Saturday, 24 September 2016

Empire Loyalists

Douglas Carswell came in for some stick this week for his erroneous claim that the sun, rather than the moon, causes tides. While the sun does exert a weak pull on the oceans, producing the effect of spring tides when aligned with the moon, the major force behind the swell of the seas is lunar, whch is why high tides can occur at night. What has got lost in the fun is that the original point by Paul Nightingale, that the moon is dominant, was an analogy for global trade. Distance matters as much as size, hence trade with Ireland (5.5% of the UK total) is larger than trade with China (4.5%). While Carswell's critics have seen this as more evidence of the war on expertise, this ignores that while the solar system is unlikely to change in the near-term the same does not apply to trade flows. But while Carswell's argument, that an increase in global trade can substitute for a reduced relationship with the EU, may not conflict with the laws of physics, it's not clear how this new state of affairs would be achieved, even allowing that the EU share of UK trade has declined in recent years.

The underlying problem is the idea that trade is essentially a matter of government choice, a belief that has been promoted by both leavers and remainers with their emphasis on trade agreements and the scarcity value of negotiators. The uncertainty over what Brexit entails is interpreted by many as incompetence because it's thought to reflects the inability of the government to make up its mind. It would be better to see it as uncertainty over the nature of the UK economy and thus an admission of the limits of government diktat. Just as the sun can amplify the pull of the moon during a spring tide, so the state can affect trade, e.g. by tariffs or embargo, but the underlying determinant is supply and demand (a point that Liam Fox was clumsily alluding to in his criticism of "lazy" British businesses). It should also be noted that among the levers available to government to boost trade, bilateral agreements are not necessarily the most effective. Investment in technology and infrastructure, to reduce transport costs, can often be more helpful in increasing trade volumes.

What this superficially trivial issue highlights is that trade has once more become a primarily political matter, much as it was in the hundred years between 1840 and 1940. In the postwar era, trade was essentially depoliticised in Western Europe, first by the equation of "open markets" with liberty, i.e. in contradistinction to the communist regimes of the East, and then by the emergence of the EEC/EU as a technocratic project that elevated trade above domestic politics. Whereas trade was once indivisible from foreign policy, it became an apolitical fact of life during the era of globalisation, no more controversial than the weather, which was an example of neoliberal hegemony. The political salience of trade has been on the increase since the late-90s, but this has been marginalised as the concern of lefties and paranoiacs obsessed with TTIP and TPP. What the EU referendum vote has done is reintroduce trade to the mainstream of politics, but in a curiously antique form.

It has become clear that the popular understanding of trade, even among politicians who should know better, is stuck in the past, hence the ready recourse to tales of swashbuckling mercantilism and the revival of trade ties with Australia and Canada. This could be dismissed as popular prejudice, but the condition of public opinion is probably more down to ignorance about prospective growth markets for British goods and services than racism. Most Brits would guess that China is the largest country by population, because that is emphasised with monotonous regularity by the press (playing on an old fear of Asiatic hordes), but few would guess that Pakistan and Bangladesh are both in the top 10 (let alone that Indonesia is in the top 5), essentially because media coverage of those countries is largely reduced to terrorism and natural disasters, which leads us to underestimate the size of their middle class and thus their spending power.

Fewer still have are aware of the gravity model of trade - i.e. that Australia is a poor prospect because it is both far way and has a population smaller than North Korea - even though this is one of those elements of economics that precisely coincides with fabled "common sense" (unlike, for example, the fallacy of the household budget analogy). What is stronger than common sense is nostalgia, which is why the belief that we can re-establish the trade ties of an earlier era, rather than make nice with the Chinese, is a more attractive proposition to those who advocated Brexit. This is usually expressed as a revival of the Commonwealth, but it's clear that what many advocates are lusting after is the revival of the British Empire, albeit in an informal arrangement in which the City and sentimentality are favoured over the military.This is not merely an attempt to ignore the tide of history, but a denial of the reality of the historic ocean, i.e. the nature of that empire.

The colonies were not the UK's chief trading partners during "peak empire" in the late nineteenth century. Continental Europe, then as now, was a more important destination for British manufactured goods, while the Americas were far more important in terms of raw materials (e.g. cotton from the USA and minerals from the South). At the apogee of 1910, the empire accounted for only 35% of UK trade, which was little advance on the 30% it accounted for in 1820. In part this reflected the very nature of empire: raw materials, like sugar, would be imported at low cost from the colonies, processed and then sold on as finished goods to markets, like Europe, willing to pay a relatively high price. But it also reflected both the distance of the colonies, which favoured high value / low weight commodities (e.g. Australian wool), and their sparse populations, which meant relatively smaller markets for British manufactured goods. If you were going to design an optimal trading area, one where "the sun never sets" wouldn't be your first idea. Proximity, after all, was one of the compelling arguments for joining the original common market.

One reason why the myth of empire trade has proved persistent is that it has, at different times, appealed across the political spectrum. David Davis may once have fancied himself as leader of the Conservative Party, but he is ultimately more the inheritor of Cobden than Churchill and remainers are unwise to ignore the resonance of that in the appeal to leave voters. Free trade was undoubtedly beneficial to the working classes in the nineteenth century, from the repeal of the Corn Laws to the gradual reductions in tariffs combined with cheaper transport costs as the century progressed. According to one study, "almost one half of the total real wage gains recorded in Britain in the late 19th century can be attributed to the impact of international transport cost declines". The consequence of this coincidence was that many Britons accepted the propaganda that cheap food was the product of empire. In fact, Britain's prosperity in the nineteenth century owed far more to the informal empire of the Americas and the willing market of Europe than it did to any special relationship with Australia or Canada.

While free trade arguments remained central up until the 1975 EEC referendum, thereafter the emblematic role of food in politics shifted to waste (butter mountains) and bureaucracy (apocryphally straight bananas), while the middle classes lauded the availability of olive oil in Waitrose as the advance of civilisation. We are now in the era of the Great British Bake-Off's Victoria sponge, which suggests a search for the comforts of old and a hankering after the supposed certainties of "our finest hour" (when the defence of a rotten empire was elided by the fight against Fascism), which you can see peeping through the demand for a "Hard Brexit". But this ignores the lesson of the tides, that our little world is inescapably influenced by others. This is the paradox of Brexit: a desire to take back control has resulted in us relying on the comfort of strangers, but in a far more risky sense than the Canadian Mark Carney envisaged.

Friday, 16 September 2016

Hillbillies and Russians

That globalisation was stuttering before 2008 is now widely accepted, as is the belief that there are structural factors driving secular stagnation and that rising inequality is eroding public faith in conventional politics. One area where these three tendencies intersect is in the movement of labour. Though globalisation was always predominantly about the free movement of capital, the trope of the "global race" diverted attention towards foreign workers ("they took 'er jerbs!"). Likewise, ageing populations in developed nations (and precautionary saving in developing nations) have produced both a "savings glut" that has driven secular stagnation and a political shift towards xenophobic nostalgia (while true, this can be a overplayed: not all the children of the 50s and 60s grew up to be reactionaries). Modern populism has been characterised as antipathy towards refugees, foreign workers and domestic "moochers", which means that the anti-elite revolt (true populism) is little more than rhetoric that masks pro-elite policies (tax cuts for the rich, more military spending, bring back grammar schools etc).

That globalisation has been redefined from a problem of unfettered capital to a problem of labour is one of the more notable ideological developments since the Seattle protests of 1999, and probably has its roots in the management of immigration as a labour-supply issue (and asylum as a form of welfare claim) in the mid-90s. What neoliberals failed to grasp was that this framing would lead to a popular belief that the damaging volatility of international capital could be ameliorated by tougher immigration controls, which was a strand of thought that ultimately led to Brexit. While the belief that the fundamental problem of political economy is labour might appear to be a characteristic of neoliberalism (like classical liberalism), i.e. laissez-faire for capital and coercion for labour, it is at heart the fundamental conservative premise that underpinned the pre-democratic age of hierarchy and privilege: labour unconstrained by tradition and social obligation is dangerous. Liberalism is simply a rationalisation of this prejudice for the era of representative government.

This focus on labour, and in particular the need for it to follow the dictates of capital, has produced two notable strands in recent conservative thought in the US, one optimistic (labour can be cajoled) and one pessimistic (this will be traumatic), though neither is particularly original. Both have analogues in the UK, from The Economist recommending the abandonment of northern towns to the belief that Brexit was the revenge of the "left behinds". The optimistic case is advanced by Tyler Cowen, author of The Great Stagnation and Average is Over, who is arguably more of a progressive (i.e. an economically and socially liberal) Republican than a conservative, though he is unquestionably one of the right's more interesting thinkers. His view is that globalisation is not dying but shifting focus: "Globalization typically is defined as the movement of goods, services, ideas, labor and investment across national borders. But many nations lack integrated economic relations within their borders, and thus they could reap high gains from trade by opening up internally. This is happening, and its logic very much resembles that of globalization".

The examples he uses are the subcontinental-scale internal markets of China and India. There is an obvious echo here of the functionalist theories of 19th century development in the USA and Russia, which emphasised the benefits of import-substitution (i.e. tariffs) to protect national producers and grow domestic markets, combined with a laissez-faire attitude to internal capital allocation and state investment in infrastructure (e.g. railways) to exploit economies of scale. The US was a success because it repressed and dispossessed "backward" forms of capital, from Native Americans who refused to fully exploit land to the cottonocracy of the South, as much as it coerced marginal labour, while Russia failed because the aristocracy and other socially conservative forces exerted too great a dead weight on liberal progress. The consequence in the US was the Progressive Era, which attempted to ameliorate the social damage of laissez-faire and prepare US industry for integration during the first wave of globalisation. In Russia, the consequence was first bourgeois and then proletarian revolution.

Cowen naturally ignores such Trumpish policies as tariffs and walls in favour of liberal ones such as the removal of internal barriers and encouraging the Internet to create national markets, but he concedes that national economic integration will probably lead to more political nationalism, which is an echo of the functionalist orthodoxy with respect to those other coming economic powers of the late 19th century, Germany and Japan. To allay any fears, he holds out the prospect of a further internationalist turn: "these stronger and better integrated political units probably will grow in wealth and economic sophistication, and in due time that will give us more globalization yet". The problem with this hope is that the success of the USA was atypical and largely dependent on favourable geopolitics, notably its ability to supplant the UK as the financial hegemon in Central and South America after WW1 and Spain's inability to resist US expansion in Cuba and the Philippines. China and India have more challenging backyards.

What is implicit in Cowen's assessment is that labour mobility will increase within national borders even as - indeed because - it decreases internationally. We have probably passed the peak of labour mobility in Europe, North Africa and the Middle East, though perhaps not in sub-Saharan Africa or South East Asia. What is clear is that future military (or covert political) interventions in developing nations by Western powers will be more cautious because of the potential blowback in terms of refugees (this may turn out to be the chief legacy of Cameron's ill-advised Libyan adventure). The point is not the actual impact of the refugees themselves (European governments remain discreetly keen on importing youth to offset demographic ageing), but the negative impact of media coverage on domestic politics, which has steadily grown since the Balkan Wars and has now become systemically destabilising (see Brexit).

The idea that native labour needs to "get on its bike" is hardly new, but the prospective turning-off of the tap of immigrant labour has made it more politically salient for those conservatives who see the fundamental issue of political economy as the provision and control of the workforce. While the classical liberal view is that labour is innately indolent due to a lack of moral development, the pessimistic conservative view is that labour is fallen. In other words, it is naturally virtuous but has lost its way due to bad influences and its own weakness. Even though many US conservatives who adopt the latter view are evangelicals, this is an essentially Catholic interpretation in contrast to the liberal's Protestant (even if secularised) perspective. While the liberal interpretation emphasises economics and personal agency (Mill), the conservative interpretation emphasises culture and the organic nature of society (Burke). A good example of the latter, and the tensions it gives rise to, is J D Vance's Hillbilly Elegy.

The author (in a piece for The Guardian) outlines this shift in perspective: "No one doubts that globalisation and automation have disproportionately had an impact on the white working class and no responsible politics should fail to appreciate and address that fact. Yet our neighbourhoods and our communities create certain pressures and instil certain values that make it harder for our children to lead happy lives". One reason for Vance's popularity among the commentariat is the desire to locate a cultural explanation for the rise of Donald Trump. Though there is ample evidence his support is largely mainstream Republicans (older and more affluent than the average voter), there remains an appetite for tales of how the white working class, battered and bruised by globalisation and the advance of minorities, has been seduced by the Pied Piper of Queens.

Vance obliges: "Many in the US and abroad marvel that a showy billionaire could inspire such allegiance among relatively poor voters. Yet in style and tone, Trump reminds blue-collar workers of themselves". The emphasis on style and tone is necessary because there is no substantial identification between moderately affluent evangelicals, let alone financially stressed blue-collar workers, and the famously profane New York real estate mogul and brand-for-hire. Vance considers Trump beyond the pale, but for conservative reasons: "On the right, the party of robust American global leadership now finds itself apologising for a man who apologises for Vladimir Putin even as he scares our staunchest European allies. The Republican speaker of the house, a brilliant, respected leader, regularly repudiates some noxious statement of Trump’s even as he cannot politically repudiate the man himself". (It's worth noting that the house speaker is Paul Ryan, who Paul Krugman famously labelled a "Flimflam man", and part of the Republican establishment that encouraged the policy incoherence and anti-government anger that opened the door for Trump).

For Vance, the attraction of Trump is a mixture of both the promise of rectification (i.e. government interference, though few conservatives will admit it in these terms) and the licence given to resentment. While liberals couch the latter as the bigotry of whites losing their privileges in a multiracial society, conservatives like Vance see it as the result of the erosion of communities and their patronisation by coastal elites. The promise of rectification addresses not just unemployment and poverty but the pathologies (traditionally characterised as "black") that this gives rise to: drugs, welfare dependency and family breakdown. But, for a conservative, the solution must come from within as much as without. The contradiction is obvious, leading to Vance's own confusion: "These are tough, tough problems, but they’re not totally immune to policy interventions.  Neither are they entirely addressable by government.  It’s just complicated". His message to the right is that "we need to judge less and understand more", while his message to the left is to "stop pretending that every problem is a structural problem, something imposed on the poor from the outside".

While it doesn't come out in his Guardian piece (he crafts his work to suit the audience's prejudices), Vance is a man who believes in the transformative power of conservative institutions, particularly in cultivating self-discipline and solidarity. This mainly means the army (he was in the Marine Corps) and the church. His analysis of the role of the latter in developing working class political norms is acute: "They may watch megachurch broadcasts or join prayer circles on Facebook, but they largely avoid the pews on Sunday. Consequently, many absorb the vernacular and teachings of modern Christianity, but miss out on the advantages of church itself. This deinstitutionalization of the faith has occurred alongside its politicization ...  A Christianity constantly looking for political answers to moral and spiritual problems gives believers an excuse to blame other people when they should be looking in the mirror ... Mr. Trump, like too much of the church, offers little more than an excuse to project complex problems onto simple villains".

The fundamental issue that Vance is struggling with is the way that capitalism first creates and then destroys communities ("All that is solid melts into air"). His own family - "hillbilly transplants" - migrated from Kentucky to the steelworks of Middletown in Ohio. Once the industry declined, so too did the community. While some individuals escaped to postindustrial modernity further afield, most lapsed into what he describes as the "learned helplessness" of poverty. A corrective to this view was provided by Kevin D Williamson from further out on the political right: "Forget all your cheap theatrical Bruce Springsteen crap. Forget your sanctimony about struggling Rust Belt factory towns and your conspiracy theories about the wily Orientals stealing our jobs ... The white American underclass is in thrall to a vicious, selfish culture whose main products are misery and used heroin needles. Donald Trump’s speeches make them feel good. So does OxyContin. What they need isn’t analgesics, literal or political. They need real opportunity, which means that they need real change, which means that they need U-Haul".

The liberal capitalist strategy is to reduce labour to a mobile factor of production, which means that repairing communities like Middletown requires breaking and reforming their social relations as much as relocating them physically. Vance recognises the economic logic of this, not least because his own people moved from Kentucky in search of work, but he knows that this time round there is little chance of preserving their hillbilly culture. His elegy is not just for the steel towns of Ohio and the "hollers" of Kentucky, but also a recognition that while much of rural culture could survive transplantation into industrial towns, it faces an existential threat in the transplantation to a service economy. This is independent of the distance travelled: the service centre of Columbus is nearby but a world away, a postmodern environment in which culture is an ever-changing pick-and-mix of global commodities, like the diverse dining that Tyler Cowen favours. Vance knows that this trauma is likely to reduce his family's already degraded hillbilly essence to little more than a lingering perfume.

The conservative fear (which you can trace back to the Middle Ages in England) is that labour mobility will destabilise the natural order, destroying the social relations that produced working class conservative deference and blurring the lines to the point where there is no easily-recognisable domestic "other" to act as a unifying target. This becomes a greater risk when immigration is constrained because smalltown communities lose even more of their young under the pressure of internal migration to the big cities. As a consequence, preserving "left behind" communities, whether by "bringing back the jobs" through Trumpian fiat or subsidising marginal work through a basic income, starts to look attractive. The capitalist debate is thus being subliminally informed by two versions of nineteenth century history: the aggressive internal mobility of the US and the aggressive internal stability of Tsarist Russia. There is a reason why American conservatives are fascinated by Vladimir Putin over and above the mutual respect of authoritarians.

Wednesday, 7 September 2016

Common People

John Harris had a longform essay in The Guardian yesterday asking "Does the left have a future?". This is a question that has been repeatedly raised since the French Revolution, when the political metaphor of left, right and centre was born, which ought to be a clue as to the answer. Though he eschews the bitterness of Nick (What's Left?) Cohen, Harris is another representative of the school of liberal thought that castigates the organised left for having betrayed "the progressive cause". If Cohen takes inspiration from George Orwell's contempt for hypocrisy and muddled thought, Harris is inspired by his romantic patriotism. As the leading chronicler of Britpop, this should come as no surprise. Led astray by nostalgia, Harris's thesis suffers from the sort of muddled thinking that Cohen would take great pleasure in ridiculing. The most obvious muddle is his belief that "the left" and the Labour Party are interchangeable.

One of the problems of longform journalism is that in its search for human interest it substitutes anecdata for sociology. Earlier forms of state-of-the-nation writing, such as J B Priestley's English Journey, would sculpt human cameos to fit a didactic theme, but it was understood that this liberty would be supported by hard data (see Orwell's painstaking record of household costs in The Road to Wigan Pier). In the era of video, what we get is selectivity and soundbites. The derision of experts is not some novel invention of the right but the culmination of structural biases in the media that have elevated the personal and trivialised data. Investigative journalism is expensive and most media "data analysis" originates in marketing and PR. As The Guardian's go-to guy for video vox-pops, Harris has become notorious for his inability to find any voters happy with the Labour Party and his indulgence (in the spirit of "understanding") of ignorance.

For example, Harris tells us of a visit to Merthyr Tydfil in 2013: "Outside the town’s vast Tesco, I spoke to two retired men, who understood what had happened to Merthyr as a kind of offence to their basic values. In the past, one of them told me, 'a man wanted to be a working man: he didn't want to be in here, stacking shelves'". Stacking shelves or factory drudgery have always been more typical (if less emblematic) of working class employment than rolling steel or hewing coal, as Harris should know from the biographies of musicians (e.g. Jarvis Cocker worked in a fishmongers). His acceptance of clich├ęs is reinforced by a reluctance to challenge wonky logic: "In the bellwether seat of Nuneaton, two women told me that Ed Miliband would probably win the election because 'all the people on benefits' were going to vote for him". It doesn't seem to have occurred to Harris to ask these women how they imagine the Tories ever get elected.

Harris believes "The western left faces three grave challenges, which strike at the heart of its historic sense of what it is and who it speaks for. First, traditional work – and the left's sacred notion of 'the worker' – is fading, as people struggle through a new era of temporary jobs and rising self-employment, which may soon be succeeded by a drastic new age of automation. Second, there is a new wave of opposition to globalisation, led by forces on the right, which emphasise place and belonging, and a mistrust of outsiders. And all the time, politics rapidly fragments, which leaves the idea that one single party or ideology can represent a majority of people looking like a relic". You might think the third challenge was "fragmentation", but the sub-editorial gloss is: "the disruptive force of globalisation, the rise of populist nationalism, and the decline of traditional work". This rejigging points to the confused nature of Harris's claim as much as The Guardian's determination to yoke populism (i.e. anti-elitism) to rancid nationalism.

The idea of "traditional work" is ahistorical. Jobs are constantly changing, both substantially and incrementally. This, after all, is the orthodox reason why we shouldn't fear automation: new jobs will spring up as a result of new demands while technology (and ideology) requires everyone to "adapt or die". Rather than acknowledge his own nostalgia, Harris projects it onto the left: "Supposedly radical elements too often regard deep technological shifts as the work of greedy capitalists and rightwing politicians, and demand that they are rolled back" (he cites no examples, but the Luddite smear rarely does). On his second claim, the political right is not leading a "new wave of opposition to globalisation" but replacing the left's long-established critique of the free movement of capital with a critique of the free movement of labour. This diverts popular anger into a cul-de-sac, as can be seen in the current confusion over the meaning of Brexit. Globalisation is not impeded by xenophobia but by capital controls. Harris's third theme, fragmentation, is less of a challenge and more of an opportunity, as will be seen shortly in his prescription.

Harris's thesis rest on an apocalyptic interpretation of recent history: "an atomising, quicksilver economy ... has fragmented people and places so thoroughly that assembling meaningful political coalitions has begun to appear almost impossible". This is typical of a strand in liberal thought that over-states the revolutionary impact of capitalism in order to insist that proven approaches are no longer viable. Whatever else it may presage, the growth of the SNP and UKIP suggests that political parties as vehicles for change remain in rude health. Harris is sceptical of any political enthusiasm on the left, dismissing Podemos, Syriza, Bernie Sanders et al as "an expression of protest and dissent [rather] than a sign of the imminent acquisition of power". This attitude reflects the technocratic and elitist interpretation of politics that he elsewhere criticises New Labour for. His suggestion that nothing can be done in the political realm because of the conditions of modernity is little more than bog-standard neoliberalism. The sentence quoted at the start of this paragraph could as easily appear in a Silicon Valley pitch to upgrade democracy to crowdsourcing.

The centrepiece of Harris's thesis is that the Labour Party is a volatile alliance that is now breaking down because of irreconcilable differences (a bit like Oasis). Of course, this same rupture has been predicted ever since the party was formed. The sociological reality is that Labour's base has shifted and reconstituted repeatedly over time (and far more so than other political parties because capitalism demands greater changes of labour). Harris presents the current cycle in this process as an unbridgeable divide: "the rising inequality fostered by globalisation and free-market economics manifests itself in a cultural gap that is tearing the left's traditional constituency in two. Once, social democracy – or, if you prefer, democratic socialism – was built on the support of both the progressive middle class and the parts of the working class who were represented by the unions. Now, a comfortable, culturally confident constituency seems to stare in bafflement at an increasingly resentful part of the traditionally Labour-supporting working class".

This is a variant of the fashionable dichotomy of "cosmopolitans" and "the left behind".  It's a reductive caricature that excludes the majority of the population (who are in work and not in London) and obscures the reality that globalisation is no respecter of class. Casualisation and insecurity have affected many more than just "traditional workers" - that was the whole point of "we are the 99%". Likewise, we need to remember that many of the working class voters attracted to UKIP were previously neither trade union members nor Labour voters. We have always had working class Tories. Harris persists with The Guardian's favourite anti-Labour line of recent years, warning that "Arron Banks is said to be mulling over a new party that might capitalise on the support for Brexit in working-class Labour areas and deliver them a new political identity". Not only is he forgetting that UKIP couldn't topple Labour at its pre-referendum peak, but he is subscribing to a theory of politics as elite-managed branding ("deliver them a new political identity") that rejects working class autonomy.

Harris finally gets to the point when he considers the prospects of electoral success: "There is a rising recognition, among both former followers of Blair and alumni of the traditional left, that Labour’s old majoritarian dreams are probably finished – and that it should finally embrace proportional representation and build new alliances and coalitions. This change would probably trigger a split between the party’s estranged left and right, and thereby bring Britain into line with the rest of Europe, where the left’s crisis is highlighted by a tussle between traditional social democrats and new radicals". Once more he undermines his own case, citing "the 1930s, when the aftershocks of an economic crash saw the left pushed aside by the politics of hatred and division". In the UK, Labour was marginalised by the MacDonald split (the hatred came after) and the National coalition. In Germany, proportional representation split the left while conservative miscalculation handed power to the Nazis. The idea that PR is the solution is both naive and underwhelming.

What we can deduce from Harris's confused essay is that liberals still haven't come to terms with 2008. They remain wedded to the neoliberal idea that the market is the best mechanism for making decisions, even if it must be created and expertly managed (much as the London music press cultivated Britpop). The resulting political belief is that democracy must be governed by an enlightened elite who can resist populist pressure to bypass the market's logic. This is not because liberals are in denial about the market's "imperfections" but because they accept (in private) that wealth inequality, economic redundancy and social atomisation are a price worth paying for the preservation of the liberal order. All 2008 has done is strip away the messianic enthusiasm of "high neoliberalism" to reveal the underlying conservative pessimism about human nature. Nowhere is this more evident than in the liberal patronisation of the Labour Party, resting as it does on the twin beliefs that the working class is a foolish mob and that anti-establishment party members are driven by malice or delusion. This has been the essential critique of popular politics (and the role of "agitators") since the Putney Debates.

The institutional purpose of the Labour Party has always been to restrain the wider Labour movement, usually by exploiting the "realities" of the Parliamentary system to moderate demands, and to channel autonomist initiatives into the safe embrace of state control. So long as workers seek to organise, there will be a Labour Party, and that means an ongoing struggle between the more radical "shopfloor" and the managerial class. The "Corbyn phenomenon" reflects two developments, but ones that suggest a further evolution of this relationship rather than a terminal rupture. First, the ongoing disruption of the workplace (the decline of unions and the growth of precarity) and the erosion of civil society by the market (e.g. local authority privatisation) means that the party is increasingly the only medium through which workers can organise for political ends. What is sociologically significant about the membership growth is not the return of "old Trots" but the arrival of young workers, even if they are dismissed as "cosmopolitans" enraged by tuition fees and mortgage affordability.

Second, the failure of the PLP and the party executive to bin the New Labour model of a technocratic vanguard and a neutered membership has undermined their ability to moderate the emboldened CLPs. The doubling-down of authoritarianism, no less than the hysteria over antisemitism and misogyny, is symptomatic of an intellectual void. It is as counterproductive as it is absurd (a party that refuses to accept converts). There is much irony here. The UK's first-past-the-post parliamentary system has ensured that the left insurgency has been channelled into conventional politics and traditional parties, despite the calls for a wider "movement". In this sense, Corbyn is a sign of the system's resilience. His tendency to invoke social democracy's greatest hits -  i.e. things proven to work, like a nationalised railway system - has meant that attacks have avoided policy and focused on the ad hominem, but this only obscures the relative modesty of the left's ambitions and means that policy shortcomings aren't interrogated.

The historian Charles Maier makes a good point about the collision of social and institutional change: "although Marxist political economy argued there were long-term social classes generated by capitalism, we live in a world where coalitions of interest form and reform; they are fluid and evolve. How can we coherently discuss the conflicting interests in the economic system if we see no social agents incorporating those interests? The sociology underlying political economy must be one of processes, not unchanging populations". John Harris's fundamental failing is that he cannot envisage the Corbyn phenomenon in process terms, as evidence of the evolution of conflicting interests rather than institutional dissolution. He cleaves to an antiquated image of the British working class as an unchanging population of formerly-skilled workers laid low by deindustrialisation and social conservatives suspicious of outsiders and elites. Just as Britpop tried to reimagine the 60s, so Harris (more so that Corbyn) seems determined to view the present through the prism of the 80s.

Thursday, 1 September 2016

The Sound and the Fury

The sight of the Irish government furiously rejecting a potential windfall equivalent to 28% of its annual tax revenue is bizarre enough, but the horror of the American government at the prospect is even more amusing when you consider its repeated chiding of corporations like Apple for holding profits offshore, beyond the reach of the US tax authorities. The explanation for the former is simple enough: Ireland's fear that upsetting Apple would be bad for business. The explanation for the latter is more interesting: that Apple (along with other companies) has been in talks with the US government over the repatriation of profits for some time and the European Commission's intervention risks queering the pitch. This is less about the EU grabbing tax revenues that would otherwise accrue to the US Treasury (fines by foreign states can be offset against US tax) and more about the PR laurels. Given that the EC's Apple ruling will be appealed, and could take years to resolve, the fury was clearly about the timing of the announcement.

According to Tim Cook today, "We provisioned several billion dollars for the U.S. for payment as soon as we repatriate it, and right now I would forecast that repatriation to occur next year". Apple aren't in the habit of making up policy on the hoof, so it is fair to assume that discussions were at an advanced stage but embargoed until after the November presidential election. While it is likely these discussions have been bi-partisan for form's sake, I suspect the expectation is that a Democrat will take the White House, so the deal - presumably to reduce or partially exempt the Federal corporate tax rate of 35% -  has probably been cut with friends of Hillary. This is embarrassing for a candidate who has struggled to convince voters that she prioritises Main Street rather than Wall Street, and may even prove too tempting an opportunity for Trump to ignore ("I'd've got a better deal"), which might really queer the pitch for Cook et al.

This domestic US political context has largely been ignored in the European reporting of the issue. In the UK, Brexit has inevitably fouled the air. In The Telegraph, Ambrose Evans-Pritchard produced a masterpiece of paranoid resentment: "Behind the shadow boxing is a strong suspicion that powerful forces in the EU are trying to use state aid probes to break the global dominance of America's technology giants, vainly hoping to nurture its own 'Silicon Valley' behind a digital wall ... The US has in the past played down the episodic outbursts of anti-Americanism, but patience is wearing thin and the strategic calculus is shifting ... Others question ever more loudly exactly why the US should continue to guarantee the EU's eastern border against Vladimir Putin's Russia if Brussels is behaving in such an unfriendly fashion". I'm only surprised he didn't accuse the French of hating American films and being crap at Rock-and-Roll ("Johnny Hallyday? Pah!").

In Ireland, the concerns are understandably parochial, ranging from the stability of the new coalition government to the "suggestion" by the EC that any windfall be used to pay down the national debt rather than drop a couple of grand of helicopter money on each Irish citizen. Michael O'Leary of Ryanair has predictably taken the populist low road and suggested that rather than appeal the ruling the Irish government should just tell the European Commission to "Fuck off". This is a man whose entire business is dependent on the single market and the prevention of disguised state aid to national carriers. For all this, there is little serious concern that the ruling will jeopardise Apple's presence in the Republic (this line is mostly pushed elsewhere in Europe). As The New Yorker noted, the country's tax regime is attractive enough without a sweetheart deal, not to mention its other advantages: "Ireland’s primary global sales pitch was that the country offered multinational firms a twofer: you can get your tax avoidance and a qualified, English-speaking workforce all at the same time".

The basis of Apple's and the Irish government's criticism of the Commission is that it has exceeded its competency by interfering in a member state's tax policy. This is ironic because the Commission's case is that the Irish state has exceeded its competency by employing tax as a means of favouring a specific corporation, so undermining the single market. For many, this points to the dispute being part of the ongoing tussle for power between national states and the federalists of Brussels: "Although it catches the headlines, the US’s spat with the EU is a sideshow. This is another instalment in the fight for supremacy between the EU institutions and the member states". This is a view that is more popular in the UK than elsewhere, and little more than a polite liberal form of the Telegraph's bonkers argument ("It is a reminder of why Britain must remove itself entirely and forever from the clutches of this Caesaropapist construction" - Evans-Pritchard may not be au fait with Borgen but he evidently remembers I, Claudius and the 80s version of The Borgias).

In fact, the struggle is a more fundamental one between capital and the state in an era when the latter must increase tax revenues from capital or face civil unrest in the face of the pincer movement of median wage stagnation and increasing welfare bills. Capital has had a long period of dominance in the political economy of the West, benefiting from the breaking of organised labour in the early 80s, the taming of inflation, the leverage of financialisation and the scale economies and arbitrage of globalisation. But the consequence is that the state is running out of ways to raise revenue as the tax receipts from personal income and consumption decline relative to demand (exacerbated by precarious employment and ageing). This is why corporate tax avoidance and wealth taxes have moved back onto the agenda since 2008. It is not dangerous lefties who are arguing for this but centrists who recognise that "shrinking the state" is a pipedream and that austerity is counterproductive.

The strategies that were employed in the postwar era to reconcile capital and democracy have now run out of steam, leading to a palpable friction. The reason increased public debt is not attractive at negligible interest rates is because the state has traditionally relied on inflation to erode the capital value (without this, a time of unsustainable repayments will eventually arrive). The reason further financial deregulation (or proxies like helicopter money that deliver a monetary as opposed to a fiscal stimulus) is not attractive is because a precedent was set in 2008 that the financial sector will be bailed out, so prudential lending cannot be relied on. Reversing anti-union legislation will help some groups boost wages, but the structural change in the economy since the 80s means it will help too few to boost incomes generally. Globalisation is slowing, not just in terms of the free movement of people but the movement of goods, services and capital. Part of the rationale for Apple repatriating their profits is that they lack sufficient investment opportunities abroad.

This brings us to the underlying issue of distribution. As Jolyon Maugham notes: "what Ireland has been doing is giving a subsidy to Apple’s shareholders with other people’s money ... taxes that would have been paid elsewhere in the single market". In other words, the Irish government's tax policy (for which it claims national competency) affects tax revenues beyond its own border. Specifically, it disadvantages taxpayers in the EU countries where Apple sells goods and services but pays little or no tax. Those citizens have to make up any shortfall in national revenues through higher income tax or VAT. This is ultimately to the advantage of Apple shareholders, many of whom are wealthy non-EU citizens. One could go further and point out that Apple's outsourcing of production to China has allowed a greater share of profit to accrue to capital than labour. When we talk about growing inequality, we talk about maldistribution and the abuse of power.

Globalisation rather than political conviction has been the chief driver in shifting the burden of taxation from corporate income to personal income and consumption. While the shift reflects both ideology (that business owners should be encouraged as "wealth-creators") and the relative ease of raising tax from pay and sales compared to business profits, the key factor has been the expanded opportunities offered by the free flow of capital, goods and services. It is the successful WTO rounds and the construction of the EU single market, combined with the explosive growth of digital markets, rather than the genius of the tax-avoidance industry or the connivance of politicians that has delivered superior benefits to Apple and Ireland. The European Commission's intervention (like that planned by the US Treasury) will not reverse this, but it will target egregious abuse both to increase tax revenues and assuage electoral anger lest a more fundamental redistribution gains popularity. Ultimately, this is a spat over political credit.

Friday, 26 August 2016

Nationalise This

Jeremy Corbyn's travails on the Train to Newcastle (aka #traingate) have pushed the question of rail privatisation back onto the political agenda. Predictably, the media have fallen over themselves to hold this up as either evidence of his unfitness for office or as a foolish whimsy that no sane person would contemplate. Being thoroughly bored by the issue - not least because popular opinion hardly needs convincing of the case for nationalisation and the damage to Richard Branson's business interests is negligible - I thought it might be more interesting to first look at the case for nationalisation elsewhere. Rather than adopt a socialist justification, i.e. that the means of production, distribution and exchange should be commonly owned for ethical reasons, I'd like to make the case for three nationalisations on purely pragmatic grounds: what is most efficient and effective.

First up is car insurance. You cannot legally drive without insurance, so you do not have the option to not buy, i.e. to decline to enter the market, which is supposedly a characteristic of free enterprise. This means that car insurance cannot be presented as a preference: a choice that demotes other potential expenditures based on the utility that accrues to the individual consumer. Given that you must enter the market under duress, the advertising and management overheads entailed in convincing you to choose insurer A over insurer B (or market comparison site A over market comparison site B) are largely waste. They do not grow the total market or persuade consumers to substitute car insurance for apples or golf clubs. They merely distribute a fixed revenue between different suppliers.

Premiums must reflect the ratio of possible claims to pool value (i.e. the sum of all premiums). The lowest ratio comes with the largest possible pool (this is simply maths), so premiums for a single national scheme would be lower, ceteris paribus, than two or more private schemes across the same population. A single national pool would have lower overheads, not just due to reduced expenditure on advertising but because of management and administrative efficiencies - i.e. scale effects. The argument that a public body would be less efficient than private provision is ideological and depends on both the theoretical incentive power of consumer market exit (which is not possible if insurance is mandatory) and the belief that supplier competition will reduce overheads, despite these ultimately reflecting pool size.

The second candidate for nationalisation is pharmaceuticals. This is not a free market today, if only because the state sets priorities for drug development through public health policy, IP licensing and the law. In a truly free market, improved strains of cocaine would be an R&D priority, simply because these would produce larger profits for pharmaceutical companies than a vaccine for the Zika virus. Having seen the poor job that incentives do in encouraging research in areas that the state prioritises (e.g. antibiotics vs chronic drugs), the state is increasingly demanding of the pharma sector (e.g. the recent UK O'Neill Commission) and may even become coercive. While the history of Big Pharma has obviously centred on large private firms, it is worth remembering that most of these have worked hand in glove with the state, both in terms of R&D (e.g. exploiting academic labs) and securing sweetheart deals for national monopolies or (in the UK) NHS supply.

The conflict between the common good and privilege is gradually leading to a distinction between "societal drugs" and "consumer drugs": vaccines for children on the one hand, expensive cancer treatments on the other. What is likely to happen is not that Pharma as a whole will be nationalised but only that part of R&D dealing with "societal drugs" - i.e. the high-cost, high-risk element that business might be happy to avoid. The manufacture of societal drugs might still be outsourced to Big Pharma, essentially through the issue of "patents" in the original sense of that word, but the falling cost of drug manufacture means that production would probably shift to developing nations, which is where we're also likely to see the manufacture of "legal highs". The boundary between licit and illicit will become ever vaguer, with Big Pharma increasingly pushing that boundary to increase profits.

The third candidate for nationalisation (and returning us to where we started) is transport. Those who demand the nationalisation of the railways are too modest in their ambitions, not least because they forget that the road network is already 99% nationalised (there are very few private toll roads). Privatised transport "services" are essentially parasitical businesses that make use of public infrastructure, from airlines that depend on a commonly-managed airspace to bus companies that gripe about road tax. While it is possible to present car-hire (whether black cabs or Uber) as a genuine market - i.e. as opposed to a de facto monopoly in which winning contracts, rather than service delivery, is the road to profit - this can only be done by ignoring the public subsidy represented by roads and traffic lights.

The argument for nationalising the railways is not that this will necessarily lead to less overcrowding, cheaper fares and better sandwiches, but that transport is a public good and should be managed to maximise public benefit. This means getting rid of first class carriages (whch increase profit per traveller at the expense of reduced traveller numbers), simplifying fares and advance booking (a major bugbear of passengers), and binning all the corporate branding, affiliate marketing and other bollocks that taints the experience of getting from one place to another. It also means rehumanising the experience of rail travel in the UK, which is less about designating "quiet carriages" or apologising for delays and more about not treating people like cattle.

Despite all the media fluff about Corbyn's supposed hypocrisy and Branson's cheek, what stood out in the video of the Labour leader sitting rather forlornly on the floor while reading a copy of Private Eye was how typical this vignette was of the routine humiliation that all passengers are faced with unless they pay a premium for a reserved seat or a first class ticket. We seem to have become inured to this over recent years, treating an uncomfortable and often unpleasant experience, for which we pay a lot of money both directly and indirectly, as if it were a form of penance or an unavoidable tax (like car insurance). Ending the humiliation is as good an argument for returning the railways to public ownership as I can think of, so perhaps the case is finally more ethical than pragmatic.