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Ukip and the SNP are symptoms, not the cause, of the crisis in our democracy

Ukip and the SNP are merely the strongest political expressions of our present discontents.
 

It is difficult to recollect a forthcoming general election that portends such an unpredictable and chaotic outcome. All elections are uncertain but this is uncertainty carried to an unlimited degree. We are accustomed to two great giants with opposing views battling for dominance, and over the past few decades a centrist party has usually entered the fray in attempting to exert a minor influence through the hope of participating in a coalition.

But this is different. The two giants remain but the electorate is disillusioned with both. Nonetheless, they present a sparring match as if they were really intent on the destruction of the other, and meanwhile, new parties that have lately caught the popular imagination, step into the ring in threatening to upset forever the duopoly that has lasted so long. Whilst the exhibition of a false hostility presents a sickening sight to a public tired of negative politics, the new entrants from the far north and middle England introduce unknown styles of “national politics” that are so unsettling to the stability of the past.

All this confusion is symptomatic of deeper socio-economic forces that have not been brought to the surface for open debate or resolution. It may be they touch on issues which politicians of all parties are loathed to raise. One must look to the transformation of society and the world of work over the past 60 years and their relationship with the political establishment for a satisfactory explanation.

As I have noted in an earlier article, the cynicism and alienation of the majority in supporting the long established party political system is traceable to the fact that our politicians, irrespective of party, have ceased to represent the interests of electors in any real sense. This is not because of the alleged self-centredness, greed, or “nefarious” characteristics of our representatives, but because serpentine transnational financial forces have increasingly eaten away the power of our elected rulers.

Hence the absorption of our democratic institutions by a toxic form of transnational financial power has not occurred through a carefully planned conspiracy, but is rather the result of Britain’s economic decline as a global power together with accidental circumstances surrounding our debt-fuelled financial crisis.

This should not be used as an excuse, however, for dismissing such a situation as “inevitable,” or as a fait accompli that cannot be reversed, for it would then follow we would need to give up hope in the saving grace of democracy. It is necessary to recognise that changes and events have moved forward at a faster pace than our political leaders are able to interpret and respond to them. In other words, progress or changes have advanced in ways that could not be anticipated, and this has confused and wrong-footed the political establishment.

All the old ideological beliefs that defined the political divisions of the left, the right, or the centre – and still do so in vague theory – are now in tatters. This is because the major economic issues facing us today are no longer properly confined to class-based interests, but have become universal in affecting 97 per cent of the population, or those from almost any background or status. They have become generational rather than class-based, but this is an interpretation of fact that our traditional parties were never evolved to address.

For example, the inability of the younger generations to get their foot onto the bottom rung of the property ladder equally disadvantages those from every sector of society. Likewise, in a highly technological society calling on the expertise of the majority, the millstone of life-long student debt will oppress those from every background. To no lesser extent, the collapse of retirement expectations, due in great part to the scam of pensions linked to misprepresented investment funds, will also adversely affect those from every kind of occupation.

The structure of society and the world of work have been transformed out of all recognition over the past 60 years, but political thought has not kept apace with this in meeting the new realities. The old working class or proletariat as well as the old middle class with its bourgeois values, have long since disappeared – or are fast disappearing. They have been replaced by the middle-middle majority, or a new heterogeneous class that has not yet gelled into the awareness of its own specific economic and other interests that are quite different from those which existed in the past.

If parliamentary democracy has therefore been neutered by financial interests, how is the former to be regenerated in the new era? Certainly not by turning to the bankrupt ideologies of the past, or to the groups supporting them, for the impracticality of such an approach would do nothing to disturb the entrenched security of the financial establishment. The first step is to look more closely at the new realities.

The first observation is that socialism, or the politics of the left, became discredited worldwide as an economic system with the collapse of the Berlin Wall in 1989. The failure of the milder forms of socialism occurred not so much through its management or mismanagement of the economy, as through turning its back in disgust on the essential psychological motivations of productive business, and selling out to the worst forms of casino capitalism. This tendency in Britain is certainly traceable to the post-1945 election when it was decided to endorse a demon-like pact of concentrating on social reform whilst leaving business for the most part to its own devices.

An ironic factor which ensured that the left in government was not prepared to challenge seriously the abuses of Rentier capitalism is that both socialist and neo-liberal economic thinking was favourable towards the idea of gigantism as somehow a value in itself – usually on the often deceptively simplistic grounds of cost-saving. The cost-saving argument too often turned a blind eye to the need for competition and wider choice, or to the abuses of hugely concentrated power in serving a small elite increasingly dependent on speculative activity divorced from production. 

The second observation is that so-called “Neo-liberalism,” or more precisely, Rentier capitalism, or the politics of the right, became discredited worldwide as an economic system with the emergence of the debt-fuelled financial crisis in 2008. This series of events not only demonstrated the irresponsibility of Rentier capitalism and its divorce from democratic or any other kind of effective accountability, but something far worse. If Marx had been wrong on almost everything in his predictions on the future of capitalism, he was spot-on on one point: viz., the emergence of an ever widening divide between the super-rich and the rest in the ownership of wealth.

In addition to the above, there were other factors that alienated the new middle-middle majority from supporting the old economic systems and their ideologies. Advanced technological societies with their greater call on skills and brainpower also accelerated the spirit of individualism, not out of choice but through necessity.

Gone was the shoulder-to-shoulder collectivism in an industrial environment employing thousands on identical tasks, and gone too the particular brand of trades unionism which accompanied this, in place of increasing occupational differentiation. As son no longer followed father into the workplace, each individual had to look into his own abilities and life choices in forming a career best suited to his personal interests. In view of these demands socialist collectivism became antipathetic to the needs and nature of the newly emerging type of employee.

But the attraction of right wing politics, or its interpretation of economic forces, became equally repulsive. Years of study and expenditure in developing occupational skills at least deserved the reward of career stability, but this too was denied. An education that was broader than hitherto brought a greater awareness of opportunities won, lost, or denied. In terms of knowledge and skills there was now a far narrower margin between employees and bosses.

As business ownership and control became a game of musical chairs, ever more CEOs were either thrown onto the scrapheap or demoted to subordinate positions. And accompanying this process was the more painful task of managing enterprises not for the purpose of maximising market share in serving consumer interests, but for the often self-destructive end of maximising shareholders’ profits to the sacrifice of re-investment, innovation, and desirable productivity.

At the same time the interests of domestic ownership were adversely affected through the huge inflation values of the passive assets of land and property. This occurred as the consequence of mortgaging national assets to transnational interests – a process only resulting from the choice of the super-rich to refrain from investing in manufacturing or primary industries. In this way the supposed benefits of the super-rich in creating the trickle-down effect, so loudly proclaimed during the Thatcher years, were reversed to create the trickle-up effect.

This influenced a wide sphere of activities from haircutting to luxury goods but was most evident in the property market in putting flat or house purchase beyond the reach of the rising generation. Most shocking of all in this context, however, is the gesture of leading politicians to continue welcoming this super-rich class to our shores on the grounds of their helping to relieve our “debt-fuelled economic system.” Meanwhile, the silence of those on the left to this situation remains stunning.

As established parties across the entire spectrum of politics are unable or not prepared to address the major issues of our age, as they are locked within the thinking of the past, it should be no surprise that the public are alienated from the Westminster system. If the established left, or the right, or centre in any of their degrees or permutations, are defunct as organs for democratic change, then what alternative remains?

If democracy is to be regenerated as a living force then only one practical path may be followed, and that entails an economic system based on the personalisation of property. This can best be understood by comparison with public ownership which means the top-down power of state authorities; or “privatisation” which in reality is pure Orwellian Newspeak for the absolute power of giant corporations – usually traceable to transnational organisations with their offshore head offices safely secreted away from the tax demands of the nation state.

Although today no one would argue that voting rights should be linked to property qualifications, it should be borne in mind that democracy has everywhere only been able to develop in unison with the growth of personal property – and with good reason. Democracy would be quite meaningless and unworkable if it was not linked directly to the individual ownership and control of the means of production and distribution. In the past democratic societies were always faulted because of the injustice of the many who had minimal or no property.

Only today in advanced industrial societies, with their knowledge-based and socially well-informed majorities, is it practicable to initiate the fully formed equitable democracy. If those with knowledge, irrespective of their status or financial affluence, are to accede to the positions they rightly deserve according to ability, then it is only necessary to declare that the Emperor has no clothes.

In practice this means that the nation state should democratise, i.e. bring to heel, business activity in ensuring that it benefits the majority population within its borders. It also means that legislation is necessary in endorsing personal property as a human right, and ensuring that the outcome of this is the dissemination of business ownership in encouraging a more competitive, innovative, self-sustainable and productive economy, particularly with regard to manufacturing and the primary industries.

With regard to industries that are essentially large scale, such as shipbuilding, auto-manufacture, mining, and certain retail sectors, Company law should be amended in giving employees both co-determination rights (Mitbesstimmung) as well as a financial share interest with a preferential control over external investors. This, of course, should not exclude the encouragement of other ownership patterns, such as co-operatives of various kinds, providing they are commercially viable and managed efficiently.

Such an economic system would be correctly denominated Productive capitalism as based on the successful outcome of the northern Continental countries and the Far East Tigers in the four decades following World War II. Its success is not only attributable to greater productive quality and efficiency, but also to higher average wages, and a more equal distribution of wealth throughout the community. It is to be contrasted with the sad failures of Rentier capitalism of the Anglo-American model during the same period, which despite the raising of living standards, fades beside the relative comparison of the opposing system. Whilst the first was reliant on the desirable restrictions imposed by credit investment banks for funding industry; the second utilised the equity markets that mutated away from the outcome of productivity to that of money creation as an end in itself.

This returns us to explaining the success of the new nationalisms, i.e. the SNP north of the border and Ukip. Although many of the electorate may not have a comprehensive grasp of political causes and outcomes, it is true that most usually have a perceptive intuition of their real interests. And those interests today point towards the need for national or communal ends howsoever these may be defined.

It is unfashionable to promote national interests in the present age, and established parties of both left and right are traditionally opposed to them in almost any guise. The opposition of the left is ideologically based on the idea that all the world’s peoples supposedly belong to one happy family – although in fairness it should be stressed that the Lib Dems are far more committed to an uncompromising internationalism than the Labour Party, and hence the collapse of the former’s popularity at the polls. The opposition of the right is based on promoting the profits of international trade, and on the idea we should maintain a “friendly” open house for “foreign investors.”

But such policies are not necessarily beneficial to the interests of most people, and neither are they necessarily beneficial as economic policies in themselves. Much importing activity is of real harm, particularly to the agricultural sector. The importation from distant lands of carrots, brassicas, potatoes, etc., that may easily be grown in our own soil, diminishes our own farming sector; whilst it has been estimated by the NFU, that within ten years our dairy industry will disappear entirely due to the importation of cheap milk of questionable quality.

Meanwhile, the financial benefits of such transactions accrue to traders only through exchange rate manipulations and the acquisition of cash crop acreages in Third world territories. The resulting impoverishment of self-subsisting peasants pushed off their land into mega-city slums, and the carbon footprint added to the environment are additional damaging factors. Whilst those from abroad willing to invest in home-based industry should always be welcome in contributing to employment creation, the unhappy situation today (as noted above) is that the majority of foreign investors contribute little or nothing to home-based wealth creation.

The strongest argument for supporting national or communal policies is that democracy as a form of government is only workable within the nation state when extending its authority through the rule of law over all aspects of business and the economy. This is not to imply any extraordinary prerogatives, or the dictatorship of the state, but only to underline that the latter should reserve the right for monitoring and taxing those activities relating to or within its geographical jurisdiction.

If, therefore, the SNP or Ukip are to be regarded with a measure of scepticism, at least a sympathetic understanding should be given to the underlying psychological motivations of their supporters that may be hidden from themselves. If, however, these movements are to be regarded in a more disdainful light, then the only reasonable course of action is to persuade the older established parties to adopt the more positive aspects of their national or communal purpose for the greater benefit of the country.

The Scottish people are fully entitled to claim their cultural and economic integrity, but surely these things may be won without the break-up of the larger union. Likewise, the fears of Ukip supporters can surely be answered without resorting to an ugly, myopic or self-destructive nationalism which ultimately they would not wish for given a little more reflection or a better frame of mind. The cry of both these new parties, if interpreted in a more reasonable light is simply, “Give us back the key for the recovery of our democratic rights.”

Robert Corfe is a social thinker, political philosopher and author of multiple books, including Social Capitalism in Theory and Practice, published by Arena Books.

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We're racing towards another private debt crisis - so why did no one see it coming?

The Office for Budget Responsibility failed to foresee the rise in household debt. 

This is a call for a public inquiry on the current situation regarding private debt.

For almost a decade now, since 2007, we have been living a lie. And that lie is preparing to wreak havoc on our economy. If we do not create some kind of impartial forum to discuss what is actually happening, the results might well prove disastrous. 

The lie I am referring to is the idea that the financial crisis of 2008, and subsequent “Great Recession,” were caused by profligate government spending and subsequent public debt. The exact opposite is in fact the case. The crash happened because of dangerously high levels of private debt (a mortgage crisis specifically). And - this is the part we are not supposed to talk about—there is an inverse relation between public and private debt levels.

If the public sector reduces its debt, overall private sector debt goes up. That's what happened in the years leading up to 2008. Now austerity is making it happening again. And if we don't do something about it, the results will, inevitably, be another catastrophe.

The winners and losers of debt

These graphs show the relationship between public and private debt. They are both forecasts from the Office for Budget Responsibility, produced in 2015 and 2017. 

This is what the OBR was projecting what would happen around now back in 2015:

This year the OBR completely changed its forecast. This is how it now projects things are likely to turn out:

First, notice how both diagrams are symmetrical. What happens on top (that part of the economy that is in surplus) precisely mirrors what happens in the bottom (that part of the economy that is in deficit). This is called an “accounting identity.”

As in any ledger sheet, credits and debits have to match. The easiest way to understand this is to imagine there are just two actors, government, and the private sector. If the government borrows £100, and spends it, then the government has a debt of £100. But by spending, it has injected £100 more pounds into the private economy. In other words, -£100 for the government, +£100 for everyone else in the diagram. 

Similarly, if the government taxes someone for £100 , then the government is £100 richer but there’s £100 subtracted from the private economy (+£100 for government, -£100 for everybody else on the diagram).

So what implications does this kind of bookkeeping have for the overall economy? It means that if the government goes into surplus, then everyone else has to go into debt.

We tend to think of money as if it is a bunch of poker chips already lying around, but that’s not how it really works. Money has to be created. And money is created when banks make loans. Either the government borrows money and injects it into the economy, or private citizens borrow money from banks. Those banks don’t take the money from people’s savings or anywhere else, they just make it up. Anyone can write an IOU. But only banks are allowed to issue IOUs that the government will accept in payment for taxes. (In other words, there actually is a magic money tree. But only banks are allowed to use it.)

There are other factors. The UK has a huge trade deficit (blue), and that means the government (yellow) also has to run a deficit (print money, or more accurately, get banks to do it) to inject into the economy to pay for all those Chinese trainers, American iPads, and German cars. The total amount of money can also fluctuate. But the real point here is, the less the government is in debt, the more everyone else must be. Austerity measures will necessarily lead to rising levels of private debt. And this is exactly what has happened.

Now, if this seems to have very little to do with the way politicians talk about such matters, there's a simple reason: most politicians don’t actually know any of this. A recent survey showed 90 per cent of MPs don't even understand where money comes from (they think it's issued by the Royal Mint). In reality, debt is money. If no one owed anyone anything at all there would be no money and the economy would grind to a halt.

But of course debt has to be owed to someone. These charts show who owes what to whom.

The crisis in private debt

Bearing all this in mind, let's look at those diagrams again - keeping our eye particularly on the dark blue that represents household debt. In the first, 2015 version, the OBR duly noted that there was a substantial build-up of household debt in the years leading up to the crash of 2008. This is significant because it was the first time in British history that total household debts were higher than total household savings, and therefore the household sector itself was in deficit territory. (Corporations, at the same time, were raking in enormous profits.) But it also predicted this wouldn't happen again.

True, the OBR observed, austerity and the reduction of government deficits meant private debt levels would have to go up. However, the OBR economists insisted this wouldn't be a problem because the burden would fall not on households but on corporations. Business-friendly Tory policies would, they insisted, inspire a boom in corporate expansion, which would mean frenzied corporate borrowing (that huge red bulge below the line in the first diagram, which was supposed to eventually replace government deficits entirely). Ordinary households would have little or nothing to worry about.

This was total fantasy. No such frenzied boom took place.

In the second diagram, two years later, the OBR is forced to acknowledge this. Corporations are just raking in the profits and sitting on them. The household sector, on the other hand, is a rolling catastrophe. Austerity has meant falling wages, less government spending on social services (or anything else), and higher de facto taxes. This puts the squeeze on household budgets and people are forced to borrow. As a result, not only are households in overall deficit for the second time in British history, the situation is actually worse than it was in the years leading up to 2008.

And remember: it was a mortgage crisis that set off the 2008 crash, which almost destroyed the world economy and plunged millions into penury. Not a crisis in public debt. A crisis in private debt.

An inquiry

In 2015, around the time the original OBR predictions came out, I wrote an essay in the Guardian predicting that austerity and budget-balancing would create a disastrous crisis in private debt. Now it's so clearly, unmistakably, happening that even the OBR cannot deny it.

I believe the time has come for there be a public investigation - a formal public inquiry, in fact - into how this could be allowed to happen. After the 2008 crash, at least the economists in Treasury and the Bank of England could plausibly claim they hadn't completely understood the relation between private debt and financial instability. Now they simply have no excuse.

What on earth is an institution called the “Office for Budget Responsibility” credulously imagining corporate borrowing binges in order to suggest the government will balance the budget to no ill effects? How responsible is that? Even the second chart is extremely odd. Up to 2017, the top and bottom of the diagram are exact mirrors of one another, as they ought to be. However, in the projected future after 2017, the section below the line is much smaller than the section above, apparently seriously understating the amount both of future government, and future private, debt. In other words, the numbers don't add up.

The OBR told the New Statesman ​that it was not aware of any errors in its 2015 forecast for corporate sector net lending, and that the forecast was based on the available data. It said the forecast for business investment has been revised down because of the uncertainty created by Brexit. 

Still, if the “Office of Budget Responsibility” was true to its name, it should be sounding off the alarm bells right about now. So far all we've got is one mention of private debt and a mild warning about the rise of personal debt from the Bank of England, which did not however connect the problem to austerity, and one fairly strong statement from a maverick columnist in the Daily Mail. Otherwise, silence. 

The only plausible explanation is that institutions like the Treasury, OBR, and to a degree as well the Bank of England can't, by definition, warn against the dangers of austerity, however alarming the situation, because they have been set up the way they have in order to justify austerity. It's important to emphasise that most professional economists have never supported Conservative policies in this regard. The policy was adopted because it was convenient to politicians; institutions were set up in order to support it; economists were hired in order to come up with arguments for austerity, rather than to judge whether it would be a good idea. At present, this situation has led us to the brink of disaster.

The last time there was a financial crash, the Queen famously asked: why was no one able to foresee this? We now have the tools. Perhaps the most important task for a public inquiry will be to finally ask: what is the real purpose of the institutions that are supposed to foresee such matters, to what degree have they been politicised, and what would it take to turn them back into institutions that can at least inform us if we're staring into the lights of an oncoming train?