It’s great to see the TUC actively engaging in a positive way like this. The resources available to the TUC are pretty significant and to have them engage properly in a debate about rebalancing our economy rather than just beligerantly attack one side of the debate could really help to stimulate a better debate.

It may also help build a consensus about what is needed. With the CBI and TUC effectively singing from the same hymn sheer there might actually be some real movement from political parties to generate real change instead of pay lip service to it.

> the UK badly needs ‘wage-led growth’.

Errr, we’re in a global economy – we have to compete with the goods and services people in other countries offer us – so I wonder what ‘wage led growth’ means on the ground?

> We of course need a stimulus now, but if are going to achieve lasting, sustainable, balanced growth then we need a lot more – industrial policy, banking reform, corporate governance reform and a wider look at the lessons we can learn from elsewhere.

The ‘lessons from elsewhere’ article is about Germany – and yet that article wants to cherry pick form the German model – and it strikes me as unscientific to find an economy doing better than us (at the moment) and choose the bits that explain it.

What is wrong with Germany’s emphasis on exports?

Why can’t we admit that globalisation means that on average we in the western world are going to become slowly poorer over the next 20 years as the rest of the work becomes richer and start buying their own stuff and even sell it to us more and more.

Wage Led Economy..
it would be a problem if we simply increased the wages as a whole, but we could shift from the low unskilled economy set in motion in the 80s to a higher skilled economy, where better trained workers would get better wages.

For more than a generation British industry has treated workers like a commodity always looking to reduce cost, cutting back on training and investment (why bother when skilled workers can be poached or imported)

Government need a plan, to create an economy where the focus is on investment in and the well being of the workers.

Abolish capitalism everywhere in the world.

No other issue matters even slightly. I care about nothing else.

If you think destroying the spending power of the British worker so that we can repatriate manufacturing from China and India will help you must be mad. Why don’t the TUC come up with some socialist policies instead of this guff?

WHat we need is not stimulus or austerity but consolidation following a thirty year credit frenzy and a global Ponzi scheme of truly historic proportions. The rich must be dispropriated to pay for necessary public services and sufficient tax raised to balance the budget. The monopolies must be socialised and their managers elected by their workforces instead of being imposed by the old tie network or absent shareholders. Today’s self serving managers and executives are ransacking the economy and robbing us all blind. The banks must be allowed to go under to be replaced with a state owned bank lending at base rate to small business. We must stop the bail out immediately before the balance sheet of the state is ruined for ever and the wealth of the nation accumulated over centuries has been liquidated to hand over to the bankers’ creditors. The available productive work must be shared. Full employment immediately. On this platform we can go forward to look at the greening of our infrastructure (no environment destroying white elephant projects that benefit only speculators and corrupt developers) and the creation of a new kind of society that values the working man and woman over the capitalist blood sucker.

5

Well said.

5

If only Labour had won that 1983 election with that notious manifesto, all the commanding heights of the economy would be in state ownership and we wouldn’t be part of the EU.

Of course, it’s doubtful that the Japanese car companies Nissan, Toyota and Honda would be here but British-Leyland would still be in public ownership.

7

In 1983, there was still rigid regulation on banks and financial services, Mervyn King stated that, with hindsight, the light touch was a disaster. The absence of Nissan, Toyota and Honda is nothing compared to the problems greedy bankers have caused this country. Be assured that if Labour had won in 1983, deregulation of the financial services would not have followed.

@2 Just Visiting “Why can’t we admit that globalisation means that on average we in the western world are going to become slowly poorer over the next 20 years” I’d like the world to be co-operative, but right now, it’s competitive and it’s the survival of the fittest. We need to find a niche market. If everyone around you is selling potatoes and you can’t afford to grow better ones or grow them more cheaply or drop your margins, you have to sell something else. We’ve tried the service market and with a few exceptions, I think the only place left is the luxury market – high quality innovative products. There are enough people in the world who can afford to buy them to keep us going for a while.

@5

Did you read a different article to me? Your comment is plain stupid, the article and the TUC are arguing for strengthening the spending power of the British worker.

10

There are several ways which may help the spending power of the British worker, one way is to ‘rebalance the economy’ and another is to reform capitalism. @5 is talking about another way – socialism, s/he is rejecting further attempts to control capitalism, and I agree, there are only so many sticking plasters which can be applied to hold the patient together.

@9 Any initiative which maintains the status quo will be very temporary, there comes a time when we have to judge what we see no some possible/perfect outcome that has never materialized.

8

Your account is rather muddled.

Without deregulation of financial services in 1986 – the Big Bang on the stock market – London would have lost international business and all those tax revenues from profits generated by the City which the New Labour government later used to fund the the government’s boost to public spending on the NHS and education:

“Twenty years ago, on 27 October, 1986, the cosy gentleman’s club of the City of London was transformed by a series of changes that have come to be known as the Big Bang.

London’s financial services industry was reborn as a global financial powerhouse, and the late start, long lunch, early finish went out the window.

Over the past two decades what was a rather parochial scene has been transformed as a number of foreign banks and trading companies have moved in.
http://news.bbc.co.uk/1/hi/business/6081314.stm

The light touch regulation regime was something additional to the Big Bang. The Turner Review in 2009 of financial services markets admitted that the Financial Services Authority (FSA) had fallen down on its statutory responsibilities. Only the benighted are suggesting that we should return to the times before the Big Bang.

What was and is needed is Big Bang plus tougher regulation of financial services, which is now happening. Hence, the mis-selling compensation running into billions being paid out by the banks, the tougher surveillance of insider trading, requiring banks to hold more capital reserves in relation to other assets, the contentious proposal to ring fence retail banking from investment banking and the recent debate over what is to be done about the manipulation of Libor.

Something like the Big Bang on the stock market was inevitable sooner or later and that is quite separate from issues concerning the subsequent under-regulation of financial services.

The decision in late 1979 – years before the Big Bang – to remove controls on Sterling capital movements had far-reaching consequences. That deregulation meant banks and non-financial corporations as well as individuals could shift balances from London to other international financial centres without requiring the prior approval of the BoE. Had Labout won the 1983 election, there could well have been a capital flight in reaction unless the incoming government clamped down by reintroducing exchange controls.

12

Interesting piece of history from hindsight, but we were talking about projecting the consequences of Labour winning in 1983. And if we look through the history of capitalism circa 1870 onwards, we find that all reforms and changes have eventually resulted in failure, the big bang and deregulation are merely the latest chapter.

13

“if we look through the history of capitalism circa 1870 onwards, we find that all reforms and changes have eventually resulted in failure, the big bang and deregulation are merely the latest chapter.”

But that is what Kenneth Rogoff and Carmen Reinhart are saying in their book: This Time is Different – 800 years of financial crises (Princeton UP 2009). Rogoff, now at Harvard, was previously chief economist at the IMF so he is hardly an outsider.
http://www.economics.harvard.edu/files/faculty/51_This_Time_Is_Different.pdf

The fundamental question is whether some alternative to regulated market capitalism is going to work any better. I keep saying that free market capitalism is obviously dysfunctional and the sensible discussion is about what system of laws and regulations and fiscal order is most conducive to promoting prosperity with equity. There is skint evidence that “socialism” – whatever that amounts to – works.

I’m reminded of that old Samisdat joke I first heard c. 1964: Brezhnev was showing his aged mother around his new country dacha outside Moscow. “But Leonid,” said his mother, “what if the Bolsheviks come back?”

@Chris said
“Abolish capitalism everywhere in the world.

No other issue matters even slightly. I care about nothing else.”

The only way you can abolish capitalism is destroy liberty and murderer people who don’t agree with your view..no thanks i have no desire to like in North Korea..

@Redfish said
“Government need a plan, to create an economy where the focus is on investment in and the well being of the workers.”

Central Planning has been tried and has failed every time.

What Britian needs to do is go back to it’s roots of the free market, i know cronyism is a problem in all developed nations but the alternative has been shown to be markedly worse..ask any Russian or Chinese if they would rather go back to communist systems of the past.
to the Soviet Era..

@Tim, the policies they have in place in Germany where the government has actively worked to maintain their high end manufacturing sector by providing a frame work to allow it to happen, seem to me to be working a hell of a lot better than the socrched earch, race to the bottom mentaility we have in Britain

It would be interesting to play back all of the claims made by the Anglo-US Neo Liberals during the bubble as to why Germany couldn’t afford their social programs etc and their economy was being dragged down….ok they may have overstretched themselves with the Euro but the fundamentals of their economy is much muc much stronger than that of the UK

Call it what you like but smells like Government planning and interevntion to me!

The fundamental problem with workers [from whom as much money as possible should be denied if commodities are to be affordable] is that they are also consumers [to whom as much money as possible should be supplied if they are to buy commodities] This is one of the major contradictions of capitalism *the outsourcing of work to places of cheaper labour is but the latest stage* As Marx wrote – “the ultimate reason for all real crises always remains the poverty and restricted consumption of the masses” The result of stagnant or declining real wages since the 1980’s has been global industrial over-capacity: too much ‘plant’ producing too much commodity…for too few buyers. The buyers role was filled for a while by expanding unsustainable credit…this has now dried up – the bubble has, rather predictably, burst. Capital likes to seek out opportunities for further accumulation but we (consumers) have no “spare cash” Where now to turn for corporations in order to increase revenue?

Perhaps the latest round of privatisation provides us with an answer – NHS, Higher Education, local services. Oliver Letwin, in an unguarded moment, let slip before the last election that “the NHS as we know it, would cease to exist within five years of a Tory Election victory, it will simply exist as a “funding stream””

So tax money is being used to restore profitability to capital at the expense of our service

16

“It would be interesting to play back all of the claims made by the Anglo-US Neo Liberals during the bubble as to why Germany couldn’t afford their social programs etc and their economy was being dragged down….ok they may have overstretched themselves with the Euro but the fundamentals of their economy is much muc much stronger than that of the UK”

In the run-up to the Euro launch in January 1999, the DMark was reckoned to be grossly overvalued in the foreign exchange markets, so much so that 155 German economists at that time wrote an open letter urging the then German government to postpone joining the Euro:

“More than 150 German economics professors have called for an ‘orderly postponement’ of economic and monetary union because economic conditions in Europe are ‘most unsuitable’ for the project to start.

“The call to delay Emu ‘for a couple of years’ is made in a declaration signed by 155 university professors and sent to the Financial Times and the Frankfurter Allgemeine Zeitung newspaper in Germany. It signals intensified opposition to the government’s euro policy.

“The declaration was organised by Manfred Neumann, professor of economic policy at Bonn university and chairman of the Bonn economics ministry’s council of expert advisers. It signals concern among professional economists about Bonn’s determination to begin the single currency on January 1 1999. . .”
http://www.internetional.se/9802brdpr.htm

That advice of the economists was ignored and, as promised, Germany duly joined the Euro at its launch in January 1999 but the German government embarked on a course of policies for “internal devaluation” by reducing employment costs in Germany and introducing greater flexibility into the labour market, all intended to make German exports more competitive against international competition.

Years of slow GDP growth with higher unemployment ensued and the German government became so unpopular that the Social Democrats lost the national elections for the Bundestag in 2005 but the internal devaluation worked as intended. As a result, Germany’s balance of trade has moved into substantial surplus. That has become a principle cause of the current woes of the Eurozone as Germany does little to reduce its trade surplus while expecting the governments of chronic deficit countries in the Eurozone to act to rein in national trade deficits. This imbalance of national policy responses exerts an overall deflationary influence in the Eurozone.

Arguably, a large part of the relative success story of Germany manufacturing industry is due to an admirable national scheme for industrial vocational training introduced during early post-war reforms.

15

The problem with your argument about central planning (and for that matter, most who quote the historical emergence of central planning) is that all examples are based on it emerging from little more than an unstable feudal economy. Now if you read Marx, he states quite clearly that socialism can only emerge from mature capitalism, and there isn’t one example of this. So, what is needed is an appropriate environment and the political/social will. We are now in a period of mature capitalism, granted that the political and social will are far from strong.

14
Also see above, we have had around 150 years of industrial capitalism, I have used the time marker from 1850 which is generally agreed that the social and economic changes were complete. That’s allowing about 100 years to deal with the chaos and rapid social changes which the industrial revolution created and another 150 years to make a sensible judgement. And yet ‘communism’, which is central planning, is judged to have failed, when it has had much less time to develop and where the initial environment was less than ideal.

Of course, as you have previously pointed-out, like capitalism, there are several models of socialism, full central-planning is but one option but liberalism plays a large part in most modern models. And comparing socialism with the Russian Revolution is akin to comparing liberalism to the French Revolution.

This highlights the main contradiction in capitalism. The easiest way to maximise profits is to reduce labour costs, however reduce them too far and who will buy the products/services that you produce. Workers/employees are also consumers. Unless the underpaid workers have access to cheap loans . . . slow car crash anyone.

@20 / Jamie:

“The easiest way to maximise profits is to reduce labour costs, however reduce them too far and who will buy the products/services that you produce”.

There are two important flaws here:

1) Reducing labour cost is neither easy, nor the easiest way of maximising profits. Apple hasn’t succeeded because its labour cost is low.

2) “Reducing labour cost” and “lower wages for individuals” are not the same thing at all. (The Luddites also made this mistake).

@21 – so outsourcing doesn’t work?

please explain 2)

Outsourcing can work, but can also end in failure.

I was thinking more about automation. This has had the effect of reducing labour cost, whilst increasing individual wages.

As for outsourcing generally (from one country to another), it’s a complicated equation isn’t it?

The new location gains employment, but overall labour costs are reduced (that being the point). However, the lower costs feed into lower prices in the original country. I suspect the main driver of outsourcing is to remain competitive, rather than to increase profits.

A topical news item from 14 August:

Jaguar Land Rover has moved to 24-hour production at its Merseyside factory to keep up with demand for the Evoque and Freelander, delivering more good news for Britain’s car industry.

The carmaker, owned by Indian company Tata Motors, created a further 1,000 jobs at Halewood with the introduction of a night shift. It takes the factory’s workforce to 4,500 – three times the number working there three years ago. They will work to a three-shift pattern, with the first night shift starting on Monday.
http://www.guardian.co.uk/business/2012/aug/14/jaguar-land-rover-24hour-production-jobs

How come? Pay rates in India are much lower than on Merseyside. OTOH the technical helplines for many computers and related technologies are often based in Indian callcentres in my personal experience. And some of the techies are very good as well as helpful. Could it be that Britain is too short of computer skills to staff technical callcentres in Britain?

24

‘How come? Pay rates in India are much lower than in Merseyside’.

I would guess that Merseyside has easier access to the Jaguar Landrover market than India. I would further suggest that most of the workers in Merseyside could not purchase what is produced there. It is the differential between production costs and potential sales returns that matters.

There is a problem with comparing IT services with manufacturing, not so much that it is not like with like, but such services can function almost anywhere and can be accessed quickly. And technical information is universal, it is not associated with any particular locality, unlike Jaguar which is specifically a British brand of luxury car with a limited market.

The government need to stop viewing everything like it is static and unchanging. They need to be looking into trends to see which direction the economy is heading for. Instead they’re relying on outdated post war models of heavy production and consumption and mass expansion. These things are no longer viable. When they eventually stop and listen to the markets and observe the trends then they may get somewhere.