Tag: colin leys

The rot at the heart of British society runs deeper than the travails of Philip Green

By Daniel Margrain

The news that serial tax dodger Philip Green bought his third luxury super-yacht for £100 million, a sum similar to the amount that was effectively sequestered from the BHS pension fund, and which was subsequently hid in tax havens wrecking the lives of thousands of his employees in the process, is symptomatic of the kind of rot that has spread throughout the high echelons of the ruling class. Like rising damp in an old building that spreads throughout the foundations before working its way through the brickwork until it eventually subsumes the entire edifice, Britain is currently suffering from another kind of infestation that of the ruling class “elite” whose unprecedented actions and decisions are undermining the rules and laws on which the proper functioning of a civilized society depend.

The biggest scandal isn’t about the corruption surrounding the Panama Papers, bankers and the revelations about Philip Green (as bad as they are), but about wealth inequality. Currently, the top 1 per cent own as much as 99 per cent of the rest of the world combined. What the Panama Papers revelations highlighted was just how unequal the world is. In his book, ‘The Hidden Wealth of Nations’, economist Gabriel Zucman estimates that worldwide, more than $7.5 trillion is stashed away in offshore accounts. As an indication of just how much that is, the sum amounts to some 8 per cent of the entire financial wealth of the world. About 80 per cent of that has not, and will not, be taxed at all, ever.

This level of tax avoidance increases the wealth gap between the rich and poor. Hiding vast sums of wealth from the prying eye of governments makes it easier for the super rich, represented by the 1 per cent, to remain rich and avoid tax policies which are meant to help the 99 per cent. Off-shore accounts also make it more difficult for everybody else to get rich because of the uneven playing field that results from these tax havens. The 99 per cent among the mainly middle income earners are paying higher taxes to make up for the taxes that the 1 per cent don’t pay.

Although on average slightly less than 8 per cent of all the financial wealth of the world is off-shore, Europe fares worse at 10 per cent. By contrast, off-shore financial wealth in Latin America stands at 20 per cent, in Africa the figure is 30 per cent and in Russia an incredible 50 per cent of all its financial wealth remains hidden off-shore. What all this indicates is the sheer scale of a problem that hits the developing world the hardest where the results for the very poorest who have no access to any form of social protection, can literally be death.

As far as Europe is concerned, the massive use of tax havens began in the 1920s in Switzerland. In Britain this trend became a feature of society around the mid-to-late 1970s. Numerous tax havens had began to spring up during this time which is when the great wealth disparity really started to make its mark. This was no accident. During this period, the function of the state began to change from that of ‘welfare provider’ to more ‘pro-business facilitator’. The ideology that came to embody this change was neoliberalism.

Instead of the direct provision of services administered democratically at the local level, the trend has increasingly been for the state to act as a purchaser of these services which have then been provided privately and indirectly. As each separate financial intermediary takes their slice of the financial pie, the temptation for corrupt practices becomes greater and the concentration of capital and deregulation of labour markets more acute.

With the balance of economic power tilted increasingly towards the rich who are able to buy the influence of politician’s, the impact on democracy has been devastating for millions of ordinary people. This hollowed out system of democracy is one in which the 99 per cent increasingly seem to find it difficult to find some personal and meaningful pattern in a social world dominated by huge and distant monoliths whose power over the livelihood of millions seems absolute.

This explains the growing popularity of ‘unorthodox’ politician’s like Jeremy Corbyn, Bernie Sander’s and even to an extent, Donald Trump, who offer the electorate an alternative to the ‘business as usual’ politics of the corporate controlled political machine. However, until a distinct break with the current system occurs, the masses are faced with the prospect of more of the same neoliberal ideology predicated on austerity.

Contrary to popular mythology, it wasn’t the Conservative government of Margaret Thatcher which came to power in 1979 that invented neoliberalism, rather that distinction is reserved for the preceding Labour administration under James Callaghan. It was the Labour government, not the Tories, who accepted the terms of the austerity package proposed by the IMF in 1976. The main condition of the IMF loan, insisted on by the US Treasury, was that the government deficit must be reduced by cutting demand.

Interest rates were raised and government spending reduced. Wage, job and welfare cuts were the hallmark of the ‘social contract’ between wage labour and capital agreed by the unions to bail out the government. As Colin Leys notes:

“From 1976 onwards, Labour accordingly became ‘monetarist’. Its leaders accepted that full employment could no longer be achieved by government spending but must be sought through private sector growth. For the necessary investment to take place, prices must reflect real values, and this in turn required ‘squeezing’ inflation out of the system and permitting the free movement of capital. In 1978 Treasury officials began preparing to abolish capital controls.”

Spearheaded by the deregulation of the movement of capital, the breaking of the unions and the centralization of state power that favoured the corporations in the running of state enterprises, rates of inequality that had been reduced from the previous highs of the depression years of the late 1920s began to grow again. During the 1920s wealth disparity was huge. Then, as people at the top paid more taxes, and people in the middle began to earn more, the gap became increasingly smaller.

As the consensus between capital and wage labour started to go in reverse from about 1980, inequality began to increase steadily to 1920s levels which is roughly the point they are today. By the mid 1980s tax havens started to emerge in places like the Caymen Islands, Singapore, Hong Kong, Panama, Bermuda the British Virgin Islands and increasingly, London. All of the wealth located in these havens isn’t actually invested their. This means that the vast majority of people who live in, say, London, don’t benefit from foreign money that’s invested in, for example, property due to the massive rise in property prices that result from these investments.

So why do the 99 per cent put up with all this?

Many people tend to get distracted, whether that’s through working all the hours under the sun merely to survive, or through sports or other forms of leisure activities. Many others are angry but feel disconnected from the political process. The politicians, by contrast, benefit from the current situation so they are not motivated to change it, largely because they are immune from any effective political pressure from below.

The consequences for civil society that emanate from the combination of public apathy and apoplexy are potentially extreme. The lack of proper investment in public services like the NHS, social care, libraries and schools will end up with them collapsing. This is a process that to a large extent is already happening. The fact that the super rich have their money stashed away off-shore, while many among the poor don’t earn enough to pay tax in the first place, has resulted in an insufficient tax yield.

The reason why many people can’t get a prompt appointment with their GP, paving stones in the streets are cracked, their libraries are staffed by volunteers and there are pot holes on the roads that never get attended to, is directly linked to these factors. So while public services are being slashed on the one hand, people are increasingly having to pay for the ones that remain with money, in many cases, they haven’t got. If they are fortunate enough to have a job, it’s likely that their disposable income in real terms wouldn’t of increased in the last four decades.

Particularly for the young, the prospects of finding secure, fulfilling and well paid work is as remote now than it has been for at least 70 years and the situation is likely to get even worse as robots begin to replace many traditional blue collar and even white collar jobs. Leaving aside the threats posed by climate change, the underlying root cause of the problems society faces both now and in the coming period, is the inability of governments’ to take a long term approach to tackling levels of inequality that are so extreme that violent disorder on the streets may be the only language the politician’s will take note of.

Why is Tory economic dogma seen as mainstream, but Corbynism extreme?

Sixty-six years after the foundation of the welfare state, under the current Conservative government, every aspect of it is under attack. The 2012 Health and Social Care Act, for example, will remove the duty on the Secretary of State for Health to provide a comprehensive health service, while the requirement in the act that up to 49 percent of services can be tendered out to “any qualified provider” will rapidly lead to the privatisation of the NHS in England and Wales. Already between a quarter and a half of all community services are now run by Virgin Care [1].

In social care, a combination of cuts of around 30 percent to local authority budgets since 2010, increasingly restrictive eligibility criteria for services, and inadequate personal budgets will leave millions without the support they need and increasingly dependent on the family, and in particular women family members [2].

And in place of what was once called social security, unprecedented cuts across all areas of benefits, especially disability benefits, the introduction of sanctions regimes which have contributed to 500,000 people being forced to use food banks, and a bedroom tax affecting around 600,000 people will increase the number of children living in poverty by 200,000 [3].

All of this has been underpinned by a brutal ideological offensive against people on benefits which explains the reason for the growing rates of sickness benefit claims are for those who suffer from depression and anxiety [4], as well as the increase in the rate of suicide among those on benefits [5].

The ideological attack on the poor is predicated on the governments’ insistence that those able to defend themselves least, pay the costs for a global economic crisis which began in 2008 but was not of their making [6].

Over the last forty years, successive Labour and Tory governments’ have been committed to rolling back the post-war welfare settlement under the guise of debt reduction premised on neoliberalism which involves a change to the function of the state as less ‘welfare provider’ to more ‘pro-business facilitator’.

Many people believe that the neoliberal assault that embody these changes began with the 1979 Thatcher governments’ limited (by today’s standards) publicly-owned asset stripping. But this is a myth. It was actually under the Callaghan administration that preceded Thatcher that the initial structural changes happened  As Colin Leys (p.41) notes:

From 1976 onwards Labour…. became “monetarist”. It’s leaders accepted that full employment could no longer be achieved by government spending but must be sought through private sector growth. For the necessary private investment to take place, prices must reflect real values, and this in turn required “squeezing” inflation out of the system and permitting the free movement of capital. In 1978 Treasury officials began preparing to abolish capital controls

But it is the assault by the trio of Cameron, Duncan Smith and Osborne on, not just the welfare state, but the entire ethos of the public sector in general, that has taken things to a new level. This is demonstrated, in part, by Osborne’s intention to sell off £31bn of public assets in 2015-16. It is clear that the Tories are using austerity and the neoliberal ideology that underpins it, as an excuse to expand the pro-business facilitator model to areas within the public sector that Thatcher could only in her wildest of dreams imagined.

That said, this approach has limits in terms of maximizing utility to capitalists within a modern state. It is precisely this kind of rationale that explains why the former governor of the Bank of England announced that the current situation is “the worst crisis at least since the 1930s” [7].   

As this writer has pointed out previously, even venture capitalists realize that proper welfare provision for those not working as well as a substantial increase in the the minimum wage for those in work, is necessary to prevent the capitalist system that they benefit from collapsing in on itself [8].

In 1943, the Tory MP Quintin Hogg warned that “If you don’t give the people social reform, they will give you social revolution” [9]. This is as relevant today as it was then.

It’s therefore in nobody’s interest that wages are kept depressed and the unemployed and sick are continually made to suffer. The fact they continue to suffer unnecessarily is the reason why a political space has opened up for the likes of Jeremy Corbyn to move into.

Although much of the mainstream media are characterizing Corbyn’s policies as unworkable, misguided and extreme – and seemingly doing everything in their power to undermine and discredit him -, these are nevertheless policies that are, in truth, mainstream and pragmatic. This explains why an increasing number of economists have publicly come out in support of the kinds of economic policies Corbyn articulates [10].

These policies are economically credible, popular with the public and, for most of the world, regarded as mainstream:

In 2009, most of the world was following mainstream economics of the kind that Corbyn is proposing today in undertaking a fiscal stimulus to combat the impact of the financial crisis. But in the UK a certain politician decided to ignore ‘economic credibility’, and instead proposed doing the opposite: what has subsequently become known as austerity [11].

The imposition of 40 years of neoliberal economic dogma pursued by successive Labour and Tory governments’ has failed the people of Britain who rightly, in my view, see Corbyn as the catalyst for change. As time goes on there will be increasing pressure not just from below, but from the top, for the Tories to change course.

As the open letter to the Guardian by over 40 leading economists illustrates, this is already starting to happen. If the government refuse to acknowledge that austerity and neoliberalism have failed, and thus continue to stick rigidly to their failed ideology of cuts and austerity, the British people will eventually elect a figure like Corbyn into power on a mandate to do something about it. That time is coming closer with every passing day.