Tuesday, 24 July 2012

The wreath of conservatism. Niall Ferguson gives us a lecture. Part Two

Since Plato there has been a thread of fear running through Western political thought. The foreboding that, in putting the poor in the saddle, democracy would lead to a fatal redistribution of wealth. Thatcherism in Britain fed on this sense of apprehension: the feeling that government redistribution from rich to poor had placed handcuffs on business, and the creation of wealth. It is a political dogma that conservatives cannot let go of. UK Chancellor George Osborne’s belief that government spending was “crowding out” private sector investment springs from the same source.

Niall Ferguson’s Reith lecture is founded on this primal fear. But he neglects one small fact. That poor and rich have swapped roles. In recent decades conservatives have become so successful at combating this supposed defect of democracy that now in western states, all boasting universal suffrage, redistribution works in the opposite direction. From poor to rich. Or to be more accurate, from the majority to a rich minority.

The ubiquity of corporate welfare in the UK, as shown in part one, is such that its presence can longer be politely hidden. As an example consider the Bank of England’s "funding for lending" scheme which will offer cut-price loans to banks, in exchange for some of their toxic assets such as credit card debt – “assets” which will be transferred to care of the government, otherwise known as the taxpayer. The scheme is worth £80 billion: just £3 billion less than the £83 billion cuts in public spending which the Conservatives are implementing in order, they say, to eliminate the government’s fiscal deficit. Cuts, equivalent to taking 19% from the budget of every government department, which will have a palpable effect on the welfare of people, as opposed to corporations, in Britain.

In continental Europe, the story is similar, and sometimes even more blatant. Spain ran a budget surplus prior to the economic crisis. Nevertheless the right-wing Spanish government of Mariano Rajoy is forcing through a €65 billion austerity package in order to pay for another  €100 billion bail-out of insolvent banks.

Don’t Call it Democracy

Many people now experience government as a racket, shovelling money with alacrity down the throats of banks and corporations, but denying, with stony-hearted glee, basic support to people when they need it most. In Britain, you can pay national insurance and tax for decades, but if you fall ill you find that the “benefit”, which you have paid for, is time-limited for a year. That is, if you are considered ill enough to qualify for benefit at all.

 The honest conclusion from all this is that we don’t live in democracies. We live in “polyarchies” – countries with universal suffrage and fair elections but where a privileged class ensures that, whoever wins, it benefits from government spending and tax avoidance. Former New York Times foreign correspondent Chris Hedges describes our political domicile as a “corporate state”.

But it’s also true that, in these polyarchies, the people who present themselves as fiscal conservatives aren’t conservative at all.

Top of Niall Ferguson’s list of wasteful US government programmes to be culled, come Medicare and Medicaid. They are ways in which the government pays for the cost of medical treatment for people on low incomes and the retired. And it’s true the costs are rising exorbitantly. But that is because these programmes pay for huge cost of private, as opposed to socialised, medicine. A recent international study illustrated the size of the expense. A routine visit to the doctors, the study found, cost $23 in France compared to $89 in the US. The price of an angiogram – a scan to see whether arteries in your heart are blocked – was $789 in America, compared to $35 in Canada.

So one way to seriously reduce the costs to the taxpayer, a sensible person might conclude, would be to create a public health system, resembling the French system, for instance. The “public option” is supported by 65% of Americans, opinion polls say. But to conservatives like Ferguson, the thought is simply verboten. (Actually what Americans got in the recent health care reform was compulsory registration with private medical insurers, a compromise that ensures costs go on rising and that says a lot about the pointlessness of American liberalism.)

Fiscal Incontinence

The idea of using taxpayers’ money to subsidise the private sector is such an unthought of feature of conservative strategy, that it is almost a reflex, rarely rising to consciousness. The possibility that costs might be reduced to the taxpayer by challenging  private sector structures cannot be contemplated.

 In Britain, the 2012 Health and Social Care Act will compel the National Health Service in England to commission services from the private sector. The cost to the public of this new market has been put at £20 billion a year. According to the authors of The Plot Against the NHS, “Each consortium [now clinical commissioning group] will have to employ a team of commissioners to negotiate contracts, monitor their performance, accountants to pay all the bills, lawyers to vet contracts and conduct court cases over disputes, team to vet drugs prescribed by GPs, and check their referrals to specialists and the treatments proposed by specialists. It will also need an advertising and PR department. Every hospital and chain of clinics will need the same.”

The Act, the largest reorganisation of the NHS in its history, has been introduced by the Conservatives in the face of deep opposition, and whilst they inflict £83 billion spending cuts elsewhere. The symmetry with the interests of corporations, regardless of the financial cost to the public, is unmissable. According to health researcher Alyson Pollock, the private health care industry does not want a purely private market. “Its interests lie,” she says, “in becoming for-profit providers in a basic health care system funded out of taxation.” And, at a time of austerity, they are getting what they want.

The similarity between the fate of the de-nationalised railways in Britain and the awaiting fate of the NHS has been noted. An equally inconvenient truth is that re-nationalisation of the railways has been estimated to save £1.2 billion a year. And yet, despite this policy having overwhelming public support, all the main political parties, Conservative, Liberal Democrat and Labour, each one fervently committed to saving public money, reject re-nationalisation. When it comes to derailing the corporate gravy train, our fiscal conservatives magically transform themselves into fiscal incontinents.

You might draw the conclusion that Leftism is the only option that makes financial sense.


Niall Ferguson ends his lecture with the now familiar conservative lament that, at root, people caused the economic crisis themselves. “As our economic difficulties have worsened, we voters have struggled to find the appropriate scapegoat,” he tells us. We blame politicians, “but we also like to blame bankers and financial markets, as if their reckless lending was to blame for our reckless borrowing. We bay for tougher regulation, though not of ourselves.”

This is clearly meant to be a rhetorical flourish but there is, actually, a simple way of “regulating ourselves”, a method that has been used, often quite brutally, by conservatives in government for decades. The method is interest rates, the price of lending money. The government, or the central bank, sets the rate, and banks and other financial institutions set their rate at similar levels. Government interest rates, in the US and UK, are at historic lows. At 0.5% in the UK, the interest rate is at the lowest level since the Bank of England was formed in 1694. Savers suffer because the interest they get is lower than inflation, while borrowing and spending are officially encouraged.

As far as the state is concerned, Ferguson believes that "you can't solve a problem of extensive debt with more debt”.

But with the wider economy, apparently you can.

If conservatives, such as Ferguson, had the courage of their professed convictions, they would argue that interest rates should rise, to say 8 or 10%. This would reward and encourage saving and discourage the binge borrowers whose reckless behaviour plunged the economy into such dire straits. But I don’t hear any calls to raise interest rates. In 2011, David Cameron did plan to tell the Conservative Party conference that people should pay off their credit card debt. But when the speech was leaked, it was pointed out that if his advice was followed, consumer spending would drop by a quarter and GDP by 15%. The speech was rewritten.

The only conclusion to draw from this silence is that continued borrowing, by consumers and banks, is saving the economy from completely collapsing. In other words, the response to the bursting of a huge credit bubble is to strain to create another one. I’m not an economic historian but that doesn’t look sustainable to me.

As far as conservative thought is concerned, the light is beginning to get in.

Tuesday, 17 July 2012

The wreath of conservatism. Niall Ferguson gives us a lecture. Part One

I have finally worked out the perplexing intellectual strategy of modern conservatism. It is, despite appearances, nothing to do with personal responsibility, wealth creation, the minimal state or really not liking gay marriage. It is rather aimed at constructing a parallel universe in complete contradiction to the way the world actually is. And then to go to work to get people to accept this surrogate version of reality and use the ensuing collective delusion to quietly fleece people seven ways from Sunday in the interim. 

For the first four years of this economic crisis, the strategy worked like a dream. Now the cracks are beginning to show.

It is an epiphany that springs irresistibly to mind when the poster boy of contemporary conservatism, Niall Ferguson, opens his mouth. The problem with austerity, he evinced in a recent BBC Reith lecture is not that there’s too much of it, but not enough. (It might be said that in his contrarian relish for austerity, Ferguson is the mirror image of the inveterate Marxist-Leninist Slavoj Žižek – Stalin did not go far enough. But that is a matter for another post).

“If young Americans knew what was good for them, they would all be in the Tea Party,” says Ferguson. You will search in vain for a ‘not’ in there. He really means it. Capitalists of the world unite and stop all those poor people getting hand-outs from the government.

But there are obstructions in the way of sating the conservative dream. “Today’s Western democracies now play such a large part in redistributing income,” frets Ferguson, “that politicians who argue for cutting expenditures nearly always run into the well-organised opposition of one or both of two groups: recipients of public sector pay and recipients of government benefits.”

Those pesky benefit claimants, selfishly opposing reform by committing suicide.

Seeing that government’s redistribution of income plays such a large role in conservative demonology, it is worth examining this crime in detail. It would be amiss not to start with the £1.5 trillion increase in the national debt of Britain caused by the banking bail-out in, a redistribution described as the largest single transfer of wealth from poor to rich in England since the time of William the Conqueror. But, William, it was really nothing compared to the US bail-out which cost the government $7.7 trillion, more than half the value of everything produced in the US in 2008. I think that can be classed as a redistribution though not the direction traditionally imagined by conservatives like Ferguson.

Since then of course there has been further government generosity for the richest among us. In June the British government announced an £80 billion emergency support programme for banks, through which they will be given cheap loans in exchange for “poor quality assets like credit card debt”. The Bank of England also promised to pump a minimum of £5 billion a month into “City institutions” to “improve their liquidity”.

This is all in addition to the ongoing marvel of Quantitative Easing, the creation of money by the government. QE is paid, not to benefit claimants or public sector workers, but to banks. Government QE hand-outs will soon amount to £375 billion. The Federal Reserve in the US has dallied a little more in this particular dark art. The practice has cost more than $2.2 trillion there.

It is worth adding that the country highlighted by Ferguson as having the highest public debt, Japan, is the very same country that pioneered Quantitative Easing and has been furiously bailing-out its finance sector for 20 years. There might be a clue there as to the cause of its public indebtedness but I’m not an economic historian like Ferguson.

In totting up the full extent of government redistribution, it’s important not to forget the Private Finance Initiative in Britain: a policy that originated with the Conservative government in 1992, and was then enthusiastically adopted by Tony Blair’s New Labour. It is estimated this will cost taxpayers £300 billion. The poor, unless they own a large percentage of shares in Siemens, don’t benefit from this particular act of government redistribution.

A fifth of government spending in the UK now goes directly to the private sector in form of payments for outsourced services, a proportion that will only increase as outsourcing enjoys a boom not seen since the 1980s. And these companies are always such tremendous value for money. Since the railways in Britain were contracted out to the private sector (by John Major’s Conservative government), taxpayer subsidies have increased twelve-fold to £6 billion a year. The cost of the collapse of tube maintenance company Metronet to the taxpayer £2 billion. The cost of bailing-out the privatised nuclear power generator, British Energy in 2003, was £3.6 billion. The Labour government’s scrapped identity card scheme was estimated to have benefited private contractors to the tune of £6 billion. The bill of the recent car-crash of a PFI project involving Somerset Council and IBM has been put at £31.5 million.

The great leap forward in corporate welfare undertaken by the current Con-Dem government is workfare. A scheme in which the state forces young people to work for large companies for nothing, while paying bare subsistence costs – ie their benefit.

“It is a mystery that while traditional right-wing commentators like the TaxPayers Alliance and the Mail object to funding an individual’s benefits,” writes Alex Andreou in the New Statesman, “they appear quite happy to cross-subsidise huge conglomerates.”

And all this without mentioning the war. The Iraq War, that is. In whose cause Ferguson was such an enthusiastic cheerleader. The war cost the American government an estimated $3 trillion and the British government £4.5 billion. The cost to the UK is £20 billion if Afghanistan is included. And who is exactly is paid to make all those missiles, aeroplanes, guns, bullets and uniforms? It wouldn’t be private, profit-making corporations would it? The bill is always posted to the same address – the state, funded by the taxpayer.

While we’re on the subject of war, it is timely to mention a confession in 2001 by the then US Defense secretary Donald Rumsfeld that the Pentagon “cannot track $2.3 trillion in transactions”.

“I could go on” as Steve Coogan once put it. But you’re probably getting bored by now.

“In the absence of effective scrutiny,” writes Dan Hind, “popular resentment of state expenditure concentrates on transfers of wealth from the middle classes to the poor, rather than on transfers from the majority to a relative handful of insiders."

And for conservatives, resentment, unlike government spending, is something you don’t want to go to waste.

Tuesday, 3 July 2012

“Well, Ted, like I said last time, it won't happen again” Bob Diamond and the culture of corporate repentance

Imagine, if it is not too disturbing, being romantically enmeshed with capitalism. Apart from living in an absurdly cluttered house full of gadgets you were persuaded to buy on your credit card, you would, by now, be sick and tired of same lame excuses for errant behaviour. And the clockwork promises of a fresh start.

Bob “the time for remorse is over “Diamond is angrier than anyone at the rigging of interest rates, he assured Barclays staff in a memo. The guilty ones will be asked leave, he pledged, before leaving himself. Barclays will reorient its business around “clear principles”, we are promised.

This, little more than year after Diamond made “good citizenship” a corporate priority.

By a strange coincidence, Diamond resigned on the same day that giant UK pharmaceutical corporation GlaxoSmithKline was fined $3 billion for “the largest healthcare fraud in US history”.

GlaxoSmithKline admitted trying to get American psychiatrists to promote anti-depressants to children. GSK staff also bribed doctors to prescribe GSK products by, amongst other methods, paying them millions of dollars to go on speaking tours and giving away tickets to Madonna concerts.

“I want to express our regret and reiterate that we have learned from the mistakes we made,” said chief executive Andrew Witty. “When necessary, we have removed employees who have engaged in misconduct.”

Last year, Rupert Murdoch offered sincere apologies in full-page adverts in UK newspapers for the phone hacking undertaken by News of the World staff. “We regret not acting faster to sort things out,” he said, before promising that his papers would become a “positive force in society”.

It might sound irredeemably cynical, but each time I hear corporate promises of reformed behaviour, the immortal words of Father Dougal McGuire spring to mind: “Well, Ted, like I said last time, it won't happen again”.

Even if one is very, very generous, and not at all credulous, and takes at face value the strenuous official denials of knowledge of wrongdoing (in the cases of Barclays and News International), one question does arise. Why do corporations always find themselves chock full of people who undertake anti-social actions which result in more money for them and higher profits for the corporation?

It couldn’t have anything to with the fact that corporations are legally obliged to maximize profits. That they are institutionally selfish organisations, dedicated to destroying the competition? Could it?

But because the current British political discourse cannot make 2 and 2 equal 4, politics inhabits a fairly tale landscape of one public inquiry after another into the moral failures of corporate culture, each promising to “restore confidence”. George Osborne’s “age of responsibility” has about as much chance of coming about as England do of beating Spain in the next World Cup Final.

Even the pale pink Polly Toynbee, who in today’s political culture probably counts as a dangerous leftist, can’t avoid making the obvious connections.

Rupert Murdoch, she pointed out, has done what all businessmen do, given the chance – strive to gain a monopoly. The consumer and morality can go whistle. “The success of his business was built on gaining the edge by evading regulators and avoiding taxes, as all companies will unless stopped,” she said. “So let's not obsess over his character.”

But we are obsessing about Murdoch’s character and Bob Diamond’s character and the cultures they propagated. All this obsessing, consciously or unconsciously, evades an understanding of a structural explanation for corporate crimes

It was not ordained by Yahweh on tablets of stone at the dawn of time that the economic organisations humans depend on for their livelihood should be run for the exclusive benefit of small groups of owners. Or that those enterprises should compete for their survival with similarly constituted rivals in a market. But contemporary politics and culture acts as though it was.

It really is time to see through the excuses.