How often did the last Prime Minister, David Cameron, say ‘we are all in it together’? It was the battle cry of his austerity plan. We know all too well by now that the truth of it is that many workers, the least well off, are no better off than they were twenty years ago, while the super-rich are, on average, very much better off than they were before the financial crash. We were most definitely not ‘all in it together’.
Post Brexit negotiations take place largely behind closed doors. Prime Minister Theresa May has been in America commencing negotiations with President Donald Trump. The Labour Party has been working very hard to insist on some accountability to parliament, while May insists that she must be left to get on with it in secret and that the aim of all her negotiations is to achieve what is ‘Best for Britain’.
The phrase ‘Best for Britain’ is designed to conceal the very real fact that not everyone is equally affected by changes in economic conditions. Some make untold profits while others may face job insecurity, stagnant wages, unemployment and deprivation. What is ‘Best for Britain’ depends on which part of Britain you are talking about. As always there will be winners and losers.
So what should our position be on winners and losers? The neoliberals argue that we should be happy with inequality because it amounts to both good incentives and justified rewards. Under the neoliberal doctrine ‘losers’ can be justifiably left to go to the dogs because they are the undeserving. All they are good for is incentivizing ‘winners’.
Attempting to intervene in the workings of the market to reduce inequality, is, according to the neoliberals, from a purely economic point of view, unjustified. According to neoliberal theory it involves a ‘deadweight economic loss’ and so is irrational. Even gross inequality should not be tampered with. To do so may be counterproductive.
This is the ‘tough love’ doctrine Cameron and May espouse when they talk of helping the ‘hard-working families’ or the ‘just-about managing’ JAMs. The neoliberal idea is to help the poor precisely by withdrawing help! They might as well say, ‘we will help the poor by insisting firmly that they will get no help at all from us’!
This attitude is ostensibly designed to encourage the poor to stand up and help themselves. The creed is that it is the fault of the poor that they are poor, and the cure is ‘tough love’.
However, we should all know that it is very hard to stand up and help yourself in life if the odds are stacked against you. If ten people compete for one job only one can be successful though all may be deserving, perhaps even equally deserving.
Marxians might say that this neoliberal outlook, this pseudo-religious creed, is an opiate that helps to keep the system in place. Like religion it relies on faith and is virtually unquestionable, even when the theory flies in the face of facts. It keeps the masses acquiescent, by giving them false hope.
The creed is that the super-rich are rich because they deserve to be, and you too could be as rich if you were smart enough and tried hard enough. The evidence contradicts this point of view. Winners in this system are not more productive, cleverer or more hardworking, they simply happen to be winners, perhaps ‘born lucky’ into families rich enough to network with useful contacts, helped to acquire the capital, skills and attitudes to bring success. There are always exceptions, but there are not enough exceptions to alter the fundamental truth.
As Thomas Piketty points out in Capital in the Twenty-First Century, capital is becoming increasingly concentrated in fewer and fewer hands. The return on capital vastly exceeds the return on labour, therefore inequality can be expected to become more and more extreme in the coming decades unless serious mechanisms are put in place to redistribute wealth. This is why Piketty calls for internationally coordinated rates of corporation tax.
International coordination is required because capital is very liquid, it can be transferred easily around the globe. Multinationals are able to relocate profits to wherever tax rates are lowest, and so to play one nation off against another to lower taxation.
This is what Jeremy Corbyn means when he describes the ‘race to the bottom’ resulting in ‘bargain-basement’ economies with a combination of low taxation and poor public services. It is the ‘beggar-my-neighbour’ model of growth that favours the owners of capital while reducing the ability of individual nations to raise taxes in order to fund public services and infrastructure development.
Rather than working together internationally nations seem to be set on a path of increasing nationalism, but then it follows that competition between nations will reduces the overall capability of taxing multinational conglomerates. Nationalism will ultimately fail us all.
The political will to change this ‘race to the bottom’ strategy is absent because the owners of capital also control the instruments of political power. What we have in many economies today is not capitalism but corporatism. The newly elected American President was elected on a mandate to replace the ‘establishment elite’ in government with one that more appropriately represents the interests of ‘ordinary people’, but Trump has appointed a cabinet of billionaires into high office. The financial establishment elite is firmly in power in the USA. As Joseph Stiglitz puts it in The Price of Inequality, democracy is threatened by economic inequality.
It looks very much as if it is indeed true that those with the most dollars are those with the most political power. If capital has power it will be used in its own interests and not in the interests of workers, so to counter this we need organisations to represent and protect workers’ interests.
Capital makes a return when combined with labour. Labour does not receive its full share of what it produces because capital extracts ‘rent’ (unearned income). In a corporatocracy it is all the more important to have a government that acts in favour of the economy as a whole, in the interests of the workers not just the super-rich.
Marx would say that capitalism carries the seeds of its own destruction. Inequality sucks demand out of the economy. The solution for the capitalists is debt-fuelled consumerism, but this is inherently unsustainable. ‘Need’ for goods and services is there, but it is not backed up by the ability to pay for them because, in the pursuit of high profit rates, wages have been squeezed down to the bare minimum for subsistence.
A neoliberal expansion programme would not seek to enhance wages and living standards or to tax fairly to fund development. It would simply look to further squeeze wage costs and find ways to further subsidise corporate profit-taking. This will do nothing to help raise the standard of living for most people.
Demand is so weak that profits are drying up. The owners of capital are now looking to government to give them a return on their capital. Because we now have the twin crises of low wages and low demand alongside debt fuelled consumer spending we hear cries from all sides of the political spectrum calling for an industrial policy.