Category Archives: Economic

Britain, Economic, Financial Markets, Government, Politics, Society

The real crisis of capitalism

ECONOMIC

THE past week has been a time for recalling the events of September 2008, their long shadow over the economics and politics of the past ten years and for drawing the right lessons for the future.

In particular, did the financial crisis prove that capitalism is fundamentally unstable and that a new model involving greater control and a much bigger role for the state, as favoured by Jeremy Corbyn’s Labour Party, is a better one? Or, the fact that the guilty men and women mainly got away with it, meant that public anger over the crisis was never assuaged?

We should understand that the financial crisis did not begin on the weekend of September 13-14, 2008, which saw frantic but unsuccessful efforts to save Lehman Brothers, the Wall Street investment bank. The crisis had been simmering for well over a year, a period that saw the run on Northern Rock and the start of Britain’s deepest recession in the post-war period.

The bankruptcy of Lehman, announced on September 15, turned a smouldering crisis into a ravaging forest fire that spread rapidly around the world. Banks were bailed-out by free-market governments using public funds. Alongside near-zero interest rates, central banks including the Bank of England did things they never would have contemplated in normal circumstances, most notably quantitative easing (or the printing of free money). Governments spent vast sums of money that ran into the billions boosting their economies to ease the impact of the crisis, but on the basis that they would cut back later. Austerity, on a scale and duration not seen in this country since the Geddes axe of the 1920s, was the course chosen by the coalition government in 2010.

 

MOST of what people think they know about the past decade is wrong. The danger in 2008 was of a prolonged period of deflation – falling prices and economic depression, a modern version of the 1930s. The reality is that both were avoided. After the shock of the crisis the economy grew more slowly than had been the norm, but it grew. All advanced economies were afflicted by weaker growth.

Income inequality in Britain has fallen since the crisis, not least because the burden of tax faced by the highest earners has increased. This financial year, 2018-19, the top 1% will pay almost 28% of all income tax, compared with just over 24% in 2007-08, paying £12bn a year more in tax than before the near meltdown. The top 10% accounts for 59.7% of all income tax revenues, up from 54.3%.

Austerity, as practised by the coalition led by David Cameron and now by a Tory minority government under Theresa May, was never about shrinking the size of the state for ideological reasons. The coalition’s mantra before the crisis was that after the spending splurge under Gordon Brown, the “proceeds of growth” would in future be shared between tax cuts and increased public spending.

Even faced with the task of reducing an out-of-control budget deficit, Mr Cameron ring-fenced NHS spending and imposed a target of spending 0.7% of gross national income on foreign aid. A better criticism of Tory austerity is that too much of it involved cuts to government investment and that the process has dragged on for too long, partly because it was leavened with tax cuts, mostly for working people.

 

THE financial crisis and its aftermath were painful but too many Tories seem to have been cowed by it from making a robust case for capitalism. This leaves the way open for Jeremy Corbyn and John McDonnell, Labour’s anti-capitalist chancellor. When a privatised rail company messes up, or a housebuilding boss is awarded a bonus running into tens of millions of pounds, there is rightly an outcry. The crisis itself was the product, yes, of many greedy bankers and a few in handcuffs might have satisfied public opinion, but it was also the consequence of regulators whose job it was to stop them failing. In many cases, including the recent collapse of Carillion, many of these problems arise at the interface between the public and private sector.

Of course, we all want to return to a time when living standards are rising at a decent pace. That will be achieved only when productivity growth also returns to something approaching past norms. Capitalism in Britain has, since the crisis, delivered something like seven times the number of new jobs as those cut by the public sector. Unemployment is at its lowest since the mid-1970s. It is the private sector, not failed prescriptions of anti-capitalism, that will deliver prosperity in the future.

 

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Britain, Economic, Government, History, Society, Technology

AI is not a threat but an opportunity

ARTIFICIAL INTELLIGENCE

IS the march of technology and machines something to be fearful of? Andy Haldane, the Bank of England chief economist, thinks we should be wary at the very least. He recently told the BBC that the rapid growth of artificial intelligence (AI) will make many jobs obsolete with far-reaching social and cultural consequences. He predicted a “Fourth Industrial Revolution” on a scale greater than anything seen before. “Each of those [previous industrial revolutions] had a wrenching and lengthy impact on the jobs market, on the lives and livelihoods of large swathes of society,” Mr Haldane said.

There is a distinction to be drawn between the short and long-term impacts of such upheavals. The western world has become immeasurably wealthier since farming techniques drove millions off the land and labour-saving automation took hold at the end of the 18th century. The increased prosperity that followed cannot be gainsaid though economic historians argue over when real living standards really began to rise for the majority. The period of transition was marked by social unrest and repression both here and on the continent.

But it remains the case that significant technological advances, whether they be the coming of the railways or the arrival of the silicon chip, have been accompanied by economic growth and higher per capita GDP.

Arguably, we have been too slow to adapt to automation in the UK, with too many jobs that could be mechanised still being carried out manually. This is one reason behind the UK’s poor productivity and sluggish wage growth, which have been the hallmarks of the economy in recent years. Stopping automation or taxing it as Labour threatens to do would stifle investment and worsen the country’s competitive position.

Mr Haldane was right to have said we cannot be sure whether the new machine age will destroy jobs or create new ones and on what scale; but seeking to stop it, as history shows, would be foolish and futile. Although AI will have a significant impact on manual work, many of the jobs likely to go will be middle-income posts in service industries – but these will be people who should be able to adapt to new challenges. Rather than stand in the way of progress, governments should ensure that their policies are geared towards encouraging the uptake of new skills and retraining. Automation should not be considered a threat but an opportunity.

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Africa, Aid, Britain, Business, Economic, G7, Government

Britain: Aid cash to be used in boosting trade with Africa

FOREIGN AID BUDGET

THERESA May has pledged to use Britain’s overseas aid budget to boost post-Brexit trade with Africa.

She told an audience in Cape Town that she is “unashamed” of her ambition to ensure the multibillion-pound pot “works for the UK”.

The Prime Minister said that from now on Britain’s foreign aid budget will not only help combat poverty, but support “our own national interest”.

It comes after the bloated aid budget – now standing at almost £14billion a year – has come under fire as officials struggling to spend the money quickly enough have donated to a series of increasingly controversial projects.

Mrs May said funds will be specifically used to “support the private sector to take root and grow”. This means Britain will employ its aid to help create the conditions for UK businesses to have confidence to invest in Africa.

She also said the funds should go towards boosting security and tackling terrorism in the continent – a move to which she insists will make the UK safer.

The money will also be used to encourage potential migrants to stay in Africa so they are not tempted to make the dangerous journey to Europe.

The commitment comes amid the UK’s huge foreign aid budget struggling to maintain public support. Critics have long opposed David Cameron’s controversial policy and target of spending 0.7 per cent of national income on overseas aid.

The target has meant huge increases in aid spending in recent years – and guarantees it will continue to grow.

Public anger has grown given some of the examples of how the money is spent. These include a £5.2million grant to girl band Yegna, nicknamed the “Ethiopian Spice Girls”, whose funding was only halted last year.

Downing Street will now hope that the announcement of a realignment of spending will help convince voters of its worth.

The Department for International Development gives around £2.6billion a year in bilateral aid to Africa. The Prime Minister has also announced a new ambition to make Britain the G7’s largest investor in the continent within four years.

At present the U.S. is the largest contributor to African investment, but Mrs May aims to leapfrog it by 2022.

In Cape Town, the Prime Minister talked about changing the face of the UK’s aid spending in Africa both to reflect the continent’s rapid growth and to benefit Britain. There is a huge opportunity for British trade in a post-Brexit world. Mrs May’s three-day trip to the African continent will also take in visits to Nigeria and Kenya.

The PM said: “It is the private sector that is the key to driving that growth – transforming labour markets… And the UK has the companies that can invest in and trade with Africa to do just this.

“The private sector has not yet managed to deliver the level of job creation and investment that many African nations need.

“So I want to put our development budget and expertise at the centre of our partnership as part of an ambitious new approach – and use this to support the private sector to take root and grow.

“I am unashamed about the need to ensure that our aid programme works for the UK.

“I am committing that our development spending will not only combat extreme poverty, but at the same time tackle global challenges and support our own national interest.

“This will ensure that our investment in aid benefits us all, as is fully aligned with our wider national security priorities.”

The Prime Minister also set out why working with Africa to deliver jobs, investment and long-term stability is in the interests of Britain and the wider world.

Mrs May pointed out that Africa needs to create millions of new jobs every year to keep pace with its rapidly growing population, adding: “The challenges facing Africa are not Africa’s alone.

“It is in the world’s interest to see that those jobs are created, to tackle the causes and symptoms of extremism and instability, to deal with migration flows and to encourage clean growth. If we fail to do so, the economic and environmental impacts will swiftly reach every corner of our networked, connected world.

“And the human impacts . . . will be similarly global.”

Addressing the issue of British trade, Mrs May said: “As Prime Minister of a trading nation whose success depends on global markets, I want to see strong African economies that British companies can do business with in a free and fair fashion.

“Whether through creating new customers for British exporters or opportunities for British investors, our integrated global economy means healthy African economies are good news for British people as well as African people.

“I want the UK to be the G7’s number one investor in Africa, with Britain’s private sector companies taking the lead in investing the billions that will see African economies growing by trillions.”

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