The UK has reached a moment when a decision has to be taken. Partly that is because it has to decide whether to continue to tolerate Johnson and his Tory Party any longer. For the sake of us all I hope that is determined quite soon. Two by-elections this week might help indicate the likelihood of that happening.
That, however, is only part of the issue. Johnson, after all, did not create the whole situation that we are in. He is, instead, in many ways as much both a product and a consequence of that system as anything else. That system is financial neoliberalism.
Financial neoliberalism is not the same as capitalism as it is commonly thought of. After all, Johnson himself happily said ‘fuck business' and there is every likelihood that he meant it. Rather, financial neoliberalism is about the exploitative extraction of rents from society by a few without care for the consequences for the many, to whose fate this ideology appears utterly indifferent.
The rents include, of course, payments for the use of land which, in truth, no one can really own but of which we can only ever be stewards. Our system of property rights says otherwise.
The whole banking sector is similarly exploitative. It charges fees for the use of money it creates out of thin air. Yet we grant bankers the right to charge for what they have not earned. There can be no more perfect con-trick than that.
Unless, of course, capturing control of a large company to reward yourself through excessive pay is also brought into account.
Claiming to be entrepreneurial by capturing what should be public income streams for private gain through the processes of outsourcing and privatisation is another popular method of rent extraction.
And the abuse of patents, royalties and copyrights is another such rent extraction mechanism, and is now the basis of much of the wealth in the so-called knowledge economy. With our monthly subscriptions to many services we have all succumbed to this one in some way, I suspect. It's as if society was set up to let this happen. Which, of course, it has been.
It is no surprise that the returns to labour within the economy have been falling under the financial neoliberal order. Nor is it a surprise that at present the pay of those working in the public interest is being hit hardest by inflation. Many private-sector employers are appreciating that the current inflation requires compensatory pay rises. But in the state sector pay rises are stuck at around 1.5%. Those who do in very many ways have the most productive jobs in the entire economy because they provide the underpinnings that make the rest of what happens possible are being punished with the most severe pay cuts as a result of inflation that has arisen through absolutely no fault of their own. Of course there were demonstrations this weekend as a result. Why wouldn't there be?
The Tories would have it that those demanding those pay rises are public enemies. I disagree. Rail strikes will inconvenience me this week. I actually had two journeys to make, neither of which will now happen. I can live with that. Why? Because what I know is that the decision we have to make now is about who should be rewarded in society. So too are those strikes all about that. And so far this is an issue that almost no one appears to be willing to take on politically. As a result the change that we need is not happening.
All great changes in society are about changing the allocation of resources within it. They result from shifts in power structures. Their consequence is a reallocation of power, income and wealth to reflect the influence of a newly important group in society. They usually happen because of the failure of the old order.
With regard to political power, we know that the existing order has failed. Electoral reform to deliver PR, the end of the House of Lords and the monarchy are all required to deliver the power structures we need.
But financial neoliberalism has failed as well. It glaringly obviously did so in 2008. Since then it has only been maintained with quite staggering volumes of state aid needing to be supplied in the form of the conventional QE, of which it has been by far the biggest beneficiary. The idea that markets work, or allocate resources efficiently, or permit orderly destruction as old ideas reach the end of their lives so that reallocation of capital might take place, have all had to be abandoned since early 2009. The must gigantic operation to prevent the collapse of a wide range of companies deemed too big to fail has taken place since then. Ministers might talk of public services being unaffordable and that change is inevitable, but heaven forbid that anyone suggest that there should be a threat to the financial stability of most companies, let alone whole sectors who might face challenges. From banking in 2009, to big pharma in 2020, to big carbon energy now; all provide the evidence that government largesse knows no limits.
The result is threefold. First, power is entrenched.
Second, downside risk is eliminated: that is for the state to bear.
Third, entitlement throughout the hierarchy of power is reinforced. What is more, the idea that this power might ever end is dismissed as unthinkable. This is now apparent in the Tories' arrogant assumption that power is theirs to hold in perpetuity, but it is replicated in boardrooms where the assumption is that the gravy train will keep running, come what may, including climate change.
The idea that interest rates should rise to reward the owners of capital and protect their interests at present, even though this imposes quite astonishing cost on the rest of the world, is just another display of this arrogance and its disconnect from reality.
The problem for those challenging this power structure is that it has been designed to ensure that financialised and deeply institutionalised wealth lines up behind it through continual processes of aggregation of power in the hands of a few. Again, that is exactly as per the design brief. Pensions funds and other savings structures have all been captured to line up against the best interests of those they are meant to represent. This happens when a pension saver does, for example, invest in the with-profits fund of a pension company, which in turn invests in a range of funds run by other fund managers, which in turn invests in Blackrock, who might actually own shares. How does the pension saver know what they own or what provides them with their pension? They have no chance at present of doing so. And they also lose all power: they might not want it, but Blackrock might vote for them and they have no chance to influence that outcome. The power of the many turns into the power of the few, just as first past the post achieves the same result in politics right now.
So how can we break this system that helps drive the fast-evolving fascism of the Johnsonian state? Strikes are one way to do it. But the other is to break the power of the wealth accumulation that underpins the arrogance of neoliberal capitalism. There is more than £8 trillion of financial wealth in the UK. More than 80% of that is in tax subsidised funds (ISAs and pensions) used by neoliberal capitalism to maintain its hold on wealth and to support the status quo. And none of it is used productively. Almost to the last penny it is used in socially useless ways, from sitting dormant in bank accounts to being the fuel for stock market speculation. This has to change. I am writing separately right now on that issue.
So too does the power of the institution over capitalism have to end. Vast numbers of people who are angry with UK-based companies and the power that they have over our lives own parts of those companies through their pensions or other savings. But as noted, they are never told in which companies they have shares. They never see the accounts of the companies who are supposedly accountable to them. And they never get a vote in those companies, because these pension savers right to vote is claimed by an institution that says it represents them, but most often will vote for actions that are against their best interests.
My suggestion, in that case, is simple. It is that no financial institution should ever be allowed to vote the shares it holds on behalf of others without asking those members it represents how it should vote. 'No instruction, no vote' should be the rule. And then shareholder votes should be made binding on companies when right now most are advisory at best.
And just in case this shareholder revolution needs some backing, proxy agencies appointed by individual savers to act on their behalf should be allowed to instruct the financial institutions that hold shares for them how vote on behalf of those for whom they act. This would be made possible by the issue of generic instructions by savers to these proxy agencies to do so in particular ways e.g. to cap director pay or to limit fossil fuel use, using that proxy right across a person's portfolio.
Those proxy agencies could be unions. They could be charities. They might be businesses, paid a fee to do this. But the point is, their goal would be to return the power within capitalism to those who own the capital, which is a truly frightening thought for the financial neoliberal.
I am under no illusion about the complexity of all this. In volatile markets who owns what changes often. But my point is very simple. When the claim is still made by auditors, backed by law, that companies are run for shareholders then those who really own the shares in companies - who I would argue to be the real people who provide the funds to buy them - should get the votes and companies must bear the cost of making sure that happens. That is the price of accountability. It is the price of a decent society. It is the price of making sure that people have a voice.
Financialised neoliberalism captures the power of the many and puts it in the hands of the few to ensure exploitation continues. We have to ensure that it becomes otherwise. This is one way to do that. There are others, as I have noted with electoral reform. We also need better savings products. One reform is not going to ever be enough to end the stranglehold of financialised neoliberalism. This idea is a start in that process though. And it's simply about people reclaiming the power their own money should give them which is currently used by others to oppress them.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Great stuff Richard – you’ve isolated a key weakness and put forward alternative ways of dealing with it – the arms length management of peoples savings by finance (give us your money and now piss off).
You are right to point out that there is a route to power and accountability.
Do you mean 8 trillion of financial wealth in the UK?
Edited. Thanks
Shows I have learned something in all these years of reading your blog, Prof!
🙂
Regarding the element of power you mention, I believe Brian Klaas, a Prof at UCL, and author of Corruptible (Who Gets Power and How It Changes Us) that your summary holds true.
Klaas asks three questions:
Does power corrupt or are corrupt people drawn to power?
Are tyrants the products of bad systems or are they just bad people?
And why do we give power to awful people?
The people who run this financial neoliberalism you speak of have all become corrupted by the power they wield
In my view, immense wealth changes people for the worst as much as too little of it can too (poverty creates unhappiness that can be exploited maliciously by Fascist practitioners).
All anyone needs is enough money – but evidently that is not how it works.
Let’s face it – wealth destroys human empathy and completely changes a species that has progressed by being inter-dependent with each other.
That is what we seem to have been losing all these years and now we are in the eye of storm of individuality as well as the environmental storms too.
Your comments about public pay ring true with me BTW – I’m about to lose two very competent members of staff who have taken posts elsewhere on higher rates of pay.
Which also means that I’ll probably have less time to spend here!! A silver lining to some!
See you around.
Fully agree with this proposal. The State provides huge tax-based benefits to employees, employers and pension funds with little or no conditions in terms of the maintaining or improving the common good. To continue to avail of their preferential tax status, pension funds should be required to invest a significant percentage of their total funds in a schedule of preferred State investments such as health infrastructure, housing, transport, etc. – with a guaranteed return provided by the State. Pension funds should also, as you rightly say, provide transparency on the true destination of their funds and a means by which contributors to their funds can exercise their choice in what/who to invest in, or not,
The State should withdraw the tax benefits to those pension funds that fail to act in the interests of both the individual contributors and the wider common good.
“The whole banking sector is …. exploitative. It charges fees for the use of money it creates out of thin air.” And it receives special protection for its own failure, available to nobody else. That should tell us it should not be left in the hands or uncompromising rent seekers.
“Does power corrupt or are corrupt people drawn to power?” The key to Acton’s maxim – “Power corrupts, absolute power corrupts absolutely”, is the first part: “Power corrupts”. Period. The fact that power corrupts is precisely the reason that it attracts corrupt people. Institutions of all kinds, with access to power over people (including churches, schools, children’s homes – especially where there are vulnerable people or those who readily treat ‘authority’ with reverence) are inevitably of special interest to the corrupt, or the corruptible; and corruption is often wrapped in persuasive, powerfully exerted pressures (even seemingly a call to duty), that exerts an insidious or seductive pull on those who stand out against it. Note that whistleblowing is notably, and rarely admired or widely emulated in any society. Why? Corruption is a powerful social tool.
Superb article Richard , the very essence of where we are as a Country . i fear the Conservative Voters will dig in , the Facilitators that enable this rotten ideology have a lot to lose and they will want to save face . i read an article about the Tiverton and Honiton By election and the Lib Dems are finding it hard to convince Tory voters on the Door Step that we need a change . it is going to be close by all accounts.
Another great thought provoking post Richard but I am afraid that apathy will win out in the end and in the pension area, nothing will change soon. I say this as a former pension scheme trustee. It is difficult enough getting members to even update their addresses when they move and sadly, too many just assume that as if by magic, they will get their pay at retirement day. TPPR requires 1/3 of trustees to be member nominated but there is little or no appetite amongst workers these days to volunteer. Why take on the responsibility and personal risk with no reward? Professional indemnity insurance is also a problem for trustees and this can easily fall away as soon as a company gets into difficulties. It would be great to have trustees pushing more for voting rights ESG and consulting with scheme members but the costs and time available in smaller schemes makes this virtually impossible, particularly in the current investment and deficit environment when just trying to keep the scheme and sponsoring employer afloat takes up all hours of the day.
Interestingly, I did start running the concept of stranded assets and the need to transition to a solar economy (I had simply been reading Herman Scheer’s books) past fund managers years ago way before the invention of ESG to receive blank looks as though I was some kind of idiot. They had to google it. Now apparently, it is all the rage or at least something that has to be talked about a lot but not really acted on.
Deepressing
But we have to try
And thank you
First they ignore you, then they laugh at you, then they fight you, then you win. Every journey starts with the first step etc.
Go run the concept past a few more people!
On a more positive note, good ESG can happen quite naturally without the complexity of shareholder voting.
When meeting up with a cross section of Hedge Fund managers and chatting offline, some genuinely seem to understand some of the Issues and are concerned for their own families futures. At the other end of the scale when a fund boasts that it is spending spare cash on buying up A380 aircraft and they don’t understand why a group of trustee fall off their chair laughing or when it suddenly dawns on trustees that one of the Hedgies presenting appeared in the Bullingdon photo with BJ and DC. Sometimes ethical and wise investing decisions are quite easy.
I have also met many young up and coming investment advisors/managers from within what would be considered to be the old fashioned massive but boring institutions. I have been very impressed by their knowledge and genuine personal interest in the concept of ESG as a logical thing beyond just corporate greenwashing. One institution boasts of their leading role in pushing ESG and to be fair to them, the certainly seem to be backing this up in their recruitment process. I think there is some hope as a now generation moves up the ladder and the dinosaurs retire. The problem is that trustees just don’t have the time to get deeply into ethical investing and shareholder participation and have to rely on their advisors.
“I know is that the decision we have to make now is about who should be rewarded in society”.
“Who should be rewarded in society?” – I am going to say this to as many people as I can for as long as I can. I have said it in other ways for a long time, but we need to have a short phrase to repeat again and again. This is a good one for me.
I think it the right question to ask
With its policy of raising interest rates the government is saying bankers
I say a lot of other people
We need it to be a ‘viral’ phrase. It is easy to grasp the question. We need it to pop into mind when the gang in government try to denigrate strikers.
I have a great degree of sympathy for the sentiments expressed in Richard’s post regarding “shareholder democracy”. Such sentiments were what motivated me to become a pension trustee in my own workplace pension scheme over 20 years ago – I served a 7 year term of office before taking early retirement. My experiences then and my continued interest in the role of pension funds in the economy since lead me to believe that shareholder democracy is a forlorn hope.
As Giles has commented it is very difficult to engage pension scheme members in routine admin matters, never mind the complexities of investment decision making and voting as shareholders.
In the noughties the TUC did have a unit exploring the potential for worker shareholders to exercise power and organisations such as ShareAction sought to organise campaigns to co-ordinate voting in high profile cases – for example efforts to restrain executive pay. The fact that such votes are non-binding and “advisory” means they have limited impact upon corporate management behaviour but there are deeper factors which severely constrain the potential of shareholder democracy.
The deeper factors lie in the structure of our pension system, which comprises thousands of schemes set up by employers to provide pension benefits as part of an employee benefits package.
The fragmented nature of the pension system drives it to seek maximum financial returns in order to minimise the costs to an employer of maintaining the scheme – especially in the case of DB schemes which were popular in the last decades of the 20th century. This underlying factor is reinforced by the law of fiduciary duty which requires trustees to act in the ”best financial interest of the beneficiaries”. Fiduciary duty is understood to mean a duty to seek maximum returns.
The members of DC schemes also want to obtain the highest level of return possible in order to end up with the biggest “pension pot” possible when they reach retirement.
Segregated DB pension schemes suffer from what I call “demographic instability” – eventually the number of pensioners (including “deferred members”) outnumber active members who are still in employment and making pension contributions. Once outgoings exceed contribution income the pressure to earn the highest investment returns grows.
The system dynamics and behaviours which emerge from the underlying structure of the system – its fragmentation – drive it to a constant search for maximum returns. This often is contrary to the interests of the domestic economy . Pension funds have been complicit in the sale of UK companies, even well established ones, to the highest overseas bidders. Names such as Boots, United Biscuits, Morrison’s spring to mind – all sold to overseas private equity owners. P&O which has been in the headlines recently for all the wrong reasons was a long established British company sold to the highest overseas bidder – the Dubai SWF. In his book (2005) Don Young describes the destruction of Redland plc by institutional investors and their agents in the City of London.
To my mind the only solution is root and branch reform and at the heart of that would be the creation of a National Pension Fund, underwritten by the state (which replaces individual sponsoring employers) and of which all citizens are members. A properly designed NPF and pension scheme should be self sustaining but the state would act as guarantor in the event of any short term liquidity squeeze.
I think we will find that a NPF designed to function as a “discounted pay as you go” scheme will demand a lower level of pension contributions from employers and workers than any alternative. The basic design would be built on a “pay as you go” basis with the contribution rate discounted to take account of a level of expected investment returns – and those returns need not be maximised – they only need to be sufficient. This will help reduce the cost of capital in the economy.
A national fund would have the advantage of demographic stability since it is extremely unlikely that the number of pensioners would ever exceed the number of active workers. The national “dependency ratio” will change over time but it will do so gradually and with a high degree of predictability. A NPF would also provide the foundations to restore DB (earnings related) pensions and make them universally available.
A wonderfully thought-provoking articles, Richard. Thanks again for helping us to become more aware of these travesties.