Time to release Plaid Cymru from the tentacles of Westminster and Whitehall

Wales could soon be free.

Kevin Meagher’s New Statesman article "Why doesn’t Labour face a UKIP of the left?" (26 February 2013) described Plaid Cymru as a social democratic party. Likewise, on the The Andrew Marr Show (BBC1, 3 March), the normally camera shy Nigel Farage labelled the Conservatives, Labour and the Liberal Democrats as social democrats. So is Plaid Cymru the same as those three London-based parties? While it is fair to state that all four are, to greater or lesser extents, in favour of the mixed economy/welfare state dualism, Plaid Cymru’s ideology is far more complex, but discernible, than the functionalist and managerialist approaches that underpin the Westminster triumvirate.

Plaid Cymru was formed in 1925 to represent the Welsh nationalist voice in marked contrast to the British nationalism emanating from the three Westminster parties of government: Conservatives, Liberals and Labour. Replace the Liberals with the Liberal Democrats and 88 years later very little has changed. Plaid Cymru still staunchly opposes the UK centralist instincts of those three parties, and the "soft approach" British nationalism that they so adroitly present. The argument regarding the need for decolonisation remains as pertinent today – despite devolution and regionalist policies – as it was then. Progress may have occurred on some fronts, but UK state hegemony, and its associated strands, looms large.

Plaid Cymru’s present political philosophy developed back in the Thirties with the socialist input of the economist, D J Davies, and his wife, the educationalist, Noelle Davies. They wished to eschew existing economic conventions by promoting cooperativism, in order to, as DJ Davies explained, “undermine capitalism and transform it from within.” By the end of that decade, Plaid Cymru’s notion that Wales was a "family", and therefore could find internal strength to cope with the vicissitudes of life, was firmly established. Furthermore, the concept of "freedom", based on liberal understandings, was vitally important for Plaid Cymru from its inception. For Plaid Cymru, freedom equates to the maximum amount of autonomy possible in any given scenario. Freedom starts with the individual, flows through the family and community, and reaches its apogee in the nation. Thence, it takes a return journey.

What binds this freedom is the ideology of Decentralist Socialism: a "bottom up" theoretical and practical challenge to the"‘top down" state socialism that is so beloved by ‘big state’ advocates such as the Labour Party. It was this theory, allied to the party’s intellectual radicalism, which was based upon ‘community-ism’ (long before anybody ever mentioned ‘localism’), which attracted intellectuals to join Plaid Cymru. Thus, two subscribers, the novelist and New Left academic Raymond Williams, and the Gramscian historian Gwyn Alf Williams, saw Plaid Cymru as the vehicle to drive Wales to political independence. In the manner that Frantz Fanon envisaged liberationist nationalism unlocking the key for socialist flowering in Algeria, so, it was felt, Plaid Cymru’s advocacy of nationalism combined with socialism would, ultimately, refresh and invigorate the communities of a politically autonomous Wales.

To ensure that Wales could support itself economically, and to counter the worst excesses of unfettered capitalism, Plaid Cymru produced its Economic Plan for Wales in 1970. The major domains of productivity – to replenish the economy – would be hubs that would be established around existing towns and villages. This built upon the "small is beautiful" thesis, based upon the teachings of the jurist Leopold Kohr – a close friend of former leader, Gwynfor Evans, and an advisor to Plaid Cymru – and the progressive statistician E F Schumacher. In conjunction with green economic thinking and community interaction, Plaid Cymru began to construct alternative approaches that preceded the 1970’s turn to environmentalism.

By the Eighties, Plaid Cymru was campaigning against the incivility of Thatcherism. It was during the 1984/5 Pit Dispute that Plaid Cymru’s present leader, Leanne Wood, first cut her political teeth. A teenager at the time, Wood experienced the tumult of the dispute at close quarters as she was growing up in Rhondda Fawr, in the steam coal heart of the South Wales Coalfield. Seeing the effect of improvident Tory policies on her community, Wood embraced and refined her socialist, republican, feminist and nationalist leanings.
Leanne Wood was proclaimed leader of Plaid Cymru in March 2012. She was elected in the hope that she would offer a radical voice to the party; a critical edginess which many of its members felt had been diluted in the previous few years when Plaid Cymru had been in coalition with Labour in the National Assembly. Wood was supported, overwhelmingly, by grassroot activists who wished to see Plaid Cymru adopt a more vibrant, anti-imperialist stance.

With the emerging debates on identities, both within the UK and across the European mainland in general, Plaid Cymru must take a firm position to outline its intent for life after the Scotland 2014 Independence Referendum; be that the vote produces a Yes or No outcome. The UK state, and its component parts, is about to enter a decisive period in its existence. The pincers of national self-determination and positioning within Europe are the two spheres that require attention. Wales has always been more pro-European in its outlook than its neighbour to the east. Back in the Twenties Plaid Cymru’s President and first philosophical guru, Saunders Lewis, said that ”Wales is a European nation”. Like the SNP, Plaid Cymru accepts that Wales future as an independent nation can only truly flourish as a member state of the European Union. Its extensive links with mainland parties and organisations, in the likes of Flanders, Brittany and Galicia assist this. To this extent, Plaid Cymru mirrors the Europhile sentiments of the Liberal Democrats. In the end, however, it is release from the tentacles of Westminster and Whitehall that it desperately desires. With that at the forefront of her mind, Leanne Wood offers a form of community socialism that can reflect the hopes and aspirations of a (soon to be?) free Wales.

Dr Alan Sandry is the author of Plaid Cymru: An Ideological Analysis (Welsh Academic Press, 2011)
 

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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?