Economic Implosion Social Capital

The Times Flunks Economics

In its editorial of 1st October 2011, The Times of London, in commenting on the Labour Party Conference, under the heading “Anti-Business, As Usual”, penned this warning, “…Ed Miliband boldly took his party in the wrong direction in its relations with people who create wealth and can foster growth in output and employment in this country.”

When I read those words, I was struck with the impression that the writer half-doubted what they wrote, judging by the attribution of courage to what was, in their view, such a wrongheaded course.

Another reading of this phrase could be that the writer dared not offer an alternative analysis, and so the word “boldly” was self-referential critique.

What is expressed in this sentence is a repetition of a common right-wing political meme – the assertion that a nation’s wealth is only created by business enterprise. The rightwingers don’t seem to understand the foundational role that public health provision and welfare play; they don’t understand the value of public works in creating long-lasting genuinely common assets; and have been telling us for decades that state spending is an anathema, with no justification.

Let’s look at it in a little more depth. Wealth is indeed created by private enterprise – but only wealth for the few. A capitalist corporation is a machine that concentrates profit in its owners, shareholders and managers. A business survives by making a profit on its activities. The neoliberal theology assures us that wealth “trickles down” into society from the operation of private business, but the overwhelming reality is that wealth “floods up” to those who invest in and run the companies.

A private company stays in business if it makes a profit. If stocks and shares in a company are publicly traded, then the business has an obligation to its shareholders to make a profit. A profit is the surplus of the value of goods and services sold. The value of the output must exceed the fixed costs, including the cost of labour.

What in effect happens is that the employees sacrifice some of the value of their labour for the benefit of the enterprise. So, no, it’s not the business that creates wealth, it’s the people that work for it. If they could go into production without being employed by the business, they could make higher personal incomes.

Money doesn’t disappear, unless it’s locked up in a safe deposit box – businesses spend their profits into the general economy, and wealthy executives and business owners are renowned for their valuable consumer goods and services purchases. However, the whole process has removed control of the surplus from the employees to the business, and therein lies a problem – the business may value short-term financial survival over long-term employment-led profit.

I’m sure that Ed Miliband, like many politicians, understands socialism, as articulated by Karl Marx “From each according to his ability, to each according to his need” – no one should be left behind, regardless of their age, ability, health, intelligence, beliefs, knowledge, standing, gender, faith, orientation… While it’s true that many businesses create social goods, the question is, would it be more efficient to omit the middleman and go straight for publicly-owned social enterprise – avoiding the margin falling into private control ?

Is it best that a large proportion of the surplus of production is devoted to the upkeep of society ? A good half of the UK’s national budget deficit was created to save the banks from collapse under the weight of dodgy financial products – eliminating that public debt has been made a priority, and the only place to liberate expenditure is from social health and welfare programmes. Yet reducing these budget lines means that the fabric of society, its infrastructure, the things we all rely upon, will be on the chopping board. But without publicly-paid-for roads, schools, hospitals, local authority waste disposal, how could a business make a profit ?

Like insurance, if everyone donates a little, from the proceeds of our work, towards the social welfare budget, everybody benefits and nobody loses out. We have to return to supporting this National Insurance, rather than trying to whittle it down. With a smaller national safety net and support structure, businesses will not make so much profit, as they will need to meet some of these social goods from their own budgets.

And with less social spending, businesses become less capable of creating new employment – as their potential sources of revenue dry up. For example, many national and local government contracts are fulfilled by private business. With higher unemployment and worsening public services, the citizens and organisations that would have been the customers of private enterprise are no longer in a position to buy their wares.

A contracted economy, with the banks making decisions on the basis of risk instead of the basis of opportunity; less people with incomes; more people with lesser incomes; and a squeeze on all kinds of public funding, will make private business more cautious in taking on new employees, and more ready to make current employees redundant.

The British economy does not appear to be able to create jobs at present – the public sector has lost many jobs in the last year or so, but the private sector has not created an equivalent number of employment roles.

Without social spending, production will be lower, and so will consumption. It’s hard to claim, therefore, that business is capable of creating wealth and jobs in the current crisis.

The Times, Saturday 1 October 2011

“Re-engineering the Economy”

“Britain requires more ambitious investment in infrastructure and more
activist industrial policy to underpin long-term recovery”

“Reviving the British economy is a huge challenge. The task involves
much more than clearing up the mess caused by the financial meltdown
in 2008. It is much bigger than battling against the headwinds from
the eurozone debt crisis and the slowdown in the global economy.”

“For years, Britain lived beyond its means, buoyed by ever increasing
debt and an unsustainable boom in financial services. Now that the
party is over it is clear that other areas of the economy have
atrophied. Manufacturing has continued to shrink and the underlying
infrastructure of the economy has been starved of resources.”

“What Britain needs now is thus not merely recovery from recession: it
is a comprehensive re-engineering of the economy. At the heart of this
process should be a more ambitious approach to infrastructure
investment and more activism in industrial policy. In The Times today, David Wighton looks at six good ideas for projects that could
boost Britain’s economic prospects and quality of life. They range
from an motorway linking Oxford and Cambridge to a testing ground for
wind turbines in Aberdeen.”

“Stepping up investment in infrastructure will not only stimulate the
economy in the short-term, but will also increase the potential for
future growth. Upgrading our transport, energy and telecoms networks
will help to rebalance the economy away from financial services and
the South East.”

“But to do so on the scale required will need a big cultural change.
Too often, ambitious projects get nowhere because they are deemed too
difficult, too expensive or too politically unpopular. If Britain is
to remain competitive, particularly with emerging economic powers in
Asia, we must stop saying no.”

“The Olympic Park development shows that Britain can carry out big
projects very successfully. Clearly, public money is short. But there
is a huge amount of private funding looking to invest in British
infrastructure. What is needed more than anything is for politicians
to confront opposition to big projects and to prevent schemes getting
bogged down for years in the planning process.”

“The shambles that is government airport policy is an example. To
remain internationally competitive, London needs a hub airport with
more capacity. Because of local opposition, the Lib-Con coalition
ruled out a third runway at Heathrow. The Government should reopen
that debate but Philip Hammond, the Transport Secretary, offers little
hope of that prospect. “There will never be another runway at
Heathrow,” he says in an interview with The Times today. In that case,
the Government must look seriously at alternatives, including a £50
billion airport in the Thames Estuary.”

“Renewing Britain’s energy infrastructure is one of the biggest
challenges that the country faces but it also presents a huge
opportunity. There is a chance for British companies to build a
leading global position in renewable energy technology. The Government
rightly believes that it should be actively involved in supporting the
development of that industry. It should extend this activist approach
to other areas of the economy, particularly in science and technology.
The UK has a headstart on the genome. We cannot squander it.”

“The coalition has inherited some promising initiatives from Lord
Mandelson, the former Business Secretary, including plans for a
network of centres to help to commercialise more of the world-class
technology coming out of British universities. These have huge
potential but will only succeed with proper funding and real
engagement by ambitious businesses.”

“Re-engineering the British economy is a daunting prospect. But our
Victorian forebears would have risen to the challenge. The alternative
is long-term relative decline.”

“Anti-Business, As Usual”

“Ed Miliband’s conference speech has jeopardised Labour’s relations
with enterprise”

“Labour’s prospects of returning to government dimmed this week as the
party appeared to turn its back on business. As the Conservatives
gather in Manchester for their conference next week, they face a
slowing economy, a debt crisis in the eurozone and a domestic growth
strategy that appears inconsistent and incoherent even to their most
financially minded MPs. But one thing fewer that they have to worry
about is the threat of a credible opposition. The reason is that Ed
Miliband boldly took his party in the wrong direction in its relations
with people who create wealth and can foster growth in output and
employment in this country.”

“The speeches at Labour’s conference in Liverpool this week by Ed
Miliband and Ed Balls, the Shadow Chancellor, repeated the party’s
refusal to acknowledge that, in its last few years in charge, money
was going out at a much quicker pace than it was coming in. This is an
intransigent stance that Labour will regret.”

“Until the party’s most senior people show the seriousness that is due
about the public finances, a course that would involve spelling out
which cuts they would keep, they cannot hope to inspire any economic
confidence. Business deserted Labour in 2010 and, even though vigorous
growth is still elusive, there is as things stand little chance of its
coming back.”

“What little prospect there was of an immediate reconciliation between
the Labour Party and commercial sector was indeed shattered by Mr
Miliband’s speech. Though he claimed later, in his salvage round of
interviews, that we was “against business as usual” he left the
impression that he was, in fact, “against business, as usual”. To any
disinterested observer, it would have felt as if normal service were
being resumed in the Labour Party. It is hard not to gain the
impression that there is nobody in the party’s ranks who has any real
understanding of business.”

“It is not that there is nothing in Mr Miliband’s distinction between
good and bad business. When a business trades on employees who are
educated and kept healthy at public expense and when a company
benefits from the rules of contract and tort that underpin free
exchange, private enterprise overlaps with public questions. But no
serious business leader disputes this. On the contrary, this is
something that every respectable business would find obvious.”

“Mr Miliband’s serious error was to suggest that the bad businesses –
and quote who those are beyond Sir Fred Goodwin and a few unspecified
asset strippers, nobody is really sure – had been fleecing the country
for three decades. It is true that the actions of a greedy minority
can throw the reputation of the market’s order into disrepute. The
rules that prevail in the marketplace must be fair and, to that
extent, capitalism must be underpinned by a moral virtue.”

“The classic account of the social democracy that Mr Miliband espouses
was written by Tony Crosland in his seminal volume “The Future of
Socialism”, published more than 50 years ago. It rests on economic
growth, the proceeds of which pay for the social projects of a Labour
government. That project is inconceivable without the entrepreneurs
who create the wealth that the politicians seek to distribute. In a
single speech, Mr Miliband has begun to unravel a relationship that
his party needs.”

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.