A sense of public duty and freedom of the press are considered to be vital for the health of liberal democracies.

The press is supposedly devoted to pluralist perspectives and exposing all that governments and wealthy elites routinely would like to sweep under the rug.

But does the media truly value this responsibility?

The 2019 general election campaign saw much of the media systematically cover the Labour Party’s leader in a negative light, often with little/no discussion of the policies. Hostile press coverage aimed at Labour in December’s election was more than double the intensity found during the 2017 vote, according to a study reported by the Independent.

Events and angles threatening to major advertisers, financial backers and influencers are all too often marginalised or ignored altogether.

Peter Oborne, the Daily Telegraph’s former chief political commentator resigned over what he said was a policy of deliberately suppressing negative stories relating to HSBC, including the latter’s role in allegedly helping wealthy clients to dodge taxes.

HSBC was a lucrative advertising account for the Telegraph. For the paper, Oborne reported, HSBC was “the advertiser you literally cannot afford to offend”.

Craven coverage in the finance industry

The finance industry has a history of mis-selling a variety of financial products, such as mortgages, investment bonds, split-capital investment trusts, precipice bonds, interest rate swaps, self-invested personal pensions, payment protection insurance and pension transfer advice. It has been involved in the rigging of interest/exchange rates, tax avoidance, bribery, corruption and money laundering. The UK has had a banking crisis in every decade since the 1970s, culminating in the 2007-08 crash.

Amidst the stream of anti-social practices, the finance industry is seeking to portray itself as socially responsible by showing how much tax it pays.

Earlier this month, a report by PricewaterhouseCoopers (PwC) claimed that in 2019 the industry paid £75.5bn in UK taxes. PwC audits many of the financial enterprises but here is acting as a PR and policy advocate for the industry, all for an undisclosed fee.

The press release and the £75.5bn figure was dutifully parroted by the Daily Telegraph, Daily Mail, New York Times, City AM, Accountancy Daily (published by the Institute of Chartered Accountants in England & Wales) and many other outlets –without asking any questions about PwC’s conflict of interests.

None seem to have actually examined the report. If they did, they would have noticed that the £75.5bn is not an actual amount. It is extrapolated from a sample of 52 companies. The report adds that “PwC has not verified, validated, or audited the data and cannot therefore give any undertaking as to the accuracy of the study results”.

£42.1bn of the alleged tax contribution relates to taxes collected from customers (e.g. VAT) and employees (PAYE and National Insurance Contributions). These are not directly borne by the industry.

The PwC report is silent on the cash flow boost provided by taxpayers. Taxes are collected and paid by companies to HMRC in arrears. For example, VAT settlement is generally made each quarter and PAYE amounts are paid to HMRC about three weeks after the event. The net effect is that the finance industry effectively received an interest-free loan of £42.1bn, financed by customers and employees, for a period of three weeks to three months.

The report claims that £33.4bn of taxes were directly borne by financial services firms – a claim which cannot be corroborated.

The report makes no mention of the social impact of its anti-social practices,and in doing so exaggerates the finance industry’s contribution to society.

We all remember the 2007-08 bank bailout which ushered in never-ending austerity, the ongoing scandals of HBOS and RBS frauds, forging of customer signatures, mis-selling of financial products,  London Capital & Finance and other corporate collapses.  

An independent study estimated that between 1995 and 2015, the UK finance sector cost the UK economy around £4,500bn in lost economic output. £2,700 billion relates to misallocation of resources which have been diverted away from more productive activities of the economy to the finance sector, and £1,800bn relates to the 2007-08 crash and its aftermath.

The skewed reporting of finance and politics more generally is a matter of deliberate choice by the media.

It is a form of censorship, with advocacy for advertisers and political objectives favoured by the elites. The left needs to develop strategies for resistance.

Prem Sikka is professor of accounting at the University of Sheffield and emeritus professor of accounting at the University of Essex. He is a contributing editor to LFF and tweets here.

A sense of public duty and freedom of the press are considered to be vital for the health of liberal democracies.

The press is supposedly devoted to pluralist perspectives and exposing all that governments and wealthy elites routinely would like to sweep under the rug.

But does the media truly value this responsibility?

The 2019 general election campaign saw much of the media systematically cover the Labour Party’s leader in a negative light, often with little/no discussion of the policies. Hostile press coverage aimed at Labour in December’s election was more than double the intensity found during the 2017 vote, according to a study reported by the Independent.

Events and angles threatening to major advertisers, financial backers and influencers are all too often marginalised or ignored altogether.

Peter Oborne, the Daily Telegraph’s former chief political commentator resigned over what he said was a policy of deliberately suppressing negative stories relating to HSBC, including the latter’s role in allegedly helping wealthy clients to dodge taxes.

HSBC was a lucrative advertising account for the Telegraph. For the paper, Oborne reported, HSBC was “the advertiser you literally cannot afford to offend”.

Craven coverage in the finance industry

The finance industry has a history of mis-selling a variety of financial products, such as mortgages, investment bonds, split-capital investment trusts, precipice bonds, interest rate swaps, self-invested personal pensions, payment protection insurance and pension transfer advice. It has been involved in the rigging of interest/exchange rates, tax avoidance, bribery, corruption and money laundering. The UK has had a banking crisis in every decade since the 1970s, culminating in the 2007-08 crash.

Amidst the stream of anti-social practices, the finance industry is seeking to portray itself as socially responsible by showing how much tax it pays.

Earlier this month, a report by PricewaterhouseCoopers (PwC) claimed that in 2019 the industry paid £75.5bn in UK taxes. PwC audits many of the financial enterprises but here is acting as a PR and policy advocate for the industry, all for an undisclosed fee.

The press release and the £75.5bn figure was dutifully parroted by the Daily Telegraph, Daily Mail, New York Times, City AM, Accountancy Daily (published by the Institute of Chartered Accountants in England & Wales) and many other outlets –without asking any questions about PwC’s conflict of interests.

None seem to have actually examined the report. If they did, they would have noticed that the £75.5bn is not an actual amount. It is extrapolated from a sample of 52 companies. The report adds that “PwC has not verified, validated, or audited the data and cannot therefore give any undertaking as to the accuracy of the study results”.

£42.1bn of the alleged tax contribution relates to taxes collected from customers (e.g. VAT) and employees (PAYE and National Insurance Contributions). These are not directly borne by the industry.

The PwC report is silent on the cash flow boost provided by taxpayers. Taxes are collected and paid by companies to HMRC in arrears. For example, VAT settlement is generally made each quarter and PAYE amounts are paid to HMRC about three weeks after the event. The net effect is that the finance industry effectively received an interest-free loan of £42.1bn, financed by customers and employees, for a period of three weeks to three months.

The report claims that £33.4bn of taxes were directly borne by financial services firms – a claim which cannot be corroborated.

The report makes no mention of the social impact of its anti-social practices,and in doing so exaggerates the finance industry’s contribution to society.

We all remember the 2007-08 bank bailout which ushered in never-ending austerity, the ongoing scandals of HBOS and RBS frauds, forging of customer signatures, mis-selling of financial products,  London Capital & Finance and other corporate collapses.  

An independent study estimated that between 1995 and 2015, the UK finance sector cost the UK economy around £4,500bn in lost economic output. £2,700 billion relates to misallocation of resources which have been diverted away from more productive activities of the economy to the finance sector, and £1,800bn relates to the 2007-08 crash and its aftermath.

The skewed reporting of finance and politics more generally is a matter of deliberate choice by the media.

It is a form of censorship, with advocacy for advertisers and political objectives favoured by the elites. The left needs to develop strategies for resistance.

Prem Sikka is professor of accounting at the University of Sheffield and emeritus professor of accounting at the University of Essex. He is a contributing editor to LFF and tweets here.

As costs mount, Brexit goes round the same old circles

Friday, 17 January 2020

A report from Bloomberg Economics this week estimates the cost of Brexit since the Referendum result to be £130 billion, with a further £70 billion predicted by the scheduled end of the transition period. £200 billion is a colossal sum and in any other political context you’d expect it receive far more attention than it has. Of course it is only one estimate, but it comes from a credible source (and it is consistent with others) and, again of course, it is a cost compared with what would have happened and, in that sense, one which does not present a bill to be paid nor something directly felt in people’s pockets. Still, it does make the raging debates over who should pay for the cost of the Sussex’s security seem rather trivial.

Perhaps there’s a sense, now, that we all know Brexit is going to be hugely expensive and so it’s not worth discussing it anymore. Not that committed Brexiters necessarily accept this. Just as the predictions of economic costs were dismissed on the grounds that ‘you can’t predict what is going to happen in the future, anything might happen’, so, now the costs are racking up, they are dismissed on the grounds that ‘you can’t know what caused past events to occur, they might have occurred anyway’.

It is a hermetically sealed logic that cannot be reasoned with. And even to try provokes the second, though contradictory, line of defence, where we are invited to believe that Brexit was chosen as the result of an earnest political science seminar about theories of sovereignty, and was nothing to do with economics at all (this, presumably, is why the slogan chosen for the bus was a claim about … the supposed economic benefits of Brexit).

As for what the economic costs of Brexit will eventually end up being, that will to some degree depend on what kind of trade deal gets done and here confusion continues to reign. The EU have produced two detailed briefing packs (here and here) which, so far as I know, have no counterpart on the UK side, at least in the public domain. There is a sense that we are heading towards a re-run of what was symbolised by the famous picture of the opening of the withdrawal talks, where the EU side sat with bulging files whilst the UK relied upon David Davis’s vacuous grin.

The recurrent dynamics of Brexit

If so, there are good reasons for that and they go back to the three unchanged underlying dynamics of Brexit which I outlined after the election result. In brief, these are lack of realistic definition of what Brexit means or how to do it; the insatiable demands of the Brexit Ultras; and the general political imperative of all governments to avoid economic and social breakdown. These are contextualised by a fourth factor, namely (largely self-inflicted) time pressure.

As regards the first of these, the UK government is still to a degree in thrall to the Brexiter fantasies of a quick and easy deal in which the complexities and trade-offs are seen as just a ploy by the EU that will be overcome by determined negotiation by a ‘true Brexit’ administration. So, at times, the government is still talking as if a comprehensive, deep trade agreement, perhaps with a substantial services element (£), can be achieved by the end of the year whilst at other times the implication is that it will be much more limited, but that that is fine. As from the outset, the Brexiters – who are now firmly in control of the government – have no agreed, realistic idea of what they want.

In consequence, there are other ways in which the start of the trade negotiations is likely to be analogous to that of the Article 50 talks. It is already written into the Political Declaration that the highly technically complex and politically contentious issue of fisheries will be amongst the first matters to be discussed. It may well play the part of the financial settlement, which the UK first tried to deny the EU had any right to. But with EU briefings suggesting that they will insist (£) on a more or less status quo deal on fishing as a prerequisite for any progress on other issues, it may also be the subject for a re-run of the 2017 ‘row of the summer’ over sequencing.

This brings into play the second of the recurrent dynamics. There are clear signs that Brexit Ultras like John Redwood and Owen Paterson are squaring up to make fisheries, which have always been totemic to Brexiters despite being a tiny part of the UK economy, a defining issue. With some suggesting that the UK might accept that EU proposal in return for a better deal on financial services there is a good chance that this will prove to be an early flashpoint between the government and its hard line MPs. Their position will be not just that the UK should not accept the EU proposal, but should not make any agreement on fisheries until the entire deal is done or, simply, walk away from the talks without a trade deal at all.

If so, that will add impetus to the established pattern in which the Brexit Ultras always push for a harder or ‘purer’ form of Brexit. That saw the shift from their advocacy of soft (single market/ Norway) to hard (FTA/ Canada) Brexit. It has reappeared now in the demand that the UK should, in parallel with or even as a priority over negotiating an EU trade deal do so with the US, as argued by ERG leader Steve Baker this week (£).

As with the fisheries issue, there is no economic logic to this at all. The geographic closeness of the EU and the volume of UK trade that results from that, as well as from decades of EU membership, makes a EU trade deal massively more important than any Free Trade Agreement with the US could ever be. Moreover, to some extent, the two deals are mutually exclusive in that they entail alignment with different regulatory orbits.

But the issue here is not economic logic, even though its advocates present it as if it were by, for example, their irrelevant talk of the size of the US economy. Rather, having belatedly understood that the trade deal they for so long championed will entail some regulatory alignment with the EU – and the deeper the deal, the greater that alignment – the Ultras find even that hard Brexit to be unbearable.

For some that may be informed by an ideological belief in low regulation, small state politics – the Singapore-on-Thames delusion – and, to that extent, there’s an obvious reason why it will preclude a deal with the EU. However, I believe that the more fundamental reason is a pathological loathing of the EU in every manifestation, and indeed of non-EU European institutions such as the European Court/ Convention of Human Rights (ECHR). They want to expunge every last trace of the EU’s presence in the UK. It is much closer to a religious mania than an ideological axiom, and, as for economic cost, that is irrelevant. No cost is too high to pay. If they were to gain the next concession, and get a US trade deal ahead or instead of an EU deal then they would certainly then make leaving the ECHR their next demand.

It is that ‘Brexit at any cost’ fixation which comes into conflict with the third dynamic that for any government, even one fixated by Brexit, the basic political pressure to avoid economic meltdown means that reality sometimes has to intrude. That could include recognizing the economic case for sacrificing fishing for financial services. More generally, to the extent that it is understood that there is only time for a minimal deal, if that, it may also be understood by government that, for many sectors of British business, such a deal would be little or no different to there being no deal at all [£]. It may also be sinking in that, trade deal aside, there is little prospect of the new arrangements for Northern Ireland being ready in time.

That, presumably, is what lies behind Boris Johnson implicitly recognizing, for the first time, that it may not be possible to do a deal in time (£). This may be the precursor to accepting that there will be an extension to the transition period. Time will tell on that, but as was shown by the ease with which he dropped his ‘die in a ditch’ pledge, such a volte face is well within his range.

Businesses and Brexit

Whether or not he extends (though especially if he does not) what is in prospect is the gradual leaching away of business from the UK, ratcheting up the costs of Brexit. This may well attract as little attention as the Bloomberg report and of course – as with all the examples so far – Brexiters will deny the cause. In this, they will be aided by the fact that few companies which relocate or (which is even more below the radar) decide to make new investments elsewhere will publicly attribute this to Brexit.

For it is important to understand that now that Brexit is unavoidable the relationship between business and the remain cause has fundamentally changed. Before, business lobbying against Brexit was consistent with, and part of, the remain campaign. But businesses rarely lobby on the basis of political principle rather than their own self-interest. With the remain cause lost, they will now make decisions based on that self-interest but will have no motivation to denounce Brexit policy as they do so.

On the contrary, especially to the extent that many will want to go on doing some business in the UK they will have no interest in alienating many customers and the government. An individual remainer might – for example – seek to publicise their decision to emigrate and to take their skills and taxes elsewhere in order make the political point that this is what Brexit has done. Few if any businesses will do anything like that. So it will be a slow and quiet economic puncture, not a noisy blow-out.

This scenario is made all the more likely because whatever economic realism derives from the third dynamic, it is in conflict with the lack of realism of the first and second. This can be seen in the report this week that Business Secretary Andrea Leadsom has substantially reduced contact with business groups (£) such as the CBI because she is irritated by them raising concerns about Brexit.

Here, again, there is a recurrent pattern in which those – in business, or the civil service, or elsewhere – who know the realities and complexities are sidelined for their lack of ‘true belief’. In ways that would have been astonishing to the traditional Tory Party, the CBI have long been regarded with scorn by Brexiters and, more generally, there were many reports during May’s administration of businesses being excluded by DExEU if they voiced scepticism about Brexit.

The paradox of Brexit

It is one of the biggest paradoxes of Brexit, because most of those who understand what it entails at a practical level do not support it, whilst most of those who support it strongly do not understand what it entails at a practical level. That is evident in microcosm even in the current row about Big Ben chiming on ‘Brexit Day’, with those who know the costs and technicalities involved advising against it, whilst the Brexit ‘bongers’ insist this is just remainer negativity and that a can-do attitude will overcome any obstacles if, indeed, they really exist.

At the wider level, this paradox presents any Brexit government with a massive problem. Either it ignores those with the knowledge and flounders around trying to square the impossible circle of ‘true Brexit’ with no adverse consequences, or it listens to those with knowledge and has to compromise on at least aspects of ‘true Brexit’.

Whilst that has been true throughout the Brexit process, it is now an acute issue with the trade negotiations starting and the timescale tightening. A key part of any trade negotiation process – and one reason they take a long time – is that governments need to engage and consult with the business and other groups which will be affected by whatever is agreed. If government as a whole persists with the Leadsom line then the incentives for businesses to stay and invest in Britain sharply diminish, as they see that the government does not have – and, worse, does not want to have – a serious grasp of the issues involved. With time running out, the business decisions will need to be taken before realism intrudes, if, indeed, it ever does. And businesses will make those decisions.

However, if the government does start to engage seriously with business (and other experts and stakeholders) then the paradox asserts itself in a new way, with this realism conflicting with the first two dynamics. This is exactly what we saw with the May government. Having delighted the Ultras by embracing hard Brexit, and accepted the lack of realism of the Brexit promise by imagining that, even so, there could be ‘frictionless trade’ for goods and services, there came a point in 2018 when May understood how damaging this would be. That was what led to the Chequers Proposal which – flawed as it was – began to recognize some of the complexities and trade-offs. Cue Johnson and Davis resigning and the government falling into the disarray from which it never recovered.

It is true that Johnson’s majority makes him far more secure than May. On the other hand, the time pressures Johnson has created for himself are all the greater, and his negotiating position with the EU is also much weaker than May’s at the time of Chequers. May had the possibility of extending Article 50, as she did, and, until the Withdrawal Agreement was completed, the core EU concerns around the financial settlement, Irish Border, and Citizens’ Rights remained unresolved. Now, Johnson could only extend the transition period with difficulty, both because of domestic politics and because, on the EU side, transition extension is less assured than it was for Article 50 extension. Meanwhile, the EU’s core withdrawal demands have been met. And, in any case, the votes of the ERG are more than enough to defeat Johnson, despite his majority.

Thus the conflict between economic realism and political exigency continues to be unresolved and resolution is unlikely to occur via a single decision taken at a single moment. Rather, we can expect an ongoing process of tacking this way and that as the negotiations with the EU progress and the internal fights of the Tory Party continue. The consequence is that neither economic realism nor political exigency will definitively win out. Instead, so many concessions will be made to the Ultras as to ensure considerable economic damage, whilst so many concessions will be demanded of them that they will always regard Brexit as having been betrayed.

Thus, as has been clear for a long time, we will end up a country made much poorer in order to please the Brexiters whilst having to endure their perpetual displeasure with what has been done. It is as perfect a lose-lose scenario as can be envisaged, and the Bloomberg report has put a figure on just the first instalment of just the economic aspect of that loss. There is much, much more to come.

Chris Grey

See original for links though many are in Financial Times Paywall (£)

https://chrisgreybrexitblog.blogspot.com/2020/01/as-costs-mount-brexit-goes-round-same.html

The Center Blows Itself Up: Care and Spite in the ‘Brexit Election’

David Graeber

Bequest of Laura L. Barnes / Bridgeman Images

Samuel Colman: The Edge of Doom, 1836–1838

Politics, in wealthy countries, is increasingly becoming a war between the generations. While the support for smaller parties in the UK (Liberal Democrats, Greens, the Scottish National Party, even Brexit) is constant across ages, the split between Labour and Conservative is almost entirely based on age cohort:

YouGov

How Britons voted in the 2019 general election, by age

The result, according to YouGov opinion polling data from 2018, is that if only Britons over the age of sixty-five were allowed to vote, the Labour Party would be all but wiped out, whereas if only Britons under twenty-five were allowed to vote, there would simply be no Tory MPs whatsoever.

Election Maps UK with data from YouGov

Electoral maps of the UK based on projected results of opinion polling from 2018 if, respectively, only over sixty-five year-olds (left) or only eighteen-to-twenty-four year-olds (right) were allowed to vote; click to expand

This is particularly striking when one takes into consideration that the left Labour policies the young so overwhelmingly voted for in the 2017 and 2019 elections were ones that had been treated, even a year or two before, as so radical as to fall off the political spectrum entirely. Proclamations of the death of British socialism, then, seem decidedly premature. Meanwhile, the Tories’ core constituency is quite literally dying off. If conventional wisdom is correct, historically young people only begin to vote Conservative when they acquire a mortgage, or otherwise feel they have a secure position to defend within the system, which bodes ill indeed for the Tories’ future prospects.

ADVERTISING

Why, then, such an apparently devastating victory? Why did middle-aged swing voters—particularly in the former Labour heartlands of the North—break right instead of left? The most obvious explanation is buyer’s remorse over the European Union. For many working-class Northerners in their sixties, the first vote they ever cast was in the Common Market referendum of 1975, in which a majority of Britons declared in favor of the European project. Most experienced the next forty or so years largely as a sequence of disasters. In 2016 they turned against the “Eurocrats,” then watched in dismay as the entire political class proceeded to engage in endless and increasingly absurd procedural ballet that appeared designed to reverse their decision.

This explanation is true, but superficial. To understand why Brexit became such an issue in the first place, one must first ask why a populism of the right has so far proved more adept than the left at capitalizing on profound shifts in the nature of class relations that have affected not just the UK but almost all wealthy societies; second, one must understand the uniquely nihilistic, indeed self-destructive, role of centrism in the British political scene.

Let me take the two questions in reverse order.

The media treated the election largely as a referendum on the head of the opposition, Labour leader Jeremy Corbyn, and to some extent, it was. It is crucial here to understand that the political-journalist establishment in the UK had never, at any point, accepted the results of the 2015 leadership election that placed Corbyn at the head of the Labour party. To get a sense of what happened from an American perspective, imagine the Democratic Party eliminated its presidential primary system and replaced it with a summer of public debates followed by a single vote of all members, and that, as a result, Noam Chomsky became the Democratic candidate. For thirty years, Corbyn had been considered at best an entertaining gadfly. Under no conditions was he now going to be treated as a legitimate national leader, let alone, potential head of government. To do so would mean shifting the notorious Overton Window—the sense of what was acceptable political opinion, and therefore, where the center itself could be seen to lie, dramatically—from their perspective, violently—to the left.

At the time, there were essentially two significant factions in the Labour Party: the corporate-friendly Blairites, who controlled most of the mechanisms of power, and an ever-compromising social-democratic “soft left.” Together with the Liberal Democrats, who staked out a position between the two major parties, and “One Nation” pro-EU Conservatives, the Blairites were treated as defining the pragmatic center of British politics. This center was based on a series of broad agreements, serious departure from any of which marked one, in the eyes of the media, as lying along a continuum from merely wacky to insane. These were, first of all, that the nation’s economy would continue to be driven by finance, construction, and real estate. Second, that budgets should be balanced by gradually defunding or contracting out public services. Third, that public assets should be privatized, but not entirely, so that large institutions such as the NHS or higher education should operate as a kind of hybrid of top-down bureaucracy and “market forces.”

Such public-private hybridization was pursued by Margaret Thatcher, Tony Blair, Gordon Brown, and David Cameron alike. It is by now commonplace almost everywhere. Wherever it is pursued, it results in the same effect—almost everyone ends up spending more and more of their time filling out forms. But in the UK the process was taken further than perhaps anyplace on earth. The passion for paperwork now runs from the apex of the system, where City traders manipulate complex financial derivatives betting how long it will take a British family to default on their mortgages, to the increasingly arcane documentary evidence required to prove one’s children qualify for public housing. The UK is currently home to roughly 312,000 accountants—an extraordinarily high percentage of the working population. (Together with the nearly 150,000 British lawyers, they constitute a significant portion of the total workforce.)

This simultaneous embrace of markets, and of rules and regulations, represents the soul of what’s sometimes called “centrism.” It’s a decidedly unlovely combination. Nobody truly likes it. But the talking classes had reached an absolute consensus that no politicians who departed significantly from it could possibly win elections.

Dan Kitwood/AFP via Getty Images

Photo portraits of former British prime ministers hanging at No. 10 Downing Street, London, 2011

In 2015, the handful of “hard Left” MPs of the Socialist Campaign Group, who fell well outside this consensus, were largely considered mildly entertaining Seventies throwbacks. The election of one of them as party leader was therefore treated—both by the party establishment and their allies in the left-of-center media outlets like The Guardian—as an embarrassing accident that had to be immediately reversed. Corbyn was declared “unelectable.” In order to demonstrate this, dozens of Labour MPs initiated an immediate campaign to render him so, via an unceasing barrage of press briefings, leaked documents, attempts to create false scandals, and a campaign of sustained psychological warfare directed against Corbyn himself—essentially waging an active and aggressive campaign against their own party. Tony Blair even openly stated that he would rather see his own party defeated than come into power on Corbyn’s leftist platform.

The problem was that the party quickly began to change, as tens of thousands of older leftists who had quit the party under Blair and hundreds of thousands of young people began to swell the ranks of local chapters known as “Constituency Labour Party” (CLPs)—inspired by the call from Corbyn and his circle to turn the party back into a social movement. This meant making local CLPs forums of democratic debate, and imagining ways to coordinate between the “extra-parliamentary left”—the peace movement, the housing movement, the climate movement—and those working within the system. It was, in short, an attempt to move away from the politics of personality to one of bottom-up, grassroots democracy. As such, Corbyn’s own lack of conventional charisma was an asset. Suddenly the left was not only teeming with ideas and vision—four-day work weeks, new democratized forms of public ownership, green industrial revolutions—but there was also a feeling that at least some of these things might, for once, actually happen.

For most in the Parliamentary Labour Party (PLP), these developments turned what was at first seen as a ridiculous accident into a genuine cause for alarm. It is important to emphasize that there is nothing like the American primary system in the UK; once selected as an MP by the party leadership, one is, effectively, a candidate for life. The only way to get rid of such a representative, short of an election loss, was through an elaborate process of “deselection.” Even the suggestion that those actively campaigning against their party’s leader in the face of protests from their CLPs might face deselection (and, as a result, the equivalent of a primary challenge) was treated, in the press, as tantamount to some kind of Stalinist purge. Corbyn’s partisans never actually attempted it. However, since so many Labour parliamentarians now found themselves so out of step with their CLPs, they had good reason to see any effort to democratize the internal workings of the party as a genuine threat to their political careers.

Still, I don’t think this quite explains the vehemence, even passion, that marked so much of the internal opposition to Corbynism. Centrists, after all, consider themselves pragmatists. For forty years the center had been drifting steadily to starboard. So what if it jumped a ways to port? It might have been abrupt, but it’s not as though anyone was proposing the abolition of the monarchy or the nationalization of heavy industry. They could adjust. A handful even did. The panicked reaction of the majority, however, only makes sense if the threat was on a far deeper level.

Most sitting Labour MPs had begun as Labour youth activists themselves, just as most centrist political journalists had begun their careers as leftists, even revolutionaries, of one sort or another. But they had also risen through the ranks of Blair’s machine at a time when advancement was largely based on willingness to sacrifice one’s youthful ideals. They had become the very people they would have once despised as sell-outs.

Insofar as they dreamed of anything, now, it was of finding some British equivalent of Barack Obama, a leader who looked and acted so much like a visionary, who had so perfected the gestures and intonations, that it never occurred to anyone to ask what that vision actually was (since the vision was, precisely, not to have a vision). Suddenly, they found themselves saddled with a scruffy teetotaling vegan who said exactly what he really thought, and inspired a new generation of activists to dream of changing the world. If those activists were not naive, if this man was not unelectable, the centrists’ entire lives had been a lie. They hadn’t really accepted reality at all. They really were just sellouts.

One could even go further: the most passionate opposition to Corbynism came from men and women in their forties, fifties, and sixties. They represented the last generation in which any significant number of young radicals even had the option of selling out, in the sense of becoming secure property-owning bastions of the status quo. Not only had that door closed behind them; they were the ones largely responsible for having closed it. They were, for instance, products of what was once the finest free higher education system in the world—having attended schools like Oxford and Cambridge plush with generous state-provided stipends—who had decided their own children and grandchildren would be better off attending university while moonlighting as baristas or sex workers, then starting their professional lives weighted by tens of thousands of pounds in student debt. If the Corbynistas were right, and none of this had really been necessary, were these politicians not guilty of historic crimes? It’s hard to understand the bizarre obsession with the idea that left Labour youth groups like Momentum—about the most mild-mannered batch of revolutionaries one could imagine—would somehow end up marching them all off to the gulag, without the possibility that in the back of their minds, many secretly suspected that show trials might not be entirely inappropriate.

This, at least, would help explain the unrelenting nature of the hostility to Corbyn and the youth movement he represented. The new Labour leadership came in expecting a paroxysm of denunciation in the press, but they’d also calculated it would last six months to at most a year; they knew centrists would at first reject their legitimacy, but assumed that if they demonstrated that a left platform could play well with the electorate, and avoided all talk of deselection, those same politicians would, out of sheer self-interest, come around. This is precisely what did not happen.

Instead, the attempt to move politics away from a focus on leaders and personalities was met with four years of daily, sustained attack on the personal character of Corbyn himself. Headlines accused him of being everything from a shabby dresser to a terrorist sympathizer, Trotskyite, weakling, thug, cult leader, hamfisted incompetent, and Czechoslovakian spy. I am not aware of any other head of a major UK party who has been subjected to anything like it. Even in the “respectable” left press—The Guardian, The Independent, the New Statesman—traditional journalistic conventions such as the expectation to find balancing voices in critical news stories were thrown by the wayside, but only when it came to Labour. The message seemed to be, “Fine, reject the game. But then you have no business complaining if we act as if the rules no longer apply to you.”

The snap election of 2017 illustrated what might have happened had the media treated Corbyn as a legitimate political figure. For six weeks, the BBC and other mainstream outlets were legally obliged to give Labour and its platform equal time; Corbyn, who had been languishing fifteen points behind in the polls, almost immediately jumped back to near parity. Labour won thirty seats from the Tories and deprived Theresa May of her majority. Consistently dismissed as “unelectable,” Corbyn had in fact achieved the most dramatic swing to Labour since Clement Attlee ousted Winston Churchill in 1945. For a few weeks, it seemed as though the “pragmatists” were, indeed, going to be pragmatic.

Then, of course, the “anti-Semitism crisis” picked up again.

It is difficult to write objectively about this subject because so much of the background is both complex and has been buried under a cacophony of vitriol and sensationalization. To give just one example: Margaret Hodge, Labour MP for an East London constituency, really set off the summer’s conflagration in 2018 when she denounced Corbyn in Parliament as (in her words) “a fucking anti-Semite and a racist” over a purely technical quarrel over whether all the examples would be included when Labour adopted the International Holocaust Remembrance Alliance’s definition of anti-Semitism; but Corbyn supporters were quick to point out that the two had first tangled over Jewish issues in 1987, when Hodge was head of the Islington Council, and Corbyn, then a young local MP, had joined with Jewish activist groups to stop the council from selling the site of an Orthodox cemetery to property developers. Corbyn actually had a long history of supporting Jewish causes and had worked especially closely with the Haredim community.

Hodge is Jewish, but most of the MPs and professional journalists who were most ardent in condemning Corbyn and the Labour Party as institutionally anti-Semitic were not; they were, for the most part, the very same people who had been engaged in daily briefings against him from the start. To be clear: anti-Semitic attitudes were certainly there to be found among Labour supporters—as they are in pretty much all sections of British society. But in other parties, no one without media training is ever placed anywhere near a microphone. (To put the matter in perspective, when the Conservatives tried to create their own answer to Momentum, a youth group called “Activate,” it had to be almost immediately shut down because members were caught calling for the mass murder of the poor.)

There is no doubt, too, that the party could have handled matters better, but the fundamental principle of antiracist organizing that they adhered to—that is, that it is better to let such ideas come out in the open where they can be confronted—does seem to have been successful at first. During the first two years of Corbyn’s tenure, surveys showed anti-Semitic attitude actually declining among Labour members, rather than the other way around. 

Accusing Corbyn of being personally indifferent, or even sympathetic, to what happened when the floor was opened to everyone was a textbook application of Karl Rove’s famous principle of swiftboating: if one really wishes to discredit a political opponent, one attacks not his weaknesses, but his strengths. Until then, even Corbyn’s enemies had admitted he was an honest man and a dedicated antiracist. Suddenly, he stood accused of being himself, personally, anti-Semitic, and of being a lying weasel for denying it.

The easiest way to gauge the political nature of the resulting campaign is to compare the number of references in the British press to “Labour anti-Semitism” with those to either “Tory” or “Conservative anti-Semitism.” Despite the facts that Theresa May’s recent former chief of staff was accused of peddling an anti-Semitic conspiracy theory in 2017 and that Boris Johnson himself had written a novel that describes “Jewish oligarchs” as controlling the global media, a search of the media-monitoring service Meltwater reveals the following:

2015
Labour anti-Semitism: 1

Tory/Conservative anti-Semitism: 0

2016
Labour anti-Semitism: 2,520

Tory/Conservative anti-Semitism: 0

2017
Labour anti-Semitism: 93

Tory/Conservative anti-Semitism: 0

2018
Labour anti-Semitism: 6,790

Tory/Conservative anti-Semitism: 0

2019
Labour anti-Semitism: 3,820

Tory/Conservative anti-Semitism: 1

The anti-Semitism accusations weakened Labour immensely. But it was the—ultimately successful—campaign to force Corbyn to reverse his position on Brexit that really ensured their party’s electoral disaster. This, too, was essentially a centrist project.

Now, from the point of view of many on the Labour left, the entire Brexit issue was a distraction: a way to change the subject from the bread-and-butter issues of austerity, wages, health, education, and public services that had immediate effects on voters’ lives to scapegoating and symbolism. Some were convinced the entire project was a charade; the Tory leadership had no intention of breaking with the European Union in any meaningful sense at all—as some pointed out at the time, during the entirety of May’s tenure as prime minister, her government had not seen fit to hire or retrain a single new customs official.

What they did not at first understand, but became all too apparent as time went on, was that in Brexit the right had discovered an almost perfect political poison, not only dividing British society into two hostile camps, but bringing out the absolute worst in both of them. Each side ended up hurling bitter invective against each other, much of which was true. Remainers insisted that many Brexit campaigners were overt racists, and that the Leave campaign was—much like Trumpism—normalizing forms of racist expression that would have been considered outrageous only a few years before. They were right. Reports of racist hate crimes, for instance, increased dramatically after the vote. Leavers countered that many of the most vociferous Remainers were overt elitists, and were likewise normalizing expressions of contempt for small-town or working-class England that would have once been considered equally outrageous. They were right, too.

It might seem odd that the ultimate beneficiary of all this was Alexander Boris de Pfeffel Johnson, an Eton-educated upper-cruster whose main occupation, before he turned his hand to politics, was as a columnist and occasional television personality notorious for his contempt for immigrants, single mothers, and the poor. But to understand what happened, I think, one must consider the broader situation of what has come to be known as “right-wing populism.” Ever since the economic crash of 2008, the left had tried to make villains of the bankers. Yet despite the fact that the City (London’s financial hub) was indeed largely responsible for the collapse of the economy and resulting austerity, this approach gained little traction. The right instead tried to make villains of the bureaucrats—of migrants, too, as they definitely did appeal to simple bigotry, but the immediate emphasis was on bureaucrats. And at least among middle-aged swing voters, this succeeded spectacularly. Why?

The answer, I think, lies in the emerging structure of class relations in societies like England, which seems to be reproduced, in one form or another, just about everywhere the radical right is on the rise. The decline of factory jobs, and of traditional working-class occupations like mining and shipbuilding, decimated the working class as a political force. What happened is usually framed as a shift from industrial, manufacturing, and farming to “service” work, but this formulation is actually rather deceptive, since service is typically defined so broadly as to obscure what’s really going on. In fact, the percentage of the population engaged in serving biscuits, driving cabs, or trimming hair has changed little since Victorian times.

The real story is the spectacular growth, on the one hand, of clerical, administrative, and supervisory work, and, on the other, of what might broadly be termed “care work”: medical, educational, maintenance, social care, and so forth. While productivity in the manufacturing sector has skyrocketed, productivity in this caring sector has actually decreased across the developed world (largely due to the weight of bureaucratization imposed by the burgeoning numbers of administrators). This decline has put the squeeze on wages: it’s hardly a coincidence that in developed economies across the world, the most dramatic strikes and labor struggles since the 2008 crash have involved teachers, nurses, junior doctors, university workers, nursing home workers, or cleaners.

One might speak of the beginnings of a veritable revolt of the caring classes, global in scale. If so, the obvious question is: Why has the global left, which has always stood for the promise of a more caring society, not been the ones to profit from this development? Why is the radical right instead everywhere on the rise? How is it possible that this could lead to the defeat of Jeremy Corbyn, a man who even his enemies would begrudgingly admit was a caring and empathetic human being, at the hands of a Tory candidate so utterly narcissistic and lacking in human feeling that he famously refused to even look at a picture of a feverish child marooned on an overcrowded hospital’s floor? The answer lies once again in the curse of centrism.

As Thomas Frank has pointed out, as early as the 1970s, formerly leftist parties from the US to Japan made a strategic decision to effectively abandon what remained of their older, working-class base and rebrand themselves primarily as parties representing the interests and sensibilities of the professional-managerial classes. This was the real social base of Clintonism in the US, Blairism in the UK, and now Macronism in France. All became the parties of administrators. (In the UK, of course, this included those endless legions of lawyers and accountants.)

Whereas the core value of the caring classes is, precisely, care, the core value of the professional-managerials might best be described as proceduralism. The rules and regulations, flow charts, quality reviews, audits and PowerPoints that form the main substance of their working life inevitably color their view of politics or even morality . These are people who tend to genuinely believe in the rules They may well be the only significant stratum of the population who do so. If it is possible to generalize about class sensibilities, one might say that members of this class see society less as a web of human relationships, of love, hate, or enthusiasm, than, precisely, as a set of rules and institutional procedures, just as they see democracy, and rule of law, as effectively the same thing. (This, for instance, accounts for Hillary Clinton’s supporters’ otherwise inexplicable inability to understand why other Americans didn’t accept the principle that if one makes bribery legal—by renaming it “campaign contributions” or half-million-dollar fees for private speeches—that makes it okay.)

The peculiar fusion of public and private, market forces and administrative oversight, the world of hallmarks, benchmarks, and stakeholders that characterizes what I’ve been calling centrism is a direct expression of the sensibilities of the professional-managerial classes. To them alone, it makes a certain sort of sense. But they had become the base of the center-left, and centrism is endlessly presented in the media as the only viable political position.

For most care-givers, however, these people are the enemy. If you are a nurse, for example, you are keenly aware that it’s the administrators upstairs who are your real, immediate class antagonist. The professional-managerials are the ones who are not only soaking up all the money for their inflated salaries, but hire useless flunkies who then justify their existence by creating endless reams of administrative paperwork whose primary effect is to make it more difficult to actually provide care.

This central class divide now runs directly through the middle of most parties on the left. Like the Democrats in the US, Labour incorporates both the teachers and the school administrators, both the nurses and their managers. It makes becoming the spokespeople for the revolt of the caring classes extraordinarily difficult.

All this also helps explain the otherwise mysterious popular appeal of the disorganized, impulsive, shambolic (but nonetheless cut-to-the-chase, get-things-done) personas cultivated by men like Trump and Johnson. Yes, they are children of privilege in every possible sense of the term. Yes, they are pathological liars. Yes, they don’t seem to care about anyone but themselves. But they also present themselves as the precise opposite of the infuriating administrator whose endless appeal to rules and demand for additional meetings, paperwork, and motivational seminars makes it impossible for you to do your job. In the UK, the game of Brexit politics has been to maneuver the Labour left into a position where it is forced to identify itself with that same infuriating administrator.

This was true from the start. The original Leave campaign took aim at immigration, but, even more, it took aim at distant and uncaring Brussels bureaucrats. And the fact that both major parties, Tories and Labour, were profoundly split over the issue—and even more, over what to do about it—led to an endless drama of legal and legislative warfare that allowed Leavers to argue that Remainers in Whitehall were using every sort of procedural trick in the book to thwart the popular will. For those in the movement to democratize the Labour Party, this was an insoluble dilemma. Most of the new, young Labour activists had enough experience with genuine directly democratic practice to understand that a 52/48 vote is effectively a tie; if it is a mandate for anything, it is for some sort of creative compromise.

Jonathan Brady/PA Images via Getty Images

Labour Party leader Jeremy Corbyn on the general election campaign trail, London, December 6, 2019

This is precisely what Corbyn first attempted to do. He accepted the result of the referendum, but proposed to negotiate a deal whereby the UK would remain within the Common Market on much the same terms as Norway. The approach worked well enough in 2017 to prevent May from making the election exclusively about Brexit, and to allow Labour to make substantial gains; but as soon as the election was over and a hung parliament resulted, the centrist counter-offensive began. The most important role here was played by Alastair Campbell, Blair’s one-time press czar and crucial strategist of the People’s Vote Campaign to demand a second referendum, who immediately smelled blood. The “moderate” elements in the party pounced. Rallies and marches were organized, Remainer MPs—of both parties—threatened to jump ship if Labour did not join in calls for a second referendum, either to join the staunchly Europhile Liberal Democrats or to form a new centrist party.

At one point, several MPs, from both sides of the aisle, actually did begin setting up a centrist alternative, called (with a remarkable lack of self-awareness) Change UK—sparking the fear that disgruntled Remainers might begin a mass exodus. Since the activist youth base of the party was overwhelmingly pro-Europe, the Labour leadership eventually saw no choice but to change its position and call for a second vote in which Brexit might be reversed.

Corbyn has been widely criticized for maintaining a “wishy-washy” or indecisive position on Brexit, but from the point of view of the larger movement he represented, his position was about the only one he really could take. The Labour Left, after all, was trying to bring about dramatic social reforms, in much the way Attlee had in 1945 when he called for the creation of the NHS. Ultimately, they were revolutionaries: they aimed to set the ball rolling in the direction of the democratization of all aspects of British society. But they also knew this could only happen if they came into power in informal alliance with more radical, “extra-parliamentary” street movements pushing them ever further to the left. Taking a hardcore Remain position would mean even if they did come into power (which was by no means guaranteed), it could only be in alliance with politicians who ardently opposed this larger project, and, if Brexit was indeed reversed, that they would also be faced with radical street movements not of the left but of the right—outraged Brexiteers and outright fascists pushing in exactly the opposite direction.

The last thing Corbyn would ever want was to be forced into a position where he would have to send in riot police to control protests against the suppression of a democratic decision. This was the real reason for the initial dilemma. But eventually he had to come around to support a second vote.

At the same time as the Labour leadership was being threatened and cajoled into making common cause with militant Remainers, the Conservatives were heading in exactly the opposite direction. Boris Johnson—or, to be more precise, his strategic mastermind, Dominic Cummings—immediately filled his cabinet with hard-right Brexiters, purging Remainers first from the Cabinet and then from the party itself. He then began a heavy-handed and seemingly incompetent attempt to bludgeon some kind of Brexit bill through the House of Commons. To the casual observer, his first weeks in office appeared a combination of costume drama and slapstick comedy. Johnson lost every vote he put forward and missed his own loudly trumpeted Brexit deadline; his attempt to suspend Parliament not only failed in court but left him open to accusations of having lied to the Queen; former Tory prime ministers declared their intention to openly campaign against him; his own brother resigned from the cabinet in disgust.

Corbyn, meanwhile, began to win grudging praise from the guardians of established opinion for his willingness to coordinate the resistance. Yet this was, precisely, his undoing. Cummings’s plan had always been to win by losing. The point of the parliamentary drama was to reduce Corbyn—whose entire appeal had been based on the fact that he did not look, act, or calculate like a politician—into someone who did exactly that, and to paint the only movement in generations that had genuinely aimed to change the rules of British society as the linchpin of an alliance of professional-managerials united only by their willingness to deploy every legalistic or procedural means possible in order to reverse the results of a popular referendum and keep things exactly as they were.

If the results of the 2019 election mean anything, they reveal an overwhelming rejection of centrism. Particularly instructive here are the fates of the rebels who broke from Corbyn’s Labour to form Change UK, including Chuka Umunna, who was widely billed as Britain’s future answer to Barack Obama. On realizing that there was virtually no support for another centrist party, they ultimately joined the Lib Dems. Though the Lib Dems did increase their share of the overall vote (slightly), doing so largely served to knock out their ostensible Remainer Labour allies in close races. Not one of the defectors managed to win a seat.

Jo Swinson, the Lib Dem candidate for prime minister, who had somehow convinced herself it would be a winning formula for the Lib Dems to run as a single-issue anti-Brexit party while also making clear that under no conditions would they ever form an alliance with Corbyn’s Labour, failed to win her own district and is no longer an MP. Labour lost fifty-four seats to the Tories—fifty-two of them in Leave-voting districts. But, as James Schneider, Corbyn’s director of strategic communications, confirmed when I showed him a draft of this piece, only three (Dennis Skinner, Laura Pidcock, and Laura Smith) were from the radical left of the party. Dozens of “moderates” had, effectively, blown themselves up.

The same, incidentally, is true for the Tories: not one of the purged Remainers who ran for their old seats as independents returned to Parliament.

The center of British politics has become a smoldering pit. The country is now being governed by a hard-right government placed in power by its oldest citizens, in the face of the active hatred of its increasingly socialist-inclined youth. It’s fairly clear that for the Johnson team, Brexit was never anything but an electoral strategy, and that they don’t have the slightest idea how to translate it into economic prosperity. (It is an unacknowledged irony of the current situation that the people most likely to profit from the Brexit process are, precisely, lawyers—and, probably secondarily, accountants. For everyone else, it’s hard to imagine a scenario where they will improve their current situation, and quite easy to imagine Johnson being remembered as one of the most disastrous prime ministers in British history.)

The next few years are likely to be tumultuous. What remains to be seen is whether Labour can fully break from of the trap into which past generations of centrists have placed it: as a party that represents the interests and sensibilities of both carers and administrators at the same time.

January 13, 2020, 3:10 pm

https://www.nybooks.com/daily/2020/01/13/the-center-blows-itself-up-care-and-spite-in-the-brexit-election/

Lessons from a quitter

https://podcasts.apple.com/us/podcast/lessons-from-a-quitter/id1412305413?i=1000461794192

This week I had the opportunity to chat with Marc Allen, a strategy consultant to social impact and development funders worldwide, advising them on how to create greater human impact with their investments. We talk all about why skills are valuable. Namely how we can look at the skills we’ve acquired, instead of the career we’ve pursued, in order to help serve us in our next projects. 

 

I love this episode because it is all about self-reinvention and seeking purpose. While those are both tricky paths to navigate, Marc’s own journey shows that with some resilience and open-mindedness, it’s not as impossible as we like to think. 

 

Marc worked as an attorney for four years at one of the top law firms in the UK and Paris. But after taking two thought-provoking trips in 2014 to Iran and New Orleans, it was clear to him that he didn’t want to be a lawyer. He witnessed so many people harnessing their skills to wear different hats and be useful in their communities. It was eye-opening to take note of people who were in very adverse situations making due with their circumstances. They used what they could offer the world in unorthodox and slightly creative ways to get around systems that aren’t always inclusive. The inspiration to quit stemmed from these micro-case studies of progress despite the environment. Marc had to quit. In 2015, he finally did without a real plan or clear idea of what was next.  

 

For the next two years, he tried out different careers and spent time on his passion project, a blog called The Great Everything. 

 

By focusing on the skills he had and the various facets of his personality, Marc finally found a career that he loves. He retrained as a strategy consultant to philanthropies. He is now able to spend his days helping large funders create the biggest impact with their money. 

 

I got to talk to Marc about how the skills he acquired as a lawyer serve him in his new role.

We dive into how he first sensed doubt when his work began to feel unimportant. He was not connected to the outcomes of his cases. But instead of spiraling and worrying that his next move absolutely needed to be in law, he opened himself to a ton of new opportunities. 

 

First, he evaluated the skills he built over the years. As an attorney, Mark developed a strong and unwavering work ethic. He also developed a strong backbone and self-confidence. He also navigated difficult internal power dynamics to get to the opportunities he wanted with tact and patience. All of these characteristics aid him in his role as Engagement Manager at Camber Collective. Marc manages strategy and coalition design for companies, countries, funds, and philanthropies looking to outsize their social impact. He has found the perfect fit BECAUSE of all the skills he has acquired through his career. 

 

The thought of starting over is daunting, especially if you are going into a field where you have little to no experience. It’s easy to fall into the trap of self-doubt when you realize that you are starting from a novice level. But, as Marc puts it, take an honest look at your life and think about what you’re going to regret when you’re 75. When you’re in a difficult place, think about, “Would I rather stay here and hope my situation improves? Or am I going to be brave and actually go out and do something about it?” Are you willing to be uncomfortable for a bit and set up challenges and force yourself to rise to the occasion? 

 

When we embrace the idea that we are so much more than one job or one interest, we open ourselves up to immense personal growth. Gratitude for our skills and our gradual evolution will help us push forward and overcome negative self-talk and open ourselves up to different opportunities. 

http://lessonsfromaquitter.libsyn.com/how-to-reinvent-yourself-with-marc-allen

Is capitalism past its due date? Can we even imagine a world without it?

Martin Wolf & Yanis Varoufakis debating live

Audio Debate DiEM25 English Financial Times Politics And Economics Webmaster YanisVaroufakis 616 Views 0 Comment January 9, 2020

On 14th November 2019 Martin Wolf and Yanis Varoufakis debated the question ‘Should liberal capitalism be saved?’. Hosted on November 14, 2019 by the Financial Times to celebrate the Wincott Foundation’s 50th Anniversary, this special live event took the place of the usual annual Harold Wincott Memorial Lecture.

You can listen to a recording of the debate here. A transcript of Martin’s and Yanis’ remarks also follow below. As does a more recent newspaper article by Yanis Varoufakis entitled “Imagining a World Without Capitalism” – as published in the Financial News on 31st December 2019. Additionally, you may watch the Munk Debates on the same topic here.

MARTIN WOLF’S REMARKS

WHY LIBERAL CAPITALISM SHOULD BE SAVED

Martin Wolf

“The bourgeoisie has through its exploitation of the world market given a cosmopolitan character to production and consumption in every country. . . In place of the old local and national seclusion and self-sufficiency, we have intercourse in every direction, universal inter-dependence of nations. And as in material, so also in intellectual production. The intellectual creations of individual nations become common property. National one-sidedness and narrow-mindedness become more and more impossible, and from the numerous national and local literatures, there arises a world literature.”

The celebrated authors of this passage understood what was remarkable about capitalism: it was global; and it was revolutionary. Over the past four decades we have re-lived this experience in one of the greatest transformation of world history: the triumphant expansion of the economies of developing Asia, home to over half of humanity, and of China, above all.

“Globalisation”, which is just a name for an emerging global market economy, has brought about a staggering reduction in global poverty. Between 1981 and 2013, according to the World Bank, the share of the world’s population in “absolute poverty” (gross domestic product per head of $1.90 a day, at 2011 purchasing power parity) fell from 42 per cent of the world’s population in 1981 to 10 per cent in 2015.  Since 1980, Chinese GDP per head at purchasing power parity has risen from 3 per cent to 30 per cent of US levels. Nothing comparable in scale and speed has ever happened before. India, too, enjoyed a noteworthy acceleration of development after its pro-market reforms of the early 1990s.

Make no mistake: private enterprise was the fundamental driver of this extraordinary progress. The decisive decision was that of Deng Xiaopeng to take the Chinese government out of the way in vital sectors, above all, manufacturing. The share of state-owned enterprises in industrial output collapsed, from 80 per cent in 1978 to 20 per cent in 2016. Return on assets of private industrial enterprises has also massively outstripped that of state owned enterprises.[i] Private enterprise has also driven China’s “tech” revolution: Alibaba, Tencent, Baidu and so on and so forth are all private businesses. So, though its structure is unusual, is Huawei.

When we consider the complaints about globalisation in the West, we need to understand one overriding fact: the problem is not that it failed, but that it succeeded. Nor was this a surprise. We have had something close to controlled experiments on the relative efficacy of private enterprise and socialism since World War II in South versus North Korea, West versus East Germany or, say, Austria versus Czechoslovakia. North Korea is one of the world’s poorest prison states, while South Korea, once poorer than the North, is a high-income country. East Germany collapsed when its people were given a chance to vote with their feet. By 1989, Czechoslovakia’s real GDP per head, was 65 per cent of Austria’s level down from 90 per cent half a century earlier.

As important, the market-oriented countries in these pairings were (or became) democracies. Nor was that an accident. An entrenched market economy should protect democracy from irresponsible demagogy, just as a lively democracy should protect the market economy from a predatory plutocracy. No fully-socialised economy has been a democracy. How could it be? If an economy is socialised, the concentration of power is too great to remain contestable.

There are also more granular aspects to the shift towards the market economy that began to take hold in the early 1980s, especially in the US, under Ronald Reagan, and the UK, under Margaret Thatcher. Important components were privatisation and de-regulation of labour markets.

History surely shows us that the privatisation of businesses that operate in competitive markets was a success: How many now suppose that the state needs to run airlines, steel mills, coal mines, telecoms, or electricity generators? More controversial, inevitably and properly, are the natural monopolies or quasi-monopolies: water; the electricity grid; the rail tracks. Experience has re-taught us that these are difficult industries, whether run as state-owned monopolies or regulated private monopolies. I prefer the relative clarity of the latter. But the risks of regulatory ineffectiveness or capture are real and permanent.

Again, there are important arguments to be had on labour markets. But we can say with some confidence that the combination of substantial de-regulation with a carefully-implemented minimum wage (introduced under Labour) and tax credits for those in work was a success. Today, partly as a result, the UK enjoys its highest employment rate ever.

If the era of global capitalism has worked well in crucial respects, why is it now condemned?

The answer is threefold: first, there has been a lengthy period of rising income and wealth inequality in some high-income countries, especially the US; second, there has also been a long period of real income stagnation for large proportions of the workforce, again, especially in the US, but also elsewhere since the crisis, as well as a slowdown in productivity growth in high-income countries; finally, a huge credit boom ended with an enormous financial crisis, which inflicted a huge recession in the high-income economies and a brutal and brutally-mishandled crisis in the eurozone.

So, how far is global capitalism to blame for these unhappy developments? The answer is: not as much as many suppose.

First, the globalisation of the real economy was not a dominant cause of the ills listed above. In the US, the sentiment is widespread that trade and migration inflicted large losses on what Americans call “middle class”. Arguably, that is why Donald Trump is now president. But the evidence against this view is unambiguous. Rising imports have had an impact, especially in localities where a single plant or industry was the dominant employer. But it has not been a significant cause of rising inequality and stagnant real incomes in the US. The very fact that the US experience in both regards has been much worse than in many other high-income countries, all similarly buffeted by globalisation, demonstrates that trade cannot be the dominant cause of America’s ills (or, for that matter, those of the UK).

So what have been the true failures? There is increasing evidence, especially for the US, of a noteworthy increase in concentration and, with it, declining competition. As Thomas Philippon of New York University points out in a compelling recent book, The Great Reversal, margins have risen and investment has declined. The combination suggests rising monopoly and monopsony. Behind this, in turn, lie over-generous protection of intellectual property, abandonment of restrictions on mergers and acquisitions, notably in the case of “big tech”, short-sighted and exploitative corporate governance, including via the “bonus culture”, as Andrew Smithers argues. Behind the latter in turn is excessive “financialisation” of corporate governance. Contrary to impressions, “natural” monopoly in big tech may be more an excuse than a reality, except perhaps in the case of search (and so Google) and, to a lesser degree, social media (and so Facebook). Such powerful natural monopolies do need to be regulated.

The financial crisis of 2007-09 and the subsequent crisis of the eurozone was also partly the product of grossly irresponsible behaviour by a poorly regulated and undercapitalised financial system. We can argue that a good part of this failure was due not to capitalism per se, but to implicit and explicit guarantees, not offset by adequate oversight. To that extent, it was as much a failure of policy, as of finance. Nevertheless, we have been reminded of the tendency of the capitalist economy towards instability. In the case of the eurozone, this instability was greatly exacerbated by a huge policy error: the decision to create a currency union without the necessary institutions of risk-sharing and adjustment needed if it was to work successfully. This was not a failure of capitalism, but of over-enthusiastic politics.

So where does this leave us today? Let me return to that quotation at the beginning of my speech. It was of course from The Communist Manifesto. Its authors prophesied the end of capitalism and its replacement by socialism. It did not happen. Where it was tried, the socialism proved a disastrous failure. Instead, capitalism, politics and policy were all reformed in the western world. We need such a reformation again: an active and dynamic anti-trust policy, to overthrow monopoly; tighter control over finance; radical reforms of taxation, to reduce tax avoidance and evasion; more active attention to the roots of “secular stagnation”; and a greater commitment to the supply of essential public goods, including that most important of global public goods, the management of our shared environment; and a more active redistribution of income.

We will need to act both locally and globally. But we must never forget the role that will have to be played by that dynamic engine of prosperity and freedom – a market economy that exploits and encourages the initiative of countless individuals. This has been the great engine of economic advance. That remains as true today as it has been in the past. Capitalism cannot be allowed to operate outside politics or above it. That is the naïve ideology of libertarians. But the market economy has to be an essential part of any worthwhile political settlement, in our era, as it has been in our past.  

[i] Nicholas Lardy, “Private sector Development”, inRoss Garnaut, Ligang Song, and Cai Fang, eds. China’s 40 Years of Reform and Development: 1978–2018. Acton ACT, Australia: ANU Press, 2018. http://www.jstor.org/stable/j.ctv5cgbnk.

YANIS VAROUFAKIS’ REMARKS

WHY CAPITALISM MUST BE TRANSCENDED

Yanis Varoufakis

It is only fitting that any re-assessment of capitalism ought to begin with its great students. And since Martin Wolf chose to oblige this erratic Marxist by kicking off with a quotation from the Communist Manifesto, I feel compelled to return the favour with a quotation from Adam Smith’s Wealth of Nations – one which, to boot, should have gladdened Harold Wincott’s heart.

Referring to the merchant, Smith wrote that:

“By pursuing his own interest he frequently promotes that of the society more effectually when he really intends to promote it. I have never known much good done by those who affected to trade for the public good… The rich divide with the poor the produce of all their improvements. They are led by an invisible hand to make nearly the same distribution of the necessaries of life, which would have been made, had the earth been divided into equal portions among all its inhabitants…”

Adam Smith, Wealth of Nations, 1776

So, it was Adam Smith, not Milton Friedman, who first advocated the paradoxical hypothesis that the common good is best served when no one is trying to serve it and everyone, instead, seeks to maximise their private gains. As long as firms were small and family owned, Smith had good cause to believe that shared prosperity might result from unfettered private greed.[1]

Karl Marx, who studied Smith meticulously, also celebrated capitalism for its capacity to unleash immense productive powers while, also, tearing down superstitions and poisonous nationalisms. But he also noted the seed of crisis and discontent within capitalism. Taking Smith’s own analysis further, so that it accounts not only for the price of things but also for the price of labour, Marx concluded that: “Society as a whole “is more and more splitting up into two great hostile camps, into two great classes directly facing each other.”” A society split between non-working shareholders and non-owner wage-workers, with physical and fictitious capital accumulation its main driver, is a society that bifurcates, its middle class – the dinosaur in the room – set for extinction.

When I received the invitation to today’s debate, the Wincott Foundation’s chosen question “Should liberal capitalism be saved?” brought to mind something a Marxist friend once said: “A sure sign that capitalism is in deep trouble is when the powers-that-be begin to utter its name again, ending their insistence to speak only of the market system, the price mechanism, the mixed market economy etc.” If he was right, and I believe he was, capitalism today seems to be in the deepest of troubles!

The strongest evidence that capitalism comes in the form of the musings of the ultra-rich. They seem increasingly stressed, guilt-ridden even, as they watch the majority around the globe descend into a crushing precariousness – the price of ending abject poverty in the developing countries. As Marx foretold, a supremely powerful minority is proving ‘“unfit to rule’” over polarised societies, unable to guarantee non-asset owners a reliable existence.  Barricaded in gated communities, the smarter amongst the uber-rich, recognise in democracy, and in a redistributive state, the best possible insurance policy. They call for higher taxes on themselves. They even advocate a new Stakeholder Capitalism. Alas, at the same time, they fear that, as a class, it is in their nature to skimp on the insurance premium). [i]

When asked by journalists who or what the greatest threat to capitalism today, I defy their expectations by answering: Capital! Take the chasm between the vision of Smith and the corporate practices supported by economists like Friedman. It is best explained, in my view, by Marx’s analysis of capital accumulation – in particular the remarkable energy unleashed by the decoupling of the market value of labour power from the market value labour instils into commodities; the ever-expanding gulf between those who produce without owning and those who own without working in the firm they own.

This disconnect has always been around. But, while in Adam Smith’s time firms were small and power dispersed, it seemed not to matter much. Competition between privateers produced greater quantities of better commodities at lower prices – exactly what society needed was provided, as Smith had said, by those who did not “trade for the public good”. However then came electromagnetism and the 2nd Industrial Revolution. Since the late 1890s, the rise of networked mega-corporations, of the Edisons and of the Fords, created big business cartels investing heavily into how to usurp states and replace markets.

In their wake, megabanks were fashioned to finance the megafirms and, in the process, filled the world with fictitious money resting upon mountain ranges of impossible debt. Together, captains of industry and masters of finance accumulated war chests of billions with which to pad campaigns, capture regulators, ration quantities, destroy competitors and, in this manner, control prices. The first time the inevitable crisis hit that audacious superstructure was, of course, in 1929.

John Kenneth Galbraith was once asked how he went about, as FDR’s ‘Price Czar’, fixing countless prices during the War Economy. He answered: “It was pretty easy, considering that they were already fixed!” Through interminable mergers and acquisitions, corporations had replaced markets by a global Technostructure (Galbraith’s term) oozing with the power to shape the future for themselves and in their image.

For too long we lived under the illusion of world capitalism as a small-town, front-porch community rather than the weaponised Soviet-like (or maybe Google-like) planning system that it is. The larger the Technostructure grew the larger the financial sector necessary to conjure up the fictitious capital needed to fund its largesse. Bretton Woods was a remarkable attempt to reclaim political power on behalf of our societies and to stabilise the Technostructure.

When Bretton Woods died, officially on 15th August 1971, and financialisation became a necessity for financing the increasing deficits of the American Hegemon keeping global capitalism quasi-balanced (the Global Minotaur, as I called it), capitalism’s global imbalances were turbocharged. Before we knew it, General Motors turned into a huge hedge fund that also produced some cars on the side while, across the West, the tug-of-war between profits and wages was supplemented by the workers’ struggle for credit.

By the middle of the naughties, out of the one hundred wealthiest entities on Earth sixty-five were financialised corporations, not states. How could anyone expect them to operate in synch with society’s values and priorities – whatever those might be. Even the prospect of environmental catastrophe cannot convert such a highly concentrated, obscenely powerful power grid into the agent of our collective will.

Then came 2008. It proved that, even when the overheated Technostructure-on-financial-steroids melts down, its stranglehold over society grows proportionately to the black holes in their accounting books. In a fascinating inversion of Darwinism, the larger their failure and the steeper their financial losses the greater their capacity to appropriate society’s surplus via gargantuan bail-outs that their political agents push through neutered parliaments.

Capitalism, thy name has become Bankruptocracy: Rule by the most bankrupt of bankers. Democracy, in this context, resonated like a cross between a fond memory and a cruel joke.

So, setting aside the normative question “Should liberal capitalism be saved?”, let’s ask the more practical question: “Can it be saved?” Those who passionately believe that it should be saved tend to argue that it can be saved – confusing a normative and a practical question. They, correctly, identify three causes of liberal capitalism’s malaise:

• Excessive Financialisation

• Inordinate Concentration (i.e. monopoly/monopsony power, usually due to network externalities)

• Massive Malfeasance (i.e. fraud, corruption, capture and tax evasion).

Their understandable conclusion is that we need institutional interventions that put the financial genie back into its proverbial bottle, break up monopolies, and limit corrupt practices (tax evasion in particular). Additionally, the more democratically inclined propose a fourth task: Reversing the process of shifting important decisions from parliaments to unelected pseudo-technocrats.

These are fine aspirations with a good pedigree, in the form of the original Bretton Woods system. I too advocate a New Bretton Woods that restricts financial flows, legislates global curbs on tax havens and, last but not least, denominates cross-border trade and finance in a digital IMF-issued transnational accounting unit (implementing, at last, Keynes’ International Clearing Union) which can then be deployed to finance the International Green New Deal we so desperately need.

However, there are two obstacles in the path of this internationalist program for humanising, and stabilising, liberal capitalism: First, there is no latter-day FDR or any sign of the global political agency to implement it. Secondly, even if it were to be implemented, its therapeutic effects would, again, not last long – resembling antibiotics that lose their potency with use or, for that matter, Quantitative Easing.

As the fate of the original Bretton Woods system showed, private capital accumulation and financial asset creation – the two sides of really-existing capitalism’s coin – capture regulators and yield inexorable forces that tear through all institutional obstacles put in their way. It is, in short, in the nature of the beast to be untameable and, ultimately, illiberal.

The hypothesis I want to put to you today is that we are at a historic crossroads. Our dilemma is no longer between a road leading to authoritarian state-run socialisation and another road leading to a reformed liberal capitalism. That used to be our dilemma. No longer. Today, we face a harder and, at once, a more exciting choice made possible by advances in AI, 3D printing etc:

One road, the one we are treading, continues along the path of what Larry Summers refers to as secular stagnation, coupled with unbearable inequality, in a system where rent trumps both profit and wages every time and liberal democracy is consistently bunk.

The alternative road is one that we can, and I think we must, create from scratch once we have reigned in the Technostructure through a transformation of our institutions (e.g. an International Green New Deal that is pursued via a New Bretton Woods)

Let’s fleetingly imagine what this alternative road might be like. To build it, we must, first, revisit property rights over the means of production (Who owns the robots, AI and the right to claim their products and income?). Then we must redefine money (pulling the rug from under the financiers’ feet). Finally, we must dare to imagine an advanced, liberal, decentralised society in which capital is not only increasingly socially produced but also increasingly socially owned – the gist here being the crucial distinction between social and state ownership.

What would a post-capitalist liberal, technologically advanced social economy look like? Let’s do some more imagining, shall we? Imagine for a moment:

• Corporations whose shares resemble electoral votes (in that they neither be bought or sold), with each new hire receiving a single share granting a single vote to be cast in the all-member ballots deciding every matter of the corporation – from management and planning issues to the distribution of its net revenues

• Corporations, thus, in which the profit-wage distinction makes no sense

• States that collect no personal income tax, or VAT, just land and corporate taxes

• A trust fund for every baby, to be used to finance future ventures that set up new companies owned equally by its founders and newcomers

• Perfect freedom to move across firms and jurisdictions, together with one’s accumulated personal capital

• A universal basic dividend that allows one to live in dignity, but not in wealth, outside the paid labour process

• Central Banks providing each a twin bank account, one account for one’s personal capital fund, the other a current account

This is enough imagining for now. I just wanted us to share a glimpse of a truly liberal post-capitalist technologically advanced society to inspire us to admit that which Marx wrote in Das Capital, Vol. 1, in 1867 – a truth we have known since the inception in 1599 of the first joint stock company, the East India Company. That when the means of production belong to faceless shareholders, and worked by harassed employees,

“The increase in value of the world of things is directly proportional to the decrease in value of the human world.”

I can fully understand that it is hard to imagine an advanced, liberal society featuring all sorts of markets but free of stock exchanges and an almighty financial sector. But, then again, we used to take slavery and the divine right of Kings as permanent givens!

****

To conclude, Marx did, indeed, provide the most epic, pertinent celebration of capitalism – as Martin helpfully reminded us. But he also celebrated, or at least highlighted, another facet of capitalism: The seed of crisis and unsustainability within capitalism.

• Capitalism manufactures previously inconceivable wealth on the same production line that generates unimagined deprivation.

• Capitalism trades on the virtues of competition to procure a Technostructure that necessarily destroys competition

• Capitalism is at once the greatest propagator and the worst enemy of authentic liberty, which can only prosper in the presence of shared prosperity.

Economists, taking their cue from Adam Smith, believe that at the root of all conflict there is scarcity. But, under the Technostructure which long-ago usurped Adam Smith’s world, the direction of causality is reversed: It is not dearth that necessitates exploitation today. It is exploitation, of humans and nature, that causes dearth.

This reversed causality is why the prevailing price of labour leaves millions underemployed, the destruction of the planet is ‘free’ and the price people pay for money is the loss of their soul. This is why environmental catastrophe, depravity and dispossession grow in the humid shadows cast by an enormous superflux, like a dismal moss that the superflux feeds on.

So, what should we do? Yes, we must use really-existing capitalism’s own institutions to limit financialisation, concentration and malfeasance. However, we shall not be able to do this if we fail to overcome the greatest modern absurdity pointed out by my great friend Slavoj Zizek: A greater readiness to fathom the end of the world than to imagine the end of capitalism.

APPENDIX: The unsung defeat of personal liberty in (il)liberal capitalism’s hands

Liberals demand a strong fence protecting our private sphere from a busybody external world eager to interfere with our hopes and dreams. They say that our desires that are no one’s business but our own. They believe we should all live within safe haven where we can be sovereign and free to develop as individuals before relating with others, before leasing ourselves to an employer on mutually agreed terms and always on the understanding that the property rights over a person are non-tradeable. In short, inalienable self-ownership.

The first breach of the liberals’ essential fence appeared when industrial products became passé. Richard Branson had captured that moment with a statement that made William Morris spin in his grave: Who produces stuff and how does not matter one bit. Only brands matter now, proclaimed Sir Richard. Before long, branding took a radical new turn, imparting personality to objects, boosting consumer loyalty and, of course, the Technostructure’s profits.

Before they knew it, people felt compelled to re-imagine themselves as brands. The Internet allowed colleagues, employers, clients, detractors, and ‘friends’ constantly to survey one’s life, putting pressure on each to evolve into a profile of activities, images, and dispositions that amount to an attractive, sellable brand. Our sovereign personal space is now almost gone. The right to a time during the day when we are not for sale has vanished. Our liberty’s wetlands have been drained, its habitat destroyed.

Young women and men lacking a trust fund thus end up in one of two dead-ends. Condemned to working under zero-hour contracts and for wages so low that they must work all hours to make ends meet, rendering ridiculous any talk of personal time, space, or freedom. Or they must invest in their own brand every waking hour of every day, as if in a Panopticon where they cannot hide from the attention of those who might give them a break.

In job interviews enlightened employers tell them: “Be true to yourself, follow your passions.” Angst-ridden, they redouble their efforts to discover passions that future employers may appreciate, and to manufacture a true self that the job market will want to pay for. They struggle breathlessly to work out what average opinion among opinion-makers believes that average-opinion thinks is the most attractive of their potential true selves. Never slow to miss an opportunity, the Technostructure creates entire industries to guide them on their quest made up of counsellors, coaches and varied ecosystems of substances and self-help.

The Technostructure that emerged in the 1920s is developing new capabilities daily. It can now manufacture not just prices, money and consent but also desires and our self-image. Emasculated prices guarantee its profit. Hyper-complicated debt allows it fully to usurp the state’s monopoly over money. And turning over the private realm into a digital Panopticon destroys resistance to its authority. Liberalism, not just democracy, has thus become incompatible with contemporary capitalism. 

[1] The difference between the two economists is that, while in Smith’s estimation for the market to procure its miracle firms had to be small and family owned, for Friedman it did not matter whether the market featured giant conglomerates or merely Smith’s fabled baker, butcher and brewer.

https://www.fnlondon.com/articles/yanis-varoufakis-imagining-a-world-without-capitalism-20191231

https://www.yanisvaroufakis.eu/2019/12/08/is-capitalism-past-its-expiry-date-munk-debate-k-vanden-heuvel-y-varoufakis-vs-a-brooks-d-brooks/

How household debt influences inequality

James Wood writes that private debt contributes to increasing inequality, as highly indebted households provide a revenue stream to the financial sector, where profits are distributed to financial employees, managers, and executives, as well as to the most affluent households which hold the concentrated ownership of financial assets.

Britain has one of the highest levels of inequality in Europe. As such, the severely negative social and political consequences of inequality have seen it emerge as one of the defining issues of Britain’s modern political economy. Although technological change, globalisation, and labour market flexibility have often been blamed for the rise of inequality in advanced economies, much of Britain’s inequality is down to the growth of its financial sector. British finance re-emerged in the 1980s due to the inter-related processes of financialisation, which are made up of the shift towards the shareholder value model of corporate governance, the rising share of corporate profits generated by the financial sector, and the increased public engagement with financial services.

Financialisation contributes to inequality by increasing incomes for financial sector workers, particularly managers and executives, in relation to non-financial sector workers, as well as by driving returns on investments for affluent households who hold the concentrated ownership of financial assets. Although several studies have examined the effects of ‘high finance’ on driving inequality, relatively few have looked at the distributional consequences of the more mundane relationship between households and the financial sector in Britain.

Private debt is one of the major drivers of financialisation and it is the most widely diffused mechanism directly connecting households to the financial sector. The most highly indebted group are middle-income households, who leverage their incomes to access large volumes of mortgage credit to buy homes. The sustained demand for homeownership has contributed to rising house prices, which are considered the main determinant of household indebtedness in Britain. As interest payments on private debt provide a revenue stream for the financial sector, household debt may actually exacerbate pre-existing inequalities by increasing incomes for financial sector workers and asset holders at the upper end of the distribution scale. Therefore, this research examined whether, and to what extent, increases in household debt contribute to increases in inequality in Britain.

This was evaluated using an econometric analysis of the real volume of household debt and four measures of inequality: the Gini index; the top 5% income share; the Palma index; and the ratio of income distributed to the top 5% in relation to the middle 40%. This variable is selected as the middle of the income distribution is the most highly indebted, and it is posited the income generated from interest baring debt-instruments is distributed to the upper end of the income scale.

Household debt contributes to rising inequality

The results show that household debt has significant and positive effects on all four measures of inequality in Britain between 1966-2016. An examination of the specific inequality variables suggests household debt contributes to rising inequality by increasing the share of income at the upper end of the distribution, while reducing the concentration of income away from the middle. Therefore, household debt contributes to rising inequality by providing a revenue stream from highly indebted middle-income households to the financial sector, where it is distributed to managers, shareholders, and top-earning employees.

Private debt may not cause inequality in and of itself. Although household debt is widely diffused throughout British society, there are other countries with higher levels of household debt as a share of GDP than Britain, including Australia, Switzerland, Denmark, the Netherlands, Norway and Sweden, each of which demonstrate lower inequality outcomes than Britain. This suggests that there are other related factors enabling household debt to contribute to rising inequality in the British case.

The answer may lie in how household debt is produced, as British financial institutions are focused on maximising shareholder value. Until the early 1980s British mortgages were largely provided by stakeholder-oriented building societies, but the financial reforms of the 1980s encouraged many building societies to convert to shareholder-oriented banks. These reforms facilitated a significant increase in the mortgage market share captured by profit-oriented shareholder value maximising financial institutions, increasing revenues to be distributed to employees, managers, and shareholders. The production of debt in Britain may be considered highly profitable in comparison to countries dominated by more stakeholder oriented financial institutions, such as Denmark, whose mortgages are largely provided by non-profit co-operatives. This could lead to employee compensation being much lower in such stakeholder-oriented financial sectors, which may influence inequality outcomes.

Asset-based welfare and inequality

The results of this analysis support those from the IMF in suggesting that inequality could be counteracted by government welfare spending. However, there has been little political will to implement such measures in Britain over the past 30 years. As an alternative, the British government has increasingly sought to facilitate access to welfare goods via systems of private debt. For example, debt-leveraged access to private homeownership is an increasingly important financial asset to reduce wealth inequality and support systems of asset-based welfare. Therefore, rather than mitigating inequalities in opportunity, income and assets caused by the withdrawal of the state provision of services, the results of this analysis suggest household debt may actually exacerbate pre-existing inequalities by further increasing incomes for financial sector workers, asset holders, and shareholders at the upper end of the distribution scale. 

The results of this analysis show that the expansion of household debt has positive and significant effects across four measures of inequality. Therefore, private debt should be recognised as a key mediating intersection between various income and wealth inequalities, which contributes to the disparate social relations between affluent and less-affluent households in Britain.

________________

Note: the above draws on the author’s published work in The British Journal of Politics and International Relations.

About the Author

James Wood is Teaching Associate in Political Economy in the Department of Politics and International Studies, University of Cambridge

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