According to the current edition of the Economist, Britain appears to be questioning the wisdom of its devotion to ‘the liberal economic credos of its recent past.’ Those are the credos which include free trade with open access to unregulated markets, minimised public sector, and so on and so forth – the whole baggage of neo-liberal economics to which the Economist itself is committed.
This questioning was prompted by popular responses to the threatened closure and disposal by Tata of its British steel operations. They were said to be losing around £1m a day, at least in part as a result of Chinese dumping cheap steel on UK markets. The outrageous suggestion had been made that the Brits should protect their domestic industry by charging an import duty on Chinese steel so as to at least level the playing field. Thus the classic dichotomy was drawn up between the two childishly simple minded economic ideologies: free trade on the one hand; protectionism on the other. These are the tips of the two ice-bergs of neo-liberalism and totalitarian communism. Continue reading There is an Alternative
The media, including the Guardian, report that an independent poll shows the government’s austerity agenda is a vote winner. That conclusion is drawn from responses to a statement that “We must live within our means so cutting the deficit is the top priority.” Agreement was registered by 84% of Tory voters at this year’s election, 63% of UKIP voters, 58% LibDem and even 32% of Labour voters of whom only 34% disagreed. Therefore, the argument is, voters believe austerity is a Good Thing!
Everyone knows from personal experience that living within your means is important to peace of mind since living beyond your means generally has pretty disastrous results. So cutting the deficit is, of course, a top priority. But austerity is not cutting the deficit: it is just one possible way of achieving that end; and a horrendously inefficient one at that.
Continue reading Austerity a Vote Winner!
The anti-austerity protest which is getting under way on 20th June, is not just a politically motivated objection to a policy of the governing Party. It is a protest with deep foundations in both theory and common sense.
For successive governments GDP growth has been the holy-grail. Despite misgivings over its validity (https://gordonpearson.co.uk/2015/02/19/the-great-gdp-deception/#more-1278), it is accepted that balancing a budget with a growing GDP is a whole lot easier than doing so in recession. But imposing austerity on the economy only stifles GDP growth. So why do governments of both main Parties – assuming Labour takes the suicidal Blairite route – accept austerity as the necessary medicine for our economic ills?
The economy is a complex of many different sectors, public and private, that relate to each other in all sorts of different ways, and it is continually on the move with some sectors growing and some shrinking, some dying off altogether and new ones emerging. That dynamic is the result of millions of people striving to make progress. Politicians don’t control the economy; the best they can aim for is to do the people no harm.
Continue reading The Common Sense of Austerity and GDP growth
The idea of GDP is simple: the summation of what is produced within the UK avoiding any double counting. It is used to assess how well the economy is doing overall. For the government of the day, growth is good because it suggests we will all be better off. Though GDP is a very imprecise measure, it is one that most people broadly accept.
The economy used to be measured by gross national product (GNP). That measured what UK-owned assets produced, irrespective of where they were in the world. But GNP fell out of favour as UK owned assets were sold to foreign investors with the result that the economy, by that measure, appeared to be in decline. Successive Chancellors tried to make out the sale of UK owned assets was good, because it showed UK was ‘open for business’. But it didn’t really wash. So, since the 1980s, GDP has been the standard measure.
GDP is calculated by simply adding the product of various sectors together as if they were all of equal worth. But in truth some sectors benefit the common good and others are predatory on the common good. But if GDP is growing the government of the day takes credit for successful economic management, irrespective of the fact that it is the predatory components that have grown at the expense of the good sectors.
Continue reading The Great GDP Deception
Our children and grand-children are facing a far less fair and equitable society than the one people grew up in 30 or more years ago. The wealthy are far richer and the poor both poorer and more numerous. But yet the three main political parties all seem to accept that state of affairs, despite the overwhelming evidence that it is truly bad news for the well-being of both rich and poor alike. Britain is in danger of becoming a permanently divided society.
One of the main causes is the mainstream economic theory that the current elite were all taught to believe. The theory teaches that money paid to the wealthy will be invested in enterprise and the resulting benefits will trickle down to the poorest sections of society so that everyone gains. Therefore government should reduce taxes on the wealthy. It also teaches that privately own companies are much more efficient than publicly owned. Therefore state owned activity should, where feasible, be outsourced to the private sector for everyone to gain. There’s a whole raft of such arguments justified by the theory.
Continue reading A High Velocity Economy
We are experiencing an explosion of inequality to levels not seen since the darkest days of the nineteenth century, inequality, not just of wealth but, as George Monbiot suggested (The Guardian, 2nd April 2013), also of ‘decency, honesty and kindness’. His analysis is that the 99% have the virtues, while the 1% have the vices, and the money. It may seem a bit simplistic, but there’s a whole lot of truth in it.
So why does the largely decent majority put up with it? Well, first of all, the media barons, such as Murdoch and Rothermere are still calling the shots. And the corporates continue to invest billions lobbying to pervert true democracy, driving political momentum from the socially minded left of centre to a predatory finance dominated right. The 1% still rule, nurtured by 13 years of New Labour largely driven by the mindless free market ideology. But there is still hope that common sense will prevail over dogmatic belief and practical experience over blind theory. Monbiot suggests that a spark of that hope lies in the Green Party.
Continue reading Hope and the Green Party
The Prime Minister used the word ‘snobbery’ to deride what he referred to as anti-business rhetoric. By which he was meaning the arguments that business ‘has no inherent moral worth’, that it ‘isn’t really to be trusted’, and that it had ‘no social concerns’ but was solely to do with ‘making money that pays the taxes’. He was addressing the charity, Business in the Community, attended by the Prince of Wales. ‘Snobbery’ seems a curious word to use. Maybe it is some left-over frisson from the landed gentry, even royalty, of old England, for whom the idea of making money, rather than inheriting it, may be thought somewhat beyond the pale. But surely the Prime Minister doesn’t take such ideas seriously!
So far as is known, Milton Friedman was never accused of snobbery. But it was he, more than anyone, who persuaded business that it should have no social concerns and not strive after moral worth, but focus exclusively on making as much money as possible for shareholders. He was less enthusiastic about paying taxes, but snobbery played no part in his argument. It purported to emanate from the cold logic of economic theory, if such a thing were possible.
Continue reading Cameron’s Anti-Business ‘Snobbery’: Real or Synthetic?
The trouble with the provision of public services such as health, education and the police by private for-profit companies is pretty obvious. Successive governments from Thatcher on, have pursued this flawed policy which derives from a hopelessly simplistic ideology. Private providers, who are subject to the discipline of the market, are held to be more efficient than public providers. The late lamented Milton Friedman claimed they were twice as efficient. Therefore, the argument goes, services would be most efficiently provided by private firms operating in competitive markets so that, for example, NHS patients have choice, and providers who are not good enough to get chosen, will fail. That’s how markets work.
So far so good, despite the famous lack of supporting empirical evidence, and the difficulties, where real markets don’t exist, of creating pseudo-markets without the costly bureaucracy of targeting, monitoring and supervising pseudo-competitive performance. But another thread of that same ideology, most famously enunciated by the same late lamented Friedman, is that those who run for-profit businesses have no social responsibility other than to make as much money as possible for shareholders.
Continue reading Public Services and Predatory Shareholders
Peter Mandelson, writing in the New Statesman (‘Mind the gap’,20.2.2012), expresses the problem for the UK left in one plaintive sentence: “We still have to have faith in the basic model of an open and competitive market.” Well, no we don’t! Misplaced faith in such broad generalisations is what got us into this mess and is still keeping us there. Mandelson sounds very like Transport Secretary Philip Hammond proclaiming his fervent belief in “free trade and open markets” when he announced the award of the £1.4billion Thameslink contract to Siemens, rather than to Derby’s Bombardier, UK’s last rail producer. Blind commitment to such generalised dogma has led us into all sorts of destruction from which it will be difficult to escape. German and French politicians aren’t so naïve. Nor, when push comes to shove, are the Americans – ask General Motors!
The combination of ‘open’ and ‘competitive’ is itself problematic. ‘Open’ suggests a minimum of control and regulation, but for a market to remain ‘competitive’ requires specific control and regulation. This is because the natural unregulated outcome of competitive markets is for the most successful competitor to become dominant. The natural outcome of competition is monopoly. Competitive markets used to be protected by the Office of Fair Trading (OFT) and the Competition Commission, acting to prevent the establishment of dominant market positions. For example, a merger or acquisition which would result in a market share of 20% or more warranted their consideration. The current legislation specifically allows the creation of dominant market positions. The only restrictions apply to the abuse of a dominant position, or the operation of a price fixing cartel.
Continue reading Blind faith is destroying British industry