Jeremy Corbyn's economic proposals
Keeping things in focus:- Many do not appear to be aware that society's practical options have evolved significantly in the last decade as a result of the development of more robust alternatives to conventional macroeconomic theory and the derived policies. These alternatives are not tinkering at the edges of the economy with "initiatives" and "programmes"; they represent a completely different and more transparent paradigm.
The United Kingdom's political economic scene, however, continues to be dominated by out-of-date economic rhetoric carried through modes of communication characterized by accusations and assertions. Economic advisers continue to peddle the out-of-date KMS "solutions".
This article uses the recent economic proposals made by Jeremy Corbyn in his bid for Labour leadership. Now that he has become Labour leader no doubt these proposals will be subject to modification but this document did serve to illustrate that there are better options that stand outside "mainstream economics". Just recently, some economists published a letter to "set the record straight" on Jeremy Corbyn's proposals stating that they are not extreme but are in fact "mainstream economics". Given the disastrous track record of conventional economics one wonders what the intent of this letter was.
There is an urgent need for more reasoned discussions and analysis that seek benefits for all and the shaping of decisions founded on the identification of options that offer new, feasible and inspiring solutions.
I have been prompted to write this article by the bizarre events involving the Labour leadership contest and, in particular, the reactions to one of the candidates, Jeremy Corbyn. I have been perplexed by the strange dynamics between what he is saying and the tsunamis of praise or criticism that drown out his every statement. This has become more intense as Jeremy Corbyn's "poll ratings" for leadership have risen to out-perform the other contenders.
The first time I voted for a political party I was subsequently appalled at the outcome of their performance in government and what I considered to be their lack of moral fibre. No doubt I was naive to have expect any better, but I never voted again.
Having studied economics I then became frustrated in the mid 1970s at the inability of Keynesianism and the then promoted monetarism to avoid so-called policy solutions that resulted in unacceptable levels of prejudice on the social and economic constituents. Later I realized that so-called supply side economics has the same limitations of creating winners, losers and those unaffected by policy. I therefore initiated the Real Incomes development programme in June, 1975 to identify ways and means to avoid such prejudicial outcomes of macroeconomic policies. As a result of this work a wide range of significant flaws in conventional economic theory and practice became apparent. The development work that shaped the Real Incomes Approach identified serious fault with Keynesianism, Monetarism and Supply Side economics, and therefore advocating this approach risks a sort of professional suicide. Most of the economics profession is made up of dedicated clerics serving one of the conventional approaches to economics covering Keynesianism, monetarism and supply side which I refer to as KMS policies. Real alternatives are resisted to prevent them sullying the hallowed "universe" of economic knowledge. For many there is too much accumulated personal intellectual capital and status at risk in admitting something might be awry. As a result the Real Incomes Approach is seldom mentioned let alone discussed.
However, I re-emphasize that my venture into this field arose because I found the levels of prejudice imposed by such policies on the social and economic constituencies to be unacceptable and I sought solutions to this specific problem. Currently we see that the broad worldwide complaint by the social constituency to economic policies, the expression of which has taken different forms in different countries, is, indeed, against the prejudice suffered by societies worldwide, and not only in Britain, at the hands of flawed economic policies. The whole debate is dominated by those who benefit on one side (the winners) and those who have suffered prejudice (the losers) on the other. Economics should assist all people rather than selectively prejudice the chances of some of experiencing a happy life. The Real Incomes Approach is the only macroeconomic theory and practice which sets this condition as its central objective. This can be summarized as the objective of securing a positive systemic consistency (see Positive systemic consistency). Therefore, the Real Incomes Approach to economics, I would modestly suggest, has a contribution to make with a "ready to go" set of "policy instruments". There is no requirement here for leaps of faith, only a request that people review and understand the options. Making the world a better place on the basis of feasible options is what we should be doing as economists and thereby set the scene for each to lead inspiring, satisfying and happy lives.
Needless to say, my opinion of UK political parties has continued to decline because I realized some time ago that they are all wedded to a completely out-dated economic model whose evidence base has all but evaporated since the early 1970s. The economic "advice" they are receiving remains inappropriate so policies only promise to prejudice a significant proportion of the social constituency.
We remain in a time warp where the left struggles to push their battering ram into the back wall of our economic edifice while the right push back to impact the front wall in an act of the mutual self-destruction of British society. Economic dialogues, within the political arena in the United Kingdom, do not seek to identify mutual advantage to build a practical and acceptable but broad consensus. A medieval battle continues based on assertion by political party activists with a visceral and emotive desire to "win" the argument, to come out on top and, in the end, through our first-past-the-post electoral system, to end up with a party, that is no more than a factional minority, gaining power with a Parliamentary majority facilitating their ability to impose their will on the majority of the population.2.
My own interest is in attempting to advance the understanding that economic options are far broader than the restricted visions pursued by British political parties or promoted by their policy advisers.
The objective of this article
To be frank, I see in the rhetoric surrounding Jeremy Corbyn as an opportunity to explain where the Real Incomes approach can help kill off some of the silly extremes of expression and claims and counter claims by contenders on both sides of the argument. Therefore the objective of this article is to identify what might be considered to be the interests of the people of Britain, including those identified by Jeremy Corbyn, and any obvious additions, in order to describe the alternative routes to the satisfaction of these preferences. Achieving the best outcome for the country should not have to rely on the outcome of a political party battles. After all Britain's main political parties are all minority factions with a total membership of less than 1% of the electorate. They do not represent a broad segment of the electorate. Achieving the best options for all needs access to a transparent economic model and objective decision analysis upon which to base public choice.
Effective decision analysis depends upon a precise deterministic model of cause and effect, the availability of objective information (evidence) upon which to base the model and estimates of the probabilities of critical conditions and events that can influence the outcomes. The economic model, of course, needs to be able to explain how any stated objectives can be achieved and it is in this area of "explanations" where there remains significant confusion largely caused by the leading contenders of the various schools of economics remaining in denial over the lack of effectiveness and lack of efficiency and practical relevance of what they promote.
Jeremy Corbyn's economic proposals
In order to understand Jeremy Corbyn's position on economics I have reviewed his statement in an 8 page document entitled, "The Economy in 2020", dated 22nd July, 2015 (see right). This document is part of Jeremy Corbyn's case for his becoming leader of a political party. However, beyond this immediate battle, involving just the membership of that party, there will be the medium to long haul effort of convincing the country at the next general election. Here the Neo-Blairites opposing Jeremy Corbyn from within the Labour party, are tending to repeat Margaret Thatcher's refrain that, "There is no alternative" (TINA). Once the transition is made to countrywide exposure leading to the next general election, the TINA brigades will grow in number and their refrain is likely to be deafening and increasingly shrill. There is no doubt that the opposition will try and use scare tactics on the dangers of: [ fill in this blank ].
The reason scare tactics are successful is ignorance of the facts including the current understanding of economic theory and derived policies. The recent experience of the Scottish referendum, the last general election when the tactic of suggesting the "SNP" would control any Labour government and Greece's treatment by the troika provide case studies in such desperate tactics. The power of influence of such tactics depends heavily on extra-constitutional devices operated by minorities who have decision-making power over party political funding, the content of the media and finance all of whom will tend to be TINA adherents. However, since all participants on both sides of this "economic debate" are deploying out-of-date and flawed economic theory and policy options to argue their case, the people of Britain are denied the opportunity to see beyond the TINA shutters and the limited visions shaped by the minority factions constituting British political parties.
I set out below what appear to me some of Jeremy Corbyn's main points. I start with a set of bullets on page 4 of the document where the following is stated:
|"To date, we have seen only the most feeble of upturns:
- We have had the longest period of falling real wages since the 19th century
- A disastrous investment and productivity record
- A swelling balance of payments deficit
- The creation of army of low-paid, low skill, insecure, zero hours, bogus self-employment jobs"
The first question is, "are these statements true?"
As William James once stated, "the truth is what happens"
. From the standpoint of the analysis giving rise to the Real Incomes approach all of this was predicted as far back as 1976 and has, indeed, happened, what is stated is true and it cannot be denied.
I should mention that I am not sure about the phrase, "bogus self-employment jobs"
since this aspect of analysis has complex ramifications and, as yet, is still being reviewed within the Real Incomes programme and so far no conclusions have yet been reached.
The question is how and why did what is described in Jeremy Corbyn's bullet points happen? The answer to this question goes a long way in identifying systemic problems and therefore provide a guide to policy options. All of the points in the bullets can be linked to fundamental structural problems identified by the Real Incomes development programme and which I have not seen mentioned elsewhere. The evolution in economic decline is a direct result of:
- inappropriate economic theory and policies
- inappropriate procedures for managing government revenue-seeking
- the audit and accountancy legislation and regulations
- conventional fiscal policy
- conventional monetary policy
|Paradox: a statement or proposition which, despite sound (or apparently sound) reasoning from acceptable premises, leads to a conclusion that in practice is unacceptable or self-contradictory. |
In each case, economists and politicians believe that the listed elements are crucial components to the operation of an efficient economy. However, in fact, each is a paradox (see box on right) because economic managers promote them and yet each contributes to the creation of major challenges to the social and economic constituencies by preventing the optimization of resources allocation. These paradoxes relate to the profit motive, to fiscal and monetary policy.The profit paradox
The profit paradox arises from the conflict that exists between three roles of profit. It is the measure of corporate success, the target of corporate taxation and as a result of government revenue seeking and the legislative framework and regulations relating to accountancy and audit, there is a significant constraint on wages during resource allocation. As a result there is an industrial scale tax evasion and avoidance and a persistent tendency for the lowering of the real wages while management, executives and shareholders' real incomes rise. Performance as a result of resource allocation in the face of such constraints is poor leading to a lower than potential level of productivity in the economy arising from procedures and regulations imposed by policy. For further details see The profit paradox
The monetary paradox
| Other statements ...|
People are still worse off today than they were in 2008.
The average household is still awaiting recovery."
The general suggestion of what is needed is:
"So to deliver rising living standards and decent jobs for the majority we need a strategy for faster, more sustainable growth, as well as policies - including on taxation - to make sure that growth is more fairly distributed.
Britain needs sharply rising levels of investment in the economy, faster growth and higher wages must be key to bringing down the deficit, increased tax receipts and lower benefit demand are a better way forward".
In terms of actions the document continues...
"If there are tough choices, we will always protect public services and support for the most vulnerable.
Instead we will ask those who have been fortunate to contribute a little more.
With a sustainable investment plan, we can ensure more people fall into that fortunate category too.
This is a rational statement of objectives. The text also contains the following general statements:
"Wealth creation is a good thing: we all want greater prosperity.
Wealth creation is a collective process between workers, public investment and services, and often innovative and creative individuals.
The choice is ... Whether to accept austerity or whether to break free of this straitjacket and strike out for a modern, rebalanced economy based on growth and high quality jobs.
Need to create a balanced economy that ensures workers and government share fairly in the wealth creation process
The document continues...
- that encourages and supports innovation in every sector of the economy; and
- that invests in skills and infrastructure to build an economy that is more sustainable and more equal"
"Wage proposals in the context of the living wage discussions are far too low.
Government cuts in provisions are affecting the poorest including low income families, disabled people, young people, public sector workers, and our public services.
Current tendencies are to run down public services, slash the welfare state, sell-off public assets and give tax cuts to the wealthiest. "
The monetary paradox relates to the monetary policy cycle which in its attempt to control "inflation" raises interest rates on the basis of a monopolistic state intervention in interest rate setting. This reduces demand and lowers the incentive to invest because of higher priced finance. At the lower reaches in the monetary cycle, interest rates can be so low, as at present, that money is driven into assets as opposed to productive investment. Over the monetary cycle the real economy, as a direct result of monetary policy, is starved of real investment and productivity falls. In addition, the acceptance of a 2% inflation rate as being consistent with "price stability" has resulted in a depreciation in the value of the pound by more than 18% each decade. As a result the pound of today (2015) is worth less than 2% of the pound in 1945. With such a massive devaluation exports and import substitution should have risen. In fact both have constantly declined leading, in the first Quarter 2015, to the UK having its largest negative trade balance ever. For further details see The monetary paradox
.The fiscal paradox
Combined with the ad hoc and uncoordinated nature of macroeconomic policies and procedures explained by the profit and monetary paradoxes, the fiscal paradox only adds further confusion. Fiscal policy attempts, through revenue raising, to fund government provisions, to influence so-called aggregate demand and, on top of this, to manage a progressive income redistributive taxation system. As a result none of these conflicting objectives can be fully optimized or satisfied. For further details see The fiscal paradox
The interactions of these paradoxes explain in good measure how the conditions listed in the page 4 bullets arose but this is not clearly articulated by Jeremy Corbyn nor, indeed, by anyone else inside the Labour party of even in other British political parties. Few economists will refer to these paradoxes.Outcomes & suggested actions
Some of the outcomes, according to Jeremy Corbyn, are summaries in the box on the right. The statements made represent what has happened or the general state of those who are not benefiting from the current state of the economy. Again there is no misrepresentation of the facts here.
Reference is made to the "...need to grow the economy faster and more investment to achieve higher wages to increase tax receipts and bring down the deficit while lowering the demand for benefits"
. and... "Investment should encourage innovation and investment in skills and infrastructure to build a sustainable more equitable economy"
. and that "Wage proposals in the context of the living wage discussions are far too low public services are being run down, public assets are being sold off and tax cuts go to the wealthiest"
No matter whether we are talking about private or public investment it is assumed, given that nothing has been stated to the contrary, that the Aggregate Demand Model will activate what Jeremy Corbyn suggests. Thus borrowing, while the economy is "growing", is justified in order to slow down cuts in public services and raise cash flow so that incomes and government revenues rise. However, this does not explain how the required quality of investment is to be achieved and where the impetus for growth will come from. Simply "investing" more (irrespective of whether this comes from public spending based on loans or corporate equity) will not automatically gain timely rises in productivity so as to establish a sustainable growth path. The last 70 years of conventional economic policies implemented in the UK have a dismal track record in stimulating growth and raising productivity. Such actions can certainly increase nominal incomes and employment but the Aggregate Demand Model and associated policy instruments are largely ineffective and inefficient because they do not provide any positive incentives for companies to emphasis growth based on productivity gains. All that happens is that more nominal cash circulates round the economy and it takes time for the economy to gain momentum as investment projects come on stream so impacts, if any, are medium to long term. These statements are not criticisms of Jeremy Corbyn's objectives they are statements of fact of what happens when applying conventional policies or what some economists recently referred to as "mainstream economics" (see: Economists endorsing Jeremy Corbyn's economic policies
).Solving these issues
The nature of the timing of government election and administrative cycles often results in any benefits arising from economic decisions coming on stream after a government has left office. Normally such benefits turn out to be less than promised. However, there is a need to prevent such natural delays from constraining the delivery of timely solutions. The question therefore becomes how to make policies more effective and efficient in their delivery of objectives. This is why the Real Incomes Policy option of Price Performance Policy (PPP) uses the actual track records of unit output prices upon which to base policy incentives for companies. In other words gains in productivity are measured on the basis of changes in operational unit output prices, in both the private and public sectors. As a result the impact of the policy is rapid because price reductions can be applied in the short term and remain sustainable over the medium to long term. Indeed, the overall aim of Price Performance Policy is to encourage investment that is designed to bring about immediate output price moderation or reductions. This improves the purchasing power of the currency and therefore real incomes of consumers and, indeed, all associated with those companies that perform in this way. The broad impact is a gradual lowering of unit prices and inflation and a rise in the propensity to consume at the lower unit prices. This has the following important effects:
- public service outlays can be reduced while provisions remain the same or increase
- the real incomes multiplier, because of lower unit prices, is substantially higher than under conditions of stable or rising unit prices
- the growth impetus is greater as a result of "self contained" supply side initiated unit price reductions
- the distribution of real incomes is increased benefiting all constituents
More information of the impact of PPP on public services can be obtained here: Public service provisions
. The impact of PPP on the real incomes multiplier and therefore real economic growth can be reviewed here: The Real growth multiplier
. The specific impetus arising from PPP is described here: Growth impetus
and the better distribution of incomes and gains in employment are explained here: The PAC Model of the EconomyThe living wage
The following isolated statement is of some importance but it is not associated with substantive proposal:
"Wage proposals in the context of the living wage discussions are far too low"
This is definitely true but then there has not been any detailed analysis of the options that need to be reviewed in any objective decision analysis on the question of the living wage. Most reactions are immediate, sharp and pretty short-sighted, only referring to raised wages putting companies out of business or causing a decline in productivity.
On the whole, final consumption in an economy is the aggregate of the sum total of consumption of the social constituency. The social constituency participates in economic activities through employment in economic units, through self-employment or by working for public services. Therefore the flow of income that the social constituency uses to support their consumption comes from the activities of firms, government and individuals. It is well-established that the contribution of wages to national income has been falling for some time and this is a result of the profit paradox and the ineffective framework within which government revenue-seeking operates under fiscal policy.
Monetary policy exacerbates the constraints on the ability of companies to maximize income through effective resource allocation. In order to deliver the full benefits of needed innovation it becomes necessary to eliminate the main constraints on effective resource allocation so as to enhance the economic benefits of innovation.
The demarcation, or rift, between the economics of the "left" from that of the "right" in the United Kingdom tends to be characterized by different views on wages and corporate profits on the one hand and personal and corporate tax on the other. These themes have tended to be discussed on the basis of emotive language and feelings related to different interpretations of fairness and just compensation. The left will often characterize corporations as "exploiters" of wage earners and there is the occasional reference to Karl Marx's "profit as the production excess robbed from the workers" as scientific proof. The right will praise corporations and their leadership as the essential "employment and wealth creators" who earn a justifiable profit (and out-of-sight personal bonuses). This is a sterile tired debate that goes nowhere.
There is a need to substitute this rhetoric by an economic logic that seeks to maximize the benefit for the whole of society.
Under the Real Incomes Approach to economics the objective of preventing economic activities and economic policies from prejudicing members of the social and economic constituencies is approached from the standpoint of the contribution of each to the state of real incomes in the economy. This is best understood by considering Joseph Schumpeter's view that profits are the guarantee of future business activities and employment. The Real Incomes Approach takes this as a literal basis to propose changes in accountancy norms by substituting the accounting category of profit by two identities for investment in:
- human resources
This adjustment has a fundamental role in reorientating motivation towards innovation. The profit identity is substituted by the incomes of shareholders, owners, executives and the workforce. This income category provides the basis for quantifying the returns on investment and corporate success.
Shareholder, owner, executive and workforce incomes would all be paid on the basis of PAYE (Pay as you earn) schemes, thereby minimizing tax avoidance and evasion within the personal income tax operations.
This rearrangement of accounting categories has the effect of bringing into focus two important new realities:
- Karl Marx's "profit as the production excess robbed from the workers" no longer has any foundation
- By basing business performance on the joint incomes of all associated with a firm, worker and management attention has to focus on their mutual interests
Dialogues move from antagonistic confrontations to a quest to secure fair remuneration in exchange for each person's relative contributions to each company's income pool that represents a mutual interest of all associated with a firm. The ability to satisfy the social and economic constituents rests firmly on decisions designed to raise productivity during the transition phases involving wage increases.
The most suitable indicator of corporate performance as well as trenda in wage levels is the degree to which participants in the operation of a company contribute to the generation of real incomes
, not only for themselves, but also for customers/consumers. The selection of real incomes as the central indicator for the performance of firms is related to the fact that it also provides the most effective basis for achieving coherence between microeconomic resource allocation decisions and macroeconomic performance assessed on the basis of the levels and distributions of personal real incomes. Under conventional policies there is no direct coherence between the corporate objective of profit and the multiple macroeconomic objectives of growth, employment, inflation, interest rates, investment, productivity, exports, import substitution and exchange rates. The Real Incomes Approach has just a single microeconomic and macroeconomic objective, that of real incomes (see Why real incomes?
). This results in a direct coherence between microeconomic and macroeconomic objectives and basis for achieving a positive systemic consistency (see Positive systemic consistency
), that is a situation where all benefit from policy. The objective is to move away from the unpredictability and poor performance of conventional policies (see "The Tarshis paradox"
Once the combined impacts of the profit, monetary and fiscal paradoxes are appreciated it becomes fairly obvious that in order to stop tax evasion and avoidance, which has reached epidemic proportions in the corporate sectors, it is best to get rid of it. The ease with which profits can be manipulated on the basis of various forms of accountancy optimization with or without taxation make this a wholly unsuitable basis for determining returns to investment or shareholder value. The fact that the professional services support advising larger corporations on their tax and audit affairs is around £50 billion each year provides an indication of the likely value to such companies of the manipulations of profit statements and declared tax obligations.
Joseph Schumpeter considered profits to be the guarantee of future activities and employment. The validity of this statement clearly depends upon the degree to which investment in technology and human resources maintains efficiency and effectiveness of processes in serving the needs of customers/consumers.
The Real Incomes Approach eliminates corporate tax evasion and avoidance by eliminating corporate taxation altogether. This change significantly increases the feasibility for companies to pay a living wage.
Corporate ownership options
|Other statements ...|
The document then refers to policy options...
"The time frames for austerity to reduce the deficit is arbitrarily short but since the economy is growing we should borrow to invest in our future prosperity.
Rather than remove spending power from the economy and damage growth and future prosperity, Britain needs a publicly-led expansion and reconstruction of the economy.
We must put this centre-stage as the alternative to the current model of austerity for the poor, and deregulation, privatisation and never-ending corporate tax sweeteners for the super-rich and big business.
We need a fairer system for all, including on taxation."
The document states that the British economy has a significant regional imbalance as a result of a lack industrial policy. Current attempts at revival (Northern Powerhouse) are considered to be groundless ("hot air") being attempted with reduced budgets. Associated with these general statements mention is made that the economy is being held back by the lack of a modern operational (state-of-the-art) national infrastructures for such things as energy, housing, transport and digital communications and the current lack of plans to boost public investment. Emphasis is given to the need to invest for prosperity as proposed to cutting or leaving operations to deregulated private markets.
The main point being made here is a proposal for "public investment" in new publicly-owned infrastructure to support a "sound economy".
Then more specifically:
"We need to drive investment and lending to reshape and rebuild the economy:
- Focused on hi-tech and innovation and the infrastructure to support that, rebuilding supply chains to stimulate private sector demand
- The ‘rebalancing’ referred to signifies a need to rebalance away from finance towards the high-growth, sustainable sectors of the future"
|Quantitative easing for people|
The phrase, "Quantitative easing for people and not banks...." needs to be explained in more detail. What is meant is not self-evidence from the term "Quantitative easing for people" which, if taken literally, is open to some bizarre interpretations and therefore a range of unjustified criticism which only generates a lack of transparency and failure to promote clarity and understanding.
Reference is made to work on this topic without any explanation and this is not much use to the reader of the document.
The proposal on how this is to be achieved sensibly talks of options as opposed to crystallized prescriptions. These include the Bank of England having the mandate to upgrade the economy including trough the direction of the investment mentioned above. Quantified easing for people instead of banks (see box on the left). Removing corporate tax reliefs and using recovered funds for public investments resulting in stimulates private supply chain activity. One channel for the application of these funds could be a National Investment Bank. These activities will generate demand for changes in human resource capabilities to sustain economic growth. The proposals on adult and further education to secure the appropriate capabilities (skills) to support high productivity and high pay will be set out in supplementals to the document at a later date.
The conventional economic theories and practices applied to nationalised industries were bound to result in poor productivity and inefficiency but since the period when most nationalised industries were privatised the evolution in economic knowledge and derived policies has been significant. In particular, the benefits of mutuals which were undermined by changes in business policies under a Thatcher government led to some spectacular failures for those who converted into plcs (Nothern Rock) whereas many mutual building societies weathered the financial crisis since 2007 better than most banks and in particular Lloyds and the Royal Bank of Scotland. Amongst the better options include mega-mutuals or national-mutual organizations which can operate effectively under a Real Incomes Policy and in particular Price Performance Policy (see Private & public goods
as well as Public service provisions - a note
The current edition of the Economist Newspaper (August 22nd, 2015) carries an article entitled "When workers are owners"
where it is admitted that mutual organizations are becoming an acceptable face of capitalism and increasing in popularity. Although the sub-heading to this article states, "The received wisdom that employee ownership is a good thing comes with caveats"
. The caveats relate to pension and payment provisions being mixed in with share options and the circumstances that arise when a company goes bust.
In a recent article in the Guardian Newspaper there is an acknowledgement that better forms of ownership exist by a Labour MP (see John McDonnell, "Jeremy Corbyn would clear the deficit – but not by hitting the poor"
). I am not sure how John McDonnell proposes taking advantage of the options but Price Performance Policy does provide an option to make any such arrangements effective and efficient to the degree of demanding less funding to achieve the same provisions or better and this has to be a priority for such services as social benefits and the national Health Service. Strategic investments
Now an understanding why the overall efficiency of the economy is so low leads to a need to reflect on how to set up the types of solutions proposed by Jeremy Corbyn in terms of strategic investments in infrastructures. It was in consideration of these specific issues that probably led him to mention the need to revisit Clause IV and explore the options for the possible government ownership of some key infrastructural services. This of course being aired publicly highlighted the degree to which the term Clause IV has become a taboo everywhere including the Labour party and other parties eliciting absurd statements without having registered the fact that Jeremy Corbyn only suggested that options need to be considered; of course they do. However, if one tries to combine such strategic objectives with current conventional economic theory, practice and accompanying procedures it is not possible to achieve the required beneficial levels of effectiveness and efficiency that Jeremy Corbyn seems to desire. The reality is that nationalization was not particularly effective because of the lack of productivity incentives operating within those services and because chipping away at the margins were those who advocated that private profit-based operations could do the job more efficiently, in the end, won the day.
There are sound options as have been described above. On the other hand the irrelevance of Clause IV was well explained in the ranks of Old Labour as far back as the 1950s.Anthony Crosland's conclusions
As far back as 1956, Anthony Crosland, a Labour MP, had argued that there was no need for nationalization because the actual power resided in the management of economic activities and not in the hand of the owners and the state could influence sector activities sufficiently well. He explained this in his book, "The Future of Socialism"
. Crosland's observations can be traced back to meetings of the Congress for Cultural Freedom (CCF), launched in 1950 in Berlin and headed by Melvin Lasky. The general drift of Crosland's book's content had already been discussed at a Milan CCF conference attended by Hugh Gaitskell, Denis Healey, Rita Hinden and Daniel Bell the author of a book in the same vein entitled, "The End of Ideology"
Anthony Crosland's observation that Clause IV was irrelevant because those who manage the economy have more control explains why Labour's "Clause IV moment" was no more than a sleight of hand (see Clause IV and all that..
). With pro-forma budgetary planning and a sufficiently centralized economy, governments achieve a far greater degree of control over the production of goods and services than Clause IV could ever have achieved. As has been described, political parties (Certainly the Conservative and Labour parties) use this to lever their own party power. Political parties opposing Clause IV in the past considered it to be a usurpation of the right of the private sector to manage the economy. But the same political parties consider it to be their own preserve to control directly some 40% of the national economy on the basis of a private monopoly for their own political party interests through centralized policies if they become the "party of government". This illustrates a self-serving double standard. Centralisation of any colour
One outcome of the development of the power strategy (see Clause IV and all that..
) was the concentration of power in the hands of the Treasury and the Chancellor of the Exchequer under Gordon Brown. This extreme concentration of power was a hallmark of the New Labour government under Tony Blair and has been a characteristic of all subsequent governments. Power is exercised over the shaping of the budgets of all other government portfolios "managed" by ministers who depend upon their government positions and maybe cabinet roles on the whim of the prime minister of the day. It is plain that the main resistance to normal moves towards devolution and decentralization comes from this entrenched monopoly interest of the political party in power in Westminster having a massive power over the distribution of revenues. The desire to maintain this power, derived from the ability to spend and to select the beneficiaries, explains to a significant degree the current tendencies for austerity to prioritize government revenues and to cut expenditures in those areas where there is no obvious political party advantage. Party survival and power trumps the interests of those who lack a coherent and coordinated power base or one considered to represent a size sufficient for influencing critical votes in deciding the outcome of a general election.
This overt party interest focus led to a significant mis-calculation in relation to the treatment of the SNP after the Scottish referendum when the main parties thought the SNP was done for and they followed up, with undue haste, with weak "devolution proposals" that ended up greatly at odds with the new stronger status of the SNP following the last general election (there is an article in preparation to be posted on this site on this issue entitled: "The Scotland Effect - The Quest for Fiscal Autonomy"
). Indeed the Corbyn document states that,"If there are tough choices, we will always protect public services and support for the most vulnerable..and Instead we will ask those who have been fortunate to contribute a little more... With a sustainable investment plan, we can ensure more people fall into that fortunate category too."
The document ends with two sections, one entitled "Taxation"
and the other "Tax justice"
A more detailed treatment is given by the Corbyn document to taxation and it is worth dwelling on the specific benefits envisaged. The document emphasizes that the UK tax system has shifted from taxing income and wealth to taxing consumption; and from taxing corporations to taxing individuals. It is stated that these changes have helped to make society more unequal and tax more regressive. What is not mentioned is the fact that the tax system, apart from being an insistent process of government revenue seeking through corporate taxation, generates perverse incentives that have given rise to a massive scale of tax avoidance and evasion and to severe constraints on wages; it is the taxation system that has created this situation.
There is an unfortunate choice of words in the statement that,"...that paying tax is the subscription we pay to live in a civilized society...A collective payment we all make for the collective goods we all benefit from: schools, hospitals, libraries, street lights, pensions, the list is endless."
Subscriptions we pay for services usually don't vary with people's incomes' and "collective goods", I think the normal term is public goods, will be used according to the individual needs and preferences of the social constituency. While aware of the fact this sounds naive under current circumstances, rather than imply or suggest people with higher incomes should pay more it would be more productive to speak in terms a voluntary public spirit founded on individual conscience where those with higher incomes can afford to be more generous in their contributions to the support of the provision of public goods. This is a subtle point which many will consider has little to do with economics, but one that has an important bearing on establishing the necessary coherence of the public conscience so as to gain support for this sort of positive motivation.
Corbyn states that "At a time when schools and hospitals are struggling for funds, it is grotesque that some of the richest individuals and most profitable businesses are dodging their responsibilities."
The taxation section ends with a pledge that "Labour must make the tax system more progressive, ensuring that those with the most pay the most, not just in monetary terms, but proportionally too."
Under Tax justice the document states that legislation on a progressive tax system requires enforcement to be able to collect all that should be paid. An annual sum of around £120 billion is cited as being the gap in tax revenues (an estimate made by Richard Murphy). This is made up of uncollected tax (£20bn), tax avoidance (£20 bn) and tax evasion (80bn). To tackle this specific issue Jeremy Corbyn proposes fairer tax policies including:
- The introduction of a proper anti-avoidance rule into UK tax law.
- The aim of country-by-country reporting for multinational corporations.
- Reform of small business taxation to discourage avoidance and tackle tax evasion.
- Enforce proper regulation of companies in the UK to ensure that they file their accounts and tax returns and pay the taxes that they owe.
- Lastly, and most importantly, a reversal of the cuts to staff in HMRC and at Companies House, taking on more staff at both, to ensure that HMRC can collect the taxes the country so badly needs.
Under the Real Incomes Approach most of these issues are eliminated by doing away with corporate taxation.
The fact that this is the case does not mean HMRC will close down but rather that as Jeremy Corbyn indicates there should be a reversal in staff cuts in order for this service to monitor and audit Price Performance Policy operations and in particular checking accounts to ensure correct estimates of the price performance ratios (PPR) and price performance levies (PPL). In the end, a considerable amount of this function can be automated by making used of transactionsal blockchains (see: From chain gang to Blockchain - the necessary transition
). The role of the HMRC would change significantly from being semi-adversarial to one of a positive extension role of providing advice to business in advising on the most effective means of managing productivity increases within the PPP framework. VAT operations are likely to continue.
There has always been a conflict between the interests of the management consulting operations and the audit and accounancy operations in the sense that there is a conflict of interests with one working to maximise returns and the other the conduct of "independent" accountancy and audit. The PPP would augment the necessary contribution of the management consultancy operations but also open up a new market for accountancy firms serving SMEs focusing on productivity and human resources management. Thus, on the personal income tax side, operating within a PAYE framework, there is a very significant job to be undertaken in the provision of sound advice on the most appropriate forms of worker participation in decisions relating to PPR targets so as to maximize real incomes. The section above concerning corporate ownership options is relevant but the models for formal legal agreements between corporate shareholders and the workforce need careful thought. This important topic will be the subject of future articles.
Hector McNeill is director of SEEL-Systems Engineering Economic Lab.2
See: McNeill, H.W., "The Briton's Quest for Freedom - Our unfinished journey...'"
, Chapter 7, "A General Election"
, pp: 75-90, HPC, 418 pp, 1970. ISBN: 978-0-907833-01-7. NOTE: This not a contribution to the evidence in support of the "proportional representation" alternative which in fact benefits political parties as opposed to the electorate as explained in:
McNeill, H.W., "The Briton's Quest for Freedom - Our unfinished journey...'"
, Chapter 17, "Party Funding & Electoral Reform"
, pp: 167-174, HPC, 418 pp, 1970. ISBN: 978-0-907833-01-7.
Updated: 26th August, 2015: Mainly segments that escaped spell checker but required adjustment; sense maintained.