Tuesday, 17 January 2012

Each according to his ability

The spirit of capitalism, we are always told, is risk and competition. One man on the stock-market floor betting his own money and wits against the crowd, the steely eyed industrialist willing a factory into life, strong, determined, and risking his own livelihood for reward. The justification for the massive rewards is the massive risk that you lose everything if you make the wrong judgement.

This has never been the case, but the events of the last four years have shown perhaps the most egregious contradiction between the alleged principles of Western capitalism and its practice. Traders and bankers did not risk their own money, but ours; our pension funds, our sovereign wealth, our savings accounts, and lost. And instead of throwing them into prison, we agreed not only to take the losses, but to keep them as filthy rich as they were accustomed. And now the poor need to pay, even if they don’t have the ability.

Beyond this, the crisis has shown just how bad debt is. To be in someone’s debt is to be in their power. Sovereign debt is giving away our democracy to the money markets. However, there is another way, a truly capitalist response. There are many people who have done very well out of the last thirty years. They have been perfectly happy to take the positive results in personal wealth. Let them take the negative in personal debt.

The idea is elegantly simple, especially through the happy coincidence that the UK’s debt of £900 billion is bang on 10% of what the Office of National Statistics valued its total wealth, £9 trillion. We will put aside for a moment the government’s ludicrous tendency of saying Britain is bankrupt when its assets are ten times its liabilities. Every UK citizen over the age of 18 would take responsibility for a proportion of the national debt according to their personal wealth. No-one under 18 caused this mess. The bottom 2% of households, with negative wealth, did not cause this mess. Indeed, the bottom 50% of this nation own only 9% of the total UK wealth of around 9 trillion. So, of our total debt of around 900 billion, we will claim responsibility for 9% of its debt, around £81 Billion. Take away the 6 million children, and we have an average personal debt of £3375 each. For those of us in the bottom 50%, that is a sizeable sum of money, but that would scale from nothing for those with no assets, to the middle household in the UK, with wealth of £204,000, taking on debt of around £20,000. Again, this is a large amount of money, but remember they don’t have to pay the lump sum up front, just the interest. At an interest rate of, say, 1.5%, that would be an annual payment of £300 a year, far less than Gideon Osborne’s VAT raise cost the average household. Similarly, those older people who have merely had their family home rise in value could spend the rest of their days there, and the amount would simply be deducted from their estate when they pass on.

So what of those at the top? To get into the top 5% of households in Britain means you have assets of £4million, so they pay £400,000 towards deficit reduction or, as I said, the interest of just £6,000 a year, a term’s school fees at St Paul’s. The Duke of Westminster would be on the hook for around 700 million, but considering he made £250 million last year I’m sure he won’t find that too onerous.

This would be a proper distribution of the losses. Those that crashed our economy would have to pay the bill. This might make them less inclined to crash it in the future. More than that however, the £49 billion currently spent on debt interest becomes free to plug the structural deficit. Free of the threats and whims of international financial markets, a truly radical economic reformation of this country could ensue.

It would not be easy. Innovation and hard graft will always be necessary to make the world better for the next generation. Labour creates wealth, and it will always be needed to do so. This paying off of the national debt would be the beginning of a process to use the vast wealth of this country for the benefit of all its people, and to preserve it for future generations. The dispossessed reclaiming what was theirs.

No comments: