Category Archives: economics

Common Wealth advocates new ownership models for a more sustainable future economy

 

A new think-tank, Common Wealth, was launched this week. It is to focus on “transforming and democratising” the ownership of business, finance, data and digital technologies, the environment and land. It advocates new “ownership models” for a more sustainable future economy, involving the nationalisation of utility companies including water, power distribution and the Royal Mail, greater use of co-operatives and more public involvement in ownership models.

https://common-wealth.co.uk/about.html video

The home page of its website holds a number of interesting articles and one in Tribune describes Common Wealth’s mission in detail.

Mathew Lawrence, founder of Common Wealth (below right) is a former senior research fellow on the IPPR’s Commission on Economic Justice, which last year issued an influential report by figures from business, trade unions, academics and Justin Welby, the Archbishop of Canterbury, calling for higher wages, greater government investment and workers on boards.

Forthcoming publications by Common Wealth include a report into inequalities in land ownership, a plan for reshaping ownership of digital infrastructure and a plan for democratising corporate ownership. Mr Lawrence said the question of who owned and controlled the wealth of society was a fundamental question in 2019.

“Just as nationalisation underpinned the postwar consensus and privatisation drove Thatcherism, new pluralistic and democratic models of ownership will be vital to moving beyond neoliberalism,” he said.

Jim Pickard in the Financial Times writes that the organisation hopes ‘to provide the intellectual framework for a UK version of the “Green New Deal” backed in the US by leftwing Democrats, including Alexandria Ocasio-Cortez’.

That would be reinventing the wheel: Common Wealth and Mr Pickard are directed to the site of Britain’s well-established Green New Deal Group which has core members of different political persuasions.

 

 

 

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This time it must be different: ten years after the economic crisis – jobs in every constituency

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Global weather patterns have increased attention on the adverse effects of climate change and unease grows about the threats posed by automation.

American Democrats and Greens are taking on board the message delivered for years by Colin Hines, convener of the Green New Deal Group, more recently in the Guardian and repeatedly since then.

Implementation of the group’s Green New Deal infrastructure programme would mitigate the adverse effects of climate change, substantially reducing the domestic carbon emissions and automation-related unemployment.

However it will be important to build up public support for the massive systemic change advocated by many, including both Sir David Attenborough and Greta Thunberg. The often uncomfortable personal lifestyle changes needed must be seen as part of a diverse and popular programme addressing the social, economic and climate insecurity increasingly felt by the majority.

The changes would involve dramatically increasing the funding of:

  • employment in face to face jobs that address the worries of people of all ages, such as inadequate health-care, education and housing,
  • energy efficiency measures,
  • the increased use of renewables,
  • face-to-face caring in the public and private sector – difficult to automate or relocate abroad,
  • interconnected road and rail services in every community,
  • electric vehicles for private use
  • and an enormous nationwide green infrastructure programme ensuring the rapid decarbonisation of energy, transport, resource use and food production.

The changes must be couched in terms of being a massive local job generator and one that provides business and investment opportunities. Read more here.

America’s Green Party 

As the convenor pointed out in the Financial Times yesterday, the political advantage of this approach is that it would be seen by voters to be beneficial to every constituency and, as such, should appeal to all political parties. It will require a wide range of skills for work that will last decades, help to improve conditions and job opportunities for the “left behind” communities in the UK and ensure that the urgent demands of many for action on climate change can be more swiftly met.

 

 

 

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European Spring alliance will advocate a Green New Deal for Europe

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Yanis Varoufakis co-founder of DiEM25 (Democracy in Europe Movement) and former Greece finance minister, has advocated a Green New Deal for Europe.  Towards the end of an article (Dec.2018) he wrote:

This is what Democracy in Europe Movement 2025 – which I co-founded – and our European Spring alliance will be taking to voters in the European parliament elections next summer. See video here.

The great advantage of our Green New Deal is that we are taking a leaf out of US President Franklin Roosevelt’s original New Deal in the 1930s: our idea is to create €500bn every year in the green transition across Europe, without a euro in new taxes.

Here’s how it would work: the European Investment Bank (EIB) issues bonds of that value with the European Central Bank standing by, ready to purchase as many of them as necessary in the secondary markets. The EIB bonds will undoubtedly sell like hot cakes in a market desperate for a safe asset. Thus, the excess liquidity that keeps interest rates negative, crushing German pension funds, is soaked up and the Green New Deal is fully funded.

Once hope in a Europe of shared, green prosperity is restored, it will be possible to have the necessary debate on new pan-European taxes on C02, the rich, big tech and so on – as well as settling the democratic constitution Europe deserves.

Perhaps our Green New Deal may even create the climate for a second UK referendum, so that the people of Britain can choose to rejoin a better, fairer, greener, democratic EU.

Read the whole article here.

Postscript

On Monday, March 25, DiEM25 and European Spring gathered in Brussels to present the women and men from all corners of Europe who will take our common political programme to the ballot on May 25 – like Génération.s’ Benoît Hamon and LIVRE’s Rui Tavares among others – at the BOZAR theatre. This is where we officially launched our European Spring campaign – embodied in a New Deal for Europe, a set of ambitious economic proposals to save Europe from itself by transforming it.

 

 

 

 

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Yunus advocates an additional financial system

Quartz magazine’s  Eshe Nelson spoke with Nobel prize-winner Mohammed Yunus at the One Young World summit at The Hague, which brings together 2,000 young people from 190 countries who are working to improve their societies, and the world at large, by fighting to end sexual violence, improve access to education and demand justice and human rights accountability from governments. The conversation has been summarised for this website.

Yunus believes that the whole capitalist system has failed: “The very number of poor people shows that it has failed. It pushes all the wealth to the top continuously and the top became very fat and owned by few people. What kind of system is that? We have to redesign the system”. He continues:

“Today, there’s only one kind of financial institution, which are banks for the rich. You are asking the banks for the rich to lend to the poor. The very system is designed in a completely different way. This machine doesn’t work for them. The way to really address the problem of the rejected people from the financial system is to create a new financial system. Capitalism went wrong because it started with the wrong premise. It misrepresents human beings and says we are driven by self interest. But human beings are both driven by self interest and selflessness.

The economic system forgot the selflessness part, and once we include it into the business, you have two kinds of business:

  • business to make money
  • and business to solve problems.

Then the economic system becomes different”.

In the 1970s, Yunus began work on what would become Grameen Bank in Bangladesh, which provides small loans to entrepreneurs, primarily women, who otherwise couldn’t access funds due to a lack of collateral and other resources. Grameen Bank takes deposits to finance the loans it offers; it decided in 1995 that it wouldn’t accept donations – for Yunus, ending poverty isn’t about charity. Last month, the 10-year-old US division of Grameen announced that it had provided more than $1 billion in loans to 106,000 women. Over the next decade, it plans to provide $1 billion in loans every year, and nearly double the number of branches, to 42. He comments:

“Microcredit still remains the same as when we started in Bangladesh 40 years back. But many more people around the world have started microcredit programs. Some took advantage of credibility of the word “microcredit”—they used it to make money for themselves, turning into loan sharks. After 42 years it’s not gone into the mainstream. Microcredit has remained at the NGO level, a footnote in the financial sector.

“Earlier this year, the World Bank showed how little progress there has been: The proportion of people with active accounts has stagnated and the gap in financial inclusion between men and women has stayed the same.

The very word “inclusion” is suspect. This is not about inclusion; it’s about having a separate kind of banking institution to address the people at the very bottom.

“Governments are used to giving grants to poor people for survival. Whether you are a rich country or a poor country, every country does that. Instead of giving grants, it’s much cheaper to do it as a loan. The money comes back, covers its own cost, and is sustainable. It’s a market-based system. Whichever way you do it, it has to create income. In order to create income you have to encourage people to become entrepreneurs”.

His view on giving cash transfers to entrepreneurs versus credit

“If it comes as a grant then there’s no responsibility, and the money can be misused easily. A loan comes with responsibility: you have to create a return from it. People become very relaxed if they are guaranteed money because they will get it again. If you fail, the second round of cash transfers will come, so why make an effort?

“The welfare system never produced any entrepreneurs. The welfare system in every country, you don’t see anybody coming out. They go in and stay there because you take care of them. Universal Basic Income is the same thing; it’s a welfare system. Charity doesn’t create activity. Charity is a dependence creation. Dependence creation is always a negative thing for a society. Systems should be geared towards creating activity. Creating entrepreneurship rather than dependence. Taking risk. That’s what human beings are for”.

 

 

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What is the main solution to the UK’s weak productivity growth?

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Chris Giles (FT) is examining why Britain is suffering from weak productivity growth. As part of his series, he wants to hear what readers think is the main solution to the UK’s weak productivity growth since the financial crisis of 2008. Share thoughts directly with him at ask@ft.com. Some may be published in a follow-up piece.

Prem Sikka, Professor of Accounting at University of Sheffield and Emeritus Professor of Accounting at University of Essex, who tweets here, has already published thoughts on the subject. Briefly:

UK company dividends are high & investment low

This lack of investment and innovation means that the country’s productivity is low. The output per hour worked in the UK is about 16% below the average for the rest of the G7 advanced economies. The UK productivity is around 27% below that of Germany – despite the UK labour force working almost the longest hours in the western world and the country is neither rebuilding its manufacturing base, nor developing new technologies.

He itemises the boardroom dominance of accountants:

Sikka then argues that short-termism, leading to the neglect of the long-term prosperity of companies and the economy, has been accelerated by the boardroom dominance of accountants.

Compared with other developed countries, UK companies are paying out the highest proportion of their earnings in dividends.

According to the Bank of England’s chief economist, in 1970 major UK companies paid £10 in dividends out of each £100 of profits – but by 2015 the amount was between £60 and £70. 

And at the same time as paying this large percentage in dividends many companies were downsizing labour and reducing investment, lagging behind the EU average:

Sikka asserts that the most effective way to disrupt the accounting-think prevalent in boardrooms is by appointing directors who are focused on the long-term – appointing employees and consumers so that they can challenge the obsession with short-term returns and promote investment in productive assets.

Giles quotes Lord Andrew Tyrie, new chair of the Competition and Markets Authority, who told companies in July to stop “ripping people off” or face the full force of the watchdog’s sanctions. His focus is mostly on regulated markets such as banking and energy, where companies are accused of exploiting vulnerable households by extracting a “loyalty penalty” if they do not switch suppliers.

Lord Tyrie told MPs during his confirmation hearing for the CMA in April that retail banking and auditing were parts of the economy that did not work in the interests of the public or productivity.

Scott Corfe, chief economist at the Social Market Foundation, a think-tank, claimed that pro-competition moves had some potential for raising productivity growth rates. He suggested that consumers should be switched between energy suppliers automatically after several years to stop companies exploiting customer inertia.

See this video: https://www.ft.com/content/ae25a5bc-9405-11e8-b747-fb1e803ee64e (possible paywall)

After noting that since the mid-2000s, British industries have become more concentrated, with fewer companies enjoying larger market shares, Giles focusses on this ‘one key question’:

Is inadequate competition contributing to Britain’s feeble growth in output per hour worked? 

 

We look forward to the next article in the series.

 

 

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“Money-manager capitalism has ‘fed political revolt’ in America and Europe: Philip Collins

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In the Times, Philip Collins* writes that western “money-manager capitalism,” (term coined by Hyman Minsky), has changed the patterns of incentives and rewards in the economy, leading to stagnation in productivity and wages by reducing the capital investment that supports their growth.

He cites Erikson & Weigel: “A decade has passed since banks and financial houses began to crumble and took Western economies to the brink of collapse, but economic growth on both sides of the Atlantic remains weak. It is still determined more by governments and central banks than the animal spirits of entrepreneurial capitalism.

Economic developments before and after the crisis that started in 2007 have fed political revolt. In both America and Europe, people are angry about their poor income growth, and they indict the “one percent” or “the establishment” for pursuing policies that benefit the rich at the expense of the middle class. They feel that the age of cost-cutting McKinsey consultants, cheap capital, and Wall Street financial engineers brought prosperity to the professional classes, but that, as a result, everyone else’s expectations were revised permanently downward: “The revolt comes from both the Left and the Right, but the underlying premise is shared: capitalism hasn’t been working for me!”

Collins then adds that business investment has been falling as a proportion of GDP since the 1970s.

”Money that ought to be invested is instead flowing to shareholders in the form of dividends and buybacks. Too rapid a recourse to mergers is generating payments for unworthy executives and creating giant companies which do their best to evade fair taxation. All the while they buttress their position with expensive and effective lobbying to keep regulators sweet”.

He cites two sets of linked consequences

  • Unemployment among the young and low-skilled has increased and wages for those in work have stagnated.
  • The vast majority of the returns from the last decade of capitalist activity have accrued to those who are already rich in assets.

This trend within capitalism itself accelerated after the 2008 crash by central banks whose incontinent monetary policy had inflated asset prices.

Under capitalism it seemed, on the whole, that things could only get better. Growth made us more prosperous tomorrow than we are today. When that promise broke, the response was a growth in radical movements to the left and right.

The obvious answer, according to Collins includes:

  • shifting the burden of taxation away from income and towards wealth;
  • imposing a higher inheritance tax, to prevent large transfers of privilege;
  • taxing the capital gain on the residential home;
  • taxing land, of all the assets the least easy to hide;
  • cutting income tax for people who take home the average wage or less;
  • and earmarking some of the proceeds for the social care system which is a disgrace in a rich country.

Michael Gove, Secretary of State for Environment, Food and Rural Affairs, considers the deeper causes of populism. He believes that the British have seen so much of what they value which is beyond economics — whether love of place and landscape or the integrity of their cultural attachments — overlooked or ignored. He advocates:

  • reform of corporate governance,
  • better pricing of environmental costs,
  • changes to investment incentives and procurement rules,
  • “smarter” regulation
  • and no access for not corporate lobbyists.

But, Collins reflects: “Conservatives often give bold speeches which herald no action.

“After the expenses scandal David Cameron diagnosed all that was wrong with politics and proclaimed a radical plan to put it right, not a word of which ever materialised.

“In her first address as prime minister, Theresa May set out the array of social issues which would define her premiership. Mired in Brexit, we are still waiting.

“There is every chance that Mr Gove’s speech on capitalism will fall into the same category”.

Collins ends, ”The reason why the Conservative Party will not act . . . (is that) it is going to have to upset some natural-voting Conservatives. A state intervention to break up successful companies, an expansive set of welfare schemes and a government dedicated to imposing taxes on wealth. It doesn’t sound very likely from this government”.

 

 

Phillip Collins is the leader writer and columnist for The Times, chairman of Demos, Visiting Fellow at the London School of Economics, associate editor of Prospect magazine journalist, academic, banker and speechwriter

 

 

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Climate change should be placed “front and centre” of the central bank’s mandate to boost green investment

A Green Bank of England, Central Banking for a Low-Carbon Economy

Delphine Strauss (Financial Times) summarises advice in this report (link to pdf above) from the campaign group Positive Money.

It recommends that climate change be placed “front and centre” of the Bank of England’s mandate so that the central bank can boost green investment.

The report has won backing from Lord Deben, who chairs the independent Committee on Climate Change which was set up by the government to monitor the UK’s progress in meeting its statutory targets for cutting emissions:

“They are right to seek some radical measures, because the issues are radical. I think that monetary policy does need to reflect these risks”, he said, adding that central banks should do more to ensure the availability of green finance and divest from fossil fuel companies that showed no inclination to change their business.

The BoE has been reviewing UK insurers and banks’ exposure to climate-related risks and supports efforts to develop international standards for voluntary disclosure.

Mark Carney, the BoE’s governor, has repeatedly warned of the physical damage climate change could wreak on the economy and the risks to financial stability that might result from a sudden revaluation of carbon-intensive assets.

Positive Money argued that this concern for financial stability will look “incoherent” unless the BoE does more to boost investment in the transition to a low-carbon economy. Its report urged the government to rewrite the mandate of the Monetary Policy Committee to include green objectives explicitly and called on the BoE to look at ways to build climate-related risks into its macroeconomic models.

The Positive Money report urges the BoE to set an example:

  • by disclosing the carbon risks of assets on its own balance sheet
  • by ending the practice of buying bonds issued by fossil fuel companies
  • and by financing green projects via quantitative easing during any recession.

It argued that the BoE has unintentionally promoted high-carbon sectors because its criteria for asset purchases favoured the bonds of large fossil fuel companies.

 

 

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