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The duel: Should we aim to get the economy back to “business as usual”?

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The following debate between Paul Wallace and Ann Pettifor appeared in Prospect magazine on 10 July, 2020.Is our capitalist economy an unparalleled engine of prosperity, or a human and ecological disaster? Two contributors debate whether the system is worth savingYes—Paul Wallace It is tempting, when living through a once-in-a-century event such as the coronavirus pandemic, to say everything must change: that it’s time to tear up the rulebook and to create a completely new kind of economy. Tempting, but wrong. In fact, what we need is to rebuild the existing capitalist economy, which for all its faults has been an engine for greater prosperity not just in Britain but around the world. The measures taken to suppress the pandemic have already exacted a huge economic cost as

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The following debate between Paul Wallace and Ann Pettifor appeared in Prospect magazine on 10 July, 2020.

Is our capitalist economy an unparalleled engine of prosperity, or a human and ecological disaster? Two contributors debate whether the system is worth saving

Yes—Paul Wallace

It is tempting, when living through a once-in-a-century event such as the coronavirus pandemic, to say everything must change: that it’s time to tear up the rulebook and to create a completely new kind of economy. Tempting, but wrong. In fact, what we need is to rebuild the existing capitalist economy, which for all its faults has been an engine for greater prosperity not just in Britain but around the world.

The measures taken to suppress the pandemic have already exacted a huge economic cost as GDP has collapsed. The full reckoning in higher unemployment will follow. The overwhelming priority must be to try to claw back the ground that has been lost. A sustainable recovery is indispensable if we are to minimise the social harm from lost jobs and lower living standards.

The crisis has highlighted the value we put on health and exposed the failings of social care, making the case for more funding of these vital services. But that will require more public money. That in turn will require a buoyant economy. It’s fashionable to decry GDP, but it is the tax base that generates the revenues needed to finance the public services and to pay for welfare.

“Unlike the crisis of 2008, you can’t blame financial markets for the current emergency”

The pandemic has alerted us to other risks, notably that of climate change. Tackling this is a global endeavour, but Britain can play its part by greening its economy. That will require massive investments, both public and private, in new infrastructure, which will be far easier to make in a growing economy.

No man is an island, wrote John Donne. Britain will not be able to recover from this crisis unless its trading partners do as well. Even before the pandemic struck, globalisation was in trouble. But the way out of this mess requires a restoration of international trade that helps to spread prosperity around the world, rather than a blinkered retreat into economic nationalism.

No—Ann Pettifor

It is not mere temptation, Paul, to call for a transformation of the economy. It is justified panic. We need to change the system if we are to prevent the collapse of life on earth; end high levels of unemployment, trade wars and obscene levels of inequality; prevent the build-up of gluts of manufactured goods and stop rising levels of indebtedness.

You’re right, no woman is an island, and nor is any economy. The “existing capitalist economy” you are keen to “rebuild” is a ramshackle globalised economy, whose foundations are based on fickle markets in money, goods and services. After Richard Nixon unilaterally dismantled the Bretton Woods system in 1971, no effort was made to rebuild a new international architecture.

Instead, the “invisible hand,” like Goethe’s Sorcerer’s Apprentice, “magicked” a system that prioritises the interests of creditors, investors and speculators. While the system has massively enriched the few, it has produced unpayable levels of debt relative to global income.

“Rentierism” has ramped up the wealth gap over a generation or more, as those who own assets, including debt, made massive capital gains effortlessly, while those who work by hand and brain have suffered job losses, falling incomes or insecure, low-paid work. To compensate, workers were encouraged to borrow. As we know, that ended with an almighty crash. But even this didn’t prompt us to organise an economy where people could earn reasonable livings: comparing the nine post-crisis years with the nine before it, pay growth halved across the OECD. Debts and insecurity led to social tensions, demands for protectionism, rising nationalism and even authoritarianism. 

Most frightening is what the existing system has done to the environment. Since 1990, according to Kevin Anderson of Manchester University, global CO2 emissions from energy and industry have risen by 62 per cent, pumping an additional 870bn tonnes of the gas into the atmosphere. Global heating will destroy economies. We have no choice but to radically and urgently transform globalised capitalism.

Yes

I share your concern about climate change, Ann, and am neither blind nor indifferent to the other issues that you raise, such as inequality. But you can’t fix these problems with an economy on its knees. That’s why the immediate goal must be to generate as swift a recovery as is possible, without inflicting a further calamity by allowing the epidemic to rip out of control again.

If the British economy is to get back on its feet, a wider international recovery will be essential. You characterise the global economy as “ramshackle” and founded on fickle markets. But unlike the banking crisis of 2008 you can’t blame the financial markets for the current emergency. As for the markets in goods and services, there is nothing capricious about the benefits that trade brings. What was hurting the international economy before the pandemic was the rise in protectionism. What was hurting the British economy was the rupture in our crucial trading relationship with Europe through Brexit.

Yes, there is plenty to do in making things work better for those in Britain left behind by globalisation. But if we want, for example, to tackle low pay then we must get to the root of the problem: poor skills. That means spending more not just on schools and universities but also on vocational colleges that have so long been the Cinderella of education. That extra call on taxpayers will realistically be available only in a growing economy.

The same logic holds for other pressing needs such as first mending and then improving the health service. The government can borrow freely during the pandemic, not least because the Bank of England has stepped into the breach with a vastly expanded programme of asset purchases. But beyond the present crisis the health of the public finances is inextricably linked to the vibrancy of the economy.

Growth is not the enemy but the friend of reforms, including those so urgently needed to arrest global warming.

No - Ann Pettifor

We are agreed a swift recovery is vital. But what form should recovery take? Your emphasis on “growth” is a point on which we must part company. Economists must finally acknowledge something well understood by physicists: the planet has limits. “Growth” in economics (if not in nature) is conceived of as boundless and potentially exponential, and as such is delusional. Within the finite boundaries of the ecosystem, economic expansion must be limited.

Growth was first heavily promoted by the OECD of the 1960s. As the TUC’s Geoff Tily has documented, “growth” and the deregulation of international capital went hand-in-hand. Globalised economic activity was expected to expand at the same exponential rate as deregulated capital gains.

The consequences were unfortunate. Expanding rates of growth led to vast quantities of carbon dioxide pumped into the atmosphere. The deregulation of international finance led to periodic and increasingly frequent financial crises.

“Growth in economics is conceived of as limitless—and as such is delusional”

If we are to recover in environmentally and economically sustainable ways, then we should take Keynes’s advice in “National Self-Sufficiency.” He called for the domestication of finance (“let finance be national”) and to “let goods be homespun.” That meant the “conscious and deliberate management” by public authorities of capital mobility and the domestic banking and credit system, to allow a focus on domestic economic activity. International trade would cease to be “a desperate expedient to maintain employment at home by forcing sales on foreign markets…”

My proposed economic strategy for recovery is first, the domestication of finance (so that billionaires and corporations are blocked from moving capital gains abroad to escape tax obligations) and second, the domestication of the economy. Greater self-sufficiency will require higher levels of job creation. Full employment will generate income for the employed and tax revenues for government—supplemented by taxes paid by billionaires like Richard Branson. Said tax revenues can be used to “balance the books.” It is not rocket science.

Yes

We may agree upon the need for a swift recovery, but we are at odds about how to achieve it. Now is not the time to try to reshape the economy through the sweeping reforms you advocate. The crisis has dug a deep hole in GDP and the immediate imperative is to fill it as swiftly as possible. That is vital in order to avoid a potentially disastrous rise in unemployment.

Beyond the next year or so, GDP growth remains indispensable, not least in providing the tax revenues needed to finance better public services. It must be clean growth, and this is within our reach. There has been a “conscious uncoupling” of GDP growth and carbon emissions in Britain over the past three decades. The Committee on Climate Change argued last year that with stronger policies and more urgent delivery, the UK could meet a net-zero target for greenhouse gases by 2050 with a minimal impact on GDP. When you include the benefits, such as cleaner air and the potential gains to the British economy by being an early mover in low-carbon technologies, such a revolution could boost rather than detract from growth.

Turning in on ourselves, as you advocate with your call for the “domestication” of the economy, is the last thing that we should do at this juncture. International trade provides bigger markets and opportunities for British firms and it expands choice for consumers. An open global trading system remains vital because it underpins the international co-operation that is essential in tackling climate change and other pressing problems, which is why leaving the EU is such a backward step.

Now is not the time to panic but to be steadfast in recognising the underlying strengths of the market economy, while directing it to a greener and fairer future.

No - Ann Pettifor

I fear we are going to fundamentally disagree on international trade. The pandemic has shown the risks associated with long supply-lines, and with a country’s inability to supply its own essential pharmaceuticals and PPE. The global movement of goods requires the expansion of increasingly complex systems of shipping routes and air traffic. According to professors Ian Goldin and Mike Mariathasan in The Butterfly Defect, in 2008 world container port traffic surpassed the threshold of 500m TEUs (twenty-foot equivalent units) for the first time and was seven times greater than in 1988. It rose to almost 800m TEUs by 2018. World air travel has more than doubled since the mid-1990s. That is reflected in the rise in greenhouse gas emissions—putting human survival at risk.

Another flaw of our financialised global economy is that it leads to imbalances, the most notable of which is over-production (witness gluts in oil, cars, steel, aluminium, diesel, clothing) matched by a contraction of purchasing power, produced by policies to curtail the bargaining power of labour. Since the German government slashed wages to make German exports more competitive, the rest of Europe has suffered trade and financial imbalances, with German workers unable to purchase the goods and services they themselves produce.

And therein lie the greatest challenges—inequality and the imbalances of over-production and falls in purchasing power. The system is designed to concentrate economic power in the hands of the globalised finance sector, and the evidence is clear: the 1 per cent are now in command of phenomenal wealth, while the majority suffer stagnant real incomes.

I stand by my case for greater self-sufficiency as a solution to over-production and trade, finance and ecological imbalances. In the short term, and to address inequality, we need to urgently increase the purchasing power of the majority, but especially those on whom we rely for our survival—nurses, cleaners and carers in the health and social services. Only the government can do that, by raising pay, skills and standards, and by obliging the private sector to follow. Until then, there can be no hope of sustainable recovery.

Ann Pettifor
I’m Ann Pettifor, author and analyst of the global financial system, and co-author of The Green New Deal (2008). I predicted an Anglo-American debt-deflationary crisis back in 2003, and in September, 2006 published The Coming First World Debt Crisis (Palgrave). I am known for my work on the sovereign debts of low income countries and for leading an international movement for the cancellation of debts, Jubilee 2000.

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