One of the most important parts of the Labour Party manifesto, away from the screaming tabloid headlines about ‘Comrade Corbyn’, is their promise to create a National Investment Bank. The prevailing response to Labour’s manifesto is that the country cannot ‘afford’ it. Britain is the 5th richest nation on the planet. So, where’s all the money?
In 2008, the government bailed out the banks. This huge transfer of wealth from public to private hands in the form of the bailout came with no strings attached and caused Britain’s public debt to balloon. There was no requirement that the banks should productively invest the money to get the economy back on its feet. This added to the huge concentration of wealth at the top of society which had been increasing since the neo-liberal deregulation of the financial sector after 1980. We all recognise that there is a large amount of public debt but often fail to take note of its logical twin; the huge amount of private surplus.
In 2010, the supine Liberal Democrats jumped into bed with the Conservatives, giving us a government ideologically wedded to reducing the size of the state. The narrative was that we must be frugal and recognise the tough times we faced; we were spending beyond our means. The public would pay for private excesses. Public services started to be cut and we arrive at today’s position where the NHS is in constant crisis, per-pupil funding is falling in our schools, the prisons are in a mess, recorded crime is up and the Post Office is in private hands.
Austerity never has and never will work at the national level. For the state, total expenditure is equal to total income and so as the government increasingly cuts its expenditure, the economy is ever more constricted; growth is poor and real wages are lower than they were ten years ago. To attempt to continue along this path and somehow achieve a surplus via more cuts to public services in order to start paying down the debt is economic illiteracy. The state would be decimated and the debt to GDP ratio will rise as a result.
One of the Conservatives’ bright ideas is that instead of the state spending any money, the private sector should be the drivers of investment and growth. So, we come back to that big pile of private wealth which is malingering in the accounts of wealth savers and corporations. However, now that the economy is failing and the consumption that exists is mostly based on unsustainable credit, the wealthy do not fancy investing their money within this climate.
This means asset prices rise enormously (London house prices for example) as the wealthy cram all their money into fixed assets instead of into productive capital. As a result, wealthy individuals watch the price of their assets grow and extract ever increasing rents. Corporations, too, engage in measures focused on short-term profits such as share buybacks to boost the company’s value. When these activities show up in the GDP figures it gives the illusion of growth but no real value has been created, nothing productive has been done. However, private wealth continues to increase and become more concentrated; a great success for the rich donors on which the Conservative Party relies.
In the current situation, what we cannot afford is to have a government ideologically wedded to low public spending. As we have seen, the private sector will not invest, despite interest rates remaining at extremely low levels. It is the role of the government to drive investment into new innovative areas of the economy that will provide long-term productive growth and create new well-paid jobs.
The technological revolution of the twentieth century is one of the best examples of this. The early innovations were driven by the investment of (mainly) the US government. All the technologies in an iPhone, for example, can be traced to government funding, from transistors to touchscreens to Siri. The internet itself emerged from a project funded by the US government. Further examples can be found in countries like Germany and China, where their public investment banks do similar work.
Wavy
There are lessons to learn too. The US government now receives very little return for its investment, given companies like Apple and Microsoft, who built their fortunes on the back of public investment, pay almost no corporation tax. In the 1980s, when these technologies became small and cheap enough to be marketable, the US government should have formed a closer partnership with these companies in order that the public was fairly paid back for the billions of dollars that were spent in the early, financially high-risk stages of development. The government could, for example, have retained the intellectual property rights or obtained shares in the companies. As with the bailouts, the public took on the risks and the private sector reaped the rewards.
In today’s world, the technological revolution of the twenty-first century must be in green energy and biotechnology. It is a necessity we cannot ignore.
Here we see a stark division between Labour and the Tories. The Conservatives have just this month sold off the publicly-owned Green Investment Bank to Macquarie, a bank known for its asset stripping (as evidenced by the state of Thames Water after a decade in their hands). Labour, on the other hand, have promised to create a National Investment Bank aimed at providing exactly the type of long-term productive investment we need. A national bank, because it is backed by the government, is able to borrow at extremely low rates and so returns on investment can be hugely beneficial for the public in the long-run.
Of course, as the economy starts to grow, and the new innovations become commercially viable for private companies, we will see that huge pile of private surplus emerge from the shadows – investment in the real, productive economy will increase. Consequently, that private wealth will be put to mutually beneficial use; better jobs are created and wages rise, thus government receipts rise and so the level of public debt also starts to fall. Prosperity is shared.
This is not utopian, pie-in-the-sky stuff. The fastest growing, most innovative economies have always had forms of government intervention and investment to provide the framework for further private innovation.
To say we cannot afford a Labour government is not true. On the contrary, we cannot afford another five years of stale Tory economics, not just for the health of the economy and a more equitable society, but also for the health of the planet.
At the end of the 1970s things changed. It started in the economic sphere. By now the disease that was unleashed has seeped into almost every corner of our lives. A way of doing things was abandoned and a new way was forged by new types of people, with new ideas about the way our lives should work. About the forces that should govern your life. About the values that whole societies should hold.
There had been a different way. Between the end of the Second World War and the late 1970s it was different. The values that were held and the way things were run was different.
Why? Because the people that created it were scarred. Scarred by the events of the early 20th Century. Scarred by the Wall Street Crash of 1929 and the Great Depression that followed, which left millions unemployed. Millions homeless. Scarred by a war which lay waste to several continents. A war which in many ways was born in 1929, out of the misery and desperation that was spread around the world when unrestrained finance got it wrong. Those who lived through that period never forgot what caused nearly two decades of global chaos. And they so they changed the rules. They changed the systems and the values and the ways in which we thought about the world. Somewhere along the line we forgot.
In the latter part of the 1970s, a system, the one which had caused ruination, was being repackaged and reborn. Influential books were being published. Those with large amounts of money – those who such a system benefits – were setting up organisations and think tanks, and funding newspapers. A gradual infiltration was occurring.
When the time came, they pounced. First Thatcher in 1979, then Reagan in 1981. These two events were partly driven by, and partly accelerated, the collapse of the system which was put in place after the end of the Second World War. That system wasn’t foolproof and cannot be exonerated of partial responsibility for its own collapse. It was a first attempt. Something that had never been done before. There were bound to be chinks in the armour. It was new territory. Those who it didn’t benefit, the powerful vested interests – the top one percent, were waiting.
They sold a new exciting way of doing things. In fact, the same old way. But we had forgotten. And so, these two dogmatic believers, Thatcher and Reagan, sold dreams to their great nations. A dream called neoliberalism.
It was founded on a simple belief: That the individual was all powerful and that humans are inherently motivated by private gain. In an economy, each individual and corporation knew their position best and so, it therefore follows, that they alone can make the best decisions to improve their lives. How could anything run well or successfully if there was no money to be made? It created a world which fetishizes the pursuit of material self-interest, in which material gain absolves individuals and corporations of social responsibility.
Neoliberals argued that government was intrusive and always got things wrong. How can they know what’s best for you? And so how can they know what’s best for the country? In this way, there is no place for social projects, co-operative movements, or public services. They have no profit motive so cannot be successful.
A huge project of privatisation and deregulation was undertaken. The rules that had governed society were removed and so the values that underpinned those rules were undermined. Finance was released. All of a sudden, the restrictions on big banks had vanished. Public housing ceased to be built. Unions were crushed and along with it basic workers’ rights.
In Britain, Thatcher shut coal mines and steel factories. Entire communities that had been built around industries were decimated. Millions were unemployed. Yet the social safety net that would have caught them and provided a second chance was also being whipped away by cuts in government spending. The workers weren’t re-skilled and their jobs were not replaced. The pride and self-worth that these solid jobs had given millions was destroyed. But the message was simple. If you work hard enough you will succeed. Everyone can make it. Just look at the fortunes that had begun to amass at the top.
Except of course it was a fallacy. Those who were benefitting were those who could afford to make big investments in new financial markets. Those who could take advantage of government selling off its assets at low prices. Those who already had enough, but wanted more.
After the war, full employment had been the aim on both sides of the Atlantic. The destruction that joblessness could bring had been realised in the 1930s. But this didn’t suit those at the top who sought profit. How could they exploit well-paid workers in a functioning economy that employed almost all its people?
Well, as we’ve seen, they destroyed working class jobs and created a pool of long-term unemployed workers. How handy. A pool of poor people desperate for work. People that could be at once employed and discarded at a moment’s notice. No unions to protect them. Employment laws that prevented exploitative firing of workers were removed. If you didn’t like your wage or your working conditions there was always another person waiting in the pile, ready to accept the conditions that you didn’t, however meagre the wage. Profits skyrocketed and so did executive pay.
A narrative was spun. Poor people are to blame for their own position. People who relied on government support were a drain on society.
No matter that schools and public healthcare were poorly funded. That well-paying jobs had been snatched from the working class. Big business had had enough of paying people properly. It wanted ever increasing profits at the expense of all else.
Throughout the following decades, corporations and high net-worth individuals made a killing. At the same time, taxes on the rich and corporations were lowered. These were the ‘wealth creators’. Another handy new term. Trickle-down economics would ensure that the extra value these ‘wealth creators’ generated would filter through the economy and benefit everyone. It never worked. It has never been proven to work.
And so, with less regulation, more speculation and greater hubris among those at the top, economic crises became ever more frequent: The Third World debt crisis in 1982, Black Monday in 1987, the 1995 Mexican peso crisis, the 1997 Asian crisis, the 1998 Russian crisis and the Dot-com bubble which burst in 2001. In each instance, the economic actors with so-called ‘perfect information’ were found to have little idea about what they were doing. A scapegoat was found. It was never their fault.
With globalisation, unrestrained capital was able to chase short-term profits around the world. Shifting from one country to the next for a quick buck. Long-term investments dwindled. Instead of investing in new technologies, new worker training, new infrastructure projects, we clung onto old, failing industries.
Our GDPs grew, but based on ever-more complex finance that was essentially worthless. Little of actual value was being created. More and more money was being ploughed into ever more complex ways of betting on financial outcomes. We fooled ourselves that it was all ok. Even though private debt soared. Banks were lending almost without restriction. People ran up huge debts and were given the illusion of increasing wealth as the value of their properties rose. But there was little underlying substance. Jobs were of poor quality and offered little stability.
Everyone swallowed the lie. In Britain, Labour became ‘New Labour’ and bought into the system. In America, it was the Democrats under Bill Clinton. They performed a most destructive act in 1999, when they abrogated the Glass-Steagall Act of 1933. An act introduced after the Great Depression which separated commercial and investment banking. All of a sudden, that wall was torn down. More hell broke loose.
And so, we sleepwalked towards disaster. A disaster that no one foresaw (save a few outside voices). Everyone was too pleased with themselves. Clever economists and politicians thought they had tamed the economy. Hubris reigned supreme.
2008 brought the world to its knees. Now the bankers lost their jobs too. But spare the tears. They had sold unrestricted credit to vulnerable and unsuspecting people. Loans secured by the value of people’s houses were handed out with little or no means testing. You could be jobless and homeless but a bank would give you some money. It was mass exploitation and it all came crashing down.
Financial instruments that not even their creators understood were allowing investors and bankers to place huge bets on the outcomes of these mortgages. At any one time the size of the market betting on the outcomes of mortgages was up to 20 times the value of the actual mortgages themselves. When this bubble burst, it burst spectacularly. Governments were forced to bail-out the major banks – all paid for with taxpayers’ money. At the same time millions were made homeless and unemployed
But the powerful, vested interests still lurked. A new narrative was spun: Excessive government spending was to blame, poor people who leeched off government were a burden, immigrants were stealing jobs and draining public services. The state must be cut back further. The answer was less regulation not more.
The vested interests had become so powerful, and the line between government and regulation, and banking and business had become so blurred that no one was held to account. One banker went to jail for fraud. Millions went homeless. The government bail-outs imposed no conditions on the loans. They were told to lend to small businesses to power a recovery and increase aggregate demand. They didn’t. The bankers paid themselves huge bonuses and set about restoring their industry.
They should have been forced to invest in the economy to create real jobs and real wealth that could drive a recovery. Government finances were now too weak to do so. But we swallowed more lies.
In America, the Democrats were elected and investments were made that improved the job market and offered a semi-respectable recovery. But we shouldn’t be fooled. Obama is still part of the same system and so only offered a very slight alternative. This was no seismic shift and it showed. It was just a slightly watered-down version of the same old nonsense.
In Britain, the Conservatives went into government and austerity was practiced as an economic policy. It failed and hit the poorest hardest. Slow growth, high inequality and high job insecurity continued.
Those at the bottom are still blamed for their own situation, when social mobility is being decimated. The UK government’s social mobility commission of 2016 found that:
Millions of hard-working families have experienced a 5% real terms average fall in wages since 2008
Young workers have seen a 15% decline in hourly pay.
Only one in ten low-paid workers – who are mainly women – escape low pay
Only 4 per cent of doctors, 6 per cent of barristers and 11 per cent of journalists are from working-class origins
High house prices mean homes are beyond the reach of almost all average earners.
In 2014-15, only 5% of children who received free school meals gained five A*-A GCSEs
It is harder than ever to move up the scale. We may soon see the first generation who fail to achieve higher standards of living than their parents.
It is little wonder, when considering the effects of neoliberalism, that, especially over the past year, our societies have become increasingly divided. We’ve witnessed Brexit, the rise of the alt-right, the discord in the British Labour Party and the success of Marine Le Pen in France.
And then, at the end of the year, we ended up with Trump. People became so disenfranchised with the way neoliberalism had treated them that any change was considered good change. It’s tragically ironic, that Trump is perhaps the embodiment of all the worst outcomes that neoliberalism gave us. He amassed great personal wealth exploiting workers and profiting from the government sell-off of public land. He brags that avoiding taxes makes him “smart” and has little problem with vilifying minorities to direct public anger away from those who really deserve it: The group of people of which he very much belongs to. Just look at the cabinet he is assembling – it is the wealthiest in history.
We’ve become so conditioned to accept mass amounts of concentrated wealth and so desensitised to the exploitation that this requires, to the extent that Trump is idolised by those who voted for him. Despite being born into grandeur and having a litany of lawsuits brought against him by those he has exploited along the way, his supporters envisage him as some sort of self-made man. He pledges to ‘drain the swamp’, but he himself lurks deep within the swamp.
Tiny hands
Those who have opposed such political earthquakes – like Brexit and Trump – need to recognise their own downfalls too. Do not sneer at those disenfranchised working-class voters who have hit out at the status quo which has been consistently shafting them for the past three decades. It is a shared cause, but we need different solutions. What must be done is to defeat the rise of the far-right who seek to take advantage and push us further into the abyss.
The only beneficiaries from our increasingly divided societies are those who created these conditions. The more polarised we are the easier it is to continue along the same path. It is classic divide and rule. We are constantly pitted against one another, constantly urged to sneer at benefit scroungers or immigrants for draining the system, while the real villains of the piece accumulate ever-increasing wealth at the very top end of society.
It is not the purpose of this article to also examine the alternative economic models in detail. There are many different types of capitalism, and many of them are practiced in other parts of the world. The neoliberal nightmare we have ended up with channels vast amounts of wealth to the top one percent, while being extremely damaging to the majority of society.
We need a model which revitalises our public services. A model which invests in the real economy because those so-called ‘wealth creators’ aren’t doing it – they’re hoarding their money or sticking it in hedge funds which continue to place bets out the outcomes of your mortgages. Finance needs regulating.
New jobs in emerging industries and technologies need to be created. We need a total restructuring of the labour market so that people can have stable well-paid jobs and alongside that workers’ rights and unions need to be strengthened.
There needs to be progressive taxation and higher corporation tax. Those at the top of society will always benefit from the combined labour of the working class, they should be obligated to contribute greatly. After all, it is surely in their interest that society, at a minimum, can access good healthcare, are well-educated and have access to good infrastructure because all these things boost productivity – which we, in the UK, are woefully lacking. A good quality of life should be available to all.
But, those who benefit from neoliberalism will tell you that taxes and regulations will damage our economy. It will scare off those famed ‘wealth creators’. It isn’t true. In South Korea, for example, in the decades up to 1990, they required up to 299 permits from up to 199 agencies just for a factory to be opened. Yet the country experienced growth of 6 percent in per capita terms during the previous three decades – a figure which the UK and US haven’t come close to matching. A similar situation also existed in Japan and Taiwan during their ‘miracle’ growth decades.
In the rich capitalist countries, after the Second World War, progressive taxation and welfare spending was instituted. The subsequent period between 1950 and 1973 saw the highest ever growth rates in these countries – the period known as the ‘Golden Age of Capitalism’.
We also need to recognise that humans are driven by countless different motives and create a system which harnesses the best of those drivers. It is not a utopian idea to suggest that it is possible to do this.
This is not a call for a return to the 20th Century, we need a solution fit for the 21st. This is an explanation that it has been different, it can be different and it should be different.
2008 brought the world to its knees. Now the bankers lost their jobs too. But spare the tears. They had sold unrestricted credit to vulnerable and unsuspecting people. Loans secured by the value of people’s houses were handed out with little or no means testing. You could be jobless and homeless but a bank would give you some money. It was mass exploitation and it all came crashing down.
harryclark2016 