Category Archives: Political Decision

The Care Home Pandemic Lesson

The mortality statistics reported as resulting from Covid-19 refer only to those who die in hospital. Those who die at home or in care homes are not included, even though, despite such obfuscation, it is known the death rate among the elderly and infirm accommodated in care homes far exceeds death rates among NHS patients. It has become clear that such care home residents have been abandoned, not by care home staff – there have been many stories of their heroic human caring – it is the system that has abandoned those in care. It is a valuable lesson, first learned decades ago, and it has far wider relevance than care homes.

That abandonment is longstanding and is well known and understood. The sector has been made available for rape and pillage with impunity, as indicated in the following quotes. The solution is clear.

The Lesson of Southern Cross, 10th June, 2011:
10th June 2011: “On 1st September, 1976, Professor Milton Friedman of Chicago University, economic theoretician and Nobel laureate, addressed the Institute of Economic Affairs in London. The title of his talk was “The Road to Economic Freedom: The Steps from Here to There”. Friedman, being the quintessential free market fundamentalist, took a dim view of the mixed British economy with around 60% of national income then being spent by government. He prescribed the ‘shock treatment’ of low flat rate taxes and wholesale privatisation which a few years later Margaret Thatcher implemented.

His justification for privatising provision of education and healthcare was simplistic in the extreme. ‘There is,’ he argued, ‘a sort of empirical generalisation that it costs the state twice as much to do anything as it costs private enterprise, whatever it is.’ Friedman didn’t actually have any data to support this contention, but added that ‘My son once called my attention to this generalisation, and it is amazing how accurate it is’ (See Friedman, M, 1977, From Galbraith to Economic Freedom, London: Institute of Economic Affairs, p57).

That simplistic assertion held sway for the next three decades and still rules our lives. His advocacy of privatisation of public provision justifies, among other things, the provision of care homes for our aging population by the likes of Southern Cross. It turned out not to be twice as efficient as any public sector provision, and it threatens to go bust leaving the state to clean up the mess.

The nub of the Southern Cross problem arises from another Friedmanism, that corporate officials had no social responsibilities other than ‘to make as much money as possible for stockholders’. In the case of Southern Cross, those stockholders were at one time the private equity firm Blackstone, headed up by ex-Lehman Brothers mergers and acquisitions specialists. Their interest in making as much money as possible led Southern Cross to the classic asset strippers’ strategy of the sale and lease back of its portfolio of care homes, realising an estimated surplus of £500m for Blackstone. It may or may not have been ‘as much money as possible’.” (https://gordonpearson.co.uk/2011/06/10/the-lesson-of-southern-cross/)

Big Society Public Services – the Next Government Shambles, 22nd July, 2011:
22nd July 2011: “The Open Public Services White Paper, announced on 11th July, sneaked out under cover of the Murdoch mess, looks like being the next government created shambles. Like its approach to the NHS, it betrays a breathtaking lack of nouse and understanding. The government claims its aim is to improve the quality and reduce the cost of all public services. This magical result is to be achieved by opening them up to provision by private and voluntary organisations, in competition with their existing public providers. … opening public services is likely to result in bids from the private for-profit sector, against the existing public provider. And private for-profit providers can, by definition, go bust. Health Minister, Paul Burstow says the new NHS regulator, Monitor, would ensure providers do not copy the “risky business model” of Southern Cross, the bankrupt care home provider.”( https://gordonpearson.co.uk/2011/07/22/big-society-public-services-the-next-government-shambles/#more-942)

Looting and Rioting – Bob Diamond Again, 15th August, 2011:
15th August 2011: “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 …

What is the main difference between those young people stealing mobile phones, laptops, trainers, and so on, and the likes of Fred ‘the Shred’ Goodwin, Bob Diamond and Stephen Schwarzman? One-time RBS CEO Fred Goodwin broke the bank with brainless debt and acquisitions and ‘shredded’ many thousands of jobs. Bob Diamond, currently CEO of Barclays Bank, has featured from time to time on this site primarily for his socially useless work and exorbitant take home pay. Stephen Schwarzman is billionaire boss of Blackstone Group, the private equity outfit that among other things, stripped the now bankrupt Southern Cross healthcare group of its main assets and made off with an estimated £500million. They differ from the looting, burning rioters in two main respects, Firstly, the scale of their looting far exceeds anything which has happened on the streets. And, secondly, what Goodwin, Diamond and Schwarzman do, has over the last thirty years been legalised, so they can do it with impunity.” (https://gordonpearson.co.uk/2011/08/15/looting-and-rioting-bob-diamond-again/)

Screwing care-homes still makes the easiest money, 5th September, 2015:
5th September 2015: “Taxpayers are going to have to pay for another big care home operator, throttled by tax avoiding financial predators. According to its chief financial officer, Four Seasons, which runs 450 care homes and 50 specialist care units, ‘is reviewing its finances with all options considered’. One option would be to close down, leaving the taxpayer to pick up responsibility for its 20,000 residents and patients.

Four Seasons is carrying debts of £500million on which it is paying interest of around £50million. It’s not immediately obvious how they got into so much debt nor why they should be paying interest at 10% pa when the official bank rate is 0.5%….
The tax avoiding financial predator that acquired Four Seasons was private equity Terra Firma Capital Partners, owned by Guernsey based Guy Hands. The acquisition was completed a few months after the collapse of Southern Cross had demonstrated how profitable such deals could be.

Terra Firma was in the news earlier this year with demonstrations against subsidiary Annington residential homes’ proposed demolition of 142 homes on the Sweets Way estate in north London. They were accommodating families on Barnet Council’s waiting list, but Hands’ plan was to replace them with 229 houses and flats for sale on London’s booming property market.

Four Seasons is losing money at a rate of knots, £26million in the second quarter of the current year. While they blame the losses on various extraneous factors, it is clear that public funding of social care for the elderly is inadequate. But the only way it will be increased is when the mess has to be sorted at public expense when Four Seasons goes bust. That the taxpayer has to pick up the tab is a major attraction of care homes and any privatised NHS services. Once privatised, the new operators can profit by delivering sub-standard service, till they go bust and the state has to pick up the pieces.

Guy Hands explains his perspective on private equity on the Terra Firma website http://www.terrafirma.com/private-equity-investment.html:
The private equity funds we raise are used to acquire asset-backed businesses that can be transformed through fundamental change.’

This is a rather more sophisticated way of making the asset stripper’s case as succinctly expressed in The Times by Jim Slater protégé, John Bentley, forty five years ago:
‘The theory of what we are doing is to release half the cash, half the assets and half the number of people employed.’
(https://gordonpearson.co.uk/2015/09/05/screwing-care-homes-still-makes-the-easiest-money/)

There are many long standing, ethical and professional operators in the care home sector. But they appear to have been largely deserted by the state. The Southern Cross and Four Seasons examples show just what a perfect opportunity care homes present for predatory exploitation. Being asset rich and earnings poor, means they can be acquired at low cost, their assets cashed in and they can then be driven on a shoe string and if they subsequently go bust, so what! The state will have to pick up the tab.

But the problem goes much wider than just the care home sector. Four decades of ideologically driven privatising and outsourcing of public sector provision, including health services, places much of the work previously fulfilled by the NHS in private hands. Predatory, tax evading and avoiding, private equity acquirers who are not subject to public quotation or review, could then fulfill their mission by extracting value and leaving enfeebled operations to be picked up and paid for by the tax payer.

The solutions are fairly obvious and have been highlighted many times in the past. The care home pandemic lesson in particular is a relearning experience and reminder of what needs to be done. But it is unlikely to be easy to implement.

F D Roosevelt identified the basic problem over eight decades ago when he referred to organised money, which “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.)

It remains to be seen if state responses to Covid-19 will amount to a 21st century New Deal, which as well as defeating the pandemic, will need also to  remake the real economy as well as escaping destruction by organised money.  And if planet earth is to be made fully sustainable, to do so on a permanent basis.

The Lessons of Carillion and Grenfell

Back in 1989, J K Galbraith addressed newly graduated women students of Smith College, Massachusetts. He was advocating the pursuit of simple truth and warning of the dangers posed by ‘institutional truths’. They were not truths at all, but overarching lies which had to be bought into if an individual was to survive and prosper in a particular setting.

Neoclassical economics was perhaps one of the most elaborate systems of institutional truths yet invented. Generations of dedicated economists have bought into it and then added further intricate detail of depth and breadth of institutional truth to the ideology.

The neoclassical foundation was built on simplistic assumptions of homo economicus, profit maximising business and a complete disregard for observed reality as well as for any wider context such as social and ecological systems. It also excluded any consideration of values and for the long term impacts of economic decisions. The maths simply was unable to accommodate such fundamental factors.

The generation of neoliberals associated particularly with Chicago University and in particular, Milton Friedman, added final touches to the ideology which was grasped by the Reagan and Thatcher administrations and has maintained its stranglehold on Anglo-America ever since. Those final touches include commitment to minimised flat rate taxation, minimised state involvement in the economy, minimised market regulation and the conversion of profit maximising business – which at least allowed potentially beneficial allocations of maximised profit – to shareholder value maximising which denominated everything, not just profits, as the property of shareholders.

The many institutional truths, that is lies, on which those various tenets of neoliberal economics are based have been well covered elsewhere on this website. Minimised market regulation doesn’t lead to competitive markets benefitting customers, but to markets regulated by financialised monopolists for their own benefit. Minimised government for the people by the people, doesn’t lead to freedom for the people, but to government by organised money for organised money. Minimised flat rate taxation doesn’t reduce the tax burden on the mass of people but on the rich monopolists who lead the self-perpetuating organised money establishment.
Continue reading The Lessons of Carillion and Grenfell

Murdoch’s Sky takeover: another small step to control by ‘organised money’

Murdoch’s Sky bid is thought now very likely to succeed, despite most probably being referred to the Competition and Markets Authority. The previous bid, which was frustrated by the phone hacking scandal, was noted (10.7.2011) on this site as follows: ‘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 …’ Harold Evans, editor of the Times when the Murdochs took over, had confirmed that every assurance of editorial independence made as a condition of the acquisition, had been broken within a year. Evans concluded the Murdochs would ‘promise anything to gain control’.

That posting continued ‘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.’

Having been thwarted on that occasion, they are now back again. They still do not look like ‘fit and proper persons’ to own media companies, but Culture secretary Karen Bradley, is prepared to let those bygones be bygones.
Continue reading Murdoch’s Sky takeover: another small step to control by ‘organised money’

Business as Usual

The shocks and discontinuities impacting the global economy have led governments to seek ‘business as usual’ as the ultimate desirable state. However, they appear not to recognise that business is not a coherent singularity, but a mess of virtue and vice. Fragile start-ups, innovative fast growing SMEs, and predatory extractors of value for the benefit of “investors”, are all classed as businesses. Few politicians have any direct experience of the virtuous categories, though some have made substantial gains from the vice.

Governments need to diagnose and be specific about what categories they are referring to, before offering their so-called ‘business friendly’ prescriptions. Light regulation may benefit the innovative SMEs earning their keep in highly competitive markets. But that same light regulation, if applied generally, will encourage the monopolistic leviathans to use their market power to exploit their customers and all other stakeholders for the sole benefit of shareholders. That predatory action has a negative impact on the real economy and is damaging the common good.

This is not solely the result of actions by powerful but corrupted individuals. There is a natural evolutionary process leading business along those tracks unless constrained by relevant regulation to prevent monopolistic market abuse.
Continue reading Business as Usual

Technological innovation changes everything

The economy is headed for a period of decline. The explanations of the economists and politicians who represent the self-perpetuating organised money establishment, lack any kind of credibility. They are so bound up with the latest set of figures and next quarter’s results, they have completely lost sight of the long term and its more profound effects. Technology is of far greater importance than Brexit, but it just doesn’t hit the headlines in quite the same way.

At the beginning of the nineteenth century, no country in Europe had yet re-attained the living standard of Imperial Rome. But three decades ago it was noted that over the previous hundred years, real income per head had risen by around 700% on average. It has slowed considerably since then, of course, but the only explanation for that explosion in income growth rates is technological innovation. Otherwise, William Baumol wrote, ‘the economic history of the period, and its contrast with the world’s economic performance in the previous, say, fifteen centuries, is difficult to account for.’

Technology is the engine which drives economic, social and organisational change. The connection between innovation and economic growth has been widely accepted since the original work of Kondratiev and Schumpeter. Analysts associate the great expansions with periods when major innovations coincided, referred to as technological revolutions. We appear now to be coming towards the end of the third such.
Continue reading Technological innovation changes everything

There is an Alternative

According to the current edition of the Economist, Britain appears to be questioning the wisdom of its devotion to ‘the liberal economic credos of its recent past.’ Those are the credos which include free trade with open access to unregulated markets, minimised public sector, and so on and so forth – the whole baggage of neo-liberal economics to which the Economist itself is committed.

This questioning was prompted by popular responses to the threatened closure and disposal by Tata of its British steel operations. They were said to be losing around £1m a day, at least in part as a result of Chinese dumping cheap steel on UK markets. The outrageous suggestion had been made that the Brits should protect their domestic industry by charging an import duty on Chinese steel so as to at least level the playing field. Thus the classic dichotomy was drawn up between the two childishly simple minded economic ideologies: free trade on the one hand; protectionism on the other. These are the tips of the two ice-bergs of neo-liberalism and totalitarian communism. Continue reading There is an Alternative

Impending Disaster, made in Davos, by Bilderburg

Our world is headed towards disaster. That appears to be widely accepted; as are the reasons for it and what should be done to change direction to a safer, more sustainable, future. The Green Party exists for little else. All that is lacking is the power to achieve that change. Disaster is defined in many different dimensions: climate change, global population growth, unsustainable inequality of wealth and incomes within and between nations, global food insecurity and many other measures of impending doom. The underlying reason why those in power steer their disastrous course, always assuming they are not motivated solely by their own short term self-interest, is their belief in a fundamentally flawed version of what was formerly known as political economy.

Nobel laureate Paul Krugman flagged up one of the most basic errors of the currently dominant Friedmanite take on neoclassical economics [‘Challenging the Oligarchy’, Krugman, New York Review of Books, 17th December, 2015]. Friedman had argued that the development of monopolistic businesses was of no importance since it made no real difference. Krugman identifies that as one of Friedman’s fundamental errors. A complementary Friedman error was to claim business had no responsibility other than to make as much money as possible for stockholders. No wonder discredited ex-Barclays CEO Bob Diamond regarded Friedman as his ‘favourite economist’!

Market power has huge implications for economic behaviour. Failure over the past three decades to pursue anti-trust regulations vigorously has been a major reason for the economic trends we are now experiencing. Krugman identified two as of major importance: the financialisation of business and the ever increasing degree of inequality. Neither is sustainable in the long term, but it is unclear how their termination will be achieved.
Continue reading Impending Disaster, made in Davos, by Bilderburg

Fighting for Fairness in 2016

Fighting for fairness and social justice for the population at large may be a minority concern at Westminster, but it has considerable appeal beyond that bubble. The problem is how that legitimate, democratically supported pursuit might be achieved, without any un-British revolutionary disturbances. That is the recurrent problem for Parties seeking social justice for all. Traditionally, they only come to power following prolonged periods of social injustice. And the only Parties currently onside are the Greens and Corbyn-led Labour.

We’ve been here before. The 1929 Wall Street crash followed by Hoover’s austerity driven Great Depression. That ushered in Roosevelt’s presidency and the stimulus driven New Deal, the second wave of which he introduced as follows:
“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.” Was that really 1936?

That quotation is borrowed from “What a Waste”, a study of the disastrous social effects of outsourcing of public services to private business interests reviewed in the previous posting on this site. It also includes a quote regarding the disposal of public assets from Joseph Chamberlain in 1885:
“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.”
Continue reading Fighting for Fairness in 2016

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

Budgeting for Climate Change

The aim of the UN climate change conference in Paris is to achieve a legally binding and universal agreement to reduce greenhouse gas emissions, so as to limit the global temperature increase to a maximum of 2°C above pre-industrial levels. Only then could this generation lay any claim to having fulfilled its responsibility to bequeath a sustainable planet earth.

Climate summits are notorious for agreeing targets and then not keeping to them. It is not clear how Paris will be any different. There are huge problems in the way of a committed agreement that could produce an effective and lasting solution. Not the least of which is the fact there will be 196 nations attending, all with different histories, cultures, economies and futures.

An example of these ‘local’ difficulties is the Philippines plan to build 23 new coal-fired power stations in response to growing electricity demand, all too frequent power blackouts and the fall in coal prices. They might, with some justification, argue that if developed nations want the Philippines to invest in renewable alternatives, they should contribute the additional cost.

These practical difficulties caused by the differences between different nations are only part of the story. A bigger problem was identified by MacKay in a Comment in the science weekly, Nature. Agreement would require an ‘upward spiral of ambition’ and the ‘science of co-operation’ in order to ‘harness self-interest by aligning it with the common good’. That head-on collision between the maximisation of self-interest and the protection and development of the common good, is the most fundamental of all the myriad of problems in ensuring the sustainability of life on earth. Solve that and the other difficulties could almost certainly be resolved. But achieving MacKay’s alignment will be difficult. It is not immediately clear how maximising self-interest can be aligned with the common good.
Continue reading Budgeting for Climate Change