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?
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.
Continue reading Fighting Corporate Abuse: Beyond Predatory Capitalism
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
When all the dust has settled, it will be seen that the Co-operative Bank fiasco will have only added strength to co-operative governance and the co-operative ideal.
The origins of the co-operative movement go back to the industrial revolution and Robert Owen’s mill village at New Lanark. It was common practice then for mill owners to pay employees in funny money which was only exchangeable at the company shop where prices were fixed for the benefit of the owner. Owen’s employees at New Lanark were paid in real money and the company shop sold goods to employees at their cost price. That was the forerunner of the 1844 Rochdale Pioneers, the basic idea being to offer the common man an alternative to being fleeced by the mill owners.
Continue reading The Real Worth of Co-operation
The Chancellor of the Exchequer is generally pictured as commander of the economy, driving it through a dangerous jungle at the edge of Armageddon, threatened by mortal danger on all sides. Whether he is conceived of as a hugely intelligent and skilful driver, or an ill-informed purveyor of omnishambolic damage, is a matter of political opinion. The fundamental error is in the estimation of his power to control the economy. What makes economies robust is not the wisdom of chancellors, but the industry of people, their creativity, their desire for progress and their need to eat. Their co-operative inputs to the many enterprises, private and public, which make up the economy, are what drives it forward.
At most, the Chancellor’s power extends to steering round relatively gentle corners and having some slight influence over speed in order to achieve some counter to the effects of the terrain it has to cover. More decisive action is almost invariably based on false assumption and riven with unforeseen consequences. The effectiveness of the Chancellor’s limited powers depends on the ability to see dangers far ahead and to make adjustments accordingly. But the economic ideology which drives this coalition government is a particular handicap to achieving such foresight. As Chicago Nobel laureate Professor Robert Lucas, devout Friedmanite and star of neoclassical orthodoxy, told the Queen, the best economic theory can do is predict that such events as the 2007-8 crash are unpredictable.
Continue reading The Next Crash and the Greens
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
Back in July last year, this site pondered what would replace the public company, formerly the most powerful institution in the economy (see http://www.gordonpearson.co.uk/11/what-will-replace-the-public-company/). Its numbers had halved over the past decade and the number of small and medium sized firms’ initial public offerings had declined by more than 80%. Shareholders’ funds appeared to be no longer of much worth to the public company, the flow of money having been reversed so that shareholders, and indeed the whole financial sector, were now taking rather than investing, Nevertheless, media interest in the FTSE100 and other stock market indices continues unabated, even though they only measure betting activity on such as M&A rather than real new investment. A posting last month offered a reasoned explanation of how democratic capitalism, which had delivered so much and promised so much more, appeared now to be approaching the buffers – http://www.gordonpearson.co.uk/20/democratic-capitalism/.
The still dominant Friedmanite version of capitalism is now being seen to self-destruct with its array of naïve beliefs and illegality. Company law (eg Companies Act 2006) charges company directors, Friedman’s ‘corporate officials’, with the legal duty of looking after the best interests of the company having regard to the long term and to the interests of all stakeholders. Friedman argued they had no other duty than to make as much money as possible for shareholders. Friedman clearly won hands down against the law, and that despite the fact that ‘corporate officials’ have legal contracts of service and employment with the company, not its shareholders, and those contracts invariably charge them with the duty of looking after the company’s best interests.
Continue reading Glencore, PwC and Horsemeat