Almost every serious commentator from the right wing of politics who also has some knowledge of the real world is pretty worried right now. From Martin Wolf to the IMF via many a political leader who sees inequality stripping them of any residual electoral appeal they had, they're all quaking at the inevitability that at some point soon over valued asset prices, from shares to bonds to property, will collapse and drag with them much of the world's banking system that they fear they will be unable to bail out again. The odour of their fear is pretty unappealing as it spreads throughout the pages of the FT and into the blogs of those who once sold the Washington Consensus as the answer to all the world's travails.
At the same time the right wing think tanks are bereft of ideas. Take the Centre for Policy Studies as an example. At the weekend they demonstrated the limited of their real world business comprehension by claiming that nationalisation was a cost on every household because they could not understand that in exchange for the price paid an asset would be acquired. And this week they attacked Oxfam for suggesting that there was a problem with inequality and that instead the charity should be celebrating the increasing inequality in the world despite the severe economic, social and political consequences of that trend that literally billions of people around the world understand, but which is beyond the ken of these public school educated policy wonks who believe that the only solution to every problem in the world is more market focussed individualism.
The reality is then that sometime soon people will realise that there is a crisis coming and that this is not only a crisis created by the Right, who dominate world politics at present and cannot therefore deny their responsibility for what is happening, but that the Right has no answer as to what to do about it. Of course, the challenge this will present is enormous. Those who claim they are good with money - which has been the main criteria for selecting those to hold public office for the entire lifetime of the majority of those now partaking in democracies around the world - will sometime soon reveal that this is simply not true. Whatever they may be able to do with a company balance sheet (including coming up smelling of roses after driving it to the wall in too many cases) will be shown to be utterly inconsequential when managing the national economy.
There is, of course, good reason for that. As some of us have been saying for some time, a national economy is nothing like a company, or a household come to that. That's because the simple fact is that there isn't a company on earth that can create its own currency at will and back its credibility with the promise of future tax receipts in the way that a country can. Even banks, which can charge interest without adding an iota of value to the economy, or landlords who extract rents from land without ever paying a penny to it in return, cannot approximate to this ability to tax, which is uniquely that for the state alone to partake in. And because these money people, and their policy wonks, have not come close to understanding that fact not only are they fearful now that their prescriptions for action are so obviously failing, but they are doubly fearful because they now know that the thing they value most - their own status - is at real risk of collapsing for good.
The result is calls like that issued by Martin Wolf, to which I referred recently, for restoration of a liberal economic order that is obviously now rotten to its core, with that cry unmatched by explanation as to how this might be done. These people know capitalism is dead on its feet. What they do not know is what to do about it.
Let me put it on record that I think that this is unfortunate. There are three reasons for saying so. First, I think that private capital will have a role in the economy of the future. People will still wish to trade on their own behalf and in the company of others, and I can see no reason at all why, if we are to tap their wish to do so for the advantage of all, that those with such inclination should be denied the chance to do so, provided that (and that is a big ‘provided that') the rules of the market in which they are to operate are strictly enforced so that all have equal access to the market and a fair chance of success on the basis of the quality of the goods and services that they offer for sale without having to resort to cheating and tax abuse, which is far too common now.
Second, I think it would be easier to transition to the mixed economy in which business plays a part in the future of the type I have just noted if those with some aptitude for business management could embrace this requirement on the basis that it is, very obviously, in both theory and practice the way that markets really are meant to operate if people, including many business owners, are not to be abused by those willing to cheat.
Third, the world is not so over burdened with talent that any available resource can go to waste. If those in possession of it can be persuaded to use it for the simultaneous benefit of themselves and the wider community, which is the prescription on which justice is said to work by all the world's great wisdom traditions, then that's all to the good.
In that case, the current failure of capitalism and its devotees to even conceive of a different way of working in the future is troubling because what it really indicates is an inability to see beyond the abuse that the system currently perpetuates. Indeed, this is so normal that ‘normalisation' is their goal.
The alternative cannot, however, embrace the old normals and the way that happens is not by throwing the game away, but by changing the rules. This is, of course, what happens in almost all games. So, for example, the rules of football today are not those that were in operation when I was young. There is nothing surprising about a process of evolution, and even occasional rapid change. What might those new rules be? I'm merely speculating here, and the changes are both macro and micro.
First, as there was a century ago, there is a need to tackle monopoly. It is prevalent, and abusive. The nature of the beneficiaries might have changed a little: although a few individuals stand out in the public eye the gain is to a whole institutionalised minority as well now, but the fact remains that is at cost to the rest of society and to the rest of business. Major reforms to limit the power of monopoly, force the break up of monopolistic businesses, require their state control in some cases, and to impose higher taxes so that returns are normalised during transitions to new structures will have to be delivered.
Second, international abuse will be tackled. This will either be done internationally, or unilaterally if that fails. My proposal for an alternative minimum corporation tax, made a year or so ago, could be part of that unilateral response, I think.
Third, there will have to be reform to limited liability. By default directors will not be granted limited liability, but will retain it if (and only if) they can provide their actions were reasonable and did not result in default. This will change large company behaviour, considerably. For small businesses the abuse will be aimed at directors who deliberately use limited liability to evade tax.
Fourth, new forms of ownership will be encouraged, including better cooperative structures. I am not an expert on these issues, but I believe co-ownership will become much more commonplace, and tax rules will need to encourage it: a penalty for not, quite literally, cooperating will be a way to assist this process.
Fifth, the age of the company pension fund will pass: common funds that will, however, be funded and at the same time be common pools of pension capital will become the norm.
Sixth, the playing field between businesses will be levelled. Late payment to small business that is a massive impediment to the growth of many companies, and an abuse of their capital by larger companies, will be outlawed. Breaches will be fined, automatically and be enforceable, with payment due by default unless appeal can be registered. The burden of non-payment will fall on the debtor.
Seventh, tax reform will reduce national insurance charges. Increased corporation taxes on monopolies and ‘non-cooperative' companies will help fund this. So too will a turnover tax - a carbon usage tax or CUT as I called it in The Joy of Tax.
Eighth, there will be a considerable change to company accounting. All accounts will require full disclosure: the absurd reduced disclosure now available to small companies will disappear. Company reports will be to all stakeholders, and not just for shareholders (little could symbolise the change more than that). The focus will be on accountability to society. Vastly better tax disclosure will be part of that.
Ninth, to reflect this the law on directors' duties will change. The duty will be to creditors and stakeholders as well as to shareholders and the suggestion that profit maximisation is the objective of the company will be removed. Quite explicitly the company will first of all be required to act ethically; to show environmental concern; to pay creditors on time; to maintain staff welfare; to meet pension obligations in full; to make full disclosure of its activities and to comply with the letter and spirit of all laws whilst securing the long term goal of meeting the needs of society, which will require it to maintain positive cash flows.
Tenth, worker and other representation on boards (I see roles for community representation as well from locations where a business has material impact) will be required to ensure commitments to society are met. This will require appropriate training paid for by the state for those involved: the farce of the ‘usual culprits' from big business taking these roles has to end. These representations will be at subsidiary board as well as at main board level.
Eleventh, to ensure that the cost of capital to meet these objectives is kept low a policy of low interest rates will be required of governments.
Twelfth, there will be a need for a National Investment Bank to oversee the management of state interests in companies it controls with a specific mandate to deliver long term stability.
I am sure I have omitted a great deal in that list. It will do for a list written before breakfast. The point I am making is about what is important. Capitalism as we know it is dead, but the role of business with private ownership is not. What is critical is to think what that new form of private business is. Only then can people be taken on the necessary journey to change. Without such a vision we'll stay where we are, and that's untenable. But this requires those from the left to do what many there think unthinkable, and that is to imagine a new role for private sector activity. My suggestion is it is time to get our heads firmly round this. It's an essential path to socialising the economy. That's why I offer these suggestions now
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Nothing to argue with here in my view.
We live in a society today where everyone is encouraged to attain some form of personal realisation of themselves. It’s existentialism gone wild as I call it. And the market increasingly oils the gears of that thinking, whereas the State increasingly sees no role for itself by helping to destroy the interventions that had been set up to help. Yet the market is vulnerable to one thing: the disposable income to pay for its promises. So then we resort to debt – and we all know what that means.
To get a society to do the things you suggest or at least try them is going to be difficult but not impossible. But it will take time. But you are right – it is about reconnecting capitalism with social networks.
The fight against the de-coupling of capitalism from society and the resultant tunnel vision about whom capital should benefit the most needs to start in one place: The Law.
If the citadels of shareholder rights and the legal definition of corporations were assaulted and challenged and then altered then I feel that change would come more quickly.
I dont agree with employee representation on the board working. One major international company had it, whilst the company has done major damage including issues we are yet aware of. So I dont see the benefits in that instance. If we look at Japan they literally sweep things under the carpet. Even at home, Wales has a number of scandals with its government at present. Race track, money etc?? Oh the company with employees on the board, Volkswagen. Who know the real harm the drivers of these cars are doing to us daily.
Nothing stops abuse entirely
But incremental change to improve situations is possible
Your approach is, very politely, as useful as arguing knives are not useful as they have been used to kill
I’ve spent a lot of time with lay people being represented in Management Boards in social housing.
My view remains that it does not work especially where the laypeople are service users. They go into such situations hoping to represent customer views but end up having to take on the responsibilities of the Board. I see a lot of unresolved conflict in people put in this situation. Wanting to be seen to be a Board team member also has an influence.
I also see a lot of naïve consciousness amongst lay Board members as to why they are there. I also see them being manipulated by senior management for the wrong ends. Or bringing their own operational issues to what should be strategic meetings.
Just because I like to buy and use Nikon equipment should not mean that I am entitled to sit on its Board of Management. Nikon for example are better off listening to customer feedback through feedback loops and internet user forums if it wants to do a better job and the same could be said for any service or product manufacturer.
What is needed I’m afraid is more independent scrutiny of what Boards get up to and how they make decisions. The closer and more entwined the overseers are to what is being overseen, the less effective they become. There also has to be better law with accountability at its core.
Again – I’m talking from opinion formed of experience – nearly 20 years of it.
Thanks
If we take the example of deliberative democracy, which has been trialled in several places, it can be found that “lay” people can make important contributions and decisions given the right kind of training, support etc.
“First, as there was a century ago, there is a need to tackle monopoly. It is prevalent, and abusive.”
The NHS, education, BBC, roads, rail tracks and so on. As you say, those monopolies should go.
I screenshot all my posts, one day it’ll make a lovely blog.
Do you honestly think threatening people endears you to anyone?
Not nasty Richard, I have screenshots of posts you have deleted where the only issue to you is:
a) you have said something that’s not proven by what you have quoted (you’ve even deleted your own blogs after those)
b) something you said that’s completely wrong as proved by your own link
c) you can’t dispute the facts (even with your sarcastic replies) and just give up so press delete
I’ve never been rude or aggressive, you just filter posts so facts meet your agenda.
I also have screenshots of posts I’ve made under alternate identities where I’ve posted as some agreeing with you while linking to evidence to the opposite. You don’t even spot those.
I’d say over 50% of posts you publish are people taking the piss out of what you say. Ask yourself, why do so many people vehemently agree with you to the point it’s worship!
Search Wikipedia for Dunning-Kruger and look in the mirror.
a) Do you know how incredibly that makes you look?
b) Do you honestly think I don’t think I’ve made mistakes?
c) Do you not realise that I have a life and am interested in spending it on constructive discussion, not on time wasting with people like you?
d) Do you honestly think I have time to check every fact stated here by commentators? Are you not aware this is done in my spare time?
e) Do you really think half the world is as sad as you?
f) Do you really think people could not agree with me?
I think it’s you who may need to be asking for help
Surely you must agree that there’s a vast difference between private monopoly, run by a select few people, and a common monopoly, run for everyone and democratically accountable (through elections etc.)?
Are you able to provide some examples of the monopolies that are so prevalent? The only UK monopoly that I can think of is the NHS but I don’t think you mean that. I suppose local authorities are another example. I am struggling to think of any private sector examples
You mean you can’t think of any?
Dear me….
Shall we try Google?
Amazon?
Facebook?
Railways companies
Water companies
The list can go on and on…..
[…] Cross-posted from Tax Research UK […]
“I am sure I have omitted a great deal in that list.”
You have omitted anything that might actually happen.
Do you know what? For fifteen years I have been told that
And dammit, things I want happen
I can’t explain why, but they do
Yes, and the oligoplies are almost as bad start with supermarkets, big retail and work your way through to the oil companies.
Oops, that one was intended for Ed at 11.20pm.
I will re-direct it now.
You’re citing Google Amazon and Facebook as monopolies that need breaking up? What will you replace them with?
State control?
A myriad of competing social networks?
To achieve what? Lower prices? Google and Facebook are free to use. How much cheaper would they be under state control? Or is it just that you want state control of information. Yes, that’s probably it.
And Amazon is a market place. I can look around online there, go direct to a seller’s website or go to the shops. It’s a shop window on the world. I guess you’d prefer the shutters drawn up so you could control what people buy. Yes, that must be it.
If those are your idea of evil monopolies it just shows how lacking you are in understanding of the internet. Like everything else in your thinking you seem 50 years out of date. Unfortunately that takes you back to before the internet was invented.
You won’t have any cogent response to this of course. You’ll just whinge on about trolls (=anyone who puts up an argument you can’t answer or points out another glaring hole in your logic or knowledge).
How’s the lecturing coming along? I can’t find any mention of you teaching any more on the uni website.
Lecturing starts Tuesday for this term
As for the rest: respectfully, if you can’t see or understand the issues you are part of the problem reasonable people can see
“You won’t have any cogent response to this of course”
No he won’t because they are dimwitted points punctuated by a dill that answers himself (“yes that must be it.” FFS).
You answer your own lame questions: “state control?” (no), “To achieve what? Lower prices?” (wrong again) then you criticise your own answers.
By way of a nice simple response for you, Amazon, Google and Facebook monopolise the interface between content provider and user without providing any content themselves. In doing so they exert excessive control (market power) and syphon away revenue from content providers, most notably so in the case of advertising revenue and media content.
This has been widely discussed on “the internet”. Being an expert on that Lord knows how you missed it. Perhaps you were digitally disrupted.
BTW – this one: “Like everything else in your thinking you seem 50 years out of date. Unfortunately that takes you back to before the internet was invented.”
Well, only just. Its first incarnation, the US military’s Arpanet, was built in 1969 (49 years ago). But of course you knew that didn’t you?
Well that comment gets a five star review on my trip advisor for Taxresearch.org.uk!
Thanks, Peter.
“First, as there was a century ago, there is a need to tackle monopoly.”
What monopolies do we have in the UK now? Other than those provided by the state itself?
“Third, there will have to be reform to limited liability. ”
So where will your liability end as a business owner then? if you remove limited liability you vastly increase the hurdle for small businesses to start. Big business will rarely and barely be affected – so in effect you are making it harder for new companies to enter the marketplace (as their risk of failure is far higher than an established business) and therefore you are actually promoting monopoly type behaviour here. You say you are against monopolies but this suggestion is likely to result in more of them.
“common funds that will, however, be funded and at the same time be common pools of pension capital will become the norm.”
We already have this. Most corporate DC pensions are invested in third party funds. Are you really saying though that you, as a uninterested third party external to the employer or employee want a hand in guiding where those funds are being investesd?
“Company reports will be to all stakeholders, and not just for shareholders”
How are you defining a stakeholder, other than shareholders? Are you saying anyone with an interest or claiming to have one should be able to see accounts? Public company annual reports are already commonly available as well. Are you saying that privately held companies also now need to publish their accounts?
“which will require it to maintain positive cash flows.”
This is entirely insane. Are you seriously suggesting that companies will not be legally able to run at a loss? Or that cashflows must remain positive, therefore massively stifling investment. Apart from being patently nonsensical, it would again immediately stifle any small business startup – given they are likely to operate at a loss at least to begin with.
“Tenth, worker and other representation on boards (I see roles for community representation as well from locations where a business has material impact) will be required to ensure commitments to society are met.”
Why does “society” at large have any right to representation on a company board? Who will decide what that right is, or who will get to sit on that board? Are you seriously suggesting that government should essentially have a role in running all companies through their boards, at which point these board jobs will become heavily politicised and open to abuse?
There are already laws about what companies can and can’t do. That’s where “society” has its input into what goes on in the corporate world. isn’t that enough? Or do you want to force political appointees on companies so people like yourself can have numerous well paid board jobs?
“Eleventh, to ensure that the cost of capital to meet these objectives is kept low a policy of low interest rates will be required of governments.”
So you are saying that interest rates should remain ever low, ignoring inflation and credit expansion? By doing this you would remove essentially the only lever a central bank can pull to slow down an overheating economy. Conversely it would also leave the central bank with little room to lower rates in the event of a downturn. Fiscal policy would become meaningless – with all the unintended negative consequences that would bring.
“but the role of business with private ownership is not. ”
Some of your suggestions will make forming a private business much more difficult, and running one much more onerous. Other ones will force the state to have a role of control, outside that already applied by the law, in the management and running of businesses – again making it much less attractive to start a business. Why start a business if the state can simply start appointing people to your board and taking at least some decision making power away from you and the other owners.
You might have written this in the morning before breakfast, but it was hardly well thought out. Maybe you should spend some time thinking about what the effects will be before you post what are clearly ill-thought out and often conflicting ideas.
As a collection of straw men arguments that’s impressive
But as a comment requiring a response it fails
The arguments, on reflection, should definitely have had issues on inequality and land added (apologies to all)
But are they coherent within reasonable word limits? Yes
Unless of course you’re from a market fundamentalist right wing think tank
I suppose it’s easier to ignore my comments than actually answer them, isn’t it Richard?
The problems I have put forward with your ideas are perfectly reasonable, yet you seem unable to answer them?
My guess is because simply, you can’t.
There is a reason why I can’t be bothered to answer you
Your tone is aggressive and rude
Your arrogance – that I have an obligation to engage with you – lacks any charm
Your assumption that I cannot answer you suggests you think I may not have other things to do in my life
Despite your claim, your ideas are not perfectly reasonable
But do I want to engage with someone so unappealing when I could spend time with my family and friends? Only you might think so
I wouldn’t bother replying: you made it to the banned list for many of the reasons noted on the comments page regarding moderation
Ed,
“You might have written that in the morning before breakfast, but it was hardly well thought out.”
You may as well have been referring to your own comment there Ed.
For example: “What monopolies do we have in the UK now?”
To begin with there are the obvious utilities (Water, BT etc.) and then the oligoplies are as almost bad but more widespread. Start with supermarkets, big retail and work your way through to the oil companies.
The Financial Times notes that:
“Out of 10 key markets accounting for 40 per cent of consumer spending…eight – including groceries, mobile phones, gas and current accounts – were concentrated, meaning they were dominated by a small number of large companies.
Only the car industry and the mortgage market were genuinely open, with no single operator in the former sector controlling more than 15 per cent of the market. Meanwhile, in telephone landlines, BT has about 80 per cent.”
Adding that: “Like the famous line about empire, Britain appears to be acquiring oligopolies in a fit of absence of mind. It is a dangerous inattention”
https://www.ft.com/content/10fc1cae-b183-11e7-a398-73d59db9e399
Now this was just plain bizarre: “if you remove limited liability you vastly increase the hurdle for small businesses to start.”
Murphy was talking about corporate limited liability and moral hazard. Small businesses aren’t corporate Ed. God only knows what you were on about there. Small businesses don’t have limited liability.
“Most corporate DC pensions are invested in third party funds”
Yep, sure they are (evidence?). So what happened at Carillion?
“How are you defining a stakeholder, other than shareholders? ”
From the 1960’s onward there has been an entire literature on this subject:
http://www.businessdictionary.com/definition/stakeholder-theory.html
https://en.wikipedia.org/wiki/Stakeholder_analysis
Why do you bother?
Thanks
I couldn’t have put it better myself, Richard, although I have tried!
http://www.futureeconomics.org/2018/01/the-production-of-money-how-to-break-the-power-of-bankers-by-ann-pettifor/
I took a look
Good luck with that David
“Capitalism as we know it is dead, but the role of business with private ownership is not.”
If businesses with private ownership employ staff and generate profits, these profits are liable to be generated by exploiting the employees’ labour. In which case capitalism as we know it will not be dead at all, unless of course the employees command a majority on the board. In that case they will be at liberty to require themselves to be paid “the full fruits of their labour”. In which case capitalism will indeed be doomed, and justly so, because it cannot function without generating private profit from exploiting the workers’ labour.
Is there a return to enterprise?
If so that is profit?
Is it distinct from the return to capital (whic is interest)
Or property (which is rents).
If it is then who is the return to labour to but to the person undertaking the enterprise?
If that is a special form of labour, so be it.
But it need not be exploitative
Profit, interest and rent have to be differentiated, I think
They very rarely are