Category Archives: Political Decision

Banking, Corruption, Economics, Political Decision

The Greek Example

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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
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Economics, Management Practice, Political Decision

Taming Corporate Bullies: Supporting Real Enterprise

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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.

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Economics, Fairness, Political Decision, Regulation, Society

A New New Deal

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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.
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Company Law, Competition, Corporate Governance, Economics, Fairness, Merger & Acquisition, Political Decision, Regulation

The Final Victory of the Establishment?

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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.
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Audit profession, Banking, Company Law, Corporate Governance, Economics, Fairness, Globalisation, Merger & Acquisition, Political Decision, Regulation

Fighting Corporate Abuse: Beyond Predatory Capitalism

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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.
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Economics, Political Decision, Public Sector

The Royal Mail Rip-off Continues

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Estimates vary of the extent to which taxpayers were ripped off when the Royal Mail was privatised. Experts quote nice round figures like a billion pounds, or two and a half billion. Precision is impossible, but clearly the taxpayer’s loss was pretty enormous. It was a cock-up. Or maybe it was intended.

For three decades, UK governments have acted as liquidators of state assets. By raising cash, these disposals have enabled the administrators to continue in government till the next election, beyond which no politician needs, apparently, to concern themselves. It looks like pretty standard bankruptcy practice.
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Company Law, Corruption, Economics, Fairness, Moral Hazard, Political Decision

Defending the System

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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.
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Banking, Competition, Economics, Management Practice, Merger & Acquisition, Political Decision, Regulation

More Big Six energy rip- offs

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The Big Six energy suppliers must be desperately worried. Dermot Nolan, boss of energy regulator Ofgem, is demanding that they explain to customers why they have not lowered gas and electricity prices following wholesale price reductions. They are quick enough to stick them up when wholesale prices rise; they must explain why they don’t cut them when wholesale prices fall. Not only that, but Ed Davey, energy secretary, says they need to ensure they pass on savings to customers as quickly as possible. The Big Six must be quaking in their boots. Or perhaps not!

They don’t pass price reductions on, for the very obvious reason that they don’t have to. Energy supply was privatised because of a simplistic and profoundly misinformed belief in the automatic efficiency and effectiveness of for-profit business and a complete lack of comprehension of what constitutes a competitive market.
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Company Law, Economics, Fairness, Political Decision, Taxation

Taxation and Growth

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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.)
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Banking, Company Law, Competition, Corporate Governance, Economics, Fairness, Management Practice, Management Theory, Political Decision

Capitalism to the Rescue

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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.
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