The Spark our Economy Needs

THE main point of austerity has never been to reduce the government’s annual spending deficit or the national debt.

If it was, the bond and currency markets would have punished Chancellor George Osborne every time he missed a deficit reduction target as the debt has grown.

Rather, austerity has been about enlarging the private sector at the expense of the public one, cutting the level of real wages, reducing the levels of corporation tax on big business profits and increasing both the mass and rate of corporate profit.

Slashing the number of central and local government employees by 581,000 since the Tory-led coalition took office in May 2010 has flooded the labour market, boosting what Marx called the “industrial reserve army” of the unemployed, undermining employment standards and wage levels.

This has played a major role in widening economic inequality between the regions and nations of Britain, as the GDP share in London, the south-east and the Midlands has gone up, while falling everywhere else.

Austerity has also been the cloak behind which whole swathes of the public sector have been prepared for privatisation, as wage bills are reduced, workloads increased and pension costs cut in potentially profitable public services.

Overall, the impact of public-sector spending cuts and job losses has been to reduce purchasing power, slowing Britain’s economic recovery until the private sector finds it more profitable to employ, produce and invest.

It follows, therefore, that the first priority of any strategy for sustained growth across Britain must be to halt the austerity programme. Government current and capital spending should be increased, not cut further.

Higher state pensions and benefits, greater funding for public services (not least in the NHS and local government) and real investment in infrastructure — especially in council and social housing, transport and R&D — would boost economic demand and prepare the ground for economic modernisation.

How would this be financed? A short-term rise in state borrowing to replace private finance initiatives and other “private-public” finance schemes, would quickly lead to lower costs for building and managing public-sector projects. Governments can invariably borrow at lower interest rates than private contractors, or simply print the money (whether or not disguised as “quantitative easing”).

But no socialist or communist should be happy at the prospect of increasing government debt to bankers and speculators.

That’s why most extra government spending should come from progressive taxation and the proceeds of economic growth itself.

For example, up to £20 billion a year could be raised by a so-called Robin Hood tax — a City of London financial transaction tax — 10 times higher than the Chancellor’s paltry bank levy. Cuts in corporation tax should be reversed, at least for large and very profitable enterprises. “Windfall” taxes on super-profits, levied by Thatcher on the banks and Gordon Brown on the energy utilities, could be extended to the retail and some other monopolies.

While a return to top rates of income tax at 50 or even 60 and 70 per cent would raise some extra revenue, a wealth tax on assets would be much more lucrative.

In Britain today, the richest 10th of the population owns 44 per cent of all personal wealth, valued at £4,215bn, excluding hidden and collectively owned corporate assets. A modest 1 per cent tax would raise £42bn a year — more than half the government’s spending deficit alone. Even a wealth tax restricted to property and financial assets, exempting other assets such as private pension pots and vehicles, would bring in some £22bn.

Such taxes are levied around this level in numerous countries, from the Swiss cantons and provinces of Spain (where some taxes reach almost 4 per cent) to France (up to 1.5 per cent) and Norway (where almost three-quarters goes to local government).

Given the huge disparity in wealth distribution across Britain’s regions and nations, although this is based ultimately on class, a robust mechanism for geographical redistribution would be essential.

Of course, there would need to be a clampdown on wealth concealment in order to reap the full proceeds of a wealth tax, not least in the 28 or so tax havens around the world which are under British legal jurisdiction.

Regional and national inequalities within Britain could also be addressed by establishing powerful and properly funded local training and development agencies, preferably under the control of directly elected English regional assemblies and the Scottish and Welsh parliaments.

This should be complemented by a revived regional policy to spread economic growth and its benefits. Instead of allowing the capitalist monopolies and their “market forces” to largely dictate what kind of economic development takes place, and where, public-sector planning and the direction of capital investment should predominate.

In the 1950s and ’60s, industrial development certificates and office development permits played a significant role in securing new industries and jobs for Scotland, Wales and the north and south-west of England. Development grants and other incentives funded from the public purse were also widely available.

The problem was that much of this new development turned out to be low-skilled, low-paid and transitory, with companies grabbing the money and soon disappearing with the next economic downturn.

Next time round, companies must be made to sign and abide by planning agreements concluded with the appropriate national and regional agencies, specifying commitments of jobs to be created (at least a minimum), pay levels, pensions, training, trade union representation and the like — perhaps with extra incentives related to the inclusion of new or expanded R&D facilities.

A national investment bank, funded from private as well as public sources, could set minimum standards and arrangements in many of these matters, co-ordinating targets and plans and managing or supervising public enterprises and shareholdings as the former National Enterprise Board was supposed to have done. It could ensure that some of the huge cash surpluses currently held by non-financial companies in Britain (and equivalent to 1.5 per cent of GDP according to the Bank of England) is channelled into productive industry.

One difference from the past, however, would have to be that public-sector managers and directors carry out their functions in the public interest, in accordance with social as well as economic objectives, rather than seeing themselves as donors and cheerleaders for big business. Priority for assistance should be given to nurturing local private, co-operative and municipal enterprise, rather than bribing trans-national corporations.

At the national macro-economic level, central government policies should begin restructuring the British economy away from property and financial services and towards manufacturing, construction, new technology and high-quality public services.

Control of interest rates should be repatriated from the Bank of England to ensure that interest rates are kept low in order to favour exports and investment borrowing.

Vital sectors of the economy such as energy, public transport and finance will have to be taken into public ownership in order to ensure that investment and environmental targets are established and met.

For instance, the tidal lagoons proposed along the Severn estuary in south Wales should be developed under public ownership, not exploited by corporate ventures that would take public money, cut corners ecologically and then charge the public exorbitant prices for the resulting abundant supply of electricity.

Only public money has been prepared to fund research into nuclear fusion so far in Britain — so why should private enterprise profit from this cleaner, prodigious source of energy when it becomes financially viable, as it appears to be on the verge of doing so in the US?

All the above policies constitute the major elements of a left-wing programme for sustainable economic development and social justice. Some policies could be implemented by a progressive government, but others would require a government of the left, propelled into office by a mass movement based on the organised working class.

The programme as a whole would come up against enormous forces of political reaction should a left government seek to implement it. Undoubtedly, the basic treaties and institutions of the EU would be used to try to block it at every significant turn.

Seeking to promote and sustain growth permanently would also come up against the fundamental contradictions of capitalism relating to value, the accumulation of capital and cyclical crises of overproduction.

An alternative economic and political strategy would be required which embraces the struggle for state power and the revolutionary transition to socialism as new, higher and more productive society.

Rob Griffiths in General Secretary of the Communist Party. This article first appeared in the Morning Star