Does the Government Represent You?

Government of the people, for the people and by the people is the ideal of democratic nations, as Laid down by Abraham Lincoln in the Gettysburg Address (I haven’t seen the film yet honest…). Our democracy is older than that of the USA but the sentiment remains valid, a point Winston Churchill made when he echoed it in his famous “We will fight them on the beaches…” speech. I wonder though whether or not the UKs modern Conservative and Liberal Democrat coalition government has ever bothered to consider the broader spirit of the words because it seems to me that their make-up and their policies fall short in every area.

Two thirds of the cabinet  – the crux of government – are millionaires. Does anyone really believe they understand what it is to have been made redundant and be struggling to pay the mortgage? To have a disability? To have a low paid job and struggle to pay the bills? Have they ever been in a position where they have had to choose between heating and food, and are they ever likely to be? If not, then how can they represent those elements of society? 2,700 pensioers die each year because they cannot afford to heat their homes. According to the UK government’s own figures over 13m working people exist on less that 60% of the average income, and more than 7m people (again in work) in 3.6m households live in extreme financial stress unable to feed themselves and their families at the end of each month.

We have 2.6m unemployed people in this country, and according to the Office for national statistics one in four employed people want to work more hours than they currently do. In fact the number of these people has increased by 1million people in the last four years. Why do they want to work more hours? Because they cannot afford to support themselves and their families on their meagre wages. The Tory aim to increase labour market flexibility has meant that many have had to take part-time jobs because there are no full time positions available. These people do not sound like the benefit seeking scroungers that our government would have us believe they are, and yet the war on the welfare state continues.

Meanwhile we have a cabinet worth £70m pounds collectively, led by a Prime Minister of the rich who tells us “We’re all in it together” while cutting tax on the richest in the economy. The richest 1000 people in the country (according to the Guardian) have increased their wealth by £155bn while the rest of us suffer recession after recession and cut after cut. Why does he defend the priviledged so staunchly? Could it be anything to do with his net (largely inherited) £3.8m fortune? How does he get away with it? This is depressingly easy to answer. The telegraph estimates that there are 280,000 millionaires in the UK, or roughly 0.4% of the population and yet 67% of the cabinet are millionaires. It appears we do not have a government of the people, we are governed by the rich and as the old saying predicts: “Power corrupts”.

Does this government have a mandate from the people to do the things it is doing? On a seemingly constant basis the PM and those in both coalition parties tell us that they have to take unpopular decisions. That they are the ones with the strength to make difficult choices regardless of how unpopular they might be. This is wrong. The government of the UK is a representative body, they should be acting in accordance with the wishes of the electorate and doing nothing more. Clearly this is not what is happening, but if you’re not sure consider these points as examples and note that there are many, many more:

a.       Effective Privatisation of the NHS

This policy was so predictably unpopular that the Conservatives “forgot” to mention it during their electoral campaign. They did tell us that there would be no top-down reorganisation of the NHS, but I’m not sure that this statement really covers their policy of using the NHS as a franchise logo for private businesses that use your ailments to make a profit. Unsurprisingly the early signs predict disaster, with vast cuts in available treatments, privatisation of NHS trusts and individual hospitals and warnings from doctors, nurses and professionals throughout the organisation that there will be fewer treatments, more waste, less efficiency and a higher cost.

 

b.      Cuts to the welfare state

Most people take this to mean cuts to job-seekers allowance but it’s much more than that. Child tax credits have recently been re-structured in the least fair way that anyone can imagine. Being fair is not really this government’s priority though, for example the changes to child tax credits will save up to £1.5bn by depriving working families of that money, but the Tories gave this away by cutting the top rate of income tax and costing the country over £3bn. That’s a pretty tough pill to swallow for anyone who has been told that their allowances are being cut to help pay off the debts caused by rich investment bankers who will pay significantly less tax on their astonishingly large bonuses-for-failure in future. Nonetheless, the government has taken no direct action to tackle the banks or bankers and instead focussed on selling your healthcare to businesses that are trying everything to avoid paying tax at all.

 

c.       Reduction of your employment rights

In short, this government wants to make it easier and cheaper to sack you when business is poor. This may not be your fault, you may have served the organisation faithfully and successfully for years but as far as the government is concerned, the business owes you no loyalty. According to the Office for National Statistics there are 29.6million employees in the UK, and 2.6million job-seekersin a potential workforce of 34.1million people. This means that over 95% of people in the UK are employees or potential employees and the government is eroding their rights. In addition to this, cuts to the economy and the ensuing economic effects have meant that average pay increases have been 1.9%, considerably below the inflation rate which has been hovering close to 3%. This means not only are employees losing their rights, but they are also effectively taking a pay cut.

 

d.      I could go on…. And on…. I don’t want to over-egg the omelette though, so perhaps people could add other government policies since 2010 that have hurt the majority of the country to the comments (below).

It is clear that we do not have a government of the people, for the people or by the people. These people do not represent you, this is a collection of career politicians that are making decisions that benefit only the richest people at the top of the largest organisations in the country. A collection of people that pretend their decisions were difficult and have the temerity to tell you that they are acting in your best interests. We do need strong politicians that are capable of making difficult decisions, but those decisions are very different to the ones that are being made. We need politicians with real experience of life’s difficulties who are prepared to stand up to the tyranny of corporations and protect their people from the life-destroying effects of poverty and inequality.

Our current government however is simply a collection of weak politicians who are selling your rights, your health, wealth and your services. And they expect you to be grateful!

Getting-Rid of Unemployed Scroungers

Labour proposed today to guarantee a job or a training scheme for anyone that has been unemployed for two years or more. This seems reasonable until you consider that people will lose benefits if they turn down what is offered. To many this is still not unreasonable, however it is dangerously similar to the failing and widely discredited “Workfare” programme of the Conservatives which has been likened to slavery.

Whatever you choose to call it there is an awful lot of stick and very little carrot here, and once more we can only assume that any resulting jobs will have been heavily subsidised by the state (expected costs are £1.5bn) meaning that private companies can recruit extremely cheap employees and will therefore offer fewer jobs at ordinary wage rates. This means that once more real wages will fall and all employees will suffer in the long term.

The issue here is one of emphasis. Politicians are still placing the emphasis of their policies on beating the poor into poorly paid low skilled jobs with a large stick to make the employment market work. Perhaps Labour do not go as far as the Conservatives who by capping increases in unemployment benefit to make work look more attractive, might as well be saying they will make food look more attractive by starving people. But by not offering a genuinely different approach they strengthen the misguided and simplistic argument that the unemployed don’t have jobs because they are lazy.

In the 1980’s the Conservative government of the time wanted wages to be determined by the market. This means that wages are determined at the wage level where the number of people willing to work (S) equals the number of people that employers needed (D), and so anyone who is not attracted to the labour market at the current wage levels remains unemployed.

Thatcher and her party knew this when they championed the policy, they wanted to reduce wage rates by ending the focus on full employment as a political priority, and they were successful. It is however somewhat hypocritical to then complain about those who have looked at the market and chosen not to sell their efforts at the current rate, since this was exactly the point of the policy that they implemented.

I am not suggesting that unemployment is not a problem, quite the reverse. Not only does it lead to higher costs for the state and worse outcomes for the unemployed themselves, but it also causes a myriad of social problems for both the long term unemployed and society at large. However, the market alone will always leave some people unemployed. The government is trying to correct this by reducing everyone’s real wage rates (although they don't put it like this in interviews, they say "increase labour market flexibility") to encourage businesses to employ more people. Unfortunately with lower wages we can't buy as much and so the amount a business can sell falls and so the amount of profit a businesses can make falls. As a consequence of falling sales, employers have to cut costs to try to maintain profits and they usually do this by sacrificing employees (which incidentally the government would like to make easier), and so the policy actually results in higher unemployement.

The argument for using this approach is that if we can achieve full employment through it (we can’t), employers would be forced to compete on wage rates and so in the long term wages would be higher. Make no mistake, anyone on the right of the political spectrum not only expects some unemployment but they desire it since this keeps costs lower for the businesses that sponsor their political campaigns. If we really want to solve the problem of unemployment and the other issues that this causes then we need a different approach.

The market cannot solve the problem of unemployment on its own. All the market does is moderate the price of wages. More specifically, if there is some unemployment in the economy, the market keeps wages low. The Conservative workfare programme and Labour’s new proposals seek to solve this problem by subsidising the cost of employees and forcing people into work but this will not work since it does not encourage employers to demand more employees, they will just employ the same number but at a lower cost and make more profit as a result. The only way to solve this problem is to increase the demand for employees so that wage rates increase and therefore attract more people into the jobs market.

Since time immemorial this is the way that civilisations have solved this problem. Egypt built the Pyramids, Rome built the Colosseum and Britain built the NHS. The current approach to solving our problems in contrast, is to strip down and sell off everything we have achieved as a nation and pretend that our previous projects failed, and it will not work. What we need to do is engage in more ambitious programmes like the NHS which employ people, both to construct them and to run them.

 

By doing this more people are required to work which pushes up wage levels and makes us all better off immediately since employers now have to compete for our services by offerring higher wages. It also creates more jobs so that people can contribute to the economy. Once people are employed they spend the money they earn in the local community, in shops, bars and restaurants boosting our economy even further. This activity even creates an increase in the tax that government receives and a reduction in unemployment costs, and therefore allows us to pay for the projects by simply starting them.

Let’s build more schools, more hospitals, more housing. Let’s expand our science and space programmes and fund university research into projects like developing clean energy that both serve us as a community but just as importantly provide jobs and prospects. Let’s stop vilifying the unemployed as we sell the jobs that they could have done to cheaper countries and then criticise people for not working. Yes there are other issues, inflation for one and the cost of the projects for another. However, the nation's debt situation was far worse when we built the NHS than it is today, and although inflation can be a huge problem, as long as we ensure wages keep up with prices then we will find that the real cost of living falls as our mortgages and other daily costs become more affordable.

Our problems are not insurmountable, they aren’t even new and nor are the answers. Keynes suggested this approach in the 1930’s and we used it to build the welfare state. The answers are older than that even, they have been used by great civilisations for thousands of years by building better states for the benefit of everyone. China is following this model as we speak and they will soon become the largest economy in the world due to the continued economic growth that they have experienced as a result.

Let’s stop playing this hypocritical and self-defeating blame game and start doing the things that will benefit our economy by benefitting us all. That's how we get rid of the "Unemployed Scroungers"!

Back Wealth Creators... Back!

David Cameron suggests, in fact he demands that the balance of our economy is changed so that the private sector is larger and the public sector smaller. His rationale for this is that only the private sector contains wealth creators, whereas the public sector only recycles taxes. To understate the point somewhat, this is both overly-simplistic and fatuous. In short, it is just plain wrong!

Speaking on the closing day of the Conservative Party Conference the PM said that Britain must get behind its wealth creators as he announced further cuts to the public sector. Let’s explore that, for example what do we mean by wealth creators? Is this a collection of people who generate money for its own sake or are we talking about real value added to the economy? These are very different things, the former includes investment banking traders who simply speculate on markets without producing anything, the latter are those that actually produce physical products and services that increase the quality of our lives.

John Fallon a recent appointment by Cameron as Vince Cable’s number two cites private equity bosses as an example of wealth creators. Therefore we can see that this government’s emphasis is purely on people looking to make a profit from their use of money rather than actually contributing something solid and worthwhile. This also explains the Government’s reluctance to interfere in a financial sector which caused the 2008 financial crash and ensuing recessions through irresponsible trading. This is certainly the kind of activity that this government favours, it is after all where the Cameron family fortune was earned – Cameron’s farther ran off-shore tax havens for the wealthy.

If we really did want to increase wealth by increasing the value that our economy adds then our politicians would perhaps have a closer look at how money actually travels around our economy. 

As you can see from the diagrams above both private and public sectors are simply ways in which we organise money flows around our economy. If we wish to increase that flow then we have to develop the efficiency of the areas we currently have and/or invent new areas. It is a common misconception that the private sector does this better than the public sector. Think about hospitals, schools, roads, trains, the postal system and many more. Only the public sector can generate the vast sums of money required to finance such ambitious projects, since the private sector relies on sales to survive and therefore cannot take such large scale decisions without the potential of immediate sales. Only the Public sector can make the initial outlay which is why we see these industries beginning as public sector entities before being privatised once they are stable enough to produce a profit for those lucky enough to be in a position to buy them on the cheap.

As was shown in my previous post "Does Privatisation Work?", neither is the private sector more efficient than the public sector. Indeed, any efficiency gains that are made benefit only the shareholders and senior managers of the organisation in question. There will be those who tell us that the public sector does not generate wealth and at the moment this may be true to some extent, but only because all of the wealth generating industries have been stripped from it and given to those who exploit assets purchased by the tax-payer to generate their own wealth. This means that the added value that is being generated from these divested industries is not reinvested to improve conditions in the UK.

Examples of this are easy to find, according to the Telegraph profits of the FTSE 100 companies doubled to £73Bn per year between 2003 and 2007, and again to £150Bn between 2007 and 2010 despite the economic conditions. The Guardian reports that the tax they pay as a percentage of profits had fallen to 26% from over 35% by 2011. The Telegraph goes on to develop this point explaining that 37% of FTSE companies paid no corporation tax whatsoever, while the others employed various means to significantly reduce their tax bills. Meanwhile UK unemployment was increasing, real wages were falling and the Government has used lack of money to justify an austerity push which has reduced all of our standards of living and decimated the public sector. Still being the socially responsible entities that they are the FTSE companies responded by setting up new ventures in tax havens so that they could avoid their tax obligations to an even greater extent – all but two of them have done this. And this money does not find its way back into our economy through spending as so many of the shareholders are based in other countries or are actually other organisations.

This pattern - the focus we have had on private sector wealth creators over the past thirty years - is the very reason why we have growing inequality in our country. The Private sector has one legally enshrined goal – to maximise value to shareholders. This means that they have no incentive to improve the quality of life for employees, no incentive to reduce pollution, no incentive maximise value to customers and no incentive to improve the outcomes for their local community.

There is little evidence to suggest that public sector organisations cannot provide the same added value as the private sector beyond the spin of politicians who have become blinded by their own dogma. In actual fact the public sector is better placed to maximise added value since less money is leaking from the system in the form of the exorbitant profits that large private businesses accrue. Imagine a situation where some of those profits had been reinvested into the UK economy. Not only would this have served to improve the services that we all share, but there would have been indirect effects such as reduced unemployment and the consequent increase in consumer spending which would actually have benefitted private businesses as well in the form of increased sales.

More than this though, public sector organisations have far less incentive to cheat in the way that we have seen the banks manipulate the Libor rate, or in the way that we see huge multinational companies avoiding tax – that is avoiding contributing to the society where they generate their vast profits. But if we try to explain this to a politician - or indeed try to explain this to anyone who has done well from the private sector – they point ruefully to the 1970’s and tell us that the public sector doesn’t work.

Let’s be honest, the public sector was not hugely efficient in the 1970’s. There, I said it! But this does not mean it can’t be. Let’s remember the fact that the post-war move toward a more collective society happened because the traditional private sector alternative was not able to produce the required outcomes for everyone. Instead of persevering and working to improve the functioning of the public sector, Margaret Thatcher and Keith Joseph decided instead to research how they could make free markets more palatable so that we could return to a system that was better for them. The result is what we have now: A divided, unequal and self obsessed society where people are treated as commodities to be used to maximise value to shareholders. A society where people are reduced to [human] resources whose only real purpose is to increase profits for an organisation, not to improve the society that they are a part of.

Cameron’s view builds on Thatcher’s ideas in that it asks us to sacrifice those in the public sector, and below the top of the private sector so that we can further the pursuit of riches for a few. For example he wants to relax employment rights to make it cheaper and quicker for businesses to sack you if they are not making a profit. He wants to reduce you to a serf who can be bought and sold on a whim. His vision will see more jobs lost with the consequence of ruined lives as he seeks to make what is already the most flexible labour market in Europe even more flexible for the benefit of the large multinational companies and rich captains of industry who sponsor his political career.  His vision will lead to an intensification of the process that has led to triple digit increases in wages for the top 1% while the rest of us have seen wages increase by an average of just 47% between 1986 and 2011 (Guardian). This is growing inequality in action with frightening results such as the fact that the richest 10% of Londoners are 273 times more wealthy than the poorest 10% (Guardian) - this is why the queues are so long at food banks.

Nonetheless, we must take a leaf from Thatcher’s memoirs and rethink our public sector as she re-branded the private. We must hold on to the ideals of equality of opportunity and collective endeavour but design ways for national organisations to be more efficient. The public sector is more difficult to manage than the private sector precisely because it seeks far more than the one-dimensional aspiration of increasing the wealth for a few. This does not mean however that it is impossible and anyone with even the most rudimentary conception of our society’s problems must conclude that change is not only desirable but that the need for it is urgent.

In response to the growing private sector assualt, we must develop an alternative that provides the best outcomes for the masses, for the 99%, for all of the people within our society and for those beyond it. An alternative that is more ambitious than the private sector aims of wealth creation. An alternative that not only provides better outcomes in terms of adding value, but which goes beyond it to improve the quality of life for everyone. This is not change for changes sake. We urgently need to stop “wealth creators” gorging themselves on our rights, our lives and the fabric of our society. We cannot continue to turn a blind eye to the destruction of lives, and we cannot continue to accept growing poverty and inequality as the collateral damage of an inefficient, immoral and unfair system.