Economics lecturers accused of clinging to pre-crash fallacies

Academic says courses changed little since 2008 and students taught 'theories now known to be untrue'

• Phillip Inman, economics correspondent
• The Guardian, Sunday 10 November 2013 22.28 GMT

Economics departments have been accused of ignoring critics of the free market such as Karl Marx. Photograph: Alamy

Economics teaching at Britain's universities has come under fire from a leading academic who accused lecturers of presenting "things that are known to be untrue" to preserve theories that claim to show how the economy works.

The Treasury is hosting a conference in London on Monday to discuss the crisis in economics teaching, which critics say has remained largely unchanged since the 2008 financial crash despite the failure of many in the profession to spot the looming credit crunch and worst recession for 100 years.

Michael Joffe, professor of economics at Imperial College, London, said he was disturbed by the way economics textbooks continued to discuss concepts and models as facts when they were debunked decades ago.

He said: "What if economics was based more on empirical studies and empirical evidence? There are lots of studies and economists are often very good at finding the evidence for how things work, but it does not feed into or challenge what's in the textbooks.

"I asked a textbook author recently why a theory that is known to be wrong is still appearing in his book he said to me that his publisher would expect it to be there."

Joffe, a former biologist, called for more evidence in economic teaching in the October edition of the Royal Economic Society newsletter. He said many reformers had called for economics courses to embrace the teachings of Marx and Keynes to undermine the dominance of neoclassical free-market theories, but the aim should be to provide students with analysis based on the way the world works, not the way theories argue it ought to work.

"There is a lot that is taught on economics courses that bears little relation to the way things work in the real world," he said.

The Treasury-hosted conference will debate the state of economics teaching, with leading figures from the profession invited to speak, including Bank of England director Andy Haldane. Sponsored by the Institute for New Economic Thinking (INET), it aims to highlight reforms to address the shortcomings of the core economics curriculum.

Headed by economics professor Eric Beinhocker of Oxford University, the INET has grown into a large international lobby group with the aim of reforming mainstream economic teaching in the world's leading colleges.

The conference comes only a fortnight after Manchester University economics students criticised orthodox free-market teaching on their course, arguing that alternative ways of thinking have been pushed to the margins.

Members of the Post-Crash Economics Society said their course was dominated by models and equations that trained undergraduates for City jobs without a broader understanding of the way economies and businesses work.

Joe Earle, a spokesman for the society and a final-year undergraduate, said academic departments were ignoring the crisis in the profession and that, by neglecting global developments and critics of the free market such as Keynes and Marx, the study of economics was "in danger of losing its broader relevance".

The profession has been criticised for its adherence to models of a free market that claim to show demand and supply continually rebalancing over relatively short periods of time – in contrast to the decade-long mismatches that came ahead of the banking crash in key markets such as housing and exotic derivatives, where asset bubbles ballooned.

Joffe said university economics department were continuing to teach concepts that had been disproved. In one example he said the idea that companies suffer "dis-economies of scale" when they increase production beyond certain capacity was true in only a small number of firms.

The U-shaped curve shows that unit costs are high when production begins and become cheaper as economies of scale allow a company to spread costs over more units. Units become more expensive to produce after a factory reaches capacity.

Joffe said: "We ought to stop teaching the U shape as the typical relationship between costs and scale, for the simple reason that it is false."

Transatlantic Trade and Investment Partnership: Wake up people, we’re being shafted

A global ban on left wing politics

George Monbiot

Remember that referendum about whether we should create a single market with the United States? You know, the one that asked whether corporations should have the power to strike down our laws? No, I don’t either. Mind you, I spent ten minutes looking for my watch the other day, before I realised I was wearing it. Forgetting about the referendum is another sign of ageing. Because there must have been one, mustn’t there? After all that agonising over whether or not we should stay in the European Union(1), the government wouldn’t cede our sovereignty to some shadowy, undemocratic body without consulting us. Would it?

The purpose of the Transatlantic Trade and Investment Partnership is to remove the regulatory differences between the US and European nations. I mentioned it a couple of weeks ago(2). But I left out the most important issue: the remarkable ability it would grant big business to sue the living daylights out of governments which try to defend their citizens. It would allow a secretive panel of corporate lawyers to overrule the will of parliament and destroy our legal protections. Yet the defenders of our sovereignty say nothing.

The mechanism is called investor-state dispute settlement. It’s already being used in many parts of the world to kill regulations protecting people and the living planet.

The Australian government, after massive debates in and out of parliament, decided that cigarettes should be sold in plain packets, marked only with shocking health warnings. The decision was validated by the Australian supreme court. But, using a trade agreement Australia struck with Hong Kong, the tobacco company Philip Morris has asked an offshore tribunal to award it a vast sum in compensation for the loss of what it calls its intellectual property(3).

During its financial crisis, and in response to public anger over rocketing charges, Argentina imposed a freeze on people’s energy and water bills (does this sound familiar?). It was sued by the international utility companies whose vast bills had prompted the government to act. For this and other such crimes, it has been forced to pay out over a billion dollars in compensation(4).

In El Salvador, local communities managed at great cost (three campaigners were murdered) to persuade the government to refuse permission for a vast gold mine which threatened to contaminate their water supplies. A victory for democracy? Not for long perhaps. The Canadian company which sought to dig the mine is now suing El Salvador for $315m – for the loss of its anticipated future profits(5).

In Canada, the courts revoked two patents owned by the US drugs firm Eli Lilly, on the grounds that the company had not produced enough evidence that they had the beneficial effects it claimed. Eli Lilly is now suing the Canadian government for $500m, and demanding that Canada’s patent laws are changed(6).

These companies (and hundreds of others) are using the investor-state dispute rules embedded in trade treaties signed by the countries they are suing. The rules are enforced by panels which have none of the safeguards we expect in our own courts(7,8). The hearings are held in secret. The judges are corporate lawyers, many of whom work for corporations of the kind whose cases they hear. Citizens and communities affected by their decisions have no legal standing. There is no right of appeal on the merits of the case. Yet they can overthrow the sovereignty of parliaments and the rulings of supreme courts.

You don’t believe it? Here’s what one of the judges on these tribunals says about his work. “When I wake up at night and think about arbitration, it never ceases to amaze me that sovereign states have agreed to investment arbitration at all … Three private individuals are entrusted with the power to review, without any restriction or appeal procedure, all actions of the government, all decisions of the courts, and all laws and regulations emanating from parliament.”(9)

There are no corresponding rights for citizens. We can’t use these tribunals to demand better protections from corporate greed. As the Democracy Centre says, this is “a privatised justice system for global corporations.”(10)

Even if these suits don’t succeed, they can exert a powerful chilling effect on legislation. One Canadian government official, speaking about the rules introduced by the North American Free Trade Agreement, remarked, “I’ve seen the letters from the New York and DC law firms coming up to the Canadian government on virtually every new environmental regulation and proposition in the last five years. They involved dry-cleaning chemicals, pharmaceuticals, pesticides, patent law. Virtually all of the new initiatives were targeted and most of them never saw the light of day.”(11) Democracy, as a meaningful proposition, is impossible under these circumstances.
This is the system to which we will be subject if the transatlantic treaty goes ahead. The US and the European Commission, both of which have been captured by the corporations they are supposed to regulate, are pressing for investor-state dispute resolution to be included in the agreement.

The Commission justifies this policy by claiming that domestic courts don’t offer corporations sufficient protection because they “might be biased or lack independence.”(12) Which courts is it talking about? Those of the US? Its own member states? It doesn’t say. In fact it fails to produce a single concrete example demonstrating the need for a new, extra-judicial system. It is precisely because our courts are generally not biased or lacking independence that the corporations want to bypass them. The EC seeks to replace open, accountable, sovereign courts with a closed, corrupt system riddled with conflicts of interest and arbitrary powers.
Investor-state rules could be used to smash any attempt to save the NHS from corporate control, to re-regulate the banks, to curb the greed of the energy companies, to renationalise the railways, to leave fossil fuels in the ground. These rules shut down democratic alternatives. They outlaw left-wing politics.

This is why there has been no attempt by our government to inform us about this monstrous assault on democracy, let alone consult us. This is why the Conservatives who huff and puff about sovereignty are silent. Wake up people, we’re being shafted.

Soldier worship blinds Britain to the grim reality of war

A Royal Marine's murder of a wounded Afghan in his custody lays bare the truth of military campaigns

• 
• • Joe Glenton
  • The Guardian, Friday 8 November 2013 16.49 GMT

'We should not feel compelled to point out that brave men and women are fighting in Afghanistan to secure our safety every time the military is mentioned.' Photograph: Getty Images

With the official Remembrance Day ceremony closing in, and soldier worship about to hit its tedious annual peak, the public have been given an unexpected glimpse of war's unsanitised face. A Royal Marine has been convicted of murdering a wounded Afghan in his custody. Two marines were acquitted.

While the public has for 12 years been told otherwise, the Afghan occupation is not simply a case of good guys and bad guys. Nevertheless, tired references to "bad apples" will now flow. The Ministry of Defence will repeatedly and frantically highlight the supposed "good work" the troops have been doing in the smoking ruins of Afghanistan. A stock statement will be released by the MoD about military values and high standards of behaviour. Allegations of law-breaking, they will tell us, are investigated thoroughly and can result in disciplinary action up to and including court martial, discharge and prison. And all of this will obscure rather than address the issue.

From the outset this episode has been written through with the brand of self-delusion that has come to typify the "good war". The original arrest of seven marines in 2012, following the discovery of footage on a laptop, sparked an indignant Facebook campaign to "Support the 7 Royal Marine Commandos arrested for murder in Afghanistan". To date, it has attracted 63,000 "likes". If nothing else, this highlights how a section of society can leap to the defence of servicemen long before the facts are known.

It is my view that Royal Marine commandos are the best light role infantry in the world – bar none. Bootnecks, as they are colloquially known, are capable, professional and robust soldiers. But I can say all this without once gushing about "heroes" and without ever once needing to shy away from an uncomfortable truth simply because it happens to concern soldiers.

We should not feel compelled to point out that those brave men and women are fighting in Afghanistan to secure our safety every time the military is mentioned. First, because it is not true that they are; and second, because such blustering at the merest glimpse of camouflage clothing is an obvious and embarrassing capitulation to dogma.

The question at the core of this is not how we can most tastefully play down criminal acts carried out by the services. The question we ought to be brave enough to ask is: why is there such surprise when atrocities occur? There is a belief in moralistic sections of the political left and the more dumbly macho sections of the political right that soldiers, as a rule, relish killing people. Both sides are wrong – a trained killer does not equate to mindless robot.

To understand why an occupying soldier turns to vigilantism and murder, we can do worse than look at their daily experience, which can never be divorced from the over-arching political context. Killings like this most often occur when soldiers have lost a comrade or comrades. They lose comrades because they are in a war. Killings like these can reasonably expected to be carried out by all sides in any conflict.

What radicalises soldiers then is not too far from what radicalises lone wolf killers, terror cells and drone strike orphans: the impact of policy on an individual and the people you care about. Marine A, now convicted, was a 39-year-old senior non-commissioned officer. He had done six tours of Afghanistan as an infantryman. He is likely to have experienced countless engagements and lost various friends in a failing war. This does not excuse his actions, but why should he and his fellow marines' callous attitude to death, shown in the transcripts of the helmet camera recording of the event, be a surprise?

When a political decision is taken that puts men who are primed for violence into a war, bad things will happen. This is another reason to make sure that war is the very last resort and not, as in the case of the post-9/11 wars, something that is engaged in lightly, in a spirit of hubris or in the pursuit of narrow interests.

At its core, this is a problem at the political level, which can only be resolved or avoided at the political level. It does not diminish the responsibility of the killers to say the issue is more complex than bad apples letting the side down. The culture of irrational and uncritical soldier worship serves only to blind us to the realities of war and occupation – and this contrived, blinding effect, I have long suspected, is rather the point of lionising the military.

The gambling machines helping drug dealers 'turn dirty money clean'

Dealers talk to the Guardian about laundering drug money through fixed odds betting terminals in bookies across Britain

• 
• • Randeep Ramesh, social affairs editor
  • theguardian.com, Friday 8 November 2013 18.03 GMT

The Gambling Commission admitted in September what has long been privately acknowledged: FOBTs present a 'high inherent money laundering risk'. Photograph: Alamy

Dressed in a grey hoodie and jeans, James, 24, looks like just another lost soul in the high street, shuttling between the six betting shops in an east coast seaside town. It's a weekday morning and if you catch up with him inside a bookmaker, you'll find him peering intently into the green glowing screen of an electronic gambling machine – feeding in £200, "a score at a time".

But this is not a young gambler blowing his meagre wages. James is a drug dealer and his interest in the bookmakers – and the fixed-odds betting terminals (FOBTs) in each shop – is all about laundering money. "That's what turns dirty money clean," he says. Dealers feed their drug money through the machines, losing a little and then cashing out with the vast majority of their stake, James says. They can then collect a printed ticket showing they have gambled that day – meaning that if stopped by police, they can answer questions about why an apparently unemployed young man carries hundreds of pounds in rolled-up cash.

The FOBTs are probably the single most profitable pieces of property in the town centre's shabby pedestrian precinct. Each machine, according to industry figures, grosses about £900 a week. The 24 FOBTs within a few minutes' walk are worth an estimated £1m a year in profits to the betting industry.

The terminals arrived in Britain in 2001 and were lightly regulated from the outset. Punters in bookmakers found that they could bet £100 every 20 seconds on roulette. The temptation of high-speed, high-stake casino games in the high street proved irresistible: there are now 33,345 FOBTs in the UK.

However, several high-profile cases have exposed a seamier side to the rise of the machines. Earlier this month the Gambling Commission, the industry regulator, finedCoral bookmakers £90,000 in profits it made from one drug dealer who had laundered almost £1m in its shops. Last month the industry regulator also publicly admitted what has long been privately acknowledged: FOBTs present a "high inherent money-laundering risk". In a letter to the industry trade association, the commission warned about "a retail betting model that includes high volumes of cash transactions, particularly where this includes low individual spend and a high level of anonymity... especially where that model also offers (FOBTs)."

What the machines provide is the chance for criminals to convert quickly large sums of money from the real world into virtual cash that can later be converted back into the real thing. There is little official research into the scale and extent of such operations. The 2005 Gambling Act, which regulates the terminals, says one of its primary objectives is "preventing gambling from being a source of crime or disorder, being associated with crime or disorder or being used to support crime".

However, it has long been obvious to the public that criminals can convert their loot into a clean win on an electronic roulette table. Surveys for the commission show that 40% of the public regularly identify gambling with criminal activity. The industry regulator found one in 14 respondents associated money laundering with gambling.

The Guardian persuaded a number of drug dealers to talk about their criminal pursuits. What was remarkable was that they saw FOBTs as both a nuisance and necessary, trapping "weaker" people into addiction while allowing the "strong" to prosper. All exchanged tips with fellow dealers on the best ways to launder money; all were surprisingly frank about their methods.

James's strategy is simple: £20 on black, £20 on red and £2 on zero. A press of a button and the wheel spins before the ball lands on red. That's a loss of £2. The money placed on the zero is the only risk James is taking with his cash. If the ball does land on zero, he wins £72.

With no horses to run or dealer to shuffle and just the 20-second spin of an electronic roulette wheel to wait for, it takes a little over a minute for this drug dealer to cash out. James says he knows that unless he gambles at least 40% of the float money he has put in the machine, an alert will pop up on the staff computer warning them of suspicious activity. So he methodically places the same bet to make sure that he has wagered enough.

To ensure that his winnings are not an unlikely round number, he loses some more money on the one-armed bandit. Leaving the tea brought over by the shop manager to go cold, James wanders over to the counter to collect his winnings in the form of a receipt – transforming the money he made from cocaine into apparent gambling winnings. He has lost a little more than £10. "You have to make it realistic," he says. "Bookies get nervous if you come in and just lose the same amount every day. So I vary it a little."

Drug dealers say the reason fixed-odds betting terminals are used is precisely because they are so lightly policed. James is careful not to visit the same shops in a pattern. Handily there are 15 betting shops in the town within walking distance of the main bus routes that snake through the suburbs and along the Thames estuary. "Smart dealers don't drive around here. You are more likely to be stopped by police driving around late at night doing deliveries than if you are taking a bus somewhere into town."

Then there are favoured bookies. Ladbrokes, says James, is useful because you can transfer winnings in the shop to an online gaming account. In William Hill's you can ask for your winnings to be credited directly to your debit card, with the cash landing up in your bank the same day. "Look at my account and I am a very successful punter," he says.

The economics of drug dealing make it cost-effective to pay 5% to 10% to betting shops to launder the illicit profits. James claims to have "about 100K" in his bank account. He sells about 56g (2oz) of ordinary cocaine a week and another 28g of a purer, more expensive version. "Normal customers like teachers, doctors they get the ordinary stuff. The cleaner gear is for the City boys."

 Selling cocaine in 0.8g wraps, James, a dealer, says he turns over about £5,500 of drugs – of which half is profit. Photograph: Andy Rain/EPA

James left school at 16 and worked in shops and restaurants before ending up in the City of London. "That's where I saw people using coke and I was asked if I could get some. I knew some people and I did. Never looked back. How long would it have taken to save £100,000 if I just continued doing admin in a bank?"

Selling cocaine in 0.8g wraps, in a week James turns over about £5,500 of drugs, of which half is profit. "I buy it on tick so you end up carrying a lot of money around. The trade is run by Albanians around here, so it's best to have cash ready if you need to pay it back in a hurry."

Almost all his money is laundered via FOBTs. James calculates he is worth £15,000 a year to the betting industry. "Valued customer," he grins. "I'd say there were about half a dozen of us [dealers] around here using machines. We swap tips – where to go, least crowded, staff not bothered, that sort of thing. You don't want to be recognised too many times."

In opening up to the Guardian, James says there is a risk that bookmakers in the coastal town will tighten up on who enters and who leaves. "Sure, they could stop us, but in the end they want the money.We can hang back for a bit and go somewhere else. Pretty soon they will relax and welcome us all back."

Bookmakers essentially regulate themselves: deciding whether to bar problem gamblers, call the police over violent behaviour or report crime. As the machines contributed £1.4bn to its bottom line last year, there have been suspicions that the industry has played down the shadier side of the terminals.

Adrian Parkinson, a former regional machines manager at the Tote, now with theCampaign for Fairer Gambling, said: "Money laundering on FOBTs has been a problem since their introduction. Whether it's cleaning notes from the proceeds of crime or drug dealers legitimising profits, it is well known in the industry that it goes on.

"I raised the issue some years ago at the Tote after being swamped with incidents of money laundering following a series of armed robberies but it's still going on."

Even worse, Parkinson says, the technology is outpacing the law. He says by the end of the year, customers in Coral will be able to transfer any FOBT winnings to their online account. "The staff won't be able to intervene, whatever their suspicions. The industry is riding rough shod over the licensing objectives. Keeping crime out of gambling has to take precedent over profit."

The Association of British Bookmakers said the industry complied fully with the law. William Hill said it had "robust systems" to meet its regulatory obligations. In a statement, Ladbrokes said: "Any criminals attempting to launder large sums are placing themselves at high risk of detection as they will be on CCTV and staff are trained to spot suspicious behaviour. Given most stakes in shops are small, any large transactions are easily recognisable. Any attempt to transfer money to online accounts will require identity verification at account opening or first transactions which in conjunction with CCTV would be an excellent source of evidence for the police."

The media have helped to cement the place of gambling in the national psyche. Advertising during televised football matches exhorts audiences to have a flutter. Electronic gambling has found a younger audience through online role-playing games such as World of Warcraft, in which players have been able to set up virtual casinos. This year the United Nations Office on Drugs and Crime warned that such games were being used by organised crime to launder cash.

Also helping to rehabilitate gambling is a new range of interactive TV programming. Late-night shows such as ITV's Jackpot247 – in which television viewers place bets online or over the phone, playing along to a live presenter-hosted roulette show – repolish gambling's image by treating electronic betting as a form of mainstream entertainment.

This shift in the marketing of electronic gambling has taken place as suspicions emerge that the industry has been targeting poor people. Last December, in a paper for the Journal of Gambling Studies, Heather Wardle, a former project director of the British Gambling Prevalence Survey, warned that gambling machines were more likely to be found in areas of high socioeconomic deprivation. Earlier this year, the Guardian revealed that in the 50 parliamentary constituencies with the highest numbers of unemployed people, punters visited 1,251 betting shops and wagered an astonishing £5.6bn through 4,454 fixed-odds betting terminals.

 Salford has 72 people chasing each vacancy. It was the only part of Greater Manchester which last year recorded a rise in numbers on jobseeker's allowance. Photograph: Christopher Thomond for the Guardian

The presence of these machines appears to have a distorting effect on these moribund local economies. In a pub near Salford's Duchy estate, close to where rioting took place in 2011, two young men nursed pints of soft drink and explained how a vortex of soft drug sales, payday lenders and betting shops kept the local economy afloat. Salford has 72 people chasing each vacancy. It was the only part of Greater Manchester which last year recorded a rise in numbers on jobseeker's allowance (JSA).

Unemployed Jake, 28, sells marijuana on the local streets and smokes some of the profit. He recoups any losses by gambling and taking out loans at payday lenders. He points out the brown shopping arcade in Salford lined with bookmakers and loan companies. "It's the only thriving industry around here," he says.

"There are six bookmakers, one more is on its way, and five loan shops. Even if you are on JSA you can borrow money from Speedy Cash. It's the main business around here.Take dole, turn it into weed, sell them, take your profits and put them into the machines. If you win, you are quids in. If you lose, you get cash from the money shops to cover your losses. Back to dole and buying drugs. There's nothing else around here to do."

The drug dealer admits that he is "a bit" addicted to gambling, comparing the thrill of betting on the electronic spin of a roulette wheel to the rapid highs and lows of drugs. "You get a buzz. Which is why you might lose £16 or £1,600 and not notice until it's too late. I've done both."

The spread of betting shops in this part of the north-west is astonishing. Manchester city centre has 26. A few miles away in deprived Cheetham Hill, dubbed the "Bronx of Britain" for gang violence, there are four bookies in the high street, with another scheduled.Such bunching could be linked to the fact that bookmakers are limited to four machines a shop. As the machines are hugely lucrative the betting industry has bypassed the restriction by opening branches in high streets – "clustering" in poorer areas.

A betting shop manager in Greater Manchester, who agreed to be interviewed anonymously, said the FOBTs in Cheetham Hill easily earned £10,000 a week, four times the over-the-counter trade, and that local mobsters gambled heavily. "We get punters who lose big time on the FOBTs, punch them, chuck them to the ground. Smash them. We tell staff to play it cool. Don't call police. We don't want to arouse suspicions. It's madness. We employ young mothers in those shops.

"You have people laundering money every day with cash from robberies and drugs. Do you know that dyed notes from bank robberies can be submitted to the Bank of England and the company gets reimbursed? Staff know what pays their wages. They stay quiet."

Decent wages or a breadline economy: it's a no-brainer

The hostility that greeted Ed Miliband's ideas about increasing pay epitomises everything that's wrong with British business

• 
• • Ha-Joon Chang
  • The Guardian, Thursday 7 November 2013 20.31 GMT

Labour leader Ed Miliband delivers a speech on Labour's plans to tackle low pay, at Battersea Power Station in London. Photograph: Stefan Rousseau/PA

Ed Miliband's speech at Battersea power station in London on Tuesday this week attracted a lot of attention. Not least because of the Labour leader's own choice of battleground for the 2015 election, the debate has focused on his ideas about wages: his proposal to raise minimum wages in sectors such as finance, and to provide tax breaks for firms that pay living wages.

The reactions have been predictable. Many people are up in arms against the very idea that the government may "artificially" raise wages through market intervention. Many, including a former adviser to Tony Blair, solemnly warn that this will create unemployment and hurt British companies – or, to be more precise, companies that operate in Britain, as so few are owned by British citizens nowadays.

A typical reaction came from John Cridland, the director general of the CBI, who said in a BBC interview that employers "pay what they can afford to pay, depending on the income they get from the consumers". In this short sentence, Cridland – befitting his status as the spokesman for British business – has unwittingly managed to epitomise what is wrong with British business today.

To begin with, the argument shows the disingenuousness with which many large British companies describe themselves as helpless prisoners of market forces. It implies that the incomes companies get from their consumers are beyond their control, because they cannot charge their customers more than their competitors do.

But many companies do in fact have significant influence over what they charge (known technically as "market power"). It may be because they face little competition, like the railway companies. They may, like the payday loan companies, be dealing with poor customers in desperate situations. It may even be that they actively collude, like the big banks in the Libor scandal, or act in concert, like the energy companies in their recent price rises. Whatever the reason, it is simply not true that these companies have to take whatever customers give them.

So at least companies with market power are perfectly capable of paying their workers more by charging customers more, if they so wanted – except that they don't. Many are busy using the profits from overcharging customers to give big pay rises to their CEOs and give away money to their shareholders. Between 2001 and 2010, the top 86 UK companies included in the Europe 350 index distributed 88% of their profits to shareholders through dividends and share buybacks. Naturally, there is no money left for the workers.

More problematic than this misrepresentation of big business is Cridland's view – shared by many in business, government and media – that British companies cannot "afford" to pay higher wages. The subtext is that British companies have to compete with companies from low-wage countries like China, so British workers should feel lucky they are not paid even less, to match Chinese wages. In this view, whatever causes wages to rise needs to be abolished or at least seriously weakened: trade unions, health and safety regulations (the new whipping boy of the Tory right) or employers' national insurance contributions.

In the short term it may be true that raising wages hurts competitiveness, especially if you are a small company with no market power. However, even in this case the effects of higher wages may be offset by savings from reduced staff turnover and the improved efficiency of happier workers – as Miliband rightly pointed out.

In the long run, however, companies and countries should not be afraid of higher wages. If anything, higher wages are signs of success. They are proof that you are more productive than your competitors, so nations and enterprises should strive to pay higher wages in the long run.

Workers in German car factories are paid about 30 times more than their Chinese counterparts, and twice what their American "competitors" get. Despite that, German car companies more than match their Chinese and even US rivals.

One thing that enables German companies to stay ahead of the game is that Germany as a country has invested heavily in technical education and training, making its workers individually more productive than their foreign counterparts. A more important reason, however, is that German workers benefit from more productive technologies as a result of the investments that German companies have made in advanced machinery and research and development. It is exactly because British companies have not made similar investments that they "cannot afford" to pay their workers good wages.

The low-wage strategy so beloved of the British business elite – or what Miliband called the "race to the bottom" – has no future. If Britain is aiming to compete with China in terms of wages, it will have to lower them by 85%. It is doubtful whether this can be achieved even if it engineers a 30-year recession and installs the harshest military dictatorship. Worse, once it had reduced its wages to the Chinese level, it would have to contend with Vietnam, where wages are one-quarter those of China's. After dealing with Vietnam, Britain would have to face down the Ethiopias and Burundis of this world, with wages one-third that of Vietnam's, or less. Countries like Britain can never win that game.

Does Britain want to go back to Victorian times or, looking forward, become like some Middle East oil states, where a small wealthy minority is served by poorly paid workers with zero-hour contracts and minimal rights? Or does it want to reform its economic system so that its companies and government invest in raising productivity – and thus enable its workers to have decent wages, job security, and well-protected rights?

The choice seems like a no-brainer. Unfortunately, large sections of the British business and political establishment do not see it that way.

Rail privatisation: legalised larceny

Train operators invest little cash but take massive profits. This wasn't what the Tories promised

• 
• • Aditya Chakrabortty
  • The Guardian, Monday 4 November 2013 20.00 GMT

A London commuter train: no free seats, no free Wi-Fi – but good news for shareholders. Photograph: Dan Kitwood/Getty Images

"It needs access to private capital, access to private management, it needs more money into the business, and all this will become possible." David Cameron on Royal Mail, October 2013

As they flog our public assets, government ministers always promise one thing: that they will be better cared for by the new private owners. Sure, they may look like hedge funds out for a fast buck, but we must consider them investors, who will plough in their own millions to burnish the family silver.

Thatcher said it in the 80s; and now, during this second coming of popular capitalism, her grandchildren are saying it too.

While giving away Royal Mail at a bargain-basement price, David Cameron promised the result would be a flood of private cash. When a unit supplying the NHS with blood was handed over to private equity, Jeremy Hunt's officials pleaded the need for investment. And you'll hear that justification over and over again, as the coalition privatises a further £15bn worth of companies, departments and assets currently held by the public.

Never mind ownership, ministers will soothe us: lie back and think of the investment. So let's do that. Let's go back to the last great privatisation and see how much investment it yielded.

Tuesday marks the 20th anniversary of rail privatisation, the day when the government finally pushed through the legislation to break up and sell off our train services. Throughout the flotation process, successive transport ministers pointed at the goodies to come. Take this reliably bouffant pledge from Steve Norris: "There is not the slightest shadow of doubt that, freed from the constraints of public sector financing, train operators … will generate substantially greater investment in the railways because of the privatisation of British Rail."

Was he right? I asked academics at the Centre for Research on Socio-Cultural Change (Cresc) to calculate how much companies such as Virgin and First Group are investing in their services. They looked at their return on capital employed, which is to say the amount train operators made on the money tied up in their business. A low ratio would indicate an industry doing as Norris and his colleagues foretold: ploughing cash into delivering a better service. A really high ratio would indicate the opposite: barely any cash going in.

The figures are astonishing. In the financial year ending in March 2012, the train companies gained an average return of 147% on every pound they put into their business. Forget about high: that is stratospheric. It suggests that – despite all the promises made by the freshly rehabilitated John Major – the train operators are investing barely anything, but making bumper returns.

If you're a pensioner, imagine a savings account that promised to give you next year a 147% return on your cash, rather than the 1% you'll typically get now. If you're a first-time buyer, imagine selling up next year at a 147% markup – impossible even in primest, most central London.

Other businesses would kill for the kind of low-investment, high-returns that Arriva, Stagecoach and the rest are making from their train sets. Big supermarkets get about £1.08 back for every quid they put in: all that stock ties up a lot of cash. Even the supposed profiteers over at Barclays would punch the air at a 10% return. For every pound the railway barons put in, they get £2.47 back.

And that most recent figure isn't a fluke. The Cresc team went back all the way to the start of the electronic database in 2004, and found that year after year the pre-tax return on capital employed was never less than 100%. Just as remarkable are the train operators' dividends: pretty much all the profit after tax was paid to shareholders.

No wonder Richard Branson is a billionaire with his own private island. No wonder Tim O'Toole, boss of FirstGroup, and Brian Souter, head of Stagecoach, are on more than a million quid a year each. They are rewarded handsomely for handing over every spare penny to their shareholders.

But by the same token, no wonder passengers in cattle class can't get free Wi-Fi, or even a seat on the evening train out of Euston: there's no cash left to make the services worth the often excessive fares. The really big improvements, such as the west coast mainline upgrade now enjoyed by Branson's business, are funded by taxpayers. Heads they win, tails we lose.

A train lobbyist reading this (hi there!) will tell you that measuring investment by the operators is barking up the wrong tree. Arriva and the rest are essentially commissioned by the government to run a line. But that ignores three things. First, the industry never stops banging on about its role as an "investor". Second, free cash without having to pony up much actual investment is very welcome to the Branson empire, among others.

And finally, if the operators are merely there as middlemen, to sell us tickets and clip them, then why do we need them? Specifically, why is Cameron so desperate to give the publicly-run east coast mainline to the private sector?

Capitalism is meant to be about private firms taking risks and reaping the rewards. The rail network on the other hand is about the public taking the risk and racking up huge debts, even while the private firms reap excessive rewards.

Look at those investment return figures again: that isn't the triumph of liberalisation; that's legalised larceny. It hardly bodes well for the next wave of sell-offs.

Why doesn't anyone believe in public-spirited concern?

 

After I tweeted about a pot of honey not being allowed on a plane, Twitter replied with a puerile display of sniggering frivolity

• 
• • Richard Dawkins
  • theguardian.com, Tuesday 5 November 2013 11.30 GMT

'Aren’t our rule-merchants playing into Bin Laden’s dead hands by their futile displays of stable-door-shutting?' Photograph: Andreas Meier/Reuters

I was on the website of a bank. I patiently slogged through all my details, not forgetting mother's maiden name and name of first pet. With a sigh of completion I finally clicked submit. "We're sorry, our system is down this morning. Please try later." Er, couldn't they have warned me before I started? I did log in later, went right through the whole rigmarole and finally received the bank statement I needed.

I could have left it there but I was feeling public-spirited. Mightn't my experience help them make their website more user-friendly? So I telephoned. A succession of courteous robotic voices led me to an equally courteous human. And now here is my point. I was trying to benefit other bank customers in general. She thought I wanted satisfaction for myself in particular. It appeared to be outside her comprehension that somebody might take the time to make a public-spirited suggestion to help other people.

"May I call you Richard? How may I help you, Richard?"

"Well, I've been on your website trying to get a bank statement, and I'd filled in the whole form before I was told that the system was down anyway. Could I suggest … "

"My apologies for that, Richard, let me help you now. What exactly is it you require?"

"Er, no, I don't think you understand. I've already got what I personally needed. I want to report the difficulty I had, so that you can make sure other people don't suffer the same inconvenience in future."

"Richard, please tell me what is the date of the bank statement you need, and I'll have it sent to you."

"No, I already have the bank statement I need. I'm trying to help other people in my situation … "

I might have been speaking Volapük. She simply didn't understand a word of Voluntary-Public-Spirit.

On another occasion, in 2009, I was commissioned by Prospect Magazine to fill its regular slot on "If I ruled the world". I wrote it on a plane, and began with an incident I'd just witnessed at Heathrow security. A young mother was distraught that the tub of ointment she needed for her child's eczema had been seized.

"The security man was polite but firm. She wasn't even permitted to spoon a reduced quantity into a smaller jar. I couldn't grasp what was wrong with that suggestion, but the rules were unbendable. The official offered to fetch his supervisor, who came and was equally polite, but she too was bound by the rulebook's hoops of steel.

"There was nothing I could do, and it was no help that I recommended a website where a chemist explains, in delightfully comedic detail, what it would actually take to manufacture a workable bomb from binary liquid ingredients, labouring for several hours in the aircraft loo, using copious quantities of ice in relays of champagne coolers helpfully supplied by the cabin staff.

"The prohibition against taking more than very small quantities of liquids or unguents on planes is demonstrably ludicrous … one of those 'Look at us, we're taking decisive action' displays."

Once again my motive was public-spirited, and now there was no question of self-interest because the fated ointment wasn't mine. The woman's experience had been a particular peg on which to hang a general point. Unfortunately, when I returned to make a similar point on Twitter this week, I foolishly chose a peg that was vulnerable to misinterpretation as self-interested. And the result was a puerile display of sniggering frivolity such as only Twitter can serve up.

This time the dangerous explosive was not eczema lotion but honey. And it belonged to me, at Edinburgh airport, bound for Heathrow with only carry-on luggage. Though the jar was small, it exceeded the limit laid down by the rule-happy officials of airport security, and it was thrown away.

I tweeted to the effect that every time I see an incident of this kind I sense it as a victory for Bin Laden. However calamitous the destruction of the twin towers, doesn't the bureaucratically imposed vexation to airline passengers all over the world mount up to a prolonged and distributed, albeit far less traumatic, victory? And aren't our rule-merchants playing into Bin Laden's dead hands by their futile displays of stable-door-shutting?

But because the honey was mine not a young mother's, my motive could surely not be other than selfish. "Stop whining about your lost honey." In vain did I protest that I couldn't give a damn about my honey. I was making a point of general principle, trying to be public-spirited. "If you weren't so ignorant, you'd know the rules about liquids." In vain did I reassure the tweeting twerps that I know the rules all too well. That's precisely why I'm campaigning against them.

I say nothing of the feeble jokes on "bee" and "be" and Pooh Bear. My point here is the one brought out by my encounter with the bank clerk. What is it that renders some people incapable of conceiving how a person might be motivated not by narrow self-interest but by a public-spirited concern for the common weal?