Showing posts with label The Case For.... Show all posts
Showing posts with label The Case For.... Show all posts

Thursday, 6 March 2014

Ending the war on drugs


In this article I am going to argue that the "war on drugs" has been a catastrophic failure, and that it is about time the UK adopted a more scientific and evidence based approach to dealing with the inevitable use of substances which are currently prohibited by law.

Origins
The Americans were by no means the first country to dabble with the authoritarian idea of attempting to control public behaviour by prohibiting the consumption of specific substances, but they were the first great power with the economic might to turn their experiment in crude authoritarianism into a global orthodoxy.

Inspired by a fervour of moralistic puritanism and driven on by clear vested interests, the Americans set in motion the greatest tide of prohibitionist legislation in human history. The biggest wave of prohibitionist legislation came as part of the fightback against the youth counter-cultures of the 1960s and 1970s, and these authoritarian rules have been strengthened many times over by governments across the globe attempting to impress the reactionary elements of the press with their "tough on crime" posturing.


The "UK war on drugs"
The foundation stone of the prohibitionist laws in the UK is the Misuse of Drugs Act 1971 which divides the different kinds of proscribed drugs into three completely arbitrary categories. The Act has been amended many times over the years to add ever more drugs to the list of prohibited substances.

One of the most notable additions to the list of proscribed substances was the extremely rapid classification of MDMA (commonly known as Ecstasy) as a class A drug, as the establishment reacted against the rave culture of the 1980s. The evidence on MDMA is very clear, it is a relatively safe drug that actually has a lot of potential in the treatment of mental health conditions such as depression and Post Traumatic Stress Disorder. The thing that makes MDMA a "killer drug" is that it is supplied in irregular and often contaminated doses, often to naive and inexperienced youngsters, on the unregulated criminal black market.

Another highly contentious classification is that of psilocybin mushrooms (magic mushrooms) in the Class A group, alongside heroin, crack, cocaine and crystal meth. People have used naturally occurring psilocybin mushrooms since ancient prehistory. Research has shown that the effects of psilocybin include the development of feelings of powerful spiritual significance and a very long-lasting sense of well being. As with all substances, there are potentially adverse side effects such as mild paranoia, however in comparison with the utterly devastating effect of other drugs such as street heroin, crack and ketamine (which for some unfathomable reason is in the lowest Class C group), the negative effects of psilocybin are extremely negligible, especially given the fact that it is barely addictive.

In 2005 a report by the House of Commons Science and Technology Committee described the way substances are classified under the law as "arbitrary" "unscientific" and "based on historical assumptions, not scientific assessment". The report was especially critical of the classification of psilocybin mushrooms amongst the most dangerous and harmful substances and it concluded that a more scientific approach to drug classification should be taken.

As the head of the head of The Advisory Council on the Misuse of Drugs (ACMD) the British psychiatrist and neuropsychopharmacologist David Nutt took up the challenge to develop a more rigorous and scientifically valid set of criteria for drug classification.

What professor Nutt came up with was hardly surprising stuff on the whole. His study showed that life wrecking drugs like street heroin, crack, cocaine and barbiturates are by far the most dangerous and addictive drugs; alcohol and cigarettes occupy the middle ground, whilst several currently illegal drugs such as cannabis, MDMA, psilocybin mushrooms and LSD turn out to be only mildly addictive and relatively safe.

The New Labour administration reacted with fury to these findings and worked tirelessly to drive professor Nutt out of his job for daring to question the orthodox ideology. One of the most extraordinary aspects to this furious response from the government was the truly absurd accusation that David Nutt was guilty of creating "confusion" with his scientifically grounded advice. Here's what Alan Johnson (the Home Secretary at the time) said in his letter demanding Nutt's resignation:
"I cannot have public confusion between scientific advice and policy and have therefore lost confidence in your ability to advise me as chair of the ACMD" [source]
The idea that the source of "confusion" was Nutt's scientific advice rather than the arbitrary and unscientific government policy (driven largely by tabloid hysteria) is so backwards it would be laughable if it weren't so serious. What is the point of parliament seeking independent scientific advice on an issue only to sack the man responsible when they don't like the findings?

After making the clearest demonstration imaginable that UK drugs policy is based on ideology rather than sound reasoning, the UK establishment has slipped back into the reactionary groove. Alan Johnson conducted an ideological purge of the AMCD, with several eminent scientists and experts forced into resignation by the intransigent attitude of the government.

Since the Tories came to power they have followed the same agenda of ideological authoritarianism, even going as far as banning Khat, which David Nutt's research had classified as the least addictive substance on the whole drugs spectrum.

It seemed like the UK system was simply going to revert back to type, the same old ideologically driven hysterical moral puritanism taking precedence over rational analysis, but in February 2014 a petition initiated by the Green MP Caroline Lucas received enough signatures for parliament to consider her proposal that a thorough cost-benefit analysis on the prohibitionist drug regime should be conducted.

Such a cost-benefit analysis could potentially be the the starting point in the move towards liberalisation and a more rational/pragmatic approach to substance use. Given the growing global trend towards liberalisation (detailed in the next section) the idea of liberailisation in the UK seems a lot less outlandish than in decades gone by. The thing that will determine the success of rational drugs policy will be the public demand for it. If hundreds of people write to their MPs to request that they adopt a rational evidence based approach to drugs policy, they'll be far more likely to do it than if people don't bother.

International liberalisation

Undoubtedly the most famous example of drugs liberalisation can be seen in the Netherlands. Most people know that the Netherlands have liberal marijuana laws, but fewer know that since the laws were liberalised, the use of more dangerous and addictive drugs in Dutch society has fallen. Their experiment has been such a success that several other European countries (including Belgium and Germany) have considered the introduction of Dutch style cannabis laws.

There are other examples of substance liberalisation strategies elsewhere in Europe. In 2000-2001 Portugal enacted legislation to decriminalise the possession of small quantities of drugs. Many of the statistical indicators that suggest this policy has been successful in reducing drug related harms include: A reduction in the number of adolescent drug users; A reduction in HIV infection rates amongst drug users; A reduction in the number of drug related deaths; Increased take-up of treatment; A reduction in the drug related crime workload in the criminal justice system; And a significant decrease in the street value of most street drugs.

Many of the most progressive drug liberalisation strategies can be witnessed in South America. In 2009 the Argentine Supreme Court passed a landmark ruling that it is unconstitutional for the state to prosecute civilians for their own personal consumption on the basis that citizens should be free to make lifestyle choices without the interference of the state.

Before he was removed from office by a right-wing coup d'etat, the President of Honduras Manuel Zelaya had called on the United Nations to legalise drugs in order to reduce the alarming levels of drug gang murders in central American states that are used as staging posts in the global drug smuggling trade.

Uruguay was one of a tiny minority of countries never to criminalise the possession of drugs for personal use. In late 2013 Uruguay became the first nation state to officially legalise the sale of cannabis.

One of the greatest ironies in the global move towards drugs liberalisation is that after pushing their policy of moralistic prohibitionism across the globe, the United States is one of leaders in the move towards liberalisation. The sale of medical marijuana has become accepted policy in 17 states already, and in November 2012 the people of Colorado voted for theirs to become the first US state to legalise the sale of recreational marijuana, with proceeds from marijuana taxes to be used to fund the education system.

It is absolutely clear from the examples I've provided that there is a growing trend towards liberalisation, and that any countries that follow the trend now are unlikely to be treated as international pariahs.

The economics of the "war on drugs"

One of the major problems in conducting economic analysis of the "war on drugs" is that due to the illegality of the market, it is essentially impossible to provide completely accurate economic data. There are plenty of estimates from either side of the debate (prohibition supporters and liberalisers), however it is difficult to accept any of their figures at face value, given the inherent opacity of the illegal market and the fact that so many estimates are produced by agenda driven organisations. Therefore I have decided against cherry-picking specific estimates and conducting a rudimentary counting exercise, in favour of presenting the potential cost savings that could be achieved through liberalisation.

Petty crime: The biggest cost associated with moralistic prohibitionism is crime. Tens of thousands of people who are addicted to substances like street heroin and crack cocaine resort to crimes such as burglary, shoplifting, pick-pocketing and muggings in order to pay the extortionate black market prices that these drugs command. It has been shown time and again that treatment (rather than punishment) results in dramatically reduced crime rates. If extremely addictive drugs were made available on prescription, then the crime rate would fall dramatically, meaning a huge improvement in economic and social well being.

Insurance: Given that a huge percentage of burglaries are conducted by drug addicts seeking cash for their next fix, provision of prescription drugs instead would dramatically cut the rate, and therefore result in falling in home insurance policies (especially in high crime inner city areas).


Organised crime: The illegal drugs market is a fundamental source of revenue to criminal gangs. If the majority of drugs were fully legalised (or made available through prescriptions in the case of highly addictive substances) these criminal gangs would lose their market share. If you support prohibitionism, you support the criminal gangs that run the illegal drugs market.

Terrorism: It is undeniable that terrorists use the illegality of the drugs market in order to make money for their cause (just look at Afghanistan). Bringing the drugs market under regulation would cut off a significant source of untraceable revenue for terrorist organisations.


Enforcement: The cost of enforcing ideologically driven prohibitionism laws is absolutely enormous. Not only do the police waste billions each year fighting their losing battle against the drugs market, but hundreds of thousands of hours of court time is wasted on dealing with non-violent drugs offenders too.

Imprisonment: The cost of keeping a non-violent drugs offender in jail is £40,000 per year, and the cost of building each additional prison place is £119,000 per year. This is all money that could be spent on more sensible things. Another positive aspect to not locking up thousands of non-violent drug users is that more prison spaces would be made available to keep people who are a genuine danger to society (violent offenders, paedophiles, rapists etc).

Health consequences: The use of drugs that are supplied in irregular and often contaminated doses on the black market, and the sharing of needles are factors that create terrible health consequences, the costs of which are borne by the taxpayer. If drugs were properly regulated, the number of overdoses and toxic reactions would be cut dramatically, meaning NHS staff would be free to focus more of their time and resources on other things.

Preventable deaths: The supply of drugs in irregular and often contaminated doses on the black market result in hundreds of deaths per year. If you support moralistic prohibitionism, you essentially believe that these people deserve to die. A more rational (and humanitarian) drugs policy would be to make sure that drug users are not killed by irregular or contaminated doses, and to focus on education and rehabilitation. Teenagers and young adults will always be tempted to try mood-altering substances (especially in a society where alcoholism is rife), so it is better to make sure that they can experiment safely and survive to become productive members of society, rather than die because some unscrupulous criminal sold them a contaminated dose.

Lost tax revenues: If recreational drugs were regulated and taxed, the potential revenues would be significant. The vast majority of recreational drug users would prefer to buy their drugs from a regulated retailer and pay tax on the purchase, rather than spending their money in the criminal black market. The potential tax revenues from selling drugs like cannabis, magic mushrooms and ecstasy would more than cover the cost of regulation, education and rehabilitation, meaning £billions in extra revenues to invest in valuable areas of the economy, or to reduce the budget deficit.

Employment: The transaction tax on the sale of drugs wouldn't be the only source of additional government revenue. As the drugs trade is shifted from the black market to the real economy, more and more people working in the drugs market would migrate into legitimate employment (licenced producers, chemists, pharmacists, cannabis cafes, regulatory agencies ...) meaning increasing tax revenues via income tax and NI contributions as the number of people employed in the tax-exempt black market is reduced.

Public safety: The demand for cannabis has resulted in the creation of thousands of makeshift cannabis factories in residential neighbourhoods all over the UK. Many of these unsafe and unregulated factories burn down due to electrical fires. If the production of cannabis was regulated in a sensible way (ordinary people can grow a few plants in their shed, mass producers would have to follow industrial regulations and health and safety law) scores of house fires would be prevented every year.

The case for liberalisation

Supporters of the prohibitionist regime love to create the straw-man argument that those that favour drug liberalisation want some kind of lunatic free-for-all, where heroin and crack cocaine are put on supermarket shelves alongside kids sweets and fizzy pop. Nobody is actually arguing for that, it's just a pathetic tactic to discredit the voices of reason.

A sensible drug liberalisation strategy would be to legalise relatively safe drugs (cannabis, psilocybin mushrooms, MDMA, khat, mephedrone ... ) for sale in licensed establishments. More dangerous drugs (heroin, crack, ketamine, crystal meth ...) would only be available on prescription.

I'd want the decision over which substances fall into either category (sold to adults on licenced premeses or prescription only) to be made by a scientifically grounded cost-benefit analysis.


For naturally occurring substances like cannabis and psilocybin mushrooms, it would make sense to allow individuals and/or small community groups to produce a limited supply for personal consumption (but not for commercial sale).

There would still have to be enforceable laws to regulate the drugs trade, some of the most important offences would be:
  • Supplying controlled substances to children.
  • Supplying contaminated drugs.
  • Tax avoidance (selling drugs without paying tax on the proceeds).
  • Drug driving (to be treated in the same way as drink driving, with bans, fines or imprisonment).
  • Unlawful supply of prescription only drugs.
  • Production and/or distribution of controlled substances without a licence.
A liberalisation strategy like this would be socially and economically beneficial. The main benefit would be the transference of the sizable drugs economy from the untaxed and unregulated black market to the legitimate market. Other socio-economic benefits would include reduced crime, increased public safety, reduced law enforcement costs, increased tax revenues and increased provision of education and rehabilitation facilities.

Conclusion

The ideological "war on drugs" has been a catastrophic failure. If anyone argues against that, they're not arguing against an opinionated assertion, they're arguing against observable reality.

It is high time the UK took a rational, evidence based approach to the subject of substance use, with an emphasis on reducing socio-economic harms.

The reactionary core of authoritarian politicians and the right-wing media will kick up an awful stink about it. The vested interests (people involved in the drugs black market, the breweries and tobacco companies, drug enforcement employees) will also try to argue against evidence based analysis, but if we are to have any hope for humanity at all, we must believe that the evidence will eventually  win out over ideological posturing and vested self-interest.

What you can do

If you believe it is about time the UK abandoned the ideologically driven "war on drugs" in favour of a more rational and scientifically grounded approach to substance use, you should write to your MP.

In your letter you should:

You can find contact details for your MP here:
Find Your MP


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Saturday, 6 July 2013

Proportional pay for MPs


Cheerleaders for the establishment orthodoxy often    
defend the status quo with spurious claims that "there 
is no alternative".


In this occasional series I will present some alternative economic and political ideas.



The case for ... Pay proportionality for MPs


In July 2013 the Independent Parliamentary Standards Authority (IPSA) will give MPs an enormous pay hike of more than £10,000 a year, a 15% increase on their current basic salary.

Given that the government have just pushed through a (significantly below inflation) 1% pay freeze for public sector workers, accepting a 15% pay hike for themselves looks like a recipe for public outrage, especially given that MPs themselves must surely be considered public sector workers, since their pay is entirely funded by the taxpayer. What could possibly make politicians exempt from the 1% cap they've imposed on the rest of the public sector?

It's not only public sector workers that have the right to feel bitterly aggrieved by this egregious pay hike, there are many other people suffering financial deprivation due to Tory austerity.

Millions of people working for the National Minimum Wage were handed a below inflation raise of just 12p an hour, meaning that their salaries will be smaller in real terms in 2013 than they were in 2012.

Another group to have suffered one of George Osborne's austerity justified 1% caps are ordinary working people. Osborne's stunningly disingenuous argument that "all benefits must be capped below inflation at 1% to prevent feckless shirkers getting bigger percentage pay raises than working people" fails dramatically on the fact that the majority of people suffering these real terms benefits cuts are actually working people, through real terms cuts in all manner of in-work benefits such as Tax Credits, Child Benefit, Statutory Sick Pay, Maternity and Paternity Pay and Housing Benefits.

Another consideration must be the fact that due to Tory economic mismanagement, the average wage has risen below the rate of inflation for three continuous years. This means that taken as an average, the UK workforce has suffered real terms income losses month after month, after month, after month, after month, after month, after month - for three whole years!


There are countless examples of people suffering real terms losses in their incomes this year, thanks to the policies of a bunch of politicians that look set to rake in huge inflation busting pay raises for themselves, which is a remarkably clear demonstration of the Coalition government lie that "we're all in it together".

When news broke that this massive pay pay hike is on the cards, the chairman of IPSA Ian Kennedy came out with an absurd and shocking justification narrative. Here's what he said:

"Of course, this is not a good time to be talking about the pay element of the package, save to notice that in the public sector pay increases are limited to 1% a year. But given that there has never been a good time, this is as good a time as ever.
"Moreover, we know what happens when the element of pay is pushed aside as being simply too hard - the nods and winks school of public financing emerges, and ultimately we end up with circumstances like 2009."
So his stance is that if IPSA don't give MPs a huge pay rise, they're bound to just abuse the expenses system in order to steal it for themselves! 

Not only is this an admission that in his opinion MPs are a bunch of self-serving schemers that will rob the taxpayer blind, but it is also, given that it is his responsibility to administer the expenses system (ie. prevent MPs from abusing their expenses to steal from the taxpayer), an outright admission of his own incompetence.

Another logical flaw in the argument that a pay hike is necessary in order to avoid another expenses scandal is that in making such a claim he's admitted that he is powerless to stop MPs thieving public money with dodgy expenses claims, so what's to stop them brazenly pilfering the expenses system even if they do get the vast inflation busting pay hike he's offering?

Kennedy's massive pay offer to MPs is a grotesque insult to the countless millions of people suffering real terms income cuts under the narrative of "austerity" and his absurd justification is a clear demonstration that he is unfit to do the job he's been charged with. In my view MPs salaries should reflect conditions in the real economy, rather than being drawn up behind closed doors by a bunch of establishment cronies. 


One simple proposal would be to make politicians subject to the 1% salary cap they have imposed on public sector workers, however I have another proposal, which if implemented properly, would actually give them strong personal incentives to improve the economy and combat poverty.

My proposal is that MP's salaries should be made proportional to the average (median) income.
MP's pay should rise or fall in relation to the median income (including the incomes of pensioners and those on benefits). If the median income declines in real terms, as it has done for the last three years, then MPs salaries decline too. If it rises at a similar rate to inflation, then MP's salaries should too. If the median income rises above the rate of inflation, then MPs get a well deserved pay rise.

Given that MPs seem to be such a self-serving bunch that the standards commissioner is offering them a huge salary hike as a bribe, in the vain hope that they'll stop pilfering their expenses, making their salaries proportional to the median income would give them some (self-interest inspired) incentive to actually improve the economy, to combat working poverty and to reduce unemployed wouldn't it?

Higher unemployment and lower wages for the masses would translate to real terms pay cuts for MPs whilst a reduction in unemployment and rising wages would guarantee them a nice pay rise. If they do their jobs badly, their salaries decline, if they manage the economy well and introduce effective measures to reduce poverty, then they get a financial reward for their good work.

The exact mechanism for determining incomes would have to be carefully considered. I believe that incomes should be calculated after payroll taxes and other deductions such as student loans, and that MPs incomes should be calculated post-tax too.

The ratio should be something like 2.5 : 1. So if the median income (post tax and deductions) is £15,000, an MP should get a post tax income of £37,500. Lets not pretend that MPs just sit there doing nothing, an MP that actually does their job properly must work very hard indeed. Many people have called for MPs to get minimum wage, or no wage at all, however such paltry pay would only serve as yet another barrier to people from ordinary backgrounds entering parliament, and make parliament the exclusive preserve of pampered millionaires with no real world experience like David Cameron and George Osborne and workshy scroungers like the odious Iain Duncan Smith (that sponge off the estate of their parents in law). These people are already massively over-represented in parliament, we certainly don't need knee-jerk policies to make sure that the current over-representation is replaced with an absolute monopoly.

We desperately need more real people in parliament, not fewer, so MPs salaries should reflect the fact that being an MP is an important role in society, worthy of a high  but this salary must be calculated in a way that is seen to be fair and above board, and in my opinion, the establishment of a clear proportionality mechanism would remove the suspicion that people like "Sir" Ian Kennedy and the IPSA are just a bunch of establishment cronies feathering the nests of their buddies in parliament with ludicrous pay hikes, whilst the rest of the population suffer the financial hardships of austerity.




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Wednesday, 18 July 2012

The case for... Evidence based policy in UK politics


Defenders of orthodox neoliberalism often try to defend their favoured socio-economic ideology by pretending that "there is no alternative".
In this series I'm going to explore what some of these alternative economic strategies could be.



After two years of blundering incompetence from the Tory-Liberal coalition government there has been much talk of evidence based policy. The topic has even reached the pages of the Daily Telegraph, which are usually filled with the kind of reactionary sentiments that do so much to undermine evidence based politics. The article by Jonathan Shepherd makes a very strong case for the introduction of evidence based politics, one of the key quotes comes from Jon Baron, president of the US coalition for evidence-based policy, who said: “Distributing social spending the old fashioned way – with maximum regard for political gain and minimum regard for evidence of effectiveness – is a luxury we can no longer afford.”

I'd suggest the first step towards introducing evidence based policy would be to begin by teaching a few economic fundamentals to all elected politicians:

Lesson 1. What is a fiscal multiplier?
Lesson 2. What is an externality?
Lesson 3. What are anti-competitive practices and how do we avoid them? (hint: monopolies, oligopolies, information assymetry, cartels, price fixing, dumping, subsidies are bad)


The next step would to be to introduce routine assessments of the fiscal multiplication effect of government policies (taking externalities such as environmental degredation, use of limited/non-renewable resources, systemic risk, social disorder, health consequences, anti-competitive practicies into account). This kind of analysis would provide useful data on which government services provide good overall (economic, social and environmental) returns and which need to be made more efficient, scaled back or completely abandoned.

An approach like this would also prevent ideologically driven fools like Caroline Spelman from slashing state spending on economically beneficial flood defence projects, against the scientific advice and incurring significantly more economic damage that she saved through her mindless adherence to the failing cut-now think-later ideology of Osbornomics. By slashing spending on worthwhile flood defence projects Spelman was clearly just serving her own political interests. She was simply trying to win brownie points and future promotions from the ideological neoliberals that run the Conservative party by demonstrating that she would gleefully inflict the largest proportional spending cuts on her own department, without any consideration for the obvious false economies she was creating.

The problem of course is that proper analysis of the fiscal multiplier values of government spending would throw up a lot of results that all three of the neoliberal riddled, corporatist Establishment parties would abhor.

Government spending on social housing, public infrastructure projects and welfare projects usually provide good fiscal multiplication values, whilst tax cuts for the extremely rich have provided some of the lowest fiscal multiplication values ever seen. The 2008 Bush tax cut for the super rich resulted in a fiscal multiplication value of just 0.29, meaning that for every Dollar spent (in lost tax revenue) the economic return was just 29 Cents. Compare this to Spelman's flood defence cuts, it has been estimated that for every Pound spent on flood defences the country saves £8, an astonishingly high fiscal multiplication effect of 8.00, or a 27 times more effective use of government funds than cash handouts to the richest people in society (a favoured Tory policy).

Evidence based policy based on the assessment of fiscal multiplication values would create a situation where government would find it almost impossible to give vast tax cuts to their wealthy mates and financial backers and instead find themselves compelled to increase funding for economically beneficial projects such as building flood defences and social housing, providing healthcare, education and welfare, increasing spending on tax enforcement and cutting taxes that disproportionately effect the poor and ordinary working people (such as VAT and council tax). These outcomes are precisely the reasons that evidence based policy is highly unlikely ever to happen in the UK.


See also





Wednesday, 16 May 2012

The case for investment in high-tech industries


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 alternative economic strategies could be.



The UK post-industrial experiment has created a large trade deficit, whilst
 the German high-tech economy has developed a large trade surplus.
After the financial sector bust the UK post-industrial experiment is as good as over. Neglecting the UK industrial sector in order to turn London into a hub for deregulated financial sector gamblers was always going to be a risky strategy, but few would have predicted such a catastrophic failure. The government and the Bank of England have been forced into a position of pouring hundreds of billions of pounds into the black holes of debt created by reckless and idiotic speculative gambling on transparently unsustainable house price inflation and complex derivatives that even the traders betting on them didn't understand. The financial sector has not replaced the industrial economy, it has become a huge and unsustainable drain on what remains of it.

Since the financial sector meltdown the UK economy has been running the biggest trade deficit (the difference between imports and exports) in its history. At more than £4 billion a month since 2011 it is even worse than the peak of £3.5 billion a month at the height of the UK financial sector meltdown in 2007-08. The financial sector has not adequately replaced the industrial sector, the only way that the trick even seemed to be working was through the inflation of a vast unsustainable "easy credit" bubble.

Once the financial sector had been exposed as a giant ponzi scheme of bad debts dressed up as reliable assets stamped with AAA ratings from the Credit Rating oligopoly, it became absolutely clear that the UK must return to the core productive economic activities of industry and manufacturing. There are two conceivable approaches, the establishment can either drive down the wages and working conditions of the UK labour force in order to parse costs down to compete with the Chinese or they can attempt to invest in the development of leading edge high-tech industries.

The chosen path of the three establishment parties is obvious, the economically destructive austerity measures of the Coalition and Neo-Labour's bland "austerity-lite" posturing show that they have no faith in direct investment in the UK industrial sector as a viable option. The nay-sayers and doom mongers would have us believe that UK manufacturing has been left way behind by the high-tech economies of Germany and Japan and couldn't hope to compete with Chinese productivity, however, despite three decades of deliberate government neglect in compliance with the utterly discredited "state intervention is evil" fallacy British manufacturing is not yet completely dead in the water.


The rapid decline of the British train building sector
coincided with the botched privatisation of British Rail.
Lack of investment, mismanagement, botched privatisations, lack of protection and sheer malice have all contributed to a three decade long era of unprecedented decline in the UK industrial sector. To take one of many, many examples; the hopelessly botched Tory railway privatisation led to the ruination of the once world leading UK train building sector. In 1994 when rail privatisation plans were drawn up, the entire UK rail network ran at a cost of £1.6 billion (£2.2 billion adjusted for inflation) and the British train building industry was still near the cutting edge, having recently built one of the world's fastest trains (the InterCity 225) and done pioneering work on the bogey technology necessary for high speed tilting trains. By 2009 the annual cost of the rail network had risen to £5billion in government subsidies. In this period in which government spending on the rail network had actually more than doubled, the UK train building industry was left to ruin. Most of the train builders were wiped out by a 1,063 day delay in ordering any new trains as the private sector operators maximised profits by rinsing as much value as they could out of former British Rail stock. As of 2012 the only remaining commercial train building operation on UK soil is the struggling Canadian owned Bombardier group and the only entirely British train to have been built in recent years was the heritage project A1 peppercorn class Tornado, built at Darlington Locomotive Works.

Swathes of the UK industrial sector have been deliberately run down or left to ruin by successive Tory and Labour administrations and Britain has rapidly slumped towards the bottom of table of nations ranked by industrial output as a percentage of GDP, with an industrial sector accounting for only a paltry 21.6% of GDP (when the global average is 31.1%). In 2011 only 5 of the 27 European Union nations experienced worse industrial sector growth than the UK (Greece, Portugal, Italy, The Netherlands and Norway).


Rolls Royce, an example of a world leading UK based industry.
Despite the rapid industrial decline as a percentage of GDP, there are some grounds for optimism about UK manufacturing. Despite the disgraceful mismanagement of the UK industrial sector over the last three decades, the UK is still the sixth-largest manufacturer of goods in the world according to the value of its outputs. If the UK is to reposition itself as a high-tech economy, there are a few remaining industries that demonstrate that British workers can still do cutting edge technology. The prime example is Rolls Royce Aero-engines, which is the World's second largest jet engine manufacturer, producing both the most powerful and the most fuel efficient jet engines on the global market. Another example is Formula 1 where several of the most successful teams in a highly competitive high-tech business are based in the UK. Although these racing teams are tiny cottage industries in comparison to Rolls Royce, the fact that these extremely high-tech racing teams base themselves in the UK demonstrates that Britain is still a potentially viable home for high-tech cutting edge industry.

If the UK is to reposition itself as a high-tech economy several key reforms will be needed:


Firstly: A complete reversal of Coalition austerity cuts in funding to research and development budgets and the engineering and technology departments of universities. Without well funded research and a Strong education sector, hopes of becoming a leading high-tech economy are nothing more than idle pipe dreams.

Secondly: Direct state investment in the industrial sector, preferably through a government backed National Investment Bank. The practice of pouring of hundreds of billions into the debt riddled financial sector in the hope that they will lend it on to the "real economy", instead of using it to pay down their astronomical gambling debts (deleveraging) or gambling it on the derivatives markets must be stopped. Either the state invests in the productive industries directly or it doesn't intervene at all, propping up the financial sector gamblers that caused the crisis in the first place should never have even been considered as an option.

Thirdly: State investment in infrastructure projects. Without significant infrastructure improvements the UK is going to struggle to compete with other high-tech economies. Priorities should include, a high speed broadband network and massive improvements to transport infrastructure. High-Tech businesses considering the UK as a base would surely be put off without improvements to the neglected infrastructure, congested roads and especially the massively overpriced and severely overcrowded public transport network. Not only would improvements in UK infrastructure make the country seem like a better base for high-tech industries, it would also create a short term economic boost by creating tens of thousands of much needed jobs.

Fourthly: A co-operative economic strategy. The divisive politics of the Thatcher era really have to be abandoned. Economic strategy should not be considered as a series of pitched battles between the state sector and the private sector, or between businesses and the trade unions. The state sector and the private sector need to co-operate in order to develop a coherent economic growth strategy, the state providing an educated and adaptable workforce, direct intervention to assist key industries and offer tax incentives to companies that are prepared to contribute to the national economic growth plan whilst the private sector must begin to reinvest in the "real economy" and to pay their fair share of taxes. The anti-trade union antagonism also has to be stopped, the German economy is a good example, through their co-operative approach between businesses and trade unions they have built a strong, highly productive high-tech economy. After all the workers are still the engines of economic productivity, treating them as if they are "the enemy within" is never going to get the best out of them.
Unfortunately, the three establishment parties in England seem absolutely determined to plough on with their ideologically driven "austerity agenda" no matter how badly it effects the UK industrial sector or the UK trade deficit. As much as they tell us that austerity first is the only option, I would like to think that I have outlined a reasonable case for an alternative strategy of intelligent, targeted investment.



See also




Saturday, 28 April 2012

The case for a National Investment Bank


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.


Decades of orthodox neoliberal politics meant that huge sectors
of the UK economy went to ruin for lack of state intervention,
however when the neoliberal financial sector elite got into trouble
the state immediately tore up the neoliberal rule book to provide the
biggest state subsidies in UK history to their financial sector mates.
The UK economy is stagnating in the wake of the neoliberal economic meltdown because corporate banks are too busy deleveraging and gambling on the unregulated derivatives market to make loans to people and businesses in the "real economy". Without finance, small and medium sized businesses are unable to expand and create employment, while many larger businesses are being forced to downsize due to lack of credit and the weakness of the wider economy.

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 state should should step in to provide economic support to the "real economy" and with the nationalisation of several debt stricken financial institutions during the financial sector meltdown the United Kingdom government has already acquired the infrastructure to operate 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.

Sunday, 19 February 2012

The case for UK childcare reform


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.


Percentage of net family income spent on childcare in 2010.
The UK Labour party has been publicising plans for a Scandinavean inspired childcare system, where those that choose to work have an entitlement to free or affordable childcare. As it is UK childcare costs are absurdly high, the highest in Europe and in the English speaking world too. Labour like to boast about the fact that the Tax Credit system allows families to cover up to 80% of their childcare costs, however to my mind free childcare to working families would probably work out as a much lower burden given the redundancy of the vast redistributionist beurocracy needed to administer Tax Credits.

Anyone who has ever experienced the spectacularly overinflated cost of childcare in the UK should support progressive reform however I still expect to see plenty of people that are delighted to see their fellow citizen take a huge shafting, piling in to the debate to criticise any kind of progressive childcare reform. Not that I have much faith in this corporatised Labour party to deliver anything resembling a well considered, sustainable, economically viable or even sane "progressive childcare strategy.


Imagine the double boost to the economy if costs could just be brought down to match the (still well above average) costs in the United States. A reduction like this would create an average 14% boost in a significant number of UK family budgets helping to massively increase family spending and saving power, stimulating the economy through incresed consumption and deleveraging the financial sector through increased savings deposits.

Sadly it would never be allowed to happen though, with the financial sector, all the major political parties and the vast majority of the mainstream media riddled with self serving, "austerity loving" anarcho-capitalists, who would fight tooth and nail to prevent any measures that could improve the financial autonomy of ordinary working people.
UK childcare needs progressive reform and as pleasing as it is to hear Labour even considering it, the party still need to have more than one "big idea" if they want to win the next election.

Here are a few other "big ideas" for them. 
  • Housing policy reform, regulation of the virtually unregulated Buy-to-Let Housing benefits siphon. Buy-to-Let properties should meet the same standards as social housing, introduce some kind of empty property tax and draw up some ambitious housbuilding plans. Regulation of the housing sector is an absolute must since the origins of the ongoing meltdown of the neoliberal economic model can be clearly traced to over-leveraged property speculation.
  • Tax transparency, introduce a simplified tax system and register of tax transparent companies. Individuals and companies that continue to use loopholes to avoid paying taxation on their profits or executive renumeration to be excluded from bidding for government contracts, recieving government subsidies, financing lobbying activities, standing for election or donating to political parties in the form of contributions or through secondment of staff. Companies that remain tax transparent could be offered tax reimbursments and low interest loans (to encourage developmental reinvestment).
  • Reform of the Financial Sector, the financial sector would feel the effects of a housing market gradually deflating back to a sustainable level and a much tougher tax collection regime however the sector needs to be fundamentally reformed. The unregulated, untaxed shadow banking casino is destabilising the global market. The whims of the market are capable of bringing ruination to entire nations. That London is the very epicentre of a global derivitives market that vastly dwarfs the GDP of the entire World in size is absolutely nothing to be proud of.
  • An alternative to neoliberalism, I have serious doubts that there is anyone near the top of the Labour party capable of devising an alternative strategy, so they need to go back to the previous functional model, the Post War Consensus mixed economy, I mean it wasn't called "the golden age of capitalism" for nothing. They should also at least attempt to educate themselves in the basics of economics (monopolies, oilgopolies, cartels, subsidy handouts, tax avoidance schemes, prohibition inflated black markets, information assymetry and price fixing are never good). next they should seek out economic advisors amongst those that were at least on the ball enough to forsee the neoliberal economic crisis and brave enough to endure the hailstorm of criticism for publicising their ideas (while the majority of their peers were happy getting fat on the biggest speculative bubble in history).
Of course there would be plenty of Buy-to-Let slumlords, tax avoiders, corporate fatcats, professional lobbyists, owners of overinflated property portfolios, bankers, traders, PFI spivs, property speculators, exiled oligarchs and media organisations to campaign vigerously against any ideas that go against the neoliberal "greed-is-good" ideology. However the biggest obstacle to a progressive economic policy for the Labour party to champion is the fact that throughout the Neo-Labour years the party has become riddled with neoliberal corporatists. A hoard of self serving, wealth workshiping, expense fiddling gits, who only ever went into politics for their own self interest. People that show more loyalty to the corporatists promising campaing donations, seconded staff, expensive junkets and a very well paid seat on the board/"advisory role" than they do to either to the electorate that pay their wages or the Trade Unions that still provide the majority of Labour Party funds. As long as these impossibly comprimised individuals are embedded in the upper echelons of the party, Labour will never even consider offering a viable alternative to ideologically driven neoliberal corporatisation of the entire economy.