Tuesday, 1 December 2015

The Emperor has no clothes

John Berger wrote that the poverty of ‘our century’ (he was referring to the 20th Century) is unlike that of any other. ‘It is not, as poverty was before, the result of natural scarcity, but a set of priorities imposed upon the rest of the world by the rich.’ He went on to say that the modern poor are not pitied but held responsible for their own condition.

We see this writ large in Cameron's austerity Britain.  The poorest are not only being made to pay the price for the failings of an irresponsible financial system, they also have been stereotyped as undeserving, work-shy and dependent on benefits.  It is a stern message without hope -  more poverty will drive them to help themselves out of poverty.  The Secretary of State for Work and Pensions has said as much - he wants to make those on benefits 'better people'.  It is as if the poor must be saved from themselves, or from 'welfare dependency' by a 'cold turkey' of reduced benefits.

So what of the banking crisis? Have lessons really been heeded? It barely gets a mention in the political narrative.

For a brief moment after the banking collapse there was a focus on the sins of the bankers, or a concern about the banking system.  A bit of fuss was made about bankers bonuses and about 'rogue bankers', but such a narrative itself avoided the real issue - the financial system itself.

The financial system remains politically unchallenged.  But a new economic and social narrative is desperately needed.  We really need to ask what the financial markets are for - or who they are for. 

For the best part of the last five years the focus has been on 'cutting the deficit' by cutting welfare.  It has been an amazing political trick - to rewrite the narrative.

Welfare did not create the financial crisis, but the poorest and most vulnerable are being made to pay, and as our social infrastructure in health and social care collapses  - starved of funding - we are asked to believe that more private equity is the answer.

It is a spiral down as social provision is removed to be replaced by private provision -  or the provision isn't replaced at all.  It is all about 'reducing the size of the state'.  

But consider the global position.  How can it be that so many live in poverty and in poor health when the world has the capacity to produce so much food, has the potential to ensure families are decently housed and educated, and has the capacity to raise the health and wellbeing of all? Why this doesn't happen is in large part because of the absence of political will. But there is another more important reason.

The answer is that the algorithms of our financial markets have no social or environmental imperative. 

The one thing politicians cannot do is bring themselves to tell us the truth about our financial system. They have placed so much faith in it - worshiped at the Alter of neoliberal 'free' market economics. They have given up their free will for a belief in the inevitable economic imperatives of free financial markets - God is made in the image of an algorithm driven market and the assumption of human selfishness.  There is no social objective - only that of accumulating wealth.

Many of us are familiar with the cautionary story by Hans Christian Andersen about two weavers who promise an emperor a new suit of clothes.  The suit he is told is invisible to those who are unfit for their positions. If they can't see the invisible suit then they are stupid, or incompetent.  The Emperor believes it, and his courtiers are too afraid to tell him the truth.

When the Emperor parades before his subjects in his new clothes, no one dares to say that he is naked until a child cries out, "But he isn't wearing anything at all!"

The neoliberal myth of ‘free markets’ is like the emperor without clothes. The global financial markets strut their stuff, buying and selling nothing at all to the tune of trillions of dollars. Imaginary boxes of nothing at all - or perhaps hope, greed, envy. The global markets work as long as we believe the boxes are full of something, or could be full of something. But they are not. They are empty. The greatest trick of capitalism is that it has valued nothing and sold it. It trades in it day in and day out, accumulating 'wealth'.

Yet so much of this activity creates no real wealth at all, no real goods or services. Only some 3% of the trillions held by British banks is ever invested in real production – in real businesses providing goods and services that we need. If we counted up the value of all the goods and services - the ‘real’ wealth -  it would amount to only a fraction of the ‘value’ of the transactions in the financial markets. It is a trade in imaginary wealth.

Politicians, like the emperor’s subjects, pretend that this isn’t so. But it is. And even when the system breaks down, they invest considerable effort in recreating the myth and refitting a new set of invisible clothing. Global financial capital rules, and only the ignorant would suggest otherwise.

Mr Osborne uses the term ‘we are the builders’. Sadly we are not. Where once we produced goods, we now import them. We have a massive balance of trade deficit with the rest of the world. London is the centre of the neoliberal myth, we depend on pretending the Emperor has clothes.

Global computer models, based on the worst instinct of mankind, selfishness, make thousands of transactions every second.  We have handed our financial well-being over to computer models, but the mathematics is not without its assumptions. They are philosophically and politically grounded. 

So how has this come about? The answer is the separation of the economy into two domains - the financial and the real.  Both should be part of an organic whole, but the financial markets operate with little regard for the real economy and with sparse regard for real need.

The real economy needs social objectives. It needs a healthy, skilled workforce. It needs infrastructure to work and it needs a stable local environment - the real economy needs social objectives as an integral part of the economy. But it also needs finance.

The global financial market trades largely in 'derivatives', futures, swaps - or some other terminology for the empty boxes -  the value of which are only loosely related to a real asset. It has little capacity for social or environmental strategy.

It is a massive gambling casino with betting on, for example, interest rate futures, where traders speculate on the future direction of interest rates, or the rise and fall of commodity prices or exchange rates.  It will bet on any aspect of 'price' that will move.  But rarely engages in building bridges or restoring the environment or tackling poverty.

But what about growth? Doesn't that help?

Relying on growth to reduce poverty is at best rather inefficient. How much growth does it need? In spite of massive 'growth' the poor receive but crumbs. Yet it has been the curse of the poor for so many decades that government has promoted 'growth' as a strategy.

The more wealth we can produce, the story runs, the more it will benefit the poorest.  The idea that there could or should be a social strategy for apportioning such growth appears to have been lost somewhere in the late 1970s - redistribution became a dirty idea, in part because it would mean taxing the 'wealth makers'. Taking from the rich and giving to the poor we are led to believe would be a disincentive to the 'wealth creators'.

Relying on growth alone without  strategies to achieve social redistribution of the benefits of that growth is unlikely to be effective. If our objectives are to make poverty history or to make the world a less unequal place in which to live, then we need something different in the way we do things. 

We need a new political-economic settlement that puts social objectives at the heart of economic activity.  This requires politicians, businesses and finance to work together to achieve fair growth. We need growth, not for its own sake, but for a purpose - the purpose of increasing well-being for all whilst protecting the environment on which we depend.  The Emperor needs a real suit of clothes.  


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