The post-war contract was based on people; the market fundamentalist contract is based on markets. Most importantly it represents a radically different view of justice.
During the Golden Age of Capitalism, the economy grew faster and most people got richer. For most of us, a new Golden Age would be very attractive.
But for market fundamentalists, the Golden Age represents a massive injustice – the most valuable members of society have been plundered via progressive taxation (or as they refer to it ‘coerced redistribution’) by the less productive members of society, whose sense of entitlement knows no bounds.
For them, the only injustice in a Board member at Philip Morris being paid more for selling cigarettes than 50 nurses get for tending those with cancer is that the Board member is having to pay taxes that get spent educating the nurse’s children.
The idea that market forces guarantee a fair distribution is one that really only appeals to those who are pretty certain of a very large share.
Although you have probably heard all the elements on the right-hand side individually, their proponents are usually careful not to assemble the complete picture. The only exceptions that I am aware of – where the full consequences are spelled-out – are in the books by Jacob Rees-Mogg’s father, William Rees-Mogg, and Tyler Cowen. And if you read those books, or even just Chapter 4 of 99%, which highlights some of their conclusions, you will see a terrifying picture of the world they wish to build.
And we have seen that they are getting their way, slowly but surely. And a hard Brexit would merely accelerate the descent.
So what do we need to do to preserve the post-war contract and create a new Golden Age? Five relatively simple steps will secure the future.
Step 1: Democratic Reset
Of course we need policy change. But even more fundamentally we need a democratic reset. We don’t have a written constitution in this country – and recent weeks’ events have shown very clearly how precarious our rights are in the absence of such a protection. 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. Here are the key elements of that democratic reset.
Step 2: Fact-based Policy
And we need 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 – that was the reason for austerity. When Theresa May wanted as her final act to commit the UK to carbon neutrality by 2050, Philip Hammond didn’t try to deny the science, but he claimed that it would cost £1 trillion, and it was taken for granted that this meant that we couldn’t afford to do it. Why not? Because of the state of Government finances. But Government Debt:GDP is today below its 300-year average, below where it was before the Industrial Revolution took off, and below where it was before the Golden Age of Capitalism. It is simply a myth that we couldn’t afford to protect the health of the economy and our environment. And in the US, they don’t even accept the science. Without facts, there can be no sanity.
Step 3: Policy for Solidarity and Abundance
On the basis of this constitutional reform and a commitment to look at the facts, we can then expect government to formulate policy that will tackle and reverse mass impoverishment. 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 these four types of policy: captured growth policies, shared growth policies, vulture policies and balancing policies.
Now I promised to tell you how we got into this mess, and how we can get out. This chart can help to answer both questions.
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.
First, the shared growth policies. 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 for the balancing policies, how about immediately ensuring a true living wage. Why not stop the roll-out of universal credit and replace it with something fit-for-purpose, and why not return to a taxation system that at least stops inequality growing?
Step 4: Investing in the Future
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. The chart shows the case of flood defences. And of course environmental investments would fall into this category, too. 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.
Step 5: Clean-up Capitalism
And the fifth step is to clean up capitalism. At the moment, the immensely powerful force that is the capitalist 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. The story goes like this:
In 1997, Robin Quickly was a young man with a dream. Working with two friends from rented premises in an out-of-town business park, using second-hand IT equipment funded by a loan from his parents and a small government grant, he founded a company which was destined to change the way Britons buy their clothes. In its first year of operation, the then unknown Alpha company had a turnover of just over £300,000 and made a small loss.
Today, Alpha plc is recognised as one of the UK’s most dynamic and successful companies. In little over 20 years, it has grown from nothing to a turnover of £1.5 billion and is still growing at over 10% per annum. Customers love Alpha. Because of its innovative business model, its costs are approximately 5% lower than those of bricks-and-mortar competitors – and it has passed this cost saving on to customers. Its service levels are consistently high. And Alpha was one of the pioneers in using algorithms to drive product selection. It has swept its competition aside.
And the reported profit of Alpha looks very healthy.
But underneath the surface, the picture is very different. Alpha externalises many of its costs. It gets us to pay for its pollution, for its underpayment of staff and its failure to pay its taxes.
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.
Whether you are most concerned about mass impoverishment, the housing crisis, the risks of a no-deal Brexit or about the environment, those five steps are all-important.