Stumbling and Mumbling

In praise of Enough is Enough

One of the few silver linings to the cost of living crisis has been the re-emergence of trades union power and the start of the Enough is Enough campaign. These could potentially be the start of a new and better politics.

As Enough is Enough say:

We can’t rely on the establishment to solve our problems. It’s up to us in every workplace and every community.

This is a challenge to Labourism, in which as Ralph Miliband put it, the Labour party "have treated the voters not as potential comrades but as possible clients." It is a rejection of retail politics, in which people are victims of policy and not contributors to it, mere passive consumers who wait until a general election to make their choice.

Which is to be welcomed, because what matters in politics is not intellect but power. Brexit did not come to dominate the agenda because it was the best idea around, but because it had influential and rich supporters. Living standards cannot be adequately protected merely by appeals to decency or reason. They must be protected by force. A stronger, more organized and more vocal working class is one such force.

The right has for decades practiced extra-parliamentary action, through "think" tanks; control of the mass media; corporate lobbying; regulatory capture; the promise of lucrative jobs to MPs on leaving office; and so on. Which is why the interests of the richest 1% dominate policy-making. To believe that Labour can win office and implement pro-worker policies in the face of the pressures created by such action is like thinking you can win a marathon by turning up in your brogues without doing any training.

Policy-making is driven by the fear of losing office. We need the Tory and Labour parties to fear the working class as much as they have feared the racist rabble aroused by Farage. In this sense, the trades union movement is what J.K. Galbraith called a countervailing power - a balance to the influence upon government of capitalists, racists and assorted fantasists. It was this that humanized the Tory party under Macmillan in the 1950s. Owen Jones is surely correct to say that it is the fear of the mob on the streets that inhibits attacks upon people's living standards. As Tony Blair said, what matters is what works.

Such countervailing power, however, brings something else - cognitive diversity. As Peter Allen argues in The Political Class, "inclusive decision-making results in better outcomes than its exclusive counterpart". A voice for the organized working class forces the Westminster bubble to heed real problems such as living standards rather than culture war fantasies. It reminds politicians and journalists that there is more to politics than the voices in posh people's heads.

From this perspective, the re-emergence of working class voice is the start of a reversal of a project begun under Thatcher, well discussed by Phil Burton-Cartledge in Falling Down. He describes how she wanted to restore state authority so that the relationship between state and individual was unmediated by any other independent authority, be it local government, a neutral civil service, or trades unions. You can interpret the Tories' hold over the BBC, its dismissal of experts, and the Daily Mail's describing judges as "enemies of the people" as extensions of this tradition. Believers in limited government should therefore welcome Enough is Enough as a constraint upon government.

So too should democrats. The value of democracy lies to a large extent in the idea of political equality. This requires that a worker have as much political influence as a newspaper proprietor. Stronger unions nudge us slightly towards this direction.

Of course, in saying all this I might be claiming too much. Enough is Enough is, as Phil says, only a beginning. We've seen activist movements come and go before: think of Occupy. Whether the revival of unionism can withstand the coming recession and rise in unemployment - not to mention the capitalist media backlash - remains to be seen. Nevertheless, it offers hope - and that, right now, is scarce and valuable.

Energy bills: rentiers vs entrepreneurs

Everybody knows that soaring utility bills will plunge millions of people into desperate poverty in the autumn. Even those who don’t care about those on low incomes, however, should worry – because such huge price rises are a threat to economic dynamism, entrepreneurship and the free market.

I say so for a trivial reason – that if we are handing more cash over to utility companies, we’ve less to spend elsewhere. Even if you are on a decent income, having to spend an extra £150 a month on gas and electricity will cause you to cut your discretionary outgoings.

For some, these outgoings will be savings or pension contributions: they will pay for their electricity by working later into life. For others, it will mean less spending on goods and services. Already people are cutting subscriptions to streaming services whilst non-petrol retail spending has fallen steadily over the last 12 months. Such cut-backs will intensify in the autumn. I wouldn’t want to be a publican or restaurateur facing the double danger of soaring costs and falling discretionary spending.

What we’re seeing, then, is a transfer of real resources away from competitive entrepreneurial sectors of the economy towards rentiers – those who can get rich merely by owning scarce assets such as gas and oil fields.

This could reduce economic dynamism and productivity, simply as more of our spending goes on sectors with low productivity growth and less on higher-growth sectors.

My chart provides context here, showing real wages since 2000 relative to some CPI items. The point is that there have been enormous changes in relative prices, even before October’s leap in utility bills. Relative prices of goods such as clothing, TVs and phones have fallen sharply this century – so much so that an average wage will now buy almost twice as many of them as it did in 2000. Prices of gas and electricity (and to a lesser extent petrol) have, however, risen sharply, so that wages buy only half as much of them as they did in 2000*.

As we spend more on the latter, however, the weight in the economy of dynamic sectors declines. The upshot is that productivity and dynamism dwindle.

What I’m suggesting here echoes an old idea – David Ricardo’s theory of rent and profits. As the population expands, he said, so too will demand for food. That means that the most fertile land would become more scarce, allowing its owners to charge monopoly rents:

By bringing successively land of a worse quality, or less favourably situated into cultivation, rent would rise on the land previously cultivated, and precisely in the same degree would profits fall; and if the smallness of profits do not check accumulation, there are hardly any limits to the rise of rent, and the fall of profit.

In a similar way, growing economies need more gas and oil, which means that worse-quality gas and oil fields must be employed – those where the products are more difficult to extract or those located in hostile countries such as Russia. The result is a transfer of real resources to the rentiers who own better-quality fields and away from incomes in the rest of the economy. The effect of that might well be to “check accumulation” – to depress growth. As Ricardo said:

The interest of the landlord is always opposed to the interest of every other class in the community.

Which is why I say that anybody who values dynamism, entrepreneurship and a thriving market economy should be alarmed by soaring oil prices – even if they don’t give a damn about the poor. They are also a threat to all non-energy businesses, especially if they use a lot of energy or are dependent upon discretionary consumer spending.

The danger isn’t only at the economic level, however. It’s also political. Soaring energy prices will bring into question both the fairness and efficiency of our neoliberal** system. So far, the discontent is manifesting itself only in pockets of wage militancy, but it could spread further.

So, what’s the solution?

The government could freeze the energy price cap: give households more cash: or cut VAT or green levies. The first entails energy suppliers borrowing during the crisis, the other two government borrowing. Both, however, are predicated upon assuming that high energy costs are only temporary. Yes, they might be, but such an assumption overlooks the fact that real wages were stagnating (and falling relative to gas and oil prices) before Russia invaded Ukraine.

Nor is nationalization, in itself, an answer. It is, at best, a device for ensuring that energy companies serve socially-determined ends. To do this, however, we need to decide what those ends are: for example, do we want high prices to encourage people to economize on fuel alongside income support; do we want lower prices and the greater energy usage they stimulate; how much extra investment do we need, and in what?

There is, though, something else – something in the spirit of Ricardo. For him, the problem was that landlords were owners of a monopoly asset (fertile land) and so could extort high rents. The answer to this, he thought, was to weaken that monopoly either by technical progress which improved less fertile land or by allowing the free import of corn. Both, in effect, created competition to that best land and so reduced its monopoly power ***.

In the same vein, what we need is greater competition to gas and oil suppliers. As Eric Lonergan has brilliantly shown, we need to create substitutes for them by greatly stimulating the supply of renewable energy and technologies that use less carbon such as electric cars:

You need perfect substitutes and a small price advantage, or near-substitutes and a large price advantage, to dramatically affect behaviour…. We need to mobilise investment in substitutes, ensure they are ‘close’ enough for the user and that they are priced more favourably than the emissions intensive option.

This, I suspect, requires a broad spectrum approach including tax incentives, state aid and an attack nimbyism: there’s no reason why our motorways shouldn’t be lined with windmills or solar panels. The point is to attack the monopoly power of rentiers whose interests are “opposed to the interest of every other class in the community.”

In this sense, Tories face the same question now that they did in the 1840s when the conflict described by Ricardo fuelled fierce debate about whether to abolish the corn laws; are they on the side of rentiers who are blocking economic growth, or that of entrepreneurs? Not only are they not answering this question, however, they do not even seem aware of its existence.

* You might wonder what’s happened to rents. The answer is: not much. These have risen roughly as much as wages over time – perhaps because landlords have always charged as much as they can.

** I know some of you don’t like that word. But I can’t think of better: what we have now is certainly not a free market system.

*** Ricardo saw free trade and better technology as being very similar. Which they are: both give us cheaper access to things that were previously expensive or unobtainable.