As an economic recovery strategy austerity is not working. Defenders of the "orthodox neoliberal" response to the ongoing economic crisis often demand to know what the alternatives are to their favoured cut-now think later strategies. In this series I'm going to explore what some of these economic alternatives could be.
For decades the UK political establishment concentrated on turning the UK into a London centric financial services based economy, leaving large sectors of the real productive economy (manufacturing, mining, steel, ships, train building, HGV production) to decline and ruination for the lack of government support. What makes this neglect so much worse is that when their beloved neoliberal financial sector experiment collapsed under a landslide of debt, the Neo-Labour government of the day piled in to save the financial sector elite with the largest state subsidies in British history (90%+ of GDP on bank bailouts and the nationalisation of debt riddled institutions). After sitting on their hands and allowing British industry to fall into desperate decline in compliance with the neoliberal mantra that "state intervention is bad", they immediately ditched the principle in order to bail out the financial sector temples of neoliberalism that had so enthusiastically supported the government's destructive hands off economic approach.
The financial sector lapped up the government cash, took hundreds of billions more in secretive ultra low interest loans from the Bank of England and the US Federal Reserve and another £325 billion in freshly printed quantitative easing cash from the Bank of England, yet virtually all of this cash was simply used to pay down their extraordinary gambling debts (deleveraging), with little of it filtering through to the "real economy". Any money that did filter through to the "real economy" came in the form of loans with interest rates way above the minimalist rates of the secretive central bank loans. It is quite clear that the financial sector simply set about profiteering with their bailout funds rather than using them for the best interests of the wider economy.
It is a widely accepted economic theory that at times of economic crisis the government (and central bank) need to stimulate the economy, however in the wake of the neoliberal economic meltdown, virtually all of the economic stimuli have been gobbled up by the very same financial institutions that caused the crisis in the first place. What is worse is that the ideologically driven Conservatives have spent the last two years extracting the cost of these stimuli from the genuinely productive economy in the form of austerity measures and welfare cuts, using the great neoliberal lie that welfare spending rather than financial sector incompetence caused the economic crisis as their justification.
It is quite clear that these policies of economic stimuli for private financial sector institutions and austerity for the wider economy have resulted in stagflation and economic chaos. The policy needs to be reversed, economic stimuli should go to the "real economy" and the financial sector that created the crisis should suffer the austerity measures.
|The state owns an 84% stake in RBS|
and subsidiaries such as NatWest. This infrastructure
could be used to establish a National Investment Bank.
The role of the National Investment Bank should be to make low interest loans to projects that further the national economic interests. If corporate banks are too busy deleveraging and gambling on the unregulated derivatives market to make economically beneficial loans, the National Investment Bank should step in to finance entrepreneurs, wealth creators, research and development, employment providers, economically valuable public services (healthy & educated workers are productive workers) and infrastructure development.
The National Investment Bank should also invest in affordable housing construction and provide low interest finance to hard working families, lowering the absurd cost of housing in the UK and creating a stream of disposable income to stimulate the economy.
The National Investment Bank could also be used as a tool to counter the economically destructive practices of tax dodging by making sure that any recipients of low interest NIB loans pass a financial fair play assessment by demonstrating that they avoid using offshore tax avoidance structures or non-dom statuses. If companies and individuals are not prepared to pay their fair share of UK tax, they should not be allowed to access the benefits of low interest NIB loans.
Imagine how much better the economic outlook could have been if the £325 billion in quantitative easing cash and £1 trillion in financial sector bailouts had gone directly to the real economy of jobs, manufacturing, education, research and services instead of being used just to prop up the debt riddled, tax dodging, derivatives gambling, financial sector elite.