A MANIFESTO FOR ACTION.
Establish collaborative institutions
There are some societies that have gone some way to address the problem of collaboration; where central government acts in conjunction with industry, finance, employee representatives and local government to formulate aspects of economic policy - and some aspects of implementation are devolved to appropriate stakeholders. This avoids the problem of overloading central government with too much complexity. Government acts as facilitator rather than does, which might solve some of the problems identified by free marketeers without the alternative of handing too much to the market.
Making a start will need sowing the seeds of collaboration which could be through such measures as setting up policy forums involving representatives of industry, labour and local government with independent facilitation by academics or trusted senior politicians who have risen above narrow party interests.
Allow government to play a full but appropriate role in the economy
Right wing free market governments and political parties in Britain and the US are committed to reducing the role of government in the economy. In the case of Republican right wing zealots, there is an almost religious belief in unregulated markets, twinned with a hatred of government, which is blamed for most of the ills of society.
They are totally wrong. But the answer does not lie in more government; it lies in radically revising how government acts as a player in the economy and society. There is a crucial role for governments, both national and regional, in participating in economic and social development. National government needs to lead the way in sponsoring fundamental research and new business formation which the markets have not and will not fund. Then, government should lead the way in investing in critical infrastructure building and maintenance. This can be done in partnership with the private sector, but strict controls need to be kept on private sector costs and quality, as, in Britain at least, private - public partnerships have led to big rip-offs by the private sector.
There is a need for better long term investment in industry and enterprise. It has been demonstrated that the banks and investment markets are very poor at funding long term investment. National and Regional governments need to sponsor the establishment of investment banks that will support long term projects, smaller companies to grow and fund start-ups. Government should not control these banks, which can attract smaller private investors and pension funds, but it should underwrite some of the risks to protect small savers and private investors.
If employment terms and conditions are left to the market, health and safety will suffer, and employment markets will become infinitely “flexible”, leading to poor pay and working conditions and more of the misery already suffered by many low paid employees in Britain and America. Government has a role in ensuring the payment of a living wage and avoiding the iniquity of the working poor.
The main point is that government needs to actively participate with other stakeholders in the management and development of the economy. This works well in Germany and Scandinavia. It is an irony that the highly successful German model was designed in part by the British and Americans after World War Two. It is time to copy our own creations.
Create banks that would serve society
The banking system in Britain at least, fails to serve the economy. Such is the poisonous nature of the investment banking culture that new investment banks need to be set up. This is one area where government must take the initiative to stop the investment banks, hedge funds and speculative institutions using peoples' money to gamble on share prices and undermine enterprises by creating deliberate instability.
In addition to splitting investment from retail banking, which will help smaller companies and individuals to manage their affairs better, there is a need for the creation of banks dedicated to the public interest. These new banks will offer opportunities for ordinary savers and pension funds to invest in enterprise. The government should set the charters of such banks, ensure rigorous self- regulation underpinned by statute and give savers a floor, so that their risks are limited. Such savings should have tax advantages for longer term investments.
The new banks should focus on infrastructure investment, loans to smaller organisations and funding high tech start-ups in conjunction with universities and government research institutions.
Establish international banking institutions strong enough to defeat market speculation
Free financial markets are immensely powerful. Global investment banks, currency speculators and commodity traders can move billions across the globe in seconds. Hot money flows in and out of national economies, destroying the stability of whole nations. Such is the magnitude of the global markets that no one country stands a chance of defending its economy from the speculative actions of traders. In order to bring some stability to the global economy, there is a need to establish banks that have the financial muscle to resist speculative activities and if necessary punish the speculators. The European Central Bank and the International Monetary Fund are candidates for such a protective role, but both are inadequately funded and do not have sufficient support from member governments to take on the investment banks, which have become both too big to control and too big to fail. This will require international accord, and presently too many governments are over-protective of their own interests and too short sighted to act for the health of the global economy. It will probably take even more pain for enough statesmen to come to their senses and agree to co-ordinated international action.
Incentivise responsible long term investment to support established big companies
Research indicates that the investment markets are grossly inefficient, very costly and serve both real investors (pension fund members and the like) and the economy more broadly very badly.
The proliferation of financial derivatives and synthetic derivatives has increased the short term tendencies of the investment markets. Most investment is now done on speculation about short term market movements rather than skilful assessment of the long term value of shares. This also. forces the management of companies on the stock market into short term mind sets. Such inefficient and costly investing suits players in the markets who overcharge for hyperactivity and whose basis for charging are completely opaque.
Returns from the stock markets have plunged in the last twenty years from a previous long term rate of 4% - 5%, to about 1% in recent years.
Research has indicated that if investment was based on projected long term value of companies and other investments, then returns would increase, the number of investment institutions would radically decrease (to about one third of the current number), investing skills would increase, costs would reduce and the economy would benefit overall.
The investment markets will not volunteer to change, it will only come if the actual owners of the assets, (sovereign wealth and pension funds) backed by governments, demand it. Governments can assist by rewarding long term investors by significant tax and other incentives. Those who choose to continue with short term speculation should be subject to a transaction tax.
Establish a Living Wage
In both the US and Britain, real wages for the majority of the population have been static for some years, in the case of the US for maybe two decades. Over that period, the proportion of GDP that is claimed by capital - that is, the investment markets and their “agents”, top managers - has increased substantially. This is despite the fact that real earnings of quoted companies has scarcely kept pace with GDP. What have increased are dividends to institutional investors and top managers' pay - at the cost of long term investment, which has been in long term decline.
The most shocking fact is that a substantial portion of the returns to “investors” has in fact been wasted in extortionate fees for poor performance and in speculation by investment banks. The time is ripe to stop this disgraceful waste and divert the proceeds back to long term investment in ”real “ businesses and in reversing the exploitation of a large part of the working populace.
The number of “Working Poor”, people who cannot afford to keep an average family on a job, is rapidly increasing in the UK and US, and possibly other countries. This is a malign state of affairs, especially in times when benefits are being cut. Despite the outcry that followed the establishment of an inadequate Minimum Wage, economic disaster did not follow. Responsible economists calculate that the establishment of a living wage, tailored to regional costs, would actually benefit the economy, by easing social stress, increasing disposable income, stimulating consumption and increasing tax revenues.
Stop corruption in politics - ban political contributions by corporations, banks and rich individuals. Control lobbying and make it transparent.
At the moment, the political systems of many countries, but especially The United States and Britain are corrupted by the money and power of organisations that have no democratic mandate. No politician can hope to be elected to high office in America without a campaigning fund of many millions of dollars - running towards the billions in the case of presidential candidates. This is a very unhealthy situation that creates openings for rich and powerful individuals and corporations to buy special access and without doubt, influence as well. At fundament this is corrupt, and makes the country to the brink of being a plutocracy rather than democracy.
In Britain, individuals and corporations can fund political parties and individual politicians to a much lesser extent than in the US, but there are ways for rich individuals to circumvent the rules, for example, by splitting contributions into many small parcels given to different constituency parties. As with Washington, Westminster abounds with lobbyists, the richest and most influential representing big business; oil, natural resources, media, foods, tobacco, alcohol, pharmaceuticals, banking, hedge funds trade unions and many others. This is a problem for two reasons: one is that money buys access and influence denied to the average citizen, who is thus disenfranchised, and the second is that most of the lobbying happens away from the public gaze and is thus not transparent. In Britain, the behaviour of certain parts of the media, especially some of the organs owned by News International, has been demonstrated to be corrupt and downright illegal.
A key issue is the preservation of freedom, but this must be supplemented by transparency of behaviour by the rich and powerful. It is time that the funding of political parties should be rigorously controlled. This may mean that parties and candidates are mainly funded by the state and not by special interests. This is not a trivial issue; in fact the future of democracy may depend upon it.
In Britain, the Labour Party have said that they could support public funding of political parties, cutting their dependence on the trade unions, making party funding a matter for individual members to opt in or out of. The Conservative Party, which receives a significant part of its funding from finance interests, may not be so enthusiastic.
Postscript - will any of this happen?
As matters currently stand, it will be very difficult to enact the essentials which may bring improvement and better lives for all citizens. Politicians tend to be corruptible, many in the populace at large are ignorant or uncaring about the real causes of the common malaises and powerful financial interests will go to great lengths to block change. So the world may have to wait until matters become even worse until it becomes plain enough that powerful, countries are following the wrong path. In the meantime, these same powerful countries will experience economic decline and further degradation in the quality of social life.
