Monday, 5 July 2010

A Society Too Big to Fail.

There has not been much talk of the "Big Society" and the "Great Ignored" lately, even though we are now living under a strange coalition that has declared itself to be "progressive" as it implements regressive policies. Though this is the fallout of the failures of New Labour, which left many disillusioned with politics. It was that government which locked us into illegal wars in the Middle East and followed the right-wing economic mantra off of a cliff. But a serious look at the problems we face as a society is well overdue. Since the financial crisis of 2008 and the subsequent recession has sparked an emergence of many different opinions of the situation. David Harvey recently pointed out that these different views of the financial crisis and how it came about could be summed up as five genres:

1. Human frailty, the cause of the economic crisis was the innate selfishness and greed of human nature which ran amok on Wall Street and Canary Wharf. There's nothing we can do about this, the crisis was inevitable, it was simply down to human nature.
2. Institutional failures are to blame, regulations on the financial sector were not strict enough and as a result banking spiralled out of control. We need to rethink how we regulate the financial sector on a global scale.
3. Free-market fundamentalism led to the crisis as the theories of Hayek and Friedman that emphasised a totally deregulated and privatised economic system were too utopian. We need to return to good old fashioned Keynesian economic theory to solve these problems.
4. Cultural defects are the origin of the crisis, the financial crisis was really down to Anglo-Saxon culture, the obsession Americans and Brits have with home ownership, and the ongoing crisis in Greece is really down to similar defects in the Greek character.
5. The state is at fault, it is not the solution to these problems, for it implemented too many regulations of the wrong kind that constrained market forces. The recent bailouts of the banks, not to mention the bailouts of recent decades, rewarded the irresponsible and undermined the system further. If the market had been left alone, failure would not be coddled in this way and as a result businesses would be more competitive and efficient.

The right-wing media in Britain prefers the fifth line, blaming "Big Government" and by extension Gordon Brown, as well as the first genre pinning the blame on human nature. All together these two give us market populism - attacking greedy bankers and incompetent politicians while advocating greater deregulation and lower taxes. Whereas, politicians prefer to run on the second and third lines as they provide them with some hope of staying in office. Though it would appear that the Con-Dems are running with the second and fifth arguments that we need to rethink the way we regulate banking, whilst initiating a contradictory series of spending cuts to restore fiscal responsibility to the government - "rolling back" the state in other words. Even though it was government policy, which socialised costs and privatised profits, that was the problem. The government is just the shadow of the problem, the substance remains in the financial sector and until that is changed the problem shall remain.

We should note that since the end of the Bretton-Woods system and the intervention in the UK economy by the IMF, that preceded the rise of Thatcherism in 1979, the shift from manufacturing to finance that began in the 1950s has intensified. Over the last 30 years, there has been consistent efforts by the political class to dismantle the social democratic elements of the economy which were forged during the Labour government of 1945 to 1951. This was the government that constructed the welfare state - the NHS was established, benefits were guaranteed for the elderly and workers when sick or unemployed - as well as a programme of nationalisation that brought 20% of industry, like coal-mining and gas, under democratic control. These were the days when the wealthiest British citizens paid a tax rate of over 90%.

Keynesian economists, like Larry Elliott and Dan Atkinson, might argue that there was greater rates of growth, employment and productivity during the social democratic era that ended in the mid 1970s. Wages increased along with productivity, peaking in the mid 60s when the workers' share of GDP was at it's highest, which was partly due to a formidable labour movement. Of course, the workers' share of GDP has been in decline since 1979 and Britain is now more unequal than it was 40 years ago. This growth in the gap between rich and poor correlates with increasing rates of social deprivation, as seen in most unequal societies, obesity, teenage pregnancy and violent crime have all risen sharply. The rise of New Labour did not resolve inequality, merely slowed it's increase, which is why wages for working-class people only increased by 45% from 1997 to 2009. Over the same time period wages for upper-class people increased by around 300%. So as a consequence, social deprivation has continued to worsen under Labour and will almost certainly continue under the Con-Dem Coalition.

Throughout the Thatcher years there was a conscious move to lure unions into strikes that led to the labour movement being weakened significantly. At the same time privatisation tore apart state industries leading to mass-unemployment and the deprivation of communities built around mining or manufacturing. The new emphasis on deregulation eventually led to the "Big Bang" of 1986 and the financialisation of the economy. As a result of these policies,  when Thatcher left office in 1990 employment in manufacturing had fallen by 30%. Wages had stagnated or gone into decline for many, all the while inequality increased. The stagnation of wages could have undermined consumption if credit cards, loans and mortgages had not been so readily available at the time. A convergence of self-interest, the wages cut by bosses are substituted with borrowed money. This is one reason that consumption has remained high over the years, despite the stagnation of income that many have experienced. 

There are no signs that this trend is going to be swayed by the current incumbents, regardless of the fact that it was this massive increase in debt per household that contributed to the financial crisis. Let alone the fact that it was a irresponsibly unregulated banking sector that was left to run amok in ways that even the American government would not permit. The reactionary series of spending cuts the Con-Dems are currently initiated are not necessary, as it is a fall in tax-revenues that created and further exacerbated the deficit. A serious shift away from finance as the heart of our economy is needed. A return to manufacturing may rejuvenate communities, that have been neglected for decades, and decrease unemployment. The measures that have virtually crippled the labour movement should be removed and greater control of the workplace by the workers could be achieved. Wages could then rise and the amount of debt per household could be cut in half.

Related Links:
Crises of Capitalism
Living in the End Times
The Meaning of David Cameron

No comments: