Democracy and Legitimacy

I have been two weeks off line, as I moved home and took stock of my personal assets and liabilities. I come back to active intellectual life on the day when it is confirmed that a Chinese investment operation has bought Weetabix. The assets involved in that purchase are a modern factory in Leicestershire, Middle England, and a product range based on what [as a four-year-old] I called 'little haystacks': these are woven parcels of cereal which are usually taken with milk as a breakfast food in lieu of bread, which used to be the staple morning diet of the labouring classes. I cannot conceive the Chinese replacing their traditional regional breakfasts with this bizarre concept of 'cereals', so I do not think that the investor wants to own the brand for introduction to China.  This business yields a steady return with is largely recession-proof. Thus owning it is an access point for cash income not dissimilar to public utilities in Britain that are now mostly owned by foreign investors [a recent example being the purchase of 8% of Thames Water's holding company by another Chinese investor]. Successive British governments have destroyed industry and disposed of utilities to owners who understand the value of access to captive consumers. Thus the relatively simple story of Weetabix is a perfect example of how sensible foreigners strip the cupboard bare of available assets while the British state ignores material realities.

The state is run by politicians, who play stupid electoral games which enable them to ignore the horrible truth. As two-thirds of the British electorate was determining not to vote in local authority elections [held yesterday] the Members of the House of Commons were treated to an almost-Hitlerian outburst of apparently-genuine rage by the Prime Minister, who had been summoned to defend his personal integrity in the House when he had wanted to engage in pompous speechifying in the run-up to the election. His gratuitous rudeness to the 'national treasure', eighty-year-old Denis Skinner, will be remembered long after his daft talk of a 'big society' is forgotten.

No material difference will be made to any of the dozens of boroughs that will pass from the 'control' of other parties [or no party] to Labour 'control': a pompous ex-dissident who became a Labour minister has declared that these result vindicate the leadership of the stumbling Ed Milliband; as if this will affect any substantial policy in the country. And the Prime Minister will not suddenly reconnect with the grass-roots of his party who are totally disillusioned with his coalition policies: if the coalition unravels, he will loose office in the subsequent election; not because Labour carries any confidence but by default in a low poll where many millions will simple vote against the people they despise the most.

In the upcoming French presidential election, there seem to be sharp differences between the candidates: but this is a sham. French policy is dominated by European treaties and by arrangements made under those treaties that cannot be abrogated without disastrous consequences. Immigration is a major issue; but France now has such large alien, alienated 'communities' that they can threaten such severe social and economic destruction that they have an effective veto on policies pursued by any government. The idea that an election victory somehow empowers the winner is absurd, while the participants are constrained by constitutional rules and by the courts.

The model of democracy that is derived from the British Civil War and the French Revolution is past the point of bankruptcy: that is the stark truth to which this blog returns.

Boxed Patents

One of the good things that the Gordon Brown government did in the UK was partially to recognise that the economy has no hope of getting out of the hole that the political class has made for it unless the state recognises and rewards the creation of 'intellectual property'. Unsurprisingly, they did not understand the simple basic nature of  ik, as explained in my PPE [see link from this site], but this was a step on the road to rational management of the most important of national resources.

Under the coalition the grasping hand of the Treasury has been allowed to influence the deign of the concept for protecting British intellectual property, and consequently the government announced their intention to create a 'patent box' . Under this category a company [or possibly a high-net-worth individual] would be able to secure a patent, and to implement it into production, and get tax exemptions and reductions at various stages in the process. The 2010 Coalition government declared that they would implement the plan and a few companies, including Glaxo, entered discussion with the government about using the process. Glaxo planned to extend their UK factories under a Box agreement specifically to exploit a new product for which it was in process of securing a patent. The company announced its decision to invest in the UK on Budget Day 2012 [as featured in the previous Post here], to accommodate the squalid spin doctoring of sad politicians who would seek any propaganda point in the absence of evidence of real economic progress.  In this case, there was real potential in the investment. But [as already noted] the Patent Box is not the only inducement to locate industrial plant in the UK. British labour is becoming relatively cheaper as Chinese workers begin to enjoy consumerism with larger wages, and the tax system in the UK is becoming a little less oppressive. UK and EU Labour law and the omnipresent intrusion of inept and officious 'health and safety' regulations are still deterrents to investment, especially in physical production. But steps are being taken in the right direction, albeit they are hesitant and indecisive.

The bigger issue that is disclosed by the Glaxo announcement is that safeguarding intellectual property is becoming the most important consideration of companies in the global economy: and while the US government has become obsessive about China's 'theft' of such property the EU and European governments have still not grasped the heart of this issue. The leading British ministry, BIS, has focussed on reducing the period between the filing of a patent application and the manufacture of the product; which is a good thing if it can be achieved while maintaining the secret.

But the entire positive story is yet to be told: that Brits, including Glaxo research teams, are unusually fecund in producing both patentable inventions and marketable concepts. The world's leading advertising agents are British, and several of the world's best-known and highest-regarded brands are British: yet a major feature of British business is the sad fact that while ideas continue to bubble up, and patents are registered, there is a dearth of funding to develop products fast enough. Firms  are sold in their infancy, usually to foreign owners who then reap the rewards for developing the product and its marketplace. To concentrate exclusively on implementing patents is to miss the point.

New patents can improve existing brands, or can be the basis for a new creation of brand value. The establishment of a new brand partly depends on marketing, partly on spontaneous shifts in fashion, partly on consumers' incomes increasing enough to embrace the new  consumer experience in addition to the existing standard of living. Investment must be made, often over a series of years, in the development of brand reputation as well as in the technicalities of material manufacture. Investment in systems patents and copyrights, brand-names and trademarks, is needed: these aspects can be more costly than the technical patents that are embodied in a material patent. The total suite of investments is needed to build a brand; otherwise patent-owners who are discouraged from developing their firms and their brands by lack of investments will still be tempted to cash-in their assets and sell the firm and its intellectual property to be developed in foreign hands. The British government needs to move a lot further to meet the need!

National versus Local Pay Rates: Part Two

More millions of migrant Chinese are moving into the cities, where they accept low-paid jobs in terms of the average incomes of residents of that city. Migrants leave behind their homes, their parents, often their partner and their child; because they see no chance of entering the consumer economy in their native villages. In the city the 'lucky' migrants get jobs requiring seventy hours a week attendance, often in repetitive but meticulous tasks. They get low wages - even by the standards of that city - and they sleep in cramped and unhealthy conditions The gain that comes from such pain is that they are able to buy some desired consumer goods: and on their rare, brief visits home they can take commodities - including rare western-branded [possibly fake] items which would never otherwise break in to the constricted economy of their home villages. Many migrants are inspired by the hope of being able to bring enough money back to the village to rebuild the house, and take on more farmland or start a business there: some achieve that, but the majority come to accept the alternative aspiration to bring their partners into the city  - or to marry somebody met in the city - and aspire to own an apartment. Some learn business acumen and acquire the requisite technical ability to rise within the company that has employed them, others can branch out into their own businesses and have the chance to build fortunes; though the 'shadow banks' that are the only source of capital available to many such people to accelerate the growth of the business often bleed them dry or capture their businesses.

The geographical mobility of people within the country and the openness of the economy to entrepreneurial success that characterise contemporary China were strongly approved in Britain from the days of Dick Whittington [Mayor of London in 1397, and of London and Calais simultaneously in 1407] to the nineteen fifties. The proto-statisticians Petty and Graunt [1668] demonstrated [in their Observations of the Bills of Mortality] that many more people died than were born in London, inferring that the dynamic growth of the City as the hub of trade for the whole country depended absolutely on immigration. Many of the migrants lived short and deprived lives ending in an early death: but always some prospered hugely and their stories attracted others to try their luck. Social mobility increased with rising prosperity and in the eighteenth century exceptional individuals were able to implement inventions and create world-beating businesses: great names from the era include Wedgwood, Boulton and Arkwright who built their businesses well away from London [though they marketed their products through London and relied on the system of patents that was administered from the capital]. The nineteenth century was the great era of innovative industrial capitalism, but even now exceptional individuals like Sir James Dyson demonstrate that the route is still open to high-quality graduates: though it is now much constricted by the dominant alliance of rotten politics and degenerate education.

When was the turning-point? When and how was the long-prevalent dynamic spirit extracted from the British economy? It seems to me that the narrow defeat of the radically reformist Labour government in 1951 foreshadowed the catastrophic events by which - over the next half century - the British economic and social systems were set in reverse.

The king who had supported Churchill and triumphed over huge personal stresses died early in 1952 and he was succeeded by his young daughter, Princess Elizabeth. The new Queen's reign began with the anomalous near-octogenarian Winston Churchill as Prime Minister. He was a deeply ambiguous character who had been an enthusiastic member of the most radical government that the country had ever had, between 1906 and 1914, when the Liberal majority in the House of Commons [with lukewarm support from the few Labour MPs] introduced pensions for citizens over seventy, unemployment insurance and medical  insurance for the working man, and the widespread grant of cash benefits - rather than automatic committal to the workhouse - for the [economically] 'impotent poor'. Despite this radicalism, Churchill as Home Secretary was blamed for soldiers shooting striking miners in South Wales, earning the lifelong enmity of a core cohort of trade unionists and contributing to their determination to create their own political party - Labour - on the assumption that the Liberals were not to be trusted. Labour precipitated the dramatic decline of the Liberals' electoral support after the First World War, bolstered by the radicalism of many women who had been given votes for the first time. Churchill accepted Stanley Baldwin's invitation to change sides in the Commons and became the Chancellor of the Exchequer. The subsequent collapse of Baldwin's government in 1929 put Churchill out of office, as a member of the Conservative party where he was little trusted and not widely liked. In exceptional circumstances he emerged as Prime Minister of a coalition government in 1940, and that government laid the plans for a post-war welfare state to which he declared his own adherence. Labour won the 1945 election by a landslide, notwithstanding the personal popularity of Churchill who had been appointed officially as Conservative Party leader, and the Labour government combined the introduction of the welfare state with a major programme of nationalisation of basic industries and utilities, that the Conservatives vigorously opposed.

Churchill's 1951 government inherited the nationalised industries and the new National Health Service, and took on the military burdens of the Korean War and other overseas campaigns to arrest the spread of communism. Finances were very tight; wartime rationing and price control over many consumer goods was retained. The huge loan that had been provided by the USA to help postwar reconstruction had largely been dissipated to alleviate austerity: imports of American films, stockings and cosmetics soaked up dollars that had been intended for  machine tools and farming machinery. A balance of payments deficit continued and it was clear to Conservative political strategists that they could only win elections by offering people a rising standard of consumption of branded goods, without rationing, in combination with the welfare state. This huge support for consumption rather than production would obviously make the negative balance of trade worse. Churchill was followed by his long-standing 'heir apparent' Anthony Eden who collapsed under the stress of the Americans' repudiation of Britain's 'intervention' in Egypt - the Suez Campaign. The next Conservative leader was at the extreme 'left' of the party, a millionaire supporter of the welfare state, Harold Macmillan. He won the 1959 election by promising to develop both the Health Service and the rise of consumerism: and he could point to his track record as Housing Minister. Wartime bombing and demographic change had meant that by 1950 the country needed at least a couple of million new homes to provide the population with what every family regarded as a basic necessity, and in the early 'fifties Macmillan had led a ministerial team that pushed through the tangle of planning laws and supply controls to orchestrate the amazing achievement of building more than 300,000 homes each year [something the present government dare not even aspire to].

Macmillan's election slogan - You've never had it so good! - both reflected the mood of the times and was simply true: most voters had never previously had so much social security, health support and access to consumer experiences: television, record players, fitted carpets, bathrooms, constant hot water [and, in more households each year, central heating], washing machines, cars and even holidays in Spain. The concept was embedded into electoral politics, that the Labour Party could only beat the Conservatives if they could convince voters that they would enable people to retain their gains in standard of living and, in addition, that a Labour government would provide improving health, social and educational services. By 1960 it was clear that the policy of encouraging consumption [especially as a growing minority of the population were maintained n benefits that were set at levels that allowed a 'reasonable' living standard] was causing government spending to increase; in some years at the cost of increasing the national debt. The balance of payments steadily got worse. The Labour leader, Harold Wilson, captured the principle that the economy had to grow quite spectacularly if the delusional consumerist state was to be maintained: how was the necessary productivity boost to be achieved? His answer was to enlist pure and applied science: wealth was to be generated by the 'white heat of technology'. On this slogan, with the electors displaying widespread boredom with the Conservative government, Labour narrowly won the 1964 election. A larger majority was obtained in  a snap election two years later, even though it was becoming apparent that technology was not a magic force: so the government turned to the old socialist idea of comprehensive economic planning.

By the late 'sixties the policy of plenty combined with worsening balance of payments was producing rising prices. The trade unions began a round of strikes, that made nonsense of the targets that had been set in the National Economic Plan. The government party depended on the financial support of the unions, whose leaders were increasingly at odds with the government. The government tried to control the situation by legislation and became factionalised: in 1970 they lost power to a superficially renovated Conservative party which quickly lost control of labour relations as inflation increased: then inflation was stimulated further by a huge increase in the global price of oil.

By 1970 it was inescapable that the way in which the two 'parties of government' competed by offering the population better and better living standards without requiring commensurate increases in real national earnings was undermining the economy. Rising inflation of prices was being met by increasing demands for more wages, in which the trades unions were usually successful. The declining Wilson government divided into acrimonious factions in the late 'sixties, in response to a paper - In Place of Strife - adopted by the Secretary of State for employment matters, Barbara Castle, which would have subjected pay demands to government oversight and to the possibility of a veto. It was thus a deeply divided Labour Party that lost the election of 1970; ceding power to Edward Heath's supposedly 'technocratic' Conservatives, who had no satisfactory understanding of the fundamental problem that had been embedded on the economy. The Tories quickly superseded Labour as 'the worst-ever government': and the sad saga of the 'seventies will from the next episode in this series of blogs on National Versus Local Pay Rates.

China, Europe and Quons

Over the past month Chinese ministers and bankers have been quoted a lot in the European press as they have used increasingly uninhibited terminology in which to decline the privilege of putting billions of their dollars into various bail-out funds for the euro. It has been 'understood' that Chinese see many Europeans as workshy, many European products as imperfect or outdated, and European standards of living as excessive when set against national productivity and per capita output.

Economists, bankers and politicians have reportedly bought-in to the 'idea' that Britain and other laggard countries in the EU should increase their exports to China. More nuanced thinkers among these elites have particularised that the exports should be of 'manufactures': perhaps of the kinds that Germany's successful sales to China have comprised for the past few decades. The primitivism of that thinking is pathetic to behold. China has been the global powerhouse in manufacturing for two decades: it has no need to import those commodities that it has been so successful in exporting. On the basis of that success China has grown thousands of billionaires and hundreds of millions of 'middle class' consumers. These people don't think in terms of consuming 'manufactures': they want brands. 


Economists' models of markets have never coped with the concept of brands: with the palpable fact that capable buyers do not haggle about prices for those consumer experiences that are most highly desired. The dogmatic theoretical framework that was developed in Europe [and adopted in the USA] between 1863 and 1875 - and is now seen by the Chinese as the flawed and failing 'European business model' - is a huge inhibition on the post-industrial economies in trying to plot a course for the future. Although they do not yet know the term, the Chinese know that they want to buy quons: more quons per head per year as their purchasing power increases. To find out what quons are, and to see that they are the key to Europe's recovery, read Personal Political Economy: accessible by the link from this blog..

Democracy, Debt and Doubt

As the G20 Finance Ministers and Central Bank Governors meet in an autumnal Paris they are all acutely aware of the historical context of the meeting. They have all been briefed on what happened to the global economy in the years from 1929 to 1936, and what were the particular effects of the Great Depression on their own countries.

 The Chinese have studied how the impact of the depression on a country that had notionally been through a democratic revolution, but which had seen only minimal structural change in the economy, was rendered even weaker than before and more susceptible to the imperialist ambitions of Japan. Those ambitions led to one of the most brutal colonialist wars in modern history, and left the unoccupied areas of the vast country prey to warlords. The Japanese withdrawal was followed by a partial Soviet occupation [of Manchuria] and a no-holds-barred civil war in whose aftermath the communists inherited a prostrate economy and a disintegrating civil society; which the new regime began to restructure on doctrinaire lines that represented a 'historial discontinuity'.

Japanese and Russian representatives in Paris knew that the debilitating effect of the depression on the the old industrial countries had left those former 'international policemen' unable to intervene in faraway countries, which were left to pursue whatever policies were selected by their non-representative regimes: Japan decided upon reckless imperial expansion and intensified political oppression at home; while the then-Soviet Union stepped up the incompetent processes of collectivisation of agriculture and overambitious industrial expansion combined with oppression on a gargantuan scale.which left the country in an advanced state of debilitation ahead of the German invasion of 1941.

Germany, France and Italy recall all too clearly that the depression was seen as the context for the consolidation of Mussolini's power in Italy and Hitler's rise to power in Germany. The restoration of national morale in Italy and Germany under the Fascists fostered the hubris that led them into aggressive war; while the absence of such a fillip to French society and the French economy helped to ensure the collapse of France in 1940 and the willing acceptance of their occupiers and of their puppet government by most of the French.

The English-speaking countries all recognise the Great Depression as perhaps the most decisive step in the shift of global economic  pre-eminence from Britain to the USA, which both suffered serious social problems as their economies plunged into the depression. Canada, Australia and New Zealand were forced to increase their autonomy from the 'mother country' during the 'thirties, in the worst of economic circumstances: only to find themselves in 1939 responding to the call to support the British war effort - which they did unstintingly, though  their role in the Second World War proved to be a major step in their maturation as sovereign states. The depression also signalled the coming of the end of the British Raj in India: although the imperial power was able to mobilise the sub-continent for the war, despite the fact that the unsustainability of the regime in the postwar world was evident.

Every other participant in the present Group of 20 'leading nations' has memories of the trauma that affected them in direct consequence of the Great Depression: so they all share a determination to take any sensible steps to prevent any re-run of that cataclysm. But they lack a clear and radical economic perspective from which they could possibly devise any 'magic bullet' solution. The nature of the economic crisis is becoming clearer: its potential political fallout is recognised. But the search for a solution lies in economic policy, and the men and women who have this formidable responsibility are looking for guidance into a soup of discredited economic theory, imperfect statistics and glib back-of-a-fag-packet propositions. They will not find any answer to their dilemma in the resources that are currently available to them..