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Wednesday, 15 March 2017

The Ongoing Tragedy of the British Economy

Set aside the claim that the British economy is 'growing' healthily. 'Growth' simply shows the amount by which transactions in the economy increase, period by period. So as we borrow more to buy more imports and expand the balance-of-payments deficit, 'strong growth' is asserted. As we borrow more to pay more for the same old housing stock, 'growth' is recorded. As more of the productive and intellectual capital of the country is sold to foreigners, 'growth' is taking place. If Mr Osborne and Mr Hammond thinks that is a good thing [as they appear to do] this shows the profundity of their delusion.

Before Economics was invented to display the cleverness of the pseudo-scientific assertions that professors made, Political Economy taught that the success of an economy depended on the productivity and the productiveness of its activities. Productivity is the efficiency with which each pound of wages paid to the workforce is expressed in the prices at which the output can be sold: if the return per pound of wages expended is increasing, the surplus can be used to in part  to pay the employees higher wages and the investors higher dividends, and principally to expand production by paying for investment in new plant and new technologies. Productiveness is expressed by the proportion of total output that is invested in new productive potential each year.

In contemporary Britain, it is notorious that productivity is low, and there is little or no positive change year on year. Productiveness [as the term was understood in 1870] is not even in the vocabulary of contemporary economic commentators. They have no will to illustrate the desperately low level of productiveness that characterises the Osborne-Hammond economy. Where some large firms do still generate profits, by maintaining reasonable productivity, there is a tendency to pay higher dividends, buy back shares, and hoard reserves rather than to invest in new plant, new technology or areas of innovative activity. Many other firms exist in a 'zombie' state, where they owe large sums to banks that will never be repaid; but which can be held on banks' books as assets: such firms are in stasis: deterred from investing by the banks that have already lost money on them. Small firms whose owners have new ideas find it hard to raise capital for investment without putting at risk the owners' control of their intellectual property; and in all too many cases the banks demand that the owners' personal assets, including their homes, be put up as collateral for loans to the companies. The threat of losing one's home is a powerful incentive to look favourably on an offer to buy the business for a lot less than it is really worth. The buyer of such a business is likely to be an alien company.

Today, March 15 2017, three news stories emphasise the pathetic state of the real economy. The Australian pupil of the 'vampire squid' has sold its residual 26% holding of shares in Thames Water - to fellow aliens - after owning them for a decade during which the company has increased its borrowing to a total of £10.3 billion while it paid its shareholders £1,16 billion in dividends. Almost all that £1,16 billion went abroad. Nevertheless, the water company's productiveness was significant: under the direction of the regulator, OFWAT, they had to invest £11 billion: though some of this was funded by increased borrowing. There was no spontaneity in the decisions to invest in infrastructure: it was the inescapable cost [met by Thames' customers via their water bills] for the  company's license to operate.

More depressing is the news that the proposed Moorside nuclear power station in Cumbria is threatened by the fact that Toshiba, the Japanese conglomerate, may not be able to deliver on time [if at all] the inputs that make it 60% responsible for fulfillment of the project. Following a disastrous corporate merger in the USA, Toshiba is contemplating selling - or even closing - Westinghouse, the company that was to build the reactors that are at the core of the design. Westinghouse used to be partially  owned by the British state, and was essential to Britain becoming the global pioneer of peaceful nuclear activity. The Thatcher gang sold the UK interest, as part of their clever plan to ensure that the UK lost its capability in the field. Now the reduced residue of Westinghouse may not survive to contribute to the desperate pseudo-strategy that has been cobbled together supposedly to meet the British people's need for energy in the mid-twenty-first century. The mess that is power supply and pricing for power becomes more turgid by the week, and the government's inability to comprehend the immensity of the problem means that solutions seem to be generations away.

Slightly more hopeful is the suggestion by Paul Polman, the chief executive of Unilever, that the takeover code should be reviewed. His company recently sloughed off an opportunistic takeover proposal from the corporate scavenger that had desiccated Cadbury just a few years ago, Kraft-Heinz. Unilever is an Anglo-Dutch consortium with dual listings of its shares, a huge range of familiar brands and a century and a half of prudent, long-term management that has looked both to achieve  productivity and productiveness. It remains open to opportunistic and exploitative takeover, given the openness of both Netherlandish and British company law to competitive intervention in share markets. It is in the interests of Unilever and of the British and Dutch states to make it more likely that this hugely valuable company should remain robustly independent.  

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