The Point

Last updated: 27 June 2022.

Profit before People

 

Conor Cheyne is a young activist in Highlands Socialist Alliance and the Radical Independence Campaign. People getting involved in the movement often hear phrases they are not familiar with. Here Conor gives an introduction to the right wing ideas we all currently live under – commonly known as neo-liberalism.

 

It has often been said of fascism that it is just “Capitalism with the gloves off”.  This phrase though is perhaps  better attributed to a different system - one that most developed western powers have used for more than 30 years. This system has resulted in massive economic booms and individual wealth growth like that of no other period in time, though that isn't even half the story. On the other side of the coin it has caused the worst recession the western world has seen in nearly 100 years, poverty levels have increased dramatically, inequality has risen to mind blowing percentages, and despite being responsible for the World Banking Crisis those at the top of this system have continued to prosper, they even gained.

This is Neo-Liberalism.

“I congratulate you on these remarkable achievements, an era that history will record as the beginning of a new golden age for the City of London. I believe it will be said of this age, the first decades of the 21^st century, that out of the greatest restructuring of the global economy, perhaps even greater than the industrial revolution, a new world order was created”

These were the words of Gordon Brown, addressing some of the most important people from the City. This also happened to take place just weeks before the 2008 world financial crash. Brown had once claimed the end of “Boom and Bust” yet as we have seen, this was pure hubris and ignorance.

The failure by so many financial experts to see the impending doom is something that has astounded many - but it would astound even more so when you dig deeper into the role of Neo-Liberalism in Britain and the world, its effect on the economy and the effect on the population.

Neo-Liberalism was championed by Milton Friedman and Augusto Pinochet during the 1960's and 70's then Ronald Reagan and Margaret Thatcher in the 80's. It is the concept of financial freedom, de-regulation, privatisation and free market economics. Its mantras were

• Freedom to buy, sell, speculate, accumulate.
• That individuals should be able to gather as much wealth as they can.
• That - in paraphrasing Thatcher - “Greed is Good”. The wealthy are touted as “Wealth creators” and that wealthy - if not exceedingly wealthy - people are not only good, but a necessity in modern society in order to create businesses which in turn create jobs and create more wealth.

During the post war years there had been a different outlook. The laissez faire system that had been in place finally came to an end with the final touches on new welfare reforms such as the new National Insurance Act, creating the NHS and the Welfare State. More workers rights, strong trade unionism, and the idea that all companies should have responsibilities to the State, the people and the community, resulted in new ethical workings that had never seen before. This contrasts sharply with the introduction of the Neo-Liberal system in the early 1980's which preached the concept of companies having one responsibility above all else, to provide a profit to their shareholders.

In social terms, it was the basis for “trickle down economics” in which the the rich would get richer and the money would flow down to the poorer in society. As we have seen, this has not been the case with inequality in Britain rising. The bottom three-fifths of the population saw their share of national income fall from 40% to 33% from 1979 to 2005 while during the same period CEO pay rose by almost 300%.

Globalisation has marched hand-in-hand with Neo-Liberalism. As the world has shrunk, so too has the percentage of wealth held by the poorest on the planet. Research released earlier this year by Oxfam showed that the richest 85 people owned and controlled the same amount as wealth as half the population of the Earth – 3.5 billion people. Globalisation and Neo-Liberalism have complemented each other very well – from the point of view of the 85.

A UNICEF inquiry in 1993 estimated that around half-million deaths a year were the result of neo-liberal “reforms”. We have seen massive organisations outsource work to areas of the world with very cheap labour such as Bangladesh and China to maximise profits while doing business in Britain and paying little to no tax through the use of legal loop-holes. The result on the ground though shows people in developed countries where these organisations operate having less work, while the cheap labour becomes a norm in the 3^rd world countries and developing nations. The UK and particularly the US have been key players in neo-liberal globalisation.

Trade deals pushed by the US across the world, especially in South America, have resulted in poorer nations being controlled and held for ransom by multi-national organisations. The US has a policy of creating trade deals for the benefit of its own organisations, even if that means harming the native population of the country it is trading with. These include such deals as the North American Free Trade Agreement which has seen the Mexican corn trade and the farmers who produce it fall into major trouble thanks to the cheap American corn which is subsidised being sold in Mexico that was part of the agreement. It also gives companies the right to sue the governments involved if they pass laws which could effect sales etc. which has given multi-national corporations similar if not more power to that of governments, in essence all but destroying democracy. It is often seen as when governmental change happens somewhere across the globe, that new government could find itself with its back against the wall if the reforms they plan do not favour the large multi-nationals. UK Governments of both political stripeshave previously stated their “desire” to follow these methods. The intellectual Noam Chomsky, in his book “Neo-Liberalism and the Global Order” touched on this;

“The first beneficiaries of a country’s resources are US investors, while Latin America fulfils its service function without unreasonable concerns about general welfare or excessive industrial development that might infringe on US interests”

While global inequality has become a major problem, so too has it in Britain. The UK ranks as the 4^th most unequal country in the world with 1/5 children growing up in poverty. If you look in areas such as Glasgow’s East End, the relative poverty is very similar to that of the 1930s where 1 in 4 males do not live to see 65. This surely indicates that something has not worked out quite right in these so called “Ages of Prosperity” that we “all enjoyed”.

In the '80s it was trendy to own your own home. It became the norm particularly when council homes became available to buy. While on the surface this seems a fantastic idea - a council house tenant having the ability to buy their home - it has had horrific consequences that we are seeing the legacy of today, which is a major contributor to poverty in Britain.

As they were sold, the money was used to pay off debt and like most other income at the time, used to fund tax cuts for the rich or “Wealth Creators” instead of being used to build more council houses. Firstly, this meant many working class people were getting onto the housing ladder for the first time through the use of a mortgage. When they couldn't keep up the repayments for one reason or another –  agood number because of coal mine and factory closures and job losses, – the house would be repossessed. With many houses repossessed, they were bought up by leasing companies who now had control of masses of cheap stock.

Today, 2/3 former council homes are in the private rented sector.

Secondly, the amount of council housing stock reduced dramatically with very little built in the past 30 years to replace those sold. Both of these situations have resulted in the same scenario which is a widespread problem here in 2014; Many working class peopleare eking out a  living in the private rented sector, in which they pay double if not more for a house than if it was council rented. This has meant more taxpayers money being given out to private landlords through Housing Benefit. Also, the council houses that remain have been used to house the worst off in society. The disabled, the under privileged and those lowest down the poverty ladder have been put into council housing estates and have been left. These areas are run-down and are home to those in the worst poverty in Britain. Demand for a council house is phenomenal. With hundreds of thousands of people on waiting lists and only a fraction available, homelessness has increased as the private sector is just too costly. The solution seems simple, build more council housing but every time plans are announced for housing it is for “Affordable Housing” at £140,000 etc.

Of course, you cannot forget the housing bubble that contributed so well to the UK recession after the banking crisis, a housing bubble that is once again being pumped up as I write. Not only were very few council homes built, but not nearly enough private houses have been built in the past 30 years. This, similar to the council house scenario has led to a shortage of housing stock which as pushed up demand, however since these houses go on the market, higher demand results in higher price. By 2008 this pushed the price of housing so far that it was only going to go one way after a while, down. But, the housing bubble was loved by the Labour government just as it is today with the Tory/Lib-Dem Coalition. Massive house prices help ‘grow the economy’, bmaking voters feel better off. But with house prices in London rising an average of 11% in 2014, while the rest of the UK isn't even half that, problems will certainly re-occur.

If you travel around former coal pit towns or towns that were once heavily centred around manufacturing, this is where the true cost of neo-liberalism is found in Britain. Towns which once thrived, where men had respectable, stable jobs with decent enough pay have became ghost towns and turned into pits themselves. Jobs in manufacturing and in the pits, while not the most pleasant jobs in the world, gave those who worked in them real pride. Their jobs were a symbol of who they were and for many, a family legacy as their fathers and their fathers before them all worked on the same ground. These jobs also provided a stable income to provide for a family. During the 80's and 90's though this all changed. Mass closures left thousands on the dole queue. A former miner used this to explain the “Benefit Scroungers” of today:

“Just imagine, being an 18 year old boy growing up in one of these towns at the time. Seeing your Father, your Brother, your Uncle, all once proud working men now queuing to receive state benefit, 15 years down the line, with still no jobs of similar calibre available, the boy that was 18 is still on state benefit except the odd job here and there because that's all he has ever known. It’s not that Britons of today are lazy, it is that all their hope and desires were killed 20/30 years ago, along with their towns”

If you look at these same towns today, there are jobs available now, though nothing like those that once were. An Asda, a row of bookies and in particular, call centres. These jobs are low-pay, little job stability and you have very little pride in what you do when working in these places. How are these towns to prosper and how are the people to prosper? Manufacturing once accounted for 1/3^rd of national output, but now sits at 1/6^th. This can be contrasted to the rise of finance which doubled its national share output during the same time. In the figure below, you can see the stark rise in inequality since the introduction of neo-liberal ‘reform’ in Britain, measured by the Gini Index

Low pay has become a trademark of neo-liberal economics yet in 2010 the CEOs of the UK top 100 companies average pay rose by 55 percent. With the help of the government, large companies are encouraged to move to the City of London. The City – in reality -has become one of the largest tax havens in the world not far behind the Cayman Islands. This at a time when poverty is at disgustingly high levels and the public sector is being squeezed more and more. We all heard the news last year. Starbucks, Amazon, Google paying little or no tax in Britain. Vodafone and Nero to name a few have all been guilty in the past of the same crime. There has been no punishment or serious change in the law. Why?

To put it in terms that can be easily understood, a big deal is made of “Benefit Scroungers” who apparently cost the taxpayer so very much money. Tax Avoidance from large companies and the super-rich costs us nearly £70 billion per year (some sources put it closer to £160 Billion), Job Seekers Allowance (in total) costs £4.5 billion. Job Seeker Fraud is a tiny fraction of that.

Low pay in Britain is not something that has to be. Large companies choose to pay low for numerous reasons; keep profits high, governments will subsidise low pay with state benefits, and the state won't do anything about it, as the companies may just pack up and leave. It is not acceptable that more than half of people receiving state benefits are in work yet need them as their pay is so low. What this means is, the British taxpayer is paying people the money their employers should really be, while big employers take billions of pounds profit. So these large corporations are not only paying little-to-no tax, they are also paying their employees a salary that is just not possible to live on. This is not because of emerging markets where labour is cheaply available, this is because consecutive governments in Britain are so sure that if the rich continue to get rich the rest of the population will get enough scraps off the tables. The reality is most of us have never even had a nibble.

There is need of a major change of how companies are credited as being successful. In today’s world, success is rated on the stock exchange but a new, progressive way is needed. The stock exchange takes no regards of how the company does environmentally or what it does for a local community. Barclays have had a terrible time of late with Libor scandal, PPI claims and under-performing badly. Despite this, they announced that their CEO would be getting a nice £2 million bonus. In the following days it would be announced by the same company that over 7000 jobs would be lost across the UK. Now, you could be forgiven for thinking that if a company has to let go 7000 staff that immediately points that they cannot be doing very well. But, in a world of the Free Market and Neo-Liberalism you had better think again as just minutes after announcing the job cuts, Barclays Stock Price rose quite considerably. All on the basis that cutting jobs will increase profit and therefore make the company more valuable.

The markets of the world are now all inter-related. A knock in one is almost sure to be felt in another. This was seen in the world banking crisis of 2008 as many nations across the globe felt the impact of a careless banking culture which had been accepted across the board. In 1970, 90% of international financial transactions were connected to the real economy. 30 years later and that figure had been turned on its head with 95% of transactions now speculative. De-Regulation of the banks and the total freedom given to the markets led to the crash and will certainly lead to another. Without proper controls on the banks and other financial institutions, no economy can be classed as “safe”.

The danger is that mismanagement of money, gambling it on the stock exchange for instance for a quick way to get rich, is exactly that, a gamble. Massive amounts of money are ploughed into speculating and taking over other companies. The economy affects every single person in Britain. It affects our food prices, gas prices and tax hikes. Something that impacts everyone so greatly should not be left in the hands of businessmen who will throw money carelessly around. It should be kept secure by regulations on the markets.

 A free market allows anything to be done with money with little or no involvement from the government, however the crash in 2008 showed what happens when there is no regulation, in this case it was the banks. De-Regulation of the markets by Thatcher opened up new possibilities of wealth although in doing this, organisations operated in unethical ways, they also became so big that it was seen they could not be allowed to fail. This was shown when the banking crisis erupted and the British banks were bailed out to a tune of roughly £850 billion through the use of tax-payers money. Those at fault for the crisis were never punished and they knew that their excessive “Casino-Style” banking, should it fail, would be picked up by the government. They knew this as before de-regulation of the banks in Britain and America, world banking assets stood just under the total world output. In 2008, world banking assets were $214,000 Billion, 3.5 times that of world output. In the next figure, you can see the percentage rise of bank assets to British GDP, coincidently (I think not) this also shows a rise as neo-liberal reforms come into force.

Along with de-regulation, privatisation is a big part of neo-liberal policy. This would be defined by its supporters as

• trying to move as many industries and sections of the state as possible from under public ownership to private ownership in order to create wealth and competition.

From the railway and energy companies to prison services and the NHS, much that once belonged to the public has or is beginning to be privatised. We are now facing massive bill increases every year for energy while the energy companies make ever increasing profits. The idea of a private company is to make as much profit for the shareholders as possible, so I find it quite astounding that something such as energy, one of the most basic needs, is left in the hands of private owners to make huge profit from. The same can be said for the railways, which are essential, with ticket prices rising higher simply to increase the pocket money of a millionaire. While, in the past, publicly owned companies may not have been the most efficient, things have changed since then in terms of regulatory bodies and public scrutiny, and there is no reason why industries could not have improved in the hands of the public. With energy prices regularly headline news, David Cameron's solution is “More competition is needed”. Fair enough, some might think, but it is the same idea that was used as justification when energy was first privatised.

There are currently 6 large energy companies operating in Britain and coupled with little or no regulation on the energy market, they have all been able to monopolise it, making vast amounts of money by all raising their prices at roughly the same time by roughly the same levels. Privatised companies operate to get profit, they do not operate for customers as such. Not only that, they receive government subsidies for certain things: such as train companies receiving subsidies for running services to “non-profitable” destinations.

So taxpayers money is being given to private companies though one of the reasonsgiven for privatisation is that taxpayer money would not have to be spent?  Strange.

The East Coast train service which runs from Inverness, Newcastle then to London is currently in public ownership and since being put into public ownership has received great praise for the quality of service it provides and the cost of the train tickets compared to the private train companies. Last year it made a profit of around £500 million pounds which being a publicly owned, goes straight back into the public purse. Although it hasn’t been, this could be spent, possibly on new hospitals or schoolsetc. meaning that the people of the country benefit from the profit (or surplus), not the private owners. If we are to take this example alone, privatisation can never be better than public ownership.

The problems I have outlined are fairly easily identified.  The biggest task is how to combat these problems and to find viable solutions to put an alternative to neo-liberalism in place. In my opinion, it will never be possible to move from such a bedded in system such as neo-liberalism to a radically new one overnight. It will take time and much thought.

In Scottish terms I believe that the Common Weal movement – initiated by the Jimmy Reid Foundation and supported by the Radical Independence Campaign have thought up the ideal building blocks needed to form the beginnings of an alternative to neo-liberalism.

They have formulated key policy ideas and now released a book (available here - All Of Us First) which sets out how to create a fairer society, taking ideas that are already in use across parts of the world and put them together to set out what a new society could be like in practice, particularly an Independent Scotland in this case.

By no means do I see the ideas laid out by the Common Weal as the final destination, but they are however an alternative to the current system we have, and once in place they can then be expanded upon, and bettered.