Tony Benn: "What a world we would have created if we had listened to him"

LEAP Chair John McDonnell MP pays tribute to Tony Benn

LEAP chair John McDonnell MP spoke in Parliament yesterday (20/03/14) paying tribute to Tony Benn (click to watch via Youtube).

John, who also chairs the Socialist Campaign Group of Labour MPs (founded by Tony Benn), said:

"I want to go back not to the manifesto of 1983, but to Labour’s programme of 1982, which was the Bennite programme, and virtually all of it was written by Tony Benn. It is worth looking back at what it said. It was absolutely prophetic. It basically said, “We will create a society that is more democratic, more fair, more just and more equal.” How would we do it? Tony’s ideas in that programme were straightforward: we would undertake a fundamental, irreversible shift in the redistribution of wealth and power. How would we do that? Through a fair and just tax system, tackling tax evasion and tax avoidance, taking control of the Bank of England, preventing speculation in the City and the banks because it could be dangerous to our long-term economic health, and creating full employment. That is what he was about. That is what he inspired us to do.

"It is interesting that he said we should invest in housing, health and education; give all young people the opportunity to stay on at school with an education maintenance allowance; and make sure that they had a guarantee of an apprenticeship or training and the opportunity to go to university, not by paying a fee but on a grant. That was his programme in 1982. It was prophetic and years in advance of its time. He said that what we needed to create the wealth was an industrial strategy—a manufacturing base based on new technology and skills. Actually, I remember him talking in one of his speeches about alternative energy sources, well in advance of the debate about climate change.

"He inspired my generation and he inspired generations to come. What a world we would have created if we had listened to him. But more important, what a world we can create now if we listen to him.

"Solidarity and go well, comrade. You made a significant contribution to all of our lives. I hope we will be able to implement the lessons you taught us, when Labour next gets back into power."

The above are extracts from John's speech. Read it in full

The Banking Reform Act is rearranging the deck chairs on the neoliberal Titanic

 
Prem Sikka

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 Standardsconcluded that “shareholders failed to control risk-taking in banks, and indeed were criticising some for excessive conservatism”. The typical shareholdingperiod 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.

• This article first appeared on Open Democracy.

No curbs on predatory and calamitous capitalism

Britain’s financial regulators are still asleep and more scandals could follow, warns Prem Sikka

The banking crash exposed the “London loophole” – a phenomenon associated with feather-duster regulation and ideology where regulators do little to check predatory practices. Nearly five years on and despite vast bailouts, the regulators in Britain have shown little backbone or interest in cleaning-up predatory capitalism.

Rather than taking responsibility, the United Kingdom is dragged along by others. Recent exposure of money laundering and London Interbank Offered Rate (Libor) are just the latest manifestations of a crisis which shows that this country lacks the structures and the political will to curb predatory capitalism.

Any mention of effective regulation sends corporate elites into a cold sweat. They use their chequebooks to fund political parties and find jobs for former and potential ministers with the aim of stymying regulation.

They refer to the bogey of higher costs of regulation, even though the absence of effective regulation has resulted in an unprecedented economic crisis.

The elites forget that the state is the ultimate sponsor of capitalism, and has to coerce and cajole corporate beasts to curb their self-destructive tendencies. That lesson has been learned in the United States, supposedly the home of free markets, but not in Britain. Here are some recent examples.

In August 2012, the New York New York State Department of Financial Services claimed that, for 10 years, the Standard Chartered Bank schemed with the government of Iran and hid from regulators roughly 60,000 secret transactions, involving at least $250 billion. It collected millions of dollars in fees, but left the US financial system vulnerable to terrorists, weapons dealers, drug kingpins and corrupt regimes, and deprived law enforcement investigators of crucial information used to track all manner of criminal activity.

The report added that the bank carefully planned its deception and was apparently aided by its consultant, Deloitte and Touche, which intentionally omitted critical information in its “independent report” to regulators. Standard Chartered has agreed to pay a fine of $340 million. Britain’s regulators have done nothing.
In July 2012, a 300-page report by the US Senate Permanent Subcommittee on Investigations said that HSBC circumvented banking rules designed to prevent financial dealings with Iran, North Korea and Burma. Its lax systems and controls also facilitated financial movements for drug cartels and terrorists. The bank is accused of failing to monitor some $60 trillion of transactions.

HSBC has paid $27.5 million in fines to Mexico and may be fined around $1 billion by the US regulators. The revelations should have resulted in probes in the UK, too, but there is no sign of much action, aside from a belated report into the Libor rate rigging scandal concluding that the system is broken and suggesting its complete overhaul, including criminal prosecutions for those who try to manipulate it – things most observers had concluded rather earlier.

In June 2012, the US regulators took the lead in exposing the Libor scandal. Barclays Bank paid a total fine of £290 million, including £59.5 million to the UK’s Financial Services Authority, to settle allegations of manipulating Libor and the Euro Interbank Offered Rate (Euribor) lending – the rates at which banks lend to each other in the wholesale money markets. Citigroup, Deutsche Bank, JP Morgan, UBS, HSBC and the Royal Bank of Scotland are also thought to be on the US regulators’ radar.

With its reputation irrevocably tarnished by the banking crash and its imminent replacement by the Prudential Regulation Authority and the Financial Conduct Authority, the FSA now claims to be looking at some banks, but so far there is no tangible evidence of this.

The UK is a soft touch compared to the US where the Securities Exchange Commission and Department of Justice have shown some willingness to investigate, prosecute and fine corporations, although the scale and severity of this have been insufficient to curb predatory capitalism.

In contrast, the UK regulatory impulse is to protect elites by sweeping things under dust-laden carpets. A couple of examples serve to illustrate these points.

Sani Abacha, the late Nigerian dictator is estimated to have looted between $3 billion and $5 billion of public money. Despite the extensive anti-money laundering legislation, most of the loot ended up in Western banks. Around $1.3 billion is estimated to have passed through 42 bank accounts in London. Unlike Switzerland and even Jersey, the British Government has neither named the banks nor repatriated the stolen money.

The Bank of Credit and Commerce International was the biggest banking fraud of the 20th century. The Bank of England, then the banking regulator, closed it in July 1991.

Some 1.4 million depositors lost around £7 billion of their savings. In the US, Senate hearings were held and the CIA published some of its reports on BCCI’s activities. A US Senate Committee report concluded that the Bank of England and BCCI auditors Price Waterhouse (now part of PricewaterhouseCoopers) were engaged in a cover-up”.

It also released 99 per cent of a report, censored by the Bank of England, codenamed the Sandstorm Report, which described some of the frauds and named the wrongdoers and various movers and shakers.
However, the Sandstorm Report has remained a state secret in the UK. Various parliamentary committees held hearings on the BCCI scandal, but none were given sight of the Sandstorm Report.

Last year, after some five-and-half years of legal battles against the Treasury and the Information Commissioner, I managed to secure the names of the wrongdoers and some related parties.

These included members of the Abu Dhabi royal family, prominent Middle East businessmen, the head of Saudi intelligence, prominent political advisors and even the biggest funder of al Qaida, then considered to be an organisation friendly to Western interests.

Evidently, the British Government prioritised the appeasement of commercial interests over its citizens’ right to know, or even the desire to create effective banking regulation.

The UK lacks an effective regulatory system and a political culture to curb predatory capitalism. Its patchwork quilt of regulators includes the Financial Services Authority (and its successor bodies), the Bank of England, the Serious Fraud Office, Her Majesty’s Revenue and Customs, the London Stock Exchange, Office of Fair Trading, Financial Reporting Council and myriad private sector regulators.

They are poorly equipped to call multinational corporations to account.

With an annual budget of £37 million, the SFO is incapable of mounting effective corporate prosecutions. In contrast, the US SEC has an annual budget of $1.3 billion.

Almost all of Britain’s watchdogs come from the private sector and are usually too sympathetic to the games played by corporations. After a stint as a regulator, they return to the private sector and know the hands that they must not bite.

The UK’s patchwork system encourages duplication, buck passing and obfuscation. And it is hard to think of any timely intervention by any regulator.

Britain needs to replace the ineffective patchwork of regulators with its own equivalent of the SEC, which could be called the Business and Finance Commission. This would need to be controlled by a board representing a plurality of interests, including taxpayers, employees, customers and other stakeholders, so that elites could not easily sweep matters under the carpet.

The board should be required to meet in the open and its files should be publicly available so that we could all judge its efficiency and effectiveness. No document should be withheld from parliamentary inquiries into scandals.

All political parties need to recognise that additional financial and human resources are needed for swift investigation and prosecution of corporate misdemeanours. Without change, the UK will not have an effective regulatory system.

This article first appeared in Tribune magazine

Osborne 'delusional' on City slicker regulation

From the Morning Star

John Millington

Left economists labelled Chancellor George Osborne "chronically delusional" today after he attempted to play the strong man by promising tough financial regulation.

There will be "no ambiguity about who is in charge" when taxpayers' money is at risk, Mr Osborne insisted in a keynote speech at the World Economic Forum in Davos.

The Chancellor unveiled new laws to boost the power of the Treasury during times of financial crisis.

The measure is part of a wide package of reforms which will scrap the Financial Services Authority and introduce a new regulatory framework made up of the Financial Policy Committee, Prudential Regulation Authority and Financial Conduct Authority.

The Financial Services Bill, published after nearly two years of consultation, gives the Chancellor the power to veto decisions made by the Bank of England when dealing with bank bailouts and other interventions, in an attempt to avoid a repeat of the Northern Rock collapse.

"I hope that we will never again see the paralysis and confusion that did so much damage when the latest crisis hit," he said.

The Bill means that in a crisis, when taxpayers' money is at risk, both the responsibility and the power to act will rest with the Chancellor of the day.

But LEAP co-ordinator Andrew Fisher was left unimpressed by Mr Osborne's gesturing.

"The reform of the finance sector is not a question of better oversight to ensure functioning competitive markets, but of democratic control to ensure markets are subordinated to social need,' he said.

"The failure despite ministerial begging to get even government-owned banks to lend, and the ineffective quantitative easing policy, are the desperate acts of those clinging to an outdated and failed ideology.

"We need public ownership of the banks and democratic control of credit issuance."

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

All bets are off on another financial calamity

Professor Prem Sikka

The banking crisis has been making headlines for the past three years. Bankers indulged in an orgy of irresponsibility, gambled other people’s money, lied about the quality of their products, published opaque and misleading accounts and collected telephone number salaries.

Yet there has been no public inquiry, no royal commission and no prosecutions, even though taxpayers initially coughed up £1.16 trillion in loans and guarantees to bailout the banks. This amount now stands at around £500 billion and is a major cause of the austerity programme.

The best that the Government has managed to do is commission a report from the Independent Commission on Banking, an organisation only created in June 2010. Its 358-page report shows no urgency and says that reforms can wait until 2019.

The ICB’s key recommendations include ring-fencing the retail side or the general deposit-taking and lending operations from the risky investment side of banking operations. Arguably, this would safeguard depositors and borrowers from any future banking crash. However, banks are given the option of deciding whether or not to ring-fence corporate deposits and loans. This leaves the door open for dubious transfers and creative games, and would make effective regulation difficult.

The banking crash showed that many banks were very highly leveraged and lacked the resources to meet their obligations. So the ICB proposes that large British retail banks should have equity capital of at least 10 per cent of risk-weighted assets. As a cushion against future losses, banks are expected to set aside a “loss-absorber” fund of between 17-20 per cent of certain assets. This is to protect taxpayers and reduce their exposure to future bailouts.

The proposals have generally been welcomed by the press and political parties in this country, but are unlikely to solve banking woes. A key problem has been the ability of the banks to create credit which has no relationship with the real economy. The ICB does not consider any of the issues arising from this. Why is the Government leaving the creation of credit and money to private corporations?

The Commission favours the corporate structure enjoyed by banks, but fails to address any of the systemic pressures that resulted in the current crisis. For example, as corporate entities, banks are susceptible to stock market pressures to report ever-increasing profits. This encourages banks to push shady products and indulge in excessive risk-taking. Banks, in common with many other corporations, are focused on the short term. The tenure of the typical FTSE350 chief executive is four years – and declining. In this period, they have to collect as much private loot as possible, because their economic success and media stardom is measured by remuneration. So there is every incentive to sacrifice the long term. Some of the pressures could be alleviated by alternative forms of banking ownership structure – for example, co-operatives, mutualisation, ownership by communities, employees or even nationalisation, but none of these are considered by the ICB.

Contrary to some press comments, the ring-fencing proposals do not embrace the Glass-Steagall Act, passed in the United States in 1933 and subsequently repealed in 1999. The ICB has not asked for a legal separation of the retail and speculative sides. Its “Chinese walls” proposals will not work. Many banks have complex corporate structures spawning the globe and many operate in tax havens with poor regulation. So it is not clear how these operations are to be classified or ring-fenced. Ring-fencing will not insulate banks from the pressures for higher profits and executive remuneration. Northern Rock did not have an investment arm, but went belly-up as directors sought cheap money to expand profits and remuneration. A legal separation and return to mutualisation for some banks may curb some of the worst excesses, but this is not recommended by the ICB.

Even if the banks are ring-fenced, the destructiveness of their gambling will still engulf society. In December 2007, just before the banking crash hit the headlines, the face value of the gambles (known as derivatives) on the movement of the price of commodities, interest rates, exchange rates and anything else, was $1,148 trillion. Global GDP is about $65 trillion. Just 1 per cent negative exposure or loss can wreck the global economy. Where will the money for gambling come from? Inevitably, it will be provided by financial intermediaries from ordinary people’s savings. If the gambles pay off, bankers and intermediaries will collect mega-bucks. If they don’t, then the savings of ordinary people will be decimated. Remember, ordinary people are never asked by fund managers or insurance companies whether their savings should be channelled into complex gambles. So the ring-fencing of investment operations will not shield innocent bystanders. The way to curb destructive gambling is by removing the benefit of limited liability from investment banking. Let the bankers play with their own money and do not permit them to dump their losses on others.

The ICB bemoans excessive remuneration for risk-taking, but thinks that voluntary codes will curb the excesses. Self-regulation has not curbed excesses in the past and will not do so in the future. An alternative would have been to empower bank employees, depositors and borrowers to vote on executive remuneration. It is doubtful that bankers engaging in aggressive practices would ever manage to secure enough votes for their telephone number salaries. But democracy does not enter into the Commission’s vocabulary.

The increase in the capital base may be welcomed, but the banks failed because they were unable to meet their financial obligations. Therefore, the focus should be on solvency or the availability of cash, but it attracts no particular suggestions.

Overall, the Commission’s report is a poor document. It has been produced without any public hearings and collections of facts. The holes in it make it unfit to be the basis of future regulation. For example, it says nothing about the conflicts of interests, incestuous relationship with credit rating agencies, predatory organisational culture that promotes dodgy products (such as payment protection insurance), opaque accounting practices, and the failures of

auditors, bank boards and non-executive directors, the capture of the regulators, or the need for responsible lending to generate jobs.

*This article first appeared in Tribune

Will capitalism eat itself?

The liberal economic commentariat may have choked on its cornflakes this morning, when Professor Nouriel Roubini said "Karl Marx said it right, at some point capitalism can destroy itself because you cannot keep on shifting income from labour to capital" (see video below).



The shift from labour to capital has been a long term process, acute in the US and increasing in the UK too where, as PCS points out, the value of wages has declined from nearly 65% of GDP in the mid-1970s to 55% today. Over the same period, the rate of corporate profit has increased from 13% to 21%.







Roubini also seemingly dismissed the Keynesian solutions used in the 1930s as 'kicking the can down the road', the debt is now too great.



So is Roubini becoming a Marxist and was Marx right? Certainly there is the risk - as Roubini says - that capitalism might self-destruct. It does seem that there is no way out, because of the inherent contradictions of capitalism playing themselves out in this crisis:



1) Governments that impose austerity measures are reducing demand, squashing any chances of recovery. As Roubini says, "If you are not hiring workers there is not enough labour income, there is not enough consumer confidence, there is not enough consumption, there is not enough final demand. We had a massive reditribution of income from labour to capital from wages to profits, ineqaulity of income and wealth has increased."



2) Governments could invest in the economy to create jobs. But in the short term and on the necessary scale that would mean borrowing in the money markets, and the markets have shown their propensity to punish any government not slashing budgets - see Greece, Spain, and Italy - and perhaps even the US following the S&P downgrade. One could counterpose increasing taxes on the wealthiest and clamping down on tax avoidance and evasion - but that takes time, and no western government is even preparing for that eventuality.



So if governments can't save their way out of recession or spend their way out, could capitalism self-destruct?



Certainly some defaults are likely - Iceland effectively defaulted in 2010 and Argentina in 2001. There has been talk of Greece leaving the euro and effectively defaulting. But that would damage the euro - and bond markets would inevitably up the risk factors on any country with a large deficit (Spain, Italy, Portugal - and potentially the US and the UK). This would make it more expensive to borrow, and rule 2) out while requiring more cuts under 1).



Now you might argue that the Argentinian and Icelandic defaults did not cause contagion, but a eurozone country would be a very different proposition, as would a major global economy like the UK, let alone the world's largest economy, the US.



So the only way out seems to be to take on the markets (e.g. shutting down stock markets, nationalising the finance sector, and taking currencies out of international money markets. The only risk for any country trying this route might be US invasion - but can they afford it?



I'll write more on how this could be done soon.

Stop giving in to the markets

From today's Morning Star

Left economists advised governments to stop "kowtowing to the markets" today in the wake of a week of panic and turmoil following the US debt reduction package.

They hit out as David Cameron entered crisis talks with French President Nicolas Sarkozy to discuss doubts over the situation in the US and economic stability in the eurozone.

Left Economics Advisory Panel co-ordinator Andrew Fisher said: "There is a real concern that a further round of bailouts or quantitative easing will be demanded to prop up the markets, but this will only delay and exacerbate the inevitable collapse.

"Any public funds must be used to defend jobs and investment, not prop up overvalued assets and share prices."

Credit ratings agency Standard & Poor's lowered US creditworthiness down a notch to AA+ for the first time in the country's history on Saturday.

It said the cuts plan passed by Congress on Tuesday did not go far enough to stabilise the country's debt situation.

China, Washington's largest creditor called on the US to end its "debt addiction" and even suggested that the dollar may have to cede its position as the world's reserve currency.

Indian Finance Minister Pranab Mukherjee described the situation as "grave."

Mr Fisher said: "It is time for governments to stop kowtowing to markets - and with markets so weakened there has never been a better opportunity for democratic governments to regain some power and control.

"There is an urgent need for politicians to focus on the real economy - to tackle unemployment and to rebalance the economy away from the finance sector."

Stock markets and nonsense

If someone walks into a pub and declares their jacket to be worth £300, but everyone else declares it to be worth a mere £50 - has £250 been wiped off the economy?

It's an interesting question, because today the Guardian website squeals that "World stock markets tumbled sharply again on Thursday, wiping nearly £50bn off the value of Britain's biggest listed companies". Further down the article we learn that in fact it's worse: £110bn has been wiped off in the past week!


Whoops, that is careless! Britain's biggest companies have lost £110bn! But it's nonsense. Going back to the someone in the pub with his '£300 jacket'. Let's say he's a scam artist this time. He walks in and says here's my £300 jacket, and has planted a couple of his mates in the pub to talk it up, say how lovely it is (reminiscent of the Emperor's New Clothes isn't it?) and fool some mark into paying £300 for a £50 coat. If the mark buys, then he has lost £250. That is because the asset has a clear value: £50.

Back in the stock market, this fluctuation between confidence and panic would not be a problem if it was only one rogue scam artist - the problem for the stock markets is, this is the system.

It is for this reason that seemingly sensible, educated, intelligent people panic when anyone points out the Emperor's flies are undone, let alone that his willy is hanging out. So when AAA rated CDOs (£300 jackets) are pointed out to be near junk (£50 jackets) the system seizes up in the same way that the mark in the pub won't buy from the scam artist again.

On such occasions these same great brains (who never predicted this could happen) start using infantile playground language: warning against 'scaring off the confidence fairy' or 'talking down the economy' - as if a sound economy would collapse because someone says something negative. In the same way that most of us aren't reduced to gibbering wrecks because someone tells us 'you're a git', sound economies don't collapse because of a few words.

Of course in 2008 economies started collapsing for the very real reason that they were based on the valuation of scam artists. Governments around the world stepped in and guaranteed much of the scam artists' nigh on worthless assets.

The question is will the government (a la the mark in the pub) be fooled twice and bail out or will it learn from its mistakes and nationalise, control and operate their assets in the public interest - maybe ven taking on the mafia behind the scam artists (the bond markets)?

For those of a left-wing disposition shouldn't we be asking,'do we need a stock market?', 'shouldn't we shut it down?', when it simply serves to create destabilising panics and to distort the economy.

Why has Labour not supported the Robin Hood Tax?

Thursday's Morning Star reported that the Labour frontbench failed to back a Labour backbench amendment to the Finance Bill that would have forced the government to report on the feasibility of introducing the modest 'Robin Hood' Tax on financial transactions.

The parliamentary debate can be viewed via Hansard, and I particularly recommend the moving speech by John McDonnell MP (excerpt below) but what is shocking is that such a moderate proposal with such widespread appeal was opposed by the Labour frontbench. In fact only 25 MPs voted for it, and they were:

Gregory Campbell (DUP), Ronnie Campbell (Lab), Jeremy Corbyn (Lab), John Cryer (Lab), Frank Dobson (Lab), Mark Durkan (SDLP), Jonathan Edwards (Plaid), Andrew George (LD), Kate Hoey (Lab), Kelvin Hopkins (Lab), Stewart Hosie (SNP), Elfyn Llwyd (Plaid), Caroline Lucas (Green), Angus MacNeil (SNP), William McCrea (DUP), Alasdair McDonnell (SDLP), John McDonnell (Lab), Andrew Miller (Lab), Austin Mitchell (Lab), Margaret Ritchie (SDLP), Angus Robertson (SNP), Dennis Skinner (Lab), Mike Weir (SNP), Eilidh Whiteford (SNP), Hywel Williams (Plaid), David Winnick (Lab) and Mike Wood (Lab).

The question John McDonnell MP rightly asks is why the Labour frontbench has refused to support calls for Robin Hood Tax. Another opportunity to lead a progressive, popular campaign lost. As this was a Treasury issue, why did shadow Chancellor Ed Balls not back it? And why has Ed Miliband missed an opportunity to support this policy and place Labour back at the head of a progressive coalition?

John McDonnell: I can think of no better day on which to debate this issue, having seen the pictures shown on our television screens last night and today of the tragedy that is taking place in the horn of Africa. This morning, Radio 4 broadcast the story of a family—parents with one child—who had walked for miles to the aid station, only to find that the one-year-old child had died as a result of suffering the drought and famine. I also commend last night’s “Dispatches” programme, presented by Jon Snow, which identified the activities of Rachmanite landlords in west London. Some of those landlords operate in my constituency, and the matter has been raised in the Chamber in the past. It demonstrates the poverty that still exists in this country.

On a personal note, let me say that this morning I received letters from children at Cherry Lane primary school in my constituency as part of their campaign to encourage politicians to think about how we can fund education in the developing world so that children there can go to school. That is what my proposal is all about.

When the transaction tax was relaunched last year as the Robin Hood tax, it was supported by a wide range of churches and religious organisations. I will not name them all, but let me give Members a flavour of them. They included the Trades Union Congress, Crisis, Action Aid, Article 12 in Scotland, Barnardo’s, the Catholic Fund for Overseas Development, Christian Aid, Church Action on Poverty, Comic Relief, the Church of Scotland’s Church and Society Council, the Christian Socialist Movement, the Disability Alliance, the Ecumenical Council for Corporate Responsibility, EveryChild, Family Action, Faith2Share, Friends of the Earth, the General Assembly of Unitarian and Free Christian Churches, Greenpeace, Oxfam, Quaker Peace and Social Witness, Save the Children, Tearfund and the Salvation Army.

That was the largest alliance of civil society organisations that we have seen in generations campaigning on a single issue, and, as you know, Mr Speaker, they came here last month. Twelve hundred people came to Parliament, and met us in Central Hall over a cup of tea. The event was organised in particular by Oxfam, Action Aid, Save the Children, Tearfund, CAFOD and Christian Aid, and their message was simple: 1 billion people have no access to clean water and 2.5 billion lack basic sanitation, and it is time for change and action.

Read full speech and debate and online

Expert joins calls for tax on bankers

Economic experts have unearthed “hard evidence” supporting TUC claims that a tax on bank transactions would raise billions of pounds currently being hived off Britain’s public services.

Institute of Development Studies published its latest findings yesterday, which argued that a financial transaction tax (FTT) could be viably implemented across Europe. The research sparked fresh calls for the government to introduce a Robin Hood tax in Britain.

The institute will tell a gathering of economists, policy makers and academics in Brussels today that an FTT on bankers making foreign exchange transactions would raise as much as £15 billion worldwide.

The charity will add that in Britain alone it could raise £7.5bn — roughly the same as the country’s entire aid budget.

TUC general secretary Brendan Barber argued that the findings confirmed that a Robin Hood tax is completely viable and could play a key role in reducing deficits and supporting economic growth.

He said: “As more European governments sign up to a Robin Hood tax, it’s time for the British government to admit that banks are not contributing their fair share towards repairing the mess they’ve created and publicly commit to a stronger tax on banks and major financial institutions.”

John Christensen of Tax Justice Network, an independent organisation analysing the harmful aspects of tax evasion, tax avoidance, tax competition and tax havens, argued that an FTT would not only reduce opportunities for making profits on ultra-low margin trades, it would also potentially raise billions of additional revenue to offset the ongoing damage caused by the financial crisis.

He said: “Bankers may well howl in protest but very few, if any, will act on their threats to leave the country.”

The findings by the institute were laid out in the first comprehensive review of the feasibility of FTTs, dubbed The Tobin Tax: A Review of the Evidence.

Report author Dr Neil McCulloch stressed that the evidence of a significant source of currently untapped revenue cannot be ignored when most of the world’s financial centres are driving through large spending cuts.

“There has never been any compelling economic case against what is a very modest tax on activity by banks and other financial institutions,” said Roger Seifert, professor of industrial relations and human resources at Wolverhampton Business School.

But he added that the main problem has always been and remains the lack of political will by those running the economy for the benefit of the rich and powerful.

Left Economics Advisory Panel co-ordinator Andrew Fisher said: “It is not markets that need to be stabilised, but the people whose lives are derailed by market speculation. The revenue raised from FTT could secure real investment in jobs and support those ravaged by rising fuel and food costs — increasingly caused by speculative trading.”

"Speculative trading is exacerbating crises around the world. A financial transaction tax (FTT) should, like green taxes, have a deterrent as well as a revenue raising effect. This report highlights both how feasible and beneficial a FTT would be."

This article first appeared in the Morning Star on Tue 14 June

Download the IDS report in full