I have the following article on the City AM website this morning:
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Jeremy Corbyn is rumoured to be leading in the Labour Party's leadership election. Without doubt he is setting the pace. The result is that words like ‘hard left' are being bandied about, especially by his opponent's camps. But is he bad news for the City?
As the author of some of the economic policies he has adopted (although I am not a member of any political party) let me suggest why not.
First, Corbyn says he wants to clean up the UK's tax abuse industry. He's not alone, but he's suggesting real backing for HMRC to do so. I suggest there is no more pro-business policy in the UK right now.
The transparency he is demanding will help the City allocate scare resources as efficiently as possible and at low risk: that has to be what its clients want. And the tax abuse he wants to eliminate currently creates an unlevel playing field in the UK economy that harms honest business, investment, and long term thinking in UK companies whether large or small. Changing that has to be a good thing.
Second, Corbyn wants growth. Right now we know the growth the UK has is based on a property boom fuelled by hot money and consumer debt. That's the path to another bust.
Surely no one in the City wants that? Instead what Corbyn is offering through his People's Quantitative Easing programme is a stimulus package that does three things.
First it does not add to government debt, because it creates new money, not new debt. Second it does not add to debt servicing costs as a result. And third, it does create specific, new and targeted investment in infrastructure, housing and technology.
This has in turn four obvious knock on effects: the first is a serious increase in business activity and so profits; the second is a growth in the number of well-paid jobs, and so an increase in consumer spending.
The third, as a result of the second point, is an increase in tax revenue and so much enhanced chance of the government's books being balanced.
And last there is the resulting fact that the UK pie is then simply so much bigger that even those who might pay higher rates of tax to appropriately contribute their share to balancing the books may well have more net income as a consequence. That is, after all, the reasoning behind the OECD and IMF argument that inequality must be tackled.
Third, Corbyn argues that the UK's vulnerability to the finance sector should be reduced. He has supported a financial transaction tax for this reason: I would encourage him to embrace a variable rate FTT that automatically increases the rate with the volume of dealing to deliberately counter financial panic and slow markets. And that, I suggest is vital for the City.
We could afford one bail out, and got away with it. Whether we can afford another is questionable. In that case what he's doing is in the City's best interests.
In fact, what Corbyn is proposing should make him the City's best new friend. I wonder how many will recognise that though?
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I was especially amused by this footnote:
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It’s so important that economists like yourself continue to regularly counter the attacks on Jeremy’s economic policies. Unfortunately, the current mainstream economic narrative is that the right wingers are the ‘realists’ when it comes to the economy. Your response is a welcome, rational response. Please continue to speak up and out.
I was surprised to hear the Shadow Chancellor criticising Corbyn’s People’s QE on the grounds it would lead to inflation. Couldn’t the same be said of the current Chancellor’s QE programme?
The current Chancellor does not have a QE programme so not sure I can answer that
The one he had was inflationary which is why what I have suggested is very different
A rose by any other name, the chancellor may not admit to having a QE program however he is reflating sectors of the economy by use of the housing market selling of social housing, the early release of pensions etc. etc. Which is why Service Industries are doing fairly well while manufacturing especially exports are faltering
Whether you love or loathe capitalism, you ought to appreciate that the UK is already half socialist. By this, I mean that we already use cooperation of resources to improve everyone’s lot. The City would not be anywhere near as successful as it is, had it not been for enormous amounts of government spending funded by taxation.
We have a healthy, housed, educated and safe workforce that can travel to workplaces on roads and rails, to buildings powered by a national grid and serviced by water utilities. This has come about precisely because of high levels of ‘socialist’ spending on schools, hospitals, councils, emergency services, infrastructure and so on. The City must be made to appreciate the enormous debt they (and everyone) owe to socialist policies that have nurtured the prosperous society we enjoy.
It is in their, and everybody’s best interest to strengthen our ‘socialist’ taxation and spending policies, in as fruitful a way as possible.
Richard – this is a very valid argument. One thing you don’t do, though, is suggest why it is that the City will in fact laugh in the face of what should, on the surface, be a string of entirely sensible pro-business suggestions.
This is why: I am a tax lawyer, specialising in private client. I see a lot of senior City bods – bankers, private equity types, non-dom investors. And what connects them all is that they are not the slightest bit interested in actually growing a business in the way that would thrive under the much more sensible tax regime you are praising.
Bankers do not build anything. All they do is go looking for businesses that their analysts reckon are undervalued, and try to organise a sale – for which they receive ridiculous fees, leading to absurd bonuses.
Private equity types – as the treatment of Boots (to name just the most stunningly egregious example)shows – actively harm businesses. They take a huge leveraged bet with borrowed money, then create ‘efficiencies’ within a business. In practice, this means selling all the company’s assets and hollowing out what previously ran pretty well. They then transfer all the debt to the company and, hey presto, take any small rise in value leaving a company without assets and with debt. These guys are apparently great businessmen. Well sorry, no they aren’t. They are sharks and asset strippers, who enrich themselves at colossal cost to real businesses employing a lot of people. To add insult to injury, they are able to take advantage of remarkably generous tax breaks (which Osborne is finally sorting).
What these guys have in common with non-doms is that, if they invest in the UK at all (other than in the harmful private equity sense outline above, which is purely a tax-efficient finance trick rather than about building a business), it’s in high-value real estate. That is where an awful lot of bank bonuses end up.
So what you end up with is the City dominated by a pirate class of finance tricksters, who either skim a bit (bankers), borrow a lot and screw business over (private equity) or don’t invest in the UK at all (non-doms) other than to buy expensive real estate.
This means that they all want house prices to keep going up, because it means they will be better off.
There is a lesson here from Keynes, yet again: if you allow the provision of finance to the real economy to become an offshoot of a massive casino, it’s not going to be done very well. He was right, as usual. IF ever anyone has wondered what ‘feral capitalism’ actually looks like, what we have now being widely praised in the City is it – and it ain’t nothing to do with genuine entrepreneurial business, folks.
Tom,many thanks for this, which once again highlights the absurdity of the charge that Ed Milliband was being anti-business in drawing a distinction between “predatory and producer” capitalism.
He wanted what you, and of course Richard, want, namely a system that supports the real economy on the basis of fairness, equity, a level-playing field and real competition by genuine entrepreneurs, not the fixed system run by bogus operators such as you describe.
What a great response – a succinct analysis of what’s wrong with UK “business” & the wealth extractors and a further justification for Land Value Tax!
Perfect summary of today’s City, and why it has become a leech on the rest of the economy – and society.
It wasn’t always like that. And the question no-one has yet really answered is how to get it back – or forward – to making a useful contribution again. There’s a generation of people in the City who know no other way.
Richard,
Why should I as a northern, believe that the North East of England (My home) will benefit from new and targeted investment in infrastructure, housing and technology when nearly of the infrastructure spending during the new labour years went to London?
The Tyne & Wear Metro is operating on 40 year rolling stock, Tees Valley needs better commuter rail, and really the whole of the North needs a lot of investment.
Ask the politicians that
I am not one
If you believe the press you are advising Corbyn on this policy, doubt Corbyn would answer me so thought I would ask your good self.
Corbyn is using this policy and I do know him
I am answering off my own bat
I am not a formal adviser to Jeremy Corbyn, have no formal role in his campaign and certainly no fee. I just come up with ideas
John, you’re right, you need to be wary of anyone promising ‘infrastructure’.
The word covers a myriad of different activities – transport (roads, bridges, rail etc), ports and airports, utilities, communications etc. In itself, it is a meaningless word.
What gets built and where does it get built? The answer (as Richard rightly points out) is almost always political. Resources get allocated to whatever benefits the politicians.
And I’m sure the likes of Balfour Beatty, Amey and that lot would do well under a Corbyn government.
John – here’s one idea: because if Corbyn wins, and goes on to win the GE in 2020, he will be the first prime minister in my lifetime to have succeeded because he tells the truth and actually wants to help people.
The lack of investment in the NE (and plenty of other places that were Notlondon) during the NuLab years is the result of having a bunch of lying metropolitan-focused charlatans at the helm, all of whom had about as much interest in and understanding of the country outside the M25 as Thatcher.
I obviously can’t speak for Richard, but that would be my diagnosis.
Paul Krugman has a piece on Corbyn
http://krugman.blogs.nytimes.com/
Corbyn and the Cringe Caucus.
“What’s been going on within Labour reminds me of what went on within the Democratic Party under Reagan and again for a while under Bush: many leading figures in the party fell into what Josh Marshall used to call the “cringe”, basically accepting the right’s worldview but trying to win office by being a bit milder. There was a Stamaty cartoon during the Reagan years that, as I remember it, showed Democrats laying out their platform: big military spending, tax cuts for the rich, benefit cuts for the poor. “But how does that make you different from Republicans?” “Compassion – we care about the victims of our policies.”
Thanks