This is a transcript of my Presentation on 25th September 2019 at the Hereford Big Green Conversation.
Thank you, Diana. And thank you all for highlighting these important issues.
Before I get into tackling those issues, I thought I would remind you of the legend of Hercules and the Hydra.
As you know, Hercules was set a number of tasks – the labours of Hercules.
And the second of these labours was to kill the Hydra: a many-headed serpent whose venom and even breath was lethal. 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 to help him. They returned together and, as Hercules cut off each head, his nephew cauterised the wounds to prevent the new heads from growing back. In this way, Hercules was finally able to kill the Hydra.
Now this is actually relevant to what I promised to talk about, since we are all like Hercules, trying to subdue a Hydra.
And like Hercules, we need to realise two things:
- We cannot do it alone
- We cannot do it just by looking at the heads
If, for example, you are most concerned about housing, even if you manage to achieve some success there, another two heads will grow. We have to cauterise the stump, to deal with the root cause of all of these problems, and that is the philosophy of market fundamentalism.
A Market Fundamentalist is like a religious fundamentalist. But their god is the free market. What is fair, they say, is that each person should receive their market value. If I say that I am worth £100,000 a year, but nobody is prepared to pay me £100,000 a year, my words are empty. Conversely, if somebody is prepared to pay me £100,000 a year, then demonstrably I am worth it. What you get is your fair value.
And that sounds reasonable until you look at the practical implications.
By that logic, Van Gogh, who sold very few paintings during his lifetime, was a very bad painter. But then he became a genius after his death.
By that logic, every Top Executive at the tobacco company Philip Morris is worth more to society than 50 oncology nurses tending people with cancer. It just doesn’t relate to the real world.
And this philosophy is very bad news for most people, because it means that they see you as exploiting the rich. If you use the NHS, most of the tax that pays for it has come from the rich – you are leeching off them. If you send your children to a state school, you are leeching. And heaven forbid, if you are receiving any state benefits, you are leeching off the rich. What you should receive is your fair value, and you should pay for your own healthcare, schooling etc.
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.
Because, if you spell-out the philosophy like this, it sounds so unpalatable, they rarely do it. The only recent exceptions that I am aware of – where the full consequences are spelled-out explicitly – 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.
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.
So market fundamentalists normally don’t use these arguments in public. Instead, they claim that there is no alternative to their policies. Austerity was inevitable. Nobody wanted to do it, but to carry on spending with Government debt as it was would have been unaffordable. So let’s just 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 not a barrier to future success.
This narrative of unaffordability 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.
But coming back to the many-headed Hydra, I got into this myself because of my concerns about mass impoverishment – the fact that we now have the first generation in modern history that is set to be poorer than its parents, even as the economy continues to get richer. And then I started to explore the root causes.
So I thought I would take you on my journey.
I will begin by showing you some statistics about mass impoverishment and explaining why I was worried even before Johnson became Prime Minister. But then I will focus particularly on the consequences of having a cabinet dominated by market fundamentalists – both economically and, even more importantly, politically. I will argue that it poses a fundamental threat to our post-war social contract. And I shall conclude by arguing that we now have a constitutional emergency, and we need to act very fast.
Let’s start with some facts.
Even on historic trends, mass impoverishment is a threat to the UK
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?
- In the last 35 years (the Age of Market Capitalism) economic performance has been lacklustre
- That lower growth has largely gone to the already wealthy: over the last 10 years, in the UK, most people’s wages have actually declined
- Continuation of current trends would mean that by 2050 the UK’s median wage would have fallen almost halfway to today’s poverty income!
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. It is a myth, not a fact.
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 what mass impoverishment is.
What happens if this 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, we are headed for mass impoverishment.
So, even without any of the recent changes, mass impoverishment needs to be right at the top of the political agenda.
But now we have a cabinet of Market Fundamentalists
The 2017 Tory party manifesto was clearly right wing, but it was a one-nation manifesto. It included commitments to increase the living wage, tougher regulations on tax advisory firms and to prevent misuse of trusts for tax avoidance, to protect critical national infrastructure, to invest in a national productivity fund and to create a sovereign wealth fund. The UK elected one-nation Tories. But what do we have now?
Here are some of the key roles in the cabinet today.
At least five have made it clear that they are market fundamentalists – they believe, almost as a religion, that markets are the best way to allocate resources. And anything, particularly governments, that get in the way of that needs to be tackled.
This is what Philip Hammond thinks.
And he was never known as a left-wing firebrand. He is right. His party has been taken over by market fundamentalists.
And with a no-deal Brexit, there is – for market fundamentalists – a once-in-a-lifetime opportunity to accelerate the process and to replace the post-war social contract with something completely different and very sinister.
Many people have analysed the impact of Brexit. This graph shows the government’s own analysis: any form of Brexit does economic damage, and harder the Brexit, the more damage it does. A no-deal Brexit is of the same order of magnitude as the Global Financial Crisis.
Let’s just consider one sector. In the UK, the automotive sector employs approximately 800,000 people. And it could be devastated. Honda, PSA, Ford, Nissan and Jaguar Land Rover have all indicated that major plants may need to close. And once they are closed, they are unlikely ever to re-open. The industry is in peril. And for every job which is lost in a car plant, a further seven are at risk in the automotive supply chain. The damage in this one sector should be enough to make us reject a no-deal Brexit.
For this reason, many people have called a no-deal Brexit an act of national self-harm. I do not believe this is quite correct. I don’t think that the people committing the act are the people who will experience the harm.
For market fundamentalists, as well as protecting their tax breaks and giving them once-in-a-lifetime buying opportunities, a no-deal Brexit means that it becomes far easier to justify continuing rolling back of the frontiers of the state in the name of unaffordability.
Lower growth means that more people have personal experience of economic hardship, which makes it more plausible when politicians say that spending is unaffordable. A serious-looking politician will stand up and say something like, “Hard working families and businesses around the country are having to tighten their belts, it is only fair that Government should tighten its belt too.”
And it sounds plausible at first. But each person’s expenditure is someone else’s income. If families, businesses and Government are all tightening their belts, we have a society where everyone is trying to cut their own expenditure. A society where we are all busy cutting each other’s income. That’s why austerity doesn’t work.
But once we have accepted the supposed need for more austerity, tax reductions and spending cuts seem more attractive. And the consequences in terms of poorer services and lower growth merely reinforce the effect.
Most fundamentally, it will enable a shift towards a new social contract. The post-war contract was based on people; the fundamentalist contract is based on markets. Most importantly it represents a radically different view of justice.
You saw how in the Golden Age, 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. As I said at the beginning, 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 it’s not the position of the Tory party manifesto in 2017. Nobody voted for this.
So the real coup isn’t the prorogation of Parliament. It isn’t even driving through a no-deal Brexit. It is the seizing of power by market fundamentalists with the aim of introducing a radical new social contract.
For those who feel that the post-war social contract is an essential element of our current civilisation, this means that our civilisation is under immediate threat.
Our civilisation is far from secure, so we need to act now
There are only eight scenarios for our future – and our leaders are not planning for us to inhabit the only attractive one. So, we need to act now, beginning with constitutional reform.
Three questions, each with a yes or no answer, determine the scenario we will find ourselves living in:
- Will the pie grow?
- Will the median slice grow?
- Will we have a peaceful transition to our future state?
And only one of these scenarios – the one called solidarity and abundance – represents the success of our current civilisation. That was the scenario during the Golden Age Of Capitalism and we have already left it. What we have seen in recent weeks heralds at least an acceleration of the drift towards accepting impoverishment, and possibly even to neo-feudalism.
So 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 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.
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.
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?
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.
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.
So, whether you are concerned about the housing crisis, about the risks of a no-deal Brexit or about the environment, those five steps are all-important.
We need to kill the Hydra, and we can’t do it alone, or by looking just at the heads.
Even before Johnson became Prime Minister and assembled a cabinet of market fundamentalists, there were grounds to be very concerned – which is why I came to write this book. But now, the stakes are far higher, and the urgency is far greater.
Just as Extinction Rebellion has pointed out that we are looking at a climate emergency, I believe that we are looking at a constitutional emergency.
I would like to ask all of you to do whatever is in your power to help preserve our civilisation before it is too late. Please join us.