All posts by Gordon Pearson

In Praise of Free Markets

UK is covered in evidence of free markets. Almost every town has a market place or square, where local producers have for centuries brought their crops and wares on market day to sell to local people. If any producer of potatoes, for example, tried to charge a higher price than the going rate, they would probably have to take their unsold produce back home with them. Unless, that is, there was some unique and desirable characteristic about their particular potato variety. The market was competitive and the market price would emerge as a result of that competition. That was how the free market, Smith’s ‘invisible hand’, worked for the great benefit of customers.

The neoliberal conception of the free market is not quite like that. It conflates the market with international trade. The mercantilist system Adam Smith confronted was one of government imposed tariffs to protect home markets from imports and the provision of subsidies to encourage exports. In so doing it interfered with international competition, keeping prices on the home market artificially high, clearly against customer interests. Such protectionism limited the overall size of markets and therefore the economic gains that might be made by the division of labour. That provides perfectly reasonable grounds for the crusade against protectionist government interference in markets, though other globalisation issues are also relevant.

A market that is free from government tariffs and subsidies is not necessarily free in any other sense. In fact, most markets which are free from government interference, tend to become uncompetitive, if not monopolistic, and so not working for the benefit of customers. That is the result of the perfectly natural process of the most successful competitors increasing their market share, a process which continues till monopoly, or some monopoly inhibiting cartel, has been established. Such monopolisation proceeds unless arrested by government imposed regulation to protect competition. That lesson was learned in the 1930s, but has long since been disregarded and most regulatory protections set aside.

The neoliberal doctrine multiplies the destructive effects of monopolistic markets by asserting the dominance of shareholder interests above all others. The monopolist, or cartel member, is therefore taught it is their duty to ‘make as much money as possible for stockholders’ and adopt a default strategy of market plunder.

That is where we are now as revealed by the many markets dominated by ‘the big four’ or ‘big six’ which include the recipients of public sector privatisations that now mercilessly exploit their market power. Something of the extent of criminal exploitation by the self perpetuating organised money establishment has been revealed in the Panama Papers and more recently the Paradise Papers, even tarnishing the reputations of H M the Queen & Son.

Genuinely free markets, where producers and providers compete for custom, are not just the best means of delivering value where it is most needed, but also the nudge for further innovation and development, such as an even more desirable variety of potato.
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The World’s Greatest Crimes?

As an academically qualified neoliberal economist and management ‘scientist’ employed as a corporate executive with strategic management responsibilities – ie what Milton Friedman referred to as a corporate official – J Brigham (forgive this degree of anonymity) is presented with all sorts of exciting decision opportunities. They include possibly fraudulent dealing that could be tremendously beneficial for shareholders. The whole purpose of her job is ‘to make as much money for stockholders as possible’ to quote Friedman again. So how should those decisions be made?

The analysis for such decisions aims to calculate the net present value resulting from proceeding with a deal, compared with the calculation of not proceeding. Typically, Brigham admits, the more the net gain, the greater its apparent illegality. But such decisions need to be assessed clinically, without clouding its measurement with qualitative adjustments such as ethical values or what Brigham refers to as ‘religious considerations’.

If the deal could be shown to be fraudulent, then the company would risk being fined, but only if the fraud is uncovered. So the calculation of net present value of going ahead needs to be adjusted by a calculation of the anticipated fines, reduced by the probability of discovery, as well as taking into account the considerable number of years between gaining the benefit and paying the fines. Having carried out all those due calculations, decisions to go ahead would, according to Brigham, almost invariably be persuasive.

But what if she were to be held personally responsible for the fraud and punished accordingly? Would that change her decision? ‘Well, of course it would, but the decision was actually taken and implemented by the company, which is a legal person in its own right. It’s the company that must pay.’

That argument is worth consideration. Continue reading The World’s Greatest Crimes?

“It’s the economy, stupid!” Let’s try systems economics instead.

Mainstream economic ideology guides government decisions which determine the direction in which we are headed as individuals, as a nation and as a species, as well as deciding the fate of planet earth itself. Right now, none of that is looking good.

The result is exploding inequalities of wealth and income, within and between economies, loss of social cohesion resulting from those inequalities, corruption and fraud by the financialised sector, waste of earth’s finite resources; pollution of oceans and atmosphere; a looming mass species extinction; and the avoidable inevitability of global warming.

That mainstream ideology, Friedman’s variation on traditional neoclassical economics, seems utterly discredited, but continues to be supported and promoted by its beneficiaries and accepted by most others.

In support of its pretence to being a science, neoclassical economics relies on abstruse and irrelevant mathematical models and hypotheses that have been repeatedly shown to be absolutely wrong. The study of economics will inevitably return to its original focus on how systems actually work in reality. It will be an economic paradigm shift and will take some time, but it seems bound to happen.

The systems approach is based on analysis and understanding how the real world works. It is what led Adam Smith to report remarkable productivity gains from the specialisation of work in the pin factory. That was hardly new: Plato had reported gains from specialisation in Ancient Greece. Specialisation is a fundamental concept of systems economics.
Continue reading “It’s the economy, stupid!” Let’s try systems economics instead.

Democratic Values Trashed by Economic ‘Science’

Democracy’s basic commitments were simply expressed in Lincoln’s 1862 Gettysburg address at the culmination of the American Civil War over slavery. It contained two principles. Firstly, dedication to “the proposition that all men are created equal’, and, secondly, to ‘government of the people, by the people, for the people’. These principles had been previously set out in the American Declaration of Independence which had asserted man’s ‘unalienable Rights’ to ‘Life, Liberty and the pursuit of Happiness’. If government failed to uphold those rights then ‘it is the Right of the People to alter or to abolish it, and to institute new Government’.

The stated intent was that all humanity would at last be treated as a whole, rather than differentiating between competing sub-groups of the population, defined by race, religion or any other classification. Should a sub-group be excluded from such processes they should have access to remedy. Should a sub-group be enabled to circumvent those principles and in so doing, exploit the rest, it would be a clear democratic malfunction in need of correction.

All ‘men’ may have been created equal, and in terms of innate potential, that certainly appears to be the case. However, not all people have been permitted lives where their equality has been allowed fulfillment. That is not unique to the US, but an aspect of the human condition in most societies. Moreover, it is a widespread, if not universal, experience that a single sub-group of populations is permitted to manipulate systems for their own benefit, no matter the harm that might be done to others.

The United Nations Charter of 1945 declared its members’ determination “to reaffirm faith in fundamental human rights, in the dignity and worth of the human person.” That declaration was subsequently adopted by the UN General Assembly and later incorporated in the European Convention on Human Rights, agreed by member states of the Council of Europe, with its acceptance being a condition of entry for any nations wishing to join, enacted also by the UK Human Rights Act 1998.

The fundamental message of this internationally agreed legislation, is that individuals should all enjoy the same rights to life, freedom and the pursuit of happiness, so long as it doesn’t interfere with the same fundamental rights of others.

The most basic human right is that of a minimum living standard available to all. That is the foundation on which the pursuit of happiness rests. Its delivery is the first responsibility of democratic government. The 1942 Beveridge Report identified freedoms from what were referred to as the five giant evils in society: squalor, ignorance, want, idleness, and disease. Post second world war, UK democracy addressed the five giant evils through the provision of public housing, improved state education, basic welfare payments for the poor, disabled and elderly, the provision of unemployment benefits and acceptance of government responsibility to maintain full employment as far as possible, and the establishment of the National Health Service.

By the 21st century, discriminating against anyone on the grounds of their ethnicity had become illegal in most countries. And most advanced nations also upheld laws which proscribe discrimination against any individual because of their gender, religion or belief, age, disability, sexual orientation or gender reassignment. Discrimination against anyone on any of these grounds is now illegal in most situations.
Continue reading Democratic Values Trashed by Economic ‘Science’

Economics for the Fourth Industrial Revolution

It was recently reported that two robots employed by an artificial intelligence (AI) agency were overheard talking to each other in a language of their own making that no one else could understand. Concerns about their intentions led the agency to switch them off and close them down. However, their discussion was recorded and has since been deciphered. It appears to have been perfectly benign. They were concerned about the development and potential application of an approach to economic theory that would be appropriate for the fourth industrial revolution (4IR) that is now emerging.

They were both clearly aware they owed their own creation to 4IR technologies. In their discussion they referred to robotics, of course, but also nanotechnology (manipulation of atomic, molecular, and supra molecular matter), quantum computing (the theoretical computation of quantum-mechanical phenomena, such as superposition or entanglement, to manipulate data), biotechnology and ‘the internet of things’ (the inter-connectedness of physical devices such as vehicles, buildings and smart devices embedded with electronics, software, sensors, and actuators that enable the collection and exchange of data).

Some of the early manifestations of such developments are the massively increased opportunities to robotise manufacturing, self-driving cars and the whole gig economy which engages humans without paying a fixed wage and fulfilling responsibilities such as sick pay, holidays etc . The robots clearly felt guilty at being part of those developments which deprive the still rapidly growing human population of precious opportunities for work.
Continue reading Economics for the Fourth Industrial Revolution

“Talent” Costs

What is it about BBC presenters, Chris Evans, Gary Lineker and Graham Norton, that makes them worth so much? Those three alone cost around £5m a year and the whole over £150,000 pa list of presenters, costs around £20m. The BBC is not dependent on them; they depend on the BBC. The BBC’s unique reputation, built up over 95 years of continuous investment by the British public, is at risk in their hands.  Knowledge of their unjustifiable take from the publicly funded purse will likely irritate that British public.  If they were products – some of them think of themselves as brands – they would have to pay £billions for the air time they are given to promote themselves.

So what is it they are being paid for?
Continue reading “Talent” Costs

Murdoch’s Sky takeover: another small step to control by ‘organised money’

Murdoch’s Sky bid is thought now very likely to succeed, despite most probably being referred to the Competition and Markets Authority. The previous bid, which was frustrated by the phone hacking scandal, was noted (10.7.2011) on this site as follows: ‘The Murdochs are clearly prepared to be as ruthless and dishonest as it takes, in pursuit of their own self-interest. Their dishonesty, now being revealed daily, was confirmed early on …’ Harold Evans, editor of the Times when the Murdochs took over, had confirmed that every assurance of editorial independence made as a condition of the acquisition, had been broken within a year. Evans concluded the Murdochs would ‘promise anything to gain control’.

That posting continued ‘The Murdochs’ utter ruthlessness is also being demonstrated daily by the continuing revelations of criminal activity sanctioned in their organisation, and not least by the abrupt closure of the News Of The World with the destruction of around 200 jobs, in some vain attempt to rescue vestiges of public respect for the family.’

Having been thwarted on that occasion, they are now back again. They still do not look like ‘fit and proper persons’ to own media companies, but Culture secretary Karen Bradley, is prepared to let those bygones be bygones.
Continue reading Murdoch’s Sky takeover: another small step to control by ‘organised money’