Category Archives: Industry

There’s nothing wrong with People’s Quantitative Easing

It’s fashionable among the economic scribes to deride Corbyn’s advocacy of what he calls People’s Quantitative Easing (PQE) as though it were somehow illiterate.   In fact it is an entirely sensible policy.   Conventional QE operates via the central bank buying bonds in the financial markets, thus transferring newly-created money to banks, hedge funds and other investors.    The effect is therefore to boost the prices of bonds, shares and other assets, making the rich richer.   The theory then is that this wealth effect should stimulate the economy as the investors who have been enriched by selling assets at high prices to the Bank of England spend some of their profits on the high streets or employing servants or investing in new businesses.   It is clearly a very indirect and extremely inefficient way of  stimulating an economy.   Both Tory and Labour governments have spent £375 bn in using this device with very little to show for it since we still have the slowest recovery for over a century.

A better alternative – though not the best – would be ‘helicopter money’.   Or slightly more realistically, send cheques of £20 a week to every man, woman and child as a sort of reverse poll tax.   Technically, if £375 bn were spent this way, these cheques could continue to be sent out every week for nearly 6 years since £375bn is roughly £6,000 per head when equally divided among the 64 million people of Britain.   That would indeed be a far, far quicker way of stimulating economic activity.   Since neither dropping money from helicopters or sending cheques every week to every household in Britain is very practical, a third alternative is to bypass the banks and, after full and detailed consultation with the CBI ansd TUC, invest directly in key industrial or manufacturing projects.

Why Blairites are going hysterical

In 1994 Blair took over the Labour party and made it safe for British capitalism.   Which is why so many top companies and banks were content to contribute large sums to the party in order to hedge their bets – they gained whichever party won the elections.   Up till now they have dominated the Labour party for the last 20 years.   Blair’s abiding legacy, apart from the Iraq war, was to abandon the fundamental principles of the party and to assimilate it instead to the Thatcherite ideology of ‘let the markets rule and the State get out of the way’.    When Mrs. Thatcher was later asked what was her greatest achievement, she replied without hesitation: ‘New Labour’.   And the Daily Telegraph 6 months into Blair’s premiership published a half-page photo of Blair standing in front of a large picture of Thatcher in No.10 with the inscription underneath: ‘To Thatcher, a son’.   By accommodating the ruling corporate class the Blairites used the Labour party as their avenue to power, and it’s hardly surprising now that they are in such a state of denial and disbelief at their abrupt fall from power over the last month.

Of course the Blairite faction is sincere in believing that they alone know how things should best be run and that, as Blair himself has constantly reminded us, any millimetre departure from his prescribed course will bring chaos and disaster.   Not only does that show their unwillingness to listen (the party was virtually disbanded under Blair into a press release and door-knocking organisation), but it also exposes a deep arrogance about their own invincibility and their contempt for any radicalism from the Left.   The writing was already on the wall in Greece, Spain, and Scotland, but still they thought they could muffle dissent and ignore it.   It is a lesson in political nemesis.

Of course the Blairites will protest that they, and they alone, won three elections in a row.   The truth however is that the Tories threw away the 1997 election rather than that Labour distinctively won it, the second election was marked by stasis after an undistinguished 4 years, and the third saw the loss of 4 million votes after Iraq.   They will also appeal to the huge investment in health and education.   But a large part of the former was spent on building (fine for the construction industry rather than the essentials of health) and on outsourcing and privatisation (again good for the corporates rather than patients), whilst in the case of the latter there were huge building programmes inaugurating academies and free schools which have never proved their worth and have never been popular.

 

5 good reasons why Osborne’s selling off RBS and Lloyds is wrong

Osborne as usual is taking advantage of Labour’s distraction at this time to sell off RBS and Lloyds to the private sector at a huge losses to the taxpayer, to accountability of the banks, and to the future of the British economy.   This is motivated by his ambition eclipse even the Thatcherite privatisation boom of the 1980s and to oversee the biggest ever sale of publicly owned corporate and financial assets in one year, as well as of course elevating his prospects for the coming Tory leadership race and premiership.  But what may be good for his party and for him will certainly not be good for the country.

First, it is a thoroughly bad deal for the taxpayer.   Osborne has agreed to cut the public shareholding in RBS from 79% to 73%, but at a loss to taxpayers of £1bn.   The scandal of this unnecessary sale is one main reason why it was announced in the summer recess when Parliament wasn’t sitting so that he could avoid hard questioning about its implications.   The £2.1bn of RBS shares were sold at 330p per share, far below the average of 502p per share that the helpless taxpayer was forced to purchase them.

But that is not the real reason why Osborne’s policy is downright misguided.   The banks’ overmighty arrogance, recklessness, and incompetence were the prime reason behind the worst global financial crash for a century, and there not a jot of evidence that they have accepted their responsibility, shown any remorse, or are committed to any serious reform. Indeed they have fought tooth and nail against reform, have extracted major concessions from a weak Osborne like his caving in by reducing the bank levy in response to their lobbying, have pushed back the time limit for any statutory changed to 2019, and are demanding a very early return to pre-crash business as usual.

Moreover there are 5 specific reasons why the banks should NOT be returned to the private sector.   Their deregulated lending – for overseas speculation, for deployment of artificial tax avoidance devices on an industrial scale, for exotic derivative financial constructs which were highly lucrative but were at the heart of the crash, and for for prime property sites in central London – do not benefit British industry, but only their own selfish interests for profit maximization.   Only 8% of their lending last year went towards productive investment in Britain.

There has been far too little reform to prevent another massive crash, mainly confined to increasing the capital reserve ratio and setting up ‘Chinese walls’ between the retail and investment arms of banks.   They are still ‘too big to fail’, so that the implicit taxpayer guarantee is still in place.   There is no structural reform: Britain needs smaller, regional, specialist banks that helps Britain in the same way as the German Mittelstand.   And the dark forces of the next crash – the rise of shadow banking and a re-run of the most dangerous derivatives  – are not being countered.

 

The Heathrow decision is a menu without the prices

Business in this age of market fundamentalism is cock-a-hoop with the Davies report decision to recommend Heathrow.   They would be, wouldn’t they, since the report has focused largely on the supposed economic benefits while claiming that all the toxic underside of the decision can be ‘managed’.   However the feasibility of the latter needs to be subject to a realistic appraisal, not just assumed.   It is said that night flights will be banned between 11.30pm and 6am, but ‘respite periods’ when some areas don’t suffer overhead noise will be reduced from half the working day to just a third.   The report allows for a huge 54% increase in passenger numbers (more than a quarter of a million a year), but claims this is compatible with a cap on aviation emissions just above current levels – in fact a wing and a prayer that is dependent on big increases in cleaner engines which may or may not be delivered.
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The economy is in far worse shape than Osborne let’s on: here’s why

Osborne’s portrayal of the British economy as having “the fastest rate of recovery of any advanced nation in the world”, which he again repeated yesterday, is sheer poppycock.   He continues to boast that GDP growth can be expected to average some 2.5% per annum over the period ahead, but on every key economic indicator that is wildly optimistic, not least when the latest quarterly growth figure was just 0.3%.   There are several good reasons to believe Osborne is blowing into the wind.

Since growth depends on investment, it is troubling that private investors, who clearly don’t believe Osborne’s claims about sustainable growth, are effectively on strike.  UK  Investment at only 14% of GDP is now one of the lowest in the world, and if depreciation is netted off (as it needs to be), we are down to about 2.5%, which is not even enough to keep up with the rising population.   This means our capital stock in light industry, a vital sector for growth, is actually decreasing.   That of course also explains why productivity has been flat for the last 5 years.
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Are the IPPC and the DPP fit for purpose?

Accountability in Britain has reached a new nadir today.   The report that the Independent Police Complaints Commission (IPPC) refuses to investigate claims of police criminality at the mass picket at Orgreave during the 1984-5 miners’ strike really stinks.   They have already found evidence that police officers assaulted miners and then perverted the course of justice, committing perjury in later prosecutions which still failed.   Even senior officers of the South Yorkshire police admit the perjury, but did not want it made public – who are they to block the course of justice?   The IPCC in their report today try to dump blame on them for being complicit – so why is the IPCC now seeking to withdraw from the case?
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Tory Trade Union bill is an attack on a fundamental human right

Under the Tories’ proposed new law, strike ballots would need a 50% turnout for industrial action to be legal.   But in the case of ‘essential’ public services – health, education, transport and fire services – 40% of those voting have to have voted in favour.   In other words, 80% which is the combination of the general turnout proposal and the new 40% yes vote must have voted in favour.   That would make almost all strikes illegal, particularly in large and dispersed workforces where postal ballots rarely achieve this.   This is a blatant attack on the rightful role of trade unions in being able to protect their members against exploitation at work – several recent polls have consistently found that more than 70% of the public believe unions are ‘essential to protect workers’ interests’.
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Out-of-control executive pay can only be curbed by having it determined by employees

The latest figures on executive pay are so preposterous that they should provoke uproar.   As an example recently published, Bob Dudley, chief executive of BP, was given a total remuneration package of $15.2m in 2014.   That illustrates how far executive pay is now largely hidden from public scrutiny: his basic salary was ‘only’ $1.8m, but his deferred bonus and other share awards totalled $9.8m, up 64%.   It is through devices such as these that pay at the top in business has escalated into the stratosphere in the last two or three decades.   Chief executives at the biggest UK companies, according to Incomes Data Services, took home last year 120 times more than their full-time employees, yet in 2000, just 14 years earlier, they received 47 times more.   In the US it is even more extreme: between 1978-2013 the remuneration of chief executives rose 937%, more than double the level of stock market growth, and enormously more than the 10.2% increase in the average US worker’s pay over the same period.
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Why doesn’t Labour lambast the Tories on their weakest point – the economy?

It is strange that Labour hasn’t launched a full frontal attack on the Tory handling of the economy over the last 5 years, because it’s been deplorable.   The only points the Tories make in defence of their own management are growth and jobs.   But look at the record.   Osborne’s bizarre idea that contracting the economy would generate private sector expansion crashed in 2012 when his austerity budgets, plus increasing VAT and cutting capital expenditure both of which stifled demand, led to stagnation.   Deficit reduction went out of the window, and in came reckless plans to get growth going at any cost – the Funding for Lending and Help to Buy schemes which duly blew up a property bubble in the housing market – not so much a long-term economic plan as a desperate short-term expedient.   This left a very lopsided economy – investment, manufacturing, construction and exports (the real sources of sustainable growth) flat or worse, and only the service sector growing.   Altogether growth has average 1.5% since 2010, well below the average for the last 70 years of 2.5%.
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