They Came to a City: what happened to wartime Utopianism?

they_came_to_a_city_01Last week we we saw the film of J.B. Priestley’s They Came to a City shown by the BFI as part of their season of Ealing Studios films.  As entertainment the film lacked a certain something, but as a political and historical document it is of real interest.  It reflects the wartime desire of many Britons to build a better society once the war was over – as a sort of quid pro quo for pulling together as part of the war effort.  Does this have anything to say to us now?

The film, made in 1944 from a play produced in 1942, transports nine people drawn from across British society to a Utopian city, where life follows the Priestley’s distinctly socialist vision of the way life should be.  We don’t see the city itself, merely the reactions of these individuals to it: they are offered the choice of staying or returning to current society.

The film only offers hints of what this ideal society is.  Back in the 1940s people probably had a better idea about it than we do now.  It is an egalitarian society where people are focused on well-being rather than possessions, cooperate rather than compete and “do an honest job for the community for what the community thinks we’re worth,” to quote a later Priestley work.  People are happy, and capitalism, or its prewar incarnation, is banished.

The three working class characters, including the two principals, all like this vision and want to stay – or promote its ideals in the real world.  The capitalist plutocrat hates it: he is told that what he does for a living is criminal there.  Two of the three aristocrats also reject the city, for similarly predictable reasons: the male character giving a little speech about how he didn’t really like to have to deal with people at all.  The middle class couple is split.  The bank manager husband is keen to throw off the oppressive stupidity of his organisation; his rather neurotic wife is horrified: she wants a garden and children of her own, and doesn’t want to mix with “common” people.

The film is making two distinct points here.  First is that many people want this ideal society but are convinced that it is impossible or impractical to achieve, and so do not strive for it.  It is important to inspire such people with the hope that it is possible: which is what the thought experiment of the city does, and gives rise to film’s messianic conclusion.  The second is that the ideal society will be disliked by many people, and not just those at the top of society.  At all levels people pin their hopes on a vision based on the way society is: material possessions, status and so forth, and so resist changes to the way society works.  The opposite is also true, of course: some of the upper echelons of society will be as anxious for liberation as anybody else, represented in this film by the upper class daughter who breaks from her mother to stay in the city.

How does this look now?  The first reaction is to think that all the hopes have come to nothing, and that we are reduced to the cynicism that Priestley was so anxious to combat.  Putocrats flaunt their wealth; capitalist competition drives most of the economy; people remain obsessed with possessions and status.  Utopianism is dismissed as impractical.  You can imagine Priestley preaching to us today with the same fervour.

But that’s a glass half empty view.  Since 1945 much of the socialist vision has come to pass.  Social security, the National Health Service and free education are now all accepted foundations of modern society.  The proportion of economic activity not driven by competition: government administration and services mainly, is much higher than the pre-war level.  Even a shadowy idea of competition within the NHS is bitterly contested, with most people instinctively against.  Class distinctions may be persistent, but they are a faint shadow of what they were.  The overwhelming majority of Britons would identify with the (rather articulate) working class characters in this film, who seem distinctly middle class to us.  The aristocracy is an irrelevance.  The middle class characters look hopelessly outdated.  Apart from the working class characters only the plutocrat remains of our time – and he is a figure of humble origins made good.  And poverty of the sort taken for granted before the war has been largely banished – and people are much happier in all sorts of ways.

But it is not our way to reflect on these gains.  However close we get to utopia it always seems an infinite distance away.


Taxing multinationals – after the sound and fury we need solutions that work

Multinationals like Starbucks, Amazon and Google has been on the wrong end of publicity in recent weeks here in the UK.  They don’t seem to be paying very much corporate tax, in spite of well established and successful commercial operations here.  But there is something missing from the debate: nobody seems to be offering much of a solution to the problem of taxing multinationals.  There’s a lot of sound and fury, but it all ends in a bit of a whimper.  We can do better than that – but only by adopting policies the government’s Conservative members will be deeply uncomfortable with.

The problem is easy to see.  If a multinational makes something in one place and sells it in another (to take the simplest possible description of a multinational supply chain), then it has the opportunity to apportion profits to more then one place…and to manipulate this to where tax rates are lowest.  This has always been so, but with an increasing proportion of costs being attributable to soft things like intellectual property, this is getting much easier to do.  The traditional way of fairly attributing profit is through establishing a fair “transfer price” for goods or services as they move between countries along the chain – based on open market value.  The idea of open market value has always existed more in theory than practice, and the process often ends up in endless bickering between the company and the tax authorities of the various countries it operates in.  And in the end the results are often hard to justify.  What are the alternatives?  There are two main approaches.

The first approach is to reduce corporate tax rates to make the issue irrelevant, and along the way to make your own jurisdiction very attractive to investors.  This is not as crazy as it sounds, and has quite a respectable intellectual pedigree.  Companies aren’t people, and ultimately taxation is about people.  Taxes are charged whenever people try to extract money from a company, through salaries, dividends and what have you.  Money that is left in companies is reinvested, and taxing it merely reduces the amount available for reinvestment.  This is an example of the idea that tax should be based on expenditure rather than income and capital.  It encourages saving and investment, and most of the time economists think that economies would be healthier if more resources were invested rather than consumed.

This line of reasoning was very popular in the late 20th century, but has since lost much of its appeal, except amongst the very rich.  Something has gone wrong with the savings and investment cycle.  The amount of constructive, worthwhile investment that comes out of savings is not what economists used to think.  A lot disappears into various forms of financial engineering that fatten up an overpaid finance industry and not much else, inflating selected asset values into unsustainable bubbles along the way.  Overall savings, especially by the very rich, seem to be a drag on an economy – often requiring “negative savings” from government deficits to keep the economy on track.  This process was described by Maynard Keynes in the 1930s and it is still true today.

Low capital taxes, including company taxes, simply seem to exacerbate a growing gap between the very wealthy and everybody else, without generating the needed investment. Profit taxes have a particular attraction: they are economically efficient and do no distort ordinary business decisions, outside the allocation of capital.

So what’s the alternative approach to taxing multinational businesses?  This is what we should be talking about a lot more: the top down apportionment of profits.  Under this system you establish a business’s worldwide profits, and then apportion it to national jurisdictions by a formula which measures activity: a combination of sales, employees, pay or suchlike.  Those jurisdictions can then decide what rate they want to charge.

The idea of top-down apportionment has been developed for some time by US states for allocating profits between the states of that country.  In the 1980s California tried to extend the idea to global operations, but was forced to back down, mainly after furious international lobbying from our own British government.  There is a nice irony if American companies are now runiing rings rounds us British.

But that example shows the idea’s main weakness: it needs international cooperation to get going.  It helps if all countries are doing it, and using the same formula.  There is an obvious first step for the British government though: to agree and apply such a system to the European Union.  I don’t think there would be much difficulty in mobilising the other EU countries; Ireland, a traditional advocate of tax sovereignty, is not in a particularly strong bargaining position these days, and we can let them keep their low rates.  Once the EU has an agreed system for recognising and apportioning profits, we would then need a treaty with the US.  Since that country is already a wide practitioner, there is good reason to hope for progress there too.  With the EU and US on board, a global critical mass starts to build.

But Britian’s coalition government does not seem to be thinking along these lines.  For its Conservative members, no doubt doing deals on tax with the EU is anathema.  Instead they are happy to quietly go down the first route and cutting business taxes, in spite of little evidence that this is stimulating investment.  Of the Liberal Democrats, however, I had expected better.


The imperial illusion of macroeconomics

Once again the UK Chancellor of the Exchequer’s Autumn statement has provoked a storm of claim and counterclaim among economics commentators.  The particular breed of expert whose voice is loudest is the macroeconomist.  They have a lot of important things to say.  And yet their analysis is often superficial.  We end up talking about the wrong things.

There is a magnificent imperial power about macroeconomics.  It looks at economies in aggregate, and develops a broad sweep.  It deals with national income, growth rates, productivity, inflation, unemployment – all concepts that are represented by neat numbers.  Their policy instruments are referred to as fiscal and monetary policy – policies that are meant to influence these aggregates in a fairly direct way, and which

For me, the metaphor of imperial rulers to represent these experts has strong appeal.  It conveys the right sense of arrogance.  I conjure up pictures of imperial aides to the Russian Czar (or his Soviet successors) implementing arbitrary policies to be implemented across their domain.  They deal in the big picture – and refuse to hear the special pleading of provincial representatives.  Of course things don’t work out in every detail, they say, but the reach and sweep of their rule means that much more good than harm is done.

Macroeconomists themselves no doubt would prefer an analogy with classical 19th century scientists.  They did not concern themselves with the movement of individual atoms, but derived physical laws that worked at a higher level.  In aggregate the behaviour of atoms and people are predictable.

The idea that leaders deal with big strategic matters, and leave the details to their underlings is an old one, that has enduring appeal.  It enhances the egos of the leaders. It doesn’t work, though.  The best leaders find themselves having to command both the strategic sweep and the tiny detail.  The Russian Czars came acropper.  And the theroties of 19th century scientists turned out to have much less value than they thought in the real world.

This is true of macroeconomics too.  In the first couple of years of taking an Economics degree, you learn about macroeconomic models – about the use of fiscal and monetary policy to guide the aggregate movements of an economy.  It is tremendous fun – but by the third year you really should be growing out of it.  In the end economies are driven by what is happening at the level of individual people and businesses – and as people are highly adapable, and behaviours change – never mind the evolution of technology – what works one year may not the next.  Unfortubately too many economists can’t seem to get past the imperial illusion.

Take the current furure over the British economy.  It’s full of growth rates, deficit levels – and demands for this and that on fiscal and monetary policy.  Two elements of the macroeconomist’s stock in trade are prominent: international comparisons (the British growth rate is less than Germany’s, etc.) and comparisons with the past, going all the way back to the Great Depression of the 1930s.  And the analysis usually stops there – few attempt to pick apart the differences and similarities that these comparisons invite.

And yet there are a number of big changes taking place in the British and world economies that are bound to affect the choices open to our policymakers.  These get superficial coverage, if at all.  Here are a few:

  1. Finance’s role in the economy is diminishing, as we understand that much of its alleged value is illusory.  This means that a sector that appeared to be highly productive in macroeconomic terms is shrinking.  That is not a bad thing – but people seem to be screaming blue murder when the national income figures suffer the inevitable outcome.
  2. Likewise the benefits of North Sea oil are fading – another statistically highly productive sector shrinks, though this one has more underlying substance.
  3. Banks’ lending practices are changing, as credit to private individuals becomes less easy, and loans to property developers more difficult.  This is inherently a good thing, as it helps get the economy onto a sustainable path – but it is playing havoc with the macroeconomic statistics.
  4. The gains from globalisation are going into reverse.  For years in Britain the prices of imported goods fell or stayed the same while wages and domestic prices rose steadily at 3-4%.  These “gains from trade” added a lot to the feel-good factor and growth before the crisis- even though we whinged about loss of manufacturing and overseas call centres.  Now import prices are rising steadily while pay remains frozen.  These gains from trade were not permanent, bankable changes – but reversible.  This is nothing to do with protectionism, by the way, but arises from the perfectly predictable workings of the economic law of comparative advantage.
  5. Meanwhile “additive manufacturing” and other technology changes mean that fundamental technological change is alive and well, bringing both new opportunities and continued obsolesence – but of quite unknown impact on conventional economic measurements.

I could go on.  These factors, and others, should be very much part of the discussion.  They invalidate historical and international comparisons – until and unless we dig a lot deeper.  To me the wider message is that we can’t simply wind the clock back to where we were in 2007, and it is not self-evident that a sustainable growth rate of 2% or even 1% can be regained just a lifiting levels of confidence a bit.  Therefore using fiscal policy to stoke up aggregate demand may simply bring short-term relief followed by an even bigger crisis.  Increasing government sponsored investment is almost certanly a good idea, but it matters where this goes.  But neither the government’s critics, nor even its defenders seem interested in such details.

In an excellent article in this week’s FT, Sebastian Mallaby shows how macroeconomic success leads to microeconomic complacency, which in turn leads to breakdown.  The developed world has just gone down this route.  Now the BRICs are doing it.  China shows no sign of dealing with the baleful influence of its state owned enterprise; India is content to let curruption and inadequate infrastructure go unaddressed; Russia sees no reason to change its contempt for the rule of law; and Brazil’s government is releuctant to take on vested interests.  All these economies are now slowing.

Meanwhile, back in the developed world you would have thought that we had been cured of macroeconomic complacency.  And yet almost nobody seems prepared to take on the deeper issues that lie behind the crisis and any solution to it.


European elections: saving the Lib Dems from wipeout

Winner Lib Dem Golden Dozen Blogs – 9 December 2012

The Liberal Democrats have just selected their candidates for elections to the European Parliament in June 2014.  These elections are important to the party – it takes itself seriously as a player in this forum, and it contributes a lot to the party’s strength and depth nationally.  But the party faces a wipe-out.  It needs some radical thinking to have a chance of avoiding such a fate.

The problems start with the party’s low opinion poll standing.  The typical 9-10% is not enough to get the party representation in any of the regional constituencies, except the South East, under the PR system that is used.  But it is worse than that.  The party has always underperformed in these elections.  Its usual campaigning methods are worse than useless.  The party’s appalling showing in the London 2012 elections is a much better guide: closer to 5-6%.  Complete wipe-out.  How to save the party?

The first point is that the party needs to acknowledge the root causes of its campaigning weakness in this type of election.  The party’s electoral successes in local and Westminster elections have been achieved using campaigns that focus on three things in particular: identifying local issues that stir the passions of floating voters, a ruthless third party squeeze (“Labour can’t win here, etc”), and identifying voters and getting to them to the polling stations.  All three are useless in Euro elections – and yet they are so deeply embedded in Lib Dem campaigners’ thinking that they infect everything the party does.  The party fails to put over a message that motivates voters, and since canvassing covers such a small proportion of the potential electors (and usually they are based on other sorts of elections anyway), the polling day knock up has very little impact on the result.

Unfortunately, it gets worse.  The party’s Euro candidates tend not to be, shall we say, the party’s most inspiring campaigners. They are very interested in the goings of the European Union.  This makes them well qualified to be Euro MPs – and indeed the party punches well above its weight there.  But they are not good at finding messages that connect with voters.  Even when they think they have found a killer, like using European arrest warrants to catch terrorists and paedophiles, this in practice has little resonance with the public.

So the party’s normal messages and techniques are ineffective, and the Euro candidates struggle to find an alternative.  In the last election I remember delivering piles of tabloid newspapers that were clearly going to have little or no effect.  Motivating the activists is a real problem, never mind the voters.

So what to do?  The basic strategy is quite clear, and has been talked about for some time.  Find enough voters who feel positive about the EU’s role in Britian’s future to turn up and vote to reach about 15-20% of the vote share.  No other significant party is rallying that vote.  The Labour Party is trying get these voters by default, but without prejudicing its chances with the more sceptical majority.  The Tories don’t seem to think these voters even exist.

Next, how can effective campaign be mounted?  What will be needed is poster and Internet advertising, mass direct mail based on promising demographics, and a good freepost (the single leaflet delivered for free by the post office).  This is supported by an online and social media campaign.  All this activity, combined with the right messaging, will draw in media attention.  Almost no need for local activists to do much legwork – they can get on with their local campaigns.  This will cost a lot of money – so the first priority will be to raise it.

The party is getting better at fundraising, but many party activists have little idea about how it works.  Donors, rich and not so rich, need to be motivated in a very similar way to ordinary voters.  They need to be inspired by the campaign’s messages, and think they might catch on with the wider public. You don’t raise the funds first, then decide on the campaign’s messages; it is the other way round.  So the work on messaging needs to start now.

Here is my humble suggestion.  The campaign theme should be “Save Europe!”.  No doubt this can be improved on, but note the key features.  First and foremost it is pitched as a response to a threat.  People are more motivated by response to threats than positive ideas, and motivation is critical.  The “No” campaign for the AV referendum was highly successful as it pitched AV as a threat to the status quo.  So is pulling out of the EU a threat to the status quo.  The party can be progressive and conservative at the same time!  Further is the idea of “Europe” – vague and big.  The idea is to appeal to people with an international consciousness.  There is a double meaning: first to save Britain from leaving the EU, and second for the country to play its full part in solving a continental crisis that will affect us anyway.

How to build on this idea to make the threat seem real?  “Save jobs” and “Save the Environment” should be the focus.  Messing around with EU membership is a clear threat to jobs – and indeed one of the main appeals will be to businessmen who fear for the future of Britian’s relationship with the EU.  The environment allows the party to play on its international outlook.  Indeed it is an appealing idea to use an Earth from space picture with Europe visible on the surface as a campaign logo.  It also sets the party up for some skirmishing that may be needed with the Greens.  And it contrasts with Ukip’s outlook.

Ukip are the rising starts of Euro elections, which frightens the two main parties.  But if the Lib Dems are after core voters rather than floaters then Ukip’s strength is an opportunity.  It helps define the party: “We are the party which is against everything Ukip is for.”  The more they know about Ukip, the more they know about us.  The party should indulge in some relentless negative campaigning against Ukip – including how they have behaved in the European Parliament – though not straying into accusations of racism.

So you get the general idea.  The best next step would be to appoint a national organiser to work on messaging and strategy.  This needs to be somebody comfortable with challenging the Lib Dem conventional wisdom on campaigning, but with a degree of political realism (contrast some of the Yes to AV campaign types).  Though much of the campaigning needs to be done in the regional constituencies, a lot of the design effort can be done nationally – and the Internet and media campaign needs to be led nationally too.

I do hope the party wakes up to the danger and tries to a bit radical!