Economic Reform in the UK, and the pre-election race to the bottom of the barrel

The key headlines of the past few weeks have focused on pre-election measures and proposals aimed at trying to square the multitudinous circles of simultaneously getting the UK’s spiralling debt under control, creating a more equitable system, not cutting key public services, and reforming the financial system in a meaningful way in the midst of these myriad problems. Of course, this has predictably led to an orgy of cynicism, short-termism, stupidity, and diversion of attention away from some of the issues most inherently detrimental to the establishment and development of a ‘fair society.’

Firstly, we have the introduction of a new 50% top band in the UK’s gradated taxation system. Seems fair enough, you might initially think. But as analysts ranging from The Times through the FT and various professional economists have pointed out, there is the very real possibility that this might prove counterproductive. The macroeconomic principle articulated by the Laffer Curve proposes that above a certain taxation threshold, overall tax revenue begins to fall. This might be for any number of reasons, usually pertaining to heavily increased tax avoidance activity, transfer of activity abroad, or lack of drive and innovation. An excerpt from yesterday’s Times, quoting some economic statistics, illustrates the point nicely:

 ‘’In 1978-79, when the top rate of income tax was 83% (98% on earned and unearned income combined) the highest-earning 1% of the population paid 11% of income tax revenues. By 1986-87, after the top rate was cut to 60%, the highest-earning 1% accounted for 14% of revenues. By 1990-91, following the top rate reduction to 40%, the top 1% contributed 15% of revenues, since which time their share has increased considerably, to an estimated 24.1% this year.’’

In other words, a sensible top band of taxation within a liberal market economy such as ours, at around the 40% mark, can actually serve to more equitably distribute the burden of taxation. This has happened to a marked extent in the UK (though of course the system is still plagued with inequity).

This, for me, has several implications.  The electioneering tactic of tapping into the general mood of hatred against both bankers (and of course, it is largely deserved, for many of them are both morally and professionally loathsome) and the rich in general has led to a policy-making ‘race to the bottom’; within the rhetorical terms this dubious competition, the fact that New Labour’s 13-year reign has overseen the incredibly fast-paced development of an economy which is almost entirely predicated on City-based financial services is clumsily ignored, the white elephant in the room, as drastic-sounding measures, almost visceral in their appeal (I for one was initially gratified, on an impulsive and ideological level) are announced as both somewhat ludicrous measures to redress our budget deficit and spiralling debt, and an unstated but clearly-intentioned way to get back at the architects of our financial misery.

This strikes me as locking the stable door after the horse has bolted, trying to tack a superficial facade of harnessing the motor of capitalistic greed in order to pursue a more redistributive agenda on to a deep-rooted structural problem. The end result of this pandering to public feeling is that the worse off may see either a shift in the burden of taxation to their detriment, or a cut in services even beyond the already depressing levels that we have in store for us. I’m certainly not arguing for a rate of taxation which permanently favours the wealthy, but to knock up ideas like this as a short-term afterthought, ignoring the facets and nuances of economic structure you have personally helped to erect and with very short-term political objectives in mind, is naive at best and dangerously cynical and stupid at worst. Any change in this department must be comprehensive and systematic. Half-arsed jobs such as the ones we are seeing in the recent spate of proposals are unacceptable and in any case, deeply ineffective.

 Another implication of this, one which I find slightly sinister, is the widespread lionizing of the ‘make-do’ economy, its definition now stretched as widely as possible to encompass everything from manufacturing to the fast-moving consumer goods (FMCG) industry within the realm of popular discourse. This is apparently based on the idea that anything that contributes to the economy that isn’t fundamentally based on making capital purely from manipulating other capital in increasingly complex ways is a good thing. Hey, at least it can’t plunge us all into unspeakable levels of debt and unemployment, right? The media and politicians constantly emphasise the economic and moral benefits of ‘entrepreneurship, manufacturing and innovation’ as the remedy to our ills.

This completely obfuscates the fact that businesses in these industries, whether falling within the multinational corporation (MNC) bracket or that of small-to-mid size operations, actively campaign against and operate in a way that seeks to minimise to their own advantage such pesky interventions as minimum wages, labour rights, and other possible reforms aimed at minimising exploitation and inequality. This bigging up of one particular aspect of an essentially unjust liberal market economy at the expense of another as a result of cyclical economic developments, without examining structures, paradigms and morality, distracts from what should be the overall socialist goal of ensuring that people are paid a fair living wage regardless of whether or not they were born clever enough to pass elite university and professional exams. The paradigm has not shifted. Debate is still operating within the parameters of how to make the existing system a bit better, by tinkering around the edges, whilst also spectacularly misunderstanding it even in terms of orthodox economic theory and possibly producing a diminution in redistributive justice as a result, as may be the case with the taxation issues discussed. Labour actively participated in the building of this system. They can’t have their cake and eat it, just because party communications deems that a bit of class warfare and banker-baiting is the order of the day.

 So much for the initial excitement felt by those of us who favour redistribution when we thought that some of the structural flaws, both moral and economic, inherent in the current system had been exposed by the financial crisis. Even Marx’s most convincing critics could not have predicted the enduring resilience, in both concrete and psychic terms, of the capitalist mode of production.