Category Archives: Financial Sector

Outsourcing: What a Waste!

Occasionally I have read stuff which seems so timely and apposite to work on which I am then engaged, that I’ve been motivated to provide an aide memoire of the text. This posting provides such a review of one 2015 text; it is not a summary and includes some personal interpretation; it is more a personal aide memoire of the opening chapter.

The book starts off with two rivetingly relevant-to-today quotes, one from 1936, the other from 1885.

Reading Review: What a waste: outsourcing and how it goes wrong, Bowman et al, 2015, Manchester University Press

Chapter 1 Outsourcing: organised money and disabled government

“We had to struggle with the old enemies of peace – business and financial monopoly, speculation, reckless banking, class antagonism, sectionalism, war profiteering. They 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.

“The common rights of ownership have disappeared. Some of them have been sold; some of them have been given away by people who had no right to dispose of them; some of them have been lost through apathy and ignorance; some have been stolen by fraud; and some have been acquired by violence.  Private ownership has taken the place of these communal rights, and this system has become so interwoven with our habits and usages, it has been sanctioned by law and protected by custom, that it might be very difficult and perhaps impossible to reverse it.  But then, I ask, what ransom will property pay for the security which it enjoys?” Joseph Chamberlain, Birmingham Town Hall speech, January, 1885.

1.1 Introduction: The text addresses new problems created by outsourcing public services to private contractors. It considers the gap between efficiency rhetoric and delivery reality and between public service and the outsourcers’ profit maximising and tax manipulation.

Continue reading Outsourcing: What a Waste!

Transatlantic Trade and Investment Partnership Revisited

The TTIP is a series of trade negotiations, being carried out mostly in secret, between the EU and US apparatchiks, acting for Trans-National Corporations (TNCs), intended to reduce the regulatory barriers to trade on big business. The powers being negotiated include the sovereign powers of individual nations which might be used to protect entities involved in such as the provision of education and health.

Six widely expressed objections are:
1. It threatens privatisation of the NHS
2. It will impose laxer US food regulations on the EU, eg allowing GM foods in EU
3. It will impose London’s lax banking regulation on the rest
4. It threatens to reduce personal data privacy (eg Anti-Counterfeiting Trade Agreement – ACTA being brought back by the back door having been democratically rejected in EU)
5. It will cause job losses as lower US labour standards and trade union rights applied in EU
6. It is anti-democratic – the Investor State Dispute Settlement (ISDS) arrangements, which are part of TTIP, will enable TNCs to sue governments if their policies cause loss of profits.

With TTIP being negotiated in secret, people do not have the opportunity to debate and vote. Once implemented, it will be extremely difficult to undo.

But it is much worse than that.
Continue reading Transatlantic Trade and Investment Partnership Revisited

UK ‘Open for Business’

In this election campaign, much is being made of whether or not the main UK Parties are business friendly. The fire sale of British owned assets, euphemistically nominated as foreign direct investment, is held to indicate that the UK is ‘open for business’. Over the past 35 years, company after company and industry after industry has been sold off to foreign ownership. The same has been achieved with the sell-off of public assets, the latest example being Eurostar, and public services and utilities which have been privatised and in the majority of cases sold to foreign owned entities.

It all has nothing to do with being ‘open for business’. The political motivation is to achieve a short term (ie relating to the next election) economic gain, completely ignoring the long term costs. The short term stats appear to be all that matters, so they can be quoted ad nauseam in media interviews.

Being seen as business friendly is clearly conceived as being worth either a lot of votes or a lot of money. So Parties shrink from confronting or challenging in any way what they conceive of as “business”. They appear ‘intensely relaxed’ about business people getting ‘filthy rich’. They seem tolerant of tax fraud on a massive scale. They shrink from regulation of markets. They are in awe of the financial sector. They talk about support for the SME sector, but do little. It seems they simply do not understand what business is about. Why should they? They’ve none of them been near it except for photo-opportunities.
Continue reading UK ‘Open for Business’

The Great GDP Deception

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

The Greek Example

What would you do if you’d lent loadsamoney to someone and they didn’t pay you back as agreed because they were unemployed and didn’t have the necessary? Would you demand they stop eating so they could repay a bit? Would you start taking stuff from them in lieu of interest payments? Would you threaten them with even worse deprivation, if they didn’t repay in full as agreed? Or would you realise you’d been stupid to lend them all that money in the first place without checking their ability to repay, without even checking if they had a job with some regular income?

Greece can’t repay its debts and the more austerity is enforced, the less able will Greece become. Unemployment already stands at 26% with youth unemployment around 55%. More austerity will only increase those figures reducing Greece’s capability. Martin Wolf suggests the loans to Greece were made recklessly, without due diligence, because the purpose of the loans was not to help Greece but to protect the Euro [‘Greek debt and a default of statesmanship’, Financial Times, 28/1/2015]. Greece exiting would be an example others might follow. So, while exit could be damaging for Greece, for the Euro it would be disastrous, reducing it to the category of an exchange rate peg, rather than a solid currency.

In the aftermath of the 2008 crash, there was much debate as to whether stimulus or austerity would be the best way to return economies to health. The 1930s experience, addressed by the application of common sense and common humanity, saw economies revived by the stimulus exampled by Roosevelt’s New Deal. This hard-learned lesson has been highlighted before at https://gordonpearson.co.uk/2014/10/22/a-new-new-deal/#more-1127
Continue reading The Greek Example

Taming Corporate Bullies: Supporting Real Enterprise

The corporate leviathans which oppress the real economy and bully its participants are no longer industrial firms concerned with customers, technologies and people. They are merger and acquisition deal making financial entities. Their oppression and bullying is justified and encouraged by a discredited neoclassical economic ideology which is accepted and promoted by political, media and financial system establishments. The core of that ideology is that economic prosperity is achieved through the individual pursuit of self-interest. Greed is not just good, but a duty, and a social responsibility for the wealthy to fulfil both as individuals and as members of the financial establishment.

According to that ideology, the limitation of greed, especially by statist intervention, must be resisted. The redistribution of its resulting excesses must be prevented. Only the most inhumane resulting poverty and distress should be moderated at public expense. The free working of markets must be allowed to produce the optimum allocation of all resources. Because markets work.

Continue reading Taming Corporate Bullies: Supporting Real Enterprise

A High Velocity Economy

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

A New New Deal

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

The Final Victory of the Establishment?

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?

Fighting Corporate Abuse: Beyond Predatory Capitalism

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