Pensions: Thatcher’s vision is coming to fruition

Quote

Society is indeed a contract. It is a partnership…. not only between those who are living, but between those who are living, those who are dead, and those who are to be born”  Edmund Burke, Reflections on the Revolution in France 1790

Pensions: Thatcher’s vision is coming to fruition by Prue Plumridge

At the end of last year the Institute for Public Policy Research published its ‘Future Proof report’. It painted a bleak picture for British citizens by 2030.  It suggested that, unless solutions were sought, an ageing population would place a huge and unsustainable burden on the public coffers.

In 2013, The Intergenerational Foundation published the results of a survey of 50 of the UK’s leading thinkers on economics which was entitled ‘Can the UK afford to pay Pensions?

The growing national debt and pension liabilities either to public sector pension schemes and the state pension were cited as reasons to seek solutions to the so called ‘demographic burden’ of an ageing baby boomer population.  The report suggested that these liabilities would be a considerable financial burden which future generations would have to pay off through their taxes.

In 2014, the Institute of Economic affairs also added its warning by claiming that future generations could be ‘short-changed’ and the public finances put in jeopardy unless the UK takes serious measures to reform the state pension system.  Clearly there is no shortage of organisations and politicians ready to pitch in to reinforce this message.  To that end, Sir John Cridland, former CBI Director General, is due to publish an interim report early this year aimed at ‘ensuring the state pension remains affordable’.

In response to these fears, changes to the pension retirement age are already in progress and, whilst it is currently set at 66, it has been suggested that the Department of Work and Pensions may have plans to increase it further to the age of 70.  Furthermore, the Chancellor Philip Hammond has hinted that after 2020 state pensions may no longer be ring-fenced from spending cuts.

Added to these messages of unaffordability there is also something far more insidious going on.  In Australia, a crossbench senator recently said that ‘taking the pension shouldn’t be something you aspire to, it should be something you try to avoid because it signifies you’re in a low-income group’.  He suggested that payments be viewed as welfare not an entitlement.  Right wing ideologies which promote the primacy of the individual over that of the well-being of a wider community have led to an emphasis on individual responsibility which has, in turn, led to the shaming of those who find themselves on the wrong end of the economic stick.  The inference is that if you’re poor, unemployed or sick then you only have yourself to blame.

The political discourse is making it clear now that pensioners are not only about to be added to this list but also perhaps even condemned for not having saved sufficiently to pay for a decent retirement.  Even the prospect of retiring is no longer sacrosanct.  The Tory peer, Baroness Altmann, tweeted last year that “private pension/health will drive retirement age” thus suggesting that unless you’ve got a big fat private pension or health insurance you can forget retiring on a state pension because it simply will not pay enough to cover your costs.  Clearly retirement is intended to become the privilege of the rich and well heeled.

Citizens face the prospect not only of a two-tier health and social care service but also a two-tier pension entitlement – one for those who can afford to save for one and one for those who can’t which may condemn people to working beyond retirement just to survive.

As Peter Fleming recently wrote in an article in the Guardian:

“We can trace the untimely demise of retirement to a number of assumptions about how society ought to be organised.  At no other time since its inception has the welfare state been so hated by the governing elite.  Social care.  Unemployment assistance.  Health.  Local councils and libraries.  Municipal parks.  Anything relating to what used to be called “the public good” is attacked at the roots.  Austerity redefines these things as fiscal liabilities or deficits rather than shared investments in common decency.  It was only a matter of time before pensions too were put on the chopping block”.

Of course, it might also be said that things are not looking favourable either for those who are paying into private pensions.  Not only have many defined benefit pension schemes been closed and replaced with pensions linked to the uncertainties of the stock and bond market but also in a new development the government has recently announced a consultation paper which could take thousands of pounds of income away from 11 million retirees.  This means basing annual increases on the consumer price index rather than the retail price index.  The paper also suggests that where a company is facing significant financial pressures it could suspend increases altogether.  In the heady days of market superiority private pensions might have been all the rage but in these cash strapped times and market uncertainty the gloss may be rubbing off.

Whilst clearly the mainstream and ideologically inspired experts view this demographic transition as a ticking time bomb of the financial kind, I want to investigate in this article how this view has arisen and show that, because we misunderstand how our money system actually works, the argument is far from an affordability issue.

Since the post war settlement which led to the creation of social welfare provision including a state pension and free healthcare and education citizens have been bound together by a social contract based on mutual support across the generations.  That social contract is now under threat.  Young people quite rightly compare their impoverished lives with those of their post war parents and grandparents.  Lack of adequate, affordable housing, debt ridden higher education, poorer employment opportunities, low pay and lack of job security not to mention the prospect of working longer and a poverty stricken old age are all a cause for anxiety among young people who fear for their future prosperity.

Quite predictably it stirs up resentment as they perceive the older generation having very nice, comfortable lives thank you with their own homes and decent pensions!  These are advantages that the young can scarcely dream of unless they are lucky enough to have a helping financial hand from parents or grandparents. The inference is that the social contract is no longer sustainable because in the future there will not be enough young people generating tax receipts and income to fund all those things which we have come to rely on to make society decent and civilised.

At the Conservative Conference last October the current Chancellor, Philip Hammond, warned of the dangers of piling up debt for our children and grandchildren promising he would restore fiscal discipline and get Britain back to living within its means.  Georgia Gould, a Labour Councillor in North London, has even suggested that we may have to reconsider the principle of universal pension benefits in the light of the supposed financial ‘black hole’ they represent.

What should be the right ‘balance’ of public spending between the generations to ensure a fair distribution of wealth and resources is the mainstream question and is there even a future for state paid pensions?

The message that our pensions along with our social security system is too costly and unsustainable is constantly drummed into the public consciousness.  Austerity, cutting public spending and privatisation have been presented by all the main parties (until recently) as necessary to get our public finances ‘under control’.  And yet, despite the growing evidence that cutting government expenditure on public and social infrastructure has had catastrophic consequences for the nation’s overall economic well-being – fiscal discipline and paying down debt is the re-occurring mantra of mainstream economists and politicians (even if the timescale for such plans has slipped somewhat in the face of an uncertain economy).

We need urgently to challenge these claims.

It might first be worthwhile spending some time on explaining from where this narrative arose.  The Keynsian inspired post war consensus started to break down in the 1970s with the two oil shocks and resultant rising inflation and unemployment.  This also coincided with the infiltration of neoliberal/monetarist ideas into the political mindset which was to have increasingly destructive consequences on economic policy for the next 40 years.

This decade saw the death knell for post war Keynsian policies and initiated a shift away from full employment.  Labour eventually paid a high price for its management of the economic crisis and lost the election to the Tories in 1979.  Margaret Thatcher brought to the table an economic vision inspired by Friedrich Hayek and Milton Friedman and her policies reflected her belief in the superiority of the market, less government involvement and the importance of the individual.  The idea implicit in this dogma was that the welfare state deprived people of the opportunity to make their own arrangements for pensions, health and housing.

As a result, the merits of home ownership were promoted and our stock of social housing sold off, along with the opening up of the market for private pensions in an attempt to weaken the state’s own pension provision, both of which continue today.  Treasury documents released last year revealed that Thatcher also supported a plan to dismantle the welfare state and introduce private health insurance to end the NHS.

By the time Labour finally returned to power, market driven ideology was firmly entrenched in the political narrative.  Under Tony Blair’s leadership the party, with its ‘third way’ credentials, rejected its socialist roots and fostered a laissez-faire capitalism of globalised markets and increasing corporate power.

Philip Bobbitt in his book ‘The Shield of Achilles’ published in 2002 suggested that power of the nation state would, over time, lose its authority to the ‘market state’.  The ‘nation state’ he said ‘derives its power through its promise to improve its citizen’s material wellbeing, while the market state is legitimised through its promise to maximise its citizens’ opportunities.’ To put it simply the centralised state has indeed been replaced by a market state orthodoxy which is fragmented and outsourced. In short, public money is being poured into the coffers of global companies to run public services for profit.  It is a place where, it would seem, the term ‘public purpose’ has its narrowest meaning.

Following the Global Financial Crash when Labour with some success flirted for a short period with Keynes, the Tories returned to power in 2010 to reinforce the corporate dominated, revolving door politics of the past decades.  And, on the basis of an incorrect accusation of Labour’s overspending, began their attack on public services, the NHS and social security peddling the cruel mantra of ‘we must live within our means’ in justification.

However, the increased poverty, inequality and insecurity can be attributed not to previous governments overspending or living beyond their financial means but rather a pernicious ideology which has put increasing the wealth of the few above the well-being of society and raised the status of the corporations to gods.

Politicians aided by a self-interested press, corporations and the wealthy have convinced the public that the state finances are like their own household budgets and that the national debt and deficit are dirty words.  We have to cut expenditure to get our public finances in order to prevent burdening future generations with debt and higher taxes is an oft repeated message in the media.

So, is it true that by borrowing now we are burdening future generations?  The short answer is NO and is indeed illogical.  We should be challenging such a distortion and indeed presenting the real facts about how our money system works in practice.

The economist, Professor Bill Mitchell rightly points out that past and current policy decisions do affect young people today and will also affect future, yet to be born, generations.  However, as we have seen this has been presented by politicians and think tanks in terms of financial affordability – whether there is enough money in the public pot to continue paying for social security, the NHS, public services and education both now and in the future.

Deficits and public debt have become society’s bogeyman which has proved a very useful myth to justify continued public sector cuts and privatisation thus serving the pursuit of a political ideology rather than any sort of economic reality.

We are regaled endlessly with the message that fiscal discipline is vital if we are to maintain a healthy ‘bank’ balance, save for a rainy day or avoid bankruptcy.  Of course, that would be true if the State’s finances ran like our own household budgets where our expenditure is limited by our income.  However, this may come as a shock to some but in a post gold standard world government spending is not constrained by the taxes we pay.

For an explanation, we must look at how a sovereign, currency issuing government like ours actually operates.  As Professor Bill Mitchell points out:

“The fact is that the current government has as much ‘money’ now as it had yesterday and the same amount, it will have tomorrow.  That is, it has whatever it wants to spend.  It always has that.  It has no more or less capacity to spend today because there were surpluses in the past than it would have if there have been deficits in the past.“

“Borrowing” doesn’t take any money at all from the pockets of future taxpayers and baby boomers (like myself) have never been asked to pay back a single penny of the public ‘debt’ accumulated by their parents’ generation.  Indeed, those fiscal deficits created public assets and infrastructure from which we have all benefited. Those terms debt and borrowing are loaded words which fit very nicely with our understanding of how our personal finances operate in practice in a Wilkins Micawber sort of way.  However, in terms of a sovereign state issuing its own currency it bears no relationship to our own household budgets.  The funds that pay for bonds or what is called ‘borrowing’ began life in government spending.  So, when economic experts and politicians refer to debt clocks claiming that we are sinking under its weight and we cannot afford to burden future generations we need to take a step back and look at it rationally.

If the government is the currency issuer then as Professor Mitchell points out, it is in fact, only ‘borrowing’ its own spending back.  So how on earth can we be said to be ‘borrowing’ from the future?

As Paul Segal, a senior lecturer in economics noted, the debt is ‘the money the government owes us, not money that we owe to anyone else. […..] What is called the ‘national debt’ is our own savings, looked at the from other side of the balance sheet”.  And how does it get there?  We put our savings into banks and pension funds which are then invested by those same banks and pension funds when they buy interest bearing government bonds, which include premium bonds by the way,from which investors and retirees then enjoy a return as income which is either saved or spent into the economy. In short, if you’re worried about the national debt then you should do the decent thing and stop enjoying the proceeds of your investment savings.

Furthermore, and fundamentally, as Bill Mitchell highlights ‘Every generation chooses its own tax rates. That is, the mix of public and private sector involvement in the economy is a political choice’  The key word here is choice.  Governments make policy choices related to the particular politico/economic ideology they espouse and for the last forty years and more that choice across the political spectrum has been neoliberal and market driven.

The result has been more about redistribution of wealth upwards than ‘trickle down’ and this has been at the expense of ordinary working people.  As the economist, Ellis Winningham recently noted: ‘The rich have been robbing us’.

Oxfam reported in January that runaway inequality has created a world where 62 people own as much as the poorest half of the world’s population.

The idea that government policy should serve public purpose aims as it did during the post war years for the economic well-being of a nation has largely been abandoned in favourof the rise of a deregulated corporate driven state whose hallmark has been excessive greed.

When those on opposition benches take the government of the day to task for rising debt and increasing deficits as if these were signs of poor economic management, the public are quite understandably horrified at government’s apparent wastefulness – how that suits the orthodox agenda!  The debt and deficit are, however, largely misunderstood by the public, and politicians either take advantage of that confusion to be better able to justify ideological austerity, cuts and privatisation or simply don’t understand that their own knowledge is flawed.

In short, deficits (i.e. the difference between what is received in taxation and actual government spending) are neither good nor bad in themselves – they are more of an economic indicator of whether a government is doing its job effectively or not.  Thus, the success or failure of an economy will depend on whether there is an appropriate level of government spending to ensure full and productive employment.  Historically, fiscal deficits have in fact been an enduring feature of post war economies and are, in the words of the economist Dr Steven Hail, ‘normal and necessary’.

Indeed in 1982 Gardner Ackley wrote:

“My own position on deficits has always been, and remains, that deficits, per se, are neither good nor bad.  There are times when they are not only appropriate but even highly desirable, and there are times when they are inappropriate and dangerous.  During a recession or a period of “stagflation”, deficits are nearly unavoidable, and are likely to be constructive rather than harmful.”

…It is not the government’s role to run deficits or surpluses. We want governments to make policy choices that will maximise the potential of the people to enjoy their lives and contribute the best they can, given their own circumstances to the well-being of society and the planet.

We might call this goal one of public purpose.  An essential element of that goal, given current cultural mores in most nations, will be to ensure that everyone who wants to work has a job and for those that are unable to work, for whatever reason, have adequate income support so they are not alienated and socially-excluded.

When Labour came to power after the second world war the aim of Clement Atlee’s government was to create a more stable, fair and less exploitative society than had been the case before the war.  Fiscal deficits were an enabling factor in achieving this.  Our parents and grandparents didn’t whisper in corners about government wasting money or talk about how governments should be fiscally sound they understood its role in making their lives better.  We have all benefited from that wisdom and foresight even if we have increasingly forgotten that, over the last few decades, as market and monetarist orthodoxy has replaced a public purpose vision which benefited citizens through access to publicly paid for health and education, decent housing, public services, social security (including pensions), redistribution of wealth and a focus on full employment.  We neither went bankrupt then creating a fairer society and nor can we do so today no matter what those that claim to know try to tell us.

The idea that we can no longer afford such a vision because we can’t afford it is one of the biggest inventions of our time and one that will continue to impoverish society if we let it.  So, in the same way as our parents and grandparents understood the importance of government’s role in investing in better lives for themselves and for their children we must embrace that same understanding and reject the paltry arguments of orthodox economists which has led to increasing poverty and inequality through a casualised labour market, wage suppression and attacks on trade unions all to support global trade, an emphasis on a largely unproductive finance sector and the politics of austerity.  There is an alternative to this miserable economic narrative which wants us to believe that governments are financially constrained and all it requires, is for us to challenge those who tell us there isn’t one.

Fundamentally a healthy economy is dependent on a healthy and educated population which is not driven by fear of want.  The social security system including state pensions, the NHS, public services and transport networks are all necessary to the good working of society and a nation cannot function properly without the vital infrastructure which underpins a strong economy.

So, if a sovereign state like ours which issues its own currency, is not constrained by taxation, cannot run out of money, go bankrupt or burden future generations, are there any real constraints to government spending?  There are certainly caveats which relate to resource availability whether that’s raw materials, goods, services or human labour.  Money is not finite but resources are whether they are human or otherwise.  To quote again Gardner Ackley:

“That goal is constrained by the availability of real resources that the nation commands – labour, capital, land, etc – but not by the financial capacity of the currency-issuing government.”

Whilst this generation cannot burden future generations with higher taxes or debt burden we have to recognise that there are limitations related to consumption of finite resources and that the resulting damage to the environment will diminish the prospects for our children’s children and beyond.  This is perhaps the most pressing problem of our times which we must reflect on urgently.  Therefore, the onus on this generation and its elected governments is to do two things: firstly to commit to investing in our young people over the long term to ensure that they can be employed in productive well paid jobs to serve the needs of future generations including the retired; and secondly but more importantly we have a responsibility to ensure that we actually have an environmentally sound planet to bequeath to our grandchildren and their children.

We should be clear that the current government has made an ideological choice instead to impoverish future generations by cutting spending and all for ideological reasons that have nothing to do with the well-being of society today or in the future.

References

http://www.ippr.org/publications/future-proof- britain-in- the-2020s

http://www.if.org.uk/wp-content/uploads/2013/02/Can- the-UK- Afford-to- Pay-

Pensions.pdf

https://iea.org.uk/publications/research/the-government- debt-iceberg

https://www.gov.uk/government/news/john-cridland- cbe-launches- consultation-on-

the-state- pension-age

http://www.bbc.co.uk/programmes/b086t0mb

https://www.theguardian.com/commentisfree/2015/oct/24/young-bear- burden-of-

pensioner-prosperity

http://www.abc.net.au/news/2017-01- 02/david-leyonhjelm- calls-to- restrict-pension-

assets-test/8157924

https://www.theguardian.com/commentisfree/2017/feb/14/wealthy-retire- austerity-

pensioners-work

http://www.telegraph.co.uk/news/2016/10/03/philip-hammond- budget-surplus-

conservative-conference- live/

http://www.newstatesman.com/politics/2017/02/goodbye-liberal- era

https://www.theguardian.com/education/2009/may/19/philip-bobbitt- kissinger-cuba

https://www.theguardian.com/commentisfree/2010/jun/17/fiscal-deficit- threat

http://bilbo.economicoutlook.net/blog/?p=28597

https://alittleecon.wordpress.com/2014/08/06/government-debt- is-not- a-burden- on-

future-generations/

http://bilbo.economicoutlook.net/blog/?p=3891

http://bilbo.economicoutlook.net/blog/?p=23673

Thatcher’s economics has generated ‘poverty in the midst of plenty’

Quote

By Prue Plumridge

Lord Wolfson, chief of the Next retail chain said recently that the national living wage could drive up inflation as the retailer would have to raise prices to offset the cost of the new minimum wage of £7.20.

The word ‘living wage’ (which £7.20 is not) clearly strikes fear into the hearts of rich businessmen.   The business mantra is that paying people a decent wage can only lead to the bogeyman of inflation or job losses and is the usual stick with which the workforce is beaten to keep it fearful and compliant.

Let’s first put a context onto this claim by Lord Wolfson.  According to Professor Bill Mitchell, Wolfson claimed that a living wage of £6.70 was ‘enough to live on’ and a ‘decent amount for a lot of his staff”.  He also said that it was not necessary for Next to raise wages because ‘the clothing chain had 30 applicants for every job advertised’.  Professor Mitchell went on to note the salary and benefit arrangements for Wolfson who had a base pay of £743,000 in 2014/15 along with a range of other benefits and bonuses which brought his salary to a total of £4,666,000.

A report published by Citizens UK recently noted that:

‘An estimated 5.24 million people in the UK are employed on less than the living wage. Many low-waged workers are in receipt of benefits and tax credits, policy tools used to top up their incomes [and are] criticised in popular media and policy circles.

The calculation of the public subsidy is a new way to think about low pay.  In effect it is low paying employers who are subsidised by state payments to their employees without which they would be unable to meet their basic needs and continue to work for low wages.’ 

In other words this is nothing more than corporate welfare on a grand scale which costs the tax payer a gigantic £11bn a year.  To put this into context benefit fraud is £1bn. Companies, in effect, have no incentive at all to pay decent wages when they know for certain that the State will (for now) pick up the tab through benefit payments.

To understand claims that increasing the minimum wage will lead to an inflationary loop or job losses we first have to understand from where this idea originated.  The post war period between 1948 and 1973 was known as the Golden Age.  Production had increased, there was full employment and living standards had risen.  In the words of Harold Macmillan in 1957 ‘most of our people have never had it so good.’  During this period before the attack on fiscal deficits occurred across the advanced world inequality was lower than it ever had been, workers were more upwardly mobile and GDP was averaging much higher growth.  The country was riding high on the post-war economic boom which had also seen the foundation of the National Health Service, a social security system and education for all and all despite the so called ‘National Debt’.

This was, in fact, the classic era of Keynesian economics which served as the standard economic model in the latter half of the 1930s and the post second-world war years.   Keynes’ theory was that problems such as unemployment were nothing to do with moral shortcomings but were more to do with imbalances in demand and the point at which a country was in its economic cycle – expanding or contracting.  As such he believed that at times of economic downturn when an economy could no longer sustain full employment government should step in to ensure that resources were fully utilised.  To this effect government spending, he believed, should be used to increase overall demand which, in turn, would increase economic activity and reduce unemployment.  It challenged the reigning laissez-faire model which had its roots in the Classical economic theories of 18th century thinkers like Adam Smith and David Ricardo who believed that markets worked better without government interference.

The 1973-74 recession changed all that.  The certainties of the golden age were to be challenged as unemployment rose and prices spiralled.  The trigger for this was the OPEC oil price crises in 1973 and 1979.   Inflation combined with recession was a new phenomenon and, as it turned out, proved to be the crucible for what is known today as neoliberalism.  The ideas of such economists and thinkers as Friedrich Hayek and Milton Friedman came into their own and quickly began to take root.  By the end of the 1970s, it dominated economic thinking amongst the educated elite in universities and the political and business world.

The study of economics was elevated to that of a science in the belief that through the use of modelling and formulae the future could be predicted accurately and the full employment agenda of the post war years, government intervention and market regulation was abandoned in favour of the magic of market forces.  Such interventions, it was believed, would cause inflation or result in increased unemployment through destabilising the market process which, naturally, sought to find its equilibrium.

Karl Polanyi, who explained the deficiencies of a self-regulating market and the potential dire social consequences of unfettered market capitalism in his book ‘The Great Transformation’ predicted:

‘To allow the market mechanism to be sole director of the fate of human beings and their natural environment…. would result in the demolition of society.’

From the 70’s onwards we start to see a shift in economic thinking which can be summed up in a speech by Prime Minster James Callaghan who told the Labour Party conference in 1976:

“We used to think that you could spend your way out of a recession and increase employment by cutting taxes and boosting government spending.  I tell you in all candour that that option no longer exists, and in so far as it ever did exist, it only worked on each occasion since the war by injecting a bigger dose of inflation into the economy, followed by a higher level of unemployment as the next step.” 

Margaret Thatcher came to power in 1979 and she fully embraced the expansion of neoliberal ideas through government policies.  Her aim was to break with the post war political consensus and pursue policies which deregulated financial markets, rolled back the state through privatisation of publically owned assets and weakened welfare support, undermined union and employment protection and abandoned full employment goals.  The results were that the bargaining power of workers was seriously undermined.  By the mid-80s unemployment had trebled and there was widening income inequality.  Margaret Thatcher who said ‘It is our job to glory in inequality’ laid the foundations for the growing perception that the individual controlled his or her own fate.  On that basis, poverty was a result of one’s own shortcomings and not a failed social system.

Tony Blair’s Third Way attempted to humanise the market by reconciling traditional left of centre values with laissez-faire capitalism.  However, it still accepted the neoliberal doctrines linked to income distribution and the idea that there was a natural rate of employment which was determined by supply and demand.

As Professor Bill Mitchell commented recently:

“They preached equity yet watched income and wealth inequality rise under their stewardship.”

As part of this new Third Way approach, a minimum wage was introduced in 1999 by the Blair government.  However, whilst it was seen as one of the best achievements of New Labour and didn’t lead to the predicted job losses and increased costs the truth was that it was set at too low a level to have any real impact on people’s lives.   What is more, although unemployment fell during its first two terms in power overall, it did increase and the lowest unemployment rate it achieved was still more than 1% higher than in the early 1970s.  This combined with the fact that the low public investment as a share of GDP, which began under Thatcher, largely continued under New Labour and the effects of weakened bargaining power and wage stagnation further increased pressures on the working population.  Furthermore, Blair’s human face of neoliberalism was betrayed by a step change in attitudes to welfare when the Blair government moved to cut single-parent benefits in 1997 and tried to introduce cuts to disability benefits in 1999.  This culminated in 2008 with James Purnell’s Welfare Reform Paper under which everyone would have to do something in return for their welfare payments.  Tony Blair also boasted that the UK had ‘the most flexible labour market in Europe’ but we shall see shortly at whose expense.

When the Conservatives returned to power in 2010, the framework was virtually in place for a full scale assault on the public sector and workers’ rights.  Workfare forced claimants to work for nothing but their benefits under the guise of work experience and training and Tony Blair’s flexible labour market literally found themselves on an even faster race to the bottom.  Temporary contracts, zero hours and low paid work have all facilitated the normalisation of a flexible labour market which is a trademark of neoliberal economics.  In addition, as part of their goal to reduce public spending, the Conservatives also introduced high fees for employment tribunals which has led to a noticeable reduction in claims, clearly at the expense of working people’s rights.

In May 2015, the Tories were re-elected and in only a few months we have seen yet more attacks on Trade unions and working people’s rights and benefits.

Caroline Lucas summed up the last four decades in an article in the Independent:

‘The economic project that has dominated politics since the 1970s has had at its heart the strangulation of the Trade Unions. Why? Because it is the unions which stand as a last line of defence against repeated Government attempts to privatise, deregulate and cut back on the public services upon which we all rely.

The results of that economic project – skyrocketing inequality, the loss of thousands of public sector jobs and increasingly precarious work for many – are plain to see. For more than 30 years, successive Governments have sold off our national assets and deregulated our economy – but to continue the project the Conservatives know they need to remove a key barrier to change: the remaining power of the millions of members of Britain’s trade unions.’

One of the premises of neoliberal thought is that wealth trickles down as a result of markets having the freedom to act without government interference.  We have not found this promised market equilibrium.  What we have seen instead is wealth pouring into the hands of fewer and fewer people.  Unemployment, underemployment and low wages have become a scourge in our society as they disempower people and dispossess them of dignity and the means to ensure their well-being.  Market competition and globalisation have spurred a race to the bottom by allowing companies to suppress real wage growth and accept unemployment as part of the price we have to pay for reaching the promised-land.

So this bring us back to the start of the story.  We have nearly 2 million unemployed people but the real picture is of many more millions who are underemployed, on low incomes and temporary and zero hours contracts having no job security at all and facing the prospect of reduced income support from the State.  Ninety percent of the McDonald’s chain work on zero hours contracts – that’s 82,800 people, Sports Direct employ 20,000 and J D Weatherspoon 24,000 on such contracts.  The employers’ justification for such working arrangements is that it makes Britain more competitive in a harsh economic climate.  Compare that assertion to an increasingly unequal income distribution in which those at the top benefit at the expense of those at the bottom.  Remember Lord Wolfson’s salary last year.

With high unemployment, companies have no trouble finding people to work at the prevailing wage rates.  And yet, whilst profits and bonuses increase, the price for market competition and globalisation is being paid by those least able to ride the waves of economic uncertainty.

Michal Kalecki in his work ‘Political Aspects of Full Employment’ posits a number of reasons why industrial leaders are opposed to full employment.  Although it was written in 1943, his propositions seem as true today as when he wrote it.  Business leaders were, he said, averse to government interference in employment matters, feared losing control of government policy, loathed the idea of public investment and disliked the idea of publically funded welfare.

In 1943 the Times editorial explained why full employment was not a good idea. It said:

Unemployment is not a mere accidental blemish in a private enterprise economy. On the contrary it is a part of the essential mechanism of the system, and has a definite function to fulfil.  The first function of unemployment which has always existed in open or disguised form is to maintain the authority of master over man.  The master has normally been in a position to say if you do not want the job there are plenty of others who do.  When the man can say if you do not want to employ me there are plenty of others who will the situation is radically altered.’

As Kalecki describes it very succinctly:
“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.”

The Golden Age, for a short period of time, challenged the status quo and the power of big business to dictate terms but since that time the ascendance of neoliberal thought has restored the balance in favour employers and has been supported by ever more government legislation to undermine working people’s rights.  As Lord Wolfson’s assertion indicates, they now have considerable control over the labour market and wages and people have become mere pawns in a global game to be exploited in the name of profit.  The cost to the economy and society of unemployment and underemployment is huge in terms of the outcomes on health and well-being and as a consequence on society as a whole.

So how can this imbalance be best addressed? Jeremy Corbyn stood on a platform of anti-austerity and has promised a radical programme. This will require first that he and his Chancellor wholly reject the neoliberal framework of deficit reduction and balanced budgets. These two positions are irreconcilable. Secondly we need to address urgently the issue of unemployment. In the words of Hyman Minsky in his book ‘Ending Poverty: Jobs, not welfare.

they involve a commitment to the maintenance of … full employment and the adjustment of institutions, so that the gains from full employment are not offset by undue inflation and the perpetuation of obsolete practices.’

So what would this mean in practice?

Philip Pilkington in an article published in the Guardian in 2013 summed it up very neatly with reference to the work of Hyman Minsky:

“Minsky’s theories of financial instability suggested that capitalist economies were prone to serious downturns in which huge amounts of the labour force would find themselves unemployed. What’s more, this would lead to large shortfalls in demand for goods and services which would further exacerbate such downturns. The result was a vicious circle that would become worse and worse as the financial system evolved into an increasingly fragile entity and households and businesses became increasingly mired in debt. The only way out of this was to build robust institutions that insulated working people from the excesses of the system. While progressive taxation and unemployment benefits went some way toward both protecting workers and propping up demand during downturns, it did not, according to Minsky and his followers, go nearly far enough. They believed that governments should offer a job to anyone willing and able to work and then pay for these jobs by engaging in increased deficit spending – as they currently do with unemployment benefits during downturns.

We have a capitalist system which, in fact, has generated ‘poverty in the midst of plenty’.   Poverty, rather than as suggested being the result of the shortcomings of the individual is, in reality, the consequence of unemployment, underemployment and low pay. The primary objectives of government, therefore, should be to ensure that working people are paid a wage which is sufficient and gives them dignity, and the provision of a job guarantee for all those who want to work.  This should be supported by an adequate welfare system to help those who are physically or mentally unable to work through illness or other misfortune.

Those who, like Mark Carney, decried Jeremy Corbyn’s economic plans for PQE by saying it would imperil the recovery, drive up inflation and hurt the poor and the elderly are in denial and should question the very basis upon which they construct their economic assumptions.   Firstly today’s global economy is suffering from deflationary pressures rather than inflationary and even a Governor of the Bank of England should know that some inflation is beneficial.  And secondly, the economic paradigm which advocates austerity, deficit reduction and balanced budgets is bogus and has been for over 40 years.  It has been used to justify the creation of a small state on the false basis that the private sector is more efficient.

We should understand as L Randall Wray said in his introduction to Hyman Minsky’s book that:

‘…. the primary barrier to attaining and sustaining tight full employment is political will’.

The Universal Declaration of Human Rights states: “Everyone has the right to work, to free choice of employment, to just and favourable conditions of work and to protection against unemployment. 
The neoliberal paradigm is foundering but those supporting it will not give up without a struggle since so much is at stake. There is an alternative and with Jeremy Corbyn we now have a mandate to take the ‘road less travelled’ to secure the necessary changes which will rebalance the economy in favour of a fairer distribution of available resources and income.

Our next step must challenge the status quo by understanding how we can best implement that alternative and build the mass movement we need to make change happen.

References:

http://www.mirror.co.uk/news/business/next-boss-warns-living-wage-6421023

http://ineteconomics.org/ideas-papers/interviews-talks/demystifying-modern-monetary-theory

www.guardian.co.uk/commentisfree/2013/jun/07/labour-jobs-guarantee#sthash.ikqwo08O.dpuf

Ending Poverty: Jobs not welfare: Hyman Minsky

Political Aspects of Full Employment: Michal Kalecki

http://www.theweek.co.uk/business/54485/zero-hours-contracts-mcdonalds-flexible-or-exploitative

Rejecting the TINA Mantra and the second ‘gilded age’ http://bilbo.economicoutlook.net/blog/?p=31888

Jeremy Corbyn’s new politics must not include not lying about fiscal deficits http://bilbo.economicoutlook.net/blog/?p=31888

A short history of neoliberalism

http://www.globalexchange.org/resources/econ101/neoliberalismhist

From Keynsianism to Neoliberalism: Shifting paradigms in Economics

http://fpif.org/from_keynesianism_to_neoliberalism_shifting_paradigms_in_economics/

http://www.marxist.com/neoliberalism-dead-or-sleeping.htm

Politics in the Pub Your Rights 2 Work

https://www.youtube.com/watch?v=pS7AOaYY6Lo

Published on Sep 4, 2015

Dr Victor Quirk of CofFEE (Centre of Full Employment and Equity) outlines the history of employment policy in Australia, tracing it from the 1940’s policy of full employment and questions why it’s no longer Government policy.

The Myth of Thatcherism/Reaganomics: Keynes vs Greenspan

Quote

The Myth of the Great Moderation: Keynes vs Greenspan

by Haiku Charlatan

Boris Johnson and ‘Survival of the Fittest’

Quote

The Manners and Morals of High Capitalism

The only two things that were actually surprising about Boris Johnson’s Centre of Policy Research speech were:

i)  That anyone should think that Boris’ avowal of 19th Century Social Darwinism is   surprising because it is patently obvious that his speech also represents the views of Cameron, Osborne, Tory Ministers and much of the wider Conservative Party.

ii)  That Boris would have talked openly about his views in public.

However, Andrew Rawnsley was surprised on both counts:

Where on earth do we start? Let’s begin with his view of what drives human nature in general and capitalist economies in particular. The speech was highly illuminating – not about what really makes society tick, but about what goes on inside the whirling head of mayor Johnson. It is his contention that “greed” and “the spirit of envy” are not vices to be regretted, but virtues to be lauded because they are “a valuable spur to economic activity”. This was not a throwaway line, a light aside, just another one of those provocative Johnsonian sallies designed to wind up lefties and stimulate the erogenous zones of the right wing of the Tory party. It was central to his argument. He hailed greed and envy as emotions to be celebrated because that was at the heart of his contention that inequality is not only inevitable, it is desirable and necessary as an engine of economic growth.

http://www.theguardian.com/commentisfree/2013/dec/01/boris-johnsons-views-like-brave-new-world-dystopia

Clearly, Andrew Rawnsley has never heard of Herbert Spencer, 19th century philosopher beloved by the wealthy and powerful American Robber Barons, Carnegie, Rockefeller, Vanderbilt and the rest?

(See below – J. K. Galbraith’s video clip from the 1977 ‘The Age of Uncertainty’ series)

It was Herbert Spencer, not Darwin, who coined the phrase ‘Survival of the Fittest’, drawing parallels between his political classical economic theories and natural selection.

Spencer’s theories of laissez-faire, survival-of-the-fittest and minimal human interference in the processes of natural law had an enduring and even increasing appeal in the social science fields of economics and political science. 20th century thinkers such as Friedrich Hayek, Ludwig von Mises, Milton Friedman and Ayn Rand expanded on and popularized Spencer’s ideas, while politicians such as Ronald Reagan and Margaret Thatcher enacted them into law. 

http://en.wikipedia.org/wiki/Herbert_Spencer

‘Laissez-faire, survival-of-the-fittest and minimal human interference’ as advocated by Ayn Rand, is the pedigree of Boris’ incongruous suggestion that the largest cornflakes rise to the top of the shaken packet.

And also his even more controversial assertion:

‘… Johnson mocked the 16% “of our species” with an IQ below 85 as he called for more to be done to help the 2% of the population who have an IQ above 130.’

http://www.theguardian.com/politics/2013/nov/27/boris-johnson-thatcher-greed-good?CMP=twt_gu

(Well, perhaps not so controversial given that those percentages are inherent to the IQ test methodology… but let’s not get bogged down in dissecting Boris’s faulty understanding and ignorance. Let’s go with the implicit message.)

 

American follower John Fiske observed, that Spencer’s ideas were to be found “running like the weft through all the warp” of Victorian thought .. and are clearly still running like a weft through the upper echelons of the Conservative Party.  The silence from Cameron et al immediately following Boris’ speech was deafening.

Essentially, the tenets are those of the American Dream:

i)   Rich people are rich because they have fought their way to the top and are more intelligent.

ii)   Poor people are poor because they have not tried hard enough and are stupid.

iii)   Government and the benefits system prevent the cornflake packet being shaken hard enough.  Hence, the need to remove the ‘safety net’ of the welfare state and shrink the role of government.

(Frankly, I can’t believe that I’m writing this extremely unpleasant garbage which owes nothing to any informed understanding of genetics, cognitive psychology, sociology or economics.)

As a commentators on Cif wrote in response to Boris’speech:

‘They’re not even trying to pretend anymore, are they?

Perhaps that’s a good thing, because it shows that the end is near. Hubris is the best indicator for that…’

‘Spot on, it’s the new eugenics. The conservative hierarchy genuinely believes that there is no further need for social mobility, that the social hierarchy with its grotesque inequalities is some kind of perfect order. The rest of us simply live to serve the new banking aristocracy.’

Boris may well have overestimated the readiness of the UK for his ‘eugenic’ message.  Another putative Tory leader, Sir Keith Josephs, certainly scuppered his chance of being Prime Minister when he attributed the cycle of social deprivation to a combination of the young and poor in a climate of sexual freedom perpetuating a deprived class with little effective hope of self-improvement – adding that “the balance of our human stock is threatened”.

After some days, Cameron and Osborne finally felt the need to distance themselves from the Boris speech but it is noteworthy that their disclaimers were somewhat ambiguous and not entirely inconsistent with Boris’ views …

Asked on his flight to China whether the London mayor spoke for the Conservative party about IQ levels and inequality, the prime minister said: “I let Boris speak for himself. I think it is very important that we make sure we do everything so that we maximise people’s opportunities to make the most of their talents.”

.. which could mean ‘maximise cornflakes’ opportunities’ so that they can greedily and enviously fight their way up the packet unimpeded by big government.

George Osborne similarly distanced himself:

“I wouldn’t have put it like that and I don’t agree with everything he said.”

.. so which bit didn’t you agree with George?

However… How can Cameron and Osborne possibly say that they reject Boris’ philosophical assumptions when we can all see in their policies that they are doing their utmost to create the ruthless laissez–faire society advocated by Hayek, Friedman, Rand, Regan and Thatcher?

Postscript:

It is a bit hazy as to how Boris explains inherited wealth as being the result of individual struggle… Did Cameron, Osborne and the other cabinet millionaires all start at the bottom of the cornflake packet?

The Age of Uncertainty Episode 2 – The Manners and Morals of High Capitalism

The Age of Uncertainty is a 1977 television series about economics, history and politics, co-produced by the BBC, CBC, KCET and OECA, and written and presented by Harvard economist John Kenneth Galbraith.

Galbraith acknowledges the successes of the market system in economics but associated it with instability, inefficiency and social inequity. He advocates government policies and interventions to remedy these perceived faults

The content of the series was determined by Galbraith, with the presentation style directed by his colleagues in the BBC. Galbraith began by writing a series of essays from which the scripts were derived and from these a book by the same name, emerged which in many places goes beyond the material covered in the relevant television episode.