Almost 18 months ago Glencore first featured on this blog – Glencore and others are screwing the world – a posting which highlighted the predatory nature of financial monsters like Glencore. The Financial Times had reported Glencore’s ability and willingness to fix commodity prices for their own profit and everyone else’s loss and how they were expected to increase their monopolistic stranglehold in key markets. Glencore was in the news at that time because of its imminent initial public offering of shares to the London Stock Exchange which was expected to value the company at between £60 billion and £73 billion and facilitate its further expansion through mergers and acquisitions. The FT also reported how the world’s largest commodity trader had paid “almost no corporate taxes on its trading business for years in spite of bumper profits.”
The FT’s report described how Glencore had exercised their monopolistic power to raise prices in the Russian wheat market for a quick profit, at the expense of those millions already struggling on the breadline. That was revealing of the sort of business Glencore is, and the sort of business practices it was prepared to embrace in order to make its money.
Continue reading The Glencores, Xstratas and Blairs
Goldman’s Lloyd Blankfein, Citibank’s Vikram Pandit and, of course, Barclay’s Bob Diamond, all have something in common. Even their normally acquiescent shareholders have been moved to express concern about their latest round of excess, greed and thuggery. But they are only the tip of the ice-berg. It has become custom and practice for top people to take spectacularly from the businesses they command. Whether their take, largely for unacceptable performance, is £5m or £67m makes little difference. It obviously bears no relation to their true worth: their talent, or their hard work.
These are the unacceptable faces of capitalism, the reasons why people have so little trust in the integrity of corporate business. They are why people are demanding ‘new models of capitalism’, ‘ethical capitalism’, ‘capitalism with a conscience’, etc. And why Ed Milliband makes the clear distinction between what he refers to as ‘good capitalism’ and ‘bad capitalism’.
But capitalism with a conscience won’t work. We may all start out with a conscience, but if the system tempts us with untold riches for doing not a lot, then most of us are likely to fall for it. Our intrinsic good intentions will be crowded out by extrinsic incentives or greed. The problem is making the system proof against that simple human frailty. Continue reading Modifying the Capitalist System
The Prime Minister used the word ‘snobbery’ to deride what he referred to as anti-business rhetoric. By which he was meaning the arguments that business ‘has no inherent moral worth’, that it ‘isn’t really to be trusted’, and that it had ‘no social concerns’ but was solely to do with ‘making money that pays the taxes’. He was addressing the charity, Business in the Community, attended by the Prince of Wales. ‘Snobbery’ seems a curious word to use. Maybe it is some left-over frisson from the landed gentry, even royalty, of old England, for whom the idea of making money, rather than inheriting it, may be thought somewhat beyond the pale. But surely the Prime Minister doesn’t take such ideas seriously!
So far as is known, Milton Friedman was never accused of snobbery. But it was he, more than anyone, who persuaded business that it should have no social concerns and not strive after moral worth, but focus exclusively on making as much money as possible for shareholders. He was less enthusiastic about paying taxes, but snobbery played no part in his argument. It purported to emanate from the cold logic of economic theory, if such a thing were possible.
Continue reading Cameron’s Anti-Business ‘Snobbery’: Real or Synthetic?
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.
This blog’s intent is to flag up the impacts of theory on practice. The focus is mainly on the management and governance of real economy organisations, because they are what pays for our education, health and security, and they are where most of us work. The broad contention which has emerged from postings on this site, is that the theory which impacts on those organisations has had a profound, very widespread and more or less wholly negative effect. And that almost certainly includes some motivation for the looting and burning riots.
Continue reading Looting and Rioting – Bob Diamond Again
These interesting times might take our eyes off the things that really matter. During a recent late night discussion on the BBC among the financial cognoscenti, one of the participants warned against getting drawn back into ‘the red herring of banker’s bonuses’. The real issues were the British government and police being in the pockets of the Murdochs, media plurality, the debt crises in Greece, Italy, Ireland, Portugal, etc etc and the future of the Euro, not to mention the changing world roles of the US and China as well as the developing famine in East Africa. Bankers’ bonuses were surely small beer against such giant issues.
Keynes argued that reducing taxes on the poor enabled them to immediately increase their spending which would stimulate growth in the real economy, thus reducing debt and creating jobs. Reducing taxes on the rich did not have that immediate effect, but, the argument ran in Keynes’ day, it enabled them to increase investment in the real economy thus having a long term positive impact on growth. That was then.
Continue reading The Red Herring of Interesting Times
It seems impossible to ignore the Murdoch saga: the seedy old martinet, his chosen heir apparent and the family sycophants and hangers on, shades of the Duvaliers’ era in Haiti, or a dozen or more banana republic tyrants. 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, for example, by Harold Evans, much respected editor of the Times, when the Murdochs took over. Assurances of continued editorial independence were made as a condition of the acquisition, but within a year ‘every guarantee had been broken’. Evans concluded that the Murdochs would ‘promise anything to gain control’. As they are doing now to gain control over BskyB.
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.
Continue reading The Long Term Impact of the Murdochs’ Disgrace
The bonuses earned by the bankers, hedgers and various fund managers arise as a result of making fast, smart decisions about price movements in currencies, commodity prices, food, energy and key resource shortages, mergers and acquisitions and the like. The quick returns from such deals ensure that mini speculative bubbles keep getting inflated, and the smarter fund managers make money when the bubbles burst as well as when they inflate. And the smartest and biggest fund managers are able to create bubbles and control their inflation and bursting, that is except the really big, conglomerate bubbles that gather once in a while. So speculative trading continues to grow and the problem of how to spend the resulting bonuses keeps on growing too. It really is quite a problem.
It’s not as though it’s a one off. And it comes on top of a basic salary which very much more than pays for living expenses at quite a generous level. You can do the Veblen thing and go for some conspicuous consumption – conspicuous waste is really not regarded as attractive today even if one was so inadequate as to find it intrinsically appealing. But conspicuous consumption is still seen as admirable. The Financial Times ‘How to Spend it’ Saturday supplement provides some ideas. For example, £81,000 for the Philip Treacy hat as worn by Princess Beatrice (??) at the royal wedding, except it looks so silly. Or £78,000 for the ex-Kate Middleton St Andrews dress. Or a wrist watch, amount spent depending mainly on the weight of gold and diamonds. But really such spends, even if one felt desperate to bolster one’s identity that way, could only provide relatively minor contributions to solving the problem.
Continue reading How To Spend It