GENEROUS SOCIALISM FOR THE RICH

While the Poor are told to play the Free Market Game Those of us further to the left always had some difficulties with the notion, but George W. Bush's administration (and perhaps some of his acolytes nearer home) appear to have found a new approach: socialism for the rich and capitalism for the poor. In building a left polity without a basis in common ownership, a generation of Fabians and social democratic thinkers constructed a polity where the less well-off in society would be provided with a safety net - and indeed equality would be promoted, particularly through comprehensive education - while the richest could enjoy relatively laissez-faire pro-capitalist politics, their only cost being progressive taxation to fund the 'socialism' of the poor. Compared with much of the philosophy of the New Labour era, it was quite progressive, and it certainly isn't the purpose of the current article to criticise it. I was always sceptical that a single polity - the sum of the policies for rich, middling and poor - could really serve the interests of all three. At best it could serve the interests of two out of the three, and two contiguous groups. As such, I've always seen it as my business to try and design policies that serve the interests of those on moderate and low incomes, even if those policies run contrary to the interests (the immediate, material interests, at any rate) of the rich. But of course, all manner of states have intervened in all manner of economies, and just because we are used to the notion of state intervention as being part of the politics of the left, we must not ignore the potential of the state to intervene in the interests of the wealthy, even where the intervention may run contrary to the interests of those on moderate and low incomes. Of course, it may be the case that - in the interests of people of all manner of incomes, and across the world not just in the US - $700 billion (or more) will have to go to bail-out the gambling debts of the super-wealthy. It may be that that's what we have to do, because actually capitalism - even if you try and just reserve it for the rich - is inherently flawed, and is all-consuming. Our interests have - like it or not - become bound up with those of Wall Street and the City of London; and because governments in many countries have allowed the gamblers to have their fun (never bailing out those who truly lost when the losses consisted of the savings or pensions of people on moderate or low incomes) we have arrived at moment of emergency intervention. But this is also the moment of the test. Do we throw billions of dollars and pounds and euros at this tainted industry just to allow it to start again? For pinstriped gamblers to pocket billions in future boom years, and the rest of us to bail them out again when the next bust comes along? Can we afford that little bit of 'socialism' to keep the rich in business; the super-wealthy winning in boom and bust, while those on moderate and low incomes take the hit in both conditions too? After all, $700 billion dollars is an extraordinary amount of money; earlier debates about money in Congress this year have been about just how big the cuts in Medicare provision should be. John McCain - proud to have played his part in securing $700 billion dollars for bankers - has a set of policies that involve cutting Medicare further, getting rid of tax incentives for employer-paid health insurance... After all - ordinary people should be subject to the whims of the market. In the UK, we have closed down Remploy factories, while reducing the number of people eligible to claim a decent Disability Living Allowance amongst other 'welfare reforms' where we look after the pennies, while the pounds pour into the wealthiest people's back pockets and keep funding city bonuses. If it wasn't for the human cost of the nascent crisis, one could almost laugh that George W. Bush - that great ideologue of capitalism - should be presiding over such a great crisis of capital that he has had to occasionally take up the old cry of 'nationalise the banks!' But the important thing for us is to ensure - in the UK at least, where we have potential power over such decisions - that the interests of those on moderate and low incomes are kept at the forefront of all our decision-making, regulation and intervention. Underwriting the poison with tax money and public debt, while selling off the gold to another set of gamblers does not come under that heading. We also need to ensure that we rethink the stuctures of high finance - fundamentally and entirely - in the interests of those same members of society - even if that should run counter to the interests of the wealthiest. That is the lesson of the crisis, and it's a lesson we need to learn quickly and well.

WHY NOT LET THEM FAIL

THE MORAL OF THE MIGHTY BAIL-OUT

As we goggle at the fluttering financial figures, a different set of numbers passes us by. On Friday, Pavan Sukhdev, the Deutsche Bank economist leading a European study on ecosystems, reported that we are losing natural capital worth between $2 trillion and $5 trillion every year, as a result of deforestation alone(1). The losses incurred so far by the financial sector amount to between $1 trillion and $1.5 trillion. Sukhdev arrived at his figure by estimating the value of the services - such as locking up carbon and providing freshwater - that forests perform, and calculating the cost of either replacing them or living without them. The credit crunch is petty when compared to the nature crunch.

The two crises have the same cause. In both cases, those who exploit the resource have demanded impossible rates of return and invoked debts that can never be repaid. In both cases we denied the likely consequences. I used to believe that collective denial was peculiar to climate change. Now I know that it’s the first response to every impending dislocation.

Gordon Brown, for example, was as much in denial about financial realities as any toxic debt trader. In June last year, during his Mansion House speech, he boasted that 40 per cent of the world’s foreign equities are now traded here. “I congratulate you Lord Mayor and the City of London on these remarkable achievements, an era that history will record as the beginning of a new golden age for the City of London.”(2) The financial sector’s success had come about, he said, partly because the government had taken “a risk-based regulatory approach”. In the same hall three years before, he pledged that “in budget after budget I want us to do even more to encourage the risk takers”(3). Can anyone, surveying this mess, now doubt the value of the precautionary principle?

Ecology and economy are both derived from the Greek word oikos - a house or dwelling. Our survival depends upon the rational management of this home: the space in which life can be sustained. The rules are the same in both cases. If you extract resources at a rate beyond the level of replenishment, your stock will collapse. That’s another noun which reminds us of the connection. The OED gives 69 definitions of stock. When it means a fund or store, the word evokes the trunk - or stock - of a tree, “from which the gains are an outgrowth”(4). Collapse occurs when you prune the tree so heavily that it dies. Ecology is the stock from which all wealth grows.

The two crises feed each other. As a result of Iceland’s financial collapse, it is now contemplating joining the European Union, which means surrendering its fishing grounds to the Common Fisheries Policy. Already the prime minister Geir Haarde has suggested that his countrymen concentrate on exploiting the ocean(5). The economic disaster will cause an ecological disaster.

Normally it’s the other way around. In his book Collapse, Jared Diamond shows how ecological crisis is often the prelude to social catatrosphe(6). The obvious example is Easter Island, where society disintegrated soon after the population reached its highest historical numbers, the last trees were cut down and the construction of stone monuments peaked. The island chiefs had competed to erect ever bigger statues. These required wood and rope (made from bark) for transport and extra food for the labourers. As the trees and soils on which the islanders depended disappeared, the population crashed and the survivors turned to cannibalism. (Let’s hope Iceland doesn’t go the same way.) Diamond wonders what the Easter islander who cut down the last palm tree might have thought. “Like modern loggers, did he shout ‘Jobs, not trees!’? Or: ‘Technology will solve our problems, never fear, we’ll find a substitute for wood.’? Or: ‘We don’t have proof that there aren’t palms somewhere else on Easter … your proposed ban on logging is premature and driven by fear-mongering’?”(7).

Ecological collapse, Diamond shows, is as likely to be the result of economic success as of economic failure. The Maya of Central America, for example, were among the most advanced and successful people of their time. But a combination of population growth, extravagant construction projects and poor land management wiped out between 90 and 99% of the population. The Mayan collapse was accelerated by “the competition among kings and nobles that led to a chronic emphasis on war and erecting monuments rather than on solving underlying problems”(8). Does any of this sound familiar?

Again, the largest monuments were erected just before the ecosystem crashed. Again, this extravagance was partly responsible for the collapse: trees were used for making plaster with which to decorate their temples. The plaster became thicker and thicker as the kings sought to outdo each other’s conspicuous consumption.

Here are some of the reasons why people fail to prevent ecological collapse. Their resources appear at first to be inexhaustible; a long-term trend of depletion is concealed by short-term fluctuations; small numbers of powerful people advance their interests by damaging those of everyone else; short-term profits trump long-term survival. The same, in all cases, can be said of the collapse of financial systems. Is this how human beings are destined to behave? If we cannot act until stocks - of either kind - start sliding towards oblivion, we’re knackered.

But one of the benefits of modernity is our ability to spot trends and predict results. If fish in a depleted ecosystem grow by 5% a year and the catch expands by 10% a year, the fishery will collapse. If the global economy keeps growing at 3% a year (or 1700% a century) it too will hit the wall.

I’m not going to suggest, as some scoundrel who shares a name with me did on these pages last year(9), that we should welcome a recession. But the financial crisis provides us with an opportunity to rethink this trajectory; an opportunity which is not available during periods of economic success. Governments restructuring their economies should read Herman Daly’s book Steady-State Economics(10).

As usual I haven’t left enough space to discuss this, so the details will have to wait for another column. Or you can read the summary published by the Sustainable Development Commission(11). But what Daly suggests is that nations which are already rich should replace growth (”more of the same stuff”) with development (”the same amount of better stuff”). A steady state economy has a constant stock of capital maintained by a rate of throughput no higher than the ecosystem can absorb. The use of resources is capped and the right to exploit them is auctioned. Poverty is addressed through the redistribution of wealth. The banks can lend only as much money as they possess.

Alternatively, we can persist in the magical thinking whose results have just come crashing home. The financial crisis shows what happens when we try to make the facts fit our desires. Now we must learn to live in the real world.