Monday, 31 October 2011

Interview with 'dissident economist' Harry Shutt

Harry Shutt is a rare specimen, a professional economist who’s also anti-capitalist. A consultant for international development agencies such as the UN and the World Bank, Shutt has also written a series of books such as The Trouble with Capitalism and The Decline of Capitalism exposing what he sees as the growing unsustainability of capitalism since the 1970s. He is influenced by thinkers such as Karl Marx, JK Galbraith and Andre Gorz. He warned in 2005 of “an unavoidable financial crisis” on a greater scale than any before. Since the 2007 economic crisis hit, he has argued that a return to enduring economic growth is not desirable or possible, and that western societies have to “grasp the nettle” of a “post-capitalist” economic future. His ideas are encapsulated in his latest book, Beyond the Profits System published in 2010, and reviewed here.

We are not the Beautiful talked to Shutt just after he addressed the Occupy London camp in St Paul’s.

We are not the Beautiful: Sovereign debt in Europe has become the issue threatening to cause a new banking meltdown and plunge Europe back into recession. But why has debt loomed so large now when no-one even considered it problem little more than three years ago?

Harry Shutt: The real question is why it did not loom larger earlier, to which the answer is that it's been systematically ignored ever since the ‘70s, when the first big post-war bust in the financial system occurred (1974). The immediate cause of that was over-risky lending and speculation. This should have led to a fundamental reappraisal of the whole capitalist model, but of course that didn't suit the global establishment any more than it does now, since it would have required huge losses through capital destruction and a permanent shift towards a more collectivist economic model in which their power and wealth would have been curtailed.

Against a background of already rising indebtedness before the crash the cost of the bank bailouts undertaken in response to the 2008 meltdown added a huge extra burden, while the sudden collapse of economic activity following the 2003-07 boom led to a sudden big drop in government revenue. Hence ballooning state debt.

How was the problem of debt able to be ignored for so long?

Through ever greater false accounting and criminal fraud - pretending that assets were worth far more than they were, in fact. The ultimate expression of this was the sub-prime mortgage fraud here and in the US, which was based on the premise that people with little or no income could service loans. The authorities were turning a blind eye to mortgage fraud back in 2003-04 and earlier. It all results from a desire to pretend that then capitalist business cycle of boom and bust is no longer a problem - as we were brought up to believe in the ‘60s -  whereas the Marxist view that it's an inescapable feature of the system has been comprehensively validated over the last 35 years. That ultimately required them to make-believe that you could have expanding markets without consumers.
The point is that the capitalist model depends on perpetual expansion of markets but that this is not possible because there are always limits to the growth of purchasing power - something we've known since the days of Malthus 200 years ago.

Reducing government debt is the justification given for crippling austerity in countries like Greece, Italy, Ireland and Spain. Fear of bank collapse has necessitated a permanent 1 trillion euro taxpayer bailout fund for banks. We are assured by politicians this is pill that has to swallowed even though there is no end in sight. The alternative, we are told, would be economic collapse, whole industries going the wall and millions being thrown out of work. But is that right? Is there an alternative that doesn’t involve economic Armageddon?

We've now reached the point where there is probably no alternative to Armageddon at least in the short and medium term - whether they try and bail out the banks again or not. Once it starts the logical immediate response would be emergency state intervention along the lines spelt out in my books, which would mean turning the whole ideology of liberalisation and globalisation on its head.
Note that the banks, especially in Europe, have apparently been refusing, at least until the midnight Brussels agreement of 26 October, to accept any write-down on sovereign debt on the basis that taxpayers are liable for issuing debt they couldn't afford to service - and thus denying that the banks themselves have any responsibility for ensuring their own investment decisions were based on sound assessment of their viability - surely the ultimate expression of “moral hazard”.
But if governments were to buy that it would mean fleecing taxpayers and/or forcing Greece and others into destitution to pay for it, which is clearly not a realistic option. Hence default would be inevitable, not just in Greece. In summary, of the three options for resolving the sovereign debt crisis - intensified budget austerity, sovereign default or big bank write-downs and losses - all lead to comprehensive market meltdown.
Budget austerity just leads - in the absence of some "miracle" counter-cyclical source of growth such as a huge oil discovery - to a downward spiral of lower output and still bigger deficits, as already in Greece; sovereign default will precipitate global contagion of bank collapse; big bank write-downs will mean drying up of credit and spill over into general market paralysis and meltdown.
It may be said there is a fourth option – inflation, whereby debts are effectively devalued in a kind of covert default which simply spreads the losses from the creditors to the public at large – but this is highly dangerous socially and has no more chance of avoiding ultimate meltdown than the other approaches.

What do you think of the 50 per cent write-down of the Greek debt? Is this merely a temporary respite?

It's very much a short-term fix designed to avoid a more extensive default - if it went above 50 per cent it would seemingly be classified as a “credit event”, which would activate the credit default swaps on which banks have unwisely gambled, thereby exposing them as insolvent sooner rather than later. In any case it will not enable Greece itself to escape from its basic insolvency, which will intensify as continued austerity leaves it mired in economic contraction.

 What do you mean by emergency intervention?

Whatever is needed to bring a degree of stability and sustain the minimum level of economic activity. It includes exchange controls, which means restricting movements of money across borders and between currencies - we had them in the UK up to 1979. It also means re-regulation at both national and international level, ending - or at least suspending - globalisation as we know it. An example of re-regulation would be renewed separation of retail banking from investment / casino banking. At the limit, emergency intervention could even include price and income controls, state requisition of corporate assets and direction of capital.

It's important to stress this is not an alternative to market meltdown but would be designed to prevent this turning into full-scale economic and social disaster and conflict (Armageddon).

Are you concerned that these emergency interventions could lead to too much state power?

Hardly. If anything I'm more concerned that our institutions have become so corrupted and subverted by laissez faire ideology and private sector lobbying that they won't be able to resist the pressure to bend the rules or succumb to conflicts of interest, such as the recent scandal over Goldman Sachs & HMRC in the UK, rather than uphold the public interest with integrity.

Do you think that Occupy protests, which have spread to 951 cities in 82 countries offers the beginning of real resistance. Where can it lead?

It's too early to tell. I'd say obviously the establishment can't violently disperse peaceful demonstrators as long as the bankers are left at large to commit more crimes and governments remain without a credible strategy for dealing with the economic crisis. With luck their continued presence on the streets will serve to concentrate the minds of political leaders on finding an alternative approach which extends beyond satisfying the financial and corporate establishment. But I doubt the resolution will be any quicker than it's proving in Egypt.

The Occupy the London Stock Exchange protesters have issued a statement saying they refuse to pay for the banks' crisis, say the cuts aren't inevitable or necessary, want genuinely independent regulators, and are calling for structural change towards global equality. What do you think of these demands and what more would you add?

The OLSE statement is fine as far as it goes. Incidentally, Occupy Wall Street are rightly very strong on the political corruption issue. But given it is impossible for them to start with a coherent set of demands, as with any ad hoc revolutionary movement, it is nevertheless  important to try to state certain priorities which would be essential features of a more democratic, "post-capitalist" new order.

In line with the analysis set out in my book Beyond the Profits System these priorities should begin with banning private contributions to political party funds other than flat-rate individual member subscriptions, the amount of which would attract pro-rata state funding according to a common formula.

GDP growth and full employment, which is unattainable, should be rejected as economic policy priorities in favour of guaranteeing all individual citizens an unconditional, flat-rate, basic subsistence income, to be paid out of taxation. This could be financed not only by higher rates of direct tax, personal and corporate, but by big savings on administration, no more means-testing of claimants, and from ending subsidies to investment, employment and wasteful "development" projects such as the London Olympic park. It is undeniable that the idea of guaranteeing everyone a basic income from the state regardless of their employment status will be a hard sell for most people who reasonably regard themselves as the hard-working, responsible majority. But as more and more grasp the futility and high cost of trying to push people into increasingly scarce, low-paid and pointless jobs, this attitude is bound to change.

In future extending state protection, guarantees and subsidies to enterprises will only be justified on the basis that enterprises in receipt of such protection, including limited liability, will be far more accountable to the public than hitherto and subject to publicly determined approval of their decisions – such as on investment, pricing, profit margins. Given the absence of economic growth - which will in any case limit the scope for profitable reinvestment of surpluses - such restrictions will tend to inhibit traditional private investment and require more collective and community enterprise, local as well as national, to fill the gap.

Immediately, as indicated, emergency interventions will be needed just to enable the economy to function at all at a minimum tolerable level. This will obviously involve a dominant role for the state as it moves to stabilise the situation and clear up the mess. The difference from 2008 must be that it will no longer be assumed that the private sector must be bailed out so it can resume "business as usual". Hence we must have a vision of the type of alternative model we collectively wish to arrive at once the crisis has been brought under control.

Economic growth is seen as the Holy Grail that all government avidly pursue. But what causes economic growth or its absence?

The short answer is that, in a market economy, growth is only possible where there are sufficient economic actors with both the desire and the capability to purchase extra goods and services from among those available, what Keynes called effective demand. While it is possible to use policy to restrain demand, or consumption, growth, contrary to the belief of some Keynesians it cannot be stimulated artificially; attempts to do so – for example by extending loans to those who manifestly cannot repay them or by subsidising excessive investment – inevitably end in tears. Put another way, you cannot eliminate the business cycle.

Is economic growth something society can do without? How?

Since it is increasingly unattainable, however much market forces are distorted in pursuit of it, leaving aside any environmental constraints, we shall have to do without it. This will require effective redistribution of income on the basis of much greater equality than exists in virtually all countries. In addition to the introduction of a basic or citizen's income and other redistributive measures acceptance of limits to economic expansion will entail restricting access for both individuals and enterprises to employment and market opportunities – both within and between countries. This will call for an ideology explicitly emphasising cooperation rather than competition and limitations on market access across borders.

What do you think of Tim Jackson’s ideas for Prosperity without Growth? Are they feasible?

The remarkable thing about this 2009 work is perhaps that it was sponsored by a UK government quango - the Sustainable Development Commission, subsequently abolished by the Tories. Thus it has given official respectability to the idea -hitherto considered heresy - that in order to have a sustainable future for humanity we shall need to abandon growth as the supreme objective of economic policy. What Jackson fails to confront, however, is the stark reality that a low or no-growth economy would be death to capitalism, for which growth is the very oxygen essential for its survival. Hence he doesn't come near identifying the radical implications of doing without growth in the design of a new order.


  1. Harry Shutt now has his own blog:

    Very interesting points about Quantitative Easing and why Europe has been engulfed in crisis because it hasn't been done. But QE is a doomed strategy for other reasons

  2. Here is a new interview with Harry Shutt: