Beginning to See the Light: Britain is open for business

 

‘Career opportunities, the ones that never knock

Every job they offer you is to keep you out the dock

Career opportunity, the ones that never knock’

 

Recent interest rate increases have done little to show me that central banks have any understanding of economics.

 

Whilst I readily accept that rates have been too low for too long. In addition, the US economy, which always seems more resilient and buoyant than our own, perhaps justifies higher interest rates.

The reason they cite for the rate increases is inflation, currently running at 7.9% in the US, and 6.2% in the UK. Inflation was the scourge of governments in the 1970s and has left last marks on their successors.

There are two main types of inflation, one created by excess demand (‘demand pull’) and one created by rising costs (cost push). How you deal with inflation depends on which you are impacted by.

Traditionally, interest rates have been the lever used to control demand pull inflation. If inflation is high rates increase, if it is too low rates are lowered to stimulate demand, referred to as monetary policy. Unfortunately, this doesn’t help us as we are experiencing cost push inflation.

If anything, demand is falling, people are worse off and can’t afford to consume, sometimes not even the basics.

Poverty is prevalent in both economies; in the US 11.4% of the population live in ‘poverty’ ⁽¹⁾, in the UK the numbers is 22% ⁽²⁾.

A recent report published by the TUC found that real weekly wages had fallen from £553 in 2008 to £550 in November last year, based on calculations using the current CPI rate ⁽³⁾.

It isn’t excess demand that is creating inflation. Everything you read confirms it is based on rising costs caused by over-stretched supply lines post Covid, and rising energy and commodity prices. Raising interest rates will do nothing to change the course of inflation, they will only serve to heap more misery on much of the population.

 

‘Raising interest rates will do nothing to change the course of inflation, they will only serve to heap more misery on much of the population’

 

If anything, we are more likely to return to another of the 1970s more unpleasant memories, stagflation, rising prices and falling growth. The conditions are set; rising commodity/energy prices, and stagnant incomes, and a governor telling people not to ask for wage rises, or as Marie Antoinette reputedly said, ‘Qu’ils mangent de la brioche’.

Part of our problem is that, as a county, we have turned essential goods and services into financial assets. Owning these assets has become a reliable way to extract rents while doing very little, putting the requirements of a decent life in the hands of private gatekeepers whose only concern is to maximise their rents. The result is an economy that systematically inflates costs for consumers while also driving down wages. For example:

 

1. When housing costs are factored in living standards have fallen for most working-age households since 2002. House prices have risen 20% since the start of the pandemic to record highs, both in absolute terms and relative to earnings.
2. For people renting C.33% of their income is allocated to rent. Average rents have risen 8.6% in the past year and now stand at over £1,000 a month. Renters’ losses are landlords’ gains, especially in the ‘buy-to-let’ sector.
3. Britain’s childcare system is the third most expensive in the world: bad news for parents but good news for the private equity investors buying up nurseries.
4. 10% of the money spent on social care is given to companies that own and control assets within it
5. Rail fares have risen 20% in real terms since privatisation
6. Water bills have risen by 40%,
7. The monopoly owners of the grid (electricity) have 40% profit margins and pay out over £1bn a year to shareholders.

 

The Bank of England governor, Andrew Bailey, recently warned against the threat of inflation caused by increasing wages was driven by what is referred to as the ‘wage-price spiral’; rising wages drive prices up further, leaving nobody better off. This supposes that the interests of workers and consumers are uncorrelated, if one gains, the other must lose.

This ignores the owners who, in the UK, have the power to set both wages and prices. This has come about due to Tory government’s continuation of deregulation and the decline of trade unions. This has enable business to continue growing their profits while the less powerful workers are expected to ‘moderate’ their wage demands.

There is a systemic inbalance because as the FT commentator Martin Sandbu observes, ‘mainstream economics has a ‘blind spot’ for the power of capital and correcting this would mean asking uncomfortable questions about ‘who bears the cost’ of rising inflation and who benefits.’

An example of this are rising energy costs; whilst millions wondering how they will heat their homes, BP’s chief executive boasted that they turn his company into a ‘cash machine’. BP’s and Shell’s profits soared to a combined $32bn last year, with BP shareholders standing to benefit from a $1.5bn share buyback.

Businesses have the power to decide who suffers from rising costs; is it customers via increased prices, or shareholders by squeezing margins? When supermarkets increase prices, it impacts directly on people’s ability to feed themselves. Despite the obvious social cost of their decision many still decide that their duty lies with maximise investors’ returns.

In France, state-owned EDF has shielded citizens from the pain of rising energy costs. In the UK, privatisation has left the choice with rentiers.

In the US commentators warn that the real danger is not a wage-price spiral but a ‘profit-price spiral’, with profit margins are at a 70-year high and, rising 37% in the past year alone. The situation was summed up by one asset manager, who said: ‘What we really want to find are companies with pricing power. In an inflationary environment, that’s the gift that keeps on giving.’

 

‘What we really want to find are companies with pricing power. In an inflationary environment, that’s the gift that keeps on giving.’

 

As a statement the naked self-interest shows the unacceptable face of capitalism, the suffering of the majority benefits the few. We were treated to another example of this last week ago, when P&O Ferries sacked 800 British workers via ‘Zoom’, replacing them with cheaper overseas workers. The owners, DP World (‘DPW’), owned by the UAE government had previously benefitted from £10m in furlough payments funded by British taxpayers.

P&O’s chief executive, Peter Hebblethwaite, said the company had to sack workers and replace them with cheaper crew to remain viable. This is simply not true; this month DPW announced bumper profits of $896m (£751m) in 2021, up from $846m in 2020.

DPW’s priorities sum up all that is wrong with big business, they spend a £147m sponsoring European golf ignoring the £146m deficit in the P&O pension fund.

This happened whilst the PM was running around the Gulf States jerry can in-hand trying to beg some oil. True to form his spokesman lied saying last Thursday: ‘We weren’t given any notice to this.’ This was contradicted by sources at the DfT said it was made aware of the impending mass sackings Wednesday night.

The government’s reaction has been predictably limp, doing all it can to show that we are ‘open for business’ at all costs, everything else is collateral damage. Grant Shapps, the transport minister. merely rebuked the company. The government is once again looking the other way, letting a foreign state sack workers in Britain from secure jobs and replace them with agency staff.

 

DPW’s priorities sum up all that is wrong with big business, they spend a £147m sponsoring European golf ignoring the £146m deficit in the P&O pension fund

 

Worse still is the fact that DPW is expected to benefit from at least £50m of UK taxpayer support as part of the government’s freeport programme. DPW runs the UK’s second- and third-biggest shipping terminals at Southampton and London Gateway, both are among the first 12-freeports in the UK to be picked by the government last year as a flagship part of its levelling-up agenda.

Each site will receive £25m of seed capital funding from taxpayers to upgrade infrastructure, as part of the scheme championed by the chancellor, Rishi Sunak. Each location also benefits from tax breaks designed to encourage business investment, economic growth and job creation, with an upfront cost to taxpayers worth £500m over five years for all 12 freeports.

Post-Brexit, Johnson Britain would be ‘the best place in the world to work’. Instead, we are levelling down rights, accepting those suffered by workers in the Gulf.

Mick Lynch, the general secretary of the RMT trade union, summed it up:

‘It’s beyond belief that a company which has treated British workers in such a brutal and callous fashion could still be in the frame for a £50m windfall from the British taxpayer. The government should be banning and sanctioning this bunch of corporate oligarchs in the strongest possible fashion until they reinstate the sacked workforce.’

We finish this week with Brexit. Johnson caused fury among political leaders across Europe, and with ‘Remainers’ after he compared the resistance of the Ukrainian people to Russia’s invasion to the UK’s decision to leave the EU.

In a speech to the Conservative spring conference in Blackpool he said that the world faced a moment of choice ‘between freedom and oppression……and I know that it’s the instinct of the people of this country, like the people of Ukraine, to choose freedom, every time. I can give you a couple of famous recent examples. When the British people voted for Brexit, in such large, large numbers, I don’t believe it was because they were remotely hostile to foreigners. It’s because they wanted to be free to do things differently and for this country to be able to run itself.’

There was a series of outraged remarks from EU members as Johnson’s comments suggested that the EU was itself a form of tyranny to be escaped from, mixed with bewilderment as last month Ukraine applied to join the EU.

Ukraine’s president, Volodymyr Zelenskiy’s goal is to integrate deeper into the west, he said; ‘Our goal is to be with all Europeans and, most importantly, to be equal, ‘I’m sure that’s fair. I am sure we deserve it.’

Returning briefly to inflation, aside from the impact of Covid and the shortages resulting from Putin’s war, the other issue driving prices up all over the place is the mounting impact of Brexit.

More and more Brexiters whisper in private what they can’t say publicly: ‘Brexit is a catastrophe.’

 

‘More and more Brexiters whisper in private what they can’t say publicly: ‘Brexit is a catastrophe.’’

 

The true effects of Brexit are yet to be seen as they have been obscured by Covid and Ukraine. The latter has brought European nations together and left the UK trailing behind, while we whitter on about ‘global Britain’ and send aircraft carriers to the far east.

Today we have the chancellors spring statement. As was the case in the 1970s, soaring energy costs cause inflation by driving up prices and deflation as they depress demand in the real economy, leading to stagflation. Sunak should be telling the commons that Brexit was a mistake, and a major rethink of economic strategy is required.

Sunak doesn’t have to worry he is a wealthy man, as are the ‘oligarchs’ Johnson and his mob used to cultivate until the popular tide turned against them.

As Michael Parenti wrote ⁽⁵⁾:

‘The problem with capitalism is that it best rewards the worst part of us: the ruthless, competitive, conniving, opportunistic, acquisitive drives, giving little reward and often much punishment-or at least much handicap-to honesty, compassion, fair play, many forms of hard work, love of justice, and a concern for those in need.’

 

‘The ones you can’t control

Have only one another to depend upon

Displaced from society Outcast we are

We have nothing to live up to’

Notes:

 

1. https://www.census.gov/newsroom/stories/poverty-awareness-month.html
2. https://www.jrf.org.uk/data/overall-uk-poverty-rates#:~:text=More%20than%20one%20in%20five,housing%20costs)%20to%20measure%20poverty.
3. https://www.newstatesman.com/chart-of-the-day/2022/01/uk-wages-fall-back-below-2008-level
4. https://www.ft.com/content/f8f154c2-2e8c-4127-9420-dce26a760502
5. Michael Parenti is an American political scientist, academic historian and cultural critic

 

‘This week we look at inflation and ask the question why increase interest rates as the inflation we have is driven by rising costs, not excess demand. With the cost-of-living crisis we will be seeing stagflation very soon!

I was stunned to see the stat that 22% live in poverty, we should be ashamed.

There is a total structural imbalance in the country, all the power is with asset owners, who almost have the right to decide between life and death. ‘Heat or eat’.

Privatisation is at the heart of this. However, I also point the finger of blame at the city. Lazy, poor fund managers are prospering buying shares that are exploiting situations, rather than doing the job properly and finding businesses that deliver actual value rather than being in the right place at the right time.

The P&O disaster is just another example of the Tory’s prioritising business over people. And, without worrying where the business is based. We are open for business, the cheapest whore on the block.

Brexit was there to make them feel better about themselves, global Britain, etc. The truth is that we are more of a sad irrelevance than ever, selling out the country and our people whenever necessary.

Lyrically, we start with the Clash and ‘Career Opportunities’ which, for many, will get worse not better. I could think of nothing more apt to close with than the Pop Group’s ‘We Are All Prostitutes”. Enjoy!

 

@Coldwar_Steve

 

Philip Gilbert is a city-based corporate financier, and former investment banker.

Philip is a great believer in meritocracy, and in the belief that if you want something enough you can make it happen. These beliefs were formed in his formative years, of the late 1970s and 80s

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