Monday, 18 April 2016

Basic income versus the economy of coercion

 Proving basic income is affordable is merely the first skirmish in long war

In 2015, an academic from Birmingham University asserted that, contrary to the beliefs of sceptics, basic income was eminently affordable. Using Canada as his example, Richard Pereira quantified the likely effects of savings from the abolition of existing social security benefits, reductions in bureaucratic costs, a smaller burden on public health care and a crackdown on tax avoidance and evasion. His conclusion was that you could introduce a basic income at a ‘decent level’ without additional personal taxes. In fact, basic income might even enable reductions in personal taxes.

One of the priorities Pereira identified in making basic income affordable was plugging ‘tax leakage’ by multinationals and the rich. “Vast wealth is channelled away from public goods though … shady and secretive offshore jurisdictions,” Pereira wrote. “Some of the largest multinational companies are paying zero tax and receiving tax refunds and subsidies simultaneously.”

The release of the Panama Papers has lent Pereira’s claims about the affordability of basic income a distinct air of, to use a contemporary political buzzword, credibility. According to the Tax Justice Network, global offshore wealth amounts to $21-32 trillion. Get hold of that vast wealth and the whole political landscape shifts. Austerity loses its justification and basic income becomes a feasible aim. “Some may disagree with the notion of an unconditional cash grant, or object to it going to everyone. Just don’t say we can’t afford it,” noted one Panama Papers post-mortem.

The realisation that a colossal trove of wealth exists to fund basic income is coupled with a growing awareness that punitive welfare systems don’t even succeed in meeting their most elemental aim – that of saving money. All that checking on people’s fitness to work and whether they have applied for 47 jobs that week as they promised in their job search agreement, costs an inordinate amount of money. According the UK’s National Audit Office, the cost to the taxpayer of the private contractors carrying out fit to work tests is at least £600 million more than the government is forecast to save in benefits reductions. The ‘age of austerity’ should be renamed the ‘age of needless pain’.

But there is a danger that basic income advocates are lulled into the belief that all they need to do is rationally convince the public and policy-makers that a basic income is affordable, will lighten the burden on multiple public services and vastly increase personal freedom. People will slowly see the light.

This, however, is less than half the battle. A great many, very powerful people will not want basic income regardless of how affordable it is. They will fight against it mercilessly precisely because it will vastly increase individual freedom, and their entire worldview rests on human subjection.

The great German psycho-analyst and socialist Erich Fromm advocated a basic income sixty years ago his book, The Sane Society – he called it a ‘guaranteed subsistence minimum’. After refuting the idea that basic income sounds too ‘fantastic’ to be affordable, Fromm was less sanguine about convincing everybody that a basic income was necessary and right. “However, the suspicions against a system of guaranteed subsistence minimum are not unfounded from the standpoint of those who want to use ownership of capital for the purpose of forcing others to accept the work conditions they offer,” he said.

Even more than in Fromm’s day ownership of capital is now overtly predicated upon forcing people to accept the work conditions that are on offer. Economic recovery after 2008 rests upon low wage, insecure service sector work. According to economists, all the net growth in jobs in the US since 2005 has been in ‘alternative work arrangements’, such as contract and temporary posts. In Britain, zero hour contracts have mushroomed during recovery from recession, while other forms of flexible work contract have proliferated. In continental Europe, massive political weight has been expended to make it easier for employers to fire workers. In France, the Nuit debout protests are against a planned labour reform that would place the country’s entire labour laws up for negotiation with employers, including the 35 hour week.

All these changes are inherently about increasing coercion. “The labour market is never free,” says Paul Mason is his book, Postcapitalism. “It was created through coercion and is re-created every day by laws, regulations, prohibitions, fines and the fear of unemployment.”

The rise in sanctioning people on benefits in Britain for not looking for work with sufficient ardour and the hounding of sick and disabled people is not primarily about saving money because, as is evident now, money is conspicuously not being saved. The reason is to force people to take work at wages they can’t live on, make life on benefits so astoundingly awful that zero-hour contracts seem attractive, and to sound a clear warning to those in work that they need to knuckle under and obey. “Economics is the method,” said Margaret Thatcher. “The object is to change the soul.”

By contrast basic income threatens to undo all the hard work of neoliberalism in shoring up the power of employers. At present, as one basic income advocate says, “all negotiating power is in the hands of those offering the jobs and not those looking for them”. Basic income will grant palpable bargaining power to individuals in the labour market, and, for the first time, allow genuine personal choice. Erich Fromm thought basic income would be the beginning of real freedom of contract between employers and employees. Work will have to be interesting, or well-paid enough for people to want to do, or will be automated because no-one will.*.

But to the rulers of our societies this represents, not a dream of liberation, but a nightmare of the collapse of social coercion. Who knows where such a society will lead. Marilola Wili of the Swiss group, Generation Basic Income, contends that basic income will “unpredictably set human forces free in ways one may have never thought about”.

“Work for a salary is the bedrock of the system,” says Paul Mason. “We accept it because as our ancestors learned the hard way, if you don’t obey, you don’t eat.” Basic income will loosen that bedrock and quite possibly, in time, smash it completely. For that reason, many people at the summit of society will do anything to ensure it doesn’t come to pass. Let’s not kid ourselves, achieving basic income will be an almighty struggle. But it’s a struggle we need to embrace.

*Automation represents another danger basic income might pose to capitalism. According to Karl Marx, ‘the most fundamental law of capitalism’ is the tendency for the profit rate to fall as machines replace human labour, which is the ultimate source of value. If basic income cause a spurt in automation and a reduction in labour intensive employment, as unpopular jobs are increasingly mechanised, then profit rates may well, in time, crumble. Capitalism in the West has become reliant on low-wage, low productivity but labour intensive service sector jobs, which do not have to be done by people and in the future almost certainly won’t be, regardless of whether basic income is adopted. But basic income will accelerate that process. Human, sweatshop labour in China and East Asia has provided an enormous boost to profitability for multinational corporations, but that source of profit is drying up as the Chinese economy, and thus globalisation, slows. It is also true that, according to Marxian economics, various forces counteract the tendency for profit to fall, such as increased wages boosting consumer spending. Basic income could also be an offsetting force to falling profits, so its economic impact may be complicated.

Thursday, 24 March 2016

Iain Duncan Smith and the cruelty of the work injunction

Anything Iain Duncan Smith is “incredibly proud of” should be picked up by robot arms, placed in a hermetically sealed container and blasted off into outer space as soon as possible. Disturbingly, IDS is merely the zealous carrier for a political virus that has infected all but a few politicians.

I speak of the work obsession.

In his resignation letter, the former work and pensions’ minister managed not to mention the 1,390 people who died after a tribunal found they had been wrongly declared fit for work.  What he did find space for was noting his incredible pride in generating ‘record rates of employment’ and cutting the number of ‘workless households’.

It would be churlish not to point out that many of the brutal methods employed to achieve this outcome – the work capability assessment and sanctions for disabled people - were introduced by the previous Labour government. But what is worrying is that while some deplore the methods, everybody seems to agree with the aim.

Rich country economic think tank, the OECD, perennially underlines the urgency of increasing the ‘labour participation’ of women and older people. Disability charity Scope, which advocates ‘fundamental reform’ of the work capability test, wants a million more disabled people into work by 2020.

In 2006, a DWP study found a ‘broad consensus’ among employers, unions, disability groups and the main political parties that work was good for the health of sick and disabled people.

The work obsession began in earnest under New Labour. NL ministers waxed lyrical about the transforming effects of hard work. To underscore the message, the Department of Social Security was symbolically re-named the Department for Work and Pensions.

Unemployment was gradually usurped by the adjective, ‘workless’. Less a word than an accusation, being ‘workless’ meant there was something wrong with you, a psychological flaw, and you needed to be returned to the path of righteous employment.

The idea that work is good for you has become so ingrained among the political elite that the fact that it often isn’t does nothing to dent the enthusiasm. In reality, only well-paid enjoyable work is good for you; low status, badly-paid jobs aren’t, amazingly enough. The work compulsion is such an article of faith that even right-wing diatribes include two million stay at home parents in (entirely fallacious) calculations that people on benefits have more children.

But at the high tide of its influence, there are signs that the work obsession is running out of steam.

Part of the reason is that the work obsession has always relied on the social function performed by work rather than what it actually is in bare economic terms – in a capitalist society economy exploitation and profit-making for others.

Thus, stable jobs help people with mental health problems recover, employment enables people with disabilities to escape ghettoization and contribute to society. Going further back, the huge movement of women into post-marriage work after the 1960s meant financial independence and an escape from compulsory domesticity.

Work has been very consciously linked with escaping domestic drudgery and isolation. “I very passionately believe,” government minister Chris Grayling informed the BBC in 2013, “that if we could help people back into work, they are much better off than if they are left stranded at home on benefits for the rest of their lives.”

But in the putative economic recovery we have experienced over the last five years, the sheen has been systematically stripped from what is meant by ‘work’. We are not talking about stable, good jobs but bare-faced exploitation. Zero-hour contracts have mushroomed post-recession, but are merely the ‘tip of iceberg’ of flexible employment practices, such as extreme part time contracts and key time contracts.

According to researchers these ‘flexi-contracts’ are creating ‘a culture of servitude’ and generating anxiety and ‘depressed mental states’ among workers. So much for work being good for people with mental health problems. It now causes them.

One of the prime motivations for hounding people off out of work benefits is that paying people to do nothing is a drain on resources. Think of that enormous ‘welfare bill’. But unless you produce programmes for Channel 5, it’s a fallacy that moving into work of some kind means you move off benefits. Numbers on working tax credits are double what they were in 2003. But greater ‘labour market participation’, merely means people now work for their poverty.

Without this huge state subsidy, the economy and consumption would collapse. But the situation cannot endure forever. A 2013 study estimated that 47% of current jobs in the US could be supplanted by computers by 2033. Automation now threatens not only manual labour but also previously immune areas such as retail jobs and cognitive work. “The scope of these developments means that everyone from stock analysts to construction workers to chefs to journalists is vulnerable to being replaced by machines,” write the authors of the book Inventing the Future.

The demand for labour already weakened from its post-war high point, is set to wane even further. Therefore, in the near future, the injunction that ‘everyone must work’, will cease to make any sense, apart from being inhumane.

What these developments will make apparent is that the work obsessed society we inhabit has gross flaws and is immensely one-sided. To take one example, the need identified by many psychologists for both parents to stay at home and look after young children, is not possible in a society designed around the needs of employers. Many necessary functions labelled ‘domestic’ can be given their proper due in a post-work society, although performed by both genders, not just one as they were in the past.

Many other socially valuable activities will become possible in a society that does not insist on perpetual exhaustion as a condition of citizenship. Democratic self-management, medical breakthroughs, social useful inventions all become feasible in a society that trusts its members, rather than setting out to punish them.

And this would also be a society that would clearly remember Iain Duncan Smith as the dinosaur that he is.

Sunday, 6 March 2016

Mark Carney's Endgame Escapism

One of Tony Blair’s first acts as Prime Minister was to make the UK’s central bank, the Bank of England, independent. The BoE’s governor was to be chosen by the Chancellor but its decisions, over whether to raise or drop interest rates, for example, were not to be left to politicians.

This gave the Bank of England great power over the distribution of wealth and income. The fixing of interest rates clearly has huge ramifications. Mortgage holders benefit from low interest rates while savers gain when they are higher. Insolvent institutions, like banks after 2008, can survive if interest rates are rock bottom.

During the financial crisis, the power of central banks was amplified further. Quantitative Easing, the literal creation of masses of new money, was undertaken autonomously by central banks. Politicians may have supported the policy but they did not instigate it. QE was huge. At the press of a button £375 billion was created in the UK and $4.5 trillion in the US.

QE was a supremely political act. The money was used to buy up the financial assets of banks, and thus enable them to keep functioning. By artificially swelling assets such as shares, bonds and property, the benefits of QE were directed quite deliberately to the wealthy. “People like me will benefit from this”, said one Donald Trump in 2012.

The new shock doctrine

But QE was not the crowning glory of central bank independence. In a speech in Shanghai at the end of February, Bank of England governor Mark Carney (who thinks central bank independence is the ‘right model’), warned that further measures would have to be taken to bring about economic growth. Zero interest rates and periodic QE, known as monetary policies, were not enough. Rich economies need “to use the time purchased by monetary policy to develop a coherent and urgent approach to supply-side policies,” he said.

“Gradualism in structural reforms” was sapping political mandates and weakening investment on the part of business, Carney explained. “In most advanced economies, difficult structural reforms have been deferred.”

Supply side policies and structural reforms sound neutral but they are anything but. Supply side policies are a euphemism for cutting regulations and taxes on the rich and business in the hope they will invest the money gained and benefit the rest of us through a trickle down process. Supply side policies have been in the ascendancy for 40 years. In 1980, the UK’s corporate income tax rate was 53%. Now it is 18%. But clearly things are not moving fast enough.

As for ‘structural reforms’, here are some examples from the OECD, the think-tank representing 34 rich country governments. The ‘structural reforms’ it advocates governments implement include reducing the ‘generosity’ of unemployment benefits, restricting access to disability benefits, curtailing public ownership and state intervention (privatisation in other words), increasing the state retirement age, introducing or raising tuition fees for universities, eliminating collective wage agreements, shifting from corporation tax to flat rate taxes like VAT and raising public support for R&D and investment in infrastructure.

Unfortunately, the OECD laments, the pace of reforms has slowed since 2012. Exactly the same ‘gradualism’ in forcing through ‘difficult’ changes that Carney bemoans.

Long-term economic pain

Despite the perceived foot shuffling, these ‘structural reforms’ mirror very closely the actual policies of democratic governments. The above list is a pretty good description of Conservatives’ ‘long-term economic plan’ for the UK. Every box is ticked.

But we are now admonished by unelected technocrats like Carney (who, like so many other central bankers, earnt his spurs at the vampire squid Goldman Sachs) that the speed of these ‘reforms’ needs to be accelerated. The idea that, in a democracy, the electorate should have any say in what economic policies are pursued is clearly so twentieth century.

Perhaps, this ‘any colour any long as its neoliberal’ condescension should not surprise. What is noteworthy, however, is the imperative to get a move on with ‘reforms’. Why the urgency?

The explanation, in Carney’s words, is that, “with more savings chasing fewer investment opportunities, equilibrium safe returns have fallen sharply towards zero”. Paul Mason, economics editor of Channel 4 News, translates: “In plain English, there’s too much capital for capitalism to function and it’s depressing the baseline return on money to zero.”

Capital is simply money invested in order to make money, to make a return on investment. The idea that a saturation of capital is behind the world’s economic traumas is not one that has received much attention, even on the Left. But it explains a lot. The English economist, Harry Shutt, argues that a ‘wall of money’, augmented by the huge growth of stock market invested pension funds in the last 30 years, is perpetually searching for profitable outlets.

This ‘permanent and growing surplus of capital’ lies at the root of footloose speculative share buying and the never-ending privatisation mania, says Shutt. And here is one of the world’s leading central bankers validating the theory.

The capitalist utopia

A condensed version of the economic story of the last few years goes as follows. The crisis of 2008 exposed the growth rates of early years of the century as fake, based on the huge indebtedness of corporations, banks and consumers. Bail outs and quantitative easing postponed a mass haemorrhaging of wealth, but created a credit bubble in so-called emerging markets. Capital is now surging out of countries like China as that country’s economy slows; ‘foreign capital inflows’ are ’brutally reversing’, in Carney’s wording. Hence the urgent need for ‘difficult structural reforms’ which will open up profitable outlets closer to home, and thus sustain economic growth.

To achieve this capitalist utopia, welfare states need to be gutted, forcing people to search for work at reservation wages  and to accept zero hour contracts or risible self-employment as preferable to claiming benefits. Lone parents, disabled and older people have to be 'incentivised' to enter or stay in the labour market.

Profitable public assets need to be hived off to the private sector, thus enabling private investment where state ownership had precluded it. Rather than ‘wasteful’ welfare spending, public funds need to be directed towards creating infrastructure projects that private capital can gain a return from.

It is revealing how the privatisation narrative has been turned on its head. At the dawn of the privatisation era, in the late 1970s and early ‘80s, the justification was that inefficient ‘lame duck’ public enterprises needed to be streamlined by private sector discipline. Nowadays, nationalisation is specifically reserved for loss-making private sector companies - witness RBS and its £46 billion losses. Profitable public assets, such as the Land Registry or Air Traffic Control, are in the privatisation cross hairs because of, not in spite of, making money.

This process has no conceivable end point. The Marxist geographer David Harvey says that to ‘keep a satisfactory growth rate’, in a world where output is estimated at $45 trillion, profitable opportunities for capital worth $2 trillion need to be found. By 2030, ‘when estimates suggest the global economy should be more than $96 trillion, profitable investment opportunities of close of $3 trillion will be needed,’ he says.

One of the self-evident truths of such a world, Harvey maintains, is that “everything under the sun must be in principle and wherever technically possible subject to commodification, monetisation and privatisation.”

The ‘dictatorship of the world’s central bankers’, in Harvey’s description, is now ordaining that this process be speeded up.