Latest post on Left Futures

Labour’s economic alternative should centre on a national investment bank

investment, pic by 123rf.comLabour is now carrying out extremely effective campaigning against Tory policies – on tax credits, on the sweetheart Google taxation deal, in support of the junior doctors and pinning the responsibility for the crisis in the NHS squarely on the Tories. This excellent work needs to continue and be strengthened.

But in the forthcoming budget Labour must also set out the framework for a comprehensive macro-economic alternative to Osborne’s austerity. This article argues why the centre piece of this should be to reinforce the existing pledge to increase infrastructure investment with the establishment of a National Investment Bank.

Osborne left swimming naked as the economic tide goes out

In a famous phrase the American billionaire investor Warren Buffet said of the economy: “when the tide goes out… you discover who’s been swimming naked.” Chancellor George Osborne fits this phrase perfectly. As the world economy slows, with consequent turmoil on financial markets, it is demonstrated that the Chancellor’s claims of ‘economic success’ are entirely bluff.

What Osborne has done in the last six years is to go on an international borrowing binge which failed to correct the basic imbalances and weaknesses in the British economy and he has left it dangerously unprepared for and exposed to the current slowdown in the world economy. Osborne ensured that the average British citizen, and even more the poorest members of society and those who rely on the NHS, pay the price for his failure to confront the key issues in the British economy. His real policy was exemplified in the sweetheart deal for Google, the recreation of the ‘bonus culture’ in banks, in contrast to the attack on the NHS and his attempt to ram through cuts in tax credits. This is the real context for Osborne’s coming Budget.

Instead of the further attacks on living standards and profligate international borrowing the appropriate macro-economic policy framework for Labour would focus on two things.

  1. To address Britain’s chronic investment shortage – only by increasing investment can living standards sustainably rise
  2. To prepare contingency measures in the event that the current slowdown worsens.

In contrast to Osborne’s attack on living standards and profligate international borrowing, Labour’s policy of productive investment, led by the creation of a National Investment Bank (NIB), should begin to tackle the basic imbalances in the British economy. The NIB will finance the economic growth that will lead to both rising wages and rebuilding social services, and will prepare Britain for the new international choppy waters it is entering.

In short people will be ‘better off with Labour’.

Osborne’s reckless international borrowing

The key current trends in the global and British economic situation are clear.

The world economy is slowing and Britain is not excluded from this – puncturing Osborne’s claim of ‘economic success’. In line with these economic realities the World Bank has cut its growth forecasts for the leading economies and the Bank of England has cut its growth forecast for the British economy. The British economy has in fact been slowing for some time with 3% growth in mid-2014 declining to 1.9% at the end of last year.

But Figure 1 shows the real basis of even the temporary upturn of British growth – Osborne’s rapidly growing international borrowing which leaves Britain exposed to the new worsening of the international economy.

When Osborne became Chancellor in May 2010, i.e. during the 2nd quarter of 2010, Britain’s rate of net overseas borrowing was an annualised £31.2 billion. By the 3rd quarter of 2015, the latest available data, it was an annualised £70.9 billion. As a percentage of GDP overseas borrowing almost doubled from 2.0% of GDP to 3.8%- as shown in Figure 1.

Figure 1

Under Osborne Britain, as shown in Figure 2, has borrowed an extraordinary £340 billion from abroad – equivalent to nearly one fifth of Britain’s current GDP. Far from being ‘prudent’ the Chancellor has simply financed his so called ‘recovery’ by the most unstable form of borrowing – from foreign creditors.

Figure 2

Failure of investment to recover

Yet despite Osborne’s extraordinary rate of foreign borrowing the Chancellor has failed to correct the most fundamental of all imbalances in the British economy, and the key source of its economic problems such as low growth and low productivity increases – its inadequate investment level.

Despite the inevitable severe initial fall in fixed investment under the impact of the international financial crisis, from 19.0% of GDP in 2007 to 15.6% of GDP when the Chancellor came to office, Osborne has ensured that any economic growth which did occur in the cyclical recovery overwhelmingly went into consumption not investing for the future. Between the 2nd quarter of 2010 when Osborne came to office and the latest data for the 3rd quarter of 2015 in current price terms three quarters of the recovery in output went into consumption and only a quarter into investment. This failure to invest has left Britain both unable to sustain any prolonged economic expansion and exposed to any international economic downturn.

The real Budget choice

The Chancellor claims that he must impose even greater austerity in the March Budget, due to Britain facing a “dangerous cocktail of new threats”. The reality is that it is Osborne’s own policies, his failure to invest, his large scale international borrowing, which are a particularly dangerous liquor in that concoction.

The reality of this ‘dangerous cocktail’ is that the Chancellor is the barman. The British economy is slowing and unprepared for any international downturn because he recklessly promoted consumption, in particular soaring house prices, in order to get re-elected and it is that short-lived mini-boom financed by foreign borrowing which is inevitably fading.

The failure was inevitable because rising consumption without investment cannot be sustained. It simply leads to more debt or a rundown in savings. A sustainable growth in economic growth and consumption must be based on investment. This hard economic reality is the core of Labour’s alternative for a sustainable economic recovery.

Such investment for sustainable economic recovery is precisely what is lacking under Osborne. Since the beginning of the crisis in the 1st quarter of 2008 in inflation adjusted terms consumption has risen by £89.3 billion. Over the same period Investment has risen by just £9.3 billion. It is no surprise therefore that in per capita terms GDP has barely risen at all, or that more people are working longer hours for the same real return on pay. It is almost unprecedented for productivity to stagnate during most of a recovery phase but this is what Osbornomics has achieved because investment has remained so weak.

The Chancellor’s policy of austerity weakened the economy and sapped investment further. Under George Osborne the Government cut its own level of investment. The consequence of Osborne’s economic policies was that productivity actually declined from mid-2011 onwards and had only just recovered in time for the General Election. According to the Office of National Statistics (ONS), “UK productivity in 2014 was lower than that of France, Germany and the US by 32-33 percentage points, and lower than that of the rest of the G7 by 20 percentage points.” Both of these are record gaps in productivity with the rest of the G7. Higher living standards and improved productivity depend on higher investment which Osborne demonstratively failed to produce.

Furthermore, the Chancellor’s “fiscal charter” makes the situation worse. Osborne does not understand the difference between borrowing for investment and borrowing for consumption – something every business and every family understands. By lumping all forms of government borrowing together, and rejecting them all, he would ban a family not only from seeking to pay its electricity or food on credit card borrowing, which is a road to ruin, but also from borrowing to buy a house – a totally sensible objective.

If Osborne were a farmer his fiscal charter would rule he should not invest in a tractor – because it involved borrowing!

‘Extremists’ supporting infrastructure investment

Labour should restore sanity to public finances by clearly distinguishing productive capital expenditure, investment, from current expenditure – consumption. Labour should not borrow over the course of the business cycle for current expenditure. But it will borrow for productive investment – thereby laying the basis for economic growth and rising living standards.

In reality at present particularly favourable conditions exist to borrow for infrastructure spending at extremely historically favourable rates which will boost the productivity of the British economy– as writers such as Martin Wolf, chief economics commentator of the Financial Times and figures such as former US Treasury Secretary Lawrence Summers, have rightly emphasised. Indeed, the words Martin Wolf wrote in the Financial Times on 13 February 2014 require no alteration:

“Does the UK have a sensible strategy for recovery? Just recall: the last time it [the UK] tried the credit-expansion route to growth, it ended up in a huge financial crisis. Why should it rationally expect a different outcome this time?…

An expansion of private borrowing to buy ever more expensive houses is deemed good, but an expansion of government borrowing, to build roads or railways, is not. Privately created credit-backed money is thought sound, while government-created money is not. None of this makes much sense.”1

Or if the chief economics commentator of the Financial Times is a too ‘hard left’ extremist for the Chancellor perhaps he will listen to the words of his former US counterpart – US Treasury Secretary Lawrence Summers:

“The… approach… that holds most promise –means ending the disastrous trend towards ever less government spending and employment each year – and taking advantage of the current period of economic slack to renew and build up our infrastructure. If the government had invested more over the past five years, our debt burden relative to our incomes would be lower: allowing slackening in the economy has hurt its potential in the long run.”2

Labour’s policy of sustainable investment and a National Investment Bank

Labour’s approach is diametrically opposite to Osborne’s. It has repeatedly set out the case for increased public sector investment – which, through economic growth and the well-known ‘multiplier effect,’ will stimulate and not reduce private investment. Labour has correctly stated it will run a balanced budget on current spending over the business cycle. This means the Government borrowing over the course of the business cycle will be exclusively directed towards investment. The Chancellor’s false fiscal charter failure to distinguish current expenditure and investment will be scrapped. The government will borrow for investment – including by creating a National Investment Bank. But current spending on public services would be met from taxation revenues.

This is correct because it is sustainable. Borrowing for investment in some cases, for example on transport or housing, leads directly to revenue. But above all it leads to economic growth and therefore rising tax revenues. As a result, the Government can finance its borrowing from those rising tax revenues. By contrast, persistently borrowing to fund current or day-to-day spending (frequently, and inaccurately described as ‘Keynesianism’) is unsustainable.

Labour’s approach is to increase investment. This will lead to stronger and more sustainable economic growth. The effect on government revenues is twofold. Tax revenues will rise with increased economic activity. At the same time Government outlays will fall as more people are in work and more of those workers are in higher-skilled, higher paid jobs. As a result, the current budget will actually move towards balance.

This is in contrast to austerity, which is the economic equivalent of applying leeches to a very sick patient. This is the reason the Chancellor will again miss his deficit targets in the current Financial Year, the reason why the deficit rose in 2012 as austerity took hold and the reason why the Chancellor is nowhere near eliminating the deficit as he had boasted in 2010. Austerity attempts to shift government debt and deficits onto the shoulders of ordinary people, and so weakens the economy that businesses reduce investment even further.

National Investment Bank

The centrepiece of Labour’s investment policy is the creation of a National Investment Bank. This will invest in key infrastructure projects, renewable energy, transport, affordable rented housing and education. This would be founded by public sector capital and borrow in the financial markets with the implicit guarantee of the UK Treasury.

As a result it will be able to borrow at close to the extraordinarily low interest rate levels currently available to the Government itself. These interest rate levels represent the financial market appetite to lend to Government. Currently, UK Government bond (gilts) yields are less than 1% for 5 year and 1.5% for 10 years. It can even borrow for 46 years at a yield of MINUS 1% on index-linked (linked to inflation) gilts. This represents the desire of long-term investment vehicles such as pension and insurance funds to invest securely over very long maturities and the absence of instruments to invest in.

In these circumstances a refusal to borrow for investment is economically irresponsible and counterproductive. In addition to the beneficial productive effects for the economy there is a clear ‘signal’ from the market that it wants to lend to government. Once more to quote that key member of the ‘hard left’ Martin Wolf from the Financial Times on 17 May 2017:

“With real interest rates close to zero… it is impossible to believe that the government cannot find investments to make itself, or investments it can make with the private sector, or private investments whose tail risks it can insure that do not earn more than the real cost of funds. If that were not true, the UK would be finished. Not only the economy, but the government itself is virtually certain to be better off if it undertook such investments and if it were to do its accounting in a rational way… This does not even deserve the label primitive. It is simply ridiculous.”3

The initial funding for the National Investment Bank, which will play a key role in Labour’s increase in investment, is straightforward. The Government should borrow the capital utilising the opportunity presented by current extremely low interest rates. In more unfavourable circumstances of severe economic downturn Labour would be prepared to use People’s Quantitative Easing, finance created by the Bank of England to finance productive investment as opposed to the bank bailouts it has hitherto been chiefly directed to, but such a policy is not necessary in present circumstances to finance the NIB. Approximately £50 billion should be raised over the course of a parliament to fund the NIB.

This is a substantial amount to fund the initial capital for an infrastructure investment bank. In Germany the equivalent bank is the KfW (originally Kreditanstalt für Wiederaufbau or Reconstruction Credit Institute). The KfW has €21.6 billion of equity capital and total capital (including debt) of €73.4 billion which supports €489 billion in assets (lending to projects). It would take time for the NIB to reach that position, but it shows what is possible.

Crucially, the NIB would be able to use this Government-funded capital to borrow on its own account in the financial markets. Under the arcane rules of Government finances it need not count on the Government’s balance sheet at all, either as borrowing or accumulated debt. As the KfW example shows, it is possible to borrow comfortably around six or seven times the original capital.

Economic Impact

One of the objections to public sector-led investment programmes is that there are no ‘shovel-ready’ projects to invest in – which would itself be a disgrace given Britain’s lack in investment and productivity compared to other countries already noted. But even this argument has collapsed now that the Government has established its own National Infrastructure Commission with a National Infrastructure Plan. No doubt, Labour can set some of its best brains to revising and re-prioritising the Plan in relation to its own economic priorities. But the Plan and the projects are already there. The problem is the Government, because of its essentially exclusive reliance on the private sector, is simply not delivering them on the scale and pace required.

The work of building up the necessary projects for investment, including by the National Investment Bank, could begin immediately and would be well towards the final goal over the lifetime of the parliament. In the first year the NIB could be established and funded, and borrowing begun and projects prioritised for work to begin or increase in the second year. By the end of the current Parliament work could have been under way for a full three years.

In reality, this Government has no intention of following that route. Although it established a minuscule ‘Green investment Bank’ this was a political sop and is being wound up. But Labour could begin the detailed preparatory work now and hit the ground running in 2020. A full four years of productive investment is possible.

In four years a capital programme funded by £50 billion in capital and amounting to £300 billion in total could be well under way. The general economic impact is possible to gauge using the UK Treasury’s own economic modelling. Investment in infrastructure has the effect of raising growth in the short-term and by increasing growth over the long-term through improved productivity. The precise impact varies by sector and by project, but in a range of raising growth by between 1.5 and 1.9 times the initial investment. On average we can say that a £300 billion investment programme will raise GDP by around £500 billion (an approximate average of 1.7 times).

In general, according to UK Treasury models (pdf), every £1 increase in economic output is reflected as a 75 pence improvement in government finances. 50 pence of this arises from increased taxation revenues and 25 pence from lower outlays as poverty reduces and employment grows. Therefore, over time three-quarters of the additional growth produced by the NIB’s investment programme will return to Government in the form of higher tax revenues and lower outlays. This is an improvement of £375 billion (out of £500 billion in increased output) in total government finances over a period of years. Just as the private sector invests for growth and a financial return, so too should the public sector. The difference is that the public sector also enjoys a further financial benefit not available to the private sector; increased taxation revenues and lower social spending outlays.

From these funds, it is possible to increase investment further and to fund the improvement, not the deterioration in public finances. It is possible to upgrade the NHS and improve it, to address the schools shortage and return to free higher education. Social protection can be improved and a decent level of income in retirement provided for all.

The forthcoming Budget will threaten to undermine further the living standards of the overwhelming majority of the population. But it will therefore be an opportunity for Labour to set out a very clear alternative that will begin to reverse that process and raise their living standards. Naturally Labour will have to deal with reversing numerous anti-social policies in the budget but the macro-economic centre piece of its alternative should be the pledge to raise investment, a clear distinction between current and capital expenditure in the budget, and the establishment of a National Investment Bank.

References

1. Wolf, M. (2014, February 13). Hair of the dog risks a bigger hangover for Britain. Retrieved February 20, 2014b, from Financial Times

2. Summers, L. (2014, January 5). Washington must not settle for secular stagnation. Financial Times.

3.Wolf, M. (2012, May 17). Cameron is consigning the UK to stagnation. Financial Times.

This article first appeared at Socialist Economic Bulletin

Image copyright: investment, pic by 123rf.com

29 Comments

  1. Timmy says:

    If the campaigning was truly “extremely effective” would we not be seeing the opinion polls heading in a positive direction?
    I am no supporter of Osborne and his policies, but our economy is already performing better than most comparable others. Is it not a bit optimistic to suggest it would be easy to do better still? Helicopter money will certainly lead to high inflation which always hits the less well off worst. Should Labour associate itself with such an immoral policy?
    I like the NIB idea, but the rest of the article doesn’t hold water.

    1. John Penney says:

      An excellent article.

      Have you actually read this article, Timmy ? Your immediate regurgitating of all the Austerity-reinforcing economically illiterate mantras of the Tories and their press suggests otherwise. In fact your post suggests you are either a Tory Troll or a fan of Yvette Cooper’s crap economics from the Labour Leadership Debates( where she wailed that any major counter cyclical, Keynsian , government spending would lead the UK to Zimbabwe level inflation !).

      Our economy is only appearing to be “performing better ” than the static or recessionary economies of the rest of Europe at present because of the completely unsustainable maintenance of consumer spending through ever rising personal debt – and the QE sourced property bubble. As the article points out, this unsustainable GDP boosting bubble has left our profoundly dysfunctional economic sectoral mix untouched – and our crucial productivity statistics the lowest of any of the main industrialised economies. In the longer term our disastrous productivity stats are terminal for an advanced economy – signalling its transition to a low wage, low skill economy.

      A national investment bank (perhaps using Richard Murphy’s short term money printing “People’s Quantitative Easing) investing in productive infrastructure development , including a massive council/social housing programme, and vital new power generation plants, is as far from “helicopter money” as could possibly be. And , by the way, when UK inflation is near 0% and world commodity prices are at record lows, and labour resources in the UK are seriously underemployed, there is no chance at all in present conditions that serious large scale productive capital investment would be damagingly inflationary .

      Do a bit of reading about Left Keynsian economics before you vomit out all the usual Daily Mail 1930’s vintage “Osbornomics” tropes nonsense, Timmy. you are embarrassing yourself posting such garbage on a Left wing website.

  2. John Penney says:

    Strange how the ultralefts like David Ellis , with their unchanging mantra of “Nothing can be done to alleviate the UK’s self inflicted imbalanced economy and deliberate directing of wealth to the superrich via QE and non collection of their taxes, but “all out socialist revolution” – and probably “General Strike Now !”, actually just serve to reinforce the mainstream Tory/mass media trope that “There is no alternative to the current Austerity Offensive”.

    Yours is a lazy, ahistorical, politics, David, which avoids the harsh reality that the working class en masse is completely uninterested in your ultimatist sloganizing. Serious socialists have to find a “political policy bridge” between the dire low level state of current working class struggle against the capitalist offensive, and the longer term need to replace capitalism with socialism.

    The radical Left Keynsianism of “Corbynism” and the newly revitalised Labour Party is that organisational and policy “bridge” in today’s conditions. Standing passively around on the ultraleft fringes denouncing every Left reformist attempt to tackle the current UK economy’s structural problems, and refusing to see that a Left Government in the still relatively economically prosperous and economically viable UK (though not somewhere like Greece or Portugal) still does have enough political and economic space to secure significant improvements in working class conditions , en route to building up radical working class militancy.

    1. David Ellis says:

      Yeah we get it you like capitalism. You are an opportunist. A conciliator. A deluded reformist who thinks Keynesianism is a bridge to socialism when it is in fact a tunnel to the graveyard of the working class. By the way I’m not ultra-left I’m a Marxist. You should try it. Moron. You were the idiot who wanted to turn Left Unity into New Left Unity before it had actually become Left Unity. You are a Blairite with lefty vocabulary.

      1. John Penney says:

        Dearie me. Bit too close for comfort, David ? And you are a keyboard revolutionary warrior, David, endlessly channelling Private Eye’s Dave Spart satire of an empty headed sloganizing ultraleft poseur to great satirical effect.

        So much easier endlessly regurgitating the barren ultraleft mantras, than having to put in the thankless legwork to build a real political movement around realistic politics.

        You aren’t a Marxist, David, just a poser. Marx was always quite clear that the point of philosophy or politics was to facilitate real social change – not to provide the opportunity to engage in endless political masturbation.

        1. David Ellis says:

          You don’t know what ultra-left means. You think it means Marxist Revolutionary which is who the entire labour movements of Europe were built by. I seem ultra left to you because you are an open opportunist. The ultra-lefts are a different beast. They like you are opportunists who use extreme demands to cover their nakedness like `open borders’, general strike, neither washington nor moscow, China is a capitalist state, let’s build Left Unity, etc.

        2. David Ellis says:

          `You aren’t a Marxist, David, just a poser. Marx was always quite clear that the point of philosophy or politics was to facilitate real social change – not to provide the opportunity to engage in endless political masturbation.’

          Blair could not have spun Marx to his opportunist ends better than that.

    2. David Ellis says:

      Talking of lazy please find a single example of me anywhere on line calling for a general strike. You can’t but it won’t stop you making shit up because you are a fundamentally dishonest man.

      1. J.P. Craig-Weston says:

        Troll 1 David Ellis Nil:

        As for, “Labour is now carrying out extremely effective campaigning against Tory policies,” I fell of me seat laughing when I read that crap; in fact labor are still bending over backwards to support Tory policies, too many of which were first introduced by them and while a load or bored academics split hairs over American driven economic policy in which increasingly we have no say and over which we have no control,

        “Welcome to Mexico Gringo,” (or to Greece.)

  3. Verity says:

    “Osborne does not understand the difference between borrowing for investment and borrowing for consumption – something every business and every family understands.”

    Unfortunately this is not true. Everyone does understands this, and this is part of the political problem we have. In particular, well over 8 out 10 Labour MPs do not understand it – or least behave as if they do not. There are plenty of the Yvette Coopers and Chris Leslies robotically arguing the same old, same old. However I suspect that their understanding may be greater than their speeches and behaviour suggest. It is not straightforward trying to grasp why they do not get it. But I offer a generous interpretation. It becomes quite politically challenging to convincingly show that productive investments show the projected returns within individual’s political memory. Therefore we should give up trying to convince people i we are win elections. We should not take on the challenge. Better to carry on and try to win elections, and then carry on again and try to win elections.

    I can think of many projects that I personally would like the state to invest in. However it is not about our preference projects – it is surely about necessary productive investment. It is also about a balance between long term projects (probably bringing the best productivity returns), and short term projects, which are needed (but less vitally). This short term investment however does have the benefit of showing Social Democrats that productivity gains can be within individual political memories and therefore enable them to win elections. Social Democrats need this return, not essentially because of macroeconomic need, but in order to fulfil their life’s mission of winning elections. Long term and much needed investments requires political challenges, i.e. convincing their supporters of the need for an advanced economic programme.

    1. David Ellis says:

      You may have noticed but we are probably in the middle of the biggest spending on infrastructure in this country possibly ever. Trouble is none of the shit they are building is needed or wanted from HS2 to the Third Runway. Even infrastructure is over produced in today’s capitalism.

      1. Verity says:

        Investment decisions involves choices. Choice have the capacity to be wise or unwise. There is no guarantee that investment for productivity gain will do just that. There is no magic algorithm for the most optimum outcome. No doubt a future Socialist administration will make both wise and unwise decisions. The unwise ones will be seized upon by Social Democrats as the evidence they have needed to confirm that ‘political determined’ i(i.e. Investment Bank) investment decisions cannot persuade voters to return a Socialist electoral success. So only the market pressures and PPIs offer a successful formula.

        1. David Ellis says:

          What we need is neither stimulus nor austerity both of which have the identical effect but consolidation. That requires a massive redistribution of wealth from rich to poor which is the very opposite of what is happening now. Nobody is going to waltz into Downing Street and decree that. Only the independent free acting working class can achieve such a thing.

  4. David Ellis says:

    Talking of programme here is a programme for working class power and the transition to socialism. This is a real bridge not a fantasy based on the capitalists opening their wallets:

    * End the bail out of the banks. For a People’s Bank lending at base rate to small business and facilitating social investment in accordance with a democratic and sustainable plan;

    * For a regime of full-employment by which every school and college leaver and unemployed worker is bought into the local workforce to share in the available productive work with each paid the minimum of a trades union living wage;

    * Socialise the means of production and exchange, the profits of industry and commerce, and the assets of the super rich. Replace the fat cat executives imposed by absentee share holders, the Old School Tie Network and corrupt political patronage with worker-elected managers and leaders;

    * Defend all necessary and desirable public spending and pay for it out of socialist profits and a fair system of taxation. Defend all meetings, demonstrations, picket lines and minority communities with trade union-backed defence militias against state and fascist attack. Repeal all the anti-trade union laws;

    * Replace the Westminster Empire with a Federation of Sovereign Nations and the capitalist and neo-liberal EU with a socialist Europe of the working classes.

    1. John Penney says:

      I’m sure the entire working class is undergoing a ” blimey, why didn’t I think of that !” moment now you have laid down the way forward, David.

      Surely “building a workers militia ASAP” should be another key demand ?

      1. David Ellis says:

        See point four.

        What programme do you have? Nothing. You have zip except an endless and unprincipled call to pragmatism and adaptation.

        1. John Penney says:

          Yep I missed that vital demand, but just knew you couldn’t resist that defining hallmark of the utterly ultraleft/deranged. Completely bonkers – form “defence militias” indeed. What planet are you on, David ? Are you a police provocateur ?

          1. David Ellis says:

            These things already exist. Picket lines do defend strikes, anti-fascists do defend minority communities, stewards do defend demos and meetings. The need for this is not going away. It is getting more urgent and when the working class determine that only by taking power will they ever get anywhere the fascist menace and counter revolution will need opposing physically but we can always rely on opportunists and centrists like you to disarm working people and attempt to direct them through the ass’s gate of Parliament to their peaceful slaughter.

  5. C MacMackin says:

    I very much hope that Labour does put resources into developing such a policy. However, there are a few things I’m unclear on.

    First, many of the things listed here for investment are surely things which would ideally be done by government anyway (assuming that things such as railways, energy, council housing, etc. are publicly owned). Given that, why does an investment bank need to be created? Couldn’t the money come directly out of government borrowing? I can see that an investment bank could be useful for, e.g. funding co-ops to produce wind turbines or upgrading the steel industry, but those don’t seem to be the sorts of things mentioned here–or am I simply misunderstanding?

    The other question I have is whether interest rates would remain this low were a Corbyn government elected. It’s certainly true to say that the UK has much more room for manoeuvre than Greece, but capital can be pretty perverse. Even given his abysmal record of reducing the deficit, capital can trust that Osborne is looking after their interests. They are not going to trust John McDonnell nearly as much and that may well be reflected in interest rates. Even moderate social democratic governments have occasionally faced such problems; see the experience of the Bob Rae goverment in Ontario.

    1. Verity says:

      My understanding to your first point is that productive investment is best met by means of a National Investment Bank – it is determinable sum not continually changing according to variable circumstances and has long term not short term effects. Necessary consumption is best met by means of a combination of taxation and/or borrowing so that short term priorities can be addressed. So for instance increasing the number of medics in the health service, unlike the investment in a high tech. scanner, is consumption. The demand we make on medical services can increase or decrease according to circumstances (and political support priorities) and can be ‘weighed’ in importance with knowledge of the consequences in current interest rates with its implications. Future economic growth is not a current preference or priority and so should be spread over the lifetime of its use and projected future growth.

      1. C MacMackin says:

        I understand and agree with the need to separate capital borrowing from (the hopefully minimal) operating borrowing. My question is just why can’t, say, an NHS trust or Network Rail or a (nationalized) electricity board be the ones taking out those loans directly, rather than creating an investment bank to act as an intermediary?

        1. Verity says:

          I think there are two possible parts in answer to your observation. The first point is that the (capital) investment is financed by printing money, i.e. Quantitative Easing and not by borrowing. This of course cannot be done by any organisation, only by a branch of the Bank of England, i.e. National Investment Bank. Although of course ordinary banks have been ‘printing’ money already on a vast scale for housing by lending way over what they could pay back. The second point is that the project would be a national investment and growth strategy. It would not be limited the areas where organisations already exist, e.g. health and railways. For new areas of expansion and for a coherent plan for national growth overall, e.g. new energy, new technologies, then a body for direct investment may be required, not being reliant upon the existing organisations that have failed to invest.

          1. John Penney says:

            You rare quite right, Verity, both on the long term project development focus and role for a National Investment Bank – but also on the ability of a state run Investment bank to fund its programme via (extensive but carefully planned and limited) state money printing – rather than borrowing (though at present direct state borrowing on the money Markets is so cheap as to be a good source of long term funding for the likes of Council Housing).

            The ability to print money, within manageable limits, without producing damaging runaway inflation (perfectly possible in today’s near 0% inflation, low world commodity prices and low labour underutilisation, UK) , is one of the blessings of the UK still having control of its own currency – compared to the straightjacket of the Eurozone.

            The works of Tax Justice Campaigner, Richard Murphy, on the potential for massive infrastructure project creation via “People’s Quantitative Easing” via a National Investment Bank is well worth a look for anyone interested. See his book “The Courageous State” for more detail.

        2. Mervyn Hyde (@mjh0421) says:

          The first thing to remember is that all money in our economy was printed, although electronically, out of thin air.

          Our government does not have to borrow money, the reason they do is a direct policy decision, associated with the power of the Banking system.

          Since the Crash of 2008 it has become obvious to more people that issuing money as debt is not necessary. As we still do today.

          Positive money are advocates of taking away the right of Private Banks from being the source supplier of money, that that is issued by the Bank of England.

          They recommend that Banks can only lend money that the banks have accumulated through savings deposits, and profits from it’s lending.

          That a commission from the Bank of England would issue money directly into the economy as investment for the public and private sector.

          Personally I believe that unless you own it you can’t control it, I don’t trust the Banks and believe irrespective of any legislation the private Bankers would carry on surreptitiously printing money and create havoc as they do now anyway.

          The sum total of where we are today, is that we are told, we don’t have the money for our NHS and public services, that we can only spend the money raised in tax, and that Labour were profligate which is why we have the current deficit problems.

          The real problem with all of that is that it totally untrue, in short the deficit is a lie.

          The truth is we have all the money government could ever need for any of it’s ambitions, the only constraints on an economy like ours, is Human and Natural resources.

          Money is not the problem.

          All we have to do is adopt a method for introducing debt free money into the economy and a means to direct it where and when it is needed.

          My preference would be nationalise the whole banking system, fund government expenditure through the banking system and direct economic investment where it needed.

          We print money out of thin air and it is regulated by taxation and interest levels.

          1. John Penney says:

            “Positive Money” as a movement are actually “Let’s all Return to the Gold Standard”, and ” Let’s abolish Fractional Reserve Banking ” cranks, with a very dodgy ideological background .

            Capitalism simply cannot grow dynamically without fractional reserve banking , and anyone who has any knowledge of economic history will know that the adherence to the fetishism of the Gold Standard was a major reason Western economies couldn’t grow their way out of the post 1929 Great Depression.

            It is strange that sections of the supposed Left have taken up the “Positive Money/Gold Standard” nonsense in recent years. But then some sections of the Left have also taken up the reactionary Libertarian Far Right sourced “Citizens Income” nostrum too recently. So nothing should surprise us about the gullibility of sections of the self-described Left to buy into reactionary ideas dressed up a “new radical thinking”.

            By the way , the origins of the “Positive Money” movement is firmly rooted in pseudo radical fascist ideology, with its hatred of “Usury” – ie, the myth of “parasitic Jewish Usury”. It is a very dodgy belief system the more you dig into its underlying roots. And of course it is also economic nonsense.

            Only a planned socialist economy can replace the present capitalist system – which is fundamentally dependent on Fractional Reserve Banking , and the last thing our present recessionary world economy needs is a return to the straight jacket of the Gold Standard.

          2. Mervyn Hyde (@mjh0421) says:

            John, you are absolutely wrong about the return to the gold standard, that is definitely not what they advocate.

            There is of course no such thing as fractional banking anymore, banks under fractional banking were duty bound to hold reserves and those reserves limited the amount of money the banks could lend. In reality today there is no limit other than the banks judgment on the borrowers ability to pay back the loan.

            Your reference to these people being libertarian right wingers is also completely wrong, they want the state through an independent commission to create money debt free into the economy.

            I don’t believe we need an independent commission and we should nationalise the banks.

            But they are not so pedantic as to believe there is only one way to skin a rabbit, their main concern is that people understand how money is created and how it enters the economy.

            This video explains: http://positivemoney.org/our-proposals/

  6. J.P. Craig-Weston says:

    Meanwhile, in another part of the forest so to speak:

    Remember Benito Mussolini, ” “Fascism should more properly be called corporatism, since it is the merger of state and corporate power.”

    Then read this.

    “We are recruiting for a Corporate Citizenship Executive to join our strategy team supporting our Digital Factory and Process Industries & Drives (DFPD) businesses within Siemens.

    This is a fantastic opportunity for an individual to work in a friendly, dynamic team environment, responsible for continual improvement of the Siemens DFPD Corporate Citizenship strategy in line with both Divisional and National objectives.

    The role requires the candidate to continually improve the impact of Siemens work in the community at a strategic and operational level.

    The successful candidate will be responsible for ensuring accuracy and ease of data collection and reporting as well as maintenance of the standards required for the BiTC (Business in the Community) Community mark.”

    “The role will report directly to the Head of Strategy and Business Development for DF&PD and will be responsible for ensuring that our Corporate Citizenship programme delivers a diverse and inclusive range of activities; enabling all employees to engage in activities which underpin our DF&PD Power of One sustainability strategy and Siemens UK vision 2020.”

  7. Bazza says:

    QE as Streekt argues in the New Left Review is only putting off the financial crisis for a few years.
    He also felt that the rich and powerful haven’t a clue what to do.
    I also think the Tory/Lib Dem VAT increase of 17-to 20% (an indirect tax on us all) is probably just about keeping the UK economy afloat (I think it brings £10b a month into Govt. coffers).
    A National Investment Bank is fine and state-led public investment (and the private sector would pour in behind) but just read about Japan where they have increased public investment to some extent but the big corporations there are sat on billions and won’t invest it.
    The same may happen here, and in Venezuala it is argued big corporations are deliberately holding back goods (probably with US CIA involvement) to bring down a democratically elected Left Wing President, so I would argue we may need to consider having windfall taxes on big business too; their capital is only really the legally stolen surplus labour of the working class/working people.
    Perhaps we should also consider getting some more of this back?
    We perhaps also need more democratic public ownership (with staff and communities having a say) as part of our strategy.
    It would also be good if left wing democratic socialist forces in all countries were pursuing similar things and working in cooperation and then perhaps we can curb the power of TNCs. Solidarity!

© 2017 Left Futures | Powered by WordPress | theme originated from PrimePress by Ravi Varma