• By On 30 March 2009 In The Global Economy Tags , , , , ,

    Governments As Banks

    The G20 summit seems certain to demonstrate that for most world leaders the conversion to Keynesian economics is no more than skin-deep. The global crisis may have compelled some re-assessment of the “free” market doctrines previously thought to be unchallengeable, but many of those attending the summit are reluctant to accept the responsibilities that a Keynesian approach would require of them.

    It is worth rehearsing therefore what the global recession now demands of governments if we are to avoid a further plunge into full-scale depression. Like so much of Keynes’ approach, the prescription rests on common sense rather than ideological prejudice or mathematical models.

    The key feature of a recession is a shortage of demand or purchasing power in the economy. The danger is that, once that condition applies, it feeds upon itself. Despite the urgings of politicians, individual actors in the economy – both in their personal lives and in their businesses – understand that times are hard and that the economy is flat or shrinking, and they act accordingly in their own self-interest. They cut their personal spending and their business costs. They employ fewer people and they invest less. Their concern is entirely for their individual or family or business interests.

    They cannot be criticised for this. Their behaviour is entirely rational. The problem is that the sum total of all these individual decisions is that the economy shrinks further – a kind of multiplier in reverse.

    An economy left to resolve this for itself will take a long and damaging time to come right. If the process is to be short-circuited, and depression is to be avoided, there is only one agency that is capable of taking effective action. That agency is the government.

    Only governments have the capability and the duty to act in the wider interest, to take decisions that would be directly contrary to their self-interest if they were individuals or businesses, and to act consciously to defy market logic by spending when others can and will not. Governments can afford to do this, if they choose, because their ability to borrow to fund investment for the future is – by the standards of any other agency – virtually unlimited, and their responsibility is not to particular economic actors, like banks or shopkeepers, but to the economy as a whole. They alone can afford to take a long view – long enough to live with a growing deficit while the economy regains its buoyancy.

    It is governments in the end, not banks, who are the funders of last resort. If there was ever any doubt about this, it must surely have been put to rest by the collapse of the banks in most parts of the world, and the taxpayer-funded bail-outs that governments have had to organise. Why, then, are political leaders still so reluctant to recognise that is they, not the banks, who must provide the kind of stimulus to spending that is needed if we are to turn the recession round?

    The reason is that they are still prisoners of the same intellectual straitjacket that created the crisis in the first place. Despite all the evidence to the contrary, they are still convinced that the major decisions in the economy should be taken by banks – or the private sector more generally – rather than governments. Even when they have spent billions on bail-outs, and the billions have disappeared into the banks’ balance sheets, they still somehow expect that the banks’ self-interested pursuit of their shareholders’ interests will revive the economy as a whole.

    Old habits die hard. Privately owned banks have been allowed to develop a virtual monopoly of credit creation for more than 200 years. It is such a familiar feature of our landscape that it has been scarcely remarked, even when bank credit became by far the most significant element in the rapid growth of the money supply – and therefore the greatest factor in inflation. The banks’ impact on monetary policy – and the exclusive focus on that monetary policy – was itself a huge abdication of responsibility in favour of private interests. But just to make absolutely sure that the banks would not only monopolise credit creation but would also control monetary policy itself, governments surrendered the task they had been elected to fulfil by handing monetary policy over to an “independent” central bank.

    Our politicians are still at it. We are told that we must give the banks some “breathing space”. That is after they have walked away with billions of our money. It does not seem to have occurred to our political leaders that it was not the interests of bank shareholders and the survival of banks as institutions that mattered. The focus of policy should have been, first, the security of deposits, and secondly, a re-thinking of whether the banking function should remain a private monopoly or should be seen properly as a public responsibility – as, de facto, it has become. If governments – for which read us – have had to put up the money, why should we not call the shots?

    Bryan Gould

    30 March 2009

    This article was published in the online Guardian on 30 March

  • By On 23 March 2009 In New Zealand Politics Tags , , , ,

    Spend Now, Prosper Later

    The global recession dominates the thinking and writing of the world’s best economists – and not surprisingly, they exhibit a wide range of views as to what is really happening. There is not even a consensus about how deep and how long the recession will be, let alone what should be done about it.

    In New Zealand, we are now reaching a more sober assessment of how we will be affected. After an early period that was somewhat akin to a “phoney war”, we are now beginning to realise that the worst may be yet to come.

    We must of course be careful to avoid undue pessimism. Deflation feeds on itself, as people prepare for hard times by battening down the hatches and thereby make the times even harder. But we must also be alert to the policy measures that could help – and there is at least an emerging consensus that the earlier such measures are put in place, the more effective they will be.

    We also know now that the “jobs summit” – however well-intentioned – may have succeeded in creating a sense of pulling together but has not managed to produce much by way of measures to stop the slide into further recession. If we are to be effective, we need to decide now on what needs to be done.

    The time may be right, in other words, to rehearse the arguments for government intervention. Virtually all of the world’s economists agree that the central feature of recession, and of threatened depression, is a deficiency of demand or purchasing power. In New Zealand, we are being hit by a double whammy in this regard; our export markets are contracting at the same time as unemployment and a deflated housing market mean that consumers at home are also spending less.

    Left to itself, an economy will take a long and damaging time to correct this deficiency. But, it will be asked, what can governments do about this, when their own finances are being hard hit by recessionary factors? And if the government spends money it doesn’t have, isn’t this just building up problems for the future?

    Our own Treasury is not immune from this kind of thinking. Its projections show – even without further interventions – a sharp rise in the government deficit in the next year or so, and they then extrapolate that rise so that the deficit appears to soar into the stratosphere over the next decade. This, they say, means we should be cautious about boosting government spending further.

    This is not, however, an accurate way of looking at the issues. There is a good deal of evidence, supported by a growing number of economists, that the key is timing. A dollar spent now to boost the economy could save several dollars in government deficit later on.

    The argument runs as follows. The government deficit rises and falls in line with the fortunes of the economy as a whole. A buoyant economy will generate a large tax revenue so that -as has happened over recent years – the deficit can actually be reduced by paying off debt. A flat or shrinking economy, on the other hand, will increase the deficit, as the government struggles to maintain essential services with falling tax revenues; and if the government does respond by trying to cut the deficit by spending less, this will make matters worse by dragging the economy even lower and making the deficit bigger in the long term.

    If, on the other hand, the government has the courage to intervene now with carefully judged spending so that economic activity is boosted, the recession will end sooner and government finances will improve quicker. What might look like a frightening short-term deficit may well be the best protection against a bigger deficit in the long term. The priority is to spend the government dollar now, when it is most needed and will be most effective in correcting what would otherwise be a growing deficiency of demand.

    Government spending now would of course depend for its efficacy on exactly what it was spent on. If increased government spending went mainly on consumption, little would have been achieved; that is why many believe that tax cuts are not necessarily the most effective means of boosting the economy and countering the recession.

    If, on the other hand, the government spends now on investment projects that will strengthen our economy in the long term, we not only counter the current recession effectively, but will be better equipped to prosper in the future. Investment for this purpose need not be limited to physical facilities in areas like transport, communications and energy, but could also include programmes for improving our research effort and the skills of our people.

    The ideologues and the faint-hearted will quail at the sight of a rising government deficit at this particular juncture. But common sense is our best guide. We are all familiar, in our personal lives and in our businesses, with borrowing now to invest in a more prosperous future. Let’s do it for our country too.

    Bryan Gould

    23 March 2009

    This article was published in the NZ Herald on 26 March.

  • By On 22 March 2009 In British Politics Tags , , ,

    Obama’s Health Care Bill and the British General Election

    In a 50-year involvement in politics, I have often found that friendship is perfectly possible with people of very different political views from my own. Over a 20-year period as a member of the House of Commons, I often found that some of the more stimulating and amusing companions came from the ranks of those whose political views I abominated.

    I have often puzzled over the fact that people who are so agreeable in personal terms can hold views about society and social issues that are so unattractive. People who are kind to animals, generous to their friends, supportive of family members who need support, exhibit a breathtaking and at time cruel lack of generosity, compassion and understanding when it comes to those who are a little more distant from them in social or cultural or ethnic terms.

    My explanation of this apparent paradox is that people who hold right-wing views (excluding those who are just plain nasty) often suffer from a failure of imagination. Their impulses are fine and generous when they relate to people who are recognisable and close to them – my own dear parents were a case in point. But they are unable to project those commendable responses to a wider range because they are simply unable to understand that society is made up of people who are just as dear to others as their own friends and family are to them.

    These thoughts were prompted all over again by reports of the debate over Barack Obama’s health care bill. For those fortunate souls who have had the good luck to live in countries (which make up the bulk of what we might have once called the civilised world) that see the provision of health care to all their citizens as a basic social responsibility, it has been almost beyond belief that people who would surely be regarded as pillars of their local community and as exhibiting all sorts of civic virtues could possibly hold views that are so downright vicious and hostile to those who are among the most deprived in their country – the most in need of sympathy and help.

    How can such people elevate pious commitments to abstract and exaggerated metaphysics above the simple and natural concern for one’s fellow human beings? How can they profess to see such danger and evil in the recognition that we are all members of human society and that it is that membership that is hugely more important and deserving of recognition than the harsh and cruel attempt to measure some hypothetical material and moral contribution which alone is to be the allowable basis for drawing any benefit or support from society?

    And that in turn led me to contemplate the forthcoming general election in Britain. I have spent a lifetime in Labour politics, at various levels and in various capacities. I have been, with the luxury of judging from a distance, among the most critical of traditional Labour supporters of the many failures, disappointments and betrayals of this latest Labour government. I do not resile at all from those criticisms, and from that pervasive sense that the Blair/Brown government has represented a massive lost opportunity.

    But when, on an issue as fundamental as enabling 30 million people in the world’s richest country to escape from the destructive vicious circle of poverty leading to ill health and back again to poverty, I see exhibited before me the perverse, mean-minded and just plain deluded response of people who have supposedly been elected to represent the common interest, I know what it is that I oppose, and therefore what side I am on.

    I remain profoundly disillusioned at the performance of the Labour government. But a general election is a new game. It at least raises the possibility that we can elect a new government, including a new and better Labour government. A vote in that general election is an expression of hope that things can be better. I do not believe they can be better by electing a government that will – at least in part – accommodate the views and interests of those, like the opponents of Obama’s health care bill, who lack the capacity for human kindness.

    Bryan Gould

    22 March 2009

    This article was published in the online Guardian on 22 March

  • By On 15 March 2009 In The Global Economy Tags , , , , , , , , ,

    Constructing A Left Politics

    As the global economic crisis gathers force, it sweeps before it not only the flotsam of discredited economic doctrines; it also demands a complete reappraisal of how economies and societies work. It poses again the great questions that underlie all political debate, and it poses them in the certain knowledge that the answers given over the past thirty years – and so widely accepted – must now be rejected.

    This is, in other words, one of those rare moments when it is not only possible but positively essential to go back to first principles. We must ask again, what is the purpose of politics, what is the role of government, does democracy matter, and – for those who see the need and seek the opportunity for reform – what does it mean to be on the left in politics.

    Those questions must be asked, of course, at a time when – in Britain at least – left politics has run into the buffers. The concessions and subterfuges that were thought to be necessary to win power and then to hold it are now unmasked as not only craven but also totally destructive of anything that could have been legitimately regarded as the true purpose of left politics. If there is one incontrovertible lesson to be learned, it is that a left politics that is disconnected from principle and analysis will lead to failure and defeat.

    The opportunity is, then, to think again about that body of principle and structured analysis that should underpin any left approach to politics. Our starting-point for such an inquiry must surely be a recognition that, since the late 1970s, and with the often unstated acquiescence of the left, the political agenda has been dominated by neo-liberal thinking.

    The dominance of this self-serving doctrine has been a huge achievement for those who already exercised great economic power, but felt their privilege threatened by the political power of democratic electorates. They feared, correctly, that elected governments, accountable to the widest range of interests, would not tolerate a system which unfairly favoured the rich and powerful by allowing them to rig the contest for power in their favour.

    The powerful responded to this threat by bringing about changes, around the end of the 1970s, which negated the power of democracy – changes whose significance was hardly recognised at the time. They made elected governments irrelevant, by acquiring a degree of economic power that would allow them to face down and blackmail all but the most powerful democratic governments, and then by using their economic power and invulnerability to political pressure to bend even the most powerful governments to their will.

    The individual steps by which this was achieved need be only briefly rehearsed here. One of the earliest was one that masqueraded as a purely technical change that would help international trade and investment, and that was sold to the ordinary citizen as a welcome reduction in bureaucracy. That change was of course the removal of exchange controls by Reagan and Thatcher so that international capital was free to roam the world in search of the most favourable investment opportunities.

    In one step, the rules of the game had changed hugely. Investors no longer had to comply with the requirements of elected governments. Instead, governments found themselves played off against each other by investors who commanded greater and greater resources as the now global economy was funnelled into fewer and fewer hands.

    Now, it was governments that had to sue for terms, and who would lose out in the competition for investment if they did not comply with the demands of the multinationals. The investors, on the other hand, now understood that they could exercise their power quite irresponsibly; it was, after all, governments – not the investors – that had to answer to their electorates. The investors answered to no one but their shareholders. Most costs could be “externalised” or passed on to taxpayers who no longer had a voice. And, as voters began to understand that their governments could no longer protect them, confidence in the democratic process began to weaken.

    At around the same time, monetarism – the doctrine that managing the economy was a more or less technical exercise in controlling inflation (the only goal, it was said, that mattered) by regulating the price of money – became the accepted wisdom, on the left as well as the right. This technical task could safely be entrusted to unaccountable officials – bankers no less – so that, in one simple step, democratic government was excluded from perhaps the central function for which it was elected.

    These ground-breaking changes were reinforced by re-shaping political structures in the image of international capital. Multi-national investors found it increasingly irksome to have to deal with national governments, each with its own set of requirements, each reflecting the particular interests and priorities of their own voters. They insisted that economies would function more efficiently if those controlling investment capital could deal with authorities, like the European Union, that matched their own multinational structure and scale – and that were not democratically elected, but were instead multinational bureaucracies whose goals coincided with their own. So powerful was the momentum towards the integration of national economies in the name of greater economic efficiency that no one seemed to notice that the long-term consequence was not only an actual reduction in economic efficiency but also a political loss of a most serious kind – the replacement of democratic governments as the ultimate authority by multinational capital.

    The ability of multinational capital to set the political agenda meant that a doctrine that could never have been directly sold to voters in individual countries – the view that markets are infallible, that they must not be regulated or interfered with in any way, that the interests of shareholders and the bottom line are all that matters, and that governments must step aside while market forces have their way – became the dominant driver of the world economy.

    Few seem to have understood – not even politicians supposedly of the left – that an “infallible” market and democracy cannot co-exist. The whole point of democracy, after all, is that ordinary people can use the political power of democratic legitimacy to offset what would otherwise be the overwhelming economic power of the privileged minority. If even democratic politicians accept that they are not only powerless to intervene in the market, but that it would be literally improper and counter-productive for them to do so, then the powerful are unconstrained in their ability to impose their will on the rest of society.

    We can now see the inevitable consequences of that extraordinary concession by democratic politicians – one that is even more incredible when made by politicians of the left. Unrestrained markets will always threaten, as even Adam Smith pointed out, a conspiracy against the general interest. They will always lead to excesses. They will always, as a consequence, destroy themselves in the end. The global recession was the direct and inevitable consequence.

    We can also see how and why the New Labour government lost its way. Its fascination with the rich and powerful, its acceptance that the unregulated market must always prevail, its belief that market solutions will always be best, and its embrace of a global economy dominated by international capital all meant that it opted out of the role that most of its supporters expected it to fill – the diffusion of power in society so that the less powerful were protected and treated fairly.

    Tony Blair seems to have believed that he could take the pain out of politics – and even the politics out of politics. But politics in a democracy is the means by which we resolve issues that would otherwise be settled by less acceptable means; we wouldn’t bother with the messy business of politics if it were not preferable to brute force or the victory of the most powerful. And those issues – arising as they do from the ever-present needs to allocate scarce resources and to reconcile conflicting interests – cannot be wished away. Their resolution will shape important issues such as fairness, opportunity and accountability – crucial determinants of how well society functions and how comfortable individuals feel within it.

    All politics in the end is a response to a fundamental characteristic of social organisation. All societies demonstrate an inevitable tendency for power to concentrate in a few hands. The power may be physical, economic, or social – but at its most fundamental it is power to make choices, the freedom to choose, even at the expense of and against the interests of others.

    In any society, those who are stronger, cleverer, or luckier, or who enjoy some other advantage, will inevitably acquire more power than others. They will then, with equal inevitability, use that power to enhance their advantage, accreting to themselves differential privileges which will make them yet more powerful, allowing them to entrench that advantage and defend it against attack, and by doing so to reinforce the disadvantage of others. The response that should be made to that intensifying concentration of power is the central and defining issue of politics.

    The dictator will say that there is nothing wrong with power being concentrated in a few hands, as long as those hands are his. Patrician conservatives argue that it is inevitably a permanent feature of any social organisation, and that the stability it provides is on the whole beneficial. They will say the emphasis should be on making the disparity in power acceptable, by requiring the powerful to exercise their power humanely and with some kind of social conscience – a kind of noblesse oblige. The less powerful, on the other hand, should be conditioned by social pressures to accept – through a well-developed social hierarchy – their inferior lot in life and the deserved superiority of their betters.

    The liberal (or, according to taste, the social democrat or proponent of the “third way”) will also accept that a substantial degree of inequality is inevitable and must be tolerated, but will argue that it can be made more acceptable and even positively beneficial provided that everyone has a fair chance of winning, or at least doing well, in the contest for power. Provided that everyone lines up at roughly the same starting point, no one can complain if the race goes to the fleetest of foot. The harsher edges of the neo-liberal winner-takes-all approach can be softened, it is fondly hoped, if those who bring up the rear are guaranteed some minimum standards of social support, through some redistribution of wealth and income and an acceptance of community responsibility for basic services.

    The neo-liberal, on the other hand, will regard the concentration of power as not only inevitable but positively desirable. According to this view, those who gather power to themselves will be the most able and deserving. The fact that society is led by the most able will mean that everyone benefits; even the disadvantaged and least powerful will benefit as the rising tide lifts all boats. The possibility, too, that the least powerful can contest for power, and that the exceptionally able or lucky individual might make the breakthrough will ensure a degree of social mobility and contestability that will maintain the vitality of the system.

    According to this view, it will be literally counter-productive to try to counteract the concentration of power by ensuring that it is more widely distributed and equally shared. The only consequence would be to drag everyone down to the level of the least able. Contrary to the delusions of the “third way”, the dice must be allowed to lie where they fall. To try to alter the outcome of the game would be to deny the beneficial potency of allowing the winners to prevail.

    Historically, the left has shared much of the liberal or social democratic agenda, but has evinced less tolerance for the degree of inequality that is inevitably tolerated by that approach. Crucially, only on the left has substantial, entrenched, and often inherited inequality been seen as a straightforward negative, an affront to notions of justice or fairness, a gross limitation on the freedom of the less powerful and therefore of society as a whole, a drag on economic efficiency, a dagger driven at the heart of social cohesion. Only on the left is there an imperative to address the way that power is distributed – and not just redistributed – and the social and economic price that everyone – including the most powerful – is required to pay for a substantially unequal distribution of power. It is that imperative – to achieve something near equality, not identity – that is the defining characteristic of left politics.

    If this is what left politics is really about, what should the left response produce by way of a policy agenda? The first part of the answer to that question concerns the relationship between the market and government, between economic and political power.

    No government – of any persuasion – should delude itself as to the critical and irreplaceable role of the market in a modern and democratic economy. At its best, the market allocates scarce resources, empowers consumers (through what might be described as economic democracy), stimulates efficiency and innovation, and rewards the most productive and creative.

    The market is, however, a valuable servant but a dangerous master. It is the elevation of the market to the status of a moral force that cannot be challenged that enables the powerful to by-pass democracy. That view must be contested. If democracy is to mean anything, government must be ready to intervene in the market so that its outcomes are acceptable and sustainable, both politically and economically. The deliberate aim of a left government must be to utilise the market so as to optimise its great strengths, but to make sure as well that the market does not prejudice – through entrenching and extending the power of the privileged – the wider goal of diffusing power as widely and as fairly as possible throughout society.

    So, good government matters. It is the means by which the market is restrained so that the full resources of the whole of society are deployed to the widest advantage, by which essential services are provided, by which the economy is managed and directed for the general good, by which the benefits of citizenship are fairly and productively shared, by which the cohesion of society is effectively developed.

    This is of course at odds with the right-wing doctrine that government should limit itself to a minimal responsibility for maintaining the value of assets – and particularly the currency – and should otherwise merely hold the ring while market operators are allowed to get on with it. The left, on the other hand, has always taken the view that governments are inevitably major players in the economy. They are the most important investors, customers and employers. They influence events and behaviour through policy decisions. As a result, they should accept responsibility for the overall context in which economic activity takes place. They should properly be concerned with the appropriate level of demand, the provision of gainful employment opportunities for all citizens, and the fair distribution of the fruits of economic activity. It was the abandonment of these responsibilities, particularly by the left, that has contributed so greatly to the global crisis.

    A proper balance between the roles of the market and the government, between economics and democracy, is essential. It need not – as is often argued – require a sacrifice of economic efficiency for the sake of social outcomes or political principle. The lesson of the last thirty years is that “free- market” economics do not lead to efficiency – great riches for a tiny minority, yes, but sustained and equitable economic progress for all, no.

    The case for diffusing power throughout society is as much economic as it is social. We make the most efficient use of our resources, and particularly of our human resources, if everyone has the chance to make their most appropriate contribution to wealth-creation, if that contribution is fairly recognised and rewarded, if everyone’s potential is properly recognised and not suppressed, if we understand that no individual is so talented as to merit rewards hugely greater than those enjoyed by others when it is the cumulative effort of the whole of that society that is overwhelmingly responsible for the progress we have made.

    A similar argument can be made concerning the proper use of our natural resources and the sustainability of our environment. If decisions on these matters are taken by democratic agencies answerable to the widest possible constituencies, rather than by a handful of self-interested operators in a short-term market which they dominate, we have a better chance of managing our natural resources to the greatest possible advantage for all of us and of our planet.

    These economic and environmental arguments reinforce the great social case for a wider diffusion of power. Freedom in society is not to be measured by the level enjoyed by that powerful minority that benefits from the greatest freedom of choice. Freedom exercised by denying freedom to others – even indirectly, through the supposedly value-free operation of the market – is not the mark of a free society. Only by diffusing power, by breaking down concentrations of power, can we optimise freedom for everyone. The supposed antithesis between freedom and social justice dissolves away when the goal is to allow everyone the maximum level of freedom that is commensurate with a similar level for others.

    A society in which power is fairly shared, in which everyone has the opportunity to contribute and where that contribution is valued and rewarded, where the benefits of living in society are treated as social goods to which everyone is entitled, will be a society which is cohesive and integrated, which feels good about itself, and which is less likely to display the anti-social behaviour that characterises those marked by alienation and growing inequality.

    These principles of democracy, social justice, and community – and the analysis by which those principles are derived – provide us with the basis for deciding an appropriate left political agenda. On issues such as who owns, controls and benefits from the economic process, what is an appropriate level of guaranteed provision of the basic requirements of a civilised life, what attention should be paid to the interests of others beyond our shores and beyond our lifetimes, how important to social cohesion and unity is a sense of fairness, we should be clear what the touchstones are.

    The demands of practical politics will inevitably require compromise and trade-offs. But each policy, each new initiative, should meet a sort of health check provided by the touchstones. The alarm bells should ring if the policy agenda is seen to fly in the face of the basic principles. If only New Labour had heard them toll!

    Adherence to a body of principle and analysis does not dictate, as is sometimes suggested, a static or backward-looking stance. It will suggest and require adjustments to existing policies as circumstances change. It will inform and stimulate new policy to deal with new issues. It will urge us on to meet the future.

    A left agenda framed in this way will exhibit many familiar features and is none the worse for that. Policies for increasing the stake of ordinary people in wealth-creation, for ensuring through redistribution that wealth is shared more fairly, for using the public purse and community responsibility to guarantee the delivery of basic services should all feature prominently.

    But we should also expect some new thinking to address new issues. A good example is the reappraisal now needed of the value of labour in the economic process. The new reality of labour’s declining importance in wealth-creation by comparison with capital-hungry technological advances means that labour by itself is no longer an adequate basis for a claim to a fair share in society’s riches. It may be that it is citizenship, not labour, that should form the basis of that claim, and that we need a new concept of citizenship to help us sustain it. Citizenship is already the basis for a large number of claims on society – equality before the law, the right to vote, and the whole range of human rights; it is not so revolutionary to propose that those basic claims should include a right to a fair share of society’s resources.

    We will also need a longer timeline and wider horizon than the market can provide if we are serious in our concern for the preservation of our environment and natural resources. Government intervention on behalf of the community is inevitable if we are to inhibit climate change, maintain a fresh and clean water supply, encourage the biodiversity on which our future may depend and establish a new relationship between humankind and our planet. We need to re-think patterns of land use, methods of food production, and the production and uses of energy. The market can help, but it will be a market that is rigged to produce particular outcomes in the public interest.

    In economic terms, we should reclaim economic policy (including monetary policy) as the proper responsibility of democratic government rather than of bankers and a proper subject for public debate. We should recognise that economics is a behavioural science and does not lend itself to mechanistic solutions. In particular, we should re-examine the role of the privately owned banks in the light of the current debacle and question whether they should ever again be allowed a virtual monopoly of credit creation. In view of the burden that bank failure has imposed on the taxpayer, should the banking function not be seen essentially as a public responsibility?

    The roles of limited liability and the joint-stock company should be re-examined, in view of the irresponsibility and disregard for the public interest that they have demonstrated. New models of industrial ownership and control should be explored, including those that would give working people a stake in their own enterprises.

    A left government should take the lead in negotiating new agreements to reform international financial and economic arrangements so that multinational capital takes a more responsible attitude to the communities in which it is invested, the volatility of foreign exchange markets and the flows of “hot money” are restrained, and global imbalances between rich and poor and between debtor and creditor nations are addressed effectively.

    In social terms, a left government should recognise the over-arching importance of making whole again a society that has been fractured by class, economic circumstance, ethnicity and religion. An inclusive society based on fairness and tolerance and one that placed a value on all its citizens would not only be the most effective antidote to crime and other anti-social behaviour but would also provide the conditions for improved economic performance. Making full employment again the prime goal would be important. An attack on economic inequality through a combination of integrated tax and income support policies would produce a more cohesive society. Health and education services that reflected the public service ethic rather than the profit motive and the market mechanism would also be helpful.

    Overseas, a return to Robin Cook’s ethical foreign policy would help to restore Britain’s standing as a force for good in the world – and the world might follow suit as a result. The same tolerance and inclusivity as was shown domestically would produce similarly constructive results internationally. We should have no more complicity in illegal invasions and torture, or in denials of human rights at home.

    Proposals like these are, of course, no more than signposts. They do not by themselves constitute anything like a comprehensive programme. Rather, they indicate the kind of new – and not so new – thinking that a left agenda that is true to the analysis offered here might encourage. We have the chance to return to our core values and goals, and to update them in the light of events that can now be seen to underpin and validate our approach to politics. We should not miss that opportunity.

    Bryan Gould

    15 March 2009

    This piece will be published in the next issue of Soundings in the UK. A shortened version is published on 27 March in an online book called The Crash, edited by Jon Cruddas MP and Jonathan Rutherford. It can be accessed at http://www.lwbooks.co.uk/ebooks/crash.html.

  • By On 14 March 2009 In British Politics Tags , , , , , ,

    Filthy Rich

    If the “filthy rich” are no longer rich, how are we now to describe them? The question is not a new one; the role of those who gouge wealth out of the rest of us by manipulating existing assets has long been an issue of controversy. It was Winston Churchill who, as Chancellor of the Exchequer, said in 1925, “I would rather see Finance less proud and Industry more content.”

    The importance of the City of London to the British economy dates back more than 150 years. As the world’s wealthiest country at that time, it was perhaps understandable that we would develop an expertise in maintaining the value of our assets rather than in creating new ones. For good or ill, the management of financial assets became a more significant feature of our economy than of any other.

    The disproportionate influence of the City was a major factor, through issues like exchange rate policy which was always rigged to favour asset-holders rather than wealth-creators, in our decline as a manufacturing country. It was only thirty years ago, however, that the policy bias really began to bite.

    The critical development was the removal of exchange controls by Ronald Reagan and Margaret Thatcher. In one bound, international capital was free – free from the irksome business of having to comply with the requirements of governments representing democratic electorates, free to roam the world in search of the most favourable (even if short-lived) investment opportunities, free to behave quite irresponsibly since regulation had become a dirty word and a duty of care was owed to no one but the shareholders.

    The City seized upon the opportunity. An expertise in managing, re-arranging, packaging, and creating new financial assets, and clipping the ticket in the process by means of huge bonuses and commissions, became the path to untold riches. So impressed were governments – and not least New Labour – by the wealth apparently created, so dazzled were they by the super-rich, that they deferred to them in every respect, getting off their knees only occasionally to heap yet more praise upon them.

    But while the filthy became rich (and some, as witness Sir Fred Goodwin, remain so), what happened to the rest of us? Most of us were left far behind in the scramble for the goodies. The gap between rich and poor widened dangerously, and our masters were left wondering as to why society was no longer as integrated as it had been.

    And while a few became rich, our economy was left dangerously dependent on the manipulation of financial assets. As the masters of the universe topple off the high wire, we now see that the British economy is worse placed to face the crisis than any other.

    For much of the global economy, the collapse of financial institutions and services is a crisis of credit and liquidity. The impact on the productive economy – where real goods and services are produced and sold – has been real enough, but when, sooner or later, the flow of funding is restored, so too will the productive economy recover.

    For us, however, the crisis is not just one of liquidity. It is one of solvency – and the solvency (and future viability) in question is that of a major part of our economy, one that we used to think would go on providing a growing proportion of our export earnings and our real national wealth and income.

    Our problems are intensified because our reliance on financial services has meant a corresponding and catastrophic decline in our capacity to produce real goods and services. The proportionate contributions of banking and financial services to our GDP and total employment have been growing while those of manufacturing have been falling and that trend had been gathering pace.

    The collapse of our banks and financial institutions means that we are left with a gaping hole in our ability to maintain our standard of living. A whole chunk of what we thought was our capacity to create wealth has literally disintegrated. Our ability to pay our way in the world may now rest on those activities like manufacturing which have been neglected and starved of investment for so long that we simply cannot breathe life back into them overnight.

    Little wonder, as the volume of the government debt incurred to bail out the banks rises, that international commentators see a bleak future for us and advise investors to get their money out of Britain and out of British assets. Little wonder that the housing market is flat on its back and that the pound has dropped like a stone.

    Even draconian action, like leaving the banks to sort out their own solvency problems and treating the creation of credit as a public rather than private responsibility, would do little to turn things round in the immediate future. Sir Fred may continue to live the high life on his pension, but the rest of us are paying a heavy price for the greed of a few and for the failures of successive governments to do the job they were elected to do – and we will go on paying that price for a long time to come.

    Bryan Gould

    14 March 2009

    This article was published in the online Guardian on 16 March 2009.

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