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.

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What Regulators Are For

Last week the Financial Conduct Authority proposed as its contribution to solving the housing crisis to “look at the products and markets that are developing to ensure they work for consumers.” This week it was the turn of the Bank of England’s Financial Stability Committee to address the housing crisis. They were, however, no more concerned about the housing needs of working families than were the Financial Conduct Authority. Their concern was with “wider financial stability” which they saw threatened by bank lending to the buy-to-let market. “Wider financial stability” is banker-speak for avoiding another banking crisis. Fuelled by Quantitative Easing, the policy whereby the government prints money and gives it to the banks in the hope that they will lend it to UK industry, the banks chose, instead, to increase lending for buy-to-let by 40% since the 2007-8 banking crash and bailout. This increase has been a major factor in escalating house prices. The Financial Stability Committee is right to be concerned that another banking crisis could be triggered by a collapse in the buy-to-let market, but just like the Financial Conduct Authority, they are focussing on the wrong needs: those of banks and financial services providers, not the unmet needs of working families.

Needless to say, the Financial Stability Committee refrained from suggesting that the government should regulate or restrict bank lending even though it is effectively with our money. The role of a regulator in a market economy is to bestow legitimacy on markets and the accumulation of capital. Protection of ‘consumers’ is very much a secondary consideration and protection of workers completely out of the question. Appointed by ministers but supposedly at arm’s length from the government of the day, their true independence is as fictitious as that of the judiciary and the police. We should not be surprised when they represent the interests of the 1%, not the 99%.

Crisis – what crisis?

The call this week by Lynda Blackwell, Head of Mortgages at the Financial Conduct Authority, for older people to downsize their homes in order to alleviate the housing crisis demonstrates just how out of touch the ruling class have become. Her employer quickly distanced itself from her lame attempt to blame the housing crisis on ‘last time buyers’ refusing to shuffle off to the care home quickly enough but it was unable itself to come up with anything better to solve the housing crisis than to “look at the products and markets that are developing to ensure they work for consumers.” This regulator’s gobbledygook translates as ‘Crisis – what crisis?’ I doubt, however, whether we have heard the last of Ms Blackwell’s analysis. After all, it is already being applied as the bedroom tax in the fast diminishing social housing sector. Ineffective as that policy has proved in solving the housing crisis, it does help the ruling class (or the 1% if you prefer) to stir up inter-generational strife and thereby draw attention away from the real cause of the housing crisis.

It is certainly true that the generation born immediately after the end of the Second World War have been exceedingly fortunate. Benefitting from free education and full employment, they were offered secure social housing to rent or could buy their homes with cheap, tax deductible loans from building societies. The next generation were deprived of access to such cheap finance – the government having abolished the tax relief on mortgages and allowed the banks to gobble up the building societies (the few that remain being forced to adopt the same profit driven strategies). Many in the next generation were, however, also able to build up significant equity in their homes, but this was more the result of escalating house prices than any sustainable policy. For the current generation of young people other than those born into the privileged 1%, conditions are much harsher. While some will benefit (eventually) from inheritance inflated by the sale of their parents’ homes, this benefit is eroded by too many siblings and step-siblings, increases in life expectancy and exorbitant care home costs. In the longer term this benefit too will melt away. For young people today, facing a ratio of national house prices to male average full-time earnings of 5 and average house prices in London of 33 times the annual full time earnings of £7 an hour, the first rung of the so called housing ladder is completely out of reach.

From the perspective of the 1%, this doesn’t matter. Housing is simply a valuable and valued part of their capital. Provided the rest of us can afford to rent in the private sector, however inadequate and insecure this may be, topped up where necessary with subventions to landlords to house those who cannot afford the ‘market’ rent, what’s the problem? These are secure investments, underpinned as they are by interest rates manipulated by an unaccountable Bank of England. Provided the rich on the way to the opera can still step over the homeless or, failing that, have them washed away with Mayor Boris Johnson’s water cannon, who cares?

One way to analyse the mess we are in is to compare it with how things would be done in a socialist society – one on the way to building communism where society is rich enough to meet everyone’s needs and class antagonisms and exploitation has melted away. In a socialist society, housing would be assessed by its usefulness, not as an investment to owners seeking a profit. An adequate stock of housing would be a social priority and provided by collective effort. Security of occupation would be ensured; and democratic control would be exercised by those living in a local community, whether it be a tower block or local neighbourhood. The continuity of local communities and familial ties would be prioritised.

What could be achieved under the existing social and economic structures? A massive programme of council house building, financed, as Jeremy Corbyn has proposed, by a peoples’ quantitative easing would be a start. Tough regulation of the private rented sector and more security of tenure for tenants would help. A ban on foreign ownership of London housing would help. Perhaps most important of all, attention should be given not to “looking at the products and markets that are developing to ensure they work for consumers” as the FCA fatuously proposed but to removing the props that underpin sky high prices in UK property and ensuring that when prices come down we are not asked once again to bail out the banks who were responsible for these prices in the first place.

If this cannot be achieved under capitalism, there is always the alternative solution.