This is an approximate transcript of my presentation at the Beyond Money Breakfast Briefing on 29th October, 2019.

What I’m about to say is in essence extremely simple. We must act to change our economic system because:

  • Firstly, the one we have now is not working – to the extent that on current trends, we won’t reach 2050 with this form of civilisation intact
  • Secondly, although we have repeatedly been assured that there is no alternative to the current system, the fact is that there are many alternatives: the barriers to change are economic myths, not economic realities. It is a choice
  • Thirdly, the changes that we need are neither difficult nor radical. But if we don’t make them, we will leave a dystopian world for future generations to live in.

Let me take those three points in turn.

Point #1: On current trends our civilisation won’t survive until 2050

The period from the end of the Second World War up to 2050 splits neatly into three 35-year chunks. The Golden Age of Capitalism ran from 1945 up to 1980. The age of Market Capitalism ran from 1980 at 2015. And we are just beginning the third of those periods, so we can’t name it yet – but so far, the signs are ominous.

When we look at these three periods, what do we see?

  • We have had two different systems since 1945, and this one isn’t working
  • Over the last 10 years, in the UK, most people’s wages have actually declined
  • On current trends by 2050 the UK’s median wage would have fallen almost halfway to today’s poverty income – most people will be in or near poverty!

On almost every measure of economic performance except inflation, the Golden Age was a far more successful period than the age of Market Capitalism. And this is particularly true when one looks at the measures which affect the experience of individual members of the population like median income growth and the unemployment rate.

The story of economic renewal after the Reagan and Thatcher reforms is recorded widely in print – but I could find no evidence of it in the databases of the national statistical agencies in either the US or the UK. It is a myth, not a fact.

Let’s take a look at more recent history in the UK.

If we look in more detail at the UK and focus on the period since 1997, we can see the following rather surprising facts:

  • economic growth was higher in the period from 1997 – 2010 than it has been in the period since 2010 even though that first period included the Global Financial Crisis and the Great Recession which followed it;
  • median income was more or less in line with economic growth;
  • since 2010, real per capita GDP – what you can think of as the size of the pie – has grown slightly, and in fact the country is now richer than it has ever been in its history;
  • but most people are not – wage earners are poorer than they were in 2010, and some are a great deal poorer.

So the pie has grown, but most people’s slices have shrunk. That is mass impoverishment.

What happens if this trend continues?

Well, on recent trends the median wage would decline from around £24,000 per annum today to under £20,000. Almost halfway to today’s poverty line – in an economy which will be richer than it has ever been.

Even with the reduced growth, if inequality stopped rising, the median income would also rise to just under £30,000 per annum.

And if we returned to the trends from the period 1997 – 2010, the median wage would rise to over £34,000 per annum.

But we’re not headed for that, unless we change, we are headed for mass impoverishment. And this brings me to my second point.

Point #2: The barriers to change are economic myths, not economic realities

Let’s take austerity. The reason we were told we had to have austerity was because of the dire state of Government finances after the Global Financial Crisis. As David Cameron said at the time, “if there was another way, I would take it. But there is no alternative.”

But let’s take a second to look at the facts. The chart below is from the Bank of England dataset. It shows 300 years of Government Debt: GDP.

It shows clearly that there was no crisis of Government debt.

Yes, of course debt had risen as a result of what the Deputy Governor of the Bank of England called, “a once in a lifetime crisis and possibly the largest financial crisis of its kind in human history.” But, no, it had not risen to unusually high levels – in fact it was and remains below its average level over the last 300 years. It was far higher just before the Industrial Revolution really took off around 1820, and far higher just before the start of the Golden Age of Capitalism which started after WWII. Debt at these levels is demonstrably not a barrier to future success.

And at today’s level, there is really no argument.

Although it is not fact-based, this narrative of unaffordability based on the idea that government spending is now impossible is so powerful that it tends to end debate. While we believe it, we reluctantly accept that we can’t afford to fund the NHS properly. We can’t afford to pay nurses enough to live on. We have to be realistic about going green, we can’t afford to save the planet!

And it avoids having to discuss the underlying philosophy.

That philosophy is market fundamentalism. A Market Fundamentalist is like a religious fundamentalist. But their god is the free market. They believe, as an article of faith that markets are the best way to allocate resources. If markets are the best way, then of course anything else is less good. So we shouldn’t use anything else. In particular, having the state allocate goods and services is suboptimal and should be eliminated.

Healthcare should be provided by the market, not by the state. Education should be provided by the market, not by the state. Goods and services for the poorest should be provided by the market, not by the state. And in the unlikely event that the market does not provide, then charity will plug the gap.

Of course in this world, a nurse, a shop-worker or a teacher might not be able to afford healthcare or schooling for their children – but that is their fault: they should have become a doctor or a banker or set up a business; then they could.

If what I have said sounds like an extreme description of what market fundamentalists believe, please read Chapter 4 of the book 99%. I think that you will see that it is an accurate description of an extreme position.

Because, when you spell-out the philosophy like this, it sounds so unpalatable, they rarely do spell it out. The only recent exceptions that I am aware of – where the consequences are clearly explained – are in the book by Jacob Rees-Mogg’s father, William Rees-Mogg, The Sovereign Individual, which is a kind of handbook for dismantling democracy, and in Tyler Cowen’s book, Average Is Over which essentially says that if you are an average sort of person and you are hoping for an average sort of life, you can forget it.

Rather than spell it out explicitly, whether by accident or design, they created what I call ‘the Hydra.’

You remember that in Greek mythology, the Hydra was a deadly many-headed serpent. The Hydra’s venom, and even its breath was lethal. Killing the Hydra was one of the labours of Hercules.

Today’s version of the Hydra looks this.

In a way this is a strategic masterstroke. By getting us to internalise a number of economic myths, most particularly the myth of unaffordability, policies like austerity go unchallenged. Not because people like them, but because they believe there is no alternative.

And if there is no alternative, however much we may dislike the consequences, we just have to grin and bear them. The myths act like a kind of invisibility cloak, hiding the underlying philosophy.

And the more households struggle with their own finances, the more plausible it sounds when politicians say that the government needs to be equally frugal.

The worse the results for the average person, the more plausible the policy. The more it fails, the more it succeeds.

Furthermore because, like the mythical Hydra, this one has many heads each of which can be deadly, they attract a lot of attention and resources. We spend our time fighting the heads and not even seeing the body.

For market fundamentalists, the Hydra has been a remarkably successful strategy, and it is continuing to work today.

Now this sounds like bad news – and of course so far it has been. But the good news is that with a fraction of the effort and resources that it takes to tackle all of the heads on the right of diagram, we could tackle the body of the Hydra and move from myth-based policy to fact-based policy.

 

And this brings me on to my third and final point.

Point #3: The changes we need are neither difficult nor radical

There are just five steps we need to take.

The first step is constitutional reform. We don’t have a written constitution in this country – and I have never felt more nervous of that fact than I do now. It is not illegal for a government in this country to pass legislation that it knows will harm the interests of 99% of the population. And we may be witnessing the early days of a government that is happy to take advantage of that freedom.

The second step is fact-based policy. There is a spectrum of truth from absolute truth to unfounded falsehood. And far too much policy is based on the right-hand end of that spectrum.

Since 2010, policy has been guided by the myth of unaffordability; as we discussed before – that was the reason for austerity.

And in the US, they don’t even accept climate science. Without facts, there can be no sanity in policy-making.

The third step is to formulate policy that will tackle and reverse mass impoverishment. On the basis of this constitutional reform and a commitment to look at the facts, we can then expect government policy to be sound.

Policy formulation is complex, but there are only fundamentally four types of policy. Each policy either grows the pie or it doesn’t; and it either shares the benefits of that growth fairly or it doesn’t. That gives us four types of policy:

  1. captured growth policies,
  2. shared growth policies,
  • vulture policies and
  1. balancing policies.

This simple framework can tell you how we got into the mess we are in, and how we can get out.

We got into this mess because we have had far too many captured growth policies and vulture policies, and far too few shared growth policies and balancing policies.

And we can get out if we focus as much as possible on Shared Growth policies. and recognise that where we adopt captured growth policies, they need to be balanced.

The fourth step is to invest wisely in the future. That is the Type II policies. We haven’t been wise, because of the narrative of unaffordability which has prevented all kinds of sensible investments.

Environmental investments would fall into this category. It is no more prudent for the Government to say that it cannot afford these things than it would be for me to ‘save’ money by not fixing a leaking roof in my house.

Why not spend £100 billion over the next few years insulating every house in the country? Why not spend a few £billion on R&D for battery technology or infrastructure for electric vehicles? Why not build a million eco-friendly social housing units?

And why not fund the NHS properly?

 

And the fifth step is to clean up capitalism. At the moment, the immensely powerful force that is the profit motive is too often fighting against solving the problems we are most concerned about. But it need not be.

In Appendix IX to the book 99% (you can download the Appendices free from the website), there is the story of a fictitious but quite realistic business, Alpha plc. In brief, the story goes like this: Alpha is a typical Internet unicorn.

Founded in 1997 by 3 young friends to sell clothes on the Internet, it grew rapidly and now has a turnover of around £1.5 billion – and is still growing at 10% per annum. It has swept its competition aside. And of course its founder, Robin Quickly, has become rich and famous.

But underneath the surface, the picture is very different. Alpha externalises many of its costs. We pay (through the benefits system) for the fact that its staff do not receive the living wage – even though Alpha expects them to be alive when they turn up to work. It has an extensive logistics operation but is not carbon-neutral – it gets us to pay for its pollution. And because it does not pay taxes, we even have to pay for the roads its delivery vehicles use every day.

Because it externalises its costs, it can outcompete more ethical businesses. Because it externalises its costs, it becomes an engine for mass impoverishment. And because it externalises its costs, it gets rewarded for destroying the environment.

But if it could no longer externalise all these costs, it would cease to have an advantage over more ethical businesses. It would not have grown. It would not have contributed to mass impoverishment or environmental destruction.

In a world without externalisation, ethical businesses would outcompete unethical ones and the profit motive would become a force for good.

*          *          *          *          *          *

So let me finish by reminding you how Hercules managed to kill the Hydra. Initially, Hercules thought the task was not difficult: he was quickly able to lop off several of the Hydra’s heads. But then to his horror, from each stump another two heads grew. Hercules realised that he was about to be overwhelmed and withdrew.

He called on his nephew Iolaus to help him. They returned together and as Hercules cut off each head, his nephew cauterised the stumps to prevent new heads from growing back. In this way, Hercules was finally able to kill the Hydra.

Like Hercules, we need to realise three things:

  1. It is possible to kill the Hydra
  2. We cannot do it alone
  3. Just attacking the heads won’t be enough.

So although I began with some rather dismal extrapolations of current trends, and although the Hydra has in the past been a formidable enemy, once we see through the invisibility cloak, we realise that killing it is far from impossible.

But we do have to act. And we do need as many people to lend their support as possible. So I would like to end by encouraging you to sign up on the website and do what you can to help change our economic system for the better.

Thank you.