The Future Now

Economic justice by the book

I have a new piece over at Comment is Free this afternoon, this one inspired by John Stewart's excellent political novel, The President.

Solving the banking crisis

I have a new piece on Comment is Free this morning looking at the banking crisis and its connection with the crazy way private banks are allowed to create money as debt simply to turn a profit.

Cityphilia

With impeccable timing, The London Review of Books has put John Lanchester's superb essay Cityphilia (originally published in January) back on its home page.  If you haven't read it, you should.  You're unlikley to find a better analysis of the origins of the current financial crisis, and its implications for wider society.

None of them get it

Works and Pensions Secretary, James Purnell, today attacks the Tories for misunderstanding the causes of poverty, and therefore having no chance of tackling it, if and when they form the next government.

I think he's right about the Tories, but his claims for his own party ring a little hollow after ten years in which the Labour government has set out to reinforce precisely those aspects of the economy which are guaranteed to encourage a growing gap between the haves and have-nots, and leave those at the very bottom with no hope of improvement.

I’m not sure politicians from any the main parties are genuinely interested in creating an economic context conducive to poverty reduction; if they were, they would surely take notice of the evidence that  putting all your economic policy eggs in the basket of economic growth doesn't lead to any reduction in poverty given the way the economy is currently configured.

Redistributing money from rich to poor was only ever a sticking-plaster on the open sore of endemic poverty. Only a redistribution of access to economic opportunities and the assets (land and capital) that make them viable, will bring an end to poverty. No politician, anywhere, is prepared to accept this simple truth.

Profits before people

No great surprise to learn this morning, that British Gas made record profits in the last year; a year in which consumers have faced massive hikes in their energy bills.

It's an old trick that firms have been indulging in since the industrial revolution: put your prices up as soon as raw material costs start to rise and add a bit extra on, to offset (largely mythical) additional overheads.  Then, when wholesale prices start to fall again, take as much time as you like in passing the falling costs to the customer. 

All big corporations do it, and as utility providers, like gas companies, although now privatised, still operate largely under the conditions of a monopoly and are not really subject to the competitive rigours of the market, they get away with it.

As I have written elsewhere, this is one of myriad ways in which large corporations operating under the benign conditions of deregulated marekts, ensure the balance of wealth is tipped continually in favour of the already wealthy (shareholders and senior management) and against the vast majority of their stakeholders (customers and staff).

Brazil: where economic growth is meaningless

There is probably no better example of the consequences of our failing and morally bankrupt economic system, and the way it has infected every corner of the planet, than Brazil, the most unequal country in the world.

When I visited back in 1994, I was struck not only by the physical beauty of the place, but, in cities like Rio de Janeiro, the visible sores of a society being torn apart by growing inequality.  By all reports, things have got markedly worse since I was there, with rocketing crime, desperate poverty and little hope for those who inhabit the favelas, some of which overlook the glitzy suburbs which are home to their more fortunate compatriots, from less than a mile away.

Brazil is the perfect example of how the standard measure of economic success (GDP growth) is pretty useless as a measure of positive changes in wellbeing across populations.  Brazil's economy has grown 3.4 per cent on average since the millennium, but few of the benefits have been felt in the hills around Rio.  The only growth areas in the favelas is drug related crime and murder.

Conor Foley touches on this issue in a piece over at comment is free, where he reviews the film Tropa de Elite, which, he suggests, has completely missed the point of what is going on in Brazil.  As he concludes:

Brazil's violence is a symptom for a wider set of social problems, for which Brazilians need to take responsibility. Most middle-class Brazilians have never set foot in a favela and talk about them as if they are another country. Films like Tropa de Elite are helping to keep them in denial.

If you want to go well ...

... be sure to go Shell.  That was the slogan used by Shell for a TV advertising campaign back in the 1970s.  Doubtless some of you, like me, will be able to recall the tune.

Today the slogan applies more to Shell's shareholders, and its very well remunerated senior executives, than to its principal stakeholders: its customers.

While forecourt prices have been driven up by the relentless rise is the price of crude oil, Shell has reported record profits for a British company of £13.9 billion.

A while ago, when British Gas reported massive profits, I wrote a piece in which I argued that the excessive profits of large corporations while consumer prices were rising is clear evidence that the business model that underpins current economic arrangements inevitably leads to a transfer of wealth from those who have relatively little to those who have plenty.

Think about it.  Fuel prices go up much faster than the wages of most drivers.  Shell's profits, and therefore its dividends to shareholders go through the roof.  The company has many more customers than shareholders (and most of those customers cannot afford to become shareholders) therefore shareholders are getting richer at the expense of customers.

British Union leader Tony Woodley has called for a windfall tax on such profits.  I think we should go further, instead of imposing windfall taxes when profits pass some subjective measure of excess, we should base tax policy on a recognition that oil reserves are a gift of nature.  The distribution of the wealth derived from their exploitation should reflect this and be spread among all citizens, not disproportionately in favour a minority of the already wealthy.

A large proportion of Shell's profits arise because oil companies are allowed cheap and sometimes free access to oil reserves when they should be paying the rest of us for the privilege.  Of course the company's ingenuity and investment should be rewarded, but not at this level, and not when the rest of us are facing higher prices and reduced pay awards.

The poverty of American politics

It was probably inevitable that John Edwards would be forced out of the campaign for the Democratic nomination before Super-Tuesday.  But as this piece from The Nation points out, despite the media clamour around Clinton and Obama, he did manage to shine a light on the continuing poverty that blights American society, and has vowed to continue his struggle.

That the richest country in history is unable to address endemic poverty is not just a symptom of a dysfunctional democracy, it proves beyond doubt that the economy is unable to deliver basic rights to millions in America and elsewhere.

Let's hope that under the next (hopefully Democratic) administration Edwards is able to further raise his profile (perhaps as Vice-President?) and continue putting his message across.

The business of outplacement

I have to admit I only learned of the phrase outplacement this weekend, when a friend who works in the recruitment business told me how his department was being temporarily re-located, in order to clear several floors of office space in readiness for a huge influx of new outplacement business.

This business comes in the shape of thousands of high-earning city workers who are losing their jobs as a result of deteriorating market conditions.  As part of their redundancy packages, their former employers will pay for them to go along to companies like the one my friend works for, to be advised on how to make the best of their unfortunate predicament: how best to save, spend or even invest their redundancy payments, and what alternative career options they might consider.

While a few may decide to throw it all in and retrain for another profession, there are no others professions that pay anywhere near the rewards you get as a city trader.  Those that get close require years of study and experience, and are, in any case, fiercely competitive.

Most of these victims of the financial crisis will decide to sit tight until the market swings upwards again, and the banks start re-hiring.

I wonder if we should feel sorry for them?  It's a terrible thing to be made redundant.  But surely these individuals are the architects of their own downfall?  It is they who encouraged the rest of us to believe that the good times could last forever.  It is as a result of their irrational behaviour that the pension funds of millions of ordinary people are now in jeopardy.  It is because of the way they exploit and abuse the market system that the entire global economy is now teetering on the brink of recession.

Some will argue it's a consequence a badly designed system; that these people are as innocent as the rest of us.  But it only takes a basic grasp of economic history to know that a downturn is inevitable, and its scale will generally mirror the preceding upswing.

No, these people chose to ignore the risks because the personal rewards were too great.  It is individual greed that has brought us to this position.  The kind of greed that the advocates of changes to economic rules over the last three decades have repeatedly told us is good for economic advancement.

Well it may be good for the economic advancement of a small minority, but it means uncertainty for most of us, and continuing misery for those at the bottom of society.

People in the the outplacement business are rubbing their hands with glee right now.  But those they will be counseling in the coming weeks will not be worrying too much.  Through their generous severance packages, the financial markets look after the risk takers.  It's the rest of us who have to bear the consequences.

Mega-Fraud

There will doubtless be much wringing of hands at the news that a Societe General employee has committed the largest fraud in history, effectively costing his (now former) employers a cool £3.7 billion.

Readers of this blog will know that I'm no fan of the globalised financial system, which I think has mutated into a morally fraudulent mechanism for further lining the pockets of the already wealthy.  These days it has very little do with with the legitimate business of channeling investment capital into genuine economic enterprise; the sort that employs people, or makes things that ordinary people need and want.

That said, I suspect this fraud has less to do with the system than the culture of greed and aspiration that marks the times we live in. 

Jerome Kerviel might, had things gone differently, have made a pretty packet out of his devious scheme.  Given that he'd acquired the nouse to circumvent SocGen's control systems, had he not begun to play the markets only a year or so before things started to go pear shaped, he might conceivably have got away with it.

Apart from greed, and of a course psychopathic dishonesty, he must also have suffered a severe case of that peculiar gamblers' belief that, if you keep rolling the dice for long enough, things will come good.  Of course, that's an attitude commonplace in today's financial system.   

Oxfam at Davos

Barbara Stocking, Chief Exec of Oxfam, has a brave piece at comment is free.  She defends the presence of Oxfam at the World Economic Forum in Davos, arguing that

For every selfish capitalist, there is an enlightened businessperson inspired by the challenge of global poverty and committed to changing the way they operate to help end it. They are important not solely because they care, but because many of them in are in positions of significant influence and can therefore do something about it.

It's a difficult one, for while Ms Stocking may have some very productive conversations with some of the attendees, and may well obtain support or sponsorship for some of Oxfam's initiatives and projects in the developing world, she is not likely to persuade anyone that the problems of the poor world are a direct consequence of the way in which the global economy is structured. 

And it is the structure of the economy that has enabled those who go to Davos to make their fortunes.  I'm not saying the poor are poor because the rich are rich, only that under the current system, the means by which the rich get rich necessarily reduce the life chances of those at the bottom, be they in rich countries or poor ones.

There is a rapidly growing band of African millionaires, but this has led to no change in the situation of most Africans, and nor will it.

When it comes to poverty alleviation, there are two options:  Allow a minority to exploit an unjust system, and then lobby for them to give a share of their wealth to reduce poverty, as Bill Gates, Warren Buffet and George Soros have done very generously.  Or, arrange things so that the disadvantaged have a fair chance in life and can access the means to their own economic security.  This would permanently reduce the amount of suffering in the world, whereas charitable aid often amounts to little more than short-term sticking plaster.

Ms Stocking is in a difficult position.  If she spent her time attacking the means by which the wealthy get rich, she probably wouldn't be invited to Davos.  But it is to be hoped that organisations like Oxfam remember the true roots of poverty, and don't just settle for crumbs from the tables of the rich and powerful.

How to avert a recession

Prem Sikka has an interesting piece at comment is free today.  He argues that instead of forcing pay cuts on the public sector to stave off the looming economic crisis, the government should be cutting taxes for the least well-off in order to increase the spending power of the poorest.

Sikka's call is echoed by The Item Club, Ernst & Young's economic forecasting unit, as reported in today's Observer.  This piece points out that a tightening of fiscal policy is required under Gordon Brown's golden rule but that it is likely only to exacerbate the current slowdown.  Let's hope Alistair Darling has the authority to overrule Brown on this one.

I have a great deal of sympathy with Sikka's trickle-up argument.  Giving a small amount of money to a large number of people will be much better for demand at all points in the economy than the alternative: giving large quantities of money to a small number of people; the upshot of the government's fiscal and deregulatory policies during the last decade.

Like most commentators and academics however, Sikka, who writes very well elsewhere on the problem of corporate accountability, appears to think determinedly within the confines of economic orthodoxy.  While his prescription is the right one as far as it goes, he does not acknowledge that the patient is fundamentally sick, and the wider economic framework in need of radical structural change.  His piece is worth a read though, not least because it contains a plethora of useful statistics which show how the economy is failing large numbers of ordinary people.

The truth about bankers

John Lanchester has a superb analysis of the banking system in general and the mechanics of the Northern Rock debacle in particular, in this month's London Review of Books.

Of particular interest are Lanchester's observations of the impact on life in the capital when those who work at the business of making money from money in the City of London earn many times the income of the majority of ordinary wage-earners.

As he writes, inflated city salaries are a direct result of how

....successive governments have, in policy terms, given the City more or less everything it wants.

If more people were aware of how the financial system works, how it is configured to deliver wealth to the minority of those who are are already wealthy, and how this morally dubious objective makes periodic economic slumps inevitable, then surely they would exercise their democratic right to have it changed.  Then again, as I write in the current edition of Land and Liberty magazine, our prototype democracy fails completely to defend majority interests and requires wholesale revision.

When the rich pay no taxes

If you think George W. Bush has been bad for America, take a look at this piece by Paul A. Moore over at Counterpunch.  Moore describes the way the president's brother, Jeb Bush, has used his time as Governor of Florida as to destroy the traditional, mildly progressive, tax structure in the state and replace it with a system by which the poorest are forced to underwrite the totally irresponsible investment decisions of a few powerful politicians and wealthy business people (well, businessmen actually), who run the state.

As Moore writes:

.... Bush tried to privatize all things profitable and make the people assume all risk associated with investment.

And it seems that he pretty well succeeded.  The only consolation is that just as America's sensible term limits have now forced the ex-Florida Governor from office, so the constitution will later this year see his brother leave the White House.  It's hard to imagine how future historians will view this short, disastrous, episode in the country's history.