Ha Joon Chang in The Guardian
Some have called it a U-turn; others have described it as a shambles. But John McDonnell’s volte face was the right thing to do, even though it meant losing face, big time.
On the eve of the Labour party conference, McDonnell surprised detractors and supporters alike by saying that Labour should vote for George Osborne’s new fiscal charter, which requires the country to run budget surplus in “normal times”. Now McDonnell says his party should vote against it.
Admittedly, even when proposing to vote in favour of Osborne’s charter, McDonnell advocated a different vision of fiscal responsibility from what the chancellor was proposing. McDonnell pointed out that running a budget surplus means taking demand out of the economy, so there is an economic illiteracy in wanting to run one more or less permanently. He also argued that surplus should be run only on the current (consumption) component of the budget, and that deficit could – and should – be run on the capital (investment) component of it. His view was that if you borrow to invest, the debt will more than pay for itself in the long run as the investment matures and raises the economy’s output, and thus tax revenue.
The shadow chancellor was also insistent that, even while reducing the deficit, he would do it in a more equitable way. Rather than mainly squeezing the most vulnerable groups, as the Conservatives have been doing, the fiscal gap would be closed by raising taxes on the top earners and, especially, being much tougher on tax avoidance and tax evasion.
However, these are all part of the fine print. Once you accept that you have to run a budget surplus in order to be “responsible”, you have, as an anti-austerity politician, already lost the debate. You win a political debate by making people accept your vision, not by pointing out that you offer them better terms in the fine print – which they are unlikely to read anyway.
So if McDonnell is going to win the economic debate, he needs to change its terms. He has to start by doing another U-turn on the statement: “We accept we are going to have to live within our means, and we always will do – full stop.”Because this is simply wrong. This view assumes that our means are given, and we cannot spend beyond them. However, our means in the future are partly determined by what we do today. And if our means are not fixed, then the very idea of living within them loses its meaning.
For example, if you borrow money to do a degree or get a technical qualification, you will be spending beyond your means today. But your new qualification will increase your future earning power. Your future means will be greater than they would have been if you hadn’t taken out the loan. In this case, living beyond your means is the right thing to do.
Now: if you are a government, your means are even more flexible.
Like individuals, of course, a government can increase its means in the long run by borrowing to invest in things that will make the economy more productive, and thus increase the tax revenue. If a government invests in improving the transport system, it will make the country’s logistics industry more efficient. Or if it invests in healthcare and education, that will make the workers more productive.
More importantly, unlike individuals, a government has the ability to spend “money it does not have”, only to find later that it had the money after all. The point is that deficit spending in a stagnant economy will increase demand in the economy, stimulating business and making consumers more optimistic.
If enough businesses and consumers form positive expectations as a result, they will invest and spend more. Increased investment and consumption then generate higher incomes and higher tax revenues. If the tax take increases sufficiently, the government deficit may be eliminated, which means that the government had the money that it spent after all.
If Labour wants to re-establish its credentials for economic management, it needs to start by rejecting the “living within our means” mantra. The idea may have as much obvious appeal as other examples of homespun philosophy, but it is one that is more fitting for 18th-century household management than for the management of a complex 21st-century economy.
Unless the Labour party changes its foundational belief in the virtue of the government living within its means, British voters will never be convinced of the finer points of Keynesian economics, or of the ethics of inequality, that John McDonnell is trying to make.
Tuesday, 13 October 2015
Now the Tories are allowing big business to design their own tax loopholes
Last Monday, as the prime minister rehearsed his Manchester conference speech, a story appeared in this newspaper that showed you who really runs this country – and how. It revealed that one of Britain’s largest companies, AstraZeneca, paid absolutely no corporation tax here in both 2013 and 2014, despite racking up global profits in those years of £2.9bn.
Revealed: how AstraZeneca avoids paying UK corporation tax
At first glance this sounded like an everyday tale of Mega-Business Making a Mockery of Our Tax Laws, to be filed alongside Google, Starbucks – or this weekend’s disclosure that Facebook paid less to the exchequer last year than you probably did. But this story is bigger. It’s less about accountancy than where power lies in 21st-century Britain.
Astra’s tax maestro is called Ian Brimicombe, and he is more than well-known at the Treasury: he is a trusted adviser. Shortly after George Osborne took over as chancellor in 2010, his team began rewriting the rules on how big businesses are taxed. To help, the government appointed senior executives from some of Britain’s giant companies to a “liaison committee”, comprising Astra’s Brimicombe, representatives from Tesco, Santander, BP and others.
Although the group was not widely reported, there was no disguising its purpose. In the Treasury’s own blunt words, the businesspeople were providing “strategic oversight of the development of corporate tax policy”.
Corporation tax alone is one of the biggest earners for the government, worth over £50bn a year – and now companies with millions, even billions of pounds at stake were to be given direct say on how they should be taxed.
The Treasury set up working groups specifically to advise on taxing multinational business – fitted out with directors from 40 multinationals, all with extensive networks of offshore subsidiaries. In his book The Great Tax Robbery, the former tax inspector Richard Brooks records that a Vodafone representative was put on the group “deciding how to tax offshore financing of exactly the sort his company was running through Luxembourg and Switzerland for hundreds of millions of pounds in tax saving every year”.
The new regime for multinationals began in 2013. Within five months,AstraZeneca had set up an unusual and intricate Dutch tax avoidance structure that would enable it to take full advantage of the new loopholes it had so helpfully advised on. To call this a conflict of interests is to miss the point – it’s far too brazen for that. Osborne’s Treasury blithely invited in some of the country’s biggest businesses and asked them to help design their own tax regimes. It’s like trawlermen asking fish to design their nets, or the Highways Agency allowing Jeremy Clarkson to set his own speed limit.
It might even be funny – if all these giveaways didn’t cost hundreds of millions amid a decade of belt-tightening. In their original assessment, Treasury officials calculated that the relaxation of the controlled foreign company rules would cost the public around £840m by this tax year. That’s getting on for the equivalent of three brand-new, fully staffed hospitals. The year 2013 also marked the start of the most severe cuts to social security, including the introduction of the bedroom tax. That particular cut has inflicted panic and upheaval on some of the poorest households in Britain, yet going by academic research it raises less half the amount given away to multinationals by the new controlled foreign company rules.
I write this – but we’re not even allowed to know how much money we’re giving away to Astra, Tesco and the rest. The Treasury’s initial assessment of the new rules came with a vital postscript: “The government would welcome evidence from business to help it refine the estimates of the elements of cost of the CFC reform.” Or, translated from the mandarin: this is guesswork.
When the tax-justice campaigner George Turner submitted a freedom of information request last month to find out how much the new system was costing taxpayers, Osborne’s department told him it would take too much time to find out. Turner persisted: what about the new patent box tax break, originally set to cost the public £900m? No luck there either. So ordinary taxpayers may have kissed goodbye to £1.8bn in school places and Sure Start schemes – or they may have lost a lot more. We won’t be told what’s happened to our own money.
These tax breaks aren’t in aid of struggling small businesses or innovative new tech firms: they are going into the coffers of the biggest companies in Britain, with their platoons of lobbyists and tax advisers and their web of connections into Whitehall.
The year before the government brought in these new tax breaks, AstraZeneca was granted £5m to encourage it to expand its research site at Alderley Park in Cheshire – money that the local MP (one G Osborne of Tatton) played a key role in securing. Just five months later, the drugs giant announced it was closing the centre, with the immediate loss of 550 jobs. From 2007-14, calculates York University’s Kevin Farnsworth, AstraZeneca took £91.3m in joint public funding from the government’s Innovate UK research group.
Britain is in the middle of a cold, austere decade. Ordinary taxpayers are having to tighten their belts – even while multinationals are being lavished with public cash. Osborne and Cameron tell tax-avoiding companies to “wake up and smell the coffee”, yet undercut the rest of Europe on taxes so as to lure Starbucks to put their offices in the UK. Tax avoidance is normally painted as big businesses finding and exploiting loopholes; but the Conservatives are now allowing those same outfits to design their own loopholes.
“Upwards redistribution” is how the Berkeley academic Gabriel Zucman describes it: taking from ordinary taxpayers and giving to the very richest. Zucman is a sometime co-author with Thomas Piketty and his new book The Hidden Wealth of Nations is set to do for tax havens what his colleague’s did for wealth inequality: define and popularise the problem.
“Britain is now engaged in the most extreme form of tax competition anywhere in Europe,” he told me this weekend. “It’s trying to become a tax haven.” This is what economic competence now looks like in the UK: an officially driven attempt to turn a developed country into a competitor to the Cayman Islands, with lavish handouts for those who can afford it, and cuts for those who can’t.
Monday, 12 October 2015
A New Dream of Politics
Ben Okri in The Guardian
They say there is only one way for politics.
That it looks with hard eyes at the hard world
And shapes it with a ruler’s edge,
Measuring what is possible against
Acclaim, support, and votes.
They say there is only one way to dream
For the people, to give them not what they need
But food for their fears.
We measure the deeds of politicians
By their time in power.
But in ancient times they had another way.
They measured greatness by the gold
Of contentment, by the enduring arts,
The laughter at the hearths,
The length of silence when the bards
Told of what was done by those who
Had the courage to make their lands
Happy, away from war, spreading justice
And fostering health,
The most precious of the arts
Of governance.
But we live in times that have lost
This tough art of dreaming
The best for its people,
Or so we are told by cynics
And doomsayers who see the end
Of time in blood-red moons.
Always when least expected an unexpected
Figure rises when dreams here have
Become like ashes. But when the light
Is woken in our hearts after the long
Sleep, they wonder if it is a fable.
Sign up to our Bookmarks newsletter
Read more
Can we still seek the lost angels
Of our better natures?
Can we still wish and will
For poverty’s death and a newer way
To undo war, and find peace in the labyrinth
Of the Middle East, and prosperity
In Africa as the true way
To end the feared tide of immigration?
We dream of a new politics
That will renew the world
Under their weary suspicious gaze.
There’s always a new way,
A better way that’s not been tried before.
They say there is only one way for politics.
That it looks with hard eyes at the hard world
And shapes it with a ruler’s edge,
Measuring what is possible against
Acclaim, support, and votes.
They say there is only one way to dream
For the people, to give them not what they need
But food for their fears.
We measure the deeds of politicians
By their time in power.
But in ancient times they had another way.
They measured greatness by the gold
Of contentment, by the enduring arts,
The laughter at the hearths,
The length of silence when the bards
Told of what was done by those who
Had the courage to make their lands
Happy, away from war, spreading justice
And fostering health,
The most precious of the arts
Of governance.
But we live in times that have lost
This tough art of dreaming
The best for its people,
Or so we are told by cynics
And doomsayers who see the end
Of time in blood-red moons.
Always when least expected an unexpected
Figure rises when dreams here have
Become like ashes. But when the light
Is woken in our hearts after the long
Sleep, they wonder if it is a fable.
Sign up to our Bookmarks newsletter
Read more
Can we still seek the lost angels
Of our better natures?
Can we still wish and will
For poverty’s death and a newer way
To undo war, and find peace in the labyrinth
Of the Middle East, and prosperity
In Africa as the true way
To end the feared tide of immigration?
We dream of a new politics
That will renew the world
Under their weary suspicious gaze.
There’s always a new way,
A better way that’s not been tried before.
End the Sena’s veto power
Editorial in The Hindu
What the Shiv Sena could earlier do only with threats of violence, it can now do with a mere letter or an appeal. The organisers of concerts planned in Mumbai and Pune by Pakistani ghazal singer Ghulam Ali were quick to cancel the programmes after the Shiv Sena asked them not to host a singer belonging to a “country which is firing bullets at Indians”. A meeting with Sena supremo Uddhav Thackeray must have convinced the organisers that the letter of request to cancel the show had the sanction of those at the very top of the Sena leadership, and that the “request” was no less than a threat in disguise. Now that it is in power, the Sena can effectively veto any cultural programme without even organising a public protest. The lesson that the organisers would have taken from the Sena’s missive is that no help would be forthcoming from officialdom in a State where a party that draws support from lumpen elements is in power. From digging up the cricket pitch and forming balidani jathas to stop matches between India and Pakistan, the Sena is known to oppose any kind of cultural or sporting interaction between India and Pakistan. Now that it is in power, the Sena seems intent on its agenda of imposing a boycott on all things Pakistani without resorting to open threats or violence.
The irrationality seems to have struck all but the most ardent of the Sena’s supporters. While Delhi Chief Minister Arvind Kejriwal spoke to Ghulam Ali and persuaded him to agree to come to Delhi for a concert in December, West Bengal Chief Minister Mamata Banerjee offered to host him in Kolkata. But the issue is far more important than Ghulam Ali being able to perform in India. This is not on whether art, culture and sport can bring people together or worsen relations between nations. Whether they do one or the other depends on the peoples involved, and not on some intrinsic quality of these forms. The issue actually relates to the unbridled political power that the Sena wields in Maharashtra, a power that is not drawn from any electoral mandate, a power that is not accountable to any democratic institution. The Sena quite arrogantly assumes it can speak for all people when it asks for a show to be cancelled “considering the emotions of the citizens”. If the Sena was so offended by a Pakistani artiste performing in Maharashtra, it could have asked its supporters to stay away from it. The Sena’s senior ally in government, the BJP, and Chief Minister Devendra Fadnavis, need to guard against a repeat of such incidents. What is at stake is not the right of a Pakistani artiste to perform in India, but the right of Indians to decide who they can listen to or watch in India.
What the Shiv Sena could earlier do only with threats of violence, it can now do with a mere letter or an appeal. The organisers of concerts planned in Mumbai and Pune by Pakistani ghazal singer Ghulam Ali were quick to cancel the programmes after the Shiv Sena asked them not to host a singer belonging to a “country which is firing bullets at Indians”. A meeting with Sena supremo Uddhav Thackeray must have convinced the organisers that the letter of request to cancel the show had the sanction of those at the very top of the Sena leadership, and that the “request” was no less than a threat in disguise. Now that it is in power, the Sena can effectively veto any cultural programme without even organising a public protest. The lesson that the organisers would have taken from the Sena’s missive is that no help would be forthcoming from officialdom in a State where a party that draws support from lumpen elements is in power. From digging up the cricket pitch and forming balidani jathas to stop matches between India and Pakistan, the Sena is known to oppose any kind of cultural or sporting interaction between India and Pakistan. Now that it is in power, the Sena seems intent on its agenda of imposing a boycott on all things Pakistani without resorting to open threats or violence.
The irrationality seems to have struck all but the most ardent of the Sena’s supporters. While Delhi Chief Minister Arvind Kejriwal spoke to Ghulam Ali and persuaded him to agree to come to Delhi for a concert in December, West Bengal Chief Minister Mamata Banerjee offered to host him in Kolkata. But the issue is far more important than Ghulam Ali being able to perform in India. This is not on whether art, culture and sport can bring people together or worsen relations between nations. Whether they do one or the other depends on the peoples involved, and not on some intrinsic quality of these forms. The issue actually relates to the unbridled political power that the Sena wields in Maharashtra, a power that is not drawn from any electoral mandate, a power that is not accountable to any democratic institution. The Sena quite arrogantly assumes it can speak for all people when it asks for a show to be cancelled “considering the emotions of the citizens”. If the Sena was so offended by a Pakistani artiste performing in Maharashtra, it could have asked its supporters to stay away from it. The Sena’s senior ally in government, the BJP, and Chief Minister Devendra Fadnavis, need to guard against a repeat of such incidents. What is at stake is not the right of a Pakistani artiste to perform in India, but the right of Indians to decide who they can listen to or watch in India.
Don’t let the Nobel prize fool you. Economics is not a science
The award glorifies economists as tellers of timeless truths, fostering hubris and leading to disaster
Joris Luyendijk in The Guardian
Economist Sir Richard Blundell among Nobel prize frontrunners
To illustrate just how dangerous that kind of belief can be, one only need to consider the fate of Long-Term Capital Management, a hedge fund set up by, among others, the economists Myron Scholes and Robert Merton in 1994. With their work on derivatives, Scholes and Merton seemed to have hit on a formula that yielded a safe but lucrative trading strategy. In 1997 they were awarded the Nobel prize. A year later, Long-Term Capital Management lost $4.6bn (£3bn)in less than four months; a bailout was required to avert the threat to the global financial system. Markets, it seemed, didn’t always behave like scientific models.
In the decade that followed, the same over-confidence in the power and wisdom of financial models bred a disastrous culture of complacency, ending in the 2008 crash. Why should bankers ask themselves if a lucrative new complex financial product is safe when the models tell them it is? Why give regulators real power when models can do their work for them?
Many economists seem to have come to think of their field in scientific terms: a body of incrementally growing objective knowledge. Over the past decades mainstream economics in universities has become increasingly mathematical, focusing on complex statistical analyses and modelling to the detriment of the observation of reality.
Consider this throwaway line from the former top regulator and London School of Economics director Howard Davies in his 2010 book The Financial Crisis: Who Is to Blame?: “There is a lack of real-life research on trading floors themselves.” To which one might say: well, yes, so how about doing something about that? After all, Davies was at the time heading what is probably the most prestigious institution for economics research in Europe, located a stone’s throw away from the banks that blew up.
Nobel Prizes in science: strictly a man’s game?
In other words, Greenspan had been unable to imagine that bankers would run their own bank into the ground. Had the maestro read the tiny pile of books by financial anthropologists he may have found it easier to imagine such behaviour. Then he would have known that over past decades banks had adopted a “zero job security” hire-and-fire culture, breeding a “zero-loyalty” mentality that can be summarised as: “If you can be out of the door in five minutes, your horizon becomes five minutes.”
While this was apparently new to Greenspan it was not to anthropologist Karen Ho, who did years of fieldwork at a Wall Street bank. Her book Liquidated emphasises the pivotal role of zero job security at Wall Street (the same system governs the City of London). The financial sociologist Vincent Lépinay’s Codes of Finance, a book about the division in a French bank for complex financial products, describes in convincing detail how institutional memory suffers when people switch jobs frequently and at short notice.
Perhaps the most pernicious effect of the status of economics in public life has been the hegemony of technocratic thinking. Political questions about how to run society have come to be framed as technical issues, fatally diminishing politics as the arena where society debates means and ends. Take a crucial concept such as gross domestic product. As Ha-Joon Chang makes clear in 23 Things They Don’t Tell You About Capitalism, the choices about what not to include in GDP (household work, to name one) are highly ideological. The same applies to inflation, since there is nothing neutral about the decision not to give greater weight to the explosion in housing and stock market prices when calculating inflation.
Ha-Joon Chang, pictured at the Hay-on-Wye festival, Wales. Photograph: David Levenson/Getty Images
GDP, inflation and even growth figures are not objective temperature measurements of the economy, no matter how many economists, commentators and politicians like to pretend they are. Much of economics is politics disguised as technocracy – acknowledging this might help open up the space for political debate and change that has been so lacking in the past seven years.
Would it not be extremely useful to take economics down one peg by overhauling the prize to include all social sciences? The Nobel prize for economics is not even a “real” Nobel prize anyway, having only been set up by the Swedish central bank in 1969. In recent years, it may have been awarded to more non-conventional practitioners such as the psychologist Daniel Kahneman. However, Kahneman was still rewarded for his contribution to the science of economics, still putting that field centre stage.
Think of how frequently the Nobel prize for literature elevates little-known writers or poets to the global stage, or how the peace prize stirs up a vital global conversation: Naguib Mahfouz’s Nobel introduced Arab literature to a mass audience, while last year’s prize for Kailash Satyarthi and Malala Yousafzai put the right of all children to an education on the agenda. Nobel prizes in economics, meanwhile, go to “contributions to methods of analysing economic time series with time-varying volatility” (2003) or the “analysis of trade patterns and location of economic activity” (2008).
A revamped social science Nobel prize could play a similar role, feeding the global conversation with new discoveries and insights from across the social sciences, while always emphasising the need for humility in treating knowledge by humans about humans. One good candidate would be the sociologist Zygmunt Bauman, whose writing on the “liquid modernity” of post-utopian capitalism deserves the largest audience possible. Richard Sennett and his work on the “corrosion of character” among workers in today’s economies would be another. Will economists volunteer to share their prestigious prize out of their own acccord? Their own mainstream economic assumptions about human selfishness suggest they will not.
Joris Luyendijk in The Guardian
‘A Nobel prize in economics implies that the human world operates much like the physical world.’ Photograph: Jasper Rietman
Business as usual. That will be the implicit message when the Sveriges Riksbank announces this year’s winner of the “Prize in Economic Sciences in Memory of Alfred Nobel”, to give it its full title. Seven years ago this autumn, practically the entire mainstream economics profession was caught off guard by the global financial crash and the “worst panic since the 1930s” that followed. And yet on Monday the glorification of economics as a scientific field on a par with physics, chemistry and medicine will continue.
The problem is not so much that there is a Nobel prize in economics, but that there are no equivalent prizes in psychology, sociology, anthropology. Economics, this seems to say, is not a social science but an exact one, like physics or chemistry – a distinction that not only encourages hubris among economists but also changes the way we think about the economy.
A Nobel prize in economics implies that the human world operates much like the physical world: that it can be described and understood in neutral terms, and that it lends itself to modelling, like chemical reactions or the movement of the stars. It creates the impression that economists are not in the business of constructing inherently imperfect theories, but of discovering timeless truths.
Business as usual. That will be the implicit message when the Sveriges Riksbank announces this year’s winner of the “Prize in Economic Sciences in Memory of Alfred Nobel”, to give it its full title. Seven years ago this autumn, practically the entire mainstream economics profession was caught off guard by the global financial crash and the “worst panic since the 1930s” that followed. And yet on Monday the glorification of economics as a scientific field on a par with physics, chemistry and medicine will continue.
The problem is not so much that there is a Nobel prize in economics, but that there are no equivalent prizes in psychology, sociology, anthropology. Economics, this seems to say, is not a social science but an exact one, like physics or chemistry – a distinction that not only encourages hubris among economists but also changes the way we think about the economy.
A Nobel prize in economics implies that the human world operates much like the physical world: that it can be described and understood in neutral terms, and that it lends itself to modelling, like chemical reactions or the movement of the stars. It creates the impression that economists are not in the business of constructing inherently imperfect theories, but of discovering timeless truths.
Economist Sir Richard Blundell among Nobel prize frontrunners
To illustrate just how dangerous that kind of belief can be, one only need to consider the fate of Long-Term Capital Management, a hedge fund set up by, among others, the economists Myron Scholes and Robert Merton in 1994. With their work on derivatives, Scholes and Merton seemed to have hit on a formula that yielded a safe but lucrative trading strategy. In 1997 they were awarded the Nobel prize. A year later, Long-Term Capital Management lost $4.6bn (£3bn)in less than four months; a bailout was required to avert the threat to the global financial system. Markets, it seemed, didn’t always behave like scientific models.
In the decade that followed, the same over-confidence in the power and wisdom of financial models bred a disastrous culture of complacency, ending in the 2008 crash. Why should bankers ask themselves if a lucrative new complex financial product is safe when the models tell them it is? Why give regulators real power when models can do their work for them?
Many economists seem to have come to think of their field in scientific terms: a body of incrementally growing objective knowledge. Over the past decades mainstream economics in universities has become increasingly mathematical, focusing on complex statistical analyses and modelling to the detriment of the observation of reality.
Consider this throwaway line from the former top regulator and London School of Economics director Howard Davies in his 2010 book The Financial Crisis: Who Is to Blame?: “There is a lack of real-life research on trading floors themselves.” To which one might say: well, yes, so how about doing something about that? After all, Davies was at the time heading what is probably the most prestigious institution for economics research in Europe, located a stone’s throw away from the banks that blew up.
Howard Davies, pictured in 2006. Photograph: Eamonn McCabe for the Guardian
All those banks have “structured products approval committees”, where a team of banking staff sits down to decide whether their bank should adopt a particular new complex financial product. If economics were a social science like sociology or anthropology, practitioners would set about interviewing those committee members, scrutinising the meetings’ minutes and trying to observe as many meetings as possible. That is how the kind of fieldwork-based, “qualitative” social sciences, which economists like to discard as “soft” and unscientific, operate. It is true that this approach, too, comes with serious methodological caveats, such as verifiability, selection bias or observer bias. The difference is that other social sciences are open about these limitations, arguing that, while human knowledge about humans is fundamentally different from human knowledge about the natural world, those imperfect observations are extremely important to make.
Compare that humility to that of former central banker Alan Greenspan, one of the architects of the deregulation of finance, and a great believer in models. After the crash hit, Greenspan appeared before a congressional committee in the US to explain himself. “I made a mistake in presuming that the self-interests of organisations, specifically banks and others, were such that they were best capable of protecting their own shareholders and their equity in the firms,” said the man whom fellow economists used to celebrate as “the maestro”.
All those banks have “structured products approval committees”, where a team of banking staff sits down to decide whether their bank should adopt a particular new complex financial product. If economics were a social science like sociology or anthropology, practitioners would set about interviewing those committee members, scrutinising the meetings’ minutes and trying to observe as many meetings as possible. That is how the kind of fieldwork-based, “qualitative” social sciences, which economists like to discard as “soft” and unscientific, operate. It is true that this approach, too, comes with serious methodological caveats, such as verifiability, selection bias or observer bias. The difference is that other social sciences are open about these limitations, arguing that, while human knowledge about humans is fundamentally different from human knowledge about the natural world, those imperfect observations are extremely important to make.
Compare that humility to that of former central banker Alan Greenspan, one of the architects of the deregulation of finance, and a great believer in models. After the crash hit, Greenspan appeared before a congressional committee in the US to explain himself. “I made a mistake in presuming that the self-interests of organisations, specifically banks and others, were such that they were best capable of protecting their own shareholders and their equity in the firms,” said the man whom fellow economists used to celebrate as “the maestro”.
Nobel Prizes in science: strictly a man’s game?
In other words, Greenspan had been unable to imagine that bankers would run their own bank into the ground. Had the maestro read the tiny pile of books by financial anthropologists he may have found it easier to imagine such behaviour. Then he would have known that over past decades banks had adopted a “zero job security” hire-and-fire culture, breeding a “zero-loyalty” mentality that can be summarised as: “If you can be out of the door in five minutes, your horizon becomes five minutes.”
While this was apparently new to Greenspan it was not to anthropologist Karen Ho, who did years of fieldwork at a Wall Street bank. Her book Liquidated emphasises the pivotal role of zero job security at Wall Street (the same system governs the City of London). The financial sociologist Vincent Lépinay’s Codes of Finance, a book about the division in a French bank for complex financial products, describes in convincing detail how institutional memory suffers when people switch jobs frequently and at short notice.
Perhaps the most pernicious effect of the status of economics in public life has been the hegemony of technocratic thinking. Political questions about how to run society have come to be framed as technical issues, fatally diminishing politics as the arena where society debates means and ends. Take a crucial concept such as gross domestic product. As Ha-Joon Chang makes clear in 23 Things They Don’t Tell You About Capitalism, the choices about what not to include in GDP (household work, to name one) are highly ideological. The same applies to inflation, since there is nothing neutral about the decision not to give greater weight to the explosion in housing and stock market prices when calculating inflation.
Ha-Joon Chang, pictured at the Hay-on-Wye festival, Wales. Photograph: David Levenson/Getty Images
GDP, inflation and even growth figures are not objective temperature measurements of the economy, no matter how many economists, commentators and politicians like to pretend they are. Much of economics is politics disguised as technocracy – acknowledging this might help open up the space for political debate and change that has been so lacking in the past seven years.
Would it not be extremely useful to take economics down one peg by overhauling the prize to include all social sciences? The Nobel prize for economics is not even a “real” Nobel prize anyway, having only been set up by the Swedish central bank in 1969. In recent years, it may have been awarded to more non-conventional practitioners such as the psychologist Daniel Kahneman. However, Kahneman was still rewarded for his contribution to the science of economics, still putting that field centre stage.
Think of how frequently the Nobel prize for literature elevates little-known writers or poets to the global stage, or how the peace prize stirs up a vital global conversation: Naguib Mahfouz’s Nobel introduced Arab literature to a mass audience, while last year’s prize for Kailash Satyarthi and Malala Yousafzai put the right of all children to an education on the agenda. Nobel prizes in economics, meanwhile, go to “contributions to methods of analysing economic time series with time-varying volatility” (2003) or the “analysis of trade patterns and location of economic activity” (2008).
A revamped social science Nobel prize could play a similar role, feeding the global conversation with new discoveries and insights from across the social sciences, while always emphasising the need for humility in treating knowledge by humans about humans. One good candidate would be the sociologist Zygmunt Bauman, whose writing on the “liquid modernity” of post-utopian capitalism deserves the largest audience possible. Richard Sennett and his work on the “corrosion of character” among workers in today’s economies would be another. Will economists volunteer to share their prestigious prize out of their own acccord? Their own mainstream economic assumptions about human selfishness suggest they will not.
Thursday, 8 October 2015
Money isn’t restricted by borders, so why are people?
Giles Fraser in The Guardian
Theresa May won’t be around in the early 22nd century when, according to Star Trek at least, Dr Emory Erickson will have invented the transporter – a device that will be able to dematerialise a person into an energy pattern, beam them to another place or planet, and then rematerialise them back again. In such a world people will be able to move as quickly and freely as an email.
The philosopher Derek Parfit has rightly questioned whether such a thing is even philosophically possible: will the rematerialised person be the same person as the dematerialised one, or just a perfect copy. (What would happen if two copies of me were rematerialised? Would they both be me?) Parfit thus raises a fascinating philosophical question about what we mean by personal identity – or what makes me me.
But, just for the sake of argument, imagine what such a device would do to Mrs May’s keep-them-all-out immigration policy. With the transporter, there could be no border controls and no restrictions on the free movement of individuals. Economic migrants would love it. People will be able to live and work where they like, beaming instantly from Syria to Sussex or indeed to Saturn. And because of this, the whole concept of the nation state will eventually wither away. People will have become more powerful than the state.
Fanciful? Of course. Forget about the technical problems. The fundamental problem is that human beings are not fungible. A copy is not the same as its original. A person cannot be dematerialised into a series of digital zeros and ones, get beamed over space and be rematerialised as the same person.
But – and here is the really big thing – money can be. For the whole point about money is that it is fungible. It can be converted into zeros and ones and it can be digitally shot across space. And since the late 1970s, when capital controls were relaxed all around the world, and then even more so since the digital revolution, money has been able to go where it pleases, unimpeded, without any need for a passport or reference to border control. Every day, trillions of dollars are economic migrants, crossing boundaries as if they didn’t exist, pouring in and out of countries looking for the most economically advantageous place to be. And, just as with the fanciful people-transporter example, this free movement of capital is how the nation state is dissolving.
This week the OECD published a report on international companies and tax avoidance. Big companies like AstraZeneca are able to pay next to no tax in the UK because they just transport their profits to a low-tax regime in another country. Indeed, some countries, pathetically prostrating themselves before the gods of finance, exist for little other than this purpose. And so the situation we find ourselves in is that money is free to travel as it pleases but people are not. We have got used to this as the new normal, and it largely goes unremarked. Yes, there are a few on the libertarian fringe who recognise this as a contradiction and argue that people should be as free as capital. But the majority on the right do everything they can to protect the free movement of capital and restrict the free movement of people.
Which is why the neoliberal right in Britain has utterly contradictory instincts over Europe – they want the free trade bit but they don’t want the free people bit. And they scare us with how the free movement of people threatens our national identity but refuse to face the fact that the free movement of capital can be seen as doing exactly the same. They talk a good game about the importance of freedom: but it’s one rule for capital and another for people.
Of course the transporter won’t happen. But with the internet, the imagination can travel where it will. And that means poor people will always see and want what rich people have. And not even Mrs May will be able to stop them crossing dangerous seas and borders to find it.
Theresa May won’t be around in the early 22nd century when, according to Star Trek at least, Dr Emory Erickson will have invented the transporter – a device that will be able to dematerialise a person into an energy pattern, beam them to another place or planet, and then rematerialise them back again. In such a world people will be able to move as quickly and freely as an email.
The philosopher Derek Parfit has rightly questioned whether such a thing is even philosophically possible: will the rematerialised person be the same person as the dematerialised one, or just a perfect copy. (What would happen if two copies of me were rematerialised? Would they both be me?) Parfit thus raises a fascinating philosophical question about what we mean by personal identity – or what makes me me.
But, just for the sake of argument, imagine what such a device would do to Mrs May’s keep-them-all-out immigration policy. With the transporter, there could be no border controls and no restrictions on the free movement of individuals. Economic migrants would love it. People will be able to live and work where they like, beaming instantly from Syria to Sussex or indeed to Saturn. And because of this, the whole concept of the nation state will eventually wither away. People will have become more powerful than the state.
Fanciful? Of course. Forget about the technical problems. The fundamental problem is that human beings are not fungible. A copy is not the same as its original. A person cannot be dematerialised into a series of digital zeros and ones, get beamed over space and be rematerialised as the same person.
But – and here is the really big thing – money can be. For the whole point about money is that it is fungible. It can be converted into zeros and ones and it can be digitally shot across space. And since the late 1970s, when capital controls were relaxed all around the world, and then even more so since the digital revolution, money has been able to go where it pleases, unimpeded, without any need for a passport or reference to border control. Every day, trillions of dollars are economic migrants, crossing boundaries as if they didn’t exist, pouring in and out of countries looking for the most economically advantageous place to be. And, just as with the fanciful people-transporter example, this free movement of capital is how the nation state is dissolving.
This week the OECD published a report on international companies and tax avoidance. Big companies like AstraZeneca are able to pay next to no tax in the UK because they just transport their profits to a low-tax regime in another country. Indeed, some countries, pathetically prostrating themselves before the gods of finance, exist for little other than this purpose. And so the situation we find ourselves in is that money is free to travel as it pleases but people are not. We have got used to this as the new normal, and it largely goes unremarked. Yes, there are a few on the libertarian fringe who recognise this as a contradiction and argue that people should be as free as capital. But the majority on the right do everything they can to protect the free movement of capital and restrict the free movement of people.
Which is why the neoliberal right in Britain has utterly contradictory instincts over Europe – they want the free trade bit but they don’t want the free people bit. And they scare us with how the free movement of people threatens our national identity but refuse to face the fact that the free movement of capital can be seen as doing exactly the same. They talk a good game about the importance of freedom: but it’s one rule for capital and another for people.
Of course the transporter won’t happen. But with the internet, the imagination can travel where it will. And that means poor people will always see and want what rich people have. And not even Mrs May will be able to stop them crossing dangerous seas and borders to find it.
The real ticking time bomb for the Tories is home ownership
Allister Heath in The Telegraph
There is not much that the French do better than us these days when it comes to economics. Housing is the glaring, humiliating exception: for the first time in a generation, France’s homeownership rate has overtaken Britain’s.
When I first stumbled upon this remarkable fact, I could almost not believe it. Isn’t Britain supposed to be weirdly obsessed with home ownership, unlike our happy-go-lucky continental neighbours who, we are endlessly told, are perfectly content to rent?
But the statistics are true: while we have been plunged into an intensifying housing crisis that has locked millions of young people out of the market and forced others to live in over-priced rabbit hutches, the French have been quietly building an ownership society that would have made Lady Thatcher proud. The desire to own the roof over one’s head, so powerfully described in the Prime Minister’s Conservative party speech yesterday, is a universal urge, shared even by voters in not so socialist France.
It is therefore shocking that just 63.3 per cent of English households now own their own home, down from 70.9 per cent in 2003 and back to levels last seen three decades ago. In stark contrast, home ownership has beenshooting up in France, rising from 60.5 per cent in 2007 to 64.3 per cent in 2013. British and US commentators who believe that home ownership is passe and that we must all join Generation Rent need to look beyond the English-speaking world.
The UK is now well below the European Union average: across the 28 member states, 70 per cent of households are owner-occupiers. This is an extraordinary reversal which goes to the heart of David Cameron’s vision for an aspirational meritocracy.
The Prime Minister’s speech was a powerful restatement of the small-c conservative case for an opportunity society, as opposed to the Left’s obsession with equality of outcomes: he wants anybody who works hard and behaves responsibly to get ahead in life, regardless of background or ethnicity. He wants renters to become owners, and employees to become employers, which is exactly what a Tory prime minister who cares about social mobility should be saying.
Yet he understands not just the extent to which modern Britain has become an aspirational, individualistic society (a reality that Jeremy Corbyn cannot grasp), but also that aspiration without hope is debilitating (a concept that the left is more at ease with). One of the most moving phrases in his speech yesterday was his description of “children with their noses pressed to the window as they watch the world moving ahead without them”.
Given the importance of home ownership to the British dream, the government must do much more to fix our homeownership crisis. This is not just the right thing to do; it is also a matter of life or death for the Conservative party itself. With Labour firmly captured by the hard Left, it is at least conceivable that a Tory party that bestrides the common ground could return to levels of support last seen in the 1980s, and win the next two general elections.
Three main obstacles lie in the way of this Tory dream: in the short-term, the party could be destroyed by the European question; in the medium-term, it could be derailed by the next economic crisis; but in the longer-term the ongoing housing crisis could kill off Britain’s ownership society, changing our national culture and shifting the electorate back into the arms of the Left.
Politics is complicated, of course, with many variables explaining how people vote; but it is clear that housing status is one of the central determinants. When YouGov surveyed 100,000 general election voters, it discovered that the Tories led Labour by 47-23 per cent among those who own their homes outright, and by 42-29 per cent among those with mortgages. But the parties were almost tied among private renters, with Labour enjoying a 25-point lead among social tenants. Another seven-point decline in the homeownership rate would cost the Tories dozens of seats; an increase could put Labour out of power for a generation.
It used to be argued that Britain’s changing demographics and Labour’s supposed stronghold on the ethnic minority vote meant that the Tories were doomed. This is nonsense: the Tories are starting to crack sections of this electorate, with one poll suggesting they may even have won a plurality of the Hindu and Sikh vote for the first time in May. Mr Cameron’s push for a colour-blind society in Manchester can only have helped build on this extraordinary achievement. The real ticking time bomb for the Tories is home ownership.
Britain’s housing crisis is one of under-supply: for the past two decades at least, far too few homes have been built. But while the problem is easy to identify, tackling it is fiendishly difficult given the vested interests involved. Redefining “affordable housing” as homes that can be owned, not just rented, is a small step in the right direction. The deal with housing associations to extend the right to buy will also help. But more is needed.
Remarkably, 354,700 new homes were built in France last year, compared with 140,880 across the UK, a pathetically inadequate number barely half of that required. The French were actually bitterly disappointed with their own performance: their recent average has been around 400,000 homes a year.
Mr Cameron is right, therefore, to be calling for a national crusade for house-building. State-owned brownfield sites must urgently be made available for development, though this will not be a panacea. A further liberalisation of the planning laws will also be required, and one final taboo tackled: we need to accept than not all Green Belt land is worth preserving.
We shouldn’t build on forests, of course, but swathes of what is classified as Green Belt isn’t even green: plenty of derelict land, quarries and ugly, unattractive sites are also wrongly protected. Some of this could be converted into parks and homes with gardens and the right infrastructure, benefiting hundreds of thousands of families. For their own sake, Tory councillors and MPs need to start embracing sensible, well-managed development: if not, the party will soon find out that it is either on the side of aspiring homeowners, or it is nothing.
There is not much that the French do better than us these days when it comes to economics. Housing is the glaring, humiliating exception: for the first time in a generation, France’s homeownership rate has overtaken Britain’s.
When I first stumbled upon this remarkable fact, I could almost not believe it. Isn’t Britain supposed to be weirdly obsessed with home ownership, unlike our happy-go-lucky continental neighbours who, we are endlessly told, are perfectly content to rent?
But the statistics are true: while we have been plunged into an intensifying housing crisis that has locked millions of young people out of the market and forced others to live in over-priced rabbit hutches, the French have been quietly building an ownership society that would have made Lady Thatcher proud. The desire to own the roof over one’s head, so powerfully described in the Prime Minister’s Conservative party speech yesterday, is a universal urge, shared even by voters in not so socialist France.
It is therefore shocking that just 63.3 per cent of English households now own their own home, down from 70.9 per cent in 2003 and back to levels last seen three decades ago. In stark contrast, home ownership has beenshooting up in France, rising from 60.5 per cent in 2007 to 64.3 per cent in 2013. British and US commentators who believe that home ownership is passe and that we must all join Generation Rent need to look beyond the English-speaking world.
The UK is now well below the European Union average: across the 28 member states, 70 per cent of households are owner-occupiers. This is an extraordinary reversal which goes to the heart of David Cameron’s vision for an aspirational meritocracy.
The Prime Minister’s speech was a powerful restatement of the small-c conservative case for an opportunity society, as opposed to the Left’s obsession with equality of outcomes: he wants anybody who works hard and behaves responsibly to get ahead in life, regardless of background or ethnicity. He wants renters to become owners, and employees to become employers, which is exactly what a Tory prime minister who cares about social mobility should be saying.
Yet he understands not just the extent to which modern Britain has become an aspirational, individualistic society (a reality that Jeremy Corbyn cannot grasp), but also that aspiration without hope is debilitating (a concept that the left is more at ease with). One of the most moving phrases in his speech yesterday was his description of “children with their noses pressed to the window as they watch the world moving ahead without them”.
Given the importance of home ownership to the British dream, the government must do much more to fix our homeownership crisis. This is not just the right thing to do; it is also a matter of life or death for the Conservative party itself. With Labour firmly captured by the hard Left, it is at least conceivable that a Tory party that bestrides the common ground could return to levels of support last seen in the 1980s, and win the next two general elections.
Three main obstacles lie in the way of this Tory dream: in the short-term, the party could be destroyed by the European question; in the medium-term, it could be derailed by the next economic crisis; but in the longer-term the ongoing housing crisis could kill off Britain’s ownership society, changing our national culture and shifting the electorate back into the arms of the Left.
Politics is complicated, of course, with many variables explaining how people vote; but it is clear that housing status is one of the central determinants. When YouGov surveyed 100,000 general election voters, it discovered that the Tories led Labour by 47-23 per cent among those who own their homes outright, and by 42-29 per cent among those with mortgages. But the parties were almost tied among private renters, with Labour enjoying a 25-point lead among social tenants. Another seven-point decline in the homeownership rate would cost the Tories dozens of seats; an increase could put Labour out of power for a generation.
It used to be argued that Britain’s changing demographics and Labour’s supposed stronghold on the ethnic minority vote meant that the Tories were doomed. This is nonsense: the Tories are starting to crack sections of this electorate, with one poll suggesting they may even have won a plurality of the Hindu and Sikh vote for the first time in May. Mr Cameron’s push for a colour-blind society in Manchester can only have helped build on this extraordinary achievement. The real ticking time bomb for the Tories is home ownership.
Britain’s housing crisis is one of under-supply: for the past two decades at least, far too few homes have been built. But while the problem is easy to identify, tackling it is fiendishly difficult given the vested interests involved. Redefining “affordable housing” as homes that can be owned, not just rented, is a small step in the right direction. The deal with housing associations to extend the right to buy will also help. But more is needed.
Remarkably, 354,700 new homes were built in France last year, compared with 140,880 across the UK, a pathetically inadequate number barely half of that required. The French were actually bitterly disappointed with their own performance: their recent average has been around 400,000 homes a year.
Mr Cameron is right, therefore, to be calling for a national crusade for house-building. State-owned brownfield sites must urgently be made available for development, though this will not be a panacea. A further liberalisation of the planning laws will also be required, and one final taboo tackled: we need to accept than not all Green Belt land is worth preserving.
We shouldn’t build on forests, of course, but swathes of what is classified as Green Belt isn’t even green: plenty of derelict land, quarries and ugly, unattractive sites are also wrongly protected. Some of this could be converted into parks and homes with gardens and the right infrastructure, benefiting hundreds of thousands of families. For their own sake, Tory councillors and MPs need to start embracing sensible, well-managed development: if not, the party will soon find out that it is either on the side of aspiring homeowners, or it is nothing.
Subscribe to:
Posts (Atom)