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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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.
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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.

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

Beyond Predatory Capitalism