Peter May - London Labour Party

‘The London Mayoral elections’ 

Wednesday 25 January - Square Ambiorix 6, 1000 Brussels – 20:00

The meeting begins at 20:00. As this event is not in a bar or restaurant, there will be no food served, and you are invited to bring a bottle.
 

 
Forthcoming meetings include:

Sister Parties meeting & reception – Preparation for Communal Elections 

Wednesday 29 February - Further details tbc

Brussels Labour Annual General Meeting

Wednesday 21 March - Further details tbc

Around 1980, something changed: a seemingly unstoppable evolution in western societies went into reverse. For half a century the gap between rich and poor had been narrowing: an inevitable consequence, it seemed, of universal education, mass production, trade unionism and the rise of democracy.

Yet within a few years this trend had been sharply reversed. In the subsequent three decades, the western world has witnessed a dramatic growth in inequality. The top 1% have appropriated almost all the fruits of growth, while middle and low income groups have stagnated or worse.

Stewart Lansley’s new book, ‘The Cost of Inequality‘ (Gibson Square, 2011) looks at why this happened, and what have been the consequences. His central argument, impressively documented in a tour through the workings of modern capitalism, is that growing inequality caused the financial meltdown of 2008.

But along the way, he establishes two even more sweeping arguments, both of which tell us something important about the mess in which Europe now finds itself. He shows that the growth in inequality has its roots in an ideological shift that swept the western world from the late 1970s onwards. And he shows that, long before 2008, that ideology had spectacularly failed to deliver any of the promised benefits.

The power of (wrong) ideas

The story of the 2008 financial crisis begins with an intellectual counter-revolution. As western economies laboured under the 1970s oil shocks, inflation and industrial strife, the ideas of free-market economists such as Friedrich von Hayek at the LSE and Milton Friedman in Chicago found an attentive audience on the Right.

The Keynesian welfare capitalism of the post war years, they argued, required substantial state control over markets, which killed enterprise and stifled incentives. With less government intervention, efficient markets would be self-correcting; resources would be accurately priced and allocated.

The counter-revolution was spectacularly successful. The faith in markets which had long been the province of an ideological fringe quickly became the new orthodoxy. The doctrines of the neo-liberal counter-revolution were energetically applied by Rightwing governments, starting with Thatcher and Reagan and soon, to varying degrees, through the western world.

The impact on the distribution of national income was swift and dramatic. In the UK, the income share of the top 1% more than doubled in 20 years to 10%; while the share of the bottom three-fifths fell from 40% to 33%. The ratio of CEO pay to the average of all employees was 25 to 1 in 1981, 100 to 1 in 2006.

The share of wages in national income fell back to the levels of the 19th century. The trend was worldwide, though much stronger in the UK and – above all – the USA, where the intellectual grip of neoliberal economics was tightest.

Inequality, credit and instability

But the shrinking share of wages in national income created a new problem. Household consumption accounts for around two-thirds of GDP. If for 30 years the economy grows faster than wages, who will buy the output?

Not every country can export all its surplus production. The solution was credit. From 1980 to 2008, household credit in the UK for example grew from an average 45% of income to 157%. Retail sales in the years before the bubble burst were growing three times faster than incomes. And the newly deregulated financial sector was only too happy to feed the habit.

At the other end of the scale, the vast cash surpluses generated by the growing profit share was fed further by fortunes made from privatisation, deregulation of financial markets and a friendlier and more porous tax system.

All this money had to find a home, and a return. But instead of going into productive investment, as the theory had promised, it fuelled asset price bubbles – notably in housing – and generated an explosion in financial engineering, which became the principal activity of the financial sector.

During this period, finance’s share of US corporate profits grew from 14% to 40%, while in the UK it reached over 30%, the product of political patronage, deregulation and the huge financial surpluses created by the growing fortunes of the super-rich.

Its activities became ever more divorced from the productive economy and ever riskier, as institutions responded to distorted incentives and to the market imperative of ever higher profit.

As Lansley shows, there was no shortage of warning voices, from dissenting but distinguished minorities among economists, regulators, business people, IMF. But the final link in the trail leading from free market ideology, to growing inequality, to financial disaster concerns regulatory capture.

Simply, the financial sector became rich and powerful enough to buy the political system. Whether literally, as in the USA, or more subtly in the UK, where the riches of the City led a bedazzled New Labour into a Faustian pact: light-touch regulation in return for swelling tax revenues. (The Tories, of course, who started it all with the Big Bang, were still shouting from the sidelines for even less regulation just months before Lehmann went belly-up).

The spiv economy

Lansley’s book shows not only the dysfunctionality of a swollen financial sector and the causal link from inequality to financial collapse. He shows how market-worship created and legitimised a more widespread corporate culture in which personal enrichment became steadily more divorced from any wider economic benefit.

The maximisation of shareholder value supplanted any notion of wider corporate responsibilities. The convenient belief took hold that since remuneration is the market’s infallible measure of what you’re worth, there can by definition be no such thing as over-paid.

Together these principles produced a short-term, opportunistic, spiv economy. Big profits were made not through the slow, hard work of investment, research or production but through hostile takeovers, corporate raids, leveraged buy-outs.

As Lansley shows, such activities became more and more central to corporate culture, destroying many fine companies, shedding employment, adding nothing to economic efficiency, but providing a huge personal gravy train for wealthy investors, CEOs, City financiers and their banking and legal advisers.

Getting free of old ideas

‘The Cost of Inequality’ shows that the market capitalism of the last 30 years has been an enormous scam. A dodgy brand of free-market economics achieved an undeserved intellectual hegemony which has served to legitimise a Right-wing project of shrinking the state, zapping the unions and turning a new generation of robber barons into masters of the universe.

It has thrown social democracy into confusion, giving us three decades of ideological uncertainty, compromise and triangulation by social democratic parties and governments.

Now, three years after the catastrophic failure of the economic system which the Right had constructed, cherished and defended over 30 years, both the Right and the system itself seem more firmly in the saddle than ever. The banks are richer than ever; the state is at the mercy of the financial markets.

Social democrats are on the defensive and largely marginalised from the European debate over crisis and recovery.

As Keynes said of an earlier crisis, it is not new ideas that are the problem, it is getting free of old ones. Despite the meltdown of the financial sector, the mainstream dominance of free-market groupthink is undiminished.

In Brussels, for example, the very notion that inequality rather than alleged public extravagance is the key to systemic weakness and should be the central concern of economic policy-making would be derided by both Commission and Council.

And the rhetoric of liberalisation, wage restraint, competitiveness and market forces is still woven into their every economic document. But what Stewart Lansley shows is that the collapse of financial markets was not an aberration, but in fact the direct consequence of a dysfunctional economic system based on an ideological fairytale about how markets work.

2008 should have been, perhaps briefly was, a left-wing moment. But the Right has managed to change the subject. The crisis is no longer about a dysfunctional model of capitalism but about sovereign debt crises and government profligacy.

For now, 2008 seems to be the turning point where history failed to turn. But the battle is not yet played out. Across the developed world there is a powerful anger against bankers, against excesses of wealth and poverty, against a political system which does not deliver the goods. This could yet become a left-wing moment, if the left has a convincing story to tell.

If there’s a message for social democrats in The Cost of Inequality, it is the power of ideas. The triumph of an economic ideology in the early 1980s has reversed half a century of social progress, empowered the Right, cowed the Left, created Victorian levels of inequality and hoodwinked us all.

To bring about a radical shift in political direction, we have not only to attack the excesses of the financial sector – the epiphenomena, as Stewart Lansley calls them, of market capitalism. We have to discredit the entire intellectual edifice. First step: make everyone you know read this book. Especially if they work in the Commission.

Derek Reed
25 November 2011

Even on its own terms the December EU summit plumbs new depths of government mendacity and incompetence. Even if one accepts that the aims of Cameron were legitimate – sheltering the financial sector which finances his party, or defending the single market, he came home less than empty-handed.

By forfeiting the right to negotiate an EU Treaty at the very outset, the government ensured that the summit was a quadruple failure for Britain.

First we will have no influence on the final form and content of the new intergovernmental treaty; if the UK had stayed in it could at every stage have fought its corner, paragraph by paragraph.

Second, we have achieved an isolation so melancholic that even our most traditional ‘friends’ like the eurosceptic Czechs and the hard-right Hungarians have abandoned us.

Third, even our established reputation for diplomatic competence is undermined by the crass failure to prepare the ground, by springing a text on the institutions and the other member states at the last moment, and by rejecting out of hand the procedural compromise offered by European Council President Van Rompuy.

Fourth it confirms the message to the Americans and others that doing business with Europe means working with Berlin, Paris and Brussels, not London. The business community may well draw the same lesson.

Cameron’s excuse that we reacted late because the Franco-German proposals were only tabled earlier in the week is doubly lame; a serious government might well have thought it best to take an initiative earlier rather than just reacting to proposals from others; and it has been clear for two months at least that some form of Treaty change was going to dominate this summit’s agenda.

As to our special pleading for the banks, financial services, hedge funds etc., nothing has changed. EU financial regulation is and will continue to be decided by qualified majority. There was no veto on that; there will be no veto- quite rightly because financial services regulation is part and parcel of internal market rules.

The only thing that changes is that the 26 will now develop the habit of working together on the broad range of economic policy, and that the voice of the most economically liberal, free market, high finance-friendly member state will no longer be heard. One would have to be exceptionally naive to imagine that the 26 will refrain from discussions about any aspect of EU economic and social legislation simply out of consideration for a government that has of its own free will boycotted their meetings.

Some hotheads, including the UK chancellor, appear to be threatening that the 26 will not be allowed to use the EU institutions for managing and policing their budgetary treaty. In fact the organisation of the Commission and its services is a matter fro the Commission president not for individual governments.

The Commission often has work subcontracted to it which is not the business of every single member state. And the Legal Services are confident that the European Court of Justice could be given jurisdiction over the new Treaty, under its existing terms of reference.

Britain would be even more ill-advised to pursue any attempt at sabotaging the compact agreed in December.

Even the last fall-back of the apologists for the British government- that this was necessary to buy off the eurosceptic Tory backbenchers- has been discredited before the end of the first weekend. The anti-Europeans in the Tory party have now had their first ‘victory’, and are already salivating for more.

One third of the Tory backbenchers want the UK out of the EU, and will settle for nothing less. Cameron/Clegg appeasement will not satisfy them.

Liberal hand-wringing has been exposed in all its impotence – Clegg’s immediate support for Cameron on Friday becoming licensed criticism in the space of twenty-four hours. The spectacle of a political party abandoning its only distinctive feature- its support for European integration – just to save those ministerial cars and a few of their parliamentary seats is a woeful one.

Ed Miliband was right straightaway to criticise the veto as a failure for Britain. He now needs to answer the question what Labour would have done differently.

In so doing he should look at the substance of the compact agreed by the 26. Because the tragedy is that the amateur dramatics of Cameron and the UK government have conveniently distracted attention from the shortcomings in the consecration of prolonged austerity which is the kernel of this new agreement.

Two elements needed to solve the crisis are absent; the financial firewall has been shored up a little but without any clear undertakings from the European Central Bank, which appears to have forgotten that its core task above all others must be to preserve the currency it administers. And, most importantly, growth- not merely no plan, but hardly warranting a mention at the summit.

Without a plan for growth, social, industrial and infrastructure investment, there will be no sustainable strategy for tackling the debt. Cuts, retrenchment, austerity alone will not bring this crisis to end.

That should have been the distinctive position of the UK at the top table, which it now leaves so ignominiously.

To return to the canine metaphor, the Tories hanker after a biting, barking bulldog snapping at our European neighbours provided it morphs into a poodle when it comes to press proprietors and hedge fund managers. An absent bulldog, voiceless and deaf, will impress no-one.

Julian Priestley
Waterloo, 12 December 2011

Download the leaflet to find out why it is important to vote in the communal elections and please share the leaflet with your friends.

Please arrive at 19:30 for the quiz, which will be compèred by Brussels Labour’s own David Earnshaw.

To register a team of four people, please email the Secretary with the name of your team and the team members and make a transfer of €20 to the Brussels Labour account: 001-1128765-52

Please include in your bank transfer your team name & indicate that it is for the quiz.

A raffle will also be held for charity, with proceeds going to the Red Cross for famine relief in the Horn of Africa.

Details are available in the Brussels Labour calendar.

Wednesday 23 November

Clive Betts MP - Chair, Communities and Local Government Select Committee

‘Localism and the Big Society – Labour’s response

L’Horloge du Sud, Rue du Trône 141, 1050 Ixelles

19:30: Venue open – If you would like to eat, please come early and order before the meeting
starts

20:00: Start of meeting

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Forthcoming meetings include:

Monday 5 December

Claude Moraes MEP and Hackney North & Stoke Newington CLP 

have invited Brussels Labour members to meet the CLP members during their visit to Brussels

The Staff, Rue de Trèves 42, 1050 Ixelles
From 19:00
 

Wednesday 7 December

Brussels Labour Christmas Pub Quiz

with quizmaster David Earnshaw

The Staff, Rue de Trèves 42, 1050 Ixelles
Further details tbc
 

Wednesday 25 January 2012

Branch meeting

Further details tbc

In this black-and-white version of the world, Germany is the obstacle, haunted by its fears of returning to the hyperinflation of the early 1920s when its national bank just printed those much-photographed cartloads of million deutschmark notes. As the situation deteriorates from difficult to dangerous, the blame game has intensified.

And the culprits are now supposed to be found in the shadowy Frankfurt Group, a sinister secret society whose members happen to be the German Chancellor, the French President (i.e. the democratically elected heads of government of the two largest euroland countries) the President of the ECB, the Presidents of the European Council, the Commission and the Eurogroup, with the occasional participation of the head of the IMF and the Commissioner responsible for economic and monetary policy.

In the current hysteria this ‘Gang of Eight’ is assuming the reins of power in Europe, overthrowing democratic governments and parachuting technocrats in their place (worse still technocrats with European experience) , and imposing the fiat of Brussels in the 17 euro countries. Cooler heads might recognise the value in having regular consultations throughout this crisis with a manageable number of people who will in the end have to propose the solutions; and that this is a sensible if partial response to the much criticised leadership vacuum which has bedevilled the crisis.

And those solutions are not so straightforward. First, conferring on the ECB the role of ‘lender of last resort’ for the Eurozone would almost certainly require a Treaty change; anything less would be challenged in the courts, particularly in Germany. It is true that Germany has a federal structure, a multiparty coalition and an assertive judiciary which makes it impossible for any leader to push through proposals which would not only be politically controversial but also legally questionable.

And it would not just be Germany which would shudder at the thought of an open-ended commitment to other euro countries, now that the costs of servicing their debts have spiralled. So they would seek guarantees that would be tantamount to euro countries losing at least some theoretical national control over domestic spending.

And for this to have credibility it would need the same legal sanctity as that which would authorise the ECB’s new role, namely a Treaty change.

There are some who would relish the thought of a new constitutional process for the EU; certain federalists would see this as the defining moment, to complete business unfinished at Maastricht, Nice, Amsterdam or Lisbon ; others, such as the Council’s former top lawyer, Jean-Claude Piris would want a new Treaty to consecrate the schism between the ins and the outs, a hardcore of the 17 virtuous with the other 10 banished formally to the margins; yet others, like at least some in the main party in the UK coalition would want to seize a chance gifted by heaven to repatriate labour legislation powers and other social dispositions back to member states, or at least to organise new opt-outs.

And these are what are already being talked about; who knows what inventiveness will be shown, and what shopping-lists will be drawn up, once the starting pistol is fired on Treaty change?

Enthusiasts should remember that any significant change to the Treaty takes time, would have to be prepared by a Convention of European and national parliamentarians, and when finalised would have to be subject to parliamentary ratification in all 27 member states, and would – in the case of transfer of powers over national budgets – have to be submitted to a referendum in Ireland at least: the same Ireland which has in the past twice voted against an EU treaty at the first time of asking. And all of this would take place under intense market scrutiny, every setback or delay in the process ratcheting up the financial turmoil; and at a time of great electoral volatility.

For any Treaty change to help in finding a longer-term solution to the problems of economic governance of the euro – problems which should have been sorted out before the launch of the new currency- it will need to be limited to the essential minimum with no extraneous points muddling the process, and organised according to a tight timetable.

But even with the greatest political efficiency and discipline it is not Treaty change which is going to halt the current crisis, and fend off defaults of euroland countries.

Stop-gap solutions- however unsatisfactory- involving bolstering by one means or another the bail-out fund, the continued purchase of government bonds by the ECB, the support of the IMF and the main creditor third parties, the installing of credible broad-based governments with the authority to carry forward judicious reforms are the only palliative means available in the time left before some pretty miserable outcomes threaten the return to deep and prolonged recession in Europe, and elsewhere.

And for those governments to be able to maintain public support they will need to be able to point to a European growth strategy of investment in future competitiveness and support for innovation which have been the neglected weapons in the arsenal for dealing with the crisis.

Treaty change is something else. It is for the medium- not the short-term. It is not a magic wand. But if sensibly organised, with a limited, realistic agenda, it could help at last to create the institutional underpinning which the currency has so far lacked.

Julian Priestley

PLEASE NOTE: The meeting with Harriet Harman MP, advertised in this issue, has been cancelled.

John Fitzmaurice Memorial Lecture 2011: Baroness Jan Royall, Leader of the Labour Party in the House of Lords

Press Club Europe, Rue Froissart 95, 1040 Etterbeek

Venue open from 19:00, meeting starts at 19:30

Grotere kaart weergeven

Future dates:

Wednesday 23 November 2011
Clive Betts MP – Chair of the Department for Communities and Local Government Select Committee
Further details TBC

Wednesday 7 December 2011
Christmas Pub Quiz
Further details TBC