What emerged from the meeting (and NPEN’s ebook) was a clear dividing line. The Coalition is the party of deficit reduction and a Labour should be a party of economic growth: Tory cuts v Labour growth.

Labour’s economic strategy – rooted in the common-sense orthodoxy of Keynes – is that this growth can only be delivered by investment and consumption, with the emphasis on the former.

While private finance has allowed a fragile consumption-led economy to grow through expanding personal debt, it has failed to deliver the investment in non-financial industry that can create wealth and jobs. So the role of the centre-left is to articulate a social narrative and according political strategy that can deliver investment and more stable consumption.

The solution – outlined in both the meeting and ebook – is for the state to play a central role in fostering both. Why? Financial markets find it more lucrative to take short-term positions in financial products than to take long-term positions in industry. There is a market failure. The state – in the spirit of Keynes – should step in and socialise finance and instead – as part of a wider industrial strategy – pick winning industries to nurture with investment and protection to bring the economic growth that will generate wealth and jobs.

We see it all over the world – Germany, South Korea, Thailand etc – and the same strategy delivered Britain its golden period of post-war growth. It is common-sense social democratic economics. What’s the problem? Selling it.

Progressive voices spend all their time trying to mobilise the political power that can change the ravages of the market. This was the strategy laid out by the Compass and NPEN event, but rarely happens. The danger is if you gain political power – as New Labour did – without the economic power, you can’t deliver fundamental reform. It’s no coincidence that the era of strong unions, mobilising their power in the market, was the era of genuinely social democratic politics but I feel like the left sees it the other way round.

With this in mind I think the state v market dichotomy, outlined routinely by left and right needs considering. It’s assumed that the state – by definition of being democratically elected – acts socially while the market – supposedly a forum of individuals – acts privately. Yet the Labour government’s bailed-out banks failed to act socially, while the market’s private banks acted as a block that was able to use taxpayers money to finance its industry-wide enrichment.

The dichotomy is a hangover from the great political economist Karl Polanyi who insisted that when markets were ‘disembedded’ (dergulated) from society, crises would follow which would demand their immediate re-embedding (via the state). Free markets v the state. The problem is that you lose the fact that markets are always embedded in society, a fact the term ‘free market’ obscures.

The free housing market is embedded in the institutions that make it and is shaped to those who can rally power accordingly. Banks, existing owners, the construction industry etc work to create a speculative market that enriches themselves more than anyone else. Yet if people can mobilise themselves differently to shape a market in their image, it can deliver social outcomes. The labour market, for instance, as a meeting of unions and employers delivered social ends.

A centre-left political economy has to address this and not allow the market to become a preserve of the right. Creating market mechanisms that increase the economic leverage of the majority is essential. In our economy, powered as it is by finance and consumption, finance is the obvious place to start. Savings are always socially organised and easier to mobilise in union than disparate 21st century employees.

*Warning, this now becomes a tad (more) speculative*.

A London social housing bank, for example, could leverage savers’ cash to fund a building programme of affordable housing. The arrangements of renting would be that tenants have to save (in addition to pay rent to) the bank which grows accordingly and is better placed to fund a new round of leveraging and building. If big enough it could then be a better position to demand social terms from the contractors it employs, like a unionised workforce or certain environmental standards.

Which relates to the last point of the NPEN meeting and ebook. There was widespread agreement that finance – again in the spirit of Keynes – had to be reined in. The asset bubbles which have underpinned the last 15 years are depicted as a type of false consciousness (reckless finance, exuberant etc). At its peak in 2007 the total (nominal, and fairly impressionist) value of global finance was estimated at $194trillion – 343% of global GDP. Existing theory demands we think of this swollen figure as a type of ‘mistake’. Finance has got carried away. But instead of busying ourselves with what our theory says should be the case why don’t we look at what is the case? Yes finance is leveraged on the productive economy but when that relationship has loosened to the tune of 343%, perhaps our theory should loosen with it.

Developing social methods of working the dynamism of finance – especially when the productive economy has been in steady decline since the 1970s in the UK – is essential to any project aimed at bringing the economic power to the left which can then underpin a political transformation.

As usual I’m motivated by confusion. What to make of the end of universal child benifit. It seems ludicrous that people on £18,000 should subsidise those on £250,000 so are the Coalition’s plans well placed?

The general Lefty stance is no – uniting them with the Daily Mail and Telegraph. But unlike the Tory press the left defend the idea of universal welfare states because ‘services for the poor make poor services’. Which, as the US demonstrates, is palpably true. But child benifit is no service, it’s a bank transfer. So what to make of it? Also, Ed Milliband has been entirely silent so far, which is a tad worrying.

All because I wanted a fancy haircut. That’s all. Popular culture has told me that I need to look smart to get on in life, so being the diligent go-getter I am, I bought a haircut. To do so I went through MyCityDeal.

I reckon it might hold the clue of how to make a low-income savings union. It works in partnership with a load of retailers in the UK and offers discounts on their services (good for restaurants, good for haircuts, slightly less edifying when offering cosmetic surgery) if you buy through them. So I paid the £30 to MyCityDeal, who then gives a voucher which is taken to the haircut shop.

I presume MyCityDeal take a cut (guffaw) and the retailer the remaining. All of which means that they have a big bank of cash made up from all the people who buy through them.

So, if we were to adapt this slightly, firstly by doing away with cosmetic surgery and then by partnering with a wide spectrum of retailers – from low-income stuff to organic posh crap – and make everyone who signs up (like I had to for MyCityDeal) a partner, we could use the load of payments as a savings bank. Money could be invested in social bonds and returns could be given back to our parters. For low income groups this would be particularly useful because it offers a way of building up a bulk of savings.

Happy?

Are aid agencies the best way to distribute aid or should we just give money directly to the poor so they can do what they like with it?

Aditya Chakrabortty thinks so, and he’s written about it in the Guardian today:

http://www.guardian.co.uk/commentisfree/2010/jun/29/revolution-global-aid-poor

Logic is that since a good deal of aid is spent on trying to administer aid without it falling into the wrong hands or being wasted, maybe it would be better to give it directly to the people and see what happens. Perhaps the cost of administering is higher than the value of administration.

Lots of positive feeling on the CIF page where it posted but there are some pretty clear problems in my book. Firstly, if suddenly everyone has twice as much disposable local currency isn’t that just inflation? I suppose if you means tested it, it would be redistributive by reducing the value of everyone’s money. I don’t really think it is as simple as this but there would certainly be an effect.

Secondly, practicalities. I’m sure giving out money is harder than it sounds.

Thirdly, I was reading Paul Collier’s the bottom billion and he is all about the large scale infrastructure projects that help countries gear up to an export economy. I’m not saying I agree with Collier but he does raise some interesting points.  He also examines ‘dutch disease’ where mineral wealth or aid pushes up wages and therefore makes other industries internationally uncompetitive. I imagine he would have a problem with the approach described in the article.

Giving out money certainly would reduce some costs of bureaucracy but would this be enough to balance the negative effects on an economy? What does anyone else think?

Rich

Do give a read, it’s a sweeping comment on almost all aspects of modern global capitalism. Worth remembering, since I’ve heard murmurs that some of you are being seduced by the dismal ‘science’, that the entire dicipline of economics failed to predict anything about the crisis.

The political economists, on the other hand, had the courtesy to lift their eyes from their ever-so-smart models to catch a glimspe of the real world. It arms them with infinitely better tools.

This is basically an article in www.spiked-online.com by a guy who’s written a hilariously-titled book called The Spirit Level Delusion.

He seeks to debunk pretty much everything it says. Obviously it’s abhorrent, but I need from you lot clear reasons why. Thanks.

1) Peter Kenway in the Guardian shows that contrary to the popular myth, work is not the route out of poverty

2) A couple of fairly harsh criticisms of the loss of the Future Jobs Fund – both make excellent points.

3) A similarly harsh criticism of the decision to axe child trust funds. Interestingly, all the Community Development workers I asked about this today said they didn’t really know much about it and weren’t that interested. I wonder if it’s a very sad case of an excellent idea that has ultimately failed because no-one promoted it enough. Kate Green used to be head of Child Poverty Action Group and is very well respected indeed.

However I thought I’d read somewhere an argument claiming it wasn’t actually regressive, because many items (childrens clothes, food, etc) are excluded from VAT, and these are the things that people on lower incomes spend most of their money on.

This IFS paper (love the IFS) sorts it out. Apparently if you look at the percentage of income that goes out again on VAT, then it is regressive, just as Save the Children claim.

However, the IFS researcher argues that, in some ways, it makes more sense to look at percentage of expenditure rather than percentage of income. This is because borrowing and saving can allow a relatively stable consumption level despite fluctuations in income. A retired doctor eating through their savings is going to have a low income level but a high expenditure. So is a student spending their way through a student loan, hoping to earn it back later on, as is someone who is temporarily unemployed as they use their savings from a previous job. All of these might distort the picture, raising the amount of VAT paid by those with low incomes.

It turns that almost everyone pays about the same percentage of their expenditure in VAT. So, on this measure, it’s not regressive (not progressive either, mind).

In some ways this is quite convincing. If you assume that those with the lowest incomes who are actually poor (rather than sitting on big savings) have to spend all their money rather than saving it (there’s probably evidence one way or the other?), then removing the ones who have low incomes but are actually spending more does make sense.

The paper also identifies that 55% of consumer spending is on goods taxed at the full rate of VAT, which lends support to the argument that people on low incomes might be spending most of the money on goods that are not subject to VAT (or not at the full rate).

Wow, haven’t done one of these for a while but I just learnt something and feel the urge to share. I’ve been reading about how vaccines work and also about the geographical variation of disease.

This brings me to today’s post which as sciency as it gets round here so hold on to your autoclaves and let’s get stuck in.

Invasive pneumococcal disease kills over 1.5 million children each year according to the World Health Organization (WHO), Ninety percent of these deaths occur in the developing world. [1][2]

You might think that if a vaccine is available in Europe and the US then it should be made available in the developing world too. One of the main vaccines for Pneumococcal disease is called Prenvar. Prevnar is among Wyeth’s top revenue producers, with sales in 2005 of $1.5 billion. [3]

So on the face of it there is an effective vaccine used in Europe and the US that should be rolled out across Africa, seems like a straight forward case where the drugs exist, Pharma has recouped their investment from Western consumers, so there is a moral imperative to bring this drug to the people that need it. Perhaps, within our current system of IP as long as the rich world needs the same drugs then they can pay for the R&D costs and everyone can get the benefit, assuming the minefield of international IP law can be negotiated.

Unfortunately it’s not as simple as that. There are around 90 different bacteria (serotypes) which cause pneumococcal disease. Prenvar is formulated to prevent 7 of those strains. Unfortunately the prevalence of different strains varies geographically. The table below shows the results of a study to determine the relative prevalence in descending order for the developed and developing world [4]. Bear in mind that ‘developed’ and ‘developing’ represent huge areas so there is likely to be a large amount of additional variation between regions. (the number represents serotype number)

The table below shows the 7 serotypes present in Prenvar and a new GSK drug Synflorix.

You’ll notice that the Prenvar vaccine is designed to prevent the most common strains in the developed world, as you might expect. Unfortunately the 3^rd, 4^th and 5^th most common forms of the disease in the developing world are not covered by this vaccine.

This example illustrates why even if access to drugs developed for the developed world could be assured, in some cases, the efficacy wouldn’t be the same. Furthermore, If you’re going to go to the trouble to run a mass vaccination for a disease that kills millions, you’d at least want a drug that treated most of the common strains in your country, otherwise it could be expensive and ineffective.

Also in the table you can see another drug developed by GSK.  Synflorix, which as you can see covers two of the missing serotypes and is therefore  likely to add to the overall effectiveness significantly in the developing world. But if the missing serotypes aren’t prevalent in the developed world why did GSK develop this drug?

It was possible because of an advanced market commitment from Gavi [5] (the Global Alliance for Vaccines and Immunisation). This means that Gavi have committed to buying up to 300 million doses over 10 years and in return for this GSK have developed the drug.

In conclusion, in some cases the developing world will need drugs developed specifically for their own needs. Where there aren’t rich consumers with insurance companies and government funded healthcare, innovative financing mechanisms like advanced market commitments or perhaps publicly developed and owned IP will be needed to ensure that drugs get developed.

[1] http://en.wikipedia.org/wiki/Pneumococcal_conjugate_vaccine

[2] (http://www.who.int/vaccines/en/pneumococcus.shtml

[3] http://en.wikipedia.org/wiki/Pneumococcal_conjugate_vaccine#cite_note-pmid17324490-11

[ 4] (Pediatric Infectious Disease Journal
Volume 14, Issue 6 http://www.scopus.com/record/display.url?eid=2-s2.0-0029057617&origin=inward&txGid=z2jb5-sWfwbAl6CATF7Gvif%3a2)

[5] http://www.gsk.com/media/pressreleases/2009/2009_pressrelease_10012.htm

Had I had the guts to ask a question in the session afterwards, which was about the lessons Labour must learn from the election, this is what it would have been:

“We’ve heard Ed Miliband and others frequently describe the experience of meeting a ‘hard-working’ individual complaining about their neighbour sponging off the benefits system, and not voting Labour. I wonder if Ed, or others, have knocked on the neighbour’s door and found out what issues they’re facing? Working for a charity that supports people on benefits every day, I know that very few people – if any – are happy with the day-to-day struggle of a life on such a low income, and many face difficult and complex issues, of which stigmatisation is only one. If Labour isn’t engaging and representing these people – often amongst the most vulnerable in society – then who is?”