Money, money everywhere and not a drop to drink

Water, wealth uncreation and turning the means of life into financial assets

The scandal of Thames Water – £14 billion in debt and seemingly incapable of fixing leaks or avoiding untreated sewage being pumped into rivers – says so much about our allegedly democratic political system.

The Conservatives, naturally, want renationalisation – should it become unavoidable – to be a strictly temporary stop-gap before, as with insolvent banks after the 2008 crisis, water is returned to the good hands of the private sector.

But the other team, Labour, are also against permanent nationalisation. In fact, together with the water industry, they are racking their brains to come up with plausible alternatives to it.

Such an absurd situation, at a time when large pluralities of voters, including Conservative ones, want the water ‘industry’ to be taken back into public hands, is perhaps more understandable in the light of the last New Labour government’s intimate ties to the water companies.

Ruth Kelly, for example, former cabinet minister under both Blair and Brown, is head of Water UK, the trade association for the water companies and naturally regards nationalisation as anathema. Angela Smith, former Labour MP and one of the founders of (Don’t) Change UK, vehemently opposed Labour’s previous policy, under Corbyn, of renationalising water. She was quietly readmitted to the Labour party last year. Ian Pearson, former New Labour environment minister is a non-exec director of Thames Water, the UK’s biggest water company, which also employed the ex-Labour cabinet minister and one time Trotskyist, Gus Macdonald, as its  European advisor between 2006 and 2016.

Such an elite consensus is symptomatic of the British oligarchy which masquerades, less and less convincingly with every month that goes by, as a model democracy. The Conservatives are obviously in favour of the continuation of privately-run water – it was Thatcher who privatised it in 1989. But the opposition Labour party is so well ensconced in the (fraying) order of things, that it is just as ideologically opposed to a change in the status quo. Notwithstanding obvious errors like the Brexit referendum, which released so many exorcised ghosts from the closet, British ‘democracy’ is about persuading the public to acquiesce in a state of affairs they dislike more and more as time passes.

But if the water ‘industry’ illustrates the hollowness of democratic decision-making, it also exposes something fundamentally rotten in the way we approach our economy as a whole. The water companies are, it has been reported, collectively in debt to the tune of £65 billion, up from nothing when they were privatised. “The staggering combined debt pile built up by the UK’s 12 water companies means that huge swathes of cash are being spent on interest payments,” fumed the Daily Mail a few weeks’ ago, “money that could be spent cleaning up polluted rivers or fixing leaky pipes.”

But no-one seems to ask why they are in debt. It can’t have been to fund infrastructure investment as the sewage-tainted rivers and seas and unplugged leaks wouldn’t exist if the infrastructure was properly maintained, let alone upgraded. The real reason is both more prosaic and depressing. Deliberately placing companies in debt, in order to extract money from them, is a core part of the strategy of their immensely wealthy owners.

The technical term for this is a ‘leveraged buyout’. The idea goes back to the 1960s but really only took off in the 1980s and ’90s. One American writer on “asset-manager capitalism” describes it thus:

[Traders realized] they could buy a company with borrowed money, using the company’s assets as collateral for the loan. They then transferred the debt to the company, which in effect had to pay for its own hijacking, and eventually sold it for a tidy profit.

The root of Thames Water’s debt affliction stems from the time it was bought by Australian asset manager Macquarie in exactly such a leveraged buyout in 2006. According to Money Week magazine, “by the time it was sold again in 2017 its debt had ballooned from £3.4bn to £10.8bn”.

Incidentally, Macquarie’s interest in the UK’s Water ‘industry’ has not abated. In 2021 it completed a “debt investment” in Anglian Water and acquired a majority stake in Southern Water.

According to American economist Michael Hudson, asset managers and ‘activist shareholders’ now look upon companies generally as “cash cows”. Rather than “plowing [sic] profits back into the corporation to expand the business by new long-term investment, research and development,” he argues, “the company is urged to pay out its earnings as dividends and buy back its stock to bid up its price.”

Share buybacks, illegal until the Thatcher and Reagan eras, have become routine for corporations. Among UK water companies, the owners of South West Water and Yorkshire Water have both initiated share buybacks. The effect of a firm buying back some of its own shares is to reduce their overall number, thus increasing the earnings per share that shareholders receive. However, there is a cost. The money used could have been deployed to invest in the business or, in the case of water companies, modernise infrastructure or reduce bills. According to one critique, “By systematically draining capital from America’s public companies, the habit … corrupts the underpinnings of corporate capitalism itself.”

Politicians aside, many British people are outraged that these predatory capitalist practices are being used to degrade a vital public service such as water provision, without which life would be unbearably hard. But the uncomfortable fact is that such predatory practices are degrading capitalism as well.

The peril of damaging the delicate flower of ‘wealth creation’ is invariably raised whenever the idea of public ownership or more regulation or taxation is mooted. Sir Keir of Starmer-land, leader of something called ‘the Labour party’, says that ‘wealth creation’ and economic growth must happen first if money is to become available for public services.  But today’s financial managers, in the water industry or elsewhere, aren’t doing anything to create wealth. Instead, by stopping infrastructure or capital investment from occurring, they’re destroying it – to no-one’s benefit but their own.

And this is before the fact that they invariably avoid paying any tax on their ‘wealth creating’ activities is brought into the equation. Because water firms – and many other companies – are drowning in debt, they pay very little tax on their “special dividend payments”. Thames Water, for example, admits it doesn’t currently pay any corporation tax “because of the Government’s Capital Allowances scheme and the impact of our interest costs”.

We have been lulled into accepting the fiction that wealth creation is synonymous with rich people doing whatever it takes to become even richer – that a high share price is a sign of economic vigour  – when, in reality, their labyrinthine money-making schemes can be its utter antithesis.

Arguments contesting the duplicitous concept of wealth creation have generally taken the form of arguing that other people – workers, entrepreneurs or consumers – are doing the real work of creating wealth. The owners, by contrast, do very little, apart from becoming legally entitled to receive it after it has been generated. This is what Marxists call (surplus) value. But even one takes the highly dubious wealth creation ruse at purely face value, it involves the creation of jobs and products or services by someone. How are we to react if, in fact, no value is being created, besides the ‘wealth effect’, the translation of capital gains made in the stock market into luxury consumption?

At this point someone will be sure to pipe up about pension funds. They loom large among the investors in water companies (and electricity firms), either as clients of the private equity investment firms that own them, or as partners in consortia that run water companies directly. For example, the Universities Superannuation Scheme (for academics in the UK) and the Ontario Municipal Employees Retirement System both own large stakes in Thames Water.

But pension funds are as desperate for ‘yield’ as anyone else, in order to pay for the pensions of current and future retirees. They illustrate the absurd quid pro quo we have got ourselves into – that we must accept sewage being pumped into rivers and seas, and bills that keep rising while tax is avoided, in order to ensure barely adequate occupational pensions for thousands of ordinary people.

This is not a choice we should be forced to make. As should be obvious since the financial crisis, the stock market is not, despite superficial appearances and the best efforts of governments through ‘quantitative easing’, an eternally bountiful cash cow – either for money managers or pension funds. The old pension system in the UK – a better basic pension and an occupational (SERPS) scheme – both based on the pay-as-you-go principle offered more stability than endlessly trying to squeeze as much as possible from unwilling companies or privatised utilities that neglect their primary functions in favour of making money.

Still there is something archetypal about water. Along with energy, health services, ports, nursing homes, waste management, car parks, telecommunications etc., it is a real asset with a guaranteed cash flow that makes it irresistibly attractive to asset managers. This is, according to one author, “a society in which the key physical systems supporting social life and its reproduction—so-called ‘real assets’—are increasingly owned by institutional investors [pension funds, insurance companies, university endowments] specifically through the mediation of dedicated asset managers [the plunderers] and their investment funds.”

However, it seems peculiarly odious that water, so basic to the preservation of life, is treated in this manner. One of the first things acts of a Corbyn-led Labour government would have been to renationalise water, while his successor is brainstorming ways to head off the threat of that common sense option being taken. Nothing else illustrates quite so starkly which side they are on.

 

Addendum: Last week ITV broadcast a programme called 'Dirty Water – what went wrong', an investigation into why there were more than 300,000 sewage spills in England & Wales last year. But the programme shied away from the real reason things have gone horribly wrong – privatisation. Specifically a system in which asset managers buy water companies by placing them in debt and then get them to pay for the privilege of being bought out – in the process sacrificing the basic function they are supposed to have, which is to ensure clean water. The programme suggested that bills would have to rise to pay for the investment in infrastructure that will have to take place to avoid the mass contamination of water in the future. But bills have already increased by 40% in real terms since privatisation, with the result of sewage being pumped into rivers & seas across the country. So where has all the money gone?  You don't need me to tell you.

The experience of England is not unique. In the book Our Lives in their Portfolios, author Brett Christophers relates how private equity companies have acquired water systems across cities in America with the result that bills have skyrocketed while the systems themselves have been left in a terrible state. In England & Wales all but three of the water companies in England & Wales have been removed from the stock market by private equity firms.

The incidents are not exceptions, says Christophers. "Rather, they are the more or less inevitable upshot of core features of the model by which asset-managers society operates. They are, in short, a feature not a bug".

I look forward to a TV programme about that.

The Trouble with Wealth

Living in a World with too much capital

Inequality is usually pictured as the obscene contrast between grinding poverty and unmerited opulence, between mile-long queues at food banks and corporate CEOs buying gold wrapped steaks with their £5 million annual salaries. Hunger in the midst of unbelievable plenty.

Or, in economic terms, through the irrationality of a system that blocks the flow of money to the mass of people, thus creating a demand problem as the poor – or not wealthy – are far more likely to spend their income than the rich.

There is nothing wrong with viewing inequality in these ways but in my opinion they leave something important out. What they overlook is that great wealth is a problem in itself, not just in relation to poverty. This is because wealth is invariably transmuted into capital – money invested in order to make money which is then reinvested again in a never-ending process. And capital which is not directed to a palpable collective need, inevitably distorts society and makes solving urgent problems such as climate change all but impossible.

A Tale of Two Factors

Economists often refer to capital and labour as “factors” in production, i.e. inputs that enable goods or services to be produced and turn a profit. As shown by heterodox economist Harry Shutt, western economies hit a benign equilibrium during the post-war boom (1950-73) in that there was strong demand for both factors – capital and labour. The result was extremely low unemployment (around 3% in Britain) and buoyant growth in fixed investment (capital investment in physical assets such as factories, buildings, equipment, vehicles etc.) that actually exceeded GDP growth.

However, after stagnation set in the mid-70s, the rate of fixed investment fell below GDP and unemployment began to rise. The decline in fixed investment has continued over the ensuing decades, dropping from 20% of GDP in France, Germany, Britain, Japan and the US in 1980 to 14% in 2015. Unemployment spiked in the 1980s and ‘90s. Its subsequent official decline has much to do with compelling individuals to take any available work – Germany introduced ‘mini-jobs’, for example, and on-demand labour and self-employment have mushroomed everywhere. In Britain, if you work for one hour a week, you’re counted as employed. And in order to “make work pay” it is subsidised by the state in the form of tax credits.

In essence, intensified by technological advancement, the demand for both factors of production – capital and labour – waned significantly. However, the way they were treated could not have been more different. Labour, if organised, was denigrated as a pariah and a self-interested impediment to the production of goods and wealth. Unions were ensnared by legal restrictions and the unemployed compelled to retrain and make themselves attractive to employers.

Capital, by contrast, – despite facing, in Shutt’s words, “a demand-supply imbalance comparable to that of labour” – was fêted as the essential ingredient of wealth creation. Entrepreneurs were lauded, profitability seen as a desideratum that benefited all, and the rate of return demanded on capital was intensified. In addition, the “wall of money” at the top of society was augmented by an influx of pension funds into financial markets which naturally demanded a healthy return in order to pay their beneficiaries.

The result has been an immense surplus of capital which cannot be sated by purely physical innovation but is nonetheless perpetually in search of profitable opportunities. This state of affairs distorts society in multiple ways. One way has been a turn to debt-based speculation entirely unrelated to material assets. This path caused the 2008 financial crisis. But there are many other examples.

Gimme Shelter

The environment is one. Oil companies have responded to looming climate catastrophe by transforming their rhetoric but little else. They proclaim a commitment to a ‘green transition’ but still try to “optimise” their oil and gas portfolios and prioritise new exploration. Investment in renewable energy is so low it doesn’t warrant a distinct category in their accounts. Many institutional investors, such as pension funds, charities, and universities, under pressure from climate activists, are committed to divesting from such companies and investing in renewables. However, hedge funds – pooled investment funds patronised by extremely rich individuals that aim to beat average market returns – have stepped into the breach. They are buying large stakes in oil companies, pushing up their share price. “People don’t understand how much money you can make in things that people hate,” commented one manager.

Thus the surplus of capital is ensuring that any progress made on climate change is, under this economic system, instantly reversed.

The financialisation of housing is another way capital is perverting a basic social need. In countless cities around the world, rents have shot up after investors – invariably an unholy combination of hedge funds, private equity funds, and Real Estate Investment Funds (REITS) – have bought up whole blocks of rental properties, viewing them as lucrative income streams. Alternatively, housing is demolished to make way for luxury apartments. Berlin presents an extreme case. €42 billion was spent on large-scale real estate investment between 2007 and 2020.  According to one analyst, after the 2008 financial crisis, investors were looking for a place to put their money and set their sights on Berlin. In a city where 85% of the residents are renters, rents have increased by 70% in nine years. Despite the existence of a strong cooperative sector and state-owned housing companies, over four in 10 rental properties in the German capital are owned by either financial market investors or big, private landlords.

Unsurprisingly, given the city’s culture, there is resistance. In September, a referendum in favour of expropriating Berlin’s largest corporate landlords, who collectively own 11% of apartments in the city, was passed. Whether the result will be carried through, however, remains doubtful.

One way of looking at the frenzy for privatisation which has taken hold throughout the world since the 1980s is not just in terms of corporate capture or ideological monomania, but as an outlet for an ever-growing mass of surplus capital. Privatisation is a longing that can never be quenched. In the first stage of privatisation state-owned industries were hived off to the market in one-off sales. But that was just the appetizer. Now private capital is guaranteed an income stream by running, on a contract basis, public services funded by taxation. In Britain, railways and buses, even spy planes, are operated in this fashion, while the state-funded National Health Service is gradually being hollowed out by private provision. In 2010, the NHS spent £4.1 billion on private sector contracts. Nine years later, this figure had more than doubled.

‘Exiled’ former Labour party leader Jeremy Corbyn posed a genuine threat to these vested interests – through for example a pledge to “renationalise” the NHS. He jeopardised an extremely fruitful, and necessary, income stream and thus had to be destroyed.

Globally, a kindred process has occurred. Where public services have not been gutted, the state serves as a convenient shield behind which public funds are directed into private hands. Under the guise of attaining universal health coverage, the Kenyan government has subsidised access to private care, given private providers higher reimbursement rates and formed public-private partnerships with international companies at great expense. All this has been done at the behest of international agencies such as the World Bank and billionaire charities like the Bill and Melinda Gates Foundation.

“More and more people have been priced out of health care because of their socioeconomic situation and inability to access private care either because of the expenses involved or because the type of help they are looking for is not available, because it's not profitable”, says an author of a report on the subject.

There are numerous other instances of the pernicious effects of surplus capital scouring the globe to meet its unquenchable appetites. A partial list must include the warping of democracy and the media, the money laundering role of football, and the targeting of children by consumer giants. The problem of inequality – and thus contemporary capitalism – is apparent not just in too little money at the bottom of society, but too much at the top.

Check Your Privilege

But curiously one could argue this is contrary to the original purpose of capitalism. Defenders of the system are fond of pointing out its modernizing character in contrast to atavistic socialism. However, the myriad anti-social effects of surplus capital serve to illustrate how we in the 21^st century are living according to the dictates of a 19^th century system. Modern capitalism and its attendant institutions were born at the height of the Victorian age. Stock markets and joint-stock companies (later known as corporations) were created to facilitate outside investment – capital – in economic enterprises and limited liability laws introduced to protect investors by ensuring that if their chosen enterprise failed, they would lose nothing more than the original sum they ventured. Shutt calls “the privilege of limited liability”– which still exists – “the bedrock of capitalism”.

In the description of Canadian law professor Joel Bakan, “the modern corporation was invented in the mid-nineteenth century to help create pools in investment capital needed to finance new and growing industrial ventures, like railways, steamship lines, and factories.” Corporate law, he says, was “designed to incentivize and thereby produce the fuel, capital, that the system needs to operate.” Without it, “the whole system, not just the corporation but capitalism itself, would grind to a halt.”

Arguably, at the time, incentivizing the “fuel” did produce immense dynamism and social benefit in the form of railways, steamship lines etc. Even Karl Marx was impressed, paying tribute to the “colossal productive forces” unleashed by the bourgeoisie. But now this “fuel” is primarily engaged in a compulsive and blind search for profit, no matter whether this adds to social welfare, or more likely, degrades it. To stretch Bakan’s metaphor, the van is now full but the pump is still spewing out more petrol which is spilling all over the station forecourt and running down the street.

The capital imperative is now not merely anachronistic and anti-social but positively deadly. We now know that order to stand some chance of staying within the limit of no more than 1.5 degrees of global warming by 2050 – and thus potentially dodging catastrophic climate tipping points – the vast majority of fossil fuel reserves must remain in the ground. However, such a philosophy of abstention is utterly alien to the nature of capital which is myopically impelled to exploit short-term profit. And in a world of boundless surplus capital – with each fragment on an eternal search for profitable opportunities – such an endeavour is doomed from the start.

In 2014, geographer David Harvey estimated that capital had to find profitable opportunities worth $2 trillion in order to satisfy the requisite ‘return on investment’. By 2030, he gauges, that need will have increased to around $3 trillion. “Thereafter the numbers become astronomical,” he writes. “Imagined physically, the enormous expansions in physical infrastructures, in urbanisation, in workforces, in consumption and in production capacities that have occurred since the 1970s until now will have to be dwarfed into insignificance over the coming generation if the compound rate of capital accumulation is to be maintained.”

And we also have to imagine what non-physical – i.e. speculative – investment will do to the world in the coming years.

Bending the Knee

But, perversely, rather than face up to this literally unsustainable situation, the world’s governments have chosen to artificially turbo-charge capital creation. Through the central bank policy of Quantitative Easing, the quantity of money in the financial system has been massively expanded – by an estimated $13.9 million a minute since 2020. As a result, developed economies have largely weathered the Covid outbreak but at the cost of hugely increased inequality. The combined wealth of US billionaires has risen by 70% since the start of the pandemic, a period of a little more than 18 months. In Britain, the number of billionaires has jumped by a quarter while globally billionaire fortunes have increased by 27% in the context of an expected rise in extreme poverty for the first time this century. For reference a billion is a thousand million.

But those are merely the personal effects. QE has also instituted fake stock market booms, facilitated the lucrative practice of companies taking over their rivals (to no-one’s benefit bar senior executives and bankers), produced skyrocketing property prices in the UK, and swelled the resolutely short-termist venture capital industry. In short, rather than – heaven forbid – standing up to the immensely powerful vested interests around capital enrichment, governments have chosen to bend the knee and grant their every wish. Contrast this with the way defenceless benefit claimants are treated and you have an insight into the mentality of most politicians.

There is a current in left-wing thought that is indifferent to wealth inequality, viewing it as far less pernicious than income inequality despite the fact that it is more extreme. Before the pandemic, wealth inequality was rising in 49 countries. Its enormous increase in the brief time since Covid struck has prompted calls for a tax on wealth. But if wealth inequality has spiralled in such a short period, what will happen in the years to come when many of its causes will likely remain untouched? A wealth tax will be a mere drop in the ocean.

Great wealth is profoundly undemocratic, concentrating economic decision-making in fewer and fewer hands. But it also ensures that capital enrichment, a process which profoundly hurts and perverts society, is set in stone and will intensify year by year. The time is coming when we will find what it does intolerable.

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 20^th century, he said, “large-scale market operations had colonised every aspect of social and personal life.” The prognosis in the second decade of the 21^st 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.