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GDP, Austerity and Wellbeing

GDP is a hugely misleading measure of economic wellbeing. It includes items which are actually destructive of the real economy on which most people’s wellbeing depends. Not only that, but most of it is actually immeasurable.

They used to measure progress by GNP which tried to measure nationally owned economic activity, no matter where it took place. But as successive governments presided over the disposal of UK owned assets to foreign corporates and governments, GNP reported the post-industrial economies as shrinking. Self-interested politicians found GDP a more convenient measure, since it ignored that massive fire sale and provided short term breathing space. So, despite the long term damage done to the real economy, those disposals, nominated as foreign direct investment, were actually celebrated in the UK as demonstrating it as ‘open for business’.

That fits nicely with the Milton Friedman version of the free market open access ideology that took command of Anglo-American politics since the days of Thatcher and Reagan. Initially, that perspective included an acknowledgement of the theoretical importance of the quantity of money circulating in the economy. That quantity would determine the rate of inflation as well as the growth of the economy. Politicians tried it and it failed, to such an extent that even Friedman himself confessed disappointment.
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Education, Education, Education

Education is what really matters. Who could possibly disagree?

The globalised economy has moved jobs from the G7 industrialised economies (in alphabetic order: Canada, France, Germany, Italy, Japan, UK and US) to the newly industrialised BRICS economies (Brazil, Russia, India, China and South Africa) which account for half the world’s population. The simple and obvious reason for job migration was initially because labour costs were so much lower in the BRICS economies. But their manufacturing experience has provided a foundation for their future economic development; they now offer much more than simply cheap labour.

President Chump promises to bring those jobs back to America, but he’s going to struggle. The G7 economies will not be competitive at the low end of economic activity, unless and until they fall much further back into the doldrums. G7 success will depend on developing in the high tec, innovative segments of new industries. And to do that, they must lead the world with their educational systems.
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Sustainable Business

Tony Judt opened ‘Ill Fares the Land’, his valedictory ‘treatise on our present discontents’, suggesting that something was ‘profoundly wrong with the way we live today.’ Since the 1980s we have relied on the free market to maximise monetary wealth and to distribute it with fairness and justice. But it clearly hasn’t worked.

We have been here before. The 1929 Wall Street Crash and the following austerity driven Great Depression, which Roosevelt ended with New Deal investment, has many parallels with today’s situation. The same forces that fostered the prolonged Great Depression are now heading the world to destruction. But today’s global population, which has more than tripled since the 1930s, is not just afflicted by rising and unsustainable inequalities of wealth and income, but also earth’s oceans and atmosphere polluted, its finite resources wasted, its biological species headed for a mass extinction, and these impacts capped by the seeming inevitability of global warming.

Business, if appropriately managed and governed, may have the potential to resolve all these issues by the invention and application of new technologies. No alternative solution appears to have a like chance of success. Business historian Chandler described business as the most important institution in the economy and its managers the most influential. Business controls the real industrial economy. It controls finance. It controls the media. It is hugely influential in academia through its funding of research and academic institutions as well as individual appointments. It also, increasingly, appears to control political decision making through its $multi-billion funded lobbying industry, its politically oriented think-tanks and its operation of the revolving doors through which individuals progress between these various sectors and government. Just about the only thing business does not control is business itself.

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The Road to Armageddon

In Anglo-America and like economies, mature businesses are mostly driven according to Friedman’s command, to make as much money as possible for stockholders. The underlying ideology, which is generally accepted as the way the world works, holds that the free market is the most effective decision maker regarding the allocation of economic resources. Therefore both taxation and regulation should be cut to a minimum since they only distort the market’s most efficient allocations. The ideology also holds, according to Friedman, that the private sector of the economy is twice as efficient as the public sector, which should therefore be privatised wherever possible. Just those two strands of the ruling ideology, combined with a business sector which complies with Friedman’s injunction to maximise shareholder money, is heading the world down the road to Armageddon, a dictionary definition of which is ‘the site of the last decisive battle between the forces of good and evil.’

That dichotomy between good and evil might be very apparent if the ideology was given 100% implementation. Such would involve absolutely no regulation, no taxation and a private sector which was running all public services, as well as business operations, for the sole purpose of maximising shareholder wealth. That at least makes absolutely clear, the direction of travel we are currently taking.
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Science, Divisions and Hope under Islam

Science under Islam: Rise, Decline and Revival’ provided Professor S M Deen’s excellent 2007 analysis of the rise of science (and technology) in the Islamic Golden Age, examined the causes that led to its decline and the failed later attempts for its revival, and finally discussed the social and religious reformations needed for it to flourish in contemporary Muslim societies. (It is a unique, highly relevant and well-written book which is still selling and hugely pertinent to today’s situation and definitely worth a read – see Social reformation would need to include the rule of law, democratic infra-structure and human-rights, while religious reformation would involve the interpretation of scripture. Without such reformations, it was argued, the Muslim quarter of world population would be constrained from full participation in the science-driven 21st century world. That would be despite the magnificent Arabic and Muslim contributions to philosophy, arithmetic, algebra, geometry and trigonometry, astronomy, optics, chemistry, geography, mechanics and medicine achieved during the Golden Age.

Now, almost a decade later, Professor Deen provides further analysis of the divisions in Islam, tracing the historic origins of dissention, including an analysis of the birth of the extreme doctrine of Takfirism, the development of the Sunni/Shia division and the problematic creation of Sharia, based originally on unreliable oral accounts of sayings and deeds of the Prophet. The analysis also includes further examination of the present day sources of financial strength and influence in the conflicted Islamic world and the implications for Muslim and non-Muslim societies. There is hope for a better future, but it will take more resources, understanding and patience for its achievement.


By Professor S M Deen

Origin of Division and its Expansion

In most major religions, the source of division can be traced back to their origin, and in the case of Islam, to division in the Prophet’s own household. The successful group in that household was led by the Prophet’s favourite wife Ayesha, daughter of Abu Bakr who later became the first Khalifa, and the other group led by the Prophet’s daughter Fatima, married to Ali, the Prophet’s cousin and adopted son, who later became the 4th Khalifa. Ali, seeming not to have political acumen, was overwhelmed by grief at the death of the Prophet in 632 CE. He simply sat with Prophet’s dead body for over two days before burying him. In the meanwhile Umar, friend of Abu Bakr and the future second Khalifa, sensed a dangerous political vacuum and negotiated, just in time, a deal with the Medinan tribal leaders, to declare Abu Bakr as the Khalifa, i.e. the successor to the Prophet. This news came to Ali too late. Shortly before his death, the Prophet had acquired a property as war booty, which he had promised to his impoverished daughter Fatima. But the new Khalifa, Abu Bakr, unnecessarily antagonised Fatima (and Ali) by refusing to pass this property to her, pronouncing that the Prophet had no heir. Fatima, who died six months later, never recognised Abu Bakr as the Khalifa, though Ali did so after her death. Some Muslims, particularly Shias, would disagree with the idea that Ali was politically naïve and would view perhaps the election of Abu Bakr as the Khalifa, as a conspiracy against Ali.

Ali failed to succeed Abu Bakr or even Umar. The third Khalifa Usman was assassinated, after which Ali became the 4th Khalifa in 656 CE, but Ayesha opposed and led an army against Ali (battle of Jamal, Nov, 656 CE) in which apparently 20,000 Muslims, many of them revered Companions of the Prophet died. A battle for succession between Prophet’s favourite wife and his adopted son in which 20,000 revered Muslims died does not bring glory to Islam. This battle somehow legitimised in the Muslim psyche that the killing of each other for political power is somehow acceptable in Islam, Ayesha lost the battle and escorted out of the battlefield to safety on Ali’s order by Muhammad, Ayesha’s favourite half-brother, and Ali’s adopted son and supporter. She retired unharmed in Medina where she remained until her death some 20 years later. It is very likely that Ayesha unwittingly found herself leading an army against Ali, which she regretted deeply later, saying “I wish I was never born”. However, for the Muslims worse to follow.
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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.
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What to do about Big Business?

‘Business leaders are serving the short term interests of shareholders at the expense of the wider economy … the failure to adopt a sufficiently long term view is hampering economic growth’. That is BoE Chief Economist Andy Haldane’s summary explanation of current economic failure. It is the inevitable result of accepting false belief that the role of business is to maximise shareholder value at the expense of all other interests.

Anglo-American governments have encouraged the pursuit of that objective since the days of Thatcher and Reagan. It has neither legal nor valid economic theoretical support. Nevertheless it continues to cause enormous damage in advanced economies.  In the UK it has produced the following:
• reduced long term corporate investment especially in research and development
• increased corporate focus on short term deal making, asset stripping, mergers and acquisitions, etc.
• increased focus on aggressive tax avoidance and evasion.
• encouraged the culture of ‘casual dishonesty’, growing corporate fraud and criminality (eg between 2009 and 2013 the 12 global bankers paid out £105.4bn worth of fines to European and US regulators for crimes ranging from mis-selling mortgages to rigging capital markets, and £61.23bn provisions for future fines).
• Reduced quality of employment in real economy: job security, hours of work, wages and pensions.
• Converted corporate management into shareholders by excessive remuneration including unjustified share option bonus schemes.
• Massively increased inequalities of wealth and income which, in this increasingly financialised and globalised environment, extracts from the real economy with no ‘trickle down’ benefits.
• Encouraged avoidance of environmental responsibilities and externalising the costs of pollution whenever possible, thereby contributing to finite resource waste, species loss and climate change.

Addressing these issues is now urgent. It is dependent on burying belief in the primacy of shareholder interests over the common good.  Agency theory is the only theoretical justification which dishonestly depicts the company as a ‘legal fiction’ and therefore directors relate directly to shareholders as their agents, legally bound to work in their best interests at all times. Today, that is the generally accepted understanding. But it’s a lie. The company is a legal fact and directors have legal contracts with the company not the shareholders. Certain wording was added to the Companies Act in 2006 to make it at least conceivable that company directors might be the agents of shareholders. Previous Acts had identified directors’ duties as “to promote the success of the company” end of story.  The 2006 Act added “for the benefit of its members as a whole,” which additional wording is frequently quoted as supporting shareholder primacy. There is no other legal justification, statute or common law, anywhere in the world.

The independent status of a company as a separate legal ‘person’ effectively changes when a majority shareholding is established. The company then in effect, becomes an item of private property owned by the majority shareholder who can do with it as they wish. This enables assets to be stripped out leaving the company unviable, but without liability when the company is closed down.

The changed nature of shareholding since the 1986 computerisation and deregulation of stock markets needs also to be addressed. Previously the average duration of shareholdings was somewhere around 6 years. Today it is around 6 months and becoming ever shorter, shares being nominally held by financial intermediaries with a high proportion of trades being by automated ultra-fast systems. The granting of voting rights to such short term equity holders only serves to reinforce the focus on short term shareholder interests and is against the long term development of corporate enterprise and therefore the economy.

The currently dominant economic theory also argues that the market is the most efficient mode of allocating resources. But that is based on the false assumption that markets are competitive. That same theory argues the benefits of minimised regulation. Consequently, since the 1980s, competition regulation has been severely reduced and underfunded. Markets have therefore been allowed to develop as oligopolies and would-be monopolies, with the result that market ‘decisions’ are not made as a result of competition, but corporate monopolists which seek only to maximise shareholder value. The abuse of competitive markets needs to be outlawed and competition revived and protected.

What to do:
• Remove voting rights from shares until held for a minimum of 6 months.
• Remove “for the benefit of its members as a whole” from Section 172 of the Companies Act.
• Reinstate the single limited liability per group – ie when a company acquires a subsidiary it legally accepts full legal liability for the activities of that subsidiary.
• Renew and reinforce the regulation of competition (eg via a renewed Office of Fair Trading, and Monopolies and Mergers Commission etc), properly funded so that competition is revived and maintained.
• Regulators to investigate and reverse any significant examples of loss of competition eg where a single operator has greater than 25% market share. This was the rule prior to 1986, but is more important now with new technology facilitating abuse.
• Where conflicts of interest are also involved take action to separate:
1. Separate retail banking from investment banking – making it clear that BoE support as lender of last resort is only available to retail banks which maintain ratios of liquidity as agreed with BoE.
2. Re professional services: separate Audit from Accounting and from Management Consultancy.
3. Review privatised public services to ensure genuinely competitive operation and remove any conflict of interests between public service and private shareholders.
• The adoption of German style two-tier board structures would be a hugely positive step,  with employees having a proportion of the votes on the supervisory board (carrying strategic rather than operational responsibility).

A View on Jeremy Corbyn

I may not be a member of the Labour Party, but I am impressed by Jeremy Corbyn. So far he has demonstrated a lot of guts throughout the current bout of political hysteria at Westminster.

It was obvious when he was elected by Party members that he did not have the support of New Labour MPs and their like in the media and other segments of what Roosevelt referred to as Organised Money. That was the point of his election. He marked a different approach from the Blairites. Slick handling of the media is not his prime concern. He is more about promoting the interests of the disadvantaged and needy, reining in the excesses of the wealthiest 1%.

So what has caused the current group-think bout of hysterical demands that he should go? The only explanation I have heard is that he did not show leadership during the EU referendum campaign. Well, it is true he refused to join the over-the-top scare campaigning of the other so called ‘leaders’ like Johnson and Gove, Osborne and Cameron. They all grabbed headlines during the campaign by their childishly dishonest use of statistics. Corbyn acknowledged the EU was far from perfect – 7½ out of 10 – but refused to join in the lies and hysteria.

So, as a disinterested observer, I find his behaviour throughout to be quietly impressive. It seems improbable that he is motivated by anything other than the simple desire to let Labour Party members express their views over the leadership of their Party. He must have been sorely tempted to step down – if I were him I certainly would have, and with great relief. But I lack the sheer guts and tenacity it must take to change the direction of national politics.

The Solution to Austerity

After the 2008 crash the debate was around whether the deficit would be best sorted by cutting public expenditure; or would it be better to stimulate economic activity so as to generate surpluses and jobs, thus reducing necessary benefits payments. In other words: austerity or stimulus?

Despite pouring billions into ‘quantitative easing’ to support the financial sector, the establishment has argued fervently in favour of austerity for the rest of us. That establishment (referred to elsewhere as the self-perpetuating industrial, financial, media, academic and political establishment – the SPIFMAPE) has proved so powerful, it has effectively buried the stimulus word and replaced it with ‘borrowing’. The establishment’s offer is now “Balance the books or borrow?” as Martin Kettle puts it [Guardian, 25.9.15 p39].

But the establishment is wrong. Stimulus is still the most effective option.
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The Common Sense of Austerity and GDP growth

The anti-austerity protest which is getting under way on 20th June, is not just a politically motivated objection to a policy of the governing Party. It is a protest with deep foundations in both theory and common sense.

For successive governments GDP growth has been the holy-grail. Despite misgivings over its validity (, it is accepted that balancing a budget with a growing GDP is a whole lot easier than doing so in recession. But imposing austerity on the economy only stifles GDP growth. So why do governments of both main Parties – assuming Labour takes the suicidal Blairite route – accept austerity as the necessary medicine for our economic ills?

The economy is a complex of many different sectors, public and private, that relate to each other in all sorts of different ways, and it is continually on the move with some sectors growing and some shrinking, some dying off altogether and new ones emerging. That dynamic is the result of millions of people striving to make progress. Politicians don’t control the economy; the best they can aim for is to do the people no harm.
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