[Music]
Okay,
I get the
Welcome to Sputnik orbiting the world
with me George Galloway and No Guyatri.
This week she's researching global
warming in parts where it's warm. China
is an economy like no other. It is the
world's biggest and its disastrous
growth rate has slumped to uh 7%. That
is four times our own. China's is a
mixed economy like ours used to be and
then some. The state still plays the
leading role in the economy which has
protected it from the worst of the
excesses which have devastated western
economies whilst China's has gone from
strength to strength. But no man is an
island and no economy is either. Last
month, the Chinese stock market suffered
massive losses and sent a wave of panic
cascading around the world. To make
sense of it all, I've invited on board
the Sputnik, a man who was once central
to the London Malty of Ken Livingston
and is now a senior fellow at the
Chongyang Institute for Financial
Studies at Renman University of China in
the People's Republic. He's our China
expert and he's John Ross. John, welcome
uh to the Sputnik. Would you kindly
sketch for the viewers the principal
differences, structural differences
between the Chinese economy and our own?
Well, the fundamental difference is that
the Chinese economy, the state has the
power to take the fundamental decisions.
It doesn't administer the economy. There
are many medium-siz, smalls size, and
even largesiz companies in China. But
the crucial question is the largest
companies in the country are owned by
the state and in particular the banks
are owned by the state. The four biggest
banks. Now you have to understand
they're colossal in scale. The annual
savings going through the Chinese
state-owned banks are twice in absolute
terms the number of dollars by the whole
private sector banking system in the
United States. Therefore that the China
does not have doesn't try to run
everything doesn't try to run in Britain
the equivalent your fish and chip shop
or your local Chinese restaurant or
anything like that but it has sufficient
levers that if the economy goes down it
can increase investment and the economy
will go back up again. If the economy is
overheating it can reduce the investment
and the economy will cool down a bit. It
could therefore it's like the state's a
powerful rudder which can steer the
economy without trying to run every
single little bit of the economy. And
the great helmsman uh was once uh the
communist party of China. Is it still is
the communist party still running things
in China?
The communist party takes all the
fundamental decisions inside China. Also
it should be understood this is an
extremely intelligent communist party. I
know a little bit about China because
they do that. The you in the old Soviet
Union to be truthful the communist party
didn't want to hear anything except what
it already believed. In China, I know
that they get they get my view. They
also get people who have completely
different views, even monetarist views,
people I would disagree with. There's a
mechanism if there's a big decision
coming up. Not always, but you'll find a
very wide range of experts inside China
who are then asked their opinions on
these subjects. Nobody outside of the
Chinese Communist Party then knows what
is done with all this information. But
it is absolutely not the case that what
they want to hear is only what they
already believe. they have very very big
intelligence and big analysis.
And was I right in my introduction in
saying that the reason China's economy
uh is still growing at rates we would we
would die to achieve uh because of the
role of the state in the economy. Has
the state protected the economy?
Yes. I mean frankly the talk about the
Chinese economy in crisis is a joke. I
mean you have a situation whereby its
economy has grown approximately three
times as fast as the United States and
the people right and there's a big
crisis in China. It is impossible to
have an economy with 1.3 million billion
people in it that never encounters any
problems. Of course the situation in
China you have if you go back 10 years
or 20 years ago in Beijing they had
everybody was riding bicycles there were
no problems of traffic jams. Now they
have a very serious problem of traffic
jams in Beijing because so many people
have cars. So there are problems that
arise all the time but the crucial
question is they don't bring the economy
to a halt and yes that the Chinese
developed an economic system which had
never been seen in the world before
prior prior to that there are only two
economies. One was the capitalist
economy let's say described by Adam
Smith and the second was the economy
which was created by Stalin in 1929 in
the Soviet Union in which the state
owned not only the large industry but
all small local shops every farm etc.
This was a mistake. There's no
justification of having small companies,
medium-sized companies owned by the
state. It makes them inefficient. And on
the other hand, the capitalist economy
because it doesn't control the largest
economy has huge falls in investment as
you saw in the Great Recession. The
great recession is really the great
investment collapse and Osborne is
keeping for example in the UK that
investment level down. China can
overcome that. It has the most
intelligent economic policy in the world
and it is because they don't try to run
everything through the state but they
have powerful levers which the state can
use. Yes. What happened then a couple of
weeks ago when uh one woke up to massive
falls in Shanghai in stocks and shares
in China which then sent this wave of
panic around the world huge losses
everywhere. What was the cause of that
and what are the implications of it?
Well, firstly, you've got to understand
the Chinese stock market, two things.
One is it's still up about 30% compared
to it was at the beginning of this
process. It was only it's only fallen
from already high level. But but
secondly, this the Chinese stock market
doesn't really play an important role in
China's economy. Um we could argue about
whether it does in any economy, but it
certainly doesn't in China for two
reasons. There's two ways that the stock
market could affect the real economy.
One would be through investment but the
reality is that very little investment
money is raised on the Chinese stock
exchange. They have you have some IPOs,
people become rich, etc. But the great
bulk of the investment is by the
stateowned banks or it could affect the
economy via so therefore there's not
going to be a big fall in investment or
it could affect the economy via
consumption but less than 10% of China's
economy uh population owns shares. So it
has no great consumption effect on the
economy either. So there's there's no
big transmission effect into the real
economy. I think the real incidentally
shock wave way wasn't the stock market.
I think it was the small devaluation the
R&B because although China's financial
system is very weakly connected to the
world economy it's real economy is very
big and people got the idea that China
was going to join the currency wars I
mean the euro has been devalued by 20%
the yen's going to be devalued by 30%.
If China decided to devalue by the R&B
by 20 cent that would have one
tremendous impact through the world but
it never had any intention of doing so
doesn't need to. Its economy is
competitive. It's carried out small 3%
devaluation. That's all. It used to be
said uh when America sneezed uh everyone
else in the world caught the cold. uh
have we now what were the events of a
couple of weeks ago a sign that that
position has now been taken by China?
There are two economies in the world
now. What it means? Yes. I mean the
effect was very big. As I say, I was
even I'm even being asked about this by
foreign companies etc. The the real fear
was China was going to carry out a big
devaluation that would send mayhem
through the world. The realization got
through to the United States that it
used to be the case that the only person
who could call the shots was the United
States. Now they realize China can. If
China, for example, decided, we are
really fed up with the way that the
United States is acting and therefore
we're going to really devalue the R&B,
this could have a shattering polit
economic effect inside the United
States.
Tell me what what would that effect be?
Well, because China's China's exports
are already tremendously competitive.
It's the world's largest trading nation
already over has overtaken the United
States in invisible goods. Therefore, if
it wanted to if if it thought, for
example, its currency was being forced
too high and it was going to have to
therefore not be able to competitive and
devalued the currency, it could trigger
a gigantic export wave. It doesn't need
to because its industry is very
competitive. That was why it was never
going to have a big devaluation, but it
could. Secondly, the financial firepower
of China is now much bigger than the
United States. There is only one
financial superpower in the world, which
is China. The United States economy
measured at market price is still a bit
bigger. You measure that parity
purchasing powers. That's realistic.
Exchange rate is a bit smaller. But in
finance, the power is in China. The
total finance available for investment
in China is now twice that of the United
States. About $4.6 trillion compared to
about $2.3 trillion. It's twice as big
in absolute terms. That's why China is
able to take things like the Asian in
investment bank uh that it's that
created and other things. The China is
now in financial terms in its bank
stronger than the US.
This might become a bigger question. Uh,
if Jeremy Corbin wins the Labor
leadership and Labor looks like it might
come to power in 2020,
how could a a a socialist party in
Britain uh put forward an economic plan
that would make us look a bit more like
China?
Well, the the crucial question would be
you would have to have you would have to
expand the state sector of the economy.
not not not to nationalize everything
but you would have to have sufficient
levers say that you could you could
double the rate of state investment uh
you would have to then create a state
structure capable of carrying this out
you would have to have uh some state
control under the banks there's nothing
in principle that stops you moving
towards um Chinese type system um it's a
mixed economy as I described at the
beginning as once we had perhaps the
state element in China is greater than
what we ever had but not greater than
what people like Jeremy Corbin, Ken
Livingston, myself uh have consistently
advocated in labor politics over the
decades.
Yes. I I think that the position of the
left on China has not really been very
good. It hasn't understood how giant
digantic is the achievement. I mean,
China has taken 630 million people out
of poverty. To give you an idea, that is
larger than the population entire
European Union. Now, some people have
the foolish idea this is capitalism,
which is not. It's socialism with
Chinese characteristics. If capitalism
is actually capable of taking 630
million people out of poverty, we'd have
to decide it's a rather good thing, but
it's not. And and the left hasn't paid
enough attention to this. China's had
the fastest growth rate in human history
for 35 years.
It's 150% over that period.
Oh, even more. Even more, much more than
that. Right. It's but and the left
hasn't paid enough attention to this be
because China was an underdeveloped
country. It's not now. Now people in
places like Latin America are beginning
to pay huge amount of attention to it
because it's China's living stand has
gone from one of the poorest countries
in the world to the majority of the
population of the world now has a lower
living standard than China and we
shouldn't mechanically copy the Chinese
model. We couldn't do so but the
fundamental principles which it has
which is the state should control and
take the economy. Now is or incidentally
Kanes himself wrote this. Kanes said
that regulating the level of investment
cannot safely be left to the private
sector. He called for what he called a
somewhat comprehensive socialization of
investment by which the somewhat meaning
not wholly stateowned. You could see it
from either a left-wing Keynesian point
of view or you could see it from a
Chinese point of view. It's not really
terribly important which you do. It's
that the state must have sufficiently
large instruments that if the economy
turns down, it can raise the level of
investment and speed the economy up. If
the economy is overheating, it can cut
the level of investment. That's the key
principle. It's the failure of
investment in Britain and the and the
United States which has condemned us to
the great stagnation. It's not terribly
extreme. I mean, even people like Martin
Wolf in the Financial Times says it's
absolutely ridiculous. The government
can borrow in real terms at close to
zero% but it refuses to invest. This is
ludicrous.
John Ross, fascinating talking to you uh
in a week when all eyes have been on
China with the victory parade uh and so
on. Thanks very much indeed for coming
on board the Sputnik. Coming up after
the break is a woman who is emerging as
the clearest thinker on Britain's
chronic housing crisis about which
everybody talks and absolutely nobody
does. I'll be right back.
[Music]
Welcome back to Sputnik. Hardly a day
passes without a recognition of
Britain's housing crisis. Virtually no
social housing is built. Prices and
rents move ever upwards, as does the
rate of homelessness, overcrowding, and
slum landlordism. In the capital, this
is leading to the shipping out like
refugees of homegrown Londoners to
points north in order that someone
somewhere can find them a roof to put
over their heads. Britain is full up,
say the Cassandras, about Calala, when
in fact Britain is practically empty, as
anyone who's ever flown over it knows.
Just 2% of Britain's land mass is built
upon. unmet need, unused economic
resources ought to have led to a
building boom, but it has not. To find
out why, I've invited the brightest of
the young housing economists from the
University of Leeds, Dr. Mary Robertson,
and she joins me now. Dr. Robertson,
thank you very much for coming on the
Sputnik. Describe for the viewers the
extent of this housing crisis.
Well,
I think we can see currently many
manifestations of the crisis. Uh, as you
said, rising homelessness, rising rents,
rising prices, um, people from London
being shipped out because we just don't
have enough social accommodation. So,
across the whole stretch of the housing
system, we're getting signs that the
system is just falling apart basically.
And this is a crisis that has been
accumulating for over 30 years now. I
think it dates back to the 1980s when
the right to buy was introduced by
Margaret Thatcher. Uh up until then we'd
had a system in which some people own
their own home, some people rented
social accommodation and so we had two
sources of supply which catered to those
through the those who were able to
access housing through the market and
those who weren't. Now the right to buy
privatized the social housing stock on a
massive scale and also prevented
councils from building and ever since
then we just haven't built enough houses
to house our population which is growing
at quite a rapid rate. Uh and in
particular we haven't built any house or
nearly enough houses to house people for
whom accessing housing through the
market is not possible because their
incomes aren't high enough.
Even within capitalist logic that
doesn't make any sense does it? You've
got potentially a large number of
people, many, many millions who would
like to secure a home. You've got unused
building workers, supplies, materials,
bricks could be quickly made. Uh steel,
electricity, wire, and uh so on. What is
stopping those two things from coming
together?
So, I think it depends on the point of
view of which capitalist you're talking
about. There are many harmful effects on
the economy um from lacking the lack of
housing that we've got at the moment. Uh
rising housing costs puts pressure on
wages. Uh we have huge geographic
variability in the country. So it's much
harder most employment is in the
southeast and London, but it's much
harder to harder to access housing there
which means for employers it's hard
harder to access labor force and so on.
And of course we've had very low growth
since the financial crisis and a big
program of house building really helped
to boost the economy.
Yeah. It would be a multiplier.
It would be a multiplier. Exactly. The
problem is is there are some groups of
people who benefit from the way that the
housing system is organized currently.
So in particular mortgage lenders who
have been able to reap great profits
from lending ever higher mortgages. uh
they get the interest payments as profit
but we've also seen uh as which
culminated in the financial crisis
processes of securitization whereby the
financial sector has turned mortgages
into tradable financial assets and
traded them at huge profits. So for
parts of the financial sector the system
currently works very well and of course
it works very well for land owners.
Britain has one of the highest most
concentrated uh structures of land
ownership in the world.
Wouldn't many of these land owners
profit from more house building? What
I'm getting at is if only 2% of the
country is built upon, 98% of it is
unbuilt upon, there's a lot of people
need houses, why don't we use some of
that land to build houses?
It's because housing and indeed land has
come to be treated like an asset, which
means that the owners want its value to
increase as as much as possible. And
that has been happening in Britain
because supply has not lived up to
matched up to demand. So you've got
growing demand, supply not even up to
which has driven up prices which means
that homeowners and land owners have
seen the value of the their land or
housing assets increase. So it's been a
huge boom in wealth for those who own
these types of asset. Uh but the flip
side has been that more and more people
find it difficult to
Yeah. And and you know trees don't vote
but people do. Uh you would think that
the political class would feel the
pressure. It's kind of obvious
generation rent. Uh people's children
even in their 40s can't buy property.
There's even men, no doubt women in
their 30s living in their parents'
houses when once they would have been
gone when they were 18 or or 19 and so
on. It's changing the whole social mix
in the country.
That's true. And I think there are signs
that the political pressures around
housing are starting to shift in the
right direction. But for decades, so
under under that right through to Blair,
uh we were sold the idea that everyone
should be a homeowner and have this
asset. People were encouraged to tie up
their wealth in their housing.
Um and this means that I think for a
long time politicians have been
terrified of taking measures that would
lead house prices to fall because you
have a big constituency which tend to be
quite affluent voters anyway who would
be furious if the value of their
property suddenly dropped. you know,
that would be their pension, their
inheritance for their kids, their
savings, and a serious effort to make
housing more affordable in general would
imply fall in house prices. And it
would,
you know,
but you know, most of our viewers, I'm
guessing, are city people. We keep
hearing about the green belt, the
inviability of the of the green belt.
How much green belt do we actually want
need? If 98% of the country is not built
upon that's a lot of green belt
shouldn't we be building more towns more
cities
there's definitely a case to be made for
that I think yeah uh the problem is
where demand is how do you make sure
that the new supply matches to where the
demand is which reflects of course the
economic organization of the country and
it's heavily very heavily weighted
towards the southeast uh so there is
much more house prices are much cheaper
in the north of England but part of The
problem is that people don't want to
live there because they can't find the
same employment opportunities. Yeah. So
the challenge is how do we build more
house? Well, there's two challenges and
they're both quite enormous. Um, one is
can we restructure the British economy
so it's no longer so heavily focused on
the southeast which would take pressure
of the housing system there. Uh, and the
other one is can we figure out ways to
build more housing in the southeast. Um
but you know people I think accepting
that we need to live in higher density
forms is something that in the age of
global warming people need to accept.
For example,
let let me just raise uh another
important issue then that I know you've
got some expertise in. David Cameron the
catastrophe of the sale of council
houses was seen by politically active
people like myself at the time that it
happened. We predicted absolutely
everything that has happened and as
you've just described. But now David
Cameron wants a second wave. He wants
privatization of other than council
houses, other forms of social housing,
housing association, uh right to buy.
That's going to add uh disaster on top
of disaster. Surely
absolutely. I think it's a complete
disaster. Are
you serious about that? You going to go
ahead with it? So there's an interesting
question about this because this was
something that the tries pulled out in
the leading to the general election
quite last minute and people have
speculated that they weren't expecting
to win the election. They knew that in
the 1980s the right to buy had been
extremely popular. So it is an electoral
ploy basically that they kind of hoped
that because they didn't expect to get
an absolute majority. they hope that
they wouldn't have to fulfill and now
much to everyone's surprise they do have
an absolute majority and so it is going
through but criticisms are coming from
across the political spectrum and across
different types of agents involved in
the housing system as well.
Do you expect the same demand to buy
from tenants of housing associations?
I don't think there's any reason not to
expect that because for the individual
household
it's a it's a huge bri. Exactly. You
offered a house for cheap. Um, so you'd
be mad to turn it down. The problem is
is that housing people housed in housing
associations currently are relatively
speaking for the kind of people who
demand social housing
welloused. You know, these are the
people we shouldn't be worrying about
because they have decent long-term
accommodation.
Better than council housing used to be
by and large
can be. Yeah. Meantime, we have 100,000
people in temporary housing because
there just aren't enough housing
association or council homes to house
them in. Uh so it's directing huge
amounts of money and the estimates range
between 5.8 billion and 20 billion uh to
help people whose housing needs are
relatively
well dealt with compared to other
groups.
That brings me to my last point then um
one of the things that uh I've been
looking at is the scale of the money the
taxpayer is handing to private landlords
in terms of housing benefit. It's now
capped uh but capped at quite a high
level. I mean it's uh a phenomenal sum
that the taxpayer is giving to private
landlords as compared with the tiny sum
that the taxpayer is paying to build new
social uh housing. How how have they
gotten away with it's a kind of grand
lararseny of the public this
it's a policy that makes no sense
whatsoever. Um I think it's 24 billion
the housing benefit bill now
25 billion
25 billion and it's uh it's notable that
40% of that goes to private landlords
and of the properties originally sold on
the right to buy a lot of those have
moved into the private sector. So the
landlords who own these formal council
properties are getting a three-fold
subsidy in from the original building of
the house from the discount sale and now
in the rental income that they receive.
So this idea that the right to buyers
help people realize a dream of home
ownership is often not the case. it's
just transferred state property or state
subsidized properties into to private
individuals.
Um, how has this been allowed to happen?
I think
the tone was set in the 1980s and thus
far it hasn't really been challenged
that the state is allowed to intervene
on the demand side but it should not
provide
goods and services itself. So the supply
side has been sidelined very heavily and
you that's reflected in privatization
across the board. This idea that the
state is inefficient and it should not
be providing these kind of
just uh briefly uh a Jeremy Corbin
leadership a new look for labor new
policies one presume is a return to
social housing as a desirable norm for
many millions of people likely to
happen.
Jeremy Corbyn has an excellent housing
manifesto and that the key point in that
I think is allowing councils to borrow
in order to invest in new housing. Uh so
he's signed up to doing that and I think
it could make as in the 1930s when
council started building on a grand
scale uh and gave h good housing to
people had been living in slum
conditions. Uh it's possible definitely
another reason to be cheerful about
Jeremy Corbin. Thanks very much Dr. Mary
Robertson.
Alas, that's all we've got time for on
board the Sputnik this week. By the time
you join me next week, it'll be a new
political era, at least in Britain.
Until then, it's been marvelous.
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