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Being Labour, The world beyond West Lancashire

Defending Blackburn Labour: The convenient Myth of the Mobility of Capital

03.29.09 | 2 Comments

Long post alert – 2,500 words. Pdf file here for reading convenience.)

Asif Sange, posting at Blackburn Labour the other day, has come in for some entirely predictable criticism from the trolls that inhabit Iain Dale’s Tory site.

Why Asif should have wanted to flag us his post over there is something I can only guess at; it got the reaction you might expect, and it’s not as though anyone over there was going to be ‘converted’ to the socialist values and proposed policies that Asif espouses. Having said that, it’s worth picking up on one or two of the entirely predictable comments in Daleland, and looking at on what basis these people make them, because I think it gives us on the Left – and this is at whom this post is targeted – an idea both of the kind of widespread misinformation and indoctrination we’re up against, as well as (I hope) providing some of the evidence with which to fight back against the Right’s simplistic, and factually wrong, arguments about taxation, and more generally the welfare state they profess to loathe.

Asif sets out three main points. First, he’d like to see a 45% tax rate for people earning over £150,000 a year. Second, he’d like to see people generally be able to live within their means. Third, he’d like the government to ’say sorry’,and then start getting back to .traditional Labour values. I’ll come back to this last point later in this post, because Asif’s right.

In the post I want to focus primarily on the first issue of tax levels (personal but also, more importantly for the economy as a whole, corporate), because this is where most of the Dale blog commenter stupidity and popular media-fed incorrectness is to be found.

Briefly, though on the matter of living within our means: inevitably enough the trolls make a link between Asif’s quite understandable aspiration that people should be able to live without a burden of debt and the Keynesian approach that the government is proposing to take to get the country through the current recession.

Asif’s point is actually reasonable enough, and it’s not ‘unsocialist’ for an individual to try live without being prey to debt (but it is, assuming from Asif’s name that he is a Muslim, potentially awkward to be in a financial relationship with a person/agency where interest is accrued – something none of Dale’s commenters pick up).

What I do think needs adding, though, is that the main reason that many people are in individual and family debt is that the rampant neoliberalism of the last 30 years made them that way.

First, and most obviously, for many people round Asif’s way, and round my way, the biggest source of debt is the place they live in. It’s pretty obvious stuff, but if you have a government which allows the sale of the majority of the houses built originally for affordable rent, and if you then allow the transfer of large sections of the remaining stock to quasi-private Housing Associations which push rents well above affordable rents, and if you then have a property market that rises in value at many times the rate of increases in income and the only way people can afford somewhere to live is to take on massive mortgages, then you are likely to get quite a lot of individual debt.

If you then add in to the mix the major ‘advances’ in the effectiveness of major advertising of consumer items and easy to access credit rammed down our throats, in the form of credit cards if you’ve got money for starters, catalogue credit if you haven’t, of course it starts to look a bit toxic. There IS a reason why advertising exists; it’s because it sells more things than people might need or can afford.

Then, to complete the pincer movement, you add in the mass deindustrialisation of many parts of Britain, including Blackburn, undertaken in the name of neoliberalism, and the decline in many areas of a stable living wage for the (mostly male) head of household and dependency either on lower paid work without job security, or at the bottom of the pile, benefits of which the value has decreased massively in real purchasing terms in the last 30 years.

This isn’t to deny that individuals lack any choice at all. Of course,as Asif points out, it is possible to choose between a new car and an old car, and many people do. But the reality is that where the hegemonic forces of consumer aspiration meet low potential to pay, then individual/family debt is what we get, and the grimmer reality is that poorer people have less economic choices than the rich because of the way the real economic, and the discourse of consumerism, are structured in modern capitalism.

It’s perfectly understandable why Asif should want this not to be the case, and for people to live without the fear of debt. Nor is there any inconsistency, whatever the Dale commentators say, between this desire to see individual debt ended and support for a fiscal stimulus at government level to get the country through the crisis period of capitalism’s making.

Indeed, his very consistency lies in his desire not to see ordinary working class people suffer, through cuts in public spending, for the mistakes of capitalism that have brought the suffering of individuals debt in the first place, and in then wanting to raise the top rate of income tax to help pay for the stimulus needed to avoid this further suffering. This consistency is, quite simply, the consistency of Labour values, which are rooted in redistribution of wealth – something the Dale commenters just don’t get because they are too busy (as I suggested

they might be) looking to blame the poor, and the government supposed to represent their needs, for the excesses of capitalism. But all this is really the sideshow to Asif’s main policy point that there should be tax rise for this rich, and the Daletrolls’ apoplectic reaction to such a notion.

One comment in particular is worth quoting, because it neatly sums up the obsession with protecting the wealthy at all costs:

    Labour’s attitude to high earners is what pisses me off the most.They just openly ignore the fact that the high earners are the one’s running the business’s (sic) that provide their jobs, and that generate the most cash for the economy.

    If we don’t look after them, or worse, target them like Labour want to, they’ll just bugger off elsewhere and it’s the people who will suffer the most for it.

    After all, it’s the high earners who are the most mobile.’

Let’s just look at that claim for a moment. Is this person really suggesting that a wealthy person earning say £200,000 per year will actually decide to remove her/himself from the UK lock stock and barrel because s/he is required to pay 5% extra on the £50,000 earned above the threshold, that being £2,500.That’s the cost of a weekend skiing trip or some other luxury, and it would cost an awful, awful lot more than than that in terms of the costs ’sunk’ in living in the UK, plus the new costs associated with a move abroad, to take their bat and ball and skis elsewhere. And where would they go? I’m not going to bother with detailed research on personal taxation levels in other parts of the world, but have a quick look at wikipedia and see if there are any genuinely atttractive options in the countries with lower tax regimes than ours for your average £200,000 earner. They might try a tax haven to save their

£2,500, the nutty commenters might say. Try checking out how much it costs to buy permanent residency on Jersey, and see if that equation stacks up except for the ridiculously rich (that’s the way the States of Jersey like it). So why is the right, and the rightwing press so fixated with what in reality is this ridiculous idea that keeping tax for upper earners low is what keeps the wealth in the country?It’s because it’s a convenient fiction, that’s why. It’s because it suits those high earners, who don’t want to pay a bit more tax into the system they depend on to keep their labourers serviced and healthy and in a position to make them even wealthier, to have us think that they and their fellow high-earners will be off at the drop of a hat.

Of course they won’t. They’re here either because they’re from here, and for all the usual reasons don’t want to live somewhere else, but also because this is where they skim their surplus value. What the right says about high taxation and the exodus of personal wealth is essentially bollox, and it’s time to call their bluff.

This is of course just the personal taxation issue. Of much greater economic significance for the economy as a whole is the matter of the tax regime as it affects corporations.

Again, the right would have us believe, because it suits them and their capitalist friends, that if the tax regime is too burdensome, then all those lovely companies that bring us jobs will just up sticks and head off elsewhere where the government is more ‘understanding’ of the needs of big business, and corporation tax is lowered to suit.

This all sounds a bit more plausible than the notion of rich individuals buggering off abroad because they’re asked for a couple of grand as a contribution to the poor.

But it’s still not true. There is simply no empirical evidence to support the claim.

Indeed the reverse is true. As my favorite academic Colin Hay puts it in Why We Hate Politics:

Predictions of the hemorrhaging of invested capital from generous welfare states are almost certainly misplaced. A combinations of exit threats and concerns arising from the hyper-globalisation thesis about the likelihood of exit may well have had an independent effect on the trajectory of fiscal and labour market reform…….. Not only have the most generous welfare states consistently proved the most attractive locations for inward investors, but volumes of foreign direct investment (expressed as a share of GDP) are in fact positively correlated with levels of corporate taxation, union density, labour costs, and the degree of regulation of the labour market (2007: 131-132)’

The key words here are the ‘hyper-globalisation theory of exit’. Hay goes on to argue that empirical findings simply do not back up this thesis, and that, just as with personal taxation, the notion that businesses always go to the lowest taxed economies (and by extension the least well-funded welfare states) is simply a convenient fiction, designed by capitalists to drive down their costs, increase their surplus value, while at the same time freeloading on welfare states for healthy, well-educated labour.

There isn’t space in a blogpost to go into all the empirical findings, but Hay relies particularly on the superb research set out in Duane Swank’s Global Capital. Political Institutions and Policy Change in Developed Welfare States (2002), in which the myth of the ‘flight of capital’ is debunked with evidence the Right is keen to ignore. Probably the best summary actually comes on the back cover of the book, which, though it’s a little wordy, is worth quoting in full:

This book argues that the dramatic post-1970 rise in international capital mobility has not, as many claim, systematically contributed to the retrenchment of developed welfare states. Nor has globalisation directly reduced the revenue-raising capactiies of governments and undercut the polticial institutions that support the welfare state. Rather institutional features of the polity and the welfare state determine the extent to which the economic and political pressures associated with globalisation produce welfare state retrenchment.

In systems characterised by inclusive electoral institutions, social corporatist interest representation and policy making, centralised political authority and universal and social insurance-based program structures, pro-welfare state interests are generally favoured.

In nations characterised by majoritrarian electoral institutions, pluralist interest representation and policy making, decentralistion of policy-making authority, and liberal program structure, the economic and political pressures attendant on globalisation are translated into rollbacks of social protection.

Consequently globalisation has had the least impact on the large welfare states of Northern Europe, and the most effect on the already small welfare states of Anglo nations.’

(See also, amongst other sources, Cooke, W.N.; Noble, D.S. 1998. “Industrial relations systems and US foreign direct investment abroad‿,in British Journal of Industrial Relations, Vol. 36, No. 4 for research on the more specific positive correlation between foreign direct investment and ‘progressive’ labour relations.)

In short, the Right is trying to sell us a lie when it talks about the mobility of capital, and the need to keep taxes down. And as the OECD itself neatly summaries in this short book, what we end up with is in neoliberal orthodoxy is a ‘race to the bottom’ on tax rates, as exemplified in the rock bottom rates in East European countries (look at the Wikipedia entry on tax rates in Europe again).And the myth that low taxes are needed to make wealth happen – a myth not even believed by Multi-National Corporations when their bluff is called – becomes a self-fulfilling prophecy, where labour suffers most.

Where, in the end, then, does that leave us with Asif’s post?

Well, he’s right about most things, and I hope by using two thousand more words or so than he did I’ve given some evidence of that.

Asif’s last point is that the government should say sorry for what its done. Again, he’s right. But it shouldn’t say sorry, in the way Ian Dale and his band of trollish followers would have it say sorry – for not being conservative enough with public debt. instead it should say sorry for not having been Labour enough with its values and the redistributive policy measures, including, tax, which follow from those values. Then, as Asif says, it should get on with redistribution through tax, believing in the evidence of the Left, not the lies of the Right.

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