Tuesday, 28 September 2010

Ed Miliband sets the tone for Labour

So a new Labour leader and not the Miliband we were expecting. What should we make him? Well he made his first speech as leader today and I have to say I was pleased with some of the things he said.
The speech was called ‘The New Generation’ and was not subtle in its message that Ed Miliband represents a break from the past. It also tried hard to position the Labour Party as representing a new generation in Britain with a different take on the world. And in this, I think he did a good job.
Personally I found some of the lines appealing like:
This generation wants to change our society so that it values community and family, not just work, because we understand there is more to life than the bottom line’
This tries hard to tap into the ‘flexible working culture’ and speaks to the desire that so many have to effectively balance their work with their family life. Finding a way to balance these competing demands is a real effort and one which I see consuming so many of my friends and family, particularly when their children are small. So with this, Ed struck a chord with me.   
He also spoke of the opportunity that exists to make a change.
As we emerge from the global economic crisis, we face a choice: we can return to business as usual or we can challenge old thinking to build the new economy we need.
Not revolutionary lines, I accept but an import sign all the same, that rebuilding Britain’s economy does not have to mean rebuilding the same inequalities and the unfairness that existed in the past.
But the question I really wanted answered was how much does Ed sign up to the Better Way Campaign? Well, I think he is definitely moving in that direction.  But I will let you decide for yourself. Here is what he had to say on the deficit and the Coalitions’ plans:    
I am serious about reducing our deficit.

But I am also serious about doing it in a way that learns the basic lessons of economics, fairness and history.

Economics teaches us that at times of recession governments run up deficits.

We were too exposed to financial services as an economy so the impact of the crash on the public finances was deeper on us than on others.

We should take responsibility for not building a more resilient economy.

But what we should not do as a country is make a bad situation worse by embarking on deficit reduction at a pace and in a way that endangers our recovery.

The starting point for a responsible plan is to halve the deficit over 4 years, but growth is our priority and we must remain vigilant against a downturn.

You see when you cancel thousands of new school buildings at a stroke, it isn’t just bad for our kids, it’s bad for construction companies at a time when their order books are empty.

It’s not responsible, it’s irresponsible.

When you deprive Sheffield Forgemasters of a loan, a loan from government which would be paid back, you deprive Britain of the ability to lead the world in new technology.

It’s not responsible, it’s irresponsible.
And when you reduce your economic policy simply to deficit reduction alone you leave Britain without a plan for growth.

It’s not responsible, it’s irresponsible and we should say so.

No plan for growth means no credible plan for deficit reduction.

And nor should we reduce the deficit without learning the basic lessons of fairness.

We must protect those on middle and low incomes. They did nothing to cause the crisis but are suffering the consequences.

I say the people who caused the crisis and can afford to do more should do more: with a higher bank levy allowing us to do more to protect the services and entitlements on which families depend.

And we should learn the basic lessons of history.

After 1945, we had the biggest debt we have ever had.

That generation cut the deficit but they had a bigger vision: for a new economy and a good society.

True patriotism is about reducing the debt burden we pass on to our kids.

But Mr Cameron, true patriotism is also about building an economy and a society fit for our kids to work and live in.

You were the optimist once but now all you offer is a miserable, pessimistic view of what we can achieve. And you hide behind the deficit to justify it.
Helen Martin - STUC

A Better Way...for Better Pay.

A Better Way...for Better Pay.

On 1st October 2010, there will be a new category created in the National Minimum Wage that will cover Modern Apprenticeships. This legislation will set a new Apprenticeship National Minimum Wage at £2.50 per hour for young apprentices (under 19-years-old) and for those who are in the first year of their apprenticeships.

This includes payment for time spent training off the job.

While the move by Government to include Modern Apprentices within the National Minimum Wage framework is a step in the right direction, surely £2.50 per hour is morally substandard?  Being paid at £2.50/hour for a working week of 40 hours equates to £100 per week, which works out to be just £5,200 per year.

The Joseph Rowntree Foundation recently found that a single person in the UK today needs to earn £14,400 (before tax) to afford a “basic but acceptable standard of living”.  Getting paid £5,200 per year comes nowhere close to meeting the needs of a basic lifestyle, risks poverty and exclusion and increases the likelihood of increased drop out rates.

There is a danger that employers will choose to set the apprenticeship wage at the minimum.  Apprentice rates should reflect the job done – if an apprentice does a full-time job, he or she should be paid fairly for it. Think about it: a Modern Apprentice on the new Apprenticeship National Minimum Wage would be required to work 111 hours per week just to earn the recommended £14,400 annual salary!

The vast majority of Modern Apprenticeships are undertaken by young people between the ages of 16-24, and it is essential that our young workers are given fair remuneration for their positive contributions to their employers.

The STUC supports a ‘Living Wage’ in Scotland of at least £7.15 per hour for all workers, including Modern Apprentices.

From 1st October 2010 the new National Minimum Wage rates and age bands will apply:
·    £5.93 - the rate for workers aged 21 and over
·    £4.92 - the 18 - 20 rate
·    £3.64 - the 16 - 17 rate
·    £2.50 – the rate for apprentices who are either under 19 or in the first year of their apprenticeship

The STUC began a new Modern Apprenticeship Project in June 2010 to develop and increase trade union activity and engagement with the Modern Apprenticeship programme in Scotland.  Tommy Breslin is the Development Officer responsible for the Modern Apprenticeship Project.  He can be contacted on 0141 337 8152 or at tbreslin@stuc.org.uk.

The IMF – inconsistent, ideological and wrong

Yesterday the International Monetary Fund stated that the UK economy was ‘on the mend’. Apparently ignoring a wide range of surveys which show confidence collapsing around the time of Osborne’s June Budget, they myopically declared that there is ‘no evidence of a double-dip recession’. The ConDems were understandingly gleeful over this ringing endorsement of their Budget strategy.

And yet, only a fortnight ago, in a joint report with the ILO, the IMF stated that the one thing necessary to tackle low growth and high unemployment was for Governments to ‘maintain aggregate demand’. Reconcile these positions if you can.

At the start of the month, the IMF found that the UK could borrow an additional £700bn before the public finances entered crisis territory. The UK has significantly more ‘fiscal space’ than genuine crisis countries such as Ireland and Greece. Markets bear out the IMF's position with current prices confirming that the UK’s debt challenge is nothing like the scale of that facing Ireland, Greece and Portugal. But yesterday the IMF argued that ‘the government's strong and credible multi-year fiscal deficit reduction plan is essential to ensure debt sustainability’. Evidence please?

So despite some welcome signs that a long overdue challenge to dominant orthodoxy may be underway within some IMF departments, its default position still appears to be the Washington Consensus.

It is certainly true that large swathes of the media (the execrable Nick Robinson in particular) continue to invoke the IMF as the ultimate authority on economic affairs. Does its record warrant such esteem? Well, here are some chestnuts from the IMF’s 2006 annual report; published less than a year before the credit crunch started in earnest:

  • ‘Directors noted that the rapid growth in recent years of credit derivative and structured credit markets had facilitated the dispersion of credit risk by banks to a broader, more diverse group of investors, making the financial system more resilient and stable’.

Resilient and stable? Just how wrong can you be?!

  • ‘While cyclical changes could well expose weaker segments and pockets of financial markets, the Board considered that these were unlikely to pose systemic risks….regulators should place greater reliance on the self-correcting forces of financial markets’.

Self-correcting? With the help of a multi-trillion public bailout perhaps.

  • ‘In March 2006, an IMF team visited Dublin to update the 2000 Financial sector Assessment Program (FSAP). The team found that Ireland’s financial system remained robust but recommended some improvements to the supervisory framework, including upgrading stress testing, strengthening on-site supervision of insurers, and enhancing public disclosure requirements for insurers’.

Robust? Some improvements? Irish workers are now paying a very heavy price for the IMF’s ideological bias.

Of course, the IMF’s historic failures have been well documented by Joe Stiglitz and others. The IMF was pivotal in establishing a model of globalisation that led to pervasive instability, moderate GDP and productivity growth, greater inequality between rich and poor nations, greater inequality within rich nations and lower social mobility across the developed world. Its lamentable failure in dealing with the Latin American and East Asian financial crises of the 1990s led directly to the global reserve system of today; a primary cause of the 2008/09 crisis and an ongoing source of poverty and instability. You could write a book on the IMF’s failures but thankfully Stiglitz got there first.

But its ok – the IMF thinks the ConDems are doing a good job. I guess we can all relax.

Stephen Boyd

Friday, 17 September 2010

Martin Wolf on premature tightening

Martin Wolf, chief economics commentator at the Financial Times has had a very good crisis although it’s important to clarify that he and the STUC would differ on many substantial points of policy. For example, Mr Wolf would prefer to see spending cuts account for a much higher proportion of future fiscal consolidation than tax rises.

However, that Mr Wolf is, I think, the most effective critic of ConDem economic strategy is again confirmed by his latest FT piece on ‘the risks of premature tightening’.

Unfortunately the piece is probably behind a paywall - yes, we do spend £40 a year on an FT subscription – so here’s a quick and I hope fair précis:

·         Mervyn King should be admired for his intellect, integrity and bravery in taking his case to the TUC;
·         Mervyn King argues that the ConDem spending cuts are necessary because 1) market reaction to rising sovereign debt can turn quickly and 2) other countries have embarked on consolidation exercises that are even more ambitious than the UK’s; and,
·         Mervyn King is wrong.

Indeed, Mr Wolf does a very neat job in filleting the case presented by the Governor to the TUC. He endorses the STUC’s position that the UK public finances cannot credibly be compared to those of Greece. He ridicules the ConDem suggestion that ‘borrowing costs have been constrained only because of its commitment to austerity’ by providing a range of statistics to show that market markets’ view of the UK have changed little since the election.

Most importantly, Mr Wolf puts a compelling case for consolidation plans to be flexible and contingent on how the economy recovers. Such plans, he explains, would be far more credible than current strategy which, if the economy continues to stagnate and unemployment remains high, represents ‘political suicide’.

I wonder how the Chancellor might react to Mr Wolf’s article...adopt that condescending look and mutter ‘deficit denier’? He doesn’t have the arguments to offer much else. Given the strength of the case presented by Mr Wolf and others and the poverty of the ConDem response, it’s reasonable to speculate that the ‘consensus’ the Government claims on cuts might soon be entering its death throes.

Stephen Boyd

Calling all Lib Dems

The STUC today wrote an open letter to all Lib Dem MSPs and MPs in Scotland. Their conference begins tomorrow in Liverpool and we hope that Scottish Liberal Democrats will join us in rejecting calls by George Osborne and Nick Clegg to remove an additional £4 billion on top of the £11 billion that they have already taken out of the welfare budget.   
In our letter we condemn Nick Clegg’s comments that welfare payments should be “an engine of mobility...rather than a giant cheque written by the state to compensate the poor for their predicament," and we make the point that with long-term unemployment on the rise there simply aren’t enough jobs to go around.
Here is an extract from our letter:
STUC is receiving a very clear message from its own members particularly its disabled members, not to mention our sister organisations in the Scottish Campaign on Welfare Reform. People are becoming increasingly fearful for their futures and increasingly angry as it is insisted ‘that more people must find work’ when so little is being done to tackle unemployment.  Figures released this week by STUC showed a 132% increase in long-term unemployment across Scotland with the highest regional increase of 475% being recorded in the Scottish Secretary’s own constituency.
It remains the fact that benefit payments in the UK are low compared to most other countries, income inequality is stubbornly high and work is not the automatic route out of poverty that it should be with the incidence of working family child poverty on the increase.
Two thirds of the UK welfare budget goes to those above working age, with just one third being spent on those of working age and children.   Whilst fully supporting the pledge to safeguard elderly benefits, STUC is horrified to contemplate the cuts that will be borne by the others.
The letter ends by calling on Scottish Liberal Democrats to join us in our Better Way campaign in order to ‘buttress the most draconian attack on welfare in a generation.’
Along with the open letter the STUC also unveiled its campaign banner which is a humorous depiction of the respective roles of David Cameron and Nick Clegg. The banner is currently hanging on the outside of the STUC building and is designed to raise awareness of the Better Way Campaign and challenge the myth that there is no alternative to the Government’s cuts.

Helen Martin – STUC.

Thursday, 16 September 2010

Glasgow University’s List of Shame

The Herald today reports details of a leaked document from Glasgow University that sets out in very stark terms how the University intends to make savings in its budget between now and 2012/13.
In this document the University has ranked each of its departments into four categories. The departments with the highest international rankings become ‘invest’ departments, where the University will focus its funding to become a world leader. The next departments down become ‘improve’ departments that will not receive any additional funding. Below that is ‘reshape’ departments, which are likely to see their budgets downsized and finally there are ‘remove’ departments where courses will simply no longer be offered. Included in those earmarked for removal are adult and continuing education, anthropology, dermatology, nursing and social work.
What is surprising about this document is not that Glasgow University is considering how it might make £20 million a year of savings, unfortunately that is the financial situation the University finds itself in, due to decisions being made at a national level. No, what is surprising is the way Glasgow has determined what is of value and what is not.
Academia has long resisted the pull of pure, unadulterated market forces. Instead universities have prided themselves on placing the pursuit of knowledge and a drive for excellence as their raison d'être. But in this document Glasgow simply sees itself in economic terms and this perhaps marks the beginning of a significant shift in the set up of university education across Scotland.
In this approach, Glasgow has allowed international league tables and survey results to dictate completely and absolutely the courses they offer and the level to which that course is funded. No other value is considered. This is why we can see something like adult education being placed right at the bottom of the list. It’s true that this sort of course is not as glamorous as some of the others offered at the University and it certainly doesn’t bring in large research grants and international acclaim. But that does not mean that it is without value. Adult education opens the University’s doors to the wider community. It gives people the opportunity to keep learning throughout their careers and to raise the level of their skills and is therefore of great value to the learner and contributes to the Scottish economy through increased skills levels. The University, therefore, is wrong to disregard it so out of hand.  
And this is what is so hard to stomach about this document – the callous nature of it all. By ranking their departments in this way, based only on the views of surveys and league tables, not the thoughts and opinions of learners and staff who are present in these departments today, the University has sent a clear message about who and what they value and why.  
The University says they are only beginning the process and nothing has been decided yet, but if this is a sign of things to come, I can only feel sympathy for the staff and students whose contribution the University has dismissed so outright.
Helen Martin- STUC.

Wednesday, 15 September 2010

Mervyn King at the TUC

Stephanie Flanders provides a fair analysis of Mervyn King’s speech to the TUC. She correctly describes the Governor as being ‘factually accurate but a little disingenuous’ for claiming that the ConDem’s plan to reduce the deficit is ‘a more gradual fiscal tightening than in some other countries’.

As Stephanie points out, no other major economy is implementing an austerity package that compares with the speed and severity of the ConDem plan.  Yes, Greece and Ireland are going further (not by much) but their fiscal position cannot credibly be compared to that of the UK.

Interesting also to hear the Governor refer to his recent meeting with the STUC. Our regular meetings with members of the Monetary Policy Committee are fascinating affairs and you do get the impression that members genuinely appreciate hearing the trade union perspective on developments within the labour market.

Just a shame they don’t always act on the intelligence we provide. It’s remarkable to recall that one member of the Committee was calling for an increase in interest rates as late as September 2008…

Lies, damned lies - and extracting simple messages from complex statistics

Beware the over simplification of statistics, especially when carried by the right wing press in the middle of TUC conference. The Telegraph is one of many which carries the result of Office of National Statistics research into public and private sector pay. ”Myth of the underpaid public sector worker” it screams following up with a report entitled “The trouble with the public sector is bone-idle staff”. Nice.
According to the research described as “the first comprehensive analysis of the pay divide by Britain's national statistician”, the average weekly salary for public sector workers in April last year was £539, compared with £465 in the private sector and their pensions are better too.

Yet reference to ONS figures collected over many years for public and private sector pay rises show that neither has significantly outstripped the other over a time frame or ten, twenty or even thirty years.
How can that be so? Unless public sector pay has always been better (and no-one seems to be arguing that) how can this disparity be explained?

Consider the simplistic example below

You work in a small office next door to another small office. You are paid £30,000 (significantly more than the public sector average). The other person in your office is paid £20,000 (approaching half of public sector workers earn this figure or less). The office next door also has two people undertaking the same tasks for the same pay. The average pay in each office is £25,000.

One day it is decided that your co-worker should move next door – even though they will continue to work with you in the same way. Despite a few problems, work continues unabated until you are summoned by management to be told that you are uneconomic because average pay in your office has risen to £30,000 (from £25,000) whilst average pay in the next door office has fallen from £25,000 to £23,333. Your pay hasn’t increased but your office average has at the same time as that of the next door office has reduced.
A more complex version of this is at play when changes in relative public/private earnings are considered. Over the past few decades a whole range of catering, care, cleaning and other work has been contracted out. And as the example above illustrates, as soon as you transfer low paid staff from public to private sector you increase the relative pay averages in the former.

Even though they are hardly over-paid, many professionals in public service receive more than the average wage. So the immediate effect of increasing the proportion of teachers, nurses and police in the public sector workforce is to increase public sector pay relative to private sector pay.

Of course there are still some care workers, cleaners and catering staff directly employed in the public sector. And on average their pay is better than in the private sector (but very often below the Living Wage). Some also benefit by making contributions along with the employer to modest pension schemes. (The benefit is of course shared as these are precisely the schemes which will in the future limit the payout from the public purse for elderly benefits.) Paying above poverty wages for these workers does increase the public sector pay bill – but would we have it any other way?

And there’s a final factor. Although the introduction of the minimum wage should have seen a bit significant jump in private sector earnings it has been at least offset by the clustering of minimum wage pay in certain professions – retail and hospitality being the largest. The consequence, along with the weakening of the manufacturing sector is a growing army of low paid private sector workers anchoring private sector pay and significantly increasing wage inequality.

It would be so much more straight-forward of course if we could compare like with like. But which private sector profession would we choose to compare to the pay of a teacher or a nurse such that we could elicit meaningful results?

No-one has come up with an answer to that, because it is not that simple.

Dave Moxham - STUC

Monday, 13 September 2010

Neither big nor clever

The Cameron - Osborne cabal undoubtedly comprises highly ideological right wingers who relish demonstrating their robust pragmatism by making the poor poorer. But I don’t think anyone could claim that they’re daft. The Scottish Tories? Well...

Two exhibits for the prosecution. First in today’s Scotsman, Alex Johnstone fulminates against trade unions having the audacity to fight the cuts because...’The economic problems we're facing were caused by the Labour Party and the Labour movement, which Mr Crow is a part of. People needed to be standing together during difficult times like these, rather than making unpleasant threats.’

I know they don’t like trade unions but blaming us for the banking crisis seems a bit rich. And I really can’t remember the ConDems trying in anyway, shape or form to establish the consensus on fiscal consolidation to which his last sentence appears to allude? They just went straight ahead and announced the emergency Budget.

Second exhibit. On GMS today, Murdo Fraser MSP, Scotland’s foremost comedy supply sider, twice claimed that the UK’s ‘public finances’ were the worst in the developed world. Whichever way you look at it, this statement is plain wrong. I know he likes to keep things simple but do you really think Murdo has confused the deficit (which incidentally is not the highest in the developed world) with the public finances as a whole?

The STUC is currently trying to build the already considerable capacity of the trade union movement to engage on economic issues by running a series of workshops and training courses for reps. We’re aiming to tailor courses to the needs of individual affiliates or groups of workers.

Maybe if the Scottish Tories ask nicely we’ll run one for them.

Stephen Boyd

A genuinely illuminating discussion about deficits and stimulus

American macroeconomist Brad DeLong (Professor of Economics, Berkeley, ex-Clinton administration) on US political phone-in show the Washington Journal. For those interested in our current economic situation, it’s gripping viewing. Honest guv! Yes, Prof DeLong speaks exclusively about the US but his arguments have much wider relevance.

Five minutes in he outlines the two valid reasons why it might be appropriate to worry about large Government deficits: inflation and the ‘crowding out’ of productive private investment. Brad explains why both are so irrelevant in the current context that they might as ‘well be in the gamma quadrant’. Quite. He goes onto explain, in compelling detail, why the Obama administration’s response to the Great Recession has been inadequate.

Perusing the web I’ve seen references to similar, if not quite so lengthy, US TV pieces involving Paul Krugman, Yves Smith and others. And yet I can’t recall a single instance since the start of the credit crunch when British TV has afforded an economist (of any political persuasion) the opportunity to develop a coherent overview of the crisis and the government’s response and then take questions. The narrow and highly political coverage provides cover of sorts for an administration relying on a credulous public to swallow its line on the deficit.

Disgraceful really.

Stephen Boyd

What is going on with Boris Johnson?

Boris Johnson seems to have become the voice of reason in the Tory Party. I can’t really believe I have just written those words but I keep seeing him coming out against the Tory Government saying things that I actually agree with!

A couple of weeks ago we welcomed Boris to the There is a Better Way campaign when he came out against Tory plans to curb the deficit by cutting deeply into public spending and instead held up Ed Ball’s approach as the more sensible way forward.

Boris even came out against bankers bonuses calling it a ‘combustible contrast’ if public sector workers lose their jobs while witnessing ‘the spectacle of the banks doling out hundreds of millions of pounds in Christmas bonuses to the very people who, collectively if not individually, were responsible for the financial crisis.’ Wise words indeed from an unlikely ally.

And last week Boris came out again against his own party this time in relation to the cap on immigration. Boris correctly states that this cap is ‘likely to have a significant negative and disproportionate impact on London and put the economic recovery at risk by creating skills gaps and placing London at a competitive disadvantage in the global competition for talent and inward investment.’

Again we find ourselves in agreement but we believe the negative consequences of this policy are not just limited to London.

Scotland depends on highly skilled migrant workers coming from outside the EU and needs people to move and settle here, bringing skills and expertise that adds to that of the domestic labour force.

The cap on migration causes issues for businesses operating in sectors where there are skills shortages, and places pressure on our public services, particularly the NHS where migrant workers are playing a particularly valuable role. It also places enormous strain on our universities which will not be able to maintain the current number of lecturers coming from outside the EU, never mind access visas for the new talent they wish to attract.

A cap on migration will affect our competitiveness at a global level and puts at risk inward investment from companies wanting to relocate to the UK. It may also increase the likelihood that some businesses will leave the UK, which is certainly to the detriment of British workers.

Boris Johnson recognises these things which is why he has come out against his party’s policy.

The Government, however, don’t want to see the risk they are taking. Instead they are blinded by ideology and a rhetoric that says immigration is a bad thing and refuses to see the contribution that migrant workers make to this country.

The cap on migration is just another example of how the Tory Government will hold firm to a policy regardless of whether it works and even when there is a united opposition against it.

But all we can do is try to make them see sense, even if it means agreeing with Boris.

Helen Martin – STUC

Sunday, 12 September 2010

Against austerity

The Sunday Herald is certainly beginning to get it. Are cuts still the right medicine for a sick economy?

A useful feature on the economy and a sensible editorial suggests real progress. It may be some while until the editorial direction extends as far as the Herald’s business pages or indeed to its centre-left commentator Ian MacWhirter whose treatment of Joseph Stiglitz and advocacy of cuts last week was less than progressive. Nevertheless there is a real sense that the scepticism about austerity is growing. Boris Johnson made it into our distinguished deficit deniers list thanks to comments made last week. And the news that Osborne’s latest proposed benefit cuts may meet with opposition from Ian Duncan Smith at the DWP makes for interesting reading.

George Osborne 'secretly plans to cut benefit budget by £2.5bn'

Dave Moxham - STUC

Friday, 10 September 2010

Campaign Launch!

There is a better way is officially launched! We had a press photo shoot and everything. Great fun was had by all, posing for the cameras and holding up speech bubbles calling for jobs, services, fair taxation and a living wage.

And we had even more fun when one journalist was late and we had to recreate the event using STUC staff. (We aren’t going to show you that picture though!)

Hopefully you will see some of the press coverage in the paper or hear us talking about the campaign on the radio.

Helen Martin- STUC.

Thursday, 9 September 2010

An opportunity for a better way

Larry Elliott points out that current economic indicators are so poor that Osborne has been presented with an opportunity to rethink bizarre and dangerous coalition strategy:

"the world economy is clearly slowing; both the OECD and the International Monetary Fund are now warning against over-aggressive tightening of policy; Britain's economy is both unbalanced and weakening; and in less than six weeks' time the government is planning to announce the biggest programme of spending cuts since the 1930s. Osborne has now been given a perfect excuse for moderating his plans. If he carries on regardless, he risks making the biggest economic blunder since John Major took Britain into the Exchange Rate Mechanism".

Osborne could reasonably (Osborne, reason? I know I know) argue that since the emergency Budget was announced in June, the economy has deteriorated to such an extent that austerity must be postponed. Probably safe to assume that the media would largely overlook the causation i.e. the Budget is principally to blame for collapsing confidence. That he won't pursue such a strategy confirms (again) the fundamentally ideological nature of the cuts.

Stephen Boyd

Nick Clegg, Generational Failure and Looking Young People in the Eye

Nick Clegg made a speech this morning in which he set out one of the strategic aims of the coalition Government. He said that he wanted to achieve a ‘horizon shift’ which he defined as focusing on long-term goals rather than short-term issues, to build a ‘fairer and more prosperous future’. He then went on to say that one the aims of his speech today was to ‘argue for justice between generations and warn that we are in danger of failing the next generation.’

I have to say I was genuinely quite interested in what he had to say on this issue. One of the hardest hit groups in this recession are young people. Youth unemployment in Scotland is currently running at 19.4% which is higher than for any other age group. So I believe that the Government should be putting more emphasis on what’s happening to young people in this economic crisis and that there should be an emphasis on avoiding ‘failing the next generation’

So what did Clegg actually say on this issue. Well here it is:

‘The Prime Minister and I are from the same generation. And frankly, we know that both our generation - and the one before us - got it wrong. We have run up debts, despoiled the planet and allowed too many of our institutions to wither. For us, the longer-term view we are adopting in government will help to wipe the slate clean, and ensure that future generations can thrive, without being burdened with the dead weight of our debt, and our failings.

We are absolutely determined that we will be able to look our children and grandchildren in the eye and say we did the best we could for them, even if this means taking some difficult, unpopular decisions today.’

I have to say I am quite disappointed by this. Nick Clegg seems to have completely missed the point that there are young people who need the Government’s help and support now. Instead he is holding up some lofty ideal of ‘I’m doing it for the children’ as a justification for making dramatic public spending cuts and for his Government’s obsession with the deficit.

One of the first cuts this Government made when they came to power was the Future Jobs Fund. They scrapped this initiative overnight as part of their £6 billion ‘efficiency’ savings which they had promised before the election would only come from money that was being wasted.

This scheme was helping young people who would otherwise be out of work find a job. It was giving them experience of the labour market, giving them training and paying the minimum wage. But now it is gone.

I can’t help but be annoyed at Nick Clegg’s view of his obligations to the next generation and I can’t help but think that this ‘horizon shift’ and focus on the long-term conveniently lets him forget those who are being hurt today by the Government’s political decisions.

I think to be able to look the young people of Scotland in the eye Nick Clegg will have to do better than empty words.

Helen Martin- STUC

Connaught Collapse Challenges Coalition Privatisation Model

The collapse of private sector property company Connaught should set alarm bells ringing in the coalition Government but probably won’t. Their model for public services delivery through the private sector has taken a dent with the collapse of Connaught with debts of £220 million.

The firm provides property maintenance to social landlords and had attempted to take over the Glasgow Housing Association maintenance contract from Glasgow City Council arms length company, City Building, from just over a year ago. Their tender did not include pension costs for workers being transferred under TUPE and, following pressure from trade unions, the bid collapsed. Connaught’s attempt to undermine the terms and conditions of City Building workers had failed and those workers who would have been employed by Connaught will no doubt breathe a sigh of relief that union pressure protected not only their pensions but their jobs.

At this stage it appears that this failed model of delivering public services through outsourcing to private companies has led to the massive debt of £220 million accumulating, driving the company into administration and leaving workers and sub contractors with an uncertain future.

The coalition Government would do well to examine the Connaught experience and admit that private sector delivery of public services is not the universal panacea to rebalancing the economy they believe it to be.

Ian Tasker - STUC

Wednesday, 8 September 2010

The Myth of Crowding Out...

In trying to justify their austerity Budget, ConDem Ministers tend to speak about the higher interest rates  they believe will inevitably result from running a high government deficit. These higher interest rates will crowd out' private sector investment. This an obscure, boring subject to most people and Ministers rarely try to explain the transmission mechanism by which the deficit will lead (inevitably) to higher interest rates.

Robert Skidelsky among others has explained the reasons why 'crowding out' is not a problem when the economy is running so far below capacity. But this post from Ryan Avent (the only Economist writer worth reading on a regular basis) is particularly helpful in setting out the issues; he demolishes the arguments of those who raise 'crowding out' as a reason not to introduce another stimulus package in the US. 

Remember that the situation is very similar in the UK: low yields on government debt, high unemployment, an output gap of around 5% and high levels of individual and household deleveraging. Crowding out is manifestly not a problem - nor is it likely to become one in the forseeable future. Another myth exposed.

Ed Balls Agrees that There is a Better Way

A lot of what I was talking about in my last blog is summed up very eloquently by Ed Balls in a recent speech he made to Bloomberg.

Here is an extract from his speech:

‘for the most part, the political and media consensus has dictated that the deficit is the only issue that matters in economic policy, that the measures set out in the Budget to reduce it are unavoidable, and that there is no alternative to the timetable the Budget set out. Interviewers look aghast when I tell them that cutting public spending this financial year and pre-announcing a rise in VAT is economically foolish, when growth and consumer confidence is so fragile. ‘But what would you cut instead?’ they demand.

So strong and broad is this consensus that a special name has been given to those who take a different view – ‘deficit-deniers’ – and some in the Labour Party believe our very credibility as a party depends on hitching ourselves to the consensus view.

I am not one of them.

The history of British policymaking in the last hundred years has taught us that on all the other occasions when major economic misjudgements were made, broad-based political, media, financial and popular opinion was in favour of the decision at the time, and the dissenting voices of economists were silenced or ignored.’

Helen Martin- STUC

The Pinocciho Award: What is it and Why’s it necessary

Some awards will be given out by the STUC as part of There is a Better Way campaign. The Pinocchio award is for misleading the public and misrepresenting the economic situation.

Yes it’s a bit of fun. And it’s also a good opportunity for trade unionists and others to get involved in the campaign and even to vent a little frustration about some of the things that are being said by politicians and commentators in the media. But there is also a more serious side to it.

We think that there is such a control of ideas at the moment that there is no debate about the economic decisions that are being made and no scrutiny of the motivations that are driving these decisions. The coalition Government simply insists that we have no alternative and no one is allowed to challenge this.

But actually it simply isn’t true that they have no option and they must act to cut the deficit. If you look at what the economic data is actually saying (and we have – see our myths of the recession page) you will quickly realise that actually we don’t have to go down the route of austerity measures. We simply are not now, nor will we become Greece.

So the cuts in public spending that this Government are making are a political choice like any other. And frankly we object to the McCarthy/Bush like ‘you are either with us or against us’ comments that we have been hearing from the coalition Government recently. George Osborne calls us deficit deniers and insists that we are out of touch with reality. Well sorry George we simply aren’t going to sit back and accept this insidious attempt to marginalise any opposition.

We will fight back.

We will fight back with economic arguments, with our feet on the streets and by challenging the myths and the mistruths that are peddled like fact.

They say there is no alternative.

We say there is a better way.

Helen Martin - STUC

Tuesday, 7 September 2010

Tell it like it is

Via Brad DeLong, some outstandingly forthright analysis from Karl Smith. He's right on the money. What is true for the States, is true for the UK even if the employment situation is slightly less frightening here.

Stephen Boyd STUC

The Loneliness of the Housing Market

I saw an article on the BBC website the other week that described the housing market in Scotland as ‘paused’.

I have been trying to sell my little one bed flat for months now and I have to say this description brought a wry smile to my face. To me ‘paused’ seems a bit of an understatement, it feels more like the market has ground to an absolute halt.

But things did seem to be going OK for a while. Back in March, the flat above us – identical to our own – sold in four weeks and for a good price. So when we went to market in April we do so with hopes of a good sale allowing me and my new husband to buy our first real family home together. We were filled with excitement and even had a vague intention of holding a late summer BBQ in our new garden to celebrate.

Well it’s autumn now and we are no further forward. In fact if anything the market seems to be getting worse. To begin with we were getting lots of viewers with promises of offers when they manage to sell their own property. But now there is nothing – not even a viewer, for over a month.

Have we all just grown tired of even going through the motions? I know I don’t bother looking at houses to buy anymore as the prospect of a sale seems so remote. Instead I just wait for something to change and hope in vain that someone will one day hit the ‘play’ button.

Helen Martin- STUC

IMF on the public finances and risk of default

The IMF published three intriguing 'staff position notes' last week: Fiscal Space, Default in Today's Advanced Economies: Unnecessary, Undesirable and Unlikely, and Long-Term Trends in Public Finances in the G-7 Economies. The papers have already attracted much comment: Stephanie Flanders, FT Alphaville and Richard Murphy amongst others. If I can find the time I'll blog again in more detail on the papers, their conclusions and what they imply for the UK. But I think it's safe to say that the papers finally kill one pervasive myth: that the UK was in danger of becoming the next Greece. It isn't and it wasn't. Those who tell you otherwise are wrong, dishonest or both.

Stephen Boyd - STUC

IMF & ILO on The Challenges of Growth, Employment and Social Cohesion

A very interesting discussion paper has been published in advance of a joint ILO/IMF conference on the Challenges of Growth, Employment and Social Cohesion which starts in Oslo on 13 September. The paper is in 2 parts: the first, written by the IMF, considers the Human Costs of Recession; the second, written by the ILO is on Building an Employment Orientated Framework for Strong, Sustainable and balanced Growth.

I'll blog again when I finish reading the paper which runs to some 100 pages but it's worth highlighting some early thoughts:
  • the IMF contribution provides further evidence of the organisation's shift away from Washington Consensus orthodoxy. The policy conclusions derived from their analysis of the causes and impacts of the Great Recession are striking. Consider this...'Rebalancing will require policy shifts in both surplus and deficit countries to support the growth of productive employment, together with a broad-based growth of wage and household incomes. This means developing mechanisms to ensure the gains from rising productivity are widely distributed in the form of increasing wages and improved social protection systems'. Or this...'Public employment or public works programmes targeting depressed communities and vulnerable groups can be effective and socially and economically justified'. Can't imagine pre-crisis IMF endoring such policies;
  • given that the Great Recession was a truly global event, the differences in labour market policy and performance are startling. Spain has seen unemployment increase by nearly 10% points (youth unemployment is close to 40%) but Germany has seen a small decrease. As Larry Elliott notes in yesterday's Guardian, the rise in unemployment and slow labour market recovery is particularly pronounced in the USA; home of the dynamic, flexible labour market. (an aside - in a meeting with senior Scottish and UK Ministers in Sept '09, I recall a senior Scottish employer representative mockingly dismiss my observations on the performance of German and US labour markets during the crisis. Of course the US market would recover quickly he told us. Inevitable. Yep.);
  • as the title suggests, the IMF paper is very strong on why high unemployment is such a disaster: for the individual(particularly the young), comunity and economy. These arguments cannot be stressed often enough.
Will blog again on this at a later date.

Stephen Boyd

Monday, 6 September 2010

Students facing poverty is bad for Scotland

The NUS today released results of a survey they ran on student hardship looking at the experiences of both university and college students. The survey found that 62% of the 7,400 students surveyed said that lack of money was damaging their studies and more than a third said that they had considered dropping out due to financial worries.

The Scottish Government’s comments on the BBC website suggest that while they are generally sympathetic to students there is unlikely to be any money to reduce the poverty levels that students face.

This means that university students in Scotland will continue to receive the lowest levels of financial support of any students in the UK. And worse, with the budget cuts taking hold in both the university and college sector we are already beginning to see evidence that funding for bursaries and childcare allowances, that often allow the poorest students to learn, are now under threat.

This of course is terrible for the individuals involved who are placed under enormous pressure trying to pay rent and bills while keeping up their studies, but it is also likely to do long term damage to the Scottish economy. We need a supply of skilled workers and it is in all our interests to ensure that we educate our young people to the highest level possible.

We cannot sustain a situation where we are losing talented students from courses due to the hardship they face while studying.

Helen Martin- STUC

Under what conditions can the private sector "lead us out of recession?"

Reports of an interesting piece on Radio 4 business news on this morning’s Today programme ...

The Construction Products Association is reporting today that it expects a double dip recession by the first quarter of 2011. The sector grew in the first quarter of 2010. Why? The impact of the previous government’s stimulus package. Why the double dip prediction? The austerity measures of the ConDems as the sector is 35-40% reliant on public sector contacts.

So little prospect that this part of the private sector will lead the recovery and create the private sector jobs that will replace those lost in the public sector.

This item was immediately followed by a report on the outcome of the Engineering Employers Federation (the English version of Scottish Engineering) members survey. EEF’s chief economist reported a more positive outlook for the sector. The sector grew in the first half of the year. Why? Because of growth in key export markets as a result of the economic stimulus packages introduced by their governments, something the EEF expects UK manufacturers to continue to benefit from into next year. It’s optimism comes with a health warning though. What job growth there is seems to be in temporary and agency workers. Why? A fear that fiscal consolidation in the UK will be followed elsewhere - jeopardising the recovery.

So some prospect that this part of the private sector economy will help recovery and create jobs. Isn’t it somewhat ironic that those whose recovery strategy so relies on manufacturing exports were the architects of an industrial strategy that has so neglected manufacturing over the past three decades.

Dave Moxham - STUC

BBC poll on reducing the deficit

Bad news for supporters of the better way, but bad news for the Government too, in the poll conducted by the BBC, showing that most voters (60%) believe that the Government is right to raise taxes and cut spending, to bring down Britain's state deficit.

At one level this is a fairly clear endorsement of their strategy - though I haven’t yet seen whether those questioned were aware of the current plans to cut by 80% raise taxes by 20% (with the worse off disproportionately affected). In broad terms cuts in public spending were favoured by 49% of those taking part in the poll for the BBC World Service, compared to 36% who preferred tax rises.

We clearly have a distance to go before we convince a majority of our view – shared by many, many mainstream economists – and all of the very best – (see blog below) that cutting the deficit through cutting spending too early and too quickly is potentially disastrous.

But there are two reasons that this poll is also bad news for the Government.

Firstly, the poll is taken at a time when the country is still feeling a little of benefit of the previous government’s inadequate, but nevertheless helpful, fiscal stimulus. All of the key economic indicators suggest the economy will worsen as the impact of the June budget kicks in. At the very least, the recovery will stall. People may feel less certain about early deficit reduction when they see the emerging numbers.

Secondly, whilst 49% support cuts, 80% plus want a ring fenced NHS, Education and to maintain support for pensioners. And so say all of us. Except, this is effectively impossible for the Government to deliver given the overall cuts it proposes. Even taking into account the expected attacks on welfare (where the government will try to convince the public it is removing benefits from ‘wasters’ when it will in fact reduce benefits for nearly all) and the DWP and HMRC (where it will try to convince the public that you need less Job Centre Plus employees to deal with higher unemployment and fewer revenue staff to collect more tax) the sums will not add up.

Meanwhile, on the back of this poll, the BBC is to run a series of news features - on where the cuts should fall. Keeping alive the debate over whether they should come at all is the key priority over the coming months.

Dave Moxham - STUC

Friday, 3 September 2010

Don't take our word for it

Today I've read three short but excellent pieces criticising various aspects of the conventional economic wisdom: that deficit reduction must be the priority of government at the present time. The authors are a Nobel economics laureate, the FT's chief economic commentator and a world renowned macroeconomist from Berkeley. All three basically support the position the STUC has adopted from the start of the crisis (yes I know, they do it more elegantly and with considerably more academic authority!). That is, arbitrary timescales for deficit reduction are madness; fiscal consolidation should not begin until robust growth has resumed; with interest rates at the zero bound, unemployment high and the proximate risk deflation not inflation - stimulus policies are essential if we are to avoid a prolonged period of stagnation and a major proportion of current unemployment becoming structural.

And yet, in Scotland, 'deficit deniers' are regularly ridiculed. We are told that we cannot get out the crisis by piling more debt on to our debt'. Certain members of the commentariat, who by their own admission only became interested in economics during the banking crisis, earnestly dismiss anyone proposing further demand side intervention.

As Brad DeLong regularly asks...why oh why can we not have a better press corps?

Krugman on stimulus

Krugman explains why fiscal stimulus in our current economic situation is likely to reduce, not increase, debt. I hope a prominent and hitherto leftish Scottish commentator picks this up. But maybe he’s still too busy mocking other Nobel prize winners for the coming to the same conclusion as Krugman.

Stephen Boyd

The Baseline Scenario frets about Ireland

Published today in the New York Times, Simon Johnson and Peter Boone’s analysis of the Irish economy is truly scary. It demolishes the argument that growth in Q1 2010 proves Irish reforms are working. It outlines the scale of the problems that persist in the Irish banks. It identifies the coalition of vested interests working together to ensure that creditors are not forced to share the burden. Scary.

Stephen Boyd STUC

The Scandal of Our Banks Cutting Yet More Staff

Banks and bankers have become for many the symbol of corporate Britain’s greed and the poster boys for all that is wrong with the world. We all remember the terror of the credit crunch, watching in horror as the Government poured billions into failing banks pulling them back from utter collapse and leaving our economy in ruins.

Despite this it doesn’t seem to be the bankers who are picking up the tab for this crisis rather it seems to be the ordinary British worker.

The Coalition Government are set on making dramatic cuts to reduce the deficit which rose dramatically through the bank-induced recession. So they are taking whooping great chunks out of the budgets of public sector departments threatening the livelihoods of workers and service users up and down the country.

‘But alas!’ the Government cries, ‘this pain is necessary. But don’t worry! The private sector will save us. They alone will create the growth this country needs. There is no need for stimulus packages and we shouldn’t worry about making public sector workers redundant. The private sector will provide for us, driving growth and giving jobs to the unemployed!’
And perhaps they are right..... Or maybe not.

Yesterday the RBS announced that they are cutting another 3,000 staff across Britain and this is on top of the 21,500 staff they have already made redundant since 2009, placing an even heavier burden on the staff that remain as they strive to do more with less. RBS may be 84% nationalised but the Government has explicitly told them to act like a privatised company. So they do.

Now RBS might say that they need to make these cuts or ‘efficiencies’ in order to stay competitive. But think on this. RBS has already made £1.14bn in profits this year (and we are only half way through), and yet they are cutting jobs and outsourcing work to other countries.
Is this the kind of growth we can expect from the private sector? Is this what we are relying on to pull us out of the downturn? Perhaps it’s time for the Government to consider what other options there are.      

Helen Martin - STUC 

Thursday, 2 September 2010

On Blair’s musings...

I tried to avoid Blair’s broadcast and print interviews yesterday. Tried but failed. This caught my eye while perusing Tom Powdrill’s excellent Labour and Capital blog:

World Exclusive Tony Blair interview the Guardian: "I think the single biggest danger with the financial crisis was a view that gripped a lot of progressive politicians that somehow people were going to want the state to come back in fashion," he says in his interview. "I didn't think that and don't think that. I personally think – and that's why I am still an advocate of third way politics – that there is a concept of the state that is strategic and empowering that is actually the right idea.

"I'm not in favour of the big state and not in favour of the minimal state. I think there is a concept of a reformed and reinvented government that is where myself and Bill Clinton were in the early 21st century that I still think is the right idea.

"Let me ask this question: look round the world today and how many progressive parties are succeeding at the moment? I mean in Europe or what's just happened in Australia it's a challenge, and it's a challenge partly because the progressive forces in politics are in danger of misreading the financial crisis as meaning people want the state back.

"They don't. They are perfectly capable of distinguishing between the state coming in to stabilise the situation and the state coming in and acting as a principal actor in the economy. And in my view they won't vote for that."

Coherent political economy it certainly isn’t and perhaps not for the first time, Blair sets out a false choice: on this occasion it is between ‘the big state’ and ‘the minimal state’. But let’s set that aside for now. More worrying is his apparent inability or unwillingness to grasp that he and Clinton, through their muddled third way thinking, bear a direct and huge responsibility for laying the grounds for the financial crisis. Remember Clinton’s abolition of Glass-Steagall and the Blair Government’s Financial Services and Markets Act of 2001 (which hamstrung the Financial Services Authority)?

I think his language gives the game away when he argues that people ‘...are perfectly capable of distinguishing between the state coming in to stabilise the situation and the state coming in and acting as a principal actor in the economy’. The state is a principal actor in the economy of every developed nation. Rest assured that any nation in which the state does not merit this description will be among the poorest on the planet. If the state was not a principal economic actor it would be unable to ‘stabilise the situation’.

Of course the state’s role in the economy had been systematically undermined by ‘third way-ers’ Clinton and Blair. In thrall to deregulated financial capitalism, they completely failed to see that where markets work best, they work because they are controlled to a greater or lesser extent by the state. If Blair had accepted that the state must be a principal actor, and that its role can be positive, then the deregulatory frenzy that led to the crisis could have been avoided. And maybe he would have accepted at an earlier stage what his buddy Peter Mandelson eventually came to realise: industrial policy is important and legitimate.

I also can’t accept his political point. Surely right-wing parties are succeeding because their simple narrative - tough times call for tough measures - resonates with people? Unfortunately Keynesian policies (which, with unemployment high, a proximate risk of deflation and interest rates at the zero bound are essential) are counter-intuitive for the majority of voters. And in any case there are few progressive politicians with the confidence to promote them. On this I’m sure Tony is quite content.

Stephen Boyd - STUC

Larry Elliott on the growth deniers

As is almost always the case, Larry Elliott is bang on the money today in explaining why ConDEm economic strategy is wrong and why current conditions demand an expansionary approach. He quotes from Ed Balls speech at Bloomberg last week:

"Against all the evidence, both contemporary and historical, [Osborne] argues the private sector will somehow rush to fill the void left by government and consumer spending and become the driver of jobs and growth. This is growth-denial on a grand scale."

Too right.

Stephen Boyd - STUC

CBI talks about demand

It is heartening to note the CBI’s Chief Economist acknowledge that ConDem strategy is undermining demand thereby implying that demand matters. Progress.

Of course the private sector will suffer as a result of the cuts. It is already suffering as the numerous profit warnings posted recently testify.

Will the CBI start to challenge Osborne’s Budget measures; particularly the timing and scale of cuts which will have a negative impact on many of their members?

Don’t hold your breath.

Stephen Boyd - STUC