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
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 belief. The fundamental error is in the estimation of his power to drive the economy. At most it extends to steering round relatively gentle corners and having some influence over speed. The effectiveness of these limited powers depends on the ability to see dangers far ahead and to make adjustments accordingly. The currently dominant economic ideology is a particular handicap to achieving such foresight. As Chicago Nobel laureate Professor Robert Lucas told the Queen, the best economic theory can do is predict that such events as the 2007-8 crash are unpredictable.
Lots of lessons have been relearned since Lehman’s bust, yet few substantive changes have been made. So it is predictable, and widely predicted, that there will in due course be another, most probably bigger crash than 2007-8. And after that, if no preventive actions are taken, there will be another. And another. Till the changes are made.
Continue reading Management and the Next Crash
Though celebrations have been a little muted, the fifth anniversary of Lehman’s demise should not be allowed to pass without remark. The imponderables of Armageddon, financial melt-down and economic catastrophe seem to have been avoided for the time being at least. The masses may continue in poverty, with huge numbers unemployed, but the Bob Diamonds are OK, and some valuable lessons have been learned.
The banks should obviously not be allowed to sell sub-prime mortgages or other derivative securities whose risk is deliberately obscured. Government agencies should not be allowed to support the loans for such purchases. Banks should clearly be reduced in size to less than too big to fail and be required to carry sufficient capital to make them safe to carry the risks they incur. They should not be allowed to trade on their own behalf with other people’s money. The fundamental ingredients of financial derivative assets must be clearly stated so their riskiness can be assessed, or their sale made illegal. Financial transactions should be subject at least to a nominal tax to reduce automated ultra-fast transactions, and help rebalance the economy from the derivative to the real. Ratings agencies, auditors and regulators must be legally liable for the reasonable truth of their various statements of approval.
Continue reading Lehman Brothers’ Bankruptcy Celebrations
The Parliamentary Commission on Banking Standards published its 571 pages and its chairman, Tory MP Andrew Tyrie, hopes ‘the higher standards it advocates will help revive the banking sector and the UK generally’. ‘This is not,’ he assures us, ‘a bank bashing report.’ Indeed so. It is as supportive of banking, the City and its financial activities as such a report could be, while talking the language of reproof and proper correction. Its disapproval of massive bonuses, especially those being paid for failure, is given full voice. But proposed substantive action is limited. The extension of deferred bonus payments with easier “clawback”, seems unlikely to make much difference.
A much repeated complaint in the report, especially of people at the top, is the lack of personal responsibility and accountability. Those responsible for the decisions and behaviour which led to the sector’s failure have continued to be rewarded with massive bonuses and pensions. To address this the report recommends top appointments having to be authorised by the regulator who will identify specific responsibilities. Would that make any difference? Would the regulator have rejected the appointment of Fred Goodwin or Bob Diamond. Or any other likely incompetent?
Continue reading Banking Standards Apple Pie
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?