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.
Continue reading The Final Victory of the Establishment?
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.
Continue reading More Big Six energy rip- offs
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.
Continue reading Who will defend the British interest?
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 would be both limited and short-lived.
The original purpose of the capitalist system was to fund industrialisation. That generated the economic gains for entrepreneurs and their stakeholders and the industrial infrastructure paid for by taxes, as well as providing for the common good by improving health, education and general living standards.
Continue reading Capitalism to the Rescue
David Cameron has recently claimed to know a thing or two about economics. So why is he surprised the privately owned ‘big six’ energy providers appear, as Ed Milliband put it, to be “ripping off” consumers? It’s not that they are particularly evil, unethical or exploitative, but that they are dominated by the same economic ideology which led the Thatcher government to privatise gas and electricity in the first place and which Cameron claims to understand. And that same ideology dictates that it is the legal duty of those private companies to maximise shareholder wealth. Such maximisation necessarily involves them in taking decisions which result in the disadvantage of parties other than shareholders, including, as far as they feel is judicious, their customers. So why is Cameron ‘disappointed’?
It is the ideology of Milton Friedman, simplistic populariser of the neoliberal belief. A cornerstone of the ideology is Friedman’s “empirical generalisation that it costs the state twice as much to do anything as it costs private enterprise, whatever it is.” The message was often stated. That particular quote is from a lecture Friedman gave to the Institute of Economic Affairs, free market think tank lobbyists, much loved by Margaret Thatcher, some 18 months after she had become leader of the Conservatives. The only supporting evidence offered by Friedman was that his son had pointed it out to him. If it turned out not to be true the basic justification for privatisation would be shown as quite spurious.
Continue reading Why the ‘big six’ energy suppliers are “ripping off” consumers
Almost 5 years after the crash, the UK economy remains in the doldrums. Now even the IMF is critical of the UK’s austerity programme. But the government is not for turning from its basic pursuit of austerity plus miniscule photo opportunity gestures like letting small businesses off their National Insurance contributions for a period. But it isn’t working. Is it conspiracy or cock-up?
Or perhaps it is both. There is an underlying conspiracy to promulgate the theory which explains and justifies decisions which are clearly against the best interests of the mass of the population. The democratically elected leaders then cock things up by swallowing the theory whole, implementing its most outrageously inequitable measures and, aided and abetted by a largely collusive media, offering the formulaic explanations provided by the theory. Continue reading UK Economy: Conspiracy or Cock-up?
The media expressed shock and horror that Centrica should jack its prices up to its customers and pass £1.3bn of its surplus profits back to its shareholders. But why? That’s what Centrica’s directors think they are there for. And the media and most everyone else appears to share that misunderstanding that it’s the legal duty of company directors to maximise shareholder wealth. But it’s simply not true. It’s based on a lie. The capitalist system was much more soundly based than that, but is currently being destroyed by such dishonest, even criminal corruptions of the truth.
In real competitive markets, exploitation of customers, employees and the rest, for the sole benefit of shareholders, is constrained by competition. So everyone benefits. But where a market is carved up between a small number of monopolistic giants, exploitation is inevitable. Some markets are like that. Gas is one. So are most privatised markets because government attempts to create pseudo competitive conditions invariably fail, succeeding only in establishing an additional layer or two of bureaucracy to handle the unavoidable extra regulation.
Continue reading Centrica and the Existential Lie