Party Vibe

i think this country and many ‘developed’ countries are in real danger of letting destructive forces control our future

here is part of a new manifesto. it’s a bit of a read and just an intro to a lot more reading, but give it a go. i think it’s fairly close to the mark

For those with long memories, today’s financial crisis evokes nothing so much as the 1978-79 “winter of discontent”, when Britain’s trade unions, after weeks of often bitter strike action, smashed through a government pay limit. In place of the mounds of uncollected rubbish on the streets are mounds of suddenly worthless securities that nobody wants to buy. For the trade unions who believed their size and membership made them too big to ignore, there are the banks and brokerages that are, apparently, too big to fail. For the flying pickets, there are the financiers in pinstriped suits informing one and all that the failure of taxpayers to bail them out of the consequences of their huge mistakes would threaten a global meltdown.
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> It’s a depressing picture, certainly, but it prompts another reflection. The tables were turned on organised labour after the late 1970s, in both Britain and America. Might capitalism’s winter (and spring) of discontent also prompt elected governments to reform an economic system that has been shattered by the excesses of the New Olympians? Might policymakers at last attempt to rein in the reckless orgy of speculation? With even the banks themselves admitting their mistakes, no more promising moment has presented itself for more than half a century. We can envisage a US president within the next few years dusting down a copy of Franklin Roosevelt’s 1933 inauguration speech, when he said the “practices of the unscrupulous money changers stand indicted in the court of public opinion, rejected by the hearts and minds
> of men”.
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> It is against this background that we set out our own proposals for reform – a New Populism to replace the New Olympianism.
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> First and foremost among its principles is the subordination of finance. Before the current madness, from Washington in the 1930s to London in the 1940s to Paris and Bonn in the 1950s and 1960s, financial-sector activities were kept on a tight rein, their destructive potential fully realised and their proper, auxilary role in relation to the real economy kept firmly in focus. It is time to remember that banks and other large corporations are creatures of law, and it is the public’s right and duty to supervise them.
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> Furthermore, they, the financial New Olympians, have had their chance. The result of letting them off the leash has been a disaster.
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> Next comes personal and social security, the principle that society should insure its members against misfortune, protect their savings and make proper provision for their old age. This is what we tried to do in the past, and, in Britain, are trying again to do, with very mixed results, using a range of entitlements of frequently baffling complexity. The loss of a person’s job ought to be a problem, not a cosmic disaster.
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> Savings in approved schemes ought to be guaranteed. Why are the sort of high-quality pensions on offer in the postwar period now “unaffordable”? It would rightly be thought extraordinary were policymakers to agonise today over the difficulties of ensuring the average family could buy an Austin Cambridge car and a black-and-white television – our society is greatly wealthier than it was 40 years ago, and very much improved cars and consumer goods are relatively much less expensive. Why retirement schemes should be any different is not clear.
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> A third principle is accountability, or “democracy”, to put it slightly differently. The leaching away of powers from national parliaments to the New Olympians’ mandarin allies in bodies such as the IMF, the World Trade Organisation, independent central banks and the European Commission would be obnoxious even without the economic and financial turmoil that it has created. So great is the democratic deficit that people increasingly either do not bother to vote or vote for non-mainstream parties. The answer from left-of-centre parties, terrified of crossing the Olympian orthodoxy, has been more of the same. Thus the UK’s Labour party is losing votes to the British National Party and the Irish Labour party is losing votes to Sinn Fein. The response of both parties has been to cede more powers to Brussels and to insist on the need for another world trade agreement that will transfer more authority to the WTO.
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> There have been suggestions that Gordon Brown is planning a bill reasserting the primacy of British law over EU law. That would be a most welcome blow against the Olympian system, but we fear it is unlikely to be proposed by Brown, a fundamentally conformist person with an apparent yearning for respectability.
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> A fourth principle is the undesirability of a semi-detached super-rich class. Not only does such a class pull money values completely out of shape – in the housing market, for example – but it tends to be the fons et origo of the horrendous errors from which the world economy is now reeling. It was super-rich investment bankers and derivatives traders who dreamed up the collateralised debt obligations and exotic derivative products that have caused such chaos in the past year or so. It was the super-rich who have demanded cheap money for most of the past decade and cheered on the inflating of the credit bubble.
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> This leads to our fifth principle, the protection and strengthening of an independent middle class. As we described yesterday, the super-rich and their political allies are destroying the middle class. Lawyers and doctors are to be faced with a stark choice between corporate employment and unemployment, while de-skilling and outsourcing are eating into occupations such as accountancy and journalism. Much of this is attributed to “market forces”, when in fact it stems from legislative changes designed to tear down time-honoured protection for professionals. But even were the market driving all these changes, we believe the value of a professional middle class, independent of both the state and of corporate power, greatly outweighs any efficiency losses, and that the market ought to be curbed.
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> Which leads neatly to our sixth principle: social stability and tranquillity are more important than market efficiency or shareholder value. In other words, to the specific protections from the market for the professions ought to be added a general protection for everybody. If market forces dictate the concreting over of the south of England, or the obliteration of British manufacturing, or the closure of the rural post office network, then they should be resisted. This is, of course, an impeccably conservative as well as a centre-left position. This is TE Utley, writing in the Daily Telegraph in 1977: “I simply do not believe that if society decides that some evil produced by the spontaneous forces of competition (ie, mass unemployment in an area like Ulster, afflicted by civil disturbance, or the destruction of the farming industry) calls stridently for governmental action to temper it, that action is bound to prove disastrous, however prudently and deliberately it is conceived and carried out.”
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> Our seventh and final principle may surprise some readers: liberty of the person. Hang on, you may say. You propose all sorts of controls on financial and business activity. It is a bit late in the day for you to start banging on about individual freedom.
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> Not at all. The New Olympians have been keen to assert that their right to move colossal sums around the world, to speculate and to generate credit, is indivisible from the right of humbler folk to live their lives as they choose, but we argue otherwise. The Olympians are in receipt of huge legal and other support from the state; ordinary people, including the self-employed and those running small businesses, are not. And yet, as financial interests have been progressively freed over recent decades, the liberty of the person has been increasingly restricted. Spot-tested at work for drugs, monitored by closed-circuit television, subject to rules prohibiting “inappropriate” language, soon perhaps to be burdened with a national identity card, the individual is having a thin time of it. It is time to restore privacy and autonomy to the private citizen.
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> Much is made of the need to make trade-offs between liberty and security in the age of terrorism. We are told that we must face restrictions on our liberty to prevent terrorist attacks, and few object to sensible restrictions in this respect. But the New Olympians must concede the same point. They have been merrily transporting the financial equivalent of fissile material around the world for several years now, and the result is widespread contamination of the financial system.
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> So yes, our principles would give rise to much greater control of finance and big business. The “liberty” of the Olympians’ institutions would be severely restricted. And this in turn gives rise to the objection that such controls would be ineffective, because “in a globalised world” there is nothing much that can be done to control the investment banks, hedge funds and others.
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> This deprecation of interventionism is not new. As long ago as 1867, the writer and lawyer Richard Henry Dana was lecturing the Massachusetts legislature about the undesirability of passing laws against usury: “The market of the world moves with the irresistible power of ocean tides.” But the notion is quite misleading, for two reasons.
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> First, the technology that makes possible almost instantaneous money transfers around the world and split-second dealings in cash and securities also makes possible the tracking of such funds by national authorities. Indeed, large financial movements are tracked already, in the name of anti-money laundering measures. No one suggests this is a pointless activity. Should some form of capital controls be thought desirable, the surveillance and enforcement machinery should not be impossibly difficult to bring into existence.
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> Second, there is a low-tech reinforcement for this hi-tech equipment. Contracts or deals entered into in offshore jurisdictions, or anywhere else, in defiance of financial controls could be declared void in British law, say. This “negative enforcement” is highly attractive. It requires no police; it relies simply on courts not doing something, ie recognising and enforcing financial arrangements made without authorisation. No one will sign a contract if they know that the other party can simply walk away from it once they start to lose money.
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> Both these methods of enforcement also give the lie to the objection that financial controls can work only with international agreement. In some cases, the objector is genuine and really hopes for every country in the world to sign up to a grand treaty on controlling speculative activity. In others, the objection is a ploy from those with no desire to see finance put back in its cage, rather like the child who declares he is only too happy to tidy up his bedroom but only when his left thumb stops hurting.
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> Not that international agreements are to be despised, provided two things are kept in mind. First, that, as things stand, such agreements are likely to be drawn up and enforced by the New Olympians’ political and bureaucratic allies. Second, even when drawn up in good faith, such agreements tend to represent the minimum that all countries can sign up to. Individual nations serious about dismantling the New Olympian system will find they need to go it alone, at least to begin with.
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> So given the above-mentioned principles, and given that, contrary to myth, measures can be enforced, what ought those measures to be?
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> First, we suggest very much tighter controls on lending and on the generation of credit. Linked to this is a second suggestion, for the forced demerger of large banking and finance groups, splitting retail banking from both corporate finance and securities dealing. This would echo America’s Glass-Steagall legislation, which separated retail and investment banking until the 1990s.
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> Third, even the remaining demerged units are likely, in many cases, to be large entities. We would suggest breaking them up into smaller banks, on the principle that mega-banks make mega-mistakes that affect us all. Instead of institutions that are “too big to fail”, we should aim for institutions that are small enough to fail without creating problems for depositors and the wider public.
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> Fourth, we would suggest subjecting all exotic financial instruments to official inspection. Only those approved would be permitted to be traded. Anyone trying to circumvent the rules by going offshore or on to the internet would face the “negative enforcement” mentioned above – their contracts would be unenforceable in law.
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> Fifth, we would seek to offer the same protection for our remaining top-class industrial companies as is routine in France or the US – and perhaps go further. Ultimately, the aim must be an orderly downsizing of the financial sector, much as postwar France and Italy sought an orderly move of employment from agriculture to industry. More of the engineers and technical experts from our best universities would end up making things. Some of the famed “rocket scientists” who spend their days in the City cooking up ever more abstract financial entities may even end up making rockets.
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> Certainly, at a moment when the survival of human life on the planet might depend on our finding new technologies to generate energy and reduce our disruptive impact on natural systems, it seems perverse to the point of insanity to corral our brightest and best technicians on to trading floors.
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> Sixth, we would sharply increase taxes on the hedge fund operators and private equity partners, to ensure at the very least that they pay the same rate of tax as their cleaners. The loophole whereby income can be disguised as a capital gain and thus taxed at a lower rate was closed by a previous Labour government in the mid-1960s, only, bizarrely, to be reopened by Labour more than three decades later. It is time to close it again.
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> Seventh, we would suggest deregulating genuinely private businesses and the self-employed (frequently the two are synonymous). One byproduct of the Olympian myth that vast financial institutions are part of the “enterprise culture” has been the imposition on genuine enterprises of the sort of employment and other legislation used to extract at least some payback from the New Olympians for the benefits of limited liability and other privileges. The self-employed and small firms ought to be regulated only with regard to their activities (eg, a jam-maker would have to obey the food and hygiene laws) and not as businesses. Indeed, by greatly enhancing the attractiveness of the partnership or the small firm, such deregulation may divert many talented people from the pursuit of Olympian status to gentler, more rewarding and more socially useful business careers.
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> None of this will be easy. Some of it may involve abrogating Britain’s signature to various international agreements, not least the various European treaties. Nor does much of this New Populism appear to be immediately in prospect, despite the darkening clouds over the world economy. It could move rapidly on to the agenda should the crisis worsen markedly, but it is also possible that it will take time to piece together a Populist coalition.
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> We have touched already on some of the elements that might join such an alliance: small business people and farmers (if there are any left); independent professionals and shopkeepers. Then there are those filling the basic supervisory roles that ought to be the backbone of society: railway station managers and their equivalents in bus depots and motorway service stations, police sergeants, prison officers, high-street store managers, noncommissioned officers in the forces and similar. We would seek to add two significant blocks of members: manufacturing and export businesses and trade union members. Industry and those working in it have been the biggest losers from the Olympian experiment as productive capacity has been destroyed and millions of manufacturing jobs wiped out. Those owning, running and working in industry know better than anyone the virulence with which New Olympianism has blighted the economy. Both union members and managers have much to gain from a more sensible attitude to industry.
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> And those within such a coalition will always have the inestimable advantage of the fact that, beneath the shiny packaging, the Olympians’ creed is and always has been the reverse of their own. It is Unpopulism, the belief system that sacrifices jobs and productive assets on the altar of deal-making, that demands schools and post offices be “rationalised” (ie closed), that insists on lower tax rates for the rich than for their domestic servants, that has created a vast debt bubble and chronic global instability, and that, even at this late hour, has the effrontery to suggest that the answer to the crisis lies in the even more enthusiastic application of free-market ideals. Unpopulism ought to make the selling of the New Populism a whole lot easier.
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> © Larry Elliott and Dan Atkinson 2008.
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> · Extracted from The Gods That Failed: How Blind Faith in Markets Has Cost Us Our Future by Larry Elliott and Dan Atkinson, to be published by The Bodley Head tomorrow, priced £12.99. To order a copy for £11.99 with free UK p&p go to guardian.co.uk/bookshop or call 0870 836 0875. For more information see the authors’ blog at hegodsthatfailed.co.uk.
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> Copyright Guardian Newspapers Limited 2008