Britain has experienced the deepest crisis among the advanced capitalist countries and it is far from over. The recovery in services and manufacturing has slowed; there are jobs cuts in construction. With the slowdown in the US and Europe, the export miracle hoped for by the Con-Dems is also not happening. In summer 2010 Britain ran its highest trade deficit since the 17th century. Under these conditions private capitalists will not invest. Working people, who are already losing jobs and income, and in debt, will not be able to spend. We are in a major long recession. The International Monetary Fund and the International Labour Organization are warning against premature cuts. Martin Wolf of the Financial Times calls the budget cuts a gamble. If they lose the gamble, that will be it for the Conservatives and Liberal Democrats at the next election.
Until then, we pay the cost: real wages (excluding managers’ bonuses) have fallen since 2008. Even nominal wage cuts are likely. Unemployment is expected to increase to around 8% in 2010, and remain higher than its pre-crisis level until 2014. The seemingly moderate increase in unemployment has been thanks to “voluntary” short-time working with loss of income, or wage freezes and cuts. There is no direct government subsidy for short-time as there is in Germany. Meanwhile, bonuses are back; the super rich have recovered; the gap between the highest paid 10% and the lowest paid has increased; the gender wage gap has widened. Con-Dem cuts will hit the poorest 13 times harder than the richest.
This is their crisis, not ours. It is a crisis of pro-capital redistribution and financial deregulation. State intervention saved capitalism in the first phase of this crisis. Now the banks, business lobbies and government are repackaging their crisis as a public debt crisis. This is a deliberate strategy to make us pay for the crisis and to avoid taxes on their profits. But we shall not!
How to make those responsible pay
The main obstacle to initiating any progressive economic policy is speculation in the financial markets on public debt and the government’s commitment to satisfying the financiers. For this reason, public finance has to be freed through defaulting on debt. There are three sources of the recent increase in public debt: bank rescue packages; increased fiscal spending to moderate the effects of the crisis, most of which are related to “automatic stabilizers” such as job seekers’ allowance; and losses in government tax income due to the declining aggregate income in the economy.
On top of capital injections into banks, the Bank of England bailed out the banks by extensive cheap credit lines via quantitative easing, and the banks, which hesitate to lend to each other or to firms and households, have increased their profit margins in lending. They have also started to make profits by lending to the government.
A debt audit should uncover the sources of the increase in public debt. Debt default would mostly hurt the bankers and the wealthy private investors. The social democratic utopia of growing our way out of debt is not consistent with the ecological crisis.
Recognising the need for default is important, given the ecological limits to growth, which makes debt repayment harder. A default strategy can be initiated at the national level; however the EU could used as a focus for bringing together people’s opposition to the budget cuts, anti-democratic structures, and multinational lobbies in both the periphery and the core.
Important elements of waste can be cut to relieve our economy from the burden of debt: stopping the war in Afghanistan and cutting the replacement programme for Trident are the obvious examples. The latter alone would free £80 billion. However, this should not be seen as a substitute for debt default.
The next step of an alternative budget policy is to redesign tax policies to reverse the origin of the crisis, i.e. pro-capital redistribution. This involves a highly progressive system of taxes on income and wealth; higher corporate tax rates, inheritance tax, and tax on financial transactions. According to the Con-Dem government’s genius plan to save the capitalists from the crisis, the already low rate of corporate tax in Britain will fall further to 24% by 2014. Inheritance tax is only 40% for bequests above £325,000. There is no proper tax on wealth. Britain has one of the lowest marginal tax rates on top income among rich countries. In Germany, France, and Japan, the highest marginal tax rate is between 47.5 and 50%; in Britain it is just 40% for income above £37,000. There is a temporary rate of 50% only for super rich incomes over £150,000. A 50% tax on income above £100,000 could on its own raise £4.7 billion and closing tax loopholes could raise £25 billion.
However, we should go way beyond these moderate classical social democratic demands. Progressive income tax should be used to impose a maximum income, with the highest marginal tax rate increasing to 90-95% above £80,000-90,000, affecting some 1-2% of waged employee. Indeed, this rate is not radical compared to what we had before Thatcher: between 1974 and 1979 the top income tax rate was 83% on incomes above £90,500 at today’s prices (£24,000 at 1979’s)! Indeed, with additional taxes of 15% on unearned income such as dividends and interest on investments, the top rate could increase to 98% in 1979! Similarly, we need a progressive tax with a high top rate on wealth, i.e. a progressively heavier levy on the ownership of real estate, cash, deposits, equities, securities, bonds, etc. This would permanently narrow the inequality in wealth distribution.
How to spend the public’s money?
Economic policy and public spending should aim at full employment, ecological sustainability, and equality. This is a feasible but challenging task. First, if the use of environmental resources is to maintain a certain ‘sustainable’ level, economic growth in advanced capitalist countries, in the long term, has to be zero or low, i.e. equal to the growth rate of ‘environmental productivity’.
Second, advanced capitalist countries like Britain need to slow down to create space for development in the Global South as part of a broader strategy of climate justice. This type of zero-growth or even de-growth, however, has nothing to do with the disastrous recession caused by the crisis. This is a managed zero-growth economy that redistributes existing wealth, which should be sufficient to maintain a life with dignity and creativity for all, if resources were used sustainably and in accordance with the needs of the majority. Growth in past decades has not brought jobs, equality, prosperity, or happiness. We can create prosperity and equality without growth. Consumerism and conspicuous consumption would also decrease in a more equal society.
The reconciliation of full employment with zero growth and a low carbon economy requires two policies: creating more labour-intensive jobs, and ecological investments. First, public spending should generate public employment in labour-intensive social services such as education, child care, nursing homes, health, community and social services. The need for social services is not met under the present circumstances, where they are provided either at very low wages (to ensure an adequate profit) or as a luxury service for the upper classes or via invisible unpaid female labour within the gendered division of labour in the private sphere. To avoid this deficit they can be provided by the state or by non-profit/community organizations. The gender aspect of public employment programmes should also be carefully designed in order to not only avoid disadvantages for women but also increase women’s employment share.
Second, for the purpose of ecological sustainability, there is need for a shift in the composition of aggregate demand towards long-term green investments; this cannot be achieved without new strategic tasks for active public investment. Public investment in ecological maintenance and repair, renewable energy, public transport, insulation of the existing housing stock and building of zero-energy houses can create jobs as well as a low carbon economy.
To maintain full employment without growth, a substantial shortening of working time in parallel with the historical growth in productivity is also required. Reduction in weekly working hours should take place without loss of wages, which means an increase in hourly wages. Again this is not unrealistic. Compared to the 19th century, we are all working part-time today. But the shortening of working hours has slowed down since the 1980s, with the notable exception of France.
This is also the way to break the illusion among working people of the need for growth and to make a zero-growth economy socially desirable by guaranteeing work with dignity and an equitable distribution of income. The minimum wage should also be adjusted upwards to a living wage level, and a basic income for all residents should be introduced.
Regarding employment in the private sector, it is important to prevent firms from making use of the crisis to implement their long-term downsizing strategies. The alternative is legal measures to ban firing during the crisis: if the firing ban leads to bankruptcy in certain firms, these firms can be re-appropriated and revitalized under workers’ control, supported by public credits. Widespread examples of that were seen in Argentina after the crisis in shut-down companies.
In cases of sectors that are under the threat of structural problems and mass layoffs, like the auto industry, nationalization of the firms and restructuring of these public firms should be considered, e.g. in the auto industry a shift of focus towards the production of public transport vehicles, and a gradual transfer of labour towards new sectors.
This programme requires a public banking sector. Financial regulation is important but not enough. Finance is a crucial sector which cannot be left to the short-termism of the private profit motive. This sector has already been de facto nationalized, but without any voice for society and with a commitment to privatization as soon as possible. Yet the challenge is the finance of socially desirable large new investments, e.g. in the energy sector. Large private banks exploit their advantage of being “too big to fail”. Instead, what needs to be done is to nationalize the banking sector with the participation of the workers and other community representatives in decision making and transparency of the accounts.
On the international front, speculative financial flows should be prevented via capital controls and a stable world monetary system based on fixed exchange rates with the possibility of managed adjustments. The nationalization of banks is a natural complement to debt default. This can prepare the ground for a policy of debt restructuring for working people by linking their debt payments to national banks to a reasonable share of their income.
The crisis calls for a major shift in decision making to facilitate economy-wide coordination of important decisions. This requires public ownership and the participation and control by workers in the firms, of consumers, and regional representatives in other critical sectors such as housing, energy, infrastructure, pension system, education, and health. Such a transformation will build the bridge to a democratic, participatory, feminist ecosocialism.