28 May 2011

Less Osborne More Hobsbawm*

Advocates of a market view of the economy and proponents of further and faster globalisation both tend to seek inspiration from the work of Adam Smith, who is taken to be the founding father of market economics. Smith's work The Wealth of Nations, was published in 1776, only on the cusp of the industrial revolution and before its technological advance had had the chance to impact widely on social and economic structures.

The economist who better represents the theory that has come to dominate our modern world is rather David Ricardo, whose most famous work Principles of Political Economy and Taxation was published in 1817, some 40 years after that of Smith, and whose work set the parameters for the world of laissez-faire capitalism and export-led growth that we inhabit today. Ricardo was attempting to theorise the economic reality of a world where labour and land were made subject to market forces, as they had been to only a limited extent in Smith's day.

In an excellent article in the New Statesman back in March, Robert Skidelsky made clear George Osborne's debt to Ricardo, whose economic theories he rather brutally summarised in the following phrase: 'It goes like this: the private sector creates wealth and the government squanders it. The smaller the government – the less it taxes and spends – the more the economy will thrive.' Moreover to a Ricardian there is no fundamental distinction between taxation and government borrowing: borrowing is merely deferred taxation.

This is an article of faith, unsupported by empirical evidence. It is clearly politically attractive to politicians like Osborne, who seek to abolish the public sector and see in the current deficit the opportunity to do so. But what if Keynes was right, and cutting borrowing in a time of economic crisis merely leads us into a downward spiral? Ricardo's theory might be all very well in a flourishing economy, with a functioning money system, but in an economy that has been destroyed by its own parasitic financial system, it might be the worst possible medicine.

Economics is a complex system, where numerous variables interact in ways that can never be predictable. This is why jokes about one-armed economists are just foolish: there will always be a multitude of answers to every question and predicting the future is a mug's game. Hence the wise economist leaves his options open, and makes sure that the politicians he is advising do the same.

Interpretations of history are rarely more helpful. We simply cannot know whether the spending that led to the deficit was necessary to prevent us entering a lengthy and devastating Depression. Can we really believe that, had he been Chancellor when the bubble burst, Osborne would have stood by and seen the global financial system collapse? In my more troubled moments I think that perhaps he might have done, such is his ideological faith in the market.

Back in March, when Skidelsky wrote his article, economists were already downgrading growth forecasts, and they have been doing so ever since. This week economists from the the Organisation for Economic Co-operation and Development (OECD), the very body that Osborne has proudly announced as supportive of his economic approach, downgraded their forecast for UK economic growth from 1.5 to 1.4 per cent this year and 2.0 to 1.8 per cent next year. Osborne, increasingly beleaguered, and increasingly isolated, persists in his Ricardian illusion.

*Thanks to the imaginative marcher who came up with this slogan for the 26th March.

26 May 2011

My University Has Turned into a Bank

Previous posts about the government's determination to infect our higher education sector with the market ideology and its focus on finance rather than education in planning its policy for universities indicate a clear direction of travel: across the Atlantic.

If you want to know what they will find there, and what the shape of our universities is therefore likely to be in the next few years, you should read the article 'How universities became hedge funds' by Bob Samuels. Bob, the President of the lecturer's union AFT branch at the University of California, tells a disturbing tale of the financialisation of US universities.

The process he describes of the movement from educational institution to finance house follows five steps:

'To understand how both public and private research universities have gotten themselves into this mess, one needs to understand five inter-related factors: the state de-funding of public education; the emphasis on research over instruction; the move to high-risk investments; the development of a free market academic labour system; and the marketing of college admissions. These different forces have combined to turn American universities into corporations centred on pleasing bond raters in order to get lower interest rates so that they can borrow more money to fund their unending expansion and escalating expenses.'

We already have at least three of these features either in place or in development in the UK higher education system.

As I pointed out in an earlier post about the creation of social enterprise bonds, the marketisation of public services is not about increasing choice and putting the person who pays in control. It is about finding new ways to use debts, in this case the debts created through student loans, to create income streams that can be securitised and profited from. The filth of finance is being forced into our schools, universities and hospitals.

*The nasty pigurines are a poorly chosen selection of gifts to young savers created by Nat West in the 1980s - capitalist pigs all.

24 May 2011

If You Can't Beat 'em Laugh at 'em

For those readers who aren't already aware of it I should point you in the direction of CASSE, the Center for the Study of a Steady State Economy. In what can be depressing times, as the refusal of the global capitalist system to respect the planet we need for our survival grows more threatening every day, they manage to maintain their campaigning and educational work with vigour, and even humour.

Last year, a conference co-organised by the Center in Leeds produced the excellent report Enough is Enough, which not only established clearly the need to end economic growth, but also provided plans for what this would mean in different areas of economic life. Now Rob Dietz has produced a blog post lauding the achievements of the Everyman economist Dr Milton Mountebank, best known for his theoretical work Infinity and Beyond: The Magical Triumph of Economics over Physics.

From Oliver James's concept of affluenza to the New Economics Foundation's impossible hamster, we have plenty of advocates in favour of a balanced and fulfilling economy rather than an economy of endless expansion and futile progress. English Romantic poet William Wordsworth might seem an unlikely voice to add to their list, but his sonnet 'Nuns fret not' is the medium and the message. As Jonathan Porritt pointed out, nobody complains about the sonnet form because it has only 14 lines. And like the haiku and the Twitter post, a limit can provide a challenge to creativity rather than a boundary to be breached.

Here is the sonnet in full:

Nuns fret not at their convent's narrow room;
And hermits are contented with their cells;
And students with their pensive citadels;
Maids at the wheel, the weaver at his loom,
Sit blithe and happy; bees that soar for bloom,
High as the highest Peak of Furness-fells,
Will murmur by the hour in foxglove bells:
In truth the prison, unto which we doom
Ourselves, no prison is: and hence for me,
In sundry moods, 'twas pastime to be bound
Within the Sonnet's scanty plot of ground;
Pleased if some Souls (for such there needs must be)
Who have felt the weight of too much liberty,
Should find brief solace there, as I have found.

17 May 2011

Defend academic freedom

As soon as David Cameron uttered the phrase 'Big Society' I made a mental note not to use it. Giving currency to such banal phrases also lends them credibility, and is now being used as a justification for the AHRC, the body that allocates research funding to the arts and humanities, assigning it a particularly priority. The question that remains to be tested is whether research proposals excoriating the shallow ambiguity of the phrase are funded as well as those that lauds its prescience and political astuteness.

I have already had my say about the loss of academic freedom that has resulted from the political pressure on the UK funding councils. Professor James Ladyman, head of philosophy at Bristol University writes:

'If we do not take a stand on this matter we will be betraying academic integrity, freedom and standards. The academic world has been watching this story unfold and I have received correspondence from all over the world about it. This is fight for the heart and soul of academia. Words matter, ideas matter and reason matters, and defending clarity of thought and expression and the political independence of research is our true strategic priority.'

Please take the time to sign the online petition.

16 May 2011

Something rotten?

To the plethora of three-letter acronyms that infest the discussion of finance has been added another. Alongside the CDO and the CDS we now have to contend with the DSK. Like the others the outward power and appeal of the DSK has given way to doubts about its inherent quality. We are led to question whether, behind the impressive facade, it may be toxic.

We must, of course, respect the presumption of innocence, but even if Strauss-Kahn is eventually cleared over the sexually aggressive charges against him now, the scandal has brought into the open his past sexual conduct, which I am old-fashioned enough, and perhaps Anglo-Saxon enough, to consider undermines his suitability to hold the most powerful office in the world of global finance.

It has been clear for some time that what is happening in the world's banking system has passed beyond the stage where we might consider that there is merely something rotten. The whole system is corrupt, dishonest and socially destructive. The fact that its figurehead personifies these qualities, while revelling in the sort of lifestyle that is an insult to the working people in countries the IMF is supposed to be aiding, just reinforces the sense of hypocrisy. There is no glee at this scandal but a growing sense of disgust that we have been betrayed by those in whom we have entrusted power.

The process of ‘financialisation’, a term coined by social scientists to describe the way that relationships mediated through finance have penetrated more and more areas of life, is the hallmark of contemporary capitalism. Money is exalted until social and economic institutions are hollowed out of other values, with finance taking up all the space. Whether we are thinking of pensions and mortgages, or football and the music industry, the greed and immorality of the world of finance has spilled over into most areas of modern life.

The fall of Strauss-Kahn has left two huge voids: at the IMF and in French politics. It is an indication of how desperate the stakes are that I am rather hoping that Gordon Brown may finally be given the chance to achieve his life's hopes by taking over at the world's central bank. I have long since given up hope that he would then reveal his colours as a former communist and have the courage to take political control over the disaster that an the private operation of capital has engendered, but at least he seems to have maintained a sense of moral purpose rather than being dazzled by wealth.

In French politics there may be another interesting outcome. Because of the double ballot system used for French presidential elections, the left must coalesce around one candidate, who need not necessarily come from the socialist party. Eva Joly, who has already proved herself capable of standing up to the might of the oil and finance industries, is likely to be the candidate from the Green Party. Given the disarray that DSK's fall has created in the socialist party, perhaps Joly will be the beneficiary, giving her the chance to compete directly with Sarkozy to lead the country.

12 May 2011

Willetts Achieves Higher Degree of Incomptence

Even by this government's record of announce-now-think-later policy-making, David Willetts's suggestion on Tuesday that students should be able to buy off-quota places, made on the Today programme and quashed by lunchtime, must achieve some sort of record. I think I may be on to the nugget of cunning within what appears a wholly misguided proposal, and it suggests that this may have more to do with off-balance-sheet than off-quota.

The government has got itself into a mess by believing its own rhetoric about the market for higher education. In such a market institutions would compete on price, resulting in a graded system from Bognor ex-poly at one end to Cambridge at the other, and a price continuum to match. In reality around two-thirds of universities are charging the maximum fees of £9000, with most of the remainder not far behind.

Although the fees will eventually be repaid through some immoral process of securitising our children's debt-laden futures, in the short term (that unhappy place for the theoretical economist) the bill will fall at the government's door and, if to remain consistent with their austerical rhetoric, they cannot afford to pay it. So are we to expect a reduction in the student quota, i.e. the number of places the government guarantee to support, in the run-up to the admissions period next September? Is the suggestion for off-quota places, unsupported by any government finance, an attempt to find a solution to this fine mess?

David 'two brains' Willetts has been accused of stupidity, but this is a misaimed criticism. His bungling approach to higher education is really the result of a person who has a poor understanding of economics, combined with a strong emotional attachment to the market model.

Today we hear that that Willetts is moving on from the segmented market approach towards the more lowly bargain shelf of the supermarket. Degrees which remain unsold as their 'use by' date of September approaches are to be made available for a lower cost, like strawberry yoghurts. A failure to understand that learning is a co-operative activity, and that a class including some students who have come in at bargain rates and others who paid the full rate is unlikely to be one where harmony reigns appears to be beyond Mr Willetts's comprehension.

And this is to say nothing of those students who, like slightly unsavoury old women who haunt the supermarkets in the late afternoon, will play a chicken game with the university accountants, daring them to keep the places open long enough for them to be able to afford them. Am I too cynical to presume that many of these will be students I will be expecting to greet in the autumn, that is to say students of economics?

10 May 2011

Will the UK Abandon its Climate Targets?

During the past year we have seen the painful exposure of the political strategy of a party that has thrived by promising all things to all people. Now that the Liberal Democrats have had their bluff about coalition government called, we see both their opportunism and their political incompetence exposed to full view. This is by turns hilairious and tragic for the party but leaked documents about cabinet splits over climate change policy suggest that it may soon prove tragic for the country and the world. These documents suggest that the Tory government, in its desperate drive for growth, is seeking ways to avoid the strict carbon dioxide emissions targets enshrined in law by the previous Labour government.

The Climate Change Act, which became law in November 2008, was a recognition that climate change is too important an issue to be left to the vagaries of the electoral cycle. It included two important provisions. First, 'a legally binding target of at least an 80 percent cut in greenhouse gas emissions by 2050, to be achieved through action in the UK and abroad. Also a reduction in emissions of at least 34 percent by 2020. Both these targets are against a 1990 baseline.' To remove the temptation to avoid these strict targets the bill also established a Committee on Climate Change, with a particular remit to ensure that the law was being respected.

It would appear that this committee is becoming nervous about a battle within the cabinet over the tension between the CO2 emissions reductions and the desire to reboot the destructive growth cycle. This follows the leak of a letter from Business Secretary (and ex-chief-economist at Shell) Vince Cable to Energy Secretary (ex-anti-nuclear, ex-merchant banker) Chris Huhne. Cable challenged the Committee's attempts to reduce CO2 emissions as a threat to economic growth.

The fact that the CCC is leaking to the press is a sign of how serious the situation is. This is hardly a radical green outfit: the list of its members indicates the usual selection of ex-business and conventional science establishmentites. But they find themselves at the sharp end of the tension between pro-growth economics and the climate reductions the human race needs. The battle-lines are drawn and the issue will be decided at the cabinet meeting on Monday.

The evidence of this fight at the very heart of government makes it clear that climate change emerges from a structural problem within the capitalist economic system, as green economists have long argued. Both sides in this current spat are right: we must have CO2 emissions, but we cannot have CO2 emissions. The only was to resolve this apparent impasse is to ditch the 19th-century economic paradigm we are still suffering for the ideas of green economics that Caroline Lucas has called 'the economic paradigm for the 21st century'.

3 May 2011

What the Oil Bloom Bought Us

Greens are portrayed in the media as profits of doom, as though a fascination with the negative impacts of our lifestyle might be some sort of psychological flaw. My own view is that we are closer to reality than the vast majority of the population, who are trapped in denial about the ecological crisis, but none the less I think it is worth re-evaluating the extraordinary achivements of the 200-year oil bloom.

To focus our minds on the technological and social achievements of industrial society I suggest you watch the visualisation presented by Dr Hans Rosling during his BBC series The Joy of Stats. In spite of questions about what measuring wealth in US dollars over the past 200 years can actually mean, the achievements in terms of life expectancy are impressive and should not be sidelined. The impact on China of its turbulent political history, as it bounces up and down, argue strongly for evolutionary rather than revolutionary change.

Wonderful though these achievements are, they have been bought with a level of energy intensity that we can no longer afford. But the advances in knowledge and technology will stay with us. Our challenge now is to find ways of using them that achieve the maximum in human well-being with the minimum of resource and energy use. Here another recent visualisation is helpful.

Although the footprinting methodology is limited in terms of what it can offer policy-makers, it is a great asset in helping to communicate the message about over-use of resources in an intellectually and visually appealing way, as Jacob Houtman's global map, made freely available on Wikimedia Commons demonstrates.

As well as illustrating the situation facing us so vividly, these two visualisations also demonstrate another asset we have available: the creativity that was used to display these data can also be used to explore and implement solutions to the ecological and political problems we face.

1 May 2011

Age of Austeria

A recent FT article gloating about the 'resilience' of corporate earnings in what we are misguidedly calling 'the age of austerity' is the final straw. In all plethora of abbreviations we have been using in discussing the financial crisis the two letters we should have been focusing on were PR. The greatest success of the financiers has not been their takeover of our political and educational elite, but their ability to convince the working people of this country that the destruction of their public services and loss in incomes is inevitable.

The FT article discusses the latest corporate reporting season with glee: corporate profits are up and shareholders are celebrating. In both the UK and the US the profits of companies are demonstrating an 'extraodinary resilience': 'Companies on both sides of the Atlantic escaped the financial crisis in fine fettle.' The article is called, in a title I cannot help admiring in spite of myself, 'Bulls graze on resilient corporate earnings'.

I have been searching for some time for data that explores the share of productive value in this country which goes to employees and companies. The difficulty of finding such data is evidence in itself of the politically biased nature of research funding and the consequence of the privatisation of the Office for National Statistics, undertaken by Gordon Brown in 2005. Private-sector data gatherers collect the data that the profitable want to know about.

The best data I have been able to find come from a report by the TUC called Unfair to Middling. They show that much more of the value created in our economy is going to owners than to earners. Since the 1970s the share of wages and salaries has dropped from a high point of 65% in 1975 to just above 50% now. By contrast the share of profits has risen to almost half. The burden of taxation falling on individuals went up from around £50bn. in 1990 to £110bn. in 2000 and £150bn by 2009. At the same time the tax on corporate profits, which increased massively during this period, increased more slowly. That is because the taxes on business profits have been cut: during the past decade they have fallen from 32% to 23%.

The conflict of the 1970s is not warmly remembered, but it was that generation's refusal to accept inequality that won a relatively comfortable and prosperous life for working people. On this day of international worker solidarity we should remember that it was solidarity and struggle that brought us some measure of equality, and unless we continue to fight for them, these gains will be lost.

Perhaps it is just about time that we all told Mr Cameron to 'Calm down, dear'. We have had more than we can stomach of his politically motivated whipping up of an atmosphere of austeria which is used to conceal a massive reallocation of wealth within our society.