The masses smell blood

. . . on the Gurkhas, Gordon Brown’s tin ear, and penalty shoot-outs

I am sorry to rain on Joanna Lumley’s parade, but I have rarely heard such piffle as she and others offered in support of the Gurkhas.

As no MP dared mention, the Gurkhas are mercenaries. They don’t fight “for love of Britain and Her Majesty” (to use a soundbite favoured by their supporters), any more than South African cricket mercenaries play for, say, Leicestershire for love of the county’s fox-hunting denizens and rolling countryside.

The Gurkha regiment was formed two centuries ago when British troops invaded Nepal but found the fighters too much of a handful and therefore paid them to join our army. A 1947 agreement stated that a Gurkha soldier, if he joined the British army (many joined newly independent India’s army instead), “must be recruited as a Nepali citizen . . . serve as a Nepali citizen and [be] resettled as a Nepali citizen”. They were paid less than British-born soldiers – an obvious attraction to the Ministry of Defence – but the money was high by local standards.

None of this excuses Gordon Brown. As everyone knows, he has a tin ear for politics, and is like an orchestra conductor who thinks music consists solely of getting the requisite number of trombones and violins to play the notes in the correct order. He was right about the 75p rise for pensioners in 2000 (entirely consistent with established policy, which concentrated help on the neediest pensioners), right about abolishing the 10p tax band last year (an expensive and inefficient way of helping the poor, which should never have been introduced in the first place), and right about the Gurkhas.

In each case, however, he was wrong politically, because the right policy was hard to explain to the public and the wrong one easily simplified into potent slogans. The British are incurably sentimental, and the Gurkha cause was bound to stir normally anti-immigrant Tory MPs and newspapers, who adore dusky chaps as long as they are taking orders from whites.

***

While we are on Gordon Brown, I wish to clear something up about his chancellorship. The Institute for Fiscal Studies said the other day that he ran an unsustainable boom, with output 3 or 4 per cent above the economy’s long-term capacity. So he should have run “a much stronger fiscal position”. This is an academic version of David Cameron’s tiresome mantra that he should have fixed the roof while the sun was shining. But let’s get the metaphor straight. The people who failed to fix the roof were the Tories, who neglected schools, hospitals and other public services while North Sea oil flowed plentifully. Brown, therefore, had to rescue the NHS, education and so on with what his opponents call a spending “splurge”. The error lay not in the spending, but in the failure to raise taxes sufficiently to pay for it, perhaps by introducing a 50p tax on the highest incomes.

The people who stopped him were the same Blairites who now line up with the Tories to criticise Alistair Darling’s belated move to make the rich pay more.

***

When I contemplate the teachers’ unions and the Sats for 11-year-olds, I am reminded of Laurel and Hardy. What a fine mess they’ve got themselves into! We now have two unions balloting to boycott the tests and a third union threatening strikes if tests are scrapped (it reckons the teacher assessments that would replace them mean more work for its members). Of the other three unions, two cover secondary schools only and one always opposes industrial action.

Why do teachers need six unions (and that’s just for England and Wales) for a single occupation in a single industry? Most other unions now cover different trades and industries, so that Unite’s two million members, for example, include printers, lorry drivers, plumbers, engineers and many others working in both the public and private sectors.

The teachers’ unions once broadly represented different school types – grammars, secondary moderns, etc – but now seem merely to stand for different temperaments, with one union not liking children much (which, I suppose, is why it wants to keep the tests) and another pretending teachers are university dons. The effect of the unions’ slapstick is that schools are defenceless against a succession of meddling ministers, all of them, like the present Children’s Secretary, Ed Balls, desperate to make a name for themselves.

***

The star of the swine flu outbreak has surely been Nicola Sturgeon, Scotland’s deputy first minister and health secretary. There is something reassuring about that soft Scottish accent – I suppose it has to do with memories of Dr Finlay’s Casebook on television – and one feels that, thanks to her charm, good sense and calm but brisk manner, we shall all be safe from this new terror. Can we put her in charge south of the border as well?

Unfortunately, she belongs to the Scottish National Party but, since outsourcing is in fashion, I see no reason why our health arrangements couldn’t be delegated to the SNP. I would rather trust Sturgeon than
Boots, Tesco, Richard Branson or any of the other figures proposed to run the exciting polyclinics planned by New Labour in place of GPs’ surgeries.

***

No sooner had Rugby Union had its first penalty shoot-out on British soil – in a Heineken European Cup semi-final between Leicester and Cardiff – than the websites were full of fans asking if it was possible to have more of them, perhaps to settle drawn league matches. In rugby, as in football, the players hate shoot-outs, but most fans love them because they are simple, dramatic and, like the dolly catch in cricket, rich with possibilities for individual humiliation. There are many other ways of settling a drawn rugby match – by, for example, playing five minutes each way of seven-a-side. But I fear the Rugby Union authorities, a particularly stupid group of people at the best of times, have allowed the masses to taste blood and will not dare deny them the prospect of repeat performances.

Peter Wilby was editor of the Independent on Sunday from 1995 to 1996 and of the New Statesman from 1998 to 2005. He writes the weekly First Thoughts column for the NS.

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What Marx got right

...and what he got wrong.

1. You’re probably a capitalist – among other things

Are you a capitalist? The first question to ask is: do you own shares? Even if you don’t own any directly (about half of Americans do but the proportion is far lower in most other countries) you may have a pension that is at least partly invested in the stock market; or you’ll have savings in a bank.

So you have some financial wealth: that is, you own capital. Equally, you are probably also a worker, or are dependent directly or indirectly on a worker’s salary; and you’re a consumer. Unless you live in an autonomous, self-sufficient commune – very unusual – you are likely to be a full participant in the capitalist system.

We interact with capitalism in multiple ways, by no means all economic. And this accounts for the conflicted relationship that most of us (including me) have with capitalism. Typically, we neither love it nor hate it, but we definitely live it.

2. Property rights are fundamental to capitalism . . . but they are not absolute

If owning something means having the right to do what you want with it, property rights are rarely unconstrained. I am free to buy any car I want – so long as it meets European pollution standards and is legally insured; and I can drive it anywhere I want, at least on public roads, as long as I have a driver’s licence and keep to the speed limit. If I no longer want the car, I can’t just dump it: I have to dispose of it in an approved manner. It’s mine, not yours or the state’s, and the state will protect my rights over it. But – generally for good reason – how I can use it is quite tightly constrained.

This web of rules and constraints, which both defines and restricts property rights, is characteristic of a complex economy and society. Most capitalist societies attempt to resolve these tensions in part by imposing restrictions, constitutional or political, on arbitrary or confiscatory actions by governments that “interfere” with property rights. But the idea that property rights are absolute is not philosophically or practically coherent in a modern society.

3. What Marx got right about capitalism

Marx had two fundamental insights. The first was the importance of economic forces in shaping human society. For Marx, it was the “mode of production” – how labour and capital were combined, and under what rules – that explained more or less everything about society, from politics to culture. So, as modes of production change, so too does society. And he correctly concluded that industrialisation and capitalism would lead to profound changes in the nature of society, affecting everything from the political system to morality.

The second insight was the dynamic nature of capitalism in its own right. Marx understood that capitalism could not be static: given the pursuit of profit in a competitive economy, there would be constant pressure to increase the capital stock and improve productivity. This in turn would lead to labour-saving, or capital-intensive, technological change.

Putting these two insights together gives a picture of capitalism as a radical force. Such are its own internal dynamics that the economy is constantly evolving, and this in turn results in changes in the wider society.

4. And what he got wrong . . .

Though Marx was correct that competition would lead the owners of capital to invest in productivity-enhancing and labour-saving machinery, he was wrong that this would lead to wages being driven down to subsistence level, as had largely been the case under feudalism. Classical economics, which argued that new, higher-productivity jobs would emerge, and that workers would see their wages rise more or less in line with productivity, got this one right. And so, in turn, Marx’s most important prediction – that an inevitable conflict between workers and capitalists would lead ultimately to the victory of the former and the end of capitalism – was wrong.

Marx was right that as the number of industrial workers rose, they would demand their share of the wealth; and that, in contrast to the situation under feudalism, their number and geographical concentration in factories and cities would make it impossible to deny these demands indefinitely. But thanks to increased productivity, workers’ demands in most advanced capitalist economies could be satisfied without the system collapsing. So far, it seems that increased productivity, increased wages and increased consumption go hand in hand, not only in individual countries but worldwide.

5. All societies are unequal. But some are more unequal than others

In the late 19th and early 20th centuries, an increasing proportion of an economy’s output was captured by a small class of capitalists who owned and controlled the means of production. Not only did this trend stop in the 20th century, it was sharply reversed. Inherited fortunes, often dating back to the pre-industrial era, were eroded by taxes and inflation, and some were destroyed by the Great Depression. Most of all, after the Second World War the welfare state redistributed income and wealth within the framework of a capitalist economy.

Inequality rose again after the mid-1970s. Under Margaret Thatcher and Ronald Reagan, the welfare state was cut back. Tax and social security systems became less progressive. Deregulation, the decline of heavy industry and reduction of trade union power increased the wage differential between workers. Globally the chief story of the past quarter-century has been the rise of the “middle class”: people in emerging economies who have incomes of up to $5,000 a year. But at the same time lower-income groups in richer countries have done badly.

Should we now worry about inequality within countries, or within the world as a whole? And how much does an increasing concentration of income and wealth among a small number of people – and the consequent distortions of the political system – matter when set against the rapid ­income growth for large numbers of people in the emerging economies?

Growing inequality is not an inevitable consequence of capitalism. But, unchecked, it could do severe economic damage. The question is whether our political systems, national and global, are up to the challenge.

6. China’s road to capitalism is unique

The day after Margaret Thatcher died, I said on Radio 4’s Today programme: “In 1979, a quarter of a century ago, a politician came to power with a radical agenda of market-oriented reform; a plan to reduce state control and release the country’s pent-up economic dynamism. That changed the world, and we’re still feeling the impact. His name, of course, was Deng Xiaoping.”

The transition from state to market in China kick-started the move towards truly globalised capitalism. But the Chinese road to capitalism has been unique. First agriculture was liberalised, then entrepreneurs were allowed to set up small businesses, while at the same time state-owned enterprises reduced their workforces; yet there has been no free-for-all, either for labour or for capital. The movement of workers from rural to urban areas, and from large, unproductive, state-owned enterprises to more productive private businesses, though vast, has been controlled. Access to capital still remains largely under state control. Moreover, though its programme is not exactly “Keynesian”, China has used all the tools of macroeconomic management to keep growth high and relatively stable.

That means China is still far from a “normal” capitalist economy. The two main engines of growth have been investment and the movement of labour from the countryside to the cities. This in itself was enough, because China had so much catching-up to do. However, if the Chinese are to close the huge gap between themselves and the advanced economies, more growth will need to come from innovation and technological progress. No one doubts that China has the human resources to deliver this, but its system will have to change.

7. How much is enough?

The human instinct to improve our material position is deeply rooted: control over resources, especially food and shelter, made early human beings more able to reproduce. That is intrinsic to capitalism; the desire to acquire income and wealth motivates individuals to work, save, invent and invest. As Adam Smith showed, this benefits us all. But if we can produce more than enough for everybody, what will motivate people? Growth would stop. Not that this would necessarily be a bad thing: yet our economy and society would be very different.

Although we are at least twice as rich as we were half a century ago, the urge to consume more seems no less strong. Relative incomes matter. We compare ourselves not to our impoverished ancestors but to other people in similar situations: we strive to “keep up with the Joneses”. The Daily Telegraph once described a London couple earning £190,000 per year (in the top 0.1 per cent of world income) as follows: “The pair are worried about becoming financially broken as the sheer cost of middle-class life in London means they are stretched to the brink.” Talk about First World problems.

Is there any limit? Those who don’t like the excesses of consumerism might hope that as our material needs are satisfied, we will worry less about keeping up with the Joneses and more about our satisfaction and enjoyment of non-material things. It is equally possible, of course, that we’ll just spend more time keeping up with the Kardashians instead . . .

8. No more boom and bust

Are financial crises and their economic consequences part of the natural (capitalist) order of things? Politicians and economists prefer to think otherwise. No longer does anyone believe that “light-touch” regulation of the banking sector is enough. New rules have been introduced, designed to restrict leverage and ensure that failure in one or two financial institutions does not lead to systemic failure. Many would prefer a more wholesale approach to reining in the financial system; this would have gained the approval of Keynes, who thought that while finance was necessary, its role in capitalism should be strictly limited.

But maybe there is a more fundamental problem: that recurrent crises are baked into the system. The “financial instability” hypothesis says that the more governments and regulators stabilise the system, the more this will breed overconfidence, leading to more debt and higher leverage. And sooner or later the music stops. If that is the case, then financial capitalism plus human nature equals inevitable financial crises; and we should make sure that we have better contingency plans next time round.

9. Will robots take our jobs?

With increasing mechanisation (from factories to supermarket checkouts) and computerisation (from call centres to tax returns), is it becoming difficult for human beings to make or produce anything at less cost than a machine can?

Not yet – more Britons have jobs than at any other point in history. That we can produce more food and manufactured products with fewer people means that we are richer overall, leaving us to do other things, from economic research to performance art to professional football.

However, the big worry is that automation could shift the balance of power between capital and labour in favour of the former. Workers would still work; but many or most would be in relatively low-value, peripheral jobs, not central to the functioning of the economy and not particularly well paid. Either the distribution of income and wealth would widen further, or society would rely more on welfare payments and charity to reduce unacceptable disparities between the top and the bottom.

That is a dismal prospect. Yet these broader economic forces pushing against the interests of workers will not, on their own, determine the course of history. The Luddites were doomed to fail; but their successors – trade unionists who sought to improve working conditions and Chartists who demanded the vote so that they could restructure the economy and the state – mostly succeeded. The test will be whether our political and social institutions are up to the challenge.

10. What’s the alternative?

There is no viable economic alternative to capitalism at the moment but that does not mean one won’t emerge. It is economics that determines the nature of our society, and we are at the beginning of a profound set of economic changes, based on three critical developments.

Physical human input into production will become increasingly rare as robots take over. Thanks to advances in computing power and artificial intelligence, much of the analytic work that we now do in the workplace will be carried out by machines. And an increasing ability to manipulate our own genes will extend our lifespan and allow us to determine our offspring’s characteristics.

Control over “software” – information, data, and how it is stored, processed and manipulated – will be more important than control over physical capital, buildings and machines. The defining characteristic of the economy and society will be how that software is produced, owned and commanded: by the state, by individuals, by corporations, or in some way as yet undefined.

These developments will allow us, if we choose, to end poverty and expand our horizons, both materially and intellectually. But they could also lead to growing inequality, with the levers of the new economy controlled by a corporate and moneyed elite. As an optimist, I hope for the former. Yet just as it wasn’t the “free market” or individual capitalists who freed the slaves, gave votes to women and created the welfare state, it will be the collective efforts of us all that will enable humanity to turn economic advances into social progress. 

Jonathan Portes's most recent book is “50 Ideas You Really Need to Know: Capitalism” (Quercus)

Jonathan Portes is senior fellow The UK in a Changing Europe and Professor of Economics and Public Policy, King’s College London.

This article first appeared in the 22 June 2017 issue of the New Statesman, The zombie PM

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