2007 - 2020

How to Restart the Economy After C19

HOW TO RESTART THE ECONOMY AFTER C19
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THE potential economic implosion of capitalism as a result of the medical emergency has thrown up a host of theories regarding how to rebuild the Scottish, UK and global economies on a more resilient basis.
Many of these ideas have been around in one form or another for a long time, but suddenly they are gaining a lot of traction.  Let’s have a look at the main contenders.
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UNIVERSAL BASIC INCOME (UBI)
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Several years ago, a motion supporting UBI was passed by the SNP conference only to enter the political black hole of an “internal review”.  Recently I was ticked off by the party’s Social Justice commission for inferring that UBI was not being taken seriously enough. But since the arrival of COVID-19 – or rather the gross incompetence of the Tory Government in its handling – UBI has entered the political mainstream, at least as an emergency welfare palliative.
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On 10 April, the First Minister tweeted: “I’ve long been interested in concept of UBI but current situation strengthens case immeasurably. It would require UK gov co-operation – given current powers of @ScotParl – but hopefully we can have serious discussion”.  OK, that’s not quite a ringing endorsement but at lease UBI has moved up the FM’s agenda.
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Meanwhile, SNP Westminster leader Ian Blackford has been using Prime Ministers Question at Westminster to call for the introduction of UBI as an emergency measure to “put cash in people’s pockets” and ensure “no one is left behind”, during the present lockdown and rise in unemployment.  Says Ian: “There are serious gaps in the current UK [welfare] system – and millions of people are not getting the financial support they need. A guaranteed minimum income for everyone would fix these gaps and put cash in people’s pockets”.
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There are serious folk on the left who think UBI is a potential diversion and that it’s sudden popularity in liberal circles is a devious route to justify the gig economy.  In the wrong hands, a guaranteed income funded by the state could institutionalise low wages for the one in five British workers (i.e. seven million, mostly young people) already part of the gig economy precariat. A UBI could also be used to dismantle present minimum wage legislation or let it wither on the vine.
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I agree wholeheartedly with these worries.  Yet any reform under capitalism is liable to be co-opted and neutered.  The real test is whether or not, in given historical circumstances, a particular reform has enough social weight behind it to impose a better situation for working people than they had previously.  And in the current circumstances, introducing UBI is a progressive step because it pins on the state and free market system the responsibility for providing every citizen with a guaranteed income.
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Besides, nobody can seriously argue that the current Tory Universal Benefit system plus financial welfare cap (supported by Labour) is fir for purpose. Universal Credit and Tory welfare cuts over the past decade have murdered at least 130,000 people (aka “preventable deaths”), according to the respected IPPR think tank. We have to propose an alternative and UBI fits the bill – especially because it has significant popular support behind it.
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That said, we should not be starry-eyed regarding UBI. And we must watch out for attempts to use it as a mechanism to institutionalise low pay or hike taxes on the poor or middle-income earners, in favour of the rich.
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Example: the liberal (and neoliberal) Reform Scotland think tank recently published proposals for a UBI system in Scotland.  The Reform plan theoretically would give adults £5,200 a year, and those 16 and under £2,600. Reform Scotland reckons this will cost the Scottish government £20.4 billion a year – all UBI systems are expensive.  To raise the cash, Reform proposes scrapping the personal income tax allowance and increasing all rates of income tax by 8 per cent.  In other words, this is robbing Peter to pay Paul.
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MINSKY & JOB GUARANTEE SCHEMES
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The COVID-19 crisis has forced many capitalist states to pay workers in lockdown a proportion of their wages, as an emergency measure.  Which raises the obvious point: why not have the state guarantee employment in normal times?  Why not introduce a system of guaranteed jobs?
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This is hardly a new idea.  In America, during the Great Depression when unemployment hit 25%, the Roosevelt administration created federal job schemes in the form of the Works Progress Administration (WPA) and Civilian Conservation Corps (CCC). These programmes created national parks, built dams and other social infrastructure, and funded huge art projects.
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The advantages of the state guaranteeing everyone a job is that – properly managed – it ends the misery of unemployment, can introduce worker democracy, creates useful output instead of consumer dross, and can be funded from the current welfare bill.
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Again, there are obvious worries.  State guaranteed jobs can tun into the notorious “workfare” where recipients are forced to do medial jobs for a pittance. But again, any reform inside capitalism – where the private owners of the means of production consort to use the state to protect their interests – is capable of being subverted.  That’s not a reason for doing nothing and going to the pub, to wait for the revolution to arrive by itself.  Reforms are how we mobilise support for a better society.
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Bourgeois economists will pipe up that having the state provide jobs – through its own projects or by subsidising entrepreneurial ventures and co-ops – will cause labour shortages elsewhere and drive up wages across the economy.  This will result in the whole economy becoming uncompetitive internationally.  Is this true?
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Answer: everything depends on how you manage the job guarantee scheme. There are many reputable bourgeois economists – John Maynard Keyes in Britain and Hyman Minsky in America – who saw a job guarantee as the way to save capitalism from social revolution.  Recently Minsky (1919-1996) has achieved something of a cult status for his proposal to make the state the “employer of last resort” (ELR).
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Minsky suggests the trick with ELR is for the state to fund jobs concentrated in sectors where there is near infinite demand, because of the greatest social need: care, environmental works, the arts and culture.  Minsky argues the state itself should not manage such jobs directly but let them be organised through local councils or NGOs. Also, he is insistent that mandatory training is provided to raise skill levels constantly.  And other welfare provision should remain operational to eliminate enforced workfare.
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Private sector employers would go on hiring but perforce they would do so at wage levels above the minimum set by the state through ELR.  The result would be to raise wages in the private sector thereby forcing the pace of investment and productivity gains, but the social cost (e.g. unemployment caused by introducing AI) would be eliminated automatically by ELR schemes.  Thus technical progress would accelerate.
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MODERN MONETARY THEORY AGAIN
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How to pay for all this?  The instant ability of the state across the Western world to pay for the cost of tackling COVID-19 simply by issuing debt gives a lie – definitively – to the notion that governments are constrained by borrowing.  At least technically – politically is another matter.
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This brings us once again to the concept know as Modern Monetary Theory, or MMT (also associated with Minsky).  Crudely, MMT says that governments can always issue debt to finance themselves.  This public debt (bonds) is not a ball and chain on the economy, provided it is bought in the local currency, printed by the same government.  Essentially the government is creating an interest-paying asset (wealth) now owned by its citizens and funded out of future taxes.  These bonds are perpetually safe assets as the government concerned has a monopoly on collecting taxes – and, anyway, can always print more cash to pay the interest required.  Ergo, a government can always find the money to pay a UBI or provid a jobs guarantee.
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Here is my beef with MMT – and also UBI and ELR.  These alphabet soups mask the social reality of private ownership, private wealth and class conflict. If the owning class thinks a socialist government is going to raise taxes, extent workers’ control, introduce proper environmental and social regulation, or limit bankers’ bonuses – then it will defend its private interests through investment strikes, sending its cash abroad, or refusing to lend to the state.
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MMT does not mean the state can spend what it wants if the budget plan cuts across vested private interests or hurts profits.  If Aberdeen Asset Management does not like how a Scottish left-wing government is managing then economy, it will threaten to buy bonds elsewhere.  If RBS (which will dominate the banking system in an indy Scotland) thinks that the SNP (God forbid!) will expropriate private landowners, starting with the Duke of Buccleuch, it will withhold credit.
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Which explains why, time and time again, left-wing governments are forced to kowtow to their lenders, to abandon schemes to provide jobs, and to introduce austerity.  It is not because fiscal and monetary mechanisms are lacking to create full employment, but because private ownership of the economic system by a few gets in the way.  Which is why we must end this system or – post CORVID-19 – face a wave of austerity like you’ve never seen before.

Comments (12)

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  1. James Forth says:

    Marvellous analysis on MMT. Far too many people believe that it equals a blank cheque for governments: it just doesn’t.

    I am slightly more enthusiastic about UBI. Let’s play devil’s advocate: let’s assume the proposal looks like Reform Scotland’s. I am not sure that it would, but let’s assume it does. Even if we accept that, it removes the worst excesses of state benefits: people being sanctioned, waiting 5 weeks for universal credit, the wilful psychological warfare that the DWP wages on claimants. If that is all we achieve that is a hell a of result, probably more than the left has achieved in decades.

    However, I suspect that if the shift in opinion is big enough to justify UBI, it will be enough to make the level of it more humane. This is important. Worries about UBI “justifying the gig economy” ignore the reality of the people who work in that economy: the gig economy already exists, these people already don’t know if they are going to eat from week to week, they already know they will have no income (or have to endure the psychological warfare of the benefits system) if they get ill. They should not be made to endure that insecurity for sake of advancing a political argument. If we can remove that insecurity, we should, regardless of any tactical considerations.

    1. Coinneach says:

      James, I agree with you about the potential benefit of UBI to people in the gig economy who are largely excluded from support via the UK Gov’s Covis Emergency Financing schemes. The UK has a long history of under-valuing the Arts and the contributions that artists of all disciplines make to the nations’ cultural health. UBI could provide a much-needed boost to artistic output by enabling creative artists to devote more time to developing their talents and producing more output instead of having to spend most of their time doing menial and often tedious jobs just to pay the rent and put food on the table.

      At present the processes of seeking and, and if lucky, getting funding to create new work are very time consuming and onerous. For instance, I’m familiar with one of the most-widely used Arts Funding Plans in Scotland whose application forms exceed 30 pages (not counting a variable number of additional supporting documents) and require man-weeks of preparation, editing etc to meet entry criteria. Once submitted, the adjudicating processes can easily take 2 to 3 months, so the entire cycle, whether successful or not, can involve the applicant putting his/her career on virtual hold for between 4 and 6 months.

      This strikes me as a rather silly way to encourage artistic creativity, but the harsh economic truth of creating substantial new works is that such works probably wouldn’t ever see the light of day without the funding, given the precarity of most free-lance artists’ income streams and their need to eat and live. UBI could cause a flourishing of cultural activity simply by allowing artists to do what they are most talented at, instead of spending most of their time working in pubs, shops and restaurants.

    2. Dave Millar says:

      I’m not sure that’s how MMT works though I bow to Kerevan’s greater knowledge. Governments, and other agencies, create electronic money which greases the wheels of the black box which is the mature UK (or Scottish economy). People must hold this money because taxes are denominated in it. The money supply should be at a level which supports the productive capacity of the economy. There will always be budgetary considerations as there is an opportunity cost(s) to any tranche of spending. Inflation is controlled through taxes destroying created money, which, if continuously created, would lead to hyper-inflation. Much simpler than messing around with bonds.

      Agree with his last para though.

  2. Graeme McCormick says:

    Check my briefing note re AGR on annualgroundrent Facebook page. Includes a UCI of £10,000 for every Scottish resident and 10% of which is invested in Scottish enterprises so we all have a stake in our economy and provide business with loan finance

  3. SleepingDog says:

    Isn’t “robbing Peter to pay Paul” better known as ‘redistribution’? Perhaps we need to have a rational discussion about pay differentials. For example, which is more appropriate: person A is 2x as good/productive as person B and gets 10x the reward/pay; or A is 10x as good and gets 2x more? If person B needs to spend 90% of their income just for a basic living, then in the first case A (with the same needs) gets 9.1 / 10% or 99.1x the disposable income of B, in the second case 1.1 /10% or 11x more. Basically, subtracting living allowance and looking at disposable income, can we justify enormously levered pay differentials, at least between jobs where both are useful to society? What if job markets were not rigged, and a rational approach with widely-accepted variables was used, what would be the maximum differential (of disposable income) that seems ethically right? What are the appropriate multipliers (say, for dangerous, boring, uncomfortable, inconvenient work)?

    Aside from wealth and how much land a human needs and all that.

    1. Wul says:

      Noteworthy that you include a multiplier for “boring” work. That is something that is completely absent from current wage structuring.

      Perhaps, as you hint, a person’s ability to put up with boring, repetitive or unpleasant work should be seen as a rewardable skill rather than “just desserts” for having a low-status job. The ability to get up out of bed and do a hard job for poor pay is a real asset to our economy. Just look at how shelf-stackers, cleaners, delivery drivers, support workers, home helps etc are currently keeping us alive.

  4. Bill Ramsay says:

    “Marvellous analysis on MMT. Far too many people believe that it equals a blank cheque for governments:”…….it just doesn’t.

    Mmm
    the folk who believe MMT is a magic money tree ain’t the “problem” James

    What scares the bejesus out of the one percent is that MMT IS a useful educational tool in understanding that money generation ain’t the Thatchers economic morality tale of the wifey’s household budget.

    I’ll leave the details to the lads and lassie’s who got an “A” in higher maths at the age of 16 and have gone through life thinking they KNOW the answer to
    life-the universe-everything.

    However a question to my more numerate “betters”

    1. Imperial Japanese bomb navy bomb Pearl Harbour
    2. Amongst other things FDR instructs the Fed to turn on the printing presses (they were sort of virtual in 1941 too)
    3. Within 10 years the American working class (Ooops, sorry, dirty communist word ) American Middle class came into existence
    4. So wealthy became the American working class that Pop culture was manufactured to release their children of “pocket money” !
    5. Note points 1 to 4 are FACT , yes? can we all agree on that?
    6. Question —- Where was the necessary program of austerity to rebalance number 2?

    1. Wul says:

      Isn’t George’s point that a “balancing” austerity IS unnecessary?

      But that those with large amounts of private wealth will effectively “go to war” against any powerfully redistributive policies and use their leverage to sabotage the success of truly progressive governments? ( or to put it another way, they would wreck their own country to protect their vast, un-spendable wealth; patriots to a man)

      1. Bill Ramsay says:

        Indeed

  5. Kevin Hattie says:

    The tension between Capitalism and Democracy shows itself clearly when you consider something like a capital strike.

  6. florian albert says:

    Not that many years ago, George Kerevan was describing socialism – specifically, as proposed by Tommy Sheridan and the SSP – as ‘utopian guff’.
    It would be interesting to read what moved him from that economic position to the one he presently holds.
    (Or perhaps, moved him back, would be more accurate. In younger days, he was a supporter of the International Marxist Group.)

    With regard to the concept of a ‘job guarantee’, it is worth remembering that this was at the heart of the UCS work-in of the early 1970s; the ‘right to work.’
    Unhappily, it did not work out. During the industrial collapse of the early 1980s, numerous attempts were made to ‘create’ jobs, especially for unemployed young people. None of these attempts had a good reputation among those who were intended to benefit. Unemployment went down as the economy recovered from the mid-1980s on. The new jobs tended to be low skill and low pay. The obstacles to successful job creation look to be even more formidable now than forty years ago.

  7. Stu-ed says:

    Describe something as it isn’t and then proceed to take it apart. Strawman in action.
    MMT does not say any of things.
    If AAM decided to save elsewhere fine, the SG (when it has its own central bank and currency) can spend directly. They would though because central banks are the only one that are guaranteed to pay out!
    That is the caveat that is missing in the entire article. The case above is largely correct in the current arrangement, but on independence and with a Scottish currency & bank, it’s pish!

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