Mervyn King backs the Tax Justice campaign?

Mervyn King addressed the TUC yesterday. Much of what he said - and the reaction to it - was fairly predictable (and there's a good report in the Morning Star).

However, King - who had assiduously avoided commenting on policy with a stock line "that's not for me to comment" - gave the tax justice campaign a shot in the arm with his cagey endorsement of the question put by PCS President Janice Godrich.

With the annual tax gap estimated to be around £120 billion, Janice asked if Mr King agreed with the union that tax loopholes should be closed, HM Revenue and Customs should increase staff rather than cut them and decisive action should be taken against tax evaders. Each tax compliance officer brings in £658,000 of revenue.

Mr King said he could not comment on tax policy but that the case seemed "persuasive" and was "irresistably" put.

Speaking afterwards, Janice said: "We have seen recently the massive problems caused by staff cuts in HMRC and with billions of pounds in tax revenue going uncollected every year, it makes absolutely no sense to go even further.

"If the chancellor of the exchequer was persuaded by our arguments as Mr King seems to be, and had even a fraction of this money in his coffers, it would change the terms of the debate about public spending overnight.

"Collecting the tax that is owed, largely by very wealthy individuals and organisations, is part of the real alternative to the government’s cuts that are being driven by dogma rather than good economics."

With the endorsement of the establishment Mr King, the £120 billion tax gap must now be a priority for the coalition government in place of devastating public sector cuts

The tax gap, as part of the alternative to public spending cuts, was all over the TUC this week - as Richard Murphy blogs - and hopefully the issue may find its way into the debate again at Labour Party conference.

In the wake of the financial crisis ... a baffling anti-statism

Stephanie Blankenburg

When Lehman Brothers Holdings Inc filed for chapter 11 bankruptcy protection on this day two years ago, the "credit crunch" had been under way for well over a year. Few economists had predicted a major financial crisis prior to 2007. But by September 2008, it didn't take a genius to know that any major upset in the financial markets would see them implode, nor any courage to say so publicly. The only surprise, perhaps, was that the Bush administration should allow a major financial institution to go bankrupt in the middle of a liquidity crisis and expect this not to push things over the edge.

The sheer amount of "toxic debt", as it gradually began to surface, did stun me. It was also the main reason I didn't have high hopes for a fundamental reform of the international financial system from the start. Just as (many) banks were "too big to fail", the crisis was "too big for real change". To really get to the bottom of this enormous mountain of bad debt would have required an orderly process of writing off and restructuring the debt, and thus co-ordinated intervention by states and international organisations at a massive scale, even if only for a limited time period.

It would, in fact, have required something along the lines of temporary nationalisations of core financial players. The political feasibility of this option was zilch. The much smaller and much more passive role this left for states was to bail out banks more or less unconditionally, leave them to make money off dealing in debt, and to finance stimulus packages to (try to) avoid the worst of the recession.

But passive states are no match for the active lobbying power of global banks. And so, the fact that a private financial crisis fast became a public finance crisis, further strengthening the hand of the global financial markets, has not come as a surprise. As Simon Johnson, a former chief economist of the IMF, told the BBC World Service, the Basel III agreement of 12 September is a victory for the banks. Higher capital requirements have not prevented financial crises in the past, as those familiar with the 2004 predecessor of Basel III know full well. What really matters is what is not in the agreement, namely anything that would tackle not just a potential liquidity crisis, but reckless risk management.

What I had not seen coming was that a majority of those called upon to pay the bill for the crisis (including its deepening of the economic recession) would be almost as hostile to the state as the banks themselves. I had not expected that public support for deficit cutting would be so solid, and that even such a conservative argument in favour of state intervention as Keynesian deficit spending would hit quite such a wall of vilification.

I agree that the working person has no reason to expect anything much from the state as it stands, and that we have to thank political classes of all political colours just as much as the bankers for the current mess. I also think that the reasoned argument for deficit spending in a crisis is less straightforward than the plainly incorrect idea that state debt = household debt = irresponsible. And that relying on state deficits in lieu of longer-term political solutions is not a good idea.

What I find more difficult to stomach is left anti-statism that discards any argument involving a more expansive role for the state on the grounds that this means dozing "on planet 1945". It doesn't. Defending, today, state deficits, means two things only: that there is such a thing as national accounting balances that were as valid in 1945 as they are now. And to keep the door open to reconquer "the state" rather than simply accept that it can't be.

You don't have to be a Keynesian for this. In fact, you probably must not be. It is easy, in the current climate, to demote "the state". But if "the state", however feeble, crisis-ridden and marked by past failures, is no longer the place from which to start, what is?

• This article first appeared on Comment is Free
  

Money in your pocket? Think again

Gregor Gall


Leading US sociologist Michael Burawoy coined a good phrase many years ago. "The anarchy of the market leads to despotism in the factory."

What he meant by anarchy of the market was two things.

First, capitalism is an unco-ordinated and competitive fight between different capitalists to make profits. At any one point in time many capitalists are chasing the same market and would almost never countenance working together because that would mean having to share the spoils.

Second, over time the level of activity in the marketplace goes up and down depending on things like the confidence of the capitalists in the state of the economy and their willingness to invest.

Put both together and you have a recipe for economic and social instability.

What he meant by despotism in the factory was that these two things result in employers establishing regimes in the workplace by which try to exploit workers as much as possible.

Their goal is not simply to produce surplus value that can then be realised in the marketplace. It necessarily means creating regimes for controlling workers, whether through the iron fist or velvet glove.

But when it comes down to it the immediate goal of the capitalists is often to use workers as shock absorbers in this process.

Changes in the marketplace such as increasing competition or a slump in demand are likely to drive down a capitalist's profits. The best protection for them against these threats to their interests is to increase the level of exploitation of workers.

This leads to the tyranny of pay cuts, speed-ups, increased working hours and the like. Attacks on union activists and union organisation are part and parcel of this because collective organisation stands in the way of workers being shock absorbers.

When you think about it, a capitalist is individually able to control the costs of its labour in a way that they can't control the costs of raw materials, transport and exchange rates. The same is true when it comes to demand for a capitalist's good or services.

The pounds and pence of workers' wages can be varied by an employer, as can the number of workers that he or she employs.

By reducing the costs of the labour he or she employs relative to their productivity and efficiency, a capitalist can lower the price of their goods or services if need be while maintaining or even increasing the surplus value created. This is the surest way to be able to realise the value of the surplus - that is, to turn it into profit by selling it in the marketplace.

This ABC of capitalist economics is unfortunately not well understood. Many of the readers of the Morning Star will, like me, also buy The Big Issue. It is quite rightly seen by many as a progressive project for the homeless.

It uses the phrase "a help up not a handout" because the vendors have to go out and sell the magazine to the public. This helps them regain their motivation and self-respect. But every week without fail page three of The Big Issue shows it has no basic grasp of how economics works under capitalism.

On this page it states that "Vendors buy the magazine for 85p and sell it for £1.70, making a 85p profit on each copy."

Vendors do no such thing unless you think that there's no way you can calculate the cost of their labour - the time they spend standing there selling the magazine, which involves being out in all weathers for many hours and making sales pitches and chit-chat to customers.

Selling the magazine for £1.70 gives them 85p revenue per copy. But if you deduct anything like the minimum wage - currently £5.80 per hour for an adult over 21 - then it is clear that any "profit" they make is far less than 85p per sold copy.

And there must be days towards the end of the week when they sell many less than in the first few days of the new issue. This would see any notional hourly pay rate decline sharply.

The Big Issue confuses profit with income, ignoring the act of labouring.

What this means is that socialists have a mountain to climb in getting the wider populace to understand how, why and where capitalists steal labour from workers in order to make profits for themselves - and themselves only.

One way of countering this is to provide basic socialist and Marxist education through trade unions.

Another is to get our teachers to cover this approach to economics as part of the curriculum that children get taught at school.

One of the best, though, is simply to read The Ragged Trousered Philanthropists by Robert Tressell.

Gregor Gall is professor of industrial relations at the University of Hertfordshire g.gall@herts.ac.uk

• This article first appeared in the Morning Star
  

It's getting grimmer up north

from Morning Star, by John Millington

Public-sector cuts planned by the Con-Dem government will plunge huge areas of north-east England and the Midlands into crisis, research released has showed.

Business information group Experian looked into how "economically resilient" each local area would be to sudden economic changes, particularly public-sector job cuts.

Former industrial heartlands in the north and the Midlands fared much worse in the study than their southern counterparts, with Middlesbrough being ranked least able to deal with public-sector cuts.

Other localities that would be least resilient to cuts included Mansfield, Hartlepool, Nottinghamshire, Barrow and Furness, Stoke-on-Trent and Sandwell.

Unite joint general secretary Tony Woodley said the forthcoming cuts were akin to a "Genghis Khan-style" onslaught which would leave communities decimated.

"The coalition's economic policies are akin to those of Genghis Khan who swept through central Asia destroying cities and communities without leaving any positive legacy," he said.

Hapless Deputy Prime Minister Nick Clegg admitted that any economic recovery would be "choppy" and "uneven."

But he insisted that the government was laying the foundations to "rebalance" the economy away from over-reliance on the public sector.

Mr Woodley was having none of it, insisting: "It is clear from the Nick Clegg interview today that there is no plan to create jobs once the public-sector cuts have wreaked havoc on the communities in the north-east and Midlands.

"Unite is working flat-out on the ground to prevent job and service cuts across the UK. We will now be redoubling our efforts."

Chancellor George Osborne has warned that the public sector faces average inflation-adjusted spending cuts of 25 per cent during the lifetime of the current Parliament.

Any cuts will have a bigger impact on areas that have a higher concentration of jobs in the public sector. Currently 42 per cent of Middlesbrough's total employment is in the public sector.

GMB general secretary Paul Kenny recalled the suffering of working people and the unemployed during the recession of the 1980s which was made worse by "monetarist ideology."

Looking ahead to trade union co-ordinated resistance to the cuts agenda, Mr Kenny pledged that his union would be at the "forefront of the campaigns to defend jobs and services.

"There will be major campaigns mounted across the country to stop the mindless destruction of jobs and services by a Tory Party hell-bent on using this deficit to pursue the ideology of a smaller state," he added.

Unison general secretary Dave Prentis said: "The coalition's cuts will condemn some towns in the north-east to heavy unemployment and economic decline.

"But there is a real alternative to the mantra of cuts - this misery could and should be spared."

A spokesman for the PCS union, which is planning a demonstration on October 23 at the comprehensive spending review at the Treasury, said: "It is fanciful for ministers to claim that the private sector will step in and prop up these communities if only the public sector would get out of the way."

And Left Economic Advisory Panel co-ordinator Andrew Fisher said the only solution to the economic crisis was "a manufacturing strategy - investing in council-house building, renewable and decentralised energy systems and transport schemes like high-speed rail and electric car manufacture."

Tax Justice not cuts injustice

There was an excellent article on Comment is Free over the weekend by LEAP contributor Richard Murphy 'Let's tackle the tax gap once and for all'.

In the article, Richard writes:

The tax gap has three parts. The first is tax avoidance, which I estimate to be about £25bn a year. This arises from the exploitation of loopholes in UK tax law and between UK tax law and that of other states – especially tax havens. The second part is tax evasion – that is breaking the law. I estimate this to be £70bn a year. HM Revenue & Customs claims it is much less, but their methodology for estimating anything but VAT evasion is very weak. Last, there is unpaid and late-paid tax – currently evaluated by HMRC to be at least £26bn.

Put these figures together and they come to more than £120bn. Enough, at least in principle, to close the whole current government deficit. Of course, no one will ever collect all tax theoretically owed – that's just not possible. Serious measures could be taken to tackle the tax gap, and yet there is no evidence that the coalition government is adopting any.

And the news has just got worse. Within 48 hours of that article being penned, it was revealed in the Mail on Sunday that the coalition government was cutting 20% of of the staff from the High Net Worth Unit – created in 2009 to achieve greater tax enforcement from the wealthy.

Tax avoidance and evasion are mostly carried out by the super-rich and big business. The appointment of billionaire tax dodger Philip Green to investigate public spending last week probably means the deficit crisis will continue to be plugged by the poorest rather than those who can afford to pay.

Austerity obsession will prolong misery

Stephanie Blankenburg

So, here we are. The economy is going into wind down before it has had time to get back on its feet. The Bank of England has just revised its growth outlook downwards and US news is more than disheartening. Equity markets are falling worldwide, and even China has, it seems, eventually been caught up in the global slowdown.

This dismal picture was marginally lightened by the unemployment figures of the Office of National Statistics (ONS) in the UK: a fairly large quarterly rise of people employed, a considerable fall in the claimant count. But even here much caution and warnings as to a shortlived surface phenomenon, unlikely to survive what most regard now as an inevitable "double-dip" recession or even a long depression – near zero growth and high unemployment for many years to come.

Overall, then, we are going into slowdown. Little, if any, doubt, about it. But why, exactly? There is much detailed discussion by experts – for example, of fiscal stimulus programmes in the US having failed, and having mistakenly outcrowded monetary policies geared towards keeping down the costs of borrowing by the state, ie bond (Treasury) prices, of the Cameron-cum-Clegg austerity obsession bringing this on, at least in the UK.

All of this is besides the point, though much of it will, eventually, come into the narrative. There is no immediate technical and short-term reason for this downturn, but there is an important longer-term one: there was a very big crisis. One that shed considerable doubt on the ability of a radically decentralised system of economic co-ordination to assess risk and promote general welfare.

In the aftermath of this crisis, nothing essential or effective was done to remedy the original problem of the failure of markets to assess social risk properly. Some villains were too big to fail and thus bailed out. The burden was shifted from private to public finances. There were some half-hearted fiscal stimulus programmes to reflate debt-ridden economies in some parts of the world, and a bit of "quantitative easing" in others. All of which have failed to infuse private sector agents with sufficient confidence to move on, to invest and lend again. Instead, those who can have retreated to speculation on commodities (copper, wheat, oil) as their safest bet in the longer term.

The likely outcome will be worldwide stagflation. Inflation, brought on by high long-term commodity prices (for copper, wheat, oil) through financial speculation, that will eventually lead to an increase in interest rates. Hence, mortgages and household debt will remain a huge headache, especially in the UK where current household debt is, still, particularly high. And stagnation, brought on by a sustained lack of private sector confidence and expectations of sales in anything other than commodities.

Meanwhile, when October comes round, and with it the spending review, stand by to blame the government. Their long-announced austerity measures can only worsen the hell we are headed towards by making very sure that private sector expectations are going to be even less salutary than expected. After all, 500,000 jobs lost in the public sector, at a minimum, and 600,000 to 700,000 in the private sector by the end of this parliament, aren't exactly what you would call a confidence-inspiring upward trend. "The markets" – and their self-appointed guardians, the credit rating agencies – know as much, and are worried. Not about the UK debt, but about the lack of future sales perspectives.

The Cameron-cum-Clegg austerity obsession will do little, if anything, to solve the original problem. The big crisis and its causes. It won't get the debt down, since the economy will stagnate, at best, but it will do much to prolong and deepen the misery of the many. For very many years to come.

*This article first appeared at Comment is Free

US economy on the brink

The self-created mirage of recovery that helped sustain the tattered remnants of the American Dream evaporated yesterday as reality came calling.

The desperate measures taken to halt the imminent sacking of hundreds of thousands of public sector workers was only one event in a day of reckoning.

Five stark paragraphs comprising the statement issued by the Federal Reserve – America’s central bank – reek of the stench of exhausted defeat. The first outlines the problem. It needs no interpretation:

Information received since … June indicates that the pace of recovery in output and employment has slowed in recent months. Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software is rising; however, investment in non-residential structures continues to be weak and employers remain reluctant to add to payrolls. Housing starts remain at a depressed level. Bank lending has continued to contract. Nonetheless, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, although the pace of economic recovery is likely to be more modest in the near term than had been anticipated.

In the action paragraphs, the committee explains that base interest rates will be kept at their historic low, but reiterates that “resource slack”, which means massive overcapacity in production, eliminates any hope of anything changing for years or decades to come.

In what is seen as a reversal of previous policy, the Fed is intent on printing even more money in a bid to stimulate the economy. It plans to use the income from repayments on mortgages it bought during the financial meltdown of 2008 to pump out more dollars.

If nothing else it gives a new meaning to recycling. Once the money has been captured from American families, the figures just keep moving around inside the Federal Reserve’s computers. Paul Ashworth of Capital Economics called the decision a "symbolic gesture".

Yesterday, Obama recalled the members of the House of Representatives back from their summer recess so that they could pass an emergency bill approving $26bn (£16.4bn) funds for states which have run out of money, and $16.1bn to extend funding for the Medicaid healthcare programme for low-income Americans.

Without the emergency aid, states would have laid off police, teachers and firefighters and all of the key services would have ceased functioning. The states themselves have suffered during the recession through a loss of revenue through sales and property taxes. The aid will only get them through the current financial year, however.

Those who claim that public spending is the answer to the economic crisis have had their fingers burnt by the US experience. Obama’s government has spent trillions in various stimulus packages – all to no avail.

That’s because the crisis of capitalism is global and marked by the classic symptoms of over-production, over-capacity and falling demand. The boom was artificially fuelled by mountains of credit and debt which inevitably proved unsustainable and led to the implosion of the financial system. Without easy credit, consumers are in general spending what money they have on necessities like food and shelter.

It all adds up to the American economy being on the brink of collapse, adding to the sense of political crisis gathering around the Obama presidency.

Gerry Gold
Economics editor
11 August 2010
www.aworldtowin.net