There is little to celebrate about the steel dispute.
The government has been cruelly exposed as the possessor of dogma but no useful policy.
People face bleak futures.
The difficulty of creating real environmental change in the face of Chinese intransigence is apparent.
The illogicality of promoting international trade competition is writ large over everything that occurs.
So let me find a small silver lining if I can. This is that tariffs are back on the agenda, where they belong. The Ricardian ideal that competitive advantage alone should determine who has the commercial right to determine the source of supply for a country, irrespective of national interest, was always flawed and yet whole economic systems - including the EU - have been built upon it.
We have, I think, now realised that there is a limit to the number of people any society can absorb from beyond its borders if the process of change is to be manageable. Not all on the left are willing to say this, but I can see no reason why not. A policy of controlling immigration welcomes the fact of migration; welcomes the migrant and is designed to achieve the best for them as well as those who they will share their new home with. Debate can take place on how many might come and the criteria for selection might be and these are enormously sensitive issues but in my opinion a policy for controlling immigration should be about making migration work.
The same is true for the movement of capital. Capital comes in all sorts of forms. There is human, emotional, intellectual, environmental, national, personal, corporate and financial capital. We have, perversely, chosen that financial capital shall have almost complete freedom whilst limiting in some way most others. The consequence has been predictable. Just as unfettered migration creates processes of change that can be too difficult to accommodate so too can the unfettered movement of capital be harmful. We have now suffered that free movement for too long and are seeing the consequences.
The implication is obvious. A policy that favours the movement of capital must also, and simultaneously, constrain that movement to ensure that the common good is achieved.
This is no new departure for me; in my book The Courageous State I argued in favour of capital controls, which I think wholly appropriate on occasion. The realisation came from looking at the harm tax havens have caused in the era of capital market liberalisation.
Capital controls do, of course, include tariffs intended to protect local markets.
Let me be clear that I am not proposing anything of the sort we had in the 1970s and before. Nor am I saying that fixed exchange rates are required. Far from it.
Just as a migration policy is pro-migrant so is a policy of capital controls pro-capital. That is unambiguously true. But in the process it aims to ensure that capital is used for productive benefit when it is all too readily apparent that excessive capital flows and concentrations can be destructive no only of capital itself (witness 2008) but of other forms of capital as well.
If this debate is now open for discussion I welcome that. It would be a small silver lining to emerge from the mess created by the dedication to the freedom of financial capital (and nothing else) now being evidenced in South Wales, as well as in Redcar so recently.
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According to Michael Rowbotham (1), Ricardo stipulated 3 conditions for free trade to create mutual benefit:
1) Capital must not be allowed to cross borders from a high wage to a low wage country
2)trade between participating countries must be balanced
3) Each country must have full employment.
he goes on to say: ‘Since non of these conditions applies anywhere in the modern world, and since nations are all attempting to pursue an imbalance of trade, how can the theory be expected to operate properly?’
Free market fundamentalism is like saying that we have to let the weather wreak havoc and not bother building flood defences, safer housing because the weather is the natural order of things. It’s a denial of human agency.
Agreed
I am finding Bill Mitchell’s blog series on the 1970’s an interesting insight into the latest round of the “capital versus labour” battle that is being played out by the Tories in their new class war.
http://bilbo.economicoutlook.net/blog/?p=33264
Agree with this. Flow of capital from high wage to low wage economy should, at least, have some conditions. A requirement for better welfare and wages for those involved and any profit ensuing from the wage differential between the two states should be taken as a tax that goes to some international development agency.
I would not say that my brain is big enough to join the debate but I agree that it must be had and something must be done.
As I have responded elsewhere, I have no problem with immigration and no problem with sharing the means of production with other countries in order to raise living standards globally.
The problem is the use to which factors like immigration and over seas development are put by people who just want to make a profit. These factors are being used as a device of arbitrage concerning the cost of wages/production which is then used to compete in the market.
Immigration does help to boost the workforce say where there are issues with demographics – where say the birth rate does not supply enough workers or skills on tap. It also helps us to deal humanely with migration away from war and conflict.
Over seas development of industry helps to create jobs that can boost wealth and living conditions in the developing countries.
But we cannot ignore the fact that modern capitalism puts these factors to use in order to compete on the rate of its returns to the rentier class – something that is supported by the legal system too.
In this modern capitalist world immigration is welcomed because the workers who come in are used as cheap labour and the established population then has to compete against that and wages tend to go down. Workers overseas seem to get by being paid less than those in the countries the means of production originated from and we tend to see a loss of jobs in one place and more jobs in another which cannot be said to be progress in my view. There is not a net gain of wealth to humanity – just a transfer from one group to another.
If tariffs and capital controls smooth out the effects of the tendencies I’ve tried to outline above then they would be welcome.
As you point out, it puts more money into circulation rather than just being able to be accrued by certain groups , stored and then used to speculate (which creates bubbles and crashes) and even worse – is used to buy democracy.
Finally I was watching Michael Moore’s film ‘Capitalism; A love affair’. He describes capitalism like this at the beginning where he is filming the repossession of a house somewhere in the USA:
“This is Capitalism: A system of giving and taking – mostly taking”.
The tariffs and capital controls may indeed curb the ‘taking’ which has got totally out of hand and is the cause of so much inequality and injustice in the world.
I was thinking about your statement “The illogicality of promoting international trade competition is writ large over everything that occurs.”
Which is of course true if you care about the obvious social, environmental and even political externalities that such an economic policy will inevitably create. And so by simple deduction, it can be reasonably assumed that those who propose and support such policies have no such care for social welfare or environmental protection, nor even for political stability as is becoming increasingly apparent.
So who in their right mind would propose and support such policies? Only the very largest corporations and their financial backers who can benefit from moving production to the lowest cost nations (while picking up little or nothing of the cost of their externalities).
Political puppets like Osborne and Cameron (and their overseas right wing equivalents) have only their own short term career, wealth and retirement plans in mind when they agree to fight this battle on behalf of their corporate/financial best friends who line their pockets and their party’s coffers.
Sadly you only have to look at Blair and his entourage for another good example of this breed of person pretending to play left wing politics. This flawed thinking needs outing for where it originates from, pure financial greed, as David Ricardo knew very well!
One hundred percent. I argued with Prof about this in early 80s. But how does this square with EU membership?
The EU is going to smell the coffee very soon
How would such a position be squared with the ongoing TTIP free trade agreement? EU tariffs along these lines would certainly be welcomed. However, it would seem reasonable to argue this would drive a coach and horses, not to mention the stables, trough and the kitchen sink, through the rational and raison d’etre of such agreements.
I hope it does
I hope the issue has arrived in time to do just that
Two comments which hopefully contribute to the above.
In 2009 the WTO issued a report which green lighted border carbon taxes. The French love them (but cannot deploy them), others (such as the currnet UK gov) seem ideologically opposed to them. Yet such taxes would auto-rebalance the steel problem. Of course the Chinese would throw their toys around.
The bald guy in the UK gov who pretends to be industry minister claims that Uk companies need access to cheap Chinese steel. Example follows.
Gwyn ty Mor is an off-shore wind farm in North Wales – coupple of hundred MW, couple of hundred turbines using steel monopiles. Fluor provided engineering & was a risk sharing partner & decided to save money by sourcing the monoplies (steel tubes) in China. After north of 40,000 tonnes were shipped to the UK and they tried to install them it was “ooops” time – poor quality steel and Fluor had failed to undertake due diligence in China – good news for the lawyers – they made plenty sorting it out (& yes we are talking “send it all back”). Most stuff from China has very variable quality – it looks good because they employed in the late 2000s Japanese enginneers to sort out the finished “look”.
Did a dumping case for the Chinese on nuts & bolts a few years back – they sell to the low end of the market – the high end – e.g. the automotive sector – wouldn’t touch them with a barge pole, as for the aerospace sector … they just laugh (at the thought of using Chinese fastners).
Continual cost cutting produces these absurdities which then cost more to clear up -another case of false economy. It’s the same with other cheap goods from China: stagnating wages and high housing costs mean that people go for the cheapest products possible which malfunction quicker than more expensive durable goods causing huge waste which is the REAL intergenerational debt.
So it’s very poor quality steel and it’s subsidised by the Chinese state by up to 72% (see article below).
And yet the blind and dogmatic adherence to a now even more perverted form of Thatcherite ideology, seems to inevitably lead to further destruction of yet another core industry and highly skilled jobs supporting a much wider community and supply chain.
The cracks in the Tory cabinets logic are already appearing within their rank and file, over welfare cuts, academy chains and now industrial policy (or rather a complete lack of) because of a pathological adherence to market forces even where the major player in the steel market is now a communist state subsidised industry.
You really could not make this stuff up!
https://www.craigmurray.org.uk/archives/2016/04/of-steel-subsidies-and-steel-tariffs/
And yet a lot of that same poor quality steel is finding its way into high-rise buildings…several years ago I remember a fuss about Chinese steel, because it was rolled with the marking of German steel and then imported…and it really is poor quality, with variable alloying and considerable lamination. Still: You get what you pay for.
Thank you Richard, you seem to have exposed fundamental contradictions arising from the nature of capitalism.
Should we not acknowledge that all trade has an exploitative element to it, that international trade, unfettered, leads to winners and losers? So all trade needs controls, including tariffs, to limit damaging effects. Does this not also mean encouraging our own economic activity, investing here rather than abroad?
Furthermore, can we build a good society here if we then have to let all those who wish to move here to enjoy it? Thus immigrations controls are necessary. And of course, by the same token, capital controls.
I have long argued that tax has to correct for market failure
Tariffs are taxes
If we don’t “let all those who wish to move here to enjoy it” do so, how then is it a good society? Bet you love curry… and having a surgeon, nurse and bus-driver.
Beside, who wants to live and work in the 21st century version of John Major’s warm beer economy? Employers pay wages – politicians are supposed to determine, regulate and enforce their level. They don’t. Don’t blame the victim – the exploited working class, whatever its geographic location or origin.
There are indeed contradictions in the fundamental nature of “the societies in which the capitalist mode of production prevails”, as Marx put it. However, what you suggest for their resolution may be suitably described as “fuck you, foreigner” economics. It’s the system that’s dysfunctional – and national borders – we can’t put Humpty Dumpty back together again with a junior autarchy kit, whether made in England or made in China.
To put it another way, hopefully more clearly,I would like us to make our society so good that everyone will want to come here, but obviously that is not possible, so we have to have controls on people flow, capital and trade. It is high time that’s admitted it, so let’s face up to the consequences (for example relating to who owns our heavy indutry like steel), decide what that means, and act accordingly.
On a related point, Richard, there’s an interesting piece by William Keegan on the record balance of payments deficit the UK now has (the highest in percentage terms at any time since the 2nd World War) in The Guardian. As Keegan notes: ‘and the first, instinctive reaction of the government is to let what is left of our steel industry go hang, so that imports can be boosted even further.’
Anyone remember Osborne’s “March of the Makers”? I assume that with reference to this government it would be more accurate to say “March of the Wreakers”
Anyway, well worth a read.
http://www.theguardian.com/business/2016/apr/03/steel-shrivels-balance-of-payments-crisis-grows
That needs a blog….
Decent piece by William Keegan in the Observer today – his pieces are usually interesting though he does seem to be stuck in a convertible currency / fixed exchange rate frame of thinking:
http://www.theguardian.com/business/2016/apr/03/steel-shrivels-balance-of-payments-crisis-grows
What struck me (and hence a question for Richard) as a self-taught non-economist was the figures: if the current account deficit for 2105/16 is coming in at £96 billion, and the government deficit at month 11 (February) was £70 billion then does this mean that Osborne has created (I can’t use the word achieved in this context) a domestic surplus likely to be around £16 billion and if so what are the implications for the UK economy?
(I admit I may be completely misunderstanding the sectoral balances here but it still seems an interesting question)
This means it is possible that the whole government deficit is being funded by overseas, although you must take other factors into account. The trade balance is only part of the whole overseas balances that also includes invisible earnings and net financial flows resulting from investment and investment returns
That means you can’t quite conclude as you have
I am confused by this post Stewart – or are you confused perhaps?
Is “trade deficit” an equally valid term for “current account deficit”. Genuine question.
If this post were re-written using the terms “trade deficit” and “fiscal deficit”, apples and pears to me, would it make any more sense?
The total foreign sector is more than trade is the point I am making
If the Government is reducing spending (I think it is trying to get from c.47% to 35%) AND the current account is in deficit (imports > exports) then the Government’s attempt to create a surplus will drain money from the real economy and increase private debt (as we are seeing). This produces a struggling populace being deprived of vital services BUT also produces what Richard Wolff calls a ‘Bankers’ Heaven.’
Thanks for the reply Richard. These are interesting and at times complex ideas for an educated layman to get their head around.
Reading back the (possibly poorly phrased) question I had was if the “trade deficit” is £95 billion but the govt deficit is only likely to come out at around £80 billion then where has the other £15 billion come from? Increased private debt is my guess but this could easily be a misunderstanding on my part, although Simon seems to be thinking along the same lines as I am
You have it right
Clearly I am missing something here.
I would have said that an 80bn fiscal deficit would be financed by an 80bn bond issuance sold to domestic and foreign investors.
A 95bn trade deficit would result in a 95bn reduction of British bank reserves at the BofE, and an increase of 95bn in the various foreign central bank holdings with the BofE. Also a theoretical dip in the value of sterling – which never seems to happen, probably to do with overseas assets held by British entities.
Perhaps I should pull my head out of the details and see a bigger picture – but this conversation appears to be going on way over my head.
Check out sectoral balances – rememeber we’re looking through the debt and seeing who is really funding it
Richard
I am unsure of something that I would wish to clarify before commenting.
Are you suggesting tariffs that begin and end at the EU borders, or would you wish to see tariffs applied within the EU itself?
At the EU edge
There won’t be any EU coffee smelling on TTIP unless there is the shock, to the EU, of a Brexit, which will remove the main proponent for TTIP from the EU landscape, at least publicly. The EU is controlled by transnational corporations that want the unfettered rights that TTIP will give them, and the transnational financial services industry (Based in City of London) is right up there in this regard.
The steel situation should cause a rethink not just on tariff ‘liberalisations’ ie liberalisation of trade-in-goods issues, but also on liberalisation of services, including investment.
The latter involves opening all investment opportunities to transnational and foreign investors whether its private sector (steel, cadbury’s and anything else being sold off) or privatisation in vestment ops in the public sector (eg water, NHS contracts, and PFI scams).
Successive governments like to proclaim that we are the most open country in the universe, as though its something to be proud of.
But is there a difference with foreign ownership? Tata has closed its higher wage UK production and kept its lower wage, home country Indian production going – as predicted.
Would a nationally owned company act differently, be differently supported, be encouraged to better consider workers, the social role of the firm, the feeder SMES?
Such liberalisation is a political choice and many other countries choose differently. It’s time we reconsidered whether such total liberalisation – to suit The City – is the political choice that we want to make.
Just explaining liberalisation would be a good start. Although the word is tossed around, few people know what it means, and that includes BBC journalists I speak to.
It won’t matter which private capitalist owner takes over whatever bits of UK Tata steel they can get their grubby mits on, they will all play the same game over and over and over until there is nothing of any real value left.
It will be asset stripped as much as possible, pension liabilities offloaded to the state, workers wages/benefits and rights will be devalued, the business will be flogged to near death by a venture capitalist hell bent on a short term business plan, and then finally if not sold onto to yet another “greater fool” who will try to play the game one more time, the government will have to step in and pick up the pieces or just leave the remaining workers to survive on what is left of our welfare system.
It’s interesting that the “possible £300m buyout from management and workers” seems to have been brushed under the table and hardly ever mentioned as a potential solution – and yet this is probably the best option an entrepreneurial and enlightened state would be considering supporting with investment finance for a long term sustainable co-operative future.
‘this is probably the best option an entrepreneurial and enlightened state would be considering supporting’ – that’s exactly why it’s being ignored the ‘cui bono’ isn’t the right ‘cui.’
It is possible that Tata have no interest in their British plants continuing in production – not only because they don’t need the competition, but because they want to transfer carbon credits to their India operation.
Frequently the most salient points don’t feature in the public discourse – the role of PFI in bankrupting the NHS for example.
Sectoral balances are out for Q4 2015 – from N. Wilson:
http://www.3spoken.co.uk/2016/04/uk-sectoral-balances-q4-2015.html
It’s the government and overseas