Friday, 9 November 2018

The Nazis and socialism

Various shades of conservatism on both sides of the Atlantic are reawakening to the dangers of something called ‘socialism’. Last month the Trump White House published an assessment of the ‘Opportunity Costs of Socialism’, sternly warning that a pick-up truck is much more expensive in Scandinavia than the US. Coincidentally, it has become a right-wing trope – erupting somewhere on social media every couple of weeks – to point out that the Nazis were really socialists. So not only will socialism crash the economy and make pick-up trucks prohibitively expensive, it also shares as its intellectual kin the most barbaric, genocidal regime in history. All told, better stick with mass exploitation and craven submission to corporate power.

It’s very easy to type five words on a keyboard, no matter how ignorant. But this particular meme has gone a lot further. Last month, senior Conservative MEP Syed Kamall claimed in the European Parliament that Nazism was “a strain of socialism” and a “left-wing ideology”. So I think now it’s high time to take a considered trawl through the historical evidence and sift fact from fiction.

What’s in a Name?

The case that the Nazis were really socialists usually starts and finishes on the fact that they called themselves ‘National Socialists’. Adolf Hitler was the 11th member of an entity called the German Workers’ Party, which changed its name in 1920 to the National Socialist German Workers’ Party (NSDAP). But its reason for including the word ‘socialist’ was to appeal to working class Germans to whom it had considerable allure – this was only a year after the aborted German Revolution. Still, according to historian, (Samuel W. Mitcham in Why Hitler: The Genesis of the Nazi Reich, p 68), “Hitler did not like the addition of the term ‘Socialist’ but acquiesced because the executive committee thought it might be helpful in attracting workers from the left.”

What is true is that the NSDAP had a socialist wing – or at least a wing that believed in widespread nationalisation. But this faction – represented by Gregor Strasser and initially Josef Goebbels – was decisively defeated in the mid-1920s, when the Nazis were electorally insignificant and years before they came remotely close to power. The occasion was a referendum* on whether to transfer the landed estates of German royalty and princes to the Weimar Republic (the country was a monarchy until 1918). The Social Democrats and Communists were in favour and Strasser and his followers thought the Nazis should be too. He called a meeting of the Northern German Nazis to make sure the party was behind the expropriation drive and to put in place a new, more radical economic programme. According to William L Shirer in The Rise and Fall of the Third Reich:

Hitler was furious. Several of these former rulers had kicked in with contributions to the party. Moreover, a number of big industrialists were beginning to become financially interested in Hitler’s reborn movement precisely because it promised to be effective in combating the Communists, the Socialists and the trade unions. If Strasser and Goebbels got away with their plans, Hitler’s sources of income would immediately dry up. [160-161]

So in February 1926, Hitler called another conference in Bamberg, Southern Germany, which was packed with his supporters. “And at the Fuehrer’s insistence they [Strasser and Goebbels] were forced to capitulate and abandon their programme”.

So the Nazis decisively ended their dalliance with anything resembling ‘socialism’ in 1926.

Some recalcitrant members remained, however. One such was Gregor Strasser’s brother, Otto, who supported nationalization of industry and some strikes called by socialist-supporting trade unions. But, in May 1930, Hitler insisted he recant, accusing him of indulging in ‘democracy and liberalism’. When he refused, he was expelled from the NSDAP.

Otto Strasser responded by forming a ‘Union of Revolutionary National Socialists’, known as the Black Front, which took part in national elections. Tellingly, however, this ‘left-wing’ Nazi rival to the main Nazi movement failed dent Hitler’s support in any way.

The following year, 1931, Hitler began a concerted attempt to court influential business owners who could provide the movement with vital funds. According to Walther Funk, the intermediary between Hitler and business, “The Fuehrer personally stressed time and again during talks with me and industrial leaders to whom I had introduced him, that he was an enemy of the state economy and of the so-called ‘planned economy’ and that he considered free enterprise and competition as absolutely necessary in order to gain the highest possible production.”   

Supporters included Emil Kirdorf, a “union-hating coal baron” from the Ruhr, to whom the Nazis gave a state funeral when he died in 1938, the steel magnate Fritz Thyssen, directors of pharmaceutical conglomerate, I.G. Farben, and several banks. Among the backers were companies that still prosper today such as Deutsche Bank and insurance giant, Allianz.

However, according to Shirer, the identity of these people was a secret, “kept from all but the inner circle around the Leader. The party had to play both sides of the tracks. It had to allow Strasser, Goebbels and the crank Feder to beguile the masses with the cry that the National Socialists were truly ‘socialists’ and against the money barons. On the other hand, money to keep the party going to had to be wheedled out of those who had an ample supply of it.” (181)

In February 1933 – after he had been appointed Chancellor but before Germany’s last multi-party elections the following month – Hitler called a private meeting of well-known industrialists, telling the invited audience that “private enterprise cannot be maintained in the age of democracy; it is conceivable only if the people have a sound idea of authority and personality” (Shirer, p 238). He promised to “eliminate Marxism”. He collected three million marks in donations.

The lesson is that not only were Nazis not socialists but, had they been socialist in any genuine way, they would have remained a complete irrelevancy. In much the same fashion as its precursor, Italian Fascism, German National Socialism had to expunge its socialist side (or confine it to mere rhetoric) in order to win the support of the powerful and get anywhere near power. All that followed – the creation of totalitarian state, the Second World War, the Holocaust – stemmed from the fact that the Nazis were not socialists.

The Nazis in power

When in power, the National Socialists remained true to their (private) word. Hitler abolished trade unions, collective bargaining and the right to strike. A law, known as the ‘Charter of Labour’, was introduced in 1934. According to Shirer, the charter:

… put the worker in his place and raised the employer to his old position of absolute master – subject, of course, to interference by the all-powerful state. The employer became the ‘leader of the enterprise’, the employees the ‘following’ or Gefolgschaft. Paragraph Two of the law set down that ‘the leader of the enterprise makes the decisions for the employees and labourers in matters concerning the enterprise’. And just as in ancient times the lord was supposed to be responsible for the welfare of his subjects so, under Nazi law, was the employer made ‘responsible for the well-being of the employees and labourers’. In return, the law said ‘employees and labourers owe him faithfulness’ – that is, they were to work hard and long, and no back talk or grumbling, even about wages. (327)

Wages were set by ‘labour trustees’ who were appointed by the Labour Front, the organisation that had replaced trade unions. “In practice,” writes Shirer, “they set the rates according to the wishes of the employer – there was no provision for workers even to be consulted on such matters”. Hitler declared himself against annual increases in wage rates – wages were to rise only if performance did.

Unsurprisingly perhaps, the German worker share in the national income fell from 56.9% in 1932 (before the Nazis took power) to 53.6% in 1938. Simultaneously, the share going to capital and business rose from 17.4% to 26.6% (Shirer 328). Nazi anti-capitalism is a complete fiction:

All the propagandists in the Third Reich from Hitler on down were accustomed to rant in their public speeches against the bourgeois and the capitalist and proclaim their solidarity with the worker. But the sober duty of the official statistics, which perhaps few German bothered to make, revealed that the much maligned capitalists, not the workers, benefited the most from Nazi policies. (329)

As the economy became more directed towards war, labour conscription was introduced and workers who left their job or didn’t turn up for work with good reason were fined or imprisoned.

It should be pointed out that, though capitalism was strengthened not overthrown under the Third Reich, the Nazi stance towards the working class actually mimicked in many respects practices under the Communist totalitarian governments. Under Stalin’s Five Year Plan in the Soviet Union, for example, factories kept records of workers’ absenteeism, lateness and shoddy work. “If the worker’s record was poor,” wrote American journalist Eugene Lyons, “he was accused of trying to sabotage the Five Year Plan and if found guilty could be shot or sent to work as forced labour on the Baltic Sea Canal or the Siberian Railway.”

However, what both had in common was an unwavering hostility to an independent labour movement. In many ways, what Nazism was fixated against was workers’ control or syndicalism, which was still a palpable threat in those days – the Spanish Revolution, with its worker-controlled factories, restaurants and barber shops, happened in 1936 – and industrial democracy was implicit in collective labour action such as general strikes. Robert Ley, head of the Nazi Labour Front, proclaimed, “We are all soldiers of labour, amongst whom some command and the others obey. Obedience and responsibility have to count amongst us again … We can’t all be on the captain’s bridge, because then there would be nobody to raise the sails and pull the ropes.”

Nazism and Capitalism

What is still quite startling about Nazism is the degree to which profit-making and capital accumulation were inserted in the very heart of a state-controlled war economy. Nazi extermination camps were privately insured and, as Hannah Arendt pointed out in Eichmann in Jerusalem, famous firms such as I.G. Farben, Krupp and Siemens-Schuckert had plants in the vicinity of Auschwitz and other death camps in which they ‘employed’ slave workers. “Cooperation between the S.S. and the businessmen was excellent,” Arendt noted … “As for working conditions, the idea was clearly to kill through labor … at least 25,000 of the approximately 35,000 Jews who worked for one of the I.G. Farben plants died.” (p 79)

So entwined was the relationship between the Nazis and business, that the Nazis instituted the first privatisation programme in history (sadly that accolade does not belong to Augusto Pinochet or Margaret Thatcher). They called it ‘reprivatisation’ and sold public ownership in a number of firms in the mid-1930s – in sectors such as banking, steel, mining, ship-building and railways. The motivation was both to raise money and to solidify support among business leaders.

No, the Nazis were not socialists. But they did diverge from today’s liberal-capitalist orthodoxy in significant ways. I will examine how in part two of this post.

*The referendum did take place in June 1926. The NSDAP, purged of left-wing ideas, proposed that Jewish immigrants, rather than the princes, be expropriated. Actually, a very large majority voted in favour of expropriation but because of a boycott and a ruling that 50% of the population had to support the ‘yes’ option for it to be valid, nothing happened.

Tuesday, 14 November 2017

A publicly-owned shadow economy is the only real answer to tax havens

“Tax havens on some tropical island” the writer Thomas Frank said last week, “aren’t some sideshow to western capitalism; they are a central reality. Those hidden billions are like an unseen planet whose gravity is pulling our politics and our economy always in a certain direction.”

Looked at this way, tax havens are a permanent and unalterable reminder of the impotence of governments in the face of footloose multinational corporations and the 0.001 per cent. But, in reality, their very success may be the ultimate undoing of the corporate system. They may make the creation of an alternative economy unavoidable.

To captive governments, tax havens exhibit a ghastly allure – if you aren’t in on the act, somebody else will be. To corporations in the US, a country with the highest corporate tax rate in the developed world, Britain is a tax haven. Hence, the problem of ‘inversion’ – corporations deliberately re-locating where they are legally registered to take advantage of the lower rate (currently 19% in the UK but soon to be lower). To corporations in Britain, Ireland, with its 12.5% corporate tax rate, is a tax haven. To corporations registered in Ireland, the Netherlands is a tax haven because it allows profits to be transferred at negligible cost to zero tax Bermuda, whereas Ireland imposes a high tax on such transfers.

The sobering reality is that Ireland used to have a corporate tax rate of 50% buy it makes more revenue from the current rate of 12.5% than it did when the rate was four times higher. This isn’t because the low rate is attracting actual business investment – investment is at historically low levels – but because it is stealing the tax revenue of other countries. Many corporations are legally domiciled in Dublin and pay tax there but don’t carry out any investments in Ireland.

Thus there is a competitive advantage to lowering your corporate tax rate, even while the system as a whole is gradually strangling government revenue and enshrining austerity as a permanent feature of political life. It is estimated that EU loses 350 billion to multinational tax dodging every year, while in Britain the figure is 12.7 billion; a little less than the £12 billion of social security cuts that the May government inherited from George Osborne and is still implementing.

With Donald Trump about to reduce the headline US corporate tax rate from 35% to 20% the race to the bottom will likely further intensify.

Rather than going through the motions of cracking down on tax avoidance, governments could get serious. They could close down the tax havens that are within their jurisdiction or the shell corporations that enable profits to be funnelled tax-free out of the country. They could insist that corporate tax equivalence is an integral part of any free trade deal – an agreed international band of 30-33% for example. At present, the Eurozone, as part of its Stability & Growth pact, mandates that government deficits don’t exceed 3% of GDP, whereas it leaves corporate tax rates entirely at the discretion of national governments. It’s no surprise, therefore, that six EU countries – Luxembourg, Ireland, the Netherlands, Belgium, Malta and Cyprus – are classed as tax havens.

But even if this happens, and that’s a mighty big ‘if’, it probably won’t be sufficient. There will always be loopholes that teams of lawyers can exploit and doubtless some ‘rogue states’ that will offer zero per cent corporate taxation. Therefore, in the fullness of time, governments may well be forced to consider the ultimate legal sanction – the withdrawal of corporate status. The Achilles heel (and dirty secret) of seemingly invincible multinational corporations is that they are entirely dependent – legally dependent – on the state. As Joel Bakan writes in The Corporation, “The state is the only institution in the world that can bring a corporation to life. It alone grants corporations their essential rights, such as legal personhood and limited liability, and it compels them to always put profits first … without the state, the corporation is nothing. Literally nothing.”

It has been mooted that the threat of the withdrawal of banking licenses should be invoked in order to deter major banks from facilitating tax dodging. For major corporations who routinely engage in massive tax avoidance (just look at the names that crop up in the Paradise Papers) the threat of the withdrawal of limited liability or corporate status in its entirety is probably the only thing that would make them think twice.

It will be immediately objected – and with good reason – that for the really big corporations – Facebook, Apple, Google – this is simply inconceivable. They are too powerful, and just as importantly so integral to people’s daily lives, that they are untouchable. Withdrawing Facebook’s corporate status is probably the psychic equivalent of banning coffee.

Given the terrible bind that corporate tax avoidance places governments – and by extension the public – in there is only one alternative. Publicly owned, cooperatively-run companies need to be created to, in time, compete with the behemoths. Companies that will, openly and willingly, pay their taxes and whose very existence gives credibility to the threat of withdrawing corporate status or limited liability from those that don’t.

The technologically know-how certainly exists in the public sector – many of the breakthroughs that the tech giants rely on were hatched in the public sector and gifted to them at no charge. There are already pioneers. The New Economics Foundation is piloting a ‘mutually-owned, publicly regulated’ alternative to Uber. At the last GE, the Labour party committed itself to the ‘right to own’; giving employees the right of first refusal if the company they work for is put up for sale. Community Interest Companies – for profit companies with an asset lock that commits them to working in the public interest – are growing following their creation more than a decade ago.

All this indicates that it is not utopian to think that, in time, a publicly owned ‘shadow economy’ could be a viable alternative to the corporations that dominate the intimate details of our lives. Given the implications of tax havens, they may be the only hope for a liveable world.

Thursday, 19 October 2017

Debt: The Last 30 Years

We are marginally less constipated than before. Ideologically speaking. Thanks in large part to Jeremy Corbyn British politics has begun to move on from the mendacious obsession with public debt being the cause of the last financial crisis (and the harbinger of future ones).

Political conservation has started to appreciate the seriousness of enormous levels of private debt, which was always the elephant in the room. The Bank of England has warned of a ‘spiral of complacency’ about growing household debt, while the IMF has cautioned that the ‘rapid growth in household debt – especially mortgages – can be dangerous’. Anthropologist David Graeber says ‘the household sector is a rolling catastrophe’. Around 17 million Britons have less than £100 in savings.  And with the BoE making noises about raising interest rates from rock bottom levels, there are worries that some mortgage-holders could default, precipitating a US-style sub-prime crisis.

The problem is that all attention is directed at one kind of private debt – personal debt. And while its seriousness should not be minimised there are other sorts of private debt that merit just as much, if not more, concern:

Personal debt is not the most extreme form of private debt

Private debt can be divided into three types – financial sector debt (i.e. banks & insurance companies), corporate debt and personal or household debt. All three have grown exponentially since the start of the 1990s. According to economist Michael Roberts, what he terms ‘global liquidity’, a combination of banks loans, securitized debt and derivatives, mushroomed from 150% of world GDP in 1990 to 350% in 2011. And while in some countries, colossal financial sector debt has declined to a degree following the financial crisis, and household debt levels fell before rising once more, corporate debt, nourished by near zero interest rates, has just snowballed over the last nine years.

According to figures released by management consultants McKinsey in 2015, all forms of private debt have grown since 2007 but corporate debt has increased by double the rate of both household and financial debt, which nonetheless rose but in a more subdued manner than before the crisis (see the graphic in this article). Government debt has also exploded as financial debt was transferred to state coffers. “Nonfinancial corporate debt remains the largest component of overall in the advanced capitalist economies at 113% of GDP,” says Roberts, “compared to 104% for government debt and 90% for household debt.”

The forms that corporate debt takes vary but one of the most common is for companies to use debt to buy back their own shares. This practice, which was illegal in the United States before 1982, increases the firm’s share price in a totally artificial manner, giving the appearance of financial health and success in the marketplace. Frequently, it also personally benefits the corporate executives who authorise it as they are paid partly in stock options. In fact the corporate sector has been the main buyer of US equities since the market meltdown of 2008, engaging in what has been described as ‘the greatest debt-funded buyback spree in history’. It was estimated that in 2017 the largest US companies would spend a record $780 billion on share buy backs, though, in reality, the forecast bonanza has apparently hit a snag.

Or possibly corporate debt takes the form of shareholder loans, the practice by which one company deliberately loads another company that they own (they are the main shareholders) with huge amounts of debt which the captive company is then obliged to pay back at high rates of interest; 15 or 20% for example. The Financial Times recently highlighted the case of Arqiva which owns 9/10ths of the UK’s terrestrial TV transmission networks and, in the three years to June 2016, paid around £750 million in interest to its controlling shareholders, payments financed by borrowing.  It is now £3 billion in debt. And that’s just one company.

Household debt did not cause the 2007-8 Global Financial Crisis

What household debt did was light the touch-paper. The nationwide implosion of the housing market in America after interest rates were raised signalled the demise of all those mortgage backed securities and collateralized debt obligations but the reason it proved so devastating for the US economy and spread the crisis around the world was because of the fatal combination of household debt with gargantuan financial sector and corporate debt. The Global Financial Crisis was sparked in August 2007 (‘the day the world changed’) when French bank BNP Paribas froze its funds because of its exposure to the mortgage backed securities of the US sub-prime market. The problem wasn’t defaulting French mortgage-holders but the effects were being felt by a French bank. BNP was one of three major French banks who were collectively overleveraged to the tune of 237% of French GDP. That level of indebtedness caused the crisis to spread to Europe as hugely indebted, and now effectively insolvent, European banks called in the loans they had made to southern European governments.

Nobody can say with any assurance what the trigger will be for the next financial crisis. It might be heavily indebted US college graduates or UK credit card borrowers or Australian consumers or Dutch mortgage holders (a country which has the most indebted households in the euro area).

But it’s equally possible that the fuse will be lit from another sector of the economy entirely – massively overleveraged corporations being unable to repay their creditors when interest rates rise, for instance. In that case, households will simply be spectators to the unfolding events.

All the focus is on personal debt because it represents a morality play

In Debt: The First 5,000 Years David Graeber points out that in Sanskrit, Aramaic and Hebrew ‘debt’, ‘guilt’ and ‘sin’ are all the same word. In modern German, the word for ‘debt’ – schuld – also means guilt. “If history shows anything,” Graeber writes, “it is that there’s no better way to justify relations founded on violence, to make such relations seem moral, than by reframing them in the language of debt – above all because it immediately makes it seem that it’s the victim who’s doing something wrong.”

The existence of enormous level of personal debt in advanced capitalist countries is a sure sign that the individual freedom these societies claim to uphold is skin deep. In reality, they are founded relations of coercion and control. To be in debt is to have someone’s boot on your neck. In the UK, high rates of personal debt are intimately related to the fact that real wages are 10 per cent lower than a decade ago. Rising personal debt is also strongly correlated to mental health problems like depression and anxiety.

From another perspective, personal debt is the symbol of our fatal addiction to consumerism, the consequence of an all-embracing need to maintain a modern lifestyle, decorated with the latest products, no matter what the cost to ourselves or the environment. Either way, personal debt unmistakably says something about the current state of society – what drives it and who is in control.

Corporate and financial sector debt, by contrast, is not only opaque, it is frightening neutral. Debt has simply become the way of doing business over the last 30 years. Debtors are frequently also creditors and companies may simultaneously indebt themselves and hoard cash. Indeed, increasing ‘leverage’ (to use the technical term) or loading debt onto captive companies (as in the Arqiva case) is often the primary means by which profits are made. No sense of shame or ‘doing something wrong’ attaches to it.

The question that should arise is why the corporate sector – financial and otherwise – has become so addicted to debt? Why is old-fashioned investment in new products or new technologies comparatively shunned?

It is possible to reduce personal debt but corporate debt is far more of an intractable problem

Theoretically it is possible to cut personal debt to more manageable and less dangerous levels.  Ending austerity, strengthening trade unions, instituting rent controls and directing efforts to raising the level of real wages should see the rates of payday loan and credit card debt diminish. I say theoretically because, interestingly, some of the highest quantities of personal debt, as a proportion of GDP, are in Scandinavian countries – nations that have impressive rates of trade union membership, collective bargaining and high personal incomes. However, those in debt in Nordic countries tend to be higher earners. In the US and UK, by contrast, personal debt often afflicts people much lower down the income scale – people who are much more likely to default given a slight change in the economic winds.

Corporate debt is a different matter entirely. The massive government bail outs of 2008 only succeeded in transferring debt from the financial sector to the state and, even then, only denting marginally the indebtedness of the banks. Corporations, whose debt had risen markedly over the previous twenty years, merely took advantage of the lower interest rate environment, to become even more indebted.

The writer and broadcaster Paul Mason says governments have to do something ‘clear and progressive about debts’. He advocates a policy of ‘financial repression’ – that is stimulating inflation and holding interest rates below the rate of inflation for 10 or 15 years as a way of writing off debt. But we can see the problems that a mild rise in the rate of inflation to the historically low level of 3% is currently causing people in the UK, with wages unable to catch up. Deliberately stoking inflation for a decade or more would surely precipitate the household debt defaults that so many people are warning about – inflation would erode the total amount of people’s debt but interest payments would still need to be met as real incomes plummeted. And if interest rates are below inflation – as they are now – the incentive for corporations to take on more debt is still there.

It is difficult to imagine how this system can gradually and progressively resolve its problems without provoking the economic collapse that everyone is so desperate to avoid.


It's probably worth re-emphasising that when I speak about corporate debt, I'm not referring to the borrowing a company naturally needs to do to keep going and expand its operations. See -

What's happening now is massive borrowing to either appear successful (share buy backs) or invest in debt to make more money. They're nothing to do with how capitalism is meant to function in the textbooks.


Tuesday, 1 August 2017

'Most economists simply do not understand finance' - An interview with Harry Shutt

Harry Shutt is a freelance economist (he has carried out more than 100 assignments for the World Bank, the United Nations Development Programme and the European Commission) and the author of Beyond the Profits System (2010), The Decline of Capitalism (2005), which predicted ‘an unavoidable financial crisis … on a scale far greater than any previous one’ and The Trouble with Capitalism (1998). Unusually for his profession, he is no cheerleader for capitalism, rather asserting that the profit maximising corporate system is a relic from the past whose continuance is doing immense harm to public welfare. In this interview he reflects on Jeremy Corbyn, the real purpose of Quantitative Easing, why economic recovery under the present system is impossible, the necessity of a basic income and what future economic enterprises might look like in an era of the rapidly diminishing value of capital.

As unlikely as it looked a few months ago, a Jeremy Corbyn-led Labour government now seems a distinct possibility in the not too distant future. What’s your opinion of Corbyn and Labour’s social democratic programme and where do Labour’s blind spots lie?

From a Left perspective Corbyn’s election to the Labour leadership was obviously a step in the right direction, as also was his relative success in this year's general election, based on a relatively radical manifesto and a strong campaign. However, the election manifesto, which was quite widely praised, has some serious drawbacks in my opinion. One of them was on the question of social welfare, where they didn’t promise to reverse the cuts, which was pretty extraordinary. And they didn’t come out with any alternative to the Tory strategy. In that regard, there’s been a further report on the impact of Universal Credit – it’s from the Citizens Advice Bureau and they’ve called for it to be suspended. Labour ought to be calling for this. But they simply haven’t got any other ideas. Even theoretically, Universal Credit is a complete disaster and could never work in practice.

More fundamentally, there is no mention in the manifesto of the problem of the massive national debt – which has doubled since 2010 despite the desperate efforts of the present government to contain it – other than a commitment to bring it down by the end of this parliament (2022). Yet there is no indication of how this is to be done, nor any mention of the macro-economic constraints to action or of the very real threat of renewed financial crisis.

Your position differs from many left-wing economists in that you say that not only has recovery not happened since the crash of 2008, but, in the circumstances of enormous and growing debt (financial, corporate and personal) and ultra-low interest rates, recovery is simply not possible. Hence investors and entrepreneurs are forced into ‘fictitious’ areas of activity – financial speculation – in order to make a profit. But why exactly does a combination of an enormous debt overhang and near zero interest rates preclude any genuine economic recovery?

As noted by at least one other economist (Steve Keen), most economists simply do not understand finance. If they did they would realise that the prevailing low interest rates are the result of massive market manipulation officially orchestrated by the US and other leading world economies. Likewise they would recognise that the main purpose of Quantitative Easing is not to stimulate economic activity but to buy up public debt and other financial securities at prices far higher than their true market worth, thereby holding market interest rates far below what they would be if they were to reflect the true value of financial securities. In other words the current record levels of stock market prices and unprecedented low interest rates are the result of a gigantic state-sponsored fraud (probably the biggest in history). As such it must be recognised that this QE-based fraud is unsustainable and is bound to end in a monumental financial crash, with dire consequences for the entire world. What is most astonishing to me is that other economists (particularly on the Left) are unwilling or unable to recognise this.

Some left wingers regard low interest rates as an opportunity for the government because they mean it is able to borrow money cheaply and, for instance, build social housing or install ultra-fast broadband and free public wi-fi. I know you regard such thinking with disdain. What are your reasons?

Because of the existing or prospective insolvency of most of the borrowers the only institutions likely to lend at such low rates are ones associated with the government itself. So those who use this argument are simply asking for the government to borrow from itself – or print money by any other name.

The three things you mention are all desirable. But why should we borrow even more to pay for them when a) we are already in debt up to the eyeballs and b) the private corporate sector has such huge excess reserves of capital (‘surplus value’)? The LP manifesto was extremely timid in proposing higher taxes on corporate profits; note also that in 2010 the Lib Dems proposed reversing some of the generous concessions on Capital Gains Tax (CGT) given the City by the New Labour government (of course dropped when they entered the Coalition), but the LP manifesto makes only one very vague reference to reversing CGT give-aways. The general point is that there is no substitute for a huge redistribution of income and assets, whether before or after (or perhaps during?) the coming financial collapse.

An American investor said at the start of June that ‘the worst crash in our lifetimes is coming’ - Do you think that it’s just a matter of time before a seismic economic crash happens?


You’ve written that ‘there is no painless way of achieving a transition' to a new economic model. But people are understandably frightened of what a mammoth economic crash would lead to. It might usher in Fascism, war-lordism or even nuclear war. Is there any way of moving to a more rational economic system without the roof caving in so to speak?

No, the point of no return was probably passed in the 1970s.

You’re a strong advocate of a Universal Basic Income. But unlike many basic income proponents, who imagine it as kind of fall-back to enable people to navigate the ‘gig economy’, you’re adamant that UBI should be ‘the primary mechanism of income distribution in the modern economy’. If basic income will largely replace income from work for people does it therefore need to be set at a generous level – much higher than just subsistence?

Not necessarily. People will still have the opportunity to engage in paid employment / self-employment to supplement their basic income stipend. But the UBI must be sufficient to permit people to engage in non-remunerative activities without financial hardship (bear in mind they will also benefit from the NHS and other publicly financed universal services).

Your last book was subtitled, ‘Possibilities for a Post-Capitalist Era’. Under a post-capitalist economic system, if enterprises no longer maximise profit and people don’t receive much of an income from paid employment (they get most of their living costs from tax-funded UBI), how will universal services like the NHS and education be paid for? Won’t tax revenue dwindle to a virtual trickle?

The pattern of employment, value added, income distribution, pricing, taxation etc under a post-capitalist economy remains to be determined as the system evolves. But consider that (e.g.) if it costs little or nothing to produce things (as in the “Zero marginal cost society” – ZMCS) then people won't need much income to procure them. The likely knock-on effects of this on the cost of public services are obvious.

Adam Smith is commonly thought of as the father of market economics. But he was against the corporate form (he thought that ownership and management should not be separated) and advocated small-scale enterprises. Similarly, you regard modern-day corporations as huge vested interests working to the detriment of public welfare. In any case, you believe that the era of the mega-corporation – enterprises that require massive capital investment and employ thousands of people – is coming to an end. So, in future, what will economic enterprises look like?

Again it's hard to foresee. If capital is no longer scarce and its value correspondingly minimal there will be little profit in trying to accumulate it in large quantities. Likewise rapid technological change and the increasing difficulty of restricting access to it will make it hard to capitalise on “intellectual property” as mega-corporations currently do, especially with the advent of the ZMCS. In this scenario I envisage enterprises (whether community or privately owned) as mainly small-scale serving local economies. Note that Shell and other oil companies are already preparing for life after petroleum, though most are not anticipating the equally certain devaluation of most other activities of high capital intensity.