A typically indecisive Will Hutton article in The Observer (29.1.12) was headed ‘Hester’s pay discredits bonus culture’. Did Will Hutton think, despite the works of Bob Diamond, Fred the Shred and the rest, that the bonus culture still had credit up to the time when Stephen Hester was awarded his relatively modest bonus of around £1m. Of course, Will labours under the considerable disability of being a neoclassical economist. Which unfortunate affliction led him, in the article, to assert that ‘It is true that well designed and proportional incentives work’. He offers no evidence. It is simply a bone deep belief, no doubt held in his mind since school days doing A level economics.
Much is understood about human motivation, intrinsic and extrinsic, which won’t be repeated here. But economists only deal in money and it is well understood how money incentives crowd out intrinsic motivation. In the case of the bonus culture, incentives are specifically aimed at doing just that, so that executives are converted into shareholders, thus aligning themselves with shareholder interests. That is the sole purpose of the bonus bribe: to destroy higher level, longer term motivations for the short term benefit of shareholders.
Continue reading Hatred, Contempt and Fury
This book (http://www.gowerpublishing.com/isbn/9781409448303) is about a new direction for market capitalism, based on co-operation rather than the neoclassical idea of maximising self- interest. It is not argued from a moral or ethical standpoint, but has a hard-nosed foundation in economic theory. The Road leads from the predatory capitalism we suffer today to a co-operative and far more productive capitalism we could enjoy tomorrow.
Predatory capitalism is the inevitable result of encouraging almost anyone to trade in almost anything, not just sub-prime, but actually worthless, even imaginary, financial “products”. The aim is to create a fever of anticipation which sucks money out of the real economy (manufacture, distribution etc) into bubbles of speculation in derivative or imaginary “products” or in mergers and acquisitions.
Continue reading The Road to Co-operation: Escaping the Bottom Line
Mr Cameron really doesn’t understand what’s going on. When he talks of rebalancing the economy he appears not to have the faintest idea what has unbalanced it. He doesn’t understand the crucial difference between real markets and financial markets. Demand for real things is essentially finite – when you’ve had enough, you’ve had enough; demand for high yielding financial “products” is essentially infinite. An investment, such as a ‘carbon credit’ which would yield ‘up to 398% return’ (see: http://www.gordonpearson.co.uk/06/pity-the-poor-banker/), would attract anyone. Would you invest in a widget maker earning 10% a year at some risk, when you could be earning up to 398% risk free? Consequently, despite the sub-prime fiasco of 2008, money is still leaving the real economy to be bet on financial “products” which are high on promise, but low on substance. That’s the rebalancing that’s actually going on, with Mr Cameron’s approval.
The only rebalancing towards manufacturing and the job creating real economy results from the ingenuity and efforts of practical people achieving results on the ground, through co-operative rather than exploitative means (The Road to Co-operation is due out Gower in April). This achievement is despite Mr Cameron and his friends.
Continue reading Mr Cameron Doesn’t Understand