The response to austerity can't be on the terms which led us into it

The only effective response must be to repudiate the debt, writes Molly Scott Cato

It is disappointing that the response from the Left in Britain to the politics of austerity has been so limp. The brilliant coup from the interests of capital to paint the economic crisis as a crisis of government debt and public spending—and therefore the basis for an attack on the ideology of the left—has seen little in the way of aggressive intellectual response.

The simple explanation for this is that the left is divided. The line taken by the socialist and labour left has largely been one of denial. This is not a high level of debt, they argue. By historical standards, we have survived much higher levels of debt. Why, after the last war we faced debts on a far greater scale and yet that is when we established the health service.

I think this is a mistaken approach to the politics of austerity. For one thing, it will not wash. Citizens have a sense of there having been a vast amount of cash floating around during the Labour years. They also know that consumption, individual and national, was based on untrammelled credit. This is their sense of how life was, and they are not wrong.

Secondly, the parallel between our economy now and in the 1950s does not hold up to scrutiny. At that time we were an imperial nation and the workshop of the world, if a somewhat scruffy one making rather unfashionable products. We could use our empire as a vast ‘internal’ market, sucking in resources and finding compliant customers for our products. We could repay our debts through hard, productive labour—and we did. Now what do we have to offer the world as justification for the debts we have incurred? Our favourite offering of financial services is finding considerably less favour than five years ago.

But most importantly we should reject this line of argument because it is morally wrong. We should not have to live through the 1950s again, working hard to return interest to those who loaned us money. Back then it was US and Canadian capitalists who, through lend-lease, had ensured that the value created by British workers would flow back to them. We would not have won the war without US productive capacity, but we would not have lost the peace as spectacularly as we did had they not insisted that we continue to pay for it right up to 2006, just two years before the credit crisis.

Rather than arguing about how we should pay it back we should be repudiating the debt.

This is what has been happening in other European countries, where Citizens’ Audit have been established, inspired by the examples of the Latin American countries who refused to pay their debts during the last decade. Why should we pay back money loaned to us by financial institutions who have the power to create money by electronic fiat, they asked. And we should be asking the same question. By the time we had paid our wartime debts—the debts we incurred for defeating Hitler and protecting European democracy—we had paid our ‘allies’ the US and Canada, or rather US and Canadian capitalists and financiers, twice what we had borrowed. This iniquitous use of the power of money to extract value should be the real target of the left.

Earlier this week Portugal’s citizens’ audit campaign published a preliminary technical report: ‘Understand the debt to get out of the trap’; the Spanish campaign is called ‘Who owes whom?’ and is part of the work of the indignados. The Irish citizens audit, supported by UNITE as well as debt campaign groups, challenged circular nature of Irish debt-holding, with the government guaranteeing banks which, in turn, hold its debt. It found that Irish debt had been transformed from a safe and boring investment to a vehicle of speculative interest. Its authors used Kissinger’s term of “constructive ambiguity” to describe the deliberate use of recondite language to undermine the citizen’s power to understand the actions of their politicians.

The real purpose of a citizens’ audit is precisely to challenge this “constructive ambiguity”. Most people never question whether it is right that they should pay interest to a bank for the privilege of buying their home, although they will pay around twice the cost of the house by the term of the mortgage. Whether this is just depends on how the bank acquired the money and in these days when the corrupt dealings of banks are becoming revealed in more egregious detail every day, an audit into how our debt was acquired, who owns it, and who will receive the money that we are paying in return for our borrowings is urgently overdue.

Photograph: Getty Images

Molly Scott Cato is Green MEP for the southwest of England, elected in May 2014. She has published widely, particularly on issues related to green economics. Molly was formerly Professor of Strategy and Sustainability at the University of Roehampton.

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BHS is Theresa May’s big chance to reform capitalism – she’d better take it

Almost everyone is disgusted by the tale of BHS. 

Back in 2013, Theresa May gave a speech that might yet prove significant. In it, she declared: “Believing in free markets doesn’t mean we believe that anything goes.”

Capitalism wasn’t perfect, she continued: 

“Where it’s manifestly failing, where it’s losing public support, where it’s not helping to provide opportunity for all, we have to reform it.”

Three years on and just days into her premiership, May has the chance to be a reformist, thanks to one hell of an example of failing capitalism – BHS. 

The report from the Work and Pensions select committee was damning. Philip Green, the business tycoon, bought BHS and took more out than he put in. In a difficult environment, and without new investment, it began to bleed money. Green’s prize became a liability, and by 2014 he was desperate to get rid of it. He found a willing buyer, Paul Sutton, but the buyer had previously been convicted of fraud. So he sold it to Sutton’s former driver instead, for a quid. Yes, you read that right. He sold it to a crook’s driver for a quid.

This might all sound like a ludicrous but entertaining deal, if it wasn’t for the thousands of hapless BHS workers involved. One year later, the business collapsed, along with their job prospects. Not only that, but Green’s lack of attention to the pension fund meant their dreams of a comfortable retirement were now in jeopardy. 

The report called BHS “the unacceptable face of capitalism”. It concluded: 

"The truth is that a large proportion of those who have got rich or richer off the back of BHS are to blame. Sir Philip Green, Dominic Chappell and their respective directors, advisers and hangers-on are all culpable. 

“The tragedy is that those who have lost out are the ordinary employees and pensioners.”

May appears to agree. Her spokeswoman told journalists the PM would “look carefully” at policies to tackle “corporate irresponsibility”. 

She should take the opportunity.

Attempts to reshape capitalism are almost always blunted in practice. Corporations can make threats of their own. Think of Google’s sweetheart tax deals, banks’ excessive pay. Each time politicians tried to clamp down, there were threats of moving overseas. If the economy weakens in response to Brexit, the power to call the shots should tip more towards these companies. 

But this time, there will be few defenders of the BHS approach.

Firstly, the report's revelations about corporate governance damage many well-known brands, which are tarnished by association. Financial services firms will be just as keen as the public to avoid another BHS. Simon Walker, director general of the Institute of Directors, said that the circumstances of the collapse of BHS were “a blight on the reputation of British business”.

Secondly, the pensions issue will not go away. Neglected by Green until it was too late, the £571m hole in the BHS pension finances is extreme. But Tom McPhail from pensions firm Hargreaves Lansdown has warned there are thousands of other defined benefit schemes struggling with deficits. In the light of BHS, May has an opportunity to take an otherwise dusty issue – protections for workplace pensions - and place it top of the agenda. 

Thirdly, the BHS scandal is wreathed in the kind of opaque company structures loathed by voters on the left and right alike. The report found the Green family used private, offshore companies to direct the flow of money away from BHS, which made it in turn hard to investigate. The report stated: “These arrangements were designed to reduce tax bills. They have also had the effect of reducing levels of corporate transparency.”

BHS may have failed as a company, but its demise has succeeded in uniting the left and right. Trade unionists want more protection for workers; City boys are worried about their reputation; patriots mourn the death of a proud British company. May has a mandate to clean up capitalism - she should seize it.