Debating the alternative to austerity in Spain and the UK

Debating the alternative to austerity in Spain and the UK

Contents of this longer than usual post

The Austerity Scam

Podemos

Yes we can do away with growth

The Viable Economy and the Paradox of Green Keynesianism

A Green Keynes?

A Green Keynes?

The Austerity Scam

Austerity is a scam, there is no need for it. We have made this point before: the idea that the national economy is like a household budget is mistaken: governments and their central banks have the prerogative of creating money, or spending it into existence, and this means that there need not be a shortage. To be sure, flooding the economy with too much liquidity could produce other problems (inflation, worsening trade balance, increasing emissions) but these can be controlled by applying other macroeconomic levers, principally taxation (see Richard Murphy on the role of taxation: HERE and Frances Coppola on money creation and its consequences HERE).

It is unclear why all the three main parties persist with the economically illiterate pretence that running a deficit is a problem, and that cuts to public spending are necessary to achieve this. The historical record refutes this notion. It seems that the right are running an ultra-Thatcherite political campaign in economic dress, of rolling back the State, and particularly the Social or Welfare State. It is less clear why the centre left should also play along with this (as “austerity lite”, slower and less deep, but cuts nevertheless). In discussions with protagonists it seems that the main reason is fear of the press, but this represents a retreat from the responsibility of educating the voting public – how far we have descended from the times of Atlee and Bevan.

Having noted the mainstream consensus on fantasist economics, we will not go further into an analysis of party politics in the UK: this is not Steady State Manchester’s role. Instead we will turn to the question of what policies are needed to counter austerity. And here we return to “the paradox of Green Keynesianism. We will do this with the help of a piece written by Giorgos Kallis and colleagues in the Research and Degrowth collective at the Autonomous University of Barcelona.

Podemos

First some context. Podemos is a new political party in Spain that recent opinion polls have put ahead of Spain’s PSOE Labour equivalent and neck and neck with the governing right wing PP. It arose out of the protests against austerity by the Indignados movement of 15 May (movimiento 15M). Podemos eschews the right-left label, but most of its support does come from left of centre part of the electorate. The Citizens’ Council of Podemos, its leadership, was elected electronically be over 100,000 people and is includes activists, academics and some former politicians. It is partly the communication skills of its leadership, notably of its effective leader Pablo Iglesias (even when on right-wing t.v. programmes), that explains appeal. But Podemos is also deeply rooted in the wider social movement, organised through circles of supporters in the various towns and city neighbourhoods. The policy formulation process is based on these circles. As such Podemos would seem to owe something to the inspiration of the so called “pink tide” of new Latin American democratic leftism (for example in Bolivia where the ruling MAS party was established explicitly as the political instrument of the social movements, although there has been something of a drift from that vision in power).

Returning to the economy, while Podemos rests on its circles, it has also commissioned input from some noteworthy intellectuals. Vicenç Navarro and Juan Torres López who are well known on the Spanish left as critics of neoliberal economics. Navarro was an advisor to Chilean President Salvador Allende’s Popular Unity government whose bloody suppression in the Pinochet coup of 1973 heralded the beginning of applied neoliberalism, while Torres has advised Venezuela’s late socialist President Hugo Chávez whose 1999 election marked the beginning of Latin America’s leftward turn.

Navarro and Torrres have put together a proposed programme. Its key strategic objectives are:

1) Guarantee sufficient funding at an acceptable cost for companies and families given that this is the life-blood of any economy and what the Spanish economy currently lacks.

2) Generate effective demand, that is, sufficient income for families, investors and government are able to spend resources that allow firms to create sufficient and decent employment.

3) Make the public debt sustainable, so it does not absorb more absolutely necessary resources as it does now, squeezing the economy with the excuse of paying back the debt, while actually increasing it (as bank interest) rather than reducing it.

4) Redeem those who have lost their income, their homes or other social, labour, civil and political rights, expanding such rights to all the population to reach a level of social security and protection that befits Spain’s level of economic wealth.

It will be noted that these are far more radical than anything on offer from the British Centre Left and in the main this is the kind of thing that anyone with an eye to social justice should be demanding and promoting here. But there is one small problem. This can be seen from the Keynesian thinking that underpins the authors’ previous 2011 ebook, “Hay Alternativas: Propuestas para crear empleo y bienestar social en España” (There are Alternatives: Proposals to create employment and well-being in Spain), on which they clearly draw for the Podemos strategy.

45. Establish well targeted economic plans that will stimulate the growth of new sustainable activity, generating of social prosperity, decent employment and equality and that are respectful of the environment.

50. An economic stimulus plan orientated to set in motion new activities and forms of production and consumption.

62. Model of growth orientated to the internal market based on high salaries and increased public spending.

This is fairly standard demand-stimulation stuff. Navarro himself appears not to know a lot about the more recent developments of ecological economics, steady state, post-growth and de-growth approaches, relying on the Commoner-Ehrlich debate of the 1970s. In this context the following contribution from the Barcelona Research and Degrowth Collective is of great interest. It does not reject the Podemos/Navarro-Torres approach, but rather builds on it, correcting its growthism. Here is my translation of their piece (presented here with their agreement).

Yes we can do away with growth

 The Research and Degrowth Collective (Barcelona) presents in this article 10 proposals to obtain prosperity without economic growth.

These proposals are relevant for Podemos but also for other parties in Spain, Catalonia (ERC, ICV, CUP), and other territories such as Greece, Italy, France and Portugal [and the UK and its nations – MB]

In this newspaper eldiario.es there has been an interesting debate concerning whether Podemos [literally “We Can”, the new Spanish radical popular party that grew out of the anti-austerity protests – MB] can promote a political agenda of de-growth in its economic programme. De-growth is not the same thing as recession, but the hypothesis that we can achieve prosperity without economic growth. The acceptance that the society of growth could have arrived at its end, or that if not then it ought to, is converted into a potent argument in favour of redistribution, one of the key proposals made by Podemos. De-growth challenges the spirit of capitalism itself: expansion. But escape from growth is not an easy task. Almost no political party has attempted it so far.

Recently (in vocabulary.degrowth.org) we have collected concrete political proposals that can facilitate a transition to de-growth. In what follows we present 10 proposals that are relevant for Podemos, but also for other parties in Spain, Catalonia (ERC, ICV, CUP), and other territories such as Greece, Italy, France and Portugal [and the UK and its nations – MB]. The programme that follows does not pretend to be exhaustive since it does not include proposals on crucial issues (pensions, health and education, public banks and the ending of the evictions, [following mortgage default – particularly severe in Spain since people still have to repay the total debt after being made homeless] – MB etc.) that are already in the programmes of progressive parties like Podemos and that we support.

 1) Abolish the use of GDP as indicator of economic progress. If GDP is a misleading indicator, we should stop using it and look for other indicators of prosperity. Monetary and fiscal national accounts statistics can be collected and used but economic policy shouldn’t be expressed in terms of GDP objectives. A debate needs to be started about the nature of well-being, focussing on what to measure rather than how to measure it.

2) Establish environmental limits. Establish absolute and diminishing caps on the total of CO2 that Spain can emit and the total quality of material resources that it uses, many of those imported from the global South. These caps would be in CO2, materials, water footprint and the surface area under cultivation that embedded in imported products. These measures already exist; they must become politically relevant and publicly promoted. Other similar limits should be established such as the extraction of water, the total built-up area and the number of licences for tourism services in zones dedicated to mas tourism.

 3) Restructure and eliminate debt. An economy cannot be forced to grow to resolve accumulated debts that have contributed to fictitious growth in the past. It is essential not only to restructure but also to eliminate part of the debt with a people’s debt audit, part of a new, really democratic culture. Such elimination shouldn’t be realised at the expense of savers and those with modest pensions whether in Spain of elsewhere. Once the debt is reduced, the caps on carbon and resources will guarantee that this will not be used as an opportunity for more growth and consumption.

4) Reduce and share the work. Reduce the working week to 32 hours and develop programmes that support firms and organisations that want to facilitate job-sharing. This should be orchestrated such that the loss of salary only affects the 10% with the highest salaries. Complemented by environmental limits and the tax reform proposed below, it will be more difficult that this liberation of time can be used for material consumption.

5) Minimum and maximum income. Establish a minimum income for all for all Spain’s residents of between 400 and 600 Euros per month, paid without any requirement or stipulation. Design this policy in conjunction with others that increase the income of the poorer 50% of the population while decreasing that of the top 10%, to finance the change. The maximum income for any person – from work as well as from capital – shouldn’t be more than 30 times the basic income (12,000 – 18,000 Euros monthly).

 6) Tax reform. Implement an accounting system to transform, over time, the tax system, from on based principally on work to one based on the use of energy and resources. Taxation on the lowest incomes could be reduced and compensated for with a carbon tax. Establish a 90% tax rate on the highest salaries (such rates were common in the USA in the 1950s). These taxes would be expected to halt consumption and eliminate the incentives for excessive earnings, which feed financial speculation. Also tackle capital wealth through inheritance tax and much higher taxation on property, for example on houses that are bigger than a reasonable size (for example more than 80 sq metres per each adult resident).

7) Optimise the use of buildings. Stop the construction of new houses, rehabilitating the existing housing stock and facilitating the full occupation of houses. In Spain those objective could be met through very high taxes on abandoned, empty and second houses, prioritising the social use of SAREB housing [those falling under the post-crash banking restructuring provisions following the Spanish real estate crisis], and if this is insufficient, the social expropriation of empty housing from private investors. By ‘social use’ we mean policies for the social rented sector, the co-operative economy and the common good.

8) Support the alternative society. Support, with subsidies, tax exemptions and legislation, the not-for-profit co-operative economic sector that includes alternative food networks, cooperatives and networks for basic health care, co-operatives covering shared housing, credit, teaching, and artists and other workers. Facilitate the de-commercialisation of spaces and activities such as mutual support groups, shared childcare and social centres.

9) Stop subsidising activities that are highly polluting, moving those subsidies towards clean production. Reduce to zero the public investment and subsidy for private transport infrastructure (such as new roads and airport expansion) military technology, fossil fuels and big mining projects. Use the funds saved to invest in the improvement of public rural and urban space, such as squares, traffic free pedestrian streets [paseos y ramblas], subsidise public transport and cycle hire schemes. Support the development of small scale decentralised renewable energy under local and democratic control, in stead of concentrated and extensive macro-structures under the control of private business.

10) Reduce advertising. Establish very restrictive criteria for allowing advertising in public spaces: prioritising just public information and reducing greatly any commercial character. Develop policies through taxes and committees to control the quantity and quality of advertising permitted in the communication media.

Last week Podemos published an economic programme prepared by Professors Navarro and Torres López [well established and respected mainstream left economists – MB]. Although the document has the strategic objective of stimulating demand and is neither concerned with nor favourable towards de-growth, many of the proposals such as the application of taxes to financial transactions [the “Tobin tax” – MB], redistributive taxation, the 35 hour day, a moratorium on large infrastructure developments or the turn towards clean investment and caring activities, are very close to the spirit of our own proposals. The programme also mentions the need to stimulate a more sustainable kind of consumption but it does not provide the tools needed to achieve this. Applying taxes on natural resources in place of work, restricting advertising, and establishing clear limits on the use of physical space, materials and CO2 are some of our proposals in this direction. The programme of Podemos also needs more definition and specifics on how it will support the co-operative economy. Nor need it abandon the idea of a universal citizen’s income, that concerns more directly the European policy of Podemos. It is positive that the authors of the report don’t use GDP and recognise that at least in the short term their proposals won’t result in an increase in GDP (we believe that this will also be difficult even over the longer term). If this is so, they need to also insist that GDP ceases to be a politically relevant indicator and specify what new indicators they will substitute to show the improvements that their policies will lead to.

We don’t mind if the right things are done in the name of de-growth or not. Indeed, we want to obtain good policies independently of their effects on growth. And in that way we can [podemos] do away with growth [decrecer]!

 

The Viable Economy and the Paradox of Green Keynesianism

Many of these ideas are close to those we have presented in The Viable Economy, although we emphasise the eco-regional level of Greater Manchester and the Mersey river basin. Many of our other ideas are also present in the Podemos document.

To conclude I will return to the question of what the British Ecological Economist Molly Scott-Cato (and newly elected MEP for the South West) has called the Paradox of Green Keynesianism. This is that by promoting the use of public money via ecologically benign investments such as housing insulation and renewable energy, to create jobs and create economic stimulus multipliers in the economy, the consequence is likely to be an expansion of the economy with a resulting increase in materials throughput, more resource extraction, mining, drilling, water abstraction and more pollution, greenhouse gases, nitrates, ocean acidification and so on. The only way to square the circle is, as Research and Degrowth say, through Establishing

absolute and diminishing caps on the total of CO2 that Spain can emit and the total quality of material resources that it uses, many of those imported from the global South”.

And again we make the same point in our Viable Economy:

Action plans for the reduction of hydrocarbon fuel usage within a bioregional cap. The cap could be set on a shadow basis at first, becoming mandatory over say a five year period. This could be complemented by modelling of the impact of a cap and share scheme.”

This latter idea, developed by the Irish FEASTA group offers a way of linking a basic citizens income to both a redistributive fiscal strategy and to the absolute and diminishing resource cap to de-grow the brown economy. I am told, am not sure with how much authority, that the current Labour Party leader, Ed Miliband, when Secretary of State for Climate Change and Energy, seriously looked at the cap and share concept, but put it in the “too difficult” box. I wonder if he added “for now”.

Mark Burton

Steady State Manchester Collective

Viable Economy reading group

We are going to run a Viable Economy reading group.  This will involve reading part of The Viable Economy plus another related piece each week, and then discussing the issues arising.  Our idea is to help participants to deepen their understanding of the key concepts in our alternative economics and also to become more confident in promoting them.  We will not be promoting a “correct reading” but creating a learning environment where we can all question and explore.  If you are interested, then please send us an email: steadystatemanchester@gmail.com

Viable Economy Launch

Steady State Manchester launched the Viable Economy pamphlet on 9 December 2014 at the Methodist Hall. Some thirty people came together to discuss and debate the contents of the Viable Economy and what people needed to do in order to realise the vision painted in the Viable Economy.

The evening began with 5 short five minute provocations from speakers concentrating on particular themes from the Viable Economy. Robert Brown from Steady State gave an introduction to the Viable Economy identifying the 4 common threads running through of Equity, Localisation, Money and Measurement.

Gavin Elliott chair of Manchester: a Certain Future, but who spoke for himself as a citizen and parent, focused on the spatial dimension. He particularly liked the idea of a new kind of Garden City and felt that most of the ideas from a spatial dimension, such as investing in the foundational economy, would be a ‘no brainer’ and may actually be well received by decision makers at Manchester City Council.

Gudrun Cartwright who is head of Market Place Sustainability at Business in the Community but who also presented from her own individual perspective skilfully explored the area of business by using headings which spelt the word VIABLE. She said an assessment was needed of what we Value and how business could help us achieve that. We need Intelligent business leaders who understand their role in systems and are Accountable. Such business leaders would strike a Balance between the long and short term and Locate their businesses close to where they are needed. Finally we should look at how businesses are owned in order to improve Equity.

Karel Williams ,Director of the Centre for Research on Economic and Social Change at the University of Manchester said he agreed with most of the policies in the Viable Economy. However Karel felt that the key challenge for the Viable Economy could be a political one. He used the example of low cost air travel as an issue that is difficult to engage people with in the face of a right wing media that would vehemently oppose any proposal to restrict cheap flights. He accepted this was a broader problem for the greens and the left and meant that perhaps more motivational language was needed in order to connect with people. He gave the example of the 1948 government’s narrative about security (health, full employment and retirement pensions) as having mass appeal and suggested that those seeking to gain popular support for the Viable Economy need to present an analogous offer.

Finally Mike Riordan, Director at Firstmover Consulting (and formerly Head of the Greater Manchester Environment Commission) thought the moves to regional devolution, although in danger of being a techno-managerial take-over, could offer an opportunity to gain support at regional level for ideas in the Viable Economy, particularly if we were to have our “SNP moment” with broader participation in the debate. He noted that world-views differ across the Greater Manchester area, and some of these are likely to be particularly open to our thinking. We should find opportunities to talk directly with actors at the city-regional level. Employment and social care are likely to be particular areas for fruitful dialogue.

Participants then split themselves into groups to continue the discussion, focusing in particular on what elements of the Viable Economy they liked and what they felt was needed to make the implementation of the Viable Economy a reality.

Feedback from the discussions identified that people at the event liked almost everything about the analysis and policies contained in the Viable Economy (even down to the full stops and commas according to one participant!). It was concluded that the key challenge would be how to convince the population at large that the Viable Economy could work for them. People noted that a lot of people in Manchester seemed to feeling insecure about work and their futures and if the right language was used then the Viable Economy could be effectively presented as the best solution for people. People also reflected that the Viable Economy was a useful basis for planning how we might lead our lives in the event of a future crisis.

Discussions continued into the evening after the event had drawn to an official close providing Steady State Manchester with further useful reflections on what the broader impact of the Viable Economy might be.

The Viable Economy can be freely downloaded HERE but if you find it useful we’d appreciate a donation to help cover our costs – follow the donation link in the menu above.

“The Viable Economy” launches today

image of The Viable Economy pamphlet

We are launching The Viable Economy today, Tuesday 9th December, 7-9pm at Central Hall, Oldham Street, Manchester. Book your free place HERE. More details of launch at the end of this post.

Copies will be on sale there, or you can download the pamphlet as a pdf file , HERE  We are unfunded so please make a donation – £2.50 will cover our costs. Donation page link.

Today we launch The Viable Economy, a pamphlet for everyone concerned about the dangers we face from the current unviable economic system and who would like to explore an approach that integrates economic, social and ecological well-being.

It suggests a path to a resilient, more localised, stable economy that delivers what we all need and will ensure more equity and harmony in our own area and throughout the world. It argues that we can decide on rather than follow economic rules and tread lightly on the earth as well as protect and restore those systems that make life possible.

It argues that to do this we will need a system based on values that include stewardship (caring for the earth), justice, conviviality (community), solidarity, co-operation, equality and respect.

It is in update of Steady State Manchester’s 2012 launch report In Place of Growth (available here). While not fudging the problem of our ecological overshoot (the real deficit), it presents a positive message of an economy that works for all, for us in Manchester and the people at the other end of our supply chains and pollution, now and in future generations. That sounds like a strong claim, and while we are confident about the central principles we do see this as work in progress, and welcome constructively critical feedback so we can improve it.

Why is  the current  economic system unviable?

We are continually told that economic growth is essential to all our well-being; it has such a hold on our imagination that we can scarcely believe we can live well without it. From 1945 until the 1970’s, the standard of living of many people, in Western countries increased. Real incomes for many have declined in the West since then, and many in the majority world have become increasingly poor. Since the 1970s stagnation has haunted the economy, temporarily lifted through a series of increasingly desperate ‘fixes’ of which ‘financialisation’ and the gross expansion of consumer credit are only the most recent. Meanwhile, current austerity policies illustrate how greater equality is continuously postponed.

Despite increasing inequalities locally and globally, the powerful growth lobby continues to say that given growth, prosperity will trickle down. But as we cope with instability and repeated crises; it is increasingly difficult to control the actions of big business and working conditions are getting worse. More and more decisions are made on the basis of narrow criteria of efficiency and profitability; this influences how we think, politics and even culture. As Margaret Thatcher wanted, everything is reduced to economic activity, with the emphasis on profit and the free market, with “no such thing as society”.

This economic system damages society. Some people and areas are highly valued while others are left out. Many people are dissatisfied with everyday life (some studies say dissatisfaction is higher in the UK than in places which are far poorer,) and the political process feels irrelevant to many people.

Increasingly our lives are more individual, separated and apolitical. Institutions and values which nurtured togetherness, solidarity, co-operation and a sense of community are less valued. Has this led to widespread feelings of pointlessness and insecurity, and high levels of stress, anxiety disorders, depression and addictions? Rising inequality has increased levels of insecurity and most worrying, a lack of social solidarity – the very basis for our shared life.

Even more distressing, we are using more ecological resources than our planet can cope with. As the Intergovernmental Panel on Climate Change’s (IPCC) most recent report has shown, it is economic growth that is responsible for the most immediately threatening increases in greenhouse gas emissions that threaten runaway global warming. And climate change is just one of the ‘planetary boundaries’ that humanity is crossing, or approaching, threatening the very basis of life itself.

That then is the nature of the problem.

So what is the Viable Economy?

The Viable Economy is not something we have just dreamed up but a way of bringing together a number of ideas and practice into a framework.

An economy,

  • That is resilient in the face of bubbles, crashes, supply chain interruptions and the whim of National governments.

  • That delivers (and measures) what we need; where some sectors will grow,(e.g. renewable energy) and some must shrink (e.g. fossil fuels, financial speculation, armaments).

  • Where more money stays local and there is local control over savings and investment.

  • Where investment comes from within rather than as profit-seeking from external investors.

An economy which is socially viable,

  • That includes everyone, that uses everyone’s energies and talents to the full and is based on nurturing human and social capital,

  • That builds equality, solidarity and co-operation among people, here and elsewhere.

  • Less exploitation of the majority world while keeping open channels for communication and learning globally.

  • Has more space for non-commercial transactions (including care of children , adults, neighbourhoods and exchanging services and skills: the collaborative or solidarity economy.

An economy which is ecologically viable

  • Radically reducing both the use of limited resources and the emission of pollutants, including greenhouse gases: a one-planet economy.

  • Based on production and consumption for need: a frugal abundance.

  • More security for us all because the environment is protected from further destruction.

  • Resilient to climactic and other ecological shocks.

  • An economy that practices stewardship of the natural world that we depend on.

The pamphlet draws on ground breaking thinking of recent years from a variety of fields and movements, including New Economics and Degrowth, Social Justice, Social Ecology, Trade Justice and Alternative Development, bringing them together because ecology teaches us that everything is interconnected.

It covers eleven critical areas: growth; resilience; space; democracy and ownership; investment, money, credit and debt; distribution and equality; work and income; environment; consumerism; living well and its measurement, and population and migration. For each area there is an outline of the current problems, the viable alternative and some viable policy ideas.

The themes that constantly run through these 11 areas are equality, localisation, money and measurement. We argue that greater equality is needed globally as well as locally and economically as well as socially. We recognise that greater equality is needed wherever there are preventable gaps if everyone is to live well and the economy if to be viable. This includes within Manchester and compared to other places locally and throughout the world as well as in terms of gender, race, sexuality and disability We argue that localisation of the economy can have an enormous impact on reducing ecological damage and ensuring a more stable and less exploitative approach to money.. We also consider the urgent need to measure wealth of society, not by how much we produce (Gross Domestic Product) but by measures that consider the value of what we produce, who benefits, and any damage to the planet as a result of the activity.

We include a section of population and migration, an area we have not previously explored where we suggest that the focus of action needs to be on the reasons why people have large families and want to migrate, rather than on control.

fig3 conclusion

We are launching The Viable Economy on Tuesday 9th December, 7-9pm at Central Hall, Oldham Street, Manchester. Book your free place HERE.

Copies will be on sale there, or you can download the pamphlet as a pdf file , HERE  We are unfunded so please make a donation – £2.50 will cover our costs.

Launch details:

Do come along – but it does help if you could book via eventbrite to give us an idea of numbers.

Introduction to the Viable Economy:       Robert Brown – SSM

Mini-Keynotes from critical friends.
Gavin Elliott, Chair: Manchester a Certain Future.   “The spatial dimension of the Viable Economy.”

Gudrun Cartwright, Head of Marketplace Sustainability, Business in the Community.  Business in The Viable Economy”.

Karel Williams – Director, Centre for Research on Economic and Social Change, University of Manchester.Alternative models of economic development.”

Mike Reardon – Director, Firstmover Consulting Limited  and Visiting Fellow, Heseltine Institute for Public Policy and Practice, University of Liverpool. “Influencing city and regional strategy.”

SSM response – Mark Burton

Structured discussion focussed on taking the ideas forward into our various networks, workplaces and organisations.   Led by Judith Emanuel, SSM,

Austerity is a scam but green growth isn’t the answer either.

Yesterday, 3rd December, 2014, The UK Chancellor of the Exchequer, George Osborne, made his autumn statement in which he set out the government’s plans on the economy.

He confirmed that a Tory government will continue to cut public spending in the years to come. Indeed it turns out, “you ain’t seen nothing yet”. As the Office of Budget Responsibility puts it, the government’s plans mean that

Between 2009-10 and 2019-20, spending on public services, administration and grants by central government is projected to fall from 21.2 per cent to 12.6 per cent of GDP and from £5,650 to £3,880 per head in 2014-15 prices. Around 40 per cent of these cuts would have been delivered during this Parliament, with around 60 per cent to come during the next. The implied squeeze on local authority spending is similarly severe.

http://cdn.budgetresponsibility.independent.gov.uk/December_2014_EFO-web513.pdf

For a sound analysis of where these cuts will fall, see Richard Murphy’s piece, accurately titled: Osborne is planning to destroy society as we know it. What are we going to do about it?

Anyone with any compassion or sense of justice will be outraged by this continued policy of re-distribution: redistribution from the people to private capital, and from the poorer people disproportionately. Indeed, a lot of space is wasted in the press and the internet (by me too) in cathartically repeating that outrage.

And there is plenty of evidence that the plan won’t work – where the criteria for it working is what? That government spending (including borrowing) will fall below its receipts from tax and trade. And the recipe is based on a reversal of the what in the 1960s was called the Trade Gap, cuts to public spending, with no increase in taxation.

The question, then, (as Lenin once said in a rather different context) is “What is to be done?”. What policies would an alternative government follow?

First we need to dispense with the idea, shared by the Tories, Labour, The Liberals and that purple mob, that the deficit, and government debt, is a problem. Osborne and the Tories have spellbound the political establishment with Margaret Thatcher’s erroneous metaphor of a household budget. Yet national budgets don’t work in that way, chiefly because money is created and not based on its material referent. This is dealt with in more detail, and far more clearly than I could in a variety of sources, including the Bank of England’s Quarterly Bulletin 2014 Q1, and the sources listed below.

The radical conclusion from this is that the deficit is not a problem. As John Weeks concludes in a paper that names the austerity scam,

The fiscal deficit is not a problem. Quite the contrary, it is part of the solution to achieve a robust recovery. Except in rare circumstances, deficits and debt are responsible and safe. Deficits and debt are typically good things, contributing to social welfare. Public sector surpluses and the absence of debt are typically dysfunction, bad things for the well being of households and businesses.

To many if not most this characterization of deficits and debt is absurd. The first and fundamental step in understanding the functional role of public sector deficits is that rarely do they result from excessive spending. They result from recessions, as in the UK over the last six years.

But I am going to argue that the fight-back against austerity needs to do two things. In the next paragraph of John Weeks’s paper, he says:

In economically advanced countries such as Britain taxes on expenditures and incomes, of both households and businesses, increase to the point of overwhelming all other sources of revenue, such as tariffs and fees charged by governments. Income and sales taxes have two very useful characteristics. Governments find them easy to collect and they increase as the economy grows (and vice-versa). This may seem so obvious that it need not be explained, much less explained in tedious detail. (my emphasis)

Herein lies the problem. On the one had we have to deal with the nonsense that comes not just from the Tories, but the Labour front bench about balancing the books and paying down the debt.

As Manchester’s Colin Talbot puts it:

When did all three of Britain’s main political parties apparently become committed to a balanced budget?

The idea of a ‘balanced budget’ has long been a shibboleth of the US right, but it has rarely been on the agenda in Britain since the Great Crash in the 1930s. Yet suddenly all three parties seem signed up to it – with minor variations in their stance – without any political debate about its merits.

But on the other hand, we need to be clear that just relying on the economy growing can’t be the solution. You can’t grow your way out of the kind of combined economic, social and ecological crisis that we find ourselves in. The economy can’t stand it (where is all the demand, all the resources going to come from?). Society can’t stand it (how will we deal with the inevitable alienation, the failure to improve quality of life, the increases in inequality that growth drives?), and the planet can’t stand it (reversing the ecological and climate crisis will take more than a switch to renewable power and improved energy efficiency – we’d need to increase the annual rate of improvement in energy and materials efficiency ten-fold and ultimately we’d need an economy that used no materials at all, because they’d all have been used!).

This is where we meet a huge challenge. To win the battle against the austerity scam we have to make alliances with others But that means allying with those who have quite conventional, indeed uncritical, understandings of development, growth, prosperity. This can be seen in the alliance of post-Keynesians with ecological activists, both in the New Economics movement and in continental movements like Syriza and Podemos/Los Indignados.  We need to understand and use the insights from Keynesian thought (for example in the theory of money alluded to above), but not surrender to the idea that all we need to do for salvation is reflate demand and boot up the multipliers to restore GDP growth. And that goes for the green variant of (post-?) Keynesianism, the restart of the economy by investing in climate-friendly schemes like retrofitting housing with insulation, and renewable energy. If those things only lead to a resurgence of the treadmill of material consumption, all it will do is contribute further to alienation, status insecurity, inequality, and to human and natural exploitation on a global scale.

So far, I have not seen any convincing proposal for how the Green Keynesian approach can actually avoid restarting an economy that is lethal to life on earth, rather than taking us to an “economy for life”, the Viable Economy. I’m prepared to be persuaded ……..

Mark Burton

Sources on Modern Money Theory.

Cato, M. S. (2014). Can’t Pay, Won’t Pay: Debt, the Myth of Austerity and the Failure of Green Investment. In J. Blewitt & R. Cunningham (Eds.), “The Post-Growth Project: How the End of Economic Growth Could Bring a Fairer and Happier Society.” London: London Publishing Partnership.

Guinan, J. (2014). Modern money and the escape from austerity. Renewal, 22(3-4), 6–21.

Pettifor, A. (2014). Just Money: How Society Can Break the Despotic Power of Finance. London: Prime Economics.

Ryan-Collins, J., Greenham, T., Werner, R. and Jackson, A. Where Does Money Come From? London, NEF see http://www.neweconomics.org/publications/entry/where-does-money-come-from

Steady State Manchester (SSM) asks the Association of Greater Manchester Authorities (AGMA) to focus on quality of life in a viable economy, rather than economic growth and include the need for land for food production in the Greater Manchester Spatial Framework (GMSF) .

THe Association of Greater Manchester Authorities (AGMA) is preparing the Greater Manchester Spatial Framework (GMSF), which will guide the 10 councils of Greater Manchester in planning and managing the supply of land for jobs and new homes over the next 20 years.

AGMA recently asked for views on the Stage 1 document[1] of the GMSF, which sets out the planning approach and the assumptions to be used in determining future needs for employment floorspace and housing land. Their approach is based on the 2013 Greater Manchester Strategy ‘Stronger Together’ which aims to secure ‘sustainable’ economic growth of the conurbation through competing in the global economy (both notions that we find deeply problematic).

SSM has submitted two main comments.

First, we suggest a revised vision for Greater Manchester emphasising quality of life in a viable economy, rather than economic growth, with the following main points:

By 2020, the Manchester city region will have pioneered a new model for a viable economy based on a more connected and greener city, where all our residents are able to fully realise their talents and benefit from sustained prosperity. This will ensure a good quality of life for all without harming the planet.

Manchester’s tradition of creativity, culture and knowledge will continue to flourish and will underpin our reputation as a pioneering, viable eco-city-region. We will collaborate globally in order to develop the talent, ideas and investment necessary to enable this huge transition.

At the local level, greater equity and collaboration within and between communities will ensure a fairer, healthier, safer and more inclusive place to live. Every resident and every neighbourhood will be valued and able to fully participate in and contribute to the city-region’s success.

We will produce and sell socially useful goods. We will be known for a low carbon economy, with excellent and efficient services and transport choices, alongside an outstanding natural environment.

Secondly, in the face of climate change, expected global food price rises and the need for sustainable, affordable food for the region’s population, we propose that the Spatial Framework should include land for food production. This would include land (and floorspace) for commercial and social enterprises which would provide jobs, as well as land within housing areas for communities and families to grow their own food.

AGMA will now create a database of interested organisations, groups, individuals and other stakeholders who will be invited to comment on the next stages of the GMSF – the further evidence base, development of options and draft GMSF – which will be prepared in 2015/16.

Submitted by Charlotte Allen

[1] http://www.agma.gov.uk/what_we_do/planning_housing_commission/greater-manchester-spatial-framework/index.html

With GDP growing and incomes catching up with inflation all is well – or is it?

The headlines would have us believe things are now going well but the underlying trends in our economy, which would lead to us having a “viable” economy – one with social, economic justice and environmental sustainability leading to human well being, are all in reverse. What are these adverse underlying trends and why are we not promoting overall well being?

Global and UK inequality continues to accelerate with the top 1% owning 41% of the world’s wealth in 2012 rising to 48% in 2013 and by now it is well over 55%. At the current rate the top 1% will own everything in five years – not a tenable situation so what may change?

Will the economy become more balanced? There seems no sign of this as manufacturing continues to decrease and opportunities for exports deteriorate with the global slow down. The long period of salaries not keeping up with inflation means there is less money around for people to buy goods, leading companies to prefer to keep their piles of cash rather than invest it in the real economy. Further, our economies have traditionally been driven by technological innovation but few profound new products are on the horizon. The reductions in military expenditure (a good thing if the public money were spent on meeting human need) as well as companies seeking quick profits instead of facilitating long term research are partially to blame.

Will wealth and income inequalities lessen? Some say that salaries will now overtake inflation and this will soon make things better for the majority. At the upper end of the pay scales salaries are increasing faster but for most there is little sign of this happening. Indeed the underlying trends suggest more people will have to live near or below the living wage. The underlying trends keeping most salaries low include:

a) Continued Globalisation. The owners of capital can move their companies to where labour is cheap and they are still moving. Even service industries, like the provision of further education, are now moving, leading to a reduction of foreign students here in the UK. Plus the free movement of labour within the EU means an ever increasing number of people coming to the UK to seek employment, removing any risk of shortages that have traditionally forced up salaries.

b) Continuing technology innovations are being utilised, especially those seeking to reduce the salary bill. It is estimated that 700,000 middle range jobs have gone in the last 10 years as technology has made them redundant. Skilled and semi-skilled jobs in accountancy, construction, retail managers and even some professionals – lawyers and lecturers, are likely to go as technology advances take on more of their tasks.

c) The rapid and continued reduction of the State and its welfare provisions. Good secure public sector jobs have been outsourced inevitably leading to reduced employment conditions and salaries. As social security provision is removed more people are being forced to compete or enter low paid work. Many have become self-employed and most of these are on low pay. Liberalising the labour market has led to many more insecure workers with less power to seek increased pay.

d) Financialistion of our society is said to be the biggest new factor driving down salaries. Companies are being driven by short term profit as their constantly changing share holders have no long term vision. Many have little interest in training and keeping staff for long term results. Trade Unions have become much weaker, productivity lower, and more workers increase their credit to solve their needs.

To reverse our low wage economy, some say that increasing the skills of our workforce can be a long term answer, but the evidence is that a high proportion of existing and new jobs need fewer skills and they are often gained through on the job learning. After increasing their skills few workers can now increase their employment prospects. 80% of those who started with education to levels 1 and 2 stayed on low wages after 10 years employment. Further, for those with level 3 and 4 education the ability to progress is being reduced by the hollowing out of middle range jobs largely due to technology. Even level 5, university graduates, are often finding it harder to find employment that requires their skills.

Another possibility for a reversal of our low wage economy is increasing productivity but this is a missing factor in our current economic trends as productivity has stagnated (and more productivity can mean fewer staff are needed). Even though some gains are made through technology employers are taking on more low paid workers thereby keeping overall productivity stagnant. Further, increasing productivity must be more challenging as most workers find their jobs more stressful, precarious and demanding than ever before. A recent survey of workers found “two thirds of employed people say the amount of work they do has grown over the past few years and more than one third are expected to do unpaid overtime – Only a third look forward to going to work – One in five say they have seen at least one person sacked or made redundant without good reason”. It is not surprising that the Health and Safety Executive reports increasing workplace illness related to stress, depression and anxiety in the last financial year, with around half being new cases, and this is likely to reduce any prospects of increased productivity. Cuts in key mental health services could be an important factor in increasing workplace absenteeism.

Meanwhile the wealth and incomes at the top 10% and especially the top 1% keep increasing at a rapid rate causing further disenchantment amongst many workers with 40% seeing no chance of them making any real progress.

Another outcome of the elite now holding so much wealth has been their use of it to stimulate mergers and acquisitions, leading to huge multinational corporations that are not easily subjected to fair competition, Trade Union pressure, or Governmental regulations or controls.

As there seems little chance for better income distribution will the elite use their resources to improve the economy for the rest? Traditionally it has been those with capital who have enabled the formation of new job creating companies, but since the 80’s the top 1% have found it far more profitable to invest money into the virtual economy where huge often speculative profits have been made. Most new companies are started by comparatively poor entrepreneurs who have often been frustrated in their endeavours due to the current difficulties of obtaining loans from our banks.

Some of the elite have invested heavily into the property market driving up house prices and increasing the private rented sector from 8% to 18% in less than 10 years. Private sector rents have increased far faster than inflation, leading to the greatest transfer of money from the majority to the elite in well over hundred years.

With continued consumer growth unlikely and with the elite preferring to keep their money in the financial and property markets, can the Government become the economic driver of the real economy?

Most Western Governments increased their debt levels enormously by the huge bank bailouts following the last economic crisis. The following austerity policies then triggered a period of negative or low growth leading to more Government debt. Increasing Government debt is primarily driven by a mixture of lower tax revenues and increasing demand due to rising needs. Two examples of rapidly increasing need is the health, pension and social care costs of our growing elderly population and the greater support required to the working poor to meet the gap between the minimum and living wage, especially in terms of Housing Benefits to meet soaring increase in house rents. Taxation has been reduced further by multinational companies finding ways to avoid paying and now even evading the pay of taxes using tax havens. In the last 4 years although multinational company’s profits have risen, corporation tax has decreased by over 20%. It is still decreasing along with personal taxes due to more low earners and some reduction in taxes. All this has lead to most Western Governments implementing drastic austerity by lowing investment in infrastructure, cutting or outsourcing public services and in some areas increasing taxation. Austerity is leading to Governments having less ability to drive the economy.

The recent way forward has been by central banks creating money through Quantitative Easing (QE). While it has been argued this has brought a respite, no serious economist considers it to be the solution and indeed in many places it has led to unforeseen negative outcomes. Japan has utilised huge quantities of QE but is now back in recession. Emerging markets have often been swamped with too much “free” QE money leading to harmful currency turbulence. Even in the UK much of QE seems to have ended up in a bloated stock market with further investment in financial assets, or even more disastrously pushing up house prices. Nevertheless even though currently the US and UK central banks have stopped the practice the EU central bank is suggesting issuing over a trillion Euros of QE at this time.

Since the 80s we have heard the call that more structural changes are required: less regulation, especially the liberalisation of the labour market, but although such changes can give a spurt to GDP growth, many would say they have played a key role in causing our current gross inequalities – a prime cause of our current situation.

We still have some GDP growth but in an unbalanced way, dependent on unsustainable rises in property prices and consumer spending by increasing personal debit. To make the situation even more untenable we have many dark clouds on the horizon that include; global economic slow down, great volatility in commodity prices, the adverse effects of Global Warming and, another huge collapse of the financial markets.

Global economic slow down is gathering pace in virtually all countries of the world with each having its own internal economic challenges. At the G20 meeting no consensus emerged on how to change this – just countries issuing “red light” warnings. It is likely some countries will start to take defensive action such as the Chinese threat to put taxes on Australia coal imports.

The global slow down will mean many commodities will continue to reduce in price. The current low price of oil, which is still dropping, is causing concern in oil producing countries and even threatening many fracking companies in the USA who have huge debits and are now struggling to pay them. However, in the longer term some key commodities will increase in price as their availability through easy extraction has to be replaced by more expensive processes. Potash for fertilizers and rare earths are two key examples of this trend.

Global Warming has already caused adverse climate conditions leading to a significant loss of economic production in many parts of the world. In 2012 alone, the US suffered eleven “billion-dollar” weather disasters. Adverse weather plus deteriorating soils and increasing population is leading to food shortages and increasing food prices (an effect amplified by speculation), which have often lead to social instability. Between 2007 and 2012 food prices in the UK increased in real terms by 18%. In the UK this has reduced primarily due to intensive competition (as we noted in comparison with Germany in a previous post) but as the supermarkets lose profits the trend must soon be reversed.

In the short term our biggest challenge could arise as the result of another huge collapse of the financial markets. Observers of financial markets note a growing trend towards fragility. Some examples-huge unpaid debits for student loans here and in the USA, increasing personal debit, house price bubbles in many countries, vast increases in the value of financial instruments such as derivatives, and catastrophe bonds. All this while we are aware many bankers are not playing by the rules with impunity; instead a pernicious culture of short term rewards often overrides sound financial judgements. Many financial observers suggest this instability will soon lead to an economic crisis on an unprecedented scale. True or not, it leads to uncertainty that often frustrates rational decision making.

With all this uncertainty with its related increase in stress and increasing acute poverty why are we not seriously reconsidering our economic model? Change is always hard as it often involves making sacrifices but today information abounds due to the speed of the change and easier means to communicate it, but time to properly analysis it all seems in short supply. People often want quick answers to problems, making it harder to have long term more workable strategies for politicians but also for business, to put forward and follow.

Our education system has become more specialised making it difficult for many people to analysis the whole system, leading us to become highly vulnerable to underlying systems changes, which are not easily foreseen, such as the growth in extremism and the huge increase in children’s self harming. The constant flow of manipulative advertisements makes it hard for many to reflect on how they are leading their lives, frequently leading people to take actions based on implanted emotional needs to secure status than to seek healthy lives.

Perhaps most importantly we are more and more becoming separated from what is around us, leading more isolated individualistic busy lives with a lack of social cohesion. The result is we are less aware of our effects on the environment; have less satisfactory working lives with only a third of people enjoying going to work; have less stable, trusted institutions and communities to rely on and in which we can organise ourselves; and, even families are becoming more dysfunctional.

To survive happily we must stop, reflect, promote and work towards a viable economy - one which integrates economic, social and ecological well-being. We must find ways to reverse the adverse trends and start to implement them now.

Maurice Barnes

Steady State Manchester

November 2014

We publish “The Viable Economy”

image of The Viable Economy pamphlet

Today we publish The Viable Economy, a pamphlet for everyone concerned about the dangers we face from the current unviable economic system and who would like to explore an approach that integrates economic, social and ecological well-being.

It suggests a path to a resilient, more localised, stable economy that delivers what we all need and will ensure more equity and harmony in our own area and throughout the world. It argues that we can decide on rather than follow economic rules and tread lightly on the earth as well as protect and restore those systems that make life possible.

It argues that to do this we will need a system based on values that include stewardship (caring for the earth), justice, conviviality (community), solidarity, co-operation, equality and respect.

It is in update of Steady State Manchester’s 2012 launch report In Place of Growth (available here). While not fudging the problem of our ecological overshoot (the real deficit), it presents a positive message of an economy that works for all, for us in Manchester and the people at the other end of our supply chains and pollution, now and in future generations. That sounds like a strong claim, and while we are confident about the central principles we do see this as work in progress, and welcome constructively critical feedback so we can improve it.

What are the dangers we face from the current unviable economic system?

We are continually told that economic growth is essential to all our well-being; it difficult to imagine that we can live well without it. From 1945 until the 1970’s, the standard of living of many people, in Western countries increased. Real incomes have declined in the West since then, and many in the majority world have become increasingly poor. Since the 1970s stagnation has haunted the economy. Current austerity policies illustrate how greater equity is continuously postponed.

Despite increasing inequalities locally and globally, the powerful growth lobby continues to say that where there is growth, prosperity will trickle down. But as we cope with instability and repeated crises; it is increasingly difficult to control the actions of big business and working conditions are getting worse. More and more decisions are made on the basis of how much money they will make; this influences how we think, politics and even culture. As Margaret Thatcher wanted, everything is reduced to economic activity, with the emphasis on profit and the free market, with “no such thing as society”.

This economic system damages society. Some people and areas are highly valued while others are left out. Many people are dissatisfied with everyday life (some studies say dissatisfaction is higher in the UK than in places which are far poorer,) and the political process feels irrelevant to many people.

Increasingly our lives are more individual, separated and apolitical. Institutions and values which nurtured togetherness, solidarity, co-operation and a sense of community are less valued. Has this led to widespread feelings of pointlessness and insecurity, and high levels of stress, anxiety disorders, depression and addictions? Rising inequality has increased levels of insecurity and most worrying, a lack of social solidarity – the very basis for our shared life.

Finally, but ultimately even more distressing, we are using more ecological resources than our planet can cope with. As the Intergovernmental Panel on Climate Change’s (IPCC) most recent report has shown, it is economic growth that is responsible for the most immediately threatening increases in greenhouse gas emissions that threaten runaway global warming. And climate change is just one of the ‘planetary boundaries’ that humanity is crossing, or approaching.

That then is the nature of the problem.

So what is the Viable Economy?

The Viable Economy is not something we have just dreamed up but a way of bringing together a number of ideas and practice into a framework.

An economy,

  • that is resilient in the face of bubbles, crashes, supply chain interruptions and the whim of National governments.

  • that delivers (and measures) what we need; where some sectors will grow,(e.g. renewable energy) and some must shrink (e.g. fossil fuels, financial speculation, armaments).

  • where more money stays local and there is local control over savings and investment.

  • where investment comes from within rather than as profit-seeking from external investors.

An economy which is socially viable,

  • that includes everyone, that uses everyone’s energies and talents to the full and is based on nurturing human and social capital,

  • that builds equality, solidarity and co-operation among people, here and elsewhere.

  • Less exploitation of the majority world while keeping open channels for communication and learning globally.

  • Has more space for non-commercial transactions (including care of children , adults, neighbourhoods and exchanging services and skills: the collaborative or solidarity economy.

An economy which is ecologically viable

  • Radically reducing both the use of limited resources and the emission of pollutants, including greenhouse gases: a one-planet economy.

  • Based on production and consumption for need: a frugal abundance.

  • More security for us all because the environment is protected from further destruction.

  • Resilient to climactic and other ecological shocks.

  • An economy that practices stewardship of the natural world that we depend on.

The pamphlet draws on ground breaking thinking of recent years from a variety of fields and movements, including New Economics, Social Justice, Social Ecology, Trade Justice and Alternative Development, bringing them together because ecology teaches us that everything is interconnected.

It covers eleven critical areas: growth; resilience; space; democracy and ownership; investment, money, credit and debt; distribution and equality; work and income; environment; consumerism; living well and its measurement and population and migration. For each area there is an outline of the current problems, the viable alternative and some viable policy ideas.

The themes that constantly run through these 11 areas are equity, localisation, money and measurement. We argue that greater equity is needed globally as well as locally and economically as well as socially. We recognise that greater equity is needed wherever there are preventable gaps if everyone is to live well and the economy if to be viable. This includes within Manchester and compared to other places locally and throughout the world as well as in terms of gender, race, sexuality and disability We argue that localisation of the economy can have an enormous impact on reducing ecological damage and ensuring a more stable and less exploitative approach to money.. We also consider the urgent need to measure wealth of society, not by how much we produce (Gross Domestic Product) but by measures that consider the value of what we produce, who benefits, and any damage to the planet as a result of the activity.

We have a section of population and migration, an area we have not previously explored where we suggest that the focus of action needs to be on the reasons why people have large families and want to migrate, rather than on control.

fig3 conclusion

We are launching The Viable Economy on Tuesday 9th December, 7-9pm at Central Hall, Oldham Street, Manchester. Book your free place HERE.

Copies will be on sale there, or you can download the pamphlet as a pdf file , HERE