the development of a new Post Office Bank, or the re-emergence of local authorities as local bankers.
The corporate finance and retail functions of the banks must be separated and trading in exotic financial instruments must be banned in Britain. The debts acquired in trading in them elsewhere should become legally enforceable so they would have the same status as gambling debts – which, of course, is what they are.
Building a low carbon infrastructure
Manufacturing in the Britain now amounts for less than 25% of GDP. In particular, our engineering and construction industries have been dramatically hollowed out over the past thirty years.
The Green New Deal pamphlet predicts that the development of the admirable low-carbon energy system and environmental reconstruction programme it proposes will "see hundreds of thousands of...jobs created in Britain. It will be part of a wider shift from an economy focussed on financial services and shopping to one that is a an engine of environmental transformation." That is certainly a desirable goal, but it will not happen without the most massive and rapid programme of investment in the retooling of manufacturing industry and reskilling of labour that we have seen since the Second World War. As the Green New Deal’s authors put it, there is a “need for mobilisation as though for war.”
There is little point in a new low-carbon energy system without a completely renewed public transport system, since transport accounts for 24% of our carbon footprint. And it is impossible to develop a sensible energy conservation programme for our homes, workplaces and public buildings, particularly the pamphlet's “every building a power station” policy, without dealing with the inextricably linked needs for a renewed and sustainable water supply system and a massive programme of social housing.
Building homes, not a housing bubble
There is a desperate need for decent homes in the country, and it is this real need that was commodified and turned into fuel for the housing bubble. There are currently over four million families on council and housing association waiting lists, most of whom will never get housed. We must campaign for a huge programme of social housing construction, far larger than anything we have seen since the sixties, and for the environmental upgrading of existing housing.
If we were to adopt existing best practice in both the design and construction or refurbishment of housing for these four million families, we would not only create over three hundred thousand jobs but also, in adopting and developing low carbon technology, create many more related jobs and business opportunities.
If a rational low carbon construction technology strategy was developed and implemented we could have much better housing with much less embodied energy and with much lower CO2 emissions, and stimulate the development of new green manufacturing. At the moment, virtually all environmentally sustainable and high performance building materials and components have to be imported from Germany and Scandinavia, while indigenous resources are underused as a result of underinvestment. For example, at the moment, most of Britain’s upland sheep farmers have no market for their wool. However, wool, with the most minimal of processing, is a superior insulating material to the oil and glass based materials mainly used in this country at the moment.
The need for common ownership
If our aim is to almost entirely rebuild our energy generation and transmission systems, along with a totally renewing our public transport system, developing a sustainable water supply system and an insulation retrofit programme for every home in the country, we are going to need nothing less than a new industrial revolution. We need to develop/redevelop the capacity to implement a huge production programme encompassing mini and micro CHP equipment, wave and offshore wind turbine plant, a whole new grid infrastructure, energy efficient buses and rail/light rail vehicles, low impact building and building materials etc., etc.
Therefore, one of the preconditions of the sort of vast infrastructural reconstruction that we need is the taking into public ownership not only the railways, but all public transport services and the power and water utilities. And if the prime source of investment in the new technologies and new manufacturing capabilities that we desperately need is the common purse then the new technologies and new industries will have to be commonly owned and democratically controlled as well.
Although millions of jobs would be created by such a programme, the major changes in industrial strategy needed – for example, contraction of the motor vehicle, armaments and aero-space industries and the run-down of much of the existing electricity generation capacity - would lead to a need to transfer and/or retrain workers moving from declining to rapidly expanding sectors. To gain the support of the workers affected, such changes would have to be accompanied by an absolute guarantee of jobs with necessary retraining with no loss of pay, security or pension rights and a guarantee of rehousing rights where necessary.
Redistributing wealth – and power
One of the key factors in advancing the financialisation of the economy has been the dramatic redistribution of wealth away from wages as a percentage of the GDP. At the centre of Thatcher’s strategy for lowering wages in order to improve the profitability of big business was a recognition of the need to break the power of organised labour – and she succeeded. In order to stabilise the economy it is urgently necessary to not only dramatically expand state spending in ways that genuinely benefit ordinary people (as opposed to the financial institutions) but also to carry out a really radical redistribution of income and wealth and a major shift in the balance of power between capital and labour.
Graham Turner says in his book The Credit Crunch:
“The concentration of corporate power through mergers, acquisitions and leveraged takeovers has to be reversed. The ability of large multinationals to control and drive labour costs down, by moving jobs around from one country to another, lies at the heart of the debt problem facing the West. Until we recognise that point, the West will not shake its destructive dependence on housing bubbles. We will continue to lurch from boom to bust, with debt traps and debt deflation threatening prolonged economic stagnation.
There are two ways to even out the playing field: reduce corporate power or increase the strength of labour.”
Of course both are necessary, because without the power of organized labour, wage rates for the least organized will remain low and unless the power of the large corporations is curbed their priorities will continue to determine the agenda of the government and politicians of all parties and government will continue to be, as Gramsci said, the shadow that big business throws on society.
One of the problems with the orthodox fiscal measure to increase demand - cutting income taxes - is that at the moment the rich will not spend and the poor cannot. Increasing the amount of disposable income of the prosperous (the usual aim and effect of tax reductions) will have only very limited effects of demand. However, any marginal increases in the disposable incomes of poor people is spent and thus has a directly stimulating effect on the economy as an increase in demand. So we should be looking to increase the social wage, to redistribute wealth away from corporate profits and towards wages and incomes in order to increase demand.
A new benefits deal
While there is a need for a completely new approach to pensions and benefits, in the short to medium term we should be arguing for the immediate re-indexing of the retirement pension to national incomes rather than RPI, and its increase to at least the levels it would have been at if Thatcher hadn’t sabotaged it – around £170 a week. Other benefits should be increased by the same sort of order.
A new pension scheme
At the end of January 2009, it was announced in the press that the total deficit in occupational pension funds had increased by 49% in a matter of weeks. More and more firms are now closing their schemes to existing workers and increasingly workers are realising that after a life time of work they are likely to end up with tiny pensions – if any at all. The government’s response to this situation is to blame working people for not saving more, while those who have managed to do so are now watching their private pension schemes shrivel. We should demand that the state underwrites (and in effect, nationalises) occupational pensions in short/medium term and in the longer term introduces a new universal State Earnings Related Pension Scheme (SERPS) which would, over a period of time, incorporate existing state and private occupational pensions.
Funding the programme
The energy conservation and renewable energy development plan outlined in the Green New Deal has been costed at between £50bn and £70bn a year and the additional programme proposed above would add between £40bn and £60bn a year to that, so we are talking about finding something like £110bn, or around 7.5% of GDP. There is a media panic about the fact that the national debt is currently 56.6% of GDP (from 37% in 2007). But how bad is that? Japan for example has a National debt of 194%, Italy is over 100%. The US national debt is close to 71% of GDP. In fact, our debt was never less than 50% of GDP from the first world war to the late seventies and by the end of the second world war stood at 250% of GDP. So an additional increase in our level of debt by 7.5% of GDP would not be too big a deal.
Besides, large part of the sums required could be met either by taxation or by cuts in other areas of government expenditure. Not only are both possible without adversely affecting working people, in fact both would positively improve the quality of life of ordinary people and increase their control over society.
Making tax fair and effective
At the moment, the poorest one-fifth in Britain pay 36.5% of their income in tax, while the richest one-fifth pay just 35.5%. New Labour’s decision to introduce a 50p tax rate for incomes over £150,000 has been greeted with howls of rage from the usual quarters. For example, the Scotsman reported that: “There was concern that the higher tax band – which will cost £80 a week to people earning between £150,000 and £200,000 a year – will wreak havoc in the financial sector. Chris Sanger, UK head of tax policy at Ernst & Young, said: ‘The key risk is such extreme rates will deter entrepreneurs and successful wealth-creators from coming to Britain.’”
There are a number of straightforward ways by which the government could both make tax fairer and increase the tax take. First, the government could raise nearly £24bn a year by introducing new tax bands and levels. In 1976 the standard rate was 35% and the highest rate on earned income was 83%, but there was a 15% surcharge on investment income which brought the top rate of tax to 98%. We should return to those levels of taxation, while raising the threshold to the median wage level (about £19,600) and abolishing the national insurance cap so that contributions are paid at 11% all the way up the income ladder. Corporation tax, too, could return to its pre Thatcher levels of 42-52%. Second, minimal reforms to council tax - for example, introducing land value tax at a relatively low rate - could raise an extra £7bn a year.
Abolishing tax relief on pension contributions from incomes over £100,000 a year would generate an additional £4bn or so a year.
According to the TUC, £12bn of tax a year may be being lost from Britain's 700 largest corporations, and £13bn from wealthy individuals thanks to planning and avoidance. We need to close in on tax avoidance loopholes.
So just by clamping down on tax dodging and by making some very modest increases to tax rates for the most prosperous we could raise at least £60bn.
Sterling Stamp Duty is a variation on the theme of the Tobin tax, but with one key difference. Like the Tobin concept, it is a currency transaction tax, but it is a tax on sterling wherever it is traded in the world, as opposed to a tax on all currencies traded in the UK. Unlike a Tobin Tax, it could be unilaterally implemented by the UK government. In 2007, the trade in sterling, the fourth most traded currency in the world, was worth £34,000bn a year. Thus a 0.001% SSD on all sterling foreign exchange transactions could raise between £30bn and £40bn a year.
In addition, the Green Party has suggested that Air Passenger Duty could be substantially increased and would generate an additional £9bn annually.
Cutting harmful spending
While we are looking at increasing public spending, part of this increase could be offset by reducing other areas of unnecessary spending and canceling harmful programmes, such as ID cards, the NHS national database, the motorway and major roads building programme, Trident and the two planned aircraft carriers. Canceling Trident would on its own save £100bn over the next forty years. Canceling such undesirable projects would make immediate annual savings of at least £7bn.
On top of the cancellation of Trident, which would save £3bn a year, it should be possible to progressively cut the defence budget by at least two thirds over (say) a four year period, giving annual savings of £5.5bn in year 1, leading to a £22bn saving in year 4.
In total, therefore, annual savings in public spending would be at least £12.5bn, while the additional sums generated by increased taxation would be at least £104bn. Thus we could generate at least £116.5bn from the revenue budget towards the costs a reconstruction programme.
The need for a mass movement
The sort of proposals sketched out above will not just happen; they will have to be fought for by a mass movement of and for ordinary working people, which is prepared to challenge not only the privileges of the rich and powerful, but also the state – their state – if necessary. Our central task is to help bring such a movement into being, and having evidence based arguments that show that there is an alternative to Brown and Cameron’s policies of making working people pay the price for the anarchy of capitalism and the cupidity of the rich.
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