economy | ukwatch.net

New Labour’s affair with the super rich

JamieSW — Wed, 01 Oct 2008 10:27:15 +0000

The sheer scale of the global financial crisis has forced Gordon Brown and the government into making a few critical noises about “excesses” in the City and corporate greed.

But New Labour has been tied to and subservient to big business throughout its time in office. This is not simply an ideological commitment – there are deeper economic reasons for this close relationship.

Despite the rhetoric you hear from business leaders about “freedom from state interference” and “cutting red tape”, corporations need a smooth relationship with the states they operate in.

In recent years big business has attempted to make government the direct servants of its immediate needs. You can see this most starkly when companies get into trouble and demand that the government bails them out.

But there is a wider background process of corporations asserting their control over the state. Thousands of private sector lobbyists swarm around Westminster jostling for access and influence.

Capitalism is built on competition, which creates pressure on each company to gain an advantage by developing strong relations with the state while cutting out its rivals.

Public relations firms set up “public affairs” departments dedicated to lobbying MPs and ministers. These tend to recruit individuals who have been members of the political elite or have worked closely with government ministers and top party officials.

New Labour has been an eager partner in this process of buying up political influence. Brown has even fast-tracked the whole process, bringing private equity bosses directly into government and making a former head of the bosses’ CBI organisation a trade minister.

The push for more privatisation has also strengthened the links between government and business. Over 24 former Labour ministers and senior civil servants are involved in the Private Finance Initiative (PFI) industry.

These include former Labour health minister Alan Milburn. He is a director of Covidien, which describes itself as “a $10 billion global healthcare products leader”.

Milburn is also a member of Lloyds Pharmacy’s healthcare advisory panel, and an advisor to leading private equity firm Bridgepoint, which specialises in healthcare investments. He gets £75,000 a year from these companies.

Former education and home secretary Charles Clarke is a non-executive director of the LJ Group, which supplies training services, teaching materials and equipment to schools.

Clarke is a also consultant to accountancy firm KPMG on public sector reform. He advises Charles Street Securities, an investment banking and private equity fund management firm. On top of all that, he is a consultant to Beachcroft, a legal firm specialising in PFI deals.

Patricia Hewitt was health secretary from 2005 to 2007. She is now paid over £55,000 a year to be a senior advisor to Cinven, a private hospitals and healthcare group that is backed by private equity. Hewitt also gets a further £45,000 a year for being a special consultant to Alliance Boots, which is owned by private equity firm KKR.

And it’s not just ministers. Some of the government’s most senior officials also have extremely close ties to some of the biggest banks – and vice versa.

Going strong

Jonathan Powell, former chief of staff to Tony Blair, is now at investment bank Morgan Stanley. Jeremy Heywood, now the top civil servant at 10 Downing Street, worked for Morgan Stanley in the past.

This movement from government to the banks and back again is going strong under Brown’s premiership.

The close connections between New Labour and the City are just one aspect of a wider picture of the ultra-rich being given a free hand by this government to make money at our expense. And even with economic disaster on the horizon, they are still making a pretty packet.

Stephen Green, chair of the HSBC banking group, said last week that the the £14 billion paid out last year in bonuses by London’s financial institutions was “excessive”.

He has a point. Green received a bonus of £1.75 million last year, on top of his £1.25 million a year salary. Last week HSBC announced 1,100 job cuts.

It is in the nature of the economic crisis that while banks and companies fail, some rich individuals carry on doing very well.

About 80 percent of those worth £50 million or more plan to splash out more of their obscene riches this year, according to a survey by US-based wealth analysts Prince & Associates.

The number of billionaires worldwide is growing by almost 20 percent a year, according to Forbes magazine.

There were 476 billionaires in 2003 – this grew to 946 by 2007. A further 179 have joined the ranks since.

The richest 50 people in the world are now worth £723 billion, a 23 percent increase on one year ago. The richest man in the world, Warren Buffett, has a net worth of almost £62 billion.

In the US the richest 0.5 percent of the population spends £75 billion a year – equal to total household expenditure across the whole of Italy.

London boasts 36 billionaires. These include Lakshmi Mittal, the steel mogul worth £28 billion, and Roman Abramovich, the Russian oligarch whose personal fortune stands at £12 billion.

In the middle of the economic crisis some companies are making a fortune gambling on the chaos.

There are an estimated 8,000 hedge funds around the world controlling around £1.37 trillion – a sum that would pay for over 9,000 hospitals at £150 million each.

The job of hedge fund managers is to make the very rich – a category that conveniently includes themselves – even richer.

For instance, Philip Falcon made millions gambling that HBOS’s share price would plummet.

He recently bought a £24 million home that boasts a room specially built for Pickles, his pot bellied pig.

He “earned” £950 million last year and his firm now manages two funds with a total value of £10 billion.

John Paulson, another billionaire, placed a near £1 billion bet that that bank share prices would fall.

But it isn’t just a matter of individual “rogue traders”.

One of the companies betting on banks’ shares falling was Barclays Global Investors – owned by Barclays Bank. The ultra-secretive, mega-rich elite plies its trade behind the brass plates in the Mayfair and St James’s districts of central London.

One leading hedge fund manager, who was recently asked about what he did, replied, “It is none of your business – and until you have £1 million to invest and become a client, it will remain none of your business.”

Billionaires who’s who

Crispin Odey

Crispin Odey is one of London’s leading hedge fund managers and was outed as betting on bank shares plummeting during the financial crisis. He paid himself a cool £28 million this year.

Profits disclosed by his Odey Asset Management firm reveal that the company made £55 million in the year to 5 April. After Odey’s massive salary, the remaining £27 million was distributed between 11 partners in the firm. Odey Asset Management has £2.6 billion of funds under management and tripled its revenues to nearly £65 million last year.

Odey has been jokingly referred to as one half of the Posh’n’Becks of the City – he is married to Nichola Pease, a fund manager and heir of one of the Barclays banking families. Pease was one of the directors of Northern Rock before it went bust.

Odey and his wife are reckoned to be worth more than £300 million between them from their stakes in Odey Asset Management and in her company JO Hambro Capital, an offshoot of the Hambro banking empire.

Noam Gottesman

From GLG Partners’ office in a glass-fronted building in Mayfair, Noam Gottesman recently summed up his skills to a client in three words – “I make money.”

Gottesman and co-founder Pierre Lagrange are both ex-Goldman Sachs and Lehman Brothers traders. They are comfortably billionaires.

GLG Partners are the biggest players in the European hedge fund industry. Each of the partners holds £250 million stakes in the firm.

Its overseas assets are worth about £11 billion and last year Gottesman made an estimated £400 million.

Tragically, Gottesman is currently renting a house in Belgravia after being gazumped on a £27 million house in Chelsea. His rent is £20,000 a week.

Gavyn Davies

Gavyn Davies used to work for the investment bank Goldman Sachs, where Hank Paulson, US treasury secretary, used to be chair and chief executive. Davies is married to Sue Nye, Gordon Brown’s fixer and gatekeeper.

Davies was the chair of the BBC from 2001-4 and is a former economic advisor to the government. He is reported to have £150 million. Davies has in the past donated to the Labour Party and has been a long term supporter of the party.

He worked in Harold Wilson’s policy unit from 1974-6 and then as an economic advisor to James Callaghan from 1976-9.

Afterwards he had stints as chief economist at Simon & Coates and Goldman Sachs. He was later promoted to Goldman Sachs’s international managing director.

Tom Scholar

Tom Scholar is a senior civil servant and a director of Northern Rock, now owned by the government. He was previously chief of staff for Brown at 11 Downing Street and also an executive director at the World Bank.

Sir James Sassoon

Sir James Sassoon quit his post as Alistair Darling’s ambassador to the City earlier this month. Sassoon has technically been working as a civil servant in the treasury since 2002.

From 1985 to 2002 he was vice chairman for investment banking at UBS Warburg’s global privatisation business. Sassoon advised government departments on a variety of privatisation projects.

He was awarded a knighthood in recognition for his services to the finance industry this year. He is now advising the Tories on the City.

Baroness Shriti Vadera

Baroness Shriti Vadera, the parliamentary under secretary of state for business and competitiveness, is allegedly the person Brown trusts more than any other in his government.

She arrived at the treasury in 1999 after 14 years at the investment bank UBS Warburg where she had pioneered a privatisation programme in South Africa.

She has been involved in a number of high profile PFI and public-private partnership (PPP) processes, including the part privatisation of the London Underground train system.

Fleming Family

Tucked away in a townhouse on Dover Street in Mayfair, nestling among the posh shops and restaurants, sits Fleming Family & Partners – just one of the numerous investment services tailored towards the ultra-rich.

In order to get your foot in the door and to stand on the fine Turkish carpets, you need to have at least £10 million of ready cash to invest.

In return, you get small army of financial flunkeys to advise you on keeping down tax bills and to offer you a range of investments.

There is a cheque book and dark green credit card, both of which signal that you are seriously rich. The bank manages £6.3 billion of assets and trusts for 41 wealthy families.

Fleming is a major shareholder in Jersey-based Highland Gold, which owns and runs goldmines in Russia.

It bought them several years ago from Roman Abramovich at a rather low price.

The bank has close links with billionaire businessman Wafic Said. In 2005 it bought Sagitta Asset Management, which looks after investments of other wealthy Middle Eastern families.

Said’s son Khaled sits on the Fleming board. Wafic Said was the subject of a Serious Fraud Office investigation – abandoned by the government – into a slush fund to induce Saudi Arabia to buy British weapons.

The end of capitalism, and other questions

JamieSW — Fri, 26 Sep 2008 09:40:12 +0000

“So, we should be really, really wary of this claim that we’re hearing that free market ideology is dead, that this marks the end of, you know, of capitalism. You know, I’m sorry, that is not the case. It may be going dormant for a little while to rationalize these massive bailouts, but it will come roaring back, and the crisis that is being deepened right now through these bailouts will be invoked for even more radical deregulation, privatization, tax cuts and so on. ” – Naomi Klein

As the Anglo-American banking system goes into meltdown, all sorts of unlikely people are beginning to ask, ‘is this the end of capitalism?’ A couple of weeks ago it would have been ideological treason to so much as think such a beastly thing. Now, with ancient financial institutions keeling over everywhere you look, the question is cropping up all over the corporate media.

So what’s the answer? Well the answer’s ‘no’. Or if you want me to flesh that out a bit, the answer’s ‘no, now get a grip’. But really, the problem lies with the question. There are other questions we should be asking, but I’ll come on to that later. For now, lets look at what’s wrong with asking ‘is this the end of capitalism?’

What do we mean, or what do most people understand, by the term ‘capitalism’? Practically every economy you can think of is one where commercial activity occurs, where there are goods and resources which are privately owned and that are bought and sold for profit. Alongside this private sector sits a public sector where, in democratic countries, resources are owned by the public as a whole and distributed according to decisions made by their elected government. Pure capitalism, and pure socialism, remain purely theoretical.

Across the world, what you invariably have are mixed public-private economies where the debate is about which sector of the economy is responsible for the distribution of which resources, and how those responsibilities will be discharged (e.g, to what extent should the private sector play a role in the provision of education and healthcare?). That’s by no means an insignificant debate, but we should be clear on what that debate is about. It is not about whether or not we have the buying and selling of private property or whether or not we have capitalism. The debate is about what kind of capitalism we have in a democracy: which version of capitalism and what mixture of public and private economic activity will produce the end results valued and desired by a society organised on democratic principles.

Different countries strike the balance in different ways. As I’ve noted previously, the Nordic model has been far more successful than the Anglo-American neoliberal model in maximising the well-being of the population. The crisis of the last few weeks was born of the deregulated financial markets characteristic of neoliberal economies, wherein unrestrained greed drove debt to be managed in an increasingly reckless way – one which was proven conclusively to be unsustainable as the last of the pure investment banks on Wall St disappeared.

This is a serious malfunction of one version, not any and all versions, of capitalism. The collapse of institutions like Lehmann Brothers and the dangers of sub-prime mortgage lending don’t necessarily say very much about the forms of capitalism practiced in other countries. Neoliberals like to talk about their version of economics as though it is synonymous with capitalism itself, hence the talk of capitalism failing, but pretending there are no alternatives is just a neat way of sidestepping debates about what kind of capitalism societies should opt for.

Not only is the end of capitalism itself not occurring, it is not even being called for, at least not in any meaningful way. Only an infinitesimal minority on the left advocate the total abolition of all private property and commercial transactions. I hesitate to use the word ‘advocate’ because advocacy involves setting out serious proposals, and I’ve yet to see any serious proposal that explains how a non-capitalist society is going to be brought about. By that I mean a plan that describes in all the necessary fine detail how we get from here to there, dealing effectively with all the obstacles in the way. A plan that explains how we persuade the public to accept our proposed non-capitalist society, bring to power a government willing to effect the plan, and then enact the massive transformative program needed to entirely eradicate commercial activity and introduce a vast array of new social structures, habits and forms of interaction. Even if a workable plan of this kind, with a desirable end product, was formulated (I don’t completely rule that out) it would take many, many decades to implement. Such a plan does not exist, as far as I’m aware, even amongst those whose opposition to capitalism is the strongest.

No one, therefore, is proposing the end of capitalism itself in any serious way. For the most part, what’s called ‘socialism’ is just a take on how mixed public-private economies should be organised, rather than a total rejection of capitalism itself. Even the Venezuelan government, as it proclaims its mission to pioneer “21st Century Socialism”, allowed the private sector of the economy to grow relative to the public sector during its first decade in office.

Similarly, even the most swivel-eyed free-market extremists don’t advocate, in any serious way, the total abolition of the public sector and its replacement with pure capitalism. In fact, even in the neo-liberal citadels of Britain and America, the rigours of the free market are often quietly avoided and the state called upon for assistance. Think no-bid contracts for Halliburton in Iraq. Think of the UK arms industry’s incestuous links with government, where ministers on overseas trips (including the Prime Minister) practically act as salesmen for the likes of British Aerospace. Think of how the US economy boomed in the post war era, in no small part due to government defence budgets socialising research costs for technologies that were subsequently turned over to the private sector for profit; like aeronautics, computers and even the internet. Those who say they advocate the free market have very little to say about the nanny state when its nursemaiding the rich. Only when it attends to the needs of the public are objections raised.

The debate that occurs between left and right on economics is not between absolute socialism or absolute capitalism but between democracy and private power. The left does not oppose globalisation [.pdf], or even capitalism for the most part. What it takes issue with is a particular form of global economic integration that privileges the demands of private power and undermines the role of the democratic public sphere. The right does not object (aside from in rhetoric) to a role for the state within the economy, provided that role is to serve the needs of elites rather than those of the population.

So the real question, in the midst of the Anglo-American banking crisis of 2007-2008, is how our version of capitalism is now going to be reformed, and specifically where the power will lie. We need not expect, as Naomi Klein points out here, that neoliberalism will automatically be replaced by some benevolent form of social democracy. On the contrary, state-corporate elites are already moving to exploit the political conditions created by the crisis to extend the same neoliberal model that caused the financial collapse.

In her recent book “The Shock Doctrine”, Klein describes how the neoliberalisation of economies (privatisation, deregulation, stripping away of public programmes etc) has often been rammed through the legislative process in times of crisis. This is because while the public often opposes these measures, crisis situations offer policymakers brief moments when democracy can be suspended or circumvented while people are disorientated by shock and briefly willing to acquiesce to “firm leadership”.

Klein points out that this is exactly what is happening now in the US, in respect of the emergency economic measures formulated by the Bush administration. What is being not so much proposed as demanded is a 0.7 trillion dollar buy-up, by the US taxpayer, of all the toxic and often worthless securities that have caused the current financial meltdown. It is demanded that no democratic, administrative or judicial oversight be applied to this process. It is demanded that legislators approach this in a “bipartisan” fashion and pass the measures quickly (that’s political language for not arguing and doing what the President tells you – now). The measures are being drawn up and will be enacted by people like Treasury Secretary Hank Paulson who, as head of Goldman Sachs, did so much to promote the reckless practices that caused the ‘Nightmare on Wall St’. In summary, the same people who wrecked the US economy are now demanding that the traumatised and fearful taxpayer gives them 0.7 trillion dollars to clean up the mess they made and hold them harmless from the consequences of their actions, no arguments and no questions asked.

You could call it crawling to the nanny state and begging for a hand-out. Klein, with perhaps a little more accuracy, calls it a “stick-up”. Either way, its not the free market, but it is very neoliberal.

Klein also warns that this is just the first stage. The US is already deeply in debt, and this bailout will make matters much worse if passed in its proposed form. The usual corporate lobbyists, think tanks and Friedmanite academics will then take that opportunity to demand that the books be balanced. This might involve chipping away at unnecessary public programmes like healthcare, education, public housing etc etc, while the essentials, like Washington’s gargantuan military (which costs more than the rest of the planet’s military spending combined) go entirely untouched. It might involve tax cuts for corporations and the wealthy. It will certainly involve exploiting the situation to push measures that serve the interests of the most powerful sections of society which, rather than theoretical “free markets”, is what neoliberalism is really about.

The scenario in the UK is only slightly different. Social democratic instincts still flicker in some corners of the political class. But despite Gordon Brown’s recent rhetorical tilt towards the left, New Labour remains a classic party of neoliberalism, and the Conservative party likely to succeed them in government by 2010 is even more so. In spite of current events, neoliberals could well dominate the policy debate on how to deal with the economic crisis on this side of the Atlantic.

Klein quotes neoliberal don Milton Friedman describing in candid terms how his disciples should use the Shock Doctrine to push forward their policies. “Only a crisis, actual or perceived,” he says, ”produces real change. And when the crisis occurs, the change depends on the ideas that are lying around. That, I believe, is our basic function: to keep the ideas ready until the politically impossible becomes politically inevitable”. An example is Chile in the 1970s, where Friedman had to wait until after a military coup had taken place to find a government willing to enact his policy prescriptions, which had been overwhelmingly rejected in earlier democratic elections.

The collapse of Western financial markets, whose devastating effects are only beginning to be felt, does not mark the end of capitalism, and may perversely only mark the acceleration of neoliberism out from the ashes of its own bonfire of the vanities into new and yet more dangerous territory. That depends entirely on who wins the current debate on what emergency measures should be taken and how the system should be reformed long-term. The neoliberals, led by Secretary Paulson, are keen to avoid that debate. Those who oppose them should note this, because it betrays the neoliberals’ fear, even expectation, that this is an argument they would lose. Our task is to ensure that the shock of the past few weeks is not exploited by its authors, but instead that its lessons are learnt and that failed economic models are replaced by something more just and sustainable. In formulating our own proposals, for the immediate and the longer term, we can begin by pointing to the more successful capitalist systems in place in other countries, and take things from there.

What's the matter with Sunderland?

JamieSW — Tue, 23 Sep 2008 11:16:35 +0000

Ingratitude, if Madeleine Bunting’s apologia for New Labour is any guide, is what is the matter with Sunderland. The city has been ploughed with an avalanche of development cash. A school is to be rebuilt every year for the next fourteen years. Health centres, children’s centres, business parks, new development zones with the marina, fancy apartments and coffee shops… And the locals react by sputtering “you’ve done nothing for me”, slagging off immigrants and voting Tory. There is some weird “disconnect” between Labour’s actually loveable behaviour toward one of its most loyal constituencies and its dismal status in the popular perception. Working class Toryism, in the form of support for a set of sentiments including ‘individual self-reliance’ and ‘community’ and ‘family values’, is on the rise once more, a la 1979. The obvious conclusion is that the left must rally behind the government. Some version of this is likely to be the overall diagnosis of the soft left as Labour loses its so-called heartlands: regardless of all the disappointments and betrayals, despite the warmongering, privatization, pandering to employers and union-bashing, the real problem is the basic inability of the working class to recognise its true allies. The root problem is its affectless indifference and disloyalty, its susceptibility to racism and nationalism, and its gullibility as regards Tory propaganda.

So, what is the truth of the matter? What is the matter with Sunderland? What might Madeleine Bunting have found out had she not been relying upon the word of Chris Mullins MP? One of the most pressing issues facing working class areas in this country, without question, is housing. In Sunderland, as elsewhere, the government has been pressing for the complete privatization of housing stock. Sedgefield Borough Council, for example, having lost a vote in favour of transfer in 2005, has been trying to persuade residents yet again to go with privatization. What is causing the residents to doubt the word of council chiefs is that the company that would take over the houses – Gentoo, formerly the Sunderland Housing Group (eulogised here) – has a track record of failure. The company was awarded an £80m contract in 2002 to regenerate a poor estate called Doxford Park, some six years ago, and it has only recently begun work. Similarly, when thousands of council houses were transferred to the group in 2001, Gentoo/SHG invested millions in new private homes, and neglected to build the rented accomodation it was obliged to build. 6,200 council houses were demolished, sold off or left empty, but the company only built 111 new houses over the next four years. The number of people seeking a home rose from approximately 5,000 to over 19,000. Meanwhile, it did successfully build the private developments, including maritime housing and the Athanaeum – the sort of investment and development that Bunting lauds, albeit with a grudging admission that “critics say” it may not seem of much use to single mothers and those on incapacity benefit.

Bear in mind that Gentoo/SHG is a Registered Social Landlord (RSL), exactly the kind of landlord that the government says we have least to fear from. An RSL is answerable to the Housing Corporation, and supposedly behaves better than other private landlords. If the Housing Corporation doesn’t hold them accountable, then those co-responsible for sealing the deal should. In fact, the behaviour of Gentoo/SHG had been noted before by local Labour councillors Mike Tansey and Brynley Sidaway, and they did try to alert residents and fellow councillors to the problem. Both Sidaway and Tansey rejected stock transfer because the result, where the government had been able to impose its scheme, was a rise in rents and an increase in homelessness. However, by 2006, they had been driven out of the Labour Party for their pains. They became independents, and on the back of a successful campaign against stock transfer a lively local Respect group was built. What they had to say was important, and their actions benefited the people they represented. By contrast, Labour policy at both a local and national level pitted it against its traditional working class supporters. There is a clue right there: those elected Labour Party members who try to represent their constituents effectively have been punished and expelled.

It is important to understand the rationale behind the government’s transfer policy. It wants to fund housing, but it is committed to a taxation structure that cannot raise the necessary funds without hitting the poor harder. So, either local authorities would have to borrow, thus breaking the government’s fiscal rules, or they would have to neglect housing, thus destroying the working class voting base. By transferring homes to private housing groups like Gentoo/SHG, they can allow huge amounts of money to be borrowed for investment, because the costs will be formally borne by the social landlord. If the government were not so committed to a neoliberal policy mix, it could raise taxation on upper income brackets and on corporations, to fund such investment. The ugly side of this neoliberalism is a tendency to blame the poor for their plight. One of the government’s recent proposals, dreamed up by Housing Minister Caroline Flint, was to compel unemployed recipients of council housing to sign degrading “commitment contracts” which compelled them to agree to actively seek work if they wanted to be allowed a council house – thus blaming the unemployed for their situation and forcing them to humiliate themselves in a lifeless labour market at pain of losing their home. Local Labour Party loyalists felt compelled to distance themselves from Flint’s ideas. There is another clue: the government has been complacent about its core working class vote, assuming that they had nowhere else to go, and therefore has scapegoated working class people for its failures.

Another of the government’s prominent policy agendas, so dear to its heart that it made this a central plank in the 2001 election despite over 80% public disapporval, is the private finance initiative. I have written enough about its obscene wastefulness here before. Once again, the rationale behind the policy is that it appears to provide something for nothing: money for investment without incurring debts or driving up taxes in the short-run. But the net result is almost invariably a poorer quality of service and a higher cost. For example, in Coventry, two hospitals were replaced by one hospital, with fewer beds and staff overall, and a final cost of £900m, 30 times higher than it would have been to simply renovate the two existing hospitals and keep the beds and staff. In Northumberland, four fire stations were closed and replaced with two under a £10m PFI scheme. One could go on at some length. In Sunderland, as elsewhere, local government functions including in health, education, road-building, street-lighting and waste management have all been outsourced to private companies under expensive PFI and PPP schemes.

Perhaps the most controversial application of the PFI model is in the national health service. Patricia Hewitt announced in 2006 that there would be big cutbacks in public spending on the NHS. She said that the reason was that generous government investment had not been spent on reforms but on salaries for greedy public servants. In fact, as Allyson Pollock pointed out, the government’s market-driven reforms had created the crisis. The costs of this marketisation consumed between 6% and 14% of the NHS national budget, on a conservative estimate. As a result, thousands of NHS staff were shed in hospitals up and down the country. The impact has, predictably, been to alienate Labour’s usual supporters. One of the main campaigners against the government’s NHS cuts in Sunderland has been a well-known local nurse named Kathy Haq, who had been lauded in 1999 for embarking on an unpaid, voluntary mission to improve healthcare in Bangladesh and who had run a support network for victims of a doctor who had raped patients. Haq might have been exactly the sort of person whom New Labour would wish to win over: a devoted public servant and campaigner, who had worked for the NHS for forty years. But she joined Respect when it was launched in the area in 2006, and became the branch secretary. One reason is that City Hospitals Sunderland Foundation Trust ran up debts of over £5m and therefore made plans to shed 10% of its staff, particularly in the Sunderland Royal Hospital. Patients were also angered when local hospitals started to charge for parking, following the lead set by PFI hospitals across the country. Problems within the NHS have been a prominent theme in the local press. In fact, although Bunting refers to the Tory capture for the Ryhope constituency in a bye-election with a low turnout, she does not notice that a surprisingly large component of Labour’s vote, perhaps more than a third, appears to have been redistributed over some years to an independent local campaigner and former journalist known as Patrick Lavelle, who made his name by campaigning on the NHS. Another clue, then: investment isn’t the same thing as provision, and one cannot disaggregate the money supplied from the way it is spent and the policies underpinning it. If working class voters experience a decline in service, the fact that a large amount of money has been spent on producing the decline makes it even worse. The PFI was originally a Tory policy, but by adopting it, the government has handed the Tories one of their main propaganda planks: higher spending equals more bureaucracy and less efficiency.

Sunderland is one of the poorest places in England. Mainly as a result of the destruction of its extraction and manufacturing industries, it has suffered a declining population, particularly among working age males, and this trend is projected to continue at least until 2023. That means a smaller tax base for the city, especially as those who remain are likely to be those with the least resources. More than fifty percent of its children live in low income families, according to the Child Poverty Action Group, which is well above the national average. Even official unemployment is almost double the national average [.pdf] according to the Office for National Statistics, while a total of 31% of the working age population is estimated to be out of work. Large numbers of people are kept on long term incapacity benefit to conceal the real rate of unemployment, albeit incapacity among older males in former mining areas is in fact quite widespread. The government has a number of solutions for the industrial hinterlands, but among them is not a revival of the manufacturing base or of the unions that can maintain decent incomes. One of the few big manufacturers in Sunderland is the Nissan car plant, which was built in 1986. The plant is symbolic of a supposedly ‘new’ high-tech economy vaunted by neoliberals of all stripes. But Nissan has repeatedly threatened to close the plant or slash thousands of jobs, and has repeatedly been bailed out with millions in government grants. And while it does employ thousands of local people, who are unionised, it is hardly a substitute for the massive industries of the past. The government is committed to a City-based growth policy with a strong pound, and as a consequence has seen well over a million manufacturing jobs lost on its watch. As has been widely noticed by now, this is one reason why the UK economy is particularly exposed to the chaos in the financial markets, and why it stands least prepared to withstand a crash.

Under New Labour, the remaining mining pits in Sunderland were allowed to disappear, with nothing to replace them. Today, the biggest employer in Sunderland is the government, while the services industry is the biggest sector of employment in the city. The council has sought to rejuvenate the economy by gentrifying it, making it into a more tourist-friendly zone, and building up a financial services industry, which is today almost as big as the manufacturing sector. All of these factors make Sunderland particularly susceptible to the toxic situation that we now face: public sector pay cuts, cuts in spending, a crisis in the financial sector, and higher food and energy prices. In addition, while Bunting mentions a disproportionately high rate of single motherhood and incapacity in Sunderland, she does not mention the government’s policies of rolling back single mother benefits and incapacity benefits. These, in addition to a vindictive plan to force the long-term unemployed to do ‘community service’ as if they were criminals, are poison for a local Labour Party seeking to gather votes. Further, in a city with life expectancy well below the national average, the government’s plans to raise the retirement age and privatise the pension system – while demanding that people save money they don’t have to invest in a pension scheme that floats on the oh-so-reliable stock market – is asking for trouble. To that should be added a recent rise in pensioner poverty, when a fifth of pensioners already lived on less than £5,000 a year.

Sunderland is supposedly an example of where the government has genuinely tried to help the poor, yet is losing support from voters who fail to recognise New Labour’s loyalty to them, while imprudently flirting with the Tories. In truth, while New Labour has delivered some very mild reforms, there could hardly be a more dramatic example of its policies failing the working class on the one hand, and punishing them on the other. The story of Sunderland is typical in this respect. There remains one question: will Sunderland go Tory, and if so, will it be for the reasons Bunting suggests? Sunderland still has a majority Labour council, and will probably return a Labour MP even on a relatively low turnout. The worst wipeouts for the government will be in the south-east, while the polls show the Tories making least headway in core Labour areas. Further, there is nothing to support the claim that once heartland Labour constituencies are won over to right-wing sentiments, and Bunting offers no evidence for this assertion. There is certainly nothing comparable to 1979, when Thatcher won on a platform of aggressively right-wing and anti-union policies. David Cameron is successfully appropriating the centrist language and sentiments of New Labour, even positioning themselves to the ‘left’ of the government on some questions. In Wales and Scotland, where there are centre-left and sometimes radical left alternatives, the Tories are not reviving at anywhere near the rate that they have been in England. And while the Tories are likely to be the beneficiaries of government unpopularity in England, the process of party identity breaking down is advancing rapidly for both Labour and Conservative parties. What is the matter with Sunderland is what is the matter with the UK as a whole. The system is failing, the neoliberal solution doesn’t work, parliament is increasingly impervious to our needs, and we’re facing a crisis in which we find elected officials happy to pour money into the City, but extremely reluctant at best to do anything which alters the fundamentally unfair distribution of wealth and power in the society.

Book Review: Who Runs Britain?

tim — Sat, 31 May 2008 21:19:43 +0000

For more than a century writers and politicians on the left have been predicting that the capitalist system would shortly collapse under the weight of its own contradictions. Again and again capitalism has proved these prophets of doom wrong. However the start of the 21st century has coincided with a financial crisis every bit as great as any that has gone before. If things go on as they are, Karl Marx may be proved right after all.

There is a paradox here. The Labour government which took power in 1997 seemed to mark the final victory of capitalism. The new prime minister Tony Blair and his chancellor Gordon Brown both explicitly repudiated the socialist system which all previous Labour governments had embraced while acknowledging the victory of free market ideas.

Indeed they went far further than any previous 20th century administration in forming an alliance with what George Orwell used to label the boss class. As Robert Peston demonstrates in horrifying detail in this extremely important book, a small group of super-rich effectively dictated large tracts of government policy.

Corporate buccaneers were allowed access to Blair’s Downing Street and Gordon Brown’s Treasury in a way that was entirely new. Nothing like it had occurred even under Margaret Thatcher.

In return for comparatively derisory financial contributions to the Labour Party these businessmen and entrepreneurs received what amounted to a general exemption from the obligation to pay taxation. The effect of this decision was the creation of private wealth on a scale that has not been seen since before World War One and probably not even then.

New Labour’s decision to cultivate the super-rich – a class which is now lavishly repaying Tony Blair in kind as he jets first class round the world from boardroom to corporate jamboree – has not been without terrible cost.

The thesis of Robert Peston’s book is that the losers have been the ordinary, middling people who benefited from the restrained shareholder capitalism which flourished in Britain from the end of World War Two.

This capitalism was based around large, accountable public companies – Marks and Spencer, ICI and so forth. By the late twentieth century these were no longer owned by private individuals but overwhelmingly by large and seemingly impregnable pension funds.

The senior management in these companies were paid generously (perhaps quarter of a million a year) but not lavishly. The real beneficiaries from the profits made by these large public companies were not private individuals but members of the large final salary schemes which guaranteed security in retirement to millions upon millions of ordinary employees.

These large corporations were socially responsible and financially conservative. Above all they were strongly biased towards financing investment through equity rather than borrowing – a prudent approach which helped guarantee long term survival at the expense of short term profit.

Robert Peston quite brilliantly shows how the fiscal changes introduced by Gordon Brown in his early budgets destroyed this relatively benign system of shareholder capitalism. Acting on the self –interested advice of a small group of corporate marauders from the private equity industry, Brown systematically put in place the conditions for the emergence of a novel and highly destructive kind of finance.

This structure was based on debt rather than equity. It was designed to create giant private fortunes rather than the even distribution of wealth. Brown’s changes actively disadvantaged the prudent and careful public companies that preferred equity to debt finance. Within a short space of time it completely destroyed the British pension funds that were until very recently the envy of the world.

One of the great merits of Robert Peston’s book is that he knows the hedge fund managers, private equity moguls and politicians involved intimately. He has talked to them, and understands their point of view. Some of them are certainly friends of his. But he has something very rare in any kind of journalism: the ability to write with the insight and understanding of a genuine insider – and the dispassionate clarity of an highly intelligent observer.

This is why I do not believe that anybody else apart from Peston would have been able to write this unique guide to our contemporary predicament. It shows how Tony Blair and Gordon Brown’s New Labour government have hollowed our public domain, unthinkingly destroyed and created a barbarous economic and social structure.

New Labour’s structure is not merely unethical, however. It is also desperately unstable. The shameful surrender by the state to an untrammelled capitalist class has destroyed large parts of the public domain and created genuine conditions for a crisis in capitalism in the months and years ahead.

The most important of these is an explosion of public and private debt. Numerous public assets – ranging from hospitals and schools to great businesses – can only survive through huge debt repayments. This kind of financing works in boom times but is destined to fail when an economy turns sour, as ours is starting to do.

The second has been the destruction of large parts of the public domain and the creation of a tiny class of super-rich at the direct expense of a broad mass of ordinary people. As a result many of the institutional protections against social and political instability have vanished.

There are too many lazy mistakes in this book. A volume as significant as this ought to be footnoted. Above all it is poorly designed, occasionally giving the impression that it is a collection of essays rather than a coherent and rigorously argued document. The chapter on Marks and Spencer, for example, while well-informed, has little thematic connection with the remainder of the text.

Peston never seriously tries to answer the question – Who Runs Britain? – posed in the title. It is hard to tell whether his editor at Hodder & Stoughton has done a wretched job or the whole thing was produced in a tremendous hurry. This is a pity because Peston has produced a truthful guide to our times. It deserves to become essential reading as we slide deeper and deeper into an economic, political and moral morass.

From Casino to Catastrophe

Ellie Keen — Wed, 02 Apr 2008 00:00:00 +0000

The staggering display of unrepentant cheating, exploitation and avarice revealed in Robert Peston’s BBC2 documentary, Super Rich: the Greed Game shows just how dysfunctional the British economy has become. But this gilded age of selfish individualism is destroying itself. The US treasury has unveiled its plans to regulate Wall Street. Cautious it may be, but the message is clear, the casino economy is over. The neo-liberal version of capitalism that for three turbulent decades has been restructuring the British economy and society is coming to an end. The dream is dead, says Martin Wolf in the Financial Times: “the US is showing the limits of deregulation”. In Britain, the Bank of England chairman, Mervyn King says Wolf, “strikes a chord”. The problem of the credit crunch is not down to a few bad apples. It arose, he says, “out of the heart of the financial systems in the main financial centres”.

Britain will face acute problems in recovering a more equal, sustainable and fairer society. Large areas of the country have suffered social catastrophe and lost their economic base. Employment in these areas is sustained by high levels of public spending and is vulnerable to a change of government or an economic downturn. The Tories and New Labour, heavily influenced by economic liberalism, drove the process of restructuring the economy and society further and deeper than other European countries. We need education, health and welfare for social recovery, but their institutions have been damaged by market-based reforms. Staff are demoralised and their organisational cultures risk averse. Public service values such as care, trust and human relationships are marginalised by targets and measurable outcomes.

The crisis in our public institutions is reproduced in the political sphere. Political parties are held in contempt and MPs are accused of being self-serving. The weakness of our political culture and economic reliance on the City, makes it much more difficult to neutralise its political influence and damaging social consequences. As a predominantly service economy we cannot shift our priorities back to production in order to create stable and more equitable forms of economic development.

For the middle classes who have gained the most from the last few decades, the benefits of consumer affluence are now offset by anxieties over debt, the growing pressures and costs of education, the prospect of falling house prices, and the threat of economic recession. The fear of impoverishment in old age, and the burdens of caring for aged relatives, extend across the population. Compounding these is the threat of global warming. For the great majority of people, there are no individual, market solutions to these problems.

The Labour government’s response to the excesses of the super rich and the insecurity of everyone else is to fight the next election on the themes: “on your side” and “at your service”. The first is banal and vague, begging the question, whose side is the government on? The second sounds like a dull remake of Are You Being Served, a tawdry customer focused sitcom that no one will watch. If this is all it can manage then it’s going to lose the next election.

We need an alternative. It should focus on four issues: the economy, social justice, democracy and ecology. There has to be a new kind of relationship between social justice and security whose principle goal is ending poverty and reducing inequality. The principle of social insurance that was rubbished by government and markets alike now looks like simple common sense. The tax system needs reform to redistribute wealth.

The way to challenge the power of the market over society is through democracy. Electoral reform, enlarging individual freedom, promoting trade unionism and devolving power back to local government would re-energise individual and collective political agency. Climate change is the major challenge of the era. Tackling climate change and the end of oil will require a new green deal, a major development of our productive economy. It will need new hypothecated green taxes. Mutuals and pension funds could be used as investment sources. Over the longer term we need a green economy in transport, consumerism and new industries in recycling, insulation and renewable technologies.

The paradox of climate change is that the size of its threat is the size of the political opportunity to create a collective sense of purpose toward a common good. In a cynical age, a bit of idealism can go a long way.

The Verdict on Brown

Ellie Keen — Thu, 13 Mar 2008 22:52:27 +0000

There was a fine symmetry to the whole career. Early Broon triumphed, not by prudence, but by flogging third generation phone bandwidth at ridiculous prices in 2000, getting over £20 billion for something valued realistically at about £3 billion. This scam was revenged by Northern Rock, which has hit the Treasury for £40 billion and counting.

Brown started by doing what no-one had expected – least of all Ken Clarke – and sticking to the limits that the Tories in pre-election mode had let themselves in for. This showed up in inadequate infrastructural investment and the collapse of Labour’s transport strategy. Dotcoms, however, enabled him to present himself as a sound financier and debt-reducer. This sleight-of-hand enabled him counter-cyclically to inject investment into the public sector to combat the post-2002 downturn. He couldn’t have done this within the Eurozone. But he couldn’t invest in technology either, because the R&D hadn’t been done. Broonite job-creation, while it didn’t add much to net public expenditure, didn’t add to productivity either. Where cash flow was necessary to achieve innovation, notably in hospital equipment or industrial training, this absence of resources, planning and direction could be expensive and disastrous.

The primitive technology of retailing was a different matter, and made up the Brown ‘renaissance’: the dominance of fashion, advertisement, marketing, and persuasion over rational appraisal. What would happen when this retail saturnalia didn’t get through to those in real need? Ironically, this made survival easier for Blair, and for David Cameron, the first Conservative leader from adland; the black arts of Saatchi were now in the driving seat. Under New Labour there had been no continuity with the mixed economy as preached by Tony Crosland, or even with the somewhat Gaullist version of it that persisted in the Thatcher years: ‘All power is marvellous. Absolute power is absolutely marvellous,’ as some wag had put it in these plummy vowels. What Broon had gone for was the American Business Model, oblivious of the warnings of a fellow-Scot, the economist John Kay: “The countries where systems most resemble the prescriptions of the American Business Model – unbridled individualism under weak government – are Nigeria and Haiti, which are among the poorest on the planet.” Broon had ticked all the boxes of regulation, so what was in place looked strong. Its effectiveness was another matter.

In New Labour’s Britain, the rot started at the top. ‘Self-regulation’ under the Tories had been a farce, but Labour’s ‘policemen’, ostentatious in intention, were ineffective. The difference in power between few and poorly-paid regulators and immensely wealthy, PR-minded corporations and wealthy and unscrupulous incomers from the USA, the Middle East and the ex-USSR was simply too great.

Inadequate regulation is worse than ‘self-regulation’: a cartel means a single head, which can be carpeted or even chopped off. But corrupt officials, or those who simply give up, can survive indefinitely. This regulatory paralysis had, according to Nick Kochan, pervaded the ‘offshore island’ of the City of London. The European road haulage industry showed a similar systematic failure through the abuse of the regulatory system, not by marginal operators, but by giant international firms such as Betz, the biggest haulier in Europe, who relied on powerlessness in Eastern Europe, systematic political pressure from the likes of Daimler-Chrysler and straightforward corruption, backed up by the best legal brains. Such behaviour was not regarded as culpable – first by a management culture which was a stranger to ethical values; second by a Whitehall incapable of stemming manufacturing decline and desperate to attract global finance to the City; third by an interlinked growth of international PR, media and legal consultants, again London-based, which ‘wasted’ challenges by consumers, the press and media. A New Labour party cut off from its former trade union members proved a pushover.

Yet the carcase was still capable of a ‘great deal of ruin’. The Chancellor seemed to have taken on the staying-power of the old industrial barons, though the Blair-Brown dyarchy aggravated governmental weakness by sapping Cabinet control. Corruption needed a long run to take effect. Brown’s true forerunner, Henry Dundas ‘Harry the Ninth’, bought and sold Scotland for decades in the 18th century. He could use imperial patronage as collateral; Brown had to pay with the institutions of the state itself.

Systemic failure becomes even more chronic on the civic front. Voluntary associations and the British ‘public culture’ – the trade unions, the universities, the BBC, the political elite – once formed a dense civil society which patrolled the operations of the British social market. Brown celebrated this fulsomely once it was on the skids. Now, coincident with the weakening of regulation, there occurred both a collapse of civic virtù, and a pervasive rise in ‘illegalism’. Could you have virtù, with a decline was in public participation? Voting in national elections was down to around 60 per cent in general, together with flaws on an American scale in registration and voting, and no British reform in sight. Surveys showed the public, and in particular yoof, as the most ill-informed in Europe. Devolution within the UK, in which so much confidence was invested by organisations like Charter 88, hit the buffers in North East England in November 2004. As a possible future, federalism was dead in the water. The accumulating weight of evidence, uncoordinated but cumulative, is damning. Seen when moving around the provinces of Britain by train and bus, sampling the local press and broadcasting, walking the towns themselves, things got worse. The collapse of social norms gripped liberal Tory commentators such as Ferdy Mount in Mind the Gap, or Nick Davies’ reports in the Guardian on education, drug addiction, and ultimately the quality press itself.

But ‘illegalism’ can be calculated quite precisely in Brown’s own Scotland: the drink culture of youth in cities and provincial towns, the impact of drugs on the country’s hidden unemployed and the emergence of a tough and resilient criminal culture which the police (even if competent or willing) are incapable of putting under restraint, which draws particular sustenance from one of the New Labour’s ‘successes’: terrorist diversification in the ghettos of Belfast.

In the 1970s Margaret Drabble, Paul Theroux and Jonathan Raban made similar enquiries into the Condition of Britain, anticipating some of my conclusions. But the deliberate destruction of the civic membrane and its replacement by ‘shopping and f*cking’ was new in imposing a consumption-based economics: waving goodbye to rational decision-making in the style of Adam Smith’s citizenry. Dumbing-down, tarted up as ‘post-modern irony’ had a very important place in the ‘real’ politics of New Labour. Winners? They were already abroad, in villas and yachts, enjoying a life-style impossibly remote from the sink estates around old industrial cities, little market towns made hellish by booze and drugs, desolate, gang-run schemes. Yet such life-styles were linked umbilically connected to one another.

The ‘matter of Britain’ was difficult to focus, as Britain itself, once held together by a powerful industry and adaptive, often Celtic, politicians, dissolved. In Floating Commonwealth I had charted the rise and fall of the institutions that held it together in the steam age, and the constellations of civics and goodwill which had reinforced this. The combination of MetroBrit and provincial hardmen that Brown, represented wrecked what remained of this. A regional mittelstand gave way to the bawling of the bourgeois, using football mania to play at being proletarian, while Englisnness presented itself as the saloon-bar-saloon-car psychosis of Jeremy Clarkson. Looked at more analytically, the poverty of property became apparent: an obsession fed by sacrificing culture and pride, and then by desperate strategies to get away from the mess: daft, booze-freighted weekends abroad, crazy, four-wheel drives to weekend ‘retreats’. What impends is akin to the implosion of the Christian Democrat and Socialist Parties in Italy in 1993. Worse, in fact: Robert Putnam’s Making Democracy Work found civic virtue continuing in an urban civility that went back to the Middle Ages. Consider the Italian cities’ wretched British twins.

Brown’s fortunes were unravelling long before Blair withdrew. There was a cultural context. The foot-soldiers of the Labour party in the provinces had been the public-sector middle class, what Dahrendorf called Bildungsbürgertum: Coleridge’s ‘clerisy’, if you like: teachers, social workers, academics, public sector trade unionists. Spurned by Blair, they had turned to Brown only to discover a dedicated neo-con, autistically incapable of exercising any sort of European intellect. Faith in him ebbed even faster than his economic plausibility, leaving Labour with a future as dire as that of the Tories after 1992.

‘Tony succeeds by consoling the people Gordon annoys’ had been Peter Hennessy’s explanation in 2002 for the government’s survival. The dyarchy forged by the famous Granita compact of 1994 worked on Brown’s side like Thatcher’s government after her first disastrous months in office: putting ‘dries’ in the supply ministries and seeing the ‘wets’ in the spending ministries tear lumps out of each other. In this Brown had oversight over all of the supply and spending departments, Tony did diplomacy and spin. Initially successful, particularly in Northern Ireland, Blair’s portion began to fall apart after 2003 with the Iraq war. By 2005 it was Brown’s turn. Not only was his economic policy exposed as narrowly based on an essentially frivolous demand-management, its social implications – the destruction of working-class autonomy in favour of a multiplying bureaucracy on one hand and an underclass on the other – made New Labour seem to lose all elements of progressivism and become a narrow, marketised dogma. What had vanished, in the course of this development, was the resilience of civil society. Brown attempted to revive it, but it seemed to crumble apart, starting with the Labour party and proceeding through the progressive decoupling of English, Scots and Welsh politics, and the flowing tide of ‘illegalism’.

The Euroneurosis of the English press was the result of an increasing realisation that beneath the trapeze of Brownite economics and the relentless takeover activity of the City, there was no safety net. Globalisation had been as both inevitable and essentially American, yet in accountancy terms the future was already European by 2005. The selling-off of British assets to European, American or Middle Eastern interests left an ever-narrower industrial base, so that when the housing-retailing current weakened its grip, what the Germans call an Umwälzung was inevitable. A cash-rich though growth-poor Europe will use an overturning of the whole structure, with the contraction of retailing spreading out into the sub-prime housing morass. Their investors will extend through bargain-basement takeovers the sort of hegemony exerted by the same European firms which had already largely taken over the power and postal services. Under the rhetoric of Whitehall nationalism, some sort of Vichyite accommodation will take place on in the City. Soon this will extend to managing the debt culture created by real estate and finance.

The pinch-point will be Scotland, once Brown’s own fortress. The Scottish Parliament general election in May 2007 defeated Labour. Brown had ‘taken a baseball bat to the SNP’ in 1999, and sulked in 2003. If in 2007 he was discredited, the SNP got the overall leadership of an ‘independence’ ticket because Labour’s Bildungsbürgertum jumped ship. More important, the SNP has been moving towards its own European goal. Renewable energy beckons along the Atlantic coast. Scotland needs European participation in this. What it doesn’t need is the burnt-out case that the British economy had now become. Moreover ‘Scotland’ doesn’t mean the predictable knee-jerking of Middle England, but a clever social-democrat well to Brown’s left: Alex Salmond is as experimental and as alarming as Lloyd George a century ago. Westminster should wake up to this. But there is no sign that it has, or ever will.

Christopher Harvie is an SNP MSP for mid-Scotland and Fife.

Why Pay Matters

Ellie Keen — Sun, 10 Feb 2008 00:01:39 +0000

Pay matters. So do public sector workers. Every paramedic, nurse, school meals worker and teaching assistant is an invaluable thread in the fabric of our society and economy. By setting a 2 per cent limit on public sector pay, the government is inflicting real pay cuts on the very people we all depend upon.

UNISON, with its 1.4 million members, the majority delivering public services, is part of the ‘Speak up for Public Services’ campaign launched by the TUC just a few weeks ago. We are united in our demands for fair pay for the six million public sector workers in the UK. They don’t drive inflation as has been argued in some quarters. Indeed, research by Incomes Data Services (IDS) clearly shows that this is not the case. Public sector workers, just like all other workers, need a living wage and this won’t be delivered through pay cuts. Leading poverty experts estimate that the minimum wage should be £6.75 per hour — a figure UNISON has firmly in its sights.

The Labour government inherited a recruitment and retention crisis in our public services. Cash was tight, morale was low and services suffered. A lot has been achieved since then, but those positive advances are threatened by a squeeze on pay. We must look to the future. Pay cuts put talented graduates off joining the public sector. Already students have complained to us that pay, conditions and bonuses are better in the private sector. We all want quality public services, but they do not come cheap. Staff deserve fair pay and good conditions.

Many public sector workers are low paid women. They often work part time and many are suffering the double whammy of unequal pay and real cuts in pay. When more women find it harder to make ends meet, they will be forced to claim benefits.

Each week new reports emerge of mounting household bills. These reports are a constant reminder that the cost of living is rising fast in the UK. We’ve seen huge hikes in energy costs. Even before these rises, one in six British households was facing fuel poverty — a disgraceful statistic in one of the richest nations. Families are forced to buy fuel through pre-payment meters, costing them an average of £195 per year more. Those who have least are forced to pay more.

Meanwhile, rich fuel companies are building up massive profits, driving inflation and reaping huge rewards. The government should take action against those companies, hold an enquiry into prices and levy a windfall tax.

Food inflation is running at 5.9 per cent — faster than at any time since the 1970s. And housing costs continue to rise — the latest Office of National Statistics figures show that housing costs take up the lion’s share of household expenditure at a massive 20 per cent. Price hikes in these three alone — fuel, food and housing — hit the low paid hardest and form an ever-increasing percentage of their expenditure. That alone should make the case for fair pay for public service workers.

It doesn’t matter how much the government quotes the CPI as a measure of inflation, people know that it does not reflect what is happening to the pound in their pocket. The RPI is a more accurate measure of inflation — it includes housing costs for a start. These factors should not be ignored in determining public sector pay levels.

We know that more cash can be made available to improve pay and conditions for public sector staff. For example, local councils have over-delivered on central government efficiency savings by £1 billion. By March 2008 total savings will be £4.25 billion. Why can’t these savings be invested in the workforce that local authorities and local communities rely on for the delivery of services?

If you want first class public services, if you want the sick and elderly cared for, your children well-educated and protected and your streets clean and safe, you have to invest in the workforce.

And remember, too, that public service workers have always been the Labour Party’s core supporters. They will feel angry and betrayed if they are singled out for such unfair treatment. UNISON is determined to secure decent pay rises for all its members.

'Creative Destruction' - the Madness of the Global Economy (Part Two)

JamieSW — Thu, 07 Feb 2008 14:04:44 +0000

Exchange With The Independent’s Hamish McRae

In Part One of this alert, we noted an observation made by Hamish McRae, economics columnist at the Independent:

“Bankers, like the rest of us, make mistakes, but the scale of the mistakes, particularly in US banks, has been enormous.” (McRae, ‘The markets are bad, but don’t panic just yet’, The Independent, January 23, 2008)

We asked him why he talked merely of “mistakes”, adding:

“Why are the terms of your analysis so narrow; so skewed towards the perspective of financial power?” (Email, January 23, 2008)

As an alternative, we suggested a few observations made in Part One; in particular, that the current economic system is both innately unstable and destructive. We asked McRae why he appears to reject such a rational analysis. On the same day, he wrote back confusingly:

“Thanks – I see your point. I suppose I feel I should deal with the world as it is, rather than as it might be. Is that narrow? Well, yes if you are seeking a discussion of the merits and demerits of the present global market economy, but no if you are trying to understand and calibrate what is actually happening. I think I am probably more use doing the latter.”

We responded:

“You say: ‘I feel I should deal with the world as it is.’ Perhaps it would be more accurate to rephrase this as: ‘I feel I should deal with the world as I see it.’”

His reply, sent as he was about to head for the World Economic Forum in Switzerland:

“Not sure – let me think about it. But in all earnestness I do think that you should not discount the huge progress made in India and China in lifting people out of poverty. I visited both in recent months and am in awe. I shall have to stop this interchange as I have to pack for Davos now.”

But just how accurate is McRae’s observation of the “huge progress made in India and China”, a mantra that appears regularly in the corporate media?

India And China: The Latest ‘Success Stories’ Of Capitalism

Cheerleaders for capitalism are keen to advertise the system’s ‘successes’. Earlier, model countries were said to include Japan, South Korea, Malaysia and Thailand. But that was before the East Asian financial crisis of 1997-98. India and China are today’s poster states for capitalism.

Some progress in these countries is real. However, as we noted before, any social progress under ‘neoliberal reforms’ has not been sustained and, moreover, has been to the detriment of people losing out elsewhere in the global economy (not to mention the damage to global ecosystems).

Another important factor, glossed over in conventional reporting, is that massive state intervention and subsidies have been required to ameliorate the worst consequences of ‘shock therapy’ in following neoliberal doctrines of ‘market reforms.’ Political economist David Kotz notes that China’s strategy of opening up its economy since 1978 “bears almost no resemblance to the neoliberal approach followed by Russia.”

For example, government price controls were lifted only gradually in China. Also, the large-scale privatisation of state-owned enterprises, upon which many people depended, did not begin until 1996, 18 years into the transition. The state continued to direct and support large state enterprises, only gradually loosening its regulation as experience grew of operating in a market environment.

Public spending and public investment continued to grow, rather than shrink as in Russia. China did not privatise its banks, as Russia did, but retained a state-controlled financial system. And rather than rapidly eliminating barriers to trade and capital movements, China has retained significant controls over both. (Kotz, ‘The Role of the State in Economic Transformation: Comparing the Transition Experiences of Russia and China’, Political Economy Research Institute, University of Massachusetts at Amherst, October 1, 2004; http://www.peri.umass.edu/fileadmin/pdf/working_papers/working_papers_51…)

By keeping strict control of key elements of the economy, China managed (at least initially) to avoid the disasters that assailed other countries. India, too, has long pursued interventionist economic strategies, with the government restricting the attempted access by foreign corporations to domestic markets and enterprises.

Commentators in the corporate media seem reluctant to acknowledge all this when they talk of the supposed successes of ‘market reforms’ in China and India. Moreover, behind McRae’s impression “of huge progress” in these countries, the reality is far more disturbing.

Take India first. In 2007, the country’s rank in the Human Development Index of the United Nations Development Programme (UNDP) fell two places to 128. That put India in the bottom 50 of the 177 nations examined. P. Sainath, rural affairs editor of The Hindu newspaper, points out the disturbing context of the statistics:

“El Salvador, which saw a bloody civil war for over a decade from the 1980s, ranks 25 places ahead of us at 103. Bolivia, often called South America’s poorest nation, is 11 steps above us at 117. Guatemala, nearly half of whose citizens are poor indigenous people, saw the longest civil war in Central America. One that lasted close to four decades and which saw 200,000 people killed or disappear. That too, in a nation of just 12 million. Guatemala ranks 10 places above us at 118.” (Sainath, ‘India 2007: High growth, low development’, The Hindu, December 24, 2007)

Sainath adds, with grim humour:

“India rose in the dollar billionaire rankings, though. From rank 8 in 2006 to number 4 in the Forbes list this year [...] In the billionaire stakes, we are ahead of most of the planet and might even close in on two of the three nations ahead of us (Germany and Russia).”

As India’s new billionaires snap up palatial homes and luxury yachts, desperate conditions for the nation’s farmers have led to an epidemic of suicides. Vandana Shiva, director of the Research Foundation for Science, Technology and Ecology, refers to the appalling suicides of more than 40,000 Indian farmers since 1997 as “genocide”:

“This genocide is a result of deliberate policy imposed by the World Trade Organisation and implemented by the Government. It is designed to destroy small farmers and transform Indian agriculture into large-scale corporate industrial farming.”

Farmers are in despair over crippling debts from rising production costs and falling prices, both linked to the corporate-led imposition of ‘free trade’ in agriculture. Shiva warns of the growing forced dependence on hybrid and genetically modified seeds which are costly and cannot be saved. These consequences derive from the corporate policy of privatising seed supply and the drive towards multinational seed monopolies. (Special correspondent, ‘Farmers’ suicides nothing but genocide, says Vandana Shiva’, The Hindu, May 9, 2006)

So India’s ‘success’ has come at a huge social price. What about China?

“A Large Statistical Glitch”

A new World Bank study has revealed that China’s economy is considerably smaller than had been thought, perhaps by as much as 40 per cent. “What happened was a large statistical glitch,” reported the New York Times. But it’s a glitch that has huge repercussions:

“Suddenly the number of Chinese who live below the World Bank’s poverty line of a dollar a day jumped from about 100 million to 300 million.” That is the same size as the entire population of the United States. The new figures mean that the size of India’s economy, too, has probably been exaggerated until now. “And, by the way, global growth has very likely been slower than we thought.” (Eduardo Porter, ‘China shrinks’, New York Times, December 9, 2007).

Economist Martin Hart-Landsberg notes that China’s alleged success is “at the expense of economic problems elsewhere”:

“[W]hile investment rates are very high in China, they are low and falling in most of the rest of East Asia. Their economies have become increasingly dependent on exporting to China and to succeed they have been forced to keep wages low.” (Email, January 26, 2008)

China has largely failed to generate new jobs: an endemic feature of neoliberalism. Indeed, a 2004 study by Alliance Capital Management reported that manufacturing jobs are being eliminated faster in China than in any other country. Between 1995 and 2002, China lost more than 15 million factory jobs: 15 per cent of its total manufacturing workforce. (Jeremy Rifkin, ‘Return of a Conundrum’, The Guardian, March 2, 2004)

Even by the World Bank’s own analysis, China’s poor have been growing poorer as the country’s economy ‘booms.’ The real income of the poorest 10 per cent of China’s 1.3 billion people fell by 2.4 per cent in the two years to 2003. During this time the economy was growing by nearly 10 per cent a year. Over the same period, the income of China’s richest 10 per cent rose by more than 16 per cent. (Richard McGregor, ‘China’s poorest worse off after boom,’ Financial Times, November 21, 2006)

Tragically, studies of China’s health indicators show a slowdown or even reversal of trends. A report in 2005 “concluded that China’s rates of improvement in life expectancy were lower than those of East Asia and the Pacific region as a whole in every decade other than the 1960s, and fell below the world average in the 1990s. They observed a similar trend for infant mortality, noting that China’s advances were again outpaced by those of high income countries and other East Asian and Pacific states.” (Sanjay Reddy, “Death in China, Market Reforms and Health,” New Left Review, 45, May/June 2007, p. 62)

Hart-Landsberg warns that “past health gains from immunizations, water and sewer infrastructure, education, etc. may now be exhausted. And as marketization continues, the social infrastructure is being destroyed, with the consequence that problems are emerging for most Chinese. Social support/public health care system is not there and health care is now a market process. Many cannot afford it as they have to pay for access to it.” (Email, January 26, 2008)

On top of this working class misery, inequality between China’s rich and poor is appalling and is actually getting worse. The Asian Development Bank studied the degree of inequality, using the popular Gini coefficient, in 22 East Asian developing countries. It found that China had the second highest degree of inequality, trailing only Nepal (Asian Development Bank, ‘Inequality in Asia, Key Indicators 2007, Special Chapter Highlights’, p. 3; http://www.adb.org/statistics/).

China’s tragic transformation from one of the most equal, to one of the least equal, countries is even more striking if we switch our measure of inequality from the Gini coefficient to income ratios; in particular, the earnings of the top 20 per cent relative to the bottom 20 per cent of the population. Using this measure, China had by far the highest growth in inequality (Ibid., p. 7). Sadly, Hart-Landsberger warns that there is “every reason to believe that these [official] statistics strongly underestimate the degree of inequality.” (Email, January 26, 2008)

There are further ‘hidden’ costs to China’s rapid growth: rising pollution, destruction of ecosystems and the heightened threat of climate chaos. Future generations will bear the brunt of these ‘externalities.’ The Worldwatch Institute reported at the end of 2006 that China had slid down the annual Climate Change Performance Index (CCPI), a measure of a country’s climate protection efforts, due to its rising emissions of carbon dioxide. China ranked 29th out of 53 countries in 2006, dropping to 54th out of 56 in the 2007 update. (Hua Zhang, ‘China’s Climate Change Performance Worsening’, Worldwatch Institute, November 23, 2006; http://www.worldwatch.org/node/4748)

The history of neoliberal ‘reforms’ suggests things can only get worse.

Concluding Remarks

The dominant system of economics is unstable, inimical to social justice and lethally damaging to the environmental support systems on which we all depend. A major failure in professional journalism has been the refusal to analyse this; or even to report that real growth rates in the developed world have been declining since the 1970s. Instead, corporate-employed journalists and mainstream analysts frequently extol the alleged spectacular achievements of an ‘unparalleled’ rise in wealth.

We referred in Part One to the desperate attempts by governments to manipulate official statistics to hype the ‘success’ of global capitalism. Do commentators in the media really believe that a civilised society should tolerate an economic system so dependent on deception to maintain public ‘confidence’ in ‘free’ and ‘open’ markets?

The media’s omission of rational perspectives on the global economy is particularly galling in the case of the publicly-funded BBC, which professes a “commitment to impartiality.” This “commitment” supposedly means that “we strive to reflect a wide range of opinion and explore a range and conflict of views so that no significant strand of thought is knowingly unreflected or under represented.” (BBC, Editorial Guidelines, http://www.bbc.co.uk/guidelines/editorialguidelines/edguide/impariality/... accessed January 23, 2008). As on so many other issues that we have examined in media alerts over the years, this is simply BBC rhetoric.

Meanwhile the threat of global economic recession, the horrific divisions between rich and poor, and worldwide climate chaos, threaten to engulf us all.
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