A not-terribly-welcome aspect of my new student lifestyle is the odd night of insomnia when I simply cannot get my brain to shut up. Now that it is being encouraged to think, it doesn't necessarily want to stop just because the time happens to be, say, 4am. Luckily I don't usually have to get up the next morning. Less luckily, I do need to tomorrow.
Recently I've been thinking about free market capitalism and Marxism. Until the financial mayhem started in 2008, it was quite widely accepted that the former had triumphed and Marxism was more or less dead. Francis Fukuyama's 'End of History and the Last Man' is the best-known exponent of this. (To my shame, I haven't read it yet.) From what I can tell, Fukuyama and a host of other commentators assumed that democracy and free market capitalism were inseparable. The vast human suffering caused by the totalitarian regimes, of the USSR and China in particular, made socialism something to dread. Marx' proscriptions for the future had been fatally undermined.
Something I recently noticed about the financial shenanigans (which really need a definitive name but are unlikely to get one before they end) is that they follow Marx' view of capitalism as unstable and subject to periodic crises. Free market capitalism assumes that markets are self-correcting, yet the debt crisis in which we find ourselves was caused by the operation of free markets. Large international banks systematically understated and mismanaged risk in pursuit of profit, in the process causing an asset-price bubble that could not be sustained. Once property prices in the US began to fall and mortgage defaults increased, financial products that had been valued in the hundreds of billions of dollars became effectively worthless. This took place because unregulated free markets failed. Bankers' incentives did not encourage them to promote societal or even economic good. Information asymmetries were rampant, market power was highly concentrated, and risk was incredibly poorly managed. These problems occurred in markets that were either unregulated or extremely lightly regulated, and did not self-correct. Governments were required to step in and shore up these banks, in order that their wider roles holding deposits and lending to individuals and businesses could continue.
The bailouts have nationalised the losses made by banks, whilst their profits remain privatised. I oversimplify somewhat, but this is broadly why we now have terrifying levels of sovereign debt. Three years ago the fear was that banks had too much debt and not enough assets, now the same fear is gripping whole nations. The operation of free financial markets has destabilised entire countries. If he could, I'm sure Marx would say, "I told you so."
Now that the debt has been nationalised, it is everyone's problem. Repayment is hindered by the fact that the mind-bogglingly large sums were effectively borrowed against the value of future economic growth. That growth is no longer happening, largely as a result of the ongoing credit crunch and austerity measures designed to reduce the debt. Even the IMF admits this. The great economist Keynes took the view that recessions are caused by inadequate overall demand for goods and services; Marx also noted that capitalism periodically suffers a crisis of overproduction. Arguably, we could get growth going by stimulating demand - but this would require taking on more debt, which returns us to the starting point. In order to grow as we did before, we'd have to recreate the conditions that got us into the current doldrums. I doubt this is even possible.
Moreover, now seems to be a very good time to consider whether it is socially and environmentally desirable to stimulate demand and therefore consumption. Doesn't the Western world consume more than enough already? Is endless economic growth worth the social costs? However, very few seem to be speaking up for a Marxist revolution, for the very good reason that however accurate his assessment of current capitalism might seem, memories of communism's failure are still fresh. In my idealistic view, maybe we've gone beyond the capitalism/communism dichtomy and into a post-ideological era? Perhaps another ideology will appear, but for the moment we need to work with what we've got, two big ideas with big flaws and a wealth of information as to how they've been implemented with varying success. I think the new theory should be pragmatism. Not every country, region, or city will desire or require the same balance of free markets, regulation, public participation, taxation, etc.
There should be more choice and less absolutism. Rather than trying to shore up a clearly broken system, the EU could be considering what reforms would promote the greatest wellbeing. This is obviously easier said than done, given that institutions have their own momentum and the banks are fighting hard to survive despite having brought about their own ruin. However, I am a great believer in the power of imagining a better world. In the UK at least, this has fallen out of fashion and an apparent political and economic death spiral has made us a nation of apathetic pessimists. In a recent yougov poll, 80% of respondents said the state of Britain's economy was quite bad or very bad. Just 3% said it was good or very good. When asked how they thought the financial situation of their household would change over the next year, 62% said it would get worse and 8% said it would get better. Meanwhile, 53% said that Cameron is doing badly as Prime Minister, 54% said Milliband is doing badly as Labour leader, and 69% said Clegg is doing badly as Liberal Democrat leader. In response to a question about whether the current government is good for 'people like you', 24% said good and 53% bad. As a snapshot, that's quite a revealing survey.
In order to avoid pervasive depression, both economic and social, we need to first accept that there must be ways to make things better. I don't know what the new economies of pragmatism would look like; hopefully when I get round to reading 'Prosperity without Growth' I'll start getting an idea. What I have noticed is that The Economist chastises the Occupy Wall Street movement for a lack of ideology and lauds the economic successes of China whilst lamenting the decline of America. Lest we forget, China is far from a free democracy. The most successful free market economy of recent years is ostensibly communist; how can this be reconciled with the supposed opposition of the two ideologies? In my opinion, it no longer can be.
Soon to come: recommended reading about the credit crunch and Cambridgeshire's sometimes fraught relationship with renewable energy.
Showing posts with label america. Show all posts
Showing posts with label america. Show all posts
Monday, 10 October 2011
Thursday, 21 October 2010
Across the Pond
Spending has been Comprehensively Reviewed, and I've been following it as best I can despite being on a first aid course. In theory I now know how to resuscitate people, so might end up as a Big Society paramedic in a few years when we can't afford real ones. (Public sector humour: I'm not sure it can get much blacker at this point.)
Whilst attempting to absorb the scale and implications of the spending review cuts, something kept nagging at the back of my head. I've just realised what it is. The coalition constantly treats public services as inherently wasteful, unnecessary, autocratic, and staffed by faceless hoards whose only aim is to spend taxpayers' money as quickly as possible. These attitudes sound familiar; they are shared by the American Tea Party movement. Although the Tea Party's political mores are somewhat incoherent, they heavily emphasise cutting government spending and taxes. They agitate for minimal government and greater freedom of individual and/or community action. They object to the public sector providing basic services, like healthcare and welfare.
What bitter irony that in the US a vocal but widely derided minority are espousing these policies, whilst in the UK they're suddenly the mainstream. But the UK never had anything even vaguely analogous to the Tea Party movement, and the coalition definitely didn't sweep to power on a dismantle-the-state ticket. How did we end up with government in the style of the crazy American right wing? Weren't the Liberal Democrats once a left wing political party? What the hell happened?
Make no mistake, this spending review can talk efficiency savings and streamlining procurement all it likes, but cuts like this are an unequivocal ideological statement. The government is saying that the state is far too big. There are too many people working in the public sector. There shouldn't be so many public services. It costs too much to provide everyone with a basic standard of living.
There are many, including plenty of public sector employees, who would agree with those statements in principle. Then they would protest vociferously about the high cost of train tickets, about class sizes at their child's school, about cancer drugs not being provided on the NHS, about the local community centre closing, about potholes in the road, about the lack of police on the streets, about their elderly relatives having to pay for care, about the costliness of being a student, about the wait for their local council to answer the phone, about inadequate flood defences, about the lack of NHS dentists, about every little thing that public sector does which we all take for granted. It might seem blindingly obvious, but still needs to be said: none of these services are going to improve when a lot of their money is taken away from them. Get used to being put on hold, to being told that there's now a charge, or just that no, we don't do that any longer.
There have been times when I thought perhaps I was being unduly paranoid to assume the government had an explicitly anti-state agenda. But then I came across this paragraph in the spending review document:
In other words, targets for privatisation and outsourcing, from a rabidly anti-targets regime no less. The mentions of voluntary groups and co-operatives are all very well and fluffy, but who is going to put in a cheaper bid to provide the service? The big private company with rock-bottom costs, or the local community group relying on grants? Faced with 30% cut in budget, local councils will have to pick the lowest cost option. Notice also that first to be sold off will be some of the most sensitive services required by the most vulnerable people, the kind of services with truly awful consequences when they fail.
I'm not going to go into everything that's depressing in the spending review, because I want to finish writing this within the decade. But briefly, the department that funds my job and almost everything I work on, Communities and Local Government, got the worst settlement of all. Over the next three years, their administration and programme budget will fall by 51%. Their capital budget will fall by 74%. That's tantamount to saying that most of what the department does is totally unnecessary. In case you wondered, these extraneous functions include providing affordable housing, planning, regeneration, and infrastructure.
But I am an optimist as well as a cynic, and have managed to find some vestiges of silver lining to the spending review. For one, the Carbon Reduction Commitment has been fiddled with to make it into a £1 billion stealth carbon tax on large businesses. It won't be hypothecated back into climate change mitigation, but it's still more of a carbon tax than I'd dared to hope for. In addition, the Department for Transport can no longer afford the £1.3 billion project to turn the A14 North of Cambridge into a vast motorway. In my personal view, the scheme was totally inappropriate and appallingly carbon-heavy, as well as a perpetual political flashpoint. I won't miss it, although the A14 needs fixing somehow (tolls?) as there are continually accidents on it.
Little rays of sunshine aside, the title of my blog has never seemed more appropriate: welcome to age of austerity. If the Tea Party have any sense (although frankly I doubt it), they'll be watching the UK with interest over the next few years. What happens when you suddenly and radically roll back all public services in an economically fragile country with high unemployment? Stay tuned to find out!
Particularly good spending review commentary that I've come across: the wonderful Joseph Stiglitz on why the cuts won't work and more on how local government got the worst of the spending review.
Whilst attempting to absorb the scale and implications of the spending review cuts, something kept nagging at the back of my head. I've just realised what it is. The coalition constantly treats public services as inherently wasteful, unnecessary, autocratic, and staffed by faceless hoards whose only aim is to spend taxpayers' money as quickly as possible. These attitudes sound familiar; they are shared by the American Tea Party movement. Although the Tea Party's political mores are somewhat incoherent, they heavily emphasise cutting government spending and taxes. They agitate for minimal government and greater freedom of individual and/or community action. They object to the public sector providing basic services, like healthcare and welfare.
What bitter irony that in the US a vocal but widely derided minority are espousing these policies, whilst in the UK they're suddenly the mainstream. But the UK never had anything even vaguely analogous to the Tea Party movement, and the coalition definitely didn't sweep to power on a dismantle-the-state ticket. How did we end up with government in the style of the crazy American right wing? Weren't the Liberal Democrats once a left wing political party? What the hell happened?
Make no mistake, this spending review can talk efficiency savings and streamlining procurement all it likes, but cuts like this are an unequivocal ideological statement. The government is saying that the state is far too big. There are too many people working in the public sector. There shouldn't be so many public services. It costs too much to provide everyone with a basic standard of living.
There are many, including plenty of public sector employees, who would agree with those statements in principle. Then they would protest vociferously about the high cost of train tickets, about class sizes at their child's school, about cancer drugs not being provided on the NHS, about the local community centre closing, about potholes in the road, about the lack of police on the streets, about their elderly relatives having to pay for care, about the costliness of being a student, about the wait for their local council to answer the phone, about inadequate flood defences, about the lack of NHS dentists, about every little thing that public sector does which we all take for granted. It might seem blindingly obvious, but still needs to be said: none of these services are going to improve when a lot of their money is taken away from them. Get used to being put on hold, to being told that there's now a charge, or just that no, we don't do that any longer.
There have been times when I thought perhaps I was being unduly paranoid to assume the government had an explicitly anti-state agenda. But then I came across this paragraph in the spending review document:
The Government will pay and tender for more services by results rather than be the default provider; look to set proportions of specific services that should be delivered by non-state providers including voluntary groups; and introduce new rights for communities to run services, own assets and for public service workers to form cooperatives. [...] Areas of focus for this approach: This approach will be explored in adult social care, early years, community health services, pathology services, youth services, court and tribunal services, and early interventions for the neediest families.
In other words, targets for privatisation and outsourcing, from a rabidly anti-targets regime no less. The mentions of voluntary groups and co-operatives are all very well and fluffy, but who is going to put in a cheaper bid to provide the service? The big private company with rock-bottom costs, or the local community group relying on grants? Faced with 30% cut in budget, local councils will have to pick the lowest cost option. Notice also that first to be sold off will be some of the most sensitive services required by the most vulnerable people, the kind of services with truly awful consequences when they fail.
I'm not going to go into everything that's depressing in the spending review, because I want to finish writing this within the decade. But briefly, the department that funds my job and almost everything I work on, Communities and Local Government, got the worst settlement of all. Over the next three years, their administration and programme budget will fall by 51%. Their capital budget will fall by 74%. That's tantamount to saying that most of what the department does is totally unnecessary. In case you wondered, these extraneous functions include providing affordable housing, planning, regeneration, and infrastructure.
But I am an optimist as well as a cynic, and have managed to find some vestiges of silver lining to the spending review. For one, the Carbon Reduction Commitment has been fiddled with to make it into a £1 billion stealth carbon tax on large businesses. It won't be hypothecated back into climate change mitigation, but it's still more of a carbon tax than I'd dared to hope for. In addition, the Department for Transport can no longer afford the £1.3 billion project to turn the A14 North of Cambridge into a vast motorway. In my personal view, the scheme was totally inappropriate and appallingly carbon-heavy, as well as a perpetual political flashpoint. I won't miss it, although the A14 needs fixing somehow (tolls?) as there are continually accidents on it.
Little rays of sunshine aside, the title of my blog has never seemed more appropriate: welcome to age of austerity. If the Tea Party have any sense (although frankly I doubt it), they'll be watching the UK with interest over the next few years. What happens when you suddenly and radically roll back all public services in an economically fragile country with high unemployment? Stay tuned to find out!
Particularly good spending review commentary that I've come across: the wonderful Joseph Stiglitz on why the cuts won't work and more on how local government got the worst of the spending review.
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