How to Change the Post-Crash Economy – Review

Last week (6th Mar 2014) the RSA convened an expert panel including Costas Lapavitsas – professor of economics at SOAS, Paul Mason, Culture and Digital editor, Channel 4 News; Mariana Mazzucato RM Phillips professor in the Economics of Innovation at Sussex University; and Seumas Milne, Guardian columnist and author, to discuss the state of the UK economy today.
You can watch a recording of the event at


On the whole the panel offered observations, rather than understandings or remedies. This was disappointing, because if this is the brain trust for our future economic development, then we appear to be seriously short of direction.
Perhaps the most obvious question that remain unaddressed was: Why has financialisation has become so dominant?

The panel was uniform in observing the financialisation of the advanced economies over the last 30 years, but until we face the reason why, we will not be able to see the way forward.

To their credit they did offer some ideas, or “low hanging fruit”, that could be fairly straight forward:

  • maintain and protect the public ownership of public services (Costas)
  • increase capital gains taxes to compensate the state for its investments (Mazzucato)
  • stop tipping the playing field in the direction of private enterprise (Mason)
  • look around the world to get ideas for alternative economic ideas (Milne)
  • a general appreciation of increased localism and diversity in economic systems and activity

Why has financialisation become so dominant? 
The reason why financialisation become so dominant is because we are all investing our hope for security (primarily in old age via pensions) in money and all its derivative financial instruments. The security we seek can only properly be found in community, but we seek it in money because money appears to give us access to our ‘individual ant’ myth, the myth that we are solitary individuals capable of securing our own personal, independent security separate from those whom live with and around.
We funnel, through our pension contributions, in excess of $30Bn a month into financial instruments, and vest responsibility for the management, maintenance, protection and enhancement of those funds in financial institutions, primarily commercial banks but also central banks by proxy. Everything in the real world becomes a potential target as an “asset” in which we can store our accumulated wealth.

That is why finance has become so dominant. Finance is fine in it’s normal role, but we have been complicit in elevating finance as a phoney replacement for social solidarity. Finance can never fulfil that role, and attempting to do so destabilises finance itself.

LIFE’s proposal for How to Change the Post-Crash Economy
Convert welfare into universal services. This creates the platform for a more diverse, resilient and localised economy, that will serve us better and create a more joyful society. Universal services are affordable, whereas benefits are not. Universal services reorientate the economy in favour of labour and ordinary people, depriving economic interests of the ability to abscond with the ‘survival motive’ as a tool to enlist the compulsion of labour.

This reorientation enshrines public services as the heart of our society, comprehensively liberates creativity and innovation, and deepens the roots of the economy, creating greater resilience than is possible in any other way.
Furthermore universal services prioritise efficient resource use and de-cost infrastructure investment, enabling the essential pursuit of environmental sustainability.

Locating social security, including old age security, in it’s rightful place between us as fellow citizens, dethrones finance and enhances the stability of the finance that remains.

Review of individual panelist contributions

Costas Lapavitsas – professor of economics at SOAS
Financialisation manifests in industrial business becoming more financially orientated, banks seeking profit from transactional activity and households using finance to replace public provision of services. It is unequal and unstable.

Answer: intervene to take public ownership, in addition to regulation.

One good point: public ownership of public service provision. (If mated with Roberto Unger’s proposal to create a floor at the bottom of society, this matches LIFE policy.)

Review: OK, those are observations, not understandings. Why has financialisation become so dominant?

The key matter that Costas needs to articulate is: where is the line between public and private ownership? He recognises that a 100% public economy is not right, but has not articulated where the valid intervention of public ownership ends – his excoriation of banking suggests that he would extend public ownership way beyond the provision of a floor to society. “The old spirit of socialism” is acceptable to Costas, but there is little recognition of the moral suation aspect of that old idea, nor recognition of the need to integrate mankind as we find him, not as he ought to be (the fundamental problem leading to the three central failures of 20th C socialism: centralism, moralism, and a consequent lack of a coherent economic theory).

In recognising that the origin of the current situation (financialisation) is deeper than just a political effort, Costas misses the fact that we are creating this reality, and goes off on an explanation of the corruption of productive businesses. (Frankly the complexity of Costas’ explanation should be a clue to it’s weakness.)

Mariana Mazzucato, RM Phillips professor in the Economics of Innovation at Sussex University
Until the theory of value extraction is mated to a theory of value creation, all the critiques in the world will be weak and fail to gain traction or change anything.
Industry is as financialised as the the finance sector, e.g. share buy-backs.
Reality is that private enterprise makes money off public investments in basic technologies. Not true that only risk takers are shareholders, public funds are BIG risk takers. Politicians rewarded private risk takers with capital gains tax reductions – depriving the public purse of compensation for its risk. e.g. Silicon Valley public schools “ghettoised” (presumably meaning underfunded, although, frankly, that term can be equally applied to every area in the USA).
Mariana goes on to show that public investment from public banks (Germany, China, Brazil, Europe) is $80Bn versus $12Bn from all of private finance – and that these public banks are under attack.
 When asked to explain how, in her world, how a company like Apple would deal with its accumulated profits, she said Apple’s profits were “completely in excess compared to what they have put in”. Some suggestion that the state is going to require private companies to reinvest their profits… for some reason she doesn’t revisit her original argument that the public can recoup through taxation and that higher corporate taxes would actually incentivise R&D. Anyway, the whole issue of Apple is never addressed, sadly.
Review: OK, again, nice observations. If the conclusion is that capital gains taxes should be raised and harmonised with income tax rates, we’re on the same page!
Paul Mason, Culture and Digital editor, Channel 4 News
We have come to believe that money can create value from itself, not true. Now on 3rd bubble (tech, property, QE) all telling ourselves we can create money out of nothing.
Tech is “destroying the pricing mechanism for information goods” and automating service jobs, e.g. Prediction of 47% of US service escort jobs by 2035. This info/tech economy is destroying the value of labour, so it cannot be a market economy. Peer-to-peer, modular, non-market, non-profit production emerging out of tech revolution as models for future economy.
We are in a “social factory” being exploited by “capitalists”.
Simply allowing private industry to compete with the public realm, instead of constantly tipping the playing field in the direction of private enterprise (the role of the state in a neo-liberal model), would allow the public realm to recover.
Also, doesn’t think that incomes will recover, and therefore answer will be “citizen’s income”.
Final tirade about using violence and boycotts to achieve ends highlights the emotional energy behind Paul’s desire to be “anti-capitalist” first and foremost – even after describing “networks” as a means of reintroducing “granularity” into markets after the failure of centrally controlled economies of the 20th C.
Review: Ok, good observations, especially about the new business models enabled by the tech/info revolutions. But the critique of the current model seems to be a manufactured angst based on emotional reaction to the current plight, and the solutions do not stem from the same angst, the solutions proposed stem from an appreciation of new models of business.
Reality is that pricing is not being destroyed, it continues very really in the real world for real goods and services. Information has always had a very tenuous “value” in real terms, normally associated with its retention to a small group as “secrets”. Old service jobs are being automated, but there are millions of service sector jobs that remain undone (e.g. caring, arts) and could/need to be usefully done.
On leaving the private realm to compete with the public realm: spot on! Just stop intervening in favour of the private and allow/force it to compete, bravo! That is indeed a “low hanging fruit” pickable now.
(Re “citizen’s income”: a citizen’s income must always be in addition to the provision of basic social support services, so until we have figured out how to afford basic social support services, it is premature to think about the concept of distributing cash to everybody. Virtually every objective advertised by citizen’s income is achieved by universal services, plus universal services make the economy more competitive and reduces labour costs, whereas a citizen’s income actually exacerbates problems of competitiveness and increases labour costs.)
Seumas Milne, Guardian columnist and author
The neo-liberal model was already broken before the crash, with critiques mostly from the left of politics (well, of course, the neo-liberal model was specifically any-left from the get-go). Neoliberalism is not just an economic model, it is also a system of social power and interests. Corporate interests have corrupted the entire system, including politics, academia and think tanks, to bend it for their own interests.
The need to create a new and more sustainable model will result in the rise of an alternative system, post crash, and that system will not be described in its original philosophy but moulded by the historical situation within which it arises and develops – just as all of the previous systems such as Soviet Communism, Keynesian social democracy, and Thatcher-Regan neo-liberalism did. This will require changes in and interventions to social ownership and power structures, and there needs to be more work done on how we get there. There are examples in both the advanced industrialised economies, and in the emerging world of the increasing re-municipalisation of social resources, and the development of new forms of political economy.
The missing factor is the social and political weight to overcome the entrenched interests of the current system.
Review: Ok, good observations again. Not real ideas, but then the recognition that what is missing is political weight is valuable. Of course, political weight depends on people like commentators getting behind new ideas… time to start supporting LIFE, eh?

Key audience question: What’s the economy for?

LIFE answer: The economy is not a separate entity, it is the activity of society. The proper question is what is a society for? When you can answer that question, you will have your answer to what the economy is for.

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