The state of the state’s finances (2025)

From the August 2025 issue of the Socialist Standard

Politicians love talking big numbers: ‘We’re spending £5 million to stop The Thing.’ Or ‘We will spend an additional £20 million to increase The Pittance by a penny.’ When Starmer and his chums came into office they mummered and howled over discovering the astronomical £22 billion ‘fiscal black hole’ left in the public accounts by the Tories. Of course, for the majority of people living on pennies at a time, such figures represent unimaginable amounts. Eking out a few quid from week to week and making every pound work is the lot of most people, so such sums seem like an unforgivable profligacy.

Everyone in politics knew there was a gap in spending plans, and that Labour, despite all its promises not to increase taxation, would have to find a way to close this spending gap. The Tories had arguably laid a trap for Labour, in the form of the Office for Budget Responsibility (OBR), a supposedly apolitical authority that marks the UK government’s financial homework. The problem is, if politicians and press just ignore it, it doesn’t do much good.

It does provide useful data, though. Its Brief Guide to the Public Finances provides a lot of the clarity regarding government spending that is missing from much of the daily rhetoric. The key piece of data is the total spend by the government: ‘In 2024-25, we expect it to spend £1,278.6 billion, equivalent to around £45,000 per household or 44.4 per cent of national income.’ Against that background, £22 billion is a rounding error that could easily be sorted by knocking a few invoices into the next financial year.

The issue is that the income for the state is expected to be ‘£1,141.2 billion, equivalent to around £40,000 per household or 39.7 per cent of national income.’ This is the infamous deficit of £137.3 billion. This means adding to a rising national debt: ‘in 2024-25, we expect debt to be equivalent to 95.9 per cent of national income. It is equivalent to around £2.8 trillion or £98,000 per household’. This is significant, because the government has to pay interest on that debt: ‘Net interest payments on the national debt are expected to cost £105.2 billion in 2024-25’.

To put that in perspective: ‘The biggest items [of public spending] are health £193.3 billion, education £89.2 billion and defence £37.6 billion.’ Whilst, in theory, the state is immortal and need never pay back its total debts (when particular debts fall due, it can just roll them over and borrow more money to pay its creditors), servicing the interest bill can become expensive, especially if confidence in any particular government falls and creditors demand higher interest rates to cover their risks. This means the government has to manage the size of its debt: this is why deficits become such an all-consuming obsession.

Politicians, however, point to the difference between capital spending and current spending. The government invests ‘£146.1 billion – 11 per cent of the total – on capital investment such as roads and buildings and on loans to businesses and individuals’. This spending is backed by physical infrastructure and leads to ownership of assets. On top of that it spends ‘£450.7 billion on the day-to-day ‘current’ running costs of public services, grants and administration. This is 35 per cent of public spending’. Additionally, the government spends £313.0 billion on welfare payments (£150.7 billion of which is pensions).

The government thus prefers to look at the current deficit which: ‘counts all receipts and all current spending, but excludes spending on net investment’. The current deficit stands at £60.7 billion.

This accounts for why Labour made politically disastrous decisions, such as freezing winter fuel payments and cutting Personal Independence Payments (for a paltry £5 billion in savings, which is tiny compared to overall spending, but one twelfth of the current deficit).

They can, if they are lucky, rely on economic growth (which raises tax receipts, and lowers welfare costs) to cover much of the gap: but the plan is to have a current surplus, which gives the Chancellor of the Exchequer space to either cut taxes or increase spending in fresh areas. The expectation is to have £9.9 billion of such headroom by the next election: so the strategy is pain today and jam tomorrow.

As the OBR notes in its Economic and Fiscal Outlook – March 2025:: ‘The tax-to-GDP ratio is forecast to increase to a post-war high of 37.7 per cent of GDP in 2027-28. Part of this increase is driven by the policies announced at the previous Budget, including the increase in employer National Insurance Contributions and increases to capital taxes’. From the point of view of the capitalist class, in general, that money going to taxation comes from their available profits and lowers the amount of money available for their profitable capital investment. A record high tax rate, especially one fuelled by an effective employee tax (National Insurance employers’ contributions) will be concerning for them in terms of international competitiveness.

In their eyes, then, government indebtedness is preferable, as it forms a means of funding the state under the control and discretion of the rich, with interest rates being a kind of vote of confidence in the way a government handles the debt. The money from interest payments is also welcome to those of them who lend the government money.

The March report also notes that the government is committed to ‘increase defence spending to 3 per cent of GDP over the next Parliament, which would be equivalent to £17.3 billion in 2029-30’. This would in part be paid for by a £6.8 billion cut in overseas development spending (this simply represents a change from soft to hard power). This unplanned shift in spending priorities shows how the government’s carefully laid plans to generate a current surplus can easily be thrown off course.

All this wealth, though, was originally produced by the efforts of the working class. How much better and more efficient would it be if that effort was directly focused on human needs, instead of producing taxable money?

Pik Smeet

Cooking the Books: The really big slump (2020)

The Cooking the Books column from the November 2020 issue of the Socialist Standard

We know that capitalist production moves in ever-repeating cycles of boom and slump and that governments can do nothing to prevent this. But they can produce a slump, either unintentionally through a mistaken policy or deliberately. The present slump is an example in that it has been largely government-induced rather than resulting from the normal workings of capitalism.

The lockdown imposed by the government at the end of March and maintained for the next three months led, according to the Office for National Statistics (ONS) at the end of September, to a fall in GDP during those three months of 19.8 percent, which they described as ‘the largest quarterly contraction in the UK economy since quarterly records began in 1955’.

This was a much higher fall than in many other countries:

‘Revised figures yesterday from Germany showed that its GDP fell by 9.7 per cent, less than half the UK’s decline, while the eurozone and European Union falls were 12.1 per cent and 11.9 per cent respectively … The United States recorded a similar drop to Germany, just under 10 per cent’ (David Smith, Times, 26 August).

Why this difference? Was the government-induced slump in Britain really twice as deep as in Germany and the US? If so, why? It turns out that it was mainly due to the different way that the ONS statisticians calculated the fall compared with those in other countries.

GDP is measured in various ways, one of which is to add up what persons spend, what businesses invest and what the government spends. With only key workers, as in the health service and food distribution, allowed to go to work during the period and the income of some 9.4 million reduced to 80 percent of their previous earnings, private consumption fell by 23.1 percent, manufacturing production by 16.9 percent and business investment by 31.4 percent. Government spending, on the other hand, went up by 14.1 percent. Calculating GDP in this way gave a fall of 14.5 percent.

This way of calculating the fall didn’t satisfy the ONS as, while the government spent more, it did not provide the same level of ‘service’. In calculating GDP, the government is regarded as providing various services – education, health care, ‘defence’, ‘justice’, administration,etc – which have to be priced.

Normally this is simply the amount of money the government spends on them. During the lockout, however, although the government spent the same amount on education, because schools were closed it didn’t provide the same level of ‘service’; similarly with normal NHS services.

Taking this into account, the ONS reduced government ‘output’, so increasing the fall in GDP from 14.5 to 19.8 percent. Other countries didn’t do this.

We don’t want to get involved in the arguments amongst statisticians as to the best way to calculate GDP except to point out that the concept of government ‘output’ is rather dubious. Governments as such produce nothing; everything they spend derives ultimately from surplus value produced in the profit-making sector of the economy and is obtained by them either through taxation or by borrowing.

So all its spending is as much a ‘transfer payment’ as are benefits and pensions.

In any event, whether the fall – the plunge, in fact – in GDP over the three months was 19.8 or 14.5 percent it was much more than in any slump caused by

the normal workings of capitalism. In the previous biggest slump since accurate records began, the one that followed the Crash of 2008, GDP fell by only 4.6 percent and that over a period of 16 months.

Cooking the Books: Statistical errors (2006)

The Cooking the Books column from the November 2006 issue of the Socialist Standard

There is a silly argument going on at the moment between the government and an organisation called Migrationwatch which favours tougher controls on immigration. The government claims that people born abroad working in the UK have caused "a small but positive increase to gross domestic product per capita". Migrationwatch claims the opposite and argues that in future only immigrants whose work contribution raises GDP per head should be allowed in.

GDP per head, i.e., total annual production of goods and services divided by total population, is simply a statistic; it doesn't cause anything but is a measure or reflection of a situation caused by real facts. If GDP per head falls because GDP has fallen or has remained unchanged while population has gone up this might indicate a deterioration in general living standards (though even then most people could be unaffected since a fall in GDP per head does not mean that everybody is worse off any more than a rise means everybody is better off). But GDP per head is not falling but rising. So, what the government and Migrationwatch are arguing about is the hypothetical question of whether it would have risen faster if there had been fewer immigrants.

But how do you measure what a worker contributes to GDP, i.e., to total annual production? Migrationwatch explicitly, and the government implicitly, assume that a worker contributes only the equivalent of their wages. As Migrationwatch argue in a recent "research paper":

"In the calendar year 2003 the UK's GDP was 1.099 billion pounds. 613 billion pounds of this amount was 'compensation of employees'. So, apportioning this amount of GDP generated by employment earnings amongst the working population of 27.6 million people this gives average earnings per worker of 22,200 pounds a year" ('Selection criteria for immigrant workers', from the migrantwatch website).

But if workers produced only 613 billion pounds of a total production of 1,099 billion pounds who produced the rest? The same statistics show that the rest is made up of profits (25 percent), "mixed income", i.e., the profits and the labour contribution of the self-employed, (6 percent), and the difference between taxes and subsidies.

Since work is the only possible source of new wealth, a more accurate calculation would be to divide 1,099 billion pounds by the working population; which gives a contribution of 39,800 pounds per worker. This would reflect the fact that all productive workers, whether native-born or born abroad, contribute to GDP considerably more than their earnings but what they produce above this goes as profits to their employers.

This rather demolishes Migrationwatch's convoluted calculations to reach the conclusion that "a worker must earn about 27,000 pounds a year to make, on average, a positive contribution to GDP per head" and that only migrants earning this or more should be allowed in.

Migrationwatch's stigmatising of any worker, native-born ones too, earning less than 27,000 pounds as a burden since they contribute less to GDP than average so dragging GDP per head down is just plain ridiculous. As GDP per head is an average there will always be some above and some below it. Migrationwatch's proposal to raise the average by eliminating some of those below it would achieve this but it would reduce GDP (since even Migrationwatch admits that any immigrant who works contributes something to GDP). A bit like cutting off your nose to spite your face. But then, Migrationwatch is only deploying apparently sophisticated statistical arguments to back up its already-decided policy of "keep the riff-raff out".

Cooking the Books: What is productivity? (2023)

The Cooking the Books column from the November 2023 issue of the Socialist Standard

‘Productivity — the amount we produce per worker or per hour worked — is very important’, wrote David Smith, the economics editor of the Sunday Times. ‘It is the ultimate driver of living standards, a key determinant of real wages and a vital component of competitiveness’ (Times, 20 September).

On the face of it, this makes sense. If society can produce a larger surplus over and above current consumption then some of it can be used to increase what is consumed, whether by individual persons or as improved collective services and amenities. That is what would happen if the aim of production was to directly meet people’s needs. But it isn’t. It’s to make profits to re-invest to make even more profits. It is this that drives the economy.

But how is the productivity Smith talks about measured? He states specifically that productivity at the level of the whole economy is measured by GDP per total hours worked or GDP per total number of workers. In other words, you take GDP and divide it by the number of workers or by the number of hours they worked. In 2021 the increase was 2 percent per worker and 2.8 per hours worked.

Leaving aside how accurate (or not) GDP is as a measure of ‘what we produce’ over a period such as a quarter or a year, what about the divisor, the number of workers or the total hours they worked over the same period?

Smith’s namesake pointed out 250 years ago that there were two kinds of work and workers.

‘There is one sort of labour which adds to the value of the subject upon which it is bestowed: there is another which has no such effect. The former, as it produces a value, may be called productive; the latter, unproductive labour. Thus the labour of a manufacturer adds, generally, to the value of the materials which he works upon, that of his own maintenance, and of his master’s profit. The labour of a menial servant, on the contrary, adds to the value of nothing’ (Wealth of Nations, Book II, chapter III).

Marx inherited this distinction between productive and unproductive labour but modern economists and statisticians have abandoned it; they regard all workers as productive. To divide the value added in a year by total number of workers is absurd as a measure of productivity. It is as if in Smith’s day the new value produced was divided by the number of ‘manufacturers’ (productive workers) plus the number of ‘menial servants’. Whatever this measured, its increase would not be a measure of the extra wealth available to improve living standards.

To measure productivity and its increase properly total value added should be divided by the number only of productive workers. This involves making a distinction between productive and unproductive workers. It is something national income statisticians are capable of doing but don’t because it is not considered useful for capitalism. For a start, they could take out the number of ‘menial’ servants employed by the rich and then the not-so-menial servants who work for the government and parastatal organisations at national and local level. Most of them are essential to the operation of capitalism (and some would be in any society); they are part of the incidental running costs of capitalism and are paid out of capitalist income taxed by the state. They work but they don’t add any new value.

What the statisticians call ‘productivity’ is still useful under capitalism as it is ‘a vital component of competitiveness’. In fact that, basically, is what it is measuring, a vital statistic for capitalism. It can be increased not just by making the productive workers more productive but also by spending less on ‘unproductive’ work. An additional reason why using any extra surplus to provide more and better public services cannot be a priority. Competitiveness is more important.

Cooking the Books: Per capita (2023)

The Cooking the Books Column from the February 2023 issue of the Socialist Standard

At the beginning of December the media reported that Papua New Guinea’s population doubled overnight as researchers had worked out that it must be 17 million rather than 9.4 million. The explanation was that the population living in the remote highland interior, where people survive through subsistence hunting and farming, had been underestimated.

The new figure, the Daily Mail wrote, meant ‘the country’s per capita income is slashed by half, making the average salary around £930.’

This suggests that the population of Papua New Guinea had suffered a drastic cut in their living standards. In fact, it made no difference. People’s income was not affected at all. All that changed was the statistic for average income obtained by dividing the country’s Gross Domestic Product by its population. As the figure for population increased while GDP remained the same, the average fell.

This shows how the figure for a country’s GDP per capita can be misleading. In the case of Papua New Guinea, particularly misleading. GDP is a measure of the market price of all the new goods and services produced in a year and so does not take into account goods and services that are not marketed, such as those produced directly for their own use by the subsistence hunters and farmers in the country’s interior. They produce wealth but as this is not sold it is not counted when calculating GDP. Yet their number is taken into account for calculating GDP per capita. Logically, it should not be, but only those who receive a monetary income from which to buy what they need to ‘subsist’.

But even that would be misleading as not all the money income from GDP goes to wage-earners. A large part is the income of businesses as their profits. The Daily Mail is wrong in saying that the new population figure slashed ‘the average salary’. GDP per capita is not a measure of this. It is an average of all money income — profits and income from self-employment and government transfer payments as well, not just income from working for a wage or salary — divided by population.

According to Investopedia, ‘GDP per capita shows how much economic production value can be attributed to each individual citizen’ (bit.ly/2BJ7p2V). This suggests that it might be a measure of how much each person in a country contributed to the value of what is produced. But it is not that either. The whole of GDP is indeed attributable to what wage-workers produce in a year. But only a portion of that goes to them and their dependents.

The Economics Help blog says: ‘High real GDP per capita indicates citizens are able to purchase more goods and services’ (bit.ly/3QzLa2k). Not necessarily, as that will depend on how GDP is divided between profits and income from work. If GDP per capita goes up due to a higher proportion being made up of business profits, then ‘citizens’ might not be able to purchase more.

Per capita figures are misleading because they ignore that ‘the population’ includes owners of businesses which bring in a high total income as profits, which distorts the average making it seem that the individuals in the rest of the population get much more than they do.

It is not just figures for new marketable wealth that are distorted but also for other things such as water consumption and carbon emissions. Per capita figures for these, by attributing business’s contribution to everyone, give the impression that individuals use more water or have a larger carbon footprint than they actually do.

Cooking the Books: Profits, profits, and profits (2022)

The Cooking the Books column from the November 2022 issue of the Socialist Standard

‘A Labour government’s priorities would be “growth, growth and growth”’ (Keir Starmer speech, 25 July).

‘I have three priorities for our economy: growth, growth, and growth’ (Liz Truss speech to Tory Conference, 4 October, Times, 5 October).

Growth is generally measured as an increase in GDP, or Gross Domestic Product. This can be calculated in a number of ways. The main one is to work out, for each industry, the difference between what was paid for materials and intermediate goods and what the product was sold for, and to add these all up. This is what statisticians call ‘value added’ (and is what VAT is levied on). It is not the same as cost of production, but is wage costs + the profit margin. Conventional economists are less keen to use this term as they have banished the concept of ‘value’ from economics (even if here it is only market price). On the other hand, it corresponds more to what Marxian economics would understand by the term – the new value created in production, which is divided into wages and profits.

Adding the income from work or from property ownership that individuals receive is a second way of calculating GDP. It gives a share of ‘labour’ in what is produced (though this also includes income from self-employment as well as from wages).

The third way is by adding up how this ‘National Income’ is spent: on business investment, consumer spending, and on government spending.

If GDP in one year is higher than it was the year before then there has been growth. GDP doesn’t always go up. It also goes down. In fact, statisticians and economists define a ‘recession’ as a fall, however small, in GDP in two consecutive quarters.

Most of GDP – around 80 percent – is consumed in the course of the year, by individual consumers or the government. The rest is invested mostly by businesses, with some by the government (as in infrastructure projects). The statisticians call this ‘gross fixed capital formation’.

‘Net fixed capital formation’ (which is the gross – or total – amount less the part used to replace the wear and tear of fixed capital) is the nearest to what Marx understood by the ‘capital accumulation’ which he saw as the aim of capitalist production. The source of this accumulation is the profits that come from business investment (including what the government invests, as this ultimately comes from taxing business profits). It is this pursuit of profits to accumulate as new capital that drives the capitalist economy and results in ‘growth’. It means that there can be no growth without a growth in profits.

Growth as such is not the driving force of capitalist production, but capital accumulation of which it is a consequence. The call for ‘growth, growth and growth’ is, therefore, a call for ‘profits, profits and profits’. The current Tory government makes no bones about this. Starmer is more mealy-mouthed but he too accepts that growth can only come about if the profits to sustain it are allowed to be made or, as he put it in his 25 July speech, if the government has a strategy that ‘builds confidence for investors that will boost long-term growth and productivity’.

Governments cannot bring about growth. They can try to create conditions favourable for profit-making but, beyond that, they have to wait for business investment to increase as capitalist production moves through its boom/slump business cycle. Sometimes they are lucky as Blair was and can claim the boom phase of the cycle as a result of their policies (though this went to Gordon Brown’s head and led him to claim that he had eliminated this cycle, not long before the Crash of 2008). Sometimes they are not so lucky, as both Truss’s successor and/or Starmer look like being.

Cooking the Books: Debts and Doubts (2011)

The Cooking the Books column from the August 2011 issue of the Socialist Standard

The public sector union UNISON has provided its activists with briefing notes on the economic crisis, based on the illustrations used in a talk by Barry Kushner that can be found on YouTube.

 

He shares the illusion that the economy is a tool which governments can manipulate to ensure growth or more equality (or less equality) or whatever. In other words, he ignores the fact that the profit-motivated market economy that is capitalism is governed by economic laws which governments have to accept and apply if they don’t want to provoke an economic crisis.

 

This said, he does make some valid points about the scare stories about the National Debt put out by the present government to justify its austerity programme.

 

The National Debt is the government’s debt and has nothing to do with the debt of the individuals who make up the supposed “nation” (it is not the total of private debts). As such, it is better called the Government Debt (its official name is “Public Sector Net Debt”). Similarly, the Deficit is the government’s. It’s the difference between what it raises through taxes and what it spends, which it has to cover by borrowing. What it spends includes the interest it has to pay on the Government Debt.

 

“We are told,” says Kushner, “that our country was nearly bankrupt, that our debt payments are £120 million per day, that our debt is nearly £1 trillion” and quotes George Osborne as saying on the Andrew Marr show that “we were on the brink of bankruptcy” and another government statement that “our debt is higher than it’s ever been.”

 

The Government (not “our”) Debt is only higher than it’s ever been in nominal (face value) terms, only because £1 trillion today is not the same as £1 trillion in the past. Kushner points out that the usual way of measuring the level of the Debt is to compare it with Gross Domestic Product (basically the value of new wealth created in a year). At the moment, this ratio is around 60 percent. One of Kushner’s graphs shows Government Debt as a percentage of GDP from 1900 to 2010. From 1920 to 1960 it was consistently well over 100 percent; just after WW2 in 1945 it was 261 percent. In other countries it is much higher: 100 percent in the US, 200 percent in Japan

 

The government does not need to be in a position to pay off the whole Government Debt in one go. Since about 80 percent of GDP is made up of what people consume and what the government spends on essential services, 60 percent could not be devoted to repaying the Debt in one year without mass starvation. Most of the Debt is continually renewed as those lending the money to the government want to keep on receiving the interest.

 

Interest payments on the Government Debt are £120 million a day but, at £43.3 billion a year, this is less than 3 percent of GDP, which is easily affordable. Kushner points out that in 1981, under Thatcher, interest payments were in today’s money £174 million a day or over 5 percent of GDP, adding that we “didn’t hear talk of bankruptcy then”.  According to www.ukpublicspending.co.uk/uk_debt, “experts say that when interest payments reach about 12% of GDP then a government will likely default on its debt”. As just seen, the British government’s payments are nowhere near this figure. 

 

There never was any danger of bankruptcy. Osborne was just scaremongering to justify cutting government spending for other reasons. The cuts are being made to try to restore profitability. It’s because saying this openly would not go down well that the government has resorted to the scarce stories and lies about bankruptcy, unsustainable interest payments and the like.

Cooking the Books: Economic cycling (2007)

The Cooking the Books column from the June 2007 issue of the Socialist Standard

Gordon Brown, as Chancellor, laid down a “golden rule” that the government’s current spending and its income from taxes should balance, not every year as hard-line fiscal conservatives want, but at least over a complete “economic cycle”. But how measure the beginning and end of one of these?

The trend of economic growth (additions to GDP) under capitalism is upward but not smoothly in a straight line; rather it is like the teeth of a saw, only with each peak being higher than the previous one, with a trough in between. Brown’s Treasury officials defined a cycle as the time between two peaks of growth above the long-term trend. So, if the long-term growth trend was, say, 2.5 percent then, if for a number of consecutive quarters, it was above this level, that counted as the beginning of the cycle, which could be considered as coming to an end the next time this happened.

This is reasonable enough in principle. The trouble is that it is open to manipulation by redefining the long-term growth trend. Which is what the government has been accused of by the opposition. And is why the financial editor of the Times, Graham Searjeant, wrote an article headlined “We need new economic cycle to understand changing world” (26 April). He was just interested in defining a measurable economic cycle so as to establish a period over which government spending and income balance. But government spending and taxes are irrelevant to the economic cycle as such.

In the 19th century, it was generally accepted that the economic cycle lasted about 10 years and was measured from one financial crisis to the next. Marx shared this view, and described the course of capitalist economic activity as typically taking the form of “a series of periods of moderate activity, prosperity, overproduction, crisis and stagnation” (Capital, Vol. 1, ch. 15, section 7).

Marx saw financial crashes as being a symptom of industrial overproduction (in relation to market demand). As the market for a key product expanded, the firms producing for it all invested in expanding their productive capacity in the expectation of it being them who would benefit from the increased demand, with the result that when the new productive capacity came on stream output proved to be greater than the demand; sales fell off meaning that firms had less money from which to repay loans contracted to expand productive capacity; credit (loans) became harder to get; creditors demanded repayment in cash; in the end a financial crash occurred.

Searjeant’s argument for a “new economic cycle” is that today industry has become less significant:

  “Conventional economic cycles lean heavily on factors specific to industry, such as investment in new capacity and changes in materials and parts. But UK industry is now too small to drive the cycle, which is as well because manufacturing has been in near-recession for years”.

He speaks instead of “an economy powered by London financial services”. In answer, two points can be made. While UK industry is not so important as before, world industry – as in China, India, Brazil, etc – is and the world economy is driven by world industry, which is still liable to crises of overproduction. Second, financial services are dependent upon and subordinate to (world) industry since the services in question are precisely services connected with world trade in industrial and agricultural products, including hedge betting on how their prices will move. The production of material things is still the basis of the economy.

Cooking the Books: A stroke of the pen (2007)

The Cooking the Books column from the April 2007 issue of the Socialist Standard

The Office for National Statistics (ONS) is to revise the way Britain’s Gross Domestic Product (GDP) is calculated. According to the Times (26 February) “from 2008 the ONS will also add into GDP an estimate of the output generated by banks related to the higher rates of interest they charge on loans compared with deposits”. Output generated by banks? What are they talking about? Banks don’t produce anything.

It is just that, given the way a country’s output is calculated, banks have to be assumed to produce something. The value of the new national output produced in a year has theoretically to equal the total annual income of the country’s inhabitants as wages, profits, rent, interest, fees, etc in that year (national income). One way new national output is calculated is to add up the monetary value of the goods and services on which the national income is spent (final consumption). To do this it is assumed that whatever a sum of moneyfor this purpose is spent on is an “output”.

Thus, interest paid to banks is assumed to be a payment for the bank’s “output” (the service of lending the money). Similarly, taxes are assumed to be a payment for the government’s output (the “service” of providing “defence” and “law and order” as well as health and education).

This is all right for statistical purposes, but wrong if this statistical device is taken for reality. In reality neither banks nor governments produce anything. They – or rather, the workers employed by them – do of course do something, but the activity of banks and governments is in the end paid for out of the surplus value produced in productive industry which transforms materials that originally came from nature. In the case of the government this is obtained through taxes. For banks, it’s through interest.

An ONS paper explains how banks work, better in fact that most economics textbooks: “In essence, financial institutions provide services in two ways; by direct charging (overdraft fees, mortgage arrangement fee), and by an interest differential; that is paying depositors less than they charge borrowers . . . For example, current accounts are usually maintained free by financial institutions,

and the associated costs are met by the difference between the low interest payments awarded on credit balances maintained in such accounts whilst the bank lends funds from such accounts at a higher rate to borrowers”.

In other words, no nonsense about banks “creating” credit or deposits, but a recognition that they make their money by lending out money deposited with them at a higher rate of interest than that paid (if at all) to those who deposit money with them. Even so, this description is still tied to the concept that banks provide a service, i.e., that they are selling something. But what?

Because of the theoretical and practical problems involved in the idea of banks selling something, the national income statisticians have till now not included in GDP any value for the “output” of banks for the services they are regarded as providing – banking facilities for depositors – and for which they don’t charge. The solution they have come up with, and which will be applied in Britain as from 2008, is to regard the income of banks from “paying depositors less than interest than they charge borrowers” as a notional payment for these notional services.

It’s a bit of an artificial solution and it will increase GDP by a one-off 1.9 percent or so – which is more than normal growth in some years – by a mere stroke of the pen. But one held by statisticians rather than the bankers of currency crank myth.

Biodiversity loss and the capitalist economy (2021)

From the April 2021 issue of the Socialist Standard

 

The Dasgupta review: 600 pages on how capitalism destroys nature, with no mention of capitalism.

In February a 600-page review commissioned by the Treasury titled ‘The Economics of Biodiversity’ was published. The author — Sir Partha Dasgupta, Professor Emeritus of Economics at the University of Cambridge — set out to analyse the effect of the economy on nature, describing how, at current rates of consumption, the loss of biodiversity will soon be too expensive and may likely be catastrophic, and suggested that the way-out of the crisis is to give up GDP as the measure of economic progress.

Global warming enjoys a lot more attention than biodiversity loss but, as beneficial as slashing greenhouse gas emissions is, underestimating the likely impact of biodiversity loss could prove to be a deadly mistake. As the Dasgupta Review points out, many ecosystems, including tropical forests, wetlands and coral reefs, have already been degraded beyond repair, which, according to Dasgupta, ‘could have catastrophic consequences for our economies and wellbeing’.

Humanity’s impact

Humanity’s impact on the natural world is severe: animal populations have dropped by around 70 percent since 1970, and only 4 percent of the world’s mammals are wild; in effect, we are living during the sixth mass extinction of life on the planet. And it is not only about living beings: according to the Review, only in the last two decades, the stock of ‘natural capital’ per person fell by 40 percent. What Dasgupta means by ‘natural capital’ is not only the share of animals and plants per global citizen, but also their share of breathable air, drinkable water and soil in which to grow food; so the rapid reduction of these most basic prerequisites for life is truly alarming. Fringe high-tech solutions or short-term financial fixes that do not tackle this problem head-on would just squander the valuable resources we urgently need for our very survival.

The Review states:

  ‘Our economies and well-being depend on our most precious asset: Nature. Our demands far exceed Nature’s capacity to supply us with the goods and services we rely on, so that to keep the present rate of consumption, we would need 2 to 4 Earths by 2050 (depending on the speed of population growth). Once an extinction tipping point is reached, it is exceedingly expensive or impossible to reverse the damage, which fundamentally puts under question the prosperity of future generations.’

So far so good, and these are all valid and important points. But what does the Review say about what lies at the heart of the problem, and how to solve it? According to Dasgupta, 

the problem is two-fold: the first part is the market failure, as most natural assets are undervalued or even free, and so we do not invest in them; in addition, it is an institutional failure because governments subsidise the destruction of Nature (for example by supporting fossil fuel companies) at the rate of US$4 to 6 trillion per year, while giving only US$68 billion (or about 1 percent of the ‘destruction fund’) for its protection.

This formulation of the main problems, however, raises several questions. It assumes that the market is somehow unable to cope with this particular problem, so it needs to be regulated by governments, and that the governments in turn are not doing their jobs well — which is why we have this crisis on our hands. Calling this a market failure means assuming that the market normally takes into account real costs of materials and services. Yet in our globalised economy, where one person’s wages are hundreds of times higher than another’s; where you can get millions for making your computer perform incredibly complex calculations (like bitcoin mining) that help nothing or nobody at all and require enormous amounts of electrical power; where it is cheaper to ship ‘sustainable’ clothes from around the world, only to trash them into ‘recycling’ containers that will be shipped all the way back to never get recycled; where the price of oil went negative last year — in this economy, undervalued assets are not an error or an exception. In fact it is rather a common occurrence that we must acknowledge if we want to understand the forces influencing the current crisis.

Of course, government subsidies to fossil fuels facilitate exploitation of Nature, but Dasgupta fails to see that what drives this exploitation — the motivational principle at the very foundation of the economic system is making a profit. It is simply profitable to exploit Nature, and this is why it is being exploited. Yet somehow professors of economics and company CEOs go out of their way to make up excuses, thinking up complex theories and explanations — all this only to avoid facing up to the truth. As long as we have a monetary, for-profit economic system that makes growth and accumulation of capital the biggest impetus for productive activities, we will continue to be plagued by wastefulness, perverse luxury, inequality, dehumanisation, and yes, rapacious exploitation and loss of the very natural environment that gives us life and nurtures us.

Set up to fail

What should we do then in order to solve this “market and institutional failure”, according to the Review?

Dasgupta notes that ‘the very first step is to understand that our economies are embedded within Nature, not external to it.’ The almost exponential economic growth in the last 100 years, with all the resources it has been devouring, does not seem very likely to be sustainable for much longer, as we would run out of forests to burn and fish to catch. Dasgupta is aware that capitalist theory has been debating a way out of this conundrum by devising various schemes to reroute almost all economic growth from resource-intensive activities such as heavy industry into the virtual and services areas (like software development, entertainment, etc), so that it would get decoupled from resource use, and we would be able to happily continue to invest in the market and make more and more money, ad infinitum.

He takes a bold step in his Review when he explains, with some calculations and copious literature citations, that this is not likely to be possible. Simply put, increased profits inevitably lead to increased spending, and that almost always involves the use of raw materials. Even virtual activities are not ‘free’. For instance, data processing centres require increasingly large amounts of energy (for perspective, Bitcoin has a carbon footprint comparable to that of Argentina), and over 60 percent of the world energy still comes from burning fossil fuels. 

Dasgupta emphasises that the current path presents extreme risks, and that truly sustainable development would need a ‘different path, where our engagements with Nature are not only sustainable, but also enhance our collective wealth and well-being, and that of our descendants’. He offers three broad recommendations of solutions, not one of which, however, directly addresses the clear logic of capitalist, for-profit destruction of Nature.

Ineffective recommendations

The first recommendation is to reduce demands on Nature by increasing efficiency and utilising so-called ‘quantity restrictions’ rather than pricing mechanisms. In other words, Dasgupta advises against relying on the market, even with the usual interventions of price controls, as it is unlikely to work. What will work now, according to him, is to ban certain practices, for example to fence off more and more natural habitats and prohibit any kind of commercial activity there. While it is encouraging that the Review acknowledges that markets are not the key to solving this problem, government regulation — even though there are several examples of successful species recovery or habitat restoration — will not be able to reverse the effects of the overall economic system that is fundamentally based on the principle of resource consumption and growth. Such restriction measures are akin to attempts to stop the flow of a river with an obstacle — the water (or money) will inexorably find its way around, as we have seen happen time and time again.

The second recommendation is to ‘change our measures of economic success’ from GDP, which does not take into account things you don’t directly use for profit-making, like rare animal species or human happiness, to something Dasgupta calls ‘inclusive wealth’. This new measure of economic success would include natural assets, so if you gain a monetary profit while decreasing the pool of available natural resources, your overall measure of wealth would not grow. This new concept, however, is proposed as a means to improve national accounting systems. What happens when you eat into another country’s natural wealth? It is common practice nowadays that developed countries import raw materials for their technologically sophisticated exports from poorer countries that have little else to offer the globalised market (and trade agreements and IMF loans make sure it stays that way). To really work, this system would have to have all countries in the world agree to it, and so far even a seemingly straightforward worldwide tax agreement that would help alleviate the burden of tax evasion seems beyond reach. Maybe the reason it has been so elusive thus far is this very disconnect between the powers-that-be, on the one hand, demanding a fair distribution of wealth and, on the other hand, actively promoting and rewarding the accumulation of capital.

In his third recommendation, Dasgupta proposes the creation of supranational institutional arrangements to charge for the use of Nature and to then use this money to support these arrangements. He calls on businesses and financial institutions to integrate Nature-related considerations into their strategies. Finally, he suggests that the ultimate responsibility for sustainability lies with us as individuals.

Conclusion

All in all, there are definitely many valuable points in the Review, especially considering that they come from an established economist. At the same time, the proposed conclusions and recommendations show that, functioning for so long within the system, Dasgupta is unable to see beyond its borders, to think outside the box, and so is oblivious to the underlying imperative of capitalist logic that demands profits above all else, and at the expense of everything else, and which is leading us all on the march to devour the planet itself. That would explain why in the 600 pages of the Review the word capitalism is only mentioned once, and even that referred to a description of some academic economics theory that had nothing to do with our current biodiversity crisis or its underlying processes.

In his article ‘The Non-Monetary Economy’ Edgar S. Cahn estimated that, if valued in monetary terms, non-monetary components of the economy, such as household labour and civic activity, would be equivalent to almost 50 percent of GDP (Link). This shows that, as social and intelligent animals, we are happy to work for what we believe is necessary and will help our loved ones and our communities, even when we are not getting paid.

If we are serious about surviving and leaving our planet to our descendants in a liveable state, without a huge environmental debt impossible to settle, what we really need is not just to abandon GDP as the measure of economic success, but to urgently abandon altogether the monetary, for-profit economy itself and to embrace the socialist system of resource administration as the truly humane, sustainable and fair system of social and economic organisation that respects nature and the scientific principles of its management.

Roy Auss

Cooking the Books: Lies, damned lies, and statistics (2005)

The Cooking The Books column from the March 2005 issue of the Socialist Standard

Marx argued that by his day economics had declined from a genuine attempt to understand the workings of capitalism as, for instance, with Adam Smith and David Ricardo, into a thinly disguised apology for capitalism. Just look at any modern textbook – with their claim that scarcity is eternal because human wants are infinite and their introduction of “entrepreneurship” as being as essential to production as natural resources, labour and machinery – and you can see how right he was.

In one field of economics, however, there has been some progress since Marx’s day: in measuring national income and output. Since the 1940s governments have published figures for these. Everybody has heard of “GDP” (Gross Domestic Product) and “growth” (which is the increase of GDP from one year to the next) and Marx would surely have loved to have had such figures. But there are shortcomings here too.

In particular how to treat government spending has been a problem, as was again highlighted by a report published at the end of January by Sir Tony Atkinson (who as plain A. B. Atkinson used to usefully concern himself with statistics on the unequal distribution of wealth ownership) for the Office of National Statistics on “The Measurement of Government Output and Productivity for the National Accounts”.

Government Output? What output — surely the government as such produces nothing, just consumes the output of the sector of the economy where labour-power is applied to materials that originally came from nature to produce commodities for sale? Yes, that’s just the point. But the figure for GDP (which is supposed to be a measure of total output) is obtained by counting spending by individuals on consumer goods and services, by firms on new equipment, and by the government, and adding them together. Including government spending in this involves double-counting. This is recognised to some extent in the official figures in that the payment of pensions, the dole, income support and the like as well as the payment of interest on the National Debt are excluded from government spending as being “transfer payments”. But, logically, so too are the wages and salaries of government employees, yet these are not excluded. Similarly, other government spending (as on purchasing computers and bombers) is already included via the amount for indirect taxes that enters into the prices of what individuals and firms buy.

The artifice that the government statisticians found to get out of this has been to treat government spending as productive, as resulting in a “product” (education, health care, administration, law and order, “defence”, though not “social security”). As a result, national output is inflated by as much as 20 percent. The former state capitalist countries of Russia and Eastern Europe did not count such government spending as productive, i.e. did not double count it as part of output, and when they adopted the same national  accounting system as in the rest of the capitalist world their GDPs jumped by 18-24 percent depending on the country.

Why did statisticians in the West go down the road of pretending that all government activity is productive? Probably because national accounting developed at the same time as Keynesian economic policies were first applied (and could even be said to have been developed to underpin them), and Keynes attributed a key role to government spending. Keynesian economics is now rejected, but not the counting of government spending as an addition to output. Instead of getting itself out of this hole by abandoning this statistical practice,  the government decided to keep on digging and appointed Sir Tony to come up with ways of measuring government “output” in such a way as to be able to take into account increasing “productivity” (the politicians’ “value for money”).

If the Atkinson report’s recommendations are accepted this will inflate GDP even more by artificially (and arbitrarily) increasing yet further government “output”. Talk about cooking the books.

Cooking the Books: No growth area (2009)

The Cooking the Books column from the June 2009 issue of the Socialist Standard

On Wednesday 22 April, Alistair Darling, the Chancellor of the Exchequer, took his snout out of the trough for a while to deliver the budget speech. He ended it with what he must have thought was a brilliant soundbite:

  “You can grow your way out of a recession. You cannot cut your way out”.

Well, er, yes. A recession is a period when there is no growth, when in fact there is a fall in production, what the spin-doctors called “negative growth”. So, obviously, a recession comes to an end when growth resumes. The big question is: can a government do anything to make this happen?

But what is “growth” anyway? For government statisticians it is an increase in the Gross Domestic Product. GDP is made up of what capitalist firms invest + what consumers spend + what the government spends. For Marxists, the key part of this is capital accumulation, the part of profits that capitalist firms re-invest in production, the motor of the capitalist economy and which determines the level of consumer spending.

While governments can influence GDP – if only by increasing their own expenditure – they cannot do anything to increase capital accumulation. That depends on the amount of profits that capitalist firms expect to make, which in turn depends on market conditions, which governments can’t control.

An increase in GDP brought about by an increase in government spending – which is the government’s plan to get out of what Darling delicately calls “the recession” – can only come in the long run out of profits, the source of funds for capital accumulation. In the short run it’s only a statistical illusion. It doesn’t increase capital accumulation and so doesn’t result in growth in actual production..

Even here, though, Darling is not expecting GDP to go up until some time towards the end of next year. In the meantime, he estimated, GDP would have fallen by 3.5 percent. Not everybody agrees on this figure. In its latest quarterly Inflation Report published in May, the Bank of England “now expects that this year’s slump will lead the economy to shrink by up to 4.5 per cent on its main view, marking the most brutal drop in GDP since 1946” (Times, 14 May). The 1946 drop was caused, it should be noted, not by an economic crisis, not by any actual fall in production, but simply by the government no longer having to spend money on fighting a war. Three monthly earlier, however, the Bank had been ever more optimistic than Darling, expecting a fall of only 3 percent.

Basically, they don’t know. As Mervyn King, the Bank’s Governor, put it:

“We may well get a recovery that proves to be sustained, then again, we may not” (Times, 14 May).

True. And how very profound.

Measuring general wellbeing – how and why? (2011)

From the January 2011 issue of the Socialist Standard

Capitalism sells GNP and some of its supporters now want to measure GWB. Socialism will promote only GWB.

Studies of happiness have a long history. Aristotle wrote about happiness as human flourishing and purpose to life, as opposed to the modern concept of hedonism as the simple pursuit of pleasure.

Prime minister Cameron is trying to get the concept of general wellbeing up and running even in the midst of public service cuts and soaring living costs. He is sticking to a policy commitment he made while still in opposition in 2006: ‘It’s time we admitted that there is more to life than money and it’s time we focused not just on GDP but in GWB – general wellbeing’, adding ‘Wellbeing can’t be measured by money or traded in markets. It’s about the beauty of our surroundings, the quality of our culture and, above all, the strength of our relationships. Improving our society’s sense of wellbeing is, I believe, the central political challenge of our times’ (Times, 22 May 2006).

The Office for National Statistics will decide on the wording of the questions to be put in the General Household Survey starting in April. Its head, Lil Matheson, said in a BBC Radio 4 interview that she preferred the wider concept of wellbeing to that of happiness. Writing in the Guardian (15 November), Allegra Stratton thought that, in addition to questions on happiness, the survey is likely to include ‘How much purpose does your life have?’ and ‘Are men and women treated fairly in the workplace and home?’

We have good reason to be suspicious about why the government should put money into measuring people’s wellbeing in circumstances that are far from improving their actual wellbeing. We may recall the line of crucified men in Monty Python’s Life of Brian happily singing ‘Always Look on the Bright Side of Life!’

It would be no surprise to find many members of the general public expressing fairly high levels of wellbeing. But any such survey results would need to be interpreted with care. Studies of job satisfaction have found that up to 80 percent of workers say they are very or fairly satisfied with their job. But their ‘satisfaction’ is often based on a belief that their chances of finding something better are small or nil, so it’s a good idea to make the best of the job they’ve got.

In socialism there may well be surveys of public opinion, including questions on wellbeing. Such research would be part of organising production and distribution of goods and services only for need, not profit. Questions on wellbeing would emphasise making things better for people, not making people feel better about things.

Stan Parker

After Greece, Italy? (2019)

From the January 2019 issue of the Socialist Standard

On 23 October the European Commission asked the Italian government to revisit its budget plan. This is unprecedented as no EU member state had been asked to do this before. The Italian coalition government, constituted by the populist Five-Star Movement and the Lega, had proposed a 2.4 percent deficit of Gross Domestic Product, and a structural deficit of 1.7 percent which was far beyond what the member states had agreed back in 2012 under the ‘fiscal compact’. The EU believes that the deficit is more likely to be 2.9 percent. The EU has threatened Italy with sanctions, which may result in concessions by the populist leaders.

The fiscal compact, (not agreed upon by Britain and the Czech Republic) set the limit for a general deficit not exceeding 3 percent of GDP, and a structural deficit (the part of the deficit due to spending programmes and not to how the economy is doing) not exceeding 0.5 percent of the GDP for countries with large debts such as Italy. This is nothing more than an austerity measure mirroring the debt brake model adopted by Switzerland in 2003 and by Germany in 2009. This consists of separating the structural deficit from the cyclical deficit, where the latter takes into account the fluctuations in economic growth. In simple words, the state was to not allow deficits when the economy is growing but only when the economy is shrinking. By doing so it would reduce the public debt across the business cycle.

Although this austerity measure has so far worked in Switzerland and Germany, it may have worked because of lucky circumstances, namely strong economic growth at the right time, but this may not be sustainable in countries where the GDP is consistently low. Not allowing for deficits or allowing minimal deficits in a struggling economy may be a recipe for strangulation.

Annual government budget deficits in a country with a huge historic national debt like Italy (138 percent of GDP) are, on average, more likely to be greater than in a country with a smaller national debt (for example, 57 percent of GDP for the Netherlands). For the record, the UK has a national debt equal to 88 percent of GDP. It should be noted that Japan has an even higher national debt than Italy (199 percent of GDP), yet only 11 percent of it is to foreign creditors, while in Italy’s case one third of it is owned by them.

The total annual deficit takes into account not only government spending being higher than tax revenues, but also debt interest payments. Thus, it would be unfair to judge the Italian or other governments in a similar situation as necessarily being extravagant. They are, in part, working to pay off the interest on the debt. As we know, government spending does not just supposedly benefit public infrastructures (see the bridges falling down), or education, health and pension systems. Italian spending on those services is in line with, if lower than, the other EU countries. Yet, Italy is stuck with this huge debt. Why?

Out of control

According to many, the Italian national debt spun out of control in the early 80s when the Bank of Italy and the Treasury ‘divorced’. Basically, the first stopped buying Italian bonds that were not sold.  State bonds are the way the government borrows money to finance its spending and to pay back its previous debt plus interest. Unsold state bonds triggered a steep rise in the interest rate. As with loan sharks, the Italian state found itself having to pay out more to borrow money, which in turn increased the accumulated national debt payments.

This ‘divorce’ was a defensive measure and, although it did mitigate the fleeing of savings and some argued that it helped reduce inflation, it did not help slowdown debt issuance. Yet, if we were to plot Italian public debt over the decades no particularly steep increase is to be seen after the 1981 divorce either. The oil crises in the 70s, political nepotism, which created an inflated state infrastructure, and a money-wasting corrupt administration, are probably more obvious original sins. Nevertheless, the real problem with Italy is the lack of economic growth. If we were to plot Italian GDP over time we can see that after crisis of 2007-8, this has struggled to increase and actually decreased by 10 percent (UK GDP decreased by 7 percent in the slump). Government spending on research and new technologies has also been neglected.

The official version of events for the M5S and Lega is that things started to go wrong in 1981 and that the EU limits and restriction did not help the ever-growing national debt problem. Both M5S and Lega had an anti-EU, anti-Merkel electoral campaign. Now they are continuing to play this card in view of the European elections later this year. However, it is fair to believe that the Italian government is not doing this only for the sake of going against the EU and being successful at the next elections. They do believe that an anti-austerity policy will help to boost the economy and will promote 1.5 percent economic growth (real GDP). The EU, on the other hand, do not trust this plan and are interested only in what Italy can pay back to their creditors. The EU’s doubts about this seem to have some validity as the spread, that is the ‘gap between Italian and German bond yields which the Italian media follow obsessively’ (Economist, October), is up to 3.2 percentage points.

Past experience shows that the type of ‘pump-priming’ Keynesian policy as proposed by M5S and Lega does not work. It will not reduce the public debt, and it will not promote research and development of new technologies. As with the Greeks (who the EU and the IMF forced the government there to squeezed), the Italian workers will be portrayed as lazy extravagant tax-evading people. This does not reflect the reality, but benefits the ruling class. We workers should look beyond national borders and opt for a society where meeting people’s needs is not subordinated to meeting interest payments to international loan sharks.

Cesco

Material World: Welcome if You’re Rich (2018)

The Material World Column from the May 2018 issue of the Socialist Standard

Socialists have decried the erection of fences and the building of walls to keep out refugees and migrant workers who politicians accuse of undermining their identity and culture. Across the world, nations are tightening up their visa regulations to exclude those either seeking sanctuary or economic security.

Nevertheless, many nations have embarked upon a policy of what is called ‘citizenship by investment programmes’ (CIPs).  Such schemes offer rich individuals who invest in a country’s economy easier access to either citizenship or residency. Thousands of wealthy people acquire passports of other countries via CIPs every year. In 2014, the global rich spent an estimated $2 billion acquiring nationalities.

The wealthy already diversify their business assets for protection. Now they want to ensure their residency is diversified as well with a portfolio of passports. A second passport is more than a hedge against political uncertainty, it enhances the mobility of the rich. Passports from Iran or Pakistan, for example, will get you into fewer than 40 countries visa-free, but a passport from St. Kitts and Nevis will get you into 131. By selling passports, St. Kitts and Nevis slashed its debt from 164 percent of GDP in 2010 to 104 percent of GDP at the end of 2013. By 2014, passports were the country’s biggest export, and income associated with the passport business accounted for at least 25 percent of GDP.

Dominica offers dual citizenship at a budget price of $100,000 with no residency requirements and it comes with other useful perks such as no tax regulations on foreign-based income, wealth, and capital earnings. While being a British colony it retains certain privileges such as freedom to start a business in other British Commonwealth countries.

The government of Cyprus perk offers access to the European Community and its ‘golden visa scheme’ is a lucrative source of revenue, generating £4.3bn (€4.8bn). Cyprus made it even easier for rich foreigners to gain citizenship in 2016. An earlier requirement for investors to have at least €5m in domestic assets was reduced to €2m.

Malta started selling citizenship for a fee of €650,000 with no residency requirements. In the first six months, more than 200 investors signed up, earning the government $200 million. Because Malta is a European Union member, citizenship also gives holders the ability to travel and settle within the European Union.

Not all countries sell citizenship outright. Some, including the United States and the United Kingdom, offer residency with a path to citizenship to wealthy investors. Both countries expect investors to spend roughly half the year in residence for several years before applying for citizenship. In the US aspiring citizens who invest US$500,000 and create 10 jobs can apply for an EB-5 visa. An investor who can show that a project creates or preserves at least 10 jobs can get a green card and eventual citizenship.

The UK requires an investment of at least £2 million. Applicants are eligible for ‘indefinite leave to remain’ after five years. But the government recently added fast-track programmes for people who invest £5 million (requiring a wait of only three years) and £10 million (a wait of two years).

Australia announced its Premium Investor visa, nicknamed the platinum visa. That nation already has a golden visa, called the Significant Investor visa, which offers permanent residency after four years in exchange for an investment of A$5 million. More than 436 visas have been granted under the programme, bringing in more than 2 billion Australian dollars in investments. The new programme will give faster residency (in just 12 months) in return for A$15 million in investments.

Portugal started a ‘Golden Visa’ program in 2012, under which the purchase of a property worth at least €500,000 will get you a residence permit. Spain implemented an almost identical programme. Greece hands out residence permits for the purchase of a property worth €250,000. In Hungary, you can buy residency by investing €250,000 euros in a five-year state fund. The Netherlands has jumped on the bandwagon: an investment of €1.25 million in the Dutch economy will entitle you to live in the country.

Some critics suggest countries offering citizenship or residency for cash are aiding and abetting fraudsters and criminals. As countries around the world compete to attract global millionaires and billionaires who are the real economic migrants, those who really do require a safe haven, fleeing from war, hunger and economic hardships, do not receive a warm welcome. The xenophobes who denounce immigration because it supposedly changes their nation ignore that parts of their country are unaffordable to locals due to the increase in house prices.

Inside world socialism, there will be no countries and no national borders. Everyone on Earth will be free to roam the whole world without passports or visas, free to settle wherever they desire or for as long as they wish.

ALJO

Cooking the Books: Clueless (2012)

The Cooking the Books column from the January 2012 issue of the Socialist Standard

One of the first things George Osborne did on becoming Chancellor in May 2010 was to headhunt a whizz-kid economic forecaster to head a new Office for Budget Responsibility (OBR). For Osborne’s 2010 budget the OBR forecast that GDP would grow by 2.3 percent in 2011. It also made forecasts for the years up to 2015. We commented in this column in August 2010:

  Long-term predictions are even less reliable. Even so, the OBR has indulged in this, predicting (and we record the figures for future reference) that in 2012 growth will be 2.8 percent, in 2013 2.9 percent, and 2.7 percent in 2014 and 2015. This is not worth the paper it’s written on. It’s like the Met Office predicting a barbecue summer in two years time.

In his Autumn Statement on 29 November Osborne revealed that the OBR had gone back to the drawing board and come up with some new figures:

  They expect GDP in Britain to grow this year by 0.9% – and by 0.7% next year. They then forecast 2.1% growth in 2013, 2.7% in 2014, followed by 3% in 2015 and 3% again in 2016.

Given the unpredictable nature of capitalism, the chances are that the figures for the years after 2012 will turn out to be just as wrong.

The day after the Autumn Statement, there was a one-day public sector general strike. For the occasion, the Morning Star, which is close to the “Communist Party of Britain” (the nearest thing to the old “Communist” Party), brought out a special, free edition. It contained an article by Jerry Jones, the economic expert of the Morning Star and CPB, which revealed that those at the opposite end of the political spectrum to Osborne are just as clueless.

The CPB claims to be Marxist but Jones’s analysis was not based on Marx’s view that what drives the capitalist economy is investment by capitalist enterprises in search of profit. He argues that, on the contrary, capitalism is motivated by “economic demand” as if it were a system geared to what people want to buy; and that the current economic crisis is not a lack of profits but a lack of paying demand.

From this faulty analysis his faulty conclusion follows: that the state should invest in new productive activities, so putting money into workers’ pockets and increasing economic demand that way. This is Keynes rather than Marx, but where’s the state to get the money to invest? Easy:

  The fact is that governments could simply tell their central bank – the Bank of England in Britain’s case – to print the money or its electronic equivalent and hand it over to the government to invest.

Jones himself then poses the question: “But doesn’t ‘printing money’ cause inflation?” He answers “No” on the grounds that the “true cause” of inflation is not “too much money floating around” but is “always insufficient supply, or investment, to meet growing economic demand.”

But, in the end, this is the same thing. The price of any good will go up if the paying demand for it exceeds its supply but, since paying demand is generated in production, the only way that total demand can come to exceed total supply (Jones’s assumption) is by it being inflated by the government “printing more money” (more accurately, printing more money than the economy needs).

The inflationary policy advocated by Jones might temporarily induce some increased production but would eventually lead to “stagflation”, as it did when tried in the slump of the mid-1970s. The Morning Star’s Keynesian reformism is not a viable alternative. Only socialism is.

Cooking the Books: Growth of What? (2017)

The Cooking the Books column from the March 2017 issue of the Socialist Standard

In an article in the New York Times (6 February), 'The Economic Growth that Experts Can't Count', Patricia Cohen reported on criticism by some economists of increases in Gross Domestic Product as an adequate measure of economic growth. GDP, she wrote, 'is designed to measure production and just production – not welfare or happiness.'

'At its most basic, G.D.P. is calculated by looking at prices – the price of materials, workers, overhead and so on that it costs to make a product and the price that consumers in turn pay for that product. And while prices can be measured, they don't necessarily reflect the value of quality and experience. As far as G.D.P. is concerned, a delectable $20 meal that would wow Julia Child is equal to a rubbery, tasteless one that costs the same amount. The growing suspicion, however, is that in a digital world overflowing with free services like Facebook, Google and YouTube, price is an increasingly ill-suited proxy for value.'

This is true. GDP does not measure use-value (Cohen's 'value of quality and experience'); it measures only exchange-value expressed as price, or monetary value. This is the only sort of value that capitalism is concerned with increasing. Although what is produced does have a use-value (otherwise no one would want to buy it), this is not the aim of production; it's profit, the difference between what a capitalist firm pays to produce something (the exchange-value of the materials, energy, labour-power, etc) and what it obtains from selling it (the original exchange value + the new exchange value added in the course of production).

GDP is a measure of the exchange-value of new wealth produced as commodities in a country in the course of a year. 'Growth' is the amount this increases from one year to the next (when it does increase, that is, as from time to time it falls, as after the Crash of 2008).

GDP is calculated by adding up the 'value added' (the term actually used by national accounts statisticians) in each branch of industry or line of activity. Basically, this is the difference between what, apart from labour power, was paid for the materials, etc to produce goods or services  and the price obtained from selling it. In Marxian terms, very roughly, surplus value (s) + variable capital (v) as the wages and salaries of productive workers.

Supporters of capitalism say that growth in GDP is a good thing as it makes us all better off. They argue that, if the population remains the same or increases at a slower rate than GDP, each person has more. On average maybe, but this does not mean that everybody actually gets more. That would be to assume that the new wealth was evenly divided, which of course it is not. In practice, given the inequality of wealth ownership that is the basis of capitalism, 'to him that hath shall be given' and the rich get richer while the rest of us stay more or less the same.

In any event, as Cohen noted, GDP is not a measure of human welfare. It does not measure use-value. In fact, it includes products that are useful to capitalism but of no use to human welfare, such as arms and financial services. Bourgeois economists get into difficulty over GDP because, according to them, a good's price reflects its 'utility'. So they think that GDP is a measure of use-value as well as of exchange-value. But GDP can't count both as that would be to compare apples and pears.

Ironically, Marxian economics sees GDP for what it is – a measure only of the total amount of new exchange-value created by labour in the course of a year.