Red Pepper » Economics

An income of one’s own: the citizen’s income

admin — Wed, 17 Oct 2012 09:20:39 +0000

The current crisis of capitalism and the state has triggered one of the many moral panics about our benefits system that have recurred in UK history since the first national Poor Law was enacted in 1601. As always this panic includes hand-wringing about women whose lifestyles and behaviour threaten the domestic and public order and undermine economic progress.
What is distinctive about this panic, however, is that it involves a dim recognition that the whole tax-benefits system is malfunctioning and that ‘disorderly’ women might be a symptom of a far deeper set of issues about individual autonomy, the family, work, social cohesion and national prosperity. The idea of the proposed ‘universal credit’, which will replace a large number of means-tested benefits with a single one (which is strictly neither universal nor a credit), was hatched just before the crisis by the Conservative think-tank, the Centre for Social Justice, for reasons that had nothing to do with austerity and cuts.
Our benefits system owes its existence to the recognition by the government of Elizabeth I that some groups in society were not receiving an income sufficient for subsistence, either through property holdings, employment and the family or through charity and the church. But the government then, and ever since, could not resist the temptation to combine provision of income to the groups it identified as needy with administrative and moral discipline for those it saw as threats to the social order.
The authorities set up to give income support to the poor of each parish were also empowered to set up workhouses for the ‘idle sturdy beggars’ who disfigured the towns and cities, to whip or conscript into the military the ‘footloose vagabonds’ who roamed the countryside, and to confine and discipline the ‘whores and harlots’ who defied their husbands’ authority and shamed public morals. Today’s version of this policy is called the Work Programme.
Outdated benefits
Two things have changed since 1601, and they have made the situation much more complicated without improving it for those directly affected. First, the state found that, during a period of falling real wages and high public spending because of wars, it could not rely on property taxes to supply sufficient revenue, so it introduced an income tax in 1799. Originally just falling on the rich, its scope has gradually spread down the income scale, so that now even many of those receiving benefits are also paying tax on anything they earn.
Second, successive governments since 1908 have introduced benefits that are not linked to poverty itself, and that do not involve coercive conditions and loss of autonomy. The first of these was retirement pensions, and in 1948 a whole range of benefits for unemployment, sickness and long-term disability were based on National Insurance contributions, and not means tested.
Two features of the latter scheme made its effects less significant for women than for men. First, all the assumptions built into the rules on contributions and eligibility treated them as ‘dependants’ of their husbands if they were married and regarded their primary role as being in the home. Second, the rates of benefits were very low compared with other affluent countries, so the scheme left a growing proportion of people still dependent on means-tested provision, with all its stigma and complexity, while making the calculation of their need and entitlement far more difficult for them and the authorities.
The only new system that was unequivocally advantageous for all women was child benefit, originally called family allowance and pioneered by Eleanor Rathbone in the 1920s. Eventually this gave all women with children an unconditional sum, which was in their control, did not involve pleasing men (either partners or officials) and did not affect their eligibility for other benefits.
These advantages of child benefit are still unique; in the whole benefits system, it is the only one that unequivocally increases women’s autonomy. If child benefit was doubled, far more women would be able to choose the hours they worked, to leave abusive relationships and to avoid participation in meaningless government ‘training’ programmes. Better still, if all women received their whole benefits entitlement, or their income tax allowance, as a weekly cash payment like child benefit, then the demands of women’s movements would have been significantly advanced.
But best of all would be if men too were paid their benefits entitlements and income tax allowances in this form. It would mean that they were no longer required to seek full-time employment, and would be free to negotiate a shared responsibility for child care and domestic work, to participate in community work (which has always been done mainly by women) – and to refuse unpaid roles in Poundland under the Work Programme.
A citizen’s income
Such an idea sounds unfeasible, but this is exactly how it already is in Alaska and in Iran, in parts of Namibia and Brazil, and will soon be in Mongolia. It is called a ‘citizen’s income’ or ‘basic income’, people like Tom Paine and Bertrand Russell have been advocating it since the 1790s, and perhaps its time has come.
The current crisis has brought about a questioning of the viability of the tax-benefits system that goes well beyond ‘affordability’. The universal credit reform is not primarily an austerity measure, but a half-baked attempt to address the perennial issues of disincentives to work, saving and domestic stability that were built into the 1601 law and have resurfaced in every recession and fiscal crisis ever since.
But as an opportunity the crisis goes deeper than this. Since the share of GNP going to capital has risen to around 50 per cent, and median earnings have failed to rise for decades, it is time to recognise that the future of income security cannot lie in the old Labourist principle. The idea of ‘full employment’ no longer makes sense when so many work part-time or are self-employed. We need the security of a citizen’s income to facilitate creativity and flexibility, not policies that try to put us back in that box.
Women never did get such a good deal from Labourism. This may be a once-in-a-lifetime opportunity for women to campaign for a citizen’s income, and for feminists to make alliances with other movements for its implementation. There were campaigns in the Great Depression of the 1930s, and many intellectuals then favoured it over Beveridge’s social insurance scheme. That has had a 70-year trial and, like every other reform of the tax-benefit system since 1601, it has failed to meet the challenges of economic and social development. It is time to try something new.

The who, what and where of work

admin — Mon, 15 Oct 2012 10:00:23 +0000

How to create new jobs in a flat-lining economy that has suffered structural unemployment for decades? George Osborne has called for a ‘march of the makers’, Ed Miliband talks about his preference for ‘producers’ over ‘predators’, and just about everyone says the UK must ‘rebalance the economy’ back towards manufacturing. On one level, it’s just more sound bites from a political class short of ideas. On another, something more significant is happening: industrial strategy is back.
The two words became taboo over the past 30 years, associated, in the victor’s history of neoliberalism, with discredited efforts at national planning during the 1960s and 70s.
As Britain changed course, manufacturing employment fell from 7 million in the 1970s to just over 5 million in the mid‑1980s. North Sea oil covered the macro-economic shock, but the decline continued through the 1990s and 2000s to reach just 2.8 million employed in manufacturing by 2008. Financial services never compensated, creating just 85,000 net new jobs between 1997 and 2008, concentrating its benefits in London. In the ex‑industrial regions, state-backed service industry jobs were created to plug the gap – an undisclosed strategy of Thatcher as well as New Labour.
With a mainstream political consensus now entrenched around the need for major public sector cuts – if not over the pace of cutting – many policymakers’ hopes for avoiding a worsening unemployment crisis are pinned on a manufacturing revival.
Banks have been gently encouraged to lend more to productive business, most recently via the Bank of England’s £80 billion ‘funding for lending’. Some state money has also been directed towards high tech industries, and a ‘green investment bank’ is also to be established, with £3 billion capital. However, these efforts have been tokenistic and disjointed, and are diminished further by slack demand in the economy as a result of austerity.
There is also a new interest in infrastructure. But much of this is fixated on grand projects like a third runway or HS2 rail, and there is no sign of the export-led revival that the coalition’s Office for Budget Responsibility predicted would save us from austerity.
Surveying strategies
So what are the progressive alternatives for job creation in manufacturing, and what are their limits? Proposals for a Green New Deal surfaced in 2008, proposing a Roosevelt-esque stimulus for green-tech, and the decarbonisation of housing and infrastructure to create an army of ‘green collar’ workers. This continues to provide the main source of inspiration, backed by economists like Mariana Mazzucato, who are urging an increased role for the state in industry.
In high tech industries like software and biotech, commonly perceived as the offspring of a risk-taking private sector, Mazzucato argues that the state is often the key innovator, with private companies joining in at a later stage once the opportunity for profit is clear. Three-quarters of new molecular bio-pharmaceutical entities come from publicly-funded laboratories. The real danger is not market failure, Mazzucato claims, but ‘opportunity failure’ as major transformative technologies are passed by because the private sector won’t bear the risk.
The TUC follows a similar line, urging government to ‘pick sectors’ – like clean energy – which can drive the next industrial ‘mega trend’. Proposals for a state investment bank created from RBS, as articulated in the Compass Plan B report, have gathered much support – indeed, as Red Pepper goes to press Vince Cable has announced that the government will establish a ‘business bank’. It seems likely that this institution will, like the green investment bank, be too small and not even a bank in the true sense. But it could – if operated in the manner Compass and others suggest – target lending towards socially-useful industries against the economic cycle and into areas the private sector neglects.
The limits of planning
These efforts have expanded the realm of what’s thinkable in the UK and have proposed worthwhile changes, but there are other areas industrial strategists should be focusing on. Industrial strategy needs to engage with the pervasive problem of dysfunctional business models. Making shareholder value central to the strategies of large firms has created a culture of short-termism, focused on the next set of financial results rather than investments in research and development or the workforce. Since the mid-1990s investments in fixed capital (machinery, equipment and the like) have declined by a third among UK companies.
Recognition of the problem has grown in elite circles, and featured in a government study led by the economist John Kay earlier this year, but goes nowhere near far enough.
Worse still, UK manufacturing suffers from problems of broken supply chains. Large firms which sustain chains of small and medium sized companies have disappeared. The UK has less than 2,000 factories employing more than 200 workers, while the number of companies employing 10 or fewer has doubled over the last 25 years. So when a factory like Vauxhall’s Ellesmere Port is assembling kits of imported components, expansion of output increases imports as much as exports.
A foie-gras industrial policy of pumping credit into the economy will achieve little, as it will be forcing funds into manufacturers with these organisational problems.
The absence of geography
The striking thing about most industrial policy discussions is the absence of geography. Most pitch at ‘the UK economy’, but this is an abstraction, given the divergence in needs and capabilities between London and the south and east, and the ex-industrial regions of the north and west.
The abolition of Regional Development Agencies continues a pattern of centralisation. Efforts to revitalise manufacturing should be implicitly regional, because while over half the value produced by financial services comes from London and the south east, manufacturing is spread almost evenly. However even during the pre-crisis boom, only London and the south created a significant proportion of new jobs in the private sector, and they stand better placed to benefit from most new industrial strategies – particularly those focusing on ‘industries of the future’, as Cameron calls them.
The business parks of Cambridge and tech startups of east London may provide export success in software or pharmaceuticals, but they have little to do with the West Midlands’ broken supply chains or the north’s structural unemployment.
A geographically sensitive industrial policy would pay attention to the more mundane industries of everyday life, which are broadly distributed according to population and could still generate mass employment. Food manufacturing, for example, is the UK’s largest industrial sector by employment with more than 400,000 workers.
Tax breaks should be targeted at companies producing regional employment increases (rather than relocations), and socially-useful products.
More than this though, economic regionalism should focus less on attracting firms and more on stopping funds leaving: redirecting state pension fund investments to local needs, regionalising supply chains wherever possible and rolling back damaging privatisations.
There are existing possibilities then for a new kind of industrial policy which creates employment all around the UK, but also recognises that job creation is not an end in itself, but part of an economic system which provides for social and environmental necessities and spreads its benefits more evenly.
The article draws upon research on industrial policy carried out at the Centre for Research on Socio-Cultural Change (CRESC), where the authors are based. Research reports are freely available at www.cresc.ac.uk

A different way of doing things

admin — Sun, 20 May 2012 18:58:56 +0000

Illustration: Andrzej Krauze
The first great surge of co-operation took place in Britain at the dawn of the age of railways in the 1840s. It was a consumer co-operation of the industrial working class. Within 50 years it had grown into a network of more than 1,000 retail co-ops and a wholesale society that had become the largest corporate organisation in the world. By the first world war, British co-ops accounted for 40 per cent of food distribution. They owned their own factories, farms, shipping lines, banks, an insurance company and even a tea plantation in Ceylon (now Sri Lanka). The co-operative movement was, in the vision of one of its inspired organisers J T W Mitchell, on the way to developing an alternative economy.
There were similar movements of small farmers and artisans on the continent and in North America, and later in Asia. Common to them all was an emphasis on civic and workplace democracy, autonomy, the quality of work and on small-scale units gathered into large federated organisations where a larger scale was necessary.
This way of thinking about an economy did not chime with the model of mass production that became the dominant 20th‑century paradigm for industry as well as for the principal state-centred (and centralised) alternatives on the left. The forward march of cooperation was halted.
In the past 30 years, though, there has been a rapid growth of all kinds of initiatives in the social economy. Confidence was lost in the centralised state-based alternatives, particularly after 1989. The revolution in information and communications made it possible to develop much more distributed systems of organisation, with complex webs of collaboration. Now, with the financial collapse of 2008 putting neoliberalism on the back foot, we are witnessing a new interest in co-operation.
There has been a spate of books by evolutionary biologists on humanity’s deep-rooted dependence on co-operation and by sociologists on the skills required for it. To general astonishment, the 2009 Nobel prize for economics was given to Elinor Ostrom for her work on the social economics of the commons. And co-operation runs as a common thread through the discussions of alternatives across the Occupy movement. As one of the Occupy Wall Street activists put it, they wanted a world of ‘co-operatives, credit unions and fair trade’.
Co-operative alternatives
What should we make of all this? What part can co-operatives play in a 21st-century model of an alternative economy? Could co-operatives become the dominant form of enterprise just as joint stock companies were in the industrial era? Can the state – itself part of the social economy – find a way of working with them in new collaborative ways? Can it indeed internalise not only co-operation’s values but its practices? Can we imagine a model of the co-operative economy that generates as much confidence as once did the various versions of Fordist socialism?
Let’s start with finance. Instead of a financial system dominated by a few centralised global banks that have subordinated production to their logic, can we imagine one with a thousand local banks, owned either by their members or municipalities? They would be a repository of local savings and lend them to small enterprises and households in need, whom they would know as intimately as the English country banks knew their neighbourhoods in the early 19th century.
For larger investments and technical support the banks would form their own regional and national bodies. And for the major strategic tasks, there would be a national public bank that would provide funds and advice to the local ones.
These were the dreams of 19th-century co-operators throughout Europe and North America. Today in Britain they would be seen as green utopianism. Yet in Germany they are part of everyday life. There are more than 1,100 independent co‑operative banks, with 13,000 branches and 16 million members. In almost every neighbourhood in Germany you will find a co-operative bank, and usually on the other side of the street in co-operative competition will be one of the 15,600 branches of the 430 municipal savings banks or Sparkassen. That is more than 1,500 independent local banks with almost 30,000 branches.
Both the mutual and municipal banks have their own regional and national clearing and specialist banks. Together they dominate retail banking, with the commercial banks confined to less than a third of banking business. The public development bank, the KfW, commits more than €20 million each year to finance the switch away from nuclear energy and to meet its climate change targets. They need a highly granular banking network to reach the households and small enterprises who are key to the new energy model. That is provided by the co-operative and Sparkassen banks. These two social pillars of Germany’s ‘three pillar’ system have been a principal factor behind the economic success of the small and medium industrial enterprises of the German ‘Mittelstand’.
This model of co-operative banking was developed in the mountainous rural areas in the 1850s to support the local farmers, small traders and artisans ignored by commercial banks, and later in the eastern cities to fund urban artisans and traders. It spread all over Germany and to much of the continent, where it still plays a major part in the national banking systems. In Holland, for example, the second-largest bank (one of the top 30 in the world) is the Rabobank, a confederation of 141 local credit unions. Like the German co‑operative banks, and the similarly inspired networks in Canada, they are geared to the welfare of their local economies.
What about industry? Can we imagine a co-operative region that holds its own in a globalised economy? It might equip its farmers and artisans with the most modern equipment, and help them to form co-operatives to sell their products all over the world. Each town could focus on a particular product so that it developed the necessary specialisms. It could have its own college where the skills of one generation are passed on to the next. The finance would come from local co-operative or public banks, the loans guaranteed by other artisans in the town, and all the invoices and accounting would be handled by a dense network of joint bookkeepers and accountants.
This is a description of the region of Emilia Romagna in Italy. Many of the light industries there and in neighbouring regions have not just held their own but become leaders in their sector in Europe. In the ceramics town of Imola the main co‑operative is now the largest ceramic producer in Europe. Carpi is one of the major clothing areas in the EU – a town of 60,000 people with 4,000 artisan firms. The Emilian farmers not only supply the local co-operative supermarkets that dominate retailing in the province but they have established their own co-operative processing and branding. Parmesan cheese is made by a co-operative of 550 milk producers, Parma ham by a co-operative of pig keepers on the banks of the Po.
This pattern of production is not confined to the so called ‘third Italy’. There are similar industrial regions in Denmark, Germany and the Basque and Valencian regions of Spain.
Alternatives of this kind already exist in many of the core areas of today’s economy. In the face of industrialised food, Japanese consumers (almost all women) in collaboration with local farmers have created a remarkable food box scheme. Once a week they put in their orders, gather to assemble the produce into boxes and deliver them through a network of their own local micro groups (known as Han). The consumer co-ops now have 12 million members and have started associated co-ops for food processing, packaging, design, printing and catering, and are currently extending into childcare, health and elder care.
Or take renewable energy. Denmark produces a quarter of its energy from windpower. This is largely generated from turbines owned by more than 2,000 local wind co-operatives. The UK has many fewer, but those that there are can now distribute their energy through the recently-formed Midcounties Co-operative Energy, which attracted 20,000 members in its first year. There are similar thriving co-operative networks in fields such as education, health, social care and sport.
Co-operative democracy
Many people’s idea of co-operatives is coloured by the problems that any small group of us has in choosing a place to eat, or by the idea of incessant discussions that make it hard to run anything. But in order to survive, co-ops have had to find effective means of running themselves democratically and making that involvement a source of strength not weakness.
It is least complex at the level that evolutionary biologists say is the maximum for close personal ties. The British anthropologist and evolutionary psychologist Robin Dunbar puts this at 150. Interestingly, the largest 22 worker co-ops in the UK have an average of 41 members, with only the largest, Suma Wholefoods, reaching Dunbar’s 150. If anyone doubts the viability of co-ops they should look at Suma. The staff circulate the various tasks among themselves, so each person knows the enterprise as a whole. They are a constant source of innovative ideas (and are paid equally). The key post is not the finance director but the person responsible for the staff, who would normally be called the director of human resources.
Many co-ops are much larger than this – credit unions can have millions of members – but many of them are built up from what we could call ‘Dunbar cells’, combined into confederations for those things that need a larger scale of operation.
The Mondragon network of worker co-ops in the Basque region of Spain exemplifies this. Its inspiration, the priest Jose Arizemendiarrieta, shared Gandhi’s belief in human‑scale organisations. If a Mondragon co-op got too large, he recommended it spin off some of its parts to a new co-op. Mondragon’s collective services, such as its bank, are owned by the co-ops they serve, just as the local credit unions control their apex organisations. This is a widespread feature of co‑operative democracy – small local units controlling the collective service organisations above them.
There are other conditions for effective democracy. First is a commitment to human-oriented technology. For Gandhi this was epitomised by the spinning wheel. His lifelong argument with Nehru was that the large-scale technology advocated by Nehru would have its own imperatives and interests and could never be subject to effective democratic control. In Mondragon, there is a commitment to modern technology (there are three large research laboratories) but it is a technology that is understood and controlled by the worker-owners.
Second, it is not just a quantitative question of one member, one vote. It is a qualitative one about the degree of a member’s involvement, and his or her development as a person. Gandhi’s formulation was that co-operation was an extension of the principle of self rule or swaraj. He rooted the idea of co‑operatives in personal and spiritual and not merely collective terms. This has been a theme of many of the major co-operative movements, secular and religious, of the past 150 years. In other words, co-ops are not merely about collective economic power but about the skills and rewards of being social. It is about the power to be human, not just the power to get more.
This helps explain the strong emphasis in co-operatives on education. The earliest co-operators, the Rochdale Pioneers, wanted to spend 10 per cent of their surplus on education but were restricted to 2.5 per cent by the Registrar of Friendly Societies. Many of the early British co-ops had a reading room and library, and a wide-ranging education programme for members. The Mondragon co-ops arose from courses run by Arizmendiarrieta, and education remains the primary pillar of the group today – it even has its own university. Arizmendiarrieta referred to this remarkable network of worker co-ops as an educational project with an economic base.
The idea of co-operative democracy is one of members individually and collectively ‘in process’, not the punctuated sounding out of fragmented opinion. It is about what the French sociologist Bruno Latour called ‘reassembling the social’, not as a concept separate and opposed to (or dominating) the individual, but rather as something created and recreated through the forms and processes of daily practice. As a result it works best when its members have a close pragmatic interest in the work of the co-op. There are lessons here that are transferrable to the state.
Strong ties
The early British consumer societies required members to shop only at their co-op. Each member therefore had a keen interest in the relative quality and price of its products, and how it was run. The same is true of worker and farmer co-ops, and of services such as education and healthcare that benefit from continuing relationships of trust.
The latter are areas of potential co-operative growth. There are many economic problems that involve the collaboration of different parties for their solution. In social care, for example, there are the receivers of care together with their families and neighbours, as well as the care givers and funders. New multi‑stakeholder co-ops have sprung up that have led to a marked improvement in the quality of care. Quebec has been a leader in North America. In Europe it is Italy that has again been the pioneer. There are now 7,000 Italian care co-operatives. In cities such as Bologna social co-ops now provide 85 per cent of public care services.
There is a parallel trend – for similar reasons – in education. In England, there are today 200 co-operative schools. Many of them are in deprived neighbourhoods. As state schools they had been threatened with special measures and transfer to the growing number of private educational chains. Instead they have converted to co-operatives, the membership ranging from children and parents to teachers, community supporters and local colleges. The schools have established their own secondary co-op to provide the kind of support services that local authorities have been cutting and privatising.
The discipline of the market
Karl Marx was in favour of co-operatives. He saw them as practice grounds for working-class people to run the economy. But he thought they would always be limited by the market competition of private capital. The productive power of capitalist technology coupled with cheap labour would always tend to destroy co-operatives or press them to follow a capitalist path. The wings of aspiration would be sharply clipped.
Today’s co-operative economy reflects this continuing competition from the market. There are at least four ways in which co-ops have survived:
• Individual visionary initiatives have succeeded in areas peripheral to the main economy. These have been confined to gaps beneath the private market’s radar.
• There are some co-ops that in the face of direct mainstream competition have, as Marx forecast, had to match the scale and centralised structures of their private rivals (in some co-operative banking, building societies and mutual insurance, for example). They still have some of the protection of co-operative structures but member ties are weak and open to the threat of demutualisation.
• In some countries co-ops have had a measure of protection against the private market via government legislation or financial support.
• Some co-ops have developed networks like those I have described, whose principles and alternative ways of working have given them decisive advantages against private competition.
Particular co-operatives may experience each of these in turn (or simultaneously). Many have started as movements of the marginalised. Some have then grown and found ways of providing services without sacrificing all the advantages of small, human-sized cells.
The successful networks have their own ecology. They collaborate on buying and selling. They raise finance from co-operative banks and share know-how, machinery and even orders. In an era when economies of system are becoming more important than economies of scale, these co-operative systems have proved more than a match for their private competitors.
Even then they will always face the contending forces of chaos and order. Fragmentation can become a weakness rather than a strength. In the face of crises, co-operatives are often pressured into centralisation as a means of survival. They then lose the advantages that come from the diversity and engagement of their members. Some of the most successful networks have found ways round this – repairing the faltering units and returning them to their members.
Marx, then, took too narrow a view of the spaces that can be opened up for an alternative economy. Such spaces will always be under pressure – from the market, from the state and at times from the corrosion of co-operative values and practices internally. In these circumstances, individual co-ops will be like small craft isolated on the ocean. They need the combined strength of a fleet.
Future directions
They need also to focus on areas where co-operation – by its very character – has qualities that private capital cannot match. We are living in a period when these areas are growing. There are intractable problems, which neither the private market nor the state in their current forms appear able to solve. In these fields mission-driven co-operatives are potentially a more effective form of enterprise than the private corporation.
In Britain, to realise this potential requires a radical strengthening of our own co-operative economy. The primacy of a broad, liberal co-operative education is a first priority. Ways need to be found to use existing co-operative strongholds as platforms for innovation and expansion into the new ‘intractable’ fields. At a point when ideas, knowledge and information have become the key to competitivity, every co-operative has to find ways of tapping into the ideas of the many millions of co‑operative members.
Co-operatives also have to develop new relations with the state. In the past civic co-operation has been jealous of its autonomy, while the labour tradition has seen co-operatives as a potential threat to state services. But in many areas they are natural allies, not opponents. Each represents a way of realising social and environmental goals. There are already examples of public/social partnerships, carefully protected against privatisation. For such partnerships to work the state will need to be innovative in its structures of finance, accountability, employment and contracting.
In the early 20th century there was a strong current among co-operators and guild socialists that recognised such a model of a civil economy and a supportive state. While it was out of tune with the era of mass production, the revolution in information technology and the internet has changed the industrial and post-industrial paradigm. It has led to a surge of informal civic co‑operation. This is now a world of open source software, Creative Commons, Wikipedias. Informal co‑operation has already extended far beyond the dreams of William Morris.
In the formal economy, co-operation is already well rooted. It has its own systems of management and accountability. At its best it is driven by its social rather than short-term profit imperatives. In the debris of the current financial meltdown, this reversal is what so many areas of our daily lives require. Co‑operation in its many forms now has the wind behind it. Has it now the capacity to expand its fleet?
Robin Murray is a research economist at the LSE. He is an associate of Co-operatives UK and author of Co-operation in the Age of Google

A bank worth backing

admin — Fri, 18 May 2012 19:39:56 +0000

Illustration: Cressida Knapp
At first glance, the 2010 annual report and accounts of the Co-op Bank is much like that of any other big business – the bank has assets of nearly £70 billion and eight million customers. There are pictures of the board members and senior executives (all white men, except for one woman), fulsome references to the community projects the bank supports and testimony from satisfied employees and customers. And the report has a justifiably triumphant tone to it – after all, in 2010 the bank (which includes the Co-op Insurance company) increased its profits by over 17 per cent in a year in which most banks made massive losses.
Even in the dark days of 2007, when the financial crisis broke, the bank was making money. This performance enabled it to merge successfully with the Britannia building society in 2009, making it the largest mutually owned financial services company in the world.
But there were two things that probably would not appear in any other bank’s annual report: the news that the company had turned down £1 billion of new business because the potential customers did not measure up to the bank’s ethical standards, and that in its mortgage business the bank’s policy was ‘lending to customers what they could afford to pay’. It is not every business that boasts that it is deliberately forgoing profits.
One response to these remarks is to feel a glow of pride that this is what a co-operatively owned business can do. Mine is rather different. I think it highlights the exceptionally complex position in which the Co-op finds itself, especially at a time when it is trying to take over more than 600 branches of Lloyds bank.
Red Pepper readers will probably be familiar with the origins of the Co-op – formed in the middle of the 19th century by working-class activists to provide decent food and provisions because the established retailers sold them overpriced rubbish. What the Co-op wrestled with for many years – certainly since the second world war – was how to survive as a business when consumers deserted it for a better offer from the capitalist providers. The Co-op Bank was probably the first part of the co-operative movement to spot that the solution was to serve the middle class – and to provide not just a decent banking service but promote the idea of being an ethical business too.
In other words, it embraced the market. There were always rumblings from some members of the co-operative movement that this wasn’t doing anything for the working class. But it got away with it probably because the bank was such a small part of the Co-op and it made no call on the resources of the rest of the movement. Now, with the banking industry in crisis and large chunks of it owned by the state, people from across the political and business spectrum are wondering whether it might be a model for a new form of bank.
Perhaps one of the most important people talking about a new form of ownership for banks is Andrew Haldane, the executive director for financial stability at the Bank of England. In a series of speeches and articles (all on the Bank of England website), Haldane has shown how the institution of the limited liability company – that’s the conventional shareholder-owned business – has become corrupted, so that in banking the executives were able to take massive risks with other people’s money, make excessive profits underwritten by governments and on the back of this pay themselves excessive wages.
It is Haldane who has pointed out that in 2007 the average pay of the chief executives of the largest four UK banks was 230 times the average household income. It is worth reinforcing the point – these men did not take any personal risk and the risks they took with other people’s money were underwritten by the government. In the same speech, Haldane estimated that the public subsidy to the big four British banks between 2007 and 2010 was $340 billion a year. (Yes, billion.) And remember this is all from a senior executive at the Bank of England. No surprise therefore, that he thinks we need to look again at the mutually owned co-operative as a model for banking – in his words, ‘the stakeholder democracy model’ rather than the ‘equity dictatorship model’.
What kind of co-op?
Co-operative Financial Services, the business that owns the Co‑op Bank and the Co-operative Insurance Society, is a mutually owned co-operative. But it is important to understand just what this means. It is not a workers’ co-operative and it is not run like a co-operative. It is mutually owned in the sense that there are no outside shareholders and it is run for the benefit of all of its members – the customers. But these customers exercise very little influence or control over the way the bank is run.
The structure of the Co-operative is one of indirect parliamentary democracy – the six million members of the Co-op elect representatives to their area committees, which send representatives to the regional committees, which send representatives to the main board, which also has on it the chief executive, who heads the executive, which runs the business day to day.
In the past decade the fortunes of the Co-op have been transformed, including in the highly competitive retail sector. It now accounts for 8 per cent of supermarket trade, compared with 4 per cent at its nadir ten years ago. It is making profits of nearly £250 million, after paying customers a dividend of more than £100 million – the amount each member receives being in proportion to their spending.
There is little doubt that the movement’s structure – which gives elected representatives responsibility for setting the overall strategy but no power in the day-to-day running of the business – has been one of the reasons for the Co-op’s revival. It has allowed the retail professionals to devise a strategy that worked, given the stores and brand image they had. In the recently published report of the Ownership Commission (PDF), there is an interesting chart of the life cycle of a co-operative, which shows that Phase 3 of ‘growth and glory’ is followed by a period of introspection. This is the critical time for the co-op because if it cannot reinvent itself, it will probably decline and eventually disappear. It seems clear that the Co-op has successfully reinvented and reinvigorated itself, which may herald a new sustained period of growth and success: increasing market share and profits can create a virtuous circle of growth.
But this brings with it a whole new set of challenges, which goes to the heart of the debate about capitalism that the Occupy movement has been so successful in provoking. And if we are to create new and better structures, we need to find a way of disentangling concepts such as markets and profits from an abstraction called ‘capitalism’. The Co-op’s success is a good starting point.
Competition, profit and ownership
The Co-op has succeeded in a highly competitive market. Even allowing for the fact that many of our demands as consumers are shaped by social factors (of which advertising is clearly a major one), markets have proved to be an effective way of meeting consumer needs. And in one sense the Co‑op is a capitalist institution – it owns large amounts of capital (in the form of shops) and its whole survival depends on it making a profit.
What makes it different is its ownership structure. Because there are no shareholders, the size and use of profits can be contested. In a large shareholder-owned business there is a simple clarity of purpose – to maximise the profits for shareholders. Customers need to be satisfied, laws need to be observed, corporate reputations need to be protected – it is a complex interplaying of forces, but it is, in the end, to the purpose of satisfying the shareholders.
For a co-op it is both simpler and more complex. Simpler because there are no shareholders; more complex, because there are not simple measures of performance. The competing claims of workers, the financial strength of the business, consumers, the values of the business and the wider world have all to be balanced – and in a structure in which some of these claims on the business’s profits have no formal voice.
Clearly the Co-op has had some success in recent years in managing these competing claims and using the money that in a conventional shareholder business would go to shareholders to support a wide range of other interests. But if the new enthusiasm for reviving mutuals (after they were almost killed off by the Thatcher government) does extend to the banking sector, there are several issues that need to be addressed.
The Co-op Bank is rightly proud of how it has weathered the banking crisis. One of the reasons why it has been so successful is because it has been conservatively managed – as its commitment to not encouraging people to borrow money they cannot afford shows. This means that the bank grew slowly in the boom years, in what turned out to be a good long-term strategy. Partly this was policy but partly it was necessity: as a co-op the bank was not able to get access to outside capital to expand its business.
This may be okay when you are small – and the Co-op is still a relatively small bank – but it is a substantial impediment if you want to grow. And growth may be necessary to compete with the shareholder-owned businesses. The Ownership Commission report highlighted this disadvantage, saying it had ‘serious consequences for financial service mutuals and co-operatives’, and recommended that the government should change the law to make it easier for mutuals to raise outside capital without threatening their mutual status.
This is not an arcane discussion about bank ratios. To be an effective competitor to the big banks, it is estimated that the Co-op would need to have about 6 per cent of the UK retail banking market. The Lloyds takeover would achieve that, but one reason the takeover is stalled is that the regulators are concerned about the capital base of the new bank. A private company could go off and get the capital; at the moment it is virtually impossible for a mutual to do this.
But it could be made possible. Last year the employee-mutual retailer the John Lewis Partnership raised £50 million from its customers through a bond offering. Because it is a bond, it gets a fixed return – it doesn’t share in the profits of the business and it doesn’t undermine the company’s mutual status.
Such a ‘crowd funding’ financing model could be adapted to fit the Co-op Bank if the government changed the rules. And it could be reinforced if mutuals – with their conservative banking policies – were required to have less capital than the riskier banks. You can be sure that the established banks will oppose such ideas, lobbying to keep things as they are. So it is important that all those who believe in the idea of a co-operatively owned bank fight back.
Christopher Hird is managing director of documentary film makers Dartmouth Films and executive producer of The Flaw, which tells the story of the root causes of the financial crash. His latest projects include the film of the book The Spirit Level, for which he is currently raising funds. You can back it by going to www.thespiritleveldocumentary.com

Co-operatise the state?

admin — Mon, 14 May 2012 19:36:54 +0000

In the free-for-all over the spoils of the public sector, Tory ministers are playing fast and loose with the concepts of co-operatives and mutuals. They talk blithely about ‘the John Lewis model’. One might smile at the fact that Tories have to raid progressive history, such is the crisis of legitimacy of big business. Rhetorically, one can simply apply the ‘private sector test’. Would ministers apply the right to form a co-op to workers in privatised services, as a recent Unison report proposed? Would the investment managers proclaiming ‘John Lewis style’ academies apply the John Lewis model to private companies?
Genuine co-operative alternatives are making headway. The pressure to marketise grows in parallel with the mounting evidence of failure – the Southern Cross care home operator heads a growing list, as patients, users and medical staff become more confident whistle-blowers – but few want to return to public management as we knew it. There is urgent interest in how to defend public services but managed in a more responsive way.
The co-operative movement, with its practical experience of democratic management, its labour movement traditions and its significant resources through the Co-operative Group (see page 30), is proving a distinctive source of support for alternatives to the marketisation of public services.
In education, a key development is the spread of co-operative trust schools, supported nationally by the Schools Co-operative Society (SCS) and funded through local authorities, which also provide what support services they can on diminishing budgets. There are now 200 co-op schools, with numbers growing rapidly.
Rather than be forced into an academy, schools are looking for alternatives that enable them to realise their public service values. ‘Especially important,’ explains the enthusiastic Mervyn Wilson, head of the Co-operative College, ‘is the way SCS has helped schools develop effective collaboration’ – in dealing with Ofsted inspections, for example, and sharing resources.
Trade unions are becoming warily supportive of the development. SCS is working closely with the unions, which stress the contrast with academies. ‘Academies are about marketisation, whereas co-operative schools maintain education as a public service, funding [it] on the basis of social need,’ says John Chowcat, a leading official in the Prospect union. (The Co-op does sponsor some academies in very specific circumstances, but this is not their main concern.)
What does this mean for local authorities that see the role of the state as both to deliver public services and also to enable the means of delivery to be more responsive to users and staff alike?
Enter the Co-operative Council Network. One of the network’s members is Newcastle Council. Labour councillor Nigel Todd welcomes its formation because it ‘brings the authentic socialist imagination back into the labour movement’. It does so with a stress on opening services to greater involvement from users and staff.
This is what inspires Unison branch secretary and Co-op party member Jonathan Sedgebeer from Telford Council, a new recruit to the network: ‘This is an opportunity to move beyond simply reacting to the Tory agenda [and] setting out our alternative strategy.’ He reflects the position of Unison nationally, which also sees the co-operative model as a basis for intervening in privatised services and helping staff create co-operatives that will improve services as well as wages and working conditions.
‘We are walking a fine line,’ admits Sedgebeer, fully aware that talk of co-ops, mutuals and social enterprises can ‘simply soften the path to privatisation’. Unions, the co-operative movement and councils are exploring ways of locking assets into trust arrangements that prevent private takeovers. They are looking at collaborative – rather than outsourcing – models around very specific services where co-ops or other transparent and accountable social enterprises can improve the service delivery.
‘You work out together what the council and the co-op does best from the point of view of meeting social needs.’ That’s a word of advice from Alison Page, who has six years’ experience of working with Lancaster Council through a recycling company and the charity Furniture Matters. According to the New Economics Foundation assessment of the social return on investment, the partnership has achieved a £5 return on every £1 of public money invested in terms of jobs created in the local economy, the benefits of recycling and savings on landfill.
The word ‘socialism’ in the English language had its origins in the co-operative movement of the 1820s. Its opposite was competitive individualism. In the context of state-promoted competition of wild west proportions, the co-operative movement is opening once again a contested space for developing what socialism means in practice.

It’s all at the co-op

admin — Sat, 12 May 2012 19:32:15 +0000

We’ve heard a lot lately from leading politicians about the need to promote a humane version of capitalism, one in which the mechanisms of the market are governed more by morality than greed. For parties of all colours, co-operatives are increasingly being espoused as potential agents of this transition, their expansion seen as a perfect way to moderate the excesses of the current system.
Their elevation within the political debate coincides neatly with the UN’s decision to make 2012 the International Year of the Co-operative, a move that seeks to raise public awareness of the contribution that these enterprises make to both society and the economy.
Among the UK political parties, it’s the Conservatives who have seemingly travelled the greatest distance. Under Cameron the Tories have publicly sought to overcome the image of their long-held suspicion towards this system of organisation. The promised co-operatives bill seeks to consolidate existing co‑operative legislation, and the coalition government aspires to having a million public sector workers owning their own co‑operative firms by 2015.
However, the government has taken several steps recently that suggest that its commitment towards co-operatives might not be as strong as it likes to claim. These include the decision to reject the remutualisation of Northern Rock in favour of its sale to Virgin Money, the awarding of a £90 million NHS contract to a private firm rather than the social enterprise Central Surrey Health, the cutting of funding to renewable energy co-operatives across the country and the shelving of plans to create more co‑operative Sure Start centres and housing trusts.
‘The whole thing is just another attempt by the Tories to make them seem more reasonable and hide what they are really doing. It’s window dressing,’ argues Martin Tiedemann, campaigns officer for the Co-operative Party (COP), which has had a formal tie to the Labour Party since the 1920s.
‘This is best revealed by their approach to the public sector,’ he says. ‘Rather then making bold use of the values, accountability structures and ownership models of the co-operative movement, they seem to be simply using the label “mutual” whenever they want to mask their wider programme of privatisation.’
Tiedemann maintains that the Labour Party is better positioned to champion the co-operative ideal. ‘The last Labour manifesto contained 24 policy commitments that had been put forward by the COP. And we feel that this commitment will continue under Ed Milliband. He’s a COP member [and has] given his public backing to the efforts by Labour councils in places such as Oldham, Rochdale and Lambeth to enable co-operatives to have a greater role in the provision of local services.’
As the political parties fight over who best embraces the co‑operative ideal, employees and consumers across the country are increasingly making up their own minds on the attractiveness of co-operatives. Whether measured by number, membership or contribution to the economy, co-ops have expanded in size and importance over the past three years.
‘While the rest of the economy has stagnated, co-ops have grown by 21 per cent,’ says Ed Mayo, secretary-general of Co-operatives UK. According to his organisation, there are now 5,450 co-op businesses in the UK with a total of 12.8‑million members, 236,000 employees and a combined £33.2 billion turnover.
Mayo says this increase is attributable to two main factors. ‘First, there is growing demand among consumers for fair businesses they can trust. And second, because co-operatives are answerable to their members rather than the demands of outside shareholders or the whims of the stock market, they appear to be more resilient in a crisis and can operate for the long term.’
There are many ways to organise a co‑operative. But what each has in common is the belief that members should have a say in how the business is run and the right to share in its profits. As the Calverts co-operative (see below) illustrates, co-ops are still able to create greater egalitarianism in the workplace while competing successfully against traditionally organised businesses.

A better business

Based in the heart of east London, Calverts, a print and design business, has been operating as a co-operative since its inception in 1977
‘Calverts arose out of an industrial dispute with IRAT services, the design and publishing wing of the Arts Lab,’ says co-op member Siôn Whellens. ‘A number of employees suddenly found themselves being made redundant. Believing that there was a market for their work, wanting to preserve jobs and desiring to work in a radically egalitarian way, seven of them decided to set up a common ownership, collective type of worker co-operative.’
The early success of the co-operative in creating decent jobs for the seven founders convinced them that the business model was sustainable and Calverts currently has 14 members. No equity investment has ever been sought. The business has preferred to reinvest surpluses and use asset finance and loans to purchase machinery, reasoning that this relatively expensive capital is a price worth paying for autonomy and equality. In keeping with its egalitarian origins, Calverts still has a flat management and pay structure. So everyone from the cleaner to the finance director earns the same hourly wage and each member has an equal voice in the way the business is run.
‘This makes it a really good place to work,’ argues Siôn. ‘We have better terms and conditions than most people in our industry. We also operate with a culture of openness, respect and equality, invest in member education and skills development, and enable members to take a high degree of personal responsibility within a context of collective self-management. Because of this, our staff retention is more than twice the industry average, which means that as a business we’ve acquired and held onto a great amount of creative and technical expertise.’
Conventional business wisdom would assert that both the model and the ethos that underpin Calverts – a common asset base, worker ownership and control – are doomed to failure. But although the business has faced challenging times, it has not just survived but prospered in a tough and rapidly changing industry that has seen many conventionally organised businesses go under. The co-op has managed to ride three recessions without a single employee losing their job through compulsory redundancy (although in the early 1990s there was a temporary increase in hours from 35 to 37.5 – the extra 2.5 hours being unpaid).
Calverts also achieved its success while trading ethically. The co-op has been involved with green innovation in design and print since its earliest days when it worked with the Paperback Co-op on the first recycled papers in the UK market. It has applied an ethical dimension to its supply chains too, looking to buy everything from a co-operative or fair trade source.
According to Siôn, the success of the business over the past three decades has been achieved without much help from government. ‘Co-ops haven’t been treated with informed and consistent seriousness by either Conservative or Labour administrations. For example, the state‑funded Business Link service was notoriously “co-op blind”. Also, co-operation is not much taught in business schools, even though half the world’s population depends on co-ops for their livelihood. Co-operative development expertise and education continue to be funded from the movement’s own resources, such as the Co‑operative Enterprise Hub.’
This is not something that Siôn believes will change much in the future. ‘Historically, there’s been little liking for worker ownership on the British left and trade union movement, which I can’t see changing. On the right, the Conservatives’ recent conversion is, as yet, shallow – there’s not much evidence they really “get” co-ops, preferring to see them as a variant of charities, when in fact they’re the opposite. So I think the success of the movement will continue to depend on the solidarity, vision and hard work of its individual members and businesses.’
www.calverts.coop
Illustration by Cressida Knapp.

The banks’ real stress test is still to come

admin — Sun, 15 Apr 2012 10:00:43 +0000

In the ongoing euro-crisis, political leaders are constantly criticised for not being ‘ahead of the curve’, flummoxed by the speed at which market sentiment changes. But following the turmoil in sovereign bond markets and the political deadlock in the European Union, the biggest problem of 2012 may be a new banking crisis. It is becoming increasingly clear that banks across Europe face a serious funding problem in the coming year, a problem that goes to the heart of what is wrong with the current culture and practices of the financial sector.
As has been much discussed in recent months, European banks could incur huge losses if further ‘haircuts’ are imposed on their holdings of eurozone government debt, while the stalled recovery – dragged down by ill-judged austerity policies – threatens to expose them to higher losses on their loan books. But far more threatening over the next year or so is the question of how they can sustain their own finances.
A bank draws its funds from four main sources: share issues, deposits, loans and retained profits. As in any capitalist enterprise, shareholders provide the risk capital for use in speculative activity. Depositors seeking a safe and convenient place to store their money traditionally provide the bulk of the funds, which the bank then lends while holding a modest proportion in reserve to meet any withdrawals by depositors. Banks borrow additional funds from the money markets, where lenders buy securities issued in the form of term deposits or bonds.
Although these four sources are in principle distinct, in practice they are all governed by risk and return expectations derived from the same sources of information – the bank’s accounts, credit ratings agencies, the media and the market rumour mill. A bank whose prospects are judged good will be able to draw on all four sources.
Easy and cheap
In the run-up to the 2007–8 banking crisis, banks expanded their activities very rapidly. At the height of the boom, borrowing was easy and cheap, so banks such as RBS and Lehman Brothers not only increased their debt levels massively in relation to their equity capital and reserves, but they also kept down the cost by borrowing for relatively short periods of one to five years. They believed that they would have no difficulty in ‘rolling over’ these debts when they fell due – or even that they could redeem them with cash from depositors, shareholders or retained profits.
What happened instead was that, like all credit booms, this one ended in a crash. Beginning in the sub-prime household mortgage sector in the US, rising default rates brought to light the fantasy world of ‘no-risk’ finance. The widespread use of derivatives, developed on the basis of models that bore little or no relation to the actual functioning of financial markets, had meanwhile created chains of potential contagion that reached to the furthest corners of global finance.
As investors began to appreciate the real risk to the market value of their financial assets, there ensued a classic flight to cash. As a consequence the wholesale money markets, in which banks borrow from each other and from other investors, began to freeze up. Bank debts falling due could not be rolled over any more, so the main source of discretionary funding for banks disappeared. As so often Britain led the way, with the collapse of Northern Rock in September 2007, and the slide into the global banking crisis began.
In 2008–9 central banks and governments succeeded in stabilising the banking systems in most countries through massive infusions of funds in the form of equity (as in the UK government stakes in RBS and Lloyds), loans from central banks or cash from central bank purchases of financial assets held by banks (notably through ‘quantitative easing’). But banks still held huge amounts of outstanding debt that would contractually fall due in the next few years.
Already in November 2008, the Crosby Report highlighted the difficulties facing UK mortgage lenders as a result of the freezing of global credit markets: if they were unable to refinance their borrowing, how could the flow of mortgages and thus house prices be maintained? The banks have muddled through since then, helped by the continued very low level of activity in the UK housing and mortgage markets. But the continuing overhang from the boom makes them acutely vulnerable if market pessimism and uncertainty leads to a new freezing-up of credit markets.
Evidence of this looming problem has been mounting since the middle of 2011 across Europe. In June the Bank of England reported that ‘major UK banks still have up to £300 billion of term funding . . . due to mature before the end of 2012’. In September Deutsche Bank analysts estimated that European financial institutions needed to refinance nearly €2,000 billion over the next five-year horizon, while in November Lloyds Bank had nearly £300 billion of wholesale funding outstanding, half of which matures in 2012. Credit default swaps, which are used to insure against loan defaults, have become even more expensive than when Lehman Brothers collapsed.
The banks also face other problems. Since 2008, central banks, national governments and the European Commission have all been insisting that banks increase their reserves to levels that would guarantee their survival in the event of a new financial crisis. Although the Bank for International Settlements has still not secured full agreement on the so-called Basel III rules, monetary authorities have imposed interim measures requiring banks to raise substantial new capital.
On top of this, the banks face substantial cuts in their investment banking income as a result of the stalled recovery. Meanwhile, in the UK especially, there is constant pressure from politicians and industry for banks to increase their retail lending to businesses, especially given the failure of Project Merlin, the agreement to support small and medium-scale enterprises announced by the coalition and the banks with much fanfare in early 2011. Not surprisingly, in the face of all these threats the ratings agencies have not hesitated to downgrade the credit ratings of most European banks, as Moody’s did in the case of 12 British lenders in early October.
Looming crisis
In recent months central banks have taken steps to head off the looming crisis. They have all provided more money to their banking systems, either through the purchase of financial assets or simply by lending them money at very low interest rates. At the end of November the major central banks also announced that they would fully support each other in supplying funds to meet any new crisis in the money markets. This seems to have been triggered by the flight of money out of the eurozone.
In late December the much-criticised European Central Bank offered unlimited three-year loans to eurozone banks, which promptly borrowed nearly €500 billion. Eurozone finance ministers might have hoped that some of this money would be used to purchase government bonds, or at least to encourage a revival in the inter-bank market. But such is the current climate of chronic uncertainty that the banks’ short-term deposits with the ECB rose to over €400 billion.
Given the glacial pace of regulatory reforms, banks now face much more urgent pressures as the world economy threatens a return to recession. The European Banking Authority’s much‑derided ‘stress tests’ announced in July 2011 found that only eight out of 90 banks failed to meet the standard set for their required levels of capital. But in the coming year, a flat‑lining economy and continued turmoil in financial markets will provide a much more severe test.
Although it is likely that any major bank collapse would again be contained by a state bail-out, as in 2008, the failure of governments to achieve effective reform is a major indictment of current institutions and policies. It is up to us to develop real alternatives that will not only rein in the rogues, but also re‑establish banking systems that will meet the day-to-day needs of households and businesses alike.

Plan B and beyond

admin — Mon, 09 Apr 2012 10:00:10 +0000

As 2011 wore on, the coalition’s economic failures accumulated in a growing pile of dismal statistics: the cuts were causing the economy to contract, debt to grow and creating a lasting damage to the social fabric. But what was there to challenge the coalition’s Tina (‘there is no alternative’) narrative? With the Labour Party failing decisively to set forth an economic programme that is either convincing or progressive, the need for civil society to deliver an alternative is clear and urgent.
The most significant effort to this end so far is Plan B: a good economy for a good society, launched by Compass in October. It contains proposals to kick start the economy with a modern industrial policy, create a fairer tax system, increase state-led investment via a British Investment Bank, reform financial regulations and advance a social investment state. Supported by over 100 economists, it was born out of a collaborative effort that must be sustained as a means of providing intellectual ammunition to the anti-cuts movement. While there is much to be welcomed, it is important to also analyse where Compass’s vision falls short, and where more work needs to be done.
One of the plan’s most significant problems is its failure to acknowledge the extent to which marketisation and privatisation is embedded into our public services. This blind spot leads it, in places, towards proposing policies that would further embed neoliberalism. A rethink is therefore required on this issue.
Marketisation strategies
First, we need to understand the different marketisation strategies that have been employed against the UK’s public services. First and foremost, financialisation (individual budgets, vouchers, payment by results, social investment bonds) and personalisation (so-called individual choice mechanisms and consumer participation) are means by which successive governments have transferred risk, cost and responsibility from the welfare state to individuals.
With the continued commercialisation of public services and sale of public assets, privatisation strategies have mutated. Once privatisation reached a threshold at which further sales of public assets were too complex or politically controversial, the emphasis shifted to the more subtle and insidious process of transferring services to arms-length companies and social enterprises, and creating new markets in privately financed services. The ‘big society’ agenda, the expansion of academy schools and the current NHS reforms are continuations of this wolf-in-sheep’s-clothing strategy. The already visible effects are that networks of publicly-owned schools and hospitals have been fragmented, so that each becomes a stand-alone business competing against its neighbours, leading to increased commercialisation and detachment from democratic control. Alongside this, there is the whole-service, public-private partnership model that combines PFI-funded capital investment with the delivery of entire services in 25-year contracts.
Taken together in a broad perspective, these policies are the means by which capital radically reduces the role of the state, while enhancing the position of business with new markets, tax breaks, subsidies, regulatory concessions and deepened involvement in policy-making. The consequences amount to the de-construction of democracy at local, national and international levels.
Well short
In this context, Plan B falls well short of the aim ‘to replace the political economy of market fundamentalism with a political economy for a good society’, because it does not acknowledge the character and scale of the problem in this vital area.
It refers to social justice, equality, sustainability and changing our attitude to ‘work, money and things’, but the lack of a framework of principles and values relating to public services means these ideas would not prevent a return to ‘business as usual’ and could be easily appropriated by the right and business interests to continue the process described above.
With Labour refusing to develop strategies to democratise public services, public-sector transformation has been rooted in competition and markets as the only means of reform. Plan B does not challenge this approach to transformation but proposes to ‘switch investment from symptoms to causes’ by promoting ‘a new state that spends better’. It conspicuously ignores the problems created by commissioning and outsourcing.
The need for alternatives here is particularly urgent as the coalition’s ‘commissioning council’ model, which outsources or transfers virtually everything done by local government in terms of service delivery, leaving a small ‘strategic’ hub, is gaining momentum – for example, in Barnet, Cornwall, Essex and Solihull. While this development has received little attention, its consequences for democracy could be just as profound as any of the coalition’s other policies.
Instead, the Plan B report promotes the concept of ‘co‑production’, in which service users and front-line staff work in partnership to ‘permanently control costs and increase productivity while making services more responsive and democratic’.
There would be the basis for wide agreement on this if co‑production simply meant service users and staff collaborating in service design and delivery. However, the problem is that ordinary citizens as service users cannot ‘co-produce’ because they do not have an economic role in the production of services in the sense of control over finances, employment and management. Participation alone does not give users the power to effect change.
Social enterprises
The next problem with the Plan B strategy on public services is its argument that co-operatives and social enterprises can increase efficiency by improving motivation at work, promoting entrepreneurship and wider asset ownership. Transferring privately-owned businesses to the non-profit sector and collective ownership is a progressive move, but transferring public services to social enterprises is definitely not.
Social enterprises are being used to shrink the public sector, and history shows they become a pathway to full privatisation. The growth of leisure trusts, for example, arose not from entrepreneurship but from tax avoidance as local authorities sought budget savings. The employee-owned bus companies created in the wake of bus deregulation in 1985 were subjected to ‘bus wars’ and acquired by the major bus companies. Social enterprises spawned from the public sector today may well lead to similarly disastrous results, and will at least further embed the commissioning culture.
We need an alternative strategy that is more comprehensive and radical, rooted in a framework of socialist principles and values, and designed to reconstruct the economy, the state and public services. The state must have the resources and ability to fund, plan, provide and regulate its core functions: democratic and civil society; national and international responsibilities; human needs and development; economic and fiscal management; and the regulation of markets, firms and organisations.
Voluntary and private organisations and social enterprises have an important but limited role. International, national and local taxation should be the prime revenue source to fund public services and the welfare state. The user-pays taxation model that the coalition is moving towards will prove much more expensive than public provision through general taxation. It is inequitable, regressive and significantly reduces collective provision – in the long run it will lead to the demise of public services and the welfare state.
Plan B’s search for a system of measurement that goes beyond gross domestic product (GDP) and simplistic ‘happiness’ indices is important. Equally, though, there is an urgent need for current projects and policies to be more rigorously assessed for economic, social justice, health, sustainability and environmental impacts.
The means of production and service delivery are fundamental to the quality of work and life; hence the quality of inputs, processes and outputs are equally important as outcomes. In‑house provision is essential.
Marketisation should be dismantled and commissioning abolished to provide new opportunities to redesign service delivery. A new public service management with democratic and participative governance, public planning and investment must have a pivotal role in the reconstruction strategy. Alternative plans must be rooted in organising and action strategies, otherwise they have limited traction.
Dexter Whitfield is director of the European Services Strategy Unit. He is the author of In Place of Austerity: Reconstructing the economy, state and public services, published by Spokesman Books. Illustration by Cressida Knapp

Richard Wilkinson interview: ‘The Spirit Level’ three years on

Michael — Tue, 27 Mar 2012 14:06:41 +0000

Tom Robinson (Red Pepper): How would you describe the reaction to The Spirit Level in the three years since its publication?

Richard Wilkinson: What really amazes me is how it has been picked up in so many places. We have done 700 talks. We are turning them down all the time for more research for our next book. They come from every kind of organisation. We have talked to senior business people, we have talked to charities, we talked to religious groups, political parties, think tanks, civil servants, health service conferences, academics – every kind of group. I think what is most surprising how extraordinarily positive the reception always is all over many audiences.
The audience is self-selected, but there are quite a lot where that is not true – where you are part of some standard health service conference and all the people at some level have to come or something in the civil service. Yet still we find there is an overwhelmingly positive attitude.
I think that’s because of a load of components. One is the intuition that inequality is divisive and socially corrosive has been alive for hundreds of years. The second is that almost all the outcomes are behavioural: things like violence and drugs and doing worse at school.
Those behavioural outcomes tended to be effects of inequality going through the mind. In a sense what it is telling us is that the effects of inequality are psycho-social affects. When New Labour started to think that inequality did not matter, I think what they were thinking was that maybe in the 1930s, when many people were living in awful hardship and squalor, it was wrong for some people to be living in great luxury in terms of material standards. Now that most people have cars, central heating, DVDs, and so on, well, they thought, inequality doesn’t matter anymore.
If I had been living in the 19th century and someone told me now most of the population have air conditioning, and enough food to eat and obesity would have reversed its social distribution, I would have thought we are living in some kind of utopian harmony.
But that’s why we are dealing with the psycho-social effects of inequality, not simply the individual material effects – it’s about where you are in relation to others, not simply if you have more bedrooms, more food to eat, the sanitary conditions or whatever.
I think psycho-social elements speak to people. For a long time there has been an underlying worry about the contrast between the material success of our societies and our many social failings. There is very good evidence that things like mental illness have been rising, levels of self harm amongst teenage girls – a whole host of things that worry people have been going wrong and nobody knows why. So I think in a way we have filled their explanatory vacuum.
Of course, economists talking about inequality or poverty are rather slow to cotton on to the psycho-social effects. Economics is based on the idea that the primary relationship is between people and material things. Our book in a way is saying the primary relationship is between people and people.
What people call ‘materialism’ is not some sign of natural acquisitiveness. It’s actually us trying to show who we are, improve our self-image to other people – a form of communication, social communication. I think this has caught on because we have shifted the debate in a direction that makes intuitive sense to many people, whereas much of the rest of the stuff on inequality and poverty still talked about it in material terms. Of course there are people who are homeless. But even for them, if you talk to them, it’s about a sense of failure, the hopelessness that their lives are going to like that forever, the lack of contacts, being regarded as inferior, feeling like failures. Even for them the psycho-social is really important.
Tom: This links in with the status frustration that has been mentioned earlier and by Owen Jones in his book on the demonisation of the working class – the alienation and spiral of social decay.
Richard: Yes, in our next book we are going to try and deal more with the individual psychological effects of inequality, to do with how we are seen and how we are judged. All the things to do with putting people down and admiring the people above us. These are not just big external societal class things, but between close friends, intermediate partners. Being treated as though you don’t know this, or are stupid. These things mess up even quite close relationships. In the family context, people who change class or marry across class differences always create awkwardness and tensions. And all those kinds of problems become more serious in more unequal societies.
This is where democracy in the workplace plays a crucial role. The more democratic companies have much smaller income differences between the top and bottom. The FTSE 100 average is something like a 1 to 300 ratio of the top salary to the bottom. To pay people of the bottom one third of one hundredth of what you pay yourself – there is no clearer way of saying ‘you people are near worthless’. And then the bizarre thing we say is, well, the problem with these people is they have low self-esteem! Its absolutely appalling.
Tom: It seems odd on the surface that you talk in your book of suicide rates being higher in Japan and Scandinavia, being two places with higher levels of equality?
Richard: Suicide looks like an exception in that it is, as you say, more common in more equal societies – significantly more common. But depression does not have that pattern. Suicide is higher in more equal societies. Depression is higher in more unequal ones. Although there is ill health, violence and depression at the top, all are more common at the bottom. In Britain, that has been true of suicide only since some time in the 1970s. In many countries that is still not true.
Violence is either against yourself or out against other people. If your partner goes off with someone else, or you get sacked from your job, you feel because you are so hopeless and useless. Do you take it out on the person your partner has run off with, or your boss? Do you feel more angry at them than yourself? Inequality changes the culture of those responses.
Tom: To what extent have the political classes been willing to accept The Spirit Level’s argument?
Politicians of all kinds are terrified of scaring off business. They still think that the rich are doing wonders for us all in some way. They believe that the economy will collapse if fewer millionaires come and live in London. They just haven’t thought it through, this idea that we still have to pay these people so much money. These people are not gold dust.
Any business leader worth their salt would be training up the next layer – vast numbers of people could do these jobs with the right training and expertise and that’s what it needs. We need more training. There are a vast number of people who would do all this for a tiny fraction of what these CEOs are getting.
I don’t think politicians will ever lead public opinion. One of the faults of political systems or institutions we have is that they select the people with ambition as their primary quality. You saw it so much with Blair, cowtowing to Bush and starting to walk in a macho style. That really told you what his psychology was about.
Where there have been expressions of anger at the bonus culture and so on, such as the Occupy movement, they [politicians] pay lip service or sometimes more than lip service to issues to do with equality. Lip service is a beginning. Thatcher did not pay any lip service to this kind of stuff.
But, of course even economists are beginning to turn their attention to these issues. The Office for National Statistics (ONS) is looking at measures of wellbeing. There is the beginning of looking at these processes, even close to the establishment. There was a brief phase when people talked about the importance of social cohesion and social capital. Now it is happiness and wellbeing. I think that kind of awareness of the issue grows out of recognition.

Tom: How can we challenge the dominant way of thinking and argue that economic growth is not the ‘be-all-and-end-all’?

Richard: One thing is we need to make a clear distinction between economic growth and innovation. We need innovation very badly, partly to reach sustainability, like spin-offs from electronics and bioengineering and other stuff, which will have benefits. That is not the same as economic growth.
The government talks about economic growth because it is worried about profits going down. We need to distinguish between fluctuations in the economy, which are difficult, and changes in economic activity. We suffer from downturns but it is not the same as needing growth. We want stability of economic activity.
People see it as a choice of either higher unemployment or economic growth. Again, we must break that idea and show that there are other possibilities.
What we should be doing is improvements in productivity we can gain from. Instead of increased consumption and consumerism, we need increased leisure. The New Economics Foundation said we should be moving towards a 21-hour week.
It is not impossible to communicate these messages on a massive scale, because people are already aware that consumerism is shallow. It is something we are driven to. Consumerism is empty. Surveys show it would be better to have more leisure time with family and community.
In more unequal societies people work more hours, and spend more and save less, and get into debt more. Money is even more important because it says what you are worth. All those things to do with status competition are heightened in more unequal societies and we must find ways of communicating that to a wider public.
Even with economic growth, people wonder if it really does must good in the long term. Increasingly, you hear people rather romantically say we are almost as happy as children or in the 1950s or 60s. All the measures show happiness has been flat-lining and have been doing so for decades. The lie is that economic growth is the only thing that’s worthwhile.
Tom: Let’s look from an international perspective. What would you say towards initiatives to reduce global inequality? There is talk of ‘carbon debt’ – the idea that western industrial countries should dedicate 1 percent of their GDP to pay back the amount of carbon emissions they consume to developing nations, as a means to balance environmental needs and go some way to reducing inequality too.
Richard: The reasons why inequality within and between nations is important are quite different. Within societies we have an evolved sensitivity to a social hierarchy. We are really talking of a whether the social pyramid is a very steep pyramid or not so significant.
Internationally, there are very different things that make it important and make it clear that we should be doing all we can to further economic growth in poorer countries. It’s very clear where people do not have basic necessities, we need to raise material living standards, unlike in the rich societies, particularly over these carbon issues.
Greater equality is important for environmental reasons amongst others in the rich world, because inequality is one of the most primary drivers of consumerism. Consumerism is the big threat to any attempt to rein in carbon emissions in the rich, developed world.
Some countries have less than half our levels of carbon emissions and manage our kind of levels of life expectancy. You can draw similar graphs of infant mortality and carbon emissions and see just the same thing. So not having economic growth in the rich world does not mean sacrificing the really important gains in the quality of life that we enjoy.
I think it is really important to paint a picture of a world we can move towards – a world where we not only have greater equality and improve the nature of social relations and our social environment (problems of violence etc), but also a move towards sustainability and transforming the experience of work through co-ops and employee-owned companies. A move towards working for the community, where we get our sense of self-worth. There is a qualitatively better world for all of us.
At the moment dealing with carbon emissions is seen as sacrificing, but all these things are gains in the real quality of life for all of us. We have got to turn the tables on the way that debate has come over. They are not sacrifices – we will be moving towards something better.
Tom: What practical alternatives could help us begin to re-organise our economy?
Ultimately, I think we must be aiming to get changes in control of industry – workplace democracy. The bonus culture is an example of a complete lack of democracy. It’s people not thinking they are accountable to anyone; that they can do just what they like. The way of dealing with that is make them answerable to employees.
We as consumers should be taking our custom to employee-owned companies, co-operatives and mutuals. As well as getting the government to give tax breaks to those companies, put up funding through loans to help employee buyouts.
I think some of these schemes to give employees shares are an attempt to co-opt co-operation with employees rather than shift power. But where you have a significant number of shares owned by employees it makes it a bit easier to move towards 100 percent employee ownership.
We also need community representation. Ideally, one would combine some mix of employee co-operatives and consumer co-operatives. Get them both involved. What I think it valuable about it is you can move towards structures within the market economy. But I think it as it grew, it could also transform the market economy.
I think the other benefits of moving towards greater economic democracy are not simply strengthening our community in residual areas between neighbours, but at work too. It is at work we have most to do with each other. People say that employee ownership can turn a company from a piece of property into a community.
I don’t mean we shouldn’t also be using taxes and benefits to reduce inequality – we need to do it both ways. Economic democracy is a more fundamental way and has many lasting benefits.
Tom: How would you respond to critics who object that you are exaggerating the causal role of inequality in creating social effects in so many spheres of life?
Some people look at our graphs and they say: ‘very odd that so many problems are affected by one conditioning factor’. How can so many things be affected? All the problems we look at are problems of social gradients. Our book is not, as some people call it, a theory of everything. It is a theory of social gradients.
I think people look at those social gradients and think that it is because the resilient move up and the vulnerable move down, it’s just sorting people. The fact we show some problems are anything from twice as common to 10 times as common in societies with bigger income differences mean they are substantial responses to social status differentiation itself.
In a way, what we are saying is that problems we know are related to social status get worse if you increase the status differences. The idea that if you have bigger material differences between people then you have bigger social distances is crucial.
Social class, in status differentiation, imprints itself on people from the earliest stages in life, affecting endless things to do with how we perform and our self-presentation. We are marked by our class. All those affects become more powerful where there is more inequality.
People accept most of that picture – they just won’t bring it to bear on the kind of evidence we have given. So, we do get people who start worrying about causality in this obtuse way.
It is worth pointing out what we are showing is very easy to understand, and is what you would expect in a sense.
Tom: How can we popularise these arguments and help to build a consensus around a more democratic, equitable and sustainable path?
Richard: I feel that one of the advantages I have had of speaking about it so often is one learns to use the right words. I think part of what has held the left together has been an identity thing. You want to show that you are not part of that nasty capitalist world and so you use jargon that distinguishes you from them. I think there is also a lot of intellectual snobbishness on the left – it was there in the idea of the intelligentsia a generation ago.
We need to find ways of not using our politics simply to serve our identity, which means we use phrases and words and vocabulary which separates us from other people. We must find the words that relate it to popular intuition. Make the simple links.
I do think there is a basis in intuitions people already have which we could give expression to. I think people in the past, if you think of socialists in the 1930s and 40s, didn’t commit themselves to that socialist project with the idea that a few tweaks to the tax and benefits system was what was going to make the world better. They committed themselves to that, as a very distant project often, for making the world a qualitatively better world for all of us – not just helping the poor out by asking the middle class to be more altruistic.
We need to be communicating as simply as possible an empirically based picture of a better world we should be moving towards – a world capable of inspiring people. The experience of work is going to be transformed by workplace democracy. The social environment, the quality of social relations, the strength of community, how much we trust each other – all improved by greater equality.
We also mention in our book that digitisation is another element with really exciting possibilities. Huge swathes of human creativity, art, music, computer games, software, films, can be reproduced almost without cost, perfectly.
So it moves a great sphere of human creativity from a private good, allocated according to incomes, to a public good that we all can share as part of our citizenship. We all ought to be able to read all the journals all the academic research for free. I am not saying we shouldn’t be paying all the people who produce all this stuff, but we shouldn’t be paying them in a way that restricts access to the value that they have created.
And so to bring the evidence to a wider public we will be launching a fundraising campaign for a documentary film. The idea is much like an inequality equivalent of Al Gore’s An Inconvenient Truth.
We must work to make people feel a better quality of life is available to all of us. We’ve got to lay out the groundwork that makes us confident that another world is possible.
To donate to the Spirit Level Documentary or find out more about how you can help, go to www.thespiritleveldocumentary.com
The Equality Trust is at www.equalitytrust.org.uk

The consequences of the EU bank rescue

Andy — Mon, 12 Mar 2012 16:33:52 +0000

Through the second half of 2011 there were persistent signs of financial stress in many banks right across Europe – not only in Greece, Ireland, Portugal, Spain and Italy, but in France and even Germany too. The banks were already struggling to meet the higher capital and reserve requirements that have been emanating from the Basel III international regulatory proposals, as well as to meet public expectations of a resumption in lending to help the economic recovery. But in addition, the continuing uncertainties about Eurozone sovereign debt led to a seizing-up of the interbank loan market, and the supply of term deposits and medium-term lending to banks, on a scale not seen since the 2007-8 credit crunch.

However, the unexpected and massive loan interventions by the European Central Bank in December and February appear to have completely transformed the picture. The new head of the ECB, Mario Draghi, invited all Eurozone banks to apply for unlimited loans at 1% interest and up to 3 years’ duration, and has thereby pumped over €1 trillion of liquidity into the banking system. The loans under the Long-Term Refinancing Operation (LTRO) were made available to all banks operating within the Eurozone, not just those owned and headquartered in the zone, so even UK banks have been able to borrow, albeit only within their Eurozone subsidiaries. The total amount lent was €489 billion in December, and a further €530 billion on February 29^th.

This move by the ECB took most commentators by surprise. Their attention was focused firmly on the sovereign debt problems, and when Draghi took office he made it quite clear that he was not about to take up the proposals by Keynesian critics of austerity for the ECB to directly support the sovereign debt market by large-scale bond purchases, or to consider the pooling of risk by means of exchanging national sovereign debt for ‘Eurobonds’. Given the continuing failure of Europe’s political leaders to resolve the marathon Greek crisis and reassure the bond markets over the risk of contagion, it was politically impossible for Draghi to openly challenge the dominant views of Eurozone creditor countries, who were adamantly opposed to such a resolution.

So what is the significance of this new ECB policy? First, the ECB has provided significant breathing space for European banks, given their need to refinance their loan books, build up their reserves and increase net lending to help the recovery. Second, the banks have used some of their new borrowing from the ECB to buy Eurozone sovereign debt, easing the pressure on national governments. Thirdly, it has brought a political breathing space while the Eurozone’s national governments try to reach agreement on the long-term objectives of a de facto fiscal compact and a new European Stability Mechanism.

With regard to the banks themselves, in the run-up to the December loans it was increasingly clear that a major source of worry for Eurobanks was the drying-up of lending from US money-market funds – a major component in the so-called ‘shadow banking system’ in the USA. Such lending had funded a large proportion of Eurobank purchases of US asset-backed securities during the run-up to the 2007-8 credit crunch, and many of those loans were due for repayment in 2011-12. As the Eurozone debt crisis dragged on through 2011, the US funds cut back their exposure to both sovereign debt and European banks, reducing such lending from 30% of their assets to around 10%. But since December, they have begun once again to lend to European banks: this indicated their need to find profitable use for their mountains of cash, their increasing confidence that the US and global economies would avoid a double-dip recession, and their view that the Eurozone would at least muddle through the sovereign debt crisis. Nevertheless, this return to borrowing from US money market funds carries significant risks, in the view of Eurozone financial authorities, precisely because they don’t want the banks to rely on short-term borrowing. Instead, they hope that the general easing of what was shaping up to be a severe credit crunch will allow banks to raise much longer-term finance to enable them to meet the Basel III capital requirements and go on to finance a European recovery.

In relation to the sovereign debt crisis, while the cost of borrowing has fallen significantly, it is not clear how far this has been directly the result of the LTRO. Historians of the crisis will recall that in 2009, when the US Federal Reserve and the Bank of England embarked on their policies of quantitative easing (QE), the ECB instead, as The Economist put it, “offered unlimited loans to commercial banks for up to a year against a broad range of collateral”. The result was much the same as that of QE in the USA and UK: “Banks used much of the cash to buy government bonds, which drove down long-term interest rates”. What is more, the ECB has discreetly helped to manage the sovereign debt crisis in another fashion: through its role as a clearing-house for the settlement of intra-Eurozone foreign trade, a system known as Target2. By December 2011, the German Bundesbank was in credit with Target2 to the tune of €495 billion, which in practice means that Germany has lent this sum to the Eurozone trade deficit countries, especially Greece, Ireland and Portugal. By giving help in this discreet way, the ECB has in effect protected Chancellor Merkel and the Bundesbank from the wrath of German public opinion.

In any case, since December 2011, Italian and Spanish banks have bought their own governments’ debt, but it is hard to separate out this factor from the generalised support that the bond markets have shown following the accession to power of first Mario Monti and his ‘government of technocrats’ in Italy, and more recently the Partido Popular under Mariano Rajoy in Spain. Whether the bond markets will remain supportive will depend on their economic and political expectations through the rest of this year. The announcement on March 8^th that Greece’s private creditors have accepted their ‘haircut’ may turn out to be another flash in the pan, if the Greek economy continues its precipitous decline under the weight of austerity.

And this brings us to the broader question of the future of the Eurozone, and indeed the EU as a whole. At present it looks as though the trumpeted December agreement on a fiscal compact will be ratified by those national governments that signed up to it, although the process could be delayed or even derailed, if the Irish government finds itself obliged to hold a referendum. At the same time, businesses, households and investment institutions are sitting on huge mountains of cash, which are not going to be spent unless and until ‘confidence’ is substantially restored. Right now, while there are continuing signs of some economic recovery in North America, Europe as a whole is at best stagnating, while China and other so-called emerging economies are experiencing a slowdown. The prospect of accelerating public spending cuts, especially across nearly all of Europe, is increasingly troubling not just Keynesian converts like Martin Wolf of the Financial Times, but also those bastions of neoliberalism, the International Monetary Fund and the Organisation for Economic Cooperation and Development.

However, we should not forget the old maxim “never waste a good crisis”. The media debate over the Eurozone has viewed the political drama of summits and compacts very largely in terms of the issue of national sovereignty and EU governance, which has dogged the entire European ‘project’ ever since 1958. But the underlying story which needs to be brought into the spotlight is the way this sovereign debt crisis is being used to accelerate the implementation of neoliberalism across the EU and beyond.

In this respect, market liberalisation and deregulation may be just as important as fiscal and monetary policy. To a considerable degree, Germany’s relative economic success since 2000 is not because of superior management, high technology and ‘patient’ bank finance, but the Hartz series of labour market reforms. These have had two particularly important consequences: first, they led to the creation of several million mostly part-time and ‘flexible’ jobs, which has reduced the headline rate of unemployment; and second, taken together with the relentless campaign of the mainstream parties (especially the SPD) and the media, the penetration of the ideology of competitiveness into the more privileged full-time workforce. This was reinforced in 2008-10 by government initiatives to support the adoption of shorter working hours, as an alternative to layoffs that would disperse job skills and demotivate the workforce.

The German ‘success story’ has now become the European equivalent of the Washington Consensus, through which neoliberalism was imposed across the less developed world in the 1980s and 1990s. In the Euro-periphery, flexible labour markets, deregulation of the professions and the privatisation of the public sector have formed the core of the ‘reform’ programmes in Spain, Italy and Portugal, as well as most notoriously Greece. Ireland already had an exemplary neoliberal political economy before the crisis, although this does not appear to have spared them any of the rigours of austerity. These programmes are presented as absolutely necessary to restore national competitiveness through reducing costs of production; it appears to have escaped most liberal commentators that if all countries pursue this strategy, they will end up on a downward spiral of reduced incomes and lower consumption, together with a system-wide redistribution of income from wages to profits.

Although having no direct role in its implementation, the ECB has nevertheless played a vital role in disseminating the ideology of market liberalisation and national competitiveness, revealed recently in Le Monde Diplomatique. Presenting itself as ‘apolitical and run by technicians’, the ECB is now busy transferring this mantra to the new governments under its de facto control in Greece and Italy. Governments elsewhere in Europe, regardless of their supposed political colour, are using the Bank as cover for their uniform policies of austerity and liberalisation. Furthermore, the resumption of neoliberal ‘business as usual’ has the support of the great majority of ‘mainstream’ economists, many of whom have now been ‘outed’ as the paid servants of private finance and big business.

But in addition, the ECB’s LTRO provides a loan period of three years, not the one year period offered in 2009. Unless the Eurozone’s plans for a fiscal compact and a larger stability fund come seriously unstuck in the meantime, this has the important consequence of providing a breathing space to implement the revamped neoliberal model more fully. Twenty years ago, the European centre-left actively pursued the alternative ‘social Europe’ model, but signally failed to convince the European public sufficiently to head off the neoliberal juggernaut. This time round, we somehow have to do better; otherwise we face not just years of austerity, but the final dissolution of the postwar welfare state in Europe.