Boris And The Big Lie

Originally published November 2013.

Boris has finally come out and nailed his colours to the mast as a dyed-in-the-wool Thatcherite. In so-doing he went off-piste for a while with a foray into the realms of tax and inequality. He may come to regret this at some point - my advice to him would be to always make sure you fully understand the data before using it as a plank of your platform for a leadership bid. His central point was that since Thatcher set in-train a trend towards lower income taxes the rich have contributed a greater proportion of the overall income tax take because they have been able to create more wealth. And of course he is completely correct in his analysis ... or at least the first part of it anyway. But where he is wrong is in falling for The Big Lie about the effectiveness of trickle-down and wealth-creation.

Boris is absolutely right that the top 1% of earners now contribute 30% of the income tax take but he ignores the fact that this is because their incomes have grown disproportionately in that period also ie. they are paying more tax because they are grabbing more of the income. Boris would explain that this is a demonstration of wealth creation in action and that it is fine because it pays for all those schools and hospitals, but if we look at how the additional 'wealth' created over the last 30 years has been distributed it is clear that it has gone almost exclusively to the already-wealthy. Incomes for the majority of the population have stagnated or fallen in real terms for decades, and since 1979 there has been a steady, and cumulatively huge, transfer of wealth from the poor to the rich. The income that the majority would have earned and paid taxes on has gone to the rich instead, and naturally they have paid the tax due on it instead.

So why should we treat these large tax payers as the heroes Boris extols us to? In reality they have merely appropriated income from others (ie rent-seeking behaviour) rather than created new wealth and now are paying the tax due on it. This has nothing to do with entrepreneurship or wealth creation - our export performance has been abject; it has more to do with reduced protection for the incomes of the majority of the population, and is another point in support of the case for a mandatory living wage to spread the tax base more widely.

Boris even postulated the ludicrous idea of reducing the top tax rate to 30%. In order for this to be remotely plausible and for the tax take to remain the same from this income group this would need to be predicated on even greater inequality of gross income than we see now. If we take into account indirect taxes the poorest in fact currently bear the same overall tax burden as the richest - around 35% of income, so reducing the top income tax rate to 30% would give us a tax system which is actually regressive whereby the rich pay a lower tax rate than the poor (as in the US). This is utter lunacy, but I would be happy for it to be adopted as Tory party policy. I feel that public attitudes to the wealth disparities created over the last 30 years are changing decisively and this policy would condemn the Tory party to the same fate as the Republicans in the US ie. to become a minority interest group lobbying for the super-rich.

But what I really struggle with in the perpetuation of The Big Lie is the extent to which individual Tories: 

a) don't understand the above.
b) understand and are discomfited by the above, but willfully ignore it as it flies in the face of free-market dogma.
c) fully understand the above but believe increasing inequality has desirable outcomes.

I believe that unfortunately most of the modern Tory party fall into the (c) category and go into politics to defend the interests of the wealthy. This certainly appears to be Boris's position. But what I can't come to terms with is the astounding level of bare-faced cheek he and other Tory party spokesmen display when they go onto TV and radio and continue, in the face of all the evidence, to expound the myth that trickle-down benefits everyone and that lower taxes will lead to greater wealth-creation. We, and they, know it doesn't work yet they continue to use it as cover for policies that in reality protect the interests of those they represent. When listening to them I feel as though they are all knowingly giving each other a nod and a wink as if to say "We know the truth but the public are too disinterested or ill-informed to understand it so we'll trot out the same old simplistic nonsense about tax cuts without getting round to answering any of the awkward questions". And I wonder too what they say to each other behind closed doors, away from the mic - probably along the lines of "I can't believe we're still getting away with this stuff", while pocketing another cheque from their backers in the City. They can continue to advocate tax cutting without explaining the degree to which it disproportionately benefits the rich. It takes some front on their part but you have to admire the private-education-enhanced arrogance and the disdain for the public with which they dish out their pearls of wisdom.

However, I do feel that a shift in opinion is taking place and people are waking up to the increasingly precarious nature of incomes in the bottom half of the distribution and the growing wealth disparities - I am not sure how much longer an appeal to a low-taxation, free-market, deregulated, greed-is-good approach to economic management will be an electoral asset to the Tories. With Ed Miliband starting to make some headway in challenging vested interests and coming down firmly on the side of the majority of the population, the next election is shaping up to be a more interesting contest than I expected a year or so ago.

Is Ed Miliband a Marxist?

Originally published November 2013.

The latest Tory attempts to smear Ed Miliband have centred on trying to paint him as an unreformed Marxist and a slavish follower of his father's academic teachings. Whenever Ed stands up for the man in the street it is denounced as a return to 1970s style socialism and the 'bad old days' of the state intervening in the free market. But what exactly have those free markets, unleashed by a tide of deregulation since 1979, actually done for us?

It is certainly the case that, in manufacturing industry at least, increased competition globally has resulted in higher productivity and falling real-terms prices, but at what cost? Since the 1980s, real incomes have been steadily falling for the poorer half of the UK population while the rich have been getting richer - both in terms of income and in wealth accrued  (by the way, the situation is far, far worse in the USA which has been even more aggressive in embracing globalisation). This is exactly in line with Marx's analysis - there is a continuous struggle between capital and labour with each trying to maximize the return to itself and, on recent trends, capital is clearly winning. Deregulation has enabled freer movement of capital around the world and strengthened its hand in this struggle - demands for higher pay, shorter working hours, better conditions etc are met with the threat of capital upping sticks and moving abroad where production costs (and workers' protections) are lower. At the same time legislation has reduced the power of organised labour and eliminated much of the collective bargaining which in the past may have helped to maintain wages, instead leaving every man or woman to fight for him or herself.

David Cameron has talked about this 'global race' as though it is some previously unknown economic phenomenon which he has identified. It isn't; it is the same process Marx talked about. When it is described as a race to the bottom it is dismissed as 'pessimism' by Osborne, but nonetheless each nation continues to undercut the next to attract capital to its shores - look for example at Osborne's recent cuts to corporation tax and his plan for workers to give up workplace rights in exchange for shares estimated at a measly couple of grand in value. The argument presented in favour of this is that we have become uncompetitive so taxes and wages have to fall to boost productivity (while, strangely, board-level salaries have to rise to attract the best 'talent'!). It doesn't address the central point that even if we as a nation do succeed in winning the 'race' and staying in front it will be at the expense of ever lower wages. The Tories claim otherwise and that wages will rise as the economy recovers but this belies the lessons of the last several decades during which time in the USA for example real incomes have fallen so that the median male salary is now lower in real terms than it was in 1979, and Britain is not far behind. The pie may be getting bigger but it is not being shared fairly. And the costs of low wages paid by exploitative employers are immense - the taxpayer ends up subsidising these poverty wages through in-work benefits - tax credits, child benefit, housing benefit, etc. As these are needed due to the failure of employers to pay a living wage these benefits really represent a taxpayer subsidy directly to the bottom line of these businesses - more money being returned to capital rather than to labour.

One particularly simple and powerful point made by Joseph E Stiglitz in 'The Price Of Inequality' is this - we live in a world that has high mobility of capital and low mobility of labour. There are all sorts of barriers to the workforce moving to where the work is (ie. following the capital) - for instance, immigration controls, local support networks/ties to help families out, language barriers, cost of housing, exchange rates differences, etc ... whereas there is very little indeed to prevent capital moving to where returns are greatest. This leads to governments bending over backwards to attract capital - eg. cutting corporation taxes, deregulating the labour markets, squashing union power, removing or freezing minimum wages, etc. ie. the laws of the land are rigged to favour capital over the workforce. What would it look like if it were the other way around ie. we had a highly mobile workforce and low movement of capital? The result would be governments falling over themselves to attract labour into the country - and what kind of inducements would they be offering? Well I suspect it would be along the lines of better schools and hospitals, a decent minimum/living wage, reduced working hours, etc. It would be a very different country, and a far better one. Of course, that is not the reality, but it illustrates the extent to which we are all enslaved to capital in a globalised world.

So even though the policy prescriptions made in Marx's name may have proved disastrous that doesn't necessarily invalidate his analysis.  Ed Milband should shrug off these latest insults and continue to highlight the tensions between the returns to capital and to labour as it is obvious that a better balance needs to be found.