An obituary of John Weeks appeared in the Guardian on 24th August 2020

The link is here

Laszlo Andor , Hungarian Economist , was EU Commissioner Employment, Social Affairs and Inclusion 20

Laszlo is the Secretary General of FEPS , the Foundation for European Progressive Studies

“This Summer, progressive economists lost a great thinker, author, teacher, activist and friend. I have known Prof. John Weeks for nearly three decades, starting with a visit at SOAS, and then an invitation to Budapest. During the post-1989 transition, those who refused to buy into the newly hegemonic neoliberal dogma, found his book Capital and Exploitation highly illuminating as well as accessible. more ..“

Stephany Griffith-Jones, Council member

John Weeks was a rigorous and progressive  academic economist, committed to  good economic policy and political action; at the same time he was a  very kind, supportive and loyal colleague and friend. He is being  so very badly missed; his memory, and that of his personal and intellectual contributions, however,  keeps him alive amongst his colleagues and friends

I got to know John well in recent years, when PEF was being formed. He kindly invited me to join the PEF Council, which I have enjoyed tremendously, so am really grateful to him for that. John was so  crucial to the work of PEF, and to the links with ,as well as  our support for the Labour party, and in particular for then Shadow Chancellor John McDonnell and his team. It was really admirable to see John’s dedication, which continued till the end, even as his health was failing him.In this, he was not just admirable, but in many ways heroic. He was a wonderful colleague, always generous with his support of other people’s work.

Ann Pettifor, Council member

Ann has written a full obituary for Tribune Magazine

“Late last month, pioneering socialist economist John Weeks passed away. Ann Pettifor remembers her colleague and friend – and his contributions to left-wing politics.”: https://tribunemag.co.uk/2020/08/remembering-john-weeks

Carolina Alves, Council member

John Weeks was scholar who inspired me to know more about Marx, Keynes and inequalities. I knew his work on Marx before I met him in person in 2011. Having accepted to give an interview about his views on labour theory of value, he opened his house without knowing me that well. It was an amazing encounter, and an amazing interview. From this day onwards, John never stopped supporting me and listening to what I had to say.

During my PhD at SOAS (2013-2017), he would patiently listen to my ideas, doubts and question, but he was different than other seniors scholars. He seemed to actually listen to me. He showed interests in my ideas. He was curious about my views. He always made me feel like if I knew something he didn’t. This gave me confidence, it made me feel I was doing something right and it made me grow intellectually. I think perhaps that’s what made John so good at his work and so special, he would listen to others – and he will listen to the others with an open mind and open heart. This didn’t mean he didn’t have strong views or a very clear dear of his principles, theories (we all know that he did!) but he was never afraid to test them.

My experience as a PhD student and after as a young scholar showed that John was an exception in academia because he would carry you with him. While many others would only speak about giving space to young minds or women or people from other minorities, John would actually do something about it. He would invite me for events, for discussions, and would push me to write and be vocal. All this he would do treating me as an equal.

He made me feel valuable and sometimes in academia this is all you need to enable you to carry on. There are many other things that made John very special. He was committed to build a better world and he gave his time for that. He was a humanist with his sharp sense of humour. He was transparent and honest. The heterodox community didn’t only lose a brilliant mind, we lost a human being who made our community more bearable and caring. 

Sue Konzelmann, Council member

When you’ve known him for only three of his 79 years, it ought to be harder to write about John than it actually is. His engagement with not only economics, but also the people who define, implement – and, not infrequently, suffer – from it, is not a characteristic you develop overnight. Much the same could be said of his deceptively “low key” approach to both other people and getting things done; he was someone you simply wanted to work with and help out. Unsurprisingly, that’s how we first met John in 2017 – helping him to bring another book to fruition.

This softly spoken gentleman was, though, without doubt also someone driven to continually try to improve things, a task he set about with an energy that never really wound down. Much will be written about his professional career, which will in all likelihood continue to be influential well into the future. But that’s only part of the reason for the many words of appreciation being written and spoken about John. He was also a thoroughly decent man with real sympathy for his fellow man, as well as a keen wit, making light of his declining health with the observation that “getting old is not for sissies …” 

John also took great delight in his cats, and saw no reason not to adopt another in the last year of his life. In an email exchange after his previous cat died, he wrote: “I asked my 5 year old grandson what he thought that meant. ‘He won’t come back’, my grandson said – which is not bad for a 5 year old, but not true. The cat and my sister come back to me every day in my memories”.

A lot of people are going to remember John like that, too.

Richard Murphy

I first met John when I was appointed as a Professor of Practice. John showed that he understood what others I was working with did not, which was that when appointed to such a post you might really know your subject, but that did not mean that you were familiar with the ways of academia. Because he had that insight he appreciated what others did not, which was that translating ideas into journal paper format is a skill most academics learn when doing a PhD, which stage I had missed. He helped me greatly with that process of adjustment. 

We didn’t always agree. We were on occasion robust with each other. And I like and admired John for precisely that reason. Our commitment to progressive economics permitted differences in pursuit of a greater cause. As a result I did, like I suspect many others who learned from John over his many years in academia, come to greatly appreciate his wisdom, guidance and friendship.

A life well lived is, I think, one that has positive impact on the lives of others. I only knew John in the last years of his life, but he added enormously to my knowledge and understanding during that period, and I am immensely grateful for having had the chance to know him. I suspect there will be a great many who feel the  same way. 

Guy Standing, Council member

When one loses a long-time friend, fellow traveller and kindred spirit, one realises one has lost of bit of oneself. There will be no replacement. This is the case with John Weeks. I will always recall the moment many years ago when he said to me quietly, ‘Please call me Johnny’. He was nearly always a rather serious man. However, what he meant was that he only wanted family and close friends to call him Johnny, rather than the formal John. I felt honoured.

Here is not the place to try to duplicate the excellent obituary written for The Guardian. I merely want to testify to our friendship and recall the two years we worked together in preparing a report for President Nelson Mandela’s Labour Market Commission in 1994-6. I was Director of Research for the Commission, which was a tricky assignment, mainly because of my opposition to the economic strategy being finalised by the Minister of Finance, Trevor Manuel, under the guidance of the IMF. I asked Johnny to work with me on our report and the book that came from all our research, which had contributions from about 50 economists in the country. We also asked John Sender to join our three-man team.

What I will always be grateful for is that Johnny was the one who resolutely supported me and who made major contributions to the book, particularly on macro-economic policy and above all in our economic analysis criticising the emerging IMF approach, known as GEAR.

Johnny and I concluded that if GEAR was pursued, there would be years of sluggish growth, persistence of very high unemployment and worsening inequalities, both within the white population and within the black population. At the time, South Africa had the highest unemployment in the world and probably the most unequal income distribution. Despite our efforts, the ANC government followed GEAR. Today, the country has the highest unemployment rate in the world and the worst income inequality, with a gini coefficient of 0.63. There is not much pleasure in being proved right in such circumstances, but several years ago the Minister of Labour told me that he still regarded our book as his ‘bible’. 

Johnny and I often recalled our work together, and just weeks before he died, when he was asking me to explain exactly why I was highly critical of the job furlough scheme in the UK, he reminded me that I had written a similar critique of wage subsidies in our book. I had forgotten; he had not.

Johnny was the sort of colleague and friend we all need. He could be critical at times, and often was. But you always knew that the friendship and kindred spirit would remain.

The post John Weeks – Obituaries and Tributes appeared first on The Progressive Economy Forum.

Covid-19 is disrupting heavily the global economy. Internationally, it led to massive financial turmoil, a sharp fall of international trade, and a major global recession, possibly even bigger than the Great Depression. It resulted in significant flight of portfolio capital from emerging markets: over $100bn according to the IMF.

In many countries, sovereign debt repayments will be due soon, and it may become impossible, to raise new funds in private markets, for both governments and private companies to roll-over their debts, or even less increase borrowing. Even before the corona pandemic hit the world economy, many developing and emerging economies were already facing severe debt and liquidity problems.

Problems will be compounded by sharp falls in commodity prices -illustrated dramatically by the recent collapse of the price of oil.  The coronavirus crisis can, therefore, trigger large-scale balance of payments crises across the developing world, as well as a sharp fall in output, employment, and increase in poverty. To avoid this, emerging and developing economies, would need $2.5 trillion of funding, as estimated by the IMF and UNCTAD.

A number of key measures need to be taken urgently by the international community to provide key international liquidity and development finance to emerging and developing economies, so they can minimize economic slowdown, and facilitate recovery.

These measures should be seen as important steps towards beginning a major reform of the international financial system. This is particularly important in the case of the global financial safety net, which remains patchy: it lacks coverage and resources to deal with a crisis of the magnitude we are currently facing.

The International Monetary Fund (IMF) should agree a rapid issuance of at least $500bn in international liquidity, in the form of additional Special Drawing Rights (SDRs). This would build on the enlightened decision, taken by the G20, under the leadership of Gordon Brown, at their London meeting in 2009 to issue SDRs equivalent to $250bn. The UK, as well as the G7 and G20 should take leadership on this now as well. 

It is highly disappointing that in the recent spring IMF/World Bank meetings, the issue of SDRs was vetoed by the United States, with the surprising support of India, even though major European countries supported it. It is key that the issue is proposed again, especially as the world economy continues to deteriorate.

The SDRs are international monetary assets issued by the IMF – acting. They are part of the foreign exchange reserves of countries, and they can be sold or used for payments to other central banks. Close to two-fifths of this allocation would enhance the international liquidity in the hands of emerging and developing countries, the main users of SDRs.

Furthermore, this should be the beginning of a deep discussion about the role of SDRs in the international monetary system. They are the only true global money, backed by all IMF members. However, it has remained as one of most underused instruments of international cooperation.

Though international liquidity is crucial, especially for balance-of-payments constrained developing and emerging economies, provision of sufficient long-term development finance, to help them fund investment is equally key, both to help support demand and future growth, as well as facilitate major structural transformation to a fairer societies and low carbon economies.

At the multilateral, regional and bilateral level (as well as the national one), public development banks can offer significant additional funding, especially at times when private capital and banking markets are unwilling or unable to take risks in the face of uncertainty and provide enough finance. It is therefore important to increase rapidly the capital of multilateral banks –the World Bank and the regional development banks like the European Investment Bank and the African Development Bank—, as well as of bilateral development banks –like Dutch FMO or German DEG—, to allow higher lending from them to take place speedily. It is important also that these banks, including especially the World Bank, do not attach structural conditionalities (particularly greater market reforms) to such loans, as the causes of the increased demand and need  for their loans is not determined by economic policies but by the internal and external effects of the COVID pandemic.

By significantly increasing their lending in a counter-cyclical way, these larger multilateral, regional and bilateral development banks can support depressed short-term economic activity and, particularly, job creation, and help build a more equitable and sustainable economic development model.

In the medium-term, a more balanced financial system, both internationally and nationally, with a significantly increased role for development banks can help create a system that far better serves the economy, society and the planet than the current one.

Image credit: flickr/niawag

Stephany Griffith-Jonesis is a Council Member of PEF; she is Emeritus Professorial Fellow at IDS, Sussex University and Financial Markets Director, IPD, Columbia University.

José Antonio Ocampo, a professor at Columbia University, is a former Minister of Finance of Colombia, and former United Nations Under-Secretary-General for Economic and Social Affairs.

The post Urgent measures needed for the international financial system appeared first on The Progressive Economy Forum.

Because they benefit from government ownership, which allows them to borrow long-term at fairly low cost, NIBs are ideally placed to fund projects that are environmentally or socially valuable but are too risky to be attractive to purely private finance, such as funding a Green New Deal. 

Irrespective of governmental policy orientation, rather large NIBs, have been an important feature of the financial sectors of most developed and emerging economies, especially the most successful and dynamic ones, like Germany, France, China, India, South Korea, India and Japan. The UK has been an exception in not having such a public investment bank, despite its evident need. 

How do party positions measure up on NIBs? 

Although the Conservative party established the British Business Bank in 2014, it has remained far too small to have any meaningful impact. In their 2019 manifesto, the Conservatives indicate that the BBB will grow but it is not clear by how much, nor is the indicated expansion costed. More worryingly, the UK Green Investment Bank, established in 2012 was privatised and sold off to the Australian Macquarie Group.

The Liberal Democrats have also pledged to scale up the BBB and have pledged to inject £5 billion of capital for a new Green Investment Bank, but without specifying target loan volume or balance sheet size. These initiatives are far from sufficient in the face of the magnitude of impending climate disaster. Furthermore, with the Lib Dem’s recent commitment to permanent austerity, it is unclear how credible these pledges are. 

In sharp contrast, the Labour party has pledged to create a UK National Investment Bank (NIB) with a strong focus on green infrastructure, and SME lending to boost much needed investment for a structural transformation to a low- carbon and inclusive economy. The total capital of the NIB would after several years reach £25 billion, which thanks to the leverage achieved by the NIB co-financing with private banks, and raising funds on private capital markets, as well as re-investing all its own profits, could lead to a total stock of lending and investment by the NIB of £250bn after 10 years. Labour would also provide the Scottish National Investment Bank an additional £20bn of lending power. This amount would be complemented by public resources provided by a £250bn “green transformation fund” projected to spend £25 billion a year, as well as a £150bn “social transformation fund”, that would spend on average of £30 billion a year.

Such significant resources, as pledged by Labour, would help increase investment for a far greener, dynamic and more inclusive UK economy.

The post A British National Investment Bank for the Climate Emergency appeared first on The Progressive Economy Forum.

Labour’s Shadow Chancellor John McDonnell, seeing the economic advantages of a development bank, has proposed the establishment of a National Investment Bank (NIB) in the UK.

The proposal involves the NIB coordinating with other key economic institutions to support sustainable growth. Along with Labour’s proposed National Transformation Fund, the NIB would be one of the driving forces behind expanding and transforming the UK’s infrastructure to make it consistent with our environmental objectives.

Additionally, funding small and medium enterprises (SMEs) for investment in innovation, including digitisation, and training for transformation to a sustainable economy is key. An NIB will support such transformations to increase jobs, productivity and sustainable economic activity.

The NIB would play an important role rebalancing regional economic development through Regional Development Banks and through partner entities that can support SME lending, as well as through regional infrastructure projects.

The mandate of the proposed NIB would be:

• Addressing the long-term funding gap for SMEs across the country, emphasising innovation and sustainability;
• Addressing the long-term funding gap for infrastructure investment across the country, including both physical and social infrastructure, with emphasis on decarbonisation.

Although there are many examples of well-functioning development banks throughout Europe and around the world, the UK has idiosyncracies that must be overcome to ensure credit is directed where needed. Compared to many Western countries, the banking sector in the United Kingdom has focussed much of its lending to property and related activities. This has left the UK weak in its support of business, especially SMEs.

An NIB, with a focus on innovation and sustainability, is needed to support SMEs, improve efficiency and productivity, and create well-paid jobs, in the context of the need for climate change mitigation.

Building the required networks to reach SMEs throughout the country, especially in the most deprived regions, is a big task. Our new paper ‘Taking a National Investment Bank Forward‘ looks at a variety of ways to address this with combinations of direct lending by Regional Development Banks and indirect lending by public and private sector banks, including:

• The establishment of a Post Bank, to support local communities and SMEs (proposed by Christine Berry and Laurie Macfarlane)
• Commercial banks (this time with conditions imposed on their lending behaviour)
• Local Enterprise Partnerships (for lending, training and support)
• Royal Bank of Scotland (possible use depending on the level of public ownership and costs of transformation)

Our new paper reiterates what the Shadow Chancellor has proposed: a coordinated approach that will be clear as to the direction of where financing should be channelled – productive investment – to meet the various global and societal challenges.

National development banks are also about upskilling. We propose that Regional Development Banks work alongside local entities such as private sector Catapult centres and accelerators, and public sector Local Enterprise Partnerships (“LEPS”). The success of LEPs has been very patchy. Consistent underfunding has not helped them meet their stated aims. These entities, when better financed, can work alongside the NIB.  

The NIB’s infrastructure project financing will support the decarbonisation of the economy. It will coordinate its efforts with other key institutions so that the financial system funds necessary innovations for tackling environmental breakdown, as well as the development of infrastructure – especially where regional or sectoral gaps exist, like in public transport, grids for green energy, etc.

We will need the right skills for a national development bank – to cover both project finance for infrastructure and retail/corporate banking for SMEs. The NIB will need expertise and skills across banking, engineering, climate and environmental sciences, project management, law and technology. There will be emphasis on real engineering, rather than on financial engineering.

The right governance structures are important for the success of the NIB. It is important that stakeholders from all relevant sectors are included on the Board (including trade unions) while ensuring appropriate skills and accountabilities.

Like other national development banks, the NIB will tap long-term debt markets, including for green bonds, to finance sustainable infrastructure and efficient, creditworthy SMEs. The fact that the capital will be provided by government, but funding by private capital markets, will allow valuable leverage, which will in turn allow the NIB to make a significant impact on the structural transformation of the UK economy towards one supporting innovation and investment for increased equality and tackling environmental breakdown.

The aim would be to have an NIB of a significant scale, to reach after 10 years, a total of at least £250 billion of additional loans and equity.

The post The case for a National Investment Bank appeared first on The Progressive Economy Forum.

Development banks help to counteract the pro-cyclical nature of the private financial system, which lends too much in booms and rations credit during crises. The private sector also often fails to provide enough financing for small and innovative companies and infrastructure projects. Nor does it support enough of the investments in innovative activities, credit to small producers, and environmental projects that are urgently needed to make economies more dynamic, inclusive, and sustainable.

Although governments provide their paid-in capital, development banks raise funds on national and international capital markets. Moreover, these banks’ loans are typically co-financed by the private sector, which is especially helpful for governments facing budget constraints during and after economic crises.

The World Bank and regional multilateral development banks (MDBs) sharply increased their lending during and after the 2007-2009 financial crisis. The European Investment Bank, the largest MDB, doubled its paid-in capital and is playing a central role in implementing the European Commission’s so-called Juncker Plan, which aims to generate €500 billion ($561 billion) of additional investment across the European Union by the end of 2020. In addition, the recent establishment of two other large MDBs – the Asian Infrastructure Investment Bank and the New Development Bank established by the BRICS countries (Brazil, Russia, India, China, and South Africa) – will contribute further to a more balanced public-private mix in development finance.

The financial crisis also prompted some European, African, and Asian governments to establish new NDBs, and other countries to expand theirs. As a result, the total assets of NDBs reached approximately $5 trillion in 2015. Today, they are an important feature of most developed and middle-income countries’ financial sectors, notably in China, Germany, India, and South Korea. And large NDBs can have a big impact, especially in emerging economies.

Unsurprisingly, academic researchers are finally starting to pay more attention to NDBs after a long period of neglect. They are looking to understand how these banks operate, which instruments, incentives, and governance structures work best, and how such institutions interact with the private sector and government policies.

In a recent book, we analyzed NDBs in seven countries – China, Germany, Brazil, Mexico, Chile, Colombia, and Peru– and concluded that these banks tend to be successful overall. They have been broadly efficient instruments of national development strategies in their respective countries, and they have helped to overcome major market failures in a flexible way.

Our research identifies five crucial functions of NDBs in the development process: providing counter-cyclical finance; encouraging innovation and structural transformation; enhancing financial inclusion; supporting infrastructure financing; and promoting environmental sustainability, in particular by combating climate change.

NDBs were strongly counter-cyclical in the wake of the global financial crisis. According to World Bank data, NDBs increased their lending from $1.16 trillion in 2007 to $1.58 trillion in 2009. This 36% increase was far greater than the growth in private bank credit in the same countries over that period.

NDBs have been innovative, notably in supporting new activities. China’s CDB, Germany’s KfW, and Brazil’s BNDES have financed technological advances, for example, while others, including Chile’s CORFO, have supported entrepreneurship. Such banks have also introduced guarantees and established new equity (including venture capital) and debt funds. Furthermore, they have developed new programs to increase financial inclusion, such as “correspondent” stores and post offices that provide financial services from one or more banks.

In addition, NDBs have been prominent supporters of important new sectors, such as renewables and energy efficiency. For example, KfW was initially the sole lender to private companies investing in solar energy in Germany; private banks got on board later. In China, CDB helped to design policies to encourage investment in renewable energy – particularly solar – and provided significant initial funding. As a result, Germany and especially China have been major global promoters of solar power, helping to make it increasingly competitive relative to fossil-fuel energy.

To be clear, we favor “good” development banks: well-governed institutions with highly professional staff and clear mandates that fulfill their functions well. Such banks should maximize their development impact rather than profits, while ensuring some minimal level of return.

Countries that already have NDBs should aim to expand their role, while others should consider establishing them. Doing so would help to create a financial system that better serves countries’ economic and social needs.

This piece was cross-posted from Project Syndicate. Photo credit: Flickr / Steintec.

Copyright: Project Syndicate, 2019

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Guy Standing: “Universal Credit is cruelty in action”

There are many aspects of this budget that should cause disquiet. I want here to concentrate on two – the freezing of fuel duty and the sprinkling of extra money on the wildly misnamed Universal Credit, the means-tested (i.e. non-universal) social assistance flagship of the Tories and Liberal Democrats.

What Hammond has done is provide about £2.7 billion more to prop up Universal Credit, mainly putting the money at the wrong end of the policy, increasing the amount of money a claimant can earn from a job before losing the benefit. What he should have done is tend to the truly disastrous top end of the policy, and the government should have put a halt to the roll-out, whereby up to seven million people will be enmeshed in the system. It is probably the worst social policy since the workhouse.

The disgrace starts with the fact that claimants have to wait five weeks before they can claim the benefit, and because of well-established delays many have to wait for three months. Iain Duncan Smith, the architect of the policy, said repeatedly that he wanted Universal Credit to be as close to being in a job as possible, which is why all sorts of arbitrary practices are imposed on claimants, such as reporting for numerous interviews, proving they are spending virtually all their time looking for jobs and so on. Well, I am sure Mr. Duncan Smith would never take a job that did not pay him from day one. He would regard it as ridiculous and unfair if told he would not be paid for the first two months. That is what the scheme imposes. And surprise, surprise, huge numbers of people are falling into free-fall debt and worse. Where Universal Credit has been rolled out, homelessness has increased more than elsewhere, resort to food banks has soared, and suicides have gone up. Mr Hammond in a pre-budget TV interview smugly said: “There are no unemployed in Britain.” It was nonsense, of course, but one reason for unemployment being low is that thousands of people have either become too sick to be counted or have drifted into the streets and out of the labour force altogether.

Universal Credit should be stopped, and a full-scale independent enquiry into its inequities should be launched. The heavy-handed use of sanctions is denying huge numbers of people benefits to which they are legally entitled. There is no respect at all for basic principles of due process; arbitrary denials of livelihoods are rife. A high percentage of those denied who appeal are eventually shown to have been falsely denied benefits. But the appeal process takes many months, leaving them drifting into destitution in the interim. If they do obtain a measly ‘loan’ from the Department of Work and Pensions, that is then deducted from any benefits they start to receive. It is cruelty in action.

The other policy I wish to highlight is the freezing of fuel duty for the ninth year in a row. The Chancellor crowed that he was continuing to protect the car driver. Well, his action came just weeks after the Inter-governmental Panel on Climate Change (IPCC) delivered a devastating report warning that we are drifting into ecological disaster due, in large part, to carbon emissions. Unless drastic action is taken to curb use of fossil fuels, primarily in transport, that disaster will come closer. There is no social or environmental excuse for freezing fuel duty. Our children and grandchildren will be those who mainly pay the price.

Stephany Griffith-Jones: “The Chancellor offers a small plaster for large wounds”

Levels of investment in UK are one of the lowest amongst the OECD countries, which worsens prospects of future increases in productivity and expansion of economic activity.

It is therefore a source of concern that the Chancellor has offered peanuts to compensate for the loss of finance for investment, which leaving the European Investment Bank (EIB) will mean. The EIB lent £ 5.5 billion to UK in 2016. The Chancellor offered only £200 million via the British Business Bank to compensate for that! UK will lose almost 30 times that by leaving the EIB. Typical of this Chancellor to offer a small plaster for large wounds – that is clearly insufficient!

Sue Konzelmann: DoPYE… Don’t Pay If You Earn

Philip Hammond’s budget demonstrates a very strange approach to taxation: Tax arrangements become more favourable, the more you earn.

His £3bn budget giveaway offered those earning £12,500 a windfall of around a tenner a month. If that amount does, as claimed, make a critical difference, it strongly suggests that many of us are far closer to the edge than we should be. For higher rate tax payers though, the benefit is more noticeable – something approximating to the cost of a nice weekend away, perhaps. Even though this will include quite a few of his MPs, it’s probably still unlikely to help unite a fractious party – or indeed to make him any more popular with lower income earners.

It should come as no surprise, then, that the “groundbreaking” Tech Platform tax isn’t quite all it might seem, either. It’s predicted to raise some £400m annually, which is certainly not a bad thing from the perspective of other British retailers. But what about corporation tax?

According to the BBC’s Simon Gompertz, Google declared a turnover of just over £1bn in the UK for the last financial year to the HMRC. However, the latest accounts filed in the US by Alphabet, Google’s parent company, “show UK sales of more than £6bn”. This discrepancy is made possible by the complex accounting and tax options available to multinationals: In this case, according to Bloomberg, the rather unappetising sounding duo of the “Double Irish” and the “Dutch Sandwich”, which involves shuttling funds between the Irish Republic and Holland – and then back again. It is also worth noting that all three economies – Ireland, Holland and the UK – are (for now, at least) EU members; so it is apparently not only the UK that has failed to act so far.

At least, though, Philip Hammond can take comfort from the even more questionable approach taken by his predecessor, George Osborne. Osborne’s much vaunted “victory” over Google’s unpaid taxes between 2005 and 2014 was meant to net the HMRC £130m, although corporate accounts show that they actually had to settle for less than £100m. However, it was made to look rather less convincing by an analysis by Reuters news agency. This concluded that, based on Google’s US filings over that period – of £24bn – its tax bill should actually have been around £2bn (rather than £130m). Now that really is a tax giveaway!

That one corporate tax giveaway amounted to almost two thirds of the cost of yesterday’s tax cuts for UK residents – and it probably wasn’t the only one, either. There can be few better demonstrations as to how wrong the priorities of the last two governments have been – and apparently remain. DoPYE indeed.

Geoff Tily: “The Chancellor wants you to think that the Budget was good for working people. It wasn’t.”

The Chancellor claimed that his extra spending was down to the success of austerity. In fact it was an admission of its failure, because the logic of his argument was that spending strengthens the economy and boosts the public sector finances – the very opposite of austerity.

That’s why austerity is a false economy. Over the last eight years, the policies of austerity have vandalised public services, damaged growth and reduced the deficit at a snail’s pace.

That’s why reversing austerity is the right policy. Spending when the economy is weak would have repaired the public finances quicker. And the strength of public services goes hand in hand with the strength of the economy.

For workers this is all far too little far too late. According to the OBR, any improved outlook for growth will lead to more jobs, but do nothing for real wages. The Chancellor attempted to soften the blow on wages with changes to tax thresholds amounting to £130 a year for most workers, but this hardly compensates for wages in 2018, which are down £26 a week or £1350 a year on the pre-crisis peak.

On public services, cuts across the public sector remain firmly in place outside the NHS, as the OBR’s chart on real departmental spending (‘RDEL’) per head shows:

While health spending is set to rise, severe cuts to all other public sector spending will remain in place. This is very far from ending austerity – and the 2015 starting point in the chart above omits the brutality of the cuts imposed by Hammond’s predecessor in the previous five years. Analysis by the New Economics Foundation suggests that there will still be cuts of almost £3.5bn (5.2%) to unprotected budgets after 2020. Even in departments with excepted protections there will be cuts per head, for example on schools – assuming protection is maintained in real terms the schools funding announced at the budget yesterday will still amount to a 2.6% cut per pupil.

It’s clear that both workers and public services will continue to be pummelled by austerity policies for years to come. But it doesn’t have to be this way.

The OBR continues to apply the logic of the household budget, keeping improvements in the economy separate from changes in the public finances. But managing national finances is not the same as managing a household Budget. It’s about time that the OBR and the government acknowledged this and increased public spending accordingly to set the economy on the right track.

In the meantime, austerity continues. How much longer must workers wait for it to end?

This comment is an adaption of a longer post. For the full analysis, see Geoff’s post on the TUC website.

John Weeks: “Forecast growth for 2019-2022 would be the slowest four year average since 2008”

For Mr Hammond, Brexit provides an excuse that keeps on excusing, but he now has dropped it, at least temporarily.  A week ago he “cautioned” that not reaching an EU agreement would undermine his budget plans. Yesterday the caution turned to a warning.  Whether by convenience or intelligence he now drops that lame excuse. He kept it in his back pocket, though, by basing his budget on the prospect of a favoured agreement, which would produce a “double Brexit dividend”

Down-playing the Brexit excuse provided the vehicle for the Chancellor to repeat his prime minster’s claim of austerity “coming to an end”, which neither linguistically nor practically implies an imminent termination of the disastrous policy.

Mr Hammond went into his Budget with the lowest annual public sector borrowing for any fiscal year since 2001, only £26 billion or 1.3% of GDP for the 12 months through this September (ONS Public Sector Finances, Tables 2 and 5b).  In response to these numbers, Mr Hammond betrayed his ingrained ideology with a list of true-blue austerity qualifications:

1. additional NHS spending is conditional on “reforms”, a Tory code word for staff reductions and privatisation; and
2. funding increases for local councils, schools, social care and mental health barely exceed expected inflation.

Perhaps the most revealing moment of Mr Hammond’s underlying ideology came with his attack on the Labour Party, accusing it of being prone to “reckless spending”, which he assured his listeners caused the global crash of 2008 (“Labour’s recession”).

In that context his austere predilections came clearest in his passing reference to OBR projections for economic growth.  His party has held government for over eight years.  OBR growth projections for 2019-2022 average below 1.5%, which if realized would be the slowest four year average since the global collapse of 2008.  The Chancellor does not mention that this dismal growth performance will be the direct result of austerity policies.

That forecast of near economic stagnation under the Tory government prompts a paraphrase of Cassius in Julius Caesar (Act 1, scene 2, lines 140-141), “The fault, dear Hammond, lies not in your Brexit but in yourself, for you are an austerian”.  Drop the obsession with balancing the overall budget and you clear the way to end austerity.  The Tory chancellor will not do that.  His counterpart on the opposition benches will.

Simon Wren-Lewis: “The Conservatives are trying to reduce the level of debt to GDP by too much prematurely – that does not make sense”

A few things you probably won’t read about what the Chancellor announced yesterday. You will have read that the budget measures as a whole amount to a significant fiscal giveaway. In which case the following chart may appear surprising.

Negative numbers represent a current budget surplus, and growing surpluses are a fiscal tightening. You can see that with the exception of this fiscal year, when policy is tighter, the current balance profile of rising surpluses has not changed very much. The reason for this apparent contradiction is simple enough. If nothing had been done, the higher taxes than forecast represents a significant fiscal tightening compared to previous expectations, albeit a tightening that represents forecast error rather than policy decisions.[1] What the Chancellor did yesterday from next year onwards is restore the policy stance to what it was before the forecast error was discovered.

What this means is that the Chancellor has kept his path of modest fiscal tightening over the next five years, As I have said many times, this is simply not appropriate in a situation where interest rates are close to their lower bound and the immediate outlook is highly uncertain. But then this government has never understood about monetary and fiscal coordination.

Labour’s fiscal credibility rule (FCR) allows us to see how differently a Labour government would run the non-investment part of fiscal policy. The FCR requires the government to aim for current balance in 5 years’ time. That, of course, is zero on this chart. That tells you that, if this is indeed the path the current balance follows, Labour will have extra spending or lower taxes than the Conservatives worth over 1% of GDP. That covers the gap the IFS suggested in their costings from the 2017 manifesto with plenty left over.

As I have already suggested, Labour’s overall fiscal stance if they stick to the FCR makes a lot more sense. The Conservatives are trying to reduce the level of debt to GDP by too much prematurely. That does not make sense from a precautionary Keynesian point of view, or from a simple tax/consumption smoothing point of view. But macroeconomics remains an excluded consideration from Conservative/Treasury budgets, and ‘mediamacro’ pretends the government is just like a household that needs to pay off its debts within its lifetime.

This comment is cross-posted from Simon’s blog ‘mainly macro’.

[1] Suppose the forecast error was X. Then imagine that error had not occurred, but the Chancellor had raised taxes by X. The latter would clearly be a fiscal tightening by the Chancellor. But in macroeconomic terms taxes rise by X in each case, so the two are equivalent.

Photo credit from previous page: Blogtrepreneur/Flickr

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As a publicly capitalised institution, the national investment bank would be an important element of Britain’s financial system. It would lend to – and invest in – private companies and public bodies, while co-financing with private banks and investors. Small and medium-sized businesses will be major beneficiaries, especially those more likely to innovate and grow. And it will expand finance for key sectors such as renewable energy, which are presently insufficiently funded by private finance.

After the 2007-08 financial crisis, the UK financial sector significantly reduced its support in financing private investment. This was due in large part to austerity measures imposed by the Conservative government, which discouraged private investment as a result of reduced growth. By cutting public investment, so often complementary to private investment, it further discouraged the latter.

The UK has an incredibly low share of total investment relative to its GDP. At only 16.7%, it was the lowest of all G7 countries in 2016. It was also the lowest of 34 mainly OECD countries in the period 1997 to 2017.

Low levels of investment in the UK are a major cause of low increases of productivity, contributing to the weaker growth of wages and living standards for the majority of people.

The purpose of the national investment bank would be to increase lending and investing in sectors that are key for the country’s structural transformation. As well as important infrastructure such as transport and health services, it could help lay the groundwork for a greener economy. It would also provide lending to underfunded creditworthy SMEs which, given that they make-up the majority of UK businesses, are so central for generating jobs.

Launching a national investment bank

In order to achieve a significant loan volume, the national investment bank would require an estimated equity of around £40 billion, which would mainly comprise capital paid in by the government. But it may well see a return on this if the bank profits from its transactions after lending commences. These profits could then be reinvested into the bank as equity, enabling it to continue expanding its lending volume, without the need for further injections of capital from the government.

This is what happens with institutions such as KfW – the German government’s development bank – and the European Investment Bank. An ideal way forward, to achieve high levels of loans soon, is to put significant capital upfront – for example £10 billion a year for four years.

There is a very strong case to be made that, in the UK, future loans made by the national investment bank should not be counted as part of the government deficit target, nor towards public debt. Again, this would be similar to the practice already followed for KfW in Germany. A clear economic rationale is the fact that these loans would be channelled to growth-promoting investment. So they may reduce, and certainly not increase, future debt burdens when debt is measured as a percentage of GDP.

It is important to stress that though the UK national investment bank would be publicly owned, (as the government would provide the initial paid-in capital), it could fund its operations on the national and international private capital markets. Furthermore, it could co-finance many of its operations with private lenders and investors.

Serving the real economy

The UK national investment bank would operate in close collaboration, rather than competition, with the private financial and non-financial business sector. Though publicly owned, it could fund its operations through private capital markets and co-finance operations with private lenders and investors. Thus, with relatively scarce public resources committed as paid-in capital, it could catalyse lending and investment on a far larger scale than its public contribution. This is especially valuable for a government committed to major structural transformation of the UK economy. Making it more dynamic, greener and fairer requires significant investment.

Public development banks are more effective at serving the real economy, as that is their main aim – rather than that of solely pursuing short-term profits. National development banks have been an important feature of financial sectors of most developed and emerging economies – especially the most successful and dynamic ones, including Germany, China, India, South Korea, India and Japan. The UK has been an exception in not having such a public development bank, despite its evident need.

The establishment of a national investment bank will help end austerity because it will create the next generation of technology, infrastructure and services that will lead to a fairer and greener economy in the medium to long term. In the short term, it will provide a much-needed boost to investment, leading to higher aggregate demand, and overall increased production.

This article is part of our 100 Policies to End Austerity series, and is cross-posted from The Conversation.

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