Wednesday 27 March 2013

Michael Heseltine: The "national will", house prices and unemployment

In March 2013 the one time minister in Margaret Thatcher's government, turned Tory party "grandee" Michael Heseltine gave a remarkable interview with the Independent newspaper in which he tried to pin the blame for Britain's economic woes upon the country being too "well off".

 I should start with a very brief biography for those of you that are a little younger than me that don't really know who Michael Heseltine is. He was a leading member of Margaret Thatcher's government but fell out with her in 1986. He challenged Margaret Thatcher for leadership of the Tory party after Geoffrey Howe's resignation in 1990 in the wake of the Poll Tax fiasco. He polled well enough in the first ballot to deny Thatcher an outright win, but he was defeated by John Major in the second ballot. He then joined John Major's cabinet serving in several roles including deputy leader of the Tory party. He is remembered with great enmity by many Tories for having played such a crucial role in the removal of Margaret Thatcher. In 2001 he retired from the commons and was immediately given a peerage in the House of Lords. It wasn't until almost 10 years later, having been appointed as an adviser to the Treasury, that he bothered to give his maiden speech in the Lords, to deliver his report on the UK economy and industrial performance.

 Heseltine's interview, although utterly misguided, gives us a glimpse into the workings of the Tory mind. The main thrust of his argument was that Britain may have become lazy and complacent because people just have everything too easy, creating a national complacency which prevents us from competing with developing economies like India and China. Here's what he said:
"It's a question of whether the national will is there; whether we want it. And the richer you get the less imperative there is ... Maybe one of the problems of advanced economies is that people are sufficiently well off that they don't need to drive themselves any more."
He seems to be implying that once a nation gets to a certain level of wealth the population become lazy and unmotivated. There are several flaws in this kind of view. I'll outline just a few of them.

 The first and most obvious criticism is that the view that "the richer a person gets, the less imperative there is for them to drive themselves" contrasts terribly with Tory philosophy and policies. If there is any truth to Heseltine's claims, then the Tory policy of handing an average £100,000 a year tax cut to Britain's 13,000 income millionaires (due on April 6th) would actually reduce their imperative to drive themselves wouldn't it?

 One can assume that Heseltine was not trying to say that the wealthy establishment have it too easy, but instead that he's implying that the general population have it too easy. That decent welfare provisions and high wages for "the plebs" is the problem. That productivity could be improved by squeezing ordinary working people harder and rescinding more of their welfare provisions. 

This interpretation fits with the Tory austerity experiment and the fact that wages have declined in real terms every single month since the coalition came to power. If we interpret Heseltine's view this way (that "the bloody plebs have it to easy"), at least his comments actually fit with the Tory ideology of attacking labour rights and destroying welfare provisions, whilst increasing the wealth of the wealthiest. But this still leaves us with the problem of how greater wealth for ordinary people makes them lazy and complacent, yet greater wealth for the already wealthy is a fundamental element of the Tory ideology.

 I believe that Heseltine's comments are actually a carefully disguised reworking of the idea that Britain must parse wages, labour rights and welfare provisions for ordinary people down towards Chinese and Indian levels in order to remain "competitive".

Of course the low labour costs and abysmal labour rights of ordinary Chinese and Indian workers play a huge part in their high relative productivity. However, it is adherence to right-wing neoliberal economic ideology that makes this production cost disparity such a threat to the Western economies. Were the UK to introduce capital controls in order to prevent the UK economy being flooded with cheap Chinese imports for example, UK industry and manufacturing would benefit enormously and the incentive for companies to outsource production to Asia would be significantly reduced.

One of the main drivers of the Chinese boom has been inward investment in infrastructure. In little over a decade, they have built a motorway network larger than the US interstate network, they've constructed hundreds of millions of houses, massively advanced their scientific capabilities and their space programme and set about building a bullet train network. In contrast, one of the first things George Osborne did when he got into power was to brutally slash UK capital investment. While China spends ever greater amounts on infrastructure, housing, education and science, the UK government have been cutting spending on all of them. British infrastructure has suffered from decades of neglect, yet instead of investing in infrastructure improvements, the Tory led government, like their Labour predecessors, are more interested in corporatisation of the state via ludicrous corporate outsourcing deals, PFI economic alchemy scams and state subsidised privatisations.

 The reason the UK is in comparative decline is that the economy has suffered from 34 years of neoliberal pseudo-economics and an abject lack of coherent economic planning. I'm not the only one making this point, recently more than 60 economics professors wrote a letter condemning George Osborne's mismanagement of the economy.

 Another problem with Heseltine's view that the UK is being left behind because the plebs are too comfortable is the fact that as a proportion of GDP, the wages and wealth of British workers has plummeted. British workers are worse off now, in terms of disposable income, than they have been for decades. The only way we're better off is through the exponential improvements in technology, in almost every other aspect of our lives we are significantly worse off than we were 40 years ago: Wages are lower in real terms; we have less job security; Quantitative Easing has eroded our pensions and savings; rents are higher in real terms; childcare is more expensive; utility bills, fuel prices and public transport costs have soared above the rate of wage increases for decades; and the public are more indebted than ever before. If wealth makes us less productive, then this great reduction in disposable income should have made us more productive, yet it absolutely hasn't. 

It seems Heseltine has got it completely backwards. The greater the levels of disposable income available to ordinary people, the more productive we become, since disposable income creates economic demand and provides people with the capital necessary to start small businesses (which are powerful drivers of economic growth).

 One more problem with Heseltine's view is that there are many countries which have significantly higher wages and better welfare provisions than the UK, which have weathered the economic crisis much better than we have. The Scandinavian countries are the obvious examples, but other countries like Australia and Canada have significantly higher median wages, and although they are hardly booming in the wake of the global financial sector meltdown, they are not languishing in desperate economic stagnation like the UK. Surely if Heseltine's view that coddling ordinary people with decent wages makes them lose their imperative to drive themselves, then these higher wage economies would be struggling even more than ours?

Heseltine's comments about Britain's lack of "national will" were bad enough but he also made a number of other ridiculous comments that are worthy of deconstruction.
One of his comments echoed the Tory narrative that GDP figures are not very good economic indicators. I actually agree with him on that, there are much better economic indicators (the balance of trade, average disposable income, average personal indebtedness), however the things he proposed as alternatives are frankly ludicrous.

His first suggestion of "rising employment" wouldn't be so bad but for the fact that everyone knows that the headline unemployment statistics have been rigged and distorted so much by successive administrations that they are virtually meaningless. To give just one example, the ONS actually exclude the 10,000s of people on mandatory unpaid "workfare" schemes from the official unemployment statistics, despite the fact that they are earning no wages and still in receipt of unemployment benefits! If these people were included in the unemployment statistics, then the headline unemployment figures would be significantly worse. It is also important to note that long-term unemployment and youth unemployment are both continuing to soar out of control.

 Heseltine's second suggestion demonstrates a staggering level of economic illiteracy. He stated that house prices should be used as indicators that the economy is recovering. If we use house prices (rather than GDP, balance of trade, disposable income, indebtedness, industrial productivity...) as one of our key economic indicators then the absurd situation is created that a massive house demolition programme would supposedly demonstrate economic recovery (due to restricted supply driving hose prices higher) whilst the construction of much needed social/affordable housing would demonstrate economic decline, as house prices fall back to more sustainable levels.

 It is an absolutely clear demonstration that the right-wing have learned absolutely nothing from the global economic crisis if they think that the health of an economy can be measured in the level of house price inflation! Perhaps they are so enamoured with the Great Neoliberal Lie they keep peddling (that the crisis wasn't caused by reckless under-regulated bankers, sub-prime lending, the construction of dodgy mortgage backed derivatives, Credit Default Swaps..., but actually by supposed "excessive state spending) that they seriously believe that house price inflation could be a positive economic indicator.

 I struggle to believe that they are so stupid as to believe their own "Labour caused the crisis" propaganda so there must be an alternative explanation. It seems no coincidence at all that Heseltine suddenly wants the economy to be judged on rising house prices, just days after George Osborne announced a massive (Help to Buy) subsidisation of the private housing sector which will undoubtedly cause a re-inflation of the house price bubble. 

It seems that Heseltine is simply cherry picking two supposed economic indicators that are certain to be massively influenced by Tory policy. The headline unemployment figures may well continue to fall as ever more unemployed people are coerced onto "workfare" schemes and misleadingly struck from the unemployment figures, whilst house prices are certain to rise once Osborne begins pumping £billions worth of subsidies into the market in 2014.

 I believe were going to hear a lot more of this kind of thing from the Tories in the buildup to the next election. We can expect them to point to their brazenly distorted headline unemployment figures and to the scale of subsidy backed house price inflation as their key "economic indicators" because they'll be virtually the only seemingly positive economic indicators they'll be able to dig out. Sadly, millions of people are so cretinous that they'll allow themselves to believe in the government unemployment figures, just as they'll believe, against all of the evidence of the global financial sector meltdown, that house price inflation is suddenly a wonderful thing again.

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Posted by Thomas G. Clark at 10:32
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