Private sector greed didn't cause Winterbourne View abuse

A meaningful response from the left must consider how trade unions should or could have made a difference.

So the Winterbourne View Eleven have been sentenced. Six are starting prison sentences, and the over five have been given suspended sentences. None will ever be able to work in care settings again, assuming the current CRB system remains in place.

The reaction of the Left to the horrific abuses at Winterbourne View, both when it was uncovered and when the Serious Case Review was published in August, has been much as you would expect. Some lay the blame squarely at the door of capitalist excess, suggesting that if the profiteers were driven out, everything would be just fine. Others, operating in the New Labour managerialist tradition, say the blame lies in Care Quality Commission's regulatory failures. Polly Toynbee, to her credit, managed to cover both:

Cameron's privatising zeal looks even less enticing in the wake of this week's two care home scandals [Castlebeck was the other]. The "dead hand of the state" looks rather more welcoming than the grasping hand of private equity....

Anger at abuse at Winterbourne View hospital landed harder on the regulator, Care Quality Commission, than on Castlebeck, the company that took £3,500 a week for hiring cheap thugs as carers. The CQC confessed that ignoring a whistleblower was unforgivable - but the regulator should long ago have blown the whistle on itself and warned its task was impossible on its current resources....

If standards of care in England are to rise to a premium standard, then the CQC requires a radical overhaul. At present, it is underfunded, understaffed - even if its current high level of vacancies are filled - and its inspections are neither frequent enough nor sufficiently detailed.

All fair enough, but it still misses the main point: eleven otherwise law-abiding people chose to engage in the sadistic abuse of very vulnerable people. The venture capitalists didn't make any additional money out of that abuse, and while the CQC might have stopped the abuse before it got going, that doesn't alter the fact that these eleven people wanted to abuse those in their care.

Taking care homes back under state control, while it may be a good idea for other reasons, won't ensure that such abuse never happen again. Nor will restructuring the CQC, welcome though that is too as one means of improving care.

What will stop such abuse, I contend, is a socialist approach to public service quality - an approach that starts with the people who deliver those public services, which empowers them to stand up for those they are serving, and makes them want to.

For socialists, workers claiming control of the quality of public services - in a manner integral to the defence of their terms and conditions - should lie at the heart of the labour movement's agenda. Union activists could do worse than take GDH Cole's advice from 90 years ago, when he dreamed of a society based on self-regulating guilds, focused not just on worker conditons, but on the quality and social usefulness of work produced:

It is upon the Trade Unions that the brunt of the struggle will fall. It is upon our success in laying the foundations of the Guilds even under capitalism that the chances of Guild Socialism really depend, and the problem of the transition to Guild Socialism is therefore primary a problem of trade union development. (My emphasis.)

Cole's dream of a Guild Socialist Britain may have been just a dream, but today's public sector labour movement could do worse than aspire to his vision, by:

1) Acknowledging that, while it's perfectly legitimate to defend the public sector as best we can from Tory attack, this doesn't mean what the public sector provides is perfect, and that we also have a responsibility to ensure that the kind of abuse seen at Winterbourne View ceases; arguments about the 'logic of capital', and the consequent alienation of workers, are strong and valid, but they must be countered by equally strong and valid displays of solidarity, public service ethos and 'professional pride' (the idea of the creation of a Royal College of Teaching is interesting in this regard, though I'm not sure the 'Royal' bit is needed);
 

2) Seeking to persuade the 'powers that be' in the labour movement (the party and the unions) to develop clear strategies for the development of self-regulating codes of conduct (the NUJ's code is a good example), which in time become more effective as a guarantee against inadequate public service than anything the state can impose.

3) Taking concrete steps at local levels towards the establishment or revitalisation of Trades Councils, which task themselves not just with the business of co-ordinating resistance and mitigating the worst effects of the current assault by government, but also with the creation of new class-conscious agreements between service provider and service user. In other words, labour activists should be seeking to develop, for a new age, the civic guilds envisaged by Cole:

The [Trades] council would exist to make articulate the civic point of view, the vital spiritual and physical demands of the people, and to coordinate with the various guilds which would have entrusted to them the task of supplying these demands. To date, the trade union movement has been notably absent from the debate about Winterbourne View. This is understandable, when terms and conditions of its members are its main agenda (I would also hazard a guess that very few of the eleven convicted abuses were union members.). But if public services are to be defended in their totality, there's a bigger job to be done that looking after the public servants; we need to ensure that those they serve are looked after too.        

A statement is read on behalf of victims' families. Source: Getty

Paul Cotterill is a blogger for Liberal Conspiracy and Though Cowards Flinch.

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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?