Whichever side of the argument you might be on, it’s worth looking at a very cogent and entertaining video talk by the late Professor G.A Cohen on some of the problems of ‘actually existing capitalism’. I found it while following up a reading of his Tanner Lecture, ‘Incentives, Inequality, and Community’, given at Stanford University in 1990-91, which contains a powerful argument against incentive justifications for income/wealth inequality.
‘We need to be clear how equality, and what kind of equality (including of what), services our notion of the good society.’
To give David Miliband some credit, he is asking the right question. It’s not clear from his New Statesman sally whether he has the right answer.
As characterised by the older brother, ‘Reassurance Labour’ believes that the state is the primary bulwark against the inequities and inefficiencies thrown up by a globalised market economy. It seems that David M. believes that empowered regions and communities should be cast in this role.
Now in general terms, I think David has a point. But there are major gaps in his thinking. As he clearly acknowledges, the state (and frequently bodies stretching their remit even wider – the EU and beyond) must set the framework for individual rights and responsibilities. This is necessary to ensure that the relationship between devolved structures is one of co-operation and constructive competition rather than the beggar-my-neighbour variety.
But there are other crucial relationships about which David says nothing. These are those between the power of business on the one side and communities and individuals on the other. If the state has been unable to resist the power of big business and finance to capture huge rewards while making the public responsible for clearing up its messes, there is no hope for smaller regions and communities. As it stands, Miliband senior’s recipe is one of surrender to the interests of money-profit. Under these conditions ‘growth’ means little more than bigger bonuses and more efficient tax-avoidance. Continue reading What Equality? – Equality of Voice→
I’m not particularly keen on the ‘Blue Labour’ moniker, but the ideas behind Maurice Glasman’s approach bear serious examination. Interestingly, his approach bears some comparison with that recently espoused by Amartya Sen in his book ‘The Idea of Justice’. This is that it is difficult to win political arguments with abstract ideas, and that practical and localised amelioration of well-recognised wrongs is the best way forward. Glasman (in Labour as a Radical Tradition) looks back to the early days of Labour when the movement of which it was part was defined by relationships and ‘practices that strengthen an ethical life’. These practices included reciprocity, mutuality and solidarity, and they led to actions such as the formation of mutual societies, co-operatives and trades unions. These may not and need not have had an explicit or even coherent philosophical underpinning.
According to Glasman, however, ‘The founders of the labour movement understood the logic of capitalism…and the threat this posed to their lives, livelihoods and environment.’ Maybe they did, but this is somewhat in contradiction of Glasman’s narrative, since the ‘logic of capitalism’ is itself an abstract idea. And it’s not at all clear that we understand this ‘logic’ today, or if we do, whether we know how to refute its conclusions. Continue reading Blue Labour Political Economy: Equality of Voice→
What is economics for? It’s often characterised as being about the choice between ‘guns or butter’. This choice is one not only about which we want to consume, but also about which we want to produce. Strangely, the dominant neoclassical paradigm attempts to render this a choice that need not be made, since it proposes the possibility of an entirely voluntary and stable production and trading outcome (equilibrium) that cannot be bettered. Or at least it cannot be bettered in the sense that no change is possible without making somebody worse off.
This process was described by the ‘father’ of modern economics Adam Smith as being an ‘invisible hand’ that brought about the welfare of all through the self-interest of traders, and that this is possible with markets and a set of prices for goods has been proven mathematically. It forms the basis of an approach to economics that starts from the position that in the absence of identifiable forces shifting things in the other direction, the economy will tend toward the ‘equilibrium’ outcome. In the apparent absence of a way of establishing the relative merits of individuals’ claims against each other this outcome is the best we can or should aim for, and so provides a justification for doing everything we can to remove any forces that might prevent this equilibrium being reached and maintained. Continue reading What is economics for? Part 1→
The lesson of the New Labour years that ended in the biggest global economic crisis since the 1930s is a simple one. ‘Shareholder value’ capitalism is a beast that cannot be made to serve social democratic purposes. By social democratic purposes, I mean those that see harm done to one citizen as harm done to all, and accept the value of collective institutions as positive means to limit that harm and so promote the general good. Social democracy doesn’t assume all ‘good’ is done collectively, but it certainly doesn’t have a general individualistic assumption either. In particular, social democracy gives weight to the idea of ‘solidarity’, which is why great inequality is so corrosive of its aims, and why universal welfare benefits, even if symbolic, cannot be given up too lightly.
The assumption of late twentieth century social democracy was first that unionised labour plus a strong state, then the state alone, and finally perhaps accounting sleights of hand by a clever chancellor, could offset the economic power concentrated by banks and large corporations. Pretty clearly, by the end, this social democracy wasn’t worthy of the name. Continue reading Towards ‘Clever capitalism’→
The 2001 winner of the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, Professor Joseph Stiglitz, was in Edinburgh last week to give two talks as part of the Edinburgh International Book Festival. He is a pioneer of the economics of information, showing how markets can produce unexpected outcomes because information is unequally available to parties to a contract. These outcomes can include bankruptcies that transmit further failures. So he was one of the few economists to whom collapse of the financial system did not come as a complete surprise. He noted the irony of his appearance in a large tent sponsored by the Royal Bank of Scotland, an institution that perceptively backed a large tranche of mortgage-backed securities, and ended up mainly owned by the UK government as a result!
Professor Stiglitz is also famous for turning on his previous employers, the World Bank, and criticising the policy of ‘structural adjustment’ imposed by this institution and the IMF on developing world borrowers. These arguments appear in his book Globalisation and its Discontents.
I attended the first of his Edinburgh talks, in which Professor Stiglitz started by pointing out that the three decades of crisis-free rapid growth that followed the Great Depression were primarily a result of the financial regulation introduced following it. As that regulation has been removed crises have become more frequent and more damaging. Continue reading Joe Stiglitz in the RBS tent→
In May 1998 I attended an academic seminar in Downing Street organized to discuss the meaning of Tony Blair’s ‘Third Way’. The event was hosted by David Miliband, then the head of the No 10 Policy Unit. Before the meeting I sent Miliband a document I entitled ‘Two Lanes on the Third Way’ pdf(95.5kB), in which I argued that since ‘when we increase the capacity of others to help themselves, we also increase their capacity to help us’ the Labour government should embrace proportional representation and economic democracy. Both of these, in the form of a manifesto commitment to a referendum on electoral reform, and as an exploration of the stake-holding idea espoused by Will Hutton among others, had already entered ‘New Labour’ thinking. Continue reading Labour’s Future→
After the banking crisis and the debacle surrounding the collapse of MG Rover, a British car manufacturer, it’s surely time for a rethink of corporate limited liability.
The Phoenix Consortium, an ad-hoc partnership of four businessmen friends led by John Towers, extracted at least £9 million each from MG Rover, thanks to a sum of just under £500 million paid to them by BMW to take the firm off their hands. In May 2000 the Consortium purchased MG Rover through a company, going by the name of ‘Techtronic’, that they set up with £60,000 each of their own money. This holding company profited from interest on BMW’s £500 million while paying none. This profit was transferred to a higher tier holding company, Phoenix Venture Holdings (PVH) of whom the controlling and main beneficiary owners were the Phoenix four.
The four partners failed to find a joint venture partner for Rover, and in April 2005 it went bankrupt owing £1.2 billion to its creditors, including the pension fund of its own workers. For this work and its failure and their investment of £60,000, each of the Phoenix four received the equivalent of over £2 million per annum (excluding the benefits from MGR Capital). Even by current inflated standards of boardroom pay, this would be excessive for success but for failure it is absurd. Continue reading Rover, the ‘Phoenix Four’ and Limited Liability→
I’m interested to see that the Real World Economics Review (an e-journal for heterodox economists) now has a blog. They already have some interesting contributions, and I hope fertile discussion will follow!