Permanent austerity?

In the New Statesman this week, former member of Blair's inner circle Alan Milburn comes over a bit Fukuyama-like and predicts:

"Austerity is the new normal. It is not a temporary phenomenon. It will become permanent. Fiscal conservatism is the order of the day."

See the way he emphasises his point using short sentences? It's classic Blair era communication training; used to signify authority, gravitas and confidence. The less generous among you might dismiss this Dalek-like grammar as pompous, hubristic and rhetorical. It is. There is a new consensus. Milburn is part of it. It is permanently wrong.

However it is powerful, and unites the Tories, the Orange Book Lib Dems and the New Labour factions. Under the not-quite-leadership of Ed Miliband, Labour has at times seemed to embrace this consensus, but at other times hinted at breaking away from it.

There is a macroeconomic context to it though. Milburn explains this is terms no less likely to make you want to smack him in the face:

"The truth is this: the era of big public spending is over ... The implications for public spending of a more constrained fiscal environment are threefold. First, governments will be forced to choose between spending programmes as well as within them. Second, they will have to think in a new way about how to get better value from existing programmes. And third, Europe's largely tentative efforts to reform welfare and public-service provision will have to move up a gear"

There is no alternative. But why? Milburn doesn't say. But the reason is the unspoken consensus: that rather than find a new economic structure we must slash wages in a race to the bottom to compete with the autocratic union-busting state capitalism of China.

So inequality is here to stay, even if Milburn laments it "How to address growing inequality?" briefly, before moving swiftly on to more important questions, like "How to create wealth and reward it?"

The question of how to create wealth is an interesting one. Banks do it by issuing credit (making loans) on which they charge interest. Now maybe if the state did that? For instance China's post-economic stimulus meant an expansion of public bank credit going to companies set up by local governments to help fund infrastructure investment. Combining economic controls with trade union rights, civil liberties and democracy is no contradiction - despite the fact both China and the UK fail to do it.

But what Milburn wants to debate is not whether we can control credit or our currency, or redistribute the wealth we all create. No, Milburn's article is about how to privatise the NHS as a solution.

There is an Alternative!

The Super-rich shall inherit the Earth

When you mention the word 'oligarch' it has a particular resonance with the clique of men whose fortunes were made pillaging Russia following the collapse of the Soviet Union - most famous among them Chelsea owner Roman Abramovich and the now jailed oil tycoon Mikhail Khodorkovsky.



However, as journalist Stephen Armstrong proves in his book 'The Super-rich shall inherit the Earth' oligarchs are not solely the preserve of Russia. While, the not-quite-post-cold-war media is keen to emphasise corruption in Russia, we know very little of the internal affairs of the other 'BRIC' nations: Brazil, India and China - which all have very similar oligarchical systems in which a super-rich elite evades any government regulation or control and in which government seemingly serves their global power interests.



The sub-title of the book, 'The new global oligarchs and how they're taking over our world' reflects the emphasis that is given to these emerging world power states. It describes the litany of corporate manslaughter, government corruption, embezzlement, defrauding of entire population's resources. After six chapters one could easily get the disconcerting feeling a message of 'and that is why we must defend the West!' coming at the end.



Those hoping for a comfortable portrayal of the evils of Johnny foreigner, against the great democratic [sic] Anglo-Saxon model will be disappointed. The brickbats aren't just reserved for the BRICs.



In the final four chapters, Armstrong looks with intense scrutiny at the global oligarchs in the US and the UK, including - in a move bound to delight all UK Uncutters - chapter 9 'In which Philip Green couldn't give a fuck'. This book sadly written before the incoming coalition government had appointed the knighted-under-New Labour Sir Philip to carry out a review of government spending and procurement.



Another chapter details the in-crowd of Goldman Sachs as they migrate from government to investment bank and back again. It also explains why Lehmann Brothers was left to collapse while Goldman Sachs was saved.



All in all this is a refreshing look at the global economy: massive and growing inequality, freedom for the super-rich and increasing authoritarianism for the poor, and government no longer able or willing to defend its citizens against mobile global capital.



While Marx argued that the working man has no country, it is very clear that the super-rich require a sponsor nation - and they have several corrupt jurisdictions to choose from.

Budget 2011: Global Economic Outlook

Graham Turner

“It’s not the recovery we wanted. It is a recovery beset by tensions and strain, which could even sow the seeds of the next crisis”

Dominique Strauss-Kahn, IMF chief, speaking in early February

Mr Strauss-Kahn was referring directly to the imbalances that have emerged during the latest upswing, which in some respects are now bigger than before the 2008 credit crunch. The IMF chief cited China and Germany for their over-reliance upon exports. Germany sells BMWs, Mercedes and Porsches to rich Chinese. China continues to industrialise at a frenetic pace, racking up bigger trade surpluses with countries such as the US and UK.

China is not more productive or innovative than the West. However, it has displaced US and UK workers by the use of cheap labour and – critically – through aggressive currency intervention, hitting a record US$393bn in the second half of 2010 alone. All talk of rebalancing in the UK economy is fanciful so long as politicians grovel to China and other Asian mercantilists.

But self-imposed austerity will not secure the much sought rebalancing. Last year, retail sales rose just 0.5% in volume terms in the UK. This was the lowest annual gain since 1995. And yet, UK imports from China rose 25.1%. The UK trade deficit with China hit a record £23.1bn in the year to January.

The UK retail sector is dominated by a small number of monopolistic giants, for whom by-passing the UK worker has become an article of faith, as they seek to widen margins and drive profits – already at record levels – remorselessly higher.

There has been much trumpeting of the recovery in the UK manufacturing sector in some of the less discerning newspapers. But manufacturing output is still below the low point of the dotcom downturn. Manufacturers have reversed less than half the loss in output sustained during the credit crunch. Furthermore, manufactuing employment had barely risen from the new low of 2.53m reached in the recent recession. When the Conservatives came to power in 1979, there were 6.68m manufacturing jobs in the UK.

It is perhaps ironic to hear the UK Tesco chief executive, Richard Brasher, recently fretting over the squeeze on real disposable incomes for the UK consumer, and the impact on retailers’ margins. Mr Brasher seems willfully oblivious to the self-evident contradictions. Even Henry Ford recognised in the 1920s that if the US auto manufacturer wanted workers to buy the cars it was producing, then it had better pay them accordingly.

The Bank of England governor, Mervyn King, might have been too optimistic when he suggested that real wages could stagnate for six years. The imbalances in the global economy, which precipitated the credit crunch of 2008, have now indirectly pushed commodity prices close to the levels reached nearly three years ago. That now threatens to send inflation to above 5% in this country, at a time when the average wage is rising by just 2.2% y/y according to the latest data from the Office for National Statistics.

It is perhaps worth reflecting upon the linkages between globalisation and rising inflation. Critics of the Bank of England and the Federal Reserve have been quick to denounce quantitative easing for the recent surge in commodity prices. In truth, these policies were an unavoidable response to the deep recessions created by the crisis of 2008. Indeed, there was no quantitative easing at the time of the last commodity price ‘boom’ in 2008. Furthermore, both the US and UK have continued to be net recipients of capital from emerging market countries, again contradicting claims that ‘loose’ monetary policies in the West have been responsible for the run-up in inflation.

The cause of the commodity price ‘bubble’ lies on the other side of the fault line – emerging market countries have been running excessive credit policies, reminiscent of Thailand and others in the run-up to the infamous Asian crisis of 1997. China, Brazil, India, and a host of others have presided over double-digit money supply growth and consumer led booms that have fuelled the rise in commodity prices. Time and time again, we have seen countries trying to play catch up with the West lose control over their monetary policy, often as they seek a competitive advantage, intervening in the currency markets to keep their exchange rate too low. As Mr Strauss Kahn warned, herein lie the seeds of the next credit crunch, a potential replay of 2008.

Of course, we should not lose sight of the role played by Peak Oil and climate change in driving inflation higher either. The aggressive promotion of ethanol in the US, which now subsumes 40% of the country’s corn output, has been a major cause of higher food costs globally. But the pressure to develop ethanol stems from the logic of Peak Oil. The failure to develop sustainable alternatives to fossil fuels is hurting the global economy.

Japan’s crisis is a manifestation of the same failings. Japan has relied too heavily on nuclear energy instead of promoting safer, cleaner alternatives. The safety record of the industry has been called into question regularly too, long before the power stations in Fukushima malfunctioned.

The political upheavals of North Africa and Middle East can be traced to the commodity price bubble too. China’s extreme intolerance for dissent in recent weeks also underlines the many contradictions of a global boom, based on the gains that have been eschewed to narrowly in favour of a new class of emerging market billionaires, fuelling popular dissent. Ironically, as geopolitical risk rises, many of these individuals are relocating to the West end of London, creating further distortions in the UK property market.

While the financial sector has at least enjoyed a swift recovery from the dark days of 2008 on the back of business generated by many of the credit bubbles overseas, confidence elsewhere has evaporated. In its latest survey of the UK consumer, the Nationwide reported that confidence had collapsed in February to its lowest level since records began. Respondents were more depressed than even at the worst point of 2008 crisis, and when Northern Rock folded in 2007. The survey’s spending index had tumbled to record lows. The fear factor was likely to be reflected in less spending, which suggests the Q4 contraction in GDP may not have been an aberration.

The fight to defend public services may well dominate the political stage over the coming weeks and months. But a broader issue looms, how to rebuild an economy against the global backdrop wracked by extreme imbalances. Judging by the manner in which the current Prime Minister, aided by the Business Secretary Vince Cable, have traveled the globe touting the UK’s rather limited export portfolio (defence and not a lot else), it is quite clear that the coalition government does not comprehend the monumental challenge it faces trying to achieve the elusive rebalancing.

It is not clear either whether the current opposition party has much of an idea either of the real causes of the crisis. The debate has been too narrowly confined to how quickly it is safe to cut public spending. A serious economic debate over this ongoing financial crisis requires a thorough evaluation of the risks which stem from participating in today’s global economy.

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Bad news and more bad news?

Hugo Radice on the UK's latest GDP figures, and how they relate to the global economic context.

On the face of it, the fall in UK national output (GDP) reported on Tuesday just adds to the mounting bad news for everyone, not least Chancellor George Osborne. Fears about a ‘double-dip’ recession, which would officially arrive if a further decline takes place in the first quarter of 2011, now look considerably more likely. Not surprisingly, most Red Pepper readers will now be concentrating their energies on the fight against the cuts. But for us as much as for employers and the Tory government, it’s important to keep a close eye on current developments in the economy. So what exactly does all the bad news add up to?

First of all, we live in a world in which the financial markets pretty much dictate the government’s policies, or at least their room for manoeuvre. Osborne’s attempt to blame the fall in GDP on the bad weather seemed to cut no ice in the City. There, the pundits and the speculators mostly concluded that the recovery had now stalled, and that the Bank of England would therefore delay the long-expected increase in its official lending rate of 0.5%.

Looking back on the growth recorded for July-September 2010, it now seems all too clear that the sudden boost to construction activity in that period owed more to a rush to complete current contracts before the spending cuts hit local authorities and government departments alike; so the sharp fall in the last quarter was as much a case of back to normal as the result of the big freeze.

In any case, last week’s unemployment figures made grim reading, back above 2½ million, with a particularly big rise in youth unemployment - and this well before the public sector cuts start hitting home in April. What is more a host of recent attitude surveys, among households as well as businesses, have suggested growing pessimism about our economic prospects and therefore a reluctance to make any big spending commitments. Add in the unexpected attack on the coalition’s lack of a growth strategy from the outgoing CBI chief Richard Lambert, and Osborne surely couldn’t maintain for much longer that shiny smile and confident air.

But although there obviously is a Plan B somewhere on his desk – to slow down the spending cuts and encourage the Bank of England to pump more cash into the banking system – the Chancellor is terrified that a change of direction would be seen by his masters (that’s the financial markets, remember, not us) as a sign of ‘weakness’.

Osborne himself has cited the International Monetary Fund’s latest update to its World Economic Outlook, issued on January 25, in support of his policies. The IMF, he said, approved of a robust approach to restoring the public finances. Well, yes, but only up to a point. The IMF update didn’t actually discuss the UK as such, and they qualified their approval of spending cuts by putting them in a wider context:

“A host of measures are needed in different countries to reduce vulnerabilities and rebalance growth in order to strengthen and sustain global growth in the years to come. In the advanced economies, the most pressing needs are to alleviate financial stress in the euro area and to push forward with needed repairs and reforms of the financial system as well as with medium-term fiscal consolidation. Such growth-enhancing policies would help address persistently high unemployment, a key challenge for these economies.” (Update, p.7)

Now the Eurozone governments have, with a lot of delays and haggling, begun to sort out the debt problems afflicting their ‘periphery’ (that is, Greece, Ireland, Portugal and Spain). They have created a Financial Stability Facility which has just successfully issued the first zone-wide Euro bond. The Chinese government in particular is keen on this development, because they want to diversify their own bond purchases away from the USA. But the markets, which as always in an uncertain recovery are particularly prone to rumours, fads and panics, are still worrying away at this issue. Oddly enough this is good news for Osborne, since problems in the Eurozone make British government bonds more attractive to investors.

However, there are two other global issues which we need to keep an eye on. The first is the one raised by the IMF, namely ‘reforms’ of the financial system. Last week (22 January) the chair of the Independent (sic) Banking Commission, Sir John Vickers, gave a lecture on the progress that the Commission is making on this. Given the often-stated views of the Governor of the Bank of England – and most academic commentators – it was hardly surprising that he highlighted the need to segregate the risky activities of ‘investment’ banking (issuing and trading financial assets of all kinds) from the activities of ‘commercial’ banking (dealing with payments and routine borrowing by households and firms).

The British Bankers’ Association spokesperson, Angela Knight, immediately announced that if new regulations were brought in that were too tough on the banks, they would up sticks and relocate abroad. Short of revolution (not a bad idea?) the way to head off this threat is to make sure that pretty much the same regulations are brought in everywhere, and especially in the USA, UK and the Eurozone. In the more than two years since the collapse of Lehman Brothers, progress on this has been painfully slow. In the USA, legislation was finally passed in July 2010 (the Dodd-Frank Act), but implementation is still being delayed, making because the banking lobby made sure that the proposals were incredibly cumbersome and riddled with contradictions. In the Eurozone, progress is also slow, partly because so many banks are massive holders of those dodgy Irish, Greek, Portuguese and Spanish government debt; so any financial squeeze on the banks threatens efforts to calm down the bond markets.

The second big issue is the tensions between China and the USA. Basically, for years there has been a dollar merry-go-round:

• ..... the US runs a big trade deficit with China, paying for the imports in dollars;
• the Chinese government then lends the dollars back to the US – mostly through buying US government bonds;
• the US government uses this money to keep taxes low, leaving households and businesses with more money to spend;
• and they spend it on Chinese imports.....

For years, US pundits have pointed out the irony of the richest and most powerful country in the world becoming financially dependent on what remains one of the poorer countries. But the vast majority of US citizens either don’t pay any attention to international affairs at all, or they just blithely assume that what Uncle Sam wants, he is entitled to get.

However, Chinese President Hu’s state visit to Washington last week brought the issue forcefully to a head. Treasury Secretary Geithner yet again called for an increase in the dollar exchange rate of the renminbi, to try to correct the trade imbalance. But the global context has changed dramatically since 2007. While the USA, as well as other major rich economies, have suffered sharp recessions and then slow jobless recoveries, China and other so-called emerging economies like India, Brazil and Russia took a smaller hit from the financial crisis, and rebounded quickly. Even Africa has in recent years experienced much faster growth than the rich countries.

This is a truly world-shaking shift. Back in the 1970s, the newly-confident post-colonial states of the Third World proposed, in the UN and other fora, a New International Economic Order. The idea was to place their development agenda at the heart of the international economic and financial order, using the leverage of their control over the supply of oil and other raw materials. At first the rich states tried to ignore these demands, so when oil prices were indeed raised sharply, they were plunged into inflation and stagnation. But from 1979, led by the UK and the USA, they took their revenge.

New economic policies of ruthless financial stringency plunged the Third World into a massive debt crisis and the ‘lost decade’ of the 1980s. Neoliberalism was unleashed across the globe, forcing debtor states to adopt policies that favoured capital (including foreign capital) over labour and private profit over state initiatives. And after the collapse of the Soviet bloc and the USSR in 1979-81, this leaner, meaner sort of capitalism became the universal norm.

The great irony is that the success of this strategy – from a capitalist point of view, that is – turned out to create formidable competitors. The Chinese and other new capitalist powers are rapidly increasing their share, not only of world consumer markets, but also of available raw materials. New Chinese, Indian and Brazilian transnationals are displacing the tired old US, Japanese and European firms. China has in recent years outstripped the World Bank as a source of so-called ‘development aid’ to Africa (as always, the ‘aid’ comes straight back to the donor in the form of orders for their goods).

In these circumstances, the power structures of global capitalism have become more and more outdated. The role of the dollar; the permanent seats on the UN security council; the inter-state bureaucracies in Geneva and New York; the voting systems in the IMF; these and countless other practices are being called into question.

For the American people, it is especially hard: that famous ‘city on a hill’ is bankrupt and crumbling, unable to be a beacon for anything except xenophobia and lax gun law. With the Tea Party Republicans on the rise, threatening everything from bombing Iran to hanging Julian Assange, there are plenty of reasons to be fearful.

Fortunately, help is at hand. For the great irony is that America’s real rulers – the corporate rich – have invested massively in the new capitalism of the East and the South. Knowing full well that the newly-confident ruling classes of those regions fully share their own ideology and objectives, they will ensure that the new American nationalism remains a matter of rhetoric alone. The dollar-go-round will not be abruptly halted.

How does all this impact upon working people in Britain? Well, it makes the outlook a bit better for exports and unemployment. But under the government’s present policies, Mervyn King told us on 25th January what to expect: declining living standards for years to come. As he said, such a long period of decline hasn’t been seen in Britain since the 1920s. As he must surely know, but didn’t say, this strikes at the heart of the political love affair of the so-called middle classes with consumerism and free-market individualism, a key element in the post-1945 political settlement.

What can the left do about it? Well, obviously fight every redundancy and every pay cut. But also, please, this time round, recognise that workers all over the world are in exactly the same situation. We are being urged to accept pay cuts so that we remain ‘competitive’, that is, put workers abroad out of a job instead. And they in turn are being told just the same thing by their own rulers. Time for an old, old slogan: workers of the world unite!

This article first appeared on the Red Pepper website

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