poverty
Humanity sits at a crossroads as politicians re-sell the politics of public austerity
‘Growth is one of the stupidest purposes ever invented by any culture.
We’ve got to have an ‘enough’.
Always ask growth of what, and why, and for whom, and who pays the cost, and how long can it last, and what’s the cost to the planet, and how much is enough.
Donella Meadows – Environmental scientist, educator and writer.
The city of Derna, Libya, hit by cyclone Daniel. Image taken 21/9/23 by Dipartimento della Protezione Civile/Flickr. Creative Commons 2.0 license
We are living in troubling times. Whilst Western vassal leaders pursue endless wars at the behest of the hegemon, cheer on death, destruction and facilitate injustice under the illusory banner of freedom and democracy, the existential threat of climate change and its consequences for humanity has been put on the back boiler, shuffled off the list of priorities. As vast resources are poured into a profitable war machine with seemingly no end of monetary resources available, humanity sits at a crossroads as snake oil politicians re-sell the politics of public austerity dressed up as pain today for future gain.
As Antonio Guterres noted in a speech at the UN last month, referring to Derna in Libya where thousands lost their lives in unprecedented flooding:
‘Derna is a sad snapshot of the state of our world – the flood of inequity, of injustice, of inability to confront the challenges in our midst.[…]
“Our world is becoming unhinged.
Geopolitical tensions are rising.
Global challenges are mounting.
And we seem incapable of coming together to respond.”
After decades of COP conferences, it is clear that commitment to action has been little more than hot air and promises which go nowhere, by politicians driven by short-term political objectives and winning the next election, not forgetting the corporate influence which coerces political decision-making. The pandemic and the war in Ukraine have changed the world in ways that are difficult to comprehend for many, and yet the political response is to forge ahead with further destruction.
As we have seen in recent weeks during the Conservative conference, and to the consternation of many environmental campaigning organisations and some in his own party, Prime Minister Rishi Sunak has delayed or abandoned critical measures to reduce emissions and approved licences for more oil and gas development.
Whilst we should have our doubts about the concept of net zero as a mechanism to cut emissions, we are without doubt currently travelling in the wrong direction, as three climate scientists discuss in an article in The Conversation:
“The time has come to voice our fears and be honest with wider society. Current net zero policies will not keep warming to within 1.5°C because they were never intended to. They were, and still are, driven by a need to protect business as usual, not the climate. If we want to keep people safe, then large and sustained cuts to carbon emissions need to happen now. That is the very simple acid test that must be applied to all climate policies. The time for wishful thinking is over.
The only way to keep humanity safe is the immediate and sustained radical cuts to greenhouse gas emissions in a socially just way.”
This will mean a global rebalancing of access to real resources, and support for the Global South to address the Western-imposed climate injustices, exploitation, poverty and inequity which has its roots in colonialism. We urgently need to sweep away the economic model which puts growth and profit over people’s lives and planetary well-being, and then greenwashes its way to more of the same and is a toxic mix of short-termism and greed which pervades government and the corporate estate.
While politicians focus on domestic issues, important as they are, we can no longer ignore the wider planetary context of our existence and the interdependent nature of the world in which we live.
The UK may be an island (still holding on to pretensions of colonial power and influence), but it is not unaffected by the geopolitical twists and turns that are currently determining a shift in the balance of power as countries in the Global South begin to reject the western economic model of exploitation, and theft of their resources.
A model which has been promoted by a US-led IMF and World Bank predicated on the lie of household budget economics, unfair trade rules and corporate domination which has overseen more exploitation as a result of its actions and the growth of poverty and inequality to prop up what has become a monstrous economic model. Indeed, what we are seeing is a Western world in turmoil at those power shifts, doing its best to hold on to the status quo, so favourable to itself.
Equally, none of us, as we are beginning to realise, are unaffected by a changing climate which will increasingly impact water resources and global food production which will most certainly affect everyone without some strategic, targeted planning, as an unstable climate becomes the norm across the planet.
Factor into this that it is the people who are causing the least emissions that suffer the most, as more extreme weather conditions, being exacerbated by the current El Nino weather system, have produced unprecedented droughts and floods.
While the West largely refuses to accept its culpability and is unwilling to offer reparations, the Global South is, without doubt, waking up to the possibility of an alternative even at this late stage. What is needed, as the economist Fadhel Kaboub suggests, is a new financial architecture – for the Global South to ‘design a coherent comprehensive vision for south-south cooperation, complete with trade, finance, and investment policies on its own terms, then welcome cooperation and partnership from the global north on fair, equitable, and transparent terms, under a new model of multilateral cooperation.’
Even as a new world order is emerging, with all the uncertainties that occur in times of change, we have politicians in the UK and elsewhere still behaving like the colonialists of old, still able to dictate the rules of engagement.
Worse, they are still stuck with their heads in the sand, bleating about whether action on climate change or to address global inequity is currently affordable. Indeed, cuts to foreign aid announced in 2020 have been attributed to the government’s aim to cut public expenditure.
Even an article published in the Guardian in August quoting Katy Chakrabortty from Oxfam repeated the nonsense suggesting that “The UK government has tried to give what it could, but it has no emergency reserves to dip into.”
Oxfam, like so many other charities, mitigating a rotten economic model rather than challenging it, fails at the first hurdle by implying that the government has no money of its own and must pull in its horns and get the public finances in order.
At the same time, both parties are fixated on future growth as the mechanism to manage public finances and create future funding for public services. A morally indefensible use of a lie to justify cuts at home and abroad. On that narrative, we are certainly done for.
Whether it’s the yearly ‘we’ve run out of money’ joke surrounding the US debt ceiling, or an EU which, when it chooses, imposes rules on deficit and debt (unless there is a pandemic or a war), or indeed the UK where Mrs Thatcher is still alive and well, dictating to the left and right her mantra ‘There is no such thing as public money; there is only taxpayers’ money’, orthodoxy rules. If it weren’t so serious, it would be laughable.
Fiscal discipline is the guiding force for decision-making, wherever you look. Certainly, over the last few months which culminated in the latest conference season of the usual hot air, lies and propaganda on all sides, that narrative has been predominant, with institutions and the media doing their usual good job at keeping the public in the dark. The willing participation in a lie about how the government spends to deceive an ignorant public.
This is a common thread which pervades economic policy and has done so for decades, pursued by successive governments both Labour and Tory.
In a speech in 2012, Rachel Reeves said ‘Sound public finances will always be the indispensable platform for delivering better jobs, better services, and a strong, growing economy.
What I want to demonstrate this morning is that being trusted with the nation’s finances and building a stronger, fairer, Britain are imperatives that are not only compatible they are inseparable’.
Then last month in a recent article in the FT she wrote: ‘During my time as an economist at the Bank of England, I learnt a very simple lesson: your sums must always add up.’ Ergo she ‘will never spend what we cannot afford.’
Reeves still backing the austerity horse as if there were a scarcity of money, and as if the government’s role is to manage the finances and balance the books, rather than to provide stability through its spending and taxation policies throughout the economic cycle, or when disasters strike, to ensure that the public infrastructure meets the needs of all, and that there is a fair and equitable distribution of real resources. These are the starting blocks for a functioning economy.
Then, predictably, with the same message in her speech in Liverpool last week, whilst committing to ‘rebuild Britain,’ she vowed to deploy ‘iron clad fiscal rules’, stupidly comparing the state finances to her own mum’s, sitting at the kitchen table doing her accounts.
So, Labour’s big plan is to rebuild Britain but impose fiscal discipline at the same time, two clearly mutually exclusive propositions. As Professor Mitchell put it in a recent blog aptly entitled ‘British Shadow Chancellor promising the impossible:’
“The general problem with fiscal rules, […] is the government of the day does not have the capacity to directly control all variables that come together to determine the final fiscal outcome.
The point is that essentially non-government, spending and saving decisions, determine economic activity in tandem with government spending and tax decisions; and tax revenue and welfare spending are functions of that economic activity.
So, if the non-government sector reduces its overall spending, then other things being equal, economic activity falls and tax revenue declines, and as unemployment rises, welfare spending also increases.”
So much for fiscal rules and common sense.
A functioning economy needs good public services and a well-educated workforce to service it and a decade of austerity has left the sector in a state of decay. Capital investment in such things as schools and hospitals is all very well and good, but such infrastructure also requires nurses, doctors, teachers and other public sector workers to run them. Reeves’ big idea to borrow for capital investment and cover day-to-day spending through tax receipts is just more of the same old nonsense couched in household budget economics and ignores the fundamentals. That government is the currency issuer and spends the money into existence first and from that everything else flows. Rebuilding Britain starts there.
In a nutshell, with Labour at the helm spending is to be predicated on the holy grail of future growth to raise the taxes to pay for public services. Can we wait that long? How many will die in the wait?
And so much for rebuilding Britain, as if the future can be predicted with certainty. A former Bank of England economist clearly too clever by half and a plan with a potential dead end. On the basis of previous and current experience, from financial crashes to pandemics and wars, the future has proved itself to be less than certain, indeed unknowable.
In the meantime, whilst we wait, the waters in every sense will continue to rise. Indeed, the reality is that without adequate spending and appropriate legislation now to address a decaying public infrastructure, deliver a green transition and protect people from the worst excesses of a world ruled by corporate diktat, the future will be very bleak.
The Tories, also on the same old track at their Conference, ‘sound money or run out of money under Labour’, will, apparently, ‘always protect public services’ (yes Jeremy Hunt actually said that), but they are ‘always honest about the taxes that pay for them.’ Just those few words are instructive about their intentions.
This of course is nothing new. We can trace this neoliberal narrative way back to the 70s and Callaghan’s Labour government. However, George Osborne with his Thatcherite credentials gave us an austerity package that cut spending on public infrastructure and services, cut welfare spending, imposing sanctions and other destructive mechanisms wrecking people’s lives, whilst at the same time creating a fractured and divided society. The pandemic brought home to the nation the terrible consequences of those cuts to spending and we are still paying the price.
Putting it politely, the nation is being stuffed by politicians fixated on fiscal discipline to serve their own political objectives or prove they are fiscally responsible. Instead of using the power of the public purse to rebuild a fairer Britain, oversee a more equitable distribution of real resources and a green transition through targeted spending, taxation and legislative policies, what we have, as Matt Kennard describes in his book ‘Silent Coup’, is the unstoppable rise of global corporate power, with the full compliance of government. With both Labour and Tory promising yet more partnerships with big business in one way or another, the die is being cast.
In a saner world, where democracy counted and where the government put the interests of its citizens and the planet first, before those of its corporate mates, we could do so much better. The heart of change lies in understanding the power of the pound. And yet we seem incapable of even engaging with monetary reality, not even to ensure a future for our children.
Every day the evidence piles up about what happens when governments use the lie of scarcity of money to excuse their cuts to spending or to delay action. From a collapsing NHS and social care system, schools and other public buildings that are falling down due to faulty construction and lack of adequate maintenance, local authorities facing bankruptcy and all that means for local service provision, food banks, rising homelessness, the list goes on. And still the lies just keep spewing from their mouths.
Political manoeuvring to discredit the party in power or the party in waiting, while Rome burns, is the name of the game. Not only is it shameless and shameful, it is a political choice unconnected to the state of the public finances. That surely should be the wake-up call for all.
When all is said and done, the tax and spend model is destroying the infrastructure that sustains a functioning economy and is, to be frank, killing people. And yet politicians are doubling down on that narrative as if there were no alternative.
An understanding of the power of the pound, the role of government as currency issuer, imposer of taxes and legislator is the starting place. But, at heart, it is the political decisions that derive from that monetary framework that really count. Is it so hard to understand that the real constraints to spending are not financial but real resources, followed by the decisions about how and to whom they are distributed to create equity and address the key challenges we face? On current experience, we have seen exactly how that system works for the richest and most powerful.
Regrettably, it is clear how the political establishment views citizens. Outside of their inclusive rhetoric at election or Conference time, we are just expendable pieces on a chess board, pawns in the great neoliberal game of securing power and wealth for the few.
Here’s what we could do with an informed public, a functioning democracy and a political class that served citizens instead of itself and its corporate masters. It starts here. Pass it on.
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Dalet
The story behind Fiat Socialism
By Carlos García Hernández
“It’s not three, it’s four” – I remember distinctly when I had that thought. Intuition hit me. I was writing A Chinese Socialist Consensus. It was August, 2021. I was reflecting on Deng Xiaoping’s visit to Washington on January 1st, 1979, and I wrote:
“To approach China’s relations with the US from a vantage point from which to advocate the imminent collapse of capitalism would have made no sense.
Deng knew that such a collapse was not going to happen. This allowed him to go beyond the Trinity Formula enunciated by Marx in chapter 48 of the third volume of Capital, according to which there are only three sources of income: capital-profit, land rent and labour-wages. Deng knew that there were not three sources but four, since to Marx’s list public expenditure must be added as a source of profit realization.”
This is the way that number four entered Fiat Socialism. Up to that point, Fiat Socialism was little more than a nascent project. A cluster of articles without structure. But now things had changed. The presence of number four gave at least a glimpse of a structure.
Number four, represented by dalet (ד), the fourth letter in Hebrew, the letter of poverty. Only one leg to sustain itself. In that sense, dalet can also be understood as necessity, as the things without which we are always poor, our basic necessities for everyday life. This resonated with me on so many levels.
Now a first name came to mind, Bill Mitchell. In 2017 he had published an entry in his blog under the title Stuart Chase – a visionary ahead of his time. As the obedient self-declared disciple of Bill Mitchell I was, I always read Bill Mitchell’s blog as part of my breakfast. That’s how I discovered Stuart Chase’s book The Road We Are Traveling, written in 1942. There he wrote about the goals of economic policy as the starting point of any reasonable government. The goals as the starting point. What were those goals? Precisely our basic necessities for everyday life: guaranteed and permanent full employment; full and prudent use of natural resources; a guarantee of food, shelter, clothing, health services and education to every citizen; social security in the form of pensions and subsidies; a guarantee of decent labour standards. Should we call a society in which these five goals are achieved simultaneously and permanently a socialist society? In my opinion, the answer to this question is yes. As a matter of fact, only socialist societies were close to achieving these goals, from permanent full employment by law to all the other issues pointed out by Chase.
This didn’t only resonate with me, it became an outcry.
More names came to mind: Rudolph Hilferding, Friedrich Adler, Otto Bauer. The main authors of Austromarxism. This was what they had in mind. Later other names came up (Chris Williamson, David Graeber) but first was the problem of the structure. I had to build a structure with this material. That’s when the figure of Immanuel Kant popped up. He was the unifying foundation of all the above. Many years before, I had read an old book I bought at the second hand book store in my street. It was a book about Schelling and there the author, Steffen Dietzsch, wrote: “Kant is not the solution, but there is no solution without Kant”. Now I knew he was right.
I dove into Kant and what I found was dalet. Kant’s schema is represented by the number four. Dr. Arthur Holmes used to refer to it in his lectures. A reference, a general principle, a rule and a case. That is Kant’s schema in four. Next to it, Hegel’s schema in three (thesis, antithesis and synthesis) paled into nonsense. Kant’s schema, the landmark of Austromarxism, was superior in all respects. Fiat Socialism was going to adopt this schema in four as its structure.
As a reference, I took the five goals of Stuart Chase and I renamed them as the goals of socialism, the starting point. As a general principle, I took Bill Mitchell’s modern monetary theory in the role of method to achieve full employment of resources without creating inflation and a subtitle was added to the name of the book, Fiat Socialism. Achieving the goals of socialism through modern monetary theory. As a rule, I took Kalecki’s profit equation and as a case I took Spain.
I decided to analyze Spain because it is my country, it’s the land I know best and I care about the most. The reason why I chose Kalecki’s profit equation was also Bill Mitchell.
Bill Mitchell declares himself a Kaleckian Marxist. This made me discover Kalecki’s masterpiece Political Aspects of Full Employment and later the profit equation. In Political Aspects of Full Employment, Kalecki writes about a “target economy” orientated from the onset to the desired targets. This was in perfect alignment with Kant’s schema and the goals of socialism as reference. The profit equation is this one:
Net profits = Investment in fixed capital + capitalists’ consumption + public deficit – workers’ savings
+ position of trade balance
I mark public deficit in red because it’s the decisive factor for Fiat Socialism. Let’s remember that there is no solution without Kant, but Kant himself is not the solution. This took me to a preliminary question of gnoseological character. The schema in four that I had constructed following Kant’s steps was inductive and Kant’s schema was deductive. Therefore, Kant takes us from the universal to the particular and he extracts particular truths from general principles independently from experience. Fiat Socialism does the opposite, it is the particular experiences from which general principles are extracted. This is to be seen from the beginning, when Fiat Socialism states practical results as the goals of macroeconomic activities. Public deficits are at the center of it. Fiat Socialism proposes that, beyond the existence or not of private entrepreneurship and beyond the economic decisions of the private sector, the government must always guarantee the five goals of socialism by means of sufficient public spending. This a posteriori decision by the government is possible because of the fiat character of the national currencies studied by modern monetary theory. This question became the introduction to the book.
One last chapter draws the conclusions of the work. A name stands out, David Graeber. Fiat Socialism reclaims the concept of baseline communism reflected in David Graeber’s book Debt by which the fundamental question of communism is not the ownership of the means of production but “who has access to what sorts of things and under what conditions”. This is the right way to interpret the maxim “from each according to their abilities, to each according to their needs” expounded by Marx.
The book has two more essential parts, a foreword by Chris Williamson and a collection of articles. For me is a huge honour that such a relevant figure like Chris Williamson, author of Ten Years Hard Labour, was generous enough to write the foreword. This not only improves the quality of the whole book, but it also allows my name to be reckoned with the legacy of Chris Williamson and I am deeply grateful to him.
The collection of articles is called euro delendus est. The project of Fiat Socialism was gestated in the form of press articles that I normally end with the sentence euro delendus est, the euro must be destroyed. In the articles, the necessity of monetary sovereignty in order to propose any kind of socialist transformation of society is explained through current affairs. A Chinese Socialist Consensus is one of those articles. Therefore, euro delendus est is also a cornerstone of Fiat Socialism. Many of the articles have been curated and published by Claire Jackson-Prior at the web portal of The Gower Initiative for Modern Money Studies. Claire Jackson-Prior also corrected my English translation of Fiat Socialism from the original in Spanish. Working together with Claire Jackson-Prior was a wonderful experience and I thank her for her kindness, her dedication and the extraordinary quality of her work.
This is the story behind Fiat Socialism, now available to the general public. It is a story about dalet, the representation of number four, poverty and necessities, but also a word that means door. In that sense, Fiat Socialism tries to be a door for humanity to abandon poverty and enter a socialist society where the basic needs of everybody and the care of nature are permanently guaranteed.
Euro delendus est
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Save the date: London (UK) in May 2024
I’m pleased to share a ‘save the date’ for study tour: London (UK) in May 2024.
Here’s the link: https://cihcanada.ca/calendar-by-month/calendar-by-list/
For this particular event, there will be two components: a housing tour for 2.5 days, and then a homelessness tour for 2.5 days. We expect some people will choose to register for both, while others will pick just one.
The registration fee for each component is expected to be CA$900 + applicable taxes.
Questions pertaining to registration and logistics should be directed to Mary Clarke: mclarke@chra-achru.ca
Questions pertaining to content should be directed to me at falvo.nicholas@gmail.com
Save the date: London (UK) in May 2024
I’m pleased to share a ‘save the date’ for study tour: London (UK) in May 2024.
Here’s the link: https://cihcanada.ca/calendar-by-month/calendar-by-list/
For this particular event, there will be two components: a housing tour for 2.5 days, and then a homelessness tour for 2.5 days. We expect some people will choose to register for both, while others will pick just one.
The registration fee for each component is expected to be CA$900 + applicable taxes.
Questions pertaining to registration and logistics should be directed to Mary Clarke: mclarke@chra-achru.ca
Questions pertaining to content should be directed to me at falvo.nicholas@gmail.com
Rethinking ‘Crowding Out’ and the Return of ‘Private Affluence and Public Squalor’
Abstract
This article traces the history of ‘crowding out’, and its use as a justification for austerity and state deflation from its origins in the 1920s to its latest post-2010 incarnation. It examines why governments have kept turning to austerity and continue to justify it on the grounds that public sector activity crowds out more productive private activity, despite the accumulated evidence that this traditional pro-market formulation has failed to deliver its stated goals. It examines three other embedded forms of crowding out that have been highly damaging—leading to weakened social resilience and more fragile economies—but which have been ignored by both governments and mainstream political economists.
THE IDEA OF ‘crowding out’ has long been one of the central canons of pro-market economic theory. The concept was first promoted at an international conference of officials in Brussels in 1920 to discuss ‘sound economic policy’ in the postwar years. Given limited capital, asked the British delegation, will ‘Governments or private industry’ use it more productively? ‘The answer is … private industry’.1 This argument was then placed at the heart of a strategy of state-imposed austerity through cuts in public spending and wages applied in Britain and other nations in the early 1920s.
Following the short-lived boom at the end of the 1914–18 war, Britain, along with much of Europe, faced growing economic turbulence and surging dole queues, along with high levels of public debt from funding the war. With heightened public expectations of social reform, the coalition government Prime Minister, David Lloyd George, initially promised social reconstruction through higher state spending, especially on homes and schooling. Simultaneously, the Prime Minister faced demands from the owners of capital for a return to the pre-war status quo.
During the war, large chunks of the economy had been taken under state control, with the subordination of private profit to steer resources to the war effort. While the public was calling for a better society in return for the sacrifices of war, business leaders were demanding the dismantling of the heightened state intervention of the war years, lower rather than higher public spending, and the reversal of the strengthened bargaining power labour had enjoyed during the war years. Political and industrial clashes were the inevitable outcome.
Deepening recession and the fear of mounting unrest, fuelled by the shadow of Bolshevism, induced panic among the ruling political and corporate classes. In response, the government dropped its commitment to social renewal in favour of a programme of austerity, or state induced deflation. This involved severe cuts in public spending, including reductions in pay for police, teachers and other public servants—cuts dubbed the ‘Geddes axe’ on the advice of a committee chaired by Sir Eric Geddes, the Minister of Transport.
Economic revival, it was argued, depended on lower spending by the state, lower wages and a return to a balanced budget, with state spending matched by tax revenue. If the state had borrowed more to meet its high-profile postwar pledges on housing and education, it was argued, more efficient and more pro-value private activity would have been ‘crowded out’. The measures, based on the idea of an automatic trade-off between state and private activity, were, it was asserted, simply sound economics based on fundamental laws—and not to be tinkered with—of how the economy worked. These ‘laws’ drew on the doctrines of the early classical economists that free markets and minimal state intervention would bring equilibrium, stability, and optimal growth.
Austerity Britain
Since the 1920s, governments have repeated this strategy of austerity—based on the doctrine of crowding out—on several occasions. These include the early 1930s, the 1970s, the 1980s and the post-2010 decade. Despite the time gaps, these episodes have been marked by almost identical justifications and remarkably similar impacts.
One of the constant themes has been a replay of the balanced budget theory of the 1920s and 1930s. Another has been that public spending cuts and lower wages would release scarce resources for the private sector. In 1975, two Oxford economists, Roger Bacon and Walter Eltis, argued in Britain’s Economic Problem: Too Few Producers that Britain’s economic plight stemmed from too many social workers, teachers and civil servants and not enough workers in industry and commerce. Buying into this argument, the new Chancellor of the Exchequer, Geoffrey Howe, told the House of Commons in 1979, ‘[we need to] roll back the boundaries of the public sector’ in order ‘to leave room for commerce and industry to prosper’.2 In June 2010, launching another rolling programme of spending cuts in his first budget, the Chancellor, George Osborne, repeated this claim that public spending ‘crowds out’ private endeavour.
Again, the presumption was that a more robust economy requires more private and less state activity, along with the counter-intuitive idea that austerity was the route to growth and enterprise. The somewhat crude ‘private sector good, public sector bad’ mantra was widely echoed. ‘The next government is going to have many challenges’, wrote the Times in 2010, ‘but tackling a public sector that has become obese … is going to have to be a priority’.3 Channel 4 went a step further with a programme describing state spending as a ‘Trillion pound horror story’, while The Spectator magazine called it ‘the most important programme to appear on British television this year’.4
So, does the austerity/crowding out theory stand up? And if not, why has it been so widely applied? The accumulated evidence shows that it is at best a significant oversimplification of the way economies work. Crowding out of private by too much public sector activity might apply when an economy is operating at full capacity and employment, but the doctrine has only been applied in situations of economic crisis, high unemployment and inadequate demand. Even at full capacity, there is still a choice to be made about the appropriate balance between public and private activity.
Heterodox economists, such as John Hobson in the early twentieth century, had offered an alternative route to growth and out of crisis. His work, which had an important influence on J. M. Keynes, showed that recessions were the product of a shortfall of demand stemming from ‘under-consumption’ and ‘over-production’ triggered in large part by a lack of purchasing power among low- and middle-income households arising from extreme levels of wealth and income inequality.5
In the 1920s and early 1930s, slamming on the public spending brakes proved counter-productive. It cut demand and slowed recovery, with private as well as public activity ‘crowded out’. The strategy had minimal effect on improving the state of the public finances, but led to a retreat on social programmes, while unemployment never fell below one million in the inter-war years.
A hundred years on, the Osborne cuts have had a very similar, and predictable impact. They also came with a new label: ‘expansionary austerity’, but an identical message—that a smaller state would generate greater stability via lower interest rates, greater confidence and faster growth. In the event, the strategy turned out to be an additional assault on an already weakened economy, with the cuts in public spending having little or no impact on expanding private activity, while damaging the quality of Britain’s social infrastructure and weakening its system of social support.6 One critic, David Blanchflower, a former member of the Bank of England’s Monetary Policy Committee, concluded that, by destroying productive capacity and making households worse off, the austerity programme simply ‘crushed the fragile recovery’.7 In one estimate, rolling cuts in public spending were said to have shrunk the economy by £100 billion by the end of the decade.8 Another study showed that if real-terms growth in public spending at the 3 per cent level inherited in 2010 from the previous Labour government had been maintained and paid for by matching tax rises, Britain’s government debt burden would still have been lowered by 2019.9
None of this means that crowding out never occurs. It just takes very different forms from the process advanced in neoliberal thinking. There are three alternative and distinct types of crowding out at work that have consistently had a malign effect on both the economy and wider society, yet have not been systematically addressed in the mainstream economic literature or by relevant government departments.10 First, the idea that markets know best in nearly all circumstances has shifted the balance between private and public activity too far in favour of the former, thus crowding out the latter. Second, an increasing share of private activity has been geared less to its primary function—to building economic strength and creating new wealth—than to boosting personal corporate rewards in a way which fuels inequality, weakens economies and crowds out economic and social progress. Third, there is the way the return of the ‘luxury capitalism’ of the nineteenth century (triggered by the application of pro-inequality neoliberal policies) has come at the expense of the meeting of essential material and social needs.
The balance between private and public activity
The simple notion—private good, public bad—has long been overplayed by neoliberal theorists. Both have a role to play and the real issue is getting the right balance between the two. State spending plays a crucial role not just in meeting wider social goals, but in supporting economic dynamism and stability. Private corporations do not operate in a vacuum. The profits they make, the dividends they pay and the rewards received by executives stem from a too-often unacknowledged interdependence with wider society, including the state. Business provides jobs and livelihoods, while responding to consumer demand. Society provides the workforce, education, transport, multiple forms of inherited infrastructure and often substantial state subsidies.
History shows that while bad decisions are too common, carefully constructed and evidence-based state intervention can have a highly positive impact. Government responsibility lies in helping to shape markets, prevent market abuse, support innovation, share the burden of risk-taking in the development of new technologies, promote public and private wealth creation and protect citizens. It is now time to ask if these functions—from market regulation to citizen protection—have been underplayed.
Britain is a heavily privatised and weakly regulated economy. Among affluent nations, it has a comparatively low level of public spending, including social spending and public investment in infrastructure, relative to the size of the economy.11 A relatively low portion of the economy is publicly owned.12 With the cut-price sell-off of state assets, from land to state-owned enterprises, the share of the national wealth pool held in common has fallen sharply from a third in the 1970s to less than a tenth today. This ongoing privatisation process has also greatly weakened the public finances. Britain is one of only a handful of rich nations with a deficit on their public finance balance sheet, with net public wealth—public assets minus debt—now at minus 20 per cent of the economy. The balance stood at plus 40 per cent in 1970. This shift has greatly weakened the state’s capacity to handle issues like inequality, social reconstruction and the climate crisis.13
The emphasis on private capital as the primary engine of the economy has failed to deliver the gains promised by its advocates. Since the counter-revolution against postwar social democracy from the early 1980s, and especially since 2010, levels of private investment, research and development, and productivity—key determinants of economic strength—have been low both historically and compared with other rich countries. Several factors account for Britain’s relative private ‘investment deficit’. They include Britain’s low wage history, with abundant cheap labour dulling the incentive to invest, and the perverse system of financial incentives that makes it more attractive for executives to line their pockets than build for the future. There is also the preference given to capital owners—an increasingly narrow group—in the distribution of the gains from corporate activity. In the four years from 2014, FTSE 100 companies generated net profits of £551 billion and returned £442 billion of this to shareholders in share buy-backs and dividends, leaving only a small portion of these gains to be used for private investment and improved wages that support economic strength.14 With UK corporations increasingly owned by overseas institutional investors, such as US asset management firms, little of this profit flow has ended up in UK pension and insurance funds and back into the domestic economy.
Some forms of financial and business activity have played a destructive role. In a remarkable parallel with the 1929 stock market crash and the Great Depression, the 2008 financial crash and the financial crisis that followed were classic examples of the impact of uncontrolled market failure. They were the product of tepid regulation of the financial system that turned a blind eye to a lethal cocktail of excessive profiteering and reckless gambling by global finance. It was only public intervention on a mass scale to bail out the banks—and many of the architects of the crash—that prevented an even greater crisis.
Claims about the overriding benefits of the outsourcing of public services to private companies have been exposed by a succession of scandals involving large British companies like G4S and Serco and by damning reports of the consequences of outsourcing in the NHS, the probation service and army recruitment.15 Such claims were also undermined by the collapse of two giant multi-billion-pound behemoths—the UK construction company Carillion and the public service supplier Interserve (which employed 45,000 people in areas from hospital cleaning to school meals). In the ten years to 2016, Carillion, sunk by self-serving executive behaviour and mismanagement, liked to boast about another malign form of crowding out—of how it raised dividend payments to shareholders every year, with such payments absorbing most of the annual cash generation, rather than building resilience.
Extraction
A second form of crowding out stems from the return of a range of extractive business mechanisms aimed at capturing a disproportionate share of the gains from economic activity. While some of today’s towering personal fortunes are a reward for value-creating activity that brings wider benefits for society as a whole, many are the product of a carefully manipulated, and largely covert, transfer of existing (and some new) wealth upwards. Early economists, such as the influential Italian economist Vilfredo Pareto, warned—in 1896—of the distinction between ‘the production or transformation of economic goods’ and ‘the appropriation of goods produced by others.’16 Such ‘appropriation’ or ‘extraction’ benefits capital owners and managers—those who ‘have’ rather than ‘do’—and crowds out activity that could yield more productive and social value. It delivers excessive rewards to owners and executives at the expense of others, from ordinary workers and local communities to small businesses and taxpayers.17
Extraction has been a key driver of Britain’s low wage, low productivity and growth sapping economy. Many large companies have been turned into cash cows for executives and shareholders. A key source of this process has been the return of anti-competitive devices described as ‘market sabotage’ by the American heterodox economist Thorstein Veblen over a century ago’.18 In contrast to the claims of pro-market thinkers, corporate attempts to undermine competitive forces have been an enduring feature in capitalism’s history, contributing to erratic business performance and economic turbulence.
Far from the competitive market models of economic textbooks, the British—and global—economy is dominated by giant, supranational companies. Key markets—from supermarkets, energy supply and housebuilding, to banking, accountancy and pharmaceuticals—are controlled by a handful of ‘too big to fail’ firms. The oligopolistic economies created in recent decades are, despite the claims of neoliberal theorists, a certain route, as predicted by many distinguished economists, from the Polish economist Michal Kalecki, to the Cambridge theorist, Joan Robinson, to weakened competition, extraction and abnormally high profit. This new monopoly power, according to one study of the US economy, has been a key determinant of ‘the declining labor share; rising profit share; rising income and wealth inequalities; and rising household sector leverage, and associated financial instability.’19
Although they helped pioneer popular and important innovations, the founders of today’s monolithic technology companies have turned themselves from original ‘makers’ into ‘takers’ and ‘predators’. Companies like Google and Amazon have entrenched their market power by destroying rivals and hoovering up smaller competitors, a form of private-on-private crowding out of small by more powerful firms. Multi-billionaires in large part because of immense global monopoly power, the Google, Amazon and Facebook founders can be seen as the modern day equivalents of the American monopolies created by the ‘robber barons’ such as J. D. Rockefeller, Andrew Carnegie and Jay Gould through the crushing of competitors at the end of the nineteenth century.
The House of Have and the House of Want
The third type of crowding out follows from the way the growth of extreme opulence for the few has too often been bought, in effect, at the expense of wider wellbeing and access to basic essentials for the many. Today’s tearaway fortunes are less the product of an historic leap in entrepreneurialism and new wealth creation than of the accretion of economic power and elite control over scarce resources. It is a paradox of contemporary capitalism that as societies get more prosperous, many fail to ensure the most basic of needs are fully met.
In Britain, elements of the social progress of the past are, for a growing proportion of society, being reversed. Compared with the 1970s, a decade when inequality and poverty levels were at an historic low, poverty rates have more or less doubled, while both income and wealth have become increasingly concentrated at the top. Housing opportunities for many have shrunk and life expectancy rates have been falling for those in the most deprived areas. Mass, but hit and miss, charitable help has stepped in to help fill a small part of the growing gaps in the state’s social responsibilities. While Britain’s poorest families have faced static or sinking living standards, the limits to the lifestyle choices of the rich are constantly being raised. The private jet, the luxury yacht, the staff, even the private island, are today the norm for the modern tycoon.
In heavily marketised economies with high levels of income and wealth concentration, the demands of the wealthy will outbid the needs of those on lower incomes. More than one hundred years ago, the Italian-born radical journalist and future British MP, Leo Chiozza Money, had warned, in his influential book, Riches and Poverty, that ‘ill-distribution’ encourages ‘non-productive occupations and trades of luxury, with a marked effect upon national productive powers.’20 The ‘great widening’ of the last four decades has, as in the nineteenth century, turned Britain (and other high inequality nations such as the US) into a nation of ‘luxury capitalism’. The pattern of economic activity has been skewed by a super-rich class with resources deflected to meeting their heightened demands.
While Britain’s poorest families lack the income necessary to pay for the most basic of living standards, demand for superyachts continues to rise. The UK is one of the highest users of private jets, contributing a fifth of related emissions across Europe. The French luxury goods conglomerate, LVMH—Louis Vuitton Moët Hennessy—is the first European mega-company to be worth more than $500 billion. Resources are also increasingly directed into often highly lucrative economic activity that protects and secures the assets of the mega-rich. Examples include the hiring of ‘reputation professionals’ paid to protect the errant rich and famous, the use of over-restrictive copyright laws, new ways of overseeing and micromanaging workers, as well as a massive corporate lobbying machine.
The distributional consequences of an over-emphasis on market transactions is starkly illustrated in the case of the market for housing. Here, a toxic mix of extreme wealth and an overwhelmingly private market has brought outsized profits for developers and housebuilders at the cost of a decline in the level of home ownership, a lack of social housing and unaffordable private rents. The pattern of housebuilding is now determined by the power of the industry and the preferences of the most affluent and rich. Following the steady withdrawal of state intervention in housing from the 1980s—with local councils instructed by ministers to stop building homes—housebuilders and developers have sat on landbanks and consistently failed to meet the social housing targets laid down in planning permission. Instead of boosting the supply of affordable social housing, scarce land and building resources have been steered to multi-million-pound super-luxury flats, town houses and mansions. In London, Manchester and Birmingham, giant cranes deliver top end sky-high residential blocks, mostly bought by speculative overseas buyers and left empty. The richest crowd out the poorest, or as Leonard Cohen put it, ‘The poor stay poor, the rich get rich. That’s how it goes, everybody knows.’
There has been no lack of warnings of the negative economic and social impact of economies heavily geared to luxury consumption, most of them ignored. Examples include the risk of the coexistence of stark poverty and extreme wealth: of what the radical Liberal MP, Charles Masterman, called, in 1913 ‘public penury and private ostentation’, and what the American radical political economist Henry George had earlier called ‘The House of Have and the House of Want’.21 Then there was the influential 1950s’ warning from the American economist, J. K. Galbraith, of ‘private affluence and public squalor’.22 ‘So long as material privation is widespread’, wrote the economist, Fred Hirsch, in the 1970s, ‘the conquest of material scarcity is the dominant concern.’23
For much of the last century, policy makers have seen wealth and poverty as separate, independent conditions. But that view has always been a convenient political mistruth. If poverty has nothing to do with what is happening at the top, the issue of inequality can be quietly ignored. Yet, the scale of the social divide and the life chances of large sections of society are ultimately the outcome of the conflict over the spoils of economic activity and of the interplay between governments, societal pressure and how rich elites—from land, property and private equity tycoons to city financiers, oil barons and monopolists—exercise their power. In recent decades, the outcome of these forces has favoured the already wealthy, with the shrinking of the economic pie secured by the poorest. As the eminent historian and Christian Socialist, R. H. Tawney, declared in 1913, ‘What thoughtful people call the problem of poverty, thoughtful poor people call with equal justice, a problem of riches.24
Conclusion
These three alternative forms of crowding out have imposed sustained harm on social and economic resilience. Despite this, governments have continued to apply a long-discredited austerity-based theory of crowding out, while ignoring other, arguably more damaging forms of the phenomena. The latest application of the original theory since 2010 has inflicted ‘vast damage on public services and the public sector workforce’, without delivering the declared goal of ‘crowding in’ through faster recovery and growth, or improved public finances.25
Britain is currently being subjected to yet another wave of austerity, with the 2022 Autumn Statement announcing a new package of projected public spending plans, higher taxes and lower public sector real wages, again in the name of fixing the public finances and boosting growth.26 It’s the same short-term, narrowly focussed strategy that, by digging the economy into a deeper hole and cutting public investment, has failed time and again over the last 100 years.
Meanwhile, other damaging forms of the crowding out of key public services, value-adding economic activity and the meeting of vital needs, driven by over-reliance on markets, excess inequality and dubious private-on-private activity, are simply ignored or dismissed.
Notes
1 C. E. Mattei, The Capital Order, Chicago IL, University of Chicago Press, 2022, p. 156. 2 House of Commons, Hansard, 12 June 1979, col 246. 3 J. Tomlinson, ‘Crowding out’, History and Policy, 5 December, 2010; https://www.historyandpolicy.org/opinion-articles/articles/crowding-out4 J. Delingploe, ‘Britain’s trillion pound horror story’, The Spectator, 13 November, 2010. 5 J. A. Hobson, The Industrial System, London, Longmans, Green & Co., 1909. 6 C. Breuer, ‘Expansionary austerity and reverse causality: a critique of the conventional approach’, New York, Institute for New Economic Thinking, Working Paper no. 98, July 2019. 7 D. Blanchflower, Not Working, Princeton NJ, Princeton University Press, 2019, p. 172. 8 A. Stirling, ‘Austerity is subduing UK economy by more than £3,600 per household this year’, New Economics Foundation, 2019; https://neweconomics.org/2019/02/austerity-is-subduing-uk-economy-by-more-than-3-600-per-household-this-year9 R. C. Jump, J. Michell, J. Meadway and N. Nascimento, The Macroeconomics of Austerity, Progressive Economy Forum, March 2023; https://progressiveeconomyforum.com/wp-content/uploads/2023/03/pef_23_macroeconomics_of_austerity.pdf10 See S. Lansley, The Richer, The Poorer, How Britain Enriched the Few and Failed the Poor, Bristol, Policy Press, 2022. 11 K. Buchholtz, Where Social Spending is Highest and Lowest, Statistica, 28 January, 2021; https://www.statista.com/chart/24050/social-spending-by-country/12 OECD, The Covid-19 Crisis and State Ownership in the Economy, Paris, OECD, 2021; https://www.oecd.org/coronavirus/policy-responses/the-covid-19-crisis-and-state-ownership-in-the-economy-issues-and-policy-considerations-ce417c46/13 L. Chancel, World Inequality Report, World Inequality Database, 2021. 14 High Pay Centre/TUC, How the Shareholder-first Model Contributes to Poverty, Inequality and Climate Change, TUC, 2019. 15 National Audit Office, ‘Transforming Rehabilitation: Progress Review’, National Audit Office, 1 March 2019; https://www.nao.org.uk/reports/transforming-rehabilitation-progress-review/16 V. Pareto, Manual of Political Economy, New York, Augustus M. Kelley, 1896. 17 Lansley, The Richer, The Poorer. 18 T. Veblen, The Theory of the Leisured Classes, New York, The Modern Library, 1899; T. Veblen, The Engineers and the Price System, New York, B. W. Huebsch, 1921. 19 I. Cairo and J. Sim, Market Power, Inequality and Financial Instability, Washington DC, Federal Reserve, 2020. 20 L. Chiozza Money, Riches and Poverty, London, Methuen, 1905, pp. 41–3. 21 C. Masterman, The Condition of England, Madrid, Hardpress Publishing, 2013; H. George, Progress and Poverty, New York, Cosimo Inc., 2006, p. 12. 22 J. K. Galbraith, The Affluent Society, Boston, Houghton Mifflin, 1958, ch. 23. 23 F. Hirsch, The Social Limits to Growth, Abingdon, Routledge & Kegan Paul, 1977, p. 190. 24 R. H. Tawney, ‘Poverty as an industrial problem’, inaugural lecture at the LSE, reproduced in Memoranda on the Problems of Poverty, London, William Morris Press, 1913. 25 V. Chick, A. Pettifor and G. Tily, The Economic Consequences of Mr Osborne: Fiscal Consolidation: Lessons from a Century of UK Macroeconomic Statistics, London, Prime, 2016; G. Tily, ‘From the doom loop to an economy for work not wealth’, TUC, February, 2023; https://www.tuc.org.uk/research-analysis/reports/doom-loop-economy-work-not-wealth26 Chancellor of the Exchequer, Autumn Statement, 2022, Gov.uk, 17 November, 2022; https://www.gov.uk/government/topical-events/autumn-statement-2022
This article was first published in The Political Quarterly
Biography
- Stewart Lansley is the author of The Richer, The Poorer: How Britain Enriched the Few and Failed the Poor, a 200-year History, 2021. He is a visiting fellow at the University of Bristol and an Elected Fellow of the Academy of Social Sciences.
picture credit flickr
The post Rethinking ‘Crowding Out’ and the Return of ‘Private Affluence and Public Squalor’ appeared first on The Progressive Economy Forum.
Homelessness among Indigenous peoples
I’m writing an open access textbook on homelessness and have just released Chapter 6, which focuses on homelessness experienced by Indigenous peoples—especially in Australia, Canada and New Zealand.
A ‘top 10’ overview of the chapter can be found here: https://nickfalvo.ca/homelessness-among-indigenous-peoples/
Homelessness among Indigenous peoples
I’m writing an open access textbook on homelessness and have just released Chapter 6, which focuses on homelessness experienced by Indigenous peoples—especially in Australia, Canada and New Zealand.
A ‘top 10’ overview of the chapter can be found here: https://nickfalvo.ca/homelessness-among-indigenous-peoples/
Economic delusions cannot save us from the climate crisis and societal decay
“Never forget that the economy is a wholly owned subsidiary of nature”.
Global Boiling – Kate Mackenzie and Tim Sahay
Image: Paul Walker/Flickr. Creative Commons 2.0 License
Many of us have grown up with the story of an arrogant ruler King Cnut, who placed his throne on the banks of the Thames, waiting for the tide to come in. As it did so he held out his hand and demanded that it recede. Predictably, it didn’t. What most of us don’t know, however, is rather than telling of a King’s hubris, it celebrates something quite different. An acknowledgement from Cnut that ‘All the inhabitants of the world should know that the power of kings is vain and trivial’. Whilst Cnut recognises a holy power, we might in these very different times acknowledge that far from humans controlling their environment, as we have the arrogance to imagine, it is instead the power of nature that dictates responses to our behaviour.
This arrogance is displayed daily by our politicians who seem to think they can put off action on climate change, citing economic credibility over scientific facts or putting the profits of the oil and gas producers above those of the health of the planet.
On the one hand, we have Sunak granting permits for more oil and gas drilling (whilst the industry continues to rake in huge profits), on the crazy basis that home-grown is better for the environment, which actually is not the case, as discussed in this Channel 4 Fact Check.
And on the other, Keir Starmer, fixated on household budget economics, reportedly thinks that ‘the hard grind of rebuilding economic credibility must come first, as opposed to Labour spending “vast sums of money”’. ‘Growth, investment and wealth creation will be, he said ‘the only show in town’ if Labour is to build a prosperous country with strong public services for the long term.”
At the same time, Rachel Reeves has postponed Labour’s green plan, and a few weeks ago also rejected the call to ditch the Tory imposed two-child benefit cap because, apparently, the ‘dire public finances’ means there will not be enough money to go around. Not only is the shadow chancellor intent on denying some of the poorest in our society the means to live decent lives, but also putting on hold urgent action on climate change. Here we have yet again, the eternal circus of blame which politicians indulge in (remember Liam Byrne) but which has nothing to do with monetary reality.
This is a neoliberal, monetarist pile of crock at a time of existential climate crisis and societal decay. Both the consequences of a destructive economic system which treats people and the planet as objects to exploit for profit.
We have a party opposition leader (and his shadow chancellor) dedicated not only to further economic decline, decay of public infrastructure and harm to citizens, who clearly thinks he can hold back the tide of ecological overshoot and climate change until the public finances are in good order.
Predictably King Cnut failed to hold back the tide, and now our own politicians seem to think that they can put off action because heaven forbid that we interfere with the profit streams of polluting industries or the god-like market. They talk about the economy as if it were separate from the sphere of people’s existence or the planet’s ability to sustain human activity. And with astonishing arrogance imagine that the great arrow of human progress will provide the solutions in the form of technology that is scarcely off the drawing board, or growing millions of trees (important though that is) and will save the day at some unspecified time in the future. Both questionable propositions and time is not on our side.
It surely is disturbing to be a witness to the fact that the emperor has no clothes and yet the entire political establishment fauns daily over a toxic economic system which has created vast poverty and inequity across the planet and is bringing an end to the world as we know it, to keep the consumption truck running and the profits flowing.
Then, at the same time as the media reports on the scientific evidence for climate change, and as we are witnessing the increasing incidence of damaging weather events from heat domes to drought, fire and floods which affect humans, destroy vital natural habitats and impact on food production, in the next breath is allowing politicians, government institutions, think tanks and its own journalists to reinforce the household budget narratives of how government spends.
We need a frank, public conversation about the future. As an article published in The Conversation makes clear, ‘The only way to keep humanity safe is immediate and sustained radical cuts to greenhouse emissions in a socially just way.’ The last part is key, not just from a domestic point of view but also how we address the vast western created inequity that exists in the Global South, and the ecological destruction and pillage of real resources that has occurred to serve Western consumption and reinforce the power politics of empire.
As it also points out, ‘Current net zero policies will not keep warming to within 1.5C because they were never intended to. They were and still are driven by a need to protect business not the climate’. In those few words, today’s reality is confirmed through government’s political priorities. It is time to see through the game and challenge those ideologically driven preferences.
As Jason Hickel, author of ‘The Divide; A Brief Guide to Inequality and its Solutions’ tweeted recently, ‘As climate-related damages hit, remember that this crisis is not due to generic “human activity”. Excess emissions are due overwhelmingly to the core states of the global North, and the ruling classes that control the systems of production, energy and national legislation.’
The time is now to deal with ecological overshoot and climate change in a socially just way. As GIMMS emphasises endlessly, the only way we can do that is to reject an economic system built on growth and endless consumption which benefits fewer and fewer people and destroys life, not to mention being at the heart of exceeding the planet’s ecological boundaries.
While politicians continue to count the pennies as in Labour’s abandonment of its commitment to a timeframe for spending the promised £28bn on a green transition, citing as it does the worsening financial situation, we are closing our eyes to the urgent nature of the challenge.
The question is not how we pay for it. The real challenge is to decide what our priorities are, draw up a strategic plan for achieving them and using the dual supports of legislation and tax policy to free up the real resources it will need to carry out those plans. Money in itself is never the consideration but politicians on both sides want us to believe it is. Truth is that we pay for it by spending the money. The only constraints to spending are real resources and decisions about how and to whom they are distributed.
We pay for it by spending the money - By Alan Hutchison
We need to start altering the discourse and the first candidates for change should be the phrases ‘taxpayers’ money’ and ‘government borrowing’. Taxpayers are not and never have been the source of currency. Similarly, government doesn’t borrow when it issues bonds; instead, it provides a safe place for us to store our savings.
The flat earthers need a lesson in monetary reality, to stop putting people’s lives on the line for a lie. In short, the government is the currency issuer. It spends the money into existence first, then taxes and plays the smoke and mirrors game it calls ‘borrowing’. Up until now, it has been the failsafe mechanism to keep the troops compliant and under control.
Whatever the future holds, it should be about our values which include respect for a life-giving planet and its inhabitants. Instead, and in reality, we have psychopaths in charge, prosecuting endless wars, advocating growth at any cost and, at the same time, proposing austerity (but not for the richest).
What we need now in these uncertain and unstable times is global cooperation, not a myopic focus on keeping the status quo in place for a lie, or to maintain the reins of global power.
Whilst what we face is a global challenge, we also can’t ignore what is happening at home to our own citizens as a result of short-sighted, market-driven solutions and the household budget economics that drives spending and policy.
Two articles in the Guardian in recent months report on the shocking exploitation of foreign care workers brought to the UK to plug the gaps caused by decades of government neglect, outsourcing and privatisation, and austerity in the form of public sector spending cuts. Shockingly, in the past year, the number of modern slavery cases reported within the UK care industry had more than doubled. Failures in duty of care has facilitated organised crime to exploit unfortunate victims who were desperate to find a better life but instead found slave-like conditions, long hours and below subsistence wages.
The solution is not to steal the valuable resources of poorer countries, but to bring social care back into public hands, invest more in social care provision and training, along with secure employment rights and fair terms and conditions and wages. The solution is for the nation to decide what its priorities are – more of the same contempt for citizens by its leaders, or something better.
Here, predictably we see again an economic ideology that puts private over public provision, all justified by the claim that we can’t afford better public services, or quality care for those who need it. An economic system which has taken precedence and is not fit for purpose, unless we mean the enrichment of those who benefit from government spending policy. All the government is actually doing is papering over the cracks it has caused, and the victims are both those using social care services and those persuaded that the good life awaits if they sign on the dotted line.
Again, the only constraints faced by government are related to how real resources are distributed and who benefits from that distribution. A stable and healthy society relies on government laying the foundations. However, successive governments have abdicated their responsibility and have increasingly shifted it to the corporate estate, along with public money. Whether it is the NHS, social care or indeed the many other vital public services which support citizens, all have been subjected to this false belief that there is no money, and that the private sector is more efficient.
Last week, the health minister Maria Caulfield defended Steven Barclay’s plans to use the private healthcare sector to deal with the long post-covid waiting lists, on the basis that it would provide good value for money for the taxpayer. If there are long waiting lists, this is not a new phenomenon. Prior to the pandemic in February 2020, there were 4.43 million people on a waiting list for care. The latest figures for May 2023 show that around 7.47 million people were waiting for treatment.
The fact is that the private sector is already operating in the NHS, taking public money to run health services with profit in mind. We now have a fragmented service where the word national is in name only and the NHS logo hides a myriad of private healthcare companies. From a publicly paid-for, managed, and delivered service to one that is now serving the needs of the corporate estate, where publicly paid-for means corporate welfare. If the NHS is broken, it broke as a result of the decades of reshaping it through the pursuit of an ideology that serves the neoliberal tenets of faith in markets and privatisation. When Blair said last month that ‘there should be complete cooperation between the public and private sector’, and Starmer in the Observer that we need to prioritise ‘radical reform of public services over reckless spending promises,’ the only thing to note is that they are all in it together. Blair and Thatcher’s legacy lives on.
MMT Verify: How We Can Staff the NHS Without Tax Rises - Neil WilsonSpending only happens if there was something to buy. If that spending is then deficit spending it has a lower inflationary impact than spending that is tax-matched.
Then as the Prime Minister seeks to blame striking NHS staff for record-high long waiting lists, this must surely be the final insult to a workforce that has been unfairly treated as a result of government policy and like many, struggling to manage the cost-of-living crisis on top of previous public sector pay squeezes. One minute we are being exhorted to clap for our dedicated nurses and doctors, and the next, government ministers are demonising them.
Neither health nor social care should be viewed as a business, and it certainly doesn’t involve being good value for the taxpayer, since taxes do not fund government spending. Let’s instead put the blame where it really lies. At the government’s door, resulting from a decade of cuts in real terms to spending (austerity), failure to train sufficient healthcare professionals, private sector for-profit involvement (which predates the Tories), and closure of hospitals, beds and even treatment options, all of which has been justified on the false premise of public sector unaffordability, and to push an ideological preference for private sector involvement. We can translate this as absolutely nothing to do with the state of the public finances, but rather as a political choice. The false narrative of monetary affordability constantly trumps delivery of public purpose, and when it comes to ethics, as in stealing the resources of poorer countries, as long as things can be done on the cheap, then it’s acceptable.
If we want better public services, health, and social care, it can only come through government which holds the power of the public purse. This is what we could have in a sane world where people matter more than a cruel ideology and profit. Instead, what we have is a shameless manipulation of a hapless public to justify what will be in effect more austerity, more ‘difficult decisions’ that can only cause more human distress and hardship, damage the life chances of our youngest citizens, and cause further decay of our public infrastructure.
And then, while the life-giving planet overheats because of human activity and the distribution of wealth becomes ever more unequal, last month the number crunchers at the OBR were ‘preparing to sound the alarm’ over the impact of rising interest rates on the public finances which, according to the Guardian, would ‘deliver a serious blow to the government’s scope for pre-election tax cuts.’ In its ‘Fiscal risks and sustainability report,’ it set out the impact of higher interest rates for the public purse. This would, it suggested, make it less likely that [the Chancellor] would meet one of its five key pledges – tackling Britain’s public debt. And no doubt such thinking will drive more damaging austerity thinking on both sides of the political spectrum.
Let’s be clear first, interest rates don’t hurt the public finances. Government as the currency issuer can always meet its liabilities. There are, instead, winners and losers in the private, non-government sector. The winners are savers, banks and holders of Treasury gilts, while the losers are those who will suffer the economic effects of higher interest rates which can filter through in higher unemployment and cause more pain for people struggling to pay higher rates on debt and mortgages.
Then in the same household budget vein, Chancellor Hunt, after checking thoroughly down the back of the sofa for a few stray quid, ordered his ministers to find £2bn savings for public sector pay rises. Not content with the nonsense claim that there is a threat of public sector wage spirals driving inflation, he then acts as if the government is short of money and must rob Peter’s pot to pay Paul’s.
What a choice! Taking steps to mitigate the human-induced existential threat of climate change, ecological overshoot, and growing poverty and inequality, or balancing the public accounts. While they tell the public about the hard choices and sacrifices to be made, there has been no problem finding the money for military support in Ukraine, £2.3bn in 2022 and the same for 2023, totalling an eyewatering £4.6bn.
There is no money for serving public purpose, helping people through these difficult times, feeding children or rebuilding our ailing public infrastructure, but there is an inexhaustible amount for waging war and killing people, bailing out banks, or contracts for dodgy PPE. Surely these contradictions must be hitting home by now, and the extraordinary con that is being practiced on citizens of this country with huge social and environmental costs.
The key to better public services, infrastructure, social security provision and a green transition is not growth, contrary to what politicians on both sides of the political spectrum would have you believe. It is, rather, something much simpler and direct, a political choice to deliver them.
Aside from the fact that taxes do not fund government spending (implicit in the belief in growth as the solution), faith in growth as a tool is misplaced in an uncertain, unstable and changing world in which we are currently in uncharted territory. We need action now. While politicians clearly have all had the ‘public finances are like a household budget’ briefing, and all sing from the same cruel hymnbook without question, aside from the human misery this narrative causes, it makes no economic or environmental sense.
Author Jason Hickle asked in 2021, ‘If our economic system actively destroys the biosphere *and* fails to meet most people’s basic needs, then what is actually the point?’
Time for the public to ask those same questions of the political class.
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The post Economic delusions cannot save us from the climate crisis and societal decay appeared first on The Gower Initiative for Modern Money Studies.
Homelessness in New York City
I recently helped organize a homelessness study tour of New York City. Our group consisted of 30 Canadians from the non-profit sector, government, law enforcement and academia. We toured six sites over a three-day period.
Here’s my ‘top 10’ overview of the tour: https://nickfalvo.ca/ten-things-to-know-about-homelessness-in-new-york-c...
Homelessness in New York City
I recently helped organize a homelessness study tour of New York City. Our group consisted of 30 Canadians from the non-profit sector, government, law enforcement and academia. We toured six sites over a three-day period.
Here’s my ‘top 10’ overview of the tour: https://nickfalvo.ca/ten-things-to-know-about-homelessness-in-new-york-c...