It is extraordinary that despite warnings from the UK Government's own advisory body the Sustainable Development Commission, in its new report, Prosperity without Growth? published immediately before the G20 summit, hosted by British Prime Minister Gordon Brown, world leaders were more intent on spending billions they haven't got to restore business as usual rather than listening to new ideas. The media has largely ignored these issues as well in its fixation to aportion blame on whose responsible for the current crisis and how did we get there. At the G20 summit world leaders tried to resolve the economic crisis, where are we really heading? Many key issues are being ignored in the rush to “restore growth” at any price.
Back in May 2008 seven former European heads of state, five former finance ministers and two former presidents of the European Commission wrote a prophetic open letter to the EU Commission. They warned that the global financial system risked systemic collapse. The financial world, they argued, “has accumulated a massive amount of ‘fictitious capital’ with very little improvement for humanity”.
Among the measures they proposed, was a world conference to reconsider the current international financial system. “When everything is for sale, social cohesion melts and the system breaks down.” Were Gordon Brown and other world leaders asleep?
At the centre of UK economic policy for 12 years, Brown is forced to wake up to the biggest economic crisis we face and but claims the UK is particularly well placed to ride the storm. As we hit the grim reality, he tries to tell the world he can lead us back to prosperity. If he succeeds in this manoeuvring it will be an unworthy triumph of spin.
Lost in a maze of targets, controls and sticking plaster policies, Brown first promised a weary electorate to “let the work of change begin”. “Change in our National Health Service, change in our schools.” The British public is weary of endless calls for “change”. His speeches are mindless, recycled clichés devoid of real ideas.
Despite well-documented criticisms of his “stealth taxes” and warnings by the International Monetary Fund that the UK tax burden is the highest in 20 years, Brown pointed to his “prudent” grasp of the economy and relatively low unemployment - now rising rapidly. As we now realise, much of the feel good factor in the UK economy was not down to underlying strength, but more to do with property price inflation fuelling spending and Britain’s record £1.3 trillion debt mountain.
In truth, Brown breaks much of what he touches. The think tank Civitas concluded “that big spending promises on health and education have been tested to destruction and have not produced the expected improvements”. Like most politicians, Brown does little more than kick the usual political footballs and repackaged promises on education, health and crime, where ever-more money is spent with little effect.
Now he is spending public money big-time, like a gambler trying to recoup his losses. After promising billions of taxpayers’ money to bail out greedy money markets and watching the pound plummet, Gordon Brown and his crew have thrown the savers overboard in a last ditch attempt to float the sinking British economy.
Zero interest rates and printing money to fuel inflation lie ahead and still we have high lending rates. Many fat-cat bankers will be laughing all the way to their offshore bank accounts. The public is given no say. Unlike the US Congress, where are the big debates in Parliament and on TV as the Government hoses billions around to little avail? With weasel words of “fiscal stimulus” and “bank restructuring”, he increases the medicine of debt and bailouts to restore the financial web that got us into this mess. Instead of bailing out failed banks and toxic debts, where is the strategic thinking to build a genuinely sustainable economy in a sustainable environment?
After fudging for years over his “five economic tests” on whether Britain should join the euro, sterling’s collapse after the Bank of England slashed interest rates to half a per cent in a matter of weeks, will make it more difficult to persuade lenders to invest in the pound and they will demand high returns - adding to the UK’s debt burden. The merits of saving investment have also been ditched.
Britain’s gloomy economic vision and the plummeting pound is hitting businesses, devastating pensions for British retirees in Europe and squeezing holiday makers into deeper debt. The UK is no longer a big exporting economy like Germany, so claims this will be good for exports are overstated. We are a major importing economy and the weak pound is already inflating prices. How will markets now judge the City of London’s financial competence, when it is a key part of the UK economy?
The Treasury Select Committee now discovers that the taxpayers’ bail out is potentially liable for billions more in bank debts and assets based on foreign lending, subject to exchange rate risks and a weak pound. We are back to the instability and speculation of the ‘90’s and may bitterly regret not joining the strong and stable Euro Gordon Brown and opposition spokesman George Osbourne disdain.
Riches to rags on oil and gas
Oil imports paid in dollars and rising long-term global demand will see bills for UK consumers rise further. Britain’s North Sea oil reserves are running down rapidly and we will be reliant on more expensive oil and gas imports. A study for the Department of Business Enterprise, UK Continental Shelf Oil and Gas Production and the UK Economy, predicts that in five years the UK could run up a cumulative deficit in oil and gas imports of more than US$500 billion.
Pensions and PFI
Brown also embraced the costly Private Finance Initiative (PFI), off-loading debts from Treasury balance sheets to look prudent, but in reality, storing up a huge burden on taxpayers for years ahead. Now, the PFI sector is rattling the begging bowl, claiming a 40 per cent, £4 billion shortfall in funding. A double whammy on the taxpayer. The respected Institute for Fiscal Studies estimated that creative accounting by the Treasury already conceals a £500 billion public service liability for PFI schemes, Network Rail debts and public sector pensions.
Much of the blame for Britain’s pensions crisis also rests with Gordon Brown for his tax raid on pensions in 1997, according to former Treasury adviser Dr Ros Altman, costing pension schemes an estimated £5 billion a year. Now we are told his “quantitative easing” or printing money will further hit pension funds. Why doesn’t Brown help hard-pressed pensioners now reeling under near zero interest rates on any savings by removing this tax on pension funds?
Billions to trillions
As the economic crisis unfolds, we need to ask whether throwing trillions into the marketplace will do more harm than good. Governments around the world have already pumped in around US$10 trillion into banks. This should have solved the toxic sub-prime mortgage problem, but the underlying problem is the financial “debts and bets” market amounting to US$500 trillion, when the annual GDP of the whole planet is around US$50 trillion. Where has all the money gone? We need to think radically about how to ditch this impossible financial burden. Bankers need to do more than say sorry as they walk away with knighthoods and obscene rewards for failure.
Now the bubble has burst, instead of the casino deregulation popularised by the Thatcher and Reagan administrations, we need to get back to real financial values and quality investment. It is one thing trying to keep people in their only home, but the taxpayer should not be bailing out the buy-to-let property market. Nor are many sound businesses about to collapse. We need to rethink and rebuild.
As Brown spends billions he hasn’t got “to restore growth”, in a world of finite resources that are depleting rapidly, Green parties should be welcoming this warning for the endless "growth is good" mindset that will wreck our planet.
After years of crazy price inflation, house prices are beginning to drop to more affordable levels. A modest reduction in market capitalisation would be a buffer on the free-spending leverage and investment that creates so much unnecessary growth - in speculative empty office blocks, hedge funds and a shopping binge economy.
The crisis has revealed the fragile interdependence of the globalised economy, where many countries can be involved in the supply chain to produce a single component manufactured in one of them. In a few years, the markets will face another major trauma when they realise that once plentiful oil supplies are running down rapidly and the “globalised” economy this has supported will have to rethink completely. Major investment in a “Green New Deal” to help us adjust to post oil realities would be a start.
A crack down on money laundering and tax avoidance by the super rich using tax-free enclaves, needs more than talk about “naming and shaming” countries that are not transparent in their banking practices. We have long known of this problem, yet with a bundle of tax havens under UK jurisdiction, socialist Gordon Brown for years looked the other way.
Where is the choice and fresh thinking from our leaders, locked in a world of “me too” politics? The electorate deserves more than bailing out bankrupt politicians and bankers.