It's time to revive public ownership and the common good

Despite its dire record, privatisation is rarely questioned. We must push for our shared interests to take precedence

• 
• • Anne Karpf
  • The Guardian, Friday 4 July 2014

Ed Balls on The Andrew Marr Show, where he said: 'I don’t want to go back to the nationalisation of the 1970s.' Photograph: Jeff Overs/BBC/PA

It might sound like an oxymoron, but this is a positive article about public services. So effectively has the coalition rebranded an economic crisis caused by private greed as the consequence of public ownership, that nationalisation has come to be seen as a universally discredited hangover from bad old Labour. So while current Labour is considering taking back parts of the rail network into public ownership the shadow chancellor, Ed Balls, last weekend was intoning the neoliberal catechism: "I don't want to go back to the nationalisation of the 1970s."

But bringing outsourced services into public ownership isn't about looking back: it's about moving forward, and is a popular idea (66% of respondents in a poll last year supported the nationalisation of energy and rail companies, including 52% of Tories). For today, in the face of the combined bungles of G4S, Serco and Atos, not even the slickest PR-turned-politician can sustain the myth that private equals efficient.

Yet privatisation is touted as a panacea and cliches are trotted out about the evils of the "nanny state". We need to develop a new language to talk about public ownership, one that detoxifies it and taps into the wide recognition that natural resources and essential public services should not be treated as commodities.

Instead of talking about the state, Hilary Wainwright, in a powerful new booklet – The Tragedy of the Private, the Potential of the Public – describes water, health and education as "the commons" – an excellent term. What's remarkable, and hitherto fairly undocumented, is how all over the world a quiet process of remunicipalisation is taking place. Wainwright gives examples from Newcastle to Norway. In the UK, she found over half of 140 local councils bringing services back from the private sector. In Germany, by 2011 the majority of energy distribution networks had returned to public ownership. Even in the US, a fifth of all previously outsourced services have been brought back in-house.

The case of water is a particularly powerful one: to most people the idea of privatising it is alarmingly similar to the privatisation of air. Wainwright tracks struggles to resist the privatisation of water and defend it as a public good in Brazil, Uruguay and Italy.

What makes all this heartening is that new social forms of ownership are emerging in which public utilities are run by coalitions of workers and service users. Theirs isn't just a defence of public services but an attempt to democratise them so they are not the top-down bureaucracies of old or simply job-saving strategies (important though these may be). They become what Wainwright calls "new forms of collectivity" – unions and public managing common resources together for shared benefit.

There is a palpable momentum to these ideas. Last summer saw the formation of the We Own It campaign, which is lobbying for a public service users' bill. This would promote public ownership as the default option for public services and give the public a say in whether services are privatised. This week, a New Economics Foundation working paperalso set out alternatives to the marketisation of public services.

These constitute a challenge to the fatalistic there-is-no-alternative narrative that has dominated political discussion. In his recent book, Does the Richness of the Few Benefit Us All?, sociologist Zygmunt Bauman argues that the alleged "musts" of political discourse "are nothing other than various aspects of the status quo – of things as they do, but in no way must, stand at the moment".

Wainwright observes that austerity in the aftermath of the second world war applied to everything except the welfare state, which saw generous investment. In a decade or so, will we come to view the privatisation of public utilities as a brief historical interlude of market madness, of ideology trumping not only human values but also value for money?

The French are right: tear up public debt – most of it is illegitimate anyway

Debt audits show that austerity is politically motivated to favour social elites. Is a new working-class internationalism in the air?

• 
• • Razmig Keucheyan
  • theguardian.com, Monday 9 June 2014 17.17 BST

Contracts for Chilean student loans worth $500m go up in flames – the 'imaginative auditing' of the artist Francisco Tapia, commonly known as Papas Fritas (Fried Potatoes). Photograph: David von Blohn/REX

As history has shown, France is capable of the best and the worst, and often in short periods of time.

On the day following Marine Le Pen's Front National victory in the European elections, however, France made a decisive contribution to the reinvention of a radical politics for the 21st century. On that day, the committee for a citizen's audit on the public debt issued a 30-page report on French public debt, its origins and evolution in the past decades. The report was written by a group of experts in public finances under the coordination of Michel Husson, one of France's finest critical economists. Its conclusion is straightforward: 60% of French public debt is illegitimate.

Anyone who has read a newspaper in recent years knows how important debt is to contemporary politics. As David Graeber among others has shown, we live in debtocracies, not democracies. Debt, rather than popular will, is the governing principle of our societies, through the devastating austerity policies implemented in the name of debt reduction. Debt was also a triggering cause of the most innovative social movements in recent years, the Occupy movement.

If it were shown that public debts were somehow illegitimate, that citizens had a right to demand a moratorium – and even the cancellation of part of these debts – the political implications would be huge. It is hard to think of an event that would transform social life as profoundly and rapidly as the emancipation of societies from the constraints of debt. And yet this is precisely what the French report aims to do.

The audit is part of a wider movement of popular debt audits in more than 18 countries.Ecuador and Brazil have had theirs, the former at the initiative of Rafael Correa's government, the latter organised by civil society. European social movements have also put in place debt audits, especially in countries hardly hit by the sovereign debt crisis, such as Greece and Spain. In Tunisia, the post-revolutionary government declared the debt taken out during Ben Ali's dictatorship an "odious" debt: one that served to enrich the clique in power, rather than improving the living conditions of the people.

The report on French debt contains several key findings. Primarily, the rise in the state's debt in the past decades cannot be explained by an increase in public spending. The neoliberal argument in favour of austerity policies claims that debt is due to unreasonable public spending levels; that societies in general, and popular classes in particular, live above their means.

This is plain false. In the past 30 years, from 1978 to 2012 more precisely, French public spending has in fact decreased by two GDP points. What, then, explains the rise in public debt? First, a fall in the tax revenues of the state. Massive tax reductions for the wealthy and big corporations have been carried out since 1980. In line with the neoliberal mantra, the purpose of these reductions was to favour investment and employment. Well, unemployment is at its highest today, whereas tax revenues have decreased by five points of GDP.

The second factor is the increase in interest rates, especially in the 1990s. This increase favoured creditors and speculators, to the detriment of debtors. Instead of borrowing on financial markets at prohibitive interest rates, had the state financed itself by appealing to household savings and banks, and borrowed at historically normal rates, the public debt would be inferior to current levels by 29 GDP points.

Tax reductions for the wealthy and interest rates increases are political decisions. What the audit shows is that public deficits do not just grow naturally out of the normal course of social life. They are deliberately inflicted on society by the dominant classes, to legitimise austerity policies that will allow the transfer of value from the working classes to the wealthy ones.

 A sit-in called by Occupy France at La Défense business district in Paris. Photograph: Afp/AFP/Getty Images

A stunning finding of the report is that no one actually knows who holds the French debt. To finance its debt, the French state, like any other state, issues bonds, which are bought by a set of authorised banks. These banks then sell the bonds on the global financial markets. Who owns these titles is one of the world's best kept secrets. The state pays interests to the holders, so technically it could know who owns them. Yet a legally organised ignorance forbids the disclosure of the identity of the bond holders.

This deliberate organisation of ignorance – agnotology – in neoliberal economies intentionally renders the state powerless, even when it could have the means to know and act. This is what permits tax evasion in its various forms – which last year cost about €50bn to European societies, and €17bn to France alone.

Hence, the audit on the debt concludes, some 60% of the French public debt is illegitimate.

An illegitimate debt is one that grew in the service of private interests, and not the well being of the people. Therefore the French people have a right to demand a moratorium on the payment of the debt, and the cancellation of at least part of it. There is precedent for this: in 2008 Ecuador declared 70% of its debt illegitimate.

The nascent global movement for debt audits may well contain the seeds of a new internationalism – an internationalism for today – in the working classes throughout the world. This is, among other things, a consequence of financialisation. Thus debt audits might provide a fertile ground for renewed forms of international mobilisations and solidarity.

This new internationalism could start with three easy steps.

1) Debt audits in all countries

The crucial point is to demonstrate, as the French audit did, that debt is a political construction, that it doesn't just happen to societies when they supposedly live above their means. This is what justifies calling it illegitimate, and may lead to cancellation procedures. Audits on private debts are also possible, as the Chilean artist Francisco Tapia has recently shown by auditing student loans in an imaginative way.

2) The disclosure of the identity of debt holders

A directory of creditors at national and international levels could be assembled. Not only would such a directory help fight tax evasion, it would also reveal that while the living conditions of the majority are worsening, a small group of individuals and financial institutions has consistently taken advantage of high levels of public indebtedness. Hence, it would reveal the political nature of debt.

3) The socialisation of the banking system

The state should cease to borrow on financial markets, instead financing itself through households and banks at reasonable and controllable interest rates. The banks themselves should be put under the supervision of citizens' committees, hence rendering the audit on the debt permanent. In short, debt should be democratised. This, of course, is the harder part, where elements of socialism are introduced at the very core of the system. Yet, to counter the tyranny of debt on every aspect of our lives, there is no alternative.

Arundhati Roy explains how corporations run India and why they want Narendra Modi as prime minister

by Charlie Smith on Mar 30, 2014 at 1:51 pm

Indian author Arundhati Roy wants the world to know that her country is under the control of its largest corporations.

"Wealth has been concentrated in fewer and fewer hands," Roy tells the Georgia Straight by phone from New York. "And these few corporations now run the country and, in some ways, run the political parties. They run the media."

The Delhi-based novelist and nonfiction writer argues that this is having devastating consequences for hundreds of millions of the poorest people in India, not to mention the middle class.

Roy spoke to the Straight in advance of a public lecture on Tuesday (April 1) at 8 p.m. at St. Andrew's–Wesley United Church at the corner of Burrard and Nelson streets. She says it will be her first visit to Vancouver.

In recent years, she has researched how the richest Indian corporations—such as Reliance, Tata, Essar, and Infosys—are employing similar tactics as those of the U.S.-based Rockefeller and Ford foundations. 

She points out that the Rockefeller and Ford foundations have worked closely in the past with the State Department and Central Intelligence Agency to further U.S. government and corporate objectives. 

Now, she maintains that Indian companies are distributing money through charitable foundations as a means of controlling the public agenda through what she calls "perception management".

This includes channelling funds to nongovernmental organizations, film and literary festivals, and universities.

She acknowledges that the Tata Group has been doing this for decades, but says that more recently, other large corporations have begun copying this approach.

Private money replaces public funding

According to her, the overall objective is to blunt criticism of neoliberal policies that promote inequality.

"Slowly, they decide the curriculum," Roy maintains. "They control the public imagination. As public money gets pulled out of health care and education and all of this, NGOs funded by these major financial corporations and other kinds of financial instruments move in, doing the work that missionaries used to do during colonialism—giving the impression of being charitable organizations, but actually preparing the world for the free markets of corporate capital."

She was awarded the Booker Prize in 1997 for The God of Small Things. Since then, she has gone on to become one of India's leading social critics, railing against mining and power projects that displace the poor.

She's also written about poverty-stricken villagers in the Naxalite movement who are taking up arms across several Indian states to defend their traditional way of life.

"I'm a great admirer of the wisdom and the courage that people in the resistance movement show," she says. "And they are where my own understanding comes from."

One of her greatest concerns is how foundation-funded NGOs "defuse people's movements and...vacuum political anger and send them down a blind alley".

"It's very important to keep the oppressed divided," she says. "That's the whole colonial game, and it's very easy in India because of the diversity."

Roy writes a book on capitalism

In 2010, there was an attempt to lay a charge of sedition against her after she suggested that Kashmir is not integral to India's existence. This northern state has been at the centre of a long-running territorial dispute between India and Pakistan.

"There's supposed to be some police inquiry, which hasn't really happened," Roy tells the Straight. "That's how it is in India. They...hope that the idea of it hanging over your head is going to work its magic, and you're going to be more cautious."

Clearly, it's had little effect in silencing her. In her upcoming new book Capitalism: A Ghost Story, Roy explores how the 100 richest people in India ended up controlling a quarter of the country's gross-domestic product.

The book is inspired by a lengthy 2012 article with the same title, which appeared in India's Outlook magazine.

In the essay, she wrote that the "ghosts" are the 250,000 debt-ridden farmers who've committed suicide, as well as "800 million who have been impoverished and dispossessed to make way for us". Many live on less than 40 Canadian cents per day.

"In India, the 300 million of us who belong to the post-IMF 'reforms' middle class—the market—live side by side with spirits of the nether world, the poltergeists of dead rivers, dry wells, bald mountains and denuded forests," Roy wrote.

The essay examined how foundations rein in Indian feminist organizations, nourish right-wing think tanks, and co-opt scholars from the community of Dalits, often referred to in the West as the "untouchables".

For example, she pointed out that the Reliance Group's Observer Research Foundation has a stated goal of achieving consensus in favour of economic reforms.

Roy noted that the ORF promotes "strategies to counter nuclear, biological and chemical threats". She also revealed that the ORF's partners include weapons makers Raytheon and Lockheed Martin.

Anna Hazare called a corporate mascot

In her interview with the Straight, Roy claims that the high-profile India Against Corruption campaign is another example of corporate meddling.

According to Roy, the movement's leader, Anna Hazare, serves as a front for international capital to gain greater access to India's resources by clearing away any local obstacles.

With his white cap and traditional white Indian attire, Hazare has received global acclaim by acting as a modern-day Mahatma Gandhi, but Roy characterizes both of them as "deeply disturbing". She also describes Hazare as a "sort of mascot" to his corporate backers.

In her view, "transparency" and "rule of law" are code words for allowing corporations to supplant "local crony capital". This can be accomplished by passing laws that advance corporate interests.

She says it's not surprising that the most influential Indian capitalists would want to shift public attention to political corruption just as average Indians were beginning to panic over the slowing Indian economy. In fact, Roy adds, this panic turned into rage as the middle class began to realize that "galloping economic growth has frozen".

"For the first time, the middle classes were looking at corporations and realizing that they were a source of incredible corruption, whereas earlier, there was this adoration of them," she says. "Just then, the India Against Corruption movement started. And the spotlight turned right back onto the favourite punching bag—the politicians—and the corporations and the corporate media and everyone else jumped onto this, and gave them 24-hour coverage."

Her essay in Outlook pointed out that Hazare's high-profile allies, Arvind Kerjiwal and Kiran Bedi, both operate NGOs funded by U.S. foundations.

"Unlike the Occupy Wall Street movement in the US, the Hazare movement did not breathe a word against privatisation, corporate power or economic 'reforms'," she wrote in Outlook.

Narendra Modi seen as right-wing saviour

Meanwhile, Roy tells the Straight that corporate India is backing Narendra Modi as the country's next prime minister because the ruling Congress party hasn't been sufficiently ruthless against the growing resistance movement.

"I think the coming elections are all about who is going to crank up the military assault on troublesome people," she predicts.

In several states, armed rebels have prevented massive mining and infrastructure projects that would have displaced massive numbers of people.

Many of these industrial developments were the subject of memoranda of understanding signed in 2004.

Modi, head of the Hindu nationalist BJP coalition, became infamous in 2002 when Muslims were massacred in the Indian state of Gujarat, where he was the chief minister. The official death tollexceeded 1,000, though some say the figures are higher.

Police reportedly stood by as Hindu mobs went on a killing spree. Many years later, a senior police officer alleged that Modi deliberately allowed the slaughter, though Modi has repeatedly denied this.

The atrocities were so appalling that the American government refused to grant Modi a visitor's visa to travel to the United States.

But now, he's a political darling to many in the Indian elite, according to Roy. A Wall Street Journal report recently noted that the United States is prepared to give Modi a visa if he becomes prime minister.

"The corporations are all backing Modi because they think that [Prime Minister] Manmohan [Singh] and the Congress government hasn't shown the nerve it requires to actually send in the army into places like Chhattisgarh and Orissa," she says.

She also labels Modi as a politician who's capable of "mutating", depending on the circumstances.

"From being this openly sort of communal hatred-spewing saccharine person, he then put on the suit of a corporate man, and, you know, is now trying to play the role of the statesmen, which he's not managing to do really," Roy says.

Roy sees parallels between Congress and BJP

India's national politics are dominated by two parties, the Congress and the BJP.

The Congress maintains a more secular stance and is often favoured by those who want more accommodation for minorities, be they Muslim, Sikh, or Christian. In American terms, the Congress is the equivalent of the Democratic Party.

The BJP is actually a coalition of right-wing parties and more forcefully advances the notion that India is a Hindu nation. It often calls for a harder line against Pakistan. In this regard, the BJP could be seen as the Republicans of India.

But just as left-wing U.S. critics such as Ralph Nader and Noam Chomsky see little difference between the Democrats and Republicans in office, Roy says there is not a great deal distinguishing the Congress from the BJP.

"I've said quite often, the Congress has done by night what the BJP does by day," she declares. "There isn't any real difference in their economic policy."

Whereas senior BJP leaders encouraged wholesale mob violence against Muslims in Gujarat, she notes that Congress leaders played a similar role in attacks on Sikhs in Delhi following the 1984 assassination of then–prime minister Indira Gandhi.

"It was genocidal violence and even today, nobody has been punished," Roy says.

As a result, each party can accuse the other of fomenting communal violence.

In the meantime, there are no serious efforts at reconciliation for the victims.

"The guilty should be punished," she adds. "Everyone knows who they are, but that will not happen. That is the thing about India. You may go to prison for assaulting a woman in a lift or killing one person, but if you are part of a massacre, then the chances of your not being punished are very high."

However, she acknowledges that there is "some difference" in the two major parties' stated idea of India.

The BJP, for example, is "quite open about its belief in the Hindu India...where everybody else lives as, you know, second-class citizens".

"Hindu is also a very big and baggy word," she says to clarify her remark. "We're really talking about an upper-caste Hindu nation. And the Congress states that it has a secular vision, but in the actual playing out of how democracy works, all of them are involved with creating vote banks, setting community against community. Obviously, the BJP is more vicious at that game."

Inequality linked to caste system

The Straight asks why internationally renowned authors such as Salman Rushdie and Vikram Seth or major Indian film stars like Shahrukh Khan or the Bachchan family don't speak forcefully against the level of inequality in India.

"Well, I think we're a country whose elite is capable of an immense amount of self-deception and an immense amount of self-regard," she replies.

Roy maintains that Hinduism's caste system has ingrained the Indian elite to accept the idea of inequality "as some kind of divinely sanctioned thing".

According to her, the rich believe "that people who are from the lower classes don't deserve what those from the upper classes deserve".

Her comments on corporate power echo some of the ideas of Canadian activist and author Naomi Klein.

"Of course, I know Naomi very well," Roy reveals. "I think she's such a fine thinker and of course, she's influenced me."

Roy also expresses admiration for the work of Indian journalist Palagummi Sainath, author of the 1992 classic Everybody Loves a Good Drought: Stories from India's Poorest Districts.

However, she suggests that the concentration of media ownership in India makes it very difficult for most reporters to reveal the extent of corporate control over society.

"In India, if you're a really good journalist, your life is in jeopardy because there is no place for you in a media that's structured like that," Roy says.

On occasions, mobs have shown up outside her home after she's made controversial 

statements in the media.

She says that in those instances, they seemed more interested in performing for the television cameras than in attacking her.

However, she emphasizes that other human-rights activists in India have had their offices trashed by demonstrators, and some have been beaten up or killed for speaking out against injustice.

Roy adds that thousands of political prisoners are locked up in Indian jails for sedition or for violating the Unlawful Activities Prevention Act.

This is one reason why she argues that it's a fallacy to believe that because India holds regular elections, it's a democratic country.

"There isn't a single institution anymore which an ordinary person can approach for justice: not the judiciary, not the local political representative," Roy maintains. "All the institutions have been hollowed out and just the shell has been put back. So democracy and these festivals of elections is when everyone can let off steam and feel that they have some say over their lives."

In the end, she says it's the corporations that fund major parties, which end up doing their bidding.

"We are really owned and run by a few corporations, who can shut India down when they want," Roy says.

The Smith/Klein/Kalecki Theory of Austerity

by Paul Krugman

Noah Smith recently offered an interesting take on the real reasons austerity garners so much support from elites, no matter how badly it fails in practice. Elites, he argues, see economic distress as an opportunity to push through “reforms” — which basically means changes they want, which may or may not actually serve the interest of promoting economic growth — and oppose any policies that might mitigate crisis without the need for these changes:

I conjecture that “austerians” are concerned that anti-recessionary macro policy will allow a country to “muddle through” a crisis without improving its institutions. In other words, they fear that a successful stimulus would be wasting a good crisis.

…

If people really do think that the danger of stimulus is not that it might fail, but that it might succeed, they need to say so. Only then, I believe, can we have an optimal public discussion about costs and benefits.

As he notes, the day after he wrote that post, Steven Pearlstein of the Washington Post made exactly that argument for austerity.

What Smith didn’t note, somewhat surprisingly, is that his argument is very close to Naomi Klein’s Shock Doctrine, with its argument that elites systematically exploit disasters to push through neoliberal policies even if these policies are essentially irrelevant to the sources of disaster. I have to admit that I was predisposed to dislike Klein’s book when it came out, probably out of professional turf-defending and whatever — but her thesis really helps explain a lot about what’s going on in Europe in particular.

And the lineage goes back even further. Two and a half years ago Mike Konczal reminded us of a classic 1943 (!) essay by Michal Kalecki, who suggested that business interests hate Keynesian economics because they fear that it might work — and in so doing mean that politicians would no longer have to abase themselves before businessmen in the name of preserving confidence. This is pretty close to the argument that we must have austerity, because stimulus might remove the incentive for structural reform that, you guessed it, gives businesses the confidence they need before deigning to produce recovery.

And sure enough, in my inbox this morning I see a piece more or less deploring the early signs of success for Abenomics: Abenomics is working — but it had better not work too well. Because if it works, how will we get structural reform?

So one way to see the drive for austerity is as an application of a sort of reverse Hippocratic oath: “First, do nothing to mitigate harm”. For the people must suffer if neoliberal reforms are to prosper.

The US and UK remain wedded to Quantitative Easing to stifle a debate on fiscal policy

Has quantitative easing had its day?

QE's failure to power recovery is clear, but the US and UK remain wedded to the policy to stifle debate about fiscal policy

• 
• Radhika Desai
• guardian.co.uk, Friday 11 January 2013 16.00 GMT

Mark Carney, governor-elect of the Bank of England, wants to retain QE as the chief policy instrument for engineering recovery. Photograph: Mark Blinch/Reuters

 

Last autumn the chairman of the US Federal Reserve, Ben Bernanke, ended months of speculation about whether there would be another round of quantitative easing – the policy of buying up securities from banks so that more money is injected into the financial system. The idea has been that this will get them lending more and powering a recovery. Since the first two rounds had patently failed to generate recovery, he now announced a QE3 with a difference: not only did he announce QE3, its sheer scale and boundlessness made it a veritable QE infinity. The Fed would continue buying up mortgage-backed securities to the tune of $40bn a month until the labour market improved and would keep interest rates to their current near-zero levels until unemployment fell below 6.5%.

Having targeted inflation to please the holders of capital for almost two decades, even when the resulting high interest rates stifled investment and kept unemployment high, the Fed's concern about employment was certainly novel. To be sure, it is mandated to keep both inflation and unemployment low, but until now it had succeeded in finessing this mandate and concentrating more or less exclusively on keeping the former alone in check.

Meanwhile, the UK's new central banker in waiting, Mark Carney, proposed his own innovation in monetary policy: the Bank of England's two-decade-old policy of targeting inflation should be dropped in favour of targeting nominal GDP growth. This would keep up liquidity injections into the financial system until targeted nominal growth materialised. He did not say what he would do if the nominal growth target yielded more inflation than growth. Discussion centred on whether the Bank of England's mandate would be revised. Both David Cameron and Vince Cable appeared open to the concept.

Bernanke and Carey's new and improved monetary policies are designed to retain QE as the chief policy instrument for engineering recovery despite its failure so far. Given that its most vocal opponents are the economic neanderthals of the US Tea Party right, it is usually assumed that QE is progressive, if not, so far at least, very effective.

In reality, QE has served, first and foremost, to socialise the losses of the financial systems of the two countries at the centre of the financial crisis, the US and the UK. In contrast to the publicly fought over Troubled Asset Relief Program (TARP), QE contributed far more to achieving that objective and did so without the fuss and melodrama of Treasury secretaries going on bended knee before House speakers to beg its passage.

Some find consolation in the thought that at the very least QE prevented the economies of these two countries from falling into outright depression. In reality, two other things accomplished this. First, unlike in the 1930s, the "automatic stabilisers" – government spending and transfers – formed a floor beneath which the economy could not fall. Second, there were mild fiscal stimuli. But their end now threatens to send economic activity south again in both economies.

Indeed, insofar as QE was part of a wider set of policy choices that focused on relieving financial institutions of their irresponsibly extended loans but not the households and firms, QE ensured that a highly leveraged private sector would be unable to borrow, whether to invest or consume. It would also ensure that the resulting demand conditions would deter even the comparatively unleveraged from borrowing to invest.

So we shouldn't assume that QE will power a recovery. It probably won't. As Keynes pointed out, under certain conditions (such as those today: rock-bottom interest rates, poor demand outlook, heavily leveraged firms and households) credit easing would amount to little more than "pushing on a string". So why are Bernanke and Carney seeking to tie recovery even tighter to monetary policy with their innovations in QE precisely when its failure to power recovery is clearer than ever?

It's because without some action on their part, public discussion is bound to turn towards the alternative: a vigorously expansionary fiscal policy, with massively increased state investment in the economy. This option lies just below the surface of public discourse: the neoliberal triumph of recent decades was never able to entirely eradicate it from public discourse and memory. But as long as the public can be kept believing that monetary policy will achieve some semblance of growth, later if not sooner, that the economy's managers are busy refining monetary policy tools to accomplish that, fiscal policy can be that much more effectively kept out of the picture.

In effect the public in both these countries is being told that they cannot get recovery unless the banks give it to them. And keeping recovery hostage to the financial system is tied up with something very fundamental. Announcing the failure of monetary policy is to displace that holy of holies – the private sector – from its current centrality in our understanding of the economy and admitting that government action and expenditure, probably on a large and unprecedented scale, is necessary for recovery.

Wall Street thanks you for your service, Tim Geithner

First the treasury secretary propped up the big banks with public spending. Then he backed their agenda: cuts to public spending

• 
• • Dean Baker
  • guardian.co.uk, Friday 11 January 2013 20.08 GMT

Departing Treasury Secretary Timothy Geithner is congratulated by President Barack Obama and his next nominee, Jack Lew. Photograph: Mark Wilson/Getty Images

Treasury Secretary Timothy Geithner's departure from the Obama administration invites comparisons with Klemens von Metternich. Metternich was the foreign minister of the Austrian empire who engineered the restoration of the old order and the suppression of democracy across Europe after the defeat of Napoleon.

This was an impressive diplomatic feat – given the widespread popular contempt for Europe's monarchical regimes. In the same vein, protecting Wall Street from the financial and economic havoc they brought upon themselves and the country was an enormous accomplishment.

During his tenure as head of the New York Fed and then as treasury secretary, most, if not all, of the major Wall Street banks would have collapsed if the government had not intervened to save them. This process began with the collapse of Bear Stearns, which was bought up by JP Morgan in a deal involving huge subsidies from the Fed.

The collapse of Lehman Brothers, a second major investment bank, started a run on the three remaining investment banks that would have led to the collapse of Merrill Lynch, Morgan Stanley, and Goldman Sachs if the Fed, FDIC, and treasury had not taken extraordinary measures to save them. Citigroup and Bank of America both needed emergency facilities established by the Fed and treasury explicitly for their support, in addition to all the below market-rate loans they received from the government at the time. Without this massive government support, there can be no doubt that both of them would currently be operating under the supervision of a bankruptcy judge.

Of the six banks that dominate the US banking system, only Wells Fargo and JP Morgan could conceivably have survived without hoards of cash rained down on them by the federal government. Even these two are questionmarks, since both helped themselves to trillions of dollars of below market-rate loans, in addition to indirectly benefiting from the bailout of the other banks that protected many of their assets.

Had it not been for Geithner and his sidekicks, therefore, we would have been permanently rid of an incredibly bloated financial sector that haunts the economy like a horrible albatross.

Along with the salvation of the Wall Street banks, Geithner also managed to restore their agenda of deficit reduction. Even though the economy is still down more than 9 million jobs from its full employment level, none of the important people in Washington is talking about measures that would hasten job creation.

Instead, the focus is exclusively on deficit reduction, a process that is already slowing growth and putting even more people out of work. While lives are being ruined today by the weak economy, Geithner helped create a policy agenda where the focus of debate is the budget projections for 2022.
These projections are hugely inaccurate. Furthermore, the actual budget for 2022 is largely out of the control of any politicians currently in power, since the Congresses elected in 2016, 2016, 2018, and 2022, along with the presidents elected in 2016 and 2020, may have some different ideas.
Nonetheless, the path laid out by Geithner's team virtually ensures that these distant budget targets will serve as a distraction from doing anything to help the economy now.

There are two important points that should be quashed quickly in order to destroy any possible defense of Timothy Geithner.

It is often asserted that we were lucky to escape a second Great Depression. This is nonsense.
The first Great Depression was not simply the result of bad decisions made in the initial financial crisis. It was the result of ten years of failed policy. There is zero, nothing, nada that would have prevented the sort of massive stimulus that was eventually provided by the second world war from occurring in 1931, instead of 1941. We know how to recover from a financial collapse: the issue of whether we do so simply boils down to political will.

This is demonstrated clearly by the case of Argentina, which had a full-fledged collapse in December of 2001. After three months of freefall, its economy stabilized in the second quarter of 2002. It came roaring back in the second half of the year and had made up all of the lost ground by the middle of 2003. Its economy continued to grow strongly until the 2009, when the world economic crisis brought it to a standstill. There is no reason to believe that our policymakers are less competent than those in Argentina: the threat of a second Great Depression was nonsense.

Finally, the claim that we made money on the bailouts is equally absurd. We lent money at interest rates that were far below what the market would have demanded. Most of this money, plus interest, was paid back. But claiming that we thus made a profit would be like saying the government could make a profit by issuing 30-year mortgages at 1% interest. Sure, most of the loans would be repaid, with interest, but everyone would understand that this was an enormous subsidy to homeowners.

In short, the Geithner agenda was to allow the Wall Street banks to feed at the public trough until they were returned to their prior strength. Like Metternich, he largely succeeded.

Of course, democracy did eventually triumph in Europe. Let's hope that it doesn't take quite as long for that to happen here.

Needed: An exit policy for bad businessmen

S A Aiyer

Vijay Mallya has not paid employees of Kingfisher Airlines for months, and has defaulted on thousands of crores due to suppliers and creditors. Yet he has just donated three kilos of gold, worth almost one crore, to the Tirupathi temple. In August, he offered 80-kilo gold plated doors to the Kukke Subramanya temple in Karnataka. Possibly he believes that the gods can be bought off in ways that employees and creditors cannot.

How can a man who owes enormous sums to employees and creditors be free to throw gold around like small change? If there were any justice, surely the gold and golden doors should be seized from the temples and handed over to the employees and creditors. Surely they should have first right to Mallya’s assets.

After two decades of economic reform , we have not yet evolved rules that facilitate the exit of poor managements before they ruin a company beyond redemption. Kingfisher Airlines has been ground to the dust by Mallya, a liquor baron who should never have entered this space.

A free-market economy is not just a device giving owners the freedom to sack employees. It is one where creditors and employees have the right to seize a company defaulting on dues, and sack the management. The managing shareholder or promoter is only one of many stakeholders. If he cannot meet his obligations to other stakeholders , they should oust him in a true free market economy. In India, alas, our unreformed regulations and procedures leave promoters in control no matter how big a mess they make.

In the US, creditors can quickly seize a company that defaults on dues, and reorganize or sell it to a new owner . The owner can get temporary protection from creditors through Chapter 11 proceedings. In this, a judge determines whether the company is so far gone that it must be liquidated, or whether it can be saved through mutual sacrifices by creditors, employees and owners. In the process, the judge can change the owner. So, often workers survive bankruptcy proceedings , but the owner does not. That is what we should aim for in India too: an exit policy for incompetent, defaulting owners.

Kingfisher Airlines never made a profit, not even in the boom years when its rival airlines were profitable. Creditors should have moved in years ago when it became clear that the skills of a liquor baron were irrelevant for an airline. But in India creditors cannot quickly seize a company, least of all when the owner has political clout (as in Mallya’s case).

In the old licence permit raj, banks and financial institutions had to support existing managements and keep rescuing them. This has not changed despite the 1991 reforms. Banks have to keep throwing good money after bad.

Today Kingfisher is so worthless that it no longer makes sense to seize it and find a buyer. SBI Chairman Pratip Chaudhuri estimates that rehabilitating Kingfisher will cost a billion dollars. Nobody will do so — a new airline can be started for maybe just $100 million. Kingfisher has just lost its flying licence. Mallya’s hopes of being rescued by Etihad Airways of Abu Dhabi look like pure fantasy.

Even if it makes no sense to seize the airline today, why not seize his liquor business? Why not seize his prize luxury possessions, ranging from paintings to yachts or jets? Why not take over his cricket team, Royal Challengers ? Why not take over his football team Mohun Bagan, and his Formula 1 racing team Force India? Why is he allowed to keep all these, along with gold that he donates to temples, when he says he doesn’t have enough to pay employees or suppliers? He has given personal guarantees to banks: why are these not being enforced?

Mallya can be congratulated on one thing. Service was top-class in Kingfisher , and the airline gained a good reputation for quality. Had the airline been seized early on, it could definitely have been sold to a new owner. However , its reputation has steadily fallen with its continuing financial crisis, leading to cancelled flights and official grounding.

I constantly hear that India has gone in for neo-liberal policies. That’s pure rubbish. Neo-liberalism would have given employees and creditors the right to quickly seize and sell a company that cannot meet its obligations. The problem is not liberalism but the continuing old illiberalism that keeps promoters in charge, forcing other stakeholders to take a hit. Temples and religious trusts can keep enormous donations from defaulters instead of handing them over to others who, in all justice, should have the first right to such money or gold. This area desperately needs reform.

Big business has corrupted economics

You know the country is in a financial mess when even establishment figures such as Rachel Lomax are calling for revolutionary thinking

• 
• • Aditya Chakrabortty
  • The Guardian, Monday 26 November 2012 20.00 GMT

Rachel Lomax: 'Where is the revolutionary thinking?' Photograph: David Sillitoe for the Guardian

Rachel Lomax is practically the definition of establishment: Cheltenham Ladies' College followed by Cambridge and the LSE; principal private secretary to then-chancellor Nigel Lawson; deputy governor of the Bank of England for five years until 2008. Which makes what she said on Friday evening all the more startling.

This being a debate on the future of capitalism in the People's Republic of Bristol, the audience were satisfyingly radical – but Lomax was just as bluntly and disarmingly political. The former Treasury mandarin made no bones about admitting that she had been part of a project of "dismantling a version of capitalism" and replacing it with "Anglo-American neo-liberalism". You'd struggle to get scholars of Thatcherism to speak with such straightforwardness, but here it was coming from one of the era's key backroom players.

And now this co-architect of Britain's economic model as good as admitted that the system she had helped create was broken. But Lomax had one question: "Where is the revolutionary thinking?"

You surely couldn't ask for a better measure of the economic mess we're in, that even members of the establishment are now calling for revolution.

Striking as it is, such despair isn't exceptional. Indeed, it now appears endemic among the policy-making elite. Whether you look at Westminster or Threadneedle Street, Britain's economic officials reek of policy fatigue – of having riffled through all the pages in their textbooks without getting a good answer.

Lomax's former colleagues at the Bank of England have chucked £375bn at the economy as part of a quantitative-easing programme – to no great avail. Five years after the collapse of Northern Rock, Mervyn King is warning that the slump may last another half a decade. And as will become clear when George Osborne delivers next week's pre-budget report, the chancellor no longer bothers to pretend that his cuts are working, but simply (and correctly) maintains that things would be about as bad under Labour's existing plans.

For the rest of us, that means all those gloomy warnings about a Japan-style lost decade in wages and economic growth look like coming true. Except that in Britain, with its vast inequality and lack of social cohesion, the effects of such a long and stubborn stagnation are likely to be far worse than those borne by the Japanese. If ever there was a time for new ideas, this is it – yet there's barely even a serious economic debate.

But the giant hole spotted by Lomax is one she and her colleagues have helped cause, by practising a narrow, corrupted form of economics.

In their new book, Economists and the Powerful, Norbert Häring and Niall Douglas trace how the most powerful of all the social sciences became a doctrine for helping the rich – with the aid of huge sums from business. You may be familiar with a version of this critique, thanks to the film Inside Job, which described how some of the best-known economists practising today are in the pay of Wall Street. But the history unearthed by Häring and Douglas is far more disturbing – because they argue that vested interests have slanted some of economics' most fundamental ideas.

Take the Rand corporation, an American cold-war institution that the book describes as closely linked to the Ford Foundation, which in turn was closely linked to the CIA. "It is hard to overestimate Rand's impact on the modern economic mainstream, let alone modern society," write the authors, who tot up at least 32 Nobel laureates with links with the organisation, including some of the biggest names in economics, such as Kenneth Arrow and Mancur Olson. Yet the economics it promoted assumed a society that was highly individualistic and rational. In other words, nothing like society as most of us know it, with its organisations and institutions and cultures. But the Rand researchers got round that problem by producing heavily theoretical and maths-based work, and ignoring empirical reality. From there it was a short step to the neoliberal politics everyone knows today: the kind that argues there is no such thing as society.

By focusing on the economics of economics, the authors describe an evolution of the discipline that barely anyone talks about. It is a kind of corruptonomics: "An effort that was generously funded by businessmen and the military in the name of cementing the power and legitimacy of their selves and their beliefs."

What makes this argument so striking is that Häring started off as a "true believer" in economics. He did his PhD under one of the most eminent academics in Germany, before waltzing off to a highly paid job with Commerzbank. It took him years of delving into the archives to arrive, reluctantly at first, at the conclusion that the subject he had spent years studying and practising was rotten. And while the influence of money on the discipline is largely a US phenomenon, the lopsided subject it produced is now taught at all the leading universities and practised at the major institutions.

The IMF and the World Bank employ economists from all over the world, but it is striking how many of them come from so few universities.

This then is at least part of the answer to Lomax's question. Mainstream economics now preaches a dogma that is particularly agreeable to the elite and has chased most dissenters out of its faculties. Meanwhile the other social sciences lack the confidence or the resources to take on economics. Where's the revolutionary thinking? I suspect Lomax, and others, will be asking that question for a long time.