The Next Financial Crisis

It is now 11 years since the global financial system teetered on the brink of collapse and governments were forced to intervene to prop up it up. These interventions took the form of governments effectively guaranteeing all counterparty risk across the system. This secured the continuation of banks’ deposit taking and business and personal credit activities (i.e. their core banking business) but most of the risk guaranteed by governments arose from their speculative activity and this was also allowed to continue largely unchecked. Furthermore, the cost of this intervention by the subsequent Tory government in the UK, with the help of their supine Lib Dem collaborators, fell on the shoulders of UK workers and their families – the Tory strategy of ‘austerity’ that continues to this day. Meanwhile, following the feeble report by John Vickers in 2011 in which he ducked the opportunity to call for the complete separation of core banking from speculative trading, nothing has been done to reduce the risks being taken by banks “with other peoples’ money” as John Kay aptly described it [I] except for some further, over-complicated and ineffective regulation. Yet without fundamental changes to the ownership, conduct and activities of banks, and without bring the self-proclaimed ‘masters of the universe’ to account, another financial crisis is inescapable. The only question is when it will arrive.

The Croydon Branch of the Communist Party sponsors the Communist University in South London (CUiSL) and has good links with the Communist Party’s Economics Commission. We are currently exploring with both bodies the possibility of conducting a study of banking and banking crises and how the latter can be avoided in future. If you would like to be kept informed of progress and perhaps even participate in this work, please contact us at Croydon@communist-party.org.uk

[i] Other People’s Money – Masters of the Universe or Servants of the People?  John Kay, Profile Books, 2015

 

System Change, Not Climate Change

The government’s Committee on Climate Change (CCC) has finally been awakened from its slumbers by the school kids strikes, Extinction Rebellion demonstrations over Easter and Greta Thunberg’s visit to the UK and meeting with opposition leaders. With the UK slipping behind on its legal obligation to cut emissions by 2032, this is long overdue, but don’t expect too much from it. This is the body that gave the government cover for Heathrow expansion and has remained silent on fracking. Its assertion that the UK could and should lead the global fight against climate change by cutting greenhouse gases to nearly zero by 2050 is welcome, but, as one of its principal authors has admitted, there is no way this can be done without government action. How likely is this?

As the Communist University in South London argued in its discussion paper on climate change [1], there is no known technology that can remove carbon economically from the atmosphere once it’s there. The only known remedy for global warming is to keep fossil fuels in the ground. This cannot be done under capitalism, however many windmills we construct, however efficiently we burn hydrocarbons, however many solar panels we manufacture. There is simply too much profit to be made from pumping the known reserves of oil and gas, not to mention those waiting to be discovered when the poles melt as a result of the CO2 we have already pumped into the atmosphere. The capital this profit has created has given the extractive industries a death-grip on governments. It lobbies them, it finances their political parties and their leaders and it appears to be working on the assumption that, assisted by robotisation, the global elite can, unlike the rest of us, survive the threat of global extermination. Gated communities on top of mountains?

System Change, Not Climate Change is a slogan we can rally behind. Society can address climate change, but not under capitalism. As a system it has generated huge economic growth over the last two hundred years, but only at a price, and that price is now approaching the destruction of life on our planet. It’s not government action such as that called for by the CCC that can save the day, it’s changing the system from one whose function is to accumulate capital to one which meets everyone’s needs. That means a planned, democratic society managed for the benefit of ordinary working people. It’s called socialism.

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[1] https://communistuniversity.wordpress.com/2019/01/28/global-warming-a-discussion-paper/

BREXIT and TAX

VAT was introduced in the UK in 1973 as a condition of joining the then European Economic Community, the predecessor of the EU. Changes to the VAT rules require the unanimous agreement of all 28 EU countries. Originally introduced in the UK at 10%, these rules now require a minimum standard rate of 15% with one or two reduced rates, no lower than 5%, for certain specified goods on a pre-approved list. Further reduction in the VAT rate, including the use of a zero rate, is only allowed under EU rules for goods that have been taxed at that lower rate continuously since 1991. It is, therefore, under continued EU membership, a highly inflexible tax, but one not without merits. By requiring firms to deduct VAT paid on purchases from suppliers, it avoids the double taxation problem that arose with its UK predecessor, Purchase Tax. It is, nevertheless, highly ‘regressive’, i.e. it falls disproportionately on those on low incomes and leaves capital essentially untaxed. It is therefore unsurprising that, following the financial crash in 2008, the government relied on VAT to bail out the banks under its austerity strategy. VAT now contributes 21% of all the tax raised, up from 18% in 2009, and the amount raised has increased by 60% since then[i]. VAT has also made no contribution to reducing carbon emissions to help halt global warming.

In its 2017 General Election manifesto, the Labour Party called for VAT to be restricted to its current range of goods and services. However, according to the Communist Party pamphlet on The EU and Brexit – questions and answers [ii] , even this very modest proposal would breach EU rules. The potential for a progressive tax policy after we leave the EU would, however, be considerable and VAT could play a useful part in this. As was argued in From Each According to Their Means[iii], free from the EU we could vary VAT rates to meet policy objectives and give workers rebates paid through National Insurance. VAT could thus be adapted to incorporate a carbon tax along the lines of the fee and dividend model proposed by James Hansen and endorsed by the Communist University on South London in its discussion paper on Global Warming.[iv].

The people have spoken in the EU Referendum. The only vote we need now is a General Election so that the opportunities it opens up, including the reform of VAT, can be seized.

 

Footnotes

[i] according to UHY Hacker Young, quoted in Economia, February 2019

[ii] Available from the Communist Party for £1 plus postage. http://www.communist-party.org.uk.

[iii] Available from the Communist Party for £2 plus postage https://www.communist-party.org.uk/shop/pamphlets/2025-from-each-according-to-their-means.

[iv] https://communistuniversity.wordpress.com

Socialism or death

The Paris Agreement (COP21) in December 2016 is intended to encourage fuel efficiency and develop non-fossil fuels so as to limit global warming to 1.50C above pre-industrial levels. Will it?

The USA has given notice that it will withdraw from COP21 by 2020. This will not help, but the strategy itself is flawed. As the discussion paper on Global Warming from the Communist University in South London (CUiSL), currently in the proof reading stage, argues, catastrophic climate change will only be avoided if fossil fuels are left in the ground. There is, however, no indication that this is happening. According to a forecast from the International Energy Agency, annual fossil fuel consumption is set to increase by the equivalent of 82 trillion barrels of oil by 2040[i]. This is 14% more than at present and is forecast despite a forecast increase in renewable and nuclear energy of 67% by 2040. These will still be contributing less than a quarter of our energy by 2040.

This failure to act to halt global warming should not surprise us. As the CUiSL discussion paper also argues, capitalism is simply incapable of addressing global warming. Its rationale is the accumulation of capital by generating profits. Due to market-based discounting, its time horizons are too near, leading it to under-estimate catastrophe in coming decades; there is simply too much profit to be made today and in future from fossil fuel extraction to leave it in the ground; and there is too much capital tied up in fossil fuel extraction to see it written off. Whether or not every apologist for capitalism recognises it, their mantra is “Pump, baby pump”. Ours should be borrowed from the Cubans: Socialismo o muerte (Socialism or death). Cubans use it to affirm their willingness to die to defend their system. We need to adopt it in recognition that our system, capitalism, will kill our grandchildren if we don’t begin to take steps now to replace it with socialism.

[i] https://www.eia.gov/todayinenergy/detail.php?id=26212

 

 

 

Criminal Irresponsibility

Interviewed on the Today Programme today, Transport Secretary Chris Grayling sought to defend the government’s decision to push through parliamentary approval for Heathrow expansion without waiting for the Climate Change Committee to report later this week on the UK’s progress on meeting CO2 emission targets. His reasoning was that

  • By 2050 aircraft would be much more efficient, thus generating much less CO2.
  • CO2 emissions by aircraft were an international responsibility and don’t affect UK targets.

Both arguments demonstrate the government’s criminal irresponsibility in this area. Basic physics demonstrates that, after more than one hundred years of development of aviation, the scope for further efficiency savings is vanishingly small. Don’t take my word for it – refer to the late Professor David MacKay’s book Sustainable Energy – without the hot air which he generously published as a free book which you can download here. The proof you need is in Part 111, section C

The argument that aviation’s CO2 emissions are none of the government’s business is simply risible.

Global warming and its consequences, including both the need and the potential for social revolution, is the subject of a discussion paper being researched and drafted by the Communist University in South London. Go to https://communistuniversity.wordpress.com/ to follow progress or, even better, to register your willingness to participate.

You Cannot Be Serious!

In December 2015 the government signed up to the UN Convention on Climate Change (COP 21), requiring net zero CO2 emissions by 2050 – a cut of 90 percent in the then prevailing level. If there is a new runway at Heathrow, aviation is projected to account for 50% of our carbon emissions by 2050. Does this make sense?

Global climate change is a class issue[i]. A world that ignores COP21 will be very different to the present one. The choices for the working class will not simply be between continued exploitation and social revolution. The risk of total subjugation and extinction could not then be ignored.

Aviation’s contribution to CO2 emission is also a class issue. As we pointed out on 29 October 2016, frequent flyers are predominately drawn from the wealthiest 10% of the population. 15% of the British population who fly three or more times a year account for 70% of all flights. More than half the UK population takes no flights at all.

The response of the Parliamentary Select Committee on Transport to Heathrow expansion which reported today is to call for tougher rules on night flights and a plea to keep costs to flyers down. They are silent on CO2 emission.

Have you noticed how the BBC invariably concludes reports of bad news for the government with an anodyne government rebuttal? Perhaps they will employ this one by a Department for Transport spokeswoman in response to the Select Committee’s report:

“Expansion [at Heathrow] will only proceed if it meets strict environmental obligations and offers a world-class package of compensation and mitigations for local communities.”

A more appropriate response to the Select Committee would be that of John McEnroe to a poor line decision:

“You cannot be serious”.

Footnote

[i] If you are interested in participating in research by the Communist University in South London into this, go to https://communistuniversity.wordpress.com/

Carillion and Marxist Economics

The collapse of Carillion is one of the largest insolvencies experienced in the UK and the biggest ever in the UK construction industry. It puts at risk the jobs of 19,000 employees and an unknown number of employees of its 30,000 subcontractors. In a classic example of the wisdom of hindsight, it will be investigated by the Financial Conduct Authority, who will ask how it happened, the Financial Reporting Council, who will enquire why the auditors, KPMG, failed to warn it would happen, and the Pension Regulator who will investigate how a pension deficit of at least £587m arose before it happened. What these watchdogs should be investigating, of course, is themselves –or rather, they should be investigated by someone else. Quis custodiet ipsos custodes who guards the guards? Parliament needs to face up to its responsibilities and the Parliamentary briefing paper here is a first step – but don’t hold your breath.

Labour’s call for a curtailment of subcontracting of public services and an end to PFI and privatisations is a welcome response to the collapse. It deserves support, but only addresses one aspect of the problem. The real cause of the collapse is capitalism itself, and events like this will continue to affect the lives of millions until the system is changed.

According to neo-classical economics – the only form of economics taught in our schools and universities  – the potential for businesses to fail is essential to ensure that they ‘innovate’. Furthermore, any government action to ameliorate the consequences of corporate failure will result in “moral hazard” – their jargon for the idea that, if businesses knew that governments would bail them out, they would take even bigger risks. The impact on workers is not considered relevant. We can all find other jobs following the collapse.

If economic theories were rejected, or at least modified, when they failed to explain the economy, neo-classical economics would not have survived the 2007 banking crisis. Where was the talk of stifling innovation and “moral hazard” then when the banks were bailed out? Neo-classical economics survived because capitalism survived, confirming that its real purpose is not to guide policy or explain the economy, it is to provide the intellectual basis and justification for capitalism. It remains intact today and still hugely influential amongst social democrats, greens and members of ‘the Labour Party.

Unlike neo-classical economics, Marxist economics has been, and continues to be, subject to rigorous testing and evaluation and this is how it is taught by, amongst others, the Communist University in South London (CUiSL). Teaching by “experts” is foregone and learning by debate and discussion is employed. Students are not seen as mere empty pots to be filled. Instead we learn from each other, always applying the principle “Question Everything”.

CUiSL holds its classes on the third Thursday of every month at 7.30 pm at Ruskin House, 23 Coombe Road, Croydon CR0 1BD. The next class is on 15 February when we will be discussing Marx and Darwin and how their theories continue to interact. There are no fees and no indoctrination. You enrol simply by turning up. If neo-classical economics were taught in this way, we might have avoided the Carillion debacle.

UNDERSTANDING THE WORLD – AND THEN CHANGING IT

The BBC is required under its new Charter to provide “impartial news and information to help people understand and engage with the world around them”. Its failure to do so renders BBC news coverage increasingly irrelevant. It’s now not only Question Time that leads so many of us immediately to reach for the off button. Much BBC news coverage is more likely to increase blood pressure than increase understanding and engagement.

The requirement to provide “impartial news and information to help people understand and engage with the world around them” has, however, prompted the BBC to propose in its Religion and Ethics Review published this week that its coverage of religious issues should be increased and “greater religious understanding” incorporated into its news reporting. Investigative reporting of the corrosive influence of religiously segregated schools in Northern Ireland and, increasingly, the UK mainland would assist this understanding, but that’s not quite what the authors of the Review had in mind.

One problem for the Review was that it couldn’t avoid recognising that an increasing number of people in the UK do not affiliate to any traditional religion. It was in response to this awkward fact that it concluded that the extended coverage it recommends would also have to “reflect beliefs which aren’t founded on religion”. What “beliefs unfounded on religion” the review had in mind was not explained, so one has to speculate. Belief in creationism, that blood transfusion is impermissible  and (I suspect) that the world is flat are all endorsed by followers of some traditional religion. The Review will have to look to belief in flying saucers for truly independent beliefs – or have I missed its endorsement somewhere?  The Review did, however, identify the  target audience for unaffiliated believers: those not engaged with traditional religion who are “spiritual and interested in the big issues affecting them”.

As communists we are most certainly interested in the “big issues”, and not only those that affect us personally. Furthermore, communist philosophy, i.e. Marxism, provides, in our view, the best understanding there has ever been of the world around us. So can we expect to benefit from this envisaged extended coverage by the BBC? Of course not! We will be excluded, ostensibly because we are not “spiritual”. This is correct in the sense that we don’t rely on spirits to understand the world. However, the real reason we will be excluded is because, as Marx wrote, we not only seek to understand the world, we seek to change it. That is the reason the BBC will exclude us; but while it remains the mouthpiece of the ruling class, we would not have it any other way.

The BBC can do what it wants, but if you want to learn about Marxism and how it can help us to understand and change the world, you can join the Communist University of South London (CUiSL) which runs classes at 7.30 pm on the third Thursday of each month at Ruskin House, 23 Coombe Road, Croydon CR2 0BN. In the Spring Term we will be studying eco-socialism. For more details e-mail cuisl@communist-party.org.uk.