Thursday, 27 February 2014
A new report from the Centre for Labour and Social Studies highlights the failure of the Banking Reform Act to deal with any of the problems at the core of the 2007/8 collapse. Here, its author explains what's really going on.
Some six years after the banking crash, the UK has wheeled out its answer – the Banking Reform Act. Some deckchairs have been rearranged, but little attention has been paid to the key drivers of the crisis.
The biggest financial crisis has coincided with the rise of neoliberalism, which emphasised faith in free markets and light-touch regulation. The notion of competition is a key concept and is applied to every sector of society, including corporations, regions, government departments, hospitals, and universities because this somehow secures efficient allocation of resources and opens the door to wealth and riches. Neoliberalism provides everyday understandings of what it means to be successful. It reconstructs individuals as competitive beings engaged in the endless pursuit of private wealth and consumption. In common with other sectors of society, individuals are expected to have strategies for meeting performance targets and be rewarded accordingly. Thus, performance related pay for executives has become endemic. A necessary condition for the operation of markets and pursuit of self-interest is that all individuals, including business enterprises, need to be constrained by social norms and regulatory structures. But this has not been high on the neoliberal agenda because the state is bad and inefficient and has to be rolled-back, and the self-correcting markets would restore some mythical equilibrium. Well, it has not turned out that way.
The fault lines of neoliberalism have long been evident. The mid-1970s secondary banking crash highlighted empires built on fraud. The state dutifully bailed out banks, property and insurance companies. In 1984, Johnson Matthey Bank collapsed under the weight of fraud and the Bank of England organised a rescue. In 1995, Barings Bank collapsed due to fraud. The twentieth century’s biggest banking frauds took place at the Bank of Credit and Commerce International (BCCI). In July 1991, the Bank of England closed BCCI. Some 1.4 million depositors lost some part of their savings. In an environment of weak regulation, banks continued to pick customers’ pockets by selling useless, pensions, mortgages and saving schemes.
Neoliberalism, remained the key philosophy for governments. The 2008 banking crash showed that banks made vast amount of money from running illegal cartels, money laundering, insider trading, tax dodges, manipulation of interest rates, selling abusive products, misleading investors and consumers. Markets celebrated higher corporate profits and did not ask any questions about the quality of profits, or the social consequences of banking practices. Bank executives collected vast sums of money from performance related contracts.
Markets did not come forward to rescue banks. It was the state, which has been restructured rather than rolled-back, which bailed out banks. Under the weight of neoliberal ideologies it is now less concerned about the redistribution of income and wealth, labour rights, or the provision of decent healthcare, education, pensions and social infrastructure. It has shunned any attempt to democratise corporations or enhance their public accountability. Its major purpose is now to guarantee corporate profits and socialise losses, a kind of reverse socialism has been institutionalised.
The UK state has committed some £976 billion of loans and guarantees support distressed banks and also handed over another £375 billion under its quantitative easing programme. During the boom years of 2002 to 2007, the financial sector paid £203 billion in UK corporation tax, national insurance, VAT, payroll taxes, stamp duty and insurance taxes. Between 1991 and 2007, it created around 35,000 additional jobs. But it received vast stacks of money in return. Confidence in the banking sector is maintained through the provision of a taxpayer funded depositor protection scheme which safeguards savings of individuals of up to £85,000. Since March 2009, the state has maintained interest rates at 0.5%, considerably below the rate of inflation. This has robbed pensioners and savers of income and also eroded the real value of savings. The policy has enabled banks to borrow at ultra-cheap rates, lend at high rates, make profits and replenish their balance sheets. The customer base for banks has swelled as the government has persuaded pensioners and social security claimants to receive their payments through bank accounts rather than through the Post Office. The Private Finance Initiative has been a bonanza for banks and other corporations. In 2012, there were over 700 contracts with a capital value of £54.7 billion. The government is committed to repaying £301 billion over the next 25-30 years, a profit of nearly £247 billion.
The Banking Reform Act does not check fat-cattery or speculative practices. The sunlight of democracy and public accountability is an effective antidote to shady practices, but is missing from the Act as it does not connect with neoliberal values. The Act should have separated speculative banking from the rest. To prevent speculators from contaminating the economy, the privilege of limited liability should have been withdrawn from all gambling. Instead of banking elites regulating the banks for the benefit of the industry a Board of Stakeholders, representing a plurality of interests, should have been created to guide the regulator. This Board should not be dominated by the finance industry. In fact, only a minority should come from the industry, thus ensuring that other voices are heard and policies are made by consensus. Its meetings would be held in the open and its minutes and working papers would be publicly available.
Employees, savers and borrowers have long-term interests and should elect directors and vote on their remuneration. Instead, the government is obsessed with shareholders who are often the source of problems. The Parliamentary Commission on Banking Standards concluded that “shareholders failed to control risk-taking in banks, and indeed were criticising some for excessive conservatism”. The typical shareholding period in banks is about three months. Shareholders provide only a small amount of risk capital at banks. For example, at Barclays, HSBC, Lloyds Banking Group, Royal Bank of Scotland and Standard Chartered, shareholders provide about 5%, 7%, 5%, 5.5% and 7.25% respectively of total capital. Shareholders are akin to traders and speculators and cannot invigilate bank directors.
In time, the missed opportunities for opening a new chapter in banking regulation will haunt the UK.
Friday, 14 February 2014
The debate about what currency Scotland could, would or should have has sprung into life now that the SNP's white paper proposal for 'keeping the pound' has been rejected by all of the major Westminster parties, and the Liberal Democrats too.
This represents a new stage in the debate, with the stakes ramped up for both sides. But if we sweep aside the political posturing, the debate over the last few days has revealed - to this disinterested observer - some interesting truths:
1. The establishment is worried by the prospect of a 'Yes' vote
The unity among the leaderships of the Tories, Labour and Liberal Democrats (and UKIP incidentally) reinforced by the unusual decision to publish the advice of a senior civil servant is a clear indication that the establishment is concerned about the prospect of Scotland seceding from the union.
You might argue that this consensus is a reflection that currency union is a bad idea (especially for Scotland), but Sir Nicholas MacPherson's letter and the statements of the three parties (working together for a No vote under the Better Together banner) go further than criticising currency union and contain some ridiculous scaremongering. The 'no' side - ahead in all the polls - is obviously worried though.
And it has good reason. If Scotland votes to leave and is refused currency union, it could quite legitimately reject the UK debt (a possibility acknowledged in MacPherson's paper). However, even if Scotland took a share of the national debt (based on population size) it would have a debt to GDP ratio of 81%, compared with 104% for the rest of the UK (according to an NIESR paper).
The Treasury paper implicitly acknowledges these possibilities but implicitly says the UK would get its way because "an extensive wrangle about [Scotland's] share of the debt would increase uncertainty and hence its funding costs". What it doesn't say is that is true too for the remaining UK ... and that's why they're worried.
2. HM Treasury believes the Euro is still bad for the UK
It believes that economic union is problematic without political union - and that economic independence is incompatible with currency union. In this it is right: witness how a technocrat was imposed in Italy and government policy imposed in Greece (and elsewhere) under Eurozone orthodoxy.
3. The SNP is economically bankrupt
The SNP clearly lacks the confidence to argue for an independent currency under a central bank of Scotland. Instead it wants a more familiar and convenient currency union with the UK, knowing that it will inevitably mean that Scotland would not be economically independent.
At best Scotland might get one seat on the Monetary Policy Committee of the Bank of England (given size of economy or population), and the interests of the Scottish economy would be totally marginalised (it is arguable that is the case now since the Bank of England largely operates in the interests of the City of London's square mile, but then why vote for independence only to accept the situation of pre-independence?)
As such an 'independent' Scotland under the SNP's vision would leave Scotland as a crown dependency, similar to the Isle of Man or Jersey. Given that Salmond's economic vision has previously been to turn Scotland into a tax haven, maybe that's the aim. Scotland as an outpost of the City of London?
4. The UK banks are still fragile, and if they crash again the establishment will bail them out again
The Treasury paper states "Scotland's banking sector is far too big in relation to its national income, which means that there is a very real risk that the continuing UK would end up bearing most of the liquidity and solvency risk". So the Westminster consensus still believes if banks fail they should be bailed out exactly as before. They have learned nothing from the greatest crash in over a century - their neoliberal ideology remains unshaken. The SNP does not demur from this, nor suggest the Icelandic route.
These points do not make the case for either a yes or no vote in the referendum. What they point out is that however Scotland votes, it will be governed by people unable to govern in their economic interests.
What is also reveals is that the referendum debate is likely to step up, with more vitriol and posturing, that will make independence negotiations more difficult if Scotland does vote yes.
Wednesday, 12 February 2014
Dave Wetzel, President of the Labour Land Campaign congratulates the Institute for Fiscal Studies (IFS) on its conclusion in its Green Budget 2014 that a Land Value Tax on all commercial land would be more efficient and better for businesses than the current Business Rates system.
The IFS states that a land value tax “would remove altogether the disincentive to develop and use property that business rates creates”.
The Labour Land Campaign agrees that taxes on buildings act as a disincentive to use commercial sites efficiently but also that taxes on business are not only inefficient but are easily avoided and evaded whereas because land is immobile, an annual tax on the economic rent of each site according to its optimum permitted use cannot be defrauded and acts as an incentive to use valuable land in towns and cities efficiently and discourages the land hoarding and speculation that forces prices up.
Dave Wetzel says "The Institute for Fiscal Studies’ work showing the greater efficiency of Land Value Tax is a huge step forward for the UK to see a fundamental shift in taxation off earned incomes, savings and production and on to land and other natural resource rents. Land is not produced by human endeavour and land wealth is created as a result of public and private investments which we all pay for as tax-payers and consumers and not by the landowners who benefit financially."
The Labour Land Campaign recognises that most current taxes in the UK are unfair and inefficient. Income Tax along with National Insurance Contributions and Corporations Taxes are avoided and evaded by many, leaving the tax bill to be picked up by honest and less devious taxpayers. Everyone pays tax in some form or other directly or indirectly and those taxes pay for our public services that create and add to land value in the UK including transport, health care, good state schools, parks and so on but it is owners of land that reap the unearned income of land wealth through no effort on their part.
By reducing taxes on wages and business and introducing an annual Land Value Tax, land will be used more efficiently, demand for building on green land will greatly reduce and speculation in land prices increasing will disappear. Employment will grow as investors are encouraged to expand current businesses and start up new ones all over the UK and the land wealth which is created by all of us will be collected and used for the public good.
Tuesday, 11 February 2014
Last year Barclays bank made a large profit and celebrated by sacking thousands of staff (see Barclays and the sack race).
This year Barclays made even more profit - and so to celebrate will sack even more staff. Barclays adjusted pre-tax profits were £5.2 billion for 2013, that's £165 every second in profit. In a month that's £430 million.
The sack race
Barclays also announced that it will be sacking up to 12,000 people (including 7,000 in the UK). So assuming every employee to be sacked is on the average UK full-time wage of £26,500, Barclays could afford to keep every single one of them on for a year (including NI and pension contributions) from less than one month's profits.
As we said last year, no company should be able to make redundancies as long as it was profitable. After all, why should a company making profits be allowed to sack the workforce that produced those profits - simply to try to make higher profits for shareholders and to give ever larger bonuses to casino bankers?
But take a look at where the money is going. Before profits are calculated, Barclays will £2.38 billion in bonuses to its investment bankers - the socially useless parasites of late capitalism - a 10% increase on last year.
Instead of paying those bonuses (on top of above average wages) that £2.38 billion could pay for a golden goodbye of £200,000 to each of the 12,000 staff being sacked.
The Barclays model
But it won't. Barclays' the epitome of a nihilistic cannibal capitalism, that strips jobs, pay and dignity away from the many to give riches to the few. This is the gratuitous redistribution of wealth from poor to rich.
It also means customers will get worse service - those sacked staff will translate into few cashiers, fewer staff in call centres and possibly the closing of some high street branches.
Tuesday, 4 February 2014
The Independent Workers Union (IWGB) confirmed today that porters and cleaners working for MITIE at the Royal Opera House have secured a landmark victory in their fight for workplace justice that will lift them out of the poverty trap.
Workers at the Royal Opera House have overwhelmingly accepted an agreement with the facilities company MITIE which guarantees all porters and cleaners receive the London Living Wage of £8.80 per-hour.
The workers voted by a 100% margin to strike during the BAFTA awards on 16 February. Their campaign has won widespread support. Award winning director Ken Loach issued an appeal for support demanding “No-one should cross your picket lines”. The actors' union Equity and the Musicians Union wrote to the Royal Opera in support of the IWGB members. Glenda Jackson MP joined 25 other MPs signing Early Day Motion 919 tabled by John McDonnell MP in support of the workers.
LEAP chair John McDonnell MP said:
The Royal Opera saw a series of mass protests by trade unionists and students who invaded the premises demanding justice. Following failed talks at ACAS, the Royal Opera offered to pay the current Living Wage in April 2015. The IWGB made a counter offer for:1 February 2014 the pay rate of £8.00 will apply; and from 1 April 2014 the pay rate of £8.80 will apply.“This is a tremendous victory for the IWGB workers and it sends out a message to all low pay employers that we are not willing to tolerate poverty pay and we're coming for you."
The pay rise from 1 April represents a 25% increase from the cleaners' current pay of £7 per hour, but this increase (including employer national insurances costs) represents just 0.15% of the Royal Opera House's annual income. That's the equivalent of adding just 24p a ticket to every performance.
With the union campaign escalating MITIE and Royal Opera House finally agreed to the settlement. Chris Ford IWGB General Secretary said:
“IWGB pays tribute to the courage and determination of our members. Combined with the solidarity of the labour movement, of students and youth, we have secured this fantastic victory. In five months we have gone from arrogant disdain by the employers to win the first pay rise in three years for these cleaners and porters. It is an example to all workers struggling to live at present.”
Thursday, 30 January 2014
This blog has not shied away from taking a sideways approach to economics at times, and neither has it hesistated from looking at how economic power influences other spheres of life. One of those areas has been criminal justice - from comparative approaches to fraud to the relative crimes of Barclays and naked ramblers.
Today, the Guardian reported 'Metropolitan police accused of acting on behalf of big business' - helping make arrests for Virgin to bring a private prosecution for fraud, for which Virgin paid the Met. Many people, including Green London Assembly member Jenny Jones have highlighted the apparent ability of corporations to buy justice:
We have a form of private policing by @metpoliceuk which I think is plain wrong: http://t.co/opg5xfQxAP Better justice for rich?
— Jenny Jones (@GreenJennyJones) January 30, 2014
Labour MP Tom Watson said: "This sounds like emerging two-tier policing where corporate interests can buy the time of the police, leaving those who can't offer remuneration losing out. This is creeping privatisation with big business hiring police powers."
Of course the law is far from equal, especially since the massive cuts to legal aid which will undermine the ability of the less well-off to seek justice.
But another aspect of this story caught my eye, and that was the sentencing of those who supplied imported set-top boxes to allow people to watch cable TV without subscription.
"Munaf Zinga received eight years' imprisonment, and two other men were also convicted. They had sold 400,000 boxes over more than three and a half years."
Eight years imprisonment: there is no suggestion violence was involved, no one was killed, and there is no suggestion that any of those prosecuted posed a threat to the public. They supplied set-up boxes to people who wanted them, made some money, but Virgin estimated the equivalent income would have been £144 million a year. For reference Virgin Media still managed to scrape a profit last year of £1,030 million.
So why then was a man sentenced to eight years in prison. For reference eight years imprisonment is the average sentence for rape. Is selling illegally imported set-top boxes (even in large quantity) as bad as raping someone? And is it worth 8 years in prison?
Sunday, 26 January 2014
Andrew Fisher, LEAP Co-ordinator, reviews John Hilary's 'The Poverty of Capitalism: Economic Meltdown and the Struggle for What Comes Next'. Published by Pluto Press.
War on Want's Executive Director John Hilary has been an outspoken and radical advocate of the global movement for social justice. Unafraid to speak plainly, to step outside and even condemn the cosy coalitions and tame agendas of some other NGOs. As such, it was with much anticipation that I started to read The Poverty of Capitalism.
The book not only draws upon Hilary's encyclopaedic knowledge of the global players and the struggles they provoke around the world for social justice, but also develops new theoretical underpinnings and useful concepts to better understand the global struggle against the power of almighty capital.
Hilary's fearless analysis not only takes on the known evils of globalisation - including the big corporations, the far from objective global economic institutions and the bought and paid for politicians. But it also takes aim at the wolves in sheep's clothing: the philanthropists, aid agencies and NGOs providing a humanitarian facade for a corporate agenda (reminiscent of the role of missionaries for the British Empire).
Like any well-researched book, it contains a number of great tidbits to develop the main thesis, including the quotes from Pentagon's 2012 paper on the 'Joint Operational Access Concept' which make it clear the US will go to war for resources - as it did in Afghanistan and Iraq - stating:
"the United States must maintain the credible capability to project military force into any region of the world in support of those interests. Thus includes the ability to force both into the global commons to ensure their use and into foreign territory as required."Another also relates to the US, as we learn that 60% of personal bankruptcies in that country are caused by medical bills.
But the most important point in the book is to detail the corrupt power structures that keep the poor poor and the rich rich. In doing so, concepts like 'popular sovereignty', 'common ownership' and 'social production' are introduced and explained in developing the case for a democratic and ecologically sustainable transition in the global economy.
This is not an abstract vision, but rooted in social movements from across many of the most developed and successful of which are from Latin America, Africa and Asia. And it is this that perhaps gives the book its power - as the reader is transported along a compelling narrative from technical analysis of the realities of global realpolitik and economic institutaions, to an conceptual outlining of alternatives to the discontented struggling and often succeeding to make those alternatives a reality.
Those realities could take us, as Hilary labels the final chapter, 'Beyond Capitalism'. I'm in.
Andrew Fisher edited 'Building the new common sense: social ownership for the 21st century'.