This is from Larry Elliott this morning and is a massively important insight (so apologies for borrowing it from a fellow member of the Green New Deal group):
The dystopian vision of the future sees Britain displaying many of the traits of a developing country.
Here's what a typical developing country looks like. It is governed by an elite and there is a gulf between rich and poor. The elite extracts economic rents from the rest of the population, then salts them away in tax havens. Developing economies often rely heavily on one commodity, which crowds out activity in other sectors. To the extent that they have an industrial base, it is as an assembly plant for foreign-owned transnational corporations. The country tends to be deficient in physical infrastructure and human capital. All too often the best brains leave the country.
Now consider Britain. The country is dominated by the City, which exerts an extraordinary amount of political power. There is a widening gap between rich and poor. The rich find ingenious ways to avoid paying taxes. Large parts of the country are dependent on the public sector, while the private sector is increasingly dominated by financial services. Industry makes up a smaller and smaller part of the economy and not one world-class manufacturing firm has been developed from scratch since the second world war. Firms complain they can't find skilled labour. The infrastructure is a joke — witness the lack of snowploughs to keep Heathrow open during last winter's snow.
This is not an economy that is going places: it is going south.
The response of the elite is, of course, we must keep banking going: it's all we've got. Actually, it's all they've got.
I see that's not true. Britain's got talent. It's got large numbers of well trained people and some sound structures. It has some competitive advantages. although these are largely crowded out by banking. And that's the key point.
Unless we reform banking.
Unless we stop tax abuse.
Unless we close the tax gap.
Unless we liberate people from the curse of crony capitalism and the corruption inherent in it.
Unless we invest in green new Deal.
Unless we create a national investment bank.
Unless we demand that pension saving go into creating new jobs by putting at least 25% of all contributions into real investment.
Unless we make sure the poorest get more of their pay and, quite bluntly yhe rich get less so that they are not an impediament to hope, progress and innoivation by maintaining the status quo of big finance.
Unless we do those things we won't change this economy and our prospects.
We can liberate the enterprise, energy and wealth creating potential of the people in this country.
But only is we put finance bank in its box.
That's the simple choice we have to make
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“But only is we put finance bank in its box.”
Should that read:
“But only if we put finance back in its box.”?
Yes sorry
Blogging in haste before taking sons to school
Will correct!
“Industry makes up a smaller and smaller part of the economy and not one world-class manufacturing firm has been developed from scratch since the second world war. Firms complain they can’t find skilled labour.”
But surely if the UK is such an attractive place for ‘bad capitalism’ with the ability to abuse taxes and under pay workers, why has there mnot been any development of new industry? It is not from a lack of cheap funding, given the credit bubble that has gone into property. Maybe we need to stop blaming the nasty banks and look at an education system that fails to produce enough global skills. As someone once said, our top university students would smash the top US ones on University Challenge, but five years later would be strggling to survive researching 17th century Italian poetry while the US ones were running their billion dollar tech startups. Nice to have a classical education but not very useful in the global economy.
Nail hit firmly on head I think! Maybe time should be called on funding degrees,such as archaeology and similar which seem to be almost hobbies,rather than a useful qualification-especially when you read of chemistry or engineering department cutbacks.Certainly I feel that if there is money available,science and engineering should be given preference,and of course medicine, if the need is not being fulfilled.Maybe not quite as extreme as the two guys I heard arguing at work,on whether all art colleges should be blown up,and the money used for science! But sometimes I do feel I can sympathize.
Come to think of it tho,both Bill Gates and Steve Jobs dropped out of college-and they certainly generated some industry and employment,but there again, most of the pioneering was done by IBM I think!
Archeology is a remarkably good training in many of the practices of civil engineering….., as my niece has proven
I’m not sure of your logic on that one
The history of art, mind you…
Let’s go over the contours of the economic crisis:
1. The Japanese bubbles of the 1980s led 1990-2002 to a liquidity trap and low growth, which in 1995 became deflationary, 1997 saw a double-dip, and in 1999-2002 a failed attempt to add to the monetary base in the hope it would solve the deflationary trap (bye-bye monetarism) signalled a return of depression economics.
2. The Asian crisis 1997 saw runs on capital flows, Krugman suggested capital restrictions and Siglitz at the Wolrd Bank instigated them. This led to developing nations (especially China) amassing huge reserves of foreign currencies, particularly dollars, to stave off another bungled IMF ‘rescue’.
3. In 21st century the eurozone is created, and massive flows of private capital from German banks go into the peripheral states, sending their prices and wages up far higher than German ones. Spain and Ireland’s government are in surplus, but they are in the thrall of housing bubbles (see below).
4. In the US, where the banking sector has had increasingly large bailouts since the 1960s, first has a dotcom bubble, which bursts in 2002, and then housing bubble which starts in 1997 and pops in 2006. Robert Shiller tells Greenspan in 1996 that the Dotcom bubble is developing and is ignored, and Shiller tells Greenspan that a housing bubble is developing in 2004 and is ignored. Greenspan tells Shiller that Wall Street is diversifying risk, Shiller says it is concentrating risk. Shiller explains that housing bubbles are spread through the word-of-mouth explanation that global capitalism will keep house prices rising, and this idea started in California in the mid-1970s (against the backdrop of stagflation), replacing the old property bubbles which participants would explain using changes to regional factors like the building of a new railway line.
5. Now to the tiny UK. We have a second housing bubble since 1983, which is popped by the Americans, but the irony is that, as Shiller has it, it was in London in 1996 that not only the UK’s but the US’s housing bubble started, that global capitalism was off again to keep those housing prices always going up. So, in conclusion, it was all John Major’s fault.
6. The subprime crisis of August 2007 gives way to the credit cruch of 2008 as the shadow banking sector (which are those investment banks and hedge funds and alike) that were never regulated as banks but were doing the same lending function but with less capital reserves, shrivelled up and the remaining banks couldn’t make up for the loss in shadow bank lending.
7. Politicians and central bankers in the western world worry about inflation and government deficits and debts.
And the solution?
1. Push the inflation targets in the ECB, BoJ, BoE and the Fed up to 4-6% and do everything to hit it.
2. Get a goverment fiscal stimulus from the countries that can borrow cheaply to make up for lost private spending: the UK, US, Japan, Germany, and France.
That is all.
NP3 seems to have got it about right. Those of you with a penchant for amateur dramatics might care to listen again to the Goat Bubble as narrated by Stephanie Flanders to get a fuller institutional picture; although I am not sure how they were able to clear the meat and bones from the runway as the differential increased. The americans still haven’t managed to do that yet in their mortgage market.
One could argue that ARM represents one major manufacturing company, although they manufacture intellectual property that is used worldwide rather than physical things.
To me, an interesting aspect of ARM is that the exploitation of ARM processors within the UK hardly figures at all. I wish I could figure out the reason for that.