Why Our Economy is Broken
January 3, 2019
When I grew up in the 1970s, photocopiers were so advanced that my school didn’t have one. When I started work in 1986 the company I worked for didn’t have a computer, we had people whose only job was to type up things the rest of us had written with a pen and carbon paper.
Technology is massively more efficient now. We can communicate instantly, we can copy & paste documents. We have checkouts where customers scan their own food and stock control and ordering is automated. Machines do half our work for us. So why aren’t we better off?
In the 1970’s, young families could afford a house on one skilled wage. We had almost no debt. As a country we could afford to fund park keepers and careers services and youth and community workers. Nobody went to a food bank, because nobody needed to.
So why, since we’re so much more productive than forty years ago, can we afford so much less? The answer is neoliberalism. Our entire economy and political system has been restructured to serve private financial companies.
Through the 1950’s and 60’s banking was seen as a dull but worthy occupation. Financial companies earned a return of around 5%, compared with industry which earned around 15%. Since the rise of neoliberalism those rates of return have reversed. Financial speculation pays much better than producing real wealth.
It started with the Thatcher-Regan shift, continued under Tony Blair’s New Labour and the Clinton era Democrats. New Labour channelled taxes into better public services, but Peter Mandelson was “intensely relaxed about people becoming filthy rich.” Only when Jeremy Corbyn won the Labour leadership did any major party challenge this.
The basic objective of capitalism is to accumulate capital – money – for the sake of it. Anything useful – like goods and services – are a side effect.
Throughout the industrial era, capitalists accumulated capital by making things. Economists from Adam Smith in 1776, Karl Marx in the 1800’s and John Maynard Keynes in the 1920’s and 30’s knew this. The industrial model of capitalism was to get rich by employing people. A wealthy entrepreneur would start with a big chunk of cash, and pay people to mine coal or build cars. He’d keep the profits of the workers’ labour for himself and the wealthy shareholders.
Despite the exploitation and brutal working conditions, there was a love-hate relationship between the workers and the owners. To become rich, the owners needed to employ lots of increasingly skilled workers. The introduction of free state education served the interests of the poor and the rich alike.
The 1945 Labour government shifted power in favour of working people. Major industries were nationalised: rail, coal, the docks. Even the NHS was a boon to industrial capitalism: healthier workers boosted productivity. Throughout the post-war period there was a direct link between rising productivity and rising wages. We saw record rises in prosperity.
That form of capitalism was fatally wounded in the 1970s, and replaced by neoliberal capitalism. An ideology got hold of the political elite: make money by manipulating the financial system. Laws and financial regulations were changed. The basic idea of capitalism is unchanged: it’s still about accumulating capital. But the mode of doing it changed. Asset stripping became a legitimate business model. There was an explosion in derivates and complex financial instruments.
Above all, we’ve seen an economic take over by the rent-seekers. Rent-seeking capitalism is where we are charged for using something owned by someone else. In most cases the owners don’t do any useful work. They charge us because they’re rich enough to own it, and we have no choice.
Housing rent is the easiest to see: someone with enough money buys a house, then rents it to someone who can’t afford to buy one, keeping a tidy profit. Rent seeking is a transfer of wealth from the poor to the rich.
It’s everywhere now. Take a water company. We built it, with public funds, and the Tories sold it. Then the owners charge us for clean water, make huge profits and paying little or no tax.
It’s the same with NHS services. We pay for it with our income tax, National Insurance and VAT, and holding companies bid for contracts, employ NHS trained workers, and cream off profits. Healthy workers were useful to industrial capitalists. Neoliberal capitalists would prefer people with chronic conditions, so they can sell us expensive drugs year after year, and profit from the intellectual property.
The biggest rent-seeking activity is banking. If you’re in a strong enough financial position to buy a house, chances are you’ll need a mortgage. Even at today’s record low interest rates, for every £1 you borrow, you’ll pay back £1.60. You might own your home, but the bank is still charging you rent on the money to buy it.
The most basic contradiction of capitalism is that the money has to come from somewhere. In the industrial age, rising wages meant people could afford to buy things.
Since the 1970’s wages have frozen, in real terms. Now the extra money for profits has come by getting us all into debt. All those rising house prices in the 1990’s and 2000’s were just a way to secure the ever rising debt, so the mega-rich had a source of funds for their profits. It crashed in 2007.
The response? Quantitative Easing. Create loads of funds at the stroke of a keyboard to prop up the financial system. In the UK alone we’ve created £435 billion of cash. 93% of it, according to the Bank of England, has gone straight to boosting the profits of the financial sector. Personal debt has again risen higher than before the 2007 crash.
Normal is getting dressed in clothes that you buy for work and driving through traffic in a car that you are still paying for – in order to get to the job you need to pay for the clothes and the car, and the house you leave vacant all day so you can afford to live in it.
We desperately need to get rid of austerity, and fund public services properly. But that’s not enough. We’ve had austerity since the 2010 coalition government. But since Thatcher onwards we saw a relentless rise in rent seeking.
Even through the New Labour years the gap grew between the richest and the poorest, and personal debt increased. Poverty was addressed by government spending on things like tax credits. Essentially, we were subsidising low wages so corporations could make a profit from underpaid workers. As soon as the Tories brought in Universal Credit and the abhorrent sanctions regime, people had to go to foodbanks, even if they were working. What we need to do is pay proper wages in the first place.
Centrists just can’t see this. They cannot see that structural inequality is the direct result of a system where you become richer by starting rich. They think that a compromise can be reached between global capital and social justice. Their belief is that if we can just manage the state a bit better, if we can just tweak the existing institutions, we can go back to a fully funded NHS and Sure Start. It’s a pipe dream. John McDonnell and Jeremy Corbyn know this. They know we have to radically restructure our economy to work in the interests of the many and not the few.
It’s also the reason why Jeremy is being attacked by all the defenders of the status quo: they know the Corbyn Project is about an irreversible shift in power and wealth.
This shift can’t be done from Parliament alone. It will take a network of local community wealth builders, a rise in worker owned firms, and an increase in new models of home ownership. Above all it will require us to have banks owned by the people. Labour has a headline policy of a National Investment Bank. To complete the shift away from neoliberal capitalism, we also need regional cooperative banks.
A lot of people have asked me why I want to stand as Mayor. It’s certainly not because I have ambitions to be a career politician. It’s because neoliberalism will eat up our communities, our children’s futures, and burn our planet unless we stop it.
If I’m elected I’ll set up a People’s Bank. I’ll use Community Wealth Building to increases wages across the whole local economy. I’ll set up worker owned firms, including a green energy supplier. And I’ll create new models of housing that cannot be privatised.
If you want to join the campaign, and build a socialist future, register here: https://www.jd4mayor.com/contact/