Category Archives: employment

Prem Sikka: “If austerity is over, the Chancellor must present a plan to invest in our economy”

Chancellor Philip Hammond’s number one focus should be investing in a sustainable economy, argues Prem Sikka, Professor of Accounting at University of Sheffield and Emeritus Professor of Accounting at University of Essex. 

In a recent article, Sikka (below right) observes that in the face of Brexit uncertainties, many businesses are withholding investment. But to meet the challenge, the government will need to abandon almost of its headline polices.

He points out that historically, the private sector has shown little appetite for long-term risks and the state invested heavily in biotechnology, telecommunications, postal, information technology, utilities, shipping, railways, airlines and many other long-term industries.

For the last 40 years, the government has privatised most of these industries and relied on a variety of tax incentives to persuade the private sector to invest.

Sikka’s verdict: the results have not been encouraging – investment slumped

The lowest ratio of investment to GDP in EU countries was recorded by Greece (12.6%), followed by Portugal (16.2%) and the United Kingdom (16.9%). And since the 1990s, the UK R&D expenditure has fluctuated between 1.53% and 1.67% of GDP, well below the EU average.

Successive governments made a deliberate decision to prioritise the service sector though it is the manufacturing sector which generally generates more skilled, semi-skilled and higher paid jobs. Its multiplier effect – the ability to generate additional jobs – is also greater as the items need to delivered, maintained and repaired. Yet the manufacturing sector has continued to shrink and now accounts for around 9% of the UK GDP compared to 30% in China, 20% in Germany, 12% in the US and 19% in Japan.

Without adequate purchasing power, people cannot afford to buy goods and services and that itself discourages investment.

Investment, innovation and R&D need to be accompanied by sustainable demand. Since 2010, the government has been wedded to building a low-wage economy. Workers’ share of the GDP for the second quarter of 2018 stands at 49.3% of GDP, compared to 65.1% in 1976.

At the same time, the increases in gas, water, electricity, rents and travel costs have further eroded people’s purchasing power. The inevitable consequence of squeeze on household budgets has been the closure of shops such as Carpetright, Jamie’s Italian, Maplin, Marks & Spencer, Mothercare, Poundworld, Prezzo and Toys R Us, just to mention a few.

The Chancellor needs to find ways of boosting people’s purchasing power

This could be done by curbs on profiteering by utilities and train companies, raising the minimum wage and state pension, ending gender discrimination and pay rise for women and public sector workers, abolition of university fees, and ensuring that the tax-free personal allowances for income tax purposes match the minimum wage.

Sikka emphasises the urgent need for state investment in providing social infrastructure, transport, house-building, green industries, artificial intelligence, space and other industries and Hines proposes a Green New Deal infrastructure programme, offering jobs in every constituency.

In the Guardian, Colin Hines, convener of the Green New Deal Group, recently wrote about a GND infrastructure programme which would contribute substantially towards reducing Britain’s domestic carbon emissions and also address the serious threat of rapid and ubiquitous automation raised by Yvette Cooper.

Two major labour-intensive sources of local jobs were advocated: face-to-face caring in the public and private sector and infrastructural provision and improvements. Both are difficult to automate and can’t be relocated abroad.

Infrastructural provision and improvements are crucial to tackling climate change, prioritising energy efficiency and the increased use of renewables in constructing and refurbishing every UK building. In transport the emphasis would be on increased provision of interconnected road and rail services in every community, encouraging electric vehicles for private use. Hines added that the advantages of this programme include:

  • improving social conditions,
  • protecting the environment,
  • offering opportunities in every constituency,
  • requiring a wide range of skills for work that will last decades
  • and helping to improve conditions and job opportunities for “left behind” communities in the UK.

Sikka ends: “Neoliberals will no doubt respond with the usual comment ‘we can’t afford it.’ But can we afford stagnation, economic decline, social conflict and instability? The answer is a clear no. A government which can bailout banks with billions oquantitative easing, appease corporations and wealthy elites with tax cuts and guarantees profits through the Private Finance Initiative (PFI) and subsidies to film companies, can also find resources for economic welfare. If it chooses not to, it should make way for someone who can”.

 

 

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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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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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Job losses in Britain: shades of things to come?

Large companies which failed during the last twelve months include:

  • Poundworld
  • BHS
  • Maplins
  • House of Fraser
  • Carillion
  • Toys ‘R’ Us

See http://www.retailresearch.org/whosegonebust.php

2007-2018 Review

Already this year over 20,000 people have been affected – and it’s only June. Add on those made redundant by Sainsburys and thousands from small and medium businesses which have failed or made workers redundant.

Time for change, acting on the combined thoughts of:

And other experienced and thoughtful people.

 

 

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In condemnation of privatisation – the naked pursuit of wealth

The ideology of competition and superiority permeates our culture, and the cult of privatisation is at the root of sub-standard, expensive railways, electricity, gas and water; miserable prisons; inadequate care; decreasing legal aid; and failing mental health services.

Personal success and the creation of wealth are goals in a wilderness of private interests. ‘Success’ has widely come to be defined in terms of superiority over others.

Our system of knighthoods and damehoods – the invidious use of ‘Lord’ and ‘Lady’ – symbolise a power structure where outsiders are tolerated, and often quietly absorbed into a corrupt environment.

People motivated by greed, like the authors of devastated pension funds, suddenly and mysteriously reappear in positions of authority. It is as if history has ceased to exist. Those with the courage to expose them are vilified.

Recent media expositions relating to the House of Saud and the huge-scale laundering of the ill-gotten gains of oligarchs and dictators through the City of London, for example, portray the corruption. Empty luxury flats are more desirable than homes for people.

Armaments, for some, are more important to our wellbeing than the lives of underprivileged Yemeni families.

This presents a challenge. Condemnation is not the way to tackle the cult of success. We need successful artists, business people, musicians, actors, social workers, doctors, scientists and engineers – and we must find ways of stimulating and supporting them.

A redefined concept of success will lie in focusing on the huge potential of every single member of our society and not just those with the existing resources – physical, mental, economic – to realise themselves. 

Edited from an article by Roger Iredale in the Friend, 23 February 2018

 

 

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Nurture and rebuild local economies and international relations: Hines, Corbyn, McDonnell

Opposition to open borders and failed neo-liberal policies that transferred wealth to the private sector and cut funding public services, fuelled the Brexit result, Donald Trump’s election and the continued rise of Marine Le Pen in the French polls. Colin Hines, in a letter to the Financial Times, said that these trends all point to the conclusion that the future will be one of protectionism, asking “The question is, what kind?” His answer:

“President Trump is a 1930s-style one-sided protectionist. He wants to curb imports that cause domestic unemployment, but at the same time plans to use “all possible leverage” to open up foreign markets to US exports”.

To avoid a re-run of the 1930s, when the US and others took a similar approach, Hines advocates a very different kind of “progressive protectionism” – one that can benefit all countries by nurturing and rebuilding local economies, reducing the level of international movement of goods, money and services. Policies geared to achieving more job security, a decrease in inequality, and protection of the environment globally would be championed.

Shadow Chancellor: a focus on developing strong local economies 

Sienna Rodgers reports that the shadow chancellor is in Preston today, a city whose ‘co-operative council’ has taken an innovative approach to funding in the face of swingeing budget cuts (see Localise West Midlands). In his speech McDonnell will champion “creative solutions” for local authorities suffering under austerity, from bringing services back in house to setting up energy companies, with a focus on developing strong local economies.

Such economic action, many believe, must be accompanied by a profound change in our foreign/defence policy 

A serious commitment is required to averting armed conflict, wherever tensions rise, by diplomacy, mediation and negotiation, redirecting the wealth currently used to subsidise the arms industry and to prepare for aggressive military action. This has also long been advocated by John McDonnell   (see Ministry for Peace, archived).

These are the policies of Jeremy Corbyn, who has made peace and disarmament his major international priorities. He has already appointed MP Fabian Hamilton as shadow minister for ‘peace and disarmament’, with a brief to ‘reduce violence, war and conflict’, participating in multilateral disarmament meetings at the UN in New York.

Mr Hamilton, who will prioritise reducing supplies of guns and other weapons worldwide, said that Labour is strongly committed to helping to reduce the violence, war and conflict in the world which destroys so many innocent lives every day and – many would add – cripples the economies of many regions, forcing their citizens to emigrate to find peace and to make a living.

 

 

 

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Time for change: junk the Anglo-Saxon model* in 2018

The FT reports that senior executives at several of the largest US banks have privately told the Trump administration they feared the prospect of a Labour victory if Britain were forced into new elections.

It then referred to a report by analysts at Morgan Stanley arguing that a Corbyn government would mark the “most significant political shift in the UK” since Margaret Thatcher’s election and may represent a “bigger risk than Brexit” to the British economy. It predicted snap elections next year, arguing that the prospect of a return to the polls “is much more scary from an equity perspective than Brexit”.

Jeremy Corbyn gave ‘a clear response’ to Morgan Stanley in a video (left) published on social media reflecting anti-Wall Street rhetoric from some mainstream politicians in the US and Europe, saying: “These are the same speculators and gamblers who crashed our economy in 2008 . . . could anyone refute the headline claim that bankers are indeed glorified gamblers playing with the fate of our nation?”

He warned global banks that operate out of the City of London that he would indeed be a “threat” to their business if he became prime minister.

He singled out Morgan Stanley, the US investment bank, for particular criticism, arguing that James Gorman, its chief executive, was paying himself a salary of millions of pounds as ordinary British workers are “finding it harder to get by”.

Corbyn blamed the “greed” of the big banks and said the financial crisis they caused had led to a “crisis” in the public services: “because the Tories used the aftermath of the financial crisis to push through unnecessary and deeply damaging austerity”.

The FT points out that donors linked to Morgan Stanley had given £350,000 to the Tory party since 2006 and Philip Hammond, the chancellor, had met the bank four times, most recently in April 2017. The bank also had strong ties to New Labour: “Alistair Darling, a Labour chancellor until 2010, has served on the bank’s board since 2015. Jeremy Heywood, head of Britain’s civil service, was a managing director at Morgan Stanley, including as co-head of UK investment banking, before returning to public service in 2007”.

A step forward?

In a December article the FT pointed out that the UK lacks the kind of community banks or Sparkassen that are the bedrock of small business lending in many other countries adding: “When Labour’s John McDonnell, the shadow chancellor, calls for a network of regional banks, he is calling attention to a real issue”. And an FT reader commented, “The single most important ethos change required is this: publish everyone’s tax returns”:

  • In Norway, you can walk into your local library or central council office and see how much tax your boss paid, how much tax your councillor paid, how much tax your politician paid.
  • This means major tax avoidance, complex schemes, major offshoring, etc, is almost impossible, because it combines morality and social morals with ethics and taxation.
  • We need to minimise this offshoring and tax avoidance; but the people in control of the information media flow, plus the politicians, rely on exactly these methods to increase their cash reserves.

But first give hope to many by electing a truly social democratic party.

Is the rainbow suggesting a new party logo?

*the Anglo-Saxon model

 

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