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Economics for the Many

British Labour Party essays suggest move from austerity, financialisation and neoliberalism to radical democratic ownership of the means of production

WHAT HAVE the Romans ever done for us? There’s a clear echo of that question in the essay collection of UK Labour-leaning economists edited by Labour’s deputy leader John McDonnell and published last year under the title ‘Economics for the Many’. For them the question is now “What has capital ever done for us?”.

The book features contributions from the participants in McDonnell’s New Economics conferences, including Simon Wren Lewis, Professor Costas Lapavitsas, Professor Nick Srnicek, Prem Sikka, Ann Pettifor, according to McDonnell: “just one small part of the ferment of ideas . . . which has flourished since the crash and the economic and social decay of neoliberalism”.

This book is the latest in a line of research papers starting with the 2017 Labour Party Manifesto ‘For the many not the few’, and ending with the recently published ‘Land for the Many’ co-authored by, among others, George Monbiot.

Unfortunately, Monbiot himself got the ‘usual suspect’ treatment after the publication. As he wrote himself in the Guardian: “It proposed a set of policies that would be of immense benefit to the great majority of Britain’s people: ensuring that everyone has a good affordable home; improving public amenities; shifting tax from the ordinary people to the immensely rich; protecting the living world and enhancing public control over the decisions that affect our lives”. (What’s not to like?) He wrote on:
“the result has been four extraordinary attacks in the Mail, Express, Sun, Times and Telegraph… Some of these reports peddle flat out falsehoods”. The Mail on Sunday reported that “we will soar to become one of the world’s few Marxist-Leninist states”. And the capital gains tax on people’s main homes which prompted the criticism? Monbiot writes, “We made no such recommendation, in fact specifically rejected it. He commented “you couldn’t make it up. But they did”.

The argument about mediation of the political narrative by edict from press oligarchs is for another day. But it works. I’ll lay odds not a single Irish politician has googled the report. Or, for that matter, the volume of essays with which this article is concerned. N.B: the UK’s problems are mirrored here.

McDonnell’s team of authors seeks to dam the trickle down of credit to the “precariat” and create a social or pluralist capitalism, perhaps even a common fund, sovereign to the people, based on a revitalisation of the old architecture of created wealth as a common good. Rubbish? Check out China!

The context
The neoclassical Keynesian synthesis allows for a deficit spending stimulus to cushion temporary frictions but, ten years after the crash, lingering unemployment must be regarded as a longer-term structural problem. The current ‘solution’ is the fragmentation of the jobs market with a lot of casualisation, temping, and on-call zero-hours labour.

The UK has the richest single area in Europe – central London – but also nine of the top ten most deprived regions in Northern Europe.

The precariat are being habituated to a life of unstable insecure labour, relying almost entirely on money wages or earnings. “In short, the precariat suffers from chronic economic uncertainty” even with the “cynically named” universal credit benefits system. They note that “The UK has a historically unprecedented mortgage debt overhang”. Banks create money when issuing mortgages and are the winners in what is a pseudo savings market. “Many households use debt to participate in economic life using debt to consume and, like all overleveraged investors, are vulnerable to income shocks”.

“The power of finance is mediated through cultural conversations that make finance the legitimate means through which individuals access and participate in the economy”.

“The Office for Budget Responsibility predicates its growth forecasts on ever rising household debt-to-income levels”.

Undemocratic economics has fed into the rise of the post-truth world, as self-serving elites exploit people’s lack of understanding of the subject with narratives which contort self-serving politics into a story that falsely claims to benefit the individual.

Reviewing a sixteen-essay volume in a few lines does it an injustice. Of course you want to know does it propose a re-nationalisation, don’t you? And the deficit? And where’s the tax burden going to fall?

It’s clear: “Labour must end its love affair with the centralised state”. And McDonnell himself says that “the old Morrisonian model too often meant creating distant bureaucratic hierarchies that could seem as out of touch with workers and the public as any private-sector monolith. Counterbalancingly he also notes that the privatisation racket of private finance initiative contracts, ‘Public Private Partnerships’, should end.

Instead regionalisation and local democratic governance will take up the reins. Can I offer an insight? Human nature is no longer geared to sharing the heavy lifting. The closest analogy I can think of is the structure of support for sport. Locals will cheer the local team, but someone has to manage the teams (without democratic accountability). We don’t want managers who are afraid to move without professional suits signing off on the idea. The question is: must there not be an incentive structure to get results?

Gordon Brown “made a key mistake by suggesting that policy could help the recovery and tackle the deficit at the same time”. McDonnell now rejects the austerity narrative which has caused a general crisis of trust in our economic institutions. Instead, his proposed ‘fiscal credibility rule’ has a deficit target, but if interest rates hit their zero lower bound (similar to Keynes “liquidity trap”) the goal of fiscal policy changes from meeting a deficit target to stimulating the economy.

And as for tax, for me the issue should not so much be about taxing the wealthy as such, but about using taxation to curb financialisation (‘the making of money from money’). Taxing the rentiers is taxing those who asset strip the earning capacity of the productive sector.

One writer notes ruefully that “by the time any process for wealth capture is in place, the wealth has already been extracted into the ether of the global economy”. But another confirms that “a truly impactful alternative strategy must go after capital itself”.

Rentiers finance the ever more leveraged trading of companies and, it seems to me, are cleaning up at the expense of equity capital. Rentiers own the interest coupon which gets paid ahead of the shareholders’ dividend. Perhaps the entire artificial-corporate-ownership model is about to collapse into itself.

Also, financiers have become ubiquitous even in realms once publicly-financed. It is noted that because of austerity “financialisation in the UK has come to depend more heavily on government…the needs of households for housing, education, transport and so on have become fields of profit-making for financial institutions”.

Interest deductibility is, I think, a demon. It creates opportunities for transfer-pricing, tax-base erosion, profit-shifting by mezzanine financing when it was intended as one mechanism to fire up the engine for growth. Instead real investing is falling, and non-leveraged investors are getting derisory dividends. So, change it. The 1894 legal case Anglo Continental Guano ruled that interest on loan capital should not be deductible but was overturned by statute. I am reminded that I proposed this change in taxation of landlords to then housing minister Noel Dempsey back in 1997, and Peter Bacon later backed me up. The idea has not gone away!

A new tax on digital platforms is an obvious one for the to-do list. Data, it is argued, are the people’s property, and their use (or abuse) should be paid for.

There is a thumbs up for the EU’s CCCTB, the Common Consolidated Corporate Tax Base (CCCTB) which has provided since 2016 a single set of rules to calculate companies’ taxable profits in the EU. It is suggested this “could be applied with global or regional agreements, or even by nation states unilaterally”.

But the shadow minister for trade Barry Gardiner “rejects the TTIP [the Transatlantic Trade and Investment Partnership]” model of investor-state dispute settlement that grants foreign investors rights” to flout social and environmental regulations, and advocates accountability for human rights abuses in the corporate supply chain (the Ruggie Framework on Corporate Social Responsibility (CSR)).

Village’s editor will not allow me to repeat here anything about the “rampant tax avoidance industry”. In particular he wishes me not to refer to “alleged sweetheart deals between her Majesty’s Revenue Commissioners and large corporations”, or to the PAC hearings into tax avoidance (“tax arbitrage through tax havens”). At least the Ramsey judgment in the UK allows courts there to strike down avoidance schemes even when not so described. Irish law does not follow the Ramsey rationale…. yet.

He won’t even allow me to write that “representatives of the tax avoidance industry have also colonised HMRC and are even permitted to write tax laws”, in case a reader might be confused as to whether I was referring to Ireland.

But there is the usual problem with new policy ideas: the economists who write this stuff never lift the phone to the lawyers. In Ireland, if they did, the common good would probably come second best to private property rights, as it nearly always does. Most of our recent Attorneys General have advised caution on the basis of unwarranted but convenient assumptions about a neoliberal bent of the Supreme Court, even though the sovereignty of the people was the foundation stone of the republic.

Another writer refers to the (alleged) inflexibility of EU public procurement rules requiring state bodies, when procuring, to cast the net widely, and to avoid regional preferences. For me the solution is for the state bodies to take the work in-house even if it requires paying a premium over the price an EU-wide trawl might have thrown up : it’s not all about the money! More generally well-tailored regional fiscal autonomy in the future could be the key to side-stepping State Aid concerns.

One writer draws attention to the Italian success in overcoming State Aid objections to tax breaks for co-ops (the “Marcora” law). After Brexit the Commission will no doubt find other good and valid reasons to approve regional growth. For me there are exciting possibilities for mutualisation under the umbrella concept of a Commons Fund: the “commons” – that which belongs to all of us commoners: you cannot financialise your “share” of the commons – it is society’s safety net.

The default scenario is bleak: no party here. Is it a race against time?

“The simplicity of the finance-led growth model is also its fundamental fragility”: stagnating income flows for the public are masked by rapidly growing private debt and we are beginning “to catch a glimpse of the absolute limits of finance-led growth”

Meanwhile “Quantitative easing is driving down bond yields to such an extent that it will eventually bankrupt most pension funds”.

And worse. Bank of England governor Mark Carney warned that a two degrees climate change target “could spark a pro-cyclical distribution of losses and a persistent tightening of financial conditions”.

It occurs to me that the transformative change from the debt reliant model will not result merely as a result of abolishing interest tax relief. To mark the end of the financialisation era, I suggest we should also tax all interest payments (not just DIRT) as a transactional tax, like VAT at, say, 100% of interest paid a tax on the price of credit. See what difference that makes to our economy, and society.