Debt, per se, is not bad

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There was a story a month ago about a report from the Institute of International Finance that the total amount of global debt had reached a record height of $324 trillion. It’s a huge sum, so large as to be beyond comprehension in terms of our own daily interactions with money. It’s an estimate, of course. It could not be otherwise; human record-keeping is neither precise nor transparent enough to know for certain. Let’s just accept that it’s a very, very large number.

Whether we should be worried about it or not is another question. Since all money owed by one person or body is owed to another person or body, it is inevitably the case that a total financial debt of $324 trillion is precisely matched somewhere by a total financial asset of $324 trillion. It’s just that the debt and the asset are in different hands. And whilst estimates of how much money exists in the world vary significantly, one thing we can say is that, since ‘money’ is, in its very essence, simply a way of denominating and trading debt (“I promise to pay the bearer on demand” etc.), the amount of money in the system must match, if accurately calculated, the amount of debt. An over-simplification, for sure, but if every individual and organisation were to repay all their debts tomorrow, the world would indeed be debt-free – but it would also be money-free. There would still be a pile – many piles – of physical notes and coins somewhere, but they’d be essentially worthless. And the economy would grind to a halt. Asking how much debt is the ‘right’ amount for the world economy is like asking how much money should exist. It’s a question which has no correct answer; the only thing we know is that, as the world’s population grows and becomes more affluent, the amount needed will increase. Worrying about how much debt there is, and by how much it is increasing, is focussing on the wrong question.

The right question is about who is in debt and to whom they are in debt; it’s about the underlying economic power relationships. The reason that it worries some is not the existence of debt, nor the amount of debt, nor the increase in that amount: it is about potential default – whether those in debt will be able to repay their debts. It is a concern by the rich that the poor will not be able to continue transferring their few assets to the rich, because (almost by definition) much borrowing is by those who have no money from those who have lots. What concerns politicians about the debt mountain facing the poorest – whether individuals or countries – should not be whether they are taking on debts that they can’t cover, but how and why the need for them to do so arose in the first place. And since that inevitably leads to discussion about how resources and wealth are distributed in the world, it’s easy to see why they prefer to avoid it.

Economic migration is neither new nor unique

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For generation after generation, Wales has lost people, particularly young people, who have left to seek a better future elsewhere. The immediate cause is well-understood: a lack of opportunity here, coupled with greater opportunity elsewhere. Within the UK, it’s not a phenomenon unique to Wales of course; Scotland and much of England outside the south-east corner have suffered the same fate. The wider reasons for that economic imbalance are well-understood as well: a centralised state which concentrates power, wealth and talent in the centre by sucking it in from the peripheries. The extractive and exploitative nature of the Welsh economy is easily seen by looking at transport links – the best ones overwhelmingly run from west to east rather than north to south, historically facilitating the extraction of mineral and other wealth.

The fact that Wales has not been an independent country during that time, and the consequent lack of a recognised international border obscures the basic fact: most of those who left Wales were (and are) what are today called, usually pejoratively, economic migrants. People who live in an area denuded of much of its wealth by far-away rulers migrate in search of a share of what was originally theirs anyway. We’re not good at recognising it, but it is the same imperative which drives many of the migrants reaching these shores currently. Coming from countries which were systematically exploited and robbed by their colonialists, they travel to where the wealth now resides in search of opportunity. And it should be no surprise that the country of choice for many of them will be the one which colonised them, and whose language was imposed upon them. So, for example, Algerians tend to favour France and those from the former British Empire tend to favour the UK.

If anyone should be able to understand and empathise with economic migrants, it is us here in Wales. But by and large, many amongst us don’t. Perhaps it’s due to a lack of understanding of our own history, coupled with an acceptance of the version of history with which we are fed. But the bottom line is that, whilst many in Wales blame the exploiters for the loss of those who leave, they blame the individuals for the new arrivals. In truth, our interests have more in common. If it’s an unfair distribution of wealth which drives economic migration, it is a fairer distribution which will reduce it. It’s no accident that, in the UK as in the US, anti-immigrant sentiment is being driven and funded by some of the richest political donors. We only have to ask ourselves who might feel most threatened by any suggestion of a fairer distribution of wealth, whether within a state or more globally, to understand why.

Equality and equity are not the same thing

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This week’s speech by Plaid leader Rhun ap Iorwerth has been presented by some as a move “…away from the emphasis on future independence that became predominant during the leadership of his predecessor”. Maybe; at first reading the words certainly give the impression of a leader and a party determined to improve the position of Wales within current structures rather than one committed to changing those structures. However, given that two of the five points in the plan ('Scrap the Barnett formula and enshrine into law an Economic Fairness (Wales) Bill to rebalance the wealth of the UK'; and 'Give Wales the ability to set its own tax bands and rates') depend completely on legislation at Westminster which Plaid acting alone has no hope whatsoever of delivering, and which neither potential future UK government shows any inclination to deliver, it sounds like a way of emphasising the weakness of devolution as much as working within its constraints. And what is that, if not an argument for independence?

Whatever, there was nothing with which I could disagree in four of the five points. However, the fourth point of the five point plan concerned me rather more. “Bring forward legislation that ensures an equal share of public spending across Wales” is entirely within the powers of the Senedd (at least, insofar as it relates to Welsh Government expenditure – UK expenditure is, again, outside of that remit), but is potentially something of a double-edged sword. There is – in the speech as reported at least – a certain lack of detail. Is this to be based on spending per head (in which case, the lion’s share will inevitably continue to go to the south east)? Over what time period would it apply – per annum, per decade? If it’s tied to annual spending, that’s a major obstacle to large localised projects.

And what about the entirely valid critique of the Barnett formula (that it doesn’t take account of need): isn’t there a danger here of replicating that approach within Wales? Perhaps the intention is to talk about an ‘equitable’ share of spending rather than an ‘equal’ share. It’s a harder concept to explain, and it isn’t such a simple sound bite, but it is what Wales actually needs. Given the historic under-investment in parts of the country, any attempt at ‘levelling up’ necessarily requires a deliberately unequal pattern of spending if cash is to be directed at the areas of lowest GDP per head, for instance. It is, of course, precisely that requirement (to redirect spending from the wealthiest areas to the poorest) which has been the rock on which the Tory government’s commitment to ‘levelling up’ has foundered. It might have gone down well in the so-called ‘red wall’, but it went down badly in Tunbridge Wells. In Welsh terms, diverting resources to Gwynedd might go down well in the north and maybe not so well in Cardiff, but that's not a good enough reason not to do it.

It is not enough to talk – as Labour in England are doing, for instance – about ‘growth’ as the magic ingredient which resolves the problem. A rising tide, as the saying goes, does indeed lift all boats, but it doesn’t change the relative size of those boats. An uneven distribution of wealth and opportunity is never going to be solved by increasing the levels of wealth and opportunity for everyone; that requires a redistributive element as well. There is plenty of scope within the other four points of the plan for there to be a plan for redistribution across Wales; but a target of ‘equalising’ spending will undermine that. We need equity, not equality.

Slogan and substance

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The very essence of a truly great political slogan is that it should resonate with as many people as possible whilst being essentially meaningless or, at the very least, sufficiently vague so as not to commit its authors to actually taking any particular action. The current government’s mantra of ‘levelling up’ is a masterpiece of the genre. What’s not to like about the idea of boosting the economy in areas which feel as if they’ve been left behind? In practice, however, it’s selective; it only applies to areas which voted for the Tories.

The concept of ‘levelling’ has a long tradition in English history – as does the idea of that levelling being selective. The Levellers of the Civil War period almost four centuries ago were also in favour of equality for all, although their definition of ‘all’ only extended to males (excluding servants and wage-earners of course), and some wanted it only to apply to heads of households or property owners. If Johnson had a political philosophy, he might almost have stolen the gist of it from that movement (although obviously he would have more than a little difficulty with their opposition to corruption or nepotism).

Its selective application isn’t the only way in which the practice differs from the slogan. It also has little to do with ‘levelling’ – there is absolutely no intention, and never has been, to bring all areas up to the level of the richest. It is, from the outset, a means of using public money to attempt to ensure the continued electoral success of the Conservative Party. The funds are being consciously and deliberately directed to those constituencies which the Tories need to retain or win in order to maintain a majority. The rest will remain as forgotten and left behind as they have been for decades, because Johnson simply doesn’t need their votes. That which is presented as egalitarian and unifying is implemented so as to divide and discriminate.

It should have been obvious from the outset that this would always be the result, although it seems not to have been for many. For any party wedded to the erroneous household budget analogy it is impossible to put more resources into one area without taking them from another. For those of us who understand that ‘money’ is not limited other than by the capacity of the economy, that isn’t a problem; but for fiscal conservatives like the Tories it is always the case that additional money spent in one place has to have come from somewhere else. Levelling up can only be a one-way process for those who accept that there are additional resources available, a category which excludes the current government. Fortunately for the government, it’s a category which also excludes the main opposition party, as evidenced by a report today that a Labour MP is demanding that no resources should be transferred from the wealthiest part of the UK to the poorer areas. That’s right – the party which tells us that ‘the union’ is all about pooling and sharing is at the same time demanding that there should be no transfer of wealth from the richest to the poorest. It’s an odd kind of ‘pooling and sharing’.

There is a reason why one part of the UK is richer than the rest; regional inequality is not an accident. It’s not being ‘anti-London’ to highlight the facts. At its simplest, we have an economic system which drains talent and resources from the periphery and concentrates them in the centre; London’s wealth has grown by transferring that wealth from the rest of the UK (and from overseas colonies before that). It is not an accidental result of some impersonal process; it is the inevitable result of an economic system set up to work that way. It means that ‘levelling up’ can only happen in one of two ways: by identifying and directing additional resources to the poorest areas, or by redistributing those resources which currently exist. Which of those you choose depends on your view of economics, but what is certain is that neither the current governing party nor the official opposition have any intention of doing either.

Levelling up is an utterly meaningless slogan, but it works. The compliant media are still attaching the label to everything that the government tells them is part of the plan. People fell for it in 2019, and are still falling for it now.

Ideas don't come from nowhere

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On Tuesday, the Western Mail ran an article on the attitudes towards Brexit amongst respondents on the street in Port Talbot.  Like any straw poll, it is inevitably no more than a snap shot of the views of a few people, and cannot be taken as a reliable indicator of the state of public opinion.  Nevertheless, it rang true as a cross section of the different opinions which exist still over the issue. 

The response which particularly drew my attention was this one: “When we went in there was only five countries and now there are well over 20 countries and the smaller countries all want money from the EU.  It’s time we got out.”  I’m sure that it’s a view held by many, and reflects the argument put forward at the time that the completely misnamed ‘membership fee’ was too high and meant a flow of cash out of the UK and into other countries.  But from a Welsh perspective, we’re one of the poorer areas benefiting from the redistributive process – and by rejecting continued membership, the majority of Welsh people effectively voted against the whole idea of redistribution.

It is, though, very much a ‘British’ view.  (And Wales would be one of the smaller countries if it were a member of the EU.)  It’s easy – too easy – simply to blame the lack of a Welsh media for the fact that people see the issue in UK terms rather than taking a more Welsh perspective.  It’s more complex than that, though – yes, of course people’s views can be coloured by what they read, but it’s also true that people’s views colour their choice of reading.  Merely putting more options on the menu isn’t the panacea as which some seem to see it.  Horses, water, etc.

It isn’t simply about the contradiction between a ‘British’ and ‘Welsh’ standpoint either.  Many politicians are too quick to assume that here in Wales we have a natural tendency to support the idea of redistribution from the rich to the poor.  I’d like to believe it, but I really can’t; it may have been true in the past, but the past is a foreign country.  The ideology which capitalism builds around itself is winning out, not least because it is inadequately challenged. 

People have become convinced that their relative poverty is caused by people poorer than themselves, not by the richer taking a disproportionate share.  That is part of what lies at the root of an attitude of hostility to immigration, overseas aid, and regional redistribution at a European level.  And it’s exacerbated by politicians saying that they have to respond to people’s so-called ‘legitimate concerns’ when they should be challenging the ideology which drives them.

Freedom depends on equality

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I have posted a few times on the idea of freedom of movement as being, in principle, a right available to all rather than just a privileged few, and one response which I often get is that allowing freedom of movement to all would lead to even more mass migration than the world is currently seeing.  It’s an argument that I understand, but it’s an argument based on practicalities rather than on principle.  The fact that treating something as a right might cause problems isn’t an argument for saying that people don’t have that right; it’s an argument for considering what those problems are and how they might be tackled.

People choose to migrate for a number of reasons.  (I use the word ‘choose’ rather loosely here; in war-torn countries, or those ravaged by famine and disease, it doesn’t look much like a choice.)  One way or another, the basic driver for most migrants is the search for a better life.  That is as true for the rich person migrating to a tax haven as it is for the poor African seeking a route to Europe; the difference is that ‘better’ means something rather different at the extremes.  Ultimately, the fact that a better life is available elsewhere is down to differences in economic wealth across the world; global inequality is the main driver.  The question, in terms of policy, is how we respond to that; and there are broadly only two possible options.

The first is the one being advocated by virtually all parties in virtually all the world’s wealthy states: pull up the drawbridge, control the borders, select how many (and which) immigrants are allowed in, treat freedom of movement as a privilege only for the few – in essence, to adapt a phrase from another context, “what we have we hold”.  The consequences of that are what we are seeing daily – dispossessed, desperate people risking their lives to travel illegally where they can’t go legally.  And I’m sure that I’m not alone in believing that this is, ultimately, a line which cannot be held, even if we wanted to.

The second is to acknowledge that inequality is the underlying cause and address that inequality.  In essence, that means a deliberate, planned, and managed transfer of wealth from the haves to the have-nots on a global scale.  The UN target of 0.7% of Gross National Income in aid barely scratches the surface of what is required, and that’s even truer when at least some of that aid from the richer countries is then spent back in the donor countries.  It is unlikely to be a popular policy as things stand – we are already seeing people talking about cutting the foreign aid budget because ‘charity begins at home’.  I can understand that view as well when there are so many in our own society who are struggling with the basics; but isn’t that, also, the product of inequality, albeit on a more local basis?

At a European level, this is what the structural funds from which Wales has received large sums (even if we have failed to use them wisely) are all about – trying to spread wealth more evenly across the EU.  The essence of much of the Brexit campaign was to reject the idea that rich countries (like the UK) should contribute more in order to achieve that aim, and one can legitimately argue that the people of Wales rejected the whole concept of redistribution (although that hasn’t stopped our politicians from trying to claim an exemption for Wales).  One of the tragedies of politics in Wales was seeing those who have most to benefit from an attempt at equalisation throwing their lot in with the privileged whose starting point is that the rich have an absolute right to increase their share of wealth at the expense of others.  Sometimes, turkeys really do vote for Christmas, it seems.

The EU vote in Wales also served to underline how big the task in front of us is if we want to move to an approach based on spreading wealth rather than raising walls.  If those who would benefit from more equality reject it in favour of the proposition that the rich should hold on to what they have, what chance of persuading the population as a whole to a position of greater altruism in favour of the world’s poor on an even larger scale?  Yet for those of us who believe that building walls and controlling borders is the wrong way to go, that is the task facing us.  We have to make the argument for greater equality, both at home and worldwide.  But where are the politicians with the courage even to attempt that, rather than lamely fall in behind the privileged and the prejudiced?

Why would they give us the money?

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I can understand why the First Minister would come out demanding that Wales doesn’t lose a penny in regional aid following Brexit, and that the UK Government should commit to making up the difference.  It’s a natural response, given the sums involved and the number of important projects which depend on this funding.  But hold on a minute – didn’t we just, effectively, vote against the whole principle of regional aid, even if wasn’t put that way?

As one of the EU’s richest member states, the UK contribution was higher than the amounts received back in payments such as the budget rebate, farm subsidies and regional aid.  That ‘disparity’ was one of the core arguments of the Brexit brigade.  No-one on the Remain side took the trouble, as far as I can recall, to explain the reasons for that, let alone to defend it.  But there are a number of reasons for the disparity, and it’s worth stopping for a moment to consider what that ‘excess’ payment was spent on before assuming that it will automatically now be available to spend.

For instance, some of it went on those apparently hated ‘eurocrats’ – you know like the people that manage the CAP, negotiate trade deals and other agreements, and manage the single market.  We won’t need them any more, will we?  Well, not exactly...  Let’s take the case of trade negotiators.  For the next two years, we will still be paying our share of the EU costs of employing such people, so that they can negotiate with the UK as well as the rest of the world – and we will also need to recruit and pay more of our own civil servants to negotiate with them, whilst at the same time, negotiating our own deals with the rest of the world.  That latter cost won’t come to an end in two years’ time either – we’ll need those skills for the foreseeable future.  Indeed, the cost of doing this sort of thing for the UK alone is inevitably going to be higher than it would be if the cost was shared between 28 states.  Bang goes part of the ‘spare’ money.  And that’s just one example.

But more importantly, a lot of the EU budget is spent on attempting to redistribute wealth, from the richer areas to the poorer.  One can argue (and I certainly would so argue) that this hasn’t always been spent well or effectively, (although that’s generally more to do with those receiving the largesse than with those dispensing it) but Wales is far from being the only poor area of the EU, nor the only beneficiary of the EU’s attempts at redistribution. 

Further, anyone who was really serious about wanting to slow migration within the single market would be arguing for more redistribution, not less.  All the talk about people moving from areas of low economic activity to areas of high activity has focussed on the impact on the receiving countries, but if there is a part of the UK which should realise more than any other area how badly such migration impacts the areas from which people migrate, it is surely Wales.  Isn’t that loss of young working people exactly what we have been suffering from for decades?

But back to the point – to argue that we should not contribute more than we get back (which is what the leavers were doing) is in essence to argue against the very principle of redistributive policy.  It is to argue against the richer helping out the poorer.

One doesn’t need to take much of a look at some of the Brexiters to understand that arguing that the rich should keep what they have and not share it is probably instinctive and natural for them.  So, regardless of what they said during the campaign, why would anyone believe that people who are against the whole concept of redistributing wealth are suddenly going to be generously in favour of it within the UK?  Worse, why do they even need to, when the people of Wales themselves have voted to support that sort of economic selfishness?

Not much of an argument

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It’s not often that I find myself defending the leader of the Conservative Assembly group; in fact it may even be a first.  But yesterday’s attack on him for alleged hypocrisy in accepting payments under the Common Agricultural Policy (CAP) whilst advocating leaving the EU seemed to me to be more than a little misplaced.  I see no inconsistency between arguing for a different way of doing things on the one hand and making the best of the current situation on the other.  It would be unkind of me (although that won’t stop me) to point out that the criticism seems to be coming mostly from his own party, but whoever is doing it, attacking him personally for accepting farm subsidies from the EU which are not currently available from the UK Government is a long way removed from grown-up debate.  

(A more accurate accusation of hypocrisy would compare his support for farming subsidies to well-off farmers such as himself with his opposition to benefit payments for the poorest in society.  When is a benefit not a benefit? The answer, it seems, is that it depends on to whom it is being paid.)

The spokesperson for Davies is entirely correct to say that the money is effectively funded from the UK’s contributions; and those campaigning for a ‘leave’ vote are equally right in saying that, freed of having to pay the money into the EU, the UK government could simply make the payments direct to UK farmers.  There is no magic money tree in Brussels from which the money springs forth, no more than there is a magic money tree in London from which the block grant to the Assembly springs forth.  In effect, making payments to ‘Brussels’ (or any central government) is, in part, a redistributive mechanism; all countries make payments in and all countries receive payments out, but the proportion of receipts is not the same as the proportion of payments.

On the question of the flow of funds to Wales, the ‘remainers’ are repeatedly asking us to accept that we can trust Brussels more than London to pass funding on to Wales.  I happen to think that they are right on that question (which, incidentally, is part of the reason for a nationalist being more supportive of membership of the EU than of the UK); but that’s because I see the EU as being instinctively more redistributive than the UK.  (It’s not as redistributive as I’d wish, but we’re dealing here with the two options which are on the table, rather than what I might wish for.) 

The issue does, though, draw attention yet again to one of the weaknesses of the ‘remain’ campaign.  I just don’t feel that repeatedly telling us ‘you can trust Brussels more than you can trust us’ is the cleverest argument to be putting.  Politicians supporting continued membership of the EU seem almost afraid to put the underlying argument – that of a deliberately redistributive policy – before us, but that is, in essence, the real difference on this issue.  The ‘leavers’ are playing an essentially selfish hand – we can keep all our money and not pay any to those foreigners across the water - whilst the ‘remainers’ are effectively arguing for a system of active aid to the poorest regions of the EU.  But instead of putting that argument of principle, which actually equates Wales with other countries and nations within the EU and argues for the institution in principle, the ‘remainers’ are responding to selfishness by trying to put a selfish spin on their line as well – ‘we (Wales) will do better in than out’.  It’s not an argument which does much for me.

On the specific of the CAP, there’s another point as well.  As a rule, I tend to argue that trying to predict whether something will or will not change in the future is a dodgy business.  In principle, we can no more be certain that the CAP will continue unchanged than we can be certain that the UK Government would simply replace the CAP subsidies with UK subsidies.  I’ll make an exception in this case, though.  Despite the widespread understanding and agreement that the CAP needs to change, there are so many vested interests and obstacles to change that I think we can be reasonably certain that we will see no significant change any time soon.  However, arguing that the EU is sclerotically unable to make necessary changes doesn’t strike me as the most brilliant argument for continued membership either.

Perhaps Wales is shrinking...

Tweet I don’t doubt the importance of the proposed Metro system for Cardiff and district.  And I can understand why its proponents and supporters are getting increasingly excited about the possibility of it coming to fruition.  But there is such a thing as hype.

The story on the subject in Monday’s Western Mail was a case in point – the printed version was headlined with the claim that it would be a “catalyst for transformation of Wales”.  It is, I suppose, possible that for some people Wales really is just that area around Cardiff bounded by Merthyr and Bridgend, but surely the First Minister should know better than to claim that an investment heavily geared to the needs of Cardiff and its hinterland can really transform “the economic and social prospects of … the country as a whole”?

Anyone making such a bold claim needs to be able to demonstrate exactly how putting such a high proportion of Wales’ transport investment into one corner of the country really delivers benefits to the rest.  It’s not that I doubt the value of transport infrastructure to those who benefit from it, but from a bit further west we’ve just heard that the electrification of the railway line to Swansea is to be delayed, and electrification even further west than that hasn’t even made it onto the agenda yet.

One of the driving forces behind demands for devolution to Wales has long been the perception that successive UK governments, of both colours, have favoured and prioritized investment in the South-east to the detriment of the rest of the UK.  Disappointment is an inadequate word to describe my reaction to seeing the same attitude becoming increasingly prevalent in Wales.

Strength in Union?

Tweet As presented by the media and politicians, the apparent demand for an extra payment of £1.7bn to the EU seems almost calculated to boost the anti-EU wing of the Tory party and encourage Cameron to argue for the UK to leave the organisation.  However, given that at this stage it’s a proposal which will be subject to negotiation and agreement, the cynic in me wondered whether it was actually intended to do the opposite, by giving Cameron a chance to show how he can negotiate the figure down and claim a great victory.

Whichever, the issue raised two rather different questions in my mind.

The first is the approach of the UK Government to promises and agreements which it makes.  The famous ‘Vow’ given to Scotland isn’t the only example it seems – in the case of the EU, the government signed up to a set of rules and is now rejecting the outcome of their application.  His word appears not to be his bond.

The second is what it says about Cameron’s attitude towards redistribution.  The whole issue is presented as though the £1.7bn is simply going to be shovelled into a black hole in Brussels and used to pay fat cats and bureaucrats.  But the purpose of this particular budgetary adjustment is to ensure that payments in more closely match countries’ ability to pay.  That is, in essence, a redistributive approach – it’s not about penalising economic success as some have tried to present it.

There’s a parallel of sorts with the infamous Barnett formula, and with the recent referendum.  I seem to remember Cameron and others repeating ad nauseam that one of the great advantages of ‘the’ union is its ability to pool and share resources.  He didn’t really mean it then; and he certainly doesn’t mean it when it comes to the EU.

Selfishness isn't enough

Tweet One of the more depressing aspects of what passes for debate in Wales about membership or otherwise of the EU is that it concentrates entirely on how much money and how many jobs Wales does or does not get as a result of membership.  It’s a very narrow and selfish way of looking at membership of any organisation.  Worse, it in some ways concedes the argument to the antis.

Whilst it’s true that many jobs in Wales ‘depend’ on the EU, that is saying little more than that extant employment patterns ‘depend’ on the status quo.  But that would be true for any ‘status quo’; and if the status quo changed, so would the employment patterns.  I seem to have a vague recollection of claims being made prior to entry into the then EEC that UK jobs ‘depended’ on trade with the rest of the world and would be damaged by membership.  It’s equally valid as an argument.

When it comes to Regional Aid, the antis are entirely correct when they say that, if the UK wasn’t making large payments to the EU, then it would be able to spend even more on regional policy within the UK.  Whether any UK government would actually do so or not is another question entirely, and the history of UK regional policy doesn’t give me much faith that they would.  But an argument in favour of membership of the EU based primarily on scepticism about whether any UK government would be as generous to Wales doesn’t seem to me to be a particularly well-based one.

And what if, by some amazing miracle, the situation in Wales were to be transformed, such that Wales became a net contributor to EU funds?  If the only argument in favour was that we get more out than we put in, then the logic flows the other way – which is pretty much the position of UKIP and Tory sceptics at a UK level: 'it costs us more than we get back'.  The point is that membership of any club requires a subscription, and if one of the aims of the club is an element of redistribution, then some members will contribute more than they get back, whilst others contribute less.  Every winner has to be matched by a willing loser somewhere else.  There has to be a better reason for joining any club than an expectation of benefiting at the expense of others. Universal selfishness leads, ultimately, to poverty for the majority.

And that gets us to the real economic debate about the EU, which is hidden behind claims about how much regional aid we get or how many jobs depend on membership.  The EU is a club which aims to enmesh and equalise the economies of Europe, through economic co-operation.  Redistribution is a key element of that (which is the underlying reason why the EU is more dependable than the UK in this context), but co-operation and redistributive policies are close to anathema for the Tories and UKIP; they want only a system of competition where the strong get stronger and the weak go to the wall.

That argument about co-operation, which is also about keeping the peace on a continent which was torn apart by war for centuries previously, is one which supporters of the EU seem unable or unwilling to put; but by failing to put it, they are in danger of conceding one of the basic points of the antis, which is that the only thing that matters is narrow economic self-interest.  There’s a lot of things that I don’t like about the way that the EU has evolved, and much that I’d like to change (although that’s a great deal wider than a self-interested renegotiation of the terms of membership which is all the Tories seem to be interested in); but given the choice of European co-operation or competition, I choose the former.  However, it’s a choice which isn’t being widely articulated.

Blunt instruments

Tweet A couple of weeks ago, in his column in the Western Mail, Dylan Jones Evans made the remarkable suggestion that the governments in Cardiff and London should use their purchasing power to buy enough electricity and gas at a low price to supply all pensioners, and then make it available at a special "vastly reduced" pensioners’ tariff.  Or, if the suggestion isn’t that remarkable, the source at least is.

For some reason, that particular column never actually seems to have appeared on Dylan’s own blog, although he’s usually pretty assiduous about replicating his column there.  I couldn’t find it on the Wales Online site either, but I did manage to find a news agency version here.

I don’t have any objection to the suggestion as such, although it does seem to me that there are one or two potential problems.  More mportantly, I don’t really understand why one would limit such a plan to energy and pensioners.  After all, it isn’t only pensioners who have difficulty with their bills; and it isn’t only the energy bills with which they have difficulty.

Given that pensioners currently make up about 1 in 6, but are projected to become 1 in 4 by 2050, if the state is going to buy enough energy for a quarter of the population to get it cheaper, why not go the whole hog, and buy enough for all of us?  And why not include telephones, and water, and…

And that brings us to what seems to me to be a flaw in an otherwise laudable idea.  The money saved by using government purchasing power to buy large quantities of energy from the energy companies has to come from somewhere. 

There are only two possibilities in reality.  The first is that the energy companies take the hit and reduce their profits by a corresponding amount.  I’m not sure that anybody really believes that that is likely to happen.  The second alternative is that the price paid by other customers increases by a corresponding amount; the ‘purchasing power’ of a small number of large buyers only really works if there are a large number of small buyers whose prices can be hiked to compensate.  And that seems a far more likely outcome.

I wouldn’t dismiss the idea on those grounds either.  It amounts to a redistributive policy in effect – those who can afford to, pay more, whilst those who cannot, pay less.  Not so much a stealth tax as a stealth redistribution. That’s normally a proposition that I’d be happy to support.  Whether intervening in the energy market in this fashion is the best way of achieving redistribution is another question – it’s a pretty blunt instrument compared to using the tax system to achieve the same result.

The problem is incomes, not prices

Tweet Fuel poverty is a term with which we’ve all become increasingly familiar, but I’ve always had a nagging doubt about whether “poverty” is really the right word.  For those on low incomes, it’s accurate enough; but any definition based solely on the relationship between cost and income is always likely to include some for whom the term “poverty” is a misnomer.  After all, draughty old mansions can be expensive to heat as well.

A couple of weeks ago, I heard the term “transport poverty” being used to describe a situation where people spend a large proportion of the disposable income on running their car.  Again, it may be accurate for some – but I’m sure that Rolls-Royces can cost a lot to run as well.

Last week, Peter Hain referred to “food poverty”.  Again, I don’t doubt that some people, particularly the poorest, spend a disproportionate amount of their disposable income on basic foodstuffs.  It would be stretching a point to suggest that better-off people with expensive tastes might also spend a high proportion of their income on food, but it’s at least theoretically possible.

There’s a common thread in all of these types of poverty, though; or rather there is a common thread in the way they are described.  They are invariably portrayed as being price problems – the price of fuel, the price of running a car, the price of food – with the politicians demanding action on prices in response.  But the problem isn’t really about prices at all; it’s about incomes.

Fuel prices in particular are on an inexorable upward trend.  There’ll be variations in both directions en route; but the overall direction over time is going only one way.  And as recent events have demonstrated, demands that food should be both cheap and wholesome are probably incompatible.

I want to lift people out of poverty – all types of poverty – as much as anyone else; I just don’t believe that attempting to control prices in a market economy is ever going to be an effective way of doing that.  The distribution of income between the richest and the poorest is excessive and the gap is becoming larger.  Accumulation of resources in fewer hands; redistribution from the have-nots to the haves - that’s the inevitable outcome of free market capitalism.

Correcting that, and giving people fair access to resources, involves redistributing income, not controlling prices.  I don’t hear many politicians even suggesting that; it’s far too easy to criticise others over prices.  But if we really want to tackle poverty, it has to involve redistribution of income and resources.  Anything else is just empty rhetoric.

Who's subsiding who?

Tweet A story in the Times on Sunday drew attention to a report from Oxford Economics. The report analysed the pattern of tax receipts and government spending by 'region' across the UK and came to the conclusion that only in London and the Southeast of England is the balance between the two a positive one. For the rest of the UK (including Wales, of course) the balance is a negative one.

So far, so utterly unsurprising. But the story as reported went beyond the facts by stating that it showed the "the increasing reliance of the country on the capital", and placed the whole story under a headline claiming that "Tax from southeast props up rest of welfare-hungry Britain", as though those conclusions inevitably flow from the hard facts.

It's not as simple as that, however. Let's take the example of a major retailer with stores all over the UK, but with its headquarters in London. The profits come from all of their stores, but most of their staff outside the southeast receive below the average annual salary, whilst most of the HQ staff in London receive salaries above average. As surely as night follows day, the result will be that many of their HQ staff will pay above average tax bills, whilst many of their staff elsewhere will pay low tax bills – and may even be in receipt of working tax credits.

But who's subsidising who here? For sure, that tax on those higher earnings is being used to pay benefits to the lower earners, but the money to pay those higher earners came from all over the UK in the first place. There isn't only one redistributive transfer taking place here; there are two. The first is the one which flows from the decisions taken by private companies about where to site their HQ and how to distribute salaries; the second flows from the tax and benefit system and is an attempt to at least mitigate the first.

But it's only ever the second which comes in for criticism in the media. The problem isn't restricted to the private sector either – it's also reflected in the distribution of higher paid civil service jobs, as well as jobs in all those other government agencies. Why is redistribution considered by so many to be a good thing when it's done by the private sector and when money flows from the poor to the rich, but a bad thing when it flows the other way?

I wonder where the reporters live...

Redistribution and subsidy

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Some interesting figures published today by the Centre for Economics and Business Research on the mismatch between taxation and spending across the ‘regions’ of the UK.  The Centre has looked at the revenue raised in each ‘region’ and the money spent there to come to a series of conclusions about the extent to which poorer regions receive a ‘subsidy’ from the richer ones.

The most obvious headline from a nationalist perspective is the conclusion that Scotland receives no net subsidy from the rest of the UK.  No doubt the SNP will be delighted with that conclusion; I certainly would be in their position.  It’s further evidence that there is no hard economic argument against Scottish Independence.

There are caveats, of course.  As I’ve noted before when discussing this sort of statistical analysis, the most important element is understanding what the underlying assumptions are; changing those could have a significant effect on the figures.  In this case, one key assumption, from a Scottish viewpoint, is about the proportion of oil revenues which would accrue to Scotland.  The authors have used the split suggested by Aberdeen University, which gives Scotland 83% of the total.  I think that’s an entirely reasonable basis for calculation – but it’s clear that many of those arguing that an independent Scotland would be near-bankrupt are using a very different basis.

The other big caveats are that these are figures at a point in time – reflecting a single year – and that they assume that expenditure patterns for an independent Scotland would follow a similar pattern to those of the UK.  Again, that’s an assumption which is open to challenge.  Still, it’s good news overall for Scotland.

The figures for Wales make for much more gloomy reading, however.  They emphasise yet again how poorly our economy is performing.  Whilst the North East of England is not far behind Wales, only Northern Ireland is in a worse position.  We have a lot of ground to make up.

What the figures also show is the extent to which the UK’s economy is skewed towards London and the South East, with the north and west of England uniformly failing to cover expenditure from taxes raised.  I don’t like the word ‘subsidies’ in the way it’s used here to describe the way in which expenditure is redistributed to enable public services to be maintained outside the south and east of England, but it’s not an entirely unfair word.

The real question is how we stop redistributing the proceeds of uneven GDP and start redistributing the GDP more evenly.  It’s not handouts or subsidies that we need; it’s a sound economy of our own.

Regional Pay and GVA

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In this post on Monday, the Bevan Foundation drew attention to one of the key reasons for Wales’ comparatively low GVA – low wages.  It’s not a surprise; it’s a point that has been made a number of times in the past, but it’s a point of which we sometimes lose sight.

There are a number of reasons for Wales’ average pay being lower than the UK average.  Not the least of them is the fact that for organisations not headquartered here, the Head Office salaries – usually the highest – are elsewhere.  In a sense, that means that economic activity in Wales doesn’t contribute to GVA as much as it would if the higher salaried jobs were distributed in the same way as the lower paid jobs.  Such distribution is not exactly a practicable solution, but the effect of an uneven distribution is worth bearing in mind.

Given the way that GVA is calculated, low wages will inevitably depress GVA in any area, just as high wages would increase GVA.  So, the proposals by the UK Government to introduce ‘regional pay’ would have a direct impact on GVA.  For any area where regional pay was set at a lower value than average, GVA would apparently drop; for any area where it was set at a higher level, GVA would apparently increase.

This happens with no change whatsoever in the work people do, in the output they produce, or in their productivity; it’s solely an effect of redistributing the same amount of pay in a different way geographically.  I think we can be reasonably confident that the introduction of regional pay would see public sector pay levels reduce in Wales compared to the average, whilst they would increase in London and South East England relative to the average.

In principle, I’m in favour of redistributive policies, but in this case, the UK Government would be deliberately and consciously increasing the GVA gap between Wales and the UK average, by taking from the poorest areas and giving to the richest.

No doubt, some will cease on the resultant increase in disparity as clear proof that Wales can’t afford to control her own affairs.  But in fact, all it proves is that the measurement of GVA is a complex business, and doesn’t simply reflect poor economic performance in Wales.

I wish it were as easy as suggesting some sort of reverse regional pay, where the highest salaries were paid in the poorest areas, as a deliberate tool of policy to redistribute GVA more evenly.  But it does underline the way in which a policy of deliberately moving high paid public sector jobs from the centre to the periphery can have an impact on relative economic wealth. 

Winners and losers

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Yesterday’s report about Jack Straw’s little faux-pas echoes the report from last Friday about Wales’ contributions to, and receipts from, the EU.  Last week’s headline suggests that Wales pays more into EU structural funds than it gets back and is thus getting a bad deal; Straw’s case yesterday was that the UK is getting a bad deal.

Superficially, Jack Straw has a point.  If the UK did not contribute to the EU’s structural funds, the UK would have more money to spend on regional assistance within the UK.  I can’t argue with that; but it isn’t that simple.

The first complication is that the fact that the UK Government ‘could’ do something doesn’t mean that it ‘would’ do something.  ‘Regional’ assistance policy has been inconsistent at best within the UK over the decades, and I think we can be forgiven for suspecting that the UK Government might simply trouser the cash and use it to fund tax cuts, or wars, or whatever.  There’s absolutely no guarantee that we’d see any of it, which is the basis of much of the argument against what Straw said.

That raises another issue, though.  Is the fact that we might trust one government – the EU – more than another – the UK – really the best way to decide where regional policy should be made?  I don’t think it can be or should be.  It isn’t radically different from the argument put forward by some anti-devolutionists – they trust the UK government more than the Welsh one and therefore want power to remain there.  If we’re consistent, we should surely separate the issue of where policy is made from the substance of that policy.  We need a better reason than distrust of London to want the decisions to be made in Brussels.

Nor is it good enough to decide whether participation in the EU structural funds is worthwhile on the basis of a simple comparison of how much we put in and how much we get back.  On that basis, only the poorest countries would want to contribute – but there’d be nothing left for them to withdraw.  And that’s ultimately the whole point of the EU structural funds – the most well-off put in more and the least well-off get more back.

It’s fundamentally a question of whether we support redistribution or not – looking at it in terms of what we get is a much narrower viewpoint.  We tend to forget sometimes that the UK is one of the wealthiest countries in the UK; it is inevitable that the UK will therefore be a big net contributor. 

The problem for Wales is that we’re a poor region within a wealthy state.  We only get Convergence Funding (like Objective One funding before it) because of some creative work drawing a line across Wales in order to invent a region which didn’t exist before, and which exists for no other purpose than to qualify for the funding.

That shows the complexity of the issue of redistributive policies – drawing the right lines in the right places (and not necessarily following accepted regional or national boundaries) can make a huge difference to the perception of wealth and poverty without making any difference whatsoever to the actual wealth or poverty of the people affected.

There was one other point raised by the Open Europe report which has received little attention.  That is the extent to which the whole process is managed efficiently and effectively, and whether the same amount of funding could deliver more effect on the periphery with less bureaucracy at the centre.  I think that they have a point there; I just don’t agree that dismantling the whole policy is the best way of resolving it.

Don't follow London

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That the UK Government spends more on transport infrastructure for London than it does on the rest of the UK wasn’t really a surprise, although the extent of the skew was higher than many might have expected.  It gives a rather different context to the oft-repeated claim that Wales benefits from the government’s largesse at the expense of the South East – here is an example of the opposite; the South East benefitting from government largesse at the expense of Wales.

I was far from convinced about some of the reasons being advanced for the mismatch, but there’s nothing wrong, in principle, with the fact that a mismatch exists.  Any attempt to share out spending on the basis of need will always lead to a differential pattern of spending in different areas; the question is not whether differentials are wrong, but whether they’re based on a fair assessment of need.  We should never expect the spend per head to be anywhere near identical across different areas and regions.

There is also a lesson here for Wales.  Before we shout too much about all the goodies going to London at the expense of the rest of the UK, we should examine the way in which infrastructure is being handled more locally.  There has been a marked tendency of late for people to call for high levels of spend in the South East of Wales – on things like the suggested metro network and the M4 relief road.

I’m not opposed to the first of those schemes, although the second is much more questionable to say the least.  But there is a danger that in promoting such grand schemes we reproduce in Wales exactly that about which we complain at a UK level, and other parts of Wales get left behind.  Just as we urge the UK Government to take a less London-centric viewpoint, so we also need to ensure that the Welsh Government doesn’t simply take a Cardiff-centric viewpoint.

Hainperbole

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Another day, another statement by Hain.  The Western Mail’s extensive coverage is here; the unexpurgated words of the man himself are here.  The juxtaposition of the words attributed to the Presiding Officer in a rather different context (“Oh here we go now”) on the same page of the paper, and to the left of the piece on Hain, seemed strangely prescient.

He’s not alone in his love of hyperbole to make a point, but the suggestion that taxation powers for the National Assembly would "destroy Wales" seemed a bit far-fetched, even for him.

That’s not to say that taxation powers are necessarily an unmitigated opportunity for Wales; they are potentially a double-edged sword.  But, and not for the first time, he puts up a straw man that no-one is seriously suggesting (an immediate move to full power over all taxation and expenditure) in order to knock it down – and dismiss more modest proposals at the same time.

The devil is in the detail; a move to a situation where the block grant is reduced by an amount equivalent to a certain percentage of income tax and the Assembly given the power to vary income tax to recover the lost grant is potentially neutral in its effects on both the Assembly’s total income and expenditure and on the level of income tax paid by people in Wales.  And I suspect that’s much closer to what will potentially be on offer.

My doubts about such a proposal aren’t simply that a power to vary the level of tax (rather than merely recover the lost revenue) is a power which probably dare not be used.  It's more that it adds little to the ability of the Welsh Government to vary the mix of taxation revenues in order to achieve goals beyond the merely fiscal.

There is one point in what Hain said where I actually agree with him, albeit only up to a point.  He said that “We shouldn’t be ashamed or embarrassed... [of the fact that Wales needs more expenditure than we raise in taxation] …Wales’ needs are greater than most other parts of UK”.  It’s a point I made in a piece on WalesHome a few months ago.  Whether the ‘central government’ in question is a Welsh one or a UK one, it can and should be trying to mitigate the effects of geographical wealth inequalities.

Where I part company with him though is that he seems to be implicitly assuming that Wales’ relative poverty is an inherent, unchangeable fact of life which only redistribution by the UK Government can resolve.  I find that depressing and defeatist; one of the best reasons that I can think of for rejecting Hain and his party is precisely that such thinking seems to be endemic to them.  Where is his/their plan to build the Welsh economy to the point where we don’t need handouts?  Where’s the belief in the ability of the people of this small country to turn things round?  Where’s the positive leadership?

I don’t doubt that some would argue that he actually wants to keep Wales as it is, that a dependent Wales providing a block of safe seats to Labour in the UK Parliament is what best suits the Labour Party.  I’ve had similar comments on this blog often over the years I’ve been running it.  I don’t think it’s an entirely fair criticism, though.  The outcome might well suit him, but I don’t believe that he’d deliberately hold us back for such self-interested reasons.  A far more damning criticism is that he just doesn’t seem to be able to imagine any alternative.

Regional winners and losers

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I’m grateful to Jeff Jones, who, in a comment on an earlier post, drew my attention to this report.  Jeff pointed me specifically at the table on page 28, which talks about ‘regional’ (in a UK context) winners and losers in terms of taxes and benefits. 

The table sets out to show whether, and to what extent, taxation and benefits policy in the UK over the past 30 years has been ‘redistributive’ in geographic terms.  Now, there are always going to be some estimates and assumptions behind work of this nature, but on the basis of the report’s authors’ best endeavours, they do indeed identify that there was a degree of redistribution implicit in the Thatcherite/Blairite approach.

Wales is a net gainer, as one might expect, although the biggest gainer by far is the North East of England.  London and the South East are losers – again, as one might expect – but it was interesting to note that Scotland is also a significant loser.  I’d be surprised if the SNP didn’t attempt to turn that finding to political advantage!

The point which the authors make, however, is that the cuts being implemented by the current coalition are directly undermining that inter-regional redistributive effect, and are doing so largely at the behest of those who run the financial services which did so much damage to the economy in the first place.  (And, lest anyone conclude that this supports Labour’s views on the cuts, the scale of cuts proposed by Labour would have had a mighty similar effect – and were being driven by the same people for the same reasons).

But there was much more of interest in the report than the table on page 28.

The underlying point of the authors is this:

“This paper argues that the City of London has power like that of a City State in a country like the UK where financial elites dominate and competition of elites has failed. This is now a serious problem because expenditure cuts after the crisis are undermining the redistributive settlement of benefits and publicly funded jobs which were the life support of the ex-industrial areas under Thatcher and Blair. The only credible response is radical new economic policies which can usefully be launched through local and regional initiative.”

That sounds initially a little like the long-standing nationalist argument that the UK Government works in the interests of London and the South East, whilst ignoring the needs of Wales, but the analysis offers far more than that simplistic conclusion. 

It makes it very clear (as most of us knew already, even though not all are willing to admit it) that this isn’t about England v Wales; most of England’s regions suffer in the same way as Wales looked at in this context.  ‘London’ really isn’t synonymous with ‘England’.

(And ‘London’ isn’t even synonymous with ‘Londoners’.  The very recent relative economic success of London has at least partly been a case of “growth com[ing] from a sweated, casualised workforce providing cheap services for a small group of working rich and their employers and… immigrants claim[ing] most of the jobs at top and bottom.”  The point here isn’t about immigration per se, merely an attempt to analyse why the apparent success of London doesn’t necessarily benefit Londoners any more than it benefits the rest of us.  And we should never forget either that boundaries are artificial; within London, there are pockets of both poverty and wealth.  It isn’t really ‘London’ which is doing well, but some individuals and groups within London.)

I’ll admit that it surprised me to learn (although it probably shouldn’t have) that elections to the City of London Corporation still allow ‘business’ votes, rather then simply residential voters – and that the number of ‘business’ votes outnumbers the residential votes.  It’s a not insignificant example of the way in which the financial sector influences political decision-making at the heart of the UK.

That London’s economy has become dysfunctional, and that those responsible for the financial industries of London have disproportionate influence are surely undeniable conclusions.  But it is the effects of that dysfunctionality and disproportionate influence on the rest of the UK which is really the issue which should most concern us here in Wales.

Solutions?  Well, there are a few suggestions in the paper, some of which I’ll return to in future posts, and some of which they admit need more work.  But they won’t come from a continuation of the Labour-Tory economic policies of the past/present.  Indeed, the report actually says at one point, “we are for the foreseeable future most probably caught in a world of elite closure where the (Labour) opposition front bench is part of the problem not of the solution”.

It goes on to say that “we need a new politics as much as new policies because radical alternatives will get nowhere until they break the metropolitan monopoly of power and knowledge”.  Not a message which will be unfamiliar to many of us, but there is also a very clear warning that those who seek to simply build a replica of Westminster in Cardiff, with policy – and particularly economic policy – confined to the straitjacket of convention – are barking up the wrong tree. 

And it seems to me that we especially need to break free of the misguided notion that because the Conservative-Lib Dem coalition is wrong, then the Labour opposition is right.  Looked at from this perspective, there really isn’t that much difference between them.  Another familiar message which some seem to have forgotten.

Update:  I hadn't seen this report when I posted the above.  The CRESC report is an interesting piece of work in its totality, as I noted above.  There are dangers though - which I hope I avoided - in picking out particular tables and giving them attention out of context, which is what it seems to me has happened in the Western Mail's report today.  The purpose of the table in question was not to show which households 'paid more (or less) in taxes than they received in benefits', but to show the extent to which government policy on taxes and benefits is having a redistributive effect in geographical terms, and it seems to me that the narrower meaning being given to the figures is therefore potentially misleading.

I don't always agree with spokespersons for the Welsh Government, but in this case, I think they're right to draw a distinction between the issue of fair funding on matters within the devolved areas and a taxation and benefits regime which partly addresses the question of economic imbalances.  There is a relationship between the two things, but it isn't the straight line relationship as which it is being portrayed, and I don't really think that the effect identified by CRESC can reasonably or logically be used to argue against a needs-based formula for the block grant.

But, as I noted in the original post, neither do I agree with the simplistic response from Jonathan Edwards that 'London' has had an unfair share of the increase in jobs; that's a statement which obscures more than it tells us.  Where I do agree with what Jonathan says is that benefits cuts (and I'd extend that to public sector cuts in general) will impact Wales harder than some other parts of the UK, and will, in the process, undermine the geographical redistribution which leads to the figure of £800, therefore undoing the effect which Jeff highlights.  In that sense, these figures actually strengthen the argument for Barnett reform at a time of cutbacks.

Jeff is right to draw attention to an interesting set of figures; and the implicit suggestion that financing devolved administrations needs to be looked at in totality rather than one piece at a time is something I'd support, but I disagree with his suggestion that these figures undermine the need for Barnett reform.  

There is, in all this, a danger that people simply pick on the figures which support a particular point of view rather than look at the position as a whole - and that's a point-scoring approach rather than a debate about the future financing of Wales.  We really need to look properly at the whole question.