Thursday, 28 October 2021

The Horror, the Horror .... the Silence. Conservatives and unconditional income

 

The 20th century Polish economist Michał Kalecki noted an apparently perplexing trait of business leaders and their bought “experts”. One would expect such people to oppose public investment much more vehemently than subsidizing mass consumption because the former contains the possibility of competition from state enterprises. But such expectations are misplaced. “Indeed”, said Kalecki “subsidizing mass consumption is much more violently opposed by these experts than public investment. For here a moral principle of the highest importance is at stake. The fundamentals of capitalist ethics require that ‘you shall earn your bread in sweat’ – unless you happen to have private means”.

Kalecki was writing in the 1940s with an eye on the previous decade. But his observations are particularly apposite to our own era.

Boris Johnson revealed the lingering mind-set of conservatism when he justified ending the £20 uplift to Universal Credit by citing his “strong preference” that people see their wages rise “though their efforts” rather than by welfare.

The same mentality was at work in the pervasive uneasiness around the now defunct furlough scheme which was only introduced under pressure from lame duck Labour leader Jeremy Corbyn and the unions. It can still be seen in the ‘get back to the office’ propaganda that conservatives and business executives – supported by the media – routinely dish out.

The anxiety – verging on horror – that these schemes provoke in conservatives stems from the fact that, in Kalecki’s words, “a moral principle of the highest importance is at stake”. That principle is the maintenance of work discipline. The sanctions regime at the heart of Universal Credit exemplifies the edict of conservatives – big C conservatives and those who go by other nomenclature – that no money be given to ordinary people without stringent conditions.  “Please keep on cracking the whip,” exhorted Good Morning Britain host Richard Madeley earlier this week in true conservative style.

But note Kalecki’s caveat – “unless you happen to have private means”. In which case, all qualms instantly vanish. In fact, regarding the lack of actual work undertaken by the ultra-rich, a veil of silence reigns.

So what do you do?

The existence of huge swathes of people who receive large amounts of money without doing anything to earn it is capitalism’s dirty little secret. “What do capitalists actually do?” asks mathematician David Schweickart in his 2002 book After Capitalism. The answer is very little. They have an entirely passive role. “The capitalist” he says “engages in nothing that can be reasonably regarded as ‘productive activity’. Workers produce and distribute goods and services. Salaried managers coordinate production. Entrepreneurs and other creative personnel develop new products and techniques of production. The capitalist qua capitalist does none of these things.” In sum:

In a capitalist society, enormous sums are paid to people who do not engage in any entrepreneurial activity or take on any significant risk with their capital. Trillions flows to shareholders who make an entirely passive contribution to production.

Some have tried to quantify the enormity of these “enormous sums”. According to economists Thomas Piketty, Emmanuel Saez and Gabriel Zucman, around 30% of all income produced in the United States is paid out as “capital income”. These payments, in the form of interest, rents and share dividends, are “entirely passive”. They comprise “income divorced from work”.

But conservatives are, to borrow a phrase from Peter Mandelson, “intensely relaxed” about this form of unconditional basic income. In fact, they’d rather not talk about it if you don’t mind.

Capitalism, but not as we know it

However, this was the income distribution under capitalism. The past tense is not a typo. Because under the state capitalist system we’ve inhabited since the financial crisis – one vastly ramped up by the Covid pandemic – the passive income of the ultra-rich has been multiplied many times over by the actions of the state.

This process goes by the name of Quantitative Easing (QE) – so-called because it increases the quantity of money in, putatively the economy, but in reality swishing around the financial system.

QE is an extension of practices undertaken by central banks before the financial crisis over a decade ago – known as Open Market Operations – but one that vastly changes their nature. Central banks used to buy assets from commercial banks in order to ensure they had cash in order to settle their day to day transactions with each other, but these purchases were only very short-term. The assets would usually be sold back after a week.

However, under QE the central banks uses the money only it can create to buy assets – government bonds, corporate bonds or mortgage-backed securities usually – outright. Not temporarily. That why, under QE, the balance sheets of central banks have grown exponentially.

As a result of QE the bank or corporation that sells the assets suddenly has an enormous amount of cash to spend. The volume of financing under QE is astronomical, amounting to $834 million an hour by central banks worldwide. By buying the assets, the central bank causes their prices to rise and their yield to fall. The sellers – the banks and corporations – are therefore ‘incentivised’ to put their new money elsewhere, for example into shares or property or acquisitions. Thus, synthetic ‘asset booms’ are generated and the prices of assets rise. In theory, QE is meant to generate a ‘wealth effect’ in the ‘real economy’ by stimulating investment and lowering the borrowing costs for corporations. But there is no evidence this actually happens.

What there is evidence of is an immense, artificially induced, increase in the wealth of the ultra-rich. The combined wealth of US billionaires, for example, has risen by 70 per cent (!!)* since the beginning of the pandemic, a stretch of a little more than 18 months. That is, during a period of severe economic contraction – not to mention prolonged suffering endured by many people – billionaire wealth has leapt from just under $3 trillion to over $5 trillion. In addition, the number of billionaires in the US has risen from 614 in March 2020 to 745. According to Ruchir Sharma of Morgan Stanley Investment Management (and he should know) “the fundamental driver … of the billionaire boom” is “easy money [QE and ultra-low interest rates] pouring out of central banks.” For a sense of perspective here, a billion is a thousand million.

That’s capitalism folks. Except of course it isn’t just capitalism. Pure capitalism, inequality generating machine though it undoubtedly is, does not increase billionaire wealth by 70% in a year and a half all by itself. In essence, the passive wealth accruing nature of capitalism – the ‘normal’ workings of the market – has melded with the passive wealth accruing intervention of central banks – the abnormal workings of the state capitalist regime. But about both unconditional fountains of income for the rich conservatives are, almost universally, mute.

Drop the Pilot

However, the deafness is not limited to conservatives. Leftists also seem unable to grasp the nature of QE. Often the only problem they have with the “easy money” regime is that they think it should be redirected. The authorities, it is said, seem peculiarly oblivious to the unsuccessful nature of QE: that – despite the vast sums involved – it doesn’t actually seem to stimulate the economy.

As an alternative, many advocate cutting out the middleman and instituting so-called “helicopter money”. This involves the metaphorical ‘dropping’ (the term was coined by right-wing economist Milton Friedman in 1969) of large amounts of free money into ordinary citizens’ bank accounts. The theory is that this will actually stimulate the economy as poor (or not rich) people, unlike “high net worth” individuals, are liable to spend the money rather than save it. And it can achieve this at a fraction of the cost of QE.

The problem is that helicopter money flagrantly transgresses Kalecki’s “moral principle of the highest importance”. It doles out unconditional income to the multitude. Therefore, whatever its economic rationality, it won’t be allowed to happen. QE only appears unsuccessful. It wasn’t ever seriously intended to stimulate the economy. QE has served – and continues to serve – its real purpose. It preserves the existence of large corporations and banks and bolsters the wealth of the mega-wealthy.

For conservatives, that is justification enough. As for the rest of us the whip needs to keep being cracked, as it has been for centuries past.

*Elon Musk, CEO of electric vehicle manufacturer Tesla and potential coloniser of Mars, tops the list. He has seen his wealth grow from a mere $24.6 billion in March 2020 to $209.3 billion in October 2021, a rise of 750%. Indeed, he subsequently saw his fortune increase by another $36.2 billion in one day in October. You could argue that this latest alignment of cherries has something to do with the ‘natural workings’ of capitalism. Rental car firm Hertz placed an order for 100,000 Teslas. But even here the fingerprints of the QE regime are all over the deal. Last year Hertz declared bankruptcy but under the strange conditions of QE infinity its share price surged and it issued $1 billion worth of new shares. If the ‘laws’ of capitalism existed anymore, Hertz wouldn’t be around to wave a magic wand over Elon Musk’s wealth.

Wednesday, 6 October 2021

'To every one who has, more will be given'. Can Quantitative Easing last?

Austerity and Quantitative Easing, the two signature economic policies of the second decade of the 21st century, possess an uncanny symmetry. The former was a brutal snatching away of funding from the poorest in society such that life expectancy was diminished, while the latter, despite the free market rhetoric, was – and is – a massive unconditional subsidy to the richest.

Both are profoundly ideological. Austerity was presented as a penance for the sin of previous overspending, a rooting out of waste and inefficiency and a long overdue imposition of “tough love” on the unemployed and disabled. Quantitative Easing (QE) was framed as a vital injection of liquidity into a flagging economy, technocratic medicine that, according to the BBC, encourages “people to save less and spend a bit more”.

Both conceptions are utterly misleading. The UK was never on the verge of becoming financially like Greece after the Eurozone debt crisis, and years of austerity failed to even make a dent on government debt. The huge rise in government borrowing precipitated by the Covid pandemic – more than £300 billion – and last year’s £16 billion hike in defence spending have both materialised without the gods of the market punishing us with financial ruin.

QE, meanwhile, was never about encouraging banks to make loans, companies to invest or consumers to spend money. Interest rates – the cost of borrowing money – are already so low as to provide adequate incentive for the taking out of loans or consumer spending in preference to saving. If people aren’t doing so, there must be other reasons for their reticence. “Think about it:” write the authors of Do Central Banks Serve the People? “if investors are reluctant to invest in the real economy with interest rates already at the zero lower bound, under what circumstances, if any, would extra liquidity be sufficient to change their mind?”

Thus the “extra liquidity” of QE, one must conclude, has remained within the financial system. The creation of $834 million dollars an hour by the world’s central banks has fuelled asset bubbles – in company shares, property and, after at first freezing in the wake of the pandemic, in corporate mergers and acquisitions. “Dealmakers”, it is comforting to know, “are having a record year”.

The classic explanation for inflation is too much money chasing too few goods. If the staggering amount of money created by central banks had really been “pumped into” the economy, as the bedtime story tells us, it would show up as inflation. Undeniably inflation is rising but not by anything like the level implied in the standard narrative of QE.

This indicates a crucial difference between austerity and QE. Both are ideological constructs but austerity has a placebo quality – its purpose lay entirely in the perception that it was necessary. QE – actual, real-world QE – by contrast really was, and is, necessary.

The Long 2010s

Government cannot go bankrupt, the gurus of modern monetary theory assure us. But the private sector definitely can and ever since the demise of Lehman Brothers in 2008, governments around the world have strained every sinew to ensure the contagion of insolvency doesn’t spread. The initial bank bail-out was followed by successive batches of QE around the world. The US Federal Reserve increased its balance sheet in the first tranche of QE by $4.5 trillion. The Bank of England has resorted to QE every time the economy has hit turbulence – after the credit crunch, after the Brexit vote and now during the pandemic.

It is commonly accepted that QE works to ensure, artificially, a low effective interest rate (whilst increasing the price and reducing the yield on government bonds, incentivising investors to shift into other assets). So-called zombie companies – firms that do nothing more than survive by meeting the interest payments on their debt and paying wages – are permitted to live on thanks to rock bottom interest rates. It is estimated that a fifth of US and European companies are zombies.

The silent assassin

Interest rates are a potentially devastating tool of government policy. When she first gained office in Britain, Margaret Thatcher hiked interest rates. They peaked at 17% in late 1979 and didn’t drop below 10% until 1983. The ostensible aim was to bring down inflation but the side effect, many think consciously pursued side effect, was to send countless companies to the wall – the UK’s manufacturing sector, which contained many unionised firms, shrunk by a quarter in the first wave of Thatcherism and unemployment rose to more than four million.

This mirrored what was happening in the US where a doubling of the interest rate – dubbed the “Volker shock” after the head of the Federal Reserve, Paul Volker – also precipitated a wave of bankruptcies and send unemployment soaring. The Volker shock also caused international interest rates to spike, triggering many developing countries to default on their loans and sparking the so-called Third World Debt Crisis. Mexico was the first to default in 1982 and others followed. Countries were forced to go cap in hand to the IMF which imposed free market structural adjustment programmes as a condition of support. Thus the worldwide market fundamentalism of today can plausibly be traced back to a massive rise in interest rates four decades ago.

So, for a seemingly arcane financial instrument, interest rates can have shattering consequences. And as a general rule, high interest rates cause bankruptcies while low interest rates preserve companies that would, under free market conditions, go under.

The Janus Face of Interest Rates

It might seem therefore that today’s ultra-low interest rates are a good thing – the government’s bank rate is currently 0.1%, the lowest for hundreds of years – because they stave off suffering both personally and for the economy as a whole. But it’s not that simple. Low interest rates, because they make the cost of borrowing so low, encourage speculation which is exactly the flaw in the economy exposed by the financial crisis and which has only got worse since. They also make it easier to be indebted.  In late 2020 non-financial corporate debt hit $11 trillion and for the first time exceeded global GDP.

Near zero interest rates thus have to remain incredibly low in order to make the debt they encourage manageable. But if, for example, inflation takes hold, higher interest rates may become necessary to combat it by damping down demand the economy. And inflation, it should be stressed, doesn’t just affect creditors and the wealthy. By making basic goods and outlays like rent more expensive, inflation makes life harder for most people.  Thus policymakers are in a quandary.

Low interest rates also seem to require endless QE, a perpetual subsidy to the wealthiest, to remain low. Obviously there is more than one kind of interest rate. The official bank rate, set by the Bank of England, is augmented by countless other interest rates –for example, the rates given or charged by commercial banks or mortgage interest rates. They will usually roughly follow the bank rate.

According to economist Harry Shutt, if markets were “undistorted” (i.e. didn’t have QE), banks and others would refuse to hold the huge debt of corporations without demanding a much higher interest rate. “Rates would have rapidly risen to unaffordable levels, probably 10 per cent or more,” he writes, “thus precipitating mass bankruptcy in both public and private sectors.”

Destined to Repeat it?

Clearly markets, notwithstanding the propaganda, aren’t suddenly going to become undistorted.  Authorities will use every weapon in the arsenal – no matter how much they contradict free market doctrine – to ward off systemic market collapse. They have also, one would assume, learned the lessons of the recent past. The 2008 Financial Crisis had its proximate cause in the steady raising of interest rates by the Federal Reserve (mirrored by other central banks). They rose from 1 per cent in 2003 to 5.25% in 2007. As a result US mortgage interest rates increased and holders of sub-prime mortgages began to default, leading to a nationwide collapse of the housing market.

So central banks will not willingly hike interest rates or end QE unless compelled to do so. They can, it might be assumed, continue to follow the example of Japan, which pioneered QE and has taken it further than anyone else. This is a world of low growth, low interests rates and low inflation – unequal, rigged and immensely unfair – which nonetheless persists for fear of the alternative. Or the pain of the real economy, probably exacerbated by inflation, could compel the authorities to change tack.

At present, the financial system and the economy most people actually inhabit seem to exist in near total isolation from each other. The former prospers while the latter suffers. If their fates realign, things could get very interesting.

You can read part one of this article here

 

 

 

 

 

Monday, 13 September 2021

Corporate Socialism and the Capitalist Underclass

 

Politics now – witness Keir Starmer’s neo-Blairite recapturing of the UK Labour party seems to inhabit a mental universe of its own creation rather than trying to deal with the inconvenience of reality. And occasionally the dissonance reaches comical heights of absurdity.

Boris Johnson, for example, when asked recently to justify the ending of the £20 uplift for Universal Credit recipients in October – which the government’s own internal modelling concedes will have a “catastrophic” effect – replied that it was his “strong preference” that people saw their wages rise “though their efforts” rather than through the taxation of other people.

Effort you say. Leaving aside that most people on Universal Credit are actually in work – and thus already are making an effort – the preferences of conservatives don’t seem to stretch to the most glaring welfare dependence affecting society today – the mammoth no strings giveaways to corporations and the immensely wealthy. Which curiously aren’t ending next month and necessitate about as much effort as turning a computer on.

Austerity in reverse

In the aftermath of the Great Financial Crisis of 2008, the world’s central banks (state banks like the Bank of England or the US Federal Reserve) literally created $10 trillion. In response to the Covid-19 pandemic, they created a further $9 trillion. For the past 18 months, central banks have generated $834 million an hour. This goes by the innocent sounding name of Quantitative Easing (QE for short).

QE is initiated by the central bank bringing into being a batch of new money (often called ‘fiat money’ i.e. money without the backing of gold – from the Latin meaning ‘let there be money’. Don’t picture a Fiat 500, that doesn’t capture its size). This is used to buy assets, usually government but also occasionally corporate bonds (debt), from banks, insurance companies or pension funds.

This has two main effects. One is to force interest rates down to very low levels, thus enabling heavily indebted institutions to survive. And the second is to create – by the buying of the assets – a huge mass of money ($13.9 million each minute) seeking investment opportunities and which is incentivised by the low interest on government bonds to go into other assets such as shares, property or commodities. As a result of this influx, their price increases.

QE is invariably presented as “pumping” money into the economy. In reality it involves pumping huge amounts of money into the financial system. Banks are not inclined to lend to the ‘real’ economy, which is the official story behind QE, if returns from buying and selling other assets (such as company shares) are higher. Corporations are not motivated to invest in plant or equipment if they can make more money from buying back their own shares, whose value is guaranteed by QE. Mergers and acquisitions – buying a company, asset-stripping it and selling it on – are also fuelled by the vast funds created by QE.

In theory, QE can be an emergency measure, helping the economy through a rough patch, and then being reversed so that ultimately no new money is created. But this is not how it turns out in practice. The Bank of Japan is still engaging in QE 20 years after it pioneered the policy. In 2018, the Federal Reserve started ‘quantitative tightening’ – the selling or retiring of assets on its balance sheet – but had to call a halt to the process less than a year later because of a negative reaction from markets. This was, it should be stressed, before the pandemic.

Rich bono

Unsurprisingly given how it works, QE has a hugely regressive effect on inequality. It’s not rocket science to understand that if the value of shares goes up, the prime beneficiaries are rich people because they are most likely to own shares. Additionally, banks and corporations benefit because they own shares in each other. “Owners of property have made out like bandits,” said hedge fund owner Paul Marshall in 2015. “In fact, anyone with assets has grown much richer. All of us who work in financial markets owe a huge debt to QE”.

The latest, Covid-inspired, rush to QE has massively exacerbated this inequality. Five million more millionaires were created during the pandemic, while the number of people worth more than $50 million increased by a quarter. Stock markets have hit record highs despite precipitous drops in GDP. In Britain, contrary to all previous recessions, property prices have continued their upwards trajectory. The world is awash with central bank money,” says economist Grace Blakeley, “and it’s all flowing up rather than trickling down”.

Take from the poor and give to the rich

The QE reflex exposes just how right-wing – across the political ‘divide’ – our politics is, notwithstanding ephemeral lapses like Jeremy Corbyn’s Labour party. In 2019 the China-based economist Michael Pettis mused over two different ways to stimulate an economy – “giving to the rich” and “giving to the poor”. Giving to the rich involves tax cuts for business and the wealthy and policies such as QE “which tend to cause a rise in the prices of assets, most of which are owned by the rich.” Giving to the poor, in Pettis’s description, entails cutting taxes on the not wealthy, funding social safety nets, creating jobs or “setting minimum basic income policies”.

It’s revealing that the response of the British government – and other western governments – to the financial crisis and the Covid pandemic has almost exclusively centred on the first option. In addition to endless QE, corporation tax has fallen from 28% to 19% (it is slated to rise to 25% in 2023 but whether that will happen is a moot point). The top rate of income tax was also cut by George Osborne in 2012 and, if that wasn’t enough, capital gains tax (the tax you pay when you sell shares) was slashed by the soon-to-be newspaper editor in 2016.

As for the second option, it is not a question of giving to the poor but rather of taking from them. Taxes which affect poor people the most, such as VAT and now National Insurance, have been hiked. Social safety nets, by contrast, have been cut – witness the benefit freeze, sanctions, and the £30 cut in weekly payments to disabled people. Creating jobs has been left to the tender mercies of the private sector, and as for basic income policies, I think there’s been a pilot project in Finland. In Britain, destitution and food banks are the preferred course of action.

Boris Johnson’s “strong preference” for people to see their incomes rise “through their efforts” strangely only applies to folk without share portfolios. “The imbalance is unbelievable,” says Robert Reich, former labour secretary under Bill Clinton in the US, “Socialism for the rich, corporate socialism, but the harshest form of capitalism for most working people and the poor.”

The whimper of capitalism

 Of course, the notable feature of “corporate socialism” – apart from its colossal unfairness – is that it’s not capitalism anymore. QE is a massive distortion of the fêted free market. The theory of capitalism is that asset values are based on economic fundamentals – if stock prices rise that is because people believe, maybe mistakenly but genuinely, that the companies in question will generate profits in the future. Under the QE regime, they are rising because the state, in the guise of ‘independent’ central banks, is injecting huge amounts of money into markets.

Former Greek finance minister Yanis Varoufakis sees this as a momentous change. Pre-financial crisis capitalism (before 2008) may have been based on “daylight robbery” – the extraction of rent from a market controlled by Coca-Cola or General Electric – but it was still rooted in some kind of market and driven by private profits. That is no longer the case:

Then, after 2008, everything changed. Ever since the G7’s central banks coalesced in April 2009 to use their money printing capacity to re-float global finance, a deep discontinuity emerged. Today, the global economy is powered by the constant generation of central bank money, not by private profit.

To be more precise, the pursuit of private profit is still at the heart of the system – we haven’t socialised hedge funds – but the profit urge does not ‘make the world go round’. Central banks do.

 Market society, not economy

The supreme irony is that while the economic summit of society is changing into something that is not capitalist, capitalist values are penetrating ever more deeply into the texture of life. Economic and monetary values dominate politics and morality and we seem unable to value non-economic realms without assigning them a financial status, such as “natural capital”.  Individual endeavours, such as learning, physical fitness, volunteering, or nurturing ‘mindfulness’ are frequently seen in terms of their effect on our employability and careers, and undertaken for that reason.

In the 1980s, the social ecologist Murray Bookchin pioneered the idea that we don’t just live in a market economy, but also a market society. By the middle of the 20th century, he said, “large-scale market operations had colonised every aspect of social and personal life.” The prognosis in the second decade of the 21st century is that we seem to live in a market society without the concomitant market economy. Or possibly an irredeemably rigged market economy.

How long will it last?

The ultimate question is whether this regime of corporate socialism is sustainable. Japan, “the petri-dish” of Quantitative Easing, been following the policy since 2001 – several years before the rest of the advanced capitalist world followed in its wake. Indeed, it has deepened the practice considerably, coming to own around half the company shares quoted on the Tokyo stock exchange. “If this trend continues it is evident that the Japanese state will become the de facto owner of the bulk of what has been the hitherto privately owned enterprise sector,” wrote economist Harry Shutt in 2019.

However, from the point of view of the powerful and wealthy in Japan, the discernible effects don’t appear catastrophic. Profit has continued to be extracted, well-known corporate forms have endured and, if there has been a quiet revolution in ownership under the surface, it hasn’t resulted in a shift in power. In fact, inequality, low growth, ferocious competition for jobs and little prospect of pay rises, have, far from inculcating a spirit of rebellion, fuelled a culture of conservatism among Japanese youth.

The rulers of our society don’t have, despite the propaganda, a fervent ideological commitment to the free market, but merely a belief in private property. If that endures, they are satisfied.

The lingering question is, if Japan has indulged the QE fixation for two decades without presaging economic Armageddon, are western economies free to follow its example and practice QE for years, decades even, and emerge basically unscathed? Or are we preparing the ground for a financial collapse of mammoth proportions?

I want to address this question in the second part.

 

 

 

 

 

 

 

 

 

 

Saturday, 14 August 2021

The Fiction of Consent – The Unfreedom at the Heart of Liberalism

 

If liberalism has one guiding thread it’s that nothing should happen to a person without their consent.  John Locke, probably the most famous philosopher in the history of liberalism, argued that “no-one ought to harm another in his life, health, liberty or possessions.”

Good intentions were rather undermined by the fact that in Locke’s Britain, a bastion of liberalism since the Glorious Revolution of 1688, the number of offences for which the death penalty applied rose to around 250 by the early 19th century. A person could be hanged for stealing a handkerchief or taking an unauthorised clipping from an ornamental bush. A slight impediment to health, one might think.

Locke himself invested in the slave trade and thought children as young as three ought to be sent out to work.

But, nonetheless, the principle was laid down.

The liberal dictatorship

In addition to a penchant for hanging peasants, early liberalism was implacably hostile to democracy. Faced with the huge Chartist petition of 1842, the liberal historian and politician Thomas Macaulay declared universal suffrage “incompatible with civilisation”. Chartist leaders in Britain were jailed and the mere demand for the vote often treated as a criminal act by the ‘liberal’ authorities.

However, in the intervening years the opposition of most liberals to democracy dissipated to such an extent that ‘liberal-democracy’ is now seen as an eternally natural state of affairs, rather than the coupling of once sworn enemies.  And in the reconciliation the liberal principle of consent has survived. Governments, it is proclaimed, are dependent on the will of people. They are compelled to seek a popular mandate. Nothing should be done without the people’s consent.

However, I want to argue that both economically and politically, the liberal – now liberal-democratic – principle of consent is a sham. In the words of Noam Chomsky and Edward Herman we manufacture consent, we don’t seek it out.  A society founded on genuine consent would look incalculably different to the one we now inhabit.

I will illustrate this hollowness by looking at two seemingly disconnected topics – UK Labour party leader Keir Starmer and “modern slavery”.

By any means necessary

Keir Starmer was overwhelmingly elected as leader of the Labour party in 2020. In his election campaign, he presented himself as a crusader for striking miners and printers. If elected, he promised to make “the moral case for socialism” based on ten pledges – including support for common ownership of utilities, abolishing the House of Lords, an end to ‘illegal wars’, and reversing cuts to corporation tax. He also set himself up as the unity candidate, promising “an end to factionalism”.

In retrospect – after a year and a half of Starmer’s leadership – all this seems utterly farcical. He has shunted the party inexorably to the Right, urging activists to embrace the legacy of Tony Blair, a man venerated as “the master” by George Osborne.  Starmerism has involved courting the support of billionaires, seeking Parliamentary candidates from outside the party and trade unions, defenestrating the left-wing leader of Scottish Labour, forcing shadow ministers to apologise for being ‘anti-business’, refusing to make any spending commitments and being outflanked from the left by the Conservatives, for example on nurses’ pay. In the words of an aide, rather than making a moral case for socialism, “all that nonsense” – meaning Corbynite policies – had to be ditched.

And far from seeking unity, Starmer has waged an unrelenting war on opponents in the party, removing the whip from his predecessor for telling the truth, sacking left-wingers from the shadow cabinet on spurious grounds and expelling and suspending members who disagree with him, including swathes of left-wing Jews.

It is sometimes argued that Labour party members – all half a million of them – are unfortunate, but necessary, collateral damage in Starmer’s quest to make Labour “electable”. But this is belied by Starmer’s plummeting approval ratings and the fact his predecessor’s policies – if not the man himself – were popular with voters.

However, in assessing Starmer’s performance, mainstream commentators don’t condemn the duplicity he exhibited in order to get elected as Labour leader. In fact they laud him for shrewdness or political nous. Because Starmer encapsulates – in telescoped form – what ‘democracy’ under neoliberalism, or ‘new liberalism’, is. It is not about seeking to define and represent the popular will, but to obtain – by any means necessary including lying – consent for a pre-ordained set of policies.

Without doubt pre-neoliberal Parliamentary democracy has often manifested exactly the same tendency. But it has been distilled into an art form in the last four decades, with real power usurped by pan-governmental organisations like the IMF. Governments are now placed in a straitjacket, compelled to support balanced budgets and accompanying austerity, liberalized financial markets, low corporate taxes, and personal tax rates that don’t prompt an exodus to the Bahamas on the part of the very wealthy. Given the resentments that this state of affairs inevitably generates, ‘democracy’ is largely about ensuring they are directed at powerless targets, usually immigrants and benefit claimants.

Curiously, however, even though the spirit of democracy can be unashamedly trampled on, the formalities can’t. Free and fair elections must be periodically held and consent, by hook or by crook, extracted. It is an irony of history that just as a wave of democracy rolled across the world after the fall of the Berlin Wall, toppling dictatorships and one-party states in its wake, the actual content of democracy was hollowed out. Governments, whatever their theoretical commitments, were invariably compelled to accept the strictures of IMF Structural Adjustment Programmes and the dictates of the Washington Consensus. Post-apartheid South Africa is a textbook example of “democracy without democracy”. Elitist fears expressed at the dawn of universal suffrage a century and a half ago, that democracy would swamp liberalism, have proved groundless. Precisely the opposite has happened.

Liberalism and slavery

The same liberal neuroses about consent can be observed in the furore over “modern slavery”. Governments bend over backwards to condemn it in the strongest possible terms, charities pledge to eradicate it, and the media join the chorus.

This is not to deny that modern slavery is a serious problem, and a separate category from the conventional employer/employee relationship. But the wall erected between “compelled labour” and the normal workings of capitalism is supremely ideological. In the urge to locate “exploitation” as happening solely when a worker is coerced – the UK’s Gangmasters & Labour Abuse Authority defines its aims as “preventing worker exploitation” – another claim is implicitly made: that when the labour exchange is free and consensual exploitation doesn’t occur.

But this is nonsense. In the words of academic Neil Howard, this fictional binary “protects the system from the moral outrage that might otherwise challenge its hegemony”.

Capitalism – i.e. an economic system based on ‘free’ labour exchange – cannot do without reams of people without property who are compelled to rent themselves out in order to procure the means to physically survive.

Even if one is to ignore the millions of people on the margins of the global economy who choose to submit to servitude or trafficking because in conditions of dire poverty they represent their least worst options, a comparatively wealthy country like Britain shows the depth of the well from which exploitable people are drawn.

There are, it is estimated, 16 million people in the UK who have less than £100 in savings. And nearly 80% have some form of personal debt in the shape of credit cards, personal loans, bank overdrafts and payday loans. In such circumstances – and in those of a benefit system that will sanction claimants who can’t prove they are looking for work – saying no to a job offer is not, practically, possible. In previous, more honest, eras, this was called wage slavery.

Exploitation through the ages

Marxism is frequently presented as nightmare ideology that wants to make everyone the subject of an all-powerful state and was responsible, in the last century, for killing millions in gulags and famines. But the hysteria partly comes from Marxism’s insistence, uniquely in economic thought, that exploitation doesn’t just occur under patently coercive arrangements like slavery and feudalism but also when people, on the surface, voluntarily choose to work for an employer.

“There’s only one basis that any capitalist ever hired a worker,” says author Richard Wolff, “and that condition is ‘you gotta produce more for me than I pay you for coming here to do it’”. In this sense, capitalism is no different from prior economic systems, or the vestiges of such systems that remain. In all cases, a small minority exploits the vast majority in order to extract a surplus from them. “Capitalism, even though the workers are not slaves or serfs, does replicate those two systems in this particular way,” says Wolff. “One group of people – the employees – go to work on condition that they produce a surplus that the employer gets.”

You may baulk at the notion that someone like Lionel Messi (salary €71 million at Paris Saint-Germain F.C.) is exploited. However, what cannot be honestly denied that is corporations and other businesses, practically and legally required to maximise profit, view the world’s population as either a resource ripe for exploitation or a human mass to be left to rot (“the misery of being exploited by capitalists is nothing compared to the misery of not being exploited at all,” said 20th century economist Joan Robinson). In the latter case, the human material is created for trafficking and forced labour in the West.

And in most Western countries, exploitation – exploitation that is of workers who ‘freely’ consent to do their jobs – is intensifying. In Britain, in the wake of the financial crisis, zero hour contracts have mushroomed and many workers – for example builders or delivery drivers – are falsely reclassified as ‘independent contractors’ in order to save the employer from having to fork out for holiday or sick pay. They can also earn below the minimum wage because they aren’t officially paid a wage and don’t have set hours.

In addition, as pandemic conditions slowly lift, many employees are finding they are being sacked and told to reapply for their jobs based on inferior conditions. Despite the rhetoric about the inestimable value of key workers in the worst stages of the pandemic, Tesco, British Gas, British Airways and local councils and have all tried to engage in this “industrial thuggery”.

In such circumstances what better way to shield capitalism from justifiable anger, than to focus all attention on the plight of slaves and coerced workers who, it is claimed, exist entirely outside of its legitimate confines?

The cooperation of the exploited

But there is a deeper reason, in my opinion, for this blindness of liberalism. In the 1970s, psychologist Stanley Milgram, author of the famous obedience to authority experiments, noted that for obedience to work seamlessly, those subject to it had to believe that their submission was a voluntary choice. “The psychological consequence of voluntary entry is that it creates a sense of commitment and obligation,” he said, “which will subsequently play a part in binding the subject to his role.”

Any endeavour – and that includes the ubiquitous labour contract – is so much easier to perform if the victims of it can be convinced to cooperate. Enforcing coercion is hard. It requires perpetual surveillance and overcoming an ingrained human resistance – some have called it counterwill – to bowing to another’s desire.

That is why liberalism insists that consent exists in political and economic arenas when patently it has to be fabricated. But if consent can be given, it can also be withdrawn, if only spiritually at first.