A High Velocity Economy

Our children and grand-children are facing a far less fair and equitable society than the one people grew up in 30 or more years ago. That’s the analysis of Jan Zablocki, Green Party candidate for Stoke-on-Trent. The wealthy are far richer and the poor both poorer and more numerous. But yet the three main political parties all seem to accept that state of affairs, despite the overwhelming evidence that it is truly bad news for the well-being of both rich and poor alike. Britain is in danger of becoming a permanently divided society.

One of the main causes is the mainstream economic theory that the current elite were all taught to believe. The theory teaches that money paid to the wealthy will be invested in enterprise and the resulting benefits will trickle down to the poorest sections of society so that everyone gains. Therefore government should reduce taxes on the wealthy. It also teaches that privately own companies are much more efficient than publicly owned. Therefore state owned activity should, where feasible, be outsourced to the private sector for everyone to gain. There’s a whole raft of such arguments justified by the theory.

But the theory is deeply flawed, if not downright dishonest.
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A New New Deal

All politicians want these days is a story which enough people will believe in, so the politicians can scrape back into government at the next election. The Tory story, as Ha-Joon Chang summarises it, is that they are having to make tough spending cuts to recover from the mess left by the last irresponsibly overspending Labour government. Moreover, the cuts are working: unemployment is down and earnings are up. The Labour story, as told by Ed Balls, appears to accept the Tory austerity prescription as necessary and effective. So it might be better called the Westminster story. Sir Mike Derrington had a nice phrase which adequately sums it all up: ‘Total Bollocks’!
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The Final Victory of the Establishment?

When Ebay announced its intention last week to sell off PayPal, it was giving into the so called ‘activist investor’, Carl Icahn, who had been calling for the deal for months. The Financial Times reported Icahn’s victory statement calling “for PayPal to look to consolidate the payments industry further, either through acquisitions or a merger, to fight off competition from newcomers.” That such an individual should so openly declare war on competition, with total impunity, surely means the establishment has won.

In the not too distant past such anti-competitive moves were illegal. They were recognised as against the public interest and were prevented in the UK by bodies such as the Office of Fair Trading and the Monopolies and Mergers Commission. Moreover, where such anti-competitive corporations had been established, they could be dismantled, and were, notably in the United States. Competition was recognised as the spur to innovation and improvement, which was for the common good. That lesson had been learned from the 1929 Wall Street crash and subsequent great recession.

Those protections have been more or less completely dismantled and shareholder wealth maximising corporates have been encouraged to acquire the monopolistic power to fix markets. They have also been given opportunities to exercise the same market fixing powers with privatised utilities and outsourced public services. This is the work of the contemporary establishment. It is not just the work of Icahn and the investors who pocket the illegitimate profits, but also the corporate executives who pay themselves so infamously, the politicians who ignorantly shape the legal framework, and the academics who invent the necessary theoretical underpinning to justify the whole corrupted system.
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Fighting Corporate Abuse: Beyond Predatory Capitalism

People are angry about corporate abuses: tax avoidance, asset stripping, fat cat salaries and bonuses and much else. Corporate capitalism has lost its moral compass and its social values. It has plunged the world into recession and austerity and contributed to growing social inequality. The prevailing focus on shareholder value has placed short term profit ahead of constructive investment. The current structures of corporate law and practice are clearly in need of radical reform.

And yet the underlying principles of corporate law providing for external investment in enterprises which combine the labour of workers to produce goods and services are not inherently wrong. They have worked over the years to increase prosperity and living standards in many countries. What is needed is a realistic and pragmatic programme to eliminate abuses and promote fairer and more productive alternative corporate structures.

Fighting Corporate Abuse: Beyond Predatory Capitalism is the title of a new book (See http://www.plutobooks.com/display.asp?K=9780745335162&) which explains in detail how abuses have been carried out through complex corporate structures and how they can be controlled. It is written by the Corporate Reform Collective which was formed to highlight and promote essential reforms in corporate law and practice, as outlined in the Corporate Reform Manifesto.

The Manifesto calls on the major parties and pressure groups to commit to a set of action points in advance of the 2015 election, for the incoming British government to implement here in the UK and to press for in international bodies. Details are included on the separate Corporate Reform Manifesto page where supporters are invited to reply.

The Royal Mail Rip-off Continues

Estimates vary of the extent to which taxpayers were ripped off when the Royal Mail was privatised. Experts quote nice round figures like a billion pounds, or two and a half billion. Precision is impossible, but clearly the taxpayer’s loss was pretty enormous. It was a cock-up. Or maybe it was intended.

For three decades, UK governments have acted as liquidators of state assets. By raising cash, these disposals have enabled the administrators to continue in government till the next election, beyond which no politician needs, apparently, to concern themselves. It looks like pretty standard bankruptcy practice.
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Defending the System

What do Hillsborough, Lance Armstrong, Jimmy Saville, Lady Butler-Sloss and the Institute of Economic Affairs have in common?

The United Kingdom is a more or less congenial place to live. It is fairly tolerant, generally law abiding and by reasonably non-violent by today’s standards, with the expression of extreme views really not very welcome. UK is like its weather: far from perfect but relatively moderate. And yet! That very tolerance permits of exploitation, so long as it is not too explicit, overt and extreme. Such a system is surely worth conserving and defending.
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More Big Six energy rip-offs

The Big Six energy suppliers must be desperately worried. Dermot Nolan, boss of energy regulator Ofgem, is demanding that they explain to customers why they have not lowered gas and electricity prices following wholesale price reductions. They are quick enough to stick them up when wholesale prices rise; they must explain why they don’t cut them when wholesale prices fall. Not only that, but Ed Davey, energy secretary, says they need to ensure they pass on savings to customers as quickly as possible. The Big Six must be quaking in their boots. Or perhaps not!

They don’t pass price reductions on, for the very obvious reason that they don’t have to. Energy supply was privatised because of a simplistic and profoundly misinformed belief in the automatic efficiency and effectiveness of for-profit business and a complete lack of comprehension of what constitutes a competitive market.
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Who will defend the British interest?

Since this was first posted time ran out for Pfizer. However, the opportunistic justification for the acquisition will almost certainly remain, so they can be expected to return in six months or so time.

British manufacturing, science and R&D, is again subject to attack with Pfizer’s proposed takeover of AstraZeneca. The deal is reported as threatening 30,000 British jobs and a substantial part the UK economy’s manufacturing added value, as well as severely damaging British leadership in drug research and production. All this, with the dogmatic encouragement of the British government. David Cameron simply affirms the government’s neutrality over the deal, but expresses satisfaction with Pfizer’s promise not to act against British interests for the first five years after acquisition – a time scale beyond which he appears to have little interest. George Osborne’s pleasure with the deal is clear in that it demonstrates yet again the extent of his business ‘friendliness’. Only Vince Cable demurs, suggesting weakly that we’ll need to look at the detail.

At this point in time it is unclear who will defend British interests against such damaging takeover. The thirteen directors of AstraZeneca are the first line of defence. They are collectively responsible for the success of the company and will no doubt all have contractual agreements requiring them to act in the best interests of the company at all times and to declare any possible conflict of interest. However, their rejection of Pfizer’s improved GBP63bn bid was simply on the grounds that it substantially undervalued the business. That price hardly reflects the tax avoiding potential of the newly created combine, never mind AstraZeneca’s pipeline of experimental drugs and cancer treatments which is reported to be substantially superior to Pfizer’s, and the potential for stripping out and realising AstraZeneca’s assets, a talent which Pfizer has previously demonstrated.

So an improved offer can be expected shortly. How then will AstraZeneca’s directors respond if they believe they have achieved the best possible price?
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Taxation and Growth

The proposition that taxation stifles growth feels like it should be true. A business that is being heavily taxed won’t have as much to invest in its future growth. For the past forty years at least, the idea has been generally accepted, and successive governments have acted accordingly. However, at the macro level, the evidence suggests something quite different. There have been several studies of the long term effects of different levels of taxation. Data from the UK, the United States, Europe and OECD have all shown similar counter-intuitive correlations. The latest, an American Congressional Report, reviews American taxation and growth over the sixty years from 1950.

Between 1950 and 1970 the average top marginal income tax rate was just under 85% and annual GDP growth just shy of 4%. From 1971 to 1986 average top tax rate was 52% and GDP growth just under 3%. From 1987 to 2010 average top tax rate was 36.4% and GDP growth 2.85% [Source: Bureau of Economic Analysis (BEA) and the Urban-Brookings Tax Policy Center.]
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Capitalism to the Rescue

There are an increasing number of live initiatives for making the capitalist system more sustainable and equitable. Improving environmental, social and governance performance would be steps in that direction. Transparency in terms of measuring and reporting progress would also be important. Including content on sustainability and equitable governance in the mandatory curriculum for all secondary, further and higher education students might start to change the general understanding of these critical issues. Creating an alternative system of ethically focused capital markets and enlightened financial institutions might challenge the financial sector to a more enlightened capitalism role.

These initiatives are all positive and worthwhile. But if the generally held core belief persists, that a successful economy depends on people all seeking to maximise their own material self-interest, such innovations will remain niche, if they remain at all. Their impact could be both limited and short-lived.
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