Wednesday, 30 November 2011

Socialism not Bankers to Blame for Public Sector Cuts

Today has seen tens of thousands of Britain's vast army of 6,000,000 public sector workers out on strike. The Prime Minister's own press secretary has been forced to man the immigration desk at Heathrow Airport. Millions of school children have lost a day of education, as well as elective surgeries cancelled and disruption across the country. Annoying for the UK, certainly, but for the rest of the world these are also worrying times, with more than a few echoes of the  economic situation of the inter-war years. In this article, we debunk the myth that it is 'the bankers' to blame for the mess we're in by making an assessment of why 'developed' economies (including our own) have come to owe so much money in the first instance.

In the 1930s the near collapse of capitalism was brought about by a series of defaults in an international debt triangle which ultimately forced the great depression and a second war in Europe. Indeed, right now in 2011 a an economic pyramid scheme which is at least superficially similar to that which was at fault in the '30s can be seen at play around the US/IMF/China triumvirate. Similar pillars of cyclical debt current underpins the EU experiment. In this article, we explore how modern socialist state economics are to blame for this unholy trinity and how such economic thinking has once again brought the international system to the brink of collapse.

For many on the left, the theoritical models of JM Keynes provide the genealogy of their present-day economic policies. 
Indeed, Keynesianism became the prevalent economic theory throughout much of the middle part of the last century. It is based on the essential pre-requisite that economic growth slows when the demand for production stagnates as a result of unemployment. Keynesianism suggests that the stagnation effects of unemployment can be overcome by creating the economic circumstances under which it is possible to increase the demand for products once more. The key concept to Keynsianism is that a short-term government funded stimulus which creates direct state employment, paid for with money borrowed from the markets or other nations, re-establishes the ability for the citizenry to purchase goods and services en-masse. This thus increases the need for products - ergo manufacturing - which in-term creates employment once more in the private sector. Keynsianism was not designed as a long term status-quo and was not designed to be a permanent life support system for economies, rather a short-term economic defibrillation. Indeed, the success of Keynesian investment depends on short-termism.

'Spent too much for too long and borrowed too much to pay for it'

Consequently, Keynesianism was employed with some success throughout the middle part of the 20th Century, including assisting the revival of most major economies before, during and after WW2. Therefore, it is not difficult to see why Keynesianism has attracted fans, particularly from the left where it seems to fit nicely with the ideological requirement for high public spending on generous public services. The UK Labour party’s economic policies are understandably based heavily in an interpretation of Keynesianism. Indeed, Gordon Brown's pledge as chancellor to bring about an “end to boom and bust” echoed strongly Keynes’ aims ‘to stabilize economic output during the cycle’. 

However, there are enormous problems with the modern centre-left's faith in Keynes' economic theories, as the ongoing failure of the so-called PIGS countries show us. Over the last 30 years, the governments of Portugal, Ireland, Greece and Spain have been dominated by the centre-left. Their economic policy has, like the UK's, been driven by bastardisations of Keynesian theory, borrowing heavily in order to spend on public services (read public sector workers). All have consequently spent too much for too long and borrowed too much to pay for it. 

How then has Keynesianism failed so catastrophically in the PIGS and brought Britain and the US to the maximum of their credit limits?

The first part of the answer lays partly as discussed in the fact that Keynes only ever meant high public borrowing/spending as a short term solution, not as the basis of long term economic policy.  Indeed, what the current Labour shadow chancellor Ed Balls, and his party leader Ed Miliband, both fail to understand is that it is not that the current coalition government is ‘cutting too far, too fast’ but that the previous Labour government was spending too much for too long. Labour's current  policy is entirely bi-polar; acknowledging the need to cut the deficit at the same time as advocating high levels of spending on public services. 

The second part of the answer is absolutely the key to understanding why the left can never be trusted with the economy again. It is more nuanced, but also more important. It concerns what public borrowing is actually spent on.  
In Keynes' time, an economic stimulous would buy short-term project specific blue collar workers; navvies, factory workers and builders. In the 21st century these manual trades have largely disappeared to be replaced by police officers, community outreach workers and NHS administrators who are employed on permanent contracts with pension schemes. Jobs for life. This is a change which partly reflects the evolving nature of our increasingly service based economy, but it also allows centre-left governments to claim increased public sector 'investment'. Employing one extra police officer for example, removes one person from the jobless total, adds one person to the number of police on the street, provides a basis for 'investment' in the police force. A very tempting proposition for any democratic government. In the 21st Century this is the fundamental problem with Keynesianism, and it is one that all ‘advanced’ economies (USA, PIGS, GB etc) suffer from. Here's why:

"The difference in the nature of public funded employment is the key to the mess we’re in, and it is also the key to the way out. The difference is the question of permanence"

In the middle-part of the 20th Century, working for the government meant building Autobahns in '30s Germany, manufacturing munitions in '40s America or NHS hospitals and social housing in '50s Britain. In the 21st Century, well educated citizens used to a higher standards of living simply do not wish to be employed in menial work. Instead, increasingly voter conscious centre-left parties throughout the West have sought to apply Keynesianism to jobs more conducive to electoral success, but less fitted to Keynesian stimulous.The difference in the nature of public funded employment is the key to the mess we’re in, and it is also the key to the way out. This difference is the question of permanencePut simply, it is possible to hire and fire blue collar workers much more flexibly; when a motorway is finished, a war won or a hospital built the dependant workers can be, and are, laid off. 

However, white collar workers are of a different nature and have different expectations. Historically, office jobs form part of a career structure which assumes a level of permanence and confers a much more secure tenure as well as other benefits such as generous pensions and access to union and or legal representation which means that they are very difficult to fire an they very rarely wish to leave of their own accord.
Consequently, the centre-left’s fondness for creating jobs out of thin air has brought electoral prosperity for the left by means of supplying the unions with many thousands of members as well as simultaneoulsy cutting the jobless statistics and increasing 'investment' in public services. But it is a policy which has saddled the country with literally millions of extra hungry mouths to feed, in many cases from 18 until the grave.

Whenever you hear Labour talking about 'creating jobs' or 'investing in public services' what they actually mean is 'investing in votes' and 'creating a legacy of debt'. Next time you feel sympathy with public sector workers on strike, remember that your children's children will be repaying the debt accrued to pay today's public sector pensions. Instead of blaming those attempting to reign in the deficit, it's time we blamed those who created it.

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Here are some powerful facts:
  • Portugal: Years Socialists in power since 1981: 30 years (100 %)
  • Ireland: Years Socialists in power since 1981: 18 years (55 %)
  • Greece: Years Socialists in power since 1981: 22 years (73 %)
  • Spain: Years Socialists in power since 1981: 21 years (70 %)

Monday, 14 November 2011

Labour's children; how welfare dependency caused the riots


Biting the hand that feeds
The turbulent events of last year's domestic riots have brought into sharp focus the issue of the client state and in particular, the actions of a generation of largely welfare dependent young Britons. Despite spending tens of billions of pounds more each year in benefits payments than were collected in taxation revenues over the preceding decade and a half, successive UK governments have thus far failed to stem the flow of disillusionment and disaffection bleeding from the once beating heart of the working class. Further, as Professor Frank Furedi of the University of Kent said recently ‘none of the conventional sociological explanations—from the Left or the Right—can satisfactorily account for the present riots in England’. With the country barely recovering from last summer's socio-economic heart failure, this article offers a hitherto unexplored comparison between the international aid given to states in the international system and that of domestic welfare provided to families, in order to explain why benefit dependency is to blame for the civil disobedience of 2011.

“…a ‘parallel services’ scenario has created a system of state substitution or ‘state surrogacy’ which has left domestic governments side-lined and ineffectual”

If we up-scale the domestic benefit system to the next level of analysis, that of the international sphere, then the obvious direct equivalent is international aid. Just as the state is the extension of man, so too the international system is an extension of domestic society; each merely defers to the next level. Park this thought for a moment, we will come back to it shortly.

Surprisingly, among some of the largest providers of international aid such as the UN, there are the beginnings of concerns that some states are becoming aid dependent. At the same time as feeding the masses, emerging thinking considers that aid can actually undermine governments. The rationale is that the governments of countries which are major recipients of aid (e.g. Haiti or Somalia) have become so used to receiving these benefits
 that they have almost completely ceased to engage in any wealth generation or indeed self-preservation activities on behalf of the 
citizenry. In short, the necessity for the sovereign to look after its subjects as implicit in the social contract, has been removed. The direct result of which, in regards to the provision of food and public health services, is that the state itself is becoming largely irrelevant as  citizens look to international organisations like UNHCR to fulfil their requirements, rather than their own domestic government. What UNHCR refers to as a ‘parallel services’ scenario has created a system of state substitution or ‘state surrogacy’ which has left domestic governments side-lined and ineffectual by international aid givers with seemingly endless resources. The resultant governmental absenteeism and the abandonment of the citizenry usually leads to further corruption, violence and war which creates a cycle which is difficult to break. It is a self-perpetuating cycle which can only be broken by carefully weaning such states off aid and onto self-sustainability. Essentially, that long-term aid programmes are the very reason why the requirement for aid becomes permanent rather than temporary. To paraphrase an old Oxfam strap-line, the state forgets how to fish for itself which accordingly becomes a long-term cyclical situation which only serves to both compound and extenuate the original problem in the long term.

“A system of ‘domestic surrogacy’ is born, under which the family unit is undermined, side-lined and increasingly irrelevant”

Earlier in this article we drew parallels between aid to states and benefits to citizens in the developed world, particularly the UK.  If we now once-more down-scale our level of analysis from the international community/domestic state relationship to that of the domestic government/family relationship, then it becomes possible to draw some obvious parallels. At this level, the 'aid giver' becomes the domestic government through its welfare programme (i.e. UNHCR is substituted for the DWP), and the aid recipient thus becomes the citizenry rather than the government. Individual families are supported by the government rather than themselves. Just as in the international level of analysis, this model fosters a period of ‘parallel services’, during which the traditional family unit and the welfare state run side-by-side, seemingly in harmony. However, in this case, just as in the international model, the external aid provider has access to comparatively endless resources and expertise. Inevitably, these soon out-strip the abilities of the aid recipient (the parent/s) to provide for those in its care. On the domestic level, a system of ‘domestic surrogacy’ is thus born, under which the family unit is undermined by the very state which provides the home, the money and thus the food on the table. This is why the majority of rioting occured in almost exclusively 'safe' Labour seats, and at the end of a generation of Labour rule.  The addition of ‘community outreach workers’ and other morally and ethically targeted public sector jobs which focus on family values means that all of the significant roles of the traditional family have rivals or authority challengers employed by the ‘parallel services’ provider; the welfare state. In an ironic twist, it is the idealism of those who wish to help which has resulted in the most harm.  Under Socialist governments, like the years of the UK's Labour Party, this situation is perpetuated by generous state hand-outs which are designed to engender a sense of loyalty among the recipient electorate. The UK is currently approaching the end of such a 15 year cycle. Like any dependency, 'welfarism' has become an addiction, and like any addiction a period of violent and uncomfortable cold turkey must be endured during the rehabilitation period.

“the psychology of benefit expectancy becomes hardwired very quickly and is fatally corrosive to families, communities and society”

At the international level, the aid dependency paradigm leads to violence and disorder born of justified feelings of impotence and irrelevance felt on behalf of the state authorities which is caused, ironically, directly by the aid giver. This can manifest itself as political violence at both the intrastate and interstate level.  We know that so-called 'failed states' are those which demand the most aid.  These states are also more likely to become involved in civil or intra-state war.  These same feelings of anger and frustration are created by aid provision at the domestic level of analysis; with similarly violent results.

It is welfare dependency which has led to violence and disorder created by the genuine feelings of a lack of self-respect and self-worth caused, ironically enough, by the generosity of the welfare state. Drawing lessons from how aid dependency plays out internationally, we must realise that at the family-level, the psychology of benefit expectancy becomes hardwired very quickly and is fatally corrosive to families, communities and society in general. The resultant cycle of despair can only be broken by carefully weaning families off the welfare state and onto self-sustainability. Essentially, that short-term benefits of welfare cannot be allowed to become long-term surrogacy as this becomes permanent and carries with it a genuine and serious risk of frustration and violence.

Rather than help the poor, generous benefits undermine the individual, the family and ultimately the whole of society. They should be seen as a short term prop, a helping hand, not a long term alternative to work. The challenge now for David Cameron and Ian Duncan Smith is to salami slice benefits so that only the bare minimum remains, without inflaming further disorder. 

As that old Oxfam advertisement used to say: “Give a man a fish and he can feed himself for a day, teach him how to fish and he can feed his family forever”. Let's not patronise those who felt angry and frustrated enough about their predicament to riot. Instead, we should recognise the long-term societal corrosion brought about by benefit dependency for what it is.  Rather than buy votes with benefits like the previous Labour administrations, the current ruling coalition should exercise responsible leadership and make benefits a short-term crutch for families, rather than a long-term addiction.

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