Saturday, 15 October 2011

Debt or No Debt

When the UK Prime Minister urges everyone to clear their debts and stop borrowing, AND pleas with the banks to lend more money, you have to wonder if David Cameron is clueless about the economy or he just assumes he can get away with spouting nonsense.

We need sensible borrowing
Borrowing when one has no way of ever paying the money back is never advisable. But borrowing to deal with pressing problems, to invest, to grow is a sensible course for individuals, businesses and governments. Without mortgage borrowing, only a tiny rich elite would own their own homes; without business loans, far fewer enterprises would be able to start up, let alone grow to expand their market share and turnover; and without government borrowing, countries would be stuck in the backwaters of under-development.

What is sensible borrowing?
The UK has for over three centuries borrowed substantially to ensure it has the capacity to grow as a strong country able to look after its citizens. In the last century, the national debt as a % of our GDP was continuously and often significantly over 50% from the First World War to the early 1970s, when it dropped and stayed below 50% through Conservative and Labour governments up until the global financial crisis in 2008. ( When compared internationally, the UK debt (again as a % of GDP) was under the last Labour Government the lowest of all the other G7 leading industrial nations (ie lower than Germany, Japan, France, Canada, USA, Italy -

So what has been pushing borrowing up?
With government investment in health, education and economic growth, the quality of life in the UK improved, while the debt level remained below 50% of GDP up until 2008. Anyone who claims not to know what happened in 2008 is either the perpetrator or victim of a political con trick. Bankers around the world had by then gambled away so much of their savers’ money that there was a real risk they would collapse, and that could have led to businesses being unable to borrow enough funds to keep going, and countless people losing their lifesavings. The Labour Government had to step in to save the country. By July 2009, the UK debt level reached 59%. But £142 billion of this was the cost of rescuing the banks, which meant the debt level without the bankers-generated crisis was 47%. For all the talk of billions of pounds in debt, the government’s underlying borrowing strategy was hardly out of line by any historical and international standard.

Have things got better or worse?
When the banks started to cut back lending in 2008, businesses found it more difficult to finance their growth, people with insecure jobs and worries about getting loans cut back consumption. The result was the beginning of a recession with the economy fast stalling. The Labour Government invested public funds to stimulate growth and by the time they left office in 2010, the economy was expanding again at a rate approaching 2%. Politicians from all sides around the world praised the UK strategy for its combination of public investment and sensible debt management. The Tory-led Government, however, for its own ideological reasons insisted that borrowing must be drastically cut regardless of the consequences, and its policies have by 2011 brought us higher unemployment and rising poverty, with the growth rate of the economy plummeting back towards stagnation (see:

Time to back responsible borrowing
In the face of the incessant scaremongering about the UK debt getting out of control, it is essential to remember that during times of crisis the British government has always in the past responded with leadership and responsible borrowing to steer the country out of the storm. After the First World War, the debt level shot up to 100% of GDP and rose up to and remained at 150% through the 1920s. Following the outbreak of the Second World War, the debt level went up to 200% of GDP. Furthermore, even at that level, the post-war Labour Government recognised that it was a priority to rebuild the UK and it invested in the creation of the NHS and other public services for the benefit of all. The debt level reached 240% before 1950, and then steadily dropped to below 100% of GDP after 1960 when private sector growth was by then robust enough to drive the economy forward. Past UK governments had the courage to take on a high level of responsible borrowing to save the country from the Kaiser, the Nazis, and post-war squalor. The present government should not be paralysed by cowardice.

Cut out irresponsible borrowing
Alongside a commitment to responsible borrowing, we should of course expect the Government not to increase the national debt by draining public resources irresponsibly. For example, £10 billion can be saved if the Government does not spend £2 billion to reorganise the NHS to make it more vulnerable to profiteering; £4.5 billion a year to keep troops in Afghanistan; £2.5 billion in tax handouts to the richest corporations and individuals; or £1 billion on bombing a country which poses no direct threat to the UK or its neighbours.

What should be done about the real causes of the banking crisis?
Many people are so angry with the last Labour Government for failing to prevent the banking crisis that they are prepared to jump out of the frying pan into the Tory fire of cuts and prolonged recession. What they need to realise is that Labour’s true failing was not rectifying when they had the chance the Tory policies of squeezing society for the benefit of the super rich minority. First, the Tory deregulation of the banks, which made it possible for them to gamble away billions of pounds of savers’ money, should be reversed. Secondly, financial transactions should be taxed to control otherwise disruptive speculation and help reduced public sector borrowing (this would raise £20 billion even if it is levied at just 0.05%). Thirdly, the Tory fantasy of leaving people with below-subsistence pay to get by through unsustainable borrowing must be pushed aside with a fairer distribution of wealth (something welcomed by many rich people with a social conscience). Fourthly, the integrity of the public sector must be protected to serve the interests of the whole country in good times and bad, and not be dismantled to feed ravenous corporate interests which prioritise private gains over public wellbeing. The Tories will never change their spots, let’s hope Labour has learnt their lessons – for all our sake.

Saturday, 1 October 2011

The Politics of Cultural Inclinations

Can we predict which countries in the world are more likely to embrace open, cooperative political arrangements, and which would more probably stick with rigid, hierarchical systems? It would appear so. I have looked at data compiled and analysed by Geert Hofstede and colleagues over the last forty years (see Hofstede, G., Hofstede, GJ, and Minov, M, Cultures and Organizations, New York: McGaw Hill, 2010), and I have detected an interesting correlation between a set of cultural inclinations and political manifestations.

On what I call the ‘Democratic Continuum’, countries range from those whose residents most ready to deal with problems by engaging others as equals in open, cooperative deliberations, through to countries least prepared to deviate from hierarchical or traditionally established arrangements in determining what should be done in society. These may be referred to as the ‘Open’ and ‘Closed’ poles of the continuum.

To map countries’ cultural inclinations, I draw on Hofstede’s data under four sets of comparisons. These are based on contrasting the countries with the highest and lowest proportions of their populations who (assessed by their questionnaire responses) are inclined to favour:
1. Power Distance (those who prefer important decisions affecting them to be left to people higher up than them v those who prefer such decisions to be made by people who will listen to and discuss options with them)
2. Communal Bonds (those who strongly differentiate between members of exclusive communal groups and outsiders v those who view all those in their country as deserving equal respect)
3. Traditional Masculinity (those who believe that the ‘masculine’ approach of being assertive and dominant should prevail in society, while the ‘feminine’ caring approach should be reserved for females at home v those who believe that males and females should alike be caring and mutually supportive wherever they are)
4. Avoidance of Uncertainty (those who want to minimise uncertainty in responding to situations by having rigid arrangements indicating who or what procedures are in place for resolving problems v those who welcome uncertainty in situations as something they will explore on a case by case basis for a response)

Are there countries that cluster at either end of all or most of these four sets of comparisons (the top/bottom 15 countries in the world)? And can we deduce anything about their likely ‘Open’ or ‘Closed’ political status?

Five countries are found to be in the least favour end of most of the listed factors, and not in the most favour end of any of them. Sweden and Denmark are in all four, and Canada, Norway and the Netherlands are in three. A higher proportion of people in these countries reject ‘power distance’, ‘communal bonds’, ‘traditional masculinity’ and ‘avoidance of uncertainty’ as outlined above. And few would dispute that they are likely to be included on any list of the most open, democratic countries in the world.

The UK and Ireland curiously are in the least favour end in relation to ‘power distance’, ‘communal bonds’, and ‘avoidance of uncertainty’, but are both found in the most favour end of ‘traditional masculinity’. My hypothesis is that although the UK and Ireland have cultural tendencies that largely support their democratic institutions, they suffer from retaining a ‘macho’ outlook which holds them back from being as open and democratic as they should be. The first-past-the-post voting system, the unelected House of Lords, the infantile debates of Prime Minister Question Time are all oddities which, I believe, will one day vanish when the wider cultural attachment to ‘traditional masculinity’ declines.

What about the US? It only appears under the least favour end of ‘communal bonds’, and ‘avoidance of uncertainty’. A more revealing picture might be found if we had the Hofstede data segregated by states in the US. I suspect the predominantly Republican states would tend to favour three or all four of the listed factors, while the strongly Democrat states would be amongst the least favour in relation to all of them. And the political practices and institutions established in these states would be more ‘Open’ or ‘Closed’ depending on their cultural inclinations.

As for countries which feature in the most favour end of the different categories, none appeared in all four and only Guatemala and Venezuela featured on three. Both these countries have struggled for decades with dictatorial regimes, and like the rest of Latin America are only able to function with more democratic arrangements relatively recently. It remains to be seen if their prevailing cultural inclinations would make it more difficult for them to make the transition to a fully open and democratic society than their neighbours.

In conclusion I would stress that the relationship of cause and effect is never simple. We cannot say that cultural changes must precede political changes, or political reforms are necessary for cultural shifts. They affect and in time reinforce each other. But we can say that culture change can help to reshape politics.

To promote the cause of democracy, therefore, I think more should be done to alter people’s attitudes about key features of their daily working experience. For example, what’s it like when we can have more of a say about the decisions that affect us and not have them dictated to us; what’s it like to be excluded, overlooked, penalised at work just because one doesn’t belong to some closed communal group; what’s it like when we have less testosterone-fuelled lone wolves and more collaborative colleagues at work; what’s it like to learn through cooperation and experience how to cope with new situations rather than having everything prescribed, depriving us of the opportunity for initiative or innovation.

As more people become more averse to ‘power distance’, ‘communal bonds’, ‘traditional masculinity’ and ‘avoidance of uncertainty’, they will more likely back the advancement towards a more open and democratic society.