Health and social care and education are now just unaffordable. There are too many old and sick people and too many people want to go to university. We can’t afford it. We have to do something different, they say.
However, affordability at the level of a nation is widely misunderstood. The common metaphor for a nation’s finance is drawn from household budgets and an appeal to prudence. Dickens expressed this through the character of Wilkins Micawber in David Copperfield,
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
This we are told is the basis of sound fiscal management of a national economy – the books should be balanced. We are reminded of this on a daily basis in the news and media. Recently when the UK Prime Minister, Theresa May, announced additional funding of £20 billion for the National Health Service, the first questions from the press were “where is the money coming from?” and “will there be additional taxes to cover the cost?” The Micawber principle is deeply embedded in public discourse. Indeed to suggest otherwise is considered to be incompetent or economically reckless, or both.
What the mainstream media rarely talk about is the differences between a national economy and a household. The difference is very important in understanding the nature of public spending. What makes a household different to a nation is that most nations are the issuers of the currency used in that nation. Households do not in general issue their own currency. This is an essential fact in understanding a nation’s finance. The demand for that currency is a consequence of taxes having to be paid in the national currency.
The next bit takes a little bit of thinking about. It is worth allowing your imagination space to contemplate what I am about to say to assure yourself of its validity.
The sum of all surpluses in a national economy must equal the sum of all deficits.
Let us unpack this with a thought experiment. Imagine there are just two of us on a fabled desert island. We decide that we are going to issue a currency and agree that is the only legal tender on the island. If one of us, for some reason or another is acquiring more currency than they are spending, then that person is running a surplus. It follows then that the other person must be in deficit – they are losing more currency than gaining. Of course, no one would issue a currency for two people, but this does illustrate how in a simple case, with a single legal tender, deficits and surpluses must sum to zero. If we now start adding people into the economy the same accounting fact must hold; all deficits and surpluses must sum to zero since there is only one source of currency.
The zero-sum of deficit and surpluses is profoundly different from the Micawber principle of income and expenditure. The implication of this is that if the government tries to generate a surplus by reducing the difference between spending and taxation, members of society will have to start to carry a deficit (and accumulate debt) in order to meet the needs of the nation. At the same time, public services are run down as result of lack of funding. Yet a government, as the currency issuer, has the capacity to create money to spend on things like health and education. In fact, a government with a sovereign currency (i.e. one that is not pegged to another currency) does not need to borrow money to spend, it has the power to create currency to spend on the things we need, like health and social care, education, housing, welfare, infrastructure, defence and an industrial strategy (secure and meaningful jobs).
It is incorrect then to argue that public services are unaffordable, the choice is to fund them through public funding or through private debt. I know which I prefer. Political activists are quite right in saying that austerity is a political choice and not an economic necessity.
I am going to end here, but no doubt, there are many questions from this which I will address in subsequent posts. Questions like:
How does this relate to the £2 trillion national debt in the UK?
Doesn’t currency creation lead to massive inflation?
Why does the mainstream media insist on the Micawber principle?
I have not referenced these ideas and none of theme are mine, so I would like to acknowledge some sources, past and present: Bill Mitchell, L Randall Wray, Stephanie Kelton, Warren Mosler, Ellis Willingham, John Maynard Keynes, Karl Marx, Win Godley, Alfred Mitchell Innes and all the Modern Money Theory proponents on social media #learnMMT
Judging by the polls, as UK Prime Minister Theresa May announced a snap General Election on the 18 April, you would be forgiven for thinking that the result is a foregone conclusion. And, for that matter, with a resounding Tory victory. But this election is anything but a foregone conclusion. It is set to be closer than commentators predict. People must now make a serious choice, a serious decision — rather than simply express a preference.
And already, after a week of campaigning, the polls have narrowed. Even though the Tories continue to retain a commanding lead over Labour Party, it is evident that the Labour Party have gathered some momentum. Compared with the Tories, the Labour Party have campaigned very effectively in this first week.
The following is the standing ovation Jeremy Corbyn received from the headteachers at the National Association of Headteachers (NAHT) conference in Telford 30 April 2017. While I expected him to be given a polite reception, I was surprised by this. There is clearly something in the air.
And so, there is everything to play for.
An end to austerity, neoliberalism and privatisation in education
There probably never has been a more important election for education. The choice between the two main political parties has never be starker. The Tories will continue with academisation, free schools, privatisation, marketisation, a return to selective schools and a school choice agenda. While the Labour Party plans to restore Local Education Authorities and create a National Education Service. The Labour Party plans to bring education back into the public sector.
This general election could mark the end of an education policy consensus that has existed since the 1970s. Since then, education policy has been moving toward marketisation and privatisation. Schools have increasingly come to compete with one another; with an emphasis on centralised accountability (which is frequently punitive); high-stakes assessment and progress measurement; surveillance and performativity; managerialism and hierarchical management structures; intensification of teachers work; and the undermining of teachers’ pay and conditions.
Some argue that these reforms have improved the educational outcomes of many children. They also argue that closer the scrutiny of schools ensures that students make progress and achieve in final examinations. And that this, they claim, has improved the quality of teaching and learning.
These are exaggerated claims, educational reforms have led to more heat than light. There has been lots of noise and increasing demands placed on schools and teachers, yet with very little real insight into the implications of policy. Furthermore, claims made by successive governments are too often based on a selective reading of data. They ignore the complexity of education and identify simple—and frequently overly reductive—measurements to try and determine the impact of policy.
While I don’t personally have a particular passion for international comparisons, the following data visualisation for reading performance in the OECD PISA tests shows negligible change in students’ reading performance in England. There is a similar picture for mathematics and science.
That is not to say that the general level of teachers’ knowledge and skill has not improved over the last 40 years. Education research, theory and practice has developed in that time, comprehensive schools have matured and developed. But this is in spite of policy rather than because of it. I would go as far as to say that marketisation has hindered the progress that teachers, themselves, have tried to make through this time.
A new economics for a post-Keynesian age
It is important to recognise that the Labour Party’s education policy, like its other public sector policies, is based on a different kind of economic approach. All governments in the UK since the latter half of the 1970s have adopted a similar economic approach. An approach that prioritises and privileges the freemarket. The privatisation and marketisation of education is a consequence of this economic thinking. The electorate are encouraged to accept freemarket policy in education because it will supposedly give them more choice. Furthermore, choice and competition will motivate schools and teachers to deliver higher standards. However, there is little evidence to support this conclusion.
Privatisation and marketisation in state education is justified with claims of increased efficiency, higher standards and the advantages of parental choice. These disguise the economic thinking and political choices that drives policy in this direction. The real reason is a response to the problems faced by capitalism more generally. Capitalism is a system of political economy which involves using resources, money and labour to return profits. For 200 years it has been the dominant political economy in the UK.
In the 1960s, capitalism was undergoing one of its periodic crises. Capitalists were finding it increasingly difficult to sustain profit levels. Over the next decade governments used economic policy to make it possible for capitalists to preserve their profits. A key part of which involves reducing the role of the state and the control of state spending. Subsequently, all governments have been preoccupied with reducing public sector deficits. In other words, reducing the amount of public spending and reducing the size of the state. Additionally, and increasingly, governments have privatised and outsourced public services. The argument has been, of course, for efficiency and choice. When in fact the aim has been to preserve profits in the private sector.
In 1988, with the introduction of the Education Reform Act, the process of the privatisation of education was enacted in legislation. City Technology Colleges under Conservative governments in the late 1980s and 1990s were the initiates of privatisation. The New Labour government refined this idea and introduced their Academies programme. The process was further accelerated under the Coalition government where Multi-Academy Trusts were established as private limited companies and billions of pounds of a publicly owned assets were transferred to the private sector. The history of this has been one of cross-party consensus in the privatisation of education by stealth.
This is what is referred to as neoliberalism. It goes under many names: liberal economics, deficit reduction, living within our means and austerity. All these mean the same thing, the preservation of the profitability of capitalism. While I do not intend to go into it in detail here, the reduction in public sector spending leads to increasing levels of private sector debt. In addition, the power of individuals to organise at work and protect pay and conditions is undermined by limiting the powers of Trades Unions. Neoliberalism leads to growing inequalities in society, the rich get richer the poor get poorer and in turn this leads to social unrest . It gives an opportunity for the far right to promote simple divisive answers, attractive to those that have not benefited from neoliberalism.
The following illustrates the trend in wealth inequality in the UK. Notice the upward trend after long period of decreasing inequality in the first part of the twentieth century.
The following shows the growth in wealth inequality (The Gini coefficient ranges from 0 for perfect equality to 1 where one person has the majority of income). Note how this rises in the mid 1970s to the 1990s where it has remained constant subsequently.
The following shows UK inequality compared with other nations based on the Gini coefficient.
This video illustrates the extent of inequality in the UK.
Teachers and schools must cope with the challenges of high-stakes inspection and accountability. Furthermore, they must respond to the social problems created by neoliberalism. The managerial and hierarchical system combined with accountability results in a bureaucratic system. The bureaucracy places further demand on teachers since it undermines their capacity and power to use their judgement in their job. While efficiently run schools are often characterised by systems, rules and procedures, these often become a dominating rather than supporting structure. This limits teacher agency within this environment.
We are in a period of economic change. The Global Financial Crisis of 2008, was the clearest of indicators of the failure of neoliberal economics. Mounting private debt and an unregulated financial sector in the USA led to a truly global financial collapse. Governments, in leading nations worldwide, have subsequently failed to heed the warnings and reform their economies. Instead they have continued with neoliberalism and austerity.
John Maynard Keynes recognised that when the economy has excess capacity, it is a necessary for the government to inflate the economy through public spending. Currently we have excess demand for health, social care, education and training. By increasing spending, we can fulfil more of this demand, and improve the quality of our education system. This is a necessary and valuable investment in our education system.
Increasing public spending, making taxation progressive (fairer), regulating the financial sector and controlling the movement of capital will reduce the level of wealth and income inequality in the UK.
While the Labour Party has not published its General Election manifesto yet, this has been the essence of the economic policy put forward by Jeremy Corbyn and John McDonnell since they assumed the leadership of the Labour Party in September 2015. It is for this reason, they have been vilified by mainstream media and establishment. This proposal for wealth redistribution is an attack on the 1 per cent, the same people who have controlling interest in the media and in establishment institutions. It is little wonder that Corbyn has been subject to ferocious attacks in the media.
Labour’s education manifesto: the National Education Service
There have been several policy announcements. The most important, and the most overarching policy proposal is the National Education Service. This is analogous to the National Health Service, a cradle-to-grave national service which provides education for all and free at the point of use. This provision is from early years right through to higher education. This provides a complete and complementary collaborative service for the provision of education.
It will not be a fragmented system of providers competing for resources or competing to educate pupils and students who require least investment. The National Education Service restores collaboration. It would put knowledge, skills and experience at the heart of its mission. This is because, under a different economic model, organisations would not be preoccupied with narrowly defined outcomes as they are in the current neoliberal system.
There would be less emphasis on bureaucracy, hierarchy and managerialism. The focus of organisational leadership would be on collectives, comprising stakeholders, practitioners and experts. All with diverse views and experience, but with a commitment to developing education through participation and democratic approaches. Leadership becomes important in a different way. No longer will it be presidential or in the style of a chief executive officer. It will be a role in which the leader must convene and ensure effective participation, deliberation and decision making.
The current neoliberal system tends toward bureaucratic processes, which undermine the power of practitioners to use their judgement. The reality teachers’ day-to-day practice involves moral judgement much more than it does logical or scientific reasoning. Practitioners, teachers and education workers need to be empowered to use their judgement. They also need opportunities to develop and test their judgement, they need sophisticated understanding of their professional learning and development. They also need to contribute to the overall philosophy, rationale and principle of the National Education Service.
To support a National Education Service requires first-class research and development. Currently there are calls to make educational research a science. It isn’t a science. But it can draw on scientific principles. But central to the development of educational policy and practice is the relationship between theory and practice. This means that human judgement must intervene in logically derived conclusions. That is not to say that scientific research is not an important part of educational research. Although, it is a mistake to believe that by simply undertaking a randomised-control trial education research becomes scientific. Merely following scientific procedures does not mean that we have been scientific. The process of educational research has much in common with science in that we scrutinise our knowledge of the world, elaborate on existing theory and attempt to make predictions. The key difference with educational research is that it is in the field of complex human relationships, cultures and practice. It is necessary to recognise that a refutation or a new theory does not by itself change behaviour. Advanced educational research acknowledges the humanity of thinking and behaviour.
One of Jeremy Corbyn’s aspirations is to transfer more power to the people. The participatory nature of the National Education Service allows for greater democratic participation of practitioners and stakeholders. It would also see the restoration of the Local Education Authority. This would also restore education to the ownership of local communities, with local democratic accountability.
Jeremy Corbyn speech to the NAHT can be found at the following:
Further details about education policy have been announced. The Labour Party will reverse the £3 billion worth of cuts that the Tory government have planned for schools. They will also abolish tuition fees for undergraduates. They have announced £160 million worth of funding for arts education. There will be universal free school meals for primary children and the introduction of VAT on independent school fees. They will reintroduce Educational Maintenance Allowance for young people still in education. I also expect to hear further support for Further Education, adult learning and part time courses such as those with the Open University. Similarly, I expect proposals for the funding of higher degrees and research degrees at masters and PhD level. I would also expect to see the recent Higher Education and Research Bill, which legislates further marketisation and privatisation of higher education, to be repealed by a Labour government.
Jeremy Corbyn speech to the NAHT can be found at the following:
While the Labour Party’s proposals are still taking shape, an understanding of the underlying economic vision that is driving policy proposals, means it is possible to give a sense of what a future education system could be like. It would be an inclusive system for the many and not the few. It would promote social mobility, and help young people in becoming educated and informed participants in democracy.
Though there will be cynics who will say this is not possible, who will say that it cannot be done and who do not trust the inherent good nature of humanity. It is this cynicism and apathy that is the barrier to an ambitious future of something fairer and better.
For the first time in my life, we are closer than ever to something truly transformative. And it is through working together, and a belief in something better, that this vision can be realised. It is not dependent on a single leader to deliver it, like in the past, but it is dependent on a political leader to facilitate and empower the many to turn a collective vision into reality. As Corbyn recently described his own leadership style:
For many years, I couldn’t see much beyond how so many political leaders manipulated us while giving in again and again to vested interests. I didn’t want to be like that. And it wasn’t clear to me there could be another way. But I’ve learned there is. Whereas insecure leaders want to feel stronger by asking you to give them more power. I recognise strong leadership as equipping you with more power…Because there’s no doubt that these are anxious times. Individually, more of us face uncertainty at work. Nationally, we wonder how we will make the transition out of the EU in a way that protects jobs and living standards. And globally, we wonder how safe we are as extreme right wing movements and violent conflicts spread. I hope you can see now that there is more than one way to respond. We could seek a fragile calm. And hope someone in power knows what they’re doing and will guide us through. That means looking to whoever’s in charge and welcoming their reassurance. We don’t look further, we don’t ask questions. It’s the response the few have bet on the many settling for. I’m in this job because I believe there is a better way to respond. It’s about rejecting fake reassurances or simple slogans from government. It’s about sharing ideas and deciding upon real and lasting answers. We are not going to have free thinking shut down by a hostile media or an elite that scoffs at anyone who dares to step out line. No, each of us has a contribution to make. We have ideas for a better tomorrow and we are going to respond together. Jeremy Corbyn, Leader of the UK Labour Party, April 2017
As Ann Pettifor’s book was published, it was both amusing and perhaps a reflection of current times that one of the most complete and effective reviews of the Production of Money: How to Break the Power of the Bankers was in Vogue. The following are some thoughts on the economic system and some observations on Ann Pettifor’s book, which is well worth a read. It is succinct and readable, but still requires some thought and concentration.
My interest in economics has grown considerably over the last couple of years. This was prompted by a more robust anti-austerity line taken by the Labour Party on the election of Jeremy Corbyn in 2015. Like many people, I understood a nation’s economics as much like my own income and expenditure, that it was an exercise in balancing the books. So my initial question was how can a political party be serious about anti-austerity, if the books have to be balanced?Continue reading “The Production of Money: Ann Pettifor’s new book and its implication for school spending”