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Veronika Thiel is a researcher and project manager on nef’s Access to Finance team.
The topic of the day is unemployment. At the moment, more people in the UK are unemployed than they were before Labour came into power. Not a nice reflection on the track record of the current Government. Why were so many jobs lost? Of course, the financial crisis. Always the financial crisis. However, looking at the types of jobs that are lost, many of those would have been low-skill jobs in the service sector that are expendable when the going gets tough. Demand for dry cleaners, office cleaners, caterers and sandwich sellers disappears quickly when the people demanding these services (i.e. those working in financial institutions) find themselves out of a job as well. So, all we have to do is make sure these financial wizards get their jobs back, so that those caterers and cleaners can get back on track, right? Wrong. What the crisis very clearly shows is that a lot of the employment created through the bubble was fleeting, just as the billions or even trillions of pounds that have now vanished into thin air. The jobs were not embedded in the real economy, the manufacturing of goods or the provision of services that we all need every day – for example good quality child care. Instead, people worked hard for measly incomes, were mostly unable to save, and loose the few assets they have, e.g. cars (which are often needed in order to get a new job). At the same time, they can’t honour credit commitments any more, meaning they are frequently over-indebted – or have already applied for personal insolvency. The latest stats show another increase in this
number.
So what we need to do as part of the recovery is create jobs that allow people to build greater resilience against such crises in the future. There is little point in having millions of people relying on the hire and fire jobs that are so dependent on the economic cycle. In addition, people need help in building savings, skills and aspiration – now more than ever. However, as we discovered in recent research, many efforts to build assets and thus to improve crisis resilience are eroded during the current crisis. Governments across the EU are cutting back social support to the unemployed, and cancel grants to organisations that seek to help people in dire straits. Instead of nurturing the efforts of aspiring entrepreneurs and savers, there is little to no effort to help people help themselves. Particularly in the UK, asset erosion is happening on a large scale. Banks repossess houses at the earliest possibility instead of trying to find a solution with the client. Even worse, debt is sold off to debt collection agencies that sometimes use threats and psychological warfare to recover money, with an added fee on top. Credit card companies often refuse negotiations with debt advice organisations and insist on immediate payments. None of these practices are challenged by Government. Everything plays second fiddle to the financial institutions – it’s for them to get their books back in order, and the quickest way of doing this is to get rid of bad debt. In the long run, this practice entrenches existing and new poverty.
Our research found that organisations such as Toynbee Hall and Fair Finance see a huge increase in demand for their services. Scarily enough, many of the people now seeking advice and help are those that were considered well-placed in society: low- and middle-income families with a house and a steady income. Despite this increase in demand, not a penny of the stimulus packages has been allocated to these and other organisations to meet the increased demand. The consequences: bankruptcy and hardship. Poverty and destitution. This will cost a lot more in the future to rectify than investing in advice and support services now. The overwhelming majority of people wants to work and is seeking work – but they have to have the ability to do so. An undischarged bankruptcy, homelessness and a pile of debt and worries will not be helpful to this end.
Our report thus calls on the Government to support asset building efforts and to recognise how helpful they can be in helping people through tough times. Asset building should be part of mainstream politics, not a niche as they are now.
It is always better to make people self-reliant rather than having to feed them in times when money is tight. Cutting budgets for asset-building activities now is the worst way of going about it.
Josh Ryan-Collins is a researcher in the Business, Finance and Economics team at nef.
After the storm: what will replace the neoliberal consensus?
The financial crisis which erupted almost two years ago has led to the biggest shake up in economic policy since the Oil Crisis of the 1970s. Neoliberal economics lies in tatters, with the UK Conservative party dismissing the notion of the ‘utility-maximising rational actor’ as a fantasy and Martin Wolf of the FT pronouncing the end of the dream of global free market capitalism. The question is what will come next.
Sadly, there are few signs of a new approach which takes seriously the ‘triple crunch’ of the financial, environmental and energy crises. Rather, governments are turning back to tried and tested state-led growth strategies to reflate national economies, pumping liquidity into credit markets and creating new or bringing forward existing public spending plans. In other words, there has been a return to post-war Keynesianism – the doctrine that the state could and should regulate the market and step in to boost demand whenever required. This thinking lies at the heart of Obama’s $787 billion fiscal stimulus package, as well of those of Europe and China. China is embarking on what is possibly the biggest Keynesian experiment in history, with the government attempting to create a welfare state virtually overnight so as to maintain demand as well as pumping billions of yuan into mainly state owned industries, as Newsnight’s Paul Mason recently revealed.
Aside from the fact that the proportion of this new funding that will be spent upon green investment is rather small (very small in the case of the UK), there are bigger questions about whether this whole approach will prevent another, bigger financial crisis and help us move towards to the low carbon, low throughput ’steady-state’ economy required to prevent catastrophic climate change.
As Walden Bellow, the Phillipino intellectual and activist, points out in a recent article, today’s crisis requires us to move beyond Keynesian demand management at the national level to address global problems of inequality, overproduction and over-consumption. For Bellow:
“The challenge to economics at this point is raising the consumption levels of the global poor with minimal disruption of the environment, while radically cutting back on environmentally damaging consumption or overconsumption in the North. All the talk of replcaing the bankrupt American consumer with a Chinese peasant engaged in American-style consumption as the engine of global demand is both foolish and irresponsible.”
These are issues nef has addressed in our interdependence reports but currently they are not even on the ‘any other business’ agendas of the finance ministries of the world’s great powers. Rather, we are seeing a return to a ‘Growth as Usual’ policy which flies in the face of global inequalities and serious attempts at a transformation to a low carbon economy. It is about time that economists began to look at some of Keynes’ less well known policies, such as that economies should be primarily concerned to consume only what they are able to produce, outlined in his essay on “National Self-Sufficiency“. Globalisation, in particular the globalisation of capital flows, is a major part of the reason we are in this mess – a bit of de-globalisation will be required to get us out of it.
Andy Wimbush is nef’s Communications Assistant and blogmaster.
I never really bother reading those Rich List supplements that turn up in the newspaper every six months or so. But I can easily imagine the kinds of people who populate its ranks. They’re the mega-rich: the people who never need think about money. The footballers, business tycoons, movie stars and media barons. The figures attached to their names are so large as to be meaningless to me. I have no idea what I would buy with the kind of money they have at their disposal.
In fact, they have so much money that they probably wouldn’t even notice if they had to part with a sizeable sum. That’s the argument you often hear when people are getting upset about the amount of tax they have to pay. “Why don’t they tax the mega-rich?” they cry, “Tax the hell out of the top percentile, and leave the others alone.”
Now the Rich Lists you get in the papers usually feature about 100 people. Which isn’t a lot when you consider that there are seven billion of us on this crowded little planet. So what would a rich list look like if it included everyone? Where would you or I rank in the global leaderboard of wealth?
If you’re curious – and willing to shake some of your opinions about who to tax – then enter your income at The Global Rich List. Hat tip to Jeremy at Make Wealth History.
Andy Wimbush is nef’s Communications Assistant and blogmaster.
On Monday, nef and our friends at Compass, hosted an alternative summit to propose and develop new ideas for a new economics, a new politics and the social movements that will bring those things about. Attendees were united in their belief there can be no turning back to the failed policies and ideologies that created the crash and the looming climate change disaster. We heard from a range of thinkers and activists, including Jon Cruddas MP, Will Hutton, nef’s Andrew Simms and Stewart Wallis, Compass’ Neal Lawson, and Richard Wilkinson and Kate Pickett, authors of the wonderful new book The Spirit Level.
We also received the following video address from Jayati Ghosh, Professor of Economics at Jawaharlal Nehru University in New Delhi. We now bring it to you – a much wider audience – here on the nef blog:
Eilís Lawlor is the acting head of the Valuing What Matters team at nef
Amid the economic gloom, it is taken as a given that the state of the economy will surpass all other priorities at the ballot box. But as the American election demonstrates, the relationship between a person’s economic position and their voting preferences is not nearly that straightforward.
The principle of representation is at the heart of the type of democracy which we in the UK share with the United States. In theory, it’s meant to prevent elites from acquiring and maintaining power: it ensures that the legislature mirrors the nation’s constituents.
In practice, however, it doesn’t always work that way. It’s not unusual for people to vote for candidates who are quite unlike themselves, but who they think will represent their interests. I doubt that many people who elect the current Conservative Party front bench would aspire to join their clubs or their social circle. At other times, we vote – in good faith – for candidates who subsequently let us down. When small shopkeepers voted for Margaret Thatcher in their droves, they probably didn’t expect her to unleash a wave of deregulation that would culminate in one of the most concentrated business sectors in the world.
But nowhere has the link between class and voting preferences been as successfully eroded as in the US. The unholy alliance between economic neoliberals and social conservatives means that people will regularly vote against their own material interests for cultural, religious and patriotic reasons. So while 63% of voters said that the economy was their top concern this did not necessarily translate into a vote for the person, or party most likely to represent their economic interests.
Democracy is problematic for elites when 60% of the electorate earn less than $70,000. It’s not that the relationship between income and voter preference is inverse, the very rich also veer towards the Republican Party. It was only amongst minorities – where race played a greater role – that this asymmetry was turned on its head
The Republican base of poor white Southerners stayed loyal to a party that has cut taxes for the rich and eroded their healthcare and benefits and shunned Obama’s more progressive tax plan.
As well as capturing the language of human dignity and freedom, the right claim a monopoly on morality and national pride however narrowly defined. Hence, guns, God and abortion trumped jobs, insurance and a mortgage even during a month in which another quarter of a million swelled the ranks of the unemployed. This is fiendishly clever because it undermines the saleability of a more equitable system to the very people it should benefit thereby shifting the goalposts further rightward. Whether Obama’s consensus approach can reach those that reject their own economic representation remains to be seen.
Eilís Lawlor is the acting head of the Valuing What Matters team at nef
Results may not have been as bad as expected but still made for dismal reading in last week’s OECD report on inequality. At a time when the rewards of the rich are being called sharply into question, the UK still has one of the highest levels of income inequality in the developed world and social mobility is static. The rate at which inequality has widened is slowing, which is not the same as the gap narrowing. What we already knew has been confirmed: the proceeds of the global economic boom that is now unravelling have gone disproportionately to the already wealthy.
Any equalisation of incomes, however small, is to be welcomed but the media coverage of this missed the most salient point of the report: the gap between rich and poor has grown in more than three-quarters of all OECD countries over the past two decades. Have we and our media become so complacent with wealth accumulation in the hands of the few that this is considered positive, or are we just desperate for some good news?
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