Co-operative Keynesianism

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Guest Contributor

By Cllr Dr Tristan Learoyd

Co-operative Keynesianism

Background

The politics of state social democracy and market fundamentalism are naturally pitched against each other. One seeks Keynesian-style legal regulation, and the other self-regulation through unrealistic expectations of competition. Two traditional approaches within the left also do battle: those that resist the folding back of state socialism through regulation, and those who promote the folding back of the state and try to harness the increasing scope of the markets. This has created a fractured left with no unified concept.

The mistake the left continues to make is to modify the system of the right. Rather than capture the mechanisms of inequality, the left has enshrined the very institutions that create inequality by legislating for them, or by working with them in policy documents. Whilst state socialism can achieve a change in monetary imbalance it does little to shift the balance of power from the elite class, as the money generated by the productive classes is still channelled up stream to the elite.

It is my opinion that the alternative for the left is to escape the confines of the system it originally inherited from the right. The principle mistakes of both state socialism and of pure communitarianism are highlighted in a short section from:

Anthony Crossland’s the future of Socialism:

“It is not enough to tell people that they are working for the public good nor even that they should”. Crossland’s comparisons highlight that neither the private sector nor the public sector holds a psychological difference on worker contentment.

In addition, former Labour and Cooperative minister AV Alexander, noted in 1929,:

“there is always the danger in the regulation of everything by the state of bureaucracy on the one hand, and of the shedding of responsibility by citizens at the ballot box on the other.”

Recognition of Alexander’s observation by the right has led to the orchestration of campaigns against benefit cheats and an assault on universal benefits.

Thus, the complexity of the human psyche at this moment in our evolution requires that any economic solution for the left must involve both collaborative and individualist incentive.

Co-operative Keynesianism

Co-operatives are democratically collective; they also play to individualism due to a profit sharing incentive between members. Co-operatives are based on a democratic notion of one-member-one-vote, they provide exemplary financial stability when established and have ethical direction – it is impossible for one person to take over a co-operative, thanks to their democratic nature.

Current leftist thinking focuses on pure Keynesianism as a solution to spiralling inequality. This is a mistake. While Keynesianism can produce a fairer society, it will not bring transformative change by readjusting control. A series of financial regulations are required to enact Keynesianism macroeconomics and full employment, where the worker remains subservient to the capitalist but the capitalist is restricted in their actions. The lack of any shift in control will lead to the capitalist eventually repealing the regulatory framework or exploiting it.

A future left alternative should therefore not only involve the political and economic rationalisation of macroeconomics in the form of Keynesian solutions, but would involve state-led democratisation of macro and microeconomic structures along co-operative lines to shift financial control to every citizen and remove institutional mechanisms of control. The state should not only devolve redistributed money to market participants in a Keynesian manner, but produce co-operative participants built on social, environmental and progressive consideration – rather than profit motive – to receive such funds and shift whole markets to a sustainable position. In this manner state planning, which currently serves capital, would serve a democratic humanitarian function.

Co-operative Keynesianism in Finance

In Britain, due to the large percentage of GDP coming from the financial sector, the democratisation of the financial district is essential to the left.

Even when nationalisation of city infrastructure has taken place in the past, such as with the Bank of England’s nationalisation in 1946, power has never been wrestled from those who had controlled it in the first place. At the first meeting of the Mont Perelin Society in 1947, which was the origin of an organised attack on banking regulation to free up capital flows, the newly nationalised Bank of England sent a representative. The bank continued to act in its own interest – rather than the interests of the majority. Nationalisation was simply a branding. The mistake of the 1946 Labour Government was to fail to democratise the Bank of England by co-operating its structure so that all British citizens became a member and democratically elected the governor.

During the banking crisis the greed fuelled system acted irrationally. Credit agencies, paid on the volume of positive recommendations they made for loans, had an incentive to give improved credit ratings to potential borrowers with a chequered past. Meanwhile, the banks were using upfront fees as part of their mortgage deals; they were taking the fee and then passing on the debt of the mortgage to a securitisation firm. The securitisation firm would not know of the inadequate credit rating and would insure their acquired debt; the insurance company would be unaware of the catalogue of errors and, with the assurance of government bailout if all went wrong, had no incentive to refuse insurance. The securities would then be bet on by speculators, a bet known as a derivative. The closeted non co-operative manner of cut throat banking led to the collapse of the world economy.

The Keynesian-style regulation of commercial and investment banking, required to create financial stability, is being heavily resisted by bankers who make tremendous profit from a fragile unregulated system. An alternative to Keynesian regulatory frameworks would be Keynesian co-operation and democratisation of the financial sector: through a joint monopoly consumer co-operative credit rating agency and securitisation firm, a monopoly consumer-owned co-operative financial services insurer, and consumer owned co-operative lenders. To enable the rapid takeover of co-operative banking, co-operatives should be state directed and co-operative lenders should be heavily incentivised, all banks should eventually turned into co-operatives.

Transformation

The future left must not confuse nationalisation as an end goal, but as a transitional state that prepares a once private monopoly for democratic co-operation.

As Alexander went on to write in 1929,

‘while certainly favouring the national ownership of the great services of the nature of monopolies, [The Co-operative Party] works for an extension and development of a Co-operative collectivism which springs from an educated rank and file rather than by the imposition of the state’.

The Co-operative collective must be understood as the democratic economy, where economic decision making is fully devolved to market participants and has been wrestled from the private elite.

Social markets designed to capture aspects of human need and environmental consideration can be manufactured by a heavily democratised state, in the form of co-operative Keynesianism.

Democratically formed and state funded co-operative entities can be budded off at both national and local level to spread democracy into new and emerging markets and align existing markets along conditions of democratic, social, progressive and environmental advantage. The social transformation must happen at pace to dig democracy deep into the markets and state structures, to increase transparency and prevent illicit behaviour, empower individuals on a local and national level, and avert climatic disaster.

I have focused on the financial sector in this short extract, but a sustainable co-operative economy would not be able to function efficiently without the formation of stable monopoly consumer collective co-operatives in the place of the privatised utilities. With similar regard to how the challenges of climate change cannot be met without the democratisation of other markets key to reducing emissions.

In conclusion

It is my opinion, rather like Galbraith’s that the state and the market shouldn’t be seen as separate entities, both should be seen as the same undemocratic structure working together. The institutions of the state are intertwined with undemocratic, and often illicit, market forces. One embodies the other in this current atmosphere of corporate welfare. Any Keynesian plan is thus unsustainable if microeconomic planning isn’t concurrent, and if economic democracy remains obsolete.

It is my proposition that democratic economic reform in the shape of Co-operative Keynesianism is the only truly sustainable left alternative to the Neoliberal agenda.

PUBLIC SERVICE or PRIVATE PROFIT?

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by Julian

When I decided to write something on the marketisation of public services, I never expected my research to start with an academic paper on Hitler’s Germany. But here’s an interesting fact. The very first country in the world to facilitate large-scale transfer into private hands of public services previously provided by central or local government was Hitler’s Germany in the 1930s.

The main reason for the policy was not to save money or increase efficiency. It was to enlist support for the Nazi party from the powerful German business and industrial elite. (1)

After the defeat of Hitler’s Germany, mass privatisation of public services was not attempted again in Europe until Margaret Thatcher made it a cornerstone of her government in the 1980s. By the 1990s, privatisation of public services had become a world-wide phenomena, unchallenged in its claim that it was the cheapest and most efficient way to deliver public services.

New Labour was an enthusiastic convert. It continued the previous Tory government’s neo-liberal policy of privatization of public services and even today, the dogma that private is automatically better than public is rarely challenged.

But if we take the time to take a good look at the hard facts, it’s clear that the 30-year experiment in the marketisation of public services has been an abject failure. Despite this, the current Tory-led Government’s white paper on provision of public services is set to propose that all public services will be subject to privatisation, without exception.

Would I be accused of being too radical to suppose that if Labour ever wants to win back the votes of all those millions who have deserted them over the past decade and a half, they must once again unequivocally be the party which opposes provision of public services for profit, and again be the party whose sole concern is the quality of services provided to the public?

By the silence (so far) coming from senior Labour politicians one might presume so. But maybe we should let the facts speak for themselves.

FAILURES OF PRIVATISATION

Care Homes

Since 1990, under both Tory and New Labour administrations, 95,000 places have been closed in local authority care homes. Today around 90% of residential care provision is in private hands, mostly for profit.

But has this lead to lowering of costs and improvements in services?

A report by the Commission for Social Care Inspection in 2005 found that private provision of social care for older people – both residential and non-residential – was less likely to be judged ‘good’ or ‘excellent’ and more likely to be judged ‘poor’ or ‘adequate’ by inspectors than either public or voluntary or charitable sector provision. (8) Workforce turnover was also substantially worse in the private sector than in the public sector (CSCI, 2009).

In 2000, Barnet Council approved the selection of Ealing Family Housing Association (now part of the Catalyst Group) to take over the majority of the Council’s elderly persons residential care homes and day centres in order to – “achieve an ongoing revenue saving for the Council”.

According to the Cabinet Resources Commitee on the 2 March 2011, instead of saving money, Barnet Council has had to pay out £10.252m of public money.

In 2009, Care UK was awarded a £2.4 million annual contract by Hertfordshire county council. Just 10 months later, the council had to cancel Care UK’s contract. One care inspector’s report gave Care UK a zero star rating and assessed its standard of care provision as “poor.”

A private equity group, Blackstone, led by billionaire Stephen Schwarzman, pocketed almost £500m when in 2006 it sold its interest in Southern Cross, Britain’s biggest care home provider. This represented a tripling of its original £162m investment.

The Care Quality Commission took urgent action in January 2011 to close down Southern Cross’s Griffin Care Centre in Luton “to protect the safety and welfare of residents” as the regulator “judged people living in the home to be at risk”. (11)

The home’s 57 residents were moved to other care homes, by arrangement with Luton Borough Council and NHS Luton. Failings regarding the management of medication that were previously identified by the CQC were found on subsequent visits not to have been resolved. During the visit that immediately preceded the CQC’s action against the centre, inspectors found that medicines were being given together in breach of instructions on the labels and the inspector had to intervene to prevent this happening. Homes closures are only required in extreme circumstances.

Recently, Southern Cross, has come close to complete collapse possibly placing at least 31,000 elderly and vulnerable people without proper care.

Sedgemoor Care Homes ran 45 care homes for sexually abused and autistic children. In 2000, it was bought by ECI Partners, a private equity firm, for £13 million. When Sedgemoor could not afford to pay staff or rent, the company collapsed in 2007 and some of the care homes were sold, leaving many vulnerable children potentially homeless. Local authorities had to intervene to find homes for many of the children. The Adolescent and Children’s Trust (Tact), the UK’s largest fostering and adoption charity commented: “Private equity firms are more interested in maximising profits for shareholders and operating for short-term gain rather than providing long-term care for the most vulnerable.” (12)

Rail

Privatised railways now receive more public subsidy from the tax payers than when we owned them. Since privatisation, the annual subsidy has risen five-fold to more than £5bn. (9) Despite this, the UK has a rail system with the highest costs and highest fares in Europe. Taxpayers money has even been used to pay shareholders dividends when companies such as Railtrack PLC collapsed.

This is from an article in The Economist in 1999 –

The Rail Billionaires

One of the three rolling-stock firms, Porterbrook Leasing, was duly sold to senior BR managers for £528m. But only eight months later, Porterbrook was sold on by the management-buyout team for £826m. Having done little but (briefly) own the company, the directors and staff of Porterbrook, who had invested a mere £300,000 of their own, made nearly £83.7m. Porterbrook’s managing director, who had invested £120,000, scooped £34m. Venture-capital firms, which had put £2.2m into Porterbrook, picked up £315m. Eversholt Leasing and the third rolling-stock company were sold in 1997 for £900m more than the original purchasers paid. As Sir Alastair (Morton) told MPs on June 23rd, it was a ‘fat-cat carve-up’.

(2)

The directors of the main private train operators have made spectacular profits since privatisation. But despite this, they let the service deteriorate and invested too little in the rail network. This finally resulted in accidents such as the 2002 Potters Bar disaster which claimed seven lives and injured 76. The 3 million pound fine for the disaster imposed on the private firm Railtrack PLC and the private contractor Jarvis PLC was finally paid by the taxpayer as both firms had been wound up, meaning the directors were no longer liable.

A succession of fatal train crashes clearly shows what happens when the primary focus of contractors is profit and returns to share holders. The public interest, including safety, becomes secondary.

Other Cases

Research by Cardiff University on the impact of outsourcing NHS hospital cleaning services to private providers found that the level of hospital cleanliness has declined since the introduction of compulsory competitive tendering in the 1980s (Davies, 2005; 2009).

Barnet’s ‘EasyCouncil’ outsourcing experiment shows that the council spent £1.5m in the financial year 2010-11 on its reform programme. It is on course to recoup only £1.4m of savings in the financial year. (3)

Raytheon Serco, which won a £650 million deal in 2007 to build the e-Borders system had its contract cancelled after becoming more than 12 months behind on its contract obligations.

IT and data-loss seem to be a particular speciality for private sector failures. TNT lost the child benefit records of eight million families. PA Consulting mislaid the personal details of 84,000 British prisoners. ETS triggered the breakdown of the national Sats school testing system with delays and its inability to mark scripts. Private IT company, EDS is said to have cost the taxpayer up to 1 billion pounds at the child support agency. Xafinity had been mishandling pension payments for nearly 30 years before anyone noticed.

HOW TO FIX IT

Since when has demanding quality above profit in things like health, education and care been seen as radical policies? Policies once seen as radical, such as re-nationalisation of essential services, should now been seen as practical. Why should we pussy-foot around trying to look like we’re friends of the markets when behind our backs these so-called friends have been systematically pimping out our essential services, putting our health and lives at risk and throwing to the wolves those most vulnerable in society such as our children, the sick and the old, all to turn a quick profit for themselves?

1) Labour should pledge to put quality ahead of profit at the centre of every decision made by health authorities, education authorities and central and local authorities on matters related to public services.

2) Education, health, public transport, social care, policing and public housing should be immediately taken out of the hands of for-profit organisations and placed back in the hands of not-for-profit organizations. This could be done by replacing private for-profit provision with provision by cooperatives, local authorities and charities as well as renationalization of some sectors if necessary.

3) Tenders for public services which do not include at least one not-for-profit and one in-house bid should be invalid. If at least one non-profit and in-house contractor does not provide a bid, the service should remain (or revert back to) in-house provision of the service.

4) Local or central authority PUBLIC SERVICE QUALITY COMMISSIONERS should be installed who will monitor and oversee the quality of local authority and central services. The only criteria for the Commissioners to assess provision of public services will be quality. The Commissioners will collect public opinion and monitor complaints about the quality of public services provided by local and central authorities as well as make their own independent assessment. They will produce annual reports outlining services which have failed to meet minimum criteria of quality. The Commissioners should also have powers to order reruns of procurement processes if minimum quality of services have not been met. Yet again, procurement processes should not be solely a competition between for-profit organizations. If at least one non-profit and in-house contractor does not provide a bid during the procurement process, the service should automatically remain (or revert back to) in-house or central provision of the service.

5) The ‘public service industry’ where banks, private equity groups, consultancy firms and multinational corporations have speculated and bought-up public sector assets, only to asset-strip them for a quick profit, should be made dismantled and such practices made illegal. Private Equity groups in particular like Blackstone should be excluded from the whole field of public services on the grounds that public and community services should not be reduced to a mere commodity in the commercial marketplace. (4)

6) For-profit organizations which provide public services should be made liable to all the financial and operational transparency rules, as well as governance, equality and safety regulations which control local or central government organisations but which commercial organisations are often exempt from. ‘Commercial confidentiality’ is routinely given as the reason why there can be no proper scrutiny of contract proposals during procurement processes. This must end.

CONCLUSIONS

The evidence is clear.

In the UK, privatisation has become a byword for over-runs, lack of consultation and transparency, extortionate costs and poor quality of service.

Worsening services are being delivered at ever higher prices.

The only winners in privatisation are over-paid executives, brokerage firms and shareholders, while the losers are the consumers who are left to face poor services, rising bills and more government subsidies paid for from their taxes.

Private sector provision of public services is inherently more expensive than public sector provision because it must pay a dividend to its shareholders. Borrowing costs are also higher because the private sector is judged to be a higher risk by financial markets than the state backed public sector.

The only motivation of private companies is to make as much profit as possible, not to provide for peoples needs.

Labour must repudiate the claim by proponents of privatization that it is the cheapest and most efficient way to provide public services and not be afraid to argue the case for public, in-house and not-for-profit provision of public services.

You never know. It may even win them the next election.

REFERENCES

(1) Against the mainstream: Nazi privatization in 1930s Germany – Germà Bel – Universitat de Barcelona i ppre-IREA – http://www.ub.edu/graap/nazi.pdf

(2) The Economist – The Rail Billionaires – http://www.economist.com/node/218876

(3) The Guardian – Barnet No-Frills Council Overspend – http://www.guardian.co.uk/society/2010/oct/26/

(4) Michael Meacher MP – The collapse of Southern Cross – http://www.michaelmeacher.info/weblog/2011/05/the-collapse-of-southern-cross-should-end-any-willing-provider-privatisation/

(5) UNISON – Positively Public – http://www.kensingtonandchelseaunison.org.uk/public.html

(6) Association of Public Services Excellence – http://www.unison.org.uk/acrobat/13455.pdf

(7) UNISON – The Case For In-House Services – http://www.unison.org.uk/file/The%20case%20for%20in-house%20services%20-%20a%20branch%20guide.pdf

(8) UNITE – The Shrinking State – http://www.dontbreakbritain.org/pdf/Theshrinkingstate.pdf

(9) The Guardian – Will Hutton – disastrous rail privatization – http://www.guardian.co.uk/commentisfree/2011/may/22/will-hutton-rail-privatisation-disastrous

(10) UNISON – The rise of the “public services industry – Paul Gosling – http://www.insidehousing.co.uk/Journals/1/Files/2011/6/8/UNISON%20-%20The%20rise%20of%20the%20%E2%80%9Cpublic%20services%20industry%E2%80%9D.doc

11) CQC takes action to protect the safety and welfare of residents at Griffin Care Centre, Luton’, Care Quality Commission, press release, 20 January 2011 – http://www.cqc.org.uk/newsandevents/newsstories.cfm?FaArea1=customwidgets.content_view_1&cit_id=37108