Tax 'em til the pips squeak

A letter from the Morning Star 16/02/12

There is a very simple way to deal with the bankers' "bonus culture" that nobody seems to be talking about. Tax it!

In the 1970s, for taxable incomes over £20,000 (equivalent to around £170,000 now) we had a tax rate of 83 per cent. On "investment" income (that is from gambling on the capital markets) it was 98 per cent.

If employers really think their executives are worth it, let them pay these obscene bonuses, but let us at least tax them so that the rest of us, upon whom their businesses depend, will get a cut in the form of more money for public services.

Of course, there is no way that this government will take such a step, but that does not mean we should not talk about it.

Of course, if we had a government that took such a measure there would be the usual cry that all these fantastic "experts" will migrate.

Good riddance, I say. Nobody is indispensible. There will be always be people who can grow into the jobs that need to be done, who will not demand bonuses for the jobs that they are already being paid to do.

Jerry Jones
London SW19

Update 17/02/12: YouGov poll shows how popular more redistributive tax would be:

• 62% feel that taxes on the wealthiest people in the UK should be increased ... only 5% feel they should decreased
• 68% say that George Osborne should not abolish the 50p rate of income tax for people earning over £150,000, 19% say he should abolish it
• 66% of Britons would support a new tax upon people with houses worth more than £2 million, while 19% are opposed to this 'Mansion Tax'

Is a Robin Hood tax all it seems?

Jerry Jones

It seems a nice idea. Tax the financial speculators enriching themselves at our expense and use the proceeds to raise people out of poverty.

The Robin Hood tax campaign, which is sponsored by some 50 charities and other non-government organisations and supported by such luminaries as Comic Relief founder Richard Curtis and Archbishop of Canterbury Rowan Williams, is pushing this course of action.

According to the campaign, a package of financial transaction taxes on the purchase and sale of foreign exchange, shares, bonds and various derivatives, could raise over $400 billion (£250bn) worldwide.

That is more than enough to achieve the Millenium Development Goals, which range from halving extreme poverty to halting the spread of HIV/Aids and providing universal primary education by 2015, or even more ambitious goals.

But aren't these campaigners being a little starry-eyed? Assuming this amount could be raised by such means, can we trust governments to spend it for that purpose?

Already, the German and French governments want to hijack such taxes to fund the EU, whose accounts are notoriously opaque and corrupt.

Moreover, if Western governments were serious about ending poverty and so on, surely they would have long since put up the funds for that purpose?

If a Robin Hood tax could raise such funds, it would be up to the rest of us to campaign for it to be used in that way.

At the moment, the likelihood of a Robin Hood tax being introduced in Britain is nil, given the vehement opposition of the City, the Con-Dem government and right-wing lobby groups.

But just because the City and rightwingers are opposed to it, does that mean we should be for it?

Say a change of government did introduce such a tax and that we could prevent the EU grabbing it. Would the tax be capable of raising the kind of money suggested?

The trouble is that the calculations assume that the buying and selling of those various financial assets would carry on more or less as before.

Consider a transaction tax just on foreign exchange dealings, which is what the Robin Hood tax originally referred to when it was first coined by the campaigning group War on Want in the late 1990s - up to then it was known as the Tobin tax, after the Sveriges Riksbank (aka "Nobel") prize-winning economist James Tobin.

Tobin's original intention when he proposed the tax in 1972 had been not so much to raise funds but to make speculation less attractive. This would make exchange rates less volatile following the 1969 collapse of the Bretton Woods agreement, which had done that job the previous 25 years. But the Tobin tax was never implemented.

Today currency trading amounts to some £400 trillion a year. This is 50 times the total value of goods and services traded globally each year. The difference, it is assumed, is due to the large sums used for speculation.

Campaigners latch onto these figures, suggesting that a transaction tax of just 0.05 per cent could yield some £200bn just on foreign exchange dealings.

However, if the tax was doing its job according to Tobin, the amount of foreign exchange traded would slump to around that required for the purposes of real trade.

That is because it would no longer be worthwhile to speculate, which depends on very thin margins, and trading very large sums. It is likely therefore that nothing like that amount could be raised.

In 1984 Sweden introduced a 0.5 per cent transaction tax on the buying and selling of shares - that is, 1 per cent on a round trip.

Two years later it was doubled, and in addition, a 0.002 per cent transaction tax on bonds and other financial assets was introduced.

However trading volumes fell dramatically - to zero in some cases - and the revenues turned out to be barely 5 per cent of what had been anticipated. The policy was abandoned in 1990.

Britain has had a transaction tax on the purchase of shares - now known as the stamp duty reserve tax - for over two centuries.

The rate of tax has varied between 2 per cent and 0.5 per cent, the current rate.

Studies have found that trading volumes fell considerably when the rate was higher, and vice-versa. These days all financial intermediaries, which account for over 70 per cent of share dealings, are exempt, so its effect on trading volumes is minimal.

This is the dilemma for all transaction taxes. Are they to modify behaviour or to raise revenue?

If the former, they will not raise much revenue. If the latter, if the rate of tax is higher, trading volumes will reduce, so there is less to tax, and if low enough not to affect behaviour, they are likely to be hardly worth collecting.

Moreover, the financial sector is very adept at coming up with devices to get round regulations and avoid tax, making use of offshore tax havens to protect its privileges.

In effect, transaction taxes are an attempt to do things by proxy. Why not campaign for governments to address these issues directly and openly?

First there are more effective ways of raising revenue and to address poverty, and stimulate investment in real productive activities upon which that depends.

For a start, governments could make dealings with offshore tax havens illegal, so that the giant transnational corporations and the rich pay their fair share of taxes.

For Britain, this would of course affect the City, the world's second-biggest tax haven after Switzerland, as well as various enclaves still under British jurisdiction such as the Cayman Islands.

But this would be offset by the extra revenue made possible by eliminating tax evasion, especially if tax rates on profits and high incomes were raised to what they were in previous times.

Furthermore the diminished role of the City would make investment in other parts of the economy more attractive, which is sorely needed.

Meanwhile, genuine traders want stable exchange rates. At present they have to set up complex and expensive hedging arrangements to offset volatility, which in fact is what a large share of the supposed speculation in currencies is about.

This is what the Tobin tax was meant to address, though more recent research suggests that its effect could be to make currencies even more volatile.

It would be far better for all international trade to be conducted in a single global currency not connected with any particular country, with all national currencies adjusted to it, say, every quarter, on the basis of purchasing power parity.

Countries with failing economic polices might suffer, but this would not affect other countries.

Had the euro been introduced on that basis the eurozone now would not be in such difficulties.

For such a policy to work, capital controls would also be needed, but these are needed anyway, not only to cut out speculation but also to stop the surplus labour or profit generated by a country's people ending up somewhere else and therefore not available for investing in that country's economic development - which is what is needed to eliminate poverty.

In short, the campaign for a Robin Hood tax in the form of financial transaction taxes is largely a diversion from the real issues that need to be addressed

You can't control what you don't own

If there's one lesson of the banking crisis and bailouts of 2007-09, it's that 'you can't control what you don't own'.

Today the government implores the banks to lend more to businesses and to constrain executive bonuses, but to little avail. Perhaps the irony is that we do still own large stakes in several banks. Indeed if it were not for the various guarantee schemes that underpinned UK banking, we would have ended up owning most of them as they fell like dominoes. However, the ownership model devised was arms-length, temporary, and was in reality the privatisation of public money rather than the nationalisation of private assets (or liabilities).

The New Labour government had introduced the market further into areas such as welfare, education and health, had part-privatised the London Underground, and more of the civil service than the governments of Thatcher and Major combined. But here it was facing the possibility that its golden child - the finance sector - was about to collapse.

In 2007, what struck LEAP was the lack of debate about public ownership. What really sent the message home clearly for me was this press release from Unite, the union that represents Northern Rock staff, from 20 November 2007. It sets out a six point 'Charter for Northern Rock' the sixth point is "To retain Northern Rock as a UK listed company".

I don't use this example to in anyway demean Unite, but simply to highlight how little issues of ownership and control were being discussed and debated in the labour movement.


Today, Southern Cross - which owns 753 care homes across the UK - remains on the verge of collapse. The 2011 GMB Congress asked 'If private equity and the private sector are places fit for the care of our elderly, our most vulnerable and our most dependant?' Indeed.

A new debate is starting up about media ownership in the wake of the News of the World hacking scandal. With energy and supermarket prices both rising above inflation to enable gratuitous profiteering, the demand for public ownership should be made.

Earlier this week it was also revealed that Virgin Trains received £40 million in public subsidy, and paid out nearly £35 million in dividends. The case for rail re-nationalisation is overwhelming.

It therefore seems an opportune time to publish free online for the first time LEAP's 2008 publication Building the new common sense: Social ownership for the 21st century (you can buy a hard copy here).

The pamphlet looks at different forms of public ownership from the Morrisonian post-war model to workers' co-operatives.

Download chapter by chapter

• Preface by Andrew Fisher
• The Case for Industrial and Economic Democracy by Gregor Gall
• Why we need a culture of social ownership by Rosamund Stock
• The economic case for worker-owned co-operatives by Jerry Jones
• Telecommunications of the future under public ownership by Maria Exall & Gary Heather
• Rail privatisation - a failed experiment by Bob Crow
• The Growing Case for Social Ownership by Gerry Gold
• The Campaign for Social Ownership in the 21st century by John McDonnell MP

The Case for a Revenue-Neutral Carbon Tax (aka 'Fee-and-Dividend' System)

Jerry Jones

After 20 years of international policy debate and protocols, and some 30 years since the scientific evidence that human generated carbon dioxide from the consumption of fossil fuels was causing global warming was first being assembled, almost no progress has been made towards doing something about it. It has been ‘business-as-usual’, with the rate of increase of carbon dioxide going into the atmosphere, if anything, accelerating. It is becoming increasingly obvious that the policies that have been advanced so far are not working. We clearly need to be doing something different. And it is urgent. The evidence is that average temperatures increasing a few degrees more will start to release the methane from methane hydrates currently locked in ocean floors and in permafrost. Methane is a much more potent greenhouse gas than carbon dioxide, and its release will turn what still is a manageable problem into perhaps a terminal catastrophe for humanity and life on earth, as we know it.

The task is to drastically reduce the amounts of carbon dioxide going into the atmosphere, and to stimulate research into the development of new technologies to produce energy without adding to the carbon dioxide already there – and to foster lifestyles and the development of equipment, appliances and transport that make more efficient use of energy. The key step towards achieving those goals must be to make the price of energy that adds to the carbon dioxide in the atmosphere prohibitively expensive. The point is fossil fuels are only cheap compared with other sources of energy because their true costs to society – their externalities in economists’ jargon – are not taken into account.

There are two major approaches towards raising the price of energy produced by fossil fuels: either the imposition of a carbon tax (charged on the basis of the amount of carbon dioxide the technology puts into the atmosphere); or so-called ‘cap-and-trade’ (that is imposing a global cap on the quantity of carbon dioxide that can be released into the atmosphere and then allocating or auctioning tradable permits to producers of energy and fuels allowing them to release carbon dioxide up to a certain amount into the atmosphere).

Economists concerned with climate change are more or less unanimous that the carbon tax approach is by far the more efficient. Yet it is the ‘cap-and-trade’ approach that policy-makers more or less unanimously have adopted. The supposed advantage of ‘cap-and-trade’ is that it sets the amount of carbon dioxide that is permitted to be released into the atmosphere and allows market prices to adjust for achieving that target. With a carbon tax, the price of carbon is fixed, but it leaves the amount of carbon dioxide released into the atmosphere uncertain, which supposedly is its disadvantage. In fact, we do not know how much carbon dioxide in the atmosphere is safe, so the target in ‘cap-and-trade’ would have to be set somewhat arbitrarily anyway (which could prove costly if set too high or too low). With a carbon tax, the rate of tax can be adjusted as new evidence came in and as new technologies were developed.

A major advantage of the carbon tax is that producers and consumers would know what the costs or savings of their actions were (for example, investing in new methods of power generation, giving up the car, heating the home less, installing insulation, and so on). When doing a cost benefit analysis, as it were, they would not be faced with the uncertainty of not knowing what the carbon price will be next month, next year, or whatever, due to the volatility characteristic of carbon prices in the ‘cap-and-trade’ system (as has been observed in practice with the embryonic forms of ‘cap-and-trade’ already in existence), which would likely be made worse by speculators.

If a carbon tax is so much better than ‘cap-and-trade’, why is it the latter that governments the world over is pushing? Even economists, after stating that the carbon tax is more cost effective, come out in favour of ‘cap-and-trade’. The simple answer is that it is because most governments and most economists are in thrall to the bankers and big financial institutions. As Cameron Hepburn, puts it (after previously stating that ‘a carbon tax appears more efficient than tradable allowances’):

"[P]ractical recommendations need to start from where we find ourselves, rather than where we might like to be. The institutions we have so far successfully developed are centred on emissions quantity targets and timetables. This approach has hard-won momentum, and a degree of institutional lock-in. Financial institutions within the emissions trading community, including some of the world’s major banks and hedge funds, now have a vested interest in ensuring that emissions trading continues, with tighter caps to increase carbon process and the value of their carbon assets….
While such schemes are still far from perfect, the institutional switching costs of moving from a quantity-based to a price-based scheme, such as harmonized tax, seem rather large."

Or to put it more straightforwardly, switching to a carbon tax, even though it is better, would be unpopular with big business. Meanwhile, for us consumers of energy, ‘cap-and-trade’ is more costly than a carbon tax because we have to pay for the expenses and commissions of the traders involved, including those in futures markets and other derivatives that go with such trades – which is precisely why ‘cap-and-trade’ is so popular with the big financial institutions.

A carbon tax saves on all of that. All that is required is a simple system for collecting the tax at the point of power generation or manufacture of fuels. This would require minimal administrative costs, especially as these activities are highly concentrated among a small number of large firms. In short, from the point of view of society as a whole, a carbon tax has to be the more rational approach towards controlling carbon emissions.

Of course, the extent to which the carbon tax would be passed on to consumers in the form of higher prices of the goods and services would not make it popular – except to note that the prices would be even higher in the ‘cap-and-trade’ system for the reasons just given. Then there would be the question of what the government would do with all that extra revenue? Would it be used efficiently and wisely? Would it be invested in the research and development of alternative sources of energy? In short, can we trust governments to act properly in the interest of everybody? On the evidence to date, as Hansen notes, the answer has to be a resounding no.

That is why Hansen proposes, which is what I am now proposing here, that all of the revenue from a carbon tax (less very small administrative costs) be re-distributed on a per capita basis to every citizen, with children being allocated half the amount of adults (reflecting the extent to which parents act on behalf of their children). This is the dividend element of the ‘fee-and-dividend’ approach, which is what Hansen calls the carbon tax. By distributing the revenue to citizens, it would be they who made the decisions. Those with a small ‘carbon footprint’ would benefit, while those with ‘gas-guzzling SUVs’ and air conditioners would have to pay dearly for their habit. In short, it would encourage everybody to think carefully about his or her patterns of consumption. Even more important, it would make investment in the development of alternative sources of energy and in conservation much more rewarding.

Furthermore, a carbon tax along these lines has the advantage that it does not require complex international negotiations for it to be introduced. It can be done unilaterally. Of course, the more that governments everywhere adopt such a scheme, the better it would be for the planet. But in the meantime, in order to prevent the economies of countries introducing such a tax being undermined by imports from countries operating on a ‘business-as-usual’ basis, and the migration of energy intensive productive activities to those countries, there would have to be a border tax on all imported goods on the basis of the average emissions arising from their manufacture (the revenue from which could perhaps be used to help poor countries develop low emission energy systems). Such a proposal has already brought shouts of ‘protectionism’ from big business and their supporters. But they should be ignored because it is only fair that countries prepared to do something about global warming should be allowed to protect their economies. In any case, we need to challenge the ideology that lies behind the neo-liberal economic policies that have so much benefited big business at the expense of everybody else. As I have argued elsewhere, if countries are to develop their economies optimally, governments have to be allowed to impose selective tariffs on imports (preferably subject to international agreement) – indeed it is their democratic right. But such tariffs should be kept quite separate from border taxes on carbon emissions.

Finally, it should be noted that a carbon tax does not preclude other measures to combat global warming, such as energy efficiency regulations. On the other hand, the existence of a carbon tax would likely make such other measures more effective.

LEAP Red Papers March 2010: Breaking the Cuts Consensus

The March 2010 LEAP Red Papers: Breaking the Cuts Consensus are published today in advance on the Budget Statement on Wednesday 24th March.

In this edition of the papers, John Grieve Smith argues that the pre-election cuts consensus is driven by misplaced obsession with the budget deficit, and that such cuts would be damage the economy. The 'misplaced obsession' could be countered by an international, government-led mechanism for pricing and trading public sector debt, argues Gordon Nardell.

An alternative to the cuts consensus, based on tax justice and public ownership, is argued for by Andrew Fisher, while Gerry Gold explains why neither the solutions offered by neoliberals nor Keynesians can solve the global crisis.

Graham Turner argues that the crisis in the UK is exacerbated by the decline of manufacturing, on contrast to other countries that have had a clear manufacturing strategy, while Jerry Jones tackles another election issue – migration – arguing that trade union rights are the solution to exploitation and under-cutting.

As John McDonnell MP concludes, no party is adequately addressing these issues because none want a more democratic system

Download the papers in full.

Reviving Britain's Manufacturing Industry

Jerry Jones

Britain desperately needs to revive its manufacturing industry. Compared with other advanced economies, Britain’s economy is overdependent on the financial sector. For example, bank holdings in Britain amount to over 300 per cent of GDP, which is double that in the Euro area, and four times that in the US. And, since the current crisis largely originated in the financial sector, Britain’s economy is likely to be hardest hit. Indeed, debt write-downs by banks based in Britain during the coming period, according to IMF estimates, will amount to some 25 per cent of GDP. This compares with only 6 per cent in the Euro area, and 7 per cent in the US. Britain, of course, invented manufacturing industry. But ever since bankers and others in finance, in the late nineteenth century, discovered that they could make more money overseas than investing in Britain, manufacturing has tended to be neglected. Other countries are not forever going to allow financial institutions based in the City of London, acting as an offshore tax haven, to benefit at their expense. Britain needs to diversify.

The Government had the chance to kick-start the revival of manufacturing when it was forced to rescue three of Britain’s high street banks facing bankruptcy. The banks could have been taken wholly into public ownership and used as a conduit for channelling the funds created by the Bank of England in its so-called ‘quantitative easing’ programme to invest in manufacturing. That is what the authorities did in China through its state-owned banks, and its economy has carried on growing. In Britain, in contrast, the funds created have been stuck in banks, used mainly to strengthen their balance sheets, instead of being invested in the real economy, which is what is needed to overcome the crisis.

Some immediate investment priorities

For a start, the funds could have been invested in a major house-building programme. This would have killed several birds with one stone. First, this would have helped overcome the chronic shortage of affordable homes, without which, with numbers seeking homes on the increase in the coming period, the situation will go from bad to worse. Second, it would have provided jobs for the thousands of unemployed construction workers. This, in turn, would have created economic demand for goods and services on which the newly employed builders would seek to spend their wages, stimulating investment and employment in their production and supply. Furthermore, investment in construction would have stimulated investment and employment in the manufacture of the various inputs required by the revitalised construction industry. In addition, the new employment and spending created would have boosted tax revenues, thus enabling the government to recoup much of the money spent.

Another use of the funds could have been to extend investment in infrastructure, especially the railways, which are desperately backward compared with most other advanced countries. This would have had similar knock-on effects. Moreover, investment in infrastructure (and also to some extent in construction) feeds directly into land values, which could be recouped through a land value tax that would make the investment self-funding.

Another important area for public investment is in the development of renewable energy technologies, much needed if Britain is to achieve its targets of reducing carbon dioxide emissions. Some experts have estimated that as much as 80 per cent of Britain’s energy needs could come from a vast network of offshore wind farms. This would obviate the need for nuclear power stations, with all the hazards involved – which, in any case, if one takes account of the whole process from mining to the production of the nuclear fuel and dealing with the radioactive waste, emit as much carbon dioxide as conventional power stations. (Ministers try to cover themselves here by inserting the phrase ‘at the point of generation’ when referring to the supposed benefits of nuclear power).

There are many other areas of manufacturing that the government could foster to create jobs and skills, and to promote faster economic growth with minimal environmental impact. But for this, a coherent strategy is needed.

The need for a new international trade policy

First, it needs to be pointed out that if the Government were to pour funds into construction and manufacturing, this could simply benefit other countries at our expense by drawing in imports. If the economy is to expand, Britain will need to import, but it needs to be ensured that what is imported has the greatest economic impact. In other words, there will need to be import controls. This, of course, will immediately bring howls of ‘protectionism’, so indoctrinated are most people, including many on the Left, that trade must be ‘free’ at all costs – which, in practice, benefits the giant transnational corporations at the expense of everyone else. In fact, selecting what to import and how much – which should be the democratic right of all countries – creates the opportunity for economies to develop much faster than otherwise, which would benefit international trade far more than so-called ‘free trade’. That is because the faster an economy grows, the more it will need to import (since no country can be self-sufficient), and therefore, the more it will have to export.

Again, China is a good example. Because its economy has been growing so fast – ‘in spite of’ selecting what it imports – it is enhancing international trade because of its need for raw materials and high technology capital goods. This, of course, benefits the countries exporting those commodities.

People often hark back to the 1930s, when it is said that ‘protectionism’ caused the worldwide depression. In fact, the cause of the depression was not ‘protectionism’ as such, but mistaken economic policies (not much different from now) that failed to promote economic growth. Indeed, the main country that carried on providing an extensive market for exports from other countries at that time was also the country that most controlled its imports – namely the USSR, whose economy was expanding rapidly due to its huge industrialisation programme, which is analogous to the position of China today.

To be sure, it would be better if trade policy was decided at international level through the World Trade Organisation. But for this to happen, its members would have to abandon their ‘free trade’ dogma, and recognise the fact that all countries, in order to optimise economic growth, need to control what they import to a greater or lesser extent – the more so, the less developed are their economies. A system I have proposed is to allow every country an average tariff or equivalent in inverse proportion to its GDP per capita, leaving it up to each country to decide how the tariffs are distributed. Thus, less developed countries would have the higher levels of protection that they need. They would be able to impose relatively high tariffs on luxury imports and products being produced locally for the first time, offset by very low tariffs, or perhaps subsidies, on imported technologies that they need for developing their economies. More developed countries, on the other hand, could use their much lower ‘allowances’ to limit imports of products tending to undermine employment in certain sectors, giving enterprises the chance to adjust, cut costs, or diversify.

Meanwhile, schemes based on those principles could be negotiated on a bilateral basis. Already, many bilateral trade deals have been agreed, but they need to be made more equitable. At present, many tend to favour the more developed countries, especially the EU and the US, at the expense of less developed countries – which reflects the weaker bargaining positions of less developed countries – so that trade does not grow and benefit the countries concerned as much as it could have done.

The need to raise wages

Once imports are properly planned through selective controls, it becomes possible to introduce many other measures that would benefit manufacturing, and the economy as a whole.

For example, it would be possible to raise substantially the minimum wage – with knock-on effects on wages for more skilled workers – without this having the effect of drawing in more imports at the expense of domestic producers. This would have the effect of boosting economic demand for goods and services, and therefore stimulate investment in their production and supply. Raising wages would, of course, increase costs for employers, but businesses would benefit from the bigger domestic market for their products.

This measure could be backed up by a new Bill of Rights for employees (including repealing the current laws that restrict trade union activities introduced by the Tories in the 1980s, which New Labour had promised but reneged on). This would improve the bargaining positions of workers and their trade unions, and therefore terms and conditions of employment.

Measures to deal with insolvency

Next, new measures could be introduced to deal with the problem of insolvency, through the establishment of an insolvency agency at central and local governmental levels. They could establish a revolving fund, whose function would be to advance low cost loans to help rehabilitate failed businesses – perhaps in a new productive activity – aimed at maintaining employment and workers’ skills. In many cases, the best option might be to convert the businesses into worker-owned co-operatives. This would have the advantage that the businesses would only have to cover workers’ wages and the costs of inputs, maintenance and marketing, and would not have to generate the high returns demanded by outside shareholders or private capitalists.

Furthermore, new laws could be introduced to require companies to make their accounts more transparent and available to workers and their advisors, giving workers powers to prevent asset stripping, and companies being deliberately run down, thus making insolvency less likely. This would be helped further if the auditing of company accounts became the responsibility of a public agency – perhaps a much expanded National Audit Office (which currently is only responsible for the accounts of central government departments and agencies). This would replace the private accountancy firms that are currently responsible, thus eliminating the conflicts of interest arising from their other role as consultants (a major activity of which is to manipulate company accounts to avoid tax).

Capital controls - and the need to abolish offshore tax havens

Another important measure needed to ensure that the savings and investment resources generated by workers are used for the benefit of Britain’s economy would be to re-introduce capital controls. For these to be effective, all dealings with businesses and subsidiaries based in offshore tax havens would have to be made illegal (preferably through international agreement, with suitable compensation for small island tax havens). It was precisely the mushrooming of offshore finance that did most to undermine the capital controls that were in place more or less everywhere in the 1950s and 1960s. Instead of reining in these activities, governments caved in to the lobbying of the big banks. They allowed these offshore havens to flourish, and eventually deregulated international capital flows almost entirely. As is now evident, this not only greatly benefited the rich at the expense of the poor, thus exacerbating inequalities worldwide (countries and people), but also is what made the current economic crisis far deeper and more destructive than it might have been.

The role of a revamped Department of Trade and Industry

If a government is serious about enhancing the role of manufacturing in a more diversified and re-balanced economy, and optimise economic growth, it will need to re-introduce some form of economic planning. This could be achieved through a re-established and revamped Department of Trade and Industry. Among its tasks would be to:
• Manage trade policy to maximise the benefits of international trade for Britain’s economy;
• Co-ordinate investment in the various sectors of manufacturing, including in the public sector where appropriate;
• Administer taxes and subsidies to favour industries having the greatest impact on economic development and those needed to reduce emissions and other adverse environmental effects;
• Oversee and help fund research and development endeavours carried out by companies, research institutions and universities;
• Introduce a new system of training through the establishment of manufacturers’ associations in the different sectors, linked to technical colleges and universities, thus giving workers the theory and skills needed to maximise their contribution to economic development.

Conclusion

Once one abandons the dogmas of privatisation and ‘hands-off’ government, all of the measures proposed above to revive manufacturing industries, and reduce their environmental impact, are perfectly straightforward and obvious. Why cannot governments see this? Why cannot they see that ‘hands off’ allows the rich and powerful, the giant transnational corporations and financial institutions, to dictate policies – which, as is now evident, has led to the growing divide between rich and poor, and now, probably, one of the worst economic crises since the start of the industrial revolution, the brunt of which they expect ordinary people to bear. It is surely time to change course. Britain, following in the footsteps of China, could show the way.

*This article is taken from the LEAP Red Papers: The Cuts, which can be discussed in full on the LRC website

Capitalism Isn't Working - Building the New Common Sense

Building the New Common Sense – Social Ownership for the 21st Century is the pamphlet published by LEAP last September. Thanks to many LEAP supporters we have sold enough copies to break even. Unlike the capitalist banks, we break even, haven't relied on dodgy loans or Government bailouts and are reinvesting the (very) small surplus in our forthcoming conference.

In the preface to Building the New Common Sense, I wrote:

"This pamphlet is the start of a debate and of a campaign to put the question of ownership back on the industrial and political agenda. As the UK faces recession and as job losses and business failures continue to rise, this question could not be more timely."

In the concluding contribution to the pamphlet, John McDonnell MP, LEAP Chair, wrote:

"Now is the time . . . to reinvigorate a debate about a new role for social ownership in the 21st century. This pamphlet is designed to stimulate a debate among trade unionists and all those who want a stake in their community. From this debate, we need to take forward a campaign for a worker controlled economy, accountable to our communities, into our union branches and conferences, into our workplaces, and through the TUC, and eventually even Parliament."

Since then workers have occupied workplaces at Waterford Crystal and currently at Visteon. We are hoping to have a worker from the Visteon occupation at the LEAP conference 'Capitalism Isn't Working' which takes place next Saturday, 25th April. The conference will also include a workshop entitled 'Resisting the Recession: the industrial agenda' led by Professor Gregor Gall and Jerry Jones (both contributors to Building the New Common Sense).

If you are interested in continuing the debate and building a campaign for workers' control and in solidarity with those workers taking action, I hope you will attend and participate in the conference.