JUST when you thought it was safe to go back into the world economy, it’s suddenly gone all headless chickens again. The gyrations of stock markets in the past few weeks, as China stumbled and oil slipped, has spread a new wave of insecurity across a capitalist system only recently emerged from the Great Recession.
Markets recovered some lost ground by the weekend. But the sale of RBS had to be halted – a timely reminder that it was the taxpayers who had to pump £1.2 trillion into the banking system to shore up the last crisis.
So is history repeating itself? Are the banks about to go under again? Should we be stocking up on bottled water and tinned food as Gordon Brown’s former adviser, Damian McBride recently tweeted?
There are certainly echoes of banking craziness and irresponsible greed, largely because the financial system was never fully reformed. Instead of trying to introduce a more rational system of allocating finance, and ramping down the gross inequalities of wealth, governments responded to the last financial crisis by pumping free money into the system in the form of quantitative easing.
Very little of this money went into productive investment; it was never intended to. It was simply a way of filling holes in the big banks’ balance sheets and protecting the wealth of the investment class. With near-zero interest rates, this cheap money poured into the stock markets and into the property market, boosting shares and house prices.
Meanwhile, as the annual meeting of top business people and politicians at the Swiss ski resort of Davos was told last week, automation is about to wipe out millions of white-collar jobs by 2020. Robotics and digitisation should be a huge boon to humanity, allowing us to work fewer hours and live better lives. But under our current winner-takes-all system, automation threatens instead to impoverish large sections of the middle classes as well as industrial workers.
This is because governments seem only to care about the health of share markets and protecting the wealth of property owners. The entire energies of the nation are devoted to keeping asset values at unsustainable levels. Almost any price is worth paying, including the enslavement of an entire generation of young families to unaffordable mortgages.
Property, like shares, is a claim on future wealth in society. It is a store of value and also a source of income. But as revealed in last week’s Oxfam report, also prepared for the plutocrat awayday at Davos, this asset wealth is increasingly in the possession of a small sliver of the world’s population. The top 1 per cent own more than the rest of the 99 per cent combined.
In fact, the top 62 individuals now own more than the bottom half of the world’s population – 3.5billion people. Yes, I know – these figures seem so mind-boggling you wonder if they are for real. But no-one at Davos has taken serious issue with Oxfam’s numbers.
There are different ways of calculating wealth, of course, but what no-one disputes is that it has, over the last three decades, become massively concentrated in the hands of an increasingly small number of people. Much of this wealth has escaped the grasp of governments and tax authorities and is increasingly located in the shadowy offshore banking networks of the global economy.
Apologists for financial capitalism insist that this wealth will eventually “trickle down” to the rest of society, boosting economic growth and incomes. But this does not happen of its own accord. It requires the intervention of powerful governments, as in America in the 1930s, to ensure that wealth is spread more widely.
Rich people don’t spend, they save and invest, which means that instead of circulating across society and promoting economic activity, wealth gets coagulated in dead-asset classes. Because the rest of us have less money, and therefore stop buying stuff, there is little point in investing in productive industry.
Increasingly, the wealthy look to the financial system to generate a return. This is the so-called “search for yield” that has dominated the past two decades. Money flows into property and shares, creating asset bubbles, which initially enrich a few but eventually pop, as the sub-prime bubble popped in 2008.
Since then, much of the hot money has flowed into developing country debt. British banks have been getting stuck into China where the communist government has pumped up the biggest debt pile in history. There are entire websites now devoted to empty shopping malls and ghost towns in the Peoples’ Republic. But Mao would be proud: this supposedly communist country is now doing a great job undermining global capitalism.
As the former chairman of the US Federal Reserve, Marriner Eccles, pointed out in 1934, this just can’t go on. “It is to protect them from the consequences of their own folly,” said this anti-communist bank regulator, “that we should take from [the wealthy] a sufficient amount of their surplus to enable consumers to consume and business to operate at a profit. This is not soaking the rich; it is saving the rich.”
That should be nailed to the door of the Treasury. How come our legislators seem to have forgotten this wise advice? Their amnesia has a lot to do with addiction to the financial equivalent of crack cocaine: debt. As income and taxation dwindle, consumer and government spending in the past three decades, has been largely based on borrowing.
Indeed, the amount of private debt has increased dramatically since the 2008-12 crash. The total global debt pile has increased by over $50 trillion since the crash, almost as much as the values of all the stock markets in the world. Whisper it, but we are all turning Greek.
What do we do about it? Above all, what can Scotland do – a small country on the edges of the global financial system? As automation destroys jobs, other means must be found to recycle wealth and replace lost incomes. But it is very difficult to do this in isolation.
Of course, a good start might be to stop handing millions to employers like Amazon who have avoid taxes. Promoting the living wage also helps to spread wealth a little more widely, and the Scottish Government’s record in promoting new job growth is not bad, as last week’s unemployment figures demonstrated.
The SNP say that if Scotland had control of taxation and the economy, and if the activities of the department of Work and Pensions were devolved, Scotland could move in the direction of countries like Sweden, which has just introduced a six-hour working day. The UK Government has gone in the opposite direction, even opting out of the EU working time directive which limits work to 48 hours a week.
But it would be naïve to think that Scotland alone could take on the masters of the universe – the global corporations and financial interests that can shift their businesses at will to whichever country is prepared to offer them the lowest taxes and the cheapest labour. Next to climate change, unwinding global inequalities of wealth will be one of the defining tasks of the coming generations.
We are entering an era in which work, as we understand it, has become almost expendable. Capitalism is creating an economy that doesn’t need people, with machines that can replicate even quite complex administrative tasks. Meanwhile the wealthy occupy a parallel universe of pure finance based on the recycling of debt. It is a doomsday machine that even its own advocates at Davos realise is heading for disaster. We can only hope that governments find a means to save them from themselves.