Exposing the Myth of Economic Growth

Economic growth does not work for the vast majority of us! Yep, you read the right, the fabled solution to all of our problems, our government’s plan to get us out of this mess, leads only to more problems. Never has our economy been so large and yet most people are facing real wage cuts, privatisation of basic tax-payer owned services and unemployment. In the US over the last 15 years, 93% of economic growth has been gorged by less than 1% of the population. Economic growth is a lie foisted upon us to force us to make the sacrifices needed to feed wealthy bank accounts. To really follow this argument you have to accept that money isn’t real. Of course we really have some notes and some coins, but it is worth only the amount of goods or service that we agree it is worth. We have to learn to think of it as separate from the items we buy with it, in that people would still produce things if we decided to change the way that money works.

 There is something called the Philips Curve which demonstrates the relationship between unemployment and inflation. You spend money to curb unemployment and this causes inflation. When prices go up two things happen. Firstly it disproportionately affects the rich, since the proceeds of their ventures are worth less in real terms. However, it immediately affects the poor as prices rise meaning living standards decrease and the poorest do not have the savings to insulate them. Since developed countries will not tolerate hunger and deprivation where it is clear and blameless, we have mechanisms in place to ensure that workers can unite to force their masters to share the spoils of the ever growing cake. This is what happened throughout the 60’s and 70’s, after a massive boom caused by revolutionary public spending where all our living standards improved, the economy came to a juddering halt. Workers, realising that employment was better than low inflation battled for the right to work and refused to accept any attacks on this. When inflation kicked in they battled for higher pay to keep pace or stay ahead and if they didn’t get what they considered a fair deal they downed tools and stopped producing the wealth that fed their financial superiors. Obviously such a course could not be tolerated by the wealthy and so the Philips Curve was disproved (no it wasn’t, but that was the story).

You see, the Philips curve had to be disproved since while that relationship was held to exist, no government would ever be elected by the masses, that favoured policies which threatened employment. Even now, when we talk about changing our system to make sure people can be sacked more easily by their super-rich over-lords we call it “making the labour market more flexible”. The terms here demonstrate how working people have been turned into a commodity, this is backed up if we consider titles such as “Human Resources”. People are bought and sold, but markets take the blame. However, that relationship between unemployment and inflation still very much exists, it has not been disproved but merely hidden. For example, there were over 20 changes to the way that unemployment has been counted between 1979 and 2000. All but one of these has served to reduce the published figure of unemployment. The way we measure inflation too has been altered, the new count (CPI) is disgned to produce a lower figure than its predecessor (RPI). If we still used the 1979 system, unemployment would be considerably over 4,000,000 people, and inflation heading toward double figures. We now count the amount of unemployed in this country not by counting those who claim unemployment benefit, or those that suddenly stop paying income tax or some other sensible method. No, we use a system which is much more simple to manipulate, a survey (seriously, who really believes a survey is going to accurately predict this?). But, this had to be done, you cannot justify rich individuals and organisations treating workers as resources if they are seen to be suffering. You have to demonise the working poor, to hoodwink those lucky enough to have a job into thinking the unemployed are the ones responsible for life’s difficulties. Well, I have never known an unemployed person close an outlet and fire all of its it employees just because they wanted to join a trade union, McDonalds on the other hand…  Nor have I ever known an unemployed person cut tax for the highest earners while indirectly increasing it for the lowest, our government however…  “Benefit cheats” cost us around £1b per year according to even the most ascerbic estimates, while anything between £60b and £100b is lost from the tax avoidance or tax aversion by the richest in our society.

It’s worse than that though, we have actually given the right to some companies to print money! Ladies and gentlemen, I give you then banks. The popular assumption is that a bank receives deposits from savers and then lends that money out, keeping some in reserve to ensure savers can withdraw money if they want to. This is wrong. Criminally wrong. While the rest of us scrape by and deal with job insecurity, pay freezes, loss of rights and loss of democracy, the banks create their own wealth. They do not actually lend out money that has been deposited, in this digital age there is no legal requirement for them to be able to guarantee their debts. Hold on, I’ll walk you through it. If I go into a bank and deposit £2 in a new account, the bank is then legally allowed to create £100 and lend it out. They hold on to my £2 as they have to hold 2% of whatever they lend, but the £100 is new money. Notes and coins are produced by the government, and when they are created the government charges interest to the banks. However in our digital age only 2.4% of money in our economy is actually paper and coin, the rest is numbers in a computer. Banks are free to add these numbers to the computer whenever someone walks in with a deposit, and they are allowed to add 50times the value of that deposit. Incidentally, this is what really caused the financial meltdown. The banks can only create this money if they have someone to lend it to, and so the search was on for ever more lending opportunities until the only way to continue to grow was to lend to people who couldn’t pay it back.

The scam goes deeper however, most people borrow money for big ticket items like houses which require a mortgage. Well, if banks decide they will lend more money in mortgages, despite the fact that there aren’t actually any extra houses all that happens is there is a bidding war which forces prices to go up. No one is materially better off since the money we can borrow is taken up by the inflated cost of living. Even if you choose not to buy a house, you still need somewhere to live and that most likely means renting. If your landlord is forced to borrow more and thus pay back more to secure the property it stands to reason that the rent is going to be higher. What actually happens is the banks create this money, which causes a boom in the economy in the same way that the public spending did after the Second World War. The difference is that the banks are the beneficiaries of the money they lend, since it is then paid into the bank of the person who sold the house, and that bank can now lend 50times what was deposited. But that’s fine because the value of the house will increase so we always have that. Wrong again. Sooner or later as the banks give ever riskier loans to produce the growth in their balance sheets that their shareholders demand, they lend to people who can’t pay it back. Oops, now the banks are in trouble and don’t have enough money to lend meaning house prices fall. Fortunately, they have a safety net in the lender of last resort, enter The Bank of England. Our government did not choose to bail out the banks, it was legally obliged to do so. The Bank of England guarantees all other banks, and thus the money printing, growth grabbing monsters of the private sector are effectively bankrolled by the public sector! We all put money into a pot which is used to guarantee profit making companies as they lend us thin air. We use this thin air to impoverish ourselves and guarantee that we will spend the rest of our lives paying for a home that should be a basic human right. The act of borrowing this thin air and using it to buy the things we need causes these organisations to lend more thin air meaning that more people have more thin air to compete against each other with. In reality there are the same number of houses so the people selling them can sell them for ever more deepening our debt, and deepening our servitude. Now all of a sudden we cannot afford to lose our jobs, and must work ever harder to avoid the arbitrary blade of the axe, since the axe represents the loss of everything we have spent our lives acquiring.

We are slaves. Slaves to a system that we finance and work within. Slaves to a system that we no longer even question. Slaves to a very small number of people with the knowledge and the organisational means to impoverish us if we refuse to bend to their will. Economic growth is an illusion that only tightens our chains. And when economic growth falters we must pay once again, with our jobs and our homes, to repair our crumbling prison.

How to Change Our Country

I was asked recently what we should do to improve our current situation by someone who agrees with the comments I have made throughout this blog. Not being one to shy away from controversy or responsibility, I have tried to set out below some ideas that would allow the UK to become a more egalitarian country; socially, politically and economically. Hopefully these ideas would allow everyone to enjoy the benefits of what is supposed to be a rich economy while encouraging individuals to take personal responsibility and contribute to society in a myriad of ways. Of course these ideas are just a start, perhaps the re-nationalisation of certain key industries will move us forward, or a legislated protectionist role for our national media (assuming we can design appropriate safeguards). The point is we need to move the agenda toward a model which favours us all. Naomi Klein noted the Chicago boys ethos of keeping an idea alive until the politically impossible becomes the politically inevitable. Now it’s our turn to change the landscape.

1.      Legislate to ensure that CEO's, executives and shareholders are not allowed to earn more than 50 times more than their lowest paid employee (pro-rata).

In an article from the Guardian, they note that average UK full time salaries decreased by 3.5% during 2011 and part-time equivalents fell by 11.2% (both in real terms). Meanwhile the article goes on to quote that executive pay increased by 15% and the pay of corporate managers also went up by 7.2% on average. The economic context for these changes were of high (5% on average) CPI inflation, and low economic growth (roughly 0.5%). In short, the article alludes to class war with low skilled workers suffering a reduction in their standards of living, which appears to fund the growth in the salaries of those they are responsible to. Despite the lack of growth in the economy, the managerial classes have been paid far beyond the contributions they have made while low skilled workers suffer by comparison, I guess we’re not all in it together. National Minimum wage increased by 2.5% in 2011 however this reflects an actual wage cut when considered against average inflation of above 4%. Indeed the 22% increase in minimum wage between 1999 and 2010 looks reasonable until we consider that this works out at less than 2% per year. Indeed, in only 3 of twelve years has national minimum wage outstripped RPI inflation or conversely, in nine out of the last twelve years the UK’s lowest paid workers have effectively received wage cuts. Meanwhile, as Ed Miliband noted in his speech to the TUC in September 2011, CEO pay has quadrupled during the same time period.

Even when the economy is growing it is clear that only the already rich are benefitting, and when times are hard the low paid are asked to bear the brunt. This results in a rapidly increasing income gap which has grown faster in the UK since the 1970’s than in any other rich nation. The idea of the movement away from collective bargaining and privatisation since the 1980’s has been that we might all get a smaller slice of the cake, but the cake will be bigger and thus through trickle-down economics we all benefit by getting more overall. This is patently untrue, as Barrack Obama recently noted when he stated that trickle-down economics has stopped working. Fundamentally, we have to ensure that everyone in our economy benefits from growth that we all create. By limiting the pay of the highest earners within an organisation to 50 times that of the lowest earner (pro-rata), maximum pay would be just over an entirely reasonable £500,000 for any business that employs people on minimum wage terms. Currently the average salary of a CEO within a FTSE 100 company is £2.7m, if we limit the salary depending on wage increases for the lowest earners, just watch average pay go up!

2.      Reform political funding to stop business and Trade Union donations. Publicly fund all parties. Let's stop public officials benefitting privately or politically from making public decisions.

Cameron’s [alleged] sale of dinner for £250,000 a time has many things in common with Blair’s [alleged] sale of honours. Both play to the vanity of potential donors, Cameron allowing them access to the PM and Blair’s; titles and possibly office. Both are devices which potentially use the trappings of office to generate money for the incumbent political party and if that had been proven in anything beyond common sense terms, would be deemed illegal. Most importantly however both can provide political power to the unelected. If Blair, gave peerages, he offered donors position directly and with it not inconsiderable power. While Cameron’s [alleged] approach, circumvents the need to provide high profile appointments by giving access to policy central itself. In either case those who can afford to make large donations may have effectively bought the ability to influence political decisions that should be made in the public interest. In short, allowing this situation to endure is undemocratic and corrupt. The money itself we are told – and these are considerable sums - the Conservative Party has received £159,484,285.40 since Cameron became leader according to DR. Eoin Clarke - is needed for political campaigning and the running of the party in general. Much of the money seems to be spent on vulgar ad campaigns however, that inform us through Bill Boards just how incompetent, inefficient or misguided the purchasing party’s competitors actually are. They say very little about the policies that parties plan to implement and even less about how they plan to implement them.

So then, what we probably have is a situation where large donations to political parties are used by those with the means to purchase a seat at the decision makers table and with it a chance to directly affect decisions which should be made in the public interest. The money that this generates for political parties is then used to criticise their competition. This should all be banned. Political parties do not need to campaign negatively, and should not even have the opportunity to allow donors to bypass the democratic process. Therefore, each MP elected should have attached to them a small amount for positive campaigning and administrative expenses. Parties and individuals must be forced to operate within this budget and to ensure that this can happen air-time should be provided for debates in the national free to air broadcasting media. Any donations to political parties should be against the law.

3.      Outlaw negative political campaigning and demand that parties publish manifestoes which explain the measures that will be used to action their policies. Any lies in these documents should lead to a General Election and prosecution.

While we are on the subject of political campaigns, I do not want to know why Cameron thinks I shouldn’t vote for labour, or why Miliband thinks we should boycott the Liberal Democrats. They are obviously biased and thus their thoughts on each other are not a sound basis for any of us to make a decision. The only sound basis in fact for a decision is a clear breakdown of each party’s policies and clear description of how these would be implemented. For example, the Conservative Manifesto unformed us that should they be elected there would be no further ‘Top-Down’ reorganisations of the NHS. I don’t want to know what they won’t do, I wanted them to tell me that they planned to turn the NHS into a franchise where private companies would produce all of their services at a significant profit. I wanted to know that a company (McKinsey) who were already advising the party would benefit substantially from the non-described reforms and yet were being given an architect’s role in devising them.

Of course, had Cameron published the idea clearly, or told us that by “opening up education to competition” he actually meant privatising schools, no one would have voted for him. If we want politicians to be honest about what they are going to do, and then do what we vote for we have to be able to hold them to account. Therefore, all policies should be published - including steps required for implementation - prior to the election. Politicians should only be allowed to discuss their own policies and why they expect them to work during campaigning, making no reference to the competing policies of other parties. If a single policy is changed in substance or implementation once a party has been elected, a new General Election should be triggered, and the full cabinet jailed!

4.      Limit the size of business organisations and make executives and shareholders legally responsible for their actions.

The size of the Royal Bank of Scotland’s balance sheet is estimated at £1.4tn and this is not even close to being one of the world's largest companies. To provide a little context, the size of the UK economy is estimated at £1.4tn, roughly the same size as the RBS balance sheert, and less than the £1.5tn that HSBC commands. Ever wonder why bankers are so powerful? Because they threaten to take their huge businesses elsewhere unless they get the laws they want, the tax breaks they want and the concessions they want. For example HSBC employs almost 170,000 people, Tesco – 240,000. Now these businesses are not just going to move somewhere else, the size of their businesses is down to the effectiveness of the labour they have found in our service based economy. However, each time they lay off employees it causes massive problems for UK governments who have to deal with headlines concerning rising UK unemployment or falling economic growth - thus, they don’t take the chance, nor do they risk losing possible donations from the cash rich organisations. Generally they do as they are told and that is why our banks became too big to fail, it is why 1 in every £8 spent in the UK is spent in Tesco and it is why Nissan get over £50m per year in tax breaks to locate here.

No business should be able to dictate policy to national governments. This is destructive to democracy and contrary to the public good. Therefore, any business with more than 25,000 employees or 15% of a market should be forced to divest parts of itself until it no longer has the ability to dominate its market or the politics of its host country. Unless large businesses accede to these laws they will be forbidden from operating in this country and all of their assets seized by the government. Additionally, we need to force boards of directors and shareholders to take legal accountability for the actions of their corporations and remove the veil of limited liability that “business leaders” hide behind when things go wrong. Wouldn’t it have been nice to see senior bankers go to jail when the deals they made undermined the global economy and lowered all of our standards of living.

5.     Legislate for a maximum 35 hour working week and enforce it.

Despite being the second largest economy in the EU, Britain has the third longest working week (on average 42.7 hours). Before you link this to the “success of our economy please note that we work considerably longer hours than Germany, the EU’s largest economy, but less than Greece, so clearly long working hours are not a pre-requisite for economics success. As ABC News have noted, large corporations are hoarding stockpiles of cash and not recruiting employees for expansion due to the difficult economic times.

Meanwhile, The Office for National Statistics reports that there are over two million single parent families in the UK with 26% of children raised in single parent households. Conversely, only 2.2 million children have the luxury of a stay at home parent according to the BBC meaning three quarters do not have a parent at home to look after them. The UK still has the highest teen pregnancy rates in Europe, knife crime is at epidemic proportions and as the Telegraph notes,  teen drinking in the UK is among the worst in the world. The BBC highlights that children left alone tend to do less homework, drink more alcohol and are more likely to get themselves into inappropriate sexual situations. Let’s give parents the chance to parent, and children the chance to be children with the appropriate role-models, guidance and support. Let’s get more people into jobs and improve the work life balance in the UK. Let’s make sure adults have the opportunity to take an interest and an active role in society. All of this is possible with more stringent and effectively enforced working week rules. Please note, I do not advocate a return to the over idealised 1950’s housewife model. Feminism has been a force for good, but families should have the option to choose a work / family balance that benefits them.

In economic terms this would benefit us as a country since we would be forcing corporations to employ more people reducing unemployment and thereby put more money into the hands of working people. This would increase the demand for goods and services within the economy and lead to a virtuous circle of increasing growth, income and confidence. For example the increase in income tax alone would help to reduce the deficit in the government coffers.

·         Considering the EU

I do not say this lightly, but given European law the UK would need to withdraw from the EU, at least temporarily in order to make the above changes since EU law over-rides UK law. I passionately believe in the philosophy of the social, political and economic integration that the EU represents, however in order to make these reforms stick and protect our economy as they do so, we would need some protectionist policies in place. The EU is a noble experiment, but it assumes that the countries involved are socially, politically and economically ready to homogenise laws and what is good for one will be good for all. This is patently not the case since EU law currently provides a significant barrier to the necessary reforms that have been highlighted above.

Politics is Broken

 ‘Cash for Cameron’, ‘Cash for Questions’ and ‘Cash for Honours’ are just the tip of the iceberg. Social investigations have uncovered links between 141 peers and private healthcare companies who stand to make vast sums of money from the effective privatisation of the NHS. Public sector workers are seeing pay freezes and pension reductions while their private sector counter parts are losing company pensions altogether, so can someone please explain to me then how it is that cabinet ministers are entitled to have their pension deals improved? Unfortunately this is not the first time MPs have been implicated in financial scandals, in 2009 389 were identified by the Daily Mail for abuse of expenses. To put that figure into perspective, there were 650 MP’s elected in the 2010 general election, that means 60% of our country’s leaders have been abusing the system. Only 3 went to jail for their offences, incongruous? Additionally, since their election victory in 2010 the Tories have had a number of members implicated in individual scandals including the Prime Minister, Defence Secretary, Party Co-Treasurer and at least two press secretaries amongst others. Indeed the party faithful have even rebelled about the situation with two MEP’s resigning and 80,000 people leaving the party since Cameron took over as leader. This is politics ladies and gentlemen, the people and the institutions that govern your life!

According to the NHS risk register which the government refused to publish despite being ordered to, the reforms contained within the Health & Social Care Bill are likely to be expensive, inefficient and unlikely to work. Needless to say they then are not in the best interests of the general public, so why was it passed? who stands to gain? Answer: The companies that now have carte blanch to move into the sector and begin their profiteering (I have discussed on an earlier post the empirical evidence that clearly illustrates the failures of privatisation should you have any lingering doubts ). A disturbing amount of examples can be found of the lack of moral fortitude of the companies moving into the sector, provided by companies such as Serco who have been using Prison Labour for Health work in Australia and a Norwegian company that has been placed on the Norwegian healthcare banned list such are their operating practices. So it isn't a social conscience that has drawn them in. Meanwhile, our state education system is in the midst of being privatised and plans have been mooted for the privatisation of everything from the Post Office to the Police Force. I ask you this, if we have a private Police force, who really thinks the standard of policing across rich and poor areas will be equal? Again, who stands to gain?

The UK is a democracy, in fact the oldest institutionalised democracy in the world and thus we have organisations designed to protect us from all this amoral profiteering and abuse of power, right? A Free press? The Police? Erm, Wrong. When Tony Blair was implicated in the Cash for honours scandal the police tried their very best not to investigate. When they were finally forced to do so they brought the grand total of zero charges. Perhaps they were too busy investigating claims of police brutality and racism? Ahh, well actually… How about our free press then? No again. If you can find any detailed and balanced reporting from the BBC on NHS reform then you are a far more successful researcher than me, when I complained about this fact even their response failed to outline any reasonable examples (see previous post). Once again, we cannot rely on the private press since they are all busily wrapped up in the Leveson enquiry which aims to find out why they violated privacy laws and bribed public officials including police officers. To be fair though, we won’t have to worry about this for much longer since the government plan to do their own snooping on all of our e-mails and internet searches, perhaps they will cut out the middle man and just give editors the password to their data base.

Yes OK, that last one was a sardonic comment, but if a government can privatise the very roads we walk along do you really think they are beyond such measures? The hard reality of the matter is this, corporations call the shots. As I outlined in an earlier post, political parties have to listen to them and act in their best interests, and time only inflates the effect that this has. It is not very surprising when government or police officials decide they want to jump on the gravy train too. The result is loss of essential services to the profit making private sector, forced (cheap) labour provided to large organisations through ‘workfare’, tax increases for the many and tax cuts for the few with enough political power to demand them (and enough money not to need them). Fundamentally we now live in a high tax low service economy, a state which has not existed in the UK for at least a century, and you only have the right of reply if you can afford £250,000 for a dinner with Dave.

Has democracy been privatised, I’ll let you decide. However we have created a political system where it benefits MP’s financially and professionally to advance the interests of big business even if it is at the expense of individual needs. We have created a financial and political system where corruption and wrong-doing are rife and often go unpunished. We are creating a state where the traditional barriers to exploitation are being eroded. What would you call a third world country that snoops on its own citizens? With corrupt politicians and public officials? With no free press? With repeated allegations of bribery at the highest level? With a police force with no will to investiate? What would we call a country that lacks a choice in governing policy? A country where the rich profit from the poverty and the misery of poorer citizens? At best we would call it a dictatorship, at worst and depending upon the effects: A fascist state.

Politics is broken, it no longer serves the needs or interests of the vast majority of the UK populace. Even more worrying though, I can’t see any political party that’s offering to do an awful lot about it.