Reality-mongering about inequality will get you nowhere

Oxfam is a “thinly disguised left-wing lobby group” tweeted a Conservative Parliamentary candidate earlier this week after the British branch of the development charity reported that the five richest families in the UK boast more wealth than the poorest fifth of the population put together.

It’s an interesting definition of left-wing where your deep red political stripes are inadvertently displayed by the mere fact of relating what is actually happening in the world.

Charities can now so easily slip into the crime of “reality-mongering”. Last December, Christian food bank charity, the Trussel Trust was damned as “political” by Tory minister, Iain Duncan Smith, for daring to suggest that the government’s benefits sanctioning regime and the soaring price of food might have something to do with the fact half a million people are regularly forced to call on its services.

But there is, despite the brickbats, an unmistakable thirst for more reality, unencumbered by ideological blinkers. Manchester University’s “Post-Crash Economics Society”, for example, was formed by students last October, because they say orthodox economics “cannot explain the world we live in”.

“Neoclassical economics in the era of neoliberal triumph, beginning in the late 1970s,” say two Marxian economists, John Kennedy Foster and Robert McChesney, “promoted versions of economics that eschewed reality for pure market conceptions.” In their obsession with the fantasy battle of state versus market, conservatives simply cannot see inequality or the growing trend towards monopoly in contemporary capitalist society.

 The world won’t listen

Oxfam’s problem does not lie in its ability to discern the existence of huge inequality, but in its plaintive appeal for the British political system to do something about it. For long ago British politics forgot how to listen.

“The only effective design for diminishing the income inequality inherent in capitalism is the progressive income tax,” noted famed 20^th century economist John Kenneth Galbraith, in 1992.

“That taxes should now be used to reduce inequality is, however, clearly outside the realm of comfortable thought,” he went on.

To appeal to conservatives to raise taxes on the wealthy, is rather like imploring Michael Bay to embrace slow cinema. The tragedy of British politics is that the centre-left is almost equally resistant to causing the wealthy even mild discomfort. In this sense, as one economist has noted, Britain has an effective one party state.

The last Labour government, for example, slashed capital gains tax (the tax you pay, if you make money from selling shares) from 40 to 18%, a cut that was, ironically, partially reversed by the coalition. Labour did raise the top rate of income tax (on income above £150,000 affecting 1% of taxpayers) to 50% and has pledged to reverse the coalition’s cut back to 45%. But, in order not to appear “anti-business”, the party says a renewed 50% rate would only be temporary.

 Robin Hood in reverse

Corporate income tax was reduced by the 1997-2010 Labour government from 33% to 28% (it was 53% in the 1970s) and has been scythed down to 20% by the current government (at the same time as raising VAT which affects everyone). Labour has said – exposing an indelible stain of Bolshevism - that they will increase it back up to 21%!

By way of international comparison, Barack Obama, who has raised the top rate of tax in the US slightly, wants to cut the headline rate of American corporate income tax from 35% to 28% (the effective rate, taking into account all the exemptions that can be got, is 19%).

Corporate income tax is a tax on company profits and is frequently presented by politicians, who want to reduce or better abolish it, as a tax on economic growth. But these profits pay for all the dividends to large institutional shareholders, like hedge funds, and astronomical executive salaries and stock options – thus making a massive contribution to inequality.

Moreover, many wealthy people have, for tax purposes, transformed themselves into corporations to take advantage of the fact that the rate of corporation tax is so much lower than the top rate of income tax. Half as much, in fact, in the UK.

“The more corporation taxes are cut,” says the Tax Justice Network, “the more wealthy folk will shift their income out of personal tax category and into corporate forms, so as to pay the lower corporate tax rate. The more they do this, the more governments feel they must cut personal tax on wealthy people to stop it.”

It is worth recalling that when the profits tax (the precursor to corporation tax) stood at 50% in 1960s Britain, economic growth - at 3.27% - was more than double its current rate.

There is no appetite among the political class in Britain, for raising taxes on the wealthy in other ways either. While EU, led by Germany and France, is determined to introduce a financial transactions tax (a tax of 0.1% on the sale of shares and bonds, AKA the Robin Hood tax), a measure highlighted by Oxfam as a way to reduce inequality, the British government is opposed and the Labour opposition deafening in its silence on the issue.

Britain’s one party state on tax is so entrenched, it will survive even its dissolution. Scottish First Minister, Alex Salmond, is pressing for independence from Britain in September’s referendum, but is also in favour, should the yes vote win, of an even lower corporate tax rate than the UK – three percentage points lower, in point of fact.  In addition, Salmond parrots the UK government line that, while a financial transactions tax is eminently desirable, it can only be introduced if the whole world agrees, because unilateral implementation would damage the Scottish financial services sector. Isn’t consensus lovely?

 Don’t redistribute, distribute

But besides the futility of petitioning a deaf political culture, Oxfam’s inequality campaign is doomed for a more integral reason. For it rehashes the time-honoured method of reducing inequality through tax redistribution. At the risk of sounding simple-minded, if you don’t want the outcome of gaping inequality, perhaps you ought to alter how wealth is distributed in the first instance.

“If change is ever to occur,” writes Gar Aperovitz in his book, America Beyond Capitalism, “an assault must ultimately be made on the underlying relationships that have produced the inequality in the first place – especially those involving ownership and control of the nation’s wealth.”

There was acclaim across the political spectrum, including from Conservative MPs, for the 2009 book, The Spirit Level. Authors Richard Wilkinson and Kate Pickett showed how problems such as obesity, mental illness and violence were made worse by greater economic inequality. But what seemed to escape understanding was that Wilkinson and Pickett did not place all their faith in the traditional method of combatting inequality, tax redistribution. They placed greater importance in changing the “underlying relationships” through democratic employee-ownership of companies, as a way of addressing inequality at its root.

Capitalism produces inequality as surely as breathing produces carbon dioxide. And unsuccessful capitalism – the kind we have now – generates extreme inequality. According to French economist Thomas Picketty, if the rate of economic growth is below the after-tax rate of return on capital, inequality will spiral.  Those are precisely the conditions – insipid growth and capitalists demanding a high rate of return - that we have experienced in the West for the past 30 years.

To return to Alperovitz, he argues that the future of efforts to reduce inequality do not reside in tax redistribution but in worker and municipally controlled economic enterprises. “There is no way to achieve movement towards greater equality,” he writes, “without developing new institutions to hold wealth on behalf of small and large publics.”

Capitalism Deniers: The myth of 'market failure'

Nicholas (Lord) Stern, former World Bank chief economist and author of the 2006 British government-commissioned Report on the Economics of Climate Change, reared his ennobled head again last weekend to point out that the fact that roughly a third of Southern England lay underwater was “a clear sign” of climate change.

The flooding in England is likely to play a similar role to that of Hurricane Sandy in the US – nature’s way of cutting through ideological conceits in a fashion that no amount of rational debate can achieve. Milton Friedman’s “brute experience” is trumping ideological preference again, though in ways he never imagined.

Stern’s intervention was, nonetheless, seen as a rational retort to the angry band of climate deniers, and on a more unconscious level, a reassurance that, beyond the media flotsam, those in the higher echelons of power really do “get it”. However, despite his reputation as the voice of reason, Stern, I believe, is a leader of a different band of unreasoned deniers – those that deny the effects of capitalism. And, disturbingly for the future of the planet, this band has far more adherents than the ones who think the polar ice caps are melting because of increased heat from the sun.

“Climate change is the greatest market failure the world has ever seen,” proclaimed Stern famously in his 2006 report. The headline use of the phrase might seem, on the surface, to mark Stern out as an enlightened critic of capitalism. Indeed, since he effectively minted the term for general use, meaning examples of markets working against, not for human welfare, “market failure” has become a meme, trotted out with metronomic regularity whenever instances of markets damaging general welfare occur. And that means a lot of trotting.

In early February when revelations broke that a third of the food consumed in Britain may not be what it claims on the packet, the man in charge of the government’s review of the horsemeat scandal, warned that the nation was at risk of “market failure”. The spiralling of inequality, which has seen just 85 people in the world controlling more wealth than half the world’s population, is frequently portrayed as an outbreak of market failure. The neo-Keynesian economist Ha-Joon Chang says that the managerial classes “manipulate the market” guaranteeing themselves enormous executive pay rises that bear no relation to performance. Last October, the New Statesman magazine encapsulated falling wages, a few companies controlling the energy market and extortionate housing rents as “market failure on a grand scale”.

But, in truth, “market failure” is a superlative example of newspeak that would have made George Orwell proud had he coined it. For these market failures are not, as is implied, regrettable aberrations requiring governmental correction, but simple and predictable market outcomes.

Market outcome No. 1 – Climate change

“When free markets do not maximise society’s welfare,” opined an article in The Guardian newspaper in 2012, “they are said to fail and policy intervention may be needed to correct them. Many economists have described climate change as an example of market failure.”

The reason is that greenhouse gases are an externality. A company may produce a product people want but as a result of producing it, or transporting it, will emit greenhouse gases. And the effect of these emissions will fall on people on the other side of the planet or future generations. That is why Nicholas Stern said climate change was the greatest market failure the world had ever seen. The gaping hole in this argument is that externalities, of which greenhouse gases are a prime example, are not by-products of capitalism that can be washed away by government regulation. They are an integral and unavoidable part of its functioning. A report for the UN in 2010 found that one third of the profits of the world’s top 3,000 companies, some $2.2 trillion, would be wiped out if they were forced to pay for the use, loss and damage to the environment they cause. And more than half of that $2.2 trillion total, was attributed to damage caused by the release of greenhouse gases. Force corporations to give up a third of their profits and you will essentially destroy them – no-one will invest in them because the profits will be so meagre. That is why no government or pan-government authority, like the EU, will ever insist that corporations pay for all externalities, or they stop producing all externalities.

This has been brought into sharp relief by the immensely fragile state of the world capitalist economy. The priority of government policy around the world is not to impede economic growth, even if growth stubbornly refuses to return to anything like the levels of 40 years ago, which only, ironically, strengthens the desire not to impede growth. It is for this “reason” that the UK government has backed such fundamentally anti-environmental policies such as the car scrappage scheme and fracking. And most people, under this system, have clear incentives to support such short-term, growth friendly policies, overriding any concerns they have about climate change that is now happening all around them. Executives just work for the profit maximising interests of their corporate employers. The interests mean constantly inventing new needs and requiring consumers to upgrade to new technology. In 2006, the late Apple boss, Steve Jobs, the man who “anticipated technological desires you didn’t even know you had”, urged customers to buy an iPod every year to keep up with advancing technology.

The vast majority, meanwhile, simply need jobs and incomes so are materially dependent on the success of those corporations. “Economic growth is in the immediate interest of virtually every sector of society – growth in the straight-forwards sense as measured by GDP,” notes American mathematician David Schweickart in his book, After Capitalism. That’s why leftists say the problems caused by capitalism are systemic. They are not the result of greed or stupidity.

Growth is thus endemic to a capitalism that functions remotely effectively. It is illuminating that carbon emissions fell for the first time in 50 years in the immediate aftermath of the financial crisis, when growth stopped happening, but have since started rising again as a fragile recovery has taken hold. Growth of 3% a year means a doubling of the size of the economy every 23 years and, according to a professor at London’s Imperial College, “each successive doubling period consumes as much resource as all the previous doubling periods combined.” 3% growth may seem ambitious for western countries, but it isn’t for “emerging economies”. About a dozen have grown at around 7% a year for the past quarter century. Since 1978, since the beginning of its transformation from communism to capitalism, the Chinese economy has trebled in size.

The dangerous fiction peddled by capitalism deniers such as Nicholas Stern is that you can have economic growth and reduce greenhouse gas emissions at the same time. Stern says the world needs a low carbon industrial revolution, which is undoubtedly true, and that China is leading the way in developing low carbon technologies. But China also boasts 16 of the 20 most polluted cities in the world and chronic air pollution – two-thirds of urban residents in China are breathing air that is severely polluted. China occupies a pivotal place in the world’s capitalist market economy, whereby its factories assemble the parts and components made in other countries (like the iPhone) in order to export finished products back to the West. If you want to impede global warming, never mind halt it, that process, I would suggest, has to be severely curtailed. But it is at the crux of many corporations’ supply chains because Chinese workers are so much cheaper than those in the West. Under a globalised market, growth and global warming will inexorably continue.

Stern, who is chair of the Grantham Research Institute on Climate Change and the Environment at the London School of Economics, would do well to listen to the man who founded that Institute, the investor (and arch capitalist) Jeremy Grantham. “There is no such thing as sustainable growth” he said in 2011. “You have to make a pick. You can have sustainability or you can have growth, but you can’t have both.”

Market outcome No. 2 – Inequality

A new book by the French economist Thomas Piketty, Capital in the Twenty-First Century, “defies left and right orthodoxy”, says the New York Times “by arguing that worsening inequality is an inevitable outcome of free market capitalism”. Analyzing data from over 20 countries, Piketty concludes that that the owners of capital inevitably become increasingly dominant over, and richer than, those that own merely their own labour. Only “confiscatory tax rates” can reverse this trend in mature economies. A division between those who own capital and those can only sell their labour (the system of wage labour), it should be noted, is the essence of capitalism.

Piketty says that inequality is driven by a structural feature, integral to capitalism: returns on capital exceed, usually, the rate of economic growth. The more “perfect” the market, he says, the higher the rate of return on capital and the greater the resultant inequality.

This analysis cuts through orthodox economic thinking in two ways. Firstly, it contradicts the conservative faith that the free market will naturally distribute “the fruits of economic progress among all people.” It won’t, as is becoming abundantly clear. Secondly, Piketty says that traditional liberal or social democratic antidotes to inequality – public spending, taxation and regulation – won’t dent it. Government can’t, even if it wanted to, reverse this form of market failure. You have to go, I would suggest, to the root of the issue; the lack of power most people have when bargaining for pay from employers.

Inequality has become extreme in many western countries, notably the US and UK, as trade unions have been edged out, or forcibly removed, from the picture. Trade unions are the grit in the ointment of pure free market capitalism. They entail collective, as opposed to individual, bargaining. Countries that have not destroyed trade union influence, and thus retained collective bargaining, have far less inequality. Chief executives in Norway, for example, earn less than double the average wage. 70% of workers are covered by collective bargaining there, compared to 29% in the UK.

So individual bargaining - the ‘tao’ of a free market - leads to grossly inflated inequality. While it is portrayed as paying people what they are worth, individual bargaining merely results in the wages and salaries that people are able to negotiate. Those at the top of society have the negotiating strength to insist they are paid, not what they are worth, but vastly more than their contribution to company or organisational performance. “When pay setters set their own pay, there’s no limit,” says Piketty. FTSE chief executives can negotiate ever-rising pay settlements, while wealthy investors sit back and receive the fruits of the returns on their investments.

This is not about the manipulation of the market, but a reflection of where market power lies. It is not a market failure, not a 'power grab' by the wealthy as Oxfam imagines, nor a “perversion” of the market, as right-wing journalist Charles Moore would have it. It is a market outcome. The same imbalance of power means that the “confiscatory tax rates” that Piketty posits as a redress to inequality will not be allowed to happen.

Market outcome No. 3 – Oligopoly

Oligopoly means the dominance of a small number of firms in particular markets that work to prevent smaller firms entering it, as a result of their strong position, and hike up prices to captive consumers. As the New Statesman magazine observed in 2013, the energy market in Britain is the epitome of an oligopoly. Six companies rule the roost and have presided over increases in electricity prices of 120% over the past decade. While energy costs have risen by less than inflation over the past year, the typical bill has shot up by more than £100.

The problem with ascribing this state of affairs to market failure is that it’s a pretty ubiquitous kind of failure. Oligopolies are also conspicuous in the UK in public transport, car manufacture, banking, outsourced government services and supermarkets – to name a few areas. The value of mergers and acquisitions, globally, hit a peak of over $4 trillion in 2007. The effect of mergers and acquisitions is to create larger and larger corporations and strengthen oligopoly. The process is, in other words, is getting worse. “The result of all this merger activity has been a decline in the number of firms controlling major industries,” write the authors of The Endless Crisis, a book about how monopoly capitalism causes economic stagnation.

It was one Karl Marx who first noticed the pronounced tendency towards concentration in capitalism. Competition leads firms to either drive their rivals to the wall or take them over and thus results in its antithesis, monopoly and oligopoly. It is possible for the government to insist that oligopolistic markets are broken up – the British Labour party wants to introduce more competition into a banking system in which five banks possess 85% of current accounts, for example. But should this fragmenting occur, the counter-veiling market trend will immediately kick in. Competitive markets are not natural to capitalism.

A strange philosophy

The market failure doctrine shines a light on the intellectual dead-end of European social democracy and American liberalism. They recognise – how could it be otherwise? - the anti-social impacts of markets but can’t surmount a fatalistic acceptance that those anti-social impacts, like the poor, will always be with us. Only a benevolent state, it is believed, can intervene to mitigate the situation. Social democracy is a ‘bonkers’ way of running an economy, Doreen Massey, co-founder of the Soundings journal, said recently. “First you produce a problem, then you try and solve it”. Is it too utopian to suggest that you should endeavour not to produce the problems in the first place?

This practical utopia requires radically re-organised systems of production and markets. I don’t want to underplay the problems. The externality issue that is central to the dilemma of climate change would not be resolved by worker-controlled firms or companies that involve the local community in how they are run. If the effects of global warming fall on people on the other side of the world or not yet born, there is no inherent reason why these firms should be attentive to them. But climate change will never be addressed by the globalised market economy of corporate capitalism. The interests of the environment and the interests of shareholder-owned  corporations, legally obliged to maximise profit, are in irresolvable conflict.

What the centre-left offers, at best, is the state as fireman, dousing the flames wherever they arise yet remaining oblivious to who is setting the world on fire. It is time to recognise that the fireman, even if he has an unwavering commitment to duty, is not up to the task.

The relevance and irrelevance of Marxism. An interview with economist, Harry Shutt

Long considered a historical relic, Marxian economics is experiencing something of a renaissance. In contrast to the exhaustion and lack of explanatory power of mainstream economic theories, Marxism offers a ready-made alternative way of interpreting the world. It is described by two proponents as “reality-based economics”. But is an economics laid out in the 19^th century still relevant? And if we agree that Marxism contains insights, do we need to be selective about which parts we give credence to? I put these questions to English economist, Harry Shutt, who though not a Marxist, says he is influenced by Marx (among others):

 You responded to a recent blog post by saying that we need to transcend Marxist economics. I’m intrigued by what you mean by this. Does this  mean an economics that retains parts of Marxism but rejects others as redundant and out of date? Which parts?

Precisely. The central part of Marxism, to me, to give credit where it’s due, Marx-Engelism, is the historical method. This is what Engels, in particular, called ‘scientific socialism’. His most famous work is Socialism: Utopian and Scientific and he contrasts the utopian socialism of people like Robert Owen and the idealists with those who saw it as based on hard economics - the fact that you have some things that work and some things that don’t work. Clearly, capitalism, as then conceived, did not work because of the crisis of overproduction. All that was true then and is true now and we have to retain that.

But the other thing that was more important in a way, which Marx and co stressed, in particular, was the technology aspect of things. That is reflected in their historical method, the idea that we are evolving as a species, not just in the Darwinian sense, but in the collective sense of organisation. The major factor behind this is technology. They demonstrated this brilliantly in The Communist Manifesto - why the cottage industries had to disappear and, by organising factory production as they did, people could be so much better off and more productive, awful as the conditions were which existed in the earlier Victorian period. The part that was wrong about the Marxist prospectus is this idea that the evolution of this process would lead to the collapse of capitalism and its replacement with the dominance of the proletariat.

I believe that if Marx were around today, he would say that people who still believe in the dictatorship of the proletariat or that workers, as workers, could or should be in control, were sentimental fetishists. Fetishism is a good Marxist word. André Gorz wrote this book at least 35 years ago, Farewell to the Working Class. Even by the time he wrote the book in the late 1970s, it was pretty obvious that the old skilled working class was disappearing. In those days, it was numerically controlled machine tools that were coming in and making the old time-served turners and fitters completely obsolete. They are now museum pieces.

Technology has changed things. Since Marx wrote all this stuff 150 years ago, and he was living the consequences of the development of the first industrial revolution, we’ve had the second industrial revolution and we now seem to be in the third. And that is rendering the whole idea of large concentrations of labour completely outmoded. I’m amazed that it’s not obvious and that’s why I’m staggered that people like Richard Wolff, who’s obviously otherwise a very intelligent person and understands the failings of the system, and other Marxists, still seem to think that some of kind of workers’ control is the way forward. I would argue that even in the UK, which has not exactly been at the forefront of socialist thinking, but even in the UK, that idea, syndicalism as it was known then, died out after the First World War.

 So what is valuable in Marxism is the recognition that technologies changes and that alters what human beings can do and how productive they are, but the idea that the proletarian can take over and run society that is not true …

It’s actually not clear what Marx meant, but a lot of people have inferred that he meant the workers are going to take over. It was that presumption upon which the Bolshevik Revolution was based, although the workers didn’t take over society. But the theory was that they were going to, and that’s certainly a clear presumption behind Leninism.

 But given that technology is changing what can be done in terms of production but that the working class is not able or is not constituted to take over society, then who is going to change society? Does technology just go on developing?

That is a difficult question to answer. But just because you conclude that labour is not going to do it, organised or otherwise, then that doesn’t mean you see any group exclusively in that role. But what needs to be taken account of is that people are developing solutions at a grassroots level, some of which will work, others won’t, which are seeking to overcome the problem. The word ‘community’ is being used more, and it’s rather a vague word, but people are going to organise in community groups and local groups too, very often. But I see one of the trends of our time, and where it’s leading I can’t be sure, is for people to organise production and finance and markets on a local basis. There are outbreaks of local currencies, you have ‘The Bristol Pound’, and this is a revolt against extreme globalisation, which means that you may have a perfectly decent factory providing, for example, processed food through your local market and suddenly someone can come in from outside and dump a rival product, shall we say UHT milk, from China or somewhere to quote an extreme example, costing next to nothing and that can take away your market and destroy your livelihood. Only a complete lunatic would say that that is a viable and sensible way to organise things but that is what is happening. People are rebelling against that.

 What solutions do you see as viable?

I don’t think there’s ever been a case in history, as the Soviet Union demonstrates, where somebody has designed a blueprint which was imposed from above and that has actually worked. You can only do it under totalitarian conditions and totalitarian conditions contain the seeds of their own destruction. You are going to have to evolve but it will have to evolve under the circumstances of extreme localism. To start with that will mean a serious revolt against globalisation. I think this is beginning to happen, when you see what is happening in Europe over immigration, for example. It is clearly not viable to go on pretending that we can have a completely free labour market in Europe, let alone one which admits, legally or otherwise, millions of people from outside Europe, on the basis that they can take work from people anywhere. That is a recipe for fascism, frankly, and that is where we are heading at the moment. I would suspect, as much as I support the idea of international cooperation, which I hope will not be lost, that what is going to happen is that there will probably be a break-up, not just in Europe but elsewhere, to more fragmented markets, or more separate markets. And people will say we are going to have our own production, our own distribution and we will trade with other countries, we will exchange labour with them, on a negotiated basis, as and when it suits both parties.

So, not having a free labour market in Europe means restrictions on freedom of movement? Does that not involve more deportations of ‘illegal’ immigrants and the ugly use of state power to enforce a ban on economic migration?

Limiting opportunities to seek employment across borders is not the same as restricting freedom of movement. As I tried to suggest in the previous answer, what I envisage is a system of international cooperation - in place of the current jungle of globalisation - in which a) there would be greater emphasis on fostering local provision of goods and services supporting employment of the local population - as well as limiting environmentally undesirable trade in goods which can be sourced locally - and b) income differences between countries would be progressively compressed by regulation. Given the huge existing disparities this would have to be supplemented, at least initially, by international transfers on the basis that these would be the distributed in the form of a Universal Basic Income, albeit not uniform across boundaries. This implies total rejection of the whole ‘race to the bottom’ concept based on the assumption that maximisation of corporate profits is the supreme public good. This would, of course, involve limiting freedom of capital movement as well. In general, though, the emphasis would be on promoting the positive rather than restricting the negative.

So, in the regions or nations that would negotiate their exchanges with other regions or nations, who would control production and distribution? There are leftists – and Marxists - who say enterprises should be controlled by their workforce but you dismiss this as anachronistic. In your books, you say often say the public in general should have voice on the boards of companies. But if we need a new organisation of enterprise, different to the shareholder/corporate model, what should it be?

If I said that the idea of workers' control was anachronistic I was being too kind. It is, in fact, irrational from almost any perspective. It seems logical that in the management of any economy or enterprise production, distribution, prices and incomes should be determined in a way that balances the interests of citizens in their different capacities as consumers, taxpayers, workers, residents of specific localities etc. Workers' exclusive control is thus illogical and discriminatory as well as impractical - if it means workers would also own the enterprise, what happens to their rights as owners when they leave or retire? How will they cope with loss of competitiveness or bankruptcy, as Mondragon businesses have found to be an issue?

The general principle should be that power be devolved as much as possible to the local level. Different forms of enterprise and ownership can be envisaged - including private, cooperative or community ownership - provided all play within the same transparent rules. Overall conformity with the public interest would in principle be assured by representative public bodies licensing enterprises and setting the conditions under which they operate. This would also imply the need for some degree of planning at local, regional and national levels to prevent monopoly exploitation, market disruption and waste of resources.

That also requires a complete rethink of the neoliberal philosophy within markets, and within countries. You have to go back first principles, and ask the questions; What is an economy for? What is it supposed to achieve? Is it the desire to maximise growth, which we are constantly being told it is, and that has been the main theme for the whole of my working life, although that was certainly not the aim before World War Two? People were much more concerned just with survival. The other thing is to look at things like the Universal Declaration of Human Rights. It gives you a clue, the idea of an economy is to provide people with a decent standard of living. There are, of course, different definitions as to what one might mean by that. But quite clearly it should not involve people having to go and beg and humiliate themselves at food banks, which is what we’ve come to. They would now have us believe that this is a normal part of life and what people should accept.

At a time when entrepreneurs and wealthy investors are lauded as ‘wealth creators’ granting the gift of life to the rest of us, isn’t Marx’s labour theory of value important – the recognition that value or wealth comes from labour and people are exploited when they are employed?

The short answer is no. To me, the labour theory of value has always been rather a puzzle in Marxism. Marx got the idea from Ricardo who was certainly not a worshipper of labour. And what he meant by the labour theory of value in determining labour’s share of output is, I think, very hard to pin down. I’ve never quite understood why Marx took it up. The only reason I can advance is that he also had this concept of alienation and part of the significance of that was that labour was engaged in producing all this stuff and the factory system was at the core of things then and there were no robots or anything. Workers were producing all these cheap goods which were exported all over the world and made a few people very rich here, but the workers couldn’t afford to buy them themselves. That was tied up with his view of alienation – in other words, that workers were just cogs in the machine, and were therefore dehumanised.

 What is wealth, then, and how is it created?

I’m looking at it from the collective point of view, which I think Marx would have done too. Wealth is what belongs to all of us. Only in the last few years have I come across this idea, I think it’s called cognitive capitalism. You look around and you see that all the wealth we have around us, whether it’s the public or social infrastructure, the schools, the hospitals, all these things we’ve accumulated over the centuries,  are based on our collective effort. The important point to hang onto is the idea that it is collective, that this belongs to all of us. Therefore to suggest either that it only belongs to wealth creators and this is only made possible by people who have invested their money, supposedly at risk (though in most cases they made damn sure there weren’t any risks), or, on the other hand, by workers who have created it all by the sweat of their brow, this is a mistake. Because, in fact, it’s a combination of all these things. Anyway, the sweat of the brow, insofar as that’s been involved, was shed by people long dead. We can’t say that we’re entitled to more of it, or a share of it because we’re workers now, when, in fact, it was our forebears who sweated and died to produce it. That is, to me, the proper way of viewing it. This comes back to that famous phrase, quoted by Isaac Newton, that “we stand on the shoulders of those who have gone before”.

 I recall a year or two ago somebody wrote a defence of Rupert Murdoch, saying he fed 40,000 people. They didn’t mean he donated to charity but he employed 40,000 people thereby giving them the gift of life and the ability to feed their families. A lot of politicians come out with a similar idea – there are very rich people who have the ability to grant us jobs or increases in our wealth, and we should give them what they want. I think if you want to challenge that idea, you have to come at the idea of wealth creation from a different point of view

What you have just described is an important point to note. But, to my mind, it’s rather obvious – it does not differ in any way from what our feudal masters were saying hundreds of years ago – in other words, we created this and we provided the land and the employment for people and, as a result of that, you are entitled to survive. The implicit idea in that case was that God gave it to them, or the King as was often the case. Another philosopher, whose work is rather contemptible, is John Locke. He developed the idea that anyone who appropriates some land and develops and uses it, because they produce more from it than the original inhabitants, it belongs to them. That idea was somehow related to Calvinist religion and that people who were chosen by God, or were given the opportunity to take hold of the Garden of Eden and turn it into an earthly paradise by their own efforts, somehow deserved more than the rest of us, even though the reason for this distribution of wealth, in the first place, which enabled them to do this, was nothing to do with merit whatsoever. It was purely an accident of birth. And that is really what it comes down to today.

Another thing, which was much mocked by Dickens in Hard Times, was this myth of the self-made man. Nowadays, you get the same sort of thing. Whereas in reality, there are so many cases of people who have come by their wealth and assets by more or less dubious means. The idea that they have a superior right to tell everyone else what to do, is medieval.

 Do we need entrepreneurs to think of new products and new ways of doing things, and are they entitled to more than other people?

No. I’m not saying entrepreneurs are a bad thing. But if you choose to be an entrepreneur like James Dyson, to go out and invent a new vacuum cleaner, if that’s what turns him on, that could be good. He should be properly recognised and rewarded for that. But that doesn’t mean he has the right to go around saying that nobody else should be able to make a vacuum cleaner like his, or if they do, he should be able to take a commission on it. Intellectual property is theft.

Entrepreneurs, inventors, thinkers, they are one of the glories of the human race, really. But inventing new things, finding a cure for cancer or whatever, this is a desirable thing in its own right and if somebody contributes exceptionally to bringing these kinds of things about, then they deserve recognition and compensation for their achievements. That should be enough satisfaction for them. To think that they should also be allowed to rule the world, that’s something else.

 Is an entrepreneur in this sense, different from a person who just has lots of money and invests and creates a new company and jobs? That’s not necessarily an advance, it’s just that they have money and they want more money, and a by-product of that is that some people get jobs?

You’re touching on something else and it’s a very valid point. What you’re talking about is the capitalist urge to growth. This is one of the problems the system suffers from. The profit motive is based on a system of company law, which actually makes shareholders the priority, that they should determine entirely freely, how the resources of a country are disposed of. That inevitably means that you’re going to have a system of profit maximisation and that profit maximisation, in turn, must lead to more investment which leads to speculation and falling rate of profit and busts. It’s all very familiar stuff. And that’s why the only way to prevent that is to change company law so that, in the first instance, limited liability is denied to anyone who does not demonstrate that they are doing something in the public interest, and that has to be constantly monitored. It’s a privilege in other words. It’s an irony that, in many ways, that would take us back to the kind of pre-industrial, if not pre-capitalist, structure of the economy that existed before Adam Smith. The profit motive in the 16^th century, was expressed through chartered companies, like the Hudson’s Bay Company or the East India Company. They had a monopoly to go and trade in certain things, but that was granted by the state, the crown and people, in theory and sometimes in practice, had to deliver something back to the state. In many cases, it was just plunder from the Far East, it wasn’t a public good, but that’s the principle. You shouldn’t have any privileges as an enterprise or an entrepreneur, unless you agree in advance to give something back.

Many people recognise how destructive the profit maximising motive is, but effectively with our company law you are institutionalising that. You are saying, not merely that you are permitted to go out and maximise your profits, but you are compelled to do so. It compels you to worship at the altar of the golden calf.

 Isn’t Marxian economics’ recognition that capitalism’s leads to monopoly and oligopoly (truly competitive markets don’t last) and that capitalism is unavoidably unstable (you can’t get rid of boom and bust) also essential if we want to really understand the way the world works?

Absolutely, that is central. Marx was the first person to point these things out. I’m not deeply into the history of economic thought but if there was one economist who recognised this before Marx, it was Malthus, because he pointed out to Ricardo that it was possible to produce more goods than the market could absorb and Ricardo rather dismissed the idea. The contrast there is with Say’s Law, the idea that supply creates its own demand. In many ways, the labour theory of value, which was more like a Ricardian idea, was restatement of Say’s Law because at one level the labour theory of value amounts to saying, ‘I produce, therefore I am’. This was the effectively unchallenged principle of the Soviet Union. One reason why they got into trouble was that they said that even if you exceed your planned target for the manufacture of glass bottles, for example, all you will do is drive down the price and that will benefit everybody. The idea that it was a complete waste of resources never occurred to them.

 One Marxist economist, Andrew Kliman, attributes the ‘malaise’ (as he puts it) in the world economy to the tendency of the rate of profit to decline. But you locate the problem in excess capital (a ‘wall of money’ as you phrase it) needing profitable outlets. Are these two ideas very different and in conflict?

I don’t think they are really. I’m not familiar with Kliman’s work but the tendency of the rate of profit to decline is undoubtedly there. What’s happened spectacularly over the last 40 years, since the post-war boom ended in the West, is that the capitalist establishment, the business community, has been preoccupied with ways of overcoming this problem and the ‘wall of money’ is certainly part of that. In other words, you create huge speculative ways which enable people to invest money in things that are totally unproductive. People have been writing about ‘casino capitalism’ since the 1960s and it becomes just a gambling den, based on speculation. There are people who will tell you that speculation is a valid economic activity that benefits the community and it helps price discovery. Quite honestly, I think such arguments are hardly worthy of consideration, it’s obviously self-destructive and irrational.

 So profit does have a tendency to fall and business is aware of this tendency?

Oh yes. Business in the widest sense. This is why we have this ludicrous superstructure of finance capital in the City of London, which is, in fact, organised gambling.

 Because you can’t make enough money from ordinary production?

No. And then you create ridiculous outlets for funds that are thought to be necessary like pension funds, which are completely unnecessary. You have these fetishisms which are widely held among all political classes in the UK which is that people are not saving enough for their retirement. People shouldn’t have to save anything for their retirement. They may choose to do so if they want to but the way things are now, a fat lot of good it will do them.

 So the tendency of the rate of profit to decline leads to speculation and more crashes?

Yes

What’s your view of political Marxism; the concept of a party that represents the working class and seeks to gain power either through a revolution or the ballot box, like the SWP in the UK? A party that attempts to control the state on behalf of the working class and the party knows best …

I would have total contempt for that and, again, like all political movements, political Marxism, in that sense, is no different from organised religion. In other words, it’s designed to give power, cloaked under some ideological mythology, to a certain group of people. Ultimately, quite apart from the fact that so many of these concepts on which it is based, are outmoded, like the labour theory of value, any structure which gives some mystical kind of authority to any individual or group of individuals, so they know better than other people, that is doomed to, not necessarily to failure, but it’s doomed to destroy people rather than help them.

 Given that there are conflicting interpretations about what’s happening in the world and you think you’re right about some things and you disagree with people who also think they are right, how do you get a political movement that avoids the pitfalls of parties and leaders and some people dominating others, how do you get agreement to happen and to manifest itself?

That’s the $64 trillion question. I wish I knew. One of the things I’ve been advocating for a good many years, as other people have, is the idea that you need to make it much more difficult for individual vested interests to get hold of the media, for example, or the airwaves. To overthrow the likes of Murdoch and Fox News, who do an awful lot of damage. As to how we are going to get away from that, in practice, I really don’t know. Let us hope that things like the Internet will open things up sufficiently to permit diversity of opinion, to change attitudes. But you can quite easily see how that can go the other way and, of course, the authorities in places like China and, indeed, closer to home, are desperately trying to do that, because they very much fear the consequences of being found out.

Right now we are living through a fascinating period, (you could call it fascinating if you’re not starving to death), where the means of control are breaking down, partly because the economic system itself is breaking down but you can’t see what’s going to come up to replace it and you get these confused movements, such as in Egypt which is a complete mess, but reflects precisely this kind of dilemma, although there are far worse conditions there than in most western countries. And, heaven knows how it will play out.

I’m about to write again about the determined unreason of our rulers. I’ve been brought up to believe that, for all their faults, our rulers have shown the capacity to adjust to inevitable change when they finally realised it couldn’t be avoided. That is something I’m beginning to doubt. If you look at what’s happening over climate change, quite clearly, if we don’t do something about it, we are all going to perish. You might say the human race has to come to an end anyway at some point, which is obviously true, but for people who are supposed to be the most intelligent creatures ever to exist on this planet, to destroy ourselves in this way seems hard to explain. I don’t think Marx would have been able to explain it.

 Britain and Europe seem trapped inside a winless logic that says we need growth to have employment and thus generate the taxes to pay for social services. But because growth is so insipid, you need to rip up regulations and protection for workers and cut corporate taxation. We need an escape from this growth/wealth prison but how do you mount a “prison break” that doesn’t just result in mass poverty?

That’s a rhetorical question, really. You can’t do it within the existing economic system. In many ways, this point was made by Lord Beveridge. Because you talk about workers’ benefits and the welfare state and Beveridge’s report was highly influential in determining the kind of welfare state that emerged in Britain after the Second World War. He himself said, and this was already known from experience after the First World War, that you couldn’t have a system of welfare, paying out benefits, in an economy that was so unstable that it would fluctuate up and down. He said the whole thing was posited on the basis of maintaining more or less full employment. That’s what’s been totally invalidated. It’s not just capitalist instability, it’s also technological change. You have to have mechanisms for income distribution that overcome these problems and you can’t do that if you just leave everything to speculators and the stock exchange, to put it mildly.

It’s high time we moved on but heaven knows if we will.

Living standards and economic growth; a depressing tango

At the risk of sounding like an anally retentive stat obsessive, I found some interesting figures about real wage growth in Britain, or its absence, on Saturday and put them together with statistics on GDP growth (alright I admit I’ve got a problem but it’s one way to spend your weekend).

Both sets of figures are from the Office for National Statistics. Real wages mean the increase or decrease in the value of wages taking account of the effect of inflation.

	UK GDP growth %	UK real wage increase %
1970-1980	2.55	2.9
1980-1990	2.67	2.9
1990-2000	2.22	1.5
2000-2010	1.82	1.2
2010-2014	1.32	-2.2

What’s interesting is that wage growth, and now wage decline, has tracked GDP quite closely, and GDP has fallen substantially since the end of the ‘80s and since the ‘60s. According to ONS figures, annual growth in Britain averaged 3.27% from 1960 to 1970. The figures are quite kind to Margaret Thatcher, it should be said, since the second Thatcherite recession began in the first quarter of 1990 when she was still Prime Minister.

The drop in the increase in wages was very definitely apparent in the 1990s and 2000s when virtually no-one thought there was a problem. Now there is wage decline, an awful lot of people have noticed the problem. The conventional liberal-left explanation is that Thatcher’s war on the unions and the decline in collective bargaining has belatedly fed through to how well employees are paid. I’m sure this is a factor – the precipitous drop in real wage increases from the 1980s to the 1990s, has doubtless a lot to do with the “Thatcher effect”. But that is not the whole story. Wages have faltered as growth has declined. Frances O’Grady, general secretary of trade union representative body, the TUC, said in response to the wage figures that “average pay rises have been getting weaker in every decade since the 1980s, despite increases in productivity, growth and profits”. But productivity and growth have also been getting weaker. I believe there is hardly any chance of the UK economy turning things around and returning to the growth levels of ‘60s, ‘70s or ‘80s. In those circumstances, real wages will either continue to decline or, at best, show slight increases.

The figures are evidence of an economic system in decline and the prospects for most people, while TINA is securely ensconced in the political consciousness, are not enticing. Consumer debt, which has trebled since the early ‘90s in the context of faltering wage growth, is likely to grow even larger, leading to further economic tremors.

How do you solve a problem like capitalism? Economic democracy versus the abolition of profit

In an interview on this blog last year, Hjalti Hrafn Hafthorsson of the Icelandic organisation Alda, put the case for an intrinsically different kind of economy. Companies, he argued, should be run as worker-controlled enterprises not as shareholder-owned entities managed by small boards of directors. With decisions guided by what employees want, rather than the legally prescribed imperative of maximising profit that determines current corporate behaviour, outcomes would be radically altered. Wealth would be more evenly distributed, companies would reflect what communities wanted and monopolies less likely to be formed.

 “I tend to believe,” Hafthorsson concluded, “that if working people were voting on some of the decisions made by corporate executives today many of those decisions would be overruled because people in general have values that aren’t measured in dollars or pounds.”

Alda’s vision of “economic democracy” is seen by many as a cure for the problems that plague society - inequality, stalling wages, environmental degradation, the dominance of large firms (in the energy ‘market’ for example) that exploit their captive consumers and companies’ footloose relationship with the communities that host them.

This means not merely a different way of reaching economic decisions, but the death of the shareholder. Workers, not wealthy investors or pension funds, would own as well as govern firms. It has been argued that the wider community should be represented on company boards, not just the workforce. Either way, what you have is an economy ostensibly geared towards the public interest, not private profit.

Taken together with the burgeoning movement for a basic, unconditional income, you can see the rudiments of an economy that values people, as opposed to things or profit. An economy, in other words, that treats people not as means to an end - economic survival and profit - but as ends in themselves, and gives them the freedom, and material security, to decide what is right for them.

“The difference, of course, is that we wouldn’t have capitalism anymore,” says Hafthorsson. But are these really the ways to transcend capitalism, or will we still be caught in its web?

There are some who think escape not so easy. The American Marxist, Andrew Kliman, looks upon capitalism as a network of relationships governed by immovable laws. You cannot simply “overrule” decisions because you don’t like them. It doesn’t matter, in this view, who is in charge or what their values are – whether they are money-grubbing psychopaths obsessed with profitability, or managers elected by the workforce, concerned above all else with the welfare of fellow employees and the effect of decisions on the wider community. Kliman is adamant that:

“Directives will not break the laws of capitalist production. The most important law is the determination of value by labor-time. It compels an enterprise, whoever owns or 'controls' it, to minimize costs in order to remain competitive, and therefore to lay off inefficient or unnecessary workers, speed up production, have unsafe working conditions, produce for profit instead of producing for need, and so on. If you are in a capitalist system, you cannot just issue a directive to produce for need, or a directive to refrain from laying off workers. Cutting costs is the key to survival.”

The disagreement as to what is and isn’t possible ultimately stems from contrasting definitions as to what capitalism is. Alda’s “economic democracy” stance reflects philosopher David Schweickart’s definition. Capitalism take places in the familiar “market economy”, yes, but the decisive characteristic, to Schweickart, is that it is based on wage labour. This means the vast majority of people have to rent themselves to the small minority that own companies, shops or offices in order gain the livelihood –  the wages, salaries or fees – that enables them to have a reasonable standard of life and not frequent food banks. Their need of an income means they are compelled to subject themselves to undemocratic rule at work and the baleful consequences of inequality, the dominance of huge firms and a lack of concern of external effects on society and the environment. The solution is to end the division between the elite that owns “the means of production” and the millions of people one or two payslips from bankruptcy. When workplaces are democratised, the argument runs, the behavioural characteristic of firms will change and seemingly intractable problems will become tractable. Values not “measured in dollars or pounds” would predominate. But this is decidedly not about the abolition of profit or competition. Profit will remain, it’s just that the people who receive it will alter.

Another way of describing this transformation is that it aims at the ‘democratisation of capital’.

However, to Kliman, this is based on a fundamental misconception of what capitalism really is. “Capital,” he writes, “is nothing other than value that is invested in order to end up with more value, so the fact that products have value is part and parcel of capitalism as such, no matter what its forms of property and institutional structures may be.” You can turn the institutions - the workplaces and corporations that overshadow our lives - upside down, you can put the people, not the corporate executives in the saddle, and nothing fundamental will change. Because any firm operating in a competitive economy will be drawn, however unwillingly, into the “grow or die” mentality that exists all around it, workers in a worker-controlled company will end up exploiting themselves.

You need do “do away” with capital, Kliman insists, and that requires doing away with commodities and the production of commodities. Given that most people – Marxists included – don’t think people should just live on the potatoes and onions they have planted in the back garden, he must be referring to a special quality in “commodities” that separate them from consumer goods. But more of that shortly.  

Kliman’s firm belief is that, in a capitalist society, institutional forms don’t matter. However hard they try not to, everyone has to swim with the current. In this, I think he is partly right. Non-shareholder enterprises do, I believe, behave differently, but not differently enough. In Britain, for example, you can see a glaring disparity in the way consumers are treated. The traditional shareholder-owned companies dominant in energy and water provision since privatisation in the 1980s, have engaged in crass profiteering. Electricity prices have shot up by 120% and gas prices by 190% in the last decade. Welsh Water, by contrast, which has been run as a social enterprise without shareholders since 2001, has reduced bills every year for seven years. The nationalised Scottish Water, is into its fourth year of a price freeze. Railways in the UK paint a similar picture. Private train companies have, in the context of burgeoning taxpayer subsidy, made an enormous return of 147% for every pound invested, but when the state is inadvertently put in charge of a rail-line, the taxpayer subsidy miraculously drops. The British National Health Service, in its heyday, exemplified the primacy of need over the bottom line.

Gar Alperovitz in America Beyond Capitalism, argues that the price advantage displayed by municipally-owned electricity utilities in the US “is due to the fact of public ownership itself; locally controlled public utilities often can be especially responsive to customers' needs and do not need to pay dividends to private shareholders.”

However, all these instances occur in cases of non-competitive monopolies or without direct competition for market share. When competing in a market against shareholder-owned competitors, social or state-owned or worker-controlled enterprises have much less freedom. The record of the famed worker cooperative corporation in Mondragon in Northern Spain, illustrates both how worker-run coops are an advance on the capitalist model, but also, in important respects, ape it. In Mondragon, we have, not an isolated divergence from capitalism, but Spain’s seventh largest company. Mondragon comprises 256 businesses that generate $4.8 billion a year in manufacturing, retail and distribution. It boasts 43 schools, one university and more than 80,000 employees.

As this analysis demonstrates, in stark contrast to the towering edifices of economic dictatorship and inequality that surround us, Mondragon is a beacon of democracy and egalitarianism. It operates on a one worker one vote basis, and each worker’s vote in the Mondragon general assembly, controlling production, income distribution and the election of the board, carries the same weight. The Mondragon CEO earns only nine times the federation’s lowest paid employee. Economic downturns are not met with automatic lay-offs. Mondragon members are more likely to vote for pay decreases in order to spare unemployment.

“In contrast to most capitalist companies, whereby the measure of a successful company is almost always based on maximum profitability, the cooperative approach offers an alternative that supports democracy through an egalitarian voting system, while at the same time promoting job security for worker-members, social justice and community responsibility,” say authors from the Center for Social Epidemiology, of Mondragon.

But this is not the whole story. While Mondragon embodies these undoubted advances, it has also expanded into other countries – Mexico, Morocco, Egypt, Argentina, Thailand and China, for example –  in much the same way that a capitalist company might and, significantly, its international workforce have not been offered cooperative membership. Roughly a third of Mondragon’s workers are not members of the coop. And, after trying in 1960s to adopt alternative manufacturing processes, Mondragon now incorporates familiar capitalist practices such as just in time inventory and shift work.

What this indicates, I think, is that it is very difficult to make worker cooperatives universal – to expand them without ensuring, at the same time, that a sizeable chunk of the population remains outside them. And also that cooperatives will inevitably respond to outside competition. There is no way to ensure that even a worker’s coop that is an exemplar of internal democracy will not vote to gain an edge through the introduction of ultra-competitive practices, thus compelling other cooperatives to follow suit, to grow or die.

Kliman would say that these inescapable flaws mean you have to “do away with” capitalism and markets, or, alternatively, that capitalism, the process of adding value through the sale of products, inevitably entails markets and you cannot have one without the other. That is what he means by commodities, the selling of products and the reinvestment of the profit made through that sale, as opposed to the neutral designation, ‘consumer goods’. But lesson of 20th history seems to indicate that you can’t abolish capitalism and markets, without entering a nightmare realm of central planning and total state domination. Kliman refers to the “horrors of state-capitalism that called itself ‘communism’” so he clearly doesn’t want to go back to that. He also says “we have to work out how we can have a modern society that operates without the laws of capitalist production being in control”. By “modern society” he seems to mean a society with a myriad of consumer goods and conveniences but lacking the compulsion or necessity to make a profit from these goods; to turn them into commodities. Is this an impossible dream? Is economic democracy within some form of regulated market, the best we can hope for? Can you really abolish capitalism? I would like to consider these questions at some point when I have the time.