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.

Some American myths in the month of November

So the American people will have four more years of “socialism”. However will they cope? Some aren’t taking it well at all, such as Donald Trump who came over all Benito Mussolini and called for a “March on Washington”. In the interest of historical accuracy, it is only fair to point out that Benito Mussolini was actually invited to march on Rome in 1922 and bring to power the world’s first Fascist government.

Do you feel, consciously or not, a sense of relief that Obama won? Do you suffer from guilt about feeling relieved? Have I just hit upon a new psychological state – relief guilt? Given the absurdly constricted nature of the choice, you can debate endlessly whether it was right to vote for Obama or shun the whole corporate charade. Some, like Noam Chomsky, have confronted that dilemma.

But, from an international perspective, I don’t think voting or not voting is the main problem. It’s fundamentally irrelevant. The enduring problem is that the American Presidential election campaign puts out so many myths that possess a stickiness that attaches them to the cultural landscape. Before you know it, the elusive reality bird that you worked so hard to track down has flown away.

So here are three myths that urgently need dispelling.

Myth 1

Laissez-faire bad/Government intervention good

Obama spent $14 billion bailing out General Motors. Romney would have let the company go bankrupt. Whether the latter is actually true is highly questionable given that George W started the enormous bail out of corporate America. But the General Motors’ bail-out was presented as a victory against the ideological denseness of pure laissez-faire and for the United Auto Workers Union.

But it was a strange kind of victory. Post bail-out, the UAW signed a deal with General Motors in which, aside from its existing members getting a below the cost of living pay “increase”, also ensured that new car workers would be hired at half the pay rate, $16 a hour, that their predecessors received. This result of government intervention is not good. It’s not loitering on the outskirts of good. It’s very bad.

The General Motors bail-out exemplified 21^st century government intervention in which corporations are saved from their own mistakes through gifts of taxpayer money, while their workers and customers get the discipline of free markets. And this happens while the tax burden continues to be shifted away from corporations and the rich and onto the shoulders of the majority.

Anti-austerity but pro-capitalist economist Ha-Joon Chang has shown how General Motors’ failure was preceded by dabbling in every conceivable corporate fad over the last 30 years – shareholder value, buying other car firms and creating a highly profitable finance arm. But when it came to the state saving the company from bankruptcy, “the US government”, says Chang, “deliberately took shares that do not have voting rights (albeit priority in dividend payouts) – so that it would not have any say in the management of the company.”

Chang has noted the same reticent government intervention in Britain, where the government has legally nationalised two large banks, but does not control them."This is not even capitalism anymore," he says. “What is the point of owning a bank, when you have to negotiate hard, or (one suspects) even beg, in order to set the pay of your employees or make it lend more in the way you want?”

The original bail-out of the banks was, in scale and expense, the supreme example of “not laissez-faire” dwarfing all others. But was it a good thing? It saved the economy from collapsing at the time and saved the banks at massive taxpayer expense, transferring a large proportion of their debt to the public. This was followed by a huge infusion of quantitative easing which they used to recapitalise themselves. But they are still indebted. Bank of England Governor, Mervyn King said recently that advanced economies won’t be able to escape “their current predicament” without more write-downs of debt by banks and more recapitalisation. So what began in 2008 is not over.

Just possibly, in 2008, the banks should have received a classic dose of laissez-faire and been allowed to go bust along with their debts. Then new public, debt-free, banks could have been created, as suggested by, among others, Joseph Stiglitz. The “pain” would have been more intense in the short-term but not prolonged.

But our governments “intervened” the make sure this didn’t happen and we are living with the consequences.

Thomas Frank quotes a line from the 1930s American socialist, Norman Thomas, in his book, Pity the Billionaire. “There is no Socialism at all about taking over all the banks which fell in Uncle Sam’s lap, putting them back on their feet again, and turning them back to the bankers to see if they can bring them once more to ruin.” But there’s quite a lot of capitalism about it.

Myth 2

The middle class is the bedrock of a strong economy, democracy etc

Obama clothed his campaign in the need for a “strong middle class”. Romney vowed to “protect the middle class”. But like the fabled word “community”, the larger the middle class looms in political rhetoric, the more it disappears in reality.

According to US census research, published in September, the gap between rich and poor has widened to its highest level since 1967.  “The gains from economic growth in 2011 were quite unevenly shared as household income fell in the middle and rose at the top,” said Robert Greenstein, President of the Center on Budget and Policy Priorities, about the data. Average incomes fell for the bottom 80% of earners and rose for the top 20%. The top 1% of households experienced a 6% rise in income.

The income of the median American family is lower than it was in 1998. In a 2011 article about the disappearing American middle class, the US journalist Paul Harris said, “I do not care if you are a Tea Party activist or a Socialist party USA organiser, you should be able to agree on one thing, at least: this is unsustainable. Something has to give. But no one in the current political system looks like they have an answer.”

In Britain, as Ed Miliband’s rhetoric about the “squeezed middle” shows, the political class are having to come to terms with the new reality but are equally clueless about what to do about it. In Britain, on current trends, the entire bottom 50% will be poorer by 2020. The Trades Union Congress in the Britain thinks companies should be encouraged to raise the average wage. Well, that could work. In another galaxy.

As far as the vanishing middle class in the US is concerned, it’s plus ca change, no matter who lives in the White House.

Myth 3

“Equal Pay” is more achievable under Obama than Romney

Ok, so maybe this myth is a bit of a cheat, but language speaks volumes, if you’ll pardon the tautology. To keep referring to “equal pay” in the context of contemporary America and Britain is akin to waxing lyrical about “human rights” in a Roman coliseum at lion time. Pay in both countries is staggeringly unequal and getting worse. And neither Obama, nor Romney, had he been elected, will do anything about it. Obama clearly didn’t in his first four years, as the above census data shows. This is not meant to justify any kind of gender pay discrimination or retarded Republican views on abortion or contraception, but the “equal pay” mantra gives the impression of railing against privilege when, in reality, it does nothing of the kind.

In order to even begin addressing pay inequality the debate needs to move on from just talking taking about discrimination to understanding and, acting upon, exploitation: the remuneration workers get in compensation for their contribution to profit, the two elements of which are wildly out of sync. This, in turn, needs to expand to look at who decides pay levels, and thus the economic autocracy we live under will come gradually into focus. This is a mammoth intellectual shift which, as the Presidential election campaign showed, the political mainstream is incapable of making.

As the American writer Walter Benn Michaels has said, the ostensible Left in the US is little more than the “human resources department of the right". It is, despite what Donald Trump believes, not dangerous to the status quo.

The Czech dissident and later head of state, Václav Havel, developed the concept of “living in truth” as a means of defying the Communist regime in Czechoslovakia. It entailed, in part, a refusal to accept the lies of official propaganda. It is becoming a principle that is applicable to living in western, “democratic” countries. Whether one votes or not.

Don't keep calm and carry on. A guide to the economic crisis for the perplexed by the mildly confused

The rasping cough the world has been suffering from for four years now threatens to turn into pneumonia. There is a double dip recession in Britain, the European debt crisis is coming to a head, both the US and China are running out of steam economically. But the range of remedies to address the crisis is either ignored or misinterpreted by mainstream media. So here is, an admittedly biased but more informative, guide to the global economic meltdown and what different people want to do about it

1 The Austerians

Like the Klingons but much worse. Leading austerians are Angela Merkel, David Cameron, George Osborne, Christine Lagarde and Spanish Prime Minister Mariano Rajoy. The fundamental idea is that government deficits, grossly exacerbated by the huge, and ongoing, bail-out of the banks, estimated at $18 trillion worldwide in 2009 by the UN, need to be erased by cutting public spending on social programmes such as pensions and welfare benefits. The effects range from the extreme, schoolchildren in Greece too dizzy to do PE because they don’t have enough to eat to the more specific targeting of isolated groups, such as the sick and disabled in Britain.

Medical metaphors – involving a medicine that has to be swallowed – are routinely employed, as are appeals to a stoical sense of endurance. The wartime slogan, “Keep Calm and Carry On”, has become ubiquitous in Britain during David Cameron’s “age of austerity”.

But it’s not just about the deficit. As Keynesian economist Paul Krugman puts it, austerians use the crisis rather than solve it. Following the example of Milton Friedman, exposed in Naomi Klein’s book The Shock Doctrine, austerians exploit the economic situation as a way of advancing by huge leaps, their political project. Thousands of enterprises are being privatised in Greece, tax cuts for corporations and the wealthy are imposed in Britain, governments in Spain and Italy are making it easier for employers to sack workers while Conservatives and venture capitalists ache for the same approach in Britain. These are all supply-side policies masquerading as ways out of the economic crisis.

There is a strong element of masochism to the austerians’ approach. Austerity is presented as a “deserved doomsday to the borrowing way of life” in the words of American author Thomas Frank in Pity the Billionaire. The refrain is that a lot of people, especially those in continental Europe with their long holidays, early retirements and generous pensions, need the bracing winds of economic reality. The ghost of Ayn Rand  hovers in the background of austerian proclamations with her worship of billionaires and contempt for the exploiting masses.

Unfortunately for the austerians, the intractable problem of bank debt cannot be wished away. Austerians get into a lather about public debt but are endlessly forgiving about the much larger presence of private debt. (Once David Cameron did try to link the two in a speech to the Conservative party conference in 2011, but his leaked suggestion that people pay off their credit card debt was swiftly forgotten as the realisation dawned that it would completely tank the economy). In Spain, insolvent banks are bankrupting the country. In Britain, overall debt amounts to 469 % of GDP, of which the government’s share comprises only 11 per cent.

But, most significantly for the austerian approach, there is little popularity in enduring horrible tasting medicine if it does more harm than good. A double-dip recession is not a ringing endorsement of austerity. The slippery goal of austerians, “confidence” among employers, is more elusive than ever. Manufacturing confidence in the UK is at a 35 month low.

2 The Keynesians

Keynesians and austerians don’t like each other. But the source of their animus is frequently misunderstood. Each thinks the other side is playing a dangerous game. Austerians believe that Keynesian solutions, increasing government spending and expanding employment through state schemes, are a gross interference with the downturn taking its natural course – in capitalism. To austerians, Keynesians cause the dangerous precedent of using the state to respond to popular demands, and the creation of state enterprises represents an unacceptable form of competition with the private sector.

But to the Keynesians, the austerians, aside from being economically wrong-headed, are playing with fire in a different way. Their insistence on allowing, even fomenting, immense social pain, drags the class nature of capitalism into sharp relief. (see the fourth group, the Marxists). Speaking of the Great Depression, Keynes’ biographer, Robert Skidelsky, put it like this: “If the leaders of capitalism insisted on treating problems of demand as though they were problems of supply, and on screwing down the wages of workers in order to restore profit, then a class war could easily arise which would vindicate Marx’s prophesy.”

Keynesians believe that austerians focus on the long-term is foolhardy because of the suffering it permits in the meantime. “In the long run, we’re all dead,” Keynes famously said. In the medium run, we’re exceedingly pissed off and open to new ideas, he might have added.

Keynesians, it should never be forgotten, want to save capitalism from itself.

Paul Krugman is probably the world’s most famous Keynesian. The Financial Times columnist, Martin Wolf, is also essentially a Keynesian who is scathing about austerity. More populist Keynesian solutions are propagated by the Guardian columnist Simon Jenkins. The economy “needs that old Keynesian salve, money in circulation,” says Jenkins. “If money can be showered short term on banks, it can be showered short term on consumers, whether through benefit handouts, vouchers, tax holidays or scrappage schemes.”

Keynesians believe that the secret of getting out of an economic recession isn’t the manufacture of “confidence” but the maintenance or resuscitation of demand. People spending money in other words. Keynes spoke about the vital role of “effective demand”. Keynesians don’t believe in the efficacy of supply-side solutions and are more relaxed than the austerians about inflation. They think the austerians cherished policy – cutting government spending in a recession – is economic madness.

But, like the austerians, the Keynesians face some intractable problems. They may be winning a not very difficult argument about the wisdom of cutting government spending during a recession, but the Keynesian warhorse “demand” will not prove so easy to get up and running. The reasons for stagnating real wages are deeper than can be addressed by Keynesian one-off pump priming. They comprise the results of the historic domination of corporations and employers and will not be easily undone within this system though they have been masked by record consumer debt.

Secondly, Keynesians are basically right in assuming that public debt is not enormous by historic standards and so continuing government stimulus is not a problem in that sense. But public debt is dwarfed by private debt – corporate and consumer. And Keynesians have no solution to that beyond “refloating” the economy through government spending and intervention so that, in time, in theory, growth returns and fiscal difficulties are gradually overcome. For more on the Keynesian impasse, see category 5, “The Post-Capitalists”.

3 The Left Keynesians

The core ideas of Keynes usually, but not always, go hand in hand with a desire to reform capitalism. This might mean reducing the influence of finance through, for example, a financial transactions (Robin Hood) tax or banning financial products like derivatives. It might entail rehabilitating state ownership or altering the nature of corporate ownership. It might encompass increasing the taxation of corporations, empowering trade unions or reducing economic inequality. Economists such as Ha-Joon Chang, Stewart Lansley, Duncan Weldon and Ann Pettifor sit within this camp. The writer, Thomas Frank, would be a Left Keynesian.

Left Keynesians generally want to reform capitalism without replacing it. Ha-Joon Chang is implacably opposed to austerity but isn’t anti-capitalist. “Despite its problems and limitations, I believe that capitalism is still the best economic system that humanity has invented,” he says.

The policy of new French President, Francois Hollande, of introducing a 20-1 pay ratio in enterprises owned by the French government, is a Left Keynesian policy. As is his plan to introduce a 75% tax on income over €1 million.

For Left Keynesians, the model of what to do in an economic slump is provided by the American New Deal of the 1930s. Then, under the Presidency of Franklin Delano Roosevelt,  banking was regulated by tough new laws, trade union recruiting eased, corporate taxation increased, social security created and 12 million unemployed Americans were put to work through government conservation and cultural projects. Economic growth reached double digits but, significantly, the Depression wasn’t defeated (the slump returned in 1937). What finally put the Great Depression out of everyone’s misery was World War 2.

A contemporary re-imagining of the American New Deal of the ‘30s is the Green New Deal which involves creating thousands of jobs through the formation of a  “carbon army” in order to undertake massive ecological reconstruction.

What is commonly classed as “far left” is frequently Left Keynesian in orientation. The programme of the Greek left-wing grouping Syriza echoes many features of the American New Deal. Syriza wants to create 100,000 additional public employees, re-balance the economy in favour of manufacturing rather than finance, and nationalise banks reliant on state aid.

One of the stand-out policies of the Left Front candidate, Jean-Luc Mélenchon, in the French Presidential election, was a maximum income, a 100 per cent tax on income above €360,000. The maximum income was first proposed by the archetypal Left Keynesian, Franklin Roosevelt, in 1942.

4 The Marxists

We now enter anti-capitalist territory. Marx, unlike Keynes, did not want to save capitalism from itself, although Marxists are not always as anti-capitalist as people imagine. The American economist, Richard Wolff, is one of the most famous contemporary Marxists. He explicitly calls for New Deal type policies in the face of the downturn, such as increasing taxation of corporations and the wealthy and a massive government jobs programme for the unemployed.

But Wolff does not stop there.  He makes a class analysis of society, the very thing that Keynesians fear austerity will make popular. He proposes going beyond capitalism by changing the way production is organised. He wants to “coopertivise” the whole economy, making workers their own bosses, ending the control of economic enterprises by small boards of directors. He envisages a form of economic democracy. The Mondragon collection of cooperatives in the Basque country is frequently referred to by Wolff as a model. Cooperative firms there include banks, supermarkets and educational institutions. Over 83,000 people are employed. The pay differential between the highest and lowest paid is 4.5-1. In the conventional capitalist economy, the pay differential can be 300-1.

Economic democracy would have the effect of ending exploitation in the Marxist sense. Wealth would remain in the hands of the people that produce it. They would receive the “full fruits” of their work as Clause 4 of the British Labour party’s old constitution once put it. One factor in creating the financial crisis – huge borrowing caused by stagnating real wages – would be overcome by this change, as would spiralling inequality.

New Deal, Left Keynesian reforms are not enough, says Wolff, in part because we know from experience that they will inexorably be undone by corporations if the way they are organised is not altered. To introduce reforms without changing the nature of corporations is to ensure their eventual failure.

Whilst Left Keynesians tend to favour traditional, “after the fact” reforms, such as government intervention and  wealth redistribution, Marxists such as Wolff challenge inequality and the control of wealth by small elites at their source.

This is Wolff speaking:

                                                                                                                                          Wolff’s solutions do not convince all Marxists, let alone all anti-capitalists. Some Marxists would say that introducing economic democracy is not a route out of capitalism or a market economy, but merely a different form of capitalism.

                                                                                                                                           However, not all Marxists go as far as Wolff either. They might, in reality, be Left Keynesians. David Harvey, for example, wants political leaders in the West “to get down to doing what has to be done, to rescue capitalism from the capitalists and their false neoliberal ideology”.

                                                                                                                                           5 The Post-Capitalists

                                                                                                                                           Marxists believe in a post-capitalist future, even if many don’t want to do anything until capitalism is sprawled on the floor and ready to expire. The reason for a separate category of “post-capitalists” is that Marxists are usually fixated on who owns and controls “capital” or wealth. Post-capitalists are concerned with wealth but also transcending capitalism because it unavoidably entails exponential growth in a finite world. It is, by its very nature, ecologically unsustainable. Participatory economics and social ecology both envisage post-capitalist societies that have left growth behind.

                                                                                                                                           One post-capitalist economist, Harry Shutt wants to “dethrone the god of growth”. He argues for the necessity of seeking an economic order “compatible with negligible growth for the indefinite future”.

                                                                                                                                          What makes Shutt interesting in the current debate over what to do in response to economic failure is that he believes Keynesianism can’t possibly succeed. A return to growth – and Keynesianism is all about resuscitating growth – is neither possible, nor desirable.

                                                                                                                                          Not possible because debt has grown so large that it is a permanent drag on attempts to revive growth. Accumulated bank debt is the problem that will not go away in Europe, and is bankrupting governments, Overall debt is at record level and it is overwhelmingly private debt. Debt is nearly five times as large as GDP in Britain. Keynesians, to Shutt, have no solution to this mass of debt beyond enlivening the economy through government spending. And that one-off spurt can’t work over the long-term because companies and consumers are too weighed down by debt.

                                                                                                                                           But there is a deeper reason as well. As technology develops, it is accompanied by a decline in the demand for “fixed investment”, outlets for the investment of accumulated profits, that are essential for capitalism to function. “Fixed investment” means investment in tangible products like cars or fridges or steel.  

                                                                                                                                        Thus, in the words of Stewart Lansley, the “money economy” – finance, private equity, acquisition of companies by other companies and which does not need much fixed investment – has become vastly more profitable than the “productive economy”.

                                                                                                                                        With the decline of the “productive economy” comes a parallel decline in the demand for paid labour. This, in turn, impacts upon the ability of consumers to support growth through spending.

                                                                                                                                              “It portends” Shutt writes, “what is coming to be seen as a new industrial revolution, which is rendering market capitalism as obsolete as feudalism was at the dawn on the French Revolution in 1789.”

                                                                                                                                              The logic of this analysis, if correct, is that neither austerity or Keynesianism can work as economic strategies. Keynesianism is the last trick in the capitalist routine. If that doesn’t revive growth, we are entering an unexplored landscape.

                                                                                                                                             The contours of that landscape might be glanced in Spain at the moment, where the economy has collapsed to the point where a quarter of adult population and half of all young people are unemployed. There is growing interest in an unconditional income, paid to everyone as a matter of right. "Brute experience" as Milton Friedman called it, may well prove the mother of invention.

Review of Thomas Frank's Pity the Billionaire, Part Deux

For a book about the intellectual contortions of conservatism, there is a strange and incongruous presence haunting the pages of Pity the Billionaire – Marxism.

There is the “reverse Marxism” of the Tea Party and Glenn Beck which regards bond traders as the silent majority and those who try to regulate markets as elitists.

There is the new fandom for Ayn Rand’s “Marxism of the master class” with its solidarity for billionaires and contempt for the exploiting masses.

There is the new conservative obsession with the “ruling class”, the intellectuals who control the government and hand out bail outs to big business, and who look down their very long noses at virtually everyone else, the long-suffering “country class”.

“There is no escape from the conflict between the classes,” writes a retired professor of international relations in the conservative journal, The American Spectator.

“It was a strangely bolshie line for a conservative hero,” muses Frank, “weirdly akin to Marx’s dictum that ‘the history of all hitherto existing society is the history of class struggles.’”

Here is Frank speaking again: 

Conservatives, says Cory Robin in The Reactionary Mind, are often “the Left’s best students”. They have known for two centuries that in order to defeat a revolution you have to become like the revolutionaries themselves. But the revolution was defeated decades ago. Now you have to invent enemies.

One could invoke Freud’s return of the repressed to explain this curious phenomenon, the insight that the effort to banish basic aspects of your psyche never works, they are always come back, although not in the original form.

The right stuff

But psychoanalysis aside, one thought does arise in response to this constant inversion, although not one pursued by Frank. That possibly, heaven forbid, the proper riposte to “reverse Marxism” is actual Marxism.

Not the political, gulag-filling Marxist constructions of Lenin, Trotsky and Mao or “cultural Marxism” whatever that is, but the unadulterated economic thought of Marx. When you are employed you are exploited, your work creates surplus value and that surplus enables profit to be made and capital – money invested to make more money – to be accumulated. The basic working arrangement, said Marx, is a smokescreen that is presented as a freely negotiated contract but is, in reality, a form of theft. Employees are portrayed as free and independent but, in reality, they are “wage slaves”. 

But while the mirror-image Marxism of the Right makes hay, poisonous hay, the real stuff is an ideology that dare not speak its name. Of the dissonance between the conceptions of conservatism and the reality of the way the world works, Frank writes, “Essence was in such violent disagreement with appearance that the force of it seemed likely to snap one’s neck”.

This is an oblique reference to Marx. His philosophy was an attempt to make essence – if you work you are exploited – coincide with appearance – everyone is free and employment is a natural exchange because it is “bilaterally voluntary” in Milton Friedman’s words.

But now appearance is in such conflict with essence that it is powerful enough, in Frank’s words, “to snap one’s neck”.

"In all ideology men and their circumstances appear upside down as in a camera obscura," Marx said in The German Ideology in 1845.

To the political class in Britain and US thinking the right way up is like speaking a foreign, or rather forbidden, language. Which goes a long way to explaining why, in “hard times,” the Right is predominant. You might not like it, they say, but only the one per cent has the power to create jobs and wealth and the money for public services. So you’d better keep them happy. The last thing we need, says the UK government’s chief tormentor of the sick, Chris Grayling, is “swinging taxes on wealth creators”.

This, to call it by its real name, is a form of blackmail. “One reason the Right fastened on the “job creator” line so avidly,” says Frank, “is because it allowed them to flip the script of the hard-time scenario. When people were out of work, they insisted, the important thing was not stimulus packages or public works or social insurance: it was giving small-biz trade associations every last item on their legislative wish list. The nation’s job creators had to know they were loved. Their confidence had to be carefully built up; their biases had to be catered for: their every caprice had to be enshrined in state policy.”

Government cannot create jobs, the Right says, “only business can”. This has become the common sense of this strange age, despite its gross historical illiteracy. There is a note in Frank’s book of the GDP growth achieved in the US during Roosevelt’s New Deal, a time when the government directly employed 11 million people because the private sector “couldn’t or wouldn’t” on public works, conservation and cultural projects. The figures are 11 per cent in 1934, 9 per cent in 1935 and 13 per cent in 1936 (page 132). Slightly higher than the anaemic growth achieved now we have accepted the obvious lesson that only business can create jobs.

The absence of a Left has given the Right a free pass on the seminal issue of who really creates wealth and jobs. The “left of centre” is morally outraged by growing inequality and £20 million salaries for CEOs, but it can’t take the obvious next step. People are literally being ripped off. They give their employers something, not the other way round. The wealth, and ensuing power, they create are appropriated by small elites.

A breath of intellectual fresh air

When someone breaks through this self-imposed intellectual barrier, the effect is like opening all the windows in an airless and suffocating house. “We have to smash this prejudice that the rich are useful just because they are rich,” says the French Presidential, Front de Gauche, candidate Jean-Luc Mélenchon. “For too long people have been made to feel that they were some kind of drain or problem for expecting free education, free healthcare or being able to stop working when they were old and spent.”

Take a deep breath. It feels good.

Politics is about assumptions. Actual policies follow from these original assumptions. If you assume that wealth and jobs are the result of confidence among, to use the Ayn Rand description, “producers”, their confidence has to be somehow engineered by government. And we should all be grateful if we manage to convince an employer to hire us. Being grateful is an emotion today’s leaders want to impart.

If you assume that wealth depends on the engineering of confidence among employers, then your attention naturally shifts to how to satisfy the markets by cutting public spending and slashing “red tape”.

And this assumption of a unity of interest between employer and employee can lead to some very strange places indeed.

Horseshit creators

Frank relates the tale of a rally held on US Labor Day in 2009, paid for by Don Blankenship, mine owner and CEO of Massey Energy. He tells the crowd he is there to “defend American labor because no-one else will”. The government, through incessant environmental and safety regulations, is “American workers’ worst nightmare”, he says.

Eight month later, 29 workers were dead after a massive underground explosion at a Massey mine.

“Now, when we find a mine operator claiming that his own struggles against regulation are actually the struggles of mine workers – workers who are then killed because mine regulations are not properly observed by said operator, “ writes Frank, “we have stumbled upon a nearly perfect example of what the sociologists call ‘complete horseshit”’.

But horseshit has plenty of exponents these days. Take this article by this blog’s favourite conservative intellectual, Jesse Norman, with its Randian references to “producers” and the creation of products and the eliding of the huge class difference between those applying to work for companies and those who own and run them. There is an utter refusal to recognise that employees have to live with the consequences of decisions made by employers, but no opportunity to participate in their making.

Conservatives must, by their very nature, pretend that class differences, economic rather than cultural class differences, do not exist. “We are all in it together” is a phrase that contains so many fictions for just six words. But the real tragedy is our time is not that conservatives say that class differences don’t exist, but that what amounts to the Left can’t say that they do.

In his previous book, What’s the Matter with America, about why the poorest county in the US voted for George Bush, Thomas Frank lambasted the “gigantic error” made by the Democrats. “People don’t spontaneously understand their situation in the great sweep of things,” he wrote. “They don’t automatically know the courses of action that are open to them, the organisations they might sign up with, or the measures they should be calling for.”

Conservatives speak to those at society’s bottom on a daily basis, wrote Frank. “From the left they hear nothing, but from the Cons they get an explanation for it all.” Any alternative explanation, like the Occupy movement, has to come from nowhere.

Nostaligia

Frank has spent two books documenting that failure of the “left of centre” and can appear nostalgic for a vanished time, the “middle class Republic” that America was after World War Two, but that has now become a plutocracy.

Nostalgia can mean an attachment to old fashioned solutions that don’t work anymore. “The age of the giant corporation is here to stay of course and as long as it is, big government must on hand to curb its abuses,” writes Frank. “When the system is corrupted … the obvious answer is to clean up government so it can perform its police function properly.”

The “government as policeman” solution is, to be frank, if you’ll pardon the description, not good enough. Leaving aside the fact that corporations have captured the political system and nobbled the policeman, the abuses of giant corporations require more drastic treatment than a healthy dose of good, old fashioned regulation.

There a You Tube video, highlighted by Frank, of a Republican Congresswoman, trying to placate some of her constituents, livid that their jobs have been outsourced by the corporation Verizon, with a homily about small businesses. It is worth watching for its comic value. But how exactly would a Rooseveltian liberal have responded? How would they have stopped the jobs disappearing to India or China? This isn’t 1965 anymore.

And, in any case, why make the assumption that the giant corporation is “here to stay”?

Another American writer, Gar Alperovitz, author of America Beyond Capitalism, laments the fact that traditional reforms, and lots of taxed funded inducements, have failed to lure major corporations to depressed areas. A full employment Keynesian strategy could work, in theory, he says, but in the real world the decay of “progressive political power” and its trade union base, means that, in practice, it won’t achieve the desired results.

“Given the inability of politics to provide meaningful solutions to the problems facing millions of Americans,” Alperovitz writes, “creating new institutional [my italics] forms appears as the only positive option available, difficult as this may be.”

But that difficulty will be the subject of a later review.

Review of Thomas Frank's Pity the Billionaire, Part One

If you gathered the world’s teenaged anarchists together in a huge international congress, imagines Thomas Frank, and asked them to design the perfect crisis, they couldn’t have discredited market-based civilisation more completely than did the actual crash of 2008.

But discredited, as we now know four years on, doesn’t mean change or reform. Actually what discredited means is intensified. Discredited means working harder for less (if you’re needed at all), paying more tax, watching your pension shrink and public services dwindle. When David Cameron, borrowing a line from Barack Obama’s 2008 election campaign, says “We’re all in it together”, you have to query what “it” actually is, quite apart from whether you are graced by the company of the wealthy.

Frank’s book, Pity the Billionaire, the Hard-Times Swindle and the Unlikely Comeback of the Right, is about the way that ideology, in America, has justified and made sense of that intensification. Right from the beginning, from the moment a TV reporter, speaking from the Chicago Trader’s Floor invited “all you capitalists” to a Tea Party, it was about “redirecting public ire” – away from banks and corporations towards unaffordable government spending, and the guilty, reckless ones whose homes were being repossessed.

Just Pay Up

The deck is shuffled, writes Frank, and “before our eyes, imaginary terrors have been substituted for real ones. All that remains is for the nation to pay up.”

Here is Frank, one of the most eloquent non-fiction writers around, speaking:

(and he's really angry. Actually, he's the one with the light brown hair)

Frank captures the spirit of masochism that has infected Britain as well as the US. Seven lean years, he writes, are regarded as proper redress for seven fat years, a “deserved doomsday” to the borrowing way of life. We have all maxed out on our credit cards, government as well as people. And now we must pay the price.

In the US the imaginary terrors emerge from the wilds of a vivid imagination. One former Marine becomes an instant hero of the conservative movement after he declares the Democrats uncannily similar to the Nazis, both incurably Leftist. They were the National Socialists after all. As his star rises he writes a satirical children’s Christmas book featuring a German-speaking jackbooted elf who bullies the other elves into joining a union. “I have to go now,” as Woody Allen once said, “because I’m due back on Planet Earth”.

British Tea Party

Even though what happens in Britain is a dull echo of American innovations, these kind of fevered heights are not reached. We have Jeremy Clarkson rather than Glenn Beck. Conservative MP Douglas Carswell did try to start a Tea Party in Britain, in Brighton of all places, but only about 12 people showed up. You can’t seriously rant about the iniquities of socialism when everyone knows it was banished years ago.

But public ire is similarly diverted. In the US, the newest Right stoked fears of internment camps for conservatives, rampant state socialism and the demise of an idealised free market that never existed outside of the pages of economics textbooks. In Britain, tabloids urge readers to shop benefit cheats while 32 people die every week after they fail to convince government’s work capability test they are ill enough for sickness benefit. The “volcanic disgust” of which Frank writes hasn’t subsided, but it is channelled so that the blameless suffer while the real culprits get a pay rise.

Even right-wing legerdemain can’t hide the fact that something went very wrong in 2007-8. Yet in the conservative imagination, the flaw is not capitalism, but “crony capitalism”, an unholy alliance of government and big business, that excludes the little guy. The problem is not in the market as such but that business is insufficiently capitalist. So the solution becomes, you guessed it, more capitalism. Forget the car crash, just press your foot down even more firmly on the accelerator.

The Concept

Friedrich Engels defined ideology as “the deduction of reality not from itself but from a concept”. And here the concept is unerringly the same. Whatever the problem, the solution is always ‘x’. The world could be sucked into an economic dark age (which seems imminent actually), whole regions engulfed by rising sea levels, and natural resources exhausted, but the solution will always be ‘x’, more capitalism. As long as you understand the concept.

The ideological thought process, and its departure from reality, is not subtle. Crony capitalism is capitalism. That the free market is a gigantic myth is not something the newest Right has an easy time appreciating. It is apparently impolite to point out that the large corporations dominating the economy don’t believe in capitalism, markets or competition, merely their bottom line. And if they feed on the state, on taxpayers, as opposed to customers, so be it.   

To anti-Soviet socialists, socialism was a perpetual virgin, the Right used to say in the ‘80s. Socialism was never the real thing. Now the Right has become its own caricature. Actual, existing capitalism is never the real stuff. However much reality disappoints, the theory of the free market remains unscathed. In fact it is emboldened by failure.

Alice's Adventures in Wonderland 

But whatever this ideology’s Alice in Wonderland quality, it has the freedom to wonder and to wander. In Britain, that freedom extends to advocating votes for corporations and that poor people should be denied the franchise.

If these claims sound ridiculous, outrageous even, bear in mind that many of the seemingly immutable features of today’s political landscape – privatisation, contracting out, compulsory workfare for unemployed – would have been considered unthinkable in the 1970s. As Frank says, America is currently experiencing the fourth conservative uprising in the last half century, each one building on the successes of its predecessor. It was not for nothing that a history of free market think tanks in the UK was entitled Thinking the Unthinkable. The unthinkable has an unpleasant habit of transforming itself into the normal.

So why can’t the other side think? This failure is what Frank’s book ultimately ponders. While the conservatives “organise discontent” in the name of an idealised, atavistic vision of the free market, the other side, what amounts to an official American Left, believes in consensus. 

Forbidden Thoughts

“They,” Frank says of the Democrats, “could not summon an ideology of their own”. Conservatives wanted to speak about the grand philosophical issues, but American liberals could not even recount the memory of Roosevelt’s New Deal. “It was as though the old-schools liberal catechism has become forbidden language, placed on some index on prohibited thoughts.”

In 1999, Tony Blair told the Labour Party Conference, “My friends, the class war is over”. Seven years later, the world’s richest man, Warren Buffet, observed, “There’s class warfare all right, but it’s my class, the richest class, that is making war and we’re winning.” You can’t win a war if you think it doesn’t exist.

In the 1930s the cultural critic, Walter Benjamin, who later died fleeing the Nazis, remarked, “Every Fascism is a sign of a failed revolution”. The aphorism needs a little updating. Now we can see that every free market revival, however absurd, is a sign of a vanished Left.

The ramifications of that absence and how the Left can regain the freedom to think, are the subject of the second part of this review.