This book is an eye opening and mind expanding read. An accessible work by a world renowned economist. It sets out why the global economy is in the mess it is, the dangers of fiancialisation, and what needs to change so that meeting the basic needs of people around the globe becomes front and centre of economic policy. There is much in this volume that needs to be shared and discussed at every level in society. More eyes need to be opened to see what is happening and minds expanded to imagine what is possible. ‘The Destiny of Civilisation’ really needs to be in everyone’s hands.
Working through Michael Hudson’s latest book really is worth the effort. It is challenging only in that there is so much to take in on every page. The foreword by Lau Kin Chi explains that in contemporary Chinese the word for ‘economy’ has its roots in 6th-7thcentury terms that translate into “Governing the world and caring for the people”. This aptly sets the tone for the book and where modern economics appears to have lost the plot. The book sets out the differences between:
- Finance Capitalism where those with assets that they have created or inherited, use them to extract rentier income from others and
- Industrial Capitalism where entrepreneurs make things to sell by investing in ideas, people and technology to produce them.
He shows how the pillars of Socialism such as public services for education, public health, transport and housing were vital in creating the industrial economies of the 19th century in Europe and North America. Yet in a classic case of “Do as we say, not as we did to get rich” [p.107] developing nations seeking to industrialise are being told to sell off their state owned public services!
Below are highlighted just a few of the key points noted on my journey through ‘The Destiny’, but above all there is the recurring despair that society repeatedly fails to learn the lessons from history.
The ‘FIRE’ Sector
One of the core threads throughout is the impact of the FIRE (Finance, Insurance and Real Estate) sector on the economy and the power that it exerts on government and policy. One aspect of neoliberal ideology is that all income is earned and contributes to output. The author points out that most fortunes are made by capital gains not by earning profits from making products [p.38].
So it is that gains made in property, or financial products based on the increasing price of property, are now included as a factor of GDP. Currently…
GDP statistics show a rising proportion of GDP being rentier income from banks, bond holders, absentee landlords and monopolists. [p.238]
Rising house prices are it seems a good thing, as they boost our economic growth! But:
No classical economist describing industrial capitalism imagines that the way an emerging middle class would get rich would be to borrow to buy real-estate whose price would be inflated by bank credit [p.66]
The extent to which we are being conditioned to accept that property inflation and all the related banking, legal and insurance services should be counted as part of GDP is a recurring concern.
To defend their ideology rentier interests buy control of public media and sponsor a self serving academic curriculum to influence government policy makers and shape the perceptions and value judgements of voters. [p.177]
Those with property portfolios are happily gaining wealth while they sleep, and such concerns are largely denied or ignored by the middle classes. Alarm bells though are ringing and from early in the book we are warned that the…
Financialised economies can only be kept solvent by turning in to a Ponzi scheme [p.36]
Land tax
Land tax appears to be the tax that must not be mentioned. Historically most tax was collected as land rent, today it makes up less than 5% of tax revenue. [p. 80].
One of the examples used to illustrate why land taxes should be used more widely is the extension of the Jubilee line extension to Canary Wharf in the 1990’s. The project cost £3.4 billion and was paid for by the tax payer. The value of property along its route increased by £10 billion [p. 75], but there was no discussion or debate about whether the cost of the public investment should be recovered from the land owners that had so clearly benefited.
Attempts to reintroduce land taxes or taxes on natural resource extraction are met by the full fire power of the media and legal challenges that only the wealthy can assemble. They succeeded in driving out a proposal to unfreeze property taxes to fund public services in California where ‘Proposition 15’ in 2020 was defeated [p.179] and killing the short lived Mineral Resource Rent Tax in Australia [p.143].
Debt Cancellation
People today have less and less disposable income as high rents, student debt, and the cost of living leave so little each month for discretionary spending, which in turn acts as a drag on the entire economy.
It seems that 3,000 years ago kingdoms in the Near East understood more about how to manage debt, money supply and how to control the rich and powerful than governments do today. The ancient Kings understood very well how the level of debt could strangle economic activity, and would head off the danger by periodically cancelling debts. If rich families started to accumulate too much wealth or land, potentially threatening the power of the King, then land rent and property redistribution would be used by the palace to head off the rise of any oligarchy.
“Western society’s reluctance to annul unpayable high debt burden remains the great ideological tragedy of today’s world” [p.101].
Debt cancellation needs to be part of debate today, the debate itself would help to broaden the general understanding of why it is that nations need to be in control of their credit and money supply so that government has access to all the tools it needs to manage an economy for the benefit of the people.
The extraordinary power of the United States
At the outbreak of WW2 in Europe, US policy was to make sure that it became the dominant global power. As Britain stood alone against Nazi Germany in 1940, the terms of the ‘lend lease deal’ offered by the US was bluntly “your money or your life”. When the Axis powers were defeated the US set about subduing its allies and further loans to Britain and other European nations opened up access to colonies around the globe for US corporations to exploit [p.188].
By the end of the war the US held 59% of the world’s gold reserves and was in charge of the world’s money, controlling who to lend to and how much to lend [p.192]. The IMF and the World Bank were used as vehicles to deliver advantage to the US, and to lock countries into debt and dependency.
By 1971 all US gold was used up funding the military spending needed for wars in Korea and Vietnam, and the ongoing Cold War. Within a few decades the US had changed from the world’s largest creditor nation, to the largest debtor nation. The dollar was cut loose from gold and the US ironically gained even more power as, in the absence of the gold standard, the world moved on to US Treasury Bonds locking central banks in to US securities [p.195]. Later as the Soviet Union disintegrated we read how the US corporations plundered the wealth of Russia much as the East India Company did in 18th Century India.
Unique among the nations, nobody expects the United States to pay off its huge national debt [p.186] and along with a few other nations the US remains above international law, as it will not be a part of any international organisation unless it has the power of veto.
Regulatory Capture
Around the world the power of oligarchs has been allowed to rise unchecked to take control of governments and economies. In the US and UK influence has been bought in both the major parties of government, leaving
Little opportunity in US or UK to vote for policies supported by citizens [p.46]
This was no surprise as many (myself included) have written about the lack of representation and accountability in parliament. This influence ensures that in the US popular policies such as the provision of Public Health Care, or here in the UK taking key services such as water and energy back into public ownership, will not be put to the people.
A counter rentier programme
Towards the end of the book the author explains that
All economies are planned. The key to understanding the dynamics is to ask who is doing the planning and in whose interest. [p.220]
We can now see more clearly who is really in control, and how the planning of our economy has been taken away from the people. The direction of travel set out by the neoliberals is to turn countries into US economic satellites. Their agenda includes: the privatisation of Banks and Credit, Minimal regulation, Privatised Public Utilities, Deindustrialisation and Increasing the Debt Burden … [p.213], which the author sums up as a prescription for economic suicide:
“… to make populations and businesses increasingly indebted and dependent on financial and property owning rentiers within the US orbit” [p.214]
People across the world are now enslaved paying rent, debt interest, and for goods and services for vital needs to corporations controlled or owned by the wealthiest 1%. The scale of this enslavement has been achieved by financial tools rather than military conquest.
Michael Hudson concludes by setting out a programme to refocus economies (like UK’s) away from the neoliberal ideology and to help those countries not yet victims of the neoliberal agenda to avoid it. The key measures include: the public ownership of natural monopolies, taxing unearned income and the introduction of land taxes [p.225]. The first step though must be for the people to take control of the economy so that it really does put caring for all the people first.
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