Review Written by
William Podmore

Excellent study of our current economic situation, February 21, 2012
This review is from: After the Great Complacence: Financial Crisis and the Politics of Reform (Hardcover)
Even before the crisis, Britain's private sector was unable to create enough jobs. There were 7 million manufacturing jobs in 1979, 4 million in 1997 and 2.8 million in 2008.

From 1996 to 2008 business investment was flat at 10 per cent of GDP; bank lending to productive business fell from 30 per cent to 10 per cent, while bank lending to other financial firms and to property developers soared.

The transfer of 750,000 jobs from the public to the private sector accounted for 71 per cent of the apparent increase in private sector jobs between 1979 and 1997. Under Labour, increased spending on health and education accounted for 37 per cent of job growth (61 per cent in the West Midlands, 43 per cent in Wales and 46 per cent in Scotland). Privatisation and outsourcing led to an expansion of state funding for private employers, as in nursery education and services for the elderly - 1.7 million jobs.

In 2007, the OECD's chief economist forecast `a strong and sustained recovery in Europe'.

The authors argue that the economic crisis was not an accident but a debacle, like the Iraqi and Afghan war disasters and the euro. As they note, "two debacles collided as the financial crisis crashed into European Monetary Union." They observe that neither the euro, nor the European Central Bank nor the EU was any use in the crisis. The euro no more reduced the risks on government debt than all the securitization and special financial vehicles reduced the risks of investment.

The bailout cost the British taxpayer £1,183 billion in loans and guarantees (not all used) - £46,700 per household. Public debt rose from 36.5 per cent of GDP in 2007 to 63.6 per cent in 2010, the public sector deficit from £634 billion to £890 billion.

Globally, the crisis cost between one and five times 2009's world output, in terms of output lost now and in the future: $60-200 trillion for the world's economies, £1.8 -7.4 trillion for Britain's. Globally, the crisis destroyed at least 30 million jobs and cost $3 trillion in extra public spending, to bail out the banks.

The authors write, "Finance is not only an economically unsafe and violently pro-cyclical sector but also part of a democracy that is not working." It is hardly a democracy at all: as they note, "the privatization of gains and the socialization of losses usually indicate the presence of an uncontrolled and predatory elite."

Indeed, the finance sector is not adding value but extracting rent. Much financial innovation was worse than `socially useless', it actually harms the economy. This sector is built on tax avoidance: from 2002 to 2008, tax receipts from finance were just £193 billion, only 6.8 per cent of the total, half what manufacturing industry paid. Finance employs just a million people, 4 per cent of workers, no more than in 1991.

The government is still running banks for shareholder value, the model responsible for the crisis. Rather than the government nationalising some banks, it has privatised the Treasury into being a new kind of investment fund.

It is not just the free movement of capital that is bad for us. The free movement of labour is bad for us too: as the authors observe, "mass inward migration ... kept downward pressure on labour costs in the private sector."

The authors conclude that we need to put banking and finance under democratic control. They point out, "Debt is not a problem when put to productive use to create credit which facilitates physical investment and material transformation via infrastructure, care services, or manufacturing, as the basis for economic advancement and social improvement."

We need national banks designed to invest, in R&D, housing, industry, energy and infrastructure.

Imarxman...book review by William Podmore

After the great complacence: financial crisis and the politics of reform, by Ewald Engelen, Ismail Ertürk, Julie Froud, Sukhdev Johal, Adam Leaver, Michael Moran, Adriana Nilsson and Karel Williams, Centre for Research on Socio-Cultural Change, University of Manchester, hardback, 281 pages, ISBN978-0-19-958908-1, Oxford University Press, 2011

Even before the crisis, Britain’s private sector was unable to create enough jobs. There were 7 million manufacturing jobs in 1979, 4 million in 1997 and 2.8 million in 2008.

From 1996 to 2008 business investment was flat at 10 per cent of GDP; bank lending to productive business fell from 30 per cent to 10 per cent, while bank lending to other financial firms and to property developers soared.

The transfer of 750,000 jobs from the public to the private sector accounted for 71 per cent of the apparent increase in private sector jobs between 1979 and 1997. Under Labour, increased spending on health and education accounted for 37 per cent of job growth (61 per cent in the West Midlands, 43 per cent in Wales and 46 per cent in Scotland). Privatisation and outsourcing led to an expansion of state funding for private employers, as in nursery education and services for the elderly – 1.7 million jobs.

In 2007, the OECD’s chief economist forecast ‘a strong and sustained recovery in Europe’.

The authors argue that the economic crisis was not an accident but a debacle, like the Iraqi and Afghan war disasters and the euro. As they note, “two debacles collided as the financial crisis crashed into European Monetary Union.” They observe that neither the euro, nor the European Central Bank nor the EU was any use in the crisis. The euro no more reduced the risks on government debt than all the securitization and special financial vehicles reduced the risks of investment.

The bailout cost the British taxpayer £1,183 billion in loans and guarantees (not all used) – £46,700 per household. Public debt rose from 36.5 per cent of GDP in 2007 to 63.6 per cent in 2010, the public sector deficit from £634 billion to £890 billion.

Globally, the crisis cost between one and five times 2009’s world output, in terms of output lost now and in the future: $60-200 trillion for the world’s economies, £1.8 -7.4 trillion for Britain’s. Globally, the crisis destroyed at least 30 million jobs and cost $3 trillion in extra public spending, to bail out the banks.

The authors write, “Finance is not only an economically unsafe and violently pro-cyclical sector but also part of a democracy that is not working.” It is hardly a democracy at all: as they note, “the privatization of gains and the socialization of losses usually indicate the presence of an uncontrolled and predatory elite.”

Indeed, the finance sector is not adding value but extracting rent. Much financial innovation was worse than ‘socially useless’, it actually harms the economy. This sector is built on tax avoidance: from 2002 to 2008, tax receipts from finance were just £193 billion, only 6.8 per cent of the total, half what manufacturing industry paid. Finance employs just a million people, 4 per cent of workers, no more than in 1991.

The government is still running banks for shareholder value, the model responsible for the crisis. Rather than the government nationalising some banks, it has privatised the Treasury into being a new kind of investment fund.

It is not just the free movement of capital that is bad for us. The free movement of labour is bad for us too: as the authors observe, “mass inward migration … kept downward pressure on labour costs in the private sector.”

The authors conclude that we need to put banking and finance under democratic control. They point out, “Debt is not a problem when put to productive use to create credit which facilitates physical investment and material transformation via infrastructure, care services, or manufacturing, as the basis for economic advancement and social improvement.”

We need national banks designed to invest, in R&D, housing, industry, energy and infrastructure.

http://www.google.com.ph/url?sa=t&rc..._HCj5TGHTWIPtA


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An alternative report on UK banking reform, CRESC

In 2001/2-2006/7, the finance sector paid £203 billion in taxes, but the bail-out, including all the Bank of England and Treasury loans and guarantees, cost £1,183 billion. The crisis wrecked public finances: the public sector deficit leapt from 3 to 13 per cent. We are putting money into bankers’ wallets rather than into industry and services.

The finance sector undermined growth by inflating asset price bubbles rather than backing productive, socially useful investment that would generate sustainable returns to support debt repayments. From the mid 1990s to 2007, manufacturing industry’s share of all bank loans fell from 7.9 per cent to 1.6 per cent. There were also falls in the share of loans going to agriculture, construction, hotels, retail and distribution.

The bubble was fuelled by booming asset prices and buoyant profits which offered bank lenders the appearance of security. Banks expanded their lending on property and to other financial institutions, because they were the only sectors which had an insatiable demand for loans. There were five-fold increases in the amounts lent to financial intermediaries and insurance funds, to real estate or commercial property and to private individuals whose borrowing demand was dominated by mortgages on residential property.

The surviving investment banks are now doing better than ever. It is not so much that the banks have been nationalised as that the Treasury has been privatised as a new kind of investment fund. The government has become a major bank customer, funding fiscal deficits, so a smaller number of investment banks can now earn higher margins on this new prime business, with guaranteed access to liquidity from central banks. Goldman Sachs, Barclays, JP Morgan Chase, HSBC and Royal Bank of Scotland all made huge profits on their investment banking businesses, not through their skills, but because taxpayers propped them up.

City bonuses and fees only ever enriched a few. Investment banking, like law and accounting partnerships, is designed to generate high incomes for a small number of partners. The finance sector directly employs only 1 million workers (mainly in retail) and this number did not rise during the bubble. Adding para-finance employment only increases the numbers employed in finance to around 1.5 million. According to the British Bankers Association, the ‘banking industry’ provided just 432,000 jobs at the end of 2006, just under half of those directly employed in financial services. Nearly 80 per cent of these jobs in banks were in retail.

The authors write, “Debt is not a problem when put to productive use to create credit which facilitates physical investment and material transformation via infrastructure, core services or manufacturing as the basis for economic advancement and social improvement. The connection to sustainable growth is crucial because all debt is effectively a claim on the economy’s ability to generate resources in the future and the right kind of debt is both proportionate and (via credit funded material investment) resource increasing.” Unregulated credit and indiscriminate lending ensure that funds go into the wrong parts of the economy, adding to debt. “All become increasingly preoccupied with value crystallization and extraction from asset trading rather than realizing continuous value streams from material transformation.”

High investment planning requires government sponsorship of useful projects, and there’s plenty of work that needs doing when we do not have a single mile of high speed train track in operation and have not built any significant amount of social housing since 1979. If the financial market can’t or won’t allocate capital into such projects, the state must do it.

We need to direct savings funds into manufacturing industry, into the core services of education, health and housing, and into the infrastructure – energy and transport. Without manufacturing industry we cannot survive as a nation, as a people.

http://imarxman.wordpress.com/2012/0...eview-banking/

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This William Podmore review is from: In Place of Austerity: Reconstructing the Economy, State and Community (Paperback)

Dexter Whitfield is Adjunct Associate Professor at the Australian Institute for Social Research, at the University of Adelaide. This remarkable book is a thorough, detailed study of how we need to rebuild Britain, packed with evidence, facts and arguments proving that the Coalition's policies are ruinous. He shows why we need new economic policies and better policies for public services.

In Part 1 he shows how capitalism is destroying democracy. In Part 2 he argues for reconstruction, and in Part 3 he outlines the case for a better strategy. He ends with a chapter explaining `Why markets fail'.

Successive governments have backed capitalism against democracy. As he writes, "Financialisation, personalisation, marketisation and privatisation are designed to dispossess, disinvest, destabilise, depoliticise and disempower, in effect the de-construction of democracy at local, national and international levels."

On the crisis, as he points out, "The public cost of bank bailouts, fiscal stimulus programmes and falling tax revenues/increased welfare state benefits caused by the recession, led to the sovereign debt crisis with Ireland, Portugal and Greece being bailed out by the EU/IMF." The government lent four large UK banks $1.6 trillion of public money.

Even the IMF said, "Of the almost 39 percentage points of GDP increase in the debt ratio, about two-thirds is explained by revenue weakness and the fall in GDP during 2008-09." So the crisis is not due to excessive public spending on healthcare, welfare or pensions: the Coalition is telling lies about the deficit.

Whitfield writes, "The foundations for `big society' were laid by New Labour." The Labour government spent more on health and education to fatten up these assets for sale to private companies. As he explains, "Big society and the new-found faith in community engagement and empowerment is simply another stage in the neoliberal approach to further embed marketisation in public services."

The EU is behind all these policies. It forces privatisation on all member countries, for example with its 1997 Postal Services Directive.

It backs capitalism against people's needs. As Whitfield observes, "EU Commission investment powers, under the Lisbon Treaty, allow multinational companies to claim compensation when national environmental or public health laws damage their profits."

He notes, "The TUC 2011 Congress resolved to oppose the use of the World Trade Organisation's Mode 4 provisions, which allow transnational companies to bring in local labour to work temporarily in the EU. Mode 4 allows for the negation of domestic legislation that protects workers, collective agreements and trade union organising. It leads to the exploitation of migrant workers, displaces existing workers, and undercuts terms and conditions."

Whitfield shows how we pay twice over - we fund private companies, and then we suffer worse services. For example, "the privatised railway system receives an annual subsidy, £4bn in 2010-11, yet fares are over 30% higher than comparator European railways." And, "A comprehensive study for the Equal Opportunities Commission found `savings' of £124m in 39 authorities, but the full social and tendering costs totalled £250.1m, leaving a net cost of £126m per annum - equivalent to a 16% cost. The Government was, in effect, subsidising outsourcing, since it was responsible for 97% of the costs."

The Society of Information Technology Management "has tracked costs and user satisfaction in both in-house and out-sourced operations for over a decade. On a like-for-like basis, the outsourced operations are always more expensive." Again, "Local authorities' in-house care services have a significantly higher proportion rated good and excellent compared to privately-run services (Care Quality Commission, 2011)." And finally, "The purchaser/provider split in the NHS led to increased administration costs, rising from about 5% of health service expenditure in the 1980s to 12% by 1997 and rising again to 13.5% by 2005 (House of Commons Health Committee, 2010)."

Whitfield makes good suggestions, like an industrial and innovation strategy: "An Industry and Innovation Investment Bank should be established to finance and to actively promote research, technology and key manufacturing sectors. Germany's KfW Bankengruppe (government owned) and France's Fonds Strategique D'Investissement (FSI) provide different models. They could support investment in specific manufacturing industries, in particular biotechnology, nanotechnology, and low carbon manufacturing."

He proposes a clean-energy policy: "One million new climate change jobs could be created by a programme targeted to reduce emissions by 80% in electricity, buildings and transport over twenty years. The new climate change jobs, not so-called green jobs, would be producing renewable electricity (425,000 jobs), refitting buildings to make them adaptable to climate change (150,000), changing transport (325,000), industry and landfill (50,000) and education (50,000)."

He points out that we need to have more apprenticeships, broad technical education from 16-18, and more investment in higher education. We need to achieve National Superfast Broadband ASAP. We should re-nationalise water, energy and the railways, and reverse the privatisations of local government, education, health care, child care and care of the elderly.

He urges investment: we should unlock corporations' cash hoards: UK-based non-financial companies had cash and bank deposits of £652.4 billion at the end of 2009. And with full public ownership of the four banks currently part-owned, they could serve the people, not their directors.

He suggests that we cut the tax gap, currently £123 billion (£70 billion evaded, £28 billion unpaid, £25 billion avoided). Each tax officer collects more than 30 times his or her salary. We should end tax relief on gross incomes of more than £110K a year, which would bring in £8.4 billion a year, and we should absorb the tax havens, to which we lose £18.5 billion a year.

On ways to fight, he suggests "working to rule could include working to contract by refusing to work additional unpaid hours, withdrawal of cooperation to implement projects, a work-to-rule to slow down service delivery, strict adherence to health and safety regulations ..." We need to increase labour's bargaining power, restore trade union rights, and improve wages, hours and conditions. To do this, we need to rebuild our trade unions, starting by organising in our workplaces.

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This William Podmore review is from: The Courageous State: Rethinking Economics, Society and the Role of Government (Paperback)

Richard Murphy is a political economist, chartered accountant and an adviser to the TUC and others. His Tax Research UK blog is ranked the UK's number 1 economics blog.

In this fascinating book, he refutes in detail the libertarian view of the state and presents excellent arguments against the whole range of Thatcherite, neo-liberal policies which have created a `feral, neoliberal state'.

Capitalism is destroying government to give our tax revenues to private companies. So we now hugely subsidise the private sector, for example, we gave £38 billion to the pensions industry in 2008.

Murphy points out, "profit maximisation ... increases the well-being of the tiny minority at the expense of the rest of society." From 1996-97 to 2007-08, the top 0.5 per cent's incomes grew far more than the economy as a whole, while the incomes of 99.3 per cent of us grew less.

The over-large financial sector crowds out the productive sector. Speculative investment grows at the expense of the real investment that creates jobs. This leads to more inequality and so to worse human and social outcomes, as Richard Wilkinson and Kate Pickett showed in their fine book, The Spirit Level.

Markets breed monopoly and monopoly breeds what Murphy calls `feral finance'. Every working day $4 trillion is traded in speculation, $1 quadrillion a year, 16 times world GDP. World debt is $150 trillion. With interest at 6 per cent, that yields $9 trillion interest a year, taking 15 per cent of world income from poor to rich.

Murphy urges us to ban short selling, split up the banks, end tax havens, impose capital controls, stop buy-to-let, stop privatisations, cancel all PFI and PPP contracts, and create a state investment bank. We should revive apprenticeships, set a maximum for working hours, and restore free higher education, local democracy and social housing.

He also proposes that we fund investment by getting the Bank of England to lend to the Treasury. This would break EU laws, which require these loans to be routed solely through commercial banks, via `Quantitative Easing' that profits these banks while not benefiting the rest of us. If the Bank printed money, we could invest what we wanted, without adding to the debt.

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