The blog of the 'There is a Better Way' campaign by STUC staff about policy issues that are, or should be, in the news and guest contributors on issues of social justice. Written from a STUC perspective, contributions will often cover areas where there is yet no settled STUC policy and go into areas in more detail than our formal decisions. We welcome debate and we don’t expect everyone to agree with us, but we will remove any comments that are offensive, irrelevant or otherwise annoy.
There was time, not so long ago, when the op-ed pages of the Glasgow Herald were actually worth reading. Commentary by experienced, knowledgeable journalists such as Alf Young regularly enlightened the reader on the big political, economic and social issues of the day. You might not always agree with the writer but investment in reading the piece was usually rewarded with some stimulation of the intellect.
No longer. As journalistic capacity declines with circulation, the tone of the op-eds becomes increasingly shrill. Provocation, not enlightenment, seems to be the order of the day for hitherto thoughtful writers.
Take renowned journalist and political commentator, Iain MacWhirter who today is responsible for the subtly titled piece, ‘Madness to go on strike over pensions’. There has been much to admire about Mr MacWhirter’s writing over the years and recently he has been particularly effective in holding political and financial elites to account for their moral degeneracy and managerial hopelessness before, during and after the banking crisis. He has been less effective – embarrassingly so at times – on the wider economics of the crisis; a point I’ll return to later.
A recurring theme for Mr MacWhirter over the last year has been attacks on public sector workers and the Scottish public sector as a whole in which he has repeated a number of the tired myths so beloved of the Serious People of the Scottish right, to whom Mr MacWhirter appears increasingly anxious to ingratiate himself. Therefore, Mr MacWhirter’s criticism of striking public sector workers hardly comes as a surprise.
With characteristic elegance, today’s piece misrepresents both the trade union position and wider pensions issues. Public sector workers we are told have an ‘exaggerated sense of their own grievance’ and an ‘inability to see the situation in the round’. Unions are apparently invoking Upper Clyde Shipbuilders and the General Strike of 1926. Public sector workers are the only group of workers that are still ‘well organised’. Weirdly, Mr MacWhirter thinks the Tories have chosen the ‘battlefield’ of public sector pensions to defeat Bob Crow of the RMT a union which organises primarily in the private transport sector.
I have sat through numerous meetings of the STUC General Council and other gatherings of senior trade unionists in Scotland during which the pensions issue has been discussed. I have heard no invocations of struggles past but I have heard an awful lot about the wider economic and social context facing workers across the economy. I have certainly discerned a ‘sense of grievance’ but always rooted in a deep understanding of the pensions delinquencies visited on private sector workers by employers and government. It may come as a surprise to Mr MacWhirter but private sector unions (yes, there are still large parts of the Scottish private sector with high union density) are solidly behind this action; they know more than anyone else that all workers suffer from the race to the bottom on pensions.
Suffice to say that Mr MacWhirter completely ignores some key issues such as the reforms introduced by the previous Government which reduced the value of public sector pensions by around 10% and the present Government’s decision to replace RPI with the lower CPI to uprate pensions in the future; a reform which will further reduce the value of public sector pensions by 15%.
Similarly, Mr MacWhirter chooses to ignore the consequences for the recovery of further reducing real wages in a fragile economy for a significant section of the workforce. This point has been cannily taken up by the Scottish Government who, to be fair to them, have consistently stressed the importance of buttressing demand throughout the economic crisis. They know that stripping more demand out the economy with the output gap and unemployment high and the bulk of spending cuts yet to bite, is potentially catastrophic
Rather pathetically for a big boy who has been mixing in the political world for some decades, Mr MacWhirter anticipates receiving ‘hate mail’ in response to this piece. This couldn’t be a pre-emptive attempt to undermine reasonable responses could it? I can assure our unexpectedly timorous friend that this response has not been written in hate; only frustration and disappointment.
However, given Mr MacWhirter’s intellectual confidence and haughty dismissal of opposing views, I do feel justified in ending this response by reminding readers of a couple of his recent faux pas on the economy…
Example 1: on 29 September 2008, at the very height of the banking crisis, Mr MacWhirter argued that, ‘There are already rumours that the Bank of England will cut interest rates by half of one per cent later this week…this will push inflation through the ceiling – which is exactly where the Government wants it to be’.
Push inflation through the ceiling?! Now for anyone with a passing interest in economics this risible attempt at sophistication was always ridiculous. The economy was collapsing round about us in late September 2008 and there was no prospect of cuts in interest rates feeding through into rocketing inflation. The imperative at the time was to stop the recession ( which we now know began in spring 2008 – many of us knew this at the time) becoming a depression and a massive monetary response was necessary – as I think most reasonable people on left and right can agree on.
Worth pointing out that the Bank did indeed cut interest rates from 5% to 4.5% in October 2008; to 3% in November and to 2% in December. Rates continued falling to reach 0.5% in March 2009 where they have remained ever since. This massive monetary response to the recession was boosted from March 2009 by a programme of Asset Purchases (or ‘quantative easing’).
What happened to inflation?
Yep, as interest rates were cut, inflation fell – as to be expected in a recession. Since autumn 2009, inflation has risen largely due to the pound’s depreciation (a good thing); higher than anticipated inflation has since been sustained by rising commodity prices and, more recently, the VAT rise.
But cutting interest rates in autumn 2008 did not lead to higher inflation! Mr MacWhirter clearly has no understanding of basic macroeconomics let alone the quirks of a liquidity trap.
Example 2: In writing about the Edinburgh Book Festival in August 2010, Mr MacWhirter wrote another strange piece on the economic views of Noble Prize winning economist Joe Stiglitz and Scottish historian Niall Ferguson. He seems to believe that Prof Ferguson was advocating an approach of ‘trying to solve the debt by piling on more debt’. Now, I didn’t hear Ferguson speak in Edinburgh but I have read his FT pieces over the last few years and he has never promoted a programme of fiscal expansion in response to our current situation. Quite the opposite. Maybe he was just trying to wind Mr MacWhirter up.
But, again, the main problem with this piece is Mr MacWhirter’s crushing ignorance of economics and economic history. ‘In the end, the stimulus offered by both Stiglitz and Ferguson is the old solution of trying to solve a debt crisis by piling on more debt. It didn’t work in Japan and I don’t see why it should work here’.
Oh my Lord, where to start. First, the UK is not, and was not, in a debt crisis. We are in a crisis of low growth and high unemployment. It gets so, so boring rebutting this nonsense that I can only refer to our previous work.
Secondly, it didn’t work in Japan because it wasn’t tried. See the work of Paul Krugman, Adam Posen and others.
Third and most importantly, Mr MacWhirter, when a country has weak or no growth, when unemployment is high, when interest rates are already up against the zero bound (meaning contractionary fiscal policy cannot be offset by expansionary monetary policy; unless its QE but, wait a minute, you don’t like that either), when there is little prospect of further currency devaluation, when our main trading partners continue to have weak domestic demand, when real wages are falling at their fastest rate since the 1920s (I could go on)…how do you get out of a crisis of low growth and high unemployment? Eh?
In breezily dismissing the views of a world renowned centrist economist (Mr MacWhirter describes Stiglitz as ‘left-wing’; for a Nobel Prize winning economist maybe but not in the usual Scottish sense) Mr MacWhirter displays the same hubris of which he has quite correctly accused bank executives. I’m sure he is well enough read to know what hubris leads to. Maybe he should stick to politics.
Though Campbell Christie, ex-STUC General Secretary, is a friend and a former colleague, I have no advanced notice of the contents of his report which will be launched on Thursday this week. It would seem that through one source or another both the Holyrood magazine and the Glasgow Herald have!
I have feared for a while that the media and many commentators may be underwhelmed by the recommendations. Almost since its inception, there has been a growing implication, hardly discouraged by the Scottish Government, that Christie's findings will in some way provide guidance on how the Cabinet Secretary for Finance should approach his diminishing budget and public spending crisis in the next two or three years. That was not Christie's brief, nor could it ever have been.
Indeed what is clear, and consistent with the line of inquiry adopted by the Commission when STUC met with it, is that its impressively qualified members have taken seriously their actual brief - to provide a road map for reform, through being long term and radical in their outlook.
This will be no ‘privateers charter’. Those who would change the nature of public service provision to the marketised or 'enabling state' model will be disappointed. All indications are that the Commission will recognise the state as the key provider of public services, albeit buttressed by an innovative voluntary sector. If Christie’s plans reach fruition cross agency working between PSOs and a bottom up approach to service delivery involving both users and public service workers will be the key.
Inevitably, at the same time as localism is championed, we will see recommendations for more shared services - the amalgamation of particular functions between local authorities or between different public service providers.
A word of warning is required here. Shared services can work … sometimes. But they are no panacea, often the imagined savings are delayed or do not appear at all, and there is a real risk that by ghettoising particular parts of public service delivery from others, work is shunted around, but less systematic and non 'problem-solving' approaches proliferate.
Headline news is that the Commission will demand a major shift towards early intervention and that social and economic justice will be driven more deeply into the ethos and, importantly, into the evaluated outcomes for public service organisations. To achieve this we need the right type of regulatory regime - clear and well-defined but not prone to increasing transaction cost. I also predict that the Commission will recognise that farfrom flirting with the nonsense touted by the right wing that public services are a ‘drag on the economy’. The real value of the sector to growth will be heralded.
Above all, I hope and trust Christie has some positive things to say about public service workers. It is no exaggeration to say that, along with public service users, our workers are the key to effective service redesign. They know what works and what does not and, more importantly they very often know why. But a worker who is fearful for their job, undervalued and undertrained and whose pay and pensions are under attack is less likely to be able to help us think our way into improvement.
Value the worker and much which is positive will follow.
I really can’t be bothered running through all the reasons why the only reasonable response to the IMF’s endorsement of the coalition’s economic strategy is unconcealed derision. Anyway, already did it here last September.
But I would add that all is not what it seems...Understandably, the instinctive reaction of the IMF’s critics is to do what I did in the linked blog above: describe the ideological nature of the Fund, its risible record as a forecaster, the times events have revealed its assessments to have been stupidly, incredibly wrong and list the many occasions on which its prescriptions have led to disaster.
Thing is though, the IMF has published a lot of good stuff in recent months; honest, it really has. And its current wonkish policy work is incredibly hard to reconcile with country reports like the one it has issued today on the UK.
Examples? Take the IMF World Economic Outlook published in October 2010. Chapter 3 poses the question Will it hurt? The macroeconomic effects of fiscal consolidation. There is little in here to console the Osborne’s of this world. Among the conclusions:
Fiscal consolidation typically has a contractionary effect on output. Quite.
Reductions in interest rates usually support output during episodes of fiscal consolidation – can’t happen in the UK in 2011 with interest rates already up against the zero bound.
A decline in the real value of the domestic currency typically plays an important cushioning role by spurring net exports and is usually due to nominal depreciation or currency devaluation – very unlikely to happen here; Sterling depreciated by 25% prior to the fiscal contraction with vefry limited benefits.
Fiscal retrenchment in countries that face a higher perceived sovereign default risk tends to be less contractionary. However, even among such high-risk countries, expansionary effects are unusual. Well, the UK was always a low default risk and the second sentence says it all.
The IMF has also produced a number of excellent ‘working papers’; papers which are not yet full IMF policy but which are informing its policy development. Have a look at this on Inequality, leverage and crises if you don’t believe me. Olivier Blanchard, the Fund’s chief economist has worked with Joe Stiglitz and others to try to shed some light on the failures of macroeconomics as a discipline. The IMF even organised a joint event in the summer of last year with the ILO on the Challenges of Growth, Employment and Social Cohesion which resulted in this excellent report.
So why does the Fund continue to toe the orthodox line in its assessment of UK Government policy? Stephanie Flanders hints at the truth in a blog responding to today’s events:
“Impeccable sources have told me there was considerable concern among senior IMF economists last year at the pace of the coalition's plans to cut the deficit. However, political negotiations at the highest level meant that these concerns did not get expressed in public”.
When the IMF will adapt its political interventions to align with its current policy work is anybody’s guess. But its record suggests that we could be in for a very long wait.