All posts by Gordon Pearson

Destruction by organised money

80 odd years ago, F D Roosevelt argued that Government by organised money was just as dangerous as Government by organised mob. That assessment was shaped by experience of the run up to the 1929 Wall Street Crash which was followed by the austerity driven Great Depression. We now know it’s much more dangerous than that: leading to the destruction not just of jobs and whole economies, but many of the ecological systems we benefit from on planet earth.

He identified organised money as comprising “business and financial monopoly, speculation, reckless banking, class antagonism, sectionalism (and) war profiteering”. Eisenhower added the “military-industrial complex”. Today, strands of academia and the social media would be included as they argue and promote the theoretical constructs which provide the coat of respectability for organised money’s activities.

The financial sector was largely called into existence to finance the industrialisation process which began in the 18th century and proved far beyond the capacity of the then possessors of capital, mainly the landed gentry. But the sector quickly found far easier ways of making bigger and quicker returns than by long term investment in industry. So the components of organised money came to dominate the financial sector with the ‘robber baron’ excesses which led inevitably to the 1929 crash. That pattern was repeated in the four decades leading up to the 2007-8 crash and subsequent austerity driven decade of lost opportunity.

Those lessons have been rejected by those in power. Government is dictated by organised money whose self-interested criminality is well documented. The Economist described the financial sector as mired in ‘a culture of casual dishonesty’.[i]That culture ignores unprecedented inequalities and denies the imperatives of ecological sustainability. It accepts, simply as a cost of doing ‘business as usual’, the fines for fraud and criminality, so long as they are paid by the corporate entity and the individual decision makers are not held personally responsible.

The saga of such criminality is far too long to reference here. The Financial Times reported that, ‘between 2009 and 2013 the 12 global bankers paid out £105.4bn worth of fines to European and American regulators.’[ii] They were fined for rigging the Forex market, as well as rigging various commodity markets, also for money laundering on behalf of various terrorist organisations and for Mexican drug cartels, not to mention tax evasion and the most energetic avoidance. Those 12 global banks had also made additional provisions in their accounts for a further £61.23bn of anticipated fines for crimes which presumably they knew all about, but which had not yet been uncovered. So a total of £167bn, which was ‘unlikely to be the final hit.

Most financial houses appear to have been behaving in similar fashion as indicated in Remaking the Real Economy.[iii]

So government by organised money is not just predatory on the real economy, and exploitative of the public, but in serving its own sectional interests, it has developed sophisticated means of avoiding and evading taxation and is willing to act with criminal fraudulent intent. Organised money is openly criminal and dominates government, notably in the US and UK.

The net effects are to create ever increasing inequalities of wealth and income both within and between economies, which must at some stage be reversed by whatever means. It also initiates all manner of ecological destructions which must similarly be reversed but within a defined time span.

One of the two first moves has to be to recognise the naked criminality of organised money which includes much of the financial sector. And to correct it.

The other move must be for classical/neoclassical economics to be set aside and disregarded in favour of understanding the practical realities of a modern economy . But that is another story.

Is Modern Monetary Theory the Answer?

Economic theory continues to evolve as it always has.  That is partly because the real world economy is itself continuously evolving.  But it is also partly because economic theories are far from perfect, but are retained till something better comes along.

Monetary theory is a highly pertinent example right now, given the evolving role of money. As a means of exchange, it has long been reduced to the role of lubricant for relatively minor transactions, with further reduced usage of notes and coin being trialled during the coronavirus lockdown. As a store of value it has long been outperformed by many alternatives of varying security from property to financial speculation. And its lasting function as a unit of exchange is now largely maintained in electronic form enabling further possibilities.

Neoclassical economic theory emerged in mid 19th century as the inadequate but mathematical expression of self-interest maximising humans, profit maximising businesses and efficient markets free from government regulation which the theory promised would be no longer subject to booms and slumps.

That was the context in which monetary theory was given its first coherent expression by Irving Fisher in early 20th century.  It was in the form of a simple equation of exchange: MV=PT, where M is the quantity of money, V the velocity of its circulation, P the overall level of prices and T the volume of transactions taking place in the given time period.  While the equation is a truism and identifies macroeconomic quantities, their content is largely immeasurable and its various interpretations susceptible to simplistic political debate.

Fisher became notorious for his repeated assertion that the stock market had reached ‘a permanently high plateau’. That was just before the 1929 Wall Street Crash, which was followed by the Great Depression, imposed and prolonged by the continued focus on M with policies of austerity. That was only ended by Roosevelt’s relaxing austerity and focusing on V with publicly funded New Deal job creation schemes aimed at putting money into the hands of the poor, who had no choice but to spend it immediately for their survival, thus increasing V and so generating further economic recovery.

The 1970s stagflation was observed by Piatier as having been caused by OPEC’s 400% oil price rises and the stagnation arising from the maturing and decline of 2nd industrial revolution industries.[i]  But neoclassical theorists argued stagflation to be the failure of Keynesian economics, thus enabling monetary theorists to resume control.  But after two decades of application, even leading quantity advocate Milton Friedman admitted the theory had largely failed.[ii]

The lessons of 1929 had been set aside and forgotten as demonstrated by the relearning experience of the early 21st century, a period referred to as ‘the great moderation’ for which both politicians and economists at the time took credit.  That was just before the 2008 crash, which was followed by a decade of austerity in the real economy, which produced only disappointing results, despite massive Quantitative Easing (QE) for the financial economy banking sector – an estimated $14trillion worldwide. [iii]   

That is the context in which Modern Monetary Theory (MMT) emerged, taking account of the limitations of the former theory as well as the evolving possibilities of money itself.  MMT explains how a government that issues its own currency, can control and guide its economic growth absolutely without monetary constraint. That must be the holy grail of modern economy. It does so by promoting growth when needed by increasing the quantity of money in circulation. It could also slow growth by increasing taxation if inflationary pressures threatened to exceed what is advisable. Control of money supply and taxation can both be selective so that the direction of economic growth can also be set. The avoidance of booms and slumps is thus held to be firmly within the grasp of MMT competent governments. The validity of such assumptions will become apparent over the next few years and hopefully it won’t simply be a repeat of the 1929/2008 learning experiences.

Within that broad model, the explosion of new technologies is enabling governments and central banks access to many more detailed control mechanisms which MMT can accommodate. It is a highly dynamic situation in which MMT will continue to develop or could even be replaced by alternative theoretical approaches. One such, currently being promulgated, is Transfinancial Economics (TFE), which takes fuller account of the technological possibilities of developing QE for the global economy.

At this point in time, the possibilities of economic theory, notably of MMT, appear immense, but unpredictable.  As always, the theory is underwritten by political considerations which were previously focused on the M-V dichotomy.

Now, the extreme possibilities of new technologies, make the Real and Financial economic divide absolutely crucial.  The Real Economy is what could produce the needs and wants of everyday life for all people within an environmentally sustainable context. The Financial Economy was initially established to raise the finance for the canals, mills, factories and railways of the first industrial revolution. But since then it has found easier ways of making faster returns than paying for those Real Economy activities. So the Financial Economy has become predatory on the Real by a variety of means, including a process of increasingly sophisticated Merger and Acquisition (M&A) followed by systematic asset stripping and closure of Real Economy organisations. 

It is a process which is ignored since the distinction between the Real and the Financial Economies is not made, a fact celebrated by the simultaneous combination of austerity and QE, symbolic of the global combinations such as tax haven corruptions and the climate crisis.

That Real-Financial dichotomy, so vital to Remaking the Real Economy, is completely ignored by economic theory, including MMT. In orthodox measures such as GDP, a $ is a $, whether it is earned through care home services, bets on the financial casino or prostitution.

However, MMT controls enable both money supply and taxation to be selective, so that the direction of economic progression could be focused on the Real Economy making the financial sector resume its former more restrained role as supportive provider of finance.

Moral philosopher Adam Smith started his inquiry into the nature and causes of the wealth of nations with observation of real economic activity (pin making), rather than theoretical argument. There was no theory at the time.  Real economic activity clearly didn’t require a theory. Today, further progression without detruction might be better achieved if freed from theoretical constraints and diktats.


[i]  Piatier, A., (1984), ‘Barriers to Innovation’, London: Francis Pinter.

[ii] Friedman, M., (2003), in interviews with Joel Bakan for the documentary film ‘The Corporation’, see https://www.youtube.com/watch?v=Y888wVY5hzw [accessed 10.January 2020].

[iii] Martin, F., (2014), Money: the Unauthorised Biography, London: Vintage Random House.

Economic Practice or Theory? Remaking the Real Economy or Destruction?

Devastating though the coronavirus undoubtedly is, it must not be allowed to obscure the fact that the world was already headed for some destruction. Covid-19 is a side show compared to those existential issues facing the world, largely resulting from the combination of reckless industrial expansion combined with the population growth it enabled.

Moral philosopher Adam Smith was motivated by the sudden economic growth generated by the industrial revolution, to inquire into The Nature and Causes of the Wealth of Nations. He started by observing the practical processes of manufacturing and noted the unprecedented gains in productivity from the coordination of specialised operations. In pin making he noted a productivity gain of over 240 times. From that practical account of the work and its outcomes, Smith drew some conclusions as to the creation of wealth, the details of which were later elaborated by what Drucker referred to as the management revolution.

As moral philosopher, he also developed ideas as to how that wealth might best be accumulated, employed and distributed among “ranks of people” as well as allocated to state provision of defence, justice, education and public works and institutions “which may be in the highest degree advantageous to a great society.”

That was the real subject matter for political-economic decision making. However, Smith also conjectured about theories of value which were later picked up by Ricardo and many others, developing what Marx later referred to as classical political economy. By mid 19th century that was being based on a mathematical modelling rather than the realities of production.

Thus, two distinct strands of explanatory analysis developed from the industrial revolution. One strand was based on the observation of real individuals, organisations, processes and systems. The other was based on the internal logic of mathematical models without reference to realities.

Theoretical modelling was necessarily based on a lot of simplistic assumptions such as self-interest maximising human beings, profit-maximising business units, and markets free from government regulation producing the best allocation of resources. Being purely mathematical they could make no accommodation with human values, with evolution over time nor with the social and ecological systems within which such economic processes function.

Subsequent generations of neoclassical-neoliberal economists have elaborated much further detail to that theoretical web, notably including the change of business aims from profit maximising to having ‘no social responsibility other than to make as much money as possible for stockholders.’

Right from the start that theoretical orthodoxy was subject to challenge and rejection. As early as 1862, Ruskin argued it lacked “applicability.” Nevertheless it was applied. Alfred Marshall, author of the first standard economics textbook which led economics to mathematical definition, pointed out the unreality of assumptions which the mathematics required. and their so called laws regarding “profits and wages that did not hold even for England in their own time.”

Economists agree the unrealism of neoclassical modelling. It was nicely summarised by Routh in The Origin of Economic Ideas, ignoring facts as irrelevant and as basing “its constructs on axioms arrived at a priori, or ‘plucked from the air’, from which deductions are made and an imaginary edifice created … orthodox economics becomes a matter of faith ad, ipso facto, immune to criticism.”

The outcomes from application of that highly theoretical orthodoxy are ever increasing levels of inequality, both within economies and between. Piketty’s analysis of Capital in the Twenty- First Century showed that a market economy based on private property, generated forces of divergence. They resulted from the fact that in such free markets, the % return on capital has been greater than the rate of growth of income and output. Wealth earned from the past grows faster than wages. The entrepreneur is therefore encouraged to move from real economy operations to the financial economy where their returns will increase faster, becoming ever more dominant over those without wealth.

At some stage that process will inevitably have to be reversed by some enforced redistribution of wealth. That will be achieved either by agreement. Or by disagreement.

Continued destruction of the real economy is justified by conformance to the neoclassical economic theorising, rather than focusing on practical realities. The result is not just continuously mounting levels of inequality both within and between nation states. It involves environmental destructions which will deprive future generations of a habitable domicile on planet earth.

That much is known. But yet, the powers that be do very little to achieve change. For them, the coronavirus may be a welcome distraction from their fundamental duty to contribute positively to ensuring humanity’s survival and progression.

The Care Home Pandemic Lesson

The mortality statistics reported as resulting from Covid-19 refer only to those who die in hospital. Those who die at home or in care homes are not included, even though, despite such obfuscation, it is known the death rate among the elderly and infirm accommodated in care homes far exceeds death rates among NHS patients. It has become clear that such care home residents have been abandoned, not by care home staff – there have been many stories of their heroic human caring – it is the system that has abandoned those in care. It is a valuable lesson, first learned decades ago, and it has far wider relevance than care homes.

That abandonment is longstanding and is well known and understood. The sector has been made available for rape and pillage with impunity, as indicated in the following quotes. The solution is clear.

The Lesson of Southern Cross, 10th June, 2011:
10th June 2011: “On 1st September, 1976, Professor Milton Friedman of Chicago University, economic theoretician and Nobel laureate, addressed the Institute of Economic Affairs in London. The title of his talk was “The Road to Economic Freedom: The Steps from Here to There”. Friedman, being the quintessential free market fundamentalist, took a dim view of the mixed British economy with around 60% of national income then being spent by government. He prescribed the ‘shock treatment’ of low flat rate taxes and wholesale privatisation which a few years later Margaret Thatcher implemented.

His justification for privatising provision of education and healthcare was simplistic in the extreme. ‘There is,’ he argued, ‘a sort of empirical generalisation that it costs the state twice as much to do anything as it costs private enterprise, whatever it is.’ Friedman didn’t actually have any data to support this contention, but added that ‘My son once called my attention to this generalisation, and it is amazing how accurate it is’ (See Friedman, M, 1977, From Galbraith to Economic Freedom, London: Institute of Economic Affairs, p57).

That simplistic assertion held sway for the next three decades and still rules our lives. His advocacy of privatisation of public provision justifies, among other things, the provision of care homes for our aging population by the likes of Southern Cross. It turned out not to be twice as efficient as any public sector provision, and it threatens to go bust leaving the state to clean up the mess.

The nub of the Southern Cross problem arises from another Friedmanism, that corporate officials had no social responsibilities other than ‘to make as much money as possible for stockholders’. In the case of Southern Cross, those stockholders were at one time the private equity firm Blackstone, headed up by ex-Lehman Brothers mergers and acquisitions specialists. Their interest in making as much money as possible led Southern Cross to the classic asset strippers’ strategy of the sale and lease back of its portfolio of care homes, realising an estimated surplus of £500m for Blackstone. It may or may not have been ‘as much money as possible’.” (https://gordonpearson.co.uk/2011/06/10/the-lesson-of-southern-cross/)

Big Society Public Services – the Next Government Shambles, 22nd July, 2011:
22nd July 2011: “The Open Public Services White Paper, announced on 11th July, sneaked out under cover of the Murdoch mess, looks like being the next government created shambles. Like its approach to the NHS, it betrays a breathtaking lack of nouse and understanding. The government claims its aim is to improve the quality and reduce the cost of all public services. This magical result is to be achieved by opening them up to provision by private and voluntary organisations, in competition with their existing public providers. … opening public services is likely to result in bids from the private for-profit sector, against the existing public provider. And private for-profit providers can, by definition, go bust. Health Minister, Paul Burstow says the new NHS regulator, Monitor, would ensure providers do not copy the “risky business model” of Southern Cross, the bankrupt care home provider.”( https://gordonpearson.co.uk/2011/07/22/big-society-public-services-the-next-government-shambles/#more-942)

Looting and Rioting – Bob Diamond Again, 15th August, 2011:
15th August 2011: “Over the past few days, the famine in East Africa, the US loss of its S&P triple A credit rating, the Murdoch disgrace, the Eurozone indebtedness and Greece’s odious debt, and even the World Championship Hen Races in Derbyshire, have all been driven from the front pages, at least in UK, by the looting and burning street riots. Consideration of their underlying causes and recommended solutions have dominated the media. Prime Minister Cameron, for example, expert in policing and broken societies, apparently wants to appoint a native from gun-toting America, to show British police how to do their job …

What is the main difference between those young people stealing mobile phones, laptops, trainers, and so on, and the likes of Fred ‘the Shred’ Goodwin, Bob Diamond and Stephen Schwarzman? One-time RBS CEO Fred Goodwin broke the bank with brainless debt and acquisitions and ‘shredded’ many thousands of jobs. Bob Diamond, currently CEO of Barclays Bank, has featured from time to time on this site primarily for his socially useless work and exorbitant take home pay. Stephen Schwarzman is billionaire boss of Blackstone Group, the private equity outfit that among other things, stripped the now bankrupt Southern Cross healthcare group of its main assets and made off with an estimated £500million. They differ from the looting, burning rioters in two main respects, Firstly, the scale of their looting far exceeds anything which has happened on the streets. And, secondly, what Goodwin, Diamond and Schwarzman do, has over the last thirty years been legalised, so they can do it with impunity.” (https://gordonpearson.co.uk/2011/08/15/looting-and-rioting-bob-diamond-again/)

Screwing care-homes still makes the easiest money, 5th September, 2015:
5th September 2015: “Taxpayers are going to have to pay for another big care home operator, throttled by tax avoiding financial predators. According to its chief financial officer, Four Seasons, which runs 450 care homes and 50 specialist care units, ‘is reviewing its finances with all options considered’. One option would be to close down, leaving the taxpayer to pick up responsibility for its 20,000 residents and patients.

Four Seasons is carrying debts of £500million on which it is paying interest of around £50million. It’s not immediately obvious how they got into so much debt nor why they should be paying interest at 10% pa when the official bank rate is 0.5%….
The tax avoiding financial predator that acquired Four Seasons was private equity Terra Firma Capital Partners, owned by Guernsey based Guy Hands. The acquisition was completed a few months after the collapse of Southern Cross had demonstrated how profitable such deals could be.

Terra Firma was in the news earlier this year with demonstrations against subsidiary Annington residential homes’ proposed demolition of 142 homes on the Sweets Way estate in north London. They were accommodating families on Barnet Council’s waiting list, but Hands’ plan was to replace them with 229 houses and flats for sale on London’s booming property market.

Four Seasons is losing money at a rate of knots, £26million in the second quarter of the current year. While they blame the losses on various extraneous factors, it is clear that public funding of social care for the elderly is inadequate. But the only way it will be increased is when the mess has to be sorted at public expense when Four Seasons goes bust. That the taxpayer has to pick up the tab is a major attraction of care homes and any privatised NHS services. Once privatised, the new operators can profit by delivering sub-standard service, till they go bust and the state has to pick up the pieces.

Guy Hands explains his perspective on private equity on the Terra Firma website http://www.terrafirma.com/private-equity-investment.html:
The private equity funds we raise are used to acquire asset-backed businesses that can be transformed through fundamental change.’

This is a rather more sophisticated way of making the asset stripper’s case as succinctly expressed in The Times by Jim Slater protégé, John Bentley, forty five years ago:
‘The theory of what we are doing is to release half the cash, half the assets and half the number of people employed.’
(https://gordonpearson.co.uk/2015/09/05/screwing-care-homes-still-makes-the-easiest-money/)

There are many long standing, ethical and professional operators in the care home sector. But they appear to have been largely deserted by the state. The Southern Cross and Four Seasons examples show just what a perfect opportunity care homes present for predatory exploitation. Being asset rich and earnings poor, means they can be acquired at low cost, their assets cashed in and they can then be driven on a shoe string and if they subsequently go bust, so what! The state will have to pick up the tab.

But the problem goes much wider than just the care home sector. Four decades of ideologically driven privatising and outsourcing of public sector provision, including health services, places much of the work previously fulfilled by the NHS in private hands. Predatory, tax evading and avoiding, private equity acquirers who are not subject to public quotation or review, could then fulfill their mission by extracting value and leaving enfeebled operations to be picked up and paid for by the tax payer.

The solutions are fairly obvious and have been highlighted many times in the past. The care home pandemic lesson in particular is a relearning experience and reminder of what needs to be done. But it is unlikely to be easy to implement.

F D Roosevelt identified the basic problem over eight decades ago when he referred to organised money, which “had begun to consider the Government of the United States as a mere appendage to their own affairs. We know now that government by organised money is just as dangerous as Government by organised mob.” (F D Roosevelt, announcing the Second New Deal, October, 1936.)

It remains to be seen if state responses to Covid-19 will amount to a 21st century New Deal, which as well as defeating the pandemic, will need also to  remake the real economy as well as escaping destruction by organised money.  And if planet earth is to be made fully sustainable, to do so on a permanent basis.

Fighting for Fairness

Fairness is envisaged as an extremely broad concept. It includes universal human rights and equal opportunities for all, with social balance and some limitations on inequalities of income and wealth and the means of their achievement, all applied within and between communities and nation states. It also relates to fairness between generations. We are making a total mess of everything, and unless we change radically, we will bequeath a planet earth to future generations which is simply not sustainable. We don’t need to. There is an alternative, as we are continuously being reminded.  But so far we have done very little about it.

We need to remake the real economy and escape destruction by what Roosevelt so long ago identified as organised money. The real economy is what employs most people, making and innovating the products and services of everyday life and their continuous improvement. It is distinguished from the financial economy which came into being mainly to support developing the real economy by enabling the necessary finance for investment.  But, latterly, the financial economy has become predatory on the real, focused on extracting value in order to maximise shareholder take (MST) and increase its portion of the overall economy.

That distinction between the real and the financial is not widely recognised, and it is completely ignored by orthodox measures such as GDP. The modern state and its regulatory authorities need to make the distinction and regulate each appropriately so as to achieve progression with fairness.

The real economy comprises three quite distinct layers which are nominated here as  the social-infrastructural layer, the progressive-competitive layer and technological-revolutionary layer. Each layer requires quite different forms of support and regulation so that overall,  progression without destruction might be achieved, with fairness for all.

Roosevelt identified organised money when he introduced the second round of the New Deal which ended the austerity driven Great Depression which followed the 1929 Wall Street crash.  He identified its various constituents as ‘business and financial monopoly, speculation, reckless banking, class antagonism, sectionalism and war profiteering.’  He noted that organised money ‘had begun to consider the Government of the United States as a mere appendage to their own affairs’ and recognising its  criminal tendency, he  warned that ‘Government by organised money is just as dangerous as Government by organised mob.

Roosevelt and Keynes victory over organised money last but four decades.  Over the past four decades, organised money has been reborn as the self-perpetuating driving force behind governments in Anglo-America and beyond. Its various constituents have been the prime beneficiaries from the application of the 21st century version of neoclassical microeconomics. That free market, profit maximising model was born in the 19th century and didn’t change much till the 1980s when Friedman and colleagues refocused it on MST.

The simple truth is we don’t need a theory of how things work when the reality is there before us to observe and understand. And we certainly don’t need a 19th century economic theory which has been shown, so many times, to be utterly false. Understanding how the real world works is much more important. That understanding reveals the various constituents of organised money, including government itself, to be initiating and approving the most fundamental crimes against humanity ever conceived.

‘Remaking the Real Economy: Escaping Destruction by Organised Money’ (to be published by Policy Press, August 2020) identifies actions necessary to rebuilding the social-infrastructural layer of the real economy, re-establishing the progressive- competitive layer and refocusing the technological-revolutionary layer to achieve a fully sustainable planet earth.

The practicalities of such an agenda will require a host of corrective measures which will be dependent on the effective regulation and restraint of organised money and the complete displacement of neoclassical economics.

That can be achieved either with the realisation and support of constituents of organised money, or, by some more aggressive action by other constituents. It may not be easy. But if the necessary actions are not achieved, then it will be our generation which is condemned by our daughters and grand-daughters as the contemptible traitors who destroyed their world.

21st Century Robber Barons

A current concern is the re-emergence of organised money – the newly dominant, amoral, self-perpetuating financialised establishment. The robber barons emerged late 19C and in US were treated to anti-trust legislation such as the Sherman Act which broke up Standard Oil in 1911 and regulation as a public utility was inflicted on such as AT&T in 1913. Nevertheless the financial sector continued to dominate till the 1929 Wall St Crash, after which the world became, for a while including WW2, more cynical of the sector and its role.

Client experience with the Office of Fair Trading which enforced both consumer protection and competition law, and the Monopolies and Mergers Commission tells an interesting story. In the 1970s they were powerful bodies, which prevented anti-competitive M&A and were empowered to break up anti-competitive corporates. Since the 1980s, and especially since 1986 ‘big bang’ computerisation of capital markets, those regulatory powers have been progressively weakened.

The current generation of robber barons, the creators and controllers of the IT titans such as Apple, Google, Facebook, Amazon etc, are quite different. A year ago the Economist published an article (Taming the Titans, The Economist, 20.1.18) which acknowledged they had become increasingly dominant. Though The Economist was predisposed to defending them, it recognised the dangers they posed and raised the question of how they should best be controlled. Increasingly they not only dominated the market but were the market themselves (as platforms).

Many of their services appear to be free but customers pay for them by giving away their data. The Economist estimated their then current stock market valuations suggested they were expected to “double or even triple in size in the next decade.” Amazon had 40% of on-line shopping in US. Facebook had over 2bn monthly users, holding sway over the media industry. And in some countries, Google processed over 90% of web searches, Google and Facebook controlling over two thirds of online ad revenues.

While things move fast and some new tec giant killing upstart is feasible, the probability is fading as barriers to entry are rising. Facebook owns the world’s largest pool of personal data. Amazon has more pricing info than any other firm and is ever increasing its heft. China’s tec firms have the scale to compete but have yet no access to Western consumers. If trends continue consumers will suffer.

Better use could be made of existing legislation eg preventing anti-competitive takeovers, such as Facebook’s acquiring WhatsApp and Instagram. Also, it should be recognised that personal data has become the currency with which customers pay for products and services. So, just as in 19C, intellectual property was given protection by patent law, so the ownership and exchange of data also needs specific and limited protection laws.

The Economist concluded with the following points:
“If a user so desires, key data should be made available in real time to other firms – as banks in Europe are now required to do with customers’ account information. Regulators could oblige platform firms to make anonymized bulk data available to competitors in return for a fee, a bit like the compulsory licensing of a patent. Such data sharing requirements could be calibrated to firms’ size: the bigger platforms are the more they have to share. These mechanisms would turn data from something titans hoard to suppress competition, into something users share to foster innovation.

None of this will be simple. But it would tame the titans without wrecking the gains they have brought. Users would find it easier to switch between services. Upstart competitors would have access to some of the data that larger firms hold and thus be better equipped to grow to maturity without being gobbled up. And shareholders could no longer assume monopoly profits for decades to come.”

But, no action has been taken and even serious discussion has been limited.

On 15th March 2019 it was reported that Apple had unveiled their strategic push into video, news and finance, boosting its digital media and cloud services and reducing reliance on the iPhone. Apple chief executive Tim Cook unveiled a revamped Apple TV app which includes both original tv plus the ability to subscribe to third-party services, a games subscription service, a credit card in partnership with Goldman Sachs and a digital news and magazine bundle. These initiatives, while not particularly innovative in the Apple tradition, threaten to substantially increase Apple’s market power against the common good. Similar initiatives by the Facebooks, Googles and Amazons of this world, can be anticipated.

The proposal to use current legislation, eg to revitalise the OFT and M&MC in UK, so as to unscramble anti-competitive M&As and prevent them being repeated, seems a sensible start. As does applying patent law principles to big data to require data sharing.
Even the Economist agrees with that, but will it happen?

The Worst Possible Brexit

Why would the worst possible Brexit be of the slightest interest? Well, possibly because, on our politicians’ track record to date, the fact it’s the worst makes it the most likely to be inflicted.

It seems probable that Brexit with no deal will be ruled out. The Prime Minister’s deal has been soundly rejected by parliament. So they will most probably be driven to request an extension of Article 50 to give more time to come up with an alternative plan. But Slovenia, Greece or possibly Cyprus, will reject UK’s application because, for some curious reason, they want UK to remain in the EU. So UK is then forced to revoke Article 50 in its entirety, thus remaining as EU members.

So the Remainers will have won? Not quite.

Our EU membership will not be as it was before all this nonsense was started off by David Cameron and George Osborne. The current air of uncertainty will persist. Companies operating in UK as a member of the EU – eg the UK motor industry – are unlikely to have much confidence in our continued membership and their future investment decisions will be shaped accordingly. And, having messed the EU around for the best part of 3 years, the UK (and possibly Cyprus) are unlikely to be the most influential leaders of much needed EU reform.

But what will happen in the UK? Perhaps the current minority government will decide its time is up and call a general election. That will be won by one of the two main parties who will then most likely form a minority government committed to fulfilling the expressed will of the British people ie Brexit.

The Liberal Democrats might previously have made some contribution to debate if not having much influence over events. They would at least have offered an alternative perspective for consideration. But they appear to have lost the will to survive.

So, the UK will be back where it began. Apparently unwilling, and now increasingly unwelcome, members of the EU, with the 2016 expressed will of the British people echoing down the Westminster corridors, possibly being repeated, embarking on another three years of Brexit paralysis, led by who of the likely contenders?

That seems the worst possible Brexit, as well as being entirely feasible.

Economic Management Isn’t Just Applied Theory: It’s Much More Important Than That

Moral philosopher Adam Smith’s inquiry into the nature and causes of the wealth of nations started with observation of a pin making workshop, noting the tremendous cost savings that could be made by people specialising in different production tasks, collaborating in the overall manufacturing process.

The practical processes of production, as in pin making, were repeatedly adopted, with remarkable success by those involved in the first industrial revolution and in manufacturing and all real economic processes ever since. Understanding how those organisational systems work is the key to understanding the economy and how it might best be governed for a sustainable and prospering population. But it hasn’t been taught as an academic subject area.

Smith also conjectured about the labour theory of value – the value of anything being dependent on the amount of labour involved in its production. Those thoughts were were picked up by Riccardo, Say and others leading to the development of classical economics as an academic subject.

Its dubious theoretical foundations led economists to try to develop it as a ‘science’ in the form of mathematically based neoclassical economics. Its abstruse theories, hypotheses, models and unrealistic assumptions have all been falsified many times, but they’ve remained in place as a widely taught subject with increasing influence over those who rule.

Ruskin likened it to ‘alchemy, astrology, witchcraft and other such popular creeds’. All it lacked was ‘applicability’.

Almost every facet of it is wrong. For example, markets free from regulation, tend naturally to mutate from being competitive towards cartel and monopoly, being controlled for the benefit of the monopolist rather than the customer. That tendency was recognised in the US in the age of the so called ‘robber barons’ and regulated by the passing of anti-trust legislation such as the Sherman Act, and post the 1929 relearning experience by further regulation such as the Glass-Steagall Act limiting the power of would be banking monopolists, which Roosevelt referred to as ‘organised money’, Government by which was ‘just as dangerous as Government by organised mob.’
Continue reading Economic Management Isn’t Just Applied Theory: It’s Much More Important Than That

Brexit Again

Now the repercussions of leaving the EU are more apparent, a second Brexit referendum seems the only democratic way forward. And if the vote went for Remain, then we must endeavour to make changes within the EU that might go some way to satisfying all UK voters.

EU originated out of determination that Europeans should not start a third world war. Political union was part of the motivation right from the beginning. But by the time UK joined in 1973, that idea had seemed to be more on the back burner, the main gain being recognised as economic. That was what the UK joined for. Having a European parliament was never of huge interest to UK.

We should have vetoed creation of the European parliament in 1979. But as new members we failed to do so and it was duly established as a debating and rubber stamping chamber. It lacked the power to initiate legislation, its role being to approve and debate decisions made by the European Council and the European Commission. Enthusiasm for it, measured as voter turnout, has declined in every election since its formation. At the last election, turnout was less than 43%. Next year’s turnout will be interesting.

Enthusiastic Brexiteer, Daniel Hannon, described his experience when he first reported to Brussels as a newly elected MEP. He was given 1st class travel expenses from UK to Brussels irrespective of costs incurred which would enable him to trouser £1000 a week tax free. He was also given €14,000/month to pay staff who might include members of his own family, plus €4,000/month to cover general expenses. He was also provided with free and fully equipped office accommodation in both Brussels and Strasburg.

Given that there are 751 MEPs, it is not surprising that annual costs total over €1.8 billion. A political vanity project which adds little to the realities of EU functioning.

If a second Brexit vote were to go for Remain, then the UK should opt out of the European Parliament and invite other EU members not determined on full political union, to do the same. That strategy should be an essential part of the Remain offering in a second referendum.

Limiting the Tyranny of Organised Money

50 years ago, outdoor advertisers, Mills & Allen Ltd, was taken over by Barclay Securities Ltd, stripped of readily saleable assets, and a proportion of employees were declared redundant. Barclay was a financialised associate of arch asset stripper Slater Walker. It was headed up by one John Bentley, who became a media star, proclaiming ‘the theory of what we are doing is to release half the cash, half the assets and half the number of people employed’. That was how he rapidly became a multi-millionaire.

That was 50 years ago – so what’s new today? Well, technologies have changed and everything happens much faster now. Today, the equivalent of Barclay Securities would measure time in nanoseconds.

And it’s over 80 years since F D Roosevelt proclaimed that ‘government by organised money is just as dangerous as Government by organised mob’. By organised money he specified ‘business and financial monopoly, speculation, reckless banking, class antagonism, sectionalism (and) war profiteering.’

So what’s new today?
Continue reading Limiting the Tyranny of Organised Money