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.

Wealth creation for dummies. A review of 'After Capitalism' by David Schweickart. Part One

What exactly is capitalism? That might appear a strange question to ask, fifty-plus posts into a blog about, erm, capitalism. But if you’ll forgive the tardiness, this is an inquiry that needs to be pressed.

While capitalism is a noun that attracts adjectives in abundance (crony capitalism, free-market capitalism, and now the oxymoronic humane capitalism), the noun itself remains largely uninterrogated, an unexamined presence. Everyone is supposed to understand what capitalism is – it’s all around them after all – but it’s remarkable that something so taken for granted is seldom defined. I’m convinced that many people who define themselves as anti-capitalist have only an intuitive sense of what they are against.

Perhaps you can be too close up to something to fully grasp it. Maybe you don’t really know the people you’re closest to.

David Schweickart is an American mathematician and philosopher who published a book in 2002 called After Capitalism. Aside from elucidating an alternative to capitalism, he attempted to define it and describe its consequences. After Capitalism isn’t a howl of outrage against “the system” but a rational effort to go beyond TINA (‘there is no alternative’)

Reviewing Schweickart’s book is therefore a good way to look at capitalism in the cold light of day: To examine what it is (which may be very different from how it is commonly perceived) to look at its faults, to say what’s good about it and what the alternatives to it are. There is, I believe, an unconscious and very prevalent fear, that interfering too deeply in the workings of the mysterious capitalist machine will lead either to the government controlling everything, with lethal consequences for freedom, or, alternatively, plunge us into a technological dark age and anarchistic chaos. Refusing to be awed or intimidated by what is, after all, an economic system that humanity has rejected for the vast majority of its history is a path to confronting those fears. The review will be in three parts.

Here is Schweickart speaking (with others):

Say cheese! The C-word in focus

Schweickart gives a three part definition of capitalism. Firstly, he says, the bulk of the means of production (offices, factories that produce goods and services) must be privately owned, either by corporations or individuals. This was traditionally called by the Left ‘private property’ which is unfortunate, Schweickart says, because it implies that homes, cars and toothbrushes will all be confiscated and “communalised” in any revolutionary change (think of John Lennon’s Imagine). These things were, to someone like Karl Marx, not ‘private property’ but ‘personal property’ and would not be seized by anyone.

Secondly, products are exchanged in a market. “Individual enterprises compete with one another in providing goods and services to consumers, each enterprise trying to make a profit,” says Schweickart. “This competition is the primary determinant of prices.” The state owning all enterprises and deciding that to produce by means of a plan, as in the old Soviet Union, is not capitalism. Neither is it capitalism when the local community owns most of the economy, as with social ecology.

But, says Schweickart, it is an “ideological distortion” to use “market economy” as a synonym for capitalism. They are not the same thing. Enterprises within a market economy can be organised differently. They can be controlled by their workforce. This is significant because, when it comes to imagining a “post-capitalist economy”, Schweickart says it will be populated by worker-controlled firms operating in a “decentralized market economy,” a system he calls “economic democracy”. This is contentious on several levels and I will critically examine Schweickart’s proposals in Part Three.

Lastly, he says, capitalism, to be capitalism, has to be based on wage labour. This means that most people, of working age, have to rent themselves out to others, who own the “means of production”, in order to gain the resources to survive and consume. “It is a crucial characteristic of the institution of wage labour that the goods or services produced do not belong to the workers who produce them,” says Schweickart, “but to those who supply the workers with the means of production.”

It is this reliance on wage labour, says Schweickart, that gives capitalism its susceptibility to crisis, its downturns and booms. Economic health, under capitalism, is based on what Keynes called “effective demand”: the purchasing power of the millions of wage labourers. But this demand is formed from wages or salaries, the consequence of what is negotiated from employers for whom wages are just another cost. If that happens, private investors can lose confidence and companies do not spend the profits they have amassed.

This, says Schweikart, is one of the “central contradictions” of capitalism. An in-built conflict, you might say. “Wages are both a cost of production and an essential source of effective demand,” says. “Capitalist firms are always interested in cutting costs, expanding markets and developing new products. But to the extent that the first of these goals, namely cost cutting, grows in importance relative to the other two, effective consumer demand will tend to be depressed – and hence also those “animal spirits” of investors. This can mean a stagnating economy and rising unemployment, perhaps on a global scale.”

So, if most assets are privately owned, economic exchange takes place in a market, and most people are wage labourers, a society is capitalist.

But, within these parameters there are different kinds of capitalism. The twentieth century had quite a varied palette of capitalisms. Post-war Japan and later, South Korea, were examples of one version where the state directed investment to certain favoured parts of the economy and had a bias towards exports (a type of capitalism the economist Ha-Joon Chang is enamoured by). After the Second World War, Western Europe and the US had for many years a form of managed capitalism, based on collective bargaining and the state ownership of some parts of the economy. West Germany went in less for state ownership and instead practiced ‘co-determination’ – workers were elected to company boards. After 1980, this changed, especially in the US and Britain, in that trade unions were “zapped” and much of what the state did was privatised.

This has morphed into a strange economic constellation where the rich and corporations are subsidised by the taxpayer while the rest of the population is subject to the discipline of free enterprise.

Perhaps this is just an extreme manifestation of a state of affairs that was there all along. “I watched with incredulity as businessmen ran to the government in every crisis, whining for handouts or protection from the very competition that has made this system productive,” wrote one William Sutton, Treasury secretary under US President Richard Nixon in the 1970s.

The point is that real-world capitalism can, and invariably does, radically depart from the textbook “free market” model, but it’s still capitalism.

Love me, I’m a wealth creator

We can see from this definition there is one conspicuous absentee – the “entrepreneur”. In conventional justifications of capitalism, the entrepreneur looms very large indeed, especially during economically tough times. In fact, in conventional explanations, the entrepreneur is capitalism. In the UK, Conservative business minister, Michael Fallon, says we should salute entrepreneurs as “Olympic Champions” who deserve adulation for creating wealth and jobs.

But conservatives are not alone in celebrating the entrepreneur. The left-wing economist Stewart Lansley, author of The Cost of Inequality, differentiates between the deserving and undeserving rich. One of his favourite examples is the industrial designer, James Dyson, who merits his wealth, says Lansley, in contrast to someone like Philip Green who makes money from taking over existing businesses. Dyson creates wealth, says Lansley, but Green merely transfers it to himself.

But Schweickart says both these understandings are ideological distortions. He does not deny that entrepreneurs exist or they merit a reward for their contribution, although frequently they merely copy what has gone before (new coffee shop anyone?) Any society needs people who invent new products or technologies. But what Schweickart does deny is that entrepreneurs are capitalists.

From Marx, Schweickart gets the insight that all wealth derives from labour. “As any economist will confirm,” he says, “unless labour costs are less than the value added by labour, there will be no profit.” So entrepreneurs create something and ethically are entitled to a reward. Workers literally produce goods and services. Managers supervise production. They all contribute something.

But what do capitalists do? The answer, says Schweickart, is very little. They have an entirely passive role. They watch their wealth compound by virtue of the fact that they have quite a lot in the first place. “In a capitalist society, enormous sums are paid to people who do not engage in any entrepreneurial activity or take any significant risk with their capital,” he writes.

As an example consider the National Express Group, which operates buses and trains in the UK. The major shareholders in, and therefore owners of, National Express are the Cosmen family, a Spanish family who “first entered the transport industry, in a horse-and-carriage operation, in 1728”, a hedge fund called Elliot Partners who very persistently pursue very high returns for the immensely rich people who invest in the hedge fund and an investment company called M&G. None of these investors are entrepreneurs.

We are now in the ideological belly of the beast. An entire economic system is justified by virtue of its vital role in creating wealth when it is primarily about the receiving of wealth by a small minority that other people create.

To be a capitalist, says Schweickart, you must own enough productive assets to be able to live comfortably on the income they generate. In the US, he says, and he wrote this in 2002, this comprises about one per cent of the population. Sound familiar?

The investment game

So why does putting money in the capitalist investment game, in normal times, yield results? Why do stock markets, bond markets, investment banks and currency markets produce positive returns? Most pensions are invested on the stock market and charitable foundations derive their income for grants from endowments in shares. “One gets something for nothing because someone else gets nothing for something,” explains Schweickart. “Investment income, the reward to those who have “risked” their money by channeling into financial institutions … is possible only because those who produce the goods and services of society are paid less than their productive contribution. If capitalist distribution were really in accord with the principle of contribution (as is often claimed), the investor would get nothing.”

Two things follow from this. One is that share dividends are, in Schweickart’s words, “a tax on enterprise” and should be abolished and replaced with a capital assets tax. The second is that the real problem is not the stupendous consumption of the very rich but what they do with the money they don’t consume, the money they invest. Control of investment should pass from the capitalist class to society as a whole. He calls it “social control of investment”. I will look at this in detail in part 3.

In the next part, I will examine Schweickart’s take on how far the problems of society, such as environmental degradation, a hollow democracy and poverty, can be laid at capitalism’s door. But I also want to look at the appeal of capitalism and why people are so scared of moving beyond it.

“Most workers, especially those in rich countries, have far more to lose now than just their chains.”

Bad Pharma meets the Good Regulation Fairy. Why the drugs aren't about to start working

“It’s easier to imagine the end of the world than the end of capitalism,” everyone’s favourite Marxist film critic, Slavoj Žižek, once remarked. Perhaps a sudden fleeing of the imaginative capacity explains the strangely brain-dead reaction of the science writer Ben Goldacre to the idea that the pharmaceutical industry should, for the good of humanity, not be conducted on a capitalist basis.

The question, posed by the economist Harry Shutt, whose books have been admiringly reviewed in this blog, was not complicated. Given that the pharmaceutical industry appears totally unsuited to being run on a profit-maximising basis in shareholder-owned companies, Shutt asked in The Observer, wouldn’t its functions be better carried out by non-profit or publicly-owed enterprises?

Goldacre is clearly a very intelligent person, whose Bad Science columns are oases of un-credulity refuting the claims of corporate science. His book Bad Pharma says that drugs companies deliberately put dangerous or useless drugs on the market. He’s no fool and no shill so why did this obvious question precipitate such confusion?

Niall Ferguson has invaded my head

First, Goldacre said he was a realist, clearly implying that he’d like a different way of running the industry but that wasn’t possible. But by the next sentence, he revealed that he didn’t want a “central command state economy” (Help! Niall Ferguson has invaded my head), a very jaded straw man and definitely not what Shutt was advocating. This was followed, most bizarrely, by the assertion that people in the drugs industry perpetuate acts of great evil, not because they are innately evil, but because they work in a badly designed system. This is precisely what Shutt was saying – it’s a badly designed system, its acts are not the “fault” of the individuals working in it, so change the system. As an answer, that lacks something. It’s like saying 2+3 isn’t 5, it’s 5.

Finally, Goldacre says what he thinks should happen – a “competent regulatory framework”. Are you still awake? Don’t worry, the boogie man won’t get you because the good regulation fairy will stop him. Spoiler alert. She won’t.

(Imagine, as an experiment, the reaction if state pharmaceutical agencies were guilty of the foisting dangerous or dysfunctional drugs on the market. There would be immediate and deafening calls for privatisation. You get an insight into the balance of power, intellectual and otherwise, by the fact that critics of the misdemeanours of corporate drug companies call merely for better regulation.)

Let’s set aside for one moment the integral problem that western “democratic” political systems, and frequently the politicians in them, have been bought by corporations so that regulation is not remotely competent or effective. (This is the Jeremy Grantham and Stewart Lansley problem. Just because something should happen doesn’t mean it will).

Regulation/Smegulation

For the sake of argument, imagine an ideal world where the state sits benevolently above the fray and government regulation can do its job unimpeded. What would regulation actually do?

Bear in mind the recent claim by two eminent French specialists that over half of the medicines prescribed in France are either useless or dangerous. 20,000 people die annually as a result, they say. Goldacre’s  book, Bad Pharma, is specifically about the dangerous medicines that shouldn’t be out there, but are. “… for several of the most important and enduring problems in medicine, we have no idea what the best treatment is, because it’s not in anyone’s financial interest to conduct any trials at all," he writes. And that doesn’t take into the account the drugs, that while not harmful, do not serve any medical purpose. “If you can get on to the market by making a me-too copycat drug that represents little or no therapeutic advance and is even less effective than the drugs that it copies, then you will,” says Goldacre.

So competent and effective regulation will, if it does anything, radically reduce the number of pharmaceuticals that are allowed to go on the market. Thereby massively hitting drug company profits (they are currently the darlings of stock markets worldwide because they are so profitable) and, in turn, the number of people they employ.

Thus, you are soon face to face with a fundamental conflict of our capitalist system. An unavoidable collision between the impulse most decent people share for reducing the anti-social effects of capitalism, against the need for capitalism to prosper so that everyone can have good jobs and incomes. We are, whether we like it or not, materially dependent on the system’s success. But a successful system causes results, such as global warming and prescribing dangerous medicines, that are inherently destructive.

Planned Regulatory Obsolescence

If regulation of the pharmaceutical industry were actually competent, as Goldacre wants it to be, it would prevent capitalism from working (actually it’s not working well anyway but effective regulation would be another drag on profits). A 2009 UN report found that a third of the profits of the world’s biggest 3,000 companies would be wiped out if firms were forced to pay for the use, loss and damage to the environment they cause. In other words, truly effective environmental regulation would render capitalism impossible.

So regulation is, quite deliberately, not effective. It allows, as research has found, just enough reform to buy off critics without seriously impeding corporate priorities. In the end, Goldacre’s vision of a “competent regulatory framework” is far more utopian than changing the system so that profit maximization is not the modus operandi of pharmaceutical companies.

And you don’t need to be Albert Einstein to work that out.

Crony Capitalism - the convenient explanation for our evasive times

In Spain they suffer from amiguismo. Greece is fatally afflicted with rousfeti. Japan has never outgrown the effects of keiretsu. In South Korea chaebols have been a perennial blight.

Beyond the superficialities of debt, bank collapse, and government bail-outs, these are the real causes of economic distress. In a London Observer article last week, John Carlin explained the Spanish “infantile” attitude to work and rampant “amiguismo” – “friendism” – were the “root cause” of economic collapse and an unemployment rate in the mid-20s.

In English, this malaise is known as crony capitalism.

The “Spanish disease”, Carlin said, is an economic system where advancement depends on who you know. Greece is similarly benighted by “rousfeti”, which means according to a 2011 BBC article, “political favours and cronyism”.

In Italy, so says the Wall Street Journal, even emergency room doctors get promotion on the basis of their political affiliation. Apparently, “one routinely finds highly intelligent people employed in menial jobs while mediocre people often hold distinguished positions,” (which actually sounds like bog standard capitalism).

Like a receding tide, economic recession has merely exposed these countries’ integral failings, the argument runs.

Crony capitalism and Europe’s economic miracle

History is good at placing contemporary explanations in perspective and Tony Judt’s 2010 Postwar: A History of Europe Since 1945 systematically exposes the truth about crony capitalism. Unfortunately there is scant solace for believers in the cancerous effects of crony capitalism. Because if history is any guide, as far as capitalist economic health is concerned, the cronier the better.

Judt explains how Austria was governed in the 1950s and ‘60s, a system known as “Proporz”. “At almost every level jobs were filled, by agreement, with candidates proposed by the one of the two dominant parties [People’s party and Socialists],” he writes. “Over time, this system of ‘jobs for the boys’ reached deep in Austrian life, forming a chain of interlocking patrons and clients who settled virtually every argument either by negotiation or else through the exchange of favours and appointment.”

Judt is clear this arrangement didn’t just apply to public services and the media, but “much of the economy” as well.

In Italy, the story was similar, possibly even more extreme. “Jobs and favours were created and delivered proportional to local, regional, national political clout,” Judt tells us “…. From the point of view of Economic Man the system was grossly wasteful, and inimical to private initiative and fiscal efficiency.”

What were baleful economic effects of this grossly wasteful system? Well, in Austria, Judt relates, per capita (per head) GDP rose, between 1950 and 1973, from $3,731 to $11,308. GDP per head in France grew by 150%. “The Italian economy, starting from a lower base, did even better.” Spain, then labouring under the time-warp of Franco’s clerico-Fascist dictatorship as well as doubtless rampant amiguismo, saw GDP increase from $2,397 to $8,739. These were, for all their sclerotic cronyism, “golden years” economically.

At the end of the twentieth century, in the wake of the East Asian economic crisis, the same underlying “reasons” were uncovered. And they made as much sense then. South Korea chaebols – family-owned corporations where “the managers are brothers and cousins and in-laws who steer business one another’s way and cover up mistakes”, according to the New York Times in 1998 – were blamed for an “outmoded form of crony capitalism”.

But this outmoded system had, prior to the 1990s, produced the highest rate of economic growth of any country in the world for three decades.

Infantile attitude to work

In his Observer article, Carlin says the Spanish “infantile” attitude to work is behind the country’s dreadful economic situation. Young Spaniards, he says, have flocked to London, where “pure merit” is rewarded. But, disaster! A similar malaise is eating through the work ethic in the UK. Most people, according to the new breed of Tory MPs, would rather spend half the day in bed obsessing about celebrities, that do a decent day’s wealth creation. This regrettable attitude explains poor productivity. Britons should be more like hard working East Asians, who doubtless have been victorious by now in banishing the predations of crony capitalism.

The trouble is, celebrity obsessions aside, things were even worse in the past. To return to Tony Judt, Britain’s economy, in the post-war era, suffered from the blights of innumerable craft unions each demanding separate pay rate and demarcating activities, terrible labour relations, and mediocre management that would not invest in research and development.

But despite these impediments, economic growth was much more successful. The British economy grew at an average annual rate of 3% between 1950 and ’73. After 1980, when the power of trade unions was destroyed, the rate has been 2.2%. Productivity growth – output per worker – has been 1.9% between 1980 and 2008. Between 1961 and 1973 – an era of awful labour relations and frequent strikes – it was 2.95%. In the three day week of 1974 production hardly declined at all.

Dissolve the people and elect another-ism

As far as I can see, three conclusions are possible from an honest appraisal of this comparative economic performance. One, attitudes to work and crony capitalism make absolutely no difference to economic success. Two, post-1980 changes, the war against trade unions, privatisation, the dominance of finance, have, despite eliminating inefficiencies in production, damaged the economy. Three, capitalism as an economic system is declining. It is simply less able to deliver economic growth, jobs and prosperity for most people.

But rather than face these issues, the right-wing (and not just the right-wing), unconsciously echoing Bertolt Brecht’s desire to “dissolve the people and elect another”, blames people for just not being good enough for the demands of the economy. The real tragedy is that, while this agenda dovetails perfectly with the corporate desire for a more efficient and obedient workforce, it obscures the causes of economic distress, which annoyingly, will not go away.

Just what kind of fix are we in? Two English economists on our economic paralysis

“The crisis consists precisely in the fact that the old is dying and the new cannot be born; in this interregnum a great variety of morbid symptoms appear.” The words of the Italian Marxist Antonio Gramsci, written in the late 1920s, seem acutely relevant to our own time.

You would have to be basically insentient not to appreciate that there is something deeply awry with our economy. The description “financial crisis” is patently inadequate. We are in an economic crisis, whose roots stretch back decades.

But there is something immobile about our economic situation. Economic growth has flatlined and, in response, politics becomes incrementally nastier and more desperate. Change threatens - Syriza almost gets elected in Greece and the Socialist party in Holland - but it ultimately doesn’t break through the prevailing stasis.

Two English economists, Stewart Lansley and Harry Shutt, have characterised our situation as “economic paralysis”. Capitalism refuses to be restored to health, but there is not an alternative economic model that commands widespread allegiance or even understanding. The old is dying but the new cannot be born.

Both Lansley and Shutt say blaming reckless banks is inadequate. They may have provided the final spark, says Lansley, but the slow-burning fuse had been laid years earlier. Shutt says discussion of the crisis has been uniformly superficial and evades questioning how the economy became so dysfunctional.

Both claim that without sweeping transformation, we are doomed to repeat the past. Lansley says the economy is being steered towards another wave of destructive speculation. Shutt predicts an inevitable fresh financial crisis.

But, crucially, and despite definite similarities, Lansley and Shutt are advocating very different things. Lansley, who is closely associated with the Trades Union Congress in Britain, wants a new model of capitalism. Shutt, far more of a radical, believes capitalism itself is outmoded and to attempt to prolong its existence will irreparably damage society.

Stewart Lansley and the Cost of Inequality

Lansley’s fundamental idea is that the huge economic inequalities that have built up over the last 30 years - in FTSE 100 companies, the pay of the lowest earners is now one-third of one percent that of the highest – are lethal to capitalist economic health.

As with Richard Wolff in the US, Lansley describes this as a dual process. There is too much money at the top of society as well too little in society at large. The share of GDP going to wages in Britain has fallen just as the share going to profits has risen. Demand – essential for a healthy capitalist economy – would have collapsed long ago were it not for an exponential increase in consumer debt. This has been dubbed “privatised Keynesianism”.

Consumer debt is a relatively new phenomenon. Before the 1980s, when wages kept up with productivity, widespread consumer debt was not needed.

But while demand has stalled, this process of inequality has the opposite effect at the top of society. There incomes have risen spectacularly. The number of millionaires in Britain increased eight times in the decade to 2006.

The interest from consumer debt adds to the glut of money. “The squeeze on wages, rising profitability, and soaring personal fortunes all meant the accumulation of big corporate and private cash reserves across the globe,” says Lansley. This money is employed to transfer existing wealth rather than create new wealth. Companies merge or are taken over, firms are bought out by private equity groups and loaded with debt, often destroying them at the same time as makng more money for their buyers. This is exactly how Mitt Romney made his fortune.

This “money economy” says Lansley is dominant, while the productive economy is starved of investment, partly because there is not enough demand to make high returns from “organic growth”.

“The result of this imbalance is economic paralysis,” says Lansley “While the workforce is denied spending power, the leaders of corporate Britain are allowing near record surpluses to stand mostly idle.” We wait for a probable new financial crisis, while the economy cannot throw off recession.

Harry Shutt and the growth delusion

Shutt too, has described our predicament as “economic paralysis”. Like Lansley, he says there is a “wall of money” at the top of society perpetually seeking new ways to make more money. This is manifested in the growth of private equity, mergers and acquisitions of companies, and speculation in property or “commodities” like food (speculation means buying assets in the hope their market value goes up and they can be sold for a profit).

This is what the author John Lancaster has dubbed “fake growth”. It is not investment in new products or innovations (organic growth) but the buying of assets in the expectation that their value will rise. Or what Lansley calls the transfer of existing wealth, not the creation of new wealth.

But at this point Shutt and Lansley diverge. Shutt does not locate this paralysis in the growth of inequality but in a long-term decline (since the 1980s) in the demand for capital investment. This sounds a forbidding and technical term so what does it mean?

Services are replacing manufacturing and they require less capital investment than the machines of the traditional factory. In areas like online newspapers, recorded music, telecommunications, and movies, traditional corporations are finding it harder and harder to stay in business, especially as the rate of return demanded by investors has been pushed higher.

Rapid technical advance means that it is increasingly seen as too risky to invest a lot of money in new technologies, which can quickly become outdated, while new start-up companies can be created with little capital investment, using the internet for example.

The result of these processes is to drive investment into financial speculation rather than “organic growth”. Property (sub-prime mortgages and asset-backed securities), mergers and acquisitions and public services (in the latter case high returns are guaranteed by the state), are all destinations for this investment.

Lansley blames the dominance of the money economy, its “supranormal” profits, on the “perverse incentives” of personal enrichment, which neglect the needs of the wider economy. Shutt, by contrast, believes the triumph of finance is simply a result of a rational calculation of where the highest financial returns can be made. If that is true, investment cannot be diverted to more beneficial and less lucrative opportunities, merely by exhortation. But speculation also does not lead, Shutt believes, to enduring and sustainable rates of economic growth.

Future upswings in the economy will, of necessity, be brief and will primarily be based on speculation. “There is not only no chance of reviving growth for the immediate future but very little prospect of ever returning to the relatively high growth rates of the past on a sustained basis,” he says.

Lansley, by contrast, is convinced growth can be revived if the imbalance between profit and wages is redressed, and workers receive a fairer share of soaring profit in wages.

Economic growth and its evasiveness continue to dominate political debate. Jobs and growth are at forefront of the American Presidential election campaign. The right-wing, in a kind of hair of the dog that bit you approach, claims growth can be achieved through tax cuts, deregulation and people working harder. A morbid symptom if ever there was one. Back on Planet Earth, the left of centre, wants to reign in finance, restore the bargaining power of labour and encourage manufacturing.

But what if neither approach will work? What happens if growth refuses to return to the black? What are the political consequences of an entire political culture failing to achieve its objective but refusing to see that the objective may be impossible?

The old may be dying but the new is barely visible on the horizon.

Storming the last citadel of socialism: the pay entitlement delusion

 The following was secretly recorded at a closed session of the Centre for Neoliberalism Studies in London on 5 September.

“Ladies and Gentlemen, five years on from the start of the ‘Great Recession’, or as I prefer to call it, the ‘Great Enlightenment,’ it’s appropriate to take stock of just how far we’ve come.

Across Europe democratically elected governments that have displeased the markets have been summarily deposed. Portugal, Spain and Italy have begun to dismantle those impediments to freedom known euphemistically as “workers’ rights”. And in Greece, in a move that almost brings tears to the eyes, a six day week is about to return, a wistful throwback to the halcyon days of the nineteenth century when liberty meant something and was not suffocated by government red tape.

Here in Britain the progress has been palpable too. The Stalinist tyranny that was the National Health Service is being liberated from state control: the culmination, as my friend Eamonn Butler of the Adam Smith Institute has noted, of 20 years’ unrecognised labour. Those shirkers, the disabled, who claim that not being able to see or walk somehow exempts them from the obligation to look for work, are being systematically rooted out. Planning regulations have been ripped up so the countryside can finally be seen as the resource it so obviously is.

But there is hunger for more, I know.

Young and brave Conservative MPs such as Dominic Raab have had the guts to tell the truth. That the British people, pampered by a century of socialism, are a nation of idlers who would rather spend half the day in bed than do a decent day’s work. Statistics that show a quarter of Britons work more than 48 hours a week just demonstrate the indolence of the remaining three quarters who fail to reach even this minimal standard.

Older heads, like David Davis, have recognised that we must cull the slew of regulation holding back business. The fact that, in 2007, the OECD declared Britain one of the most unregulated of all developed economics only shows how much more work in that area needs to be done.

But, to be truly consummated, our economic revolution must confront one last giant citadel of socialist thought.  The idea, so beloved of the totalitarian twentieth century, that workers are automatically entitled to be paid for the “work” they do.

We have already made inroads into this culture of entitlement. Unpaid internships in Britain and US can last for years. The government’s Work Programme in Britain, in which employers generously offer the young unemployed the chance to gain invaluable experience, has challenged the Marxist assumption that work somehow needs to be rewarded with money.

But we need to go much further. For inspiration, we should look to the great Russian-American philosopher, Ayn Rand, herself a refugee from Bolshevism. Some have castigated her as a granite-hearted loon, but I say, you just need to look at her acolytes, like Alan Greenspan, to see her greatness. In any case, as the history of our country demonstrates, granite-hearted lunacy and the determination to change the course of history often co-exist within the same person.

Rand’s great insight was this. Contrary to the Marxist inversion, employers don’t exploit workers. Rather, workers exploit employers.

As the visionary free market economist, Ludwig Von Mises wrote to Rand on completion of her magnum opus, Atlas Shrugged. “You have the courage to tell the masses what no politician told them. You are inferior and all the improvements in your conditions which you simply take for granted you owe to the efforts of men who are better than you.”

In the early years of the 21^st century, the world is belatedly coming to see the profound truth of Rand’s idea. Without wealth creators, more properly “life creators”, workers would be nothing. They would just lie in bed all day unable to do anything. Actually they wouldn’t have beds, because beds are a creation of wealth creators. They would writhe about uselessly on the ground, eventually indulging in unspeakable acts of Marxist cannibalism.

Without wealth creators, like the unfairly maligned Bob Diamond, this would undoubtedly be the fate of the British people. We should not hold back from telling them this uncomfortable truth.

Inspired by Rand, I propose that we end the automatic link between working and getting paid, a remnant of our delusionary socialist past.

Workers should only be paid money if it can be demonstrated, to the satisfaction of their employer, that they have personally contributed to corporate profits. If that matter is in doubt, they should merely be permitted the privilege of continuing to labour unpaid. If they are clearly an unproductive waste of resources, they should be summarily dismissed. “Under-performing” workers, as Dominic Raab has so bravely highlighted, have no place in the British workforce.

This plan, as critics will undoubtedly point out, might produced a sharp spike in unemployment. This is not something to fear. The present government’s attempts to motivate the unemployed through benefit sanctions, though laudable, have not been sufficient. Here is an opportunity to do much more.

I propose, with a nod to David Davis, a healthy dose of “shock therapy”. But I don’t mean it metaphorically. If an unemployed person fails to meet their target of job applications: if they, say, only apply for 39 jobs in one week when they agreed to apply for 40, they should be given an electric shock. Not so powerful as to maim or kill them. That would just be cruel. But strong enough to motivate them to redouble their job seeking efforts.

As the famous Milgram experiment has shown, the public would undoubtedly be keen to help out with this act of social service. The involvement of thousands of public-spirited volunteers in the scheme could give a new lease of life to the concept of the Big Society, which has sadly been allowed to languish.

One last point. I want to anticipate a criticism that will undoubtedly be made by our Keynesian and socialist opponents. That ending the entitlement of automatically receiving wages, would result in a catastrophic collapse of demand. How would people continue to buy goods and services if they no longer automatically received wages for the “work” they supposedly do?

The answer is simple. Debt. In the UK, we have merely skimmed the surface of debt’s potential. Personal debt stands at a paltry £1.45 trillion in this country. The spurt of debt that this plan would bring about would act as a tremendous fillip to our economy and to the finance sector in particular.

Imagine: these waves of new credit card debt could be packaged together in bundles by banks and then sold to investors. GDP rates would return to health. In the midst of a double dip recession, we all know we can’t be ambivalent about growth.

It was once said, by some wag, that those who don’t learn from history are destined to repeat it. But if you don’t repeat what has gone before, how can you be sure you will achieve the same fantastic results?”