The idea of GDP is simple: the summation of what is produced within the UK avoiding any double counting. It is used to assess how well the economy is doing overall. For the government of the day, growth is good because it suggests we will all be better off. Though GDP is a very imprecise measure, it is one that most people broadly accept.
The economy used to be measured by gross national product (GNP). That measured what UK-owned assets produced, irrespective of where they were in the world. But GNP fell out of favour as UK owned assets were sold to foreign investors with the result that the economy, by that measure, appeared to be in decline. Successive Chancellors tried to make out the sale of UK owned assets was good, because it showed UK was ‘open for business’. But it didn’t really wash. So, since the 1980s, GDP has been the standard measure.
GDP is calculated by simply adding the product of various sectors together as if they were all of equal worth. But in truth some sectors benefit the common good and others are predatory on the common good. But if GDP is growing the government of the day takes credit for successful economic management, irrespective of the fact that it is the predatory components that have grown at the expense of the good sectors.
Continue reading The Great GDP Deception
For a short while on 11th January 2015, an estimated 1.5 million people were brought together in Paris as a homogeneous entity, along with a further estimated 2.5 million elsewhere in France. They represented huge diversity of race, religion, age, ability, interests and political allegiance. What brought them together for that brief moment was their common protest against the violence meted out to individuals who in these post-enlightenment times, had not broken any law, but had merely exercised their right to freedom of speech. Though few of the protesters might agree with the Charlie Hebdo line, the protest was in defence of their right to express it, and the shared horror at the premeditated violence visited on them.
That spontaneous moment of universal protest is now complete. But the mindless abuse of Muslims was almost immediate. Those aggressive reactions could well seed equal and opposite responses. So the world might continue its progression in the wrong direction, refusing to learn any lessons from the simple minded ‘war on terrorism’ declared by George W Bush after 9/11 and supported by our very own Tony Blair. The time for simplistic generalisations is surely over; the struggle must begin for some deeper understanding on which to base action.
Continue reading Je Suis un Humain
Our children and grand-children are facing a far less fair and equitable society than the one people grew up in 30 or more years ago. The wealthy are far richer and the poor both poorer and more numerous. But yet the three main political parties all seem to accept that state of affairs, despite the overwhelming evidence that it is truly bad news for the well-being of both rich and poor alike. Britain is in danger of becoming a permanently divided society.
One of the main causes is the mainstream economic theory that the current elite were all taught to believe. The theory teaches that money paid to the wealthy will be invested in enterprise and the resulting benefits will trickle down to the poorest sections of society so that everyone gains. Therefore government should reduce taxes on the wealthy. It also teaches that privately own companies are much more efficient than publicly owned. Therefore state owned activity should, where feasible, be outsourced to the private sector for everyone to gain. There’s a whole raft of such arguments justified by the theory.
Continue reading A High Velocity Economy
All politicians want these days is a story which enough people will believe in, so the politicians can scrape back into government at the next election. The Tory story, as Ha-Joon Chang summarises it, is that they are having to make tough spending cuts to recover from the mess left by the last irresponsibly overspending Labour government. Moreover, the cuts are working: unemployment is down and earnings are up. The Labour story, as told by Ed Balls, appears to accept the Tory austerity prescription as necessary and effective. So it might be better called the Westminster story. Sir Mike Derrington had a nice phrase which adequately sums it all up: ‘Total Bollocks’!
First, the real source of the mess was the financial crash caused by the as yet largely unpunished criminality of the global financial sector, led by the City of London and Wall St.
Second, government employment statistics are deliberately misleading, massaged by zero hours contracts, reluctant self-employment, and time related underemployment. Adjusted as the statistics are, unemployment still stands at 6%, well over double the rate reported on the more honest basis in the post WW2 decades.
Third, the Westminster story avoids altogether the rapidly rising, and clearly unacceptable, level of inequality between rich and poor.
Continue reading A New New Deal
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
What do Hillsborough, Lance Armstrong, Jimmy Saville, Lady Butler-Sloss and the Institute of Economic Affairs have in common?
The United Kingdom is a relatively congenial place to live. It is fairly tolerant, generally law abiding and relatively non-violent, with the expression of extreme views really not very welcome. UK is like its weather: far from perfect but relatively moderate. And yet! That very tolerance permits of exploitation, so long as it is not too explicit, overt and extreme. Such a system is surely worth conserving and defending.
At the original inquest on the 96 football fans who died 25 years ago at Hillsborough, the coroner wrongly recorded a verdict of accidental death. Twenty years on, and only due to the heroic persistence of relatives of those who died, the police and all public agencies were required to release all relevant documents. Police files were found to have been systematically doctored (116 alterations to statements) so as to absolve the police from blame and suggest some Liverpool fans were responsible, a point forcibly picked up by the Murdoch owned Sun newspaper. In 2012, the original inquest verdicts were quashed and new inquests ordered, and apologies were offered all round from the Prime Minister, the local Police, the Football Association and the then editor of the Sun. The legal process rumbles on (http://hillsboroughinquests.independent.gov.uk/) at huge expense to ensure the system will be seen to at least make nominal improvements for any future Hillsborough disasters.
Continue reading Defending the System
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?
The proposition that taxation stifles growth feels like it should be true. A business that is being heavily taxed won’t have as much to invest in its future growth. For the past forty years at least, the idea has been generally accepted, and successive governments have acted accordingly. However, at the macro level, the evidence suggests something quite different. There have been several studies of the long term effects of different levels of taxation. Data from the UK, the United States, Europe and OECD have all shown similar counter-intuitive correlations.
The latest, an American Congressional Report, (Gravelle, J G and Marples D J, (2014), Tax Rates and Economic Growth, Congressional Research Services Report for Congress, January 2nd ) reviews American taxation and growth over the sixty years from 1950. Between 1950 and 1970 the average top marginal income tax rate was 84.8% and GDP growth 3.86% pa. From 1971 to 1986 average top marginal iincome tax rate was 51.8% and GDP growth 2.94%. From 1987-2010 the rates were 36.4% and 2.85% (Source: Bureau of Economic Analysis (BEA) and the Urban-BrookingsTax Policy Center. (BEA is a principal agency of the U.S. Federal Statistical System.)
Continue reading Taxation and Growth
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