Jan Toporowski

TO PURCHASE THIS BOOK click here and use AGENDA25 to obtain a 25% discount

The post The Return of the State – authors introduce their chapters appeared first on The Progressive Economy Forum.

Robert Skidelsky

Will Hutton

The post The Return of the State – Council members explain the purpose of the book appeared first on The Progressive Economy Forum.

There has been a long-standing proposition,  embedded in Aristotelian philosophy, catholic social teaching, best HR practice and socialist thought that there is a fault line between alienating, dehumanising labour and humanising work as craft, as career, as a source of meaning and purpose. Today’s labour market exemplifies the distinction.

Covid has sharpened the divide, with work experience dividing into a “K”. Some leading firms have behaved in exemplary fashion, curating and looking after their workforces, of which a large number are firms committed to a declared purpose. Others have been compelled by the economic conditions or worse chosen to treat workers as disposable notations on a spread sheet, accelerating the enlargement of an already sizeable precariat.  It has been 16-24 years olds who have been hardest hit, the age cohort, for example, that has driven the online membership of the website “ Organise” from 100,000 members to over 900,000 in 12 months. More than half of job seekers check the website Glassdoor before accepting a job. Awareness of both the need to organise collectively and the relevance of good workplace experience is rising strongly

This is accompanied by a widespread intellectual acceptance of the need to rebalance capital and labour to moderate the K, now including the IMF and OECD. This has been grist to the mill for purpose driven businesses who believe in the stewardship of their staff and good work. Union membership is rising: the latest research shows union members are happier than non-union members. Politically the Conservatives, aware of these trends, have proposed unified workplace regulation and Kickstart: any labour market “deregulation” has to be covert.  In the US Joe Biden is a self-professed pro-union politician who aims to promote stakeholder capitalism, union membership and is finding the resource for a climate change corps. There is a new mood abroad – Labour should capitalise on it.

Five Principles for a Charter for Work

1. All workers should be categorised as members of the organisation. The new legal presumption should be that workers are members of organisations with day one rights , for example, to holiday, sick pay, basic redundancy rights, representation and bargaining rights building up to full redundancy rights after 24 months.  These rights should extend to “dependent contractors”, with clearly defined derogations for the genuinely self-employed

• Occupational citizenship. There should be a reclaiming of the right of professions, trades and sectors to govern themselves and set their own standards within a framework of collaborative bargaining. In particular differing sectors should define and bargain for fair working conditions and fair pay – including the terms of working from home in hybrid working weeks. Recent changes in New Zealand labour law provide an useful starting point.

• Partnership makeover. All firms (including private firms) under a new Companies Act to be required to have processes for workplace dialogue, to recognise a trade union, for all working arrangements to be collectively negotiated –  and to make available profit sharing/equity ownership schemes. Trends towards professionalisation and more accountability in trade unions to be accelerated ( eg observing terms of Corporate Governance Code) , particularly as unions should be given statutory responsibilities for co-administering  training and workforce development funds as part of a redefinition of welfare around flexi-security principles. Mutual work co-operatives to be created to take over work-brokerage and recruitment agency functions.

• Pro-active creation of work. PEF has proposed initiatives like the National Youth Corps and the National Environmental Youth Corps, a British variant of the US Climate Change Corps with an embedded training element. There is potential demand for up to 350,000 green apprentices.

• Enforcement. The proposed unified enforcement body needs to be properly resourced, with proper accountability mechanisms and referral process.

Will Hutton

PEF March 2021

The post Will Hutton – A charter for work appeared first on The Progressive Economy Forum.

1.      The focus of economic policy should be on maintaining a high, sustainable level of employment. This is correct theoretically, practically, and socially. It counterbalances the capitalist market system’s tendency not to create a high level of employment; it largely pays for itself in generating revenue: it is socially right because it avoids the waste of human resources entailed by involuntary unemployment, crowding in activity that would otherwise be crowded out.  

Sustainability is a key requirement for any policy of high employment today. The workforce must be employable in work for which there is both demand, and which, by respecting nature, also secures the future of the planet.

These are general propositions for policy valid for most advanced economies, but they have a special application to our country at this particular moment in time.

2.       The consensus of forecasts is that the British economy will be more than 10% smaller this year than in 2019, with only a moderate recovery in 2021.  Unemployment is set to rise to at least 8 per cent (2.5m), with underemployment almost double this. The 16-25 age group is projected to take a disproportionate hit, shouldering up two fifths of the rise of unemployment to a million despite representing only a fifth of the workforce.

The roll out of the new vaccines and extension of the furlough scheme to March may postpone the worst effects of the predicted downturn but they offer no basis for sustained economic recovery: little or  nothing is in place to stop the gradual haemorrhaging of  businesses and their supply chains.  This means that job retention, which aims to preserve many jobs which two lockdowns have made obsolete, must urgently give way to job creation.

In conclusion the economy has to afford more employment opportunities, especially for the young. British capitalism – currently biased to short term value creation and rent extraction (rentier capitalism) – has to be repurposed to long-term, environmentally sustainable value creation. The international trade and financial framework must be as accommodative to these aims as possible. If these are the medium and long term aims, then the foundations must  be incorporated in any short term programme.  

B.            SHORT-RUN RECOVERY

1. There are two urgent things the government should do now.

It must establish a tripartite Economic Recovery Board, incorporating a Taskforce on work. The Board’s task would be to identify those economic sectors, nationally and regionally, which could be a major source of future employment.  These are likely to be, indeed should be:

the green economy

the rural economy

the digital economy

the caring economy

the mentoring economy

The Task Force on work should be charged with identifying work and educational opportunities now available and linking them to these potentially expanding sectors. This would give short-term work and training schemes the focus and purpose which is largely lacking from emergency programmes – a bridge between the Job Retention phase of Covid-19 and the Job Creation phase which has to follow it. 

Initiatives deserving urgent consideration are:

1. The government should build on its own Kickstart programme, the experience of the Future Jobs Fund and the model of  Roosevelt’s Civilian Conservation Corps  by ensuring  all  unemployed  18-25 year olds  are offered work and training  in urban conservation, rural regeneration and  digital skills. Kickstart is supposedly to generate 300,000 placements for the young people, largely from the private sector. No one now expects hard-pressed businesses to offer employment on anything like this scale in the coming months.  So the public sector will need to become “employer of last resort”. There should be a youth guarantee of work and/or training. The Roosevelt scheme provided  millions of jobs for young people in

“the prevention of forest fires…plant, pest and disease control, the construction, maintenance and repair of paths, trails and fire-lanes in the national parks and national forests and such other work…as the President may determine to be desirable”. 

A youth led National Youth Corps (NYC) should be created in the same Rooseveltian spirit ( one contemporary model is the Austrian Zivildienst) as the umbrella organisation in which volunteers, paid the minimum wage for a year and combining at least 3 months training, are able to work in a range of exciting and socially valuable projects across the country – giving them a vital role  and stake in stimulating recovery. The NYC should go beyond Kickstart to stimulate  local and central government, the private and third sectors to develop and create work-rich projects (see below), connecting volunteers to opportunities via a dedicated App, offering mentoring and crucially the chance of working away from home. With sufficient urgency such programmes could be up and running within the next six months.

• All regional and local authorities should be asked to bring forward plans for work which needs to be done in their areas  for strengthening local economic resilience and  improving local amenities and  which now languish for lack of money. Examples would be the widening of the Manchester Ship Canal and retrofitting local properties to create thousands of new jobs as well as scaling up local training programmes.

The government should allocate a quantum of money to regional and local authorities for at least one year leaving it the authorities themselves, together with private businesses, to decide what jobs and training schemes they want to create.

• These initiatives should be supported by measures to sustain demand, given a savings ratio approaching 30 per cent, the imposition of a second lockdown and the likelihood of a thin Brexit deal (or No Deal).  There should be an acceleration and expansion of its national infrastructure programmes, along with a 12 month temporary cut in VAT for all goods and services which in 2008 proved a very effective stimulus in response to the financial crisis.

The government advanced a £8bn infrastructure spending earlier this summer. It should be expanded. The 3 year Comprehensive Spending Review should not be deferred, but instead brought forward to be announced in March 2021 at the latest. In particular the £40bn five year infrastructure plan should be front-loaded into the next two years, with priority given to big environmental projects, social housing and NHS/social care.  In doing so it would simply be following the advice of respected organisations like the International Monetary Fund. It writes

“Empirical estimates based on a cross-country data set and a sample of 400,000 firms    show that public investment can have a powerful impact on GDP growth and employment during periods of high uncertainty—which is a defining feature of the current crisis. For advanced and emerging market economies, the fiscal multiplier peaks at over 2 in two years. Increasing public investment by 1 percent of GDP in these economies would create 7 million jobs directly, and between 20 million and 33 million jobs overall when considering the indirect macroeconomic effects.

FOLLOW THROUGH – REFORM TO UNDERPIN RECOVERY

• Launch the investment covenant. A newly created bank ( either an arm of the National Investment Bank or  specially created “ bad” or refinancing bank) will buy corporate debt of distressed companies, partially underwrite the first tranche with a credit guarantee and package up the loans into single tradeable “ reconstruction” or “build-back-better” bonds. Banks and Insurance Companies will be required to hold these bonds as up to 10 per cent of their balance sheet assets. Companies accepting this debt relief will be contractually required to bring forward a proportional increase in investment spending – and accept reciprocal obligations (see below).

• Roll over and extend all existing loan schemes but with reciprocal obligations (executive pay, commitment to train, participation in Kickstart and NYC, union recognition, adherence to Social Value Act, sign up to Corporate Governance Code, Sustainable development goals). These obligations should also be incurred by all companies being relieved of debt.

• Transform the British Business Bank into a National Investment Bank, properly capitalised and with power to lend.

• Banks to publish term structure of lending as part of drive for more long termism. A comply or explain regime to be created to explain why lending remains short term.

• Corporate Governance Code to be toughened and adherence made mandatory

• Pilot a perpetual bond

        INTERNATIONAL

• Follow through any EU trade deal with negotiations on service sector access, improved access for goods and mutual recognition. Either leading to  eventual full membership of single market and customs union or a unique European Economic Area plus 

C.    THE MEDIUM AND LONG TERM

British capitalism and financial system must be restructured around the pursuit of social purpose. Only thus can it take full advantage of digitalisation and protect natural resources and habitats in such a way as satisfies the demand for social fairness and equity between human demands and the logic of nature. Without such an economic and social settlement, the risk is ongoing degeneracy ultimately provoking civil unrest.

1. Macro Policy

• Establish a new Macroeconomic Policy Framework which integrates Fiscal and Monetary Policy in pursuit of the single objective of a non-inflationary level of high employment. This recognises that monetary policy on its own cannot shield the economy against shocks to supply or demand or restore full activity level following a shock. The Bank of should be given a dual employment/inflation mandate  like the Fed. It should aim to keep down borrowing costs for the government; with forward guidance in the form of a promise not to raise Bank Rate till unemployment has fallen below a certain percentage. We cannot afford a macro-policy just based on an inflation target and a passive fiscal policy except in emergencies.
• Fiscal policy framework. Borrow for capital spending but balance current revenues and spending. Accept debt service limit (10 % of tax revenues?)
• Increases in capital gains, corporation, inheritance taxes. Introduce environmental taxes.
• Set in train the reorganisation of tax system around the Mirrlees report (proper taxation of capital and wealth, environmental taxes, reform of council tax, try to avoid high marginal rates for low earners)
• Build in green targets for all public capital projects (Green New deal)
• Up to 600,000 public sector jobs could be created, with more than half in the NHS and adult social care, as part of rebuilding of public capacity and reversing hollowed out civil service.

• Stakeholder Capitalism

• The objective is to create a capitalism that is driven by purpose, long term value creation and sustainability – balancing the needs of all stakeholders and in partnership with an agile, capable, well-resourced public sector.

• Legislate for the multi- stakeholder company. A new Companies Act incorporating hardened up Corporate Governance and  Stewardship Codes.
• Encouragement of varying ownership forms – co-operatives, mutuals, public benefit companies, new forms of collective ownership.
• Towards the digital trade union. Trade unions to use IT to ballot members etc as part of digital enablement of participatory trade unionism and 21^st century collective bargaining.
• Consolidate National investment bank with scaled up regional branches
• Organise a regional industrial strategy. Key components to include a “scale-up” ecosystem around Catapult network, creating regional growth hubs focused on key sectors – space, robotics, new pharma. AI applications etc
• Overhaul CMA
• Support with roll out of British style Fachhochschule ( universities of applied science)
• Overhaul educational curriculum with wider range of skills – emotional intelligence, digital, ethics etc

• The social settlement

• The guiding principles must be universality of provision and fairness.

• All forms of work – whether part time, flexible or full time – to carry the same employment rights, creating a British system of flexi-security.
• Fully fledged National Youth Corps as part of a Work Corps for all with training arm
• Universal basic income for children up to 18 – child benefit etc
• Universal basic services
• Restructure care sector into NHS as part of drive for public health resilience.
• Properly funded universal national tutoring service 
• Pursue Devolution Agenda ,  including  tax raising powers (eg local income tax) for regional authorities.   

• International

• The system needs to be more resilient and sustainable
• Procurement policy for essential services, particularly health and food not to be dependent on global supply chains.
• Movement of capital and labour should also be aligned with national purposes
• Work with EU and Biden’s US to reinvigorate WTO
• Joint action on tax havens and tax abuse by High Tech
• Intense commitment to UN Sustainable Development and climate change goals
• Have a referendum on re-joining the EU in 10 years time

Photo credit flickr : IFA teched

The post Sustaining and creating employment now and post Covid appeared first on The Progressive Economy Forum.

 Symbolic of the failure was that Britain’s 10,000 bank branches were not seen alongside petrol stations, supermarkets and hardware stores as offering a core economic function that needed to be kept fully open during the lockdown, instead of closing or opening part-time. Of course in a way the government was right. Bank branches in Britain have long ceased to be hubs supporting local enterprise: they now largely exist to process the documentation associated with providing mortgages or the odd financial transfer that does not lend itself to automation – hardly needed during lockdown.

  But that is indicative of the problem. The British financial system’s long standing dissociation from the real economy of innovative wealth creation while embracing real estate lending in incredible volumes has widened over the last 30 years. The government may want to use banks as the pipes through which it can channel vital emergency credit to business. But the pipe network barely exists, and even where it does the pipes are shrivelled and silted up.

 British clearing banks know their business customers largely as notations on centralised data bases. It is expensive and time-consuming to organise sophisticated credit scoring of business borrowers, let alone to get to know their business models, their leadership teams, their strategies and sales prospects. Indeed beyond London and the South East there is very little net ending to small and medium sized enterprises ( SMEs) at all. Credit scoring of small and medium sized companies is contracted out to agencies like Experian who have industrialised the process, or for larger companies left to the tender mercies of credit rating agencies. Banks want to conserve their capital and deploy it to maximise their financial returns, and on top regulators insist that the risk weightings associated with much business lending, especially SMEs, are significantly higher than those on real estate lending.

Lending to business is thus risky, low margin and expensive in terms of foregone opportunities to use scarce capital on more profitable lending to property. On top the banks suffer the same disability as the rest of Britain’s quoted companies: they have no anchor “block-holder” shareholders but rather the same shifting, often anonymous, shareholder base of institutional investors who, with honourable exceptions, are disengaged from the companies in which they invest and largely ignore their stewardship obligations. Their interest is in short term share price performance. Where the banks do have large shareholders they are “ activists” insisting that they promote even more short term profitability by even more disengagement from business lending.

 Government schemes to help de-risk business lending – typically various business loan guarantee schemes – are themselves expensive, with the costs displaced onto the business borrower. Small wonder that of the £1.7 trillion of loans on British bank balance sheets in 2019 some £1.45 trillion were represented by mortgages. Lending to small and medium sized business stood at some £160 billion, of which £110 billion was real estate or property related. Manufacturing lending totalled £10 billion. Net new lending to the entire sector stood a miserly £15 billion over all 2019, a fraction of the credit advanced by regionally dispersed German banks – many co-operatively or publicly owned . To explain Britain’s much criticised incapacity, compared with Germany, to manufacture vaccines, ventilators, masks, testing equipment and PPE, you need hardly look beyond these figures.

 The British Business Bank, set up by the Coalition government to plug the gap, is a misnomer in terms: it has been disallowed from doing any significant lending itself after intense lobbying by the banks who complained it might displace the private sector so that its principal job is to broker financial support, in particular government schemes,  to particular borrowers that would otherwise not have known of them  – a job which its some 300 staff in London and Sheffield do effectively. But besides public business and development banks in other countries – Germany, Holland, Sweden, South Korea, Japan – its size and scope is an embarrassment.

 The necessary transformation of the entire system requires action on a number of fronts. In response to the crisis the Treasury has introduced  Covid Business Interruption loans (CBILs) that companies can apply to banks for.  To support CBIL lending the  Bank of England  has  launched  a new Term Funding scheme for Small and Medium Sized Enterprise (TFSME) that banks together with relaxing capital requirements ( and requiring the suspension of dividends), the Bank says could boost lending to £190 billion  to SMEs over the next twelve months – as  it dryly observes, 13 times more than the banks managed themselves over all of 2019. But as banks conserve their capital, they have little appetite to increase their lending 13 times – the scale that is necessary.  In the most recent week banks lent £1.3 billion: weekly lending needs to run at ten times the rate £12-15 billion – as much as banks lend to SMEs in a year –  if by mid-summer there is not to be an avalanche of closures and redundancies.

To dynamise what is happening he Chancellor should chair an emergency task force tasked with driving lending up by the day, to be monitored with the same intensity we monitor Covid testing. The British Business Bank, miniscule compared with industrial development banks in other countries, needs immediately to be given the mandate and capital to increase its own lending ten times – across the country. It must be tasked with getting the money to where it is needed across the country beyond the south-east – with the banks cajoled into becoming active partners.  It will be a transformation of the role of the BBB into a fully fledged development bank in a matter of weeks – but if the army can build Nightingale hospitals at such speed the BBB must rise to the task in its sphere no less quickly. Its lending should not just be about preserving viable businesses: it should be thinking of supporting firms, especially SMEs, in key sectors, especially those identified as priorities by the Industrial Strategy. The MacMillan Committee recognised the problem ninety years ago. It is sad that it has taken a pandemic to trigger the necessary action.

 Secondly bank shareholders need to say more vocally and publicly than they have hitherto that they will support banks as they lend to distressed lenders. It is a public interest function. As fast as possible a new Companies Act should require banks retail and commercial arms, as discharging core economic functions, to incorporate as public benefit companies whose task is first and foremost to transmit money and credit to achieve public interest outcomes. Profit will follow from the delivery of purpose. The Act should also lay a responsibility on shareholders actively to curate and steward the companies in which they invest, ensuring that they deliver on the purpose for which they were incorporated. Britain will thus create a new generation of commercial  banks that serve the economy and society. Many good bankers would welcome the change.

 Thirdly it is no longer exports that requires financial guarantees. The fourth industrial revolution is being driven by scientific advance. Intellectual property rights need to become as good as collateral as property, so that the risk weightings on both are the same. A transparent market needs to be established in intellectual property rights ( as Big Innovation Centre has consistently argued) so that they can be fairly valued, and then crucially insured by government just as it does exports, to create bankable low risk weighted collateral. This insurance function can also be extended to the top slice – say 20 per cent – of other loans to small business, so that insured IP loans, insured  SME loans and eventually British Business Bank TFSME loans can be bundled together and sold as bonds to the UK insurance industry, allowing it to diversify part of its £1.9 trillion holdings of financial assets into bonds that directly create real wealth, with the funds recyclable for a fresh round of financing.  The insurance industry should not be allowed to stand on the sidelines.

Some companies will not want loans, but equity: the venture capital and private equity industries must transmute themselves from their default role as predators and asset sweaters to long term patient investors – working with the newly  created Futures Fund to take generous equity stakes in companies in need.  Supporting intellectual capital rather than seeking property collateral should be new North Star of British finance

 If there is not to be a terrifying slump followed by stagnation, the British financial and ownership system needs a revolution – and to take place in mere  weeks. Good people abound in it, marginalised until now by the predominant culture of wealth extraction. They need to be unleashed. These measures taken together would transform the piping of the British financial system. Instead of being an engine to inflate property prices, it would become an engine to promote innovative enterprise – a crucial component of the economy the UK need to grow not just to avoid deep economic scarring in the months ahead but to support great businesses, jobs and livelihoods in the future. Once we get to the other side, the new systems of engagement and support need to be retained. Good, after all, might come from all of this pain.

Image credit: flickr/Mike Cohen

The post A Financial Revolution is Needed – in Weeks appeared first on The Progressive Economy Forum.