Within a context of overall fairness taxation, and policy on official interest rates and money supply, should foster sustainable, expanding and balanced demand. Wider policies should involve major capital projects supplied by domestic sources and where employment and on-the-job training of younger people is to the fore.
An example would be the construction of a Severn barrage that has once again been allowed to fall through but which would satisfy 7% or more of the nation’s electricity demand. This, and other estuarial schemes, should have received government support long ago in place of useless tax cuts, always less trouble to do, the main results of which have been to benefit the rich and suck in yet more imports.
If, despite rational arguments against, government cuts are still thought to be necessary there are some prime areas where these could be made without diminishing the common good. For example, slashing the widespread government use of private sector consultants and contractors, putting an end to costly PFI-like contracts, eliminating hare-brained and extravagant government IT schemes, reducing the number of nuclear-armed submarines and cutting the number of senior civil servants and political officers to name but a few.
The Keynesian concept of the ‘balanced budget multiplier’ should also be put to use. This means that if the taxation of richer people is increased and there is a corresponding reduction in taxes of less well off people, then overall demand increases (because people on lower incomes spend a higher proportion of any additional income). This results in an economic stimulus and an improvement in tax revenues as the knock-on consequences of the extra spend work through.
As we know, the ‘quantitative easing’ (the printing of money) so beloved of the Bank of England, the Chancellor and the Treasury is of little use in getting funds to productive sectors of the economy such as manufacturing industry. Mostly soaked up by those wretched banks, it is nowhere near as effective as major capital projects on a national scale.
But governments have become doctrinally opposed to, or simply frightened of, direct engagement in infrastructure investment and construction. High speed rail (and its pumped up benefits to business travellers) is a partial exception, but one can think of much more productive ways to invest the colossal sum involved to the benefit of the economy and the betterment of the common good. This could be either within the transport sector outside of London, particularly in the Midlands, or in other engineering projects in the Midlands and the North.
The direct effects on manufacturing and engineering investment of low official interest rates have always been exaggerated. They are damped and lagged at best. It is demand and profitability that matter most to businesses, although lower interest rates should eventually result in some increase in industrial investment if the conditions of lending are right. But as smaller firms know only too well, this is not the case. And lower interest rates mean less income for savers, thus lowering demand.
To this can be added appropriate overall levels and forms of taxation and public spending - I deliberately use the term ‘appropriate’ rather than ‘low’. For example in the case of deductions from income, the present irrational structure of National Insurance contributions should be replaced with a flat rate covering all income levels – without the exceptions for the rich that we have at present. This would mean a top rate of deductions from income of around 56% once the 50% income tax rate is restored, so it would still be below the euphorically greeted 60% mentioned in Part 1 and would also result in a useful balanced budget multiplier effect.
A pro-active environmental policy far from hobbling industry could be constructed to provide economic stimulation and other benefits as, for example, with determined and properly resourced drives on home insulation and flood protection and direct support for companies making environmental products.
It is false economy to make cuts in environmental protection as the recent inundation of the Somerset Levels and elsewhere and the extensive coastal damage clearly demonstrates. Furthermore, environmental standards that are achieved in advance of other countries but crucially, which are likely to be followed, would give domestic suppliers a competitive edge.
The Government should help to make (rather than just pick) industrial winners and widen support in productive areas where this country still has an edge. I hesitate to use the economists’ term 'comparative advantage', a dubious concept that has been abused by self-interested parties to justify retreat from manufacturing.
The view that the ‘winners’, all too often ‘services’, we happen to be left with at some point should determine our future is both passive and flawed. Comparative advantage was once thought of in terms of physical endowments such as land and natural resources, but it’s now been linked to less tangible things such as exchange rates, regulatory regimes, skills, language, time zones and commitment to long term investment.
Trade in manufactures is far from free, a fact that benefits our commercial rivals more than us. We still seem to be the only country with leaders still reading those discredited economic theory textbooks while other countries with more common sense continue to tilt the ‘playing field’ in their own favour. ‘Free trade’ also benefits tax dodging globalised corporations and their political friends at home and abroad. There is a fundamental distinction to be made between globalisation and its many ills and the daydream of ‘free trade’.
Good government also involves an active and properly resourced Local Government. Local Government financing has long been dominated by doctrinaire prejudice and grant levels and formulae that at best were fudged and at worst, as we now see to an intolerable extent, driven by partisan spite. It’s no wonder that things don’t always seem to work very well. The City of Birmingham and other core cities have extensive local knowledge and should be allowed to compete with the supposedly superior private sector and provide services to the public (such as the much needed simple and trustworthy banking), adjacent local authorities, and to not-for-profit and voluntary enterprises.
Local Government should be allowed to introduce two extra tiers of Council Tax. There is enormous scope for increasingly essential local authority house building and central government’s artificial constraints on this should be lifted. The big cities could direct their considerable purchasing power more locally (giving a multiplier effect of four) and be resourced for pro-action complementary to existing initiatives.
A government for the common good also requires a fit-for-purpose democratic system that is less easily manipulated by rich and powerful vested interests. This would contrast sharply with the dysfunctional, unrepresentative and biased model that we have had to put up with for so long and which is so deeply indebted to party donors and the policies that they cause to be introduced for their own advantage and to the country’s detriment.
It is also as well to be aware of strategies that will not work. For example, continued over-reliance on the services sector and the policy of trying to shift the economy towards ever higher ‘value added' activities, as if these were somehow protected and inaccessible to the countries that have been gifted so much of the rest of our industry. We can be sure that these supposedly superior activities will sooner rather than later go the same way as their 'lower value added' predecessors if this country continues on its present course. To imagine otherwise is at best wishful thinking or at worst smacks of an unsavoury and ignorant prejudice.
Furthermore, the proponents of this approach of trying to escape the pursuit of those countries who have already taken so much of our industry by moving up a hypothetical line, seem to assume that this is an ever-rising and straight line. But what is actually involved here is a rising curve but of declining slope - and it is also one that is likely to be finite in length. So the future consequences of this attempted 'moving up the curve' approach – in other words retreat - are all too clear.
Steps need to be taken nationally and internationally to retrieve industry that has already been lost. It’s not sufficient to passively welcome the odd bit of self-interested ‘re-shoring’. The country's manufacturing and engineering sectors must be comprehensively rebuilt - they, along with agriculture, fisheries and mining, represent the productive base of our economy. In the austerity-induced struggles of the Euro, it is notable that those countries that have done relatively well, manufacture. Those that have abandoned production have suffered accordingly.
In economic policy the simple truths must be realised that in the absence of demand, there will not be production and in the absence of production there won’t be the creation of worthwhile jobs and the self respect that goes with them. It should also be understood that the true meaning of the word 'economise' is not ‘to make minimum use of a resource’ but to make the best use of it.
The advancement of the common good requires the provision of good public services. It also requires the provision of simple and trustworthy other services that have been given over to, and monopolised by, the private sector to their own advantage, the worst of many instances being banking.
There is a role, indeed an enhanced one, for services such as these to be provided by the public sector, as many of them once were, or at the very least by not-for-profit organisations that operate with public service values. Movement between public and private sectors should be a two way street. And it would do little good to ‘break up’ energy suppliers if the same rip-off, tax dodging and anti-social mindsets still prevail in the broken up bits. Still, perhaps I’m forgetting about ‘competition’.
Economic actions on a robust and active Keynesian basis should bring early positive results and will help enormously in the enhancement of the common good. The much needed ethical changes will take a lot longer to bring about but they are equally important if we are not to revisit, time after time, the recent near catastrophes.
Is all of this an impossible dream? Certainly not. It is just a very different prospect from what we have been told we must endure these decades past and to which, we continue to be told, ‘there is no alternative’. Well, there is. It is rather like the situation with climate change where there is an abundance of evidence and the science is clear, but where there is a sprinkling of influential and self-interested right wing deniers.
Some of these measures (and many more besides) will take considerable time to have their full effect but it is none the less urgent to begin them very soon and the consequences of never taking such action will be severe and unjust. The country is faced with choices that we do not want but if, in the longer term, we want to put an end to austerity, grotesque inequality, corporate greed and megalomania and restore national, personal and community self-esteem, then this is the path that we must take.
Achieving economic, social and political systems that are fit for the purpose of advancing the common good will require a completely new vision of our society and economy and radical action over a generational timescale. Are we up for it? Given all that the country went through in the last century and the societal changes that got us through, I for one believe that we are.
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