About Harry Shutt

Harry Shutt is a freelance economist, consultant and author of numerous books on the World Economy.

The Phasing Out of Capitalism

A remarkable feature of the present state of the global economy – eight years on from the start of the Global Financial Crisis in 2008 – is the extreme disconnect currently exhibited by the main market indicators in the world’s major economies. These imbalances are particularly manifest, and increasingly acute, in respect of

  1. Record levels of debt vs. record low interest rates

Based on estimates made by McKinsey Global Institute in early 2015 total global debt of all sectors (public and private) was approximately $200 trillion – 40 per cent above the level at the start of the Global Financial Crisis (GFC) in 2008 – and has inevitably continued to rise since then as hopes of recovery have been repeatedly dashed. By now there is scarcely any pretence among either official spokespersons or serious analysts that more than a tiny fraction of this debt will ever be repaid.

At the same time official interest rates set by the world’s central banks (such as the US Fed Funds Rate) have been held at or below 1 per cent ever since 2008. To put this in perspective, in the UK – where the Bank of England’s base rate has been held at 0.5 per cent or less since 2008 – the rate had never previously been set below 2.0 per cent since the foundation of the Bank in 1694 – not even in war time or in the Great Depression of the 1930s.

Given that these extreme phenomena have now co-existed for eight years in succession, it is at first sight astounding that hardly any mainstream analysts have pointed out that this obviously could not happen in anything resembling a free market. For it is a truism that in a climate of what amounts to generalised bankruptcy (in public and private sectors alike) the normal market reaction to increasing levels of unpayable debt is to mark down the value of such debt (non-performing loans) – thereby pushing effective interest rates up rather than down (the price of a debt-based security being inversely related to the rate of interest). The fact that not only has this not happened since 2008 but that interest rates have plunged to record low levels is an anomaly apparently not found worthy of comment by most “public” economists.

The uncomfortable truth which the global establishment refuses to face is that their collective decision – in the wake of the 2008 banking crisis – to “do whatever it takes” to save the financial system (and indeed the entire world economy) from imminent meltdown has only succeeded in postponing disaster for a few more years. In fact their resulting commitment to holding interest rates down by whatever means, even if this meant breaching the most fundamental principles of the market economy, was clearly a desperate gamble from the outset. The chosen mechanism has involved increasingly indiscriminate official buying of debt securities (i.e. bonds, public and private) – a practice officially referred to as Quantitative Easing (QE) – so as to avert the mass market panic which would otherwise have ensued from open recognition of systemic insolvency. But in order to prevent just such a panic – as well as a total loss of any remaining public confidence in the integrity of governments – it has been necessary to pretend that the actual purpose of QE is to stimulate investment and higher output. Predictably, however, any hope that this might indeed have been the result of this unorthodox policy has proved vain (see below).

  1. Rock-bottom growth rates vs. sky-high stock markets

Alongside the paradox of record low interest rates against a universal background of unpayable debt economic actors and analysts have had to contend with another extreme anomaly. This is the fact that the key indicator of capitalist economic activity – the growth rate of real Gross Domestic Product (GDP) – has averaged only 1.2 per cent a year in the industrialised (OECD) countries in the period 2008-16, barely half the average rate recorded in the previous 25 years – while at the same time most stock market indices have risen to all-time high levels, whereas the normal market reaction to such conditions would be to mark equities down.

Yet just as this dismal growth performance – which would certainly have appeared even worse if the statistics had not been deliberately distorted – has not been allowed to be reflected in falling bond prices, the powers that be have been determined to prevent a corresponding slump in share prices (equities) of the kind that would normally be expected under such conditions. (Indeed an important benefit of keeping bond yields artificially low is that it has made them relatively unattractive assets for investors to hold, thereby enhancing the relative attractiveness of equities.) As a result global stock markets – as reflected in the MSCI all-country World Equity Index – have risen from their 2008 low to a peak of around double that level in 2014. Since then they have remained at or just below these record levels even as economic growth (GDP) has remained stagnant and corporate earnings weak, whereas normally such a high level of stock prices (with US price / earnings ratio at 24.7, the highest since the start of the GFC, even though earnings peaked in 2014) would go along with a boom in output and investment and correspondingly rising profits and interest rates.

The complete absence of such boom conditions is another obvious symptom of the generalised distortion of financial markets resulting from the official intervention which has been applied with growing intensity since 2008 in order to prevent or conceal their total collapse. Such is the desperation of the authorities to prop up the markets in order to avert this catastrophe that they are now starting to deploy officially “printed” money via QE to buy up corporate equities as well as debt. In Japan, which has been afflicted by chronic stagnation ever since 1989 and was the first country to deploy QE, this tendency has already led to a situation where over half of listed equities are now effectively in the hands of the state. At the same time, against a background of chronic low growth and low returns on capital investment, corporate management and investors (including pension funds) have been desperately seeking “yield” from high risk assets such as “junk” bonds, while purely speculative investing and market manipulation has been officially encouraged by enabling companies to buy back their own shares – which was illegal until about 1980.

What stands out from these contradictory manifestations is that they could only have occurred as a result of officially inspired intervention – i.e. de facto authorised market rigging. Equally, however, given the degree of distortion entailed, it is hard to believe that those driving the policy could have imagined that it would necessarily be sustainable in the long run. In short, it must be seen as a desperate gamble based on a flimsy hope that the laws of gravity could be defied, at least in the short term, in an improbable triumph of what President George Bush senior once called “voodoo economics”.

By now in fact it is becoming daily more obvious that the gamble has failed. For all the best efforts of official propaganda and despite the extraordinary capacity of the public to suspend disbelief it is clear that the laws of the market economy have not been repealed. Rather the damaging impact of QE and other tools of market manipulation and distortion are finally starting to become manifest and thus to call in question the validity of such “extraordinary measures”. These symptoms of dysfunction include:

Depressed levels of activity and investment. By imposing artificially low rates of return on the market, the authorities have been stifling the enterprise and investment they claim to be trying to promote, since in a fragile and uncertain economic climate investors and entrepreneurs are not inclined to take big risks for little reward. This in turn forces them to resort to even greater levels of asset price manipulation and speculation – rather than productive investment – in order to attain their profit targets (see below). The policy is thus imposing an extra handicap on enterprises already struggling to find profitable outlets for their shareholders’ funds in an era when, as suggested in an earlier posting, demand for investment capital is in long-term decline and competition is growing from start-up enterprises with a limited and dwindling need for funds from the capital markets.

Disappearing savings and pension funds. The compulsive need since 2008 to hold down interest rates – for the reasons given above – has imposed an increasingly heavy burden on those dependent on their savings for income. This includes hundreds of millions of members of pension funds in OECD countries, the viability of which has been put at risk by shrinking interest income. The threat to the survival of these schemes has in turn put pressure on the finances of many sponsoring companies, which in the UK face the prospect of having to call on their shareholders and / or the government to stump up hundreds of billions of pounds in total to make good the shortfall in their pension funds’ assets – while in the US state and municipal authorities are also facing consequent fiscal disaster. Meanwhile fund managers are forced to resort to unproductive and high-risk speculation – i.e. gambling – just to survive.

All these phenomena point to what could be defined as the greatest imbalance of all affecting global capitalism, though one that still dare not speak its name in mainstream policy circles: the mismatch between burgeoning corporate profits and the long-term decline in demand for investment capital. A recent UNCTAD report points out that between 1980 and 2015 the share of fixed investment in GDP in the leading developed economies fell from around 20 per cent to below 16 per cent while in the same period the share of profit rose from 14.6 per cent to 18 per cent. The UNCTAD authors attribute these trends to thefinancialization of corporate strategies, linked to the rise of so-called ‘shareholder primacy’ and a focus on short-term decision-making, cost management and financial engineering”. What they evidently have not considered is the possibility that they may be confusing cause and effect, in that the process of financialisation has rather been the consequence of the inadequate returns on traditional fixed investment, and that this has led to the pressure for financial liberalisation (starting in the 1980s) with a view to facilitating speculative profit-making.

If this is indeed the case it is remarkable that mainstream analysts and commentators, including UNCTAD economists, have hitherto ignored the possibility that the decline in the share of fixed investment in GDP might actually reflect long-term, fundamental changes in the pattern of economic development, not least because of changing technology. Yet given that the inference of such a hypothesis – that the need for capital and hence its importance to the economy is in long-term decline – would spell disaster for the ruling vested interests who sponsor them, their refusal to consider its importance is perhaps understandable.

For the wider community the implications of these contrary trends in aggregate profits and investment are profound. In particular they point powerfully to the conclusion that the market economy as currently designed is generating seriously excessive profits in relation to the dwindling need for fixed investment. Thus if the share of profits in GDP, instead of rising since 1980, had fallen at the same rate as the share of investment it would have declined to under 12 per cent instead of rising to 18 per cent, implying the possible diversion of as much as 6 per cent of global value added ($3.6 trillion a year at current levels) to essentially wasteful economic purposes when they are desperately needed for more benign ones – see below.

The beginning of wisdom?

The present writer is perhaps entitled to claim to have been one of the first to identify – in a book written 20 years ago this long-term tendency, starting in the 1970s, towards a decline in the need for capital in market economies – as well as the damaging consequences of the attempts on the part of the ruling vested interests to resist this trend by perverse distortions of markets or the legal framework. Among the many examples of these that could be cited (some of which, such as legalisation of company share buybacks, have already been mentioned) are:

  • The privatisation of public services and assets which – contrary to the official hype – has only benefited owners of capital in search of new investment outlets while mostly resulting in net losses rather than benefits to consumers and taxpayers;

  • Incentivisation (through tax breaks) of saving through funded pension schemes, which have ultimately only benefited asset managers while leaving more and more pensioners facing poverty and insecurity in retirement (see above);

  • Over-investment in publicly funded infrastructure, from useless airports to the London Olympic Park;

  • Encouragement of social dysfunction through liberalisation of dangerous activities such as gambling and pornography, to the sole benefit of investors in these industries.

While some critics of contemporary capitalism have deplored such abusive expressions of the profit motive, most of these have suggested that the remedy lies in somehow channelling the available funds to less harmful investments or ones more conducive to the public good. It seemingly has not yet occurred to them that in a profit-based, competitive system where corporate management is structurally incentivised (by company law) to maximise the returns to shareholders there is an in-built tendency to accumulate excessive profits (surplus value) – i.e. beyond what can be usefully absorbed by the market – and to reinvest them according to the same principle. It is part of this intrinsically capitalist mindset that GDP growth is viewed as a supreme public good – even though it should by now be apparent that the only logical purpose of such growth must be to reabsorb profits in new capital formation. A more sane analysis would surely conclude that if this can only be done through the promotion of wasteful or harmful activities such as those mentioned above the community would benefit from the abandonment of growth as a policy priority, particularly if high growth can only be attained by diverting resources from more socially advantageous uses. Equally it follows that it would be more rational to restrict the size of the excess in the first place, including by higher corporate taxation.

In fact there are signs of a dawning recognition that such a structural issue may indeed be what is now confronting the present market economy model, as reflected in statements from leading establishment figures indicating that since 2008 they have abandoned their earlier belief in a cyclical recovery of the global economy. Rather they are suggesting that the world may have entered a prolonged period of minimal growth – or what the head of the IMF, Christine Lagarde, has referred to as the “new mediocre” and Larry Summers, Harvard professor and former US Treasury Secretary, has termed “secular stagnation”.

Such hints coincide with far more widespread recognition that it will not be possible to absorb most of the world’s available capital – or indeed its labour force – in an economy transformed by the digital revolution. As noted previously, this constraint is most dramatically illustrated by the energy sector, where the capital-intensive model of supply and distribution which has been so dominant for over a century – based on large-scale extraction and burning of fossil fuels – is set to disappear in favour of one that is far more fragmented and employs far less capital. This arguably heralds the emergence across all sectors of an economy of super-abundance – or a “zero marginal cost society– in which capital will be terminally devalued and the only supply-side constraints will be environmental. The corresponding devaluation of labour – involving the disappearance of vast swathes of paid human employment globally – is also now widely understood to be inevitable in the foreseeable future.

The implications of these tendencies are of course revolutionary – in relation to the existing order based on profit-maximising capitalist accumulation – and hence will continue to be fiercely resisted by the ruling élite. The path to a new equilibrium based on a more humane and rational order will accordingly be far from smooth and will probably involve even more violent conflict than the world is already witnessing. A more hopeful sign is that ideas such as the need for a Universal Basic Income, in response to the vanishing demand for paid labour, are starting to be taken seriously by many mainstream opinion formers. While predictably this remedy to the present maldistribution of income is dismissed by many as hopelessly unaffordable, even most of its supporters have yet to grasp that this objection might be easily overcome if the present diversion of excess value added into pointless private profits – as highlighted by the figures from the UNCTAD report referred to above – were redirected to more benign ends.

There is no painless way of achieving a transition to such an economic model. However, as it becomes ever more inescapable to ever more of the élite that the present model based on the principle of exploiting scarcity for private profit is being left behind by history, there is reason to hope that certain fundamental modifications to mainstream assumptions regarding the future course of economic development will likely come to be accepted:

  • Genuinely free markets are neither attainable nor desirable, given that they invariably lead very quickly to unacceptable levels of market instability and social injustice, as demonstrated once again by the “neo-liberal” order that has predominated since around 1980 and has ended in the present global chaos.

  • Maximising growth must be jettisoned as a primary policy objective (see above).

  • The right of private enterprises to limit their liability (as under existing company law) must be severely curtailed and made conditional on de facto public right of veto over key corporate decisions. This should severely limit the scope for management to pursue anti-social corporate objectives – other than at their own risk – with a view to maximising their profits, a goal which has already ceased to have any social purpose in view of the structural abundance of capital.

  • Given the equally serious structural oversupply of labour a form of Universal Basic Income (UBI) would need to be established at an adequate level. In that event official policies aimed at job creation would be pointless.

Given the vested interests at stake, resistance to the advance of such radical thinking will remain powerful, as exemplified by the well financed campaign of climate change denial, which is obviously designed to maintain the wealth and power of the fossil fuel industries in defiance of the overwhelming evidence of the harm they are causing. Significantly, however, corporations promoting new technologies leading to ever more robotisation of work are actually starting to lend support to the idea of UBI, even though it would clearly involve state action to redistribute income and curb labour exploitation. While such a stance may seem counter-intuitive from a traditional capitalist standpoint, it could also be viewed as an expression of enlightened self-interest on the part of businesses that see it as helping to reduce political resistance to mass redundancy, while it may also appear helpful to those needing the cooperation of official regulators to facilitate the introduction of revolutionary new products such as driverless cars.

Seen from this perspective it seems plausible to suppose that private enterprises across the economy could be drawn to the idea of trading their unfettered right to limited liability for a guarantee of government support on mutually advantageous terms. Indeed this has long been happening to the extent that corporations in most if not all sectors (e.g. energy, housing, health care, manufacturing, agriculture, transport and above all banking) have for decades enjoyed subsidies, tax breaks and other forms of support from government while still retaining full autonomy and all the privileges associated with limited liability. While conditions have sometimes been imposed on the favoured corporations requiring them to provide certain public benefits in return, in too many cases such conditions have been informal and lacking in transparency. Under a more publicly accountable régime such “crony capitalism” would need to be replaced with more formal contracts between private entities and the state in which the interests of private shareholders would be explicitly subordinated to those of the public through representative institutions. (It would of course remain open to private-sector companies to retain their autonomy to conduct business without the protection of limited liability).

If such a model of corporate governance could be implemented – based on a rational balancing of the interests of individual enterprises and the community in an economy where profit maximisation and economic growth were no longer viewed as public goods – it should be feasible to construct an economic model in which the public interest as a whole would be paramount without stifling the potential for the enterprise of individuals or communities. Identifying the appropriate way (or ways) forward into this new technological age will call for as high a degree of creativity and open-mindedness as the human race has ever been required to display. In this context the election of Donald Trump as US president may actually be a more hopeful sign than it appears at first sight. This is because his programme – typified by his climate change denial – is clearly centred on a hopeless yearning to turn the clock back to some supposed American golden age. Once this fantasy runs up against the harsh realities of the real world and national – indeed global – bankruptcy, the only conceivable escape from which is hyperinflation, we may hope that more rational visions of the future will find favour.

Basic Income in a transformed economic order

Those of us who have long been preaching the unavoidable necessity of establishing a universal (unconditional) basic income (UBI) as the primary mechanism of income distribution in the emerging modern economy – often in the teeth of either mass indifference or ridicule – have recently been gratified to notice that the idea has started to gain significant traction in the political mainstream. This is reflected in official moves in a number of European countries to initiate research or pilot projects (notably Finland, the Netherlands and Switzerland) as well as Canada to determine the viability and/or public acceptability of introducing a UBI.

It seems fairly clear that this apparent shift in mainstream opinion, at least in the industrial (OECD) countries, is due to a combination of two specific factors:

a) the progressive collapse of established social welfare systems in face of an increasingly fragmented labour market, and
b) growing recognition of the irreversible disappearance of stable employment opportunities driven mainly by accelerating technological change.

Such cracks in the edifice of the current global order may easily be seen as symptoms of a broader disintegration manifest in uncontrollable flows of mass migration across borders and the demonstrable failure of conventional tools of macroeconomic management.

Thus whether supporters of UBI see it primarily as a mechanism for achieving greater social justice or simply as a rational route to greater economic efficiency they will probably all view these ideological developments as a welcome, if belated, recognition of trends that have been gathering momentum for many years – indeed decades. In order for the idea to take hold, however, it is clear that its supporters will need to formulate realistic proposals for implementing it on a much wider scale (ultimately covering virtually all countries in the world) than has been envisaged so far. In doing so, moreover, they will need to take account of a broad range of factors that are leading to a profound – and accelerating – transformation of the global economy and society which is rendering existing economic and political institutions ever more unsustainable.

This broader socio-economic context to be considered will need to encompass developments such as:

1) The ending of scarcity

Just as technological change (mainly stemming from the development of steam power) transformed the economics of manufacturing – notably textiles – and transport 200 years ago, leading to the first Industrial Revolution and the emergence of capitalism as the dominant form of economic organisation, so in the present period we are witnessing even more profound transformation resulting from contemporary technological advances which will likely lead to the virtual extinction of capitalism in its turn. This would be the result of what seems to be our emerging capacity to supply almost infinite quantities of goods and services (beyond the capacity or desire of the population to consume) at very low cost.

A striking example of such disruptive change is provided by the supply and use of energy. Throughout the 19th and 20th centuries this has been based primarily upon fossil fuels (coal and hydrocarbons), a dependency which has acted as a significant economic constraint to those states with little or no domestic sources of supply, while equally conferring a corresponding advantage on those with abundant supplies of their own. However, there is ample evidence that this pattern is changing dramatically, not least due to pressure to switch to renewable energy sources in the interests of limiting global warming. This has led not only to the development of progressively more cost-effective alternative sources of electricity such as solar and wind power (hitherto found to be too expensive) rather than traditional large thermal power stations, but to advances in power storage (battery technology) and more efficient small-scale distribution (facilitating local networks in place of traditional dependence on large-scale and often inefficient grid systems). At the same time demand is being quite rapidly reduced thanks to improvements in the energy efficiency of buildings and machinery – including automobiles, where the industry is being forced by regulation not only to improve their fuel efficiency but progressively to adapt them to run on electricity rather than petroleum.

Leaving aside the dire implications of such change for the vast fossil fuel empires (dominated by OPEC and the major oil companies) that have held the world economy in thrall for so long, the far more positive conclusion to draw is that these developments could hugely empower local communities to manage and control their economies independently of large corporations which have hitherto been able to monopolise power supply via the huge infrastructure networks that they control. As a result such communities will be able not only to secure much greater ownership and control of the economic assets on which they depend but also greatly to improve their living standards by accessing much lower cost energy.

This trend towards diminishing scarcity – which is affecting most other productive sectors as well as energy – has been accompanied over the last 30-40 years by one of reduced need for physical inputs relative to the value of output or commodities consumed – or “de-materialisation”. While this is partly a result of the higher growth in global demand for services relative to physical goods – a function of rising affluence among the wealthier minority of the world’s consumers – it is also to a large extent the consequence of advances in the efficiency of production techniques. The latter have also permitted the manufacture of products on a small scale without any loss of cost-effectiveness, using such techniques as 3D printing. This has not only enhanced competition by lowering barriers to market entry by small and medium enterprises; it has also improved overall efficiency by reducing the need to hold large stocks of both inputs and finished goods, thereby lowering costs of working capital.

2) The increasing redundancy of capital

As a consequence of such technological change the futility of continuing to base our economic system on the perpetual expansion of investment and output mediated by a financial sector driven by the principle of profit maximisation is becoming ever more glaring . For where investment capital is still needed as part of the productive process it will increasingly be in such small quantities that it should be readily available to enterprises either from their retained earnings or from local financial institutions (including community, cooperative or other mutual organisations) or even “crowd funding”. At the same time, because in a relatively static economy (see below) capital investment is unlikely to be needed to finance significant expansion beyond predictable existing markets, the attractiveness to private investors of participating in such markets – where competition is bound to ensure that return on capital remains low relative to risk – is likely to be very limited. By the same token large corporations following business plans based on the prospect of perpetual expansion will become a thing of the past; rather such organisations will be forced progressively to downsize and shed more and more of their permanent workforces and other overheads. The implications of such trends for both the structure of economies and asset values – as corporations’ physical assets shrink and urban landscapes and infrastructure are transformed – are evidently huge, if hard to quantify.

3) Dwindling impetus for economic growth

As the demand for capital for fixed investment grows progressively weaker, the dynamics of capitalism itself can be expected to lead to a weakening of political pressure for maximising growth – particularly once the present global debt bubble that has been crippling economic activity since 2008 has finally imploded. In fact it is sobering to recall that the adoption of the maximisation of growth as the primary objective of macro-economic policy in the industrialised West only really started around the end of World War II, following the development of generally accepted measures of national income (Gross Domestic Product or GDP) in the 1930s. The significance of this indicator is that it quantifies total market value added and thus acts as a proxy for the aggregate output of the commercial sectors of the economy – i.e. those supplying tradable goods and services. It thus has come to serve as an indicator of market prospects for enterprises seeking to determine the appropriate strategy for their businesses. For policy makers it also represents a key indicator of the tax base available to a given economic entity.

However, once the meaning of the exponential rise in the productivity of both labour and capital occasioned by the digital revolution is more widely understood, it is bound also to be recognised that attempting to grow GDP at a rate sufficient to absorb ever mounting surpluses of capital and manpower in profitable new investment is futile. Hence it must follow that the imperative of growth will inevitably cease, over time, to be a public policy priority.

4) Changing pattern of global trade and competition

As described above, the declining need for physical capital relative to the level of output and the progressive dematerialisation of production is increasingly making it possible to produce manufactured goods (as well as energy) on a relatively small scale with no loss of cost-effectiveness – thus reversing the pattern that was ushered in by the first Industrial Revolution. In parallel with this trend there are signs that technological change is tending to transform the pattern of trade beyond all recognition. For not only is technology now enabling the superabundant production of goods and services at very low cost; it is also heralding the day when production may be undertaken almost anywhere, subject only to the ability to gain access to the relevant know-how. The increasing importance of such know-how in determining the capacity of enterprises and communities to survive and prosper doubtless helps to explain the rise in importance of “intellectual property” (IP) as a factor in trade negotiations and disputes. It may be doubted, however, whether it will be possible for corporations such as Apple or Monsanto to enforce their claimed IP rights over specific technological breakthroughs so as to extract sustained profit flows (royalties) – let alone control how they they may be adapted or developed by others in future.

The net result will be that the competitive advantage of the purported “owners” of given technological innovations will be increasingly short-lived, as both fixed and marginal costs of production dwindle to insignificance. Hence productive activities will cease to be a magnet for profit-seeking, large-scale investment, so that decisions on the allocation of resources will be left to enterprises or communities based on priorities other than maximum profit. All in all, the assumptions of classical trade theory, based on Ricardo’s law of comparative advantage, will be terminally undermined.

By the same token the traditional competitive struggle among countries to secure a greater share of global markets for themselves – a preoccupation of national policy makers since long before the capitalist era – will become ever more futile. This in turn should ultimately end the “race to the bottom” – or competitive lowering of standards in areas such as labour, environment and tax – which has been such a ruinous consequence of “globalisation”. (It will nevertheless still be important to guard against attempts by different states or communities to use predatory practices such as dumping of products at below-cost prices in order to impose their will on others).

5) Failure of the global order based on “sovereign” nation states

The inequity and instability induced by “globalisation” – compounded by that of market capitalism – as well as growing threats to the biosphere in a finite planet, have exposed the non-sustainability of a world order based on a structure of supposedly sovereign independent states, none of which have more than limited control over the forces determining their own well-being, while at the same time none have any formal / legal responsibility for the welfare of those in other countries. Obviously the problem is further exacerbated by the fact that the supposed sovereignty of nations (communities) is undermined by corporate interests which often conflict with the public interest. The result is dysfunctional outcomes such as:

  • abuses of power by authoritarian national governments against their own people’s rights (as defined in the Universal Declaration of Human Rights) without any possibility of legal redress;

  • impotence of smaller and weaker states to deal with disasters, whether natural or man-made (e.g. Nepal after the recent earthquake, Haiti and other small island states);

  • abuse of the “global commons” (oceans, atmosphere etc);

  • refugee crises resulting from the above.

6) Redundancy of the financial industry

The dramatic collapse in demand for capital investment and the disappearance of the growth imperative indicated by the developments described above points to another major disruption to the present capitalist model which should both strengthen the case for introduction of UBI and render it much more feasible. This is the gradual implosion of the financial sector whose prosperity – and ultimately its very survival – depends on the continuation of expanding demand. For if the demand for capital flows into new investment is disappearing, so will the possibility of maintaining pension or other funds channelling the contributions of workers and employers into assets whose ability to yield an adequate income stream to meet the cost of pensions is being fatally impaired.

This tendency is reflected in the fact that many funded pension schemes in both public and private sectors are already threatened with insolvency, thus acting as a drag on the profitability of sponsoring corporations (such as General Motors and British Telecommunications) and pushing state and municipal authorities (such as Detroit and Chicago) to – or over – the brink of bankruptcy. Taken together with the flows channelled to other funds – including so-called Sovereign Wealth Funds supposedly intended to enhance the long-term economic security of those countries that have established them, but actually benefiting few besides the overpaid fund managers hired to administer them – these funds are still diverting 10 per cent or more of developed countries’ GDP annually into assets that are not only increasingly failing to deliver for the supposed beneficiaries but are having a net negative impact on their wealth. Likewise it is obvious that the huge resources committed to these ever more wasteful outlets could be better spent on providing a basic income (including pensions) or other socially useful purposes

7) End of the policy imperative to create employment

Introducing a truly universal, unconditional basic income at an adequate level (at or above subsistence) will serve to break the link between work and entitlement to a minimum survivable income. Thus it will cease to be necessary to have a public policy objective of maintaining paid employment at a given level or to support relevant training programmes beyond what is needed to meet the anticipated demand for manpower. Hence it will not be possible to use the number of jobs that would be created by a particular project or policy as a justification for supporting it – or, conversely, for the retention of one that is no longer needed on strictly economic grounds. Consequently public investment projects will need to be justified on a broader rationale of their economic or social utility, so that support for “white elephant” schemes such as infrastructure or housing projects for which there is no real demand will no longer be tenable just because they may generate jobs.

8) Inescapable need for greater equality in income and wealth distribution

Because of limited growth and employment opportunities large differences in income will be less tolerable than they have been hitherto. Arguably this tendency is already apparent in stronger reaction in the West against exorbitant pay awards to top management (which have often resulted in ratios of 100:1 or more between highest and lowest paid company employees), suggesting that “trickle-down” arguments in favour of high pay for top executives no longer convince.

We may hope that in such a political climate belief will grow in the need to create a society and economy giving importance to stability and cooperation rather than growth and competition. Despite the reduced impetus for growth there will still be a continued desire of certain individuals or groups to secure a higher share of value added for themselves at the expense of others. While to some extent this may be inevitable, it will be important to find ways to discourage this tendency, not least by maintaining highly progressive taxes on income and profits.

Conclusion

Taken together, the developments described above must surely be viewed as amounting to irresistible pressure for radical change in the global economic and social order. Only such a context, it could be argued, could create both the necessity and the possibility of introducing such a transformational measure as UBI. Its full implications, in terms of the changes to our institutions and way of life that will flow from it, are hard to foresee in detail. It would, however, be realistic to expect that they could encompass:

a) A reversal of the pressures for greater centralisation that have long been evident under industrial capitalism. This will result from

  • The greater possibility of meeting demand for goods and services based on local, small-scale production units
  • The reduced need for workers to move long distances (whether within or beyond national borders) from their homes in order to secure a livelihood – thereby avoiding the socially damaging consequences of family separation that typically results from such disruption.

b) An end to competitive overproduction;
c) Marginalistion of private profit as the main determinant of resource allocation, price determination and income distribution;
d) The ultimate redesign of the whole institutional basis for determining the allocation and distribution of resources and value added – whether on a local, national or international basis.

Clearly neither national governments nor the leadership of supposedly key international agencies such as the United Nations, IMF and OECD have even begun to recognise the significance of such trends, let alone consider how to address them. It may be claimed by their apologists that, as with their failure to anticipate the Global Financial Crisis in 2007-8, their inability to do so stems from incompetence or cognitive incapacity. However, it is striking that the implications of such dramatic changes in the dynamics of the world economic and social order are potentially highly disruptive and inimical to the existing pattern of wealth and power relationships. Hence we should hardly expect the existing powers that be to do anything to facilitate such dramatic change even though the benefits to humanity as a whole may obviously be huge. But since such revolutionary tendencies are not only potentially benign for most of humanity but manifestly inevitable we may hope that more enlightened forces will ultimately prevail.

Capitalists are the Luddites now

Traditionally resistance to inevitable technological change has been viewed as the typical reaction of workers who find their jobs threatened by innovation. The original Luddites were English textile workers who sought to destroy steam-powered spinning and weaving machinery introduced as a result of the Industrial Revolution in the early 19th century, which they correctly saw as a threat to their livelihood as handloom operatives. Ever since then the term has been used to describe those who resist the advance of new techniques in any sector of the economy where this appears likely to result in loss of jobs or earnings to the concerned sections of the workforce.

A famous more recent example of this syndrome in Britain was the resistance (for long successful) of print workers in the newspaper industry to any attempt to replace traditional manual typesetting with more automated techniques. This resistance – which enabled the workers to delay the inevitable until the mid-1980s – was only possible thanks to supine newspaper proprietors prepared to run their papers at a loss because of the political influence they believed this gave them – and to well organised unions who were also able to maintain their position as the best paid manual workers in the country.

Less extreme cases of such resistance to change have been common in societies where people’s living standards have depended heavily on their access to paid employment. There is no doubt that increasing recognition of this obvious reality after World War II prompted governments in the industrialised West to try and design labour laws and welfare regimes that would cushion redundant workers against the hardship of unemployment – and also enhance their ability to find new employment – and thus lessen resistance to technological change which might otherwise hold back advances in productivity that could be beneficial to the development of the economy as a whole. Since around 1980, however, such protection has progressively disappeared in the face of an accelerating decline in the traditional demand for both manual and “white-collar” labour in the industrialised world.

The resulting progressive “devaluation” of labour has naturally had a profound impact on socio-economic trends in the developed world, particularly in altering the pattern of income distribution – to the disadvantage of those workers not endowed with skills that are scarce enough to enable them to command high, or even in some cases minimally adequate, salaries. This has been mirrored in the decline in the industrial power of trade unions, whose bargaining position vis-à-vis employers has been progressively eroded by such technological change.

This decline in the market power of labour has been widely recognised by mainstream economists and has led some – such as the widely acclaimed Thomas Piketty – to identify (correctly) recent technological advances as a cause of growing inequality in the contemporary global market economy. However, what very few have been willing to accept is that this trend in the labour market may signify a move towards a permanent, structural surplus of manpower, even though it is obvious to all outside the charmed circle of those with a vested interest in preservation of the existing economic order (who are also the main beneficiaries of this trend). Rather the ruling establishment clings to the deterministic assumption that market forces will somehow – against all the evidence – eventually permit the absorption of this labour surplus in a more or less spontaneous renewed expansion of the economy.

Capital devalued

What mainstream analysts and their political masters are even less willing to recognise is that this world-wide structural surplus of labour is now matched by a similarly permanent and growing surplus of capital, which is also largely a function of technological change. The present writer can claim to be one of the few to have consistently drawn attention to this phenomenon since first identifying it nearly 20 years ago as well as in more recent blog posts.

For defenders of the status quo the inescapable conclusion, that capital is becoming progressively as redundant as labour – not simply, as in earlier periods, on a cyclical basis in line with the traditional fluctuations of the market, but on a long-term, structural basis – is one that hitherto has met with ferocious and virtually unanimous denial. Such a reaction may hardly be thought surprising. For if, in a world of chronically, and perhaps increasingly, weak growth in final demand, it can be demonstrated that capital has permanently ceased to be a scarce factor of production, not only is the market value of capital assets bound to decline over the long term; so is the market and political power of their owners.

As in other instances of decaying power structures throughout history, the ruling élite is not willing to surrender its existing dominant position without a struggle. Hence, in the effort to hide the reality of their dwindling market power and economic relevance corporate entities are resorting to ever more extreme forms of fraud and misinformation. As noted in my last blogpost, the structures of Western corporate law and governance have evolved in such a way as to incentivise serial misconduct – to the point where enterprises feel little restraint from committing criminal acts such as (for example) fraudulent manipulation of markets.

Short of such blatant breaches of the law the corporate sector increasingly demonstrates its fundamental market weakness by its shameless – but perfectly legal – lobbying of governments to support manifestly wasteful and uneconomic investment projects, obviously on the understanding that the same governments will a) subsidise or directly finance the necessary costs, and b) largely indemnify participating private companies or investors against potential losses. For clearly without such official guarantees, explicit or implicit, most if not all of these schemes would be neither commercially nor economically viable and hence would not attract private investment.

White elephants

As it is, big corporations feel able to pressurise government to underwrite the most blatantly unviable investment projects. Examples of what we may term “capitalist Luddism” range from the building of roads and bridges to nowhere in Japan, “ghost cities” of empty apartment blocks in China, airports in Spain that have never opened and nuclear power stations in numerous countries that will probably never be allowed to open (if they are ever built).

In the UK alone there is a long list of such white elephants for which private corporations have been lobbying, calling for the injection of hundreds of billions of public money even as essential public services are being decimated while corporate taxes are being cut and evaded as never before. These include:

  • The London Olympic Park – the most fitting epitaph on which is the fate of the Don Valley Stadium in Sheffield, built for the World Student Games of 1991 and finally demolished by the cash-strapped city council in 2014;

  • The High Speed 2 rail project intended to link London and Birmingham and ultimately points beyond at a cost of scores of billions of pounds – which no economist has been found willing to declare capable of making a positive return on investment;

  • The London “super sewer” – costing at least £4.5 billion – on which work has just started but which many experts judge to be unnecessary;

  • An extra runway for London’s airports (likely to cost at least £20 billion) – despite the fact that air pollution in SE England is already at dangerous levels and spare capacity exists at regional airports;

  • Hinkley Point C nuclear power station, Somerset, over which potential investors are hesitating despite the promise of an extraordinary public subsidy equivalent to 100 per cent of the market price for electricity..

Perhaps the biggest single black hole of all into which British public funds could be wastefully poured is the renewal of the Trident nuclear submarine fleet at a projected cost of £100 billion or more. Although the case for this expenditure is more than ever discredited in terms of defence needs – especially given indications that it may soon be technologically outmoded – there is a powerful lobby in favour of renewal which is likely to carry the day in Parliament. Yet as with all armaments expenditure, which by definition does not need to show any direct financial or economic return, the cheerleaders for this project may be suspected of links, if only indirectly, with what President Eisenhower famously denounced as the “military-industrial complex” at the height of the Cold War over 50 years ago.

Regular readers of this blog may have noticed that the symptoms of systemic dysfunction described above fit with our recurring theme of the growing redundancy of capital and the consequently inevitable slow fading away of the capitalist profits system which has dominated the world for at least the last 200 years. As has been made clear, the ultimate manifestation of this tendency is the slow demise of the huge financial sector itself, reflected also in the Global Financial Crisis (GFC) which, so far from abating after nearly nine years, is now predictably intensifying.

Another major sector where the phenomenon of capitalist Luddism is strikingly manifest is the still enormous petroleum industry. Not only has it, like big finance, exploited its huge political power – aided by inherently corrupt structures of political “democracy” in the industrialised world – to procure unduly favourable tax and legislative treatment for itself; it has also used its market power, particularly through the media, to distort public perceptions of its continued economic and political value to the community. Thus it has been able to

  1. delay public acceptance of the disastrous environmental impact of both global warming and aerial and other pollution resulting from excessive reliance on fossil fuels;

  2. prevent or delay adoption of new technologies (including renewable energy sources), which are less harmful and ultimately cheaper.

Such efforts – combined with those of the increasingly corrupt motor industry (so shockingly revealed by the recent Volkswagen emissions scandal) – have tended to obscure the fact that the age of the internal combustion engine (and thus of petroleum) will likely soon be over, bringing to an end a technological era which has roughly spanned the 20th century.

For true believers in the efficacy of market capitalism – and in Joseph Schumpeter’s famous concept of “creative destruction” – such a drastic transformation of the economic landscape may seem healthy, and no more threatening than was the first industrial revolution ushered in by steam power in the early 19th century. It may even be thought that with the vastly greater resources, both public and private (physical and social capital), that has been accumulated over the last 200 years, it should be relatively easy to cope with economic and social upheavals similar to those that caused such distress in the 1830s and 40s. Yet if they were to consider realistically how the mass of the population in the industrialised world has now become far more deeply entangled with the institutions of the capitalist economy than in previous major downturns they might be far less sanguine.

For not only do many millions stand to lose their jobs as such major sectors as finance and petroleum are faced with massive and possibly terminal contraction. Equally, given the trillions of dollars that have been, and continue to be, invested in discovering and developing new oil and gas deposits across the world, millions more who have been officially induced (often via tax-incentivised pension schemes) to put their life savings into such potentially “stranded assets” – not to mention other unviable investment projects – now face financial ruin on an unimaginable scale.

As suggested earlier, it is precisely because the global ruling élite know all too well that such a cataclysmic upheaval will spell the end of the world order that sustains their power and privileges that they are seemingly prepared to resort to any expedient to prevent or postpone it. Hence the growing incidence of open fraud, including the blatant rigging of financial markets for which virtually none of the perpetrators have been brought to justice, safe in the knowledge that any fines imposed on their institutions can be passed on to the shareholders while the executives responsible continue to award themselves huge bonuses. Yet all the while, as those responsible skate on increasingly thin ice, the risk of an accident triggering an uncontrollable financial holocaust becomes ever greater.

 

 

Dethroning the profit motive

It is an article of faith among mainstream economists and other defenders of the existing world order that the mainspring of economic advancement and welfare, from the perspective of the public as a whole, is the pursuit of maximum profit by private individuals or enterprises acting in their own individual interests or that of their shareholders. Most, however, would probably also recognise that such a simple proposition – corresponding to Adam Smith’s famous metaphor of the beneficent working of the Hidden Hand – needs to be severely qualified in any analysis of how the real world actually works.

In particular, the dynamics of private corporate enterprise, as it has evolved in the West since the 19th century, have revealed a powerful tendency for it to permit – or even encourage – the emergence of damaging conflicts of interest both a) within enterprises and b) between enterprises (individually or collectively) and the wider public. While such conflicts stem in large part from the inherent tendency of human beings to prioritise the pursuit of their individual self-interest, they have unquestionably been exacerbated by the institutional structures put in place since Victorian times with the supposed purpose of enhancing the benefits of the system to the public.

Corporate governance. The inherent conflict created by the often inevitable separation of ownership and control of an enterprise has long been understood to be a fundamental flaw in the theoretical equation. Indeed it is a little known fact that Adam Smith himself was broadly opposed to the idea of joint-stock (i.e. shareholder) companies because of the risks involved in individuals entrusting others with the management of their assets. Despite this objection, however, the dominant “capitalist” system has evolved since his time in ways that failed to address this “agency problem”. So far from that indeed efforts have focused on persuading those who might otherwise shy away from putting their capital at risk to do just that, notably by the granting of the automatic right of enterprises to limited liability (embodied in the original UK Companies Acts of 1854-55), which indemnifies shareholders against any potential loss beyond the amount of their shareholding in any given company. Implicitly the justification for extending this privilege to all was the need to attract far more investment capital at a time when it was still scarce in the face of growing demand for it as the industrial revolution was continuing to spread across the world.

In fact, as a result of this tendency, companies have been enabled to evolve in such a way that management – in the shape of the board of directors – is able to exercise effective total control of the company without any meaningful accountability to shareholders. For although shareholders nominally appoint the board and have the power to replace any of its members (though not in the United States), they often find it difficult to exercise that power, principally because of a) the multiplicity of shareholders rendering it hard to mobilise a majority in support of any resolution opposed by the board, and b) their limited access to information on the company’s affairs compared with that enjoyed by the board. The impotence of shareholders has been further demonstrated during recent attempts in the UK and elsewhere to try and limit the exorbitant remuneration packages that company boards routinely vote themselves and top executives even in the wake of poor results. Thus for example at Royal Dutch Shell shareholders actually passed a resolution to cut the executive pay increases proposed by the Board, only to find that the rules meant their vote could only be advisory and the final decision would rest with the Board in any case.

Corporate vs. public interests. Such abuses of corporate accountability, we might think, are precisely what Adam Smith would have expected given his hostility to joint-stock companies. What he might not have foreseen is that in an age of globalised production and distribution such huge and unaccountable corporate power could have been allowed to be concentrated in so few hands on a world scale. Still less might he have imagined that this concentrated corporate power could have enabled them to exercise correspondingly disproportionate political power by deploying their huge financial resources and lobbying power to distort the actions of supposedly democratic governments contrary to the popular will and the public interest.

In fact this implicit conflict of interest between the owners / shareholders and management of companies under the existing régime of corporate governance (particularly in the Anglo-Saxon countries) is at the root of the fundamental negation of democracy which is inherent in the existing global economic order. Moreover, it is compounded by the absence of any serious restraint on corporate donations to political parties, exemplified at the extreme by the notorious Citizens United judgement of the US Supreme Court (2010), which effectively ruled that any attempt to impose legal limits on companies giving financial support to political parties was a violation of the constitutional right to freedom of speech. The net result is that our supposedly democratic body politic is effectively under the control of a tiny number of corporate directors who cannot even claim to be representative of their own shareholders, never mind the rest of the population.

Disastrous consequences

For most people it is of course nothing new to find that corporate interests have a large, if not decisive, influence over elected governments and their policies. Yet perhaps relatively few are aware of the extent to which this influence is exercised in ways contrary to the public interest, often at huge social and economic cost. Of the innumerable examples of its malign impact that could be cited two major ones may serve to illustrate the point.

The food industry and public health.

Although after decades of bitter struggle governments have managed to impose some limited restraints on the marketing of tobacco – whose lethal impact on public health has been known since the1950s – the same cannot be said of the hardly less harmful alcohol and food processing industries. The cost to the public of excess consumption of these – particularly of such ingredients as sugar – is reflected not only in the reduced well-being of individuals but of the cost to the public of remedying the resulting damage – such as the billions spent annually by Britain’s National Health Service in treating the ravages of diabetes. Meanwhile attempts to force the food industry to accept legal restrictions on excessive sugar content in their products run up against the malign power of the food lobby to prevent effective action.

Energy production and consumption

For at least the last 30 years there has been growing evidence that global warming and climate change are very real phenomena and that they are to a large extent a function of the steadily rising use of fossil fuels (hydrocarbons and coal) to meet the energy needs of a growing world economy and population. In face of this evidence – and the growing recognition that this trend is likely over time to pose a serious threat to the welfare, if not the survival, of large sections of the human race – there have been a number of highly vocal and politically influential campaigns devoted to disputing the evidence and claiming that consequently there is no need to moderate, let alone eliminate, our dependence on energy derived from fossil fuels. What is most significant about such organised denial – whether of the reality of climate change or of the role of human activity in causing it – is that it is largely financed and orchestrated by the major oil companies, notably Exxon Mobil, although this fact is often not reported in coverage of the issue in the mainstream media. It is thus fair to say that the failure of the international community hitherto to halt the growth in carbon emissions and thus the rise in global warming, notwithstanding numerous international conferences and agreements starting with the Rio Convention of 1992, owes much to the concerted efforts of the corporate-dominated lobby of climate change deniers, although it is also right to point out that until very recently they had strong allies among major Third World states such as China, which regarded efforts to impose limits on emissions as unfair discrimination against poor countries, which had historically contributed little to global warming compared with the industrialised nations.

It is of course true that under any market system individual private economic actors will inevitably tend to advance their own interests at the expense of others unless restrained by official regulation backed by law. What is especially pernicious about the dominant “Anglo-Saxon” model , as described above, is that it effectively compels company boards to pursue the maximisation of private profit as their overriding policy goal, to which all other corporate priorities – such as enhancing the welfare of their employees or supporting local communities – must be subordinated. This is because company law a) requires that the interests of shareholders (the owners) be given priority over those of all other “stakeholders” – such as employees or the general public – while b) owing to the large number of shareholders in many companies and the impossibility of consulting all of them on corporate strategy and management issues the board of directors will inevitably tend to interpret their mandate according to the lowest common denominator – i.e. maximisation of (short-term) profit. Moreover, their propensity to do so is further enhanced by the competitive pressures of the capital markets, which tend to mean that chief executives who fail to achieve a return on capital at least as high as that of the average of other companies are liable to be ousted from their highly paid positions.

These pressures on corporate management have intensified during the present “neo-liberal” phase of capitalism – i.e. since around 1980 – as market growth has progressively faltered and opportunities for productive investment have dwindled in the face of a cyclical downturn compounded by the more long-term negative impact of technological change. As a result there has been a growing tendency for corporate bosses not merely to give lower priority to the public interest and social considerations but to engage in blatantly criminal actions in pursuit of extra profit. Although the Enron fraud scandal shocked the world when it broke in 2001, it might until quite recently have seemed an “outlier” in that few, if any, other cases of major corporate fraud hit the headlines in the years before the start of the global financial crisis (GFC) in 2008. Since then, however, such scandals have flowed thick and fast – from the massive criminal manipulation of currency and other financial markets by the world’s major banks to systematic accounting fraud at major Japanese industrial corporations such as Olympus and Toshiba and now, most stunning of all, the Volkswagen emissions fraud at the heart of German industry.

An additional flaw in the system is that the dynamics of corporate power, as described above, allow the directors to structure management policy in such a way as to link it to their own personal interests. This commonly results in structures of executive remuneration that incentivise the short-term maximisation of the share price – such that this triggers huge bonuses for a few individuals at the top, even though it may well have an adverse impact on the company’s well-being in the longer run. Such self-serving behaviour of management is further encouraged, it should be noted, by their capacity to manipulate the share price by buying back their own shares, a practice that had been effectively outlawed for 50 years up to the 1980s – precisely because it was seen to have led to distorting price manipulation prior to the Wall Street Crash. Equally it is hard to imagine that such wide-scale perversion could have occurred if the same dynamics had not worked to put governments so deeply in thrall to corporate power.

The key: limiting limited liability

It can scarcely be denied that the huge dysfunctionality of the modern economic system, as described above, has resulted in large part from elevating the pursuit of profit maximisation to the status of a supreme social virtue. If we are to create structures less prone to this tendency – which permeate every sector and level of our ever more commercialised and privatised economy, from public utilities to professional sport, as well as those dominated by large corporates – we must be prepared to consider institutional reform at a fundamental level.

While a number of enquiries into how to improve corporate governance have been conducted in the UK since the 1990s – typically in response to some conspicuous failure of the system – none has resulted in the introduction of effective restraints on management. Indeed the abject failure of the authorities hitherto to initiate any criminal prosecutions against senior executives responsible for the multiple abuses associated with the banking crisis of 2007-8 has engendered enormous public cynicism as to the integrity of the regulatory structures in place.

Meanwhile awareness is growing, except among those with vested interest in preserving the status quo, that restricting the right to limited liability will be a crucial step in ensuring that corporate management serves the public interest better. The primary justification for such a reversal of this market-distorting provision of company law is that, in contrast to the position in the 1850s when it was first introduced, there is no longer any real scarcity of finance capital (rather the opposite) and therefore no need artificially to stimulate inflows of it into the market. Indeed it is becoming increasingly clear that such incentives to unnecessary investment are resulting in ever greater misallocation of resources. Well known examples in Britain are the building of the hugely wasteful High Speed 2 rail project and other white elephants such as the massively expensive London Olympic Park, built for the 2012 games but devoid of any real utility after that brief event. The damaging consequences of such follies is put in even sharper relief by the fact that they cannot be undertaken without the help of subsidies from the public purse, often open-ended, to the profitability of the private corporate sector – which appear all the more perverse at a time when vital forms of public spending, such as on health and social welfare, are being sacrificed in the name of fiscal rectitude.

It would thus be a very logical first step in any reform programme aimed at rebalancing the role of the corporate sector to make the right of any enterprise to the privilege of limited liability conditional on its accepting the inclusion in its articles of association a requirement that it be made formally accountable to the state (whether at national or local level). This would need to involve scrutiny mechanisms and rights of effective public veto on board decisions concerning significant change in the allocation of value added – e.g. major investments, pricing, remuneration of employees and management. While entrepreneurs would still be free to pursue an independent strategy without the protection of limited liability, it can hardly be doubted that the net effect of such a shift in the balance of power over the management of businesses would be a reduction in the level of private investment. But given that, as we have suggested, the volume of fixed capital investment is now excessive in relation to genuine, undistorted market demand, such a reduction would be no bad thing from a public interest perspective. But self-evidently the ultimate implications for the survival of capitalism would be dire.

The Only Way Out

2015 is witnessing what may well prove to be the climax of the greatest humanitarian disaster in modern world history. Its most visible manifestation is the swelling flood of refugees – likely to amount to several millions in 2015 alone – trying to enter Europe from adjacent regions of Asia and Africa in their attempt to escape conflict or economic collapse in their own countries. This phenomenon has been building steadily over many years, but particularly since the onset of the Global Financial Crisis (GFC) in 2007-8 and the political upheavals known as the Arab Spring that began in 2011. By now – in October 2015 – the scale of this mass exodus from these regions has reached such intensity that the flow has become almost uncontrollable, with the forces of law and order in the European countries to which the migrants are mainly fleeing (nearly all illegally) increasingly unable to impose their authority and their governments totally at a loss as to how they should respond. At the time of writing there is no telling how large or sustained this influx will be; but, bearing in mind that the continent as a whole is already severely crippled by seven years of economic recession and stagnation since the start of the GFC, their capacity to assure minimum acceptable standards of living and public services – as well as preserve social peace and stability – is bound to be sorely tested.

At the same time the ability of the world’s leading economic powers – all of which, including the United States, are to some extent subject to similar pressures to those affecting Europe – to take remedial action to stabilise the “developing” countries from which these migrants are so desperate to escape are evidently quite limited. As noted in earlier postings of this blog, this impotence stems both from the growing economic and material weakness of the leading powers and from their ideological incapacity – that is to say an inability to come to terms with the failure of the economic and social model that the West has imposed on the world since the 19th century, and most particularly of the “neo-liberal” version that has been dominant for the last 35 years.

The unravelling of this ideology appears to have come as a huge shock and surprise to the Western ruling élite – at least as much as was the collapse of the ideology of “communist” central planning that fell with the Berlin Wall in 1989 in the eyes of the Soviet establishment. Such a reaction by ruling élites to what they might well have recognised as existential threats to the established order might seem unremarkable given the scale of wealth and power that they stand to lose – as typically in any potentially revolutionary situation. In the case of the Western establishment it may be all the more understandable given that a mere 25 years ago they felt able to proclaim the final triumph of the liberal-capitalist model following their “victory” in the Cold War.

On the other hand as rational beings they might perhaps by now have felt forced to conclude that the multiple disasters we see unfolding across the globe could endanger the very survival of the civilised order that has evolved in the Western world over the last several centuries. Hence world leaders’ continued public denial that there is any fundamental flaw in the still dominant neo-liberal economic model based on “free” global markets can only be explained in terms of either a) a psychological / institutional inability to allow serious exploration of radical alternatives – akin to the totalitarian mindset of their Soviet counterparts in the 1970s – or b) a conscious willingness to risk or even promote conflict on such a scale as to cause destruction of life and civil order – perhaps even to the point of precipitating a world war – in a desperate attempt to defend their own narrow class interest come what may. The latter hypothesis might well be thought consistent with the track record of the notorious “military- industrial complex”, whose malign influence over US foreign policy – viewing expansion of the armed forces and the production of armaments as economically and commercially benign – is traceable from the aftermath of World War II up to the Western invasions of Afghanistan and Iraq in the present century.

The need for a new ideology

Despite the continued danger that such pathological unreason might lead humanity to self-destruct we must believe that a more hopeful resolution to the intensifying crisis is possible. For such optimism to be plausible, however, a critical mass of those with power and influence must emerge to lend support to a radical reset of the global order, which would also need to be quite sudden in view of the advanced state of systemic disintegration that is now apparent. The essential focus of this drastic change in collective thinking would need to be on four central realities:

  1. The entire neo-liberal agenda that has dominated official policy in the West since at least 1980 has been fundamentally misguided and has exacerbated rather than ameliorated the condition of the vast majority of the world’s people, resulting in a decline in living standards for most of the “99%” relative to the “1%” – or even in absolute terms for many – and consequently increased inequality and social division;

  2. The failure of this “free market” agenda – including “globalisation” – has been particularly catastrophic for the poor countries of the Third World and has contributed greatly to converting more and more of them into failed states – starting with Somalia, which has been effectively without a government since 1990;

  3. The need to renounce economic growth as an instrument for advancing human welfare, given that rapid growth is no longer attainable in a world of chronic excess capacity and vanishing scarcity, nor desirable on a finite planet where the biosphere is increasingly threatened by indiscriminate overproduction;

  4. The required remedies in both the short and long term will entail a) massive redistribution of both wealth and income – from the tiny minority who control far more of it than they can possibly either need or put to good use to the vast majority who have virtually nothing and hence must struggle to survive on the margins of existence without hope of improvement in their lot, and b) a fundamental shift in the organisation of the world economy from the anarchic instability of competitive markets to more stable markets based on regulation and cooperation.

Acceptance of these insights, taken together, amounts to a recognition that the attempted revival of laissez-faire capitalism since around 1980 has proved a catastrophic failure. The reasons for this failure, as argued in earlier posts, are to be found in long-term economic and social trends which, like earlier instances of revolutionary change, have been driven largely by technological advance – see https://harryshutt.com/2015/04/08/the-withering-away-of-the-financial-industry/. Failure by the ruling élite to recognise and react to such irresistible tendencies has brought us to a point where emergency steps to implement radical change are unavoidable if terminal disaster is to be averted.

A plausible dénouement

It is obvious that the global ruling establishment is still very far from being able to contemplate such an agenda as that briefly outlined above. Indeed, as this blog and others have frequently suggested, the only way that the powerful might be induced to “think the unthinkable” is under conditions of total breakdown of the existing order, such as is now apparently gathering momentum across the world, and is exemplified by the refugee crisis engulfing Europe. Given the imminent prospect that this catastrophe will combine with intensification of the GFC to precipitate inescapable financial collapse, it could even be imagined that some of the necessary changes in official attitudes and policies will come about by default.

In fact default is, quite literally, the most likely scenario to be involved in easing the unprecedented burden of debt (public and private) now crippling the global economy – which at $200 trillion is 40 per cent higher than at the start of the GFC in 2007, since it is now widely accepted – even by the IMF – that most of this can never be repaid while the attempt to continue servicing it is perpetuating mass poverty and hardship as well as corporate paralysis. Such mass debt default will in turn trigger a collapse in other asset values, including stock markets and real estate, which the authorities will be powerless to prevent – although they will certainly try, probably by resorting to indiscriminate money printing – instead of the selective purchase (monetisation) of assets which is presently practised under the name of quantitative easing (QE) – which is all too likely to precipitate hyperinflation.

Given the steadfast refusal of the ruling élite and the mainstream media even to discuss the possibility of such a scenario, it is impossible to tell what the response of governments and the public at large around the world might be to its realisation, especially as it must be assumed that the official propagandists will continue to use all their ingenuity to distort the truth. Ultimately, however, we may expect that some event or series of events – such as bank failures, currency collapse, outbreaks of social unrest or war – will be the catalyst for a more general financial upheaval and social disintegration in a growing number of countries. This in turn could well lead to a breakdown in the global order such as to bring about widespread political revolution and demands for fundamental ideological change.

Underpinning all the reforming and rebalancing of the global economic order that will be entailed in applying the principles outlined above must be recognition of the need to restore a commitment to the ideals enshrined in the Universal Declaration of Human Rights (dating from 1948), which have been progressively abandoned by Western leaders since the 1970s in favour of a cynical realpolitik more worthy of Hitler or Stalin. This would need to be reflected in a system of international law enforcement which ensures that perpetrators of human rights abuses such as torture or imprisonment without trial, as well as high-level fraud and other financial crimes, are effectively brought to justice – even if this involves punishing the leading officials and businessmen of the United States and other leading Western countries as well as Russia who have hitherto enjoyed almost total impunity. Such a demonstrated commitment to the rule of law and genuine political accountability must be seen as a prerequisite to bringing about an economic and social order that holds out hope of restoring a minimum degree of peace and stability in place of the present deepening chaos and misery.

As the once dominant neo-liberal order – supposedly involving a return to the laissez faire values of early capitalism – now crumbles to dust it is ironic to recall that its early protagonists in the 1980s, led by the Thatcher government in Britain, adopted the slogan “there is no alternative” in support of their ideological crusade. For what is now required is a recognition by world leaders that a pre-condition of our salvation must be a de facto rejection of those values in favour of ones more conducive to the well-being and happiness of the overwhelming majority of humanity. For while, as suggested above, we must fear the possibility of the present systemic chaos ending in a terminal cataclysm for our species, it can also be envisaged that visionary leadership will enable us to realise that, in a world of growing abundance and vanishing scarcity – thanks to technological advances – the mass of the world’s people could easily be provided with the material security that all crave but so few attain under the existing distorted and anarchic world order.

The Graveyard of Western Civilisation?

Few people could probably have predicted that the Greek debt crisis that has been building in intensity since early 2015 would finally have taken such a vicious turn as it has since the end of June. It seems clear that this was the result of a continuing impasse in negotiations between the leftist Syriza government, elected in Athens in January on a strong anti-austerity platform, and the “troika” of creditors – comprising the European Commission (representing the 19 Eurozone members), ECB and IMF) determined to continue imposing harsh measures of economic “reform”. Ultimately, faced with the prospect of imminent debt default and financial collapse threatened by the troika on 12-13 July, the Greek premier Alexis Tsipras capitulated to far more draconian demands than those which his voters had overwhelmingly rejected in a referendum a week earlier. This surrender was imposed in a way which seemed deliberately designed to cause maximum political humiliation and pain to Athens and the Greek people. Above all it was made clear that there could be no write-down or restructuring of Greece’s foreign public debt – thereby substantially reducing the amount of the debt – even though it was obvious to all, including the IMF, that there was no chance of the debts ever being repaid without this.

How can such a rancorous outcome, which has caused huge ill will not only between Germany and Greece but among other member states as well – such as perhaps to threaten the long-term cohesion of the Eurozone, if not the EU itself – have been allowed to happen? At such a moment of extreme distress affecting a member state it might have been expected there would be a display of maximum possible empathy on the part of other member states in keeping with EU traditions of community and solidarity. A similar reflection was prompted by the extraordinary spectacle of the other members of the Eurozone almost unanimously ganging up against Greece at a meeting in Brussels on 12 July – this moreover after years of hardship caused by the prolonged austerity that its people have already endured in vain. It might seem that Greece had all the more right to expect such solidarity now that it is having to bear the brunt of an uncontrolled flow of refugees from its Eastern neighbours as conflict and revolution continue to rage throughout the region. So far from sympathy, however, Greeks seem to be receiving little but abuse and bigotry from their fellow Europeans, whether at the personal or official level.

Such a collective failure of statesmanship in the Eurozone demands an explanation that goes deeper than a facile analysis of national stereotypes or the possible character weaknesses of the leaders involved. A more serious explanation would need to consider the possibility that the crisis is systemic – i.e. inherent in the institutions of the European or global economies – and that what has happened is essentially a symptom of intolerable pressures building to the point where they are becoming impossible for their leaders to control. The likelihood that this is so seems all the greater given that not only is there no sign of an end to the Global Financial Crisis (GFC), now in its seventh year, but rather that it is intensifying.

Dangerous alternatives

It is not hard to believe that politicians in Europe and elsewhere, increasingly desperate in the face of this loss of control, see it as politically convenient to sacrifice international solidarity in favour of simplistic nationalism – even if more sober calculation of the long-term political dangers might suggest that the resulting conflict could lead to the break-up of the EU, especially given the possible negative fall-out of a British no vote in its forthcoming referendum. Even more alarmingly, such perversity could be a symptom of the historical tendency of the rulers of states to initiate or provoke disputes with a supposed enemy when faced with intractable problems at home – even to the point of outright war (the Anglo-US attack on Iraq in 2003 is an obvious case in point).

Such a scenario seems particularly plausible in a situation where, as now, virtually every country (in the EU or outside) is basically bankrupt – and would be revealed as such if their assets were allowed to be “marked to market”. That this is the reality – and getting worse by the month – is apparent from a little publicised study produced by McKinsey in February 2015 – http://www.mckinsey.com/insights/economic_studies/debt_and_not_much_deleveraging – showing that attempts to reduce national debt burdens (public and private) since 2007 through policies including budgetary austerity, so far from leading to a reduction in global debt (as their advocates have continued to claim they would) have actually resulted in an increase of 40 per cent – to $199 trillion. No wonder the authorities in the EU and elsewhere would rather divert our attention from this and focus it instead on a powerless scapegoat like Greece.

In such a context there are reasons for suspecting that Germany’s banking sector is particularly exposed to “contagion” from debt default in Greece or other Eurozone countries. This is because, according to the McKinsey study cited above, the German financial sector itself currently has one of the highest ratios of debt to GDP among major industrialised countries, while Deutsche Bank (the largest in the Eurozone) was recently reported to have a leverage ratio of 40:1, the same as that of Lehman Bros when it collapsed in 2008). This could easily explain why the German government in particular has so adamantly refused to countenance any debt relief for Greece – even though the IMF, traditionally the international institution most committed to upholding the rights of creditors, has openly admitted that Greece will never be able to return to stability without its international debts being substantially written off. Hence, even though Greece’s debt to German institutions may be relatively small, if it should succeed in establishing a precedent for debt write-down / forgiveness it is all too predictable that other heavily indebted Eurozone countries would demand similar treatment – which, if permitted, could push the German banking sector over the edge, precipitating an even deeper world-wide financial crisis.

Another desperate remedy that Western leaders may be tempted to try could be more rapid price inflation. Yet while this could certainly help to stimulate higher incomes and faster growth in the short run, as well as serving to devalue debts and thus make them easier to service, it would inevitably run the risk of generating hyperinflation, which could be hard to bring back under control once unleashed and could soon prove even more damaging than austerity to the living standards of the poorest and most vulnerable.

The Failure of Austerity

Likewise any such development as spreading of debt default or hyperinflation could produce another “demonstration effect” equally unpalatable to the global economic establishment, namely yet more conclusive proof not only that austerity can never be a feasible path to restoring balance to an economy suffering from demand deficiency, but that, as has been well known since the depression of the 1930s, it tends to exacerbate the problem by depressing demand and growth even further. Given this incontrovertible evidence from the past, most economists have watched in amazement as Western industrialised economies have adopted strategies of austerity since 2008 without thus far precipitating rapid economic collapse.

Their ability to do so may be attributed to a combination of

  1. highly unorthodox, expansionary monetary policies based on the monetisation of public debt – a practice known as “quantitative easing” (QE) which is akin to outright money printing;

  2. selective deployment of the funds thus artificially created to boost the market value of government and other securities as well as assets such as real estate (QE would otherwise have been highly price inflationary, whereas in practice its main effect has been to inflate the asset values of the wealthy; at the same time it has enabled the authorities to keep interest rates artificially low, thereby saving the fundamentally insolvent financial sector from open bankruptcy) ;

  3. falsification of official statistics so as to understate inflation and overstate real GDP growth, which in reality has been nil or negative, so as to obscure the reality of an economy trapped under an ever greater debt burden.

By means of such unprecedented market-distorting methods the world’s ruling élite have succeeded since 2008 in preventing the onset of total financial meltdown such as would undoubtedly have happened otherwise. However, this strategy – referred to by many market practitioners as “kicking the can down the road” – has obviously not brought us near to “recovery”, as leaders of such as the US Federal Reserve Board and the Bank of England have wished us to believe. Rather the intensifying Greek crisis has apparently brought us close to a point at which disbelief can no longer be suspended – when further austerity can no longer be imposed on the long-suffering masses while at the same time the global debt burden cannot be further increased, in the vain hope that by some miracle prosperity will return.

Since its inception in early 2012 this blog has sought to explain why there is no way out of our economic predicament as long as, in a world being dramatically transformed by epoch-making technological change, we remain wedded to an economic system based on unattainable rates of economic growth and maximisation of useless private profit. It is now clear that, as often predicted, a point has been reached where the sacrifices needed to satisfy the gods of profit are no longer bearable for a critical mass of the world’s people, and that if reason and humanity are to prevail the vast bulk of the capital assets must be allowed to fall to a market value that reflects their dwindling utility to society – even though this must obviously entail the wiping out of the wealth and power of the parasitic owning class.

The crisis of Greece and the Euro is an illustration of the dangers to the global community – and the EU in particular – arising from these intolerable economic tensions – and of how easily one might imagine they could descend into a shooting war. Greece is with good reason identified as the cradle of Western civilisation. If after 3,000 years it is to avoid the fate of now becoming also its grave, it surely behoves us all to unite in support of replacing our destructive economic model based on ideological bigotry, competition and conflict with one in which the more enduring values of reason, justice, cooperation and moderation are allowed to prevail.

The Withering Away of the Financial Industry

Few would dispute that technology is one of the most important determinants of economic and social development. Thus the impact of the invention of the printing press on the evolution of the Renaissance and the Enlightenment in Europe between 1500 and 1800 was clearly crucial, as was the development of steam power from the 18th century in driving the Industrial Revolution and the related social and political upheavals.

It is perhaps equally uncontroversial to say that one of the consequences of that Industrial Revolution, in turn, was to give powerful impetus to the rise of bourgeois capitalism, based on the ownership of finance capital, as the dominant form of socio-economic organisation from about 1800 – replacing the traditional, medieval model of feudal aristocracy, based primarily on the ownership of agricultural land. This process was famously – and approvingly – described by Marx and Engels in the Communist Manifesto (1848). Around the same time the essential superstructure of the capitalist economy – including stock exchanges and companies acts (incorporating the right to limited liability) – first became established at the heart of Western economies.

In the century and a half since then financial institutions have come to be seen as central to the working of national and international economies alike, bodies where it is generally understood all the most important decisions on investment and the allocation of resources are taken.

The power of finance

This position is the basis of the dominant role of the capital markets in determining the pattern of economic activity and investment – and thus ultimately in the distribution of income, wealth and political power. This notion is reflected in the famous statement attributed to a member of the great Rothschild banking dynasty in the 19th Century, “Give me control of a nation’s money and I care not who makes the laws.” Hence the abiding perception that it is the financial sector that not only dominates all other sectors of the economy but effectively determines, or at least limits, the exercise of political power. A graphic illustration of how this power works in practice is provided by the presently unfolding crisis in Greece, where a government newly elected with a commitment to drastically revise the clearly ruinous economic strategy of austerity pursued by its predecessor was told by its creditors that it could not modify this strategy even though it had proved demonstrably self-defeating, leading the country only deeper into total bankruptcy.

Such dominance of the financial sector, it may be noted, originally derived from an implicit perception that capital had become the scarce factor of production by the mid-19th Century, just as the earlier perception that agricultural land was the scarce factor of production underpinned the dominance of the landed aristocracy under the feudal order. As in the case of the old feudal ruling élite, the power and importance of the financial sector is further reflected in the fact that its senior executives generally receive much higher material rewards than their counterparts in other sectors of the economy. This dispensation they of course justify on the basis not only of the supposed continued scarcity of the product they are supplying – risk capital – but also of the supposedly rare talents of the individuals concerned and the personal risks they are running through their investment decisions. Increasingly, however, the self-serving bias of such claims has come to be recognised by the public, not least because of the need for massive state intervention to bail out the banking industry since the start of the global financial crisis (GFC) in 2007-8, giving the lie to any lingering belief that bankers are taking risks with anything but other people’s money.

Hence it is apparent that the belief that finance capital is a scarce resource is the basis of the disproportionate power and wealth of the ruling élite and that this is in turn based on an illusion which has been carefully nurtured and perpetuated by a political establishment (including the mass media) that is obviously dominated by the same élite. In this the financial industry’s situation is little different to that of the agricultural sector in Britain prior to 1846, when the landed interest was still politically powerful enough to sustain the view that maintaining the wealth of that sector – still protected by the Corn Laws from the threat of growing foreign competition – was of vital importance to national security. Once the balance of political forces had shifted in favour of financial, commercial and industrial interests the repeal of these protectionist laws heralded the final passing of the landed interest’s dominance and the rapid marginalisation of the British agricultural sector.

The glut of capital

What few Western economists have yet grasped – to judge at least from their public pronouncements – is that the GFC is a symptom of the dwindling economic relevance of finance capital over the last 40 years or more. This has been reflected in a steady decline since the 1970s in the share of fixed capital formation (new investment) in the national output (GDP) of the world’s industrialised economies (OECD countries). The present writer can lay claim to being one of the first economists to draw attention to this phenomenon in his 1998 book The Trouble with Capitalism.

Even the few other economists who have recognised this phenomenon have been reluctant to grasp its most significant implication, namely that the productivity of capital has risen as a result of technological change and that consequently the need for it relative to any given unit of output has diminished, while at the same time overall global growth has evidently entered long-term decline.

What this means is that the problems of capitalism go well beyond the familiar one (identified by Marx) of inherent instability due to its cyclical tendency to over-investment and overproduction – “boom and bust” – now recognised as a weakness by even the most ardent defenders of the system. Rather the probability has to be faced that, thanks to technological change, the surplus supply of capital has now become structural (i.e. more or less permanent). Yet few latter-day economists or historians appear able openly to consider this possibility, which would clearly mean that capitalism has now been rendered as outmoded as feudalism was in Marx’s day.

The reluctance of the establishment to confront this stark reality is understandable. For the implication of such trends is that most of the financial institutions and instruments that have been put in place over generations – and the well paid jobs that go with them – are now obsolescent and will soon be totally redundant. As noted in an earlier post (Twilight of the Investors – November 2012) since World War II the fate of the world economy has become progressively more tied to that of the ever-expanding financial sector, as individuals have been incentivised to invest their savings in a variety of instruments – from mutual funds and pension funds to hedge funds and private equity – on the assumption that this would provide them with security in retirement. In the process the most highly educated and intelligent members of the workforce have been drawn to devote themselves to fund management and other questionable activities in the service of this ever more financialised economy.

The savings delusion

It is significant that the huge growth of investment funds derived mainly from the personal savings of millions of ordinary people in industrialised countries has been a phenomenon of the post-war era. Previous generations had had to rely almost exclusively on state-financed schemes based on the pay-as-you-go principle, in which workers’ contributions were paid out directly to cover the benefits of those already in retirement (as under the British state pension and US Social Security system). From around 1950, starting in the US, people in relatively rich countries became sold on the idea that they could and should save more for their retirement through investment funds that promised them a high return, particularly in view of the tax breaks they were offered. At a time of generally rising affluence and corresponding growth in the value of corporate assets and fund values – such as prevailed up to the mid-1970s – it is not surprising that such a proposition proved attractive. What was hardly understood was that a) this apparent success depended on maintaining more or less continuous economic and market growth without significant cyclical downturns and b) saving for retirement was in any case inefficient and unnecessary, given that experience had already shown that state-run pay-as-you-go systems are far simpler and more cost-effective.

In short, the whole apparatus of individual savings and investment was conceived purely as a benefit to the financial sector and should never have been sold to the general public – nor would have been if that vested interest had not enjoyed such disproportionate political power. By 1975, however, the comfortable delusions of the post-war boom had started to be exposed by the reality of financial upheaval and recession on a scale not seen since the 1930s. Yet those whose wealth and social prestige depended on this artificial structure of income distribution were not about to allow market forces – or historical materialism – to consign them to oblivion, any more than the French aristocracy of the ancien régime were prepared to surrender their parasitic and privileged position in society without a fight.

Terminal decline

Viewed in this light the history of the last 40 years can be portrayed as a prolonged struggle of the ruling élite to perpetuate their power by means of any available technique of market manipulation, distortion or deception to sustain the impression both that capital is still very much needed and that those who decide how it is to be deployed and allocated within the economy are the indispensable “wealth creators” who are worth every penny of their fabulous remuneration. At the same time they have inevitably been driven by the logic of the market to use every conceivable device to inflate their reported profits as much as possible. In the process they have been compelled increasingly to resort to

  1. investment in purely speculative ventures – as opposed to productive enterprise – which are really indistinguishable from gambling;
  2. criminal manipulation / rigging of markets (notably interest rates, foreign exchange, precious metals and stock markets);
  3. mis-selling of insurance, pensions and other financial products to their banking customers.

The ability of the élite to pursue such strategies has been greatly facilitated by the actions of the authorities – with whom they are of course symbiotically linked – in

a) relaxing legal restraints on market abuse and manipulation – many of which had been introduced following the Wall Street crash of 1929-31 – including the right of banks to operate as market traders on their own account and the right of companies to buy back their own shares and thereby manipulate their market value;
b) turning a blind eye to actual fraud (there have been no criminal prosecutions of high-profile financial-sector executives following the débâcle of 2008);
c) allocating public resources to underwrite markets and subsidise favoured private-sector projects to insure investors against loss.

Over and above this record of serial betrayal there now hangs the shadow of the paralysing global debt burden, itself the result of the latitude given to the financial industry to borrow and lend indiscriminately, confident in the expectation that any major credit failure could be averted by taxpayer intervention – as in every case since the Lehman Brothers collapse of 2008. Once it becomes clear that these unfathomable debts cannot in fact be paid and must be largely, if not wholly, written off we may hope and expect there will emerge from the wreckage a new economic order in which the financial sector will occupy as marginal a place as the agricultural sector.